PANCHOS MEXICAN BUFFET INC /DE, 10-K, 1995-12-11

PANCHOS MEXICAN BUFFET INC /DE
10-K, 1995-12-11
EATING PLACES

Previous: PANCHOS MEXICAN BUFFET INC /DE, DEF 14A, 1995-12-11

Next: PHH CORP, 424B3, 1995-12-11

<PAGE> 1

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 0-4678

PANCHO'S MEXICAN BUFFET, INC.

(Exact name of registrant as specified in its Charter)

DELAWARE 75-1292166
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

3500 NOBLE AVENUE, FORT WORTH, TEXAS 76111
(Address of principal executive offices) (Zip Code)

831-0081 817
(Registrant's telephone number) (Area Code)

Securities registered pursuant to Section 12(b) of the Act:
NONE

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

COMMON STOCK, PAR VALUE $0.10 PER SHARE
(Title of Class)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / /

THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT ON NOVEMBER 30, 1995, BASED ON THE ACTUAL STOCK PRICE ON SUCH DATE
WAS $8,746,630.

NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF NOVEMBER 30,
1995:..................................................................4,397,559

DOCUMENTS INCORPORATED BY REFERENCE

THE COMPANY'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 24, 1996, IS INCORPORATED BY REFERENCE IN PART III HEREOF.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

PART I

ITEM 1. BUSINESS

GENERAL

The Company, Pancho's Mexican Buffet, Inc. and subsidiaries, is principally
engaged in the operation and development of the Pancho's Mexican Buffet
restaurant chain serving Mexican food cafeteria style. However, Pancho's is more
than a cafeteria, because it's "all-you-can-eat" at a fixed price. Along the
cafeteria line, servers fill a piping hot platter with a diner's choices from
more than 20 items of freshly prepared Mexican food. Pancho's becomes a
full-service restaurant once a diner is at the table. A waitress or waiter
brings refills, or other food a diner may request from the buffet, at no extra
charge. For more service, a diner simply raises the small flag on the table. The
Company currently operates 65 restaurants located in the states of Texas (48),
Louisiana (6), Arizona (5), Oklahoma (3) and New Mexico (2), and one in
Guadalajara, Mexico.

Three new restaurants were opened in fiscal 1995, compared to nine in 1994
and three (including one relocation) in 1993.

The Company opened its Guadalajara, Mexico restaurant in October, 1995.
This operation is the result of a joint venture between the Company and one of
its non-employee directors to test the Mexican market for possible expansion. No
other new restaurants are currently planned, as management intends to focus on
improving sales and profitability and reducing debt.

In June 1995, following declining sales and net operating losses in the
first two quarters of 1995, the Company adopted a restructuring plan in an
effort to return to profitability. The plan included closing nine
underperforming restaurants and writing down assets at seven restaurants
operating at lower sales volumes and at the Company's constructed but
then-unopened restaurant in Guadalajara, Mexico. Consistent with ongoing efforts
to improve operating margins, three other restaurants were closed during the
year, and two locations formerly operated as Emiliano's Buffet Mexicano
restaurants were re-opened as Pancho's Mexican Buffets.

Jesse Arrambide, a Company founder, developed and opened the first Pancho's
Mexican Buffet in El Paso, Texas in 1958. The Company was organized under the
laws of the State of Delaware in December 1968 to succeed to the business
operated by predecessor corporations which were merged into the Company on
January 23, 1969. The Company's principal offices are located at 3500 Noble
Avenue, Fort Worth, Texas 76111 (telephone number [817] 831-0081).

BUSINESS DEVELOPMENT

The Company's long-term strategy in the United States (U.S.) is to expand
Pancho's Mexican Buffet within the Company's existing five-state market and
other contiguous states. The Company intends to concentrate on the development
of existing markets to reduce its supervision expense as a percentage of sales
and to improve the Company's competitive position, marketing potential and
profitability. There can be no assurance that the Company will be able to
achieve these objectives. The Company has no plans for franchising in the U.S.;
however, two Pancho's are currently being operated under license agreements.
Depending on the success of the Guadalajara restaurant, the Company will
consider further development in Mexico.

The most important factors in selecting new locations are the demographics
of the immediate market area within a radius of three to four miles and the
occupancy cost of the proposed restaurant. The Company's experience indicates
that it is relatively immaterial whether the location is free-standing or in a
mall or shopping center. Senior management inspects each restaurant site prior
to its acquisition. The Company has developed prototypes of both a free-standing
building design and a shopping center space design to enhance site flexibility.
In its restaurants, the Company maintains distinctive styling and colorful decor
using authentic artifacts in a Mexican motif.
<PAGE> 3

The objective of the Pancho's concept is to combine the serving speed and
economy of cafeteria-style service within an environment typical of table
service restaurants. The customer selects and is served food and beverage items
from the serving line. When the patron is seated a uniformed employee serves
chips, hot sauce, sopaipillas (Mexican bread), beverage refills and second
helpings on request for the "all-you-can-eat" patrons. This is a unique
variation of the traditional cafeteria concept, providing full table service
once a customer has completed selection from the service line. During fiscal
1993, the Company added self-service soup/salad bars and dessert bars to provide
greater food variety and value.

RESTAURANT OPERATIONS

The Company's restaurants serve continuously from 11:00 a.m. to 9:00 p.m.
seven days a week. The restaurants are family-oriented and are designed to match
serving-line service speed (three to three and one half patrons per minute) to
seating capacity for optimum utilization of space and return on investment.
Older Pancho's average approximately 7,300 square feet and seat 180 to 200. New
restaurants, and higher volume restaurants in which seating capacity has
recently been expanded, average approximately 9,000 square feet and seat 240 to
300. A typical new restaurant in a strip shopping center costs about $900,000 to
$1,000,000 to develop, including equipment and leasehold improvements.
Free-standing units cost from $1.5 million to $1.9 million for land, building
and equipment.

In addition to the "all-you-can-eat" buffet, the menu includes
competitively-priced limited-selection plates (the Super Combo value meal),
fajitas, a taco salad, soup/salad bar, and a child's plate. Children five years
of age and under are served any three items free. Senior citizens who belong to
Pancho's Seniors Club are given a 10% discount on their personal purchases.
Beverages are priced separately. All menu items include the soup/salad bar and
dessert bar.

About 20 items of Mexican food are served, including tamales, refried
beans, Mexican rice, flautas, enchiladas (five kinds), red chili stew, green
chili stew, chili rellenos, chili con queso, three kinds of sauces, tacos,
chalupas, pico de gallo, assorted relishes, chips, hot sauce and sopaipillas.
Beverages are also available. Alcoholic beverages are served in 43 restaurants
and accounted for 0.9% of the Company's sales for the year ended September 30,
1995. Pancho's restaurants offer food to go, which accounted for 8.8% of sales
for the year ended September 30, 1995.

The Company has standard procedures for customer service, sanitation, food
preparation and other operational matters. Each restaurant is under the
direction of a general manager, associate manager and production manager (chef).
Additionally, higher volume units have a first assistant manager who typically
has completed the Company's formal Manager Training Program. The basic three
manager team participates in an incentive compensation program based upon sales
and profitability of their specific restaurant. Company Area Managers and
Production Supervisors inspect the restaurants regularly and assist the unit
management to assure compliance with quality standards set by the Company. They
also participate in incentive compensation geared to the restaurant group for
which they are responsible. Depending on the size of the restaurant and the time
of the year, each Pancho's will have from 30 to 90 employees.

Special attention is directed to personnel planning for new restaurants.
"Blue Ribbon Teams" who assist in the opening of new restaurants are selected
from existing restaurants on the basis of superior employee performance in all
categories of restaurant operations. This program permits recognition of
employee performance and ensures immediate compliance with Company standards of
service in newly-opened restaurants.

MARKETING AND ADVERTISING

The Company has conducted extensive marketing studies to identify the
potential customer. In fiscal 1993, with data from the marketing studies, the
Company developed specifically focused television advertising programs which
contributed to a comparable-store sales increase of 11.1% for the fourth quarter
of 1993. Comparable-store sales continued this positive trend into 1994,
increasing 14.3%, 15.1% and 9.2%, respectively, for the first three quarters of
fiscal 1994. However, comparable-store sales decreased 6.2% in the fourth
quarter of fiscal 1994 due to fierce price competition and unusually strong
sales in 1993.

2
<PAGE> 4

Negative same store and average store sales trends continued in each
quarter of fiscal 1995. In the first quarter of 1996, the Company announced the
appointment of a new advertising agency to develop a new advertising program for
1996. The Company has developed new local marketing programs based on discounts
and couponing to improve store traffic and bring in new customers. An employee
motivational program has been implemented in 1996 to reinforce customer service
goals.

The Company's market is believed to consist primarily of lower and middle
income families and younger, white-collar patrons. The Company's marketing and
advertising, other than broadcast media, is handled primarily in-house, and is
conducted in the immediate geographical area of its restaurants. Restaurant
managers are encouraged to participate in community affairs and, with the
assistance of the general office, to cater school, church and other community
events. There is a birthday club for children under twelve which serves the
child free on his or her birthday and also provides a free pinata for the
birthday celebration. A senior citizens program includes registered membership
that entitles the member to a 10% discount.

PURCHASING AND DISTRIBUTION

The Company owns a warehouse and cold storage facility located at its
headquarters in Fort Worth, Texas. Until September 1994, grocery products and
supplies were distributed to the Company's restaurants from the Fort Worth
location.

In July 1994, the Company entered into an agreement with The SYGMA Network,
Inc. to purchase, warehouse and distribute substantially all the food products
and supplies for the Company's restaurants. This agreement provided immediate
benefits through increased delivery frequency at lower cost and decreased
investment in inventory. SYGMA's nationwide distribution network will also allow
the Company to develop new markets without capital investments to expand an
internal distribution system. The SYGMA Network is a subsidiary of SYSCO
Corporation, the nation's largest food service, marketing and distribution
organization with $11 billion in annual sales. The SYGMA Network specializes in
distribution for restaurant chains.

Most fresh produce and dairy products are purchased locally. The Company
believes that its system of central purchasing and distribution is critical to
control of product cost and quality and permits restaurant managers to
concentrate on quality of food preparation and customer service.

HUMAN RESOURCES

On September 30, 1995, the Company had about 3,321 employees, of whom 74
were corporate personnel, 3,230 were employed in restaurants and 17 were
employed in maintenance and construction.

The Company considers its employee relations to be good and believes that
its restaurant manager turnover rate is lower than the industry average. Most
employees, other than restaurant management and corporate personnel, are paid on
an hourly basis. The Company believes that it provides working conditions and
wages that compare favorably with those of its competition. The Company's
employees are not covered by a collective bargaining agreement.

COMPETITION

All aspects of the restaurant business are highly competitive. Price,
restaurant location, food quality, service and attractiveness of facilities are
important aspects of competition, and the competitive environment is often
affected by factors beyond a particular restaurant's control, including changes
in population, traffic patterns and economic conditions. The Company's
restaurants compete with a wide variety of value-priced and "all-you-can-eat"
restaurants, ranging from national and regional restaurant chains to
locally-owned restaurants. The Company believes that its principal competitive
strengths lie in the distinctive atmosphere and food presentation, in the value,
variety and quality of food products served and in the strength of the Pancho's
Mexican Buffet name.

3
<PAGE> 5

ITEM 2. PROPERTIES

The Company owns a combination general office/warehouse building located at
3500 Noble Avenue, Fort Worth, Texas. The headquarters facility consists of
general offices and freezer space of about 194,000 cubic feet and warehouse dry
storage of approximately 31,400 square feet. The Company also owns land (85,500
sq. ft.) and a warehouse building (25,000 sq. ft.) adjoining its present general
office/warehouse property and land (42,600 sq. ft.) located at 3565 McCart
Street, Fort Worth, Texas. The Company plans to sell or lease the McCart Street
property.

The sites of thirteen operating restaurants are owned by the Company.
Fifty-two operating restaurants are occupied pursuant to lease agreements which
have varying expiration dates into the year 2007. At September 30, 1995, the
Company had remaining lease obligations on six closed Pancho's Mexican Buffet
restaurant locations. As of November 30, 1995, one of these locations was
subleased, and the Company is seeking to sublease three other sites, for which
the lease terms expire in 1999 and 2003. The lease terms for the two other
closed sites expire in December 1995 and February 1996. Leases typically provide
for a minimum rental based on the cost of improvements provided by the lessor
and a maximum rental based upon the gross sales of the facility. The Company
does not deem any individual restaurant lease to be significant in relation to
its overall operations.

The Company has leased its Fort Worth cold storage facility to a food
manufacturing concern whose chairman and chief executive officer is a
non-employee director of the Company. The remainder of the space formerly
occupied by the Company's internal distribution operation is currently used for
equipment and document storage, and is being held for future office expansion.

Substantially all of the equipment and furniture used in the operation of
the restaurants and the headquarters facility are owned by the Company.

Information as to restaurant locations is set forth below:

<TABLE>
<S> <C> <C>
ARIZONA: TEXAS: Irving
Mesa Abilene Killeen
Phoenix-3 Amarillo League City
Tucson Arlington-3 Lewisville
Baytown Longview
LOUISIANA: Beaumont Lubbock
Baton Rouge Burleson McAllen*
Bossier City Carrollton Mesquite
Chalmette College Station North Richland Hills
Lafayette Conroe Pasadena
Metairie Corpus Christi* Plano
Shreveport Dallas-4 Richardson
Denton San Antonio-2
MEXICO: El Paso-2** Sherman
Guadalajara Euless South Houston
Fort Worth-3 Texarkana
NEW MEXICO: Galveston Tyler
Albuquerque-2 Garland Waco
Houston-6 Windcrest
OKLAHOMA: Humble
Oklahoma City-2
Tulsa

</TABLE>

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

* Operated by licensees

** Operated by A&A Foods

ITEM 3. LEGAL PROCEEDINGS

None.

4
<PAGE> 6

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

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
POSITION AND OFFICE PERIOD OF
NAME WITH REGISTRANT PRESENT OFFICE AGE
- ------------------------------ ------------------------------ ------------------------- ---
<S> <C> <C> <C>
Jesse Arrambide, III.......... Chairman of the Board and Since December 9, 1994 43
Chief Operations
Officer -- also Director and
officer of subsidiary
companies
Hollis Taylor................. Director and President and Since August 10, 1979 59
Chief Executive
Officer -- also Director and
officer of subsidiary
companies
Samuel L. Carlson............. Director and Senior Vice Since December 21, 1988 59
President, Administration
and Secretary -- also
Director and officer of
subsidiary companies
Brad Fagan.................... Vice President, Treasurer, Since September 29, 1995 36
Controller and Assistant
Secretary -- also Director
and officer of subsidiary
companies
</TABLE>

Jesse Arrambide, III has been Director since 1977 and was Vice President,
Operations from November 1984 to August 1993. He has been Chairman of the Board
of Directors since August 1993, and Chief Operations Officer since December
1994.

Hollis Taylor has been Director since March 1974. He has been President and
Chief Executive Officer since August 1979.

Samuel L. Carlson has been Director since November 1993. He has been Senior
Vice President, Administration and Secretary since December 1988.

