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

                                    FORM 10-K

(Mark One)
|X|     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

For the fiscal year ended            December 30, 1996
                          ----------------------------------------
                                       OR
| |      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from             to

Commission File Number         33-66392


                        Houlihan's Restaurant Group, Inc.
             (Exact name of registrant as specified in its charter)

       Delaware                                           43-0913506
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

                Two Brush Creek Boulevard, Kansas City, Missouri 64112
              (Address of principal executive offices and zip code)

                                 (816) 756-2200
              (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:   None.

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  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. [ ]

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes  X  No

The aggregate market value of the registrant's  stock held by  non-affiliates as
of March 31,  1997 was  $14,873,199  based upon the average bid and ask price on
March 31, 1997.

The number of shares of the  registrant's  common stock  outstanding as of March
31, 1997 was 9,998,012.

                                        1

<PAGE>



                HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
                                    FORM 10-K
                       FISCAL YEAR ENDED DECEMBER 30, 1996
                                      INDEX

                                                                            Page
PART I

Item 1.  Business                                                             3

Item 2.  Properties                                                           9

Item 3.  Legal Proceedings                                                   10

Item 4.  Submission of Matters to a Vote of Security Holders                 10

PART II

Item 5.  Market for the Registrant's Common Stock and Related
         Stockholder Matters                                                 11

Item 6.  Selected Financial Data                                             11

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                           13

Item 8.  Financial Statements and Supplementary Data                         19

Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure                                            19

PART III

Item 10. Directors and Executive Officers of the Registrant                  20

Item 11. Executive Compensation                                              23

Item 12. Security Ownership of Certain Beneficial Owners and Management      26

Item 13. Certain Relationships and Related Transactions                      27

PART IV

Item 14. Exhibits, Financial Statements and Reports on Form 8-K              28

Signatures                                                                   29


                                        2

<PAGE>



PART I

Item 1.  Business

General

Houlihan's  Restaurant Group, Inc. and its wholly-owned  subsidiary,  Houlihan's
Restaurants,  Inc. and its  subsidiaries  (the "Company")  operates full service
casual dining  restaurants  in 23 states.  At December 30, 1996, it operated 101
restaurants,   including  62  Houlihan's,  28  Darryl's,  four  upscale  Seafood
restaurants and seven specialty restaurants comprised of four dinnerhouses,  two
upscale  steakhouses and the Buena Vista Cafe  (collectively,  "Specialty").  At
that date,  the Company also  franchised  29  Houlihan's  restaurants  in eleven
states  and  the  Commonwealth  of  Puerto  Rico.  The  Company  is  a  Delaware
corporation formed on May 31, 1968 and is the successor to a business founded in
1962 in Kansas City,  Missouri.  The restaurant business is the only business in
which the Company is engaged.  Houlihan's Restaurant Group, Inc. does not engage
in any business or activity  other than holding the capital  stock of Houlihan's
Restaurants, Inc.

Overview of the Company's Restaurant Concepts

The Company's  primary  restaurant  concepts are Houlihan's and Darryl's,  which
operate in the casual dining  segment of the restaurant  industry.  During 1996,
sales for these concepts comprised 67% and 22%,  respectively,  of the Company's
total sales.  All of the Company's  restaurants  serve beer, wine and cocktails,
both in the restaurant  areas and in the separate bar areas.  Sales of alcoholic
beverages  constituted  22% of the Company's net sales for the fiscal year ended
December 30, 1996.

Houlihan's.  Founded in 1972 in Kansas City, Missouri, Houlihan's is the largest
of the  Company's  restaurant  concepts  with 62 stores  located  in 19  states,
primarily  along the East Coast and in the  Midwest.  Also at December 30, 1996,
the  Company  franchised  29  Houlihan's  restaurants  in eleven  states and the
Commonwealth of Puerto Rico.

Houlihan's is a well  established  national  chain with a casual dining  concept
catering  to adult  guests  principally  in the 25 to 49 age  group.  Houlihan's
prepares  almost all of its menu items on the  premises and is open seven days a
week,  serving  lunch,  dinner and late dinner  customers.  The menu  emphasizes
light-fare, traditional American cuisine items including a number of "signature"
dishes unique to Houlihan's and  traditional  staple items such as steaks,  ribs
and seafood.  Houlihan's  has  historically  maintained an extensive  drink menu
which has focused on standard specialty drinks as well as holiday oriented drink
specials.  The average  Houlihan's  dinner guest check for the fiscal year ended
December 30, 1996 was $11.97.

The  following  table  sets  forth,  for  the  periods  indicated,   information
concerning Company-owned Houlihan's:

                                             1996   1995  1994   1993  1992
                                             ----   ----  ----   ----  ----
Number of Houlihan's:
     Open at beginning of period .........    61     56    53     51     59
     Opened or converted during period ...     3      5     5      3(b)  --
     Closed or divested during period ....    (2)    --    (2)    (1)    (8)
                                              ---    ---   ---    ---    ---
         Open at end of period ...........    62     61    56     53     51

                                        3

<PAGE>





                                      1996(a)   1995     1994     1993     1992
                                      ----      ----     ----     ----     ----
Average sales per restaurant open for
     full period (in thousands) ..... $3,097   $3,118   $3,148   $3,092   $3,114

Percentage increase (decrease) in
     comparable restaurant sales .... (3.9)%   (0.6)%     0.6%   (1.7)%   (1.4)%
----------------------
(a)  Fiscal 1996 represents a 53-week period and accordingly,  average sales per
     restaurant was  calculated  based upon 53 weeks.  The  percentage  increase
     (decrease)  in  comparable  restaurant  sales was  calculated  by adjusting
     fiscal 1995 to reflect a comparable number of weeks.
(b)  Includes two Specialty  restaurants which were closed and in the process of
     being converted to Houlihan's.

Darryl's.  As of December 30, 1996, the Company operated 28 Darryl's restaurants
located throughout eight states.  Darryl's  restaurants are primarily located in
the Southeastern U.S. and emphasize more traditional American menu items such as
steaks,  barbecued ribs and  hamburgers.  The Company adopted a new strategy for
the  concept in late 1995 that  implemented  a new menu  emphasizing  wood-fired
steaks.  All steaks are Midwest grain-fed,  hand-selected  Black Angus beef aged
for  tenderness  then cooked over a wood grill.  The new  strategy  required the
update of  facilities  with new wood burning  grills as well as a new  smallware
package in each  restaurant.  Darryl's  restaurants  are open seven days a week,
serving lunch,  dinner and late dinner customers.  Darryl's also prepares almost
all of its meals on the  premises  with local  weekly  specials  catering to the
surrounding  customer  base.  The average  Darryl's  dinner  guest check for the
fiscal year ended December 30, 1996 was $12.22.

The  following  table  sets  forth,  for  the  periods  indicated,   information
concerning Darryl's:

                                         1996(a)  1995     1994     1993    1992
                                        ------   ------   ------   ------  -----
Number of Darryl's:
     Open at beginning of period .....     28       30       31       31      31
     Opened or converted during period     --       --       --       --      --
     Closed or divested during period      --       (2)(b)   (1)(c)   --      --
                                        ------   ------   ------   ------  -----
         Open at end of period .......     28       28       30       31      31

Average sales per restaurant open for
     full period (in thousands) ...... $2,207   $2,178   $2,226   $2,302  $2,368

Percentage increase (decrease) in
     comparable restaurant sales       (0.9)%   (3.6)%   (3.7)%   (2.8)%  (4.0)%
----------------------
(a)  Fiscal 1996 represents a 53-week period and accordingly,  average sales per
     restaurant was  calculated  based upon 53 weeks.  The  percentage  increase
     (decrease)  in  comparable  restaurant  sales was  calculated  by adjusting
     fiscal 1995 to reflect a comparable number of weeks.
(b)  Includes one Darryl's which was converted to J. Gilbert's in August 1995.
(c)  Represents one Darryl's which was converted to a Houlihan's.

Seafood.   The  Company  operates  four  Seafood  restaurants  under  the  names
"Bristol",  "Braxton" and "Chequers." These restaurants  target special occasion
and business  entertainment diners by offering an extensive selection of seafood
and steaks,  an upscale  level of service  and  well-appointed  facilities.  The
Seafood  restaurants,  which are in locations where fresh seafood is not readily
available,  feature an extensive  selection of fresh  seafood  which is flown in
daily, including mesquite broiled fish, Maine

                                        4

<PAGE>



lobster, crab, shrimp, scallops and regional daily specials. The restaurants are
open seven days a week,  serving lunch,  dinner and late dinner  customers.  The
average  Seafood  dinner guest check for the fiscal year ended December 30, 1996
was $24.24.

The  following  table  sets  forth,  for  the  periods  indicated,   information
concerning the Seafood restaurants:

                                         1996(a) 1995     1994    1993     1992
                                        ------  ------   ------  ------   ------
Number of Seafood restaurants:
     Open at beginning of period .....     3       4        4       4        6
     Opened or converted during period     1      --       --      --       --
     Closed or divested during period     --      (1)      --      --       (2)
                                        ------  ------   ------  ------   ------
         Open at end of period .......     4       3        4       4        4

Average sales per restaurant open for
     full period (in thousands) ......  $4,159  $4,024   $4,070  $3,813  $3,668

Percentage increase (decrease) in
     comparable restaurant sales          1.7%    4.9%     6.8%    3.9%    1.5%
----------------------
(a)  Fiscal 1996 represents a 53-week period and accordingly,  average sales per
     restaurant was  calculated  based upon 53 weeks.  The  percentage  increase
     (decrease)  in  comparable  restaurant  sales was  calculated  by adjusting
     fiscal 1995 to reflect a comparable number of weeks.

Specialty. The Company's Specialty restaurants consist of four dinnerhouses, two
J. Gilbert's and the Buena Vista Cafe. The dinnerhouses, which operate under the
names  "Charley's  Place" and  "Phineas,"  compete in the high end of the casual
dining market,  target  special  occasion  diners,  and feature full menus which
emphasize  steak and prime rib and are open  seven days a week,  serving  lunch,
dinner  and late  dinner  customers.  The  average  dinner  guest  check for the
dinnerhouses  for the  fiscal  year  ended  December  30,  1996 was  $14.06.  J.
Gilbert's,  the Company's newest concept, is positioned to compete in the higher
end of the  steakhouse  market.  It  features a menu that is  printed  daily and
specializes  in Black Angus steaks,  chicken and seafood.  J.  Gilbert's is open
seven days a week,  serving  dinner and late  evening  meals  only.  The average
dinner guest check for J.  Gilbert's for the fiscal year ended December 30, 1996
was  $23.10.  The  Buena  Vista  Cafe,  located  near  Fisherman's  Wharf in San
Francisco,  California, is known for having introduced the Irish Coffee drink in
the United States and sales of Irish Coffee  represent a significant  portion of
its sales.

The  following  table  sets  forth,  for  the  periods  indicated,   information
concerning the Specialty restaurants:

                                        1996(a)  1995    1994    1993     1992
                                       ------   ------  ------  ------   ------
Number of Specialty restaurants:
     Open at beginning of period .....    6        5       5       7        7
     Opened or converted during period    1        1(b)    --     --        --
     Closed or divested during period     --       --      --     (2)(c)    --
                                       ------   ------  ------  ------   ------
         Open at end of period .......    7        6       5       5        7

Average sales per restaurant open for
     full period (in thousands) ...... $2,225   $2,277  $2,311  $2,258   $2,227

Percentage increase (decrease) in
     comparable restaurant sales       (4.2)%   (1.5)%    2.4%    1.5%     1.5%

                                        5

<PAGE>




----------------------
(a)  Fiscal 1996 represents a 53-week period and accordingly,  average sales per
     restaurant was  calculated  based upon 53 weeks.  The  percentage  increase
     (decrease)  in  comparable  restaurant  sales was  calculated  by adjusting
     fiscal 1995 to reflect a comparable number of weeks.
(b)  Represents  one  restaurant  which  was  converted  to  J.  Gilbert's  from
     Darryl's.
(c)  Represents  two  restaurants  which  were  closed  and  in the  process  of
     conversion to Houlihan's.

Business Development

Houlihan's  Franchise Program. The Company has been rapidly expanding the number
of Houlihan's  locations through an aggressive  franchising program. The Company
intends to expand its  franchising  activities  primarily in areas where it does
not currently operate Company-owned  Houlihan's restaurants.  Franchising allows
the  Company  to  increase  customer  awareness  nationwide,  improve  operating
efficiencies and provides an important source of additional revenues.

As of  December  30,  1996,  the  Company  had signed 20  franchise  development
agreements  that provide for the  development of 106 Houlihan's  over a six-year
period, including the 29 open restaurants.  The Company expects to sign three to
four new  agreements  in 1997 and  expects  that  seven to nine  more  franchise
locations will open in 1997.

The  Company's  standard  franchise  agreement  has a  20-year  term,  with four
five-year  renewal  options,  and  provides  for a payment  to the  Company of a
one-time development fee of $10,000 per restaurant,  an initial franchise fee of
$35,000 per restaurant,  a continuing royalty fee at a rate of 4% of gross sales
and an advertising  fee currently being charged at a rate of .5% of gross sales.
Under the standard  franchise  agreement,  the  franchisees  must operate  their
restaurants  in  accordance  with the Company's  operational  standards and each
franchisee is required to spend 1.0% of its gross sales for local advertising.

J.  Gilbert's  Franchise  Program.  The  franchise  program for J.  Gilbert's is
currently  in  the  developmental  stage  and  pending  completion  of  offering
materials, franchises are only being offered to select existing franchisees on a
limited basis.  Currently,  the Company has entered into a letter of intent with
an existing franchisee for the development of one restaurant.

Seafood Expansion. The Company believes that its seafood concept provides a very
profitable  growth  opportunity.  The  Company  plans  to open  one new  Seafood
restaurant in the Atlanta  market  during 1997 and to increase  expansion of the
concept in future years.

The Company believes it has a sufficient number of qualified restaurant managers
that will enable it to meet its expansion  goals without  compromising  quality.
The Company will designate managers of new restaurants by drawing on the pool of
managers at existing  restaurants.  In this way, the Company  will  maintain its
high  standards  by  utilizing  managers who have a proven track record with the
concept.  The Company has also  designated a team of employees  responsible  for
opening new locations  (Company- owned and franchise),  including the hiring and
training of kitchen  personnel  and other  individuals  who will serve as hosts,
waiters/waitresses, bartenders and restaurant managers. In addition, the Company
has its own  construction  and design  group with overall  responsibilities  for
restaurant design and construction  management.  Management  believes this group
reduces the required  investment in new  restaurants  and provides  considerable
assistance to franchisees.


