SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


(Mark One)
[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934
     [Fee Required]
For the fiscal year ended December 29, 1996
[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
     [No Fee Required]
     For the transition period from _______________ to ________________

Commission File No. 33-95796


                          CLUCKCORP INTERNATIONAL, INC.
                 (Name of Small Business Issuer in its Charter)


                  Texas                                     76-0406417
(State or other jurisdiction of incorporation    (I.R.S. Employer Identification
             or organization)                                 Number)


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



                   Issuer's telephone number: (210) 824-2496

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

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

                           $.01 Par Value Common Stock
                         Common Stock Purchase Warrants
                                (Title of Class)
<PAGE>


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

     As of February  28, 1997,  2,366,030  shares of the  Registrant's  $.01 par
value Common Stock were  outstanding.  As of February 28, 1997, the market value
of the  Registrant's  $.01 par value  Common  Stock,  excluding  shares  held by
affiliates, was $13,847,355 based upon a closing bid price of $6.88 per share of
Common Stock on the NASDAQ SmallCap Market.

     Check if there is no disclosure  contained  herein of delinquent  filers in
response to Item 405 of Regulation  S-B, and will not be contained,  to the best
of the Registrant'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 Registrant's revenues for its most recent fiscal year were $263,892.

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

                                        2
<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

     Except for the historical  information  contained  herein,  the matters set
forth in this Report include  forward-looking  statements  within the meaning of
the "safe harbor" provisions of the Private Securities  Litigation Reform Act of
1995. These  forward-looking  statements are subject to risks and  uncertainties
that  may  cause  actual   results  to  differ   materially.   These  risks  and
uncertainties  are detailed  throughout the Report and will be further discussed
from time to time in the Company's  periodic  reports filed with the Commission.
The forward-looking  statements included in the Report speak only as of the date
hereof.

Introduction

     The Company owns,  operates and franchises quick service  restaurants under
the name "Harvest  Rotisserie"  which feature marinated  oak-roasted  rotisserie
chicken,  oak-roasted  turkey  breast,  roast ham,  meatloaf,  an  assortment of
sandwiches and other fresh homestyle food items. Harvest Rotisserie  restaurants
(sometimes referred to as the "Restaurant(s)")  emphasize rotisserie oak-roasted
chicken, turkey and fresh homestyle side dishes consistent with what the Company
believes to be (i) an increased  consumer  demand for take-home  prepared foods,
(ii) an emphasis  on lower fat foods such as chicken  and turkey,  and (iii) the
popularity of homestyle  cooking.  Harvest  Rotisserie  side dishes include cold
dishes  such as  coleslaws  and  salads  and hot  dishes  such as  baked  beans,
stuffing, corn, parsley potatoes, macaroni and cheese, steamed fresh vegetables,
mashed potatoes and gravy, rice, creamed spinach, cheese rice and baked cinnamon
apples.  The Company maintains strict quality standards in purchasing,  storing,
preparing and serving its entrees, side dishes, desserts and other products.

     To date,  the Company has opened three  Restaurants  in San Antonio,  Texas
(one of which it used as both a training  facility and a public  restaurant) and
one Restaurant in Corpus Christi, Texas. The Company has also executed leases or
acquired  property to develop  four  additional  Restaurants  in San Antonio and
Houston,  Texas. The Company seeks to enter into traditional  single  Restaurant
franchise agreements as well as area development  agreements although it has not
yet executed any franchise  agreements  and  currently  has no area  development
agreements in effect. Area development  agreements require the area developer to
develop a specified  number of  Restaurants  within a  delineated  territory  in
accordance  with  a  development   schedule.   Management   believes  that  area
development  agreements allow for the more rapid  development of a target market
area by generally more experienced  restaurant operators who are able to realize
economies of scale  resulting  from locating a number of  Restaurants in a given
area.  These  operators  often require less  management  supervision  by Company
personnel and provide the Company with higher  franchise fee income in a shorter
period of time.

                                        3
<PAGE>


History

     The Company was incorporated in Texas in June 1993 under the name Clucker's
Tex-Mex Venture, Inc. and changed its name to CluckCorp  International,  Inc. in
April 1995.  Prior to November  1994,  the  Company  was an area  developer  for
Cluckers Wood Roasted Chicken,  Inc.  ("CWRC"),  the developer and franchisor of
the original "Cluckers"  restaurant concept. The Company acquired from WaterMarc
Food Management,  Inc. ("WaterMarc"),  formerly Billy Blues Food Corporation and
an affiliate  of the Company,  the  Cluckers  franchise  development  rights for
Texas, Mexico and certain Central American countries.  After CWRC had opened ten
company-owned restaurants between 1991 and 1994 in Florida, Georgia and New York
and had sold franchises for an additional 165 restaurants,  controlling interest
in CWRC was purchased by Kenny Rogers  Roasters,  Inc.  ("Roasters") in November
1994.  The Company then exchanged its Cluckers area  development  agreement with
CWRC for systems,  franchising materials, signage and the exclusive right to use
the Cluckers name,  trademark and service mark solely in Texas.  The Company did
not acquire  international  rights to the Cluckers name because neither CWRC nor
anyone else had obtained any  international  rights,  other than the Mexican and
Central  American rights  described  above.  However,  the Company  subsequently
registered  the Cluckers  name in Mexico and applied for  trademarks  to use the
Cluckers name and logos in the United Kingdom, Canada, Singapore and Malaysia.

     The  Company is  licensed to use the  Cluckers  name only in Texas,  and is
obligated  to pay a  license  fee of 2% of gross  sales  applicable  only to its
Cluckers  restaurants  in Texas  for the  first 10 years  and 1% of gross  sales
thereafter. No such license fees are required for Restaurants outside the United
States. In February 1995 and July 1995, the Company formed Cluckers Restaurants,
Inc. and Harvest Restaurants,  Inc., respectively,  wholly-owned Texas corporate
subsidiaries,  to act as  franchisors  for the  Company's  Cluckers  and Harvest
Rotisserie restaurants.

     In February  1996, the Company  decided to concentrate on the  development,
operation and franchising of Harvest Rotisserie  restaurants,  which the Company
believes is an improvement  over the original  Cluckers  concept because Harvest
Rotisserie  restaurants  offer an  expanded  menu  which  includes  a number  of
additional homestyle entrees offering lower fat foods.  Accordingly,  in January
1997, the Company converted its only Cluckers Restaurant to a Harvest Rotisserie
Restaurant.

     In July  1996,  the  Company  sold  1,000,000  shares of  Common  Stock and
2,300,000  common stock  purchase  warrants  (the "IPO  Warrants") in an initial
public offering  ("IPO") of its securities  through Global Equities Group,  Inc.
("Global" or the  "Representative") as representative of the underwriters of the
IPO. The Company realized net proceeds of approximately  $4,700,000 from the IPO
based upon the sale of the Common  Stock at $5.50 per share and the IPO Warrants
at $.125 per IPO Warrant.

     In February 1997,  the Company filed a registration  statement on Form SB-2
covering  the sale of 500,000  shares of the  Company's  Convertible  Redeemable
Preferred  Stock  ("Preferred  Stock")  at  $10.00  per  share  (the  "Preferred
Offering").  The registration  statement has not been declared  effective by the
Commission.  There can be no assurance that the  registration  statement will be
declared  effective  or that the  Company  will be  successful  in  selling  the
Preferred Stock. See "Application of Preferred Offering Proceeds."

                                        4
<PAGE>


Strategy

     The Company seeks to  participate  in what it perceives as an emerging food
service category consisting of fresh,  convenient,  homestyle replacement meals.
This category  combines the fresh,  high quality and flavorful  meals  generally
associated  with  traditional  home  cooking  with  the  convenience  and  value
associated with fast-food  restaurants.  In order to promote this category,  the
Company  will  continue  to  employ  the  following  strategies  it  adopted  in
connection with the development of its Harvest Rotisserie restaurants.

     Fresh, High Quality,  Convenient Homestyle Meals. The Company will focus on
its Harvest Rotisserie concept of rotisserie  oak-roasted  chicken,  oak-roasted
turkey breast, roast ham, meatloaf, sandwiches and a variety of freshly prepared
side dishes by  promoting  (i)  take-home  prepared  foods,  (ii) the  expanding
interest in low fat freshly prepared meals, and (iii) the consumer's  desire for
homestyle,  complete meals, reminiscent of home cooking. Chicken, turkey and ham
are delivered to the Company's  Restaurants  several times each week in order to
allow for the fresh  preparation of these food  products.  Cooked food items are
prepared with the use of ovens and steamers, rather than the fryers, grills, and
microwaves used by many other fast-food  establishments.  The Company  maintains
strict  quality  standards in  purchasing,  storing,  preparing  and serving its
entrees,  fresh side  dishes,  desserts and other  products.  All visible fat is
removed from poultry and ham prior to  preparation.  The chickens are  marinated
for 24 hours in a blend of citrus  juices,  fresh  garlic and natural  herbs and
spices  and  roasted  over  hardwood  flames  in a custom  built  rotisserie  at
temperatures  as high as 1,200  degrees  for ninety  minutes.  The  self-basting
characteristic  of  rotisserie  cooking is  believed to reduce fat and result in
moister meat and crispier skin.

     Complete Meal Value.  The Company  emphasizes  complete,  reasonably-priced
meals  rather than  focusing on  discounting  individual  items or an a la carte
pricing system. Restaurant meals include a variety of entrees such as rotisserie
oak-roasted    chicken,    oak-roasted   turkey,   roast   ham   and   meatloaf,
customer-selected   side   dishes  and   desserts.   Complete   meals  begin  at
approximately  $3.99, and menu  combinations  provide  convenient  multiple meal
selections  for couples,  families or larger  groups.  The  Company's  operating
philosophy is to provide high quality, healthful, quick service food rather than
the food often  associated with the fast food industry.  The  Restaurants  offer
large food portions,  lunch specials and entree  combinations at lower prices in
order to create a competitive "price to value" concept.

     Distinctive  Appearance and Casual Atmosphere.  The Company has established
what it  considers  to be an  easily  replicable  prototype  Harvest  Rotisserie
restaurant,  featuring an efficient operating layout, standardized equipment and
tasteful and distinctive  trade dress. The Company believes its Restaurant store
furnishings  create an attractive and casual  environment  for both take-out and
dine-in customers.

                                        5
<PAGE>


     Visible, High Traffic Store Locations. The Company emphasizes free-standing
pad sites or end-cap  locations with  drive-through  windows,  ample parking and
easy access to and from high traffic roads.  Highly visible  signage  consistent
with trade dress and local requirements is pursued.

     Customer Service Commitment. The Company seeks friendly, customer-oriented,
and  highly  motivated  employees  at all  positions  to help  ensure  that  its
customers have a pleasant dining  experience,  including a friendly greeting and
individual  attention to all aspects of their order.  Customers  unfamiliar with
particular side dishes are encouraged to taste a sample.

Application of Preferred Offering Proceeds

     In February 1997,  the Company filed a Registration  Statement on Form SB-2
covering the sale of 500,000 shares of preferred  stock  ("Preferred  Stock") at
$10.00 per share (the  "Preferred  Offering").  Each share of Preferred Stock is
convertible  into  Common  Stock one year  after the  effective  date at a to be
determined conversion price.

     The  Company  intends  to use  substantially  all of  the  proceeds  of the
Preferred  Offering to acquire  restaurant  properties  in certain  metropolitan
markets and  sublease the  properties  to area  developers  who will operate the
properties as Harvest Rotisserie  restaurants.  The Company may require the area
developers  to  execute  promissory  notes  to  the  Company   representing  any
acquisition  costs  advanced by the Company and may also  advance  funds to area
developers  for costs  incurred  to convert  properties  to  Harvest  Rotisserie
restaurants  and for working  capital.  The Company will then seek to recoup its
costs through  franchise fee payments and  repayments  of any  promissory  notes
issued by the area developers who will also be responsible to tender  restaurant
property lease payments directly to the owners of the properties. If the Company
is unable to locate area developers willing to operate the restaurant properties
or if the area  developers are  unsuccessful  in the operation of the restaurant
properties,  the  Company  may  be  unable  to  recoup  its  investments  in the
properties and would be liable for any leases it executed with the owners of the
properties.  If the Company is unable to recoup such investments,  its financial
condition and results of operations will be severely adversely affected.

