UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                       
                                   FORM 10-Q
(Mark One)
[X] QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR  15(d)  OF  THE  SECURITIES
    EXCHANGE ACT OF 1934
    For the quarterly period ended  March 28, 1997 .
                                       
                                      OR
                                       
[ ] TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
    SECURITIES EXCHANGE ACT OF 1934
    For the transition period from           to             .

Commission file number  0-27258
                                       

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

    NORTH CAROLINA                                   56-1875714
(State or other jurisdiction of                   (I.R.S. Employer
incorporation or organization)                   Identification No.)
                                     
3238 West Main Street, Claremont, N.C.                 28610
(Address of principal executive offices)             (Zip Code)
                                     
Registrant's telephone number, including area code:  (704) 459-0821
                                     
                              Not Applicable
(Former name, former address and former fiscal year, if changed since last
                                  report)
                                     
                                     
Indicate  by  check mark whether the registrant (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the Securities Exchange  Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject  to
such filing requirements for the past 90 days.  Yes X , No   .

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

         Class                         Outstanding at May 5, 1997
Common Stock (no par value)                    6,300,000

                                     
                                     
                          PAGE 1 of   11   PAGES
                                     
                              SAGEBRUSH, INC.
                                     
                           - TABLE OF CONTENTS -
                                     
                                     
PART I Financial Information:                                          Page No.

   Item 1:  Financial Statements

   Consolidated Balance Sheets as of March 28, 1997  
   and January 3, 1997.                                                   3

   Consolidated Statements of Current and Retained Earnings for
   the twelve-weeks ended March 28, 1997 and March 22, 1996.              4

   Consolidated Statements of Cash Flows for the twelve weeks
   ended March 28, 1997 and March 22, 1996.                               5

   Notes to Consolidated Financial Statements.                            6

   Item 2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations.                       7-10

   Item 3.  Quantitative and Qualitative Disclosure about Market Risk    10

PART IIOther Information

   Item 6.  Exhibits                                                     10



Signatures                                                               11


                     SAGEBRUSH, INC. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS
                    March 28, 1997 and January 3, 1997

                                                   March 28,      January 3,
                                                     1997            1997
                                                 (unaudited)
                                  ASSETS
Current assets:
   Cash and cash equivalents                   $  1,894,147     $  1,570,515
   Related party receivables                         32,156           24,175
   Other receivables                                197,046          250,761
   Inventories                                      493,065          495,848
   Pre-opening costs, net                           581,805          509,210
   Prepaid and other current assets                  56,267           80,613
      Total current assets                        3,254,486        2,931,122

Property and equipment, net                      15,447,262       14,262,732

Other assets                                         10,819           11,293

Total assets                                   $ 18,712,567     $ 17,205,147

                   LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Note payable to bank                        $    460,000     $    460,000
   Current portion of long-term debt                 59,666             -
   Accounts payable                               1,555,376        1,688,867
   Accrued salaries                                 569,191          283,467
   Taxes other than income                          323,609          313,010
   Other accrued liabilities                        383,118          462,807
      Total current liabilities                   3,350,960        3,208,151

Long-term debt                                      781,756             -

Deferred income taxes                               220,971          208,471

      Total liabilities                           4,353,687        3,416,622

Shareholders' equity:
   Common stock                                   6,300,000        6,300,000
   Additional paid-in capital                     7,369,068        7,369,068
   Retained earnings                                689,812          119,457
      Total shareholders' equity                 14,358,880       13,788,525

Total liabilities and shareholders' equity     $ 18,712,567     $ 17,205,147

       See accompanying notes to consolidated financial statements.


