SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 30, 1996  Commission File Number: 33-27611-NY
                          -----------------                          -----------

                        MAIN STREET AND MAIN INCORPORATED
  -----------------------------------------------------------------------------
             (Exact Name of registrant as specified in its charter)

                DELAWARE                                     11-294-8370        
----------------------------------------          ------------------------------
     (State or other jurisdiction of                     (I.R.S. Employer       
     incorporation or organization)                      Identification No.)    
                                                                         
         5050 NORTH 40TH STREET                                 85018           
       SUITE 200, PHOENIX, ARIZONA                ------------------------------
----------------------------------------                      (Zip Code)        
(Address of principal executive offices)

                                 (602) 852-9000
               --------------------------------------------------
               Registrant's telephone number, including area code

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.001 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]

At March 31, 1997, there were  outstanding  9,968,491 shares of the registrant's
Common Stock,  $.001 par value.  The aggregate market value of Common Stock held
by  nonaffiliates  of the registrant based on the sale trade price of the common
stock as reported by the National  Association  of Securities  Dealers,  Inc. on
March 31, 1997, was $12,928,125. For purposes of this computation, all officers,
directors,  and  5%  beneficial  owners  of  the  registrant  are  deemed  to be
affiliates.  Such  determination  should  not be deemed an  admission  that such
officers,  directors,  or 5% beneficial  owners are, in fact,  affiliates of the
registrant.

Documents incorporated by reference: None
<PAGE>
                        MAIN STREET AND MAIN INCORPORATED
                           ANNUAL REPORT ON FORM 10-K
                       FISCAL YEAR ENDED DECEMBER 30, 1996
                                TABLE OF CONTENTS
PART I                                                                     Page
  ITEM 1.        BUSINESS                                                     1
  ITEM 2.        PROPERTIES                                                  15
  ITEM 3.        LEGAL PROCEEDINGS                                           15
  ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS         15

PART II
  ITEM 5.        MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED       16
                    STOCKHOLDER MATTERS
  ITEM 6.        SELECTED CONSOLIDATED FINANCIAL DATA                        17
  ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL           18
                    CONDITION AND RESULTS OF OPERATIONS
  ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                 21
  ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON            21
                    ACCOUNTING AND FINANCIAL DISCLOSURE

PART III
  ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT          22
  ITEM 11.       EXECUTIVE COMPENSATION                                      24
  ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND         31
                    MANAGEMENT
  ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS              32

PART IV
  ITEM 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON      33
                    FORM 8-K
SIGNATURES                                                                   37
                                       i
<PAGE>
                                     PART I

ITEM 1. BUSINESS

                                  Introduction

    The  Company  is  the  world's   largest   franchisee  of  T.G.I.   Friday's
restaurants,  currently owning 38 and managing eight T.G.I. Friday's restaurants
and  possessing   exclusive  rights  to  develop   additional  T.G.I.   Friday's
restaurants  in all or parts of eight  western  and  midwestern  states.  T.G.I.
Friday's restaurants are full-service,  casual dining establishments featuring a
wide  selection  of freshly  prepared,  popular  foods and  beverages  served by
well-trained,  friendly employees in relaxed settings. The Company's restaurants
generated  an average of $2.9  million of annual  revenue  during  fiscal  1996.
Alcoholic  beverage sales currently account for approximately  23.6% of revenue.
The cost of a typical entree at the Company's  restaurants currently ranges from
$5.50 to $8.00 for lunch and $8.50 to $12.00 for dinner.

    The Company  develops  and operates  its  restaurants  pursuant to specified
standards established by TGI Friday's Inc. The Company believes that the uniform
development  and  operating  standards  of  TGI  Friday's  Inc.  facilitate  the
efficiency  of the  Company's  restaurants  and afford the  Company  significant
benefits,  including the brand-name  recognition  and goodwill  associated  with
T.G.I. Friday's restaurants.  T.G.I. Friday's restaurants have been in operation
for more  than 30  years.  As of March  31,  1997,  TGI  Friday's  Inc.  had 144
franchisor-operated and 263 franchised restaurants operating worldwide.  System-
wide sales exceeded $1.0 billion in 1996.

    Eighteen of the Company's  current  restaurants  are located in  California,
five in Arizona,  four in Washington,  three in Nevada,  two in each of Colorado
and Oregon, and one in each of Kansas,  Missouri,  Nebraska, and New Mexico. The
Company also manages five T.G.I. Friday's restaurants in California and three in
Louisiana.  Of the 38 currently owned  restaurants,  the Company acquired 24 and
developed 14. The Company owns the exclusive rights to develop additional T.G.I.
Friday's restaurants in territories  encompassing most of the states of Arizona,
Nevada, and New Mexico and the San Francisco,  California,  Kansas City, Kansas,
Kansas City, Missouri,  Omaha,  Nebraska, and El Paso, Texas metropolitan areas.
The Company also has the exclusive  right,  together with TGI Friday's  Inc., to
develop additional T.G.I.  Friday's restaurants in the Los Angeles and San Diego
metropolitan areas. The Company's development  agreements with TGI Friday's Inc.
require the Company to open two new T.G.I.  Friday's  restaurants  by the end of
1997,  six new  restaurants in each of 1998 and 1999,  seven new  restaurants in
each of 2000 and 2001, and eight new  restaurants in 2002. Of the 36 restaurants
to be developed,  25 are to be in  California,  six in Arizona,  Nevada,  or New
Mexico,  and five in Kansas  City,  Kansas,  Kansas  City,  Missouri,  or Omaha,
Nebraska.  The Company  expects that cash flow from  operations,  together  with
financing  commitments,  will be  sufficient  to develop  the  additional  eight
restaurants that the development  agreements  require the Company to open by the
end  of  1998.   See  "Special   Considerations--Requirements   of   Development
Agreements."

    The  Company's  business has  increased  from the ownership and operation of
four restaurants, which produced revenue of less than $7 million in fiscal 1990,
to the ownership and operation of 38 restaurants  with revenue of more than $122
million in fiscal 1996.  The Company's  operating  results,  however,  have been
adversely  affected  during  the period by a shortage  of  capital,  substantial
indebtedness  and  debt  service  requirements,   and  the  pursuit  of  various
non-restaurant  operations,   including  dairy,  frozen-food  distribution,  and
amusement  businesses.  As a result,  the Company  decided to concentrate on its
restaurant business and disposed of or otherwise discontinued its non-restaurant
operations.

    The Company's  strategy is to (i) capitalize on the  brand-name  recognition
and  goodwill  associated  with  T.G.I.  Friday's  restaurants;  (ii) expand the
Company's  restaurant  operations  through the development of additional  T.G.I.
Friday's  restaurants in its existing  development  territories  and through the
development  of new  restaurant  concepts  and the  acquisition  of  restaurants
operating under other restaurant concepts;  (iii) dispose of restaurants that do
not meet the Company's  profit criteria or are located in specific  markets that
the Company does not believe  provide  sufficient  opportunities  for  continued
expansion;  and (iv)  increase its  profitability  by  continuing to enhance the
dining experience of its guests and improving operational efficiency.
                                        1
<PAGE>
    The  Company  commenced  its  restaurant  operations  in May  1990  with the
acquisition  of certain  assets from TGI Friday's  Inc. for  approximately  $2.6
million  (the "1990  Acquisition").  The  assets  acquired  included  all of the
interest of TGI Friday's  Inc. in the leased  premises,  franchise  rights,  and
operating  assets  relating to three  existing  T.G.I.  Friday's  restaurants in
Arizona and one existing  T.G.I.  Friday's  restaurant  in Nevada as well as the
exclusive  right  to  develop   additional   T.G.I.   Friday's   restaurants  in
substantially all of Arizona,  Nevada,  and New Mexico and in the El Paso, Texas
metropolitan area (the "Southwest Territory").

    In  June  1991,  the  Company   acquired  from  an  independent   party  for
approximately  $1.7  million  certain  assets  relating  to  the  ownership  and
development of T.G.I.  Friday's  restaurants in Oregon and Washington (the "1991
Acquisition").  The assets  included all of the seller's  interest in the leased
premises, franchise rights, and operating assets relating to two existing T.G.I.
Friday's  restaurants in Oregon and Washington as well as the exclusive right to
develop  additional  T.G.I.  Friday's  restaurants in Oregon and Washington (the
"Northwest Territory").

    In  June  1993,  the  Company   acquired  from  an  independent   party  for
approximately  $7.6  million (the "June 1993  Acquisition")  all of the seller's
interest in the leased premises, franchise rights, and operating assets relating
to four existing T.G.I. Friday's restaurants in Colorado,  Kansas, Missouri, and
Nebraska as well as the exclusive right to develop  additional  T.G.I.  Friday's
restaurants in Colorado (the "Colorado  Territory") and the Kansas City, Kansas,
Kansas City,  Missouri,  and Omaha,  Nebraska  metropolitan  areas (the "Midwest
Territory").

    In December 1993, the Company  acquired all 20 T.G.I.  Friday's  restaurants
owned by TGI Friday's  Inc. in the state of  California as well as the exclusive
right  to  develop  additional  T.G.I.  Friday's  restaurants  in all or part of
California,  Idaho, Montana, and Wyoming (the "Western Territory"). The purchase
price for the acquisition (the "December 1993 Acquisition"), taking into account
a March 31, 1994 refinancing, was approximately $43.6 million.

    In December  1993,  as part of a strategic  decision to  concentrate  on its
restaurant  business,  the Company  sold the stock of Main St. Food  Company and
Main St. Food  Distribution  Inc.,  which  owned and  operated  Carnation  Dairy
Arizona ("Carnation Dairy") and Dairy Maid Foods, Inc. ("Dairy Maid").

    In December 1996, the Company entered into an agreement with CNL Growth Fund
Advisors, Inc. ("CNL") to manage three restaurants owned by CNL in Louisiana.

    In  January  1997,  the  Company  sold  five of its  restaurants  in the San
Francisco  metropolitan area to CNL for $10.6 million. The Company manages these
restaurants for CNL for a management fee.

    In April 1997,  the Company and TGI Friday's  Inc.  revised the  development
agreements  between them. As a result of the revision,  the  obligations  of the
Company to develop  new T.G.I.  Friday's  restaurants  through the year 2002 has
been reduced from 44 to 36; the Company released its exclusive rights to develop
T.G.I. Friday's restaurants in Colorado, Idaho, Montana, Oregon, Washington, and
Wyoming;  and the Company and TGI Friday's Inc. will each develop restaurants in
the San Diego and Los Angeles, metropolitan areas.

    In April 1997,  the Company  entered into a joint  venture  with  Restaurant
Development  Group,  Inc., ("the RDG Parties") for the development and operation
of Redfish restaurants ("Redfish  Restaurants"),  a cajun seafood restaurant and
bar concept developed by the RDG Parties. The Company and the RDG Parties formed
Redfish America,  a jointly owned limited  liability company and entered into an
agreement pursuant to which the RDG Parties contributed to Redfish America their
ownership  of the Chicago  Redfish  Restaurant,  their  leasehold  rights to the
Wheaton,  Illinois  premises  and the  Cincinnati,  Ohio  premises  that will be
developed  into a Redfish  Restaurants,  and the rights to the Redfish  name and
concept and the Company  contributed  $500,000 and its  leasehold  rights to the
Denver premises that will be developed into a Redfish  Restaurant.  In addition,
the Company  agreed to lend  Redfish  America up to  $575,000  to  complete  the
development of the Wheaton, Cincinnati, and Denver Redfish Restaurants. RDG will
manage the Redfish Restaurants.

    The Company was  incorporated  in December 1988.  The Company  maintains its
principal  executive  offices  at 5050 North 40th  Street,  Suite 200,  Phoenix,
Arizona  85018,  and its  telephone  number is (602)  852-9000.  As used in this
Report,  the term "Company" refers to Main Street and Main  Incorporated and its
subsidiaries.
                                        2
<PAGE>
                                    Business

General

    The  Company  is  the  world's   largest   franchisee  of  T.G.I.   Friday's
restaurants, currently owning 38 and operating eight T.G.I. Friday's restaurants
and  possessing  exclusive  rights to develop  additional  restaurants in all or
parts of eight  western and  midwestern  states.  The  Company  plans to develop
additional T.G.I. Friday's restaurants in its existing development  territories,
in which it is required to open 36 additional restaurants by December 31, 2002.

TGI Friday's Inc.

    TGI Friday's  Inc. is a wholly  owned  subsidiary  of the Carlson  Companies
Inc., a  diversified  company with  business  interests  in the  restaurant  and
hospitality industries.  The first T.G.I. Friday's restaurant was opened in 1965
in New York City.  TGI Friday's Inc. has conducted a business since 1972 that is
substantially similar to the business currently conducted by its franchisees. As
of March  31,  1997,  TGI  Friday's  Inc.  had 144  franchisor-operated  and 263
franchised  restaurants  operating  worldwide.  System-  wide sales  exceeded $1
billion in 1996.  TGI Friday's Inc.  currently  owns  approximately  2.6% of the
Company's outstanding Common Stock. Holders of the Company's Common Stock do not
have any financial  interest in TGI Friday's  Inc., and TGI Friday's Inc. has no
responsibility for the contents of this Report.

Concept

    T.G.I.  Friday's restaurants are full-service,  casual dining establishments
featuring a wide selection of high quality,  freshly  prepared popular foods and
beverages,  including a number of innovative  and  distinctive  menu items.  The
restaurants  feature quick,  efficient,  and friendly table service  designed to
minimize customer waiting time and facilitate table turnover.  Service personnel
are dressed in traditional  red-and-white  striped knit shirts and casual slacks
and are  encouraged  to  individualize  their outfits with  decorative  pins and
headwear,  which  enhance  the T.G.I.  Friday's  theme and  entertaining  dining
atmosphere.  The  Company's  restaurants  generally  are open  seven days a week
between the hours of approximately 11:00 a.m. and 1:00 a.m. The Company believes
that the design and operational  consistency of all T.G.I.  Friday's restaurants
enable the  Company  to  benefit  significantly  from the name  recognition  and
goodwill associated with T.G.I. Friday's restaurants.

Menu

    The Company  attempts to capitalize on the innovative and  distinctive  menu
items that have been an important attribute of T.G.I. Friday's restaurants.  The
menu  consists  of more  than 90  food  items,  including  appetizers  (such  as
mushrooms,   jalape|Atno   poppers,   buffalo   wings,   stuffed  potato  skins,
quesadillas,  Thai chicken,  fried onion rings, and pot stickers);  a variety of
soups,  salads,  sandwiches,   wrappers,   burgers,   pizzadillas,   and  pasta;
southwestern, oriental, and American specialty items; beef, seafood, and chicken
entrees;  a kids' menu;  and  desserts.  Beverages  include a full bar featuring
wines,  beers,  classic and specialty  cocktails and after dinner  drinks,  soft
drinks,  milk,  milk shakes,  malts,  hot chocolate,  coffee,  tea, frozen fruit
drinks  known  as  Friday's  Smoothies,(Trademark)  and  sparkling  fruit  juice
combinations known as Friday's Flings.

    Menu prices range from $6 to $14 for beef, chicken,  and seafood entrees; $6
to $9 for pizzasdillas, pasta, wrappers, and oriental and southwestern specialty
items; $5 to $8 for salads, sandwiches, and burgers; and $3 to $7 for appetizers
and  soups.  Restaurants  offer a  separate  children's  menu with food  entrees
ranging  from  $2  to  $3.  Alcoholic   beverage  sales  currently  account  for
approximately 23.6% of total revenue.

Restaurant Layout

    Each of the  Company's  restaurants  is  similar  in terms of  exterior  and
interior  design.  Each  restaurant  features a  distinctive  decor  accented by
red-and-white  striped  awnings,  brass  railings,  stained glass,  and eclectic
memorabilia. Each restaurant has interior dining areas and bar seating.
                                        3
<PAGE>
    Most  of  the  restaurants  are  located  in  free-standing  buildings.  The
restaurants  contain an average of 60 dining  tables,  seating an average of 210
guests, and a bar area seating an average of approximately 30 additional guests.

    The  restaurants  normally  contain  between  6,000 and 9,000 square feet of
space  and  average  approximately  7,500  square  feet.  Most of the  Company's
recently developed restaurants, however, contain 6,500 square feet of space.

Unit Economics

    The Company  estimates that its total cost of opening a new T.G.I.  Friday's
restaurant  currently ranges from $1,500,000 to $2,000,000,  exclusive of annual
operating  expenses and  assuming  that the  underlying  real estate is obtained
under a lease  arrangement.  These costs include  approximately  (i) $750,000 to
$1,250,000 for building,  improvements,  and permits, including liquor licenses,
(ii)  $550,000  for  furniture,  fixtures,  and  equipment,  (iii)  $150,000  in
pre-opening expenses,  including hiring expenses,  wages for managers and hourly
employees,  and supplies, and (iv) $50,000 for the initial franchise fee. Actual
costs,  however,  may vary  significantly  depending  upon a variety of factors,
including the site and size of the  restaurant  and conditions in the local real
estate and employment markets. The Company's  restaurants open for all of fiscal
1996 generated an average of approximately $2,911,000 in annual revenue.

Site Selection

    When  evaluating  whether  and  where  to seek  expansion  of the  Company's
restaurant operations, the Company analyzes a restaurant's profit potential. The
Company  considers  the location of a restaurant  to be one of the most critical
elements of the restaurant's long-term success. Accordingly, the Company expends
significant  time and effort in the  investigation  and  evaluation of potential
restaurant sites. In conducting the site selection process,  the Company obtains
and   examines   detailed   demographic    information   (such   as   population
characteristics,   density,   and  household  income  levels),   evaluates  site
characteristics  (such  as  visibility,   accessibility,  and  traffic  volume),
considers  the  restaurant's  proximity to demand  generators  (such as shopping
malls,  lodging,  and office  complexes),  and analyzes  potential  competition.
Senior corporate management evaluates and approves each restaurant site prior to
its  acquisition.  TGI Friday's Inc.  provides  site  selection  guidelines  and
criteria as well as site selection counseling and assistance. The selection of a
restaurant site by the Company requires the consent of TGI Friday's Inc.

Expansion of Operations

    Since 1990, the Company has acquired 30 existing T.G.I. Friday's restaurants
as well as the exclusive rights to develop restaurants in specified territories.
The acquisitions include 20 restaurants in California, three in Arizona, and one
in each of Colorado, Kansas, Missouri, Nebraska, Nevada, Oregon, and Washington.
The Company subsequently sold five of the restaurants it acquired in California.
The Company also has developed 13 new T.G.I. Friday's restaurants. These include
four in California,  three in Washington, two in each of Arizona and Nevada, and
one in each of Colorado and New Mexico.  See "Business -- Current  Restaurants."
In addition,  the Company has developed  one Friday's  Front Row Sports Grill in
Portland, Oregon. See "Business -- Other Activities."

    The  Company  plans  to  expand  its  restaurant   operations   through  the
development  of additional  restaurants  in the Company's  existing  development
territories,  which  consist  of all or part of  eight  western  and  midwestern
states.  The Company plans to open three  additional  restaurants  by the end of
1997 and to meet or exceed its development requirements thereafter.  The Company
has sites for new T.G.I.  Friday's  restaurants in each of Phoenix,  Arizona, El
Paso, Texas, and San Francisco, California. The Company currently is considering
other  sites for  additional  restaurants,  but has not  entered  into leases or
purchase  agreements for any such sites.  These  restaurants  will be owned by a
third party with the Company operating the restaurants and deriving a management
fee.

    As part of its long-term  plan, the Company may also evaluate  opportunities
for the acquisition of additional  T.G.I.  Friday's  restaurants and development
rights to additional  territories as well as the development and  acquisition of
new  restaurant  concepts.  The Company  evaluates such  opportunities  based on
numerous  factors,  including  location,  operating  history,  future potential,
acquisition  price, and the terms and availability of financing of such existing
restaurants or additional development rights.
                                        4
<PAGE>
    The timing and success of the Company's expansion will depend on a number of
factors. See "Business -- Special Considerations."

