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  September 6, 1996 .
                                        
                                       OR
                                        
[    ]    TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE  SECURITIES
   EXCHANGE ACT OF 1934
   For the transition period from            to           .

Commission file number  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.)
                                        
112 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 October 18, 1996
Common Stock (no par value)                    6,300,000

                             PAGE 1 of   13   PAGES
                                        
                                 SAGEBRUSH, INC.
                                        
                              - TABLE OF CONTENTS -
                                        
                                        
PART I  Financial Information:                                          Page No.

       Item 1:  Financial Statements

       Consolidated Balance Sheets as of September 6, 1996
       and December 29, 1995.                                             3

       Consolidated Statements of Income for the twelve-weeks and
       thirty-six weeks ended September 6, 1996 and September 8, 1995.    4

       Consolidated Statements of Cash Flows for the thirty-six weeks
       ended September 6, 1996 and September 8, 1995.                     5

       Notes to Consolidated Financial Statements.                      6-7

       Item 2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations.                       8-12



PART II  Other Information

       Item 6.  Exhibits                                                 12



Signatures                                                               13



                    SAGEBRUSH, INC. AND AFFILIATED COMPANIES
                           CONSOLIDATED BALANCE SHEETS
                     September 6, 1996 and December 29, 1995

                                              September 6,  December 29,
                                                 1996           1995
                                              (unaudited)
                                     ASSETS
Current assets:
   Cash and cash equivalents               $   3,802,308   $  2,145,809
   Receivables from shareholders                     -           27,000
   Other related party receivables                96,026        100,423
   Other receivables                             195,832         58,870
   Inventories                                   466,464        411,675
   Pre-opening costs, net                        422,491        131,434
   Prepaid and other current assets               49,348        370,390
      Total current assets                     5,032,469      3,245,601

Property and equipment, net                   10,943,399      7,562,432

Other assets                                      18,371         12,266

Total assets                                $ 15,994,239   $ 10,820,299

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                         $  1,262,586   $  1,220,206
   Accrued salaries                              532,384        414,625
   Taxes other than income                       441,610        188,338
   Other accrued liabilities                     698,909        464,442
      Total current liabilities                2,935,489      2,287,611

Long-term debt, less current maturities             -         2,187,909

      Total liabilities                        2,935,489      4,475,520

Shareholders' equity:
   Common stock                                6,300,000        535,202
   Additional paid-in capital                  7,369,068      7,261,164
   Accumulated deficit                          (610,318)    (1,451,587)
      Total shareholders' equity              13,058,750      6,344,779

Total liabilities and shareholders' equity  $ 15,994,239   $ 10,820,299

          See accompanying notes to consolidated financial statements.



                    SAGEBRUSH, INC. AND AFFILIATED COMPANIES
                        CONSOLIDATED STATEMENTS OF INCOME
Twelve Weeks and Thirty-six Weeks  ended September 6, 1996 and September 8, 1995
                                   (Unaudited)
<TABLE>
<CAPTION>
                               Twelve Weeks Ended   Thirty-six Weeks Ended
                            Sept. 6, 1996Sept. 8, 1995Sept. 6, 1996Sept. 8, 1995
<S>                                       <C>           <C>           <C>           <C>             
REVENUES - Restaurant sales                 $ 10,050,955  $  8,459,773  $ 26,815,083  $ 23,382,286

OPERATING COSTS AND EXPENSES
Cost of restaurant sales                       3,746,412     3,146,449     9,778,589     8,750,752
Labor costs                                    2,721,340     2,204,022     7,219,775     6,188,440
Other operating expenses                       1,463,750     1,337,071     4,064,498     3,585,332
General and administrative expenses              839,055       566,893     2,257,372     1,678,129
Depreciation                                     228,945       183,456       637,123       511,376
Amortization (principally of pre-opening costs)   81,051        82,860       196,159       244,167
Total operating costs and expenses             9,080,553     7,520,751    24,153,516    20,958,196

