United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                   Form 10-KSB

 Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934

                     For the fiscal year ended June 30, 1999

  Transition Report Under Section 13 or 15(d) of The Securities Exchange Act of
     1934 for the Transition Period from _____________ to_______________

                           Commission File No. 1-13818

                           Spencer's Restaurants, Inc.
                 (Name of small business issuer in its charter)

      Delaware                  The Rattlesnake                 06-1369616
   (State or other           Holding Company, Inc.           (I.R.S. Employer
   jurisdiction of               (Former Name)              Identification No.)
   incorporation or
   organization)


                                106 Federal Road
                                Danbury, CT 06810
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (203) 798-1390

         Securities registered under Section 12(b) of the Exchange Act:

                          Common Stock, $.001 par value
                                (Title of Class)

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

                                      None

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  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.

Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court. ___ Yes   _X_No


State issuer's revenues for its most recent fiscal year. $1,696,679

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of June 30, 1999. 29,979,013

As of June 30, 1999, the aggregate market value of the registrant's common stock
held by non-affiliates computed by reference to the price at which the stock was
sold was  $3,485,238.  The shares of the  Company's  Common Stock are  currently
traded on the  Over-the-Counter  Bulletin Board under the symbol "SPST". At June
30, 1999, the shares of the Company's  Common Stock were traded under the symbol
"RTTL."








PART I

ITEM 1. DESCRIPTION OF BUSINESS.

General

         Spencer's Restaurants,  Inc. (formerly known as The Rattlesnake Holding
Company,  Inc.), a Delaware corporation (unless the context otherwise indicates,
with its subsidiaries,  the "Company"),  was formed and commenced  operations in
1993, and effected an initial  public  offering of its stock in 1995 to develop,
build and operate a chain of casual dining  southwestern  restaurants  under the
name  Rattlesnake(R)  Southwestern  Grill.  At one time, the Company  operated a
total of 8 restaurants in the New York metropolitan area.  Management was unable
to  operate  the   restaurants   profitably,   failed  to  control  general  and
administrative  expenses and did not develop a workable  growth  strategy.  As a
consequence,   the  Company  experienced   substantial  losses  and  incurred  a
significant  amount of debt. In 1997, the Board of Directors  elected certain of
its members as officers to take control of  operations  and replace the existing
management  pursuant to its cost reduction plan (the "Cost Reduction Plan"). The
Company then disposed of development  projects and  non-performing  restaurants,
negotiated severance agreements with the former management,  and sharply reduced
general and administrative expenses.

         In March  1998,  the  Company  consummated  a  transaction  with Nicolo
Ottomanelli  and Joseph  Ottomanelli,  through which it acquired a company which
franchised  Ottomanelli's Cafe(R) restaurants (casual dining New York City based
operations),  an Ottomanelli's Cafe(R) and another food service operation in New
Jersey,  and as well as management  with  expertise in the selection and sale of
meat and meat products.  The  Ottomanelli's  Cafe(R) franchise company currently
has  extremely  limited  operations.   Company  management  concluded  that  the
Ottomanelli  Cafe(R)  operations were inconsistent with the Company's  operating
plans and were closed in fiscal 1999, for which it recorded an impairment charge
in fiscal 1998.

         In fiscal 1998, in furtherance of the Cost Reduction  Plan, the Company
terminated  operations  at its  Lynbrook,  New  York  and  Danbury,  Connecticut
facilities,  and in November 1998, terminated operations at its Flemington,  New
Jersey facility as well, for which it recorded an impairment charge in 1998.

         In fiscal  1999,  106 Federal Road  Restaurant  Corp.,  a  wholly-owned
subsidiary  of  the  Company,   purchased  the  Danbury,   Connecticut  facility
previously  closed.  The restaurant has been remodeled and reconfigured to serve
as the first location for the Company's new restaurant  concept opened  November
3, 1999.

         The  Company  continues  to  operate a  self-sustaining  Rattlesnake(R)
Southwestern Grill in South Norwalk, Connecticut.

Re-start Strategy

         In the last  half of  calendar  year  1998,  the  Company's  management
recognized  that  it  had  a  limited  future  as  an  operator  of  Rattlesnake
Southwestern Grill restaurants. As a result, management set out to: (i) increase
the Company's  working capital through the  consummation of a private  placement
offering of the Company's  securities;  (ii) assemble a new, highly  experienced
and established  management team; and (iii) alter the Company's restaurant theme
and menu and develop restaurants with a new concept.

Private Placement Offering

         In October 1998,  the Company  commenced a private  placement  offering
(the  "Offering")  of its  securities,  pursuant  to which it offered  investors
Series  B  Convertible  Preferred  Shares.  See  "Description  of  Securities  -
Preferred Shares." Upon completion of the Offering in July 1999, the Company had
raised approximately  $6,000,000 and converted approximately  $1,350,000 of debt
to equity. After satisfying certain of its remaining debts, disbursements of and
commissions  to the  placement  agent,  and  payment  of other  expenses  of the
Offering, the Company secured approximately $4,700,000 for working capital use.

New Management Team

         In order to develop  and  implement  its new  restaurant  concept,  the
Company  installed a new management team and Board of Directors with significant
experience in the restaurant  operations industry.  See "Management - Agreements
with New Management." Accordingly, the Company has entered into personal service
agreements  (of varying  commitment  levels)  with  certain key persons  who, as
principals,  have  previously  participated  in the  development of food service
chains,   including  Shelly  Frank  (Chi-Chi's),   Kenneth  Berry  (Roy  Rogers,
regionally),  A.G. "Sandy" Rappaport  (Outback  Steakhouse) and Stephan A. Stein
(David's  Cookies).  See  "Management".  However,  due to a number  of  factors,
including the Company's  historical  operating losses, small restaurant base and
geographic  concentration,  as well as dependence on certain external factors it
cannot  control,  there can be no assurance that new management  will be able to
make the Company profitable or commercially viable.

New Restaurant Concept

         In  fiscal  1999,  the  Company  commenced  concept  development  of  a
multi-regional chain of mid-priced steakhouses, to feature price/value steak and
distinctive shrimp (and other) dishes, named Spencer's.

         Spencer's  is  a  price/value  oriented  restaurant  concept  which  is
designed to provide  fresh,  high quality  food at moderate  prices in a relaxed
atmosphere. The key elements of the Spencer's concept include the following:

     o   A  casual,  back to  basics,  large  portions,  mid-priced  steakhouse;
         designed  to offer  exceptional  service,  specializing  in two  areas:
         steaks and shrimp offerings.

     o   The menu features house cut and aged steaks and steak burgers,  as well
         as bulk  offerings  of shrimp  that are served in  distinctive  "house"
         sauces on pasta or rice with dunking bread.

     o   The  combination  of  food  quality,  comparatively  moderate  pricing,
         entertaining  shrimp  offerings,  in an atmosphere where customer focus
         will be on  price/value,  without  extensive or  overbearing  visual or
         gimmick effects, is intended to distinguish Spencer's from competitors.

     o   To  compliment  the steak and shrimp  offerings,  menu  items  include:
         appetizers,  caesar and unique salads; various but basic chicken, fish,
         rib, and pasta entrees;  mainstay sandwiches;  a separate Kid's list of
         choices  that are  inclusive of fries and  beverage;  house made fries,
         steamed or creamed "sides"; and desserts.  Standard alcoholic beverages
         as well as selection of blended specialty drinks are offered.

     o   The average check,  exclusive of tax/tip, is anticipated to be $8.50 at
         lunch and $17.50 at dinner.  Lunch and dinner will be served seven days
         (with a target  of 17  table  turns)  per  week  and  will be  location
         sensitive.

     o   A typical  Spencer's  should  range in size from 6,000 to 8,000  square
         feet with 150 to 250 seats with a 175 seat average. It is intended that
         the  Spencer's  will be  built  according  to a  retrofit  construction
         strategy.  As a result,  each  Spencer's is expected to have a somewhat
         different  layout.  The  interior  image and trade dress,  however,  is
         intended  to be  consistent.  The first  Spencer's  will be  located in
         Danbury,  Connecticut,  opened  November 3, 1999 in a 7,200 square foot
         former Howard Johnson's restaurant building.

     o   Total  investment to open a Spencer's is estimated to be  approximately
         $700,000  inclusive of retrofit  expenses and exclusive of  capitalized
         lease costs, with an estimated 3:1 annual sales to investment ratio.

     o   Spencer's   menu  and  unit   economics   are  intended  to  facilitate
         replication in  multi-regional  area  development  hubs through Company
         owned and potentially franchised operations.

Operating Strategy

         The  Company's   objective  is  to  differentiate  its  restaurants  by
exceeding  customer  expectations as to the quality of food, the friendliness of
service and value of steak and shrimp dinners.  To achieve this  objective,  the
Company proposes to use the following strategies:

         Quality  Assurance.  The Company intends to provide  freshly  prepared,
high quality items.  The Company believes that its menu offerings will allow for
simplified food  preparation,  efficient  delivery and consistent  quality.  The
Company will implement  generalized  procedures for quality assurance concerning
products served in its restaurants.

         Commitment  to Value.  The  Company's  pricing  strategy is designed to
create  an  attractive  price-to-value  relationship,   thereby  increasing  the
Company's  ability to attract  value-oriented  customers as well as  traditional
casual dining customers. The Company believes that the featured items, steak and
shrimp, are considered quality foods, and if delivered at moderate prices, there
should be a perceived  value for the menu. The objective is to attract  "repeat"
business rather than "special occasion" business.

         Focus on Customer  Service.  The Company  believes that it must provide
prompt,  friendly and efficient service to generate customer  satisfaction.  The
Company plans to staff each restaurant  with an experienced  management team and
keep table-to-server ratios low. Through the use of customer surveys, management
expects to receive  valuable  feedback on its  restaurants  and  through  prompt
response demonstrate a continuing dedication to customer satisfaction.

         Employee Training and Motivation.  The Company believes a well-trained,
highly  motivated  restaurant  management  team is  critical  to  achieving  the
Company's operating objectives.  The Company's training and compensation systems
will be  designed  to  create  accountability  at the  restaurant  level for the
performance of each restaurant. The Company will train, motivate and educate its
restaurant  level  managers  and  hourly  co-workers.   Each  new  manager  will
participate  in  a  comprehensive   training  program  which  includes  hands-on
experience in one of the Company's restaurants.  To instill a sense of ownership
in  restaurant  management,  compensation  is proposed to be based,  in part, on
restaurant profits and low employee turnover.  Management believes this focus on
unit  level  operations  creates a "single  store  mentality"  and  provides  an
incentive  for managers to focus on increasing  same store sales and  restaurant
profitability.

Growth Strategy

         The Company's  growth strategy is to open new  Company-owned  Spencer's
restaurants  by converting  existing  restaurants to the Spencer's  concept.  In
developing  the  Spencer's  format,  there  will  be an  emphasis  on  objective
standards, so that the format and operating procedure can be readily duplicated.
The Company plans to cluster new restaurants in existing  metropolitan  markets,
which, management believes, will enhance supervisory, marketing and distribution
efficiencies.

Restaurant Layout

         It is anticipated that Spencer's restaurants will be 6,000-8,000 square
feet in size.  Seating will vary from 150-250.  The restaurants will be designed
to  include  family  dining  with some  privacy,  and  booths  will be used when
appropriate.  Kitchen  areas should be as open as possible to the dining  areas.
Decor  should be uniform and designed to be  distinctive.  The Company will seek
visible main road locations  which are suitable for Spencer's unit economics but
are below the size believed to be acceptable to general menu national restaurant
chain operations.

Support Operations

         Advertising and Marketing.  The Company plans to ultimately  develop an
ongoing defined advertising and marketing plan for the potential  development of
radio and newspaper  advertising  but will initially use point of sale and local
store marketing. The Company's advertising is planned to focus on building brand
loyalty and emphasizing the distinctiveness of the Spencer's atmosphere and menu
offerings.  In addition to  advertising,  the Company will  encourage unit level
personnel to become  active in their  communities  through  local  charities and
other organizations and sponsorships.

         Restaurant  Reporting.  Systems and  technology  are  essential for the
management  oversight  needed to monitor the  Company's  restaurant  operations.
Operational and financial  controls are planned to be maintained through the use
of point of sale systems in each  restaurant  and an automated  data  processing
system at the home  office.  Management  will  utilize  this data to monitor the
effectiveness  of controls  and to prepare  periodic  financial  and  management
reports.  The system will also be utilized for financial and budgetary analysis,
including  analysis of sales by restaurant,  product mix and labor  utilization.
All of the  Company's  systems  are,  because  of the use of  current  software,
anticipated to be Year 2000 compliant. See "Year 2000 Modifications."

         Human Resources. The Company will ultimately maintain a human resources
department  that  supports   restaurant   operations   through  the  design  and
implementation of policies, programs,  procedures and benefits for the Company's
employees.  The eventual  human  resources  department  will include an employee
relations manager.

Franchise Activities

         The Company presently franchises  Ottomanelli's  Cafe(R). The operation
involves one restaurant with nominal royalty  revenues.  No franchises have been
sold during the past approximately five years. The Company has determined not to
expand such  operations.  The Company may  determine to franchise  the Spencer's
concept through area development  agreements once several prototype  restaurants
are  established  and  operating  in a  profitable  manner,  but there can be no
assurance  as to if or when  any  franchising  program  would be  commenced  for
Spencer's restaurants.

Trademarks

         The  Company  is   presently   the  licensee  of   Rattlesnake(R)   and
Ottomanelli's  Cafe(R).  Rattlesnake(R) is licensed from a non-affiliated person
under an agreement  expiring in or about the year 2000, with a right of renewal,
and  requiring  minimum  royalty  payments  of $5,000 per year.  The Company has
determined  to not  maintain  nor  ultimately  renew  its  Rattlesnake  license.
Ottomanelli's Cae(R) is licensed from a corporation,  the capital stock of which
is owned by Nicolo and Joseph  Ottomanelli,  with a term  co-extensive  with the
licensor's rights and for no separate consideration, entered into as part of the
merger   transaction   between  such  persons  and  the  Company  (see  "Certain
Transactions").

         The Company has filed an  application  with the United State Patent and
Trademark Office ("PTO") to trademark Spencer's. There can be no assurance as to
the opposition to these filings by the PTO and/or third  parties,  or if or when
the trademarks  would be granted to the Company.  Names and marks similar to the
trademarks  of the  Company  may be used by third  parties  in  certain  limited
geographical  areas. Such third party use may prevent the Company from licensing
the use of its service marks for restaurants in such areas.  The Company intends
to protect its trademarks by appropriate legal action whenever necessary.

Government Regulation

         The  Company  is  subject  to  various  federal,  state and local  laws
affecting its business. In addition, each of the Company's restaurants will most
likely be  subject  to  licensing  and  regulation  by a number of  governmental
authorities,  which may include  alcoholic  beverage  control,  health,  safety,
sanitation, building and fire agencies in the state or municipality in which the
restaurant is located.  Most  municipalities in which the Company's  restaurants
will be located  require local business  licenses.  Difficulties in obtaining or
failure to obtain the required  licenses or approvals could delay or prevent the
development  of a new  restaurant  in a  particular  area.  The  Company is also
subject to Federal and state  environmental  regulations,  but such  regulations
have not had a material adverse effect on the Company's operations to date.

         Approximately  ten to twenty percent of the Company's  restaurant sales
is  anticipated  to be  attributable  to the sale of alcoholic  beverages.  Each
restaurant, where permitted by local law, will require appropriate licenses from
regulatory  authorities  allowing it to sell  liquor,  beer and wine and in some
states or localities to provide  service for extended hours and on Sunday.  Each
restaurant  requires food service  licenses from local health  authorities.  The
failure of a  restaurant  to obtain or retain  liquor or food  service  licenses
could  adversely  affect,  or in an  extreme  case,  terminate  its  operations.
However,  each restaurant is expected to operate in accordance with standardized
procedures  designed  to  assist in  compliance  with all  applicable  codes and
regulations.  The  Company  is  subject  in the  states  in  which  it  operates
restaurants  and proposes to operate  restaurants,  to  "dram-shop"  statutes or
judicial  interpretations,  which  generally  provide  a  person  injured  by an
intoxicated  person  the  right to cover  damages  from an  establishment  which
wrongfully served alcoholic beverages to such person.

         The Americans With Disabilities Act (the "Disabilities  Act") prohibits
discrimination  on  the  basis  of  disability  in  public   accommodations  and
employment. The Company designs its restaurants to be accessible to the disabled
and believes that it is in substantial  compliance  with all current  applicable
regulations relating to restaurant  accommodations for the disabled. The Company
intends to comply with future regulations relating to accommodating the needs of
the disabled, and the Company does not currently anticipate that such compliance
will require the Company to expend substantial funds.

         The development  and  construction  of additional  restaurants  will be
subject  to  compliance  with  applicable  zoning,  land  use and  environmental
regulations.  The  Company's  operations  are also  subject to Federal and state
minimum wage laws and other laws governing  such matters as working  conditions,
citizenship  requirements,  overtime and tip credits. In the event a proposal is
adopted which materially increases the applicable minimum wage, such an increase
would result in an increase in the Company's payroll and benefits expense.

Employees

         At June 30, 1999, the Company employed  approximately 39 persons,  4 of
whom were home office management and staff personnel,  and the remainder of whom
were restaurant  personnel  employed on a part-time basis. None of the Company's
employees  are  covered  by  a  collective  bargaining  agreement.  The  Company
considers its employee relations to be good.

Competition

         The restaurant industry is intensely competitive with respect to price,
service,  location  and  food  quality,  and  there  are  many  well-established
competitors with  substantially  greater  financial and other resources than the
Company.  Such  competitors  include a large  number of  national  and  regional
restaurant  chains.   Although  the  Company  believes  that  its  concept  will
distinguish it from  competitors,  steakhouse chains with which the Company will
compete include Outback, Longhorn, Lone Star and Bugaboo Creek restaurants. Some
of the Company's  competitors have been in existence for a substantially  longer
period than the Company and may be better  established  in the markets where the
Company's  restaurants are or may be located.  The restaurant  business is often
affected by changes in consumer  tastes,  national,  regional or local  economic
conditions,  demographic  trends,  traffic  patterns,  and the type,  number and
location of  competing  restaurants.  In addition,  factors  such as  inflation,
increased  food,  labor and employee  benefits costs and the lack of experienced
management and hourly employees may adversely affect the restaurant  industry in
general and the Company's  restaurants  in particular.  Any restaurant  unit may
face intense  competition from a competitor  opening a restaurant with a similar
format in the near  vicinity,  at least in the short term,  since  newly  opened
restaurants frequently generate a high volume of customers.

Forward Looking Statements

         The words or phrases "will likely  result",  "are  expected to",  "will
continue", "is anticipated",  "estimate",  "projected",  "intends to" or similar
expressions are intended to identify  "forward  looking  statements"  within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain  risks and  uncertainties,  including but not limited to:
the Company's history of losses and cash flow deficit; existing indebtedness and
adverse  litigation;  the  development  and  implementation  of a new restaurant
format and menu,  and the leasing  and  development  of a chain of  restaurants;
dietary  trends;  competition;  ability to manage  growth;  quality  control and
customer service aspects of the Company's  business;  limited  manufacturing and
warehouse facilities;  ability to obtain and maintain NASDAQ listing; government
regulation and other factors affecting the food service industry;  trademark and
service marks;  insurance and potential  liability;  control by management;  the
Penny Stock Rules and liquidity of the Company's Common Stock,  that could cause
the Company's actual results to differ  materially from historical  earnings and
those presently anticipated or projected.  Such factors,  which are discussed in
"Business" and "Management's  Discussion and Analysis of Financial Condition and
Results  of  Operations"  and the  notes  to  financial  statements,  as well as
unanticipated  problems,  could affect the Company's  financial  performance and
could cause the Company's actual results for future periods to differ materially
from any  opinions  or  statements  expressed  with  respect  to future  periods
expressed herein.  See "Business" and  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations".

Risk Factors

         Operating Losses;  Future Operating Results.  The Company has a history
of losses since its inception in 1993. As of the end of its June 30, 1999 fiscal
year,  losses  aggregated   $18,777,090   including  losses  of  $3,352,035  and
$3,236,039  for its  fiscal  years  ended  June 30,  1999  and  June  28,  1998,
respectively.  The Company's future  profitability will depend upon, among other
things,  the  Company's  ability to generate a level of revenues  sufficient  to
offset its cost  structure in addition to reducing its operating  costs on a per
location basis.  The Company  believes that generation of that level of revenues
is  dependent  upon  the  timely  opening  of  restaurants   and  achieving  and
maintaining market  acceptance.  There can be no assurance that the Company will
achieve significantly increased revenues or maintain profitable operations.

         Significant  Capital  Requirements;   Need  for  Additional  Financing;
Indebtedness.  The Company's capital  requirements have been significant and its
cash requirements have been exceeding its cash flow from operations (at June 30,
1999,  the Company had working  capital of $581,830) due to, among other things,
costs associated with the prior development and operation of its  Rattlesnake(R)
Southwestern  Grill restaurants and the Company's proposed modified and expanded
operations. As a result, the Company has been dependent upon sales of its equity
securities and loans to finance its working capital requirements. The Company is
dependent  upon the proceeds of the  Offering to initially  finance its proposed
expansion.  Based  on the  Company's  current  proposed  plans  and  assumptions
relating  to  the  implementation  of  its  expansion   strategy,   the  Company
anticipates  that the net proceeds of the Offering,  together  with  anticipated
cash flow from  operations  and equipment,  food vendor and landlord  financing,
will be sufficient to satisfy its contemplated  cash  requirements  through July
2000. In the event that the Company's plans change or its  assumptions  prove to
be  inaccurate  (due to  unanticipated  expenses,  construction  delays or other
difficulties) or the proceeds of the Offering otherwise prove to be insufficient
to fund operations and implement the Company's proposed expansion strategy,  the
Company could be required to seek additional  financing sooner than anticipated.
The Company has no current arrangements with banks or otherwise with respect to,
or potential sources of additional financing, and it is not anticipated that any
officers,   directors  or  stockholders  will  provide  loans  to  the  Company.
Consequently  there can be no assurance  that any  additional  financing will be
available to the Company when needed,  on commercially  reasonable  terms, or at
all.  Any  inability  to obtain  additional  financing  when needed would have a
material  adverse effect on the Company,  including  requiring it to curtail its
expansion  efforts.  In addition,  any additional  equity  financing may involve
substantial   dilution  to  the  interests  of  the   Company's   then  existing
stockholders.  At June  30,  1999,  short  term  debt  and  liabilities  totaled
$1,794,205 and long term debt totaled approximately  $242,504. At June 30, 1999,
$35,839 of the Company's outstanding notes payable were past due and in default.
There can be no assurance that cash flow from  operations  will be sufficient to
repay remaining indebtedness and trade payables.