                     SAGEBRUSH, INC. AND SUBSIDIARIES
         CONSOLIDATED STATEMENTS OF CURRENT AND RETAINED EARNINGS
     Twelve Weeks ended March 28, 1997 and March 22, 1996 (Unaudited)


                                                        Twelve Weeks Ended
                                                 March 28, 1997   March 22, 1996

REVENUES - restaurant sales                      $ 10,615,560     $  7,832,430

OPERATING COSTS AND EXPENSES
Cost of restaurant sales                            3,956,666        2,806,794
Labor costs                                         2,846,395        2,112,738
Other operating expenses                            1,565,585        1,238,529
General and administrative expenses                   827,562          665,808
Depreciation                                          300,325          198,129
Amortization (principally of pre-opening costs)       176,891           52,454
Total operating costs and expenses                  9,673,424        7,074,452

OPERATING INCOME                                      942,136          757,978

OTHER INCOME                                           23,823           19,000
INTEREST INCOME                                           782           33,095
INTEREST EXPENSE                                      (26,652)         (36,765)

INCOME BEFORE INCOME TAXES                            940,089          773,308
INCOME TAX PROVISION                                 (369,734)        (293,857)

NET INCOME                                       $    570,355     $    479,451

NET INCOME PER SHARE                             $       0.09     $       0.08

WEIGHTED AVERAGE SHARES
OUTSTANDING                                         6,300,000        6,251,190


RETAINED EARNINGS
   Balance at beginning of period                $    119,457     $ (1,451,587)
   Net income                                         570,355          479,451
   S corporation distribution and dividends paid         -            (888,188)
   Balance at the end of period                  $    689,812     $ (1,860,324)
                                     
       See accompanying notes to consolidated financial statements.


                     SAGEBRUSH, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
     Twelve Weeks ended March 28, 1997 and March 22, 1996 (Unaudited)

                                          Twelve Weeks Ended
                                        March 28,   March 22,
                                           1997        1996
Cash Flows from Operating Activities:
Net income                                            $   570,355   $   479,451
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation                                            300,325       198,129
  Deferred tax                                             12,500          -
  Amortization (principally of pre-opening costs)         176,891        52,454
  Changes in operating assets and liabilities
  providing (using) cash
    Receivables                                            45,734       (31,677)
    Inventories                                             2,783        (9,875)
    Pre-opening costs                                    (249,486)      (95,605)
    Prepaid and other assets                               24,819       (57,596)
    Trade accounts payable and other accrued liabilities   83,143        15,171
      Total adjustments                                   396,709        71,001
        Net cash provided by operating activities         967,064       550,452

Cash Flows from Investing Activities:
  Capital expenditures                                 (1,484,854)     (879,533)
  Short-term investments                                     -       (1,900,000)
    Net cash used in investing activities              (1,484,854)   (2,779,533)

Cash Flows from Financing Activities:
  Proceeds from issuance of debt                          850,000          -
  Reduction of debt                                        (8,578)   (2,187,909)
  Purchase of assets related to reorganization               -       (1,652,500)
  Cash paid to shareholders related to reorganization        -       (3,500,000)
  S Corporation distributions and dividends paid             -         (888,188)
  Proceeds from issuance of common stock                     -       11,411,819
    Net cash provided by financing activities             841,422     3,183,222

Net increase in cash and cash equivalents                 323,632       954,141

Cash and cash equivalents at beginning of period        1,570,515     2,145,809

Cash and cash equivalents at end of period            $ 1,894,147   $ 3,099,950

Supplemental disclosure of cash flow information:
      Cash paid for interest                          $    26,652   $    36,765
      Cash paid for income taxes                      $    17,598   $     2,418

       See accompanying notes to consolidated financial statements.


                 Sagebrush, Inc. and Affiliated Companies
                     Notes to Consolidated Statements

Note 1:  The consolidated financial statements as of January 3, 1997 and 
         March 28, 1997 and for the twelve-week periods ended March 28, 1997
         and March 22, 1996 include the accounts of Sagebrush, Inc. and its
         wholly-owned subsidiaries ("Sagebrush").  All intercompany accounts
         and transactions have been eliminated in consolidation and combination.

