UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                -----------------
                                    FORM 10-K

/X/      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934

         For the fiscal year ended DECEMBER 30, 1997

/ /      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 000-22753

                      TOTAL ENTERTAINMENT RESTAURANT CORP.
             (Exact name of Registrant as specified in its charter)

               DELAWARE                              52-2016614
               --------                              ----------
(State or other jurisdiction of             (I.R.S. employer identification no.)
 incorporation or organization)

                               300 CRESCENT COURT
                             BUILDING 300, SUITE 850
                               DALLAS, TEXAS 75201
               (Address of principal executive offices) (Zip code)

                                 (214) 754-0414
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.01 par value

      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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes / x /  No / /

      As of March 18,  1998,  the  aggregate  market  value of the  Registrant's
Common Stock held by  non-affiliates  of the Registrant was $40,678,825.  Solely
for the purposes of this  calculation,  shares held by directors and officers of
the  Registrant  have  been  excluded.  Such  exclusion  should  not be deemed a
determination  or an admission by the Registrant  that such  individuals  are in
fact, affiliates of the Registrant.

      As of March 18, 1998,  there were  10,415,000  shares  outstanding  of the
Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

            The  information  required  by  Part  III  will be  incorporated  by
reference to certain  portions of a definitive proxy statement which is expected
to be filed by the  Registrant  within  120 days  after the close of its  fiscal
year.
<PAGE>
                                TABLE OF CONTENTS


ITEM                                                                      PAGE
----                                                                      ----

                                     PART I

   1.    Business.........................................................  3
   2.    Properties....................................................... 11
   3.    Legal Proceedings................................................ 11
   4.    Submission of Matters to a Vote of Security Holders.............. 11

                                     PART II

   5.    Market for the Registrant's Common Equity
          and Related Stockholder Matters................................. 12
   6.    Selected Financial Data.......................................... 13
   7.    Management's Discussion and Analysis of
          Financial Condition and Results of Operations................... 14
   8.    Financial Statements and Supplementary Data...................... 19
   9.    Changes in and Disagreements with Accountants
          on Accounting and Financial Disclosure.......................... 19


                                    PART III

  10.    Directors and Executive Officers of the Registrant............... 19
  11.    Executive Compensation........................................... 19
  12.    Security Ownership of Certain Beneficial Owners and Management... 19
  13.    Certain Relationships and Related Transactions................... 19

                                     PART IV

  14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K  20
         Signatures....................................................... 23

                                      -2-

<PAGE>
                                     PART I

ITEM 1.           BUSINESS

GENERAL

            Total Entertainment  Restaurant Corp., a Delaware  corporation ("the
Company"), owns and operates 17 entertainment restaurant locations which utilize
the Fox & Hound English Pub & Grille ("Fox & Hound") and Bailey's  Sports Grille
("Bailey's")   tradenames.   The  Company's  entertainment  concepts  combine  a
comfortable and inviting social gathering place, full menu and full service bar,
state-of-the-art  audio and video systems for sports entertainment,  traditional
games  of  skill  such  as  pocket   billiards  and  a  late-night   dining  and
entertainment alternatives all in a single location. The Company's entertainment
restaurant concepts appeal to a broad range of guests who can participate in one
or more aspects of the Company's total entertainment restaurant experience.  Fox
& Hound and Bailey's encompass the Company's multi-dimensional concept and serve
both larger urban and smaller  regional  markets.  The first  Bailey's  unit was
opened in Charlotte,  North  Carolina in 1989 and the first Fox & Hound unit was
opened in Arlington,  Texas in 1994.  The Company owns and operates  seven Fox &
Hound units and ten  Bailey's  units in Alabama,  Arkansas,  Illinois,  Indiana,
Nebraska, North Carolina, South Carolina, Tennessee and Texas.

SECTION 351 EXCHANGE

     The Company was organized on February 7, 1997 for the purpose of developing
entertainment  restaurant locations.  On February 20, 1997, the Company effected
an exchange  (the  "Exchange")  of property  under  Section 351 of the  Internal
Revenue Code of 1986, as amended (the  "Code"),  with the  stockholders  of four
corporations  (the  "Subsidiary  Corporations")  and certain limited partners of
four  Texas  limited  partnerships  (the  "Subisdiary  Limited   Partnerships").
Pursuant  to  the  Exchange,   the  Company   became  the  owner  of  the  eight
then-existing  Bailey's  locations  and  the  three  then-existing  Fox &  Hound
locations.  The Company issued 8,000,000  shares of its common stock,  $0.01 par
value (the "Common  Stock"),  in exchange for all the  outstanding  stock of the
Subsidiary Corporations and the outstanding limited partnership interests of the
Subsidiary Limited  Partnerships not owned by the Subsidiary  Corporations.  The
Subsidiary  Corporations  and  Subsidiary  Limited  Partnerships  thereby became
wholly-owned subsidiaries of the Company.

CONCEPT

     The Company's  entertainment  restaurant concept  differentiates  itself by
offering all of the following features in a single location:
         o   Social   Gathering   Place.   The  Company's   concepts  provide  a
             contemporary social gathering place where friends and acquaintances
             can  gather  regularly  for food,  drinks and  entertainment  in an
             upscale yet casual environment.
         o   Food and Beverage.  The Company's concepts offer a full menu with a
             wide range of mid-priced appetizers, entrees and desserts served in
             generous portions.  Each location features a full service bar and a
             wide variety of domestic,  imported and premium  craft beers.  Food
             and beverages can be enjoyed in all areas of each location.

                                      -3-

<PAGE>
         o   Sports    Entertainment.    The    Company's    concepts    feature
             state-of-the-art  audio  and video  systems  for  viewing  sporting
             events.  Each  location has numerous  TV's  (including  several big
             screen  TV's)  with  satellite  and  cable  coverage  of  national,
             regional and local sporting events.
         o   Games of Skill. The Company's  concepts offer  traditional games of
             skill,  including  pocket  billiards  featuring  tournament-quality
             tables,  shuffleboard and darts. Certain locations also offer "just
             for fun" blackjack and a variety of popular interactive games.
         o   Late-night Destination. The Company provides guests with an upscale
             entertainment and dining  alternative by serving food and beverages
             during the increasingly popular late-night segment.

STRATEGY

     Management believes its unique entertainment restaurant concept will enable
the  Company  to  distinguish  itself  as the  leader  in this  market  segment.
Management's  strategy for attaining  this  leadership  position is based on the
following key elements:
     Total Entertainment and Restaurant Experience. The Company's concept offers
a social gathering place,  food and beverages,  sports  entertainment,  games of
skill and a  late-night  destination  all in a single  location.  Each  location
provides guests with a multi-dimensional entertainment and restaurant experience
that enables them to participate in one or more elements of the experience.
     Seasoned  Management  Team. The Company employs a seasoned  management team
with experience in successfully  developing and operating multi-unit concepts in
a variety of  geographic  markets  throughout  the United  States.  The  Company
intends to leverage  this  experience  to secure  favorable  real estate  sites,
control  costs and  implement  proven  operating  procedures.  In addition,  the
Company maintains  centralized financial and accounting controls through Coulter
Enterprises, Inc. ("Coulter Enterprises"),  a corporation controlled by Jamie B.
Coulter,  Chairman of the Board of the Company, which has 17 years of experience
in  providing  such  services.  By employing  the  services  and  infrastructure
provided  by Coulter  Enterprises,  the  Company is able to focus its energy and
resources on brand and unit development.
     Rapid  Growth  and  Expansion.   The  Company  believes  its  entertainment
restaurant  concept  will be  attractive  in a  variety  of  geographic  markets
throughout  the United  States.  The  Company  currently  plans to open up to 20
locations  in 1998  (one of which  was  opened  in  January  1998)  and up to 20
locations in 1999. The Company is currently evaluating locations in markets that
are  familiar  to its  management  team and is actively  negotiating  additional
leases at a number of sites.
     Flexibility  and Versatility of Concept.  The Company is  implementing  its
concept  through both the Fox & Hound and Bailey's  brand names.  This  strategy
enables  the  Company to target  both  larger  urban  markets as well as smaller
regional markets. The Company's concept also allows for significant  versatility
through  the  reconfiguration  of the  entertainment  areas  within  each of its
locations to accommodate various special events.
     Commitment to High Quality Products and Services.  The Company is committed
to providing a superior experience that includes high quality menu items, a wide
variety of domestic,  imported and premium craft beers,  state-of-the-art  audio
and video systems and tournament-quality pocket billiard tables. These features,
combined  with the  Company's  focus on a high level of customer  service,  help
build a loyal clientele and attract new guests.

                                      -4-

<PAGE>
LOCATIONS

     The following  table sets forth the location,  opening date and approximate
square footage of the Company's existing entertainment and restaurant locations:

                                                                APPROXIMATE
          LOCATION                  MONTH OPENED               SQUARE FOOTAGE
          --------                  ------------               --------------
     Fox & Hound
     Arlington, TX                  August 1994                    6,500
     College Station, TX            September 1994                 7,700
     Dallas, TX                     December 1995                  9,600
     Memphis, TN                    September 1997                 8,400
     Omaha, NE                      December 1997                  9,000
     Chicago, IL                    December 1997                 10,100
     Montgomery, AL                 January 1998                   7,700

     Bailey's
     Charlotte, NC                  November 1989                  6,100
     Pineville, NC                  October 1990                   7,600
     North Little Rock, AR          February 1994                  8,400
     Greenville, SC                 September 1994                 7,000
     Nashville #1, TN               April 1995                     9,400
     Knoxville, TN                  December 1995                  8,400
     Johnson City, TN               May 1996                       8,250
     Columbia, SC                   October 1996                  10,000
     Clarksville, IN                March 1997                     9,200
     Nashville #2, TN               October 1997                   7,500

EXPANSION PLANS

     The Company's  management  team has extensive  experience in the restaurant
business and has  successfully  developed and operated  numerous  restaurants in
many  geographic  markets  throughout the United States.  The Company intends to
open up to 20  entertainment  restaurant  locations  in 1998  (one of which  was
opened in January 1998) and up to 20 locations in 1999. The Company is currently
evaluating  locations in markets familiar to its management team.  However,  the
number of locations  actually  opened and the timing  thereof may vary depending
upon the ability of the Company to locate suitable sites and negotiate favorable
leases.  As of March 18,  1998 has  entered  into lease  agreements  to open six
additional  Fox & Hound  locations and is also actively  negotiating  additional
leases at a number of sites.
     The Company may in the future grant license or joint venture  rights to the
Fox & Hound and Bailey's  concepts in certain  limited  geographic  areas of the
United  States.  It is expected that these  licensees or joint venture  partners
will be required to develop a specific  number of  locations  within a specified
time  frame and that a  license  fee  and/or a  royalty  fee will be paid to the
Company in connection  with the development and operation of each such site. The
Company  anticipates  that one of such  licenses  may be  granted  to  Dennis L.
Thompson  and  Thomas A.  Hager,  directors  of the  Company.  Such  license  is
anticipated  to grant the right to operate up to eight  locations  utilizing the
"Fox & Hound"  name in North  Carolina.  The  Company  has granted to Stephen P.
Hartnett, a principal stockholder of the Company and the founder of Fox & Hound,
the right to operate  one "Fox & Hound"  concept in Dallas,  Texas  without  the
payment of any license fee.

                                      -5-

<PAGE>
SITE SELECTION CRITERIA AND LEASING

     The Company believes the site selection  process is critical in determining
the  potential  success  of  each  entertainment  restaurant  location.   Senior
management devotes  significant time and resources in analyzing each prospective
site and inspects and approves each location prior to final lease  execution.  A
variety of factors are considered in the site selection process, including local
market  demographics,  site  visibility,  traffic  count,  nature of the  retail
environment  and  accessibility  and proximity to major retail  centers,  office
complexes, hotels and entertainment centers (e.g., stadiums, arenas, theaters).
     The Company  currently  leases all  locations,  with the  exception  of the
Bailey's unit in Columbia,  South Carolina,  which is owned by the Company. Most
of the units are located in shopping centers. Leases are negotiated with initial
terms of three to five years,  with multiple  renewal  options.  The Company has
generally required approximately 90 to 120 days after the signing of a lease and
obtaining  required  permits to complete  construction  and open a new location.
Additional time is sometimes required to obtain certain government approvals and
licenses,  such as liquor  licenses.  In the  future,  the  Company  anticipates
principally   leasing  its  locations,   although  it  may  consider  purchasing
free-standing sites where it is cost-effective to do so.

UNIT ECONOMICS

     The  Company's  management  team  focuses on selecting  locations  with the
potential  of  producing   significant   revenues  while   controlling   capital
expenditures  and rent as a percentage of net sales.  The Company's  restaurants
have historically  generated a sales to investment ratio of 1.0:1, assuming that
the average minimum annual rents pursuant to operating  leases were  capitalized
for  purposes  of  determining  the  investment.   The  Company's  entertainment
restaurants averaged  approximately $1.5 million in sales on an annualized basis
during the fiscal years ended December 31, 1996 and December 30, 1997. Of the 16
units open at December 30, 1997,  15 were leased  facilities  and had an average
cash investment of $906,000.  The one open unit the Company owned as of December
30, 1997 had a cost of  $1,756,000  (including  the costs for land  acquisition,
construction,  equipment and pre-opening  expenses).  In the future, the Company
anticipates most locations will be leased rather than purchased, and anticipates
an average cash investment per unit between $1.0 million and $1.3 million.

MENU

     Both  Bailey's  and Fox & Hound  concepts  offer a single  menu  for  lunch
(weekends  only in some  locations),  dinner  and  late-night  dining.  The menu
features a selection of appetizers,  including quesadillas and nachos, soups and
salads, gourmet-style sandwiches and burgers, a selection of grilled entrees and
desserts.  Appetizers  typically range in price from $3.95 to $7.95, and entrees
range from $5.95 to $12.95, with most entrees priced below $10.00. Each location
features a full service bar and most units have over 100 brands of ales, lagers,
stouts and premium craft beers from around the world,  including over 35 on tap.
Alcoholic  beverage  service  accounted for  approximately  57% of the Company's
revenues in the fiscal year ended December 30, 1997.