                                        6

<PAGE>



The Company believes that its ability to select high profile restaurant sites is
critical to its success.  The Company has developed a customer  profile for each
restaurant  concept based on the  demographics and dining habits of its existing
customer base. The Company utilizes a lifestyle and demographics software system
in  combination  with  several  other  factors  in the site  selection  process,
including local market demographics, site visibility, aesthetics,  accessibility
and proximity to significant generators of potential guests such as major retail
centers,  office complexes,  hotel  concentrations and entertainment  facilities
including  sports arenas and theaters.  As of December 30, 1996, the Company had
secured  all the sites for  anticipated  new  restaurants  in 1997 and has begun
working on sites for 1998.

Management and Employees

The Company  strives to  maintain  quality and  consistency  in its  restaurants
through the careful training and supervision of personnel and the  establishment
of standards relating to food and beverage preparation and presentation, alcohol
service,  maintenance  of  facilities,  sanitation,  safety,  recordkeeping  and
employee relations.

Each  restaurant  has a  general  manager  and two to five  assistant  managers,
depending on the size of the restaurant.  The Company has 18 area directors that
are  responsible  for the overall  operations of four to eight  restaurants in a
particular  geographic region.  Additionally,  the area directors have oversight
responsibilities for any franchise  restaurants in their designated region. Each
of the Houlihan's area directors  report to one of two regional vice presidents.
The Company  provides its  management  with ongoing  training tools and programs
designed to help enhance employee  knowledge of menu items, sales techniques and
guest service.  Management of the Company's franchise restaurants also take part
in the various management training programs.  Training teams enlisted from among
the  Company's  most  qualified and  experienced  employees  provide  one-on-one
instruction to the staff of new Company-owned and franchise restaurants.

At December 30, 1996, the Company  employed  8,061  persons,  of whom 7,921 were
restaurant  employees  and  140  were  corporate  personnel.  Of the  restaurant
employees, 514 performed managerial functions.  Except for restaurant management
and  most  corporate   personnel,   employees  are  paid  on  an  hourly  basis.
Approximately 45% of the Company's  employees were employed on a part-time basis
(25 hours or less per week).

The Company  believes  it provides  working  conditions  and wages that  compare
favorably with those offered by its competitors and its relations with employees
are  good.   The  Company  also  believes  that  its   management   turnover  is
significantly  better than the industry  norms,  while its direct labor  (hosts,
servers,  chefs,  etc.)  turnover is  consistent  with industry  standards.  The
Company has a collective  bargaining  agreement with one union covering  certain
employees of the Buena Vista Cafe.

Purchasing

In  order to  provide  uniform  quality  and  obtain  competitive  pricing,  the
corporate purchasing department monitors and purchases major commodities such as
beef, pork, poultry and seafood products and negotiates and administers national
and  regional  contracts  for various  items.  As the prices of certain of these
products vary significantly based on seasonal and market supply/demand  factors,
the  purchasing  department  often enters into forward  purchase  agreements  to
secure advantageous pricing. Each restaurant typically purchases bakery products
and supplies and other perishable items from local vendors or through

                                        7

<PAGE>



the Company's  arrangements  with national  distributors.  The Company purchases
produce on a regional basis. Franchise restaurants are required to use suppliers
that are pre-approved by the Company in order to maintain quality control.

Advertising

The Company believes that the food, service and decor offered by its restaurants
provides its best advertising,  and it relies  principally upon satisfied guests
to promote its  restaurants by  word-of-mouth.  In addition,  the Company uses a
certain  amount of radio and newspaper  advertising  in selected  markets,  runs
print  advertisements in several travel and entertainment  magazines and engages
in limited  promotional  activities before opening a new restaurant.  Throughout
1996 the Company utilized  quarterly  promotional  campaigns that incorporated a
market-specific media mix. The campaigns included television in certain markets.

During 1995, the Company entered into a ten-year agreement for the right to name
the Tampa Bay  Buccaneer  football  team's  stadium  "Houlihan's  Stadium".  The
agreement provides the Company with advertising rights inside the stadium and in
Tampa Bay  Buccaneer  programs and  brochures.  See "Certain  Relationships  and
Related Transactions".

Competition

The  restaurant  business  is  highly  competitive  and the  competition  can be
expected to increase.  Price,  restaurant  location,  food quality,  service and
attractiveness  of facilities  are  important  aspects of  competition,  and the
competitive  environment  is often affected by factors beyond the Company's or a
particular  restaurant's control.  These factors include changes in the public's
dining habits,  population and traffic  patterns and local economic  conditions.
The Company and its  franchisees  compete  with a wide  variety of  restaurants,
ranging  from  national  and  regional   restaurant   chains  to   locally-owned
restaurants,  some of which have greater  financial  resources than the Company.
There is also active competition for management  personnel and hourly restaurant
employees,  as well as intense competition for attractive commercial real estate
sites suitable for restaurants.

Government Regulation

Each of the Company's restaurants is subject to federal, state and/or local laws
and  regulations  governing  health,  sanitation  and  safety  and  the  sale of
alcoholic  beverages.  The  selection  of new  restaurant  sites is  affected by
federal,  state and local laws and regulations regarding  environmental matters,
zoning  and land use.  The  Company  has not  encountered  any  difficulties  or
failures in  obtaining  necessary  licenses  and  approvals  that could delay or
prevent new restaurant openings and does not, at this time, anticipate any.

The Company is subject to a variety of federal and state laws that  regulate the
sale of franchises  and the franchise  relationship.  Generally,  these laws and
regulations impose certain disclosure and registration requirements prior to the
sale and  marketing of  franchises.  These laws and  regulations  have not had a
material effect on the Company's franchise operations.

The  Company's   employment   practices  are  subject  to  various  governmental
employment  regulations  which regulate such matters as minimum wage,  overtime,
immigration  and other working  conditions.  Approximately  53% of the Company's
employees as of December 30, 1996 were paid at rates tied to the

                                        8

<PAGE>



minimum wage. The Company is also subject to the Americans With Disabilities Act
and various family leave mandates.

Trade and Service Marks

The Company owns a number of trade and service  marks used in  conjunction  with
its business. The following trade and service marks are among those owned by the
Company:  Houlihan's(R),   Darryl's(R),  Charley's  Place(sm),  Phineas(sm),  J.
Gilbert's(sm),  The Buena Vista(R) and Braxton Seafood Grill & Chophouse(R).  In
addition, the Company is entitled to limited use of the service mark Bristol Bar
& Grill(sm)  in the St.  Louis and Kansas City areas and has obtained the use of
the service mark  Chequers Bar & Grill(sm)  under license from Checkers of North
America.

The Company has registered with state and federal  authorities and will continue
to register,  or renew the  registration  of,  those trade and service  marks it
deems  important to the continued  operation and  recognition  of its restaurant
businesses.  The Company regards its service marks and logos as important to the
identification  of its restaurants and believes they have  significant  value in
the  conduct of its  business.  The  Company's  policy is to utilize  marks when
appropriate,  to pursue  registration  of its  marks  whenever  possible  and to
vigorously oppose  infringement  activities that might diminish the value of its
marks.


Item 2.  Properties

As of December  30,  1996,  the Company  owned the land and  buildings on and in
which it operates 25  restaurants,  owned the  buildings and leased the land for
three  restaurants  and leased 73  restaurants.  The Company's  restaurants  are
approximately  8,500 square feet on average,  and they have been open an average
of 10.8 years as of December 30, 1996. The Company's 25 owned properties consist
of three Houlihan's,  20 Darryl's and two Specialty  restaurants.  Substantially
all owned and leased  properties are mortgaged as collateral under the Company's
bank credit agreement (the "Bank Credit Agreement").

The leases for the Company's open and operating  restaurants  generally  provide
for an  initial  term from ten to twenty  years and  renewal  options of five to
twenty-five  years. The leases  generally  provide for payment of a fixed rental
and, in most cases, percentage rentals based on sales.

The  Company  leases  approximately  35,000  square feet in a building in Kansas
City, Missouri, which houses its corporate headquarters. The Company also leases
a facility in Kansas City, Missouri,  which contains approximately 22,000 square
feet,  which is utilized to  manufacture,  refurbish,  warehouse and  distribute
restaurant furnishings and decor items.



                                        9

<PAGE>



The following table sets forth the jurisdiction in which both the  Company-owned
restaurants and franchise  restaurants are located and the number of restaurants
in each as of December 30, 1996:

<TABLE>
                                                   Company-Owned
                      ------------------------------------------------------------------------      Franchise
                       Houlihan's     Darryl's         Seafood       Specialty        Total         Houlihan's
                      -----------    -----------     -----------    -----------    -----------     -----------
<S>                            <C>            <C>             <C>            <C>           <C>              <C>
Alabama                         -              3               -              -              3               -
Arizona                         3              -               -              -              3               -
California                      3              -               -              1              4               -
Colorado                        1              -               -              -              1               2
Connecticut                     1              -               -              2              3               -
Florida                         2              3               -              -              5               -
Georgia                         5              -               1              -              6               2
Illinois                        6              -               1              -              7               -
Indiana                         1              1               -              -              2               2
Kansas                          2              -               1              1              4               -
Kentucky                        -              2               -              -              2               -
Maryland                        1              -               -              1              2               -
Massachusetts                   4              -               -              -              4               -
Michigan                        2              -               -              -              2               -
Missouri                        6              1               1              -              8               -
Nevada                          -              -               -              -              -               1
New Jersey                      7              -               -              -              7               -
New York                        3              -               -              -              3              11
North Carolina                  -             11               -              -             11               2
North Dakota                    -              -               -              -              -               1
Ohio                            3              -               -              -              3               2
Oregon                          -              -               -              -              -               1
Pennsylvania                   10              -               -              1             11               -
South Carolina                  -              -               -              -              -               1
Tennessee                       -              3               -              -              3               -
Virginia                        1              4               -              1              6               -
Wisconsin                       1              -               -              -              1               3
Puerto Rico                     -              -               -              -              -               1
                      -----------    -----------     -----------    -----------    -----------     -----------
                               62             28               4              7            101              29
                      ===========    ===========     ===========    ===========    ===========     ===========
</TABLE>


Item 3.  Legal Proceedings

The Company is subject to various  claims and pending legal  actions  arising in
the normal course of business. Management believes that the final disposition of
these  claims  and  pending  actions  will not have a material  adverse  effect,
individually or in the aggregate,  on the business or the financial  position of
the Company.


Item 4.  Submission of Matters to a Vote of Security Holders

None.




                                       10

<PAGE>



                                    PART II

Item 5.  Market for Registrant's Common Stock and Related Stockholder Matters

The  Company's  common stock is traded on the  over-the-counter  ("OTC")  market
under the symbol "HOUL". There has been limited public trading on the OTC of the
Common Stock. Bid quotations reflect interdealer prices, without retail mark-up,
mark-down or commission and may not necessarily  represent actual  transactions.
The following  table sets forth the quarterly high and low bid quotations of the
Common Stock, as reported by the OTC Bulletin Board.

                                             High                 Low
                                         -------------       -------------
Fiscal year ended December 30, 1996:
         First Quarter                   $   5     1/2       $   3     7/8
         Second Quarter                      6     3/4           4   15/16
         Third Quarter                       7     1/4           6     3/4
         Fourth Quarter                      7     1/4           5

Fiscal year ended December 25, 1995:
         First Quarter                   $   8     1/2       $   6     1/2
         Second Quarter                      8     7/8           8     1/2
         Third Quarter                       8     7/8           7     1/8
         Fourth Quarter                      7     1/8           4     1/2

As of December 30, 1996, there were less than 50 stockholders of record.

Holders of the Company's common stock are entitled to receive dividends when, as
and if  declared  by the  Company's  Board of  Directors  out of  funds  legally
available therefor.  However,  the ability of Houlihan's  Restaurants,  Inc., to
declare and pay dividends to Houlihan's  Restaurant Group, Inc. is restricted by
the  terms of the Bank  Credit  Agreement  to 35% of the cash  flow in excess of
certain  amounts as set forth in the Bank Credit  Agreement.  As of December 30,
1996, the Company has not paid any dividends and does not anticipate the payment
of cash dividends in the foreseeable future.


Item 6.  Selected Financial Data

The following  selected  Statement of Income data and Balance Sheet data for the
periods indicated has been derived from the Consolidated Financial Statements of
Houlihan's Restaurant Group, Inc. and Subsidiary. Such financial statements have
been audited by Deloitte & Touche LLP, independent certified public accountants.
The  information  below  should  be  read  in  conjunction  with   "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
the Consolidated  Financial Statements of the Company and notes thereto included
elsewhere in this Form 10-K.



                                       11

<PAGE>



<TABLE>
                                       SELECTED CONSOLIDATED FINANCIAL DATA
                                 (Dollars in thousands, except per share amounts)

                                                                       Fiscal Year Ended (a)
                                                 ---------------------------------------------------------------
                                                 December 30, December 25, December 26, December 27, December 28,
                                                    1996          1995         1994        1993         1992
                                                 ----------   ----------   ----------   ----------   -----------
Statement of Income Data:
<S>                                              <C>          <C>          <C>          <C>          <C>       
Net sales                                        $  274,836   $  267,622   $  259,367   $  257,225   $  266,532
Cost of sales, including operating expenses
   (exclusive of depreciation and amortization
   shown separately)                                229,751      222,375      215,562      208,532      228,926
                                                 -----------  -----------  -----------  -----------  -----------
     Gross profit                                    45,085       45,247       43,805       48,693       37,606
Depreciation and amortization                        15,506       14,865       16,245       19,610       18,428
General and administrative expenses                  16,590       16,938       17,176       17,736       15,038
Loss on disposition of properties, net                  344          605          847          624          601
Interest expense                                      6,973        8,189        6,562        6,428       10,242 (b)
Other (income), net                                  (4,722)      (3,531)      (2,883)      (2,700)      (3,606)
Merger expense                                        1,105   (c)   -            -            -            -
Reorganization items and restructuring costs           -            -            -            -           3,612
Income tax provision (benefit)                        4,092        3,916         2,900       4,026       (1,173)
                                                 -----------  -----------  -----------  -----------  -----------
   Income (loss) before extraordinary item            5,197        4,265         2,958       2,969       (5,536)
Extraordinary gain on discharge of prepetition
 liabilities                                           -             -            -            -         31,031
                                                 -----------  -----------  -----------  ----------- ------------
     Net income                                  $    5,197   $    4,265   $    2,958   $    2,969  $    25,495
                                                 ===========  ===========  ===========  =========== ============

Earnings per common and common equivalent
 share (d)                                       $     0.52   $     0.43   $     0.30   $     0.30  $       -
                                                 ===========  ===========  ===========  =========== ============

Weighted average common and common equivalent
   shares (d)                                    10,045,762   10,032,254   10,012,928    9,998,012         -
                                                 ===========  ===========  ===========  =========== ============

Balance Sheet Data:
Working capital deficit                          $   (6,182)  $  (15,494)  $  (12,270)  $   (9,220)$    (8,947)
Total assets                                        195,675      191,016      192,508      204,235      197,301
Total debt, including capitalized leases             79,729       83,981       89,553       99,997      103,276
Stockholders' equity                                 75,389       70,192       65,927       62,969       60,000

Other Financial Data:
Capital expenditures                             $   13,582   $   14,626   $   17,814   $   10,521 $      7,978
</TABLE>

-------------------------
(a)      Unless otherwise  indicated,  references herein to years pertain to the
         Company's  52- or 53- week  fiscal  years  ending  the last  Monday  in
         December.  All fiscal years  presented were 52-week fiscal years,  with
         the  exception of fiscal 1996,  which  consisted of 53-weeks.  The year
         ended  December  28, 1992  reflects a  predecessor  period in which the
         Company  underwent a  reorganization  which was completed  December 28,
         1992.

