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 29, 1998
                                         -----------------

/ /           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
incorporation or organization)                     identification no.)


                           9300 E. CENTRAL, SUITE 100
                                WICHITA, KS 67206
               (Address of principal executive offices) (Zip code)

                                 (316) 634-0505
              (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 19,  1999,  the  aggregate  market  value of the  Registrant's
Common Stock held by  non-affiliates  of the Registrant was $22,945,504.  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 19, 1999,  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                                                       12
   3.    Legal Proceedings                                                12
   4.    Submission of Matters to a Vote of Security Holders              12


                                     PART II

   5.    Market for the  Registrant's  Common  Equity and Related         13
         Stockholder Matters
   6.    Selected Financial Data                                          15
   7.    Management's   Discussion   and  Analysis  of  Financial
         Condition and Results of Operations                              16
  7A.    Quantitative  and Qualitative  Disclosures  About Market
         Risk                                                             21
   8.    Financial Statements and Supplementary Data                      21
   9.    Changes  in  and   Disagreements   with  Accountants  on
         Accounting and Financial Disclosure                              21


                                    PART III

  10.    Directors and Executive Officers of the Registrant               21
  11.    Executive Compensation                                           21
  12.    Security Ownership of Certain Beneficial Owners and Management   22
  13.    Certain Relationships and Related Transactions                   22


                                     PART IV

  14.    Exhibits, Financial Statement 
         Schedules, and Reports on Form 8-K                               22

         Signatures                                                       25

                                      -2-
<PAGE>
                                     PART I

ITEM 1.           BUSINESS
                  --------

GENERAL

     Total  Entertainment   Restaurant  Corp.,  a  Delaware   corporation  ("the
Company"), owns and operates 37 entertainment restaurant locations which utilize
the Fox and Hound English Pub & Grille ("Fox and Hound"), Bailey's Sports Grille
and Bailey's Pub & 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 and  Hound and  Bailey's  encompass  the  Company's
multi-dimensional  concept  and serve both  larger  urban and  smaller  regional
markets. The Company operates in one business segment.

      The first  Bailey's unit was opened in Charlotte,  North  Carolina in 1989
and the first Fox and Hound unit was opened in  Arlington,  Texas in 1994. As of
March 19,  1999,  the  Company  owns and  operates 24 Fox and Hound units and 13
Bailey's units in Alabama, Arkansas,  Illinois,  Indiana, Iowa, Georgia, Kansas,
Louisiana,  Michigan,  Missouri,  Nebraska,  North Carolina, Ohio, Pennsylvania,
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  "Subsidiary  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 and 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:  

     0    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.

     0    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

                                      -3-
<PAGE>

          premium craft beers. Food and beverages can be enjoyed in all areas of
          each location.

     0    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  mega-screen TV's) with satellite and
          cable coverage of national, regional and local sporting events.

     0    Games of Skill.  The Company's  concepts  offer  traditional  games of
          skill, including pocket billiards featuring tournament-quality tables,
          shuffleboard and darts. Most locations also offer a variety of popular
          interactive games.

     0    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
Franchise Services Company, a third party accounting and administrative services
company.  By employing  the services  and  infrastructure  provided by Franchise
Services Company, 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 plans to open up to eight locations in
1999 (five of which were opened during the first quarter of 1999) and between 10
and 12  locations  in 2000.  The Company is  currently  evaluating  locations in
markets  that  are  familiar  to  its  management  team  and  will  be  actively
negotiating additional leases at a number of sites.

     Flexibility  and Versatility of Concept.  The Company is  implementing  its
concept  through both the Fox and 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 and Hound

      Arlington, TX           August 1994                   6,500
      College Station, TX     September 1994                7,700
      Dallas, TX              December 1995                 9,600
      Memphis #1, TN          September 1997                8,400
      Omaha, NE               December 1997                 9,000
      Chicago, IL             December 1997                10,100
      Montgomery, AL          January 1998                  7,700
      Cleveland, OH           May 1998                      8,500
      Davenport, IA           June 1998                    10,000
      Evansville, IN          July 1998                     8,600
      Springfield, MO         August 1998                   9,100
      San Antonio, TX         August 1998                   8,400
      Erie, PA                August 1998                  10,400
      Lubbock, TX             October 1998                 10,600
      Dayton, OH              October 1998                  8,700
      Memphis #2, TN          November 1998                 7,600
      Overland Park, KS       November 1998                 9,100
      Canton, OH              November 1998                 9,700
      New Orleans, LA         December 1998                 9,200
      Pittsburgh, PA          January 1999                 10,500
      Winston-Salem, NC       January 1999                  9,400
      Indianapolis, IN        February 1999                 8,400
      Houston, TX             February 1999                 9,100
      Baton Rouge, LA         March 1999                   11,500
                                                        
      Bailey's Sports Grille                            
                                                        
      Charlotte #1, NC        November 1989                 6,100
      Charlotte #2, NC        October 1990                  7,600
      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
                                                        
      Bailey's Pub & Grille                             
                                                        
      Atlanta, GA             October 1998                  8,500
      Detroit, MI             November 1998                 9,100
      Chapel Hill, NC         December 1998                 9,000
                                                


                                      -5-
<PAGE>
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 eight entertainment  restaurant locations in 1999 (five of which were
opened during the first quarter of 1999) and between 10 to 12 locations in 2000.
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.

     The  Company  may in the future  franchise  and/or  grant  license or joint
venture  rights to the Fox and Hound and  Bailey's  concepts in certain  limited
geographic  areas of the United States.  It is expected that these  franchisees,
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,  Co-Chairman,  and  Thomas A.  Hager,  a
director  of the  Company.  Such  license is  anticipated  to grant the right to
operate  up to eight  locations  utilizing  the "Fox  and  Hound"  name in North
Carolina. The Company has granted to Stephen P. Hartnett, Co-Chairman, the right
to operate one "Fox & Hound" concept in Dallas, Texas without the payment of any
license fee.

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 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 approximately 1.0 to
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 $1.6 million and $1.5 million
in sales during fiscal


                                      -6-
<PAGE>

years ended  December 29, 1998 and December  30, 1997,  respectively.  Of the 32
units open at December 29, 1998,  31 were leased  facilities  and had an average
cash  investment  of  $1,093,000.  The one  open  unit the  Company  owned as of
December  29, 1998  had a cost of  $1,756,000  (including  the  costs  for  land
acquisition,  construction,  equipment and pre-opening costs). In the future the
Company  anticipates  most  locations  will be leased rather than  purchased and
anticipates  an average cash  investment  per unit between $1.2 million and $1.5
million.

MENU

     Both  Bailey's  and Fox and 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,  pizzas,  pastas and burgers, a selection of
grilled entrees and desserts.  Appetizers typically range in price from $3.99 to
$6.99,  and entrees range from $5.29 to $13.99,  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
56% of the Company's revenues in the fiscal year ended December 29, 1998.