         Litigation.  The  Company  is a party  defendant  to  certain  material
litigations.  If such litigations are concluded on relatively unfavorable terms,
the  litigations  could have a material  adverse  effect on the  Company and its
prospects. (See "Legal Proceedings".)

         Dependence Upon Key Personnel;  Varying  Commitment Levels. The success
of the  Company  will  be  dependent  on  its  ability  to  attract  and  retain
experienced   management  and  restaurant   industry   personnel.   The  Company
anticipates  the receipt of strategic  advice from Shelly  Frank,  A.G.  (Sandy)
Rappaport,  and Stephan A. Stein,  and full time  services from Kenneth Berry as
President,  Nicolo  Ottomanelli  as Senior Vice  President and Frank T. Ferro as
Chief Financial Officer. These individuals have entered into agreements with the
Company  including  varying  levels of  commitment,  one of which,  an  advisory
service  agreement of Mr. Frank, is terminable by Mr. Frank without  recourse by
the  Company.  The loss of the  advice or  services  of any one or more of these
persons  could have a material  adverse  effect on the business and prospects of
the Company. The Company faces considerable  competition from other food service
businesses for personnel,  many of which have  significantly  greater  resources
than the  Company.  There can be no  assurance  that the Company will be able to
attract and retain  personnel  in the future,  and the  inability to do so could
have a material adverse effect on the Company.

         Competition.  The  restaurant  industry is intensely  competitive  with
respect to price, service, location and food quality and variety. There are many
well-established  competitors  with  substantially  greater  financial and other
resources  than the  Company,  as well as a  significant  number  of new  market
entrants.  Such competitors  include national,  regional and local  full-service
casual  dining  chains,  many of which  specialize in or offer steak and seafood
products,  as  well  as  single  location  restaurants.  Some  of the  Company's
competitors  have been in existence for  substantially  longer  periods than the
Company,   may  be  better  established  in  the  markets  where  the  Company's
restaurants  are or will be located  and  engage in  extensive  advertising  and
promotional campaigns,  both generally and in response to efforts by competitors
to open new locations or introduce new concepts or menu  offerings.  The Company
can also be expected to face competition from a broad range of other restaurants
and food service establishments which specialize in a variety of cuisines. While
the Company  believes that it is focusing on exciting and profitable menu items,
there can be no assurance  that  consumers  will regard the  Company's  menu and
concepts as sufficiently  distinguishable  from competitive menus and restaurant
concepts or that substantially equivalent menus and restaurant concepts will not
be introduced by the Company's competitors.

         High  Restaurant  Failure  Rate.  The  opening  of new  restaurants  is
characterized  by a very high failure rate. The Company proposes to initiate and
construct a new restaurant chain. During the initial operation of a newly opened
restaurant, such restaurant could operate at a loss. In the event of a prolonged
period of  unfavorable  operating  results for a restaurant,  the Company may be
required to close such restaurant, which could have a material adverse effect on
the financial  condition and results of operations of the Company.  In the short
term, the Company will remain dependent upon a limited number of restaurants for
substantially  all of its  revenues.  The  lack of  success  or  closing  of the
Company's  existing  restaurant,   or  the  unsuccessful   operation  of  a  new
restaurant,  could have material adverse effect upon the financial condition and
results of operations of the Company.

         Risks  Relating  to  Proposed  Expansion.   The  Company  is  currently
implementing a strategy to change its concept and build a restaurant  chain. The
Company has limited experience in effectuating rapid expansion and in managing a
large number of locations or locations  that are  geographically  dispersed (and
has enlisted the assistance of persons experienced in these areas effective with
the  Offering).  The Company's  proposed  expansion  will be dependent on, among
other things, achieving significant market acceptance for its Spencer's concept,
developing customer recognition and loyalty for the Spencer's name,  identifying
a sufficient number of prime locations and entering into lease  arrangements for
such  locations on favorable  terms,  timely  development  and  construction  of
locations,   securing  required  governmental  permits  and  approvals,  hiring,
training and retaining  skilled  management and other  personnel,  the Company's
ability to integrate new restaurants into its operations and the general ability
to  successfully  manage growth  (including  monitoring  restaurant  operations,
controlling costs and maintaining  effective  equality  controls).  In the event
that cash flow from  operations is insufficient or that the Company is unable to
obtain  adequate  equipment,   food  vendor  or  landlord  financing,  or  other
unexpected  events  occur,  such as delays in  identifying  suitable  locations,
negotiating  leases,  obtaining permits or design and construction  delays,  the
Company may not be able to open all of such locations in a timely manner,  or at
all.  Moreover,  the Company is using a new name and  developing  a new concept,
both of which  will have to be tested  and will have to  demonstrate  commercial
acceptance and financial  viability.  There can be no assurance that the Company
will be successful in opening the number of restaurants  currently  planned in a
timely manner,  or at all, or that, if opened,  those  restaurants  will operate
profitably.

         Long  Start-up  Cycles;  Fluctuations  in Operating  Results;  Start-up
Expense. The Company's restaurant start-up cycle, which generally commences with
site  selection and ends upon the opening of the  restaurant to customers,  will
vary by location and could extend for a period of months. Difficulties or delays
in site selection or events over which the Company will have no control, such as
delays in construction due to governmental regulatory approvals,  shortage of or
the  inability  to obtain  labor  and/or  materials,  inability  of the  general
contractor  or  subcontractors  to perform  under  their  contracts,  strikes or
availability  and cost of  needed  debt or  lease  financing,  could  materially
adversely affect the start-up costs and completion  times of new locations.  The
Company  expects that future  quarterly  operating  results will  fluctuate as a
result  of  the  timing  of,  and  expenses  related  to,  the  openings  of new
restaurants (since the Company will incur significant expenses during the months
preceding the opening of a restaurant), as well as due to various other factors,
including  the  seasonal   nature  of  its  business  and  weather   conditions.
Accordingly,  the Company's sales and earnings may fluctuate  significantly from
quarter to quarter and operating results for any quarter will not necessarily be
indicative of the results that may be achieved for a full year. In addition, the
capital resources  required to construct each new location are significant.  The
Company  estimates  that the costs of  opening  its future  locations  (location
acquisition and concept conversion) will be approximately $700,000 per location,
net of any anticipated landlord contributions.  The Company expects that it will
incur approximately  $75,000 in additional  pre-opening costs in connection with
the  opening  of  future  sites.  There  can be no  assurance  that the costs to
construct  and  open a new  location  will  not  be  significantly  higher  than
currently anticipated.

         Consumer  Preferences;  Factors Affecting the Restaurant Industry.  The
restaurant  industry is  characterized  by the  continuing  introduction  of new
concepts and is subject to rapidly  changing  consumer  preferences,  tastes and
eating and purchasing  habits.  While the demand for steak restaurants has grown
significantly  over the past several years,  there can be no assurance that such
demand will  continue to grow or that these  trends  will not be  reversed.  The
Company's  success  will  depend on its  ability to  anticipate  and  respond to
changing consumer preferences,  tastes and eating and purchasing habits, as well
as other  factors  affecting  the food service  industry,  including  new market
entrants,  demographic  trends  and  unfavorable  national,  regional  and local
economic  conditions,  inflation,  increasing  seafood  and other food and labor
costs.  Failure  to  respond to such  factors  in a timely  manner  could have a
material adverse effect on the Company.

         Geographic  Concentration.  The Company's existing restaurant,  and the
initial  site  selection(s),  are to be in the New York  metropolitan  tri-state
area. Given the Company's geographic  concentration,  adverse publicity relating
to the Company's  restaurants could have a more pronounced adverse effect on the
Company's operating results than might be the case if the Company's  restaurants
were more geographically dispersed. A decline in tourism, or in general economic
conditions,  which  affects the New York  metropolitan  area  economy or tourism
industry,  particularly  during  the time of peak  sales,  could have a material
adverse effect on the Company's operations and prospects.

     Seasonality.  The restaurant  business is seasonal,  and could be adversely
affected by extreme weather during what would
otherwise be a period of higher sales.

         Menu  Emphasis  on  Steak  and  Shrimp.  The  focus  of  the  Company's
restaurant expansion will be on a menu featuring mid-priced steaks and a variety
of shrimp  selections  (as well as other foods).  Although the Company  believes
that this menu will prove  attractive,  it is very  limited in  relation  to the
variety of foods served in a "full menu" restaurant.  Accordingly, if these menu
items do not prove attractive,  the Company will be adversely affected and would
have to  restructure  its menu,  with the  attendant  costs and loss of momentum
resulting from a second start up effort.

         Fluctuations  in Food and Other Costs;  Supply of Food.  The  Company's
profitability  is dependent on its ability to anticipate  and react to increases
in food, labor, employee benefits,  and similar costs over which the Company has
limited control. Specifically the Company's dependence on frequent deliveries of
meat,  seafood and produce  subjects  it to the risk of  possible  shortages  or
interruptions  in supply caused by adverse  weather,  labor,  transportation  or
other conditions which could affect the availability and cost of such items. The
Company believes it will be able to anticipate and react to fluctuations in food
costs  through  selected  menu price  adjustments,  purchasing  steak and shrimp
directly from suppliers and promoting  certain  alternative  menu selections (in
response  to  price  and  availability  of  supply).  However,  there  can be no
assurance that the Company will be able to continue to anticipate and respond to
such supply and price fluctuations in the future or that the Company will not be
subject to significantly  increased costs in the future.  Moreover,  the Company
does not maintain  long term supply  contracts  with any of its  suppliers,  and
purchases  products  pursuant to purchase orders placed from time to time in the
ordinary   course  of  business.   Although  the  Company   believes   that  its
relationships  with its suppliers are satisfactory and that alternative  sources
are available,  the loss of certain  suppliers,  or substantial price increases,
could have a material adverse effect on the Company.

         Potential  Liability  for Sale of Alcoholic  Beverages.  The  Company's
restaurants will be subject to "dram-shop"  statutes,  which generally provide a
person  injured by an  intoxicated  person the right to recover  damages from an
establishment  that  wrongfully  served  alcoholic  beverages to the intoxicated
person. New York law currently provides that a vendor of alcoholic beverages may
be held  liable in a civil  cause of action  for  injury or damage  caused by or
resulting from the intoxication of a minor (under 21 years of age) if the vendor
willfully,  knowingly and unlawfully sells or furnishes  alcoholic  beverages to
the minor  and knows  that the minor  will soon  thereafter  be  driving a motor
vehicle.  A  vendor  can  similarly  be held  liable  if it  knowingly  provides
alcoholic  beverages to a person who is in a noticeable  state of  intoxication,
knows that person will soon  thereafter be driving a motor vehicle and injury or
damage is caused by that person. In addition,  significant national attention is
focused on the problem of drunk  driving,  which could result in the adoption of
additional  legislation  and  increased  potential  liability of the Company for
damage or injury caused by its customers. The Company carries insurance for this
liability.

         Limited  Insurance  Coverage.  At the present time, the Company carries
limited liability  insurance and casualty  insurance and effective July 15, 1999
retroactive to February 17, 1999, an officer/director liability insurance policy
as well. The Company did not have such insurance  during the period from January
1998 to such date.  The Company  maintains  health  insurance for its management
personnel.  The Company intends to periodically  upgrade its insurance coverage,
but there can be no assurance as to when upgrades will be effected and as to any
claims which may be made, or to the impact of the same.

         Government  Regulation.  The Company is subject to extensive  state and
local government  regulation by various governmental  agencies,  including state
and  local  licensing,   zoning,   land  use,   construction  and  environmental
regulations and various  regulation  relating to the sale of food and beverages,
sanitation,  disposal of refuse and waste  products,  public health,  safety and
fire standards. The Company's restaurants are subject to periodic inspections by
governmental  agencies to assure conformity with such regulations.  Difficulties
or failure in obtaining required  licensing or other regulatory  approvals could
delay or prevent  the opening of a new  restaurant,  and the  suspension  of, or
inability to renew, a license at an existing  restaurant  would adversely affect
the operations of the Company.  Restaurant  operating costs are also affected by
other  government  actions  which are beyond the  Company's  control,  including
increases  in  the  minimum  hourly  wage  requirements,   workers  compensation
insurance  rates,  health care insurance costs and unemployment and other taxes.
The Federal Americans With Disabilities ("ADA") prohibits  discrimination on the
basis of  disability  in public  accommodations  and  employment.  The Company's
restaurants  are currently  designed to be  accessible to the disabled,  and the
Company  believes  that  it  is  in  compliance  with  all  current   applicable
regulations relating to accommodations for the disabled.  However,  there can be
no  assurance  that the Company will not be deemed to violate the ADA, and could
be required to expend significant funds to provide service to or make reasonable
accommodations for disabled persons.

         Uncertainty  of Protection of  Proprietary  Information.  The Company's
business  prospects  will  depend in part on the  Company's  ability  to develop
favorable consumer  recognition of the Spencer's name.  Although the Company has
applied for trademark  registration  for use of the Spencer's name by the United
States  Patent and Trademark  Office,  there can be no assurance  that:  (i) the
Company's  registrations  will be issued and will not  violate  the  proprietary
rights of others or that the Company's  trademarks would be upheld; or (ii) that
the Company would not be prevented from using its trademarks, if challenged, any
of which could have an adverse effect on the Company.  In addition,  the Company
will rely on trade secrets and  proprietary  know-how,  and will employ  various
methods,  to protect its  concepts and  recipes.  However,  such methods may not
afford  adequate  protection  and there can be no assurance that others will not
independently  develop  similar  know-how  or  obtain  access  to the  Company's
know-how,  concepts and recipes.  The Company does not maintain  confidentiality
and  non-competition  agreements  with all of its  executives,  key personnel or
suppliers. There can be no assurance that the Company will be able to adequately
protect its trade secrets.  In the event  competitors  independently  develop or
otherwise obtain access to the Company's  know-how,  concepts,  recipes or trade
secrets, the Company could be adversely affected.

         Control by Management. The Company's current officers and directors own
approximately 25% of the outstanding  Common Stock of the Company.  Accordingly,
such  persons  could be able to control  the Company  and  generally  direct the
Company's affairs,  including electing a majority of the Company's directors and
causing an  increase in the  Company's  authorized  capital or the  dissolution,
merger or sale of the Company or substantially all of its assets.

         No  Dividends.  The Company has never paid any  dividends on its Common
Stock and does not anticipate  paying cash dividends in the foreseeable  future,
except for possible cash dividends on the Preferred Shares.  The Company accrued
dividends  on the  Series  B  preferred  shares  as of  June  30,  1999  with an
approximate  value of $198,846.  In  September  1999,  the Company  issued 7,954
shares of Series B  Preferred  Stock to satisfy  this  obligation.  The  Company
currently  intends to retain any and all earnings for use in connection with the
expansion of its business and for general  corporate  purposes.  The declaration
and payment of future cash dividends,  if any, will be at the sole discretion of
the   Company's   Board  of  Directors   and  will  depend  upon  the  Company's
profitability,  financial  condition,  cash requirements  future prospects,  and
other factors deemed relevant by the Board of Directors.

         Shares  Eligible  for Future Sale.  On June 30,  1999,  the Company had
approximately   200,000,000   shares  of  Common  Stock  outstanding   (assuming
conversion  of  convertible  securities  but  no  exercise  of any  warrants  or
options),  of which  approximately  15,000,000 shares of Common Stock are freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the  "Securities  Act"). All of the remaining shares of Common
Stock  outstanding  are  "restricted  securities," as that term is defined under
Rule 144 promulgated  under the Securities Act and all of such restricted shares
will become  eligible  for sale,  pursuant  to Rule 144, at the present  time or
later, but in no event later than one year from the date hereof,  subject to the
agreements set forth below. The Company has filed a registration statement under
the  Securities  Act of  1933  including  substantially  all  of the  restricted
securities which may be issued upon the conversion of convertible securities and
the exercise of options and warrants (approximately 300,000,000 shares of common
stock). It is anticipated that such registration statement will become effective
in or about January 2000.  No prediction  can be made as to the effect,  if any,
that sales of shares of Common Stock or even the availability of such shares for
sale  will  have  on the  market  prices  prevailing  from  time  to  time.  The
substantial  amounts of Common Stock that may be sold in the public  market once
such  registration  statement is  effective  is likely to  adversely  affect the
prevailing  market  price for the Common  Stock and could  impair the  Company's
ability to raise  capital  through the sale of its equity  securities  at future
dates.

         Possible Adverse Effect of Outstanding  Warrants and Options.  Upon the
consummation of the Offering in July 1999, there were approximately  165,000,000
shares of Common Stock  reserved for issuance  upon  conversion of the Company's
outstanding   Series  B  Preferred  Stock,   and  an  additional   approximately
125,000,000  shares reserved for issuance upon the exercise of other options and
warrants.  Upon  issuance  of these  shares,  dilution of the  interests  of the
holders  of the  Company's  Common  Stock will occur and any sales in the public
market of the shares  may  adversely  affect  prevailing  market  prices for the
Common Stock.  Moreover, the terms upon which the Company will be able to obtain
additional  equity may be adversely  affected  since the holders of the Series B
Preferred Stock,  outstanding warrants and options can be expected to convert or
exercise them at a time when the Company would,  in all  likelihood,  be able to
obtain  capital on terms more  favorable to the Company  than those  provided by
such securities.

         Delaware   Anti-Takeover   Statute;   Possible   Adverse   Effects   of
Authorization of Preferred Shares. As a Delaware  corporation,  the Company will
become subject to  prohibitions  imposed by Section 203 of the Delaware  General
Corporation Law ("DGCL").  In general,  this statute  prohibits the Company from
entering into certain business combinations without the approval of its Board of
Directors and/or  stockholders  and, as such, could prohibit or delay mergers or
other  attempted  takeovers  or changes in control  with respect to the Company.
Such provisions may discourage attempts to acquire the Company. In addition, the
Company's  Certificate  of  Incorporation  authorizes  the board of Directors to
issue up to 5,000,000  shares of "blank check"  preferred shares (the "Preferred
Shares")  without  stockholder  approval,  in one or more  series and to fix the
dividend rights, terms,  conversation rights,  voting rights,  redemption rights
and  terms,  liquidation  preferences,   and  any  other  rights,   preferences,
privileges,  and restrictions applicable to each new series of Preferred Shares.
The  issuance of shares of  Preferred  Shares in the future  could,  among other
results,  adversely  affect the voting power of the holders of Common Stock and,
under certain  circumstances,  could make it difficult for a third party to gain
control of the  Company,  prevent or  substantially  delay a change in  control,
discourage bids for the Common Stock at a premium, or otherwise adversely affect
the market price of the Common Stock. See "Description of Capital Stock".

         Failure to List Common  Stock on NASDAQ  Small Cap or  National  Market
System;  Risks Relating to Low-Prices  Stocks. The Company will seek to list the
Common  Stock on NASDAQ  Small Cap or National  Market  System as soon as deemed
practical.  The Company would have  approximately  300,000,000  shares of Common
Stock  outstanding,  assuming  conversion of all convertible  securities and the
exercise  of all  outstanding  options  and  warrants  (of which there can be no
assurance). It would be necessary for the Company to seek authorization from its
stockholders for a Common Stock combination (i.e. a reduction in the outstanding
number of shares of Common  Stock) to achieve a market  price  which will enable
the Company to obtain a NASDAQ listing.  If approved,  this could sharply reduce
the number of shares of Common Stock outstanding (and the number of shares owned
by any  stockholder).  There are also stringent net worth  requirements that the
Company does not currently meet, and may not meet in the future.  The failure to
meet listing or  maintenance  criteria  will result in the failure to effect the
listing of the  Company's  Common Stock on NASDAQ,  and trading,  if any, in the
Company's Common Stock would be limited to the non-NASDAQ Bulletin Board market.
As a result,  there could be a significant  lack of  liquidity,  and an investor
could find it more difficult to dispose of, or to obtain accurate  quotations as
to the market value of, the Company's Common Stock.

         Possible  Adverse  Effect of Penny  Stock  Rules on  Liquidity  for the
Company's   Common  Stock.   The   Securities  and  Exchange   Commission   (the
"Commission")  regulations  define a "penny stock" to be an equity  security not
registered on a national securities exchange, or for which quotation information
is disseminated not on the NASDAQ SmallCap  Market,  that has a market price (as
therein  defined) of less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exemptions.  For any transaction involving a
penny stock,  unless exempt, the rules require delivery,  prior to a transaction
in a penny stock, of a disclosure  schedule prepared by the Commission  relating
to the  penny  stock  market.  Disclosure  is also  required  to be  made  about
commissions payable to both the broker-dealer and the registered  representative
and current  quotations  for the  securities.  Finally,  monthly  statements are
required to be sent disclosing recent price information for the penny stock held
in the  account  and  information  on the limited  market in penny  stocks.  The
foregoing  required  penny stock  restrictions  will not apply to the  Company's
Common Stock if the Common Stock becomes listed on the NASDAQ  SmallCap  Market,
and if  certain  price and  volume  information  is  provided  on a current  and
continuing basis or, or if the Company meets certain minimum net tangible assets
or average return  criteria.  In any event,  even if the Common Stock was exempt
from such restrictions,  the Company would remain subject to Section 15(b)(6) of
the  Securities  Act, as amended,  which gives the  Commission  the authority to
prohibit any person that is engaged in unlawful conduct while participating in a
distribution  of  a  penny  stock  from  associating  with  a  broker-dealer  or
participating  in a distribution of a penny stock, if the Commission  finds that
such a restriction would be in the public interest.  If the Common Stock remains
subject to the rules on penny  stocks,  the market  liquidity  for the Company's
securities  could be materially  and adversely  affected.  Any disruption in the
liquid market of the Common Stock could limit the Company's access to the equity
markets  in the  future,  and  could  have a  materially  adverse  effect on the
Company's business, financial conditions and results of operations.

ITEM 2. DESCRIPTION OF PROPERTIES

Properties

     The Company's  principal  office is located at 106 Federal  Road,  Danbury,
Connecticut 06810 at the location of its first Spencer's Restaurant.

         At  June  30,   1999,   the  Company   operated   its  only   remaining
Rattlesnake(R) Southwestern Grill restaurant as follows:

           Location               Size/Seating         Lease Expiration

           South Norwalk, CT      3,270 sf/120         May 2002


         106 Federal Road  Restaurant  Corp., a  wholly-owned  subsidiary of the
Company  purchased  the  Danbury,  Connecticut  Rattlesnake  Southwestern  Grill
restaurant  (which was closed June 22, 1998) and the  underlying  real estate on
April 15, 1999 for conversion to the Spencer's prototype, and opened November 3,
1999.  The size and  seating of the  restaurant  are 7,200  square  feet and 175
seats, respectively.

ITEM 3. LEGAL PROCEEDINGS.

         At  June  30,  1999,  the  Company  was  engaged  in  certain  material
litigation as follows:

         Peck v. Rattlesnake Ventures, Inc. et. al.

