UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549
                            -------------------------


                                    FORM 10-Q


                   QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


        For quarter ended                           Commission file number
        September 3, 1996                                0-19907
        -----------------                                -------


                       LONE STAR STEAKHOUSE & SALOON, INC.
             (Exact name of registrant as specified in its charter)



             Delaware                                   48-1109495
             --------                                   ----------
(State or other jurisdiction of                      (I.R.S. Employer
  incorporation or organization)                   Identification Number)

                           224 EAST DOUGLAS, SUITE 700
                              WICHITA, KANSAS 67202
               (Address of principal executive offices) (Zip code)

                                 (316) 264-8899
              (Registrant's telephone number, including area code)

            Indicate  by check mark  whether  the  registrant  (1) has filed all
documents  and  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.
                                                             /x/  YES     / / 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 4, 1996
                 -----
     COMMON STOCK, $.01 PAR VALUE                    40,665,320 SHARES


                                      -1-
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.

                                      INDEX

                                                                PAGE
                                                               NUMBER
PART I.   FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

         CONDENSED CONSOLIDATED BALANCE SHEETS
         AT SEPTEMBER 3, 1996 AND DECEMBER 26, 1995                 2

         CONDENSED CONSOLIDATED STATEMENTS OF
         INCOME FOR THE TWELVE WEEKS ENDED
         SEPTEMBER 3, 1996 AND SEPTEMBER 5, 1995                    3
   
         CONDENSED CONSOLIDATED STATEMENTS OF
         INCOME FOR THE THIRTY-SIX WEEKS ENDED
         SEPTEMBER 3, 1996 AND SEPTEMBER 5, 1995                    4
   
         CONDENSED CONSOLIDATED STATEMENTS OF
         CASH FLOWS FOR THE THIRTY-SIX WEEKS ENDED
         SEPTEMBER 3, 1996 AND SEPTEMBER 5, 1995                    5
   
         NOTES TO CONDENSED CONSOLIDATED
         FINANCIAL STATEMENTS                                       6
   
ITEM 2.  MANAGEMENT'S DISCUSSION AND
         ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS                                      8

PART II. OTHER INFORMATION

         ITEMS 1 THROUGH 5 HAVE BEEN OMITTED
         SINCE THE ITEMS ARE EITHER INAPPLICABLE OR THE
         ANSWER IS NEGATIVE

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                          14
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.
                      Condensed Consolidated Balance Sheets
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                September 3, 1996 December 26, 1995
                                                                   -------------   -------------
                                           ASSETS
<S>                                                                <C>             <C>          
Current assets:
    Cash and cash equivalents                                      $ 164,929,404   $  67,424,884
    Accounts receivable                                                3,294,743       1,308,865
    Inventories                                                        5,637,858       4,156,355
    Pre-opening costs - net                                            7,598,141      10,328,686
    Refundable income taxes                                                 --         5,006,856
    Other current assets                                                 351,762          90,092
                                                                   -------------   -------------
         Total current assets                                        181,811,908      88,315,738

Property and equipment, net                                          303,812,862     245,334,956
Intangible and other assets, net                                      25,202,407      24,567,805
                                                                   -------------   -------------
            Total assets                                           $ 510,827,177   $ 358,218,499
                                                                   =============   =============

                            LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                               $  12,136,019   $   9,245,331
    Income taxes payable                                               3,288,639            --
    Other current liabilities                                         19,991,563      19,189,962
                                                                   -------------   -------------
            Total current liabilities                                 35,416,221      28,435,293


Deferred income taxes                                                  3,868,760       3,966,968
Other non-current liabilities                                          2,660,327       3,005,695
Stockholders' Equity:
    Preferred stock                                                         --              --
    Common stock                                                         404,951         375,879
    Additional paid-in capital                                       337,407,787     228,578,790
    Retained earnings                                                131,017,789      94,140,238
    Translation adjustment                                                51,342        (284,364)
                                                                   -------------   -------------
            Total stockholders' equity                               468,881,869     322,810,543
                                                                   -------------   -------------
            Total liabilities and stockholders' equity             $ 510,827,177   $ 358,218,499
                                                                   =============   =============
</TABLE>