AMBIANCE AND DESIGN

     Fox and Hound.  The Fox and Hound and Bailey's  Pub & Grille  entertainment
restaurant  concepts  incorporate 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 and Hound features a full service
restaurant  and bar as well  as  state-of-the-art  audio  and  video  technology
(including  several  mega-screen  TV's) 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
locations are also capable of  accommodating  business and social  organizations
for special events.

     Fox and Hound is the evolution of a concept originally conceived by Stephen
P. Hartnett,  Co-Chairman. The first Fox & Hound unit was opened in August 1994.
Management  believes the design of Fox and 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 guests 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  Sports  Grille  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.  Most
locations  also  feature a variety of popular  interactive  games.  Like Fox and
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 Dennis L.
Thompson,  Co-Chairman and Thomas A. Hager, a director of the Company. The first
Bailey's unit opened in Charlotte,  North Carolina in November  1989.  There are
presently ten locations operating in

                                      -7-
<PAGE>

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 (twenty-one Fox and Hound units, three
Bailey's  Pub  &  Grille  units  and  one  Bailey's  Sports  Grille  unit)  have
incorporated  the layout and design of the Fox and Hound unit in Dallas,  Texas.
The Company  anticipates  this layout and design will be utilized for all future
locations for all three concepts.

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  media in selected markets.  These media 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 the 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.

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
between two and four  supporting  managers  depending  upon unit  revenue.  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 and
Hound and Bailey's  locations and meets with the respective  management teams to
ensure compliance with the Company's strategies and standards of quality.

     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


                                      -8-
<PAGE>

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.

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 the
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.

ACCOUNTING AND ADMINISTRATIVE SERVICES

     On July 17,  1997,  the  Company  entered  into a services  agreement  with
Coulter  Enterprises,  Inc., a company owned by Jamie B. Coulter,  the Company's
former  Chairman  of  the  Board,  for  certain  accounting  and  administrative
services. The fixed annual charge, which was pro rated 

                                      -9-
<PAGE>

for 1997,  was  $94,000  and the per unit per 28-day  period  fee was $426.  For
fiscal year 1998 and through  February  28, 1999,  the fixed  annual  charge was
$194,500  and the per unit per  28-day  accounting  period  fee was  $466,  plus
reimbursement of all direct  out-of-pocket  costs and expenses.  The increase in
the  fixed  charge  was  due to an  increase  in  the  number  of  entertainment
restaurants operated by the Company.

     On March 1,  1999,  the  Company  simultaneously  terminated  the  services
agreement with Coulter Enterprises,  Inc. and entered into a three-year services
agreement with Franchise  Services  Company  ("FSC") for certain  accounting and
administrative  services.  The per unit per 28-day  accounting fee is at a maket
rate  with no  fixed  annual  charge  and is to  remain  fixed  for  the  entire
three-year  agreement.  At the conclusion of the  three-year  agreement FSC, the
Company may satisfy its accounting and administrative  needs by hiring employees
directly.

COMPETITION

     The entertainment and restaurant  industries are highly competitive.  There
are a large 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,  ambiance  and  location.  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.
Significant  numbers of the Company's personnel are paid at rates related to the
federal minimum wage which is currently $5.15 per hour.  Accordingly,  increases
in the minimum wage will  increase the company's  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  

                                      -10-
<PAGE>

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,  wholesale,  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 ensure 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  $5.15 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.

TRADEMARKS

     The  Company has  federally  registered  its "Fox and Hound" and  "Bailey's
Sports  Grille"  service  marks.  The Company's "7 Bailey's  Sports  Grille" and
"Serious  Fun  7  Bailey's  Sports  Grille"  design  marks  are  also  federally
registered.  The  Company  regards  its  service  and  design  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 and 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 29, 1998, the Company employed  approximately 1,500 persons,
three of whom are executive officers,  four of whom are multi-unit  supervisors,
118 of whom are  entertainment  restaurant  unit  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 


                                      -11-
<PAGE>

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 9300 E. Central,  Suite 100,
Wichita,  Kansas 67206.  The Company  believes there is sufficient  office space
available at favorable leasing terms in the Wichita,  Kansas 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 29,
1998.

                                      -12-
<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
            
            FISCAL YEAR 1998
            ----------------
            First Quarter                    7                 4-1/2
            Second Quarter                  7-5/8              4-3/8
            Third Quarter                   4-5/8              2-1/4
            Fourth Quarter                  4-5/8              2-1/2
                        

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

HOLDERS

      As of March 19,  1999,  there were 128 holders of record 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.


                                      -13-
<PAGE>

SALE OF UNREGISTERED SECURITIES

 (c) The following unregistered securities were issued by the Company during the
sixteen weeks ended December 29, 1998:

<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>   
                September 9, 1998               Common Stock Options                12,121                $4.125
                
                September 9, 1998               Common Stock Options                12,121                $4.125
                
                October 9, 1998                 Common Stock Options                14,286                $3.500
                
                October 22, 1998                Common Stock Options                17,391                $2.875
                
                October 22, 1998                Common Stock Options                17,391                $2.875
                
                October 28, 1998                Common Stock Options                16,327                $3.063
                
                November 2, 1998                Common Stock Options                18,182                $2.750
                
                November 4, 1998                Common Stock Options                17,391                $2.875
                
                November 4, 1998                Common Stock Options                17,391                $2.875
                
                November 5, 1998                Common Stock Options                13,793                $3.625
                
                November 7, 1998                Common Stock Options                13,793                $3.625
                
                November 22, 1998               Common Stock Options                17,391                $2.875
                
                December 20, 1998               Common Stock Options                18,182                $2.750
                
                December 23, 1998               Common Stock Options                17,021                $2.938

</TABLE>

            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.


                                      -14-
<PAGE>

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 the Company for the 52 weeks ended December 29, 1998
and period from  February 7, 1997  through  December 30,  1997,  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 Fox & Hound  Entertainment  and  Restaurant  Group  ("FHERG") for the fiscal
years ended  December 31, 1996,  1995 and 1994,  the balance  sheet data for the
Company as of December 29, 1998 and December  30,  1997,  and the balance  sheet
data for FHERG as of  December  31,  1996,  1995 and 1994 are  derived  from the
Company's and its  predecessors'  audited financial  statements.  The table also
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
                                  -----------------------------------------------------------------------
                                                                      F&H              Fox & Hound                 The Company
                                           The Company            Restaurant        Entertainment and                Pro Forma
                                  ----------------------------       Corp.          Restaurant Group           --------------------
                                      52 Weeks   46 Weeks And   -------------   -------------------------           Year Ended
                                       Ended     5 Days Ended   51 Days Ended    Year Ended December 31,       Dec. 30,    Dec. 31,
                                  Dec. 29, 1998  Dec. 30, 1997  Feb. 20, 1997   1996      1995       1994        1997        1996
                                  -------------  -------------  -------------   ----      ----       ----        ----        ----

                                                              (In thousands, except per share data)
<S>                                    <C>         <C>           <C>        <C>         <C>         <C>         <C>        <C>     
INCOME STATEMENT DATA:

Net sales                              $ 34,114    $ 16,163      $    858   $  5,507    $  2,618    $    730    $ 18,557   $ 14,844
Costs and expenses:                                             
   Cost of sales                          9,429       4,287           245      1,721         824         246       4,912      4,177
   Operating expenses                    15,586       7,142           393      2,759       1,390         456       8,281      6,747
   Depreciation and amortization          2,875         939            35        311         224          90       1,052        855
                                       --------    --------      --------   --------    --------    --------    --------   --------
Entertainment and restaurant costs                              
   and expenses                          27,890      12,368           673      4,791       2,439         792      14,245     11,779
                                       --------    --------      --------   --------    --------    --------    --------   --------
Entertainment and restaurant                                    
   operating income                       6,224       3,795           185        716         179         (62)      4,312      3,065
General and administrative expenses       2,609       1,794            36        296          70          21       2,014        915
Goodwill amortization                       244         210            24       --          --          --           242        237
                                       --------    --------      --------   --------    --------    --------    --------   --------
Income (loss) from operations             3,371       1,791           125        420         109         (83)      2,056      1,913
Other income (expense)                      (70)        266            63        (56)        (13)         (1)        370        656
                                       --------    --------      --------   --------    --------    --------    --------   --------
Income (loss) before provision for                              
   income taxes                           3,301       1,525            62        364          96         (84)      1,686      1,257
Provision for income taxes                1,221         545            11       --          --          --           605        471
Minority interest                          --          --              34       --          --          --          --         --
                                       --------    --------      --------   --------    --------    --------    --------   --------
Net income (loss)                      $  2,080    $    980      $     17   $    364    $     96    $    (84)   $  1,081   $    786
                                       ========    ========      ========   ========    ========    ========    ========   ========
                                                                
Basic and diluted net income per share $    .20    $    .11                                                     $    .12   $    .10
                                       ========    ========                                                     ========   ========
                                                                
Weighted number of shares outstanding    10,415       9,182                                                        9,062      8,000
                                       ========    ========                                                     ========   ========
</TABLE>

<TABLE>
<CAPTION>
                                                                             Historical
                                             -------------------------------------------------------------------------
                                                                                                 Fox & Hound
                                                                                              Entertainment and
                                                         The Company                          Restaurant Group
                                             --------------------------------      -----------------------------------
                                               December 29,      December 30,              Year Ended December 31,
                                                   1998              1998            1996           1995          1994
                                             --------------    --------------      ---------      ---------    -------
                                                                           (In thousands)
<S>                                              <C>             <C>            <C>             <C>           <C>      
BALANCE SHEET DATA:

Working capital (deficit)                        $   (947)       $  4,579       $   (554)       $   (447)     $    (44)

Total assets                                       41,284          23,224          2,520           2,638         1,346

Long-term debt, including current portion          11,815            --              696             759           198

Stockholders'/partners' equity                     23,736          21,665          1,564           1,559         1,012

</TABLE>


                                      -15-
<PAGE>



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 and Hound
and eight Bailey's entertainment  restaurant locations, and opened three Fox and
Hound and two Bailey's entertainment  restaurant locations during the year ended
December  30,  1997  and  opened  thirteen  Fox and  Hound  and  three  Bailey's
entertainment restaurant locations during the year ended December 29, 1998.

      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.  Effective  December 30, 1998,  pre-opening costs will be
expensed as incurred.

RESULTS OF OPERATIONS

     The following  table sets forth for the periods  indicated the  percentages
which certain items included in the Condensed  Consolidated  Statement of Income
bear to net sales and other selected operating data.

<TABLE>
<CAPTION>

                                                                   Historical                    Pro Forma
                                                                   ----------          ------------------------------
                                                                                    Year Ended(1)
                                                                   --------------------------------------------------
                                                                   Dec. 29,             Dec. 30,             Dec. 31,
                                                                     1998                 1997                 1996
                                                                   --------             --------             --------
<S>                                                                  <C>                 <C>                 <C>   
INCOME STATEMENT DATA:
     Net sales                                                       100.0%              100.0%              100.0%
     Costs and expenses:
         Cost of sales                                                27.6                26.4                28.1
         Operating expenses                                           45.7                44.6                45.4
         Depreciation and amortization                                 8.4                 5.7                 5.8
                                                                   --------            --------            --------
         Restaurant costs and expenses                                81.7                76.7                79.3
                                                                   --------            --------            --------
         Restaurant operating income                                  18.3                23.3                20.7
         General and administrative                                    7.6                10.8                 6.2
         Goodwill amortization                                         0.7                 1.3                 1.6
                                                                   --------            --------            --------
     Income from operations                                           10.0                11.2                12.9
         Other income, principally interest                            0.2                 0.6                 0.2
         Interest expense                                             (0.4)               (2.7)               (4.6)
                                                                   --------            --------            --------
     Income before provision for income taxes                          9.8                 9.1                 8.5
     Provision for income taxes                                        3.6                 3.3                 3.2
                                                                   --------            --------            --------
     Net income                                                        6.2%                5.8%                5.3%
                                                                   ========            ========            ========


RESTAURANT OPERATING DATA:
     Number of locations at end of period                               32                  16                  11
     Number of store operating weeks (2)                             1,085                 644                 516
     Annualized average weekly sales per location (3)             $  1,634            $  1,492            $  1,491

--------------------------------------
</TABLE>

                                      -16-
<PAGE>


      (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)         Store operating weeks  represents the number of full weeks all
                  locations were open during the period.
      (3)         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.

THE COMPANY

      Fifty-two Weeks Ended December 29, 1998 (Historical) Compared to Fifty-two
Weeks Ended December 30, 1997 (Pro Forma)

      Net sales  increased  $15,557,000  (83.8%) for the  fifty-two  weeks ended
December 29, 1998 to $34,114,000  from  $18,557,000 in the fifty-two weeks ended
December 30, 1997,  which is  principally  attributable  to a 68.5%  increase in
store  operating  weeks  (1,085  versus 644) and 9.5%  increase in average  unit
volumes ($1,634,000 versus $1,492,000). However, same store sales decreased 0.9%
for the fifty-two weeks ended December 29, 1998.

      Costs of sales, primarily food and beverages, increased $4,517,000 (91.9%)
for the fifty-two weeks ended December 29, 1998 to $9,429,000 from $4,912,000 in
the fifty-two  weeks ended December 30, 1997,  and such expenses  increased as a
percentage  of sales from 26.4% to 27.6%.  This  increase is  attributable  to a
higher food & beverage sales mix.

      Restaurant  operating  expenses for the fifty-two weeks ended December 29,
1998  increased  $7,305,000  (88.2%)  to  $15,586,000  from  $8,281,000  in  the
fifty-two  weeks ended  December  30,  1997,  and such  expenses  increased as a
percentage  of  net  sales  to  45.7%  from  44.6%.  This  increase  was  mainly
attributable  to additional  labor required  during the first few months after a
new unit opens as well as the  additional  labor  required  by the higher food &
beverage sales.

