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 28, 1998

     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

                      The Rattlesnake Holding Company, Inc.
                 (Name of small business issuer in its charter)

     Delaware                                           06-1369616
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

                               2 South Main Street
                             South Norwalk, CT 06854
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (860) 276-8660

     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 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


     State issuer's revenues for its most recent fiscal year. $3,888,643

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of June 28, 1998. 10,889,285

     As of June 28, 1998, the aggregate market value of the registrant's  common
stock held by  non-affiliates  computed by  reference  to the price at which the
stock was sold was  $3,677,300.  The shares of the  Company's  Common  Stock are
currently traded on the Over-the-Counter Bulletin Board under the symbol "RTTL".

<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS.

General

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

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

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

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

New Restaurant Concept

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

<PAGE>

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 $4,000,000 for working capital use.

New Management Team

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

New Concept and Menu

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

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

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

     o The menu  will  feature  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.

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

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

<PAGE>

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

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

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

     o 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.

<PAGE>

Growth Strategy

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

Restaurant Layout

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

Support Operations

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

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

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

Franchise Activities

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

<PAGE>

Trademarks

     The Company is presently the licensee of  Rattlesnake(R)  and Ottomanelli's
Cafe(R).  Rattlesnake(R)  is  licensed  from a  non-affiliated  person  under an
agreement  expiring  in or about the year  2000,  with a right of  renewal,  and
requiring  minimum  royalty  payments  of $5,000 per year.  The  Company has not
determined  whether  to  continue  operations  under  the  Rattlesnake(R)  name.
Ottomanelli's Cafe(R) is licensed from a corporation, the capital stock of which
is owned by Nicolo and Joseph  Ottomanelli,  with a term  co-extensive  with the
licensor's rights and for no separate consideration, entered into as part of the
merger   transaction   between  such  persons  and  the  Company  (see  "Certain
Transactions").

     The  Company  will file an  application  with the United  State  Patent and
Trademark  Office  ("PTO") to  trademark  Spencer's  should  such be  ultimately
determined to be the Company's  final choice of concept  names.  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 failures
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 (10-20%)  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.

<PAGE>

     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 28, 1998, the Company employed  approximately 65 persons, 6 of whom
were home office management and staff personnel,  and the remainder of whom were
restaurant personnel. As of June 30, 1999, the Company employed approximately 39
persons,  4 of whom were home office  management  and staff  personnel,  and the
remainder of whom were restaurant personnel (reflecting the reduction from three
restaurants  to one active  restaurant).  A substantial  number of the Company's
restaurant  personnel 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; volume manufacture timely
delivery 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 in the  Memorandum.  As a
result,  potential  inventors are  cautioned not to place undue  reliance on any
such  forward-looking  statements,  which  speak only as of the date  made.  See
"Business" and "Management's  Discussion and Analysis of Financial Condition and
Results of Operations".

<PAGE>

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 28, 1998 fiscal
year,  losses  aggregated   $15,425,055   including  losses  of  $4,797,857  and
$3,236,039  for its  fiscal  years  ended  June 29,  1997  and  June  28,  1998,
respectively.  The Company  continued to incur operating  losses in fiscal 1999.
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 28,
1998, the Company had a working  capital  deficit of  $2,952,863)  due to, among
other things,  costs associated with the prior  development and operation of its
Rattlesnake(R)   Southwestern  Grill  restaurants  and  the  Company's  proposed
modified and expanded  operations.  As a result,  the Company has been dependent
upon sales of its equity  securities  and loans to finance its  working  capital
requirements.  The Company is  dependent  upon the  proceeds of the  Offering to
finance its proposed  expansion.  Based on the Company's  current proposed plans
and assumptions  relating to the implementation of its expansion  strategy,  the
Company  anticipates  that  the net  proceeds  of the  Offering,  together  with
anticipated  cash flow from  operations and equipment,  food vendor and landlord
financing,  will be sufficient  to satisfy its  contemplated  cash  requirements
through  July  2000.  In the  event  that  the  Company's  plans  change  or its
assumptions prove to be inaccurate (due to unanticipated expenses,  construction
delays or other difficulties) or the proceeds of the Offering otherwise prove to
be  insufficient  to  fund  operations  and  implement  the  Company's  proposed
expansion strategy,  the Company could be required to seek additional  financing
sooner than anticipated.  The Company has no current  arrangements with banks or
otherwise with respect to, or potential sources of additional financing,  and it
is not anticipated  that any officers,  directors or  stockholders  will provide
loans to the Company. Consequently there can be no assurance that any additional
financing  will  be  available  to the  Company  when  needed,  on  commercially
reasonable terms, or at all. Any inability to obtain  additional  financing when
needed would have a material adverse effect on the Company,  including requiring
it to  curtail  its  expansion  efforts.  In  addition,  any  additional  equity
financing  may involve  substantial  dilution to the  interests of the Company's
then existing  stockholders.  At June 28, 1998,  short term debt and liabilities
totaled  approximately  $3,300,000  and long  term  debt  totaled  approximately
$525,000.  At  June  28,  1998,   approximately   $1,212,000  of  the  Company's
outstanding   notes  payable  were  past  due  and  in  default.   Additionally,
accumulated  dividends  for Series A preferred  stock of $207,636 were also past
due and unpaid.  In July 1999,  the Company  completed  a private  placement  of
approximately  $6,000,000 of Series B Preferred  Stock. In conjunction  with the
private placement,  approximately  $860,000 of the notes payable and $523,000 of
trade payables  converted  their  obligations  into Series B preferred stock and
$639,000 of the notes payable were paid.  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.  There can be no assurance  that cash
flow from  operations  will be sufficient to repay  remaining  indebtedness  and
trade payables.

<PAGE>

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

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

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

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

     Risks Relating to Proposed Expansion. The Company is currently implementing
a strategy to change its concept and build a restaurant  chain.  The Company has
limited  experience  in  effectuating  rapid  expansion  and in managing a large
number of locations  or locations  that are  geographically  dispersed  (and has
enlisted the assistance of persons experienced in these areas effective with the
Offering).  The Company's  proposed  expansion will be dependent on, among other
things,  achieving  significant  market  acceptance  for its Spencer's  concept,
developing customer recognition and loyalty for the Spencer's name,  identifying
a sufficient number of prime locations and entering into lease  arrangements for
such  locations on favorable  terms,  timely  development  and  construction  of
locations,   securing  required  governmental  permits  and  approvals,  hiring,

<PAGE>

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.

<PAGE>

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

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

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

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

     Limited  Insurance  Coverage.  At the present  time,  the  Company  carries
limited liability  insurance and casualty  insurance and effective July 15, 1999
retroactive to February 17, 1999, an officer/director liability insurance policy
as well. The Company did not have such insurance  during the period from January
1998 to such date. The Company does not maintain health  insurance.  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 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

<PAGE>

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

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

     No Dividends.  The Company has never paid any dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future,  except
for possible  cash  dividends on the  Preferred  Shares.  The Company  currently
intends to retain any and all earnings for use in connection  with the expansion
of its business and for general corporate purposes.  The declaration and payment
of  future  cash  dividends,  if any,  will  be at the  sole  discretion  of the
Company's  Board of Directors and will depend upon the Company's  profitability,
financial  condition,  cash  requirements  future  prospects,  and other factors
deemed relevant by the Board of Directors.

     Shares  Eligible for Future Sale. On June 30, 1999,  the Company would have
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 plans to file a registration statement

<PAGE>

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
during the fourth  quarter of calendar 1999. 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 possibility  that  substantial  amounts of Common Stock may be sold in
the public market is likely to adversely affect the prevailing  market price for
the Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities at future dates.

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

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

     Failure to List Common Stock on Nasdaq Small Cap or National Market System;
Risks  Relating to Low-Prices  Stocks.  The Company will seek to list the Common
Stock on Nasdaq Small Cap or National Market System as soon as deemed practical.
The  Company  would  have  approximately  300,000,000  shares  of  Common  Stock
outstanding,  assuming conversion of all convertible securities and the exercise
of all outstanding options and warrants (of which there can be no assurance). It
would be necessary for the Company to seek  authorization  from its stockholders
for a Common Stock  combination  (ie: 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 would 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.

<PAGE>

     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

     At June 28, 1998,  the Company's  principal  office was located in New York
City in  approximately  600 square feet of office  space under a  month-to-month
lease with an affiliate of Nicolo Ottomanelli.  See "Certain  Transactions".  At
June 30, 1999, the Company's principal office was and is located at 2 South Main
Street, South Norwalk, CT 06854 at the location of its remaining  Rattlesnake(R)
Southwestern Grill restaurant.

     At June  28,  1998,  the  Company  operated  two of its  then  three  owned
Rattlesnake(R) Southwestern Grill restaurants as follows:

     Location                         Size/Seating         Lease Expiration

South Norwalk, CT                     3,270 sf/120         May 2002
Flemington, NJ (closed                7,800 sf/250         August 2002
November 1998)

     As of June 30, 1999, the South Norwalk, Connecticut restaurant continues in
operation;  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 for
conversion to the Spencer's prototype.


<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

     As of June 28, 1998, the Company was engaged in certain material litigation
as follows:

     Union  Savings  Bank of Danbury v. Thomas F.  Moffit,  et al.  (Rattlesnake
Danbury,  Inc.) This was a foreclosure action against Rattlesnake's landlord and
the Company was named as an additional  defendant by virtue of its interest as a
tenant.  On March 15, 1999,  an execution of ejectment was entered by the Court.
(The Company  subsequently  purchased  this  property  through its  wholly-owned
subsidiary, 106 Federal Road Restaurant Corp.)

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

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

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

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

     William Opper Indemnification Demand/Peck

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

<PAGE>

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

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

     Jack Cioffi Trust v. Rattlesnake Lynbrook and Rattlesnake Holding.  This is
an action for an alleged breach of a commercial lease in which damages exceeding
$190,000 are being sought.  The Company has disputed  this claim.  The plaintiff
has inadequately  responded to Rattlesnake's demand for discovery and inspection
and  interrogatories.  A compliance  conference  was  adjourned to September 15,
1999.

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  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.

PART II

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

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

                                                         BID
         Fiscal Year 1997                             Low      High
Quarter ended September 30, 1996                      2.88     3.63
Quarter ended December 31, 1996                       1.25     3.62
Quarter ended March 31, 1997                           .87     1.25
Quarter ended June 30, 1997                            .62      .87

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

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

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

<PAGE>

Description of Securities

     Authorized Capital Stock

     At June 28, 1998,  the  Company's  authorized  capital  stock  consisted of
20,000,000  shares of Common Stock,  par value of $.001 per share; and 5,000,000
shares of Preferred  Stock,  par value of $.10 per share, of which 56,500 shares
were  designated  Series A Preferred  Shares.  As of June 28,  1998,  there were
10,889,285  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 56,500  shares of Series A Preferred  Stock issued
and  outstanding.  As of June 30, 1999, the Company's  authorized  capital stock
consisted of 400,000,000  shares of Common Stock,  par value of $.001 per share;
5,000,000 shares of preferred  shares,  of which 500,000 are designated Series B
Preferred  Shares.  As of June 30,  1999,  there were  approximately  29,500,000
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  308,000  shares  of Series B  Preferred  Stock  issued  and
outstanding.