                             See accompanying notes.
                                      -2-
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.
                        Consolidated Statements of Income
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                          For the Twelve Weeks Ended
                                                       ------------------------------
                                                     September 3, 1996 September 5, 1995
                                                       -------------    -------------
<S>                                                    <C>              <C>          
Net sales                                              $ 113,746,124    $  81,632,746
Costs and expenses:
    Costs of sales                                        39,953,800       28,613,775
    Restaurant operating expenses                         38,020,727       27,849,468
    Depreciation and amortization                          6,894,996        4,600,552
                                                       -------------    -------------
Restaurant costs and expenses                             84,869,523       61,063,795
                                                       -------------    -------------
Restaurant operating income                               28,876,601       20,568,951
General and administrative expenses                        4,395,194        3,300,086
Loss on divestiture of European Joint Venture                   --               --
                                                       -------------    -------------
Income from operations                                    24,481,407       17,268,865

Other income, principally interest                         1,073,302        1,211,647
                                                       -------------    -------------

Income before income taxes and minority interest          25,554,709       18,480,512
Provision for income taxes                                (9,609,313)      (6,575,686)
Minority interest                                           (106,924)         111,343
                                                       -------------    -------------
Net income                                             $  15,838,472    $  12,016,169
                                                       =============    =============

Primary net income per share                           $        0.38    $        0.31
                                                       =============    =============

Fully diluted net income per share                     $        0.38    $        0.31
                                                       =============    =============

Unaudited pro forma information
  based on providing for income
  taxes on pooled S-Corporations
  prior to acquisition at the
  estimated effective tax rate:

Income before income taxes                                              $  18,591,855
Pro forma provision for income taxes                                       (6,747,239)
                                                                        -------------
Pro forma net income                                                    $  11,844,616
                                                                        =============

Pro forma primary net income per share                                  $        0.31
                                                                        =============

Pro forma fully diluted net income per share                            $        0.31
                                                                        =============
</TABLE>


                             See accompanying notes 
                                      -3-
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.
                        Consolidated Statements of Income
                                   (Unaudited)


                                                  For the Thirty-six Weeks Ended
                                                  ------------------------------
                                             September 3, 1996 September 5, 1995
                                                  -------------   -------------

Net sales                                         $ 327,889,840   $ 222,721,001
Costs and expenses:
    Costs of sales                                  115,732,240      79,167,680
    Restaurant operating expenses                   112,077,657      75,362,066
    Depreciation and amortization                    19,658,085      12,753,670
                                                  -------------   -------------
Restaurant costs and expenses                       247,467,982     167,283,416
                                                  -------------   -------------
Restaurant operating income                          80,421,858      55,437,585
General and administrative expenses                  14,294,254       8,952,072
Loss on divestiture of European Joint Venture         8,557,176            --
                                                  -------------   -------------
Income from operations                               57,570,428      46,485,513

Other income, principally interest                    2,428,523       2,005,159
                                                  -------------   -------------

Income before income taxes and minority interest     59,998,951      48,490,672
Provision for income taxes                          (23,724,998)    (17,439,057)
Minority interest                                       603,598         111,343
                                                  -------------   -------------
Net income                                        $  36,877,551   $  31,162,958
                                                  =============   =============

Primary net income per share                      $        0.92   $        0.83
                                                  =============   =============

Fully diluted net income per share                $        0.92   $        0.83
                                                  =============   =============

Unaudited pro forma information
  based on providing for income
  taxes on pooled S-Corporations
  prior to acquisition at the
  estimated effective tax rate:

Income before income taxes                                        $  48,602,015
Pro forma provision for income taxes                                (18,272,250)
                                                                  -------------
Pro forma net income                                              $  30,329,765
                                                                  =============

Pro forma primary net income per share                            $        0.81
                                                                  =============

Pro forma fully diluted net income per share                      $        0.81
                                                                  =============


                             See accompanying notes 
                                      -4-
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.
                      Consolidated Statements of Cash Flows
                Increase (decrease) in cash and cash equivalents
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                   For the thirty-six weeks ended
                                                                   -----------------------------
                                                                September 3, 1996 September 5, 1995
                                                                   -------------   -------------
<S>                                                                <C>             <C>          
Cash flows from operating activities:
   Net income                                                      $  36,877,551   $  31,162,958
   Adjustments to reconcile net income to net cash
      provided by operating activities:
         Depreciation and amortization                                19,658,085      12,753,670
         Non-cash losses on divestiture of European Joint Venture      8,337,176            --
         Net change in operating assets and liabilities:
           Change in operating assets                                 (6,646,607)     (1,886,748)
           Change in operating liabilities                             6,537,352       3,392,679
                                                                   -------------   -------------
             Net cash provided by operating activities                64,763,557      45,422,559