(b)      From November 1991 to December 1992,  interest expense  attributable to
         senior  subordinated  notes  was  stayed  resulting  in a  decrease  in
         interest expense of $11,767 for 1992.

(c)      See discussion at "Liquidity and Capital Resources".

(d)      Earnings per common share for fiscal year 1992 is not meaningful due to
         reorganization and revaluation  entries and the significant  changes in
         the  Company's  capital  structure  upon its  reorganization  which was
         completed December 28, 1992.




                                       12

<PAGE>



Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

General

The following  discussion and analysis  should be read in  conjunction  with the
Consolidated  Financial  Statements and Notes thereto included elsewhere in this
Form 10-K. The information  contained  herein  includes  certain forward looking
information   regarding   restaurant   openings,   operating  margins,   capital
requirements,   cash  flow  from  operations  and   assumptions   regarding  the
availability of new credit facilities. This forward looking information could be
affected by changes in monetary and fiscal policies,  laws and regulations,  and
social and economic  conditions,  such as  inflation  or a recession,  increased
competition in the restaurant  industry,  the current trend towards "dining out"
and the amount, type and cost of financing available to the Company.

The Company  reports  fiscal year results of operations  based on 52- or 53-week
periods.  The fiscal year ended  December 30, 1996 was a 53-week fiscal year and
the fiscal  years ended  December  25, 1995 and  December  26, 1994 were 52-week
fiscal years and are referred to hereafter as 1996, 1995 and 1994, respectively.

The following table sets forth, for the periods indicated,  information  derived
from  the  Consolidated   Financial   Statements  of  the  Company  (dollars  in
thousands).  All percentages contained in the table below are percentages of net
sales for the period indicated.

<TABLE>
                                                 1996                   1995                   1994
                                         -------------------    -------------------    -------------------
                                          Amount     Percent     Amount     Percent     Amount     Percent
                                         ---------   -------    ---------   -------    ---------   -------

<S>                                      <C>          <C>       <C>          <C>       <C>          <C>   
Net sales ............................   $ 274,836    100.0%    $ 267,622    100.0%    $ 259,367    100.0%

Cost of sales:
   Food and bar costs ................      80,741     29.4        78,363     29.3        76,329     29.4
   Labor costs .......................      86,196     31.4        85,351     31.9        83,186     32.1
   Operating expenses (exclusive of
     depreciation and amortization) ..      62,814     22.8        58,661     21.9        56,047     21.6
                                         ---------   -------    ---------   -------    ---------   -------
       Total cost of sales ...........     229,751     83.6       222,375     83.1       215,562     83.1
                                         ---------   -------    ---------   -------    ---------   -------

       Gross profit ..................      45,085     16.4        45,247     16.9        43,805     16.9

Depreciation and amortization ........      15,506      5.6        14,865      5.5        16,245      6.3
General and administrative expenses ..      16,590      6.0        16,938      6.3        17,176      6.6
Loss on disposition of properties, net         344      0.1           605      0.2           847      0.3
Other (income), net ..................      (4,722)    (1.6)       (3,531)    (1.3)       (2,883)    (1.1)
Interest expense .....................       6,973      2.5         8,189      3.1         6,562      2.6
Merger expense .......................       1,105      0.4          --         --            --       --
Income tax provision .................       4,092      1.5         3,916      1.5         2,900      1.1
                                         ---------   -------    ---------   -------    ---------   -------

       Net income ....................   $   5,197     1.9 %    $   4,265     1.6 %    $   2,958     1.1 %
                                         =========   =======    =========   =======    =========   =======
</TABLE>




                                       13

<PAGE>



Fiscal 1996 Compared with Fiscal 1995

Net sales for 1996 increased  $7,214,000,  or 2.7% from  $267,622,000 in 1995 to
$274,836,000  in 1996. The increase was primarily due to sales  generated by ten
new  restaurants  that  were  opened  during  1995  and  1996  and one  Darryl's
restaurant  that was  converted  to a  Specialty  restaurant  in  1995.  The new
restaurants included eight Houlihan's,  one Seafood restaurant and one Specialty
restaurant.  Additionally,  fiscal  1996  consisted  of 53 weeks as  compared to
fiscal 1995,  which consisted of 52 weeks. The increase in sales was offset by a
decrease in comparable  restaurant sales of $7,531,000 or 2.9% and a decrease of
$4,252,000 due to the closing of two restaurants in 1996 and two in 1995.

"Comparable  restaurants" are restaurants open throughout  fiscal years 1995 and
1996.  Comparable  sales for fiscal year 1995 were  adjusted to reflect the same
number of weeks as fiscal year 1996.  The  increases  (decreases)  in comparable
restaurant sales as adjusted, by concept, from 1995 to 1996 were as follows:

                                           Food         Bar        Total
                                         --------    --------    --------
       Houlihan's                          (3.1)%      (6.1)%      (3.9)%
       Darryl's                            (0.9)%      (1.0)%      (0.9)%
       Seafood                              1.2 %       3.8 %       1.7 %
       Specialty                           (5.1)%      (2.4)%      (4.2)%
       Total                               (2.4)%      (4.6)%      (2.9)%

Cost of sales as a  percentage  of net sales  increased  during 1996 to 83.6% as
compared to 83.1% in 1995. Cost of sales are composed of three major items: food
and bar costs, labor costs and operating expenses.

Combined food and bar costs increased slightly during 1996 primarily due to cost
increases  associated  with the new menu that was  implemented  in the  Darryl's
concept  during  the first  quarter.  The new  menu,  which  emphasizes  quality
wood-fired steaks,  was in place in all Darryl's  restaurants by April 1996. Due
to the shift in the menu mix to higher priced items such as steak, food cost was
impacted by the increased cost of beef during the year.

Labor  costs as a percent of net sales  decreased  in 1996 as  compared  to 1995
primarily due to cost savings  realized from new labor  scheduling  systems that
were  implemented  in a majority of the Company's  restaurants.  The new systems
rely on  estimated  guest  counts based upon  historical  information  to assist
restaurant  management  in  scheduling  employees in the most  efficient  manner
possible.  The systems are currently in place in all of the Company's Houlihan's
and Darryl's restaurants.

Operating  expenses  increased to 22.8% in 1996 from 21.9% in 1995 primarily due
to increases in promotional  expenses.  During the first three quarters of 1996,
the Company  tested  various  advertising  promotions in selected  markets using
radio,  print,  billboard and  television.  Additionally,  promotional  expenses
increased due to the amortization of costs associated with the agreement for the
right to name the  Tampa  Bay  Buccaneer  football  team's  stadium  "Houlihan's
Stadium".

Depreciation  and  amortization  expense as a percentage of net sales  increased
during 1996 due to increased capital expenditures from new unit construction and
ongoing restaurant renovation and replacements.

General and  administrative  expenses as a percent of sales decreased to 6.0% in
1996 from 6.3% in 1995. The decrease was primarily attributable to approximately
$600,000  of  expenses  incurred  in  the  prior  year  associated  with  a debt
registration that was withdrawn by the Company during 1995 due to unfavorable

                                       14

<PAGE>



developments  in the  high-yield  financing  market.  The decrease was partially
offset by increasing  costs  associated with the continuing  rapid growth of the
Company's  franchise program,  the most significant  expense of which related to
the training teams associated with franchise restaurant  openings.  During 1996,
eleven  franchise  Houlihan's  were opened as  compared to 1995,  in which seven
franchise Houlihan's were opened.

Other  income  increased  during  1996  primarily  as a result of an increase in
franchise  revenues  over the prior year.  As of December 30, 1996,  the Company
franchised  29  restaurants   and  had  signed   agreements  with  20  franchise
development  groups  providing  for  the  development  of  an  aggregate  of  77
additional Houlihan's over a five to six year period.

Interest expense  decreased in 1996 compared to 1995 due to lower interest rates
during the year,  as well as a lower  outstanding  debt  balance.  The  weighted
average interest rate on the Company's outstanding bank debt was 7.5% in 1996 as
compared to 8.5% for 1995.

Merger  expenses  consisted  primarily  of  professional  fees  related  to  the
terminated  merger of the Company with Zapata  Corporation.  See  "Liquidity and
Capital Resources".

The effective  income tax rate, as a percentage of earnings before income taxes,
was 44% for 1996,  compared  to 48% for 1995.  The  lower  effective  rate was a
result of the increase in pretax income in relation to the fixed amortization of
the reorganization value in excess of amounts allocable to identifiable assets.

Net income  increased by $932,000 to $5,197,000 in 1996 from  $4,265,000 in 1995
due to the factors discussed above.

Fiscal 1995 Compared with Fiscal 1994

Net  sales  for  1995  increased  $8,255,000,  or  3.2%,  to  $267,622,000  from
$259,367,000  in 1994. The increase in net sales was due to sales of $17,780,000
generated by five new  restaurants  and one conversion  opened in 1995, four new
restaurants  opened  in 1994  and  three  restaurants  that  were  converted  to
Houlihan's  from other  concepts in 1994.  The increase in sales was offset by a
decrease in comparable  restaurant sales of $2,899,000,  or 1.2%, and a decrease
of $6,626,000 due to the closing of two restaurants in 1995 and two in 1994.

"Comparable  restaurants" are restaurants open throughout  fiscal years 1994 and
1995. The increases (decreases) in comparable restaurant sales, by concept, from
1994 to 1995 were as follows:

                                          Food         Bar         Total
                                         --------    --------    --------   
        Houlihan's                          0.5 %      (4.0)%      (0.6)%
        Darryl's                           (3.6)%      (3.7)%      (3.6)%
        Seafood                             6.1 %      (0.5)%       4.9 %
        Specialty                          (0.3)%      (3.8)%      (1.5)%
        Total                              (0.4)%      (3.8)%      (1.2)%

The decrease in total  comparable  restaurant sales for the Company from 1994 to
1995  reflects a 0.4%  decrease  in food sales and a 3.8%  decrease  in sales of
alcoholic beverages.  The percentage of the Company's net sales generated by the
sale of alcoholic beverages in 1995 remained consistent with 1994

                                       15

<PAGE>



at 23%.  The  Company  has  implemented  several  strategies  to improve  and/or
maintain alcoholic beverage sales in consideration of a continuing industry-wide
declining trend in customer drinking habits.  These strategies included offering
several  micro-brewery  beer  products,  a new  drink  menu  and  various  local
promotions.

Cost of sales as a  percentage  of net sales  remained  consistent  with 1994 at
83.1% Cost of sales are composed of three major items: food and bar costs, labor
costs and operating expenses.

Combined  food and bar costs were 29.3% and 29.4% of net sales in 1995 and 1994,
respectively.  The decrease was due to favorable poultry and dairy prices during
1995,  as well as a menu price  increase  which  became  effective in the fourth
quarter of 1995.

Labor costs  improved to 31.9% of sales in 1995 from 32.1% of net sales in 1994.
The decrease was primarily  due to the  implementation  of new labor  scheduling
systems  in  eleven  of the  Company's  restaurants.  The  new  systems  rely on
estimated  guest counts based upon historical  information to assist  restaurant
management in scheduling  employees in the most efficient manner  possible.  The
new systems should be fully  implemented in all of the Company's  restaurants by
the second quarter of 1996.

Operating  expenses as a percentage of net sales increased 0.3% to 21.9% in 1995
from 21.6% in 1994.  The increase is due primarily to rent  increases in several
of the Company's restaurants. Approximately 71% of the Company's restaurants are
leased.  Additionally,  paper goods and supplies  increased due to new packaging
for the "To Go" and delivery  service  sales,  which  increased in volume during
1995.

Depreciation and amortization  expense decreased to $14,865,000 from $16,245,000
during   the  year  due  to  an   increased   number   of   assets   which   are
fully-depreciated.  The  decrease  is also due,  in part,  to the closing of two
restaurants during the first quarter of 1995.

General and administrative  expenses decreased $238,000, or 1.4%, to $16,938,000
in 1995 from  $17,176,000  in 1994.  The  decrease  is a result of cost  savings
associated  with a staff and  procedural  restructuring  in  January  1995.  The
restructuring  was undertaken to improve the efficiency and  productivity of the
overhead and support areas of the Company.  The savings were partially offset by
approximately $600,000 of expenses associated with a registration statement that
was withdrawn by the Company during 1995 due to unfavorable  developments in the
high-yield financing market.

Other income  increased to $3,531,000 in 1995 from  $2,883,000 in 1994 primarily
due to a 47% increase in franchise  income as a result of an increase in royalty
income and the  recognition of franchise fees  associated with opening seven new
franchise restaurants during 1995.

Interest expense for 1995 increased to $8,189,000 from $6,562,000 in 1994 due to
higher  interest  rates  related to the  Company's  bank debt during  1995.  The
weighted  average  interest rate related to the Company's bank debt was 8.5% for
1995 as  compared  to 7.0% for  1994.  Also,  additional  interest  expense  was
incurred  related to the $7,000,000 the Company borrowed on its Revolving Credit
Facility during the year, of which all but $1,000,000 was repaid by year end.

The effective income tax rate was 48% for 1995 and 50% for 1994. The decrease in
the  effective  rate is due  primarily to the increase in pre-tax book income of
$2,323,000.


                                       16

<PAGE>



Net  income  increased  $1,307,000  to  $4,265,000,   or  1.6%  of  sales,  from
$2,958,000,  or 1.1% of sales,  in 1994  primarily  due to  increased  sales and
stable cost of sales.  Earnings per common and common equivalent share increased
to $0.43 in 1995 from $0.30 due to the factors discussed above.

Liquidity and Capital Resources

At December 30, 1996,  the Company had cash and cash  equivalents of $15,620,000
and a working capital  deficiency of $6,182,000.  The Company relies principally
upon internally generated funds to finance its restaurant operations and to fund
working  capital  expenditures.  Historically,  the  Company has  operated  with
working  capital  deficiencies.  The  Company's  ability  to  operate  with such
deficiencies  is due to the nature of the  restaurant  business,  which does not
require significant  investments in accounts receivable or inventories and which
generally allows the procurement of food and supplies on trade credit.

The Company's bank credit agreement  contains various covenants and restrictions
which,  among other  things,  require the  maintenance  of minimum  fixed charge
coverage ratios and interest  coverage ratios.  The Company did not maintain the
required  interest  coverage ratio for the first and second quarters of 1996 and
as a result,  the Bank Credit Agreement was amended to revise certain  covenants
of the  agreement on March 25, 1996 (the "Second  Amendment")  and June 24, 1996
(the "Third  Amendment").  The Company also did not maintain the required  fixed
charge  ratio for the second and third  quarters of 1996,  which was remedied by
the  Third  Amendment,  as well  as by  another  amendment  to the  Bank  Credit
Agreement dated November 1, 1996 (the "Fourth Amendment").