     Common Stock

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

     Conversion of Preferred  Shares.  The Preferred Shares will be convertible,
at the  option of the  holder at any time after  November  1999 at a  conversion
price  initially  equal to $0.05 per share of Common Stock.  The conversion rate
will be reduced by 10% per month for each month the Company fails to comply with
its  obligations to file, and in good faith  process,  a registration  statement
(see  below).  In the case of a  consolidation  or merger of the Company with or


<PAGE>
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.  The  Company  is  required  to cause a
registration  statement under the Securities Act of 1933, as amended (the "Act")
to be filed under the Act  covering  the shares of Common  Stock  issuable  upon
conversion of the Preferred Shares sold in the Offering, by August 17, 1999, and
is required thereafter use its best efforts to cause such Registration Statement
to be declared effective.  In the event the Registration Statement is not filed,
or if the  Company  fails  to use its best  efforts  to have  such  Registration
Statement declared effective within ninety (90) days thereafter,  the conversion
price will be automatically  reduced by 10% for each month of such failure,  and
the  dividend  rate on the  Preferred  Shares will be increased to 14% per annum
from issuance.  All expenses incurred in any registration of the holder's shares
of Common Stock will be paid by the Company; provided, however, that the Company
will not be liable for any  discounts or  commissions  to any  underwriter,  any
stock transfer taxes incurred in respect of shares sold by the offering holders,
or for any legal fees and expenses to effect the sale of the respective holder's
shares.  The  holders  and the  Company  will  indemnify  each other for certain
liabilities under the Act.

     Dividends.  Holders of Preferred Shares are entitled to receive, quarterly,
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 file and process a Registration  Statement (see above),
the dividend rate will increase to 14% per annum from issuance.

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

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


<PAGE>

Warrants

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

Number of Warrants                           110,000,000

Price Range of Warrants                   $0.05 to $16.00

Series A Convertible Preferred Shares

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

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

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

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

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

     At June 28, 1998,  The  Rattlesnake  Holding  Company,  Inc. was the parent
corporation  of two  subsidiary  companies  operating at  individual  restaurant
locations, utilizing the unique Rattlesnake Southwestern Grill concept:

RESTAURANT LOCATIONS                        OPERATIONS COMMENCEMENT DATE

Flemington, New Jersey                      November 1995 (closed November 1998)
South Norwalk, Connecticut                  June 1992

<PAGE>

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

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

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

      Restaurant Sales

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

      Promotional Sales

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

      Food and Beverage Costs

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

      Restaurant Salaries and Fringe Benefits

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


<PAGE>

      Occupancy and Related Expenses

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

      Depreciation and Amortization Expense

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

      General and Administrative Expenses

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

      Interest Expenses

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

     Loss of Closure of Restaurant Sites and Impairment Charges

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

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

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

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


<PAGE>

Subsequent Events

     Between  March  1998  and  September  1998,  the  Company   privately  sold
approximately  $850,000  of its  common  stock  at $.15  per  share  and  issued
convertible promissory notes for approximately $50,000. All notes were satisfied
by payment of cash and/or conversion to Company equity at the Initial Closing of
the Offering February 17, 1999.

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

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

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

     Between  August 1, 1998 and  September 15, 1998,  the Company  entered into
various services and employment agreements with key personnel effective upon and
in  anticipation  of the initial  Closing of the  Offering.  See  "Business  and
Management."

     Between  October 1998 and December 1998,  the Company  entered into private
financing  arrangements  with three  individuals  to provide  $150,000 of bridge
financing  at 16%  interest  per  annum,  plus  warrants,  with due dates of the
earlier of the closing of the  proposed  private  placement or ninety (90) days,
respectively.  All notes were satisfied by payment of cash and/or  conversion to
Company equity at the Initial Closing of the Offering February 17, 1999.

     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 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 at June 28, 1998.

     In November 1998, the Company closed its facility in Flemington, New Jersey
as it was not meeting the  Company's  performance  standards as part of its Cost
Reduction  Plan. The Company  recorded a net loss of $558,282 in fiscal 1998 for
this impaired asset.

<PAGE>

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

Fiscal Year Ended June 29, 1997 as Compared
with Fiscal Year Ended June 30, 1996

     Net restaurant sales decreased 4.7% to $7,851,950 for the fiscal year ended
June 29, 1997 from  $8,242,809  for the twelve  months ended June 30, 1996.  The
decrease in net restaurant  sales resulted from the net effect of the closing of
the  Fairfield,  Connecticut,  White  Plains  and  Yorktown  Heights,  New  York
restaurants in fiscal 1997 offset by an increase in the Danbury,  Flemington and
Lynbrook restaurants  operating for a full year as compared to the prior period.
For the fiscal year ended June 29,  1997,  the  Company  generated a net loss of
$4,797,857  as  compared to a net loss of  $3,193,155  for the fiscal year ended
June 30, 1996, an increase of  $1,604,702.  The increased  loss was  principally
attributed  to losses of  $1,731,842  incurred  from the  closing of  restaurant
sites.

     Restaurant  operating  losses were  $136,256 for the fiscal year ended June
29, 1997 as compared with $159,235 for the fiscal year ended June 30, 1996. This
decrease in operating losses was principally  attributable to the implementation
of the Company's cost reduction plan mid-year.  The benefits recognized by these
cost reductions were offset by the cost incurred  relating to the maintenance of
closed restaurants prior to their sale.

     Restaurant Sales

     Gross  restaurant  sales  decreased  5.6% to $8,265,474 for the fiscal year
ended June 29, 1997 from $8,755,565 for the fiscal year ended June 30, 1996. The
decrease  in  restaurant  sales  resulted  from the  decrease  in the  number of
operating  restaurants  during the fiscal 1997  period.  The number of operating
restaurants  decreased from seven to four in the period ended June 29, 1997. The
Company  closed  three of it's  restaurants  in  fiscal  year  1997 as  follows:
Fairfield,  Connecticut in January 1997;  White Plains,  New York in March 1997;
and Yorktown  Heights,  New York in June 1997.  As a result of these  restaurant
closings and the timing of restaurant  openings,  South Norwalk  represents  the
only restaurant for which same store sales can be analyzed. Same store sales for
the South Norwalk location increased $104,084 for the twelve-month  period ended
June 29, 1997.

     Promotional Sales

     Promotional  sales  decreased  from $512,756 for fiscal year ended June 30,
1996 to  $413,524  for  fiscal  year  ended  June 29,  1997.  This  decrease  is
attributed to a reduction in couponing and direct mail advertisement incentives,
which were  distributed  to counter  extreme winter  weather  conditions  during
fiscal year 1996.  Promotional  sales have  decreased as a  percentage  of gross
sales in fiscal year 1997 to 5.0% from 5.9% in fiscal year 1996.  This  decrease
as a percentage  of sales is the result of the  beneficial  effects of clustered
marketing efforts and shared costs among all of the Rattlesnake restaurants.

     Food And Beverage Costs

     Food and beverage costs remained constant as a percentage of net restaurant
sales at 31.1% in fiscal year 1997 and 1996. The cost of food and beverage sales
decreased to  $2,443,860  for the fiscal year ended June 29,  1997,  as compared
with $2,565,905 for the fiscal year ended June 30, 1996. The Company was able to
maintain it's food and beverage cost level through the  implementation  of a new
menu, revised recipes,  improved  inventory  utilization,  increased  purchasing
efficiencies and improved training  methods.  This was done despite increases in
the cost of chicken,  beef,  and  produce.  There can be no  assurance  that the
Company will be able to maintain these cost levels.

<PAGE>

     Restaurant Salaries And Fringe Benefits

     Restaurant  salaries and fringe benefits,  which consist of direct salaries
of restaurant  managers,  hourly  employee  wages and related  fringe  benefits,
decreased to  $2,792,622  for the fiscal year ended June 29, 1997 as compared to
$3,109,435  for  the  fiscal  year  ended  June  30,  1996.   This  decrease  is
attributable to the opening of additional  restaurants during fiscal 1996 and no
restaurant  openings in fiscal 1997. As a percentage  of net sales,  these costs
decreased to 35.6% in fiscal 1997 from 37.7% in fiscal 1996,  principally due to
increased  restaurant   management  and  operating  personnel  in  newly  opened
restaurants   in  fiscal  1996.   The  decrease  is  also   attributed   to  the
implementation  of the  Company's  cost  reduction  plan under  which it reduced
restaurant management and staff during the fourth quarter of fiscal year 1997.

     Occupancy and Related Expenses

     Occupancy and related expenses, which include linen, repairs,  maintenance,
utilities,  rent,  insurance and other occupancy related expenses,  decreased to
$2,025,198  for the  fiscal  year ended June 29,  1997 from  $2,118,444  for the
fiscal year end June 30, 1996. As a percentage of net  restaurant  sales,  these
costs  increased to 25.8% in fiscal 1997 from 25.7% in fiscal 1996. The increase
as a percentage  of sales can be  attributed  primarily to the costs  associated
with the maintenance of the three  restaurants  closed in fiscal year 1997 prior
to their sale.

     Depreciation and Amortization Expense

     Depreciation  and  amortization  expenses,  including the  amortization  of
pre-opening store expenses,  increased as a percentage of gross restaurant sales
to 9.3% for the fiscal  year ended June 29,  1997 from 7.4% for the fiscal  year
end June 30,  1996.  These  expenses  increased to $726,526 in fiscal year ended
June 29, 1997 from $608,260 for the fiscal year end June 30, 1996. This increase
is primarily  attributable  to the  depreciation  and  amortization  recorded on
restaurants, which were closed during fiscal year 1997.

     General and Administrative Expenses

     Selling,  general and  administrative  expenses  decreased to $2,715,293 in
fiscal year ended June 29, 1997 from $2,810,433 for the fiscal year end June 30,
1996. As a percentage of net sales, selling, general and administrative expenses
increased from 34.1% in 1996 to 34.6% in 1997. These reductions in expense are a
direct result of the Company's  implementation  of its cost reduction  plan. The
increase as a  percentage  of sales  reflect the impact of the  decreased  sales
resulting from the closing of related restaurant sites

     Amortization of Debt Issuance Costs

     Debt issuance costs are principally  associated with the subordinated  note
component of the Company's  $1,800,000  unit offering and were  capitalized  and
amortized ratably over the initial one-year term of the debt. As a result of the
restructuring  of this debt,  the related  unamortized  debt  issuance  costs of
$72,114  were  offset  against  the   extraordinary   gain  recognized  in  this
transaction in fiscal year 1996.

     Loss on Closure of Restaurant Sites

     The  Rattlesnake   Southwestern  Grill  Restaurant  located  in  Fairfield,
Connecticut  was  closed  on  January  4,  1997.  The  fixed  assets,  leasehold
improvements  and  intangibles  at the  facility  have been  written off and are
recorded at its  estimated  fair value.  A net loss of $394,941  relating to the
closing of the Fairfield location was recorded during the 1997 fiscal year.

     The Rattlesnake  Southwestern Grill Restaurant located in White Plains, New
York was closed on March 1, 1997 and sold on July 16,  1997.  The  facility  was
sold to individuals  including the Company's former Chairman of the Board. A net
loss of  $224,135  relating  to the  closing of the White  Plains  location  was
recorded in fiscal 1997.