     In evaluating  and  selecting  restaurant  properties  for  assignment  and
sublease  to  prospective  area  developers,  the  Company  expects to apply the
following  criteria.  The Company will limit  restaurant  properties  to a small
number of  metropolitan  areas which the Company  believes  currently offer long
range growth potential for its Harvest  Rotisserie  concept.  Each  metropolitan
area must offer the Company the  opportunity to promptly  acquire at least three
properties so that the Company can take advantage of  advertising  and marketing
economies of scale.  The Company  will give  priority to  metropolitan  areas in
which it has already  located a  prospective  area  developer  and which contain
identifiable  properties  which meet the Company's  demographic  and  population
requirements.  The  Company  does  not have  specific  population  criteria  for
metropolitan areas, but rather evaluates the population of the metropolitan area
in  comparison to the number of  Restaurants  it believes its  prospective  area
developer  is capable of  developing  within 24 months.  The rates of  potential
Restaurants to population  determines the Company's ability to realize economies
of scale.  In terms of  demographics,  the Company  favors high  employment  and
recreational  population  concentrations  of middle class white  collar  workers
generally  above  the  age  of  30.   Individual   properties  within  a  target
metropolitan  area  will be  selected  based  upon the  terms of the  underlying
property  leases,   anticipated  costs  of  conversion  to  Harvest   Rotisserie
restaurants,  the ability of the Company to refinance any debt  associated  with
the  property and the ability of the Company to sublease the property to an area
developer.

                                        6
<PAGE>


     There can be no  assurance  that the  Preferred  Offering  will be declared
effective by the Commission or that the Preferred Stock will be sold.  Moreover,
the Company has not  entered  into any  acquisition  agreements  for  restaurant
properties or sublease agreements with prospective area developers and there can
be no assurance it will do so in the future.

Current Operations

     The Company's Restaurants  prominently display a rotisserie within customer
view. The location of the rotisserie, coupled with the flames emanating from the
hardwood,  creates a focal point for the Restaurants.  Chicken, turkey and other
entrees may be purchased in varying  quantities or in combination  with a choice
of side dishes. Most Restaurants offer inside seating and takeout service, range
in size from  approximately  1,800 to 3,500  square  feet,  have drive-  through
windows and seating capacities for 45 to 70 diners. Generally,  restaurant hours
are from 11 A.M. to 11 P.M., seven days a week.

     The Company  considers  the location of a Restaurant  to be critical to its
long-term success and therefore devotes significant efforts to the evaluation of
potential  Restaurant  sites  whether  such  Restaurant  sites are  intended for
Company  owned,  franchised or area  developed  Restaurants.  The site selection
process  involves   consideration   of  a  variety  of  factors   including  (i)
demographics,  such as target  population  density and household  income levels,
(ii) specific site characteristics such as visibility, accessibility and traffic
volume, (iii) proximity to activity centers such as prime urban office or retail
shopping districts, suburban shopping areas and hotel and office complexes, (iv)
parking  availability  and (v) potential  competition in the area. The Company's
executive  officers inspect and approve  Restaurant sites prior to the execution
of a lease.  The opening of new  Restaurants  is  contingent  upon,  among other
things,  locating  satisfactory sites,  negotiating favorable leases or purchase
agreements,  completing construction and securing appropriate government permits
and approvals.  Once a site is available to the Company and necessary  approvals
and permits  have been  obtained,  approximately  60 to 180 days are required to
complete construction and open the Restaurant.

     The  design of the  Restaurants  is  flexible  and may be  adapted to local
architectural  styles  and  existing  buildings  with  varying  floor  plans and
configurations.  The  Company  intends  to  continue  to  purchase  most  of its
restaurant equipment, such as rotisseries,  furniture and fixtures from the same
suppliers, in order to promote uniformity of style and format and reduce costs.

                                        7
<PAGE>


     The  Restaurants  are operated  under  standards set forth in the Company's
operating  manuals,  including  specifications  relating  to  food  quality  and
preparation,  design and decor and  day-to-day  operations.  The standards  also
govern the administration, training and conduct of Restaurant personnel.

     A typical  Restaurant  will employ between fifteen and twenty people daily,
generally on a staggered basis designed to match employee work hours to customer
traffic.  Restaurant  personnel generally include a manager,  assistant manager,
cooks, counter personnel and kitchen workers.

     The Company  believes  that the  training  and  development  of  Restaurant
management personnel is a critical part of its operations. Restaurant management
personnel  are  trained  by the  Company  for a 30-day  period  and  until  each
participant  can  demonstrate  the  management  skills  required  to  operate  a
Restaurant  at levels  satisfactory  to the  Company.  Restaurant  managers  are
responsible  for day-to-day  operations,  including food  preparation,  customer
relations,  maintenance,  cost  control and  personnel  relations.  In addition,
Restaurant managers are responsible for selecting and training new employees who
will generally undergo an on-the-job training period under the supervision of an
experienced  employee.  Ongoing employee  training is the  responsibility of the
Restaurant manager.

Restaurant Expansion

     The Company intends to open as many Restaurants as its capital will permit.
The amount of capital  required  will  depend in part on whether  the  developed
Restaurants  are  Company-  owned,  or  franchised  restaurants.  The  number of
Restaurants opened will also depend upon, among other things,  market acceptance
of the Company's  Restaurant concept, the hiring of skilled management and other
personnel,  the  availability  of suitable  locations,  the  general  ability to
successfully manage growth (including monitoring restaurants,  controlling costs
and  maintaining  effective  quality  controls),  the  availability  of adequate
financing, and its ability to attract and retain qualified franchisees.  To date
the Company has opened four  Restaurants  and has four other  Restaurants  under
development  but has not entered into any franchise  agreements  and has no area
development agreements in effect.

     The Company estimates that the average cost of opening a Harvest Rotisserie
restaurant in a leased  facility,  including  site  selection  costs,  leasehold
improvements,   acquisition  of  furniture,   fixtures  and  equipment,  opening
inventories  and certain  preopening  expenses  (including  salaries,  training,
travel,  advertising  and  promotion),  will range from $350,000 to $550,000 per
Restaurant depending upon the size and location of the Restaurant and the amount
of leasehold  improvements  required. If the Company elects to purchase the land
and/or building, the development costs will be significantly higher.

                                        8
<PAGE>


     The Company  previously  sought to enter into joint venture  agreements and
development  arrangements to finance a portion of Restaurant  development costs,
but was unable to attract joint venture partners upon terms acceptable to it and
has therefore terminated any such arrangements.

Franchise Agreements

     The Company has completed a Uniform  Franchise  Offering  Circular ("UFOC")
and related franchise  documents for its Harvest  Rotisserie  restaurant but has
not sold any franchises. The Harvest Rotisserie franchise agreement provides for
(i) a $35,000 per  Restaurant  franchise  fee (except for  take-out  only stores
which require a $15,000  franchise fee),  (ii) a 5% royalty on the  Restaurant's
gross  revenue and (iii) a reserve  for a national  and local  advertising  fund
contribution  aggregating  up  to 3%  of  gross  revenues  per  Restaurant.  The
franchise agreement also provides for a limited area of exclusivity  surrounding
the franchised  Restaurant in which the Company may neither develop nor grant to
others the right to develop additional Restaurants.

     The Company's  franchise agreement requires that the Restaurant be operated
in  accordance  with the  operating  procedures  and  menus  established  by the
Company.  The  Company  conducts  regular  inspections  of  its  Restaurants  to
determine  whether  they  meet  applicable  quality,   service  and  cleanliness
standards and will work with franchisees to improve  substandard  performance or
any  items of  non-compliance  revealed  in the  course of its  inspection.  The
Company may terminate any  franchisee  who does not comply with such  standards.
The  Company  believes  that  maintaining  superior  food  quality,  a clean and
pleasing   environment  and  excellent  customer  service  is  critical  to  the
reputation and success of its  Restaurants  and intends to act  aggressively  to
enforce  applicable  contractual  requirements.  Franchisees  could contest such
terminations  which  would cause the  Company to incur  potentially  significant
legal expenses.

Area Development Agreements

     The Company's Harvest  Rotisserie area development  agreement  requires the
development of a specified number of Restaurants  within a delineated  territory
in  accordance  with a  development  schedule.  The  development  schedule  will
generally cover three to six years and will have Restaurant operation benchmarks
for the number of  Restaurants  to be opened and in operation at certain  yearly
intervals.  It is anticipated that area developers will pay a nonrefundable  fee
of $5,000 per Restaurant to be developed and a per  Restaurant  franchise fee as
each  Restaurant is opened.  Area  development  agreements will provide that the
area developer has the exclusive right to open Restaurants  within the specified
territory during the term of the development schedule.  Once an acceptable lease
for an  approved  Restaurant  site has been fully  executed  and the Company has
approved  design  and  construction  specifications,  the  Company  and the area
developer would enter into a franchise  agreement under which the area developer
would become the franchisee  for the specific  Restaurant to be developed at the
site. The Company has no obligation under its area development agreements beyond
its  obligation  not to sell  franchises to anyone  within the area  developer's
territory.

                                        9
<PAGE>


     Failure  to meet  development  schedules  or  other  breaches  of the  area
development  agreement  would lead to  termination  of the  limited  exclusivity
provided  by  the  agreement,   loss  of  any  deposits  paid  to  the  Company,
renegotiation  of  development  and franchise  provisions or  termination of the
right  to  build  future  Restaurants,   although  such  termination  would  not
necessarily  affect  the area  developer's  existing  franchise  agreements  for
developed locations.

     In March 1995, prior to defining certain uniform area development agreement
terms, the Company entered into an area development agreement with a stockholder
and former  director of the Company,  providing for the development of up to ten
Cluckers  restaurants  in Singapore  over a 20-year  period.  In February  1996,
consistent  with  the  Company's  plan  to  develop  solely  Harvest  Rotisserie
restaurants,  the  agreement  was  modified  to provide for the  development  of
Harvest Rotisserie restaurants. The fee under the area development agreement was
$50,000 of which the Company received $20,000 as a deposit in cash and a $30,000
non-interest  bearing  unsecured  promissory  note. In October 1996, the Company
refunded  $10,000 of the  deposit,  cancelled  the $30,000  promissory  note and
reduced  the  number  of  Restaurants  anticipated  to be  developed  under  the
agreement  from ten  Restaurants to two  Restaurants.  The developer is under no
obligation to develop any Restaurants in Singapore and, accordingly, the Company
no longer  considers  its  agreement  with the  developer to  constitute an area
development agreement.

     No area development agreements are currently in effect, and there can be no
assurance  that  any  Restaurants  will  be  developed  under  area  development
agreements.  Negotiations  with parties who previously  expressed an interest in
area development  agreements for Restaurants to be located in McAllen, Texas and
San Francisco,  California were  terminated.  Although the Company  continues to
negotiate  with a number of entities  for area  developments  in such markets as
Austin, Texas, Baltimore,  Maryland, New York, New York and northern California,
there can be no assurance  that the Company  will  execute any area  development
agreements in the future.

Marketing

     The Company  currently  markets  its four  Restaurants  on a limited  basis
primarily  through  print media,  restaurant  signage,  direct mail and in-store
displays which emphasize the healthfulness,  quality and homestyle nature of the
food products and otherwise promote the rotisserie concept.  The Company intends
to expand its advertising  efforts (using working capital generated from its IPO
and from revenues from existing  Restaurants) to include additional use of print
media, together with radio and television commercials. The Company's advertising
efforts also seek to promote  value  through the  purchase of complete  meals or
meal combinations, as opposed to a la carte selection or pricing.  Company-owned
and any future franchise  Restaurants will contribute to a national  advertising
fund  to pay for the  development  of  national  advertising  material  and to a
separate fund to pay for advertising in local markets.

                                       10
<PAGE>


Competition

     The food  service  industry is intensely  competitive  with respect to food
quality, concept,  location,  service and price. There are many well-established
food  service  competitors  with  substantially   greater  financial  and  other
resources than the Company and with  substantially  longer operating  histories.
The  Company   competes  with  take-out   food  service   companies,   fast-food
restaurants,    casual   full-service   dine-in   restaurants,    delicatessens,
cafeteria-style  buffets and prepared food stores,  as well as with supermarkets
and convenience stores.  Competitors include national,  regional and local pizza
restaurants,  Chinese food  restaurants,  other purveyors of carry- out food and
convenience  dining   establishments,   including  such  chains  as  Pizza  Hut,
McDonald's and others.  Other rotisserie  roasted chicken concepts and homestyle
food concepts, such as Boston Market and Kenny Rogers' Roasters,  provide direct
and intensive competition.  This intense competition has resulted in the sale or
closing  of  a  number  of  rotisserie  roasted  chicken  restaurants  including
establishments operated by some of the larger franchise chains. The inclusion of
roasted or baked chicken at many large,  national food service  chains,  such as
KFC  and  Roy  Rogers,  and in  supermarkets  and  convenience  stores,  creates
significant additional competition for customers.  Moreover, other national food
service chains or companies  could  introduce new  rotisserie,  roasted or baked
chicken   restaurants.   The  Company  believes  that  its  Harvest   Rotisserie
restaurants will compete favorably in terms of taste, food quality, convenience,
customer service and value, which the Company believes are the important factors
to the segments of the population the Company currently targets.

