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

                                   FORM 10-QSB

(Mark One)

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

For the quarterly period ended SEPTEMBER 30, 1997

                                       OR

[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transaction period from ________________ to ________________

Commission File Number 0 - 23136
                      
                         COUNTRY STAR RESTAURANTS, INC.
             (Exact name of registrant as specified in its charter)

             Delaware                                             62-1536550
  (State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                            Identification No.)

4929 WILSHIRE BLVD., SUITE 428, LOS ANGELES, CA                      90010
   (Address of Principal Executive Offices)                       (Zip Code)

                                 (213) 634-5588
              (Registrant's telephone number, including area code)

________________________________________________________________________________
(Former name, former address, and former fiscal year, if changed since last
report)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                            Yes  |X|         No  |_|

The number of shares of common stock outstanding as of November 10, 1997:
67,895,291

<PAGE>

                         COUNTRY STAR RESTAURANTS, INC.

                                      Index

                                                                           Page
                                                                          ------
PART I    -     Financial Information

       Item 1.  Financial Statements

                Condensed Consolidated Balance Sheet at
                     September 30, 1997 (unaudited)......................    3

                Condensed Consolidated Statements of Operations
                     for the Quarter Ended September 30, 1997
                     and September 30, 1996  (unaudited).................    5

                Condensed Consolidated Statements of Operations
                     for the Nine Months Ended September 30, 1997
                     and September 30, 1996  (unaudited).................    6

                Condensed Consolidated Statements of Cash Flows
                     for the Quarter Ended September 30, 1997
                     and September 30, 1996  (unaudited).................    7

                Condensed Consolidated Statements of Cash Flows
                     for the Nine Months Ended September 30, 1997
                     and September 30, 1996  (unaudited).................    8

                Notes to Condensed Consolidated Financial Statements
                     (unaudited).........................................    9


       Item 2.  Management's Discussion and Analysis of Financial
                     Condition and Results of Operations.................    12

PART II    -    Other Information

       Item 1.  Legal Proceedings........................................    16
 
       Item 2.  Changes in securities....................................    16

       Item 6.  Exhibits and Reports on Form 8-K.........................    17

SIGNATURES      .........................................................    18


                                       2
<PAGE>

                         COUNTRY STAR RESTAURANTS, INC.

                      Condensed Consolidated Balance Sheet

                                  (Unaudited)

                                                                   September 30,
                                                                        1997
                                                                    ------------
ASSETS   
                                                                    
CURRENT ASSETS                                                      
    Cash                                                            $    137,760
    Inventories                                                          266,980
    Prepaid rent                                                         140,175
    Debt issue costs, current                                            110,833
    Other current assets                                                 157,967
                                                                    ------------
       Total current assets                                              813,715
                                                                    ------------
PROPERTY AND EQUIPMENT AT COST, net of                              
 Accumulated depreciation of $1,048,628                             
    Leasehold improvements                                            13,870,952
    Furniture and equipment                                            1,841,084
    Memorabilia                                                          476,989
    Capital lease                                                        806,150
                                                                    ------------
       Total property and equipment                                   16,995,175
                                                                    ------------
OTHER ASSETS                                                             219,706
                                                                    ------------
       Total assets                                                 $ 18,028,596
                                                                    ============


                                       3
<PAGE>

                         COUNTRY STAR RESTAURANTS, INC.

                Condensed Consolidated Balance Sheet (continued)

                                   (Unaudited)
                                                                         
                                                                   September 30,
                                                                        1997
                                                                    ------------
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                                $ 1,012,016
    Accrued expenses                                                    296,697
                                                                    ------------
       Total current liabilities                                      1,308,713

DEFERRED RENTALS                                                        583,159

CONVERTIBLE DEBT                                                      5,588,000
                                                                    ------------
       Total liabilities                                              7,479,872
                                                                    ------------
MINORITY INTERESTS                                                    1,017,520
                                                                    ------------

STOCKHOLDERS' EQUITY
    Preferred  stock, $0.001 par value,
     2,000,000 shares  Authorized                                           --  
       6% Cumulative Convertible Series A -
        0 shares issued and outstanding                                     --
    Common stock, $0.001 par value,
      250,000,000 shares Authorized,
       38,887,165 shares issued
       and outstanding                                                   38,887
    Additional paid-in-capital                                       40,649,812
    Unamortized stock option cost                                      (100,276)
    Accumulated deficit                                             (31,057,219)
                                                                    ------------
       Total stockholders' equity                                     9,531,204
                                                                    ------------
       Total liabilities and stockholders' equity                   $18,028,596
                                                                    ============

                 See accompanying notes to financial statements


                                       4
<PAGE>

                         COUNTRY STAR RESTAURANTS, INC.

