<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)

[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required] for the fiscal year ended September 30, 1996; or

[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities 
Exchange Act of 1934 [No Fee Required] for the transition period from
____to____

Commission File Number 0-24828

                            UNITED RESTAURANTS, INC.
                            ------------------------
           (Name of Small Business Issuer as Specified in its Charter)

            Delaware                                    95-4428370
----------------------------------            ----------------------------------
    (State or Other Jurisdiction            (I.R.S. Employer Identification No.)
  of Incorporation or Organization)

 1990 Westwood Boulevard, 3rd Floor
      Los Angeles, California                              90025
----------------------------------            ----------------------------------
(Address of Principal Executive Offices)                 (Zip Code)

Issuer's Telephone Number:                    (310) 475-5600
                                              --------------
Securities Registered Under Section 12(b) of the Exchange Act:
                                      NONE
                                      ----
Securities Registered Under Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of Class)

                Class A Redeemable Common Stock Purchase Warrants
                -------------------------------------------------
                                 (Title of Class)

                Class B Redeemable Common Stock Purchase Warrants
                -------------------------------------------------
                                 (Title of Class)

         Check whether the Issuer (1) filed all Reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such Reports), and (2)
has been subject to such filing requirements for the past 90 days.

                    Yes [X]                             No [ ]

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. [ ]

         State Issuer's revenues for its most recent fiscal year - $8,037,257

         State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the last sale price of such stock as of
January 8, 1997: $10,814,887

             Common Stock, par value $.01 per share - $2.875

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:

              Class                            Outstanding at December 31, 1996
----------------------------------            ----------------------------------
Common Stock, par value $.01 per share                  6,362,500 shares

                       DOCUMENTS INCORPORATED BY REFERENCE
              No documents are incorporated by reference into this
                         Annual Report on Form 10-KSB.

Transitional Small Business Disclosure Format       Yes [ ]            No [X]
================================================================================

                            Exhibit Index on Page 44


<PAGE>   2



                                     PART I

ITEM 1.     DESCRIPTION OF BUSINESS.

GENERAL

        United Restaurants, Inc. is engaged in the business of the ownership, 
operation and development of restaurants, and, more recently, private cigar
clubs. The Company was incorporated under the laws of the State of Delaware on
April 13, 1993.

        Soon after its incorporation the Company acquired all of the capital
stock of Love's Enterprises, Inc., a California corporation ("Love's"). Love's,
which has been in business since the late 1950's, currently operates three
Company-owned restaurants and is the franchisor of an additional 10 Love's
restaurants. Love's restaurants are mid-priced, family style restaurants located
in Southern California which specialize in barbecued beef, pork and chicken
entrees and similar fare. In addition to the Love's restaurants, the Company
owns and operates one "On Cannon" restaurant, an upscale Italian Restaurant and
bar in Beverly Hills, California.

        In June 1995, the Company entered the business of the development,
ownership and operation of private cigar clubs. The Company currently owns and
operates one private cigar club known as the "Grand Havana Room" in Beverly
Hills, California. The Company intends to actively pursue the development of
additional "Grand Havana Room" locations in certain large cities, including
Washington, D.C., New York, New York and Las Vegas, Nevada.

        The Company's executive offices are currently located at, and its
mailing address is, 1990 Westwood Boulevard, 3rd Floor, Los Angeles, California
90025, and its telephone number is (310) 475-5600. References to the "Company"
herein includes United Restaurants, Inc. and its consolidated subsidiaries,
unless the context otherwise requires.

RECENT DEVELOPMENTS

        New Business Area-- Grand Havana Rooms

        The Company has developed a new concept for a private cigar club known
as the Grand Havana Room. The Company's initial Grand Havana Room opened in
June, 1995 and is located in Beverly Hills, California, on the second floor in
the space above the Company's On Canon restaurant. The Company has recently
entered into leases for space in New York, New York and Washington, D.C., in
which it intends to develop, own and operate additional Grand Havana Rooms.

        The Grand Havana Room is a private club that includes the operation of
an upscale restaurant, a full bar and a private smoking lounge. Members are
furnished with private lockers for them to store their cigars and smoking
accessories for use when they are at the Grand Havana Room. The Grand Havana
Room also offers the ancillary sale of cigars, tobacco products and cigar
accessories. The Company intends to actively engage in the development,
ownership and operation of Grand Havana Rooms in other major cities. See
"Business-- Grand Havana Rooms," below.

        Sale of Il Forno

        In June 1994, the Company acquired 85% of the stock of Il Forno, Inc., a
California corporation, which corporation owns and operates an Italian-style
restaurant, Il Forno, located in Santa


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Monica, California. Because Il Forno did not achieve the operating results
anticipated by the Company, on September 20, 1996 the Company sold the 85% of
the stock it owned in Il Forno, Inc. back to the persons from whom the Company
had originally purchased such stock. The Company sold its stock in Il Forno,
Inc. for a purchase price of $1,000 and, in addition, the original Stock
Purchase Agreement dated June 20, 1994, pursuant to which the Company had
acquired the stock of Il Forno, Inc., was terminated. See Item 7. Financial
Statements and Supplementary Data - - Note 3 to Consolidated Financial
Statements.

BUSINESS

Grand Havana Rooms

        The Company has developed a new concept for a private cigar club and
restaurant catering primarily to affluent cigar smokers and their guests known
as the Grand Havana Room. The Company's initial Grand Havana Room opened in
June, 1995 and is located in Beverly Hills, California, on the second floor in
the space above the Company's On Canon restaurant. The Company has recently
entered into leases for space in New York, New York and Washington, D.C., in
which it intends to develop and operate additional Grand Havana Rooms.

        The Grand Havana Room concept is to provide a private membership club,
including an upscale restaurant, where members can keep their cigars and smoking
accessories for use when they are at the Grand Havana Room. Both corporate and
individual memberships are sold at the Grand Havana Room, with both corporate
and individual members paying a one-time initiation fee and a continuing
quarterly membership fee thereafter. The Grand Havana Room concept includes the
operation of a private smoking lounge, a full bar and an upscale restaurant, as
well as the sale of premium cigars and cigar and tobacco accessories. If space
permits, as is currently planned for the Company's initial Grand Havana Room in
New York City, a Grand Havana Room may also include other membership activities
and services, including a billiards room, screening room and communications
center. All of the facilities of the Grand Havana Room, including the bar and
restaurant, are only available for use by members and their guests.

        Although the Company currently does not merchandise its own brand of
cigars, it intends to do so in the future, and in this regard, has applied for
certain trademarks which it intends to use on its cigars. See "Trademarks and
Service Marks," below." The Company does not intend to manufacture cigars, but
rather to order them directly from a cigar manufacturer and to have its name
applied to such cigars for resale at its Grand Havana Rooms.

        Membership at the Grand Havana Room will be limited to the number which 
the Company believes is appropriate to the space of the particular Grand Havana
Room and the number of humidors maintained by the Company at each Grand Havana
Room.

        Beverly Hills Grand Havana Room. The Company's initial Grand Havana
Room, which opened in June 1995, is located on the floor above the Company's On
Canon Restaurant in Beverly Hills, California. The Company leases its Beverly
Hills Grand Havana Room pursuant to a five year lease expiring June 30, 1999,
which lease has three five year options to extend, through June 30, 2014. The
Company's Beverly Hills Grand Havana Room consists of approximately 3,000
square feet. All available memberships at the Company's Beverly Hills Grand 
Havana Room have been sold, and there currently exists a waiting list with
respect to future members.

        New York Grand Havana Room.  The Company has entered into a lease 
for its first Grand Havana Room in New York City for a term of 15 years (the 
"New York Lease").  The Company's initial


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New York Grand Havana Room will be located on the 39th floor of 666 Fifth
Avenue, New York, New York, in the former location of the well-known restaurant,
"Top of the Sixes." Due to the relatively large size of the space leased for the
Company's initial New York Grand Havana Room, in addition to a smoking lounge,
bar and restaurant, the Company's development plans at this location also
include additional amenities for members and their guests, including a screening
room for the exhibition of motion pictures, a billiards room and a
communications room. The Company anticipates that development costs required to
develop the Company's initial New York Grand Havana Room will be approximately
$1,500,000. The landlord of the New York Lease has agreed to reimburse the 
Company for an aggregate of $411,800 of these development costs. The balance of
these development costs will be borne by the Company out of its working capital,
including advanced sales of memberships at this club. The Company anticipates
that the Company's initial New York Grand Havana Room will open in late winter
or early spring 1997. See Item 2. Description of Property; Item 12. Certain
Relationships and Related Transactions.

        Washington, D.C. Grand Havana Room. The lease for the Company's Grand
Havana Room in Washington D.C., is for a term of fifteen and one-half years
expiring in February, 2012 (the "Washington Lease"). Annual rental under the
Washington Lease is $170,000 per annum, payable in equal monthly installments,
provided that rental under this lease shall not commence until March 1997. The
Washington D.C. Lease is for premises at the lower level of 1220 19th Street,
N.W., Washington, D.C. and consists of approximately 8,298 square feet. The
Company anticipates that development costs for the Company's Washington, D.C.
Grand Havana Room will be approximately $750,000. The Company anticipates that
it will be able to fund these development costs from its working capital,
including advance sales of members at this club, and, if necessary, through the
private placement of additional securities of the Company. The Company
anticipates that the Washington D.C. Grand Havana Room will open in the spring
of 1997. See Item 2. Description of Property and Item 6. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.

        Future Grand Havana Rooms. The Company intends to actively pursue the
development of additional Grand Havana Rooms in other major cities. In this
regard, the Company is currently looking for suitable space for a Grand Havana
Room in Las Vegas, Nevada, as well as for suitable space for a second Grand
Havana Room in New York City. The Company intends to investigate possible
locations for additional Grand Havana Rooms in other major cities in the future.
There can be no assurance that the Company will be successful in locating
additional locations for such Grand Havana Rooms, will be successful in
obtaining funding necessary to develop such additional Grand Havana Rooms, or if
developed, that such additional Grand Havana Rooms will be operated profitably.

        Marketing and Promotion. The Company's Grand Havana Rooms are private
membership clubs, and the Company believes that very little promotion and
advertising will be required to establish the limited membership base sought by
the Company for its Grand Havana Rooms. The Company's Beverly Hills location
currently has a capacity membership and there currently exists a waiting list
for additional members. The Company believes that similar results may be
achieved at its future Grand Havana Rooms without extensive promotion or
advertising by direct targeting of select individuals by the Company's officers
and employees and by word-of-mouth advertising by existing members; however, if
direct member personal solicitations and "word-of-mouth" is insufficient to sell
memberships, the Company may find it necessary to engage in advertising or other
promotional activities to attract members to its Grand Havana Rooms. Because the
advertisement of tobacco products is heavily regulated, there could be
significant restrictions on the Company's ability to advertise its Grand Havana
Rooms, which could have a material adverse effect on the operations of the
Company's Grand Havana Rooms. See "Government Regulation," below.


                                        4

<PAGE>   5




Love's

        On May 27, 1993, the Company purchased all of the issued and outstanding
capital stock of Love's from Kyotaru International, Inc., a subsidiary of a
large Japanese concern, for a total consideration of $534,822. On the date of
Closing, Love's operated one Company-owned restaurant and was the franchisor of
an additional 19 Love's restaurants, which were operated by independent
franchisees. In addition, the Company acquired two closed Company-owned
locations. Since the completion of the Company's initial public offering in
April 1994, the Company has assumed the operations of two previously franchised
restaurants in Westchester, California and San Bernardino, California, and seven
of the weaker franchised restaurants have closed.

        Love's currently operates three Company-owned restaurants and is the
franchisor of an additional 10 mid-priced family-style restaurants which
specialize in barbecued pork and beef, primarily ribs, and chicken. Love's has
been operated for years by a small group of restaurant management professionals
who handle all of the franchisee matters, leasing and other details related to
the operation of a chain of restaurants, including proprietary product
manufacture and distribution. Each Love's restaurant is a freestanding building
with adjacent parking, consisting of approximately 4,500-5,000 square feet of
space, generally organized as a dining area with a counter and a bar/lounge with
additional seating capacity in a separate room. Love's is a mid-priced,
family-style, full-service restaurant. Each Love's restaurant has a liquor
license. Each of the franchised restaurants is owned and operated by an
independent franchisee under a Franchise Agreement pursuant to which a royalty
is paid to Love's. See "Love's Franchise Agreement," below. Each of the
franchisees is required to purchase all of the Love's proprietary barbecue
products from vendors approved by the Company. Four of the franchised locations
are leased directly by the Company from an independent landlord and then
subleased to the franchisee who pays a rental which is intended to provide an
incremental profit to Love's over the rental which is paid to the landlord,
while six of the locations are leased directly by the franchisees. See this Item
1, "Description of Business--Love's--Love's Locations" and Item 2, "Description
of Property."

        The Company intends to concentrate its efforts on the development of its
Grand Havana Rooms and has no current intention to develop any additional
Company-owned Love's restaurants or franchise additional Love's restaurants,
except that one existing Love's franchisee has received approval from the State
of California for a material modification to such franchisee's existing
franchise agreement, which modification will allow such franchisee to open an
additional Love's restaurant. See "Love's Locations," below and "Government
Regulation."

        Love's Locations. Set forth below is certain information about the
Love's restaurant locations at December 15, 1996, all of which are free-standing
buildings comprising approximately 4,500 to 5,000 square feet with adjacent
parking.



                                        5

<PAGE>   6
<TABLE>
<CAPTION>
                       Restaurant        Franchise
  Location               Opened        Expiration Date     Lease Term
  --------            -------------    ---------------     ---------- 
<S>                   <C>              <C>                 <C>         
Company owned                        
-------------
Century City/
Beverly Hills, CA     November 1970    Company owned       February 28, 1998 (1)
Westchester, CA       December 1970    Company owned       December 31, 1999
San Bernardino, CA    April 1973       Company owned       April 30, 1998

Franchised and 
Subleased(2)
---------
Woodland Hills, CA    January 1969     December 31, 1998   December 31, 1998
Lakewood, CA          March 1970       July 31, 1999       July 31, 1999
West Covina, CA       August 1969      October 30, 2000    January 31, 2000
Riverside, CA         October 1972     November 11, 1997   September 30, 1997

Franchised Only
---------------
Mission Valley, CA    1967             October 30, 2016
Northridge, CA(3)     June 1968        June 29, 2003
Oceanside, CA         1972             October 30, 2016
Chula Vista, CA       May 1976         October 30, 2016
Garden Grove, CA(4)   December 1970    December 21, 2000
Rosemead, CA          November 1970    December 31, 2000
Brea, CA              April 1969       December 31, 1998
</TABLE>

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

(1)     The lease for the Company's Century City/Beverly Hills location contains
        a provision enabling the landlord to terminate it upon one year's
        written notice, for the purpose of developing, selling or altering the
        use of a substantial portion of the block on which the restaurant is
        located.

(2)     Love's is also the lessee of three additional locations in Tucson,
        Arizona, Laguna Hills, California, and Huntington Beach, California,
        former Love's franchised locations, which are subleased to independent
        restaurateurs.

(3)     Although this franchise is still in effect, operations at this franchise
        terminated in October 1996.

(4)     The franchisee of this franchise has received permission for a material
        modification to its franchise agreement which would permit this
        franchise to alter an existing restaurant operated by this franchisee in
        Cyprus, California into an additional Love's franchise location.

        Love's Franchise Agreement. The typical Love's Franchise Agreement has
an initial term of 20 years. Love's historically required its new franchisees to
pay a franchise fee of $50,000, although no new Love's franchises have been sold
since the mid-1970's. Franchisees are also generally required to execute a
Sublease in favor of Love's with respect to the facility where the franchise is
located, and in some instances also are required to execute an Equipment Lease
Agreement with Love's for fixtures, equipment and signs. The Franchise Agreement
contains an option enabling the franchisee to extend


                                        6

<PAGE>   7



the term for up to three additional five-year periods if the franchisee is not
in default under the Franchise Agreement, the related Sublease and the Equipment
Lease Agreement, and further if the franchisee, in the good faith judgment of
Love's, has operated the restaurant in an effective manner. No additional
franchise fees are required to be paid upon the exercise of the option. At the
time of exercise of the option, the franchisee also is required to amend all
franchise documents to bring the royalties, rents and other charges in line with
the rates then prevailing for new Love's franchisees. Franchisees also are
required to pay to Love's royalties ranging up to 3.6% of gross sales, on a
weekly basis, for the full term of the franchise. The Franchise Agreement
requires franchisees to maintain fire, extended coverage, vandalism, malicious
mischief, blanket liability, workmen's compensation and business interruption
insurance in minimum amounts specified by Love's. Love's is to be named as a
loss payee on all fire policies and as additional insured on all liability
policies.