At  December  30,  1996,  the  Company  had  $27,000  available  to it under the
$12,500,000  Revolving  Credit  Facility,  reduced by $4,523,000 of  outstanding
standby  letters of credit and a $7,950,000  outstanding  loan.  Pursuant to the
Third Amendment,  the aggregate Revolving Credit Facility commitment was reduced
to  $12,500,000  from  $15,000,000  on October 1, 1996.  During March 1997,  two
outstanding standby letters of credit were drawn by the beneficiaries, resulting
in the Company borrowing  $676,646 on March 18, 1997 and $3,475,000 on March 24,
1997 on its Revolving Credit Facility.  The borrowings increased the outstanding
loans under the Revolving Credit Facility to $12,101,646  which was subsequently
refinanced (see "New Credit Facility").

The  Company's  capital  expenditures   totaled  $13,582,000,   $14,626,000  and
$17,814,000 in 1996, 1995 and 1994, respectively. Current year expenditures were
incurred for three new Houlihan's,  one new Seafood restaurant and one Specialty
restaurant  that were  opened  during the year,  as well as  ongoing  remodeling
projects, normal restaurant renovations and replacements and the installation of
new  management  information  systems in the  Company's  restaurants,  which was
completed  in  the  second  quarter.   The  Company  expects  to  incur  capital
expenditures of  approximately  $11,000,000 in 1997, a majority of which will be
used for remodeling projects and normal restaurant  maintenance,  as well as the
opening of one Seafood restaurant.  Management believes that cash on hand, funds
to be  generated  internally  from  operations  and the use of  working  capital
changes will be adequate to meet the Company's capital expenditure  requirements
for the foreseeable future.

The  Company  entered  into a  merger  agreement  on June 4,  1996  with  Zapata
Corporation  ("Zapata"),  which provided for Zapata's acquisition of the Company
for a  combination  of cash and stock  valued at $8.00 per share.  At that time,
approximately 35% of Zapata's  outstanding  shares of common stock were owned by
the Glazer Group,  which owns  approximately  73% of the  Company's  outstanding
stock at December 30, 1996.  The  agreement  was  terminated  on October 8, 1996
pursuant to its terms. The

                                       17

<PAGE>



termination  followed the decision of the Delaware Chancery Court that a vote of
80% of the  Zapata  stockholders  would  be  required  to  approve  the  merger.
Approximately $1,105,000 of expenses were incurred by the Company resulting from
the above transaction.

On March 31, 1997, the Bank Credit Agreement was amended (the "Fifth Amendment")
to extend the maturity date of all of its outstanding bank debt to May 15, 1997.
The new  maturity  date  allowed for the  closing of a new $90  million  secured
credit facility (see "New Credit Facility").  Additionally,  the Fifth Amendment
revised the required fixed charge coverage ratio for the fourth quarter of 1996.
The Company  also made two payments on the Term Loan  consisting  of a scheduled
principal  payment  of  $5,500,000  on March  31,  1997 and a Net Cash  Proceeds
payment (as defined in the Bank Credit  Agreement) of $129,000 on April 4, 1997.
As a result, the Company remains in compliance with all covenants of its current
bank credit agreement as amended.

New Credit Facility

The Company signed a new credit  agreement and obtained a new  $90,000,000  bank
credit facility on April 15, 1997. The new credit facility  consists of a senior
bank term loan facility and a senior bank revolving  credit  facility.  The term
loan  facility  consists  of a  five-year  tranche A term loan in the  principal
amount of  $20,000,000  and a  seven-year  tranche B term loan in the  principal
amount of  $55,000,000.  The  tranche A loan  requires  annual  amortization  of
$4,000,000 and the tranche B loan requires  annual  amortization of $550,000 for
the first  five  years and  $26,125,000  in the sixth  and  seventh  years.  All
amortization  on the term loans is to be paid in equal  quarterly  installments.
The five-year  revolving  credit facility in the principal amount of $15,000,000
includes a $5,000,000 swingline facility.  The revolving credit facility will be
available to provide for the working capital  requirements and general corporate
purposes of the Company and  provides  for letters of credit up to  $10,000,000.
The Company had no amounts outstanding under the revolving credit facility as of
April 15, 1997. The proceeds from the new credit facility of $75,000,000,  along
with $585,000 of the Company's  existing  unrestricted  cash, were used to repay
and permanently  retire  $75,585,000 of the existing bank  indebtedness at April
15, 1997.

The new credit  facility also allows the Company to raise up to  $30,000,000  by
entering into a sale leaseback  transaction of its owned restaurant  properties.
The Company is exploring this option as a financing  alternative and if pursued,
intends to use the  proceeds  from this  transaction  to either  (i)  repurchase
shares  of the  Company's  common  stock not  owned by the  Glazer  Group for an
aggregate repurchase price of not in excess of $8.00 per share or $21,400,000 in
aggregate  value (the  "Repurchase"),  (ii) prepay the new credit  facility term
loans or (iii) construct or acquire  additional new restaurants.  If the Company
decides to complete the Repurchase,  the transaction is expected to be completed
as soon as practicable after the closing of the sale leaseback transaction,  but
in any event by November 15, 1997.

Seasonality

The Company's sales generally are not subject to seasonality, although sales are
generally  slightly higher during the fourth quarter,  and slightly lower during
the first quarter, due to weather and the dining habits of the Company's guests.




                                       18

<PAGE>



Impact of Inflation

Inflationary  increases in costs,  namely food,  labor and  operating  expenses,
could have a significant  impact on the Company's  operations.  In the past, the
Company has been able to recover  inflationary  cost increases through increased
food and beverage menu prices.  There have been, and there may be in the future,
delays in implementing such menu price increases,  and competitive pressures may
limit the Company's  ability to recover such cost  increases in their  entirety.
Historically,  the effects of inflation have not had a significant impact on the
Company's net income.

A significant  number of the  Company's  employees are paid hourly rates tied to
federal and state  minimum wage and tip credit laws.  An increase in the federal
minimum wage was effective October 1, 1996, and other minimum wage increases are
currently  proposed by various state  governments.  Although the Company has and
will  continue to attempt to pass along any  increased  labor costs through food
and beverage price increases,  there can be no assurance that all such increased
labor  costs can be  reflected  in its prices or that  increased  prices will be
absorbed by consumers  without  diminishing to some degree consumer  spending at
the restaurants.  However, the Company has not experienced to date a significant
reduction  in gross  profit  margins as a result of  changes  in such laws,  and
management  does not  anticipate any related  future  significant  reductions in
gross profit margins.


Item 8.  Financial Statements and Supplementary Data

See the Index to Financial Statements on Page F-1.


Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

None.



                                       19

<PAGE>



                                    PART III

Item 10.          Directors and Executive Officers of the Registrant

The following table sets forth the name, age, and position of each person who is
a director or officer of the Company.  Officers  are elected for one-year  terms
and serve at the  pleasure  of the Board.  Each  director  will serve  until his
successor is elected and qualified.

       Name           Age                      Position
-------------------   ---   ----------------------------------------------------
Malcolm I. Glazer      68   Chairman of the Board of Directors
Avram A. Glazer        36   Director
Kevin E. Glazer        34   Director
Bryan G. Glazer        32   Director
Joel M. Glazer         29   Director
Warren H. Gfeller      44   Director
Frederick R. Hipp      46   President, Chief Executive Officer and Director
William W. Moreton     36   Executive Vice President/Chief Financial Officer,
                            Treasurer and Secretary (resigned effective
                            April 4, 1997)
Henry C. Miller        42   Senior Vice President/Houlihan's and Dinnerhouses
Andrew C. Gunkler      44   Senior Vice President/Franchising
Mark T. Walker         39   Vice President/Construction and Design
James W. Kaiser        46   Vice President/Purchasing and Facilities
Marc L. Kuemmerlein    42   Vice President/General Counsel
Kenneth C. Vetter      45   Vice President/Darryl's
Paul R. Geist          33   Vice President/Controller
Bryon A. Mifsud        34   Regional Vice President/Houlihan's
Jeff J. Tompkins       41   Regional Vice President/Houlihan's

Malcolm  I.  Glazer  has been the  Chairman  of the Board of the  Company  since
September  16,  1992.  Malcolm  Glazer has been  President  and Chief  Executive
Officer of the First Allied  Corporation  since 1984. Mr.  Glazer's  diversified
portfolio  consists of  investments  in  television  broadcasting,  health care,
banking,  natural gas services,  real estate and food service  equipment.  He is
Chairman of the Board of Directors of Zapata Corporation, a natural gas company,
a director of Specialty Equipment  Companies,  Inc., a domestic  manufacturer of
food service equipment, a director of Envirodyne Industries, Inc., a producer of
food  packaging and food service  supplies and a director of Buccaneers  Limited
Partnership,  the entity  that owns the Tampa Bay  Buccaneer  National  Football
League franchise.

Avram A. Glazer has been a director of the Company  since  September  16,  1992.
Avram Glazer has been Vice President of the First Allied Corporation since 1985.
Avram  Glazer  also serves as Chief  Executive  Officer and a director of Zapata
Corporation.  He is  also a  member  of the  Board  of  Directors  of  Specialty
Equipment Companies,  Inc. and Envirodyne  Industries,  Inc. Avram Glazer is the
son of Malcolm Glazer.

Kevin E. Glazer has been a director of the Company  since  September  16,  1992.
Kevin Glazer has been Vice President of the First Allied Corporation since 1986.
He is also a member of the Board of Directors of Specialty Equipment  Companies,
Inc. Kevin Glazer is the son of Malcolm Glazer.


                                       20

<PAGE>



Bryan G. Glazer has been a director of the Company  since  September  16,  1992.
Bryan Glazer has been Vice President of the First Allied  Corporation since 1989
and is a director of the Buccaneers Limited Partnership. Bryan Glazer is the son
of Malcolm Glazer.

Joel M. Glazer has been a director of the Company since September 16, 1992. Joel
Glazer has been Vice President of the First Allied Corporation since 1989 and is
a director  of the  Buccaneers  Limited  Partnership.  Joel Glazer is the son of
Malcolm Glazer.

Warren H. Gfeller has been a director of the Company  since  September 16, 1992.
Mr.  Gfeller is the owner of  Clayton-Hamilton  Equities and was the  President,
Chief Executive Officer and a director of Ferrellgas,  Inc. in Liberty, Missouri
from 1983 through 1991.  He is also a director of Synergy Gas Corp.,  the Kansas
Wildscape Foundation,  House Specialties Corporation,  Gardner Bancshares, Inc.,
and Stranger Valley Land Company.

Frederick  R.  Hipp has been  the  President,  Chief  Executive  Officer,  and a
director of the Company since August 1988. He served as President/Casual  Dining
Division of the  Company  from June 1985 to August  1988 and as  Executive  Vice
President  of the  Company  from May 1980 to June  1985.  Prior to  joining  the
Company, Mr. Hipp served as President of Restaurant Data Systems, Inc. from 1978
to 1980 and served in a number of  operations  and  support  positions  with the
Steak & Ale Corporation from 1973 to 1978.

William W.  Moreton  joined the Company in October  1992 as the Vice  President,
Chief Financial  Officer,  Treasurer and Secretary and was promoted to Executive
Vice President in April 1993. Prior to this position, Mr. Moreton served as Vice
President-Head of Special Asset  Management-U.S.  for Credit  Agricole-CNCA from
April 1989 to October 1992. Prior to that he was with Arthur Andersen & Co. from
July 1982 to April 1989 where he served as a Manager in the Audit and  Financial
Consulting Division.  Effective April 4, 1997, Mr. Moreton resigned his position
with the Company.

Henry C. Miller has been Senior Vice President/Houlihan's and Dinnerhouses since
October 22, 1993. He served as Vice  President/Operations  and General Manager -
Houlihan's  and  Dinnerhouses  from  April to  October  1993.  He served as Vice
President/Operations  - Houlihan's  and  Dinnerhouses  from August 1988 to April
1993 and served as Vice  President/Operations  - Houlihan's from October 1985 to
August 1988.  He served as  Director/Franchise  Operations  from October 1984 to
October  1985 and  served  in the  capacity  of Area  Director  from May 1982 to
October  1984.  Prior to May 1982,  Mr. Miller served in a variety of restaurant
operations positions.

Andrew C. Gunkler was elected Senior Vice President/Franchising in January 1996.
He served as Vice  President/Franchising  from February  1994 to December  1995.
Prior to joining the Company in 1994, he served as Vice President of Franchising
for East Side  Mario's  from  October  1992 to December  1993 and as Director of
Franchise  Development  for Perkins  Family  Restaurants  from  October  1985 to
October 1992.

Mark T. Walker has been Vice  President/Construction  and Design  since  October
1991. He served as Director of Facilities  from October 1987 to October 1991 and
as Manager of  Construction  from  September  1985 until October 1987.  Prior to
holding these positions, Mr. Walker served as a regional facilities manager with
Montgomery Ward from September 1983 until September 1985.


                                       21

<PAGE>



James W. Kaiser was elected Vice President/Purchasing and Facilities in February
1995.  He served as  Director/Purchasing  from October  1988 to September  1994.
Prior to joining the Company he served as Director of  Purchasing  for  ChiChi's
Mexican Restaurants.

Marc L. Kuemmerlein was elected Vice President/General Counsel in December 1995.
He served as General Counsel from January 1993 to December 1995 and as Corporate
Counsel  from July 1990 to January  1993.  Prior to  joining  the  Company,  Mr.
Kuemmerlein practiced general corporate and real estate law with the firm Smith,
Gill, Fisher & Butts, which merged with Bryan Cave LLP in July 1995.

Kenneth C. Vetter was elected Vice President/Darryl's in January 1996. He served
as a Darryl's Area  Director  from  December  1977 to January  1996.  Mr. Vetter
served as a General Manager in Darryl's restaurant operations from December 1975
to December  1977.  Prior to December 1975, he served in a variety of restaurant
operations positions.

Paul R. Geist was elected Vice President/Controller in September 1996. He served
as  Director/Finance  from March 1994 to  September  1996 and served in numerous
accounting  and finance  positions  from December  1989 to March 1994.  Prior to
joining the Company,  Mr. Geist was with  Deloitte & Touche LLP from August 1986
to December 1989.

Bryon A. Mifsud was elected  Regional  Vice  President/Houlihan's  in  September
1996. He served as a Houlihan's  Area Director from July 1990 to September 1996.
Prior to July 1990,  Mr.  Mifsud  served in a variety of  restaurant  management
positions.

Jeff J.  Tompkins was elected  Regional Vice  President/Houlihan's  in September
1996. He served as a Houlihan's  Area Director from July 1983 to September 1996.
Prior to July 1983, Mr.  Tompkins  served in a variety of restaurant  management
positions.