      Depreciation  and  amortization  increased  $1,823,000  (173.4%)  for  the
fifty-two  weeks ended  December 29, 1998 to $2,875,000  from  $1,052,000 in the
fifty-two weeks ended December 30, 1997, principally reflecting the depreciation
and preopening  amortization  relating to the opening of sixteen new restaurants
since December 1997.

      General and  administrative  expenses  increased  $595,000 (29.6%) for the
fifty-two  weeks ended  December 29, 1998 to $2,609,000  from  $2,014,000 in the
fifty-two  weeks ended  December  30,  1997,  and such  expenses  decreased as a
percentage of net sales from 10.8% to 7.6%. The decrease  reflects the effect of
leveraging the general and administrative expenses against higher sales.

      Other income,  principally  interest,  decreased  $59,000  (45.1%) for the
fifty-two  weeks  ended  December  29,  1998 to  $70,000  from  $129,000  in the
fifty-two  weeks ended  December  30,  1997.  This  decrease was a result of the
utilization of the remaining net proceeds of the initial public  offering of the
Company, which commenced on July 17, 1997 (the "Initial Public Offering").

      Interest expense decreased $359,000 for the fifty-two weeks ended December
29, 1998 to $140,000  from $499,000 in the  fifty-two  weeks ended  December 30,
1997.  All debt was  repaid in July 1997 from the net  proceeds  of the  Initial
Public  Offering  and  the  Company  began  borrowing  to fund  additional  unit
development in July 1998.

      The effective  income tax rate for the fifty-two  weeks ended December 29,
1998 was 37.0% and the  effective  pro forma  income tax rate for the  fifty-two
weeks ended December 30, 1997 was 35.9%.  This increase was primarily due to the
impact of higher tax exempt  interest  income  earned during 1997 as compared to
1998.

                                      -17-
<PAGE>

THE COMPANY (PRO FORMA)

      Fifty-two   Weeks  Ended  December  30,  1997  (Pro  Forma)   Compared  to
Fifty-three Weeks Ended December 31, 1996 (Pro Forma)

      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 26.4%.  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 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.

      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.

                                      -18-
<PAGE>
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 are likely to 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  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.

      On  September  1, 1998 the  Company  entered  into a loan  agreement  with
Intrust  Bank,  N.A.  (the  "Facility")  which  provides for a line of credit of
$20,000,000  subject to certain  limitations  based on earnings before interest,
interest taxes,  depreciation  and amortization of the past fifty-two weeks. The
Facility  requires  monthly payments of interest only until November 1, 2001, at
which time equal monthly  installments of principal and interest are required as
necessary to fully amortize the  outstanding  indebtedness  plus future interest
over a period of four  years.  Interest  is  accrued at a rate of 1/2% below the
prime rate as published in The Wall Street  Journal.  Proceeds from the Facility
were used for restaurant  development.  As of December 29, 1998, the Company had
borrowed  $11,815,000 under the Facility.  The Company is in compliance with all
debt covenants.

      Cash flows from  operations  were $4,364,000 and purchases of property and
equipment were $19,759,000 for the 52 weeks ended December 29, 1998.

      The Company intends to open up to eight entertainment restaurant locations
in 1999 (five of which were opened during the first quarter of 1999) and between
10 to 12 locations in 2000. 

                                      -19-
<PAGE>

The Company expects to expend  approximately $12.0 million to open new locations
over the next 12 months.

      The Company  believes the funds  available  from the Facility and its cash
flow from  operations  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
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.

YEAR 2000 COMPLIANCE

      The Company  utilizes and is dependent upon computer  systems and software
to conduct its business.  In 1997, the Company initiated a review and assessment
of all hardware and software to confirm they will function  properly in the year
2000.  The systems and software  include those  developed and  maintained by FSC
in-house  computer  department  as well as  purchased  software  which is run on
in-house  computer systems,  including POS systems and back-of-house  systems in
the units. The systems and software utilized by FSC are believed to be Year 2000
compliant.  The  Company  is  currently  undergoing  an  upgrade  of its POS and
back-of-house  systems to allow for a seamless  interface  with its home  office
accounting systems. Certain back-of-house  applications which were not Year 2000
compliant  will be made  compliant  as part of this  upgrade.  This  upgrade  is
expected to be  completed  by the end of the second  quarter,  at which time all
systems and software are expected to be Year 2000  compliant.  The total cost of
this  upgrade  including  updating the hardware and software as well as training
costs is expected to be between $150,000 and $200,000.

      Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner.  As noted above, the Company has
not yet completed all  necessary  phases of the Year 2000 project.  In the event
the Company does not complete any aditional phases,  the Company might be unable
to process  transactional  and  financial  reporting  information.  In addition,
disruption in the economy  generally  resulting  from the year 2000 issued could
also materially  adversely  affect the Company.  The Company could be subject to
litigation for computer systems product failure, for example, equipment shutdown
or failure to properly date business records.  Th eamount of potential liability
and lost revenue cannot be reasonably estimated at this time.

      The Company has contingency plans for certain critical applications and is
working on such plans for others.  These contingency plans involve,  amont other
actions, manual workarounds and adjusting staffing agencies.

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, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this 

                                      -20-

<PAGE>

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 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 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
          ----------------------------------------------------------

      Interest Rate Risk

      The Company's  Facility has a variable rate which is directly  affected by
changes in U.S.  interest rates.  The average  interest rate of the Facility was
7.76% for the year ended  December 29, 1998.  The following  table  presents the
quantitative interest rate risks at December 29, 1998:

<TABLE>
<CAPTION>
                                                       Principal Amount By Expected Maturity
                                  -----------------------------------------------------------------------------
                                                                    (In thousands)                                     Fair
                                                                                              There-                  Value
      (DOLLARS IN THOUSANDS)     1999      2000         2001        2002           2003        After       Total     12/29/98
      ----------------------     ----      ----         ----        ----           ----        -----       -----      --------

<S>                              <C>       <C>       <C>          <C>          <C>           <C>         <C>         <C>    
Variable rate debt               --        --        $   591      $ 3,702      $  3,979      $ 3,542     $11,815     $11,815
Average Interest Rate-                                                      
     1/2% below prime            7.25%     7.25%        7.25%        7.25%         7.25%       7.25%
                                                                          
</TABLE>



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.

                                      -21-
<PAGE>


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.

                                     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  Entertainment,  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.

                                      -22-
<PAGE>


                    *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.

                    *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     Subsidiaries of Registrant.

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

                  ***27.1     Financial Data Schedule.

                                      -23-
<PAGE>
                 


      (b)         Reports on Form 8-K filed in the fourth quarter of 1998:  none


           *      Incorporated  by  reference  to  the  Company's   Registration
                  Statement  on  Form  S-1,  as  amended  (Commission  File  No.
                  333-23343).
          **      Incorporated  by reference to the Company's  Form 10-K for the
                  fiscal year ended December 30, 1997.
         ***      Filed herewith.

                                      -24-
<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 29th day of March 1999.