        Franchisees are required to maintain the standards of quality
established by Love's for food products and services throughout its system.
Franchisees are required to purchase certain food products only from vendors who
are purveyors of products of the quality required by Love's and have the
capacity to deliver such high quality food products on a consistent basis.
Love's has the right to require standardization of its franchisees with respect
to such matters as restaurant design and decor, minimum hours of operation,
menus, operating procedures, sanitation facilities, and the quality and quantity
of food and services

        The Franchise Agreement requires Love's to refrain from establishing or
franchising the establishment of another Love's restaurant within a three-mile
radius of the franchisee's restaurant. Love's retains the right to market its
products through other retail outlets, such as grocery stores and delicatessens,
anywhere, including within a three-mile radius of the franchisee's restaurant
location. Love's requires that each franchisee's manager be a full-time employee
of the franchisee, and that the manager may not engage in any other business
during his employment by the franchisee.

        Love's is under no obligation to furnish accounting services to any
franchisee, but Love's requires each franchisee to deliver to it, on a weekly
basis, gross sales reports and other data as Love's may from time to time deem
necessary. Love's inspects each franchisee's operations periodically to offer
advice and render assistance where it deems necessary. Franchisees are required
to permit Love's or its authorized agents to inspect their premises, books and
records at any reasonable time during regular business hours.

        The Franchise Agreement generally may be assigned by a franchisee only
with the prior written consent of Love's, which consent shall not be
unreasonably withheld. Love's has a right of first refusal with respect to any
such proposed transfer, on essentially the same terms as those being offered by
the proposed transferee. Generally, if a franchisee defaults in the performance
of any of the terms of the Franchise Agreement, or the related Sublease or
Equipment Lease Agreement, and such default is not cured within seven days after
Love's mails written notice thereof to the franchisee, or if bankruptcy or
insolvency proceedings are commenced by or against the franchisee, or if an
unauthorized transfer of the business is made, then Love's may declare the
Franchise Agreement terminated. Upon termination of the Agreement, any rights of
the Franchisee to use Love's trade secrets, processes, operating techniques,
trade name or restaurant location also terminate and revert to Love's.

        Prohibition on Additional Franchising of Love's Restaurants. Neither the
Company nor Love's is currently in a position to franchise new restaurants
because certain regulatory requirements were not complied with by former
management and the Company has not complied with the significant legal
requirements that must be met in order to allow it to sell new franchises in the
State of California. See Item 7. Financial Statements and Supplementary Data--
Note 2 to Consolidated Financial Statements.


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<PAGE>   8



In addition, since the Company intends to actively pursue the growth of its
Grand Havana Rooms at this time, the Company has no current intention of
complying with regulatory requirements that would enable it to franchise any
additional Love's restaurants.

        Love's Marketing and Promotion. Prior to its acquisition by Kyotaru in
1990, Love's was owned by a family-owned corporation controlled by Harry
Shuster, the current Chairman of the Board, President and Chief Executive
Officer of the Company. Mr. Shuster acted as the chairman and chief executive
officer of Love's during that period. Under Mr. Shuster's management, Love's had
an advertising program pursuant to which a majority of the franchisees would
determine each year what the franchisees would spend for advertising during the
next year and then Love's would match the amount so determined on its
Company-owned restaurants. Under Kyotaru, Love's had a limited marketing program
and the franchisees did not vote to spend money for advertising on a cooperative
basis, leaving advertising and promotion to its franchisees individually. Such
advertising and promotion consisted mainly of local radio and newspaper
advertising and reliance on location and signage. For the most part, the only
advertising efforts made by Love's itself related to its Company-owned stores.
It is Management's belief that this lack of advertising was and is primarily
responsible for declining revenues at the Love's restaurants during recent
years.

        Since its initial public offering, the Company has tried to initiate a
cooperative advertising program between it and its greater Los Angeles area
franchisees. Under the Love's Franchise Agreement, if a majority of the
franchisees participate, they must all participate. The Love's franchisees;
however, voted to reject the Company's original cooperative advertising
proposal. Subsequent to this rejection, the Company formulated a second
cooperative advertising program for the Los Angeles area franchisees pursuant to
which the Company has proposed to fund up to $50,000 for an advertising program
subject to cooperative participation by the franchisees of 2.5% of gross sales.
Management hopes that this cooperative advertising program will be adopted and
will increase Love's viability, promote its revitalization and increase
patronage of all of the Love's restaurants in the greater Los Angeles area.
However, there can be no assurance that a majority of the franchisees will vote
to participate in an advertising cooperative. A negative vote could have a
material adverse effect on the future results of Love's.

OTHER OPERATIONS

        On Canon. The Company's On Canon restaurant opened in April 1995 on
Canon Drive in Beverly Hills, California. On Canon offers a light Italian menu
featuring pizza, pasta and other Italian favorites. On Canon is open for lunch
and dinner each day and the ambiance is designed to be "elegantly casual" and
"social" with a modern, sporty look. The Company intends to continue to operate
its On Canon restaurant, and has no current plans to open additional On Canon
locations.

        Far Eastern Territory Rights Agreement. In August 1994, the Company
entered into a Territory Rights Agreement with PT Transpacific Ekagraha, an
Asian holding company, which engages in a number of businesses, including
banking and the restaurant development business. Under the Territory Rights
Agreement, the territory rights holder has committed to construct at least eight
Love's Restaurants in portions of Asia, including Mainland China, Hong Kong,
Indonesia, Singapore, Malaysia and Republic of China-Taiwan. The Territory
Rights Agreement provides for additional payments to Love's upon the opening of
each restaurant and for continuing royalties ranging from 5%-8.75% of gross
sales. Love's is to provide certain training, management and other services
during the term of the Territory Rights Agreement. It is expected that the
initial restaurant to be opened under the Territory Rights Agreement will open
in early 1997. See Item 7. Financial Statements and Supplementary Data -- Note 4
to Consolidated Financial Statements.


                                        8

<PAGE>   9




TRADEMARKS AND SERVICE MARKS

        The Company has registered nine service marks or trademarks with the
United States Patent and Trademark Office on the Principal Register, including
"Love's", "Love's Wood Pit Barbecue" and "Love's Express." In addition, the
Company has applications pending in the Untied States Patent and Trademark
Office for the service marks "Grand Havana Room," and "Grand Havana House of
Cigars," and for the trademarks "Grand Havana Selection" and "Grand Havana
Reserve." The Company has also registered the service mark "On Canon." The
Company regards its service marks and trademarks as having significant value and
being an important factor in the marketing of its restaurants and cigar clubs.
The Company hopes that the development of its new "Grand Havana" service marks
and trademarks will also result in service marks and trademarks which are
generally recognized by the consumer public and worthy of protection. As its
business develops, the Company will try to develop merchandising of trademarked
products, such as its own brand of cigars, T-shirts and other similar products,
utilizing its service marks and trademarks, in order to generate additional
revenues. The Company's policy is to pursue registrations of its marks wherever
possible and to oppose vigorously any infringement of its marks. The Company is
not aware of any infringing uses that could materially affect its business or
any prior claim to the trademarks that would prevent the Company from using such
trademarks in its business.

GOVERNMENT REGULATION

        Tobacco Industry Regulation. Cigars and other tobacco products are
subject to regulation in the United States at the federal, state and local
levels. Together with changing public attitudes towards smoking, a constant
expansion of smoking regulations since the early 1970's has been a major cause
of the overall decline in consumption of tobacco products, although cigar
consumption has increased since 1993. Moreover, the trend is toward increasing
regulation in the tobacco industry. See Item 6, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

        Federal law has required health warnings on cigarettes since 1965;
however, there is currently no federal law requiring that cigars or pipe tobacco
carry such warnings. However, California requires "clear and reasonable"
warnings to consumers who are exposed to chemicals known to the state to cause
cancer or reproductive toxicity, including tobacco smoke and several of its
constituent chemicals. Violations of this law, known as Proposition 65, can
result in a civil penalty not to exceed $2,500 per day for each violation.

        The majority of states, including California, restrict or prohibit
smoking in certain pubic places and restrict the sale of tobacco products to
minors. Local legislative and regulatory bodies have also increasingly moved to
curtail smoking by prohibiting smoking in certain buildings or areas or by
requiring designated "smoking" areas. Although the Company believes that because
it offers a private membership club it will be exempt from future regulations
that might further prohibit smoking, if regulations should be enacted which
would in any way limit or prohibit the smoking of cigars in the Company's Grand
Havana Rooms this would have a material adverse effect on the business of the
Company.

        Cigars and pipe tobacco have long been subject to federal, state and
local excise taxes, and such taxes have frequently been increased or proposed to
be increased, in some cases significantly, to fund various legislative
initiatives. Enactment of significant increases in or new federal, state or
local excise taxes may result in significantly increasing the price of cigars
which could result in decreased sales of cigars at the Company's Grand Havana
Rooms, and a decrease in the number of persons who smoke cigars which could
cause a reduction in memberships at the Grand Havana Rooms.


                                        9

<PAGE>   10




        California has recently enacted, and it can be anticipated that other
states in which the Company may operate may enact, a new "non-smoking" law or
ordinance. In the first year of operating under this new law, the Company is
unable to detect any effect this new law has on its business.

        A variety of bills relating to tobacco issues have been recently
introduced in the Congress of the United States, including bills that would have
(i) prohibited the advertising and promotion of all tobacco products and/or
restricted or eliminated the deductibility of advertising expenses; (ii)
increase labeling requirements on tobacco products to include, among other
things, addiction warnings and lists of additives and toxins; and (iii) shifting
regulatory control of tobacco products and advertisements from the U.S. Federal
Trade Commission to the U.S. Food and Drug Administration. There can be no
assurance as to the ultimate content, timing or effect of any additional
regulation of tobacco products by any federal, state, local or regulatory body,
and there can be no assurance that any such legislation or regulation would have
a material adverse affect on the Company's business.

        Restaurant and Alcohol Regulation. The Company's restaurants, including
the restaurants in the Company's Grand Havana Rooms, are subject to numerous
federal, state and local laws regulating their business, including health,
sanitation, safety standards, alcoholic beverage control and fire regulations.
The development and construction of additional restaurants, including those
within the Company's Grand Havana Rooms, will be subject to compliance with
applicable zoning, land use and environmental regulations. Each of the Love's
restaurants, the Company's On Canon restaurant, and its currently operational
Grand Havana Room, has appropriate licenses from regulatory authorities allowing
it to sell liquor, beer and wine, and each restaurant has food service licenses
from local health authorities. The failure of a restaurant to obtain or retain
liquor or food service licenses could have a material adverse effect on its
operations. In order to reduce this risk, each of the Love's restaurants is
operated in accordance with standardized procedures designed to assure
compliance with all applicable codes and regulations. The Company intends to
adopt similar procedures with respect to its Grand Havana Rooms. Difficulties in
obtaining or failures to obtain the required licenses or approvals could delay
or prevent the development of a new restaurant in a particular area including
the proposed new Grand Havana Rooms to be developed by the Company. However,
management believes the Company is in compliance in all material respects with
all relevant regulations, and the Company has never experienced abnormal
difficulties or delays in obtaining the required licenses or approvals.

        Alcoholic beverage control regulations require each of the Company's
restaurants to apply to a state authority and, in certain locations, county and
municipal authorities, for a license and permit to sell alcoholic beverages on
the premises. Typically, licenses must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control regulations relate
to numerous aspects of the daily operations of the Company's restaurants,
including minimum age of patrons and employees, hours of operation, advertising,
wholesale purchasing, inventory control and handling, and storage and dispensing
of alcoholic beverages. The Company has not encountered any material problems
relating to alcoholic beverage licenses to date. In California, there is a set
number of licenses available, but there is an active market through which new
licenses can be obtained at the then-applicable market price. The failure to
receive or retain, or a delay in obtaining, a liquor license in a particular
location could adversely affect the Company's ability to obtain such a license
elsewhere.

        The Company is subject in California, and may be subject in certain
other states, to "dram-shop" statutes, which generally provide a person injured
by an intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated person. The Company
carries comprehensive general liability insurance which it believes is
consistent with coverage carried by other entities in the restaurant industry.
Even though the Company is covered by insurance,


                                       10

<PAGE>   11



a judgment against the Company under a dram-shop statute in excess of the
Company's liability coverage could have a material adverse effect on the
Company. The Company has never been the subject of a "dram-shop" claim.

        Other Regulations. Various federal and state labor laws govern the
Company's relationship with its employees, including such matters as minimum
wage requirements, overtime and other working conditions. Significant additional
government-imposed increases in minimum wages, paid leaves of absence and
mandated health benefits, or increased tax reporting and tax payment
requirements for employees who receive gratuities, could be detrimental to the
economic viability of the Company's restaurants. Management is not aware of any
environmental regulations that have had a material effect on the Company to
date.

        The Americans With Disabilities Act ("ADA") prohibits discrimination on
the basis of disability, accommodations and employment. The ADA became effective
in 1992 as to public accommodations and employment. The Company's restaurants
are currently designed to be accessible to the disabled. The Company believes
that it is in substantial compliance with all current applicable regulations
relating to restaurant accommodations for the disabled. Because of the
relatively recent effectiveness of the ADA and the absence of comprehensive
regulations thereunder, the Company is unable to predict the extent to which the
ADA will affect the Company. However, the Company could be required to expend
funds to modify its restaurants in order to provide service to, or make
reasonable accommodations for the employment of, disabled persons.

        The Company is also currently subject to a number of state laws that
regulate certain substantive aspects of the franchisor/franchisee relationship
with respect to its Love's restaurant franchisees, such as termination,
cancellation or non-renewal of a franchise (such as requirements that "good
cause" exist as a basis for such determination and that a franchisee be given
advance notice of and a right to cure default prior to termination) and may
require the franchisor to deal with its franchisees in good faith, prohibit
interference with the right of free association among franchisees, and regulate
discrimination among franchisees in charges, royalties or fees.

        In addition, although the Company has no current intention to offer new
franchises of its Love's restaurants or any of its other establishments, if it
should determine to do so in the future, the Company would be subject to federal
and state laws, rules and regulations that govern the offer and sale of
franchises. If the Company were unable to comply with any such franchise laws,
the Company would be unable to engage in offering or selling franchises in of
from any such state. To offer and sell franchises, the Company would be required
by the Federal Trade Commission to furnish prospective franchisees with a
current franchise offering disclosure document. In addition, in certain states
(including California) the Company would be required to register or file with
such states and to provide prescribed disclosures. Further, once the Company
became capable of offering franchises, the Company would be required to keep its
offering disclosure documents updated to reflect the occurrence of material
events. There can be no assurance that the Company would be able to comply with
any federal or state franchise laws with respect to the offer and sale of
franchises should the Company determine to offer and sell franchises in the
future.

COMPETITION

        The Company's Grand Havana Room will compete with other clubs that offer
private memberships as well as with other restaurants, bars and other
establishments which are open to the public and at which cigar smoking is
permitted. The Company is currently unaware of any other private membership
cigar clubs catering to affluent clientele, and the Company intends to maintain
this


                                       11

<PAGE>   12



niche which the Company believes will enable it to compete effectively with
other private membership clubs as well as with other bars and restaurants that
are open to the public and permit the smoking of cigars. Many of the Grand
Havana Rooms' competitors have substantially greater financial, marketing,
personnel and other resources than the Company, and the Company believes its
ability to compete effectively will continue to depend on its ability to offer
an exclusive membership club that caters to affluent cigar smokers and offers a
high quality distinctive restaurant, smoking lounge and bar.

        The restaurant industry is highly competitive with respect to price,
service, food quality and location. The Company's Love's restaurants compete
with mid-price, full-service restaurants, primarily on the basis of quality in
food and service, dining experience, ambiance, location and price-value
relationship. Many of those restaurants specialize in or offer products similar
to those offered by Love's. The Company also competes with a number of other
restaurants within its markets, including both locally-owned restaurants and
regional or national chains. The Company believes that Love's family-style
concept, attractive price-value relationship and quality of food and service,
together with its specialization in barbecued ribs and chicken, enable it to
differentiate itself from its competitors. Many of the Company's competitors are
well-established in the mid-price dining segment in the Company's existing
markets, have achieved significant national, regional and local brand name and
product recognition, engage in extensive advertising and promotional programs,
and have substantially greater financial, marketing, personnel and other
resources than the Company. Additionally, the restaurant business is often
affected by changes in consumer taste and discretionary pending priorities,
economic conditions, demographic trends, traffic patterns and employee
availability. Any change in these factors could adversely affect the Company.
The Company believes that the ability of the Love's restaurants to compete
effectively will continue to depend on its ability to offer high quality,
moderately priced food in a full-service, distinctive dining environment.

