U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]  Annual report  pursuant to Section 13 or 15(d) of the  Securities  Exchange
             Act of 1934 for the fiscal year ended December 27, 1998

                                       OR

[ ]  Transition  report  pursuant  to  Section  13 or 15 (d)  of the  Securities
                              Exchange Act of 1934
           for the transition period from ___________ to ___________.


                         Commission File Number 33-95796


                         TANNER'S RESTAURANT GROUP, INC.
                         -------------------------------
                 (Name of small business issuer in its charter)


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


  2662 Holcomb Bridge Road, Suite 320
        Alpharetta, Georgia                                  30022
        -------------------                                  -----
(Address of principal executive offices)                   (Zip Code)

                    Issuer's telephone number: (770) 518-1444

Securities registered pursuant             Name of exchange on which registered:
 to Section 12(b) of the Act:
           None                                            None

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

                          Common Stock, $.01 par value
                    Series A Preferred Stock, $1.00 par value
                    -----------------------------------------
                                (Title of class)

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

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  Form,  and no  disclosure  will be
contained,  to the  best of the  issuer's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

     The issuer's revenues for its most fiscal year were $11,694,544.

     As of  March  23,  1999,  the  aggregate  market  value of the  voting  and
non-voting  common  stock held by  non-affiliates,  computed by reference to the
price at which the common equity was sold, or the average bid and asked price of
such common equity, was $2,137,312, based upon a closing sales price of $.47 per
share of common stock on the OTC Bulletin Board. As of March 23, 1999, 8,334,489
shares of the Registrant's common stock were outstanding.

     The following  documents are incorporated by reference into Part III, Items
9 through 12 hereof: None.

<PAGE>

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

     Portions of this Annual  Report on Form  10-KSB  contain  "forward-looking"
statements which can be identified by the use of  forward-looking  terms such as
"expect," "estimate,"  "anticipate," "intend" and "believe" or by discussions of
strategy,  future operating results or events. These forward-looking  statements
are  subject  to risks and  uncertainties  that may cause  our  actual  results,
performance,  or achievements  to differ  materially from those discussed in the
forward-looking statements. These risks and uncertainties include, among others,
those  described  in "Item 6,  Management's  Discussion  and Analysis or Plan or
Operation - Disclosure  Regarding  Forward-Looking  Statements" and in our other
filings with the SEC.


Overview

     Tanner's  Restaurant  Group,  Inc.,  formerly  known as Harvest  Restaurant
Group,  Inc., was  incorporated in June 1993 under the name  "Clucker's  Tex-Mex
Venture,  Inc."  Initially,  Harvest  operated as an area developer for Cluckers
Wood Roasted  Chicken,  Inc.,  the  developer and  franchiser of the  "Cluckers"
restaurant  concept. By 1996, Harvest had decided to focus its operations on the
development,  operation and franchising of its own line of restaurants,  Harvest
Rotisserie  restaurants.  In 1997,  Harvest  attempted  to grow this  concept by
implementing an area development program in Florida, Indiana and North Carolina.
By the first quarter of 1998,  however,  all restaurants  franchised  under this
area  development   program  had  been  closed,   and  by  July  1998  all  four
company-owned  restaurants were closed. The last remaining franchised restaurant
was closed in August 1998, leaving Harvest with no ongoing business  operations.
By this  time,  Harvest  had  decided  to pursue a merger  with TRC  Acquisition
Corporation  ( TRC") and focus its resources on the  development  of TRC's "Rick
Tanner's Original Grill" restaurants.

     On January 14, 1999, TRC merged into a  wholly-owned  subsidiary of Harvest
in a forward  triangular  merger.  In this  merger,  4,123,219  shares of common
stock,  representing  approximately 50.1% of the outstanding common shares, were
issued to the former  shareholders  of  privately-held  TRC.  Also issued in the
merger  were  744,500  shares of Series E  preferred  stock.  As a result of the
merger, we now own and franchise the "Rick Tanner's Original Grill"  restaurants
formerly  owned  and  franchised  by TRC.  We own  and  operate  nine  of  these
restaurants,  all of which are located in Georgia,  and franchise one additional
restaurant, which is located in Macon, Georgia. As part of the merger, our board
of directors was changed to consist of four  members,  three of whom were former
directors of TRC, and TRC's managment team became the active  management team of
the combined business.  Additionally,  we moved our corporate  headquarters from
San Antonio,  Texas to Atlanta,  Georgia. For accounting purposes,  we accounted
for the merger as an  acquisition  of Harvest by TRC deemed to have  occurred on
December  27,  1998.  On March 15,  1999,  following  receipt  of  shareholders'
approval  at a special  shareholders'  meeting,  we changed our name to Tanner's
Restaurant Group, Inc. Unless otherwise  indicated herein, the terms "we," "us,"
or "our"  refer  to the  company  after  the  date of the  merger,  and the term
"Harvest" refers to the company before the merger.

     A significant factor in both the structure and completion of the merger was
a  commitment  by outside  investors  to invest  $6,000,000  in the new combined
company.  The investors invested  $2,000,000 under this financing  commitment in
July 1998,  in exchange  for shares of  Harvest's  preferred  stock  (which were
recently  converted  into  2,600  shares of our Series D  convertible  preferred
stock).  Since the merger, the investors have invested an additional  $2,000,000
in exchange for 2,600 shares of Series D convertible  preferred  stock, and they
will invest the balance of $2,000,000  for 2,000 more Series D preferred  shares
when the shares of common  stock into  which the Series D  preferred  shares are
convertible are registered with the SEC. We intend to cause that registration to
become effective in late spring 1999.

<PAGE>


     In addition to the 7,200 shares  issued in connection  with the  $6,000,000
financing  commitment,  we issued 1,998 shares of Series D convertible preferred
stock to holders of Harvest's Series B convertible  preferred stock. This Series
B stock had been purchased by several of the outside investors for $1,332,000 in
December 1997. In all, there are seven outside  investors:  Sovereign  Partners,
L.P.,  Atlantis  Capital Fund Limited,  Dominion  Capital Fund  Limited,  G.P.S.
America  Fund Ltd.,  Atlas  Capital  Fund Ltd.,  and two foreign  residents.  In
addition  to the  share  issuances  outlined  above,  the  financing  commitment
requires that we issue warrants to purchase  919,800 shares of common stock at a
price of $2.00 per share to the outside investors.

     Our executive  offices are located at 2662 Holcomb Bridge Road,  Suite 260,
Alpharetta,  Georgia 30022, and our telephone number is (770) 518-1444. However,
effective  April 2, 1999, our new address will be 5500 Oakbrook  Parkway,  Suite
260, Norcross, Georgia 30093.

Growth Strategy

     We intend to use part of the proceeds of the financing commitment to pursue
the following growth strategy:

     *    to open new company-owned Tanner's restaurants;
     *    to increase our sales at existing restaurants;
     *    to develop and expand our franchising program; and
     *    to  evaluate   possible   acquisitions  of  complimentary   restaurant
          concepts.

     We intend to  develop  Tanner's  restaurants  in Atlanta  to  complete  our
penetration of the Atlanta market and in selected Southeastern markets, where we
believe we will be able to use existing supervisory,  marketing and distribution
systems.  We  currently  anticipate  that  we  will  lease  most  of our  future
locations.  In  1999,  we  plan  to  open  up  to  four  company-owned  Tanner's
restaurants and one franchised restaurant.

Background of the "Rick Tanner's Original Grill" Concept

     Richard Tanner developed the original  Tanner's  concept,  which focused on
chicken  rotisserie  and  ribs,  in  1986,  and he grew  this  idea  into  eight
restaurants  in Atlanta over the next ten years.  In October  1996,  Mr.  Tanner
joined forces with veteran  restaurant  investors and a new  management  team to
create  TRC.  TRC  expanded  Mr.  Tanner's  successful  concept  by  adding  new
company-owned  restaurants and developing a franchise  program.  Between October
1996 and its merger  with us in January  1999,  TRC  opened  three new  Tanner's
restaurants  and began  development of several  additional  locations.  TRC also
began initial  development of a franchise  program and franchised one restaurant
in Macon,  Georgia.  During  1998,  TRC  opened one new  company-owned  Tanner's
restaurant in Canton,  Georgia and two franchised Tanner's  restaurants,  one in
Macon,  Georgia and one in Montgomery,  Alabama.  The  franchised  restaurant in
Montgomery,  Alabama was closed in  February  1999 due to  franchisee  financing
arrangements and restaurant location issues.

<PAGE>


     Tanner's  restaurants  are designed to appeal to traditional  casual dining
customers by offering large portions of high quality foods at low prices.  These
restaurants are competitively  positioned between fast food chicken restaurants,
home meal replacement restaurants, and the full bar casual restaurants that have
less  portable  foods.  The  menu  features  over 40  different  entrees  and 15
different appetizers including pot roast, meatloaf,  rotisserie chicken, steaks,
slow  roasted  barbecue  pork  ribs,  " cheesy  chicken  lips,"  "Texas"  chili,
sandwiches, made-from-scratch soups and salads, and family value packs ideal for
take home  service.  All entrees are prepared  using aged beef and fresh chicken
and  seafood,  are cooked to order and are served with a choice of two out of 15
different freshly prepared vegetables.  Since inception,  over 25% of sales have
come from takeout/takehome service.

     Value.  We believe  the  Tanner's  menu  offers a  compelling  value to the
traditional casual dining customer while remaining  competitive with restaurants
targeting  value-oriented  customers.  Tanner's prices range from $3.99 to $6.99
for lunch and from $8.99 to $10.99 for  dinner,  with many  items  priced  under
$8.00.  Additionally,  Tanner's  offers a "Kids" menu for children ten and under
with items priced at $2.95.  The average  amount spent per  customer,  including
beverages, is approximately $6.50 for lunch and $9.50 for dinner.

     Distinctive   Design  and  Decor  and  Casual   Atmosphere.   Our  Tanner's
restaurants  are built  according  to a  flexible  design  concept  that  allows
recognizable  restaurants  to be  developed  at  different  types of sites.  Our
prototype  Tanner's store features an efficient  operating layout,  standardized
equipment and tasteful and distinctive  trade dress.  Tanner's seeks to create a
fun, casual,  family friendly  neighborhood  atmosphere and we attempt to create
this  atmosphere  by  decorating  all  our  restaurants   with  such  things  as
hand-painted murals depicting local history.

     Commitment  to  Customer  Satisfaction.  We  believe  that we must  provide
prompt, friendly and efficient service to ensure customer satisfaction.  We seek
to  staff  each  restaurant  with  an  experienced   management  team  and  keep
table-to-server  ratios low. We use customer surveys to solicit feedback on each
restaurant and attempt to address problems quickly.

     Site Selection.  Our site selection strategy targets markets that provide a
balance of business and residential  clientele.  We analyze a variety of factors
in the  site  selection  process,  including  local  market  demographics,  site
visibility,   accessibility  and  proximity  to  major  retail  centers,  office
complexes, residential communities and entertainment facilities. We believe that
this  strategy  maximizes  our  exposure  to a high  volume  of new  and  repeat
customers.  We devote  significant  time and resources to analyzing  prospective
restaurant sites and gathering  appropriate cost,  demographic and traffic data.
We  use  an  in-house   construction  and  real  estate  department  to  develop
architectural and engineering plans and to oversee new construction. Although we
have traditionally focused on developing our prototype freestanding  restaurant,
we consider developing additional restaurants in existing buildings and in strip
shopping  centers where  appropriate.  We believe that our ability to remodel an
existing building into a Tanner's  restaurant  permits greater  accessibility to
quality sites in more developed  markets.  Once we select a site, we renovate or
build-out the interior and exterior to produce the  distinctive  atmosphere of a
Tanner's restaurant.  Renovation or build-out of a site usually takes from 60 to
120 days.

<PAGE>


     Training  and  Development.  We believe a  well-trained,  highly  motivated
restaurant  management  team is critical to achieving our operating  objectives.
Our training and compensation systems are designed to create  accountability for
performance at the restaurant level. We expend  significant  resources to train,
motivate and educate our restaurant  level managers and hourly  coworkers.  Each
new manager  participates  in a  comprehensive  six week training  program which
combines hands-on  experience in one of our training  restaurants.  To instill a
sense of ownership in restaurant  management,  compensation is based, partly, on
restaurant profit and quality service scores. We believe our focus on unit level
operations  provides an incentive for managers to focus on increasing same store
sales and restaurant profitability.

     Unit  Economics.  The average total  investment cost to open a new Tanner's
restaurant,  including the costs of the land, building,  furniture, fixtures and
equipment,  plus  preopening  costs  that  include  training  salaries,  opening
inventory,  supplies and promotion, is approximately $1,250,000.  Excluding real
estate costs (land purchase or lease costs) and preopening expenses, the average
cost of opening a new restaurant in 1998 was approximately  $650,000.  We expect
to reduce this  average  opening  cost to  approximately  $500,000 in 1999,  due
primarily to  reductions  in the average unit size and a new emphasis on opening
restaurants  in strip  shopping  centers  rather  than  freestanding  buildings.
Individual unit investment costs could vary, however, on account of a variety of
factors,  including  competition for new sites, area construction costs, and the
mix of  conversions,  build-to-suit  and  leased  locations.  We have  sought to
minimize our cash  investment in each  restaurant to  approximately  $300,000 or
less through the use of  sale/leaseback,  or build-to-suit  type financing,  and
equipment financing. We have been successful in obtaining such financing for our
new  freestanding  restaurants  and believe such  financing  will continue to be
available, although we cannot predict that availability.

Competition

     Competition in the  restaurant  industry is intense.  Tanner's  restaurants
compete with mid-price, full-service, casual dining restaurants primarily on the
basis of quality,  atmosphere,  location  and value.  Tanner's  takeout/takehome
business competes not only with other  full-service  restaurants,  but also with
take-out  food  service   companies,   fast-food   restaurants,   delicatessens,
cafeteria-style  buffets,  prepared food stores,  supermarkets  and  convenience
stores.  Tanner's also competes with other restaurants and retail establishments
for quality sites.

