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

                            FORM 10-K
Mark One


 X   Annual report pursuant to  Section 13 or 15(d)  of the Securities  Exchange

Act of 1934 for     the fiscal year ended January 3, 1999
     Transition report pursuant to  Section 13 or  15(d) of the  Securities
Exchange Act of  1934

                 Commission File Number 0-20716

                        TACO CABANA, INC.
     (Exact name of registrant as specified in its charter)

     Delaware                                       74-2201241
(State or other jurisdiction                 (IRS employer identification no.)
 of incorporation or organization)

                  8918 Tesoro Drive, Suite 200
                    San Antonio, Texas  78217
  (Address of principal executive offices, including ZIP Code)

                         (210) 804-0990
      (Registrant's telephone number, including area code)

   Securities Registered Pursuant to Section 12(b) of the Act:

     Title of Each Class                Name of Exchange on Which Registered

          None                               None

   Securities Registered Pursuant to Section 12(g) of the Act:

                       Title of Each Class

                  Common Stock, $0.01 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.    __

     As of March 1, 1999, the aggregate market value of the voting stock held by
non-affiliates of the  Registrant, based on  the last sale  price of the  Common
Stock of the Registrant as quoted on the NASDAQ National Market was  $84,015,553
(for  purposes  of  calculating  this  amount,  only  directors,  officers,  and
beneficial owners of 5% or more of the capital stock of the Registrant have been
deemed affiliates).
     The number of shares of the  Common Stock of the Registrant outstanding  as
of March 1, 1999 was 13,354,200.
















































                         FORM 10-K INDEX

                             PART I


ITEM 1.   BUSINESS............................................  3

ITEM 2.   PROPERTIES.......................................... 10

ITEM 3.   LEGAL PROCEEDINGS................................... 10

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 10

                             PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
          STOCKHOLDER MATTERS................................. 11

ITEM 6.   SELECTED FINANCIAL DATA............................. 13

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS................. 15

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
          RISK................................................ 26

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......... 26

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE................. 26

                            PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.. 27

ITEM 11.  EXECUTIVE COMPENSATION.............................. 30

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT.......................................... 35

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...... 36

                             PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
          REPORTS ON FORM 8-K................................. 37


                             PART I



ITEM 1.   BUSINESS

General

     Taco Cabana, Inc.,  a Delaware corporation  (the "Company"), pioneered  the
Mexican patio cafe concept with its first restaurant in 1978 and, as of  January
3, 1999, operates and  franchises a total of  112 such restaurants  system-wide.
Of these,  the  Company  owns  and operates  102  Taco  Cabana  restaurants  and
franchisees of  the  Company  own  and operate  the  remaining  10  Taco  Cabana
restaurants.   The  Company's  restaurants (including  franchises)  are  located
primarily in Texas, and  are also located in  Georgia, Indiana, New Mexico,  and
Oklahoma.

     Taco Cabana restaurants feature generous portions of fresh, premium quality
Tex-Mex and  traditional  Mexican style  food  at  an exceptional  value.    The
restaurants provide  interior,  semi-enclosed  and patio  dining  areas  with  a
festive Mexican  theme.   Menu  items  include flame-grilled  beef  and  chicken
fajitas served on  sizzling iron  skillets, "Chicken  Flameante"TM (a  marinated
rotisserie chicken), quesadillas,  traditional Mexican and American  breakfasts,
other Tex-Mex  dishes  and fresh,  hot  flour tortillas.    Unlike many  of  its
competitors, the  Company makes  most menu  items  fresh daily  in each  of  its
restaurants.

Taco Cabana Food and Pricing Philosophy

     The Company is committed  to selling premium food  which it believes to  be
among the highest quality of any chain in the restaurant industry.  This process
begins with the selection of the freshest available ingredients.  The  Company's
menu items are prepared  strictly in accordance  with authentic and  well-tested
recipes.  Taco  Cabana restaurants  also offer  a variety  of beverage  choices,
including margaritas and beer.  Alcoholic  beverages currently account for  less
than 5% of gross sales.

     The  Ingredients.    The  Company  has  implemented  a  purchasing  program
structured to ensure that all of the ingredients used in the preparation of  the
Taco Cabana  menu  items are  of  the  highest quality.  The  Company  regularly
inspects its vendors to ensure both  that the products purchased by the  Company
conform to its standards, and that the prices offered are competitive.  The meat
used in making fajitas as well as most other principal ingredients are purchased
through supply contracts to ensure availability and minimize the risks of  price
fluctuation.

     The Preparation.  The menu items offered at any Taco Cabana restaurant  are
prepared at that restaurant from fresh meat and produce ingredients delivered by
suppliers to most restaurants at  least three times each  week.  The Company  is
committed to  differentiating itself  from other  quick service  competitors  by
utilizing fresh, high  quality ingredients as  well as the  preparation of  most
items "from scratch".  The  Company uses a number  of pre-prepared items and  is
currently testing  other  pre-prepared items  in  order to  simplify  restaurant
operations.

     Pricing Philosophy.   The Company offers  value by pricing  its menu  items
below the  price  of comparable  menu  items in  sit-down  Mexican  restaurants.
Although Taco  Cabana's food  costs (as  a percentage  of sales)  are  generally
higher than  quick  service  chains  as  a result  of  the  premium  quality  of
ingredients used,  the  Company  believes that  this  point  of  differentiation
contributes to the achievement of average  unit volumes in excess of most  quick
service restaurants.



Taco Cabana Restaurants

     Restaurant Layout.   Taco  Cabana restaurants  average approximately  3,200
square feet (exclusive  of the  exterior dining  area) and  provide seating  for
approximately 80 customers, with additional  patio seating for approximately  50
customers.

     Taco Cabana restaurants are typically a vivid pink color (with painted  and
neon accents),  conveying  a  distinctive  Mexican  theme  and  permitting  easy
identification by passing motorists.   Inside, exposed  elements of the  kitchen
display the  freshness  of  Taco  Cabana's food  and  the  authenticity  of  its
preparation.  Taco Cabana's restaurant design enables customers to observe fresh
fajitas cooking  on  a  charcoal  grill,  a  machine  making  fresh,  hot  flour
tortillas, Chicken FlameanteTM rotating  on spits and  the preparation of  other
food items.  Upon entry, the customer places an order selected from an  overhead
menu board, proceeds down a service  line to where the  order is picked up,  and
then passes a Salsa Bar en route to the dining area.  The distinctive Salsa  Bar
offers Taco  Cabana customers  freshly prepared,  authentic Tex-Mex  ingredients
such as Salsa de Fuego (made with  charred peppers and tomatoes), pico de  gallo
and salsa (all "made from scratch"  throughout the day at each restaurant),  and
cilantro, pickled jalapeno slices, crisp chopped onions, and fresh sliced limes.
According to the season, time of  day and personal preference, the customer  may
choose to dine either in the restaurant's brightly colored and festive  interior
dining area  or the  semi-enclosed or  outdoor  patio areas.   The  addition  of
traditional and contemporary  Latin music, tropical  landscaping, and  authentic
decorative artifacts  create an  overall dining  environment which  the  Company
believes is both  attractive and  festive.   Most Taco  Cabana restaurants  also
offer drive-thru service.

     The Company began constructing  its new prototype  restaurant in 1996.  The
prototype incorporates several new and different features that set it apart from
Taco Cabana restaurants previously  constructed.  The  new prototype features  a
rounded front, as well as Southwest accents such as a clay tile roof, heavy wood
beams and a  trellis that  shades the patio  area, and  adds the  use of  bright
colors outside and inside, including colored tiles, doors, windows, and awnings.
Corrugated metal wall panels, aged wood finishes, and distressed stainless steel
counter tops are featured inside, all of which are intended to replicate an  old
Mexican cafe.  Bright neon on the exterior of the building broadcasts the unique
menu items served at Taco Cabana.  Favorite features retained from the  original
Taco Cabana restaurants  include working garage  doors that open  up the  dining
area to the outside  when weather permits, display  cooking where the guest  can
see the food  being prepared, liberal  use of the  Taco Cabana's signature  pink
color, and the self-serve fresh Salsa Bar.  The prototype was designed to reduce
overall construction  costs, improve  functional  efficiency, allow  for  better
guest service, and enhance Taco Cabana's unique patio cafe image. Since November
1996, the Company has opened 17 restaurants under this new design.

     During  1997,  the  Company  initiated  a  re-image  program  for  existing
restaurants which incorporates many of the features of the new prototype design.
As of January 3,  1999, 41 restaurants  were re-imaged or  converted to the  new
prototype design, bringing a  system-wide total of 57  restaurants with the  new
design. The Company expects to re-image 30 to 35 restaurants during 1999.



     Restaurant Locations.    The  following table  sets  forth  the  number  of
restaurants as of  January  3, 1999  by area of  dominant influence ("ADI")  for
television and radio advertising:




ADI*                   Company-OwnedFranchised(1)   Total

     San Antonio             32(2)        0            32
     Houston                 28(3)        0            28
     Austin                  15           0            15
     Dallas/Fort Worth       18           0            18
     El Paso                  7           0             7
     Lubbock                  1           0             1
     Atlanta, Georgia         0           1             1
     Bryan/College Station    0           2             2
     Tulsa, Oklahoma          1           0             1
     Waco                     0           1             1
     Albuquerque, New Mexico  0           2             2
     Amarillo                 0           2             2
     Corpus Christi           0           1             1
     Ft. Wayne, Indiana       0           1             1
                            ---         ---           ---


        Total               102          10            112
                            ===         ===            ===





___________________________________________________________________________

*  All of the ADIs are located in Texas except as otherwise indicated.

(1)      Represents franchised Taco Cabana restaurants. Does not include 
         licensed Two Pesos franchises.
(2)      Includes one HEB grocery store unit.
(3)      Includes three mall-unit Taco Cabana restaurants.



Customer Convenience

     The Company  operates its  restaurants to  enable customers  to dine-in  or
take-out, as  they choose.   In  most cases,  the restaurants  also provide  the
convenience  of  drive-thru  windows  which,  in  the  aggregate,  account   for
approximately 40% of  the Company's sales.   A majority  of the restaurants  are
open 24  hours a  day.   This  strategy is  continually evaluated  for  economic
viability on a restaurant by restaurant basis.

Customer Service

     The Company is committed to consistently providing personal, attentive  and
efficient service in order  to attract repeat customers.   Restaurant and  shift
managers are encouraged to  follow a "front of  the house" style of  management,
which requires that the managers spend most of their time attending to customers
at the register, drive-thru windows or in the dining areas.

Marketing

     The Company utilizes  an integrated, multi-level  marketing approach  which
includes periodic  company-wide promotions,  direct mail,  in-store  promotions,
local store  marketing,  and  other  strategies,  including  the  use  of  radio
advertising in its  major markets.   The Company  expects to  execute this  plan
utilizing a marketing budget of approximately 3.75% of sales.

Expansion

     The Company's  near-term  strategy is  to  achieve a  dominant  or  leading
position among quick service  Mexican food restaurants in  each of its  targeted
principal markets in order to obtain marketing and operating efficiencies.   The
Company seeks to implement  this strategy by  selectively adding restaurants  in
existing markets in  order to expand  its existing market  share. In  accordance
with this strategy, the Company may locate new restaurants in close proximity to
existing Taco Cabana restaurants in order to provide the Company with  increased
market penetration  and market  profitability,  even if  this  may result  in  a
reduction  in   comparable  store   sales   volumes  of   certain   restaurants.
Additionally, the Company is planning to expand into new markets, beginning with
the Oklahoma City market in 1999. The Company's 1999 objective is to open ten to
twelve freestanding restaurants in existing markets and in Oklahoma City.

     The Company  believes  the site  selection  process is  very  important  in
determining  the  potential  success  of  a  particular  restaurant  and  senior
management devotes substantial time and resources to analyzing each  prospective
site.  The Company focuses on selecting locations which clear stringent  hurdles
with regards  to the  projected return  on  initial investment.   A  variety  of
factors are considered  in the site  selection process,  including local  market
demographics, site visibility and accessibility (including drive-by traffic  and
ease of  drive-thru accessibility),  proximity  to competitive  operations,  and
proximity to generators of potential customers, such as major retailers,  retail
centers, medical or hospital facilities, office complexes, hotel concentrations,
and stadiums,  arenas, theaters  or other  entertainment centers.   The  Company
currently uses  a  software model  to  assist  in the  evaluation  of  potential
locations.  The software model was  developed by the Company using the  services
of a consulting firm during 1996, and significantly upgraded and enhanced during
1998.


Restaurant Operations and Management

     The Company seeks  to maintain quality  and consistency  in its  restaurant
operations by  carefully training  and  supervising personnel  and  establishing
exacting standards  relating  to  food  quality,  friendliness  of  service  and
cleanliness of the restaurant  facility.  It is  the Company's policy to  ensure
that customers are served  quickly and that  customers receive orders  correctly
filled and delivered in a courteous manner.

     The Company maintains  financial and accounting  controls for  each of  its
restaurants through  use of  centralized accounting  and management  information
systems.   The  Company has  installed  throughout  all   of  its  company-owned
restaurants an in-store computer-based management support system that allows for
daily polling  of  sales  and  labor  information.    Additionally,  a  separate
management  information  system  has  been  developed  and  implemented  in  all
company-owned restaurants which provides for daily polling of food costs.   This
system records the receipt  of inventory through the  scanning of bar-codes  and
integrates with the point of sale system thus providing immediate cost of  sales
data and  inventory  records.   The  system is  designed  to improve  food  cost
management, provide corporate  management quicker access  to financial data  and
reduce  the  time   devoted  by  its   restaurant  managers  to   administrative
responsibilities.

     Operations are  managed  by restaurant  general  managers who  complete  an
intensive training program during which they are instructed in all areas of Taco
Cabana's  restaurant  operations.     Such  areas   of  training  include   food
preparation,   customer   service,   cost   controls,   facility    maintenance,
communications skills and employee relations.   Restaurant general managers  are
overseen by division leaders (individuals with responsibility for the  operation
of multiple restaurants  within a  market) and  by regional  Vice Presidents  of
Operations.  An incentive plan has been established in which all restaurant  and
division leaders participate.  Awards under  the incentive plan are tied to  the
achievement of specified sales, profitability and qualitative performance goals.


Franchising Program

     At January 3, 1999, the Company  had five franchisees operating a total  of
10 Taco Cabana restaurants.   The Company did not  enter into any new  franchise
agreements during 1998 and does not currently anticipate new franchisee signings
during 1999.

Competition

     Taco Cabana's restaurants compete both with  fast food operations and  with
traditional  sit-down  Mexican  restaurants.    Management  believes  that   the
Company's combination  of  freshly  prepared  food,  distinctive  ambiance,  and
superior service  help to  distinguish Taco  Cabana restaurants  from fast  food
operations,   while Taco  Cabana's price-value  relationship differentiates  its
restaurants from more expensive sit-down or casual dining restaurants.


     The food service industry is intensely  competitive with respect to  price,
service,  location  and  food  quality,  and  there  are  many  well-established
national, regional and locally-owned competitors in the Company's market  areas,
some of which have greater financial and other resources than the Company.  Some
of such competitors have also been in existence longer than the Company and  are
better established  in areas  where Taco  Cabana's restaurants  are or  will  be
located.   The restaurant  business is  often affected  by changes  in  consumer
tastes, economic  conditions,  population,  traffic  patterns,  availability  of
employees and cost increases.

Employees

     At January 3, 1999,  the Company employed  approximately 3,200 persons,  of
whom approximately  3,100  were  operations employees  and  the  remainder  were
corporate personnel.    Most employees,  other  than restaurant  management  and
corporate personnel, are paid on an hourly basis.  The Company believes that  it
provides working conditions and  wages that are comparable  with those of  other
companies in  the  restaurant  industry  operating in  its  market  area.    The
Company's employees are not covered by a collective bargaining agreement.

     The Company  does  not subscribe  to  any workers'  compensation  insurance
program in the  State of Texas,  where the great  majority of its  company-owned
restaurants are currently located.  As such, it is subject to negligence actions
by its employees and is not  able to assert contributory negligence and  certain
other defenses. In addition, employees might be able to recover certain types of
damages that would  not be  available to  them if  the Company  subscribed to  a
workers' compensation insurance program.  The Company self-insures a portion  of
such risk, and carries excess liability  coverage that it believes is  adequate.
This practice  has  not had  any  material  adverse effect  upon  the  Company's
operations or financial position since it was adopted in November 1988.

Trademarks, Service Marks and Trade Dress

     The Company regards its trademarks, service marks and trade dress as having
significant value and as being important to its marketing efforts.  The  Company
has registered its principal Taco Cabana logo and design with the United  States
Patent and Trademark Office on the Principal Register as a service mark for  its
restaurant  services,  has  secured  or  has  applied  for  state  and   federal
registrations of  several  other  advertising or  promotional  marks,  including
variations of  its principal  mark and  the  service mark  "Get Real",  and  has
applied for registrations in foreign countries of its principal mark and several
other marks.  The  Company's policy is to  pursue registration of its  principal
marks and to oppose strenuously any infringement of its marks or trade dress.

Government Regulation

     Each company-owned and  franchised restaurant is  subject to regulation  by
federal agencies and  to licensing and  regulation by   state and local  health,
sanitation, safety, fire and other departments  relating to the development  and
operation of restaurants, including  regulations relating to alcoholic  beverage
sales, environmental, building and zoning requirements, preparation and sale  of
food,  and  laws  governing  the  Company's  relationship  with  its  employees,
including  minimum   wage  requirements,   overtime,  working   conditions   and
citizenship requirements.   Difficulties or failures  in obtaining the  required
licenses or approvals could delay or prevent the opening of new restaurants.


