10QSB Quarterly Report





                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB
                                   (Mark One)
              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 27, 1999

                                       OR

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

        For the transition period from ____________ to _________________

                           Commission File No. 1-13818

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

                 Delaware                           06-1369616
        (State or other jurisdiction of          (I.R.S. Employer
          incorporation or organization)       Identification Number)

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

                      The Rattlesnake Holding Company, Inc.
                                  (former Name)

       Registrant's telephone number, including area code: (203) 798-1390

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

                          Yes X                    No

   29,979,013 Common Shares, par value $.001 per share were outstanding as of
                               September 27, 1999

<PAGE>


                                   FORM 10-QSB

                           Spencer's Restaurants, Inc.

                               September 27, 1999

                                      INDEX

<TABLE>
<S>                                                                                              <C>


Part I - Financial Information

Condensed Consolidated Balance Sheets as of September 27, 1999                                   3
    and June 30, 1999

UnauditedCondensed Consolidated  Statements of Operations for three months ended                 4
    September 27, 1999 and September 30, 1998

Unaudited Condensed Consolidated Statements of Cash Flows for three months ended                 5
    September 27, 1999 and September 30, 1998


Notes to Unaudited Condensed Consolidated Financial Statements                                   6

Management's Discussion and Analysis                                                             9

Liquidity                                                                                       11

Subsequent Events                                                                               13

Safe Harbor Statement                                                                           14


Part II - Other Information

Item 1:  Legal Proceedings                                                                      15

Item 2:  Defaults Upon Senior Securities

Item 3:  Recent Sales of Unregistered Securities

Item 4:  Submission of Matters Stockholders' vote

Item 5:  Other Information

Item 6:  Exhibits and Reports on Form 8-K

Signatures                                                                                     17

</TABLE>


<PAGE>

                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheets
                      September 27, 1999 and June 30, 199
<TABLE>
<S>                                                         <C>                  <C>


                                                              9/27/99            6/30/99
Assets                                                      Unaudited
Current Assets
      Cash                                             $    1,917,969          2,337,675
      Accounts Receivable                                       6,723              9,754
      Inventory                                                 8,757             16,688
      Prepaid expenses and other current assets                16,296             11,918
                                                       --------------     --------------
Total current assets                                        1,949,746          2,376,035

Land, building and equipment                                1,730,291          1,445,079
Intangible assets, net                                         19,036             20,769
Other assets                                                   82,133             76,383
                                                       --------------     --------------
Total assets                                           $    3,781,205          3,918,266


Liabilities and Stockholders' Equity

Current Liabilities
      Current maturities                                      258,344             55,838
      Accounts payable                                        863,858            689,679
      Accrued expenses                                        476,005            678,221
      Dividends payable                                       171,659            198,846
      Other current liabilities                               155,208            171,621
                                                       --------------    ---------------
Total current liabilities                              $    1,925,074          1,794,205

Notes payable, net of current maturities                            -            242,504

Total Liabilities                                           1,925,074          2,036,709

Stockholders' Equity
      Series B Preferred Stock                                 34,317             32,856
      Stock, $.10 par value, 5,000,000 shares
      authorized  at  September  27 and June 30,
      1999 and  343,177  shares  and 328,563
      issued  and   outstanding  at  September  27th
      and  June  30th, respectively, of 1999

Common stock                                                   29,980             29,980
       $.001 par value, 4,000,000 shares
       authorized; 29,979,013 issued and
       outstanding as of September 27, 1999 and
       June 30, 1999.

Additional paid-in capital                                 20,986,092         20,794,657
Accrued dividends                                           (171,659)          (198,846)
Accumulated deficit                                      (19,022,600)       (18,777,090)
                                                       --------------    ---------------
Total stockholders' equity                                  1,856,130          1,881,557
                                                       --------------    ---------------
Total liabilities and stockholders' equity                  3,781,205          3,918,266
                                                       ==============    ===============
</TABLE>

               See accompanying notes to the financial statements.

