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

                                   FORM 10-QSB


(Mark One)
[X]       QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
          ACT OF 1934

For the quarterly period ended July 12, 1998

                                       OR

[ ]       TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
          ACT OF 1934

                   For the transition period from ____ to ____

                        Commission File Number: 33-95796

                         HARVEST RESTAURANT GROUP, INC.
             (Exact name of registrant as specified in its charter)


            Texas                                                76-0406417
(State or other jurisdiction of                                (IRS Employer
incorporation or organization)                               Identification No.)


                          1250 N.E. Loop 410, Suite 335
                            San Antonio, Texas 78209
          (Address of principal executive offices, including zip Code)

                                 (210) 824-2496
                         (Registrant's telephone number)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes  X    No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock as of the latest  practicable  date:  3,852,661 shares as of August
12, 1998



<PAGE>
                 HARVEST RESTAURANT GROUP, INC. AND SUBSIDIARIES

                                      INDEX





PART I.  FINANCIAL INFORMATION                                          PAGE NO.
                                                                        --------
     ITEM 1. Financial Statements

                 Consolidated Balance Sheets -
                 July 12, 1998 and December 28, 1997                        3

                 Consolidated Statements of Operations -
                 Quarter and Two Quarters Ended
                 July 12,1998 and July 13, 1997                             4

                 Consolidated Statements of Cash Flows -
                 Quarter and Two Quarters Ended
                 July 12, 1998 and July 13, 1997                            5


                 Notes to Financial Statements                              6


     ITEM 2. Management's Discussion and Analysis of
             Financial Condition and Results of Operations                 10


PART II.  OTHER INFORMATION

     ITEM 1. Legal Proceedings                                             13



     SIGNATURES                                                            14


                                        2

<PAGE>
<TABLE>
<CAPTION>

                     HARVEST RESTAURANT GROUP, INC. AND SUBSIDIARIES
                               Consolidated Balance Sheets


                                                               July 12,     December 28,
                                                                 1998           1997
                                                             ------------   ------------
                                                              (Unaudited)
ASSETS
Current Assets
<S>                                                          <C>            <C>         
    Cash                                                     $        193   $    774,674
    Cash, restricted                                                 --          300,000
    Inventories                                                      --           15,345
    Subscription receivable                                     1,978,750           --    
    Other current assets                                           25,224          7,400
                                                             ------------    -----------
                  Total Current Assets                          2,004,167      1,107,419

Property and Equipment, net                                       675,339      2,039,052

Other Assets
    Intangible property rights, net of accumulated
       amortization of  $237,750 in 1997                             --          161,750
    Deposits                                                       77,730         70,978
    Other assets                                                     --          110,406
                                                             ------------    -----------
                                                                   77,730        343,134
                                                             ------------    -----------
                                                             $  2,757,236    $ 3,489,605
                                                             ============    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
    Accounts payable, trade                                  $    374,345   $    652,817
    Accrued liabilities:
         Real estate disposition costs                            700,000        800,000
         Other accrued liabilities                                211,851        156,460
    Current portion of long-term debt                             225,000        211,779
                                                             ------------    -----------
                 Total Current Liabilities                      1,511,196      1,821,056

Long-term debt, less current portion                                 --           41,963

Stockholders' Equity
    Preferred stock                                               636,225        515,150
    Common stock - $.01 par value, authorized 20,000,000,
       issued 3,740,287 in 1998 and 2,698,630 in 1997              37,403         26,986
    Additional paid-in capital                                 13,861,731     11,902,073
    Accumulated deficit                                       (13,289,319)   (10,817,623)
                                                             ------------    -----------
 Total Stockholders' Equity                                     1,246,040      1,626,586
                                                             ------------    -----------
                                                             $  2,757,236    $ 3,489,605
                                                             ============    ===========




See notes to consolidated financial statements (unaudited).

