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 26, 2000

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)
<TABLE>
<CAPTION>

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

                                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 No X


State issuer's revenues for its most recent fiscal year. $2,645,770

State the number of shares outstanding of each of the issuer's classes of common
equity, as of June 26, 2000. 51,002,981

As of June 26, 2000, 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  $2,392,040.  The shares of the  Company's  Common Stock are  currently
traded on the Over-the-Counter Bulletin Board under the symbol "SPST".


<PAGE>



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 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 fiscal 1998,  we terminated  operations  at our  Lynbrook,  New York and
Danbury,  Connecticut facilities, and in November 1998, terminated operations at
our Flemington, New Jersey facility as well, for which we recorded an impairment
charge in 1998.

     In fiscal  1999,  106  Federal  Road  Restaurant  Corp.,  our  wholly-owned
subsidiary,  purchased the Danbury,  Connecticut facility previously closed. The
restaurant  has been remodeled and  reconfigured  to serve as the first location
for our new 200 seat  Spencer's  Steak and Shrimp  restaurant  concept.

     In fiscal 2000, we opened the new Spencer's Steak and Shrimp restaurant and
its operations have been satisfactory.

     We continue to operate a self-sustaining  Rattlesnake(R) Southwestern Grill
in South Norwalk, Connecticut.


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.
Due to the purchase and  development of the Danbury  location and as a result of
the operating  losses,  the Company's cash balance decreased to $374,507 at June
26, 2000.

New  Concept and Menu

The  Company  developed  a  concept  for a  multi-regional  chain of  mid-priced
steakhouses,  to feature  price/value  steak and distinctive  shrimp (and other)
dishes, named Spencer's.  Our first Spencer's Restaurant opened in November 1999
in Danbury, Connecticut.

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:

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

     -    The  menu  features  house  cut and  aged  steaks  and  steak  burgers
          (intended  to  be  comparable   quality  to  high  priced   steakhouse
          offerings),  as well as bulk  offerings  of shrimp  that are served in
          distinctive "house" sauces on pasta or rice with dunking bread.

     -    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, distinguish Spencer's from competitors.

     -    To  compliment  the steak and shrimp  offerings,  menu items  include:
          appetizers,  unique  salads;  chicken,  fish,  rib, and pasta entrees;
          mainstay  sandwiches;  a  separate  Kid's  list of  choices  that  are
          inclusive of fries and  beverage;  and  desserts.  Standard  alcoholic
          beverages  as  well as  selection  of  blended  specialty  drinks  are
          offered.

     -    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,  located in Danbury,
          Connecticut, has a size of 7,200 square feet.

     -    The  Spencer's  menu and unit  economics  are  intended to  facilitate
          replication   in   multi-regional   area   development   hubs  through
          Company-owned and ultimately 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.

Franchise Activities

     The Company previously franchised  Ottomanelli's  Cafes(R).  That operation
involved  approximately  five  restaurants  with nominal  royalty  revenues.  No
franchises were sold during the past approximately five years. We determined not
to  expand  such  operations  and  in  April  2000,  we  transferred  to  Nicolo
Ottomanelli and his brother,  Joseph Ottomanelli,  the outstanding capital stock
of Ottomanelli's  Cafe Franchising Corp., which had no associated book value. We
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  presently  is the  licensee  of  Rattlesnake(R).  The Company
previously  was  the  licensee  of  Ottomanelli's  Cafe(R),  which  license  was
terminated  in April  2000.  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. We have not
determined  whether  to  continue  operations  under  the  Rattlesnake(R)  name.
Ottomanelli's  Cafe(R) was 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
our merger transaction with such persons (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 26, 2000, the Company employed approximately 101 persons, 4 of whom
were home office management and staff personnel,  8 are full time management and
approximately 20 are full time restaurant personnel.  The remainder are 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 26, 2000 fiscal
year, losses aggregated  $19,736,463 including losses of $929,373 and $3,352,035
for its fiscal  years ended June 26, 2000 and June 30, 1999,  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 26,
2000,  the Company had negative  working  capital of  $1,044,162)  due to, among
other  things,  costs  associated  with opening a new  restaurant  and the prior
development and operation of its Rattlesnake(R)  Southwestern Grill restaurants.
As a result,  the Company has been dependent upon sales of its equity securities
and loans to finance its working capital requirements. The Company was dependent
upon the proceeds of the Offering to initially  finance its proposed  expansion.
The Offering was sufficient to satisfy the Company's cash  requirements  through
fiscal 2000.  However,  based on the Company's  expansion strategy it has become
necessary  to seek a second  offering in addition to  financing  its real estate
holding  at  106  Danbury  Road,  Danbury,  CT.  The  Company  is  currently  in
negotiations  with several  institutions to secure  financing.  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 26, 2000,
short term debt and  liabilities  totaled  $1,493,190 and long term debt totaled
$0. At June 26, 2000,  $20,839 of the Company's  outstanding  notes payable were
past due and in default with the remainder,  $237,505,  coming due July 7, 2000.
The Company wil seek to restructure  these notes and/or to exchange the same for
equity,  although  there  can be no  assurance  of  the  same.  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 defendant to a certain material litigation. If
such  litigation is concluded on relatively  unfavorable  terms,  the litigation
could have a material  adverse  effect on the  Company and its  prospects.  (See
"Legal Proceedings".)

     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.  Connecticut 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 an  officer/director
liability  insurance  policy as well.  The Company  did not have such  insurance
during the period from January 1998 to February 17, 1999. 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
beneficially  own  approximately  42% 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  26,  2000  with an
approximate  value of $347,904.  In September  2000,  the Company  issued 13,916
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 26,  2000,  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 2001.  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  (as of June 26, 2000 there were  approximately
158,000,000  shares  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 26,  2000,  the  Company  operated  in two  locations:  the Norwalk
location  operating  as the  Rattlesnake(R)  Southwestern  Grill and the Danbury
location operating as a Spencer's Steak and Shrimp restaurant.

Location                               Size/Seating         Lease Expiration
--------                               ------------         ----------------

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

Danbury, CT                             7200 sf/200         N/A

     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 200  seats,
respectively.

Commitments

     One  of  the  Company's  operations  is  conducted  in a  leased  premises.
Remaining  lease terms range through 2002 and include no options for  extension.
The lease contains contingent rental provisions based upon a percentage of gross
sales in addition to common area maintenance and taxes. As of June 26, 2000, the
Company has  operating  lease base rent  commitments  as follows,  for its South
Norwalk restaurant:


                     2001                  $ 62,338
                     2002                    57,143
                     ----                    ------
                     Total                 $119,481



ITEM 3. LEGAL PROCEEDINGS.

     As of June  26,  2000,  the  Company  was  engaged  in a  certain  material
litigation as follows:

     The  Company is  defending  an action  brought by Jack  Cioffi  Trust,  the
landlord of a former  Rattlesnake  restaurant  in Lynbrook  New York leased by a
subsidiary  of the  Company.  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 action  against the Company is based on an
alleged  guaranty of the lease  payments due from the subsidiary of the Company.
The Company is of the  position  that the landlord  waived the  guarantee at the
time of the  surrender of the premises in September  1997.  The action seeks the
sum of  approximately  $190,000.  The Company intends to vigorously  defend this
action.


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

     On February 9, 2000, at the Annual Shareholders  Meeting,  the shareholders
approved the 1999 Stock Option Plan and the 1999  Non-Employee  Director's Stock
Option Plan. The shareholders also re-elected to the Board;  Kenneth R. Berry to
a three-year term, Stephen A. Stein to a two-year term and Nicolo Ottomanelli to
a one-year  term.  To date,  employee  stock  options  were  issued to  purchase
3,450,000 of the 25,000,000 shares allocated for the 1999 Stock Option Plan. All
options were granted at fair market value on the day of grant.