                                      -6-

<PAGE>
AMBIANCE AND DESIGN

     Fox & Hound. The Fox & Hound entertainment  restaurant concept incorporates
the tradition,  spirit and  sophistication  of a contemporary  social  gathering
place,  with an elegant yet  comfortable  atmosphere of finished wood,  polished
brass, embroidered chairs and booths, hunter green and burgundy walls and etched
glass.  Each Fox & Hound  features a full service  restaurant and bar as well as
state-of-the-art  audio and video technology and traditional games of skill such
as pocket billiards generously spaced to avoid crowding, darts and shuffleboard.
The entertainment area can be readily configured into a comfortable  "arena" for
viewing national,  regional and local sporting and other television  events. All
seven  locations  are  also  capable  of   accommodating   business  and  social
organizations for special events.
     Fox & Hound is the evolution of a concept  originally  conceived by Stephen
P.  Hartnett.  Management  believes  that  the  design  of Fox & Hound  plays an
essential  role in its success.  The bar and primary  dining room are  centrally
located  while the wing rooms are  partitioned  from the bar and dining  area by
etched  glass and house  games of skill  along with  state-of-the-art  audio and
video  technology.  This  layout  provides  guest  with an open view of the main
dining room,  bar and gaming areas.  The open kitchen is organized for efficient
work  flow  and is also  centrally  located  so as to  entice  guests  with  its
flavorful aromas.
     Bailey's.  The  Bailey's  concept  has a casual,  relaxed  atmosphere  that
features a full-service restaurant and bar, numerous TV's (including several big
screen  TV's) with  satellite  and cable  coverage  of sporting  events,  pocket
billiard  tables,  darts,  foosball and  shuffleboard.  Certain  locations  also
feature  "just for fun"  blackjack and a variety or popular  interactive  games.
Like Fox & Hound,  the bar and  primary  dining  room in each  Bailey's  unit is
centrally located with games situated around the perimeter.
     Bailey's is the  evolution of a concept  originally  conceived by Thomas A.
Hager and Dennis L.  Thompson,  each of whom are  directors of the Company.  The
first Bailey's unit opened in Charlotte,  North Carolina in November 1989. There
are presently ten locations  operating in five states.  Since the opening of the
first  location in 1989,  management  has  modified  and  improved  its original
concept.  With each  successive  opening,  the decor has been modified to a more
upscale yet casual decor.
     All  locations  opened  since  July 1997  (four  Fox & Hound  units and one
Bailey's unit) have  incorporated  the layout and design of the Fox & Hound unit
in Dallas,  Texas.  The  Company  anticipates  this  layout  and design  will be
utilized for all future locations for both Fox & Hound and Bailey's.

MARKETING

     The Company believes its entertainment  restaurant concept attracts a loyal
clientele,  and the Company  relies  primarily on  word-of-mouth  to attract new
business. The Company does, however, advertise through traditional marketing and
advertising  mediums  in  selected  markets.  These  mediums  include  billboard
signage,  radio and print  advertising,  local store marketing to households and
volunteer community involvement.
     The Company's  marketing  efforts also seek to focus on national,  regional
and local sporting events such as the Super Bowl and World Series, which attract
locally active groups of fans,  supporters or alumni.  The versatile  layout and
design of the units can also accommodate group events.

                                      -7-

<PAGE>
OPERATIONS AND MANAGEMENT

     The Company's  operations and management systems are based upon systems and
controls that were  developed by senior  management  and have been  successfully
used to manage a large number of  restaurants  located in numerous  states.  The
Company  strives  to  maintain  quality  and  consistency  in its  entertainment
restaurant  locations  through the careful training and supervision of personnel
and the  establishment of standards  relating to food and beverage  preparation,
maintenance of locations and conduct of personnel.
     The management of a typical unit consists of one general manager and two or
three  supporting  managers.  Each general manager is responsible for the unit's
day-to-day  operations  and is  required  to follow  the  Company's  established
operating procedures and standards.  Each entertainment restaurant location also
employs a staff of hourly employees,  many of whom are part-time personnel. Unit
management personnel participate in an eight-week training program which focuses
on various  aspects of the unit's  operations and customer  service.  Working in
concert with general managers, the Company's senior management team participates
in an incentive cash bonus program.  Awards under the incentive plan are tied to
achievement of specified  operating targets,  including  achievement of specific
unit  objectives and control of operating  expense  budgets.  Senior  management
regularly  visits  the Fox & Hound and  Bailey's  locations  and meets  with the
respective  management teams to ensure the Company's strategies and standards of
quality are complied with.
     The Company  maintains  financial and  accounting  controls for each of its
entertainment restaurant locations through the use of centralized accounting and
management  information systems.  Sales information is collected daily from each
location,  and general managers are provided with operating statements for their
locations.  Cash is controlled through daily deposits of sales proceeds in local
operating  accounts,  the balances of which are  wire-transferred  weekly to the
Company's principal operating account. The Company utilizes a comprehensive peer
review reporting system for its general managers. After the close of each 28-day
accounting  period,  profit and loss statements are produced and,  subsequently,
the general managers of each location meet in person with the senior  management
of the Company to review the profit and loss statements.  The participants offer
each  other  feedback  on their  respective  performances  and  suggest  ways of
improving  profitability.  The Company  believes the peer review system  enables
each general  manager to benefit from the  collective  experience  of all of the
Company's management.
     The Company  believes  customer  service and  satisfaction  are keys to the
success of its  operations.  The Company's  commitment  to customer  service and
satisfaction is evidenced by several Company  practices and policies,  including
periodic  visits by unit  management to guests'  tables,  active  involvement of
management in responding to guest  comments and assigning  wait persons so as to
ensure  customer  satisfaction.  Teamwork is emphasized for efficient and timely
service.
     Each new unit employee of the Company  participates  in a training  program
during  which  the  employee  works  under the  close  supervision  of a general
manager.  Management  strives  to  instill  enthusiasm  and  dedication  in  its
employees and to create a stimulating and rewarding  working  environment  where
employees  know  what  is  expected  of  them in  measurable  terms.  Management
continuously  solicits employee feedback  concerning unit operations and strives
to be responsive to the employees' concerns.

                                      -8-

<PAGE>
PURCHASING

     The Company's  management  negotiates directly with suppliers for most food
and beverage  products to ensure  uniform  quality,  adequate  supplies,  and to
obtain   competitive   prices.   Food  and  supplies  are  shipped  directly  to
entertainment   restaurant  locations,   although  invoices  for  purchases  are
forwarded  to a central  location  for  payment.  Due to the  experience  of the
Company's senior management in the restaurant business, the Company has been and
expects to  continue  to be able to purchase  most of its  restaurant  equipment
directly  from  equipment  manufacturers.  The Company has not  experienced  any
significant delays in receiving supplies or equipment.

MANAGEMENT INFORMATION SYSTEMS

     The Company utilizes an in-store  computer-based  management support system
which is  designed  to  improve  labor  scheduling  and food and  beverage  cost
management,  provide  corporate  management  quick access to financial  data and
reduce the general manager's  administrative time. Each general manager uses the
system for  production  planning,  labor  scheduling  and food and beverage cost
variance  analysis.  The system  generates  reports on sales,  bank deposits and
variance data for the Company's management on a daily basis.
     The Company generates weekly  consolidated sales reports and food, beverage
and lower-cost  variance  reports as well as detailed profit and loss statements
for each entertainment restaurant location every four weeks.  Additionally,  the
Company monitors sales mix, sales growth, labor variances and other sales trends
on a daily basis.

YEAR 2000 COMPLIANCE

     The Company utilizes and is dependent upon computer systems and software to
conduct its  business.  The systems and software  include  those  developed  and
maintained by the Coulter  Enterprises'  in-house computer department as well as
purchased  software  which  is  run  on  in-house  computer  systems,  including
networks. In 1997, the Company initiated a review and assessment of all hardware
and software to confirm it will function properly in the year 2000. In addition,
selected major vendors have been  contacted to ensure they are  addressing  this
issue.  All in-house systems and software are expected to be year 2000 compliant
no later  than the  third  quarter  of 1998.  Vendor  responses  indicate  their
hardware and/or software will be compliant,  collectively, no later than the end
of 1998. This timetable will allow time for testing such compliance. While there
may be some expenses  incurred in the next two years, it is not expected to have
a  material  effect on the  Company's  consolidated  financial  statements.  The
Company is expensing all costs  associated  with any system changes  relating to
year 2000 compliance.

ACCOUNTING AND ADMINISTRATIVE SERVICES

     On July 17,  1997,  the  Company  entered  into a services  agreement  with
Coulter  Enterprises for certain  accounting and  administrative  services.  The
fixed annual charge,  which was pro rated for 1997, was $94,000 and the per unit
per 28-day period fee was $426. For fiscal year 1998, the fixed annual charge is
$194,500 and the per restaurant per 28-day  accounting  period fee is $466, plus
reimbursement of all direct  out-of-pocket  costs and expenses.  The increase in
the  fixed  charge  is  due  to an  increase  in  the  number  of  entertainment
restaurants  operated by the Company. In the future, the Company may satisfy its
accounting and administrative needs by hiring employees directly.

                                      -9-

<PAGE>
COMPETITION

     The entertainment and restaurant  industries are highly competitive.  There
are a great number of  restaurants  and  entertainment  businesses  that compete
directly and indirectly with the Company.  The Company competes with restaurants
primarily on the basis of quality of food and service, ambiance and location and
competes  with  sports  bars  and  entertainment   complexes  on  the  basis  of
entertainment quality. Competition for sales in the entertainment and restaurant
industries is intense.  While the Company believes its entertainment  restaurant
units  are  distinctive  in  design  and  operating  concept,  it  is  aware  of
competitors that operate with similar concepts.  Many of the Company's  existing
and potential  competitors are well-established  and have significantly  greater
financial,  marketing and other resources than does the Company.  In addition to
other entertainment and restaurant companies, the Company competes with numerous
businesses  for suitable  locations for its units.  The  legalization  of casino
gambling in geographic areas near any entertainment restaurant location operated
by the Company could also create the possibility for entertainment  alternatives
that could have a material adverse effect on the Company's business.

QUARTERLY FLUCTUATIONS, SEASONALITY AND INFLATION

     As a result of the revenues  associated with each new location,  the timing
of new unit  openings  will  result in  significant  fluctuations  in  quarterly
results.  The Company  expects  seasonality  to be a factor in the  operation or
results of its  business  in the future due to expected  lower  second and third
quarter  revenues due to the summer  season.  The primary  inflationary  factors
affecting  the  Company's  operations  include  food,  liquor  and labor  costs.
Although a large number of the  Company's  restaurant  personnel are paid at the
federal minimum wage level, the majority of personnel are tipped employees,  and
therefore,  recent as well as future  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
and improved  operating  procedures.  To date,  inflation has not had a material
impact on operating margins.

GOVERNMENT REGULATION

     The Company's  entertainment  restaurant  locations are subject to numerous
federal, state and local laws affecting health, sanitation, safety and Americans
with  Disabilities Act  accessibility  standards,  as well as to state and local
licensing  regulation  of the sale of  alcoholic  beverages.  Each  location has
appropriate  licenses from  regulatory  authorities  allowing it to sell liquor,
beer and wine,  and each  location has food service  licenses  from local health
authorities.  The Company's licenses to sell alcoholic beverages must be renewed
annually  and may be  suspended  or  revoked  at any time for  cause,  including
violation by the Company or its employees of any law or regulation pertaining to
alcoholic beverage control,  such as those regulating the minimum age of patrons
or employees,  advertising,  wholesales  purchasing,  and inventory control. The
failure of a location to obtain or retain liquor or food service  licenses would
have a material adverse effect on the Company's  operations.  In order to reduce
this risk, each location is operated in accordance with standardized  procedures
designed to assure compliance with all applicable codes and regulations.
     The Company may be subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment that wrongfully served alcoholic  beverages to the
intoxicated person. The Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance and has never been named as a
defendant in a lawsuit involving "dram-shop" statutes.
     The development and construction of additional locations will be subject to
compliance with applicable zoning, land use and environmental  regulations.  The
Company's  operations  are also  subject to federal and state  minimum wage laws
governing such matters as working conditions, overtime and tip credits and other
employee  matters.  Significant  numbers of the company's  personnel are paid at
rates  related to the federal  minimum wage which is  currently  $5.25 per hour.
Accordingly,  increases in the minimum wage will  increase the  Company's  labor
costs.
     A portion of the  Company's  revenues is derived from the use and operation
of video gaming machines.  There can be no assurance that any future regulations
or  legislation  will not limit,  restrict or eliminate  the use or operation of
video gaming machines.

                                      -10-

<PAGE>
TRADEMARKS

     The Company has  registered its "Fox & Hound" service mark in Texas and has
applied for federal  registration of such mark. The Company's "7 Bailey's Sports
Grille" and "Serious Fun 7 Bailey's  Sports  Grille"  design marks are federally
registered and the Company has applied for  registration of the "Bailey's Sports
Grille"   service  mark.  The  Company  regards  its  service  marks  as  having
significant  value  and as being an  important  factor in the  marketing  of its
entertainment  restaurant  concept.  The  Company  is aware of names  and  marks
similar to the service  marks of the Company  that are used by other  persons in
certain  geographic  areas.  The  Company  believes  such  uses  will not have a
material  adverse  effect on the  Company as either the  Bailey's or Fox & Hound
tradenames may be used if either name is unavailable. The Company's policy is to
pursue  registration of its marks whenever possible and to oppose vigorously any
infringement of its marks.

EMPLOYEES

     As of December 30, 1997, the Company  employed  approximately  750 persons,
two of whom are executive officers, three of whom are mult-unit supervisors,  58
of whom are  entertainment  restaurant  location  management  personnel  and the
remainder of whom are hourly  entertainment  restaurant  personnel.  None of the
Company's employees is covered by a collective bargaining agreement. The Company
believes its employee relations are satisfactory.

ITEM 2.           PROPERTIES

     All of the  Company's  units are located in leased space with the exception
of the Bailey's unit in Columbia, South Carolina, which is owned by the Company.
Initial  lease  terms  range from three to five  years,  with  multiple  renewal
options. All of the Company's leases provide for a minimum annual rent, and some
leases call for additional rent based on sales volume at the particular location
over  specified  minimum  levels.  Generally,  the leases  are net leases  which
require  the  Company  to pay the costs of  insurance,  taxes  and a portion  of
lessors' operating cost. See "Business-Locations."
      The  Company's  executive  offices  are  located  at 300  Crescent  Court,
Building 300,  Suite 850,  Dallas,  Texas 75201.  The Company  believes there is
sufficient  office space  available at  favorable  leasing  terms in the Dallas,
Texas area to satisfy the  additional  needs of the Company that may result from
future expansion.

ITEM 3.     LEGAL PROCEEDINGS

     The  Company is  involved  from time to time in  litigation  arising in the
ordinary  course  of  business,  none of which is  expected  to have a  material
adverse  effect on the  financial  condition  or  results of  operations  of the
Company.

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

     No matters were submitted to a vote of the holders of the Company's  Common
Stock during the fourth quarter of the Company's  fiscal year ended December 30,
1997.

                                      -11-

<PAGE>
                                     PART II

ITEM 5.  MARKET FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
         MATTERS

MARKET INFORMATION

      The  Company's  Common  Stock is  traded  over-the-counter  on the  Nasdaq
National  Market System (ticker symbol:  TENT).  The following table sets forth,
for the periods indicated, the high and low bid quotations for the Common Stock,
as reported by Nasdaq. These quotations reflect the inter-dealer prices, without
retail markup,  markdown or commission and may not necessarily  represent actual
transactions.