         Plaintiff,  the owner of an apartment  situated above the South Norwalk
Rattlesnake Grill operated by Rattlesnake Ventures, Inc. ("RVI"), a wholly-owned
subsidiary of the Company,  brought an action for negligence per se, intentional
infliction of emotional  distress,  negligent  infliction of emotional distress,
and  violations  of  the  Connecticut   Unfair  Trade  Practices  Act  based  on
allegations of excessive noise, and rude and or threatening conduct of employees
of RVI  including  the  Corporate  Chairman and CEO at the time,  William  Opper
("Opper").

         A jury  verdict in the amount of $225,000  was entered  against RVI and
Opper jointly on the negligence per se counts of the plaintiff's  complaint.  In
addition, verdicts in the amount of $200,000 were entered against both Opper and
RVI separately on the intentional and negligent infliction of emotional distress
counts of the complaint.  The trial court  subsequently  set aside the emotional
distress  awards  against both Opper and RVI leaving only the  negligence per se
award against Opper and RVI jointly in the amount of $225,000 referred to above.
This award is  currently  on appeal by RVI and  Opper.  The  plaintiff  has also
appealed the trial court's post trial  reduction of the jury award. It should be
noted that an Offer of Judgment was filed in Peck in 1994.  As a result there is
the potential  that interest at the statutory rate of 12% will be applied to any
ultimate final award in Peck.

         Plaintiff's  claims  are  arguably  covered  by one or  more  of  RVIs'
insurance policies.  Farmington Casualty Company (Travelers Property Casualty is
successor  in interest to Aetna  Property  and  Casualty  who was  successor  in
interest to Farmington  Casualty  Company) and Insurance  Company of Greater New
York retained counsel to defend  Rattlesnake under a reservation of rights.  The
third insurance carrier, Public Service Mutual denied coverage. Greater New York
and  Farmington  have  continued to prosecute the appeal under a reservation  of
rights. RVI has advised all three insurance  companies that it intends to pursue
its rights in an action for damages and  declaratory  relief against them in the
event that the  appeal is  unsuccessful  and the  insurance  carriers  refuse to
provide coverage for plaintiff's claims.

         Settlement negotiations are ongoing during the appeal process.

         William Opper Indemnification Demand/Peck

         On or about July 7, 1999,  a demand  letter was tendered to the Company
by Mr. Opper's  attorney  seeking  indemnification  from  potential  liabilities
arising  out of  Peck  (above).  This  demand  is  based  on an  indemnification
provision  in an agreement  between Mr.  Opper and the Company.  The Company has
been advised that viable defenses to this demand may exist.

         Travelers  Property Casualty as Successor in Interest to Aetna Property
and Casualty v. Rattlesnake Bar and Grill Holding Company, Inc. et. al.

           Plaintiff seeks declaratory  judgment that Travelers is not obligated
to indemnify the defendants in the underlying Peck action. Plaintiff alleges the
absence of a qualifying  incident of bodily injury or property damage due to the
lack of an  "occurrence"  defined  in the  policy as  accidental,  the lack of a
bodily  injury as  defined  in the  policy  and the lack of  property  damage as
defined  in the  policy.  The  plaintiff  furthermore  argues for  exclusion  of
coverage due to the alleged  intent to harm the plaintiff and alleged  existence
of property  damage  expected or intended  from the  standpoint  of the insured.
Preliminary  analysis  suggests  viable  arguments  may exists for  extension of
coverage in this matter.

         Jack Cioffi Trust v. Rattlesnake Lynbrook and Rattlesnake Holding.

          This is an action for an alleged breach of a commercial lease in which
damages  exceeding  $190,000 are being  sought.  The Company has  disputed  this
claim.  The plaintiff has  inadequately  responded to  Rattlesnake's  demand for
discovery and inspection and interrogatories.

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

         In  February  1999,  the  holders  of a  majority  of  the  issued  and
outstanding  shares of the Company's Common Stock, by written consent in lieu of
a meeting  pursuant  to Section  228 of the DGCL,  adopted an  amendment  to the
Company's Certificate of Incorporation, increasing the Company's capitalization.
As a result of this amendment to the Certificate of  Incorporation,  the Company
is authorized to issue a total of 405,000,000  shares,  of which 400,000,000 are
shares of Common Stock and 5,000,000 shares of Preferred Stock.

         In  September  1999,  the  holders  of a  majority  of the  issued  and
outstanding shares of the Company's Common Stock by written consent in lieu of a
meeting pursuant to Section 228 of the DGCL adopted an option plan providing for
incentive  stock  options and  non-incentive  stock  options for  employees  and
non-employees,  under which  options  may be granted  for a total of  25,000,000
shares of common  stock and  adopted an option plan for the members of the Board
of Directors under which options may be granted for a total of 10,000,000 shares
of common stock.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The high and low bid  quotations for fiscal years 1998 and 1999 for the
Common Stock on the NASDAQ SmallCap Market (until September 1997) and the NASDAQ
Bulletin Board (thereafter),  is as follows (fractions  converted to approximate
decimal values):

                                                          BID
         Fiscal Year 1998                            Low      High

Quarter ended September 30, 1997                     .17       .65
Quarter ended December 31, 1997                      .17       .31
Quarter ended March 31, 1998                         .17       .65
Quarter ended June 28, 1998                          .44       .65

         Fiscal Year 1999
Quarter ended September 30, 1998                     .22      1.03
Quarter ended December 31, 1998                      .13       .45
Quarter ended March 31, 1999                         .13       .31
Quarter ended June 30, 1999                          .09       .31

         As of the close of business on June 30, 1999, there were 164 holders of
record of the Common  Stock.  The  Company has paid no  dividends  on its common
stock for the last three years and does not expect to pay such  dividends in the
future.

Description of Securities

      Authorized Capital Stock

         As of June 30, 1999, the Company's  authorized  capital stock consisted
of 400,000,000  shares of Common Stock, par value of $.001 per share;  5,000,000
shares of preferred  shares,  of which 500,000 are designated Series B Preferred
Shares. As of June 30, 1999, there were 29,979,013 shares of Common Stock issued
and outstanding  (not including  shares of Common Stock issuable upon conversion
of  convertible  securities,  or exercise of options and  warrants)  and 328,563
shares of Series B Preferred Stock issued and outstanding.

         Common Stock

         Holder of shares of Common  Stock are  entitled  to one vote per share,
without  cumulative  voting,  on all  matters  to be voted  on by  shareholders.
Therefore, the holders of more than 50% of the shares of Common Stock voting for
the election of directors can elect all of the  directors,  subject to the right
of the  holders  of the  Preferred  Shares  (upon a default  in the  payment  of
dividends) to elect one director (which right is to be exercised for the holders
of Preferred  Shares by the Placement  Agent) so long as Preferred Shares remain
outstanding. The Company's Certificate of Incorporation provides for a staggered
Board of Directors,  which is intended to allow for the election of one third of
the Board  every  year for three year  terms.  This  provision  is  designed  to
maintain the  continuity of the Board of  Directors.  Since there has not been a
meeting of stockholders for approximately three years, at the next meeting,  the
Board of Directors structure,  which has lapsed, will be reestablished,  and one
third of the directors  will be elected for a term of one year, one third of the
directors will be elected for a term of two years and the remaining one third of
the director will be elected for a term of three years.  Subject to  preferences
that may be applicable to any outstanding  preferred  shares,  holders of Common
Stock are entitled to receive ratably,  such dividends as may be declared by the
Board of Directors out of funds legally  available  therefor.  In the event of a
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 preference of the outstanding Preferred Shares. The Common Stock has
no preemptive or other  subscription  rights, and there are no conversion rights
or redemption or sinking-fund  provisions  with respect to such shares.  All the
shares of Common Stock presently outstanding are fully paid and non-assessable.

         Conversion  of  Preferred   Shares.   The  Preferred   Shares  will  be
convertible,  at the option of the holder at any time after  November 1999, at a
conversion  price  initially  equal to $0.05  per  share of  Common  Stock.  The
conversion  rate will be  reduced  by 10% per month for each  month the  Company
fails to comply with its  obligation to process a  registration  statement  (see
below). In the case of a consolidation or merger of the Company with or into any
other  corporation,  or in case of any sale or transfer of substantially all the
assets of the Company,  a holder of Preferred Shares will be entitled to receive
on  conversion  the  consideration  which the holder would have  received had he
converted immediately prior to the occurrence of the event. The conversion price
is  subject  to the  adjustments  on the terms set forth in the  Certificate  of
Designation. The outstanding Preferred Shares may, at the option of the Company,
be  converted,  with no action on the part of the holder,  if, at any time after
February  2000,  the Common Stock into which the same is converted is registered
under the  Securities  Act and the  closing  bid price of the  Common  Stock for
twenty (20) consecutive  trading days is at least four time the conversion price
($0.20 based on the initial conversion price of $0.05).

         Filing of Registration  Statement. On August 16, 1999 the Company filed
a  Registration  Statement  under the  Securities  Act of 1933,  as amended (the
"Act"),  covering the shares of Common Stock  issuable  upon  conversion  of the
Preferred  Shares sold in the Offering,  and is required to use its best efforts
to cause such Registration Statement to be declared effective.  In the event the
Company  fails to use its  best  efforts  to have  such  Registration  Statement
declared effective within ninety (90) days thereafter, the conversion price will
be automatically reduced by 10% for each month of such failure, and the dividend
rate on the Preferred  Shares will be increased to 14% per annum from  issuance.
All expenses incurred in any registration of the holder's shares of Common Stock
will be paid by the  Company;  provided,  however,  that the Company will not be
liable for any discounts or commissions to any  underwriter,  any stock transfer
taxes  incurred in respect of shares sold by the  offering  holders,  or for any
legal fees and expenses to effect the sale of the  respective  holder's  shares.
The holders and the Company will  indemnify  each other for certain  liabilities
under the Act.

         Dividends.  Holders  of  Preferred  Shares  are  entitled  to  receive,
semi-annual  dividends at the rate of 8% per annum,  before any dividends may be
paid with respect to the Common Stock,  which shall be paid in cash or Preferred
Shares at the election of the Company.  If there is a failure to pay  dividends,
then the Placement Agent, on behalf of such holders,  has the right to designate
one director to the Company's Board. In addition, if the Company fails to comply
with its  obligations to process the  Registration  Statement  (see above),  the
dividend rate will increase to 14% per annum from issuance. The Company declared
and accrued  Preferred Share  dividends for the quarterly  period ended June 30,
1999, with a valuation of $198,846 which was paid in September 1999.

         Liquidation  Preference.  Holders of  Preferred  Shares are entitled to
receive  $25.00 per share  (plus all unpaid  dividends),  and no more before any
distribution or payment is made to holders of Common Stock or other junior stock
in the event of the dissolution,  liquidation, or winding up the Company. If, in
any such  event,  the assets of the  Company  are  insufficient  to permit  full
payment,  the  holders  of  Preferred  Shares  will  be  entitled  to a  ratable
distribution of the available assets. A consolidation, merger, or sale of all or
substantially  all of the  assets  of  the  Company  will  not be  considered  a
liquidation, dissolution, or winding up for these purposes.

         Voting Rights. The Preferred Shares are non-voting (however, the shares
of Common  Stock into which the Shares are  convertible  will be entitled to one
vote for each share).  The Preferred Shares will have certain  additional voting
rights provided by law and/or the  Certificate of  Designation.  The Company may
not,  without the consent of the majority of the holders of the then outstanding
Preferred Shares,  voting as a class (i) alter, amend, or modify the authorizing
resolution or  Certificate of Designation  creating the Preferred  Shares;  (ii)
adversely affect rights or preferences of the Preferred  Shares;  or (iii) issue
any stock that ranks in liquidation equal or senior to the Preferred Shares.

Warrants

         The  following  chart  provides a summary  with respect to the warrants
granted by the Company which are outstanding as of June 30, 1999:

------------------------------- --------------------------------------
Number of Warrants                           110,000,000
------------------------------- --------------------------------------
Price Range of Warrants                    $0.05 to $16.00
------------------------------- --------------------------------------

Series A Convertible Preferred Shares

         At June 28, 1998,  the Company had 56,500  shares of Series A Preferred
Shares outstanding. Based on a prior exchange offer and acceptance, these shares
were  exchanged  with the Company in February 1999 for 55,370 Series B Preferred
Shares, and retired by the Company.

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

         The  following   discussion  and  analysis   contains   forward-looking
statements which involve risks and  uncertainties.  When used herein,  the words
"anticipate,"  "believe,"  "estimate,"  and "expect" and similar  expressions as
they  relate to the Company or its  management  are  intended  to identify  such
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation  Reform Act of 1995.  The Company's  actual  results,  performance or
achievements could differ materially from the results expressed in or implied by
these forward-looking statements.

         The Company's original strategy of aggressive  growth,  utilizing a low
cost Rattlesnake  Southwestern  Grill restaurant  concept adaptable to different
leasehold configurations in a short construction timetable, met with significant
difficulty, particularly in the areas of inconsistent operational performance of
newer units. As a result,  the Board of Directors voted in January 1997 to adopt
a  revised   business  plan  (the  "Cost   Reduction   Plan")  that  focused  on
profitability of existing restaurants and the closing of marginal restaurants.

         In late fiscal 1998,  the Company  modified its expansion and operating
strategy to facilitate a more rapid course to  profitability  and accelerate the
reduction  of losses  pursuant to the Cost  Reduction  Plan.  This new  strategy
incorporates  a  sharpened  focus  on  existing  profitable   restaurants,   the
elimination or conversion of unprofitable  restaurants and the implementation of
aggressive  cost  cutting  measures  designed to reduce  operating  expenses and
improve  restaurant  operating   performance.   The  Company  has,  accordingly,
terminated operations at seven locations.

         At June 30, 1999, The Rattlesnake Holding Company,  Inc. was the parent
corporation of one operating  subsidiary company,  Rattlesnake  Ventures,  Inc.,
operating  a  Rattlesnake  Grill in South  Norwalk,  Connecticut  and the parent
corporation of one subsidiary  company,  106 Federal Road,  owner of the site at
which the Company opened its first Spencer's restaurant November 3, 1999.

Fiscal Year Ended June 30, 1999 as Compared
with Fiscal Year Ended June 28, 1998

      Net  restaurant  sales  decreased  56.7% to $1,627,245 in fiscal 1999 from
$3,761,300 in fiscal 1998.  The decrease in net  restaurant  sales resulted from
the closing of the Danbury, CT and Flemington,  NJ restaurants.  In fiscal 1999,
the  Company  generated  a net loss of  $3,352,035  as compared to a net loss of
$3,236,039 in fiscal 1998, an increase of $115,996.

      The increased loss was  attributable  to a combination of several  factors
including;  $1,533,000 increase in selling,  general and administrative expenses
attributable to a $1,075,000 charge incurred for the issuance of warrants to Mr.
Frank and increased  professional fees; a litigation charge of $225,000 relating
to a verdict in an action  brought by an owner of an  apartment  above the South
Norwalk  restaurant;  a $1,100,000  reduction in losses on closure of restaurant
sites and impairment  charges and a $512,429  extraordinary  gain in 1999 on the
extinguishment of debt.

      Restaurant Sales

      Gross  restaurant  sales decreased 56.4% to $1,696,679 in fiscal 1999 from
$3,888,643 in fiscal 1998.  The decrease in restaurant  sales  resulted from the
decrease in number of operating  restaurants  during the fiscal year 1998 period
due to the  closure  of the  Danbury,  Connecticut  and  Flemington,  New Jersey
restaurants,  and lack of  working  capital  to  adequately  support  restaurant
operations.  Same store sales for comparable  periods for fiscal year ended June
30, 1999 decreased by $78,252.

      Promotional Sales

      Promotional  sales  decreased  from  $127,343 in fiscal 1998 to $69,434 in
fiscal  1999.  This  decrease  is  attributed  to a  reduction  in the number of
restaurants  operating during the period.  Promotional sales have increased as a
percentage of gross sales in fiscal 1999 to 4.1% from 3.3% in fiscal 1998.  This
increase as a  percentage  of sales is the result of increase  usage of discount
dining services.

      Food and Beverage Costs

      Food and beverage costs increased as a percentage of net restaurant  sales
at 38.2% in fiscal 1999 and 32.6% in fiscal  1998.  The  percentage  increase is
attributable to  inefficiencies  of the Flemington unit closed in November 1998.
The cost of food and beverage  sales  decreased to $621,595 for fiscal 1999,  as
compared with  $1,225,982  for fiscal 1998,  resulting from the reduction in the
number of restaurants operating during the period.

      Restaurant Salaries and Fringe Benefits

      Restaurant salaries and fringe benefits,  which consist of direct salaries
of restaurant  managers,  hourly  employee  wages and related  fringe  benefits,
decreased to $662,343 in fiscal 1999 as compared to  $1,322,119  in fiscal 1998.
This  decrease is  attributable  to the  operation of fewer  restaurants  during
fiscal 1999.  As a percentage  of net sales,  these costs  increased to 40.7% in
fiscal 1999 from 35.2% in fiscal 1998,  principally due to allocating management
salaries over a smaller restaurant base.

      Occupancy and Related Expenses

      Occupancy and related expenses, which include linen, repairs, maintenance,
utilities,  rent,  insurance and other occupancy related expenses,  decreased to
$485,200 in fiscal 1999 from  $1,072,796  in fiscal 1998. As a percentage of net
restaurant  sales,  these costs  increased to 29.9% in fiscal 1999 from 28.5% in
fiscal  1998.  The  decrease  in actual  occupancy  costs is  attributable  to a
reduction in the number of units operating during the period.

      Depreciation and Amortization Expense

      Depreciation  and amortization  expenses  decreased as a percentage of net
restaurant sales to 2.7% in fiscal 1999 from 8.3% in fiscal 1998. These expenses
decreased to $44,096 in fiscal 1999 from $314,017 in fiscal 1998.  This decrease
is primarily  attributable  to the reduction in the number of restaurants  which
were in operation during fiscal 1999.

      General and Administrative Expenses

      General and administrative expenses increased to $2,812,917 in fiscal 1999
from  $1,279,831 in fiscal 1998.  This increase is  attributable to a $1,075,000
charge  incurred  for the  issuance  of  warrants  to Mr.  Frank  and  increased
professional fees.

      Interest Expenses

      Interest  expense  decreased  to $175,248 in fiscal 1999 from  $261,276 in
fiscal  1998.   This  decrease   resulted  from  the  reduction  of  outstanding
indebtedness   attributable  to  debt  conversions,   principal  reductions  and
forgiveness of debt associated with the private  placement of Series B Preferred
Stock.

Loss of Closure of Restaurant Sites and Impairment Charges

      The  loss on  closure  of  restaurant  sites  and  impairment  charges  is
attributable  to: (1)  pursuant  to the March  1998  agreement  to  acquire  the
Ottomanelli Group,  additional  consideration,  due to anti-dilution  provisions
contained in the agreements,  common stock was payable to the Ottomanelli  Group
shareholders,  as a result of the private placement. In February 1999, 5,000,000
shares of common stock were issued  pursuant to such  anti-dilution  provisions,
which  included a maximum  addition  which was met. As the  Company  recorded an
impairment  charge in fiscal 1998 relating to the  termination of the operations
of the  Ottomanelli  restaurants,  the fair  value of the common  stock  issued,
$250,000  was  recognized  as a  further  impairment  loss in  1999.  (2) A note
receivable of $230,000, which was received as partial consideration for the sale
of the Company's  Fairfield  facility,  was exchanged  with a value  assigned of
$115,000 in partial  satisfaction  of a $425,000  note payable and an additional
$115,000 loss on restaurant closure was recognized in 1999.

Litigation Award

      In August 1998, a jury awarded a verdict in the amount of $625,000 against
various defendants,  including the Company and its former Chairman.  On November
20, 1998,  the Court set aside the jury's  verdict as to all counts  against the
Company  except for  plaintiff's  claim for  negligence  per se and  accordingly
reduced the jury's award to  $225,000.  The Company has recorded a charge in the
1999  Statement of Operations of $225,000 for the litigation  award.  The jury's
award is  currently  on appeal by the Company,  and  plaintiff  has appealed the
Court's  decision  to set aside a portion of the jury's  verdict  and reduce the
award.  There are also potential claims of  indemnification  by other defendants
against the Company in the event the plaintiff's appeal is successful.

Extraordinary Gain

      The Company has recorded an extraordinary  gain on the forgiveness of debt
of $512,429 in 1999,  principally  resulting from a series of debt  satisfaction
agreements associated with the Company's private placement of Series B Preferred
Stock and related settlements with trade creditors.

Subsequent Events

     On July 2, 1999, the Company sold an additional  2,000 shares of its Series
B Preferred Stock for a value of $50,000 as part of its Offering.

     On  September  9, 1999,  the  Company  formally  changed  its name with the
appropriate authorities to Spencer's Restaurants, Inc.
(symbol: "SPST") from The Rattlesnake Holding Company Inc. (symbol: "RTTL").

      In September  1999, the Company  finalized its agreement with the landlord
of its previously  closed  restaurant in Flemington,  New Jersey.  The agreement
completely  satisfied all remaining  obligations for past due rents, real estate
taxes,  utilities and outstanding $39,998 note payable. The Company assigned the
liquor  license in  satisfaction  of the note payable and issued 4,660 shares of
Series  B  Preferred  Stock  with  a  valuation  of  $116,500  to  complete  the
settlement.

      In September 1999, the holders of a majority of the issued and outstanding
shares of the  Company's  common  stock by written  consent in lieu of a meeting
pursuant to Delaware Law adopted an option plan  providing for  incentive  stock
options and non-incentive  stock options for employees and non-employees,  under
which  options may be granted for a total of  25,000,000  shares of common stock
and adopted an option plan for the members of the Board of Directors under which
options may be granted for a total of 10,000,000 shares of common stock.

      In September 1999, the Company paid $198,846 of dividends to the preferred
shareholders of record by issuing 7,954 additional  shares of Series B Preferred
Stock in lieu of cash payments.

Fiscal Year Ended June 28, 1998 as Compared
with Fiscal Year Ended June 29, 1997

      Net  restaurant  sales  decreased  52.1% to $3,761,300 for the fiscal year
ended June 28, 1998 from  $7,851,950  for the twelve months ended June 29, 1997.
The decrease in net restaurant sales resulted from the closing of the Fairfield,
Connecticut,  White Plains and Yorktown Heights,  New York restaurants in fiscal
1997. For the fiscal year ended June 28, 1998, the Company  generated a net loss
of $3,236,039 as compared to a net loss of $4,797,857  for the fiscal year ended
June 29, 1997, a decrease of  $1,561,818.  The  decreased  loss was  principally
attributed to the modified expansion and operating strategy adopted by the Board
of Directors in January of 1997.

      Restaurant  operating  losses were $173,614 for the fiscal year ended June
28, 1998 as compared with $136,256 for the fiscal year ended June 29, 1997. This
decrease in operating losses was principally  attributable to the implementation
of the Company's Cost Reduction  Plan and closure of  unprofitable  restaurants.
Restaurant  salaries and benefits were reduced as a result of a reduction in the
number of personnel being reduced.  Furthermore,  depreciation  and amortization
reduced as the number of operating restaurant facilities was reduced.