EMPLOYEES

        As of December 15, 1996, the Company had approximately 200 employees,
including part-time employees. The Company's Chairman of the Board, President
and Chief Executive Officer is engaged by the Company as an independent
consultant. See Item 10, "Executive Compensation--Consulting and Employment
Agreements." None of the Company's employees is covered by a collective
bargaining agreement. The Company believes that its relations with its employees
are good.


ITEM 2.     DESCRIPTION OF PROPERTY.

        The Company owns no real property. Love's is a lessee under a total of
ten leases related to all of its franchised, subleased and Company-owned
locations. As to those locations which are franchised, four such locations are
subleased to Love's franchisees at a rental rate which is designed to produce an
incremental profit to the Company over the rental paid to the landlord, although
in recent years this has not been the case. Love's leases generally call for the
Company to pay the lesser of a specified minimum monthly base rent or fixed
percentages of sales of food, liquor and other items. In order to emphasize the
partnership aspect of the purchaser/franchisee relationship, generally the
minimum fixed sublease obligations set for the franchisees are lower than those
which Love's is required to pay the landlord, but the percentage rent is
calculated to produce higher revenues for Love's overall, assuming the sales
levels projected by the parties. See Item 7. Financial Statements and
Supplementary Data -- Note 9 of "Notes to Consolidated Financial Statements."
The leases are generally "triple net" leases, obligating the Company, as tenant,
to be responsible for taxes, utilities and insurance. In the subleases which the
Company enters into with its franchisees, the Company passes on the "triple net"
obligations to such franchisees, and receives specified percentages of such
sublessees' sales of food, liquor and other


                                       12

<PAGE>   13



items. The percentages to be received by the Company from such sales generally
are between 1 % and 2% higher than the percentages required to be paid by the
Company to its landlords. See Item 1, "Description of Business--Love's--Love's
Locations".

        The Company also has a five-year lease expiring June 30, 1999, which
lease has three five-year options to extend through June 30, 2014, for its "On
Canon" restaruant location and Grand Havana Room in Beverly Hills, California. 
Annual rental under the On Canon restaurant portion of the lease is currently 
$144,000 per year and under the Grand Havana Room portion of the lease is 
currently $64,134 per year.

        The Company's initial New York Grand Havana Room will be located on the
39th floor of 666 Fifth Avenue, New York, New York. The New York Lease is for a
term of fifteen years expiring September 30, 2011. Annual rental under the New
York Lease in its initial five years is $658,880 per annum, payable in equal
monthly installments, provided that this rental shall not commence until March
1997. In addition to this rental, the Company will pay as additional rental
under the New York Lease an amount equal to 6.5% of the gross sales from its New
York Grand Havana Room in excess of $10,136,600 in any lease year. The New York
Lease consists of approximately 16,472 square feet. The Company anticipates that
development costs required to develop the Company's initial New York Grand
Havana Room will be approximately $1,500,000. The landlord of the New York Lease
has agreed to reimburse the Company for an aggregate of $411,800 of these
development costs. The balance of these development costs will be borne by the
Company out of its working capital, including advanced sales of memberships at
this club. The Company anticipates that the Company's initial New York Grand
Havana Room will open in late winter or early spring of 1997. See Item 1.
"Description of Business-- Grand Havana Rooms."

        The lease for the Company's Grand Havana Room in Washington D.C., is for
a term of fifteen and one-half years expiring in February, 2012 (the "Washington
Lease"). Annual rental under the Washington Lease is $170,000 per annum, payable
in equal monthly installments, provided that rental under this lease shall not
commence until March 1997. The Washington D.C. Lease is for premises at the
lower level of 1220 19th Street, N.W., Washington, D.C. and consists of
approximately 8,298 square feet. The Company anticipates that development costs
for the Company's Washington, D.C. Grand Havana Room will be approximately
$750,000. The Company anticipates that it will be able to fund these development
costs from its working capital, including advance sales of memberships at this
club, and, if necessary, through the private placement of additional securities
of the Company. The Company anticipates that the Washington D.C. Grand Havana
Room will open in the spring of 1997. See Item 1. "Description of Business --
Grand Havana Rooms," and Item 6. "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

        In February 1995 the Company entered into a six-year lease with 1990
Westwood Boulevard, Inc. covering approximately 6,000 square feet of office
space for its principal executive offices. The Lease provides for a rental of
$4,000 per month through January 31, 1998, and a rental of $4,400 per month
thereafter through the end of the term of the lease in January 2001. 1990
Westwood Boulevard, Inc. is owned 50% by Harry Shuster, Chairman of the Board,
President and Chief Executive Officer, a Director and a promoter of the Company,
35% by Jordan Belfort and 15% by Daniel Porush. Each of such latter persons is a
shareholder of Chicken & Ribs, Inc., a promoter of the Company. The Company is
advised that the rental and other terms of the agreed-upon Lease are no more
favorable to the lessor than could have been obtained in a similar building in
the same area from an independent, unrelated lessor. See Item 12. "Certain
Relationships and Related Transactions".

        The Company considers its leased properties to be adequate for its needs
in the short term or at least until the expiration of such leases, subject to
such additional leases as need be entered into in connection with the Company's
expansion plans discussed elsewhere in this Annual Report on Form


                                       13

<PAGE>   14



10-KSB.  In management's opinion, all of the properties leased by the Company 
are adequately covered by insurance.

ITEM 3.     LEGAL PROCEEDINGS.

        The Company is not a party to any pending material legal proceeding,
other than routine litigation that is incidental to its business or is covered
by insurance, except as follows:

        On January 13, 1989, Love's filed in the United States Patent and
Trademark Office a Petition to cancel the registration of a service mark
entitled "Love's Yogurt," which was registered on June 7, 1988 by a yogurt/soup
and sandwich retail operator based in Chicago, Illinois. Love's undertook to
cancel the registration in order to preserve its rights to the mark to the
fullest extent possible, although it does not compete in the same geographic
market as those of the applicant. The action did not involve a claim of
infringement nor is it one as to which monetary damages were available. The
Company has reached an oral agreement with "Love's Yogurt" to settle this
matter, which agreement would provide that "Love's Yogurt" license the "Love's"
name from the Company and agree not to add certain items to the"Love's Yogurt"
menu and not to open "Love's Yogurt" stores in territories where there are
existing Love's restaurants. The documentation on this settlement is currently
in the process of being prepared.

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

        No matter was submitted during the fourth quarter of the fiscal year
ended September 30, 1996, to a vote of security holders of the Company through
the solicitation of proxies, or otherwise.


                                       14

<PAGE>   15



                                     PART II


ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

        The Common Stock, par value $.01 per share, of the Company has been
traded on The Nasdaq Stock Market's Small Cap Market ("Nasdaq") under the symbol
UNIR, since April 12, 1994, the effective date of the Company's initial public
offering. Prior to that date, there was no public market for the Company's
securities. In its initial public offering, the Company sold a total of
2,012,000 Units, each Unit consisting of one share of Common Stock, one Class A
Warrant and one Class B Warrant. Each of the Class A Warrants and the Class B
Warrants entitles the holders thereof to purchase one share of the Company's
Common Stock at exercise prices of $4.80 and $5.60 per share, respectively. In
addition to the market for the Company's Common Stock, as to which certain
information is provided below, the Company's Class A Warrants and Class B
Warrants are also traded on Nasdaq. See Item 11, "Security Ownership of Certain
Beneficial Owners and Management".

        The following table sets forth, for the Company's fiscal quarters
indicated, the high and low bid prices of the Common Stock in The Nasdaq Stock
Market's Small Cap Market, as reported to the Company in monthly Reports from
Nasdaq:
<TABLE>
<CAPTION>

                                                   Reported
                                                  Bid Prices
                                            -----------------------
                                            High            Low
        <S>                                 <C>             <C>    
        1995
           1st Quarter..................    3-5/8           2-1/8
           2nd Quarter..................    2-3/8           1-5/8
           3rd Quarter..................    2-1/8           1-3/4
           4th Quarter..................    3-1/4           1

        1996
           1st Quarter..................    3-3/8           1
           2nd Quarter..................    2-1/8           15/16
           3rd Quarter..................    2-3/16          1-1/4
           4th Quarter..................    1-11/16         7/8
</TABLE>
        The above quotations represent prices between dealers, do not include
retail mark-up, markdown or commission and do not necessarily represent actual
transactions.

        There were approximately 30 record holders of the Common Stock of the
Company as of December 1, 1996.

        The Company has never declared or paid any cash dividends and does not
intend to pay cash dividends in the foreseeable future on the shares of Common
Stock. Cash dividends, if any, that may be paid in the future to holders of
Common Stock will be payable when, as and if declared by the Board of Directors
of the Company, based upon the Board's assessment of the financial condition of
the Company, its earnings, need for funds, capital requirements, and prior
claims, if any, of Preferred Stock to the extent issued, and other factors,
including any applicable laws. The Company is not currently a party to any
agreement restricting the payment of dividends.



                                       15

<PAGE>   16





ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND 
         RESULTS OF OPERATIONS

GENERAL

        United Restaurants, Inc. was incorporated in April of 1993. On May 27,
1993, the Company acquired Love's. The Company currently owns and operates,
through its Love's subsidiary, three Company-owned Love's restaurants and is the
franchisor of an additional 10 Love's restaurants, all of which Love's
restaurants are located in Southern California. Love's is a mid-priced, family
style restaurant specializing in barbecued beef, pork and chicken entrees. On
April 10, 1995, the Company opened On Canon, an Italian restaurant in Beverly
Hills, California and in June of 1995, the Company opened its initial Grand
Havana Room, a private cigar smoking club located on the second story above the
Company's On Canon Restaurant in Beverly Hills.

        The Company has determined to pursue the development, ownership and
operation of additional Grand Havana Rooms in major cities across the United
States as its principal business focus. In this regard, the Company has entered
into leases for new Grand Havana Room locations in each of Washington, D.C. and
New York, New York, and is currently in the process of developing these
locations into additional Grand Havana Rooms, which two new Grand Havana Rooms
the Company anticipates will open in late winter or spring of 1997. In addition,
the Company is currently looking into possible lease locations for a second
Grand Havana Room in New York, New York and a Grand Havana Room location in Las
Vegas, Nevada. Further, the Company intends to continue to expand its Grand
Havana Room concept into other major cities across the United States in the
future.

        The Company believes that the growing cigar market and increased demand
for cigars offers the Company substantial growth opportunities for its private
restaurant and cigar smoking clubs. Recently, cigar smoking has gained
popularity in the United States, resulting in a significant increase in
consumption and retail sales of cigars, particularly for premium cigars.
Management believes that this increase in cigar consumption and retail sales is
the result of a number of factors, including: (i) the increase in the number of
adults over the age of 50 (a demographic group believed to smoke more cigars
than any other demographic segment), and (ii) the emergence of an expanding base
of younger affluent adults who have recently started smoking cigars and who tend
to smoke premium cigars. The Company believes its Grand Havana Room concept
appeals to both of these consumer groups. According to cigar industry
statistics, consumption of cigars increased significantly from 1993 to 1995 and
continued to increase in 1996. However, this increase followed a decline in
consumption from 1964 to 1993. Although management believes that premium cigar
use will continue to increase in future years, there can be no assurance that
this will be the case, and, as in the past, it is possible that cigar
consumption in the United States could again start to decline. Any significant
decline in cigar consumption could have a material adverse affect on the
business and operations of the Company.

        The Company intends to continue its current operations in the restaurant
business, in particular with respect to its On Cannon restaurant. The Company
has no current intention of developing any additional Company-owned Love's
restaurants or franchising additional Love's restaurants, and may in the future
determine to sell its Love's restaurants which have not been as profitable to
the Company as anticipated by management. In September 1996 the Company sold its
stock in Il Forno, Inc. which corporation owns and operate Il Forno, an Italian
style restaurant in Santa Monica, California, because such restaurant did not
achieve the operating results anticipated by the Company.

        All of the Company's operating businesses are conducted through its
wholly owned-subsidiaries. United Restaurants, Inc., the parent holding company
("Parent"), has no revenues of its own apart from


                                       16

<PAGE>   17



its subsidiaries; however, the Parent incurs expenses which are not allocated to
any of its operating subsidiaries. Parent company costs are the operating
expenses of the corporate office, and the development costs of new concepts in
the Company's business plan, prior to contracting for a specific site, at which
time pre-opening expenses are capitalized to be recognized when a new business
location opens.

        Management of the Company expects that during the period it is working
on the development of additional Grand Havana Rooms, the Company will continue
to experience consolidated losses, until such time as there are enough
profitable restaurant units and Grand Havana Rooms developed to absorb the
increased expenses and overhead at the Parent company level.

        To the extent that any of the statements contained herein relating to
the Company's business, including its development plans with respect to its
Grand Havana Rooms, contain forward-looking statements, such statements are
based on current expectations that involve a number of uncertainties and risks
that could cause actual results to differ materially from those projected in the
forwarded- looking statements, including risks and uncertainties associated with
the costs of the development of proposed new Grand Havana Room locations, the
timing of the proposed developments, compliance with regulatory requirements and
the Company's ability to sell memberships in its proposed new Grand Havana Room
locations. In addition to these risks, other important factors that could cause
the Company's results of operations to differ materially from those anticipated
by management include a decline in public consumption of cigars and other
tobacco products and significant increases in excise taxes which could
substantially increase the price of cigars.

Results of Operations - Fiscal Year Ended September, 30, 1996, Compared to 
Fiscal Year Ended September 30, 1995

        The Company derives revenues from five principal sources: food and
beverage sales, franchise royalties, sublease income, merchandise sales and
membership fees. During its fiscal year ended September 30, 1996 the Company had
revenues of $8,037,257 compared to revenues of $5,776,404 for its fiscal year
ended September 30, 1995, an increase of $2,260,853 or approximately 39%. This
increase in revenues is primarily due to increases in food and beverage sales,
from $4,652,912 in fiscal year 1995 to $6,258,858 in fiscal year 1996, or an
increase of $1,605,946 or 35%, which increase in food and beverage sales is due
primarily to: an increase in food and beverage sales at the Company's Beverly
Hills Grand Havana Room which opened in June 1995, from $123,218 in fiscal year
1995 (reflecting four months of operations) to $833,393 in 1996 (reflecting a
full year of operations), or an increase of $710,175; an increase from
$2,629,172 in fiscal year 1995 to $3,158,853 in fiscal year 1996, or an increase
of $529,681 from food and beverage sales at the Company's On Canon Restaurant
and former Il Forno Restaurant, the increase due primarily to the fact that the
On Canon Restaurant had its first full year of operations in fiscal year 1996;
and an increase of approximately $368,608, from $1,906,004 in fiscal year 1995
to $2,274,612 in fiscal year 1996 from food and beverage sales at the Company's
Love's restaurants resulting primarily from the fact that one of the Love's
franchised restaurants switched from being a franchised location to being a
Company-owned Love's restaurant in October 1995.

        Other reasons for the significant increase in the Company's revenues
from the Company's fiscal year ended September 30, 1996 compared to its fiscal
year ended September 30, 1995, include: an increase in merchandise sales from
$93,214 in fiscal year 1995 to $364,572 in fiscal year 1996, or an increase of
$271,358 resulting primarily from an increase in sales of tobacco and other
products at the Company's Grand Havana Room which had its first full year of
operations in fiscal year 1996; and an increase in membership fees received from
the Company's initial Grand Havana Room, from $298,850


                                       17

<PAGE>   18



in the fiscal year ended September 30, 1995 compared to $649,608 for the fiscal
year ended September 30, 1996, or an increase of $350,758, which increase is due
to increases in membership fees in the Grand Havana Room's first full year of
operations. In addition, included in the Company's revenues for its fiscal year
ended September 30, 1996 is a one-time development fee of $200,000 paid to the
Company by an Asian company to which the Company has granted a license to
develop Love's restaurants in Asia. See Item 7. Financial Statements and
Supplementary Data -- Note 4 to Consolidated Financial Statements. Revenues from
franchise royalties decreased from $249,534 in fiscal year 1995 to $183,266 in
fiscal year 1996, a decrease of $66,268, and sublease income decreased from
$466,908 in 1995 to $291,027 in 1996, a decrease of $175,881, due primarily to
the conversion of one Love's Restaurant from a franchised location into a
Company-owned location in October 1995.