     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,  availability of product and local competitive factors.
Some or all of these factors could cause the Company and future  franchisees  to
be adversely affected.

     The Company also  competes for  franchisees  with  multinational  fast food
chains,  national and regional  restaurant  chains and other  regional and local
restaurant   franchisors.   Most  restaurant  franchisors  have  greater  market
recognition  and  greater  financial,  marketing  and human  resources  than the
Company.

Trademarks and Service Marks

     The Company has  registered  with the United  States  Patent and  Trademark
Office  ("PTO") its  "Harvest  Rotisserie"  name,  trademark  and  service  mark
("MARKS").  There can be no assurance  that the Company  will obtain  sufficient
protection for its Harvest  Rotisserie Marks or, that it will have the financial
resources to enforce or defend its Marks. The Company has the exclusive right in
Texas to use the  Cluckers  name,  trademark  and  service  mark which have been
registered  with the PTO. In addition,  the Company has  registered the Cluckers
name in Mexico and has applied to  register  the  Cluckers  name (or, in certain
cases,  the name in connection with additional  words or graphics) in the United
Kingdom, Canada, Singapore and Malaysia. The Company has no current intention to
use the Cluckers name or trademark as it is currently  concentrating its efforts
on its Harvest Rotisserie Restaurant concept.

                                       11
<PAGE>


Regulation

     The  Company's  Restaurants  must  comply  with  federal,  state  and local
government regulations applicable to consumer food service businesses generally,
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,  as well as  regulations  relating  to
zoning,  construction,  health,  business licensing and employment.  The Company
believes that it is in material compliance with these provisions.

     Certain  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 ("UFOC") with the state before it may offer
a franchise.  The Company  believes that its Harvest  Rotisserie  UFOC (together
with any  applicable  state  versions  or  supplements)  complies  with both the
Federal Trade  Commission  guidelines and all applicable  state laws  regulating
franchising in those states in which the Company intends to offer franchises.

Insurance

     The Company carries  general  liability,  product  liability and commercial
insurance of up to  $2,000,000  which it believes is adequate for  businesses of
its size  and  type.  However,  there  can be no  assurance  that the  Company's
insurance  coverage will remain  adequate or that  insurance will continue to be
available  to the  Company  at  reasonable  rates.  In  the  event  coverage  is
inadequate or becomes  unavailable,  the Company  could be materially  adversely
affected.  The Company has carried workers' compensation  insurance since August
1995.

     Franchisees  will be 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.  The  Company  requires  that it be named as an  additional
insured on any such policies.

Employees

     At February 28, 1997,  the Company  employed four executive  officers,  six
salaried  corporate  employees and approximately 100 Restaurant  employees.  The
Company believes that its relations with its employees are satisfactory.

ITEM 2.  DESCRIPTION OF PROPERTY

     The Company leases 2,500 square feet of space for its executive  offices in
San Antonio,  Texas under a 12 month lease expiring June 30, 1997 for $2,500 per
month. The Company believes its executive office facilities are adequate for its
needs in the  foreseeable  future  and that  additional  space is  available  at
reasonable rates.

                                       12
<PAGE>


     The Company has opened four Harvest Rotisserie  restaurants.  Subsequent to
its IPO, the Company  cancelled  three proposed  Restaurant  property leases and
substituted  three of the leases set forth below. The lease  substitutions  were
made  because  the  Company  concluded  that  the new  leases  offered  superior
locations to the original leases.  Details concerning the Company's four current
and four planned  Restaurants are described  below. The Company expects that all
four planned  Restaurants  will be  Company-owned  and operated and will open in
1997.

<TABLE>
<CAPTION>

                                     Form of                         Lease                        Monthly
Location                            Ownership                     Expiration                      Rent(3)
--------                            ---------                     ----------                      -------
<S>                            <C>                             <C>                                <C>
Fredericksburg Road            Building Lease                   August 1998                       $2,554
San Antonio, TX

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

Tezel Road(1)                  Real Estate                      Not Applicable                    Not Applicable
San Antonio, TX                Owned

Hwy 281/Loop 1604(1)           Ground Lease                     February 2022                     $4,500
San Antonio, TX

DeZavala Road(1)               Ground Lease                     May 2027                          $5,000
San Antonio, TX

South Braeswood Road           Building Lease                   January 2004                      Greater of $3,000 or
Houston, TX                                                                                       5% of gross sales

4620 Broadway                  Building Lease                   January 2002                      $4,900
San Antonio

South Padre Island Drive       Building Lease                   November 1999                     $5,000
Corpus Christi, TX(2)
</TABLE>

(1)  Sites substituted for previous sites.

(2)  In  January  1997,  the  Company  purchased  the  furniture,  fixtures  and
     equipment of an existing  restaurant  property  (through the  assumption of
     $100,000  of debt in  connection  with  the  property)  and  converted  the
     property to a Harvest Rotisserie restaurant.

(3)  Monthy rents are subject to customary  escalation clauses in future periods
     generally  tied to a consumer  price index or increases  in the  landlord's
     operating expenses on the property.

                                       13
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

     Not applicable.

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

     Not applicable.

                                       14
<PAGE>


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock has traded on The NASDAQ SmallCap Market tier of
the NASDAQ Stock Market ("NASDAQ SmallCap Market") under the symbol "ROTI" since
July 9, 1996.

     The following table sets forth for the quarters indicated the range of high
and low sales  prices of the  Company's  Common  Stock as reported by the NASDAQ
SmallCap Market.

<TABLE>
<CAPTION>
                                                                       Price
                                                               --------------------
By Quarter Ended:                                                High         Low
                                                               --------    --------
<S>     <C>                                                    <C>         <C>
October 6, 1996 ........................................       $   8.25    $   5.67
December 29, 1996 ......................................       $   7.75    $   5.75
April 20, 1997 (through February 28, 1997) .............       $   7.13    $   6.00
</TABLE>

     As of February  28,  1997,  the Company had  approximately  600  beneficial
holders of its Common Stock.

Dividend Policy

     The Company has never paid cash  dividends  on its Common Stock and intends
to retain  earnings,  if any,  for use in the  operation  and  expansion  of its
business.  The amount of future  dividends,  if any,  will be  determined by the
Board of  Directors  based upon the  Company's  earnings,  financial  condition,
capital requirements and other conditions.

Description of Securities

Common Stock

     The  Company is  authorized  to issue  10,000,000  shares of $.01 par value
Common Stock. At February 28, 1997,  there were 2,366,030 shares of Common Stock
outstanding. The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders, including the
election of  directors.  There is no right to cumulate  votes in the election of
directors. The holders of Common Stock are entitled to any dividends that may be
declared  by the Board of  Directors  out of funds  legally  available  therefor
subject  to any prior  rights of  holders of  Preferred  Stock.  In the event of
liquidation or dissolution of the Company,  holders of Common Stock are entitled
to share ratably in all assets  remaining  after payment of liabilities  and the
liquidation preferences of any outstanding shares of Preferred Stock. Holders of
Common Stock have no preemptive rights and have no right to convert their Common
Stock into any other securities.  All of the outstanding  shares of Common Stock
are fully paid and non-assessable.

                                       15
<PAGE>


Preferred Stock

     The Company is authorized  to issue  5,000,000  shares of preferred  stock,
$1.00 par value.  The preferred stock may, without action by the stockholders of
the  Company,  be issued by the Board of  Directors  from time to time in one or
more series for such consideration and with such relative rights, privileges and
preferences as the Board may determine.  Accordingly, the Board has the power to
fix the  dividend  rate and to establish  the  provisions,  if any,  relating to
voting  rights,  redemption  rate,  sinking fund,  liquidation  preferences  and
conversion rights for any series of preferred stock issued in the future.

     The Series A Redeemable  Convertible  Preferred Stock  ("Preferred  Stock")
offered in the Preferred  Offering has been authorized by the Board of Directors
of the  Company  as a new series of the  Company's  preferred  stock,  $1.00 par
value,  consisting of up to 1,000,000 shares. The shares of Preferred Stock when
issued  will be fully  paid and  non-assessable  under  Texas law.  The  Company
expects  that the  Preferred  Stock will be  convertible  into Common Stock at a
formula to be  determined  and will pay  dividends in cash or in Common Stock of
the  Company.  There can be no  assurance  that the  Company  will  successfully
complete the sale of any Preferred Stock in the Preferred Offering.

     It is not  possible  at this time to state the  actual  effect of any other
authorization  of  Preferred  Stock upon the  rights of holders of Common  Stock
until the Board  determines  the  specific  rights of the  holders  of any other
series of preferred stock.  The Board's  authority to issue preferred stock also
provides a convenient vehicle in connection with possible acquisitions and other
corporate purposes,  but could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock.  Accordingly,
the issuance of preferred stock may be used as an "anti-takeover" device without
further action on the part of the stockholders of the Company, and may adversely
affect the holders of the Common Stock.

IPO Warrants

     There are 2,300,000 IPO Warrants  outstanding  (each of which  entitles the
holder to  purchase  one share of Common  Stock at $4.00 per share until July 9,
2001). The exercise price and the number of shares issuable upon exercise of the
IPO Warrants are subject to adjustment in certain events, including the issuance
of  Common  Stock as a  dividend  on shares of  Common  Stock,  subdivisions  or
combinations  of the Common  Stock or similar  events.  The IPO  Warrants do not
contain  provisions  protecting  against  dilution  resulting  from  the sale of
additional  shares of Common Stock for less than the  exercise  price of the IPO
Warrants or the then current market price of the Company's Common Stock.

     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 $.01 per IPO
Warrant  at any time after July 9, 1997 if the  closing  price of the  Company's
Common  Stock on  NASDAQ  averages  at least  $8.00 per share for a period of 20
consecutive trading days.

                                       16
<PAGE>


     Holders of IPO Warrants may exercise their IPO Warrants for the purchase of
shares of Common Stock only if a current  prospectus  relating to such shares is
then in effect and only if such shares are  qualified  for sale, or deemed to be
exempt from  qualification,  under applicable state securities laws. The Company
is required to use its best efforts to maintain a current Prospectus relating to
such  shares of Common  Stock at all times when the  market  price of the Common
Stock exceeds the exercise price of the IPO Warrants  until the expiration  date
of the IPO Warrants, although there can be no assurance that the Company will be
able to do so.

     The shares of Common Stock  issuable on exercise of the IPO  Warrants  will
be,  when  issued  in  accordance   with  the  IPO  Warrants,   fully  paid  and
non-assessable.  The holders of the IPO Warrants have no rights as  stockholders
until they exercise their IPO Warrants.

Representative Warrants

     The  Company  has  issued  to the  Representative  of its IPO  Warrants  to
purchase  up to 100,000  shares of Common  Stock at $6.60 per share and  200,000
warrants at $.15 per Warrant.  Each Warrant  entitles the holder to purchase one
share at $4.00 per share.

Other Outstanding Common Stock Purchase Warrants

     The  Company  has  issued  325,280  common  stock  purchase  warrants  each
exercisable  at $2.50 per share until  December 1997, of which 257,280 have been
exercised.  The Company is required  to  register  the 257,280  shares of Common
Stock underlying the subject warrants by August 10, 1997.

Stock Transfer and Warrant Agent

     Corporate Stock Transfer,  Inc.,  Denver,  Colorado,  is the stock transfer
agent and IPO Warrant agent for the Company's securities.