Current Restaurants

    The  following  table sets forth  certain  information  relating  to each of
restaurants owned or managed by the Company as of March 31, 1997.
<TABLE>
<CAPTION>
                                                                                    Owned or   
                                              Square    Seating    In Operation  Managed by the
    Location                                  Footage   Capacity      Since      Company Since 
-------------------------------------------- --------- ---------- -------------- -------------- 
<S>                                             <C>       <C>          <C>            <C>       
Acquired Restaurants (Owned)                 
  Phoenix, Arizona ........................    9,396     298          1985           1990 
  Mesa, Arizona ............................   9,396     298          1985           1990 
  Tucson, Arizona ..........................   7,798     290          1982           1990 
  Las Vegas, Nevada ........................   9,194     298          1982           1990 
  Tigard, Oregon ...........................   9,172     298          1979           1991 
  Kirkland, Washington .....................   8,488     298          1983           1991 
  Aurora, Colorado .........................   7,800     260          1983           1993 
  Kansas City, Missouri ....................   8,500     270          1983           1993 
  Omaha, Nebraska ..........................   6,750     220          1992           1993 
  Overland Park, Kansas ....................   6,000     220          1992           1993 
  San Diego, California ....................   8,002     234          1979           1993 
  Costa Mesa, California ...................   8,345     232          1980           1993 
  Woodland Hills, California ...............   8,358     283          1980           1993 
  Valencia, California .....................   6,500     232          1993           1993 
  Torrance, California .....................   8,923     237          1982           1993 
  La Jolla, California .....................   9,396     225          1984           1993 
  Palm Desert, California ..................   9,194     235          1983           1993 
  West Covina, California ..................   9,396     232          1984           1993 
  North Orange, California .................   9,194     213          1983           1993 
  Ontario, California ......................   5,700     190          1993           1993 
  Laguna Niguel, California ................   6,730     205          1990           1993 
  San Bernardino, California ...............   9,396     236          1986           1993 
  Brea, California .........................   6,500     195          1991           1993 
  Riverside, California ....................   6,500     172          1991           1993 
  
Developed Resaurants (Owned)
  Scottsdale, Arizona .....................    8,507     281          1991           1991
  Glendale, Arizona ........................   5,200     230          1993           1993
  Vancouver, Washington ....................   6,000     250          1993           1993
  Albuquerque, New Mexico ..................   5,975     270          1993           1993
  Tacoma, Washington .......................   5,975     260          1993           1993
  Seattle, Washington ......................   5,591     220          1994           1994
  Reno, Nevada .............................   6,500     263          1994           1994
  Oxnard, California .......................   6,500     252          1994           1994
  Carmel Mountain, California ..............   6,500     252          1995           1995
  Colorado Springs, Colorado ...............   6,500     263          1995           1995
  Rancho Santa Margarita, California  ......   6,548     252          1995           1995
  Portland, Oregon (Front Row Sports Grill)   13,080     320          1996           1996
  Cerritos, California .....................   6,250     223          1996           1996
  Las Vegas, Nevada ........................   6,700     251          1997           1997
  
Managed
  San Bruno, California ...................    8,345     200          1980           1993 
  San Francisco, California ................   4,748     161          1989           1993 
  San Jose, California .....................   8,002     228          1977           1993 
  San Mateo, California ....................   9,396     252          1984           1993 
  San Ramon, California ....................   6,000     182          1990           1993 
  Lafayette, Louisana ......................   6,800     277          1993           1996 
  Metarie, Louisiana .......................   9,000     290          1978           1996 
  New Orleans, Louisiana ...................   7,100     258          1994           1996 
</TABLE>
                                        5
<PAGE>
    The average size of the  Company's  acquired  restaurants  is  approximately
8,000  square  feet,  and the average  size of the  Company's  developed  T.G.I.
Friday's restaurants is approximately 6,300 square feet.

Restaurant Operations

The T.G.I. Friday's System

    T.G.I.  Friday's  restaurants  are  developed  and  operated  pursuant  to a
specified system (the "T.G.I.  Friday's  System" or the "System").  TGI Friday's
Inc. maintains detailed  standards,  specifications,  procedures,  and operating
policies  to  facilitate  the  success and  consistency  of all T.G.I.  Friday's
restaurants.  To ensure  that the  highest  degree of  quality  and  service  is
maintained,  each  franchisee of TGI Friday's Inc.  (including the Company) must
operate each T.G.I. Friday's restaurant in strict conformity with these methods,
standards, and specifications.

    The Company  believes the support as well as the standards,  specifications,
and operating  procedures  of TGI Friday's  Inc. are  important  elements in its
restaurant operations.  The Company's policy is to execute these specifications,
procedures,  and policies to the highest  level of the standards of TGI Friday's
Inc.

    The T.G.I.  Friday's  System  includes  distinctive  exterior  and  interior
design,  decor,  color  scheme,  and  furnishings;  uniform  specifications  and
procedures for operations; standardized menus featuring special recipes and menu
items;  procedures for inventory and  management  control;  formal  training and
assistance  programs;  and  advertising  and  promotional  programs.  The T.G.I.
Friday's  System  also  includes  requirements  for quality  and  uniformity  of
products  and  services  offered;  the  purchase or lease and use of  equipment,
fixtures,  furnishings, signs, inventory, recorded music, ingredients, and other
products and materials required for the development and operation of restaurants
conforming  with the  standards  and  specifications  of TGI Friday's  Inc. from
approved  suppliers;  and  standards  for  the  maintenance,   improvement,  and
modernization of restaurants,  equipment,  furnishings,  and decor. TGI Friday's
Inc. has committed to its franchisees to continue to improve and further develop
the T.G.I. Friday's System and to provide such new information and techniques to
the franchisees by means of the Confidential  Franchise  Operating manuals.  The
T.G.I.  Friday's  System is identified by means of certain trade names,  service
marks,  trademarks,  logos, and emblems,  including the marks T.G.I. Friday's(R)
and Friday's(R).

    Once a restaurant is integrated into the Company's  operations,  the Company
provides a variety of corporate  services to assure the proper  execution of the
T.G.I.  Friday's  System  and the  operational  success of the  restaurant.  The
Company's  executive  management  continually  monitors  restaurant  operations;
maintains  management  controls;  inspects individual  restaurants to assure the
quality of products and services and the  maintenance  of  facilities;  develops
employee programs for efficient staffing,  motivation,  compensation, and career
advancement;  institutes  procedures to enhance efficiency and reduce costs; and
provides centralized support systems.

    The Company also maintains quality assurance  procedures  designed to assure
compliance  with the high  quality of  products  and  services  mandated  by the
Company and TGI Friday's Inc. The Company responds to and investigates inquiries
and complaints,  initiates on-site resolution of deficiencies, and consults with
each  restaurant's  staff to assure that  proper  action is taken to correct any
deficiency. Company personnel make unannounced visits to restaurants to evaluate
the facilities,  products,  and services.  The Company believes that its quality
review program and executive  oversight enhance  restaurant  operations,  reduce
operating costs, improve customer satisfaction, and facilitate the highest level
of compliance with the T.G.I. Friday's System.

Restaurant Management

    The Company's regional and restaurant  management  personnel are responsible
for  complying  with the  operational  standards of the Company and TGI Friday's
Inc. The Company's five regional  managers are  responsible  for between six and
ten of the  Company's  restaurants  within their region and report to one of the
Company's two Directors of Operations  who in turn report to the Company's  Vice
President of  Operations.  Restaurant  managers are  responsible  for day-to-day
restaurant  operations,  including  customer  relations,  food  preparation  and
service, cost control, restaurant maintenance, and personnel
                                        6
<PAGE>
relations.  The Company typically staffs its restaurants with an on-site general
manager,  one or two assistant managers, a kitchen manager, and approximately 90
hourly employees.

Recruitment and Training

    The Company  attempts to hire  employees  who are committed to the standards
maintained  by the Company and TGI Friday's  Inc. The Company also believes that
its high unit sales  volume,  the image and  atmosphere  of the T.G.I.  Friday's
restaurant  concept,  and its career  advancement and employee  benefit programs
enable it to attract high quality  management  and  restaurant  personnel and to
enjoy a low level of employee turnover relative to the industry.

    The  Company  emphasizes   participation  in  continuing  training  programs
maintained  by TGI Friday's  Inc. and  supplements  those  programs  through the
employment of personnel  devoted solely to employee  training.  Each  restaurant
general and assistant  manager  completes a formal training program conducted by
the Company and TGI Friday's Inc., receiving between 10 and 15 weeks of training
depending  on the prior  experience  and ability of the  trainee.  The  training
covers all aspects of management  philosophy and overall restaurant  operations,
including  supervisory  skills,  operating  standards,   accounting  procedures,
employee selection and training,  and the performance of all positions necessary
for restaurant operations.

    Management believes that the Company's incentive,  motivation,  and training
programs enhance employee  performance,  result in better customer service,  and
increase restaurant  efficiency.  The Company has implemented incentive programs
that reward restaurant managers when the restaurant's  operating results surpass
designated   goals  and  a  reward  and  recognition   program  for  outstanding
achievements by employees.

Maintenance and Improvement of Restaurants

    The  Company   maintains  its  restaurants  and  all  associated   fixtures,
furnishings,  and equipment in conformity with the T.G.I.  Friday's System.  The
Company also makes necessary additions,  alterations,  repairs, and replacements
to  its  restaurants  as  required  by TGI  Friday's  Inc.,  including  periodic
repainting or replacement of obsolete signs, furnishings,  equipment, and decor.
The Company may be required,  subject to certain  limitations,  to modernize its
restaurants to the  then-current  standards and  specifications  of TGI Friday's
Inc.

Management Information Systems

    The Company  has devoted  considerable  resources  to develop and  implement
management information systems that complement proprietary systems developed and
maintained by TGI Friday's Inc. Inventory control and transaction processing are
effected by means of a computerized sales system,  which is integrated into data
processing  systems the Company  utilizes for financial and management  control,
centralized accounting, and management information systems.

    The  Company  uses  five  to  six  touchscreen  computer  registers  located
conveniently  throughout each of its restaurants.  Servers enter guest orders by
touching the  appropriate  sections of the  register's  computer  screen,  which
transfers the information electronically to the kitchen and bar for preparation.
These  registers  also are  connected  to a personal  computer in the  Company's
restaurant  and  to  the  Company's  corporate  information  system  via  modem.
Management receives detailed  comparative reports on each restaurant's sales and
expense performance daily, weekly, and monthly.

    The Company  believes that its management  information  systems enable it to
increase the speed and accuracy of order  taking and pricing,  to better  assess
guest  preferences,  to efficiently  schedule  labor to better serve guests,  to
quickly  and  accurately  monitor  food and  labor  costs,  to  promptly  access
financial  and  operating  data,  and to improve the accuracy and  efficiency of
store-level information and reporting.

Equipment, Food Products, and Other Supplies

    The Company leases or purchases all fixtures, furnishings, equipment, signs,
recorded  music,  food  products,  supplies,  inventory,  and other products and
materials  required for the  development  and  operation of its T.G.I.  Friday's
restaurants from suppliers approved by TGI Friday's Inc. In order to be
                                        7
<PAGE>
approved  as  a  supplier,  a  prospective  supplier  must  demonstrate  to  the
reasonable   satisfaction   of  TGI  Friday's  Inc.  its  ability  to  meet  the
then-current  standards and  specifications of TGI Friday's Inc. for such items,
possess  adequate  quality  controls,  and have the capacity to provide supplies
promptly and reliably. The Company is not required to purchase supplies from any
specified  suppliers,  but the purchase or lease of any items from an unapproved
supplier requires the prior approval of TGI Friday's Inc.

    TGI Friday's  Inc.  maintains a list of approved  suppliers and a set of the
T.G.I. Friday's System standards and specifications.  TGI Friday's Inc. receives
no commissions on direct sales to its  franchisees,  but may receive rebates and
promotional  discounts from  manufacturers  and  suppliers,  which are generally
passed on  proportionately  to the  Company.  TGI  Friday's  Inc. is an approved
supplier  of  various   kitchen   equipment  and  store   fixtures,   decorative
memorabilia,  and various  paper goods,  such as menus and in-store  advertising
materials and items. However, the Company is not required to purchase such items
from TGI  Friday's  Inc. If the Company  elects to purchase  such items from TGI
Friday's Inc., TGI Friday's Inc. derives revenue as a result of such purchases.

    Although not required to do so, the Company purchases from a single national
food supplier,  utilized by TGI Friday's Inc. and many of its other franchisees,
most of the Company's key food  products  (with the exception of produce,  dairy
products,  and bread,  which it purchases from approved local suppliers) as well
as many of its other restaurant  supplies.  This supplier is not affiliated with
the Company or TGI Friday's Inc. The Company does not have a supply agreement or
other  contractual  arrangement with the supplier and effects  purchases through
purchase orders.

    The  Company's  restaurants  utilize  a simple  bar code  system  for  daily
ordering  of  their  primary  food  and  merchandise  items.   Orders  are  sent
electronically  to the supplier.  The supplier  guarantees 100% product delivery
overnight  or  same  day  deliveries  and has  comprehensive  warehouse/delivery
outlets servicing each of the Company's markets.

    The Company believes that its purchases from the supplier enable the Company
to maintain a high level of quality consistent with T.G.I. Friday's restaurants,
to realize  convenience  and  dependability  in the receipt of its supplies,  to
avoid the costs of maintaining a large purchasing department, large inventories,
and product  warehouses,  and to attain cost  advantages as the result of volume
purchases.  The Company  believes,  however,  that all  essential  products  are
available from other national  suppliers as well as from local  suppliers in the
cities in which the Company's  restaurants  are located in the event the Company
determines to purchase its supplies from other suppliers.

Advertising and Marketing

    The Company  participates in the national marketing and advertising programs
conducted by TGI  Friday's  Inc. See  "Business  -- Franchise  Agreements."  The
programs  primarily  utilize network  television and national  publications  and
feature new menu innovations and various promotion  programs.  In addition,  the
Company from time to time  supplements  the marketing and  advertising  programs
conducted by TGI Friday's  Inc.  through  local radio,  newspaper,  and magazine
advertising media and sponsorship of community  events.  During October 1995, in
conjunction  with TGI Friday's  Inc.,  the Company  introduced a frequent  diner
program that includes awards of food,  merchandise and travel to frequent diners
based upon points accumulated through purchases.

    As a  franchisee  of TGI Friday's  Inc.,  the Company is able to utilize the
trade names,  service marks,  trademarks,  emblems, and indicia of origin of TGI
Friday's  Inc.,  including the marks T.G.I.  Friday's and Friday's.  The Company
advertises  in various media  utilizing  these marks to attract new customers to
its restaurants.

Development Agreements

    The Company is a party to three  development  agreements  with TGI  Friday's
Inc.  Each  development  agreement  grants the  Company the  exclusive  right to
develop  additional  T.G.I.  Friday's  restaurants in a specified  territory and
obligates the Company to develop additional T.G.I.  Friday's restaurants in that
territory in accordance with a specified development schedule.
                                        8
<PAGE>
    The following table sets forth  information  regarding the Company's minimum
requirements  to  open  new  T.G.I.   Friday's  restaurants  under  its  current
development  agreements as well as the number of existing restaurants in each of
the Company's development territories.
<TABLE>
<CAPTION>
                                 Los              San            San
                               Angles            Diego        Francisco      Southwest       Midwest
Year                       Territory(1)(2)  Territory(1)(2)  Territory(2)   Territory(3)   Territory(4)  Total
----                       ---------------  ---------------  ------------   ------------   ------------  -----
<S>                               <C>             <C>              <C>            <C>            <C>      <C>   
1997 .....................         -               -                1              1              -         2
1998 .....................         2               1                1              1              1         6
1999 .....................         2               1                1              1              1         6
2000 .....................         3               1                1              1              1         7
2001 .....................         3               1                1              1              1         7
2002 .....................         4               1                1              1              1         8
                                  --              --               --             --             --        --
                                  14               5                6              6              5        36
Existing Restaurants  ....        15               3               -- (5)          9              3        30 (6)
</TABLE>
--------------
(1) TGI Friday's Inc. also will develop restaurants in this region.
(2) The Los Angeles, San Diego, and San Francisco Territories are covered by one
    development Agreement.
(3) Includes  the  states of  Arizona,  Nevada,  and New Mexico and the El Paso,
    Texas metropolitan area.
(4) Includes metropolitan Kansas City, Kansas, Kansas City, Missouri, and Omaha,
    Nebraska.
(5) Does not include five restaurants managed in the San Francisco Territory.
(6) Does not include eight  restaurants  in the states of Colorado,  Oregon,  or
    Washington, where the Company will no longer be developing restaurants.

    Each  development  agreement gives TGI Friday's Inc. certain remedies in the
event that the Company  fails to comply in a timely manner with its schedule for
restaurant development,  if the Company otherwise defaults under the development
agreement  or any  franchise  agreement  relating  to a  restaurant  within that
development  territory  as  described  below,  or if the  Company's  officers or
directors breach the confidentiality or noncompete provisions of the development
agreement.  The  remedies  available  to  TGI  Friday's  Inc.  include  (i)  the
termination  of the  Company's  exclusive  right to develop  restaurants  in the
related territory; (ii) a reduction in the number of restaurants the Company may
develop in the  related  territory;  (iii) the  termination  of the  development
agreement;  and  (iv)  an  acceleration  of  the  schedule  for  development  of
restaurants in the related territory pursuant to the development agreement.

    At the  request of the  Company,  TGI  Friday's  Inc.  from time to time has
agreed to amend the development  agreements with respect to certain  development
territories  to extend the time by which the Company was required to develop new
restaurants in such  territories.  The Company  requested such amendments to the
development  agreements  as the result of its  inability to secure sites that it
believed to be attractive on favorable  terms and conditions.  In addition,  TGI
Friday's Inc. amended the Company's development schedule in mid-1995 to coincide
with the receipt of additional capital provided by the Company's public offering
and in April 1997 to reduce the number of restaurants the Company is required to
develop  from 44 to 36. There can be no assurance  that TGI Friday's  Inc.  will
extend  the  development  schedule  in the  future  in  the  event  the  Company
experiences any difficulty in satisfying the schedule for any reason.

Franchise Agreements

   The Company enters into a separate  franchise  agreement with respect to each
T.G.I. Friday's restaurant that it develops pursuant to a development agreement.
Each franchise  agreement  grants the Company an exclusive  license to operate a
T.G.I.  Friday's  restaurant  within a designated  geographic  area (generally a
three-mile limit from each restaurant) and obligates the Company to operate such
restaurant in accordance with the requirements and specifications established by
TGI Friday's Inc.  relating to the  preparation  of food products and quality of
service as well as general  operating  procedures,  advertising,  maintenance of
records,  and protection of trademarks.  The franchise  agreements  restrict the
ability  of  the  Company  to  transfer  its  interest  in its  T.G.I.  Friday's
restaurants without the consent of TGI Friday's Inc.
                                        9
<PAGE>
    Each franchise agreement requires the Company to pay to TGI Friday's Inc. an
initial  franchise  fee,  generally in the amount of $50,000.  In addition,  the
Company is obligated  to pay TGI Friday's  Inc. a royalty in the amount of 4% of
the gross  revenue as defined in the franchise  agreement  for each  restaurant.
Royalty  payments under these agreements  totaled  $4,419,000,  $4,800,000,  and
$4,850,000  during fiscal 1994,  1995,  and 1996,  respectively.  Each franchise
agreement  also  requires  the  Company  to spend at least 2% of gross  sales as
defined in the franchise agreement on local marketing and to contribute up to 4%
of gross sales to a national marketing pool that is administered by TGI Friday's
Inc.  During  fiscal 1996,  however,  TGI Friday's Inc.  generally  required the
Company as well as all other franchisees to contribute up to 1.7% of gross sales
to  the  national  marketing  pool.   Marketing  expenses  totaled   $1,788,000,
$2,360,000, and $1,554,000 during fiscal 1994, 1995, and 1996, respectively. All
funds  contributed  in excess of 2% of gross sales to the  national  advertising
fund may be credited against the local advertising requirement.

    A default under any franchise  agreement will not constitute a default under
any other  franchise  agreement.  A default under the franchise  agreement for a
restaurant  in a  development  territory  may  constitute  a  default  under the
development agreement for that development territory.

Other Activities

    In May 1991,  the Company  entered  into a five-year  management  assistance
agreement with Asian- Star Co., Ltd. ("AsianStar"), a Korean company, to provide
management  services and expertise  relative to the development and operation of
T.G.I. Friday's restaurants in the Republic of Korea. AsianStar is a party to an
exclusive  development  agreement  with TGI  Friday's  Inc.  to  develop  T.G.I.
Friday's  restaurants  in the  Republic  of  Korea.  The  management  assistance
agreement  provided for the Company to receive a fee of 3% of the net revenue of
the first two  restaurants  developed in the  Republic of Korea,  which has been
recorded as a  receivable.  In 1996,  the Company  finalized an  agreement  with
AsianStar  to exchange  the  receivable  generated  by the fee for an  ownership
interest  in  AsianStar.  AsianStar  currently  owns and  operates  nine  T.G.I.
Friday's  restaurants  in Seoul,  Korea.  J.Y.  Lee,  a former  director  of the
Company,  is the Chairman of AsianStar.  See Note 2 to the Notes to Consolidated
Financial Statements.

    The Front Row Sports Grill is a new concept created by TGI Friday's Inc. The
Front Row Sports Grill offers an upscale sports grill atmosphere with billiards,
video games,  virtual reality games,  food, and more than 100 varieties of beer.
The Company opened its first Front Row Sports Grill in February 1996. This Front
Row Sports Grill is located in the heart of Portland's  new $205 million  Centre
Court complex, which includes the 19,200 seat Rose Garden Arena, the 12,600 seat
Memorial  Coliseum,  and a 60,000 square-foot office and retail site. See Note 2
to the  Notes  to  Consolidated  Financial  Statements.  This  concept  has  not
performed up to  expectations,  and the Company is currently  reviewing  various
alternatives with respect to the Front Row Sports Grill.

Government Regulation

    Each of the Company's  restaurants is subject to licensing and regulation by
state and local departments and bureaus of alcohol control, health,  sanitation,
and fire and to periodic review by the state and municipal authorities for areas
in which the  restaurants  are located.  In addition,  the Company is subject to
local  land  use,  zoning,  building,   planning,  and  traffic  ordinances  and
regulations in the selection and acquisition of suitable sites for  constructing
new restaurants.  Delays in obtaining, or denials of, or revocation or temporary
suspension of,  necessary  licenses or approvals  could have a material  adverse
impact upon the  Company's  development  of  restaurants.  The  Company  also is
subject to regulation  under the Fair Labor  Standards  Act,  which governs such
matters as working conditions and minimum wages. An increase in the minimum wage
rate or changes in tip-credit  provisions,  employee  benefit  costs  (including
costs  associated  with  mandated  health  insurance  coverage)  or other  costs
associated with employees could adversely affect the Company.  In addition,  the
Company is subject to the  Americans  with  Disabilities  Act of 1990 that among
other  things,   may  require  certain   installations  in  new  restaurants  or
renovations to existing restaurants to meet federally mandated requirements.  To
the Company's  knowledge,  the Company is in compliance in all material respects
with all applicable federal, state, and local laws affecting its business.
                                       10
<PAGE>
Competition

    The  restaurant  business  is  highly  competitive  with  respect  to price,
service,  and food type and quality.  In addition,  restaurants  compete for the
availability  of restaurant  personnel and managers.  The Company's  restaurants
compete  with a large  number  of  other  restaurants,  including  national  and
regional restaurant chains and franchised restaurant systems, many of which have
greater financial  resources,  more experience,  and longer operating  histories
than the Company, as well as with locally owned, independent restaurants.