        Total costs and expenses of the Company increased from $7,771,265 for
the Company's fiscal year ended September 30, 1995 to $9,040,274 in the fiscal
year ended September 30, 1996, an increase of $1,269,009 or 16%. An aggregate of
$596,337 of this increase in costs is due to increases in costs of food and
beverages. Food and beverage costs at the Grand Havana Room increased from
$39,547 in fiscal year 1995 to $304,614 in fiscal year 1996, or an increase of
$265,067 due to the fact that fiscal year 1996 reflected the first full year of
operations of the Grand Havana Room. Food and beverage costs for the
Company-owned Love's restaurants increased from $671,039 in fiscal year 1995 to
$834,298 in fiscal year 1996, or an increase of $163,259 which increase is due
primarily to the conversion of one Love's franchise location to a Company-owned
location in October 1995. Food and beverage costs at the Company's On Canon
restaurant and former Il Forno restaurant increased from $729,701 in fiscal year
1995 to $894,928 in fiscal year 1996, or an increase in $165,227, which increase
was due primarily to the fact that fiscal year 1996 was the first full year of
operations of the On Canon restaurant.

        Other increases in costs of the Company from fiscal year 1996 to fiscal
year 1995 include: an increase in cost of merchandise from $74,207 to $273,135,
or an increase of $198,928 relating primarily to increased costs of merchandise
for the Company's first full fiscal year of operations of its Grand Havana Room;
an increase in direct labor expenses and benefits from $2,094,951 to $2,736,007,
or an increase of $641,056 in labor expenses resulting primarily from an
increase in labor costs associated with the first full year of operations of the
Company's Grand Havana Room and On Canon Restaurant, and increased occupancy
expenses from $1,999,771 in fiscal year 1995 to $2,376,783 in fiscal year 1996,
or an increase of $377,012 resulting primarily from increased expenses due to
the first full year of operations of the Company's Grand Havana Room and On
Canon Restaurant and the first full year of operations of one-additional
Company-owned Love's location which had previously been franchised. Sublease
expenses decreased from $405,622 in fiscal year 1995 to $258,389 in fiscal year
1996, a decrease of $147,233 due primarily to the conversion of one franchised
Love's location into a Company-owned location in October 1995.

        The Company's loss from operations decreased from $(1,994,861) in fiscal
year 1995 to $(1,003,017) in fiscal year 1996, or a decrease in loss of
operations of $991,884. This decrease in loss was due primarily from the
increase in revenues generated by the Company's operations in 1996 as set forth
above, in particular with respect to increased revenues due to the first full
year of operations of the Company's Grand Havana Room and On Canon Restaurant.
The Company experienced a net loss of $(1,468,044) or $(.23) per share for its
fiscal year ended September 30, 1996, as compared to a net loss of $(1,771,725)
or ($.28) per share for its fiscal year ended September 30, 1995. An aggregate
of $627,682 of the net loss for the Company's 1996 fiscal year was due to a
one-time loss on the disposition of assets relating to the disposition of the
stock of Il Forno, Inc. by the Company in September, 1996. See Item 7. Financial
Statements and Supplementary Data -- Note 3 to Consolidated Financial
Statements.


                                       18

<PAGE>   19





Liquidity and Capital Resources

        The Company intends to continue the expansion of its business, primarily
through the development and operation of additional Grand Havana Rooms,
including the addition of a new Grand Havana Room in New York, New York and
Washington, D.C. The Company may also continue to expand its business in
accordance with its original business plan by introducing new restaurant
concepts in Southern California, but there are no new pending restaurant
concepts currently being considered by management.

        The Company completed an initial public offering in April, 1994,
receiving net proceeds from the offering of approximately $6,386,642. The
initial public offering consisted of the sale of 2,012,500 Units, each Unit
consisting of one share of Common Stock, one five-year Class A Common Stock
Purchase Warrant to purchase one share of Common Stock at $4.80 per share, and
one five-year Class B Common Stock Purchase Warrant to purchase one share of
Common Stock at $5.60 per share. After the offering, the Company had issued and
outstanding 6,262,500 shares of Common Stock, 2,012,500 Class A Warrants and
2,012,500 Class B Warrants.

        As a result of its expansion activities, the Company has spent most of
the proceeds from its initial public offering, and at September 30, 1996 the
Company had cash or cash equivalents of $1,010,062. The Company anticipates that
in connection with its development plans during the next 12 months of
operations, the Company may require additional funds which the Company may raise
through the private placement of securities. In this regard, since the end of
its fiscal year ended September 30, 1996, the Company has raised an aggregate of
$680,000 through the sale of its securities in a private placement and
contemplates that it may need to raise up to an additional $320,000 in this
private placement, for aggregate proceeds to the Company from this private
placement of up to $1,000,000. See Item 12. "Certain Relationships and Related
Transactions." Management believes that with its current working capital and
with the funds raised in this private placement, the Company will be able to
operate its business and to fund the development of its business for at least
the next 12 months. The Company's management believes that funds spent on the
Company's development activities will accrue to the Company's benefit in future
years.

        In connection with the New York Lease, the Company was required to
provide a letter of credit. In order to establish this letter of credit the
Company entered into an agreement dated September 10, 1996, with its affiliate,
United Leisure Corporation ("United Leisure"), pursuant to which United Leisure
pledged the sum of $875,000 in order for the Company to obtain the required
letter of credit. The Company has agreed to apply one-half of all initial
membership fees received from members of its New York, New York and Washington
D.C. Grand Havana Rooms to replace the cash collateral pledged by United
Leisure, and, in any event, the Company has agreed to replace all of the cash
collateral within 18 months after United Leisure's pledge of the cash
collateral. In consideration for United Leisure pledging the collateral for the
letter of credit, the Company has agreed to pay an amount to United Leisure
equal to 10% per annum on the amount of the pledged cash collateral, as it
exists from time to time. The Company believes it will be able to replace the
funds pledged by United Leisure within such 18 month period out of its working
capital. As additional consideration, the Company agreed to issue 100,000 shares
of its common stock to United Leisure, and has agreed to grant to United Leisure
a warrant to purchase an additional 100,000 shares of common stock of the
Company, which warrant is exercisable for a period of five years at an exercise
price of $.75 per share. Harry Shuster, the Chairman of the Board, President and
Chief Executive Officer of the Company is an officer and director of United
Leisure. See Item 7. "Financial Statements and Supplementary Data -- Note 12 to
Consolidated Financial Statements;" and Item 12. "Certain Relationships and
Related Transactions."


                                       19

<PAGE>   20




        It is anticipated that a substantial portion of the expenses for the
development of the Company's initial New York Grand Havana Room will be borne by
the landlord of the Company's New York Lease, which lease agreement provides
that the landlord will reimburse the Company for up to $411,800 in development
expenses for the New York Havana Room.  The balance of the estimated $1,500,000
development cost, will be borne by the Company out of working capital, including
funds received from advanced sales of memberships at this club and proceeds from
the Company's current private placement.  With respect to the development of the
Company's Washington D.C. Grand Havana Room, which development costs are
estimated at approximately $750,000, the Company anticipates that its current
working capital, including funds received from advanced sales of memberships at
this club, and the funds raised in its current private placement, will be
sufficient to fund these development costs.  With respect to possible future
development costs for a Grand Havana Room in Las Vegas, Nevada, and an
additional Grand Havana Room in New York, New York, the Company may require
funds in addition to its working capital and funds raised in the private
placement to develop these establishments, and in this regard additional
financing may be required in order for the Company's continued expansion plans
to go forward.  There can be no assurance that such financing will be available
in the amounts and at the times needed by the Company, or at all. See Item 12.
"Certain Relationships and Related Transactions."

        Management does not expect that inflation will adversely affect the
Company's existing or planned operations in the future unless it increases
significantly over current levels.


ITEM 7.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.



                                       20

<PAGE>   21



                    UNITED RESTAURANTS, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1995 AND 1996


<TABLE>
<CAPTION>
<S>                                                              <C>    

Report of Independent Auditors                                   22

Consolidated Balance Sheets                                      23
  as of September 30, 1995 and 1996

Consolidated Statements of Operations                            25
  for the Years Ended September 30, 1995 and 1996

Consolidated Statement of Stockholders' Equity                   26
  for the Years Ended September 30, 1995 and 1996

Consolidated Statements of Cash Flows                            27
  for the Years Ended September 30, 1995 and 1996

Notes to Consolidated Financial Statements                       28
  as of September 30, 1995 and 1996


</TABLE>






                                       21



<PAGE>   22








                         REPORT OF INDEPENDENT AUDITORS



             To the Board of Directors and Stockholders
             United Restaurants, Inc.

             We have audited the accompanying consolidated balance sheets of
             United Restaurants, Inc. and Subsidiaries as of September 30, 1995
             and 1996 and the related consolidated statements of operations,
             stockholders' equity, and cash flows for the years then ended.
             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 misstatements. 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 United Restaurants, Inc. and Subsidiaries at September
             30, 1995 and 1996, and the results of operations and cash flows for
             the years then ended in conformity with generally accepted
             accounting principles.





                                                  HOLLANDER, GILBERT & CO.
             Los Angeles, California
             October 25, 1996

                                       22
<PAGE>   23
                    UNITED RESTAURANTS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           SEPTEMBER 30, 1995 AND 1996

<TABLE>
<CAPTION>
                                                   1995            1996
                                                   ----            ----
                                     ASSETS

CURRENT ASSETS
<S>                                             <C>            <C>       
    Cash and cash equivalents                   $2,281,973     $1,010,062
    Accounts receivable, less allowance
      for doubtful accounts of $17,500
      and $15,500 in 1995 and 1996,
      respectively                                 151,701        125,402
    Equipment contract receivable (Note 6)                        330,000
    Inventories                                    177,112        210,054
    Prepaid expenses                               177,179        145,187
                                                ----------     ----------

        TOTAL CURRENT ASSETS                     2,787,965      1,820,705

PROPERTY AND EQUIPMENT, Net (Notes 5 and 7)      2,493,046      2,124,346

OTHER ASSETS
    Pre-opening costs                               28,985        132,723
    Due from related parties (Note 12)              48,000         69,419
    Net investment in equipment
      contract receivable (Note 6)                 350,000
    Deferred financing cost (Note 12)                              80,000
    Goodwill, net of accumulated
      amortization of $68,344 in 1995,
      (Note 3)                                     478,406
    Deposits and other assets                      118,073        131,389
                                                ----------     ----------

        TOTAL OTHER ASSETS                       1,023,464        413,531
                                                ----------     ----------

                                                $6,304,475     $4,358,582
                                                ==========     ==========
</TABLE>
          See accompanying Notes to Consolidated Financial Statements.
  


                                       23
<PAGE>   24



                    UNITED RESTAURANTS, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS, continued
                           SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
                                                            1995               1996
                                                       --------------     --------------
<S>                                                      <C>              <C>        
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Current portion of long-term debt (Note 7)           $   106,847      $   172,571
    Accounts payable                                         682,338          561,819
    Accrued liabilities                                      173,075          125,219
    Deferred development fee (Note 4)                        200,000
                                                         -----------      -----------

        TOTAL CURRENT LIABILITIES                          1,162,260          859,609

LONG-TERM DEBT, Net of current portion (Note 7)              255,198
                                                         -----------      -----------


        TOTAL LIABILITIES                                  1,417,458          859,609

COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 9 and 10)

STOCKHOLDERS' EQUITY (Note 11)
    Preferred Stock, $.01 par value
        Authorized - 3,000,000 shares
        Issued and outstanding - none
    Common Stock, $.01 par value
        Authorized - 22,000,000 shares
        Issued and Outstanding - 6,262,500 shares
        in 1995 and 6,362,500 shares in 1996                  62,625           63,625
    Additional paid-in capital                             7,771,042        7,850,042
    Accumulated deficit                                   (2,946,650)      (4,414,694)
                                                         -----------      -----------

        TOTAL STOCKHOLDERS' EQUITY                         4,887,017        3,498,973
                                                         -----------      -----------

                                                         $ 6,304,475      $ 4,358,582
                                                         ===========      ===========

</TABLE>
             See accompanying Notes to Consolidated Financial Statements.
          
                                       24
<PAGE>   25


                    UNITED RESTAURANTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED SEPTEMBER 30, 1995 AND 1996


<TABLE>
<CAPTION>
                                                          1995             1996
                                                      -----------      -----------
<S>                                                   <C>              <C>        
REVENUES
    Food and beverage                                 $ 4,652,912      $ 6,258,858
    Franchise royalties                                   249,534          183,266
    Sublease income                                       466,908          291,027
    Merchandise sales                                      93,214          364,572
    Membership fee                                        298,850          649,608
    Development fee (Note 4)                                               200,000
    Other                                                  14,986           89,926
                                                      -----------      -----------

        TOTAL REVENUES                                  5,776,404        8,037,257
                                                      -----------      -----------

COST AND EXPENSES
    Food and beverage                                   1,437,513        2,033,850
    Sublease                                              405,622          258,389
    Merchandise                                            74,207          273,135
    Operating expenses
        Direct labor and benefits                       2,094,951        2,736,007
        Occupancy and other                             1,939,771        2,376,783
    Pre-opening expense                                   380,286
    General and administrative                          1,187,136          970,076
    Depreciation and amortization                         251,779          392,034
                                                      -----------      -----------

        TOTAL COSTS AND EXPENSES                        7,771,265        9,040,274
                                                      -----------      -----------

                                                       (1,994,861)      (1,003,017)
                                                      -----------      -----------

OTHER INCOME (EXPENSE)
    Interest income                                       204,590          114,371
    Interest expense                                      (35,544)         (60,083)
    Loss on disposition of assets (Notes 3 and 6)          (6,250)        (627,682)
    Other, net                                             60,340          108,367
                                                      -----------      -----------

                                                          223,136         (465,027)
                                                      -----------      -----------
NET LOSS                                              $(1,771,725)     $(1,468,044)
                                                      ===========      ===========


WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING                             6,262,500        6,262,500
                                                      ===========      ===========

LOSS PER SHARE OF COMMON STOCK                        $      (.28)     $      (.23)
                                                      ===========      ===========
</TABLE>
          See accompanying Notes to Consolidated Financial Statements.
                     
                                     25


<PAGE>   26
                    UNITED RESTAURANTS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                     YEARS ENDED SEPTEMBER 30, 1995 AND 1996


<TABLE>
<CAPTION>
                                                                  
                                         Common Stock               Additional  
                                 ----------------------------        Paid-In       Accumulated
                                   Shares            Amount          Capital         Deficit           Total
                                 -----------      -----------      -----------     -----------      -----------
<S>                                <C>            <C>              <C>             <C>              <C>                      
BALANCE - SEPTEMBER 30, 1994       6,262,500      $    62,625      $ 7,771,042     $(1,174,925)     $ 6,658,742

NET LOSS - YEAR ENDED
  SEPTEMBER 30, 1995                                                                (1,771,725)      (1,771,725)
                                 -----------      -----------      -----------     -----------      -----------


BALANCE - SEPTEMBER 30, 1995       6,262,500           62,625        7,771,042      (2,946,650)       4,887,017

COMMON STOCK ISSUED
  AS FINANCING COST                  100,000            1,000           79,000                           80,000

NET LOSS - YEAR ENDED
  SEPTEMBER 30, 1996                                                                (1,468,044)      (1,468,044)
                                 -----------      -----------      -----------     -----------      -----------


BALANCE - SEPTEMBER 30, 1996       6,362,500      $    63,625      $ 7,850,042     $(4,414,694)     $ 3,498,973
                                 ===========      ===========      ===========     ===========      ===========

</TABLE>
          See accompanying Notes to Consolidated Financial Statements.
                                       26
<PAGE>   27
                    UNITED RESTAURANTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
                                                                                        1995             1996
                                                                                    -----------      -----------
<S>                                                                                 <C>              <C>         
CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                                                        $(1,771,725)     $(1,468,044)
    Adjustments to reconcile net loss to net cash used by operating activities:
        Depreciation and amortization                                                   251,779          392,034
        Loss on disposition of assets                                                     6,250          627,682
        Changes in operating assets and liabilities:
           Accounts and other receivables                                               144,053            4,880
           Inventories                                                                 (133,688)         (48,342)
           Prepaid expenses                                                             (20,636)          30,030
           Deposits and other assets                                                     45,026         (126,419)
           Accounts payable and other accrued liabilities                               298,014         (156,677)
           Deferred development fee                                                                     (200,000)
                                                                                    -----------      -----------

           NET CASH USED IN OPERATING ACTIVITIES                                     (1,180,927)        (944,856)
                                                                                    -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchases of property and equipment                                              (1,908,344)        (138,581)
    Advance to related party                                                            (48,000)
    Sale of subsidiary                                                                                     1,000
                                                                                    -----------      -----------

           NET CASH USED IN INVESTING ACTIVITIES                                     (1,956,344)        (137,581)
                                                                                    -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES
    Principal reductions of short-term and long-term obligations                       (105,722)        (189,474)
                                                                                    -----------      -----------

           NET CASH USED FINANCING ACTIVITIES                                          (105,722)        (189,474)
                                                                                    -----------      -----------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                            (3,242,993)      (1,271,911)
CASH AND CASH EQUIVALENTS, beginning of period                                        5,524,966        2,281,973
                                                                                    -----------      -----------

CASH AND CASH EQUIVALENTS, end of period                                            $ 2,281,973      $ 1,010,062
                                                                                    ===========      ===========
NON-CASH TRANSACTIONS
    Common Stock issued as financing cost                                                            $    80,000
                                                                                                     ===========
    Assets held for development                                                     $   110,850
                                                                                    ===========
OTHER CASH INFORMATION
    Interest paid                                                                   $    35,544      $    60,083
                                                                                    ===========      ===========

    Interest received                                                               $   204,590      $   114,371
                                                                                    ===========      ===========


</TABLE>
          See accompanying Notes to Consolidated Financial Statements.
                                       
                                       27
<PAGE>   28
                    UNITED RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1995 AND 1996


    1.   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

         Description of Business and Nature of Operations. United Restaurants,
         Inc. (the "Company") was incorporated under the laws of the State of
         Delaware on April 13, 1993, to develop new restaurant concepts and to
         acquire all of the capital stock of Love's Enterprises, Inc.
         ("Love's"), a California corporation, with the intention to revitalize
         and expand its operations. As of September 30, 1996, the Company was
         the franchisor of eleven restaurants and the owner/operator of an
         additional four restaurants all located in the Southern California
         market. The Company is also developing a national chain of "Grand
         Havana Room" cigar clubs the first of which opened in July, 1995 in
         Beverly Hills, California.