     Many of our competitors are well established and have substantially greater
financial,  marketing  and other  resources  than we do.  Regional  and national
restaurant  companies  such as Chili's,  Applebee's,  Black Eyed Pea and Cracker
Barrel have  expanded  their  operations in the current and  anticipated  market
areas of  Tanner's.  This  competition  could  adversely  affect  our  operating
results.

     Competition  in the food service  business is often  affected by changes in
consumer  tastes,  national,  regional,  and  local  economic  and  real  estate
conditions,  demographic trends,  traffic patterns, the cost and availability of
labor, purchasing power, the type, number and location of competing restaurants,
availability  of product  and local  competitive  factors.  Some or all of these
factors could aversely affect us and our future franchisees.

Trademarks and Service Marks

     Before the January 1999 merger,  TRC had applied for registration  with the
United States Patent and Trademark Office of its "Rick Tanner's  Original Grill"
and design service mark. We believe our service marks have significant value and
are important factors in the marketing of our restaurants. We are aware of names
and marks  similar  to the  Tanner's  service  marks  used by others in  certain
geographic  areas,  but  believe  those uses will not  adversely  affect us. Our
policy  is to  pursue  registration  of  our  marks  whenever  possible  and  to
vigorously oppose any infringement of our marks.

<PAGE>


     Although we no longer own,  franchise or operate any restaurants  operating
under the Harvest name, the rights to the "Harvest  Rotisserie" name,  trademark
and service mark remain registered in our name with the United States Patent and
Trademark Office.

Government Regulation

     A variety of federal,  state and local laws apply to us and our  restaurant
business.  Each of our  restaurants  is subject  to  permitting,  licensing  and
regulation by a number of government  authorities,  including alcoholic beverage
control, zoning, health, safety,  sanitation,  building and fire agencies in the
state or municipality in which the restaurant is located.  Our restaurants  must
comply with federal,  state and local government  regulations  applicable to the
consumer food service business,  including those relating to the preparation and
sale  of  food,  minimum  wage  requirements,   overtime,   working  and  safety
conditions,  mandated health  insurance  coverage and citizenship  requirements.
Difficulties  in obtaining or failure to obtain  required  licenses or approvals
could delay or prevent the development of a new restaurant in a particular area.

     Approximately 2% of net restaurant  sales were  attributable to the sale of
alcoholic beverages in 1998. Alcoholic beverage control regulations require each
restaurant to apply to a state  authority and, in certain  locations,  county or
municipal authorities for a license or permit to sell alcoholic beverages on the
premises.  Typically,  licenses  must be renewed  annually and may be revoked or
suspended for cause at any time.  Alcoholic beverage control  regulations relate
to numerous aspects of restaurant  operations,  including minimum age of patrons
and employees, hours of operation, advertising,  wholesale purchasing, inventory
control and handling, storage and dispensing of alcoholic beverages.

     "Dram  shop"  statutes  in Georgia  generally  give a person  injured by an
intoxicated  person the right to recover damages from a business that wrongfully
served alcoholic  beverages to the intoxicated person. We carry liquor liability
coverage as part of our  existing  $2 million  comprehensive  general  liability
insurance.

     The federal  Americans with Disabilities Act requires that places of public
accomodation meet certain requirements related to access and use by persons with
disabilities.  We design  our  restaurants  to be  accessible  to  persons  with
disabilities and believes that it is in substantial  compliance with all current
applicable regulations relating to restaurant accomodations for such persons.

     A number of states and the Federal Trade Commission require a franchisor to
provide specified disclosure statements to potential franchisees before granting
a franchise.  Additionally,  many states  require the franchisor to register its
uniform  franchise  offering  circular  with the  state  before it may offer the
franchise to residents of the state.

     Our  restaurant  operations  are also  subject  to  federal  and state laws
governing such matters as the minimum hourly wage, unemployment tax rates, sales
tax and similar  matters over which we have no control.  Significant  numbers of
our service,  food  preparation  and other  personnel are  compensated  at rates
related to the federal  minimum  wage,  and  increases in the minimum wage could
increase  our labor  costs.  The  development  and  construction  of  additional
restaurants  are subject to  compliance  with  applicable  zoning,  land use and
environmental laws and regulations.

<PAGE>



Franchise Operations

     We currently have one franchisee and are presently offering franchises on a
selective  basis. We cannot give assurances about either the number of franchise
territories that we will sell during fiscal year 1999 or the impact of franchise
fees on our profitability and cash position.

     We  franchise  market  areas  or  territories  through  market  development
agreements,  which grant the right to develop one or more  Tanner's  restaurants
within  a  specified   geographic  area.  A  franchisee  enters  into  a  market
development  agreement when the franchisee  chooses a specific  territory before
signing  the first  license  agreement.  A  franchisee  must also  enter  into a
separate  license  agreement,  which we call unit  license  agreement,  for each
individual Tanner's restaurant that the franchisee opens.

     The market development agreement obligates a franchisee to build and open a
specified  number of  restaurants  in a  designated  area over a  specific  time
period.  It grants  exclusivity  for the  franchisee,  prohibiting us or another
franchisee from developing in the awarded  territory.  If a franchisee  fails to
open  restaurants in accordance with the market  development  agreement,  we can
notify the franchisee of default and terminate the market development  agreement
if the default is not cured.

     Generally, a market development agreement expires when the franchisee opens
the last  restaurant  listed on the schedule in the agreement.  The unit license
agreements then provide market operating control for the franchisees.  After the
franchisee  completes  the  development  schedule,  if we  decide  to  establish
additional  restaurants in the licensed territory,  the franchisee has the right
of first  refusal  to  develop  those  restaurants  as long as the  franchisee's
existing restaurants are in compliance with the agreements.

     The initial  franchise  fee is $25,000 per  restaurant.  A franchisee  pays
$10,000  of this  fee upon  signing  a market  development  agreement,  for each
restaurant to be built. The franchisee pays the remaining $15,000 per restaurant
at the opening of each  restaurant,  when the unit license  agreement is signed.
Unit license  agreements  generally  have a 20-year term and can be renewed with
the then current  license if the  franchisee  is in compliance at the end of the
term.

     Generally, under the unit license agreement, a franchisee pays a continuing
royalty  fee of 4% of gross  revenues  from  each  restaurant.  In  addition,  a
franchisee pays a continuing fee for advertising materials production, initially
 .5% of gross  revenues.  This fee can be increased to 2% of gross  revenues upon
implementation of a national advertising program. Currently, we only require the
 .5% for advertising materials production.

     The unit license  agreement  also requires a franchisee to comply  strictly
with our standards,  specifications,  processes,  procedures,  requirements  and
instructions regarding the operation of a licensed restaurant.  We are obligated
to  provide  initial  training,   new  store  opening  support,  and  continuing
inspection and  training/marketing  assistance  for each  franchise  restaurant.
Restaurant  managers must be certified in our training program.  Franchisees may
purchase  food  products and  restaurant  supplies  from  independent,  approved
suppliers as long as they conform to our  specifications.  Alternate  sources of
these items are  generally  available.  The same is true for equipment and decor
packages.


<PAGE>



Insurance

     We carry general liability,  product liability and commercial  insurance of
up to $2,000,000,  together with an umbrella liability coverage of an additional
$10,000,000  and  worker's  compensation  insurance,  all of which we believe is
adequate  for a  business  of our size  and  type.  We  cannot  assure  that our
insurance  coverage will remain  adequate or that  insurance will continue to be
available to us at reasonable rates.

     Franchisees are required to maintain certain minimum standards of insurance
pursuant to their franchise  agreements,  including commercial general liability
insurance,  worker's  compensation  insurance and all risk property and casualty
insurance.  We  require  that we be  named  as an  additional  insured  on those
policies.

Employees

     As of March 22, 1999, we employed  approximately 375 people, of whom 12 are
executive and administrative  personnel,  36 are restaurant management personnel
and the remainder are hourly restaurant personnel. Many of our hourly restaurant
employees  work  part-time.  None of our  employees  is covered by a  collective
bargaining agreement. We consider our employee relations to be good.


ITEM 2. DESCRIPTION OF PROPERTY

Property

     We lease approximately 3,320 square feet of space for our executive offices
in Alpharetta,  Georgia under a  month-to-month  lease for $4,200 per month.  We
expect to relocate our  executive  offices to  Norcross,  Georgia in early April
1999. Our new monthly rent is $2,919. We believe that these new executive office
facilities will be adequate for our needs in the foreseeable  future. We believe
that additional  space, if needed, is available at reasonable rates. In addition
to the one property that we own, we lease 19 properties  that range in size from
approximately  3,000 to 5,326  square  feet and  range in rent  from  $2,700  to
$11,917 per month, as described below.  Included in these properties are several
leases for properties that we no longer use, as indicated below.

     Although there were no ongoing  Harvest  Rotisserie  restaurant  operations
when Harvest merged with TRC in January 1999, Harvest had previously  guaranteed
all of the real estate leases on all Harvest Rotisserie franchised  restaurants.
We accrued a real estate disposition liability of $145,000 at December 27, 1998,
which we believe will be  sufficient  to settle all  obligations  related to the
closing of the company-owned and franchised Harvest Rotisserie restaurants,  and
the abandonment of the Harvest Rotisserie restaurant sites under development.

<PAGE>


                                 Form of              Lease              Monthly
Location                         Ownership            Expiration         Rent
--------                         ---------            ----------         ----

Executive Offices:
------------------

2662 Holcomb Bridge Road         Building Lease       March 31, 1999     $4,200
Suite 320
Alpharetta, GA 30302


5500 Oakbrook Parkway            Building Lease       March 31, 2004     $2,919
Suite 260
Norcross, Georgia 30093

Operating Restaurants and 
Catering Facility:
------------------

350 Northridge Road              Building Lease       July, 2000         $4,439
Atlanta, GA 30338

3220 Cobb Parkway                Building Lease       June, 2003         $5,716
Atlanta, GA 30339

4920 Roswell Road                Building Lease       June, 1999         $5,694
Atlanta, GA 30342

1371 Clairmont Road              Building Lease       June, 2001         $5,394
Decatur, GA 30033

650 Gwinnett Drive               Building Lease       April, 2002        $3,731
Suite 203
Lawrenceville, GA 30245

4450 Hugh Howell Road            Building Lease       April, 2002        $4,426
Tucker, GA 30084

521 Indian Trail NW              Building Lease       June, 1999         $3,800
Lilburn, GA 30247

94 Pavillion Parkway             Building Lease       June, 2013         $11,917
Fayetteville, GA 30214

525 Peachtree Industrial Blvd.   Building Lease       September, 2002    $6,180
Suwanee, GA 30174

6470 Spalding Drive, Suite P     Building Lease       September, 2002    $4,533
Norcross, Georgia  30092

<PAGE>

                                 Form of              Lease              Monthly
Location                         Ownership            Expiration         Rent
--------                         ---------            ----------         ----

Closed Restaurants
and Abandoned Properties:
-------------------------


1453 Riverstone Parkway          Building Lease       February, 2018     $6,879
Suite 100
Canton, GA 30114

6275 Spalding Drive              Building Lease       June, 2000         $5,480
Norcross, GA 30092

3433 McGehee Road                Building Lease       February, 2008     $6,667
Montgomery, AL 36111  (2)

Walzem Road                      Building Lease       February, 2006     $2,700
San Antonio, TX (3)

South Padre Island Drive         Building Lease       November, 1999     $5,000
Corpus Christi, TX

South Braeswood Road             Building Lease       January, 2004      $3,000
Houston, TX

11730 West Avenue                Building Lease       May, 2002          $4,500
San Antonio, TX

Tezel Road                       Real Estate          N/A                N/A
San Antonio, TX (1)              Owned

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

(1)  Under the terms of a Deed of Trust dated December 28, 1998 and filed in the
     County of Bexar in the State of Texas, this property secures two promissory
     notes,  one in the amount of  $150,000  and one in the  amount of  $50,000,
     issued to Mr.  William  Gallagher  pursuant  to the terms of his  severance
     agreement.

(2)  We currently  sublease this property for  approximately the same amount per
     month as we owe on the lease.

(3)  We currently sublease this property for $3,600 per month.



ITEM 3. LEGAL PROCEEDINGS

We are a named party in the following legal proceedings:

     On June 1, 1998,  Harvest  was named as a defendant  in a lawsuit  filed in
Texas in Nueces  District  Court by Lin Chin Liu Ho and Chi Pen Ho (Case  Number
98-2048-E).  The  plaintiffs  are seeking  damages of  $150,000  for breach of a
commercial  lease.  We have filed a motion for summary  judgment.  We are in the
process of filing a motion to dismiss  this action on the grounds  that  Harvest
never entered into a lease agreement for the property.

<PAGE>


     On August 12, 1998,  Harvest was named as a defendant in a lawsuit filed in
Texas by Green Tree Vendor Services Co. in Bexar County Court (Case No. 247317).
The plaintiff is seeking to recover damages of $38,691 for Harvest's  failure to
make  payments  under two  equipment  leases.  The  plaintiff  has filed a first
amended  motion for summary  judgment,  which has not yet been set for  hearing.
Settlement negotiations are ongoing.

     On August 20, 1998,  Harvest was named as a defendant in a lawsuit filed in
Texas by Toufic Khalifa in Bexar County  District Court (Case No.  98-CI-12200).
The plaintiff is seeking  damages in the amount of at least  $240,000 for breach
of a commercial lease. The case is now in the discovery phase.

     Prior to the merger,  Harvest settled a number of lawsuits and claims,  and
since the merger we have settled additional  lawsuits and claims.  Some of these
settlements are documented by executed settlement  agreements and releases while
others are not.

     We are involved in certain claims arising in the normal course of business.
In our opinion,  although the outcomes of any such claims are uncertain,  in the
aggregate they are not likely to have a material adverse effect on us.


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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of fiscal 1998.

