Grill Concepts Inc – ‘SB-2’ on 9/18/96

As of:  Wednesday, 9/18/96   ·   Accession #:  1010549-96-229   ·   File #:  333-12231

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Registration of Securities by a Small-Business Issuer   —   Form SB-2
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: SB-2        Registration of Securities by a Small-Business        98    492K 
                          Issuer                                                 

Document Table of Contents

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    As filed with the Securities and Exchange Commission on September ___, 1996.
                                                            Registration No. 33-

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 Form SB-2

Registration Statement
 Under
The Securities Act of 1933

GRILL CONCEPTS, INC.
(Exact Name of Registrant as Specified in its Charter)

 Delaware                      5812                       13-3319172
(State or Jurisdiction    (Primary Standard Industrial        (IRS Employer     
  of Incorporation         Classification Code Number)    Identification Number)
or Organization)                                                            

                                        Robert Spivak, President
                                        Grill Concepts, Inc.
11661 San Vicente Blvd., Suite 404         11661 San Vicente Blvd., Suite 404   
Los Angeles, California 90049              Los Angeles, California 90049    
(310) 820-5559                               (310) 820-5559     
--------------------------------              -------------------------         
(Address and telephone number,            (Name, address and telephone number   
of principal executive offices                   of agent for service)          
and principal place of business)                                                

Copies to:
Michael Sanders, Esquire
 Vanderkam & Sanders
440 Louisiana, Suite 475
Houston, Texas 77002
(713) 547-8900
(713) 547-8910 Fax

     Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.                 

     If any of the securities being registered on this Form are to be offered on
a delayed or continuous  basis  pursuant to Rule 415 under the Securities Act of
1933, check the following box [X].                                              

 CALCULATION OF REGISTRATION FEE

                                                        [Enlarge/Download Table]


                                                                                                                
=============================================================================================================== 
                                                Proposed Maximum       Proposed Maximum                         
  Title of Each Class of     Amount to be      Offering Price Per     Aggregate Offering        Amount of       
Securities to be Registered   Registered              Share <F1>             Price            Registration Fee  
--------------------------------------------------------------------------------------------------------------- 

Common Stock                   551,620              $ 2.125             $ 1,172,192.50            $ 404.20      
--------------------------------------------------------------------------------------------------------------- 
Common Stock underlying                                                                                         
Warrants                       100,000              $ 3.00              $   300,000.00            $ 103.45      
--------------------------------------------------------------------------------------------------------------- 
        Total                                                           $ 1,472,192.50            $ 507.65      
================================================================================================================
<FN>                                                                                                            

<F1> Calculated  in  accordance  with Rule  457(c)  solely  for the  purpose  of                                
     determining the  registration  fee.  Offering prices for shares  underlying                                
     outstanding  warrants are the exercise price of the  outstanding  warrants.                                
     With  respect  to shares of Common  Stock  which may be  offered by Selling                                
     Securityholders  from  time to time,  the  offering  price per share is the                                
     average  of  closing  bid and ask price  ($2.125)  of the  Common  Stock on                                
     September 10, 1996, as reported on the Nasdaq SmallCap Market.                                             

</FN>                                                                                                           

         The Registrant hereby amends this  Registration  Statement on such date
or dates as may be necessary to delay its  effective  date until the  Registrant
shall file a further amendment which specifically  states that this Registration
Statement shall  thereafter  become effective in accordance with Section 8(a) of
the  Securities  Act of 1933 or until the  Registration  Statement  shall become
effective on such date as the Commission,  acting pursuant to said Section 8(a),
may determine.                                                                  

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GRILL CONCEPTS, INC.

 CROSS REFERENCE SHEET

                                                        [Enlarge/Download Table]


         Registration Statement                                                                              
         Item Number and Heading                          Location in Prospectus                             
                                                                                                             
1. Front of Registration Statement and                                                                       
   Outside Front Cover Page of Prospectus.............................Cover Page                             
2. Inside Front and Outside Back Cover Pages                                                                 
   of Prospectus......................................................Inside Front and Outside Cover Pages   
3. Summary Information and Risk Factors...............................Prospectus Summary; The Company;       
                                                                      Risk Factors                           
4. Use of Proceeds....................................................Use of Proceeds                        
5. Determination of Offering Price....................................Cover Page; Risk Factors               
6. Dilution...........................................................Not Applicable                         
7. Selling Security Holders...........................................Principal and Selling Shareholders     
8. Plan of Distribution...............................................The Offer                              
9. Legal Proceedings..................................................Business -- Legal and Administrative   
         .............................................................Proceedings                            
10.Directors, Executive Officers, Promoters                                                                  
   and Control Persons................................................Management                             
11.Security Ownership of Certain Beneficial Owners                                                           
   and Management.....................................................Principal and Selling Shareholders     
12.Description of Securities .........................................Description of Securities              
13.Interests of Named Experts and Counsel.............................Legal Matters; Experts                 
14.Disclosure of Commission Position                                                                         
    on Indemnification for Securities                                                                        
   Act Liabilities....................................................Management; Part II                    
15.Organization within Last Five Years................................Not Applicable                         
16.Description of Business............................................Business                               
17.Management's Discussion and Analysis or                                                                   
   Plan of Operation..................................................Management's Discussion and Analysis   
18.Description of Property............................................Business -- Property                   
19.Certain Relationships and Related Transactions.....................Certain Relationships and Transactions 
20.Market for Common Equity and Related                                                                      
   Stockholder Matters................................................Market for Common Equity and Related   
   ...................................................................Stockholder Matters                    
21.Executive Compensation.............................................Management                             
22.Financial Statements...............................................Financial Statements                   
23.Changes In and Disagreements with Accountants                                                             
   on Accounting and Financial Disclosure.............................Changes in and Disagreements with      
         .............................................................Accountants on Accounting and Financial
                                                                      Disclosure                             

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PROSPECTUS                                                                      

GRILL CONCEPTS, INC.

551,620 Shares of Common Stock
100,000 Shares of Common Stock Underlying Warrants

        This Prospectus relates to an aggregate offering of up to 651,620 shares
of common stock,  $0.00001 par value (the "Common  Stock"),  of Grill  Concepts,
Inc., a Delaware corporation (the "Company"), which may be offered and sold from
time to time.  Of the 651,620  shares of Common Stock  offered  hereby,  100,000
shares are being  offered by the Company upon exercise of  outstanding  warrants
(the  "Finders Fee  Warrants").  The  remaining  551,620  shares of Common Stock
offered hereby are being offered by certain selling  stockholders  (the "Selling
Securityholders").  See "Principal and Selling  Shareholders."  The Company will
receive the proceeds  from the exercise of the Finders Fee Warrants but will not
receive  any  proceeds  from  the  sale  of the  Common  Stock  by  the  Selling
Securityholders.                                                                

        The shares of Common Stock being offered  hereby  consist of (1) 401,620
shares of Common Stock issued to certain Selling  Securityholders  in connection
with the Company's  acquisition of The Grill restaurant,  and (2) 150,000 shares
of Common Stock and shares  underlying  100,000  Finders Fee Warrants  issued to
four Selling  Securityholders as partial  consideration for services rendered in
connection with the combination of Grill Concepts,  Inc. and Magellan Restaurant
Systems,  Inc. The Finders Fee Warrants are exercisable to purchase one share of
Common Stock per Finders Fee Warrant at a price of $3.00 per share and expire on
March 2, 2000.                                                                  
See "Description of Securities - Warrants."                                     

     The Company's  Common Stock is traded in the over the counter market on the
Nasdaq SmallCap Market ("Nasdaq").  On September 10, 1996, the closing bid price
of the Company's Common Stock was $2.00.  Such quotation  reflects  inter-dealer
prices  without  retail  mark-up,  mark-down or commission and may not represent
actual  transactions.  See  "Market for Common  Equity and  Related  Stockholder
Matters."                                                                       

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

                                                        [Enlarge/Download Table]


================================================================================================================================
                                                          Discounts and            Proceeds to           Proceeds to Selling    
                                 Price to Public           Commissions             Company <F3>            Stockholders <F4>    
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                
Per Share Offered by                                                                                                            
the Company                          $ 3.00                    <F2>                $300,000.00                  $ -0-           
--------------------------------------------------------------------------------------------------------------------------------
Per Share Offered by                                                                                                            
Selling Securityholders                <F1>                    <F2>                    $ -0-                      <F4>          
================================================================================================================================

<FN>                                                                                                                            

<F1> Shares of Common Stock offered by the Selling  Securityholders will be                                                     
     offered from time to time at prices related to the prevailing market prices                                                
     or at negotiated prices. See "The Offer."                                                                                  

<F2> No discounts or commissions  will be paid by the Company in connection                                                     
     with the sale of the shares of Common  Stock  underlying  the  Finders  Fee                                                
     Warrants.  Usual and customary or specifically negotiated brokerage fees or                                                
     commissions may be paid by the Selling  Securityholders  in connection with                                                
     the sale of shares of Common Stock by the Selling Securityholders. See "The                                                
     Offer."                                                                                                                    

<F3> Before  deducting  expenses of the  Offering  payable by the  Company,                                                     
     estimated  at $40,000.  The  Company has agreed to pay all of the  expenses                                                
     related   to  the   registration   of  the   securities   by  the   Selling                                                
     Securityholders, which are included in the expenses of this Offering.                                                      

<F4> The  Company  will not receive  any of the  proceeds  from the sale of                                                     
     Common Stock offered by the Selling Securityholders.                                                                       

</FN>                                                                                                                           

 The date of this Prospectus is               , 1996
                          --------------

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THE OFFERING OF COMMON STOCK UNDERLYING THE FINDERS FEE WARRANTS
INVOLVES CERTAIN RISKS.  THE EXERCISE OF THE FINDERS FEE WARRANTS REQUIRES THE  
PAYMENT TO THE COMPANY OF THE THEN EFFECTIVE WARRANT EXERCISE PRICE.  SEE "RISK 
FACTORS."                                                                       

        No dealer,  salesman  or other  person has been  authorized  to give any
information  or to make any  representation  other than those  contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been  authorized by the Company.  This Prospectus does not
constitute  an offer to sell or a  solicitation  of any  offer to buy any of the
securities  offered hereby in any  jurisdiction  or to any person in which or to
whom it is unlawful to do so, or in any  jurisdiction in which the person making
such offer or solicitation is not qualified to do so.                           

     The  Company is  subject  to the  periodic  reporting  requirements  of the
Securities  Exchange Act of 1934, as amended (the "Exchange  Act").  The reports
and other  information  filed by the Company may be inspected  and copied at the
public  reference  facilities  of the  Securities  and  Exchange  Commission  in
Washington, D.C. and at some of its Regional Offices and copies of such material
can be obtained from the Public Reference Section of the commission, Washington,
D.C. 20549 at prescribed rates.                                                 

     The  Company  intends to  furnish  its  shareholders  with  annual  reports
containing  audited  financial  statements,  examined by an  independent  public
accounting firm, and may provide  quarterly reports for the first three quarters
of each fiscal year containing unaudited interim financial information.         

ADDITIONAL INFORMATION

        The  Company  has filed with the  Securities  and  Exchange  Commission,
Washington,  D.C., a Registration  Statement  under the 1933 Act with respect to
the  securities  offered  hereby.  This  Prospectus  does not contain all of the
information set forth in the  Registration  Statement.  For further  information
with  respect to the  Company,  the Common  Stock and the Finders Fee  Warrants,
reference is hereby made to the Registration Statement and the exhibits thereto.
The  Registration  Statement  may be inspected by anyone  without  charge at the
Commissions's  principal office at 450 Fifth Street, N.W.,  Washington D.C., and
copies of all or any part of the  Registration  Statement may be obtained,  upon
payment  of the  prescribed  fees,  from the  Commission's  principal  office in
Washington D.C.                                                                 

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PROSPECTUS SUMMARY

         The following summary is qualified in its entirety by the more detailed
information and financial  statements  appearing  elsewhere in this  Prospectus.
This  Prospectus  contains  forward-looking  statements  which involve risks and
uncertainties.  The Company's actual results may differ  significantly  from the
results discussed in the  forward-looking  statements.  Factors that might cause
such a  difference  include,  but are not limited to,  those  discussed in "Risk
Factors."                                                                       

 The Company

         Grill Concepts, Inc. (the "Company") was incorporated under the laws of
the  State  of  Delaware  in  November  of  1985.  The  Company  was  originally
incorporated  under the name  "Uno  Concepts,  Inc." In  December  of 1992,  the
Company changed its name to "Magellan  Restaurant Systems,  Inc." and, in May of
1993, the Company "went public" pursuant to a merger with MRS Funding, Inc.     

         In March of 1995, the Company  consummated an exchange (the "Exchange")
pursuant  to which the  Company  issued  8,500,000  shares  of  Common  Stock in
exchange for 100% of the outstanding stock of Grill Concepts, Inc., a California
corporation  ("GCI").  Following the Exchange,  the Company  changed its name to
"Grill  Concepts,  Inc.,"  management of GCI assumed  effective  management  and
control of the Company and the Company  effectively altered its future operating
plans to emphasize the expansion of the "Daily Grill"  restaurant format of GCI.
The  Company,  prior  to the  Exchange,  is  sometimes  referred  to  herein  as
"Magellan."                                                                     

         The Company presently owns and operates ten restaurants,  consisting of
six  Daily  Grill  restaurants,  The  Grill on the  Alley  restaurant  and three
Pizzeria Uno Restaurants,  and owns a controlling  interest in one Rhino Chasers
brew  pub/restaurant.  The Company  plans to open three  additional  Daily Grill
restaurants during 1996.                                                        

         In addition to its existing  operations,  in July of 1996,  the Company
submitted a proposal  pursuant to which the Company would acquire 19 restaurants
from Hamburger Hamlet Restaurants, Inc. ("Hamburger Hamlet") for $8.5 million in
cash,  contingent  performance notes in an amount between $3.0 and $3.2 million,
and 500,000  warrants.  Hamburger  Hamlet is presently  operating in bankruptcy.
Consummation of the Hamburger  Hamlet  acquisition is subject to approval of the
bankruptcy  court and the  creditors  of  Hamburger  Hamlet,  completion  of due
diligence,  arrangement  of  satisfactory  financing  and  other  contingencies.
Accordingly, there can be no assurance as to when, if ever, the Hamburger Hamlet
acquisition will be consummated.                                                

     The Company's  principal executive offices are located at 11661 San Vicente
Blvd.,  Suite 404, Los Angeles,  California  90049 and its  telephone  number is
(310) 820-5559. See "Business."                                                 

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THE OFFERING

         This  Prospectus  relates to the offer and sale (the "Offer") of (i) up
to 100,000  shares of Common Stock issuable by the Company to the holders of the
Finders Fee  Warrants  upon  exercise of such  warrants,  and (ii) up to 551,620
shares of Common  Stock  which may be offered  from time to time by the  Selling
Securityholders.                                                                

                                                        [Enlarge/Download Table]


                                                                                                          
Securities Offered                                                                                        
 by Company...........................................  100,000 shares of Common Stock issuable           
                                                        pursuant to 100,000 outstanding Finders Fee       
                                                        Warrants.  See "Description of Securities."       

Securities Offered                                                                                        
  by Selling Securityholders..........................  551,620 shares of Common Stock.  See "The         
                                                        Offer."                                           

Common Stock Outstanding as of September 6, 1996:                                                         
  Prior to Exercise of Finders Fee Warrants...........  13,972,260 shares                                 
  After Exercise of Finders Fee Warrants..............  14,072,260 shares <F1><F2>                        

Use of Proceeds.......................................  For general corporate purposes, including         
                                                        working capital.  See "Use of Proceeds."          

NASDAQ Symbol.........................................  GRIL                                              

Risk Factors..........................................  Purchase of the Common Stock offered hereby       
                                                        involves certain risks, including risks associated
                                                        with intense competition, dependence upon         
                                                        receipt of additional capital, and dependence     
                                                        upon key personnel, among others.  See "Risk      
                                                        Factors."                                         

<FN>                                                                                                      

<F1> Assumes exercise of the Finders Fee Warrants purchasable by the Selling Securityholders.             
<F2> Assumes no exercise or conversion of (i) $1.3 million of Series A Preferred Stock, (ii) options      
     granted pursuant to the Company's incentive stock option plan; and (iii) 250,000 warrants granted    
     in connection with the issuance of the Series A Preferred Stock.  See "Management - Stock            
     Option Plans" and "Description of Securities."                                                       

</FN>                                                                                                     

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RISK FACTORS

         THIS PROSPECTUS  CONTAINS CERTAIN  FORWARD-LOOKING  STATEMENTS.  ACTUAL
RESULTS  COULD DIFFER  MATERIALLY  FROM THOSE  PROJECTED IN THE  FORWARD-LOOKING
STATEMENTS  AS A RESULT OF CERTAIN RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN
THIS PROSPECTUS.  THE PURCHASE OF THE COMMON STOCK BEING OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK.  PROSPECTIVE  INVESTORS SHOULD CAREFULLY CONSIDER,  AMONG
OTHER MATTERS, THE FOLLOWING RISKS AND OTHER FACTORS BEFORE MAKING A DECISION TO
PURCHASE THE SECURITIES OFFERED HEREBY.                                         

     LIMITED HISTORY OF PROFITABLE  OPERATIONS.  The Company reported net income
of  approximately  $63,000  during  fiscal 1995 and a net loss of  approximately
$82,000  during  the first half of 1996.  Prior to 1995,  the  Company  reported
substantial  net losses in each of the three  preceding  years,  of  $670,000 in
1994,  $835,000 in 1993 and  $439,000  in 1992.  The losses  incurred  from 1992
through 1994 were largely  attributable  to the costs of opening new restaurants
combined with  infrastructure  build-up costs incurred to support future growth.
Because the Company  expenses  substantially  all costs  incurred in opening new
restaurants within 12 months of opening, it is possible that multiple restaurant
openings  in any single  year (the  Company's  growth  plans  call for  multiple
openings in 1996, 1997 and in the future) will materially  adversely  impact net
income during the first year of operations of each new restaurant.  Accordingly,
there is no assurance that the Company's operations will be profitable,  or that
the Company will not incur operating  losses in 1996 and beyond.  See "Financial
Statements" and "Management's Discussion and Analysis."                         

     LIMITED OPERATING HISTORY AND MARKET OF DAILY GRILL RESTAURANTS.  While the
Company presently operates six Daily Grill restaurants and such restaurants have
produced increasing  revenues,  the Daily Grill format has only been utilized by
GCI since 1988.  Further,  with the  exception of two  restaurants,  one in Palm
Desert,  California  and one in  Newport  Beach,  California,  all  Daily  Grill
restaurants are located in the Los Angeles metropolitan area.  Accordingly,  the
Company  has a limited  operating  history  and has not  operated a Daily  Grill
restaurant outside of Southern  California.  While the Company believes that the
Daily Grill  format will be favorably  received in other  markets and intends to
open its first east coast Daily Grill restaurant in Washington,  D.C. during the
first  quarter of 1997 and to expand into other  markets,  there is no assurance
that the Daily  Grill  format  will be  favorably  received  outside of Southern
California. See "Business - Daily Grill Restaurants."                           

         RECESSIONARY ECONOMY IN CALIFORNIA. All of the Company's existing Daily
Grill restaurants are located in Southern  California,  with four located in Los
Angeles  County.  Since 1990,  the  California  economy has been  affected by an
economic recession which, until the third quarter of 1992, also affected most of
the  United  States.  While  the  rest  of the  United  States  has  since  seen
improvements in its economy,  California,  and  particularly Los Angeles County,
have  continued  to  experience  recessionary  conditions.  As a  result  of the
concentration   of  Daily  Grill   restaurants  in  Southern   California,   the
continuation  or worsening of current  economic  conditions in California  could
have an adverse  effect on the Company's  business.  See "Business - Daily Grill
Restaurants."                                                                   

         EXPOSURE  TO  POSSIBLE  EARTHQUAKE  RELATED  LOSSES.  During  the first
quarter of 1994, three Daily Grill restaurants experienced temporary closure and
a fourth Daily Grill  restaurant was closed for nearly two months as a result of
a major  earthquake  in Los  Angeles.  Due to the  nature of the  damage and the
losses incurred (i.e.,  water related losses due to broken pipes), the Company's
losses were covered by insurance which  compensated for such closures.  However,
while the Company carries a full range of insurance  typically carried by such a
business,  all of the Company's  insurance  policies exclude coverage for losses
incurred  as a result  of  earthquakes.  Accordingly,  in the  event  of  future
earthquake related losses, unless such losses can be attributed to other covered
risks  (e.g.,  water  damage,  etc.),  the Company may  experience  losses under
similar circumstances which are not covered by insurance.                       

     EXPANSION PLANS.  The Company is presently  evaluating  possible  expansion
into new markets,  including the opening of the Company's first east coast Daily
Grill in Washington, D.C. scheduled for the first quarter of 1997. The Company's
ability to implement this expansion  will depend on various  factors,  including
the  availability  of suitable  locations and the ability to secure  appropriate
government   permits  and  approvals,   provide  for  adequate   supervision  of
construction,  obtain liquor licenses and recruit and train additional qualified
restaurant management personnel. Many of these factors are beyond the control of
the Company and there can                                                       

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be no assurance that the Company will be able to open additional  restaurants or
that, if opened,  those  restaurants can be operated at  satisfactory  sales and
profit levels. See "Business - Business Expansion."                             

         POTENTIAL  ACQUISITION OF HAMBURGER HAMLET RESTAURANTS.  In addition to
the  Company's   proposed  expansion  and  opening  of  additional  Daily  Grill
restaurants,  the  Company,  in July of 1996,  submitted a proposal  pursuant to
which it would acquire 19 restaurants  from Hamburger Hamlet  Restaurants,  Inc.
("Hamburger Hamlet") for $8.5 million in cash,  contingent  performance notes in
an amount between $3.0 and $3.2 million, and 500,000 warrants.  Hamburger Hamlet
is presently  operating in  bankruptcy  and has closed 12  unprofitable  stores.
Management believes that the terms on which the Hamburger Hamlet restaurants are
proposed to be acquired are favorable and that such  restaurants can be operated
profitably.  However, given the past financial difficulties of Hamburger Hamlet,
there is no  assurance  that the  restaurants  proposed  to be  acquired  can be
operated on a profitable  basis.  Further,  consummation of the Hamburger Hamlet
acquisition is subject to approval of the bankruptcy  court and the creditors of
Hamburger  Hamlet,  completion of due  diligence,  arrangement  of  satisfactory
financing and other contingencies.  Accordingly, there can be no assurance as to
when,  if ever,  the  Hamburger  Hamlet  acquisition  will be  consummated.  See
"Business - Business Expansion."                                                

     ADDITIONAL  CAPITAL  REQUIREMENTS.   In  order  to  implement  its  current
expansion plans, in particular the proposed  Hamburger Hamlet  acquisition,  the
Company will require substantial  additional capital.  Management estimates that
between $9 and $10 million of financing  will be required to fund the  Hamburger
Hamlet acquisition and operation of those restaurants.  Management estimates the
cost of opening new restaurants at between $1.0 and $1.4 million per restaurant.
In some  locations,  concessions  from  landlords may reduce the cost of opening
restaurants.  Management  determined  that cash on hand and operating  cash flow
would be adequate to fund the planned openings during 1996. In order to fund the
Washington, D.C. opening, presently scheduled for the first quarter of 1997, the
Company,  in June of 1996,  sold $1.5 million of Series A Preferred  Stock.  See
"Description  of  Securities."  Since that date,  the Company has  undertaken no
additional  efforts  to  secure  additional  financing  and the  Company  has no
agreements to provide additional financing.  While the Company intends to pursue
efforts  to raise  additional  capital  in the  future so as to  support  future
restaurant  openings,  the Company has no definitive  plans at this time in that
regard.  It is expected  that  additional  funding will be required to carry out
fully the Company's expansion plans. There is no assurance that the Company will
be  successful in raising the funds needed if and when such capital is needed to
support  existing  operations or expansion.  See  "Management's  Discussion  and
Analysis."                                                                      

         POTENTIAL  ONGOING  LIABILITIES  RELATING TO TAILGATORS.  The Company's
predecessor,  Magellan,  commenced operation of Tailgators (formerly known as Jo
Jo Players) in August of 1993. From the  commencement of operations  through the
Exchange, Tailgators produced operating losses.                                 

         Following approval of the Exchange, the newly appointed management team
of the Company  determined  that the format and operations of Tailgators was not
compatible with the Company's future growth  objectives and determined to pursue
all  viable   options  for  converting  the  format  of  Tailgators  or,  if  no
satisfactory alternatives were available, disposing of Tailgators. In connection
with such  determination,  the Company  established  a reserve  during the first
quarter of 1995 for possible  losses  resulting  from the disposal or closure of
Tailgators.  After extensive  evaluation of possible  alternatives,  the Company
determined to close Tailgators in June of 1996. However, the Company, as general
partner of the partnership  which owned and operated  Tailgators may continue to
be obligated under the lease on the Tailgators  site. Such lease has a remaining
term of  approximately  seventeen  years and  currently  provides  for a monthly
payment of  $11,000.  Management  is  continuing  to make  efforts to market the
Tailgators  site or to  otherwise  relieve or minimize the  Company's  potential
liability  under  the  lease on such  site.  See  "Management's  Discussion  and
Analysis."                                                                      

     RELIANCE ON KEY  PERSONNEL.  The Company is materially  dependent  upon the
personal  efforts and abilities of its President  and Chief  Executive  Officer,
Robert Spivak,  and various other officers and key personnel.  Such officers and
employees devote substantially all of their time and attention to the affairs of
the Company.  The loss or  unavailability  of any of such  persons  could have a
material adverse effect on the Company.  With the exception of a $1 million "key
man" life  insurance  policy on Mr.  Spivak and  employment  contracts  with Mr.
Spivak and the Company's Chairman, Robert Wechsler, the Company presently has no
employment  contracts  with,  and carries no key-man  insurance on the lives of,
such officers or key employees. See "Management."                               

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     UNCERTAINTY  WITH  RESPECT TO  INTEGRATION  AND  GEOGRAPHIC  SEPARATION  OF
OPERATIONS.  Following  consummation of the Exchange,  the Company  operates two
distinct restaurant types consisting of six Daily Grill restaurants, all located
in California, and three Pizzeria Uno restaurants,  all located in the northeast
United  States.  The  Company  also plans to open a Daily  Grill  restaurant  in
Washington,  D.C.  during the first quarter of 1997.  Further,  if the Hamburger
Hamlet  acquisition  is  consummated,  the Company will operate a third distinct
restaurant type. While  management  anticipates that certain  economies of scale
can be achieved as a result of the Exchange and the anticipated Hamburger Hamlet
acquisition  and  expansion  of  operations,  there  is no  assurance  that  the
operation of such diverse  restaurants can be  successfully  integrated so as to
achieve the anticipated  benefits.  In particular,  the geographic separation of
the  restaurants  may make  integration and management of the operations of such
restaurants difficult. While management anticipates that the Daily Grill concept
will be  expanded  into the  northeast  and other  geographic  regions  and that
trained  management  personnel will be relocated to the northeast and such other
regions as  necessary  to  supervise  and oversee new  restaurant  openings  and
operations,  the initial  geographic  separation of senior management  personnel
located in California from operations in the northeast can be expected to entail
either a lesser  degree of oversight by such  management  or the  incurrence  of
additional expense to oversee such operations, or both. Further, the addition of
the Hamburger Hamlet  restaurants,  if such  acquisition is consummated,  can be
expected  to  require  significant  management  time  and  effort,  as  well  as
additional  personnel,  to  successfully  integrate and oversee such  additional
restaurants. See "Business."                                                    

         COMPETITION. The restaurant business is highly competitive with respect
to price,  service,  restaurant  location  and food  quality  and is affected by
changes in consumer  tastes,  economic  conditions  and  population  and traffic
patterns.  The  Company  believes it competes  favorably  with  respect to these
factors. However, many of its competitors have been in existence longer than the
Company,  have a more established market presence and have substantially greater
financial,   marketing  and  other  resources,   which  may  give  them  certain
competitive  advantages.  The  Company  believes  that its  ability  to  compete
effectively  will  continue to depend in large measure on its ability to offer a
diverse  selection  of high  quality,  fresh food  products  with an  attractive
price/value  relationship  served in a  friendly  atmosphere.  The  Daily  Grill
restaurants  compete within the rapidly growing mid-price,  full-service  casual
dining  segment.  The Daily Grill's  competitors  include  national and regional
chains, as well as local owner-operated restaurants.  The primary competitors to
the Company's Pizza  Restaurants are casual theme  restaurant  chains  including
Friday's  and the  Olive  Garden.  Rhino  Chasers'  competition  is  limited  to
restaurants  and  bars  within  the  commuter  terminal  of LAX.  See  "Business
Competition."                                                                   

         DEPENDENCE  UPON  FRANCHISOR.  The  Company's  ability to  operate  its
existing  Pizzeria Uno  restaurants  (the "Pizza  Restaurants")  on a profitable
basis is dependent to a large degree upon the  continued  efforts and success of
its Franchisor.  The  Franchisor,  in addition to licensing use of the "Pizzeria
Uno"  name  and  proprietary  recipes  and  secrets,  conducts  certain  ongoing
advertising and provides ongoing managerial assistance and training, in addition
to certain other  services.  If, for any reason,  the Franchisor  were unable to
continue  to provide  the  services  required  to be  provided  pursuant  to its
franchise  agreements with the Company (the  "Franchise  Agreements") or were to
experience an unfavorable  change in public  perception,  the Pizza  Restaurants
would be materially adversely effected.  The Franchisor also has broad authority
to direct various  aspects of the operations of its  franchisees,  including the
preparation  of required  menu items,  the size of portions and other  decisions
affecting the operations of the Company.  Such control by the Franchisor may, in
some  instances,  adversely  affect  the  operations  and  profitability  of the
Company, as evidenced by an increase in cost of sales experienced by the Company
following a directive by the  Franchisor  to increase  portion  sizes.  Further,
while the Company is generally required to pay a percentage of revenues in order
to retain  its  franchise  rights at each  location,  certain  minimum  fees are
required  to be paid  regardless  of the level of  revenues.  See  "Management's
Discussion and Analysis" and "Business - The Franchise Agreements."             

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     FACTORS  AFFECTING  THE  RESTAURANT  INDUSTRY.  Factors such as  inflation,
increased  food,  labor and benefits costs and the  availability  of experienced
restaurant  managers and hourly  employees may adversely  affect the  restaurant
industry in general and the Company's restaurants in particular.  An increase in
the minimum wage which becomes effective in the Fall of 1996, can be expected to
increase the cost of operations for the Company and other restaurant  operators.
While it is possible that the Company may be able to pass through such increased
costs in the form of higher menu prices,  there is no assurance that the Company
can recoup any such increases in labor cost. In addition,  restaurants are often
affected by changes in consumer  tastes,  national,  regional and local economic
conditions,  demographic  trends,  traffic  patterns  and the type,  number  and
location of competing restaurants. Multi-unit restaurants such as those operated
by the Company can also be substantially  adversely affected by publicity,  such
as that resulting from food quality,  illness, injury or other health and safety
concerns stemming from any restaurant,  including those Pizzeria Uno restaurants
not owned by the Company.                                                       

         GOVERNMENTAL  REGULATION.  The  Company is subject to various  federal,
state and local laws and  regulations  affecting its  employees and guests,  its
properties  and the operation of its  restaurants.  Difficulties  or failures in
obtaining  required  licensing  or other  regulatory  approvals  could  delay or
prevent the opening of a new  restaurant.  The  suspension  of, or  inability to
renew,  a license  could  interrupt  operations  at an existing  restaurant.  In
particular,  the Company's  restaurants are subject to state and local licensing
and  regulation  with  respect to the sale and service of  alcoholic  beverages,
which  accounted  for in excess of 9% of combined  sales during 1995. In certain
states,  the Company  is, or will be,  subject to "dram  shop"  statutes,  which
generally give a person  injured by an  intoxicated  person the right to recover
damages from the establishment that wrongfully served alcoholic beverages to the
intoxicated  person. The Company is from time to time a defendant in "dram shop"
actions.  The  Company is also  subject to federal  and state laws  establishing
minimum wages,  unemployment  and sales taxes and regulating  overtime and other
working  conditions  and  similar  matters  over  which  they  have no  control.
Significant  additional  government-imposed  increases  in minimum  wages,  paid
leaves of absence and  mandated  health  benefits,  or increased  tax  reporting
requirements for employees who receive  gratuities,  could be detrimental to the
economic  viability of the  Company's  restaurants.  See  "Business - Government
Regulation."                                                                    

     POTENTIAL CONFLICTS OF INTEREST. The Company has, in the past, entered into
transactions  with  affiliates,  including  (i)  the  acquisition  of The  Grill
restaurant from an entity controlled by the principal  shareholders and officers
of the  Company,  (ii) the lease of a restaurant  location,  (iii) the making of
certain  loans to the  Company  from  affiliates  and (iv)  the  formation  of a
partnership  to operate  Tailgators  in which an officer  of the  Company  was a
partner. While management believes that all such transactions have been on terms
no less favorable than those which could be obtained from  non-affiliated  third
parties and no future transactions with affiliates are anticipated,  the Company
has no existing  policy in place which would prohibit such  transactions  or fix
the terms of such  transactions.  Accordingly,  conflicts  of interest may arise
between the Company and its affiliates  with respect to the  transactions  which
have  occurred  to  date  or  which  may  occur  in  the  future.  See  "Certain
Relationships and Transactions."                                                

     LACK OF DIVERSIFICATION.  The Company's operations are currently limited to
operation of the Daily  Grills,  Pizza  Restaurants  and Rhino  Chasers.  To the
extent that there are economic  factors or industry  issues which are adverse to
the Company's continued efforts in that pursuit, the Company's lack of diversity
may  have a  potential  adverse  impact  on the  success  of  the  Company.  See
"Business."                                                                     

     CONTROL BY MANAGEMENT. Without giving effect to the exercise of outstanding
warrants, at September 6, 1996, the Company's officers and directors, consisting
of ten  persons,  owned  approximately  54.5% of the common  stock  outstanding.
Stockholders  of the  Company  do  not  have  cumulative  voting  rights  unless
California law becomes applicable in that regard. See "Description of Securities
- Application of California Corporate Law Following 1996." Therefore, each share
is entitled to one vote on all matters submitted to a vote of stockholders,  and
directors  will be elected by a plurality of the votes cast at meetings at which
directors  are to be  elected.  Thus,  stockholders  holding a  majority  of the
outstanding  shares of Common Stock will be able to elect all of the  directors.
See "Principal and Selling Shareholders."                                       

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         NO  DIVIDENDS.  The  Company  has not  declared  or paid,  and does not
anticipate  declaring or paying in the foreseeable  future,  any cash dividends.
The Company's  ability to pay dividends is dependent  upon,  among other things,
future  earnings,  the  operating and  financial  condition of the Company,  its
capital  requirements,  general business conditions and other pertinent factors,
and is  subject  to the  discretion  of the  Board  of  Directors.  Further,  no
distribution  may be made with respect to the Company's  Common Stock unless all
cumulative  dividends  with  respect to any series of  preferred  stock having a
dividend preference have been paid. Accordingly,  there is no assurance that any
dividends will ever be paid on the Company's  Common Stock.  See "Description of
Securities."                                                                    

     POSSIBLE  ISSUANCE OF  SUBSTANTIAL  AMOUNTS OF  ADDITIONAL  SHARES  WITHOUT
STOCKHOLDER  APPROVAL.  At  September  6, 1996,  the Company had an aggregate of
approximately  3,523,732  shares of Common Stock authorized but unissued and not
reserved for specific purposes and approximately  2,504,008 additional shares of
Common  Stock  unissued but  reserved  for  issuance  pursuant to the  Company's
currently  outstanding  warrants  and  its  incentive  stock  option  plan  (the
"Incentive Stock Option Plan"). Additionally,  an indeterminate number of shares
may be issued upon conversion of the presently  outstanding Series A Convertible
Preferred  Shares.  All of such  shares  may be  issued  without  any  action or
approval by the  Company's  stockholders.  Although  there are no other  present
plans,  agreements,  commitments or  undertakings by the Company with respect to
the issuance of  additional  shares  (except for those  required to be issued as
noted above), or securities  convertible into any such shares, any shares issued
would further  dilute the  percentage  ownership of the Company held by existing
stockholders. See "Description of Securities."                                  