                                       22

<PAGE>



Item 11.          Executive Compensation

The following table sets forth certain  information  concerning the compensation
of the  Company's  Chief  Executive  Officer  and the  other  four  most  highly
compensated executive officers of the Company in 1996.

<TABLE>
                                            SUMMARY COMPENSATION TABLE

                                                                                      Long-Term
                                                                                     Compensation     
                                                            Annual Compensation         Awards         All Other
                                                       ---------------------------   -------------    Compensation
Name and Principal Position                Year         Salary ($)      Bonus($)(a)    Options (#)       ($) (b)
------------------------------------       ----        -----------      ----------   -------------    -----------
<S>                                        <C>           <C>              <C>             <C>             <C>   
Frederick R. Hipp                          1996          399,996           -                -             28,239
   President and Chief Executive           1995          370,055          74,011           50,000         24,953
   Officer                                 1994          362,024           -              250,000         28,223

Andrew C. Gunkler                          1996          150,375          73,237            -              5,619
   Senior Vice President/Franchising       1995          105,481          83,547            -                474
                                           1994           97,385          50,300           32,000            274

William W. Moreton                         1996          196,250           -                -              9,271
   Executive Vice President/Chief          1995          170,683          68,273           16,000          5,651
   Financial Officer                       1994          159,192           -               74,000          6,932

Henry C. Miller                            1996          172,000           -                -              8,784
   Senior Vice President/Houlihan's        1995          155,019          62,008           14,000          5,339
   and Dinnerhouses                        1994          146,269           -               68,000          6,639

Kenneth C. Vetter                          1996          115,000           -               30,000          2,902
   Vice President/Darryl's                 1995           83,292           5,000            -                916
                                           1994           80,000           9,870            2,000            820
</TABLE>
----------------------------
(a)      Reflects bonus amounts earned in each year as provided under the annual
         incentive plan,  employment  agreements and letter  agreements with the
         executive officers discussed below.

(b)      Includes Company  contributions  to the retirement  savings plan, group
         term life insurance premiums and disability insurance premiums.

The named executive officers received automobile  allowances,  reimbursements of
automobile  expenses,  moving expenses and/or  reimbursements  for financial and
estate  planning  services.  Such  other  compensation  did  not  exceed  in the
aggregate  the lesser of $50,000 or 10% of the total of annual  salary and bonus
reported for such officers.



                                       23

<PAGE>



The  following  table  sets  forth  certain  information  concerning  options to
purchase  the  Company's  common stock  granted in 1996 to the five  individuals
named in the Summary Compensation Table.

<TABLE>
                                         OPTION GRANTS IN LAST FISCAL YEAR
                                                                                         Potential Realizable Value
                                                                                           at Assumed Annual Rates
                                                                                               of Stock Price
                                                                                              Appreciation for
                           Individual Grants                                                    Option Term
------------------------------------------------------------------------------------    --------------------------
                                        % of Total
                                      Options Granted    Exercise
                          Options      to Employees       Price         Expiration
     Name                 Granted     in Fiscal Year    per Share          Date             5%              10%
------------------      -----------   --------------   -----------     -------------    -----------     ----------
<S>                        <C>            <C>          <C>             <C>              <C>             <C>
Frederick R. Hipp           -               -                -                 -              -              -
Andrew C. Gunkler           -               -                -                 -              -              -
William W. Moreton          -               -                -                 -              -              -
Henry C. Miller             -               -                -                 -              -              -
Kenneth C. Vetter          30,000         24.0%        $    5.50       Oct. 29, 2006    $   103,768     $  262,968
</TABLE>

As of December 30, 1996,  the options were not  exercisable  and the stock price
was below the exercise price.

The Certificate of  Incorporation  states that the seven member board will serve
concurrent  terms of one year. All directors who are not full-time  employees of
the  Company  receive  fees of $10,000  per annum and $500 per  meeting  and are
eligible to receive  stock  options  pursuant to the  Company's  option plan for
outside directors. See "Benefit Plans and Arrangements."

In December 1992, the Board of Directors established the Compensation  Committee
composed  of  Messrs.  Malcolm  Glazer  and  Warren  Gfeller.  The duties of the
Compensation  Committee are to review remuneration for corporate officers and to
make   recommendations   to  the  Board  of  Directors   regarding   changes  in
compensation.  The Committee's objectives are to establish compensation programs
designed to attract,  retain and reward  executives who will lead the Company in
achieving its business goals in a highly competitive industry and to ensure that
management  compensation  is reasonable  in light of the  Company's  objectives,
compensation  for  similar  personnel  in other  companies  and  other  relevant
criteria.

The Company's  present  compensation  program  consists of an annual  component,
which  includes  base salary  plus an annual  incentive  bonus,  and a long-term
component consisting of stock options.  During 1996, the Compensation  Committee
met informally and after  considering  the report of external  consultants,  the
Committee  recommended  increases in executive  salaries for 1996. The increases
were believed to be competitive with similar personnel in other companies within
the industry.

Employment Agreements

On March 23,  1989,  the  Company  entered  into an  employment  agreement  with
Frederick R. Hipp. The agreement,  as amended on August 5, 1991,  provides for a
minimum base annual  salary of $362,000  subject to  adjustment,  for  severance
payments under certain  circumstances,  and permits Mr. Hipp to receive bonuses.
Mr. Hipp's  employment  agreement also provides other fringe benefits  including
(i)  additional  term  life  insurance  equal to 5.5  times  base  salary,  (ii)
additional long-term disability coverage which, when combined with the Company's
standard long-term disability insurance, equals 60% of base

                                       24

<PAGE>



salary paid out annually to age 65, (iii) an automobile  allowance  plus related
operating and maintenance  expenses,  and (iv) financial and estate planning and
associated legal expenses. Additionally,  pursuant to the agreement, the Company
must indemnify Mr. Hipp,  if, among other things,  he becomes a party to a legal
action or lawsuit  arising in connection with the proper exercise of his duties.
The  agreement  was  further  amended on  February  11,  1992 to  provide  for a
severance  payment if his  employment is terminated  upon a change of control of
the  Company  in an  amount  equal  to 2.99  times  Mr.  Hipp's  average  annual
compensation for the previous five years. This amount would equal $954,000 as of
December 30, 1996.

On August 5, 1991,  the Company  entered into a letter  agreement  with Henry C.
Miller which, as amended,  provides for the payment of severance payments if Mr.
Miller's employment is terminated under certain change of control  circumstances
in an amount equal to 2.99 times Mr. Miller's  average annual  compensation  for
the  previous  five years,  or $407,000 as of December  30,  1996.  A "change of
control" as defined in the agreements  with respect to Messrs.  Hipp and Miller,
occurred  on  December  28,  1992.  In March  1993,  the  Company  entered  into
agreements  with William W. Moreton and Mark T. Walker  providing  for severance
payments  of 2.99 times the  executive's  average  annual  compensation  for the
previous five years if their  employment is terminated  under certain  change of
control  circumstances.  Such amounts would aggregate to $927,000 as of December
30, 1996. The resignation of Mr. Moreton in April 1997 terminated the employment
agreement between him and the Company.

In all of the above  agreements,  there is no  limitation  with  respect  to the
passage  of time  between  the  change of  control  and the  termination  of the
employee.  Such individuals are not entitled to a severance payment in the event
of a  termination  of employment  resulting  from (a) death or  retirement,  (b)
termination  by the Company for "cause",  or  termination  by the employee for a
reason  other than a "good  reason".  A " good  reason" is defined to include an
assignment of duties materially  inconsistent with such individual's status as a
senior  executive  officer,  a  reduction  in annual  salary,  a transfer of the
employee  to a location  more than 50 miles from the  current  corporate  office
location,  a failure of the Company to pay an  installment  of a previous  bonus
award, the failure of the Company to maintain the individual's  current level of
employment  benefits,  or the  failure of the  Company to obtain a  satisfactory
employment agreement for the individual from a successor company. The agreements
do not have an expiration date.

Benefit Plans and Arrangements

Annual  Incentive  Plan.  The Company  maintains an annual  incentive plan which
includes  executive  officers and other key employees of the Company.  Under the
plan,  participants  generally are eligible to receive cash bonuses based on the
Company's earnings before interest, taxes, depreciation and amortization.

Retirement  Savings Plans. The Company has two retirement  savings plans for its
employees,  a trusted plan under  Section  401(k) of the  Internal  Revenue Code
("RSP I"), and an untrusted deferred  compensation plan ("RSP II"). RSP I covers
employees of the Company whose total annual  compensation  is less than $66,000,
as adjusted  pursuant to Internal  Revenue  Code  Section  415(d),  and who have
completed at least one year of employment. Participants are able to reduce their
taxable salary compensation by a specified percentage and receive a 50% matching
contribution  by  the  Company  of  up to 3%  of  the  individual  participant's
qualified  compensation  as defined in the plan. RSP II covers  employees of the
Company  whose  total  annual  compensation  is $66,000 or more and  matches the
provisions of RSP I, except for certain exceptions.  RSP II is unfunded, and all
salary reduction

                                       25

<PAGE>



contributions  and the  Company's  contributions  remain a part of the Company's
general  assets.  RSP II permits  eligible  employees to contribute 1% to 15% of
their base salary plus bonus.

Stock Option Plans.  The Company  maintains two stock option plans, one plan for
outside directors  ("Option Plan I") and one plan for executives and certain key
employees ("Option Plan II"),  providing for the issuance of options to purchase
540,000 and 776,600 shares, respectively.  The Board of Directors determines the
option price based upon the estimated market value of the Company's common stock
at the  date of  grant  based  on the  price  of the  shares  as  traded  in the
over-the-counter  market.  All options  granted have ten year terms and vest and
become  fully  exercisable  at the end of four  years of  continued  employment.
Option Plan I provides for the  issuance of up to 30,000  shares to each outside
director  per year to the  extent  the  options  are  available  under the plan.
Options  for  540,000 and  776,600  shares  were  issued and  outstanding  as of
December 30, 1996 under Option Plans I and II, respectively.


Item 12.          Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information with respect to beneficial  ownership
of  shares  of the  Company's  common  stock  as of  December  30,  1996 by each
beneficial owner of more than five percent of the Company's  common stock,  each
director, each executive officer named in the Summary Compensation Table and all
directors and officers of the Company as a group.
<TABLE>

                                                           Percentage of        Percentage of
                                                             Shares of          Fully Diluted
                                        Number of Shares    Common Stock          Shares of
     Name of Stockholder (a)            of Common Stock    Outstanding (b)      Common Stock (c)
-------------------------------------   ---------------    ---------------      ----------------
<S>                                      <C>                 <C>                   <C>   
Glazer Group (d)                         7,325,815           73.27%                72.92%
    1482 S. Ocean Blvd.
    Palm Beach, FL  33480
Warren H. Gfeller                           -                 -                     -
Frederick R. Hipp (e)                       56,129            *                     *
Andrew C. Gunkler (e)                       -                 -                     -
William W. Moreton (e)                      -                 -                     -
Henry C. Miller (e)                         -                 -                     -
Kenneth C. Vetter (e)                       -                 -                     -
All directors and officers as a group    7,382,944           73.84                 73.49
</TABLE>
----------------------
 *   Less than 1% of outstanding Common Stock.

(a)  Because the Company is not subject to the  provisions  of Section  13(d) of
     the Securities Act of 1934, as amended,  the Company is unable to ascertain
     beneficial  ownership  based  upon  statements  filed  with the  Commission
     pursuant to Sections 13(d) of 13(g) of the Securities Exchange Act of 1934,
     as amended.

(b)  Based on 9,998,012 shares of Common Stock outstanding.

(c)  Assumes the exercise of 47,710 warrants outstanding at an exercise price of
     $37.92.

(d)  Includes  Malcolm I. Glazer,  Chairman of the Board of  Directors,  and his
     sons, Avram A. Glazer, Kevin E. Glazer, Bryan G. Glazer and Joel M. Glazer,
     each a director. See "Directors and Executive Officers of the Registrant."

                                       26

<PAGE>




(e)  Excludes 300,000, 32,000, 90,000, 82,000, and 32,000 shares of Common Stock
     subject to outstanding options granted to Messrs.  Hipp, Gunkler,  Moreton,
     Miller and Vetter,  respectively,  of which 125,000,  16,000, 37,000 34,000
     and 1,000,  respectively,  were  exercisable  within 60 days of the date of
     this Form 10-K.


Item 13.          Certain Relationships and Related Transactions

The  Company  entered  into a  merger  agreement  on June 4,  1996  with  Zapata
Corporation  ("Zapata"),  which provided for Zapata's acquisition of the Company
for a  combination  of cash and stock  valued at $8.00 per share.  At that time,
approximately 35% of Zapata's  outstanding  shares of common stock were owned by
the Glazer Group,  which owns  approximately  73% of the  Company's  outstanding
stock at December 30, 1996.  The  agreement  was  terminated  on October 8, 1996
pursuant to its terms.  The  termination  followed  the decision of the Delaware
Chancery Court that a vote of 80% of the Zapata  stockholders  would be required
to approve the merger. Approximately $1,105,000 of expenses were incurred by the
Company resulting from the above transaction.

On October 13, 1995,  the Company  entered into an Advertising  and  Sponsorship
Agreement (the  "Agreement")  with the Buccaneers  Limited  Partnership  for the
exclusive  naming  rights to the  Tampa  Bay  Buccaneer  Football  Stadium  (the
"Stadium").  The Buccaneers Limited Partnership is 100% controlled by the Glazer
Group.  The  Agreement  provides  the Company with the right to name the Stadium
"Houlihan's  Stadium".  Additionally,  it provides the Company with  advertising
rights inside the Stadium and in Tampa Bay Buccaneer programs and brochures. The
Agreement is for a ten-year period at a total cost of  $10,000,000.  The payment
terms are  $2,000,000  per year for the first five years of the  Agreement.  The
Company has made two payments under the Agreement.


                                       27

<PAGE>



                                     PART IV

Item 14.          Exhibits, Financial Statements and Reports on Form 8-K

(a)      Financial Statements

              The financial  statements are listed in the accompanying "Index to
              Financial Statements" on page F-1.

         Exhibits

              The  exhibits  filed with or  incorporated  by  reference  in this
              report are listed on the Exhibit Index beginning on page E-1.

(b)      Reports on Form 8-K

              The  Company  filed a report  on Form  8-K on  October  25,  1996,
              announcing  that the merger  agreement  between  the Company and a
              subsidiary of Zapata  Corporation had been terminated  pursuant to
              its terms.


Supplemental  Information to Be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act

No annual  report or proxy  statement  was sent to security  holders  during the
fiscal year ended December 30, 1996.


                                       28

<PAGE>


                                   SIGNATURES

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

                                       HOULIHAN'S RESTAURANT GROUP, INC.