                                            3


</TABLE>

<PAGE>
<TABLE>
<CAPTION>



                                    HARVEST RESTAURANT GROUP, INC. AND SUBSIDIARIES
                                   Consolidated Statements of Operations (Unaudited)




                                                                    Quarter Ended               Two Quarters Ended
                                                              --------------------------    --------------------------
                                                               July 12,        July 13,       July 12,       July 13,
                                                                 1998            1997           1998           1997
                                                              -----------    -----------    -----------    -----------

Revenues
<S>                                                           <C>            <C>            <C>            <C>        
     Restaurant operations                                    $    67,339    $   469,370    $   289,440    $   916,364
     Franchise fees                                                  --          200,000           --          200,000
                                                              -----------    -----------    -----------    -----------
                                                                   67,339        669,370        289,440      1,116,364
Costs and Expenses
    Cost of food and paper                                         29,967        246,580        148,448        476,828
    Salaries and benefits                                          45,352        176,754        152,572        411,438
    Occupancy and related expenses                                 37,532         73,370         83,672        138,382
    Operating expenses                                             31,164        210,989        109,839        350,416
    Preopening expenses                                            30,469         94,013         72,625        181,120
    General and administrative expenses                           160,578        408,646        695,507        845,151
    Depreciation and amortization                                 122,945         71,656        280,399        132,291
    Loss on restaurant closures and other                       1,204,489           --        1,204,489           --
    Loss provision for area developer notes receivable               --          286,023           --          286,023
                                                              -----------    -----------    -----------    -----------
         Total costs and expenses                               1,662,496      1,568,031      2,747,551      2,821,649
                                                              -----------    -----------    -----------    -----------

Loss from operations                                           (1,595,157)      (898,661)    (2,458,111)    (1,705,285)

Other income (expense)
    Interest income                                                   333          3,504          5,069         20,387
    Interest expense                                              (11,250)        (3,335)       (18,654)       (11,151)
                                                              -----------    -----------    -----------    -----------
                                                                  (10,917)           169        (13,585)         9,236
                                                              -----------    -----------    -----------    -----------

Net Loss                                                      $(1,606,074)   $  (898,492)   $(2,471,696)   $(1,696,049)
                                                              ===========    ===========    ===========    ===========


Preferred stock dividends                                        (190,768)          --         (345,268)          --
Net loss applicable to common shareholders                     (1,796,842)          --       (2,816,964)          --

Basic loss per common share                                   $      (.57)   $      (.38)   $      (.97)   $      (.73)
                                                              ===========    ===========    ===========    ===========

Weighted average common shares outstanding                      3,177,933      2,366,030      2,911,616      2,337,601
                                                              ===========    ===========    ===========    ===========



See notes to consolidated financial statements (unaudited).

                                                            4


</TABLE>

<PAGE>
<TABLE>
<CAPTION>



                          HARVEST RESTAURANT GROUP, INC. AND SUBSIDIARIES
                         Consolidated Statements of Cash Flows (Unaudited)


                                                                            Two Quarters Ended
                                                                       --------------------------
                                                                          July 12,       July 13,
                                                                           1998            1997
                                                                       -----------    -----------
Operating Activities:
<S>                                                                    <C>            <C>         
    Net loss for the period                                            $(2,471,696)   $(1,696,049)
    Adjustments to reconcile net loss
     to net cash used in operating activities:
       Depreciation and amortization                                       280,399        132,291
       Loss on restaurant closures and other                             1,204,489           --
       Forfeitures of deposits                                              41,178           --
       Loss provision for area developer notes receivable                     --          286,023
       Changes in operating assets and liabilities:
         Inventories                                                        15,345         (7,092)
         Other current assets and other assets                              71,064         79,333
         Accounts payable and accrued liabilities                         (223,081)       331,266
                                                                       -----------    -----------
              Net cash used in operating activities                     (1,082,302)      (874,228)