<PAGE>

     The Rattlesnake  Southwestern Grill Restaurant located in Yorktown Heights,
New York was  closed  on June 9, 1997 and sold on June 27,  1997.  A net loss of
$362,091  relating to the closing of the Yorktown  Heights location was recorded
in fiscal 1997.

     The  restaurant  location on 86th Street in New York City was never  opened
and the  Company  sold the fixed  assets  on May 29,  1997 and  transferred  its
interest in the lease at that location.  A net loss of $306,456  relating to the
selling of the 86th Street location was recorded in fiscal 1997.

     The Rattlesnake Southwestern Grill Restaurant located in Lynbrook, New York
was closed on September 17, 1997. A net loss of $374,852 relating to the closing
of the Lynbrook location was recorded in fiscal 1997 closing.

     Interest Expenses

     Interest  expense  increased to $172,886 for the fiscal year ended June 29,
1997 from $108,536 for the fiscal year end June 30, 1996. This increase resulted
from  additional  borrowing  by the  Company  and the  increased  interest  rate
relating to the extension of the Series C Notes Payable.

     Seasonality and External Influences on Quarterly Results

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

     Recent Accounting Announcements

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

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

<PAGE>

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

     Liquidity and Capital Resources

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

     The  Company's  cash position  increased by $243,306  during the year ended
June 28, 1998, principally as a result of the proceeds of a private placement of
common  stock,  the  proceeds  from the sale of a  convertible  note  which  was
subsequently   converted  into  common  stock,   and  certain  bridge  financing
arrangements  which were  partially  offset by  operating  losses and  principal
repayments.

     At June 28, 1998,  the Company was past due and in default of a majority of
its financing  arrangements  as $303,749 of 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,  $100,000
convertible  subordinated notes payable matured September 4, 1997, $425,000 note
payable  matured on January 2, 1997,  $11,709 note  payable  matured in February
1998, $220,000 note payable matured on December 31, 1997, $100,000 notes payable
matured on May 31, 1998,  $50,000 note  payable  matured on May 31, 1998,  and a
$2,089  subordinated  note payable matured on August 6, 1996,  such  obligations
aggregating  $1,212,547  and all of which are in  default  as of June 28,  1998.
Additionally,  $207,636,  of accumulated dividends Series A Preferred Stock were
also past due and unpaid. All of the foregoing have subsequently been satisfied.

     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 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.

     Management of the Company was  completing its Cost  Reduction  Plan,  which
included a further  reduction in workforce  and  continuation  of the closure of
unprofitable restaurants,  in fiscal 1998. Such plan included the closing and on
sale of the Yorktown Heights,  White Plains,  New York,  Fairfield,  Connecticut
and/or  Lynbrook,  New York  locations,  as well as the sale of its unopened New
York City property. As indicated in note 4, the Company performed an analysis of
its  remaining   restaurants   and  identified  the  Flemington   restaurant  as
non-performing. The restaurant was subsequently closed in fiscal 1999. Effective
upon the  completion of the private  placement,  the Company has assembled a new
management team and developed a new restaurant theme which will be introduced at
the recently reacquired Danbury, Connecticut location.

<PAGE>

     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 herewith,  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
the remaining $220,000 was outstanding and in default at June 28, 1998.

     On September 8, 1997, the Company repriced  warrants issued to three Series
C noteholders with principal  aggregating $62,499 in return for extension of the
re-payment period to December 15, 1997. The noteholders received 30,000 warrants
as a result of the Company's failure to satisfy the debt on July 15, 1997.

     On December 8, 1997, the Company entered into a refinancing  arrangement in
which it raised  $500,000 in a convertible  note.  $400,000 of the proceeds were
utilized to reduce the 18% convertible subordinated notes due September 4, 1997.
The remaining $100,000 was outstanding and in default at June 28, 1998. In March
1998, the December 1997 note was satisfied by conversion  into 937,000 shares of
the Company's common stock.

     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. At June 28, 1998, $100,000 of the debt was unpaid and in default.

     Between  March  1998  and  September  1998,  the  Company   privately  sold
approximately  $850,000  of its common  stock at $.15 per share.  As of June 28,
1998,  the  Company  had sold  4,480,000  shares  of common  stock and  received
proceeds of $543,548, net of expenses.

     Between  October and  December  1998,  the  Company  entered  into  private
financing  arrangements to provide an aggregate of $150,000 of bridge  financing
at 16%, with due dates at the earlier of the closing of the private placement or
ninety  days,  respectively.  The  noteholders  also  received  warrants  for an
aggregate of 412,500 shares, at an exercise price of $0.05 per share expiring on
December 30, 2003.  The warrants were valued at $12,375 and recognized as a debt
issuance cost. At June 28, 1998, the notes were outstanding and in default.

     In February 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. The note was  outstanding on June 28, 1998 and was satisfied by conversion
into equity in February 1999.

     At June 28,  1998,  the Company had  available a net  operating  loss carry
forward  (NOL) for  Federal  and State  income  tax  purposes  of  approximately
$13,962,000, which are available to offset future taxable income, if any, before
2013.  In accordance  with Section 382 of the Internal  Revenue Code of 1986, as
amended,  a change in more than 50% in the  beneficial  ownership of the Company
within a three-year period (an "Ownership  Change"),  will place an annual limit
on the  Company's  ability to utilize its existing NOL carry  forwards to offset
taxable  income in  current  and  future  periods.  The  Company  believes  that
ownership changes have occurred and will cause the annual  limitations to apply.
The Company has not determined  what the maximum annual amount of taxable income
is that can be reduced by the NOL carry forwards.

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

<PAGE>

Inflation

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

Market Risk

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

Year 2000 Modifications

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

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

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

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

     The  Company  will  utilize  external  software  and service  providers  to
reprogram, test and implement software for the Year 2000 modification as needed,
the cost of which is not expected to be  significant.  The Company will evaluate
the status of  completion of Year 2000  modifications  in September 30, 1999 and
will undertake all remaining  necessary  steps to seek to ensure its systems are
Year 2000 compliant.

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

<PAGE>

     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-34.

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

     None.

     PART III

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

     The following table sets forth certain  information  concerning each of the
executive officers,  directors and advisors as of June 30, 1999 (See "Agreements
with New Management" below for information on contractual commitments related to
certain of these persons).  The Company's  officers are elected to serve in such
capacities until the earlier to occur of the election and qualification of their
respective successors or until their respective deaths, resignations or removals
by the Company's board of directors from such position. The Company does not pay
any compensation to any person for serving,  as such, as a director.  Management
on June 28, 1998 included: (i) Louis Malikow, Roger Rankin and Joseph Adinaro as
directors;  (ii) Nicolo  Ottomanelli  as  President;  (iii)  Stephan A. Stein as
Acting  Chairman as such;  and (iv)  Joseph  Ottomanelli  and  Kenneth  Olsen as
vice-president and CFO, respectively,  all whom served until early 1999. Current
officers and directors include:

<TABLE>
<CAPTION>

      NAME                                        AGE                           POSITIONS
<S>                                             <C>                            <C>

Kenneth Berry                                     46                            President, CEO and Director

Stephan A. Stein                                  47                            Consultant, Secretary and
                                                                                Director

Nicolo Ottomanelli                                57                            Senior Vice President and Director

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

Shelly Frank                                      54                            Consultant and Director*

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

</TABLE>

<PAGE>

     * Messrs.  Frank and Rappaport will join the Company's  Board of Directors,
with Mr. Frank to serve as Chairman,  at such time as the Company  finalizes its
officers and directors  insurance  obtained July 15, 1999,  among other matters,
anticipated  to be on or about  September  1,  1999.  See  "Agreements  with New
Management".

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

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

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

     Frank T. Ferro From 1997 until the Initial Closing,  Mr. Ferro was employed
by Deloitte and Touche,  LLP as a special projects financial and tax accountant.
From 1995 to 1997,  Mr. Ferro was a financial and tax  consultant  for Royal Par
Industries  from 1991 to 1994,  Mr. Ferro was CFO for CAT  Entertainment,  a New
York City based restaurant  turnaround company.  Previously,  from 1978 to 1985,
Mr. Ferro was the Audit  Supervisor for General Foods  Corporation  where he was
responsible for full scope and operational audits for its multi-unit  restaurant
chains  then owned.  Mr.  Ferro is a CPA and has B.S.  and MBA Degrees  from St.
John's University.

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

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

<PAGE>

Committees of the Board of Directors

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

Section 16(a) Compliance

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

ITEM 10. EXECUTIVE COMPENSATION.

     The  following  table sets forth as of June 28, 1998 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>

Nicolo Ottomanelli,             1998      $69,230           ---              ---                 ---
   President                   *1997      $  ---            ---              ---                 ---
                               *1996      $  ---            ---              ---                 ---

</TABLE>

---------------
     * Nicolo  Ottomanelli  was not employed by the Company in fiscal years 1997
and 1996.
<PAGE>

Executive Compensation

     The following table sets forth information with respect to the compensation
of the Company's officers for the fiscal year ended June 28, 1998:

         Name                                         Compensation

Nicolo Ottomanelli (1)                                  $69,230

Joseph Ottomanelli (2)                                  $16,490

Stephan A. Stein (3)                                    $53,519

Louis Malikow (4)                                       $27,000

     (1)  Nicolo  Ottomanelli  was  compensated  under an  employment  agreement
entered into on 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.

     (2)  Joseph  Ottomanelli  was  compensated  under an  employment  agreement
entered into in March,  1998 and pursuant to which he was to receive a salary of
$150,000 per annum. Mr. Ottomanelli's salary was prorated for the amount of time
he spent on the  business of the  Company.  For the period  ended June 28, 1998,
approximately  25% of his time is allocated to the business of the Company.  The
Company and Joseph  Ottomanelli  terminated his employment  agreement in October
1998 and he received a payment of $7,500 in mid-1999, and will receive a payment
of $7,500 in mid-2000.

     (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".

     (4) Mr.  Malikow,  a Director  since 1995,  acted as Co-CEO with Mr.  Stein
during the 1997  Cost-Reduction  Strategy Plan period authorized by the Board of
Directors and received cash and warrants in consideration of services provided.

     Agreements with New Management

     Subsequent to June 28, 1998, the Company entered into a three year advisory
service agreement, as revised, with Mr. Shelly Frank. Mr. Frank's agreement does
not  obligate  him to also  serve as a  director  or  Chairman  of the  Board of
Directors  until the Company  obtains at least $10  million of  officer/director
liability  insurance and certain other  conditions  are  satisfied.  Mr. Frank's
agreement is terminable by Mr. Frank without recourse by the Company.  Mr. Frank
will receive no regular  compensation but will be entitled to participate in the
Company's performance bonus plan. Mr. Frank may receive consulting  compensation
prior to  commencing  as Chairman of the Board of  Directors.  In addition,  Mr.
Frank was  granted the  warrant  described  in  "Security  Ownership  of Certain
Beneficial Owners and Management".

     Subsequent  to June  28,  1998,  the  Company  entered  into a  three  year
employment  agreement,  as revised,  with Kenneth Berry which commenced on March
31, 1999, providing for fixed compensation of $95,000 a year, a signing bonus of
$30,000,  participation in the Company's  performance bonus plan, and receipt of
$250,000 of term life insurance coverage. In addition, Mr. Berry was granted the
warrant  described  in  "Security  Ownership  of Certain  Beneficial  Owners and
Management".

<PAGE>

     Subsequent  to June  28,  1998,  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.