Brad Fagan has been Vice President, Treasurer and Assistant Secretary since
September 1995 and Controller since December 1991. Mr. Fagan, a certified public
accountant, was Controller of Staffing Services, Inc. from July 1989 through
April 1991. He was a corporate audit supervisor for PepsiCo, Inc. from May 1985
through July 1989, and worked for the accounting firm of Arthur Andersen & Co.
from July 1983 to May 1985.

5
<PAGE> 7

PART II

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

COMMON STOCK DATA

The Company's common stock is traded over-the-counter in the National
Association of Securities Dealers, Inc. (NASDAQ) National Market System, under
the symbol "PAMX." On November 30, 1995, the number of record holders was about
630 and the Company estimates that on that date there were an additional 1400
beneficial owners. The following table sets forth the quarterly high and low
closing prices of the common stock, as reported by NASDAQ, for the calendar
quarters indicated.

<TABLE>
<CAPTION>
FISCAL QUARTER ENDED HIGH LOW
----------------------------------------------------------------- ------- -------
<S> <C> <C>
December 31, 1993................................................ $12.250 $ 8.875
March 31, 1994................................................... 12.750 10.250
June 30, 1994.................................................... 12.750 7.250
September 30, 1994............................................... 10.000 7.875
December 31, 1994................................................ 9.625 6.375
March 31, 1995................................................... 7.000 5.250
June 30, 1995.................................................... 5.625 3.875
September 30, 1995............................................... 4.250 3.188
</TABLE>

COMMON STOCK DIVIDENDS

The Company has paid cash dividends for the past 16 years. In 1995, cash
dividends were $.105 per share. Future cash dividends will depend on earnings,
financial position, capital requirements and other relevant factors.

6
<PAGE> 8

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data of the Company for each of the five
fiscal years ended September 30, 1991 through 1995 has been derived from the
more detailed consolidated financial statements and notes thereto of the Company
contained elsewhere in this report or previous reports.

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
YEARS ENDED SEPTEMBER 30,

<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Sales.................................... $80,893 $86,062 $75,968 $73,106 $73,586
------- ------- ------- ------- -------
Costs and Expenses:
Food costs............................. 22,910 23,347 20,956 19,727 19,331
Restaurant labor and related
expenses............................ 30,400 30,806 27,256 25,896 26,557
Restaurant operating expenses.......... 18,376 19,134 16,014 14,576 17,894
Depreciation and amortization.......... 4,512 4,420 3,635 3,354 3,783
General and administrative expenses.... 5,547 5,475 5,203 5,234 5,166
Restructuring charges.................. 7,572 (264) 6,425
------- ------- ------- ------- -------
Total.......................... 89,317 82,918 73,064 68,787 79,156
------- ------- ------- ------- -------
Operating Income (Loss).................. (8,424) 3,144 2,904 4,319 (5,570)
Interest Expense......................... (590) (34)
Other, Including Interest Income......... 309 66 147 73 41
------- ------- ------- ------- -------
Earnings (Loss) Before Income Taxes and
Cumulative Effect of Change in
Accounting Principle................... (8,705) 3,176 3,051 4,392 (5,529)
Provision (Benefit) for Income Taxes..... (3,343) 1,101 937 1,470 (2,003)
------- ------- ------- ------- -------
Net Earnings (Loss) Before Cumulative
Effect of Change in Accounting
Principle.............................. (5,362) 2,075 2,114 2,922 (3,526)
Cumulative Effect of Change in Accounting
for Income Taxes....................... 722
------- ------- ------- ------- -------
Net Earnings (Loss)...................... $(5,362) $ 2,075 $ 2,836 $ 2,922 $(3,526)
======= ======= ======= ======= =======
Cash Dividends........................... $ 462 $ 1,056 $ 1,051 $ 916 $ 719
======= ======= ======= ======= =======
Per Share Data:
Net earnings (loss) before cumulative
effect of change in accounting
principle........................... $ (1.22) $ .47 $ .48 $ .67 $ (.83)
Net earnings (loss).................... (1.22) .47 .64 .67 (.83)
Cash dividends......................... .105 .24 .24 .21 .17
At Year End:
Total assets........................... $44,387 $49,159 $43,092 $40,987 $38,231
Long-term debt......................... 8,705 5,840
Stockholders' equity................... 26,988 33,155 31,783 30,777 28,550
Number of restaurants.................. 64 72 66 64 66
</TABLE>

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

(1) Restaurant operating expenses for fiscal year 1991 includes an insurance
provision of $2,664,000 before income taxes, principally for retrospective
insurance premiums related to insurance claims under the Texas Workers'
Compensation Act for policy (calendar) years prior to 1991.

7
<PAGE> 9

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

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated: (i) items in the
consolidated statements of operations as a percentage of sales; (ii) average
restaurant sales; and (iii) the number of restaurants open at the end of each
period.

<TABLE>
<CAPTION>
PERCENTAGE OF SALES
YEARS ENDED SEPTEMBER 30,
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Sales............................................................ 100.0% 100.0% 100.0%
------ ------ ------
Costs and Expenses:
Food Costs..................................................... 28.3 27.1 27.6
Restaurant labor and related expenses.......................... 37.6 35.8 35.9
Restaurant operating expenses.................................. 22.7 22.2 21.1
Depreciation and amortization.................................. 5.6 5.1 4.8
General and administrative expenses............................ 6.8 6.4 6.8
Restructuring charges.......................................... 9.4 (0.3)
------ ------ ------
Total.................................................. 110.4 96.3 96.2
------ ------ ------
Operating Income (Loss).......................................... (10.4) 3.7 3.8
Interest Expense................................................. (0.7)
Other, Including Interest Income................................. 0.3 0.2
------ ------ ------
Earnings (Loss) Before Income Taxes and Cumulative Effect of
Change in Accounting Principle................................. (10.8) 3.7 4.0
Provision (Benefit) for Income Taxes............................. (4.2) 1.3 1.2
------ ------ ------
Net Earnings (Loss) Before Cumulative Effect of Change in
Accounting Principle........................................... (6.6) 2.4 2.8
Cumulative Effect of Change in Accounting for Income Taxes....... 0.9
------ ------ ------
Net Earnings (Loss).............................................. (6.6)% 2.4% 3.7%
====== ====== ======
Average Sales (In Thousands) for Restaurants Open Throughout the
Period......................................................... $1,190 $1,219 $1,127
Number of Restaurants Open at End of Period...................... 64 72 66
</TABLE>

Fiscal 1995 Compared To Fiscal 1994

Sales decreased $5,169,000 (6.0%) for fiscal 1995 versus 1994 due to lower
comparable store sales, restaurant closings and outsourcing the Company's
grocery distribution operation in September 1994. In response to declining
sales, a corporate restructuring closed nine restaurants and wrote down assets
at eight others, and new unit growth was cut from nine in 1994 to 3 in 1995.

Comparable store sales (sales for restaurants open all of fiscal 1995 and
1994) were down 11.5% in 1995, compared to an increase of 7.6% in 1994. Fiscal
1994 comparable store sales reflect record increases due to the addition of
soup/salad and dessert bars, effective television advertising and a December
1993 price increase. By September 30, 1995, the Company had reported 15
consecutive months of comparable store sales declines versus prior year months,
which followed 13 consecutive months of increases through June 1994.

COMPARABLE-STORE SALES BY QUARTER

<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
1st Quarter....................................... - 9.6% +14.3% + 0.3%
2nd Quarter....................................... -11.3 +15.1 - 3.7
3rd Quarter....................................... -11.8 + 9.2 - 0.6
4th Quarter....................................... -11.7 - 6.2 +11.1
Fiscal Year.................................. -11.5 + 7.6 + 2.7
</TABLE>

8
<PAGE> 10

The nine restaurants closed in the June 1995 restructuring had sales of
$4,652,000 in 1995 and $7,512,000 in 1994, a decrease of $2,860,000. Those
closed locations had average sales of $835,000 in 1994, well below the Company
averages for restaurants open throughout the year of $1,190,000 and $1,219,000
in 1995 and 1994, respectively.

Two restaurants were closed in the last quarter of fiscal 1994 and two were
closed in the first quarter of fiscal 1995, in the regular course of eliminating
under-performing locations. Those closings represent a 1995 sales decrease of
$2,520,000 versus 1994. One location that was written down in the restructuring
was permanently closed at the end of business on September 30, 1995.

The 12 locations closed in 1995 totaled $5,430,000 in sales in 1995. Those
units averaged $806,000 in sales in 1994, and had low or negative earnings and
cash flow. No other closings are currently planned, but management will continue
to evaluate operating margins and consider closing other locations based on
operating results and cash flow.

The 12 restaurants opened in fiscal years 1995 and 1994 contributed $9.1
million of revenue in 1995, and a price increase in December 1993 added about
$839,000 to sales in 1995.

Management believes that the number of restaurants competing for business
has grown faster than consumer spending on restaurant food, causing an
industry-wide decline in comparable store sales volumes. Management believes
that this over-built condition has recently led a number of chains to close
restaurants and reduce expansion.

Pancho's declining sales squeezed operating margins and cash flows, putting
some Pancho's locations below acceptable levels and leading to the restructuring
and restaurant closings. Even after the recent closings cut low volume
locations, declining same store and average store sales continue to be a major
concern. Fourth quarter average store sales in restaurants open the entire
quarter were down 4.1%, to $297,000 in 1995 versus $309,000 in 1994.

To reverse the sales declines, the Company is launching initiatives led by
development of new advertising and marketing campaigns with a new advertising
agency. Management is also emphasizing active local store marketing programs. An
employee motivational program has been implemented to reinforce quality customer
service goals.

Company management is studying customer feedback and market trends to
develop further methods to respond to consumer wants and stimulate sales. Minor
and major changes to food preparation and offerings, service approach, pricing
and market positioning are being evaluated for sales and earnings potential.

Food cost increased 1.2% of sales in 1995 due to recipe and food offering
changes combined with higher prices for chicken, cheddar cheese, produce,
shortening and paper. Food offerings, preparation methods and recipes were
changed in the fiscal third quarter to improve quality and preserve variety
while lowering product cost. The benefits of these changes and seasonally lower
produce prices were realized in the fourth quarter of fiscal 1995, as food cost
decreased 1.2% of sales from the third quarter of 1995, and was up only 0.3%
versus fourth quarter 1994.

Restaurant labor and related expenses increased 1.8% of sales in 1995. An
increase of 3.2% in average hourly pay rates caused an increase in labor cost of
0.8% of sales; however, sharply lower comparable-store sales raised labor costs
as a percentage of sales in established restaurants, and typically higher labor
costs in new restaurants contributed to the increase.

Pancho's prepares a large quantity and variety of fresh food in small
batches throughout the day and provides buffet-line and table service in each
restaurant. Maintaining a high level of quality service and food

9
<PAGE> 11

preparation makes it difficult to reduce labor costs in proportion to recent
sales declines, as staffing cannot be reduced below certain levels to maintain
Pancho's standards for service and sanitation.

The Company has implemented a labor control program which includes variable
scheduling guidelines with close supervisory review and follow-up of exceptions.
Computerized labor scheduling and time and attendance tools were in 38 locations
by yearend. Despite management focus on labor costs in 1995, increases as a
percentage of sales continued. Management will continue to emphasize reducing
labor costs in relation to sales by evaluating processes and procedures,
monitoring results and modifying schedules.

Lower sales caused restaurant operating expenses to increase 0.5% of sales
in 1995, despite spending $758,000 less. Advertising expenditures were reduced
by $597,000 when it was estimated that the benefits of additional advertising
would not exceed the cost. Fourth quarter 1995 operating costs were down 1.9% of
sales versus prior year because advertising costs decreased 1.3% of sales and
1994 included a $250,000 (.3% of sales) charge to close the Company's internal
distribution operation.

The asset write downs and restaurant closings under the restructuring
helped reduce fourth quarter 1995 depreciation and amortization $123,000
compared with fourth quarter 1994 and $112,000 compared with the third quarter
of 1995. For the year, depreciation and amortization was up $92,000 due to the
opening of three new restaurants in fiscal 1995 and nine new units in fiscal
1994, and remodeling and equipment upgrades throughout both years.

General and administrative expenses increased 0.4% of sales in 1995 due to
lower sales and a 0.1% of sales increase in dollars spent.

Under the restructuring plan, a pre-tax restructuring charge of $7,572,000
was recorded for the closing of nine restaurants and the impairment of eight
others, including the one in Guadalajara, Mexico. The charge included $6,624,000
to write down leasehold improvements and equipment and $948,000 for remaining
lease costs and other exit costs associated with the restaurant closings. The
charge for impairments was determined in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." See Note 10 to consolidated
financial statements for more information.

During the first quarter of fiscal 1994, the Company reported a pre-tax
benefit of $264,000 related to a reevaluation of previously established
restructuring reserves. The reevaluation resulted from the sale of a restaurant
site purchased for expansion in 1989 in Jacksonville, Florida and the sublease
of a closed restaurant location in Littleton, Colorado.

Interest expense increased $556,000 in 1995 due to increased debt, higher
interest rates and less interest capitalization due to reduced construction
activity. These conditions are expected to continue in fiscal 1996, causing
continued high interest expense, although the Company plans to pay down debt to
reduce interest costs as cash flow permits.

Due to restructuring charges, weak sales and other factors discussed above,
the Company reported a net loss of $5,362,000 for 1995, compared to 1994 net
earnings of $2,075,000. These results were far below the expectations of
management and the investment community, including those viewpoints expressed on
Page 6 of the Company's fiscal 1994 annual report under the caption "What Wall
Street Says About Pancho's Mexican Buffet"(1). Management believes that
appropriate actions are being taken to return the Company to consistent
profitability. However, the restaurant industry is intensely competitive, and
the Company's future earnings will largely depend on its ability to generate a
sustained improvement in sales.

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

(1) Pursuant to Item 601(b)(13) of Regulation S-K promulgated by the Securities
and Exchange Commission (SEC), the section of the Company's 1994 Annual
Report on page 6 under the caption "What Wall Street Says About Pancho's
Mexican Buffet" is not deemed to be filed with the SEC for purposes of the
Securities Exchange Act nor shall such section of the 1994 Annual Report be
deemed to be incorporated by reference in any past or future filing by the
Company under the Securities Exchange Act or the Securities Act of 1933, as
amended.

10
<PAGE> 12

Provision for Income Taxes

The effective tax rate in fiscal 1995 was a benefit of 38.4% compared to
provisions of 34.7% and 30.7% for 1994 and 1993, respectively. Based on its 1995
tax loss, the Company used tax planning to maximize the benefit rate for 1995,
as opposed to minimizing provision rates for 1994 and 1993. As shown in Note 5
to the consolidated financial statements, the 1995 rate is higher than prior
years due to significant employer tax credits and state net operating losses
(NOLs). The 1993 rate was unusually low, due primarily to effective state tax
strategies.

Significant current and deferred income tax benefits were recognized for
1995, resulting primarily from the restructuring charges and operating losses.
Income taxes receivable and deferred tax assets were recorded for these benefits
based on tax loss carry back opportunities and the Company's long history of and
expected future taxable income. No tax benefits were currently recognized for
the write down of assets in Mexico.