                                         TOTAL ENTERTAINMENT RESTAURANT CORP.
                                                      (Registrant)



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

                                      -25-

<PAGE>

                                   SIGNATORIES

Know all men by these presents,  that each person whose signature  appears below
hereby   constitutes   and  appoints   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/ Dennis L. Thompson       Co-Chairman of the Board       March 29, 1999
------------------------------
      Dennis L. Thompson



   /s/ Stephen P. Hartnett       Co-Chairman of the Board       March 29, 1999
------------------------------
     Stephen P. Hartnett



  /s/ Steven M. Johnson          Chief Executive Officer and    March 29, 1999
------------------------------
      Steven M. Johnson                   Director
                                (principal executive officer)


       /s/ Gary M. Judd           President and Director        March 29, 1999
------------------------------
         Gary M. Judd



     /s/ James K. Zielke         Chief Financial Officer,       March 29, 1999
------------------------------
       James K. Zielke             Treasurer, Secretary
                                       and Director
                                (principal accounting officer)




<PAGE>


   /s/ Thomas A. Hager                  Director                 March 29, 1999
------------------------------
     Thomas A. Hager



  /s/ C. Wells Hall, III                Director                 March 29, 1999
------------------------------
    C. Wells Hall, III



    /s/ E. Gene Street                  Director                 March 29, 1999
------------------------------
      E. Gene Street

   /s/ John D. Harkey, Jr.
------------------------------          Director                 March 29, 1999
   John D. Harkey, Jr.

<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 29, 1998 
      and December 30, 1997-------------------------------------------------F-3
Consolidated Statements of Income for the year ended 
      December 29, 1998 and the period from February 7, 1997 
      (Inception) through December 30, 1997 --------------------------------F-5
Consolidated Statements of Stockholders' Equity for the year 
      ended December 29, 1998 and the period from  
      February 7, 1997 (Inception) through December 30, 1997----------------F-6
Consolidated Statements of Cash Flows for the year ended 
      December 29, 1998 and 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-21
Consolidated Balance Sheet as of December 31, 1996--------------------------F-22
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-24
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-25
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-26
Notes to Consolidated Financial Statements----------------------------------F-27

FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
Report of Independent Auditors----------------------------------------------F-33
Combined Balance Sheet as of December 31,1996-------------------------------F-34
Combined Statement of Income for the Year Ended December 31, 1996-----------F-36
Combined Statement of Partners' Equity for the Year 
      Ended December 31, 1996-----------------------------------------------F-37
Combined Statement of Cash Flows for the Year Ended December 31, 1996-------F-38
Notes to Combined Financial Statements--------------------------------------F-39

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 29, 1998 and December 30, 1997,
and the related consolidated statements of income, stockholders' equity and cash
flows for the year ended  December 29, 1998 and 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 29, 1998 and December 30, 1997, and
the consolidated results of its operations and its cash flows for the year ended
December  29, 1998 and the period  from  February  7, 1997  (Inception)  through
December 30, 1997, in conformity with generally accepted accounting principles.


                                             /S/ ERNST & YOUNG LLP

March 22, 1999
Wichita, Kansas

                                      F-2

<PAGE>

                      TOTAL ENTERTAINMENT RESTAURANT CORP.

                           CONSOLIDATED BALANCE SHEETS


                                                     DECEMBER 29,   DECEMBER 30,
                                                         1998           1997
                                                    ----------------------------
ASSETS
Current assets:
   Cash and cash equivalents                        $   945,861    $ 1,220,598
   Marketable securities, available for sale               --        3,315,056
   Inventories                                          854,686        396,758
   Preopening costs, net                              1,789,740        386,402
   Deferred income taxes                                106,408        156,571
   Prepaid expenses                                     662,747        350,324
                                                    --------------------------
Total current assets                                  4,359,442      5,825,709

Property and equipment:
   Land                                                 600,000        600,000
   Buildings                                            655,795        655,795
   Leasehold improvements                            19,175,677      6,018,499
   Equipment                                         11,922,806      4,980,541
   Furniture and fixtures                             2,633,742      1,225,981
                                                    --------------------------
                                                     34,988,020     13,480,816
   Less accumulated depreciation and amortization     2,830,656        898,735
                                                    --------------------------
Net property and equipment                           32,157,364     12,582,081

Other assets:
   Goodwill, net of accumulated amortization of 
    $489,633 ($245,471 at December 30, 1997)          4,393,621      4,637,784
   Other assets                                         374,007        178,695
                                                    --------------------------
Total other assets                                    4,767,628      4,816,479
                                                    --------------------------

Total assets                                        $41,284,434    $23,224,269
                                                    ==========================



                                      F-3
<PAGE>



<TABLE>
<CAPTION>
                                                                        DECEMBER 29,               DECEMBER 30,
                                                                            1998                       1997
                                                                      --------------------------------------------
<S>                                                                      <C>                      <C>         
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
   Accounts payable                                                      $ 3,384,159              $    765,728
   Accounts payable - affiliates                                              11,451                    24,646
   Sales tax payable                                                         282,151                    33,391
   Accrued payroll                                                           465,519                   154,693
   Accrued income taxes                                                      358,583                         -
   Other accrued liabilities                                                 804,257                   268,290
                                                                      --------------------------------------------
Total current liabilities                                                  5,306,120                 1,246,748


Notes payable                                                             11,815,000                         -
Deferred income taxes                                                        427,537                   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                                                         104,150                   104,150
   Additional paid-in capital                                             20,571,178                20,580,764
   Retained earnings                                                       3,060,449                   980,157

                                                                      --------------------------------------------
Total stockholders' equity                                                23,735,777                21,665,071
                                                                      --------------------------------------------

Total liabilities and stockholders' equity                               $41,284,434               $23,224,269
                                                                      ============================================

</TABLE>

                 See notes to consolidated financial statements

                                      F-4

<PAGE>

                      TOTAL ENTERTAINMENT RESTAURANT CORP.

                        CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                                                                 PERIOD FROM
                                                                                               FEBRUARY 7, 1997
                                                                      YEAR ENDED             (INCEPTION) THROUGH
                                                                   DECEMBER 29, 1998          DECEMBER 30, 1997
                                                                  ----------------------------------------------------
<S>                                                                       <C>                         <C>        
Sales:
Food and beverage                                                         $30,009,876                 $13,509,874
Entertainment and other                                                     4,103,743                   2,652,783
                                                                  ----------------------------------------------------
   Total net sales                                                         34,113,619                  16,162,657

Cost and expenses:
   Cost of sales                                                            9,428,645                   4,287,185
   Entertainment and restaurant operating expenses                         15,585,758                   7,141,800
   Depreciation and amortization                                            2,875,262                     939,160
                                                                  ----------------------------------------------------
Entertainment and restaurant costs and expenses                            27,889,665                  12,368,145
                                                                  ----------------------------------------------------
Entertainment and restaurant operating income                               6,223,954                   3,794,512

General and administrative expenses:
   Related parties                                                            320,599                     337,140
   Other                                                                    2,288,663                   1,456,684
Goodwill amortization                                                         244,163                     209,539
                                                                  ----------------------------------------------------
Income from operations                                                      3,370,529                   1,791,149
Other income (expense):
   Other income (principally interest income)                                  70,914                     129,011
   Interest expense:
      Related parties                                                               -                     (27,315)
      Other                                                                  (140,376)                   (367,960)
                                                                  ----------------------------------------------------
Income before provision for income taxes                                    3,301,067                   1,524,885
Provision for income taxes                                                  1,220,775                     544,728
                                                                  ----------------------------------------------------
Net income                                                                $ 2,080,292                $    980,157
                                                                  ====================================================
Basic and diluted earnings per share                                      $      0.20                $       0.11
                                                                  ====================================================
</TABLE>

                 See notes to consolidated financial statements.