Date:    April 15, 1997                By:      /s/      Frederick R. Hipp
        ----------------------------       -------------------------------------
                                           Frederick R. Hipp
                                           President and Chief Executive Officer

Pursuant to the requirements of the Securities 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.


By: /s/  Frederick R. Hipp                          Date:        April 15, 1997
    --------------------------------------------           ---------------------
    Frederick R. Hipp
    President, Chief Executive Officer and Director
    (principal executive officer)

By: /s/  Paul R. Geist                              Date:        April 15, 1997
    --------------------------------------------           ---------------------
    Paul R. Geist
    Vice President / Controller
    (principal financial and accounting officer)

By: /s/  Malcolm I. Glazer                          Date:        April 15, 1997
    --------------------------------------------           ---------------------
    Malcolm I. Glazer
    Chairman and Director

By: /s/  Avram A. Glazer                            Date:        April 15, 1997
    --------------------------------------------           ---------------------
    Avram A. Glazer
    Director

By: /s/  Kevin E. Glazer                            Date:        April 15, 1997
    --------------------------------------------           ---------------------
    Kevin E. Glazer
    Director

By: /s/  Bryan G. Glazer                            Date:        April 15, 1997
    --------------------------------------------           ---------------------
    Bryan G. Glazer
    Director

By: /s/  Joel M. Glazer                             Date:        April 15, 1997
    --------------------------------------------           ---------------------
    Joel M. Glazer
    Director

By: /s/  Warren H. Gfeller                          Date:        April 15, 1997
    --------------------------------------------           ---------------------
    Warren H. Gfeller
    Director


                                       29

<PAGE>



                HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
                          INDEX TO FINANCIAL STATEMENTS



                                                                            Page
                                                                            ----
Independent Auditors' Report .............................................   F-2

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

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

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

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

Notes to Consolidated Financial Statements ...............................   F-7



All schedules are omitted as the required  information is not present in amounts
sufficient  to require  submission  of the  schedule,  or because  the  required
information is included in the  consolidated  financial  statements or the notes
thereto.



                                       F-1

<PAGE>






INDEPENDENT AUDITORS' REPORT

To Houlihan's Restaurant Group, Inc.:

We have  audited the  accompanying  consolidated  balance  sheets of  Houlihan's
Restaurant  Group,  Inc. and subsidiary  (the "Company") as of December 30, 1996
and  December  25,  1995 and the  related  consolidated  statements  of  income,
stockholders'  equity and cash flows for the fiscal  years  ended  December  30,
1996,  December 25, 1995 and December 26, 1994.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  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 consolidated  financial statements referred to above present
fairly,  in  all  material  respects,   the  financial  position  of  Houlihan's
Restaurant  Group,  Inc. and subsidiary as of December 30, 1996 and December 25,
1995,  and the results of their  operations  and their cash flows for the fiscal
years ended  December  30,  1996,  December  25, 1995 and  December  26, 1994 in
conformity with generally accepted accounting principles.






DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 3, 1997
(April 15, 1997 as to Notes 8 and 15)

                                       F-2

<PAGE>



                HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                (Dollars in thousands, except per share amounts)

                                                             Dec. 30,   Dec. 25,
                                                               1996       1995
                                                             --------   --------

                        ASSETS
Current assets:
   Cash and cash equivalents..............................   $ 15,620   $ 10,314
   Receivables ...........................................      1,252      1,661
   Inventories .................. ........................      2,455      2,276
   Other current assets ..................................      2,971      2,918
   Deferred income taxes .................................      3,011      1,401
                                                             --------   --------
       Total current assets ..............................     25,309     18,570
Property, equipment and leaseholds, net ..................    105,481    104,521
Reorganization value in excess of amounts allocable to
   identifiable assets, net ............... ..............     58,458     62,108
Deferred debt issuance costs, net ........................        218        330
Other assets, net ........................................      6,209      5,487
                                                             --------   --------
       Total assets ......................................   $195,675   $191,016
                                                             ========   ========

             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt and capitalized lease
       obligations .......................................   $  8,135   $ 11,202
   Accounts payable .............................. .......      7,317      8,811
   Accrued interest ......................................        590        676
   Accrued liabilities ...................................     15,449     13,375
                                                             --------   --------
       Total current liabilities .................. ......     31,491     34,064
Long-term debt, including capitalized lease obligations,
   less current portion ..................................     71,594     72,779
Other liabilities ........................................     12,284     10,834
Deferred income taxes ....................................      4,917      3,147
                                                             --------   --------
       Total liabilities .................................    120,286    120,824
                                                             --------   --------
Stockholders' equity:
   Common stock-par value $.01 per share, 20,000,000 shares
       authorized, 9,998,012 shares issued and outstanding        100        100
   Additional paid-in capital.............................     59,900     59,900
   Retained earnings .....................................     15,389     10,192
                                                             --------   --------
       Total stockholders' equity ........................     75,389     70,192
                                                             --------   --------
       Total liabilities and stockholders' equity.........   $195,675   $191,016
                                                             ========   ========

          See accompanying notes to consolidated financial statements.

                                       F-3

<PAGE>



<TABLE>
                HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                (Dollars in thousands, except per share amounts)

                                          53 Weeks         52 Weeks        52 Weeks
                                            Ended           Ended           Ended
                                         December 30,    December 25,    December 26,
                                            1996             1995            1994
                                         ------------    ------------    -------------


<S>                                      <C>             <C>             <C>         
Net sales ............................   $    274,836    $    267,622    $    259,367

Cost of sales:
   Food and bar costs ................         80,741          78,363          76,329
   Labor costs .......................         86,196          85,351          83,186
   Operating expenses (exclusive of
     depreciation and amortization
     shown separately) ...............         62,814          58,661          56,047
                                         ------------    ------------    ------------
       Total cost of sales ...........        229,751         222,375         215,562
                                         ------------    ------------    ------------
       Gross profit ..................         45,085          45,247          43,805
Depreciation and amortization ........         15,506          14,865          16,245
General and administrative expenses ..         16,590          16,938          17,176
Loss on disposition of properties, net            344             605             847
Other (income), net ..................         (4,722)         (3,531)         (2,883)
Interest expense .....................          6,973           8,189           6,562
Merger expenses (Note 11) ............          1,105            --              --
                                         ------------    ------------    ------------

       Income before income taxes ....          9,289           8,181           5,858
Income tax provision .................          4,092           3,916           2,900
                                         ------------    ------------    ------------

       Net income ....................   $      5,197    $      4,265    $      2,958
                                         ============    ============    ============


Earnings per common and common
   equivalent share (Note 2) .........   $       0.52    $       0.43    $       0.30
                                         ============    ============    ============

Weighted average common and common
   equivalent shares .................     10,045,762      10,032,254      10,012,928
                                         ============    ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-4

<PAGE>



<TABLE>
                HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             (Dollars in thousands)


                 
                                               Common Stock           Warrants        Additional                 Total
                                           --------------------   -----------------    Paid-In     Retained   Stockholders'
                                             Shares      Amount   Warrants   Amount    Capital     Earnings      Equity
                                           ----------   -------   -------   -------   ---------    --------   ------------
<S>                                         <C>         <C>        <C>      <C>       <C>          <C>        <C>       
Balance, December 27, 1993..............    9,998,012   $   100    47,710   $  --     $  59,900    $  2,969   $     62,969
   
   Net income ..........................         --        --        --        --          --         2,958          2,958
                                           ----------   -------   -------   -------   ---------    --------   ------------
Balance, December 26, 1994 .............    9,998,012       100    47,710      --        59,900       5,927         65,927
                                           ----------   -------   -------   -------   ---------    --------   ------------
   Net income ..........................         --        --        --        --          --         4,265          4,265
                                           ----------   -------   -------   -------   ---------    --------   ------------
Balance, December 25, 1995 .............    9,998,012       100    47,710      --        59,900      10,192         70,192
                                           ----------   -------   -------   -------   ---------    --------   ------------
   Net income ..........................         --        --        --        --          --         5,197          5,197
                                           ----------   -------   -------   -------   ---------    --------   ------------
Balance, December 30, 1996 .............    9,998,012   $   100    47,710   $  --     $  59,900    $ 15,389   $     75,389
                                           ==========   =======   =======   =======   =========    ========   ============

</TABLE>




          See accompanying notes to consolidated financial statements.

                                       F-5

<PAGE>



<TABLE>
               HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

                                                       53 Weeks    52 Weeks    52 Weeks
                                                        Ended       Ended       Ended
                                                       Dec. 30,    Dec. 25,    Dec. 26,
                                                         1996        1995        1994
                                                       --------    --------    --------
<S>                                                    <C>         <C>         <C>
Cash flows from operating activities:
   Net income ......................................   $  5,197    $  4,265    $  2,958
   Adjustments to reconcile net income to net
     cash provided by operating activities:
       Depreciation and amortization ...............     15,506      14,865      16,245
       Amortization of deferred debt issuance costs.        112         110         110
       Loss on disposition of properties, net.......        344         605         847
       Deferred income tax provision (benefit)......        160        (388)        390
       Changes in operating assets and liabilities:
         Receivables ...............................        409        (146)       (244)
         Inventories ...............................       (179)        170          (3)
         Other current assets ......................        (53)       (467)       (399)
         Accounts payable ..........................     (1,494)     (1,239)        476
         Accrued interest ..........................        (86)       (976)         97
         Accrued liabilities .......................      2,074         849      (7,176)
       Other assets ................................       (445)        141      (1,228)
       Other liabilities ...........................      1,450       1,581       2,024
                                                       --------    --------    --------
         Net cash provided by operating activities..     22,995      19,370      14,097
                                                       --------    --------    --------
Cash flows from investing activities:
   Capital expenditures, excluding capital leases...    (13,582)    (14,626)    (17,814)
   Proceeds from disposition of properties..........        145         832          91
                                                       --------    --------    --------
         Net cash used for investing activities.....    (13,437)    (13,794)    (17,723)
                                                       --------    --------    --------
Cash flows from financing activities:
   Net proceeds from issuance of long-term debt,
      excluding capitalized lease obligations.......      6,950       7,000        --
   Payments on long-term debt, including capitalized
      lease obligations ............................    (11,202)    (12,572)    (10,444)
                                                       --------    --------    --------
         Net cash used for financing activities.....     (4,252)     (5,572)    (10,444)
                                                       --------    --------    --------
Net increase (decrease) in cash and cash equivalents      5,306           4     (14,070)
Cash and cash equivalents at beginning of period....     10,314      10,310      24,380
                                                       --------    --------    --------
Cash and cash equivalents at end of period..........   $ 15,620    $ 10,314    $ 10,310
                                                       ========    ========    ========

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
   Interest ........................................   $  6,947    $  9,055    $  6,355
                                                       ========    ========    ========
   Income taxes ....................................   $  2,214    $  3,500    $  6,917
                                                       ========    ========    ========
</TABLE>

Disclosure of Accounting Policy:
   For  purposes  of the  consolidated  statements  of cash  flows,  the Company
considers all highly liquid debt instruments  purchased with a maturity of three
months or less to be cash equivalents.

          See accompanying notes to consolidated financial statements.

                                       F-6

<PAGE>



                HOULIHAN'S RESTAURANT GROUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  Organization

Houlihan's  Restaurant Group, Inc.,  together with its wholly-owned  subsidiary,
Houlihan's Restaurants,  Inc. and its subsidiaries (the "Company") operates full
service casual dining restaurants in twenty-three  states. At December 30, 1996,
it operated 101 restaurants,  including 62 Houlihan's, 28 Darryl's, four upscale
Seafood Grills and seven Specialty  Restaurants  comprised of four dinnerhouses,
two upscale  steakhouses and the Buena Vista Cafe. At that date the Company also
franchised 29 Houlihan's in eleven states and the  Commonwealth  of Puerto Rico.
Houlihan's  Restaurant  Group,  Inc. does not engage in any business or activity
other than holding the capital stock of Houlihan's Restaurants, Inc.

2.  Summary of Significant Accounting Policies

Principles of consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  wholly-owned   subsidiary.   All  significant   intercompany  balances  and
transactions have been eliminated.

Fiscal year

The Company  reports  fiscal year results of operations  based on 52- or 53-week
periods.  The fiscal  year ended  December  30, 1996 was a 53-week  period.  The
fiscal years ended  December 25, 1995, and December 26, 1994 were composed of 52
weeks. References to years are to the fiscal years then ended.

Use of Estimates in Preparing Financial Statements

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

Temporary cash investments

Cash and cash  equivalents  include  temporary cash  investments,  consisting of
commercial paper and  certificates of deposit,  of $11,893,000 and $6,212,000 at
December  30,  1996  and  December  25,  1995,   respectively.   Temporary  cash
investments are carried at cost which approximates market.

Inventories

Inventories  consist primarily of food and liquor and are stated at the lower of
cost or  market.  Costs are  determined  using the  first-in,  first-out  (FIFO)
method.




                                       F-7

<PAGE>



Property, equipment and leaseholds

Property, equipment and leaseholds are depreciated on a straight-line basis over
their estimated useful lives  (buildings - 20 years and furniture,  fixtures and
equipment  -  2  to  10  years).  Leasehold  improvements  are  amortized  on  a
straight-line  basis over the  shorter of their  estimated  useful  lives or the
remaining terms of the leases.  Property under  capitalized  leases is amortized
over the terms of the leases using the straight-line method.

Losses on  disposition  of  properties  in the  normal  course of  business  are
recognized  when a  commitment  to divest a  restaurant  property is made by the
Company and include  estimated  carrying  costs  through  the  expected  date of
disposal.  Gains on  disposition  of properties in the normal course of business
are recognized at the date of sale.

Pre-opening expenses

Certain  costs  incurred  in  connection  with the  opening of new or  converted
restaurants  (principally the initial food and liquor order,  smallwares and the
cost  associated with training staff) are expensed upon opening or conversion of
restaurants. Pre-opening expenses, included in cost of sales in the accompanying
consolidated  statements of income, were $806,000,  $969,000, and $1,268,000 for
1996, 1995 and 1994, respectively.

Reorganization value in excess of amounts allocable to identifiable assets

The reorganization  value in excess of amounts allocable to identifiable  assets
is being amortized  using the  straight-line  method over 20 years.  Accumulated
amortization  at December  30, 1996 and December  25, 1995 was  $14,552,000  and
$10,901,000, respectively.

Long-lived assets and certain identifiable intangibles

Long-lived  assets and certain  identifiable  intangibles to be held and used by
the Company are reviewed for impairment using  undiscounted  cash flows whenever
events or changes in  circumstances  indicated  that the  carrying  value of the
asset may not be recoverable.  Long-lived assets and identifiable intangibles to
be disposed of are  reported at the lower of carrying  amount or fair value less
cost to sell.

Deferred debt issuance costs

Deferred debt issuance costs at December 30, 1996 include approximately $516,000
and $135,000 of fees and financing  costs  related to the Company's  bank credit
agreement and the interest rate cap, respectively. Such costs are amortized over
the  expected  lives of the  respective  debt issues and the  interest  rate cap
period  (see Note 8). As of  December  30,  1996,  the  unamortized  costs  were
$210,000 and $8,000, respectively.