Note 2:  In the opinion of management, the accompanying financial statements
         (unaudited) contain all adjustments necessary to present fairly the
         financial position as of March 28, 1997, and the results of operations
         and cash flows for the twelve-week periods ended March 28, 1997 and 
         March 22, 1996.

Note 3:  The results of operations for the twelve-week periods ended
         March 28, 1997 and March 22, 1996 are not necessarily indicative of
         results to be expected for the full year.  Quarterly results are
         presented based on 12, 12, 12 and 16 or 17 week quarters.


Part I - Item 2

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

GENERAL

   This  discussion  and  analysis should be read in conjunction  with  the
financial statements and the notes thereto included elsewhere in this  Form
10-Q  and  the  Company's Annual Report on Form 10-K  for  the  year  ended
January 3, 1997.

RESULTS OF OPERATIONS

   Quarterly  results are presented based on 12, 12, 12 and 16 or  17  week
quarters.  The  following table sets forth for the  periods  indicated  the
percentages  of  revenues - restaurant sales represented by  items  in  the
Company's consolidated statements of income.

                                Twelve Weeks Ended
                               March 28, March 22,
                                  1997      1996

Revenues - restaurant sales                        100.0%    100.0%
Operating costs and expenses:
  Cost of restaurant sales                          37.3      35.8
  Labor costs                                       26.8      27.0
  Other operating expenses                          14.7      15.8
  General and administrative expenses                7.8       8.5
  Depreciation                                       2.8       2.5
   Amortization (principally of pre-opening costs)   1.7        .7
     Total operating costs and expenses             91.1      90.3
Operating income                                     8.9       9.7
Other income (received from related parties)          .2        .3
Interest income                                       .0        .4
Interest expense                                     (.2)      (.5)
Income before income taxes                           8.9       9.9
Income tax provision                                (3.4)     (3.8)
Net income                                           5.5%      6.1%

Twelve weeks ended March 28, 1997 compared to twelve weeks ended March  22, 1996

   Revenues.   Restaurant sales increased 35.5% to $10.6  million  for  the
first quarter of 1997 as compared to $7.8 million for the first quarter  of
1996.  The increase in sales was primarily the result of an increase in the
number of restaurants operated at the end of the first quarter from  23  to
28  and  a  1.5%  increase in same store sales (stores  open  greater  than
eighteen months during the first quarter of fiscal 1997).

  Cost of restaurant sales.  Cost of restaurant sales increased $1,150,000,
or 41.0%, from $2.8 million to $4.0 million and as a percentage of revenues
increased  slightly from 35.8% to 37.3%.  This increase is due in  part  to
slightly  higher meat and dairy prices and operational changes  implemented
to give the Company's customers a higher quality product.

  Labor costs.  Labor costs increased $734,000, or 34.7%, from $2.1 million
to  $2.8  million,  principally  due to  the  increase  in  the  number  of
restaurants. As a percentage of revenues, labor costs decreased from  27.0%
to 26.8%.

   Other  operating expenses.  Other operating expenses increased $327,000,
or  26.4%,  from  $1.2  million to $1.6 million, and  as  a  percentage  of
revenues decreased from 15.8% to 14.7%.

  General and administrative expenses.  General and administrative expenses
increased  $162,000,  or  24.3%,  from  $666,000  to  $828,000,  and  as  a
percentage of revenues decreased from 8.5% to 7.8%.

   Depreciation.  Depreciation increased $102,000, or 51.6%, from  $198,000
to  $300,000, and as a percentage of revenues increased from 2.5%  to  2.8%
primarily because of increased investment in property and equipment due  to
the Company's opening of new restaurants.

   Amortization.  Amortization of pre-opening costs increased $124,000,  or
237.2%, from $52,000 to $177,000, and as a percentage of revenues increased
from  .7%  to 1.7%. The increase is primarily due to the expansion  program
begun after the initial public offering in January 1996.

  Other income.  Other income, which principally represents accounting fees
charged to certain related non-Sagebrush restaurants, remained constant  as
a percentage of restaurant sales.