Investing Activities:
     Purchase of property and equipment                                    (22,814)      (690,690)
     Increase in deposits                                                   (3,055)       (10,562)
     Issuance of notes receivable                                             --       (1,963,340)
                                                                       -----------    -----------
              Net cash used in investing activities                        (25,869)    (2,664,592)

Financing Activities:
     Net proceeds from sale of preferred stock and warrants                112,000      4,374,806
     Net proceeds from sale of common stock and warrants                      --          568,875
     Proceeds from borrowings                                              225,000           --
     Decrease in cash restricted for bank obligations                      200,000        220,000
     Repayments of bank borrowings                                        (203,310)        (5,790)
                                                                       -----------    -----------
              Net cash provided by financing activities                    333,690      5,157,891
                                                                       -----------    -----------

Net increase (decrease) in cash                                           (774,481)     1,619,071

Cash at beginning of year                                                  774,674      1,271,443
                                                                       -----------    -----------

Cash at end of period                                                  $       193    $ 2,890,514
                                                                       ===========    ===========


Supplemental disclosure of cash flow information:
     Interest paid                                                     $     7,404    $   130,243
     Income taxes paid                                                        --             --
     Assumption of notes payable for assets                                   --           65,000
     Payment of preferred stock dividend in common stock                   345,268           --



See notes to consolidated financial statements (unaudited).


                                                 5


</TABLE>

<PAGE>



                 HARVEST RESTAURANT GROUP, INC. AND SUBSIDIARIES
                    Notes to Financial Statements (Unaudited)



NOTE A - ORGANIZATION AND BASIS OF PRESENTATION

Organization

Harvest Restaurant Group, Inc. and its wholly-owned  subsidiaries  ("Harvest" or
the "Company") is an operator and developer of quick service restaurant concepts
operated under the name Harvest Rotisserie and Harvest Food Court. At the end of
fiscal  year  1997,  there  were  fourteen  Harvest  Rotisserie  restaurants  in
operation,  consisting  of four  company-owned  restaurants  and ten  franchised
restaurants. During 1998, the Company significantly curtailed its operations and
all of the Harvest  Rotisserie  restaurants were closed.  The Company opened two
Harvest Food Court  restaurants  in 1998,  which were also  closed.  The Company
currently has no restaurants in operation.

Basis of Presentation

The accompanying  unaudited consolidated financial statements have been prepared
by the Company in accordance with the instructions to Form 10-QSB.  Accordingly,
certain  information  and  footnote  disclosures  normally  included  in  annual
financial  statements  prepared in accordance with generally accepted accounting
principles  have been omitted.  In the opinion of  management,  all  adjustments
(consisting of normal recurring accruals and adjustments)  considered  necessary
for a fair  presentation  have been made. The statements are subject to year-end
adjustment.  The  consolidated  results of operations for the two quarters ended
July 12, 1998 may not be indicative of the results for the full fiscal year. For
further  information,  refer to the Company's  audited  financial  statements as
filed with the Securities  and Exchange  Commission in the Company's Form 10-KSB
for the year ended December 28, 1997.

The accompanying  unaudited consolidated financial statements have been prepared
assuming the Company will continue as a going concern.  The Company has incurred
operating  losses since  inception,  and as of July 12, 1998 had an  accumulated
deficit of  $13,289,319  and currently has no  restaurants  in operation.  These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going concern. In order to continue as a going concern, the Company will need to
develop  or  acquire a  successful  restaurant  concept  and will need to obtain
additional  funds  through  debt or equity  offerings to fund the growth of this
concept.  Additional funding will also be required to pay the Company's existing
obligations. In July 1998, the Company entered into a definitive agreement for a
merger with TRC  Acquisition  Corporation,  a company which  operates a chain of
thirteen "Rick Tanner"s Original Grill" restaurants ("Tanner's").  In connection
with the merger, the Company has obtained a financing  commitment for $6 million
to be used  primarily  for the  expansion of Tanner's  restaurants.  The Company
intends  to  focus  its  future   operations  on  the  development  of  Tanner's
restaurants.