                                               BID PRICES
                                               ----------
            FISCAL YEAR 1997                HIGH            LOW
            ----------------                ----            ---
            Third Quarter (1)               11-1/4          8-1/4
            Fourth Quarter                   9              4-1/2


-------------------
(1) The Company's Common Stock commenced trading on July 18, 1997.

HOLDERS

         As of March 18, 1998, there were 100 holders of record of the Company's
Common Stock.  The Company believes that there are in excess of 4,000 beneficial
owners of the Company's Common Stock.

DIVIDENDS

         The Company  has not paid any cash  dividends  on its Common  Stock and
does not intend to pay cash  dividends on its Common  Stock for the  foreseeable
future.  The  Company  intends  to retain  future  earnings  to  finance  future
development.

SALE OF UNREGISTERED SECURITIES

         (c) The following  unregistered  securities  were issued by the Company
during the sixteen weeks ended December 30, 1997:

<TABLE>
<CAPTION>

                                                                   Number of Shares
                                       Description of             Sold/Issued/Subject       Offering/Exercise
          Date of Sale/Issuance       Securities Issued         to Options or Warrants       Price Per Share
          ---------------------       -----------------         ----------------------       ---------------

<S>         <C>                       <C>                              <C>                      <C>
            September 29, 1997        Common Stock Options              6,452                   $ 7.75

            December 22, 1997         Common Stock Options             10,811                   $ 4.625

            December 29, 1997         Common Stock Options             10,811                   $ 4.625
</TABLE>

                                      -12-

<PAGE>
            All of the above  options  were  granted  to certain  key  employees
            pursuant to the 1997 Incentive and Nonqualified Stock Option Plan.

            The  issuance  of these  securities  is  claimed  to be exempt  from
            registration pursuant to Section 4(2) of the Securities Act of 1933,
            as  amended,  as  transactions  by an issuer not  involving a public
            offering.  There were no underwriting  discounts or commissions paid
            in connection with the issuance of any of these securities.

USE OF PROCEEDS OF INITIAL PUBLIC OFFERING
<TABLE>
<CAPTION>

<S>   <C>  <C>    <C>                                                             <C>
      (4)  (v)    Actual underwriting discounts and commissions                   $   1,521,450
                  Actual other expenses paid to a corporation controlled by
                  Jamie B. Coulter, Chairman of the Board of the Company,
                  for air travel                                                         82,325
                  Estimated other expenses paid to others                               976,701
                                                                                  -------------
                  Total expenses                                                  $   2,580,476

           (vi)   Net offering proceeds                                           $  19,154,524

           (vii)  Amount of net offering proceeds used for:
                  Actual repayment of indebtedness including interest             $  10,894,648
                  Estimated purchases and installation of furniture, fixtures
                  and equipment                                                       2,976,091
                  Estimated remaining net offering proceeds invested in
                  various tax exempt securities and funds                             5,283,785
                                                                                  -------------
                  Total net offering proceeds                                     $  19,154,524
</TABLE>

           (viii) Not applicable

ITEM 6.           SELECTED FINANCIAL DATA

     The following  selected  financial data of the Company and its predecessors
should  be read in  conjunction  with the  financial  statements  and the  notes
thereto and  "Management's  Discussion  and Analysis of Financial  Condition and
Results of  Operations"  included  elsewhere in this Form 10-K.  The  historical
income  statement  data  for  Fox & Hound  Entertainment  and  Restaurant  Group
("FHERG")  for the fiscal  years ended  December 31,  1994,  1995 and 1996,  the
historical income statement data for F&H Restaurant Corp ("FHRC") for the period
from January 1, 1997 through February 20, 1997, the historical  income statement
data for the Company for the period from  February 7, 1997 through  December 30,
1997,  the balance sheet data for FHERG as of December 31, 1995 and 1996 and the
balance  sheet data for the Company as of December 30, 1997 are derived from the
Company's and its  predecessors'  audited financial  statements.  The table also

                                      -13-

<PAGE>
sets  forth  the pro  forma  income  statement  data for the  Company  as if the
Exchange had occurred on January 1, 1996. The pro forma data set forth below for
the periods  presented are unaudited and have been prepared by management solely
to facilitate period-to-period comparison and do not purport to be indicative of
the consolidated results of operations that would have occurred had the Exchange
occurred at January 1, 1996, or which may be expected to occur in the future.

<TABLE>
<CAPTION>

                                                                 Historical
                                     -----------------------------------------------------------------
                                                 Fox & Hound               F&H                                   The Company
                                             Entertainment and           Restaurant        The Company            Pro Forma
                                              Restaurant Group              Corp.         46 weeks and           Year Ended
                                          Year Ended December 31,         51 days ended     5 days ended      Dec. 31,    Dec. 30
                                       1994           1995       1996     Feb. 20, 1997     Dec. 30, 1997       1996       1997
                                      -------       --------   --------- --------------    ------------------  -------    -------
                                                                    (In thousands, except per share data)
INCOME STATEMENT DATA:

<S>                                    <C>         <C>           <C>         <C>            <C>              <C>           <C>
Net sales                              $ 730       $2,618      $5,507      $  858           $  16,163        $  14,844     $  18,557
Costs and expenses:
   Cost of sales                         246          824       1,721         245               4,287            4,177         4,912
   Operating expenses                    456        1,390       2,759         393               7,142            6,747         8,281
   Depreciation and amortization          90          224         311          35                 939              855         1,052
                                       -----       ------      ------      ------           ---------        ---------     ---------
Entertainment and restaurant costs
   and expenses                          792        2,439       4,791         673              12,368           11,779        14,245
                                       -----       ------      ------      ------           ---------        ---------     ---------
Entertainment and restaurant
   operating income                      (62)         179         716         185               3,795            3,065         4,312
General and administrative expenses       21           70         296          36               1,794              915         2,014
Goodwill amortization                    ---          ---         ---          24                 210              237           242
                                       -----       ------      ------      ------           ---------        ---------     ---------
Income (loss) from operations            (83)         109         420         125               1,791            1,913         2,056
Other expense                             (1)         (13)        (56)         63                 266              656           370
                                       ------      -------     -------     ------           ---------        ---------     ---------
Income (loss) before provision for
   income taxes                          (84)          96         364          62               1,525            1,257         1,686
Provision for income taxes               ---          ---         ---          11                 545              471           605
Minority interest                        ---          ---         ---          34                 ---              ---           ---
                                       -----       ------      ------      ------           ---------        ---------     ---------
Net income (loss)                      $ (84)      $   96      $  364      $   17           $     980        $     786     $   1,081
                                       ======      ======      ======      ======           =========        =========     =========

Basic and diluted net income per share                                                      $     .11        $     .10     $     .12
                                                                                            =========        =========     =========

Weighted number of shares outstanding                                                           9,182            8,000         9,062
                                                                                            =========       ==========     =========
</TABLE>

<TABLE>
<CAPTION>

                                                                          HISTORICAL
                                           ---------------------------------------------------------------
                                                          Fox & Hound
                                                       Entertainment and
                                                       Restaurant Group                       The Company
                                                    Year Ended December 31,                   December 30,
                                              1994           1995           1996                  1997
                                          ------------   ------------   ------------          -----------
                                                                       (In thousands)
BALANCE SHEET DATA:

<S>                                         <C>            <C>            <C>                 <C>
Working capital (deficit)                   $     (44)     $    (447)     $    (554)          $   4,579

Total assets                                    1,346          2,638          2,520              23,224

Long-term debt, including current portion         198            759            696                ---

Stockholders'/partners' equity                  1,012          1,559          1,564              21,665
</TABLE>


ITEM 7.     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  information  set forth under  "Selected  Financial  Data" and the Financial
Statements and Notes thereto included elsewhere in this Form 10-K.
      The Company began operations  February 20, 1997 with three Fox & Hound and
eight Bailey's

                                      -14-

<PAGE>
entertainment  restaurant  locations,  and  opened  three  Fox &  Hound  and two
Bailey's  entertainment  restaurant locations during the year ended December 30,
1997.
      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 restaurant opens.

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>

                                                                   Fox & Hound                               The Company
                                                                Entertainment and                             Pro Forma
                                                                Restaurant Group                            Year Ended(1)
                                                             Year Ended December 31,               Dec. 31,             Dec. 30,
                                                           1995                 1996                 1996                 1997
                                                           ----                 ----                 ----                 ----
INCOME STATEMENT DATA:
<S>                                                       <C>                  <C>                  <C>                  <C>
     Net sales                                            100.0%               100.0%               100.0%               100.0%
     Costs and expenses:
         Cost of sales                                     31.5                 31.3                 28.1                 26.4
         Operating expenses                                53.1                 50.1                 45.4                 44.6
         Depreciation and amortization                      8.6                  5.6                  5.8                  5.7
                                                          -----                -----                -----                -----
         Restaurant costs and expenses                     93.2                 87.0                 79.3                 76.7
                                                          -----                -----                -----                -----
         Restaurant operating income                        6.8                 13.0                 20.7                 23.3
         General and administrative                         2.6                  5.4                  6.2                 10.8
         Goodwill amortization                               --                   --                  1.6                  1.3
                                                          -----                -----                -----                -----
     Income from operations                                 4.2                  7.6                 12.9                 11.2
         Other income, principally interest                 0.6                  0.4                  0.2                  0.6
         Interest expense                                  (1.1)                (1.4)                (4.6)                (2.7)
                                                          -----                -----                -----                ------
     Income before provision for income taxes              3.7%                  6.6%                 8.5                  9.1
     Provision for income taxes (2)                          --                   --                  3.2                  3.3
                                                          -----                -----                -----                -----
     Net income                                            3.7%                  6.6%                 5.3%                 5.8%
                                                          =====                =====                =====                =====

RESTAURANT OPERATING DATA:
     Number of locations at end of period                    3                     3                   11                   16
     Number of store operating weeks (3)                   107                   159                  516                  644
     Annualized average weekly sales per location (4)   $1,252                $1,801               $1,491               $1,492
</TABLE>


--------------------------------------
      (1)         The Company operates on a 52 or 53 week fiscal year ending the
                  last Tuesday in December.  The fiscal quarters for the Company
                  consist  of  accounting  periods  of 12,  12,  12 and 16 or 17
                  weeks, respectively.
      (2)         No  income  tax  provision  is  presented  for the  historical
                  results of Fox & Hound  Entertainment  and Restaurant Group as
                  the entities  operated as partnerships and were not subject to
                  income taxes at the entity level.
      (3)         Store operating weeks  represents the number of full weeks all
                  locations were open during the period.
      (4)         Annualized  average  weekly sales per location are computed by
                  dividing  net sales for full weeks  open  during the period by
                  the number of store operating weeks and multiplying the result
                  by fifty-two.

F&H RESTAURANT CORP.

     F&H  Restaurant  Corp.  (FHRC) was  organized on November 4, 1996,  for the
purpose of acquiring a 75% partnership interest in the Fox & Hound Entertainment
and Restaurant Group (FHERG). The acquisition was completed on December 6, 1996,
for a total  purchase price of $4,568,995 and was accounted for as a purchase in
accordance with Accounting  Principles

                                      -15-

<PAGE>
Board  Opinion 16. The acquired  assets and  liabilities  were recorded at their
estimated  fair  values at the date of  acquisition  resulting  in  goodwill  of
approximately  $3,448,000  which is being amortized over 20 years.  The purchase
was  financed by a loan from a principal  stockholder  in the initial  amount of
$1,500,000 and an additional loan from such stockholder of $3,030,071 in January
1997.  Other than the interest from the  acquisition  debt and the  amortization
from the goodwill,  which are both insignificant for the period from November 4,
1996 (inception)  through December 31, 1996, the operating  results also include
25 days of  operations  of FHERG  which  is  included  in the  table  above  and
discussed in the Fox & Hound  Entertainment  and  Restaurant  Group  comparisons
below. Therefore, no separate operating data is presented or discussed for FHRC.

THE COMPANY (PRO FORMA)

     Fifty-two Weeks Ended December 30, 1997 Compared to Fifty-three Weeks Ended
December 31, 1996
     Net sales  increased  $3,713,000  (25.0%)  for the  fifty-two  weeks  ended
December 30, 1997 to $18,557,000 from $14,844,000 in the fifty-three weeks ended
December 31, 1996, which is principally attributable to $2,327,000 in sales from
the five new locations  opened since December 1996.  Same store sales  increased
2.7% for the fifty-two weeks ended December 30, 1997.
     Costs of sales,  primarily food and beverages,  increased  $735,000 (17.6%)
for the fifty-two weeks ended December 30, 1997 to $4,912,000 from $4,177,000 in
the fifty-three weeks ended December 31, 1996, and such expenses  decreased as a
percentage  of sales from  28.1% to 26.5%.  This  decrease  is  attributable  to
improved control  procedures and a new menu implemented during the first quarter
of 1997.
     Restaurant  operating  expenses for the fifty-two  weeks ended December 30,
1997  increased   $1,534,000  (22.7%)  to  $8,281,000  from  $6,747,000  in  the
fifty-three  weeks ended  December 31, 1996,  and such  expenses  decreased as a
percentage  of net  sales  to  44.6%  from  45.4%.  Substantially  all  of  this
improvement is attributable to improved labor controls at the locations.
     Depreciation and amortization  increased $197,000 (23.0%) for the fifty-two
weeks ended  December 30, 1997 to $1,052,000  from  $855,000 in the  fifty-three
weeks ended December 31, 1996,  principally reflecting the depreciation relating
to the opening of five new restaurants since December 1996.
     General and administrative  expenses increased  $1,098,000 (120.0%) for the
fifty-two  weeks ended  December  30, 1997 to  $2,014,000  from  $915,000 in the
fifty-three  weeks ended  December 31, 1996,  and such  expenses  increased as a
percentage of net sales from 6.2% to 10.8%. The increase reflects the management
fee paid to Coulter  Enterprises  prior to the  initial  public  offering of the
Company,  which commenced on July 17, 1997 (the "Initial Public Offering"),  and
the additional  corporate  infrastructure added during the first quarter of 1997
to enable the Company to rapidly develop additional units.
     Other income,  principally  interest,  increased  $97,000  (307.9%) for the
fifty-two  weeks  ended  December  30,  1997 to  $129,000  from  $32,000  in the
fifty-three  weeks  ended  December  31,  1996.  This  increase  was a result of
interest  earned from the  investment of the net proceeds of the Initial  Public
Offering.
     Interest expense decreased  $188,000 for the fifty-two weeks ended December
30, 1997 to $499,000 from $687,000 in the  fifty-three  weeks ended December 31,
1996.  All debt was  repaid in July 1997 from the net  proceeds  of the  Initial
Public Offering.