      Restaurant Sales

      Gross  restaurant  sales  decreased 53% to $3,888,643  for the fiscal year
ended June 28, 1998 from $8,265,474 for the fiscal year ended June 29, 1997. The
decrease in restaurant  sales  resulted from the decrease in number of operating
restaurants  during the fiscal year 1998  period,  the  closure of the  Danbury,
Connecticut  restaurant,  and lack of working capital to adequately maintain and
provide the restaurant operations. Store sales for comparable periods for fiscal
year ended June 28, 1998 decreased $897,008.

      Promotional Sales

      Promotional  sales  decreased from $413,524 for fiscal year ended June 29,
1997 to  $127,343  for  fiscal  year  ended  June 28,  1998.  This  decrease  is
attributed  to a reduction in direct mail  advertisement  incentives  and closer
controls of in-house manager  promotions.  Promotional sales have decreased as a
percentage  of gross  sales in fiscal year 1998 to 3.3% from 5.0% in fiscal year
1997.  This decrease as a percentage of sales is the result of Corporate  policy
to reduce promotional sales.

      Food and Beverage Costs

      Food  and  beverage  costs  increased  slightly  as a  percentage  of  net
restaurant  sales at 32.6% in fiscal  year  1998 and 31.1% in 1997.  The cost of
food and beverage  sales  decreased to $1,225,982 for the fiscal year ended June
28, 1998, as compared with  $2,443,860  for the fiscal year ended June 29, 1997.
The slight  increase is due to menu  changes,  price  increases  and the loss of
purchasing  efficiencies based on fewer restaurants in operation.  This decrease
as a percentage  of sales is the result of the  beneficial  effects of clustered
marketing efforts and shared costs among all of the Company's restaurants.

      Restaurant Salaries and Fringe Benefits

      Restaurant salaries and fringe benefits,  which consist of direct salaries
of restaurant  managers,  hourly  employee  wages and related  fringe  benefits,
decreased to  $1,322,119  for the fiscal year ended June 28, 1998 as compared to
$2,792,622  for  the  fiscal  year  ended  June  29,  1997.   This  decrease  is
attributable  to the  operation of fewer  restaurants  during  fiscal 1998. As a
percentage  of net sales,  these  costs  decreased  to 35.2% in fiscal 1998 from
35.6% in fiscal 1997,  principally  due to the  implementation  of the Company's
cost  reduction  plan under  which it reduced  restaurant  management  and staff
during the fourth quarter of fiscal year 1997.

      Occupancy and Related Expenses

      Occupancy and related expenses, which include linen, repairs, maintenance,
utilities,  rent,  insurance and other occupancy related expenses,  decreased to
$1,072,796  for the  fiscal  year ended June 28,  1998 from  $2,025,198  for the
fiscal year end June 29, 1997. As a percentage of net  restaurant  sales,  these
costs  increased to 28.5% in fiscal 1998 from 25.8% in fiscal 1997. The increase
as a percentage  of sales can be  attributed  primarily to the costs  associated
with the  maintenance  of the Fairfield  restaurant  which closed in fiscal year
1997 and which was not sold until March 24, 1998.

      Depreciation and Amortization Expense

      Depreciation  and amortization  expenses  decreased as a percentage of net
restaurant  sales to 8.3% for the fiscal  year ended June 28, 1998 from 9.3% for
the fiscal  year end June 29,  1997.  These  expenses  decreased  to $314,017 in
fiscal year ended June 28, 1998 from  $726,526  for the fiscal year end June 29,
1997. This decrease is primarily  attributable to the reduction in the number of
restaurants which were in operation during fiscal year 1998.

      General and Administrative Expenses

      Selling,  general and  administrative  expenses decreased to $1,279,831 in
fiscal year ended June 28, 1998 from $2,715,293 for the fiscal year end June 29,
1997. As a percentage of net sales, selling, general and administrative expenses
increased from 34.6% in 1997 to 34.0% in 1998. These reductions in expense are a
direct result of the Company's implementation of its cost reduction plan.

      Interest Expenses

      Interest expense  increased to $261,276 for the fiscal year ended June 28,
1998 from $172,886 for the fiscal year end June 29, 1997. This increase resulted
from  additional  borrowing  by the  Company  and the  increased  interest  rate
relating to the extension of the Series C Notes payable.

Loss of Closure of Restaurant Sites and Impairment Charges

      In fiscal 1998, the Company performed a further analysis of historical and
projected operating results,  which reflected a pattern of historical  operating
losses and negative  cash flow, as well as future  projected  negative cash flow
and  operating   results  for  fiscal  1999  for  its   Flemington   restaurant.
Accordingly,  the Company  recorded an impairment  charge for this restaurant to
write-down  the impaired asset of $558,282 in fiscal 1998 and  contemplated  the
future closure based upon future operating results.
The restaurant was subsequently closed in November 1998.

      On June 22, 1998, the Company closed its Danbury, Connecticut facility and
subsequently lost its tenancy pursuant to a foreclosure action. Accordingly, the
Company recognized a loss of $270,426 in fiscal 1998 relating to the closure.

      In fiscal 1998,  Company  management  concluded that the operations of the
former  Ottomanelli Group were  inconsistent with the Company's  operating plans
and were  terminated  in fiscal 1998,  including  the  operations of its two New
Jersey  restaurants.  Accordingly,  the  Company  concluded  that  the  goodwill
relating to the  acquisition  was impaired and recorded an impairment  charge of
approximately $436,000 in fiscal 1998.

      In fiscal  1998,  the  Company  recorded  an  additional  loss of  $88,559
relating to the ultimate sale of the Fairfield,  Connecticut  location closed in
June 1997 and an additional  loss of $55,725  relating to the Lynbrook  facility
closed in September 1997.

Seasonality and External Influences
on Quarterly Results

      The Company's sales and earnings  reflect the seasonality of the business.
Quarterly  results have been and, in the future are likely to be,  substantially
affected by the timing of new restaurant openings.  Because of the impact of new
restaurant openings,  results for any quarter are not necessarily  indicative of
the results  that may be  achieved  for a full fiscal year and cannot be used to
indicate financial performance for the entire year.

Recent Accounting Announcements

         In April 1998, Statement of Position 98-5 ("SOP 98-5"),  "Reporting the
Cost of Start-up  Activities," was issued. SOP 98-5 requires that costs incurred
during  start-up  activities,   including  pre-opening  costs,  be  expensed  as
incurred.  The Company  will adopt SOP 98-5 in the first  quarter of fiscal 2000
and  management  does not  believe  that the  adoption  of SOP 98-5  will have a
material impact on the Company's financial position or results of operations.

         In June  1997,  the  FASB  issues  Statement  131,  "Disclosures  about
Segments of an Enterprise and Related  Information",  effective for fiscal years
beginning  after  December 15, 1997.  This Statement  establishes  standards for
reporting  information about operating  segments in annual financial  statements
and requires selected  information about operating segments in interim financial
reports  issued to  shareholders.  It also  establishes  standards  for  related
disclosures  about products and services,  geographic areas and major customers.
Operating  segments  are  defined as  components  of an  enterprise  about which
separate financial  information is available that is evaluated  regularly by the
chief  operating  decision  maker in deciding  how to allocate  resources an din
assessing performance. This Statement requires reporting segment profit or loss,
certain specific revenue and expense items and segment assets.  It also requires
reconciliations of total segment revenues,  total segment profits or loss, total
segment assets and other amounts disclosed for segments to corresponding amounts
reported in the consolidated  financial  statements.  Restatement of comparative
information  for earlier  periods  presented  is required in the initial year of
application.  Interim  information  is not  required  until the  second  year of
application, at which time comparative information is required. The Company does
not believe that adoption of the Statement will have a significant impact on the
financial  statements  disclosures.  The  Company  will  adopt  this  accounting
standard effective in fiscal 1999, as required.

         In June 1998,  Statement of  Financial  Accounting  Standards  No. 133,
"Accounting  for  Derivative  Instruments  and Hedging  Activities"  ("Statement
133"),  was issued which is effective for fiscal years  beginning after June 15,
2000.  Statement 133 standardizes the accounting for derivative  instruments and
requires that all derivative  instruments be carried at fair value.  The Company
has not  determined  the impact that  Statement  133 will have on its  financial
statements  and believes that such  determination  will not be meaningful  until
closer to the date of initial adoption.

Liquidity and Capital Resources

      The Company has a long  history of losses  which has  depleted its capital
resources  and  has  resulted  in the  incurrence  of a  significant  amount  of
indebtedness.  Without  additional  funds,  the Company will have to abandon its
long  term  plans for the  Spencer's  concept  development  and the  opening  of
additional  restaurants,  and  drastically  reduce its corporate  overhead.  The
Company  estimates  that the financing  obtained at the Offering will enable the
Company to effect some expansion and to operate through July 2000.  There can be
no  assurance  that the Company  will have  adequate  resources  after such time
unless it conducts profitable operations and/or obtains additional financing, of
which there can be no assurance.

      The Company's cash position  increased to $2,337,675 during the year ended
June 30, 1999, principally as a result of the proceeds of a private placement of
common  stock,  the  proceeds  from the sale of a  convertible  note,  which was
subsequently   converted  into  common  stock,   and  certain  bridge  financing
arrangements,  which were  partially  offset by operating  losses and  principal
repayments.

      On June 22, 1998, the Company closed its facility in Danbury,  Connecticut
for renovations;  lost its tenancy pursuant to a foreclosure  action against its
landlord by the mortgage lender; purchased the property for $1,350,000 cash from
the prior  landlord's  mortgage  lender  via its  wholly-owned  subsidiary,  106
Federal  Road,  Inc. on April 15,  1999;  106 Federal  Road,  Inc.  leased it to
another Company wholly-owned subsidiary, Federal Road Restaurants, Inc. on April
15, 1999; the Company plans to mortgage its purchase.

      On July 2, 1998, the Company entered into a contract for the purchase of a
restaurant  facility in New York City for $400,000 in a combination  of cash and
notes. The Company ultimately chose to not purchase this property.

      On July 3, 1998, the Company entered into a contract for the purchase of a
restaurant  facility in Greenwich,  Connecticut for $400,000 in a combination of
cash and notes. The Company ultimately chose to not purchase this property.

      In August 1998,  the Company  issued a sixty day  convertible  note in the
principal  amount of $100,000 at an interest rate of 8% to an investment bank in
consideration for professional  services  rendered.  In February 1999, such note
was satisfied by conversion into Company equity.

      During the quarter ended  September 30, 1998,  the Company  privately sold
1,100,000  shares of its  common  stock at $.15 per share  for an  aggregate  of
$165,000. In connection with this sale, the placement agent received warrants to
purchase 750,000 shares of the Company's common stock at $.15 per share.

      In October 1998, a noteholder of a $100,000 remaining  outstanding balance
from a $500,000  convertible  note due  September 4, 1997,  with unpaid  accrued
interest of  approximately  $90,000,  accepted common stock with a fair value of
$100,000  in  exchange  for  the  forgiving  of  all  outstanding   obligations.
Accordingly, the Company has recorded an extraordinary gain of $88,950 in fiscal
1999.

      Between  October 1998 and December 1998, the Company  entered into private
financing  arrangements  with three  individuals  to provide  $150,000 of bridge
financing  at 16%  interest  per  annum,  plus  warrants,  with due dates of the
earlier of the closing of the  proposed  private  placement or ninety (90) days,
respectively.  These debts were  satisfied by payment of cash and  conversion to
Company equity at the initial closing of the Offering.

     In December 1998, certain management  personnel deferred a portion of their
salary pending completion of the Offering. This debt was satisfied by payment of
cash and conversion to Company equity at the initial closing of the Offering.

      In  connection  with the private  placement,  the Company  sold 236,279 of
Series  B  Preferred  Stock  at $25 per  share,  generating  gross  proceeds  of
$5,906,975.  As part of the private placement,  noteholders,  including $293,332
Series C  subordinated  notes  payable  matured  on  August  6,  1997,  of which
noteholders with principal balances  aggregating  $62,499 extended the repayment
date to December 15,  1997,  $425,000  note payable  matured on January 2, 1997,
$11,709 note payable matured in February 1998,  $190,000 note payable matured on
December 31, 1997,  $150,000  notes  payable  matured on May 31, 1998,  $270,828
Series B  subordinated  notes  payable due July 2, 2000,  $50,000  notes payable
matured on October 31, 1998,  $100,000  note payable  matured on August 31, 1998
and  $150,000  notes  payable  matured on  February  1, 1999,  such  obligations
aggregating  $1,640,869 and all of which were in default,  including accrued and
unpaid  interest  of  approximately  $428,500,  entered  into a  series  of debt
satisfaction agreements,  whereby in exchange for cash payments, the issuance of
2,200,000  shares of common  stock  with a fair  value of $0.05 per  share,  the
issuance of 29,645  shares of Series B  Preferred  Stock at $25 per share and to
the mortgage  holder of the Fairfield  facility,  a discounted  note  receivable
arising from the sale of the  Fairfield  property with a fair value of $115,000,
all of the  above-mentioned  indebtedness was  extinguished.  Additionally,  the
Company  entered  into  a  series  of  settlement  agreements,  whereby  various
creditors accepted cash payment of $84,811 and 446,714 shares of common stock in
exchange  for  the  release  of  trade   obligations.   As  a  result  of  these
transactions, the Company recognized an extraordinary gain on the forgiveness of
debt of $423,479 in fiscal 1999.

      In connection with this financing,  the holders of 56,500 shares of Series
A  Preferred  Stock  exchanged  their  holdings  for  55,370  shares of Series B
Preferred Stock and waived the payment of accumulated dividends of $259,545.

      The preferred  shares will be convertible,  at the option of the holder at
any time after November 1999, at the conversion  price  initially equal to $0.05
per share of common stock.  The conversion rate will be reduced by 10% per month
for each month the Company  fails to comply with its  obligation  to process,  a
registration statement.

      The conversion  price is subject to the adjustments on the terms set forth
in the Certificate of Designation.  The  outstanding  preferred  shares shall be
converted,  with no action  on the part of the  holder,  if,  at any time  after
February  2000,  the common stock into which the same is converted is registered
under the  Securities  Act and the  closing  bid price of the  common  stock for
twenty  consecutive  trading  days is at least four times the  conversion  price
($0.20 based on the initial conversion price of $0.05).

      Holders of the  preferred  shares are entitled to receive,  semi-annually,
dividends  at the rate of 8% per annum  before  any  dividends  may be paid with
respect to the Common Stock,  which shall be paid in cash or preferred shares at
the election of the Company. If there is failure to pay dividends, the Placement
Agent, on behalf of such holders, has the right to designate one director to the
Company's  Board.  In  addition,  if  the  Company  fails  to  comply  with  its
obligations to file and process a Registration Statement, the dividend rate will
increase to 14% per annum from issuance.

      At June 30, 1999, the following  obligations  are past due and in default;
$18,750 of Series C subordinated notes payable, matured in August 1997, a $2,089
subordinated note payable matured in August 1996 (the Company has been unable to
locate  either  noteholder);   and  a  $15,000  note  payable  relating  to  the
acquisition of a lease (subsequently satisfied).

      At June 30, 1999,  the Company had  available a net  operating  loss carry
forward  (NOL) for  Federal  and State  income  tax  purposes  of  approximately
$17,331,000, which are available to offset future taxable income, if any, before
2013.  In accordance  with Section 382 of the Internal  Revenue Code of 1986, as
amended,  a change in more than 50% in the  beneficial  ownership of the Company
within a three-year period (an "Ownership  Change"),  will place an annual limit
on the  Company's  ability to utilize its existing NOL carry  forwards to offset
taxable  income in  current  and  future  periods.  The  Company  believes  that
ownership changes have occurred and will cause the annual  limitations to apply.
The Company has not determined  what the maximum annual amount of taxable income
is that can be reduced by the NOL carry forwards.

      Management  believes that the finalization of its Cost Reduction Plan, the
launch  of its new  restaurant  concept  Spencer's  and its  $6,000,000  private
placement financing will enable the Company to achieve profitable operations and
restore liquidity.  However,  no assurance can be made regarding  achievement of
the goals outlined in the strategic plan as outlined above, or if such plans are
achieved, that the Company's operations will be profitable.

Inflation

      The  impact  of  general  inflation  on the  Company's  business  has been
insignificant  to date and the  Company  believes  that it will  continue  to be
insignificant for the foreseeable future.

Market Risk

      The Company is not subject to interest  rate risk,  as  substantially  all
borrowings  are fixed rate  obligations.  However,  the Company has  exposure to
commodity  risk,  including the  dependence on the rapid  availability  of food,
principally  steak and shrimp,  and fluctuations in price of these  commodities.
Although  the  Company  believes  that  its  relationships  with  suppliers  are
satisfactory  and that  alternative  sources are available,  the loss of certain
suppliers, or substantial price increases,  could have a material adverse effect
on the Company.

Year 2000 Modifications

      The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable  year. Any of the Company's
computer programs that have  date-sensitive  software may recognize a date using
"00" as the year 1900 rather than the year 2000.  This could  result in a system
failure or miscalculations causing disruptions of operations,  including,  among
other  things,  a temporary  inability  to process  certain  transactions,  send
invoices, or engage in similar normal business activities.

      The Company does not believe the Year 2000 Issue will significantly affect
its operations since it is in a "re-start" mode with respect to its business and
uses little or no computer equipment outside of its accounting programs.

      Based on  recent  assessments,  the  Company  determined  that it will not
require  significant  modifications  of its  hardware  or software so that those
systems  will  properly  utilize  dates beyond  December  31, 1999.  The Company
presently  believes  that  with  little  or no  modifications  to  its  existing
software, the Year 2000 Issue can be mitigated.

      The Company's  plan to resolve the Year 2000 Issue  involves the following
four phases: assessment,  remediation,  testing, and implementation.  As of June
30, 1999, the Company has fully completed its assessment of all internal systems
that could be significantly  affected by the Year 2000. The completed assessment
indicated that most of the Company's significant  information technology systems
will  not be  significantly  affected,  particularly  the  general  ledger,  and
inventory  systems.  The Company does not believe that the Year 2000  presents a
material  exposure  as it relates to the  Company's  products  or  services.  In
addition,  the  Company  has  begun to  gather  information  about the Year 2000
compliance  status  of its  external  agents  and  continues  to  monitor  their
compliance.  To date, the Company is not aware of any external agent with a Year
2000 issue that would  materially  impact the Company's  results of  operations,
liquidity, or capital resources. The Company has requested from First Union bank
an assessment  of the extent of the bank's Year 2000  compliance.  However,  the
Company has no means of ensuring that  external  agents will be Year 2000 ready.
The inability of external agents to complete their Year 2000 resolution  process
in a timely  fashion  could  materially  and adversely  impact the Company.  The
effect of non-compliance by external agents is not determinable.

      In the event the  Company's  computer  systems  are  materially  adversely
affected by the Year 2000 issue, the Company's  business and operations could be
materially adversely affected by disruptions in the operations of other entities
with which the Company  interacts.  However,  the Company believes that the most
likely worst case scenario is that there will be some  localized  disruptions of
systems  that will affect  individual  facilities  or services  for a short time
rather than systematic or long-term problems  affecting its business  operations
as a whole.  In such  event,  the  Company  has  contingency  plans for  certain
critical  applications  and is working on plans for  others.  These  contingency
plans  involve,  among other  actions,  increasing  inventories,  and  adjusting
staffing strategies.

ITEM 7. FINANCIAL STATEMENTS.

The  information  required  by this item is  incorporated  by  reference  to the
Company's financial statements. See Pages F-1 to F-30.

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

   None.

PART III

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

      The following table sets forth certain information  concerning each of the
executive officers,  directors and advisors as of June 30, 1999 (See "Agreements
with New Management" below for information on contractual commitments related to
certain of these persons).  The Company's  officers are elected to serve in such
capacities until the earlier to occur of the election and qualification of their
respective successors or until their respective deaths, resignations or removals
by the Company's board of directors from such position. The Company does not pay
any  compensation  to any person for serving,  as such,  as a director.  Current
officers and directors include:

      NAME                        AGE                          POSITIONS

Kenneth Berry                      46                President, CEO and Director

Stephan A. Stein                   47                Consultant, Secretary and
                                                     Director

Nicolo Ottomanelli                 57                Senior Vice President and
                                                     Director

Frank T. Ferro                     47                Vice-President, CFO and
                                                     Treasurer
-------------------------

Shelly Frank*                      54                Consultant and Director

A.G. (Sandy) Rappaport*            50                Consultant and Director

          * Messrs.  Frank and Rappaport are  anticipated  to join the Company's
Board of  Directors,  with Mr. Frank to serve as  Chairman,  at such time as the
Company  finalizes its officers and directors  insurance and upon the resolution
of certain other matters. See "Agreements with New Management".

          Kenneth Berry From 1997 until  February 1999, Mr. Berry was a Director
of  Operations  for Briad Group,  a $75 million per year  multi-unit  restaurant
operations  company in the Metro-New York area operating  primarily  Wendy's and
TGIF Friday's  restaurants.  From 1989 to 1996, Mr. Berry was a principal in the
Kerry  Organization,  which  acquired  and operated  Roy Rogers  Restaurants  in
Connecticut,  during  which  period he  served  on the  Board of the Roy  Rogers
National Franchisee Advisory Council.  Prior to that, and from 1985 to 1989, Mr.
Berry was a Regional  Vice-President  of Operations for KFC National  Management
Company, a PepsiCo subsidiary.  Mr. Berry attended Pace University.

          Stephan A. Stein Mr.  Stein has been a Director of the  Company  since
1996 and served as its Acting Chairman from inception of the 1997 Cost Reduction
Plan  until the  Initial  Closing  of the  Offering.  Mr.  Stein was a  Managing
Director of the Corporate Finance Department of Commonwealth  Associates,  until
May 31, 1999. Prior to joining Commonwealth  Associates,  and from 1977 to 1996,
Mr.  Stein had broad  based  transaction  and  business  management  experience,
initially  as a  practicing  attorney  in New  York  City  and  thereafter  as a
principal of various  food-service  related companies involved in manufacturing,
distribution,  retailing and franchising, both domestically and internationally.
Mr. Stein has a B.A. degree in economics from Ohio State  University and a Juris
Doctor degree from The Vermont Law School.

          Nicolo Ottomanelli For more than forty years, Mr. Ottomanelli has been
engaged in the food  business in New York as a member of  Ottomanelli  Bros.,  a
century old retail meat  purveyor,  and has  operated a number of casual  dining
restaurants  under the  Ottomanelli's  Cafe(R) name. He has also operated  steak
restaurants and is the founder of the Ottomanelli's Cafe franchising  operation,
which is now owned by the Company.