Cash flows from investing activities:
   Purchases of property and equipment                               (73,680,097)    (61,476,088)
   Other                                                                (634,602)      1,453,555
                                                                   -------------   -------------
             Net cash used in investing activities                   (74,314,699)    (60,022,533)

Cash flows from financing activities:
   Net proceeds from issuance of common stock                        107,055,662      85,906,914
   Payment of notes payable on company acquired                             --        (4,317,522)
   Dividends on prior S-Corporation Income                                  --        (1,554,759)
                                                                   -------------   -------------
         Net cash provided by financing activities                   107,055,662      80,034,633
                                                                   -------------   -------------

         Net increase in cash and cash equivalents                    97,504,520      65,434,659

Cash and cash equivalents at beginning of period                      67,424,884      45,861,351
                                                                   -------------   -------------
Cash and cash equivalents at end of period                         $ 164,929,404   $ 111,296,010
                                                                   =============   =============
Supplemental disclosure of cash flow information:
   Cash paid for interest                                          $        --     $      74,987
   Cash paid for income taxes                                      $  14,538,771   $  10,261,745
</TABLE>


                             See accompanying notes 
                                      -5-
<PAGE>

                       LONE STAR STEAKHOUSE & SALOON, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(NOTE 1)  BASIS OF PRESENTATION


      The unaudited  Condensed  Consolidated  Financial  Statements  include all
adjustments,  consisting  of  normal,  recurring  accruals,  which  the  Company
considers  necessary for a fair  presentation of the financial  position and the
results of operations for the periods  presented.  The results of the thirty-six
weeks ended September 3, 1996, are not necessarily  indicative of the results to
be expected for the full year ending December 31, 1996. This quarterly report on
Form 10-Q should be read in conjunction with the Company's audited  consolidated
financial statements in its 1995 Form 10-K.


(NOTE 2) STOCK OPTIONS


      During the  thirty-six  week period ended  September 3, 1996,  the Company
granted stock options for  1,534,891  shares of Common Stock at exercise  prices
ranging  from $30.72 to $41.63 per share  pursuant to its 1992 stock option plan
for employees.


(NOTE 3) ADDITIONAL PUBLIC OFFERINGS


      On June 4, 1996 the Company  completed an offering of 2,500,000  shares of
its Common Stock (the "1996  Public  Offering")  at $40.13 per share.  Total net
proceeds  to the  Company  of  approximately  $96,000,000  are  being  used  for
restaurant  development.  On June 27, 1996,  the  underwriters  exercised  their
over-allotment  option and acquired  additional  shares including 150,000 shares
for which the Company received net proceeds of approximately $6,000,000.


(NOTE 4) EARNINGS PER SHARE


      Primary  earnings  per share  amounts are  computed  based on the weighted
average  number of shares  actually  outstanding  plus the shares  that would be
outstanding  assuming exercise of dilutive stock options which are considered to
be common stock equivalents.  The number of shares that would be issued from the
exercise of stock  options  has been  reduced by the number of shares that could
have  been  purchased  from the  proceeds  at the  average  market  price of the
company's  stock.  The number of shares  resulting from this computation for the
twelve weeks ended  September 3, 1996 and September 5, 1995 was  41,649,960  and
38,776,302,  respectively.  The number of shares resulting from this computation
for the  thirty-six  weeks ended  September  3, 1996 and  September  5, 1995 was
39,967,438 and 37,357,522, respectively.
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(NOTE 4) EARNINGS PER SHARE (CONTINUED)

      For  purposes  of fully  diluted  computations,  the number of shares that
would be issued  from the  exercise  of stock  options  has been  reduced by the
number of shares which could have been purchased from the proceeds at the market
price of the Company's  common stock on the last day of the period  because that
price was higher than the average market prices during the period. The number of
shares  resulting from this  computation of fully diluted earnings per share for
the twelve weeks ended  September 3, 1996 and September 5, 1995 was  41,649,885,
and  38,813,302,   respectively.  The  number  of  shares  resulting  from  this
computation of fully diluted  earnings per share for the thirty-six  weeks ended
September  3,  1996  and  September  5,  1995  was  39,971,237  and  37,449,522,
respectively.