The income tax receivable of about $1.2 million is expected to be received
in March 1996.

Net deferred tax assets increased to $3,202,000 at September 30, 1995
versus $1,146,000 at September 30, 1994. The increase is due in part to the
Company's tax loss, which increased the federal alternative minimum tax
carryforwards and the federal employer tax credit carryforwards, as well as the
state NOL carryforwards. The restructuring charge and asset write downs created
temporary book-tax differences for restructuring reserves and fixed asset basis
differences. Note 5 to the consolidated financial statements identifies the
components of the deferred tax assets and liabilities.

The deferred federal tax assets totaled $2,594,000 at September 30, 1995.
Of that amount, $303,000 were employer tax credits which expire in fiscal years
2009 through 2010. No other deferred federal tax assets have expiration dates.

State deferred tax assets were $608,000 at September 30, 1995. State NOL
carryforwards which expire September 30, 2000 represent $249,000 of those
deferred tax assets. Another $98,000 in deferred tax assets based on state NOL
carryforwards expire in fiscal years 2003 through 2010. No other state deferred
tax assets have expiration dates.

The Company believes it will realize substantial benefits from the use of
federal employer tax credits and state NOL carryforwards to reduce future
federal and state income tax liabilities. If the Company's results of operations
continue to decline or fail to timely achieve levels necessary to use the
employer tax credits or the state NOL carryforwards, they could expire before
use, resulting in a charge against income.

Liquidity and Capital Resources

The Company's current ratio was 0.8 to 1 at September 30, 1995, up 0.1
compared to September 30, 1994. Cash equivalents decreased $462,000 during the
year to a balance of $1,199,000 at yearend, as capital spending exceeded cash
provided by operating and financing activities. The current ratio improved
slightly because yearend accounts payable for capital projects decreased over $1
million from 1994.

At September 30, 1994, cash equivalents had increased to $1.7 million from
$1.6 million at September 30, 1993. Long-term debt of $5.8 million was added in
1994 to fund new restaurant construction, restaurant expansions and equipment
upgrades.

Operating activities provided net cash of $3,464,000 in fiscal 1995. The
1995 loss included a pre-tax, largely non-cash restructuring charge of
$7,572,000 for restaurant closings and impairments. The 1995 loss also included
non-cash income tax benefits of $3,343,000 included in income taxes receivable
and deferred tax assets. Operating cash flow decreased due largely to the
decline in profitability.

Net cash provided by operating activities increased $595,000 in fiscal 1994
to $6.9 million, despite lower earnings in 1994 compared to 1993. A $1.6 million
decrease in inventory was partially responsible for the improvement. In July
1994, the Company entered into an agreement with The SYGMA Network, Inc. to
purchase, warehouse and distribute substantially all the food products and
supplies for the Company's restaurants. This agreement provided immediate
benefits through increased delivery frequency at lower cost

11
<PAGE> 13

and decreased investment in inventory. SYGMA's nationwide distribution network
will also allow the Company to develop new markets without capital investments
to expand an internal distribution system. In 1994, the Company's internal
distribution center had outside sales of $881,000 which will not recur.

Investing activities used $6.4 million in 1995 versus $12.0 million in 1994
and $9.0 million in 1993. Cash invested in property additions was $7 million,
$13 million and $9 million in 1995, 1994 and 1993, respectively. Cash was used
to build new restaurants, remodel existing restaurants, install restaurant
computer systems and pay accrued construction costs from the prior year. Three
new Pancho's Mexican Buffet restaurants, in Pasadena, Baytown and Galveston,
Texas, were opened in 1995 and two former Emiliano's Buffet Mexicano restaurants
were reopened as Pancho's Mexican Buffets. Nine new restaurants were opened in
1994 compared to three, including one relocation, in 1993. During 1993,
Soup/Salad Bars and Dessert Bars were added to Company restaurants.

The Company is engaged in a joint venture to operate a restaurant in
Guadalajara, Mexico which opened in October, 1995 (see "Other Uncertainties and
Trends"). No other new restaurants are currently planned, as management intends
to focus on improving sales and profitability and reducing debt. Capital
expenditures to remodel existing restaurants and install restaurant computer
systems will continue within the constraint of available operating cash flow.

In 1995, the Company sold a restaurant site in Colorado for $290,000, and
sold a closed restaurant building to the landowner for $175,000 and termination
of the ground lease. In 1994, the Company sold a restaurant site purchased for
expansion in Florida, and a closed restaurant location in Colorado was subleased
and related leasehold improvements and some equipment were sold for $200,000.

Financing activities provided cash of $2,478,000 in 1995 based primarily on
net long term borrowings of $2,865,000 less the payment of quarterly cash
dividends.

Net cash provided by financing activities totaled $5.3 million in 1994.
Significant financing activities included $5.8 million in net long-term
borrowings under a bank credit line and $1.1 million used to pay dividends in
1994.

In February 1995, the Company's revolving credit and term loan agreement
("Loan Agreement") with a bank was amended to increase the revolving credit line
to $12 million through December 31, 1995 and extend its termination date to
March 1, 1997. The credit limit reverts to $10 million effective January 1,
1996. At September 30, 1995, the Company had $3,420,000 available under the
line.

The Company's Loan Agreement includes various financial covenants. Due to
the net losses incurred by the Company in each of the first three quarters of
fiscal 1995, the Company violated certain of those covenants. The bank has
subsequently granted permanent waivers for each of those past covenant
violations. However, to obtain the waivers, the Company agreed to collateralize
the loan with substantially all of its assets. The Company was in compliance
with the loan covenants for July 1995 through October 1995.

Management is taking steps to ensure that the Company will be able to
comply with all of the Loan Agreement covenants in the future. However, if the
bank refused to waive a future covenant violation, the bank would be required
under the Loan Agreement to give the Company 30 days written notice of the
violation, after which time the Company would be in default. At the bank's
option, it could then declare the loan principal and all accrued interest
current and payable and/or refuse to make additional advances on the credit
line. The Company could then be forced to seek alternative sources of financing.

On November 3, 1995, the Company's board of directors declared a $.015 per
common share quarterly cash dividend, to be paid December 12, 1995 to holders of
record on November 28, 1995. During fiscal 1995, the dividend was reduced from a
quarterly rate of $.06 per share to $.015 per share due to the Company's recent
financial performance. Future cash dividends will depend on earnings, financial
position, capital requirements and other relevant factors.

12
<PAGE> 14

Fiscal 1994 Compared to Fiscal 1993

New restaurants and strong comparable-store sales during the first three
quarters of 1994 increased sales for the year $10.1 million, or 13.3%, to $86.1
million. Average sales in restaurants open throughout the year rose 8.2%.

Restaurants opened in 1994 and 1993 contributed $5.4 million of the 1994
sales increase. Nine new restaurants were opened in Texas in 1994 and two were
opened in 1993.

Comparable-store sales (sales for restaurants open all of 1994 and 1993)
increased 7.6% in 1994. Additional sales were generated by television
advertising, new menu enhancements, including Soup/Salad Bars and Dessert Bars,
and a 6.7% price increase in December 1993. By July 1993, the Company had
completed most of its restaurant conversion program and launched an aggressive,
chain-wide television advertising campaign, thereby boosting comparable-store
sales 11.1% for the fourth quarter of 1993. Comparable-store sales continued
this positive trend into 1994, increasing 14.3%, 15.1% and 9.2%, respectively,
for the first three quarters of the year.

However, comparable-store sales decreased 6.2% in the fourth quarter of
1994 due to fierce price competition combined with unusually strong sales in
1993. To immediately boost sales, a new $3.99 Super Combo value meal was
introduced in all restaurants in late October, and a television campaign was
launched to communicate this great value to customers.

Consistent with ongoing efforts to improve operating margins, two older
restaurants were closed during the year and an Emiliano's Buffet Mexicano
restaurant opened in December 1993 was temporarily closed for conversion to a
Pancho's Mexican Buffet. In October 1994, two restaurants were closed and the
locations subleased. None of these closings had a material impact on 1994
earnings. Sales in the four restaurants permanently closed totaled $2,527,000 in
1994.

Food cost decreased 0.5% of sales due to continued stable wholesale food
costs and a price increase in December 1993.

Labor and related costs decreased 0.1% of sales. Restaurant salaries and
wages increased 0.7% of sales, due largely to higher cost in the fourth quarter
caused by the opening of five new restaurants during the summer, and lower sales
in established restaurants. The increase in salaries and wages was offset by
reductions in related-costs, primarily accrued costs for workers' compensation
and employee injury benefits. Safety and cost control programs continued to
reduce injury liability costs below expected levels. Accrued insurance costs
were reduced a total of $714,000 for employee injury liability costs in the
second, third and fourth quarters.

Restaurant operating costs increased 1.1% of sales. Advertising costs
increased $864,000 to 3.2% of sales compared to 2.5% of sales in 1993, due
largely to a full year of chain-wide television advertising in 1994. Restaurant
maintenance costs increased 0.5% in 1994.

Depreciation and amortization was up 0.3% of sales on an increase of
$785,000 somewhat mitigated by the sales increase. Additional depreciation and
amortization resulted from the completion of new restaurants, installation of
soup/salad and dessert bars in all restaurants, POS system upgrades and
restaurant remodels and expansions.

General and administrative expenses decreased 0.6% of sales, with higher
sales offsetting increases in insurance costs and start-up amortization.

Restructuring reserves of $264,000 were reversed in December 1993 following
the sale of a restaurant site in Florida and the subleasing of a property in
Colorado.

The Company incurred interest expense for the year of $34,000, net amounts
capitalized.

Other, including interest income decreased $81,000, primarily due to a
reduction in cash available for investment as cash was used for capital
projects.

13
<PAGE> 15

Seasonality

The Company's business is seasonal. Traditionally, sales are higher in
summer months, when students are not attending school.

Impact of Inflation

In the restaurant business, food, labor, and labor related costs are the
major cost factors that effect profits. Many of the Company's employees are paid
wages related to the statutory minimum wage and any increase in the minimum wage
would increase the Company's cost. Also, most of the Company's leases require
the payment of percentage rentals based on revenues, which along with taxes,
repairs and maintenance, utilities and insurance are subject to inflation. The
Company expects to be able to offset the effects of inflation through occasional
price increases and savings due to volume purchasing.

The Secretary of Labor and some congressional leaders have proposed a
significant increase in the federal hourly minimum wage, from the current $4.25
to $4.75 or more Management cannot predict the likelihood of passage of such
legislation or its effect on the Company.

Other Uncertainties and Trends

In recent years, there has been accelerated development of value-priced
menus and "all-you-can-eat" restaurant offerings. Pancho's Mexican Buffet has
operated as a value-priced, "all-you-can-eat" concept for over 29 years and
expects to compete effectively.

Mexico is currently experiencing an economic crisis stemming from the
December 1994 devaluation of the Mexican peso. Management believes that the
economic difficulties in Mexico will have a long-term negative impact on the
Company's Guadalajara restaurant operations, and, accordingly, an impairment
charge of $812,000 was recorded in the quarter ended June 30, 1995. See Note 10
to the consolidated financial statements.

The Company has invested $1.7 million in the Guadalajara restaurant and
expects that an additional $200,000 investment will be required. If the
restaurant performs below projected levels, additional operating, impairment or
restaurant closing losses may be recognized in future periods. Future Company
restaurant development in Mexico depends on the success of the Guadalajara
restaurant.

In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," the net loss from foreign currency exchange rate
changes for the investment in Mexican operations is shown as a debit to
Stockholders' Equity. If the Mexican operations were disposed of or abandoned,
then the cumulative foreign currency translation adjustment would result in a
charge to earnings. The debit balance in this account increased $419,000 in
fiscal 1995 to $449,000 at September 30, 1995, due to the effects of the
devaluation of the Mexican peso in relation to the U.S. dollar.

In October 1995, the Company opened its restaurant in Guadalajara, Mexico.
It is too soon to evaluate the performance of this new restaurant.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and related notes thereto required by
this item are listed and set forth herein beginning on page 19.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

14
<PAGE> 16

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Directors of Registrant

Information as to the names, ages, positions and offices with the Company,
terms of office, periods of service, business experience during the past five
years and other directorships held by each director or person nominated to
become a director of the Company is set forth under the caption THE BOARD OF
DIRECTORS appearing on page 2 of the Company's Proxy Statement dated December
13, 1995, and is incorporated herein by reference.

(b) Executive Officers of the Registrant

At the meeting of the Board of Directors of the Registrant, which
immediately follows the annual meeting of stockholders, the Board of Directors
elects officers for the Registrant. Such officers hold office until death,
resignation, removal from office or until their successors are chosen and
qualified. The names and ages of all executive officers of the Registrant, as
well as all persons chosen to become executive officers, together with the
nature of any family relationships between them, all positions and offices with
the Registrant held by each person named and the period during which each person
named has served as such officer is included in Part I under Executive Officers
of the Registrant.

ITEM 11. EXECUTIVE COMPENSATION

Information concerning remuneration received by the Company's directors and
executive officers, stock options and transactions with management is set forth
under the captions EXECUTIVE COMPENSATION, COMPENSATION OF DIRECTORS, AGGREGATED
OPTION EXERCISES IN 1995 AND 1995 YEAR-END OPTION VALUES, REPORT OF THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS and TRANSACTIONS WITH
MANAGEMENT AND OTHERS appearing on pages 5 through 11 of the Company's Proxy
Statement dated December 13, 1995, and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information as to the security ownership of certain beneficial owners of
the Company and by each of its directors and nominees for directors and officers
as of December 6, 1995, and the amount of such shares with respect to which
certain of the directors or nominees and officers have the right to acquire
beneficial ownership, is set forth under the caption SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AS OF DECEMBER 6, 1995, appearing on
pages 3 and 4 of the Company's Proxy Statement dated December 13, 1995, and is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning transactions with management and others and certain
business relationships is set forth under the caption TRANSACTIONS WITH
MANAGEMENT AND OTHERS appearing on page 11 of the Company's Proxy Statement
dated December 13, 1995, and is incorporated herein by reference.

15
<PAGE> 17

PART IV

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

(a) 1. and 2. Financial Statements and Financial Statement
Schedules -- see Index to Consolidated Financial Statements and
Schedules on page 19.