<PAGE>

                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
                        Unaudited Condensed Consolidated
                  Statements of Operations For the Three months
                 ended September 27, 1999 and September 30, 1998
<TABLE>
<S>                                                      <C>                   <C>


                                                         Three Months          Three Months
                                                         Ended 9/27/99         Ended 9/30/98

Restaurant sales                                         $         323,697              685,264
Less: promotional sales                                            (7,452)             (30,607)
                                                         -----------------    -----------------

       Net restaurant sales                                        316,245              654,657

Costs and expenses:
Cost of food and beverage sales                                     79,689              269,408
Restaurant salaries and fringe benefits                            168,757              292,651
Occupancy and related expenses                                      27,785              232,715
Depreciation and amortization                                        9,731               11,093
Loss on restaurant closure                                          42,800                    -
                                                         -----------------    -----------------
       Total restaurant costs and expenses                         328,762              805,867

Selling, general and administrative                                232,993              227,423
Interest expense, net                                                    -               67,430
Litigation award                                                         -              625,000
                                                         -----------------    -----------------
Total expenses                                                     232,993              919,853


Net loss                                                         (245,510)          (1,071,063)

Dividends on preferred shares                                    (171,659)             (25,954)
                                                         -----------------    -----------------

       Net loss applicable to common stockholders                (417,169)          (1,097,017)
                                                         =================    =================


       Weighted Average of Common Shares
         Outstanding at 9/30/99:                                29,979,013           12,256,143

       Net Loss Per Share
                                                                    (0.01)               (0.09)
</TABLE>


               See accompanying notes to the financial statements.

<PAGE>


                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
            Unaudited Condensed Consolidated Statements of Cash Flows
      For the Three Months ended September 27, 1999 and September 30, 1998
<TABLE>
<S>                                                                                      <C>                   <C>


                                                                                         Three Months          Three Months
                                                                                         Ended 9/27/99         Ended 9/30/98

Cash flows from operating activities:
       Net loss                                                                          $    (245,510)          (1,071,063)
       Adjustments to reconcile net loss to net cash used in operating activities
            Depreciation and amortization                                                         9,731               13,896
            Issuance of stock for services                                                       42,800
            Valuation of warrants for services                                                   72,909               25,000
            Changes in assets and liabilities                                                         -                2,166
                    Decrease in accounts receivable                                                   -                    -
                    Decrease in inventory                                                         3,031                  161
                    Increase in prepaid expenses and other assets                                 7,931                    -
                    Increase in accounts payable and accrued expenses                           (8,395)             (15,866)
                    (Decrease) Increase in other current liabilities                           (40,848)              577,453
                                                                                               (16,413)               29,546
Net cash used in operating activities                                                     -------------          -----------
                                                                                              (174,764)            (438,707)
Cash flows from investing activities:
       Capital expenditures                                                                   (294,942)             (26,900)
                                                                                          -------------          -----------
Net cash used in investing activities                                                         (294,942)             (26,900)

Cash flows from financing activities
       Proceeds from issuance in common stock                                                    50,000              165,000
       Principal repayments from borrowings                                                           -              (5,000)
                                                                                           ------------          -----------
Net cash provided by financing activities                                                        50,000              160,000


Net decrease in cash                                                                          (419,706)            (305,607)

Cash at beginning of period                                                                   2,337,675              311,328
                                                                                           ------------          -----------

Cash at end of period                                                                         1,917,969                5,721
                                                                                           ------------          -----------

Cash paid during the period for:
       Interest                                                                                       -                1,036
       Income taxes                                                                                   -                    -

</TABLE>

               See accompanying notes to the financial statements.

<PAGE>

SPENCER'S  RESTAURANTS,  INC. AND  SUBSIDIARIES:  NOTES TO  UNAUDITED  CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


1.    Description of Business

      As  of  September  30,  1999,  Spencer's   Restaurant's  and  subsidiaries
("Company") owned and operated one restaurant in South Norwalk, Connecticut. The
South Norwalk  location,  Rattlesnake  Ventures  Inc.,  features a casual dining
concept with a Southwestern theme.

     On November 3, 1999, Spencer's  Restaurants,  Inc. ("Company") opened a new
restaurant in Danbury,  CT. This new  restaurant  will be a prototype,  entitled
Spencer's Restaurant.  Spencer's specializes in steak, distinctive shrimp dishes
and various other offerings in a casual, family dining environment.

2.   Principles of Consolidation.

     The  consolidated  financial  statements  include the accounts of Spencer's
Restaurants,   Inc.  and   subsidiaries   (the   "Company").   All   significant
inter-company accounts and transactions have been eliminated in consolidation.