                 Condensed Consolidated Statements of Operations
                                   (Unaudited)

                                                       For the Quarter Ended 
                                                           September 30,
                                                   -----------------------------
                                                        1997           1996
                                                   ------------    ------------
Revenues                                           $  1,293,026    $  2,841,922 
                                                   ------------    ------------
Costs and expenses                                
      Cost of revenues                                  475,337       1,100,714
      Operating                                       1,625,017       2,956,876
      General and administrative                        755,938         800,849
      Depreciation and amortization                     309,935         804,191
                                                   ------------    ------------
                                                      3,166,227       5,662,630
                                                   ------------    ------------
      Loss from operations                           (1,873,201)     (2,820,708)
                                                  
Interest (expense) income                               145,853          49,609
                                                  
Minority interests                                      371,596         764,765
                                                   ------------    ------------
      Loss before extraordinary item                 (1,355,752)     (2,006,334)
                                                   ------------    ------------
      Extraordinary gain - settlement             
      of accounts payable, net of                 
      income tax of $0                                  301,161            --
                                                   ------------    ------------
      Net Loss                                     $ (1,054,591)   $ (2,006,334)
                                                   ============    ============
      LOSS PER SHARE                              
           Before extraordinary gain                      (0.04)          (0.16)
           Extraordinary gain                              0.01            --
                                                   ------------    ------------
           Net loss                                $      (0.03)   $      (0.16)
                                                   ============    ============
      WEIGHTED AVERAGE NUMBER OF                  
       COMMON SHARES OUTSTANDING                     30,414,124      12,473,469
                                                   ============    ============
                                       
                 See accompanying notes to financial statements


                                       5
<PAGE>

                         COUNTRY STAR RESTAURANTS, INC.

                 Condensed Consolidated Statements of Operations
                                   (Unaudited)

                                                    For the Nine Months Ended
                                                           September 30,
                                                 -------------------------------
                                                     1997              1996
                                                 ------------      ------------
Revenues                                         $  5,288,899      $  4,928,342
                                                 ------------      ------------
Costs and expenses
      Cost of revenues                              1,979,532         1,722,655
      Operating                                     5,364,736         4,730,015
      General and administrative                    2,999,826         2,605,941
      Depreciation and amortization                 1,081,466         1,147,300
                                                 ------------      ------------
                                                   11,425,560        10,205,911
                                                 ------------      ------------
      Loss from operations                         (6,136,661)       (5,277,569)

Interest (expense) income                             (48,520)          182,125

Minority interests                                  1,106,926           764,765
                                                 ------------      ------------
      Loss before extraordinary item               (5,078,255)       (4,330,679)
                                                 ------------      ------------
      Extraordinary gain -
      settlement of accounts
      payable, net of                               1,654,639              --
      Income tax of $0
                                                 ------------      ------------
      Net Loss                                   $ (3,423,616)     $ (4,330,679)
                                                 ============      ============
      LOSS PER SHARE
           Before extraordinary gain                    (0.24)            (0.44)
           Extraordinary gain                            0.08              --
                                                 ------------      ------------
           Net loss                              $      (0.16)     $      (0.44)
                                                 ============      ============
      WEIGHTED AVERAGE NUMBER OF
       COMMON SHARES OUTSTANDING                   20,835,245         9,811,992
                                                 ============      ============

                 See accompanying notes to financial statements


                                       6
<PAGE>

                         COUNTRY STAR RESTAURANTS, INC.