     POSSIBLE  ISSUANCE OF  PREFERRED  STOCK AND  SUPERIOR  RIGHTS OF  PREFERRED
STOCK. In addition to the above  referenced  shares of Common Stock which may be
issued  without  stockholder  approval,  the  Company  has  1,000,000  shares of
authorized  preferred  stock. The Company had 1,300 shares of Series A Preferred
Stock issued and outstanding as of September 6, 1996.  Prior to the distribution
of any  amount to the  holders  of common  stock,  whether  as  dividends  or on
liquidation, the holders of outstanding preferred stock must have received their
cumulative dividend or liquidation preference, as appropriate. While the Company
has no present  plans to issue any  additional  shares of preferred  stock,  the
Board of Directors has the authority,  without stockholder  approval,  to create
and  issue one or more  series of such  preferred  stock  and to  determine  the
voting,  dividend  and other  rights of holders  of such  preferred  stock.  The
issuance of any of such series of preferred  stock could have an adverse  effect
on the holders of Common  Stock.  See  "Description  of  Securities  - Preferred
Stock."                                                                         

         VOLATILITY OF MARKET PRICE FOR COMMON STOCK. While the Company's Common
Stock has been  listed on the Nasdaq  SmallCap  Market  since  December of 1993,
trading in the Company's Common Stock has been characterized by a high degree of
volatility.  Trading in the Company's Common Stock to date has been dominated by
a small  number of firms which make a market in such  securities.  To the extent
that the market  continues to be  dominated by a small number of market  makers,
the market in the  Company's  Common  Stock may  continue to  experience  a high
degree of  volatility.  Such  degree of  volatility  and  market  dominance  may
adversely  affect the price and  liquidity of the  Company's  securities  in the
future. See "Market For Common Equity and Related Stockholder Matters."         

     SHARES ELIGIBLE FOR FUTURE SALES. The resale of "restricted securities," as
well as  securities  held by  "affiliates"  of the  Company,  is  subject to the
provisions  of Rule  144 as  promulgated  under  the  Securities  Act.  Rule 144
provides for the sale of limited  quantities  of restricted  securities  without
registration  under the Securities Act. In general,  under Rule 144 a person (or
persons  whose shares are  aggregated)  who has satisfied a two (2) year holding
period may, under certain circumstances, sell within any three (3) month period,
a number of shares  which does not exceed the greater of one percent (1%) of the
then  outstanding  shares of Common Stock or the average  weekly  trading volume
during the four (4) calendar  weeks prior to such sale.  With regard to the sale
of  securities  by  affiliates,  Rule 144 permits the resale of such  securities
subject to the volume  limitations  and certain other  requirements of Rule 144.
The holding period  requirements of Rule 144 have been satisfied with respect to
all  previously  issued  shares of  "restricted  stock" of the Company  with the
exception of 150,000 shares issued in connection  with the Exchange and included
in the shares offered  hereby.  Such shares will otherwise  become  eligible for
resale  under Rule 144 in March of 1997.  At September  6, 1996,  an  additional
7,471,000  shares were held by persons who may be deemed to be affiliates of the
Company.  Such shares may be resold immediately  pursuant to Rule 144 subject to
the volume limitations therein, as well as certain other                        

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provisions of Rule 144.  Based on the shares  outstanding  at September 6, 1996,
the  volume  limitations  of Rule  144 will  permit  the  resale  by any of such
affiliates  within  any  three-month   period  of  up  to  the  greater  of  (i)
approximately  140,000 shares (1% of the outstanding shares) or (ii) the average
weekly trading  volume during the four calendar  weeks  preceding such sale. The
Company is unable to predict  the effect  that  future  sales under Rule 144 may
have on the then  prevailing  market price of Common Stock.  It can be expected,
however,  that the sale of any substantial number of shares of Common Stock will
have  a  depressive  effect  on  the  market  price  of the  Common  Stock.  See
"Description of Securities."                                                    

         INDEMNIFICATION  OF OFFICERS AND  DIRECTORS.  The Company's  Bylaws and
Certificate  of  Incorporation  provide  for  indemnification  of  officers  and
directors to the fullest  extent  permitted by Delaware law. It is possible that
the  Company  will be  required to pay  certain  judgments,  fines and  expenses
incurred by officers or directors,  including  reasonable  attorneys  fees, as a
result of actions  or  proceedings  in which  such  officers  or  directors  are
involved by reason of being or having been officers or directors,  provided that
the officers or directors acted in good faith. See "Management - Exculpation and
Indemnification Arrangements."                                                  

 THE OFFER

GENERAL                                                                         

         This  Prospectus  relates to the offer and sale (the "Offer") of (i) up
to 100,000  shares of Common Stock issuable by the Company to the holders of the
Finders Fee  Warrants  upon  exercise of such  warrants,  and (ii) up to 551,620
shares of Common  Stock  which may be offered  from time to time by the  Selling
Securityholders.                                                                

         This Prospectus is being mailed to each of the Selling  Securityholders
on or about the date of this Prospectus.  Otherwise,  the Company is undertaking
no  efforts,  through  its  officers or through  third  parties,  to solicit the
exercise  of Finders  Fee  Warrants  or the sale of the  shares of Common  Stock
offered hereby.                                                                 

FINDERS FEE WARRANTS                                                            

         The Finders Fee Warrants may be exercised by  completing  and executing
the form of election to purchase and returning  the same,  together with payment
of the  applicable  exercise  price,  to the  Company.  Payment  for shares upon
exercise of the Finders Fee Warrants must be in United  States  dollars by check
or money  order  drawn on a bank  located  in the United  States of America  and
payable  to Grill  Concepts,  Inc.  Stock  certificates  evidencing  the  shares
issuable  upon  exercise  of the  Finders  Fee  Warrants  will be  mailed by the
Company's  transfer  agent  promptly  after  receipt by the  Company of the duly
completed  and executed form of election to purchase  accompanied  by payment of
the  applicable  exercise  price.  If less than all of the Finders Fee  Warrants
evidenced by a warrant  certificate  are exercised,  a new  certificate  will be
issued for the remaining number of warrants.                                    

         The  exercise  price of the  Finders Fee  Warrants  was  determined  by
negotiation  among the Company and the holders of such  warrants.  The  exercise
price is not necessarily  related to or indicative of the Company's assets, book
value, earnings, net worth or any other established criteria of value.          

         No warrant solicitation fee or other form of commission will be paid by
the Company in connection with the exercise of the Finders Fee Warrants.        

PLAN OF DISTRIBUTION                                                            

         The Common Stock offered  hereby may be sold from time to time directly
by any of the Selling Securityholders or by certain transferees or affiliates of
such Selling  Securityholders.  Alternatively,  the Selling  Securityholders may
from time to time offer such securities through underwriters, dealers or agents.
The distribution of such securities by a Selling  Securityholder may be effected
in one or more transactions that may take place on the over-the-counter  market,
including ordinary broker's transactions, in privately-negotiated  transactions,
through  sales to one or more  broker-dealers  for resale of such  securities as
principals, at market                                                           

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prices  prevailing  at the time of sale,  at prices  related to such  prevailing
market prices or at  negotiated  prices,  or  otherwise.  Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders  in  connection  with  such  sales of  securities.  The  Selling
Securityholders  and intermediaries  through whom the securities are sold may be
deemed  "underwriters"  within the meaning of the Securities Act with respect to
the securities offered,  and any profits realized or commissions received may be
deemed underwriting compensation.                                               

 USE OF PROCEEDS

         The only proceeds which will be available to the Company as a result of
the matters  discussed herein will be funds received if and when the Finders Fee
Warrants are exercised.                                                         

         There  are a total of  100,000  Finders  Fee  Warrants  exercisable  to
purchase an aggregate of 100,000  shares of Common Stock at $3.00 per share,  or
an aggregate of $300,000.  All proceeds,  if any,  received from the exercise of
the Finders Fee Warrants, after payment of the costs incurred in connection with
the  preparation  and  distribution  of this  Prospectus,  will be  added to the
Company's working capital and used for general corporate purposes.  The costs of
preparing and  distributing  this  Prospectus  is estimated to be  approximately
$40,000.  The  Company  may also  incur  additional  costs  from time to time as
necessary to maintain and distribute a current Prospectus in the future.        

         While the foregoing  represents  the Company's best estimate of the use
of  proceeds  of this  offering,  the exact  manner of use of such  proceeds  is
subject to the discretion of management as to the exact allocation and timing of
use of such proceeds.                                                           

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MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL                                                                         

         The following  discussion  relates to the historical  operating results
and  financial  condition  of the  Company  since  the  Exchange,  the pro forma
combined operating results and financial  condition of the Company giving effect
to the Exchange and, where appropriate,  to the historical operating results and
financial  condition of Magellan and GCI. See "Business." All references herein,
whether of a historical nature or a prospective nature,  unless otherwise noted,
are to the Company,  and reflect the combined entity including both Magellan and
GCI.                                                                            

     During the fiscal year ended  December 31,  1995,  and the six months ended
June 30,  1996,  the  Company  owned and  operated a total of nine  restaurants,
consisting of six Daily Grill restaurants and three Pizza Uno restaurants,  and,
in addition,  owned interests in one Tailgators Sports Pub  ("Tailgators")  and,
since October of 1995, one Rhino Chasers brew pub/restaurant.  During the fiscal
year ended  December  25, 1994,  Magellan  owned and  operated  four  franchised
"Pizzeria Uno" restaurants (the "Pizza  Restaurants") and was a 51% partner in a
partnership which owns, Tailgators (formerly known as Jo Jo Players). During the
same period, GCI owned and operated six Daily Grill  restaurants.  Subsequent to
December  25,  1994,  Magellan  terminated  the  operation  of one of its  Pizza
Restaurants and, in March of 1995,  consummated an exchange pursuant to which it
acquired  all of the  stock  of GCI.  See  "Business."  In  connection  with the
Exchange,  the Company  determined to sell or close  Tailgators  and, in June of
1996,  closed  Tailgators.  The assets of  Tailgators  were  written off and the
closure of Tailgators accounted for in connection with the Exchange.            

     Due to the  Exchange  explained  in the  Notes  to  Consolidated  Financial
Statements, the results of operations for the 26 week period ended June 30, 1996
include  all   operations  of  the  Company,   including  the  six  Daily  Grill
restaurants,  three Pizzeria Uno Restaurants and Rhino Chasers while results for
the  same  period  in 1995  including  the  operations  of the six  Daily  Grill
Restaurants for the entire 26 week period and the operations of the Pizzeria Uno
Restaurants  and  Tailgators  (the Pizzeria Uno  restaurants  and Tailgators are
collectively  referred to as the "Magellan Units") for the last 16 weeks of such
period.  Similarly,  operating results for the 53 week period ended December 31,
1995  include  the  operations  of GCI  for the  entire  53  week  period  while
reflecting  the operations of the Magellan Units for only 43 weeks from March 3,
1995 (the Exchange date) to December 31, 1995.  Therefore,  1995 results include
operations  for  a  43  week  period  of  three  Pizzeria  Uno  restaurants  and
Tailgators,  in addition to the  operation  for the entire 53 week period of six
Daily Grill restaurants and for the period from October 15, 1995 to December 31,
1995 of Rhino Chasers.  The 1994 results  include only the operations of the six
Daily Grill restaurants.                                                        

         Revenues of the Company are  derived  from sales of food,  beer,  wine,
liquor and non-alcoholic  beverages.  Approximately 79.9% of combined 1995 sales
were food and 20.1% were  beverage.  Revenues  from  restaurant  operations  are
primarily  influenced by the number of restaurants in operation at any time, the
timing  of the  opening  of such  restaurants  and  the  sales  volumes  of each
restaurant.                                                                     

         The  Company's  expenses  are  comprised  primarily of cost of food and
beverages,  payroll and restaurant operating expenses, including rent, occupancy
costs and franchise  fees.  The largest  expenses of the Company are payroll and
the cost of food and  beverages,  which is  primarily a function of the price of
the various  ingredients  utilized in  preparing  the menu items  offered at the
Company's restaurants.  While the Franchisor of the Company's Pizza Restaurants,
Pizzeria Uno Corporation,  specifies the menu items which must be offered by the
Company,  as well as the recipes  and  procedures  to be  utilized in  preparing
various  menu  items,   the  Company  is  generally  not  required  to  purchase
ingredients   from  the  Franchisor.   However,   certain  key  ingredients  are
proprietary in nature and may be acquired only from certain  distributors  which
sell  such  ingredients  under  private  label  for the  Franchisor.  Restaurant
operating  expenses  consist  primarily of wages paid to part-time and full-time
employees, rent, utilities, insurance and taxes.                                

         In addition  to its cost of food and  beverages  and normal  restaurant
operating expenses,  the Company has paid, and is obligated to pay, certain fees
to its Franchisor as well as certain minimum advertising  expenses.  Pursuant to
the Company's  Franchise  Agreements,  the Company pays a continuing license fee
with respect to                                                                 

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each of its Pizza  Restaurants,  an  advertising  fee and is  required to expend
certain minimum amounts on local  advertising and promotion.  See "Business -The
Pizza Restaurants -- The Franchise Agreements."                                 

     The Company's  consolidated balance sheet and results of operations reflect
the  capitalization  and  amortization  of the  initial  franchise  fees paid by
Magellan as well as costs of acquiring  liquor licenses and goodwill  arising in
connection with the Exchange each of which is deemed to provide a benefit to the
Company over  periods  ranging up to 40 years.  At December 31, 1995,  franchise
fees totaling  $90,000 had been  capitalized  and were being  amortized over the
twenty  year  lives of the  respective  franchises.  Additionally,  the  Company
capitalizes and amortizes  pre-opening expenses incurred prior to the opening of
each of its restaurants.  Such amount includes store  opening/training fees paid
to  the  Franchisor  pursuant  to the  Franchise  Agreements.  Such  pre-opening
expenses are amortized  ratably over a twelve month period  commencing when each
restaurant  opens.  The Company had no capitalized and  unamortized  pre-opening
expenses  remaining on its balance sheet at December 31, 1995.  Goodwill arising
in connection  with the Exchange of $2 million was  capitalized  at December 31,
1995 and is being amortized over 30 years.  Finally, the Company at December 31,
1995 had  capitalized  and  unamortized  costs of obtaining  its various  liquor
licenses  totaling  approximately  $593,000.  Such costs  consist  primarily  of
amounts  paid  to  purchase  such  licenses.   The  Company  is  amortizing  the
capitalized cost of its liquor licenses over a forty year period. As each of the
foregoing  items  involves  the  payment of certain  amounts in advance  and the
expensing of such amounts in subsequent  years, the Company's  operating results
reflect  significant  amortization  expense  which does not affect the Company's
operating cash flows.                                                           

         In addition to restaurant operating expenses,  the Company pays certain
general and  administrative  expenses which relate primarily to operation of the
Company's  corporate  offices.   Corporate  office  general  and  administrative
expenses consist primarily of salaries of officers and clerical personnel, rent,
legal and accounting costs, travel, insurance and various office expenses.      

RESULTS OF OPERATIONS                                                           

         The  following  table  sets  forth  certain  items  from the  Company's
Statements of Operations,  and the percentages such items bear to revenues,  for
the periods indicated:                                                          

                                                        [Enlarge/Download Table]


                                Year Ended December 31/25,                    Six Months Ended June 30/25,    
                             ------------------------------                 --------------------------------  
                                1995                 1994                     1996                       1995 
                         --------------------  ------------------      --------------------      -------------
                          Amount       %        Amount     %         Amount      %       Amount       %       
                      (in thousands)         (in thousands)       (in thousands)       (in thousands)         
                                                                                                              
Sales...................$  20,253   100.0  %    $ 14,823  100.0  %   $10,937    100.0 %    $ 9,906    100.0 % 
Cost of sales...........    5,437    26.8          4,142   27.9        2,892     26.4        2,669     26.9   
                            ------   -----         ------  -----        -----    -----        -----    -----  
Gross profit.............  14,816    73.2         10,680   72.1        8,045     73.6        7,237     73.1   
Restaurant operating                                                                                          
 expense.................  12,109    59.8          8,804   59.4        6,767     61.9        6,046     61.0   
General and                                                                                                   
 administrative expense..   1,717     8.5          1,501   10.1          911      8.3          698      7.0   
Depreciation and                                                                                              
 amortization............     792     3.9            825    5.6          378      3.5          354      3.6   
                            ------    ----         ------   ----        -----     ----        -----     ----  
Total operating expenses.  14,618    72.2         11,130   75.1        8,056     73.7        7,098     71.7   
Operating income (loss)..     198     1.0          ( 450 )( 3.0  )       (11)    (0.1)         139      1.4   
Interest expense, net....     127     0.6            219    1.5           70      0.6           64      0.6   
                            ------    ----          -----   ----        -----     ----        -----     ----  
Income (loss) before                                                                                          
 income tax..............      71     0.3          ( 669 )( 4.5  )       (81)    (0.7)          75      0.8   
Provision for taxes......       8     0.0              1    0.0            1      0.0            1      0.0   
                            ------    ----          -----   ----        -----     ----        -----     ----  
Net income (loss)........   $  63     0.3  %      $( 670 )( 4.5  )%     $(82)    (0.7) %       $74      0.7 % 
                            ======    ====          =====   ====        =====     ====        =====     ====  


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SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 25, 1995       

     SALES.  The Company's  revenues for the six month period increased 10.4% to
$10.9  million from $9.9  million for the sames period in 1995.  The increase in
revenues was  primarily  attributable  to sales for the added period of time the
Pizzeria  Uno  Restaurants  were  included in 1996 and the addition of The Grill
restaurant  in the second  quarter of 1996,  which was  partially  offset by the
closing of Tailgators. Comparable store sales year-to-year decreased 3.3%.      

     COST OF SALES AND GROSS PROFIT.  While  revenues  increased by 10.4% in the
first half of 1996 compared to the same period in 1995,  cost of sales increased
only 8.4 % and  decreased  as a  percentage  of sales from  26.9% to 26.4%.  The
consolidated  cost of sales  percentage  increased  during the second quarter to
27.2% as compared with 27% in the second  quarter of 1995.  The increase in cost
of sales as a percentage of sales during the second quarter was  attributable to
the  acquisition of The Grill which has  historically  experienced a 31% cost of
sales as compared to approximately 27% cost of sales for Daily Grill. The higher
cost of sales at The Grill is offset by lower labor cost at The Grill.          

     As a result,  gross  profits  increased  11.2% from $7.2 million  (73.1% of
sales) in 1995 to $8.0 million (73.6% of sales) in 1996.                        

     OPERATING  EXPENSES AND OPERATING  RESULTS.  Total operating  expenses rose
13.5% to $8.1 million in 1996,  representing  73.7% of sales, from $7.1 million,
or 71.7% of  sales,  for the same  period in 1995.  The  increase  in  operating
expenses was primarily  attributable to increased restaurant operating expenses.
Restaurant  operating expenses increased 11.9% to $6.8 million in 1996 from $6.0
million for the same period in 1995  (compared to a 10.4%  increase in sales and
11.2% increase in gross profit). As a percentage of sales,  restaurant operating
expense  increased  from  61.0%  for the  period  in 1995 to 61.9% in 1996.  The
percentage  increase is primarily  attributable  to the addition of Pizzeria Uno
Restaurants which have a higher operating cost than Daily Grill.                

     General and  administrative  expenses  increased 30.6% to represent 8.3% of
sales in 1996 as  compared  to 7.0% of sales  for the  first  half of 1995.  The
increase  resulted from added  corporate  costs for the Pizzeria Uno Restaurants
included for the full period in 1996.                                           

     ACQUISITION OF THE GRILL.  The acquisition of The Grill in April of 1996 is
expected to contribute  both sales and store level income to the Company helping
to  absorb  part  of the  existing  overhead.  On a pro  forma  basis,  assuming
consummation of The Grill purchase at December 26, 1994, the combined operations
of Grill  Concepts and The Grill produced a pro forma net loss of $26,000 during
the first half of 1996 as compared to a pro forma net income of $144,000 for the
first six months of 1995. During such periods, The Grill on a stand alone basis,
reported a 25% increase in revenues from $1.3 million in 1995 to $1.7 million in
1996 and a 24%  increase  in gross  profits  from $0.9  million  in 1995 to $1.1
million in 1996.                                                                

     The increase in sales of The Grill is attributable, in part, to the opening
of The  Grill  for  business  on  Sunday  evening  commencing  in July of  1995.
Additionally,  during  the past  year,  The Grill has been  featured  in several
magazines  and was  inducted  into the  "Fine  Dining  Hall of Fame"  which  has
increased  guest  counts  and  resulting  sales.  The Grill  operating  expensed
increased  from $0.8 million  (62.3% of sales) in 1995 to $0.9 million (55.4% of
sales) in 1996. This decreased expense percentage resulted from the spreading of
fixed  costs  over  significantly  higher  sales  volume.  As a  result  of  the
foregoing,  The Grill, on a stand-alone basis, reported a net income of $230,000
for the first six months of 1996 as  compared to a net income of $89,000 for the
first six months of 1996.                                                       

FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994                                   

         SALES. The Company's revenues for 1995 increased 36.6% to $20.2 million
from $14.8 million in 1994. The Magellan Units  contributed  $4.9 million of the
total $5.4 million increase in revenues during 1995. The remaining  increase was
primarily attributable to the operation of a Daily Grill store during 1995 which
was  closed  for  approximately  seven  weeks in early  1994 as a result  of the
January 1994 earthquake in Southern  California.  The four Daily Grill locations
which were open during all of fiscal 1994 and 1995  reported an  aggregate  3.1%
increase in same store sales from 1994 to 1995. The increase in same store sales
was partially  attributable  to the 1995 fiscal year including one week more (53
weeks) than fiscal 1994 (52 weeks).                                             

         COST OF SALES AND GROSS PROFIT. While revenues increased by 36.6% ($5.4
million)  in 1995 as  compared to 1994,  cost of sales  increased  by only 31.3%
($1.3 million) and decreased as a percentage of sales from 27.9% to 26.8%.  $1.2
million of the increase in cost of sales was attributable to the addition of the
Magellan  Units.  The Daily Grill cost of sales  represented  27.5% of sales for
1995 as compared to 27.9% of sales for 1994. This cost reduction is attributable
to an ongoing effort by chefs and  management to closely and constantly  monitor
and control food and beverage costs. As a result,  gross profit  increased 38.7%
from $10.7 million (72.1% of sales) in 1994 to $14.8 million (73.2% of sales) in
1995.                                                                           

         OPERATING EXPENSES AND OPERATING  RESULTS.  While sales increased 36.6%
and gross profit  increased 38.7%,  total operating  expenses rose only 31.3% to
$14.6  million  in  1995  (representing  72.2%  of  sales)  from  $11.1  million
(representing  75.1% of sales) in 1994.  This  reduction  in  operating  expense
percentages   was  primarily   attributable   to  a  substantial   reduction  in
amortization  of  pre-opening  costs (1.7% of the  percentage  reduction)  and a
reduced rate of growth in general and administrative expenses (representing 1.6%
of the percentage reduction).                                                   

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         Restaurant operating expenses increased 37.5% to $12.1 million in 1995,
from $8.8  million  in 1994.  As a  percentage  of sales,  restaurant  operating
expenses represented 59.8% and 59.4%, respectively, in 1995 and 1994.           

         General and  administrative  expenses increased only 14.4% to represent
8.5% of sales in 1995 as  compared  to 10.1% of sales in 1994.  Essentially,  no
significant  increase in general and  administrative  expenses was  necessary to
handle the additional  revenues generated in the most current year. The increase
in this category was a combination of increased  executive and office  salaries,
increased  advertising  and  increased  insurance  premiums  offset  by  reduced
consulting costs and savings from closing the former Magellan eastern office.   

         OTHER  INCOME  AND  EXPENSES  AND  NET  INCOME.  Net  interest  expense
decreased  by  approximately  $92,000  due to  increased  interest  income,  the
conversion of  outstanding  Debentures at the time of the Exchange and the lower
interest rated achieved by the receipt of a 4% SBA loan.                        

         As a result of the above,  the Company  reported  net income of $63,000
for 1995 compared with a loss of $670,000 during 1994.                          

         MAGELLAN PRO FORMA RESULTS. On a pro forma basis, assuming consummation
of the Exchange at December 27, 1993, the combined  operations of Grill Concepts
and  Magellan  produced a net loss of $174,000 in 1995 as compared to a net loss
of $1.0 million in 1994. During such periods,  Magellan, on a stand-alone basis,
reported a 22% decrease in revenues from $7.9 million in 1994 to $6.1 million in
1995 and a 21%  decrease  in gross  profit  from  $5.8  million  in 1994 to $4.6
million in 1995.  The  decrease  in  Magellan's  revenues  and gross  profit was
primarily  attributable  to the  closure  of  Magellan's  Henrietta,  New  York,
restaurant  in December of 1994.  Partially  offsetting  Magellan's  decrease in
gross profits was a 21% reduction in combined restaurant  operating expenses and
depreciation  and  amortization  expenses,  the  majority of which  reduction in
expenses was  attributable to the closure of the Henrietta  restaurant.  General
and administrative  expenses of Magellan in the 1995 period included a charge of
$150,000  for  Exchange  costs.  Excluding  this item,  Magellan's  general  and
administrative   expenses   decreased  72%,  a  result  of   consolidating   and
transferring corporate responsibility to Grill Concepts.  Magellan also reported
a one-time charge of $125,000 in 1994 relating to a financial services fee and a
loss of  $154,000  on closure of the  Henrietta  restaurant.  As a result of the
foregoing,  Magellan,  on a stand-alone  basis,  reported a loss of $112,000 for
1995 as compared to a loss of $577,000 for 1994.                                

         KNOWN AND ANTICIPATED  FUTURE TRENDS AND  CONTINGENCIES.  The following
statements   are  based  on   current   expectations.   These   statements   are
forward-looking  and  actual  results  may  differ  materially.   Prior  to  the
consummation of the Exchange, incoming management agreed to make every effort to
sell, or close,  Magellan's sports themed restaurant  (originally known as Jo Jo
Players and changed to Tailgators  following the Exchange).  As a result of such
determination,  the net assets  acquired  pursuant to the Exchange were reduced,
and excess of cost over net assets acquired was increased by $512,000. While the
closure of such  restaurant  will result in reduced  revenue for the Company and
increased  amortization  of  goodwill,  the impact on  subsequent  net income is
expected to be positive.  At June 15, 1996,  operations at  Tailgators  had been
terminated and management was pursuing  efforts to sell the restaurant or secure
releases under the lease on the premises.  Because of the adjustment to goodwill
taken in 1995,  no charge is  expected to be  required  in  connection  with the
closure  or upon the  ultimate  sale of  Tailgators.  However,  there  can be no
assurance  that the  Company  will not incur  additional  charges  in the future
relating to the closure,  sale or continued liability on the underlying lease of
Tailgators.                                                                     

         With  control  shifting  to the  GCI  management  team  in  California,
Magellan's  New  Jersey  corporate  office  was  closed on May 31,  1995 and all
accounting and related corporate administration was transferred to the Company's
California  offices.  The Company  has,  however,  opened a small  office in New
Jersey,  close to an existing  Pizzeria Uno  restaurant  for  management  of the
existing and future east coast restaurants.                                     

         In December of 1995, an expansion and  remodeling of the Daily Grill in
Brentwood,  California  was  completed.  Adjacent  space of 900 square  feet was
leased to facilitate the addition of  approximately 20 seats plus a full service
bar.  Previously,  this  restaurant  served  only wine,  beer and  non-alcoholic
beverages. This expansion has increased the store's sales volume and is expected
to continue to produce increased sales volumes in the future.                   

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         Also, in October of 1995, a Rhino Chasers restaurant and bar was opened
in the Commuter Terminal at Los Angeles International  Airport. This location is
the first of two  restaurants to be opened under an Operating  Agreement with CA
One Services,  Inc. ("CA One") wherein the Company will receive a management fee
of 4% of sales plus 51% of net income after  repayment  of funds  advanced by CA
One to build and start-up  the  restaurants.  From  opening of Rhino  Chasers to
December 31, 1995, the Company's  management fee and allocable share of earnings
from Rhino  Chasers  totaled  approximately  $24,000,  which is  included in the
Company's reported sales. Early results from Rhino Chasers have been positive.  

     Current  expansion  plans  include  the  opening of three new  restaurants,
including  (1) a Daily  Grill to be  opened  at LAX  pursuant  to the  Operating
Agreement with CA One, (2) a Daily Grill in Irvine,  California, and (3) a Daily
Grill in  Washington,  D.C.  The Daily  Grill to be opened in the  International
Terminal  at LAX is now  scheduled  to open in October of 1996.  Pursuant to the
Operating  Agreement with CA One, all costs of  constructing  the Daily Grill at
LAX are being advanced by CA One.                                               

         The Daily Grill to be opened in Irvine,  California is expected to open
during the third quarter of 1996. The site of such restaurant  previously housed
a  restaurant  and is  presently  under  lease by the  Company.  Because  of the
previous  operation of a restaurant at such site, build out at such site will be
less  extensive  than the required  build-out  for other Daily  Grill's which is
expected to reduce the  construction  and start-up  costs of such  restaurant to
approximately  $750,000,  as compared to a typical  restaurant  which costs $1.2
million or more to build out and start-up.                                      

     After  evaluation  of numerous  sites at which to open the first east coast
Daily Grill,  the Company has entered into a lease in Washington  D.C. with such
restaurant  expected  to be  operational  by the  first  quarter  of  1997.  See
"Business - Business Expansion."                                                

         The anticipated  opening of the east coast Daily Grill, and to a lesser
extent the Irvine  location,  is expected to result in the incurrence of various
pre-opening  expenses which may adversely  impact earnings during the first year
of operations of such restaurants.  However, management anticipates that each of
such  operations can be operated  profitably  within the first year and that the
opening of each of the three Daily Grill restaurants presently contemplated will
improve both revenues and profitability  during 1996 and future years. There can
be no assurance as to when the three proposed  restaurants will actually open or
as to the future profitability of those restaurants.                            

         In  addition  to  the  proposed   opening  of  three  new  Daily  Grill
restaurants   during  1996,  the  Company  entered  into  an  agreement  with  a
partnership which controlled The Grill on the Alley restaurant in Beverly Hills,
California,  pursuant  to which the Company  acquired  The Grill on the Alley in
April of 1996 in exchange for 850,000 shares of common stock of the Company. The
Grill on the Alley was founded,  and was  previously  managed,  by the principal
shareholders  of the Company and is the  restaurant  after which the Daily Grill
was patterned.  The Grill is a prominent  well-established  restaurant which has
operated profitably for many years. The acquisition of The Grill on the Alley is
anticipated to increase the Company's revenues and profits proportionately.  The
Company incurred certain costs to carry out such acquisition.                   