(a) 3. Exhibits Required by Item 601 of Regulation S-K

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------
<S> <C> <C>
2 -- Not applicable
3(a) -- Certificate of Incorporation of Pancho's Mexican Buffet, Inc.(2)
3(b) -- Certificates of Amendment of Certificate of Incorporation(3)
3(c) -- Certificate of Amendment of Certificate of Incorporation(5)
3(d) -- Certificate of Amendment of Certificate of Incorporation(8)
3(e) -- Bylaws of Pancho's Mexican Buffet, Inc. as amended through October 5,
1990(10)
3(f) -- Agreement and Plan of Merger dated December 31, 1968(1)
3(g) -- Certificate of Amendment of Certificate of Incorporation, dated January
25, 1995 -- filed herewith
3(h) -- Restated Certificate of Incorporation, as revised January 25,
1995 -- filed herewith
4(a) -- Certificate of Incorporation and Bylaws of Registrant, as amended. See
3(a) through 3(e) above.
4(b) -- Rights Agreement dated as of March 14, 1986, between Pancho's Mexican
Buffet, Inc. and MBank Fort Worth, N.A., with Exhibit A (form of right
certificate) and Exhibit B (summary of Shareholder Rights Plan)
attached(6)
9 -- Not applicable
10(a) -- 1982 Stock Option Plan for Non-Employee Directors of Pancho's Mexican
Buffet, Inc.(4)
10(b) -- Amendment No. 1 and 2 to 1982 Stock Option Plan for Non-Employee
Directors of Pancho's Mexican Buffet, Inc.(9)
10(c) -- 1982 Incentive Stock Option Plan of Pancho's Mexican Buffet, Inc.(4)
10(d) -- Amendment No. 1, 2 and 3 to Pancho's Mexican Buffet, Inc. 1982 Incentive
Stock Option Plan(9)
10(e) -- Pancho's Mexican Buffet, Inc. Employee Stock Purchase Plan(4)
10(i) -- Memo re: Officers Bonus Plan approved by Board of Directors of Pancho's
Mexican Buffet, Inc. on February 28, 1986(7)
10(j) -- Note, security agreement and investment letter -- re: sale of authorized
but unissued Common Stock of the Registrant to four executive officers in
1992(16)
10(k) -- Employment Contracts between the Registrant and four executive officers
dated May 23, 1986 and March 25, 1994(16)
10(l) -- Pancho's Mexican Buffet, Inc. Cafeteria Plan(9)
10(m) -- Amendment No. 4 to 1982 Incentive Stock Option Plan of Pancho's Mexican
Buffet, Inc.(11)
10(n) -- Amendment No. 3 to 1982 Stock Option Plan for Non-Employee Directors of
Pancho's Mexican Buffet, Inc.(11)
10(o) -- 1992 Stock Option Plan of Pancho's Mexican Buffet, Inc.(12)
</TABLE>

16
<PAGE> 18

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------
<S> <C> <C>
10(p) -- Revolving Credit and Term Loan Agreement dated February 16, 1994, between
PMB Enterprises West, Inc. and First Interstate Bank of Texas, N.A.(13)
10(q) -- First Amendment to Revolving Credit and Term Loan Agreement dated
February 9, 1995, between PMB Enterprises West, Inc. and First Interstate
Bank of Texas, N.A.(14)
10(r) -- Second Amendment to Revolving Credit and Term Loan Agreement dated May 9,
1995, between PMB Enterprises West, Inc. and First Interstate Bank of
Texas, N.A.(15)
10(s) -- Third Amendment to Revolving Credit and Term Loan Agreement dated
September 29, 1995 -- filed herewith
10(t) -- Employment Contract between the Registrant and one executive officer,
dated September 29, 1995 -- filed herewith
11 -- Not required -- Explanation of earnings per share computation is
contained in Notes to Consolidated Financial Statements.
12 -- Not applicable
13 -- Not applicable
16 -- Not applicable
18 -- Not applicable
21 -- Subsidiaries of the registrant -- filed herewith
22 -- Not applicable
23 -- Consent of Independent Public Accountants -- filed herewith
24 -- Not applicable
27 -- Financial Data Schedule -- filed herewith
28 -- Not applicable
</TABLE>

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

17
<PAGE> 19

<TABLE>
<C> <S>
(10) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended September 30, 1990 -- such Exhibits are incorporated herein by
reference.
(11) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended September 30, 1991 -- such Exhibits are incorporated herein by
reference.
(12) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended September 30, 1993 -- such Exhibits are incorporated herein by
reference.
(13) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended March 31,
1995 -- such Exhibits are incorporated herein by reference.
(14) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended June 30,
1995 -- such Exhibits are incorporated herein by reference.
(15) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended June 30,
1995 -- such Exhibits are incorporated herein by reference.
(16) Filed with the Commission as an Exhibit to Form 10-K for the year ended September 30,
1994 -- such exhibits are incorporated herein by reference.
</TABLE>

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended September 30,
1995.

For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statement on Form S-8
No. 2-86238 (filed August 31, 1983):

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the 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, the 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 by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

18
<PAGE> 20

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1995

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Consolidated Balance Sheets......................................... F-1
Consolidated Statements of Operations............................... F-2
Consolidated Statements of Stockholders' Equity..................... F-3
Consolidated Statements of Cash Flows............................... F-4
Notes to Consolidated Financial Statements.......................... F-5
Independent Auditors' Report.......................................... F-14
</TABLE>

All schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the
consolidated financial statements or notes thereto.

19
<PAGE> 21

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents....................................... $ 1,199,000 $ 1,661,000
Accounts and notes receivable -- current portion................ 486,000 656,000
Income taxes receivable......................................... 1,227,000 88,000
Inventories..................................................... 907,000 1,635,000
Prepaid expenses................................................ 267,000 502,000
Deferred income taxes........................................... 294,000 224,000
----------- -----------
Total current assets.................................... 4,380,000 4,766,000
----------- -----------
Property, Plant and Equipment (at cost):
Land............................................................ 3,446,000 3,897,000
Buildings....................................................... 10,346,000 11,146,000
Leasehold improvements.......................................... 22,465,000 26,018,000
Equipment and furniture......................................... 29,612,000 31,511,000
Construction in progress........................................ 517,000 1,812,000
----------- -----------
Total................................................... 66,386,000 74,384,000
Less accumulated depreciation and amortization.................. 30,353,000 32,547,000
----------- -----------
Property, plant and equipment -- net.................... 36,033,000 41,837,000
----------- -----------
Other Assets:
Deferred income taxes........................................... 2,909,000 922,000
Other, including noncurrent portion of receivables.............. 1,065,000 1,634,000
----------- -----------
Total other assets...................................... 3,974,000 2,556,000
----------- -----------
Total................................................... $44,387,000 $49,159,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................ $ 1,209,000 $ 3,133,000
Accrued wages and bonuses....................................... 2,141,000 2,390,000
Other current liabilities....................................... 2,120,000 1,757,000
----------- -----------
Total current liabilities............................... 5,470,000 7,280,000
----------- -----------
Other Liabilities:
Long-term debt.................................................. 8,705,000 5,840,000
Accrued insurance costs......................................... 3,031,000 2,605,000
Other........................................................... 193,000 141,000
----------- -----------
Total other liabilities................................. 11,929,000 8,586,000
----------- -----------
Commitments and Contingencies
Minority Interest in Consolidated Subsidiaries.................... 138,000
Stockholders' Equity:
Preferred stock, $10 par value (Authorized 500,000 shares, none
issued.)
Common stock, $.10 par value (Authorized 20,000,000 shares.
Issued 4,397,559 and 5,545,191 shares, respectively.)........ 440,000 555,000
Additional paid-in capital...................................... 18,633,000 26,217,000
Retained earnings............................................... 8,894,000 14,718,000
Cumulative foreign currency translation adjustment.............. (449,000) (30,000)
Treasury stock, at cost (1,147,632 shares at 1994.)............. (7,699,000)
Stock notes receivable.......................................... (530,000) (606,000)
----------- -----------
Stockholders' equity......................................... 26,988,000 33,155,000
----------- -----------
Total................................................... $44,387,000 $49,159,000
=========== ===========
</TABLE>

See notes to consolidated financial statements.

F-1
<PAGE> 22

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Sales................................................... $80,893,000 $86,062,000 $75,968,000
----------- ----------- -----------
Costs and Expenses:
Food costs............................................ 22,910,000 23,347,000 20,956,000
Restaurant labor and related expenses................. 30,400,000 30,806,000 27,256,000
Restaurant operating expenses......................... 18,376,000 19,134,000 16,014,000
Depreciation and amortization......................... 4,512,000 4,420,000 3,635,000
General and administrative expenses................... 5,547,000 5,475,000 5,203,000
Restructuring charges................................. 7,572,000 (264,000)
----------- ----------- -----------
Total......................................... 89,317,000 82,918,000 73,064,000
----------- ----------- -----------
Operating Income (Loss)................................. (8,424,000) 3,144,000 2,904,000
Interest Expense........................................ (590,000) (34,000)
Other, Including Interest Income........................ 309,000 66,000 147,000
----------- ----------- -----------
Earnings (Loss) Before Income Taxes and Cumulative
Effect of Change in Accounting Principle.............. (8,705,000) 3,176,000 3,051,000
Provision (Benefit) for Income Taxes.................... (3,343,000) 1,101,000 937,000
----------- ----------- -----------
Net Earnings (Loss) Before Cumulative Effect of Change
in Accounting Principle............................... (5,362,000) 2,075,000 2,114,000
Cumulative Effect of Change in Accounting for Income
Taxes................................................. 722,000
----------- ----------- -----------
Net Earnings (Loss)..................................... (5,362,000) 2,075,000 2,836,000
=========== =========== ===========
Per Share Data:
Net earnings (loss) before cumulative effect of change
in accounting principle............................ $ (1.22) $ .47 $ .48
Cumulative effect of change in accounting for
income taxes....................................... .16
----------- ----------- -----------
Net earnings (loss)................................... $ (1.22) $ .47 $ .64
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-2
<PAGE> 23

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN TREASURY
COMMON STOCK ADDITIONAL CURRENCY STOCK
----------------------- PAID-IN RETAINED TRANSLATION ----------
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT SHARES
---------- --------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1992............. 5,285,651 $ 529,000 $24,282,000 $11,914,000 884,172
Exercise of stock options.......... 227,190 22,000 1,294,000
Income tax benefit from exercise of
stock options.................... 335,000
Net earnings....................... 2,836,000
Dividends, $.24 per share.......... (1,051,000)
Treasury stock purchases........... 263,010
Payments received on stock notes...
---------- --------- ----------- ----------- --------- ----------
Balance, September 30, 1993.......... 5,512,841 551,000 25,911,000 13,699,000 1,147,182
Exercise of stock options.......... 32,350 4,000 283,000
Income tax benefit from exercise of
stock options.................... 23,000
Net earnings....................... 2,075,000
Dividends, $.24 per share.......... (1,056,000)
Foreign currency translation
adjustment....................... $ (30,000)
Treasury stock purchases........... 450
Payments received on stock notes...
---------- --------- ----------- ----------- --------- ----------
Balance, September 30, 1994.......... 5,545,191 555,000 26,217,000 14,718,000 (30,000) 1,147,632
Treasury stock retired............. (1,147,632) (115,000) (7,584,000) (1,147,632)
Net loss........................... (5,362,000)
Dividends, $.105 per share......... (462,000)
Foreign currency translation
adjustment....................... (419,000)
Payments received on stock notes...
---------- --------- ----------- ----------- --------- ----------
Balance, September 30, 1995.......... 4,397,559 $ 440,000 $18,633,000 $ 8,894,000 $(449,000) 0
========== ========= =========== =========== ========= ==========

<CAPTION>
STOCK
NOTES
RECEIVABLE
FROM STOCKHOLDERS'
AMOUNT OFFICERS EQUITY
----------- ---------- -------------
<S> <<C> <C> <C>
Balance, October 1, 1992............. $(5,190,000) $(758,000) $30,777,000
Exercise of stock options.......... 1,316,000
Income tax benefit from exercise of
stock options.................... 335,000
Net earnings....................... 2,836,000
Dividends, $.24 per share.......... (1,051,000)
Treasury stock purchases........... (2,506,000) (2,506,000)
Payments received on stock notes... 76,000 76,000
----------- --------- -----------
Balance, September 30, 1993.......... (7,696,000) (682,000) 31,783,000
Exercise of stock options.......... 287,000
Income tax benefit from exercise of
stock options.................... 23,000
Net earnings....................... 2,075,000
Dividends, $.24 per share.......... (1,056,000)
Foreign currency translation
adjustment....................... (30,000)
Treasury stock purchases........... (3,000) (3,000)
Payments received on stock notes... 76,000 76,000
----------- --------- -----------
Balance, September 30, 1994.......... (7,699,000) (606,000) 33,155,000
Treasury stock retired............. 7,699,000 0
Net loss........................... (5,362,000)
Dividends, $.105 per share......... (462,000)
Foreign currency translation
adjustment....................... (419,000)
Payments received on stock notes... 76,000 76,000
----------- --------- -----------
Balance, September 30, 1995.......... $ 0 $(530,000) $26,988,000
=========== ========= ===========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 24

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings (loss)............................... $ (5,362,000) $ 2,075,000 $ 2,836,000
------------ ------------ -----------
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Restructuring charges.......................... 6,953,000
Cumulative effect of change in accounting
principle.................................... (722,000)
Depreciation and amortization.................. 4,512,000 4,420,000 3,635,000
Provision for deferred income taxes............ (2,057,000) 504,000 107,000
Amortization of restaurant start-up costs...... 127,000 102,000 22,000
Payment of restaurant start-up costs........... (70,000) (169,000) (42,000)
Loss on sale of assets......................... 53,000 21,000 8,000
Income tax benefit from exercise of stock
options...................................... 23,000 335,000
Minority interest in net loss.................. (138,000)
Changes in operating assets and liabilities:
Accounts and notes receivable................ 166,000 (488,000) 88,000
Income taxes receivable...................... (1,139,000) (88,000)
Inventories, prepaid expenses and other
assets.................................... 978,000 1,997,000 (495,000)
Accounts payable and accrued expenses........ (559,000) (1,473,000) 557,000
------------ ------------ -----------
Total adjustments......................... 8,826,000 4,849,000 3,493,000
------------ ------------ -----------
Net cash provided by operating
activities.............................. 3,464,000 6,924,000 6,329,000
Cash Flows From Investing Activities:
Property additions................................ (7,050,000) (12,989,000) (9,041,000)
Proceeds from sale of assets...................... 638,000 836,000 71,000
Other............................................. 66,000 (65,000)
------------ ------------ -----------
Net cash (used in) investing activities... (6,412,000) (12,087,000) (9,035,000)
Cash Flows From Financing Activities:
Short-term borrowings............................. 162,000
Long-term borrowings.............................. 43,950,000 17,520,000
Repayments of long-term borrowings................ (41,085,000) (11,680,000)
Proceeds from increase in minority interest....... 100,000 138,000
Proceeds from exercise of stock options........... 287,000 1,316,000
Treasury stock purchases.......................... (3,000) (2,506,000)
Dividends paid.................................... (725,000) (1,054,000) (1,053,000)
Payments received on officer stock notes.......... 76,000 76,000 76,000
------------ ------------ -----------
Net cash provided by (used in) financing
activities.............................. 2,478,000 5,284,000 (2,167,000)
------------ ------------ -----------
Effect of Foreign Exchange Rate Change on Cash...... 8,000 (29,000)
------------ ------------ -----------
Net Increase (Decrease) in Cash and Cash
Equivalents....................................... (462,000) 92,000 (4,873,000)
Cash and Cash Equivalents at Beginning of Year...... 1,661,000 1,569,000 6,442,000
------------ ------------ -----------
Cash and Cash Equivalents at End of Year............ $ 1,199,000 $ 1,661,000 $ 1,569,000
============ ============ ===========
Supplemental Information:
Income taxes paid................................. $ 36,000 $ 662,000 $ 539,000
Assets sold for notes receivable.................. 140,000 160,000 62,000
Interest paid, net of capitalized amounts......... 555,000 39,000
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 25

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Pancho's Mexican Buffet, Inc. and its subsidiaries (the Company). The Company
owns 73% of a Mexican subsidiary formed to develop one or more restaurants in
Mexico. The minority interest in that subsidiary is shown on the consolidated
balance sheets. The minority interest balance has been reduced to zero by the
minority partner's interest in the operating loss of the joint venture. All
material intercompany balances and transactions have been eliminated.