OPERATING INCOME                                 970,402       939,022     2,661,567     2,424,090

OTHER INCOME                                      18,050        19,632        60,400        62,146
INTEREST INCOME                                   29,626                     104,892
INTEREST EXPENSE                                    (264)      (42,606)      (37,413)     (100,580)

INCOME BEFORE INCOME TAXES                     1,017,814       916,048     2,789,446     2,385,656
INCOME TAX PROVISION                            (386,769)       (9,000)   (1,059,989)      (56,000)

NET INCOME                                  $    631,045  $    907,048  $  1,729,457  $  2,329,656

NET INCOME PER SHARE                        $       0.10                $       0.28

WEIGHTED AVERAGE SHARES
OUTSTANDING                                    6,300,000                   6,283,730

PRO FORMA:
Historical income before income taxes                     $     916,048               $  2,385,656
Pro forma adjustment for compensation                          (119,000)                  (350,000)
Pro forma income before income taxes                            797,048                  2,035,656
Pro forma income taxes                                         (310,849)                  (793,906)
Pro forma net income                                      $     486,199               $  1,241,750
Pro forma net income per share                            $        0.09               $       0.23
Pro forma weighted average shares outstanding                 5,462,748                  5,462,748

          See accompanying notes to consolidated financial statements.
</TABLE>

                    SAGEBRUSH, INC. AND AFFILIATED COMPANIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
   Thirty-six Weeks ended September 6, 1996 and September 8, 1995 (Unaudited)

                                                       Thirty-six Weeks Ended
                                                      September 6,  September 8,
                                                           1996        1995
Cash Flows from Operating Activities:
Net income                                           $  1,729,457 $  2,329,656
Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation                                           637,123      511,376
   Amortization (principally of pre-opening costs)        196,159      244,167
   Changes in operating assets and liabilities
   providing (using) cash
    Receivables                                          (105,565)      (5,419)
    Inventories                                           (54,789)       9,973
    Pre-opening costs                                    (487,216)    (150,310)
    Prepaid and other assets                              (54,252)     (50,435)
    Trade accounts payable and other accrued liabilities  647,878      146,472
      Total adjustments                                   779,338      705,824
         Net cash provided by operating activities      2,508,795    3,035,480

Cash Flows from Investing Activities:
   Capital expenditures                                (4,018,090)  (2,127,430)

Cash Flows from Financing Activities:
   Proceeds from issuance of debt                                      962,415
   Reduction of debt                                   (2,187,909)    (243,520)
   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)   2,859,691)
   Proceeds from issuance of common stock              11,394,391    1,108,512
    Net cash provided by (used in) financing activities 3,165,794   (1,032,284)

Net increase (decrease) in cash and cash equivalents    1,656,499     (124,234)

Cash and cash equivalents at beginning of period        2,145,809    1,642,141

Cash and cash equivalents at end of period            $ 3,802,308  $ 1,517,907

Supplemental disclosure of cash flow information:
      Cash paid for interest                          $    37,413  $   100,580
      Cash paid for income taxes                      $   655,442  $    75,673

          See accompanying notes to consolidated financial statements.


                    Sagebrush, Inc. and Affiliated Companies
                        Notes to Consolidated Statements

Note  1:    The  consolidated financial statements as of September 6,  1996  and
      for  the  twelve-week and thirty-six-week periods then ended  include  the
      accounts   of   Sagebrush,   Inc.   and  its   wholly-owned   subsidiaries
      ("Sagebrush").  The financial statements as of December 29, 1995  and  for
      the  twelve-week  and  thirty-six-week periods  ended  September  8,  1995
      represent  combined  statements which include the accounts  of  Sagebrush,
      Inc.,  and  those  corporations  operating  restaurants  (the  "Restaurant
      Corporations")  under the name of "Sagebrush Steakhouse and  Saloon."   In
      addition,  to the extent considered attributable to "Sagebrush  Steakhouse
      and  Saloon"  restaurants, the combined financial statements  include  the
      accounts  of Connor Management, Inc. ("Connor Management"), which provided
      development,  management and administrative services  to  the  restaurants
      and  to  certain  other  corporations operating  other  restaurants.   The
      Restaurant  Corporations and Connor Management are  collectively  referred
      to  as the "Related Corporations."  The combined financial statements were
      prepared  in  connection  with  a reorganization  which  resulted  in  the
      Related   Corporations   becoming   wholly-owned   subsidiaries   of,   or
      transferring  all  of their assets to, Sagebrush, Inc., with  shareholders
      of  such  corporations  becoming  shareholders  of  Sagebrush,  Inc.   The
      combination was accounted for at historical cost in a manner similar to  a
      pooling-of-interests  due to the entities being  under  common  management
      and  control and the absence of significant monetary consideration to  the
      shareholders.  All  intercompany  accounts  and  transactions  have   been
      eliminated in consolidation and combination.