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

General

     The Company was organized in June 1993, and opened its San Antonio Cluckers
restaurant in January 1994. The Company's  operating  results for 1994 and 1995,
including  its  limited  revenues  and  ongoing  losses  primarily  reflect  the
operations of its one Cluckers restaurant located in San Antonio,  Texas. During
the fourth quarter of 1994, the Company  established  its corporate  offices and
began the  initial  development  of its  franchising  program.  During the third
quarter of 1995 the Company began  refinements to its Cluckers  restaurant which
evolved  into the  Harvest  Rotisserie  restaurant,  and the  Company  completed
development of the Harvest  Rotisserie  franchise program during this period. In
February 1996 the Company  elected to limit its activities to the development of
Harvest  Rotisserie  restaurants,   and  opened  its  first  Harvest  Rotisserie
restaurant in November  1996. In January and February  1997,  the Company opened
two additional Harvest Rotisserie Restaurants,  and in January 1997, the Company
converted  its  San  Antonio  Cluckers   restaurant  to  a  Harvest   Rotisserie
restaurant,  at a cost of $25,000.  To date, the Company has four restaurants in
operation, but has not sold any franchises nor does it have any area development
agreements currently in effect.

                                       17
<PAGE>


Results of Operations-Fiscal Year 1996 Compared to Fiscal Year 1995

     Revenues.  Restaurant revenues for 1996 were $263,892,  a 16.4% increase as
compared  to  1995.  The  increase  in  revenues  was due to the  opening  of an
additional  restaurant  in November  1996. On a  comparative  basis,  same store
revenues  decreased $32,820 or 14.5% between 1996 and 1995. The decrease in same
store sales was due in part to a further  reduction in the restaurant  operating
hours which was implemented during the second quarter of 1996. The restaurant is
currently open five days each week from 11 a.m. to 2 p.m. and is also being used
as a training  facility.  Restaurant  revenues in 1996 were approximately 34% of
capacity  for this  restaurant  and  below  the  restaurant's  operating  costs.
Management attributes the low sales volumes to the partial use of the restaurant
as  a  training  facility,  reduced  hours  of  operation  and  the  lack  of  a
drive-through  window at the restaurant,  which is located in a shopping center.
Management  anticipates  that the sales volume for this  restaurant  may improve
marginally in future periods after conversion to a Harvest Rotisserie and due to
enhanced name recognition as the Company opens additional Restaurants in the San
Antonio area although there can be no such  assurance.  The Company expects that
most new Restaurants will be free-standing with drive-through windows.

     During 1995 revenues  included an area  development  fee for $50,000 with a
then director of the Company.  The area  development  agreement was subsequently
modified extensively. See "Certain Transactions."

     Costs and Expenses. Cost of food and paper was 46.4% of restaurant revenues
for 1996,  as  compared to 36.3% in 1995.  The  increase in food and paper costs
resulted  primarily  from food usage for recipe  development  for the  Company's
expanded Harvest Rotisserie menu, and the opening of an additional restaurant in
November 1996, which typically has higher costs during the initial periods after
opening.

     Restaurant  salaries,   benefits,   occupancy  and  related  expenses,  and
operating  expenses include all other restaurant level operating  expenses,  the
major  components  of which are direct and  indirect  labor,  payroll  taxes and
benefits,  operating  supplies,  rent,  advertising,  repairs  and  maintenance,
utilities,  and other occupancy  costs. The combined total of these expenses was
$257,806 or 97.7% of restaurant  revenue for 1996 as compared to 277,646 or 122%
for 1995. A substantial  portion of these costs are fixed or indirectly variable
and therefore were disproportionate to restaurant revenues for both periods.

                                       18
<PAGE>


     General and  administrative  expenses increased $693,593 or 122% in 1996 as
compared to 1995. The increase  resulted from the establishment of the Company's
corporate offices in 1996 and expenses associated with the Company's  financing,
franchising,   and  expansion  activities.  In  1996,  these  expenses  included
salaries,  benefits and contract services (25%),  professional fees and offering
expenses (37%),  travel related expenses (10%),  advertising and promotion (11%)
and other general and administrative expenses (17%).

     Preopening  expenses  increased by $71,711 for 1996 as compared to the same
period in 1995. A substantial  portion of the increase  relates to initial costs
associated with the  development of a new Harvest  Rotisserie  restaurant  which
opened in November 1996.

     Interest and Debt  Discount  Expense.  Interest and debt  discount  expense
increased to $454,818 for 1996 as compared to $140,497 for 1995. The significant
increase  relates to the issuance of $1,684,000  face amount of 10% Bridge Notes
from December 1994 to March 1996. The total amount of amortized debt discount in
1996 was  $367,153.  The  Bridge  Notes  were  repaid  in full in July 1996 from
proceeds of the Company's IPO.

     Net  Loss.  The  Company  incurred  a net  loss of  $2,011,254  for 1996 as
compared to $924,483 for 1995.  The increase in net loss for 1996 was  primarily
the result of significantly higher interest,  debt discount expenses and general
and administrative  expenses. The Company expects to incur significant losses in
future periods until it generates  sufficient  revenues from expanded restaurant
operations  or from  franchising  activities  to offset  ongoing  operating  and
expansion costs.

Results of Operations-Fiscal Year 1995 Compared to Fiscal Year 1994

     Revenues.  Revenues for 1995,  were  comprised of $226,678 from  restaurant
operations  and $50,000 for an area  development  fee from a stockholder  of the
Company.  Revenues from restaurant operations were derived entirely from the San
Antonio Cluckers  restaurant which opened in January 1994.  Restaurant  revenues
for 1995 decreased 7.1% as compared to 1994,  which only included  eleven months
of  restaurant  operations.  Annualized  restaurant  sales volumes for 1995 were
14.8%  below  1994  levels,  and  were  approximately  30% of  capacity  for the
restaurant  and below the  restaurant's  operating  costs for both periods.  The
decrease in revenues is due in part to a reduction in the  restaurant  operating
hours which was implemented  during the third quarter of 1995. The restaurant is
currently open five days each week from 11 a.m. to 2 p.m. and is also being used
as a  training  facility.  Management  attributes  the low sales  volumes to the
partial  use  of the  restaurant  as a  training  facility  and  the  lack  of a
drive-through  window at the restaurant,  which is located in a shopping center.
The  Company  expects  that  most  new  Restaurants  will  be  in  free-standing
facilities with drive-through windows.

     Costs and Expenses.  Cost of food and paper improved to 36.3% of restaurant
revenues for the year ended  December  31, 1995,  as compared to 43.3% for 1994.
The improvement in gross margins  resulted  primarily from  efficiencies in food
preparation as the restaurant  matured  following the initial opening in January
1994.

                                       19
<PAGE>


     Restaurant  salaries,   benefits,   occupancy  and  related  expenses,  and
operating  expenses include all other restaurant level operating  expenses,  the
major  components  of which are direct and  indirect  labor,  payroll  taxes and
benefits,  operating  supplies,  rent,  advertising,  repairs  and  maintenance,
utilities and other  occupancy  costs.  The combined total of these expenses was
$277,646,  or 122% of restaurant  revenues and  $320,935,  or 132% of restaurant
revenues for 1995 and 1994,  respectively.  A substantial portion of these costs
are  fixed  or  indirectly  variable  and  therefore  were  disproportionate  to
restaurant  revenues  for both  periods.  The  decrease  in these  expenses as a
percentage of restaurant revenues was due to improved cost controls  implemented
during the fourth quarter of 1994.

     General and administrative  expenses increased $369,964, or 187% in 1995 as
compared to 1994 primarily due to the  establishment of the Company's  corporate
offices and expenses  associated with the Company's  financing,  franchising and
expansion  activities.  In 1995, these expenses included salaries,  benefits and
contract  services (29%),  professional fees and public offering expenses (39%),
travel related expenses (15%), advertising and promotion (6%), and other general
and administrative expenses (11%).

     Preopening  expenses of $59,363 in 1995 consisted  primarily of lease costs
for  maintaining a restaurant  site for future  development  in Houston,  Texas.
Preopening expenses of $25,783 in 1994 consisted of certain expenses incurred in
connection with the opening of the San Antonio restaurant.

     Interest and debt  discount  expense of $140,497  for 1995,  relates to the
issuance of $1,074,500  face amount of 10% Bridge  Notes,  from December 1994 to
November 1995, and included $87,659 of amortized debt discount. Interest expense
of $29,063 in 1994 relates to a note payable with an affiliate.

     Net Loss. The Company  incurred a net loss of $924,483 for 1995 as compared
to $494,024 for 1994.  The increase in net loss in 1995 was primarily the result
of  significantly  higher  general  and  administrative  expenses  and  interest
expense,  which offset an area development fee and slightly improved  restaurant
operating results.

Liquidity and Capital Resources

     The Company has incurred losses from  operations  since inception and as of
December 29, 1996, has an accumulated deficit of $3,576,796.  The Company is not
currently  generating  sufficient  revenues  from  operations  to meet  its cash
requirements.  Management  anticipates  that the Company must increase  revenues
from existing Restaurants, open at least four additional restaurants and realize
revenues  from its  franchise  program to  generate  a  positive  cash flow from
operations,  although there can be no such assurance.  The Company  estimates it
will require up to six months to realize  increases in revenues from operations.
The  ability of the Company to fund costs  associated  with its  operations  and
expansion plans is dependent upon the successful development of its Restaurants,
its franchising activities, and its ability to obtain additional capital through
future debt or equity placements.

                                       20
<PAGE>


     The  Company  requires  capital   principally  for  the  expansion  of  its
Restaurant operations, for general and administrative expenses and to fund costs
associated with the promotion of its franchise program. During 1996, the Company
invested $1,059,654 in property and equipment,  of which approximately  $985,000
was for the  development of two  restaurants  (which opened in November 1996 and
February 1997). To date, the Company has funded its operations and capital needs
with funds  provided  from the sale of its  securities,  including its IPO which
raised net  proceeds of  approximately  $4,700,000.  The Company does not have a
working capital line of credit with any financial institution. Future sources of
Liquidity will be limited to the Company's  ability to obtain additional debt or
equity  funding  which will be  difficult to obtain until and unless the Company
begins to generate  earnings.  Management's  plan is to move the Company  toward
profitable  operations in fiscal 1997,  and to seek  additional  capital to fund
further expansion of its operations.

     Between  December  1994  and  March  1996,  the  Company  issued a total of
$1,684,500  of 10% unsecured  Bridge Notes.  Proceeds from the Bridge Notes were
used  for  working  capital  purposes,  development  of  the  Company's  initial
franchising  program and to pay certain costs associated with the Company's IPO.
The Bridge  Notes were repaid on July 15,  1996 using a portion of the  proceeds
from the IPO.

     Internal sources of capital are limited to the Company achieving profitable
operations in future periods or raising additional  capital from investors.  The
Company  anticipates  that its  existing  capital  resources  will  enable it to
maintain  its  current  operations  for  at  least  12  months;   however,  full
implementation  of its expansion  plans is dependent  upon the completion of the
Preferred Offering. If the Company does not complete the Preferred Offering, its
expansion plans will be curtailed.

                                       21
<PAGE>


ITEM 7.  FINANCIAL STATEMENTS

         The financial  information  required by this item is found beginning on
page F-1.

                                       22

<PAGE>


CluckCorp International, Inc.
Contents
December 29, 1996


Audited Financial Statements                        Page

Report of Independent Certified Public Accountants   F-1
Balance Sheets ...................................   F-2
Statements of Operations .........................   F-3
Statements of Stockholders' Equity ...............   F-4
Statements of Cash Flows .........................   F-5
Notes to Financial Statements ....................   F-6
<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
CluckCorp International, Inc.
San Antonio, Texas

We have audited the accompanying balance sheets of CluckCorp International, Inc.
as of December  29,1996 and  December 31, 1995,  and the related  statements  of
operations,  stockholders'  equity,  and cash  flows for the  fiscal  years then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of CluckCorp  International,  Inc.
as of December 29, 1996 and December 31, 1995, and the results of its operations
and its cash flows for the fiscal years then ended, in conformity with generally
accepted accounting principles.