Franchise rights

Franchise rights are attributable to the Company's franchise agreements existing
prior to 1994 and have been capitalized in the accompanying consolidated balance
sheets (included in other assets). The rights are being amortized over 14 years.


                                       F-8

<PAGE>



Franchise revenues

Franchise  revenues from area  franchise  development  agreements are recognized
proportionately  upon opening of the restaurants in accordance with Statement of
Financial  Accounting  Standards  No. 45.  Revenues from  individual  restaurant
franchise  agreements are recognized upon opening of the restaurants.  Franchise
revenues included in other income in the accompanying consolidated statements of
income aggregated $2,647,000, $1,596,000 and $1,087,000 for 1996, 1995 and 1994,
respectively. Of these amounts, $520,000, $315,000 and $45,000 represent initial
franchise fees for 1996, 1995 and 1994, respectively.

Earnings per common and common equivalent share

Earnings  per  common  and  common  equivalent  share are based on the  weighted
average  number of shares  outstanding  and the assumed  exercise of outstanding
dilutive stock options  issued under the Company's  stock option plans (see Note
12) less the number of treasury shares assumed to be purchased from the proceeds
using the average  market price of the Company's  common stock.  At December 30,
1996,  warrants to purchase  up to 47,740  shares of common  stock at a price of
$37.92 per share were  outstanding.  Additional  shares of common stock issuable
upon the exercise of the warrants have not been considered in the calculation as
the effect would be antidilutive.

3.   Disclosures about Fair Value of Financial Instruments

The following  methods and  assumptions  were used to estimate the fair value of
each class of significant financial instruments of the Company.

Cash and cash equivalents:  The carrying amount  approximates fair value because
of the short maturity of such instruments.

Long-term  debt (see Note 8): The carrying  amount of the Company's bank debt as
of December 30, 1996  approximates  fair value given that all  outstanding  bank
debt was refinanced  subsequent to year end (see Note 15). The fair value of the
Company's bank debt as of December 25, 1995 is estimated  based on current rates
offered to the Company for debt of the same maturities.

Letters of credit (see Note 8): The Company  uses letters of credit to primarily
back certain insurance  policies.  The letters of credit reflect fair value as a
condition of their underlying purpose.

The estimated fair values of the Company's financial  instruments are as follows
(in thousands):

<TABLE>
                                                 December 30, 1996       December 25, 1995
                                               ---------------------   --------------------- 
                                               Carrying   Estimated    Carrying   Estimated
                                                Amount    Fair Value    Amount    Fair Value
                                               --------   ----------   --------   ----------
<S>                                            <C>        <C>          <C>        <C>    
Cash and cash equivalents ..................   $ 15,620   $   15,620   $ 10,314   $   10,314
Long-term debt (excluding capitalized
   lease obligations) ......................     77,062       77,062     81,112       72,523
Off balance sheet financial instruments:
   Letters of credit .......................      4,523        4,523      4,927        4,927
</TABLE>



                                       F-9

<PAGE>



4.  Receivables

Receivables are comprised of the following (in thousands):

                                          December 30,            December 25,
                                              1996                    1995
                                         ---------------         ---------------
  Trade, principally credit cards        $           841         $         1,093
  Franchise receivables, net                         273                     431
  Other                                              138                     137
                                         ---------------         ---------------
                                         $         1,252         $         1,661
                                         ===============         ===============

5.  Other Current Assets

Other current assets are comprised of the following (in thousands):

                                            December 30,            December 25,
                                               1996                    1995
                                           -------------           -------------
  Prepaid advertising rights (See Note 11) $       1,000           $       1,000
  Prepaid occupancy costs                          1,222                     467
  Prepaid insurance                                  275                     379
  Prepaid licenses                                   112                     128
  Deposits with vendors                               32                     130
  Other                                              330                     814
                                           -------------           -------------
                                           $       2,971           $       2,918
                                           =============           =============

6.  Property, Equipment and Leaseholds

Property,   equipment  and   leaseholds  are  comprised  of  the  following  (in
thousands):

                                          December 30,            December 25,
                                              1996                    1995
                                         ---------------         ---------------
 Land and improvements                   $        19,546         $        19,546
 Buildings and improvements                       30,301                  29,798
 Leasehold improvements                           50,043                  45,108
 Furniture, fixtures and equipment                52,186                  47,007
                                         ---------------         ---------------
                                                 152,076                 141,459
 Less:  Accumulated depreciation and
          amortization                            46,595                  36,938
                                         ---------------         ---------------
                                         $       105,481         $       104,521
                                         ===============         ===============

Property under capitalized  leases in the amount of $1,618,000 and $1,865,000 at
December 30, 1996 and December 25, 1995,  respectively,  is included principally
in  buildings  and  improvements.  Capitalized  leases  relate  primarily to the
buildings on certain restaurant properties.  The land portions of the restaurant
property leases are accounted for as operating leases.

Depreciation and capitalized  lease  amortization  expense relating to property,
equipment and leaseholds for 1996,  1995 and 1994 was  $11,699,000,  $11,058,000
and  $12,438,000,   respectively.  Of  these  amounts,  $247,000,  $247,000  and
$226,000, respectively, related to capitalized lease amortization.


                                      F-10

<PAGE>



Substantially all of the capitalized and operating leases have terms,  including
all  options,  expiring  after 2000 and most leases have  renewal  options.  The
leases generally  provide for payment of minimum annual rent, real estate taxes,
insurance and maintenance  and, in most cases,  contingent rent (calculated as a
percentage of sales) in excess of minimum rent.

There  were no  contingent  rents  under  capitalized  leases  for  the  periods
presented.  Total  rental  expense for all  operating  leases is composed of the
following (in thousands):

                          1996                1995                1994
                     ---------------     ---------------     --------------
  Minimum rent       $        11,465     $        10,364     $        9,303
  Contingent rent              2,011               2,107              2,298
                     ---------------     ---------------     --------------
                     $        13,476     $        12,471     $       11,601
                     ===============     ===============     ==============

The present value of  capitalized  lease  payments and the future  minimum lease
payments  on  noncancelable  operating  leases as of  December  30,  1996 are as
follows (in thousands):

                                               Capitalized          Operating
                                                  Leases              Leases
                                              ---------------     --------------
  1997                                        $           596     $       10,996
  1998                                                    596             10,690
  1999                                                    596             10,226
  2000                                                    579              9,200
  2001                                                    529              7,916
  Thereafter                                            1,555             45,465
                                              ---------------     --------------
  Total minimum lease payments                          4,451     $       94,493
                                                                  ==============
  Less:  Interest                                       1,784
                                              ---------------
  Present value of minimum lease payments     $         2,667
                                              ===============

7.  Other Assets

Other assets are comprised of the following (in thousands):

                                            December 30,          December 25,
                                                1996                  1995
                                           -------------         --------------
  Franchise rights, net                    $       1,561         $        1,718
  Liquor licenses                                  2,469                  2,464
  Advertising rights (See Note 11)                 2,000                  1,000
  Other                                              179                    305
                                           -------------         --------------
                                           $       6,209         $        5,487
                                           =============         ==============










                                      F-11

<PAGE>



8.  Long-Term Debt

Long-term debt,  including  capitalized lease  obligations,  is comprised of the
following (in thousands):

                                            December 30,         December 25,
                                                1996                 1995
                                           ---------------      ----------------
  Bank Debt:
      Term Loan                            $        29,112      $         40,112
      Real Estate Loan                              40,000                40,000
      Revolving Credit Facility                      7,950                 1,000
  Capitalized lease obligations (Note 6)             2,667                 2,869
                                           ---------------      ----------------
                                                    79,729                83,981
  Less:  Current portion (Note 15)                   8,135                11,202
                                           ---------------      ----------------
                                           $        71,594      $         72,779
                                           ===============      ================

Scheduled  maturities of outstanding  long-term debt for each of the five fiscal
years  subsequent to December 30, 1996 after the effect of the  refinancing  are
disclosed in Note 15.

Bank Credit Agreement

The Company  entered into a credit  agreement  on December 28, 1992,  (the "Bank
Credit  Agreement")  with Credit  Agricole-CNCA,  New York  Branch (the  "Bank")
providing  for a  $62,939,000  Term Loan, a  $40,000,000  Real Estate Loan and a
$20,000,000 Revolving Credit Facility (collectively, the "Bank Debt").

The Term Loan requires semi-annual principal payments as follows (in thousands):

                                                         Principal Amount
                    Payment Dates                           of Payment
         -------------------------------------           ----------------
         March 31, 1997 and September 30, 1997           $          5,500
         March 31, 1998 and September 30, 1998                      6,750

The final Term Loan  installment  is payable on March 31, 1999 and will be equal
to the unpaid  principal  amount of the Term Loan.  The Real Estate Loan and the
Revolving Credit Facility are scheduled to mature on March 31, 1997. The Company
refinanced  all of its  outstanding  bank debt  subsequent to year end (see Note
15).

Under the terms of the Bank Credit Agreement,  the Company is required to reduce
its Bank  Debt  with the net  proceeds  resulting  from any  permitted  sales of
assets,  issuances of debt or equity,  and 65% of the Company's Excess Cash Flow
(as defined in the Bank Credit Agreement).  The Term Loan shall be repaid first,
the Real Estate Loan shall be repaid  second and the Revolving  Credit  Facility
shall be permanently reduced last. All such prepayments of the Term Loan will be
applied 50% in the order of maturity  and 50% in the inverse  order of maturity.
In 1996, the Company  reduced the balance of the Term Loan by $11,000,000  which
consisted of two scheduled  payments of $5,500,000 each, as required by the Bank
Credit Agreement.

The Revolving  Credit Facility can be used for working  capital  purposes and to
provide for standby  letters of credit.  The maximum amount  available under the
Revolving Credit Facility was reduced to

                                      F-12

<PAGE>



$12,500,000  pursuant to the Third Amendment to the Bank Credit  Agreement dated
October 1, 1996 (see  "Amendments  to the Bank  Credit  Agreement").  The amount
available under the Revolving Credit Facility is reduced by the principal amount
of any outstanding  standby letters of credit. A commitment fee of 1/2 of 1% per
annum is required  based upon the daily unused  amount of the  Revolving  Credit
Facility.  A fee of 1% per annum is also required based upon the daily amount of
outstanding  standby  letter of credit  commitments.  Standby  letters of credit
totaling  $4,523,000 issued under the Revolving Credit Facility were outstanding
as of December 30, 1996.

The Bank Debt interest is calculated  at 2.0% over the reserve  adjusted  London
Interbank  Offered Rate  ("LIBOR").  At December 30, 1996,  interest on the Term
Loan and the Real Estate Loan was being charged at 7.50%.  The average  interest
rate on the Revolving Credit Facility Loans at December 30, 1996 was 7.52%.

As required by the Bank Credit  Agreement,  during 1993 the Company purchased an
interest  rate cap for a four-year  period on an  aggregate  notional  amount of
$30,000,000  pursuant to which the Company shall be protected  against increases
in LIBOR in excess of the greater of (i) 10% per annum and (ii) 2-1/2% per annum
plus the Alternate Base Rate (as defined in the Bank Credit  Agreement)  through
March 29, 1997.

Collateral Arrangements

Substantially  all of the Company's  assets are pledged as collateral  under the
Bank Credit Agreement.  In addition,  borrowings under the Bank Credit Agreement
are  guaranteed  by the parent  company  and by each of its active  wholly-owned
subsidiaries.  This guarantee is secured by a pledge of all of the capital stock
of Houlihan's  Restaurants,  Inc., and the guarantees of the active wholly-owned
subsidiaries are  collateralized  by security  interests in all of the assets of
each such subsidiary.

Financing Covenants and Restrictions

The Bank Credit Agreement contains various covenants and restrictions, including
(i) restriction of additional indebtedness,  mergers or consolidations,  payment
of indebtedness,  affiliated transactions and investments in affiliates,  unless
certain  financial  tests  are  met,  and (ii)  restriction  on the  payment  of
dividends to 35% of the Company's future Excess Cash Flow (as defined). The Bank
Credit  Agreement also contains  various  covenants  which,  among other things,
restrict the amount of annual capital  expenditures  and require the maintenance
of certain  financial  ratios and minimum  consolidated  net worth (as defined).
Based on the Bank Credit Agreement  covenants,  there were no retained  earnings
available for payment of dividends at December 30, 1996.  Failure to comply with
any of the  financial  and  operating  covenants  included  in the  Bank  Credit
Agreement as amended or the occurrence of a Change of Control (as defined in the
Bank Credit  Agreement)  would permit the Bank to accelerate the maturity of the
Bank Debt.

Amendments to the Bank Credit Agreement

During 1996, the Bank Credit  Agreement was amended to revise certain  covenants
of the  agreement.  The Second  Amendment,  dated  March 25,  1996,  reduced the
minimum  interest  coverage ratio specified for the first fiscal quarter of 1996
to 3.6 and  reduced  the  aggregate  Revolving  Credit  Facility  commitment  to
$15,000,000 from $20,000,000.  The Third Amendment, dated June 24, 1996, reduced
the minimum  interest  coverage ratio specified for the second fiscal quarter to
3.8 and the minimum fixed charge

                                      F-13

<PAGE>



coverage ratio specified for the second fiscal quarter to 1.6. Additionally, the
Third Amendment also reduced the aggregate  Revolving Credit Facility commitment
to $12,500,000  effective October 1, 1996. The Fourth Amendment,  dated November
1, 1996, reduced the minimum fixed charge coverage ratio specified for the third
fiscal quarter to 1.8.

On March 31, 1997, the Bank Credit Agreement was amended (the "Fifth Amendment")
to extend the maturity date of all  outstanding  bank debt to May 15, 1997.  The
new maturity  date allowed for the closing of a new $90 million  secured  credit
facility (see Note 15).  Additionally,  the Fifth Amendment revised the required
fixed charge  coverage  ratio for the fourth  quarter of 1996.  The Company also
made two payments on the Term Loan consisting of a scheduled  principal  payment
of $5,500,000  on March 31, 1997 and a Net Cash Proceeds  payment (as defined in
the Bank  Credit  Agreement)  of  $129,000  on April 4, 1997.  As a result,  the
Company  remains in  compliance  with all  covenants  of its current bank credit
agreement as amended.

9.  Accrued Liabilities

Accrued liabilities are comprised of the following (in thousands):

                                    December 30,               December 25,
                                        1996                       1995
                                  ---------------           ----------------
  Wages, salaries and bonuses     $         2,986           $          2,295
  Sales and property taxes                  2,324                      1,984
  Rent                                      2,445                      1,830
  Federal and state taxes                   2,038                        816
  Gift certificates                         1,317                      1,087
  Vacation                                    399                        425
  Worker's compensation                       583                        618
  Utilities                                   665                        610
  Employee insurance                          487                        399
  Other                                     2,205                      3,311
                                  ---------------           ----------------
                                  $        15,449           $         13,375
                                  ===============           ================

10.  Income Taxes

The income tax provisions (benefits) consist of the following (in thousands):

                                 1996             1995            1994
                              -----------     ------------    ------------
Current provision             $    3,932      $     4,304     $     2,510
Deferred provision (benefit)         160             (388)            390
                              -----------     ------------    ------------
                              $    4,092      $     3,916     $     2,900
                              ===========     ============    ============

Current tax liabilities are included in accrued  liabilities in the accompanying
consolidated balance sheets.

