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 8, 1998                                    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 9, 1998
           -----                                       39,092,967 shares
Common Stock, $.01 par value                     
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.

                                      Index

                                                                           Page
                                                                          Number
                                                                          ------
PART I.   FINANCIAL INFORMATION
-------------------------------

Item 1.  Financial Statements

      Condensed Consolidated Balance Sheets
      at September 8, 1998 and December 30, 1997                              2

      Condensed Consolidated Statements of Income
      for the twelve weeks ended
      September 8, 1998 and September 9, 1997                                 3

      Condensed Consolidated Statements of Income
      for the thirty-six weeks ended
      September 8, 1998 and September 9, 1997                                 4

      Condensed Consolidated Statements of
      Cash Flows for the thirty-six weeks ended
      September 8, 1998 and September 9, 1997                                 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 4 have been omitted
since the items are either not applicable or the
answer is negative

Item 5.        Other Information                                             14

Item 6.        Exhibits and Reports on Form 8K                               14


                                     - 1 -
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.
                      Condensed Consolidated Balance Sheets
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 September 8, 1998    December 30, 1997
                                                                 -----------------    -----------------
                                           ASSETS

<S>                                                               <C>                   <C>          
Current assets:
    Cash and cash equivalents                                     $  93,685,702         $ 135,996,996
    Inventories                                                      12,000,326            10,955,361
    Pre-opening costs - net                                           3,947,356             9,162,642
    Other current assets                                              7,332,484             6,523,785
                                                                    -----------           -----------
         Total current assets                                       116,965,868           162,638,784
                                                                                      
Property and equipment, net                                         453,923,634           429,732,586
Intangible and other assets, net                                     27,459,839            28,440,560
                                                                    -----------           -----------
            Total assets                                          $ 598,349,341         $ 620,811,930
                                                                    ===========           ===========
                            LIABILITIES AND STOCKHOLDERS' EQUITY                      
                                                                                      
Current liabilities:                                                                  
    Accounts payable                                              $  10,075,875         $  16,746,604
    Other current liabilities                                        20,687,920            29,118,934
                                                                   ------------          ------------
            Total current liabilities                                30,763,795            45,865,538
                                                                                      
                                                                                      
Deferred income taxes                                                12,501,693             8,619,262
Other non-current liabilities                                            90,836               158,736
Minority interest                                                          --                  19,927
Stockholders' Equity:                                                                 
    Preferred stock                                                        --                    --
    Common stock                                                        392,180               411,562
    Additional paid-in capital                                      318,461,282           349,607,732
    Retained earnings                                               248,487,444           223,015,141
    Accumulated other comprehensive loss                            (12,347,889)           (6,885,968)
                                                                   ------------          ------------
            Total stockholders' equity                              554,993,017           566,148,467
                                                                   ------------          ------------
            Total liabilities and stockholders' equity            $ 598,349,341         $ 620,811,930
                                                                   ============          ============
</TABLE>
                                                                                

                             See accompanying notes.
                                      - 2 -

<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.
                        Consolidated Statements of Income
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                      For the twelve weeks ended
                                               -----------------------------------------
                                               September 8, 1998    September 9, 1997
                                               -----------------------------------------

<S>                                               <C>                 <C>          
Net sales                                         $ 142,156,518       $ 135,302,151
Costs and expenses:                                                  
    Costs of sales                                   54,328,627          49,286,935
    Restaurant operating expenses                    67,050,857          51,324,510
    Depreciation and amortization                     7,980,957           6,883,306
                                                   ------------        ------------
Restaurant costs and expenses                       129,360,441         107,494,751
                                                   ------------        ------------
Restaurant operating income                          12,796,077          27,807,400
General and administrative expenses                   8,113,477           5,089,334
                                                   ------------        ------------
Income from operations                                4,682,600          22,718,066
                                                                     
Other income, principally interest                      674,083           1,057,163
                                                   ------------        ------------
                                                                     