     Subsequent to June 28, 1998, the Company entered into a three year advisory
service   agreement  with  A.  G.  (Sandy)   Rappaport   providing  for  certain
consultative  services on an as need basis and  providing  for  compensation  of
$12,000 per year plus the warrant  described in  "Security  Ownership of Certain
Beneficial Owners and Management".

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

     Limited Liability of Directors and Executive Officers

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

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

     Stock Option Plans

     1994 Employees Stock Option Plan

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

<PAGE>
     1994 Director Plan

     In December  1994,  the Company  adopted the  non-Executive  Director Stock
Option Plan (the "Director Plan"),  which provides for the issuance of non-ISO's
to  non-executive  directors,  as  defined,  and members of any  advisory  board
established by the Company who are not full-time  employees of the Company.  The
Company has reserved  500,000  shares for issuance  under the  provisions of the
Director Plan. The Director Plan provides that each non-executive  director will
automatically  be granted an option to purchase  25,000  shares upon joining the
Board of Directors and 15,000 shares on each December 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.
There are  presently  295,000  shares  available  for option under the Directors
Plan.

     1999 Stock Option Plan

     On April 18, 1999, the Board of Directors approved the adoption of the 1999
Stock Option Plan (the "1999  Plan"),  which  provides for the issuance of ISOs,
Non-ISOs,  and stock  appreciation  rights to officers and key  employees of the
Company.  Up to 10,000,000 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.

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 28,  1998,  based on
information  obtained from the persons named below,  by (i) each person known to
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock,  (ii) each executive  officer and director of the Company,  and (iii) all
officers and directors of the Company as a group:

<PAGE>

Name and Address of      Amount and Nature of Beneficial
Beneficial Owner**               Ownership***                   Percentage****
--------------------     --------------------------------     -----------------
Louis Malikow                      223,231 (1)                       2.4%


Roger Rankin                       620,101 (2)                       6.8%


Joseph Adinaro                         0                               *


Joseph Ottomanelli               1,411,029                          15.8%


Nicolo Ottomanelli               1,411,029                          15.8%


Kenneth Olsen                          0                               *


Stephan A. Stein                 1,390,000                          14.8%



------------------------------
All Directors and Officers       5,055,390                          54.3%
as a group (7 Persons)

     * 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%.

     (1)  Includes  options to  purchase  up to 55,000  shares of the  Company's
Common  Stock and a warrant to acquire  up to  100,000  shares of the  Company's
Common Stock.

     (2) Includes (i) options to purchase  55,000 shares of Common  Stock;  (ii)
77,000 shares issuable upon exercise of a warrant;  (iii) 15,151 shares issuable
upon  conversion  of a convertible  promissory  note;  and (iv) 50,000  warrants
issuable in conjunction with a bridge financing in September 1997.

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

<PAGE>


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


Nicolo Ottomanelli                 5,415,749 (2)                  18.3%


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


Stephan A. Stein                   6,151,224 (4)                  18.4%


Frank T. Ferro                          (5)                         *


Shelly Frank*****                 45,000,000 (6)                  64.3%
16 Arrowhead Way
Weston, CT  06883

Andrew Silverman*****              2,000,000                       6.8%


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

Commonwealth Associates           15,650,000 (8)                  37.7%
830 Third Avenue
New York, New York 10022

Guy Snowden                        2,254,126 (9)                   7.6%
4080 Ibis Point Circle
Boca Raton, FL 33431


----------------------------
All Directors and Officers        25,838,002                      59.4%
as group (5 Persons)

     * 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.

<PAGE>

     **** In  computing  the  "Percentage  of Class"  figures as to each person,
there is added to the numerator and denominator,  for such person, the number of
shares  of  Common  Stock  such  person  could  acquire  within  60  days by the
conversion of a convertible  security owned by such person or the exercise of an
option  or  warrant  held  by  such  person.  This  presentation  maximizes  the
percentage  of each  person,  since it assumes that no other holder of rights to
convert or purchase  preferred stock or warrants or notes is then exercising the
same,  and often  results in a combined  listing  percentage  of ownership  that
exceeds 100%. ***** Not a director at June 30, 1999.

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

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

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

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

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

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

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

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

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


<PAGE>

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  Cafes(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 to be issued on account
of the 55,370  Preferred  Shares,  convertible  into 6,921,250  shares of Common
Stock, to be exchanged for the outstanding shares of Series A Preferred Shares).
In accordance  with the agreement,  Nicolo  Ottomanelli and a designee of Joseph
Ottomanelli  (who  has  since  resigned)  were  designated  directors,  and  the
Ottomanellis  received employment  agreements,  one of which has been terminated
and  the  other  of  which  has  been   modified   (see   "Management--Executive
Compensation").

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

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

     Stephan A. Stein

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


<PAGE>

PART IV

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

(a)

<TABLE>
<CAPTION>

Exhibit No.       Description
<S>              <C>

3.1*              Form of Restated Certificate of Incorporation of the Registrant

3.1.1***          Designation of Preferred Stock

3.1.2             Amendment to Certificate of Incorporation regarding capitalization of Registrant

3.2*              By-Laws

4.1*              Form of Common Stock Certificate

4.2+              Form of Series B Preferred Stock Certificate

10.1*             1994 Employee Stock Option Plan

10.2*             1994 Non-executive Directors Stock Option Plan

10.3***           Employment Agreement with Stephen A. Stein

10.3.1+           Revised Employment Agreement with Stephen A. Stein

10.4***           Lease Agreement with Jack Cioffi Trust ULWT dated April 15, 1996 together with Exhibits

10.5***           Form of Series C Note

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

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

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

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

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

<PAGE>
<TABLE>
<CAPTION>
<S>              <C>

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

10.12             Registration Rights Agreement dated February 26, 1997.

10.13+            William J. Opper Severance Agreement

10.14             Shelly Frank Consulting Agreement dated as of October 1998.

10.15             Kenneth Berry Employment Agreement dated as of October 1998.

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

10.17             Frank Ferro Employment Agreement dated as of September 1998.

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

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

10.19             Nicolo Ottomanelli Employment Agreement dated as of February 26, 1998.

10.19.1           Amendment to Nicolo Ottomanelli Employment Agreement dated as of October
                  1998.

10.20             Form of Shelly Frank and Kenneth Berry Warrants

10.21             Form of Investor Rights Agreement for Subscribers in Offering

10.22             Form of Warrant Issued to Commonwealth Associates in Offering

22***             Subsidiary List

27.1              Financial Data Schedule
</TABLE>

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

     * Previously  filed with the Commission with the Company's  registration on
Form SB-2 (File No. 33-88486)

     ** Previously  filed with the Company's  10-KSB for the year ended June 30,
1995

     *** Previously  filed with the Company's 10-KSB for the year ended June 30,
1996.


     + To be filed by amendment.



(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.

                                     The Rattlesnake Holding Company, Inc.

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


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


Dated: August 13, 1999

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

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

/s/Nicolo Ottomanelli                  Senior Vice President               August 13, 1999
----------------------                    and Director
Nicolo Ottomanelli


/s/Stephan Stein                       Secretary and Director              August 13, 1999
----------------------------------
Stephan Stein

</TABLE>




<PAGE>




ITEM 7. FINANCIAL STATEMENTS.

             THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES

                   Index to Consolidated Financial Statements

<TABLE>
<CAPTION>
<S>                                                                                                               <C>

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

(b)      Consolidated Balance Sheets as of June 28, 1998 and June 29, 1997.........................................F-3

(c)  Consolidated  Statements of  Operations  for the Years Ended June 28, 1998,
June 29, 1997 and June 30, 1996....................................................................................F-4

(d) Consolidated Statements of Stockholders' Equity for the Years Ended June 28,
1998, June 29, 1997 and June 30, 1996..............................................................................F-5

(e)  Consolidated  Statements  of Cash Flows for the Years Ended June 28,  1998,
June 29, 1997 and June 30, 1996....................................................................................F-7

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


</TABLE>



<PAGE>


----------------------------------
THE RATTLESNAKE HOLDING COMPANY, INC.
AND SUBSIDIARIES

Consolidated Financial Statements

June 28, 1998, June 29, 1997 and June 30, 1996

(With Independent Auditors' Report Thereon)

                          Independent Auditors' Report


The Board of Directors and Stockholders
The Rattlesnake Holding Company, Inc.:

     We  have  audited  the  accompanying  consolidated  balance  sheets  of The
Rattlesnake Holding Company,  Inc. and subsidiaries as of June 28, 1998 and June
29, 1997 and the related  consolidated  statements of operations,  stockholders'
equity and cash flows for each of the year in the  three-year  period ended June
28, 1998. These consolidated  financial statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the financial  position of The  Rattlesnake  Holding
Company,  Inc.  and  subsidiaries  as of June 28, 1998 and June 29, 1997 and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period ended June 28, 1998, 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.  Management of the Company is finalizing  its cost
reduction plan, which includes a further reduction in workforce and continuation
of the closure of  unprofitable  restaurants  and  implementing  a new strategic
plan. At June 28, 1998,  approximately  $1,212,000 of the Company's  outstanding
notes payable were past due and in default. Additionally,  accumulated dividends
for Series A preferred  stock of $207,636 were also past due. In July 1999,  the
Company  completed a private  placement of approximately  $6,000,000 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.  The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

                                            KPMG LLP

Melville, New York
August 6, 1999


<PAGE>


             THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                         June 28, 1998 and June 29, 1997
<TABLE>
<CAPTION>

<S>                                                                               <C>                         <C>

Assets                                                                               1998                      1997
Current assets:
          Cash                                                                 $   311,328                     68,022
          Accounts receivable                                                       16,831                     13,287
          Notes receivable, current installments                                     4,080                       ---
          Inventory                                                                 29,397                     42,119
          Prepaid expenses and other current assets                                  7,200                     23,272
          Assets held for sale                                                        ---                     679,544

    Total current assets                                                        $  368,836                    826,244

Notes receivable, less current installments                                        225,920                       ---
Property and equipment, net                                                         81,375                  1,007,092
Intangible assets, net                                                              30,598                    299,102
Other assets                                                                        78,443                    129,457
                                                                                ----------                  ---------
                                                                                $  785,172                  2,261,895
                                                                                ==========                  =========
Liabilities and Stockholders' Deficit

Current liabilities:
         Current maturities of notes payable, including amounts
            due to related parties of $553,385 and $551,579 at
            June 28, 1998 and June 29, 1997, respectively                      $ 1,282,539                    835,335
         Accounts payable                                                        1,019,139                    280,528
         Liabilities related to assets held for sale                                 ---                    1,133,257
         Accrued expenses                                                          629,414                    357,407
         Dividends payable                                                         207,636                    103,818
         Other current liabilities                                                 182,971                    218,220
                                                                                ----------                  ---------
    Total current liabilities                                                  $ 3,321,699                  2,928,565
                                                                                ----------                  ---------
Notes payable, net of current maturities                                           525,006                    545,006
                                                                                ----------                  ---------
    Total liabilities                                                          $ 3,846,705                  3,473,571
                                                                                ----------                  ---------
Stockholders' deficit:
         Preferred stock, Series A, $.10 par value,  5,000,000 shares
             authorized, 56,500 issued and outstanding                         $     5,650                      5,650
         Common stock, $.001 par value - 20,000,000
             shares authorized, 10,889,285 and 2,650,227  issued and
             outstanding, at June 28, 1998  and June 29, 1997, respectively         10,890                      2,651
        Additional paid-in capital                                              12,554,618                 11,072,857
        Accrued dividends                                                         (207,636)                  (103,818)
        Accumulated deficit                                                    (15,425,055)               (12,189,016)
                                                                                ----------                 ----------

