Exhibit 13.01

SELECTED FINANCIAL INFORMATION
(dollars in millions, except per share data)

FISCAL YEARS
------------------------------------------------------------------
STATEMENT OF OPERATIONS INFORMATION 1997 1996 1995 1994 1993
- --------------------------------------------------------- --------- --------- ---------- ---------- ---------

Restaurant Revenues (All)................................ $ 172.7 $ 193.4 $ 173.4 $ 156.3 $ 119.4

Restaurant Revenues (Combined Morton's and
Bertolini's)........................................... 164.3 139.0 109.0 90.8 64.2

EBITDA (1)............................................... 20.7 17.5 11.2 12.7 11.0

Income Before Income Taxes and Nonrecurring Charges...... 11.5 8.8 3.1 3.1 5.3
Income (Loss) Before Income Taxes........................ 9.2(2) (2.7) (3) (14.7) (4) (3.0) (5) 5.3

Net Income (Loss)........................................ 6.9(2) 1.8 (3) (13.9) (4) (0.30) (5) 4.9

Net Income (Loss) Per Share:
Basic.................................................. 1.06(2) 0.28 (3) (2.18) (4) (0.05) (5) 0.77
Diluted................................................ $ 1.00(2) $ 0.26 (3) $ (2.18) (4) $ (0.05) (5) $ 0.74

Balance Sheet Information FISCAL YEARS
- ----------------------------------------------------------- ---------------------------------------------------------

1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
Current Assets..................................................... $ 18.6 $ 27.3(6) $ 35.4(6) $ 15.4 $ 13.0
Net Property and Equipment......................................... 34.6 24.7 19.4 25.3 19.8
Total Assets....................................................... 81.9 77.0 73.2 73.5 65.3
Current Liabilities................................................ 21.4 25.3(7) 26.4(7) 15.4 16.1
Long-Term Debt..................................................... 24.9 24.9 23.7 20.0 12.7
Stockholders' Equity............................................... $ 28.6 $ 21.1 $ 19.0 $ 32.9 $ 33.3

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

(1) Represents earnings before interest, taxes, depreciation and amortization,
and nonrecurring charges.

(2) Includes nonrecurring litigation charge of $2.3 million.

(3) Includes nonrecurring charge of $11.5 million to write-down the
Atlanta-based Mick's and Peasant restaurants recorded in conjunction with
the sale of such restaurants .

(4) Includes nonrecurring charges of $15.5 million representing a write-down and
related charges for net assets held for sale and $2.2 million related to the
settlement of a lawsuit.

(5) Includes one-time charges aggregating $6.1 million, of which $5.5 million
related to the write-off of a preferred stock minority investment in an
affiliate.

(6) Includes assets held for sale of $12.5 million and $22.6 million for fiscal
1996 and 1995, respectively.

(7) Includes liabilities related to assets held for sale of $12.1 million and
$14.0 million for fiscal 1996 and 1995, respectively.

MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Results of Operations

1997 Compared to 1996

The following table represents the unaudited combined results of
operations for Morton's Restaurant Group, Morton's of Chicago Steakhouses
(Morton's) and Bertolini's Authentic Trattorias (Bertolini's), excluding
Mick's Restaurants, Inc. (Mick's) and The Peasant Restaurants, Inc.
(Peasant). As discussed in Note 3 to the Company's consolidated financial
statements, the Company completed the sale of its Atlanta-based Mick's and
Peasant restaurants on February 6, 1997 and closed, sold, or otherwise
disposed of all other remaining Mick's and Peasant restaurants during fiscal
1997.

Morton's Restaurant Group, Inc., Morton's and Bertolini's (excluding Mick's
and Peasant):

DECEMBER 28, DECEMBER 29,
1997 1996
------------ ------------
(AMOUNTS IN THOUSANDS)

Revenues............................................................................. $ 164,272 $ 138,968
Food and beverage costs.............................................................. 56,628 48,767
Restaurant operating expenses........................................................ 70,659 59,340
Depreciation, amortization and other non-cash charges................................ 6,823 6,282
General and administrative expenses.................................................. 12,329 10,592
Marketing and promotional expenses................................................... 4,011 3,456
Interest expense, net................................................................ 2,396 2,297
Litigation and related expenses...................................................... 2,300 --
------------ ------------
Income before income taxes....................................................... $ 9,126 $ 8,234
------------ ------------
------------ ------------

The following represents the unaudited combined results of operations
for Mick's and Peasant. Interest expense was not allocated to Mick's and
Peasant.

Mick's and Peasant Restaurants

DECEMBER 28, DECEMBER 29,
1997 1996
------------- -------------
(AMOUNTS IN THOUSANDS)

Revenues............................................................................. $ 8,453 $ 54,410
Food and beverage costs.............................................................. 2,561 15,956
Restaurant operating expenses........................................................ 5,120 33,042
Depreciation, amortization and other non-cash charges................................ 6 172
General and administrative expenses.................................................. 556 3,741
Marketing and promotional expenses................................................... 157 975

Write-down and related charges for net assets held for sale.......................... -- 11,500
------ ------
Income (loss) before income taxes.................................................... $ 53 $ (10,976)
------ ------
------ ------

Revenues decreased $20.7 million, or 10.7%, to $172.7 million for fiscal
1997, from $193.4 million for fiscal 1996. Revenues from Morton's and
Bertolini's increased $25.3 million, or 18.2%, to $164.3 million for fiscal
1997, from $139.0 million during the comparable 1996 period. Of the increase
in Morton's and Bertolini's revenues, $17.6 million was attributable to
incremental restaurant revenues from twelve new restaurants opened after
January 1, 1996 and $7.0 million, or 5.6%, was attributable to additional
comparable revenues from restaurants open all of both periods. Included in
1997 revenues is approximately $0.7 million of investment and consulting fee
income. Average Morton's and Bertolini's revenues per restaurant open for a
full period increased 6.3%. As discussed in Note 3 to the Company's
consolidated financial statements, the Company completed the sale of its
Atlanta-based Mick's and Peasant restaurants on February 6, 1997. Nine other
non-Atlanta Mick's and Peasant restaurants were closed, sold or otherwise
disposed of during fiscal 1996 and the remaining seven Mick's were closed,
sold or otherwise disposed of during fiscal 1997. As a result, revenues for
the Mick's and Peasant restaurants decreased approximately $46.0 million in
the fiscal 1997 period versus the comparable period of fiscal 1996. As of
December 28, 1997, the Company operated 48 restaurants (including 38 Morton's
and 10 Bertolini's) and as of December 29, 1996, 67 restaurants (including 34
Morton's, 7 Bertolini's, 18 Mick's and 8 Peasants).

Percentage changes in comparable restaurant revenues for fiscal 1997 versus
fiscal 1996 for restaurants open all of both periods are as follows:

PERCENTAGE
CHANGE
-------------

Morton's...................................................... 6.2%
Bertolini's................................................... 2.6%
Total......................................................... 5.6%

The Company believes that revenues for the first quarter of 1996 were
adversely affected by severe winter storms in January 1996. The Company believes
that the Olympic Games, which were held in Atlanta in July 1996, had a favorable
impact on Atlanta-based restaurant revenues for that period.

Food and beverage costs decreased from $64.7 million for fiscal 1996 to
$59.2 million for fiscal 1997. Food and beverage costs, excluding all Mick's and
Peasant restaurants, increased $7.9 million to $56.6 million for fiscal 1997
from $48.8 million recorded for fiscal 1996. These costs as a percentage of

related revenues decreased 0.6% for the period. As a result of the sale and
closings of the Mick's and Peasant restaurants, as discussed in Note 3 to the
Company's consolidated financial statements, there was a reduction in food and
beverage costs of approximately $13.4 million for fiscal 1997.

Restaurant operating expenses which include labor, occupancy and other
operating expenses decreased from $92.4 million for fiscal 1996 to $75.8 million
for fiscal 1997, a decrease of $16.6 million. Restaurant operating expenses,
excluding all Mick's and Peasant restaurants, increased from $59.3 million for
fiscal 1996 to $70.7 million for fiscal 1997. Those costs, excluding Mick's and
Peasant, as a percentage of revenues increased 0.3% from 42.7% for fiscal 1996
to 43.0% for fiscal 1997. Offsetting the increase in total restaurant operating
expenses was a reduction of approximately $28.0 million during fiscal 1997
versus the comparable 1996 period, due to the sale and closings of Mick's and
Peasant restaurants as discussed in Note 3 to the Company's consolidated
financial statements.