         In July of 1996, the Company  submitted a proposal pursuant to which it
would acquire 19 restaurants from Hamburger Hamlet Restaurants, Inc. ("Hamburger
Hamlet") for $8.5  million in cash,  contingent  performance  notes in an amount
between  $3.0 and $3.2  million,  and  500,000  warrants.  Hamburger  Hamlet  is
presently  operating  in  bankruptcy  and has  closed  12  unprofitable  stores.
Management believes that the terms on which the Hamburger Hamlet restaurants are
proposed to be acquired are favorable and that such  restaurants can be operated
profitably.  However, given the past financial difficulties of Hamburger Hamlet,
there is no  assurance  that the  restaurants  proposed  to be  acquired  can be
operated on a profitable  basis.  Further,  consummation of the Hamburger Hamlet
acquisition is subject to approval of the bankruptcy  court and the creditors of
Hamburger  Hamlet,  completion of due  diligence,  arrangement  of  satisfactory
financing and other contingencies.  Accordingly, there can be no assurance as to
when,  if ever,  the  Hamburger  Hamlet  acquisition  will be  consummated.  See
"Business - Business Expansion."                                                

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LIQUIDITY AND CAPITAL RESOURCES                                                 

     At June 30,  1996,  the Company had working  capital of $0.4  million and a
cash  balance of $1.8  million as compared to negative  working  capital of $0.9
million and a cash balance of $0.6 million at December 31, 1995. The improvement
in the Company's working capital and cash was primarily attributable the receipt
of $1.5  million of proceeds  from the sale of Series A  Preferred  Stock and to
reductions in payables and accrued liabilities during the period.               

         As a result of the Exchange, in March of 1995, the financial resources,
operations  and  obligations  of Magellan and GCI were  combined.  Following the
Exchange, the Company assumed GCI's business plan and the primary obligations of
the Company were those of GCI.                                                  

         Historically,  the Company has funded its day-to-day operations through
its operating  cash flow,  while funding  growth  through a combination  of bank
borrowing,  loans from  stockholders/officers,  the sale of  debentures  and the
issuance  of  warrants  and loans and  tenant  allowances  from  certain  of its
landlords.  At June 30,  1996,  the  Company had  existing  bank  borrowing  of 
$1,173,000, an SBA loan of $165,000, loans from stockholders/officers of $84,000
and loans/advances from landlords and others of $159,000.                       

     On April 30, 1995, $1.6 million of the Company's bank borrowings was termed
out over a 5-year  period  payable in 60 equal monthly  installments  of $26,667
which began on April 30, 1995, with all remaining principal amounts due on March
31, 2000.  Interest is payable  monthly at a variable rate equal to the lender's
reference  rate plus  0.625%  (8.87%  at March 31,  1996).  The  Company  has an
additional  $500,000 line of credit  originally  available  through November 30,
1995 which has been extended  through November 30, 1996. All amounts owing under
the bank loan and credit line have been guaranteed by trusts  maintained by each
of Richard  Shapiro and Michael  Weinstock,  both of whom are  directors  of the
company  and are secured by first  priority  liens on the  Company's  equipment,
fixtures,  inventory,  receivables,  contract  rights  and  general  intangibles
(whether  now owned or  acquired  in the  future),  together  with the  proceeds
thereof.                                                                        

         Under the terms of the credit  line,  the Company is  permitted  to use
credit line funds only for  repayment  of existing  term debt,  general  working
capital and the funding of new restaurant openings. Among other things, the bank
loan and the credit  line  require the  Company to  maintain  certain  financial
ratios and  insurance  coverage.  In addition,  unless the  lender's  consent is
obtained,  the Company  must  conduct its  operations  consistent  with  various
affirmative  and  negative  covenants  of the type often  found in bank  lending
agreements.  Also, any debt to  stockholders of the Company must be subordinated
to repayment of the bank loan and credit line.                                  

         During 1995,  the Company and its  subsidiaries  were  obligated  under
eleven leases  covering the premises in which the Company's  Daily Grill,  Pizza
Restaurants,  Rhino Chasers and  Tailgators are located as well as leases on its
executive  offices  and an  office  in  Cherry  Hill,  New  Jersey.  Ten of such
restaurant leases and the executive office lease contain minimum rent provisions
which provided for the payment of minimum  aggregate  annual rental  payments of
approximately  $1.5 million in 1995, with varying escalation and percentage rent
clauses in each of the  restaurant  leases.  The Rhino Chasers lease contains no
minimum rent  provisions  but obligates  Airport LLC to pay rentals in an amount
equal to 16.5% of sales.  In January and March of 1996, the Company entered into
leases for new Daily Grill  restaurants in Irvine,  California  and  Washington,
D.C.  Additionally,  Airport LLC, which operates restaurants at LAX with CA One,
is obligated under a lease covering a proposed Daily Grill to be operated in the
International  Terminal  of LAX which is  expected  to open in  October of 1996.
Minimum rental payments during 1996 on existing leases, excluding the Irvine and
Washington,  D.C. sites,  total $1.5 million.  The Irvine and  Washington,  D.C.
leases   provide  for  minimum   annual   rentals  of  $120,000  and   $225,000,
respectively.  Additionally,  pursuant  to the  lease  at  LAX,  Airport  LLC is
obligated to pay rentals in an amount equal to 16.5% of sales.                  

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         As noted  above,  the Company has closed  Tailgators  and is  presently
involved  in efforts to sell such  restaurant  or relieve the Company of ongoing
liability  under its lease.  The Company is a general partner of the partnership
which is the tenant  under the lease on the  Tailgators'  premises,  which lease
provides for variable annual rentals based on the mortgage payments with respect
to the property  plus a percentage of the  partnership's  cash flow with current
monthly payments being approximately  $11,000.  The Company may be obligated for
all or a  portion  of  the  balance  of any  lease  obligations  thereunder.  In
connection  with the  contemplated  sale,  the Company will endeavor to secure a
written  release  from  liability  under the lease;  the Company  believes  that
conditions  and  circumstances  exist which may mitigate its  obligations  which
would otherwise exist under the lease. See "Management's Discussion and Analysis
-- Known and Anticipated Future Trends and Contingencies."                      

     The Company presently anticipates opening three new restaurants through the
first  quarter  of 1997 and,  during  the  second  quarter,  acquired  The Grill
restaurant  as discussed  above.  While the Company does not expect to incur any
costs in connection  with the opening of the proposed  Daily Grill at LAX, which
costs are being funded by CA One, and expects to incur costs in connection  with
the acquisition of The Grill,  opening of the Irvine,  California Daily Grill is
anticipated  to cost  approximately  $750,000  and  opening of a Daily  Grill in
Washington, D.C. is anticipated to cost approximately $1.3 million.             

         Management  believes that the Company has adequate resources on hand to
sustain  operations  for at least the  following  12 months  and to open LAX and
Irvine restaurants.  In order to fund the opening of the Washington,  D.C. Daily
Grill, and any additional restaurants,  the Company will require, and intends to
raise, additional capital through the issuance of debt or equity securities.  In
order to raise funds needed to open the Washington, D.C. Daily Grill, in June of
1996,  the Company sold $1.5 million of Series A Preferred  Stock.  The Series A
Preferred Stock bears a 10% annual  dividend,  payable in cash or stock,  and is
convertible  into  Common  Stock at the  lesser of $2.25 per share or 85% of the
average  closing  price of the Common  Stock for the five  trading days prior to
conversion.  In connection  with the sale of the Series A Preferred  Stock,  the
Company issued  250,000  warrants  which are  exercisable  until June of 2001 at
$3.00  per  share.  See  "Description  of  Securities,"  "Business  --  Business
Expansion" and  "Management's  Discussion and Analysis -- Known and  Anticipated
Future Trends and Contingencies."                                               

         Additionally,  as noted  above,  the Company  has  submitted a proposal
pursuant to which it would acquire 19 Hamburger Hamlet restaurants. Consummation
of such acquisition is dependent upon, among other things, securing satisfactory
financing. Management presently anticipates that the total financing required to
fund the acquisition and initial working capital needs of such  restaurants will
be between $9 and $10 million. The Company has no present commitments to provide
such financing and, while management believes that such financing can be secured
on  acceptible  terms,  there  can be no  assurance  that  such  financing  will
ultimately  be  available.  Further,  if the  Hamburger  Hamlet  acquisition  is
consummated,  the Company will be obligated  to issue a  Performance  Note in an
amount between $3.0 and not to exceed $3.2 million.  Such  Performance Note will
be  payable  from 50% of  earnings  before  interest,  taxes,  depreciation  and
amortization  ("EBITDA") to the extent annual EBITDA of those operations exceeds
$2.5 million,  provided,  however,  that payments on such Performance Note shall
terminate after seven years.  The actual amount of the Performance  Note will be
at the  option  of  Hamburger  Hamlet,  provided  that  annual  payments  on the
Performance Note will be limited to $750,000 if Hamburger Hamlet determines that
the Performance Note should be in the amount of $3.2 million.                   

     At June 30, 1996 the Company had outstanding  190,793  warrants  previously
issued by Magellan and exercisable at a price of $2.00 per share.  Additionally,
in connection with the Exchange and a private placement during 1995, the Company
issued an additional  100,000 warrants which are exercisable at $3.00 per share.
The  exercise  of all  warrants  outstanding  at June 30,  1996,  including  the
warrants issued in connection with the issuance of the Series A Preferred Stock,
would  provide an additional  $1,431,586 of capital to the Company.  There is no
assurance,   however,  that  any  of  such  warrants  will  be  exercised.   See
"Description of Securities."                                                    

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IMPACT OF INFLATION                                                             

         To  date,  inflation  has not  been a  major  factor  in the  Company's
business. There can be no assurances, however, that this will continue to be the
case.  To the extent  that it is  commercially  feasible,  menu  prices  will be
adjusted for increases in food and labor costs when appropriate.                

BUSINESS

GENERAL AND DEVELOPMENT OF BUSINESS                                             

         Grill Concepts, Inc. (the "Company") was incorporated under the laws of
the  State  of  Delaware  in  November  of  1985.  The  Company  was  originally
incorporated  under the name  "Uno  Concepts,  Inc." In  December  of 1992,  the
Company changed its name to "Magellan  Restaurant Systems,  Inc." and, in May of
1993, the Company "went public" pursuant to a merger with MRS Funding, Inc.     

         In March of 1995, the Company  consummated an exchange (the "Exchange")
pursuant  to which the  Company  issued  8,500,000  shares  of  Common  Stock in
exchange for 100% of the outstanding stock of Grill Concepts, Inc., a California
corporation  ("GCI").  Following the Exchange,  the Company  changed its name to
"Grill  Concepts,  Inc.,"  management of GCI assumed  effective  management  and
control of the Company and the Company  effectively altered its future operating
plans to emphasize the expansion of the "Daily Grill"  restaurant format of GCI.
The  Company,  prior  to the  Exchange,  is  sometimes  referred  to  herein  as
"Magellan."                                                                     

         The Company presently owns and operates ten restaurants,  consisting of
six  Daily  Grill  restaurants,  The  Grill on the  Alley  restaurant  and three
Pizzeria Uno Restaurants,  and owns a controlling  interest in one Rhino Chasers
brew  pub/restaurant.  The Company  plans to open three  additional  Daily Grill
restaurants during 1996.                                                        

DAILY GRILL RESTAURANTS                                                         

         Background. The Company, through its subsidiary, GCI, owns and operates
six existing Daily Grill  restaurants  in Southern  California and plans to open
three new Daily Grill  restaurants  during  1996.  Daily Grill  restaurants  are
patterned  after  "The  Grill on the  Alley" in  Beverly  Hills,  a fine  dining
American-style  grill restaurant which was previously managed, and is now owned,
by the Company. See "The Grill on the Alley" and "Business Expansion." The Grill
on the Alley was founded by Robert Spivak, Michael Weinstock and Richard Shapiro
(the founders of GCI) in the early 1980's to offer classic American foods in the
tradition of the classic American dinner house. After successfully operating The
Grill on the Alley for a number of years, in 1988, Messrs. Spivak, Weinstock and
Shapiro  decided  to expand on that  theme by  opening  the  first  Daily  Grill
restaurant.  Daily Grill, in an effort to offer the same qualities that made The
Grill on the Alley  successful,  but at more value oriented prices,  adopted six
operating principles that characterize each Daily Grill restaurant: high quality
food,  excellent  service,  good value,  consistency,  appealing  atmosphere and
cleanliness.  GCI  emphasized  those  principles  in an effort to create a loyal
patron who will be a  "regular"  at its  restaurants.  The Daily  Grill motto is
"Satisfaction Served Daily."                                                    

     Restaurant   Sites.  The  Company   presently   operates  six  Daily  Grill
restaurants which opened in the following months and years:                     

           Location                                     Opened

              Brentwood, California                       September 1988
          Los Angeles, California                     April 1990
          Newport Beach, California                   April 1991
          Encino, California                          April 1992
           Studio City, California                     August 1993
            Palm Desert, California                     January 1994

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     The Company plans to open three additional  Daily Grill  restaurants at the
following  sites  during  1996 and the  first  quarter  of 1997  (See  "Business
Expansion"):                                                                    

               Location                                  Scheduled Opening
               --------                                  -----------------
                 Irvine, California                        Third Quarter, 1996
                  Los Angeles International Airport1        Fourth Quarter, 1996
                 Washington, D.C.                          First Quarter, 1997

         All Daily Grill  restaurants  are  presently  open for lunch and dinner
seven days a week.                                                              

         Each Daily  Grill  restaurant  is located  in leased  facilities.  Site
selection is viewed as critical to the success of the Company and,  accordingly,
significant  effort is exerted to assure that each site selected is appropriate.
The site selection  process focuses on local  demographics  and household income
levels,   as  well  as  specific  site   characteristics   such  as  visibility,
accessibility,  parking  availability  and traffic  volume.  Each site must have
sufficient  traffic such that management  believes the site can support at least
twelve  strong meal  periods a week  (i.e.,  five  lunches  and seven  dinners).
Preferred Daily Grill sites,  which characterize the existing  restaurants,  are
high-end,  mid-size  retail  shopping  malls in  large  residential  areas  with
significant  daytime  office  populations  and  some  entertainment  facilities.
Historically,  Daily Grill  restaurants have been anchor tenants at high profile
malls and, therefore, have received significant tenant improvement allowances.  

         Existing  Daily  Grill  restaurants  range in size from  3,750 to 5,000
square feet, of which  approximately 2,000 square feet is devoted to kitchen and
service areas,  and seat between 100 and 200 persons.  Opening costs of existing
restaurants, including leasehold improvements, furniture, fixtures and equipment
and pre-opening expenses, have averaged $1.2 million per restaurant.            

         Menu and Food Preparation. Each Daily Grill restaurant offers a similar
extensive  menu.  The menu  was  designed  to be  reminiscent  of the  selection
available  at  American-style  grill  restaurants  of the 1930's and 1940's,  in
contrast to the "nouvelle cuisine" and diet meal fads of the 1980's. Daily Grill
offers  such  "signature"  items as Cobb  salad,  Caesar  salad,  chicken  hash,
meatloaf with mashed potatoes,  chicken pot pie,  chicken  burgers,  hamburgers,
rice  pudding and fresh  fruit  cobbler.  The  emphasis at the Daily Grill is on
freshly prepared American food served in generous portions.                     

         Entrees range in price from $7.50 for an  "original"  beef dip sandwich
to $19.95 for a  char-broiled  16 oz. T-bone steak with all the  trimmings.  The
average  lunch check is $11 per person and the average  dinner  check is $14 per
person, including beverage. Each Daily Grill restaurant also offers a children's
menu with  reduced  portions of  selected  items at reduced  prices.  All of the
existing  Daily Grill  restaurants  offer a full range of  beverages,  including
beer, wine and full bar service.                                                

         Proprietary  recipes have been developed for  substantially  all of the
items  offered  on the  Daily  Grill  menu.  The same  recipes  are used at each
location and all chefs undergo extensive training in order to assure consistency
and quality in the preparation of food.  Virtually all of the menu items offered
at the Daily Grill are cooked from scratch utilizing fresh food ingredients. The
Company's  management  believes  that  its  standards  for  ingredients  and the
preparation of menu items are among the most stringent in the industry.         

         Each  Daily  Grill  restaurant  has up to seven  cooks  on duty  during
regular  lunch  and  dinner  hours  to  provide  prompt,   specialized  service.
Restaurant  staff members utilize a  "point-of-sale"  computer system to monitor
the movement of food items to assure prompt and proper service of guests and for
fiscal control purposes.                                                        

----------------------                                                          
1                                                                               
The Daily Grill  restaurant  to be opened at Los Angeles  International  Airport
will be operated by The Airport Grill LLC, a limited  liability company in which
the Company owns a 51% interest. See "The Airport Grill LLC - LAX Daily Grill." 

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         Atmosphere  and  Service.  Each Daily  Grill  location  is  designed to
provide  the  sense  and  feel  of  comfort.  In the  tradition  of an  old-time
American-style  grill, the setting is an open kitchen adjacent to tables, booths
and/or counters.  The open kitchen setting  emphasizes the quality and freshness
of Daily Grill food dishes in addition to the  cleanliness  of  operations.  The
dining area is well-lit and is characterized by a "high energy level".          

         The feeling of comfort  and  tradition  is  enhanced by the  restaurant
policy of requiring no  reservations  and accepting no  reservations  except for
groups  of six or  more.  As a  result,  patrons  are  served  on a  first-come-
first-served  basis and never have to wait for a table  while a vacant  table is
being held for patrons with reservations.                                       

         The attention to detail and quality of the decor is carried  through to
the  professional  service.  All Daily Grill employees are trained to treat each
person who visits the  restaurant  as a "guest" and not merely a customer.  Each
server  is  responsible  for  assuring  that his or her guest is  satisfied.  In
keeping with the  traditions  of the past,  each Daily Grill  employee is taught
that at the Daily Grill "the guest is always right." The Daily Grill's policy is
to accommodate all guest requests,  ranging from  substitutions of menu items to
take-out orders.                                                                

         In order to assure that the  Company's  philosophy  of guest service is
adhered to, all Daily  Grill  employees  from the  kitchen  staff to the serving
staff undergo extensive training making each employee  knowledgeable not only in
the  Company's  procedures  and  policies  but in every  aspect  of Daily  Grill
operations.  The Company's  policy of promoting from within and providing access
to senior  management for all employees has produced a work force which works in
a  cooperative  team  approach and has resulted in an employee  turnover rate of
just under 70% per year for hourly  employees,  considerably  below the industry
average which management believes to be approximately 125%.                     

         The Company  believes that the familiarity and feeling of comfort which
accompanies dining in a familiar setting, with familiar food and quality service
by  familiar  servers,  produces  satisfied  customers  who  become  "regulars."
Management  believes that as many as 70% of the guests at the Daily Grills which
have been open for over a year represent repeat  business,  and many guests have
become "regulars" in the tradition of the neighborhood restaurant.              

THE AIRPORT GRILL LLC                                                           

         Operating  Agreement.  In March of 1995,  the Company  entered  into an
operating  agreement (the "Operating  Agreement") with CA One Services,  Inc., a
major national airport  concessionaire and division of Delaware North Companies,
Inc. Pursuant to the Operating Agreement, the Company and CA One Services formed
The Airport Grill LLC (the "Airport LLC") to own and operate  restaurants within
Los Angeles International Airport ("LAX"). Under the Operating Agreement, CA One
Services  is  advancing  all  required  capital to open and  operate one or more
restaurants,  other than certain  minimum  capital  ($10,200)  which the Company
contributed,  and the Company  will provide  certain  managerial  oversight  and
assistance. Profits of the Airport LLC will be shared 51% by the Company and 49%
by CA One  Services  after the  payment  of a 4%  management  fee to each of the
Company and CA One Services and after the repayment of CA One Services' advances
to the Airport LLC, with interest.                                              

         Rhino  Chasers.  In October of 1995,  the  Airport LLC opened its first
restaurant  in LAX,  "Rhino  Chasers"  brew pub  restaurant/bar.  Rhino  Chasers
features  hand-crafted  beer and a selection  of foods  developed by the Company
specifically for such restaurant.                                               

         Rhino Chasers occupies  approximately 1,756 square feet in Terminal One
of LAX and seats up to 60 persons.  Rhino Chasers is designed to offer a casual,
friendly and  entertaining  atmosphere  for travelers to enjoy a casual meal and
drinks at  moderate  prices.  Entree  selections  currently  range in price from
approximately  $4.95 to  $7.95,  with an  average  cost  per  person  per  meal,
including beverage,  of approximately $9.00. Based on operating results to date,
approximately  47% of Rhino Chasers'  revenues have been attributable to alcohol
sales with the  remaining  sales being  attributable  to food and  non-alcoholic
beverages.                                                                      

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         Rhino  Chasers  employs two full time  managers  and  approximately  24
part-time and full-time employees. Rhino Chasers is open from 5:30 a.m. to 11:00
p.m., seven days per week.                                                      

     LAX Daily Grill. The Airport LLC has entered into a lease and plans to open
a Daily Grill restaurant in the International  Terminal of LAX.  Construction is
presently  underway on an 8,300  square  foot  full-service  restaurant  seating
approximately  300 persons  which is  expected  to open by August of 1996.  Such
restaurant will be operated by the Airport LLC in the Tom Bradley  International
Terminal of LAX. See "Business Expansion."                                      

THE GRILL ON THE ALLEY                                                          

         In  addition to its  ownership  interests  in the  various  restaurants
operated by its various subsidiaries,  commencing in 1995, the Company,  through
its  executives,  provided  management  services to The Grill on the Alley.  The
Company, in return, received a management fee equal to 5% of the revenues of The
Grill on the Alley.                                                             

         The Grill on the Alley is an upscale  Beverly  Hills  restaurant  which
opened in 1984 and  served as the model  for the Daily  Grill  restaurants.  The
Grill on the Alley is set in the traditional style of the old-time grills of New
York and San Francisco,  with  black-and-white  marbled floors,  polished wooden
booths and deep green  upholstery.  In 1995, The Grill on the Alley was inducted
into Nation's  Restaurant  News' Fine Dining Hall of Fame and was described by W
Magazine as "home of the quintessential Beverly Hills power lunch." The Grill on
the Alley offers  five-star  American  cuisine and  uncompromising  service in a
comfortable, dignified atmosphere. See "Daily Grill Restaurants."               

         Until April of 1996,  The Grill on the Alley was owned by a partnership
the managing  partner of which was controlled by the principal  shareholders and
directors of the Company (Robert Spivak, Michael Weinstock and Richard Shapiro).
In April of 1996,  the Company  acquired  The Grill on the Alley in exchange for
850,000  shares of common stock.  Upon  consummation  of such  acquisition,  the
Company  terminated  the existing  management fee  arrangement  and now owns and
operates The Grill on the Alley.                                                

THE PIZZA RESTAURANTS                                                           

         Restaurants.   Through  its  wholly-owned  subsidiaries,   the  Company
presently  operates  three  "Pizzeria  Uno  Restaurant  &  Bar"  locations.  The
Company's present Pizza Restaurants are located in the following cities and were
opened in the months and years indicated:                                       

                Location                                    Opened
                --------                                    ------
             South Plainfield, New Jersey                January, 1987
              Media, Pennsylvania                         February, 1987
           Cherry Hill, New Jersey                     March, 1990

         The Company chose to franchise  with Pizzeria Uno  Corporation in order
to  capitalize  on the  increasing  popularity  of pizza and the  operating  and
marketing   strategies   developed  by  the  Franchisor.   The  Company's  Pizza
Restaurants are operated in accordance with certain guidelines established,  and
managerial  assistance  and training  provided,  by the  Franchisor.  See "- The
Franchise Agreements" below.                                                    

         The  Pizza   Restaurants  offer  a  diverse  menu  in  accordance  with
guidelines  established  by the  Franchisor,  featuring  gourmet,  Chicago-style
deep-dish  pizzas,   filled  with  ingredients  such  as  fresh  meats,  spices,
vegetables  and cheese and baked to order  based on  proprietary  recipes of the
Franchisor.   The  Pizza   Restaurants  also  offer  a  variety  of  sandwiches,
hamburgers,  appetizers, salads, desserts and beverages, including a full liquor
selection.  All of the menu  items  offered  by the Pizza  Restaurants  are also
available  for  delivery  or  carry-out.  Delivery  service is provided by third
parties pursuant to contractual arrangements.                                   

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         In accordance with the design and operating  guidelines  established by
the Franchisor,  the Pizza Restaurants are  characterized by a casual,  friendly
and entertaining  atmosphere,  full and efficient service, and high-quality menu
items at  moderate  prices.  Entree  selections  currently  range in price  from
approximately  $4.95 to  $8.95,  with an  average  cost  per  person  per  meal,
including  beverage,  of approximately $6.25 for lunch and $9.25 for dinner. The
Pizza  Restaurants are generally more upscale than typical pizza restaurants and
are targeted primarily to middle to upper-middle income families and individuals
in the 17 to 49 year-old age group.                                             

         The Pizza  Restaurants are located in suburban areas in leased premises
built-out to design and quality  specifications  established by the  Franchisor.
The Pizza  Restaurants  range in size from  approximately  5,300  square feet to
approximately  7,900  square  feet,  including a bar and lounge  area,  and have
seating  capacities  ranging  from  180  to 200  customers.  Each  of the  Pizza
Restaurants  employs  between  three and four full time  managers and  assistant
managers  and between 45 and 85 part-time  and  full-time  employees.  The Pizza
Restaurants are generally open from 11:00 a.m. to midnight, seven days per week,
except on Friday and Saturday when the Pizza Restaurants  remain open until 1:00
a.m.                                                                            

         The Franchise  Agreements.  The Company  acquired the rights to operate
under the "Pizzeria Uno" name and use certain proprietary recipes and procedures
pursuant to three separate  franchise  agreements (the  "Franchise  Agreements")
between the Company or its subsidiaries and the Franchisor,  a national operator
and franchisor of "Pizzeria Uno" restaurants.                                   

         Pursuant to the  Franchise  Agreements,  the Company has the  exclusive
rights  to  utilize  the  proprietary  marks,  recipes,  procedures  and  system
developed by the Franchisor within a three mile radius of the Pizza Restaurants'
designated locations. The Franchise Agreements each have a term of 20 years with
three successive ten-year renewal periods at the option of the Company, provided
that the agreements have not previously been terminated.                        

         In addition to use of the "Pizzeria Uno" name and mark and  proprietary
recipes,  the Franchise  Agreements  entitle the Company to certain  initial and
ongoing  services to be  provided  by the  Franchisor.  The  Franchisor  is also
obligated  to conduct  ongoing  national,  regional  and local  advertising  and
promotions utilizing advertising fees paid by its various franchisees.          

         The Company,  in turn, is obligated to comply with the  guidelines  set
forth in the Franchisor's  Operating Manual and to maintain its confidentiality.
Among the various guidelines and prohibitions imposed on the Company pursuant to
the  Franchise  Agreements  and the Manual are minimum  insurance  requirements,
noncompetition  provisions,   confidentiality  requirements,   product  offering
requirements,   physical  appearance  requirements,  trade  name  and  trademark
protection   requirements,   local  advertising   requirements,   and  operating
requirements, among others. The Company is also obligated to pay certain ongoing
fees in  order  to  retain  its  franchises.  Such  ongoing  fees  consist  of a
continuing  license fee (5% of gross  revenues),  subject to certain  prescribed
periodic  minimum  amounts,  an advertising  fee (1% of gross  revenues) and the
expenditure of certain minimum amounts on local advertising and promotion (2% of
gross revenues).                                                                

BUSINESS EXPANSION                                                              

         The Company has  historically  sought to expand its operations  through
the  construction  or  acquisition  of additional  franchised or  non-franchised
restaurants.  Following the Exchange,  the Company adopted GCI's expansion plans
and intends to focus on the addition of Daily Grill restaurants.                

         During 1995,  management  reviewed possible  expansion into new markets
and will  continue  to do so in the future.  Such  review  will  entail  careful
analysis  of  potential  locations  to assure that the  demographic  make-up and
general  setting of new  restaurants is consistent  with the patterns which have
proven successful at the existing Daily Grills. While the general appearance and
operations of future Daily Grills are expected to conform  generally to those of
existing  facilities,  the  Company  intends  to  monitor  the  results  of  any
modifications  to its existing  restaurants  and to  incorporate  any successful
modifications  into future  restaurants.  All future Daily Grill restaurants are
expected to feature full bar service.                                           

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     In January of 1996, the Company  entered into a lease pursuant to which the
Company expects to open a new Daily Grill in Irvine, California during the third
quarter of 1996 at an  estimated  cost of  $750,000.  Additionally,  in March of
1996, the Company  entered into a lease pursuant to which the Company expects to
open its first East  Coast  Daily  Grill in  Washington,  D.C.  during the first
quarter of 1997 at an estimated cost of $1.3 million.  The Company will continue
to evaluate sites for future  restaurants and, while management has not selected
sites for such additional  restaurants,  the Company has targeted  Chicago,  San
Francisco and Las Vegas as potential  markets for future  expansion.  Management
anticipates that the cost to open additional Daily Grill  restaurants will range
from $1.0 to $1.4 million per restaurant,  with each  restaurant  expected to be
approximately  5,000  to  6,000  square  feet in  size.  Actual  costs  may vary
significantly  depending upon the market  conditions,  rental rates, labor costs
and other  economic  factors  prevailing  in each  market  in which the  Company
pursues expansion. There can be no assurance,  however, that the Company will be
successful in opening additional Daily Grill restaurants in the cities or at the
costs indicated,  or, even if such restaurants can be opened at such costs, that
such restaurants can be operated on a profitable basis.                         

         During 1995, the Company  entered into the Operating  Agreement with CA
One  Services,  Inc.,  pursuant  to which the  Airport LLC was formed to own and
operate restaurants within Los Angeles International  Airport, and the rights to
operate a Daily Grill  restaurant  at LAX were granted to the Airport LLC by the
City of Los Angeles.  Construction is presently underway on an 8,300 square foot
full-service  restaurant seating  approximately 300 persons which is expected to
open by October of 1996.  Such restaurant will be operated by the Airport LLC in
the Tom Bradley International Terminal of LAX. Pursuant to such arrangement,  CA
One  Services  is  advancing  all  required  capital  to open and  operate  such
restaurant,  other than  $10,200  which the  Company  has  contributed,  and the
Company will provide certain managerial oversight and assistance. Profits of the
Airport LLC will be shared in accordance with the Operating Agreement.  See "The
Airport Grill LLC - Operating Agreement."                                       

     In addition to the anticipated opening of a Daily Grill at LAX, pursuant to
the  Operating  Agreement,  the  Airport  LLC,  in October of 1995  opened,  and
operates,  a Rhino Chasers brew  pub/restaurant  in Terminal One of LAX. At this
time, the Company,  and the Airport LLC, have no plans to open additional  Rhino
Chasers.  However, the Company, and or the Airport LLC, may evaluate the opening
and operation of additional Rhino Chasers where favorable  opportunities  become
available in airports and other  locations.  See "The Airport  Grill LLC - Rhino
Chasers."                                                                       

         In July of 1996, the Company  submitted a proposal to acquire  selected
assets constituting all of the operations of Hamburger Hamlet Restaurants,  Inc.
("Hamburger Hamlet"). Hamburger Hamlet, and its predecessors,  has operated high
end casual dining  restaurants  since 1950. The  operations of Hamburger  Hamlet
were  acquired by the then  management  of the company in a leveraged  buyout in
1988 and in  November  of 1991  Hamburger  Hamlet  completed  an initial  public
offering.  In 1996, Hamburger Hamlet filed bankruptcy and closed 12 unprofitable
restaurants, all of which had been opened since the leveraged buyout.           

         Pursuant to the Company's proposal,  the Company has offered to acquire
the remaining 19 Hamburger Hamlet  restaurants for (i) $8.5 million in cash (ii)
500,000  warrants  exercisable  for three years at a price equal to the price of
the Company's  common stock at the closing of the  acquisition  increased by 5%,
and (iii) a non-interest  bearing  performance note (the "Performance  Note") in
the amount of $3.2 million  payable  solely from 50% of annual  earnings  before
interest,  taxes,  depreciation and amortization  ("EBITDA") attributable to the
acquired  restaurants to the extent EBITDA  exceeds $2.5 million,  not to exceed
$750,000 per year (or, at the option of Hamburger Hamlet,  $3.0 million from 50%
of annual EBITDA in excess of $2.5 million without the $750,000 annual cap).    

         Management of Hamburger  Hamlet has submitted a plan of  reorganization
based on acceptance of the Company's offer. Additionally,  the secured creditors
of Hamburger Hamlet have agreed in principal to approve the Company's offer. The
general creditors of Hamburger Hamlet have, in prior  discussions,  rejected the
Company's  offer.  Consummation  of  the  acquisition  of the  Hamburger  Hamlet
restaurants  is subject to a number of  contingencies,  including  completion of
definitive  documents,  further  due  diligence,  approval  of the  plan  by the
creditors  and  the  bankruptcy   court  and  the  arrangement  of  satisfactory
financing.                                                                      

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RESTAURANT MANAGEMENT                                                           

         The  Company  strives  to  maintain  quality  and  consistency  in  its
restaurants  through the careful  hiring,  training and supervision of personnel
and the  adherence  to  standards  relating  to food and  beverage  preparation,
maintenance  of facilities and conduct of personnel.  The Company  believes that
its  concept and high sales  volume  enable it to attract  quality,  experienced
restaurant  management  and hourly  personnel.  The  Company has  experienced  a
relatively  low turnover at every level at its Daily Grill  restaurants.  See "-
Daily Grill Restaurants" above.                                                 

         Daily  Grill.  Each Daily  Grill  restaurant  is managed by one general
manager and one or two managers or assistant managers.  Each restaurant also has
one head  chef and one or two sous  chefs,  depending  on  volume.  On  average,
general  managers have  approximately  seven years  experience in the restaurant
industry  and three  years with the  Company.  The  general  manager has primary
responsibility  for the operation of the restaurant and reports  directly to the
Company's Vice President - Western Operations. In addition to ensuring that food
is prepared  properly,  each restaurant chef is responsible for product quality,
food costs and  kitchen  labor  costs.  Each  restaurant  has  approximately  85
employees.   Restaurant   operations  are  standardized,   and  a  comprehensive
management manual exists to ensure operational quality and consistency.         