3.   Consolidated Financial Statements.

     The accompanying  unaudited consolidated financial statements were prepared
in accordance  with  generally  accepted  accounting  principles and include all
adjustments which, in the opinion of management, are necessary to present fairly
the consolidated  financial position of the Company as of September 30, 1999 and
June 30,  1999,  and the  results of  operations  and cash flows for the periods
ended  September 30, 1999 and September 30, 1998. In the opinion of  management,
all necessary adjustments that were made are of a normal recurring nature.

     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting  principles
have  been  condensed  or  omitted.  It is  suggested  that  these  consolidated
financial  statements be read in  conjunction  with the  consolidated  financial
statements  and notes thereto  included in the  Company's  Annual Report on Form
10-KSB for the year-end June 30, 1999.  The results of operations for the period
ended  September  30,  1999  are not  necessarily  indicative  of the  operating
results, which may be achieved for the full year.

4.   Basis of Presentation

     Management  of the Company has made a number of estimates  and  assumptions
relating  to the  reporting  of assets and  liabilities  and the  disclosure  of
contingent  assets and  liabilities  to prepare  these  financial  statements in
conformity with generally accepted accounting  principles.  Actual results could
differ from those estimates.

     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,  the Company's  continuation as a
going concern cannot be reasonably assured.

5.   Private Placement Offering and Cost Reduction Plan.

     Subsequent  to the  completion  of the private  placement in February  1999
which  effectively  satisfied all short and  long-term  debt that was in default
(see  Private  Placement  Offering  below),  the  Company  has  assembled  a new
management team and developed a new restaurant theme which was introduced at the
recently  reacquired Danbury,  Connecticut  location (as described in number one
above in "Description of Business").

     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.

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


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

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

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

     Holders  of  preferred  shares  are  entitled  to  receive,  semi-annually,
dividends  at the rate of 8% per annum  before  any  dividends  may be paid with
respect to the Common Stock,  which shall be paid in cash or preferred shares at
the  election  of the  Company.  If there is a  failure  to pay  dividends,  the
Placement  Agent,  on behalf of such  holders,  has the right to  designate  one
director to the  Company's  Board.  In addition,  if the Company fails to comply
with its obligations to file and process a Registration Statement,  the dividend
rate  will  increase  to 14% per annum  from  issuance.  Dividends  were paid in
September  1999 in the form of 7,954  additional  shares of  Series B  Preferred
Stock. Dividends for the current quarter have been accrued.

     Pursuant  to the March 1998  agreement  to acquire the  Ottomanelli  Group,
additional  consideration  due  to  anti-dilution  provisions  contained  in the
agreements  in the form of common  stock was  payable to the  Ottomanelli  Group
shareholders as a result of the private placement.  In February 1999,  5,000,000
shares of common stock were issued pursuant to such provisions, as amended.

6.   Restaurant Operations.

       See Description of Business in note number one, above.

       In April of 1999, 106 Federal Road Corporation, a wholly owned subsidiary
of the  Company,  purchased  the  former  Rattlesnake  Restaurant  building  and
accompanying land in Danbury, CT. Federal Road Restaurant  Corporation,  another
wholly owned  subsidiary  of the Company  leases this  building from 106 Federal
Road  Corporation  as the  building  has been  renovated  and styled per the new
Spencer's Restaurants theme. This first Spencer's Restaurant opened for business
on November 3, 1999.

     On  September  2, 1999,  the  Company  formally  changed  its name with the
appropriate authorities to Spencer's Restaurants, Inc. (symbol: "SPST") from The
Rattlesnake Holding Company Inc. (symbol: "RTTL")

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

      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.

     On July 2, 1998,  the Company  signed an agreement to purchase  some of the
assets of 1562 Restaurant  Corp.  Located at 1562 Second 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.

7.   Litigation

     The  Company  is a  co-defendant  in an  action  brought  by an owner of an
apartment  above the South Norwalk  Company  restaurant  for  negligence per se,
intentional infliction of emotional distress,  negligent infliction of emotional
distress,  and violations of the Connecticut  Unfair Trade Practices Act (CUTPA)
based  upon  alleged  excessive  noise and rude  and/or  threatening  conduct of
employees.  The jury awarded a verdict in the amount of $625,000 against various
defendants,   including  the  Company`s  former  Chairman  on  August  5,  1998.
Accordingly,  the Company has  recorded a $625,000  charge in the quarter  ended
September 30, 1998 to accrue this judgment.  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.  Accordingly, the Company reduced by $400,000, in the quarter ended
December 31, 1998;  the amount of the accrual  recognized  in the quarter  ended
September 30, 1998. 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 March 22, 2000. 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  is not aware of the  ultimate
resolution  of these  actions,  nor  believes  they will be material  and has an
adverse  affect on the Company's  consolidated  financial  position,  results of
operations and liquidity.