                                      F-5
<PAGE>

                      TOTAL ENTERTAINMENT RESTAURANT CORP.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                              Common Stock
                                                      ----------------------------     Additional
                                                                                         Paid-in          Retained
                                                          Number         Amount          Capital          Earnings          Total
                                                      ------------------------------------------------------------------------------
<S>                                                    <C>           <C>              <C>              <C>             <C>         
Balance at February 7, 
   1997 (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
   Additional initial public offering
      expenses                                              --               --             (9,586)            --            (9,586)
   Net income                                               --               --               --          2,080,292       2,080,292
                                                      ------------------------------------------------------------------------------
Balance at December 29, 1998                          10,415,000     $    104,150     $ 20,571,178     $  3,060,449    $ 23,735,777
                                                      =============================================================================
</TABLE>


                 See notes to consolidated financial statements.

                                      F-6

<PAGE>

                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                                              Period From
                                                                                                           February 7, 1997
                                                                             Year Ended December 29,      (Inception) Through
                                                                                       1998                  December 30,
                                                                                                                 1997
                                                                             -------------------------------------------------
<S>                                                                               <C>                        <C>          
OPERATING ACTIVITIES
Net income                                                                        $    2,080,292             $     980,157
Adjustments to reconcile net income to net cash
   provided by operating activities:
      Depreciation                                                                     1,917,027                   638,598
      Amortization                                                                     1,202,398                   510,101
      Deferred taxes                                                                     165,250                    77,284
      Net change in operating assets and liabilities:
         Accounts receivable - affiliate                                                       -                    20,774
         Accounts receivable                                                                   -                    56,702
         Inventories                                                                    (457,928)                 (122,644)
         Preopening costs                                                             (2,343,896)                 (399,640)
         Other current assets                                                           (312,423)                 (150,307)
         Other assets                                                                   (212,989)                 (236,649)
         Accounts payable                                                                851,460                   620,515
         Accounts payable - affiliates                                                   (13,195)                 (104,404)
         Accrued liabilities                                                           1,487,527                   (66,932)
                                                                             -------------------------------------------------
Net cash provided by operating activities                                              4,363,523                 1,823,555

INVESTING ACTIVITIES
Purchases of property and equipment                                                  (19,758,730)               (6,358,118)
Cash of companies acquired in Exchange                                                         -                   720,029
Purchase of marketable securities                                                              -                (7,465,056)
Proceeds from sale of marketable securities                                            3,315,056                 4,150,000
                                                                             -------------------------------------------------
Net cash used in investing activities                                                (16,443,674)               (8,953,145)

FINANCING ACTIVITIES
   Proceeds from revolving note payable to bank                                       11,815,000                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 (expenses) proceeds from issuance of common stock                                  (9,586)               19,154,524
                                                                             -------------------------------------------------
Net cash provided by financing activities                                             11,805,414                 8,349,188

Net (decrease) increase in cash and cash equivalents                                    (274,737)                1,219,598
Cash and cash equivalents at beginning of period                                       1,220,598                     1,000
                                                                             =================================================
Cash and cash equivalents at end of period                                        $      945,861              $  1,220,598
                                                                             =================================================
</TABLE>



                                      F-7
<PAGE>

                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>

                                                                                                   PERIOD FROM
                                                                                                FEBRUARY 7, 1997
                                                                  YEAR ENDED DECEMBER 29,      (INCEPTION) THROUGH
                                                                            1998                  DECEMBER 30,
                                                                                                      1997
                                                                 ------------------------------------------------------
<S>                                                                       <C>                         <C>     
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest                                                    $   194,801                 $458,971
Cash paid for income taxes                                                    561,600                  547,812

SUPPLEMENTAL DISCLOSURE OF NON CASH ACTIVITY
Additions to property and equipment in accounts
   payable at year end                                                     $1,733,580            $           -

</TABLE>



                 See notes to consolidated financial statements.

                                      F-8

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

                     DECEMBER 29, 1998 AND 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.  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. 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 29, 1998 AND 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 for the 52 weeks ended December
30, 1997  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 net income per share                   $0.12

As of December 29, 1998,  the Company  owned and operated 32  entertainment  and
restaurant locations under the Fox and Hound English Pub & Grille (Fox & Hound),
Bailey's  Sports Grille and Bailey's Pub & 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. As of December 29, 1998, the Company owned and operated 19 Fox & Hounds
and 13 Bailey's in Alabama, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana,
Michigan,  Missouri,   Nebraska,  North  Carolina,  Ohio,  Pennsylvania,   South
Carolina, Tennessee and Texas. The Company operates in one business segment.

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.

                                      F-10
<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     DECEMBER 29, 1998 AND DECEMBER 30, 1997


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

o      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  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 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.

o      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. 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.

o      Pre-opening 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 was
$1,515,356   and   $137,023  at  December   29,  1998  and  December  30,  1997,
respectively.

In April 1998, the American Institute of Certified Public Accountants issued SOP
98-5, Reporting on the Costs of Start-Up Activities, requiring the costs related
to pre-opening activities to be expensed as incurred. The Company will adopt the
new  pronouncement  effective  December 30, 1998. The  cumulative  effect of the
accounting change will be $1,789,740.

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.

                                      F-11
<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     DECEMBER 29, 1998 AND DECEMBER 30, 1997


2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 two to seven years.

o      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.

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 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.

o      Advertising Costs

Advertising costs are expensed as incurred.  Advertising expense for the periods
ended  December  29, 1998 and December 30,  1997,  were  $489,929 and  $179,737,
respectively.

o      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 with grant prices equal to
the fair value of the Company's common stock 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.

                                      F-12
<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     DECEMBER 29, 1998 AND DECEMBER 30, 1997




2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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      Earnings per Share

In February  1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement No. 128,  Earnings per Share,  which was adopted by the Company during
1997. The Company has changed the method previously used to compute earnings per
share and restated all prior period amounts.  Statement No. 128 replaced primary
and fully diluted  earnings per share with basic and diluted earnings per share.
Under the new  requirements  for  calculating  earnings per share,  the dilutive
effect of stock options is excluded  from basic  earnings per share but included
in the  computation of diluted  earnings per share.  The impact of Statement No.
128 on the calculation of basic and diluted  earnings per share over primary and
fully diluted earnings per share for these period is not material.

o      Comprehensive Income

In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income,
establishing new rules for the reporting and display of comprehensive income and
its  components;  however,  adoption in 1998 had no impact on the  Company's net
income or shareholders' equity.

o      Segment Reporting

In June 1997, the FASB issued Statement No. 131,  Disclosures  about Segments of
an  Enterprise  and  Related   Information   requiring   disclosure  of  certain
information about reportable operating segments. As the Company operates in only
one segment,  adoption of this  statement in 1998 had no impact on the Company's
financial statements.