PART II

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

     The high and low bid  quotations  for  fiscal  years  1999 and 2000 for the
Common Stock on the NASDAQ Bulletin Board is as follows (fractions  converted to
approximate decimal values):

                                                         BID
         Fiscal Year 1999                            Low      High
         ----------------                            ---      ----

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

         Fiscal Year 2000
         ----------------

Quarter ended September 27, 1999                       .09      .30
Quarter ended December 27, 1999                        .09      .20
Quarter ended March 27, 2000                           .06      .19
Quarter ended June 26, 2000                            .03      .16

     As of the close of  business  on June 26,  2000,  there were 181 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 26, 2000, 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 26, 2000, there were 51,002,981 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 315,076
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.  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 are convertible,  at
the option of the holder,  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 - Filing of Registration  Statement).  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")
with the  Securities  and Exchange  Commission  ("SEC"),  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.  The Company  filed a
first  amendment  to the  Registration  Statement  on July 2000 and is  awaiting
comments from the SEC. 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 26,
2000,  with a valuation  of $168,103  (representing  6,724  shares of  Preferred
Stock) which was paid in September 2000.

     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  converted,  if and  when  there is
conversion,  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 26, 2000:

--------------------------------------------------------------
Number of Warrants                            121,000,000
--------------------------------------------------------------
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 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.

     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"). At June 26, 2000,  Spencer's
Restaurants,  Inc.  was  the  parent  corporation  of two  operating  subsidiary
companies;  Rattlesnake  Ventures,  Inc., operating a Rattlesnake Grill in South
Norwalk,  Connecticut,  Federal Road  Restaurant,  Corp.,  operating a Spencer's
Steak and  Shrimp in  Danbury,  Connecticut  and the parent  corporation  of two
subsidiary  companies;  106 Federal Road, owner of the site at which the Company
opened its first  Spencer's  Steak and Shrimp  restaurant  November  3, 1999 and
Spencer's Payroll Company, Inc..

Fiscal Year Ended June 26, 2000 as Compared
with Fiscal Year Ended June 30, 1999

     Net restaurant  sales  increased  $927,605 or 57.0% to $2,554,850 in fiscal
2000 from  $1,627,245  in fiscal  1999.  The  increase in net  restaurant  sales
resulted from the opening of the Danbury,  CT,  Spencer's  Steak and Shrimp.  In
fiscal 2000,  the Company  generated a net loss of $959,373 as compared to a net
loss of $3,352,035 in fiscal 1999, a decrease of $2,392,660 or 71.4%.

     The decreased loss was  attributable  to a combination  of several  factors
including;  $949,091  increase  in  restaurant  sales due to the  opening of the
Spencer's Steak and Shrimp in Danbury;  $1,422,307 decrease in selling,  general
and  administrative  expenses  attributable  to a one time fiscal 1999 charge of
$1,075,000  incurred for the issuance of warrants to a consultant;  a litigation
charge  reversal of  $180,000 in fiscal  2000,  relating to a  settlement  in an
action brought by an owner of an apartment above the South Norwalk restaurant; a
$332,200  reduction  in losses on closure  of  restaurant  sites and  impairment
charges;  and a $139,682  extraordinary  gain in 2000 on the  extinguishment  of
debt.

     Restaurant Sales

     Gross restaurant sales increased  $949,091 or 55.9% to $2,645,770 in fiscal
2000 from  $1,696,679 in fiscal 1999. The increase in restaurant  sales resulted
from the opening of the Spencer's  Steak and Shrimp in Danbury.  The fiscal 1999
restaurant  sales represent  sales from Flemington  (which closed November 1998)
and Norwalk.  Same store sales (for the Rattlesnake Bar & Grill Norwalk location
only) for  comparable  periods for fiscal year ended June 26, 2000  increased by
5.2%.

     Promotional Sales

     Promotional sales increased $21,486 or 30.9% to $90,920 in fiscal 2000 from
$69,434 in fiscal  1999.  This  increase  is  attributed  to the  opening of the
Danbury  location.  Promotional  sales have  decreased as a percentage  of gross
sales in  fiscal  2000 to 3.4%  from 4.1% in fiscal  1999.  This  decrease  as a
percentage  of sales is the result of economies  realized from the Danbury store
opening.

     Food and Beverage Costs

     The  cost of food  and  beverage  sales  increased  $336,986  or  54.2%  to
$958,581for  fiscal 2000, as compared  with $621,595 for fiscal 1999,  resulting
from the increase in the number of restaurants operating during the period. Food
and beverage costs decreased as a percentage of net restaurant sales to 37.5% in
fiscal 2000 from 38.2% in fiscal 1999.

     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,
increased  $293,241  or 44.3% to $955,584 in fiscal 2000 as compared to $662,343
in fiscal 1999,  principally due to the opening of the Danbury restaurant.  As a
percentage  of net sales,  these  costs  decreased  to 37.4% in fiscal 2000 from
40.7% in fiscal  1999,  due to cost  corrective  measures  implemented  in early
fiscal 2000.

     Occupancy and Related Expenses

     Occupancy and related expenses, which include linen, repairs,  maintenance,
utilities,  rent,  insurance and other  occupancy  related  expenses,  decreased
$188,696 or 38.9% to $296,504 in fiscal 2000 from  $485,200 in fiscal 1999. As a
percentage of net  restaurant  sales,  these costs  decreased to 11.6% in fiscal
2000 from 29.8% in fiscal 1999. The decrease in occupancy  costs is attributable
to the closing of the Flemington and Danbury Rattlesnake  operations in November
1998 and June 1999 respectively.

     Depreciation and Amortization Expense

     Depreciation  and  amortization  expenses  increased  $42,477  or  96.3% to
$86,573 in fiscal 2000 as compared to $44,096 in fiscal 1999.  Depreciation  and
amortization  expenses as a percentage of net restaurant sales increased to 3.4%
in fiscal 2000 from 2.7% in fiscal 1999.  The  increase,  $42,477,  is primarily
attributable to the opening of the Danbury Spencer's Steak and Shrimp.

     General and Administrative Expenses

     General  and  administrative  expenses  decreased  $1,422,307  or  49.9% to
$1,427,464  in fiscal  2000 from  $2,849,771  in fiscal  1999.  The  decrease is
attributable to a $1,075,000  charge incurred in fiscal 1999 for the issuance of
warrants to Mr. Frank and a decrease of $47,873 in corporate  salaries in fiscal
2000. General and  administrative  expenses as a percent of net restaurant sales
decreased to 55.9% in fiscal 2000 from 175.1% in fiscal 1999.

     Loss on Closure of Restaurant Sites and Impairment Charges

     Loss on  closure  of  restaurant  sites and  impairment  charges  decreased
$322,200 or 88.3% to $42,800 in fiscal 2000 from  $365,000 in fiscal 1999.  Loss
on  closure  of  restaurant  sites and  impairment  charges  as a percent of net
restaurant sales decreased to 1.7% in fiscal 2000 from 22.4% in fiscal 1999. 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 1999 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. In fiscal 2000, the Company finalized
its  agreement  with  the  landlord  of  its  previously  closed  restaurant  in
Flemington,  New Jersey  resulting in a $42,800 loss on closure.  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. The note payable $39,998 was credited to additional paid in capital.

     Interest Expenses (Income) net

     Interest expense  (income) net increased  ($195,190) or 111.4% to ($19,942)
in fiscal 2000 from $175,248 in fiscal 1999.  Interest expense (income) net as a
percent of net restaurant  sales decreased to (.9%) in fiscal 2000 from 10.8% in
fiscal  1999.  This  increase  (in  income)   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 in fiscal 1999 and placement of idle cash in an interest bearing
account in fiscal 2000 generating $48,108 in earnings.

     Litigation Award

     Litigation  award  expense  (income)   decreased   $449,000  or  166.9%  to
($180,000) in fiscal 2000 from $269,000 in fiscal 1999. Litigation award expense
(income) as a percent of net restaurant sales decreased to (7.1%) in fiscal 2000
from  16.5% in fiscal  1999.

     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.  On June 26,
2000 agreement was reached between the Company and the plaintiff.  The plaintiff
received  $300,000  for total  release  of all claims and  demands  against  the
Company.  The settlement  required the Company pay $45,000 with the remainder to
be paid by the two co-defendant insurance companies. This resulted in a $180,000
reversal of prior year litigation charge.

Extraordinary Gain

     The Company recorded a decrease in extraordinary gain on the forgiveness of
debt of $372,747 or 72.7% to $139,682 in fiscal 2000  compared  with $512,429 in
fiscal 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  in fiscal  1999 and the fiscal 2000
discharge of payables of the prior closed  restaurants.  Extraordinary gain as a
percent of net restaurant  sales  decreased to 5.5% in fiscal 2000 from 31.5% in
fiscal 1999.