Depreciation, amortization and other non-cash charges increased from $6.5
million for fiscal 1996 to $6.8 million for the fiscal 1997 and increased from
3.3% of revenues to 4.0%, respectively. Pre-opening costs associated with the
opening of new restaurants are amortized over the 12 months following opening.
The timing of restaurant openings affects the amount of such costs amortized.

General and administrative expenses for fiscal 1997 were $12.9 million, a
decrease of $1.4 million, from $14.3 million for fiscal 1996. General and
administrative expenses, excluding all Mick's and Peasant restaurants, increased
$1.7 million from $10.6 million for fiscal 1996 to $12.3 million for fiscal
1997. Such costs, excluding Mick's and Peasant, as a percentage of revenues were
7.5% for fiscal 1997, a decrease of 0.1% from fiscal 1996. The increase in such
expense is driven by incremental costs associated with increased restaurant
development. General and administrative expenses relating to the Mick's and
Peasant restaurant groups decreased $3.1 million during fiscal 1997 versus the
comparable 1996 period as a result of the sale and closings of Mick's and
Peasant restaurants as discussed in Note 3.

Marketing and promotional expenses were $4.2 million, or 2.4% of revenues,
for fiscal 1997 versus $4.4 million, or 2.3% of revenues, for fiscal 1996.
Marketing and promotional expenses, excluding Mick's and Peasant, were $4.0
million, or 2.4% of revenues, for fiscal 1997, as compared to $3.4 million, or
2.5% of revenues, for fiscal 1996. The increase is driven by incremental costs
associated with increased restaurant development. Mick's and Peasant marketing
and promotional expenses decreased $0.8 million during fiscal 1997 versus fiscal
1996.

Interest expense, net of interest income, increased $0.1 million, from $2.3
million for fiscal 1996 to $2.4 million for fiscal 1997.

During fiscal 1997, the Company recorded a charge of approximately $2.3
million related to a judgment against the Company in the United States District
Court for the Northern District of California (see Note 14 to the Company's
consolidated financial statements).

Income tax expense of $2.3 million for fiscal 1997 represents Federal income
taxes, which were partially offset by the establishment of additional deferred
tax assets relating to FICA and other tax credits that were generated during
fiscal 1997, as well as state income taxes.

1996 Compared to 1995

Revenues increased $20.0 million, or 11.5%, to $193.4 million for fiscal
1996 from $173.4 million during fiscal 1995. Of the increase, $21.4 million was
attributable to incremental revenues from nine new restaurants opened after
January 1, 1995 and $4.1 million, or 2.6%, of additional comparable revenues
from restaurants open all of both periods. Offsetting these increases was a
reduction of $5.5 million from Mick's and Peasant restaurants closed during
fiscal 1996. Average sales per restaurant open for the full year increased
11.3%. In addition, higher revenues for fiscal 1996 reflect the impact of price
increases of approximately 1% in November 1996 for Morton's of Chicago and
approximately 2% in April 1995 for Mick's and Peasant. The Company operated 67
restaurants as of December 29, 1996 (including 34 Morton's, 7 Bertolini's, 18
Mick's, and 8 Peasants) and 71 restaurants as of December 31, 1995 (including 30
Morton's, 6 Bertolini's, 25 Mick's, and 10 Peasants).

Mick's and Peasant restaurants had generated lower than anticipated revenues
which were adversely impacting average restaurant revenues and earnings trends.
Additionally, as reflected in the table below, the fiscal 1996 period was
adversely impacted by declines in the comparable restaurant revenues in the
Mick's and Peasant restaurant groups, offset by increases in the Morton's and
Bertolini's restaurant groups. The Atlanta market, where 22 of the Company's
restaurants were located, had become increasingly competitive. As discussed in
Note 3 to the Company's consolidated financial statements, the Company completed
the sale of its Atlanta-based Mick's and Peasant restaurant groups.

Percentage changes in comparable revenues for fiscal 1996 versus fiscal 1995
for restaurants open all of both years are as follows:

PERCENTAGE CHANGE
---------------------

MORTON'S............................................... 9.2%
BERTOLINI'S............................................ 3.7%
MICK'S................................................. (7.8)%
PEASANT................................................ (8.3)%
TOTAL.................................................. 2.6%

The Company believes that revenues for the first quarter of fiscal 1996 were
adversely affected by severe winter storms in January 1996. The Company believes
that the Olympic Games, which were held in Atlanta in July 1996, had a favorable
impact on Atlanta-based restaurant revenues for that period.

Food and beverage costs increased from $57.7 million for fiscal 1995, to
$64.7 million for fiscal 1996. Offsetting these increases was a reduction of
approximately $1.8 million due to the Mick's and Peasant restaurants closed
during fiscal 1996. These costs as a percentage of revenues increased 0.2% for
the period.

Restaurant operating expenses, which include labor, occupancy and other
operating expenses, increased from $85.9 million for fiscal 1995 to $92.4
million for fiscal 1996, an increase of $6.5 million. Those costs as a
percentage of revenues decreased 1.7% from 49.5% for fiscal 1995 to 47.8% for
fiscal 1996. Offsetting these increases was a reduction of approximately $4.8
million for fiscal 1996 due to the nine Mick's and Peasant restaurants closed
during the period. In addition, restaurant occupancy expense does not include
approximately $1.5 million for the Remaining Restaurants (see Note 3 to the
Company's consolidated financial statements) which has been charged against the
accrual for lease exit costs. The 1996 period increase in costs related to the
added costs of operating nine additional restaurants opened after January 1,
1995.

Depreciation, amortization and other non-cash charges were $6.5 million
for fiscal 1996 versus $6.3 million in fiscal 1995. The fiscal 1996 period
increase is due to increased start-up cost amortization resulting from
increased development in fiscal 1996 from fiscal 1995, offset by the
exclusion of depreciation and amortization related to Mick's and Peasant of
approximately $0.4 million recorded in the first quarter of fiscal 1995. Such
depreciation and amortization was discontinued in the second quarter of 1995
pursuant to Statement 121 (see Note 3 to the Company's consolidated financial
statements).

General and administrative expenses for fiscal 1996 were $14.3 million
versus $14.1 million for fiscal 1995. Such costs as a percentage of revenues
were 7.4% for fiscal 1996 as compared to 8.1% in fiscal 1995, representing a
decrease of 0.7%.

Marketing and promotional expenses were $4.4 million, or 2.3% of revenues,
for fiscal 1996 compared to $4.4 million, or 2.5% of revenues, for fiscal 1995.
These expenses reflect an increase driven by incremental costs associated with
restaurant development offset by a reduction of approximately $0.2 million due
to the closure of certain Mick's and Peasant restaurants during the period.

Interest expense, net of interest income, increased to $2.3 million for
fiscal 1996 from $1.8 million for fiscal 1995. This increase is a result of
higher outstanding debt balances.

During fiscal 1995, the Company recorded a charge of approximately $2.2
million related to the settlement of a lawsuit, and associated legal and related
costs, which had been pending in the United States District Court for the
District of Nevada (see Note 14 to the Company's consolidated financial
statements).

In connection with the Company's plan to sell or otherwise dispose of the
Mick's and Peasant restaurant groups, the Company recorded a charge of $15.5
million in fiscal 1995 to write-down certain assets held for sale and to accrue
related lease exit costs. During fiscal 1996, the Company recorded an additional
charge of $11.5 million in connection with the sale of an 80.1% interest in its
Atlanta-based Mick's and Peasant restaurants (see Note 3 to the Company's
consolidated financial statements).

An income tax benefit of $4.5 million and $0.8 million for fiscal 1996 and
fiscal 1995, respectively, is the result of utilization of the Company's net
operating loss carryforwards, additional deferred tax assets relating to FICA
and other tax credits generated during fiscal 1996, and a reassessment of the
valuation allowance against deferred tax assets (see Note 6 to the Company's
consolidated financial statements).

Liquidity and Capital Resources

In the past, the Company has had, and may have in the future, negative working
capital balances. The Company does not have significant receivables or
inventories and receives trade credit based upon negotiated terms in purchasing
food and supplies. Funds available from cash sales not needed immediately to pay
for food and supplies or to finance receivables or inventories are used for
noncurrent capital expenditures and or payments of long-term debt balances under
revolving credit agreements.