         The Company maintains  financial and accounting controls for each Daily
Grill restaurant through the use of a "point-of-sale" computer system integrated
with  centralized  accounting and  management  information  systems.  Inventory,
expenses, labor costs, and cash are carefully monitored with appropriate control
systems. With the current systems, revenue and cost reports,  including food and
labor costs,  are  produced  every night  reflecting  that day's  business.  The
restaurant general manager, as well as corporate management, receive these daily
reports to ensure  that  problems  can be  identified  and  resolved in a timely
manner. All employees receive appropriate training relating to cost, revenue and
cash control.                                                                   

         All managers participate in a comprehensive seven week training program
during which they are prepared for overall  management  of the  restaurant.  The
program includes topics such as food quality and preparation,  customer service,
food and beverage service,  safety policies and employee relations. In addition,
the Company has developed training courses for assistant managers and chefs. The
Company typically has a number of employees involved in management training,  so
as to provide qualified management personnel for new restaurants.  The Company's
senior  management  meets  bi-weekly  with each  restaurant  management  team to
discuss business  issues,  new ideas and revisit the manager's  manual.  Overall
performance at each location is also monitored  with shoppers'  reports.  Two or
three times every month,  an independent  service is paid to go to each location
and prepare a report on every aspect of the meal, the service and the ambiance. 

         Servers at each restaurant  participate in approximately three weeks of
training during which the employee works under close  supervision,  experiencing
all aspects of the  operations  both in the kitchen and in the dining room.  The
extensive  training is designed to improve  quality and  customer  satisfaction.
Experienced servers are given  responsibility for training new employees and are
rewarded with additional hourly pay plus other incentives.  Management  believes
that such practice  fosters a cooperative  team approach which  contributes to a
lower turnover rate among  employees.  Representatives  of corporate  management
regularly  visit  the  restaurants  to  ensure  that the  Company's  philosophy,
strategy  and  standards  of  quality  are being  adhered  to in all  aspects of
restaurant operations.                                                          

         Rhino  Chasers.   The  staff  of  the  Company's   Rhino  Chasers  brew
pub/restaurant  consists of two managers and  approximately 24 hourly employees,
most of whom are part-time employees.                                           

       CA One has primary responsibility for the operation of Rhino Chasers.

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         Pizza  Restaurants.  The  staff  of  the  Company's  Pizza  Restaurants
consists  of  between  three  and four  managers  and  between  40 and 85 hourly
employees, most of whom are part-time employees, per location.                  

         All managers of the Pizza Restaurants participate in an onsite training
program and are provided with the Franchisor's  Operating Manual, which provides
detailed   standards  and   specifications   for  all  elements  of  operations.
Additionally,  selected  management  personnel  participate in periodic meetings
conducted  by the  Franchisor  focusing on  marketing,  new  products  and other
aspects of business management.                                                 

         The Eastern Coast  Director of Operations  oversees and  supervises the
operations  of  each  of the  Company's  Pizza  Restaurants,  providing  ongoing
guidance and  assistance to managers as necessary.  Additionally,  field-service
supervisors of the Franchisor  periodically  visit and inspect the operations of
the Pizza Restaurants to assure  compliance with the quality,  service and other
standards imposed by the Franchisor.                                            

PURCHASING                                                                      

         Daily  Grill.  The  Company  has  developed   proprietary  recipes  for
substantially all the items served at its Daily Grill  restaurants.  In order to
assure  quality  and  consistency  at  each  of  the  Daily  Grill  restaurants,
ingredients  approved  for the  recipes  are  ordered  on a unit  basis  by each
restaurant's  head chef from a supplier  designated  by the  Company's  Food and
Beverage  Director.  Because  of the Daily  Grill's  emphasis  on  cooking  from
scratch,  virtually all food items are purchased  "fresh"  rather than frozen or
pre-cooked,  with the  exception  being  bread,  which is ordered from a central
supplier which prepares the bread according to a Daily Grill recipe and delivers
twice daily to assure  freshness.  In order to reduce food  preparation time and
labor costs while maintaining  consistency,  the Company is working with outside
suppliers  to produce a limited  number of  selected  proprietary  items such as
salad dressings and seasoning combinations.                                     

         The  Company  utilizes  its  point-of-sale  computer  system to monitor
inventory  levels and sales,  then orders food  ingredients  daily based on such
levels. The Company employs contract  purchasing in order to lock in food prices
and reduce short term exposure to price increases.  The Company's Vice President
- Executive Chef establishes  general purchasing policies and is responsible for
controlling  the price and  quality of all  ingredients.  The Vice  President  -
Executive  Chef, in  conjunction  with the Company's  team of chefs,  constantly
monitors the quality, freshness and cost of all food ingredients.  All essential
food and  beverage  products  are  available,  or upon short  notice can be made
available, from alternative qualified suppliers.                                

         Pizza Restaurants.  The Company has no contracts governing purchases of
food and beverage  supplies but negotiates  purchases for its Pizza  Restaurants
directly  with  suppliers,  often with the  assistance of the  Franchisor.  Such
purchases  cover all primary food  ingredients  and beverage  products to ensure
adequate  supplies  and to obtain  competitive  prices.  The  Company  purchases
primarily through Franchisor-authorized local or national distributors and seeks
competitive  bids from  suppliers on many of its primary food  ingredients on an
annual basis.  All ingredients  are required to adhere to certain  standards and
specifications  established by the Franchisor or the Company. As a number of key
ingredients are proprietary ingredients developed by the Franchisor, the Company
can  only  acquire  such  ingredients  from  selected  authorized  distributors.
However,  all essential food and beverage products are available,  or upon short
notice can be obtained, from alternative qualified suppliers.                   

ADVERTISING AND MARKETING                                                       

         Daily  Grill.  The  Company  has   historically   relied  primarily  on
reputation,  local  reviews  and  word of  mouth  to  promote  its  Daily  Grill
restaurants.  Daily Grill restaurants have been featured in articles and reviews
in numerous local as well as national publications.  The Company supplements its
reputation with a program of marketing and public relations  activities designed
to keep the Daily Grill name before the public.  Such  activities  include media
advertising,  participating in local charity events and providing a location and
refreshments for meetings of charity  organizations.  During 1995,  expenditures
for  advertising  and  promotion  were  approximately  1.8% of  gross  revenues,
including a cable television advertising program.                               

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         In February of 1996, the Company  expanded and formalized its marketing
efforts with the hiring of an in-house marketing director and the retention of a
national consumer  research firm to coordinate the Company's future  advertising
and marketing efforts and to facilitate expansion into new markets. John Buchin,
as the Company's marketing director, will be responsible for advertising, public
relations  and a wide range of  marketing-related  activities.  Working with Mr.
Buchin and the Company  will be Pulse  Marketing,  a nationally  known  consumer
research  firm,  which has been  retained  to  undertake  research  designed  to
facilitate successful expansion into new markets.                               

     Pizza Restaurants.  The Company participates in local and regional/national
advertising  programs,  including  paying certain  advertising fees (1% of gross
revenues) to the  Franchisor  and  spending  certain  minimum  amounts for local
advertising (2% of gross revenues) as required by the Franchise Agreements.  See
"The Pizza Restaurants - Franchise Agreements."                                 

         The Company budgets an average of 3% of Pizza Restaurant sales annually
for advertising and promotion.  The Company's primary marketing philosophy is to
create an enjoyable,  fun dining atmosphere and rely on word-of-mouth to attract
customers.  The Company  supplements  such  philosophy  with  periodic  in-store
promotions and coupons and two or three major advertising spots annually through
cable television, radio, newspaper and/or direct mail. In order to reinforce the
image of the Pizza Restaurants as high-quality  theme  restaurants,  rather than
lost-cost,   low-quality  restaurants,   the  Company  generally  limits  coupon
promotions to special events and the introduction of new products.              

COMPETITION                                                                     

         The  Daily  Grill  restaurants   compete  within  the  rapidly  growing
mid-price,  full-service  casual dining segment.  The Daily Grill's  competitors
include  national  and  regional  chains,   as  well  as  local   owner-operated
restaurants.  The primary  competitors to the Company's  Pizza  Restaurants  are
casual theme restaurant  chains including  Friday's and the Olive Garden.  Rhino
Chasers'  competition  is limited to  restaurants  and bars within the  commuter
terminal of LAX.                                                                

         The restaurant  business is highly  competitive  with respect to price,
service,  restaurant  location  and food  quality  and is affected by changes in
consumer tastes,  economic  conditions and population and traffic patterns.  The
Company believes it competes  favorably with respect to these factors.  However,
many of its competitors have been in existence  longer than the Company,  have a
more  established  market  presence and have  substantially  greater  financial,
marketing  and  other  resources,   which  may  give  them  certain  competitive
advantages.  The Company  believes that its ability to compete  effectively will
continue to depend in large measure on its ability to offer a diverse  selection
of high quality, fresh food products with an attractive price/value relationship
served in a friendly atmosphere.                                                

         Management  believes that its affiliation with, and operation under the
name of, "Pizzeria Uno" provides certain competitive advantages to the Company's
Pizza  Restaurants.  Management  believes  that the quality  products,  friendly
full-service  atmosphere,  diverse  menu and  moderate  prices  associated  with
Pizzeria Uno  restaurants,  and the Company's  Pizza  Restaurants in particular,
enables the Company to compete  effectively with other local and  national-chain
restaurants.                                                                    

EMPLOYEES                                                                       

         The Company and its subsidiaries employ approximately 600 people, 13 of
whom are corporate personnel and 60 of whom are restaurant  managers,  assistant
managers and chefs.  The remaining  employees are restaurant  personnel.  Of the
Company's  employees,  approximately  250  are  full-time  employees,  with  the
remainder being part-time employees.                                            

         None of the Company's  employees are represented by labor unions or are
subject  to  collective  bargaining  or  other  similar  agreements.  Management
believes that its employee relations are good at the present time.              

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TRADEMARKS AND SERVICE MARKS                                                    

         The  Company  regards  its  trademarks  and  service  marks  as  having
significant value and as being important to its marketing  efforts.  The Company
has  registered  its "Daily  Grill" mark and logo and its  "Satisfaction  Served
Daily" mark with the United States Patent and Trademark  Office as service marks
for restaurant  service,  and has secured  California state registration of such
marks. The Company's policy is to pursue registration of its marks and to oppose
strenuously any infringement.                                                   

         Pursuant to the Franchise  Agreements,  the Company's Pizza Restaurants
operate under the "Pizzeria Uno" trademark and service marks. The Franchisor has
undertaken to keep in place and renew, as necessary, its trademark registrations
and to vigorously oppose any infringements of its marks.                        

GOVERNMENT REGULATION                                                           

         The  Company  is  subject  to  various  federal,  state and local  laws
affecting  its  business.  Each  of the  Company's  restaurants  is  subject  to
licensing and  regulation  by a number of  governmental  authorities,  which may
include alcoholic beverage control,  health and safety, and fire agencies in the
state or  municipality  in which the  restaurants  are located.  Difficulties or
failures in  obtaining or renewing  the  required  licenses or  approvals  could
result in temporary or permanent closure of the Company's restaurants.          

         Alcoholic  beverage control  regulations  require each of the Company's
restaurants to apply to a state authority and, in certain locations,  county and
municipal authorities for a license or permit to sell alcoholic beverages on the
premises.  Typically,  licenses  must be renewed  annually and may be revoked or
suspended for cause at any time.  Alcoholic beverage control  regulations relate
to  numerous  aspects  of the  daily  operation  of the  Company's  restaurants,
including minimum age of patrons and employees, hours of operation, advertising,
wholesale purchasing, inventory control, and handling, storage and dispensing of
alcoholic beverages.                                                            

         The Company may be subject in certain states to  "dram-shop"  statutes,
which generally  provide a person injured by an intoxicated  person the right to
recover damages from an establishment  which served alcoholic  beverages to such
person. In addition to potential liability under "dram-shop"  statutes, a number
of  states  recognize  a  common-law   negligence   action  against  persons  or
establishments which serve alcoholic beverages where injuries are sustained by a
third party as a result of the  conduct of an  intoxicated  person.  The Company
presently   carries   liquor   liability   coverage  as  part  of  its  existing
comprehensive general liability insurance.                                      

         Various federal and state labor laws govern the Company's  relationship
with its  employees,  including  such  matters  as  minimum  wage  requirements,
overtime and other working conditions. Significant additional government-imposed
increases in minimum wages, paid leaves of absence and mandated health benefits,
or increased tax reporting  requirements  for employees who receive  gratuities,
could be  detrimental  to the economic  viability of the Company's  restaurants.
Management  is not  aware  of any  environmental  regulations  that  have  had a
material effect on the Company to date.                                         

PROPERTIES                                                                      

         With the exception of the Company's Cherry Hill Pizza  Restaurant,  all
of  the  Company's   restaurants  are  located  in  space  leased  from  parties
unaffiliated with the Company.  The leases have initial terms ranging from 10 to
25 years,  with varying renewal  options on all but one of such leases.  Each of
the leases provides for a base rent plus payment of real estate taxes, insurance
and other expenses,  plus additional  percentage  rents based on revenues of the
restaurant.                                                                     

     The Company's  Cherry Hill Pizza Restaurant is located in space leased from
Denbob Corporation,  a corporation controlled by the Company's chairman,  Robert
L. Wechsler. See "Certain Relationships and Transactions."                      

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         The  Company's  executive  offices are located in 2,000  square feet of
office space  located in Los Angeles,  California.  Such space is leased from an
unaffiliated party on a month to month basis.                                   

         The Company also maintains east coast offices in a building  located in
Cherry Hill, New Jersey.  Such offices are rented on a month-to-month  basis for
$400 per month from the same  affiliated  company from which the Company leases,
and are located in the same complex as, the Cherry Hill restaurant.             

         Management  believes that the Company's  existing  restaurant  space is
adequate to support current operations.  The Company intends to lease additional
office space in the near future and, from time to time, such  additional  office
space and restaurant  sites as management  deems necessary to support its future
growth plans.                                                                   

LEGAL PROCEEDINGS                                                               

         The Company  from time to time is involved in various  claims and legal
actions  arising in the ordinary  course of business,  including  actions  filed
pursuant to  "dram-shop"  laws.  None of such claims or legal actions which have
arisen to date is material in the opinion of management.                        

         The Company is not presently a party to any material pending litigation
nor is the management of the Company aware of any threatened litigation.        

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS                                                

         The  following  table  sets forth the  names,  ages and  offices of the
present  directors and  executive  officers of the Company.  The periods  during
which  such  persons  have  served  in  such  capacities  are  indicated  in the
description of business experience of such persons below.                       

Name and Age                    Position                              
------------                    --------                              
Robert L. Wechsler (67)....... Chairman of the Board                        
  Robert Spivak (53)............ President, Chief Executive Officer and Director
Michael Weinstock (54)........ Vice Chairman of the Board,                  
                          Executive Vice President and Secretary
Tonio Hipp (43)............... Vice President - Western Operations          
John Sola (43)................ Vice President - Executive Chef              
Ben Sumner (61)............... Treasurer and Chief Financial Officer        
Richard Shapiro (53).......... Director                                     
Charles Frank (47)............ Director                                     
Glenn Golenberg (54).......... Director                                     
Peter Balas (64).............. Director                                     

         Officers  and  directors  are elected on an annual  basis.  The present
terms for each director will expire at the next annual  meeting of  shareholders
or at such time as a successor is duly elected. Officers serve at the discretion
of the Board of Directors.  See "Principal and Selling  Stockholders." There are
no family relationships among any of the directors or officers of the Company.  

         The following is a biographical  summary of the business  experience of
the present directors and executive officers of the Company.                    

     Robert L. Wechsler.  Mr.  Wechsler was the founder and served as President,
Chief Executive Officer and Chairman of Magellan Restaurant Systems ("Magellan")
from 1986 to March of 1995.  Following the combination (the "Exchange") of Grill
Concepts, Inc. ("GCI") and Magellan, in March of 1995, Mr. Wechsler stepped down
as President and Chief  Executive  Officer but continues to serve as Chairman of
the Board of the Company.  Mr. Wechsler previously served in various capacities,
including President and Chief Executive Officer, of Wechsler Coffee Corporation,
a coffee wholesaler and roaster,  from 1959 to 1982. Mr. Wechsler also served as
a director of Restaurant Associates,  Inc., a restaurant operating company, from
1969 to 1988.                                                                   

         Robert  Spivak.  Mr.  Spivak  was a  co-founder  of GCI and  served  as
President,  Chief  Executive  Officer  and a director of GCI from 1988 until the
Exchange when he assumed the same positions  with the Company.  Prior to forming
GCI, Mr. Spivak co-founded,  and operated,  The Grill on the Alley restaurant in
Beverly Hills in 1984.  Mr. Spivak  previously  served as (i) vice  president of
Office  Construction   Company,   where  he  headed  that  company's  restaurant
construction  division  from 1980 to 1983,  (ii) a partner  of Soup 'n Such from
1976 to 1980,  (iii) food department  manager of Fedco Stores from 1972 to 1976,
and (iv) manager of Redwood House and Smokey Joe's, both family owned restaurant
operations,  from 1965 to 1972.  Mr.  Spivak  is a  director  of the  California
Restaurant  Association  and a founder and past  president of the Beverly  Hills
Restaurant Association.  Mr. Spivak also served on the board of directors of the
California  Culinary  Academy  of San  Francisco  and  serves  on the  executive
advisory  board of the School of Hotel and  Restaurant  Management at California
State Polytechnic University at Pomona.                                         

         Michael Weinstock.  Mr. Weinstock was a co-founder of GCI and served as
Chairman of the Board, Vice President, Secretary and a director of GCI from 1988
until the Exchange  when he assumed the positions of Vice Chairman of the Board,
Executive Vice President and director of the Company.  Prior to forming GCI, Mr.
Weinstock co-founded The Grill on the Alley restaurant in Beverly Hills in 1984.
Mr.  Weinstock  previously  served as President,  Chief Executive  Officer and a
director of Morse Security Group, Inc., a security systems manufacturer.        

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     Tonio Hipp.  Mr. Hipp served as Director of Food and  Beverage for GCI from
1988 until the Exchange when he assumed the position of Vice President - Western
Operations for the Company.  Mr. Hipp oversees  purchasing and vendor relations,
and  maintenance,  as well as hiring and training of all  management  and dining
room staff for the Daily  Grills.  Mr. Hipp has over 20 years  experience in the
restaurant  industry,  ranging from service as executive  chef at restaurants in
Europe  and  the  United  States  to  ownership  and  operation  of a fast  food
restaurant.   Mr.  Hipp  is  a  co-founder  of  the  Beverly  Hills   Restaurant
Association.                                                                    

     John Sola.  Mr. Sola served as  Executive  Chef for GCI from 1988 until the
Exchange when he assumed the position of Vice  President - Executive Chef of the
Company.  Mr. Sola oversees all kitchen  operations,  including  kitchen design,
recipe development and implementation,  personnel, food purchasing,  preparation
and food vendor  relations,  as well as monitoring and  maintaining  the overall
performance  of  the  kitchens  and  establishing  procedures  and  policies  in
connection with the opening of new Daily Grill restaurants. Mr. Sola, along with
Mr. Spivak,  created the Daily Grill menu. Prior to joining GCI, Mr. Sola served
as  opening  chef at The  Grill on the  Alley  from  inception  in 1984 to 1988.
Previously, Mr. Sola served in various positions, including Executive Chef, at a
wide range of restaurants.                                                      

         Ben Sumner.  Mr. Sumner served as Chief  Financial  Officer of GCI from
May of 1994 until the Exchange  when he assumed the same position as well as the
position of Treasurer with the Company.  Prior to joining GCI, Mr. Sumner served
as Controller of Ecology Control Industries,  a trucking operator,  from 1992 to
1993 and as Vice President of Finance, Secretary and a director of Judy's, Inc.,
a publicly-held retail chain operator, from 1972 until 1990.                    

     Richard  Shapiro.  Mr.  Shapiro  was a  co-founder  of GCI and served  Vice
Chairman, Vice President and a director of GCI from 1988 until the Exchange when
he stepped down as an officer.  Since the Exchange,  Mr. Shapiro has served as a
director of the Company.  Since 1966,  Mr.  Shapiro has served as President  and
Chief  Executive  Officer of Spectrum  Investments,  Inc.,  a Budget  Rent-a-Car
franchisee operating locations throughout California. Spectrum Investments, Inc.
sold all of its franchise rights and terminated  active franchise  operations in
1992.                                                                           

     Charles Frank.  Mr. Frank has served as a director of the Company since the
Exchange in March of 1995.  Since early 1995,  Mr. Frank has served as President
of MSA Industries,  a manufacturing company. Since 1989, Mr. Frank has served as
President of CAF Restaurant  Services,  Inc., a restaurant  consulting firm, and
has provided consulting  services to the Company and its subsidiary,  GCI, since
1994.  From 1992 to 1993,  Mr.  Frank served as  President  and Chief  Operating
Officer of Il Fornaio (America) Corp., a restaurant chain operator.             

     Glenn  Golenberg.  Mr.  Golenberg  has served as a director  of the Company
since the Exchange in March of 1995.  Since 1995,  Mr.  Golenberg  has served as
Managing  Director of  Golenberg & Co., a merchant  banking  firm.  From 1991 to
1995, Mr. Golenberg served as Managing  Director of Golenberg & Geller,  Inc., a
merchant banking firm, which provided  financial services to the Company and GCI
during 1994 and 1995.                                                           

     Peter Balas.  Mr. Balas has served as a director of the Company since 1995.
Mr. Balas has served as an independent  consultant to the  hospitality  industry
for in excess of five years.  Previously,  Mr.  Balas served as President of the
International Hotel Association and in various capacities with Inter-Continental
Hotels,  Inc.,  including Vice  President Food and Beverage,  President and area
Chief   Executive   for  Europe  and  the  Middle   East  and   manager  of  the
Inter-Continental Hotel, Paris.                                                 

COMPENSATION OF DIRECTORS                                                       

         Each  non-employee  director  of the  Company is paid a fee of $500 for
each Board of Directors  meeting  attended and $250 for each  committee  meeting
attended.  The  Company  also  reimburses  each  director  for all  expenses  of
attending such meetings.  Additionally,  each non-employee director is currently
granted  options,  pursuant to the Company's 1995 Stock Option Plan, to purchase
25,000  shares of Common  Stock upon their  initial  appointment  as a director.
Thereafter,  each non-employee director on the day following each annual meeting
of shareholders of the Company shall  automatically  receive options to purchase
an additional 5,000                                                             

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shares,  plus an  additional  1,000  shares  for each  committee  on which  such
non-employee  director  serves.  All such  options are  exercisable  at the fair
market value of the  Company's  Common Stock on the date of grant.  Such options
are fully vested and  exercisable  with respect to all of the shares  covered on
the date of each grant.                                                         

         No additional compensation of any nature is paid to employee directors.

EXECUTIVE COMPENSATION AND OTHER MATTERS                                        

         The following table sets forth information concerning cash and non-cash
compensation  paid or accrued  for  services  in all  capacities  to the Company
during  the year  ended  December  31,  1995 of each  person  who  served as the
Company's  Chief  Executive  Officer  during fiscal 1995 and the four other most
highly paid  executive  officers  whose total annual  salary and bonus  exceeded
$100,000 during the fiscal year ended December 31, 1995 (the "Named Officers"). 

                                                                   Long Term
                         Annual Compensation                        Compensation
                         -------------------                        ------------
                                                    Other Annual   Stock
Name and Principal Position Year  Salary($) Bonus ($) Compensation($) Options(#)
--------------------------- ---- ---------- --------- --------------------------

Robert Spivak (2)............ 1995  138,365    -0-           (1)        75,000  
President and               1994  109,500    -0-           (1)          -0- 
Chief Executive Officer     1993  104,250    -0-           (1)          -0- 
Robert L. Wechsler (3)....... 1995   75,000    -0-           (1)        35,000  
Chairman of the Board       1994   10,405    -0-           (1)          -0- 
                           1993     -0-     -0-           (1)          -0-

(1)       Although  the  officers  receive  certain  perquisites  such  as  auto
          allowances  and Company  provided  life  insurance,  the value of such
          perquisites  did  not  exceed  the  lesser  of  $50,000  or 10% of the
officer's salary and bonus.                                 
(2)       Compensation  indicated  for Mr.  Spivak for periods prior to March of
          1995 represent amounts paid by the Company's subsidiary, GCI, prior to
the combination of Magellan and GCI.                        
(3)       Mr. Wechsler served as Chairman, President and Chief Executive Officer
          of Magellan until the combination of Magellan and GCI in March of 1995
          after  which time he stepped  down as  President  and Chief  Executive
Officer.                                                    

STOCK OPTION PLANS                                                              

          1986 Plan.  The Company  adopted an  Incentive  Stock Option Plan (the
"1986 Plan") in December of 1986.  The purpose of the 1986 Plan is to assist the
Company  and its  subsidiaries  in  retaining  the  services  of and  motivating
selected  key  management  employees  by  providing  the  opportunity  for  such
personnel to acquire a proprietary interest in the Company and thus share in its
growth and success.  A total of 463,215  shares of common stock are reserved for
issuance  under  the 1986  Plan.  The 1986 Plan  provides  for the  granting  of
non-qualified  stock options and "incentive stock options" within the meaning of
Section 422A of the Internal  Revenue Code of 1986 to any  employee,  officer or
director of the Company and its  subsidiaries  (any company in which the Company
owns,  directly or  indirectly,  stock  possessing  fifty percent or more of the
total  combined  voting power of all classes of stock).  The Company's  Board of
Directors  administers  the 1986 Plan and members of the Board of Directors  may
receive awards under the 1986 Plan. The Board designates optionees, the exercise
price of options  (which may not be less than one hundred  percent of the market
value of the shares on the date of grant or one  hundred ten percent of the fair
market  value of the shares with  respect to an optionee who owns ten percent or
more of the Company's common stock at the date of grant),  the date of grant and
the period of the option,  which may not be longer than five years from the date
of grant  with  respect  to an  optionee  who owns  ten  percent  or more of the
Company's common stock at the date of grant and which may not be longer than ten
years from the date of grant with respect to all other optionees.               

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          In lieu of tendering a cash payment to satisfy the option  price,  the
optionee may satisfy all or a portion of such  purchase  price by  delivering to
the Company  shares of common  stock.  Such shares will be valued at fair market
value  at the  date of  exercise.  Executive  officers  of the  Company  may not
exercise any  non-qualified  stock option earlier than six months  following the
date of its grant.                                                              

          In the event of an optionee's  death during the course of  employment,
any option which was exercisable on the date of death may be exercised until one
year  following  the date of  death,  but in no event  later  than the  original
expiration date of the option. Upon the termination of employment of an optionee
for reasons other than death,  the optionee's right to exercise any option which
was  exercisable  on the date of  termination  of  employment  shall  terminate.
Options under the 1986 Plan are non-transferable  other than by will or the laws
of descent and distribution.                                                    

     At December 31, 1995, a total of 45,000 options were outstanding  under the
1986 Plan. The 1986 Plan will terminate on December 1, 1996.                    

          1995 Plan. On June 1, 1995, the Company's  Compensation  Committee and
Board of Directors adopted and approved a new stock option plan for the Company,
the Grill Concepts,  Inc. 1995 Stock Option Plan (the "1995 Plan"),  under which
stock options awards may be made to employees,  directors and consultants of the
Company. The purpose of the 1995 Plan is to promote the interests of the Company
and its  shareholders  by  establishing  a direct  link  between  the  financial
interests  of  participating  employees,   directors  and  consultants  and  the
performance of the Company and enabling the Company to attract and retain highly
competent employees, directors and consultants.                                 

          The 1995 Plan was  approved  by the  shareholders  at the 1996  annual
shareholders  meeting  and became  effective  on the date it was  adopted by the
Board of Directors,  June 1, 1995, and it will remain  effective until the tenth
anniversary  of the  effective  date unless  terminated  earlier by the Board of
Directors.                                                                      

          The  maximum  number of shares of Common  Stock which may be issued or
delivered  and as to which  awards  may be  granted  under the 1995 Plan will be
1,500,000  shares.  The exercise price for a stock option must be at least equal
to 100% of the fair  market  value of the  Common  Stock on the date of grant of
such stock option.                                                              

          The shares of Common  Stock to be issued or  delivered  under the 1995
Plan will be authorized and unissued shares or previously issued and outstanding
shares of Common Stock reacquired by the Company. Shares of Common Stock covered
by any  unexercised  portions of  terminated  options and shares of Common Stock
subject to any  awards  which are  otherwise  surrendered  by plan  participants
without receiving any payment or other benefit with respect thereto may again be
subject to new awards under the 1995 Plan.                                      

          The 1995 Plan is  administered  by the  Compensation  Committee of the
Board  of  Directors.   The  Compensation   Committee  is  comprised  solely  of
non-employee directors of the Company. The Compensation Committee will determine
the employees who will be eligible for and granted awards,  determine the amount
and type of awards,  establish  rules and guidelines  relating to the 1995 Plan,
establish,  modify and  determine  terms and  conditions of awards and take such
other action as may be necessary for the proper administration of the 1995 Plan.

          Any  employee  of the  Company  may be  selected  by the  Compensation
Committee  to  receive  an award  under  the 1995  Plan.  Presently,  there  are
approximately   600  employees   eligible  to  participate  in  the  1995  Plan.
Additionally,  each  non-employee  director  of the Company  will  automatically
receive an award of 25,000  options on their initial  appointment as a director.
Thereafter,  each non-employee director on the day following each annual meeting
of shareholders of the Company shall  automatically  receive options to purchase
an additional  5,000 shares,  plus an additional 1,000 shares for each committee
on  which  such   non-employee   director  serves.   There  are  presently  four
non-employee  directors eligible to participate in the 1995 Plan.  Finally,  key
consultants,  as determined by the Compensation Committee, may receive awards of
non-qualified options under the 1995 Plan.                                      

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          Awards under the 1995 Plan may take the form of stock options  meeting
the requirements of Section 422 of the Internal Revenue Code of 1986 ("Incentive
Stock  Options")  and  stock  options  which  do  not  meet  such   requirements
("Nonqualified  Stock  Options").  Only employees of the Company are eligible to
receive Incentive Stock Options under the 1995 Plan. The duration of each option
will  be  determined  by the  Compensation  Committee,  but no  option  will  be
exercisable  more than ten years  from the date of grant  (or,  with  respect to
Incentive  Stock Options  granted to persons  holding ten percent or more of the
outstanding Common Stock, five years from the date of grant). The exercise price
for stock options must be at least equal to 100% of the fair market value of the
Common Stock on the date of grant of such option (or,  with respect to Incentive
Stock Options  granted to persons holding ten percent or more of the outstanding
Common Stock,  110% of the fair market value of the Common Stock).  The exercise
price  will  be  payable  in  cash or in  such  other  form as the  Compensation
Committee may approve in the  applicable  award  agreement,  including,  without
limitation,  by a cashless  exercise or the delivery to the Company of shares of
Common Stock owned by the participant.                                          

          The  options  will be subject to  restrictions  on  exercise,  such as
exercise in periodic  installments or upon  attainment of specified  performance
criteria,  as determined by the  Compensation  Committee.  Stock options granted
under  the 1995  Plan  will not be  transferable  except  by will or the laws of
descent and distribution  and may be exercised only by a participant  during his
or her lifetime.                                                                

          Unless otherwise determined by the Compensation Committee and provided
in the applicable  option  agreement,  options will be exercisable  within three
months  of  any  termination  of  employment,   including   termination  due  to
disability,  death or normal  retirement (but not later than the expiration date
of the option).                                                                 

          The  Board  may  amend or  terminate  the 1995  Plan at any time  but,
without an optionee's  consent,  no such action will affect or in any way impair
the rights of such optionee under any award granted prior to such action, and no
amendment  will be made without the approval of the  Company's  shareholders  if
such approval is required to maintain the  compliance of the 1995 Plan with Rule
16b-3 of the Securities  and Exchange  Commission or Section 422 of the Internal
Revenue Code of 1986.                                                           

          The amount of shares  authorized to be issued under the 1995 Plan, and
the terms of outstanding  stock options,  may be adjusted to prevent dilution or
enlargement  of  rights  in the  event of any  stock  dividend,  reorganization,
reclassification,    recapitalization,   stock   split,   combination,   merger,
consolidation or other capitalization change of similar effect.                 

          The Company has the right to deduct from an optionee's  salary,  bonus
or other  compensation any taxes required to be withheld with respect to options
granted under the 1995 Plan.                                                    

          The following is a brief summary of the principal  federal  income tax
consequences of awards under the 1995 Plan based upon current federal income tax
laws. The summary is not intended to be exhaustive and, among other things, does
not  describe  state,  local or foreign  tax  consequences.  An  optionee is not
subject  to  federal  income  tax  either at the time of grant or at the time of
exercise of an Incentive  Stock Option.  However,  some optionees are subject to
the  "alternative  minimum tax" and the amount by which the fair market value of
the Common Stock  subject to an  Incentive  Stock Option on the date of exercise
exceeds the exercise price will generally be added to the optionee's  income for
purposes of calculating  his or her alternative  minimum  taxable income.  If an
optionee  does not  dispose  of shares  of Common  Stock  acquired  through  the
exercise of an Incentive  Stock Option  within one year after their  receipt and
within two years after the date of grant of the Incentive  Stock Option  (either
event, a  "disqualifying  disposition")  the taxable income  recognized upon the
sale of such shares will be taxed at the long-term capital gains rate.          

          The Company will not receive any tax deduction in connection  with the
exercise  of  an  Incentive   Stock  Option  unless  there  is  a  disqualifying
disposition.  If there is a  disqualifying  disposition,  the  optionee  will be
treated as receiving  compensation subject to ordinary income tax in the year of
the  disqualifying  disposition  and the  Company  will be  entitled to an equal
deduction for compensation expense. The tax will be imposed on the lesser of (i)
the  difference  between  the  fair  market  value  of the  stock at the time of
exercise  and the  exercise  price or (ii) the  amount of gain  realized  on the
disposition.  Any appreciation in value after the time of exercise will be taxed
as capital gain and will not result in any deduction by the Company.            