                                      -16-

<PAGE>
     The  effective  pro forma  income tax rate for the  fifty-two  weeks  ended
December 30, 1997 was 35.9% and the  effective pro forma income tax rate for the
fifty-two  weeks ended December 31, 1996 was 37.5%.  This decrease was primarily
due to the impact of tax exempt interest income earned during 1997.

FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP

   Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
     Net sales  increased  $2,888,000  (110.3%) in 1996 compared to 1995.  Store
operating  weeks  increased by 48.6% in 1996 compared to 1995 due to the opening
of the third unit.  Annualized  average  weekly sales per location  increased by
43.8% in 1996  compared to 1995 due to the higher sales at the Dallas  (Midway),
Texas location compared with the two previously opened locations.
     Cost of sales  increased  $897,000  (108.8%) in 1996 compared to 1995. Such
expenses declined  insignificantly as a percentage of net sales to 31.3% in 1996
from 31.5% in 1995.
     Operating expenses  increased  $1,368,000 (98.4%) in 1996 compared to 1995.
Such expenses  declined as a percentage of net sales to 50.1% in 1996 from 53.1%
in 1995,  primarily due to an  improvement  in labor expense  resulting from the
higher average sales per location and the fixed elements of management costs and
certain operating labor.
     General and  administrative  expenses  increased  $227,000 (329.0%) in 1996
compared to 1995. As a percentage of net sales, such expenses  increased to 5.4%
in 1996  from 2.6% in 1995,  primarily  due to the  addition  of  personnel  and
related costs.
     Depreciation and amortization increased $86,000 (38.4%) in 1996 compared to
1995 but  declined  as a  percentage  of net  sales to 5.6% in 1996 from 8.6% in
1995.  Depreciation and  amortization of operating assets increased  $107,000 in
1996 compared to 1995 primarily due to the increase in store operating weeks for
new locations  while  amortization  of pre-opening  costs declined by $59,000 in
1996  compared  to 1995 due to the timing of the  opening of new  locations  and
lower  pre-opening  costs for the third location  compared to the two previously
opened locations.

QUARTERLY FLUCTUATIONS, SEASONALITY AND INFLATION

            As a result of the revenues  associated with each new location,  the
timing of new unit openings will result in significant fluctuations in quarterly
results.  The Company  expects  seasonality  to be a factor in the  operation or
results of its  business  in the future due to expected  lower  second and third
quarter  revenues due to the summer  season.  The primary  inflationary  factors
affecting  the  Company's  operations  include  food,  liquor  and labor  costs.
Although a large number of the  Company's  restaurant  personnel are paid at the
federal minimum wage level, the majority of personnel are tipped employees,  and
therefore,  recent as well as future  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
and improved  operating  procedures.  To date,  inflation has not had a material
impact on operating margins.

LIQUIDITY AND CAPITAL RESOURCES

     The Company was formed on February 7, 1997 and, pursuant to the Exchange on
February  20,  1997,  the  Company  became the owner of the eight  then-existing
Bailey's locations and three

                                      -17-

<PAGE>
then-existing  Fox & Hound locations.  Prior to the Exchange,  Bailey's financed
its expansion primarily with loans from stockholders and loans from banks. Prior
to the Exchange,  Fox & Hound  financed its expansion  primarily  with partners'
equity contributions and loans from related parties.
     As is customary in the  restaurant  industry,  prior to the Initial  Public
Offering the Company had operated with  negative  working  capital.  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.
     Immediately  following  the Initial  Public  Offering,  the Company  repaid
outstanding indebtedness to Intrust Bank, N.A., Wichita, in the principal amount
of  approximately  $10.8  million out of a total  credit  line of $12.0  million
available  to  the  Company.  This  outstanding  indebtedness  was  incurred  to
refinance  the debt of the acquired  entities in the  Exchange of  approximately
$9.1  million  and to finance  the  stockholder  dividend  payment to the former
stockholders  of  Bailey's  of  approximately  $1.7  million.  While the Company
believes it can arrange a new working capital line, no definitive  agreement has
been  entered  into for a new line of credit  facility and there is no assurance
that the Company will be able to establish such facility.
     Cash flows from  operations  were  $1,824,000 and purchases of property and
equipment  were  $6,358,000  for the period from  February  7, 1997  (inception)
through December 30, 1997.
     The Company  intends to open twenty  locations in 1998. One unit was opened
in January 1998,  two additional  units are currently  under  construction,  and
leases have been signed on four additional  sites. The Company expects to expend
approximately $22.0 million to open new locations over the next 12 months.
     The Company  believes the proceeds from the Initial  Public  Offering,  its
cash flow from  operations  and funds  anticipated to be available from a credit
facility  will  be  sufficient  to  satisfy  its  working  capital  and  capital
expenditure  requirements  for at least  the  next 12  months.  There  can be no
assurance,   however,  that  changes  in  the  Company's  operating  plans,  the
unavailability of a credit facility, the acceleration of the Company's expansion
plans,  lower  than  anticipated   revenues,   increased   expenses,   potential
acquisitions  or other  events  will not cause the  Company  to seek  additional
financing sooner than anticipated,  prevent the Company from achieving the goals
of its expansion  strategy or prevent any newly opened  locations from operating
profitably.  There  can  be no  assurance  that  additional  financing  will  be
available on acceptable terms or at all.

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 1936, as amended, which are intended to be covered by
the safe  harbors  created  thereby.  Although  the  Company  believes  that the
assumptions  underlying  the  forward-looking  statements  contained  herein are
reasonable, and any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward-looking  statements included in this report
will prove to be accurate.  Factors  that could cause  actual  results to differ
from the results discussed in the forward-looking  statements  include,  but are
not limited to,  potential  increases in food and liquor costs,  competition and
the  inability  to find  suitable  new  locations.  In light of the  significant
uncertainties  inherent in the  forward-looking  statements included

                                      -18-
<PAGE>
herein,  the  inclusion  of  such  information  should  not  be  regarded  as  a
representation  by the Company or any other person that the objectives and plans
of the Company will be achieved.

ITEM 8.             FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See the Consolidated  Financial Statements listed in the accompanying Index
to Financial  Statements on Page F-1 herein.  Information required for financial
schedules  under  Regulation  S-X is either not applicable or is included in the
financial statements or notes thereto.

ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
               ON ACCOUNTING AND FINANCIAL DISCLOSURE

                  Not applicable.

                                    PART III

ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The  information  required  by  this  Item  10  will  be in the  Company's
definitive  proxy  materials  to be  filed  with  the  Securities  and  Exchange
Commission  and is  incorporated  in this  Annual  Report  on Form  10-K by this
reference.

ITEM 11.       EXECUTIVE COMPENSATION

      The  information  required  by  this  Item  11  will  be in the  Company's
definitive  proxy  materials  to be  filed  with  the  Securities  and  Exchange
Commission  and is  incorporated  in this  Annual  Report  on Form  10-K by this
reference.

ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The  information  required  by  this  Item  12  will  be in the  Company's
definitive  proxy  materials  to be  filed  with  the  Securities  and  Exchange
Commission  and is  incorporated  in this  Annual  Report  on Form  10-K by this
reference.

ITEM 13.            CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The  information  required  by  this  Item  13  will  be in the  Company's
definitive  proxy  materials  to be  filed  with  the  Securities  and  Exchange
Commission  and is  incorporated  in this  Annual  Report  on Form  10-K by this
reference.



                                      -19-

<PAGE>
                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
           AND REPORTS ON FORM 8-K

           (a)   The following documents are filed as part of this report:

                 (1) Financial Statements.

                 See Index to  Financial  Statements  which  appears on page F-1
                 herein.

                 (2) Exhibits

                                INDEX TO EXHIBITS

                 Exhibit
                 Number                         Exhibit
                 ------                         -------

                 **2.1        Form of Stock for Stock Exchange Agreement between
                              the Registrant, the Shareholders of F&H Restaurant
                              Corp., Fox & Hound, Inc., Fox & Hound II, Inc. and
                              Bailey's  Sports Grille,  Inc. and Certain Limited
                              Partners of N. Collins Enter- tainment,  Ltd., 505
                              Entertainment,  Ltd., Midway  Entertainment,  Ltd.
                              and F&H Dallas, L.P., dated February 20, 1997.

                **3.1         Certificate of Incorporation of the Registrant.

                **3.1.1       Amendment to the Certificate of  Incorporation  of
                              the Registrant.

                **3.2         By-laws of the Registrant.

                **4.1         Specimen  Certificate of the  Registrant's  Common
                              Stock.

                **10.1        Form of Services  Agreement between the Registrant
                              and Coulter Enterprises, Inc.

                 *10.1.1      Amendment  to  Services   Agreement   between  the
                              Registrant and Coulter  Enterprises,  Inc.,  dated
                              February 8, 1998.

                **10.2        Form   of   Employment   Agreement   between   the
                              Registrant and Gary M. Judd.

                **10.3        Form   of   Employment   Agreement   between   the
                              Registrant and James K. Zielke.

                **10.4        Form  of 1997  Incentive  and  Nonqualified  Stock
                              Option Plan of the Registrant.

                **10.5        Form of 1997  Directors'  Stock Option Plan of the
                              Registrant.

                **10.6        Form of Indemnification Agreement for officers and
                              directors of the Registrant.

                                      -20-

<PAGE>
                **10.7        Confidentiality  and   Non-Competition   Agreement
                              among  F&H  Dallas,  L.P.,  Midway  Entertainment,
                              Ltd.,   N.  Collins   Entertainment,   Ltd.,   505
                              Entertainment,  Ltd. and Jamie B.  Coulter,  dated
                              December 6, 1996.

                **10.8        Non-Competition,        Confidentiality        and
                              Non-Solicitation  Agreement between the Registrant
                              and Dennis L. Thompson, dated February 20, 1997.

                **10.9        Non-Competition,        Confidentiality        and
                              Non-Solicitation  Agreement between the Registrant
                              and Thomas A. Hager, dated February 20, 1997.

                **10.10       Lease by and between  Real  Alchemy,  I, L.P.  and
                              Midway Entertainment, Ltd., dated June 1, 1995.

                **10.11       First  Amendment  to  Lease  by and  between  Real
                              Alchemy I, L.P.  and Midway  Entertainment,  Ltd.,
                              dated December 6, 1996.

                **10.12       Amendment  to Lease by and between Real Alchemy I,
                              L.P.  and  Midway   Entertainment,   Ltd.,   dated
                              December 6, 1996.

                **10.13       Lease by and  between  505  Center,  L.P.  and 505
                              Entertainment, Ltd., dated January 31, 1994.

                **10.14       Amendment to Lease by and between 505 Center, L.P.
                              and 505  Entertainment,  Ltd.,  dated  December 6,
                              1996.

                 *21.1        Subidiaries of Registrant.

                 *24.1        Powers of Attorney (included on the signature page
                              of this Form 10-K).

                 *27.1        Financial Data Schedule.

----------------------
(b)   Reports on Form 8-K filed in the fourth quarter of 1997: none

 *    Filed herewith.

**    Incorporated by reference to the Company's  Registration Statement on Form
      S-1, as amended (Commission File No. 333-23343).

                                      -21-

<PAGE>
                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the  undersigned,  thereunto  duly  authorized,  in the City of
Wichita, State of Kansas, on this 27th day of March 1998.


                                 TOTAL ENTERTAINMENT RESTAURANT CORP.
                                             (Registrant)



                                 /s/ James K. Zielke
                                 -----------------------------------------------
                                            James K. Zielke
                                        Chief Financial Officer,
                                        Treasurer and Secretary
                                      (principal accounting officer)

                                      -22-

<PAGE>
                                   SIGNATORIES

Know all men by these presents,  that each person whose signature  appears below
hereby  constitutes  and appoints  Jamie B. Coulter and James K. Zielke his true
and lawful  attorney-in-fact  and agent,  with full  power of  substitution  and
resubstitution  for  him  and in his  name,  place  and  stead,  in any  and all
capacities,  to sign any and all  amendments  to this  Form 10-K and to file the
same, with exhibits thereto, and other documents in connection  therewith,  with
the Securities and Exchange Commission,  granting unto said attorney-in-fact and
agent full power and  authority  to do and perform  each and every act and thing
requisite  and  necessary to be done, as fully to all intents and purposes as he
might or could do in  person,  hereby  ratifying  and  confirming  all that said
attorney-in-fact  and  agent or either of them,  or their or his  substitute  or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the date indicated.

             SIGNATURE                 TITLE                         DATE
             ---------                 -----                         ----


/s/ Jamie B. Coulter
-----------------------------     Chairman of the Board          March 27, 1998
     Jamie B. Coulter


/s/ Gary M. Judd
-----------------------------     Chief Executive Officer,       March 27, 1998
     Gary M. Judd                 President, Chief Operating
                                  Officer and Director
                                  (principal executive officer)


/s/ James K. Zielke
-----------------------------     Chief Financial Officer,       March 27, 1998
     James K. Zielke              Treasurer and Secretary
                                  (principal accounting officer)


/s/ Dennis L. Thompson
----------------------------      Director                       March 27, 1998
     Dennis L. Thompson


/s/ Thomas A. Hager
----------------------------      Director                       March 27, 1998
     Thomas A. Hager

                                      -23-
<PAGE>


/s/ Steven Wolosky
---------------------------       Director                       March 27, 1998
     Steven Wolosky


/s/ William F. Orthwein
---------------------------       Director                       March 27, 1998
      William F. Orthwein


/s/ Christopher Goldsbury
---------------------------       Director                       March 27, 1998
   Christopher Goldsbury


                                      -24-

<PAGE>

                      TOTAL ENTERTAINMENT RESTAURANT CORP.

                          INDEX TO FINANCIAL STATEMENTS

                                                                          PAGE
                                                                          ----
TOTAL ENTERTAINMENT RESTAURANT CORP.
Report of Independent Auditors..............................................F-2
Consolidated Balance Sheets as of December 30, 1997
  and February 7, 1997......................................................F-3
Consolidated Statement of Income for the period from February 7,  1997
  (Inception) through December 30, 1997.....................................F-5
Consolidated Statement of Stockholders' Equity for the period
  from February 7, 1997 (Inception) through December 30, 1997...............F-6
Consolidated Statement of Cash Flows for the period from
  February  7, 1997 (Inception) through December 30, 1997...................F-7
Notes to Consolidated Financial Statements..................................F-9

F & H RESTAURANT CORP.
Report of Independent Auditors..............................................F-19
Consolidated Balance Sheet as of December 31, 1996..........................F-20
Consolidated Statements of Income for the period from January 1, 1997 through
  February 20, 1997 and for the period from November 4, 1996 (Inception)
  through December 31, 1996.................................................F-22
Consolidated Statements of Stockholders' Equity for the period from
  January 1, 1997 through February 20, 1997 and for the period from
  November 4, 1996 (Inception) through December 31, 1996....................F-23
Consolidated Statements of Cash Flows for the period from
  January  1, 1997 through February 20, 1997 and for the period
  from November 4, 1996 (Inception) through December 31, 1996...............F-24
Notes to Consolidated Financial Statements..................................F-25

FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
Report of Independent Auditors..............................................F-31
Combined Balance Sheet as of December 31, 1996..............................F-32
Combined Statements of Income for the Years Ended December 31,  1996 and
  1995......................................................................F-34
Combined Statements of Partners' Equity for the Years
   Ended December 31, 1996 and 1995.........................................F-35
Combined Statements of Cash Flows for the Years Ended December 31, 1996
   and 1995.................................................................F-36
Notes to Combined Financial Statements......................................F-37

All  financial   statement  schedules  have  been  omitted  since  the  required
information is not present.