     On March 12,  1999,  we held a special  meeting  at which our  shareholders
voted in favor of two  amendments  to our articles of  incorporation.  The first
amendment  increased the number of shares of common stock that we are authorized
to issue from  20,000,000  shares to 200,000,000  shares.  The second  amendment
changed our name from  Harvest  Restaurant  Group,  Inc. to Tanner's  Restaurant
Group, Inc. A total of 8,241,609 shares were entitled to vote on each matter, as
follows:

     (1)  Name  change - 7,352,794  shares were voted in favor of the  proposal,
          while 31,480  shares were voted  against the  proposal,  58,206 shares
          abstained and 799,129 shares did not vote;

     (2)  Increase in authorized  common shares - 7,228,549 shares were voted in
          favor of the proposal,  while  151,674  shares were voted against this
          proposal, 62,257 shares abstained and 799,129 shares did not vote.

<PAGE>



PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Common Stock

     Until  September 16, 1998 the Harvest common stock was quoted on the NASDAQ
SmallCap  Market System under the symbol "ROTI." As of close of business on that
date the common stock was delisted from the NASDAQ  SmallCap  Market,  and since
that date the common stock has been quoted on the OTC Bulletin  Board.  On March
23, 1999, the high and low sales prices for the common stock were $.47 and $.42,
respectively.  The range of high and low sales  prices for the  common  stock as
reported by Nasdaq and the range of high and low bid prices as quoted on the OTC
Bulletin  Board  (indicated  by an  asterisk)  are listed  below for the periods
indicated.  The quotations reflect inter-dealer prices,  without retail mark-up,
mark-down or commission and may not represent actual transactions.

                                                            Price
                                                    ----------------------
                                                     High           Low
                                                     ----           ---
Fiscal Year 1997:       Quarter Ended:
-----------------       --------------

First Quarter           April 20, 1997              $7.75         $6.00
Second Quarter          July 13, 1997               $8.00         $4.75
Third Quarter           October 5, 1997             $5.09         $1.43
Fourth Quarter          December 28, 1997           $2.63         $ .75

Fiscal Year 1998:
-----------------

First Quarter           April 19, 1998              $2.2188       $  .25
Second Quarter          July 12, 1998               $  .875       $  .25
Third Quarter           October 4, 1998             $  .875       $  .125*
Fourth Quarter          December 27, 1998           $  .29*       $  .09*


Holders of Record

     We had  approximately  99 holders of record of our common stock as of March
23, 1999.


Dividends

     We have never paid cash  dividends on our common stock and intend to retain
earnings,  if any, to use in operating and expanding our business.  Our board of
directors will determine the amount of future dividends,  if any, based upon our
earnings, financial condition, capital requirements and other conditions.

Recent Sales of Unregistered Securities

     We had no  sales  of  unregistered  securities  in the  fiscal  year  ended
December 27, 1998 that we have not already  reported in our  quarterly  reports,
and we sold no unregistered securities in the fourth quarter.

<PAGE>


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

     The following discussion should be read in connection with the consolidated
financial  statements  and related  notes  thereto  included  elsewhere  in this
report.

     On January 14, 1999 TRC merged into a wholly owned subsidiary of Harvest in
a forward triangular merger.  Because the former  shareholders of TRC received a
majority of the shares of our common  stock  outstanding  immediately  after the
merger,  the historical  financial  statements of the surviving  company for the
periods prior to the merger are those of TRC rather than Harvest.

Overview

     Our growth strategy is to open new company-owned  Tanner's restaurants,  to
increase  sales at  existing  restaurants,  develop  and expand our  franchising
program,  and to evaluate possible  acquisitions.  We intend to develop Tanner's
restaurants primarily in the greater Atlanta market and in selected Southeastern
markets, where we believe we will be able to use existing supervisory, marketing
and distributions systems. Additionally, we may seek to acquire other restaurant
concepts that would compliment our existing Tanner's  business,  allowing growth
and improving  profitability.  We are evaluating existing restaurant  locations,
and may close  certain  unprofitable  restaurants  as we expand the  concept and
focus on increasing profitability.

     A significant factor in both the structure and completion of the merger was
a commitment by third party  investors to invest  $6,000,000 in the new combined
company.  This  financing  will be used  primarily  for working  capital and the
development of up to four company-owned  Tanner's restaurants and the opening of
one  franchised  Tanner's  restaurant  during  1999,  although  there  can be no
assurance that such development plans will be successful.

Results of Operations  for the Year Ended December 27, 1998 Compared to the Year
Ended December 28, 1997

     Revenues.  Total  revenues  increased by $2,727,993  during the fiscal year
1998 in  comparison  to  fiscal  1997.  This  increase  in  sales  is  partially
attributable to sales from two new  restaurants  opened in the fourth quarter of
1997 and one new  restaurant  opened in the second  quarter  of 1998.  The sales
increase is also the result of a rise in same-store sales of 1.9% over 1997. Our
first franchised stores were opened during the first half of 1998. Royalties and
franchise  fees earned during the year were $63,341 versus $0 in the prior year.
This increase in restaurant and franchise-related  sales was partially offset by
a 13.5% decrease in catering sales.

     Costs and  Expenses.  In general,  costs have  increased as a percentage of
sales due to the additional  coupon and promotions that began in August 1997 and
continued  through  1998.  These  types of  promotions  increase  the  number of
customers that visit the restaurant and increase sales.  However,  the operating
expenses on these sales are higher because the sales have been discounted  below
the menu price.  This  increase in costs is most  evident in food,  beverage and
paper costs.

<PAGE>


     Food,  beverage  and paper costs were 35.2% of 1998 sales  versus  34.4% of
sales  for the  same  period  in  1997.  The 0.8%  increase  in food  costs as a
percentage  of sales was  primarily  a result of  increased  coupon and  various
discount promotions in 1998 as mentioned above.

     Payroll and benefit  expense was a stable  35.5% of sales in 1998 and 1997.
In April 1997,  we  implemented a new benefits  package that permits  restaurant
managers to obtain health, life and disability  insurance.  We pay for a portion
of this package.  As a result of this new employee  benefit,  benefit costs rose
0.1% as a  percentage  of sales.  This was offset by a decrease of 0.1% in labor
costs.

     Other  operating  expenses  decreased as a percentage of sales to 23.5% for
1998 from  27.3% for 1997.  Although  total  advertising  expenditures  remained
constant,  we began to realize some market  efficiencies as advertising  expense
decreased  1.5% as a  percentage  of sales  when  compared  to 1997.  Additional
decreases in 1998 were the result of: (a) changing all restaurant  cleaning from
an   externally   contracted   service  to  an  in-store   responsibility   (.3%
improvement),  (b)  negotiating  certain  contracts  related to the  purchase of
cleaning  materials and supplies (.3%  improvement) and (c) general reduction in
repair and  maintenance  expense as a  percentage  of sales  because  28% of all
restaurants  are new in 1998 and need minimal repairs versus no new stores until
November of 1997 (.5% improvement).  Pre-opening  expenses decreased in 1998 due
to one new restaurant  compared to two new  restaurants in 1997 (.9% of sales in
1998  compared  to  2.5% in  1997).  However,  these  margin  improvements  were
partially  offset by the  increase  in rent  expense  (.4%).  This is due to the
higher costs  associated with new store leases.  These factors resulted in a net
decrease to other operating expenses of 3.8% of total sales.

     Total  occupancy  costs,  consisting of  depreciation,  rent and restaurant
interest expense, increased to 9.1% in 1998 from 7.1% in 1997. The 2.0% increase
as a  percentage  of sales was  primarily  due to the two new  restaurants  that
opened in the fourth quarter of 1997 and one new  restaurant  that opened in the
second quarter of 1998. We believe that this trend will start to reverse in 1999
as we open  more  "end-cap"  restaurants  located  at the end of strip  shopping
centers,  as  opposed to  free-standing  buildings,  which  tend to have  higher
capital investments,  as well as financing costs,  therefore resulting in larger
depreciation charges and greater interest costs.

     Depreciation and  amortization  expense in 1998 increased by 0.6% over 1997
due to fixed asset additions at the new restaurants that were opened in 1997 and
1998.  Most of these assets were placed in service in December of 1997,  January
and July of 1998.

     General and  administrative  expenses  increased to $1,651,474 in 1998 from
$1,278,581  in  1997,  primarily  due  to  costs  incurred  in  anticipation  of
franchising and expanding the Tanner's concept,  such as recruiting and training
restaurant  managers for anticipated new stores,  printing and development costs
for new menus,  hiring a franchise  consultant,  and restructuring the corporate
office  personnel  to support  additional  growth.  Although  total  general and
administrative  expenditures increased,  the additional sales generated from new
and old restaurants leveraged these costs down to 14.1% of 1998 sales from 14.3%
of 1997 sales.

     The  write  down of an  intangible  asset is due to a  one-time  charge  of
$547,000 related to the cancellation and termination of an employment  agreement
with the former president of TRC.

<PAGE>


     Other Income  (Expense).  Other income  decreased in 1998 to 0.2% of sales,
from 0.3% of sales in 1997.  Interest expense increased to $700,451 in 1998 from
$546,552 in 1997. This is primarily attributable to an increase in borrowings of
approximately  $1,000,000 in the first half of 1998. Our effective interest rate
remained at 11.3% for 1998.

     Net Loss. We incurred a net loss of $2,897,759  for the year ended December
27, 1998 compared to $2,143,409  for the same period in 1997. We expect to incur
losses in future  periods  until we expand  our base of  restaurants  and reduce
current general and administrative expenses.

     As we pursue our plans for growth, we expect to see the following trends in
operating  costs.  Food,  beverage  and paper  costs and payroll  expenses  will
increase  during the first two months of a restaurant's  operations.  Preopening
expenses are expected to total  approximately  $100,000 for each new  restaurant
and are expensed as incurred in  accordance  with  Statement  of Position  98-5,
Reporting on the Costs of Start-up Activities.  The majority of preopening costs
are incurred in the accounting  period prior to opening and in the period that a
restaurant  opens.  As we increase our base of  restaurants,  the effects of the
above-mentioned operating trends will decrease, as the new restaurants will have
less of an impact on our consolidated results.

Liquidity and Capital Resources.

     Our cash and cash  equivalents  increased  $434,768  during  the year ended
December 27, 1998.  Principal  sources of funds consisted of (a) the sale of one
of the restaurant  facilities for $359,696,  (b) additional  borrowings totaling
$1,016,617  under both secured and  unsecured  loan  agreements  and (c) cash of
$411,150 acquired in the merger.  The primary uses of funds consisted of (a) the
purchase of additional fixed assets for new restaurants of $972,724 and (b) cash
used in operations of $220,198.

     We have incurred  operating  losses since  inception and as of December 27,
1998 had an accumulated  deficit of $6,390,005 and a working  capital deficit of
$4,040,192.  We are not currently generating sufficient revenues from operations
to  meet  our  cash  requirements.   Because  substantially  all  sales  in  our
restaurants  are for cash,  and  operating  costs are  generally due in 15 to 45
days,  we are able to operate  with  negative  working  capital.  Also,  we have
obtained  extended payment schedules with several of our larger vendors allowing
for  payment  terms  of  60  to  90  days.  Additionally,  certain  vendors  and
authorities  have agreed to extended payment terms for obligations we previously
incurred.

     We have not paid dividends on the Series A preferred  stock since June 1998
and are currently analyzing our alternatives for addressing these arrearages.

     We opened one new restaurant during 1998 and had two franchised restaurants
open during this same time period.  One of the franchised  restaurants closed in
February of 1999 due to franchisee  financing  arrangements and location issues.
We closed two  under-performing  restaurants in March of 1999, which is expected
to result in a charge to earnings of approximately $300,000 in the first quarter
of 1999. In the remainder of 1999, we plan to open up to four new  company-owned
and one franchised Tanner's  restaurant.  Our capital  requirements to meet this
development  plan could be as much as $1.6 million.  We may also seek to acquire
other  restaurant   concepts  that  would   compliment  our  existing   Tanner's
restaurants.  Although we do not  currently  have the capital  resources to meet
this development  plan,  outside  investors have invested  $2,000,000 in 1999 to
purchase  shares of our  Series D  preferred  stock.  They will  invest  another
$2,000,000  when the shares of common  stock  into which the Series D  preferred
shares are  convertible  are  registered  with the SEC.  We intend to cause that
registration  to become  effective  in late spring of 1999.  We plan to meet our
capital  requirements for new restaurant  development,  possible  acquisition of
another  restaurant  concept,  and working capital through the remainder of this
funding.

<PAGE>


     If the current development schedule is not delayed,  management anticipates
that  by the  fourth  quarter  of  1999,  we  will  have a  base  of  profitable
restaurants that will allow us to begin to leverage our non-operating expenses.

Year 2000 Computer Issues

     The "Year 2000 problem" is a general term used to identify  those  computer
programs or applications  that are programmed to use a two-digit field,  instead
of a  four-digit  field,  for the year  component of a date.  Those  programs or
applications  which are programmed in this manner may recognize the year 2000 as
the year 1900,  thereby causing  potential  system failures or  miscalculations,
which  could  result in  disruptions  of  normal  business  operations.  We have
evaluated our state of readiness,  the costs involved to become  compliant,  the
risks involved,  and our contingency plans. Our primary uses of software systems
are our corporate accounting and restaurant management software.

     We have  completed an initial  assessment of our core computer  information
systems and are now  undertaking  the  necessary  steps to make our systems Year
2000  compliant.  We believe that the cost to upgrade our  software  will not be
material.  We are currently evaluating and assessing those computer systems that
do not relate to information systems, such as telecommunications, HVAC, and fire
and  safety  systems,  which  typically  include  embedded  technology  such  as
microcontrollers that may be harder to test, and may require repairs or complete
replacement.  We expect to complete this assessment during the second quarter of
1999.

     We are in the  process  of  contacting  all  significant  vendors  and  our
independent  payroll vendor to verify that those vendors are also addressing the
problem. We have developed contingency plans where necessary.  Certain Year 2000
issues that may  adversely  affect our  operations  are beyond our  control.  We
cannot now  estimate  the  potential  adverse  effect  that may result  from the
failure  of any of our  vendors  to become  Year  2000  compliant,  although  we
continues  to  believe  that  there  will be no  direct  material  effect on our
operating performance or results of operations.