                                      F-13
<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     DECEMBER 29, 1998 AND 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 $19,144,938.

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 was
retired upon completion of the Company's initial public offering in July 1997.

On September  1, 1998 the Company  entered  into a loan  agreement  with Intrust
Bank, N.A. (the  "Facility")  which provides for a line of credit of $20,000,000
subject to certain limitations based on earnings before interest,  income taxes,
depreciation  and  amortization of the past fifty-two weeks. The note is secured
by  substantially  all assets of the Company.  The note restricts the ability of
the Company to pay dividends. The Facility requires monthly payments of interest
only until  November  1,  2001,  at which time  equal  monthly  installments  of
principal  and  interest  are  required  as  necessary  to  fully  amortize  the
outstanding  indebtedness  plus  future  interest  over a period of four  years.
Interest is accrued at a rate of 1/2% below the prime rate as  published  in The
Wall Street  Journal  (7.25% at December 29,  1998).  Proceeds from the Facility
were used for restaurant  development.  As of December 29, 1998, the Company had
borrowed $11,815,000 under the Facility.

                                      F-14
<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     DECEMBER 29, 1998 AND DECEMBER 30, 1997


5. REVOLVING NOTE PAYABLE (CONTINUED)

The following represents future maturities of the note:

                   2001                 $     591,346
                   2002                     3,701,662
                   2003                     3,979,132
                   Thereafter               3,542,860
                                        =================
                   Total                  $11,815,000
                                        =================

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 described below, the alternative fair value accounting
provided  for  under  FASB  Statement  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 former  Chairman  of the Board,  certain
         officers and key  employees.  Options  granted have a vesting period of
         five years and a life of ten years.

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
Statement 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 were estimated
at the  date of  grant  using a  Black-Scholes  option  pricing  model  with the
following  weighted-average  assumptions:  risk-free  interest rate ranging from
5.0% to 5.3%; no dividend yields;  volatility  factor ranging from .344 to .800;
and a weighted-average expected life of the option of 5 years.

                                      F-15

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

                     DECEMBER 29, 1998 AND DECEMBER 30, 1997


6. STOCK OPTIONS (CONTINUED)

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 is as follows:

                                               December 29,     December 30,
                                                  1998             1997
                                              --------------    ------------
   Pro forma net income                           $1,719,143       $838,152
   Pro forma earnings per share:
      Basic                                            $0.17          $0.09
      Diluted                                          $0.17          $0.09
   Weighted average fair value of options
      granted during the year                          $2.56          $3.45

A summary of the Company's stock option activity and related information for the
periods ended December 29, 1998 and December 30, 1997, respectively, follows:

<TABLE>
<CAPTION>
                                                             December 29, 1998                        December 30, 1997
                                                 -------------------------------------------------------------------------
                                                       Weighted                             Weighted
                                                        Average                              Average
                                                       Exercise                             Exercise
                                                         Price          Options               Price              Options
                                                 -------------------------------------------------------------------------
<S>                                                 <C>                 <C>                <C>                      
Outstanding beginning of period                     $   8.87            812,746            $--                    --
   Granted                                              3.80            432,584                8.89            829,414
   Exercised                                         --                    --               --                    --
   Canceled                                            (6.30)          (115,929)              (9.00)           (16,668)
                                                                                           =====            ==========
Outstanding end of period                           $   7.19          1,129,401            $   8.87            812,746
                                                                                           =====            ==========
</TABLE>

As of December  29,  1998,  the  Company's  outstanding  options have a weighted
average  remaining  contract life of 8.9 years and exercise  prices ranging from
$2.75 to $9.00. There were 150,650 options  exercisable at December 29, 1998 and
no options exercisable at December 30, 1997.


                                      F-16

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

                     DECEMBER 29, 1998 AND DECEMBER 30, 1997


7. RELATED PARTY TRANSACTIONS

The Company utilized an affiliate to provide certain accounting,  computer,  and
administrative  services  during  1998 and 1997.  The Company  incurred  fees of
$320,599 and $337,140  related to these  services for the periods ended December
29, 1998 and December 30, 1997, respectively.

Additionally,  the Company paid interest to a certain  stockholder in the amount
of $27,315 for the period  ended  December  30, 1997  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 1999 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 periods ended  December 29,
1998 and December 30, 1997, were $1,564,399 and $846,330, respectively, of which
$241,892 and $229,218, respectively, were paid to a related party. There were no
contingent rentals during 1998 or 1997.

As of December  29, 1998, 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  $15,126,576  (1999  -  $3,220,517;  2000  -
$3,516,301;  2001  -  $2,858,019;  2002 -  $2,672,661;  2003  -  1,996,002;  and
thereafter - $1,223,076).

                                      F-17

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

                     DECEMBER 29, 1998 AND DECEMBER 30, 1997



9. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                                                1998                 1997
                                                                                           ---------------------------------
              <S>                                                                          <C>                  <C>  
              Numerator
              Net income                                                                   $    2,080          $      980
                                                                                           =================================
                                                                                                             
              Denominator                                                                                    
                 Denominator for basic earnings per                                                          
                    share - weighted-average shares                                            10,415               9,182
                                                                                                             
              Effect of dilutive securities:                                                                 
                 Employee stock options                                                            21                --
                                                                                           ---------------------------------
                                                                                                             
              Dilutive potential common shares                                                               
                 Denominator for diluted earnings per share - adjusted                                       
                    weighted-average shares and assumed conversions                            10,436               9,182
                                                                                           =================================
                                                                                                             
              Basic earnings per common share                                              $     0.20          $     0.11
                                                                                           =================================
              Diluted earnings per common share                                            $     0.20          $     0.11
                                                                                           =================================
</TABLE>


10. INCOME TAXES

The Company's provision for income taxes consists of the following:
<TABLE>
<CAPTION>

                                                                                            December 29,      December 30,
                                                                                               1998               1997
                                                                                            ------------------------------
            <S>                                                                             <C>                 <C>   
            Current:                                      
               Federal                                                                      $  836,853         $  378,051
               State                                                                           218,672             89,393
                                                                                            -----------------------------
            Total Current                                                                    1,055,525            467,444
            Deferred:                                                                                        
               Federal                                                                         137,563             64,165
               State                                                                            27,687             13,119
                                                                                            -----------------------------
            Total Deferred                                                                     165,250             77,284
                                                                                            =============================
            Total income tax expense                                                        $1,220,775         $  544,728
                                                                                            =============================
                                                                      
</TABLE>



                                      F-18
<PAGE>
                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     DECEMBER 29, 1998 AND DECEMBER 30, 1997