   Interest  income.   The  Company had interest income  during  the  first
quarter  of  1996 as a result of temporary investment of a portion  of  the
proceeds from the Company's initial public offering which was completed  in
January 1996.

   Income  tax provision.  The Company's effective tax rate for  the  first
quarter of 1997 was 39.3%.  Prior to January 1996, most of the corporations
comprising the Company were S corporations for federal and state income tax
purposes,  with taxable income allocated to shareholders rather than  taxed
at  the  corporate  level.  All  applicable S  Corporation  elections  were
terminated  in January 1996 in connection with the reorganization  effected
in connection with the Company's initial public offering.

   Net  income.  Net income was $570,000 for the first quarter of 1997,  an
increase of 19% over net income of $479,000 for the first quarter of 1996.


LIQUIDITY AND CAPITAL RESOURCES

  At March 28, 1997, the Company had approximately $1.9 million in cash and
short  term  investments, $841,000 in long-term debt and $14.4  million  in
shareholders' equity. The Company's long-term debt consists  of  a  secured
term  loan  with a commercial bank. This loan bears interest at the  bank's
prime rate and matures February 2007. At March 28, 1997, the Company had  a
revolving  credit  facility  with  a  commercial  bank  that  provided  for
borrowings  up to $3.0 million. This facility expires on January  31,  1998
and  advances under the line of credit are unsecured, limited to short-term
working  capital purposes and bear interest at the bank's  prime  rate.  At
March 28, 1997, $460,000 was outstanding under the line, which was also the
maximum amount outstanding during the quarter.

  The Company primarily requires capital for the development and opening of
new  restaurants.  Because  most  of the Company's  restaurants  have  been
established  by converting existing restaurant facilities to the  Sagebrush
concept,  the  Company's  capital expenditures principally  have  been  for
leasehold  improvements, machinery, equipment, furniture and fixtures.  The
Company's  substantial  growth  has not historically  required  significant
additional working capital. Sales are predominantly cash, and the  business
does not require the maintenance of significant receivables or inventories.
In  addition, it is common to receive trade credit on the purchase of food,
beverage  and  supplies, thereby reducing the need for incremental  working
capital to support sales increases.

   The  Company  has  historically established most of its  restaurants  by
leasing  and  renovating existing facilities to the Sagebrush concept.  The
Company  anticipates, however, that a higher proportion of new  restaurants
in  the  future  will  be acquired by purchasing land and  building  a  new
restaurant due to the increased difficulty of finding suitable buildings in
desirable locations that can be leased and renovated. The Company's cost of
opening  a  restaurant  when the Company leases and renovates  an  existing
building  is approximately $500,000, including the costs of renovating  the
facility,  purchasing  necessary  equipment  and  training  personnel.  The
Company's  cost  of  building a restaurant on land  the  Company  purchases
ranges from $1.2 million to $1.6 million, with the largest variance related
to  the  cost  of  land.  Assuming that the Company  opens  a  total  of  8
restaurants  in  1997  (and  that five or six of such  restaurants  involve
purchasing  land  and  building  a  new  facility  and  two  or  three  are
established  by  leasing and renovating an existing  facility),  management
expects  capital expenditures to range from $9.0 million to $11.0  million.
Management  believes that available cash, cash generated by operations  and
available  borrowings  under  the Company's $3.0  million  line  of  credit
together with the real estate secured borrowings described below  and other
long-term  indebtedness  will be adequate to  fund  the  Company's  working
capital  and  capital expenditure requirements through  the  end  of  1997.
Management  expects  to  finance  part of  the  cost  of  establishing  new
restaurants opened on real property purchased by the Company by  borrowings
from  commercial  banks secured by such real property.  In  the  event  the
Company's operating results fall short of its projections or the borrowings
described   above   are  insufficient  to  fund  its  capital   expenditure
requirements,  the Company could be required to seek additional  financing.
For  any  such  additional financing, the Company will consider  borrowings
from  commercial  lenders and other sources of debt financing  as  well  as
equity financing. No assurance can be given, however, that the Company will
be  able  to  obtain any such additional financing when needed  upon  terms
satisfactory to the Company.