          Frank T. Ferro From 1997 until  February  1999,  Mr.  Ferro was
employed by Deloitte and Touche,  LLP as a special  projects  financial and tax
accountant.  From 1995 to 1997,  Mr. Ferro was a financial and tax  consultant
for Royal Par Industries.  From 1991 to 1994, Mr. Ferro was CFO for CAT
Entertainment,  a New York City based restaurant  turnaround company.
Mr. Ferro is a CPA and has B.S. and MBA degrees from St. John's University.

          Shelly  Frank  During the past 10 years,  Mr. Frank has been a private
investor and, among other things, a consultant to the restaurant industry.  From
1977 to 1986, Mr. Frank was Chairman and CEO of Chi-Chi's,  Inc. a casual dining
restaurant  chain that  established  the Mexican food sit-down  segment and as a
public  company  expanded   nationally  from  one  location  to  more  than  200
restaurants  and yearly  revenues in excess of $500  million per year during his
tenure.  Prior to 1977,  Mr.  Frank  held  various  executive  positions  in the
restaurant  industry with Kentucky Fried Chicken,  Burger King International and
General Mills. Mr. Frank is a past recipient of the Wall Street Transcript's CEO
of The Year Award as well as the MUFSO (Multi-Unit Food Service Operator) Golden
Chain Award given by the Nations Restaurant News. Mr. Frank has a B.S. degree in
accounting  from the University of New Haven and attended the MBA program at the
University of Miami, Florida.

           A.G.   (Sandy)   Rappaport  Mr.  Rappaport  is  currently  a
co-owner  and development  partner of R&A Food Services,  L.P., the master
franchise of Boston Market for the State of Florida and a development  partner
of  Einstein's  Bros. Bagels, for which he has opened more than 150 locations
combined.  Mr. Rappaport was president of the first  franchise  and a
development  partner of the Outback Steakhouse  concept.  Mr. Rappaport also
engages in investment  activities.  Mr. Rappaport  has a Masters  degree from
the  University of South Florida and is an Advisory Board Member of the
University as well.

Committees of the Board of Directors

      The Company's  Board of Directors  currently has no committees,  though it
anticipates the formation of an Audit Committee and Compensation Committee prior
to the next annual meeting of stockholders.

Section 16(a) Compliance

      Section  16(a)  of the  Securities  Exchange  Act  of  1934  requires  the
Company's officers and directors and persons who own more than ten (10%) percent
of a registered  class of the Company's  equity  securities  (collectively,  the
"Reporting  Persons") to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and to furnish the Company with copies of
these reports.  Based solely on the Company's review of the copies of such forms
received by it during its fiscal year ended June 28, 1998, the Company  believes
that all  filing  requirements  applicable  to the  Reporting  Persons  were not
complied with by its executive  officers and directors during such period. As of
June 30, 1999, the Company is in compliance with all Section 16 requirements and
believes its current management and directors to be in compliance.

ITEM 10. EXECUTIVE COMPENSATION.

The following table sets forth as of June 30, 1999 the cash compensation paid by
the  Company,  as well  as any  other  compensation  paid  to or  earned  by the
President of the Company and those executive officers  compensated at or greater
than $100,000 for services  rendered to the Company in all capacities during the
three most recent fiscal years:

<TABLE>

Summary Compensation Table
<S>                              <C>
    Name of Individual                                                           Stock            Long-Term
  and Principal Position         Year           Salary          Bonus        Compensation       Compensation
---------------------------- ------------- ----------------- ------------- ------------------ ------------------

Kenneth Berry,                   1999         $29,535        $30,000             ---                 ---
 President                       1998*        $   ---            ---             ---                 ---
                                 1997*        $   ---            ---             ---                 ---

Nicolo Ottomanelli,              1999        $119,992            ---           $75,236               ---
 Senior Vice President           1998        $ 69,230            ---             ---                 ---
                                 1997**      $    ---            ---             ---                 ---

Stephan A. Stein,                1999         $90,550            ---          $114,867               ---
 Secretary                       1998         $53,519            ---             ---                 ---
                                 1997         $86,250            ---             ---                 ---
-------------
     *  Mr. Berry was not employed by the Company in fiscal years 1998 and 1997.
     ** Mr. Ottomanelli was not employed by the Company in fiscal year 1997
</TABLE>


Executive Compensation

         The  following  table  sets  forth  information  with  respect  to  the
compensation of the Company's officers for the fiscal year ended June 30, 1999:

Name                                                        Compensation
Kenneth Berry (1)                                                $59,535

Nicolo Ottomanelli (2)                                          $195,238

Stephan A. Stein (3)                                            $205,417

Frank Ferro (4)                                                  $12,633

Louis Malikow(5)                                                 $56,500



1.   Kenneth Berry is being compensated under a three year employment  agreement
     which commenced  March 31, 1999,  providing for payments of $3,958.33 twice
     monthly.  In addition,  a signing  bonus of $30,000 was provided as part of
     his compensation package.
     See "Agreements with New Management below".

2.   Nicolo  Ottomanelli was compensated  under an employment  agreement entered
     into in March  1998 and  terminating  in 2002  pursuant  to which he was to
     receive a salary of $150,000 per annum. The Company and Nicolo  Ottomanelli
     amended his  employment  agreement  effective  February  1999 to reduce the
     fixed  compensation to $85,000,  to make him a participant in the Company's
     incentive  bonus program and to provide a payment of $25,000 in early 1999.
     Mr.  Ottomanelli  received  payments  of  $119,992  during  fiscal 1999 for
     current and deferred  salary.  The Company also issued  1,504,720 shares of
     common stock with a value of $75,236 to satisfy other  deferred  salary not
     compensated for in cash.

3.   A corporation wholly owned by Mr. Stein, SAS Ventures,  Inc. entered into a
     1996 consulting agreement with the Company under which it is to provide his
     services to the  Corporation.  The  agreement was amended in March 1997 and
     May 1998 and expires in 2001.  The  consulting  fee under the  agreement is
     $6,250 per month.  In addition,  Mr. Stein was granted the common stock and
     warrants described in "Security  Ownership of Certain Beneficial Owners and
     Management".  Mr. Stein received approximately $90,550 in cash payments for
     the current and deferred  portion of his consulting  contract.  The Company
     issued  500,000 shares of common stock with a value of $25,000 to Mr. Stein
     for services  rendered.  Mr. Stein also  received  approximately  1,664,000
     shares of common  stock with a value of $83,200 to  compensate  him for his
     deferred  portion of consulting  fees not paid in cash.  The Company issued
     warrants in the amount of $6,667 as part of his consulting agreement.

4.   Frank  Ferro is being paid under a three year  employment  agreement  which
     calls for an annual salary of $52,000 payable for year one. See "Agreements
     with New Management below".

5.   Mr. Malikow,  a Director since 1995,  acted as Co-CEO with Mr. Stein during
     the 1997 Cost  Reduction  Plan period  authorized by the Board of Directors
     and received cash and warrants in consideration of services  provided.  Mr.
     Malikow resigned his position with the Company effective February 17, 1999.
     Mr. Malikow received 880,000 shares of common stock with a value of $44,000
     and $12,500 in cash.

Agreements with New Management

     In fiscal  1999,  the Company  entered into a three year  advisory  service
agreement,  as revised,  with Mr. Shelly Frank.  Mr. Frank's  agreement does not
obligate  him to also serve as a director or Chairman of the Board of  Directors
until the  Company  obtains at least $10 million of  officer/director  liability
insurance and certain other conditions are satisfied.  Mr. Frank's  agreement is
terminable by Mr. Frank without recourse by the Company.  Mr. Frank will receive
no regular  compensation  but will be entitled to  participate  in the Company's
performance bonus plan. Mr. Frank may receive  consulting  compensation prior to
commencing  as Chairman of the Board of  Directors.  In addition,  Mr. Frank was
granted the warrant  described  in  "Security  Ownership  of Certain  Beneficial
Owners and Management".

      In  fiscal  1999,  the  Company  entered  into  a  three  year  employment
agreement,  as revised,  with Kenneth  Berry which  commenced on March 31, 1999,
providing for fixed  compensation of $95,000 a year, a signing bonus of $30,000,
participation in the Company's  performance  bonus plan, and receipt of $250,000
of term life insurance coverage. In addition,  Mr. Berry was granted the warrant
described in "Security Ownership of Certain Beneficial Owners and Management".

      In  fiscal  1999,  the  Company  entered  into  a  three  year  employment
agreement,  as revised,  with Frank T. Ferro providing for fixed compensation of
$52,000  in year one,  with a time  allowance  in year one to  complete  certain
projects,  and commercially  standard  compensation for full time services to be
determined for years two and three.  Mr. Ferro has also been granted  options to
purchase Common Stock as follows:  100,000 vesting at close of year one; 100,000
vesting  at close of year two;  100,000  vesting  at close of year  three at the
exercise price of $.05,  with  additional  options to purchase  200,000  shares,
exercisable at the close of each years two and three.

      In fiscal 1999,  the Company  entered into a three year  advisory  service
agreement  with A. G.  (Sandy)  Rappaport  providing  for  certain  consultative
services on an as need basis and providing for  compensation of $12,000 per year
plus the warrant described in "Security  Ownership of Certain  Beneficial Owners
and Management".

      The  performance  bonus  plan for senior  management  creates a bonus pool
based on the  yearly  targeted  number of  restaurant  openings,  the  aggregate
revenues and pre-tax (and pre-bonus)  income of the Company.  The plan initially
has a five year term.  The pool, if created,  would be allocated by the Chairman
of the Board, currently anticipated to be Shelly Frank, including to himself. It
is  anticipated  that the bonus pool could vary from a maximum of  approximately
$100,000 in the first year to $1,000,000  (or more) in the fifth year,  based on
meeting or exceeding targeted goals. There can be no assurance as to the size of
the bonus pool, if any, during any year of operations.

Limited Liability of  Directors and Executive Officers

      The Certificate of  Incorporation of the Company provides that the Company
shall indemnify to the fullest extent  permitted by Delaware law any person whom
it may indemnify thereunder,  which includes directors,  officers, employees and
agents of the Company.  Such indemnification  (other than as ordered by a court)
shall be made by the Company only upon a determination  that  indemnification is
proper in the circumstances  because the individual met the applicable  standard
of  conduct.  Advances  for  such  indemnification  may  be  made  pending  such
determination.  In addition,  the Certificate of Incorporation  provides for the
elimination,  to the extent permitted by Delaware law, of personal  liability of
directors to the Company and its stockholders for monetary damages for breach of
fiduciary duty as directors.

      Insofar as  indemnification  for liabilities  arising under the Securities
Act may be  permitted to  directors,  officers  and  controlling  persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised  that in the opinion of the  Securities  and  Exchange  Commission  such
indemnification  is against public policy as expressed in the Securities Act and
is,  therefore,  unenforceable.  In the event  that a claim for  indemnification
against such liabilities  (other than the payment by the Company of the expenses
incurred or paid by a director,  officer or controlling person of the Company in
the  successful  defense of any action,  suit or proceeding) is asserted by such
director,  officer or controlling person in connection with the securities being
registered,  the Company,  will, unless in the opinion of its counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction  the  question  of whether  such  indemnification  by it is against
public policy,  as expressed in the Securities  Act, and will be governed by the
final adjudication of such issue.

Stock Option Plans

         1994 Employees Stock Option Plan

         In December 1994, the Company  adopted the 1994 Employees  Stock Option
Plan (the "Employees Plan"),  which provides for the issuance of incentive stock
options  (ISO's) and  non-qualified  options  (Non-ISO's)  to  officers  and key
employees.  Up to  1,000,000  shares of the  Company's  common  stock  have been
reserved for issuance under the Plan. The Plan is currently  administered by the
Board of Directors of the  Company.  The term of the options is generally  for a
period of 5 years.  The exercise  price for  non-qualified  options  outstanding
under the Employees  Plan can be no less than 100% of the fair market value,  as
defined,  of the Company's  common stock at the date of the grant. For ISO's the
exercise  price  can be  generally  no less  than the fair  market  value of the
Company's  common  stock at the date of the  grant,  with the  exception  of any
employee  who  prior  to  the  granting  of  the  option,  is a 10%  or  greater
stockholder as defined, for which the exercise price can be no less than 110% of
the fair market value of the Company's common stock at the date of grant.  There
are  presently  approximately  1,000,000  shares  available for option under the
Employees  Plan.  The Company  anticipates  terminating  this plan during fiscal
2000.

         1994 Director Plan

         In December 1994, the Company adopted the non-Executive  Director Stock
Option Plan (the "Director Plan"),  which provides for the issuance of non-ISO's
to  non-executive  directors,  as  defined,  and members of any  advisory  board
established by the Company who are not full-time  employees of the Company.  The
Company has reserved  500,000  shares for issuance  under the  provisions of the
Director Plan. The Director Plan provides that each non-executive  director will
automatically  be granted an option to purchase  25,000  shares upon joining the
Board of Directors and 15,000  shares on each  December 1  thereafter,  provided
such person has served as a director for the 12 months immediately prior to such
December 1. The exercise price for options granted under the Director Plan shall
be 100% of the fair market value of the Common Stock on the date of grant. There
are presently  295,000 shares available for option under the Directors Plan. The
Company anticipates terminating this plan during fiscal 2000.

         1999 Stock Option Plan

         On April 18, 1999, the Board of Directors  approved the adoption of the
1999  Stock  Option  Plan  (the  "1999  Plan"),   subject  to  the  approval  of
stockholders  which was  obtained in  September  1999,  which  provides  for the
issuance of ISOs,  Non-ISOs,  and stock appreciation  rights to officers and key
employees  of the  Company.  Up to  25,000,000  shares  have been  reserved  for
issuance under the 1999 Plan, which is administered by the Board of Directors of
the  Company.  The term of the  options  is  generally  for a period of five (5)
years. The exercise price for Non-ISOs outstanding under the 1999 Plan can be no
less than 100% of the fair market value as,  defined,  of the  Company's  Common
Stock on the date of grant.  For ISOs,  the exercise  price can  generally be no
less than the fair market  value of the  Company's  Common  Stock at the date of
grant, without the exception of any employee who prior to the option grant, is a
10% or greater  stockholder,  as defined, for which the exercise price can be no
less than 110% of the fair market  value of the  Company's  Common  Stock at the
date of grant. There are presently no options granted under the 1999 Plan.

         1999 Non-Employee  Directors Stock Option Plan

         On April 18, 1999, the Board of Directors  approved the adoption of the
1999  Non-Employee  Directors  Stock  Option Plan (the "1999  Directors  Plan"),
subject to the approval of  stockholders  which was obtained in September  1999,
which provides for the issuance of  non-qualified  stock options to non-employee
directors  of the  Company.  Up to  10,000,000  shares  have been  reserved  for
issuance under the 1999 Directors  Plan,  which is  administered by the Board of
Directors of the Company.  The term of the options is generally  for a period of
five (5) years. The exercise price for options  outstanding  under the 1999 Plan
can be no less than 100% of the fair market value as, defined,  of the Company's
Common Stock on the date of the grant.  There are  presently no options  granted
under the 1999 Directors Plan.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The  following  table  sets  forth  certain  information  with  respect  to  the
beneficial  ownership of shares of Common  Stock as of June 30,  1999,  based on
information  obtained from the persons named below,  by (i) each person known to
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock,  (ii) each executive  officer and director of the Company,  and (iii) all
officers and directors of the Company as a group:



<PAGE>


Name and Address of                Amount and Nature of           Percentage****
Beneficial Owner**                 Beneficial Ownership***
--------------------------------------------------------------------------------
Kenneth Berry                        10,000,000 (1)                  25.3%


Nicolo Ottomanelli                    5,415,749 (2)                  18.1%


Joseph Ottomanelli                    4,271,029 (3)                  14.3%


Stephan A. Stein                      6,151,224 (4)                  18.1%


Frank T. Ferro                             (5)                         *


Shelly Frank*****                    45,000,000 (6)                  60.0%
16 Arrowhead Way
Weston, CT  06883


Andrew Silverman*****                 2,000,000                       6.7%


A.G. (Sandy) Rappaport*****           1,500,000 (7)                   4.8%
c/o Wellington Realty Advisors
11015 North Dale Mabry Highway
Tampa, FL  33618

Commonwealth Associates              15,650,000 (8)                  37.3%
830 Third Avenue
New York, New York 10022

Guy Snowden                           2,254,126 (9)                   7.5%
4080 Ibis Point Circle
Boca Raton, FL 33431


-----------------------------------------------------
All Directors and Officers
as group (5 Persons)                 66,566,973                      73.6%

*   Less than 1% of outstanding shares of Common Stock.
** Unless otherwise  indicated,  the beneficial owner's address is the principal
office of the Company.
*** The  securities  "beneficially  owned" by an  individual  are  determined in
accordance  with the  definition  of  "beneficial  ownership"  set  forth in the
regulations  of the Securities and Exchange  Commission.  Accordingly,  they may
include  securities  owned by or for,  among  others,  the spouse  and/or  minor
children of the  individual and any other relative who has the same home as such
individual, as well as other securities as to which the individual has or shares
voting or investment power or has the right to acquire under  outstanding  stock
options within 60 days after the date of this table. Beneficial ownership may be
disclaimed as to certain of the securities.
**** In computing the "Percentage of Class"  figures  as to  each  person,
there  is  added  to  the  numerator  and denominator,  for such person,  the
number of shares of Common Stock such person could acquire within 60 days by the
conversion of a convertible  security owned by such person or the exercise of an
option or warrant held by such person. This presentation  maximizes the
percentage of each person,  since it assumes that no other  holder of rights to
convert or  purchase  preferred  stock or warrants or notes is then  exercising
the same,  and often  results in a  combined  listing percentage  of  ownership
that exceeds  100%.
***** Not a director at June 30,
1999.

(1)  Includes  warrants  to  purchase  10,000,000  shares of Common  Stock at an
     exercise price of $.05.  Does not include  warrants to purchase  20,000,000
     shares of Common Stock at $.05 per share,  which are not exercisable within
     sixty (60) days.

(2)  Does not include any shares beneficially owed by Mr. J. Ottomanelli, Mr. N.
     Ottomanelli's  brother,  of which Mr. N. Ottomanelli  disclaims  beneficial
     ownership.

(3)  Does not include any shares  beneficially owned by Mr. N. Ottomanelli,  Mr.
     J. Ottomanelli's  brother, of which Mr. J. Ottomanelli disclaims beneficial
     ownership.

(4)  Includes  warrants  to  purchase  3,920,548  shares of  Common  Stock at an
     exercise price of $.05 per share.

(5)  Does not include  warrants to purchase up to 700,000 shares of Common Stock
     at an exercise price of $.05,  exercisable annually in one-third increments
     beginning after year one of his employment by the Company.

(6)  Includes warrant to acquire  45,000,000  shares of common stock at $.05 per
     share.

(7)  Includes  warrants granted in conjunction with Mr.  Rappaport's  consulting
     agreement. See "Agreements of New Management."

(8)  Includes  warrants  to  purchase  12,000,000  shares of Common  Stock at an
     exercise price of $.05.

(9)  Does not  include  54,126  shares of Common  Stock  owned by Mr.  Snowden's
     spouse, of which Mr. Snowden disclaims any beneficial  ownership.  Does not
     include 3,000 shares of Preferred B Shares owned by Mr. Snowden.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Certain Transactions

         Nicolo Ottomanelli

         In August 1997, Nicolo Ottomanelli and his brother, Joseph Ottomanelli,
entered into a Reorganization Agreement with the Company, whereby they agreed to
exchange the stock of certain  corporations  owned by them for certain shares of
Common Stock of the Company and certain warrants. This transaction was closed in
March 1998. After amendment to the transaction, the Ottomanellis transferred the
stock of (i) a corporation  which  franchises  Ottomanelli's  Cafe(R) and (ii) a
corporation  which  operated  two  restaurants  in  Paramus,  New Jersey  (since
closed),  for  a  total  of  approximately  6,975,000  shares  of  Common  Stock
(including  an estimated  4,152,750  shares of Common Stock issued on account of
the 55,370 Preferred Shares,  convertible into 6,921,250 shares of Common Stock,
exchanged  for  the  outstanding  shares  of  Series  A  Preferred  Shares).  In
accordance  with the  agreement,  Nicolo  Ottomanelli  and a designee  of Joseph
Ottomanelli  (who  has  since  resigned)  were  designated  directors,  and  the
Ottomanellis  received employment  agreements,  one of which has been terminated
and  the  other  of  which  has  been   modified   (see   "Management--Executive
Compensation").

         The  Ottomanellis  own the  outstanding  stock of a  corporation  which
licenses the name Ottomanelli's Cafe(R) to the Company. There is no license fee.

         The Ottomanellis  own the premises at which the Company's  offices were
located until December 1, 1998, and at which the Company occupied  approximately
600  square  feet of space as a  month-to-month  tenant at a rent of $2,200  per
month.  The  Company  believes  these  terms were at least as  favorable  to the
Company as could have been obtained from a non-affiliated person.  Following the
Initial Closing,  the Company  terminated this tenancy without penalty and moved
its offices to one of its restaurants.

         Stephan A. Stein

         Mr. Stein was an employee of the placement  agent in the Offering until
May 31, 1999. Commencing in March 1998, the placement agent raised approximately
$850,000  for the Company,  principally  by the sale of common  stock,  and to a
lesser extent, by the sale of notes with warrants.  The Placement Agent received
a commission of approximately $75,000 and warrants to purchase 750,000 shares of
common  stock at $0.15 per share for a term of five  years.  Commencing  October
1998,  the  placement  agent raised  approximately  $6,000,000  for the Company,
principally by the sale of Series B Preferred Stock, and to a lesser extent,  by
the sale of notes with  warrants.  The placement  agent received a commission of
approximately $650,000 and warrants to purchase approximately  30,000,000 shares
of common stock at $.05 per share for a term of five (5) years.

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a)

Exhibit No.       Description

3.1               Form of Restated Certificate of Incorporation of the
                  Registrant (1)

3.1.1             Designation of Preferred Stock (2)

3.1.2             Amendment to Certificate of Incorporation regarding
                  capitalization of Registrant

3.2               By-Laws (1)

4.1               Form of Common Stock Certificate (1)

4.2               Form of Series B Preferred Stock Certificate

10.1              1994 Employee Stock Option Plan (1)

10.2              1994 Non-executive Directors Stock Option Plan (1)

10.3              Employment Agreement with Stephan A. Stein (2)

10.3.1            Revised Employment Agreement with Stephan A. Stein

10.4              Lease Agreement with Jack Cioffi Trust ULWT dated April 15,
                  1996 together with Exhibits (2)

10.5              Form of Series C Note (2)

10.6              License Agreement by and between Ottomanelli Bros., Ltd. and
                  The Rattlesnake Holding Company, Inc. (3)

10.7              Convertible Subordinated Secured 18% Promissory Note dated
                  March 4, 1997, in favor of J.L.B. of Nevada, Inc.