                                                                                (3,061,533)                (1,211,676)
                                                                                ----------                 ----------
                                                                               $   785,172                  2,261,895
                                                                                ==========                 ==========
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>



             THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
             Years ended June 28, 1998, June 29,1997, June 30, 1996.
<TABLE>
<CAPTION>

                                                             Year ended              Year ended              Year ended
                                                            June 28, 1998           June 29, 1997          June 30, 1996
<S>                                                         <C>                      <C>                    <C>

Restaurant sales                                           $  3,888,643              8,265,474              8,755,565
Less:  promotional sales                                        127,343                413,524                512,756

    Net restaurant sales                                      3,761,300              7,851,950              8,242,809

Costs and expenses:
Cost of food and beverage sales                               1,225,982              2,443,860              2,565,905
Restaurant salaries and fringe benefits                       1,322,119              2,792,622              3,109,435
Occupancy and related expenses                                1,072,796              2,025,198              2,188,444
Depreciation and amortization expense                           314,017                726,526                608,260
                                                            -----------             ----------              ---------
    Total restaurant costs and expenses                       3,934,914              7,988,206              8,402,044

Selling, general and administrative                           1,279,831             2,715,293               2,810,433
Loss on closure of restaurant sites                           1,464,756             1,731,842                 192,311
   and impairment charges
Interest expense                                                261,276               172,886                 108,536
Miscellaneous expenses                                           56,562                41,580                  12,350
                                                            -----------             ---------               ---------
    Total expenses                                            6,997,339            12,649,807              11,525,674
                                                            -----------             ---------               ---------
Net loss before extraordinary item                           (3,236,039)           (4,797,857)             (3,282,865)

Gain on early extinguishment of debt                              ---                   ---                    89,710

    Net loss                                                 (3,236,039)           (4,797,857)             (3,193,155)
                                                            -----------             ---------               ---------
Dividends on preferred shares                                  (103,818)             (103,818)                   --
                                                            -----------             ---------               ---------
Net loss available common stockholders                       (3,339,857)           (4,797,857)             (3,193,155)
                                                            ===========            ==========              ==========
Net loss per share:
Loss before extraordinary item                            $      (0.80)                (1.85)                   (1.26)
Extraordinary item                                                ---                    ---                      .03
                                                           ------------            ----------               ----------
    Net loss - Basic and diluted                          $      (0.80)                (1.85)                   (1.23)
                                                            ===========            ==========               ==========


Weighted average number of common and
common equivalent shares outstanding -
    Basic and diluted                                         4,173,985             2,645,335                2,605,808
                                                            ===========             =========               ==========

</TABLE>

     See accompanying notes to consolidated financial statements.


<PAGE>







             THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
                 Consolidated Statements of Stockholders' Equity
           Years ended June 28, 1998, June 29, 1997 and June 30, 1996

<TABLE>
<CAPTION>



                                                                                                                      Additional
                                                                  Common        Common    Preferred     Preferred     Paid-in
                                                                  Shares        Stock       Shares       Stock        Capital
<S>                                                             <C>            <C>         <C>          <C>           <C>

Balance, June 30, 1995                                          2,558,563    $  2,559                      --         9,279,649

Additional costs from Initial Public Offering                       --           --                        --           (43,239)
Issuance of common stock for
     services performed                                             2,671           3                      --            14,355
Proceeds from issuance of preferred stock                           --           --         54,500      5,450         1,123,632
Conversion of debt to equity                                       82,500          82                      --           329,918
Net loss                                                            --           --                        --             --
Balance, June 30, 1996                                          2,643,734       2,644       54,500      5,450        10,704,315

Proceeds from issuance of preferred stock                           --           --          2,000        200            49,800
Conversion of debt to equity                                        6,493           7                     --             24,992
Accrued dividends                                                   --           --                       --              --

Issuance of warrants for services performed                         --           --                       --            293,750

Net loss                                                            --           --                       --              --

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

Issuance of common stock in connection                          2,822,058       2,822                     --            437,419
     with acquisition of Ottomanelli Group
Net proceeds from issuance of common                            4,480,000       4,480                                   539,068
      stock in connection with private
      placement
Conversion of debt to equity                                      937,000         937                     --            499,063
Issuance of warrants for services performed                         --           --           --                         25,100
Deferred compensation                                               --           --           --                        (18,889)
Accrued dividends                                                   --           --           --                           --

Net loss                                                            --           --           --                           --

Balance, June 28, 1998                                         10,889,285     $10,890       56,500     5,650         12,554,618
                                                               ==========     =======       ======     =====         ==========
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>


<TABLE>
<CAPTION>



                                                                                           Total
                                                     Accrued           Accumulated         Stockholders'
                                                     Dividends         Deficit             Equity
<S>                                                  <C>                <C>                <C>

Balance, June 30, 1995                                 --              (4,198,004)         5,084,204

Additional costs from Initial Public
     Offering                                          --                  --                (43,239)
Issuance of common stock for
     services performed                                --                  --                 14,358
Proceeds from issuance of preferred stock              --                  --              1,129,082
Conversion of debt to equity                           --                  --                330,000
Net loss                                               --              (3,193,155)        (3,193,155)

Balance, June 30, 1996                                 --              (7,391,159)         3,321,250

Proceeds from issuance of preferred stock              --                  --                 50,000
Conversion of debt to equity                           --                  --                 24,999
Accrued dividends                                   (103,818)              --               (103,818)

Issuance of warrants for services performed            --                  --                293,750
Net loss                                               --              (4,797,857)        (4,797,857)

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

Issuance of common stock in connection
       with acquisition of Ottomanelli Group                                                 440,241
Net proceeds received from issuance of
      common stock in connection with private
      placement                                                                              543,548

Conversion of debt to equity                                                                 500,000
Issuance of warrants for services performed            --                  --                 25,100
Deferred compensation                                  --                  --                (18,889)
Accrued dividends                                  (103,818)               --               (103,818)

Net loss                                               --              (3,236,039)        (3,236,039)

Balance, June 28, 1998                             (207,636)          (15,425,055)        (3,061,533)
                                                  ==========           ==========          =========

</TABLE>

     See accompanying notes to consolidated financial statements.



<PAGE>


             THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
           Years ended June 28, 1998, June 29, 1997 and June 30, 1996

<TABLE>
<CAPTION>


                                                                                      Year ended      Year ended        Year ended
                                                                                    June 28, 1998    June 29, 1997     June 30, 1996
<S>                                                                                   <C>            <C>                <C>

Cash flows from operating activities:
Net loss                                                                             $(3,236,039)    $ (4,797,857)      $(3,193,155)
Adjustments to reconcile net loss to net cash provided by operating activities:
    Depreciation and amortization                                                        314,017          797,092           651,597
    Loss from fixed asset disposals                                                        --              26,989              --
    Gain on early extinguishment of debt                                                   --                --             (89,710)
    Loss on closure of restaurant sites                                                1,437,136        1,850,043           190,965
    Valuation warrants issued for services                                                 6,211          293,750             --
    Issuance of stock in connection with
    debt restructuring                                                                     --                --              30,000
    Issuance of stock in connection with acquisition                                       --                --               --
    Debt issued for services provided                                                     50,000             --               --
    Stock issued for services provided                                                     --                --              14,358
    Changes in assets and liabilities:
       Decrease (increase) in accounts receivable                                          9,832         (50,308)           (36,521)
       Decrease (increase) in inventory                                                   15,072          27,356            (25,013)
       Decrease (increase) in prepaid and other assets                                    54,550         119,016           (206,384)
       Decrease (increase) in assets held for sale                                        25,000             --            (169,138)
       Increase (decrease) in accounts payable and accrued expenses                      902,214        (177,779)          (334,691)
       Increase (decrease) in other liabilities                                             --           157,016             34,609)
       Decrease in liabilities related to
         assets held for sale                                                           (330,041)            --               --
                                                                                        --------         -------            -------
    Net cash used in operating activities                                               (752,048)     (1,654,066)        (3,202,301)

Cash flows from investing activities:
Capital expenditures                                                                       --           (269,237)        (1,769,272)
Payments for acquisitions of leaseholds
and lease costs                                                                            --           (208,627)          (155,924)
Purchase of liquor license                                                                 --                -             (150,000)
                                                                                         -------         -------          ----------
    Net cash used in investing activities                                                  --           (477,864)        (2,075,196)

Cash flows from financing activities:
Proceeds from IPO                                                                          --              --             7,260,800
Proceeds from issuance of convertible notes                                                --            500,000              --
Proceeds from private placement                                                          543,548           --                 --
Proceeds from issuance of  preferred stock                                                 --          1,287,625           (108,543)
Costs of Issuance of Preferred Stock                                                       --              --              (108,543)
Proceeds from borrowings                                                                 900,000           --               100,000
Principal repayments of borrowings                                                      (448,194)       (272,087)        (1,275,423)
IPO costs                                                                                  --              --               (43,239)
                                                                                        --------       ---------          ---------
    Net cash provided by financing activities                                            995,354       1,515,538          5,933,595

Net increase (decrease) in cash                                                          243,306        (616,392)           656,098

Cash, beginning of period                                                                 68,022         684,414             28,316
                                                                                        --------         -------           --------
Cash, end of period                                                                  $   311,328     $    68,022         $  684,414
                                                                                        ========         =======           ========
Cash paid during the period for:
Interest                                                                             $     5,263     $   100,871         $  221,825
Income taxes                                                                         $     9,800     $    31,963         $   17,015
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
             THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
            Years ended June 28,1998, June 29, 1997 and June 30, 1996

     (1) Description of Business

     As of June 28, 1998, The Rattlesnake Holding Company, Inc. and subsidiaries
(collectively,   the  Company),  operated  two  restaurants  in  South  Norwalk,
Connecticut  and  Flemington,  New Jersey.  Company  restaurants  feature casual
dining utilizing a southwestern theme.

     (2) Summary of Significant Accounting Policies

     (a) Basis of Presentation

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

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

     The Company has incurred  aggregate  losses since inception of $15,425,055,
inclusive  of a net  loss in  fiscal  1998 of  $3,236,039.  Based  upon  interim
financial information prepared by management, the Company has continued to incur
losses in fiscal 1999.  Additionally,  $303,749 of 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,  $100,000
convertible  subordinated notes payable matured September 4, 1997, $425,000 note
payable  matured on January 2, 1997,  $11,709 note  payable  matured in February
1998, $220,000 note payable matured on December 31, 1997, $100,000 notes payable
matured on May 31, 1998,  $50,000 note  payable  matured on May 31, 1998,  and a
$2,089  subordinated  note payable matured on August 6, 1996,  such  obligations
aggregating  $1,212,547  and all of which are in  default  as of June 28,  1998.
Additionally, $207,636 of accumulated dividends on Series A Preferred Stock were
also past due and unpaid.