ITEM 7. FINANCIAL STATEMENTS

     The  financial  information  required by this item begins on page F-1.  The
financial  statements  presented  are those of TRC, the entity that is deemed to
have been the accounting acquirer in the January 1999 merger.


ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

     Effective July 17, 1998, Akin, Doherty, Klein & Feuge, P.C. resigned as the
certifying  accountant for Harvest Restaurant Group, Inc. Please see our Current
Report on Form 8-K,  dated July 9, 1998, for  additional  information  regarding
this resignation. As a result of our merger with TRC on January 14, 1999, Porter
Keadle Moore, LLP, the independent accountants for TRC before the merger, became
our independent  accountants on the date of the merger. Neither we nor anyone on
our behalf  consulted Porter Keadle Moore, LLP regarding any matter described in
Item 304(a)(2)(i) or (ii) of Regulation S-B.

<PAGE>


                                   PART III 

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT


Directors and Executive Officers

     Our officers and directors as of March 23, 1999 are listed below. Under the
TRC merger  agreement,  all of our pre-merger  officers and directors other than
William Gallagher resigned,  including Michael Hogan, Theodore Heesch and Joseph
Fazzone.  Mr. Gallagher resigned from his position as an officer but will remain
on the board of directors  until July 1999.  When the merger  became  effective,
certain  officers and  directors of TRC became our  officers and  directors,  as
described below. Consequently, our current management team consists primarily of
TRC's pre-merger management.

     Each director  listed below will hold office until our 1999 annual  meeting
of  shareholders,  except that Mr.  Gallagher's term will expire in July 1999 in
any event. Cumulative voting is not permitted in the election of directors.

     The following table provides  information about our directors and executive
officers.

       Name                  Age                         Office
       ----                  ---                         ------

Clyde E. Culp, III           56            Chairman of the Board of Directors, 
                                           President and Chief Executive Officer

Richard E. Tanner            45            Director

James R. Walker              49            Director

William J. Gallagher         60            Director

Robert J. Hoffman            49            Senior Vice President of Operations

Timothy R. Robinson          35            Vice President and Chief Financial
                                           Officer

<PAGE>


Background of Our Directors and Executive Officers

     Clyde E. Culp III,  formerly the chairman  and chief  executive  officer of
TRC,  assumed the  positions of our Chairman of the Board of Directors and Chief
Executive  Officer  upon  the  merger.  Mr.  Culp has  held  numerous  executive
positions  during his 28-year  career in the hotel and restaurant  industry.  He
served as a director and officer of TRC beginning in November 1996. From 1993 to
1996, Mr. Culp served as president and chief executive officer of the 1,500 unit
Long John Silvers  restaurant  chain.  From 1990 to 1993, he served as president
and chief  executive  officer of Embassy  Suites Hotels and also served as chief
operating  officer of Holiday Inns from 1987 to 1990. In 1975,  Mr. Culp founded
Davco  Foods,  which grew to 146 stores and was the  largest  Wendy's  Hamburger
franchisee in the world.

     Richard  E.  Tanner is the  founder  of the Rick  Tanner's  Original  Grill
concept and was TRC's  president  before the merger.  Upon the merger Mr. Tanner
became a director and consults with our  management in all aspects of restaurant
engineering,  design, layout and menu modifications.  He will continue to be our
marketing spokesman.

     James R.  Walker has been the owner and  operator of Sim's  Wholesale  Co.,
Inc. in  Lynchburg,  Virginia,  since 1986 and is also a Visiting  Professor  of
Business  Administration  at the  Darden  Graduate  School  of  Business  at the
University of Virginia, a position he has held since 1995. He has held marketing
management positions at Smith Kline Beecham, Inc. and Eli Lilly and Co.

     William J. Gallagher was our Chairman and Chief Executive Officer until the
the merger. He will serve as a director July 1999. In addition,  he is President
of Jagbanc Capital Ltd., a merchant bank  headquartered  in San Antonio,  Texas.
From February  1991 to September  1994,  Mr.  Gallagher was the founder and then
chairman and chief  executive  officer of  WaterMarc  Food  Management,  Inc., a
multi-concept  restaurant chain and barbecue sauce producer.  Mr. Gallagher also
served as a director of Cluckers Wood Roasted  Chicken,  Inc., the developer and
franchisor  of the  "Cluckers"  restaurant  concept,  from June 1993 to November
1994.

     Robert J. Hoffman,  our Senior Vice President of Operations,  served TRC in
that role from 1996 until the merger.  Mr. Hoffman has over 30 years' experience
in restaurant  operations.  Before  joining TRC, from 1994 to 1996,  Mr. Hoffman
served as a vice president for Miami Subs and was responsible for operations and
training of 260 company-owned and franchised restaurants.  From 1969 to 1993, he
served in various management roles, most recently as as senior vice president of
operations,   with  Metromedia  Steakhouse  LP,  which  operated  836  Ponderosa
Steakhouses.

     Timothy R. Robinson, our Vice President and Chief Financial Officer, served
TRC in those roles from  December  1996 until the merger.  Prior to joining TRC,
Mr. Robinson  served as a senior manager with Coopers & Lybrand,  LLP in Atlanta
and has been engaged in public  accounting  since 1986. He was  responsible  for
numerous audits of publicly held companies and has extensive financial reporting
experience.  Mr.  Robinson is a certified  public  accountant and holds a B.B.A.
degree in accounting from Georgia State University.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and  executive  officers and persons who own  beneficially  more than 10% of our
outstanding  common stock to file with the SEC initial  reports of ownership and
reports of changes in their ownership of our common stock. Directors,  executive
officers and greater than 10%  shareholders  are required by SEC  regulations to
furnish us with copies of the forms they file. To our knowledge, based solely on
a review of the copies of such reports  furnished to us,  during the fiscal year
ended December 31, 1998, our directors,  executive officers and greater than 10%
shareholders complied with all applicable Section 16(a) filing requirements.

<PAGE>


ITEM 10. EXECUTIVE COMPENSATION

     The following table provides  information  concerning  compensation for the
past  fiscal  three  years  to our  former  Chief  Executive  Officer.  No other
executive officer received  compensation in excess of $100,000 during the fiscal
year ended December 27, 1998.

<TABLE>
<CAPTION>

                                    Summary Compensation Table
                                                                                     
                                                                                         Long-Term       
                                                                                        Compensation      
                                                                                           Awards       
                                                    Annual Compensation                 ------------         
                                                                                         Securities
                                                                         Other Annual    Underlying    All Other 
Name and Principal Position               Year  Salary($)     Bonus($)  Compensation($)  Options(#)   Compensation($)
---------------------------               ----  ---------     --------  ---------------  ----------   ---------------

<S>                                       <C>   <C>           <C>       <C>              <C>              <C>
William J. Gallagher....................  1998   90,000            0        13,691(2)    140,000(1)        0
  Chairman and Chief Executive Officer    1997   89,519       37,156         7,663             0           0
                                          1996   79,209            0         3,640             0           0

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

(1) On February 5, 1998,  the Board of  Directors  authorized a repricing of the
option  exercise  price for all  outstanding  options  granted under the Harvest
Stock Option Plan to $1.00, with no change in the vesting periods. Mr. Gallagher
owns 140,000 options. This revised exercise price represented approximately 200%
of the market price of the common stock on the date of the repricing.

(2) This amount  consists of a car  allowance of $5,157 and $8,534 that was used
to pay off a loan.

</TABLE>

     Mr.  Gallagher  resigned  as an officer of Harvest  and signed a  severance
agreement that requires us to pay him $200,000 during 1999. As of March 22, 1999
we have paid him $50,000,  and we owe him the  remaining  $150,000 to be paid as
described  below.  See  "Employment  Contracts and Termination of Employment and
Change-in-Control Arrangements.


Option Grants

     The following table provides information concerning grants of stock options
to Mr.  Gallagher,  the only named executive officer under applicable SEC rules,
during the fiscal year ended December 27, 1998.

<PAGE>

                        Option Grants In Last Fiscal Year


                                   Individual Grants
                        ---------------------------------------
                                          Percent              
                         Number of       of Total        
                        Securities        Options      Exercise
                        Underlying      Granted to      Price  
                          Options      Employees in    ($ per      Expiration
                        Granted(#)     Fiscal Year      Share)        Date
                        ----------    --------------   --------       ----
                                                      
William J. Gallagher    140,000 (1)       33.33%         1.00     September 2001

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

(1) On February 5, 1998,  the Board of  Directors  authorized a repricing of the
option  exercise  price for all  outstanding  options  granted under the Harvest
Stock Option Plan to $1.00, with no change in the vesting periods.  This revised
exercise price represented  approximately 200% of the market price of the common
stock on the date of the repricing.


Compensation of Directors

     Directors are paid $250 per meeting.

Employment  Contracts  and  Termination  of  Employment  and   Change-in-Control
Arrangements

     When we completed the merger on January 14, 1999,  Clyde E. Culp,  III, the
chairman  and chief  executive  officer of TRC prior to the  merger,  became our
Chairman and Chief Executive Officer.  Mr. Culp's five-year employment agreement
provides  that Mr. Culp will be paid an annual  salary of $200,000  and provides
that Mr. Culp will be entitled to earn a bonus if he meets  certain  criteria to
be established by Mr. Culp and the board of directors.

     In connection with the merger,  William J.  Gallagher,  our chief executive
officer  prior  to the  merger  and one of our  current  directors,  executed  a
severance  agreement  with us pursuant to which he resigned  from all  positions
that he held with us,  other than as one of our  directors,  in exchange for our
agreement to pay him a total of $200,000.  We paid Mr. Gallagher  $10,000 in the
first week of January  1999 and $10,000 in the first week of February  1999.  As
amended,  the severance  agreement calls for us to pay Mr.  Gallagher $5,000 per
week beginning March 16, 1999 and continuing  until the earlier to occur of: our
receipt of the final  $2,000,000  installment  of funding  from the third  party
investors; the sale of our property on Tezel Road in San Antonio, Texas; or June
30, 1999.  In addition,  if we settle our ongoing  disagreements  on two matters
with third parties,  we have agreed to forward Mr. Gallagher the net proceeds of
these  settlements.  The  amounts  owed to Mr.  Gallagher  under  his  severance
agreement  are  secured  by a deed of  trust on the  Tezel  Road  property.  Mr.
Gallagher has also agreed to remain on the board of directors until July 1999.

<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following  table provides  information as of March 23, 1999  concerning
ownership of the capital stock by each  director and officer,  all directors and
officers as a group, and all beneficial  owners of 5% or more of the outstanding
shares of common stock.

     Except as otherwise  noted,  the persons  named in the table own the shares
beneficially  and of record  and have sole  voting  and  investment  power  with
respect  to all  shares of  capital  stock  shown as owned by them,  subject  to
community property laws, where applicable. Each shareholder's address is in care
of us at 2662 Holcomb Bridge Road,  Suite 320,  Alpharetta,  Georgia 30022.  The
Right to Acquire  column in the table also  reflects  all shares of common stock
that each individual has the right to acquire within 60 days from the above date
upon exercise of stock options or common stock purchase warrants.

<TABLE>
<CAPTION>

                                                                                Percent of
                                  Class of       Number of        Right         Outstanding
Name                                Stock      Shares Owned     to Acquire    Shares of Class
----                                -----      ------------     ----------    ---------------
<S>                               <C>            <C>               <C>             <C>
Clyde E. Culp, III                 Common       1,178,063           78,538          15.1%
William J. Gallagher               Common          46,667          140,000           2.2
Richard Tanner                     Common       1,413,675          353,419          20.6
                                  Series E        469,775                0          63.0
James R. Walker (1)                Common         765,741           54,976           9.9
                                  Series E        183,150                0          24.6
SECA VII, LLC (1)                  Common         765,741           54,976           9.9
                                  Series E        183,150                0          24.6
Robert J. Hoffman                  Common            --            243,466           2.9
Timothy R. Robinson                Common            --            254,462           3.0
John Feltman                       Common         382,870 (2)      353,419           8.6
Sirrom Funding Corporation         Common            --            643,509           7.2
All officers and directors 
as a group (6 persons) (3)         Common       3,404,146        1,124,861          48.4
                                  Series E        652,925                0          87.7%

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

(1)  Mr. Walker, a director, is an equity owner of SECA VII, LLC, which directly
     owns  765,741  shares  of  common  stock  and  183,150  shares  of Series E
     preferred stock and has the right to acquire 54,976 shares of common stock.

(2)  Represents 382,870 shares held by Brookhaven Capital Corporation,  of which
     Mr. Feltman is the chairman.

(3)  Messrs. Gallagher, Culp, Tanner, Walker, Hoffman and Robinson.

</TABLE>

<PAGE>


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In  connection  with  the  merger,  several  of our  current  officers  and
directors,  as well as holders of 5% or more of our  outstanding  common  stock,
received our  securities.  Clyde E. Culp,  III, our Chairman and Chief Executive
Officer,  received  1,178,063  shares of common  stock and options to acquire an
additional  78,538  shares of common  stock in exchange for his shares of common
stock and options of TRC,  respectively.  Also as part of the  merger,  Mr. Culp
executed an  employment  agreement to become our  Chairman  and Chief  Executive
Officer. Mr. Culp has also personally  guaranteed two loans on our behalf. As of
December 27, 1998, the aggregate outstanding principal amount of these two loans
was $422,150.  James R. Walker, one of our directors, is also an equity owner of
SECA VII, LLC, which received 765,741 shares of common stock,  183,150 shares of
Series E preferred  stock,  and options to acquire  54,976 shares in the merger,
also in exchange for TRC securities that it held. Timothy R. Robinson, our Chief
Financial Officer, and Robert J. Hoffman, our Chief Operating Officer,  received
options to acquire  254,462  shares of common stock and 243,466 shares of common
stock,  respectively,  in exchange for their options to acquire shares of common
stock of TRC. John D. Feltman,  a  significant  shareholder  and the chairman of
Brookhaven  Capital  Corporation,  received options to acquire 394,986 shares of
common stock in exchange for his options to acquire  shares of TRC common stock.
Moreover, Brookhaven received 382,870 shares of common stock in exchange for its
shares of TRC common stock.