10.8              Convertible Subordinated Secured 18% Promissory Note dated
                  March 4, 1997, in favor of Michael Lauer

10.9              Reorganization and Stock Exchange Agreement among The
                  Rattlesnake Holding Company, Inc. and Ottomanelli Brothers
                  west, Ltd., Ottomanelli's Cafe Franchising Corp., 34th St.
                  Cafe Associates Inc., Garden State Cafe Corp. (3)

10.10             Modification Agreement to the Reorganization and Stock
                  Exchange Agreement among The Rattlesnake Holding Company,
                  Inc. and Ottomanelli Brothers West, Ltd., Ottomanelli Cafe
                  Franchising Corp., 34th St. Cafe Associates, Inc., Garden
                  State Cafe Corp. and their shareholders, dated February 26,
                  1998 (3)

10.11             Amendment Agreement among The Rattlesnake Holding Company,
                  Inc. and Ottomanelli Brothers West, Ltd., Ottomanelli
                  Cafe Franchising Corp., 34th St. Cafe Associates, Inc.,
                  Garden State Cafe Corp., Nicolo Ottomanelli and Joseph
                  Ottomanelli, dated  April 27, 1998 (3)

10.12             Registration Rights Agreement dated February 26, 1997 (3)

10.13             William J. Opper Severance Agreement

10.14             Shelly Frank Consulting Agreement dated as of October 1998 (3)

10.15             Kenneth Berry Employment Agreement dated as of October 1998(3)

10.16             A.G. (Sandy) Rappaport Consulting Agreement dated as of
                  July 20, 1998 (3)

10.17             Frank Ferro Employment Agreement dated as of September 1998(3)

10.18             Stephan A. Stein Consulting Agreement dated as of May 1, 1998
                  (3)

10.18.1           Amendment to Stephan A. Stein Consulting Agreement dated as of
                  March 15, 1997 (3)

10.19             Nicolo Ottomanelli Employment Agreement dated as of
                  February 26, 1998 (3)

10.19.1           Amendment to Nicolo Ottomanelli Employment Agreement dated as
                  of October 1998 (3)

10.20             Form of Shelly Frank and Kenneth Berry Warrants (3)

10.21             Form of Investor Rights Agreement for Subscribers in Offering
                  (3)

10.22             Form of Warrant Issued to Commonwealth Associates in Offering
                  (3)

22                Subsidiary List (2)

27                Financial Data Schedule
------------------------

(1)  Previously  filed with the Commission  with the Company's  registration  on
     Form SB-2 (File No.  33-88486)
(2)  Previously  filed  with the  Company's
     10-KSB  for the year  ended  June 30,  1996
(3)  Previously  filed with the
     Company's report on Form 10-KSB for the year ended June 28, 1998.


(b) Reports on Form 8-K

         None.



<PAGE>




                                   Signatures

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                         Spencer's Restaurants, Inc.

                                      By:/s/ Kenneth Berry
                                         --------------------
                                         Kenneth Berry
                                         President, CEO


                                      By:/s/ Frank Ferro
                                         ------------------
                                         Frank Ferro
                                         Vice President, CFO, Treasurer


Dated: November 18, 1999

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  Registrant and in the capacities and on the
dated indicated.

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

                                       Senior
                                       Vice President
                                       and Director
/s/ Nicolo Ottomanelli
----------------------------------                           November 18, 1999
       Nicolo Ottomanelli


                                       Secretary and
/s/ Stephan A. Stein                   Director
----------------------------------                           November 18, 1999
        Stephan A. Stein


/s/ Kenneth Berry                      Director
----------------------------------                           November 18, 1999
          Kenneth Berry





<PAGE>




ITEM 7. FINANCIAL STATEMENTS.

                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
       (formerly The Rattlesnake Holding Company, Inc. And Subsidiaries )

                   Index to Consolidated Financial Statements


(a)      Report of Independent Auditors......................................F-2

(b)      Consolidated Balance Sheets as of
         June 30, 1999 and June 28, 1998.....................................F-3

(c)      Consolidated Statements of Operations
         for the Years Ended June 30, 1999
         and June 28, 1998 ..................................................F-4

(d)      Consolidated Statements of Stockholders'
         Equity for the Years Ended June 30, 1999
         and June 28, 1998...................................................F-5

(e)      Consolidated Statements of Cash Flows
         for the Years Ended June 30, 1999
         and June 28, 1998...................................................F-7

(f)      Notes to Consolidated Financial Statements..........................F-8







<PAGE>










----------------------------------
                                [KPMG LETTERHEAD]



Consolidated Financial Statements

June 30, 1999 and June 28, 1998

(With Independent Auditors' Report Thereon)

                          Independent Auditors' Report


The Board of Directors and Stockholders
Spencer's Restaurants, Inc.:

We have  audited  the  accompanying  consolidated  balance  sheets of  Spencer's
Restaurants,  Inc. and subsidiaries ( formerly The Rattlesnake  Holding Company,
Inc.  and  subsidiaries)  as of June 30,  1999 and June 28, 1998 and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the year in the two-year period ended June 30, 1999. These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Spencer's Restaurants, Inc. and
subsidiaries  as of June 30,  1999 and June 28,  1998 and the  results  of their
operations  and their  cash flows for each of the years in the  two-year  period
ended  June  30,  1999,  in  conformity  with  generally   accepted   accounting
principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from operations that raise  substantial doubt about its ability to continue as a
going concern. Between February 17, 1999 and July 2, 1999, the Company completed
a private  placement of  approximately  $6,000,000 of Series B preferred  stock.
During the private  placement,  the Company satisfied  principally all short and
long term debt that was  previously  in  default.  Coincident  with the  private
placement,  the holders of 56,500 shares of Series A preferred  stock  exchanged
their  holdings for 55,370  shares of Series B preferred  stock and waived their
rights to the unpaid  and  accumulated  dividends.  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

                                    KPMG LLP

Melville, New York
October 26, 1999


<PAGE>



                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
       (formerly The Rattlesnake Holding Company, Inc. And Subsidiaries)
                           Consolidated Balance Sheets
                         June 30, 1999 and June 28, 1998


Assets                                               1999                 1998

Current assets:

     Cash                                        $ 2,337,675            311,328
     Accounts receivable                               9,754             16,831
     Notes receivable, current installments              ---              4,080
     Inventory                                        16,688             29,397
     Prepaid expenses and other current assets        11,918              7,200
                                                 -----------           --------
Total current assets                             $ 2,376,035            368,836


Notes receivable, less current installments              ---            225,920
Land, building and equipment, net                  1,445,079             81,375
Intangible assets, net                                20,769             30,598
Other assets                                          76,383             78,443
                                                ------------           --------
                                                 $ 3,918,266            785,172
                                                ============           ========

Liabilities and Stockholders' Equity (Deficit)

Current liabilities:
      Current maturities of notes payable,
      including amounts due to                     $ 55,838           1,282,539
      related parties of
      $553,385 at June 28, 1998
     Accounts payable                               689,679           1,019,139
     Accrued expenses                               678,221             629,414
     Dividends payable                              198,846             207,636
     Other current liabilities                      171,621             182,971
                                                   --------           ---------
Total current liabilities                       $ 1,794,205           3,321,699
                                                -----------           ---------

Notes payable, net of current maturities           242,504              525,006
                                                -----------           ---------

Total liabilities                              $ 2,036,709            3,846,705
                                               -----------            ---------


Stockholders' equity (deficit):
  Series A Preferred Stock, $.10 par value,
    200,000 shares authorized,
    56,000 issued and outstanding,
    at June 28, 1998,                                  ---                5,650
  Series B Preferred Stock $0.10 par value,
    5,000,000 shares authorized,                    32,856                  ---
    328,563 issued and outstanding
    at June 30, 1999

Common stock, $.001 par value -                     29,980               10,890
400,000,000
    shares authorized, 29,979,013 and
    10,889,285  issued and
    outstanding, at June 30, 1999 and
    June 28, 1998, respectively
Additional paid-in capital                      20,794,657          12,554,618
Accrued dividends                                (198,846)           (207,636)
Accumulated deficit                           (18,777,090)        (15,425,055)
                                              ------------        ------------
                                                 1,881,557         (3,061,533)
                                              ------------        ------------
                                              $  3,918,266             785,172




See accompanying notes to consolidated financial statements.






                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
        (formerly The Rattlesnake Holding Company, Inc. And Subsidiaries)
                      Consolidated Statements of Operations
                  Years ended June 30, 1999 and, June 28, 1998


                                        Year ended                Year ended
                                     June 30, 1999             June 28, 1998

Restaurant sales                      $  1,696,679                 3,888,643
Less:  promotional sales                    69,434                   127,343
                                      ------------                 ---------

  Net restaurant sales                   1,627,245                 3,761,300

Costs and expenses:
Cost of food and beverage sales            621,595                 1,225,982
Restaurant salaries and fringe             662,343                 1,322,119
benefits
Occupancy and related expenses             485,200                 1,072,796
Depreciation and amortization
  expense                                   44,096                   314,017
                                      ------------                 ---------
    Total restaurant costs and           1,813,234                 3,934,914
    expenses

Selling, general and administrative      2,812,917                 1,279,831
Loss on closure of restaurant sites        365,000                 1,464,756
    and impairment charges
Interest expense                           175,248                   261,276
Litigation award                           269,000                       ---
Miscellaneous expenses                      19,456                    56,562
                                         ---------                 ---------
    Total expenses                       5,491,709                 6,997,339
                                         ---------                 ---------

Net loss before extraordinary item     (3,894,464)               (3,236,039)


Extraordinary item:
Gain on extinguishment of debt             512,429                       ---
                                           -------                       ---
     Net loss
                                       (3,352,035)               (3,236,039)
                                      -----------                -----------

Dividends on preferred shares            (198,846)                 (103,818)
                                         ---------                 ---------


    Net loss available common        $ (3,550,881)               (3,339,857)
    stockholders                     =============               ===========



    Net loss per share:
    Loss before extraordinary item        $ (0.21)                    (0.80)
    Extraordinary item                        0.03                       ---
    Net loss - Basic and diluted       $    (0.18)                    (0.80)
                                       ===========                ===========



    Weighted average number of
    common and common equivalent
    shares outstanding -
    Basic and diluted                  19,205,208                 4,173,985
                                       ==========                 =========




<PAGE>





                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
        (formerly The Rattlesnake Holding Company, Inc. And Subsidiaries
                 Consolidated Statements of Stockholders' Equity
                   Years ended June 30, 1999 and June 28, 1998

<TABLE>
<S>                               <C>

                                  Common         Common            Preferred                  Preferred                  Additional
                                  Shares         Stock               Shares                     Stock                     Paid-in
                                                              Series A   Series B       Series A   Series B               Capital

Balance, June 29, 1997            2,650,227      $  2,651     56,500                    5,650                            11,072,857

Issuance of common stock in       2,822,058         2,822        ---                                                        437,419
  connection with acquisition
  of Ottomanelli Group

Net proceeds from issuance        4,480,000         4,480                                                                   539,068
  of common stock in connection
  with private placement
Conversion of debt to equity        937,000           937                     ---                                           499,063
Issuance of warrants for services       ---           ---        ---                                     ---                 25,100
  performed
Deferred compensation                   ---           ---                     ---                        ---               (18,889)
Accrued dividends                       ---           ---        ---                                     ---                    ---
Net loss                                ---           ---        ---                                     ---                    ---
                                  -------------------------------------------------------------------------------------------------
Balance, June 28, 1998           10,889,285        10,890     56,500                    5,650                            12,554,618

Net proceeds received from        1,100,000         1,100        ---          ---         ---            ---                152,400
  issuance of common stock
Net proceeds received from issuance     ---           ---        ---      236,279         ---         23,627              5,111,392
  of Series B preferred stock
Issuance of warrants for services       ---           ---        ---          ---         ---            ---              1,098,547
  performed
Deferred Compensation                   ---           ---        ---          ---         ---            ---                 12,221
Issuance of common stock
  for services performed          2,651,991           806        ---          ---         ---            ---                132,692
Conversion of debt to common     10,421,070        12,267        ---       36,914         ---          3,692              1,500,091
  and preferred stock
Conversion of Series A preferred        ---           ---   (56,500)       55,370     (5,650)          5,537                    113
  stock to Series B
  preferred stock
Additional issuance of common     5,000,000         5,000       ---           ---        ---             ---                245,000
  stock in connection with
  acquisition of the
  Ottomanelli Group
Cancellation of common shares      (83,333)          (83)       ---           ---        ---             ---               (12,417)
Accrued dividends - Series A            ---           ---       ---           ---        ---             ---                    ---
Forgiveness of dividends                ---           ---       ---           ---        ---             ---                    ---
Accrued dividends - Series B            ---           ---       ---           ---        ---             ---                    ---
Net loss                                ---           ---       ---           ---        ---             ---                    ---
                                 --------------------------------------------------------------------------------------------------
Balance, June 30,1999            29,979,013        29,980       ---       328,563        ---          32,856             20,794,657
                                 --------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.
<PAGE>


<TABLE>


<S>                                             <C>

                                                 Accrued                  Accumulated                     Total Stockholders'
                                                Dividends                   Deficit                             Equity

                                           ----------------------------------------------------------------------------------------
Balance, June 29, 1997                          (103,818)                 (12,189,016)                            (1,211,676)

Issuance of common stock in
connection with acquisition of
Ottomanelli Group                                                                                                     440,241

Net proceeds received from issuance
of common stock in connection
with private placement                                                                                                543,548
Conversion of debt to equity                                                                                          500,000
Issuance of warrants for services                     --                            --                                 25,100
performed
Deferred compensation                                 --                            --                               (18,889)
Accrued dividends                              (103,818)                            --                              (103,818)
Net loss                                              --                   (3,236,039)                            (3,236,039)
                                      ---------------------------------------------------------------------------------------
Balance, June 28, 1998                         (207,636)                  (15,425,055)                            (3,061,533)

Net proceeds received from issuance                   --                            --                                153,500
of common stock
Net proceeds received from issuance                   --                            --                              5,135,019
of Series B preferred stock
Issuance of warrants for services                     --                            --                              1,098,547
performed
Deferred Compensation                                 --                            --                                 12,221
Issuance of common stock for services                 --                            --                                133,498
performed
Conversion of debt to common and                      --                            --                              1,516,050
preferred stock
Conversion of Series A preferred stock                --                            --                                     --
to Series B preferred stock
Additional issuance of common stock                   --                            --                                250,000
in connection with acquisition of the
Ottomanelli Group
Cancellation of common shares                         --                            --                               (12,500)
Accrued dividends - Series A                    (51,909)                            --                               (51,909)
Forgiveness of dividends                         259,545                            --                                259,545
Accrued dividends - Series B                   (198,846)                            --                              (198,846)
Net loss                                              --                   (3,352,035)                            (3,352,035)
                                           ----------------------------------------------------------------------------------------
Balance, June 30, 1999                         (198,846)                  (18,777,090)                              1,881,557


</TABLE>

See accompanying notes to consolidated financial statements

<PAGE>




                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
        (formerly The Rattlesnake Holding Company, Inc. And Subsidiaries)
                      Consolidated Statements of Cash Flows
                   Years ended June 30, 1999 and June 28, 1998
<TABLE>

<S>                                                                                <C>
                                                                                   Year ended                      Year ended
                                                                                  June 30, 1999                   June 28, 1998

Cash flows from operating activities:
    Net loss                                                                    $  (3,352,035)                     (3,236,039)
    Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization                                                      44,096                          314,017
    Litigation award                                                                  225,000                               --
    Gain on extinguishment of debt                                                  (512,429)                               --
    Loss on closure of restaurant sites                                               365,000                        1,437,136
    Warrants issued for services provided                                           1,110,769                            6,211
    Debt issued for services provided                                                      --                           50,000
    Stock issued for services provided                                                133,498                               --
Changes in assets and liabilities:
    Decrease in accounts receivable                                                     7,077                            9,832
    Decrease in inventory                                                              12,709                           15,072
    Decrease (increase) in prepaid and other                                          (2,658)                           54,550
    assets
    Decrease in  assets held for sale                                                      --                           25,000
    Increase in accounts payable and accrued                                          192,937                          902,214
    expenses
    Decrease in other liabilities                                                    (11,350)                               --
    Decrease in liabilities related to assets
    held for sale                                                                         --                         (330,041)
                                                                                 -----------                     -------------
                                                                                 (1,787,386)                         (752,048)

Cash flows from investing activities:
    Capital expenditures                                                         (1,397,972)                                --
                                                                                 -----------                     -------------

Net cash used in investing activities                                            (1,397,972)                                --
Cash flows from financing activities:
    Proceeds from issuance of  common stock                                          153,500                                --
    Proceeds from issuance of convertible notes                                      250,000                                --
    Proceeds from private placement                                                       --                           543,548
    Proceeds from issuance of  preferred stock                                     5,135,019                                --
    Payments relating to cancelled common stock                                     (12,500)                                --
     subscription agreements
    Proceeds from borrowings                                                             --                            900,000
    Principal repayments of borrowings                                             (314,314)                         (448,194)
                                                                                 -----------                     -------------
    Net cash provided by financing activities                                      5,211,705                           995,354
                                                                                 -----------                     -------------
Net increase in cash                                                               2,026,347                           243,306
                                                                                 -----------                     -------------
Cash, beginning of period                                                            311,328                            68,022
                                                                                 -----------                     -------------
Cash, end of period                                                             $  2,337,675                           311,328
                                                                                 ===========                     =============
Cash paid during the period for:
    Interest                                                                    $     53,616                       $     5,263
    Income taxes                                                                $         --                             9,800

</TABLE>

See accompanying notes to consolidated financial statements

<PAGE>



                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
        (formerly The Rattlesnake Holding Company, Inc. And Subsidiaries
                   Notes to Consolidated Financial Statements
                   Years Ended June 30, 1999 and June 28, 1998

(1)      Description of Business

As of June 30, 1999, Spencer's  Restaurants Inc. and subsidiaries  (formerly The
Rattlesnake  Holding  Company,  Inc.  and  subsidiaries),   (collectively,   the
Company),  operated one  restaurant in South  Norwalk,  Connecticut  featuring a
casual dining concept with a southwestern theme. Additionally, the Company owned
one site under  construction  in Danbury,  Connecticut  at which it  anticipates
operating the first of its new concept restaurants named Spencer's,  featuring a
casual steakhouse theme.

(2)      Summary of Significant Accounting Policies

         (a)      Basis of Presentation

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned  subsidiaries.  The consolidated financial statements have been
presented  on a  historical  cost  basis  for  the  consolidated  statements  of
operations.  All significant  inter-company  balances and transactions have been
eliminated in consolidation.

The accompanying consolidated financial statements have been prepared on a going
concern basis which  contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. However, due to
the matters  discussed  below,  its  continuation  as a going concern can not be
reasonably assured.

The Company has  incurred  aggregate  losses  since  inception  of  $18,777,090,
inclusive  of a net  loss in  fiscal  1999 of  $3,352,035.  Based  upon  interim
financial information prepared by management, the Company has continued to incur
losses in fiscal  2000.  Additionally,  $18,750 of Series C  subordinated  notes
payable matured on August 6, 1997,  $15,000 of the note payable  relating to the
acquisition of a lease, and a $2,089 subordinated note payable matured on August
6, 1996,  such  obligations  aggregating  $35,839  are in default as of June 30,
1999.

Management  completed its Cost Reduction Plan, which included the closure of the
Flemington N. J. restaurant as non-performing, in fiscal 1999. Subsequent to the
completion of its private placement of Series B preferred stock, which satisfied
primarily  all short and  long-term  debt that was in  default,  except as noted
above, (note 9), the Company assembled a new management team and developed a new
restaurant  concept  (Spencer's)  which  will be  introduced  at the  reacquired
Danbury, Connecticut location.

Management  believes that the  finalization  of its Cost  Reduction Plan and the
approximate  $6,000,000  private placement  financing will enable the Company to
achieve profitable  operations and restore liquidity.  However, no assurance can
be made regarding the achievement of the goals outlined in the strategic plan as
outlined  above,  or if such plans are achieved,  that the Company's  operations
will be profitable.

<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
        (formerly The Rattlesnake Holding Company, Inc. And Subsidiaries)
             Notes to Consolidated Financial Statements, continued)


         (b)      Reporting Periods

On April 2, 1996,  the Board of Directors  approved a change,  effective July 1,
1996, in the Company's  fiscal year to a 52 week cycle ending on the last Sunday
in June. On May 12, 1999,  the Board of Directors  approved a further  change of
its fiscal year to June 30, effective for fiscal 1999.

         (c)      Accounts Receivable

Accounts receivable consist principally of bank credit card accounts receivable.

         (d)      Inventories

Inventories  consist  primarily  of  restaurant  food items and supplies and are
stated  at the  lower of cost or  market  value.  Cost is  determined  using the
first-in, first-out method.

         (e)      Pre-Opening Costs

Certain costs relating to hiring and training of employees  prior to the opening
of new  restaurants  are  capitalized  and amortized  over a twelve month period
commencing upon restaurant  opening.  At June 30, 1999 and June 28, 1998,  there
were no unamortized pre-opening costs.

         (f)      Property and Equipment

Property and equipment is stated at cost.  Depreciation is calculated  primarily
on the  straight-line  basis  over the  estimated  useful  lives of the  assets.
Leasehold  improvements  are amortized over the shorter of the estimated  useful
life or the lease term of the related asset.  The estimated  useful lives are as
follows:

Artifacts                                   3 years
Original small wares                        3 years
Furniture and fixtures                      5 years
Restaurant and office equipment             7 years
Leasehold improvements                      7 years
Building                                   40 years

         (g)      Intangible Assets

Intangible  assets consist  principally  of costs to acquire leased  facilities.
These  costs  are  amortized  over  the  life of the  related  lease,  7  years.
Accumulated  amortization  at June 30,  1999 and June 28,  1998 was  $79,771 and
$69,942 respectively.  Amortization expense was $9,829 and $44,501 for the years
ended June 30, 1999 and June 28,  1998,  respectively.  In  connection  with the
Flemington location,  the Company wrote off approximately  $258,490 in leasehold
and related costs, net of accumulated  amortization of $48,012,  in fiscal 1998.
In connection  with the Danbury  location,  the Company wrote off  approximately
$41,285 in leasehold  and related  costs,  net of  accumulated  amortization  of
$29,023, in fiscal 1998.

As a result of the fiscal 1998  acquisition of the  Ottomanelli  Group (note 3),
goodwill of $436,383 was recorded.  Upon further analysis, the operations of the
former Ottomanelli Group were deemed  inconsistent with the Company's  operating
plans, were authorized to be terminated in fiscal 1998 and operating restaurants
were closed in early fiscal 1999.  Accordingly,  the Company  concluded that the
goodwill was impaired and recorded an impairment charge in the 1998 Consolidated
Statement of Operations.