10. INCOME TAXES (CONTINUED)

The income tax effects of temporary  differences  that give rise to  significant
portions of deferred  income tax assets and liabilities at December 29, 1998 and
December 30, 1997, are as follows:
<TABLE>
<CAPTION>

                                                                   December 29,             December 30,
                                                                      1998                     1997 
                                                           -----------------------------------------------
             <S>                                                   <C>                     <C>     
             Deferred tax assets:
                Preopening and organization costs                  $   78,406              $149,151
                Vacation                                               39,309                16,456
                Other                                                  38,828                18,034
                                                           -----------------------------------------------
                Total deferred tax assets                             156,543               183,641
                                                           -----------------------------------------------

                Deferred tax liabilities:
                Property and equipment                                334,042               235,587
                Goodwill                                              118,171               103,933
                Other                                                  25,458                     -
                                                           -----------------------------------------------
             Total deferred tax liabilities                           477,672               339,520
                                                           ===============================================
             Net deferred tax liabilities                            $321,129              $155,879
                                                           ===============================================
</TABLE>

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:

<TABLE>
<CAPTION>
                                                                                DECEMBER 29,                   DECEMBER 30,
                                                                                    1998                           1997
                                                                            ------------------------------------------------------
                                                                            AMOUNT           RATE          AMOUNT          RATE
                                                                            ------------------------------------------------------
       <S>                                                                   <C>            <C>             <C>             <C>  
       Income tax expense at federal statutory rate                          $1,122,363     34.0%           $518,460        34.0%
       State income taxes, net of federal benefit                               141,616      4.3              65,418         4.3
       Tax credits                                                              (92,565)    (2.8)            (59,151)       (3.9)
       Other items, net, none of which individually exceeds 5% of federal
          taxes at statutory rates                                               49,361      1.5              20,001         1.3
                                                                            ======================================================
       Actual income tax expense                                             $1,220,775     37.0%           $544,728        35.7%
                                                                            ======================================================
</TABLE>

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 1998 and 1997. Interest income during 1998 and 1997 were
$70,035 and $115,806,  respectively.  All of the securities have a maturity date
of less than one year.

                                      F-19
<PAGE>

                      TOTAL ENTERTAINMENT RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     DECEMBER 29, 1998 AND DECEMBER 30, 1997

12. 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-20
<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-21
<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-22

<PAGE>
<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                                    1996
                                                                                                 ------------

<S>                                                                                              <C>       
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
                                                                                                 ==========

</TABLE>


                 See notes to consolidated financial statements.


                                      F-23
<PAGE>

                             F & H RESTAURANT CORP.

                        CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                               Period From         Period From 
                                                            January 1, 1997      November 4, 1996
                                                                 Through       (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-24
<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-25
<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
                                                                            -----------------------------------------------------
<S>                                                                                 <C>                     <C>        
OPERATING ACTIVITIES
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-26
<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-27
<PAGE>


                             F & H RESTAURANT CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

O      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.

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 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-28
<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:

       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.

                                                                    $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
                                                                     -------
                                                                           -
                                                                     =======


                              F-29
<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-30
<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-31

<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                      Period From
                                                                        January 1,                       November 4,
                                                                        1997 Through                     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-32
<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  statement  of income,  partners'  equity and cash flows for 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 audit.

We conducted our audit 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 audit provides 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 period ended December 31,
1996, in conformity with generally accepted accounting principles.


                                             /s/ Ernst & Young LLP

March 10, 1997
Wichita, Kansas


                                      F-33
<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-34
<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-35

<PAGE>



                 FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP

                          COMBINED STATEMENT OF INCOME

                                                                   Year Ended
                                                                 December 31,
                                                                     1996
                                                               ---------------

Net sales                                                        $5,506,697

Cost and expenses:
   Cost of sales                                                  1,721,088
   Entertainment and restaurant operating expenses                2,759,146
   Depreciation and amortization                                    310,512

                                                               ---------------
Entertainment and restaurant costs and expenses                   4,790,746
                                                               ---------------
Entertainment and restaurant operating income                       715,951

General and administrative expenses:
   Related parties                                                  225,600
   Other                                                             70,416
                                                               ---------------
Income from operations 419,935 Other income (expense):
   Other income                                                      23,370
   Interest expense:
      Related parties                                               (18,945)
      Other                                                         (59,868)
                                                               ---------------
                                                                    (55,443)
                                                               ---------------
Net income                                                       $  364,492
                                                               ===============


                   See notes to combined financial statements.

                                      F-36

<PAGE>

                 FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP

                     COMBINED STATEMENT OF PARTNERS' EQUITY


<TABLE>
<CAPTION>
                                                      Note                            Total
                                                  Receivable          Partners'      Partners'
                                                    Partner           Equity         Equity
                                                -------------------------------------------------

          <S>                                          <C>            <C>             <C>      
            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-37
<PAGE>
                 FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP

                        COMBINED STATEMENT OF CASH FLOWS


                                                                   Year Ended 
                                                                   December 31,
                                                                      1996
                                                                   ------------
OPERATING ACTIVITIES
Net income                                                         $ 364,492
Adjustments to reconcile net income to net cash provided
    by operating activities:
      Depreciation and  amortization                                 310,512
      Net change in operating assets and                  
      liabilities:                                        
         Accounts receivable                                           7,689
         Inventories                                                 (16,737)
         Preopening costs                                               --
         Other current assets                                         18,350
         Accounts payable                                             62,016
         Accrued liabilities                                          12,280
                                                                   ------------
Net cash provided by operating activities                            758,602
                                                          
INVESTING ACTIVITIES                                      
   Purchases of property and equipment                              (371,212)
   Other                                                               7,195
                                                                   ------------
Net cash used in investing activities                               (364,017)
                                                          
FINANCING ACTIVITIES                                      
   Capital contributions                                              50,000
   Proceeds from long-term debt                                         --
   Proceeds from note payable - partner                               70,000
   Payment of long-term debt                                        (132,875)
   Partner distributions                                            (410,000)
                                                                   ------------
Net cash used in financing activities                               (422,875)
Net decrease in cash and cash equivalents                            (28,290)
Cash and cash equivalents at beginning of period                     280,519
                                                                   ============
Cash and cash equivalents at end of period                         $ 252,229
                                                                   ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest                                             $  79,118


                   See notes to combined financial statements.

                                      F-38
<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-39
<PAGE>
                 FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996


1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

the estimated useful life of the assets.  Depreciation  expense incurred for the
year ended December 31, 1996 was approximately $128,900.

0      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.

0      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.

0      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  3).  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-40
<PAGE>
                 FOX & HOUND ENTERTAINMENT AND RESTAURANT GROUP
                     NOTES TO COMBINED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996

3. LONG-TERM DEBT

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

   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 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
                                                                      -------
   Less current portion                                               463,465
                                                                      463,465
                                                                      -------
                                                                            -
                                                                      =======

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.

4. RELATED PARTY TRANSACTIONS

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

5. 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 year
ended  December 31, 1996 was  $306,280,  including  $260,400  involving  related
parties.

                              F-41

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

                                DECEMBER 31, 1996


5. 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

6. 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.

7. 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-42