Note  2:    In  connection with the reorganization referred to in  Note  1,  the
      shareholders  of  the  Related Corporations, other than  those  formed  to
      operate  the Gatlinburg, Kernersville and Gaffney restaurants, contributed
      their  capital stock in these corporations to Sagebrush, Inc. in  exchange
      for  an aggregate of 4,500,000 shares of Sagebrush, Inc. common stock  and
      cash  of  $3.5  million.  The shareholders of these  corporations  thereby
      became  the  shareholders of Sagebrush, Inc., owning all 4,500,000  shares
      of  its  common stock outstanding  immediately prior to the initial public
      offering  of  Sagebrush, Inc. Common Stock. A portion of the  proceeds  of
      the  public  offering were used to purchase the assets of the  Gatlinburg,
      Kernersville  and  Gaffney  restaurants  for  a  total  consideration   of
      approximately $1.7 million, which represents the historical cost  of  such
      assets.   The  accounts  of  the  Gatlinburg,  Kernersville  and   Gaffney
      restaurants,  opened  in April, June and December of  1995,  respectively,
      are  included  in  the combined financial statements as  of  December  29,
      1995.  In  connection with the reorganization and the  completion  of  the
      public offering, the following structural and organizational changes  were
      effected:  (i)  Sagebrush,  Inc. and its subsidiaries  became  subject  to
      corporate  income  taxation as a C Corporations and (ii) salaries  payable
      to  certain executive officers were adjusted to more representative levels
      as  a  result  of the termination of the S Corporation elections  and  the
      elimination of the related distributions.

      The reorganization referred to in Note 1 was effected immediately prior
      to the initial public offering of 1,800,000 shares of common stock of
      Sagebrush, Inc. in January, 1996. Net proceeds from the offering were
      $11.1 million. Approximately $2.2 million of the net proceeds were used
      to repay corporate indebtedness and approximately $5.2 million of the net
      proceeds were used to fund cash payments to or for the benefit of
      shareholders of the Related Corporations in connection with a
      reorganization effected immediately prior to the public offering. The
      remaining approximately $3.8 million of the net proceeds is being used to
      finance the development of additional restaurants and for other general
      corporate purposes.

      The  following  table shows the changes in shareholders' equity  resulting
      from the reorganization and subsequent public offering.


                                   Additional
                           Common   Paid-inAccumulated
                           Stock    Capital  Deficit     Total
Balance at December 29, 1995$    535,202$ 7,261,164$(1,451,587)  $  6,344,779

S Corporation distributions
  and dividends paid                        (888,188)  (888,188)
Payments to and exchanges with
  shareholders related to reorganization3,964,798(9,221,205)     (5,256,407)
Net proceeds of public offering1,800,0009,329,109    11,129,109
Net income
1,729,457               1,729,457

Balance at September 6, 1996$ 6,300,000$ 7,369,068$  (610,318)$13,058,750

Note  3:   In the opinion of management, the accompanying financial statements
      (unaudited) contain all adjustments necessary to present fairly the
      financial position as of September 6, 1996, and the results of operations
      for the twelve-week and thirty-six-week periods ended September 6, 1996
      and September 8, 1995 and cash flows for the thirty-six-week periods
      ended September 6, 1996 and September 8, 1995.