                                        6

<PAGE>



NOTE B - FISCAL YEAR

The Company has  adopted a  52/53-week  fiscal year ending on the last Sunday in
December.  The fiscal year is divided into thirteen four-week periods. The first
quarter  consists  of four  periods  and each of the  remaining  three  quarters
consists of three periods,  with the first,  second and third quarters ending 16
weeks, 28 weeks and 40 weeks respectively, into the fiscal year.


NOTE C - MERGER WITH TRC ACQUISITION CORPORATION

On July 9, 1998,  the Company signed a definitive  share  exchange  agreement to
merge (the "Merger") with TRC Acquisition  Corporation  ("TRC"), the operator of
"Rick Tanner's Original Grill" restaurants ("Tanner's"), a twelve-year-old chain
of full service,  casual dining restaurants in Georgia and Alabama. TRC owns and
operates  eleven  Tanner's  restaurants  in the Atlanta  metropolitan  area, and
franchisees  two  additional  Tanner's  restaurants.  The  Merger is  subject to
shareholder  approval and certain  other  contingencies,  including  the Company
obtaining satisfactory settlement agreements for a majority of its obligations.

Upon completion of the Merger,  the TRC  shareholders  including  holders of all
options and warrants, will own approximately 70% of the total outstanding equity
of the Company on a fully diluted basis. Since the TRC shareholders will receive
a substantial  majority of the shares of stock of the Company,  the  transaction
will be treated as a reverse  acquisition  of the Company by TRC for  accounting
purposes.  The board of  directors  of the Company  will be  increased  to seven
members,  with three of the  Company's  five present  directors  resigning.  The
Company's corporate offices will also be relocated to Atlanta,  Georgia to be in
closer proximity with the core Tanner's restaurant operations.

Pending  completion  of the Merger,  the Company has entered into a  development
agreement  with TRC to open up to five  Tanner's  restaurants  under a franchise
relationship. The Tanner's restaurant development and operations will be managed
by TRC  under a  separate  management  agreement  with  the  Company.  Upon  the
completion of the Merger,  the  development and management  agreements  would be
terminated and any franchised  restaurants operated under these agreements would
revert to company-owned restaurants.


NOTE D - STOCKHOLDERS' EQUITY

On July 9, 1998,  in  connection  with the Merger with TRC, the Company  entered
into  a  securities  purchase  agreement  with a  private  investor  group.  The
securities  purchase  agreement  provides  for  the  sale of 600  shares  of the
Company's newly  designated  series C convertible  preferred  stock,  ("series C
Preferred  Stock") at face value of $10,000 per share, for a total of $6,000,000
of equity funding, of which $4,000,000 was deposited into escrow. The 600 shares
of Series C Preferred  Stock are to be issued in three separate  closings of 200
shares each,  with the first  closing to occur within 14 days of the  agreement,
the second closing to occur upon the effective date of the Merger, and the third
closing within thirty days thereafter.  As of July 12, 1998,  Company recorded a
subscription  receivable  of  $1,978,750  for the net  proceeds  from the  first
closing,  as there  were no  unresolved  contingencies  in  connection  with the
closing as of that date. This  subscription was  subsequently  collected on July
23, 1998.

                                       7
<PAGE>


The Series C Preferred Stock is convertible at the option of the holder into the
Company's  common  stock.  The  conversion  rate per  share is equal to  $10,000
divided  by 80% of the  average  bid  price of the  common  stock at the time of
conversion.  Dividends  on the  Series C  Preferred  Stock  accrue at rate of 7%
annually,  payable  in cash or  stock at the time of  conversion.  The  Series C
Preferred  stock is non-voting,  and is ranked junior to the Company's  series A
redeemable convertible preferred stock and on parity with the Company's series B
convertible  preferred  stock.  Each  share of  Series C  Preferred  Stock has a
liquidation preference of $10,000 per share.