Subsequent Events

     On June 28, 2000 the Company hired a new Chief Financial Officer.

     On August  21,  2000 the  Company  filed form 8-K with the  Securities  and
Exchange Commission, reporting a change in registrant's certifying accountants.

     In September  2000, the Company paid $347,904 of dividends to the preferred
shareholders of record by issuing 13,916 additional shares of Series B Preferred
Stock in lieu of cash payments.

     The  Company is  currently  in default on its notes  payable of $237,505 in
addition to interest of approximately $150,000,  which were due on July 8, 2000.
The Company wil seek to restructure  these notes and/or to exchange the same for
equity, although there canbe no assurance of the same.

     As of October 2, 2000 the Company received  notification from its attorneys
regarding the Cioffi Trust case (see "Legal Proceedings") indicating the case is
Certified,  ready for trial. Plaintiff has until October 30, 2000 to file a note
of issue requesting a trial date.


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  adopted SOP 98-5 in the first quarter of fiscal 2000 and
did not result in any cumulative effect of a change in accounting principle. .

     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 adopted 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 and amended by Statement 138 in June, 2000 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  does not believe  that the
adoption of the Statement will have a material impact on the Company's financial
postion or the results of operations.

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.  In April 1999, 106 Federal Road Corporation,  a wholly
owned  subsidiary of the Company,  purchased the former  Rattlesnake  Restaurant
building and accompanying land in Danbury,  CT. for $1,350,000 in cash.  Federal
Road  Restaurant  Corporation,  another  wholly owned  subsidiary of the Company
leases this building from 106 Federal Road  Corporation as the building has been
renovated and styled per the new  Spencer's  Restaurants  theme.  The Company is
pursuing refinancing for this property but there is no assurance when or if this
will occur.  The Company is also seeking to obtain  capital  through the sale of
additional  equity.  Such  financing,  or the  aforesaid  refinancing,  will  be
required for  continued  operations  for the next twelve months  through  fiscal
2001.  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 has incurred  aggregate  losses since  inception of $19,736,463
inclusive of a net loss for fiscal 2000 of $959,373. The Company's cash position
decreased  to $374,507  during the year ended June 26,  2000,  principally  as a
result of the opening of the Danbury store and startup costs associated with it.

     Cash flows used in operating  activities for fiscal 2000 were  ($1,352,743)
as opposed to ($1,787,386) for fiscal 1999.

     Cash flows used in investing  activities  were  ($655,925)  for fiscal 2000
compared  to  ($1,397,972)  in  fiscal  1999.  This  can  be  attributed  to the
preparations of the new restaurant, Spencer's. The Company does not have further
commitments  for  capital  expenditures  beyond the  completion  of the  Danbury
location except those normally associated with day-to-day  operations.  However,
the  Company  does plan to expand the  Spencer's  concept and should that occur,
further capital expenditures would be required.

     Cash  flows from  financing  activities  were  $45,500  for fiscal  2000 as
compared  to  $5,211,705  in fiscal  1999 due to the sale of Series B  Preferred
Stock in Fiscal 1999.

     Given the above, cash for fiscal 2000 decreased by ($1,963,168) as compared
to a increase of $2,026,347  during fiscal 1999. The increase  during prior year
is attributable to the successful sale of  approximately  six million dollars in
Series B stock.

     On October 27, 1998, the Company  commenced an offering (the "Offering") of
its Series B Convertible  Preferred Shares, $.10 par value. Between February 17,
1999 and July 2, 1999,  the Company sold  approximately  $6,000,000  of Series B
Preferred Shares pursuant to the Offering and converted approximately $1,350,000
of its debt to Company equity.  During the Offering,  the Company satisfied,  by
payment of cash and/or equity in the form of preferred  and/or common stock, the
following:   (a)  all  outstanding   Series  C  promissory  notes;  (b)  certain
outstanding  Series B promissory  notes;  (c) all outstanding  promissory  notes
related to the now closed Fairfield facility; and (d) all outstanding promissory
notes from (i) September  1997,  (ii) March through June 1998, and (iii) October
and  November  1998,  effectively  satisfying  all short term and long term debt
which was in default.

     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.

     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.

     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 Company filed a  registration  statement on August 16, 1999,  which has
not  yet  been  declared  effective.  In July  2000  the  Company  filed a first
amendment to the registration statement and is awaiting comments from the SEC.

     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 26, 2000,  the following  obligations  are past due and in default;
$18,749 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). The remainder of notes payable, $237,506 matures July
7, 2000. The Company wil seek to restructure  these notes and/or to exchange the
same for equity, although there canbe no assurance of the same.

     At June 26,  2000,  the Company had  available a net  operating  loss carry
forward  ("NOL")  for  Federal and State  income tax  purposes of  approximately
$18,290,000, which are available to offset future taxable income, if any, before
2015.  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.

Inflation

     The Company's food, labor and energy costs have increased  recently but the
Company  beeives  such costs are within  industry  norms.  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 did not experience any year 2000 issues.

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 26, 2000 (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:
<TABLE>
<CAPTION>

      NAME                                        AGE                           POSITIONS
      ----                                        ---                           ---------

<S>                                               <C>                           <C>
Kenneth Berry                                     47                            President, CEO and Director

John S. Reuther, Jr.                              46                            Vice President - CFO

Stephan A. Stein                                  48                            Consultant, Secretary and
                                                                                Director

Nicolo Ottomanelli                                57                            Director
</TABLE>

     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.

     John S. Reuther,  Jr. Mr.  Reuther  became Chief  Financial  Officer of the
Company in June  2000.  Prior to this  time,  he served in  various  capacities,
including  MIS  Director,   Financial  Controller,   and  Consultant  for  Magic
Restaurants,  Inc./Redheads,  Inc. from 1994 until he joined the Company, except
for a  one-year  period  from  1998 to 1999,  in which he  served  as  Financial
Controller/MIS Director for Mars 2112, Inc. Both companies for which Mr. Reuther
previously  served  work under a  theme/entertainment  restaurant  concept.  Mr.
Reuther has a B.S. in  Accounting/Finance  from the  University  of  Connecticut
School of Business Administration.

     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 is currently a managing
member of Island Star Capital, LLC, and Director of Investment Banking of Joseph
Gunnar & Co.,  LLC, a  broker-dealer.  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 a founder of the Ottomanelli's Cafe franchising operation.

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 our 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 us with copies of these reports.  As of June
26, 2000, we believe we are in compliance with all Section 16  requirements  and
we believe our current management and directors to be in compliance.

ITEM 10. EXECUTIVE COMPENSATION.

The following table sets forth as of June 26, 2000 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:



Summary Compensation Table
<TABLE>
<CAPTION>

     Name of Individual                                                           Stock            Long-Term
   and Principal Position         Year           Salary          Bonus        Compensation        Compensation
------------------------------ ------------ ----------------- ------------- ------------------ -------------------

<S>                               <C>           <C>              <C>              <C>                  <C>
Kenneth Berry,                    2000          $95,000            ---              ---                ---
 President                        1999          $31,000          $30,000            ---                ---
                                  1998*         $ ---              ---              ---                ---

Nicolo Ottomanelli,               2000          $56,666            ---              ---                ---
 Director (1)                     1999          $89,567          $25,000            ---                ---
                                  1998          $69,230            ---              ---                ---

Stephan A. Stein,                 2000          $75,000            ---              ---                ---
 Secretary                        1999          $90,550            ---           $114,867              ---
                                  1998          $53,519            ---              ---                ---

-------------
*  Mr. Berry was not employed by the Company in fiscal year 1998.

<FN>

(1)  Nicolo Ottomanelli served as President until Kenneth Berry became President
     during  fiscal  year 2000.  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 in October
     1998 to reduce the fixed compensation to $85,000, to make him a participant
     in our incentive bonus program and to provide a payment of $25,000 in early
     1999. The Company and Mr. Ottomanelli  terminated his employment  agreement
     in January 2000. See "Beneficial Ownership" and "Management."
</FN>
</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 26, 2000:

Name                                                         Compensation
----                                                         ------------
Kenneth Berry (1)                                            $95,000

Nicolo Ottomanelli (2)                                       $56,666

Stephan A. Stein (3)                                         $75,000


1.   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 our  performance  bonus  plan,  and  receipt  of  $250,000  of term life
     insurance coverage.  In March of 1999, Mr. Berry's employment agreement was
     modified to provide him with the option to elect,  on one occasion only, to
     extend  the term of his  agreement  for a period of two years  until  2004,
     during which time he should be paid at an annual rate of $150,000 per year.
     In  addition,  Mr.  Berry was granted the warrant  described  in  "Security
     Ownership of Certain Beneficial Owners and Management."