         Principles of Consolidation. The consolidated financial statements 
         include the accounts of United Restaurants, Inc. and its subsidiary
         companies, all of which are wholly-owned, except for Il Forno, Inc.
         (Note 3). All significant intercompany transactions and balances have
         been eliminated.

         Use of Estimates. The preparation of financial statements in conformity
         with generally accepted accounting principles requires management to
         make estimates and assumptions that affect certain reported amounts and
         disclosures. Accordingly, actual results could differ from those
         estimates.

         Cash and Cash Equivalents. The Company considers all highly liquid
         investments purchased with an original maturity of three months or less
         to be cash equivalents.

         Concentration of Credit Risk. The Company invests its excess cash in
         certificates of deposit and money market funds, which, at times, may
         exceed federally insured limits. The Company maintains its accounts
         with financial institutions with high credit ratings.

         Direct Financing Leases. Restaurant equipment leases the Company has 
         with franchisees and others have been classified as direct financing
         leases.

         Inventory. Inventories, consisting of food and beverage products, 
         cigars and other merchandise, are stated at the lower of cost
         (first-in, first-out method) or market.

         Property and Equipment. Property and equipment are stated at cost.
         Depreciation is provided using the straight-line method over the
         estimated useful lives of the assets. Leasehold improvements are
         amortized on the straight-line method over the shorter of the lease
         term or estimated useful lives of the assets. Useful lives generally
         are as follows:

                    Leasehold improvements                5 to 15 years
                    Restaurant equipment                   2 to 8 years
                    Other equipment                       3 to 15 years

         Pre-Opening Costs. Restaurant and cigar club pre-opening costs are 
         deferred and charged to operations when the location is opened or the
         location plans are abandoned.

         Goodwill. Goodwill represents the excess of the costs of companies
         acquired over the fair value of their net assets at the date of
         acquisition and is being amortized on the straight-line method over ten
         years.

         Restaurant and Franchise Revenues. Revenues from the operation of
         Company-owned restaurants are recognized when the sales occur. All
         franchise and development fees are included in revenue as earned.
         Royalty fees are based on franchised restaurants' revenues and are
         recorded by the Company in the period the related franchised
         restaurants' revenues are earned. The Company recognizes revenue from
         franchised operations in the form of minimum and percentage rents from
         the sublease of restaurant facilities which are recorded by the Company
         in the period the related rents are due. Accounts receivable consist
         primarily of rents and royalties due from franchisees located in
         Southern California. The Company does not require collateral for such
         receivables.


                                       28
<PAGE>   29
                    UNITED RESTAURANTS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued


         Membership Fees. Membership fee revenue represents initial and monthly
         membership fees paid by members of the Company's "Grand Havana Room"
         clubs. Initial membership fees are deferred and recognized as income
         when membership services commence. Monthly membership fees are
         recognized as income when earned.

         Impairment of Long-Lived Assets. - The Company periodically assesses
         the recoverability of the carrying amounts of long-lived assets,
         including intangible assets. A loss is recognized when expected
         undiscounted future cash flows are less than the carrying amount of the
         asset. The impairment loss is the difference by which the carrying
         amount of the asset exceeds its fair value. The Company does not expect
         to have any significant losses from its review of impairment of
         long-lived assets.

         Stock-Based Compensation. - The Company plans to account for stock
         options under SFAS No. 123, which retains the original accounting
         prescribed by APB Opinion No. 25. As a result, options granted at fair
         value will not result in charges to earnings. Disclosures will be made,
         however, of compensation costs determined under SFAS No. 123's fair
         value methodology.

         Loss per Common Share. Loss per common share is based upon the weighted
         average number of common shares outstanding during the period. Common
         share equivalents, when antidilutive, are excluded from weighted
         average number of shares outstanding for all periods presented.

         Reclassifications. - Certain 1995 balances have been reclassified to 
         conform with 1996 presentation.


    2.   DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES

         Love's Franchisees. As of September 30, 1993, the Company was the
         franchisor of nineteen restaurants, the majority of which were
         franchised in the early 1970's. Since that date, six of the franchised
         restaurants have closed and two were acquired and are now operated by
         the Company. At the time of Love's acquisition, it had fallen
         delinquent with respect to certain regulatory filings for franchisors,
         a condition that continues to date. Accordingly, the Company is
         currently precluded from entering into new franchise agreements.


    3.   ACQUISITIONS AND DISPOSITION

         Love's Enterprises, Inc. On May 27, 1993, the Company purchased all of
         the issued and outstanding capital stock of Love's Enterprises, Inc.,
         which has been in business since the late 1950's. As of September 30,
         1996, Love's owns and operates three company-owned restaurants and is
         the franchisor of eleven additional restaurants which are owned and
         operated by different franchisees. The Love's concept is a mid-priced,
         family style restaurant located in Southern California, and it
         specializes in barbecued beef, pork and chicken entrees.

         The total purchase price of $534,822 approximated the net book value of
         Love's which resulted in no change in basis. For accounting purposes,
         the acquisition has been treated as a purchase.

         Il Forno, Inc. On June 20, 1994, the Company acquired 85% of the issued
         and outstanding capital stock of Il Forno, Inc. ("Il Forno"). Il Forno
         owns and operates an Italian-style restaurant located in Santa Monica,
         California.

         The Stock Purchase Agreement required the Company to advance
         approximately $498,000 to Il Forno for the settlement of various Il
         Forno related party loans and other accrued expenses. Additionally, the
         Company was to pay $252,000 to Il Forno stockholders for 85% of the
         outstanding capital stock of Il Forno, payable $2,000 in cash upon
         closing with the balance of $250,000 due, without interest, over a
         three year period. (See Note 7.)

         The transactions was accounted for as a purchase and resulted in an
         excess of purchase price over net assets acquired of $546,750.
         Amortization of such goodwill amounted to $53,079 and $54,675 in 1995
         and 1996, respectively.

         On September 20, 1996, the Company sold its 85% interest in Il Forno
         back to the minority stockholders for $1,000 in cash. The sale
         resulting in a loss to the Company of $607,682 which is included on the
         accompanying consolidated statement of operation under "Loss on
         disposition of assets."


    4.   TERRITORY RIGHTS AGREEMENT

         In August 1994, the Company entered into a Territory Rights Agreement
         with PT Transpacific Ekagraha, a large Asian holding company, which
         engages in a number of businesses including banking and the restaurant
         development business. Under the Territory Rights Agreement, the
         territory rights holder paid to the Company a total of $200,000 for the
         rights to develop Love's Woodpit Barbecue Restaurants in Asia.

         The territory rights holder has committed to construct at least eight
         Love's Restaurants in portions of Asia, including Mainland China, Hong
         Kong, Indonesia, Singapore, Malaysia and Republic of China-Taiwan,
         during the three years ended August 1997. The Agreement provides for
         additional payments to the Company at the opening of each restaurant
         and for continuing royalties ranging from 5% - 8.75% of gross sales.
         Under the Agreement, the Company is to provide certain training,
         management and other services during the term of the Agreement. The
         first restaurant under this agreement is expected to open in early
         1997.

                                       29
<PAGE>   30
                    UNITED RESTAURANTS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

    5.   PROPERTY AND EQUIPMENT

         Property and equipment is comprised of the following at September 30,
         1995 and 1996:
<TABLE>
<CAPTION>

                                                       1995             1996
                                                   -----------      -----------
<S>                                                <C>              <C>        
Leasehold improvements                             $ 1,817,887      $ 1,626,573
Restaurant equipment                                 1,005,530          871,811
Office equipment                                       222,799          176,589
Signage                                                 11,690           11,690
                                                   -----------      -----------
                                                     3,057,906        2,686,663
Less accumulated depreciation and amortization        (564,860)        (562,317)
                                                   -----------      -----------
                                                   $ 2,493,046      $ 2,124,346
                                                   ===========      ===========
</TABLE>

    6.   INVESTMENT IN EQUIPMENT CONTRACT

         In October of 1993, Love's entered into an agreement with Huntington
         Beach Market Broiler ("HBMB"), the operator of an independent
         restaurant, pursuant to which HBMB assumed all of Love's obligations
         under the Huntington Beach real property lease, executed an equipment
         lease with Love's and granted Love's a profit-sharing interest in the
         restaurant. The duration of the Agreement is to September of 2005.
         Under the terms of the Agreement, the lessee is to pay an equipment
         rental of $2,250 per month for the first 36 months of the lease against
         40% of the annual profits (as defined) of the restaurant. During the
         remainder of the term, the monthly equipment rental will be $3,375
         against 40% of profits. During 1995 and 1996, the Company received
         $20,060 and $52,540, respectively, as a result of the 40% profit
         override. The lessee has the right to purchase the equipment under
         lease at any time during the first five years of the Agreement for
         $350,000 and at the end of the agreement for $50,000. As of September
         30, 1995, such equipment lease has been classified as a direct
         financing lease on the accompanying financial statements.

         Net investment in equipment contract receivable is as follows at
         September 30, 1995:
<TABLE>
<CAPTION>
         <S>                                                         <C>      
         Gross minimum lease payments receivable                     $ 440,038
         Less unearned interest income                                 (90,038)
                                                                     ---------
         Net investment in equipment contract receivable             $ 350,000
                                                                     =========
</TABLE>

         In September of 1996, Love's entered into an agreement with HBMB
         pursuant to which Love's would terminate its profit-sharing interest in
         the restaurant and transfer to HBMB the equipment under lease for a
         current payment of $330,000. The sale closed and the payment was
         received in October of 1996. A loss of $20,000 as a result of this
         transaction has been provided for as of September 30, 1996.


    7.   LONG-TERM DEBT

         Long-term debt is comprised of the following at September 30, 1995 and
         1996:
<TABLE>
<CAPTION>
                                                                                                   1995           1996
                                                                                                 ---------      ---------
<S>                                                                                              <C>            <C>      
10% secured note, principal and accrued interest payable in 84
monthly installments of $4,135 beginning February 1994. The
equipment securing this note was sold in October of 1996 (Note 6)
and, accordingly, this note was repaid at that time
                                                                                                 $ 205,034      $ 172,571

Stock purchase note payable, discounted at an imputed interest rate
of 4.5%, due in three annual installments of $83,333 each. This
note was repaid in full in 1996
                                                                                                   157,011

                                                                                                 ---------      ---------
                                                                                                   362,045        172,571

     Less current portion                                                                         (106,847)      (172,571)
                                                                                                 ---------      ---------
                                                                                                 $ 255,198      $     -0-
                                                                                                 =========      =========
</TABLE>

                                       30
<PAGE>   31
                    UNITED RESTAURANTS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

    8.   INCOME TAXES

         At September 30, 1996, the Company had approximate net operating loss
carryforwards for federal tax purposes expiring as follows:
<TABLE>
<CAPTION>
             Year
             Expires                      Amount
             -------                      ------
              <S>                    <C>        
              1997                   $ 1,179,000
              1998                     3,102,000
              1999                     1,512,000
              2000                       100,000
              2004                         1,000
              2005                        17,000
              2006                        51,000
              2007                       268,000
              2008                       303,000
              2009                     1,355,000
              2010                     1,742,000
              2011                       712,000
                                     -----------
                     TOTAL           $10,342,000
                                     ===========
</TABLE>
         The components of deferred tax assets were as follows at September 30,
1995 and 1996:
<TABLE>
<CAPTION>
                                            1995             1996
                                         ----------      -----------
<S>                                     <C>              <C>        
   Deferred tax assets:
   Net operating loss carryforwards     $ 3,684,408      $ 3,718,307
   Asset realizability reserves             277,229          285,023
   Employee benefit plans                    39,264           23,408
   State income tax                           1,632            1,360
   Contribution carryforwards                                  3,148
   Pre-opening costs                                         118,010
   Capital loss carryforwards                                316,394
   Depreciation                                 869
   Valuation allowance                   (4,003,402)      (4,389,044)
                                         ----------      -----------

   Total deferred tax assets                    -0-           76,606

Deferred tax liability:
   Depreciation                                               76,606
                                         ----------      -----------

   Net deferred taxes                    $      -0-      $       -0-
                                         ==========      ===========      
</TABLE>

    9.   OPERATING LEASES

         The Company leases restaurant, club and corporate facilities under
         operating leases with original terms ranging from 10 to 25 years. The
         lease obligations include provisions requiring the payment of property
         taxes, insurance, repairs and maintenance, and generally contain
         renewal options and call for contingency rentals based on percentages
         of sales. Restaurant facilities subleased to franchisees are subleased
         under similar terms to the lease the Company has with the lessor.

         Minimum lease payments required under noncancelable leases and
         subleases, respectively, at September 30, 1996 are as follows:

                                       31
<PAGE>   32
                    UNITED RESTAURANTS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued

<TABLE>
<CAPTION>
                                        Minimum                   Minimum
                                         Lease                    Sublease
                                        Payments                  Payments
                                       to be Paid               to be Received
                                       -----------               -----------
         Years Ending September 30,
         --------------------------
               <S>                     <C>                       <C>        
               1997                    $ 1,130,754               $   169,976
               1998                      1,401,307                   101,776
               1999                      1,306,928                    61,444
               2000                      1,163,596                     8,500
               2001                        880,825               
               Thereafter                9,728,864
                                       -----------               -----------
                                       $15,612,274               $   341,696
                                       ===========               ===========
</TABLE>
                                                            
              Rent expense and sublease income were as follows:
<TABLE>
<CAPTION>
                                 1995          1996
                                --------     --------
         <S>                    <C>          <C>     
         Rent expense:
           Minimum              $912,126     $882,161
           Percentage rents       57,405      106,949
                                --------     --------
         
                                $969,531     $989,110
                                ========     ========
                                   
         Sublease income:
           Minimum              $312,186     $191,693
           Percentage rents      154,722       99,334
                                --------     --------
         
                                $466,908     $291,027
                                ========     ========
</TABLE>
         
        
   10.   COMMITMENTS AND CONTINGENCIES

         Consulting Agreement. The Company and Mr. Harry Shuster are parties to
         an Agreement (the "Agreement") dated as of June 1, 1993, The Agreement
         provides that Mr. Shuster will act as the Chairman of the Board,
         President and Chief Executive Officer and a Director of the Company
         throughout the rolling three year term of the Agreement for annual
         compensation initially set at $250,000 per annum, to be increased five
         percent during each successive year of the Agreement. Mr. Shuster is
         also to be provided with either the use of a company car to be used in
         carrying out his duties for the Company or a $500 per month car
         allowance. The Agreement provides for certain disability benefits for a
         period of up to three years. The Agreement provides for automatic
         one-year renewals for each contract year that ends without termination
         of the Agreement by either party.

         Lease Agreements. The Company is contingently liable on two assigned 
         leases relating to former Love's locations.