In May 1998,  the Company sold 112 shares of its series B convertible  preferred
stock in a private  transaction  in which the Company  realized  net proceeds of
$112,000.  During  May and June of 1998,  holders  of the  series B  convertible
preferred  stock  converted  28 shares of their  series B  preferred  stock into
688,980 and 120,892 shares of the Company's common stock and series A redeemable
convertible preferred stock, respectively.


NOTE E - RESTAURANT CLOSURES AND OTHER

In  the  second  quarter  of  1998,  the  Company  closed  its  three  remaining
company-owned  Harvest  Rotisserie  restaurants  and its two Harvest  Food Court
restaurants.  Subsequently,  the  Company  also  canceled  plans to  pursue  the
development of Harvest Food Court  restaurants and abandoned  development  plans
for an additional leased restaurant property.  The Company will focus its future
operations on the development of Tanner's restaurants and will no longer utilize
its existing  restaurant  properties within its future  operations.  In light of
these  decisions,  management  has  reviewed  the  carrying  amount  of  certain
long-lived  assets and concluded that their costs will not be recoverable.  As a
result,  certain  charges  totaling  $1,204,489  have  been  aggregated  and are
reported  separately in the operating  statement as "Loss on Restaurant Closures
and Other". Included in these charges are write-downs of property, equipment and
other assets of  $1,212,391  and  write-offs  of  intangible  assets of $92,098,
offset by reductions in the accrued liability for real estate  disposition costs
of $100,000.

All the assets related to the closed restaurants are to be disposed of, with the
exception of one restaurant  property that the Company will sublease.  Assets to
be  disposed  of and held for sale  consist  of land,  building  and  restaurant
equipment which has been written down to net realizable value of $591,409, based
on estimated  market prices less cost to sell. The assets held for sublease have
been written down to the net present value of the discontinued future cash flows
expected from the sublease.

                                        8
<PAGE>


NOTE F - CONTINGENCIES

At the end of the  Company's  fiscal year on December 28, 1997,  the Company had
fourteen  Harvest  Rotisserie  restaurants  in  operation,  four of  which  were
company-owned  restaurants and ten operated as franchised  stores. In 1998, area
developers  closed  all  ten  of the  Company's  franchised  Harvest  Rotisserie
restaurants  located  in  Florida,   Indiana,   North  Carolina,   and  Northern
California.  The  Company  also  closed  all four of its  Company-owned  Harvest
Rotisserie  restaurants  and  its  two  Harvest  Food  Court  restaurants,   and
development  plans were ceased at five other locations.  The Company had entered
into long-term real estate leases for most of its Company-owned  locations,  and
guaranteed similar real estate leases for the franchised  locations,  as well as
guaranteeing  certain promissory notes and equipment leases connected with three
of the franchised locations.

Subsequent to the closing of the restaurants and ceasing of development  efforts
at the other  locations,  the  Company  has  contacted  each of the  lessors and
lenders in order to obtain settlement agreements on the related obligations, and
generally has been successful in reaching settlement agreements. The Company has
evaluated the potential  costs for the full settlement of the real estate leases
and other liabilities and recorded a liability for real estate  disposition cost
of $800,000 as of December  27,  1998,  and  $700,000 of the  liability  remains
outstanding as of July 12, 1998.  Management believes the liability accrual will
be  sufficient  to settle all  obligations  related to the closing of restaurant
locations.

                                        9

<PAGE>



ITEM 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Forward-looking Statements

Except for the historical information contained herein, the matters set forth in
this  report are  forward-looking  statements  within  the  meaning of the "safe
harbor"  provisions  of the Private  Securities  Litigation  Reform Act of 1995.
These forward-looking statements are subject to risks and uncertainties that may
cause  actual  results to differ  materially.  These  risks are  detailed in the
Company's  various  reports filed with the Securities  and Exchange  Commission.
These  forward-looking  statements speak only as of the date hereof. The Company
disclaims any intent or obligation to update these forward-looking statements.