Deferred  income taxes result from temporary  differences  between the financial
statement and tax basis of the Company's assets and liabilities.  The sources of
the differences and their cumulative tax effects are as follows (in thousands):



                                      F-14

<PAGE>



                                                 December 30,      December 25,
                                                     1996              1995
                                                 ------------      ------------
Current:
 Assets:
   Insurance reserves                            $       417       $       370
   Net operating losses                                   -              1,425
   General business credit carryforwards               2,835                -
 Liabilities: 
   Other                                                (241)             (394)
                                                 ------------       -----------
                                                 $     3,011        $    1,401
                                                 ============       ===========
Noncurrent:
 Assets:
   Development fees                              $       321        $      255
   Insurance reserves                                  3,381             2,965
   Deferred debt issuance costs                          169               247
   Net operating losses                                   -                587
   General business credit carryforwards               3,172             6,238
   Alternative minimum tax credit carryforwards          504                -
   Other                                                 818               620
   Less:  Valuation allowance                           (435)           (1,000)
 Liabilities:
   Excess tax depreciation                           (12,238)          (12,389)
   Franchise rights                                     (609)             (670)
                                                 ------------       -----------
                                                 $    (4,917)       $   (3,147)
                                                 ============       ===========

A  reconciliation  between  the actual  income tax  provision  and income  taxes
computed by applying the statutory  Federal income tax rate to the income before
income taxes is as follows:

                                        1996      1995       1994
                                      -------    -------    -------

Statutory federal tax rate              34 %       34 %       34 %
State and local income
   taxes (net of Federal
   tax benefit)                          6          9         10
General business credits                (9)       (12)       (16)
Nondeductible amortization
   of reorganization value in
   excess of amounts allocable
   to identifiable assets               13         15         21
Other                                    -          2          1
                                      -------    -------    -------
Effective tax rate                      44 %       48 %       50 %
                                      =======    =======    =======

As of December  30,  1996,  the Company has total  general  business  credit and
alternative  minimum tax credit  carryforwards of  approximately  $6,007,000 and
$504,000,  respectively.  The general business credit  carryforwards will expire
from 1997 through 2011. The  utilization  of $4,273,000 of the general  business
credit  carryforwards  is limited due to the changes in ownership which occurred
in  1989  and  1992.  The  first  $3,746,000  of  the  general  business  credit
carryforwards  is limited to $574,000 per year, and the next $527,000 is limited
to $1,279,000 per year. To the extent general business credit

                                      F-15

<PAGE>



carryforward  limitations  are not  utilized  in a year,  the unused  limitation
increases the subsequent year limitation amount.

11.  Related Party Transactions

The  Company  entered  into a  merger  agreement  on June 4,  1996  with  Zapata
Corporation  ("Zapata"),  which provided for Zapata's acquisition of the Company
for a combination of cash and stock valued at $8.00 per share. Approximately 35%
of Zapata's  outstanding  shares of common stock were owned by the Glazer Group,
which owns approximately 73% of the Company's  outstanding stock at December 30,
1996. The agreement was terminated on October 8, 1996 pursuant to its terms. The
termination  followed the decision of the Delaware Chancery Court that a vote of
80% of the Zapata  stockholders  would be required  to approve  the merger.  The
merger agreement provided that either party could terminate the agreement if the
merger was not consummated by October 1, 1996.  Expenses incurred by the Company
resulting  from  the  above   transaction   are  disclosed   separately  in  the
accompanying  consolidated  statement of income for the year ended  December 30,
1996.

On October 13, 1995,  the Company  entered into an Advertising  and  Sponsorship
Agreement (the  "Agreement")  with the Buccaneers  Limited  Partnership  for the
exclusive  naming  rights to the  Tampa  Bay  Buccaneer  Football  Stadium  (the
"Stadium").  The Buccaneers Limited Partnership is 100% controlled by the Glazer
Group,  owners of  approximately  73% of the  Company's  common stock on a fully
diluted  basis.  The  Agreement  provides the Company with the right to name the
Stadium  "Houlihan's  Stadium".  Additionally,  it  provides  the  Company  with
advertising  rights inside the Stadium and in Tampa Bay  Buccaneer  programs and
brochures.

The  Agreement  is for a  ten-year  period at a total cost of  $10,000,000.  The
payment terms are $2,000,000 per year for the first five years of the Agreement.
The cost is being expensed on a straight-line  basis over ten years. The Company
has made two payments under the Agreement of which $1,000,000 has been expensed,
$1,000,000 is reflected as a prepaid expense in current assets and $2,000,000 is
reflected as a noncurrent asset in the accompanying consolidated balance sheet.

During 1995, the Company received $161,000 from First Allied Tampa  Corporation,
which is wholly  owned by the  Glazer  Group.  The  amount  represented  accrued
interest  resulting from the termination of an option agreement that granted the
Company the  exclusive  right to operate a restaurant in the Tampa Bay Buccaneer
Football Stadium.

During  1996  and  1995,   directors  fees  aggregating   $37,500  and  $24,000,
respectively,  were paid to members of the Company's  Board of Directors who are
members of the Glazer Group.

12.  Stock Option Plans

The Company  maintains  two stock option plans,  one plan for outside  directors
("Option Plan I") and one for executives and certain key employees ("Option Plan
II"),  providing  for the  issuance of options to  purchase  540,000 and 776,600
shares,  respectively.  The Board of Directors determines the option price based
upon the  estimated  market value of the  Company's  common stock at the date of
grant based on the price of the shares as traded in the over-the-counter market.
All options granted have ten year terms and vest and become fully exercisable at
the end of four years of  continued  employment.  Option Plan I provides for the
issuance of up to 30,000 shares to each outside  director per year to the extent
the options are available under the plan.

                                      F-16

<PAGE>




A summary of the Company's stock option  activity,  and related  information for
the years ended December 30, 1996 and December 25, 1995 follows:

<TABLE>
Option Plan I
                                           1996                             1995
                                 -------------------------        -------------------------
                                             Weighted-Avg                     Weighted-Avg
                                  Options   Exercise Price         Options   Exercise Price
                                 ---------  --------------        ---------  --------------

<S>                               <C>          <C>                 <C>          <C>    
Outstanding-beginning of year     360,000      $  9.19             180,000      $  9.25
Granted                           180,000         5.06             180,000         9.13
Exercised                            --            --                 --            --
Forfeited                            --            --                 --            --
                                 ---------  --------------        ---------  --------------
Outstanding-end of year           540,000      $  7.81             360,000      $  9.19

Exercisable at end of year           --            --                 --            --

</TABLE>

<TABLE>
Option Plan II
                                           1996                             1995
                                 -------------------------        -------------------------
                                             Weighted-Avg                     Weighted-Avg
                                  Options   Exercise Price         Options   Exercise Price
                                 ---------  --------------        ---------  --------------

<S>                               <C>          <C>                 <C>          <C>    
Outstanding-beginning of year     653,600      $  8.65             617,000      $  9.25
Granted                           127,000         5.50             164,600         6.86
Exercised                            --            --                 --            --
Forfeited                          (4,000)        7.56            (128,000)        9.25
                                 ---------  --------------        ---------  --------------
Outstanding-end of year           776,600      $  8.14             653,600      $  8.65

Exercisable at end of year           --            --                 --            --

Weighted-average fair value
   of options granted during
   the year                      $   2.43                         $   3.73
</TABLE>

Exercise  prices for options  outstanding  as of  December  30, 1996 ranged from
$5.06 to $9.25 for Option Plan I and from $5.38 to $9.75 for Option Plan II. The
weighted average  remaining  contractual life of all outstanding  options is 7.9
years.

The Company has elected to follow  Accounting  Principles  Board  Opinion No. 25
("APB 25") and related Interpretations in accounting for its stock option plans.
Accordingly, no compensation cost has been recognized for its stock option plans
as the exercise price of the Company's stock options equaled the market price of
the underlying stock on the date of grant.

Had compensation cost for the Company's stock option plans been determined based
on the fair value at the grant dates for awards under the plans  consistent with
FASB Statement No. 123 "Accounting for Stock-Based  Compensation"  ("SFAS 123"),
the Company's net income and earnings per share for the years ended December 30,
1996 and  December  25,  1995 would have been  reduced to the pro forma  amounts
indicated below (in thousands except for earnings per share information):




                                      F-17

<PAGE>



                                                           1996           1995
                                                         ---------     ---------
   Net income
       As reported                                       $   5,197     $   4,265
       Pro forma                                             4,443         3,724
   Earnings per common and common equivalent share
       As reported                                       $    0.52     $    0.43
       Pro forma                                              0.44          0.37

The fair value of the Company's  stock options as calculated in accordance  with
SFAS  123 was  estimated  at the  date of grant  using a  Black-Scholes  options
pricing model with the following weighted-average  assumptions for both 1996 and
1995:  risk-free interest rate of 5.8%; no dividend yield;  volatility factor of
the  expected  market  price  of  the  Company's  common  stock  of  .52;  and a
weighted-average expected life of the option of four years.

13.  Benefit Plans

The Company  maintains  several  incentive  compensation  and related  plans for
executives and other key employees of the Company. Under the plans, participants
generally are eligible to receive cash bonuses  based on the Company's  earnings
before interest, taxes, depreciation and amortization.  Total expenses for these
plans included in the accompanying  consolidated  statements of income for 1996,
1995 and 1994 were $2,393,000, $2,615,000 and $1,960,000, respectively.

Substantially  all  of  the  Company's   salaried   employees  are  eligible  to
participate in defined contribution retirement savings plans under which Company
contributions  are  based  on  employee  contributions  and  compensation.   The
Company's  expense  during  1996,  1995 and 1994 under such plans was  $632,000,
$672,000 and $462,000, respectively.

14.  Contingencies and Commitments

Litigation

The Company is currently  involved in various  claims and pending  legal actions
arising in the normal  course of  business.  In the opinion of  management,  the
final  disposition of these claims and pending  actions will not have a material
adverse  effect,  individually  or in  the  aggregate,  on the  business  or the
financial position of the Company.

Severance Payment Agreements

In prior years,  the Company entered into agreements with certain officers which
provide for severance  payments in the event the  employment of such officers is
terminated  upon  a  change  of  control  of  the  Company,  as  defined  in the
agreements.  The  severance  payments  shall be equal to 2.99 times the  average
compensation of each participant for the previous five years. As of December 30,
1996, the contingent  liability  under the agreements for all  participants  was
approximately $2,287,000.

Real Estate Consulting Contracts

In 1992, the Company entered into real estate consulting  contracts  expiring in
2001 with management  companies which employ two beneficial  owners of a company
that previously had a controlling interest

                                      F-18

<PAGE>


in the Company  for a total of $625,000  per year.  The total  expense  incurred
under the contracts during 1996, 1995 and 1994 was $625,000 each year.

15.    Subsequent Event

On March 31, 1997,  the Fifth  Amendment to the  Company's  existing bank credit
agreement  extended the maturity date of all of its outstanding bank debt to May
15, 1997 and revised a certain  covenant for the fourth quarter of 1996. The new
maturity  date  allowed  for the  closing of a new $90  million  secured  credit
facility.  The Company also made two payments on the Term Loan  consisting  of a
scheduled  principal  payment  of  $5,500,000  on March 31,  1997 and a Net Cash
Proceeds payment (as defined in the existing bank credit  agreement) of $129,000
on April 4, 1997.  The Company  signed a new bank credit  agreement and obtained
the  $90,000,000  credit  facility on April 15, 1997.  The proceeds from the new
credit  facility of $75,000,000,  along with $585,000 of the Company's  existing
unrestricted  cash, were used to repay and permanently retire $75,585,000 of the
existing bank indebtedness at April 15, 1997.

The new credit  facility  consists  of a senior  bank term loan  facility  and a
senior bank  revolving  credit  facility.  The term loan facility  consists of a
five-year  tranche A term loan in the  principal  amount  of  $20,000,000  and a
seven-year  tranche B term loan in the  principal  amount  of  $55,000,000.  The
tranche A loan requires annual amortization of $4,000,000 and the tranche B loan
requires  annual   amortization  of  $550,000  for  the  first  five  years  and
$26,125,000 in the sixth and seventh years.  All  amortization on the term loans
is  to  be  paid  in  equal  quarterly  installments.  Scheduled  maturities  of
outstanding long-term debt, including capitalized lease obligations, for each of
the five fiscal  years  subsequent  to December 30, 1996 after the effect of the
refinancing are as follows (in thousands):

         1997               $     8,135
         1998                     4,815
         1999                     4,853
         2000                     4,880
         2001                     4,875

The five-year  revolving  credit facility in the principal amount of $15,000,000
includes a $5,000,000 swingline facility.  The revolving credit facility will be
available to provide for the working capital  requirements and general corporate
purposes of the Company and  provides  for letters of credit up to  $10,000,000.
The Company had no amounts outstanding under the revolving credit facility as of
April 15, 1997.

Substantially  all of the Company's  assets are pledged as collateral  under the
new bank credit  agreement.  In addition,  borrowings under the new facility are
guaranteed  by the  parent  company  and by  each  of  its  active  wholly-owned
subsidiaries.  This guarantee is secured by a pledge of all of the capital stock
of Houlihan's  Restaurants,  Inc., and the guarantees of the active wholly-owned
subsidiaries are  collateralized  by security  interests in all of the assets of
each such subsidiary.






                                      F-19

<PAGE>



                        HOULIHAN'S RESTAURANT GROUP, INC.
                                  EXHIBIT INDEX


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

  3.1    Certificate of Incorporation of Registrant, as amended. (1)

  3.2    Amended and Restated Bylaws of Registrant. (2)

 10.1    Amended and Restated Credit  Agreement dated as of April 15, 1997 among
         Houlihan's Restaurants, Inc., DLJ Capital Funding, Inc., as Syndication
         Agent, Banque Indosuez,  New York Branch, as Administrative  Agent, and
         Credit Lyonnais,  Chicago Branch,  as Documentation  Agent and Exhibits
         and Schedules thereto.

 10.2    Schedule of Franchise Development Agreements as of December 30, 1996.

   21    Subsidiaries of the Registrant.

   27    Financial Data Schedule (filed with EDGAR version).

---------------------


(1)  Filed as an exhibit to report on Form 10-K for the year ended  December 26,
     1994 and incorporated herein by reference.

(2)  Filed as an exhibit to the Registration Statement on Form S-1 (Registration
     No. 33-66392) and incorporated herein by reference.



                                       E-1

<PAGE>