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          If Nonqualified Stock Options are granted to an optionee, there are no
federal  income tax  consequences  at the time of grant.  Upon  exercise  of the
option,  the optionee will recognize  ordinary  income in an amount equal to the
difference  between the  exercise  price and the fair market value of the Common
Stock on the date of exercise.  When the optionee  thereafter  sells the shares,
the  difference  between  any amount  realized  on such sale and the fair market
value of the shares at the time of  exercise  will be taxed as  capital  gain or
loss, which will be short-term or long-term, depending on whether the applicable
capital gain holding period has been satisfied.                                 

         Options to acquire a total of 633,000  shares of common stock have been
granted to date under the 1995 Plan and remain outstanding.  The options granted
to date  under the 1995 Plan are  exercisable  at prices  ranging  from $1.17 to
$1.48 per share and  expire  between  May of 2000 and May of 2006.  All  options
granted  under the 1995 Plan to  employees  vest ratably over a five year period
while options granted to non-employee directors and consultants vest immediately
upon issuance.                                                                  

STOCK OPTION GRANTS                                                             

         The  following  table sets forth  information  concerning  the grant of
stock options made during 1995 to each of the Named Officers:                   

Percent of
 Total Options
Granted to
                   Options   Employees in      Price        Expiration
 Name          Granted (1) Fiscal Year    Per Share         Date
  ----          ----------- -----------    ---------       -------

Robert Spivak.........   75,000        20.1%       $ 1.48          05/31/00     
Robert L. Wechsler....   35,000         9.4%         1.34          05/31/05     

(1)  All options were granted  under the Company's  1995 Plan.  All such options
     became  exercisable 20% in December of 1995 and 20% on each  anniversary of
     the grant of such options  commencing with the second  anniversary.  See "-
Stock Option Plans - 1995 Plan."                                      

STOCK OPTION EXERCISES                                                          

          The following table sets forth information  concerning the exercise of
stock options during 1995 by each of the Named Officers and the number and value
of unexercised options held by the Named Officers at the end of 1995:           

                                                        [Enlarge/Download Table]


                                                Number of Unexercised                 Value of Unexercised       
                       Shares                        Options at                        In-the Money Options      
                     Acquired on   Value             at FY-End (#)                       at FY-End ($)<F1>       
                                             -------------------------------       -----------------------       
         Name        Exercise (#) Realized ($) Exercisable   Unexercisable        Exercisable       Unexercisable
         ----       ------------ ------------  -----------   -------------        -----------       -------------
                                                                                                                 
Robert Spivak........   -0-          -0-         15,000        60,000               -0-                 -0-      
Robert L. Wechsler...   -0-          -0-         47,000        28,000               -0-                 -0-      

<FN>                                                                                                             

<F1>     Based on the fair  market  value per share of the Common  Stock at year                                 
         end, minus the exercise price of  "in-the-money"  options.  The closing                                 
         price for the Company's Common Stock on December 29, 1995 on the Nasdaq                                 
         Small-Cap  Market was $1.25.  Accordingly,  none of the options held at                                 
         year-end were "in-the-money."                                                                           

</FN>                                                                                                            

EMPLOYMENT CONTRACTS                                                            

         Pursuant to the terms of the combination  between Magellan and GCI, the
Company  entered  into an  employment  agreement  with its  Chairman,  Robert L.
Wechsler,  commencing  December  1, 1994 and  running  for a term of five years.
Pursuant to such agreement, Mr. Wechsler serves as Chairman of the Board of the 

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Company and receives an annual salary of $75,000.  Such agreement  provides that
unless it is terminated for "cause" on the part of Mr. Wechsler, Mr. Wechsler or
his estate  will  continue  to receive  payments  thereunder  for the full term,
regardless of his death, disability or other termination.                       

         Effective  January  1,  1996,  the  Company  entered  into a three year
employment  agreement  with Robert  Spivak,  the  Company's  President and Chief
Executive  Officer.  Mr. Spivak's  employment  agreement  provides for an annual
salary of $150,000 in 1996,  $175,000 in 1997 and $200,000 in 1998. In addition,
such  agreement  provides  that Mr.  Spivak  shall  receive  the use of a leased
automobile  and  reimbursement  of all expenses  related to the use  thereof,  a
$1,500 per month non-accountable expense allowance, five weeks paid vacation per
year, a $1,000,000 term life insurance policy, reimbursement of business related
travel and meal expenses and participation in all medical,  retirement and other
benefit plans available to the Company's executives.                            

         The  Company  has  no  other  employment  agreements  with  any  of its
employees.                                                                      

EXCULPATION AND INDEMNIFICATION ARRANGEMENTS                                    

         The Delaware Supreme Court has held that a director's duty of care to a
corporation and its stockholders  requires the exercise of an informed  business
judgment.   Having  become  informed  of  all  material  information  reasonably
available to them,  directors  must act with  requisite care in the discharge of
their duties.  However, the Company's Certificate of Incorporation  provides, as
permitted under Delaware law, that no director shall be personally liable to the
Company or any of its  stockholders for monetary damages for breach of fiduciary
duty as a  director.  This  limitation  will apply in all  instances  except for
liability imposed by statute: (i) for any breach of a director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve  intentional  misconduct  or knowing  violation of law or (iii)
pursuant to Section 174 of the  Delaware  General  Corporation  Law (which makes
directors personally liable for unlawful dividends or unlawful stock repurchases
or redemptions in certain circumstances).  The limitation of liability provision
does  not  eliminate  a  stockholder's  right  to seek  non-monetary,  equitable
remedies  such as  injunction  or  rescission  to  redress  an  action  taken by
directors.  However,  as a  practical  matter,  equitable  remedies  may  not be
available  in all  situations,  and there may be instances in which no effective
remedy is available.                                                            

         In addition,  the Company's  Certificate  of  Incorporation  and Bylaws
provide for the indemnification of the directors, officers, employees and agents
of the Company to the full  extent  permitted  by  Delaware  law, in addition to
various procedures relating thereto.  Under Delaware law,  directors,  officers,
employees and other individuals may be indemnified  against expenses  (including
attorneys' fees), judgments,  fines and amounts paid in settlement in connection
with  specified  actions,   suits  or  proceedings,   whether  civil,  criminal,
administrative or investigative  (other than a "derivative  action" by or in the
right of the  corporation)  if they  acted in good  faith  and in a manner  they
reasonably  believed  to be in or not  opposed  to  the  best  interests  of the
corporation  and,  with respect to any  criminal  action or  proceeding,  had no
reasonable  cause to believe their conduct was unlawful.  A similar  standard of
care  is   applicable  in  the  case  of  a  derivative   action,   except  that
indemnification only extends to expenses (including attorneys' fees) incurred in
connection  with the defense or  settlement  of such an action and  Delaware law
requires  court  approval  before there can be any  indemnification  of expenses
where  the  person  seeking   indemnification  has  been  found  liable  to  the
corporation.   Delaware  law  further  provides  that  the  indemnification  and
advancement  of expenses  provided  by, or granted  pursuant to,  provisions  of
Delaware  law shall not be deemed  exclusive  of any other rights to which those
seeking  indemnification  or  advancement  of expenses may be entitled under any
bylaw, agreement,  vote of stockholders or disinterested directors or otherwise.
In the event that certain provisions of California  corporate law are applicable
to the Company (see  "Description  of  Securities -  Application  of  California
Corporate Law Following  1996"),  California's  indemnification  provisions will
apply  in  lieu of  Delaware's.  Such  provisions  are,  however,  substantially
identical to Delaware's.                                                        

         It is the position of the  Commission  that insofar as  indemnification
for liabilities  arising under the Securities Act may be permitted to directors,
officers  and  controlling  persons of the  Company  pursuant  to the  foregoing
provisions,  or  otherwise,  the Company has been advised that in the opinion of
the Commission,  such  indemnification  is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.                            

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CERTAIN RELATIONSHIPS AND TRANSACTIONS

         In February of 1996, the Company entered into an agreement in principle
to acquire The Grill  restaurant in Beverly  Hills for 850,000  shares of common
stock. The Grill was established by Messrs.  Spivak,  Weinstock and Shapiro, the
principal  shareholders and directors of the Company, and was owned and operated
by a partnership of which Messrs.  Spivak,  Weinstock and Shapiro controlled the
managing partner and 50.9% of the total partnership  interests.  Messrs. Spivak,
Weinstock  and  Shapiro  abstained  from voting on such  transaction,  both with
respect to  determination  by the Company's Board to pursue such transaction and
the  partnership's  determination to pursue the transaction.  The acquisition of
The Grill was  consummated  in April of 1996. As a result of the  acquisition of
The Grill,  Messrs.  Spivak,  Weinstock  and Shapiro  received an  aggregate  of
432,735 shares of common stock of the Company.                                  

         Since June of 1989,  the Company has leased its Cherry Hill  restaurant
from Denbob Corporation ("Denbob"),  a company controlled by Robert L. Wechsler,
the Company's Chairman,  and Dennis Pedra, the former President of Magellan. The
premises are occupied  under a twenty year lease with annual rent  commencing at
approximately  $118,500,  plus 6% of annual gross sales in excess of $1,800,000,
15% of the landlord's cost for leasehold  improvements,  equipment and fixtures,
and a pro rata share of real  estate  taxes,  insurance  and other  common  area
charges.  After five years, the Company had the option to pay for all or part of
any  improvements and reduce or eliminate the 15% additional rent. At the end of
each  five  years,  the rent and the  gross  sales  level at which the 6% charge
commences  increase by 15%.  During 1995,  the Company also entered into a lease
with  Denbob  pursuant  to which the  Company  leases  office  space in the same
facility which houses the Cherry Hill restaurant.  Such offices,  which serve as
the Company's east coast offices,  are leased on a month to month basis for $400
per month.  During  fiscal year 1995,  the  Company  paid a total of $231,990 to
Denbob for the lease of the Cherry Hill restaurant and office space.            

         On August 1, 1993,  the Company  exercised  the option under the Cherry
Hill lease to purchase certain  fixtures,  equipment and leasehold  improvements
used therein and reduce the 15% additional  rent provided for in the lease.  The
purchase  price of the  items  acquired  was  $618,740  and was  evidenced  by a
promissory  note bearing  interest at 15% and payable on an interest  only basis
until  August 1, 1995,  when the balance of such note was due. In lieu of paying
the note in full at August 1,  1995,  the  Company  could  notify  Denbob of its
intent to pay such balance in monthly  installments  of $4,166.66  plus interest
until August 1, 1998,  when the entire unpaid  balance would be due and payable.
The  depreciated  basis of the  assets  on the  books of  Denbob at the time the
option was exercised,  computed in accordance with generally accepted accounting
principles, was $532,558.                                                       

         Pursuant  to the  terms  of the  Exchange  between  Magellan  and  GCI,
Magellan  was  required to reconvey the Cherry Hill assets to Denbob in exchange
for the extinguishment of the debt evidenced by the promissory note delivered to
Denbob by Magellan  and  representing  the full  purchase  price of such assets.
Magellan was required to add such assets back to the existing lease with respect
to the Cherry Hill  restaurant  on terms  identical to the original  lease.  The
reconveyance of such assets, extinguishment of the related debt and the addition
of such assets to the existing lease from Denbob was  consummated in November of
1994.                                                                           

         The Company  believes  that its leases with Denbob are on terms no less
favorable to the Company than could have been obtained from  unaffiliated  third
parties. Such belief is based on management's knowledge of the prevailing rental
market in the area at the time the leases were entered into, as well as a review
of the  Company's  leases with third party  landlords on its other  restaurants,
each of which contains comparable percentage lease provisions and other charges.

         In November of 1992, Mr.  Wechsler and Louis Resnick,  a stockholder of
Magellan, loaned $427,209.48 and $650,000, respectively, to Magellan. Such loans
were unsecured and were repayable in full, with interest  accruing on the unpaid
balance at 9% per annum, in monthly  installments of interest with the principal
balance due on January 15, 1994. Such persons extended the maturity date of such
loans during the third  quarter of 1993 until  January of 1995 and  subsequently
further extended the date for repayment of $650,000 of such loans until November
of 1996,  with the balance of such loans,  in the amount of $427,209 owed to Mr.
Wechsler,  being converted to preferred  stock.  The loans from Mr. Wechsler and
Mr. Resnick were made in order to provide adequate capital to Magellan to pursue
acquisitions and other corporate opportunities pending the receipt of           

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proceeds from the exercise of warrants.  Pending the use of such loan  proceeds,
such  proceeds  were  added  to  Magellan's  working  capital  and  invested  in
short-term U.S. government  obligations.  Repayment of the loan from Mr. Resnick
was unconditionally guaranteed by Mr. Wechsler.                                 

         In February of 1994,  Mr.  Wechsler and Christi Pedra, a stockholder of
Magellan,  loaned  $61,473 and $50,000,  respectively,  to Magellan.  Such loans
accrued interest at 5% per annum, with accrued interest being payable at the end
of the first year and the balance being repayable in full with accrued  interest
in two years.  The proceeds of such loans were used to partially prepay the loan
from  Louis  Resnick  described  above.  In July of 1994,  Magellan  repaid  the
remaining balance of $550,000 owed to Louis Resnick from funds received upon the
exercise of outstanding warrants.                                               

     Pursuant to discussions  with management of GCI, in August of 1994 Magellan
redeemed the preferred stock which it had previously  issued to Mr. Wechsler and
paid the balance of the remaining  indebtedness  owed to Mr. Wechsler and to Ms.
Pedra.                                                                          

         In connection with the formation of the partnership (the "Partnership")
which operated the Company's  Tailgators Sports Pub, Pante,  Inc., a corporation
controlled by Joseph Pante,  a former  Executive  Vice President of Magellan and
former  Vice  President  - Eastern  Operations  of the  Company,  acquired  a 6%
partnership  interest in the Partnership for $24,336.  Such partnership interest
entitled  Pante,  Inc.  to  10% of  the  first  $20,000  of  net  income  of the
partnership,  10% of 20% of the cash flow from the partnership and 6% of profits
and losses thereafter.  The partnership agreement also provided that Pante, Inc.
would be paid a  consulting  fee  equal  to 0.4% of the  gross  receipts  of the
Partnership,  with such  consulting fee to terminate  when aggregate  consulting
fees paid to Pante,  Inc. equaled $26,500.  Pante, Inc. was permitted to acquire
such  partnership  interest  as  incentive  for the  efforts of Joseph  Pante in
bringing the partnership's restaurant operational and overseeing its management.

         Charles  Frank,  a  director  of GCI  and a  director  of  the  Company
following the Exchange,  has provided  consulting services to GCI since 1993 and
to the Company  following the Exchange.  Mr. Frank billed consulting fees to the
Company (including GCI) totaling $40,915 during 1994 and $12,655 during 1995.   

         Golenberg & Geller,  Inc.,  a firm  controlled  by Glenn  Golenberg,  a
director of the Company following the Exchange,  provided  financial services to
GCI in  connection  with the Exchange and various other  matters.  In connection
with the  Exchange,  Golenberg  & Geller,  Inc.  received  $75,000  and  Messrs.
Golenberg and Geller each received  37,500 shares of Common Stock of the Company
for services in connection  with the Exchange.  In addition,  the Company issued
25,000 warrants each to Mr. Golenberg and Mr. Geller, for services in connection
with a private placement conducted in connection with the Exchange. The warrants
are exercisable for a period of five years to purchase common stock at $3.00 per
share.                                                                          

         The Company has no existing corporate policy which prohibits or governs
the terms of any such transactions. Any such transactions are, however, reviewed
by the Audit Committee to determine the fairness of such transactions.          

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PRINCIPAL AND SELLING SHAREHOLDERS

     The following table sets forth certain information regarding the beneficial
ownership of the Company's  Common Stock as of September 6, 1996 and as adjusted
to reflect the sale of the shares of Common Stock offered hereby, by (i) each of
the Company's directors,  (ii) each Named Officer,  (iii) all executive officers
and  directors  as a group,  (iv) each person who is known by the Company to own
beneficially  more than 5% of the Company's  Common Stock,  and (v) each Selling
Stockholder.                                                                    

                                                        [Enlarge/Download Table]


                                            Shares Beneficially Owned        Shares to    Shares Beneficially Owned 
 Name and Address                             Prior to Offering <F1><F2>       be Sold       After Offering <F1><F2>
                                            ----------------------------                 ------------------------   
of Beneficial Owner                          Number             Percent     in Offering    Number            Percent
                                                                                                                    
Robert Spivak...............................  2,266,063 <F3>      16.2            0         2,266,063   <F3>  16.1  
 11661 San Vicente Blvd., Ste 404                                                                                   
 Los Angeles, CA 90049                                                                                              
Michael Weinstock...........................  2,370,150 <F4>      16.9            0         2,370,150   <F4>  16.8  
 11661 San Vicente Blvd., Ste 404                                                                                   
 Los Angeles, CA 90049                                                                                              
Robert Shapiro..............................  2,447,076 <F5>      17.4            0         2,447,076   <F5>  17.3  
 11661 San Vicente Blvd., Ste 404                                                                                   
 Los Angeles, CA 90049                                                                                              
Robert L. Wechsler..........................    645,122 <F6>       4.6            0           645,122   <F6>   4.5  
Charles Frank...............................    103,568 <F7>        *             0           103,568   <F7>    *   
Glenn Golenberg.............................     87,500 <F8>        *        62,500 <F9>       25,000   <F9>    *   
Peter Balas.................................     25,000 <F10>       *             0            25,000   <F10>   *   
All executive officers and                                                                                          
 directors as a group (10 persons)..........  8,052,232 <F11>     55.9       62,500 <F9>    7,989,823   <F11> 55.1  
Marshall Geller.............................     62,500 <F12>       *        62,500 <F12>           0           -   
Millennium Capital Corp.....................     62,500 <F13>       *        62,500 <F13>           0           -   
Whale Securities Co., L.P...................     62,500 <F14>       *        62,500 <F14>           0           -   
Raymond Adams...............................      5,219             *         5,219                 0           -   
1991 Barkin Family Exemption Trust..........      2,610             *         2,610                 0           -   
1994 Joyce Barkin Revocable Trust...........      2,610             *         2,610                 0           -   
Jeffrey and Laura Benson Family Trust.......     23,525             *        10,430            13,095           *   
Brown Family Trust "A"......................     10,430             *        10,430                 0           -   
Maxwell M. and Sally Blecher................     45,176             *        10,430            34,746           *   
M&P Blumenthal Family Trust.................     10,430             *        10,430                 0           -   
Abbott L. Brown.............................      5,215             *         5,215                 0           -   
Phil Caldwell Inc. Defined Benefit                                                                                  
  Pension Plan..............................     36,278             *         5,215            31,063           *   
Estate of Conrad J. Cornfeldt...............      6,953             *         6,953                 0           -   
James F. Donald.............................      5,219             *         5,219                 0           -   
Edwards 1991 Family Trust...................     10,430             *        10,430                 0           -   
Robert A. Finkelstein.......................      5,219             *         5,219                 0           -   
Flame, Sanger, Grayson & Ginsburg...........      5,219             *         5,219                 0           -   
Frank Living Trust..........................      5,215             *         5,215                 0           -   
Phyllis Gelber..............................     10,430             *        10,430                 0           -   
Lessing E. Gold.............................      5,219             *         5,219                 0           -   
Sam Goldstein...............................     10,430             *        10,430                 0           -   
Richard and Irene Hirsch....................     25,679             *         5,219            20,460           *   
E. Gregory Hookstratten.....................     10,430             *        10,430                 0           -   
Peter Horton................................     15,449             *         5,219            10,230           -   
Howard Family Trust.........................     10,430             *        10,430                 0           -   
Mary Kinzelberg.............................      5,219             *         5,219                 0           -   

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Landers Family Trust........................     10,430             *        10,430                 0           -   
Lana Leavitt................................     45,176             *        10,430            34,746           *   
Suzanne Lehman Trust........................      3,477             *         3,477                 0           -   
Allan Ludwig................................     41,727             *        41,727                 0           -   
Jacqueline L. Moss..........................     10,430             *        10,430                 0           -   
Abe Perlmutter..............................      5,219             *         5,219                 0           -   
Michelle Pfeiffer...........................     44,020             *         5,219            38,801           *   
Arthur L. Price.............................     10,430             *        10,430                 0           -   
Mazel Trust I...............................      5,215             *         5,215                 0           -   
Norman Rubin................................      5,219             *         5,219                 0           -   
Bruce Shapiro...............................     23,937             *         3,477            20,460           *   
Shapiro Family Trust........................     30,890             *        10,430            20,460           *   
Phil Singer.................................     10,430             *        10,430                 0           -   
Bette Sirota................................     10,430             *        10,430                 0           -   
M. Melvin and Bette Sirota..................     10,430             *        10,430                 0           -   
Lawrence J. Solomon.........................      5,215             *         5,215                 0           -   
Ralph L. Spear..............................     10,430             *        10,430                 0           -   
Sperber Living Trust........................      5,219             *         5,219                 0           -   
Grant A. Tinker.............................     10,430             *        10,430                 0           -   
David C. and Gail Towbin....................      6,953             *         6,953                 0           -   
Leon B. Ungar...............................     10,430             *        10,430                 0           -   
Jack J. Walker..............................      5,219             *         5,219                 0           -   
Anne Weinstock..............................     10,430             *        10,430                 0           -   
G. & L. Weinstock Family Trust..............     20,861             *        20,861                 0           -   

*        Less than 1%.                                                                                              
<FN>                                                                                                                

<F1> The persons named in the table have sole voting and  investment  power with                                    
     respect to all shares of Common Stock shown as beneficially  owned by them,                                    
     subject to community  property laws, where applicable,  and the information                                    
     contained in the footnotes to the table.                                                                       

<F2> Includes shares of Common Stock not  outstanding,  but which are subject to                                    
     options  and  warrants  exercisable  within  60  days  of the  date  of the                                    
     information set forth in this table, which are deemed to be outstanding for                                    
     the purpose of  computing  the shares held and  percentage  of  outstanding                                    
     Common  Stock with respect to the holder of such  options.  Such shares are                                    
     not,  however,  deemed to be  outstanding  for the purpose of computing the                                    
     percentage of any other person.                                                                                

<F3> Includes  (i)  1,704,364  shares  owned  beneficially  and of record by Mr.                                    
     Spivak,  (ii) 15,000 shares out of 75,000 shares  issuable upon exercise of                                    
     incentive stock options held by Mr. Spivak, and (iii) 546,699 shares out of                                    
     1,640,099  shares held  equally by Robert  Spivak,  Michael  Weinstock  and                                    
     Richard Shapiro which are pledged to a former  stockholder of GCI to secure                                    
     the repayment of a $1,400,000  note  evidencing  the purchase price of such                                    
     shares.  Excludes  certain shares held by the spouse,  children and certain                                    
     trusts  for the  benefit  of  family  members.  Mr.  Spivak  disclaims  any                                    
     beneficial interest in such shares.                                                                            

<F4> Includes  (i)  1,753,950  shares  owned  beneficially  and of record by Mr.                                    
     Weinstock as trustee of the Michael  Weinstock  Living  Trust,  (ii) 69,500                                    
     shares out of 97,500  shares  issuable  upon  exercise of  incentive  stock                                    
     options held by Mr.  Weinstock,  and (iii) 546,700  shares out of 1,640,099                                    
     shares held equally by Robert Spivak, Michael Weinstock and Richard Shapiro                                    
     which are pledged to a former stockholder of GCI to secure the repayment of                                    
     a $1,400,000  note  evidencing the purchase price of such shares.  Excludes                                    
     certain  shares held by the  spouse,  children  and certain  trusts for the                                    
     benefit of family members.  Mr. Weinstock disclaims any beneficial interest                                    
     in such shares.                                                                                                

<F5> Includes  (i)  1,812,876  shares  owned  beneficially  and of record by Mr.                                    
     Shapiro,  (ii) 87,500 shares issuable upon exercise of non-qualified  stock                                    
     options  held by Mr.  Shapiro,  and (iii)  546,700  shares out of 1,640,099                                    
     shares held equally by Robert Spivak, Michael Weinstock and Richard Shapiro                                    
     which are pledged to a former stockholder of GCI to secure the repayment of                                    
     a $1,400,000  note  evidencing the purchase price of such shares.  Excludes                                    
     certain  shares held by the  spouse,  children  and certain  trusts for the                                    
     benefit of family members. Mr. Shapiro disclaims any beneficial interest in                                    
     such shares.                                                                                                   

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<F6> Includes  (i)  499,970  shares  owned  beneficially  and of  record  by Mr.                                    
     Wechsler,  (ii) 47,000 shares  issuable  upon exercise of 75,000  incentive                                    
     stock  options,  and (iii)  98,152  shares  issuable  upon the  exercise of                                    
     warrants held by Mr. Wechsler. Excludes certain shares held by the Wechsler                                    
     Foundation,  the spouse and children of Mr.  Wechsler with respect to which                                    
     Mr. Wechsler disclaims beneficial ownership.                                                                   

<F7> Includes (i) 78,568 shares owned  beneficially  and of record by Mr. Frank,                                    
     and (ii)  25,000  shares  issuable  upon  exercise of  non-qualified  stock                                    
     options held by Mr. Frank.                                                                                     

<F8> Includes  (i)  37,500  shares  owned  beneficially  and  of  record  by Mr.                                    
     Golenberg, (ii) 25,000 shares issuable upon exercise of non-qualified stock                                    
     options,  and (iii) 25,000  shares  issuable  upon  exercise of Finders Fee                                    
     Warrants held by Mr. Golenberg. See "Description of Securities - Warrants."                                    

<F9> Assumes  the sale by Mr.  Golenberg  from time to time of 37,500  shares of                                    
     Common Stock held of record and 25,000 shares of Common Stock issuable upon                                    
     exercise of the Finders Fee Warrants.                                                                          

<F10>Includes (i) 25,000 shares  issuable upon exercise of  non-qualified  stock                                    
     options held by Mr. Balas.                                                                                     

<F11>Includes  437,152  shares of Common  Stock  subject  to stock  options  and                                    
     warrants held by the officers and directors and exercisable within 60 days.                                    

<F12>Assumes  the sale by Mr.  Geller  from  time to time of  37,500  shares  of                                    
     Common Stock held of record and 25,000 shares of Common Stock issuable upon                                    
     exercise of the Finders Fee Warrants.                                                                          

<F13>Assumes the sale by Millennium  Capital  Corp.  from time to time of 37,500                                    
     shares of Common  Stock held of record and  25,000  shares of Common  Stock                                    
     issuable upon exercise of the Finders Fee Warrants.                                                            

<F14>Assumes the sale by Whale  Securities Co., L.P. from time to time of 37,500                                    
     shares of Common  Stock held of record and  25,000  shares of Common  Stock                                    
     issuable upon exercise of the Finders Fee Warrants.                                                            

</FN>                                                                                                               

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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's common stock is currently traded in the  over-the-counter
market and is quoted on the Nasdaq Small-Cap Market  ("Nasdaq") under the symbol
"GRIL".  The  Company's  common  stock  commenced  quotation on Nasdaq under the
symbol  "MGRS" on December 8, 1993.  Prior to such date,  the  Company's  common
stock was  quoted in the  over-the-counter  market on the NASD  Bulletin  Board.
Prior to the  commencement  of quotations on Nasdaq,  the trading  market in the
Company's common stock was sporadic. The following table sets forth the high and
low bid price per share for the Company's common stock for each quarterly period
since the commencement of trading on Nasdaq:                                    

                                                  High           Low
                                                  ----           ---
1994  -  First Quarter                                 6-1/4             1/2    
     Second Quarter                                1-11/16           1/2
      Third Quarter                                 5-1/8           1-5/16
       Fourth Quarter                                4-13/16         2-11/16

1995  -  First Quarter                                 3-1/32 2                 
     Second Quarter                                2                 7/8
      Third Quarter                                 1-13/16         1-1/16
      Fourth Quarter                                1-3/4           1-1/32

1996  -  First Quarter                                 1-11/16         1-1/8    
      Second Quarter                                1-11/16         1-3/16

         The quotations  reflect  inter-dealer  prices  without retail  mark-up,
mark-down or commission and may not represent actual transactions.              

At September 10, 1996, the bid price of the Common Stock was $2.00.   

     As of September 10, 1996, there were approximately 451 holders of record of
the Common Stock of the Company.                                                

     The  Company  has never  declared  or paid any cash  dividend on its Common
Stock and does not expect to declare or pay any such dividend in the foreseeable
future.                                                                         

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 DESCRIPTION OF SECURITIES

COMMON STOCK                                                                    

     GENERAL.  The Company presently has 20,000,000  authorized shares of common
stock, $.00001 par value, 13,972,260 shares of which were issued and outstanding
at  September  6, 1996.  All shares of common stock  currently  outstanding  are
validly issued, fully paid and non-assessable, and all shares which are issuable
pursuant  to the  exercise of the Finders Fee  Warrants,  when  issued,  will be
validly issued, fully paid and non-assessable.                                  

         VOTING  RIGHTS.  Each share of Common Stock entitles the holder thereof
to one vote,  either in person or by proxy,  at  meetings of  stockholders.  The
holders are not, and will not be,  permitted to vote their shares  cumulatively,
subject to the  application  of California law (see "- Application of California
Corporate Law Following 1996" below). Accordingly,  the holders of more than 50%
of the issued and  outstanding  shares of common stock are, and will continue to
be,  able  to  elect  all of the  directors  of the  Company  unless  and  until
California law is applicable. See "Principal Shareholders."                     

         DIVIDEND POLICY. All shares of Common Stock are entitled to participate
ratably in dividends  when and as declared by the  Company's  Board of Directors
out of funds legally available therefor. Any such dividends may be paid in cash,
property or additional shares of common stock. The Company has not paid any cash
or other  dividends  since its  inception  and  presently  anticipates  that all
earnings, if any, will be retained for development of the Company's business. As
a result,  no  dividends  on the shares of the  Company's  Common  Stock will be
declared in the foreseeable  future. Any future dividends will be subject to the
discretion of the Company's Board of Directors and the rights of any outstanding
preferred stock, and will depend upon, among other things, future earnings,  the
operating  and  financial  condition of the Company,  its capital  requirements,
general business conditions and other pertinent facts.  Therefore,  there can be
no assurance that any dividends on the Common Stock will ever be paid.          

         CERTAIN CHARTER  PROVISIONS AND ANTI-TAKEOVER  EFFECTS OF DELAWARE LAW.
As noted below,  the Company's  Board of Directors has authority to issue shares
of  preferred  stock  and  to  fix  the  rights,  preferences,   privileges  and
restrictions,  including voting rights, of those shares without any further vote
or action by the stockholders.  The issuance of preferred stock, while providing
desirable  flexibility  in  connection  with  possible  acquisitions  and  other
corporate  purposes,  could  have the effect of making it more  difficult  for a
third  party to  acquire  a  majority  of the  outstanding  voting  stock of the
Company,  thereby  delaying,  deferring or preventing a change in control of the
Company.                                                                        

         The Company is subject to the  anti-takeover  provisions of Section 203
of the Delaware General  Corporation Law. In general,  that statute  prohibits a
publicly-held  Delaware  corporation  from engaging in a "business  combination"
with an "interested  stockholder"  for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting  in  a  financial  benefit  to  the  interested  stockholder,  and  an
"interested   stockholder"  is  a  person  who,  together  with  affiliates  and
associates,  owns  (or  within  three  years  prior,  did  own) 15% or more of a
corporation's voting stock.                                                     

         MISCELLANEOUS  RIGHTS AND  PROVISIONS.  Holders of Common Stock have no
preemptive or other subscription rights, conversion rights, redemption rights or
sinking fund provisions.  In the event of the dissolution,  whether voluntary or
involuntary,  of the Company, subject to the rights of any outstanding preferred
stock,  each share of Common Stock is, or will be,  entitled to share ratably in
any assets  available for  distribution  to holders of the equity of the Company
after satisfaction of all liabilities.                                          

PREFERRED STOCK                                                                 

         The Company has 1,000,000  authorized shares of preferred stock, $0.001
par value.  The Board of  Directors  has the  authority,  without  action by the
stockholders,  to create one or more series of preferred  stock and to determine
the dividend rights, dividend rate, rights and terms of redemption,  liquidation
preferences,                                                                    

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sinking fund terms, and conversion and voting rights of any such series, as well
as the number of shares constituting any such series and the designation thereof
and the price therefor.                                                         

     As of September 6, 1996, 1,300 shares of Series A 10% Convertible Preferred
Stock ("Series A Preferred  Stock") were issued and  outstanding.  Each share of
Series A Preferred  Stock entitles the holder hereof to annual  dividends in the
amount of $100 payable  semi-annually  and carries a  liquidation  preference of
$1,000 per share.  The Series A Preferred Stock is convertible,  at the holders'
option, into Common Stock of the Company at the lesser of $2.25 per share or 85%
of the average  closing bid price of the Common  Stock for the five trading days
preceding notice of conversion,  subject to a minimum conversion price of $1.125
per  share.  The  holders  of shares of Series A  Preferred  Stock may cause the
shares to be  redeemed  on or after June 17,  2000,  subject to the right of the
Company to redeem such shares or cause the conversion of such shares on or after
June 17, 1998.                                                                  

WARRANTS                                                                        

     As of  September  6,  1996,  the  Company  had issued  and  outstanding  an
aggregate of 540,793 warrants to purchase Common Stock.                         