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 $56,666 during fiscal 2000 for current
     and  deferred  salary.  In fiscal  1999 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.  On  January  31,  2000 the  Company
     accepted the resignation of its Senior Vice President,  Nicolo Ottomanelli.
     Mr.  Ottomanelli  remains  on the  Board of  Directors.  Mr.  Ottomanelli's
     contract was terminated  effective with the resignation and without payment
     or further  remuneration.  See  "Security  Ownership of Certain  Beneficial
     Owners and Management."

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".  In fiscal 1999 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,  in fiscal 1999  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.  In  fiscal  1999,  the  Company  issued
     warrants in the amount of $6,667 as part of his consulting  agreement.  Mr.
     Stein  received  $75,000 in cash  payments,  in fiscal 2000 for the current
     portion of his consulting contract.

     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.  The  Company  terminated  this  contract  in
December 1999 and Mr. Ferro received  1,000,000  common stock warrants,  vesting
immediately,  exercisable at $0.05 per share. This resulted in a non-cash charge
of $30,000 in fiscal 2000.

     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,  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. No bonuses were paid in fiscal 2000.

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

     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 February  2000,  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 February 2000, 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 26,  2000,  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:
<TABLE>
<CAPTION>


Name and Address of                                    Amount and Nature of Beneficial
Beneficial Owner**                                     Ownership***                         Percentage****
------------------------------------------------------ ---------------------------------- -------------------
<S>                                                             <C>        <C>                  <C>
Kenneth Berry                                                   20,000,000 (1)                  28.2%


Nicolo Ottomanelli                                               4,815,749 (2)                   9.8%


Joseph Ottomanelli                                               3,911,029 (3)                   7.7%
1549 York Avenue
New York, New York  10028

Stephan A. Stein                                                 6,151,224 (4)                  11.1%


Frank T. Ferro*****                                              1,000,000 (5)                   1.9%
5 Cornell Court
Tinton Falls, New Jersey  07724

Shelly Frank                                                    45,000,000 (6)                  46.9%
16 Arrowhead Way
Weston, CT  06883


Commonwealth Associates                                         15,650,000 (7)                  37.3%
830 Third Avenue
New York, New York 10022



------------------------------------------------------
All Directors and Officers as group                             31,900,306                     42.0%
(4 Persons)
<FN>
*   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%.

*****Contract terminated December 1999.

(1)  Includes  warrants  to  purchase  20,000,000  shares of Common  Stock at an
     exercise price of $.05.  Does not include  warrants to purchase  10,000,000
     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, or Mr. N. Ottomanelli's  children,  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, or Mr. N. Ottomanelli's children, 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)  Includes  warrants to purchase up to 1,000,000 shares of Common Stock at an
     exercise price of $.05.

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

(7)  Includes  warrants  to  purchase  12,000,000  shares of Common  Stock at an
     exercise price of $.05.
</FN>
</TABLE>


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").  In April 2000, the Company  transferred the shares of the above
entities back to Nicolo  Ottomanelli  and his brother,  and terminated a license
agreement which had licensed the name Ottomanelli's Cafe(R) to us

     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)

3.2               By-Laws (1)

4.1               Form of Common Stock Certificate (1)

4.2               Form of Series B Preferred Stock Certificate (1)

10.1              Employment Agreement with Stephan A. Stein (2)

10.1.1            Revised Employment Agreement with Stephan A. Stein (2)

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

10.3              Form of Series C Note (2)

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

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

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

10.7              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)

10.8              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)

10.9              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)

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

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

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

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

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

10.13.1           Amendment to Nicolo Ottomanelli Employment Agreement dated
                  as of October 1998

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

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

10.16             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/ John S. Reuther, Jr.
                                          ------------------------
                                          John S. Reuther, Jr.
                                          Vice President, CFO


Dated: October 10, 2000

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.
<TABLE>
<CAPTION>

            Signature                                     Title                               Date
----------------------------------- -------------------------------------------------- -----------------
<S>                                           <C>                                       <C>

                                              Senior Vice President and Director        October 10, 2000
/s/ Nicolo Ottomanelli
-----------------------------------
    Nicolo Ottomanelli


/s/ Stephan A. Stein                          Secretary and Director                    October 10, 2000
-----------------------------------
    Stephan A. Stein


/s/ Kenneth Berry                             Director                                  October 10, 2000
-----------------------------------
    Kenneth Berry
</TABLE>
<PAGE>


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


ITEM 7. FINANCIAL STATEMENTS.

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


                                                                 PAGE
                                                                 ----
(a)  Report of Independent Auditors                              F-1

(b)  Consolidated Balance Sheets as of June 26, 2000 and
          June 30, 1999                                          F-2

(c)  Consolidated Statemetns of Operations for the Years
          Ended June 26, 2000 and June 30, 1999                  F-3

(d)  Consolidated Statements of Stockholders' Equity for
          the Years Ended June 26, 2000 and June 30, 1999        F-4 to F-5

(e)  Consolidated Statements of Cash Flows for the Years
          Ended June 26, 2000 and June 30, 1999                  F-6 to F-7

(f)  Notes to Consolidated Financial Statements                  F-8 to F-23

<PAGE>


                          INDEPENDENT AUDITORS' REPORT



To the Stockholders and Board of Directors
Spencer's Restaurants, Inc.
Danbury, Connecticut

We have  audited  the  accompanying  consolidated  balance  sheet  of  Spencer's
Restaurants,  Inc.  and  Subsidiaries  as of  June  26,  2000  and  the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
the fifty-two weeks then ended.  The consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on the consolidated financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Spencer's Restaurants, Inc. and Subsidiaries as of June 26, 2000 and the results
of their  operations  and cash flows for the  fifty-two  weeks then  ended.,  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, the
Company has incurred recurring losses from operations and at June 26, 2000 has a
working  capital  deficit of $1,044,162.  Continuation of the Company as a going
concern is  dependent  upon  future  successful  operations  and the  ability to
generate sufficient cash flows from operations and capital/financing  sources to
meet its obligations.  These matters raise substantial doubt about the Company's
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also described in Note 2. The consolidated  financial  statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.



                                                  /s/ COGEN SKLAR LLP


Bala Cynwyd, Pennsylvania
September 15, 2000


<PAGE>
                          Independent Auditor's Report




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


     We have audited the  accompanying  consolidated  balance sheet of Spencer's
Restaurants,  Inc. and subsidiaries  (formerly The Rattlesnake  Holding Company,
Inc.  and  subsidiaries)  as of June  30,  1999,  and the  related  consolidated
statements of operations,  stockholder's equity and cash flows for the year then
ended.  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 audit.

     We conducted  our audit 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 audit provides 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 the results of their  operations and
their cash flows for the year then ended 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 holding 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.