     Also in connection  with our merger with TRC,  Richard  Tanner,  one of our
directors,  received approximately 469,775 shares of Series E preferred stock in
exchange  for his  agreement  to cancel a  promissory  note from TRC to him, his
agreement to terminate his employment  agreement with TRC, and his conversion of
shares of Class A preferred  stock of TRC. Mr.  Tanner also  received  1,413,675
shares of common stock and options to acquire  353,419 shares of common stock in
exchange for his outstanding shares and options,  respectively, of TRC. Also, we
sublease a restaurant  facility in Montgomery,  Alabama to Tanner's  Montgomery,
Inc.,  which Mr.  Tanner owns.  Tanner's  Montgomery  pays us rent of $6,667 per
month under a lease that expires in February 2008. This restaurant was closed in
February 1999.

     SECA VII, LLC a significant  shareholder and an entity in which Mr. Walker,
one of our directors,  is an equity owner, has loaned us $350,000 at an interest
rate of 12.5%.  This loan  matures  upon the earlier of our receipt of the final
$2,000,000 of our financing commitment or July 31, 1999.

     Mr.  Gallagher is an officer of Santa Cruz Squeeze,  Inc.,  which  advanced
money to the  Company in 1998  secured by a real  estate lien note issued by the
Company in the approximate  amount of $150,000.  We paid this note in full prior
to the merger.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits.  We have filed  certain of the  exhibits  required by Item 601 of
     Regulation  S-B  with  previous  registration  statements  or  reports.  As
     specifically  noted in the  footnotes to the  following  Index to Exhibits,
     those exhibits are  incorporated  into this annual report on Form 10-KSB by
     reference to the applicable statement or report.


Exhibit No.    Title
-----------    -----

2.01           Agreement  and Plan of  Merger by and  among  Harvest  Restaurant
               Group,  Inc.,  a  Texas  corporation,   Hartan,   Inc.,  a  Texas
               corporation,   and  TRC   Acquisition   Corporation,   a  Georgia
               corporation, dated December 27, 1998. (4)

3.01           Articles of Incorporation, as amended.

3.02           Bylaws. (l)

<PAGE>



4.01           Loan  Agreement  by and among  TRC  Acquisition  Corporation  and
               Sirrom Capital Corporation, dated October 22, 1996.

4.02           Assumption  Agreement,   Consent  and  First  Amendment  to  Loan
               Agreement,  dated January 14, 1999,  by and among  Hartan,  Inc.,
               Harvest Restaurant Group, Inc., and Sirrom Capital Corporation.

4.03           Guaranty  Agreement,  dated January 14, 1999,  Harvest Restaurant
               Group, Inc., and Sirrom Capital Corporation.

4.04           Amended and Restated  Secured  Promissory Note, dated January 14,
               1999,  made by Hartan,  Inc.  for the  benefit of Sirrom  Capital
               Corporation.

4.05           Amended and Restated  Stock Purchase  Warrant,  dated January 14,
               1999.

10.01          Incentive Stock Option Plan. (l)

10.02          TRC Acquisition Corporation 1996 Employee Stock Option Plan.

10.03          Settlement Agreement with Cluckers Wood Roasted Chicken, Inc. (l)

10.04          Employment  Agreement,  dated  January  14,  1999,  by and  among
               Harvest Restaurant Group,  Inc., Hartan,  Inc. and Clyde E. Culp,
               III.

10.05          Severance Agreement, dated January 14, 1999, by and among Harvest
               Restaurant Group, Inc., Hartan, Inc. and William J. Gallagher.

10.05(a)       Letter Amendment to Severance Agreement, dated March 16, 1999.

10.06          Form of Subscription Agreement for Series D Convertible Preferred
               Stock.

10.07          Form of  Registration  Rights  Agreement for Series D Convertible
               Preferred Stock.

10.08          Form of  Warrant  Agreement  for Series D  Convertible  Preferred
               Stock.

10.09          Letter Amendment, dated January 12, 1999.

10.10          Letter Amendment, dated January 13, 1999.

10.11          Agreement with Roasters Corp. (2)

10.12          Agreement with Pollo Operators, Inc. (2)

21             Subsidiaries.

23             Consent of Porter Keadle Moore, LLP.

27.1           Financial Data Schedule as of December 28, 1998.

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

(1)  Incorporated by reference to our definitive  Registration Statement on Form
     SB-2, file No. 33-95796 declared effective on July 9, 1996.

(2)  Incorporated  by  reference  to our  definitive  Registration  Statement on
     FormSB-2, file no. 333-21067 declared effective on June 11, 1997.

(3)  Incorporated by reference to our definitive  Registration Statement on Form
     S-3, file no. 333-45189 declared effective on February 17, 1998.

(4)  Filed as Exhibit  2.1 to our Current  Report on Form 8-K,  filed on January
     21, 1999, and incorporated herein by reference.

(B)  Reports on Form 8-K

We filed no reports on Form 8-K during the fourth quarter of 1998.
<PAGE>



SIGNATURES

In accordance  with Section 13 or 15(d) of the Exchange Act, the  Registrant has
duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized, in Alpharetta, Georgia, on March 29, 1999.

                                     TANNER'S RESTAURANT GROUP, INC.


                                     By: /s/  Clyde E. Culp, III
                                     -------------------------------------------
                                     Name: Clyde E. Culp, III
                                     Title: Chairman and Chief Executive Officer


In  accordance  with the  Exchange  Act,  this  Report  has been  signed  by the
following  persons on behalf of the Company in the  capacities  and on the dates
indicated.

Signature                     Title                             Date
---------                     -----                             ----

/s/ Clyde E. Culp, III        Chairman of the Board of          March 29, 1999
Clyde E. Culp, III            Directors and Chief Executive
                              Officer

Richard E. Tanner             Director                          

/s/ James R. Walker           Director                          March 29, 1999
James R. Walker

/s/ William J. Gallagher      Director                          March 26, 1999
William J. Gallagher

/s/ Timothy R. Robinson       Chief Financial Officer and       March 29, 1999
Timothy R. Robinson           Secretary

/s/ Robert J. Hoffman         Vice President of Operations      March 29, 1999
Robert J. Hoffman


<PAGE>



Report of Independent Certified Public Accountants



The Board of Directors
Tanner's Restaurant Group, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  Tanner's
Restaurant  Group,  Inc.   (formerly   Harvest   Restaurant  Group,   Inc.)  and
subsidiaries as of December 27, 1998, and the related consolidated statements of
operations,  stockholders'  equity  (deficit) and cash flows for the years ended
December  27, 1998 and December 28, 1997.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Tanner's Restaurant
Group,  Inc and  subsidiaries  as of December  27, 1998 and the results of their
operations  and their  cash  flows for the years  ended  December  27,  1998 and
December 28, 1997.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern.  As discussed in Note 15, the
Company has experienced  significant net losses since October 15, 1996, has been
unable to generate  positive  cumulative cash flows from  operations  since that
date,  and, at December 27, 1998, the Company has a significant  working capital
deficiency.  These facts raise  substantial doubt about the Company's ability to
continue  as a going  concern.  Note  15  also  describes  management  plans  to
alleviate these financial concerns. The consolidated financial statements do not
include any adjustments that might result from this uncertainty.


                                            /s/  PORTER KEADLE MOORE, LLP


Atlanta, Georgia
March 5, 1999, except for Note 16,
 as to which the date is March 12, 1999.


                                      F-1
<PAGE>


Tanner's Restaurant Group, Inc.
Consolidated Balance Sheet

                                                                    December 27,
                                                                        1998
                                                                    ------------
                                     ASSETS
Current assets:
    Cash                                                            $   222,163
    Accounts receivable                                                 130,086
    Inventory                                                           113,734
    Prepaid expenses                                                     21,989
                                                                    -----------

               Total current assets                                     487,972


Property and equipment, net                                           2,092,698
Intangible assets, net                                                3,119,870
Goodwill, net                                                         1,002,303
Other assets                                                            161,252
                                                                    -----------

               Total assets                                         $ 6,864,095
                                                                    ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

    Accounts payable                                                $ 1,390,697
    Accrued expenses                                                  2,254,666
    Current portion of long-term debt                                   882,801
                                                                    -----------

               Total current liabilities                              4,528,164


Long-term debt                                                        2,306,884
                                                                    -----------

               Total liabilities                                      6,835,048
                                                                    -----------


Commitments and contingencies 
Stockholders' equity:

    Preferred stock (see Note 7)                                      1,253,822
    Common stock: $.01 par value; authorized 20,000,000 shares;
        issued and outstanding 8,230,080  shares                         82,301
    Additional paid-in capital                                        9,082,929
    Stock subscription receivable                                    (4,000,000)
    Accumulated deficit                                              (6,390,005)
                                                                    -----------

               Total stockholders' equity                                29,047
                                                                    -----------

               Total liabilities and stockholders' equity           $ 6,864,095
                                                                    ===========



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

                                      F-2

<PAGE>
<TABLE>
<CAPTION>


Tanner's Restaurant Group, Inc.
Consolidated Statements of Operations

                                                                       For the Years Ended
                                                                   ----------------------------
                                                                   December 27,    December 28,
                                                                       1998            1997
                                                                   ------------    ------------
Revenue
<S>                                                                <C>                <C>      
     Restaurant sales revenue                                      $ 10,830,898       8,041,660
     Catering revenue                                                   800,305         924,891
     Franchise and royalty revenue                                       63,341
                                                                   ------------    ------------

                Total revenue                                        11,694,544       8,966,551
                                                                   ------------    ------------


Costs and expenses
Restaurant and catering operating expenses:
     Food, beverage and paper                                         4,114,903       3,086,448
     Payroll and benefits                                             4,151,723       3,184,827
     Depreciation and amortization                                      705,658         590,807
     Other operating expenses                                         2,746,175       2,449,783
                                                                   ------------    ------------

                Total restaurant and catering operating expenses     11,718,459       9,311,865
                                                                   ------------    ------------

                Loss from restaurant and catering operations            (23,915)       (345,314)

General and administrative expenses                                   1,651,474       1,278,581
Write down of intangible asset                                          547,000
                                                                   ------------    ------------

                Operating loss                                       (2,222,389)     (1,623,895)

Other income (expense):
     Other income                                                        25,081          27,038
     Interest expense                                                  (700,451)       (546,552)
                                                                   ------------    ------------

                Net loss                                           $ (2,897,759)   $ (2,143,409)
                                                                   ============    ============

Basic and diluted loss per share                                   $      (0.81)   $      (0.63)



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


                                       F-3

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

Tanner's Restaurant Group, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)

                                                                                                      
                                                 Common Stock                  Preferred Stock         
                                            Shares         Amount           Shares        Amount       
                                            ------         ------           ------        ------       
TRC:
<S>                                       <C>           <C>               <C>            <C>                              
     Balance, December 29, 1996            2,625,000    $    26,250           --            --   

     Net loss                                   --             --             --            --   
     Dividends accrued on
       redeemable preferred stock               --             --             --            --   
     Accretion on redeemable
       preferred stock                          --             --             --            --   
                                         -----------    -----------    -----------   -----------

     Balance, December 28, 1997            2,625,000         26,250           --            --   

     Net loss                                   --             --             --            --   
     Repricing of stock options                 --             --             --            --   
     Dividends accrued on
       redeemable preferred stock               --             --             --            --   
     Accretion on redeemable
       preferred stock                          --             --             --            --   
                                         -----------    -----------    -----------   -----------

     Balance, December 27, 1998            2,625,000         26,250           --            --


Company:
     Assumed cancellation of TRC Oldco
       common shares in
       connection with Merger             (2,625,000)       (26,250)          --            --   
     Assumed issuance of Company
       common stock in
       connection with Merger              8,230,080         82,301           --            --   
     Assumed issuance of series A
       preferred stock in
       connection with Merger                   --             --          500,124   $   500,124
     Assumed issuance of series D
       preferred stock in connection
       connection with Merger                   --             --            9,198         9,198
     Assumed issuance of series E
       preferred stock in connection
       connection with Merger                   --             --          744,500       744,500
                                         -----------    -----------    -----------   -----------

     Balance, December 27, 1998,
       giving effect to Merger             8,230,080    $    82,301      1,253,822   $ 1,253,822
                                         ===========    ===========    ===========   ===========



                                      F-4
<PAGE>

Tanner's Restaurant Group, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)

(Continued)

                                            Additional       Stock                   Stockholders'
                                             Paid-In      Subscription  Accumulated     Equity    
                                             Capital       Receivable     Deficit      (Deficit)      
                                             -------       ----------     -------      ---------      
TRC:
     Balance, December 29, 1996                 --             --      $  (454,651)   $  (428,401)

     Net loss                                   --             --       (2,143,409)    (2,143,409)
     Dividends accrued on
       redeemable preferred stock               --             --         (300,000)      (300,000)
     Accretion on redeemable
            preferred stock                     --             --         (141,823)      (141,823)
                                         -----------    -----------    -----------    -----------

     Balance, December 28, 1997                 --             --       (3,039,883)    (3,013,633)

     Net loss                                   --             --       (2,897,759)    (2,897,759)
     Repricing of stock options          $    58,903           --             --           58,903
     Dividends accrued on
       redeemable preferred stock               --             --         (300,000)      (300,000)
     Accretion on redeemable
       preferred stock                          --             --         (152,363)      (152,363)
                                         -----------    -----------    -----------    -----------

     Balance, December 27, 1998               58,903           --       (6,390,005)    (6,304,852)


Company:
     Assumed cancellation of TRC Oldco
       common shares in
       connection with Merger                   --             --             --          (26,250)
     Assumed issuance of Company
       common stock in
       connection with Merger                   --             --             --           82,301
     Assumed issuance of series A
       preferred stock in
       connection with Merger                   --             --             --          500,124
     Assumed issuance of series D
       preferred stock in connection
       connection with Merger              5,396,433    $(4,000,000)          --        1,405,631
     Assumed issuance of series E
       preferred stock in connection
       connection with Merger              3,627,593           --             --        4,372,093