Overview

     At the end of the Company's  fiscal year on December 28, 1997,  the Company
had fourteen  Harvest  Rotisserie  restaurants in operation,  four of which were
company-owned  restaurants  and ten operated as  franchised  stores.  In January
1998,  due to  insufficient  capital  and an industry  wide  decline in consumer
acceptance  of the market  segment in which the Harvest  Rotisserie  concept was
positioned,  the Company canceled plans to further expand the Harvest Rotisserie
restaurants  and began to  significantly  curtail its  operations.  In the first
quarter of 1998, the Company closed one  restaurant and area  developers  closed
all nine  franchised  restaurants in Florida,  Indiana and North  Carolina.  The
Company recorded a liability for a real estate  disposition costs of $800,000 as
of December 28, 1997 with respect to the closure of these restaurants.

The  Company  completed  the  initial  development  of a  smaller  multi-branded
restaurant  concept  under  the  Harvest  Food  Court  and open  two  units on a
test-marketing  basis in May and June 1998. However, due to insufficient working
capital to sustain  operations,  the Company closed its three remaining  Harvest
Rotisserie  restaurants  and its two Harvest Food Court  restaurants  during the
second  quarter  1998.  The  Company's  last  franchise  restaurant  in Northern
California also subsequently closed in August 1998.

In July 1998, the Company signed a definitive share exchange  agreement with TRC
Acquisition  Corporation  ("TRC")  the  operator  of a  thirteen  unit  chain of
Tanner's  restaruants.  Completion  of the  Merger  is  subject  to  shareholder
approval  and certain  other  contingencies,  including  the  Company  obtaining
satisfactory  settlement  agreements  for a  majority  of  its  obligations.  In
connection  with the Merger,  the Company  has  obtained a $6 million  financing
commitment to be used primarily for the development of Tanner's restaruants. The
Company  intends to focus all its  available  resources  on the  development  of
Tanner's  restaurants  and will no longer purse the  development of Harvest Food
Courts.


Results of  Operations  - For the Quarter and Two  Quarters  ended July 12, 1998
compared to the Quarter and Two Quarters ended July 13, 1997.

     Revenues.  Total  revenues for the quarter and two quarters  ended July 12,
1998  decreased  90% and 74%,  respectively  as compared to the same  periods in
1997.  The decrease was due to the closing of the Company's  restaurants  during
the first and second quarters 1998.

                                       10
<PAGE>



     Costs  and  Expenses.  Cost of food  and  paper  was  44.5%  and  52.5%  of
restaurant  revenues  for the  quarter and two  quarters  ended July 12, 1998 as
compared to 51.3% and 52.0% for the same  periods in 1997,  which is higher than
industry averages all periods.  Food and paper costs were negatively affected by
higher amounts of wasted food caused by the lower sales volumes, and the opening
of new  restaurants in 1997,  which generally have higher costs due to increased
food usage for opening promotions and  inefficiencies  caused by less experience
employees.

Salaries,   benefits,   occupancy  and  operating  expenses  include  all  other
restaurant  level operating  expenses,  the major components of which are direct
and indirect  labor,  payroll  taxes and  benefits,  operating  supplies,  rent,
advertising, repairs and maintenance,  utilities, and other occupancy costs. The
combined total of these expenses was 169% and 98% of restaurant revenues for the
quarter and two quarters  ended July 12,  1998,  as compared to 120% and 98% for
the same  comparable  periods in 1997.  Substantial  portions of these costs are
fixed or indirectly variable.  These costs were disproportionate to revenues for
all periods due to low sales volumes.

General and  administrative  expenses  decreased $248,068 or 61% and $149,644 or
18% for the  quarter  and two  quarters  ended July 12,  1998,  respectively  as
compared to the same periods in 1997. The decreased  reflects the closing of the
Company's  operations  during  1998  and  the  corresponding  reduction  in  its
corporate overhead.