The Company and BankBoston, N.A. (formerly The First National Bank of
Boston) ("BBNA") entered into the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated June 19, 1995 as amended from time to time
(collectively the "Credit Agreement"), pursuant to which the Company's credit
facility is $32,500,000, consisting of a $15,000,000 term loan (the "Term Loan")
and a $17,500,000 revolving credit facility (the "Revolving Credit"). The final
maturity date is December 31, 2002. Loans made pursuant to the Credit Agreement
bear interest at a rate equal to the lender's base rate (plus applicable margin)
or, at the Company's option, the Eurodollar Rate (plus applicable margin). At
December 28, 1997, the Company's applicable margin, calculated pursuant to the
Credit Agreement, was 0.00% on base rate loans and 2.00% on Eurodollar Rate
loans. The Company has no outstanding futures contracts or interest rate hedge
agreements.

During fiscal 1996, BBNA syndicated portions of the Term Loan and the
Revolving Credit of the Credit Agreement to two other lenders; Imperial Bank and
Heller Financial. BBNA, as agent for the Lenders, receives an annual fee of
$10,000 which is paid by the Company.

As of the end of fiscal 1997 and fiscal 1996, the Company had outstanding
borrowings of $22,700,000 and $24,900,000, respectively, under the Credit
Agreement. At December 28, 1997, $221,000 was restricted for letters of credit
issued by the lender on behalf of the Company. Unrestricted and undrawn funds
available to the Company under the Credit Agreement were $9,579,000 as of
December 28, 1997. The weighted average interest rate on all bank borrowings on
December 28, 1997 was 7.9%. In addition, the Company is obligated to pay fees of
0.25% on unused loan commitments less than $10,000,000, 0.375% on
unused loan commitments greater than $10,000,000 and a per annum letter of
credit fee (based on the face amount thereof) equal to the applicable margin on
the Eurodollar Rate loans.

The availability under the Credit Agreement is scheduled to be reduced by
$1,000,000 on June 30, 1999 and thereafter principal installments on the Term
Loan of $1,000,000 each will be due at the end of each calendar quarter through
December 31, 2002. The Revolving Credit will be payable in full on December 31,
2002. Borrowings under the Credit Agreement are secured by all tangible and
intangible assets of the Company. Total amounts of principal payable by the
Company under the Credit Agreement during the five years subsequent to December
28, 1997 amount to $0 in 1998, $3,000,000 in 1999, $4,000,000 in 2000,
$4,000,000 in 2001, and $11,700,000 in 2002. As discussed in Note 3 to the
Company's consolidated financial statements, the Company completed the sale of
its Mick's and Peasant

Atlanta-based restaurants. Net cash proceeds from the sale were used to
reduce the Company's Revolving Credit.

The Credit Agreement contains certain restrictive covenants with respect to
the Company that, among other things, create limitations (subject to certain
exceptions) on: (i) the incurrence or existence of additional indebtedness or
the granting of liens on assets or contingent obligations; (ii) the making of
investments in any person; (iii) mergers, dispositions of assets or
consolidations; (iv) prepayment of certain other indebtedness; (v) making
capital expenditures above specified amounts; and (vi) the ability to make
certain fundamental changes or to change materially the present method of
conducting the Company's business. The Credit Agreement also requires the
Company to satisfy certain financial ratios and tests. As of December 28, 1997,
the Company believes it was in compliance with such covenants.

In March 1997, a subsidiary of the Company and CNL Financial I, Inc. ("CNL")
entered into a $2,500,000 loan agreement (the "CNL Loan") which matures on April
1, 2007 and has a 10.02% per annum interest rate. Principal and interest
payments will be made over the term of the loan. Proceeds from the CNL Loan were
used to reduce the Company's Revolving Credit. At December 28, 1997, the
outstanding principal balance of the CNL loan was approximately $2.4 million, of
which approximately $0.2 million is payable within the next fiscal year and
therefore has been included in "Accrued expenses" in the accompanying
consolidated balance sheet as of December 28, 1997.

In July 1994, the Company entered into an agreement to purchase 9% of the
outstanding 11% of common stock of Peasant Holding Corp. ("Peasant Holding")
from one of the two remaining minority holders of Peasant Holding common stock.
The purchase price of the shares was approximately $1,985,000 plus interest
calculated at 5%, which were paid in installments through March 1996.

During fiscal 1997, the Company's net investment in fixed assets and related
investment costs, net of capitalized leases, approximated $16.2 million. The
Company estimates that it will expend up to an aggregate of $15 million in 1998
to finance ordinary refurbishment of existing restaurants and pre-opening costs
and capital expenditures, net of landlord development and rent allowances and
net of equipment lease and mortgage financing, for new restaurants. The Company
has entered into various equipment lease and mortgage financing agreements with
several financial institutions of which approximately $18.7 million in the
aggregate is available for future fundings. The Company anticipates that funds
generated through

operations and funds available through equipment lease and mortgage financing
commitments as well as funds available under the Credit Agreement will be
sufficient to fund planned expansion.

At December 28, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $6.6 million expiring by 2008 and
various state income tax net operating loss carryforwards. Approximately $2.7
million of the Company's deferred tax asset represents capital losses.
Additionally, as of December 28, 1997, the Company had approximately $4.2
million in FICA and other tax credits expiring by 2012 available to reduce
income taxes payable in future years. As a result of the Company's equity
offerings in 1992, certain limitations apply to the maximum annual amount of the
net operating loss carryforward and credit carryforwards which may be utilized
by the Company to offset taxable income in future periods.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible and net operating losses can be
carried forward. Management considers projected future taxable income and tax
planning strategies in making this assessment. The Company assesses the
recoverability of its net deferred tax asset based upon the level of historical
income of the Morton's and Bertolini's restaurants and projections of future
taxable income over the next two to three years. Deferred tax assets arising
from capital losses have been fully reserved for since the Company has no
capital gains to offset such losses. Substantially all of the Company's state
net operating loss carryforwards relating to Mick's and Peasant have been fully
reserved (see Note 6 to the Company's consolidated financial statements).

Inflation

The impact of inflation on labor, food and occupancy costs can significantly
affect the Company's operations. Many of the Company's employees are paid hourly
rates related to the Federal minimum wage. Food costs as a percentage of net
sales have been somewhat stable due to procurement efficiencies and menu price
adjustments. The Company currently does not engage in any futures contracts and
all purchases are made at prevailing market prices. Building costs, taxes,
maintenance and insurance costs all have an impact on the Company's occupancy
costs, which continued to increase during the period. Management believes the
current practice of maintaining operating margins through a combination of menu
price

increases and cost controls, careful evaluation of property and equipment
needs, and efficient purchasing practices is its most effective tool for coping
with inflation.

Seasonality

The Company's business is somewhat seasonal in nature, with revenues being
less in the third quarter than in other quarters primarily due to Morton's
reduced summer volume. It is possible, given the disposition of Mick's and
Peasant, as discussed in Note 3 to the Company's consolidated financial
statements, that the Company's revenues will become more seasonal in nature.
The following table sets forth historical unaudited quarterly revenues for
the Company's Morton's and Bertolini's restaurants which were open for the
entire period from January 1, 1995 to December 29, 1996 (31 restaurants), and
for the entire period from December 30, 1996 to December 28, 1997 (36
restaurants):

Comparable Restaurant Revenues

(in thousands)

1995 1996
31 RESTAURANTS
-------------------- -
$ % $ %
--------- --------- --------- ---------

First Quarter.................................. 25,797 25.5 28,338 25.8

Second Quarter................................. 24,247 24.0 26,610 24.2

Third Quarter.................................. 22,575 22.3 24,411 22.2

Fourth Quarter................................. 28,489 28.2 30,457 27.8
--------- --------- --------- ---------
101,108 100.0 109,816 100.0

1996 1997
36 RESTAURANTS
-------------------
$ % $ %
--------- --------- --------- ---------

First Quarter.................................. 31,918 25.7 33,702 25.7

Second Quarter................................. 30,274 24.4 32,281 24.6

Third Quarter.................................. 27,793 22.4 28,868 22.0

Fourth Quarter................................. 34,195 27.5 36,300 27.7
--------- --------- --------- ---------
124,180 100.0 131,151 100.0

Year 2000

The Company is continuing the process of assessing the impact of the Year
2000 issue on its operations. Based on the current status of this assessment,
the estimated total costs to be incurred for all Year 2000 related projects
are not expected to be material to the Company's business, results of
operations or financial condition.