         190,793 of the  outstanding  warrants  were issued to  shareholders  of
Magellan  Restaurant Systems (the "Magellan  Warrants") prior to the combination
of Magellan and Grill Concepts. The Magellan Warrants are exercisable to acquire
one  share of Common  Stock  per  warrant  at a price of $2.00  per  share.  The
Magellan Warrants expire on June 30, 2000.                                      

         100,000 of the  outstanding  warrants  were issued in 1995 as a finders
fee  (the  "Finders  Fee  Warrants")  in  connection  with a  private  placement
undertaken by the Company.  The Finders Fee Warrants are  exercisable to acquire
one share of Common Stock per warrant at a price of $3.00 per share. The Finders
Fee Warrants  expire on March 2, 2000.  In  connection  with the issuance of the
Finders Fee  Warrants,  the  Company  agreed to grant  "piggy-back  registration
rights" with respect to the shares underlying such warrants.                    

         250,000  of the  outstanding  warrants  were  issued in June of 1996 in
connection  with the sale of the Company's  Series A Preferred Stock (the "Reg S
Warrants").  The Reg S Warrants are  exercisable  to acquire one share of Common
Stock per  warrant at a price of $3.00 per share.  The Reg S Warrants  expire on
June 17, 2001,  subject to the  Company's  right to redeem the Reg S Warrants at
$.01 per Warrant  commencing June 17, 1999,  provided that the closing bid price
of the Common  Stock has equaled or exceeded  $4.50 per share for the 20 trading
days preceding notice of redemption.                                            

TRANSFER AND WARRANT AGENT                                                      

         The Transfer for the  Company's  Common  Stock is  Securities  Transfer
Corporation, 16910 Dallas Parkway, Suite 100, Dallas, Texas 75248.              

APPLICATION OF CALIFORNIA CORPORATE LAW FOLLOWING 1996.                         

         Under  California  Corporations  Code Section 2115 ("Section  2115"), a
corporation  that is not  incorporated in California  (such as the Company) will
still be subject to certain provisions under California  corporate law if, among
other things,  over one-half of its  outstanding  voting  securities are held of
record  by  California  residents  and it has the  requisite  level of  property
holdings,  payroll and sales in  California.  If the  requirements  are met, the
provisions of the California Corporations Code which are applicable include: (i)
Section 303 (relating to removal of directors  without cause);  (ii) Section 304
(relating  to removal of  directors  by court  proceedings);  (iii)  Section 309
(relating  to  directors'  standard of care);  (iv)  Sections  500 through  505,
inclusive  (relating  to  limitations  on  corporate  distributions  in  cash or
property);  (v) Section 506 (relating to liability of a stockholder who receives
an unlawful  distribution;  (vi)  Section  708,  subdivisions  (a),  (b) and (c)
(relating  to a  stockholder's  right  to  cumulate  votes  at  an  election  of
directors);  (vii) Section 710 (relating to  supermajority  vote  requirements);
(viii)  Chapter 13  (commencing  with Section  1300)  (relating  to  dissenters'
rights); and (ix) Sections 1500 and 1501 (relating to records and reports). Some
of the applicable provisions may                                                

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provide stockholder rights which are greater than those available under Delaware
law,  while others may provide  lesser  rights.  Because the foregoing is only a
summary and is not intended to, and does not, constitute a complete  description
of a stockholder's  rights under California law, each person is urged to consult
his,  her or its own counsel with respect to such rights and how they may differ
from the rights available under Delaware law.                                   

         Based on the  circumstances  known at this time,  it  appears  that the
Company  meets  the  requirements  for  application  of  Section  2115.  If such
requirements  continue  to  be  met  on  the  date  that  determination  of  the
applicability  of Section 2115 is made under California law, it is expected that
the Company  will  become  subject to the  specified  California  corporate  law
provisions  commencing on or about January 1, 1997.  Thereafter,  such corporate
law provisions  will continue to apply until the end of the fiscal year in which
the  Company  files a report  showing  that at  least  one of the  criteria  for
application of Section 2115 is no longer being met.                             

 LEGAL MATTERS

         The  validity of the  issuance  of the  securities  offered  hereby and
certain  other legal matters will be passed upon for the Company by the law firm
of Vanderkam & Sanders.                                                         

 EXPERTS

     The consolidated balance sheets of Grill Concepts,  Inc. as of December 31,
1995  and  December  25,  1994 and the  consolidated  statements  of  operation,
stockholders'  equity  and cash  flows for each of the two  years in the  period
ended December 31, 1995 included in this  Prospectus  have been included  herein
reliance  of the report of Coopers & Lybrand  L.L.P.,  independent  accountants,
given on authority of that firm as experts in accounting and auditing.          

         The   financial   statements  of  The  Grill,   A  California   Limited
Partnership,  as of December  31,  1995 and for the year then ended  included in
this  Prospectus  have been  audited by Barkin,  Perren & Schwager,  independent
auditors,  as stated in their report appearing herein. Such financial statements
have been  included  herein in reliance  upon the report of such firm given upon
their authority as experts in accounting and auditing.                          

 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

         Following  the  combination  of Magellan and GCI, on May 22, 1995,  the
Company's Board of Directors  selected  Coopers & Lybrand L.L.P. to serve as its
new  independent  accountants  and  dismissed  Arthur  Yorkes  &  Company  which
previously served as the independent accountants for Magellan.                  

         Arthur  Yorkes &  Company's  reports  on the  financial  statements  of
Magellan  for the  fiscal  years 1993 and 1994  contain  no  adverse  opinion or
disclaimer  of opinion and were not  qualified  or  modified as to  uncertainty,
audit scope, or accounting principles.  In connection with its audits for fiscal
years 1993 and 1994 and through May 22, 1995, there were no  disagreements  with
Arthur  Yorkes & Company on any matter of  accounting  principles  or practices,
financial  statement   disclosure,   or  auditing  scope  or  procedure,   which
disagreements  if not resolved to the  satisfaction  of Arthur  Yorkes & Company
would have caused them to make reference thereto in its reports on the financial
statements for such years.                                                      

45

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
[CAPTION]                                                                       

                                                        [Enlarge/Download Table]

                                                                                                           Page
Grill Concepts, Inc.                                                                                           
                                                                                                               
 Report of Independent Accountants........................................................................  F-2
 Consolidated Balance Sheet as of December 31, 1995 and December 25, 1994.................................  F-3
 Consolidated Statements of Operation for the years ended December 31, 1995                                    
   and December 25, 1994..................................................................................  F-4
 Consolidated Statements of Stockholders' Equity for the years ended                                           
   December 31, 1995 and December 25, 1994................................................................  F-5
 Consolidated Statements of Cash Flows for the years ended December 31, 1995                                   
   and December 25, 1994..................................................................................  F-6
 Notes to Consolidated Financial Statements...............................................................  F-7

 Consolidated Balance Sheet as of June 30, 1996 (unaudited)............................................... F-18
 Consolidated Statements of Operation for the three and six months ended June 30, 1996                         
   and June 25, 1995 (unaudited).......................................................................... F-20
 Consolidated Statements of Cash Flows for the six months ended June 30, 1996                                  
   and June 25, 1995 (unaudited).......................................................................... F-21
 Notes to Consolidated Financial Statements (unaudited)................................................... F-22

The Grill, a California Limited Partnership                                                                    

 Independent Auditors' Report............................................................................. F-25
 Balance Sheet as of December 31, 1995.................................................................... F-26
 Statement of Income and Partners' Capital for the year ended December 31, 1995........................... F-27
 Statement of Cash Flows for the year ended December 31, 1995............................................. F-28
 Notes to Financial Statements............................................................................ F-29

 Balance Sheet as of March 31, 1996 and December 31, 1995 (unaudited)..................................... F-32
 Statement of Operations for the three months ended                                                            
   March 31, 1996 (unaudited)............................................................................. F-33
 Statement of Cash Flows for the three months ended March 31, 1996                                             
   and March 25, 1995 (unaudited)......................................................................... F-34
 Notes to Financial Statements (unaudited)................................................................ F-35

Pro Forma Financial Information                                                                                

 Introduction to Pro Forma Condensed Combined Financial Information....................................... F-36
 Pro Forma Condensed Combined Balance Sheet as of March 31, 1996 (unaudited).............................. F-37
 Pro Forma Condensed Combined Statement of Operations for the year ended                                       
   December 31, 1995 and the three months ended March 31, 1996 (unaudited)................................ F-38


 F-1

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 REPORT OF INDEPENDENT ACCOUNTANTS
----------

To the Board of Directors                                                       
Grill Concepts, Inc.                                                            

We have audited the accompanying  consolidated balance sheets of Grill Concepts,
Inc. and  Subsidiaries  as of December  31, 1995 and December 25, 1994,  and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows  for  the  years  then  ended.   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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.          

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of Grill Concepts,
Inc.  and  Subsidiaries  at December  31, 1995 and  December  25, 1994 and their
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.              

COOPERS & LYBRAND L.L.P.                                                        

Los Angeles, California                                                         
March 15, 1996                                                                  

F-2 

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 GRILL CONCEPTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
 December 31, 1995 and December 25, 1994
----------

                                                        [Enlarge/Download Table]


                                                                            1995         1994   
                                                                            ----         ----   
                         A S S E T S:                                                           
                                                                                                
Current assets:                                                                                 
Cash and cash equivalents                                                 $631,116     $191,242 
Inventories                                                                154,898      126,482 
Prepaid expenses                                                           742,419      372,408 
                                                                          -------       ------- 

Total current assets                                                     1,528,433      690,132 

Furniture, equipment and improvements, net                               3,737,523    2,872,405 

Other assets:                                                                                   
Goodwill, net                                                            2,003,144           -  
Other                                                                      762,712      352,498 
                                                                         ---------   ---------- 

Total assets                                                            $8,031,812   $3,915,035 
                                                                         =========    ========= 

            LIABILITIES AND STOCKHOLDERS' EQUITY:                                               

Current liabilities:                                                                            
Accounts payable                                                        $1,038,440     $997,939 
Accrued expenses                                                           988,258      834,636 
Current portion of long-term debt                                          450,386      296,098 
                                                                        ----------    --------- 

Total current liabilities                                                2,477,084    2,128,673 

Long-term debt                                                           1,241,426    1,631,648 

Long-term debt-related parties                                              84,500    1,220,000 
                                                                        ----------    --------- 

Total liabilities                                                        3,803,010    4,980,321 
                                                                         ---------    --------- 

Commitments and contingencies (Note 7)                                                          

Stockholders' equity:                                                                           

Preferred  stock - $1 par  value,  1,000,000  shares  authorized,  none                         
issued and outstanding in 1995. No par value, 1,500,000 shares                                  
authorized, none issued and outstanding in 1994.                                -            -  
Common stock - $.00001 par value, 20,000,000                                                    
shares authorized.   12,999,230 issued and                                                      
outstanding in 1995.  No par value, 15,000,000                                                  
shares authorized, 2,407,700 issued and                                                         
outstanding in 1994.                                                           130    1,495,347 
Additional paid-in capital                                               6,726,081           -  
Accumulated deficit                                                     (2,497,409)  (2,560,633)
                                                                         ---------     ---------

Stockholders' equity (deficit)                                           4,228,802   (1,065,286)
                                                                         ---------     ---------

Total liabilities and stockholders' equity                              $8,031,812   $3,915,035 
                                                                         =========    ========= 

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.                                                                     
F-3 

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 GRILL CONCEPTS, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF OPERATIONS
 For The Years Ended December 31, 1995 and
 December 25, 1994
----------

                                                        [Enlarge/Download Table]


                                                                                     1995          1994    
                                                                                     ----          ----    
                                                                                                           
         Sales                                                                   $20,253,248   $14,822,574 

         Cost of sales                                                             5,437,041     4,142,382 
                                                                                 -----------   ----------- 

         Gross profit                                                             14,816,207    10,680,192 
                                                                                  ----------    ---------- 

         Operating expenses:                                                                               
         Restaurant operating expenses                                            12,109,505     8,804,259 
         General and administration                                                1,716,514     1,501,040 
         Depreciation and amortization                                               787,715       570,689 
         Amortization of preopening expenses                                           4,043       254,275 
                                                                                 -----------   ----------- 

         Total operating expenses                                                 14,617,777    11,130,263 
                                                                                  ----------    ---------- 

         Income (loss) from operations                                               198,430      (450,071)

         Interest expense, net                                                      (105,114)     (129,385)
         Interest expenses - related parties                                         (22,492)      (89,910)
                                                                                 -----------   ----------- 

         Income (loss) before provision for income                                                         
         taxes                                                                        70,824      (669,366)
                                                                                      ------       ------- 

         Provision for income taxes                                                    7,600          (800)
                                                                                 -----------   ----------- 

         Net income (loss)                                                           $63,224     ($670,166)
                                                                                     =======       ======= 

         Net income (loss) per share                                                   $0.01        ($0.08)
                                                                                        ====          ==== 

         Weighted average shares outstanding                                      12,387,081     8,500,000 
                                                                                  ==========     ========= 

The  accompanying  notes are an integral  part of these  consolidated  financial                           
statements.                                                                                                
                                      F-4                                                                  

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 GRILL CONCEPTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For
 The Years Ended December 31, 1995 and December 25, 1994
----------

                                                        [Enlarge/Download Table]


                                                                                Additional                           
                                                                                 Paid-In    Accumulated              
                                                     Shares        Amount        Capital      Deficit        Total   
     In Capital                                                                                                      
     ----------                                                                                                      
                                                                                                                     
     Balance, December 26, 1993                     2,358,000    $1,470,000                ($1,890,467)    ($420,467)

     Common stock issued for services                  49,700        25,347                                   25,347 

     Net loss                                                                                 (670,166)     (670,166)
                                                     --------     ---------                   --------      -------- 
     Balance, December 25, 1994                      2,407,700    $1,495,347               ($2,560,633)  ($1,065,286)

     Adjustment to reflect the reverse acquisition                                                                   
of Grill Concepts, Inc. (formerly Magellan                                                                           
Restaurant Systems, Inc.) by Grill  Concepts, Inc.  10,591,530    (1,495,217)  $6,726,081                  5,230,864 

     Net income                                                                                 63,224        63,224 
                                                     --------     ---------    ----------     --------       ------- 

     Balance, December 31, 1995                     12,999,230          $130   $6,726,081  ($2,497,409)   $4,228,802 
                                                     ==========   =========    ==========   ===========   ===========


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.                                                                     

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 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For The Years Ended December 31, 1995 And
 December 25, 1994
----------

                                                        [Enlarge/Download Table]


                                                                     December 31,1995    December 25, 1994
                                                                     ----------------    -----------------
                                                                                                          
Cash flows from operating activities:                                                                     
Net income (loss)                                                         $63,224       ($670,166)        
Adjustments to reconcile net income (loss)                                                                
 to net cash provided by operating activities:                                                            
Depreciation and amortization                                             592,635         824,964         
Gain on disposal of motor vehicles                                            -           (10,832)        
Common stock issued for services                                              -            25,347         
Amortization of Goodwill                                                   58,000                         
Changes in operating assets and liabilities:                                                              
Inventories                                                                17,081            (842)        
Prepaid expenses                                                         (261,416)       (201,421)        
Other assets                                                              164,822        (374,991)        
Accounts payable                                                         (146,263)        405,374         
Accrued liabilities                                                      (296,852)        229,797         
                                                                          -------         -------         

Net cash provided by operating activities                                 191,231         227,230         
                                                                          -------         -------         

Cash flows from investing activities:                                                                     
Additions to furniture, equipment and improvements                       (300,800)       (714,536)        
Proceeds from disposal of motor vehicles                                                   26,500         
Net cash acquired through purchase of business                            940,377             -           
                                                                          -------         -------         

Net cash provided by (used in) investing activities                       639,577        (688,036)        
                                                                          -------         -------         

Cash flows from financing activities:                                                                     
Decrease in restricted cash                                                    -          200,000         
Decrease in bank overdraft                                                     -       (  278,591)        
Proceeds from issue of long-term debt                                     178,700       2,762,612         
Payments on long-term debt                                               (429,634)     (2,684,494)        
Proceeds from long-term debt - related parties                                 -          870,500         
Payments on long-term debt - related parties                             (140,000)       (360,000)        
                                                                          -------       ----------        

Net cash (used in) provided by financing activities                      (390,934)        510,027         
                                                                          -------        -------          

Net increase in cash                                                      439,874          49,221         

Cash and cash equivalents, beginning of period                            191,242         142,021         
                                                                          -------        -------          

Cash and cash equivalents, end of period                                 $631,116        $191,242         
                                                                          =======        =======          

Net cash acquired through purchase of business                                                            
Working capital, other than cash                                         $505,591                         
Furniture, equipment and improvements                                  (1,348,853)                        
Goodwill                                                               (2,061,144)                        
Other assets                                                             (519,217)                        
Long-term debt                                                             15,000                         
Fair value of stock exchanged                                           4,349,000                         
                                                                         ---------                        

Net cash acquired                                                        $940,377                         
                                                                         ========                         
Supplemental cash flows information: Cash paid during the year for:                                       
Interest                                                                 $138,912       $175,381          
Income taxes                                                              $11,800         $800            


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 GRILL CONCEPTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------

1.       Summary of Significant Accounting Policies:                            

General                                                       
-------                                                       

         Grill Concepts, Inc. (the "Company") was incorporated under the laws of
         the State of  Delaware  in November  1985.  The Company was  originally
         incorporated under the name "Uno Concepts,  Inc." In December 1992, the
         Company  changed  its  name  to  "Magellan  Restaurant  Systems,  Inc."
         ("Magellan")  and,  in  connection  with  an  exchange  agreement  (the
         "Exchange")  with  Grill  Concepts,   Inc.,  a  California  corporation
         ("GCI"),  changed its name to "Grill Concepts,  Inc." in February 1995.
         As  of  December  31,  1995,  the  Company  operates  ten  restaurants,
         consisting of six Daily Grill  restaurants  in Southern  California and
         three Pizzeria Uno Restaurants and a sports themed  restaurant  located
in the eastern part of the United States.                     

Fiscal Year                                                   
-----------                                                   

         The  Company's  fiscal  year ends on the last Sunday in  December.  The
         fiscal year ended December 31, 1995 was comprised of 53 weeks, compared
with 52 weeks in 1994.                                        

Cash and Cash Equivalents                                     
-------------------------                                     

         The Company  considers all highly liquid  investments  with an original
         maturity  of  three  months  or less at  date  of  purchase  to be cash
equivalents.                                                  

Inventories                                                   
-----------                                                   

         Inventories  consist  of food,  wine and  liquor  and are stated at the
         lower of cost or market, cost generally being determined on a first-in,
first-out basis.                                              

Furniture, Equipment And Improvements                         
-------------------------------------                         

         Furniture,  equipment  and  improvements  are  stated  at  cost  and at
         appraised  value for assets  acquired in the exchange.  Depreciation is
         being provided for using the straight-line method over estimated useful
lives of five to seven years.                                 

         Leasehold  improvements are amortized on the straight-line  method over
         the shorter of the estimated  useful lives of the  improvements  or the
terms of the related leases.                                  

         Expenditures  for  maintenance and repairs are charged to operations as
incurred, while renewals and betterments are capitalized.     

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 GRILL CONCEPTS, INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

1.       Summary of Significant Accounting Policies, Continued:                 

Goodwill                                                      
--------                                                      

   Goodwill is amortized on a straight-line basis over thirty years.

Expendables                                                   
-----------                                                   

         Initial  amounts spent for china,  glassware and flatware in connection
         with  the  opening  of a new  restaurant  are  capitalized.  Subsequent
purchases are expensed as incurred.                           

Concentration of Credit Risk                                  
----------------------------                                  

         Financial  instruments  which  potentially  subject  the  Company  to a
         concentration of credit risk are cash and cash equivalents. The Company
         currently maintains  substantially all of its day-to-day operating cash
         balances with major financial institutions. At times, cash balances may
         be in excess of Federal Depository Insurance ("FDIC") insurance limits.
         Cash equivalents  principally  consist of an investment  account with a
         major  brokerage  house.  The Company does not believe it is exposed to
any significant credit risk for cash and cash equivalents.    

Preopening Costs                                              
----------------                                              

         Costs  related to the  opening of new  restaurants,  payroll  and other
         costs incurred in the training and  introduction  period,  are deferred
         and then amortized over a one-year  period  commencing with the opening
of each respective restaurant.                                

Income Taxes                                                  
------------                                                  

         The Company  accounts for income taxes in accordance  with Statement of
         Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
         Taxes." Under the asset and liability method of SFAS No. 109,  deferred
         income taxes are  recognized  for the tax  consequences  of  "temporary
         differences" by applying  enacted  statutory rates applicable to future
         years  to the  difference  between  the  financial  statement  carrying
         amounts and the tax basis of  existing  assets and  liabilities.  Under
         SFAS No. 109, the effect on deferred  taxes of a change in tax rates is
      recognized in income in the period that includes the enactment date.

Reclassifications                                             
-----------------                                             

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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------------- 

Certain  prior year  amounts  have been  reclassified  to conform to the current
year's presentation.                                                            

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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

--------------------

1.       Summary of Significant Accounting Policies, Continued:                 

Recent Accounting Pronouncements                              
--------------------------------                              

         In March 1995, the Financial Accounting Standards Board ("FASB") issued
         SFAS No. 121,  "Accounting for the Impairment of Long-lived  Assets and
         for  Long-lived  Assets to be  Disposed  Of." SFAS No. 121  establishes
         accounting  standards for the impairment of long-lived assets,  certain
         identifiable  intangibles,  and goodwill  related to those assets to be
         held and used, and for long-lived and certain identifiable assets to be
         disposed of. The Company is required to adapt the provision of SFAS No.
         121 for fiscal 1996, and the Company currently believes the effect upon
         its adoption to be immaterial to the financial  position and results of
operations.                                                   

         In  October  1995,  the FASB  issued  SFAS  No.  123,  "Accounting  for
         Stock-Based  Compensation." SFAS NO. 123 establishes a fair value based
         methodology for the financial  accounting and reporting for stock-based
         employee  compensation  plans.  Examples  of such plans  include  stock
         purchase plans, stock options, restricted stock, and stock appreciation
         rights. Prior to the issuance of SFAS No. 123, stock-based compensation
         measurements utilized the intrinsic value based method of accounting as
         specified  by APB  Opinion  No.  25,  "Accounting  for Stock  Issued to
         Employees." SFAS No. 123,  effective for fiscal 1996,  permits entities
         to continue  to utilize  the  traditional  accounting  for  stock-based
         employee  compensation  plans as  prescribed  by APB  Opinion  No.  25.
         However,  under this option,  entities will be required to disclose the
         pro forma  effect of  stock-based  employee  compensation  plans on net
         income and earnings per share as if SFAS No. 123 had been adopted.  The
         Company intends to continue utilizing the provisions of APB Opinion No.
   25 in accounting for its stock-based employee compensation plans.

Use Of Estimates                                              
----------------                                              

         The  preparation of financial  statements in conformity  with generally
         accepted  accounting  principles  requires the Company's  management to
         make estimates and assumptions  for the reporting  period and as of the
         financial  statement date.  These estimates and assumptions  affect the
         reported  amounts  of  assets  and   liabilities,   the  disclosure  of
         contingent  liabilities,  and  the  reported  amounts  of  revenue  and
expenses. Actual results could differ from those estimates.   

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 GRILL CONCEPTS, INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

--------------------- 

1.       Summary of Significant Accounting Policies, Continued:                 

Fair Value Of Financial Instruments                           
-----------------------------------                           

         Statement of Financial  Accounting  Standard No. 107,  Disclosure about
         Fair  Value  of  Financial   Instrument  ("SFAS  No.  107"),   requires
         disclosure of fair value information  about most financial  instruments
         both on and off the balance  sheet,  if it is  practicable to estimate.
         SFAS No. 107 excludes certain  financial  instruments,  such as certain
         insurance  contracts,  and  all  non-financial   instruments  from  its
         disclosure   requirements.   A  financial   instrument  is  defined  as
         contractual  obligation  that ultimately ends with the delivery of cash
         or an ownership interest in an entity.  Disclosures  regarding the fair
         value of financial  instruments have been derived using external market
         sources,  estimates using present value or other valuation  techniques.
         Cash,  accounts  payable,  accrued  liabilities and short term debt are
         reflected  in the  financial  statements  at fair value  because of the
         short-term  maturity of these instruments.  The fair value of long-term
debt closely approximates its carrying value.                 

2.       Business and Organization:                                             

         On March 3, 1995, pursuant to an exchange agreement  previously entered
         into by  Magellan  Restaurant  Systems,  Inc.  ("Magellan")  and  Grill
         Concepts,  Inc.  ("GCI"),  GCI  became a  wholly  owned  subsidiary  of
         Magellan.  Immediately following the exchange, the name of Magellan was
changed to Grill Concepts, Inc., a Delaware corporation.      

         All of GCI's  common  stock  was  exchanged  for  8,500,000  shares  of
         Magellan Common Stock. As a result, following the Exchange,  holders of
         GCI common stock controlled 63% of the outstanding  common stock of the
         Company,  and for accounting  purposes the acquisition has been treated
         as a recapitalization of GCI with GCI as the acquiror.  The transaction
         was  therefore   accounted  for  as  a  purchase   under  the  "reverse
         acquisition"  method.  The  resulting  excess of cost  over net  assets
acquired is being amortized over 30 years.                    

         As a result of the above,  these statements include the accounts of GCI
         and Magellan on a  consolidated  basis for 1995. The Balance Sheets and
         Statements  of  Operations  for 1994  reflect  only the accounts of GCI
         while the Statement of Operations  for 1995 includes the  operations of
         GCI for the entire 53 week period and the  operations  of Magellan  for
      only the 43 week period between March 3, 1995 and December 31, 1995.

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 GRILL CONCEPTS, INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

------------------- 

2.       Business and Organization, Continued:                                  

         The  unaudited  pro forma  financial  information  set  forth  below is
         presented as if the purchase  had been  consummated  as of December 26,
1994.                                                         

         The pro forma financial  information is not  necessarily  indicative of
         what  actual  results  of  operations  of the  Company  would have been
         assuming the acquisitions had been consummated as of December 28, 1993,
         nor does it purport to represent the results of  operations  for future
periods.                                                      

                                              1995                1994
                                              ----                ----

       Sales                                   $21,494,108         $21,477,316
        Net loss                                  ($181,258)         (1,036,876)
        Net income per share                         ($0.02)             ($0.08)
       Weighted average shares outstanding      12,387,081          13,135,512

         The pro forma financial information included the following adjustments:
         (i) an increase in depreciation and amortization  expense;  and (ii) an
increase in interest expense.                                 

3.       Closure Jo Jo Players:                                                 

         Prior to the  consummation  of the Exchange,  the Company's  management
         decided  that it would sell,  or close,  the  Company's  sports  themed
         restaurant, Jo Jo Players. In March 1995, the property and business was
         listed for sale with a real estate  agent.  The effect of such  closure
         has been  considered,  and  reflected,  in accounting  for the Exchange
         resulting  in a reduction  in the net assets  acquired  pursuant to the
         Exchange,  and a corresponding increase in goodwill attributable to the
Exchange of $521,000.                                         

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 GRILL CONCEPTS, INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------------- 

4.       Furniture, Equipment And Improvements:                                 

     Properties at December 31, 1995 and December 25, 1994 consisted of:

                                                                [Download Table]


                                          1995          1994   
                                           ----          ----  
                                                               
Furniture, fixtures and equipment      $3,008,843   $2,577,327 
Leasehold improvement                   3,100,938    2,136,405 
Motor vehicle                              14,256       14,256 
Expendables                                44,711       44,711 
Construction in process                   172,218            - 
                                       ----------    --------- 

Furniture, equipment and improvements   6,340,966    4,772,699 

Less, accumulated depreciation         (2,603,443)  (1,900,294)
                                        ---------    --------- 

Net furniture, equipment and                                   
improvements                           $3,737,523   $2,872,405 
                                        =========     =========


5.       Long-Term Debt:                                                        

Long-term  debt at December  31, 1995 and December  25, 1994 are  summarized  as
follows:                                                                        

                                                        [Enlarge/Download Table]


                                                                                   1995        1994    
                                                                                   ----        ----    

                                                                                                       
     Note payable to bank under revolving credit  agreement,  expiring March 31,                       
2000, payable in sixty equal monthly installments  starting April 30, 1995, plus                       
interest.  Also available is $500,000 under a revolving line of credit  expiring                       
November 30, 1996 Interest is payable  monthly at the Bank's  Reference  Rate (8                       
1/2% at December 31, 1995) plus 0.625%. The Company has the option of fixing the                       
interest  rate. The note is  collateralized  by an interest in the assets of the                       
Company.  In  addition,   two  of  the  Company's  principal  shareholders  have                       
guaranteed  the credit  facility.  In connection  with this line of credit,  the                       
Company is required to comply with a number of restrictive covenants,  including                       
meeting certain interest cover requirements.                                     $1,360,005  $1,617,612

         Note  payable  to  small  business  administration   collateralized  by                       
 property, payable monthly, approximately $1,648, interest at 4.0% due                                 
 September 23, 2006.                                                                171,707         -  


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5.       Long-Term Debt, Continued:                                             

                                                        [Enlarge/Download Table]


                                                                                   1995        1994    
                                                                                   ----        ----    
                                                                                                       
     Note payable to lessor,  uncollateralized,  payable monthly,  approximately                       
$1,435 plus interest at 10.0%.                                                    $145,100    $148,076 

     Uncollateralized  non-interest-bearing  note payable to a lessor in monthly                       
installments equal to the greater of $3,000 or the excess of 7.0% of gross sales                       
over the minimum rent of one restaurant, until paid in full.                           -       162,058 

     Note payable, 10.0% subordinated promissory note, due January 3, 1996.        15,000            - 
                                                                                  --------    ---------

                                                                                1,691,812    1,927,746 

         Less, Current portion of long-term debt                                 (450,386)    (296,098)
                                                                                ----------   ----------

         Total                                                                 $1,241,426   $1,631,648 
                                                                                =========    ========= 


Principal maturities of long-term debt are as follows:        

Year Ending December 31                                         

1996                        $   450,386                         
1997                            336,660                         
1998                            337,475                         
1999                            338,336                         
2000                             99,247                         
Thereafter                      214,208                         
       -----------

Total                        $1,776,312                         
      ------------

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6.   Long-Term Debt-Related Parties:                                            

                                                        [Enlarge/Download Table]


     Long-term  debt with related  parties at December 31, 1995 and December 25,                       
1994 consisted of:                                                               1995           1994   
                                                                                 ----           ----   
                                                                                                       
     Uncollateralized note payable to                                                                  
 shareholders/officers, with interest                                                                  
 payable monthly at a rate of 7.0% per                                                                 
 annum.  All unpaid principle and interest                                                             
 are due December 31, 1996                                                      $84,500      $224,500  

        Convertible debentures placed with individuals who are stockholders.                           
 Interest at a rate of 8.0% per annum.                                              -         995,500  
                                                                                ---------    ----------

        Total                                                                   $84,500    $1,220,000  
                                                                                =========   ========== 

7.       Commitments And Contingencies                                          

         The Company is committed to minimum  rental  payments  under  operating
         leases  for  its  restaurant   locations  and  corporate   headquarters
facilities as follows:                                        

Year Ending December 31                                         

                   1996           $1,329,257
                   1997            1,344,002
                   1998            1,294,788
                   1999            1,296,443
                   2000            1,173,735
Thereafter                                   9,207,776          
                                   ---------
Total                                      $15,646,001          
                                 -----------

         Rent   expense  was   $2,123,488   and  $978,374  for  1995  and  1994,
         respectively,  including  $102,031  and  $101,744  for 1995  and  1994,
         respectively,  for contingent rentals which are payable on the basis of
a percentage of sales in excess of stipulated.                

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8.       Income Taxes:                                                          

         The provision  for income taxes for the fiscal year ended  December 31,
1995 is as follows:                                                             

Current - federal         $5,900                            
Current - state            1,700                            
----- 
$7,600  

         Deferred  tax assets and  liabilities  consist of the  following  as of
December 31, 1995:                                                              

Deferred tax assets:                                        
Net operating loss                              $1,391,883  
State taxes                                          7,933  
AMT credit                                           5,903  
                                              ----------

Total gross deferred tax assets                  1,405,719  

Less, Valuation allowance                       (1,236,084) 

Net deferred tax assets                            169,635  

Deferred tax liabilities:                                   
Fixed assets, intangibles and state taxes         (169,635) 
                                              ----------

Net deferred tax assets and liabilities         $       -   
                                              ==========

         At December 31, 1995,  the Company has available  federal and state net
         operating   loss   carryforwards   of   approximately   $3,496,267  and
         $2,031,524, respectively, that may be utilized to offset future federal
         and state taxable earnings.  These net operating losses begin to expire
         in 2006 and 1997,  respectively.  A full  valuation  allowance has been
         established   against  the   resulting   deferred  tax  asset   because
realization is not assured.                                   

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9.       Capital Shares:                                                        

Warrants                                                      
--------                                                      

         During  the year,  the  Company  abandoned  its  efforts  to extend the
         expiration date of its outstanding public warrants. As a result of such
         determination,  329,194 warrants exercisable at $1.00 per share expired
effective February 10, 1995.                                  

         In addition,  247,047 private  warrants  exercisable at $1.62 per share
     and 30,869 private warrants exercisable at $1.13 per share expired.

         At December  31, 1995,  the Company had  outstanding  190,793  warrants
         previously  issued by Magellan and  exercisable at a price of $2.00 per
         share.  Additionally,  in  connection  with the  Exchange and a private
         placement  during  1995,  the  Company  issued  an  additional  100,000
warrants which are exercisable at $3.00 per share.            

Options                                                       
-------                                                       

         During the quarter  ended June 25, 1995,  10,000  options under the old
         Magellan plan,  exercisable at $.91 per share,  issued  pursuant to the
         Company's  stock option plan expired as a result of the  termination of
         employment  of the holder of such  options.  As of December  31,  1995,
      50,000 options, exercisable at $.91 per share, remained outstanding.