    The  Company's  casual  dining  business also competes with various types of
food businesses,  as well as other  businesses,  for restaurant  locations.  The
Company  believes  that  site  selection  is one of the most  crucial  decisions
required in connection with the development of restaurants. As the result of the
presence of competing  restaurants  in the  Company's  development  territories,
management devotes great attention to obtaining what it believes will be premium
locations  for new  restaurants,  although no  assurances  can be given that the
Company will be successful in this regard.

Employees

    The Company  employs  approximately  1,800 persons on a full-time  basis, of
whom 50 are corporate  management  and staff  personnel and 1,750 are restaurant
personnel.  The Company also employs  approximately  2,360 part-time  employees.
Except for corporate and management  personnel,  employees generally are paid on
an hourly basis.  The Company  employs at each of its  restaurants an average of
approximately 90 full-time and part-time hourly employees. None of the Company's
employees are covered by a collective bargaining agreement with the Company. The
Company never has experienced a major work stoppage,  strike,  or labor dispute.
The Company considers its relations with its employees to be good.

                             Special Considerations

Dependence on TGI Friday's Inc.

    The  Company's  success  depends in part on the  continued  vitality  of the
T.G.I.  Friday's  restaurant  concept and on the ability of TGI Friday's Inc. to
identify  and react to new  trends in the  restaurant  industry  (including  the
development  of  innovative  and  popular  menu items) and to develop and pursue
appropriate  marketing  strategies  in order to  maintain  and  enhance the name
recognition,  reputation,  and market perception of T.G.I. Friday's restaurants.
The Company believes that the experience,  reputation,  financial strength,  and
franchisee  support of TGI Friday's  Inc. are positive  factors in the Company's
prospects.  Any business  reversals that may be encountered by TGI Friday's Inc.
or its inability or failure to support its  franchisees,  including the Company,
could have a material adverse effect on the Company. However, the future results
of the operations of the Company's  restaurants will not necessarily reflect the
results  achieved by TGI Friday's Inc. or its other  franchisees,  but also will
depend upon such factors as the effectiveness of the Company's  management,  the
locations  of the  Company's  restaurants,  and the  operating  results of those
restaurants. See "Business -- TGI Friday's Inc."

Requirements of Franchise Agreements

    The  franchise  agreement  between TGI  Friday's  Inc.  and the Company with
respect  to each  T.G.I.  Friday's  restaurant  owned by the  Company  generally
requires the Company to pay an initial franchise fee of $50,000 and royalties of
4% of the  restaurant's  gross  sales and to spend up to 4% of the  restaurant's
gross  sales on  advertising,  which may  include  contributions  to a  national
marketing  pool  administered  by TGI Friday's  Inc.  During  fiscal  1996,  TGI
Friday's  Inc.  generally  required  the  Company and its other  franchisees  to
contribute  up to 1.7% of  gross  sales to the  national  marketing  pool.  Such
amounts  must  be  paid  or  expended  regardless  of the  profitability  of the
Company's restaurants.  In addition, the Company's franchise agreements with TGI
Friday's Inc. require the Company to operate its T.G.I.  Friday's restaurants in
accordance with the requirements and specifications  established by TGI Friday's
Inc.  relating to the exterior and interior  design,  decor,  and furnishings of
restaurants,  menu selection,  the preparation of food products,  and quality of
service as well as general operating procedures, advertising, maintenance
                                       11
<PAGE>
of records, and protection of trademarks.  The failure of the Company to satisfy
such requirements could result in the loss of the Company's franchise rights for
some or all of its T.G.I. Friday's restaurants as well as its development rights
for  additional  restaurants.  See  "Business  --  Development  Agreements"  and
"Business -- Franchise Agreements."

Requirements of Development Agreements

    The Company's  development  agreements  with TGI Friday's  Inc.  require the
Company to open at least 36 additional T.G.I.  Friday's  restaurants by December
31, 2002,  including two restaurants by December 31, 1997. Of the restaurants to
be developed,  14 are to be developed in the Los Angeles  Territory,  six in the
San Francisco Territory,  six in the Southwest Territory,  five in the San Diego
Territory,  and five in the Midwest  Territory.  The  acquisition of restaurants
does not  constitute  the  opening  of new  restaurants  under  the  development
agreements.  See "Business -- Development Agreements" and "Business -- Franchise
Agreements."

    There can be no assurance that the Company will be able to secure sufficient
restaurant sites that it deems to be suitable or to develop  restaurants on such
sites on terms and  conditions  it  considers  favorable in order to satisfy the
requirements of the development agreements.  The development agreements give TGI
Friday's Inc. certain remedies in the event the Company fails to comply with the
development   schedule  in  a  timely  manner  or  there  is  a  breach  of  the
confidentiality or noncompete  provisions of the development  agreements.  These
remedies include, under certain circumstances, the right to reduce the number of
restaurants the Company may develop in the related  development  territory or to
terminate the Company's  exclusive  right to develop  restaurants in the related
development territory.

    At the  request of the  Company,  TGI  Friday's  Inc.  from time to time has
agreed to amend the  development  schedules with respect to certain  development
territories  to extend the time by which the Company was required to develop new
T.G.I.  Friday's  restaurants  in  such  development  territories.  The  Company
requested  such  amendments  to the  development  schedules  as a result  of its
inability to secure sites that it believed to be attractive  on favorable  terms
and conditions.  TGI Friday's Inc. amended the Company's development schedule in
mid-1995 to coincide  with the receipt of  additional  capital to be provided by
the  Company's  public  offering that was completed in October 1995 and in April
1997 to reduce the number of restaurants the Company is required to develop from
44 to 36.  There can be no  assurance  that TGI  Friday's  Inc.  will extend the
development schedule in the future in the event that the Company experiences any
difficulty  in satisfying  the schedule for any reason,  including a shortage of
capital.  See "Business --  Development  Agreements"  and "Business -- Franchise
Agreements."

Expansion of Operations

    The  opening of new  restaurants  will  depend on the  Company's  ability to
locate suitable sites in terms of favorable population characteristics,  density
and household  income  levels,  visibility,  accessibility  and traffic  volume,
proximity to demand generators  (including shopping malls,  lodging,  and office
complexes)  and potential  competition;  to obtain  financing for  construction,
tenant improvements,  furniture, fixtures, equipment, and other expenditures; to
negotiate   acceptable   leases  or  terms  of  purchase;   to  secure   zoning,
environmental,  health and similar regulatory approvals and liquor licenses;  to
recruit and train qualified  personnel;  and to manage  successfully the rate of
expansion and expanded  operations.  The opening of new restaurants  also may be
affected by increased  construction costs and delays resulting from governmental
regulatory approvals, strikes or work stoppages, adverse weather conditions, and
various acts of God. Newly opened restaurants may operate at a loss for a period
following their opening.  The length of this period will depend upon a number of
factors,  including the time of year the restaurant is opened, sales volume, and
operating  costs.  The acquisition of existing  restaurants will depend upon the
Company's ability to identify and purchase restaurants that meet its criteria on
satisfactory  terms and  conditions.  There can be no assurance that the Company
will be successful in achieving its expansion  goals through the  development or
acquisition of additional  restaurants or that any additional  restaurants  that
are  developed  or acquired  will be  profitable.  In  addition,  the opening of
additional  restaurants  in an  existing  market  may have the effect of drawing
customers  from and  reducing  the sales  volume of  existing  restaurants.  See
"Business -- Expansion of Operations."
                                       12
<PAGE>
Need for Additional Capital
    The development of new restaurants  requires funds for construction,  tenant
improvements,  furniture,  fixtures,  equipment, training of employees, permits,
initial  franchise  fees,  and  additional  expenditures.  See "Business -- Unit
Economics."  The Company  expects that cash flow from  operations  together with
financing commitments,  will be sufficient to develop the eight restaurants that
the  development  agreements  require the Company to open by the end of 1998. In
addition,  the Company will require funds to develop the additional  restaurants
that its development  agreements require it to open after 1998 and to pursue any
additional restaurant  development or restaurant acquisition  opportunities.  In
the future,  the Company may seek additional equity or debt financing to provide
funds to develop or acquire  additional  restaurants.  There can be no assurance
that such  financing  will be available  or will be  available  on  satisfactory
terms. If such financing is not available on satisfactory terms, the Company may
be unable to satisfy its obligations  under its development  agreements with TGI
Friday's  Inc. or  otherwise  expand its  restaurant  operations.  See  "Special
Considerations  --  Requirements  of  Development  Agreements"  and "Business --
Expansion of Operations."  While debt financing  enables the Company to add more
restaurants  than it otherwise  would be able to do,  expenses are  increased by
such financing and such  financing  must be repaid by the Company  regardless of
the  Company's  operating  results.  Future  equity  financings  could result in
dilution to stockholders.

Significant Borrowings

    In  connection  with its growth  strategy,  which has focused on  restaurant
acquisitions  and  internal  restaurant  development,  the Company has  incurred
significant  indebtedness with relatively  short-term repayment  schedules.  See
"Business -- Expansion of Operations" and "Management's  Discussion and Analysis
of  Financial   Conditions   and  Results  of   Operations."   The  Company  had
approximately $36.3 million in indebtedness as of December 30, 1996.  Subsequent
to December 30, 1996,  $8.0  million of debt was repaid with  proceeds  from the
sale of five restaurants in northern  California and an additional $20.3 million
was repaid with  proceeds from new  borrowings  in the amount of $21.3  million,
which have a longer repayment period.  After giving affect to the new borrowings
and  repayments,  the  Company  has  indebtedness  of  $29.3  million,  of which
approximately  $2.5  million  will be due in 1997,  $1.5  million will be due in
1998,  $1.5  million  will  be  due in  1999,  and  $23.8  million  will  be due
thereafter.  The  Company's  borrowings  will  result  in  interest  expense  of
approximately  $2.6 million in 1997 and $2.5 million in 1998, based on currently
prevailing  interest rates and assuming the outstanding  indebtedness is paid in
accordance  with the  existing  payment  schedules  without any  prepayments  or
additional  borrowings.  Such interest  payments must be made  regardless of the
Company's  operating  results.  Currently, 26 of the  Company's  restaurants are
pledged to secure obligations.

Certain Factors Affecting the Restaurant Business

    The  ownership  and  operation  of  restaurants  may be  affected by adverse
changes in national, regional, or local economic or market conditions; increased
costs  of labor  (including  those  which  may  result  from  any  increases  in
applicable  minimum  wage  requirements);  increased  costs  of  food  products;
management problems; increases in the number and density of competitors; limited
alternative uses for properties and equipment; changing consumer tastes, habits,
and  spending  priorities;  the cost and  availability  of  insurance  coverage;
uninsured  losses;  changing  demographics;  changes in  government  regulation;
changing traffic patterns;  weather conditions;  and other factors.  The Company
may be the subject of litigation based on  discrimination,  personal injury,  or
other claims,  including  claims that may be based upon legislation that imposes
liability on  restaurants  or their  employees for injuries or damages caused by
the negligent  service of alcoholic  beverages to an intoxicated  person or to a
minor.  A multi-unit  restaurant  operator  such as the Company can be adversely
affected by publicity  resulting from food quality,  illness,  injury,  or other
health concerns or operating  issues  resulting from one restaurant or a limited
number of restaurants operated under the same name, including those not owned by
the  operator.  None of  these  factors  can be  predicted  with any  degree  of
certainty,  and any one or more of these factors  could have a material  adverse
effect on the Company.
                                       13
<PAGE>
Competition

    The  restaurant  business  is  highly  competitive  with  respect  to price,
service,  and food  type and  quality.  In  addition,  restaurants  compete  for
attractive  restaurant  sites and the  availability of restaurant  personnel and
managers.  The  Company's  restaurants  compete  with a large  number  of  other
restaurants,  including  national and regional  restaurant chains and franchised
restaurant  systems,  many of  which  have  greater  financial  resources,  more
experience,  and longer  operating  histories than the Company,  as well as with
locally owned, independent restaurants. See "Business -- Competition."

Dependence on Management

    The  Company's  future  development  and  operations  will be  substantially
dependent  on the efforts  and  expertise  of Bart A.  Brown,  Jr. and Gerald T.
Bisceglia.  The Company  currently has employment  agreements with Mr. Brown and
Mr.  Bisceglia,  which  expire  on  December  31,  1998 and  October  29,  1999,
respectively.  The Company does not maintain any life  insurance on Mr. Brown or
Mr.  Bisceglia.  The loss of the  services of Mr. Brown or Mr.  Bisceglia  could
adversely affect the Company's business and prospects. See "Management."

Government Regulation

    The Company is subject to various  federal,  state, and local laws affecting
its  business.  The  development  and  operation  of  restaurants  depend  to  a
significant extent on the selection and acquisition of suitable sites, which are
subject to zoning, land use,  environmental,  traffic,  and other regulations of
state and local governmental agencies. City ordinances or other regulations,  or
the application of such  ordinances or  regulations,  could impair the Company's
ability to  construct  or acquire  restaurants  in desired  locations  and could
result in costly delays. In addition, the operation of restaurants is subject to
licensing  and  regulation  by state and local  departments  relating to health,
sanitation and safety  standards,  and fire codes;  federal and state labor laws
(including applicable minimum wage requirements, tip credit provisions, overtime
regulations,  workers'  compensation  insurance  rates,  unemployment  and other
taxes,  working and safety  conditions,  and citizenship  requirements);  zoning
restrictions;  and state and local licensing of the sale of alcoholic beverages.
The delay or failure to obtain or maintain any licenses or permits necessary for
operations could have a material  adverse effect on the Company.  An increase in
the minimum wage rate,  employee  benefit costs (including costs associated with
mandated health  insurance  coverage),  or other costs associated with employees
could adversely affect the Company. The Company also is subject to the Americans
with  Disabilities  Act of 1990 that,  among other things,  may require  certain
installations in new restaurants or renovations to existing  restaurants to meet
federally mandated requirements.

    Sales of alcoholic  beverages  represent an important  source of the revenue
for each of the Company's  restaurants.  The  temporary  suspension or permanent
loss or the inability to maintain a liquor license for any restaurant would have
an adverse  effect on the  operations of that  restaurant.  The Company does not
plan to open a  restaurant  in any  location  for which the Company  believes it
cannot obtain or maintain a liquor license.

Shares Eligible for Future Sale

    Approximately  2,776,311  shares of Common Stock  currently  outstanding are
"restricted  securities," as that term is defined in Rule 144 promulgated  under
the Securities Act of 1933, as amended (the "Securities  Act").  Such shares may
be sold only in compliance  with Rule 144,  pursuant to  registration  under the
Securities Act, or pursuant to an exemption from registration.  Generally, under
Rule 144, each person holding restricted securities for a period of one year may
sell, every three-month period, in ordinary brokerage  transactions or to market
makers an  amount  of shares  equal to the  greater  of 1% of a  company's  then
outstanding common stock or the average weekly trading volume for the four weeks
prior to the proposed  sale of such  shares.  Currently, most of the  restricted
shares are  eligible for sale under Rule 144 or under a  registration  statement
filed as a result of  registration  rights  granted with respect to such shares.
Sales of  substantial  amounts of Common  Stock by  stockholders  of the Company
under Rule
                                       14
<PAGE>
144, the registration  statement,  or otherwise,  or even the potential for such
sales, are likely to have a depressive  effect on the market price of the Common
Stock and could impair the Company's  ability to raise capital  through the sale
of its equity securities.

Rights to Acquire Shares

    As of December 30, 1996,  228,500  shares of Common Stock were  reserved for
issuance upon  exercise of options that may be granted under the Company's  1990
and 1995 Stock Option Plans (the "Plans").  As of December 30, 1996,  options to
acquire a total of 346,500 shares were outstanding under the Plans at a weighted
average  exercise  price of $3.63 per share.  In addition,  options to acquire a
total of 1,250,000 shares of Common Stock were outstanding  outside the Plans at
a weighted  average  exercise price of $3.12 per share,  and warrants to acquire
364,830 shares of Common Stock were  outstanding at a weighted  average exercise
price of $12.71 per share.  During the terms of such options and  warrants,  the
holders  thereof  will have the  opportunity  to profit  from an increase in the
market  price of the  Company's  Common  Stock with  resulting  dilution  to the
interest of holders of its Common Stock. The existence of such stock options and
warrants  may  adversely  affect  the  terms on which  the  Company  can  obtain
additional  financing,  and the  holders of such  options  and  warrants  can be
expected to exercise  such options and  warrants at a time when the Company,  in
all likelihood, would be able to obtain additional capital by offering shares of
its Common Stock on terms more  favorable to the Company than those  provided by
the exercise of such options and warrants.

Possible Volatility of Stock Price

    Historically,  the market price of the Company's  Common Stock has been, and
in the future  could be,  subject to wide  fluctuation  in response to quarterly
variations  in  the  operating  results  of  the  Company  or  other  restaurant
companies,   changes  in  analysts'   estimates  of  the   Company's   financial
performance, changes in national and regional economic conditions, the financial
markets, or the restaurant  industry,  natural disasters,  or other developments
affecting  the Company or other  restaurant  companies.  In addition,  the stock
market has  experienced  extreme price and volume  fluctuations in recent years.
This volatility has had a significant  effect on the market prices of securities
issued by many  companies for reasons not  necessarily  related to the operating
performance of those companies.

Cautionary Statement Regarding Forward-Looking Statements

    Certain Statements  contained in this Report are forward-looking  statements
as defined in the Securities  Act. By their nature,  forward-looking  statements
include  risks and  uncertainties.  Accordingly,  actual  results  could differ,
perhaps  materially,  from those  expressed  or implied by such  forward-looking
statements. Factors that could cause actual results to differ materially include
those discussed elsewhere under this Item 1, "Special Considerations."

ITEM 2. PROPERTIES

    In December  1993, the Company  entered into a five-year  lease for space to
serve as its corporate  offices.  The Company  believes that the leased space is
adequate for its current and  reasonably  anticipated  needs and that it will be
able to secure  adequate  space upon the  expiration of the lease.  See "Certain
Relationships and Related Transactions."

    The Company  leases space for all its  restaurants.  The initial lease terms
range from 10 to 20 years and contain  renewal  options for up to 20 years.  The
leases typically provide for a fixed rental plus percentage  rental.  See Note 8
to Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

    From time to time, the Company is subject to routine  contract,  negligence,
employment related, and other litigation in the ordinary course of business. The
Company does not believe that it is subject to any pending  litigation that will
have material adverse effect on its business or financial condition.

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

    Not applicable.
                                       15
<PAGE>
                                   PART II

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

    The  Company's  Common Stock has been quoted on the Nasdaq  National  Market
under the symbol "MAIN" since October 30, 1992.  The following  table sets forth
the quarterly  high and low sales prices of the  Company's  Common Stock for the
periods indicated as reported by the Nasdaq Stock Market.