Income before income taxes and minority interest      5,356,683          23,775,229
Provision for income taxes                           (1,811,478)         (8,655,179)
Minority interest                                       188,603             (64,954)
                                                   ------------        ------------
Net income                                        $   3,733,808       $  15,055,096
                                                   ============        ============
                                                                     
Basic earnings per share                          $        0.10       $        0.36
                                                   ============        ============
Diluted earnings per share                        $        0.10       $        0.36
                                                   ============        ============
                                                                  
</TABLE>

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

<TABLE>
<CAPTION>
                                                    For the thirty-six weeks ended
                                                -----------------------------------------
                                                 September 8, 1998   September 9, 1997
                                                -----------------------------------------
                                                                                                                     
<S>                                               <C>                 <C>          
Net sales                                         $ 436,693,531       $ 398,917,647
Costs and expenses:                                                  
    Costs of sales                                  164,991,040         142,077,678
    Restaurant operating expenses                   190,186,365         143,656,077
    Depreciation and amortization                    25,125,877          20,042,025
                                                   ------------        ------------
Restaurant costs and expenses                       380,303,282         305,775,780
                                                   ------------        ------------
Restaurant operating income                          56,390,249          93,141,867
General and administrative expenses                  21,144,761          14,483,084
                                                   ------------        ------------
Income from operations                               35,245,488          78,658,783
                                                                     
Other income, principally interest                    3,417,927           3,194,996
                                                   ------------        ------------
                                                                     
Income before income taxes and minority interest     38,663,415          81,853,779
Provision for income taxes                          (13,464,316)        (29,943,499
Minority interest                                       273,204            (105,445)
                                                   ------------        ------------
Net income                                        $  25,472,303       $  51,804,835
                                                   ============        ============
                                                                     
Basic earnings per share                          $        0.63       $        1.26
                                                   ============        ============
Diluted earnings per share                        $        0.63       $        1.24
                                                   ============        ============
                                                                    
                             See accompanying notes.
                                      - 4 -
</TABLE>

<PAGE>

                       LONE STAR STEAKHOUSE & SALOON, INC.
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                              For the thirty-six weeks ended
                                                       ----------------------------------------------
                                                        September 8, 1998      September 9, 1997
                                                       ----------------------------------------------

<S>                                                        <C>                 <C>          
Cash flows from operating activities:
Net income                                                 $  25,472,303       $  51,804,835
Adjustments to reconcile net income to net cash                                                                              
provided by operating activities:                                             
   Depreciation and amortization                              25,405,405          20,328,094
   Net change in operating assets and liabilities:                            
    Change in operating assets                                (2,788,828)        (12,395,606)
    Change in operating liabilities                          (11,287,212           3,261,147
                                                             -----------         -----------
      Net cash provided by operating activities               36,801,668          62,998,470
                                                                              
                                                                              
                                                             (46,321,618)        (65,421,353)
                                                              (1,585,792)         (3,974,316)
                                                             -----------         -----------
      Net cash used in investing activities                  (47,907,410)        (69,395,669)
                                                                              
                                                                              
                                                                 996,682           6,193,008
                                                             (32,162,514)               --
                                                             -----------         -----------
      Net cash provided by (used in) financing activities    (31,165,832)          6,193,008
                                                                              
                                                                 (39,720)            144,092
                                                             -----------         -----------
                                                                              
      Net decrease in cash and cash equivalents              (42,311,294)            (60,099)
                                                                              
                                                             135,996,996         150,721,286
                                                             -----------         -----------
                                                           $  93,685,702       $ 150,661,187
                                                             ===========         ===========
                                                                              
                                                                              
                                                           $  16,776,032       $  26,295,941
                                                                          

</TABLE>




                             See accompanying notes.
                                      - 5 -

<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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 8, 1998, are not necessarily  indicative of the results to
be expected for the full year ending December 29, 1998. This quarterly report on
Form 10-Q should be read in conjunction with the Company's audited  consolidated
financial statements in its 1997 Form 10-K.


2.    Stock Options

      During the  thirty-six  week period ended  September 8, 1998,  the Company
granted  stock  options for 311,864  shares of Common  Stock at exercise  prices
ranging  from $10.44 to $23.13 per share  pursuant to its 1992 stock option plan
for employees.