     The Company is subject to Federal  Trade Commission ("FTC") regulation  and
state laws which regulate the  offer and sales of  franchises.  The Company  may
also become subject  to state  laws which  regulate substantive  aspects of  the
franchisor-franchisee relationship.  The FTC requires the Company to furnish  to
prospective franchisees  a  franchise offering  circular  containing  prescribed
information.  A number of states in which the Company might consider franchising
also regulate the offer and sale  of franchises and require registration of  the
franchise  offering  with  state  authorities.  State  laws  that  regulate  the
franchisor-franchisee relationship presently  exist in a  substantial number  of
states and bills have been introduced in Congress and other states from time  to
time  which   would  provide   for  regulation   of  the   franchisor-franchisee
relationship in  certain  respects.    Certain  of  such  laws  may  restrict  a
franchisor  in  the  termination  of  a  franchise  agreement,  although   these
provisions have not had a significant effect on the Company's operations.

     The Company is subject  to the Fair Labor  Standards Act and various  state
laws governing such  matters as minimum  wage requirements,  overtime and  other
working conditions and citizenship  requirements.  A  significant number of  the
Company's food  service personnel  are  paid at  rates  related to  the  federal
minimum wage and increases in the minimum wage will increase the Company's labor
costs. The Company is subject to the  Texas "dram-shop" laws and may be  subject
to the  "dram-shop" laws  of certain  other states.   Dram-shop  laws 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 is also subject  to the Americans with Disabilities Act  of
1990, which, among other things, may  require certain minor further  renovations
to existing restaurants to meet federally mandated access and use  requirements.
The cost of these renovations is not expected to be material to the Company.

     The Company believes that  it is operating  in substantial compliance  with
applicable laws and regulations governing its operations.

Geographic Concentration

     During fiscal  1998, approximately  99% of  the  Company's net  sales  were
derived from  restaurants located  in the  State of  Texas.   As a  result,  the
Company's results of operations may be materially affected by weather,  economic
or business conditions within these markets.  Also, given the Company's  present
geographic concentration, adverse publicity relating to Taco Cabana  restaurants
could have a more pronounced adverse effect on the Company's overall sales  than
might be the case if the Company's restaurants were more broadly dispersed.



ITEM 2.   PROPERTIES

     The Company  currently  owns  31  of  its  restaurant  sites  and  owns  an
additional nine buildings on properties with  ground leases. The Company  leases
its remaining restaurant locations.   The Company may  purchase a number of  its
current and future  restaurant locations where  it is cost  effective to do  so.
Substantially all of Taco Cabana's restaurants are free-standing buildings.  The
Company has typically needed 120 days after the signing of a lease and obtaining
required permits to complete construction and open a new restaurant.  Additional
time is sometimes needed  to obtain certain  government approvals and  licenses,
such as liquor licenses.

     Land leased by the  Company is typically leased  under "triple net"  leases
that require the  Company to pay  real estate taxes  and utilities and  maintain
insurance with respect  to the premises  and, in many  cases, to pay  contingent
rentals based on sales in excess of specified amounts.  The leases have  initial
terms of 10 to 20 years with options to renew for additional periods which range
from 5 to  15 years.   Approximately 92% of  the Company's  current leases  have
remaining terms or renewal options extending  more than five years from  January
3, 1999.


ITEM 3.   LEGAL PROCEEDINGS

     The  Company   is   a   party   to   franchise,   routine   negligence   or
employment-related litigation in the ordinary course  of its business.  No  such
pending matters, individually or in the aggregate, are deemed to be material  to
the results of operations or financial condition of the Company.


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

     The Company did  not submit  any matter during  the fourth  quarter of  the
Company's fiscal  year  ended  January  3,  1999 to  a  vote  of  the  Company's
stockholders, through the solicitation of proxies or otherwise.


                                    PART II


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

     The Common Stock,  $.01 par value,  of the Company  ("Common Stock")  began
trading on the NASDAQ National Market on October 16, 1992, the effective date of
the Company's initial public offering. Prior  to October 16, 1992, there was  no
public market for the Common Stock.

     The table below sets  forth, for the periods  indicated, the reported  high
and low last  sale prices  of the  Company's Common  Stock, as  reported on  the
NASDAQ National Market:

                                             High           Low
     Fiscal Year Ended January 3, 1999
          Quarter Ended January 3, 1999    $ 7   3/4    $   4   7/8
          Quarter Ended September 27, 1998   6   5/8        4   7/8
          Quarter Ended June 28, 1998        7   1/8        5   3/4
          Quarter Ended March 29, 1998       7   1/16       4   7/16

     Fiscal Year Ended December 28, 1997
          Quarter Ended December 28, 1997  $ 5   11/16  $   4   1/16
          Quarter Ended September 28, 1997   5   3/4        4
          Quarter Ended June 29, 1997        5   1/2        3   15/16
          Quarter Ended March 30, 1997       7   3/8        4   3/4


     As of March 1, 1999, the  last reported sale price  of the Common Stock  on
the NASDAQ National Market System was $8 11/16 per share.  As of March 1,  1999,
there were approximately 900 record holders of Common Stock.

     On June 9, 1995 the Board of Directors declared a dividend distribution  of
Preferred Share Purchase Rights.   The Rights  may be redeemed  by the Board  of
Directors for one cent per Right prior to the close of the tenth day (subject to
extension by the Board  of Directors to the  30th day) after  a person or  group
acquires (or  has  obtained the  right  to acquire  or  announces an  intent  to
acquire) through open-market purchases, a tender offer or otherwise, 15% or more
of the  Company's shares.   For  a 120-day  period after  any date  of a  change
(resulting from a proxy or consent solicitation)  in a majority of the Board  of
Directors in office at the time  the solicitation was commenced, the Rights  may
only be  redeemed if  there are  directors  then in  office who  are  continuing
directors and the Board of Directors of  the Company, with the concurrence of  a
majority of such continuing directors, determine  that the redemption is in  the
best interest of the Company and its stockholders.

     The Rights were issued on June 20,  1995 to stockholders of record on  that
date and will expire in ten years.  The Rights are not currently exercisable and
automatically trade with the common shares. However, upon the earlier of (i) ten
days after a person or group acquires or  has obtained the right to acquire  15%
or more of the  Company's shares, or (ii)  ten business days  after a person  or
group commences or discloses  an intent to commence  a tender or exchange  offer
the consummation of which  would result in  such person or  group owning 15%  or
more of the shares, and subject to the Board's right to set a later date  (which
date will not  be later than  the 30th day  after an event  described in (i)  or
(ii)), the Rights will become exercisable and separate certificates representing
the Rights will be distributed.


     When the Rights first become exercisable, a holder will be entitled to  buy
from the Company one one-thousandth of a share of a new series of  participating
cumulative preferred stock for $37.50.

     If the Company is involved in a merger or other business combination  with,
or 50% or more  of its assets or  earning power are  sold to, a  publicly-traded
person or group  that has  acquired 15%  or more  of the  Company's shares,  the
"flip-over" provision  of the  Rights  will be  triggered  and the  Rights  will
entitle a holder  to buy a  number of shares  of common stock  of the  acquiring
company having a market value of twice the exercise price of each Right.  If the
acquiring person or group is not  publicly traded, the "flip-over" provision  of
the Rights will be triggered and  the Rights will entitle  the holder to buy  at
the exercise price,  at the  holder's option  (i) the  number of  shares of  the
surviving company having  a book  value of twice  the exercise  price, (ii)  the
number of shares  of the  acquiring company  having a  book value  of twice  the
exercise price, or (iii) the number  of shares of any publicly traded  affiliate
of the acquiring company having a market value of twice the exercise price.

     If any person or group acquires or has obtained the right to acquire 15% or
more of the Company's outstanding Common  Stock, the "flip-in" provision of  the
Rights will be triggered and the Rights  will entitle a holder (other than  such
person or any member of such group) to buy that number of one one-thousandths of
a preferred share  equivalent to the  number of shares  of Common  Stock of  the
Company having a market value of twice the exercise price of each Right.

     Following the acquisition  by any person  or group of  15% or  more of  the
Company's Common Stock,  the Board of  Directors will also  have the ability  to
exchange the Rights, in whole or in part, for consideration per Right consisting
of one-half of  the securities  that would  be issuable  at such  time upon  the
exercise of one Right or cash equal to the exercise price of the Right.

     In  addition  to  authorizing  the  Stockholder  Rights  Plan,  the   Board
authorized a new series of participating cumulative preferred stock  purchasable
upon exercise of  the Rights.   The shares of  the new  series of  participating
cumulative preferred stock will be nonredeemable.  Each preferred share will  be
entitled to a quarterly dividend equal to the greater of $.01 per share or 1,000
times any dividend declared on  the common shares during  such quarter.  In  the
event of liquidation, the  holders of the preferred  shares will be entitled  to
receive an aggregate liquidation payment equal to the greater of $.01 per  whole
share or an amount per share equal to 1,000 times the payment made per share  of
Common Stock.  Each preferred share will have 1,000 votes, voting together  with
the common shares.  Finally, in the event of any merger, consolidation or  other
transaction in which common shares are  exchanged, each preferred share will  be
entitled to receive  1,000 times the  amount received per  common share.   These
rights are protected  by customary anti-dilution  provisions.  In  the event  of
issuance of preferred shares upon exercise of the Rights, in order to facilitate
trading a depository  receipt may  be issued for  each one  one-thousandth of  a
preferred share.   The dividend,  liquidation and  voting rights,  and the  non-
redemption feature, of the  preferred shares are designed  so that the value  of
the one-thousandth interest  in a preferred  share purchasable  with each  right
will approximate the value of one share of Common Stock.

     The Company has never declared or  paid cash dividends on the Common  Stock
or any of its  other securities.   The Company presently  intends to retain  all
earnings for  the  operation  and  development of  its  business  and  does  not
anticipate paying any  cash dividends  on the  Common Stock  in the  foreseeable
future.   Any future  determination as  to the  payment of  cash dividends  will
depend on a number of factors, including future earnings, capital  requirements,
the financial condition and  prospects of the  Company and present restrictions.
under credit facilities, as well as such other factors as the Board of Directors
may deem relevant.   There can  be no assurance  that the Company  will pay  any
dividends in the future.



ITEM 6.   SELECTED FINANCIAL DATA

     The following selected  financial data, which  set forth certain  financial
information with respect to  the Company, have been  derived from the  financial
statements of the Company.  The financial statements of the Company for each  of
the fiscal years in the five-year period ended January 3, 1999 have been audited
by Deloitte  &  Touche  LLP, independent  certified  public  accountants.    The
following selected  financial  data  should be  read  in  conjunction  with  the
Consolidated Financial Statements  and the notes  thereto included elsewhere  in
this report.



               January 1,  December 31,  December 29,  December 28,  January 3,
                1995 (1)      1995          1996          1997          1999
               52 Weeks    52 Weeks      52 Weeks      52 Weeks      53 Weeks

               (in thousands,except per share data)

Income Statement Data:

REVENUES:

Restaurant 
 sales           $124,826    $137,191      $131,680      $ 131,857     $142,592

Franchise fees and
 royalty income     2,424       1,342           516            346          358
                 --------    --------      --------      ---------     --------
 Total revenues   127,250     138,533       132,196        132,203      142,950

COSTS AND EXPENSES:

Restaurant cost of
 sales and 
 operating costs  102,236     115,195       107,703        110,440      114,111

General and
 administrative     4,818       6,068         6,445          6,964        7,829

Depreciation and
 amortization       7,112      10,301         9,245          9,659        7,990

Special charges
 (reversal) (3)         -       8,100         2,497         78,738       (2,665)


Litigation
 settlement (2)         -           -         3,400              -            -

Reserve for notes and other
 receivables            -       3,500             -              -            -
                 --------    --------      --------       --------     --------
Total costs
 and expenses     114,166     143,164       129,290        205,801      127,265
                 --------    --------      --------       --------     --------
INCOME (LOSS) FROM
 OPERATIONS        13,084      (4,631)        2,906        (73,598)      15,685

NON-OPERATING INCOME
 (EXPENSE):           220      (1,397)       (1,348)        (1,137)      (1,951)
                 --------    --------      --------       --------     --------
INCOME (LOSS) BEFORE
 INCOME TAXES      13,304      (6,028)        1,558        (74,735)      13,734

(PROVISION) BENEFIT FOR
 INCOME TAXES      (4,784)      2,230          (854)         1,537            -
                 --------    --------      --------       --------      -------

NET INCOME 
 (LOSS)          $  8,520     $(3,798)      $   704       $(73,198)     $13,734
                 ========    ========      ========       =========     =======
                                                            

BASIC EARNINGS (LOSS) PER
 SHARE (5)      $    0.56     $ (0.24)      $  0.04       $  (4.78)     $  0.96
                =========    ========      ========       =========     =======

DILUTED EARNINGS (LOSS)
 PER SHARE (5)  $    0.55     $ (0.24)      $  0.04       $  (4.78)     $  0.95
                 ========    ========      ========       ========      =======






Balance Sheet Data:


TOTAL ASSETS     $152,222    $148,578      $142,706       $ 76,260      $ 90,202
LINE OF CREDIT, LONG-TERM DEBT
   AND CAPITAL LEASES,
   INCLUDING CURRENT
   MATURITIES      12,945      19,290        13,668         19,323        30,324
STOCKHOLDERS'
   EQUITY         115,652     112,327       113,172         36,413        40,777
DIVIDENDS PER
   COMMON SHARE       -           -             -              -             -


     
(1)  Includes results  of  eight  acquired franchised  restaurants  since  their
     respective dates of acquisition.
(2)  Includes the  1996  litigation  settlement for  $3.4  million  pre-tax,  as
     described in Note 14 to the Consolidated Financial Statements.
(3)  Includes the charge related to the 1995 operations review of $8.1  million,
     the 1996 write-down of the Company's investment in a joint venture and  the
     accrual of related  exit costs  of $2.5 million,  the 1997  charge for  the
     write down of impaired assets and the closure of seventeen restaurants  and
     the reversal of  special charges in  1998 as described  in Note 2   to  the
     Consolidated Financial Statements.
(4)  Reserve resulted from the 1995 operations review.
(5)  The earnings per share amounts prior to 1997 have been restated as required
     to comply  with Statement  of Financial  Standards  No. 128,  Earnings  Per
     Share. For  further discussion  of earnings  per share  and the  impact  of
     Statement No.  128,  see Notes  1  and  11 to  the  consolidated  financial
     statements.



ITEM 7.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
          RESULTS OF OPERATIONS


Introduction

     The Company commenced operations in 1978 with the opening of its first Taco
Cabana restaurant in San Antonio.   As of January 3,  1999, the Company had  102
company-owned  restaurants,  and  10  franchised  restaurants.    The  Company's
revenues are derived  primarily from  sales by  company-owned restaurants,  with
franchise fees and royalty  income contributing less than  1% of total  revenues
for the 1998 fiscal year.

          During the fiscal year ended January 3, 1999, the Company opened  nine
restaurants and  closed  five restaurants.  Additionally,  a franchisee  of  the
Company closed one restaurant.


Results of Operations

     The following  table  sets  forth  the  percentage  relationship  to  total
revenues, unless otherwise  indicated, of certain  income statement  data.   The
table also sets forth certain restaurant data for the periods indicated.

                                     Fiscal Year Ended                   
                              ----------------------------------
                              December 29, December 28, January 3,
                                 1996        1997         1999
Income Statement Data:
REVENUES:
Restaurant sales                 99.6%       99.7%        99.7%
Franchise fees and royalty income 0.4         0.3          0.3
                                -----       -----        -----
Total revenues                  100.0       100.0        100.0
                                =====       =====        =====


COSTS AND EXPENSES:
Restaurant cost of sales (1)     31.4        30.8         30.4
Labor (1)                        26.3        27.4         26.8
Occupancy (1)                     6.2         6.2          5.5
Other restaurant
  operating costs (1)            17.9        19.3         17.3
General and administrative
  costs                           4.9         5.3          5.5
Depreciation and amortization     7.0         7.3          5.6
Special charges                   1.9        59.6         (1.9)
Litigation settlement             2.6           -            -
                                -----       -----        -----

INCOME  (LOSS) FROM OPERATIONS    2.2       (55.7)        11.0

INTEREST EXPENSE, NET            (1.0)       (0.9)        (1.4)
                                -----       -----        -----

INCOME (LOSS) BEFORE INCOME
  TAXES                           1.2       (56.5)         9.6

INCOME TAXES                     (0.6)        1.2            -
                                -----       -----        -----

NET INCOME (LOSS)                 0.5%      (55.4)%        9.6%
                                =====       =====        =====



Restaurant Data:

COMPANY-OWNED RESTAURANTS:
Beginning of period             106         104           98
Opened                            1           7            9
Acquired                          -           1            -
Closed                           (3)        (14)          (5)
                              -----       -----        -----

End of period                   104          98          102
FRANCHISED RESTAURANTS (2):      17          11           10
                              -----       -----        -----     
TOTAL RESTAURANTS:              121         109          112
                              =====       =====        =====

______________
     (1) As a percentage of restaurant sales.
     (2) Excludes Two Pesos licensed restaurants.

Fiscal 1998 Compared to Fiscal 1997

     Restaurant Sales.  Restaurant  sales increased $10.7  million, or 8.1%,  to
$142.6 million  for  fiscal 1998  from  $131.9 million  for  fiscal 1997.    The
increase in sales is  due to an  increase in sales  at existing restaurants,  an
additional week  of sales  in 1998  compared  to 1997  and  the opening  of  new
restaurants during 1998, offset by a decrease in sales from restaurant closures.
Comparable store sales, defined as Taco  Cabana restaurants that have been  open
18 months or more at the beginning of each quarter, increased 4.7% during  1998.
Management attributes much of the increase in comparable store sales to  several
factors including a  more consistent marketing  program featuring  a value  meal
message, a commitment to increased staffing  levels at existing restaurants  and
the ongoing reimage program.  The  additional week of sales  in 1998 was due  to
the fact the Company's fiscal year is a 52 - 53 week year ending on the  closest
Sunday to December 31. Fiscal year 1998 contained 53 weeks and fiscal year  1997
contained 52 weeks. The additional week accounted for approximately $2.6 million
in additional sales  for 1998 compared  to 1997. Sales  from restaurants  opened
after December 29, 1997 accounted for an increase of $8.3 million. This increase
was offset by restaurants closed during  1997 which accounted for sales of  $7.1
million during 1997.