   The  Company currently plans to open approximately eight restaurants  in
1997.  One of the eight restaurants was opened during the first quarter  on
January  13,  1997 in Mount Airy, North Carolina. A second  restaurant  was
opened subsequent to the end of the quarter on April 22, 1997 in Salisbury,
North  Carolina. The Company now operates 29 restaurants in North Carolina,
South  Carolina,  Tennessee  and  Virginia.  Construction  has  started  on
restaurants in Lenoir, North Carolina, and Roanoke, Virginia.


Inflation

   The impact of inflation on food, labor, equipment, land and construction
costs  could  affect the Company's operations. A majority of the  Company's
employees  are paid hourly rates related to federal and state minimum  wage
laws. In addition, most of the Company's leases require the Company to  pay
taxes,  insurance, maintenance, repairs and utility costs, and these  costs
are  subject to inflationary pressures. The Company may attempt  to  offset
the effect of inflation through periodic menu price increases, economies of
scale  in  purchasing  and  cost  controls  and  efficiencies  at  existing
restaurants.  Management believes that inflation  has  had  no  significant
impact  on  costs during the first quarter of 1997, primarily  because  the
largest single item of expense, food costs, has remained relatively  stable
during this period. Additionally, the increase in the minimum wage has  had
little  effect  since the rate paid to servers, the largest  group  of  the
Company's employees subject to minimum wage, was unchanged.

Cautionary Statement as to Forward Looking Information

   Statements  contained  in this report as to the  Company's  outlook  for
sales, operations, capital expenditures and other amounts, budgeted amounts
and  other projections of future financial or economic performance  of  the
Company,  and  statements of the Company's plans  and  objectives  for  the
future  operations are "forward looking" statements, and are being provided
in  reliance  upon  the "safe harbor" provisions of the Private  Securities
Litigation  Reform Act of 1995. Important factors that could  cause  actual
results  or  events  to differ materially from those projected,  estimated,
assumed  or  anticipated  in any such forward looking  statements  include,
without  limitation:   the significant effect on the Company's  results  of
operations  that one or several of its restaurants could have  were  it  or
they  to  be  unsuccessful; adverse changes in economic, weather  or  other
conditions  in the relatively small geographic area in which the  Company's
restaurants  are  located; risks associated with  the  Company's  expansion
strategy,  including those associated with locating appropriate  restaurant
sites,  establishing  restaurants at those locations, hiring  and  training
sufficiently  skilled  management and other  personnel,  securing  required
governmental  approvals  and  permits, and  obtaining  adequate  financing;
increased  competition;  adverse changes in consumer  preferences  for,  or
adverse  publicity  associated with, beef; increased  food  costs;  adverse
changes  in  the availability of supplies; adverse changes in  governmental
regulation  relating to the Company's business; the loss or  suspension  of
any  of the Company's licenses or permits; the loss of the services of  any
of  the Company's key management or other personnel; and other factors that
generally  effect the Company's operations and the restaurant  industry  in
general.


Part I - Item 3.  Qualitative and Quantitative Disclosure About Market Risk
         Not applicable.


Part II - Item 6 - Exhibits and Reports on Form 8-K

    (a) Exhibits.

        Exhibit 10.8  Noted dated February 4, 1997 between Peoples Bank and 
                      the Company.

        Exhibit 27    Financial Data Schedule (filed in electronic format only)

    (b)  Reports on Form 8-K.
         None

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


                                  SAGEBRUSH, INC.




           May 9, 1997                \s\    Noland M. Mewborn
               Date             By:   Noland M. Mewborn,
                                      Vice President, Treasurer and CFO
                                      (Principal Financial Officer)