Note  4:   The results of operations for the twelve-week and thirty-six-week
      periods ended September 6, 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.

Note  5:   In October 1995, the Financial Accounting Standards Board issued
      Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
      for Stock-Based Compensation," which was effective for the Company
      beginning January 1, 1996.  SFAS No. 123 requires expanded disclosures of
      stock-based compensation arrangements with employees and encourages (but
      does not require) compensation cost to be measured based on fair value of
      the equity instrument awarded. Companies are permitted, however, to
      continue to apply APB Opinion No. 25, which recognizes compensation cost
      based on the intrinsic value of the equity instrument awarded.  The
      Company will continue to apply APB Opinion No. 25 to its stock based
      compensation awards to employees and will disclose the required pro forma
      effect on net income and earnings per share.

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.

   The  Company completed an initial public offering of 1,800,000 shares of  its
common stock in January and February 1996.  Net proceeds from the offering  were
$11.1  million.   Approximately $2.2 million of the net proceeds  were  used  to
repay  corporate indebtedness and approximately $5.2 million of the net proceeds
were used to fund cash payments to or for the benefit of shareholders of certain
related corporations which had previously conducted the Company's business  (the
"Related Corporations") in connection with a reorganization effected immediately
prior  to  the public offering. (see Notes 1 and 2)  The remaining approximately
$3.8  million  of the net proceeds is being used to finance the  development  of
additional restaurants and for other general corporate purposes.

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  Thirty-six Weeks Ended
                                             Sept. 6, Sept. 8, Sept. 6, Sept. 8,
                                                1996     1995     1996     1995

Revenues - restaurant sales                    100.0%   100.0%   100.0%   100.0%
Operating costs and expenses:
 Cost of restaurant sales                       37.3     37.2     36.5     37.4
 Labor costs                                    27.1     26.1     26.9     26.5
 Other operating expenses                       14.6     15.8     15.2     15.3
 General and administrative expenses             8.3      6.7      8.4      7.2
 Depreciation                                    2.3      2.1      2.4      2.2
 Amortization (principally of pre-opening costs)  .8      1.0       .7      1.0
    Total  operating  costs  and  expenses      90.4     88.9     90.1     89.6
Operating income                                 9.6     11.1      9.9     10.4
Other income (received from related parties)      .2       .2       .2       .2
Interest income                                   .3       .0       .4       .0
Interest expense                                  .0      (.5)     (.1)     (.4)
Income before income taxes                      10.1     10.8     10.4     10.2
Income tax provision                            (3.8)     (.1)    (4.0)     (.2)
Net income                                       6.3%    10.7%     6.4%    10.0%
 
Pro forma net income                                      5.7%              5.3%

Twelve weeks ended September 6, 1996 compared to twelve weeks ended September 8,
1995

   Revenues.   Restaurant sales increased 18.8% to $10.1 million for  the  third
quarter of 1996 as compared to $8.5 million for the third quarter of 1995.   The
increase  in  sales was primarily the result of an increase  in  the  number  of
restaurants operated by the Company from 21 to 26.

   Cost  of  restaurant sales.  Cost of restaurant sales increased $600,000,  or
19.1%,  from  $3.1 million to $3.7 million and as a percentage of  revenues  was
increased slightly from 37.2% to 37.3%.

   Labor costs.  Labor costs increased $517,000, or 23.5%, from $2.2 million  to
$2.7 million, principally due to the increase in the number of restaurants. As a
percentage of revenues, labor costs increased from 26.1% to 27.1%.

   Other  operating expenses.  Other operating expenses increased  $127,000,  or
9.5%,  from  $1.3  million  to $1.5 million, and as  a  percentage  of  revenues
decreased from 15.8% to 14.6%.

   General  and  administrative expenses.  General and  administrative  expenses
increased $272,000, or 48.0%, from $567,000 to $839,000, and as a percentage  of
revenues  increased from 6.7% to 8.3%.  This increase is primarily  attributable
to the increase in certain of the Company's executive officers' salaries to more
representative levels in connection with the Company's initial public offering.