     Franchise Fees and  Royalty Income.   Franchise and  royalty fees  remained
relatively constant for the fiscal 1998  compared to fiscal 1997. There were  no
new franchisee openings and one franchisee closing during 1998.

     Restaurant Cost  of Sales.    Restaurant cost  of  sales, calculated  as  a
percentage of restaurant sales, decreased to  30.4% in 1998 from 30.8% in  1997.
The decrease was due primarily to a price increase taken in the first quarter of
1998 and  continued  improvements  in  the  management  of  food  costs  through
utilizing increased  controls and  improved purchasing  programs, including  the
continued negotiation of favorable commodity pricing. Management expects cost of
sales to stay flat or slightly decrease as a percentage of sales in 1999 due  to
a price increase  in December 1998  and the continued  negotiation of  favorable
commodity contracts.

     Labor.  Labor  costs, calculated  as a  percentage of  sales, decreased  to
26.8% for the year ended January 3, 1999  compared to 27.4% in 1997.   Adjusting
for restaurants  closed  during  1997,  comparable  labor  as  a  percentage  of
restaurant sales during 1997 was 26.5%.  The increase in comparable labor  costs
is due to an  increase in the  minimum wage in  September 1997 and  management's
commitment to increased staffing levels at the restaurant in order to provide  a
consistent guest experience as well as  higher than normal labor costs at  newer
restaurants. New restaurants  generally have higher  than normal  costs for  the
first four to six months of operations. Management expects that labor costs as a
percentage of sales will be flat to slightly higher in 1999.


     Occupancy.  Occupancy costs decreased by  $345,000 during 1998 compared  to
1997.   The  decrease  was  primarily due  to  the  closure  of  underperforming
restaurants during 1997. As  a percentage of  restaurant sales, occupancy  costs
decreased to 5.5% in the year  ended January 3, 1999  compared to 6.2% in  1997.
The decrease is due to  an increase in average  unit sales volumes during  1998,
which was in turn  attributable to the  closure of underperforming  restaurants,
the opening  of new  restaurants  with higher  volumes  and increased  sales  at
existing restaurants.

    Other Restaurant Operating Costs. Other restaurant operating costs decreased
by $679,000 to  $24.7 million for  the year ended  January 3,  1999 compared  to
$25.4 million in the same period of 1997.  As a percentage of restaurant  sales,
other restaurant operating costs decreased to  17.3% for the year ended  January
3, 1999 compared to 19.3% in the same period of  1997.  The decrease was due  to
decreased marketing and promotional activities and  an increase in average  unit
sales volumes.  The decrease in marketing and promotional costs is attributed
to the management's decision to exit the underperforming  Colorado market in 
December 1997, as well as the decision  to move to a radio only  media 
strategy in 1998.  Management expects this amount, as a percentage of sales, to
be flat or slightly lower in 1999.

     General and Administrative.  General and administrative expenses  increased
to $7.8  million from  $7.0 million,  and  increased as  a percentage  of  total
revenues to 5.5% for the year ended January 3, 1999 from 5.3% for the comparable
period in 1997. This increase was  primarily attributable to an increased  level
of expenditures to  support the  Company's operations,  and an  increase in  the
bonus accrual during 1998.

     Depreciation, Amortization  and Restaurant  Opening Costs.    Depreciation,
amortization and restaurant opening expenses consisted of the following:

                                             Year Ended
                                     --------------------------
                                     December 28,     January 3,
                                         1997          1999

    Depreciation   of  property   and
    equipment .........................$ 7,942,000  $ 6,816,000
    Amortization   of      intangible
    assets ............................  1,313,000      569,000
    Restaurant opening costs ..........    404,000      605,000

     Depreciation expense  decreased by  approximately $1.1  million for  fiscal
1998 compared to fiscal 1997.  The decrease was due primarily to the closure  of
restaurants and  writedown of  assets in  conjunction  with the  special  charge
recorded in the fourth quarter of  1997, offset by new restaurants opened  after
December 28,  1997,  as  well as  continued  capital  improvements  to  existing
restaurants.  Amortization  of  intangible assets  decreased  by   approximately
$744,000 primarily due to the writedown  of goodwill and other intangible assets
during the  fourth quarter  of  1997.   Restaurant  opening costs  increased  by
approximately $201,000 during fiscal  1998 compared to fiscal  1997, due to  the
increase in  the number  of restaurants  opened during  1998 compared  to  1997.
Management expects these  amounts to  increase during  1999 due  to the  ongoing
reimage program as well as the opening of new restaurants.

     Special Charge Reversal.   As part of the  special charges recorded in  the
fourth quarter  of 1996  and 1997,  the Company  reduced the  carrying value  of
assets and established reserves for  the estimated lease liabilities  associated
with restaurants  that  were closed.    During 1998,  the  Company  successfully
completed sales of several  of these properties to  third parties or  negotiated
favorable lease  terminations. The  amount  of the  proceeds  in excess  of  the
carrying  value  of  the  assets  and   the  remaining  lease  liabilities   was
approximately $2.7  million.  This  amount was  recorded  as  a  special  charge
reversal during the fourth quarter of 1998.

    Interest Expense,  net.    Interest expense,  net  of  interest  income  and
interest capitalized on construction costs, increased to $2.0 million in  fiscal
1998 from  $1.1 million  in fiscal  1997, primarily  as a  result of  additional
borrowings under  the  Company's debt  facilities.   In  addition,  the  Company
capitalized $117,000 of interest during 1998 compared to $147,000 during 1997.

     Net Income (Loss) and  Net Income (Loss) Per  Share.  The Company  recorded
net income of $13.7 million for 1998 compared to a net loss of $73.2 million for
1997.  Diluted  earnings per share  was $0.95 for  1998 compared to  a loss  per
share of $4.78 in 1997.  The net  income recorded in 1998 includes the  reversal
of a portion of the special charges recorded during 1996 and 1997 totaling  $2.7
million. Also,  net income  recorded in  1998 does  not include  any income  tax
expense due to  the utilization of  previously unrecognized  net operating  loss
carryforwards relating to the special charge recorded in 1997.  Including a pro-
forma income  tax  expense  utilizing the  same  rate  as the  prior  year,  and
excluding the special charge reversal in  1998, the Company would have  reported
net income of  approximately $7.0 million,  or $0.48 per  share (diluted).   The
loss recorded in  1997 includes special  charges totaling  $78.7 million  pretax
($75.7 million after-tax,  or $4.94 per  share).  Excluding  these charges,  the
Company would have reported net income of $2.5 million equal to $0.16 per  share
in fiscal 1997.  In summary, the increase in net income and diluted earnings per
share in 1998 is attributable to several factors including an increase in  sales
at  existing  restaurants,  continued  strong  cost  controls,  the  closing  of
underperforming restaurants and an extra week of operations in 1998 compared  to
1997.

Fiscal 1997 Compared to Fiscal 1996

     Restaurant Sales.  Restaurant sales increased $177,000, or 0.1%, to  $131.9
million for fiscal 1997 from  $131.7 million for fiscal  1996.  The increase  in
sales was due to an increase in the number of store operating weeks during  1997
compared to 1996.   The increase was  offset by a  decrease in comparable  store
sales in 1997 compared to 1996. In the aggregate, the number of operating  weeks
increased 1.6% in 1997 compared to 1996.  Comparable store sales decreased  2.9%
during 1997.  Much of the decline in comparable store sales occurred during  the
first six months of the year.  Comparable stores sales for the first six  months
of fiscal 1997  decreased 4.8%, while  comparable store sales  for the last  six
months of  the year  decreased only  0.8%.   Management attributes  much of  the
decline  during  the  first  six  months  to  unfavorable  weather   conditions,
significant declines in the Colorado market (which was closed in November 1997),
and a promotional strategy which highlighted higher priced, premium products  in
an intensely price competitive landscape.  This strategy was changed during  the
second half of the year to  a promotional strategy which continually  highlights
various meals at a competitive price.

     Franchise Fees and Royalty  Income.  Franchise  and royalty fees  decreased
$170,000 to  $346,000 for  1997, from  $516,000  for 1996,  due primarily  to  a
decrease in the number of franchises open  during 1997 compared to 1996.

     Restaurant Cost  of Sales.    Restaurant cost  of  sales, calculated  as  a
percentage of restaurant sales, decreased to  30.8% in 1997 from 31.4% in  1996.
The decrease was due  primarily to continued improvements  in the management  of
food  costs  through  utilizing  increased  controls  and  improved   purchasing
programs, including the continued negotiation of favorable commodity pricing.



     Labor.  Labor  costs, calculated  as a  percentage of  sales, increased  to
27.4% for the  year ended  December 28, 1997  compared to  26.3% in  1996.   The
increase was  due  to  lower  average  unit  volumes  as  well  as  management's
commitment to  increase staffing  levels at  the restaurant  level in  order  to
provide a consistent guest experience.   In addition, approximately 15% of  this
increase in  percentage  of  sales  amount was  due  to  increased  labor  costs
associated with the Colorado market.  During January 1997, the Company announced
its plans to commit additional resources, primarily in marketing and  restaurant
level staffing, in an attempt to reverse the negative sales trends and operating
losses of  this  market.   The  restaurants in  the  market were  closed  during
November 1997.

     Occupancy.   Occupancy costs  increased slightly  during 1997  compared  to
1996.  The increase  was due to an  increase in the  number of restaurants  open
during fiscal 1997 compared to fiscal 1996.

    Other Restaurant Operating Costs. Other restaurant operating costs increased
by $1.9 million for the year ended December 28, 1997 compared to the same period
of 1996.  As a percentage of restaurant sales, other restaurant operating  costs
increased to 19.3% for the year ended December 28, 1997 compared to 17.9% in the
same period of 1996,  primarily due to decreased  sales at the restaurant  level
and additional marketing expenditures during the  year ended December 28,  1997.
Total marketing expenditures accounted for 4.7% of sales in 1997 versus 3.8%  in
1996.  Approximately $600,000,  or 0.5% of  sales, of this  increase was due  to
increased marketing in the Colorado market.

     General and Administrative.  General and administrative expenses  increased
to $7.0  million from  $6.4 million,  and  increased as  a percentage  of  total
revenues to  5.3%  for the  year  ended December  28,  1997 from  4.9%  for  the
comparable period  in 1996.  This increase  was  primarily attributable  to  the
addition  of  corporate  support  staff,  as  well  as  an  increased  level  of
expenditures  to  support  the  Company's  operations,  offset  by  lower  bonus
accruals.

     Depreciation and  Amortization.    Depreciation  and  amortization  expense
consisted of the following:
 
                                                 Year Ended
                                         ----------------------------
                                         December 29,     December 28,
                                             1996            1997

    Depreciation   of  property   and                               
    equipment ......................... $ 7,079,000       $ 7,942,000
    Amortization   of      intangible                         
    assets ............................   1,651,000         1,313,000
    Amortization   of     pre-opening                               
    costs .............................     515,000           404,000 

     Depreciation expense increased  by approximately $863,000  for fiscal  1997
compared to fiscal 1996.  The increase was due primarily to restaurant  openings
during 1997, as well as capital expenditures on existing restaurants during 1997
and 1996.  The increase was partially offset by a reduction in depreciation  due
to the  closure of  14 restaurants  and the  write-down of  certain  depreciable
assets during the  fourth quarter  of 1997.   Amortization  of intangible assets
decreased by  $338,000 primarily  due to  the write-off  of goodwill  and  other
intangible assets during the fourth quarter of 1997. Amortization of pre-opening
costs decreased by approximately $111,000 during fiscal 1997 compared to  fiscal
1996, due to the decrease  in the number of  restaurants opened during the  most
recent twelve-month period  compared to the  twelve-month period ended  December
29, 1996.

     Special Charge.  During the fourth quarter of fiscal 1997, management  made
the decision to close the seven restaurants in its Colorado market.  The Company
committed substantial resources  to this  market during  1997 in  an attempt  to
reverse trends  of  poor  sales  and  losses.   The  desired  results  from  the
implementation of  the plan  were not  achieved and  the decision  to close  the
market was made.  These seven restaurants had total sales of approximately  $3.0
million and operating  losses of $2.1  million during  the approximately  eleven
months of 1997 that they were in operation.

           Additionally, the Company continued to experience unfavorable sales 
trends during 1997,  concluding the  year with  comparable restaurant  sales  
declining 2.9%.  However, during the first six months of 1997, comparable 
restaurant sales declined 4.8%.  This  trend compelled management to  continue 
its evaluation  of the operating  model  of  the  Company.    During  this  
evaluation, management concluded that certain volumes must be  achieved in order
to operate individual restaurants in accordance with Company standards.  These 
standards include  food quality, cleanliness, speed of service, and 
profitability.  Management  reviewed all existing restaurants to determine which
restaurants could not reasonably  be expected to achieve these volume levels,  
generally annual revenues of at  least $1 million.  This led to the decision to 
close an additional ten restaurants.

           Due to  the  significance  of  the  closures  described  above,  
management performed an  evaluation  of  the recoverability  of  all  remaining 
assets  as described in Statement of  Financial Accounting Standards  No. 121 
("FAS  121"). Management concluded  from the  results of  this evaluation  that 
a  significant impairment of  intangible  as well  as  long-lived  assets was 
required  to  be recognized.  The impairment  was reflective of a  market value 
determined to  be less than the carrying value of  approximately 40 restaurants,
31 of which  were acquired.  The assets  were tested for impairment  by 
projecting cash flows  for individual restaurants  based on  recent results  and
trends specific  to  that restaurant.   The undiscounted  projected cash  flows 
for  each restaurant  were compared  to  the  carrying  value  for  that  
restaurant,  including  allocated goodwill, where applicable.  If the  
undiscounted cash flows were less than  the carrying value, an impairment was 
deemed to have occurred.   The amount of  the impairment was  determined by  
calculating the  difference between  the  present value of the  projected cash 
flows  and the carrying  value attributable to  the specific restaurant.  The  
cash flows were discounted  using the rate of  return the Company utilizes for 
approving new restaurant construction.  Such discounted cash flows  are, in  
management's  opinion, the  best  estimate of  the  assets' current value.  
Considerable management judgment is necessary to estimate future discounted cash
flows.   Accordingly,  actual results  could vary  significantly from 
management's estimates.

           The process described above resulted in  the Company's recording a  
special charge during the fourth quarter of 1997 of $78.7 million pre-tax, $75.7
million after-tax, or $4.94 per share.  This amount had the following 
components:

 . Impairment of intangible assets of $33.1 million and impairment of  long-lived
  assets  of $22.1  million for  restaurants that  will continue  in  operation,
  based on the FAS 121 analysis described above;
 . A  provision  of $23.3  million  for  the closure  of  seventeen  restaurants,
  including all  of the  restaurants in  the Colorado  market.   The amount  was
  determined in accordance with FAS 121 and was comprised of:
     . $13.3 million  for the  carrying value of  the assets,  net of  estimated
       proceeds of $1.5 million for the sale of restaurant properties;
     . $9.0  million to  record  the  estimated lease  related  obligations  for
       closed restaurants.   This  amount was determined  as the  lesser of  the
       present value of the monthly lease commitments, net of expected  sublease
       receipts, or lease termination provisions;
     . $500,000  for  severance  and  relocation  benefits  paid  to   employees
       displaced by the restaurant closures;
     . $500,000 for the probable  settlement of a franchisee lawsuit related  to
       the Colorado market.
 . The write-off of other assets totaling $200,000.

     During 1997, the seventeen restaurants contributed a total of $9.6  million
in sales, and  had operating  losses totaling $2.5  million.   In addition,  the
total amount of depreciation and amortization  recorded during 1997 relating  to
assets which were impaired was approximately $3.2 million.

    Interest Expense,  net.    Interest expense,  net  of  interest  income  and
interest capitalized on construction costs, decreased to $1.1 million in  fiscal
1997 from $1.3 million in fiscal 1996.  The difference was due to lower interest
expense due to a decrease in  the average debt outstanding during 1997  compared
to 1996, a reduction in interest income and an increase in interest  capitalized
on construction cost.   The  Company earned  $76,000 of  interest income  during
1997, compared  to $201,000  of  interest income  earned  during the  1996.  The
decrease was due  to a  reduction in short-term  investments.   In addition  the
Company  capitalized  $147,000  of  interest  during  1997.    No  interest  was
capitalized during 1996.

     Net Income (Loss) and Net Income (Loss) Per Share.  The Company recorded  a
net loss of $73,198,000 for  1997 compared to net  income of $704,000 for  1996.
Net loss per share was $4.78 for 1997 compared to net income per share of  $0.04
in 1996.   The loss  recorded in 1997  includes special  charges totaling  $78.7
million pretax ($75.7 million after-tax, or  $4.94 per share).  Excluding  these
charges, the Company  would have reported  net income of  $2.5 million equal  to
$0.16 per share in fiscal  1997.  Net income  in 1996 included charges  totaling
$5.9 million pretax ($4.0 million after-tax, or 26 cents per share).   Excluding
these charges, the Company would have reported net income of $4.7 million  equal
to $0.30 per  share for  fiscal 1996.   Disregarding  these charges,  management
believes that the  decrease in income  was largely due  to declining sales,  and
increased labor and marketing expenditures.

Liquidity and Capital Resources

     Historically, the Company has financed business and expansion activities by
using funds generated  from operating activities,  build-to-suit leases,  equity
financing, short and long-term debt and  capital leases.  The Company  currently
maintains credit  facilities  totaling  $40  million,  including  a  $5  million
unsecured revolving line of  credit.  As of  March 1, 1999, approximately  $29.5
million had been used under these commitments.