CASH AND CASH EQUIVALENTS

For balance sheet classification and reporting cash flows, the Company
considers all highly liquid investments with maturities of three months or less
when purchased to be cash equivalents.

INVENTORIES

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

DEFERRED INCOME TAXES

Deferred income taxes are provided for temporary differences between
financial assets and liabilities and those reported for income tax purposes. The
Company changed its method of accounting for income taxes in fiscal year 1993 by
adopting Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes."

PROPERTY, PLANT AND EQUIPMENT

Depreciation is provided for buildings and equipment on a straight-line
basis over the following estimated service lives:

<TABLE>
<S> <C>
Buildings..................................................... 25 to 30 years
Equipment and furniture....................................... 3 to 10 years
</TABLE>

Leasehold improvements are amortized over the life of the original lease
term, including renewal periods if applicable.

The Company capitalizes interest incurred on debt for major construction
projects and includes the capitalized interest in the asset basis. The Company
capitalized $91,000 and $78,000 out of total interest incurred of $681,000 and
$112,000 in 1995 and 1994, respectively. No interest was capitalized in 1993.

PREOPENING COSTS

Certain direct and incremental costs related to the commencement of each
restaurant's operations, primarily training-related costs, are capitalized as
preopening costs. Amounts capitalized are amortized using the straight-line
method over 12 months.

STATEMENT OF OPERATIONS RECLASSIFICATION

The statement of operations has been reformatted to provide more detailed
information on costs and expenses. Prior period amounts have been reclassified
to conform to the current period presentation.

F-5
<PAGE> 26

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EARNINGS (LOSS) PER SHARE

Earnings (loss) per share are based on the weighted average number of
shares and equivalent shares (including stock options, when dilutive)
outstanding during each period. The weighted average of such shares for the
years ended September 30, 1995, 1994 and 1993 were 4,398,000, 4,438,000, and
4,419,000, respectively.

FOREIGN OPERATIONS AND CURRENCY TRANSLATION

The functional currency of the Company's Mexican operations is the new
peso. Financial statements of the Company's Mexican subsidiaries are translated
into U.S. dollars in accordance with SFAS No. 52, "Foreign Currency
Translation." Results of operations are translated using an average exchange
rate during the period, and assets and liabilities are translated using the year
end exchange rate. The resulting cumulative translation adjustment is shown as a
separate line in stockholders' equity.

STATEMENT OF CASH FLOWS

Cash flows from the Company's Mexican operations are calculated based on
the new peso, in accordance with SFAS No. 95, "Statement of Cash Flows." As a
result, amounts related to assets and liabilities reported on the consolidated
statement of cash flows will not necessarily agree to changes in the
corresponding balances on the consolidated balance sheets. The effect of
exchange rate changes on cash balances held in foreign currencies is reported on
a separate line in the consolidated statement of cash flows, below cash flows
from financing activities.

2. OTHER CURRENT LIABILITIES

Other current liabilities consist of:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Accrued taxes other than income taxes....................... $1,456,000 $1,311,000
Restructuring reserves...................................... 329,000 208,000
Other....................................................... 335,000 238,000
---------- ----------
Total............................................. $2,120,000 $1,757,000
========== ==========
</TABLE>

3. LONG-TERM DEBT

The Company's revolving credit and term loan agreement with a bank includes
a two-year, annually-renewable revolving credit line with a ceiling of $12
million until December 31, 1995 and $10 million thereafter. The revolving credit
line expires March 1, 1997 and is convertible any time before then into a four-
year, fully-amortizing term loan.

The loan agreement includes various financial covenants, some of which the
Company violated due to the net losses incurred in each of the first three
quarters of fiscal 1995. The bank has subsequently granted permanent waivers for
each of these past covenant violations. However, to obtain bank waivers, the
Company has agreed to collateralize the loan with substantially all of its
assets. The Company was in compliance with the loan covenants for the fourth
quarter of fiscal 1995.

Interest is payable monthly at a variable rate equal to the bank's prime
rate or, at the Company's option, rates based upon the London Interbank Offering
Rate. The blended interest rate effective at September 30, 1995 was 8.25%. The
Company pays a commitment fee of 3/8 of 1 percent annually on the unused portion
of the credit line. At September 30, 1995, $3,420,000 was available under this
agreement.

F-6
<PAGE> 27

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Notes payable were issued in September 1995 to buy out the remaining lease
terms of four locations closed under the third quarter restructuring plan. The
long-term portion of those notes was $125,000, and the current portion of
$162,000 is included in accounts payable at September 30, 1995. The effective
interest rate is 5.9%, with payments due monthly through August 1, 1997.

4. OPERATING LEASES

The Company leases restaurant facilities under operating leases with terms
expiring at various dates into 2007, some of which contain renewal options.
Certain of the leases have provisions for contingent rentals based on a
percentage of the excess of restaurant sales over stipulated minimum sales.

The minimum aggregate annual rentals required under operating leases in
effect at September 30, 1995, exclusive of maintenance, taxes, etc., were as
follows:

<TABLE>
<CAPTION>
YEARS ENDING
SEPTEMBER 30,
- -------------
<S> <C> <C>
1996..................................................................... $ 2,854,000
1997..................................................................... 2,673,000
1998..................................................................... 2,364,000
1999..................................................................... 1,972,000
2000..................................................................... 1,330,000
Later years.............................................................. 3,480,000
-----------
Total.......................................................... $14,673,000
===========
</TABLE>

The composition of total yearly rental expense for operating leases is:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Minimum rentals................................ $2,946,000 $2,917,000 $2,574,000
Contingent rentals............................. 240,000 406,000 424,000
Less: Sublease rentals......................... (126,000) (103,000) (46,000)
---------- ---------- ----------
Total................................ $3,060,000 $3,220,000 $2,952,000
========== ========== ==========
</TABLE>

5. INCOME TAXES

Effective October 1, 1992, the company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). This
standard required a change to the asset and liability method from the deferred
method of accounting for income taxes under APB Opinion 11 (APB 11). The
cumulative effect of this change in accounting principle as of October 1, 1992
is reported in the 1993 consolidated statement of operations. Adoption of SFAS
109 had no material effect on the 1993 provision for income taxes.

Applying SFAS 109, deferred tax assets and liabilities are recognized for
temporary differences caused when the tax basis of an asset or liability differs
from that reported in the financial statements, and for carryforwards for tax
credits and operating losses. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Deferred tax expense or benefit is recognized for the change in the asset or
liability during the year.

F-7
<PAGE> 28

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income taxes (benefits) consist of:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Current:
U.S. federal.................................. $(1,286,000) $ 570,000 $ 803,000
State......................................... 0 27,000 27,000
----------- ---------- ----------
Combined current........................... (1,286,000) 597,000 830,000
Deferred:
U.S. federal.................................. (1,658,000) 431,000 107,000
State......................................... (399,000) 73,000
----------- ---------- ----------
Combined deferred.......................... (2,057,000) 504,000 107,000
----------- ---------- ----------
Provision (benefit) for income taxes..... $(3,343,000) $1,101,000 $ 937,000
=========== ========== ==========
</TABLE>

The provision for income taxes differs from the amounts computed by
applying the U.S. federal statutory rate of 34 percent to net earnings (loss)
before income taxes and cumulative effect of change in accounting principle as
follows:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Expected tax at federal statutory rate of 34%... $(2,957,000) $1,080,000 $1,037,000
Increase (decrease) in taxes due to:
State income provision (benefit), net of
federal income tax effect.................. (399,000) 18,000 18,000
Tax effect of employer tax credits............ (162,000) (85,000) (50,000)
Eliminate tax effect of results of foreign
operations................................. 230,000
Other......................................... (55,000) 88,000 (68,000)
----------- ---------- ----------
Total................................. $(3,343,000) $1,101,000 $ 937,000
=========== ========== ==========
</TABLE>

F-8
<PAGE> 29

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Significant components of the Company's deferred tax assets and liabilities
are as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Current:
Restructuring costs............................................ $ 128,000 $ 81,000
Accrued vacation pay........................................... 166,000 130,000
Other.......................................................... 13,000
---------- ----------
Current deferred tax asset................................... 294,000 224,000
---------- ----------
Noncurrent:
Accrued insurance costs........................................ 1,512,000 1,471,000
Alternative minimum tax carryforward........................... 647,000 44,000
State net operating loss carryforwards (expire 1996 -- 2010)... 369,000 85,000
Property, plant and equipment.................................. 215,000
Federal employer tax credits (expire 2009 -- 2010)............. 303,000 79,000
Other.......................................................... 150,000 55,000
Noncurrent valuation allowance................................. (25,000) (20,000)
---------- ----------
Noncurrent deferred tax asset................................ 3,171,000 1,714,000
---------- ----------
Total deferred tax assets, net of valuation allowance..... 3,465,000 1,938,000
---------- ----------
Deferred tax liabilities:
Noncurrent:
Property, plant and equipment.................................. 526,000
Basis difference in note receivable............................ 248,000 248,000
Other.......................................................... 14,000 18,000
---------- ----------
Total deferred tax liabilities............................ 262,000 792,000
---------- ----------
Net deferred tax asset.................................... $3,203,000 $1,146,000
========== ==========
</TABLE>

The valuation allowance was established to reduce deferred tax assets to
the amount that will more likely than not be realized. This reduction is
necessary due to uncertainty of the Company's ability to use all of the state
net operating loss carryforwards before they expire.

6. STOCKHOLDERS' EQUITY

TREASURY STOCK

In September 1995, the Company retired all treasury shares then held by the
company.

During fiscal year 1993, the Company purchased 75,800 of its common shares
on the open market at a total cost of $587,000.

On December 4, 1992, certain employees of the Company exercised previously
granted incentive stock options to acquire 187,210 shares of the Company's
common stock, resulting in aggregate proceeds of $1,073,000. On December 7,
1992, the Company purchased these shares for its treasury directly from the
employees at the then current market value for a total of $1,919,000.

STOCK NOTES RECEIVABLE

In April 1992, the Company sold 104,500 shares of common stock to certain
officers in exchange for notes receivable in the amount of $758,000, the current
balance of which is shown in the balance sheet as a

F-9
<PAGE> 30

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

deduction from stockholders' equity. The notes bear interest at 7.83%, are
payable in ten equal annual installments plus interest and are secured by the
common stock. The shares were sold at the quoted market price on the day of
sale.

STOCK PURCHASE RIGHTS DIVIDEND

In February 1986, the Company declared a dividend distribution of one
common share purchase right for each outstanding share of common stock. When
exercisable, each right will entitle its holder to buy one share of the
company's stock at a price of $27.27 until expiration in March 1996. The rights
become exercisable if a person or group acquires 20% or more of the Company's
common stock or announces an offer for 30% or more of the common stock.

If the Company is involved in a merger or other business combination at any
time after the rights become exercisable, right holders will be entitled to buy
shares of common stock in the surviving company having a market value equal to
twice the exercise price of each right. Alternatively, if a 20% holder acquired
the Company through a reverse merger where the Company and its stock survive, or
were to engage in certain self-dealing transactions, each right not owned by the
20% holder would become exercisable for the number of shares of Pancho's common
stock which at that time have a market value of two times the exercise price of
the right.

The rights may be redeemed by the Company at a price of $.01 per right any
time prior to the public announcement that a person or group has acquired
beneficial ownership of 20% or more of its common stock.

STOCK OPTIONS

The Company's stock option plans authorize the grant of options to purchase
common stock to directors, officers, employees and consultants of the Company at
prices not less than the fair market value of the stock at dates of grant.

Outstanding options become exercisable cumulatively in four or five equal
annual installments commencing one year from date of grant and expire ten years
from the date of grant. Options may be granted through November 5, 2002.

Option information for the three-year period ended September 30, 1995:

<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------------------------------------------------------
1995 1994 1993
------------------------- -------------------------- -------------------------
OPTION PRICE NUMBER OPTION PRICE NUMBER OPTION PRICE NUMBER
PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES
------------ --------- -------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding.................... $3.19-$15.25 586,650 $ 5.88-$15.25 575,600 $5.88-$15.25 270,670
Options exercisable.................... 5.88- 15.25 284,810 5.88- 15.25 186,060 5.88- 15.25 205,534
Shares available for future grants..... 9,000 25,000 370,000
Option activity during the year:
Granted.............................. 3.19- 6.00 17,000 10.50- 11.38 346,000 8.38 30,000
Forfeited............................ 7.25- 11.38 5,950 7.25- 11.38 8,720 7.25- 7.50 4,450
Exercised............................ 5.88- 9.55 32,350 5.45- 7.50 227,190
</TABLE>

Federal income tax benefits, related to the sale of shares purchased by the
exercise of incentive stock options by Company employees, totaling $23,000 and
$335,000 were recognized by the Company during fiscal years 1994 and 1993,
respectively. In accordance with generally accepted accounting principles, these
benefits were not added to income but were applied to additional paid-in
capital.

F-10
<PAGE> 31

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PREFERRED STOCK

Shares of preferred stock, when issued, will have such rights, preferences
and privileges as shall be adopted by the board of directors.

7. EMPLOYEE BENEFIT PLANS

VOLUNTARY EMPLOYEE INJURY BENEFIT PLAN

Concurrent with its decision to become a non-subscriber to the Workers'
Compensation Act of Texas in December 1990, the Company adopted a Voluntary
Employee Injury Benefit Plan (VEIB Plan) to provide benefits for employees
located in Texas who incur job related injuries in connection with their
employment. The VEIB Plan, which is subject to Employee Retirement Income
Security Act (ERISA) rules and regulations, provides for medical, short-term
wage replacement, dismemberment and death benefits.

Coverage under the VEIB Plan is provided by the Company and through excess
liability insurance, which provides coverage for claims in excess of certain
stipulated amounts. The consolidated statements of operations for the years
ended September 30, 1995, 1994 and 1993 include provisions for estimated
benefits and expenses of the VEIB Plan of $1,308,000, $1,341,000 and $970,000,
respectively.

BONUS PLANS

The Company has a bonus plan for restaurant managers and supervisors which
provides bonuses based on restaurant performance. Such bonuses amounted to
$365,000, $475,000 and $613,000 for the years ended September 30, 1995, 1994 and
1993, respectively.

The Company has a bonus plan for corporate officers as a group based on
stipulated operating results. Corporate officer bonuses amounted to $0, $204,000
and $189,000 for the years ended September 30, 1995, 1994 and 1993,
respectively.