(NOTE 5) ACQUISITION OF GROUND ROUND RESTAURANT SITES

      On October 11,  1996,  the Company  partially  closed the contract of sale
dated June 28, 1996,  with Ground  Round  Restaurants,  Inc. by  acquiring  nine
restaurant  locations (three fee properties and six leasehold  properties) for a
total acquisition price of $9,909,000.  The Company anticipates  acquiring up to
four additional Ground Round locations in the near future.


      The Company did not acquire the business  interests from Ground Round,  as
the  facilities  acquired  will be  retro-fitted  to be  operated  as Lone  Star
Steakhouse & Saloon restaurants.
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.

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

GENERAL

      The following  discussion and analysis should be read in conjunction  with
the Financial Statements and Notes thereto included elsewhere in this Form 10-Q.

      The Company  continues its rapid  expansion  under which it has opened 168
restaurants since 1991,  including 47 in 1995, and 20 during the thirty-six week
period  ended  September  3, 1996.  In August  1995,  the Company  completed  an
acquisition,  pursuant to which it acquired 11 licensed  Lone Star  Steakhouse &
Saloon restaurants as well as three additional restaurants, one Italian, and two
Mexican,  from a group of related  entities  which were  operated  under  common
control, (collectively, the "CCC Group"). The transaction was accounted for as a
pooling of interests and, accordingly,  the accompanying  consolidated financial
statements and Management's  Discussion and Analysis of Financial  Condition and
Results of Operations  have been restated to include the accounts and operations
of CCC Group for all periods prior to the acquisition.

      Pre-opening  costs  include  labor  costs,  costs of hiring  and  training
personnel and certain other costs relating to opening new  restaurants,  and are
capitalized  and amortized over a 12 month period,  beginning in the period that
the restaurants open.

      The Company is expanding its entry into the upper-end  steakhouse  market,
where  average  checks are $60 or more, by  developing  the Del Frisco's  Double
Eagle  Steak  House  concept  ("Del  Frisco's")  in  addition  to its Lone  Star
Steakhouse & Saloon  restaurants.  The Company acquired an existing Del Frisco's
location in September 1995, opened the second Del Frisco's in Fort Worth, Texas,
in April and expects to open one additional Del Frisco's in 1996.

      The Company has also developed an upscale steak  restaurant  concept under
the tradename Sullivan's Steakhouse. The average check per Sullivan's Steakhouse
customer has been and is  anticipated to be $35 to $40. The Company opened the
first  Sullivan's  Steakhouse in May 1996 and expects to develop one  additional
Sullivan's restaurant in 1996.

      Internationally,  the Company,  through a joint venture,  operates  twelve
Lone Star  Steakhouse & Saloon  restaurants  in Australia and expects to open an
additional  three  units in 1996.  In June  1996,  the  Company  terminated  its
European joint venture by divesting its interest in three  existing  restaurants
and one under construction. This divestiture resulted in a charge to earnings of
$5,964,664  net of the tax benefit of  $2,592,512.  Such  restaurants  no longer
operate as Lone Star Steakhouse & Saloon restaurants.


                                      -8-
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.

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




RESULTS OF OPERATIONS
      The  following  table  sets  forth  for  the  periods  indicated  (i)  the
percentages which certain items included in the Condensed Consolidated Statement
of Income bear to net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
                                                                      TWELVE WEEKS ENDED (1)      THIRTY-SIX WEEKS, ENDED
                                                                     SEPTEMBER 3,  SEPTEMBER 5,  SEPTEMBER 3,  SEPTEMBER 5,
                                                                         1996          1995          1996         1995
                                                                        -----         -----         -----        ----- 