    Net cash  provided  by operating  activities  was $15.7  million  for  1998,
compared to $12.9 million for 1997.   Net cash used in investing activities  was
$17.0 million  for 1998,  representing the  construction of  nine Company  owned
restaurants, the reimaging of twenty-seven restaurants and capital  expenditures
for improvements to existing restaurants.  This was offset by the sale of assets
generating $4.3 million in  proceeds. This compared to  $15.4 million for  1997,
representing  primarily  capital  expenditures  for  improvements  to   existing
restaurants, the  construction of  five  free-standing and  two  non-traditional
restaurants, and  the  conversion  of  two  Sombrero  Rosa  and  two  Two  Pesos
restaurants to the Taco Cabana concept.


    Net cash  provided  by  financing  activities  was  $1.6  million  for  1998
representing primarily  net borrowings  under the  Company's credit  facilities,
offset in part by the purchase of $10.3 million of the Company's stock in market
transactions, which  is held  as treasury  stock.   This  compared to  net  cash
provided by financing activities of $2.1 million in 1997 representing  primarily
net borrowings under  the Company's  credit facilities,  offset in  part by  the
purchase of $3.6 million in treasury stock.

    The Company's Board of Directors previously approved plans to repurchase  up
to a total of 4,000,000 shares  of the Company's Common Stock.   As of March  1,
1999, the Company had repurchased 2,585,000  shares at an average cost of  $5.39
per share.  The Company has  funded the repurchases primarily through  available
bank credit  facilities.   The  timing, price,  quantity  and manner  of  future
purchases will be  made at  the discretion of  management and  will depend  upon
market conditions.  The Company intends  to fund the repurchase program  through
available credit under its  bank credit facilities and  current cash flows  from
operations.

    The special charges  recorded in 1997  and 1995  included accruals  totaling
approximately $10.2 million to record the estimated monthly lease payments,  net
of expected sublease  receipts, associated with  certain restaurants which  have
been closed.  Cash requirements for this accrual were approximately $1.7 million
during year ended January 3, 1999.  During  the year ended January 3, 1999,  the
Company sold  properties  relating to  the  special charges  which  resulted  in
proceeds of $4.3  million. Subsequent to  January 3, 1999  the Company sold  one
property relating to the special charges which resulted in proceeds of  $458,000
which approximated the carrying value of the property. The Company currently has
two closed  restaurant  property for  sale  which were covered  by  the  special
charges.  Although there can  be no assurance of  the particular price at  which
such property will be sold, the Company expects to receive funds equal to or  in
excess of the carrying value upon the  actual disposition of this property.   In
addition, certain acquisition and accrued liabilities  related to the Two  Pesos
acquisition were reduced by payments of  approximately $262,000 during the  year
ended January 3, 1999.

    The Company  believes  that existing  cash  balances, funds  generated  from
operations, its ability to borrow, and the possible use of lease financing  will
be sufficient to meet the Company's capital requirements through 1999, including
the planned opening of ten to twelve restaurants  and the reimaging of 30 to  35
restaurants.    Total  capital  expenditures  related  to  new  restaurants  are
estimated  to  be  $12.0  to  $15.0  million.    The  total  for  other  capital
expenditures, including the cost of the  reimagings, is estimated to be $6.0  to
$8.0 million.  Total capital expenditures  for 1999 are expected to  approximate
$18.0 to $23.0 million.

Impact of Inflation

     Although increases in labor, food or other operating costs could  adversely
affect the Company's operations, management does not believe that inflation  has
had a material adverse effect on the Company's operations to date.

Seasonality and Quarterly Results

     The Company's  sales fluctuate  seasonally.   Historically,  the  Company's
highest sales and earnings occur in the second and third quarters.  In addition,
quarterly results are affected by the timing  of the opening of new stores,  and
the Company's growth may offset the  impact of seasonal influences.   Therefore,
quarterly results are not indicative of results for the entire year.


Year 2000 Issue

     Description.  The Company relies to  a large extent on computer  technology
to carry  out  its  day-to-day  operations.    Many  software  products  in  the
marketplace are only able to recognize a two digit year date and therefore  will
recognize a date using "00" as the year 1900 instead of the year 2000 (the "Year
2000 Issue"). This problem could result  in a system failure or  miscalculations
causing disruptions of  operations, including, among  other things, a  temporary
inability  to  process  transactions  or  engage  in  similar  normal   business
activities.

     State Of Readiness.   The  Company has established  a plan  to prepare  its
systems for  the Year  2000 Issue  as  well as  to  reasonably assure  that  its
critical business partners are prepared. To date, the Company has completed  its
assessment of all internal systems that  could be significantly affected by  the
Year 2000 Issue. Based upon its  assessment, the Company determined that it  was
required to  modify  or  replace  portions  of  its  software  supporting  Human
Resources, Payroll,  Accounting, Labor  Analysis and  the Point  of Sale.    The
Company believes  that  with modifications  or  replacements of  the  identified
software programs,  the Year  2000 Issue  can  be mitigated.   However,  if  all
additional phases of the Year 2000 plan are not completed on time, the Year 2000
Issue could have a material impact on the operations of the Company.

     As  of  March  1,  1999,  the  Company  has  substantially  completed   the
remediation  of  the  identified  systems  and  expects  to  complete   software
reprogramming and replacement no later than June 1, 1999.  Once the software  is
reprogrammed or replaced with  a Year 2000 compliant  version, the Company  will
test and  implement  the software    Completion of  the  testing phase  for  all
significant systems is expected  by June 30, 1999.  Many hardware upgrades  were
necessary but no further hardware replacement has been identified as a result of
the Year  2000  issue.  As  such,  the  Company  is  not  currently  remediating
additional hardware. However, the existence of embedded technology is by  nature
more difficult to  identify.  While  the Company believes  that all  significant
systems are  Year 2000  compliant, the  Company plans  to continue  testing  its
operating equipment.

     The Company has deferred other information  technology projects due to  the
Year 2000  issue. The  deferral of  these projects  is not  expected to  have  a
material effect on the Company's financial position or results of operations.

     Significant Third Parties.  The Company's significant third party  business
partners consist of suppliers,  banks, and service providers.   The Company  has
significant system interfaces with banks, credit card processors and tax  filing
services. An initial inventory of significant third party business partners  has
been completed and letters mailed requesting information regarding each parties'
Year 2000  compliance  status.  Additionally, the  Company  has  identified  key
suppliers and distributors which it intends to meet with and discuss their  Year
2000 readiness.  The  Company intends to develop  contingency plans by June  30,
1999 for third party business partners that appear to have substantial Year 2000
operational risks, which may  include the change of  some suppliers to  minimize
such risks.


     Costs.   The Company  will  use both  internal  and external  resources  to
reprogram, or replace, and test software for Year 2000 Issue modifications.  The
total cost  of the  Year 2000  Issue project  is estimated  to be  approximately
$600,000, of which the Company has incurred $500,000 relating to the purchase of
new software.   The costs relating  to the Year  2000 Issue  are being  financed
through operating cash flows and borrowings from the Company's available  credit
facilities.  Of  the total  project cost, the  majority is  attributable to  the
purchase of new  software, which  will be  capitalized.   The remaining  amount,
which will be expensed as incurred over the next year, is not expected to have a
material effect on the results  of operations.  To  date, the costs the  Company
has incurred and expensed relating to the assessment of, and preliminary efforts
in connection with,  its Year 2000  Issue and the  development of a  remediation
plan have not had a material effect on the results of operations.

     Risks And Contingency Plans.  Management believes it has an effective  plan
in place to resolve the Year 2000 Issue in a timely manner. However, due to  the
forward-looking nature and lack of historical experience with Year 2000  issues,
it is difficult to  predict with certainty what  will happen after December  31,
1999.  Despite the Year 2000 remediation  efforts being made, it is likely  that
there will  be disruptions  and unexpected  business problems  during the  early
months of 2000.  The Company plans to  make diligent efforts to assess the  Year
2000 readiness of its significant business partners and will develop contingency
plans for all critical systems where it believes its exposure to Year 2000  risk
is the  greatest.   However, despite  the Company's  efforts, it  may  encounter
unanticipated third party failures, public infrastructure failures or a  failure
to successfully conclude its remediation efforts  as planned.  If the  remaining
Year 2000 plan is  not completed timely, in  addition to the implications  noted
above, the  Company may  be required  to utilize  manual processing  of  certain
otherwise automated processes.  Any one of these unforeseen events could have  a
material adverse  impact  on  the Company's  results  of  operations,  financial
condition, or cash flows in 1999 and beyond.


Forward-Looking Statements

     Statements in  this annual  report concerning  Taco  Cabana which  are  (a)
projections of revenues,  costs, including trends  in cost  of sales,  operating
costs, labor and general and administrative costs or other financial items,  (b)
statements  of  plans  and   objectives  for  future  operations,   specifically
statements regarding planned restaurant openings and  reimages as well as  share
repurchases and cash flows (c) statements of future economic performance, or (d)
statements of assumptions  or estimates underlying  or supporting the  foregoing
are forward-looking  statements  within  the  meaning  of  Section  27A  of  the
Securities Act of 1933 and Section 21E  of the Securities Exchange Act of  1934.
The ultimate accuracy of forward-looking statements  is subject to a wide  range
of risks, uncertainties  and other factors  which may cause  actual results  and
outcomes to  differ,  often  materially,  from  expectations.    Any  number  of
important factors could cause actual results to differ materially from those  in
the forward-looking statements herein, including the following:  the timing  and
extent of  changes  in prices  of  commodities  and supplies  that  the  Company
utilizes;  cost  and  availability  of  labor;  actions  of  our  customers  and
competitors; changes in  state and federal  environmental, economic, safety  and
other policies  and regulations  and any  legal or  regulatory delays  or  other
factors beyond the  Company's control;  execution of  planned capital  projects;
weather  conditions  affecting  the  Company's  operations;  natural   disasters
affecting  operations;  and  adverse  rulings,  judgments,  or  settlements   in
litigation or  other legal  matters.   The Company  disclaims any  intention  or
obligation to update or revise any such forward-looking statements, whether as a
result of new information, future events or otherwise.



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is  exposed to market  risk from changes  in interest rates  on
debt and changes in commodity prices.

     The Company's  exposure to  interest rate  risk currently  consists of  its
notes payable and outstanding line of credit.  The Company has notes payable and
a line of credit which bear interest at the lesser of the London Interbank Offer
Rate plus 2.25% or  the prime rate.  The aggregate balance outstanding of  these
notes and the line of credit as of March 1, 1999 was $27.2 million.  The Company
also has a note payable which bears interest at the prime rate.  The outstanding
balance of this note  as of March 1,  1999 was $1.3 million.  The impact on  the
Company's results  of operations  of a  one-point interest  rate change  on  the
outstanding balances under the notes payable and  line of credit as of March  1,
1999 would be immaterial.

     The Company purchases  certain commodities  such as  beef, chicken,  flour,
produce and dairy  products.  These  commodities are  generally purchased  based
upon market prices established  with vendors.   These purchase arrangements  may
contain contractual features  that limit the  price paid  by establishing  price
floors or  caps.   The  Company  does not  use  financial instruments  to  hedge
commodity prices because these purchase  arrangements help control the  ultimate
cost and any commodity price aberrations are generally short term in nature.

     This market risk  discussion contains forward-looking  statements.   Actual
results may differ  materially from this  discussion based  upon general  market
conditions and changes in financial markets.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial  statements and  supplementary data  are  set forth  in  this
annual report on Form 10-K commencing on page F-1.


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

     None.


                            PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers

     The directors and executive  officers of the  Company and their  respective
ages are as follows:

     Name                      Age      Position

     Stephen V. Clark          45       Chief Executive Officer, 
                                             President and Director
     Douglas Gammon            52       Senior Vice President - Human
                                          Resources and People 
                                             Development
     Dennis Greenia            49       Senior Vice President - Marketing
     David G. Lloyd            35       Senior Vice President - Finance, 
                                             Chief Financial Officer, Secretary
                                          and Treasurer
     William J. Nimmo          44       Director
     Rod Sands                 50       Director
     Cecil Schenker            56       Director
     Richard Sherman           55       Director
     Lionel Sosa               59       Director


     Mr. Clark  has  served  as the  Company's  Chief  Executive  Officer  since
November 1996, and as the President, Chief Operating Officer, and as a  Director
since April  1995.   Prior to  that,  Mr. Clark  was  with Church's  Chicken,  a
division of America's Favorite Chicken, for seventeen years with his final title
having been Senior Vice President and  Concept General Manager.  He also  served
on the executive committee of America's Favorite Chicken and was on the Board of
Directors of Church's Operators Purchasing Association.   In his final  position
with America's Favorite  Chicken, Mr. Clark  was primarily  responsible for  the
day-to-day operations  of  over 1100  company-owned  and franchised  units  with
aggregate sales volume in excess of $600 million.

     Mr. Gammon joined the Company in March 1997 as Senior Vice President, Human
Resources and People Development.  From December 1989 to March 1997, Mr.  Gammon
served as Vice President of Human Resources at Marriott International which  has
over 15,000 employees in 50 states.  Mr. Gammon has over 18 years of  experience
in the human resources field as well as over six years experience in  restaurant
operations.  He was the past President  for the Council of Hotel and  Restaurant
Trainers.

     Mr. Greenia joined  the Company  in July 1998  as Senior  Vice President  -
Marketing. From January 1989  to July 1998, Mr.  Greenia served as President  of
the Merrill Group,  a marketing consulting  firm in Atlanta  GA., whose  clients
included the  Coca-Cola  Company,  Dominos  Pizza,  Bally's  Total  Fitness  and
Hardee's Foods. Mr.  Greenia has over  19 years experience  both nationally  and
internationally in the food service industry holding positions with Burger  King
Corporation, J. Walter Thompson  Advertising and Coca Cola  USA. Mr. Greenia  is
also a majority partner in Mobile Media Network of Atlanta, Inc.

     Mr. Lloyd joined the Company in  October 1994 as Vice President -  Finance,
Chief Financial Officer, Secretary and Treasurer and was promoted to Senior Vice
President in May 1996.  From  August 1985 to October  1994, Mr. Lloyd served  in
various capacities with Deloitte & Touche (the Company's independent  auditors),
with his last position  being Senior Audit  Manager.  Mr.  Lloyd is a  certified
public accountant.

     Mr. Nimmo has  served as  a director of  the Company  since November  1991.
Since May  1997, Mr.  Nimmo has  been a  Partner with  Halpern, Denny  & Co.,  a
venture capital firm in Boston, Massachusetts.  Prior to that, Mr. Nimmo  served
as Managing Director of Cornerstone Equity Investors, Inc., and its  predecessor
firm, Prudential Equity Investors, Inc., since September 1989.

     Mr. Sands has  been a director  of the Company  since February 1998.  Since
July 1997,  Mr. Sands  has served  as the  Managing Director  of Silver  Venture
Capital Management, a private equity investment  fund. From August 1992 to  July
1997, Mr. Sands  served as  the President and  Chief Operating  Officer of  Pace
Foods, a food manufacturer  with revenues in excess  of $200 million. Mr.  Sands
currently serves on the board of directors of Orval Kent Holdings, Packaged Ice,
Inc., Texas Commerce  Bank/Chase-San Antonio and  Benefit Planners,  Inc. He  is
also a member of St. Mary's University Business Advisory Board.

     Mr. Schenker has been a  director of the Company  since January 1992.   Mr.
Schenker is a corporate securities attorney  and is the managing partner of  the
San Antonio, Texas office of the law firm of Akin, Gump, Strauss, Hauer &  Feld,
L.L.P., of  which Mr.  Schenker  has been  a  partner through  his  professional
corporation since January of  1984.  Akin, Gump,  Strauss, Hauer & Feld,  L.L.P.
has regularly performed legal services for the Company.  Mr. Schenker is also  a
director of LOT$OFF Corporation, formerly 50-Off Stores, Inc.

     Mr. Sherman has been a  director of the Company  since November 1991.   Mr.
Sherman is a  private investor  and retail consultant.   Mr.  Sherman served  as
President and Chief Executive  Officer of Rally's, Inc.  from September 1987  to
January 1991.  From August 1989 to January  1991, he also served as Chairman  of
the Board of  Rally's, Inc.   Mr. Sherman currently  serves as a  member of  the
Board of Trustees of Paul Quinn  College in Dallas, Texas  and as a director  of
Reed's Jewelers, Inc., Papa John's International, Inc., and PJ America, Inc.

     Mr. Sosa has been a director of the Company since August 1997. Mr. Sosa has
served as the  Chief Executive  Officer of  KJS Marketing  Agency since  January
1996. From 1994 to 1996  he served as Chairman  of DMB&B/Americas, a network  of
advertising agencies in the U.S. and Latin America. In 1980 Mr. Sosa founded the
agency of  Sosa, Bromley,  Aguilar, Noble  & Associates,  an advertising  agency
specializing in Hispanic  marketing in  the U.S.  Mr. Sosa  sold Sosa,  Bromley,
Aguilar, Noble & Associates  in 1994. Mr.  Sosa is currently  a Director of  the
Children's Television Workshop Network.


     The Board of Directors has a compensation and stock option committee  which
currently consists of  William J. Nimmo,  Richard Sherman, Lionel  Sosa and  Rod
Sands. The  Board of  Directors  also has  an  audit committee  which  currently
consists of William J. Nimmo, Richard  Sherman, Lionel Sosa, Cecil Schenker  and
Rod Sands.    The  Board of  Directors  does  not currently  have  a  nominating
committee.   All  directors  serve for  a  term  of one  year  and  until  their
successors are duly elected.  Each director who  is not also an employee of  the
Company receives an annual retainer of $25,000, and an attendance fee of  $2,500
per Board meeting for up to four meetings each year.  All non-employee directors
are reimbursed for their expenses.