/S/ Akin, Doherty, Klein & Feuge, P.C.
--------------------------------------
Akin, Doherty, Klein & Feuge, P.C.
San Antonio, Texas
February 6, 1997

                                       F-1
<PAGE>


CluckCorp International, Inc.
Balance Sheets
<TABLE>
<CAPTION>
                                                        December 29,   December 31,
                                                           1996           1995
                                                        -----------    -----------
<S>                                                     <C>            <C>
ASSETS
Current Assets
    Cash ............................................   $ 1,271,443    $   126,447
    Cash, restricted ................................       220,000           --
    Inventories .....................................         8,658          5,044
    Deferred financing costs ........................          --          144,074
    Other current assets ............................        10,590           --
    Note receivable from stockholder ................          --           40,000
                                                        -----------    -----------
         Total Current Assets .......................     1,510,691        315,565

Property and Equipment, net .........................     1,156,362        150,868

Other Assets
    Intangible property rights, net of accumulated
      amortization of $139,825 and $99,875 ..........       259,675        299,625
    Deposits ........................................        83,257         25,007
    Other assets ....................................       127,727         34,780
                                                        -----------    -----------
                                                            470,659        359,412
                                                        -----------    -----------

                                                        $ 3,137,712    $   825,845
                                                        ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
    Bridge notes payable, net of unamortized discount
      of $ -0- and $133,523 .........................   $      --      $   940,977
    Accounts payable, trade .........................       134,204        161,642
    Accrued liabilities .............................       220,406         89,043
    Note payable to bank ............................       200,000           --
                                                        -----------    -----------
         Total Current Liabilities ..................       554,610      1,191,662

Commitments and contingencies

Common stock subject to rescission, 0 shares
 in 1996 and 57,750 shares in 1995 ..................          --          195,818

Stockholders' Equity
    Preferred stock
    Common stock - $.01 par value; 10,000,000 shares
         authorized, 2,112,750 shares issued and
         outstanding in 1996 and 990,000 in 1995 ....        21,128          9,900
    Additional paid - in capital ....................     6,138,770        994,007
    Accumulated deficit .............................    (3,576,796)    (1,565,542)
                                                        -----------    -----------
         Total Stockholders' Equity (Deficit) .......     2,583,102       (561,635)
                                                        -----------    -----------

                                                        $ 3,137,712    $   825,845
                                                        ===========    ===========
</TABLE>

See notes to financial statements.

                                       F-2
<PAGE>


CluckCorp International, Inc.
Statements of Operations
<TABLE>
<CAPTION>
                                               Fiscal Years Ended
                                          December 29,   December 31,
                                             1996           1995
                                          -----------    ------------
<S>                                       <C>            <C>
Revenues
    Restaurant operations .............   $   263,892    $   226,678
    Area development fee, stockholder .        50,000
                                          -----------    -----------
                                              263,892        276,678

Costs and Expenses
    Cost of food and paper ............       122,530         82,171
    Restaurant salaries and benefits ..       125,954        127,400
    Occupancy and related expenses ....        58,191         63,605
    Operating expenses ................        73,661         86,641
    Preopening expenses ...............       131,074         59,363
    General and administrative expenses     1,261,198        567,605
    Depreciation and amortization .....       104,467         73,879
                                          -----------    -----------
         Total costs and expenses .....     1,877,075      1,060,664
                                          -----------    -----------

Loss from operations ..................    (1,613,183)      (783,986)

Other income (expense)
    Interest income ...................        56,747
    Interest expense and debt discount       (454,818)      (140,497)
                                          -----------    -----------
                                             (398,071)      (140,497)

Net Loss ..............................   $(2,011,254)   $  (924,483)
                                          ===========    ===========

Net loss per common share .............   $     (1.29)   $      (.75)
                                          ===========    ===========
Weighted average number of common
  and common equivalent shares
  outstanding .........................     1,553,824      1,224,531
                                          ===========    ===========
</TABLE>

See notes to financial statements.

                                       F-3
<PAGE>


CluckCorp International, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
                                                                                                 Total
                                         Common Stock             Additional                 Stockholders'
                                  ---------------------------      Paid-In      Accumulated     Equity
                                    Shares           Amount        Capital        Deficit      (Deficit)
                                  -----------     -----------    -----------    -----------   -----------
<S>                               <C>             <C>            <C>           <C>            <C>
Balance at January 1, 1995 ....       990,000     $     9,900    $   994,007   $  (641,059)   $   362,848

Net loss for the year .........          --              --             --        (924,483)      (924,483)
                                  -----------     -----------    -----------    -----------   -----------

Balance at December 31, 1995 ..       990,000           9,900        994,007    (1,565,542)      (561,635)

Issuance of common stock in
   initial public offering ....     1,000,000          10,000      4,730,290          --        4,740,290
Other issuances of common stock        65,000             650        219,233          --          219,883
Common stock no longer subject
    to rescission .............        57,750             578        195,240          --          195,818
Net loss for the year .........                                                  (2,011,254)   (2,011,254)
                                  -----------     -----------    -----------    -----------   -----------

Balance at December 29, 1996 ..     2,112,750     $    21,128    $ 6,138,770    $(3,576,796)  $ 2,583,102
                                  ===========     ===========    ===========    ===========   ===========
</TABLE>

See notes to financial statements.

                                       F-4
<PAGE>


CluckCorp International, Inc.
Statements of Cash Flows
Operating Activities
<TABLE>
<CAPTION>
                                                                        Fiscal Years Ended
                                                                   December 29,   December 31,
                                                                      1996           1995
                                                                   -----------    -----------
<S>                                                                <C>            <C>
Operating Activities
    Net loss for the year ......................................   $(2,011,254)   $  (924,483)
    Adjustments to reconcile net loss
      to net cash used in operations:
         Depreciation and amortization .........................        94,109         73,879
         Amortization of bridge note discount ..................       367,154         87,659
         Loss on forfeited deposits ............................          --           17,338
         Changes in operating assets and liabilities:
             Cash, restricted ..................................       (20,000)          --
             Inventories .......................................        (3,614)        (2,046)
             Deferred financing costs ..........................       144,074       (142,429)
             Other current assets ..............................       (10,590)       (40,000)
             Accounts payable and accrued expenses .............       103,925        133,037
                                                                   -----------    -----------
Net cash (used) by operating activities ........................    (1,336,196)      (797,045)

Investing Activities
    Purchases of property and equipment ........................    (1,059,654)        (5,071)
    Increase in deposits and other assets ......................      (151,197)       (57,395)
                                                                   -----------    -----------
Net cash (used) by financing activities ........................    (1,210,851)       (62,466)

Financing Activities
    Net proceeds from sale of common stock and warrants ........     4,960,173           --
    Net proceeds from sale of common stock subject to rescission          --          195,818
    Proceeds from issuance of bridge notes payable .............       376,370        764,318
    Proceeds from bank borrowings ..............................       200,000           --
    Restricted cash for note payable ...........................      (200,000)          --
    Repayments of stockholder advances .........................        40,000        (16,889)
    Repayments of bridge notes payable .........................    (1,684,500)          --
                                                                   -----------    -----------
Net cash provided by financing activities ......................     3,692,043        943,247
                                                                   -----------    -----------

Net increase in cash ...........................................     1,144,996         83,736

Cash at beginning of year ......................................       126,447         42,711
                                                                   -----------    -----------


Cash at End of Year ............................................   $ 1,271,443    $   126,447
                                                                   ===========    ===========
</TABLE>

See notes to financial statements.

                                       F-5
<PAGE>


CluckCorp International, Inc.
Notes to Financial Statements
December 29, 1996 and December 31, 1995


NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization:  CluckCorp International,  Inc. ("CluckCorp" or the "Company") was
organized  in the  State  of  Texas on June 18,  1993,  and is an  operator  and
developer of a quick service restaurant concept.  The Company currently operates
three  restaurants in San Antonio and one restaurant in Corpus  Christi,  Texas.
The  restaurants  provide high quality,  quick service food featuring  marinated
oak-roasted rotisserie chicken with a variety of homemade side dishes.

The Company  incorporated two wholly-owned  subsidiaries  during 1995,  Cluckers
Restaurants,  Inc. and Harvest Restaurants,  Inc., to act as franchisors for the
Company's restaurants. Neither subsidiary conducted operations during 1996.

Fiscal Year: In 1996,  the Company  adopted a 52/53 - week fiscal year ending on
the last Sunday in December.  The fiscal year is divided into thirteen four-week
periods.  The first  quarter  consists of four periods and each of the remaining
three  quarters  consist  of three  periods,  with the  first,  second and third
quarters  ending 16 weeks, 28 weeks and 40 weeks  respectively,  into the fiscal
year.

Cash  and Cash  Equivalents:  The  Company  considers  all  highly  liquid  debt
instruments  purchased  with an original  maturity of three months or less to be
cash equivalents.  At December 29, 1996, the Company had deposits of $218,795 in
a financial institution which exceeded the FDIC insured amount.

Inventories:  Inventories are stated at the lower of cost  (first-in,  first-out
method) or market and consist primarily of restaurant food and paper.

Property and Equipment:  Property and equipment are stated at cost. Depreciation
is provided using the  straight-line  method over the estimated  useful lives of
the  respective  assets  (generally  seven  years for  furniture,  fixtures  and
equipment and 15 to 20 years for leasehold  improvements),  or applicable  lease
terms,  if less.  Maintenance  and repairs  are charged to expense as  incurred,
while  improvements  which  increase  the value of the  property  and extend the
useful lives are capitalized.

Intangible  Property  Rights:  The  Company  obtained  under an  agreement  with
Cluckers Wood Roasted Chicken, Inc. (CWRC), an unaffiliated Florida corporation,
an  exclusive  license to use all of CWRC's  intangible  property  rights in the
State of Texas.  Intangible  property  rights  acquired  from CWRC are stated at
original  acquired  cost and  amortized  over a ten  year  period.  The  Company
periodically  assesses  the  valuation  of the  rights  in  light  of  projected
operating  results and economic  conditions and  impairments are recognized when
the expected future  undiscounted  operating cash flows derived from such rights
are less than their carrying value. No impairments have been recognized to date.
Amortization  expense of $39,950 is included in the  accompanying  statements of
operations for each of the last two fiscal years.

Deferred  Offering  and  Financing  Costs:  Deferred  offering  costs are netted
against the equity  offering to which they apply when the proceeds are received.
Deferred  financing  costs are amortized over the life of the  respective  notes
payable.

Revenue Recognition: Revenue from restaurant and product sales are recognized in
the  period  in  which  food  and  beverage  products  are  sold.  Revenue  from
nonrefundable  area development fees is recognized when all material services or
conditions  relating  to the  area  development  sale  have  been  substantially
performed or satisfied by the Company.

Preopening  Costs:  Preopening  costs,  which consist  primarily of salaries and
other direct expenses  relating to the set up, initial stocking,  training,  and
general management  activities  incurred prior to the opening of new stores, are
charged to expense as incurred.

Advertising  Costs:  Advertising costs of $133,366 and $35,820 during the fiscal
years ended December 29, 1996 and December 31, 1995, respectively,  were charged
to expense as incurred.

                                       F-6
<PAGE>


CluckCorp International, Inc.
Notes to Financial Statements
December 29, 1996 and December 31, 1995



NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - Continued

Income Taxes: In accordance with Statement of Financial Accounting Standards No.
109,  "Accounting  for Income Taxes",  deferred tax assets and  liabilities  are
recognized  for  temporary  differences  between  the tax  basis of  assets  and
liabilities and their reported amounts in the financial statements.  A valuation
allowance is provided  against net deferred tax assets when  realization  during
the next fiscal year is uncertain.

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  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.


NOTE B - NOTES PAYABLE

At December 29, 1996,  the Company had  outstanding a $200,000 note payable to a
financial  institution.   The  note,  which  is  collateralized  by  a  $200,000
certificate  of deposit,  bears  interest at the rate of 6.50% and is payable in
monthly installments of interest only. The principal and accrued interest is due
at the maturity date of November 3, 1997.

At December  31,  1995,  the Company had bridge  notes  payable  outstanding  of
$940,977,  net of  unamortized  discount of  $133,523.  The notes were issued to
individuals  in four separate  private  offerings  from May, 1995 through March,
1996,  and were paid off in full with the proceeds  from the  Company's  initial
public  offering  completed in July 1996.  During the fiscal years ended in 1996
and 1995,  $367,153 and $87,659 of discount  applicable  to the bridge notes was
amortized to interest expense.

The Company's weighted-average interest rate on it short-term borrowings, before
amortization  of debt  discount,  was 9. 8% in 1996 and  10.5%  in  1995.  After
considering  amortization of debt discount,  the weighted-average  interest rate
was 50.6% in 1996 and 28.1% in 1995.