<PAGE>

     Management  of the Company is completing  its Cost  Reduction  Plan,  which
includes a further  reduction in workforce  and  continuation  of the closure of
unprofitable restaurants in fiscal 1998. Such plan included the closing and sale
of the Yorktown  Heights,  White Plains,  New York,  Fairfield,  Connecticut and
Lynbrook, New York locations, as well as the sale of its New York City property.
As  indicated  in note 4, the Company  performed  an  analysis of its  remaining
restaurants  and  identified the Flemington  restaurant as  non-performing.  The
restaurant was subsequently closed in fiscal 1999.  Subsequent to the completion
of the private  placement  which  effectively  satisfied all short and long-term
debt that was in default (note 18), the Company has  assembled a new  management
team and  developed  a new  restaurant  theme  which will be  introduced  at the
recently reacquired Danbury, Connecticut location.

     Management  believes that the  finalization  of its cost reduction plan and
its approximately $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.

     (b) Reporting Periods

     On April 2, 1996, the Board of Directors approved a change,  effective July
1, 1996, in the Company's  accounting reporting period to a 52 week cycle ending
on the last Sunday in June. On May 12, 1998,  the Board of Directors  approved a
further change of its fiscal year to June 30, effective for fiscal 1999.

     (c) Accounts Receivable

     Accounts  receivable  consist  principally  of bank  credit  card  accounts
receivable.

     (d) Inventories

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

     (e) Pre-Opening Costs

     Certain  costs  relating to hiring and training of  employees  prior to the
opening of new  restaurants  are  capitalized  and amortized over a twelve month
period commencing upon restaurant  opening.  At June 28, 1998 and June 29, 1997,
there were no unamortized pre-opening costs.

     (f) Net Assets Held for Sale

     Pursuant to a restaurant lease agreement,  the Company exercised its option
to purchase  the  facility  for  $425,000.  This  transaction  was financed by a
related party  shareholder  through a 15%  short-term  note payable (note 9). In
addition,  the related party shareholder received 50,000 warrants at an exercise
price  equal  to the  market  price  at the date of the  grant.  The  restaurant
facility at this location was closed on January 4, 1997.  The building was being
held for sale and was classified in the 1997 financial  statements as net assets
held for sale, net of an additional  $100,000  writedown (note 4). During fiscal
1998, the Company sold this property for $350,000.

<PAGE>

     At June 29,  1997,  the  Company  recorded  $679,544 of net assets held for
sale.  This  balance  represents  $335,986 of assets which were sold on July 16,
1997,  $25,000 of assets from a restaurant  facility which was closed  September
17, 1997 and  $318,558  relating to a building as  discussed  above.

     (g) Property and Equipment

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

Artifacts                                   3-years
Original small wares                        3 years
Furniture and fixtures                      5 years
Restaurant and office equipment             7 years
Leasehold improvements                      3-15 years
Building                                    40 years

     (h) Intangible Assets

     Intangible   assets   consist   principally  of  costs  to  acquire  leased
facilities.  These  costs  are  amortized  over the life of the  related  lease,
generally 3 to 15 years.  Accumulated amortization at June 28, 1998 and June 29,
1997 was $69,942 and $107,950,  respectively.  Amortization expense was $44,501,
$201,377 and $227,847 for the years ended June 28, 1998,  June 29, 1997 and June
30, 1996, respectively.  In connection with the Flemington location, the Company
wrote  off  approximately  $258,490  in  leasehold  and  related  costs,  net of
accumulated  amortization  of $48,012 in fiscal  1998.  In  connection  with the
Danbury location,  the Company wrote off approximately  $41,285 in leasehold and
related  costs,  net of accumulated  amortization  of $29,023 in fiscal 1998. In
connection with the closing of the Fairfield,  White Plains,  Yorktown  Heights,
Lynbrook  and  86th  Street  locations,  the  Company  wrote  off  approximately
$1,239,000 in leasehold and related costs,  net of accumulated  amortization  of
$494,541 in fiscal 1997. In connection with the closing of the Hamden  location,
the Company wrote off approximately  $65,000 in leasehold and related costs, net
of accumulated amortization of $21,672 in fiscal 1996.

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


<PAGE>



     (i) Other Assets

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

     (j) Financial Instruments

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

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

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

     (l) Accounting for Stock-Based Compensation

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

     (m) Advertising Expense

     Advertising  costs are  expensed as  incurred.  Advertising  expenses  were
$15,500, $128,736 and $258,969, in 1998, 1997 and 1996, respectively.

     (n) Earnings per Share

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


<PAGE>



     (o) Comprehensive Income

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

     (p) Use of Estimates

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

     (3) Acquisition

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

     After amendment to the transaction,  the Ottomanelli  Group transferred the
stock of (i) a franchising  corporation which has limited  operations and (ii) a
corporation which operated two restaurants in Paramus,  New Jersey (since closed
- note 4),  for a total of  2,822,058  shares of common  stock with a fair value
determined by an independent appraisal of approximately  $440,000. The Agreement
also contains  certain  anti-dilution  provisions (note 18). The acquisition was
accounted for as a purchase transaction,  and,  accordingly,  the purchase price
was  allocated  to  identifiable  assets and  liabilities  based upon their fair
values at the date of  acquisition.  The excess of the aggregate  purchase price
over the fair value of the net assets  acquired  was  recorded as  goodwill  and
amortizable over the period to be benefitted, fifteen years.

     As  indicated  in note 4, Company  management  concluded  that upon further
analysis,   the  operations  of  the  former   Ottomanelli   Group  were  deemed
inconsistent  with the  Company's  operating  plans  and were  authorized  to be
terminated.  Accordingly,  the Company  concluded that the goodwill was impaired
and  recorded  an  impairment  charge  in the  1998  consolidated  statement  of
operations.

     The Company's 1998 financial statements contain approximately three months
of operations of the Ottomanelli Group.  Pro-forma data has not been provided as
they were deemed immaterial to the operations of the Company by management.



<PAGE>



     (4) Closure of Restaurant Sites

     In fiscal year 1996,  the Board of Directors  authorized the closing of the
Rattlesnake  Southwestern Grill Restaurant located in Hamden,  Connecticut.  The
facility  was closed on January 7, 1996.  A majority of the fixed  assets at the
facility were removed to be utilized at other  existing or new  facilities.  All
remaining  fixed assets and leasehold  improvements  have been abandoned and all
intangible  assets have been written  off. A loss of  $192,311,  relating to the
closing of the Hamden location, was recorded in fiscal 1996.

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

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

     In fiscal  1997,  the Board of  Directors  authorized  the  closing  of the
Rattlesnake Southwestern Grill Restaurant located in Yorktown Heights, New York.
The facility was closed on June 9, 1997 and sold on June 27, 1997. The purchaser
assumed the remaining  outstanding  balance of the notes payable to the landlord
and the  related  lease  obligation.  A net loss of  $362,091,  relating  to the
closing of the Yorktown Heights location, was recorded in fiscal 1997.

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

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

<PAGE>

     At June 29, 1997,  consistent with the Board's  approval for the closure of
the above-mentioned  locations, the assets held for sale and related liabilities
have been  reclassified  as "assets held for sale" and  "liabilities  related to
assets held for sale". The accompanying June 29, 1997 consolidated balance sheet
includes the following components: 1997

Fairfield restaurant facility                                    $   318,558
White Plains restaurant facility                                     335,986
Lynbrook equipment                                                    25,000
                                                                     -------
Assets held for sale                                             $   679,544
                                                                     =======

Notes payable                                                        702,914
Accounts payable                                                     185,555
Accrued expenses                                                      47,759
Other current liabilities                                            197,029
                                                                     -------
Liabilities related to assets held for sale                       $1,133,257
                                                                   =========

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

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

     On April 15, 1999,  the Company  subsequently  reacquired  the facility for
$1,350,000 in cash (note 18).

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




<PAGE>


     (5) Note Receivable

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

     As  indicated  in note 18, the note  receivable  was  assigned to a related
party in partial satisfaction of the Company's indebtedness to that party.

     (6) Property and Equipment

     Property and equipment consists of the following:

                                                June 28,1998     June 29, 1997
                                                ------------     -------------
Leasehold improvements                          $  100,047           783,415
Restaurant and office equipment                    110,578           457,378
Furniture and fixtures                              31,425           301,578

                                                   242,050         1,542,371

Less accumulated depreciation
    and amortization                              (160,675)         (535,279)
                                                  --------          --------
                                               $    81,375         1,007,092
                                                  ========          ========

     Related depreciation and amortization expenses were $269,516,  $478,611 and
$334,695  for the year ended June 28,  1998,  June 29,  1997 and June 30,  1996,
respectively.

(7)      Other Assets

Other assets consist of the following:

                                               June 28, 1998     June 29, 1997
                                               -------------     -------------
Promotional meal programs                         76,738            71,071
Deposits                                           1,704            47,779
Loans receivable                                    ---             10,607
                                                  ------            ------
                                               $  78,442           129,457
                                                ========          ========


<PAGE>


     (8) Capital Structure

     The Company's capital structure is as follows:

<TABLE>
<CAPTION>

                                                         Shares
                                       Par value       Authorized        June 28, 1998       June 29, 1997

<S>                                  <C>                <C>               <C>                <C>

Common stock                        $.001 per share    20,000,000         10,899,285           2,650,227
Preferred stock, Series A           $.10 per share      5,000,000             56,500              56,500
</TABLE>


     The  Company's  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  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 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.

     To date, the Board of Directors  have not declared any dividends,  although
cumulative  dividends  relating to the  preferred  stock of  $207,636  have been
accrued in the June 28, 1998 consolidated balance sheet.

     In July 1999, the Company  completed a private  placement of  approximately
$6,000,000 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.

     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.

<PAGE>

     (9) Notes Payable

Notes payable consists of the following:
<TABLE>
<CAPTION>

                                                                     June 28, 1998        June 29, 1997
<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  (including  $58,338  held by a
  related party)                                                       500,000               500,000

Note payable to shareholder  relating to the acquisition
  of Pen-Z Corp., payable in monthly  payments of $2,700
  at June 30,  1996 with  interest at 1% over prime (9.25%
  at June 30, 1996). The Company was released from this
  debt in fiscal year 1997 as a result of the sale of this
  location (note 4)                                                      ---                     225

Series C  subordinated  notes  payable due August 6, 1997,
  with interest at 15% (including $58,338 held by a related party)    303,749*               303,749

Convertible  subordinated  notes  payable due September 4,
  1997, with interest at 18%                                          100,000*               500,000

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

Note  payable  to  a  related  party,  due  in  monthly
  installments   of  $1,270,   including   principal  and
  interest at 18% through February 1998                                11,709*                 9,505

Note payable to a  stockholder  relating to purchase of
  furniture  and equipment for the  Penz  Corp.,  due in
  monthly  installments  of $900 at June  30,  1996 including
  principal and interest at prime plus 1% through 2009. The
  Company was released  from  this  debt in  fiscal  year
  1997 as a result of the sale of this location (note 4)                ---                      173
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                    <C>                        <C>

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

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

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

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

Note payable  relating to acquisition of lease,  due
in monthly  installments of $2,867,  including  principal
and interest at 8% through July 2010.  The Company was
released  from  this  debt in  fiscal  1998 as a result
of the sale of the location (note 4)                                     ---                   277,516

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 1, 2000)     44,998                   64,998
                                                                      ---------               ---------
                                                                   $1,807,545                2,083,255

Less:  Current maturities                                           1,282,539                  835,335
Less:  Liabilities relating to assets held for sale                     ---                    702,914

                                                                   $  525,006              $   545,006
                                                                     =========               =========
</TABLE>

     *Obligation in default at June 28, 1998

     Notes payable to shareholders and other related parties  (Company  officers
and  directors)  were  $553,385 and $551,579 at June 28, 1998 and June 29, 1997,
respectively.