Compliance with Section 16(a) of the Securities Exchange Act of 1934


     Section 16(a)  of the  Securities Exchange  Act of  1934, as  amended  (the
"Exchange Act") requires each director and executive officer of the Company, and
each person who owns more than 10% of a registered class of the Company's equity
securities to file by specific dates with the Securities and Exchange Commission
(the "SEC") initial reports of ownership  and reports of change in ownership  of
Common Stock and other  equity securities of the  Company.  Officers,  directors
and 10% stockholders are required by SEC regulation to furnish the Company  with
copies of all Section 16(a) forms they file.  The Company is required to  report
in this report any failure  of its directors and  executive officers to file  by
the relevant due date any of these reports during the Company's fiscal year.

     To  the  Company's  knowledge,   all  Section  16(a)  filing   requirements
applicable to  the  Company's officers,  directors,  and 10%  stockholders  were
complied with except one late filing each as to a Form 4 for Lionel Sosa and Rod
Sands.


ITEM 11.  EXECUTIVE COMPENSATION

     Summary Compensation  Table.    The  following  table  sets  forth  certain
information concerning the compensation earned  during the Company's last  three
fiscal years by the  Company's Chief Executive Officer  and the Company's  other
executive officers (collectively the "named executive officers"):

                               Summary Compensation Table

                   Annual Compensation      Long-Term Compensation
                  --------------------- ---------------------------
                                                Awards       Payouts
                                        -------------------- -------       
                                 Other              Securities
                                Annual  Restricted Underlying        All Other
Name and                        Compen-   Stock     Options/   LTIP   Compen- 
Principal   Fiscal Salary Bonus  sation  Award(s)    SARs    Payouts  sation
Position     Year   ($)    ($)   ($)(1)    ($)        (#)      ($)      ($)

Stephen V.  1998 281,882  163,846      -        -    100,000     -        -
Clark,      1997 255,420     -         -        -       -        -        -
Chief       1996 233,404     -         -        -       -        -        -
Executive
Officer,
President ,
Chief
Operating
Officer

David G.    1998 157,004  61,845       -        -     50,000      -       -
Lloyd,      1997 143,528     -         -        -        -        -       -
Senior Vice 1996 135,138     -         -        -        -        -       -
President,
Chief
Financial
Officer,
Secretary
and Treasurer

Douglas     1998 142,469  53,577    38,393       -    25,000       -       -
Gammon      1997 113,820     -         (3)       -    75,000       -       -
Senior Vice        (2)              55,135
President -                            (3)
Human
Resources and
People
Development

Dennis      1998  61,060  26,000      -          -    75,000       -       -
Greenia             (4)
Senior Vice
President -
Marketing

James A.    1998 204,256     -        -          -        -        -       -
Eliasberg           (5)
Senior Vice 1997 191,877     -        -          -        -        -       -
President   1996 189,235     -        -          -        -        -       -
and General
Counsel


__________________



(1)    Certain of  the Company's executive officers receive personal benefits in
       addition to  salary; however,  the Company  has concluded  that the  
       aggregate amounts of such personal benefits do  not exceed the lesser of 
       $50,000 or  10% of annual salary and bonus reported for any named 
       executive officer.
(2)    Mr. Gammon joined the Company in March 1997.
(3)    Represents relocation expense reimbursements.
(4)    Mr. Greenia joined the Company in July 1998.
(5)    Mr. Eliasberg  served as  Senior Vice  President  and General  Counsel  
       until September 1998.


     Employment Agreements. The Company has a written employment agreement  with
Stephen Clark  which expires  in April  1999.   Under the  agreement, Mr.  Clark
receives a  base  salary of  $280,000  per year.    Additionally, Mr.  Clark  is
eligible for a bonus based on  the Company's achievement of certain  performance
goals.  Pursuant to such agreement, Mr.  Clark has agreed not to participate  in
any manner, during his term of employment  and for two years thereafter, in  any
business which owns a  Mexican fast food restaurant  or Mexican "quick  service"
restaurant in the Continental United States.

Stock Option Plans and Directors' Options

     Under the  Taco Cabana,  Inc.  1990 Stock  Option  Plan (the  "1990  Option
Plan"), amended in August 1992, and the 1994 Stock Option Plan (the "1994 Option
Plan"), amended  in  August 1997,    options to  purchase  up to  1,500,000  and
1,250,000 shares, respectively,  of Common Stock  may be  granted to  employees,
outside directors and consultants and advisers of the Company or any  subsidiary
corporation or entity.  The  stock is intended to  permit the Company to  retain
and attract qualified individuals  who will contribute  to its overall  success.
Shares that by reason of the  expiration of an option  (other than by reason  of
exercise) or  which are  no longer  subject to  purchase pursuant  to an  option
granted under an Option Plan  may be reoptioned thereunder.   The 1990 and  1994
Option  Plans  are  administered  by  a  committee  of  outside  directors  (the
"Committee").   The Committee  sets specific  terms  and conditions  of  options
granted under the 1990 and 1994 Option  Plans and administers the 1990 and  1994
Option Plans, as well as the Company's other employee benefit plans which may be
in effect from time to time.   The Committee currently  consists of  William  J.
Nimmo, Lionel Sosa, Richard Sherman and Rod Sands.

     The Company's  employees are  eligible to  receive either  incentive  stock
options or nonqualified stock options or a combination of both, as the Committee
determines.  Non-employee  participants may be  granted only nonqualified  stock
options.  Stock options may be granted for a term not to exceed ten years  (five
years with respect to  a holder of 10%  or more of the  Company's shares in  the
case of an incentive stock option) and  are not transferable other than by  will
or the laws of descent  and distribution.  Each  option may be exercised  within
the term of the option pursuant to which it is granted (so long as the optionee,
if an employee,  continues to  be employed  by the  Company).   In addition,  an
incentive option  may be  exercised  within 90  days  after the  termination  of
employment of  the  optionee  (subject to  any  limitations  in  the  particular
option), within one  year after termination  in case of  termination because  of
disability, or throughout the term of the option in the event of the  optionee's
death, to the extent in each case the option was exercisable at the  termination
date.  A nonqualified  stock option may  be exercised for  such period, but  not
later than the expiration date, after  termination of employment, disability  or
death, as may be specified in the particular option.

     The exercise price of all incentive stock options must be at least equal to
the fair market value of the Common Stock on the date of grant, or 110% of  fair
market value with respect to  any incentive stock option  issued to a holder  of
10% or more of the Company's shares.  Stock options may be exercised by  payment
in cash of the  exercise price with respect  to each share  to be purchased,  by
delivering Common Stock  of the Company  already owned by  such optionee with  a
market value equal to the exercise price, or  by a method in which a  concurrent
sale of the acquired stock is arranged, with the exercise price payable in  cash
from such sale proceeds.


     The 1994 Option Plan provides that each outside director will automatically
receive a  grant of  3,000 nonqualified  stock options  each year  on the  fifth
business day  following  the  first public  release  of  the  Company's  audited
earnings report on results  of operations for the  preceding fiscal year.   Each
such option will become exercisable in whole or in part on the first anniversary
of the award through the balance of its ten-year term.  Subject to  availability
of shares allocated to the 1994 Option  Plan and not already reserved for  other
outstanding stock options, outside  directors who join the  Board in the  future
will in addition receive  an initial grant of  options for 20,000 shares,  which
will become  exercisable  in  five  equal  increments  beginning  on  the  first
anniversary of the  award and on  each of the  next four succeeding  anniversary
dates.  Such options will be exercisable for a term of ten years.  Such  options
will be awarded upon their appointment or election to the Board.  Options,  once
granted and to the extent exercisable, will remain exercisable throughout  their
term, regardless of whether  the holder continues as  a director.  The  exercise
price of the options  is equal to 100%  of the fair market  value of a share  of
Common Stock at the time of grant.

     The 1990 Option Plan will terminate on  October 14, 2000.  The 1994  Option
Plan will terminate on October 17, 2004.   The Board of Directors may,  however,
terminate the 1990 and  1994 Option Plans  at any time prior to such  respective
dates.  Termination of the 1990 and 1994 Option Plans will not alter or  impair,
without the consent of the optionee,  any of the rights or obligations  pursuant
to any option granted under the Option Plans.

     As of January 3, 1999, options for 471,342 shares of common stock had  been
granted under the 1990 Option Plan and were outstanding, with a weighted average
exercise price of $6.05 per share,  and no additional shares were available  for
issuance upon exercise of  options which may be  granted in the  future.  As  of
January 3, 1999, options for 1,028,658 shares had been exercised.

     As of January  3, 1999, options  for 1,070,767 shares  of common stock  had
been granted under the  1994 Option Plan and  were outstanding, with a  weighted
average exercise price of  $5.43 per share, and  179,233 additional shares  were
available for issuance  upon exercise  of options which  may be  granted in  the
future.  As of January 3, 1999, 120,584 options had been exercised.


     Stock  Option  Grant  Table.    The  following  table  sets  forth  certain
information concerning options  granted to the  named executive officers  during
the Company's fiscal year ended January 3, 1999:

                Option Grants in Last Fiscal Year

                        Percent                              
                          of                                 
                        Total                             Potential Realizable
                        Options                             Value at Assumed
                        Granted                              Annual Rates of
                          to                                   Stock Price
                       Employees  Exercise                    Appreciation 
            Options       in          or                   for Option Term (2)
            Granted     Fiscal    Base Price Expiration  --------------------
  Name      #(1) (3)     Year      ($/Sh)      Date      5% ($)     10% ($)
-------------------------------------------------------------------------------
Stephen     100,000       21%       6.125     4/24/2008  385,198     976,167
V. Clark
David G.     50,000       10%       6.1875    6/09/2008  194,564     493,064
Lloyd
Douglas      25,000        5%       6.125    11/16/2008   96,299     244,042
Gammon
Dennis       75,000       16%       6.25      7/26/2008  294,794     747,067
Greenia
James A.       -           -          -           -         -           -
Eliasberg
-------------------------------------------------------------------------------


(1)All such stock options were  granted for the number  of shares indicated at  
   exercise price equal to the fair market value of the Common Stock on the date
   of grant as determined by the  Company's Board of Directors.  All such stock
   options noted above were granted 10  years prior to the noted expiration date
   The options become exercisable beginning one year after the date of grant in
   five equal annual installments.The Company's current Option Plans do not make
   provision for the award of stock appreciation rights ("SARs") and the Company
   has no SARs currently outstanding.

(2)As required  by  rules  of the  Securities  and Exchange  Commission ("SEC"),
   potential values stated are based on the assumption that the Company's Common
   Stock will appreciate in value from the date of grant to the end of the 
   option term (ten years  from the  date of grant)  at annualized  rates of 5%
   and 10% (total appreciation of approximately 63% and 159%), respectively, and
   therefore are not intended to forecast possible future appreciation, if any,
   in the price of the Common Stock.

(3)Upon occurrence  of a  change of  control of  Taco Cabana,  as defined in the
   related Stock Option  Agreements, all outstanding  options, to the extent not
   exercisable, will immediately become exercisable.



Stock Option Exercises and Holdings Table.  The following table provides 
information concerning the exercise  of options  and value of unexercised 
options held by the named executive officers at January 3, 1999:

         Aggregated Option Exercises in Last Fiscal Year
                and Fiscal Year-End Option Values

              
               Shares
              Acquired                   Number of         Value of Unexercised
                 on       Value      Unexercised Options   In-the-Money Options 
    Name      Exercise  Realized      at Fiscal Year End    at Fiscal Year End
                (#)        ($)            (#)                  ($)(1)
------------------------------------------------------------------------------
                                   Exercis-  Unexercis-  Exercis-  Unexercis-
                                     able       able       able       able
------------------------------------------------------------------------------
Stephen V.       -          -      120,000    180,000    315,000     372,500
Clark
David G.         -          -       65,000     85,000     84,375     134,375
Lloyd
Douglas          -          -       15,000     85,000     41,250     205,625
Gammon
Dennis           -          -         -        75,000       -        112,500
Greenia
James A.         -          -         -          -          -           -
Eliasberg
-------------------------------------------------------------------------------

(1)    Values stated are based on the last sale price  of $7.75 per share of the
Company's Common Stock on the NASDAQ National Market System on December 31, 1998
the last trading day of the fiscal year, and equal the aggregate amount by which
the market value of the option shares exceeds the exercise price of such options
at the end of the fiscal year.
(2)    Mr. Eliasberg  served  as Senior Vice President and General Counsel until
September 1998.





Compensation Committee Interlocks and Insider Participation

None.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  sets   forth  certain  information  concerning   the
beneficial ownership of the Company's Common Stock as of March 1, 1999, by:  (i)
each person known by the Company to be the  beneficial owner of more than 5%  of
its Common Stock, (ii) each named  executive officer of the Company, (iii)  each
director of the Company, and (iv) all directors and officers as a group.  Unless
otherwise indicated, each  of the stockholders  has sole  voting and  investment
power with respect to the shares beneficially owned.

                                    Shares Beneficially Owned
        Name                       Number         Percent

     Stephen V. Clark  (1)       130,063            *

     David G. Lloyd  (2)          76,000            *

     Douglas Gammon  (3)          30,000            *

     Dennis Greenia  (4)               -            -

     William J. Nimmo  (5)        11,817            *

     Richard Sherman  (6)         87,003            *

     Cecil Schenker  (7)         107,503            *

     Lionel Sosa  (8)              8,000            *

     Rod Sands (9)                70,000            *

     Sawtooth Capital
     Management LP (10)        1,383,200          10.1%

     Massachusetts Financial
     Services Co.  (11)        1,199,301           8.7%

     Dimensional Fund Advisors,
     Inc. (12)                   982,764           7.1%

     All directors and officers as
         a group (9 persons)  (13)520,386          3.8%
___________________________
*    Less than 1%.



(1)  Includes 120,000 shares subject to presently exercisable options (or  those
     exercisable within 60 days). Excludes  180,000 shares issuable pursuant  to
     options which  are  not currently  exercisable  (or exercisable  within  60
     days).
(2)  Includes 65,000 shares subject to  presently exercisable options (or  those
     exercisable within 60  days). Excludes 85,000  shares issuable pursuant  to
     options which  are  not currently  exercisable  (or exercisable  within  60
     days).
(3)  Includes 25,000 shares issuable  pursuant to presently exercisable  options
     (or those exercisable  within 60 days).   Excludes  75,000 shares  issuable
     pursuant to options  which are  not currently  exercisable (or  exercisable
     within 60 days).
(4)  Excludes 75,000 shares issuable pursuant to options which are not currently
     exercisable (or exercisable within 60 days).
(5)  Includes 8,000 shares  issuable pursuant to  presently exercisable  options
     (or those exercisable  within 60 days).   Excludes  18,000 shares  issuable
     pursuant to options  which are  not currently  exercisable (or  exercisable
     within 60 days).
(6)  Represents shares  subject  to  presently  exercisable  options  (or  those
     exercisable within 60 days).   Excludes 6,000  shares issuable pursuant  to
     options which  are  not currently  exercisable  (or exercisable  within  60
     days).
(7)  Represents shares  subject  to  presently  exercisable  options  (or  those
     exercisable within 60 days).   Excludes 6,000  shares issuable pursuant  to
     options which  are  not currently  exercisable  (or exercisable  within  60
     days).
(8)  Represents shares  subject  to  presently  exercisable  options  (or  those
     exercisable within 60 days).  Excludes  18,000 shares issuable pursuant  to
     options which  are  not currently  exercisable  (or exercisable  within  60
     days).
(9)  Includes 5,000 shares  subject to presently  exercisable options (or  those
     exercisable within 60  days). Excludes 18,000  shares issuable pursuant  to
     options which  are  not currently  exercisable  (or exercisable  within  60
     days).
(10) Based upon  Schedule  13G,  filed  jointly  in  February  1999,  indicating
     beneficial ownership as stated in the table and shared dispositive power as
     to all  shared  beneficially  owned. Included  in  the  joint  filing  were
     Sawtooth Capital  Management  LP,  indicating beneficial  ownership  as  to
     721,640 shares, Sawtooth Partners LP indicating beneficial ownership as  to
     1,383,200 shares and Bartley Boyd Blount indicating beneficial ownership as
     to 1,383,200 shares.  Address: 100  Wilshire Boulevard,  15th floor,  Santa
     Monica, California 90401.
(11) Based upon Schedule  13G, filed jointly  in February 1996,  and amended  in
     February 1999, indicating beneficial ownership as stated in the table,  and
     shared dispositive power as to all  shares beneficially owned. Included  in
     the joint  filing were  Massachusetts Financial  Services Company  ("MFS"),
     indicating beneficial  ownership and  sole dispositive  power of  1,199,301
     shares and  MFS  Series  Trust  II -  MFS  Emerging  Growth  Fund  ("MEG"),
     indicating 770,000  shares  beneficially  owned by  MFS  as  well  as  MEG.
     Address: 500 Boylston Street, Boston, Massachusetts 02116.
(12) Based upon  Schedule 13G,  filed in  February 1999,  indicating  beneficial
     ownership, sole dispositive power  and sole voting power  as stated in  the
     table. Address: 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
(13) Includes 425,506 shares subject to presently exercisable options (or  those
     exercisable within 60 days). Excludes  481,000 shares issuable pursuant  to
     options which  are  not currently  exercisable  (or exercisable  within  60
     days).



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.


                             PART IV


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

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

Financial Statements

Independent Auditors' Report
Consolidated Balance Sheets at December 28, 1997 and January 3, 1999.
Consolidated Statements of  Operations for the  years ended  December 29,  1996,
December 28, 1997 and January 3, 1999
Consolidated Statements of Stockholders' Equity for the years ended December 29,
1996, December 28, 1997 and January 3, 1999
Consolidated Statements of  Cash Flows for  the years ended  December 29,  1996,
December 28, 1997 and January 3, 1999
Notes to Consolidated Financial Statements

Financial Statement Schedules

No financial statement  schedules are submitted  because of the  absence of  the
conditions under which they are required or because the required information  is
included in the Consolidated Financial Statements or notes thereto.