3.    Earnings Per Share


      Basic  earnings  per share  amounts  are  computed  based on the  weighted
average  number of shares  outstanding.  The number of weighted  average  shares
outstanding  for the twelve week period ended September 8, 1998 and September 9,
1997 was 39,236,003 and 41,064,372, respectively. The number of weighted average
shares  outstanding  for the thirty-six  week period ended September 8, 1998 and
September 9, 1997 was 40,393,698 and 40,964,926, respectively.

      For purposes of diluted  computations,  the number of shares that would be
issued  from the  exercise  of dilutive  stock  options has been  reduced by the
number of shares  which  could  have been  purchased  from the  proceeds  at the
average market price of the Company's  stock or the price of the Company's stock
on the exercise date if options were exercised during the period presented.  The
number of shares  resulting from this  computation of diluted earnings per share
for the twelve  weeks  ended  September  8, 1998,  and  September  9, 1997,  was
39,255,090 and  41,882,374,  respectively.  The number of shares  resulting from
this  computation of diluted  earnings per share for the thirty-six  weeks ended
September  8, 1998,  and  September  9, 1997,  was  40,429,716  and  41,741,169,
respectively.

4.    Recently Issued Accounting Financial Standards

   The Accounting  Standards  Executive  Committee  recently issued Statement of
Position 98-5,  Reporting on Costs of Start-up Activities which will require the
Company to expense start-up costs,  including  organizational costs, as incurred
and to  report  the  initial  adoption  as a  cumulative  effect  of a change in
accounting principle as described in APBO No. 20, Accounting Changes, during the
first quarter of its fiscal year 1999. The cumulative effect upon adoption would
result in a one-time  charge to income in an amount  equal to the net book value
of the Company's  pre-opening  costs. A resulting  benefit of this change is the
discontinuance of amortization  expense in subsequent  periods. 

                                     - 6 -
<PAGE>
5. Comprehensive Income

      As of December  31, 1997,  the Company  adopted the  Financial  Accounting
Standards Board Statement 130,  Reporting  Comprehensive  Income.  Statement 130
establishes new rules for the reporting and display of comprehensive  income and
its  components;  however,  the adoption of this  Statement had no impact on the
Company's  net  income or  shareholders'  equity.  Statement  130  requires  the
Company's foreign currency translation adjustments, which prior to adoption were
reported   separately  in  shareholders'   equity,   to  be  included  in  other
comprehensive income.

       During the twelve weeks ended  September  8, 1998 and  September 9, 1997,
total  comprehensive  income  totaled  amounted to $4,262,008  and  $14,801,968,
respectively.

       During the  thirty-six  weeks ended  September  8, 1998 and  September 9,
1997,  total  comprehensive  income  totaled  to  $20,010,382  and  $51,660,743,
respectively.

6.    Stock Purchase

      Pursuant to authorization by the Company's Board of Directors, the Company
purchased 2,000,000 shares of its Common Stock during the thirty-six week period
ended September 8, 1998 at an average price of $16.08 per share.  The Company is
accounting  for this  purchase  using  the  constructive  retirement  method  of
accounting  wherein the aggregate par value of the stock is charged to the stock
account and the excess of cost over par value is charged to paid in capital.

       The  Board  of  Directors  authorized  purchasing  up to 10% of the  then
remaining outstanding shares of Common Stock,  totaling  approximately 4 million
additional shares.


                                     - 7 -
<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 has  maintained  rapid  expansion  over the past three  fiscal
years during which it opened 45 domestic  restaurants in 1995, 45 restaurants in
1996 and 60 restaurants in 1997. The Company is slowing its  development of Lone
Star  Steakhouse & Saloon  restaurants and expects to open up to 20 locations in
the  fiscal  year  ended  December  29,  1998.  All  units  are  expected  to be
Company-owned and operated.  As of September 8, 1998, the Company has opened two
domestic restaurants in 1998. A director of the Company operates three Lone Star
restaurants under license from the Company, one in Guam and two in California.