                                      F-1

<PAGE>
                         REPORT OF INDEPENDENT AUDITORS


The Stockholders
Total Entertainment Restaurant Corp.


We  have  audited  the  accompanying   consolidated   balance  sheets  of  Total
Entertainment Restaurant Corp. as of December 30, 1997 and February 7, 1997, and
the related  consolidated  statements of income,  stockholders'  equity and cash
flows for the period from  February 7, 1997  (inception)  through  December  30,
1997.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material   respects,   the   consolidated   financial   position  of  Total
Entertainment  Restaurant  Corp. at December 30, 1997 and February 7, 1997,  and
the  consolidated  results of its  operations  and its cash flows for the period
from February 7, 1997 (inception)  through December 30, 1997, in conformity with
generally accepted accounting principles.



/S/ ERNST & YOUNG LLP
March 25, 1998
Wichita, Kansas

                                      F-2

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>


                                                                    DECEMBER 30,                FEBRUARY 7,
                                                                        1997                       1997
                                                              ---------------------------------------------

Assets
Current assets:
<S>                                                              <C>                              <C>
   Cash and cash equivalents                                     $ 1,220,598                      $1,000
   Marketable securities, available for sale                       3,315,056                           -
   Inventories                                                       396,758                           -
   Preopening costs, net                                             386,402                           -
   Deferred income taxes                                             156,571                           -
   Prepaid expenses                                                  350,324                           -
                                                              --------------------------------------------
Total current assets                                               5,825,709                       1,000

Property and equipment:
   Land                                                              600,000                           -
   Buildings                                                         655,795                           -
   Leasehold improvements                                          6,018,499                           -
   Equipment                                                       4,980,541                           -
   Furniture and fixtures                                          1,225,981                           -
                                                              --------------------------------------------
                                                                  13,480,816
   Less accumulated depreciation and amortization                    898,735                           -
                                                              --------------------------------------------
                                                                  12,582,081
Other assets:
   Goodwill, net of accumulated amortization of $245,471           4,637,784                           -
   Other assets                                                      178,695                           -
                                                              --------------------------------------------
Total other assets                                                 4,816,479                           -
                                                              --------------------------------------------

Total assets                                                     $23,224,269                      $1,000
                                                              ============================================
</TABLE>

                                      F-3

<PAGE>

<TABLE>
<CAPTION>

                                                                             DECEMBER 30,                  FEBRUARY 7,
                                                                                 1997                        1997
                                                                        ----------------------------------------------

Liabilities and stockholders' equity:
<S>                                                                        <C>                           <C>
 Current liabilities
   Accounts payable                                                        $   799,119                   $       -
   Accounts payable - affiliates                                                24,646                           -
   Accrued payroll                                                             154,693                           -
   Other accrued liabilities                                                   268,290                           -
                                                                        ------------------------------------------
Total current liabilities                                                    1,246,748                           -


Deferred income taxes                                                          312,450                           -

Commitments                                                                          -                           -

Stockholders' equity:
   Preferred stock, $.10 par value, 2,000,000 shares
     authorized; none issued                                                         -                           -
   Common stock, $.01 par value; 20,000,000 shares
     authorized; 10,415,000 shares issued and outstanding
     (8,000 at February 7, 1997)                                               104,150                          80
   Additional paid-in capital                                               20,580,764                         920
   Retained earnings                                                           980,157                           -
                                                                        ------------------------------------------
Total stockholders' equity                                                  21,665,071                       1,000
                                                                        ------------------------------------------

Total liabilities and stockholders' equity                                 $23,224,269                      $1,000
                                                                        ==========================================
</TABLE>


                 See notes to consolidated financial statements

                                      F-4

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.

                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>

                                                                                         PERIOD FROM
                                                                                       FEBRUARY 7, 1997
                                                                                     (INCEPTION) THROUGH
                                                                                         DECEMBER 30,
                                                                                            1997
                                                                                     ----------------------

 Sales:
<S>                                                                                        <C>
 Food and beverage                                                                         $13,509,874
 Entertainment and other                                                                     2,652,783
                                                                                     -----------------
    Total net sales                                                                         16,162,657

 Cost and expenses:
    Cost of sales                                                                            4,287,185
    Entertainment and restaurant operating expenses                                          7,141,800
    Depreciation and amortization                                                              939,160
                                                                                     -----------------
 Entertainment and restaurant costs and expenses                                            12,368,145
                                                                                     -----------------
 Entertainment and restaurant operating income                                               3,794,512

 General and administrative expenses:
    Related parties                                                                            337,140
    Other                                                                                    1,456,684
 Goodwill amortization                                                                         209,539
                                                                                     -----------------
 Income from operations                                                                      1,791,149
 Other income (expense):
    Other income (principally interest income)                                                 129,011
    Interest expense:
       Related parties                                                                         (27,315)
       Other                                                                                  (367,960)
                                                                                     ------------------
 Income before provision for income taxes                                                    1,524,885
 Provision for income taxes                                                                    544,728
                                                                                     ------------------
 Net income                                                                                $   980,157
                                                                                     ==================
 Basic and diluted earnings per share                                                      $      0.11
                                                                                     ==================
</TABLE>

                 See notes to consolidated financial statements.

                                      F-5

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                      COMMON STOCK
                                         ------------------------------------    ADDITIONAL
                                                                                   PAID-IN             RETAINED
                                               NUMBER           AMOUNT             CAPITAL             EARNINGS               TOTAL
                                         -------------------------------------------------------------------------------------------

Balance at February 7, 1997
<S>                                         <C>              <C>               <C>                   <C>                 <C>
   (inception)                                   8,000       $     80          $       920           $      -            $     1,000
   Common stock canceled                        (8,000)           (80)                  80                  -                      -
   Shares issued to acquire restaurant
      companies                              8,000,000         80,000            1,449,390                  -              1,529,390
   Shares issued - initial public
      offering                               2,415,000         24,150           19,130,374                  -             19,154,524
   Net income                                        -              -                    -            980,157                980,157
                                         ===========================================================================================
Balance at December 30, 1997
                                            10,415,000       $104,150          $20,580,764           $980,157            $21,665,071
                                         ===========================================================================================
</TABLE>

                 See notes to consolidated financial statements.

                                      F-6

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                       PERIOD FROM
                                                                                                     FEBRUARY 7, 1997
                                                                                                   (INCEPTION) THROUGH
                                                                                                       DECEMBER 30,
                                                                                                           1997
                                                                                                    ------------------------
         Operating Activities
<S>                                                                                                 <C>
         Net income                                                                                 $      980,157
         Adjustments to reconcile net income to net cash provided by operating activities:
               Depreciation                                                                                638,598
               Amortization                                                                                510,101
               Deferred taxes                                                                               77,284
               Net change in operating assets and liabilities:
                  Accounts receivable - affiliate                                                           20,774
                  Accounts receivable                                                                       56,702
                  Inventories                                                                             (122,644)
                  Preopening costs                                                                        (399,640)
                  Prepaid expenses                                                                        (150,307)
                  Other assets                                                                            (236,649)
                  Accounts payable                                                                         653,906
                  Accounts payable - affiliates                                                           (104,404)
                  Accrued liabilities                                                                     (100,323)
                                                                                                    ---------------
         Net cash provided by operating activities                                                       1,823,555

         Investing Activities
            Purchases of property and equipment                                                         (6,358,118)
            Cash of companies acquired in Exchange                                                         720,029
            Purchase of marketable securities                                                           (7,465,056)
            Proceeds from sale of marketable securities                                                  4,150,000
                                                                                                    ---------------
         Net cash used in investing activities                                                          (8,953,145)

         Financing Activities
            Proceeds from revolving note payable to bank                                                10,835,695
            Payment of revolving note payable to bank                                                  (10,835,695)
            Payment of dividends payable to certain predecessor stockholders
                                                                                                        (1,675,332)
            Payment of notes payable to affiliates                                                        (233,000)
            Payment of notes payable to banks                                                           (4,366,933)
            Payment of notes payable to stockholders                                                    (4,530,071)
            Net proceeds from issuance of common stock                                                  19,154,524
                                                                                                    ---------------
         Net cash provided by financing activities                                                       8,349,188

         Net increase in cash and cash equivalents                                                       1,219,598
         Cash and cash equivalents at beginning of period                                                    1,000
                                                                                                    ==============
         Cash and cash equivalents at end of period                                                 $    1,220,598
                                                                                                    ==============

</TABLE>

                                      F-7

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)



Supplemental Disclosure of Cash Flow Information:
Cash paid for interest                                 $458,971
Cash paid for income taxes                              547,812



                 See notes to consolidated financial statements.

                                      F-8

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 30, 1997


1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

Total Entertainment Restaurant Corp. (the "Company") was organized as a Delaware
corporation  on February 7, 1997,  for the purpose of  developing  entertainment
restaurant  locations.  Effective  February 20, 1997,  the Company  entered into
simultaneous  stock exchange  transactions  and issued an aggregate of 8,000,000
shares of its common stock for all the common stock of Bailey's  Sports  Grille,
Inc.,  all the  common  stock of F&H  Restaurant  Corp.  and the  remaining  25%
minority   interest  in  Fox  &  Hound   Entertainment   and  Restaurant   Group
(collectively,   the  "Exchange").  The  Exchange  among  the  Company  and  F&H
Restaurant Corp. was accounted for as a business  combination using the purchase
method of  accounting  in  accordance  with  Accounting  Principles  Board (APB)
Opinion No. 16. For accounting  purposes,  F&H Restaurant Corp. was deemed to be
the acquiring  corporation  since,  on  completion  of the Exchange,  its former
stockholders  controlled  50%  of  the  Company.  Accordingly,  the  assets  and
liabilities  of  F&H  Restaurant  Corp.  were  recorded  by the  Company  on the
acquisition date using their historical amounts.

The  Exchange  among the  Company and the owners of the  remaining  25% of Fox &
Hound  Entertainment  and  Restaurant  Group and the owners of  Bailey's  Sports
Grille,  Inc. was also accounted for using the purchase  method of accounting in
accordance with APB No. 16. The operations of the Company effectively  commenced
on  February  20,  1997,  and  include the  operating  results of the  companies
acquired in the Exchange  from that date.  The acquired  assets and  liabilities
assumed have been recorded at their  estimated fair values at the Exchange date,
with exception of F&H Restaurant Corp. which was recorded at historical costs as
described  previously.  The  Exchange  resulted  in  goodwill  of  approximately
$4,740,000,  including  approximately  $3,448,000  previously  recorded  by  F&H
Restaurant Corp. in its acquisition of its 75% partnership interest in the Fox &
Hound  Entertainment  and Restaurant Group. The purchase price allocation to the
assets and liabilities acquired in the Exchange is summarized as follows:

       Assets acquired:
          Current assets                                 $  1,498,276
          Property and equipment                            7,039,719
          Goodwill and other assets                         4,789,911
                                                       ---------------
                                                           13,327,906
       Less assumed liabilities:
          Current liabilities                                 822,428
          Dividends payable to certain predecessor
            stockholders                                    1,675,332
          Notes payable to stockholder                      4,530,071
          Notes payable to affiliates                         233,000
          Notes payable to banks                            4,366,933
          Deferred taxes                                      170,752
                                                       ===============
       Net assets acquired                               $  1,529,390
                                                       ===============

                                      F-9

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 30, 1997

1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS (CONTINUED)

Upon  formation,  the Company  issued 8,000 shares of common stock at $0.125 per
share.  In  connection  with the  Exchange,  the shares  originally  issued were
canceled and 100,000 new shares of common stock were issued.  In February  1997,
the Company's Board of Directors approved a 79 for 1 stock dividend.  All share,
per  share  and  stock  option  data  included  in  the  accompanying  financial
statements and notes thereto have been restated to reflect the stock dividend.

The following supplemental proforma information presents the combined results of
operations  of the  Company as though the  Exchange  had  occurred at January 1,
1997. The proforma  information is unaudited and not  necessarily  indicative of
the results of the Company had the Exchange occurred at such date.

                Revenues                            $18,557,115
                Net income                          $ 1,081,192
                Basic earnings per share                  $0.12

The Company owns and operates 17  entertainment  restaurant  locations under the
Fox & Hound  English  Pub & Grille  (Fox & Hound)  and  Bailey's  Sports  Grille
(Bailey's) brand names. The Company's entertainment restaurant locations combine
a comfortable and inviting social  gathering  place,  full menu and full service
bar,   state-of-the-art  audio  and  video  systems  for  sports  entertainment,
traditional  games of skill  such as  pocket  billiards  and  late-night  dining
alternatives  in a  single  location.  The  Company's  entertainment  restaurant
locations  appeal to a broad range of guests who can  participate in one or more
aspects of the Company's total entertainment restaurant experience.  Fox & Hound
and Bailey's  encompass the Company's  multi-dimensional  concept and serve both
larger urban and smaller regional  markets.  The Company owns and operates seven
Fox & Hounds and ten Bailey's in Alabama,  Illinois,  Indiana,  Nebraska,  North
Carolina, South Carolina, Tennessee and Texas.

The company has a 52/53 week fiscal year ending on the last Tuesday in December.

2. SIGNIFICANT ACCOUNTING POLICIES

       Principles of Consolidation

The   accompanying   financial   statements   include  the   accounts  of  Total
Entertainment   Restaurant   Corp.  and  its  wholly-owned   subsidiaries.   All
significant intercompany accounts have been eliminated.

       Cash and Cash Equivalents

The Company  considers cash and cash  equivalents  to include  currency on hand,
demand deposits with banks or financial institutions, and short-term investments
with maturities of three months

                                      F-10

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 30, 1997

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

or less when  purchased.  Cash and cash  equivalents  are  carried at cost which
approximates fair value.

o      Concentration of Credit Risk

The Company's financial  instruments exposed to credit risk consist primarily of
cash, short-term investments,  and marketable securities. The Company places its
cash with high credit financial  institutions and, at times, such cash may be in
excess  of  the  Federal  Depository  insurance  limit.  The  Company  has  cash
equivalents  and short-term  investments  in investment  grade  securities  with
municipal, state, and U.S. government agencies of approximately $5,284,000.