Exhibits

3.1       Restated Certificate  of Incorporation,  filed on  December 29,  1993.
          (b)

3.2       Bylaws of Registrant.  (a)

4.1       Form of Common Stock Certificate.  (a)

4.2       Rights Agreement dated as of June  9, 1995, between Taco Cabana,  Inc.
          and Society National Bank, as Rights Agent.   (d)

10.1*     Employment Agreement dated April 24,  1995 between the Registrant  and
          Stephen V. Clark.  (c)

10.5      Sample Franchise Agreement.  (a)

10.6      Sample Franchise Development Agreement.  (a)

10.7      Sample Beverage Sublease Agreement.  (a)

10.8      Sample Concessionaire Management Agreement.  (a)

10.9*     Amended and Restated Stock Option Plan.  (a)

10.14*    1994 Stock Option Plan.  (b)

10.16     Second Amended  Loan Agreement  with International  Bank of  Commerce.
          (e)

10.17     Third Amended Loan Agreement with International Bank of Commerce.  (f)



10.18     Extension and Amendment to  Employment Agreement between Taco  Cabana,
          Inc. and Steve Clark.  (g)

10.19     Fourth Amended  Loan Agreement  with International  Bank of  Commerce.
(h)

21.       Subsidiaries of the Registrant.  (h)

23.       Consent of Deloitte & Touche LLP.  (h)

24.       Powers of attorney to  sign amendments to this  report.  Reference  is
          made to the signature page of this report.

27.       Financial Data Schedule. (h)
________________________

*         Executive compensation plan or arrangement.

(a)       Filed as an exhibit to Form  S-1 Registration Statement No.  33-51430,
          effective October 16, 1992.
(b)       Filed as an exhibit to Form 10-K for the fiscal year ended January  1,
          1995.
(c)       Filed as an exhibit  to Form 10-K for  the fiscal year ended  December
          31, 1995.
(d)       Filed  as an  exhibit to  Form 8-A  Registration  Statement No.0-
          20716,  effective June 9,   1995.
(e)       Filed as an exhibit  to Form 10-K for  the fiscal year ended December
          29, 1996.
(f)       Filed as an exhibit to Form 10-Q for the quarter ended March 29, 1998.
(g)       Filed as an exhibit to Form 10-Q for the quarter ended June 28, 1998.
(h)       Filed herewith.

     (b)           Reports on Form 8-K
          None.


                           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.

                       TACO CABANA, INC.



                       By:  STEPHEN V. CLARK

                              Stephen V. Clark
                              Chief  Executive Officer and President


     Date:  March 24, 1999

     Each person whose signature appears below  authorizes Stephen V. Clark  and
David G. Lloyd or either of  them, each of whom may  act without joinder of  the
other, to execute  in the name  of each such  person who is  then an officer  or
director of the Registrant and to file  any amendments to this annual report  on
Form 10-K necessary  or advisable to  enable the Registrant  to comply with  the
Securities Exchange Act  of 1934,  as amended,  and any  rules, regulations  and
requirements of the Securities and Exchange Commission in respect thereof, which
amendments may make  such changes in  such report as  such attorney-in-fact  may
deem appropriate.

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

     Signature                Title                 Date



STEPHEN V. CLARK      Chief Executive Officer,   March 24, 1999

  Stephen V. Clark    President and Director
                      (Principal Executive Officer)


DAVID G. LLOYD        Senior Vice President -    March 24, 1999

  David G. Lloyd      Finance, Chief Financial
                      Officer, Secretary and
                      Treasurer (Principal Financial and
                      Accounting Officer)


WILLIAM J. NIMMO      Director                   March 24, 1999

  William J. Nimmo


ROD SANDS             Director                   March  24, 1999

  Rod Sands



CECIL SCHENKER        Director                   March  24, 1999

  Cecil Schenker



RICHARD SHERMAN        Director                  March  24, 1999

  Richard Sherman


LIONEL SOSA            Director                  March  24, 1999

  Lionel Sosa








































                          EXHIBIT INDEX


Exhibit
  No.   

10.19Fourth Amended  Loan  Agreement with  International  Bank of
     Commerce.

21.  Subsidiaries of the Registrant

23.  Consent of Deloitte & Touche LLP

27.  Financial Data Schedule











































                                   EXHIBIT 21

                           Subsidiaries of Registrant



TP Acquisition Corp., a Texas corporation

Get Real, Inc., a Delaware corporation

Texas Taco Cabana, L.P., a Texas limited partnership

T. C. Management Inc., a Delaware corporation

T.C Lease Holdings III, V and VI, Inc., a Texas corporation

Taco Cabana Multistate, Inc., a Delaware corporation

Colorado Cabana, Inc., a Colorado corporation

Taco Cabana Atlanta, Inc., a Delaware corporation

Taco Cabana Investments, Inc., a Delaware corporation

Taco Cabana Management, Inc., a Texas corporation




































                                   EXHIBIT 23










INDEPENDENT AUDITORS' CONSENT




We consent to the incorporation by reference in Registration Statements No. 33-
56438 and No. 33-98124 of Taco Cabana, Inc. on Form S-8 of our report dated
February 4, 1999 appearing in this Annual Report on Form 10-K of Taco Cabana,
Inc. for the year ended January 3, 1999.



DELOITTE & TOUCHE LLP



San Antonio, Texas
March 24, 1999














INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                               Page

Consolidated Financial Statements:
 Independent Auditors' Report                                  F-2
 Consolidated Balance Sheets at December 28, 1997
  and January  3, 1999                                         F-3
 Consolidated Statements of Operations for the Years Ended
  December 29, 1996, December 28, 1997, and January 3, 1999    F-4
 Consolidated Statements of Stockholders' Equity for
  the Years Ended
  December 29, 1996, December 28, 1997 and January 3, 1999     F-5
 Consolidated Statements of Cash Flows for the Years Ended
  December 29, 1996, December 28, 1997 and January 3, 1999     F-6
 Notes to Consolidated Financial Statements                    F-8









































INDEPENDENT AUDITORS' REPORT


To the Board of Directors
Taco Cabana, Inc.

We have audited the accompanying consolidated balance sheets of Taco Cabana,
Inc. and subsidiaries ("the Company") as of January 3, 1999 and December 28, 
1997, and the related consolidated statements of operations, stockholders' 
equity and cash flows for each of the three years in the period ended January 3,
1999.  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, such consolidated financial statements present fairly, in all
material respects, the financial position of Taco Cabana, Inc. and subsidiaries
at January 3, 1999 and December 28, 1997, and the results of their operations
and their cash flows for each of the three years in the period ended January 3,
1999 in conformity with generally accepted accounting principles.


DELOITTE & TOUCHE LLP


San Antonio, Texas
February 4, 1999





















TACO CABANA, INC.

CONSOLIDATED BALANCE SHEETS



                                               December 28,       January 3,
ASSETS                                             1997              1999

CURRENT ASSETS:
Cash and cash equivalents                       $      339,000   $      719,000
Receivables, net                                       502,000          438,000
Inventory                                            2,105,000        2,273,000
Prepaid expenses                                     1,704,000        3,128,000
Federal income taxes receivable                        200,000          200,000
                                                --------------   --------------

  Total current assets                               4,850,000        6,758,000

PROPERTY AND EQUIPMENT, net                         59,540,000       72,250,000
NOTES RECEIVABLE                                       344,000          258,000
INTANGIBLE ASSETS, net                              11,293,000       10,724,000
OTHER ASSETS                                           233,000          212,000
                                                --------------   --------------

TOTAL ASSETS                                    $   76,260,000   $   90,202,000
                                                ==============   ==============


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable                                $    4,430,000   $    5,362,000
Accrued liabilities                                  6,266,000        5,265,000
Current maturities of long-term debt and
 capital leases                                      1,573,000        5,704,000
Line of credit                                       4,223,000        3,550,000
                                                --------------   --------------

  Total current liabilities                         16,492,000       19,881,000
 
LONG-TERM OBLIGATIONS, net of current
maturities:
Capital leases                                       2,357,000        2,140,000
Long-term debt                                      11,170,000       18,930,000
                                                --------------   --------------

  Total long-term obligations                       13,527,000       21,070,000

ACQUISITION AND CLOSED RESTAURANT                    9,126,000        7,713,000
LIABILITIES
DEFERRED LEASE PAYMENTS                                702,000          761,000
STOCKHOLDERS' EQUITY:
Preferred stock, series A; $.01 par value,             
100,000 shares authorized                                    -                -
Common stock; $.01 par value, 30,000,000
shares authorized -
  15,706,537 and 15,907,937 shares issued
  at December 28, 1997
  and January 3, 1999, respectively                    157,000          159,000
Additional paid-in capital                          97,095,000       98,056,000
Retained deficit                                   (57,278,000)     (43,544,000)
Treasury stock, at cost - 871,937 shares at
   December 28, 1997 and 2,576,937 shares
   at January 3, 1999                               (3,561,000)     (13,894,000)
                                                --------------   --------------

  Total stockholders' equity                        36,413,000       40,777,000
                                                --------------   --------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $   76,260,000   $   90,202,000
                                                ==============   ==============





See notes to consolidated financial statements.






TACO CABANA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



                                                     Year Ended
                                  ---------------------------------------------
                                  December 29,    December 28,    January 3,
                                      1996            1997           1999
                                   (52 Weeks)      (52 Weeks)     (53 Weeks)
REVENUES:
Restaurant sales                 $   131,680,000 $   131,857,000 $  142,592,000
Franchise fees and royalty
 income                                  516,000         346,000        358,000
                                 --------------- --------------- --------------
  Total revenues                     132,196,000     132,203,000    142,950,000
                                 --------------- --------------- --------------

COSTS AND EXPENSES:
Restaurant cost of sales              41,336,000      40,668,000     43,347,000
Labor                                 34,653,000      36,169,000     38,185,000
Occupancy                              8,161,000       8,185,000      7,840,000
Other restaurant operating costs      23,553,000      25,418,000     24,739,000
General and administrative             6,445,000       6,964,000      7,829,000
Depreciation, amortization and
 restaurant opening costs              9,245,000       9,659,000      7,990,000
Special charges (reversal)             2,497,000      78,738,000     (2,665,000)
Litigation settlement                  3,400,000               -              -
                                 --------------- --------------- --------------

  Total costs and expenses           129,290,000     205,801,000    127,265,000
                                 --------------- --------------- --------------

INCOME  (LOSS) FROM OPERATIONS         2,906,000     (73,598,000)    15,685,000

INTEREST EXPENSE, NET                 (1,348,000)     (1,137,000)    (1,951,000)
                                 --------------- --------------- --------------

INCOME  (LOSS) BEFORE INCOME
TAXES                                  1,558,000     (74,735,000)    13,734,000

(PROVISION) BENEFIT FOR
 INCOME TAXES                           (854,000)      1,537,000              -
                                 --------------- --------------- --------------

NET INCOME (LOSS)                $       704,000 $   (73,198,000)$   13,734,000
                                 =============== =============== ==============

BASIC EARNINGS (LOSS) PER SHARE  $          0.04 $         (4.78)$         0.96
                                 =============== =============== ==============

DILUTED EARNINGS (LOSS) PER 
 SHARE                           $          0.04 $         (4.78)$         0.95
                                 =============== =============== ==============

See notes to consolidated financial statements.



TACO CABANA, INC.

CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY


     Preferred   
        Stock    Common Stock      Additional Retained         Treasury Stock
      -------- -----------------    Paid-in   Earnings     -------------------
       Amount  Shares    Amount     Capital   (Deficit)      Shares     Amount

BALANCE, 
January 1,
  1996   $ - 15,681,162 $157,000 $96,954,000 $15,216,000         -  $       -

Options 
 exercised -     25,375        -     119,000           -         -          -
Tax benefit from stock   
 options   -          -        -      22,000           -         -          -
Net income -          -        -           -     704,000         -          -
         ---- --------- -------- ----------- ----------- --------- ----------

BALANCE,
December 29,
 1996      - 15,706,537  157,000   97,095,000 15,920,000         -          -

Purchase of
 stock                -        -            -          -   871,937 (3,561,000)
Net loss   -          -        -            -(73,198,000)        -          -
        ---- ---------- -------- ------------ ---------- --------- ----------
BALANCE, 
December 28, 
 1997      - 15,706,537  157,000   97,095,000(57,278,000)  871,937 (3,561,000)

Options 
 exercised -    201,400    2,000      961,000          -         -          -
Purchase of 
 stock     -          -        -            -          - 1,705,000(10,333,000)
Net income -          -        -            - 13,734,000         -          -
        ---- ---------- -------- ------------ ---------- --------- ----------
BALANCE,
January 3,
 1999    $ - 15,907,937 $159,000  $98,056,000$(43,544,000)2,576,937$(13,894,000)
        ==== ========== ======== ============ =========== ========= ===========

See notes to consolidated financial statements.





TACO CABANA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                     Year Ended

                                     ---------------------------------------
                                     December 29,  December 28,    January 3,
                                         1996          1997           1999

CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)                     $   704,000  $(73,198,000)   $ 13,734,000
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
  Depreciation and amortization         9,245,000      9,659,000      7,385,000
  Deferred income taxes                   450,000     (1,818,000)             -
  Special charges                       2,497,000     78,738,000     (2,665,000)
  Capitalized interest                    (12,000)      (147,000)      (117,000)
  Deferred income and lease payments     (278,000)      (157,000)        59,000
  Decrease (increase) in assets:
    Receivables                           291,000        634,000        150,000
    Inventory                             (12,000)      (656,000)      (168,000)
    Prepaid expenses and other assets     203,000     (1,018,000)    (1,424,000)
    Federal income taxes receivable     2,414,000        163,000              -
    Other assets                          393,000         58,000         21,000
  (Decrease) increase in liabilities:
    Accounts payable and accrued 
    liabilities                        (3,009,000)     2,328,000       (103,000)
    Acquisition and closed restaurant
    liabilities                          (676,000)    (1,656,000)    (1,194,000)
                                     ------------  -------------  -------------
Net cash provided by operating
 activities                            12,210,000     12,930,000     15,678,000
                                     ------------  -------------  -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment    (9,188,000)   (16,812,000)   (21,259,000)
Proceeds from sales of property and
equipment                                 846,000      1,379,000      4,330,000
Investment in joint venture              (388,000)             -              -
                                     ------------  -------------  -------------
Net cash used by investing activities  (8,730,000)   (15,433,000)   (16,929,000)
                                     ------------  -------------  -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of long-term
debt and draws on line of credit                -     18,423,000     14,469,000
Principal payments under long-term
debt and line of credit                (5,398,000)   (11,074,000)    (3,276,000)
Principal payments under capital
leases                                   (224,000)    (1,694,000)      (192,000)
Purchase of treasury stock                      -     (3,561,000)   (10,333,000)
Exercise of stock options                 141,000              -        963,000
                                     ------------  -------------  -------------
Net cash (used) provided by
 financing activities                  (5,481,000)     2,094,000      1,631,000
                                     ------------  -------------  -------------
NET (DECREASE) INCREASE IN CASH        (2,001,000)      (409,000)       380,000

CASH AND CASH EQUIVALENTS, beginning
 of period                              2,749,000        748,000        339,000
                                     ------------ --------------   ------------
CASH AND CASH EQUIVALENTS, end of
 period                              $    748,000 $      339,000  $     719,000
                                     ============ ==============  ============


                                                                  (Continued)

TACO CABANA, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS



SUMMARY OF NON-CASH TRANSACTIONS:

During 1996, the Company closed one restaurant and charged its net book value of
$139,000 to acquisition and closed restaurant liabilities.


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

                                                     Year Ended
                                      ---------------------------------------
                                      December 29,  December 28,    January 3,
                                          1996          1997           1999

Cash paid for interest, net of
interest capitalized                  $   1,144,000  $   1,171,000 $  1,848,000
Cash received for income taxes            2,504,000          4,000        9,000
Cash paid for income taxes                  477,000         74,000            -


                                                                   (Concluded)



TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS

   Nature of Operations - Taco Cabana, Inc. (the "Company") operates a chain  of
   Tex-Mex  patio style  quick  service  restaurants located  primarily  in  the
   Southwestern United  States.   At  January 3,  1999,  the Company  owned  and
   operated a total  of 102 units.   There were also  10 Taco Cabana  franchised
   units.

   Principles of Consolidation -  The consolidated financial statements  include
   all  accounts  of  the  Company  and  its  wholly-owned  subsidiaries.    All
   significant inter-company balances and transactions have been eliminated.

   Fiscal Year - The Company's accounting period is  based upon a 52 or 53  week
   fiscal year ending on  the Sunday closest to  December 31.  The fiscal  years
   1996, 1997 and 1998 were comprised of  the 52 weeks ending December 29,  1996
   and December 28, 1997 and the 53 weeks ending January 3, 1999, respectively.

   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  reported amounts  of assets  and
   liabilities, the disclosure of contingent assets and liabilities at the  date
   of  the  financial statements  and  the  reported  amounts  of  revenues  and
   expenses during  the reporting  period.   Actual  results could  differ  from
   those estimates.

   Liquor  Sales  - To  conform  to  state  liquor  laws,  liquor  licenses  are
   maintained  and  liquor  sales  are  accounted  for  by  a  separate   liquor
   corporation.  The liquor corporation pays the Company a management fee  based
   on liquor  sales, reimburses the  Company for its  share of operating  costs,
   and pays base and  additional rent based on liquor sales.   In order to  more
   accurately reflect restaurant operations, all revenues and expenses  relating
   to liquor sales have  been included in the consolidated financial  statements
   of the Company.

   Inventory -  Inventory is stated  at the lower  of cost  using the  first-in,
   first-out  method  or  market,  and  consists  primarily  of  food  products,
   beverages and paper supplies.