         (h)      Other Assets

The Company  utilizes an outside  service to provide  financing and  promotional
activities. The costs relating to these activities are capitalized and are being
amortized over the repayment period.

         (i)      Financial Instruments

Management of the Company  believes  that the book value of its monetary  assets
and  liabilities,  exclusive of  long-term  debt,  approximates  fair value as a
result of the  short-term  nature of such  assets  and  liabilities.  Management
further  believes  that the fair market value of long-term  debt does not differ
materially from carrying value.

         (j)      Accounting for the Impairment of Long-Lived Assets and
                  Long-Lived Assets to be Disposed Of

Effective July 1, 1996, the Company adopted  "Statement of Financial  Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No.121 requires, among
other things,  that long-lived assets held and used by an entity be reviewed for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of an asset may not be recoverable.  The adoption of SFAS No.121
on July 1, 1996 did not have a  material  impact on the  Company's  consolidated
financial position or results of operations (note 4).

         (k)      Accounting for Stock-Based Compensation

Effective  July 1,  1996,  the  Company  adopted  SFAS  No.123  "Accounting  for
Stock-Based Compensation",  which encourages, but does not require, companies to
record  compensation cost for stock-based  employee  compensation  plans at fair
value.   The  Company  has  chosen  to  continue  to  account  for   stock-based
compensation  under  the  existing  accounting  rules  contained  in  Accounting
Principles Board Opinion No.25, "Accounting for Stock Issued to Employees",  and
related   interpretations,   but  has  provided   disclosures   of   stock-based
compensation expense determined under the fair value provisions of SFAS No.123.

         (l)      Advertising Expense

Advertising costs are expensed as incurred.  Advertising expenses were $6,939
and $15,500, in 1999 and 1998, respectively.

         (m)      Earnings per Share

In February 1997, the Financial  Accounting Standards Board issued Statement No.
128,  "Earnings  per  Share"  ("Statement  128").  Statement  128  replaced  the
calculation  of  primary  and fully  diluted  earnings  per share with basic and
diluted earnings per share. Diluted earnings per share is calculated in a manner
similar to the previously  reported fully diluted  earnings per share.  Earnings
per share amounts for all periods have been presented  and,  where  appropriate,
restated to conform to the Statement 128 requirements (note 17).

         (n)      Comprehensive Income

Effective  for fiscal 1998,  the Company has adopted the  provisions of SFAS No.
130,  "Reporting   Comprehensive   Income",  which  requires  the  reporting  of
comprehensive  income in addition to net income from  operations.  Comprehensive
income  is a  more  inclusive  financial  reporting  methodology  that  includes
disclosure  of certain  financial  information  that  historically  has not been
recognized in the calculation of net income. The Company has no activities which
represent items of other comprehensive income and, accordingly,  the adoption of
SFAS No.  130 did not  have a  material  effect  in the  Company's  consolidated
financial statements.

         (o)      Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
effect  the  reported  amount 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 may differ from those estimates.

(3)      Acquisition

On August 21,  1997,  the Company  signed a  Reorganization  and Stock  Exchange
Agreement  with the  Ottomanelli  Group,  which was later amended  pursuant to a
Modification  Agreement  dated February 26, 1998 and the  transaction  closed in
March 1998.

After amendment to the transaction,  the Ottomanelli Group transferred the stock
of (i) a  franchising  corporation  which  has  limited  operations  and  (ii) a
corporation which operated two restaurants in Paramus,  New Jersey (since closed
- note 4),  for a total of  2,822,058  shares of common  stock with a fair value
determined by an independent appraisal of approximately  $440,000. The Agreement
also  contains  certain  anti-dilution   provisions,  as  discussed  below.  The
acquisition was accounted for as a purchase transaction,  and, accordingly,  the
purchase price was allocated to identifiable  assets and liabilities  based upon
their  fair  values at the date of  acquisition.  The  excess  of the  aggregate
purchase  price over the fair value of the net assets  acquired  was recorded as
goodwill and amortizable over the period to be benefited, fifteen years.

As indicated in note 4,  management  concluded that upon further  analysis,  the
operations of the former  Ottomanelli  Group were deemed  inconsistent  with the
Company's operating plans and were authorized to be terminated. Accordingly, the
Company  concluded  that the goodwill  was  impaired and recorded an  impairment
charge in the 1998  Consolidated  Statement of  Operations.  The Company's  1998
financial  statements  contain  approximately  three months of operations of the
Ottomanelli  Group.  Pro-forma  data has not been  provided  as they were deemed
immaterial to the operations of the Company by management.

Pursuant  to  the  March  1998  agreement  to  acquire  the  Ottomanelli  Group,
additional  consideration  due  to  anti-dilution  provisions  contained  in the
agreements  in the form of common  stock was  payable to the  Ottomanelli  Group
shareholders as a result of the private placement.  In February 1999,  5,000,000
shares of common stock were issued  pursuant to such  anti-dilution  provisions,
which  included a maximum  addition  which was met. As the  Company  recorded an
impairment  charge in fiscal 1998 relating to the  termination of the operations
of the  Ottomanelli  restaurants,  the fair  value of the common  stock  issued,
$250,000, was recognized as a further impairment loss in fiscal 1999.

(4)      Closure of Restaurant Sites

In fiscal 1997, the Board of Directors authorized the closing of the Rattlesnake
Southwestern  Grill Restaurant located in Fairfield,  Connecticut.  The facility
was closed on January 4, 1997.  The fixed  assets,  leasehold  improvements  and
intangibles  at the facility  were written off. The building is reflected at its
estimated  realizable value and was accounted for in the financial statements in
"net  assets held for sale".  A net loss of $394,941  relating to the closing of
the Fairfield location was recorded in fiscal 1997. In March 1998, this location
was sold with the Company receiving a $230,000 note from the purchaser (note 5).
Pursuant to the finalization of the terms of sale, an additional loss of $88,559
was recorded in fiscal 1998.

A note receivable of $230,000,  which was received as partial  consideration for
the  sale  of the  Company's  Fairfield  facility,  was  exchanged  with a value
assigned of $115,000 in partial  satisfaction  of a $425,000  note payable (note
10) and an  additional  $115,000 loss on  restaurant  closure was  recognized in
fiscal 1999.

In fiscal 1997, the Board of Directors authorized the closing of the Rattlesnake
Southwestern  Grill Restaurant  located in White Plains,  New York. The facility
was closed on March 1, 1997 and sold on July 16,  1997.  The Company  recorded a
loss of $224,135  related to the closing of this  location in 1997.  The Company
sold all of the assets of White Plains except for cash,  receivables and certain
items  specified in the Asset Purchase  Agreement in exchange for a release from
its note payable to the landlord of $276,499, the purchaser's assumption of food
credits and other  miscellaneous  liabilities  and the receipt of a $23,500 note
receivable  from the purchaser.  The facility was sold to a group which includes
the  Company's  then Chairman of the Board and the Company is a guarantor of the
remaining lease obligation (note 13).

The  restaurant  location on 86th Street in New York was never opened and on May
29, 1997 the Company sold the fixed assets and  transferred  its interest in the
lease at that location for cash of $289,387.  The Company continues to guarantee
the lease obligation (note 13). A net loss of $306,456, relating the sale of the
86th Street location, was recorded in fiscal 1997.

In fiscal  1997,  the  Board of  Directors  authorized  the  disposition  of the
Rattlesnake  Southwestern  Grill  Restaurant  located in Lynbrook,  New York. On
September 17, 1997,  the Company closed the restaurant and wrote-off the related
assets to its estimated realizable value. A net loss of $374,852 relating to the
closing of this  location  was recorded in fiscal 1997.  An  additional  loss of
$55,725  was  recorded  in  fiscal  1998  relating  to  the  Lynbrook  facility,
principally relating to additional exit costs.

As indicated in notes 2 and 3, Company management  concluded that the operations
of the former  Ottomanelli Group were inconsistent with the Company's  operating
plans and were  authorized  to be  terminated  in  fiscal  1998,  including  the
operations of its two New Jersey restaurants. Accordingly, the Company concluded
that the  goodwill  relating to the  acquisition  was  impaired  and recorded an
impairment charge of approximately $436,000 in fiscal 1998.

On June 22,  1998,  the Company  closed its  Danbury,  Connecticut  facility and
subsequently lost its tenancy pursuant to a foreclosure action. Accordingly, the
Company recognized a loss of $270,426 in fiscal 1998 relating to the closure. On
April 15,  1999,  the Company  subsequently  acquired  the Danbury  facility for
$1,350,000 in cash (note 2).

In fiscal  1998,  the Company  performed a further  analysis of  historical  and
projected operating results,  which reflected a pattern of historical  operating
losses and negative  cash flow, as well as future  projected  negative cash flow
and  operating   results  for  fiscal  1999  for  its   Flemington   restaurant.
Accordingly,  the Company  recorded an impairment  charge for this restaurant to
write-down  the impaired  asset of $558,282 in fiscal 1998.  The  restaurant was
subsequently closed in fiscal 1999.

(5)      Note Receivable

At June 28, 1998, a $230,000 note  receivable  was  outstanding  relating to the
sale of the Company's Fairfield, Connecticut facility. The note bore interest at
7%, was secured by a leasehold  mortgage on the  restaurant,  and  provided  for
stipulated  monthly payments of principal and interest and a balloon payment due
in March 2003.

As indicated in note 4, the note receivable was eventually assigned to a related
party in partial satisfaction of the Company's indebtedness to that party.

(6)      Land, Building and Equipment

Property and equipment consists of the following:

                                      June 30,1999                 June 28, 1998

     Land                             $  1,000,000                            --
     Buildings                             358,067                            --
     Leasehold improvements                100,047                       100,047
     Restaurant and office equipment       138,483                       110,578
     Furniture and fixtures                 31,425                        31,425
     Construction in progress               12,000                             0
                                         ---------                      --------
                                         1,640,022                       242,050

     Less accumulated                    (194,943)                     (160,675)
     depreciation                        ---------                     ---------
     and amortization
                                      $  1,445,079                        81,375
                                      ============                     =========

Related depreciation and amortization expenses were $34,268 and $269,516 for the
years ended June 30, 1999 and June 28, 1998, respectively.

(7)      Other Assets

Other assets consist of the following:

                                    June 30, 1999                  June 28, 1998

     Promotional meal programs           $ 75,383                         76,738
     Deposits                               1,000                          1,705
                                            -----                          -----
                                         $ 76,383                         78,443
                                         ========                         ======



(8)      Capital Structure

The Company's capital structure is as follows:


                                          Shares          June 30,      June 28,
                         Par value        Authorized        1999          1998


Common stock          $.001 per share     400,000,000    29,979,013   10,899,285
Preferred stock:
         Series A      $.10 per share              --            --       56,500
         Series B      $.10 per share       5,000,000       328,563           --

The Company's Series A preferred stock bears a dividend rate of 7-1/2% per annum
payable  semi-annually  in  arrears  on May  15 and  November  15 of  each  year
commencing  November 15, 1996. The shares are  convertible at any time, one year
after  issuance into common stock at a conversion  price equal the lesser of (i)
120% of the average of the last  reported sale price of the common stock for the
10 trading days  immediately  preceding the first  closing of the  offering,  or
$4.50,  whichever is lower; or (ii) 85% of the average of the last reported sale
price of the common  stock for the 10 trading  days  immediately  preceding  the
first  anniversary  of the  first  closing,  subject  to  certain  anti-dilution
adjustments.  The Board of Directors has the authority to establish the specific
provisions  of  the  preferred  stock,  i.e.,   liquidation   rights,   dividend
parameters, at the date of issuance.

The Series A preferred  stock is  redeemable  only at the option of the Company,
commencing one year from the date of issuance, based upon the sales price of the
Company's  common  stock.  The  Series  A  preferred  stock  has  a  liquidation
preference of $24.50 per share, together with accrued and unpaid dividends.  The
Board of Directors has the authority to establish the specific provisions of the
preferred stock, i.e., liquidation rights,  dividend parameters,  at the date of
issuance.

The Board of  Directors  had not  declared any  dividends,  although  cumulative
dividends relating to the Series A preferred stock of $207,636 have been accrued
in the June 28,  1998  consolidated  balance  sheet.  As at June 30,  1999,  the
Company had raised net  proceeds of  $5,135,019  from the private  placement  of
Series B preferred stock. Coincident with the private placement,  the holders of
56,500 shares of Series A preferred  stock  exchanged  their holdings for 55,370
shares of Series B  preferred  stock and waived  their  rights to the unpaid and
accumulated dividends of $259,545.

In February 1999, the holders of a majority of the issued and outstanding shares
of the Company's  common stock, by written consent in lieu of a meeting pursuant
to Section 228 of Delaware's  General  Corporation  Law, adopted an amendment to
the  Company's   Certificate   of   Incorporation,   increasing   the  Company's
capitalization.   As  a  result  of  this   amendment  to  the   Certificate  of
Incorporation, the Company is authorized to issue a total of 405,000,000 shares,
of which 400,000,000 are shares of common stock and 5,000,000 shares of Series B
preferred stock.

In fiscal 1999,  the Company  principally  completed an offering of its Series B
Convertible Preferred Stock selling 236,279 shares at $25 per share and received
proceeds  of  $5,135,019,  net of  offering  expenses.  In  connection  with the
offering,   the  underwriter  received  a  warrant  to  purchase   approximately
25,000,000 shares of the Company's common stock at $.05 per share.

The  preferred  shares will be  convertible,  at the option of the holder at any
time after November  1999, at a conversion  price  initially  equal to $0.05 per
share of common stock.  The conversion rate will be reduced by 10% per month for
each month the Company fails to comply with its obligations to file, and in good
faith process, a registration statement.

The conversion price is subject to the adjustments on the terms set forth in the
Certificate of Designation. The outstanding preferred shares shall be converted,
with no action on the part of the holder,  if, at any time after  February 2000,
the common  stock  into  which the same is  converted  is  registered  under the
Securities  Act and the  closing  bid  price  of the  common  stock  for  twenty
consecutive  trading  days is at least four times the  conversion  price  ($0.20
based on the initial conversion price of $0.05).

Holders of preferred shares are entitled to receive, semi-annually, dividends at
the rate of 8% per annum  before any  dividends  may be paid with respect to the
Common Stock, which shall be paid in cash or preferred shares at the election of
the Company.  If there is a failure to pay dividends,  the Placement  Agent,  on
behalf of such holders, has the right to designate one director to the Company's
Board. In addition,  if the Company fails to comply with its obligations to file
and process a registration statement, the dividend rate will increase to 14% per
annum from issuance.

To date, the Board of Directors has declared  dividends relating to the Series B
preferred  stock of  $198,836  which  have been  accrued at June 30,  1999.  The
payment  of  dividends  was in the form of 7,954  additional  shares of Series B
preferred stock issued in September 1999.


<PAGE>


(9)      Notes Payable

Notes payable consists of the following:

                                                        June 30,        June 28,
                                                          1999              1998
     Series A  subordinated  notes  payable
     due  August 6, 1996, with interest at 9%          $  2,089*           2,089

     Series B  convertible  subordinated
     notes  payable  due July 7,  2000 with
     interest at 9%, convertible at
     $3.85 per share                                    237,506          500,000

     Series C  subordinated  notes  payable
     due  August 6, 1997,  with interest at 15%          18,750*         303,749

     Convertible  subordinated  notes payable
     due September 4, 1997, with interest at 18%             --          100,000

     Note  payable  to  related   party
     relating  to  the acquisition of the
     Fairfield building,  due January 2,
     1997 with interest at 15%                               --          425,000

     Note  payable  to a  related  party,
     due  in  monthly installments  of  $1,270,
     including   principal  and interest at 18%
     through February 1998                                   --           11,709

     Notes  payable  relating to bridge  financing,
     due  December 31, 1997 with interest  at 10%
     and a  default  interest  rate  of 14%  for
     $120,000  of principal                                  --          220,000

     Notes  payable  relating to bridge  financing
     due May 31, 1998 with interest of 14%.                  --          100,000

     Note  payable to  investment  banking firm
     due May 31, 1998 with interest at 8%.                   --           50,000

     Note payable  relating to bridge financing
     due October 31, 1998 with interest at 16%.              --           50,000

     Notes payable relating to acquisition of lease,
     due in monthly installments of $1,666 of
     principal  plus  interest  at 1% over prime
     (9.5% at June 29, 1997 through Septemb              39,998**         44,998
                                                       ----------      ---------
                                                         $298,342      1,807,545

     Less:  Current maturities                             55,838      1,282,539
                                                       ----------      ---------

          * Obligation in default at June 30, 1999      $ 242,504      $ 525,006
                                                      ===========      =========
          **$15,000 of these Notes were in default
          at June 30, 1999

Notes payable to shareholders  and other related parties  (Company  officers and
directors) were $553,385 at June 28, 1998.

Maturities of these notes is as follows:

         Fiscal year ended:
                           2000                  $55,838
                           2001                  242,504
                                                --------
                                                $298,342


(10)     Financing Arrangements

On March 4, 1997, the Company entered into a private  financing  arrangement for
$500,000 of convertible  subordinated  notes. The notes are payable on September
4, 1997.  The principal  amount of the Notes may be converted into the Company's
common  stock at a  conversion  price of $0.75  per  share  anytime  before  the
repayment  of  principal.  The  notes  are  fully  subordinated  to all  "senior
indebtedness"  of the Company and are secured by all the issued and  outstanding
shares of certain of the Company's  wholly-owned  subsidiaries.  In fiscal 1998,
$400,000 of the principal outstanding was paid in cash.

In fiscal 1999,  the  noteholder  accepted  common  stock,  with a fair value of
$100,000, in exchange for the forgiveness of the remaining principal balance and
accrued  interest.  The  Company  recorded an  extraordinary  gain of $88,950 in
fiscal 1999 recognizing this settlement.

In September 1997, the Company  completed a bridge financing under which it sold
units  consisting  of notes  and  warrants  totaling  $250,000,  which  were due
December 31, 1997.  Each full unit  consisted of (i) the  Company's  ten percent
(10%) promissory note in the principal amount of $50,000 (the "Note"),  and (ii)
upon repayment of the Note,  one four-year  warrant for each dollar of financing
provided, at the rate of one warrant convertible into one share of the Company's
common  stock  at the  average  bid  price  on the  date of the  receipt  of the
financing.  The Company  made  principal  payments of $30,000 in fiscal 1998 and
satisfied the remaining principal and interest by payment of cash and conversion
to Company equity in connection with the Offering in fiscal 1999.

In fiscal  1998,  the Company  entered into private  financing  arrangements  to
provide an aggregate of $150,000 of bridge  financing at interest  rates ranging
from 14% to 16%,  payable on dates ranging  between May 31, 1998 and October 31,
1998. In fiscal 1999, the Company satisfied principal and interest by payment of
cash and conversion to Company equity in connection with the Offering.

In fiscal 1998, the Company  executed a $50,000  convertible note agreement with
an investment banking firm for services  rendered.  The note is convertible into
250,000  shares of common  stock,  bears  interest  at 8% and matured on May 31,
1998.

In August 1998, the Company  issued a sixty day  convertible  note in the
principal  amount of $100,000 at an interest rate of 8% to an investment bank in
consideration for professional services rendered.

In  connection  with the  private  placement  offering  in  February  1999,  the
investment  bank notes were  satisfied  by  conversion  to  1,750,000  shares of
Company common stock.

During the  quarter  ended  September  30,  1998,  the  Company  privately  sold
1,100,000  shares of its  common  stock at $.15 per share  for an  aggregate  of
$165,000.  In connection with this sale the placement agent received warrants to
purchase 750,000 shares of the Company's common stock at $.15 per share.

Between  October and December 1998, the Company  entered into private  financing
arrangements  with three  individuals to provide $150,000 of bridge financing at
16%  interest  per annum,  plus  warrants,  with due dates of the earlier of the
closing of the proposed private placement or ninety days, respectively.

In connection  with the private  placement,  the Company sold 236,279  shares of
Series  B  preferred  stock  at $25 per  share,  generating  gross  proceeds  of
$5,906,975.  As part of the private placement,  noteholders,  including $293,332
Series C  subordinated  notes  payable  matured  on  August  6,  1997,  of which
noteholders with principal balances  aggregating  $62,499 extended the repayment
date to December 15,  1997,  $425,000  note payable  matured on January 2, 1997,
$11,709 note payable matured in February 1998,  $190,000 note payable matured on
December 31, 1997,  $150,000  notes  payable  matured on May 31, 1998,  $270,828
Series B  subordinated  notes  payable due July 7, 2000,  $50,000  notes payable
matured on October 31, 1998,  $100,000  note payable  matured on August 31, 1998
and  $150,000  notes  payable  matured on  February  1, 1999,  such  obligations
aggregating  $1,640,869 and all of which were in default,  including accrued and
unpaid  interest  of  approximately  $428,500,  entered  into a  series  of debt
satisfaction  agreements,  whereby in exchange for cash payments the issuance of
2,200,000  shares of common  stock  with a fair  value of $0.05 per  share,  the
issuance of 29,645  shares of Series B  preferred  stock at $25 per share and to
the mortgage  holder of the Fairfield  facility,  a discounted  note  receivable
arising from the sale of the  Fairfield  property with a fair value of $115,000,
all of the above mentioned  indebtedness  was  extinguished.  Additionally,  the
Corporation  entered into a series of  settlement  agreements,  whereby  various
creditors  accepted cash payments of $84,811 and 446,714  shares of common stock
in  exchange  for the  release  of  trade  obligations.  As a  result  of  these
transactions,   the  Corporation   recognized  an  extraordinary   gain  on  the
forgiveness of debt of $423,479 in fiscal 1999.

In  connection  with this  private  placement  financing,  the holders of 56,500
shares of Series A Preferred Stock exchanged their holdings for 55,370 shares of
Series B Preferred  Stock and waived the  payment of  accumulated  dividends  of
$259,545.

(11)     Accrued Expenses and Other Liabilities

         (a)      Accrued Expenses

Accrued expenses consist of the following:

                                       June 30, 1999               June 28, 1998

     Litigation award                     $  225,000                          --
     Accrued rent                            140,099                          --
     Interest payable                        125,363                     424,160
     Professional fees                       120,000                          --
     Other                                    52,292                     152,664
     Accrued payroll                          15,467                      52,140
                                         -----------                     -------
                                           $ 678,221                     629,414
                                         ===========                     =======

         (b)      Other Liabilities

The Company has entered into marketing  agreements whereby it received temporary
financing in exchange for  participating in discounted  price meal programs.  At
June 30, 1999 and June 28,  1998,  the balances  outstanding  under this program
were $171,621 and $182,971, respectively,   which  are  included  in  other
liabilities in the accompanying consolidated balance sheets.