                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)

                                                        For the Quarter Ended
                                                             September 30,
                                                     ---------------------------
                                                         1997           1996
                                                     -----------    ----------- 
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES                                           $(1,058,581)   $    92,623
                                                     -----------    ----------- 
CASH FLOWS FROM INVESTING ACTIVITIES:
     Investment in property and equipment                   --       (6,804,361)
                                                     -----------    ----------- 
       Net cash used by investing activities                --       (6,804,361)
                                                     -----------    ----------- 
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net proceeds from issuance of common
        and preferred stock                              934,642      2,857,500
     Proceeds from issuance of convertible debt           95,000           --
     Capital lease payments                                 --          145,701
                                                     -----------    ----------- 
      Net cash provided by financing activities        1,029,642      3,003,201
                                                     -----------    ----------- 
NET DECREASE IN CASH                                     (28,939)    (3,708,537)

Cash, beginning of period                                166,699      6,048,587
                                                     -----------    ----------- 
Cash, end of period                                  $   137,760    $ 2,340,050
                                                     ===========    =========== 
Supplemental schedule of non-cash
     financing activity:
    Purchase of equipment through issuance of
     200,000 shares of common stock                  $    50,000           --
    Settlement with vendors through issuance
     of 188,500 shares of common stock               $    76,578           --
    Rental discount through issuance of
     1,383,529 shares of common stock                $   490,000           --
                                                     ===========    =========== 

                 See accompanying notes to financial statements


                                       7
<PAGE>

                         COUNTRY STAR RESTAURANTS, INC.

                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)

                                                      For the Nine Months Ended 
                                                            September 30,
                                                    ----------------------------
                                                        1997           1996
                                                    -----------    ------------
NET CASH USED IN OPERATING ACTIVITIES               $(3,782,261)   $ (1,976,856)
                                                    -----------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Investment in property and equipment               (10,445)    (11,434,939)
                                                    -----------    ------------
       Net cash used by investing activities            (10,445)    (11,434,939)
                                                    -----------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net proceeds from issuance of common
      and preferred stock                             2,926,498       5,886,257
     Proceeds from issuance of convertible debt         595,000            --
     Capital lease payments                            (540,237)        104,913
                                                    -----------    ------------
      Net cash provided by financing activities       2,981,261       5,991,170
                                                    -----------    ------------
NET DECREASE IN CASH                                   (811,445)     (7,420,625)

Cash, beginning of period                               949,205       9,760,675
                                                    -----------    ------------
Cash, end of period                                 $   137,760    $  2,340,050
                                                    ===========    ============
Supplemental schedule of non-cash
  financing activity:
    Purchase of leased equipment through
     issuance of 600,000 shares of common stock     $   447,462            --
    Purchase of equipment through issuance of
     200,000 shares of common stock                 $    50,000            --
    Settlement with vendors through issuance
     of 188,500 shares of common stock              $    76,578            --
    Rental discount through issuance of
     1,383,529 shares of common stock               $   490,000            --
                                                    ===========    ============

                 See accompanying notes to financial statements


                                       8
<PAGE>

NOTE A -  BASIS OF PRESENTATION

          The accompanying unaudited condensed consolidated financial statements
          of Country Star  Restaurants,  Inc.  have been prepared by the Company
          pursuant to the rules and  regulations  of the Securities and Exchange
          Commission.

          The information furnished herein reflects all adjustments,  consisting
          of only normal  recurring  accruals and adjustments  which are, in the
          opinion of management, necessary to fairly state the operating results
          for  the  respective   periods.   Certain   information  and  footnote
          disclosures  normally included in annual financial statements prepared
          in accordance with generally accepted accounting  principles have been
          omitted  pursuant  to such  rules  and  regulations.  The notes to the
          condensed   consolidated   financial  statements  should  be  read  in
          conjunction  with the notes to the consolidated  financial  statements
          contained in the Company's Form 10-KSB for the year ended December 31,
          1996. Company management  believes that the disclosures are sufficient
          for interim financial reporting purposes.

NOTE B -  CAPITAL TRANSACTIONS AND CHANGE IN MANAGEMENT

          On  February  12,  1997,  the  Company  entered  into a  secured  loan
          agreement  with Dan Rubin  ("Rubin")  and  Cameron  Capital  Ltd.,  an
          institutional investor ("Cameron").