   Depreciation.   Depreciation increased $45,000, or 24.8%,  from  $183,000  to
$229,000, and as a percentage of revenues increased slightly from 2.1%  to  2.3%
primarily because of increased investment in property and equipment due  to  the
Company's opening of new restaurants.

   Amortization.  Amortization of pre-opening costs decreased $2,000,  or  2.2%,
from $83,000 to $81,000, and as a percentage of revenues decreased from 1.0%  to
 .8%.

   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 third quarter of
1996 as a result of temporary investment of a portion of  the proceeds from  the
Company's initial public offering.

   Income tax provision.  The Company's effective tax rate for the third quarter
of  1996  was 38.0%.  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 $631,000 for the third  quarter  of  1996,  an
increase  of 30% over pro forma net income of $486,000 for the third quarter  of
1995.   Pro  forma net income for the third quarter of 1995 reflects (i)  a  39%
effective  corporate tax rate to give effect to a change in  the  Company's  tax
status and (ii) a $500,000 anticipated increase on an annual basis in management
compensation related to the Company's January 1996 initial public offering.  Pro
forma earnings per share for the first three quarters of 1995 is based upon  pro
forma adjustments to weighted average shares outstanding to reflect certain cash
payments  and S corporation distributions to the Company's existing shareholders
in connection with the initial public offering.

Thirty-six  weeks  ended  September 6, 1996 compared to thirty-six  weeks  ended
September 8, 1995

   Revenues.   Restaurant sales increased 14.7% to $26.8 million for  the  third
quarter of 1996 as compared to $23.4 million for the third quarter of 1995.  The
increase  in  sales was the result of an increase in the number  of  restaurants
operated by the Company from 21 to 26.

  Cost of restaurant sales.  Cost of restaurant sales increased $1.0 million, or
11.7%,  from  $8.8  million  to $9.8 million, but as a  percentage  of  revenues
decreased  from  37.4%  to  36.5%. This decrease as  a  percentage  of  revenues
principally  resulted  from  reduced food costs  (primarily  beef  and  produce)
realized from lower market prices and improved purchasing practices, as well  as
improved waste management.

   Labor costs.  Labor costs increased $1.0 million, or 16.7%, from $6.2 million
to  $7.2  million, principally due to the increase in the number of restaurants.
As a percentage of revenues, labor costs increased slightly from 26.5% to 26.9%.

   Other  operating expenses.  Other operating expenses increased  $479,000,  or
13.4%,  from  $3.6  million  to $4.1 million, and as a  percentage  of  revenues
decreased slightly from 15.3% to 15.2%.

   General  and  administrative expenses.  General and  administrative  expenses
increased  $579,000,  or 34.5%, from $1.7 million to $2..3  million,  and  as  a
percentage of revenues increased from 7.2% to 8.4%.  This increase is  primarily
attributable  to  the  increase in certain of the Company's executive  officers'
salaries to more representative levels in connection with the Company's  initial
public offering.

   Depreciation.   Depreciation increased $125,000, or 24.6%, from  $511,000  to
$637,000,  and as a percentage of revenues increased from 2.2% to 2.4% primarily
because  of increased investment in property and equipment due to the  Company's
opening of new restaurants.

   Amortization.  Amortization of pre-opening costs decreased $48,000, or 19.7%,
from  $244,000 to $196,000, and as a percentage of revenues decreased from  1.0%
to .7%.

   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  three
quarters  of  1996  as a result of temporary investment of  a  portion  of   the
proceeds from the Company's initial public offering.

  Interest expense.  Interest expense decreased $63,000 from $101,000 to $37,000
as  a result of the Company's retirement of all its debt using proceeds from the
Company's initial public offering.