                                                  High       Low
                                                --------   -------
          1994
             First Quarter ...............       $22       $16 1/2
             Second Quarter ..............        19        14 1/2
             Third Quarter ...............        16 3/4    13
             Fourth Quarter ..............        14 3/4     9
          1995
             First Quarter ...............        13 1/4     9 1/2
             Second Quarter ..............        13         7 1/2
             Third Quarter ...............        11         4 1/16
             Fourth Quarter ..............         4 3/4     2 7/16
          1996
             First Quarter ...............         3 3/8     2 3/8
             Second Quarter ..............         4 3/8     2 1/4
             Third Quarter ...............         3 1/8     1 3/4
             Fourth Quarter ..............         2 7/8     1 3/8
          1997
             First Quarter ...............         2 9/16    1 9/16

    On March 31, 1997,  there were 771 holders of record of the Company's Common
Stock.  On March 31,  1997,  the closing  sale price of the Common  Stock on the
Nasdaq National Market was $1 27/32 .
                                       16
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

    The following table sets forth selected consolidated  financial data for the
Company for the periods indicated.  The selected consolidated financial data for
each of the five fiscal  years in the period  ending  December 30, 1996 has been
derived from the Company's  consolidated  financial statements,  which have been
audited by Arthur  Andersen LLP,  independent  accountants.  This data should be
read in  conjunction  with,  and are  qualified by reference  to, the  Company's
consolidated  financial  statements  and the  notes  thereto  and  "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
included elsewhere in this Report.
<TABLE>
<CAPTION>
                                                                           Fiscal Year Ended
                                                     ------------------------------------------------------------
                                                                In thousands, except per share amounts)
                                                     Dec. 31,     Dec. 31,     Dec. 31,     Dec. 31,     Dec. 31,
                                                       1992         1993         1994         1995         1996
                                                       ----         ----         ----         ----         ----
<S>                                                  <C>         <C>          <C>          <C>          <C>      
Statement of Operations Data:
Revenue .........................................    $ 21,796    $  30,510    $ 111,262    $ 119,508    $ 122,563
Restaurant operating expenses:
 Cost of sales ..................................       6,104        8,645       30,516       34,005       35,089
 Payroll and benefits ...........................       6,798        9,604       34,849       36,769       38,858
 Depreciation and amortization ..................         639        1,176        3,884        4,353        4,586
 Other operating expenses .......................       6,166        8,364       31,621       35,250       36,944
                                                     --------    ---------    ---------    ---------    ---------
  Total restaurant operating expenses ...........      19,707       27,789      100,870      110,377      115,477
                                                     --------    ---------    ---------    ---------    ---------

Income from restaurant operations ...............       2,089        2,721       10,392        9,131        7,086
 Depreciation and amortization ..................          50          313        1,014        1,331        1,450
 General and administrative expenses ............       1,789        3,339        4,191        4,410        4,388
 Asset impairments and restructuring ............        
   charges.......................................        --           --           --           --         20,208
                                                     --------    ---------    ---------    ---------    ---------

Operating income (loss) .........................         250         (931)       5,187        3,390      (18,960)
 Interest expense, net ..........................         212          413        3,902        4,424        3,206
                                                     --------    ---------    ---------    ---------    ---------
Net income (loss) from continuing ...............          
 operations before income taxes..................          38       (1,344)       1,285       (1,034)     (22,166)
Provision for income taxes ......................          16         --           --           --           --
                                                     --------    ---------    ---------    ---------    ---------
Net income (loss) from continuing ...............          
 operations......................................          22       (1,344)       1,285       (1,034)     (22,166)

Net income (loss)(1) ............................    $    516    $  (2,943)   $   1,285    $  (1,034)   $ (22,166)

Net income (loss) per share:
 Net income (loss) from continuing ..............    
 operations......................................    $   0.01    $   (0.42)   $    0.35    $   (0.22)   $   (2.73)

 Net income (loss)(1) ...........................    $   0.19    $   (0.93)   $    0.35    $   (0.22)   $   (2.73)

Weighted average shares outstanding .............       2,703        3,163        3,692        4,621        8,110

Balance Sheet Data:
 Working capital ................................    $    626    $  (2,452)   $ (10,905)   $  (7,848)   $  (1,343)
 Total assets ...................................      15,851       75,491       84,503       88,605       70,848
 Long-term debt, net of current portion .........       3,485       44,814       41,265       31,204       33,809
 Stockholders' equity ...........................      10,016       21,006       22,601       37,261       16,585
</TABLE>
---------------
(1) Fiscal 1992 includes a $328,000,  or $0.12 per share,  credit related to the
    cumulative  effect of change in  accounting  principle  for income taxes and
    $166,000,  or  $0.06  per  share,  of net  income  related  to  discontinued
    operations. Fiscal 1993 includes $1,599,000, or $0.51 per share, of net loss
    related to discontinued operations.
                                       17
<PAGE>
ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

General

    The  Company  commenced  its  restaurant  operations  in May  1990  with the
acquisition of four restaurants in the Southwest Territory.  During the past six
years,  the Company has acquired an additional 26  restaurants  and  development
rights  in  three  separate  transactions.   In  addition  to  its  30  acquired
restaurants, the Company has developed 14 new restaurants.

    The Company's  operating  results have been adversely  affected  during this
period by a shortage  of  capital,  substantial  indebtedness  and debt  service
requirements,  and the pursuit of various non- restaurant operations,  including
dairy, frozen-food distribution, and amusement businesses.

    During  1996,  the  Company had a change in  management  and  implemented  a
long-term  business  strategy to enhance its financial  position,  to place more
emphasis on its casual dining business in certain  designated  areas, to dispose
of underperforming assets, and to pursue new restaurant concepts.

    The first step was to strengthen the Company's financial position.  This was
accomplished  by the sale of  1,566,666  shares of Common  Stock for  $3,000,000
through  a  private  placement  transaction,  the  sale of five  restaurants  in
northern  California for $10,575,000,  of which $8,000,000 in proceeds were used
to repay debt (See Notes 4 and 6 to Notes to Consolidated Financial Statements),
and new  borrowings  of $21.3  million  with a  repayment  period  of 15  years.
Proceeds  from the new  borrowings  were  used  primarily  to pay off debt  with
shorter  repayment  periods  (See  Note 6 to  Notes  to  Consolidated  Financial
Statements).

    The Company has also  renegotiated  its  development  agreements with T.G.I.
Friday's Inc. to reduce the number of T.G.I. Friday's restaurants it is required
to build with the intent to focus on those development territories that are most
economically   favorable  (See  Note  8  to  Notes  to  Consolidated   Financial
Statements).  The T.G.I.  Friday's restaurants currently planned for development
will be owned by a third party lender with the Company operating the restaurants
and deriving a management  fee. This strategy will allow the Company to continue
to grow while at the same time deleveraging its balance sheet. In addition,  the
Company has taken a charge for asset impairments and restructuring to dispose of
various non-core assets and write down certain core assets to realizable  values
(See Note 2 to Notes to Consolidated Financial Statements).

    The next step in the Company's  strategy will be to reduce  operating  costs
and expand its  restaurant  operations.  This will  entail  continuing  to build
T.G.I.  Friday's  restaurants and evaluating other concepts in the casual dining
segment.  The Company  has  recently  become a majority  partner in a venture to
develop and operate cajun themed restaurants.

    Each of the  acquisitions  mentioned  above,  as described  more fully under
"Business--Introduction,"  was  accounted  for as a purchase.  Allocation of the
purchase  price was  typically  split between  property and  franchise  fees and
license costs.  Franchise fees and license costs,  which totaled  $16,418,000 at
December 1996, are amortized  over 20 to 30 years.  Amortization  of these costs
appear  in  the  Consolidated  Statements  of  Operations  as  Depreciation  and
Amortization below Income From Restaurant Operations.

    The  franchise  agreements  between TGI Friday's  Inc. and the Company could
require  a  contribution  to a  national  marketing  pool of up to 4.0% of gross
sales,  although  during 1996 the Company was only required to pay up to 1.7% of
gross sales and will contribute 1.9% for 1997.

    Cost of sales consists  primarily of food and beverage costs. Food costs can
vary  significantly  depending  upon  pricing  and  availability  of produce and
grocery  items.  Restaurant  operating  expenses  include  all  restaurant-level
operating  costs,  the  significant  components of which are direct and indirect
labor expenses (including benefits),  advertising expenses, occupancy costs, and
maintenance  and utility  expenses.  Occupancy  costs include rent,  real estate
taxes,  and common area maintenance  charges.  Certain elements of the Company's
restaurant   operating  expenses  and,  in  particular,   occupancy  costs,  are
relatively fixed.

    Restaurant  pre-opening  costs  incurred  in  connection  with  opening  new
restaurant  locations,  including  hiring,  training,  and other costs,  average
approximately $160,000 for each restaurant opened and are
                                       18
<PAGE>
amortized over one year commencing with the opening of the restaurant. Since new
restaurants  experience  higher  sales  levels  for  some  time  after  opening,
restaurants  are not included in the same store sales base until 18 months after
opening. 

Results of Operations

   The following table sets forth,  for the periods  indicated,  the percentages
which certain items of income and expense bear to total revenue:
<TABLE>
<CAPTION>
                                                                      Fiscal Year Ended
                                                          -----------------------------------------
                                                          December 26,  December 25,   December 30,
                                                            1994          1995            1996
                                                            ----          ----            ----
<S>                                                         <C>           <C>             <C>   
Revenue ..................................................  100.0%        100.0%          100.0%
Restaurant operating expenses:
 Cost of sales ...........................................   27.4          28.5            28.6
 Payroll and benefits ....................................   31.3          30.8            31.7
 Depreciation and amortization ...........................    3.5           3.6             3.7
 Other operating expenses ................................   28.4          29.5            30.2
                                                            -----         -----           -----
 Total restaurant operating expenses .....................   90.6          92.4            94.2
                                                            -----         -----           -----
Income from restaurant operations ........................    9.4           7.6             5.8
 Depreciation and amortization ...........................    0.9           1.1             1.2
 General and administrative expenses .....................    3.8           3.7             3.6
 Asset impairments and restructuring charges .............     --            --            16.5
                                                            -----         -----           -----
Operating income (loss) ..................................    4.7           2.8           (15.5)
Interest expense, net ....................................    3.5           3.7             2.6
                                                            -----         -----           -----
Net income (loss) before income taxes ....................    1.2%         (0.9)%         (18.1)%
                                                            =====         =====           =====
</TABLE>
  Fiscal 1996 Compared to Fiscal 1995

    Revenue for the fiscal year ended  December  30, 1996  increased  by 2.6% to
$122,563,000  compared to  $119,508,000  for the fiscal year ended  December 25,
1995. This increase related primarily to restaurants developed during 1996 along
with an additional week of revenue in the 53 week period ended December 30, 1996
compared to the normal 52 week period of 1995.  When comparing  revenue for 1996
to the prior year, same store sales decreased  $3,580,000 or 3.2%.  Revenue from
alcoholic  beverages  accounted  for 23.6% of revenue  for the fiscal year ended
December 30, 1996 compared to 22.2% for the prior year.

    Cost of sales  increased  as a  percentage  of revenue to 28.6% in 1996 from
28.5% in 1995 due to a shift in the beverage market to  premium/specialty  beers
and liquors,  which have  slightly  lower  margins,  and higher prices for dairy
products.  In  addition,  cost of sales  increased  as a result of  increases in
portion sizes on several menu items; however, some of the resulting increase has
been offset by negotiated purchasing discounts.

    Labor costs increased as a percentage of revenue to 31.7% in 1996 from 30.8%
in 1995. This increase is almost  entirely  related to the decline in same store
sales in  relation  to the fixed  component  of labor  costs and an  increase in
minimum wage from $4.25 to $4.75 per hour.  Approximately  75% of the  Company's
revenue is derived  from  restaurants  in non-tip  credit  states  where  tipped
employees are paid at or above the Federal minimum wage as opposed to tip credit
states where tipped  employees are paid at half the minimum wage.  The $0.50 per
hour  increase  in  minimum  wage that  became  effective  on  October  1, 1996,
increased the Company's labor costs as a percentage of revenue by  approximately
1.0%.

    Other restaurant  operating expenses increased as a percentage of revenue to
30.2% in 1996 from 29.5% in 1995 primarily as a result of the  relatively  fixed
nature of these costs and the decline in same store sales.

    In total, depreciation and amortization increased as a percentage of revenue
to 4.9% in 1996 from 4.7% in 1995.  This  increase is due primarily to the fixed
nature of these expenses given a decline in same store sales.
                                       19
<PAGE>
    General and administrative  expenses decreased as a percentage of revenue to
3.6% in 1996 from 3.7% in 1995. The decrease  relates to reductions in corporate
staff coupled with the  relatively  fixed nature of these expenses in comparison
to the overall increase in revenue.

    Interest expense was approximately $3,206,000 in 1996 compared to $4,424,000
in  1995.  This  decrease  was a  result  of the  retirement  of  $8,700,000  of
indebtedness  with the proceeds  from a public  offering  completed in September
1995.

    No income tax provision was recorded in 1995 or 1996 due to the availability
of net operating loss carryforwards.

  Fiscal 1995 Compared to Fiscal 1994

    Revenue for the fiscal year ended  December  25, 1995  increased  by 7.4% to
$119,508,000  compared to  $111,262,000  for the fiscal year ended  December 26,
1994.  Revenue  from five  restaurants  opened  subsequent  to December 26, 1994
contributed to the overall revenue gain. When comparing  revenue for 1995 to the
prior year, same stores sales decreased 2.6%. The same store sales declines were
a result of increased  competition  in the casual dining market and were further
exaggerated for fiscal 1995 by a frequent diner program offered in the Company's
Southern  California  restaurants for most of 1994. While the program  favorably
impacted 1994 sales,  particularly in the third quarter,  the  administration of
the frequent  diner program proved costly,  resulting in the  discontinuance  of
most aspects of the program in October 1994. The Company  introduced a modified,
more  cost-effective  frequent  diner  program  in the  fourth  quarter of 1995.
Revenue from alcoholic  beverages  accounted for 22.2% of revenue for the fiscal
year ended December 25, 1995, compared to 22.8% for the prior year.

    Cost of sales  increased as a percentage of restaurant  revenues to 28.5% in
of 1995 from 27.4% for the same period in 1994. This increase relates in part to
new stores opened during 1995, which typically have higher food costs during the
initial few months after opening,  and increases in produce costs as a result of
adverse  weather  conditions.  In late 1994,  the Company also began  purchasing
selected items,  particularly produce, that is processed by suppliers.  This has
resulted in higher food costs, but resulted in a reduction in restaurant  labor.
Additionally,  national  promotions  in  which a  dessert  or an  appetizer  was
included  with the purchase of specific  menu items  contributed  to the overall
increase in cost of sales.

    Labor costs decreased as a percentage of revenue to 30.8% in 1995 from 31.3%
in the same period of 1994.  This  decrease  reflects a reduction in the average
number of managers  per store,  labor  savings  related to selected  items being
processed by suppliers as discussed  above, and lower employee taxes and benefit
costs.

    Other restaurant  operating expenses increased as a percentage of revenue to
29.5% in 1995 from 28.4% in the same period of 1994.  The increase  related to a
0.4% increase in marketing fees paid for national  advertising,  a 0.2% increase
in insurance  costs,  a 0.2%  increase in  promotions  related in part, to costs
associated  with  implementing  a revised  frequent  diner program and occupancy
costs which  increased  by 0.3%  primarily as a result of the  relatively  fixed
nature of these expenses given a decline in same store sales.

    In total, depreciation and amortization increased as a percentage of revenue
to 4.7% in  1995,  from  4.4% in the  same  period  in  1994  due  primarily  to
depreciation  and  amortization  related to the Company's  interest in an indoor
entertainment  center.  This  investment  was accounted for on the equity method
until November 1994 when it was leased to a third-party  operator.  In addition,
depreciation  and  amortization  increased as a percentage of revenue due to the
fixed nature of these expenses given a decline in same store sales.

    General and administrative  expenses decreased as a percentage of revenue to
3.7% in 1995  from  3.8% in the same  period  of  1994.  This  decrease  relates
primarily to the relatively  fixed nature of these expenses in comparison to the
overall increase in revenue.

    Interest expense was approximately $4,424,000 in 1995 compared to $3,902,000
in 1994.  This  increase  was  caused  primarily  by higher  interest  rates and
additional borrowings to fund the Company's restaurant development program.

    No income tax provision was recorded in 1995 or 1994 due to the availability
of net  operating  loss  carryforwards.  
                                       20
<PAGE>
Liquidity and Capital Resources

    The Company's primary use of funds over the past four years has been for the
acquisition of existing T.G.I.  Friday's  restaurants and exclusive  development
rights.  These  acquisitions were financed  principally  through the issuance of
long-term debt and Common Stock. See "Business -- Introduction." The Company has
also expended funds for the development of new restaurants. The principal source
of these  funds has been  operating  cash flow,  supplemented  by bank and lease
financing.

    Net  cash  flows  from  operating   activities  were  $10,824,000  in  1994,
$1,722,000 in 1995, and $4,444,000 in 1996. These were  supplemented by net cash
flows from financing of $475,000,  $4,195,000 and $2,051,000 for the years ended
1994,  1995,  and 1996,  respectively,  to fund the Company's  acquisitions  and
development of new restaurants.

    The Company's current  liabilities  exceed its current assets due in part to
cash expended on the  Company's  development  requirements  and also because the
restaurant  business receives  substantially  immediate payment for sales, while
payables  related to inventories  and other current  liabilities  normally carry
longer payment terms,  usually 15 to 30 days.  The Company  currently  generates
average  monthly cash  receipts of  approximately  $10,900,000,  which have been
sufficient to pay all obligations as they become due.

    At December 30, 1996, the Company had long-term debt of $36,332,000.

    Subsequent  to  December  30,  1996,  $26,500,000  of debt was  repaid  with
proceeds  from  the  Northern  California  Sale  (See  Note 4 and 6 to  Notes to
Consolidated  Financial  Statements) and with proceeds from new borrowings.  The
new borrowings,  consisting of three notes from one lender,  total  $21,300,000,
bear interest at LIBOR plus 320 basis points (8.9% at March 31,  1997),  and are
payable in equal monthly installments of principal and interest of approximately
$216,000  (combined)  until the notes are paid in full on May 1, 2012.  Proceeds
from the new  borrowings  will also used to repay the TGI  Friday's  Inc.  note,
including accrued interest, of $2,118,000,  with the remaining proceeds used for
general corporate purposes.

    The Company  plans to develop  three  additional  TGI Friday's by the end of
1997.  These  restaurants  will be owned by a third  party  that  will  fund all
development  costs.  The  Company  will  operate  the  restaurants,   receive  a
management fee, and participate in excess cash flows.

    The Company leases all of its  restaurants  with terms ranging from 10 to 20
years.  Minimum  payments  on  the  Company's  existing  lease  obligations  are
approximately $6,400,000 per year through 2001.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    Reference is made to the financial statements, the report thereon, the notes
thereto and the supplementary data commencing at page F-1 of this report,  which
financial statements, report, notes and data are incorporated by reference.

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

    Not applicable.
                                       21
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
 Name                              Age   Position and Offices Presently Held With the Company
 ----                              ---   -----------------------------------------------------
<S>                                <C>   <C>
John F. Antioco ................   47    Chairman of the Board

Bart A. Brown, Jr.  ............   65    President, Chief Executive Officer, and Director

Gerard T. Bisceglia  ...........   47    Executive Vice President, Chief Operating Officer, and
                                           Director

Joe W. Panter ..................   41    Executive Vice President and Director

Mark C. Walker .................   36    Vice President -- Finance, Chief Financial Officer,
                                           Secretary, and Treasurer

Jane Evans(1) ..................   52    Director

John C. Metz(1) ................   57    Director

Steven A. Sherman(1)............   51    Director
</TABLE>
----------------
(1) Member of the Audit and Compensation Committees.

    John F.  Antioco  has served as  Chairman  of the Board of  Directors  since
August 9, 1996 and as a director  of the  Company  since  January  8, 1996.  Mr.
Antioco has served as President and Chief  Executive  Officer of Taco Bell Corp.
since   September  1996.  Mr.  Antioco  served  as  the  Chairman  of  Circle  K
Corporation,  a publicly  held company  ("Circle K"), from August 1995 until May
1996 and as  President  and Chief  Executive  Officer of Circle K from July 1993
until May 1996.  Mr.  Antioco  joined  Circle K as Chief  Operating  Officer  in
September  1991.  Mr.  Antioco  was Chief  Operating  Officer  of Pearle  Vision
Centers, Inc. from June 1990 to August 1991. From 1970 to 1990, Mr. Antioco held
various positions with The Southland Corporation.

    Bart A. Brown, Jr. has been the President and Chief Executive Officer of the
Company  since  December 16,  1996.  Mr. Brown was  affiliated  with  Investcorp
International,  N.A., an international  investment banking firm, from April 1996
until  December  1996.  Mr. Brown  served as the  Chairman  and Chief  Executive
Officer of Color Tile,  Inc. at the request of Investcorp  International,  Inc.,
which  owned all of its Common  Stock,  from  September  1995 until  March 1996,
shortly  after Color Tile,  Inc.  filed  under  Chapter 11 of the United  States
Bankruptcy  Code.  Mr.  Brown  served as  Chairman  of the Board of the Circle K
Corporation from June 1990,  shortly after its filing for  reorganization  under
Chapter 11 of the United States  Bankruptcy  Code,  until  September  1995. From
September 1994 until  September 1996, Mr. Brown served as the Chairman and Chief
Executive Officer of Spreckels  Industries,  Inc., a publicly held company.  Mr.
Brown engaged in the private  practice of law from 1963 through 1990 after seven
years of employment with the Internal Revenue Service.

    Gerard T. Bisceglia has served as Executive Vice President,  Chief Operating
Officer,  and a director of the Company since  November 4, 1996.  Mr.  Bisceglia
served as Vice  President  --  Manufacturing  and  Distribution  of the Circle K
Corporation  from August 1992 to April 1996, as Vice  President -- Retail of The
Ralston Purina Co. from February 1991 to August 1992, as Senior Product  Manager
for The Southland  Corporation  from April 1987 until  February  1991,  and as a
National  Sales  Manager with The  Southland  Corporation  from April 1972 until
April 1987.

    Joe W. Panter has served as Executive  Vice  President of the Company  since
December  16,  1996 and as a director  of the  Company  since July 7, 1994.  Mr.
Panter  served as Chief  Executive  Officer of the Company  from January 1, 1996
until  December  16, 1996 and as  President  of the Company  from April 26, 1994
until  December 16, 1996.  Mr. Panter served as Chief  Financial  Officer of the
Company from June 5, 1990 until January 1, 1996, as Senior Vice President of the
Company from October 19, 1993 until April 26, 1994,  as Secretary  and Treasurer
of the Company from June 5, 1990 until May 4, 1994, and as Vice
                                       22
<PAGE>
President of the Company from June 5, 1990 until  October 19, 1993.  Mr.  Panter
was Chief Financial Officer of K-Lin  Corporation,  a Scottsdale,  Arizona-based
entertainment  and leisure company,  from September 1987 until January 1990. Mr.
Panter  was  Executive  Vice  President  of  Elcor  Financial  Corporation,   an
Arizona-based real estate investment and management company, from May 1983 until
September 1987.

    Mark C. Walker has served as Chief  Financial  Officer of the Company  since
January 1, 1996.  Treasurer of the Company since May 4, 1994,  Vice President --
Finance since July 7, 1994,  and Secretary  since June 27, 1995.  Mr. Walker was
the Controller of Executone  Information Systems,  Inc. from November 1986 until
joining the Company in March 1993.  Mr.  Walker was employed by Ernst and Young,
an international  public  accounting firm, from August 1982 until November 1986,
most recently as an audit manager. Mr. Walker, a Certified Public Accountant and
Certified  Management  Accountant,  is a member of the Arizona  State Society of
CPAs,   the  American   Institute  of  CPAs  and  the  Institute  of  Management
Accountants.