(12)     Income Taxes

In February 1992, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards  (SFAS) No.109,  "Accounting for Income Taxes".
SFAS 109 requires a change from the  deferred  method of  accounting  for income
taxes of APB  Opinion 11 to the asset and  liability  method of  accounting  for
income  taxes.  Under the asset and  liability  method,  deferred tax assets and
liabilities  are  recognized  for  future  tax   consequences   attributable  to
differences  between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carry  forwards.  Deferred tax assets and liabilities are measured using enacted
tax rates  expected  to apply to  taxable  income  in the  years in which  those
temporary  differences are expected to be recovered or settled.  Under SFAS 109,
the effect on deferred  tax assets and  liabilities  of a change in tax rates is
recognized in income in the period that includes the enactment date.

There was no income tax expense for any period  presented due to losses incurred
by  the  Company.  Components  of the  deferred  tax  assets  and  deferred  tax
liabilities at June 30, 1999 and June 28, 1998 are presented below:

                                           June 30, 1999            June 28,1998

      Deferred tax assets:
      Net operating loss carry-forward        $6,947,521               5,584,600
      Fixed assets                                    --                  15,324
                                             -----------               ---------
      Total gross deferred tax assets          6,947,521               5,599,924
      Less valuation allowance                 6,947,521               5,599,924
                                             -----------               ---------
      Net deferred tax assets                   $    ---                     ---
                                             ===========               =========



The valuation allowance for deferred tax assets as of June 30, 1999 and June 28,
1998 was  $6,947,521  and  $5,599,924,  respectively.  The change in the total
valuation  allowance  for the years  ended June 30,  1999 and June 28,  1998 was
$1,347,597  and $1,263,924 ,  respectively.  In assessing the  realizability  of
deferred  tax assets,  management  considers  whether it is more likely than not
that some portion or all of the  deferred  tax assets will not be realized.  The
ultimate  realization of deferred tax assets is dependent upon the generation of
future taxable  income during the periods in which the net operating  losses and
temporary  differences become deductible.  Management considers projected future
taxable income and tax planning  strategies in making this  assessment.  At June
30, 1999 and June 28, 1998,  the Company has net operating  loss carry  forwards
for Federal and State income tax  purposes of  approximately  $  17,330,993  and
$13,962,000 , respectively  (the "NOL carry  forwards"),  which are available to
offset future  taxable  income,  if any,  through  2013.  Based upon the limited
operating  history of the Company and losses  incurred to date,  management  has
fully reserved the deferred tax asset.

In accordance with Section 382 of the Internal Revenue Code of 1986, as amended,
as it  applies  to the NOL  carry  forwards,  a change  in more  than 50% in the
beneficial  ownership of the Company  within a three-year  period (an "Ownership
Change") will place an annual limitation on the Company's ability to utilize its
existing NOL  carryforwards  to offset United States  Federal  taxable income in
future  years.  Generally,  such  limitation  would be equal to the value of the
Company  as of the  date  of the  Ownership  Change  multiplied  by the  Federal
long-term  tax exempt  interest  rate,  as  published  by the  Internal  Revenue
Service.  The Company  believes that  Ownership  Changes have occurred and would
cause the annual  limitations as described  above to apply.  The Company has not
determined  what the  maximum  annual  amount of  taxable  income is that can be
reduced by the NOL carryforwards.

(13)     Commitments

Commitments

The Company's operations are principally conducted in leased premises. Remaining
lease terms range  through 2002 and include  options for  extension.  The leases
contain  contingent rental provisions based upon a percentage of gross sales. As
of June 30, 1999, the Company has operating  lease  commitments as follows,  for
its South Norwalk restaurant:


                       2000                  $ 50,400
                       2001                    50,400
                       2002                    46,200


Certain  shareholders  and former  officers  have  personally  guaranteed  lease
payments for the South Norwalk location.

Pursuant to sales  agreements  for the Company's New York City and White Plains,
New  York  restaurants  (note  4),  the  Company   guaranteed   specified  lease
obligations.  As of June 30,  1999,  the  Company  has not been  notified of any
claims against these guarantees.

The Company is also a defendant in litigation regarding lease guarantees for its
former Lynbrook, New York facility (note 16).

On July 2, 1998,  the  Company  entered  into a contract  for the  purchase of a
restaurant  facility in New York City for $400,000 in a combination  of cash and
notes.  The  Company  ultimately  chose not to  purchase  this  property  and in
connection with the termination of contract incurred an expense of approximately
$12,500.

On July 3, 1998,  the  Company  entered  into a contract  for the  purchase of a
restaurant  facility in Greenwich,  Connecticut for $400,000 in a combination of
cash and notes. The Company ultimately chose not to purchase this property.

Contingent  rental  payments on building  leases are typically made based on the
percentage   of  gross  sales  on  the   individual   restaurants   that  exceed
predetermined levels. The percentage of gross sales to be paid and related gross
sales level vary by unit. There were no contingent rental payments in any of the
periods presented.

Rent  expense was  $190,733  and  $426,923 for the years ended June 30, 1999 and
June 28, 1998, respectively.

(14)     Employee Benefit Plans

         (a)      Stock Option Plan

In December 1994, the Company  adopted the 1994 Employees Stock Option Plan (the
Employees  Plan),  which  provides for the issuance of incentive  stock  options
(ISO's) and non-qualified options (Non-ISO's) to officers and key employees.  Up
to  1,000,000  shares of the  Company's  common  stock  have been  reserved  for
issuance  under the Plan.  The Plan is  currently  administered  by the Board of
Directors of the Company. The term of the options is generally for a period of 5
years.  The  exercise  price for  non-qualified  options  outstanding  under the
Employees Plan can be no less that 100% of the fair market value, as defined, of
the  Company's  common stock at the date of the grant.  For ISO's,  the exercise
price can be  generally  no less  than the fair  market  value of the  Company's
common  stock at the date of the grant,  with the  exception of any employee who
prior to the granting of the option, is a 10% or greater stockholder as defined,
for which the  exercise  price can be no less than 110% of the fair market value
of the Company's common stock at the date of grant.

In December 1994, the Company  adopted the  non-Executive  Director Stock Option
Plan (the  Director  Plan),  which  provides  for the  issuance of  non-ISO's to
non-executive   directors,  as  defined,  and  members  of  any  advisory  board
established by the Company who are not full-time  employees of the Company.  The
Company has reserved  500,000  shares for issuance  under the  provisions of the
Director Plan. The Director Plan provides that each non-executive  director will
automatically  be granted an option to purchase  25,000  shares upon joining the
Board of Directors and 15,000 shares on each December 1st  thereafter,  provided
such person has served as a director for the 12 months immediately prior to such
December  1st. The exercise  price for options  granted  under the Director Plan
shall be 100% of the fair market value of the Common Stock on the date of grant.

At June 30, 1999, there were 1,000,000 and 295,000  additional  shares available
for grant under the Employees and Director  Plans,  respectively.  The per share
weighted-average  fair value of stock options  granted  during 1997 and 1996 was
$0.51 and $1.22, respectively for those options whose exercise price equaled the
market price of the stock on the date of grant and $.05 and $0, respectively for
those  options whose  exercise  price was above the market price of the stock on
the  date of  grant  using  the  Black  Scholes  option-pricing  model  with the
following weighted-average  assumptions: 1997 and 1996 - expected dividend yield
0%,  risk-free  interest  rate of between  5.07% and 5.86%,  an expected life of
between  approximately 2.5 - 5 years and expected stock volatility of between 38
- 130%. There were no options granted in 1999 and 1998.

The  Company  applies  APB  Opinion  No.25  in  accounting  for  its  Plan  and,
accordingly,  no  compensation  cost has been  recognized  for its employees and
directors stock options in the financial statements.  Had the Company determined
compensation  cost  based on the  fair  value at the  grant  date for its  stock
options under SFAS No.123,  the Company's net loss would have been  increased to
the pro forma amounts indicated below:

                                                        1999                1998
     Net loss available to common
     shareholders:
                             As reported        $(3,352,035)         (3,339,957)
     Pro-forma                                  $(3,550,881)         (3,422,957)
     Loss per share:         As reported             $(0.18)              (0.80)
     Pro-forma                                       $(0.18)              (0.82)


Pro  forma  net  loss  reflects  only  options  and  warrants  granted  in 1997.
Therefore,  the full impact of calculating  compensation  cost for stock options
and  warrants  under SFAS  No.123 is not  reflected  in the pro forma net income
amounts  presented  above  because  compensation  cost for options and  warrants
granted prior to July 1, 1995 were not considered.

Activity in non-ISO's was as follows:

                                  Number          Option Price          Weighted
                                  of Shares       per Share             Average
                                                                        Exercise
                                                                        Price

     Options outstanding
     June 29, 1997                693,000           $0.25-5.25           $  3.11
     Options granted                  ---                  ---               ---
     Terminated options         (488,000)          0.25 - 5.25               ---
                                ---------         ------------           -------
     Options outstanding
     June 28, 1998                205,000           $4.50-5.25           $  4.88
                                  =======           ==========           =======
     Options granted                  ---                  ---               ---
     Terminated options               ---                  ---               ---
                                ---------         ------------           -------
     Options outstanding
     June 30,1999                 205,000           $4.50-5.25           $  4.88
                                  =======           ==========           =======

Activity in ISO's was as follows:
                                  Number          Option Price          Weighted
                                  of Shares       per Share             Average
                                                                        Exercise
                                                                        Price

     Options outstanding
     June 29, 1997                103,500           $0.25-5.50              5.35
     Options granted                  ---                  ---               ---
     Terminated options         (103,500)           $0.25-5.50              5.35
                                ---------           ----------              ----
     Options outstanding
     June 28, 1998 and
     June 30, 1999                    ---                  ---               ---
                                =========           ==========            ======


The  Employees and Director  Plans expire in December  2004,  unless  terminated
earlier by the Board of Directors under  conditions  specified in the respective
Plans. No options have been exercised as of June 30, 1999 and June 28, 1998.

At June 30, 1999, the range of exercise  prices and range of the remaining
contractual  life of outstanding  options was $4.50 - $5.25 and approximately
1.5 - 2.5 years, respectively.

At June 30, 1999 and June 28, 1998,  the number of options  exercisable  was
205,000 and the  weighted-average  exercise price of those options was $4.88.

On April 18,  1999,  the Board of  Directors  approved  the adoption of the 1999
Stock Option Plan (the "1999  Plan"),  subject to the  approval of  Stockholders
which was obtained in September  1999,  which provides for the issuance of ISOs,
Non-ISOs,  and stock  appreciation  rights to officers and key  employees of the
Company.  Up to 25,000,000 shares have been reserved for issuance under the 1999
Plan,  which is administered by the Board of Directors of the Company.  The term
of the options is generally for a period of five (5) years.  The exercise  price
for  Non-ISOs  outstanding  under  the 1999 Plan can be no less than 100% of the
fair market  value,  as defined,  of the  Company's  Common Stock on the date of
grant.  For ISOs,  the  exercise  price can  generally  be no less than the fair
market value of the  Company's  Common  Stock at the date of grant,  without the
exception  of any employee  who prior to the option  grant,  is a 10% or greater
stockholder,  as defined,  for which the exercise price can be no less than 110%
of the fair market  value of the  Company's  Common  Stock at the date of grant.
There are presently no options granted under the 1999 Plan.

On April 18,  1999,  the Board of  Directors  approved  the adoption of the 1999
Non-Employee  Directors' Stock Option Plan (the "1999 Directors' Plan"), subject
to the approval of  Stockholders  which was obtained in  September  1999,  which
provides  for the  issuance  of  non-qualified  stock  options  to  non-employee
directors  of the  Company.  Up to  10,000,000  shares  have been  reserved  for
issuance under the 1999 Directors'  Plan,  which is administered by the Board of
Directors of the Company.  The term of the options is generally  for a period of
five (5) years. The exercise price for options  outstanding  under the 1999 Plan
can be no less than 100% of the fair market value, as defined,  of the Company's
Common Stock on the date of the grant.  There are  presently no options  granted
under the 1999 Directors' Plan.

         (b)      Employment Agreements

The Company and its Vice-Chairman and Chief Administrative  Officer entered into
a  part-time  employment  agreement  in  December  1995 for a period  commencing
December  1995  through  December  1998.  The  agreement   provides  for  annual
compensation of $90,000  increasing 10% per annum,  plus certain other benefits.
An  additional  $20,000 was paid for services  rendered in fiscal 1996  provided
over and above the part-time agreement. The employee is also entitled to receive
a  bonus  during  each  year of  this  agreement,  determined  by the  Board  of
Directors.  The Board of Directors and/or the  Compensation  Committee shall set
forth a formula for determining the bonus for each year.

On March 15, 1997 an agreement was signed  between the Company and Vice Chairman
and Chief  Administrative  Officer which  amended the December  1995  employment
agreement.  Under  the  new  agreement,  the  former  Vice  Chairman  and  Chief
Administrative  Officer  will accept the position of Acting  Co-Chief  Executive
Officer.  This  agreement  waives any base rate or annual rate increases per the
previous  agreement and modified the term to March 1, 1997 through  February 28,
1999.  Services are provided on a part-time  consulting  basis. The compensation
for the period  March 1, 1997 through  February  28, 1999 will be $75,000,  plus
benefits.  This  agreement  also  included  the grant of an  option to  purchase
125,000 shares of stock at the closing price on the date of this agreement.  The
agreement also includes that in the event the stock options  previously  granted
under the current Company stock option plans are repriced for any employee,  the
existing  stock option grants for the acting Co-CEO will be repriced at the same
time as any repricing and under the same terms and  conditions.  No such options
were  repriced  and  the  agreement  was  replaced  with a May  1998  consulting
agreement (note 15).

Subsequent  to June 1998,  the  Company  entered  into a three  year  employment
agreement,  as amended,  with the Chief  Financial  Officer  providing for fixed
compensation  of  $52,000  in year  one,  with a time  allowance  in year one to
complete certain projects and commercially  standard  compensation for full time
services to be determined  for years two and three.  The executive has also been
granted options to purchase common stock as follows: 100,000 vesting at close of
year one; 100,000 vesting at close of year two; 100,000 vesting at close of year
three at the exercise price of $.05,  the fair value at the date of grant,  with
additional  options to purchase 200,000 shares  exercisable at the close of each
of years two and three.

In October 1998, the Company entered into a three year employment agreement,  as
revised,  with an individual to act as President and/or Chief Executive  Officer
and as a member of the Board of  Directors of the  Company,  effective  upon the
completion  of the private  placement in February  1999. In  consideration,  the
employee is to receive a monthly fee of $7,917 plus  reasonable  expenses  and a
$30,000  sign-on  bonus.  In  addition,  the  employee  shall be  entitled  to a
performance  bonus and shall  receive a warrant to  purchase an amount of Common
Stock equal to ten (10%) of the  outstanding  common stock of the Company,  on a
fully diluted basis,  after the private placement  financing at $0.05 per share,
the fair value at the date of grant, representing 30,000,000 shares, exercisable
for a period of five years,  one third of the number of shares  covered  thereby
vesting at the time of the private placement  financing,  and one third (1/3) at
the end of each one year period thereafter during the term.

In February 1998, the Company executed a four year employment agreement with the
then  President  and  Chief  Executive   Officer,   which  provides  for  annual
compensation  of $150,000.  The  agreement was amended in October 1998 to reduce
the annual compensation to $85,000,  provided for a $25,000 cash payment and the
executive  accepted a new  position as Vice  President.  The  employee  received
payments of $119,992  during  fiscal 1999 for current and deferred  salary.  The
Company also issued  1,504,720 shares of common stock with a value of $75,236 to
satisfy other deferred salary not compensated for in cash.

         (c)      Separation Agreements

In October 1998, the Company and a Vice President terminated a March 1998
employment agreement.  The executive is to receive $15,000 over a one year
period.

(15)     Consulting Agreements

On May 1, 1998, the Company entered into a three year consulting  agreement with
its former Vice Chairman and current Secretary,  which replaced a March 15, 1997
employment  agreement to provide  financial and related  services to the Company
with  compensation of $7,000 per month.  The consultant,  in  consideration  for
services, received 500,000 shares of the Company's common stock, with a value of
$25,000,  of which 250,000  shares are subject to  anti-dilution  provisions and
250,000 shares which may be repurchased at the Company's  option under specified
conditions.  In addition,  the consultant received a warrant,  expiring in April
30, 2003, to purchase an additional 250,000 shares of Company Common Stock at an
exercise price of $0.15 per share.  The consultant  also received  approximately
1,664,000  shares of common stock with a value of $83,200 to compensate  him for
his deferred portion of consulting fees not paid in cash.

On July 20, 1998,  the Company  entered into a three year  consulting  agreement
with an  individual  to  provide  service  to design  and  implement  the future
expansion of the Company's planned restaurant  concepts.  In consideration,  the
consultant is to receive a monthly fee of $1,000 plus reasonable  expenses.  The
consultant purchased $100,000 of common stock and received a warrant to purchase
300,000 shares of the Company's common stock,  with an initial exercise price of
$0.48 per share expiring in July 2002, vesting one-third annually.

In October 1998, the Company entered into a three year consulting agreement,  as
revised,   with  an  individual  to  provide  advice  and  consultation  in  the
implementation  of the future  expansion  of the  Company's  planned  restaurant
concepts. In consideration, the consultant shall serve without regular, periodic
compensation.  The consultant shall be entitled to a performance bonus and shall
receive a warrant,  immediately  exercisable,  to  purchase  an amount of common
stock equal to fifteen percent of the  outstanding  common stock of the Company,
on a fully diluted  basis,  after the private  placement  financing at $0.05 per
share, exercisable for a period of five years, representing 45,000,000 shares.

(16)     Litigation

The Company is a  co-defendant  in an action brought by an owner of an apartment
above the South Norwalk  Company  restaurant for negligence per se,  intentional
infliction of emotional  distress,  negligent  infliction of emotional distress,
and violations of the Connecticut  Unfair Trade Practices Act (CUTPA) based upon
alleged excessive noise and rude and/or  threatening  conduct of employees.  The
jury  awarded a verdict in the amount of $625,000  against  various  defendants,
including the Company's former Chairman on August 5, 1998. On November 20, 1998,
the Court set aside the  jury's  verdict as to all counts  against  the  Company
except for plaintiff's  claim for negligence per se and accordingly  reduced the
jury's  award to  $225,000.  The  jury's  award is  currently  on  appeal by the
Company,  and plaintiff has appealed the Court's decision to set aside a portion
of the jury's verdict and reduce the award.  There are also potential  claims of
indemnification  by other  defendants  against  the  Company  in the  event  the
plaintiff's appeal is successful.  The Company reduced its original accrual from
$625,000 to $225,000 which  represents the appealed verdict in the quarter ended
December 31,1998.

In July 1999, a demand  letter was tendered to the Company by the legal  counsel
of the  former  Chairman  seeking  indemnification  from  potential  liabilities
arising out of this matter. This demand is based on an indemnification provision
in an  agreement  between  the former  Chairman  and the  Company.  The  Company
believes that valid defenses to the indemnification claim may exist.

Plaintiff's negligence claims in this matter are arguably covered by one or more
of the Company's insurance policies.  Farmington Casualty Company ("Farmington")
and  Insurance  Company of  Greater  New York  ("GNY"),  two out of three of the
Company's  insurance  carriers,  retained  counsel to represent  the Company and
defended  the  Company in this case under a  reservation  of rights.  The third,
Public Service Mutual Ins. Co.,  denied coverage for the claim  altogether.  GNY
and Farmington have continued to prosecute the appeal in this matter,  but under
a reservation of rights.  The Company has advised all three  insurance  carriers
that it intends to pursue its rights in an action for  damages  and  declaratory
relief in the event that the appeal is unsuccessful  and the insurance  carriers
refuse to provide coverage for plaintiff's  claims. GNY and Farmington  continue
to reserve all rights with respect to coverage.

Settlement  negotiations  are ongoing.  However,  there can be no assurance of a
satisfactory settlement.

In May 1999,  the Company was served with an eviction  notice by the landlord of
the South Norwalk  restaurant.  The suit was settled and the eviction notice was
withdrawn.

The Company is a defendant  in an action for an alleged  breach of a  commercial
lease in which  damages  exceeding  $190,000 are being  sought.  The Company has
disputed this claim and believes that the plaintiff has  inadequately  responded
to the Company's  demand for discovery and inspection and  interrogatories.  The
Company intends to vigorously defend this action.

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

(17)     Earnings Per Share

As discussed in note 2, the Company  adopted  Statement  128, which replaced the
calculation  of  primary  and fully  diluted  earnings  per share with basic and
diluted earnings per share. Dilutive net loss per share for fiscal 1999 and 1998
are the same as basic net loss per share due to the anti-dilutive  effect of the
assumed  conversion  of  preferred  stock,  and  exercise  of stock  options and
warrants.

The  following  table  reconciles  net loss per  share  with net loss per  share
available to common stockholders:

                                               1999                        1998
                                               ----                        ----

Net loss per share                          $(0.20)                       (0.78)
Net gain on extraordinary item                $0.03                          ---
Net loss per share attributable to
preferred stock dividends                   $(0.01)                       (0.02)
                                            -------                       ------
Net loss per share available to
common stockholders                         $(0.18)                       (0.80)
                                            =======                       ======

(18)     Subsequent Events

On July 2, 1999,  the Company sold an  additional  2,000  shares of its Series B
preferred  stock for a value of $50,000 as part of its Offering.

On September 9, 1999, the Company formally changed its name with the appropriate
authorities to Spencer's  Restaurants,  Inc. (symbol: SPST) from
Rattlesnake Holding Company Inc.

In September 1999, the Company  finalized its agreement with the landlord of its
previously closed restaurant in Flemington,  New Jersey. The agreement satisfied
all remaining obligations for past due rents, real estate taxes, utilities,  and
outstanding  $39,998  note  payable  (note 9). The Company  assigned  its liquor
license in  satisfaction of the note payable and issued 4,660 shares of Series B
preferred stock with a valuation of $116,500 to complete the settlement.

In  September  1999,  the  holders of a majority  of the issued and  outstanding
shares of the Company's  Common Stock,  by written  consent in lieu of a meeting
pursuant to Delaware Law,  adopted an option plan providing for incentive  stock
options and non-incentive  stock options for employees and non-employees,  under
which  options may be granted for a total of  25,000,000  shares of common stock
and adopted an option plan for the members of the Board of Directors under which
options may be granted for a total of 10,000,000 shares of common stock.

In September  1999,  the Company paid dividends in the amount of $198,846 to the
preferred  shareholders  of  record  in the form of 7,954  additional  shares of
Series B Preferred Stock in lieu of cash payment.

(19)     Other Information

On September 17, 1997, the Company received a letter from NASDAQ indicating that
the Company  would be removed  from the NASDAQ Small Cap listing at the close of
business  on  September  17,  1997 due to its failure to comply with the minimum
capital and surplus requirement of $1,000,000 and the $1.00 minimum stock price.

On November 4, 1997 the Boston Stock Exchange  suspended trading and has applied
for the  delisting of the Company  common stock from such  exchange  pursuant to
Rule 12d-2f2.