Depreciation and amortization increased $51,289 and $148,108 for the quarter and
two quarters  ended July 12, 1998 as compared to the same  periods in 1997.  The
increase was due to the additional restaurants opened in 1997 and a reduction in
the recovery periods for some of the Company's assets in 1998.

Loss on restaurant  closures and other of $1,204,489  for the quarter ended July
12, 1998,  relate to charges  recognized by the Company in  connection  with the
closure of its remaining  restaurants in the second quarter of 1998. Included in
this caption is $1,212,391 of charges for the write-down of property,  equipment
and other assets to their net realizable values, write-offs of intangible assets
of  $92,098,  offset by  reductions  in the  accrued  liability  for real estate
disposition costs of $100,000.

The Company  recorded a loss  provision for area developer  notes  receivable of
$286,023 for the quarter ended July 13, 1997 for  estimated  future loan losses.
The amount of the loss  provision  was based on  management's  evaluation of the
operating results of the franchised restaurants,  financial position of the area
developers, and the sufficiency of the underlying assets securing the loan.

Net Loss.  The Company  incurred a net loss of $1,606,074 and $2,471,696 for the
quarter  and two  quarters  ended July 12,  1998 as  compared  to  $898,492  and
$1,696,049  for the same  periods  in  1997.  The  increase  in net loss for the
quarter  ended  July  12,  1998  was  primarily  due to  charges  of  $1,204,489
associated  with the loss on restaurant  closures  during the second  quarter of
1998. As of the July 12, 1998 all  company-owed  restaurants were closed and the
last franchised restaurant has subsequently closed in August 1998.

                                       11
<PAGE>


Preferred  Stock  Dividends.  Dividends were declared on the Company's  series A
redeemable  preferred stock at the end of the first and second quarters of 1998,
and were payable in the cash equivalent value of the Company's common stock.


Liquidity and Capital Resources

The Company has incurred losses from  operations  since inception and as of July
12, 1998 the Company had an accumulated deficit of $13,289,319. During 1998, all
of the Company's  restaurants were closed,  which raise  substantial doubt about
the Company's ability to continue as a going concern.  In order to continue as a
going  concern,  the  Company  will need to  develop  or  acquire  a  successful
restaurant  concept and will need to obtain  additional  funds  through  debt or
equity  offerings to fund the growth of this concept and settled its outstanding
obligations.

For the fist two  quarters  of  1998,  cash  used in  operating  activities  was
$1,082,302,  related  primarily to general and  administrative  expenses,  store
level operating losses and for reductions in liabilities  during the period. The
Company  made  minimal  investments  in  property  and  equipment  during  1998,
utilizing  renovation  allowances  provided by  landlords  for a majority of the
development costs for the two Harvest Food Courts  restaurants opened during the
second quarter. During 1998, the Company borrowed $225,000 on a short-term basis
under a  sales/leaseback  arrangement with a company-owned  restaurant  property
that included repurchase option, and the Company also received $112,000 from the
sale of 112 shares its series B preferred stock in a private transaction.

Sources of capital  are  limited to the  Company's  ability to raise  additional
capital from investors, and ultimately achieving profitable operations.  Without
a proven viable restaurant concept, additional financing is difficult to obtain.