       Marketable securities

The company's  marketable  securities  represent debt  securities  classified as
available-for-sale.  These  securities  are  stated  at  fair  value,  with  the
unrealized  gains and losses,  net of tax,  reported in a separate  component of
shareholders'  equity.  As of  December  30,  1997,  the  fair  value  of  these
securities  approximated cost.  Accordingly,  no unrealized gains or losses have
been recorded. Interest on these securities is included in other income.

o      Inventories

Inventories  consist of food and  beverages  and are stated at the lower of cost
(first-in, first-out) or market.

       Preopening Costs

Labor costs and costs of hiring and training  personnel  and certain other costs
relating to opening new restaurants are capitalized until the restaurant is open
and then  amortized  over the  subsequent  12 months.  Accumulated  amortization
related to stores opened during 1997 was approximately  $137,023 at December 30,
1997.

o      Property and Equipment

Property and  equipment  are stated at cost.  Maintenance,  repairs and renewals
which do not  enhance  the  value of or  increase  the  life of the  assets  are
expensed as incurred.

Buildings and leasehold  improvements are amortized on the straight-line  method
over the  lesser of the life of the lease,  including  renewal  options,  or the
estimated  useful lives of the assets which range from 5 to 30 years.  Equipment
and furniture and fixtures are depreciated using the  straight-line  method over
the estimated useful lives of the assets which range from five to seven years.

                                      F-11

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 30, 1997

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       Goodwill

Goodwill  represents the excess of the cost of companies  acquired over the fair
value of the net assets at the date of acquisition  and is being  amortized over
20 years.  The  carrying  value of  goodwill  will be  reviewed if the facts and
circumstances suggest it may be impaired.

       Income Taxes

Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Valuation  allowances are established  when necessary to reduce deferred
tax assets to the  amounts  expected  to be  realized.  Deferred  tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

       Advertising Costs

Advertising costs are expensed as incurred.  Advertising  expense for the period
ended December 30, 1997, was $179,737.

       Accounting for Stock-Based Compensation

In  accordance  with  APB  Opinion  No.  25,  the  Company  uses  the  intrinsic
value-based  method for measuring  stock-based  compensation cost which measures
compensation cost as the excess, if any, of the quoted market price of Company's
common  stock at the grant date over the amount  the  employee  must pay for the
stock.  The Company's policy is to grant stock options at fair value at the date
of grant. Proceeds from the exercise of common stock options issued to officers,
directors and key employees  under the Company's stock option plans are credited
to common stock to the extent of par value and to additional paid-in capital for
the excess.  Required pro forma disclosures of compensation  expense  determined
under the fair value  method of  Statement  of  Financial  Accounting  Standards
(SFAS) No. 123, Accounting for Stock-Based  Compensation,  are presented in Note
6.

       Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts

                                      F-12

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 30, 1997

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

reported in the financial  statements  and  accompanying  notes.  Actual results
could differ from estimates.

o      Earnings per Share

In February  1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement No. 128, Earnings per Share.  Statement 128 replaced primary and fully
diluted  earnings per share with basic and diluted  earnings  per share.  Unlike
primary  earnings  per share,  basic  earnings  per share  excludes any dilutive
effects of options,  warrants, and convertible securities.  Diluted earnings per
share is very similar to the  previously  reported  fully  diluted  earnings per
share. All earnings per share amounts for all periods have been presented, where
appropriate, restated to conform to the Statement 128 requirements.

o      Recently Issued Accounting Standards

In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income,
Statement  No.  130  establishes  standards  for the  reporting  and  display of
comprehensive income and its components in the financial  statements.  Statement
No. 130 is  effective  for fiscal  years  beginning  after  December  15,  1997.
Reclassification  of  financial  statements  for earlier  periods  provided  for
comparative purposes is required.

In June 1997, the FASB issued Statement No. 131,  Disclosures  about Segments of
an Enterprise and Related Information.  Statement No. 131 establishes  standards
for the way public  business  enterprises  report  information  about  operating
segments in annual financial statements and requires those enterprises to report
selected  information about operating segments in interim financial reports.  It
also establishes  standards for related disclosures about products and services,
geographic  areas,  and major  customers.  Statement  No. 131 is  effective  for
financial  statements  for fiscal  years  beginning  after  December  15,  1997.
Financial Statement disclosures for prior periods are required to be restated.

The  Company  has not yet  determined  the  impact  of  adoption  of  these  two
standards;  however,  the adoption of these standards will have no impact on the
Company's consolidated results of operations, financial position or cash flows.

In February 1998, the FASB cleared Accounting  Standards  Executive  Committee's
(AcSEC)  Statement  of  Position  (SOP),  Reporting  for the  Costs of  Start-Up
Activities, for final issuance subject to certain editorial changes. AcSEC plans
to issue the SOP by June of 1998. The SOP will require entities upon adoption to
write  off as a  cumulative  effect  of a change  in  accounting  principle  any
previously  capitalized  preopening costs. On a prospective basis, this SOP will
require start-up costs to be expensed as incurred. The SOP will be effective for
most entities for fiscal years  beginning  after  December 15, 1998.  The SOP is
effective  fiscal year 1999.  If the Company  adopted the SOP for the year ended
December 30, 1997, the impact on entertainment and restaurant operating expenses
would be $386,402.

                                      F-13

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 30, 1997

3. INITIAL PUBLIC OFFERING

On July 17, 1997, the Company  completed an initial public offering of 2,415,000
shares of its common  stock at an offering  price of $9.00 per share.  Total net
proceeds to the Company  from the  offering,  after  deducting  commissions  and
offering costs were $19,154,524.

4. PREFERRED STOCK

The  Company's  Board of  Directors  has the  authority to issue up to 2,000,000
shares  of  preferred  stock  in one or  more  series  and  to fix  the  rights,
preferences,  privileges and restrictions  thereof,  including  dividend rights,
conversion rights,  voting rights, terms of redemption,  liquidation  preference
and the  number of shares  constituting  any series or the  designation  of such
series.

5. REVOLVING NOTE PAYABLE

On February 24, 1997, the Company  borrowed  approximately  $10,800,000  under a
$12,000,000  revolving line of credit with Intrust Bank, N.A., Wichita,  Kansas.
The proceeds from the borrowing were used to retire certain indebtedness assumed
in  connection  with the Exchange,  including  all notes payable to  affiliates,
notes payable to banks and dividends payable to certain predecessor stockholders
representing  substantially  all of the  undistributed  S  Corporation  earnings
attributable  to such  stockholders  prior to the  Exchange.  The line of credit
required  monthly  payments of interest and was retired upon  completion  of the
Company's initial public offering in July 1997.

6. STOCK OPTIONS

The  Company has  elected to follow APB  Opinion  No. 25,  Accounting  for Stock
Issued to Employees and related  interpretations  in accounting for its employee
stock options because, as discussed below, the alternative fair value accounting
provided  for under  SFAS No.  123,  Accounting  for  Stock-Based  Compensation,
requires the use of option  valuation  models that were not developed for use in
valuing  employee stock options.  Under APB Opinion No. 25, because the exercise
price of the Company's  employee  stock  options  equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

o            1997 Incentive and Nonqualified Stock Option Plan

         In March  1997,  the Board of  Directors  adopted a stock  option  plan
         providing  for  incentive and  nonqualified  stock options  pursuant to
         which up to  1,500,000  shares of common  stock will be  available  for
         issuance.  The Plan covers the Chairman of the Board,  certain officers
         and key employees.  Options granted have a vesting period of five years
         and a life of ten years.

                                      F-14

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 30, 1997

6. STOCK OPTIONS (CONTINUED)

o            Directors' Stock Option Plan

         In March  1997,  the Board of  Directors  adopted a stock  option  plan
         providing for nondiscretionary grants to nonemployee directors pursuant
         to which up to 150,000  shares of common  stock will be  available  for
         issuance.

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123,  which also  requires  the  information  be  determined  as if the
Company has  accounted  for its employee  stock  options  granted under the fair
value of that  Statement.  The fair value method for these options was estimated
at the  date of  grant  using a  Black-Scholes  option  pricing  model  with the
following  weighted-average  assumptions:  risk-free  interest  rate of 5.0%; no
dividend yields; volatility factor of .344; and a weighted-average expected life
of the option of 5 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective assumptions,  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different than those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the option's  vesting  period.  The  Company's  pro
forma information for 1997 follows:

             Pro forma net income                 $838,152
                                               ============
             Pro forma earnings per share:
                Basic                                $0.09
                                               ============
                Diluted                              $0.09
                                               ============

                                      F-15

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 30, 1997


6. STOCK OPTIONS (CONTINUED)

A summary of the Company's stock option activity and related information for the
period ended December 30, 1997, follows:
                                                WEIGHTED
                                                AVERAGE
                                                EXERCISE
                                                 PRICE             OPTIONS
                                                 -----             -------

     Outstanding beginning of period        $       -                    -
        Granted                                  8.89              829,414
        Exercised                                   -                    -
        Canceled                                (9.00)             (16,668)
                                                              =============
     Outstanding end of period              $    8.87              812,746
                                                              =============

As  of  December   30,  1997,   the   Company's   outstanding   options  have  a
weighted-average  exercise  price  of $8.87  and a  weighted  average  remaining
contract  life of 10 years.  There were no options  exercisable  at December 30,
1997.

7. RELATED PARTY TRANSACTIONS

The Company utilizes an affiliate to provide certain accounting,  computer,  and
administrative  services. The Company incurred fees of $337,140 related to these
services for the period ended December 30, 1997.

Additionally,  the Company paid interest to a certain  stockholder in the amount
of $27,315 related to a note payable acquired in the Exchange.

8. LEASES

The Company leases many of its facilities under  noncancelable  operating leases
having terms expiring  between 1998 and 2007. The leases have renewal clauses of
3 to 5 years,  exercisable  at the option of the lessee.  In  addition,  certain
leases  contain  escalation  clauses  based on a fixed  percentage  increase and
provisions for contingent  rentals based on a percentage of gross  revenues,  as
defined by the lease.  Total rental  expense for the period  ended  December 30,
1997, was $846,330, of which $229,218 was paid to a related party. There were no
contingent rentals during 1997.

As of December 30, 1997,  future  minimum  lease  payments  under  noncancelable
operating  leases with initial  terms in excess of one year for each of the next
five years and thereafter total $4,420,195 (1998 - $1,099,437;  1999 - $955,269;
2000 - $801,180; 2001 - $582,520; 2002 - $477,592; and thereafter - $504,197).

                                      F-16

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 30, 1997

9. EARNINGS PER SHARE

Basic and diluted  earnings per share were  calculated by dividing net income of
$980,157 by the weighted average shares outstanding of 9,182,000.

Options to purchase  812,746 shares of common stock at a weighted  average price
of $8.87 per share were  outstanding  during  1997 but were not  included in the
computation  of diluted  earnings per share because the options'  exercise price
was greater than the average  market price of the common shares and,  therefore,
the effect would be antidilutive.

10. INCOME TAXES

The Company's provision for income taxes consists of the following:


         Current:
            Federal                        $378,051
            State                            89,393
                                         -----------
         Total Current                      467,444
         Deferred:
            Federal                          64,165
            State                            13,119
                                         -----------
         Total Deferred                      77,284
                                         ===========
         Total income tax expense          $544,728
                                         ===========

The income tax effects of temporary  differences  that give rise to  significant
portions of deferred income tax assets and liabilities at December 30, 1997, are
as follows:

         Deferred tax assets:
            Preopening and organization costs       $149,151
            Vacation                                  16,456
            Other                                     18,034
         Total deferred tax assets                  --------
                                                     183,641
                                                    ---------
         Deferred tax liabilities:
            Property and equipment                   235,587
            Goodwill                                 103,933
                                                    ---------
         Total deferred tax liabilities              339,520
                                                    =========
         Net deferred tax liabilities               $155,879
                                                    =========

                                      F-17

<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 30, 1997

10. INCOME TAXES (CONTINUED)

A  reconciliation  between  the  reported  provision  for  income  taxes and tax
determined by applying the applicable U.S. Federal  Statutory income tax rate to
income before taxes follows:

                                                         AMOUNT       RATE
                                                         ------       ----
    Income tax expense at federal statutory rate       $518,460       34.0%
    State income taxes, net of federal benefit           65,418        4.3
    Tax credits                                         (59,151)      (3.9)
    Other items,  net, none of which  individually
     exceeds 5% of federal taxes at statutory rates      20,001        1.3
                                                       ========== =========
    Actual income tax expense                          $544,728       35.7%
                                                       ========== =========

11. MARKETABLE SECURITIES

The Company's marketable  securities  (primarily bonds and commercial paper from
municipalities) are classified as available-for-sale  securities. As of December
30,  1997,  the cost and  estimated  fair market value of these  securities  was
$3,315,056.  There have been no realized or unrealized gains and losses recorded
on these securities for 1997.  Interest income during 1997 was $115,806.  All of
the securities have a maturity date of less than one year.

12. FAIR VALUES OF FINANCIAL INSTRUMENTS

The  carrying   amounts   reported  in  the  balance  sheet  for  all  financial
instruments,   including  cash  and  cash  equivalents  and  debt   instruments,
approximate their fair value.

13. COMMITMENTS

As  of  December  30,  1997,  the  Company  has  entered  into  operating  lease
agreements,  subject to certain  contingencies,  on two additional sites.  These
leases generally have initial lease terms of five years and the aggregate future
minimum lease payments total approximately $1,412,000.

Subsequent to December 30, 1997,  the Company has entered into  operating  lease
agreements,  subject to certain  contingencies,  on four  additional  sites with
aggregate future minimum lease payments totaling $2,142,000.

                                      F-18

<PAGE>
                         REPORT OF INDEPENDENT AUDITORS


The Stockholders
F & H Restaurant Corp.


We have audited the accompanying  consolidated balance sheet of F & H Restaurant
Corp.  as of December  31,  1996,  and the related  consolidated  statements  of
income,  stockholders' equity and cash flows for the period from January 1, 1997
through  February  20,  1997 and the period from  November  4, 1996  (inception)
through December 31, 1996. These financial  statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated  financial position of F & H Restaurant
Corp. at December 31, 1996, and the  consolidated  results of its operations and
its cash flows for the period from January 1, 1997 through February 20, 1997 and
for the period from November 4, 1996  (inception)  through December 31, 1996, in
conformity with generally accepted accounting principles.



/S/ ERNST & YOUNG LLP
March 25, 1998
Wichita, Kansas

                                      F-19

<PAGE>
                             F & H RESTAURANT CORP.