    Jane Evans has served as a director of the Company since March 10, 1997. Ms.
Evans has  served as  President  and Chief  Operating  Officer of Smart TV since
April 1995. Ms. Evans served as Vice President and General  Manager of U.S. West
Communications,  Home and Personal Services from February 1991 until March 1995,
as President and Chief Executive Officer of Interpacific Retail Group from March
1989 until  January 1991, as a General  Partner of  Montgomery  Securities  from
January 1987 until  February 1989, as President and Chief  Executive  Officer of
Monet Jewelers from May 1984 until December 1987, as Executive Vice President --
Fashion Group of General Mills, Inc. from October 1979 until April 1984, as Vice
President  --  Corporate  Development  of  Fingerhut  from  November  1977 until
September  1979, as President of Butterick  Fashions from May 1974 until October
1977, and as President of the I. Miller Division of Genesro,  Inc. from May 1970
until May 1973. Ms. Evans serves on the Boards of Directors of the Philip Morris
Companies, Inc.; Georgia - Pacific Corp.; Kaufman & Broad Home Corp.; and Edison
Bros. Stores, Inc.

    Steven A. Sherman has served as a director  since June 5, 1990.  Mr. Sherman
served as the Chairman of the Company from June 5, 1990 until August 9, 1996, as
Chief Executive  Officer of the Company from June 5, 1990 until January 1, 1996,
and as the  President of the Company from January 15, 1993 until April 26, 1994.
Mr. Sherman has been a principal of a merchant banking  organization  called the
Sherman Group since its formation in July 1988.  Mr.  Sherman also has served as
Chairman of the Board and  President of NovAtel  Wireless,  Inc.  since 1996. In
addition,  Mr.  Sherman  has  served  as the  Chairman  of the  Board of  Vodavi
Technology, Inc., a company involved in the design, development and distribution
of telephones,  telephone systems,  and related products,  since its founding in
April 1994.  Mr.  Sherman was  Chairman  of the Board of  Executone  Information
Systems, Inc. (formerly Vodavi Technology Corporation, a provider of information
systems,  which was founded by Mr.  Sherman) from 1983 until his  resignation in
July 1988 and a director of Executone from 1983 until his resignation in January
1990.  In April 1994,  Vodavi  Technology,  Inc.  purchased  the business of the
Vodavi Communications Division from Executone Information Systems, Inc.

    John C. Metz has served as a director  of the  Company  since April 1, 1996.
Mr. Metz has served as Chairman and Chief Executive Officer of Metz Enterprises,
Inc., a contract food management and retail restaurant company,  since 1987. Mr.
Metz also is a director of Longhorn  Steaks,  Inc., a chain of  approximately 60
Texas-style roadhouse casual dining restaurants.

    There are no family  relationships  among any of the Company's directors and
executive officers.
                                       23
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

Summary of Cash and Other Compensation

    The following table sets forth, for the periods indicated,  the compensation
received  by the  Company's  Chief  Executive  Officer  and its other  executive
officers  whose annual  salary and bonus  exceeded  $100,000 for the fiscal year
ended December 30, 1996.

                           SUMMARY COMPENSATION TABLE

                                                                    
                                                                     Long Term  
                                                                    Compensation
                                                                    ------------
                                                                       Awards   
                                                                    ------------
                                             Annual Compensation     Securities 
                                             -------------------     Underlying 
Name and Principal Position          Year    Salary($)   Bonus($)    Options(#)
---------------------------------    ----    --------    --------    --------
Steven A. Sherman,                   1996    $193,739        --          --
 Chairman of the Board(1)            1995     347,454        --          --
                                     1994     352,160    $ 50,736        --

Joe W. Panter,                       1996    $205,400        --        90,000(3)
 President and                       1995     197,595        --          --
 Chief Executive Officer(2)          1994     198,879    $ 50,736        --

John F. Antioco                      1996        --          --       800,000(4)
 Chairman of the Board

Bart A. Brown, Jr                    1996        --  (5)        --    250,000(5)
 President and Chief
 Executive Officer
-------------
(1) Mr. Sherman served as Chairman of the Board of the Company from June 5, 1990
    until August 9, 1996,  as Chief  Executive  Officer of the Company from June
    1990 until January 1, 1996, and as President of the Company from January 15,
    1993 until April 26, 1994.
(2) Mr. Panter served as Chief Executive  Officer of the Company from January 1,
    1996 until  December  16,  1996,  as President of the Company from April 26,
    1994 until December 16, 1996, as Chief Financial Officer of the Company from
    June 5, 1990 until January 1, 1996, as Senior Vice  President of the Company
    from October 19, 1993 until April 26, 1994,  as Secretary  and  Treasurer of
    the Company  from June 5, 1990 until May 4, 1994,  and as Vice  President of
    the Company from June 5, 1990 until October 19, 1993.
(3) The  options  granted  to  Messrs.  Sherman  and  Panter  in 1996 were at an
    exercise  price of $4.00 per share  (which  exceeded  the fair  value of the
    shares  on  the  date  of  grant),  which  are  exercisable  ratably  over a
    three-year period.
(4) The options granted to Mr. Antioco were at exercise prices of $2.00 to $5.00
    per share and vest over a three-year period.
(5) Mr.  Brown served as President  and Chief  Executive  Officer of the Company
    from December 16, 1996 through  December 30, 1996 for no cash  compensation.
    The options  granted to Mr. Brown were at exercise  prices of $2.00 to $5.00
    per share and vest over a two-year period.

    Officers  and key  personnel  of the Company are  eligible to receive  stock
options under the Company's 1990 and 1995 Stock Option Plans will be eligible to
receive stock options and awards pursuant to the 1995 Plan.  Executive  Officers
serve at the discretion of the Board of Directors. See "Employment Agreements."
                                       24
<PAGE>
Option Grants

    The following  table provides  information  on stock options  granted to the
Company's executive officers during the fiscal year ended December 30, 1996.

                        OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
                           Individual Grants                                        
--------------------------------------------------------------------------------    Potential Realizable Value
                                                                                       at Assumed Annual
                             Number of                                                Rates of Stock Price
                            Securities       % of Total                              Appreciation For Option
                            Underlying         Options     Exercise                           Term
                             Options         Granted in     Price     Expiration    --------------------------
        Name               Granted(#)(1)     Fiscal Year    ($/SH)       Date        5%($)            10%($)
        ----               -------------     -----------    ------       ----        -----            ------
<S>                           <C>                 <C>        <C>         <C>        <C>               <C>
Steven A. Sherman.........     40,000              2.4%      $4.00       2006       $     0           $     0

Joe W. Panter ............     90,000              5.4%      $4.00       2006       $     0           $     0

John F. Antioco...........    400,000             23.9%      $2.00       2006       $40,000           $80,000
                              200,000             12.0%      $3.00       2006       $     0           $     0
                              200,000             12.0%      $5.00       2006       $     0           $     0

Bart A. Brown, Jr.........    100,000              6.0%      $2.00       2006       $     0           $   547
                               50,000              3.0%      $3.00       2006       $     0           $     0
                               50,000              3.0%      $4.00       2006       $     0           $     0
                               50,000              3.0%      $5.00       2006       $     0           $     0

Gerard T. Bisceglia.......     50,000              3.0%      $2.00       2006       $     0           $     0
                               50,000              3.0%      $3.00       2006       $     0           $     0
                               50,000              3.0%      $4.00       2006       $     0           $     0
                               50,000              3.0%      $5.00       2006       $     0           $     0

Mark C. Walker............     35,000              2.1%      $4.00       2006       $     0           $     0
</TABLE>
-------------
(1) The  options  were  granted  at or above the fair value of the shares on the
    date of grant and have a 10-year term.

Option Holdings

    The following  table provides  information on options  exercised in the last
fiscal  year  by the  Company's  executive  officers  and  the  value  of  their
unexercised options at December 30, 1996.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                           AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
                                                                  Number of
                                                                 Securities       Value of
                                                                 Underlying     Unexercised
                                                                 Unexercised    In-the-Money
                                                                 Options at      Options at
                                                                FY-End (#)(1)   FY-End ($)(2)
                            Shares Acquired   Value Realized     Exercisable/    Exercisable/
        Name                on Exercise (#)        ($)          Unexercisable   Unexercisable
        ----                ---------------   --------------    -------------   -------------
<S>                                <C>              <C>        <C>                   <C>
Steven A. Sherman.........         --               --          13,333/126,666       $0/$0
Joe W. Panter.............         --               --            35,937/7,813       $0/$0
John F. Antioco...........         --               --         217,500/600,000       $0/$0
Bart A. Brown, Jr. .......         --               --         100,000/150,000       $0/$0
Gerard T. Bisceglia.......         --               --          50,000/154,000       $0/$0
Mark C. Walker............         --               --           11,667/27,333       $0/$0
</TABLE>
---------------
(1) Amounts reflect options outstanding as of December 30, 1996.
(2) The  exercise  price of such  options  was in excess of the fiscal  year end
    value of the Company's Common Stock of $1 5/8 per share.
                                       25
<PAGE>
1990 Stock Option Plan

    On July 25, 1990, the Company's Board of Directors  adopted,  and on July 1,
1991 the Company's  stockholders approved, the 1990 Stock Option Plan (the "1990
Plan").  The 1990 Plan provides for the granting of both incentive stock options
and  nonstatutory   stock  options  to  qualified   employees  and  non-employee
directors.  The 1990 Plan also  provides  for various  other  incentive  awards,
including  "Stock  Appreciation  Rights."  Options  granted  under the 1990 Plan
generally  cannot be exercised  for at least one year and  typically can only be
exercised  in  installments  of an equal  number  of  shares  over a  three-  to
five-year  period. As of March 31, 1997, 64,325 shares of Common Stock have been
issued upon exercise of options granted pursuant to the 1990 Plan and there were
outstanding  options to purchase  111,500  shares of Common Stock under the 1990
Plan.  No incentive  awards other than stock options have been granted under the
1990 Plan. The Company has reserved an additional  74,175 shares of Common Stock
for issuance under the 1990 Plan.

    The exercise  price of all incentive  stock  options and options  granted to
directors under the 1990 Plan must be at least equal to the fair market value of
the shares on the date of the grant or, in the case of incentive  stock  options
granted  to the  holder  of 10% or more of the  Company's  Common  Stock (a "10%
Stockholder"), at least 110% of the fair market value of such shares on the date
of the grant.  The maximum exercise period for which incentive stock options may
be granted is ten years (five years in the case of a 10% Stockholder).

    The  1990  Plan  provides  for its  administration  in  accordance  with the
requirements  of Rule 16b-3 under the Exchange  Act. The 1990 Plan  currently is
administered by a committee of directors who are "disinterested  persons" chosen
by the Board of Directors to  administer  the 1990 Plan (the  "Committee").  The
Committee  has  discretionary  authority,  subject to certain  restrictions,  to
determine  the  individuals  to whom,  the times at which,  and, with respect to
nonstatutory  stock  options,  the  exercise  price  for which  options  will be
granted.  Notwithstanding the foregoing, the 1990 Plan provides that the Company
will not grant any nonstatutory  stock options to purchase shares at an exercise
price of less than 85% of the fair  market  value of such  shares on the date of
the grant.

1995 Stock Option Plan

  General

    The 1995 Plan is divided into two programs:  the Discretionary Grant Program
(the  "Discretionary  Program") and the Automatic  Grant Program (the "Automatic
Program").  The  Discretionary  Program  provides  for the grant of  options  to
acquire  Common  Stock of the Company  ("Options"),  the direct  grant of Common
Stock ("Stock Awards"), the grant of stock appreciation rights ("SARs"), and the
grant of other cash awards ("Cash Awards") (Stock Awards,  SARs, and Cash Awards
are collectively referred to herein as "Awards"). The Automatic Program provides
for the automatic grant of options to acquire the Common Stock of the Company to
non-employee members of the Company's Board of Directors.

    The 1995 Plan states that it is not  intended to be the  exclusive  means by
which the  Company may issue  options or  warrants to acquire its Common  Stock,
stock awards,  or any other type of award. To the extent permitted by applicable
law,  the Company may issue any other  options,  warrants,  or awards other than
pursuant to the 1995 Plan without  stockholder  approval.  

  Shares Subject to the Plan

    A maximum of 325,000  shares of Common  Stock of the  Company  may be issued
under the 1995 Plan. If any Option or SAR  terminates or expires  without having
been exercised in full,  stock not issued under such Option or SAR will again be
available  for the purposes of the 1995 Plan. If any change is made in the stock
subject to the 1995 Plan or subject to any Option or SAR granted  under the 1995
Plan (through merger,  consolidation,  reorganization,  recapitalization,  stock
dividend,  split-up,  combination  of  shares,  exchange  of  shares,  change in
corporate  structure,  or  otherwise),  the 1995 Plan provides that  appropriate
adjustments  will be made as to the maximum number of shares subject to the 1995
Plan and the number of shares and exercise  price per share of stock  subject to
outstanding Options or Awards. There were
                                       26
<PAGE>
outstanding  Options to acquire  235,000  shares of the  Company's  Common Stock
under the 1995 Plan as of March 31, 1997. See "Executive  Compensation -- Option
Grants."

  Eligibility and Administration

    Options and Awards may be granted pursuant to the Discretionary Program only
to  persons  ("Eligible  Persons")  who at the time of grant are  either (i) key
personnel (including officers and directors) of the Company, or (ii) consultants
and  independent  contractors  who provide  valuable  services  to the  Company.
Options  granted  pursuant to the  Discretionary  Program may be incentive stock
options or non-qualified stock options. Options that are incentive stock options
may be granted only to key  personnel  of the Company who are also  employees of
the Company. To the extent that granted Options are incentive stock options, the
terms and conditions of those Options must be consistent with the  qualification
requirements set forth in the Internal Revenue Code of 1986, as amended.

    The Eligible Persons under the Discretionary  Grant Program are divided into
two groups, and there is a separate  administrator (each a "Plan Administrator")
for each group.  One group  consists of the executive  officers and directors of
the  Company  and  persons  who  own 10% or more  of the  Company's  issued  and
outstanding  stock.  The power to administer the 1995 Plan with respect to those
persons is vested  exclusively  with the Board of Directors or a committee  (the
"Senior  Committee")  comprised of two or more  non-employee  directors  who are
appointed by the Board of Directors.  The power to administer the 1995 Plan with
respect to the remaining  Eligible Persons is vested with the Board of Directors
of the Company or with a committee  of two or more  directors  appointed  by the
Board of Directors. Each Plan Administrator determines (i) which of the Eligible
Persons in its group will be granted  Options  and  Awards;  (ii) the amount and
timing of the grant of such  Options and Awards;  and (iii) such other terms and
conditions as may be imposed by the Plan Administrator  consistent with the 1995
Plan.  The maximum  number of shares of stock with  respect to which  Options or
SARs may be granted to any employee (including  officers) during the term of the
1995 Plan may not exceed 50% of the shares of Common  Stock  covered by the 1995
Plan. 

  Terms and Conditions of Options; Exercise of Options

    Each Plan  Administrator  will determine the expiration date, maximum number
of shares  purchasable,  and the other  provisions of the Options at the time of
grant. Options may be granted for terms of up to 10 years. Options will vest and
become  exercisable in whole or in one or more  installments at such time as may
be determined by the Plan Administrator upon the grant of the Options.  However,
a  Plan   Administrator   has  the  discretion  to  provide  for  the  automatic
acceleration  of  the  vesting  of any  Options  or  Awards  granted  under  the
Discretionary Grant Program in the event of a "Change in Control," as defined in
the 1995 Plan.

    Each Plan  Administrator  also will determine the exercise prices of Options
at the time of grant.  However,  the exercise price of any Option intended to be
an incentive  stock option may not be less than 100% of the fair market value of
the  Common  Stock at the time of the grant  (110% if the Option is granted to a
person who at the time the Option is granted owns stock possessing more than 10%
of the total combined  voting power of all classes of stock of the Company).  To
exercise an Option,  the optionholder will be required to deliver to the Company
full  payment  of the  exercise  price for the  shares as to which the Option is
being exercised. Generally, Options can be exercised by delivery of cash, check,
or shares of Common Stock of the Company.

  Termination of Employment or Services

    Except as otherwise  allowed by the Plan  Administrator,  Options and Awards
granted  under the 1995 Plan are  nontransferable  other  than by will or by the
laws of descent and  distribution  upon the death of the holder and,  during the
lifetime of the holder, are exercisable only by such holder. In the event of the
termination of the holder's  services with the Company,  other than for death or
disability,  the holder  may  exercise  any  Options or SARs that are vested but
unexercised  on the date his or her service is  terminated  until the earlier of
(i) 90 days after the date of  termination  of service,  or (ii) the  expiration
date of the Options or SARs. However,  termination of employment at any time for
cause  immediately  terminates  all  Options  or  SARs  held  by the  terminated
employee. If termination is by reason of disability, however, the
                               27
<PAGE>
holder may  exercise  his or her  Options  or SARs  until the  earlier of (i) 12
months after the  termination of service,  or (ii) the expiration of the term of
the Option or SAR.  If the holder  dies  while in  service to the  Company,  the
holder's  estate or successor by bequest or inheritance may exercise any Options
or SARs that the holder was entitled to exercise on the date of his or her death
at any time until the earlier of (i) the period  ending  three  months after the
holder's death, or (ii) the expiration of the term of the Option or SAR.

  Awards

    SARs  will  entitle  the  recipient  to  receive  a  payment  equal  to  the
appreciation  in market value of a stated  number of shares of Common Stock from
the price on the date the SAR was  granted  or became  effective  to the  market
value of the Common  Stock on the date first  exercised  or  surrendered.  Stock
Awards will entitle the  recipient  to receive  shares of the  Company's  Common
Stock  directly.  Cash  Awards  will  entitle the  recipient  to receive  direct
payments of cash depending on the market value or the appreciation of the Common
Stock or other securities of the Company.  The Plan Administrators may determine
such other terms,  conditions,  or  limitations,  if any, on any Awards  granted
pursuant to the 1995 Plan.

  Automatic Options

    The  Automatic   Program   provides  for  the  automatic  grant  of  Options
("Automatic   Options")  to  non-  employee  directors  of  the  Company.   Each
non-employee  director  serving  on the  Board of  Directors  on the date of the
adoption of the 1995 Plan received  Automatic Options to acquire 7,500 shares of
Common Stock, and each subsequent newly elected non-employee member of the Board
of Directors will receive  Automatic  Options to acquire 15,000 shares of Common
Stock on the date of his or her first  appointment  or  election to the Board of
Directors.  In  addition,  Automatic  Options to acquire  2,500 shares of Common
Stock will be granted to each non-employee  director at the meeting of the Board
of Directors  held  immediately  after each annual  meeting of  stockholders.  A
non-employee  member of the Board of  Directors  is not  eligible to receive the
2,500  share  Automatic  Option  if that  grant  date is  within 90 days of such
non-employee  member  receiving the  15,000-share  Automatic  Option.  Automatic
Options  become  exercisable  and vest  immediately  upon grant,  except that no
Automatic Options will vest until the approval of the 1995 Plan by the Company's
stockholders.

    The exercise  price per share of Automatic  Options will be equal to 100% of
the fair  market  value of the  Company's  Common  Stock (as defined in the 1995
Plan) on the date such  Automatic  Options are granted.  Each  Automatic  Option
expires on the tenth  anniversary of the date on which an Automatic Option grant
was made. In the event the non-employee  director ceases to serve as a member of
the Board of Directors or dies while serving as a director,  the optionholder or
the  optionholder's  estate or successor by bequest or inheritance  may exercise
any  Automatic  Options  vested at the time of  cessation  of service  until the
earlier of (i) 90 days after the cessation of service, or (ii) the expiration of
the term of the Automatic Option. Non-employee members of the Company's Board of
Directors  who do not serve on the  Senior  Committee  also may be  eligible  to
receive  Options or Awards under the  Discretionary  Program of the 1995 Plan or
option  grants or direct stock  issuances  under any other plans of the Company.
The Board of Directors  believes  that the  automatic  grant of stock options to
non-employee directors is necessary to attract,  retain and motivate independent
directors. The non-discretionary feature is intended to satisfy the requirements
of rules adopted under Section 16 of the Exchange Act.
 
  Duration and Modification

    The 1995 Plan will  remain in effect  until  January 8,  2006.  The Board of
Directors of the Company may at any time suspend,  amend,  or terminate the 1995
Plan, except that without approval of the stockholders of the Company, the Board
of Directors  may not (i) increase the maximum  number of shares of Common Stock
subject to the 1995 Plan (except in the case of certain  organic  changes to the
Company),  (ii) reduce the exercise price at which Options may be granted or the
exercise price for which any outstanding Options may be exercised,  (iii) extend
the term of the 1995 Plan, (iv) change the class of persons  eligible to receive
Options or Awards under the 1995 Plan, or (v)  materially  increase the benefits
accruing to  participants  under the 1995 Plan. In addition,  the Board may not,
without the consent of the
                                       28
<PAGE>
optionholder,  take any action that disqualifies any Option  previously  granted
under the Plan for  treatment  as an incentive  stock option or which  adversely
affects or impairs the rights of the  optionholder  of any  outstanding  Option.
Notwithstanding  the  foregoing,  the Board of Directors may amend the 1995 Plan
from time to time as it deems necessary in order to meet the requirements of any
amendments  to Rule 16b-3  under the  Exchange  Act  without  the consent of the
stockholders of the Company.