   Property and Equipment - Property and equipment is stated at cost.  Equipment
   and buildings under  capital leases are  stated at the  lower of the  present
   value of  minimum lease payments  or fair market  value of the  asset at  the
   inception of the lease. Depreciation and amortization are provided using  the
   straight-line method  over the estimated  useful lives of  the assets or  the
   applicable lease term, if less.

   The estimated useful  lives used in  computing depreciation and  amortization
   are as follows:

        Furniture, fixtures and equipment               2-10 years
        Buildings                                      20-30 years
        Leasehold improvements                          5-30 years

   Maintenance and  repairs are  charged to  expense as  incurred;  improvements
   which increase  the value  of the  property and  extend the  useful life  are
   capitalized.

TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS  
   (Continued)

   Intangible Assets  - Goodwill, or  the excess of  acquisition costs over  the
   fair  market  value of  the  assets  acquired  and  liabilities  assumed,  is
   amortized using  the straight-line method  over 25 to  40 years.   The  trade
   name  and the  rights  to  the  Taco Cabana  name  are  amortized  using  the
   straight-line method over 40  years.  Management assesses the  recoverability
   of goodwill  on the basis  of actual and  undiscounted, projected cash  flows
   from  the  restaurants  acquired.    Should  projected  cash  flows  not   be
   sufficient  to  recover the  Company's  investment,  including  any  recorded
   goodwill, management utilizes  either a discounted cash  flow basis or  other
   determination of current fair value, in order to determine the amount of  the
   impairment.

   Franchise Income - The Company has sold franchises that give the  franchisees
   the right to operate Taco Cabana restaurants in specified areas.   Generally,
   each franchisee  acquires the right  to open three  or more  restaurants.   A
   development fee is recognized as  income when the agreement is signed,  while
   the franchise fee  on each restaurant  is deferred until  the opening of  the
   franchised restaurant.    In addition,  the  franchise agreement  requires  a
   franchise royalty fee and  an advertising fee on  gross sales; such fees  are
   recorded  as income  when  earned.   In  some  markets,  franchisees  pay  an
   additional percentage  of gross sales  for expanded media  coverage in  their
   respective areas.

   Concentrations  of  Credit Risk  -  Financial  instruments  that  potentially
   subject the Company  to concentrations of  credit risk consisted  principally
   of amounts  due from  franchisees  and receivables  from credit  card  sales.
   These risks are limited due to their geographic dispersion.  The Company  has
   no significant concentrations of credit risk.

   Income Taxes  - Income taxes  are recorded using  a liability approach  based
   upon currently enacted tax rates.  The  effect of future changes in tax  laws
   will be recorded, when the laws are enacted.

   Earnings  (Loss) Per  Share  - In  February  1997, the  Financial  Accounting
   Standards Board issued  Statement of Financial  Accounting Standards No.  128
   ("SFAS No. 128"), "Earnings Per Share", which requires presentation of  basic
   and diluted  earning per  share.   Basic earnings  per share  is computed  by
   dividing income  available to  common shareholders  by the  weighted  average
   number  of common  shares  outstanding for  the  reporting period.    Diluted
   earnings  per share  reflects  the potential  dilution  that could  occur  if
   securities  or other  contracts  to  issue common  stock  were  exercised  or
   converted  into  common  stock.    As  required,  the  Company  adopted   the
   provisions of SFAS No.  128 in the year ended December  28, 1997.  All  prior
   year  weighted  average and  per  share  information  has  been  restated  in
   accordance with  SFAS  No. 128.   Outstanding  stock  options issued  by  the
   Company represent  the only  dilutive effect  reflected in  diluted  weighted
   average shares.

   Statements of Cash Flows - For purposes of reporting cash flows, the  Company
   considers all  highly liquid debt  instruments with a  remaining maturity  at
   the date of purchase of three months or less to be cash equivalents.

TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
   (Continued)

   Commitments and Contingencies  - The Company does  not subscribe to  worker's
   compensation insurance in its Texas  market.  The Company accrues for  claims
   based on  historical actual payments  made for such  claims and expenses,  as
   well as an evaluation  of current and anticipated  claims and expenses.   The
   Company does maintain an excess liability coverage which management  believes
   is adequate to cover any substantial claims.

   Stock-Based Compensation - The Company accounts for stock-based  compensation
   using the intrinsic  value method prescribed  in Accounting Principles  Board
   ("APB")  No. 25,  Accounting for  Stock  Issued  to  Employees,  and  related
   interpretations.    Accordingly,  compensation  cost  for  stock  options  is
   measured as the excess, if any, of  the quoted market price of the  Company's
   common stock at  the date of grant  over the amount an  employee must pay  to
   acquire the stock.   The Company has  adopted the disclosure requirements  of
   Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting  for
   Stock-Based Compensation, as included in Note 12.

   Reclassifications -  Certain reclassifications have  been made  to the  prior
   year's consolidated financial statements  to conform to the presentation  and
   classification used in fiscal 1998.


2. SPECIAL CHARGES (REVERSAL)

   During fiscal 1996, 1997 and 1998, the following special charges are
   included in the Company's consolidated financial statements:

                                   December 29,      December 28,     January 3,
                                       1996              1997            1999

Special charge (reversal)         $   2,497,000    $   78,738,000   $(2,665,000)
Pro forma income tax (benefit)
provision                              (747,000)       (3,018,000)      986,000
Decrease (increase) on net
income                                1,750,000        75,720,000    (1,679,000)
Decrease (increase) per share     $        0.11    $         4.94   $     (0.12)




   Fiscal 1998 - As part of the special charges recorded in the fourth quarter
   of 1996 and 1997, the Company reduced the carrying value of assets and
   established reserves for the estimated lease liabilities associated with
   restaurants that were closed.  During 1998, the company successfully
   completed sales of several of these properties to third parties or
   negotiated favorable lease terminations. The amount of the proceeds in
   excess of the carrying value of the assets and the remaining lease
   liabilities was approximately $2.7 million. This amount was recorded as a
   special charge reversal during the fourth quarter of 1998.



TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2. SPECIAL CHARGES (Continued)

   Fiscal 1997 - During the fourth  quarter of fiscal 1997, management made  the
   decision to close the seven restaurants in its Colorado market.  The  Company
   committed substantial resources to this  market during 1997 in an attempt  to
   reverse trends  of poor  sales and  losses.   The  desired results  from  the
   implementation of the plan  were not achieved and  the decision to close  the
   market was made.   These seven restaurants  had total sales of  approximately
   $3.0 million and  operating losses of $2.1  million during the  approximately
   eleven months of 1997 that they were in operation.

   Additionally, the  Company continued to  experience unfavorable sales  trends
   during 1997, concluding the  year with comparable restaurant sales  declining
   2.9%.  However,  during the first six  months of 1997, comparable  restaurant
   sales  declined 4.8%.    This  trend compelled  management  to  continue  its
   evaluation of the  operating model of the  Company.  During this  evaluation,
   management  concluded that  certain  volumes must  be  achieved in  order  to
   operate individual restaurants in  accordance with Company standards.   These
   standards  include   food  quality,  cleanliness,   speed  of  service,   and
   profitability.   Management reviewed  all existing  restaurants to  determine
   which restaurants could  not reasonably be expected  to achieve these  volume
   levels, generally annual revenues  of at least $1 million.   This led to  the
   decision to close an additional ten restaurants.

   Due  to  the  significance  of  the  closures  described  above,   management
   performed an  evaluation of  the recoverability  of all  remaining assets  as
   described in  Statement  of Financial  Accounting  Standards No.  121  ("SFAS
   121"), "Accounting  for the  Impairment of  Long-Lived Assets  and for  Long-
   Lived Assets to Be Disposed Of ".   Management concluded from the results  of
   this evaluation that a significant impairment of intangible as well as  long-
   lived assets was  required to be recognized.   The impairment was  reflective
   of  a  market value  determined  to  be  less  than  the  carrying  value  of
   approximately 40  restaurants, 31 of  which were acquired.   The assets  were
   tested for  impairment by projecting  cash flows  for individual  restaurants
   based  on recent  results  and  trends specific  to  that  restaurant.    The
   undiscounted projected cash  flows for each restaurant  were compared to  the
   carrying  value for  that  restaurant, including  allocated  goodwill,  where
   applicable.   If the  undiscounted cash  flows were  less than  the  carrying
   value,  an impairment  was  deemed to  have  occurred.   The  amount  of  the
   impairment was determined by  calculating the difference between the  present
   value of the projected cash flows and the carrying value attributable to  the
   specific restaurant.    The cash  flows were  discounted  using the  rate  of
   return the Company utilizes for approving new restaurant construction.   Such
   discounted cash flows are, in management's opinion, the best estimate of  the
   assets current  value.   Considerable  management  judgment is  necessary  to
   estimate future  discounted cash flows.   Accordingly,  actual results  could
   vary significantly from management's estimates.

   The process  described above resulted  in the Company's  recording a  special
   charge during  the fourth  quarter of 1997  of $78.7  million pre-tax,  $75.7
   million  after-tax, or  $4.94  per share.    This amount  had  the  following
   components:

   . Impairment of intangible assets of $33.1 million and impairment of long-
     lived assets of $22.1 million for restaurants that will continue in
     operation, based on the SFAS 121 analysis described above;


TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2. SPECIAL CHARGES (Continued)

   . A provision of $23.3 million for the closure of seventeen restaurants,
     including all of the restaurants in the Colorado market.  The amount was
     determined in accordance with FAS 121 and was comprised of:
     .  $13.3 million for the carrying value of the assets, net of estimated
        proceeds of $1.5 million for the sale of restaurant properties;
     .  $9.0 million to record the estimated lease related obligations for
        closed restaurants.  This amount was determined as the lesser of the
        present value of the monthly lease commitments, net of expected
        sublease receipts, or lease termination provisions;
     .  $500,000 for severance and relocation benefits paid to employees
        displaced by the restaurant closures;
     .  $500,000 for the probable settlement of a franchisee lawsuit related to
        the Colorado market.
   . The write-off of other assets totaling $200,000.

   During 1997, the  seventeen restaurants contributed a  total of $9.6  million
   in sales, and had operating losses  totaling $2.5 million.  In addition,  the
   total amount of  depreciation recorded during 1997  relating to assets  which
   were impaired was approximately $2.5 million.

   Fiscal 1996  -  The Company  has a  50%  interest in  a joint  venture  which
   operated three restaurants in the Atlanta market.  During the fourth  quarter
   of 1996,  the  Company decided  to write-down  its  investment in  the  joint
   venture and accrue for  certain costs associated with  the closing of two  of
   the three restaurants operated by the joint venture.  This decision  resulted
   in a special charge of $2.5 million pre-tax, $1.7 million after-tax or  $0.11
   per share.  The special charge was comprised of the following:


Write-down of investment in joint venture              $   1,191,000
Reserve for notes and accounts receivable                    268,000
Estimated lease obligations                                  632,000
Estimated legal and professional fees                        245,000
Other costs                                                  161,000
                                                       -------------
Total                                                  $   2,497,000
                                                       =============


 TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3. ACCOUNTS AND NOTES RECEIVABLE

   Accounts and notes receivable consisted of the following:


                                           December 28,   January 3,
                                               1997          1999
Trade receivables:
  Royalties                                  $    84,000   $    97,000
  Other                                          356,000       365,000
Notes receivable - current portion               109,000        78,000
Employees                                          2,000             -
                                             -----------   -----------
    Total                                        551,000       540,000
Less allowance for doubtful accounts             (49,000)     (102,000)
                                             -----------   -----------
Receivables, net                             $   502,000   $   438,000
                                             ===========   =========== 


Notes receivable - noncurrent:
  Franchisees                                $   344,000   $   258,000
                                             ===========   ===========



    Notes receivable from franchisees approximate fair value because the
    underlying instruments have an interest rate that approximates current
    market rates.  The Company's allowance for doubtful accounts is reflected as
    a reduction of receivables in the consolidated balance sheets.




TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



4. PROPERTY AND EQUIPMENT, NET

   Property and equipment, net, consisted of the following:



                                           December 28,      January 3,
                                               1997             1999
Property and equipment:
  Land                                     $   18,759,000   $   20,384,000
  Furniture, fixtures and equipment            39,627,000       48,245,000
  Leasehold improvements                        8,335,000       13,820,000
  Buildings                                    13,159,000       17,322,000
  Construction in progress                      1,195,000          920,000
                                           --------------   --------------
                                               81,075,000      100,691,000
Less accumulated depreciation and 
  amortization                                (24,525,000)     (31,424,000)
                                           --------------   --------------
    Total                                      56,550,000       69,267,000
                                           --------------   --------------

Property and equipment held under
capital leases:
  Buildings                                     4,254,000        4,401,000
  Less accumulated amortization                (1,264,000)      (1,418,000)
                                           --------------   --------------
    Total                                       2,990,000        2,983,000
                                           --------------   --------------

Property and equipment, net                $   59,540,000   $   72,250,000
                                           ==============   ==============



   At January 3,  1999, the Company had  three restaurants held  for sale.   The
   total  carrying amount  of  these assets  is  $1.1 million  which  management
   estimates to be the net proceeds from  the disposition of these assets.   See
   Note 2.



TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



5. INTANGIBLE AND OTHER ASSETS

   Intangible and other assets consisted of the following:

                                           December 28,      January 3,
                                               1997             1999
Intangible assets:
  Goodwill                                 $   16,154,000    $   16,154,000
  Trade name                                    1,575,000         1,576,000

                                           --------------    --------------
                                               17,729,000        17,730,000
Less accumulated amortization                  (6,436,000)       (7,006,000)
                                           --------------    --------------

Intangible assets, net                     $   11,293,000    $   10,724,000
                                           ==============    ==============


Other assets:
  Deposits                                 $      214,000   $       177,000
  Other                                            19,000            35,000
                                           --------------   ---------------

Other assets                               $      233,000   $       212,000
                                           ==============   ===============





6. ACCRUED LIABILITIES

   Accrued liabilities consisted of the following:


                                           December 28,      January 3,
                                               1997             1999

Closed restaurant obligations               $   2,827,000    $      740,000
Payroll related                                 1,468,000         2,380,000
Property taxes                                    627,000           557,000
Employee injury                                   138,000           271,000
Restaurant expenses                               297,000           433,000
Legal                                             332,000           168,000
Other                                             577,000           716,000
                                            -------------    --------------

Total                                       $   6,266,000    $    5,265,000
                                            =============    ==============



TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



7. LEASES

   Operating  Leases -  The  Company  leases restaurant  facilities  under  non-
   cancelable operating  leases with initial  terms ranging from  ten to  twenty
   years with options to renew.  The future minimum lease commitments under  all
   non-cancelable operating  lease obligations  as of  January 3,  1999 were  as
   follows:

Years ending:
  1999                                                   $     6,432,000
  2000                                                         6,426,000
  2001                                                         6,348,000
  2002                                                         6,290,000
  2003                                                         6,387,000
  Thereafter                                                  36,733,000
                                                          --------------

  Total                                                   $   68,616,000
                                                          ==============




   The total rental expense for operating leases was approximately $6.6  million
   for both  1996 and  1997, and  $6.2 million  for 1998,  including  additional
   rents of  approximately $308,000, $291,000  and $185,000 for  1996, 1997  and
   1998, respectively.

   The Company remains contingently liable on eight operating leases which  were
   assigned  to the  purchasers  of  units previously  sold  or  closed.  Future
   minimum  lease commitments  under  these contingent  obligations  approximate
   $597,000  in 1999,  and  a  total  of $2.4  million  in  2000  through  2003.
   Thereafter, the total minimum lease payments are approximately $2.6  million.
   The  Company  assesses the  probability  of  its  having  to  assume  primary
   liability  under these  assignments  as part  of  its ongoing  assessment  of
   franchisee relationships.



TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



7. LEASES (Continued)

   Capital Leases  - The Company  leases certain buildings  under capital  lease
   agreements with  third parties.   The  leases have  fifteen and  twenty  year
   terms.  Future minimum  lease payments under the  capital leases and the  net
   present value of the minimum lease payments at January 3, 1999 were:

Years ending:
  1999                                                      $      445,000
  2000                                                             445,000
  2001                                                             446,000
  2002                                                             446,000
  2003                                                             439,000
  Thereafter                                                     1,220,000
                                                             -------------

Total minimum lease payments                                     3,441,000
Less amount representing interest at 9% to 13%                   1,086,000
                                                             -------------

Net present value of minimum lease payments                      2,355,000
Less current portion                                               215,000
                                                             -------------

Long-term portion of capital leases                          $   2,140,000
                                                             =============



   In addition to the minimum lease payments, several of the leases have a
   contingent rental based on 5% to 6% of gross sales, if such amounts exceed
   minimum rent.  No payments have been made under these agreements.
   Furthermore, certain leases have been guaranteed by a stockholder of the
   Company.

TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



8. LONG-TERM DEBT

   Long-term debt consisted of the following notes payable bearing interest at
   the prime rate of 7.75% at January 3, 1999:


                                             December 28,        January 3,
                                                 1997               1999




Notes payable to a bank, collateralized
  by certain restaurant
  assets, due in monthly installments of
  principal and interest
  through August 2004                          $   10,521,000   $  19,754,000

Notes payable to a bank, collateralized
  by certain restaurant
  assets, due in January 1999,
  subsequently refinanced                                   -       3,300,000

Note payable to a bank, unsecured, due
  in monthly installments
  of principal and interest through April 2000      1,777,000       1,365,000

Note payable to a corporation,
  collateralized by certain
  restaurants, due in monthly
  installments of principal
  and interest through September 1998                 256,000               -
                                              ---------------  --------------
         
    Total                                          12,554,000      24,419,000
Less current maturities                             1,384,000       5,489,000
                                              ---------------  --------------

Long-term debt, net                            $   11,170,000   $  18,930,000
                                              ===============  ==============



   The future minimum payments of long-term debt outstanding at January 3,  1999
   were as follows:

Years ending:
  1999                                                   $     5,489,000
  2000                                                         2,761,000
  2001                                                         1,996,000
  2002                                                         2,444,000
  2003                                                         2,437,000
  Thereafter                                                   9,292,000
                                                          --------------

  Total                                                   $   24,419,000
                                                          ==============




   The  amounts  stated  in  the  Company's  consolidated  balance  sheets   for
   long-term debt  approximate fair value  because the  underlying note  payable
   balance  fluctuates frequently  or  it is  at  a rate  approximating  current
   market rates.




TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



9. LINE OF CREDIT

   During 1998 the Company had  in place two secured credit facilities  totaling
   $30 million, including a  $5 million revolving line  of credit.  Interest  on
   funds borrowed under the facilities are  charged at the prime rate which  was
   7.75% at January 3,  1999.  On December 31,  1998 the credit facilities  were
   amended  and increased  to  a  total of  $40  million.   As  a  part  of  the
   amendment, the commitments were extended  to December 31, 2000.  Interest  on
   funds borrowed under the amended facility  are charged at the prime rate
   or,  at the Company's  choice, 2.25% over  the London Interbank  Offered
   Rate (LIBOR),  adjusted quarterly.    The credit  facilities are  secured  by
   property and equipment.  The facilities contain certain covenants,  including
   cash flow to  fixed charges ratio,  minimum net worth,  debt to tangible  net
   worth ratio, and intangible assets  to net worth ratio requirements.   During
   the year ended January 3, 1999, the  Company was in compliance with all  such
   covenants.  At January 3,  1999, the Company had approximately $11.5  million
   available for cash borrowings under these credit facilities.



10.ACQUISITION AND CLOSED RESTAURANT LIABILITIES

   The Company establishes acquisition liabilities, as necessary, in  connection
   with the purchase  method of accounting for  restaurants and other assets  it
   acquires.   Such liabilities  are primarily related  to leases  that were  at
   terms less  favorable than market  rates prevailing at  the acquisition  date
   and anticipated restaurant closure costs, if any.

   The liability established for leases in excess of the prevailing market  were
   based on current market rental rates  at the date of acquisition as  compared
   to the terms of the leases acquired.  This liability is being amortized as  a
   reduction of  occupancy expense  over the  remaining term  of the  applicable
   leases. The total amount of this  reserve was $1.4 million and $1.2  million,
   at December  28, 1997 and  January 3, 1999,  respectively.   During 1997  and
   1998, approximately $203,000 and  $181,000, respectively, of the balance  was
   amortized in this manner.

   Acquisition liabilities  includes  reserves established  for the  closure  of
   certain acquired  restaurants.   These  restaurants  were anticipated  to  be
   closed at the time  of acquisition.  The amounts  reserved were equal to  the
   value assigned to the  building and equipment acquired, less any  anticipated
   salvage value, plus an amount estimated  to terminate the lease prior to  its
   expiration date.   The  total amount  of this  reserve was  $1.5 million  and
   $261,000 at  December 28,  1997 and January  3, 1999,  respectively.   During
   1997 and  1998, approximately  $900,000 and  $1.0 million,  respectively,  of
   this reserve  was utilized  in the  closure of  restaurants. As  part of  the
   special charge reversal  recorded in 1998, the  Company reversed $200,000  of
   this reserve.



TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



10.ACQUISITION AND CLOSED RESTAURANT LIABILITIES (continued)

   In 1997,  as part of  the special charge,  the Company  reserved amounts  for
   closed  restaurant liabilities.    The amounts  reserved  were equal  to  the
   lesser  of the  present  value  of the  monthly  lease  commitments,  net  of
   expected sublease receipts, or lease termination provisions.  These  reserves
   were approximately  $7.1 million and  $6.2 million at  December 28, 1997  and
   January 3, 1999, respectively.  It is currently anticipated that payments  of
   approximately $740,000 will be made under lease and other obligations  during
   1999.   During 1997 and  1998, approximately $1.9  million and $2.7  million,
   respectively, of  this reserve was  utilized in the  closure of  restaurants.
   During 1998,  the Company  received proceeds  of approximately  $4.3  million
   from the  sales of  closed restaurant  properties.   As part  of the  special
   charge reversal recorded in 1998, the Company re-evaluated lease  obligations
   for closed restaurants and  reversed approximately $2.5 million of the  lease
   liability reserves for such restaurants.

11.EARNINGS PER SHARE

   The following table sets forth the computation of basic and diluted earnings
   per share:

                                      December 29,   December 28,    January 3,
                                          1996           1997           1999
Numerator for basic and diluted
earnings
   per share - net income (loss)  $      704,000 $  (73,198,000)    $13,734,000

Denominator:
   Denominator for basic
   earnings per
   share - weighted-average           15,694,757     15,314,665      14,336,526
   shares
   Effect of dilutive securities-
     Employee stock options              251,923              -         140,067
                                  --------------  -------------     -----------
   Denominator for diluted
     earnings per share - adjusted
     weighted-average and assumed
     conversions                      15,946,680     15,314,665      14,476,593
                                  ==============  =============     ===========


Basic earnings (loss) per share    $        0.04   $      (4.78)      $    0.96
                                  ==============  =============      ==========

Diluted earnings (loss) per share  $        0.04   $      (4.78)      $    0.95
                                  ==============  =============      ==========

   For additional disclosures regarding outstanding employee stock options, see
   Note 12.

TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



12.STOCKHOLDERS' EQUITY AND STOCK OPTIONS

Stock Options - The Company has stock option plans (the "Plans") for  employees,
outside directors, and advisors of the Company covering 2,750,000 shares of  the
Company's common stock.  Options under  such plans generally become  exercisable
ratably over a two to five  year period.  All options  expire at the earlier  of
termination of  employment or  ten years  after  the date  of grant.  The  Plans
terminate in 2000 and  in 2004.  The  Plans are administered  by a committee  of
outside members of the Board of Directors.  In addition, certain directors  were
awarded  non-qualified  stock  options  pursuant   to  the  terms  of   separate
compensation agreements.    At  January  3,  1999,  there  were  179,233  shares
available for  issuance upon  exercise of  options that  may be  granted in  the
future.  Options outstanding are as follows:



                                                                Weighted
                                                                Average
                                                Total Options   Exercise
                                                 Outstanding     Price

Options outstanding, December 31, 1995             1,053,125   $   6.40
  Granted                                            231,250       6.30
  Exercised                                          (25,375)      4.85
  Expired or canceled                               (147,500)      5.36 
                                                   ---------
Options outstanding, December 29, 1996             1,111,500   $   6.18
  Granted                                            379,750       4.63
  Exercised                                                -          -
  Expired or canceled                               (140,375)      8.57
                                                   ---------
Options outstanding, December 28, 1997             1,350,875   $   5.64
  Granted                                            480,050       6.17
  Exercised                                         (201,400)      4.78
  Expired or canceled                               (125,000)      5.24
                                                   ---------
Options outstanding, January 3, 1999               1,504,525   $   5.76
                                                   =========

Options exercisable, January 3, 1999                 635,195   $   5.95
                                                   =========







TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



12.STOCKHOLDERS' EQUITY AND STOCK OPTIONS (Continued)

   For  the  options outstanding  at  January  3,  1999,  the  weighted  average
   remaining  life and  exercise  price of  these  outstanding options  were  26
   months and $5.79, respectively.   In addition, the weighted average  exercise
   price of options granted during 1998 was $6.17.

   SFAS No. 123,  Accounting for  Stock-Based Compensation,  allows entities  to
   continue  to  use  Accounting   Principles  Board  ("APB")  Opinion   No. 25,
   Accounting for  Stock Issued  to Employees.  The Company  has evaluated  SFAS
   No. 123 and intends to continue following APB Opinion No. 25.  The  pro-forma
   compensation expense, net income  (loss) and earnings (loss) per share  which
   were calculated as if SFAS No. 123 had been applied are as follows:


                                                 Year Ended
                                --------------------------------------------
                                   December 29,    December 28,    January 3,
Pro Forma                              1996            1997           1999

Compensation expense            $     741,000  $       555,000  $    329,000
Net income (loss)                     237,000      (73,548,000)   13,405,000
Diluted earnings
 (loss) per share               $        0.01  $         (4.80) $       0.93


   The Black-Scholes option pricing model  was used to determine the above  pro-
   forma information. The calculations  relied upon estimates of the  volatility
   of the Company's stock and  expected dividends, as well as determinations  of
   a risk-free interest  rate and expected  life of the  options.  A  volatility
   rate of 49.0% was used for options granted prior to 1994, 37.5% was used  for
   options granted during 1994, 36.0%  was used for options granted during  1995
   through 1996, 34.0% was used for  options granted during 1997, and 33.0%  was
   used for  options granted  during 1998.   Dividends were  estimated at  zero.
   The discount rate charged on loans to depository institutions by the  Federal
   Reserve Bank was used as the risk-free interest rate.  The discount rate  was
   approximately 5.0% for all of 1998.  The life of the Company's options  range
   from two to five years.


TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



12.STOCKHOLDERS' EQUITY AND STOCK OPTIONS (Continued)

   Preferred Stock  Purchase  Rights -  In June  1995,  the Company's  Board  of
   Directors declared a distribution  of one preferred stock purchase right  for
   each share of  the Company's common  stock.  The  rights were distributed  on
   June 20, 1995 to stockholders of record as  of the close of business on  that
   day.  Each right will entitle the holder to buy 1/1000 of a share of a  newly
   authorized Series  A  preferred stock  at an  exercise  price of  $37.50  per
   right.    The rights  become  exercisable  on  the  tenth  day  after  public
   announcement  that a  person  or  group  has acquired  15%  or  more  of  the
   Company's common stock.  The rights may  be redeemed by the Company prior  to
   becoming exercisable  by action  of the Board  of Directors  at a  redemption
   price of $0.01 per  right.  If the Company is  acquired in a merger or  other
   business  combination  transaction   in  which  it   is  not  the   surviving
   corporation, each  right will  entitle its holder  to purchase  stock of  the
   acquiring company having a market value of twice the exercise price.  In  the
   event that the Company is the surviving corporation, each right will  entitle
   its holder to purchase  the Company's common stock  having a market value  of
   twice the  exercise price  of each right.   At  January 3,  1999, there  were
   13,331,000 rights outstanding.

   Preferred Stock - In June 1995, in connection with its implementation of  the
   stockholders' rights  plan discussed  above, the  Company authorized  100,000
   shares of Series  A, preferred stock with  a par value of   $0.01 per  share,
   which would become issuable only at such time, if ever, as the rights  become
   exercisable.  As of January 3, 1999 there were no shares outstanding.

   Treasury Stock - The  Company's Board of Directors previously authorized  the
   purchase in  the open  market of  up  to 4,000,000  shares of  the  Company's
   outstanding common  stock.  At  December 28, 1997  and January  3, 1999,  the
   Company held treasury stock  of  871,937 shares  and 2,576,937 shares of  its
   common stock at a cost of $3,561,000 and $13,894,000, respectively.


TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



13.INCOME TAXES

   The provision  (benefit) for income  taxes differs from  the amount  computed
   using statutory rates as shown below:

                                  December 29,   December 28,     January 3,
                                      1996           1997            1999

Federal income tax at
 statutory rate                    $    530,000    $(25,410,000) $   4,670,000
State income taxes                       39,000          48,000              -
Goodwill and other                      285,000       4,819,000        (15,000)
Valuation allowance on net
 deferred tax asset                           -      19,006,000     (4,655,000)
                                   ------------    ------------  -------------

  Total                            $    854,000    $ (1,537,000)  $          -
                                   ============    ============   ============



   The provision (benefit) for income taxes is comprised of the following:

                                                   Year Ended
                                  -------------------------------------------
                                  December 29,    December 28,     January 3,
                                      1996            1997            1999

Current                            $    404,000   $       281,000   $         -
Deferred                                450,000        (1,818,000)            -
                                   ------------   ---------------   -----------

  Total                            $    854,000    $   (1,537,000)  $         -
                                   ============    ==============   ===========


   Deferred income taxes and  benefits are provided for differences between  the
   financial statement carrying  amount of existing  assets and liabilities  and
   their respective tax bases.  Significant deferred tax assets and  liabilities
   are as follows:

TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



13.INCOME TAXES (Continued)

                                                 December 28,        January 3,
                                                     1997               1999
Current:
Deferred Federal Tax Assets:
  Workmen's compensation claims                 $   494,000         $   337,000
  Investment in joint venture                       718,000                   -
  Accounts receivable                                17,000              35,000
  Charitable contributions                           34,000                   -
  Accrued vacation                                   38,000              21,000
                                                -----------         -----------

Total                                             1,301,000             393,000
                                                -----------         -----------

Deferred Federal Tax Liabilities -
  Pre-opening costs                                (119,000)                  -
                                                -----------         -----------

Total                                              (119,000)                  -
                                                -----------         -----------

Net Current Deferred Tax Asset                  $ 1,182,000         $   393,000
                                                ===========         ===========


Noncurrent:
Deferred Federal Tax Assets:
  Net operating loss carryforward              $  5,601,000        $  6,955,000
  General busines tax credit carryforward           627,000             590,000
  Closed stores                                     916,000           1,400,000
  Alternative minimum tax credit carryforward     1,258,000           1,277,000
  Production costs                                   79,000                   -
  Deferred rent                                     791,000           2,416,000
  Other - Special charge                         12,907,000           6,071,000
  Charitable Contributions                                -              51,000
                                               ------------        ------------

Total                                            22,179,000          18,760,000
                                               ------------        ------------

Deferred Federal Tax Liabilities:
  Fixed and intangible assets                    (4,312,000)         (4,802,000)
  Other reserves                                    (43,000)                  -
                                               ------------        ------------

Total                                            (4,355,000)         (4,802,000)
                                               ============        ============

Net Noncurrent Deferred Tax Asset                17,824,000          13,958,000
                                               ============        ============

Net Deferred Tax Asset before valuation
allowance                                        19,006,000          14,351,000
Valuation Allowance                             (19,006,000)        (14,351,000)
                                               ------------        ------------
Net Deferred Tax  Asset                       $           -      $            -
                                               ============        ============








TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



13.INCOME TAXES (Continued)

   At January 3, 1999, the  Company had net operating loss, alternative  minimum
   tax  and  general  business  tax  credit  carry-overs  of  approximately  $20
   million, $1.3  million and $590,000,  respectively.  A  portion of the  above
   carry-overs resulted  from the  acquisition  of Two  Pesos; the  Company  was
   allowed to  utilize the net  operating loss of  $5.4 million  and tax  credit
   carry-overs  of  $178,000  of  Two   Pesos  that  existed  at  the  date   of
   acquisition.      However,   these   carry-overs   may   only   offset    the
   post-acquisition  taxable   income  and  tax   liability  of  the   Company's
   subsidiary that acquired Two  Pesos.  In addition,  because of the change  in
   ownership, the net operating  loss carry-over utilization is further  limited
   to approximately $953,000  per year, and the  tax credit carry-over  acquired
   from Two Pesos is  limited each year to the  tax equivalent of any  remaining
   portion of the  net operating loss  limitation.  The  net operating loss  and
   tax credit carry-overs begin to expire in 2003 and 2000, respectively.

   The alternative  minimum  tax credit  carry-over  and the  remaining  general
   business  credit carry-overs  are  available  to offset  future  regular  tax
   liabilities.   The general business  credit begins to  expire in  2007.   The
   alternative minimum tax credit has no expiration date.


14.LITIGATION SETTLEMENT AND LEGAL PROCEEDINGS

   On July 24, 1996, the Company approved the settlement of A.L. Park, et al  v.
   Taco Cabana, Inc., et al., a suit originally filed in September 1995  seeking
   status as  a class  action.   As a  result thereof,  the Company  recorded  a
   charge of $3.4 million pre-tax,  $2.2 million after-tax, or $0.14 per  share,
   during the second quarter of fiscal 1996. Under the terms of the  settlement,
   the plaintiffs  received  a total  of $6.0  million  of which  the  Company's
   insurance  carrier  paid $3.05  million.    Additionally,  the  Company  paid
   approximately $450,000 for legal and related expenses incurred in  connection
   with the settlement.

   In   addition,  the   Company   is  a   party   to  routine   negligence   or
   employment-related litigation  in the ordinary  course of its  business.   No
   such pending  matters, individually  or in the  aggregate, are  deemed to  be
   material to the results of operations or financial condition of the Company.







TACO CABANA, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



15.QUARTERLY FINANCIAL DATA (Unaudited)



                                            Quarter Ended
                       -------------------------------------------------------
                        March 30,     June 29,    September 28,   December 28,
                           1997         1997          1997          1997 (1)

Total revenues         $ 30,186,000 $ 34,200,000    $ 35,051,000   $ 32,765,000
Gross profit             21,024,000   23,628,000      24,178,000     22,704,000

Net income (loss)
  applicable to
  common stock              556,000      876,000         562,000    (75,193,000)

Basic and diluted
  earnings (loss)
  per share (2)          $     0.04   $     0.06    $       0.04   $     (5.07)



                                            Quarter Ended
                        -------------------------------------------------------
                        March 29,     June 28,    September 27,    January 3,
                           1998         1998          1998          1999 (1)

Total revenues          $32,407,000  $36,292,000    $ 36,270,000   $ 37,981,000
Gross profit             22,615,000   25,463,000      25,168,000     26,357,000

Net income applicable
  to common stock         1,857,000    3,297,000       2,895,000      5,686,000

Basic earnings per share $     0.13   $     0.22    $       0.20    $      0.42

Diluted earnings per
  share                  $     0.12   $     0.22    $       0.20    $      0.41

(1) See Note 2 for discussion of
    charges recorded in these quarters.
(2) The earnings per share amounts have been restated as
    required to comply with Statement of Financial Standards No. 128 (SFAS 128),
    "Earnings Per Share". For further discussion of earnings per share and the
    impact of SFAS 128, see Note 11.