     At June 28, 1998, notes payable  aggregating  $1,212,547 were unpaid and in
default. Additionally, interest payments on these obligations were also not paid
in fiscal 1998.  As indicated in note 18, in July 1999 the Company  utilized the
proceeds of a private placement to pay $639,000 of notes payable and $860,000 of
notes  payable  converted  their  obligations  into  Series B  preferred  stock,
inclusive of Series B convertible notes payable not in default at year-end.

<PAGE>

Maturities of these notes is as follows:

           Fiscal year ended:
                1999                          $1,282,539
                2000                              19,992
                2001 and Thereafter              505,014
                                                ---------
                                              $1,807,545
                                               ==========

     (10) Financing Arrangements

     In July  1995,  the  Company  redeemed  $225,000  of the Series A notes and
restructured  the remaining  principle  amount  outstanding of $1,575,000.  This
redemption was partially funded by a $50,000 note payable issued in June 1995 by
the Company,  with interest at 9%, and repaid in July 1995, together with 10,000
shares of common stock, valued at the IPO price of $5.50 per share. The value of
the common stock was recorded as interest  expense by the Company.  Each $25,000
principal  amount of Notes was  exchanged as follows:  (i) $8,334 paid in August
and  September  1995 (the "First  Payment");  and (ii) a 9% $8,333 Series A Note
(the  Series A Notes)  due 13 months  after the first  payment,  and a 9% $8,333
Series B Note (the  Series B Notes) due five years  after the first  payment was
issued  to each  Noteholder  with  the  First  Payment.  Each  Series  B Note is
convertible  into common stock  thirteen  months after  issuance at a conversion
price  equal to 70% of the initial  public  offering  price of the common  stock
sold, with piggy-back registration rights for the shares underlying the Series B
Notes. Each Series B Note is redeemable with 30 days prior written notice at any
time after the closing bid price of the common  stock is 150% of the  conversion
price for the ten consecutive  trading days ending within 15 days of the date of
notice of redemption. As a result of the restructuring of this debt, the related
debt  issuance  costs were written off in July 1995.  An  extraordinary  gain of
$89,710,  net of the write-off of $72,114 debt issuance  costs was recognized in
fiscal 1996.

     In fiscal 1997, the Company offered an extension  agreement to the Series A
noteholders,  providing  for a one  year  extension  of the  maturity  date,  in
exchange for Series C notes that  provided for an increase in the interest  rate
from 9% to 15% and one warrant for every  dollar of  indebtedness.  The warrants
provide for exercise  prices ranging  between $2.50 - $3.00 and expire on August
6, 2001.  Noteholders  aggregating  $303,749 accepted the terms of the extension
and the remaining  $221,243 was paid in cash. At June 28, 1998, the $303,749 was
unpaid and in default (note 18).

     In March 1996,  the Company  entered into an agreement  with an  investment
banking  firm to sell  200,000  shares of Series A  preferred  stock and 800,000
common  stock  warrants  in a private  placement  for a total  consideration  of
$5,000,000.  The preferred stock was valued at $24.50 per share and each warrant
at $.125 per warrant. The warrants are exercisable at a price of $7.00 per share
and expire on August 31, 2001. On June 30, 1996,  the Company closed on the sale
of 54,500  shares of the  aforementioned  Series A  preferred  stock and 218,000
common stock purchase  warrants.  The underwriter  received warrants to purchase
27,250  shares of common  stock at $3.78 per share  which  expire on August  31,
2001. The net proceeds of the offering were  $1,129,082,  net of commissions and
expenses of $233,418.  In July 1996,  the Company  sold to an outside  investor,
through a separate offering, an additional 2,000 shares of preferred stock under
the same terms as noted above.

     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 the Company's wholly-owned  subsidiaries:  Rattlesnake Ventures, Inc.,
Rattlesnake-Danbury,      Inc.,      Rattlesnake-Flemington,       Inc.      and
Rattlesnake-Lynbrook,  Inc. The notes  matured on September 4, 1997 and $400,000
was paid in fiscal 1998. The remaining  $100,000 was in default on June 28, 1998
(note 18).

<PAGE>

     A $425,000 note payable  associated  with the  acquisition of the Fairfield
restaurant matured on January 2, 1997. The restaurant was sold on March 24, 1998
and the note was  restructured  to provide for  interest  payments of  $5,500.44
monthly  through  June 24, 1998,  with the  remaining  principal  and any unpaid
interest due on June 24, 1998.  The obligation was unpaid and in default on June
28, 1998 (note 18).

     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 herewith,  at the rate of one warrant convertible into one share of the
Company's common stock at the average bid price on the day of the receipt of the
financing. The Company made principal payments of $30,000 in fiscal 1998 and the
remaining $220,000 was outstanding and in default at June 28, 1998 (note 18).

     On September 8, 1997, the Company repriced  warrants issued to three Series
C note holders with principal aggregating $62,499 in return for extension of the
re-payment period to December 15, 1997. The noteholders received 30,000 warrants
as a result of the Company's failure to satisfy the debt on July 15, 1997.

     On December 8, 1997, the Company entered into a refinancing  arrangement in
which it raised  $500,000 in a convertible  note.  $400,000 of the proceeds were
utilized to reduce the 18% convertible subordinated notes due September 4, 1997.
The remaining  $100,000 was outstanding at June 28, 1998 and is in default (note
18). In March 1998,  the December  1997 note was  satisfied by  conversion  into
937,000 shares of the Company's common stock.

     Between  March  1998  and  September  1998,  the  Company   privately  sold
approximately  $850,000  of its common  stock at $.15 per share.  As of June 28,
1998,  the  Company  had sold  4,480,000  shares  of common  stock and  received
proceeds of $543,548, net of expenses.

     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.  At June 28,  1998,  $100,000 of the debt was unpaid and in default.

     In 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. The note was in default on June 28, 1998 and was subsequently satisfied by
conversion into equity (note 18).

<PAGE>

(11)     Accrued Expenses and Other Liabilities

         (a)      Accrued Expenses

Accrued expenses consist of the following:

                                           June  28, 1998     June 29, 1997

Interest payable                            $ 424,610              166,515
Severance liabilities                          ---                  80,696
Other                                         152,664               57,867
Accrued payroll                                52,140               52,329
                                             --------             --------
                                            $ 629,414              357,407
                                             ========             ========

         (b)      Other Liabilities

     The Company  has  entered  into  marketing  agreements  whereby it receives
temporary  financing  in exchange for  participating  in  discounted  price meal
programs.  At June 28, 1998 and June 29, 1997 , the balances  outstanding  under
this program were  $182,971 and  $218,220,  respectively,  which are included in
other liabilities in the accompanying consolidated balance sheets.

     (12) Income Taxes

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

     There was no income  tax  expense  for any period  presented  due to losses
incurred by the Company.  Components of the deferred tax assets and deferred tax
liabilities at June 29, 1997 and June 30, 1996 are presented below:


<PAGE>
<TABLE>
<CAPTION>


                                                                     June 28, 1998             June 29, 1997
<S>                                                                   <C>                       <C>

Deferred tax assets:
    Net operating loss carry forward                                   $5,584,600                 4,349,000
    Fixed Assets                                                           15,324                     ---
                                                                       ----------                 ---------

Total gross deferred tax assets                                         5,599,924                 4,349,000

Less valuation allowance                                                5,599,924                 4,336,000
                                                                       ----------                 ---------

Net deferred tax assets                                                     ---                      13,000

Deferred tax liabilities:
    Fixed Assets                                                            ---                      13,000
                                                                       ----------                 ---------
Net deferred tax liability                                          $       ---                       ---
                                                                       ==========                 =========
</TABLE>


     The  valuation  allowance  for  deferred tax assets as of June 30, 1997 and
July 1, 1996 was  $5,599,924  and  $4,336,000,  respectively.  The change in the
total  valuation  allowance  for the years ended June 28, 1998 and June 29, 1997
was $1,263,924 and $1,986,000,  respectively.  In assessing the realizability of
deferred  tax assets,  management  considers  whether it is more likely than not
that some portion or all of the  deferred  tax assets will not be realized.  The
ultimate  realization of deferred tax assets is dependent upon the generation of
future taxable  income during the periods in which the net operating  losses and
temporary  differences become deductible.  Management considers projected future
taxable income and tax planning  strategies in making this  assessment.  At June
28, 1998 and June 29, 1997,  the Company has net operating  loss carry  forwards
for  Federal and State  income tax  purposes of  approximately  $13,962,000  and
$10,873,000,  respectively  (the NOL carry  forwards),  which are  available  to
offset future  taxable  income,  if any,  through  2013.  Based upon the limited
operating  history of the Company and losses  incurred to date,  management  has
fully reserved the deferred tax asset.

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

<PAGE>

     (13) Commitments

     Commitments

     The Company's  operations  are  principally  conducted in leased  premises.
Remaining lease terms range through 2002 and include options for extension.  The
leases contain  contingent  rental  provisions  based upon a percentage of gross
sales.  As of June 29, 1998,  the Company has  operating  lease  commitments  as
follows, for its Flemington and South Norwalk restaurants:

                                1999             128,000
                                2000             128,233
                                2001             130,800
                                2002             126,600
                                2003              13,400
                                                 -------
                                               $ 527,033
                                                 =======

     Certain  shareholders  and former officers have personally  guarantee lease
payments for one location.

     Pursuant  to sales  agreements  for the  Company's  New York City and White
Plains,  New York restaurants  (note 4), the Company  guarantee  specified lease
obligations.  As of June 28,  1998,  the  Company  has not been  notified of any
claims against these guarantees.

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

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

     Rent expense was $426,923, $930,676 and $677,877 for the periods ended June
28, 1998, June 29, 1997 and June 30, 1996, respectively.

(14)     Employee Benefit Plans

         (a)      Stock Option Plan

     In December 1994, the Company  adopted the 1994 Employees Stock Option Plan
(the Employees Plan), which provides for the issuance of incentive stock options
(ISO's) and non-qualified options (Non-ISO's) to officers and key employees.  Up
to  1,000,000  shares of the  Company's  common  stock  have been  reserved  for
issuance  under the Plan.  The Plan is  currently  administered  by the Board of
Directors of the Company. The term of the options is generally for a period of 5

<PAGE>

years.  The  exercise  price for  non-qualified  options  outstanding  under the
Employees Plan can be no less that 100% of the fair market value, as defined, of
the  Company's  common stock at the date of the grant.  For ISO's,  the exercise
price can be  generally  no less  than the fair  market  value of the  Company's
common  stock at the date of the grant,  with the  exception of any employee who
prior to the granting of the option, is a 10% or greater stockholder as defined,
for which the  exercise  price can be no less than 110% of the fair market value
of the Company's common stock at the date of grant.