                                                                  (DOLLARS IN THOUSANDS)
<S>                                                                    <C>           <C>           <C>          <C>   
INCOME STATEMENT DATA:
      Net Sales                                                         100.0%        100.0%        100.0%       100.0%
      Costs and expenses:
            Costs of sales..........................................     35.1          35.1          35.3         35.5
            Restaurant operating expenses...........................     33.4          34.1          34.2         33.8
            Depreciation and amortization...........................      6.1           5.6           6.0          5.8
                                                                        -----         -----         -----        -----

                 Restaurant costs and expenses......................     74.6          74.8          75.5         75.1
                                                                        -----         -----         -----        -----

      Restaurant operating income...................................     25.4          25.2          24.5         24.9
      General and administrative expenses...........................      3.9           4.0           4.4          4.0
      Loss on divesture of European Joint Venture...................      -             -             2.5          -
                                                                        -----         -----         -----        -----

      Income from operations........................................     21.5          21.2          17.6         20.9
      Other income, principally interest, and minority interest.....      0.9           1.5           0.8          0.9
                                                                        -----         -----         -----        -----

      Income before provision for income taxes (2)..................     22.4          22.7          18.4         21.8
      Provision for income taxes....................................      8.5           8.2           7.2          8.2
                                                                        -----         -----         -----        -----

      Net income (Pro forma for 1995)...............................     13.9%         14.5%         11.2%        13.6%
                                                                        =====         =====         =====        =====

RESTAURANT OPERATING DATA:
      Average sales per restaurant on an annualized basis (3)          $2,528        $2,596        $2,578       $2,562
      Number of restaurants at end of the period                          201           142           201          142
</TABLE>


(1)   The Company operates on a fifty-two or fifty-three week fiscal year ending
      the last Tuesday in December.  The fiscal quarters for the Company consist
      of accounting periods of twelve,  twelve,  twelve and sixteen or seventeen
      weeks, respectively.

(2)   Gives  pro  forma  effect  to   providing   for  income  taxes  on  pooled
      S-Corporations of CCC Group prior to the August, 1995,  acquisition at the
      estimated effective tax rate.

(3)   Average  sales per  restaurant  on an  annualized  basis are  computed  by
      dividing a  restaurant's  total  sales for full  accounting  periods  open
      during the  period by the  number of full  accounting  periods  open,  and
      multiplying the result by thirteen.


                                      -9-
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.


TWELVE WEEKS ENDED SEPTEMBER 3, 1996 COMPARED TO TWELVE WEEKS ENDED SEPTEMBER 5,
1995

     Net  sales  increased  $32,113,000  (39.3%)  for  the  twelve  weeks  ended
September  3,  1996  compared  to the  twelve  weeks  ended  September  5,  1995
principally  attributable  to $27,784,000 in sales from the 44 new domestic Lone
Star  restaurants  opened  since  September  1995,  additional  sales  from  the
Sullivan's  and Del  Frisco's  restaurants  opened  in 1996 and  sales  from the
Australian joint venture. Same store sales were down 2.8% in the third quarter.

      Costs of sales, primarily food and beverages were consistent,  at 35.1% of
sales for both periods.  During these periods,  the Company purchased beef under
contracted prices which are now extended through September 1997.

      Restaurant operating expenses for the twelve weeks ended September 3, 1996
increased  $10,171,000  (36.5%)  from  $27,849,000  in the  twelve  weeks  ended
September 5, 1995 to $38,021,000, and such expenses decreased as a percentage of
net sales from  34.1% to 33.4%.  Most of this  improvement  is  attributable  to
improved  labor  controls  in  the  domestic  Lone  Star   Steakhouse  &  Saloon
restaurants.

      Depreciation and amortization  increased  $2,294,000 (49.9%) in the twelve
weeks ended  September  3, 1996 over the twelve  weeks ended  September 5, 1995,
principally  reflecting the  amortization  of capitalized  pre-opening  expenses
relating to the opening of 44 new restaurants since September 1995 and increases
in  depreciation   relating  to  additional   owned   properties.   General  and
administrative  expenses for the twelve weeks ended September 3, 1996, increased
$1,095,000 (33.2%) from the comparable period in 1995. The increase reflects the
consolidation  in the foreign joint venture  administration  expenses as well as
the costs associated with additional multi-unit supervisors.