NOTE C - SUPPLEMENTAL FINANCIAL STATEMENT DATA

Property and equipment consists of the following:


                                    December 29,   December 31,
                                        1996          1995
                                    -----------    -----------
Land ............................   $   160,000    $      --
Buildings .......................       240,400           --
Furniture, fixtures and equipment       365,719         78,150
Leasehold improvements ..........       487,515        115,830
                                    -----------    -----------
                                      1,253,634        193,980
Less accumulated depreciation ...       (97,272)       (43,112)
                                    -----------    -----------

    Property and equipment, net .   $ 1,156,362    $   150,868
                                    ===========    ===========

                                       F-7
<PAGE>


CluckCorp International, Inc.
Notes to Financial Statements
December 29, 1996 and December 31, 1995



NOTE C - SUPPLEMENTAL FINANCIAL STATEMENT DATA - Continued

Accrued liabilities consists of the following at:

                                         December 29,     December 31,
                                            1996             1995
                                          --------         --------
Accrued payroll and related liabilities   $ 21,416         $  6,874
Accrued interest payable ..............       --             51,758
Accrued reporting costs ...............     94,900             --
Accrued property lease payments .......    100,000           29,500
Other accrued liabilities .............      4,090              911
                                          --------         --------

                                          $220,406         $ 89,043
                                          ========         ========


NOTE D - OPERATING LEASES

The  Company   currently   conducts  all  its   operations   and  maintains  its
administrative  offices in leased facilities.  The Company also has entered into
lease agreements for facilities in San Antonio,  Texas which the Company intends
to develop as  restaurants  in the future.  Lease terms  generally are ten years
with  two or  three  five-year  renewal  options.  Most  of the  leases  contain
escalation  clauses and require  payment of common area  maintenance  charges or
taxes,  insurance and other expenses.  The Company also leases certain equipment
under  non-cancelable  operating  leases having terms  expiring at various dates
through 2001. Rental expense under operating lease agreements,  including common
area  maintenance  charges,  was $156,393  and  $120,262  for the periods  ended
December 29, 1996 and December 31, 1995, respectively.

Future minimum lease payments  which are required  under  operating  leases that
have initial or remaining  non-cancelable  lease terms in excess of one year are
as follows:

                    Years Ended December:           Amount
                    ---------------------           ------

                         1997                   $    297,710
                         1998                        283,285
                         1999                        258,331
                         2000                        257,121
                         2001                        256,435
                         Thereafter                1,592,780
                                                ------------

              Total future minimum payments     $  2,945,662
                                                ============

                                       F-8
<PAGE>


CluckCorp International, Inc.
Notes to Financial Statements
December 29, 1996 and December 31, 1995



NOTE E - FEDERAL INCOME TAXES

Deferred income taxes resulted from the following temporary differences and loss
carryforwards at:


                                            December 29,   December 31,
                                                1996          1995
                                            -----------    -----------

Deferred tax asset - loss carryforwards .   $ 3,400,000    $ 1,565,542
                                            ===========    ===========


Net deferred tax asset at expected rates    $ 1,156,000    $   532,284
Less valuation allowance ................    (1,156,000)      (532,284)
                                            -----------    -----------

               Deferred tax asset allowed   $      --      $      --
                                            ===========    ===========

The  Company  has not  recorded  any  income  tax  expense  (benefit)  since its
inception.  The  Company's tax operating  loss  carryforwards  are available for
utilization  against  taxable  income and expire in  various  amounts  from 2008
through 2011.


NOTE F - STOCKHOLDERS' EQUITY

Initial Public  Offering:  In July 1996,  the Company sold  1,000,000  shares of
common  stock and  2,300,000  warrants  to purchase  common  stock in an initial
public  offering  of its  securities.  The  Company  realized  net  proceeds  of
$4,740,290  from the  offering  based upon the sale of the common stock at $5.50
per share and the warrants at $.125 per warrant.

Reverse Common Stock Split: On July 17, 1995, the Board of Directors  authorized
a five-for-two  reverse  common stock split.  All references to number of shares
and to stock  warrants as well as per share  information  have been  adjusted to
reflect the stock split on a retroactive basis.

Preferred  Stock:  The Company has authorized  5,000,000  shares of $1 par value
preferred  stock,  none of which  is  issued  or  outstanding.  Dividend  rates,
conversion  rights,  redemption and voting rights and liquidation rates have not
been set by the Board of Directors. See Note K.

Common  Stock  Subject to  Rescission:  At December  31,  1995,  the Company had
classified  118,750  shares of common stock issued between August 1995 and March
1996 in  connection  with the sale of  $1,197,500  of bridge  notes as temporary
equity due to the  uncertainty  as to whether  the private  placement  exemption
could be  claimed  since  these  securities  were sold  after the  filing of the
Registration  Statement.  Without  the  exemption,  the  transactions  could  be
considered  integrated  with the offering,  subjecting  the Company to potential
liability  for sales of  unregistered  securities.  All bridge note holders were
repaid their  investment upon the closing of the initial public offering in July
1996. However, the possibility exists the Company could be liable for a claim by
the bridge  lenders in  connection  with the  issuance of the 118,750  shares of
common stock to them at a rate of $3.83 per share (or an aggregate of $454,812),
which is the per share value,  before offering  costs,  attributed to the common
stock.  Management  considers the likelihood of a claim being filed to be remote
and has reclassified these shares as equity at December 29, 1996.

Stock Option Plan: In July 1994,  the Company  adopted a stock option plan which
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 250,000
shares of common stock for the plan.

                                       F-9
<PAGE>


CluckCorp International, Inc.
Notes to Financial Statements
December 29, 1996 and December 31, 1995



NOTE F - STOCKHOLDERS' EQUITY - Continued

The Company applies APB Opinion 25 and related interpretations in accounting for
this plan. The Company  considers the options  granted to be for future services
and accordingly, no compensation cost would have been recognized in 1996 or 1995
had the Company applied the provisions of SFAS Number 123.

A summary of the status of the  Company's  stock  option plan as of December 29,
1996 and December 31, 1995,  and changes during the fiscal years ending on those
dates is presented below:
<TABLE>
<CAPTION>
                                                            1996                                   1995
                                                 ------------------------------       ----------------------------
                                                               Weighted-Average                   Weighted-Average
                                                  Shares        Exercise Price        Shares       Exercise Price
                                                  ------        --------------        ------       --------------

<S>                                                <C>              <C>               <C>              <C>
Outstanding options at beginning of year           80,000           $ 2.50               --            $  --
   Granted                                        206,000             5.94             80,000            2.50
   Exercised                                         --                --                --               --
   Forfeited                                      (80,000)            2.50               --               --
                                                 --------                             -------

Outstanding options at end of year                206,000             5.94             80,000            2.50
                                                 ========                             =======

Options exercisable at year end                      --                                16,000
                                                 ========                             =======

Weighted-average fair value of
 options granted during the year                                     $ 1.62                               --
</TABLE>


The following  table  summarizes  information  about the options  outstanding at
December 29, 1996:
<TABLE>
<CAPTION>
                                  Options Outstanding                             Options Exercisable
                 ------------------------------------------------------     ----------------------------
                    Number         Weighted-Average                            Number
                 Outstanding          Remaining        Weighted-Average     Exercisable  Weighted-Average
Exercise Price   at 12/29/96      Contractual Life       Exercise Price     at 12/29/96   Exercise Price
--------------   -----------      ----------------       --------------     -----------   --------------

<S>                  <C>               <C>                   <C>          <C>                   <C>
   $ 3.85            6,000             4.6 years             $ 3.85                -            $ 3.85
     6.00          200,000             4.8 years               6.00                -              6.00
                  --------                                                ------------

                   206,000             4.8 years               5.94                -              5.92
                  ========                                                ============
</TABLE>

                                      F-10
<PAGE>


CluckCorp International, Inc.
Notes to Financial Statements
December 29, 1996 and December 31, 1995



NOTE F - STOCKHOLDERS' EQUITY - Continued

Warrants: The following is a summary of warrant activity, after giving effect to
the July 17, 1995 reverse stock split:
<TABLE>
<CAPTION>

                                                        Warrants/        Exercise
Issue Date                  Purpose                     Options            Price                Expiration
----------                  -------                     -------            -----                ----------

<S>                 <C>                                  <C>              <C>                 <C>
April 1994          Private sale of common stock         100,000          $ 2.50              December 31, 1997
August 1994         Private sale of common stock          30,480            2.50              December 31, 1997
December 1994       Bridge notes                          35,600            2.50              December 31, 1997
May 1995            Bridge notes                         159,200            2.50              December 31, 1997
July 1996           Initial public offering            2,300,000            4.00              July 9, 2001
July 1996           Initial public offering              100,000            6.60              July 9, 2001
July 1996           Initial public offering              200,000            4.15              July 9, 2001
                                                      ----------

    Outstanding at December 29, 1996                   2,925,280
                                                       =========
</TABLE>


NOTE G - RELATED PARTY TRANSACTIONS

In March 1995,  the Company  entered into an area  development  agreement with a
stockholder  of the  Company  for the  exclusive  license  to  develop up to ten
restaurants  in  Singapore  over a  20-year  period.  The  fee  under  the  area
development  agreement was $50,000, of which the Company had received $20,000. A
non-interest  bearing unsecured promissory note initially due March 30, 1996 was
extended to September 30, 1996. In December 1996, the area development agreement
was modified to reduce the number of restaurants  that can be developed from ten
to two and reduce the fee from $50,000 to $10,000.  The stockholder was refunded
$10,000 and the balance of the note was charged to expense.

On August 10, 1995, the Company  entered into a five year  employment  agreement
with its Chairman and Chief Executive Officer.  Annual  compensation is fixed at
the larger of $75,000 or 20% of all franchise and area  development fees paid to
the Company,  together with 5% of all royalty fees received by the Company under
any franchise  agreements and area  development  agreements  executed during the
Chairman's  employment.  In September 1996, the employment agreement was amended
to increase his salary from $75,000 to $90,000 per year.

During 1996, the Company paid its Chairman and Chief  Executive  Officer $29,800
for certain fixed assets used in the operations of the Company.

The Company has a $20,000 certificate of deposit which collateralizes a personal
loan for an officer of the Company.


NOTE H - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The Company paid interest of $139,423  during the fiscal year ended December 29,
1996. No interest was paid during the fiscal year ended  December 31, 1995,  and
no federal or state taxes were paid during fiscal years ended  December 31, 1996
and 1995.

                                      F-11
<PAGE>


CluckCorp International, Inc.
Notes to Financial Statements
December 29, 1996 and December 31, 1995



NOTE I - LOSS PER SHARE

Loss per common share is computed by dividing  net loss by the weighted  average
number of shares  outstanding  during each  period  plus,  when their  effect is
dilutive, common stock equivalents consisting of certain shares subject to stock
options and warrants.  In 1996, the inclusion of additional  shares assuming the
exercise of the stock options and warrants would have been antidilutive.

Loss per common share is calculated as follows:
                                                             Fiscal
                                                           Year Ended
                                                   December 29,   December 31,
                                                      1996            1995
                                                   -----------    ------------


Net loss .......................................   $(2,011,254)   $  (924,483)
                                                   ===========    ============

Weighted average number of shares outstanding ..     1,553,824      1,001,287

Common stock equivalents due to assumed exercise
  of  options and warrants .....................          --          223,244
                                                   -----------    ------------

                                                     1,553,824       1,224,531


Net loss per common share ......................   $     (1.29)   $       (.75)
                                                   ===========    ============


NOTE J - FAIR VALUE OF FINANCIAL INSTRUMENTS

The only financial instruments of the Company at December 29, 1996, are cash and
notes payable. The carrying amount of the financial instruments approximate fair
value.


NOTE K - SUBSEQUENT EVENTS

In January  1997,  warrants  to  purchase  253,280  shares of common  stock were
exercised, resulting in proceeds to the Company of $633,200.

In  February,  1997,  the Company  filed a  Registration  Statement on Form SB-2
covering  the sale of 500,000  shares of the  Company's  Convertible  Redeemable
Preferred  Stock. The stock is being offered at $10 per share and is convertible
at the option of the holder  into  common  stock at any time after one year from
the effecitve  date of the offering,  at a to be  determined  conversion  price.
There is no assurance that the Registration Statement will be declared effective
by the  Securities  and  Exchange  Commission,  or  that  the  Company  will  be
successful in selling the Preferred Stock.

                                      F-12
<PAGE>


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

     There  have  been  no  changes  in or  disagreements  with  accountants  on
accounting or financial disclosure.