                           CONSOLIDATED BALANCE SHEET


                                                                  DECEMBER 31,
                                                                    1996
                                                                 -------------

Assets

Current assets:

   Cash and cash equivalents                                     $   254,463
   Accounts receivable - affiliates                                   28,343
   Accounts receivable                                                 5,003
   Inventories                                                        92,455
   Deferred taxes                                                     47,289
   Other current assets                                               25,758
                                                                 --------------
Total current assets                                                 453,311

Property and equipment:

   Leasehold improvements                                          1,150,312
   Equipment                                                         821,295
   Furniture and fixtures                                            151,416
                                                                 --------------
                                                                   2,123,023
   Less accumulated depreciation and amortization                     19,302
                                                                 --------------
                                                                   2,103,721
Other assets:

   Goodwill, net of accumulated amortization of $11,776            3,436,290
   Other assets                                                       15,760
                                                                 --------------
Total other assets                                                 3,452,050
                                                                 --------------

Total assets                                                      $6,009,082
                                                                 ==============

                                      F-20

<PAGE>

                                                               DECEMBER 31, 1996
                                                               -----------------

Liabilities and stockholders' equity:
 Current liabilities
   Note payable to stockholder                                    $1,500,000
   Notes payable to affiliates                                       233,000
   Amounts due to sellers                                          3,030,071
   Accounts payable                                                   66,363
   Accounts payable - affiliates                                      15,128
   Accrued liabilities:
      Sales tax payable                                               70,057
      Accrued payroll                                                 69,298
      Insurance                                                       29,765
      Other                                                           61,672
   Current maturities - long-term debt                               463,465
                                                                 --------------
   Total current liabilities                                       5,538,819

Deferred income taxes                                                 67,057
Minority interest                                                    390,214
Commitments                                                                -

Stockholders' equity
   Common stock, no par value; 1,000 shares authorized,
    issued and outstanding
                                                                       1,000
   Retained earnings                                                  11,992
                                                                 --------------
Total stockholders' equity                                            12,992
                                                                 --------------

Total liabilities and stockholders' equity                        $6,009,082
                                                                 ==============



                 See notes to consolidated financial statements.

                                      F-21

<PAGE>
                             F & H RESTAURANT CORP.

                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                                PERIOD FROM         PERIOD FROM NOVEMBER 4,
                                                          JANUARY 1, 1997 THROUGH  1996 (INCEPTION) THROUGH
                                                             FEBRUARY 20, 1997         DECEMBER 31, 1996
                                                          -------------------------------------------------

<S>                                                              <C>                       <C>
Net sales                                                        $858,312                  $384,522

Cost and expenses:
   Cost of sales                                                  245,371                  115,725
   Entertainment and restaurant operating expenses                392,967                  185,430
   Depreciation and amortization                                   58,688                   27,179
                                                           -----------------------------------------
Entertainment and restaurant costs and expenses                   697,026                  328,334
                                                           -----------------------------------------
Entertainment and restaurant operating income                     161,286                   56,188

General and administrative expenses:
   Related parties                                                 30,187                   15,797
   Other                                                            5,647                    4,337
                                                           -----------------------------------------
Income from operations                                            125,452                   36,054
Other income (expense):
   Other income                                                        64                    4,775
   Interest expense:
      Related parties                                             (63,250)                 (12,256)
      Other                                                             -                   (3,427)
                                                           -----------------------------------------
Income before income taxes and minority interest                   62,266                   25,146
Provision for income taxes                                         10,440                    3,181
Minority interest                                                  34,428                    9,973

                                                           =========================================
Net income                                                      $  17,398                $  11,992
                                                           =========================================
</TABLE>

                 See notes to consolidated financial statements.

                                      F-22

<PAGE>
                             F & H RESTAURANT CORP.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                              COMMON STOCK
                                                 ----------------------------------------
                                                                                            RETAINED
                                                        NUMBER             AMOUNT           EARNINGS             TOTAL
                                                 -------------------------------------------------------------------------

<S>                                                      <C>                <C>              <C>              <C>
Balance at November 4, 1996
   (inception)                                               -              $    -           $     -          $     -
   Issuance of common stock                              1,000               1,000                 -            1,000
   Net income                                                -                   -            11,992           11,992
                                                 -------------------------------------------------------------------------
Balance at December 31, 1996                             1,000               1,000            11,992           12,992
   Net income                                                -                   -            17,398           17,398
                                                 -------------------------------------------------------------------------
Balance at February 20, 1997                             1,000              $1,000           $29,390          $30,390
                                                 ===========================================================================
</TABLE>

                 See notes to consolidated financial statements.

                                      F-23

<PAGE>

                             F & H RESTAURANT CORP.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                          PERIOD FROM         PERIOD FROM NOVEMBER 4,
                                                                    JANUARY 1, 1997 THROUGH   1996 (INCEPTION) THROUGH
                                                                       FEBRUARY 20, 1997         DECEMBER 31, 1996
                                                                   ---------------------------------------------------
Operating Activities
<S>                                                                  <C>                          <C>
Net income                                                           $       17,398               $     11,992
Adjustments to reconcile net income to net cash provided by
 operating activities:
      Depreciation and amortization                                          58,688                    31,156
      Deferred taxes                                                          7,199                     1,809
      Minority interest in income of subsidiaries                            34,428                     9,973
      Net change in operating assets and liabilities:
         Accounts receivable                                                (21,767)                    7,041
         Inventories                                                          5,695                      (414)
         Other current assets                                               (47,505)                   11,562
         Other assets                                                        11,192                         -
         Accounts payable                                                    66,618                   (20,926)
         Accrued liabilities                                                (59,205)                    5,026
                                                                   -----------------------------------------------
Net cash provided by operating activities                                    72,741                    57,219
Investing Activities
   Payment for purchase of interest in Fox & Hound
    Entertainment and Restaurant Group,
      net of cash acquired                                                        -                (1,327,925)
   Purchases of property and equipment                                            -                    (7,517)
   Proceeds from sale of property and equipment                               2,963                         -
   Other                                                                          -                    (1,000)
                                                                   -----------------------------------------------
Net cash provided by (used in) investing activities                           2,963                (1,336,442)
Financing Activities
   Net proceeds from issuance of common stock                                     -                     1,000
   Proceeds from notes payable - stockholder                                      -                 1,500,000
   Payment of note receivable - partner                                           -                    42,322
   Net proceeds from short term note payable to affiliate                 5,232,515                         -
   Payment of notes payable - stockholder                                (1,500,000)                        -
   Payment of notes payable - affiliates                                   (233,000)                        -
   Payment of amounts due to sellers                                     (3,030,071)                        -
   Payment of long-term debt                                               (463,465)                   (9,636)
                                                                   -----------------------------------------------
Net cash provided by financing activities                                     5,979                 1,533,686
                                                                   -----------------------------------------------
Net increase in cash and cash equivalents                                    81,683                   254,463
Cash and cash equivalents at beginning of period                            254,463                         -
                                                                   ===============================================
Cash and cash equivalents at end of period                           $      336,146               $   254,463
                                                                   ===============================================
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest                                               $       29,989               $    11,628
</TABLE>


                 See notes to consolidated financial statements.

                                      F-24

<PAGE>
                             F & H RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. DESCRIPTION OF BUSINESS AND ACQUISITION

F&H Restaurant Corp. (FHRC) was organized as a Delaware  corporation on November
4, 1996,  for the purpose of acquiring a 75%  partnership  interest in the Fox &
Hound Entertainment and Restaurant Group (FHERG). FHERG owned and operated three
entertainment  restaurant locations in the state of Texas under the name of "Fox
& Hound  English Pub and Grille." The  acquisition  was completed on December 6,
1996; thus, the accompanying  consolidated  financial  statements as of December
31, 1996 and for the period  from  November 4, 1996  through  December  31, 1996
include 25 days of operations of FHERG.

The acquisition  was financed by a loan from a principal  stockholder of FHRC in
the initial amount of $1,500,000 and an additional loan from such stockholder of
$3,030,071  in  January  1997.  The  aggregate  consideration  paid by FHRC  was
$4,568,995,  consisting  of  $1,538,924  in  cash  and  a  promissory  note  for
$3,030,071 which was due January 2, 1997.

The acquisition was accounted for as a purchase and,  accordingly,  the acquired
underlying  assets and liabilities  were recorded at their estimated fair values
at  the  date  of  acquisition.   The   acquisition   resulted  in  goodwill  of
approximately  $3,448,000  which is being amortized over 20 years.  The purchase
price allocation to the assets and liabilities acquired was as follows:

            Assets acquired
               Current assets                                 $  388,913
               Property and equipment                          2,115,506
               Goodwill and other assets                       3,504,158
                                                             ------------
                  Total assets acquired                        6,008,577
                                                             ------------

            Liabilities assumed
               Current liabilities                               520,191
               Long-term debt (including current portion)        473,101
               Other                                              66,049
                                                             ------------
                  Total liabilities assumed                    1,059,341
                                                             ------------

            Net assets acquired                                4,949,236
            Minority interest                                    380,241
                                                             ============
               Total purchase price allocated                 $4,568,995
                                                             ============

2. SIGNIFICANT ACCOUNTING POLICIES

       Consolidation

The  accompanying  financial  statements  include  the  accounts of FHRC and its
majority-owned  subsidiaries.  All significant  intercompany  accounts have been
eliminated.

                                      F-25

<PAGE>
                             F & H RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       Cash and Cash Equivalents

FHRC considers cash and cash  equivalents  to include  currency on hand,  demand
deposits with banks or financial  institutions,  and short-term investments with
maturities of three months or less when purchased. Cash and cash equivalents are
carried at cost which approximates fair value.

       Inventories

Inventories  consist of food and  beverages  and are stated at the lower of cost
(first-in, first-out) or market.

o      Property and Equipment

Property and  equipment  are stated at cost.  Maintenance,  repairs and renewals
which do not  enhance  the  value of or  increase  the  life of the  assets  are
expensed as incurred.

Leasehold improvements are amortized on the straight-line method over the lesser
of the maximum life of the lease or 20 years,  or the estimated  useful lives of
the assets.  Equipment  and  furniture  and fixtures are  depreciated  using the
straight-line  method over the estimated useful lives of the assets, which range
from five to seven years.

o      Goodwill

Goodwill  represents the excess of the  acquisition  cost of the 75% interest in
FHERG over the fair value of its net  assets at the date of  acquisition  and is
being amortized on a straight-line  method over 20 years.  The carrying value of
goodwill will be reviewed if the facts and circumstances  suggest that it may be
impaired.

o      Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from estimates.

o      Income Taxes

Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases. Valuation allowances are established when necessary to reduce

                                      F-26

<PAGE>
                             F & H RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

deferred tax assets to the amounts expected to be realized.  Deferred tax assets
and  liabilities  are  measured  using  enacted  tax rates  expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

3. NOTE PAYABLE - STOCKHOLDER

At  December  31,  1996,  FHRC had an  outstanding  note  payable to a principal
stockholder for $1,500,000. This note was payable on demand and accrued interest
at the prime  interest  rate as published in the Wall Street  Journal  (8.25% at
December 31, 1996). In January of 1997, this note was increased by $3,030,071 to
pay the remaining  amount due to sellers in the acquisition as described in Note
1.  Subsequent to the Exchange  Transaction  (Note 9), this note was  refinanced
with a note payable to Total Entertainment Restaurant Corp.

4. NOTES PAYABLE TO AFFILIATES

Notes  payable  to  affiliates  represents  notes to certain  partners  of FHERG
totaling  $233,000 at December 31, 1996.  These notes were payable on demand and
accrued interest at 10%.  Subsequent to the Exchange  Transaction (Note 9), this
note was refinanced with a note payable to Total Entertainment Restaurant Corp.

5. LONG-TERM DEBT

Long-term debt at December 31, 1996 consists of the following:
<TABLE>
<CAPTION>

       Installment loan to bank,  payable in varying monthly payments  including
       interest at the bank's base rate plus 2% (10.25% at December  31,  1996),
       due September  1999,  secured by leasehold  improvements  and  restaurant
       equipment  with  an  approximate  carrying  value  of  $1,960,000  and  a
       guarantee from a general partner.
<S>                                                                                      <C>
                                                                                         $110,058
       Installment  loan to bank payable in varying monthly  payments  including
       interest at the bank's base rate plus 1.5% (11.25% at December  31,1996),
       due September  2000,  secured by leasehold  improvements  and  restaurant
       equipment  with  an  approximate  carrying  value  of  $1,960,000  and  a
       guarantee from several partners
                                                                                          353,407
                                                                                          -------
       Less current portion                                                               463,465
                                                                                          463,465
                                                                                         --------
                                                                                         $      -
                                                                                         ========
</TABLE>

                                      F-27

<PAGE>
                             F & H RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5. LONG-TERM DEBT (CONTINUED)

Subsequent to the  acquisition  of FHRC as described in Note 9, the  installment
notes  payable  were  refinanced  with a note  payable  to  Total  Entertainment
Restaurant Corp. Accordingly, the installment notes payable have been classified
as current.

6. RELATED PARTY TRANSACTIONS

FHRC   utilizes  an   affiliate   to  provide   certain   accounting,   computer
administrative  services and certain management services.  FHRC incurred fees of
$30,187 and $15,797  related to such services for the periods ended February 20,
1997 and December 31, 1996, respectively.

7. LEASES

FHRC leases two entertainment  restaurant  locations from affiliates and another
from a third party. These leases are noncancelable operating leases having terms
expiring  between  1999 and 2000.  The leases  have  renewal  clauses of 5 to 20
years, exercisable at the option of the lessee. FHRC also leases various office,
entertainment  and restaurant  equipment under  noncancelable  operating  leases
having terms from one to three years. Total rental expense for the periods ended
February 20, 1997 and December 31, 1996, was $23,568 and $19,066,  respectively,
including $20,838 and $17,786, respectively, involving related parties.