      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 continuing to develop its upscale steakhouse concepts. The
Company is  currently  operating  three Del  Frisco's  Double  Eagle Steak House
restaurants.  The Company has one  additional  Del  Frisco's  Double Eagle Steak
House restaurant with  approximately  16,000 square feet of space in Rockefeller
Plaza in New York City under construction which is expected to open in the first
quarter of 1999.  The  Company  also has a Del  Frisco's  licensee  in  Orlando,
Florida.

      The Company operates a second upscale steak restaurant concept, Sullivan's
Steakhouse. The Company is operating eight Sullivan's Steakhouse restaurants and
expects to develop two or three additional Sullivan's Steakhouse  restaurants in
1998.  As of  September  8, the  Company  has  opened  two  domestic  Sullivan's
restaurants in 1998.


       Internationally,  the Company, through a joint venture,  operates 39 Lone
Star  Steakhouse & Saloon  restaurants  in  Australia,  six of which opened this
year, and expects to open one additional restaurant in 1998.


                                     - 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 8,  September 9,     September 8,   September 9,
                                                                           1998           1997            1998           1997


<S>                                                                      <C>            <C>              <C>            <C>   
Income Statement Data:
      Net sales                                                          100.0%         100.0%           100.0%         100.0%
      Costs and expenses:
            Costs of sales.............................................    38.2           36.4             37.8           35.7
            Restaurant operating expenses..............................    47.2           37.9             43.6           36.0
            Depreciation and amortization..............................     5.6            5.1              5.8            5.0


                 Restaurant costs and expenses.........................    91.0           79.4             87.1           76.7


      Restaurant operating income......................................     9.0           20.6             12.9           23.3
      General and administrative expenses..............................     5.7            3.8              4.8            3.6


      Income from operations...........................................     3.3           16.8              8.1           19.7
      Other income, principally interest and minority interest.........      .5             .7               .8             .8


      Income before provision for income taxes ........................     3.8           17.5              8.9           20.5
      Provision for income taxes.......................................     1.3            6.4              3.1            7.5


      Net income ......................................................    2.6%          11.1%             5.8%          13.0%


Restaurant Operating Data: (Dollars in thousands)
      Average sales per restaurant on an annualized basis (2)            $1,955         $2,240           $2,031         $2,328
      Number of restaurants at end of the period                            318            274             318             274

</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)   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 8, 1998 Compared to Twelve Weeks Ended 
September 9, 1997

      Net sales increased $6,854,000 (5.1%) to $142,156,518 for the twelve weeks
ended  September 8, 1998,  compared to  $135,302,000  for the twelve weeks ended
September 9, 1997,  mostly  attributable to $14,353,000 in sales from the 28 new
domestic Lone Star  restaurants  opened since September 1997,  additional  sales
from the four Sullivan's  restaurants opened since September 1997 and sales from
the 11 additional units opened in the Australian joint venture. The increase was
partially  offset by a 7.7%  decrease in  same-store  sales which  resulted from
lower  customer  counts during the quarter while guest check  averages  remained
consistent.

       Costs of sales,  primarily food and beverages,  increased as a percentage
of sales to 38.2%  from 36.4% due to higher  beef and  produce  prices,  and the
higher cost of sales of new entree's introduced in the fourth quarter of 1997.

      Restaurant  operating  expenses  for the twelve  weeks ended  September 8,
1998,  increased  $15,726,000 (30.6%) from $51,325,000 in the twelve weeks ended
September 9, 1997,  to  $67,051,000,  and increased as a percentage of net sales
from 37.9% to 47.2%. This increase is attributable to higher labor costs, higher
costs  for  building  and  equipment  maintenance  on  the  domestic  Lone  Star
restaurants,  higher advertising costs associated with the national  advertising
campaign and higher labor and occupancy  costs in the Australian  units, as well
as the effect of fixed cost components on lower average restaurant sales.