401(k) Profit Sharing Plan

    The Company's  qualified  401(k) Profit Sharing Plan (the "401(k) Plan") was
adopted by the Board of Directors  on January 14, 1991,  effective as of January
1, 1991, and covers corporate  management and restaurant  employees.  The 401(k)
Plan currently provides for a Company matching  contribution equal to 25% of the
first 6% of the salary deduction a participant elects to defer as a contribution
to the 401(k) Plan. The 401(k) Plan further provides for a special discretionary
contribution  equal to a percentage of a  participant's  salary to be determined
each year by the Company. The Company also may contribute a discretionary amount
in addition  to the special  discretionary  contribution.  Contributions  to the
401(k) Plan by the Company for fiscal 1996 totalled approximately $79,000.

Employment Agreements

    The Company is a party to employment  agreements with Bart A. Brown, Jr. and
Gerard T. Bisceglia  with terms through  December 31, 1998 and October 29, 1999,
respectively.  Mr. Brown's employment agreement provides for him to serve as the
President and Chief Executive Officer and Mr. Bisceglia's  employment  agreement
provides  for him to serve as  Executive  Vice  President  and  Chief  Operating
Officer of the Company. The employment  agreements provide for Mr. Brown and Mr.
Bisceglia  to receive  salaries  of  $250,000  and  $175,000,  respectively.  In
addition,  the employment  agreements  provide that Mr. Brown and Mr.  Bisceglia
will be eligible to receive  discretionary  bonuses in amounts determined by the
Compensation Committee of the Company's Board of Directors, which is composed of
non-management  directors,  based  upon  the  factors  deemed  relevant  by  the
Compensation  Committee  including the  performance of the Company.  Mr. Brown's
employment  agreement  permits him to engage in other business  activities apart
from the Company so long as such  business  activities  do not compete  with the
business of the Company.

    The employment agreements provide for Mr. Brown and Mr. Bisceglia to receive
their  fixed  and bonus  compensation  to the date of the  termination  of their
employment by reason of resignation  and for them to receive fixed  compensation
to the date of termination of employment for cause as defined in the agreements.
In the event of the  termination of employment by reason of death or disability,
the employment  agreements  provide for the payment of fixed compensation to Mr.
Brown  and Mr.  Bisceglia  for a period  of one  year  from the date of death or
disability.  In the event of any termination of employment following any "change
in  control"  of the  Company  as  defined  in  the  agreement,  the  employment
agreements  also provide for Mr. Brown and Mr.  Bisceglia to receive their fixed
compensation as if their employment had not been terminated. Section 280G of the
Internal  Revenue Code may limit the  deductibility of such payments for federal
income tax purposes. If these payments are not deductible and if the Company has
income at least equal to such payments,  an amount of income equal to the amount
of such  payments  could not be offset.  As a result,  the  income  that was not
offset would be "phantom  income" (i.e.  income without cash) to the Company.  A
change in control would include a merger or consolidation of the Company, a sale
of all  or  substantially  all of the  assets  of the  Company,  changes  in the
identity of a majority of the members of the Board of  Directors of the Company,
or  acquisitions  of more than 20% of the  Company's  Common  Stock,  subject to
certain limitations.

    The Company is a party to employment  agreements  with Steven A. Sherman and
Joe W. Panter with terms through  December 31, 1998. The  employment  agreements
provide  for Mr.  Sherman  and Mr.  Panter  to  receive  salaries  of  $200,000,
$225,000, and $225,000,  respectively, for the three years commencing January 1,
1996. In addition,  the employment  agreements  provide that Mr. Sherman and Mr.
Panter will be eligible to receive  discretionary  bonuses in amounts determined
by the  Compensation  Committee of the Company's  Board of  Directors,  which is
composed of non-management directors,  based upon the factors deemed relevant by
the Compensation Committee including the performance of the Company. Mr.
                                       29
<PAGE>
Sherman's   employment  agreement  permits  him  to  engage  in  other  business
activities  apart from the Company so long as such  business  activities  do not
compete with the business of the Company.

    The employment  agreements provide for Mr. Sherman and Mr. Panter to receive
their  fixed  and bonus  compensation  to the date of the  termination  of their
employment by reason of resignation  and for them to receive fixed  compensation
to the date of termination of employment for cause as defined in the agreements.
In the event of the  termination of employment by reason of death or disability,
the  employment   agreements   provide  for  the  payment  of  fixed  and  bonus
compensation to Mr. Panter to the date of death or disability and to Mr. Sherman
or his personal  representative  for one year after death or disability.  In the
event of any termination of employment  following any "change in control" of the
Company as defined in the agreement,  the employment agreements also provide for
Mr. Sherman and Mr. Panter to receive their fixed compensation in a lump sum and
bonus  payments  that would have been payable  through the term of the agreement
(subject to a minimum  bonus of $100,000 per annum) as if their  employment  had
not been  terminated.  Section 280G of the  Internal  Revenue Code may limit the
deductibility  of such  payments  for  federal  income  tax  purposes.  If these
payments are not deductible and if the Company has income at least equal to such
payments,  an amount of income equal to the amount of such payments could not be
offset.  As a result,  the income that was not offset would be "phantom  income"
(i.e.  income without cash) to the Company.  A change in control would include a
merger or  consolidation of the Company,  a sale of all or substantially  all of
the assets of the Company,  changes in the identity of a majority of the members
of the Board of Directors of the Company,  or  acquisitions  of more than 20% of
the Company's Common Stock, subject to certain limitations.

Limitation of Liability and Indemnification Matters

    The Certificate of Incorporation  and Bylaws of the Company provide that the
Company will indemnify and advance expenses,  to the fullest extent permitted by
the Delaware  General  Corporation Law, to each person who is or was a director,
officer, or agent of the Company or who serves or served any other enterprise or
organization  at the request of the Company (an  "Indemnitee").  Under  Delaware
law, to the extent that an  Indemnitee  is successful on the merits of a suit or
proceeding brought against him or her by reason of the fact that he or she was a
director,  officer,  or agent of the  Company,  or serves  or  served  any other
enterprise  or  organization  at the request of the  Company,  the Company  will
indemnify him or her against expenses  (including  attorneys' fees) actually and
reasonably  incurred in connection with such action.  If unsuccessful in defense
of a third-party  civil suit or a criminal suit, or if such suit is settled,  an
Indemnitee  may be  indemnified  under  Delaware law against both (i)  expenses,
including  attorneys'  fees,  and (ii)  judgments,  fines,  and amounts  paid in
settlement if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best  interests of the  Company,  and,
with respect to any criminal  action,  had no reasonable cause to believe his or
her conduct was unlawful.  If unsuccessful in defense of a suit brought by or in
the  right of the  Company,  where the suit is  settled,  an  Indemnitee  may be
indemnified under Delaware law only against expenses (including attorneys' fees)
actually and reasonably  incurred in the defense or settlement of the suit if he
or she acted in good faith and in a manner he or she  reasonably  believed to be
in, or not opposed to, the best  interests  of the  Company,  except that if the
Indemnitee  is  adjudged  to be  liable  for  negligence  or  misconduct  in the
performance  of his or her duty to the  Company,  he or she cannot be made whole
even  for  expenses  unless  a  court  determines  that he or she is  fully  and
reasonably  entitled to indemnification  for such expenses.  Also under Delaware
law,  expenses  incurred  by an  officer or  director  in  defending  a civil or
criminal  action,  suit, or proceeding  may be paid by the Company in advance of
the final  disposition  of the suit,  action,  or proceeding  upon receipt of an
undertaking  by or on behalf of the  officer or director to repay such amount if
it is ultimately  determined that he or she is not entitled to be indemnified by
the Company.  The Company also may advance expenses  incurred by other employees
and agents of the Company upon such terms and conditions, if any, that the Board
of Directors of the Company deems appropriate.  Insofar as  indemnification  for
liabilities  arising  under  the  Securities  Act of 1933  may be  permitted  to
directors,  officers,  or  persons  controlling  the  Company  pursuant  to  the
foregoing provisions,  the Company has been informed that, in the opinion of the
Securities  and Exchange  Commission,  such  indemnification  is against  public
policy as expressedin the Securities Act of 1933 and is therefore unenforceable.
                                       30
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth certain information  regarding the beneficial
ownership of the Company's  Common Stock as of March 31, 1997 by (i) each person
who is known to the Company to own  beneficially  more than 5% of the  Company's
Common Stock,  (ii) each director,  (iii) each of the named executive  officers,
and (iv) all directors and executive officers as a group.

                                             Shares
Name and Address of                       Beneficially   Approximate Percentage
Benificial Owner(1)                          Owned      of Outstanding Shares(2)
-------------------                          -----      ------------------------
John F. Antioco .......................   1,175,000(3)           11.5%
Bart A. Brown, Jr. ....................     430,000(4)            4.3%
Gerard T. Bisceglia ...................     327,566(5)            3.3%
Joe W. Panter .........................     158,750(6)            1.6%
Mark C. Walker ........................      14,167(7)             *
Jane Evans ............................      15,000(8)             *
John C. Metz ..........................      25,500(9)             *
Steven A. Sherman .....................     432,639(10)           4.3%
All directors and officers as a group   
 (eight persons) ......................   2,578,622              24.7%
--------------------
 *  Less than 1.0%.
(1) Each of such  persons may be reached  through the Company at 5050 North 40th
    Street, Suite 200, Phoenix, Arizona 85018.
(2) The  percentages  shown include the shares of Common Stock actually owned as
    of March 31,  1997 and the  shares of Common  Stock that the person or group
    had the right to acquire  within 60 days of such date.  In  calculating  the
    percentage  of  ownership,  all shares of Common  Stock that the  identified
    person or group had the right to  acquire  within 60 days of March 31,  1997
    upon the exercise of options and warrants are deemed to be  outstanding  for
    the purpose of computing the  percentage of the shares of Common Stock owned
    by such  person  or group,  but are not  deemed  to be  outstanding  for the
    purpose of computing  the  percentage of the shares of Common Stock owned by
    any other person.
(3) Includes  options to  purchase  217,500  shares of Common  Stock held by Mr.
    Antioco.
(4) Includes options to purchase 100,000 shares held by Mr. Brown.
(5) Includes options to purchase 50,000 shares held by Mr. Bisceglia.
(6) Includes options to purchase 30,000 shares held by Mr. Panter. Also includes
    a total of  110,000  shares of  Common  Stock  owned by a limited  liability
    company in which he is a member.
(7) Includes options to purchase 11,667 shares held by Mr. Walker.
(8) Consists of options to purchase 15,000 shares held by Ms. Evans.
(9) Includes options to purchase 17,500 shares held by Mr. Metz.
(10)Includes  7,812 shares of Common  Stock held by Mr.  Sherman's  wife,  as to
    which shares Mr. Sherman disclaims any beneficial  interest,  and options to
    purchase 13,333 shares held by Mr. Sherman. Also includes a total of 110,000
    shares of Common Stock owned by a limited liability company in which he is a
    member.
                                       31
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The  Company  has  adopted  a  policy  that  it  will  not  enter  into  any
transactions with directors,  officers, or holders of more than 5% of its Common
Stock on terms which are less  favorable  to the Company  than could be obtained
from independent third parties and that any loans to directors,  officers, or 5%
stockholders will be approved by a majority of the disinterested directors.

    In December  1993, the Company  entered into a five-year  lease for space to
serve as the  corporate  offices of the  Company.  Steven A.  Sherman and Joe W.
Panter own a majority  interest in the building housing the space. The lease was
approved by the disinterested  directors of the Company.  The lease provides for
annual  rent of  approximately  $172,000 in 1997 and  $175,000  in 1998.  Rental
payments under this agreement were  approximately  $166,000 and $169,000  during
1995 and 1996, respectively.

    In May 1991, the Company became a party to a five-year management assistance
agreement  with  AsianStar,  Inc.  ("AsianStar").  J. Y. Lee,  the  Chairman and
principal stockholder of AsianStar, was a director of the Company from September
27, 1991 to February 13, 1996. The Company recorded  approximately  $426,000 and
$441,000 of income relating to the management assistance agreement during fiscal
1994 and 1995,  respectively.  In 1996, the Company  finalized an agreement with
AsianStar to exchange the receivable generated by this agreement,  approximately
$1,497,000,  and cash of  approximately  $162,000 for an  ownership  interest in
AsianStar. See Note 2 to the Notes to Consolidated Financial Statements.

    During 1996,  the Company  sold  766,666  shares of its Common Stock at fair
market value at the time of purchase to John F. Antioco and Gerard T.  Bisceglia
for $1,500,000.

    In January 1997, the Company sold a total of 1,250,000  shares of its Common
Stock for  $2,500,000,  which exceeded the fair market value of the stock on the
date of  purchase.  Of these  shares,  John F.  Antioco and Bart A.  Brown,  Jr.
purchased a total of 500,000 shares and unrelated accredited investors purchased
the balance.

    The Company believes that the foregoing  transactions were no less favorable
to the Company than could be obtained from non-affiliated parties.
                                       32
<PAGE>
                                     PART IV

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

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit
Number    Exhibit
------    -------
<S>       <C>
3.1       Certificate of Incorporation of the Registrant(4)
3.2       Certificate of Amendment of Restated Certificate of Incorporation(10)
3.3       Amended and Restated Bylaws of the Registrant(4)
4.1       Form of Warrant Agreement(3)
4.2       Form of Deposit Agreement(4)
4.3       Form of Underwriters' Warrant Agreement(4)
10.1      Registrant's 1990 Stock Option Plan(3)
10.2      Purchase  Agreement  between the Registrant  and TGI Friday's  Inc.(1) 
10.3      Development  Agreement  between the  Registrant  and TGI  Friday's  Inc.(1) 
10.4      Purchase Agreement between the Registrant and WRI U.S., Inc.(3)
10.5      Development Agreement between the Registrant and TGI Friday's Inc.(2)
10.6      Form of Franchise Agreement  between the Registrant and TGI Friday's  Inc.(1)
10.7      Lease Agreement between the  Registrant  and Grove  Realty  Associates(1)
10.8      Lease  Agreement between the Registrant and Three Fountains Plaza Limited
          Partnership(1)
10.9      Lease Agreement between the Registrant and Weksler-Casselman Investments(1)
10.10     Lease Agreement  between the Registrant and Mark Borough  Nevada,  Inc.(1)
10.11     Lease Agreement  between the Registrant and Fringe Land Ore. Ltd.(2)
10.12     Lease  Agreement  between the  Registrant and Kirkland  Parkplace  Associates(2)
10.13     $900,000 Promissory Note dated June 20, 1991 in favor of WRI U.S., Inc.(2)
10.14     $75,000  Promissory Note dated June 20, 1991 in favor of WRI U.S., Inc.(2)
10.15     Management  Assistance Agreement between the Registrant and AsianStar Co., Ltd.(3) 
10.16     Partnership  Agreement between the Registrant and Suncor(3) 
10.17     Lease Agreement between the Registrant and Galleria Limited Partnership and
          Amendment thereto(3)
10.18     Construction  Loan Agreement  between the Registrant and Caliber  Bank(3)
10.19     Employment Agreement between the Registrant and Steven A. Sherman(3) 
10.20     Asset Purchase  Agreement between the Registrant and Kansas City Cafe Company(5)
10.21     Development  Agreement  between the Registrant and TGI Friday's  Inc.(10)
10.22     Development  Agreement  between the Registrant and TGI Friday's  Inc.(10)
10.23     Stock Purchase Agreement between the Registrant and Sun Street Limited
          Partnership(7)
10.24     Lease agreement between the Registrant and 5050 North 40th St. LLC(9)
10.25     Lease agreement between the Registrant and East Iliff Associates(9)
10.26     Lease agreement between the Registrant and The Prudential Insurance Company of
          America(9)
10.27     Lease agreement between the Registrant and Oak Park Investment(9)
10.28     Lease agreement between the Registrant and Ward Parkway Shops Incorporated(9)
10.29     Lease agreement between the Registrant and The Cafaro Northwest Partnership(9)
10.30     Lease agreement between the Registrant and FFCA Co. Investment Limited
          Parnership(9)
10.31     Lease agreement between the Registrant and The Prudential Insurance Company of
          America(9)
10.32     Lease agreement between the Registrant and FFCA Co. Investment Limited
          Partnership(9)
10.33     Lease agreement between the Registrant and Ocean Alexander Investments, Inc.(9)
</TABLE>
                                       34
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number    Exhibit
------    -------
<S>       <C>
10.34     Lease agreement between the Registrant and McGrath-RHD Partners(8)
10.35     Lease agreement between the Registrant and Koll Santa Margarita Retail Venture II(8)
10.36     Lease agreement between the Registrant and Bohannon Development Company(8)
10.37     Lease agreement between the Registrant and May Centers, Inc.(8)
10.38     Lease agreement between the Registrant and Courtyard of San Ramon, Inc.(8)
10.39     Lease agreement between the Registrant and Robert A. Allison(8)
10.40     Lease agreement between the Registrant and F.A.B. Industries(8)
10.41     Lease agreement between the Registrant and Valencia Town Center Associates(8)
10.42     Lease agreement between the Registrant and Oak Grove Investors(8)
10.43     Lease agreement between the Registrant and Rancho Consultants Realty Fund IV(8)
10.44     Lease agreement between the Registrant and Tyler Mall Associates(8)
10.45     Lease agreement between the Registrant and Palm Desert Ltd.(8)
10.46     Lease agreement between the Registrant and Centrelake Partners, L.P.(8)
10.47     Lease agreement between the Registrant and The City(8)
10.48     Lease agreement between the Registrant and Villa Marina Center(8)
10.49     Lease agreement between the Registrant and La Jolla Village Center(8)
10.50     Lease agreement between the Registrant and Crossroads Associates(8)
10.51     Lease agreement between the Registrant and Brea Marketplace Building Site Joint
          Venture(8)
10.52     Lease agreement  between the Registrant and Vallco Fashion Park Venture(8)
10.53     Lease agreement between the Registrant and Aetna Life Insurance Company(8)
10.54     Lease agreement  between the Registrant and Two Town Center  Associates(8)
10.55     Lease  agreement  between the  Registrant  and  Buie-Area M. Ltd.(8) 
10.56     agreement  between the  Registrant  and Homart  Development  Co.(8) 
10.57     Agreement between the Registrant and TGI Friday's Inc.(8) 
10.58     Form of Franchise  Agreement  between the Registrant  and TGI Friday's  Inc.(8) 
10.59     Stock Purchase Agreement, as amended, between the Registrant and TGI Friday's
          Inc.(8)
10.60     Term Loan and Security Agreement between the Registrant and Sanwa Business 
          Credit Corporation(8)
10.61     Junior Secured Note from the Registrant to TGIF Holdings, Inc.(8)
10.62     Note from Registrant to TGI Friday's Inc.(8)
10.63     Agreement between the Registrant and Michael R. Stewart(9)
10.64     Modification of Stock Purchase Agreement between the Registrant and Sun Street
          Limited Partnership(10)
10.65     Amendment No. 1 and Waiver No. 1 to term Loan and Security Agreement between
          Registrant and Sanwa Business Credit Corporation(11)
10.66     Amended and Restated Development Agreement between Registrant and TGI Friday's
          Inc.(11)
10.67     Amended and Restated Development Agreement (Washington/Oregon) between the
          Registrant and TGI Friday's, Inc.(11)
10.68     Amended and Restated Development Agreement (Colorado Area Territory) between
          Registrant and TGI Friday's Inc.(11)
10.69     First Amendment to Development Agreement between the Registrant and TGI Friday's
          Inc.(11)
10.70     Fifth Amendment to Development Agreement between the Registrant and TGI Friday's
          Inc.(11)
10.71     Amended and Restated Junior Secured Note from Registrant to TGI Friday's of
          Minnesota, Inc.(11)
10.72     Amended and Restated Note from Registrant to TGI Friday's Inc.(10)
10.73     Joint Venture Agreement between Registrant and AsianStar Inc.(12)
10.74     Employment Agreement with Steven A. Sherman(12)
10.75     Employment Agreement with Joe W. Panter(12)
</TABLE>
                                       35
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number    Exhibit
------    -------
<S>       <C>
10.76     Restated Credit Facility between Registrant and Sanwa Business Credit
          Corporation.(13)
10.77     Second Amended and Restated Note From Registrant to TGI Friday's of Minnesota,
          Inc.(13)
10.78     Asset Conveyance Agreement among CNL California Restaurants, LTD., Main St.
          California, Inc. and Registrant.(14)
10.79     Stock Purchase Agreement among CNL California Restaurants, LTD., Main St.
          California, Inc. and Registrant.(14)
10.80     Form of Management Agreement between Main St. California II, Inc. and Main St.
          California, Inc., a wholly owned subsidiary of Registrant.(14)
10.81     Master Incentive Agreements between Main St. California II, Inc. and Main St.
          California, Inc., a wholly owned subsidiary of Registrant.(14)
10.82     Employment Agreement with Bart A. Brown, Jr.
10.83     Employment Agreement with Gerard T. Bisceglia.
10.84     Promissory Note between Registrant and CNL Financial I, Inc.
10.85     Promissory Note between Registrant and CNL Financial I, Inc.
10.86     Promissory Note between Registrant and CNL Financial I, Inc.
10.87     Registrant's 1995 Stock Option Plan(15)
21        List of Subsidiaries(11)
</TABLE>
---------------
(1) Incorporated by reference to the  Registrant's  Form 10-K for the year ended
    December 31, 1990,  filed with the Securities and Exchange  Commission on or
    about April 1, 1991.
(2) Incorporated  by  reference  to the  Registrant's  Form 8-K  filed  with the
    Securities and Exchange Commission on July 12, 1991.
(3) Incorporated by reference to the Registrant's Registration Statement on Form
    S-1 (Registration No. 33-40993) which became effective in September 1991.
(4) Incorporated by reference to the  Registrant's  Form 10-K for the year ended
    December 30, 1991,  filed with the Securities and Exchange  Commission on or
    about March 31, 1992.
(5) Incorporated  by  reference  to the  Registrant's  Form 8-K  filed  with the
    Securities and Exchange Commission in May 1992.
(6) Incorporated  by  reference  to the  Registrant's  Form 8-K  filed  with the
    Securities and Exchange Commission in October 1992.
(7) Incorporated by reference to the Registrant's Registration Statement on Form
    8-K filed with the Securities and Exchange Commission in January 1994.
(8) Incorporated  by  reference  to the  Registrant's  Form 8-K  filed  with the
    Securities and Exchange Commission on or about April 15, 1994.
(9) Incorporated by reference to the  Registrant's  Form 10-K for the year ended
    December 31, 1993,  filed with the Securities and Exchange  Commission on or
    about April 15, 1994.
(10)Incorporated by reference to the Registrant's Registration Statement on Form
    S-3 (Registration No. 33-71230) which became effective in July 1994.
(11)Incorporated by reference to the Registrant's  Form 10-K Report for the year
    ended December 26, 1994 as filed with the Securities and Exchange Commission
    on or about April 28, 1995.
(12)Incorporated by reference to the Registrant's Registration Statement on Form
    S-1 (Registration No. 33-94164) which became effective in September 1995.
(13)Incorporated by reference to the  Registrant's  Form 10-K for the year ended
    December 25, 1995 filed with the  Securities  and Exchange  Commission on or
    about April 15, 1996.
(14)Incorporated by reference to the Registrant's Form 8-K Report filed with the
    Commission in January 1997.
(15)Incorporated  by  reference to  Registrant's  Proxy  Statement  for its 1995
    Annual Meeting of Stockholders.
                                       35
<PAGE>
(b) The  following  report  of  Independent  Public  Accountants  and  financial
    statements are filed as a part of this report.