          The  secured  loan  agreement  provided  that  Cameron  had the  fully
          assignable  right to name three (3) members of the Board of  Directors
          of the  Company and that the Board of  Directors  shall not consist of
          more than five (5) members.  Cameron  assigned  this right to Rubin as
          its agent.  Immediately  after the closing of the  secured  financing,
          Rubin's  nominees,  Darren Rice,  William Wei and Robert  Nardone were
          elected  to the Board of  Directors  of the  Company.  The Board  then
          elected Rubin to fill the last seat on the Board of Directors.

          The Board  then  elected  Dan  Rubin as Chief  Executive  Officer  and
          President,  and Robert L.  Davidson as Secretary  of the Company.  Mr.
          Rubin  assumed  control of day-to-day  operations of the Company.  Mr.
          Rubin is being  compensated at the rate of $20,000 per month,  payable
          in cash or common stock of the Company,  valued at market value at the
          time of issuance. Mr. Rubin's employment is terminable at will.

          Under the secured  financing  agreement,  Rubin has made a  $3,500,000
          line of credit  loan  available  to the  Company,  of which an initial
          advance of  $500,000  was  committed  at closing.  Rubin,  in his sole
          discretion,  may make  additional  advances to the Company  under this
          line of  credit,  but is not  required  to make  any  such  additional
          advances. The outstanding amount advanced under the line of credit was
          $595,000 as of  September  30, 1997.  All  advances  under the line of
          credit loan bear interest at the rate of prime plus four percent (4%),
          semi-annually  commencing December 31, 1997. The principal balances of
          all line of credit  advances  are due and  payable on October 9, 1999.
          Any portion or all of the amount  outstanding under the line of credit
          may be converted into Common Stock of the Company.  Upon conversation,
          the  Company  shall  issue that  number of shares of its Common  Stock
          obtained  by  dividing  the  principal  amount  of the line of  credit
          converted by 80% of the average  closing bid price of the Common Stock
          for the  five  (5)  consecutive  trading  days  preceding  the date of
          conversion.

                                                                     (continued)


                                       9
<PAGE>

NOTE B -  CAPITAL TRANSACTIONS AND CHANGE IN MANAGEMENT (continued)

          In  consideration  for the initial line of credit advance of $500,000,
          the Company  issued a warrant to acquire  166,667 shares of its common
          stock at an  exercise  price of $.625 per share,  which was the market
          value of the Company's common stock on February 12, 1997.

          All additional  line of credit  advances shall have the same terms and
          conditions  as the  initial  line of  credit  advance.  For each  such
          additional advance,  Rubin shall receive one (1) common stock purchase
          warrant for every $3 advanced.  The exercise  price for these warrants
          shall be $.625 per share.  All of the warrants  issued or to be issued
          to Rubin shall be subject to  adjustment in the event of stock splits,
          stock dividends, mergers, consolidations, or similar corporate events.

          Cameron  exchanged its 4,000 shares of Series B Convertible  Preferred
          Stock of the Company,  with an  aggregate  liquidation  preference  of
          $4,000,000,  for a convertible  term note in the  principal  amount of
          $4,000,000.  The  convertible  term note bears interest at the rate of
          seven  percent  (7%)  per  annum,  payable  semi-annually   commencing
          December 31, 1997,  which was waived when the shares were  registered.
          The  principal  balance is due and  payable  on  October 9, 1999.  Any
          portion or all of the principal  amount of the note outstanding may be
          converted into common stock of the Company commencing ninety (90) days
          after the date of  closing  of the  financing.  Upon  conversion,  the
          Company shall issue that number of shares of its common stock obtained
          by dividing the principal  amount of the loan  converted by the lesser
          of (i)  $1.33,  or (ii) 80% of the  average  closing  bid price of the
          common stock for the five (5)  consecutive  trading days preceding the
          date of  conversion.  Originally,  the  maximum  number of shares into
          which  the  convertible   note  may  be  converted  shall  not  exceed
          3,000,000.  This  has  been  subsequently  amended  to  a  maximum  of
          8,000,000 shares.  The conversion  formula is subject to adjustment in
          the event of stock splits, stock dividends,  mergers,  consolidations,
          or  similar  transactions.  As of  September  30,  1997,  Cameron  had
          converted $100,000 principal amount of the Note into 317,420 shares of
          Common Stock. As of November 10, 1997,  Cameron had converted $578,370
          principal amount into 5,750,000 shares.