      Depreciation and amortization  increased  $1,098,000 (15.9%) in the twelve
weeks ended  September 8, 1998,  over the twelve weeks ended  September 9, 1997,
and  increased as a percentage  of net sales from 5.1% to 5.6%.  The  additional
fixed assets and capitalized  pre-opening expenses for 32 new restaurants opened
domestically as well as 11 restaurants  opened in Australia since September 1997
increased the  depreciation  and amortization for the third quarter of 1998 over
the prior year.

      General and  administrative  expenses for the twelve weeks ended September
8,  1998,  increased  $3,024,000  (59.4%)  from the  comparable  period in 1997,
primarily due to increased travel expenses associated with additional multi-unit
managers and production costs for the Company's national advertising campaign.

       Certain accounting and administrative  services have been 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 provided 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  $2,010,000,  plus an additional fee of $440 per restaurant per
28-day accounting  period and reimbursement of out-of-pocket  costs and expenses
during the fiscal  year ended  December  30,  1997.  The service  agreement  was
renewed for fiscal 1998 with the fixed annual  charge  increasing  to $3,737,000
and the per restaurant, per accounting period fee increasing to $466. On October
19, 1998, the Company purchased  certain assets and assumed certain  liabilities
of Coulter Enterprises, Inc., for a purchase price of $10.5 million. As a result
of the  Agreement,  the  Company  will  internally  provide the  accounting  and
administrative  services  to the  Company  which had been  provided  by  Coulter
Enterprises, Inc. See Item 5 -- Other Information.

      Other income,  principally interest,  for the twelve weeks ended September
8, 1998, was $674,000,  a $383,000  decrease from the comparable period in 1997,
reflecting  a decrease  in invested  funds  earning  interest  that were used to
purchase 2,000,000 shares of the Company's common stock.

      The  effective  income tax rates for the twelve  weeks ended  September 8,
1998,  and the  twelve  weeks  ended  September  9, 1997 were  32.7% and  36.5%,
respectively.  The  decrease in the rate is  primarily  due to the effect of the
tips tax credit on lower pre-tax earnings and a higher  proportion of tax exempt
income (primarily interest) to taxable income.

                                     - 10 -
<PAGE>

                       LONE STAR STEAKHOUSE & SALOON, INC.

Thirty-six Weeks Ended September 8, 1998 Compared to Thirty-six Weeks Ended 
September 9, 1997

      Net sales increased  $37,776,000 (9.5%) to $436,694,000 for the thirty-six
weeks ended September 8, 1998, compared to $398,918,000 for the thirty-six weeks
ended September 9, 1997, mostly attributable to $41,684,000 in sales from the 28
new domestic Lone Star restaurants opened since September 1997, additional sales
from the four Sullivan's  restaurants opened since September 1997 and sales from
the 11 additional units opened in the Australian joint venture. The increase was
partially  offset by a 8.2%  decrease in  same-store  sales which  resulted from
lower  customer  counts  during the period while guest check  averages  remained
consistent.

      Costs of sales, primarily food and beverages, increased as a percentage of
sales to 37.8% from 35.7% due to higher beef and produce prices,  and the higher
cost of sales of new entree's  introduced in the fourth  quarter of 1997.  Since
September,  1997,  the Company has not purchased beef under  contracted  prices,
although there may be a possibility of contracting prices in the future.

      Restaurant  operating expenses for the thirty-six weeks ended September 8,
1998 increased  $46,530,000  (32.4%) from  $143,656,000 in the thirty-six  weeks
ended September 9, 1997, to  $190,186,000,  and increased as a percentage of net
sales from 36.0% to 43.6%.  This increase is attributable to higher labor costs,
higher costs for building and  equipment  maintenance  on the domestic Lone Star
restaurants,  higher advertising costs associated with the national  advertising
campaign and higher labor and occupancy  costs in the Australian  units, as well
as the effect of fixed cost components on lower average restaurant sales.

      Depreciation  and  amortization   increased   $5,084,000  (25.4%)  in  the
thirty-six  weeks  ended  September  8, 1998,  over the  thirty-six  weeks ended
September 9, 1997, and increased as a percentage of net sales from 5.0% to 5.8%.
The  additional  fixed assets and  capitalized  pre-opening  expenses for 32 new
restaurants  opened  domestically as well as 11 restaurants  opened in Australia
since September 1997 increased the  depreciation  and amortization for the third
quarter of 1998 over the prior year.