                                       23
<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

     The following table sets forth certain information  regarding the Company's
executive officers and directors:
<TABLE>
<CAPTION>
                                                                                                   Officer or
       Name                                Age                      Office                         Director Since
       ----                                ---                      ------                         --------------
<S>                                        <C>                <C>                                   <C>
William J. Gallagher(1)(2)                 57                 Chairman of the Board of              June 1993
                                                              Directors and Chief
                                                              Executive Officer

Larry F. Harris                            38                 President, Chief Operating            October 1996
                                                              Officer and Director

Sam Bell Steves Rosser                     33                 Vice President - Development,         June 1993
                                                              Treasurer and Director

Michael M. Hogan(1)(2)                     48                 Director                              August 1996

Theodore M. Heesch(1)(2)                   60                 Director                              August 1996

Joseph Fazzone                             36                 Chief Financial Officer               January 1997
</TABLE>

(1)  Member of the Compensation Committee. (2) Member of the Audit Committee.

     On August 12,  1996,  Jeffrey M.  Morehouse  resigned as a director  and on
November 25, 1996,  Henry H.  Salzarulo  resigned as a director.  On December 9,
1996, D.W. Gibbs resigned as Chief Executive Officer and a director. On December
9, 1996,  William J. Gallagher,  the Company's  Chairman,  assumed the duties of
Chief  Executive  Officer and in the same date Larry F.  Harris,  the  Company's
Executive Vice President, was appointed President and a director.

     Directors  hold office for a period of one year from their  election at the
annual meeting of stockholders  and until their  successors are duly elected and
qualified.  Officers of the Company are elected by, and serve at the  discretion
of,  the  Board of  Directors.  None of the  above  individuals  has any  family
relationship with any other except Mr. Rosser who is Mr. Gallagher's son-in-law.
Directors not employed by the Company  receive $750 each for attending  Board of
Directors' meetings and are reimbursed for out-of-pocket expenses.

                                       24
<PAGE>


Background

     The  following is a summary of the business  experience  of each  executive
officer and director of the Company for at least the last five years:

     William J. Gallagher has been President of Jagbanc Capital Ltd., a merchant
bank  headquartered  in San Antonio,  Texas since  September 1994. From February
1991 to September 1994, Mr.  Gallagher was the founder and then Chairman and CEO
of  WaterMarc  Food   Management,   Inc.,   which  operated  32  Marcos  Mexican
Restaurants,  Billy  Blues  Barbecue  Grills,  Longhorn  Cafes  and  BBQ  Pete's
restaurants  and sold Chris' Pitts and Billy Blues Bar-B-Q sauce.  From February
1990  until  September  1992,  Mr.  Gallagher  was a Vice  President  at  Kemper
Securities. Prior to 1990, Mr. Gallagher founded or co-founded several companies
including Sunny's National Stores (a 150-unit convenience store chain in Texas),
American Drive-Inn (an 18-unit drive-in restaurant chain in Houston,  Texas) and
the Guadalupe  Valley Winery in New Braunfels,  Texas. Mr. Gallagher also served
as a  director  of CWRC from June 1993 to  November  1994.  He is the  Company's
Chairman and Chief Executive  Officer for which he devotes  approximately 90% of
his time to the Company's affairs.

     Larry F. Harris  joined the Company in October 1996 as its  Executive  Vice
President  and Chief  Operating  Officer  and was  appointed  its  President  in
December  1996.  From  December  1994 to September  1996 he was Chief  Operating
Officer  for a Monterey  Pasta  Company  franchisee.  From June 1994 to December
1994, he was director of operations  for a Boston Market area developer and from
1984 to 1992, he was employed by Pizza Hut, Inc. in various capacities including
National Director of Operations for Mexico.

     Sam Bell Steves  Rosser  joined the Company in June 1993,  as its president
and  assumed the duties of Vice  President  Development  in March  1995.  He was
employed by Olive Garden  restaurants as a member of the store  operating  staff
from March 1992 until May 1993.  From October 1988 until  December  1991, he was
employed by Dwight L. Lieb, a real estate  developer,  as a commercial  property
manager and leasing agent.

     Michael M. Hogan received his BBA degree in accounting  from the University
of Texas at Austin  in 1972 and has been  engaged  in the  private  practice  of
accounting since 1975. His practice emphasizes restaurant  formation,  operation
and  financing.  From 1987 to 1989,  he was a  co-founder  and  Chief  Financial
Officer of the 18 unit American Drive-Inns  restaurants in Houston, Texas and in
1990 was one of the founders of two Tejas Grill  restaurants  in Austin,  Texas.
Mr.  Hogan has  provided  consulting  services to the Company  from time to time
amounting to less than $5,000 for the year ended December 29, 1996.

     Theodore  M.  Heesch  has  been  a  registered  architect  specializing  in
restaurant  and hotel design since 1967.  From 1981 to 1987,  he was employed by
McFaddin  Kendrick,  Inc., an  entertainment  club developer,  as Executive Vice
President.  In 1988, Mr. Heesch formed TMHI to offer consulting  services to the
hospitality  industry,  specializing  in the design and  development of food and
beverage  facilities.  In June 1994,  Mr. Heesch became Senior Vice President of
Development for McFaddin Partners, a restaurant developer.

                                       25
<PAGE>


     Joseph Fazzone has provided accounting and financial consulting services in
San Antonio,  Texas as a sole  practitioner  since November 1994.  From December
1991 to November  1994, he served as Chief  Financial  Officer of WaterMarc Food
Management, Inc., a restaurant operator and franchisor founded by Mr. Gallagher.
From 1990 to 1991, he served as Corporate  Controller of TI-IN Network,  Inc., a
San Antonio based educational satellite broadcasting network. From 1989 to 1990,
he served as  Manager-Corporate  Planning  and  Financial  Analysis of Intelogic
Trace,  Inc., a nationwide  computer  service  provider.  From 1984 to 1989, Mr.
Fazzone served as an Audit Manager with the San Antonio office of Ernst & Young.
Mr. Fazzone devotes  approximately 60% of his time to the Company's affairs. Mr.
Fazzone is a certified  public  accountant,  having received a B.B.A.  degree in
accounting from Southwest Texas State  University and an M.B.A.  degree from the
University of Texas at San Antonio.

Significant Employees

     Manuel  P.  Ortiz  has been the  Company's  Director  of  Operations  since
November  1996.  He managed and co-owned  Country Fair  restaurant  from 1990 to
1992, and was managing partner of a Boston Market  restaurant from 1992 to 1994.
From 1994  until he joined the  Company in  November  1996,  he was the  General
Manager in Texas for Red Robin International.

     Richard N. Trimble has been the  Company's  Vice  President  of  Operations
since May 1995 and its Director of Franchise Operations since November 1996. Mr.
Trimble joined Church's Fried Chicken ("Church's") in 1971, and was its District
Manager for East Texas from 1973 to 1982 and its Director of Operations  for St.
Louis,  Missouri from 1982 to 1986.  From 1986 to 1989, Mr. Trimble was Regional
Vice  President  of  Church's  for  southeast  U.S.  operations,  directing  the
operations  of  approximately  250  restaurants.  From February 1989 to December
1993, he was a Church's franchisee in East Texas,  operating two restaurants and
from  December  1993  until  he  joined  the  Company  in  May  1995,  he was an
independent restaurant consultant.

                                       26
<PAGE>


ITEM 10.  EXECUTIVE COMPENSATION

     The following table sets forth certain information concerning  compensation
paid to the Company's  executive  officer for the years ended  December 29, 1996
and December 31, 1995 and 1994.
<TABLE>
<CAPTION>
                           Summary Compensation Table

                                                    Annual                               Long-Term
                                                 Compensation                          Compensation
     Name and                                                          Other Annual       Awards         All Other
Principal Position                Year        Salary        Bonus      Compensation       Options      Compensation
------------------                ----        ------        -----      ------------       -------      ------------
<S>                               <C>         <C>             <C>        <C>                <C>             <C>
Sam Bell Steves Rosser            1995        $49,500         $0            $0              $0              $0
    Vice President,
    Treasurer and                 1994         49,800          0             0               0               0
    Director

D.W. Gibbs                        1996         73,214          0             0               0               0
    Chief Executive               1995         30,750          0             0               0               0
    Officer, President
    and Director

William J. Gallagher              1996         79,209          0         3,640               0               0
    Chairman and                  1995         59,211          0             0               0               0
    Chief Executive
    Officer
</TABLE>

     On March 17, 1995, the Company entered into an employment agreement through
December 31, 1995 and monthly thereafter,  with D.W. Gibbs, the Company's former
Chief Executive Officer and a director,  pursuant to which the Company agreed to
pay Mr. Gibbs $3,000 per month through  December 31, 1995,  and $6,250 per month
thereafter  and issue to him options to purchase  80,000 shares of the Company's
Common  Stock at $2.50 per share  exercisable  until March 31,  2000.  The stock
options  vest at the  rate  of  options  to  purchase  16,000  shares  per  year
commencing  with the year ending March 31, 1996.  Mr. Gibbs resigned on December
9, 1996 at which time he earned  options to  purchase a total of 16,000  shares.
Mr. Gibbs  advised the Company  that he might seek legal  counsel if the Company
and he could not negotiate  separation  compensation.  Mr. Gibbs did not have an
employment  agreement  with  the  Company  at the  time of his  resignation  and
accordingly, the Company did not negotiate separation compensation.

                                       27
<PAGE>


     In August 1995, the Company entered into a five-year  employment  agreement
with William J. Gallagher,  its Chairman, to act as its franchise sales director
based  upon a salary  equal to the  greater  of  $75,000  per year or 20% of all
franchise and area development fees paid to the Company, together with 5% of all
royalty fees  received by the Company under any  franchise  agreements  and area
development  agreements  which were executed during the time of Mr.  Gallagher's
employment agreement. Mr. Gallagher was appointed Chief Executive Officer of the
Company in December 1996 and continues to be responsible  for franchise and area
development sales. In September 1996, Mr. Gallagher's  employment  agreement was
amended to increase his base salary from $75,000 to $90,000 per year.

     Larry F. Harris, the Company's President,  is paid a base salary of $90,000
per year and is entitled to incentive  bonuses  aggregating  up to an additional
$90,000  computed  under a formula  based upon the  number of  Company  operated
Restaurants in operation and gross revenues in connection with the Restaurants.

Stock Option Plan

     In July 1994, the Company  adopted its 1994 Stock Option Plan (the "Plan"),
which provides for the grant to employees,  officers,  directors and consultants
of options to purchase up to 250,000 shares of Common Stock,  consisting of both
"incentive  stock  options"  within the  meaning  of Section  422A of the United
States Internal Revenue Code of 1986 (the "Code") and  "non-qualified"  options.
Incentive  stock  options are issuable  only to employees of the Company,  while
non-qualified options may be issued to non-employee  directors,  consultants and
others, as well as to employees of the Company.

     The Plan is administered by the Board of Directors,  which determines those
individuals who shall receive options,  the time period during which the options
may be partially or fully  exercised,  the number of shares of Common Stock that
may be purchased under each option and the option price.

     The per share  exercise  price of the Common Stock  subject to an incentive
stock  option may not be less than the fair market  value of the Common Stock on
the date the option is granted. The per share exercise price of the Common Stock
subject to a non-qualified option is established by the Board of Directors.  The
aggregate fair market value (determined as of the date the option is granted) of
the Common Stock that any employee may purchase in any calendar year pursuant to
the exercise of incentive stock options may not exceed  $100,000.  No person who
owns, directly or indirectly,  at the time of the granting of an incentive stock
option to him, more than 10% of the total  combined  voting power of all classes
of stock of the Company is eligible to receive any incentive stock options under
the Plan unless the option  price is at least 110% of the fair  market  value of
the  Common  Stock  subject  to the  option,  determined  on the date of  grant.
Non-qualified options are not subject to these limitations.

     No incentive  stock option may be  transferred by an optionee other than by
will or the laws of descent  and  distribution,  and during the  lifetime  of an
optionee,  the option  will be  exercisable  only by him or her. In the event of
termination of employment  other than by death or disability,  the optionee will
have three months after such termination during which he or she can exercise the
option.  Upon  termination  of  employment  of an optionee by reason of death or
permanent total disability,  his or her option remains  exercisable for one year
thereafter to the extent it was exercisable on the date of such termination.  No
similar limitation applies to non-qualified options.

                                       28
<PAGE>


     Options under the Plan must be granted  within ten years from the effective
date of the Plan. The incentive  stock options  granted under the Plan cannot be
exercised more than ten years from the date of grant except that incentive stock
options  issued to 10% or greater  stockholders  are limited to five year terms.
All options granted under the Plan provide for the payment of the exercise price
in cash or by delivery to the Company of shares of Common Stock already owned by
the  optionee  having a fair  market  value equal to the  exercise  price of the
options  being  exercised,  or by a  combination  of such  methods  of  payment.
Therefore,  an optionee may be able to tender shares of Common Stock to purchase
additional  shares of Common  Stock and may  theoretically  exercise  all of his
stock options with no additional  investment other than his original shares. Any
unexercised options that expire or that terminate upon an optionee ceasing to be
an officer,  director or an employee of the Company become  available once again
for issuance.