      Certain accounting and administrative services are contracted from Coulter
Enterprises,  Inc,  a  restaurant  management  services  company  owned  by  the
Company's  Chairman  of the Board  and  Chief  Executive  Officer.  The  service
agreement provides for specified  accounting and  administration  services to be
provided on a cost  pass-through  basis  under  which the  Company  paid a fixed
annual charge of $837,000,  plus an additional  fee of $406 per  restaurant  per
28-day accounting  period and reimbursement of out-of-pocket  costs and expenses
during the fiscal  year ended  December  26,  1995.  The service  agreement  was
renewed for fiscal 1996 with the fixed annual  charge  increasing  to $1,272,000
and the per restaurant, per accounting period fee increasing to $416. Should the
service  agreement not be renewed in the future,  the Company would incur direct
costs  for  accounting  and  administration,  personnel,  rent and  other  costs
associated  with a separate  office;  however,  the Company  believes  that such
direct  costs  would  not be  materially  different  than the  costs  under  the
contractual arrangement.

      Other income,  principally interest,  for the twelve weeks ended September
3, 1996, was $1,073,000 a $138,000 decrease from the comparable period in 1995.

      The effective income tax rate for the twelve weeks ended September 3, 1996
and the effective pro forma income tax rate for the twelve weeks ended September
5, 1995 was 37.8% and 36.3%, respectively. The increase in the rate is primarily
due to a decrease in interest income nontaxable at the federal level.


                                      -10-
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.


THIRTY-SIX  WEEKS ENDED  SEPTEMBER 3, 1996  COMPARED TO  THIRTY-SIX  WEEKS ENDED
SEPTEMBER 5, 1995

      Net sales increased  $105,169,000  (47.2%) for the thirty-six  weeks ended
September  3, 1996  compared to the  thirty-six  weeks ended  September  5, 1995
principally  attributable  to $64,199,000 in sales from the 44 new domestic Lone
Star  restaurants  opened  since  September  1995,  additional  sales  from  the
Sullivan's  and Del  Frisco's  restaurants  opened  in 1996 and  sales  from the
Australian and European joint  ventures.  Same store sales were down 0.6% during
the period.

      Costs of sales, primarily food and beverages, decreased as a percentage of
sales to 35.3% for the thirty-six  weeks ended  September 3, 1996, from 35.5% in
the thirty-six weeks ended September 5, 1995 due to slightly lower beef prices.

      Restaurant  operating expenses for the thirty-six weeks ended September 3,
1996  increased  $36,716,000  (48.7%) to  $112,078,000  from  $75,362,000 in the
thirty-six  weeks ended  September  5, 1995,  and such  expenses  increased as a
percentage of net sales from 33.8% to 34.2%,  The  consolidation  of the foreign
joint venture  operations with their higher labor and occupancy ratios accounted
for most of the increase.

      Depreciation  and  amortization   increased   $6,904,000  (54.1%)  in  the
thirty-six  weeks ended  September 3, 1996 over the  comparable  period in 1995,
principally  reflecting the  amortization  of capitalized  pre-opening  expenses
relating to the opening of 44 new restaurants since September 1995 and increases
in   depreciation   related  to  additional   owned   properties.   General  and
administrative  expenses  for the  thirty-six  weeks  ended  September  3, 1996,
increased  $5,342,000  (59.7%) from the  comparable  period in 1995,  reflecting
costs associated with additional  multi-unit  supervisors as well as an increase
from the consolidation of the foreign joint venture operations with their higher
general and administrative expense ratio.

      Pursuant to the  Company's  service  agreement  with Coulter  Enterprises,
Inc.,  for the current fiscal year the Company will pay a fixed annual charge of
$1,272,000,  plus an additional fee of $416 per restaurant per 28 day accounting
period and reimbursement of out-of-pocket costs and expenses.

      In June of 1996 the Company  divested  its  interest in an European  Joint
Venture that operated three Lone Star Steakhouse & Saloon  restaurants  with one
additional  restaurant under construction.  The divestiture resulted in a charge
to earnings of $5,964,664 net of the tax benefit totaling $2,592,512.

      Other  income,  principally  interest,  for  the  thirty-six  weeks  ended
September 3, 1996, was $2,429,000 a $423,000 increase from the comparable period
in 1995,  reflecting  higher average balances  invested for the thirty-six weeks
ended September 3, 1996 compared to the same period in 1995.