          In  connection  with the  commitment  to make the line of credit loan,
          Rubin and other investors in the Company have agreed to settle certain
          claims against the Company for the amount of $1,950,000,  plus $50,000
          in fees and  expenses.  The  Company has issued its  convertible  term
          notes in the aggregate  amount of $1,950,000 and agreed to pay $50,000
          to Rubin and these  investors,  in settlement  of their claims.  These
          convertible  term notes  contain the same terms and  conditions as the
          convertible  term note issued to  Cameron,  except that the holders of
          these convertible term notes may exercise their conversion  feature at
          any time  following the closing.  As of September 30, 1997,  Rubin and
          the other investors have converted  $857,000 principal amount of their
          Convertible  Notes  into  9,300,000  shares  of  Common  Stock;  as of
          November  10,  1997,  Rubin and the  others had  converted  $1,950,000
          principal amount into 21,170,000 shares.

          The  February  12, 1997  agreements  described  above  relating to the
          exchange  of   Convertible   Preferred   Stock  and  the  issuance  of
          convertible term notes have been accounted for effective  December 31,
          1996  because  substantially  all of the  conditions  precedent to the
          occurrence of these transactions had taken place as of that date.

                                                                     (continued)


                                      10

<PAGE>

NOTE B -  CAPITAL TRANSACTIONS AND CHANGE IN MANAGEMENT (continued)

          The line of credit advances by Rubin,  Cameron's convertible term note
          and the convertible  term notes issued in settlement of claims are all
          secured by a lien on substantially  all of the tangible and intangible
          assets of the Company.  In the event of default,  the secured  parties
          shall  participate  in the proceeds of the collateral in proportion to
          their outstanding debt.

          In connection with the secured financing transaction,  Robert Schuster
          Chairman  of the Board and Chief  Executive  Officer  of the  Company,
          resigned as Chief Executive  Officer and agreed to release the Company
          from  all  obligations  under  his  Employment  Agreement,   including
          severance obligations. Schuster continued to serve as a Director until
          February 13, 1997.

          In  connection  with the  secured  financing  transaction,  Mr.  Peter
          Feinstein resigned as Director,  President and Chief Financial Officer
          of the Company and released the Company from all obligations under his
          Employment Agreement, including severance obligations.

NOTE C -  EXTRAORDINARY ITEM

          During  the  three  months  ended  September  30,  1997,  the  Company
          continued  the process of settling  with its  creditors  that began in
          March of 1997.  The Company has settled with over 375  creditors as of
          September  30,1997  resulting in a gain of $301,161 and $1,654,639 for
          the three and nine months ended September 30, 1997, respectively.


                                       11
<PAGE>

Item 2.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Three months ended Sept. 30, 1997 compared to three months ended Sept. 30, 1996

Revenues:

Total revenues  decreased to $1.293 million for the three months ended September
30, 1997,  compared with $2.842 million for the three months ended September 30,
1996,  a  decrease  of $1.549  million  or 55%,  primarily  due to slow sales at
Country Star Las Vegas.  Hollywood store revenues  dropped 30%, and Country Star
Atlanta was closed  during the three months ended  September 30, 1997 except for
private parties.

Costs and expenses:

Cost of revenues  decreased  from  $1.101  million  for the three  months  ended
September  30, 1996 to $475  thousand for the three months ended  September  30,
1997.  Cost of revenues as a percentage  of revenues  decreased  from 39% to 37%
primarily due to the cost control procedures  adopted.  Country Star Atlanta was
closed on February 22, 1997.

Operating  expenses  decreased  from $2.957  million for the three  months ended
September  30, 1996 to $1.625  million for the three months ended  September 30,
1997,  reflecting  the cost  control  procedures  adopted.  As a  percentage  of
revenues,  operating  expenses  were  104% and 126% for the three  months  ended
September 30, 1996 and 1997 respectively.