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

     At June 28,  1998,  there were  1,000,000  and  295,000  additional  shares
available for grant under the Employees and Director  Plans,  respectively.  The
per share  weighted-average  fair value of stock options granted during 1997 and
1996 was $0.51 and $1.22,  respectively  for those options whose  exercise price
equaled  the  market  price of the  stock on the date of grant  and $.05 and $0,
respectively  for those options whose  exercise price was above the market price
of the stock on the date of grant using the Black Scholes  option-pricing  model
with the  following  weighted-average  assumptions:  1997  and  1996 -  expected
dividend  yield 0%,  risk-free  interest  rate of between  5.07% and  5.86%,  an
expected  life  of  between  approximately  2.5 - 5  years  and  expected  stock
volatility of between 38 - 130%. There were no shares granted in 1998.

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

<TABLE>
<CAPTION>

                                                 1998             1997             1996
<S>                                            <C>              <C>                <C>

Net loss available to common
shareholders: As reported                 $ (3,339,857)       (4,901,675)       (3,193,155)
Pro-forma                                 $ (3,422,957)       (5,371,634)       (3,403,118)

Loss per share:    As reported            $      (0.80)            (1.85)            (1.23)
Pro-forma                                 $      (0.82)            (2.03)            (1.31)

</TABLE>

     Pro forma net loss reflects  only options and warrants  granted in 1997 and
1996.  Therefore,  the full impact of  calculating  compensation  cost for stock
options and  warrants  under SFAS No.123 is not  reflected  in the pro forma net
income  amounts  presented  above  because  compensation  cost for  options  and
warrants granted prior to July 1, 1995 were not considered.

Activity in non-ISO's was as follows:
<TABLE>
<CAPTION>

                                                                                 Weighted
                                                                                 Average
                                                     Number     Option Price     Exercise
                                                     of Shares    per Share       Price
<S>                                                  <C>         <C>             <C>
Options outstanding June 30, 1995                    600,000    $   4.50         $  2.63
Options Granted                                      124,000        5.25            3.06
                                                     -------      ---------         ----
Options outstanding June 30, 1996                    724,000      4.50-5.25         4.25

Options Granted                                      396,000      0.25-2.25          .44
Terminated Options                                  (427,000)     .375-5.25         3.21
                                                     -------      ---------         ----
Options outstanding June 29, 1997                    693,000     $0.25-5.25      $  3.11

Options Granted                                         ---         ---              ---
Terminated Options                                  (488,000)     0.25-5.25
                                                     -------      ---------         ----
Options outstanding June 28, 1998                    205,000     $4.50-5.25         4.88
                                                     =======      =========         ====
</TABLE>


Activity in ISO's was as follows:
<TABLE>
<CAPTION>
                                                                                              Weighted
                                                                                              Average
                                                              Number         Option Price     Exercise
                                                              of Shares       per Share       Price
<S>                                                         <C>              <C>              <C>

Options outstanding June 30, 1995                              87,000       $4.50-5.50       $   2.41
Options Granted                                                78,500        3.50-5.25           2.99
Terminated Options                                            (36,000)          4.50             2.91
                                                              -------        ---------         ------
Options outstanding June 30, 1996                             129,500        3.50-5.50           4.14
Options Granted                                                44,000        0.25-2.63           3.53
Terminated Options                                            (70,000)       2.50-5.25           3.62
                                                              -------        ---------         ------
Options outstanding June 29, 1997                             103,500       $0.25-5.50           5.35
Options Granted                                                  ---            ---              ---
Terminated Options                                           (103,500)      $0.25-5.50           5.35
                                                             ---------       ---------         ------

Options outstanding June 28, 1998                                ---            ---              ---
                                                             =========       =========         ======
</TABLE>


     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 28, 1998,  June 29, 1997 and
June 30, 1996.

     At June 28, 1998,  the range of exercise  prices and range of the remaining
contractual life of outstanding options was $4.50 - 5.25 and approximately 1.5 -
2.5 years, respectively.

     At June 28, 1998,  June 29, 1997 and June 30,  1996,  the number of options
exercisable  was  205,000,   653,500,   and  346,167,   respectively,   and  the
weighted-average  exercise price of those options was $4.88,  $3.40,  and $4.24,
respectively.

<PAGE>

     The Company granted 335,000 shares of restricted  warrants to employees and
directors  during the 1997 fiscal  year.  The  warrants  were granted on June 2,
1997; 200,000 as a result of the separation agreement signed between the Company
and the  Executive  Vice  President  (note 13(c)) and 135,000  shares of options
previously  issued to the Vice President of Finance which were  terminated as of
this date and warrants were issued in their place with the exercise  price equal
to the  market  price of the stock on the date of grant.

     The Company granted 717,992 shares of warrants to non-employees during 1997
for services  performed.  The total  compensation cost recognized in fiscal 1997
for these stock-based  compensation awards was approximately  $294,000 using the
Black Scholes  option-pricing  model with the  following  assumptions - expected
dividend yield 0%,  risk-free  interest rate of 5.25%,  expected life of 5 years
and expected stock volatility of 86%.

     (b) Employment Agreements

     The  Company and its  Chairman,  President  and  Executive  Vice  President
(collectively,  the Senior Management Group) entered into employment  agreements
in December 1994 for a period commencing in December 1994 through December 1997.
The agreements  provide for annual  compensation for the Senior Management Group
collectively  of  $250,000,  increasing  by 10%  annually,  plus  certain  other
benefits.   The  agreements   also  provide  for  annual   aggregate   incentive
compensation for the Senior Management Group, as defined.

     The agreements also provide that upon a change in control, as defined, that
all stock options held by the employee become immediately exercisable and that a
credit equivalent to three times the employee's annual  compensation be credited
against the exercise price of the options.

     On June 6, 1996, the board of directors authorized additional  compensation
aggregating $70,000 for the aforementioned executive officers.

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

<PAGE>

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

     In October 1998, the Company entered into a three year employment agreement
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,  exercisable  for a period of five  years,  one third of the number of
shares covered thereby vesting at the time of the private  placement  financing,
and one third  (1/3) at the end of each one year  period  thereafter  during the
term.

     In February 1998,  the Company  executed a four year  employment  agreement
with the then President and Chief Executive  Officer,  which provides for annual
compensation  of $150,000.  The  agreement was amended in October 1998 to reduce
the annual compensation to $85,000,  provided for a $25,000 cash payment and the
executive accepted a new position as Vice President.


     (c) Separation Agreements

     On March 15, 1997 an agreement was signed  between the Company and the then
Chairman & Chief  Executive  Officer which  terminated the previous  December 1,
1994  employment  agreement  and any and all  oral  agreements  relating  to his
employment.  The agreement included payments for expense reimbursement,  accrued
and  unused  vacation,  medical,  dental,  disability  and  life  insurance  and
severance  payments,  all  unpaid  amounts  are  accrued  at June 29,  1997.  In
connection with this agreement,  the Chief  Executive  Officer's  employee stock
options  shall  be  immediately  vested  and  shall  be  amended  to  constitute
non-qualified  employee  stock  options  and the  strike  price is reduced to an
exercise price of $2.00, the fair value at the date of grant.

<PAGE>

     On May 29, 1997 an agreement was signed  between the Company and a Director
of the Company for  acceptance  of the  position of acting  Co-CEO for up to 150
days. This agreement  included five months of compensation at $5,000 a month and
100,000 warrants at the closing bid on the date of this agreement.

     On  June 2,  1997 an  agreement  was  signed  between  the  Company  and an
Executive  Vice  President  which  terminated  the  December 1, 1994  employment
agreement  and any and all  oral  agreements  relating  to his  employment.  The
agreement  included  payments  for  expense  reimbursement,  accrued  and unused
vacation, medical, dental, disability and life insurance and severance payments,
all of which is accrued at June 29, 1997. In connection with this agreement, the
Executive Vice President's  stock options were replaced by a warrant to purchase
up to 200,000 shares of common stock  exercisable at the closing bid on the date
of this agreement.

     On July 25,  1997,  an  agreement  was signed  between the Company and then
President which  terminated the previous  December 1, 1994 agreement and any and
all oral agreements relating to the employment.  The agreement included payments
for  expense  reimbursement,  accrued  and  unused  vacation,  medical,  dental,
disability and life insurance and severance  payments.  In connection  with this
agreement,  the President's  employee stock options are replaced by a warrant to
purchase up to 150,000  shares of common  stock  exercisable  at the closing bid
price on July 18, 1997.

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

     (15) Consulting Agreements

     On May 1, 1998, the Company entered into a three year consulting  agreement
with its former Vice Chairman and current Secretary,  which replaced a March 15,
1997  employment  agreement  to provide  financial  and related  services to the
Company with compensation of $7,000 per month. The consultant,  in consideration
for services,  received  500,000 shares of the Company's  common stock, 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 at an exercise price of $.15 per share.

     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 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.

<PAGE>

     (16) Litigation

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

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

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

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

     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.  A compliance  conference  was adjourned to September 15, 1999.
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.

<PAGE>


(17)     Earnings Per Share

     As discussed in note 2, the Company  adopted  Statement 128, which replaced
the  calculation of primary and fully diluted  earnings per share with basic and
diluted  earnings per share.  Dilutive net loss per share for fiscal 1996,  1997
and  1998 are the same as basic  net  loss per  share  due to the  anti-dilutive
effect of the assumed  conversion  of  preferred  stock,  and  exercise of stock
options and warrants.

The following  table  reconciles net loss per share with net loss per share
available to common stockholders:
<TABLE>
<CAPTION>

                                                                 1998      1997      1996
                                                                 ----      ----      ----
<S>                                                              <C>       <C>       <C>
Net loss per share                                               $(0.78)   (1.81)    (1.23)
Net loss per share attributable to preferred stock dividends      (0.02)   (0.04)      ---
                                                                 -------   ------    ------
Net loss per share available to common stockholders              $(0.80)   (1.85)    (1.23)
                                                                 =======   ======    ======

</TABLE>

(18)     Subsequent Events

     On July 2, 1998 The Rattlesnake  Holding Company,  Inc. signed an agreement
to  purchase  some of the assets of 1562  Restaurant  Corp.  Located at 1562 2nd
Avenue,  New York City.  The  purchase  price was  $425,000  payable  $20,000 on
contract,  $105,000  at closing,  and a  promissory  note at 8.5%  payable in 72
payments of $5,332.52. The Company decided not to pursue the acquisition of this
restaurant.

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

     Between  October 1998 and December 1998,  the Company  entered into private
financing  arrangements  with three  individuals  to provide  $150,000 of bridge
financing  at 16%  interest  per  annum,  plus  warrants,  with due dates of the
earlier  of the  closing  of the  proposed  private  placement  or ninety  days,
respectively.  All notes were satisfied by payment of cash and/or  conversion to
Company  equity at the initial  closing of the private  placement  February  17,
1999.

     In December 1998, certain management  personnel deferred a portion of their
salary  pending  completion of the private  placement  financing.  This debt was
satisfied by a payment of cash and conversion of the remaining balance to equity
of the initial closing of the private placement.

     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 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.

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

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

<PAGE>

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

     Pursuant to the March 1998 agreement to acquire the Ottomanelli Group (note
3) additional  consideration,  due to anti-dilution  provisions contained in the
agreements  in the  form  of  common  stock  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 the  anti-dilution  provisions,
which included a maximum addition which was met.

     In May 1999,  the  Company  changed its fiscal year from the last Sunday in
June of each year to June 30th of each year.


     (19) Other Information

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

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