      General  and  administrative  expenses  for  the  thirty-six  weeks  ended
September 8, 1998 increased  $6,662,000  (46.0%) from the  comparable  period in
1997, primarily due to additional personnel at the multi-unit  management level,
increased  travel  expenses  associated  with the  recertification  process  and
training  materials for the management teams of all domestic Lone Star locations
and production costs for the Company's national advertising campaign.

       Certain accounting and administrative  services have been 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 provided 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  $2,010,000,  plus an additional fee of $440 per restaurant per
28-day accounting  period and reimbursement of out-of-pocket  costs and expenses
during the fiscal  year ended  December  30,  1997.  The service  agreement  was
renewed for fiscal 1998 with the fixed annual  charge  increasing  to $3,737,000
and the per restaurant, per accounting period fee increasing to $466. On October
19, 1998, the Company purchased  certain assets and assumed certain  liabilities
of Coulter Enterprises, Inc., for a purchase price of $10.5 million. As a result
of the  Agreement,  the  Company  will  internally  provide the  accounting  and
administrative  services  to the  Company  which had been  provided  by  Coulter
Enterprises, Inc. See Item 5 -- Other Information.

      The effective income tax rates for the thirty-six weeks ended September 8,
1998, and the thirty-six  weeks ended  September 9, 1997,  were 34.6% and 36.6%,
respectively.  The  decrease in the rate is  primarily  due to the effect of the
tips tax credit on lower pre-tax earnings and a higher  proportion of tax exempt
income (primarily interest) to taxable income.

                                     - 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,  minimum wage changes have had
little effect on labor costs.  To date,  inflation has not had a material impact
on operating margins. Recently Issued Accounting Financial Standards

1. In June 1997, the FASB issued SFAS No. 131 "Disclosures  about Segments of an
Enterprise  and  Related  Information."  SFAS No. 131  requires  disclosures  of
certain  information  about operating  segments and about products and services,
geographic areas in which the Company operates, and their major customers.  This
Statement is effective  for Financial  Statements  for periods  beginning  after
December 15, 1997. In the initial year of application,  comparative  information
for earlier  years is to be  presented.  This  Statement  need not be applied to
interim  periods  in the  initial  year  of  its  application,  but  comparative
information  for interim  periods in the initial  year of  application  is to be
reported  in  Financial  Statements  for  interim  periods in the second year of
application.

2. In June  1998,  the FASB  issued  SFAS No.  133  "Accounting  for  Derivative
Instruments  and Hedging  Activities."  SFAS No. 133  "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 defines derivative instruments
and requires  that these items be  recognized  as assets or  liabilities  in the
statement of financial  position.  This  statement is effective for fiscal years
beginning after June 15, 1999. As of June 30, 1998 the Company does not have any
derivative instruments.

Year 2000 Compliance

      Many software  applications  and operational  programs written in the past
were not designed to recognize  calendar  dates  beginning in the Year 2000. The
failure  of such  applications  or  systems  to  properly  recognize  the  dates
beginning in the Year 2000 could result in  miscalculations  or system  failures
which could result in an adverse effect on the Company's operations.

      The Company has  instituted  a Year 2000  project to prepare its  computer
systems  and  communication  systems  for the Year 2000.  The  project  includes
identification and assessment of all software, hardware and equipment that could
potentially  be affected by the Year 2000 issue and remedial  action and further
testing,  if  necessary.  The Company  believes  that the  majority of its major
systems are Year 2000 compliant and costs to transition the remaining systems to
Year 2000  compliance are not  anticipated to have a material  adverse effect on
the Company's financial position or results of operations.

      The Company is also contacting critical suppliers of products and services
to determine  the extent to which the Company may be  vulnerable to such parties
failure to resolve their own Year 2000 issues.  Where  practicable,  the Company
will  assess and attempt to  mitigate  its risks with  respect to the failure of
these  entities to be Year 2000  ready.  The  effect,  if any, on the  Company's
results of operations  from the failure of such parties to be Year 2000 ready is
not reasonably estimable.