DEFERRED COMPENSATION PLAN

The Company offered a deferred compensation plan to certain key management
employees. Effective August 31, 1995, the plan participants agreed to terminate
the plan and distribute its assets to the participants. The distribution was
made November 6, 1995. The plan liability is included in other current
liabilities on the consolidated balance sheets for 1995 and in other liabilities
for 1994.

STOCK PURCHASE PLAN

The Company maintains a voluntary employee stock purchase plan for all
eligible employees. The Company contributes 25% of the amount invested by the
employee plus all commissions and brokerage fees. Company contributions vest
immediately. Contributions are invested in common stock of the Company by a
brokerage firm. The Company recognized expenses for contributions to the plan of
$36,000, $40,000 and $28,000 for the years ended September 30, 1995, 1994 and
1993, respectively.

8. RELATED PARTY TRANSACTIONS

The Company sold food and supplies on a cost-plus basis to the family-owned
restaurant operations of the chairman of the Company, until the Company's food
distribution center was closed in September 1994. Occasional sales of equipment
are also made to those affiliates. Sales amounts were $4,000, $663,000, and
$754,000 for the years ended September 30, 1995, 1994, and 1993, respectively.

The Company purchases food products manufactured by a Company whose
chairman and chief executive officer is a non-employee director of the Company.
Purchases were $2,992,000, $2,768,000 and $2,667,000 for

F-11
<PAGE> 32

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the years ended September 30, 1995, 1994 and 1993, respectively. The same vendor
purchased items from the Company in the amount of $122,000, $73,000 and $65,000
in 1995, 1994 and 1993, respectively. In November 1994, this vendor also leased
the company's cold-storage facilities and purchased $17,000 of related equipment
formerly used by the Company's food distribution center. The lease term
including options runs through December 31, 2000, and represented $55,000 of
rental revenue for the company in 1995.

The Company and one of its non-employee directors have entered into a joint
venture to open at least one restaurant in Mexico. The Company incurred expenses
in setting up the joint venture of about $60,000, $150,000 and $40,000 for the
years ended September 30, 1995, 1994 and 1993, respectively. Additionally, the
Company has invested $1,701,000 in Mexican subsidiaries related to the venture.
The joint venture subsidiaries are included in the Company's consolidated
financial statements.

A non-employee director of the Company is president of a firm which
provided architectural services to the Company. Charges for these services
totaled $54,000 in 1994.

9. CONTINGENCIES

The Company has been named in various lawsuits involving claims in the
ordinary course of business, many of which are covered by insurance. Although
the amounts of losses from such claims cannot be estimated, in the opinion of
management, the ultimate disposition of these lawsuits and claims will not
result in a material adverse effect on the Company's financial position, results
of operations or cash flows.

10. RESTRUCTURING COSTS

In June 1995, the Company adopted a restructuring plan in an effort to
return to profitability.

Based on the plan, a restructuring charge of $7,572,000 before income taxes
was recorded for the closing of nine restaurants and the impairment of eight
others, including the restaurant in Guadalajara, Mexico. The charge included
$6,624,000 to write down leasehold improvements and equipment and $948,000 for
remaining lease costs and other exit costs associated with the restaurant
closings. The charge for impairments was determined in accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."

The assets of closed locations were written down to net realizable value,
providing an impairment charge of $2,367,000. The net book value after the write
down of property, plant and equipment related to the company's closed restaurant
locations was $663,000. Management expects to realize over $400,000 of this
carrying value through asset sales in the next year. The remaining restaurant
equipment will either be sold or used elsewhere in the Company's operations.
Sales for the nine closed locations were $4,652,000, $7,512,000 and $7,445,000
for fiscal 1995, 1994 and 1993, respectively.

An impairment charge of $3,445,000 was recognized for seven low sales
volume restaurants that the Company plans to continue to operate. Due to the low
or negative projected cash flows of these restaurants, fair value of the assets
was based on their estimated resale value.

Due to the economic crisis in Mexico related to the December 1994 peso
devaluation, the Company's investment in a restaurant in Guadalajara was also
evaluated for impairment and a charge of $812,000 was recorded. Fair value of
the assets was estimated based on the discounted expected future cash flows from
operation of the restaurant.

Current and deferred income tax benefits of $2,366,000 were recognized in
the United States in connection with the restructuring. No tax benefits were
currently recognized for the write down of assets in Mexico.

F-12
<PAGE> 33

PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. SUBSEQUENT EVENT

On November 3, 1995, the Company's board of directors declared a $.015 per
common share quarterly cash dividend, to be paid December 12, 1995 to holders of
record on November 28, 1995.

F-13
<PAGE> 34

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Pancho's Mexican Buffet, Inc.:

We have audited the consolidated balance sheets of Pancho's Mexican Buffet,
Inc. and subsidiaries as of September 30, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Pancho's Mexican Buffet, Inc.
and subsidiaries at September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP

Fort Worth, Texas
November 7, 1995

F-14
<PAGE> 35

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

PANCHO'S MEXICAN BUFFET, INC.

By /s/ HOLLIS TAYLOR
Hollis Taylor, President and Chief
Executive Officer
(Principal Executive Officer)

December 8, 1995

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

<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- ------------------------------------------------------------------------- ----------------
<S> <C>
/s/ JESSE ARRAMBIDE, III December 8, 1995
- -------------------------------------------------------------------------
Jesse Arrambide, III, Chairman of the Board of Directors

/s/ HOLLIS TAYLOR December 8, 1995
- -------------------------------------------------------------------------
Hollis Taylor, President and Chief Executive Officer and Director
(Principal Executive Officer)

/s/ W. BRAD FAGAN December 8, 1995
- -------------------------------------------------------------------------
Brad Fagan, Vice President, Treasurer, Controller and Assistant Secretary
(Principal Financial and Accounting Officer)

/s/ SAMUEL L. CARLSON December 8, 1995
- -------------------------------------------------------------------------
Samuel L. Carlson, Director

/s/ MAURICIO SANCHEZ GARCIA December 8, 1995
- -------------------------------------------------------------------------
Mauricio Sanchez Garcia, Director

/s/ IRVING GULBAS December 8, 1995
- -------------------------------------------------------------------------
Irving Gulbas, Director

/s/ ROBERT L. LIST December 8, 1995
- -------------------------------------------------------------------------
Robert L. List, Director

/s/ TOMAS ORENDAIN December 8, 1995
- -------------------------------------------------------------------------
Tomas Orendain, Director

/s/ GEORGE N. RIORDAN December 8, 1995
- -------------------------------------------------------------------------
George N. Riordan, Director

/s/ RUDOLPH RODRIGUEZ, JR. December 8, 1995
- -------------------------------------------------------------------------
Rudolph Rodriguez, Jr., Director

</TABLE>
<PAGE> 36
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
2 -- Not applicable
3(a) -- Certificate of Incorporation of Pancho's Mexican Buffet, Inc.(2)
3(b) -- Certificates of Amendment of Certificate of Incorporation(3)
3(c) -- Certificate of Amendment of Certificate of Incorporation(5)
3(d) -- Certificate of Amendment of Certificate of Incorporation(8)
3(e) -- Bylaws of Pancho's Mexican Buffet, Inc. as amended through October 5,
1990(10)
3(f) -- Agreement and Plan of Merger dated December 31, 1968(1)
3(g) -- Certificate of Amendment of Certificate of Incorporation, dated January
25, 1995 -- filed herewith
3(h) -- Restated Certificate of Incorporation, as revised January 25,
1995 -- filed herewith
4(a) -- Certificate of Incorporation and Bylaws of Registrant, as amended. See
3(a) through 3(e) above.
4(b) -- Rights Agreement dated as of March 14, 1986, between Pancho's Mexican
Buffet, Inc. and MBank Fort Worth, N.A., with Exhibit A (form of right
certificate) and Exhibit B (summary of Shareholder Rights Plan)
attached(6)
9 -- Not applicable
10(a) -- 1982 Stock Option Plan for Non-Employee Directors of Pancho's Mexican
Buffet, Inc.(4)
10(b) -- Amendment No. 1 and 2 to 1982 Stock Option Plan for Non-Employee
Directors of Pancho's Mexican Buffet, Inc.(9)
10(c) -- 1982 Incentive Stock Option Plan of Pancho's Mexican Buffet, Inc.(4)
10(d) -- Amendment No. 1, 2 and 3 to Pancho's Mexican Buffet, Inc. 1982 Incentive
Stock Option Plan(9)
10(e) -- Pancho's Mexican Buffet, Inc. Employee Stock Purchase Plan(4)
10(i) -- Memo re: Officers Bonus Plan approved by Board of Directors of Pancho's
Mexican Buffet, Inc. on February 28, 1986(7)
10(j) -- Note, security agreement and investment letter -- re: sale of authorized
but unissued Common Stock of the Registrant to four executive officers in
1992(16)
10(k) -- Employment Contracts between the Registrant and four executive officers
dated May 23, 1986 and March 25, 1994(16)
10(l) -- Pancho's Mexican Buffet, Inc. Cafeteria Plan(9)
10(m) -- Amendment No. 4 to 1982 Incentive Stock Option Plan of Pancho's Mexican
Buffet, Inc.(11)
10(n) -- Amendment No. 3 to 1982 Stock Option Plan for Non-Employee Directors of
Pancho's Mexican Buffet, Inc.(11)
10(o) -- 1992 Stock Option Plan of Pancho's Mexican Buffet, Inc.(12)
10(p) -- Revolving Credit and Term Loan Agreement dated February 16, 1994, between
PMB Enterprises West, Inc. and First Interstate Bank of Texas, N.A.(13)
10(q) -- First Amendment to Revolving Credit and Term Loan Agreement dated
February 9, 1995, between PMB Enterprises West, Inc. and First Interstate
Bank of Texas, N.A.(14)
10(r) -- Second Amendment to Revolving Credit and Term Loan Agreement dated May 9,
1995, between PMB Enterprises West, Inc. and First Interstate Bank of
Texas, N.A.(15)
10(s) -- Third Amendment to Revolving Credit and Term Loan Agreement dated
September 29, 1995 -- filed herewith
10(t) -- Employment Contract between the Registrant and one executive officer,
dated September 29, 1995 -- filed herewith
11 -- Not required -- Explanation of earnings per share computation is
contained in Notes to Consolidated Financial Statements.
12 -- Not applicable
13 -- Not applicable
16 -- Not applicable
18 -- Not applicable
21 -- Subsidiaries of the registrant -- filed herewith
22 -- Not applicable
23 -- Consent of Independent Public Accountants -- filed herewith
24 -- Not applicable
27 -- Financial Data Schedule -- filed herewith
28 -- Not applicable
</TABLE>

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

<TABLE>
<C> <S>
(1) Filed with the Commission as an Exhibit to Form S-1 Registration Statement No.
2-32378 -- such Exhibits are incorporated herein by reference.
(2) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K as
amended on Form 8 for the year ended September 30, 1981 -- such Exhibits are
incorporated herein by reference.
(3) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended September 30, 1982 -- such Exhibit is incorporated herein by reference.
(4) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended September 30, 1983 -- such Exhibits are incorporated herein by
reference.
(5) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended September 30, 1984 -- such Exhibits are incorporated herein by
reference.
(6) Filed with the Commission as an Exhibit to Form 8-A Registration Statement on March 14,
1986 -- such Exhibit is incorporated herein by reference.
(7) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended September 30, 1986 -- such Exhibits are incorporated herein by
reference.
(8) Filed with the Commission as an Exhibit to Form S-2 Registration Statement No. 33-14484
on May 22, 1987 -- such Exhibit is incorporated herein by reference.
(9) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended September 30, 1988 -- such Exhibits are incorporated herein by
reference.
(10) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended September 30, 1990 -- such Exhibits are incorporated herein by
reference.
(11) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended September 30, 1991 -- such Exhibits are incorporated herein by
reference.
(12) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended September 30, 1993 -- such Exhibits are incorporated herein by
reference.
(13) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended March 31,
1995 -- such Exhibits are incorporated herein by reference.
(14) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended June 30,
1995 -- such Exhibits are incorporated herein by reference.
(15) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended June 30,
1995 -- such Exhibits are incorporated herein by reference.
(16) Filed with the Commission as an Exhibit to Form 10-K for the year ended September 30,
1994 -- such exhibits are incorporated herein by reference.
</TABLE>

<PAGE> 1

EXHIBIT 3(g)

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION

PANCHO'S MEXICAN BUFFET, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:

FIRST: That the Board of Directors of said corporation at a meeting
duly held, adopted a resolution proposing and declaring advisable the adoption
of an amendment to the Certificate of Incorporation of said corporation so
that, as amended, Article Sixteenth shall be amended in part by the deletion of
the fourth sentence now contained in Article Sixteenth which reads as follows:

"To be qualified as a Director, a person shall be a citizen of
the United States."

In all other respects, Article Sixteenth shall remain unchanged.

SECOND: That the aforesaid amendment was duly approved and adopted by
the affirmative vote of the holders of at least seventy-five percent (75%) of
the shares of capital stock entitled to vote thereon of the corporation in
accordance with the Certificate of Incorporation, the Bylaws and Section 242 of
the General Corporation Law of Delaware.

IN WITNESS WHEREOF, said Pancho's Mexican Buffet, Inc. has caused this
Certificate to be signed by Hollis Taylor, its President, and attested by
Samuel L. Carlson, its Secretary, this 25th day of January, 1995.

PANCHO'S MEXICAN BUFFET

ATTEST:
By: /s/ HOLLIS TAYLOR
------------------------------
Hollis Taylor, President

/s/ SAMUEL L. CARLSON
- ----------------------------
Samuel L. Carlson, Secretary

<PAGE> 2

THE STATE OF TEXAS )
)
COUNTY OF TARRANT )

I, a Notary Public, do hereby certify that on this 25th day of January,
1995, personally appeared before me HOLLIS TAYLOR, who declared he is President
of the corporation executing the foregoing document, and being first duly
sworn, acknowledged that he signed the foregoing document in the capacity
therein set forth and declared that the statements therein contained are true.

IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and
year first above written.

/s/ CAROLYN TETTS
------------------------------------------
Carolyn Tetts
Notary Public, State of Texas

My Commission expires:

[NOTARY STAMP]

Page -2-
<PAGE> 3
PAGE 1
State of Delaware
Office of the Secretary of State

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "PANCHO'S MEXICAN BUFFET, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FIFTH DAY OF JANUARY, A.D. 1995, AT 1 O'CLOCK P.M.

A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.

/s/ EDWARD J. FREEL
[STAMP] -----------------------------------
Edward J. Freel, Secretary of State

AUTHENTICATION: 7385636

DATE: 01-25-95

<PAGE> 1
EXHIBIT 3(h)

CERTIFICATE OF INCORPORATION
OF
PANCHO'S MEXICAN BUFFET, INC.
(a corporation incorporated in the State of Delaware in the year 1969)
As revised January 25, 1995

FIRST: The name of the corporation is

PANCHO'S MEXICAN BUFFET, INC.