                                             /s/ KPMG LLP

Melville, New York
October 26, 1999

<PAGE>
                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                         JUNE 26, 2000 AND JUNE 30, 1999

<TABLE>
<CAPTION>

                                                                                           2000              1999
                                                                                           ----              ----

              ASSETS
<S>                                                                                    <C>              <C>
CURRENT ASSETS
     Cash                                                                              $  374,507       $ 2,337,675
     Accounts receivable                                                                   24,500             9,754
     Inventory                                                                             47,862            16,688
     Prepaid expenses and other current assets                                              2,159            11,918
                                                                                       ----------       -----------

TOTAL CURRENT ASSETS                                                                      449,028         2,376,035

LAND, BUILDING AND EQUIPMENT - Net                                                      2,021,456         1,445,079

INTANGIBLE ASSETS - Net                                                                    13,744            20,769

OTHER ASSETS                                                                               18,776            76,383
                                                                                      -----------       -----------
TOTAL ASSETS                                                                          $ 2,503,004       $ 3,918,266
                                                                                      ===========       ===========

              LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Current maturities of notes payable                                               $  258,344         $  55,838
     Accounts payable                                                                     486,714           689,679
     Accrued expenses                                                                     322,673           678,221
     Dividends payable                                                                    347,904           198,846
     Other current liabilities                                                             77,555           171,621
                                                                                        ---------         ---------
TOTAL CURRENT LIABILITIES                                                               1,493,190         1,794,205
NOTES PAYABLE, NET OF CURRENT MATURITIES                                                     -              242,504
                                                                                        ---------         ---------

TOTAL LIABILITIES                                                                       1,493,190         2,036,709
                                                                                        =========         =========

PREFERRED STOCK - Series B 9%  Convertible - $0.10 par value;  5,000,000  shares
   authorized; 315,076 shares issued and outstanding at 2000; 328,563 shares
   issued and outstanding at 1999                                                          31,507            32,856

ADDITIONAL PAID-IN CAPITAL - Preferred stock                                            6,535,088         7,204,095

COMMON  STOCK - $0.001  par value;  400,000,000  shares  authorized;  51,002,981
   shares     issued  and  outstanding  at 2000;  29,979,013  shares  issued and           51,003            29,980
   outstanding at 1999

ADDITIONAL PAID-IN CAPITAL - Common stock                                              14,476,583        13,590,562

ACCRUED DIVIDENDS                                                                       (347,904)         (198,846)

ACCUMULATED DEFICIT                                                                  (19,736,463)      (18,777,090)
                                                                                     ============      ============

TOTAL STOCKHOLDERS' EQUITY                                                              1,009,814         1,881,557
                                                                                        ---------         ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                            $ 2,503,004       $ 3,918,266
                                                                                      ===========       ===========

     The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                          FOR THE FIFTY-TWO WEEKS ENDED
                JUNE 26, 2000 AND FOR THE YEAR ENDED JUNE 30, 1999


<TABLE>
<CAPTION>
                                                                                           2000             1999
                                                                                           ----             ----

<S>                                                                                   <C>               <C>
SALES                                                                                 $ 2,645,770       $ 1,696,679
     Less: Promotional sales                                                               90,920            69,434
                                                                                      -----------       -----------
NET SALES                                                                               2,554,850         1,627,245
                                                                                      -----------       -----------
COSTS AND EXPENSES

     Cost of food and beverage sales                                                      958,581           621,595
     Restaurant salaries and fringe benefits                                              955,584           662,343
     Occupancy and related expenses                                                       296,504           485,200
     Depreciation and amortization expense                                                 86,573            44,096
                                                                                      -----------       -----------
TOTAL RESTAURANT COSTS AND EXPENSES                                                     2,297,242         1,813,234

SELLING, GENERAL AND ADMINISTRATIVE                                                     1,427,464         2,849,771

LOSS ON CLOSURE OF RESTAURANT SITES
   AND IMPAIRMENT CHARGES                                                                  42,800           365,000

INTEREST EXPENSE (INCOME) - Net                                                          (19,942)           175,248

LITIGATION AWARD (INCOME)                                                               (180,000)           269,000

MISCELLANEOUS EXPENSES                                                                     86,341            19,456
                                                                                      -----------       -----------
TOTAL EXPENSES                                                                          3,653,905         5,491,709
                                                                                      -----------       -----------
LOSS BEFORE EXTRAORDINARY ITEM                                                        (1,099,055)       (3,864,464)

EXTRAORDINARY ITEM - Gain from extinguishment of debt,
   no applicable income tax expense                                                       139,682           512,429
                                                                                      -----------       -----------
NET LOSS                                                                                (959,373)       (3,352,035)

DIVIDENDS ON PREFERRED STOCK                                                            (691,222)         (198,846)
                                                                                     ============      ============
NET LOSS AVAILABLE COMMON STOCKHOLDERS                                               $(1,650,595)      $(3,550,881)
                                                                                     ============      ============

NET LOSS PER SHARE

     Loss before extraordinary item                                                    $   (0.05)        $   (0.21)
     Extraordinary item                                                                      -                 0.03
                                                                                       ----------        ----------
     Net loss - basic and diluted                                                      $   (0.05)        $   (0.18)
                                                                                       ==========        ==========

WEIGHTED AVERAGE SHARES
   OUTSTANDING OF COMMON STOCK                                                         33,889,578        19,205,208
                                                                                       ==========        ==========

     The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE PERIOD JUNE 28, 1998 TO JUNE 26, 2000
<TABLE>
<CAPTION>


                                            Common              Common                    Preferred Stock
                                            Shares               Stock        Series A        Series B      Series A
                                            ------               -----        --------        --------      --------

<S>                                         <C>               <C>               <C>            <C>       <C>
BALANCE AT JUNE 28, 1998                    10,889,285        $ 10,890          56,500            --         $ 5,650

Net proceeds  received from issuance
of common stock                              1,100,000           1,100            --              --             --

Net proceeds received from
issuances of Series B preferred stock             --              --              --           236,279           --

Issuance of warrants for services                 --              --              --              --             --
performed

Deferred compensation                             --              --              --              --             --

Issuance of common stock for
services performed                           2,651,991             806            --              --             --

Conversion of debt to common and
preferred stock                             10,421,070          12,267            --            36,914           --

Conversion  of  Series  A  preferred
stock to Series B preferred stock                 --              --           (56,500)         55,370         (5,650)

Additional  issuance of common stock
in connection  with  acquisition of the      5,000,000           5,000            --              --             --
Ottomanelli Group

Cancellation of common shares                  (83,333)            (83)           --              --             --

Accrued dividends - Series A                      --              --              --              --             --

Forgiveness of dividends                          --              --              --              --             --

Accrued dividends - Series B                      --              --              --              --             --

Net loss for fifty-two weeks
ended June 30, 1999                               --              --              --              --             --
                                            ----------          ------        --------        --------      --------
BALANCE AT JUNE 30, 1999                    29,979,013          29,980            --           328,563           --
</TABLE>
<PAGE>

                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
                  FOR THE PERIOD JUNE 28, 1998 TO JUNE 26, 2000

<TABLE>
<CAPTION>

                                             Preferred      Additional                                    Additional
                                               Stock     Paid-in Capital   Accrued       Accumulated   Paid-in Capital
                                              Series B   Preferred Stock   Dividends       Deficit      Common Stock
                                              --------   ---------------   ---------       -------      ------------

<S>                                          <C>          <C>             <C>           <C>             <C>
BALANCE AT JUNE 28, 1998                     $    --      $ 1,173,432     $ (207,636)   $(15,425,055)   $ 11,381,186

Net proceeds  received from issuance
of common stock                                   --             --             --              --           152,400

Net proceeds received from
issuances of Series B preferred stock           23,627      5,111,392           --              --              --

Issuance of warrants for services                 --             --             --              --         1,098,547
performed

Deferred compensation                             --             --             --              --            12,221

Issuance of common stock for
services performed                                --             --             --              --           132,692

Conversion of debt to common and
preferred stock                                  3,692        919,158           --              --           580,933

Conversion  of  Series  A  preferred
stock to Series B preferred stock                5,537            113           --              --              --

Additional  issuance of common stock
in connection  with  acquisition of the           --             --             --              --           245,000
Ottomanelli Group

Cancellation of common shares                     --             --             --              --           (12,417)

Accrued dividends - Series A                      --             --          (51,909)           --              --

Forgiveness of dividends                          --             --          259,545            --              --

Accrued dividends - Series B                      --             --         (198,846)           --              --

Net loss for fifty-two weeks
ended June 30, 1999                               --             --             --        (3,352,035)
                                            ----------      ---------       ---------    -----------      ----------
BALANCE AT JUNE 30, 1999                        32,856      7,204,095       (198,846)    (18,777,090)     13,590,562

<FN>

     The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
                  FOR THE PERIOD JUNE 28, 1998 TO JUNE 26, 2000
<TABLE>
<CAPTION>


                                                  Common        Common                Preferred Stock
                                                  Shares         Stock            Series A        Series B
                                                   ------        -----            --------        --------
<S>                                                <C>           <C>              <C>             <C>
Net proceeds  received from issuance
of common stock                                     7,613              7               --         --

Issuance of options for salary                       --             --                 --         --

Net proceeds  received from issuance
of Series B preferred stock                          --             --                 --        2,000

Issuance of Series B preferred
stock as settlement with previous landlord           --             --                 --        4,660

Issuance
settlement  of lawsuit                            100,000            100               --         --