      The effective  income tax rate for the thirty-six weeks ended September 3,
1996 and the effective pro forma income tax rate for the thirty-six  weeks ended
September 5, 1995 was 39.1 % and 37.6%,  respectively.  The increase in the rate
is primarily due to the inability to recognize for tax purposes, the entire loss
on the write-off of the European Joint Venture.


                                      -11-
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.


IMPACT OF INFLATION

      The  primary  inflationary  factors  affecting  the  Company's  operations
include  food and  labor  costs.  A large  number  of the  Company's  restaurant
personnel are paid at the federal and state established minimum wage levels and,
accordingly, changes in such wage levels affect the Company's labor costs. Since
the majority of personnel are tipped  employees the recent  minimum wage changes
will have very  little  effect on labor  costs.  As costs of food and labor have
increased,  the Company has  historically  been able to offset  these  increases
through  economies of scale,  although  there is no assurance  that such offsets
will  continue.  To date,  inflation has not had a material  impact on operating
margins.

FORWARD LOOKING STATEMENTS

      This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities  Exchange Act of 1934,  amended.  Stockholders are cautioned that all
forward-looking  statements  involve risks and  uncertainty,  including  without
limitation,  the ability of the Company to open new restaurants,  general market
conditions,   competition  and  pricing.   Although  the  Company  believes  the
assumptions  underlying  the  forward-looking  statements  contained  herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements contained in the report will
prove to be accurate.


                                      -12-
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.



LIQUIDITY AND CAPITAL RESOURCES

      The following  table  presents a summary of the  Company's  cash flows for
each of the thirty-six weeks ended September 3, 1996 and September 5, 1995.

                                                  Thirty-six weeks ended
                                               September 3,     September 5,
                                                  1996              1995
                                               -----------       -----------
Net cash provided by operating activities..... $64,763,557       $45,422,559
Net cash used in investment activities........ (74,314,699)      (60,022,533)
Net cash provided by financing
      activities.............................. 107,055,662        80,034,633
Net increase in cash..........................  97,504,520        65,434,659

During the  thirty-six  week  period  ended  September  3, 1996,  the  Company's
investment in property and equipment was $73,680,000.

      The Company has opened 151  restaurants  in the past four fiscal  years of
which 45 opened in 1995 and an additional  twenty  opened during the  thirty-six
weeks ended September 3, 1996. The Company does not have significant receivables
or inventory and receives trade credit based upon negotiated terms in purchasing
food and  supplies.  Because  funds  available  from cash  sales are not  needed
immediately to pay for food and supplies,  or to finance inventory,  they may be
considered as a source of financing for noncurrent capital expenditures.

      At  September  3, 1996,  the  Company  had  $164,929,404  in cash and cash
equivalents.  While the  Company  has not  established  a credit  facility,  the
Company  believes  it could  establish  a  facility  on  suitable  terms.  As of
September  3, 1996,  the Company has  acquired 27 sites for future  development,
four of which are leased.  In addition,  as of such date the Company had entered
into one new lease and 19  contracts  to  purchase  sites.  The Company was also
actively  negotiating to purchase or lease  approximately nine additional sites.
In the future,  the Company  anticipates  that a greater  proportion  of its new
restaurant  locations will be purchased rather than leased.  The Company expects
to  expend  approximately  $40,000,000  to  open  new  restaurants  through  the
remainder  of fiscal  1996.  In  addition,  on October  11,  1996,  the  Company
partially  closed the  contract of sale dated June 28,  1996,  with Ground Round
Restaurants, Inc. by acquiring three fee properties and six leasehold properties
for a total acquisition price of $9,909,000.  The Company anticipates  acquiring
up to four additional Ground Round locations in the near future.


                                      -13-
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
       (a)  Exhibit   11.1             Computation of Per Share Earnings
            Exhibit     27             Financial Data Schedule

       (b)  Forms on 8-K...............None


                                      -14-
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.

                                   SIGNATURES

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

                                        LONE STAR STEAKHOUSE & SALOON, INC.
                                        (Registrant)


                                        /s/ John D. White
                                        ----------------------------------------
                                        John D. White
                                        Chief Financial and Principal Accounting
                                        Officer, Executive Vice President,
                                        Treasurer and Director


                                      -15-