SECOND: The corporation's registered office in the State of Delaware
is located at No. 100 West Tenth Street, in the City of Wilmington, County of
New Castle. The name and address of its registered agent is The Corporation
Trust Company. No. 100 West Tenth Street, Wilmington, Delaware.

THIRD: The nature of the business, or objects or purposes to be
transacted, promoted or carried on are to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware and, without limiting the generality of the foregoing:

To acquire, construct, own and operate restaurants, cafeterias and
other eating establishments.

To erect, construct, alter, repair, improve, own, buy and otherwise
dispose of, lease (either as lessor or lessee), license, sub-license,
franchise, advertise, broker, hold, occupy, manage, maintain, furnish,
equip, and operate restaurants and restaurant enterprises and
cafeterias and eating and drinking places and catering facilities of
all kinds; to manufacture, grow, compound, broker, create and
generally deal in all kinds of food, beverages, foodstuffs,
ingredients, and food and tobacco products; to manufacture, own,
operate and generally deal in and with all kinds of facilities and
appurtenances convenient, suitable, desirable, or necessary in the
conduct and operation of the foregoing;

to authorize others to do each or all of the foregoing on behalf of
this corporation; and to give or grant to others the right, privilege
or license to engage in any of the aforesaid kinds of business on
premises owned, leased or managed by it.

To purchase, lease, or otherwise acquire, own, hold, use manufacture,
assemble, improve, maintain, sell, service, supply, dispose of or
handle any articles, goods, supplies, materials, machinery, equipment
or other personal property.
<PAGE> 2
To do all and everything necessary, suitable and proper for the
accomplishment of any of the purposes, or the attainment of any of the
purposes hereinbefore set forth, either alone or in association with
other corporations, firms, partnerships and individuals and to do
every other act or acts, thing or things incidental or pertinent to or
growing out of or connected with the aforesaid business or powers or
any part or parts thereof; provided, the same be not inconsistent with
the laws under which this corporation is organized.

In general, to carry on any other business in connection with the
foregoing and to have and exercise all the powers conferred by the laws of
Delaware upon corporations formed under the General Corporation Law of the
State of Delaware and to do any or all of the things hereinbefore set forth.

The objects and purposes specified in the foregoing clauses shall,
except where otherwise expressed, be in nowise limited or restricted by
reference to, or inference from, the terms of any other clause in this
Certificate of Incorporation, but the objects and purposes specified in each of
the foregoing clauses of this article shall be regarded as independent objects
and purposes.

FOURTH: This corporation is authorized to issue twenty million five
hundred thousand (20,500,000) shares of capital stock. Twenty million of the
authorized shares shall be common stock, ten cents ($0.10) par value each; and
five hundred thousand (500,000) of the authorized shares shall be preferred
stock, ten dollars ($10.00) par value each.

Shares of preferred stock may be issued from time to time in one or more
series, each such series to have such distinctive designation or title as may
be fixed by the Board of Directors prior to the issuance of any shares thereof.
Each such series shall have such voting powers and such preferences and
relative, participating, optional or other special rights, with such
qualifications, limitations, or restrictions of such preferences and/or rights
as shall be stated in the resolution or resolutions providing for the issue of
such series of preferred stock, as may be adopted from time to time by the
Board of Directors prior to the issuance of any shares thereof, in accordance
with the laws of the State of Delaware. Each share of any series of preferred
stock shall be identical with all other shares of such series, except as to the
date from which accumulated preferred dividends, if any, shall be cumulative.

- 2 -
<PAGE> 3
No stockholder of this corporation shall be by reason of his holding
shares of any class have any pre-emptive or preferential right to purchase or
subscribe to any shares of any class of the corporation, now or hereafter to be
authorized, or any notes, debentures, bonds, or other securities convertible
into or carrying warrants or options to purchase shares of any class, now or
hereafter to be authorized, whether or not the issuance of any such shares or
such notes, debentures, bonds, or other securities would adversely affect the
dividend or voting rights of such stockholder, other than such rights, if any,
as the Board of Directors, in its discretion, may fix; and the Board of
Directors may issue shares of any class of this corporation, or any notes,
debentures, bonds, or other securities convertible into or carrying options or
warrants to purchase shares of any class, without offering any such shares of
any class, either in whole or in part, to the existing stockholders of any
class.

FIFTH: Cumulative voting for the election of directors shall not be
permitted.

SIXTH: The minimum amount of capital with which the corporation will
commence business is One Thousand Dollars ($1,000).

SEVENTH: The names and mailing addresses of the incorporators are as
follows:

<TABLE>
<CAPTION>
Names Mailing Address
- --------------- ---------------------
<S> <C>
B. J. Consono 100 West Tenth Street
Wilmington, Delaware

F. J. Obara, Jr. 100 West Tenth Street
Wilmington, Delaware

A. D. Grier 100 West Tenth Street
Wilmington, Delaware
</TABLE>

EIGHTH The number of directors shall be fixed in the manner provided in
the By-Laws of the corporation, and until changed in the manner provided in the
By-Laws shall be six (6); and the names and addresses of those who are to serve
as directors until the first annual meeting of the stockholders, or until their
successors be elected and qualify are as follows:

<TABLE>
<CAPTION>
Names Residences
- --------------- ---------------------
<S> <C>
Jesse Arrambide 901 Ellis Street
El Paso, Texas 79900

Don E. Bowden 6321 Grapevine Highway
Fort Worth, Texas 76118

A. Warner Wicks P.O. Box 55531
Houston, Texas 77055
</TABLE>

- 3 -
<PAGE> 4
<TABLE>
<S> <C>
Roy L. Bowden 3853 S.W. Loop 820
Fort Worth, Texas 76133

Al Correa 8739 Dyer Street
El Paso, Texas 79903

John R. Payne 1516 First National Bank Bldg.
Fort Worth, Texas 76102
</TABLE>

NINTH: The corporation is to have perpetual existence.

TENTH: The private property of the stockholders shall not be subject to
the payment of the corporate debt to any extent whatsoever.

ELEVENTH: The following provisions are adopted for the management of
the business and for the conduct of the affairs of the corporation, and for
creating, defining, limiting and regulating the powers of the corporation, its
directors and stockholders:

(a) The business of the corporation shall be managed by its Board of
Directors and the Board of Directors shall have power to exercise all
the powers of the corporation, including (but without limiting the
generality hereof) the power to create mortgages upon the whole or any
part of the property of the corporation, real or personal, without any
action of or by the stockholders, except as otherwise provided by
statute or by the By-Laws.

(b) The number of directors which shall constitute the whole Board
shall be such as is from time to time fixed in the manner provided in
the By-Laws, but in no case shall the number be less than three (3).

(c) The Board of Directors shall have power to make and alter
By-Laws, subject to such restrictions upon the exercise of such power
as may be imposed by the stockholders in any By-Laws adopted by them
from time to time.

(d) The Board of Directors shall have power in its discretion to
fix, determine, and vary from time to time the amount to be retained
as surplus, and the amount or amounts to be set apart out of any of
the funds of the corporation available for dividends, as working
capital, or a reserve or reserves for any proper purpose, and to
abolish any such reserve in the manner in which it was created.

- 4 -
<PAGE> 5
(e) The Board of Directors shall have power in its discretion from
time to time to determine whether and to what extent and at what times
and places and under what conditions and regulations the books and
accounts of the corporation, or any of them, other than the stock
ledger shall be open to the inspection of the stockholders; and no
stockholder shall have any right to inspect any account or book or
document of the corporation, except as conferred by law or authorized
by resolution of the directors or of the stockholders.

(f) Upon any sale, exchange or other disposal of the property and/or
assets of the corporation, payment therefor may be made either to the
corporation or directly to the stockholders in proportion to their
interests, upon the surrender of their respective stock certificates,
or otherwise, as the Board of Directors may determine.

(g) The Board of Directors shall have the power, by resolution
adopted by the affirmative vote of a majority of the whole Board, to
appoint one or more committees, including, but not limited to, an
executive committee, each committee to consist of two or more of the
directors of the corporation. Any such committee or committees, to
the extent provided in the resolution or in the By-Laws of the
corporation or in the laws of the State of Delaware and subject
thereto, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the
corporation.

(h) A special meeting of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by the
Board of Directors of the Company (or an authorized committee
thereof).

(i) Notice of each meeting of stockholders, whether annual or
special, shall, at least ten days before the day on which the meeting
is to be held, be given to each stockholder of record entitled to vote
by delivering a written or printed notice thereof to him personally,
or by mailing such notice in a postage prepaid envelope addressed to
him at his address as it appears on the stock books of the
corporation; provided, that no notice of any character of any meeting
of stockholders need be given to any stockholder to whom the delivery,
mailing or other giving of such notice would be unlawful (either
absolutely or without official license or consent) pursuant to the
provisions of any law of the United States, of any rule, regulation,
proclamation, or executive order issued pursuant thereto.

- 5 -
<PAGE> 6
Except as otherwise required by statute, no publication of any notice
of a meeting of stockholders shall be required. Every notice of a
special meeting of stockholders, besides stating the time and place of
the meeting, shall state briefly the objects thereof.

TWELFTH: Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the corporation under
the provisions of Section 291 of Title 8 of the Delaware Code, or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the corporation under the provisions of Section 279 of Title 8 of
the Delaware Code, ordering a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the corporation, as the
case may be, to be summoned in such manner as the court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders, or class of stockholders of the
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the corporation, as the case may be,
and also on the corporation.

THIRTEENTH No contract or other transactions between the corporation
and any other corporation, firm or individual shall be affected or invalidated
by the fact that any one or more of the directors or officers of this
corporation is or are interested in or is a director or officer of such other
corporation, or a member of such firm, and any director or officer,
individually or jointly, may be a party to or may be interested in any
contract, or transaction, of this corporation or in which this corporation is
interested, and no contract, act or transaction of this corporation with any
person or persons, firms or corporation, shall be affected or invalidated by
the fact that any director or officer of this corporation is a party to or
interested in such contract, act or transaction, or in any way connected with
such person or persons, firms or corporations, and each and every person who
may become a director or officer of this corporation is hereby relieved from
any liability that might otherwise exist from contracting with the corporation
for the benefit of himself or any firm or corporation in which he may be in
anywise interested.

- 6 -
<PAGE> 7
FOURTEENTH: Meetings of stockholders may be held outside of the State
of Delaware, if the By-Laws so provide. The books of the corporation may be
kept (subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the corporation. Elections of
directors need not be by ballot unless the By-Laws of the corporation shall so
provide.

FIFTEENTH: The corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.

SIXTEENTH: The number of directors which shall constitute the whole
board shall not be less than three nor more than fifteen. Within such limits,
the number of directors shall be determined by resolution of the board of
directors. The directors shall be elected at the annual stockholders' meeting,
except as provided in the second paragraph of this Article. The directors
shall be divided into three classes, each consisting of one-third of such
directors as nearly as may be. At the Annual Stockholders' Meeting of 1981,
one class of such directors shall be elected for a one-year term, one class for
a two-year term, and one class for a three-year term. At each succeeding
Annual Stockholders' Meeting beginning in 1982, successors to the class of
directors whose term expires at such annual meeting shall be elected for a
three-year term. If the number of such directors is changed, any increase or
decrease in such directors shall be apportioned among the classes so as to
maintain the number of directors comprising each class as nearly equal as
possible, and any additional directors of any class shall hold office for a
term which shall coincide with the remaining term of such class. A director
shall hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification, or removal
from office. Directors may be removed by the stockholders only for cause and
then only upon the affirmative vote of the holders of at least 75% of the
outstanding shares of capital stock of the Company. Except as may otherwise be
provided by law, cause for removal shall be construed to exist only if the
director whose removal is proposed is convicted of a felony by a court of
competent jurisdiction and such conviction is no longer subject to direct
appeal, or ahs been adjudged by a court of competent jurisdiction to be liable
for negligence or misconduct, in the performance of his duty to the company in
a matter of substantial importance to the company, and such adjudication is no
longer subject to direct appeal.

- 7 -
<PAGE> 8
If any vacancy occurs in the board caused by death, resignation,
retirement, disqualification or removal from office of any director, or
otherwise, or any new directorship is created by an increase in the authorized
number of directors, a majority of the directors then in office, though less
than a quorum, may choose a successor or successors, or fill the newly created
directorship. Any director elected to fill a vacancy shall have the same
remaining term as that of his predecessor.

Amendment or deletion of this Article Sixteenth shall require the
affirmative vote of the holders of at least 75% of the shares of capital stock
entitled to vote thereon.

SEVENTEENTH: Except as otherwise provided in this Article, the
affirmative vote of the holders of at least 75% of the outstanding shares of
stock of the Company entitled to vote thereon is required for the approval of
(a) any agreement of merger or consolidation of the Company with or into
another corporation which is required by law to be approved by the stockholders
of the Company, (b) the sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the Company, or (c) any
issuance or delivery of securities of the Company in exchange or payment for
any securities, properties or assets of any other person or entity in a
transaction in which the authorization or approval of stockholders of the
Company is required by law or any agreement to which the Company is a party.
The foregoing special voting requirement shall not be applicable to any of the
foregoing types of transactions: (i) if the transaction is approved by
resolution of the Company's Board of Directors; or (ii) if the other party
thereto is, directly or indirectly, a subsidiary of the Company. For this
purpose, subsidiary means any corporation, association or other business entity
of which more than 50% of the outstanding shares of stock or similar interests
of each class having ordinary voting power (other than stock or similar
interests having such power by reason of the happening of a contingency) is at
the time owned of record and/or beneficially by the Company, or by one or more
subsidiaries, or by the Company and one or more subsidiaries, notwithstanding
any other provision of this Certificate of Incorporation. In the absence of
special voting requirements, any of the foregoing types of transactions must be
approved by the affirmative vote of the holders of at least a majority of the
outstanding shares of stock entitled to vote thereon. In addition to any other
vote that may be required by statute or this Certificate of Incorporation, this
Article may not be amended, altered, repealed or otherwise changed unless
approved by the affirmative vote of the holders of at least 75% of the
outstanding shares of the capital stock of the Company entitled to vote
thereon.

- 8 -
<PAGE> 9
EIGHTEENTH:

Section 1. Elimination of Certain Liability of Directors. A
director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal
benefit.

Section 2. Indemnification and Insurance.

(a) Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a
director or officer, of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall
be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA, excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and
shall insure to the benefit of his or her heirs, executors and
administrators; provided, however, that except as provided in paragraph
(b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right
and shall include the right to be paid by the Corporation

- 9 -

<PAGE> 10
the expenses incurred in defending any such proceeding in advance of its
final disposition; provided, however, that if the Delaware General
Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
person while a director or officer, including without limitation,
service to an employee benefit plan) in advance of the final disposition
of a proceeding, shall be made only upon delivery to the Corporation of
an undertaking, by or on behalf of such director or officer, to repay
all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section
or otherwise. The Corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of the Corporation with
the same scope and effect as the foregoing indemnification of directors
and officers.

(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days
after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover
the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct
which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but
the burden of proving such defense shall be on the Corporation. Neither
the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because
he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant has not met such
applicable standard or conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable
standard of conduct.

- 10 -

<PAGE> 11
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.

(d) Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General
Corporation Law.