Conversion  of  Series  B  preferred
stock to common stock                          20,916,355         20,916               --      (41,833)

Issuance
stock as dividend                                    --             --                 --       21,686

Accrued dividends  - Series B                        --             --                 --         --

Net  loss  for the  fifty-two  weeks
ended  June 26, 2000                                 --             --                 --         --
                                               ----------         ------            --------  --------
BALANCE, JUNE 26, 2000                         51,002,981     $   51,003               --      315,076
</TABLE>
<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
                  FOR THE PERIOD JUNE 28, 1998 TO JUNE 26, 2000

<TABLE>
<CAPTION>

                                                                           Additional                                  Additional
                                                    Preferred Stock     Paid-in Capital    Accrued    Accumulated   Paid-in Capital
                                                 Series A    Series B   Preferred Stock    Dividends    Deficit      Common Stock
                                                 --------    --------   ---------------    ---------    -------       ------------

<S>                                              <C>           <C>            <C>             <C>         <C>
Net proceeds  received from issuance
of common stock                                      --          --              --            --           --              493


Issuance of options for salary                       --          --              --            --           --           30,000

Net proceeds  received from issuance
of Series B preferred stock                          --           200          44,800          --           --             --


Issuance of Series B preferred
stock as settlement with previous landlord           --           466         156,032          --           --             --


Issuance
  of   common   stock   for
settlement  of lawsuit                               --          --              --            --           --            4,590


Conversion  of  Series  B  preferred
stock to common stock                                --        (4,183)       (867,671)         --           --          850,938


Issuance
  of  series  B   preferred
stock as dividend                                    --         2,168          (2,168)      542,164         --             --


Accrued dividends  - Series B                        --          --              --        (691,222)        --             --

Net  loss  for the  fifty-two  weeks
ended                                                --          --              --            --       (959,373)          --
                                                 --------      ------       ---------      --------  ------------   -----------

BALANCE, JUNE 26, 2000                       $       --      $ 31,507    $  6,535,088    $ (347,904)$(19,736,463)   $14,476,583

<FN>

     The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>

                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                          FOR THE FIFTY-TWO WEEKS ENDED
                JUNE 26, 2000 AND FOR THE YEAR ENDED JUNE 30, 1999

<TABLE>
<CAPTION>

                                                                                          2000             1999
                                                                                          ----             ----

<S>                                                                                   <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES                                                  $ (959,373)      $(3,352,035)
    Net loss
    Adjustment to reconcile net loss to net cash
       used in operating activities
        Depreciation and amortization                                                      86,573            44,096
        Litigation award                                                                (180,000)           225,000
        Gain on extinguishment of debt                                                  (139,682)         (512,429)
        Loss on closure of restaurant sites                                                42,800           365,000
        Options issued for salary                                                          30,000                 -
        Warrants issued for services provided                                                   -         1,110,769
        Stock issued for services provided                                                      -           133,498
        Stock issued for settlement of lawsuit                                              4,690                 -
        (Increase) decrease in assets
           Accounts receivable                                                           (14,746)             7,077
           Inventory                                                                     (31,174)            12,709
           Increase in prepaid and other assets                                            67,366           (2,658)
        Increase (decrease) in liabilities
           Accounts payable and accrued expenses                                        (165,131)           192,937
           Other liabilities                                                             (94,066)          (11,350)
                                                                                        --------           --------
    Net cash used in operating activities                                             (1,352,743)       (1,787,386)
                                                                                      ----------        -----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Capital expenditures                                                                (655,925)       (1,397,972)
                                                                                        ---------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from issuance of common stock                                                    500           153,500
    Proceeds from issuance of convertible notes                                                 -           250,000
    Proceeds from issuance of preferred stock                                              45,000         5,135,019
    Payments relating to cancelled common stock
       subscription agreements                                                                  -          (12,500)
    Principal repayments of borrowings                                                          -         (314,314)
                                                                                           ------         ---------

    Net cash provided by financing activities                                              45,500         5,211,705
                                                                                           ------         ---------

NET INCREASE (DECREASE) IN CASH                                                       (1,963,168)         2,026,347

CASH  - BEGINNING OF PERIOD                                                             2,337,675           311,328
                                                                                        ---------           -------

CASH  - END OF PERIOD                                                                   $ 374,507       $ 2,337,675
                                                                                        =========       ===========

CASH PAID DURING THE PERIOD FOR:

    Interest                                                                             $  3,747         $  53,616
                                                                                         ========         =========
</TABLE>
     The accompanying notes are an integral part of these consolidated financial
statements.


<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                          FOR THE FIFTY-TWO WEEKS ENDED
                JUNE 26, 2000 AND FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
                                                                                            2000               1999
                                                                                            ----               ----
SUPPLEMENTAL DISCLOSURE OF NON-CASH
   INVESTING AND FINANCING ACTIVITIES

Issuance of Series B - Preferred Stock as settlement
  with previous landlord:
<S>                                                                                       <C>                 <C>
       Accrued expenses                                                                   $73,700             $   -
       Loss on closure of restaurant sites                                                 42,800                 -
       Forgiveness of debt                                                                 39,998                 -
                                                                                         --------             -----
       Series B Preferred Stock                                                          $156,498             $   -
                                                                                         ========             =====
Conversion of Series B Preferred Stock
   to Common Stock                                                                       $871,854             $   -
                                                                                         ========             =====
Issuance of Series B Preferred Stock
   as dividend                                                                            $ 2,168             $   -
                                                                                          =======             =====
</TABLE>

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


<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENT
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business
As of June 26, 2000 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 named Rattlesnake  Southwestern
Grill. Additionally,  the Company owned a site in Danbury,  Connecticut at which
it operates the Company's new concept  restaurant named  Spencer's,  featuring a
casual steakhouse theme, which began operations on November 3, 1999.

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.

Consolidated Financial Statements
The accompanying  consolidated  financial statements include the accounts of the
Company  and  its   wholly-owned   subsidiaries.   All   material   intercompany
transactions have been eliminated in consolidation.

Reporting Periods
On May 12,  1999,  the Board of  Directors  approved a change of its fiscal year
from the last Sunday in June to June 30,  effective  for Fiscal 1999. On June 1,
2000, the Board of Directors  approved a further change in the Company's  fiscal
year to a fifty-two week cycle ending on the last Monday in June,  effective for
Fiscal 2000.

Comprehensive Income
The Company follows the Statement of Financial  Accounting Standard ("SFAS") No.
130, "Reporting  Comprehensive Income." 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.  Since  the  company  has no  items of other  comprehensive  income,  no
separate statement of comprehensive income has been presented.

Fair Value of Financial Instruments
The Company's  financial  instruments  consist of cash, short -term receivables,
payables,  and  accrued  expenses.  The  carrying  values  of  cash,  short-term
receivables,  payables and accrued  expenses  approximate  fair value because of
their short maturities.

The  carrying  value of the  long-term  debt  approximates  fair value since the
interest rate associated with the debt  approximates the current market interest
rate.

Concentration of Credit Risk Involving Cash
At June 26, 2000,  the Company has deposits  with major  financial  institutions
which exceed Federal Depository Insurance limits.  These financial  institutions
have strong credit ratings,  and management believes that credit risk related to
these deposits is minimal.

Accounts receivable
Accounts   receivable   consists   principally  of  bank  credit  card  accounts
receivable.

Inventory
Inventory  consists of food, liquor, bar and other supplies and is stated at the
lower of cost (determined by the first-in, first-out method) or market.

<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
(Continued)

Depreciation
The cost of property and  equipment is  depreciated  over the  estimated  useful
lives of the related  assets.  The cost of leasehold  improvements  is amortized
over the  lesser of the length of the  related  leases or the  estimated  useful
lives of the assets.  Depreciation  is computed  using the straight line method.
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


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 26,  2000 and June 30,  1999 was  $86,796 and
$79,771.  Amortization  expense  was $7,025 and $9,829 for the  fifty-two  weeks
ended June 26, 2000 and June 30, 1999.

Cost of Start-up Activities
The Company  adopted  Statement of Positions  98-5,  "Reporting  on the Costs of
Start-Up  Activities"  ("SOP 98-5") beginning July 1, 1999. It requires costs of
start-up activities and organization costs to be expenses as incurred.  SOP 98-5
is effective for all fiscal years beginning after December 15, 1998 with initial
adoption  reported as a cumulative  effect of a change in accounting  principle.
The adoption of SOP 98-5 did not result in any cumulative  effect of a change in
accounting  principle.  At June 30,  1999,  there were no  unamortized  start-up
costs.