         On June 1, 1995,  the  Company's  board of directors  adopted the Grill
         Concept, Inc. 1995 Stock Option Plan (the "Plan"). A total of 1,500,000
         shares are reserved for issuance pursuant to the Plan. During the year,
         with  adoption  of the Plan by the Board,  upon  recommendation  of the
         Compensation  Committee,  a total of 523,000 options were granted under
         the Plan ranging from $1.17 to $1.48.  Operation of the Plan, including
         the exercise of options granted,  is subject to approval of the Plan by
        the Company's shareholders at the next annual meeting of shareholders.

Cancellation of Escrow Shares                                 
-----------------------------                                 

         Pursuant to the terms of the Exchange Agreement between Grill Concepts,
         Inc. and  Magellan  Restaurant  Systems,  Inc.,  614,391  shares of the
         Company's common stock originally  issued in escrow for disbursement or
         cancellation in accordance with such agreement were cancelled effective
July 1, 1995.                                                 

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 GRILL CONCEPTS, INC. AND SUBSIDIARIES

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------

10.      Subsequent Events:                                                     

         In  December  1995,  the Board of  Directors  expressed  its  intent to
         acquire The Grill on the Alley  restaurant,  subject to the approval by
         the  restaurant's  owners and execution of formal  documentation by the
         Company.  Certain  restaurant  owners are also officers,  directors and
         shareholders of the Company.  All contingencies and the finalization of
         the  purchase  price  relating to the  acquisition  of The Grill on the
         Alley are anticipated by the Company to be satisfied  during the second
         quarter of 1996.  The Grill on the Alley is  located in Beverly  Hills,
California.                                                   

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     GRILL CONCEPTS, INC. AND SUBSIDIARIES

 CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

ASSETS

                                         June 30,                 December 31,
                                       1996                       1995
                                         ----------               --------------

Current assets:                                                           
  Cash and cash equivalents            $1,788,528                   $631,116
Receivables                              38,338                         
  Inventory                               213,407                    154,898
  Prepaid expenses                        675,535                    742,419
                                       ----------                   --------

       Total current assets             2,715,808                  1,528,433
                                        ---------                  ---------

Property and equipment, at cost           7,211,289                  6,340.966  
Less:  accumulated depreciation         (2,908,153)                (2,603,443)
                                        -----------                -----------
    Property and equipment, net         4,303,136                  3,737,523
                                       ----------                  ---------

Other assets:                                                                   
Goodwill                                1,968,792                  2,003,144
Liquor license, net                       702,676                    658,569
Other                                     181,191                    104,143
                                       ---------                 ---------

       Total other assets               2,852,659                  2,765,856
                                       ----------                  ---------

Total assets                             $9,871,603                 $8,031,812  
                                       ==========                 ==========

    The accompanying notes are an integral part of these financial statements.

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 CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
 (Continued)

LIABILITIES AND SHAREHOLDERS' EQUITY

                                            June 30,                December 31,
                                          1996                      1995
                                         -----------                ------------
Current liabilities:                                                            
  Accounts payable                        $943,131                  $1,038,440
  Accrued expenses                         896,339                     988,258
  Current portion of long term debt        450,969                     450,386
                                         -----------                ------------

     Total current liabilities           2,290,439                   2,477,084
                                         -----------                ------------

Long-term debt, net of current            1,129,585                   1,325,926 
                                         -----------                ------------

Shareholders' equity:                                                           
Preferred stock,  $.001 par value                                         
authorized 1,000,000 shares;                                          
Shares issued and outstanding                                             
none in 1995, 1500 in 1996                   2                        

Common stock, $.00001 par value:                                          
20,000,000 shares authorized:                                         
shares issued and outstanding:                                        
12,999,230 in 1995 and                                                
    13,849,230 in 1996                         138                         130

Capital in excess of par value            9,031,071                   6,726,081 
    Accumulated deficit                  (2,579,632)                ( 2,497,409)
                                         -----------                ------------

    Shareholder's equity                 6,451,579                   4,228,802
                                         -----------                ------------
Total liabilities and                                                           
   shareholder's equity                 $9,871,603                  $8,031,812
                                         ===========                 ===========

    The accompanying notes are an integral part of these financial statements.

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 GRILL CONCEPTS, INC. AND SUBSIDIARIES

 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

                                                        [Enlarge/Download Table]


                                       Three Months Ended            Six Months Ended       
                                      --------------------           ----------------       
                                                                                            

                                         June         June 25,     June 30        June 25   
                                         1996           1995        1996            1995    
                                      ----------     ----------    -------        --------- 

Sales                                 $5,691,606     $5,385,837  $10,937,385      $9,905,992

Cost of sales                          1,546,185      1,452,721    2,892,312       2,669,339
                                      ----------     ----------  -----------      ----------

Gross profit                           4,145,421      3,933,116    8,045,073       7,236,653
                                      ----------     ----------  -----------      ----------
  Costs and expenses:                                                                       
  Restaurant operating expenses        3,580,099      3,308,517    6,766,900       6,046,079
  General and administrative             440,217        396,973      911,151         697,747
  Depreciation and amortization          186,552        187,585      377,987         350,227
  Amortization of preopening expenses       -              -             -             4,043
                                      ----------     ----------  -----------      ----------
Total operating expenses               4,206,868      3,893,075    8,056,038       7,098,096
                                      ----------     ----------  -----------      ----------

Income (loss) from operations            (61,447)        40,041      (10,965)        138,557
                                      ----------     ----------  -----------      ----------

Interest expense, net                     32,561         28,661      70,458           64,024
                                      ----------     ----------  -----------      ----------

Income (loss) before taxes on income     (94,008)        11,380     (81,423)          74,533

Provision for taxes on income              -              -             800              800
                                      ----------     ----------  -----------      ----------

Net income (loss)                       ($94,008)       $11,380    $(82,223)         $73,733
                                      ==========     ==========  ===========      ==========

Net income (loss) per share               ($0.01)         $0.00      ($0.01)           $0.01
                                      ==========     ==========  ===========      ==========

Average weighted shares outstanding   13,653,076     13,613,621   13,326,153      11,731,134
                                      ==========     ==========  ===========      ==========

The accompanying notes are an integral part of these financial statements.      

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 GRILL CONCEPTS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Unaudited)

                                                        [Enlarge/Download Table]


                                                                     Six Months Ended      
                                                                     ----------------      
                                                                June 30,           June 25,
                                                                  1996               1995  
                                                               ---------         ----------
                                                                                           
Cash flows from operating activities:                                                      
      Net income (loss)                                        ($82,223)           $73,733 
      Adjustments to reconcile net income (loss) to                                        
      net cash provided by (used in) operating activities:                                 
           Depreciation and amortization                        371,507            354,270 
           Changes in operating assets and liabilities                                     
               Inventories                                       (9,041)           (24,070)
               Prepaid expenses                                  32,049            (22,116)
               Other assets                                     (31,027)             6,113 
               Accounts payable                                (153,793)            97,295 
               Accrued liabilities                             (199,371)           (18,535)
                                                             -----------        -----------
           Net cash provided by (used in) operations           ( 71,899)           466,690 
                                                             -----------        -----------

Cash flows from investing activities:                                                      
      Additions to furniture, equipment and                                                
         improvements                                          (397,084)          (127,756)
      Net cash acquired through purchase of business            337,153          1,105,707 
                                                             -----------        -----------
       Net cash provided by (used in) investing activities     ( 59,931)           977,951 
                                                             -----------        -----------

Cash flows from financing activities:                                                      
      Proceeds from issue of Preferred Stock                  1,455,000                    
      Proceeds from issue of long-term debt                                        178,700 
      Payments on long-term debt                               (195,758)           (55,239)
      Payments of shareholder's loan                                              (150,000)
                                                             -----------        -----------
        Net cash provided by (used) in financing activities   1,259,242            (26,539)
                                                             -----------        -----------

      Net increase in cash and cash equivalents               1,127,412          1,418,102 
Cash and cash equivalents, Beginning of period                  631,116            191,242 
                                                             -----------        -----------
Cash and cash equivalents, End of period                     $1,758,52          $1,609,344 
                                                             ===========        ===========

*Net cash acquired through purchase of business                                            
      Working capital, other than cash                          $16,168           $505,591 
      Furniture, equipment and improvements                    (473,239)        (1,348,853)
      Excess of cost over net assets acquired                                   (1,895,814)
      Other assets                                              (55,776)          (519,217)
      Long-term debt                                                                15,000 
      Fair value of stock exchanged                             850,000          4,349,000 
                                                             -----------        -----------
        Net cash acquired                                      $337,153         $1,105,707 
                                                             -----------        -----------

Supplemental cash flow information:                                                        
      Cash paid during the year for:                                                       
        Interest                                               $104,935           $118,476 
        Income taxes                                               $800               $800 


The accompanying notes are an integral part of these financial statements       

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 GRILL CONCEPTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1.   INTERIM FINANCIAL PRESENTATION                                             

     The unaudited interim consolidated financial statements as of June 30, 1996
     and for the six  months  ended  June 30,  1996 and June 25,  1995 have been
     prepared in accordance with generally  accepted  accounting  principles and
     include all adjustments  (consisting only of normal recurring  adjustments)
     which are, in the opinion of management,  necessary for a fair statement of
     the results of operations for such interim periods  presented and financial
     position at such date.  The current  period  results of operations  are not
     necessarily  indicative of results which utimately will be reported for the
full year ending December 29, 1996.                                   

     The December 31, 1995 balance sheet data was derived from audited financial
     statements  but does not include  all  disclosures  required  by  generally
     accepted  accounting  principles.  The interm financial statement and notes
     thereto  should be read in  conjunction  with the financial  statements and
notes                                                                 
included in the Company's  Form10-KSB dated December 31, 1995.        

2.   BUSINESS AND ORGANIZATION                                                  

     On March 3, 1995, pursuant to an exchange agreement previously entered into
     by Magellan  Restaurant Systems,  Inc. (Magellan) and Grill Concepts,  Inc.
     (GCI),  GCI  became a wholly  owned  subsidiary  of  Magellan.  Immediately
     following the exchange, the name of Magellan was changed to Grill Concepts,
Inc., a Delaware corporation, and now is the Company.                 

     All of GCI's common stock was exchanged  for  8,500,000  shares of Magellan
     Common Stock.  As a result,  following the Exchange,  holders of GCI common
     stock  controlled 63% of the outstanding  common stock of the Company,  and
     for   accounting   purposes   the   acquisition   has  been  treated  as  a
     recapitalization  of GCI  with GCI as the  acquiror.  The  transaction  was
     therefore  accounted  for as a  purchase  under the  "reverse  acquisition"
     method.  The  resulting  excess of cost over net  assets  acquired  will be
amortized over 30 years.                                              

     As a result of the above,  these interim statements include the accounts of
     GCI and  Magellan  on a  consolidated  basis for  1996.  The  Statement  of
     Operations  for 1995 includes the  operations of GCI for the entire 26 week
     period and the  operations of Magellan for only the 16 week period  between
March 3, 1995 and June 25, 1995.                                      

    The operations of Tailgators are not included in 1996 since it was closed.

The second quarter of 1996 includes the accounts of "The Grill".      
See note 4 below.                                                     

3.   SHAREHOLDER'S EQUITY                                                       

     During the quarter ended June 30, 1996,  the Company  completed an offering
     of $1.5 million of Series A 10% Convertible  Preferred Stock to an offshore
     invester  pursuant to  Regulation S under the  Securities  Act of 1933,  as
     amended.  The preferred  shares are convertable at the option of the holder
     in 25% increments  commencing 60, 90, 120 and 150 days after June 17, 1996.
     The  conversion  price of the  preferred  shares is equal to the  lesser of
     $2.25 per share or 85% of the average closing bid price of the common stock
     for the  five  trading  days  preceding  notice  of  conversion;  provided,
     however,  that  conversion  shall be  prohibited  during  periods where the
     reported short  interest in the Company's  common stock exceeds 200% of the
     average daily trading  volume and provided,  further,  that the  conversion
     price  shall  in no event be less  than  $1.125  per  share.  In the  event
     conversion  is  precluded  for a period of 30 days as a result of the fixed
   floor on conversion  price,  the Company  will have 15 days to redeem the
 preferred shares at 110% offering price or, in the alternative,  permit
conversion at the then applicable price without regard to the floor on
  conversion  price. The  preferred  shares are  entitled to receive a 10%
  cumulative  dividend payable  semi-annually  until the preferred  shares
     are either  redeemed or converted.  The Company may, at its option,  redeem
     the preferred shares at their initial offering price or force conversion of
the preferred shares at the                                           

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     then applicable  conversion  price  commencing June 17, 1998. The holder of
     the  preferred  shares  may,  at its  option,  cause any  preferred  shares
     remaining  outstanding  at June 17, 2000 to be  redeemed  at their  initial
offering price.                                                       

     In  connection  with the  offshore  placement  of the Series A  Convertible
     Preferred  Shares,  the Company issued  warrants to acquire an aggregate of
     250,000 shares of the Company's  common stock at a price of $3.00 per share
     for a period  expiring  June 17, 2001.  The warrants are  redeemable at the
     Company's  option  commencing  June 17, 1999 at a price of $.01 per warrant
     provided  that the  closing  bid price of the  Company's  common  stock has
equaled or exceeded $4.50 per share for 20 trading days.              

4.   ACQUISITION OF THE GRILL                                                   

     On April 1, 1996, the Company  acquired 100% of the common stock of EMNDEE,
     Inc.  ("EMNDEE")  pursuant  to a share  exchange.  The  Company  issued  an
     aggregate  of 432,735  shares of common  stock in exchange for the stock of
     EMNDEE.  EMNDEE was the general  partner of, and held a 50.91% interest in,
     The Grill Limited Partnership, a California limited partnership (the "Grill
     Partnership"),  which  owned  and  operated  The  Grill on the  Alley  (the
     "Grill"),  an upscale  Beverly  Hills  restaurant  which opened in 1984 and
served as the model for the Company's Daily Grill restaurants.        

     On April 22, 1996, the Company  consummated  the acquisition of 100% of the
     common stock of The Grill on the Alley, Inc. ("Grill,  Inc.").  Grill, Inc.
     is a  partner,  and  held  the  remaining  49.09%  interest,  in the  Grill
     Partnership.  The Company  issued an aggregate of 417,265  shares of common
stock in exchange for the stock of Grill, Inc.                        

     The Company's principal  shareholders and directors (Robert Spivak, Michael
     Weinstock  and  Richard   Shapiro)   controlled   and  were  the  principal
     shareholders  of EMNDEE.  From 1995  through the date of  acquisition,  the
     Company  provided  management  services  to The  Grill  in  exchange  for a
management fee in an amount equal to 5% of the revenues of The Grill. 

5.   PROPOSED ACQUISITION OF HAMBURGER HAMLET                                   

     In July of 1996,  the  Company  submitted  a proposal  to acquire  selected
     assets  constituting  all of the remaining  operations of Hamburger  Hamlet
     Restaurants,   Inc.  ("Hamburger   Hamlet").   Hamburger  Hamlet,  and  its
     predecessors,  has operated high end casual dining  restaurants since 1950.
     The operations of Hamburger  Hamlet were acquired by the then management of
     the  company in a  leveraged  buyout in 1988 and in 1991  Hamburger  Hamlet
     completed  an initial  public  offering.  In 1996,  Hamburger  Hamlet filed
     bankruptcy and closed 12  unprofitable  restaurants,  all of which had been
opened since the leveraged buyout.                                    

     Pursuant to the Company's proposal,  the Company has offered to acquire the
     remaining 19 Hamburger  solely from 50% of annual earnings before interest,
     taxes,   depreciation  and  amortization  ("EBITDA")  attributable  to  the
     acquired  restaurants  to the extent EBITDA  exceeds $2.5  million,  not to
     exceed  Hamlet  restaurants  for (i)  $8.5  million  in cash  (ii)  500,000
     warrants  exercisable for three years at a price equal to 105% of the price
     of the Company's common stock at the closing of the acquisition,  and (iii)
     a non-interest  bearing  performance note (the  "Performance  Note") in the
     amount of $3.2  million  payable  $750,000  per year (or,  at the option of
     Hamburger Hamlet,  $3.0 million from 50% of annual EBITDA in excess of $2.5
million without the $750,000 annual cap).                             

     Management of Hamburger Hamlet has submitted a plan of reorganization based
     on acceptance of the Company's offer.  Additionally,  the secured creditors
     of  Hamburger  Hamlet have  agreed in  principal  to approve the  Company's
     offer.   The  general   creditors  of  Hamburger   Hamlet  have,  in  prior
     discussions,  rejected the Company's offer. Consummation of the acquisition
     of  the   Hamburger   Hamlet   restaurants   is  subject  to  a  number  of
     contingencies,  including completion of a definitive documents, further due
     diligence,  approval of the plan by the creditors and the bankruptcy  court
and arrangement of satisfactory financing.                            

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 PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
 (UNAUDITED)

                                        FOR THE SIX MONTHS ENDED JUNE 30, 1996

                                                        [Enlarge/Download Table]


                                               Grill                           Proforma       Proforma    

                                           Concepts, Inc.      The Grill      Adjustments     Combined    
                                          ---------------      ---------      -----------     --------    
                                                                                                          
Sales                                        $10,123,258      $1,669,422                       $11,792,680

Cost of sales                                  2,636,932         523,427                       3,160.359  
                                          ---------------     ----------                     -----------  

Gross profit                                   7,486,326       1,145,995                       8,632,321  
                                          ---------------     ----------                     -----------  

  Restaurant operating expenses                6,372,334         841,333                       7,213,667  
  General and administration                     927,229          76,226      ($38,603) <F2>              
                                                                                 38603  <F2>   1,003,455  
  Depreciation and amortization                  357,369           6,480         9,456  <F1>     373,305  
                                          ---------------     -----------    --------------  -----------  
        Total operating expenses               7,656,932         924,039         9,456         8,590,427  
                                          ---------------     -----------    --------------  -----------  

Income (loss) from operations                   (170,606)        221,956         9,456            41,894  
Interest (income)/expense                         74,863         ( 7,838)         -.-             67,025  
                                          ---------------     -----------    --------------  -----------  

Income (loss) before income taxes               (245,469)        229,794         9,456           (25,131) 
Taxes on income                                      800            -.-                              800  
                                          --------------      -----------    --------------  -----------  

Net income (loss)                              ($246,269)       $229,794        $9,456          ($25,931) 
                                          ==============      ===========    ===========     ===========  

Net income (loss) per share                                                                       ($0.00) 

Weighted average shares outstanding                                                           13,326,153  

                                         FOR THE SIX MONTHS ENDED JUNE 25, 1995                           

                                               Grill                           Proforma       Proforma    
                                           Concepts, Inc.      The Grill      Adjustments     Combined    
                                          ---------------      ---------      -----------     --------    

Sales                                         $9,905,992      $1,330,267                     $11,236,259  
Cost of sales                                  2,669,339         407,882                       3,077,221  
                                          ---------------     ----------                     -----------  
Gross profit                                   7,236,653         922,385                       8,159,038  
                                          ---------------     ----------                     -----------  

  Restaurant operating expenses                6,046,079         753,721                       6,799,800  
  General and administration                     697,747          69,495       (19,038) <F2>              
                                                                                19,038 <F2>      767,242  
  Depreciation and amortization                  354,270           5,668        18,912 <F1>      378,850  
                                          --------------      -----------     -----------    -----------  
        Total Operating expenses               7,098,096         828,884        18,912         7,945,892  
                                          --------------      -----------     -----------    -----------  

Income from operations                           138,557          93,501        18,912           213,146  
Interest expense, net                             64,024             232                          64,256  
                                          --------------      -----------     ----------     -----------  

Income before income taxes                        74,533          93,269        18,912           148,890  
Taxes on income                                      800           4,000                           4,800  
                                          --------------       ----------     -----------    -----------  

Net income/(loss)                                $73,733      $    89,269      $18,912          $144,090  
                                          ==============      ===========     ===========    ===========  

Net income per share                                                                               $0.01  
                                                                                                   =====  
Weighted average shares outstanding                                                           13,613,621  
<FN>                                                                                                      
                                                                                             ===========  
<F1>      To record depreciation on increased value of property and equipment                             
                  due to purchase price accounting.                                                       
<F2>      To eliminate inter-company management fee to Grill Concepts.                                    
</FN>                                                                                                     

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INDEPENDENT AUDITORS' REPORT

Board of Directors                                                              
The Grill                                                                       

We have  audited  the  accompanying  balance  sheet of The Grill,  a  California
Limited  Partnership,  as of December  31,  1995,  and the related  statement of
income and  partners'  capital,  and cash flows for the year then  ended.  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 audit.                                                                      

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of The Grill, a California Limited
Partnership,  as of December 31, 1995, and the results of its operations and its
cash  flows  for the year  then  ended in  conformity  with  generally  accepted
accounting principles.                                                          

June 5, 1996                                                                    

/s/Barkin, Perren & Schwager                                                    
----------------------------                                                    
Barkin, Perren & Schwager                                                       
Woodland Hills, California                                                      

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 THE GRILL
(A CALIFORNIA LIMITED PARTNERSHIP)
 Balance Sheet
 December 31, 1995

ASSETS

Current Assets                                                                  
Cash and cash equivalents (Note 1)                          $ 216,655       
Investment securities, available for sale                     233,486       
Accounts receivable                                            30,820       
Advances to employees                                          15,000       
Inventories                                                    45,521       
Prepaid expenses                                               60,122       
                                                       -------

Total Current Assets                                            601,604         

Property and Equipment, at cost (Notes 1 & 2)                    59,349         
                                                       -------

Other Assets                                                                    
Deposits                                                       15,776       
Liquor License                                                 40,000       

Total Other Assets                                               55,776         

Total Assets                                                $ 716,729       
                                                       =======

 LIABILITIES AND PARTNERS' CAPITAL

Current Liabilities                                                             
Accounts payable                                            $  95,268       
Accrued expenses                                               48,843       
Due to Grill Concepts, Inc. (Note 5)                           97,420       
Due to partner (Note 5)                                        16,794       
                                                       -------

Total Current Liabilities                                       258,325         

Commitments and Contingencies (Note 3)                                          

Partners' Capital                                               458,404         

Total Liabilities and Partners' Capital                      $ 716,729        
                                                       =======

See Independent Auditors' Report
The accompanying notes are an integral part of these statements.

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 THE GRILL
(A CALIFORNIA LIMITED PARTNERSHIP)
 Statement of Income and Partners' Capital
For the Year Ended December 31, 1995

Sales                                                                           
Food                                                       $2,030,126       
Beverage                                                      724,752       

Total Sales                                                   2,754,878         

Cost of Sales                                                                   
Food                                                          668,257       
Beverage                                                      196,178       

Total Cost of Sales                                             864,435         

Gross Profit                                                  1,890,443         

Operating Expenses                                                              
Payroll expenses                                              853,643       
General and Administrative - Fixed                            219,518       
General and Administrative - Variable                         294,487       
Occupancy Costs                                               443,392       
                                                     ---------

Total Operating Expenses                                      1,811,040         

Operating Income                                                 79,403         

Other Income (Expenses)                                                         
Interest Income                                                 6,477       
Interest Expense                                               (1,592)      
Depreciation                                                   (9,494)      
                                                     ---------

Total Other Income (Expenses)                                   (4,609)       

Net Income Before Taxes                                          74,794         

Provision For Income Taxes (Note 1)                               1,600         
                                                     ---------

Net Income                                                       73,194         

Partners' Capital - Beg. of Year                                478,859         

Unrealized Loss on Investment Securities                                        
Available for Sale, Net                                        (3,649)      

Distributions                                                   (90,000)        

Partners' Capital - End of Year                              $  458,404         
                                                     =========

 See Independent Auditors' Report.
The accompanying notes are an integral part of these statements.

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 THE GRILL
(A CALIFORNIA LIMITED PARTNERSHIP)
 Statement of Cash Flows
For the Year Ended December 31, 1995

Cash Flows From Operating Activities                                            

Received from sales                                        $2,654,463       
Received from interest                                          5,427       
Paid for cost of sales                                       (835,734)      
Paid for operating expenses                                (1,621,543)      
Paid for taxes to government                                   (1,600)      
                                                     ---------

Net cash flows from operating activities                                
(Note 4)                                                   201,013    
                                                     ---------

Cash Flows from Investing Activities                                            

Purchase of investment securities                            (237,135)      
Purchase of property and equipment                            (11,751)      

Net cash used by investing activities                      (248,886)    
                                                     ---------

Cash Flow from Financing Activites                                              

Distribution to Partners                                     (90,000)     

Net cash used by financing activities                       (90,000)    
                                                     ---------

Net decrease in cash                                           (137,873)        

Cash and cash equivalents at beginning of year                  354,528         
                                                     ---------

Cash and cash equivalents at end of year                     $  216,655         
                                                     =========

 See Independent Auditors' Report.
The accompanying notes are an integral part of these statements.

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 THE GRILL
(A CALIFORNIA LIMITED PARTNERSHIP)
 Notes to Financial Statements
 December 31, 1995

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                             

Principal business activity                                                     
---------------------------                                                     
The Company is a Limited  Partnership  formed in the State of California in 1983
and is engaged in the  business of  operating  a  restaurant  in Beverly  Hills,
California.                                                                     

Inventories                                                                     
-----------                                                                     
Inventories  consisting of food, beverages and supplies are carried at the lower
of cost (first-in, first-out method) or market.                                 

Property and Equipment                                                          
----------------------                                                          
Property  and   equipment  are  stated  at  cost  and   depreciated   using  the
double-declining  balance and straight-line  methods over their estimated useful
lives as follows:                                                               

Furniture and fixtures                      3 - 7 years       
Office equipment                            5 - 7 years       
Leasehold improvements                     10 - 31.5 years    

Maintenance  and repairs are  expensed as  incurred  and major  betterments  are
capitalized.                                                                    

Income taxes                                                                    
------------                                                                    
The financial  statements  do not include a provision  for federal  income taxes
because the  partnership  does not incur federal or state income taxes.  Instead
its earnings are passed through to its partners and they are responsible for any
taxes on their  share of  income  allocated  to them.  The  State of  California
charges  a  minimum  tax of $800  paid  with  the  annual  filing  of the  state
partnership return.                                                             

Cash and cash equivalents                                                       
-------------------------                                                       
The "cash and cash equivalents" asset account,  for purposes of the statement of
cash flows,  includes all cash accounts and  short-term  investments  with three
months or less to maturity at the financial statement date.                     

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 THE GRILL
(A CALIFORNIA LIMITED PARTNERSHIP)
 Notes to Financial Statements
 December 31, 1995

NOTE 2 - PROPERTY AND EQUIPMENT                                                 

Property and equipment consists of:                                             

Furniture and fixtures                                      $  21,460       
Equipment                                                     514,431       
Leasehold improvements                                        228,243       
                                                       -------
                                                       764,134

Less Accumulated Depreciation                                (704,785)      

                                                     $  59,349

NOTE 3 - COMMITMENTS AND CONTINGENCIES                                          

The Company  leases the  building  located at 9560 Dayton  Way,  Beverly  Hills,
California under an operating lease  originally dated October 12, 1982,  amended
on March 18, 1997 and  extended on February  26.  1992.  The lease was  extended
until May 1, 1998 under the same  conditions as the original lease. In addition,
the Company is required to pay all real estate  taxes,  insurance  and  business
licenses.                                                                       

Rent expense was $171,153 for the year ended December 31, 1995.                 

Future minimum lease  payments  required as of December 31, 1995 related to this
operatin lease are as follows:                                                  

1996           $167,913                   
1997            167,913                   
1998             55,971                   
-------   
$391,797    
=======   

NOTE 4 - CASH FLOW FROM OPERATING ACTIVITIES - INDIRECT METHOD                  

Net income                                                    $  73,194         
                                                      --------

Noncash Revenue and Expense Adjustments:                                        
Depreciation expense                                            9,494       
Increase in accounts receivable                                (5,978)      
Decrease in inventory                                          13,701       
Increase in prepaid expenses                                  (21,960)      
Increase in accounts payable                                   31,571       
Decrease in accrued expenses                                   (9,071)      
Increase in Due to Grill Concepts, Inc.                       108,470       
Increase in Due to Emndee, Inc.                                 1,592       
                                                      --------

                                                       127,819
Net cash flows from operating activities                      $ 201,013         
                                                      ========

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 THE GRILL
(A CALIFORNIA LIMITED PARTNERSHIP)
 Notes to Financial Statements

NOTE 5 - RELATED PARTY TRANSACTIONS                                             

The company owes $97,420 to Grill Concepts,  Inc. for various expenses including
management  fees and  insurance  reimbursement.  Some of the majority  owners of
Grill Concepts,  Inc. are also shareholders of Emndee,  Inc. Emndee, Inc. is the
general  partner of the  Company.  The Company  intends to repay this  liability
within the current period. No interest has been accrued on this amount.         

The company owes $16,794 to its general partner, Emndee, Inc. for loans advanced
in earlier years. Interest is accrued at 10% and compounded monthly.            

NOTE 6 - SUBSEQUENT EVENTS                                                      

In March 1996, a new entity,  "The Grill on the Alley, Inc.", was formed for the
purpose of acquiring all of the limited partnership interests in the Company. In
exchange for each limited  partnership  unit,  partners  received  shares in The
Grill on the Alley, Inc.                                                        

In April 1996, Grill Concepts, Inc. acquired all of the shares of both The Grill
on the Alley,  Inc. and Emndee,  Inc.,  in exchange for 850,000  shares of Grill
Concepts,  Inc.  common stock.  The stock was  distributed  as follows:  432,735
shares to the general partner and 417,265 shares to the limited partners.       

The  Company  extended  the lease for the  property  discussed  in Note 3 for an
additonal  10 years with a  termination  date of April 30,  2008.  The base rent
shall be $10,500 per month, subject to CPI adjustments.                         

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 THE GRILL

BALANCE SHEETS (UNAUDITED)

ASSETS

                                                   March 31,        December 31,
                                                  1996              1995
                                                 ---------          --------

Current assets:                                                                 
Cash and cash equivalents                        $379,015           $450,141
Inventories                                        37,973             45,521
Accounts receivable                                45,557             45,820
Prepaid expenses                                   54,944             60,122
                                                   --------           --------

                Total current assets              517,489            601,604
                                                   --------           --------
Property and equipment, at cost                      59,032             59,349  

Other assets                                                                    
Liquor licenses, net                               40,000             40,000
Other                                              15,776             15,776
                                                   --------           --------

Total assets                                        632,297           $716,729  
                                                   ========           ========

 LIABILITIES AND PARTNERS' CAPITAL

Current liabilities                                                             
Accounts payable                                 $124,104            $95,268
Accrued expenses                                   34,042            163,057
                                                   --------           --------
        Total current liabilities                 158,146            258,325
                                                   --------           --------
Partners' Capital                                   474,151            458,404  
                                                   --------           --------

Liabilities and Partners' Capital                  $632,297           $716,729  
                                                   ========           ========

The accompanying notes are an integral part of these financial statements 

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 THE GRILL

 STATEMENT OF OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 25, 1995

                                                        1996          1995
                                                        --------      --------

Sales                                                   $855,294       $649,644 

Cost of sales                                            268,047        185,569 
                                                        ---------     --------

Gross Profit                                             587,247        464,075 
                                                        ---------     --------

Cost and expenses                                                               
Restaurant operating expenses                            445,845        320,914 
General and administration                                76,226         37,027 
Depreciation and amortization                              2,862          2,778 
                                                        ---------     --------

    Total operating expenses                            524,933        360,719
                                                        ---------     --------

Income from operations                                    62,314        103,356 

Interest income                                            3,433            -   
                                                        ---------      -------

Income before taxes on income                           $ 65,747       $103,356 
                                                        ---------      -------

Provisions for taxes on income                                 0              0 
                                                        ---------      -------

Net income                                               $65,747       $103,356 
                                                        =========     ========

The accompanying notes are an integral part of these financial statements 

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 THE GRILL

 STATEMENT OF CASH FLOWS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 1996 and MARCH 25, 1995

                                                     1996         1995
                                                     --------     --------
Cash flows from operating activities:                                           
Net income                                            $65,747      $103,356 
Adjustments to reconcile net loss to net cash                               
used in operating activities:                                               
 Depreciation and amortization                         2,862         2,778
Changes in operating assets and liabilities:                            
   Inventories                                         7,548        19,354
   Receivables                                           263        12,407
    Prepaid expenses                                    5,178       (81,197)
    Accounts payable                                   28,836       (41,446)
    Accrued liabilities                              (129,015)      (22,666)
                                                      ----------    ----------
      Net cash used in operations                     (18,581)       (7,414)
                                                      ----------    ----------

Cash flows from investing activities:                                           
Additions to property and equipment                    (2,545)       (6,020)
                                                     ---------   ---------

Cash flows from financing activities                                            
Distribution to Partners                              (50,000)           -  
                                                     ---------   ---------

Net decrease in cash and cash equivalents               (71,126)      (13,434)  

Cash and cash equivalents, beginning of period           450,141      354,528   
                                                     ---------   ---------

Cash and cash equivalents, end of period                $379,015     $341,094   
                                                     =========   =========

The accompanying notes are an integral part of these financial statements 

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 THE GRILL

 NOTES TO FINANCIAL STATEMENTS

 FOR THE THREE MONTHS ENDED MARCH 31, 1996

1.       INTERIM FINANCIAL PRESENTATION                                         

The interim financial statements and notes thereto should be read in conjunction
with the financial  statements and notes included in The Grill audited financial
statements  for the year ended  December 31, 1995. In the opinion of management,
these interim financial statements reflect all adjustments of a normal recurring
nature  necessary  for a fair  statement  of the results for the interim  period
presented.                                                                      

2.   CASH DISTRIBUTION                                                          

In March, 1996 a cash distribution of $50,000 was made to the partners.         

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GRILL CONCEPTS, INC.

PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The  following  unaudited pro forma  condensed  combined  financial  information
reflects the 1996  acquisition  of The Grill dba,  "The Grill on the Alley",  by
Grill Concepts,  Inc. (the "Company") for 850,000 shares of the Company's Common
Stock valued at  $850,000.  The pro forma  balance  sheet data at March 31, 1996
assumes the  acquisition  of The Grill occurred at March 31, 1996. The pro forma
statement of  operations  for the three months ended March 31, 1996 and the year
ended  December 31, 1995 assumes the 1996  acquisition  of The Grill occurred on
December 26, 1994 (i.e., the first day of the fiscal year for the Company).     

The historical financial  information of the Company and The Grill as of and for
the three months ended March 31, 1996 and the year ended  December 31, 1995 have
been derived from the respective  companies  consolidated  financial  statements
included elsewhere herein. The pro forma financial information should be read in
conjunction  with  the  accompanying   notes  thereto  and  with  the  financial
statements of the Company and The Grill.                                        

The pro forma condensed  combined financial  information does not purport to be 
indicative  of the  financial  position  or  operating  results  which  would be
achieved had the  acquisition  been  consummated  as of the dates  indicated and
should not be  construed  as  representative  of future  financial  position  or
operating results. In management's opinion, all adjustments necessary to reflect
the effects of the acquisition have been made.                                  

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PRO FORMA CONDENSED COMBINED BALANCE SHEET

MARCH 31, 1996
 (Unaudited)

                                                        [Enlarge/Download Table]


                                                     Grill                        Adjustments                    
                                                 Concepts, Inc.    The Grill        Dr./(Cr)        Combined     
                                                                                                                 
    ASSETS                                                                                                       
Current assets                                                                                                   
  Cash and cash equivalents                          $334,710        $379,015                         $713,725   

   Inventories                                        161,732          37,973                          199,705   
   Accounts receivable                                                 45,557                           45,557   
   Prepaid expenses                                   769,248          54,944            ______        824,192   
                                                      -------         -------                         --------   

        Total current assets                        1,265,690         517,489                        1,783,179   

Furniture, equipment and improvements               3,600,924          59,032        $415,849 <F1>   4,075,805   

Other assets:                                                                                                    
   Goodwill, net                                    1,985,968                                        1,985,968   
   Liquor licenses, net                               665,506          40,000                          705,506   
   Other                                               75,970          15,776       _______             91,746   
                                                       ------          ------                           ------   

         Total assets                               7,594,058        $632,297        $415,849       $8,642,204   
                                                    =========        ========        ========       ==========   

  LIABILITIES AND STOCKHOLDERS EQUITY                                                                            

Current liabilities                                                                                              
    Accounts payable                                 $814,813        $124,104         $40,000 <F2>    $978,947   
    Accrued expenses                                  846,238          34,042                          880,280   
    Current portion of long-term debt                 448,500         _______         ________         448,500   
                                                      -------                                          -------   

           Total current liabilities                2,109,581         158,146          40,000        2,907,727   

Long-term debt                                      1,159,390                                        1,159,390   

Long-term debt - related parties                       84,500                                           84,500   

           Total liabilities                        3,353,471         158,146           40,000       3,551,617   
                                                    ---------         -------           ------       ---------   

Stockholders' equity:                                                                                            
    Common stock                                          130                                8 <F1>        138   

    Additional paid-in capital                      6,726,081                          849,992 <F1>  7,576,073   
    Partners' capital                                                 474,151         (474,151)<F1>          0   
    Accumulated deficit                            (2,485,624)       ________         ________      (2,485,624)  
                                                   -----------                                        -----------

            Stockholders' equity                    4,240,587         474,151          375,849       5,090,587   
                                                    ---------         -------          -------       ---------   

           Total liabilities and                                                                                 
stockholders' equity                               $7,594,058        $632,297         $415,849      $8,642,204   
                                                   ==========        ========         =========      ==========  

<FN>                                                                                                             

<F1> To record  issuance of 850,000  shares of GCI Common  Stock valued at $1.00                                 
     per share;  the  elimination  of  partners'  capital  and to  allocate  the                                 
     purchase  price of cost in excess of net assets  acquired to the fair value                                 
     of assets acquired.                                                                                         

<F2> To accrue Grill Concepts' additional cost of the acquisition.                                               

</FN>                                                                                                            

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GRILL CONCEPTS, INC.

 PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1995

[CAPTION]                                                                       

                                                        [Enlarge/Download Table]

                                    Grill                      Adjustments                    

                                Concepts, Inc.     The Grill    Dr/(Cr)           Combined    

                                                                                              
Sales                             $20,253,248     $2,754,878                     $23,008,126  
Cost of sales                       5,437,041        864,435    _________          6,301,476  
                                   -----------     ---------                      ----------  
Gross profit                       14,816,207      1,890,443    _________         15,706,650  
                                   -----------    -----------                     ----------  

Restaurant operating expenses      12,109,505      1,673,040                      13,782,545  
General and administration          1,716,514        138,000  ( $138,000) <F2>                

                                                                 138,000  <F2>     1,854,514  
Depreciation and amortization         791,758          9,494      37,822  <F1>       839,074  
                                    ----------     ----------   ---------          ---------- 
        Total operating expenses   14,617,777      1,820,534      37,822          16,476,133  
                                    ----------     ----------   ---------          ---------- 

Income from operations                198,430         69,909    ( 37,822)            230,517  
Interest (income)/expense             127,606        ( 4,885)     37,822             122,721  
                                     ---------      ----------   ---------         ---------- 
Income before income taxes             70,824         74,794    ( 37,822)            107,796  
Taxes on income                         7,600          1,600     ________              9,200  
                                     ---------       --------    ----------        ---------- 

Net income                            $63,224        $73,194    ($37,822)            $98,596  
                                     =========       ========    ========            =========

Net income per share                                                                   $0.01  
                                                                                       =====  

Weighted average shares outstanding                                               12,387,081  
                                                                                  ==========  

                    FOR THE THREE MONTH ENDED MARCH 31, 1996                                  

                                     Grill                        Adjustments                 
                                  Concepts, Inc.      The Grill     Dr./(Cr)      Combined    

Sales                              $5,245,779         $855,294                   $6,101,073   
Cost of sales                       1,346,127          268,047      _______       1,614,174   
                                   ----------          -------                    ---------   
Gross profit                        3,899,652          587,247      _______       4,486,899   
                                   ----------          -------                    ---------   

  Restaurant operating expenses     3,186,801          445,845                    3,632,646   
  General and administration          470,934           76,226      $38,603 <F2>              
                                                                    (38,603)<F2>    547,160   
  Depreciation and amortization       191,435            2,862        9,456 <F1>    203,753   
                                    ---------          -------      --------       ---------  
        Total Operating expenses    3,849,170          524,933        9,456       4,383,559   
                                    ---------          -------      --------       ---------  

Income from operations                 50,482           62,314       (9,456)        103,340   

Interest (income)/expense              37,897           (3,433)       ______         34,464   
                                    ----------         --------                     --------  

Income before income taxes             12,585           65,747       (9,456)         68,876   

Taxes on income                           800           ______        ______            800   
                                    ----------                                      --------- 

Net income/(loss)                     $11,785        $  65,747       ($9,456)       $68,076   
                                    ==========        ==========     ========       ========= 

Net income per share                                                                  $0.01   
                                                                                      =====   
Weighted average shares outstanding                                              12,999,230   
                                                                                 ==========   

<FN>                                                                                          
<F1> To record  depreciation on increased value of property and equipment due to              
     purchase price accounting.                                                               

<F2> Also eliminated was an inter-company management fee to Grill Concepts.                   

</FN>                                                                                         

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         No dealer,  salesperson or any other person has been authorized to give
any information or to make any  representations in connection with this offering
other  than  those   contained   in  this   Prospectus.   Any   information   or
representations not herein contained,  if given or made, must not be relied upon
as having been authorized by the Company. This Prospectus does not constitute an
offer to sell or a  solicitation  of an offer to buy any security other than the
securities  offered by this Prospectus,  nor does it constitute an offer to sell
or a  solicitation  of an  offer  to buy the  securities  by any  person  in any
jurisdiction where such offer or solicitation is not authorized, or in which the
person  making such offer is not qualified to do so, or to any person to whom it
is unlawful to make such offer or solicitation.  The delivery of this Prospectus
shall not, under any  circumstances,  create any implication that there has been
no change in the affairs of the Company since the date hereof.                  

 TABLE OF CONTENTS

Prospectus Summary........................................................      
Risk Factors..............................................................      
The Offer.................................................................      
Use of Proceeds...........................................................      
Management's Discussion and Analysis......................................      
Business..................................................................      
Management................................................................      
Certain Relationships and Transactions....................................      
Principal and Selling Shareholders........................................      
Market For Common Equity and Related                                            
Stockholder Matters.....................................................    
Description of Securities.................................................      
Legal Matters.............................................................      
Experts...................................................................      
Changes in and Disagreements with Accountants                                   
on Accounting and Financial Disclosure..................................    
Index to Financial Statements.............................................   F-1

551,620 Shares of Common Stock and
100,000 Shares of Common Stock
 underlying Common Stock
 Purchase Warrants

GRILL CONCEPTS, INC.

PROSPECTUS

, 1996

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 PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.                             

         The  Company's  Articles of  Incorporation,  as amended,  eliminate the
personal  liability of directors to the Company or its stockholders for monetary
damages for breach of fiduciary  duty to the extent  permitted by Delaware  law.
The Company's  Bylaws provide that the Company shall  indemnify its officers and
directors to the extent permitted by the general corporation law of the State of
Delaware.  Section 145 of the General  Corporation  Law of the State of Delaware
authorizes a Corporation to indemnify directors,  officers,  employees or agents
of the Corporation in non-derivative suits if such party acted in good faith and
in a manner he reasonably  believed to be in or not opposed to the best interest
of the Corporation  and, with respect to any criminal action or proceeding,  had
no  reasonable  cause to believe his  conduct was  unlawful,  as  determined  in
accordance with Delaware law. Section 145 further provides that  indemnification
shall be  provided  if the party in  question  is  successful  on the  merits or
otherwise.                                                                      

         Reference is hereby made to the caption  "Management - Exculpation  and
Indemnification  Arrangements"  in  the  Prospectus  which  is a  part  of  this
Registration  Statement  for a  more  detailed  description  of  indemnification
arrangements between the Company and its directors.                             

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION                            

         The  estimated  expenses of the Offer,  all of which are to be borne by
the Company, are as follows:                                                    

SEC Filing Fee......................................................      507.65
Accounting Fees and Expenses........................................   15,000.00
Legal Fees and Expenses.............................................   20,000.00
Miscellaneous.......................................................    4,492.35
  Total............................................................. $ 40,000.00
                                                                     ===========

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.                               

         The Company  has sold the  following  securities  within the past three
years which were not registered under the Securities Act of 1933:               

     1. In December of 1994 and January of 1995,  the Company  sold an aggregate
of  609,286  shares of Common  Stock to four  non-U.S.  resident  investors  for
$1,066,250 in cash.  Vanguard Ltd. acted as placement  agent with respect to the
sale of those shares.  The Company paid a total of $30,000 to Vanguard,  Ltd. as
compensation  and  reimbursement of expenses in connection with the placement of
such  shares.  Those  securities  were  issued  pursuant to the  exemption  from
registration  for offers and sales outside of the United States  provided  under
Regulation S of the Securities Act of 1933, as amended.                         

     2. In March of 1995,  the Company  issued to an aggregate of 150,000 shares
of Common  Stock to Glenn  Golenberg,  Marshall  Geller,  Whale  Securities  and
Millennium  Capital  as a Merger  and  Acquisition  Fee paid by the  Company  in
connection  with  services  provided  by such  parties  relating  to an Exchange
Agreement between Magellan  Restaurant  Systems,  Inc. and Grill Concepts,  Inc.
Additionally,  the  Company  issued an  aggregate  of 100,000  warrants to Whale
Securities  Co., L.P.,  Millennium  Capital Corp.,  Glenn Golenberg and Marshall
Geller for  introducing the Company to Vanguard,  Ltd. The securities  issued to
Messrs. Golenberg and Geller and to Whale Securities and Millennium Capital were
issued  pursuant to the  exemption  from  registration  for offers and sales not
involving a public  offering  pursuant to Section 4(2) of the  Securities Act of
1933, as amended.                                                               

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     3. In April of 1996,  the Company  issued an aggregate of 850,000 shares of
Common  Stock to the  shareholders  of The Grill on the Alley,  Inc. and EMNDEE,
Inc.  (The Grill on the Alley and EMNDEE were  partners in a California  limited
partnership  which  owned and  operated  The Grill on the Alley  restaurant)  in
exchange for all of the shares of such companies.  The securities  issued to the
shareholders  of The Grill on the Alley,  Inc.  and  EMNDEE,  Inc.  were  issued
pursuant to the exemption from registration for offers and sales not involving a
public  offering  pursuant to Section  4(2) of the  Securities  Act of 1933,  as
amended.                                                                        

     4. In June of 1996, the Company issued 1,500 shares of Series A Convertible
Preferred Stock to Cameron Capital Ltd., a non-U.S.  resident, for $1,500,000 in
cash. In connection  with such issuance,  the Company issued to Cameron  Capital
Management Ltd. 250,000 warrants to purchase common stock at $3.00 per share for
a  period  of five  years.  The  Company  paid a total  of  $45,000  in  expense
reimbursements to Cameron Capital  Management Ltd.,  including $15,000 which was
payable to  Vanderkam  & Sanders  as a finders  fee and in payment of legal fees
incurred in the transaction.  The securities  issued to Cameron Capital Ltd. and
to Cameron  Capital  Management  Ltd. were issued pursuant to the exemption from
registration  for offers and sales outside of the United States  provided  under
Regulation S of the Securities Act of 1933, as amended.                         

         Except as otherwise noted, no underwriters  were utilized in connection
with the above  transactions  and no  commissions  or discounts were paid to any
party.                                                                          

ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.                            

EXHIBIT NUMBER                                                                  
--------------                                                                  
     2.1  Agreement and Plan of Merger  between MRS Funding,  Inc.,  Continental
          Capital Resources,  Inc. and Magellan Restaurant  Systems,  Inc. dated
November ____, 1992 (1)                                     
     2.2  Exchange  Agreement dated  September 13, 1994 by and between  Magellan
Restaurant Systems, Inc. and Grill Concepts, Inc. (2)       
2.3  Amendment to Exchange Agreement dated December 9, 1994 (2)       
2.4  Second Amendment to Exchange Agreement dated January 25, 1995 (2)
2.5  Letter Agreement regarding acquisition of The Grill (12)         
    3.1  Certificate of Incorporation, as amended, of Grill Concepts, Inc. (3)
3.2  Bylaws, as amended, of Grill Concepts, Inc. (1)                  
     3.3  Amendment  to  Bylaws  of  Magellan  Restaurant  Systems,  Inc.  dated
December 29, 1994 (2)                                       
     3.4  Certificate  of Designation  fixing terms of Series A Preferred  Stock
(13)                                                        
4.1  Specimen Common Stock Certificate (1)                            
4.2  Form of Privately Issued Warrant (1)                             
4.3  Form of Offshore Warrant dated June 14, 1996 (13)                
     5.1  Form of Opinion of Vanderkam & Sanders  regarding  the legality of the
securities being registered *                               
10.1 Form of Franchise Agreement (1)                                  
     10.2 Lease  Agreement  between Uno Concepts of Cherry Hill, Inc. and Denbob
         Corp. dated June 29, 1989 for premises in Cherry Hill, New Jersey (1)
++10.3 1986 Incentive Stock Option Plan (1)                           
     10.4 Agreement between Magellan Restaurant Systems, Inc. and Carl H. Canter
          dated  November , 1992  regarding  surrender of shares by Carl Canter,
amended (4)                                                 
     10.5 Promissory Notes from Uno Concepts,  Inc. to Robert Wechsler and Louis
Resnick regarding shareholder loan (1)                      
     10.6 Loan Extension  Agreement dated October 20, 1993 between Louis Resnick
and the Company (5)                                         
     10.7 Loan  Conversion  Agreement  dated  November 15, 1993  between  Robert
Wechsler and the Company (5)                                
10.8 Neptune Sports Bar Partnership Agreement dated April 15, 1993 (6)
     10.9 Cash Flow and Equity Purchase  Agreement dated April 15, 1993 relating
to Neptune Sports Bar (6)                                   

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     10.10Agreement  dated April 15, 1993 relating to assignment of rights under
Cash Flow and Equity Purchase Agreement to the Company (6)  
     10.11Form of  Promissory  Notes  from the  Company to Robert  Wechsler  and
Christi Pedra (7)                                           
     10.12Release and  Termination  Agreement dated May 17, 1994 relating to the
       termination of operations of the Company's Henrietta restaurant (8)
++10.13 Employment Agreement with Robert Wechsler (2)                 
     10.14Finders Fee  Agreement  dated  October 5, 1994 between the Company and
Golenberg & Geller, Inc. and Millennium Capital Corp. (2)   
     10.15Merger & Acquisition  Fee Agreement  dated October 5, 1994 between the
          Company and Golenberg & Geller,  Inc. and Whale  Securities  Co., L.P.
(2)                                                         
     10.16Form of Escrow  Agreement  relating to issuance of  additional  shares
pursuant to terms of exchange with Grill Concepts, Inc. (2) 
     10.17Form of Expense Sharing  Agreement between Magellan and Grill Concepts
(2)                                                         
     10.18Operating  Agreement for The Airport Grill LLC between Grill  Concepts
and CA One Services, Inc. dated March 15, 1995 (9)          
++10.19 Grill Concepts, Inc. 1995 Stock Option Plan (10)              
++10.20 Employment Agreement with Robert Spivak (11)                  
21.1 Subsidiaries of Registrant (9)                                   
24.1 Consent of Vanderkam & Sanders (included in Exhibit 5.1) *       
24.2 Consent of Coopers & Lybrand L.L.P. (appears on Page II-8) *     
24.3 Consent of Barkin, Perren & Schwager (appears on Page II-9) *    

*        Filed herewith                                                         
++        Compensatory plan or management agreement.                            

(1)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's  Registration  Statement  on Form  SB-2  (Commission  File No.
     33-55378-NY)  declared effective by the Securities and Exchange  Commission
on May 11, 1993.                                                      
(2)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's  Registration  Statement  on Form  S-4  (Commission  File  No.
     33-85730) declared  effective by the Securities and Exchange  Commission on
February 3, 1995.                                                     
(3)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's  Registration  Statement  on Form  SB-2  (Commission  File No.
     33-55378-NY)  declared effective by the Securities and Exchange  Commission
     on May 11, 1993 and the exhibits filed with the Registrant's Current Report
on Form 8-K dated March 3, 1995.                                      
(4)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's  Registration  Statement  on Form  SB-2  (Commission  File No.
     33-55378-NY)  declared effective by the Securities and Exchange  Commission
     on May 11,  1993 and the  respective  exhibits  filed  with  the  Company's
Current Report on Form 8-K dated March 11, 1994.                      
(5)  Incorporated  by  reference  to the  respective  exhibits  filed  with  the
Company's Current Report on Form 8-K dated November 15, 1993.         
(6)  Incorporated  by  reference  to the  respective  exhibits  filed  with  the
Company's Form 10-QSB for the quarter ended June 27, 1993.            
(7)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
Registrant's Current Report on Form 8-K dated January 19, 1994.       
(8)  Incorporated  by  reference  to the  respective  exhibits  filed  with  the
registrant's Current Report on Form 8-K dated May 17, 1994.           
(9)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's  Annual Report on Form 10- KSB for the year ended December 25,
1994.                                                                 
(10) Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's Quarterly Report on Form 10-QSB for the quarter ended June 25,
1995.                                                                 
(11) Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's  Annual Report on Form 10- KSB for the year ended December 31,
1995.                                                                 
(12) Incorporated   by  reference  to  the   respective   exhibits   filed  with
Registrant's Current Report on Form 8-K dated April 1, 1996.          
(13) Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's Quarterly Report on Form 10-QSB for the quarter ended June 30,
1996.                                                                 

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ITEM 28. UNDERTAKINGS.                                                          

         Insofar as indemnification for liabilities arising under the Act may be
permitted to directors,  officers,  and  controlling  persons of the  registrant
pursuant to the foregoing provisions, or otherwise,  registrant has been advised
that  in  the  opinion  of  the   Securities   and  Exchange   Commission   such
indemnification  is  against  public  policy  as  expressed  in the  Act and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such liabilities  (other than the payment by registrant of expenses  incurred or
paid  by a  director,  officer  or  controlling  person  of  registrant  in  the
successful  defense of any  action,  suit or  proceeding)  is  asserted  by such
director,  officer or controlling person in connection with the securities being
registered, registrant will, unless in the opinion of its counsel the matter has
been  settled  by  controlling  precedent,  submit  to a  court  of  appropriate
jurisdiction the question whether such  indemnification is against public policy
as expressed in the Act and will be governed by the final  adjudication  of such
issue.                                                                          

Registrant hereby undertakes:                                 

     A.   To file,  during any period in which offers or sales are being made, a
post effective amendment to this registration statement to: 

        1.   Include any prospectus required by Section 10(a)(3) of the Act;

          2.   Reflect in the  prospectus  any facts or events arising after the
               effective date of the registration  statement (or the most recent
               post effective  amendment thereof) which,  individually or in the
               aggregate, represents a fundamental change in the information set
forth in the registration statement; and          

          3.   Include  any  material  information  with  respect to the plan of
               distribution   not  previously   disclosed  in  the  registration
               statement  or any  material  change  to such  information  in the
registration statement.                           

     B.   That, for the purpose of determining any liability under the Act, each
          post effective amendment to the registration statement shall be deemed
          to be a new registration  statement relating to the securities offered
          therein  and the  offering  of such  securities  at that time shall be
deemed to be the initial bona fide offering thereof:        

     C.   To remove from registration by means of a post effective amendment any
          of  the  securities  being  registered  which  remain  unsold  at  the
termination of the offering; and                            

     D.   To provide, upon effectiveness, certificates in such denominations and
          registered in such names as are required to permit prompt  delivery to
each purchaser.                                             

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SIGNATURES

         Pursuant to the requirements of the Securities Act of 1933,  registrant
has duly caused this  registration  statement  or  amendment to be signed on its
behalf  by the  undersigned,  thereunto  duly  authorized,  in the  City  of Los
Angeles, State of California on the 13th day of September, 1996.                

GRILL CONCEPTS, INC.

 By: /s/ Robert Spivak
 ---------------------
    ROBERT SPIVAK, President

         Pursuant  to the  requirements  of the  Securities  Act of  1933,  this
registration  statement or amendment has been signed by the following persons in
the capacities and on the dates indicated.                                      

   Signatures                 Title                             Date
   ----------                 -----                             ----

 /s/ Robert Spivak        President, Chief Executive Officer  September 13, 1996
------------------------                                                        
Robert Spivak             and Director (Principal Executive                     
Officer)                    

                          Chairman of the Board of Directors  September   , 1996
Robert Wechsler                                                                 

 /s/ Michael Weinstock    Executive Vice President and        September 12, 1996
------------------------                                                        
Michael Weinstock         Director                                              

 /s/ Richard Shapiro      Vice President and Director         September 13, 1996
------------------------                                                        
Richard Shapiro                                                                 

 /s/ Ben Sumner           Chief Financial Officer (Principal  September 13, 1996
Ben Sumner                Accounting and Financial Officer)                     

                          Director                            September   , 1996
Charles Frank                                                                   

/s/ Glenn Golenberg       Director                            September 13, 1996
Glenn Golenberg                                                                 

                          Director                            September   , 1996
Peter Balas                                                                     

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                                                             Registration No.33-

SECURITIES AND EXCHANGE COMMISSION

EXHIBITS

TO

 FORM SB-2

Registration Statement
 Under
The Securities Act of 1933

GRILL CONCEPTS, INC.

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 Exhibit Index

Exhibit Number                                                       Page Number

2.1  Agreement and Plan of Merger between MRS Funding, Inc., Continental Capital
     Resources,  Inc. and Magellan Restaurant Systems, Inc. dated November ____,
     1992..................................................................... *

2.2  Exchange  Agreement  dated  September  13,  1994  by and  between  Magellan
     Restaurant       Systems,        Inc.       and       Grill       Concepts,
     Inc...................................................................... *

2.3  Amendment     to     Exchange      Agreement      dated     December     9,
     1994..................................................................... *

2.4  Second    Amendment    to   Exchange    Agreement    dated    January   25,
     1995..................................................................... *

2.5  Letter       Agreement       regarding       acquisition       of       The
     Grill.................................................................... *

3.1  Certificate   of   Incorporation,    as   amended,   of   Grill   Concepts,
     Inc...................................................................... *

3.2  Bylaws,         as        amended,         of        Grill        Concepts,
     Inc...................................................................... *

3.3  Amendment to Bylaws of Magellan Restaurant Systems, Inc. dated December 29,
     1994..................................................................... *

3.4  Certificate   of   Designation   fixing   terms  of   Series  A   Preferred
     Stock.................................................................... *

4.1  Specimen Common Stock Certificate........................................ *

4.2  Form of Privately Issued Warrant......................................... *

4.3  Form of Offshore Warrant dated June 14, 1996............................. *

5.1  Form of  Opinion of  Vanderkam  & Sanders  regarding  the  legality  of the
     securities                                                            being
   registered...............................................................

10.1 Form of Franchise Agreement.............................................. *
10.2 Lease Agreement between Uno Concepts of Cherry Hill, Inc. and Denbob Corp. 
      dated June 29, 1989 for premises in Cherry Hill, New Jersey............. *
++10.3            1986             Incentive             Stock            Option
     Plan..................................................................... *
10.4 Agreement  between  Magellan  Restaurant  Systems,  Inc. and Carl H. Canter
     dated  November  , 1992  regarding  surrender  of  shares  by Carl  Canter,
     amended.................................................................. *
10.5 Promissory  Notes from Uno  Concepts,  Inc.  to Robert  Wechsler  and Louis
     Resnick                        regarding                        shareholder
     loan..................................................................... *
10.6 Loan Extension  Agreement  dated October 20, 1993 between Louis Resnick and
the                                                                   
     Company.................................................................. *
10.7 Loan  Conversion  Agreement dated November 15, 1993 between Robert Wechsler
     and                                                                     the
     Company.................................................................. *
10.8 Neptune    Sports   Bar    Partnership    Agreement    dated    April   15,
     1993..................................................................... *
10.9 Cash Flow and Equity  Purchase  Agreement  dated April 15, 1993 relating to
     Neptune                                                              Sports
     Bar...................................................................... *
10.10Agreement  dated April 15, 1993 relating to assignment of rights under Cash
     Flow      and       Equity       Purchase       Agreement       to      the
     Company.................................................................. *
10.11Form of  Promissory  Notes from the Company to Robert  Wechsler and Christi
     Pedra.................................................................... *
10.12Release  and  Termination  Agreement  dated May 17,  1994  relating  to the
     termination     of     operations     of    the     Company's     Henrietta
     restaurant............................................................... *
++10.13           Employment           Agreement           with           Robert
     Wechsler................................................................. *
10.14Finders  Fee  Agreement  dated  October 5, 1994  between  the  Company  and
     Golenberg     &     Geller,      Inc.      and      Millennium      Capital
     Corp..................................................................... *
10.15Merger &  Acquisition  Fee  Agreement  dated  October 5, 1994  between  the
     Company  and   Golenberg  &  Geller,   Inc.  and  Whale   Securities   Co.,
     L.P...................................................................... *
10.16Form  of  Escrow  Agreement  relating  to  issuance  of  additional  shares
     pursuant     to    terms    of     exchange     with    Grill     Concepts,
     Inc...................................................................... *
10.17Form  of   Expense   Sharing   Agreement   between   Magellan   and   Grill
     Concepts................................................................. *
10.18Operating  Agreement for The Airport  Grill LLC between Grill  Concepts and
     CA       One       Services,        Inc.        dated       March       15,
     1995..................................................................... *
++10.19      Grill       Concepts,       Inc.       1995      Stock       Option
     Plan..................................................................... *
++10.20           Employment           Agreement           with           Robert
     Spivak................................................................... *
21.1 Subsidiaries                                                             of
     Registrant............................................................... *

24.1 Consent of Vanderkam & Sanders (included in Exhibit 5.1)                   

24.2 Consent of Coopers & Lybrand L.L.P. (appears on Page II-8)                 

24.3 Consent of Barkin, Perren & Schwager (appears on Page II-9)                
-------------------                                                             
*        Incorporated by reference pursuant to Rule 12b-23                      
**       Previously filed                                                       

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September 16, 1996                                                          

Grill Concepts, Inc.                                                            
11661 San Vicente Blvd., Suite 404                                              
Los Angeles, California 90049                                                   

Gentlemen:                                                                      

         You have  requested  that we furnish you our legal opinion with respect
to the legality of the following  described  securities of Grill Concepts,  Inc.
(the  "Company")  covered  by a Form SB-2  Registration  Statement,  as  amended
through the date hereof (the "Registration  Statement") initially filed with the
Securities  and Exchange  Commission  (File No. 33- ) by the Company on August ,
1996 for the purpose of registering  such securities under the Securities Act of
1933:                                                                           

1.       551,620 shares of common stock, $.001 par value (the 
       "Offered Shares") being offered by certain existing
shareholders of the Company;                

2.       100,000 shares of Common Stock (the "Warrant Shares")
       issuable upon the exercise of outstanding Warrants.

The Offered Shares and the Warrant Shares are referred to     
collectively as the "Registered Securities."                                    

         In connection with this opinion, we have examined the corporate records
of the Company,  including the Company's Articles of Incorporation,  Bylaws, and
the  Minutes  of  its  Board  of  Directors  and  Shareholders   meetings,   the
Registration  Statement,  and such  other  documents  and  records  as we deemed
relevant in order to render this opinion.                                       

Based upon the foregoing, it is our opinion that:             

   1.       The Company is duly and validly organized and is validly
             existing and in good standing under the laws of the State
of Delaware.                                

         2.       The Registered Securities,  when sold and issued in accordance
                  with  the  Registration  Statement  and the  final  prospectus
                  thereunder,  and for the  consideration  therein  referred to,
           will be legally issued, fully paid, and non-assessable.

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Grill Concepts, Inc.                                                            
September 16, 1996                                                              
Page 2                                                                          

         In giving the  opinions  expressed  above,  we advise that our opinions
herein are with  respect  to federal  law and the law of the State of Texas only
and  that,  to  the  extent  such  opinions  are  derived  from  laws  of  other
jurisdictions,  such  statements  are  based  upon an  examination  of  relevant
authorities  and are  believed  to be  correct,  but we have  obtained  no legal
opinions as to such  matters from  attorneys  licensed to practice in such other
jurisdictions.                                                                  

         We hereby consent to the filing of this opinion with the Securities and
Exchange  Commission  as an exhibit to the  Registration  Statement  and further
consent to  statements  made therein  regarding our firm and the use of our name
under the heading "Legal Matters" in the Prospectus  constituting a part of such
Registration Statement.                                                         

                                                   Very truly yours,

                                                     VANDERKAM & SANDERS

                                                         /s/ Vanderkam & Sanders

legalopi.gci                                                                    

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CONSENT OF INDEPENDENT ACCOUNTANTS    

We consent to the inclusion in this  registration  statement on Form SB-2 of our
report dated March 15, 1996, on our audits of the financial  statements of Grill
Concepts,  Inc. We also  consent to the  reference to our firm under the caption
"Experts".                                                                      

/s/ Coopers & Lybrand L.L.P.                                                    
----------------------------                                                    
COOPERS & LYBRAND L.L.P.                                                        

Los Angeles, California                                                         
September 16, 1996                                                              

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 CONSENT OF INDEPENDENT AUDITORS

We consent to the  reference to our firm under the caption  "Experts" and to the
use of our reports  dated  December 31, 1995, in the  Registration  Statement on
Form SB-2 and the related Prospectus of Grill Concepts, Inc.                    

/s/Barkin, Perren & Schwager                                                    
-----------------------------                                                   
Barkin, Perren & Schwager                                                       

Woodland Hills, California                                                      
September 16, 1996                                                              

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘SB-2’ Filing		Date		First		Last			Other Filings
		4/30/08		79
		9/23/06		60
		6/17/01		46		71
		6/30/00		46
		6/17/00		46		71
		3/31/00		19		60
		3/2/00		3		46
		6/17/99		46		71			DEF 14A,  PRE 14A
		8/1/98		39
		6/17/98		46		71
		5/1/98		78
		3/18/97		78
		1/1/97		47
		12/31/96		62
		12/29/96		70					10KSB
		12/1/96		35
		11/30/96		19		60
Filed on:		9/18/96
		9/16/96		95		98
		9/13/96		92
		9/12/96		92
		9/10/96		1		44
		9/6/96		6		46
		6/30/96		14		90			10QSB,  NT 10-Q
		6/17/96		70
		6/15/96		17
		6/14/96		89		94
		6/5/96		73
		4/22/96		71
		4/1/96		71		90			8-K/A
		3/31/96		19		86			10QSB
		3/15/96		49		97
		1/3/96		61
		1/1/96		38
		12/31/95		14		98
		12/29/95		37
		11/30/95		19
		10/15/95		14
		8/1/95		39
		7/1/95		64
		6/25/95		16		90
		6/1/95		35		64
		5/31/95		17
		5/22/95		47
		4/30/95		19		60
		3/25/95		48		82
		3/15/95		90		94
		3/3/95		14		90
		2/10/95		64
		2/3/95		90
		1/25/95		89		94
		12/29/94		89		94
		12/26/94		16		84
		12/25/94		14		90
		12/9/94		89		94
		12/1/94		37
		10/5/94		90		94
		9/13/94		89		94
		5/17/94		90		94
		3/11/94		90
		1/19/94		90
		1/15/94		39
		12/28/93		59
		12/27/93		17
		12/8/93		44
		11/15/93		89		94
		10/20/93		89		94
		8/1/93		39
		6/27/93		90
		5/11/93		90
		4/15/93		89		94
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