Forward-Looking Statements

Except for the historical information contained in this annual report,
certain statements made herein are forward-looking statements that involve
certain risks and uncertainties and are subject to important factors that
could cause actual results to differ materially from these forward-looking
statements, including without limitation, the effect of economic and market
conditions, the impact of competitive activities, the Company's expansion
plans, restaurant profitability levels and other risks detailed in the
Company's public reports and SEC filings.

Independent Auditors' Report

The Board of Directors and Stockholders
Morton's Restaurant Group, Inc.:

We have audited the accompanying consolidated balance sheets of Morton's
Restaurant Group, Inc. and subsidiaries as of December 28, 1997 and December 29,
1996 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended December 28,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Morton's Restaurant
Group, Inc. and subsidiaries as of December 28, 1997 and December 29, 1996 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 28, 1997, in conformity with generally
accepted accounting principles.

As discussed in Notes 2(k) and 3 of the notes to consolidated financial
statements, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," in 1995.

KPMG PEAT MARWICK LLP

Jericho, New York
January 23, 1998

MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
December 28, 1997 and December 29, 1996
(amounts in thousands, except share data)

DECEMBER 28, DECEMBER 29,
ASSETS 1997 1996
- ------------------------------------------------------------------------------------- ------------ ------------

Current assets:
Cash and cash equivalents........................................................ $ 3,437 $ 2,276
Accounts receivable.............................................................. 1,669 2,116
Inventories...................................................................... 5,420 4,254
Landlord construction receivables, prepaid expenses and other current assets..... 3,226 2,408
Deferred income taxes............................................................ 4,890 3,808
Assets held for sale............................................................. -- 12,474
------------ ------------
Total current assets......................................................... 18,642 27,336
------------ ------------
Property and equipment, at cost:
Furniture, fixtures and equipment................................................ 19,169 13,552
Leasehold improvements........................................................... 21,876 14,188
Construction in progress......................................................... 46 1,284
------------ ------------
41,091 29,024
Less accumulated depreciation and amortization................................... 6,449 4,353
------------ ------------
Net property and equipment................................................... 34,642 24,671
------------ ------------
Intangible assets, net of accumulated amortization of $3,458 at December 28, 1997 and
$3,054 at December 29, 1996........................................................ 12,537 12,941
Other assets and deferred expenses, net of accumulated amortization of $3,901 at
December 28, 1997 and $3,963 at December 29, 1996.................................. 11,902 5,909
Deferred income taxes................................................................ 4,220 6,129
------------ ------------
$ 81,943 $ 76,986
------------ ------------
------------ ------------

(Continued)

MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets, Continued
December 28, 1997 and December 29, 1996
(amounts in thousands, except share data)

DECEMBER 28, DECEMBER 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ------------------------------------------------------------------------------------- ------------ ------------

Current liabilities:
Accounts payable................................................................. $ 6,159 $ 4,694
Accrued expenses................................................................. 14,629 7,795
Accrued income taxes............................................................. 656 700
Liabilities related to assets held for sale...................................... -- 12,134
------------ ------------
Total current liabilities.................................................... 21,444 25,323
------------ ------------
Bank debt............................................................................ 24,931 24,900
Other liabilities.................................................................... 7,013 5,676
------------ ------------
Total liabilities............................................................ 53,388 55,899
------------ ------------
Commitments and contingencies

Stockholders' equity:
Preferred stock, $.01 par value per share. Authorized 3,000,000 shares, no shares
issued or outstanding.......................................................... -- --
Common stock, $.01 par value per share. Authorized 25,000,000 shares, issued and
outstanding 6,604,565 at December 28, 1997 and 6,443,673 at December 29,
1996........................................................................... 66 64
Nonvoting common stock, $.01 par value per share. Authorized 3,000,000 shares, no
shares issued or outstanding................................................... -- --
Additional paid-in capital....................................................... 62,214 61,632
Accumulated deficit.............................................................. (33,725) (40,609)
------------ ------------
28,555 21,087
------------ ------------
Total stockholders' equity................................................... $ 81,943 $ 76,986
------------ ------------
------------ ------------

See accompanying notes to consolidated financial statements.

MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
Years ended December 28, 1997, December 29, 1996, and December 31, 1995
(amounts in thousands, except per share data)

DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------

Revenues.............................................................. $ 172,725 $ 193,378 $ 173,373

Food and beverage costs............................................... 59,189 64,723 57,734
Restaurant operating expenses......................................... 75,779 92,382 85,891
Depreciation, amortization and other non-cash charges................. 6,829 6,454 6,321
General and administrative expenses................................... 12,885 14,333 14,115
Marketing and promotional expenses.................................... 4,168 4,431 4,407
Interest expense, net................................................. 2,396 2,297 1,829
Litigation and related expenses....................................... 2,300 -- 2,240
Write-down and related charges for net assets held for sale........... -- 11,500 15,500
------------ ------------ ------------
Income (loss) before income taxes............................... 9,179 (2,742) (14,664)

Income tax expense (benefit).......................................... 2,295 (4,507) (756)
------------ ------------ ------------
Net income (loss)............................................... $ 6,884 $ 1,765 $ (13,908)
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per share:
Basic......................................................... $ 1.06 $ 0.28 $ (2.18)
------------ ------------ ------------
------------ ------------ ------------
Diluted....................................................... $ 1.00 $ 0.26 $ (2.18)
------------ ------------ ------------
------------ ------------ ------------
Weighted average common and potential common shares outstanding:
Basic......................................................... 6,498 6,404 6,367
------------ ------------ ------------
------------ ------------ ------------
Diluted....................................................... 6,886 6,795 6,367
------------ ------------ ------------
------------ ------------ ------------

See accompanying notes to consolidated financial statements.

MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity
Years ended December 28, 1997, December 29, 1996 and December 31, 1995
(amounts in thousands)

ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
------------- -------------- ------------ ------------

Balance at January 1, 1995................................ $ 64 $ 61,350 $ (28,466) $ 32,948
Net loss.................................................. -- -- (13,908) (13,908)
--------- ---------- ---------- ----------
Balance at December 31, 1995.............................. 64 61,350 (42,374) 19,040
Exercise of stock options................................. -- 282 -- 282
Net income................................................ -- -- 1,765 1,765
--------- ---------- ---------- ----------
Balance at December 29, 1996.............................. 64 61,632 (40,609) 21,087
Exercise of stock options................................. 2 582 -- 584
Net income................................................ -- -- 6,884 6,884
--------- ---------- ---------- ----------
Balance at December 28, 1997.............................. $ 66 $ 62,214 $ (33,725) $ 28,555
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------

See accompanying notes to consolidated financial statements.

MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
Years ended December 28, 1997, December 29, 1996, and December 31, 1995
(amounts in thousands)

DEC. 28, DEC. 29, DEC. 31,
1997 1996 1995
--------- --------- ----------

Cash flows from operating activities:
Net income (loss).............................................................. $ 6,884 $ 1,765 $ (13,908)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation of property and equipment....................................... 2,127 1,534 1,112
Amortization of intangible assets............................................ 404 400 461
Amortization of other deferred expenses...................................... 3,682 3,722 3,337
Deferred occupancy costs..................................................... 616 798 1,411
Deferred income taxes........................................................ 827 (5,477) (1,006)
Write-down and related charges for net assets held for sale.................. -- 11,500 15,500
Litigation and related expenses.............................................. 2,300 -- --
Change in assets and liabilities:
Accounts receivable...................................................... 447 351 (899)
Inventories.............................................................. (1,166) (456) (398)
Prepaid expenses and other assets........................................ (4,219) 122 212
Accounts payable, accrued expenses and other liabilities................. 404 (6,050) 751
Accrued income taxes..................................................... (44) 450 (605)
--------- --------- ----------
Net cash provided by operating activities............................ 12,262 8,659 5,968
--------- --------- ----------
Cash flows from investing activities:
Purchases of property and equipment............................................ (9,914) (5,297) (6,628)
Payments for pre-opening costs, licenses and other deferred expenses........... (6,274) (4,486) (3,236)
Proceeds from sale of Mick's and Peasant restaurants........................... 4,308 -- --
Cash paid to minority holder for common stock of subsidiary.................... -- (483) (535)
--------- --------- ----------
Net cash used by investing activities................................ (11,880) (10,266) (10,399)
--------- --------- ----------

(Continued)

MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued
(amounts in thousands)

DEC. 28, DEC. 29, DEC. 31,
1997 1996 1995
--------- ----------- -----------

Cash flows from financing activities:
Decrease in bank overdraft........................................................ $ -- $ -- $ (574)
Principal reduction on bank debt.................................................. (10,005) (4,750) (4,150)
Proceeds from bank debt........................................................... 10,200 6,000 7,475
Net proceeds from issuance of stock............................................... 584 282 --
--------- ----------- -----------
Net cash provided by financing activities............................... 779 1,532 2,751
--------- ----------- -----------
Net increase (decrease) in cash and cash equivalents................................ 1,161 (75) (1,680)

Cash and cash equivalents at beginning of year...................................... 2,276 2,351 4,031
--------- ----------- -----------
Cash and cash equivalents at end of year............................................ $ 3,437 $ 2,276 $ 2,351
--------- ----------- -----------
--------- ----------- -----------

See accompanying notes to consolidated financial statements.

MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 28, 1997, December 29, 1996 and December 31, 1995

(1) Organization and Other Matters

Morton's Restaurant Group, Inc., formerly known as Quantum Restaurant Group,
Inc., ("Company") was incorporated in the State of Delaware in October 1988 and
is engaged in the business of owning and operating restaurants under the names
Morton's of Chicago, Inc. ("Morton's") and Bertolini's Authentic Trattorias
("Bertolini's").

In 1988, the Company acquired 89% of the outstanding common stock of a
predecessor company of Peasant Holding Corp. ("Peasant Holding"), the holding
company for The Peasant Restaurants, Inc. ("Peasant") and Mick's Restaurants,
Inc. ("Mick's"). The acquisition was accounted for using the purchase method of
accounting. During 1994, the Company purchased 9% of the outstanding 11% of
common stock of Peasant Holding from one of the two remaining minority holders
for approximately $1,985,000 (see Note 11). During 1995, the Company approved a
plan to sell its Mick's and Peasant restaurants, and on February 6, 1997, the
Company completed the sale of its Atlanta-based Mick's and Peasant restaurants
(see Note 3).

In 1989, the Company acquired 100% of the outstanding common stock,
preferred stock, stock options and common stock warrants of Porterhouse, Inc.
and subsidiaries, which do business as Morton's of Chicago, a national
restaurant group. The acquisition was accounted for using the purchase method of
accounting.

The Company uses a fiscal year which consists of 52 weeks. Approximately
every six or seven years, a 53rd week will be added.

(2) Summary of Significant Accounting Policies

(a) Principles of Consolidation

The consolidated financial statements include the accounts and results of
operations of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

(b) Inventories

Inventories consist of food, beverages, and supplies and are recorded at the
lower of cost or market. Cost is determined using the first-in, first-out (FIFO)
method.

Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets.
Improvements to leased premises and property under capital leases are amortized
on the straight-line method over the shorter of the lease term, including
planned extensions, or estimated useful lives of the improvements. In fiscal
1997, 1996, and 1995, interest costs capitalized during the construction period
for leasehold improvements were $270,000, $202,500 and $235,000, respectively.

(d) Other Assets and Deferred Expenses

The Company defers certain organizational and pre-opening costs associated
with the opening of each new restaurant. Such costs are amortized over the 12
months following the restaurant's opening. Unamortized pre-opening costs of
$4,116,000 and $3,472,000 at the end of fiscal 1997 and 1996, respectively, are
included in "Other assets and deferred expenses" in the accompanying
consolidated balance sheets. Also included in "Other assets and deferred
expenses" are smallwares of $2,135,000 at the end of fiscal 1997 and $1,775,000
at the end of fiscal 1996. In addition, included in "Assets held for sale" are
$760,000 of smallwares at the end of fiscal 1996.

(e) Income Taxes

The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("Statement 109"). Statement 109 requires a change
from the deferred method of accounting for income taxes of APB Opinion 11 to the
asset and liability method of accounting for income taxes. Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. 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. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.

(f) Intangible Assets

Intangible assets arose from the acquisitions of Peasant Holding and
Morton's (see Note 1). Amortization is being recognized on a straight-line basis
over forty years for goodwill. Goodwill relating to Peasant Holding was recorded
in "Assets held for sale" at the end of fiscal 1996.

(g) Marketing and Promotional Expenses

Marketing and promotional expenses in the accompanying consolidated
statements of operations include advertising expenses of $3,022,000, $2,875,000
and $3,026,000 for fiscal 1997, 1996 and 1995, respectively.

(h) Statements of Cash Flows

For the purposes of the consolidated statements of cash flows, the Company
considers all highly liquid instruments purchased with a maturity of three
months or less to be cash equivalents. The Company paid cash interest and fees,
net of amounts capitalized, of approximately $2,062,000, $2,141,000, and
$1,798,000, and income taxes of approximately $1,133,000, $977,000 and $894,000,
for fiscal 1997, 1996 and 1995, respectively. During fiscal 1997, 1996 and 1995,
the Company entered into capital lease finance agreements of approximately
$2,184,000, $2,346,000 and $2,069,000, respectively, for restaurant equipment.

(i) Earnings Per Share

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share'("Statement 128"). Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of stock options. Dilutive earnings per
share is calculated in a manner similar to the previously reported fully diluted
earnings per share. Earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements (see Note 8).

(j) Use of Estimates

Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.

(k) Long-Lived Assets

The Company's accounting policies relating to the recording of long-lived
assets including property and equipment and intangibles are discussed above. As
discussed in Note 3, the Company adopted the provisions of Statement 121
effective January 2, 1995. Statement 121 requires, among other things, that
long-lived assets held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair values of the assets. Assets to be
disposed of or sold are reported at the lower of the carrying amount or fair
value less costs to sell. Statement 121 did not have an impact on the Company at
adoption.

(l) Stock-Based Compensation

The Company records compensation expense for stock options only if the
current market price of the underlying stock exceeds the exercise price on the
date the options are granted. On January 1, 1996, the Company adopted Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement 123"). The Company has elected not to implement the
fair value based accounting method for stock options, but has elected to
disclose the pro forma net earnings and pro forma earnings per share for stock
option grants

made beginning in fiscal 1995 as if such method had been used to account for
stock-based compensation costs as described in Statement 123.

(3) Assets Held For Sale and Related Liabilities

Effective January 2, 1995, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("Statement 121").

During the second quarter of fiscal 1995, the Company approved a plan for
the sale of Mick's and Peasant. Pursuant to Statement 121, the Company
discontinued depreciating fixed assets and amortizing goodwill related to Mick's
and Peasant for the second, third, and fourth quarters of fiscal 1995, fiscal
1996 and fiscal 1997.

Coincident with the Company's approval of the plan of sale, the assets held
for sale and related liabilities for Mick's and Peasant were reclassified as
"Assets held for sale" and "Liabilities related to assets held for sale". The
accompanying December 29, 1996 consolidated balance sheet includes the following
components:

DECEMBER 29, 1996
----------------------

(AMOUNTS IN THOUSANDS)
Current assets............................................................................ $ 2,166
Net property and equipment................................................................ 10,704
Unamortized goodwill...................................................................... 8,077
Other assets.............................................................................. 2,143
Write-down of carrying values............................................................. (10,616)
-------
Assets held for sale.................................................................. 12,474
-------
Current liabilities....................................................................... 3,495
Other liabilities......................................................................... 1,612
Lease exit and other transaction costs.................................................... 7,027
-------
Liabilities related to assets held for sale........................................... 12,134
-------
Net assets held for sale.......................................................... $ 340
-------
-------

The following represents the combined results of operations for Mick's and
Peasant for the years ended December 28, 1997, December 29, 1996, and December
31, 1995. Interest expense was not allocated to Mick's and Peasant.