I, Samuel L. Carlson, Secretary of Pancho's Mexican Buffet, Inc., hereby
certify that the attached is a complete and accurate statement of the
Certificate of Incorporation of Pancho's Mexican Buffet, Inc. as of July 20,
1987.

- 11 -
<PAGE> 12
I, Samuel L. Carlson, Secretary of Pancho's Mexican Buffet, Inc., hereby
certify that the attached is a complete and accurate statement of the
Certificate of Incorporation of Pancho's Mexican Buffet, Inc. as of February 2,
1990.

_____________________________________________
Samuel L. Carlson, Senior Vice President,
and Secretary

<PAGE> 1
EXHIBIT 10(s)

THIRD AMENDMENT TO REVOLVING
CREDIT AND TERM AGREEMENT

This Third Amendment To Revolving Credit and Term Loan Agreement (this
"Third Amendment") is made by and among PMB Enterprises West, Inc., a New
Mexico corporation, and First Interstate Bank of Texas, N.A.

WHEREAS, the parties entered into that one certain Revolving Credit
and Term Loan Agreement dated February 16, 1994 (the Revolving Credit and Term
Loan Agreement dated February 16, 1994 and all amendments thereto and
restatements thereof are hereinafter collectively referred to as the "Loan
Agreement"); and

WHEREAS, the parties entered into that one certain First Amendment To
Revolving Credit and Term Loan Agreement dated February 9, 1995; and

WHEREAS, the parties entered into that one certain Second Amendment to
Revolving Credit and Term Loan Agreement dated May 9, 1995; and

WHEREAS, the parties desire to amend the Loan Agreement in certain
respects.

NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is agreed by and among the
parties as follows:

The definition of Net Cash Flow in Article I is amended to read in its
entirety as follows:

"Net Cash Flow" shall mean at any time the sum of Consolidated
Net Income, depreciation, amortization and sixty six percent (66%) of
the restructuring charge incurred in June 1995 in the total amount of
$7,572,000 less an amount equal to four (4) times the aggregate amount
<PAGE> 2
of the most recent quarterly Dividend declared by the Board of
Directors of Company.

New Sections 6.02(g), 6.02(h), 6.02(i), 6.02(j) and 6.02(k) are added
to the Loan Agreement which shall read in their entirety as follows:

(g) Deeds of Trust. Deeds of trust and mortgages covering all
real property owned by Company or any of its Affiliates;

(h) Environmental Indemnity Agreement. Environmental Indemnity
Agreement relating to all real property owned by Company or any of its
Affiliates;

(i) Insurance Policies. Copies of insurance policies covering all
real and personal property owned by Company or any of its Affiliates reflecting
Bank as mortgagee;

(j) Security Agreements. Security Agreements covering all assets
owned by Company and each of its Affiliates; and

(k) Financing Statements. Financing statements covering all
assets of Company and each of its Affiliates.

Section 9.01 of the Loan Agreement is amended to read in its entirety
as follows:

9.01 Funded Debt to Net Cash Flow. Permit the ratio of Funded
Debt as of the end of any calendar month to Net Cash Flow of Pancho's
Mexican Buffet, Inc. and its Subsidiaries for the 12-month period then
ending to be greater than 2.8 to 1.0 at any time on or before December
31, 1995 or to be greater than 2.5 to 1.0 at any time after December
31, 1995.

- 2 -
<PAGE> 3
4.

Company agrees to deliver to Bank each of the following at or prior to
the time of execution of this Third Amendment, all in form and substance
satisfactory to Bank:

(1) Deeds of Trust. Deeds of trust and mortgages covering all
real property owned by Company or any of its Affiliates;

(2) Environmental Indemnity Agreement. Environmental Indemnity
Agreement relating to all real property owned by Company or any of its
Affiliates;

(3) Environmental Questionnaires. Environmental questionnaire
relating to all real property owned by Company or any of its Affiliates.

(4) Insurance Policies. Copies of insurance policies covering all
real and personal property owned by Company or any of its Affiliates reflecting
Bank as mortgagee;

(5) Security Agreements. Security Agreements covering all assets
owned by Company and each of its Affiliates;

(6) Financing Statements. Financing statements covering all
assets of Company and each of its Affiliates; and

(7) Resolutions of Company and its Affiliates. Resolutions
authorizing the execution of this Third Amendment and each deed of trust,
mortgage, security agreement and financing statement required under the terms
of the Loan Agreement and an incumbency certificate.

- 3 -
<PAGE> 4
4.

New Sections 8.16, 8.17 and 8.18 are added to the Loan Agreement which
shall read in their entirety as follows:

8.16 Appraisals. Company shall furnish to Bank appraisals
in form and from appraisers satisfactory to Bank relating to all real
property owned by Company or any of its Affiliates on or before
December 31, 1995.

8.17 Paid Tax Receipts. Company shall furnish to Bank
annually paid tax receipts or other evidence satisfactory to Bank
reflecting that all ad valorem taxes with respect to all real property
owned by Company or any of its Affiliates have been paid in full.

8.18 Environmental Reports. At the request of Bank,
Company, at the expense of Company, shall from time to time promptly
furnish to Bank environmental reports in form satisfactory to Bank
relating to real property owned by Company or any of its subsidiaries.

Except as amended by the First Amendment, the Second Amendment and
this Third Amendment, the Loan Agreement is ratified and confirmed and shall
remain in full force and effect.

Borrower agrees to pay any and all costs and expenses incurred by Bank
in connection with this Third Amendment (including, but not limited to, any and
all appraisal fees, cost of title searches, costs of environmental reports,
recording fees, conveyance fees and reasonable attorneys fees) within ten (10)
days of the date of any invoice for such costs and expenses. Borrower, at
Borrower's expense, agrees to promptly execute and deliver to Bank upon request
any and all other and further documents, agreements and instruments as may be
requested by Bank in connection with or relating to this Third Amendment and
the Loan Agreement or as may be necessary to correct any omissions or defects
in the documents, agreements or instruments delivered to Bank in connection
therewith.

- 4 -
<PAGE> 5
7.

This Third Amendment shall be binding upon and inure to the benefit of
the parties and their respective successors and assigns.

THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS AMONG THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.

Executed to be effective as of September 29, 1995.

PMB ENTERPRISES WEST, INC.

By: /s/ SAMUEL L. CARLSON
----------------------------------
Samuel L. Carlson, Senior Vice
President

BORROWER

FIRST INTERSTATE BANK OF TEXAS, N.A.

By: /s/ KIMBERLY K. WHITE
----------------------------------
Kimberly K. White, Assistant Vice
President

BANK

- 5 -

<PAGE> 1
Exhibit 10(t)

EMPLOYMENT AGREEMENT
PANCHO'S MEXICAN BUFFET, INC. AND WILLIAM BRAD FAGAN

This Agreement dated the 29th day of September, 1995, by and between
Pancho's Mexican Buffet, Inc., a Delaware corporation, and its subsidiaries,
hereinafter referred to as Company, and William Brad Fagan, hereinafter
referred to as Employee;

WHEREAS, the Company and Employee desire to continue the employment
relationship upon the terms and conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the premises, the covenants and
conditions herein set forth, it is mutually agreed as follows:

1. EMPLOYMENT. Company hereby employs Employee, and Employee
hereby accepts employment under the terms and conditions hereinafter
set forth.

2. TERM; EFFECTIVE DATE. Subject to the provisions for
termination as hereinafter provided, the initial term of this
Agreement shall be for a period of two (2) years and three (3) months,
and shall begin and be effective as of SEPTEMBER 29, 1995, and shall
terminate on DECEMBER 31, 1997. This Agreement shall be automatically
renewed on December 31 of each succeeding year hereafter for a period
of two (2) years from such renewal date, expressly subject to the
approval of the Compensation Committee (appointed by the Board of
Directors) immediately following each Annual Meeting, or unless
written notice is given by Employee herein of his intention not to
renew.

3. COMPENSATION. Except as provided in Paragraph 11, for all
services rendered by Employee under this Agreement, Company shall
compensate Employee by the payment of his current annual base salary
rate as set by the Board of Directors, payable in monthly
installments; provided, however, that in no event shall said
Employee's base salary rate be less than the total base salary rate
paid to said Employee during the immediately preceding calendar year.
In addition, said Employee shall be entitled to receive such further
compensation (such as bonuses or incentive compensation) as shall be
authorized by the Board of Directors of the Company from time to time.

4. DUTIES. During the period of employment hereunder, Employee
shall devote his full time and efforts to the business and affairs of
Company, and serve as an officer of Company, or any of its
subsidiaries, if so requested, and perform such services similar to
and not inconsistent with his present position with Company, and use
his best efforts to promote the interests of Company.

5. WORKING FACILITIES. Employee shall be furnished with a private
office, and such other facilities and services, all suitable to his
position and adequate for the performance of his duties.

6. EXPENSES. Employee is authorized to incur reasonable expenses
for promoting the business of the Company. Company will reimburse
Employee for all such expenses upon the presentation by Employee, from
time to time, of an itemized account of such expenditures.
<PAGE> 2

7. VACATIONS. Employee shall be entitled, each year, to a
reasonable time for vacations, during which time his compensation
shall be paid in full. Vacations shall not unduly interfere with
Employee's performance of his duties under this Agreement.

8. TEMPORARY INCAPACITY. If, during the term of this Agreement,
the Employee becomes disabled or incapacitated by illness, accident or
otherwise, to the extent that he cannot perform his services or duties
hereunder, then on a cumulative basis during the term hereof, the
Company shall pay him full compensation for an aggregate of six (6)
months of such incapacity of disability, but if the disability or
incapacity shall be, on a cumulative basis during the term hereof, in
excess of six (6) months, then the Employee will not be entitled to
any compensation after the cumulative period of six (6) months.

9. DEATH DURING EMPLOYMENT. If Employee dies during the term of
this Agreement, Company's sole obligation hereunder shall be to pay to
the estate of Employee the compensation which would otherwise be
payable to Employee up to the end of the month in which his death
occurs, plus an additional three (3) months' salary as death benefits.

10. AGREEMENT TO NON-COMPETE. Without prior written consent of the
Company, Employee shall not, during the period of employment herein
provided, directly or indirectly invest or engage in any business
which is competitive with that of the Company or accept employment
with or render services to a competitor as a director, officer, agent,
employee or consultant, or take any action inconsistent with the
fiduciary relationship of an employee to his corporation. In the event
the employment of Employee hereunder shall terminate for any reason,
whether because of the expiration of this Agreement or otherwise,
Employee agrees that during the period of twelve (12) months following
the termination of his employment he will not, directly or indirectly,
either through any kind of ownership (other than ownership of
securities of publicly held corporations of which Employee owns less
than one percent (1%) of any class of outstanding securities) or as a
director, officer, agent, employee or consultant, engage in a business
which is directly competitive with restaurants operated by the Company
at the time his employment is terminated, within the area served by
Employee during the period of his employment by the Company. It is
expressly agreed that the remedy at law for breach of this covenant is
inadequate and that injunctive relief shall be available to prevent
the breach thereof.

11. OTHER FRINGE BENEFITS. Employee shall be entitled to
participate in the same fringe benefits as other employees and
executive officers of the Company or any subsidiary companies,
including participation in any pension or profit sharing plans, bonus
plans and participation in the insurance program, including health,
life and long-term disability coverage as well as any other plans now
in existence or which may be adopted or made available by Company, its
subsidiaries or affiliates.

12. TERMINATION. During the term of this Agreement, Company may
only terminate this Agreement for "good cause" and upon immediate
written notice to Employee. "Good cause" as used herein is defined as
a conviction of a felony, or adjudication by a Court of liability for
negligence or misconduct in the performance

-2-
<PAGE> 3

12. TERMINATION (CONTD). of an employee's or officer's duty to the
Company. If, during the term of this Agreement, Company should
unilaterally terminate the Agreement for reasons other than "good
cause," Company shall be obligated to pay to Employee the remainder of
any compensation due under the terms of this Employment Agreement,
either in a lump sum or in monthly payments over the balance of the
term of this Agreement, said payment method to be at the sole election
of the Employee.

13. NOTICES. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing, and if sent by
registered or certified mail to his residence in case of Employee, or
to its principal office in the case of Company.

14. ASSIGNMENT. The rights and obligations of Company under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Company, provided, however, that in the
event of any assignment of this Agreement by Company, the obligations
of Company hereunder shall be continuing.

15. ENTIRE AGREEMENT. This instrument contains the entire
agreement of the parties. It may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of
any waiver, change, modification, extension or discharge is sought.

16. CONSTRUCTION. This Agreement shall be construed in accordance
with and be governed by the laws of the State of Texas.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.

PANCHO'S MEXICAN BUFFET, INC.

/s/ JESSE ARRAMBIDE, III
----------------------------------------
Jesse Arrambide, III
Chairman of the Board

/s/ W. BRAD FAGAN
----------------------------------------
William Brad Fagan
Employee

APPROVED:

/s/ GEORGE RIORDAN
- ----------------------------------
George Riordan
Chairman of Compensation Committee
Pancho's Mexican Buffet, Inc.

-3-

<PAGE> 1

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>
NAMES UNDER WHICH
STATE OF SUBSIDIARY DOES
SUBSIDIARY INCORPORATION BUSINESS
- --------------------------- ------------- ---------------------------
<S> <C> <C>
PMB Enterprises West, Inc. New Mexico PMB Enterprises West, Inc.
Pancho's Mexican Buffet
Pancho's Mexican Buffet
Advertising
Pancho's Mexican Buffet
Commissary Supply Co.
Pancho's Mexican Buffet
Construction
</TABLE>

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

The above schedule includes all significant subsidiaries of the Company as
defined in Rule 1-02(v) of Regulation S-X.

<PAGE> 1

EXHIBIT 23

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement No.
2-86238 of Pancho's Mexican Buffet, Inc. on Form S-8 of our report dated
November 7, 1995, appearing in this Annual Report on Form 10-K of Pancho's
Mexican Buffet, Inc. for the year ended September 30, 1995.

/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP
Fort Worth, Texas

December 8, 1995

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1995 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE TWELVE-MONTHS THEN ENDED.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,199,000
<SECURITIES> 0
<RECEIVABLES> 486,000
<ALLOWANCES> 0
<INVENTORY> 907,000
<CURRENT-ASSETS> 4,380,000
<PP&E> 66,386,000
<DEPRECIATION> 30,353,000
<TOTAL-ASSETS> 44,387,000
<CURRENT-LIABILITIES> 5,470,000
<BONDS> 0
<COMMON> 440,000
0
0
<OTHER-SE> 26,548,000
<TOTAL-LIABILITY-AND-EQUITY> 26,998,000
<SALES> 80,893,000
<TOTAL-REVENUES> 80,893,000
<CGS> 22,910,000
<TOTAL-COSTS> 76,198,000
<OTHER-EXPENSES> 13,119,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 590,000
<INCOME-PRETAX> (8,705,000)
<INCOME-TAX> (3,343,000)
<INCOME-CONTINUING> (5,362,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,362,000)
<EPS-PRIMARY> (1.22)
<EPS-DILUTED> (1.22)

</TABLE>