Management considers the Merger with TRC as a viable plan to move the Company to
profitability.  In connection with the Merger with TRC, the Company has obtained
a financing  commitment  from a private  investor  group for the purchase of 600
shares of the  Company's  Series C Preferred  Stock for a total of $6,000,000 of
equity funding, of which $4,000,000 was deposited into escrow. The 600 shares of
Series C  Preferred  Stock are to be issued in three  separate  closings  of 200
shares each. On July 23, 1998,  Company  received the net proceeds of $1,978,750
from the first closing, with the second closing to occur upon the effective date
of the Merger,  and the third closing  within thirty days  thereafter.  Proceeds
from  the  equity  financing  will be used  primarily  for  the  development  of
additional  Tanner's  restaurants.  The Company believes the proceeds from first
closing  will be  sufficient  to  develop  three  to five  Tanners  restaurants,
depending on  availability  of lease  financing and landlord  contribution.  The
restaurants  will  operate  under  a  franchise   relationship  with  TRC  until
completion of the Merger.  The  restaurant  development  and  operation  will be
managed by TRC under separate  agreements with the Company.  Upon the completion
of the Merger, the franchise relationship will be terminated and the restaurants
would become company-owned restaurants.  Should the Merger not be completed, the
Tanner's  restaurants  developed  by the  Company  would  continue to operate as
franchised restaurants under an operating agreement with TRC, or the Company has
the  option to have TRC  repurchase  the  restaurants  from the  Company  at the
development cost.

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<PAGE>

PART  II - OTHER INFORMATION

     ITEM 1.  Legal Proceedings

In January 1998, the Company and Florida  Harvest,  Inc. (the Company's  Florida
area  developer)  were named as defendants in three  separate  lawsuits filed in
Florida  in  Broward  County  Circuit  Court by K.R.  Chicken  Associates,  K.R.
Sarasota  Associates,   Ltd.,  and  K.R.   Memphis-Florida   Associates  Limited
Partnership (case numbers 98-01090,  98-01092, and 98-01093). The plaintiffs are
seeking to foreclose a security interest on promissory notes of Florida Harvest,
Inc.,  which are guaranteed by the Company in the aggregate  principal amount of
$455,244. No further legal action has taken place and the parties are continuing
to negotiate a settlement.

In  July  1998,  the  Company  received  a full  release  related  to a  lawsiut
originally  filed in January 1998.  The Company and Florida  Harvest,  Inc. were
named as  defendants  in the  lawsuit  filed in Florida in  Hillsborough  County
Circuit Court by Pollo Operations,  Inc. (case number 98-00604). The plaintiff's
were  seeking  to  foreclose  a  mortgage  lien and  security  interest  in real
property, which the Company was guarantor of a $868,000 mortgage note payable to
Pollo  Operations,  Inc. In July 1998, the underlying  real property was sold in
full satisfaction of the note and the Company was released of all claims.

On May 20,  1998,  the Company was named as a  defendant  in a lawsuit  filed in
Texas in Bexar  County  District  Court by Captec  Financial  Group (case number
98-CI-07356).  The plaintiffs are seeking  damages  related to defaults on three
equipment  leases  amounting  to  $277,658.  The  Company  assumed the leases in
connection with the acquisition of restaurant properties in Florida and Indiana,
which  were  assigned  to  area  developers  of the  Company.  The  parties  are
negotiating a settlement to the claims.

To date,  the  Company  has  executed  settlement  agreements  for twelve of the
eighteen real estate leases the Company is obligated  under.  These  settlements
call for total payments of $112,668, of which $37,500 was been paid to date. The
balance of the settlement  payments are to be paid within 14 days of the closing
of the Merger between the Company and TRC Acquisition Corporation using proceeds
provided by new equity financing. The Company continues to negotiate settlements
for the six  remaining  real estate  leases it is obligated  under.  At July 12,
1998, the Company has estimated its liability related to real estate disposition
costs to be $700,000,  and believes  this amount to be  sufficient to settle all
obligations related to the closing of all locations.

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<PAGE>


                                   SIGNATURES

Pursuant  to the  requirements  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.


                                           HARVEST RESTAURANT GROUP, INC.


Date: August 26, 1998                          By: /s/ William J. Gallagher
     --------------------                          -----------------------------
                                                   William J. Gallagher,
                                                   Chairman of the Board and
                                                   Chief Executive Officer
                                                   (Duly Authorized Signatory)


Date: August  26, 1998                          By: /s/ Joseph Fazzone
     ---------------------                         -----------------------------
                                                   Joseph Fazzone
                                                   Chief Financial Officer
                                                   (Duly Authorized Signatory)

                                       14