Remaining  minimum lease payments under  operating  leases in effect at December
31, 1996, are as follows:

                              RELATED      UNRELATED
        FISCAL YEAR           PARTIES      PARTIES       TOTAL
                              --------     ----------    -----

        1997                  $193,416     $36,132      $229,548
        1998                   178,416      36,132       214,548
        1999                   178,416      10,588       189,004
        2000                   163,548           -       163,548

                                      F-28

<PAGE>
                             F & H RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8. INCOME TAXES

Significant components of the provision for income taxes are as follows:

                                      PERIOD FROM               PERIOD FROM
                                    JANUARY 1, 1997          NOVEMBER 4, 1996
                                        THROUGH                   THROUGH
                                   FEBRUARY 20, 1997         DECEMBER 31, 1996
                                   -----------------         -----------------

     Current:
        Federal                        $ 3,109                   $  318
        State                              132                    1,054
                                   ------------------------------------------
           Total current                 3,241                   $1,372
     Deferred:
        Federal                          6,393                    1,206
        State                              806                      603
                                   ------------------------------------------
           Total deferred                7,199                    1,809
                                   ==========================================
     Total income tax expense          $10,440                   $3,181
                                   ==========================================


Significant components of FHRC's deferred tax assets and liabilities at December
31, 1996, are as follows:

     Deferred tax assets:
        Other assets                                 $47,289

     Deferred tax liabilities:
        Property and equipment                           889
        Goodwill and other assets                     66,168
                                                     --------
                                                      67,057
                                                     ========
     Net deferred tax liabilities                    $19,768
                                                     ========

                                      F-29

<PAGE>
                             F & H RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8. INCOME TAXES (CONTINUED)

The  reconciliation of income tax expense computed at the U.S. federal statutory
rate to the actual  income tax expense for the periods  ended  February 20, 1997
and December 31, 1996, respectively, is:

<TABLE>
<CAPTION>

                                                  PERIOD FROM JANUARY 1,           PERIOD FROM NOVEMBER
                                                      1997 THROUGH                   4, 1996 THROUGH
                                                     FEBRUARY 20, 1997              DECEMBER 31, 1996
                                                -------------------------------- ------------------------
                                                  AMOUNT           RATE            AMOUNT         RATE
                                                ----------        ------         --------         -----
<S>                                             <C>                 <C>           <C>             <C>
Income tax expense at federal statutory rate    $  9,465            34%           $5,158           34%
State income taxes, net of federal benefit         1,194             4             1,077            4
Tax credits                                       (2,366)           (8)           (2,581)         (10)
Effect of graduated tax rates                          -             -            (1,386)         (19)
Other                                              2,147             8               913            4
                                                =========================================================
Actual income tax expense                       $ 10,440            38%           $3,181           21%
                                                =========================================================
</TABLE>

9. EXCHANGE TRANSACTION

On February 20, 1997, the stockholders of FHRC completed an Exchange Transaction
whereby they exchanged all of their  interests in FHRC's common stock for common
stock of Total Entertainment  Restaurant Corp.  Subsequent to the acquisition of
FHRC, the long-term installment note payable of $463,465,  the note payable to a
stockholder  of  $4,530,071  and the note payable to affiliates of $233,000 were
refinanced with a short-term loan from Total Entertainment Restaurant Corp. from
funds it obtained from a revolving  note payable to a bank.  The aggregate  debt
related to this refinancing was $5,226,536.

10. FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amount reported in the balance sheet for all financial instruments,
including cash and cash equivalents and debt instruments,  approximates its fair
value.

                                      F-30

<PAGE>
                         REPORT OF INDEPENDENT AUDITORS


The Partners
Fox & Hound Entertainment and Restaurant Group

We  have  audited  the  accompanying  combined  balance  sheet  of  Fox &  Hound
Entertainment  and  Restaurant  Group as of December 31,  1996,  and the related
combined statements of income, partners' equity and cash flows for the two years
in the period ended  December  31,  1996.  These  financial  statements  are the
responsibility  of  the  Fox  &  Hound   Entertainment  and  Restaurant  Group's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  combined  financial  position  of  Fox  &  Hound
Entertainment  and  Restaurant  Group at December  31,  1996,  and the  combined
results  of its  operations  and its cash  flows for the two years in the period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.


/S/ ERNST & YOUNG LLP
March 10, 1997
Wichita, Kansas

                                      F-31

<PAGE>
                 FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP

                             COMBINED BALANCE SHEET


                                                              DECEMBER 31,
                                                                 1996
                                                              ------------

Assets

Current assets:
   Cash and cash equivalents                                  $  252,229
   Accounts receivable                                             5,003
   Accounts receivable - affiliates                               27,343
   Inventories                                                    92,455
   Other current assets                                           25,758
                                                              -----------
Total current assets                                             402,788

Property and equipment:
   Leasehold improvements                                      1,252,445
   Equipment                                                   1,048,438
   Furniture and fixtures                                        186,232
                                                              ----------
                                                               2,487,115
   Less accumulated depreciation and amortization                383,394
                                                              ----------
                                                               2,103,721
Other assets                                                      13,720
                                                              ----------
Total assets                                                  $2,520,229
                                                              ==========

                                      F-32

<PAGE>

                                                              DECEMBER 31, 1996
                                                             -------------------

Liabilities and stockholders' equity:
Current liabilities
   Notes payable - partners                                     $  233,000
   Accounts payable                                                 66,363
   Accrued liabilities:
      Sales and gross receipts tax payable                          70,057
      Payroll and related expenses                                  69,298
      Insurance                                                     29,765
      Other                                                         24,363
   Current maturities - long-term debt                             463,465
                                                             ----------------
   Total current liabilities                                       956,311


Commitments                                                              -

Partners' equity                                                 1,563,918
                                                             ----------------


Total liabilities and partners' equity                          $2,520,229
                                                             ================



                   See notes to combined financial statements.

                                      F-33

<PAGE>
                 FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP

                          COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                              YEAR ENDED DECEMBER 31,
                                                           1996                     1995
                                                       ------------------------------------

<S>                                                    <C>                      <C>
Net sales                                              $5,506,697               $2,617,834

Cost and expenses:
   Cost of sales                                        1,721,088                  824,089
   Entertainment and restaurant operating expenses      2,759,146                1,390,982
   Depreciation and amortization                          310,512                  224,219
                                                       -----------------------------------
Entertainment and restaurant costs and expenses         4,790,746                2,439,290
                                                       -----------------------------------
Entertainment and restaurant operating income             715,951                  178,544

General and administrative expenses:
   Related parties                                        225,600                   29,820
   Other                                                   70,416                   39,524
                                                       -----------------------------------
Income from operations                                    419,935                  109,200
Other income (expense):
   Other income                                            23,370                   15,384
   Interest expense:
      Related parties                                     (18,945)                  (6,398)
      Other                                               (59,868)                 (22,388)
                                                       -----------------------------------
                                                          (55,443)                 (13,402)
                                                       -----------------------------------
Net income                                             $  364,492               $   95,798
                                                       ===================================
</TABLE>


                   See notes to combined financial statements.

                                      F-34

<PAGE>
                 FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP

                     COMBINED STATEMENTS OF PARTNERS' EQUITY

<TABLE>
<CAPTION>

                                                         NOTE                                      TOTAL
                                                      RECEIVABLE            PARTNERS'            PARTNERS'
                                                        PARTNER               EQUITY               EQUITY
                                                  ---------------------------------------------------------

<S>                                                 <C>                     <C>                 <C>
            Balance at December 31, 1994            $          -            $1,012,028          $1,012,028
               Contributed capital                       (50,000)              750,000             700,000
               Partners' distributions                         -              (248,400)           (248,400)
               Net income                                      -                95,798              95,798
                                                  --------------------------------------------------------
            Balance at December 31, 1995                 (50,000)            1,609,426           1,559,426
               Partners' distributions                         -              (410,000)           (410,000)
               Proceeds from note receivable              50,000                     -              50,000
               Net income                                      -               364,492             364,492
                                                  ========================================================
            Balance at December 31, 1996             $         -            $1,563,918          $1,563,918
                                                  ========================================================
</TABLE>


                   See notes to combined financial statements.

                                      F-35

<PAGE>
                 FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP

                        COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                         YEAR ENDED DECEMBER 31,
                                                                     1996                       1995
                                                                  ------------------------------------
Operating Activities
<S>                                                                <C>                      <C>
Net income                                                         $ 364,492                $   95,798
Adjustments to reconcile net income to net cash provided
   by operating activities:
      Depreciation and amortization                                  310,512                   224,219
      Net change in operating assets and liabilities:
         Accounts receivable                                           7,689                   (31,295)
         Inventories                                                 (16,737)                  (44,194)
         Preopening costs                                                  -                   (87,818)
         Other current assets                                         18,350                     7,208
         Accounts payable                                             62,016                    (3,420)
         Accrued liabilities                                          12,280                    52,376
                                                                  ------------------------------------
Net cash provided by operating activities                            758,602                   212,874

Investing Activities
   Purchases of property and equipment                              (371,212)                 (995,186)
   Other                                                               7,195                    (5,971)
                                                                  ------------------------------------
Net cash used in investing activities                               (364,017)               (1,001,157)

Financing Activities
   Capital contributions                                              50,000                   700,000
   Proceeds from long-term debt                                            -                   450,000
   Proceeds from note payable - partner                               70,000                   158,000
   Payment of long-term debt                                        (132,875)                  (46,367)
   Partner distributions                                            (410,000)                 (248,400)
                                                                  ------------------------------------
Net cash (used in) provided by financing activities                 (422,875)                1,013,233
Net (decrease) increase in cash and cash equivalents                 (28,290)                  224,950
Cash and cash equivalents at beginning of period                     280,519                    55,569
                                                                  ====================================
Cash and cash equivalents at end of period                         $ 252,229               $   280,519
                                                                  ====================================


Supplemental Disclosure of Cash Flow Information:
Cash paid for interest                                            $   79,118               $    24,426
</TABLE>


                   See notes to combined financial statements.

                                      F-36

<PAGE>
                 FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996


1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Business Description

The accompanying  combined financial statements include the assets,  liabilities
and  operations  associated  with the limited  partnerships  listed  below.  The
combined  partnerships are collectively referred to as Fox & Hound Entertainment
and Restaurant Group (FHERG).  Pursuant to an acquisition agreement entered into
on December 6, 1996, a 75% partnership  interest was purchased from each partner
by F&H Restaurant Corp. All such limited  partnerships  have been presented on a
combined basis because they have common  partners and management and significant
interrelated  activities.  All significant  intercompany  transactions have been
eliminated.

           Entity                                  Store Opening Date
           ------                                  ------------------
           Midway Entertainment, Ltd.              November 30, 1995
           505 Entertainment, Ltd.                 September 10, 1994
           North Collins Entertainment, Ltd.       August 29, 1994

Each of the above  entities  operates  a  stand-alone  entertainment  restaurant
location  in the state of Texas  under the name of "Fox & Hound  English Pub and
Grille."

Significant Accounting Policies

o      Cash and Cash Equivalents

FHERG considers cash and cash  equivalents to include  currency on hand,  demand
deposits with banks or other financial institutions,  and short-term investments
with  maturities  of  three  months  or  less  when  purchased.  Cash  and  cash
equivalents are carried at cost which approximates fair value.

o      Inventories

Inventories  consist of food and beverages,  and are stated at the lower of cost
(first-in, first-out) or market.

o      Property and Equipment

Property and  equipment  are stated at cost.  Maintenance,  repairs and renewals
which do not  enhance  the  value of or  increase  the  life of the  assets  are
expensed as incurred.

Leasehold improvements are amortized on the straight-line method over the lesser
of the maximum life of the lease or 20 years,  or the estimated  useful lives of
the assets.  Equipment  and  furniture  and fixtures are  depreciated  using the
straight-line method over seven years, which is


                                      F-37

<PAGE>
                 FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996


ESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

the estimated useful life of the assets.  Depreciation  expense incurred for the
years ended December 31, 1996 and 1995 was approximately  $128,900 and $122,000,
respectively.

o      Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from estimates.

       Pre-opening Costs

Labor costs and costs of hiring and training  personnel  and certain other costs
relating to opening new entertainment restaurant locations are capitalized until
the  entertainment  restaurant  location  is open  and then  amortized  over the
subsequent 12 months.  Accumulated  amortization  related to such  entertainment
restaurant locations was approximately $237,800 at December 31, 1996.

o      Income Taxes

The entities  comprising  FHERG are limited  partnerships  and are taxed as such
pursuant  to the  Internal  Revenue  Code and are not  individually  subject  to
federal or state income taxes because  their  taxable  income or loss accrues to
the  individual  partners or members.  Accordingly,  the  accompanying  combined
financial statements do not include a provision for income taxes.

2. NOTES PAYABLE

At December 31, 1995, FHERG had an available line of credit with a bank of up to
$450,000.  Interest  was payable on the  outstanding  balance at the bank's base
rate plus 2%.  Borrowings  under the line of credit were  guaranteed  by several
partners  of FHERG.  The note  matured  in May 1996 and was  refinanced  with an
installment  loan  with the  bank  (see  Note  4).  Notes  payable  to  partners
represents  notes to certain  partners  totaling  $233,000 at December 31, 1996.
These notes are payable on demand and accrue interest at 10%.

                                      F-38

<PAGE>
                 FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



4. LONG-TERM DEBT

Long-term debt at December 31, 1996 consisted of the following:

<TABLE>
<CAPTION>

   Installment  loan to bank,  payable in  varying  monthly  payments  including
   interest at the bank's base rate plus 2% (10.25% at December 31,  1996),  due
   September 1999,  secured by leasehold  improvements and restaurant  equipment
<S>                                                                                   <C>
   and a guarantee from a general partner.............................................$110,058

   Installment  loan to bank  payable  in  varying  monthly  payments  including
   interest at the bank's base rate plus 1.5% (11.25% at December 31,1996),  due
   September 2000,  secured by leasehold  improvements and restaurant  equipment
   and a guarantee from several partners...............................................353,407
                                                                                       -------
                                                                                       463,465
   Less current portion................................................................463,465
                                                                                       -------
                                                                                      $     -
                                                                                      ========
</TABLE>

In  connection  with  the  acquisition  of  FHERG  as  described  in Note 8, the
installment  notes  payable were  refinanced  with a short-term  note payable to
Total Entertainment Restaurant Corp. Accordingly,  the installment notes payable
have been classified as current portion of long-term debt.

5. RELATED PARTY TRANSACTIONS

FHERG   utilizes   certain   affiliates   to   provide   accounting,   computer,
administrative  services and certain management  services.  The Company incurred
fees of $225,600 and $29,820 related to these services for fiscal years 1996 and
1995, respectively.

6. LEASES

FHERG leases two entertainment  restaurant locations from affiliates and another
from a third party. These leases are noncancelable operating leases having terms
expiring  between  1999 and 2000.  The leases  have  renewal  clauses of 5 to 20
years,  exercisable  at the  option of the  lessee.  FHERG also  leases  various
office,  entertainment and restaurant  equipment under  noncancelable  operating
leases having terms from one to three years.  Total rental expense for the years
ended  December  31, 1996 and 1995,  was $306,280  and  $123,546,  respectively,
including $260,400 and $77,600, respectively, involving related parties.

                                      F-39

<PAGE>
                 FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



6. LEASES (CONTINUED)

Remaining  minimum lease payments under  operating  leases in effect at December
31, 1996, are as follows:

                                   RELATED      UNRELATED
        FISCAL YEAR                PARTIES       PARTIES              TOTAL
                                  ---------     ----------           -------

        1997                       $193,416      $36,132             $229,548
        1998                        178,416       36,132              214,548
        1999                        178,416       10,588              189,004
        2000                        163,548            -              163,548

7. FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amount reported in the balance sheet for all financial instruments,
including cash and cash equivalents and all debt instruments,  approximates fair
value.

8. EXCHANGE TRANSACTION

On February 20, 1997,  the partners of FHERG  completed an Exchange  Transaction
whereby  they  exchanged  all of  their  interests  for  common  stock  of Total
Entertainment Restaurant Corp. Subsequent to the Exchange Transaction, long-term
installment  notes payable of $463,465 were  refinanced  with a short-term  loan
from  Total  Entertainment  Restaurant  Corp.  from  funds  it  obtained  from a
revolving note payable to a bank.

                                      F-40