     Balance, December 27, 1998,
       giving effect to Merger           $ 9,082,929    $(4,000,000)   $(6,390,005)   $    29,047
                                         ===========    ===========    ===========    ===========


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

                                       F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


Tanner's Restaurant Group, Inc.
Consolidated Statements of Cash Flows

                                                                                       For the Year Ended
                                                                                   --------------------------
                                                                                    Year ended     Year ended
                                                                                   December 27,   December 28,
                                                                                      1998            1997
                                                                                   -----------    -----------
Cash flows from operating activities:
<S>                                                                                <C>             <C>        
    Net loss                                                                       $(2,897,759)    (2,143,409)
    Adjustments to reconcile net loss to net cash
       provided by (used in) operating activities:
         Depreciation and amortization                                                 705,658        590,807
         Loss on sale of property and equipment                                         24,690
         Write down of intangible asset                                                547,000
         Compensation expense related to repricing of stock options                     58,903
         Changes in assets and liabilities, net of effects of Merger:                    
            Accounts receivable                                                        (28,536)      (108,347)
            Inventory                                                                      493        (57,715)
            Prepaid expenses                                                            31,041         24,183
            Other assets                                                               (16,867)        (6,995)
            Accounts payable                                                          (153,643)       823,924
            Accrued expenses and other liabilities                                   1,508,822        434,443
                                                                                   -----------    -----------
               Net cash used in operating activities                                  (220,198)      (443,109)
                                                                                   -----------    -----------
Cash flows from investing activities, net of effect of Merger:
    Net cash acquired in Merger                                                        411,150
    Proceeds from sale of property and equipment                                       365,496
    Purchase of property and equipment                                                (972,724)    (1,922,168)
                                                                                   -----------    -----------
               Net cash used in investing activities                                  (196,078)    (1,922,168)
                                                                                   -----------    -----------
Cash flows from financing activities, net of effect of Merger:
    Cash overdraft                                                                    (212,605)       212,605
    Repayments of debt                                                                (164,543)      (108,250)
    Proceeds from issuance of long-term debt                                         1,016,617      2,195,100
    Additions to deferred financing costs                                               (1,030)       (30,276)
                                                                                   -----------    -----------
               Net cash provided by financing activities                               638,439      2,269,179
                                                                                   -----------    -----------
Net change in cash and cash equivalents                                                222,163        (96,098)
Cash and cash equivalents, beginning of year                                                 0         96,098
                                                                                   -----------    -----------
Cash and cash equivalents, end of year                                             $   222,163              0
                                                                                   ===========    ===========

Non-cash investing and financing activities:
    Accretion of redeemable TRC Preferred Stock                                    $   152,363    $   141,823
    Dividends accrued on redeemable TRC Preferred Stock                                300,000        300,000
    Retirement of mortgage loan upon sale of  property                                 939,101
    Purchase price adjustment                                                                        (411,590)
    Exchange of TRC Preferred  Stock for Series E preferred stock                    3,825,093
    Settlement of employment contract through issuance of Series E
        preferred stock                                                                547,000
    Series A preferred stock acquired in connection with Merger                        500,124
    Stock subscription  receivable for Series D preferred stock                      4,000,000
    Common stock issued and acquired in connection with Merger, net of
        TRC common stock cancelled                                                      56,051
Supplemental cash flow information:
    Interest paid                                                                  $   423,661    $   290,197



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

                                      F-6
</TABLE>
<PAGE>

Tanner's Restaurant Group, Inc.
Notes to Consolidated Financial Statements:


1.   Description of Business:

     Tanner's  Restaurant Group, Inc.  (formerly Harvest Restaurant Group, Inc.)
     and its wholly owned  subsidiaries  operate casual dining restaurants under
     the name "Rick  Tanner's  Original  Rotisserie  Grill" that  specialize  in
     fresh,  convenient meals featuring  rotisserie  chicken entrees,  barbecued
     ribs,  hamburgers,  freshly  prepared  vegetables,  salads,  and other side
     dishes.  At December 27, 1998, there were 11 stores located in the Atlanta,
     Georgia metropolitan area.

     TRC Acquisition Corporation Merger

     On January  14, 1999  Harvest  Restaurant  Group,  Inc.  ("Harvest"  or the
     "Company")  and TRC  Acquisition  Corporation  ("TRC")  completed a forward
     triangular  merger (the "Merger") where Harvest acquired TRC. The effective
     date of the Merger was  December  27, 1998 and the  consolidated  financial
     statements  have been prepared  assuming the Merger closed as of the end of
     the day on December 27, 1998. In the Merger, shareholders of TRC received a
     majority of the shares of common  stock of Harvest.  For this  reason,  the
     Merger was treated as a reverse acquisition by TRC for accounting purposes.
     As a result, the consolidated  financial  statements presented are those of
     TRC rather than Harvest.

     On October 15, 1996, TRC was formed as a corporation  under the laws of the
     state of  Georgia  to  acquire  all of the  shares  of the 11  corporations
     commonly known as Tanner's  Chicken  Rotisserie  ("Oldco"),  including nine
     restaurants,  a catering business and a management  company.  The aggregate
     purchase price was approximately $5.2 million,  which included costs of the
     acquisition.  The  aggregate  purchase  price  included  a cash  payment of
     approximately $1.6 million, an approximately $2.6 million,  10% convertible
     subordinated debenture to the sole shareholder of Oldco and the issuance of
     500  shares of TRC Class A  Preferred  Stock and  900,000  shares of common
     stock.  Additionally,  the Company entered into a $2 million collateralized
     promissory  note. The estimated fair value of the net liabilities  acquired
     was approximately  $200,000.  The allocation of the purchase price resulted
     in  identifiable  intangibles  and goodwill of  approximately  $6.1 million
     which are being  amortized on a straight  line basis over  periods  ranging
     from five to 20 years.

2.   Summary of Significant Accounting Policies:

     The  following  is a summary  of  significant  accounting  policies  of the
     Company.

     Principles of Consolidation

     The accompanying  consolidated financial statements include the accounts of
     the Company and its subsidiaries.  All material  intercompany  accounts and
     transactions have been eliminated in consolidation.

     Fiscal Year

     The Company operates on a 52/53-week  fiscal year ending on the last Sunday
     in December.  Accordingly,  the consolidated financial statements presented
     ended on December 27, 1998 and December 28, 1997. All general references to
     years relate to fiscal years unless otherwise noted.


                                       F-7

<PAGE>


Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:


2.   Summary of Significant Accounting Policies, continued:

     Cash and Cash Equivalents

     Cash and cash equivalents  consist primarily of cash in banks and temporary
     cash  investments  with original  maturities of less than three months.  At
     times,  cash and cash equivalent  balances at a limited number of banks and
     financial  institutions may exceed insurable amounts.  The Company believes
     it mitigates its risks by depositing cash or investing in cash  equivalents
     in major financial institutions.

     Inventories

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

     Property and Equipment

     Property and equipment is stated at cost,  less  accumulated  depreciation.
     The provision for depreciation has been calculated using the  straight-line
     method.  Smallwares,  consisting  primarily of linens and  silverware,  are
     expensed as incurred.  The following represents the useful lives over which
     the assets are depreciated:



       Furniture and fixtures                              5 years
       Signage                                             7 years
       Office equipment                                    5 years
       Computer equipment                                  3 years
       Kitchen and service equipment                       7 years
       Building                                            20 years
       Leasehold improvements                            Life of lease 



     Expenditures  for  maintenance  and  repairs  are  charged  to  expense  as
     incurred.

     Goodwill

     Goodwill  represents the excess of cost over fair value of net identifiable
     assets  acquired  upon  the  October  15,  1996  acquisition  and is  being
     amortized  over  20  years  using  the  straight-line  method.  Accumulated
     amortization  of goodwill  amounted to $127,838 and $71,331 at December 27,
     1998 and December 28, 1997, respectively.

                                       F-8

<PAGE>


Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:


2.   Summary of Significant Accounting Policies, continued:

     Intangible Assets

     Intangible assets consist primarily of employment  contracts,  recipes, and
     the trained workforce  acquired in the October 15, 1996 acquisition.  These
     intangible  assets  are being  amortized  over  five to 15 years  using the
     straight-line method.

     Impairment

     The Company  assesses the  recoverability  of its  goodwill and  intangible
     assets by determining  whether the  amortization  of the asset balance over
     its remaining life can be recovered through  undiscounted  future operating
     cash  flows  of the  acquired  operations,  and a  valuation  allowance  is
     established for any amount over which the unamortized asset balance exceeds
     those cash flows.

     Deferred Financing Costs

     Deferred  financing  costs are included in other  assets and are  amortized
     over the  period of the  related  financing.  Accumulated  amortization  of
     deferred  financing  costs  amounted to $42,332 and $25,081 at December 27,
     1998 and December 28, 1997, respectively.

     Revenue Recognition

     Revenue is  recognized  in the period for which  related  food and beverage
     products are sold. Initial fees from the awarding of individual  franchises
     are  deferred and recorded as revenue  when the  franchised  restaurant  is
     opened.

     Advertising

     The Company  expenses  advertising  costs as  incurred.  Total  advertising
     expense  included in other operating  expense was $586,686 and $585,516 for
     the years ended December 27, 1998 and December 28, 1997, respectively.

     Preopening Costs

     Preopening  costs are incurred  before a  restaurant  is opened and consist
     primarily of wages and salaries, hourly employee recruiting,  license fees,
     meals,  lodging  and  travel  plus  the cost of  hiring  and  training  the
     management teams. Preopening costs are expensed as incurred.

     Income Taxes

     The Company  accounts for income taxes using the  liability  approach  that
     requires the  recognition  of deferred tax assets and  liabilities  for the
     expected future tax consequences of events that have been recognized in the
     Company's  consolidated  financial statements or tax returns. In estimating
     future tax  consequences,  the Company considers all expected future events
     other than enactments of changes in the tax law or rates.

                                       F-9

<PAGE>


Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:


2.   Summary of Significant Accounting Policies, continued:

     Earnings Per Share

     The Company  calculates  earnings per share in accordance with Statement of
     Financial  Accounting Standards ("SFAS") No. 128, Earnings Per Share, which
     requires dual  disclosure of earnings per share,  basic and diluted.  Basic
     earnings  per share equals net  earnings  divided by the  weighted  average
     number of common  shares  outstanding  and does not  include  the  dilutive
     effects of stock options or convertible  securities.  Diluted  earnings per
     share  are  computed  by  giving  effect to the  Company's  dilutive  stock
     options,  warrants and preferred stocks. The weighted average common shares
     outstanding  presented  below has been adjusted to reflect the 1.57075 to 1
     exchange ratio in the Merger.  See Notes 8, 9 and 10 for further discussion
     of options and  warrants  ("potential  common  stock  equivalents").  These
     potential  common stock  equivalents are excluded from the diluted earnings
     per  share  calculations  as they are  antidulitive  since the  Company  is
     operating at a net loss.  These  securities  could become dilutive when the
     Company's operations result in a net profit.

     The  following  table  represents  the  calculation  of basic  and  diluted
     earnings per share:

                                                         For the Year Ended
                                                     ---------------------------
                                                     December 27,   December 28,
                                                         1998           1997
                                                         ----           ----

   Net loss                                          $(2,897,759)   $(2,143,409)
   Less: Dividends on TRC Preferred Stock (Note 7)      (300,000)      (300,000)
         Accretion on TRC Preferred Stock (Note 7)      (152,363)      (141,823)
                                                     -----------    -----------
   Net loss attributable to common shareholders       (3,350,122)    (2,585,232)

   Weighted average common shares outstanding          4,123,219      4,123,219

   Basic and diluted loss per share                  $     (0.81)   $     (0.63)



     Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements  and the  reported  amounts of revenue  and  expenses
     during  the  reporting  period.  Actual  results  could  differ  from those
     estimates.

                                      F-10

<PAGE>


Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:


3.   Accounts Receivable:

     Accounts receivable at December 27, 1998 consist of the following:

             Catering                                      $ 61,710
             Other                                           24,517
             Related party, net of allowance of $131,400     43,859
                                                           --------

                                                           $130,086
                                                           ========


4.   Property and Equipment:

     Property and equipment at December 27, 1998 consist of the following:

               Land                                  $   160,000
               Construction in progress                  192,303
               Furniture and fixtures                     82,793
               Signage                                    45,840
               Office and computer equipment             140,029
               Kitchen and service equipment             864,425
               Building                                  328,000
               Leasehold improvements                    542,659
                                                     -----------

                                                       2,356,049
                     Less accumulated depreciation      (263,351)
                                                     -----------

               Property and equipment, net           $ 2,092,698
                                                     ===========


     Depreciation  expense was $223,595 and $68,220 for the years ended December
     27, 1998 and December 28, 1997, respectively.



5.   Intangible Assets:

     Intangible assets at December 27, 1998 consist of the following:

         Management employment                 $   583,000  
         Recipes                                 1,000,000
         Pre-mixed ingredients                     890,000
         Trained and assembled workforce           760,000
         Restaurant design                         575,000
         Other intangible assets                   252,000
                                               -----------

                                                 4,060,000
               Less accumulated amortization      (940,130)
                                               -----------

         Intangible assets, net                $ 3,119,870
                                               ===========


     In  conjunction  with the  Merger  (see Note 14) the  shareholder  of Oldco
     canceled his  employment  agreement  in exchange  for 54,700  shares of the
     Company's  Series E preferred  stock.  Accordingly,  the Company recorded a
     non-cash charge of $547,000,  based on the present value of the future cash
     flows that would have resulted from this emloyment agreement.