   11.   STOCKHOLDERS' EQUITY

         Initial Public Offering. In order to carry out the Company's expansion
         plans, the Company completed an initial public offering in April 1994,
         receiving net proceeds from the offering of approximately $6,386,642.
         The initial public offering consisted of the sale of 2,012,500 Units,
         each Unit containing one share of Common Stock, one five-year Class A
         Common Stock Purchase Warrant to purchase one share of Common Stock at
         $4.80 per share, and one five-year Class B Common Stock Purchase
         Warrant to purchase one share of Common Stock at $5.60 per share. After
         the offering, the Company had issued and outstanding 6,262,500 shares
         of Common Stock, 2,012,500 Class A Warrants and 2,012,500 Class B
         Warrants.

         Stock Option and Warrants. At September 30, 1996, there were
         outstanding presently exercisable non-qualified stock options granted
         on September 21, 1994, to purchase an aggregate of 25,000 shares of
         Common Stock of the Company held by a former director of the Company,
         at an option price of $3.00 per share. The option may be 

                                       32

<PAGE>   33
                    UNITED RESTAURANTS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued


         exercised at any time during its five-year term, is nontransferable
         except by will or pursuant to the laws of descent and distribution and
         is protected against dilution. Also outstanding were 5-year warrants to
         United Leisure Corporation to purchase 100,000 shares at $.75 per share
         (see Note 12).


   12.   RELATED PARTY TRANSACTIONS

         Leased Facilities. The Company entered into a five-year lease with 1990
         Westwood Boulevard, Inc. covering approximately 6,000 square feet of
         Class A office space for its executive offices. The Lease provides for
         a rental of $4,000 per month. 1990 Westwood Boulevard, Inc. is owned
         50% by Harry Shuster, Chairman of the Board, President and Chief
         Executive Officer, a Director and a promoter of the Company, 35% by
         Jordan Belfort and 15% by Daniel Porush. Each of such latter persons is
         a shareholder of C&R, a promoter of the Company. The Company is advised
         that the rental and other terms of the agreed-upon Lease are no more
         favorable to the lessor than could have been obtained in a similar
         building in the same area from an independent, unrelated lessor.

         Financing Arrangement. During September of 1996, United Leisure
         Corporation, ("United Leisure") an affiliate of the Company, put up a
         certificate of deposit in the amount of $875,000 in order to provide
         collateral for a letter of credit for the Company. The Company was
         required to provide such letter of credit in connection with a lease
         entered into by the Company. The Company has agreed to replace the
         collateral provided by United Leisure in full by March 1998. In
         consideration for providing such collateral, the Company has agreed to
         pay an amount to United Leisure equal to 10% per annum on the amount of
         the pledged collateral, as it exists from time to time. As additional
         consideration, the Company issued 100,000 shares of its restricted
         common stock to United Leisure valued at $80,000 which was the fair
         value of the shares at issuance date, net of discount as well as a
         warrant to purchase an additional 100,000 shares of common stock of the
         Company. The Chairman of the Board, President and Chief Executive
         Officer of United Leisure is the Chairman of the Board, President and
         Chief Executive Officer of the Company.

         Due from Related Parties. Due from related parties at September 30,
         1995 and 1996 included $48,000 advanced to the Company's Chairman of
         the Board, President and Chief Executive Officer. Due from related
         parties at September 30, 1996 also included receivables from United
         Leisure and other similarly affiliated companies resulting from charges
         for common expenses.


                                       33


<PAGE>   34



ITEM 8.     DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

        The Company has not changed accountants within the two fiscal years
ended September 30, 1996.



                                       34

<PAGE>   35



                                    PART III


ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
            COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

DIRECTORS AND EXECUTIVE OFFICERS

        The following table sets forth certain information with respect to the
Company's Directors and executive officers as of December 31, 1996.
<TABLE>
<CAPTION>

                                          Positions Currently Held
        Name            Age                  With the Company
        ----            ---                  ----------------

<S>                     <C>       <C>                                          
Harry Shuster           61        Chairman of the Board, President and Chief
                                    Executive Officer, Chief Financial
                                    Officer and a Director

Harvey Bibicoff         57        Director

Stanley Shuster         36        Vice President and Director

Steven T. Ousdahl       50        Vice President -- Administration
</TABLE>

        Harry Shuster, the Chairman of the Board, President, Chief Executive
Officer and Chief Financial Officer, as well as one of the original promoters of
the Company and a control person of the Company, has been engaged in managing
the affairs of the Company in his current positions since the inception of the
Company in 1993. During the period from 1986 through March 1990, Mr. Shuster and
members of his family owned Love's (which was acquired by the Company in May
1993), during which time he acted as the Chairman of the Board and Chief
Executive Officer of Love's. Mr. Shuster is and has been for more than five
years Chairman of the Board, President and Chief Executive Officer of and a
Director of United Leisure Corporation, a publicly-held real estate development
and leisure time concern located in Irvine, California. Mr. Shuster also serves
as the Chairman of the Board of HIT Entertainment, Inc., a privately-held
independent motion picture production company in Los Angeles, California. See
Item 10, "Executive Compensation--Consulting and Employment Agreements".

            United Leisure Corporation's primary operating subsidiary, Lion
Country Safari, Inc.--California, of which Mr. Shuster is the president and
chief executive officer, has been engaged in protracted and difficult litigation
with its landlord, The Irvine Company, since 1986. In connection with this
litigation, as a strategic matter, the Board of Directors of United Leisure
determined that it would be in the best interest of its stockholders to place
such subsidiary under the jurisdiction of the United States Bankruptcy Court by
filing a petition for reorganization. The petition was filed on July 23, 1990.
The trial related to this litigation commenced on October 1, 1993, and resulted
in a jury verdict in favor of the United Leisure subsidiary in the approximate
amount of $42,000,000. After the jury verdict was rendered, United Leisure's
landlord brought a motion for a new trial and the court granted the Landlord's
motion. United Leisure has now appealed this order and it is anticipated that
the appeal will be heard and a decision rendered in mid-1997. After the initial
jury verdict was rendered in favor of United Leisure, a motion was filed for the
dismissal of the subsidiary's petition for reorganization, which was granted by
the Bankruptcy Court. At the present time, Lion Country Safari, Inc. is solvent
and operating on a positive cash flow basis.


                                       35

<PAGE>   36




        Harvey Bibicoff has served as Chairman of the Board of Directors and as
a director of Harmony Holdings, Inc., a publicly held producer of commercials,
since August 1991. Mr. Bibicoff served as the Chairman of the Board, Chief
Financial Officer, Secretary and as a director of Ventura Entertainment Group
Ltd. ("Ventura") from May 1988 through April 1995. From 1989 until March 1995,
he served as an officer and a director of The Producers Entertainment Group Ltd.
(formerly named Ventura Motion Picture Group Ltd.), a subsidiary of Ventura
whose stock is traded on Nasdaq as "TPEG." Since 1981, Mr. Bibicoff has been the
sole shareholder of Bibicoff & Associates, Inc., a financial consulting firm
that was engaged in the representation of public companies in their
relationships with the investment banking and brokerage communities. Mr.
Bibicoff received a Bachelor of Sciences degree from Bowling Green State
University in 1960 as a business and finance major and a J.D. degree from
Columbia University School of Law in 1963. He has been a member of the New York
State Bar since 1963. Mr. Bibicoff is one of the original promoters of the
Company, was elected a Director of the Company in August 1993 and may be
considered to be a control person of the Company.

        Stanley Shuster was elected Vice President of the Company and a Director
in June 1995. Since April 1994, Mr. Shuster has been employed by United 
Restaurants in order to develop its Grand Havana Room concept, and is currently
supervising the operations and development of the Company's Grand Havana Rooms.
From March 1991 through February 1994, he was Vice President of Artist and
Repertoire for J.R.S. Records, an independent record company, with major
distribution through BMG. The Artist roster of J.R.S. included Stray Cats, Jimmy
Cliff, Kool and the Gang and Asia. From May 1989 through March 1991, Mr. Shuster
acted as Director of Artist and Repertoire for Venture Music Group, a music
company based in Los Angeles, California. Prior to that time, Mr. Shuster was a
partner and operated a chain of 10 restaurants. Stanley Shuster is the son of
Harry Shuster.

        Steven T. Ousdahl has acted as Operations Administrator for Love's since
September 1985, in which capacity he has been engaged, in managing the
operations of the Love's restaurant chain. Prior to that time, for over 15
years, Mr. Ousdahl was engaged as an operations executive in the food service
business for several firms, all in the southern California area, including IHOP
Corp. Mr. Ousdahl was elected Vice President -- Administration of the Company in
August 1993.

        All Directors hold office until the next annual meeting of stockholders
and until their successors are elected. Officers are elected to serve, subject
to the discretion of the Board of Directors, until their successors are
appointed.

Compliance With Section 16(a) of the Securities Exchange Act of 1934

        Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, Directors and beneficial owners of more than 10% of the Company's
Common Stock are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms that they file. Based solely on review of the copies
of such forms furnished to the Company, or written representations that no
reports on Form 5 were required, the Company believes that for the period
through September 30, 1996, all officers, Directors and greater-than-10%
beneficial owners complied with all Section 16(a) filing requirements applicable
to them, except that Harry Shuster, due to an administrative oversight, was late
in filing a Form 4 with respect to a sale of securities by Mr. Shuster which
took place in March 1996.



                                       36

<PAGE>   37



ITEM 10.    EXECUTIVE COMPENSATION.

        The following table sets forth the cash compensation paid by the Company
to Harry Shuster, Chairman of the Board, President and Chief Executive Officer
of the Company, pursuant to a consulting arrangement, during the fiscal years
ended September 30, 1996, 1995 and 1994:

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                             Annual Compensation
                                   -----------------------------------------
                                                                All Other
Name and Principal Position        Year     Consulting Fee     Compensation
---------------------------        ----     --------------    --------------
<S>                                <C>      <C>                  <C>       
Harry Shuster                      1996     $284,814             $    0
  Chairman of the Board,           1995      266,876              6,000(1)
  President, Chief Executive       1994      260,166              6,000(1)
  Officer and Chief Financial
  Officer(2)

</TABLE>

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

(1)     Includes $500 per month car allowance paid Mr. Shuster.
(2)     See "Management -- Consulting and Employment Agreements," below.

        No other person received compensation in excess of $100,000 during
either of the twelve-month periods ended September 30, 1995 or 1996, nor is any
other person expected to receive such compensation for the current fiscal year,
except Stanley Shuster, who entered into an agreement with the Company after the
end of the Company's last fiscal year pursuant to which Mr. Shuster is to
receive a minimum base compensation of $125,000 per year for his services as
Vice President of the Company. See this Item 10, "Executive Compensation --
Consulting and Employment Agreements." 

        Directors receive no cash compensation for their services to the Company
as Directors, but are reimbursed for expenses actually incurred in connection
with attending meetings of the Board of Directors.

CONSULTING AND EMPLOYMENT AGREEMENTS

        The Company and Harry Shuster are parties to a Consulting Agreement,
dated as of June 1, 1993. The Consulting Agreement provides that Mr. Shuster
will be engaged as an independent contractor by the Company to act as the
Chairman of the Board, President and Chief Executive Officer and a Director of
the Company during the term of the Agreement. The initial three-year term of the
Consulting Agreement expired in May 1996, and the Consulting Agreement is now
continuing on a year-to-year basis until either party terminates the Agreement
by giving the other at least 60 days prior notice of termination prior to the
expiration of any one-year renewal term of the Consulting Agreement. Mr. Shuster
is to receive minimum annual consulting fees under the Consulting Agreement
initially of $250,000 per annum, which minimum amount is to be increased five
percent per annum during each successive year of the Agreement. Mr. Shuster is
also to be provided with either the use of a Company car to be used in carrying
out his duties for the Company or a $500 per month car allowance. The Agreement
provides for certain disability benefits for a period of up to three years.
Under the Agreement, Mr. Shuster has agreed that the Company may maintain a
$1,000,000 life


                                       37

<PAGE>   38



insurance policy on his life throughout the term of the Agreement. The Company
has obtained and is maintaining in force such life insurance policy. In
addition, Mr. Shuster has the right under the terms of the Agreement to increase
the size of the Board of Directors of the Company by one director and to fill
this vacancy prior to the election of directors by the stockholders. In
addition, at each meeting of stockholders of the Company at which directors are
to be elected, Mr. Shuster has the right to request, and the Company shall
place, Mr. Shuster and any designee of Mr. Shuster on the management slate of
directors to be put up for election at any such meeting of stockholders. In
addition, if at any time during the term of the Consulting Agreement, the number
which shall constitute the whole board of directors shall be increased to more
than four, the Mr. Shuster has the right to designate at least 50% of the whole
board of directors of the Company. The Agreement provides that as long as Mr.
Shuster spends as much time as necessary to properly carry out his duties as
Chairman of the Board, President and Chief Executive Officer of the Company, he
will be otherwise permitted to spend a reasonable amount of time pursuing his
own outside interests. Because Mr. Shuster is involved in multiple business
enterprises in addition to the Company, Mr. Shuster may have a conflict of
interest if his services should be required by both the Company and one of Mr.
Shuster's other business enterprises. See Item 9, "Directors, Executive
Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act--Directors and Executive Officers." The Consulting Agreement
terminates upon Mr. Shuster's death or in the event of a breach of the Agreement
by Mr. Shuster.

        The Company has entered into a Employment Agreement with Stanley Shuster
pursuant to which Stanley Shuster has agreed to continue to serve as a Vice
President of the Company for an initial term of three (3) years, which agreement
shall be renewed automatically thereafter for additional terms of one year each.
Pursuant to this agreement, Stanley Shuster is to receive minimum compensation
of $125,000 per annum.

STOCK OPTIONS

        At September 30, 1996, there were outstanding presently exercisable
non-qualified stock options to purchase an aggregate of 25,000 shares of the
Common Stock of the Company held by a former Director of the Company, Arnold
Wasserman, at an option price of $3.00 per share. Mr. Wasserman resigned as a
Director of the Company in June 1995. The option was granted at an exercise
price approximately equal to the then fair market value of the Company's Common
Stock in consideration of Mr. Wasserman's service on the Board of Directors. The
option may be exercised at any time during its five-year term, is
nontransferable except by will or pursuant to the laws of descent and
distribution, is protected against dilution.

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 15, 1996, (a) by each
person who is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (b) by each of the Company's Directors and (c) by all
officers and Directors of the Company as a group.



                                       38

<PAGE>   39
<TABLE>
<CAPTION>

Name and Address                  Shares Beneficially
   of Owner                             Owned(1)         Percentage Ownership(2)
----------------                  -------------------    -----------------------
<S>                                   <C>                         <C>    
Harry Shuster
1990 Westwood Boulevard
Los Angeles, California 90025         1,786,466(3)                26.7%

Harvey Bibicoff
1990 Westwood Boulevard
Los Angeles, California 90025         1,381,000(4)                21.7

United Leisure Corporation
8800 Irvine Center Drive
Irvine, CA  92718                       866,666(5)                12.8

The Investments Establishment
c/o Dr. Iur Guidomeier
General Trust Co.
Aeulestrasse 5
Post Office Box 83
Vaduz, Liechtenstein FL-9490            340,000(6)                 5.3

Walton N.B. Imrie
c/o Kestrel S.A.
Pausilippe Ch.
Des Trois-Portes 11
2006 Neuchatel, Switzerland             580,000(7)                 9.1

Stanley Shuster
1990 Westwood Boulevard
Los Angeles, California 90025                   0                  0

All Officers and Directors
  as a group (4 persons)              3,167,466(8)                48.4%
</TABLE>

(1)     The persons named in the table have sole voting and investment power
        with respect to all shares of Common Stock shown as beneficially owned
        by them, except as otherwise indicated.

(2)     Based on 6,362,500 shares of Common Stock outstanding. An additional
        906,666 shares have been subscribed for in the Company's current private
        placement, but have not yet been issued and have not been included in
        the total shares outstanding; however, the shares shown as being
        beneficially owned by each of Harry Shuster and United Leisure include
        shares subscribed for in the current private placement. See Item 12.
        "Certain Relationships and Related Transactions."

(3)     Includes warrants to purchase 333,333 shares of common stock exercisable
        within 60 days. Does not include 433,333 shares of Common Stock owned by
        United Leisure Corporation and warrants to purchase an additional
        433,333 shares of Common Stock which United Leisure has the right to
        acquire in 60 days. Harry Shuster disclaims beneficial ownership of the
        shares of Common Stock and Warrants owned by United Leisure. Mr. Shuster
        is the Chairman of the Board, President and Chief Executive Officer of
        each of the Company and United Leisure Corporation, and as such Mr.
        Shuster and United Leisure may be deemed a "group" under the Securities
        Act of 1934, as amended, with respect to their respective ownership
        interest in the Common Stock of the Company.