General and  administrative  expenses decreased from $801 thousand for the three
months  ended  September  30, 1996 to $756  thousand  for the three months ended
September  30,1997.  As a  percentage  of revenues,  general and  administrative
expenses increased from 28% of revenues to 58% of revenues respectively.

Depreciation and amortization  decreased from $804 thousand for the three months
ended  September 30, 1996 to $310 thousand for the three months ended  September
30, 1997,  reflecting  the effects of  adjustments  made on December 31, 1996 to
eliminate cost over-runs.  As a percentage of total revenues,  depreciation  and
amortization decreased from 28% to 24%.

Net interest income (expense) increased from $50 thousand to $146 thousand,  for
the three months ended September 30, 1996 and 1997, respectively, reflecting the
waiver of interest on convertible  debt financing  arrangements  entered into on
February 12, 1997.

                                                                     (continued)


                                       12
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (continued)

Minority  interest for the three months ended  September  30, 1997  reflects the
Company's  controlling  interest  of over  50% in  Country  Star Las  Vegas  LLC
triggered by the opening of the Las Vegas facility in July, 1996.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in (provided by) operating  activities  for the three months ended
September 30, 1996 and September 30, 1997 increased from $93 thousand  provided,
to $1.059  million used,  due  primarily to the decrease in Accounts  Payable in
1997.  The company has settled  with over 75  creditors  during the three months
ended September 30, 1997.

Net cash used in investing  activities  in the three months ended  September 30,
1996 was $6.804  million  reflecting  the Company's  development  of the Atlanta
facility in 1996.

Net cash provided by financing  activities for the three months ended  September
30,  1996 and  September  30,  1997  was  $3.003  million  and  $1.030  million,
respectively,  due  primarily  to the net  proceeds  from the issuance of common
stock in 1996 and 1997, and convertible debt in 1997.

RESULTS OF OPERATIONS

Nine months ended Sept. 30, 1997 compared to nine months ended Sept. 30, 1996

Revenues:

Total revenues  increased to $5.289 million for the nine months ended  September
30, 1997,  compared with $4.928 million for the nine months ended  September 30,
1996,  an  increase  of $361  thousand  or 7%,  primarily  due to the opening of
Country Star Las Vegas in July 1996 and Country  Star  Atlanta in October  1996.
Same store revenues (Hollywood) dropped 14%.

Costs and expenses:

Cost of  revenues  increased  from  $1.723  million  for the nine  months  ended
September  30, 1996 to $1.980  million for the nine months ended  September  30,
1997.  Cost of revenues as a percentage  of revenues  increased  from 35% to 37%
primarily due to the negative  impact of the Atlanta  facility  during the first
quarter of 1997. Country Star Atlanta was closed on February 22, 1997.

                                                                     (continued)


                                       13
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (continued)

Operating  expenses  increased  from $4.730  million  for the nine months  ended
September  30, 1996 to $5.365  million for the nine months ended  September  30,
1997, reflecting the increase in the number of operating restaurants from one to
two. As a percentage of revenues,  operating expenses increased from 96% to 101%
for the nine months ended September 30, 1996 and 1997 respectively due primarily
to operating problems with Atlanta during the first quarter of 1997.

General and  administrative  expenses increased from $2.606 million for the nine
months  ended  September  30,  1996 to $3  million  for the  nine  months  ended
September  30, 1997.  As a percentage  of revenues,  general and  administrative
expenses increased from 53% of revenues to 57% of revenues.

Depreciation and amortization  decreased from $1.147 million for the nine months
ended  September 30, 1996 to $1.081 million for the nine months ended  September
30, 1997, reflecting the adjustments made on December 31, 1996 to eliminate cost
over-runs  offsetting  the  increase  in the number of  restaurants  from one to
three.  As  a  percentage  of  total  revenues,  depreciation  and  amortization
decreased from 23% to 20%.

Interest  expense  decreased  from $93  thousand to $54  thousand,  for the nine
months ended September 30, 1996 and 1997,  respectively reflecting the waiver of
interest on convertible debt financing arrangements entered into on February 12,
1997.