1997 1996 1995
--------- ---------- ----------

(AMOUNTS IN THOUSANDS)
Revenues........................................................................ $ 8,453 $ 54,410 $ 64,387
Food and beverage costs......................................................... 2,561 15,956 18,839
Restaurant operating expenses................................................... 5,120 33,042 38,776
Depreciation, amortization and other non-cash charges........................... 6 172 2,679
General and administrative expenses............................................. 556 3,741 4,190
Marketing and promotional expenses.............................................. 157 975 1,643
Write-down and related charges for net assets held for sale..................... -- 11,500 15,500
--------- ---------- ----------
Income (loss) before income taxes......................................... $ 53 $ (10,976) $ (17,240)
--------- ---------- ----------
--------- ---------- ----------

Management had been actively seeking potential buyers for the sale of all
Mick's and Peasant restaurants and in the fourth quarter of fiscal 1995 engaged
an investment banking firm to assist with the sale. Although marketing efforts
concentrated on selling all of the Mick's and Peasant restaurants, sales
materials indicated that a partial sale would be considered. Most of the
interest received related to the majority of the restaurants located mainly in
the Atlanta area. No meaningful offers were received for the remaining
restaurants (the "Remaining Restaurants"). Cash flow analyses prepared by
management for the Remaining Restaurants indicated that it would be less costly
to close such restaurants in an orderly fashion, rather than continue to operate
them through the end of their respective lease terms. Accordingly, assets of
$8,300,000 related to the Remaining Restaurants were written off and expenses of
$7,200,000, representing management's estimate of the expected costs to
terminate related leases, were accrued at December 31, 1995. During fiscal 1996
and fiscal 1997, restaurant occupancy expenses of approximately $1,498,000, and
$1,271,000, respectively, for the Remaining Restaurants were charged to the
accrual for lease exit costs. During fiscal 1996, seven Mick's restaurants and
two Peasant restaurants were sold, closed or otherwise disposed of. During
fiscal 1997, the remaining seven Mick's restaurants were sold, closed or
otherwise disposed of. At December 28, 1997, included in "Accrued expenses" in
the accompanying consolidated balance sheet, is approximately $788,000
representing the remaining lease disposition liabilities related to the closing
of these restaurants.

On February 6, 1997, the Company completed the sale of its Atlanta-based
Mick's and Peasant restaurants. In connection with the sale, the Remaining
Restaurants were transferred to another subsidiary of the Company. Pursuant to
these agreements, MRI Acquisition Corporation acquired an 80.1% interest in
Mick's and PRI Acquisition Corporation acquired an 80.1% interest in Peasant for
an aggregate of $6,800,000, consisting of $4,300,000 in cash and $2,500,000 in
the form of two unsecured promissory notes. The Company retained a 19.9%
interest in Mick's and Peasant. The unsecured promissory notes and the 19.9%
interest in Mick's and Peasant were recorded at their estimated fair values on
the date of the sale of approximately $2,200,000 and are included in "Other
assets and deferred expenses" in the accompanying consolidated balance sheet at
December 28, 1997. In conjunction with the sale, the Company recorded a fiscal
1996 fourth quarter charge of $11,500,000 to write-down the Atlanta-based
restaurants to their net realizable values based on the fair value of the
consideration received, accrue for the various expenses related to the closing
of such sale and to write-off two restaurants which were not part of the sale,
both of which were disposed of in 1997.

(4) Accrued Expenses

ACCRUED EXPENSES CONSIST OF THE FOLLOWING: DECEMBER 28, 1997 DECEMBER 29, 1996
- --------------------------------------------------------------------------- ----------------- -----------------

(AMOUNTS IN THOUSANDS)
Litigation and related expenses...................................... $ 2,216 $ --
Accrued construction costs........................................... 2,081 929
Restaurant operating expenses........................................ 1,437 1,509
Sales and use tax.................................................... 1,403 882
Payroll and related taxes............................................ 1,375 1,004
Current portion of capital lease liabilities......................... 1,467 913
Accrued gift certificates............................................ 1,002 695
Rent and property taxes.............................................. 957 797
Mick's and Peasant lease disposition costs........................... 788 --
Other................................................................ 1,903 1,066
------- ------
Total accrued expenses........................................... $ 14,629 $ 7,795
------- ------
------- ------

(5) Bank Debt

During fiscal 1996, BBNA syndicated portions of the Term Loan and Revolving
Credit of the Credit Agreement to two other lenders; Imperial Bank and Heller
Financial. BBNA, as agent for the Lenders, receives an annual fee of $10,000
which is paid by the Company.

As of the end of fiscal 1997 and fiscal 1996, the Company had outstanding
borrowings of $22,700,000 and $24,900,000, respectively, under the Credit
Agreement. At December 28, 1997, $221,000 was restricted for letters of credit
issued by the lender on behalf of the Company. Unrestricted and undrawn funds
available to the Company under the Credit Agreement were $9,579,000 as of
December 28, 1997. The weighted average interest rate on all bank borrowings on
December 28, 1997 was 7.9%. In addition, the Company is obligated to pay fees of
0.25% on unused loan commitments less than $10,000,000, 0.375% on unused loan
commitments greater than $10,000,000 and a per annum letter of credit fee (based
on the face amount thereof) equal to the applicable margin on the Eurodollar
Rate loans.

Management believes that the carrying amount of long-term debt approximates
fair value since the interest rate is variable and the margins are consistent
with those available to the Company under similar terms.

The availability under the Credit Agreement is scheduled to reduce by
$1,000,000 on June 30, 1999 and thereafter principal installments on the Term
Loan of $1,000,000 each will be due at the end of each calendar quarter through
December 31, 2002. The Revolving Credit will be payable in full on December 31,
2002. Borrowings under the Credit Agreement are secured by all tangible and
intangible assets of the Company. Total amounts of principal payable by the
Company under the Credit Agreement during the five years subsequent to December
28, 1997 amount to $0 in 1998, $3,000,000 in 1999, $4,000,000 in 2000,
$4,000,000 in 2001 and $11,700,000 in 2002. As discussed in Note 3, the Company
completed the sale of its Atlanta-based Mick's and Peasant restaurants. Net cash
proceeds from the sale were used to reduce the Company's Revolving Credit.

prepayment of certain other indebtedness; (v) making capital expenditures above
specified amounts; and (vi) the ability to make certain fundamental changes or
to change materially the present method of conducting the Company's business.
The Credit Agreement also requires the Company to satisfy certain financial
ratios and tests. As of December 28, 1997, the Company believes it was in
compliance with such covenants.

The Credit Agreement permits the Company to pay dividends or repurchase
stock in an amount not to exceed 5% of consolidated net income calculated for
the fiscal year immediately preceding the fiscal years in which any such
dividends or repurchases take place, provided that no event of default is then
existing or would result from such payment. In addition, the Company is
permitted to pay dividends and repurchase stock in an additional amount not to
exceed 25% of net proceeds from equity offerings, including the Company's 1992
equity offering.

In March 1997, a subsidiary of the Company and CNL Financial I, Inc. ("CNL")
entered into a $2,500,000 loan agreement (the "CNL Loan") which matures on April
1, 2007 and has a 10.02% per annum interest rate. Principal and interest
payments will be made over the term of the loan. Proceeds from the CNL Loan were
used to reduce the Company's Revolving Credit. At December 28, 1997, the
outstanding principal balance of the CNL loan was approximately $2,395,000, of
which approximately $164,000 is payable within the next fiscal year and
therefore has been included in "Accrued Expenses" in the accompanying
consolidated balance sheet as of December 28, 1997.

(6) Income Taxes

Income tax expense (benefit) is comprised of the following:

(Amounts in thousands)

1997 1996 1995
--------- --------- ---------

Federal: Current.................................................... $ 725 $ -- $ --
Deferred................................................... 578 (5,477) (1,006)
--------- --------- ---------
1,303 (5,477) (1,006)
State and Local: Current.................................................... 743 898 250
Deferred................................................... 249 72 --
--------- --------- ---------
992 970 250
--------- --------- ---------
Income tax expense (benefit)........................................................ $ 2,295 $ (4,507) $ (756)
--------- --------- ---------
--------- --------- ---------

Income tax expense (benefit) for fiscal 1997, 1996 and 1995 differed from
the amounts computed by applying the U.S. Federal income tax rate of 34% to
income (loss) before income taxes as a result of the following:

1997 1996 1995
--------- --------- ---------

(AMOUNTS IN THOUSANDS)
Computed "expected" tax expense (benefit).......................................... $ 3,121 $ (932) $ (4,986)
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal income tax benefit.................. 655 644 165
FICA tax credits................................................................. (1,313) (1,208) (1,166)
Change in valuation allowance.................................................... -- (3,315) 5,046
Other, net....................................................................... (168) 304 185
--------- --------- ---------
$ 2,295 $ (4,507) $ (756)
--------- --------- ---------
--------- --------- ---------

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at the end of fiscal 1997
and 1996 are presented below:

DECEMBER 28, DECEMBER 29,
1997 1996
------------- -------------

(AMOUNTS IN THOUSANDS)
Deferred tax assets:
Federal and state net operating loss carryforwards................................. $ 5,632 $ 4,181
Capital loss carryforwards......................................................... 2,665 1,400
Write-down and related charges for assets held for sale............................ 704 6,109
Litigation accrual................................................................. 782 --
Compensatory stock options......................................................... 642 1,124
Deferred rent and start-up amortization............................................ 3,080 2,793
FICA and other tax credits......................................................... 4,154 2,645
------ ------
Total gross deferred tax assets.................................................. 17,659 18,252
Less valuation allowance......................................................... (6,932) (7,114)
------ ------
Net deferred tax assets.......................................................... 10,727 11,138
Deferred tax liabilities:
Property and equipment depreciation................................................ 1,617 1,201
------ ------
Net deferred tax assets and liabilities.............................................. $ 9,110 $ 9,937
------ ------
------ ------

At December 28, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $6,614,000 expiring by 2008 and
various state income tax net operating loss carryforwards. Approximately
$2,665,000 of the Company's deferred tax asset represents capital losses.
Additionally, as of December 28, 1997, the Company had approximately $4,154,000
in FICA and other tax credits expiring by 2012 available to reduce income taxes
payable in future years. As a result of the Company's equity offerings in 1992,
certain limitations apply to the maximum annual amount of the net operating loss
carryforward and credit carryforwards which may be utilized by the Company to
offset taxable income in future periods.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible and net operating losses can be
carried forward. Management considers projected future taxable income and tax
planning strategies in making this assessment. The Company assesses the
recoverability of its net deferred tax asset based upon the level of historical
income of the Morton's and Bertolini's restaurants and projections of future
taxable income over the next two to three years. Deferred tax assets arising
from capital losses have been fully reserved since the Company has no capital
gains to offset such losses. Substantially all of the Company's state net
operating loss carryforwards relating to Mick's and Peasant have been fully
reserved.

(7) Capital Stock

(a) On December 15, 1994, the Company adopted a Stockholder Protection
Rights Plan ("Rights Plan"). Pursuant to the Rights Plan, a dividend of one
Right for each outstanding share of the Company's Common Stock was issued to
shareholders of record on January 3, 1995. Under certain conditions, each Right
may be exercised to purchase 1/100 of a share of Series A Junior Participating
Preferred Stock (the "Preferred Stock") of the Company at a price of $42. The
Rights will become exercisable following the tenth day after a person or group
acquires 15% or more of the Company's Common Stock or announces a tender or
exchange offer, the consummation of which would result in ownership by such
person or group of 15% or more of the Company's Common Stock. If a person or
group acquires 15% or more of the Company's outstanding Common Stock, each Right
will entitle its holder (other than such person or members of such group) to
purchase, at the Right's then-current purchase price, in lieu of 1/100 of a
share of Preferred Stock, a number of shares of the Company's Common Stock
having a market value of twice the Right's purchase price. In addition, if the
Company is acquired in a merger or other business combination, 50% or more of
its assets or earning power is sold or transferred, or a reclassification or
recapitalization of the Company occurs that has the effect of increasing by more
than 1% the proportionate ownership of the Company's Common Stock by the
acquiring person, then, each Right will entitle its holder to purchase, at the
Right's then-current purchase price, a number of the acquiring company's shares
of common stock having a market value at that time of twice the Right's purchase
price.

The Rights may be redeemed prior to becoming exercisable by the Company,
subject to approval of the Board of Directors for $.01 per Right, in accordance
with the provision of the Rights Plan. The Rights expire on January 3, 2005. The
Company has reserved 200,000 shares of Preferred Stock for issuance upon
exercise of the Rights.

(b) In May 1995, the Company amended its 1991 Stock Option Plan (the "Stock
Option Plan") which provides for the issuance of incentive stock options
("ISO's") and non-qualified stock options ("NQSO's") to employees. The Stock
Option Plan, as amended, provides that options, having a maximum term of ten
years, may be granted to purchase up to 900,000 shares of Common Stock.

The exercise price of ISO's will be equal to the fair market value of the
shares subject to option on the date of grant, while the exercise price of
NQSO's will be determined by a

committee of the Board of Directors. Options vest and become exercisable
commencing at the second anniversary date of the grant at the rate of 25% per
year.

Activity in stock options is summarized as follows:

1997 1996 1995
-------------------------- ---------------------------- ----------------------------

WEIGHTED
AVERAGE SHARES WEIGHTED SHARES WEIGHTED SHARES
EXERCISE SUBJECT TO AVERAGE SUBJECT TO AVERAGE SUBJECT TO
PRICE OPTION EXERCISE PRICE OPTION EXERCISE PRICE OPTION
------------- ----------- --------------- ----------- --------------- -----------
Beginning of year......................... $ 8.48 790,765 $ 6.63 693,295 $ 6.27 648,745
Options granted........................... 17.12 205,100 12.97 233,650 10.88 97,000
Options exercised......................... 3.62 160,892 3.67 76,580 -- --
Options canceled.......................... 12.65 207,588 10.72 59,600 10.08 52,450
------ ----------- ----- ----------- ----- -----------
End of year............................... $ 11.17 627,385 $ 8.48 790,765 $ 6.63 693,295
------ ----------- ----- ----------- ----- -----------
------ ----------- ----- ----------- ----- -----------

As of December 28, 1997, there were 232,985 options exercisable with a
weighted average exercise price of $6.16.

(c) In October of 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"),
which was adopted by the Company in 1996. The Company has elected to disclose
the pro forma net income and earnings per share as if such method had been used
to account for stock-based compensation cost as described in Statement 123.

The per share weighted average fair value of stock options granted during
fiscal 1997, 1996 and 1995 was $7.81, $7.01 and $5.35 on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: 1997 -- expected dividend yield 0.0%, risk-free interest rate of
6.0%, volatility of 33% and an expected life of 6.4 years; 1996--expected
dividend yield 0.0%, risk-free interest rate of 6.0%, volatility of 36% and an
expected life of 7 years; 1995--expected dividend yield 0.0%, risk-free interest
rate of 6.0%, volatility of 36% and an expected life of 6.8 years.

The Company applies APB Opinion No. 25 in accounting for its Stock Option
Plan and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under
Statement 123, the Company's net income (loss) and net income (loss) per share
would have been reduced to the pro forma amounts indicated below:

1997 1996 1995
--------- --------- ----------

(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net income (loss) as reported...................................................... $ 6,884 $ 1,765 $ (13,908)
Pro forma..................................................................... $ 6,553 $ 1,516 $ (13,955)
Net income (loss) per diluted share as reported.................................... $ 1.00 $ 0.26 $ (2.18)
Pro forma..................................................................... $ 0.96 $ 0.23 $ (2.19)

Pro forma net income (loss) reflects only options granted in 1997, 1996 and
1995. Therefore, the full impact of calculating compensation cost for stock
options under Statement 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period of five years and compensation cost for options granted prior to January
1, 1995 is not considered.

(8) Earnings Per Share

As discussed in Note 2(i), the Company adopted Statement 128 which replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. The following table sets forth the computation of
basic and diluted earnings per share. Prior periods have been restated to
conform to the Statement 128 requirements:

1997 1996 1995
--------- --------- ----------

(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net income (loss).................................................................. $ 6,884 $ 1,765 $ (13,908)
--------- --------- ----------
--------- --------- ----------
Weighted average common shares (denominator for basic earnings per share).......... 6,498 6,404 6,367

Effect of dilutive securities:
Employee stock options........................................................ 388 391 -*
--------- --------- ----------
Weighted average common and potential common shares outstanding (denominator for
diluted earnings per share)...................................................... 6,886 6,795 6,367
--------- --------- ----------
--------- --------- ----------
Basic earnings per share........................................................... $ 1.06 $ 0.28 $ (2.18)
--------- --------- ----------
--------- --------- ----------
Diluted earnings per share......................................................... $ 1.00 $ 0.26 $ (2.18)
--------- --------- ----------
--------- --------- ----------

* Assumed exercise of stock options was antidilutive due to net loss and
therefore excluded.

For additional disclosures regarding employee stock options see Note 7.

(9) Operating Leases

All of the Company's operations are conducted in leased premises. Including
renewal options, remaining lease terms range from two to 29 years.

In connection with entering into leases, the Company is frequently provided
with development allowances from the lessors. These allowances for leasehold
improvements, furniture, fixtures and equipment are offset against the related
fixed asset accounts and the net amount is amortized on a straight-line basis
over the shorter of the lease term, including planned extensions, or estimated
useful lives of the assets. At the end of fiscal 1997 and fiscal 1996,
$1,281,000 and $578,000, respectively, of development allowances were due from
lessors and are included in "Landlord construction receivables, prepaid expenses
and other current assets" in the accompanying consolidated balance sheets.