<PAGE>

MANAGEMENT DISCUSSION AND ANALYSIS

     The  following  discussion  of the  results  of  operations  and  financial
condition should be read in conjunction with the Company's audited  consolidated
financial  statements and notes thereto issued in its 10-K report for the fiscal
period June 28, 1999.

     This analysis by management contains some forward-looking  statements. When
we use the words"  "anticipate,"  "believe,"  "estimate,"  "expect," and similar
expressions that relate to the Company and its management,  they are intended to
identify  such  forward-looking  statements  within the  meaning of the  Private
Securities  Litigation  Reform Act of 1995.Our  actual results  performance  and
achievements  could differ  materially from the results  expressed or implied by
these forward-looking statements.

     Upon the  finalization  in 1999 of the $6,000,000  Series B Preferred Stock
private  placement  offering,  the Company  completed  its Cost  Reduction  Plan
commenced in fiscal year 1997.


     The company presently  operates a Rattlesnake  Southwestern  Grill in South
Norwalk,  Connecticut.  The Company has closed all other restaurants  previously
owned as of June 30, 1999.

     The  Company's  new  management   team  of  experienced   industry-specific
personnel has developed a strategy through Company and franchised operation of a
multi-regional chain of mid-priced steakhouse restaurants.  The first "Spencer's
Restaurant" opened in Danbury, Connecticut on November 3, 1999.

Operating  results for the quarter ended September 30, 1999 as compared with the
quarter ending September 30, 1998 are as follows:

     Gross  restaurant  sales  decreased 52.7% to $323,697 for the quarter ended
September  30,  1999  from $ 685,264  for  quarter  ended  September  30,  1998.
Likewise, net restaurant sales decreased 51.7% to $316,244 in 1999 from $654,657
in 1998. The decrease in restaurant sales resulted from a decrease in the number
of restaurants  operating during the period as only one restaurant was operating
for the entire quarter ended  September 30, 1999 as compared to three during the
quarter ended September 30, 1998.

     Promotional  sales  decreased  from  $30,607  for the  three  months  ended
September 30, 1998 to $7,452 for the quarter  ending  September  30, 1999.  This
decrease is attributable  to a reduction in the number of restaurants  operating
during the quarter, as noted above.

     Cost of food and beverage sales decreased as a percentage of net sales from
41.2% for the three  months  ended  September  30, 1998 to 25.2% for the quarter
ended   September  30,  1999.  The  percentage   decrease  is   attributable  to
efficiencies of the Rattlesnake South Norwalk, Connecticut unit operating during
the quarter  ended  September  30,  1999.  The cost of food and  beverage  sales
decreased to $79,689 for the three months ended September 30, 1999 from $269,408
for the three months ended September 28, 1998. The decrease is attributable to a
reduction in the number of units operating during the period, as noted above.

     Restaurant  salaries and fringe benefits,  which consist of direct salaries
of restaurant  managers,  hourly  employee  wages and related  fringe  benefits,
decreased to $168,757 for the three months ended  September 30, 1999 as compared
to $292,651  for the three  months ended  September  30,  1998.  The decrease is
attributable to a reduction in the number of units operating  during the period.
As a percentage of net restaurant sales,  these costs increased to 53.4% in 1999
as  compared  to 44.7% in 1998.  The  percentage  increase  is  attributable  to
allocating manager salaries over a smaller restaurant base.

     Occupancy  and  other  related  expenses,  which  include  linen,  repairs,
maintenance,  utilities,  rent,  insurance and other occupancy related expenses,
decreased to $27,785 for the three months ended September 30, 1999 from $232,715
for the three months ended September 30, 1998. The decrease is due to the closed
units. As a percentage of net restaurant sales, these costs decreased from 35.6%
in the three  months  ended  September  30, 1998 to 8.8% for the for the quarter
ended September 30, 1999.