Minority  interest for the nine months  ended  September  30, 1997  reflects the
Company's  controlling  interest  of over  50% in  Country  Star Las  Vegas  LLC
triggered by the opening of the Las Vegas  facility in July,  1996.  Previously,
the Company's investment in Las Vegas was accounted for under the cost method.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating  activities  for the nine months ended  September 30,
1996 and September 30, 1997  increased from $1.977 million to $3.782 million due
primarily to the  payments  and  settlements  of Accounts  Payable in 1997.  The
Company  has  settled  with over 375  creditors  during  the nine  months  ended
September 30, 1997.

Net cash used in investing  activities  in the nine months ended  September  30,
1996 and 1997 was $11.435 million and $10 thousand, respectively, reflecting the
Company's completion of the Las Vegas and Atlanta facilities in 1996.

                                                                     (continued)


                                       14
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (continued)

Net cash provided by financing  activities  for the nine months ended  September
30,  1996  and  September  30,  1997  was  $5.991  million  and  $2.981  million
respectively due primarily to the net proceeds from the issuance of common stock
in 1996 and 1997, and convertible debt in 1997.

New management  took over the Company on February 12, 1997 and determined that a
major  overhaul of corporate  strategy  was required to deal with the  Company's
financial  problems.  Measures taken by new management include (i) the temporary
closing and planned reopening of Country Star Atlanta, (ii) the expansion of the
"country" theme,  (iii) planned  expansion  through joint ventures and licensing
rather than expensive construction, and (iv) settlement with the trade creditors
at 40% of the amounts owed.

Management  has also made  operational  changes  to  improve  revenues,  control
operating  costs,  and limit  corporate  overhead.  The positive impact of these
measures  and changes  began to be  realized  in the second  quarter of calendar
1997.  The Company will need to continue to raise  additional  capital before it
can obtain profitability from operations.  Management believes it can raise this
capital  through  private  placements  of equity and the  granting by lenders of
discretionary advances under outstanding lines of credit.


                                       15
<PAGE>

                                     Part II

                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     On or about  April 21,  1997,  3030  Peachtree,  LLC,  the  Landlord of the
Company's  Atlanta  restaurant,  commenced an action in the Magistrate  Court of
Fulton  County,  Georgia,  regarding  repossession  of the  Atlanta  restaurant.
Additional  information concerning this litigation is set forth in the Company's
Report on Form 8-K dated April 21, 1997.

ITEM 2.  CHANGES IN SECURITIES

     During  July/August  1997,  the Company  issued an  aggregate  of 1,772,029
shares of its Common  Stock to creditors  of the Company in full  settlement  of
their  claims  against the Company and to vendors in exchange for property and a
rental discount.  The issuance of the Common Stock was exempt from  registration
pursuant to Section 4 (2) of the Securities Act of 1933, as amended (the "Act").

     During  July/August  1997,  the  Company  sold  in a  private  offering  an
aggregate of 3,578,572  shares of its Common Stock at a price of $.28 per share,
for a total offering price of $1,002,000.  Josephthal  Lyon & Ross Inc. acted as
placement  agent and received  commissions of  approximately  $107,000.  The net
proceeds received by the Company were  approximately  $895,000.  The issuance of
the Common Stock was exempt from registration pursuant to Rule 505 of Regulation
D, promulgated under the Act.

     During July,  August and September 1997 the holders of convertible  debt of
the Company in the aggregate  principal amount of $957,000  converted their debt
into 9,617,420 shares of Common Stock.

                                                                     (continued)


                                       16
<PAGE>

                                OTHER INFORMATION
                                   (continued)

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits                None

     (b) Reports on form 8-K

     On October 24, 1997 the Company filed a report on Form 8-K regarding  sales
of equity securities  pursuant to Regulation S. The Company reported the sale of
an  aggregate  principal  amount of  $150,000  of its  Convertible  Debt and the
issuance of five million shares of Common Stock for a full release by a group of
institutional investors of their alleged claims against the Company.


                                       17
<PAGE>

                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant has duly authorized and caused the undersigned to sign this Report on
the Registrant's behalf.

                                                  COUNTRY STAR RESTAURANTS, INC.

                                              By: /s/ Dan J. Rubin
                                                  ------------------------------
                                                      Dan J. Rubin
                                                      Chief Executive Officer

Dated:  November 19, 1997


                                       18