                                      F-11

<PAGE>


Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:


6.   Long-Term Debt:

     Long-term debt at December 27, 1998 consists of the following:

          Collateralized promissory note                             $2,000,000
        
          Note payable to SouthTrust Bank, collateralized by
               certain restaurant equipment bearing interest
               10,918  prime rate plus 2%, and  maturing  in
               February 1999                                             10,918

          Note payable to First Union  Bank,  collateralized
               by restaurant equipment,  bearing interest at
               8.8% and maturing in December 2000                       178,821

          Note payable to shareholder,  bearing  interest at
               12.5%,  maturing  at the  earlier of July 31,
               1999  or  the  Company  receiving  the  final
               $2,000,000  related  to the  issuance  of the
               Company's Series D preferred stock                       350,000

          Note payable to  individual,  bearing  interest at
               11.0%,  payable  in  installments  until  the
               balance is due when the Company  receives the
               final  $2,000,000  related to the issuance of
               the Company's Series D preferred stock                   406,617

          Note payable to  Colonial  Bank,  collaterized  by
               restaurant  equipment,  bearing  interest  at
               8.0%, and maturing in June 2005                          243,329
                                                                     ----------

                                                                      3,189,685
          Less current maturities                                      (882,801)
                                                                     ----------
                                                                     $2,306,884
                                                                     ==========


     In conjunction with the October 15, 1996 acquisition,  the Company issued a
     $2,649,046, 10% convertible subordinated debenture (the "Debenture") to the
     sole  shareholder of Oldco. In exchange for 323,500 shares of the Company's
     Series E Preferred Stock,  the shareholder  cancelled this debenture valued
     at $3,234,943  (including the principal and interest  accrued  thereon) and
     terminated his employment agreement.

     Effective  October  15,  1996,  the  Company  entered  into  a  $2  million
     collateralized   promissory  note  with  Sirrom  Capital  Corporation  (the
     "Note").  The Note matures on September 1, 2001 and bears interest at 13.5%
     per annum.  The payment  terms  require  monthly  payments of interest only
     until maturity,  upon which the outstanding  principal  balance will become
     due.  The Note is  collateralized  by  substantially  all of the  Company's
     assets. Three shareholders of the Company have pledged common shares in the
     Company, totaling 1,806,363 shares, as collateral for performance under the
     terms of the Note.

     Based on the borrowing rates  currently  available to the Company for loans
     with similar terms, the fair value of long-term debt  approximates the book
     value recorded.

                                      F-12
<PAGE>


Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:


6.   Long-Term Debt, continued:

     The aggregate annual  maturities of long-term debt for the years subsequent
     to December 27, 1998 are as follows:


          Fiscal year ending:
          -------------------
                1999                          882,801
                2000                          126,398
                2001                        2,035,446
                2002                           38,433
                2003                           41,670
                2004                           45,181
                2005                           19,756
                                            ---------

                                            3,189,685
                                            =========


7.   Capital Structure:

     (a) TRC Acquisition Corporation

     TRC had  authorized 100 million shares of common stock and 1 million shares
     of non-voting  Preferred  Stock,  2,000 shares of which were  designated as
     Class A Preferred  Stock ("TRC Preferred  Stock").  The TRC Preferred Stock
     was  entitled  to a  cumulative  annual  dividend  at a rate of 10%. In the
     Merger, the TRC Common Stock was exchanged for Harvest Common Stock and the
     TRC Preferred Stock was exchanged for Harvest Series E Preferred Stock.

     (b) Harvest Restaurant Group, Inc

     The Company's articles of incorporation authorize the board of directors to
     issue  20,000,000  shares of Common Stock,  par value $0.01 per share,  and
     5,000,000 shares of Preferred Stock, par value $1.00 per share.

     Series A Perferred Stock:  The Company has designated  3,000,000 shares out
     of a total of 5,000,000  authorized shares of its $1.00 par value preferred
     stock  as  Series A  Redeemable  Convertible  Preferred  Stock  ("Series  A
     Preferred Stock").

     Dividends  of the  Series A  Preferred  Stock are  cumulative  and  payable
     quarterly in arrears at a quarterly rate of $.30 per share,  representing a
     yield of 12% per year. Dividends may be paid in cash or an equivalent value
     of common stock.  The Series A Preferred Stock has no voting rights and has
     a  liquidation  preference  of $10 per share  ($5,001,240  at December  27,
     1998).  At December 27, 1998 dividends in arrears on this  preferred  stock
     totaled $322,289.

     The Series A  Preferred  Stock is  convertible  at the option of the holder
     into shares of the Company's common stock.  The initial  conversion rate is
     2.7  shares of common  stock for each  share of Series A  Preferred  Stock,
     subject to adjustment in certain events.  The Series A Preferred Stock will
     automatically  convert into the Company's common stock if the closing price
     of the Series A Preferred  Stock  exceeds $20 per share for 10  consecutive
     days. The Series A Perferred Stock may also be redeemed by the Company upon
     30-days  written notice at 110% of the average bid price for the 20 trading
     days prior to the  redemption  date.  The Company has the option to pay the
     redemption in either cash or common stock.

                                      F-13

<PAGE>

Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:


7.   Capital Structure, continued:

     Series D Preferred  Stock: The Company has designated 9,200 shares out of a
     total of 5,000,000 authorized shares of its $1.00 par value preferred stock
     as Series D Redeemable  Convertible  Preferred  Stock  ("Series D Preferred
     Stock"). The original issue price of the Series D Preferred Stock is $1,000
     per share.  Dividends  on the Series D Preferred  Stock accrue at an annual
     rate of 7% of the original issue price,  or $70 per share,  and are payable
     in cash or common stock, as determined by the holders,  only at the time of
     conversion of such shares. Dividends are cumulative from the date of issue.
     Unless full cumulative dividends have been or are contemporaneously paid on
     the Series D  Preferred  Stock,  the  Company  may not  declare or pay cash
     dividends  on the common  stock,  nor may it redeem,  purchase or otherwise
     acquire common stock, nor may it make any other  distribution  with respect
     to the  common  stock or any  class of  capital  stock on a parity  with or
     junior to the Series D Preferred  Stock.  Under the terms of the  Company's
     loan with Sirrom Capital Corporation, the Company may pay cash dividends on
     the  Series D  Preferred  Stock so long as (a) the  Company  makes an equal
     payment on the Sirrom note; and (b) the Company is not in default under the
     loan  documents  governing  such loan and no  default  is  created  by such
     payments.

     The Series D  Preferred  Stock is  convertible  at the option of the holder
     into shares of common stock for up to three years after  initial  issuance.
     After three years, the Series D Preferred Stock will automatically  convert
     into shares of common stock. The conversion rate is equal to $1,000 divided
     by 80% of the five-day average closing bid price of the common stock on the
     NASDAQ  Stock  Market,  the  OTC  Bulletin  Board,  or any  other  national
     securities  exchange  on which  the  common  stock is listed at the time of
     conversion.  The  Company is not  required  to  convert  any shares if such
     conversion  would  result  in  issuance  of 20% or more of the  issued  and
     outstanding common stock to the holders of the Series D Preferred Stock, as
     provided by NASDAQ  Marketplace  Rule  4320(e)(21)(H),  unless  shareholder
     approval  of  such  conversion  is  obtained.  In  the  event  that  such a
     conversion  is  requested  and the  Company  does not  convert the Series D
     Preferred Stock because of the NASDAQ rule, the Company will pay the holder
     of the Series D Preferred Stock 125% of the principal  amount of the issued
     and outstanding Series D Preferred Stock plus accrued interest.

     Holders of Series D Preferred  Stock are  allowed to convert the  aggregate
     amount  of such  holder's  Series  D  Preferred  Stock  into  common  stock
     beginning the date after a registration  statement  registering  the common
     stock has been  declared  effective by the SEC, but no sooner than 120 days
     after the  Company's  shareholders  approve an amendment to the articles of
     incorportion  increasing the number of authorized shares of common stock to
     not less than  100,000,000  (see Note 16). If a registration  statement has
     not  been  declared  effective  as of a date  that is 120  days  after  the
     shareholders' meeting,  holders of Series D Preferred Stock may not convert
     their  shares  of  Series  D  Preferred  Stock  until  such a  registration
     statement  is  declared  effective.  In  addition,  a  holder  of  Series D
     Preferred Stock may not convert those shares into shares of common stock if
     and to the extent  that upon  conversion  such  holder  would own more than
     4.99% of the outstanding common stock.

     The holders of the Series D Preferred  Stock have no  preemptive  rights or
     other  rights to  subscribe  for any  other  shares  or  securities  of thc
     Company.  The third party investors who purchased  Series D Preferred Stock
     will be issued common stock purchase warrants, as described below.

     The terms of the  Series D  Preferred  Stock  agreement  which  permit  the
     conversion  of the  Series D  Preferred  Stock at a  discount  to market is
     considered a beneficial  conversion  feature  (the  "Beneficial  Conversion
     Feature").  However,  since the  preferred  stock is presented at par value
     with the excess of carrying  value over par value  included  in  additional
     

                                      F-14
<PAGE>

Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:


7.   Capital Structure, continued:

     paid-in  capital,  the Company has not  separately  recorded the  intrinsic
     value of the  Benefical  Conversion  Feature as a component  of  additional
     paid-in capital.  Additionally,  the Company notes that future presentation
     in  stockholders'  equity  of  the  Beneficial  Conversion  Feature  is not
     impacted  since the Series D  Preferred  Stock  will  likely  become  fully
     convertible in the spring of 1999.

     The third party  investors who purchased  Series D Preferred  Stock will be
     issued common stock purchase warrants, as described below.

     Series E Preferred Stock: The Company has designated  745,000 shares out of
     a total of  5,000,000  authorized  shares of its $1.00 par value  preferred
     stock  as  Series E  Redeemable  Convertible  Preferred  Stock  ("Series  E
     Preferred  Stock").  In connection  with the merger,  the Company  issued a
     total of 744,500  shares of Series E Preferred  Stock.  The original  issue
     price of the Series E Preferred Stock is $10.00 per share. Dividends on the
     Series E Preferred  Stock  accrue at an annual  rate of 8% of the  original
     price,  or $0.80 per share,  and are  payable in cash or common  stock,  as
     determined  by the Company,  only at the time of conversion of such shares.
     Dividends are  cumulative  from the date of issue.  Unless full  cumulative
     dividends  have been or are  contemporaneously  paid on Series E  Preferred
     Stock,  the  Company may not  declare or pay cash  dividends  on the common
     stock, nor may it redeem,  purchase or otherwise  acquire common stock, nor
     may it make any other  distribution with respect to the common stock or any
     class of capital stock on a parity with or junior to the Series E Preferred
     Stock.   Under  the  terms  of  the  Company's  loan  with  Sirrom  Capital
     Corporation,  the  Company  may not pay  cash  dividends  on the  Series  E
     Preferred Stock.

     The Series E Preferred  Stock is redeemable at the option of the Company at
     any time after six months of issuance,  in whole or in part,  for $0.01 per
     share, if the average  closing bid price of the Company's  common stock, as
     quoted on any national  securities  exchange,  NASDAQ,  or the OTC Bulletin
     Board exceeds $3.50 per share for five consecutive trading days.

     Each share of Series E Preferred  Stock is convertible at the option of the
     holder into four  shares of common  stock at any time after six months from
     the date of issuance,  subject to adjustment.  The Series E Preferred Stock
     is non-voting,  and it is ranked junior to the Company's Series A Preferred
     Stock and Series D Preferred  Stock.  The holders of the Series E Preferred
     Stock have no preemptive  rights or other rights to subscribe for any other
     shares or securities of the Company.

8.   Redeemable Preferred Stock Purchase Warrants

     At December 27, 1998 1,923,400 Redeemable Preferred Stock Purchase Warrants
     were outstanding ("Preferred Warrants").  Each Preferred Warrant represents
     the right to purchase one share of Series A Preferred  Stock at an exercise
     price of $10.50 per share  until  June 11,  2002,  subject  to  adjustment.
     Preferred  Warrants may be redeemed,  in whole or in part, at the Company's
     option,  upon  30-days'  notice,  at a redemption  price equal to $0.01 per
     Preferred  Warrant if the closing price of the Series A Preferred  Stock on
     the NASDAQ  SmallCap Market averages at least $11.00 per share for a period
     of 20  consecutive  trading  days or if the  Company  redeems  the Series A
     Preferred Stock.

                                      F-15

<PAGE>


Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:


9.   Common Stock Purchase Warrants

     At December 27, 1998 there where 2,300,000  Common Stock Purchase  Warrants
     outstanding  (the "IPO  Warrants"),  plus an  additional  300,000  warrants
     issued to the  underwriters  of the offering of the IPO  Warrants,  plus an
     additional  250,000 warrants issued in connection with other  transactions.
     Each IPO Warrant  entitles the holder to purchase one share of common stock
     at $4.00 per share until July 9, 2001, subject to adjustment.  IPO Warrants
     may be redeemed,  in whole or in part,  at the option of the Company,  upon
     30-days'  notice,  at a redemption  price equal to $0.01 per IPO Warrant if
     the  closing  price of the  common  stock  on the  NASDAQ  SmallCap  Market
     averages  at least $8.00 per share for a period of 20  consecutive  trading
     days. The other warrants are  exerciseable at prices ranging from $2.00 per
     share to $6.60 per share.

     Through December 27, 1998,  171,939 stock options with an exercise price of
     $.01 have been issued  primarly to creditors to  facilitate  the  financing
     which has been received since December 28, 1997.

     In connection with the issuance of the $2,000,000 collateralized promissory
     note, the Company  issued to Sirrom Capital  Corporation a stock warrant to
     purchase shares of the Company's  common stock.  The warrant is exercisable
     at any time  until  November  30,  2001 at an  exercise  price of $0.01 per
     share.  At December  27, 1998 the lender has the right to purchase  589,031
     shares.  The warrant  provides for increases in the number of common shares
     available for purchase on an annual basis to 699,259 shares in October 1999
     and 756,331  shares in October 2000. The lender has a put option to sell to
     the Company this warrant within 30 days of the expiration of the warrant at
     a purchase  price equal to the fair market  value of the common  stock,  as
     defined.

     As noted above,  the third party investors who purchased Series D Preferred
     Stock will be issued  common stock  purchase  warrants to purchase  919,800
     shares of common  stock at a price of $2.00 per share.  Such  warrants  are
     exercisable for five years after  issuance,  and the Company is required to
     register the shares  underlying the warrants in the registration  statement
     filed by the Company  with the SEC to  register,  among other  things,  the
     shares  of  common  stock  reasonably   anticipated  to  be  issuable  upon
     conversion of the Series D Preferred Stock.