(4)     Includes 1,066,000 shares of common stock owned by H&H Restaurant
        Holding Corporation, which corporation is owned and controlled by Mr.
        Bibicoff, see Item 12, "Certain Relationships and Related Transactions,"
        below, and 315,000 shares of Common Stock owned by Clarinda Investments,
        Inc. Clarinda Investments, Inc., a corporation controlled by Harvey
        Bibicoff, is a family investment corporation operated for the benefit of
        Harvey Bibicoff, a Director of the Company, and members of his family.


                                       39

<PAGE>   40



(5)     Includes warrants to purchase 433,333 shares of common stock exercisable
        within 60 days.

(6)     The Investments Establishment is wholly-owned by Dr. Iur Guidomeier, a 
        resident of Liechtenstein.

(7)     Includes 410,000 shares owned by Plus One Finance, Ltd., which is 
        wholly-owned by Walton N.B. Imrie, a resident of Switzerland.  Also 
        includes 170,000 shares of Common Stock beneficially owned by Mr. Imrie,
        which shares are held of record by Worldwide Entertainment, Ltd. Mr. 
        Imrie may be deemed to be one of the original promoters of the Company.

(8)     Does not include any warrants or shares of Common Stock owned by United
        Leisure.

        The Company also has issued and outstanding 2,012,500 Class A Warrants
and 2,012,500 Class B Warrants which were sold in its initial public offering
and are traded on The Nasdaq Stock Market. In addition, the Underwriters of the
Company's initial public offering hold 175,000 Unit Purchase Options to purchase
175,000 Units of the Company's securities, each such Unit consisting of one
share of Common Stock, one Class A Common Stock Purchase Warrant to purchase one
share of Common Stock at $6.60 per share and one Class B Common Stock Purchase
Warrant to purchase one share of Common Stock at $6.60 per share.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        On February 4, 1994, Chicken & Ribs, Inc. ("C&R"), one of the initial
stockholders and a promoter of the Company, sold 1,066,000 shares of the Common
Stock of the Company owned by it to H&H Restaurant Holding Corporation ("H&H"),
a corporation which prior to November 1, 1996 was 50%-owned by each of Harry
Shuster, a promoter, control person, Director and Chairman of the Board,
President and Chief Executive Officer of the Company, and Clarinda Investments,
Inc., a corporation controlled by Harvey Bibicoff, a promoter, control person
and Director of the Company. The original purchase price paid by H&H for the
1,066,000 shares was $4.00 per share. Payment of the purchase price was
evidenced by a Promissory Note in the principal amount of $4,264,000 drawn to
the order of C&R and made by H&H (the "Promissory Note"). C&R had originally
paid a total of $133,250 for the 1,066,000 shares in June 1993. Because H&H was
unable to pay the promissory note when it initially became due, the parties have
agreed to extend the due date of the Promissory Note, which note has currently
been agreed to be extended to June 30, 1997. Further, C&R has agreed to make the
Promissory Note non-recourse and has agreed to accept as full and complete
satisfaction of the Promissory Note any proceeds received by H&H from the sale
of the 1,066,000 shares of the Common Stock of the Company held by H&H, whether
or not such value is equal to the principal amount and accrued interest on the
Promissory Note, more or less. In this regard, the Company has recently
registered for resale, on behalf of H&H, the 1,066,000 shares of Common Stock,
and H&H intends to sell these shares on a delayed or continuous obligations in
order to meet its obligations under the Promissory Note. As of November 1, 1996,
Harvey Bibicoff acquired Harry's Shuster's 50% ownership interest in H&H and,
accordingly, is now the 100% shareholder and the sole officer and director of
H&H.

        In the event of the failure by H&H to pay the Promissory Note, the sole
recourse by C&R would be either to settle the matter by negotiation or to resort
to litigation to cause H&H to sell the shares of Common Stock. Under no
circumstances, including a default in payment of amounts owed under the
Promissory Note, will C&R or any of its shareholders acquire clear title to, or
any right to vote or control, the shares transferred to H&H to which C&R or its
shareholders may become entitled, any such shares shall be placed with the Court
or a mutually agreed-upon fiduciary. Such shares shall be placed in a segregated
account in a manner which prohibits C&R and its shareholders from exercising any
rights of ownership with respect to such shares.

        The Company entered into a five-year lease with 1990 Westwood Boulevard,
Inc. covering approximately 6,000 square feet of office space for its executive
offices. The Lease provides for a current rental of $4,000 per month. 1990
Westwood Boulevard, Inc. is owned 50% by Harry Shuster,


                                       40

<PAGE>   41



Chairman of the Board, President and Chief Executive Officer, a Director and a
promoter of the Company, 35% by Jordan Belfort and 15% by Daniel Porush. Each of
such latter persons is a shareholder of C&R, a promoter of the Company. The
Company is advised that the rental and other terms of the agreed-upon Lease are
no more favorable to the lessor than could have been obtained in a similar
building in the same area from an independent, unrelated lessor.

        In connection with the New York Lease, the Company was required to
provide a letter of credit. In order to establish this letter of credit the
Company entered into an agreement dated September 10, 1996, with its affiliate,
United Leisure, pursuant to which United Leisure pledged the sum of $875,000 in
order for the Company to obtain the required letter of credit. The Company has
agreed to apply one-half of all initial membership fees received from members of
its New York, New York and Washington D.C. Grand Havana Rooms to replace the
cash collateral pledged by United Leisure, and, in any event, the Company has
agreed to replace all of the cash collateral within 18 months after United
Leisure's pledge of the cash collateral. In consideration for United Leisure
pledging the collateral for the letter of credit, the Company has agreed to pay
an amount to United Leisure equal to 10% per annum on the amount of the pledged
cash collateral, as it exists from time to time. As additional consideration,
the Company agreed to issue 100,000 shares of its common stock to United
Leisure, and has agreed to grant to United Leisure a warrant to purchase an
additional 100,000 shares of common stock of the Company, which warrant is
exercisable for a period of five years at an exercise price of $.75 per share.
Harry Shuster, the Chairman of the Board, President and Chief Executive Officer
of the Company is an officer and director of United Leisure.

        In October 1996 the Company commenced a private placement of an
aggregate of up to 1,333,333 shares of its common stock and five year warrants
to purchase up to an additional 1,333,333 shares of common stock at an exercise
price of $1.50 per share, for aggregate proceeds to the Company of up to
$1,000,000. An aggregate of 6 investors have subscribed to purchase an aggregate
of 906,666 shares of common stock and warrants to purchase up to 906,666 shares
of common stock to date, including Harry Shuster, the Chairman of the Board,
President and Chief Executive Officer of the Company who purchased 333,333
shares of common stock and warrants to purchase an additional 333,333 shares of
common stock, and United Leisure, an affiliate of the Company, which purchased
333,333 shares of common stock and warrants to purchase an additional 333,333
shares of common stock. This private placement is being made pursuant to the
exemption from registration provided in Section 4(2) of the Securities Act of
1933, as amended, for issuance of securities not involving any public offering.



                                       41
<PAGE>   42




                                     PART IV


ITEM 13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

        (a) Financial Statements.

        The audited consolidated financial statements of United Restaurants,
Inc. and Subsidiaries filed as a part of this Annual Report on Form 10-KSB are
listed in the "Index to Consolidated Financial Statements" preceding the
Company's Consolidated Financial Statements contained in Item 7 of this Annual
Report on Form 10-KSB, which "Index to Consolidated Financial Statements" is
hereby incorporated herein by reference.

        (b)   Exhibits.

        See index to exhibits

        (c)  Reports on Form 8-K.  United Restaurants, Inc. filed no Current 
Report on Form 8-K during or with respect to the last quarter of the fiscal year
ended September 30, 1996.



                                       42

<PAGE>   43



                                   SIGNATURES

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

                                       UNITED RESTAURANTS, INC.


                                       By              /s/ HARRY SHUSTER
                                           -------------------------------------
                                           Harry Shuster, Chairman of the Board,
                                           President and Chief Executive Officer

                                       Date: December 27, 1996

        Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>


        Signature                             Capacity                                        Date
        ---------                             --------                                        ----
<S>                                        <C>                                            <C>      

        /s/HARRY SHUSTER                      Chairman of the Board,                      December 27, 1996
----------------------------------         President and Chief Executive Officer,
          Harry Shuster                     Chief Financial Officer (Principal
                                             Financial Officer) and Director


       /s/HARVEY BIBICOFF                     Director                                    December 27, 1996
----------------------------------
         Harvey Bibicoff


----------------------------------            Director                                    December    , 1996
        Stanley Shuster

</TABLE>



                                       43

<PAGE>   44



                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
  No.                                           Description                        Page No.
<S>         <C>                                                                    <C>
(3)-1       Restated Certificate of Incorporation of the Company, filed in the
            office of the Secretary of State of the State of Delaware, filed as
            Exhibit (3)-1 to the Company's Registration Statement on Form SB-2
            (Registration No. 33-68252-LA), is hereby incorporated herein by
            reference.

(3)-2       Bylaws of the Company, filed as Exhibit (3)-2 to the Company's 
            Registration Statement on Form SB-2 (Registration No. 33-68252-LA), 
            is hereby incorporated herein by reference.

(4)-1       Warrant Agreement, dated April 20, 1994, between the Company and
            OTR, Inc., filed as Exhibit (4)-1 to the Company's Annual Report on
            Form 10-KSB for the fiscal year ended September 30, 1994, is hereby
            incorporated herein by reference.

(4)-2       Form of Underwriters' Unit Purchase Options, Underwriters' Class A 
            Warrant and Underwriters' Class B Warrant issued to M. H. Meyerson &
            Co., Inc. and Biltmore Securities, Inc. and their designees, filed
            as Exhibit (1)-2 to the Company's Registration Statement on Form
            SB-2 (Registration No. 33-68252-LA), is hereby incorporated herein
            by reference.

(10)-1      Documents related to the Company's Woodland Hills, California 
            Franchise, including Franchise Agreement, dated December 16, 1968
            between Love's and Porter and Smith, Inc.; Consent to Assignment
            dated January 12, 1982 among Love's, Porter and Smith, Inc., Pardew
            Corporation, Garne, Inc., Ned Garlock, Manzanita Corporation,
            William R. Martin, John A. Webb and Dennis Peterman; Mutual Release
            and Settlement Agreement effective as of December 30, 1985 among
            Love's, Pardew Corporation, Garne, Inc. and Manzanita Corporation;
            Amendment to Franchise Agreement, effective as of December 30, 1985,
            among Love's, Pardew Corporation, Garne, Inc. and Manzanita
            Corporation, and Notice of Extension of Franchise Agreement and
            Sublease, dated May 26, 1993, from Pardew Corporation to Love's,
            filed as Exhibit (10)-2 to the Company's Registration Statement on
            Form SB-2 (Registration No. 33-68252-LA), is hereby incorporated
            herein by reference.

(10)-2      Documents related to the Company's Lakewood, California Franchise, 
            including Amendment to Franchise Agreement, dated September 1, 1975,
            between Love's and Pacific Coast Restaurants, Inc.; Amendment to
            Franchise Agreement, dated September 1, 1975, between Love's and
            Pacific Coast Restaurants, Inc.; Mutual Release and Settlement
            Agreement, effective as of December 30, 1985, between Love's and
            Pacific Coast Restaurants, Inc.; and Amendment to Franchise
            Agreement, effective as of December 30, 1985 between Love's and
            Pacific Coast Restaurants, Inc., filed as Exhibit (10)-4 to the
            Company's Registration Statement on Form SB-2 (Registration No.
            33-68252-LA), is hereby incorporated herein by reference.

(10)-3      Documents related to the Company's Brea, California Franchise, 
            including Amended Franchise Agreement, dated August 29, 1975, among
            Love's, William R. Barbour,
</TABLE>

                                        1

<PAGE>   45


            Leroy M. Donahue and Thomas F. Patten; Amendment to Franchise
            Agreement, effective December 30, 1985, between Love's and BDP
            Enterprises; Mutual Release and Settlement Agreement, effective as
            of December 30, 1985, between Love's and BDP Enterprises; and
            Consent to Assignment, dated October 31, 1988, among BDP Enterprises
            Corp., Leroy M. Donahue, Thomas F. Patten and Galaxy Golden, Inc.,
            Fung Ying Yong, Yim Ching Yong, Vincent Winghong Cheung and Love's,
            filed as Exhibit (10)-7 to the Company's Registration Statement on
            Form SB-2 (Registration No. 33-68252-LA), is hereby incorporated
            herein by reference.

(10)-4      Documents related to the Company's West Covina, California 
            Franchise, including Agreement dated December 24, 1968, between
            Love's and Garvey Enterprises, Inc.; Mutual Release and Settlement
            Agreement, effective as of December 30, 1985, between Love's and
            Garvey Enterprises, Inc.; Amendment to Franchise Agreement,
            effective as of December 30, 1985, between Love's and Garvey
            Enterprises, Inc.; and Agreement, dated April 24, 1978, between
            Love's and Garvey Enterprises, Inc., filed as Exhibit (10)-8 to the
            Company's Registration Statement on Form SB-2 (Registration No.
            33-68252-LA), is hereby incorporated herein by reference.

(10)-5      Documents related to the Company's Northridge, California Franchise,
            including Franchise Agreement, dated December 6, 1967, between
            Love's and Capital Restaurants, Inc.; Amendment to Franchise
            Agreement, dated March 31, 1977, between Love's and Capital
            Restaurants, Inc.; Mutual Release and Settlement Agreement,
            effective as of December 30, 1985, between Love's and Capital
            Restaurants, Inc.; Amendment to Franchise Agreement, effective as of
            December 30, 1985, between Love's and Capital Restaurant
            Corporation; Consent to Assignment, dated November 17, 1986, among
            Love's, Capital Restaurants, Inc., Amore's Restaurant, Inc., Anthony
            and Barbara Gentile and Ramon and Paula Antelo; and Amendment to
            Consent to Assignment, effective July 1, 1993, between Love's and
            Amore's Restaurant, Inc., filed as Exhibit (10)-9 to the Company's
            Registration Statement on Form SB-2 (Registration No. 33-68252-LA),
            is hereby incorporated herein by reference.

(10)-6(a)   Documents related to the Company's Rosemead, California Franchise, 
            including Amended Franchise Agreement dated August 29, 1975, between
            Love's and Alexander Jocic; Assignment and Assumption Agreement,
            dated December 14, 1984, among Love's, Alexander Jocic, Kwan Lee and
            Joseph Dopico; Amendment to Franchise Agreement, effective as of
            December 30, 1985, among Love's, Kwan Lee and Joseph Dopico; and
            Amendment to Franchise Agreement, effective as of December 30, 1985,
            among Love's, Kwan Lee and Joseph Dopico, filed as Exhibit (10)-14
            to the Company's Registration Statement on Form SB-2 (Registration
            No. 33-68252-LA), is hereby incorporated herein by reference.

(10)-6(b)   Consent to Assignment and Assumption Agreement dated October 8,
            1993, by and among Joseph Dopico and Kwan Lee, Zaks Restaurant
            Management, Inc., Mohd Q. Khan, MD, William P. Liu, Rasheed Z. Khan
            and Love's Enterprises, Inc., filed as Exhibit (10)-6(b) to the
            Company's Form 10-KSB for the fiscal year ended September 30, 1995,
            is hereby incorporated by reference.

(10)-7      Documents related to the Company's Riverside Franchise, including 
            Amended Franchise Agreement, dated August 29, 1975, between Love's
            and James A. Barr;


                                        2

<PAGE>   46



            Consent to Assignment, dated December 1, 1982, among James A. Barr, 
            Philbarr Enterprises, Inc., Desert Country Enterprises, Inc., Robert
            Waite and Love's; Mutual Release and Settlement Agreement, effective
            December 30, 1985, among Love's, Desert Country Enterprises, Inc.
            and Robert M. Waite; Amendment to Franchise Agreement, effective
            December 30, 1985, among Love's, Desert Country Enterprises, Inc.
            and Robert M. Waite; and Consent to Assignment, dated February 23,
            1988, among Love's, Desert Country Enterprises, Inc., Willstar,
            Inc., Robert M. Waite, Ronald B. J. Williams and Yomei Williams,
            filed as Exhibit (10)-15 to the Company's Registration Statement on
            Form SB-2 (Registration No. 33-68252-LA), is hereby incorporated
            herein by reference.