Income Taxes
The Company  accounts for income taxes under  Statement of Financial  Accounting
Standards  ("SFAS") No. 109,  "Accounting  for Income Taxes",  which requires an
asset and liability  approach to financial  accounting  and reporting for income
taxes.  Deferred  income tax assets and  liabilities  are computed  annually for
temporary  differences  between the financial  statement and tax bases of assets
and liabilities that will result in taxable or deductible  amounts in the future
based on  enacted  tax laws and rates  applicable  to the  periods  in which the
differences  are expected to affect  taxable  income.  Valuation  allowances are
established  when necessary to reduce deferred tax assets to the amount expected
to be  realized.  Income tax  expense is the tax payable or  refundable  for the
period  plus or minus the change  during the period in  deferred  tax assets and
liabilities.

Estimates
The preparation of financial  statements in conformity  with generally  accepted
accounting  principles  requires  the use of  estimates  based  on  management's
knowledge and  experience.  Accordingly,  actual results could differ from those
estimates.

Recoverability of Long Lived Assets
The Company  follows SFAS No. 121,  "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." The Statement requires that
long-lived  assets  and  certain   identifiable   intangibles  be  reviewed  for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of the asset may not be recoverable. The Company is not aware of
any events or circumstances  which indicate the existence of an impairment which
would be material to the Company's annual financial statements.



<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999



NOTE 1 - NATURE OF  BUSINESS  AND  SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES
(Continued)

Disclosures About Segments of an Enterprise and Related Information
The Company adopted SFAS No. 131,  "Disclosures About Segments of and Enterprise
and Related Information" beginning Fiscal 1999. This statement is not applicable
to the Company at the present  time since there is only one  reportable  segment
and  there  are  no  required  disclosures  related  to  product  and  services,
geographic areas and major customers.

Accounting for Derivative Instruments and Hedging Activities
In June 1998,  Statement of Financial  Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("Statement 133"), was issued
and amended by Statement  138 in June 2000 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 does not believe that the adoption of the  Statement
will have a  material  impact on the  Company's  financial  position  results of
operations.

Accounting for Stock-Based Compensation
Compensation costs attributable to stock option and similar plans are recognized
based on any difference between the quoted market price of the stock on the date
of the grant over the amount the  employee  is  required  to pay to acquire  the
stock (the intrinsic value method under Accounting Principles Board Opinion 25).
Such amount, if any, is accrued over the related vesting period, as appropriate.

The Company follows SFAS No. 123, "Accounting for Stock-Based Compensation." The
Statement encourages employers to account for stock compensation awards based on
their fair value on their  date of grant.  Entities  may choose not to apply the
new  accounting  method  but  instead,  disclose  in the notes to the  financial
statements  the pro forma effects on net income and earnings per share as if the
new method  had been  applied.  The  Company  has  adopted  the  disclosure-only
approach of the Standard.

Earnings (Loss) Per Share
The Company follows SFAS No. 128,  "Earnings Per Share" ("EPS").  This statement
establishes  standards  for  computing  and  presenting  EPS. For entities  with
complex capital structures, the statement requires the dual presentation of both
Basic EPS and Diluted EPS on the face of the statement of operations. Under this
standard, Basic EPS is computed based on weighted average shares outstanding and
excludes any potential  dilution;  Diluted EPS reflects  potential dilution from
the  exercise  or  conversion  of  securities  into  common  stock or from other
contracts to issue common stock.

Basic  earnings  (loss) per share include the weighted  average number of shares
outstanding  during the year.  Diluted  earnings  (loss) per share  include  the
weighted  average number of shares  outstanding  and dilutive  potential  common
shares, such as warrants and convertible  securities.  Assumed conversion of the
warrants and convertible  securities would be either immaterial or antidilutive,
therefore, basic and diluted earnings (loss) per share are the same.

Net loss  applicable to common  stockholders  for the fifty-two weeks ended June
26,  2000 and June 30, 1999 has been  increased  by $691,222  and  $198,846  for
preferred dividends.


NOTE 2 - BUSINESS PLAN

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.

<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999

NOTE 2 - BUSINESS PLAN (Continued)

Fiscal 2000
The Company has  incurred  aggregate  losses  since  inception  of  $19,736,463,
inclusive  of a net loss in fiscal 2000 of  $959,373  and at June 26, 2000 had a
working  capital  deficit  of  $1,044,162.  Additionally,  $18,749  of  Series C
subordinated  notes  payable  matured on August 6, 1997,  and a $2,089  Series A
subordinated  note payable  matured on August 6, 1996, are in default as of June
26, 2000.

At June 26, 2000 the Company anticipates that it will require additional working
capital to fund  operations.  The Company  believes that it will have sufficient
capital to meet these obligations and implement an expansion  strategy through a
second stock offering and by obtaining  financing on its real estate holdings at
106  Danbury  Road.  The  Company is  currently  in  negotiations  with  several
institutions  to secure this  financing.  However there can be no assurance that
the Company will have sufficient capital to support operations and implement its
business plan.

Fiscal 1999
At June 30, 1999 the Company had 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,  $18,749 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  $35,838 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 5), 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.

At June 30, 1999 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.


NOTE 3 - LAND, BUILDING AND EQUIPMENT

Land, building and equipment consist of the following:
<TABLE>
<CAPTION>

                                                                                2000                1999
                                                                                ----                ----

<S>                                                                          <C>                <C>
         Land                                                                $1,000,000         $1,000,000
         Buildings                                                              421,191            358,067
         Leasehold improvements                                                 504,135            100,047
         Restaurant fixtures and equipment                                      223,637            110,577
         Furniture and fixtures                                                 146,985             59,331
         Construction in progress                                                     -             12,000
                                                                              ---------          ---------
                                                                              2,295,948          1,640,022
         Less: Accumulated depreciation                                         274,492            194,943
                                                                              ---------          ---------
                                                                             $2,021,456         $1,445,079
                                                                             ==========         ==========
</TABLE>

Related depreciation and amortization  expenses were $79,549 and $34,268 for the
fifty-two weeks ended June 26, 2000 and June 30, 1999.


<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 4 - OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>

                                                                                 2000               1999
                                                                                 ----               ----

<S>                                                                               <C>              <C>
         Promotional meal programs                                                $   -            $75,383
         Deposits                                                                18,776              1,000
                                                                                -------            -------
                                                                                $18,776            $76,383
                                                                                =======            =======
</TABLE>

NOTE 5 - NOTES PAYABLE

Notes payable consists of the following:
<TABLE>
<CAPTION>
                                                                                  2000            1999
                                                                                  ----            ----
<S>                                                                            <C>             <C>
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          237,506

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

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 September)                                    -           39,998 **
                                                                               -------           ------

                                                                               258,344          298,342
Less: Current maturities                                                       258,344           55,838
                                                                               -------          -------

                                                                                 $   -         $242,504
                                                                                 =====         ========
<FN>
*    -  Obligation in default at June 26, 2000 and June 30, 1999.
**  -  $15,000 of these notes were in default at June 30, 1999.
</FN>
</TABLE>

Interest  expense for the fifty-two  weeks ended June 26, 2000 and June 30, 1999
was $28,165 and $212,315.



<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 6 - 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.


<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 6 - FINANCING ARRANGEMENTS (Continued)

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.

For  the  fifty-two  weeks  ended  June  26,  2000  the  Company  recognized  an
extraordinary  gain on the  forgiveness of debt of $139,682,  resulting from the
discharge of payables associated with restaurants closed in prior years.


NOTE 7 - ACCRUED EXPENSES

Accrued expenses consist of the following:

                                                      2000             1999
                                                      ----             ----

       Litigation award                             $     -          $225,000
       Accrued rent                                   80,000          140,099
       Interest payable                              149,781          125,363
       Professional fees                              30,000          120,000
       Other                                          32,343           52,292
       Accrued payroll                                30,549           15,467
                                                    --------         --------
                                                    $322,673         $678,221


NOTE 8 - 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 26, 2000 and June 30,  1999,  the balances  outstanding  under this program
were $77,555 and $171,621,  which are included in other current  liabilities  in
the accompanying consolidated balance sheets.