10.  Stock Based Compensation

     (a) Harvest Restaurant Group, Inc

     The  Company's  1994 Stock Option Plan  provides for the granting of either
     incentive  stock options or  non-qualified  stock  options.  Options can be
     issued to officers, employees, directors and outside consultants;  however,
     incentive  stock  options  are  issuable  only  to  eligible  officers  and
     employees.  The  Company has  reserved a total of 500,000  shares of common
     stock for the plan.  Options to acquire  483,000  shares of common stock at
     $1.00 per share were issued and exercisable at the time of the Merger.

     (b) TRC Acquisition Corporation

     TRC has  granted  options  to  purchase  its common  stock to  certain  key
     employees and officers under fixed stock option agreements.  In conjunction
     with the Merger,  these  options  were  converted  into  options to acquire
     Harvest common stock at the same ratio as the TRC common  shareholders  and
     all options  immediately  vested.  Accordingly,  the number of shares under
     option as  presented  below has been  restated  to reflect the 1.57075 to 1
     exchange ratio in the Merger.  Under these agreements,  1,561,326 shares of
     the Company's  common stock have been granted and reserved for stock option
     awards.  As of December 27, 1998, none of the options had been exercised or
     forfeited. Awards granted to date have a term of six years. On December 15,
    
                                      F-16
<PAGE>

Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:



10.  Stock Based Compensation, continued:

     1998 the  Company's  board of directors  options  from $8.75 to $0.01.  The
     revised   exercise   prices   represented   approximately   100%   and  6%,
     respectively,  of the fair  market  value  of the  stock at the date of the
     repricing.  Accordingly,  the Company  recorded as  compensation  expense a
     charge of approximately $58,903.

     Further information relating to total options follows:

                                                             Weighted
                                                             Average
                                                             Exercise
                                                   Shares     Price
                                                   ------     -----

              Outstanding at December 29, 1996   1,068,111   $    .11
              Granted in 1997                       20,812        .01
                                                 ---------

              Outstanding at December 28, 1997   1,088,923        .11
              Granted in 1998                      472,403        .01
              Harvest options acquired             483,000       1.00
                                                 ---------

              Outstanding at December 27, 1998   2,044,326   $    .30
                                                 =========


     The following table summarizes information concerning currently outstanding
     and exercisable options:

                                                             Weighted-Average
          Exercise         Number                Number          Remaining
           Price         Outstanding           Exercisable         Life
           -----         -----------           -----------         ----

           $0.01           854,488               854,488            4.6
                
           $0.16           706,838               706,838            3.9

           $1.00           483,000               483,000            2.7
                         ---------             ---------

                         2,044,326             2,044,326
                         =========             =========
 

     The Company applies Accounting Principles Board Opinion No. 25, "Accounting
     for Stock Issued to Employees," and related  Interpretations  in accounting
     for its  stock  options.  Accordingly,  no  compensation  expense  has been
     recognized for its  stock-based  compensation  plans,  except in connection
     with  the  December  15,  1998  repricing.  Had  compensation  cost for the
     Company's  stock  option  plans been  determined  based upon the fair value
     methodology  prescribed under Statement of Financial  Accounting  Standards
     No. 123,  "Accounting for Stock-Based  Compensation",  fiscal 1998 net loss
     and loss per  share  would  have  been as  follows.  The fair  value of the
     options  granted and repriced  during 1998 was estimated  using the minimum
     value  valuation  model and the following  assumptions:  dividend yield 0%,
     risk-free interest rate of 6%, and an expected life of 5 years.

                                      F-17

<PAGE>


Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:


10.  Stock Based Compensation, continued:


               Net loss:
                     As reported                   $  (2,897,759)
                     Proforma                         (2,926,171)


               Basic and diluted loss per share:
                     As reported                           (0.81)
                     Proforma                              (0.82)



     The fair value of options granted in 1997 was insignificant.

11.  Income Taxes:

     The Company has  available at December 27, 1998,  unused  federal and state
     net operating  loss  carryforwards  of  approximately  $5,000,000  expiring
     beginning in 2012,  which may be applied to reduce future  taxable  income.
     Use of net operating loss  carryforwards  may be limited on an annual basis
     due to changes in ownership.

     The  Company's  net  deferred  tax  asset of  approximately  $1,900,000  at
     December 27, 1998 results principally from net operating loss carryforwards
     and  has  been  reduced  by a  valuation  allowance  of  the  same  amount.
     Management  has  determined  that this  valuation  allowance is appropriate
     because it is more  likely than not that this net  deferred  tax asset will
     not be realized.

12.  Leases:

     The  Company  has  various  leases for  restaurants,  equipment  and office
     facilities.  Restaurant and office  original lease terms range from four to
     twenty  years,  with renewal  options  ranging from five to fifteen  years.
     Equipment leases are renewable annually.  In the normal course of business,
     some  leases are  expected  to be renewed  or  replaced  by leases on other
     properties. Future minimum lease payments do not include amounts payable by
     the Company for  maintenance  costs,  real estate taxes and  insurance,  or
     contingent rentals payable on a percentage of sales in excess of stipulated
     amounts for restaurant facilities.

     Future  minimum lease  payments  under  noncancelable  operating  leases at
     December 27, 1998 are as follows:

            Fiscal year ending:

                  1999                                      $  769,209
                  2000                                         666,731
                  2001                                         560,601
                  2002                                         391,160
                  2003                                         289,989
                  Thereafter                                 3,163,868
                                                            ----------

                        Total minimum lease payments         5,841,558 
                                                            ==========


     The Company  incurred  rental expense for operating  leases of $683,809 and
     $468,877  during the years ended  December  27, 1998 and December 28, 1997,
     respectively.

                                      F-18
<PAGE>


Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:


13.  Commitments and Contingent Liabilities

     The  Company is a party to a number of  lawsuits  arising out of the normal
     conduct  of its  business.  While  there  can be no  assurance  as to their
     ultimate  outcome,  management  does not believe these lawsuits will have a
     material  adverse effect on the Company's  financial  condition,  operating
     results or cash flows.

14.  Acquisition of TRC

     As of  December  27,  1998 TRC  merged  into a  subsidiary  of Harvest in a
     forward  triangular  merger in which the former  shareholders  of privately
     held  TRC  received   4,123,219   shares  of  common  stock,   representing
     approximately  50.1% of the Company's  outstanding  shares of common stock.
     The Company  also  issued  744,500  shares of Series E  Preferred  Stock in
     connection with the Merger.

     Since the TRC  shareholders  received a majority  of the shares of stock of
     the Company,  the  transaction  is treated as a reverse  acquisition of the
     Company  by TRC  for  accounting  purposes.  As a  result,  the  historical
     financial  statements of the surviving company for the periods prior to the
     merger are those of TRC rather than those of Harvest.

     At the  completion  of the Merger,  the Company will have issued  4,123,219
     shares of  common  stock,  9,198  shares of Class D  Preferred  Stock,  and
     744,500 shares of Class E Preferred  Stock to the TRC  shareholders  and to
     other third party investors.  Additionally,  the 4,106,861 shares of common
     stock of the Company and the 500,124  shares of Class A Preferred  Stock of
     the Company that was previously  outstanding remained outstanding following
     the Merger.  The Company  incurred  issuance related costs of approximately
     $600,000, which are presented as a reduction of additional paid-in capital.
     The estimated  fair value of the assets  acquired and  liabilities  assumed
     from Harvest were approximately $556,000 and $705,000,  respectively. Since
     Harvest had no ongoing  operations either  immediately  before or following
     the Merger,  the  transaction is presented as a capital stock  transaction,
     and no goodwill is recorded.

     In  connection  with  the  Merger,   outside  investors  agreed  to  invest
     $6,000,000  in the Company in exchange  for 9,198  shares of the  Company's
     Class D Preferred Stock.  These shares are included in the number of shares
     presented above, and at December 27, 1998, $4,000,000 of this commitment is
     reflected  in  the  consolidated  balance  sheet  as a  stock  subscription
     receivable. Through February 1999, the investors have funded to the Company
     $4,000,000  of this  commitment,  including  $2,000,000  invested in fiscal
     1998,  and have  received  7,198  shares of Class D  Preferred  Stock.  The
     remaining  $2,000,000  will be  received  upon the  Company  registering  a
     sufficient  number  of  shares  of common  stock  into  which the  Series D
     Preferred Stock is convertible,  which the Company expects to accomplish in
     the spring of 1999.

     Unaudited pro forma results of  operations  have not been  presented due to
     the fact that the  historical  results of Harvest are not reflective of its
     ongoing operations after the Merger and are therefore not meaningful. After
     the  Merger,  Harvest  will  continue  to incur  approximately  $200,000 in
     certain  general  and  administrative   costs,   consisting   primarily  of
     professional  fees  and  services  associated  with  public  reporting  and
     corporate  governance.  Additionally,  adjustments  would  be  made  to the
     historical results of TRC to eliminate interest expense associated with the
     subordinated  convertible  note.  For the years ended December 27, 1998 and
     December 28, 1997, this amounted to $264,905 each year.

                                      F-19
<PAGE>


Tanner's Restaurant Group, Inc.
Notes to Financial Statements, continued:


15.  Significant Anticipated Transaction

     As mentioned in Note 14, the Company has obtained a commitment from a group
     of outside  investors to invest  $6,000,000  into the Company,  and through
     February 1999, these investors have invested $4,000,000 of this commitment.
     Management of the Company  believes that the successful  completion of this
     anticipated  transaction  is  critical  to  continue  its  current  plan of
     operations.  The  significant  net  losses  that have been  incurred  since
     October 15, 1996, the negative working capital position,  and the inability
     to  generate   significant   positive  cash  flows  from   operations   all
     significantly  strain the Company's financial position.  Management expects
     that the  $2,000,000  received  during  fiscal 1999  combined with its cost
     containment and cash flow management  strategies will enable the Company to
     continue operations through the time that the final $2,000,000 is received.
     Since management  believes it is probable that the Company will receive the
     final  $2,000,000  in  the  spring  of  1999,  the  consolidated  financial
     statements  do not reflect any  adjustments  that will be  necessary in the
     event the Company does not receive that $2,000,000.

16.  Subsequent Events

     On March 12,  1999,  the  shareholders  of the  Company  voted to amend the
     Company's  articles of  incorporation  to increase the number of authorized
     shares of common  stock  from  20,000,000  to  200,000,000  and  change the
     Company's name to "Tanner's Restaurant Group, Inc."


                                      F-20


<PAGE>


EXHIBIT INDEX

     We have filed  certain of the exhibits  required by Item 601 of  Regulation
S-B with previous  registration  statements or reports. As specifically noted in
the  footnotes  to  the  following   Index  to  Exhibits,   those  exhibits  are
incorporated  into  this  annual  report  on Form  10-KSB  by  reference  to the
applicable statement or report.

Exhibit No.    Title
-----------    -----

2.01           Agreement  and Plan of  Merger by and  among  Harvest  Restaurant
               Group,  Inc.,  a  Texas  corporation,   Hartan,   Inc.,  a  Texas
               corporation,   and  TRC   Acquisition   Corporation,   a  Georgia
               corporation, dated December 27, 1998. (4)

3.01           Articles of Incorporation, as amended.

3.02           Bylaws. (l)

4.01           Loan  Agreement  by and among  TRC  Acquisition  Corporation  and
               Sirrom Capital Corporation, dated October 22, 1996.

4.02           Assumption  Agreement,   Consent  and  First  Amendment  to  Loan
               Agreement,  dated January 14, 1999,  by and among  Hartan,  Inc.,
               Harvest Restaurant Group, Inc., and Sirrom Capital Corporation.

4.03           Guaranty  Agreement,  dated January 14, 1999,  Harvest Restaurant
               Group, Inc., and Sirrom Capital Corporation.

4.04           Amended and Restated  Secured  Promissory Note, dated January 14,
               1999,  made by Hartan,  Inc.  for the  benefit of Sirrom  Capital
               Corporation.

4.05           Amended and Restated  Stock Purchase  Warrant,  dated January 14,
               1999.

10.01          Incentive Stock Option Plan. (l)

10.02          TRC Acquisition Corporation 1996 Employee Stock Option Plan.

10.03          Settlement Agreement with Cluckers Wood Roasted Chicken, Inc. (l)

10.04          Employment  Agreement,  dated  January  14,  1999,  by and  among
               Harvest Restaurant Group,  Inc., Hartan,  Inc. and Clyde E. Culp,
               III.

<PAGE>


10.05          Severance Agreement, dated January 14, 1999, by and among Harvest
               Restaurant Group, Inc., Hartan, Inc. and William J. Gallagher.

10.05(a)       Letter Amendment to Severance Agreement, dated March 16, 1999.

10.06          Form of Subscription Agreement for Series D Convertible Preferred
               Stock.

10.07          Form of  Registration  Rights  Agreement for Series D Convertible
               Preferred Stock.

10.08          Form of  Warrant  Agreement  for Series D  Convertible  Preferred
               Stock.

10.09          Letter Amendment, dated January 12, 1999.

10.10          Letter Amendment, dated January 13, 1999.

10.11          Agreement with Roasters Corp. (2)

10.12          Agreement with Pollo Operators, Inc. (2)

21             Subsidiaries.

23             Consent of Porter Keadle Moore, LLP.

27.1           Financial Data Schedule as of December 28, 1998.

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

(1)  Incorporated by reference to our definitive  Registration Statement on Form
     SB-2, file No. 33-95796 declared effective on July 9, 1996.

(2)  Incorporated  by  reference  to our  definitive  Registration  Statement on
     FormSB-2, file no. 333-21067 declared effective on June 11, 1997.

(3)  Incorporated by reference to our definitive  Registration Statement on Form
     S-3, file no. 333-45189 declared effective on February 17, 1998.

(4)  Filed as Exhibit  2.1 to our Current  Report on Form 8-K,  filed on January
     21, 1999, and incorporated herein by reference.