     As of the date of this Report, options to purchase 237,000 shares have been
granted  under the  Plan,  of which  215,000  options  have  been  issued to the
Company's  executive  officers and directors,  as follows.  None of such options
have vested or have been exercised.
<TABLE>
<CAPTION>
                                           Number of                 Exercise
          Name                          Options Granted                Price                   Expiration Date
          ----                          ---------------                -----                   ---------------
<S>                                          <C>                        <C>                        <C>
William J. Gallagher                         100,000                    $6.00                      September 2001
Larry F. Harris                               40,000                     6.00                      September 2001
Theodore M. Heesch                            25,000                     6.00                      September 2001
Michael M. Hogan                              25,000                     6.00                      September 2001
Joseph Fazzone                                25,000                     6.00                        January 2002
                                             -------
Totals                                       215,000
</TABLE>

                                       29
<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain  information as of December 29, 1996
concerning stock ownership of the Company's Common Stock by all persons known to
the Company to own  beneficially 5% or more of the outstanding  shares of Common
Stock, by each director and by all directors and officers as a group.  There are
no shares of Preferred Stock outstanding.

     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  Common  Stock  shown as owned by them,  subject  to
community property laws, where applicable. Each stockholder's address is in care
of the Company at 1250 N.E. Loop 410, Suite 335, San Antonio,  Texas 78209.  The
table also  reflects  all shares of Common Stock which each  individual  has the
right to acquire  within 60 days from the date  hereof  upon  exercise  of stock
options or common stock purchase warrants.

                                                       Number of
                                                       Shares of
                                                         Common
                                                      Stock Owned    Percent of
                                                       of Record    Common Stock
       Name                                        and Beneficially    Owned
       ----                                        ----------------    -----

William J. Gallagher(1)(2) .......................     146,667           6.6%
Larry F. Harris(3) ...............................        -0-        --
Sam Bell Steves Rosser(1) ........................      66,666           3.2%
Michael M. Hogan(4) ..............................     265,000          12.4%
Theodore M. Heesch(5) ............................      25,000           1.2%
JEB Investment Company(6) ........................     240,000          11.4%
All officers and directors .......................     478,333          22.2%
as a group (6 persons)(2)(3)(4)(5)(6)


(1)  Messrs. Gallagher and Rosser may be deemed to be "promoters" and "founders"
     of the Company as those terms are defined under the Securities Act of 1933,
     as amended, and the rules and regulations promulgated thereunder.
(2)  Includes  stock options to purchase up to 100,000 shares of Common Stock at
     $6.00 per share which vest in July 1997.
(3)  Mr. Harris has been granted  options to purchase 40,000 shares at $6.00 per
     share, which vest in August 1997.
(4)  Represents  240,000  shares  owned by JEB  Investment  Company of which Mr.
     Hogan is the  President and a principal  stockholder,  and stock options to
     purchase up to 25,000 shares of Common Stock at $6.00 per share.
(5)  Represents stock options to purchase up to 25,000 shares of Common Stock at
     $6.00 per share which vest in July 1997.
(6)  Michael M.  Hogan,  a  director  of the  Company,  is the  President  and a
     principal (and the controlling)  stockholder of JEB Investment Company. The
     JEB  Investment  Company  shares are currently the subject of a foreclosure
     action by WaterMarc Food Management, Inc. See "Item 12."

                                       30
<PAGE>


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     William J. Gallagher,  the Company's  Chairman and Chief Executive Officer,
along with certain other stockholders and directors of the Company,  are or were
stockholders,  officers  and/or  directors of WaterMarc  Food  Management,  Inc.
("WaterMarc")  during the time the transactions  described in the next following
paragraph  occurred.  Mr. Gallagher  continues to be a stockholder of WaterMarc,
although not a principal stockholder. The Company believes that the transactions
described  below  were  fair,  reasonable  and  consistent  with  the  terms  of
transactions which the Company could have entered into with nonaffiliated  third
parties.  All future transactions with affiliates will be approved by a majority
of the Company's disinterested directors.

     In June 1993,  WaterMarc  assigned to the  Company  all of the  development
rights it had obtained for Cluckers restaurants at an original cost to WaterMarc
of 47,000  shares of its common  stock.  On June 18,  1993,  these  shares  were
tendered by  WaterMarc  to Cluckers  Wood Roasted  Chicken,  Inc.,  ("CWRC") the
Cluckers  franchisor,  and valued at $8.50 per  WaterMarc  share,  or a total of
$399,500.  The  development  rights  consisted of Cluckers  franchise  rights in
Houston,  Galveston,  Dallas and San Antonio, Texas, and area development rights
in Mexico and Central America. In consideration of this assignment,  the Company
issued to WaterMarc a convertible  promissory note ("Note") due June 30, 1998 in
the amount of  $800,000  payable at the  option of the  Company in whole,  or in
part,  in cash or Common Stock of the Company.  The Note bore interest at 8% per
annum, and was secured by all the assets of the Company and the stockholdings of
Messrs.  Gallagher,  Coleman and Rosser.  The  substantial  increase in the Note
above the $399,500 of  consideration  paid by WaterMarc for the area development
rights was attributable to the rights to the Mexico and Central America markets,
which  WaterMarc  and  the  Company  believed  to have  more  value  and  market
development  potential than had been assigned by CWRC.  During 1994, the Company
repaid $315,000 of the Note and the Company and WaterMarc  agreed to convert the
remaining  portion of the Note and other  advances to the Company from WaterMarc
totalling  approximately $42,000, and $63,430 of accrued interest,  into 240,000
shares  of the  Company's  Common  Stock,  (valued  at  $2.50  per  share by the
Company's Board of Directors),  which shares were subsequently sold by WaterMarc
to JEB Investment Company ("JEB") for $1,800,000 payable by JEB in the form of a
promissory note secured by the 240,000 shares,  bearing interest at 9% per annum
and payable June 30, 1996. In September  1996,  WaterMarc  reduced the principal
amount of the promissory note due to it from JEB to $600,000.  In December 1996,
WaterMarc commenced foreclosure  proceedings upon the 240,000 shares held by JEB
and has  advised  the  Company it intends  to sell the shares  immediately  upon
obtaining  title to them.  Michael M. Hogan,  a director of the Company,  is the
President and a principal (and the controlling) stockholder of JEB.

     In June 1993,  the Company  issued  200,000  shares of its Common  Stock to
Messrs.  Gallagher,  Coleman and Rosser,  officers and directors of the Company,
for  services  rendered  valued at $5,000,  or $.025 per share which was the par
value of the Common  Stock at the time of issuance.  During the same month,  the
Company  issued 100,000 shares of its Common Stock to two investors for services
rendered  valued at $12,500 or $.125 per share,  an  increase  of $.10 per share
which was acceptable to the two investors  because they were not founders of the
Company and provided services rather than cash.

                                       31
<PAGE>


     In August 1993,  the Company  sold 240,000  shares of its Common Stock to a
seven member investor group which included Bruce T. McGill,  Henry H. Salzarulo,
and Jeffrey M. Morehouse,  then directors of the Company,  for $300,000 or $1.25
per share in order to finance the  development  of the Company's  first Cluckers
restaurant in San Antonio, Texas.

     In April 1994,  the Company sold 100,000  units of its  securities at $2.50
per unit to a seven member  investor group which included Henry H. Salzarulo and
Jeffrey M. Morehouse,  then directors of the Company. Each unit consisted of one
share of Common Stock and a warrant to purchase an additional share at $2.50 per
share at any time until April 1996. In March 1996,  the  expiration  date of the
warrant was extended to December 1997.

     In August  1994,  the Company  sold  110,000  shares of its Common Stock at
$2.50 per share to an investor  group none of whom were  officers,  directors or
principal stockholders of the Company.

     The sales of Common Stock described in the three prior  paragraphs  reflect
an  increase  in price  from  $1.25 to $2.50 per  share  and were the  result of
negotiations  between the Company and the named investors.  The Company believes
it was able to realize a higher  price per share in later  transactions  because
the Company's  business had matured and the perceived risk  associated  with the
business had lessened.

     In March 1995, the Company  entered into an employment  agreement with D.W.
Gibbs,  its then Chief Executive  Officer and a director and in August 1995, the
Company entered into an employment  agreement with Mr.  Gallagher,  the Chairman
and Chief  Executive  Officer of the Company which was  subsequently  amended in
September 1996. See "Management-Executive Compensation."

     In March 1995, the Company executed an agreement with Bruce T. McGill, then
a  director  of the  Company,  to  develop  up to ten  Cluckers  restaurants  in
Singapore over a 20-year period.  Mr. McGill agreed to pay a $50,000 license fee
(including $20,000 in cash and a promissory note for $30,000),  a 5% royalty and
a 4% advertising fee on gross revenues generated from the Cluckers  restaurants.
The license was converted to apply to Harvest  Rotisserie  restaurants  in March
1996. In October 1996, the Company  refunded  $10,000 of the deposit,  cancelled
the $30,000  promissory  note and reduced  the number of  Restaurants  under the
agreement from ten  Restaurants  to two  Restaurants.  Under the agreement,  Mr.
McGill  also has a right of first  refusal  until March 30,  1997,  to match the
terms of any license the Company  agrees to sell to develop  Harvest  Rotisserie
restaurants in Malaysia.

                                       32
<PAGE>


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

     a. Exhibits:

Exhibit No.                               Title

      2.01          Articles of Incorporation of the Registrant, as amended(1)

      2.02          Bylaws of the Registrant(1)

      2.03          Articles of Incorporation of Harvest Restaurants, Inc.(1)

      2.04          Bylaws of Harvest Restaurants, Inc.(1)

      2.05          Articles of Incorporation of Cluckers Restaurants, Inc.(1)

      2.06          Bylaws of Cluckers Restaurants, Inc.(1)

     10.01          Incentive Stock Option Plan(1)

     10.02          Settlement  Agreement  with Cluckers  Wood Roasted  Chicken,
                    Inc.(1)

     10.12          Uniform Franchise Offering Circular (Cluckers)(1)

     10.13          Form of Franchise Agreement (Cluckers)(1)

     10.14          Form of Area Development Agreement (Cluckers)(1)

     10.15          Employment Agreement with Mr. Gallagher(1)

     10.16          Employment Agreement with Mr. Gibbs(1)

     10.17          Area Development Agreement with Mr. McGill(1)

     10.20          Uniform Franchise Offering Circular (Harvest Rotisserie)(1)

     10.21          Form of Area Development Agreement (Harvest Rotisserie)(1)

     10.22          Form of Franchise Agreement (Harvest Rotisserie)(1)

     10.23          License Agreement(1)

     10.24          License Agreement(1)

                                       33
<PAGE>


                                    34

<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 San Antonio, Texas, on March 26, 1997.

                                        CLUCKCORP INTERNATIONAL, INC.



                                        By: /s/ William J. Gallagher
                                        ----------------------------
                                         William J. Gallagher
                                         Chief Executive Officer

     Pursuant to the  requirements  of the  Securities  Act of 1933, as amended,
this  Report  has  been  signed  below by the  following  persons  on the  dates
indicated.
<TABLE>
<CAPTION>

              Signature                                 Title                                      Date


<S>                                     <C>                                               <C>
 /s/ William J. Gallagher                Chairman of the Board of                         March 26, 1997
------------------------------------     Directors and Chief Executive                    ----------------
William J. Gallagher                     Officer


 /s/ Larry F. Harris                     President and Director                           March 26, 1997
------------------------------------                                                      ----------------
Larry F. Harris


 /s/ Sam Bell Steves Rosser              Vice President - Development,                    March 26, 1997
------------------------------------     Treasurer and Director                           ----------------
Sam Bell Steves Rosser


 /s/ Michael M. Hogan                    Director                                         March 26, 1997
------------------------------------                                                      ----------------
Michael M. Hogan


 /s/ Theodore M. Heesch                  Director                                         March 26, 1997
------------------------------------                                                      ----------------
Theodore M. Heesch


 /s/ Joseph Fazzone                      Chief Financial Officer and                      March 26, 1997
------------------------------------     Principal Accounting Officer                     ----------------
Joseph Fazzone
</TABLE>