<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 9 - COMMITMENTS

The  Company   leases  its  restaurant   premises   located  in  South  Norwalk,
Connecticut, under an operating leases expiring May 31, 2002. The lease contains
contingent  rental provisions based upon a percentage of gross sales that exceed
a  predetermined  level.  There  were  no  contingent  rental  payments  for the
fifty-two  weeks ended June 26,  2000 and June 30,  1999.  Rent  expense for the
fifty-two weeks ended June 26, 2000 and June 30, 1999 was $101,878 and $190,733.

Certain  stockholders  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,  closed in Fiscal 1997, the Company  guaranteed  specified
lease obligations. As of June 26, 2000, 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 15).

Future minimum annual rentals are as follows:


      Fifty-two Weeks                        Amount
      Ending June,

                 2001                        $62,338
                 2002                         57,143
                                              ------
                                            $119,481
                                            ========


NOTE 10 - CAPITAL STRUCTURE

Preferred Stock
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 had 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.


<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 10 - CAPITAL STRUCTURE (Continued)

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 Company  filed a  registration
statement on August 16, 1999 and filed a first amendment during July 2000.

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 divided rate will increase to 14% per
annum from issuance.

In July 1999, the Company sold an additional  2,000 shares of Series B preferred
stock at $25 per share and received $45,000, net of expenses.

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.  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.

The  issuance  of the 4,660  shares of Series B  preferred  stock  resulted in a
charge of  $42,800  to loss on  closure  of  restaurant  sites  and the  $39,998
forgiveness of debt was credited against additional paid-in capital.

In September  1999, the Company issued 7,954 shares of Series B preferred  stock
as payment of the June 30, 1999 accrued dividends of $198,846.

In March 2000, the Company  issued 13,732 shares of Series B preferred  stock as
payment of dividends  declared  for the first and second  quarter of Fiscal 2000
totalling $343,318.

During the fourth  quarter of Fiscal 2000,  41,833  shares of Series B preferred
stock was converted to 20,916,355 shares of common stock.


<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 10 - CAPITAL STRUCTURE (Continued)

The Board of  Directors  declared  dividends  relating to the Series B preferred
stock for the third and fourth quarter Fiscal 2000 totaling  $347,904 which have
been accrued as of June 26, 2000.

Common Stock
In May 2000,  the Company  sold 7,613  shares of common  stock for $500,  net of
expenses.

In June 2000, the Company issued 100,000 shares of common stock valued at $4,690
and $15,000 of cash as settlement of an outstanding claim against the company.


NOTE 11- 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 26, 2000 and June 30, 1999 are presented below:


                                      June 26, 2000       June 30, 1999
                                      -------------       -------------

Deferred tax assets:
Net operating loss carry-forward        $7,316,000          $6,947,521

Less: Valuation allowance                7,316,000           6,947,521
                                         ---------           ---------

Net deferred tax assets                 $     -             $     -
                                        ----------          ----------


The valuation allowance for deferred tax assets as of June 26, 2000 and June 30,
1999 was $7,316,000 and $6,947,521.  The change in the total valuation allowance
for the years ended June 26, 2000 and June 30, 1999 was $368,479 and $1,347,597.
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  taxible  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 26, 2000 and June 30, 1999, the Company has
net operating  loss carry  forwards for Federal and State income tax purposes of
approximately $18,290,000 and $17,330,993 (the "NOL carry forwards"),  which are
available to offset future taxable income,  if any,  through fiscal 2015.  Based
upon the limited  operating  history of the Company and losses incurred to date,
management has fully reserved the deferred tax asset.


<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 11- INCOME TAXES (Continued)

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
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.


NOTE 12 - EMPLOYEE BENEFIT PLANS

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.  The  Employees  Plan was
canceled in April 1999.

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.
The Director Plan was canceled in April 1999.

At June 26, 2000 and June 30, 1999, there were 1,000,000 and 295,000  additional
shares available for grant under the Employees and Director Plans. 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 2000, 1999 and 1998.


<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 12 - EMPLOYEE BENEFIT PLANS (Continued)

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:
<TABLE>
<CAPTION>

                                                                        2000             1999
                                                                        ----             ----

<S>                                                                <C>               <C>
Net loss available to common shareholders:
                                    As reported                    $(1,650,595)      $(3,550,881)
Pro-forma                                                          $(1,650,595)      $(3,550,881)
Loss per share:                     As reported                      $   (0.03)         $  (0.18)
Pro-forma                                                            $   (0.03)         $  (0.18)
</TABLE>

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.

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 26, 2000 and June 30, 1999.

As of June 26,  2000 and June 30, 1999 there were no ISO's  outstanding  options
and 205,000 non-ISO's outstanding options.  There were no ISO or non-ISO options
granted or terminated during Fiscal 2000 and Fiscal 1999.

At June 26,  2000,  the range of  exercise  prices  and  range of the  remaining
contractual  life of  outstanding  non-ISO's  options  was  $4.50  -  $5.25  and
approximately 0.5 - 1.5 years.

At June 26, 2000 and June 30, 1999, the number of non-ISO's 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 ISO's,
non-ISO's,  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 years.  The exercise  price for
non-ISO's  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 ISO's,  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.




<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 12 - EMPLOYEE BENEFIT PLANS (Continued)

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.

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 13).

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.  This  employment  agreement  was  terminated  in its
entirety,  in December  1999.  In January  2000,  the Company  issued  1,000,000
options to this  officer of the  Company as a  severance  payment.  The  Company
recognized $30,000 of compensation  expense upon issuance of those options since
the fair market  value per share  ($0.08) was greater  than the  exercise  price
($0.05).

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.


<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 12 - EMPLOYEE BENEFIT PLANS (Continued)

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.

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.


NOTE 13 - 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,
1997employment  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.
This consulting agreement was terminated on December 31, 1999.


NOTE 14 - LOSS ON CLOSURE OF RESTAURANTS AND IMPAIRMENT CHARGES

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.  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.

The  issuance  of the 4,660  shares of Series B  preferred  stock  resulted in a
charge of  $42,800  to loss on  closure  of  restaurant  sites  and the  $39,998
forgiveness of debt was credited against additional paid-in capital.


<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 14 - LOSS ON CLOSURE OF RESTAURANTS AND IMPAIRMENT CHARGES (Continued)

Pursuant to a 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.

A note receivable of $230,000,  which was received as partial  consideration for
the March 1998 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 fiscal
1999.


NOTE 15 - LITIGATION

The Company was 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  Comapny
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.  For Fiscal  1999,  the Company  reduced its
original  accrual  from  $625,000 to $225,000  which  represented  the  appealed
verdict in the quarter ended December 31, 1998.

During June 2000,  the lawsuit was settled for  $300,000 of which  $225,000  was
paid by insurance  companies and $45,000 was paid by the Company. As a result of
this settlement,  the Company recognized $180,000 of litigation income in fiscal
2000,  which  represents  the  difference  between the June 30, 1999  litigation
accrual of $225,000 and the actual payment of $45,000.

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
action against the Company is based on an alleged guaranty of the lease payments
due from the subsidiary of the Company.  The Company is of the position that the
landlord  waived the  guarantee at the time of the  surrender of the premises in
September 1997. 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.


NOTE 16 - EARNINGS (LOSS) PER SHARE

As discussed in Note 1, 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 2000 and 1999
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.


<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         JUNE 26, 2000 AND JUNE 30, 1999


NOTE 16 - EARNINGS (LOSS) PER SHARE (Continued)

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



                                                      2000              1999
                                                      ----              ----

         Net loss per share                         $(0.03)           $(0.20)

         Net gain on extraordinary item                  -              0.03

         Net loss per share attributable to
            preferred stock dividends                (0.02)            (0.01)
                                                    -------            ------

         Net loss per share available to
            common stockholders                     $(0.05)           $(0.18)
                                                    =======           =======

NOTE 17 - SUBSEQUENT EVENTS

In July 2000, the Company was in default of the $237,506 of Series B convertible
subordinated  notes payable,  and additional  accrued  interest of approximately
$150,000 which matured on July 7, 2000.

In September  2000, the Company issued 13,916 shares of Series B preferred stock
as payment of the $347,904 of accrued dividends as of June 26, 2000.