1.  Consolidated Financial Statements (included as Page F-1 through F-16 of this
    report)
    Report of Independent Public Accountants
    Consolidated Financial Statements:
       Consolidated Balance Sheets as of December 25, 1995 and December 30 1996.
       Consolidated  Statements of Operations  for the years ended  December 26,
          1994, December 25, 1995 and December 30, 1996.
       Consolidated Statements of Changes in Stockholders'  Equity for the years
          ended December 26, 1994, December 25, 1995 and December 30, 1996.
       Consolidated Statements  of Cash Flows for the years ended  December  26,
          1994, December 25, 1995 and December 30, 1996.
       Notes to Consolidated Financial Statements

2.  Consolidated Schedules 
    These schedules are omitted because they are not applicable, not required or
    because  required  information  is  included in the  consolidated  financial
    statements or notes hereto.

(c) Report on Form 8-K
    The Registrant filed a Report on Form 8-K on January 16, 1997.
                                       36
<PAGE>
                                   SIGNATURES


   Pursuant  to the  requirements  of  Section  13 or  15(d)  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.

                                        MAIN STREET AND MAIN INCORPORATED

Date: April 14, 1997                    By: /s/ BART A. BROWN, JR.
                                           -------------------------------------
                                           Bart A. Brown, Jr.
                                           President and Chief Executive Officer


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

<TABLE>
<S>                                     <C>                                          <C>
 /s/      JOHN F. ANTIOCO               Chairman of the Board                        April 14, 1997
-------------------------------
          John F. Antioco

/s/       BART A. BROWN, JR.            President and Chief Executive Officer        April 14, 1997 
-------------------------------         (Principal Executive Officer)                            
          Bart A. Brown, Jr.                                                                  
                                                                                    
/s/       GERARD T. BISCEGLIA           Executive Vice President and Director        April 14, 1997 
-------------------------------
          Gerard T. Bisceglia                                                                 

/s/       JOE W. PANTER                 Executive Vice President and Director        April 14, 1997
-------------------------------
          Joe W. Panter                                                                    
                                                                                    
/s/       MARK C. WALKER                Chief Financial Officer (Principal           April 14, 1997 
-------------------------------         Financial and Accounting Officer),
          Mark C. Walker                Secretary and Treasurer            

/s/       JANE EVANS                    Director                                     April 14, 1997 
-------------------------------
          Jane Evans                                                                     

/s/       JOHN C. METZ                  Director                                     April 14, 1997 
-------------------------------
          John C. Metz                                                                    

/s/       STEVEN A. SHERMAN             Director                                     April 14, 1997 
-------------------------------
          Steven A. Sherman
</TABLE>
                                       37
<PAGE>
                        MAIN STREET AND MAIN INCORPORATED

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>                                                                                            <C>
Report of Independent Public Accountants ................................................      F-2

Consolidated Balance Sheets at December 25, 1995 and December 30, 1996  .................      F-3

Consolidated Statements of Operations for the fiscal years ended December 26, 1994,            
 December 25, 1995, and December 30, 1996 ...............................................      F-4

Consolidated  Statements of Changes in Stockholders' Equity for the fiscal years ended   
 December  26,  1994,  December  25,  1995,  and  December  30,  1996....................      F-5  

Consolidated Statements of Cash Flows for the fiscal years ended December 26, 1994,      
 December 25, 1995, and December 30, 1996 ...............................................      F-6

Notes to Consolidated Financial Statements ..............................................      F-7
</TABLE>
                                      F-1
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of
 Main Street and Main Incorporated:

    We have audited the accompanying  consolidated balance sheets of MAIN STREET
AND MAIN  INCORPORATED (a Delaware  corporation) and subsidiaries as of December
30, 1996,  and December 25, 1995,  and the related  consolidated  statements  of
operations,  changes in stockholders'  equity and cash flows for the years ended
December 30, 1996,  December 25, 1995, and December 26, 1994. These consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

    We conducted  our audits in  accordance  with  generally  accepted  auditing
standards.  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,  the financial  statements referred to above present fairly,
in all  material  respects,  the  financial  position  of Main  Street  and Main
Incorporated and subsidiaries as of December 30, 1996 and December 25, 1995, and
the  results  of their  operations  and their  cash  flows  for the years  ended
December 30, 1996,  December 25, 1995 and December 26, 1994, in conformity  with
generally accepted accounting principles.

                                        ARTHUR ANDERSEN LLP


Phoenix, Arizona
 March 31, 1997
                                       F-2
<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)


                                                     December 25,   December 30,
                                                        1995           1996
                                                        ----           ----
ASSETS
Current Assets
  Cash and cash equivalents ..........................$ 4,741        $ 2,613
  Accounts receivable, net ...........................  2,484          1,248
  Inventories ........................................  1,517          1,275
  Prepaid expenses ...................................    461            173
  Assets held for disposal,net .......................   --           10,929
                                                      -------        -------
     Total current assets ............................  9,203         16,238

Property and equipment, net .......................... 44,104         32,162
Other assets, net ....................................  6,287          4,780
Franchise costs, net ................................. 22,761         16,418
Note receivable ......................................  6,250          1,250
                                                      -------        -------
                                                      $88,605        $70,848
                                                      =======        =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Current portion of long-term debt ..................$ 4,567        $ 2,523
Accounts payable .....................................  3,543          3,750
Other accrued liabilities ............................  8,941         11,308
                                                      -------        -------
     Total current liabilities ....................... 17,051         17,581
                                                      -------        -------
Long-term debt, net of current portion ............... 31,204         33,809
                                                      -------        -------
Other liabilities and deferred credits ...............  3,089          2,873
                                                      -------        -------
Commitments and contingencies ........................   --             --

Stockholders' Equity
Common stock, $.001 par value, 40,000,000 shares .....      8              9
 authorized; 7,951,825 and 8,718,491 shares issued and
 outstanding in 1995 and 1996, respectively
Additional paid-in capital ........................... 40,205         41,694
Accumulated deficit .................................. (2,952)       (25,118)
                                                      -------        -------
                                                       37,261         16,585
                                                      -------        -------
                                                      $88,605        $70,848
                                                      =======        =======


                  The accompanying notes are an integral part
                     of these consolidated balance sheets.
                                       F-3
<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In Thousands, Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                Year Ended
                                                -------------------------------------------
                                                December 26,    December 25,   December 30,
                                                    1994           1995           1996
                                                    ----           ----           ----
<S>                                              <C>             <C>            <C>      
Revenue .....................................    $ 111,262       $ 119,508      $ 122,563
                                                 ---------       ---------      ---------
Restaurant Operating Expenses
  Cost of sales ..............................      30,516          34,005         35,089
  Payroll and benefits .......................      34,849          36,769         38,858
  Depreciation and amortization ..............       3,884           4,353          4,586
  Other operating expenses ...................      31,621          35,250         36,944
                                                 ---------       ---------      ---------
     Total restaurant operating expenses .....     100,870         110,377        115,477
                                                 ---------       ---------      ---------
Income from restaurant operations ............      10,392           9,131          7,086
  Depreciation and amortization ..............       1,014           1,331          1,450
  General and administrative expenses ........       4,191           4,410          4,388
  Asset impairments and restructuring charges ..        --              --         20,208
                                                 ---------       ---------      ---------
Operating income(loss) .......................       5,187           3,390        (18,960)
  Interest expense, net ......................       3,902           4,424          3,206
                                                 ---------       ---------      ---------
  Net income (loss) before income taxes ......       1,285          (1,034)       (22,166)
Provision for income taxes ...................        --              --             --
                                                 ---------       ---------      ---------
Net income (loss) ............................   $   1,285       $  (1,034)     $ (22,166)
                                                 =========       =========      =========
Net Income (Loss) Per Share ..................   $    0.35       $   (0.22)     $   (2.73)
                                                 =========       =========      =========
Weighted average shares outstanding  .........   $   3,692       $   4,621      $   8,110
                                                 =========       =========      =========
</TABLE>
 The accompanying notes are an integral part of these consolidated statements.
                                       F-4

<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (In Thousands)

<TABLE>
<CAPTION>
                                      Preferred Stock
                              -------------------------------
                                 Class A          Class B        Common Stock
                                 -------          -------        ------------   Additional
                                        Par              Par              Par    Paid-In   Accumulated
                              Shares   Value   Shares   Value   Shares   Value   Capital     Deficit      Total
                              ------   -----   ------   -----   ------   -----   -------     --------    -------
<S>                             <C>    <C>     <C>      <C>      <C>     <C>     <C>         <C>         <C>    
BALANCE, December 31, 1993        1    $ --     1,030   $   1    3,256   $   3   $24,205     $ (3,203)   $21,006

 Shares issued in connection
   with options exercised .....  --      --        --      --       42      --       424           --        424
 Conversion of preferred stock.  (1)     --    (1,030)     (1)     339       1      (114)          --       (114)
Net income ....................  --      --        --      --       --      --        --        1,285      1,285
                                ----   -----   ------   -----    -----   -----   -------     --------    -------

BALANCE, December 26, 1994       --      --        --      --    3,637       4    24,515       (1,918)    22,601

 Shares issued in connection
   with public offering, net ..  --      --        --      --    4,313       4    15,674           --     15,678
 Shares issued in connection
   with options exercised .....  --      --        --      --        2      --        16           --         16
 Net loss .....................  --      --        --      --       --      --        --       (1,034)    (1,034)
                                ----   -----   ------   -----    -----   -----   -------     --------    -------

BALANCE, December 25, 1995       --      --        --      --    7,952       8    40,205       (2,952)    37,261

 Shares issued in connection
   with private placement .....  --      --        --      --      766       1     1,489           --      1,490
 Net loss .....................  --      --        --      --       --      --        --      (22,166)   (22,166)
                                ----   -----   ------   -----    -----   -----   -------     --------    -------

BALANCE, December 30, 1996       --    $ --        --   $  --    8,718   $   9   $41,694     $(25,118)   $16,585
                                ====   =====   ======   =====    =====   =====   =======     ========    =======
</TABLE>
  The accompanying notes are an integral part of these consolidated statements
                                       F-5
<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                         Year Ended
                                                         ------------------------------------------
                                                         December 26,   December 25,   December 30,
                                                            1994           1995           1996
                                                            ----           ----           ----
<S>                                                       <C>            <C>             <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss) ..................................... $  1,285       $ (1,034)       $(22,166)
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
  Depreciation and amortization .........................    4,898          5,684           6,036
  Asset impairments and restructuring charges ...........     --             --            20,208
  Changes in assets and liabilities
     Accounts receivable, net ...........................   (1,047)          (378)          1,104
     Inventories ........................................      (63)          (130)             57
     Prepaid expenses ...................................     (316)          (134)            288
     Other assets, net ..................................   (2,719)        (2,187)         (1,380)
     Accounts payable ...................................    2,845         (1,464)            207
     Other accrued liabilities ..........................    5,941          1,365              90
                                                          --------       --------        --------
          Net Cash Flows -- Operating Activities ........   10,824          1,722           4,444
                                                          --------       --------        --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Cash received on note receivable ......................    1,500           --               --
  Payment of accrued acquisition costs ..................   (1,538)          (242)            --
  Net additions to property and equipment ...............   (9,181)        (7,196)         (8,623)
  Cash received from sale-leaseback transaction .........     --            3,213             --
                                                          --------       --------        --------
          Net Cash Flows -- Investing Activities ........   (9,219)        (4,225)         (8,623)
                                                          --------       --------        --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from sale of common stock ....................      424         16,186           1,490
  Financing and offering costs paid .....................     (115)        (1,774)            --
  Long term debt borrowings .............................   36,850          3,028           4,506
  Principal payments on long term debt ..................  (36,684)       (13,245)         (3,945)
                                                          --------       --------        --------
          Net Cash Flows -- Financing Activities ........      475          4,195           2,051
                                                          --------       --------        --------

NET CHANGE IN CASH AND CASH EQUIVALENTS .................    2,080          1,692          (2,128)
CASH AND CASH EQUIVALENTS, BEGINNING ....................      969          3,049           4,741
                                                          --------       --------        --------
CASH AND CASH EQUIVALENTS, ENDING ....................... $  3,049       $  4,741        $  2,613
                                                          ========       ========        ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
  Cash paid during the year for interest ................ $  2,831       $  5,041        $  2,987
                                                          ========       ========        ========
</TABLE>
  The accompanying notes are an integral part of these consolidated statements
                                       F-6
<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

    Main Street and Main Incorporated (the "Company") is a Delaware  corporation
engaged in the business of acquiring, developing, and operating restaurants. The
Company currently owns 38 T.G.I.  Friday's  restaurants and one Front Row Sports
Grill, and operates eight T.G.I. Friday restaurants under management agreements.

  Principles of Consolidation

    The consolidated  financial  statements  include the accounts of the Company
and its wholly owned subsidiaries.  All material intercompany  transactions have
been  eliminated  in  consolidation.  Certain 1994 and 1995  balances  have been
reclassified to conform to the 1996 presentation. 

  Fiscal Year

    The Company's  restaurants  operate on a fiscal year that ends on the Monday
closest to December 31. 

  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,
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements,  and the  reported  amounts  of  revenue  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

2. ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES

    The Financial  Accounting  Standards Board has issued Statement of Financial
Accounting  Standards -- ("SFAS") No. 121,  "Accounting  for the  Impairment  of
Long-lived  Assets  and for  Long-lived  assets to be  Disposed  Of",  which the
Company  adopted  in 1996.  SFAS No.  121  requires  that  long-lived  assets be
reviewed for  impairment  whenever  events or  circumstances  indicate  that the
carrying amount of the assets may not be recoverable. If the sum of the expected
future cash flows  (undiscounted  and without interest charges) from an asset to
be held and used in operations is less than the carrying value of the asset,  an
impairment  loss must be recognized in the amount of the difference  between the
carrying  value and the fair  value.  Assets to be disposed of must be valued at
the lower of carrying value or fair value less costs to sell.

    During 1996, the Company  implemented a long-term business strategy to place
more emphasis on its core business and to dispose of underperforming core assets
and non-core assets.  As a result of implementing  this strategy,  together with
certain events occuring during the year, the Company  recognized a restructuring
charge and impairments of certain assets as follows (in thousands):


         Impairment of non-core assets .................   $ 6,985
         Impairment of core assets held for disposal ...     8,674
         Impairment of core assets used in operations ..     3,141
         Other restructuring costs .....................     1,408
                                                           -------
                                                           $20,208
                                                           =======

  Impairment of non-core assets

    In December 1993, the Company sold its dairy and food distribution  business
for  $7,500,000,  consisting of a promissory  note in the amount of  $1,500,000,
which was paid by  January  31,  1994,  and a  promissory  note in the amount of
$6,000,000  due on December 31, 1996.  The purchase price exceeded the Company's
cost basis by  approximately  $864,000  resulting in a net deferred  gain on the
disposal,  which is  included  in other  liabilities  and  deferred  credits  at
December  25,  1995.  During  the  second  quarter  of 1996,  the  debtor on the
$6,000,000 promissory note sold assets related to its dairy operations, which
                                       F-7
<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

represented  a  significant  portion of the  collateral  securing the note.  The
debtor used cash from the sale to pay down  senior  debt and to provide  working
capital for its ice cream novelty production facility. The Company converted its
promissory  note  to an  equity  position  in  the  debtor's  business.  Due  to
uncertainty of the business,  the Company's promissory note, net of the deferred
gain booked at the time of the initial sale, was written down by $4,136,000.

    In May 1991,  the Company  entered  into a five-year  management  assistance
agreement with AsianStar Co., Ltd.  ("AsianStar"),  a Korean company  affiliated
with a former  director  of the  Company,  to provide  management  services  and
expertise  relative  to  the  development  and  operation  of  T.G.I.   Friday's
restaurants  in the  Republic  of Korea.  The  management  assistance  agreement
provided  for the Company to receive a fee of 3% of the net revenue of the first
two restaurants  developed in Seoul,  Korea. The Company recorded  approximately
$426,000 and $441,000 of royalty income during 1994 and 1995,  respectively.  In
1996,  the Company  finalized  an  agreement  with  AsianStar  to  exchange  its
receivable, from the recognition of royalty income, for an ownership interest in
AsianStar.  As a  result  of the  uncertainty  of the  Korean  venture  and  the
estimated  length of time  before the  Company  will  receive  any return on its
investment,  a $1,000,000  impairment  loss was taken during 1996. The Company's
investment in the Korean venture is approximately  $1,497,000 and $659,000 as of
December 25, 1995 and December 30, 1996  respectively,  and is included in other
assets.

    In addition,  the Company  determined that property and equipment related to
its indoor  entertainment  center  being  leased to a third party  exceeded  its
realizable  value based on the level of lease  payments to be received  over the
remaining life of the lease,  which resulted in an impairment  loss of $582,000.
The remaining balance of the impairment of non-core assets consists primarily of
write downs of real  estate  that the Company was holding for future  restaurant
development  and  now has  plans  to  dispose  of  within  the  next 12  months.

  Impairment of core assets held for disposal:

    The Company recorded a $5,541,000 charge to write off property and equipment
and pre-opening  costs associated with two of the Company's  recently  developed
restaurants.  One of the  restaurants  was a Front Row Sports Grill in Portland,
Oregon, and the other was a T.G.I.  Friday's restaurant in Denver,  Colorado. In
addition,  the Company took a $1,096,000  impairment loss charge in anticipation
of closing a 20 year old T.G.I. Friday's restaurant in southern California.  The
remaining  balance of the impairment  loss of $2,037,000 of core assets held for
disposal  relates to assets of three T.G.I.  Friday's  that were written down to
fair value in anticipation of their disposition.  

  Impairment of core assets used in operations:

    In accordance  with SFAS No. 121, the Company  recorded a charge  $3,141,000
related  to three of its  restaurants  where  undiscounted  cash  flows over the
remaining  term of the lease did not support the  carrying  value of the assets.

  Other restructuring costs:

    Other  restructuring  costs  include  severance,  contract  termination  and
professional service costs incurred in conjunction with the restructuring.

3. MANAGEMENT PLANS

    During  1996,  the  Company had a change in  management  and  implemented  a
long-term  business  strategy to enhance its financial  position,  to place more
emphasis on its casual dining business in certain  designated  areas, to dispose
of underperforming assets, and to pursue new restaurant concepts.

    The first step was to strengthen the Company's financial position.  This was
accomplished  by the sale of  1,566,666  shares of Common  Stock for  $3,000,000
through  a  private  placement  transaction,  the  sale of five  restaurants  in
northern  California for $10,575,000,  of which $8,000,000 in proceeds were used
to
                                       F-8
<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

repay debt (Notes 4 and 6), and new borrowings of $21.3 million with a repayment
period of 15 years.  Proceeds from the new borrowings were used primarily to pay
off debt with shorter repayment periods (Note 6).

    The  Company  has also  renegotiated  its  development  agreements  with TGI
Friday's Inc. to reduce the number of T.G.I. Friday's restaurants it is required
to build with the intent to focus on those development territories that are most
economically  favorable  (Note 8). The  T.G.I.  Friday's  restaurants  currently
planned for  development  will be owned by a third party lender with the Company
operating  the  restaurants  and deriving a management  fee.  This strategy will
allow the Company to continue  to grow while at the same time  deleveraging  its
balance sheet. In addition, the Company has taken a charge for asset impairments
and  restructuring  to dispose of various non-core assets and write down certain
core assets to realizable values (Note 2).