The Company leases certain office and restaurant facilities and related
equipment under noncancelable operating lease agreements with an affiliate and
third parties. Certain leases contain contingent rental provisions based upon a
percent of gross sales and or provide for rent deferral during the initial term
of such leases. Included in "Other liabilities" in the accompanying consolidated
balance sheets at the end of fiscal 1997 and fiscal 1996 are accruals related to
such rent deferrals of approximately $3,393,000 and $2,656,000, respectively. In
addition, included in "Liabilities related to assets held for sale" are
approximately $1,592,000 of such accruals at the end of fiscal 1996. For
financial reporting purposes, such leases are accounted for on a straight-line
rental basis. Future minimum annual rental commitments under these leases are
approximately as follows:

(amounts in thousands)

Fiscal 1998 $10,365
Fiscal 1999 9,673
Fiscal 2000 9,512
Fiscal 2001 9,423
Fiscal 2002 9,653
Fiscal 2003 and thereafter 70,009
-------
Total minimum lease payments $118,635
-------
-------

Contingent rental payments on building leases are typically made based upon
the percentage of gross sales on the individual restaurants that exceed
predetermined levels. The percentage of gross sales to be paid and related gross
sales level vary by unit. Contingent rental expense was approximately
$2,376,000, $2,391,000 and $1,904,000, for fiscal 1997, 1996 and 1995,
respectively.

Rental expense for all leases was approximately $11,936,000, $14,175,000,
and $13,375,000, for fiscal 1997, 1996 and 1995, respectively, of which
approximately, $564,000, and $553,000, respectively, was paid to an affiliate in
fiscal 1996 and 1995.

As discussed in Note 3, the Company accrued for lease disposition expenses
related to certain Mick's and Peasant restaurants whose underlying leases have
been assigned to third parties. At December 28, 1997, the aggregate remaining
minimum lease obligation is approximately $1,700,000, of which the Company's
portion of $788,000 has been accrued for and is included in "Accrued expenses"
in the accompanying consolidated balance sheet.

(10) Capital Leases

The Company typically finances the purchase of certain restaurant equipment
through capital leases and at December 28, 1997 had approximately $8,200,000 in
lease commitments available for future fundings. At December 28, 1997 and
December 29, 1996, furniture, fixtures and equipment include approximately
$6,300,000 and $4,628,000 of net assets recorded under capital leases. These
assets are amortized over the life of the respective leases. At December 28,
1997 and December 29, 1996, capitalized lease obligations of approximately
$3,503,000 and $3,020,000 are included in "Other liabilities" in the
accompanying consolidated balance sheets.

The Company's minimum future obligations under capital leases as of December
28, 1997 are as follows:

(amounts in thousands)

Fiscal 1998 $ 1,826
Fiscal 1999 1,601
Fiscal 2000 1,237
Fiscal 2001 743
Fiscal 2002 361
-------
Total minimum lease payments 5,768
Less amount representing interest 798
-------
Present value of net minimum lease
payments (including current portion
of $1,467) $ 4,970
-------
-------

(11) Acquisition Related Agreements

In July 1994, the Company entered into an agreement to purchase 9% of the
outstanding 11% of common stock of Peasant Holding from one of the two minority
holders of Peasant Holding common stock. The purchase price of the shares was
approximately $1,985,000 plus interest calculated at 5%, which was paid in
installments through March 1996.

(12) Employment Agreements

The Company and its Chief Executive Officer entered into an employment
agreement on January 1, 1992. The agreement, as amended, is terminable by the
Company upon 60 months prior notice. On January 31, 1994, the Company entered
into an employment agreement with its now former President. This agreement was
terminated in September 1997.

The Company is a party to change of control agreements with its Chief
Executive Officer and another officer which grant these employees the right to
receive up to approximately three times their base compensation (as computed
under the Internal Revenue Code) if there is a change in control of the Company
and termination of their employment during a specified period by the Company
without cause or by such officer with good reason.

(13) Employee Benefit Plans

Employees of Morton's Restaurant Group, Morton's of Chicago, and Bertolini's
who are over the age of 21 and who have completed a year of service are eligible
for voluntary participation in a profit sharing plan. Employer contributions to
the plan are made at the discretion of the Board of Directors. Employer
contributions for fiscal 1997, 1996 and 1995 were $516,000, $365,000 and
$145,000, respectively.

(14) Legal Matters and Contingencies

An employee (Plaintiff) of a subsidiary of the Company, initiated legal
action against Morton's of Chicago, Quantum Corporation and unnamed "Doe"
defendants on February 8, 1996 in California Superior Court in San Francisco.
Plaintiff's, Ms. Wendy Kirkland, complaint alleged under California law,
among other things, wrongful constructive termination, sex discrimination and
sexual harassment.

Plaintiff sought general, special, and punitive damages in unspecified
amounts, as well as attorneys' fees and costs. The case was subsequently
removed to the U.S. District Court for the Northern District of California.
By order dated October 14, 1997, the Court granted Plaintiff's motion for
partial summary judgment, finding that an employer is strictly liable under
California law for the sexually harassing conduct of the employer's
supervisory employees. On November 25, 1997, a jury in the U.S. District
Court for the Northern District of California awarded a judgment to the
Plaintiff. In conjunction with the judgment, the Company recorded a fourth
quarter nonrecurring, pre-tax charge of $2,300,000, representing compensatory
damages of $250,000, punitive damages of $850,000, and an estimate of the
Plaintiff's and the Company's legal fees and expenses. The Company intends to
vigorously contest and appeal the judgment when entered.

In October 1995, the Company announced that the lawsuit among the Company, a
subsidiary of the Company and Mr. Alberto Lombardi and a company controlled by
Mr. Lombardi had been settled on mutually satisfactory terms and agreed to the
dismissal of all claims pending against each other. In connection with the
settlement, the Company recorded a pre-tax charge of approximately $2,240,000 in
1995, which amount includes legal and related costs associated with the lawsuit.
The settlement provides that it is not to be construed or considered to be an
admission of guilt or noncompliance with any federal, state or local statute,
public policy, tort law, common law or of any other wrongdoing whatsoever.

The Company is involved in various legal actions incidental to the normal
conduct of its business. Management does not believe that the ultimate
resolution of these actions will have a material adverse effect on the Company's
consolidated financial position, equity, results of operations, liquidity and
capital resources.

Price Range of Common Stock and Related Matters

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

The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "MRG". From January 21, 1994 until May 9, 1996, it was traded
under the symbol "KRG".

The following table sets forth, for the periods indicated, the highest and
lowest sale prices for the Common Stock, as reported by the NYSE.

FISCAL YEAR ENDED DECEMBER 28, 1997 HIGH LOW
- --------------------------------------------------------------------------------------------- --------- ---------

First Quarter................................................................................ $ 17 1/2 $ 14 1/2
Second Quarter............................................................................... 20 1/4 15
Third Quarter................................................................................ 24 19 1/8
Fourth Quarter............................................................................... 25 1/16 19 3/4

FISCAL YEAR ENDED DECEMBER 29, 1996 HIGH LOW
- --------------------------------------------------------------------------------------------- --------- ---------

First Quarter................................................................................ $ 17 1/4 $ 10 7/8
Second Quarter............................................................................... 19 13 5/8
Third Quarter................................................................................ 18 1/2 15 1/8
Fourth Quarter............................................................................... 17 5/8 14

On December 28, 1997, the last reported sale price of the Common Stock on the
NYSE was $19.75. On March 2, 1998, the last reported sale price of the Common
Stock on the NYSE was $21.75.

As of March 2, 1998, there were approximately 60 holders of record of the
Company's Common Stock. The Company believes that as of such date there were
approximately 1,000 beneficial owners of its Common Stock.

The Company has not paid any dividends on its common stock since its inception.
The Company currently intends to retain all of its earnings to support the
continued development of its business and has no present intention of paying any
dividends on its Common Stock. Any future determination as to the payment of
dividends will be at the discretion of the Board of Directors and will depend on
the Company's financial condition, results of operations, capital requirements,
compliance with charter and contractual restrictions and such other factors as
the Board of Directors deems relevant. In addition, the Company's Credit
Agreement restricts the payment of dividends. See Note 5 of Notes to
Consolidated Financial Statements.