       The Company receives  representations  and warranties from vendors of all
new  hardware  and  software  that such  systems  are Year 2000  compliant.  See
Liquidity and Capital Resources.


                                     - 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:

                                                      Thirty-six weeks ended
                                                  September 8,     September  9,
                                                      1998              1997
                                                  -------------     -----------
Net cash provided by operating activities ....    $ 36,801,668     $ 62,998,470
Net cash used in investment activities .......     (47,907,410)     (69,395,669)
Net cash provided by (used in) financing
      activities .............................     (31,165,832)       6,193,008
Effect of exchange rate on cash ..............         (39,720)         144,092
Net decrease in cash .........................     (42,311,294)         (60,099)

During the  thirty-six  week  period  ended  September  8, 1998,  the  Company's
investment in property and equipment was $46,322,000.

      The Company has opened 245  restaurants  in the past five fiscal  years of
which 60 opened in 1997 and an additional 9 opened during the  thirty-six  weeks
ended  September 8, 1998. 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  8, 1998,  the  Company  had  $93,686,000  in cash and cash
equivalents.  On October 19,  1998,  the Company  purchased  certain  assets and
assumed certain liabilities of Coulter Enterprises, Inc. for a purchase price of
$10.5  million.  See Item 5 -- Other  Information.  While  the  Company  has not
established  a credit  facility,  the  Company  believes  it could  establish  a
facility on suitable  terms. As of September 8, 1998, the Company has acquired 8
sites,  and has  entered  into 4 lease  agreements  for future  development.  In
addition,  the Company had entered  into a  commitment  to purchase 6 additional
sites. On May 11, 1998 the Company  announced  suspension of future  development
activities for Lone Star Steakhouse & Saloon restaurants. Total 1998 development
for Lone Star Steakhouse & Saloon restaurants will be approximately  twenty (20)
units domestically.  The Company expects to expend approximately  $20,000,000 to
open new restaurants through the remainder of fiscal 1998.

      The Company is in the process of  installing  sophisticated  Point-of-Sale
devices in all of the Lone Star Steakhouse and Saloon restaurants. Additionally,
the Company is  converting to a database  management  system in order to enhance
management's   ability  to  process  and  analyze  the  data   provided  by  the
Point-of-Sale systems. The Company expects these systems to be fully implemented
by mid 1999. These expenditures are expected to total approximately $13,000,000.

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

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  the  forward-looking  statements  contained in the report will
prove to be accurate.


Item 5.  Other Information

      On October 19,  1998,  the Company  purchased  certain  assets and assumed
certain  liabilities  of Coulter  Enterprises,  Inc.,  a  restaurant  management
services  company  owned by  Jamie B.  Coulter,  for a  purchase  price of $10.5
million.  As a result of the Agreement,  the Company will internally provide the
accounting and administrative services to the Company which had been provided by
Coulter  Enterprises,  Inc.  The  acquisition  was  approved by the  independent
directors of the Company.  The Company also engaged  Houlihan,  Lokey,  Howard &
Zukin Financial  Advisors,  Inc. who rendered an opinion that the  consideration
paid by the Company in connection  with the  transaction  is fair to the Company
and its stockholders from a financial point of view.

Item 6.  Exhibits and Reports on Form 8-K

         Exhibits:
            (a) Exhibit 10.9.................Agreement, dated October 19, 1998,
                                             between LS  Management,  Inc.,  a
                                             wholly-owned  subsidiary  of Lone
                                             Star Steakhouse and Saloon,  Inc.
                                             and Coulter Enterprises, Inc.

            (b) Exhibit 27...................Financial Data Schedule

            (c) 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)

Date:   October 23, 1998             /s/ John D. White
                                     -------------------
                                     Chief Financial and Principal Accounting
                                     Officer, Executive Vice President,
                                     Treasurer and Director

                                     - 15 -