    The next step in the Company's  strategy will be to reduce  operating  costs
and expand its  restaurant  operations.  This will  entail  continuing  to build
T.G.I.  Friday's  restaurants and evaluating other concepts in the casual dining
segment.  The Company  has  recently  become a majority  partner in a venture to
develop and operate cajun themed restaurants.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    The  consolidated  financial  statements  reflect  the  application  of  the
following accounting policies: 

  Cash and Cash Equivalents

    Cash and cash  equivalents  include funds on hand,  short-term  money market
investments, and certificate of deposit accounts with original maturities within
91 days of purchase. 

  Inventories

    Inventories consist primarily of food, beverages and supplies and are stated
at cost using the first-in, first-out ("FIFO") method. 

  Property and Equipment

    Property and equipment are stated at cost,  depreciated  on a  straight-line
basis  over the  estimated  useful  lives,  and  consist  of the  following  (in
thousands):

                                           Useful Lives      1995        1996
                                           ------------      ----        ----
Land .....................................       --         $ 2,371     $ 1,234
Building and leasehold improvements ......      5-20         27,178      21,950
Kitchen equipment ........................      5-7           9,684       7,858
Restaurant equipment .....................      5-10          4,145       3,539
Smallwares and decor .....................      5-10          5,414       4,410
Office equipment and furniture ...........      5-7           1,557       1,498
Equipment under capital leases ...........       7              397         357
                                                           --------    --------
                                                             50,746      40,846
Less: Accumulated depreciation and
 amortization ............................                   (8,636)    (10,520)
                                                           --------    --------
                                                             42,110      30,326
Construction in progress .................                    1,994       1,836
                                                           --------    --------
  Total ..................................                  $44,104     $32,162
                                                           ========    ========

  Assets Held for Disposal

    On  January  16,  1997,  the  Company  sold  five  restaurants  in  northern
California for  $10,575,000 in cash and entered into a Management  Agreement and
Master Incentive Management Agreement with the
                                       F-9
<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

buyer  to  manage  the  restaurants  (the  "Northern   California  Sale").  This
transaction resulted in a gain before taxes of approximately  $1,800,000,  which
will be  recognized  in the  first  quarter  of  1997.  Of the  total  proceeds,
$8,000,000  was used to reduce the Company's Term Loan with the balance used for
working  capital  purposes  (Note  6).  The  net  carrying  value  of  the  five
restaurants  sold was  approximately  $8,669,000  at  December  30,  1996 and is
included in assets held for disposal.  The remaining  balance of assets held for
disposal  consists of the net assets of three T.G.I.  Friday's  restaurants that
will be disposed of within the next 12 months. 

  Franchise Costs 

    The Company has paid  certain  franchise  costs for the  exclusive  right to
operate  restaurants  in  its  franchise  territories.  These  costs  are  being
amortized on a straight-line basis and consist of the following (in thousands):

                                               Amortization
                                                  Period     1995       1996
                                                  ------     ----       ----
Franchise fees and license costs ...............   20-30   $ 24,382   $ 18,430
Prepaid franchise fees .........................      --        198         30
                                                           --------    --------
                                                             24,580      18,460
Less: Accumulated amortization .................             (1,819)     (2,042)
                                                           --------    --------
  Total ........................................           $ 22,761    $ 16,418
                                                           ========    ========

    Franchise  fees and  license  costs  represent  the  value  assigned  to the
franchise  agreements in the regions acquired and to the licenses to operate the
restaurants.  These agreements  provide for an initial term of 20 years with two
renewal terms of 10 years each. Prepaid franchise fees relate to the restaurants
the  Company  is  committed  to  develop  under  the  terms  of the  development
agreements (Note 8). 

  Pre-opening Costs

    The Company defers certain start-up costs directly related to the opening of
new restaurants.  Pre-opening costs of approximately $403,000 and $148,000 as of
December 25, 1995 and December  30,  1996,  respectively,  are included in other
assets in the consolidated balance sheets.

    The  Company's  policy  is to  amortize  pre-opening  costs  over 12  months
commencing with the opening of each new restaurant.  Amortization of pre-opening
costs was  approximately  $760,000,  $640,000  and $318,000  (excluding  amounts
included in the  restructuring  charge) in 1994,  1995, and 1996,  respectively.


  Other Accrued Liabilities

    Other accrued liabilities consist of the following (in thousands):


                                                         1995      1996
                                                         ----      ----
        Bank overdraft .............................   $ 1,658   $ 2,432
        Accrued payroll ............................     1,773     2,429
        Accrued losses on assets held for disposal .      --       1,572
        Accrued sales tax ..........................     1,295       861
        Accrued interest ...........................       727       946
        Other accrued liabilities ..................     3,488     3,068
                                                       -------   -------
          Total ....................................   $ 8,941   $11,308
                                                       =======   =======

  Income Taxes

    The Company  utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial  Accounting  Standards  109,  Accounting for
Income Taxes.  Under the liability method,  deferred taxes are provided based on
the temporary differences between the financial reporting 
                                      F-10
<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

basis and the tax basis of the Company's assets and  liabilities,  using enacted
tax rates in the years in which the  differences  are  expected to reverse.  The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. 

  Net Income (Loss) Per Share

    The  calculation  of net  loss per  share  for 1995 and 1996 is based on the
weighted average shares outstanding. The calculation of net income per share for
1994 includes dilutive common stock equivalents.

5. INCOME TAXES

    Deferred  income  taxes arise  because of  differences  in the  treatment of
income and expense  items for financial  reporting  and income tax purposes.  In
1995 and 1996,  the Company  generated  net  operating  losses and in 1994,  the
Company utilized net operating losses.  The effect of temporary  differences and
carryforwards  that gave rise to deferred  tax balances at December 25, 1995 and
December 30, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
                                                                       Tax Carry
                                           Temporary    Differences   Forwards and   Net Deferred
December 25, 1995                          Deductible     Taxable      Carrybacks     Tax Assets
-----------------                          ----------     -------      ----------     ----------
<S>                                         <C>           <C>          <C>             <C>       
Excess tax over book depreciation and       $    --       $(3,157)     $     --        $  (3,157)
 amortization
Provision for estimated expenses ....            894          --             --              894
Other ...............................            352         (502)           --             (150)
Net operating loss carryforward .....            --           --           2,842           2,842
General business and AMT credits ....            --           --           1,377           1,377
Valuation reserve ...................            --           --          (1,492)         (1,492)
                                            --------      -------      ---------       ---------
     Total ..........................       $  1,246      $(3,659)     $   2,727       $     314
                                            ========      =======      =========       =========

                                                                       Tax Carry
                                           Temporary    Differences   Forwards and   Net Deferred
December 30, 1996                          Deductible     Taxable      Carrybacks     Tax Assets
-----------------                          ----------     -------      ----------     ----------
Excess tax over book depreciation ......... $    --       $(3,301)     $     --        $ (3,301)
Provision for estimated expenses ..........    1,363          --             --           1,363
Asset impairments and restructuring charges    6,955          --             --           6,955
Other .....................................      --          (491)           --            (491)
General business and AMT credits ..........      --           --           2,117          2,117
Net operating loss carryforward ...........      --           --           4,461          4,461
Valuation reserve .........................      --           --         (10,790)       (10,790)
                                            --------      -------      ---------       --------
     Total ................................ $  8,318      $(3,792)     $  (4,212)      $    314
                                            ========      =======      =========       ========
</TABLE>
    The amounts  recorded as net  deferred  tax assets at December  25, 1995 and
December  30,  1996  are  included  as  a  component  of  other  assets  in  the
consolidated balance sheets. The remaining net deferred tax asset as of December
30, 1996  consists  primarily of the benefits to be obtained from the use of net
operating loss carryforwards and credits expected to be realized in the future.

    In 1994,  the  Company's  tax  provision was fully offset by the reversal of
prior year  valuation  allowances.  The Company did not  recognize for financial
reporting purposes any benefits related to net operating losses generated during
1995 and 1996.

    At December  30,  1996,  the Company had  approximately  $11,150,000  of net
operating loss  carryforwards  to be used to offset future income for income tax
purposes. These carryforwards expire in the years 2005 to 2011.
                                      F-11
<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

    Reconciliations  of the federal  income tax rate to the Company's  effective
tax rate were as follows:
                                                       1995       1996
                                                      ------     ------
       Statutory federal rate .....................   (34.0)%    (34.0)%
       State taxes, net of federal benefit ........    (6.0)      (6.0)
       Nondeductible expenses .....................    29.0        1.4
       Benefit of FICA credit .....................   (69.6)      (3.3)
       Change in valuation allowance ..............    80.6       41.9
                                                      ------     ------
                                                        0.0%       0.0%
                                                      ======     ======
6. LONG-TERM DEBT

    Long-term  debt,  shown on a  historical  and  proforma  basis to  reflect a
refinancing  subsequent  to December 30,  1996,  consists of the  following  (in
thousands):
<TABLE>
<CAPTION>
                                                                                         1996
                                                                                 --------------------
                                       Maturity
                                         Dates      Interest Rates      1995     Historical  Proforma
                                       ---------   ----------------   --------   ----------  --------
<S>                                    <C>         <C>                <C>         <C>         <C>  
Term Loan ..........................     2002      2.8% over LIBOR    $ 30,000    $ 26,500    $    --
Term Loan ..........................     2012      3.2% over LIBOR         --          --       21,300
TGI Friday's note payable ..........     1997            12%             1,817       1,817         --
Other notes payable ................   1999-2015      9.96 - 11%         3,698       7,839       7,839
Capital Leases .....................     1999           11.5%              256         176         176
                                                                      --------    --------    --------
                                                                        35,771      36,332      29,315
Less current portion ...............                                    (4,567)     (2,523)     (2,523)
                                                                      --------    --------    --------
Total ..............................                                  $ 31,204    $ 33,809    $ 26,792
                                                                      ========    ========    ========
</TABLE>
    The note  evidencing  the Term Loan bore  interest  at the London  Interbank
Offered Rate ("LIBOR") plus 280 basis points (8.6% as of March 31, 1997) and was
payable in  quarterly  installments  of $750,000  with a final  payment due upon
maturity on  September  30,  2002.  The Term Loan  contained  certain  financial
covenants  relative to debt service  coverage,  capital  expenditures  and other
ratios. In addition, the Company was required to maintain a minimum cash balance
and limit the incurrence of certain liens or  encumbrances.  The Company was not
in compliance with certain covenants and provisions of the Term Loan at December
30, 1996.

    Subsequent to December 30, 1996, the Term Loan was repaid with $8,000,000 of
proceeds from the Northern  California  Sale (Note 4) and with proceeds from new
borrowings.  The new borrowings,  consist of three notes from one lender,  total
$21,300,000,  bear  interest at LIBOR plus 320 basis  points  (8.9% at March 31,
1997),  and are payable in equal monthly  installments of principal and interest
of approximately  $216,000 (combined) until the notes are paid in full on May 1,
2012.  Proceeds from the new borrowings were also used to repay the TGI Friday's
note,  including accrued interest of $301,000,  with the remaining proceeds used
for  general  corporate  purposes.  The  early  extinguishment  of the Term Loan
resulted in an  extraordinary  loss of  approximately  $1,600,000  before income
taxes, which will be recognized in the first quarter of fiscal 1997. The Company
currently  finances  equipment  and leasehold  improvements  at  restaurants  it
develops.  These notes range from  $400,000 to  $950,000,  have  interest  rates
ranging from 10% to 11%, and require monthly principal and interest payments.

    The new borrowings are secured by 16 T.G.I. Friday's restaurants and contain
a financial  covenant  relative to a fixed charge  coverage ratio with which the
Company  currently  is  in  compliance.   In  addition,   nine  T.G.I.  Friday's
restaurants  and the Front Row Sports Grill have been pledged as collateral  for
other debt.
                                      F-12
<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


    Maturities of long-term debt, giving effect to the new borrowings  discussed
above, are as follows (in thousands):

                 1997 .......................   $ 2,523
                 1998 .......................     1,497
                 1999 .......................     1,502
                 2000 .......................     1,564
                 2001 .......................     2,054
                 Thereafter..................    20,175
                                                -------
                   Total.....................   $29,315
                                                =======

7. STOCKHOLDERS' EQUITY

    On September 29, 1995, the Company sold 3,750,000 shares of its Common Stock
in connection  with a public  offering and an additional  562,500  shares of its
Common Stock on October 30, 1995  pursuant to the exercise of the  Underwriter's
over-allotment  option.  The net proceeds to the Company from this offering were
approximately  $15,678,000,  after  deducting  estimated  offering  expenses and
underwriting  discounts and  commissions.  The Company used a portion of the net
proceeds  to retire  indebtedness  and the  remaining  proceeds  to develop  new
restaurants and to provide funds for general corporate purposes.

    During  1996,  the Company  sold  766,666  shares of its Common Stock to two
officers of the Company for  $1,500,000.  Subsequent  to December 30, 1996,  the
Company  sold  1,250,000  shares  of its  Common  Stock  to  various  investors,
including  500,000  shares  purchased by two officers of the Company,  for total
proceeds of $2,500,000. 

  Stock Options

    In July 1990, the Company's Board of Directors  approved a stock option plan
("the 1990 Plan").  The 1990 Plan provides for issuance of up to 250,000 options
to acquire  shares of the Company's  Common  Stock.  The options are intended to
qualify as  incentive  stock  options  within the meaning of Section 422A of the
Internal  Revenue Code of 1986 or as options  which are not intended to meet the
requirements of such section (non-statutory stock options) and may include stock
appreciation rights,  restricted stock awards, phantom stock, performance shares
or non-employee director's options.

    The exercise  price of all incentive  stock  options  granted under the 1990
Plan must be at least  equal to the fair  market  value of such shares as of the
date of grant or, in the case of incentive  stock options  granted to the holder
of 10% or more of the Company's  Common Stock,  at least 110% of the fair market
value  of  such  shares  on  the  date  of  grant.  The  exercise  price  of all
non-statutory  stock options  granted under the 1990 Plan shall be determined by
the Board of Directors of the Company at the time of grant. The maximum exercise
period for which the  options  may be granted is 10 years from the date of grant
(five years in the case of  incentive  stock  options  granted to an  individual
owning more than 10% of the Company's Common Stock).

    In January  1996,  the  Company  adopted a new stock  option plan ("the 1995
Plan"),  with terms  comparable  to the 1990 Plan,  covering  325,000  shares of
Common Stock.

    During 1996, the Company  canceled all  outstanding  options and granted new
options  under the 1990 and 1995 Plans.  In  addition,  the  Company's  Board of
Directors  approved  the issuance of 1,250,000  non-statutory  stock  options to
three of the Company's officers.
                                      F-13
<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

    Stock option  information  as of December  26,  1994,  December 25, 1995 and
December 1994 is as follows
<TABLE>
<CAPTION>
                                                     1994                1995                1996                
                                                --------------     ----------------    ----------------                
                                                          Wtd.                 Wtd.                Wtd.
                                                          Avg.                 Avg.                Avg.
                                                Shares   Price     Shares     Price    Shares     Price
                                                ------   -----     ------     -----    ------     -----
<S>                                            <C>       <C>      <C>         <C>     <C>         <C>   
Options outstanding at beginning of period     248,225   $12.75   173,037     $12.74    118,413   $12.93
Granted ..................................      31,863    12.00      --          --   1,668,500     3.25
Exercised ................................      42,500     8.56     2,500       6.52       --        --
Canceled .................................      64,551    15.14    52,124      12.60    190,413     9.42
                                               -------            -------             ---------
Options outstanding at end of period .....     173,037    12.74   118,413      12.93  1,596,500     3.40
                                               =======            =======             =========
Exercisable at end of period .............      86,847    11.88    86,469      12.85    350,000     2.00
                                               =======            =======             =========
Weighted average fair value of options
  granted ................................         N/A                N/A             $    0.59
                                               =======            =======             =========
</TABLE>
    The Company accounts for stock options granted to employees,  officers,  and
directors in  accordance  with APB Opinion No. 25,  under which no  compensation
cost has been recognized.  Had compensation cost been determined consistent with
SFAS No. 123, the Company's  1996 proforma net loss and pro forma loss per share
would have been  $22,451,000  and $2.77 per share,  respectively.  There were no
options granted in 1995.

    The fair value of each option  grant is estimated on the date of grant using
the  Black-Scholes  option  pricing  model with the following  weighted  average
assumptions used for grants in 1996:  risk-free interest rates of 5.8%; expected
dividend  yields of zero;  expected lives at 3.5 years;  expected  volatility of
40.7%. 

  Common Stock Warrants

    As of December 25, 1995 and  December  30, 1996 the Company had  outstanding
warrants to acquire its securities as follows:
<TABLE>
<CAPTION>
                                                                                 1995       1996
                                                                                 ----       ----
<S>                                                                             <C>       <C>               
Common Stock to be acquired by warrants; exercisable at $9.60
  through September 1996; non-callable .....................................    27,500       --   
Common Stock to be acquired by warrants; exercisable at $20.00
  through September 1996; non-callable .....................................    28,899       --   
Common Stock to be acquired by warrants issued to a former
  Director; exercisable at $20.00 through June 1997; non-callable  .........    68,182     68,182
Common Stock to be acquired by warrants issued to various Company
  employees; exercisable at $12.50 through July 1997; non-callable  ........    93,750     93,750
Common Stock to be acquired by warrants issued to lenders in
  connection with the Term Loan; exercisable at $10.35 through March
 2004; callable ............................................................   193,192    202,898
                                                                               -------    -------
  Total ....................................................................   411,523    364,830
                                                                               =======    =======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES 

  Development Agreements

    The Company was obligated under five separate development agreements to open
42 new T.G.I. Friday's restaurants through 2002. The development agreements give
TGI  Friday's  Inc.  certain  remedies in the event the Company  fails to timely
comply  with the  development  agreements,  including  the right  under  certain
circumstances,  to reduce the number of  restaurants  the Company may develop in
the related franchised territory, or terminate the Company's exclusive rights to
develop  restaurants in the related  franchised  territory.  The Company and TGI
Friday's  Inc.  have  agreed  to  reduce  the  number  of  new  T.G.I.  Friday's
restaurants the Company is required to open through 2002 to 36. The Company will
                                      F-14
<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

retain its exclusive  development  territories of Arizona,  Nevada,  New Mexico,
northern  California and the Kansas City  metropolitan  area, but will no longer
develop new T.G.I. Friday's in Colorado,  Washington and Oregon. The Company and
TGI  Friday's  Inc.  will  each  develop  restaurants  in the San  Diego and Los
Angeles, California area. 

  Franchise, License and Marketing Agreements

    In accordance  with the terms of the T.G.I.  Friday's  restaurant  franchise
agreements,  the Company is required to pay  franchise  fees of $50,000 for each
restaurant  opened. The Company is also required to pay a royalty of up to 4% of
gross sales.  Royalty  expense was  approximately  $4,419,000,  $4,800,000,  and
$4,850,000 under these agreements during 1994, 1995 and 1996,  respectively.  In
addition,  the  Company  could be  required  to spend up to 4% of gross sales on
marketing,  although during 1996 it was only required to pay up to 1.7% of gross
sales.  Marketing expense under these agreements was  approximately  $1,788,000,
$2,360,000 and $1,554,000  during 1994, 1995 and 1996,  respectively.  

  Operating Leases

    The Company leases land and restaurant  facilities,  under operating  leases
having terms expiring at various dates through March 2015. The restaurant leases
have from two to three  renewal  clauses of five years each at the option of the
Company and have  provisions  for  contingent  rentals based upon  percentage of
gross  sales as defined.  The  Company's  minimum  future  lease  payments as of
December 30, 1996 were as follows (in thousands):


                 1997 .......................   $ 6,434
                 1998 .......................     6,472
                 1999 .......................     6,316
                 2000 .......................     6,463
                 2001 .......................     6,538
                 Thereafter..................    63,536
                                                -------
                   Total.....................   $95,759
                                                =======

    Rental  expense  during 1994,  1995 and 1996 was  approximately  $5,160,000,
$5,872,000,  and  $6,299,000,   respectively.  In  addition,  the  Company  paid
contingent  rentals of $463,000,  $433,000 and  $539,000  during 1994,  1995 and
1996, respectively. 

  Contingencies

    In the normal  course of  business,  the Company is named as a defendant  in
various litigation matters. In management's  opinion, the ultimate resolution of
these  matters  will not  have a  material  impact  on the  Company's  financial
statements.

    The Company is also subject,  from time to time, to audit by various  taxing
authorities  reviewing the Company's  income,  property,  sales, use and payroll
taxes.  Management  believes  that any findings from such audits will not have a
material impact on its financial statements.

9. BENEFIT PLANS

    The Company  maintains a 401(k) Savings Plan for all of its  employees.  The
Company currently  matches 25% of the participants'  contributions for the first
6%  of  the  participants'  compensation.  Contributions  by  the  Company  were
approximately  $165,000,  $71,000  and  $79,000  during  1994,  1995  and  1996,
respectively.
                                      F-15
<PAGE>
               MAIN STREET AND MAIN INCORPORATED AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

10. RELATED PARTY TRANSACTIONS

    In December 1993, the Company  entered into a five-year  lease agreement for
corporate office space with an entity controlled by two officers of the Company.
The  lease  provides  for  annual  rent of  approximately  $172,000  in 1997 and
$175,000 in 1998. Approximately $161,000, $166,000 and $169,000 was paid in rent
during 1994, 1995 and 1996, respectively.
                                      F-16