   Income  tax provision.  The Company's effective tax rate for the first  three
quarters  of  1996  was 38.0%.  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 $1,729,000 for the third quarter  of  1996,  an
increase  of  39%  over pro forma net income of $1,241,000 for the  first  three
quarters  of  1995.  Pro forma net income for the first three quarters  of  1995
reflects  (i) a 39% effective corporate tax rate to give effect to a  change  in
the  Company's tax status and (ii) a $500,000 anticipated increase on an  annual
basis  in management compensation related to the Company's January 1996  initial
public  offering. Pro forma earnings per share for the first three  quarters  of
1995  is based upon pro forma adjustments to weighted average shares outstanding
to  reflect  certain  cash  payments  and S  corporation  distributions  to  the
Company's existing shareholders in connection with the initial public offering.

LIQUIDITY AND CAPITAL RESOURCES

   In January 1996, the Company completed its initial public offering and, after
deducting  the  underwriting discount and expenses  of  the  offering,  received
approximately $11.1 million in proceeds (including proceeds received in February
1996  from  the  underwriter's exercise of their option to  purchase  additional
shares  to cover over-allotments).  The Company used approximately $5.2  million
of  the proceeds to fund cash payments to or for the benefit of shareholders  of
the   Related  Corporations  in  connection  with  the  reorganization  effected
immediately prior to the initial public offering, and approximately $2.2 million
of  the  proceeds  to  repay indebtedness.  The remaining $3.8  million  of  the
proceeds,  together with the cash flow from operations, will be used to  finance
the  development  of  additional restaurants and  for  general  working  capital
purposes. (see Note 3)

   At  September 6, 1996, the Company had approximately $3.8 million in cash and
short  term  investments, no long-term debt and $13.1 million  in  shareholders'
equity.  In  addition, the Company has obtained a commitment from  a  commercial
bank  for  a  revolving credit facility providing for borrowings of up  to  $6.0
million  (with  a participation by another bank for advances over $3.0  million)
that  was  effective upon completion of the public offering. During  the  second
quarter,  $600,000 of the facility was used for two days. There were no  amounts
outstanding  at  September 6, 1996. Advances under the line  are  unsecured  and
limited  to  short-term working capital purposes. The facility  will  expire  on
January  31, 1997, and the interest rate for borrowings thereunder is  the  lead
bank's prime rate.

   The Company primarily requires capital for the development and opening of new
restaurants.  Prior  to  the  Company's initial  public  offering,  the  Company
financed  most  of  its  capital expenditures with cash  provided  by  operating
activities,  proceeds  from  the  issuance  of  common  stock  of  the   Related
Corporations, and from other shareholder contributions.

   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 currently plans to open six restaurants in 1996 (of which 4  had
opened  by September 6, 1996), and eight to ten in 1997. With the third  quarter
openings  of "Sagebrush Steakhouse & Saloon" restaurants in Lynchburg,  Virginia
and  Morristown,  Tennessee, the Company now operates 26  restaurants  in  North
Carolina,  South  Carolina,  Tennessee and Virginia. Fourth  quarter  restaurant
openings  will  be in Colonial Heights, Virginia and Greenwood, South  Carolina.
Construction  began  on  sites  in  Mount Airy  and  Salisbury,  North  Carolina
subsequent to the end of the quarter.

   While  the  Company expects to own rather than lease some of  its  restaurant
locations  in  the  future, it plans to continue its  practice  of  leasing  and
renovating existing facilities whenever possible. 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. Assuming that the Company opens a total of 6 restaurants in 1996,
Management  expects  capital expenditures to range from  $5.0  million  to  $6.0
million, of which $4.0 million had been expended through September 6, 1996.

   Management  believes that the Company's $3.8 million of cash  and  short-term
investments together with cash flow from operations will be sufficient  to  fund
capital expenditures through the first part of 1997.

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 three quarters of 1996 or 1995, primarily because the largest  single
item of expense, food costs, has remained relatively stable during this period.






Part II - Other Information

     (a)  Exhibits.
          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.




Date October 24, 1996     By:  \s\  Noland M. Mewborn
                               Noland M. Mewborn,
                               Vice President, Treasurer and CFO
                               (Principal Financial Officer)