(10)-8      Documents related to the Lease and Sublease of the Company's 
            Woodland Hills Franchise, including Lease, dated August 17, 1988,
            among John H. Lee, Ida Helen Lee and Love's; Sublease, dated
            December 16, 1968, between Love's and Porter and Smith, Inc.;
            Sublease and Franchise Extension Agreement, dated August 10, 1988,
            among Love's, Pardew Corporation, Garne, Inc. and Manzanita
            Corporation and John A. Webb; and Notice of Renewal of Lease, dated
            June 18, 1993, from Love's to John H. Lee and Ida H. Lee, filed as
            Exhibit (10)-17 to the Company's Registration Statement on Form SB-2
            (Registration No. 33-68252-LA), is hereby incorporated herein by
            reference.

(10)-9      Documents related to the Lease and Sublease of the Company's 
            Lakewood Franchise, including Lease, dated December 27, 1968,
            between Lakewood Commercial Enterprises, Inc., L-E Enterprises, Inc.
            and Love's; First Amendment to lease, dated July 10, 1974, between
            Lakewood Commercial Enterprises, Inc. and Love's; Second Amendment
            to Lease, dated as of September 1, 1977, between Lakewood Mall
            Shopping Center Company and Love's; Sublease, dated March 31, 1969,
            between Love's and Pacific Coast Restaurants, Inc.; Amendment to
            Sublease, dated September 1, 1975, between Love's and Pacific Coast
            Restaurants, Inc.; Equipment Lease Agreement, dated September 1,
            1970, between Love's and Pacific Coast Restaurants, Inc.; and
            Amendment to Equipment Lease, dated September 1, 1975, between
            Love's and Pacific Coast Restaurants, Inc., filed as Exhibit (10)-19
            to the Company's Registration Statement on Form SB-2 (Registration
            No. 33-68252-LA), is hereby incorporated herein by reference.

(10)-10     Documents related to the Lease and Sublease of the Company's West 
            Covina, California Franchise, including Agreement of Lease, dated
            October 10, 1968, among Joseph K. Eichenbaum, Ben Weingart, L-E
            Enterprises, Inc. and Love's; Amended Main Lease, dated October 10,
            1968, among Joseph K. Eichenbaum, Ben Weingart, L-E Enterprises,
            Inc. and Love's; Sublease, dated December 24, 1968, between Love's
            and Garvey Enterprises, Inc.; Amendment to Lease, dated December 25,
            1970, among Joseph K. Eichenbaum, Ben Weingart, L-E Enterprises,
            Inc. and Love's; Second Amendment to Lease, dated June 28, 1974,
            among Joseph K. Eichenbaum, Ben Weingart and Love's; and Third
            Amendment to Lease, dated September 7, 1978, among Joseph K.
            Eichenbaum, Trustee, and Love's, filed as Exhibit (10)-22 to the
            Company's Registration Statement on Form SB-2 (Registration No.
            33-68252-LA), is hereby incorporated herein by reference.

(10)-11     Documents related to the Lease and Sublease of the Company's
            Northridge, California Franchise, including the Lease, dated
            December 10, 1966, between Fraser, Boise, Inc.,


                                        3

<PAGE>   47



            L-E Enterprises, Inc. and Love's, with accompanying letter dated
            July 20, 1993, reflecting the termination of such lease and the
            lease by the landlord of the premises to Barbara and Sonny Gentile
            and Amore's Restaurant, Inc.; and Sublease, dated December 6, 1967,
            between Love's and Capital Restaurants, Inc., filed as Exhibit
            (10)-23 to the Company's Registration Statement on Form SB-2
            (Registration No. 33-68252-LA), is hereby incorporated herein by
            reference.

(10)-12     Documents related to the Lease and Sublease of the Company's Century
            City/Beverly Hills California Store, including Lease, dated March 9,
            1988, between Robert E. Burch, Trustee, and Love's, as amended by
            letter of April 15, 1988, signed by Love's, filed as Exhibit (10)-27
            to the Company's Registration Statement on Form SB-2 (Registration
            No. 33-68252-LA), is hereby incorporated herein by reference.

(10)-13     Documents related to the Lease and Sublease of the Company's 
            Riverside, California Franchise, including Lease Agreement dated
            February 29, 1972, among G. Lamar Fawcett, William S. Wixson and
            Love's; Amendment to Lease, dated June 15, 1972, between Security
            Pacific National Bank, as trustee, and Love's; Notice of Exercise of
            Option with respect thereto; Lease, dated April 4, 1972, between
            Love's and James A. Barr; Sublease, dated April 4, 1972, between
            Love's and James A. Barr; Amendment to Sublease, dated October 1,
            1992, between Love's, Willstar, Inc., Ronald B. J. Williams and
            Yomei Williams; and Amendment to Equipment Lease Agreement, dated
            October 1, 1992, among Love's Willstar Company, Inc., Ronald B. J.
            Williams and Yomei Williams, filed as Exhibit (10)-30 to the
            Company's Registration Statement on Form SB-2 (Registration No.
            33-68252-LA), is hereby incorporated herein by reference.

(10)-14     Documents related to the Lease and Sublease of the Company's Tucson,
            Arizona Franchise, including Lease, dated March 1, 1972, between
            Willen Corporation and Love's; Amendment, dated May 22, 1972,
            between Willen Corporation and Love's; Notice of Exercise of Option
            with respect thereto; Sublease Agreement, dated March 27, 1991,
            between Love's and Jerry's Restaurant, Inc.; and Notice of Exercise
            of Option with respect thereto, filed as Exhibit (10)-31 to the
            Company's Registration Statement on Form SB-2 (Registration No.
            33-68252-LA), is hereby incorporated herein by reference.

(10)-15     Documents related to the Lease of the Company's former Laguna Hills,
            California Franchise, including Lease, dated November 14, 1977,
            between Lloyd's Bank California, Trustee, Lawrence J. Sork and Joel
            C. Thompson; Amendment to Lease, dated May 11, 1979, among Lloyd's
            Bank California, Trustee, Lawrence J. Sork, Joel C. Thompson and
            Love's; Second Amendment to Lease, dated August 24, 1979, among
            Lloyd's Bank California, Trustee, Lawrence J. Sork, Joel C. Thompson
            and Love's; Assignment and Amendment of Lease, dated August 9, 1981,
            between Lloyd's Bank California, Trustee, Lawrence J. Sork, Joel C.
            Thompson and Love's Agreement re: Lease Commencement Date and
            Minimum Rent, dated May 14, 1979, among Lloyd's Bank California,
            Trustee, Lawrence J. Sork, Joel C. Thompson and Love's; Revised
            Agreement re: Lease Commencement Date and Minimum Rents, dated
            August 24, 1979, among Lloyd's Bank California, Trustee, Lawrence J.
            Sork, Joel C. Thompson and Love's; and Assignment of Lease, dated
            August 7, 1986, among Lloyd's Bank California, Trustee, Lawrence J.
            Sork, Joel C. Thompson, Love's, IHOP Corp., Salvador Avila and
            Salvador Avila, Sr., filed as Exhibit (10)-32 to the


                                        4

<PAGE>   48



            Company's Registration Statement on Form SB-2 (Registration No.
            33-68252-LA), is hereby incorporated herein by reference.

(10)-16     Documents related to the Lease of the Company's San Bernardino
            California Store, including Lease, dated October 2, 1972, among G.
            Lamar Fawcett, William S. Wixson and Love's; and Notice of exercise
            of option with respect thereto, filed as part of Exhibit (10)-33 to
            the Company's Registration Statement on Form SB-2 (Registration No.
            33-68252-LA), is hereby incorporated herein by reference.

(10)-17     Documents related to the Company's former Huntington Beach, 
            California location, including Lease, dated September 17, 1990,
            between Brookhurst Limited and Love's with respect to Love's
            Huntington Beach franchise; Installment Note, dated December 3,
            1990, executed by Love's in favor of H & G Restaurant Properties,
            Inc.; Security Agreement, dated December 3, 1990, between Love's and
            H & G Restaurant Properties, Inc.; and Assumption of Real Property
            Lease and Lease of Furnishings, Fixtures and Equipment, dated August
            13, 1993, between Love's and Huntington Beach Market Broiler, filed
            as Exhibit (10)-34 to the Company's Registration Statement on Form
            SB-2 (Registration No. 33-68252-LA), is hereby incorporated herein
            by reference.

(10)-18     Shopping Center lease, dated March 30, 1995, between Love's
            Enterprises, Inc. and University National Bank & Trust Company, a
            California corporation, not personally but as Ancillary Trustee
            under Trust Agreement, dated as of October 15, 1990, with respect to
            the Company's Westchester restaurant, filed as Exhibit (10)-18 to
            the Company's Form 10-KSB for the fiscal year ended September 30,
            1995, is incorporated herein by reference.

(10)-19     Territory Franchise Agreement, dated October 31, 1966, among Love's,
            Irving Malashock and Daniel F. Smith, relating to the Company's San
            Diego, California area franchises, filed as Exhibit (10)-37 to the
            Company's Registration Statement on Form SB-2 (Registration No.
            33-68252-LA), is hereby incorporated herein by reference.

(10)-20     Consulting Agreement, dated as of June 1, 1993, between the Company
            and Harry Shuster, filed as Exhibit (10)-38 to the Company's
            Registration Statement on Form SB-2 (Registration No. 33-68252-LA),
            is hereby incorporated herein by reference.

(10)-21     Form of Indemnity Agreement entered into by the Company with each of
            its Directors, filed as Exhibit (10)-39 to the Company's
            Registration Statement on Form SB-2 (Registration No. 33-68252-LA),
            is hereby incorporated herein by reference.

(10)-22     Stock Purchase Agreement, dated as of February 4, 1994, between
            Chicken & Ribs, Inc. and H & H Restaurant Holding Corporation and
            related Promissory Note, filed as Exhibit (10)-40 to the Company's
            Registration Statement on Form SB-2 (Registration No. 33-68252-LA),
            is hereby incorporated herein by reference.

(10)-23     Amendment No. 1, dated March 24, 1994, to Stock Purchase Agreement 
            dated as of February 4, 1994, between Chicken & Ribs, Inc. and H & H
            Restaurant Holding Corporation, filed as Exhibit (10)-41 to the
            Company's Registration Statement on Form SB-2 (Registration No.
            33-68252-LA), is hereby incorporated herein by reference.


                                        5

<PAGE>   49




(10)-24     Amendment No. 2 to Stock Purchase Agreement, dated as of April 4, 
            1994, between Chicken & Ribs, Inc. and H & H Restaurant Holding
            Corporation, filed as Exhibit (10)-34 to the Company's Annual Report
            on Form 10-KSB for the fiscal year ended September 30, 1994, is
            hereby incorporated by reference.

(10)-25     Note Modification and Extension Agreement, dated as of January 21,
            1995, between H & H Restaurant Holding Corporation and Chicken &
            Ribs, Inc., as filed as Exhibit (10)-25 to the Company's Annual
            Report on Form 10-KSB for the fiscal year ended September 30, 1995,
            is hereby incorporated by reference.

(10)-26     Territory Rights Agreement, dated August 22, 1994, between Love's
            Enterprises, Inc. and PT Transpacific Ekagraha, filed as Exhibit
            (10)-29 to the Company's Annual Report on Form 10-KSB for the fiscal
            year ended September 30, 1994, is hereby incorporated by reference.

(10)-27     Stock Option Agreement, dated September 21, 1994, as amended,
            between the Company and Arnold Wasserman covering 25,000 shares of
            the Common Stock, par value $.01 per share, of the Company, as filed
            as Exhibit (10)-27 to the Company's Annual Report on Form 10-KSB for
            the fiscal year ended September 30, 1995, is hereby incorporated by
            reference.

(10)-28     Village on Canon Lease, dated July 1, 1994, between Pinkwood
            Properties Corp. and the Company, filed as Exhibit (10)-37 to the
            Company's Annual Report on Form 10-KSB for the fiscal year ended
            September 30, 1994, is hereby incorporated by reference.

(10)-29     Lease Agreement dated November 1, 1985, between II Forno, Inc. and
            Ocean Park Place, filed as Exhibit (10)-38 to the Company's Annual
            Report on Form 10-KSB for the fiscal year ended September 30, 1994,
            is hereby incorporated by reference.

(10)-30     Lease Agreement dated September 1, 1989, between II Forno, Inc. and
            Ocean Park Place, as amended, filed as Exhibit (10)-39 to the
            Company's Annual Report on Form 10-KSB for the fiscal year ended
            September 30, 1994, is hereby incorporated by reference.

(10)-31     Standard Office Lease dated December 20, 1991, between Joseph
            Suceveanu (on behalf of II Forno, Inc.) and Ocean Park Place, filed
            as Exhibit (10)-40 to the Company's Annual Report on Form 10-KSB for
            the fiscal year ended September 30, 1994, is hereby incorporated by
            reference.

(10)-32     Lease Agreement, dated December 1, 1994, between 1990 Westwood
            Boulevard and United Restaurants, Inc., with respect to the
            Company's corporate offices, Filed as Exhibit (10)-32 to the
            Company's Annual Report on Form 10-KSB for the fiscal year ended
            September 30, 1995, is hereby incorporated by reference.

(10)-33     Documents related to the Company's Garden Grove, California
            Franchise, including Franchise Agreement, dated May 25, 1970,
            between the Company and Orange Coast Restaurants, Inc.; Assignment
            and Consent to Assignment, dated June 18, 1973, among the Company,
            Orange Coast Restaurants, Inc. and James Ronis; Amended Franchise
            Agreement, dated August 29, 1975, between the Company and James
            Ronis;


                                        6

<PAGE>   50


            Mutual Release and Settlement Agreement, effective as of December
            30, 1985, between the Company and James Ronis; and Amendment to
            Franchise Agreement, effective as of December 30, 1985, between the
            Company and James Ronis, filed as Exhibit (10)-12 to the Company's
            Registration Statement on Form SB-2 (Registration No. 33-68252-LA),
            is hereby incorporated herein by reference.

(10)-34     Consent to Assignment and Assumption Agreement dated January 31, 
            1995 by and among James G. Ronis Enterprises, Ltd., James G. Ronis,
            Deborah P. Miller and Love's Enterprises, Inc. with respect to
            Love's Garden Grove Franchise, filed as Exhibit (10)-24 to the
            Company's Registration Statement on Form S-3 (File No. 333- 16045),
            is hereby incorporated by reference.

(10)-35     Agreement of Lease, dated September 16, 1996, between 666 Fifth
            Avenue Limited Partnership and Grand Havana Room -- New York, Inc.,
            filed as Exhibit (10)-35 to the Company's Registration Statement on
            Form S-3 (File No. 333-16045), is hereby incorporated by reference.

(10)-36     Agreement for Purchase and Sale of Stock dated September 20, 1996 by
            and among the Company and Joseph Suceveanu and Domenico Salvatore,
            filed as Exhibit (10)-36 to the Company's Registration Statement on
            Form S-3 (File No. 333-16045), is hereby incorporated by reference.

(10)-37     Additional documents related to the Company's City of Brea Love's
            Franchise, including 1996 Extension of Franchise Agreement dated
            April 15, 1996, and Consent to Assignment and Assumption Agreement
            dated April 15, 1996, by and among Love's Galaxy Golden, Inc., Fung
            Ying Yong, Yim Ching Yong, Vincent Winghong Cheung and Deborah P.
            Miller, filed as Exhibit (10)-37 to the Company's Registration
            Statement on Form S-3 (File No. 333-16045), is hereby incorporated
            by reference.

(10)-38     Additional documents related to the Company's City of Rosemead 
            Love's Franchise, including Extension of Franchise Agreement dated
            January 1, 1996, and 1996 Consent to Assignment dated as of January
            1, 1996 by and among Love's, Rasheed Z. Khan, Zaks Restaurant
            Management, Inc. and Meena Khan, filed as Exhibit (10)-38 to the
            Company's Registration Statement on Form S-3 (File No. 333-16045),
            is hereby incorporated by reference.

(10)-39     Office Building Lease dated August 23, 1996, by and between Writ
            Limited Partnership and the Company, T/A Grand Havana Room, filed as
            Exhibit (10)-39 to the Company's Registration Statement on Form S-3
            (File No. 333-16045), is hereby incorporated by reference.

(10)-40     Financing Agreement dated September 10, 1996 by and between the
            Company and United Leisure Corporation, filed as Exhibit (10)-40 to
            the Company's Registration Statement on Form S-3 (File No.
            333-16045), is hereby incorporated by reference.

(21)        List of Subsidiaries

(23)        Consent of Hollander, Gilbert & Co., independent public accountants.

(27)        Financial Data Schedule


                                        7