     Depreciation  and amortization  expense,  decreased from $11,093 or 1.6% of
net restaurant sales for the three months ended September 30, 1998, to $9,731 or
3.1% of net sales for the three months ended  September 30, 1999.  This decrease
is attributed to fewer restaurants.

     Selling,  general and  administrative  expenses  increased  marginally from
$227,423,  or 34.7% for the quarter ended  September  30, 1998, to $232,993,  or
73.7% of net  restaurant  sales for the three months ended  September  30, 1999.
This amount of increase  experienced  is due to, in part,  the  enactment of SOP
98-5, as well corporate  planning for  expansion.  (SOP 98-5 is a new accounting
pronouncement that requires that the Company to expense all pre-opening costs or
start-up costs that are not otherwise allowed to be capitalized (please see Note
number seven above regarding new accounting pronouncements).

     Interest  expense for the three months ended  September 30, 1999  decreased
$67,430 from the quarter ended September 30, 1998. This decrease is attributable
to the debt  conversion  at the  Private  Placement.  Interest  expense  for the
Seriesll B Preferred Stock Private Placement is charged against equity.

YEAR 2000 MODIFICATIONS:

     The Year 2000 Issue was 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 have recognized a date
using "00" as the year 1900  rather  than the year 2000,  resulting  in possible
system failure or miscalculations causing disruptions of operations,  including,
among other things, a temporary inability to process certain transactions,  send
invoices, or engage in similar normal business activities.

     The Company  did not  experience  any  problems as related to the Year 2000
Issue nor does the Company  anticipate any latent Y2K as its operations use only
updated  computers  with Y2K compliant  systems.  In sum, the Company's  plan to
prepare for and resolve the Year 2000 Issue  involved the following four phases:
assessment,  remediation, testing, and implementation. As of September 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.


<PAGE>

LIQUIDITY

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 affect 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  continues  to  explore  equity
investments but there is no assurance the Company will be successful.

The Company  has  incurred  aggregate  losses  since  inception  of  $18,979,000
inclusive of a net loss for the quarter  ended  September  30, 1999 of $202,710.
Based upon interim financial information prepared by management, the Company has
continued to incur losses in fiscal 2000.

     Subsequent  to the  completion of the private  placement in February  1999,
which  effectively  satisfied all short and long-term  debt that was in default,
the Company has assembled a new  management  team and developed a new restaurant
theme,  which was  introduced at the recently  reacquired  Danbury,  Connecticut
location (as described in number one above in "Description of Business").

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

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


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

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

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

     Holders  of  preferred  shares  are  entitled  to  receive,  semi-annually,
dividends  at the rate of 8% per annum  before  any  dividends  may be paid with
respect to the Common Stock,  which shall be paid in cash or preferred shares at
the  election  of the  Company.  If there is a  failure  to pay  dividends,  the
Placement  Agent,  on behalf of such  holders,  has the right to  designate  one
director to the  Company's  Board.  In addition,  if the Company fails to comply
with its obligations to file and process a Registration Statement,  the dividend
rate  will  increase  to 14% per annum  from  issuance.  Dividends  were paid in
September  1999 in the form of 7.954  additional  shares of  Series B  preferred
stock. Dividends for the current quarter have been accrued.

     In April of 1999, 106 Federal Road  Corporation,  a wholly owned subsidiary
of the  Company,  purchased  the  former  Rattlesnake  Restaurant  building  and
accompanying  land  in  Danbury,  CT.  for  $1,350,000  in  cash.  Federal  Road
Restaurant  Corporation,  another wholly owned  subsidiary of the Company leases
this  building  from 106  Federal  Road  Corporation  as the  building  has been
renovated and styled per the new  Spencer's  Restaurants  theme.  The Company is
pursuing  refinancing for this property but there is no assurance that this will
occur.

    Cash Flows from  Operating  Activities  for the quarter ended  September 30,
1999  were  ($124,764)  as  opposed  to  ($438,707)  for the same  period in the
previous   year.  The  Cost  Reduction  Plan  has  called  for  the  closing  of
unprofitable  restaurants  and this is to be  acknowledged as the reason for the
difference  noted between 1999 and 1998.  Net cash used in operating  activities
for the  quarter  ending  12/31/99  were  approximately  ($300,000),  unaudited,
principally  due to the  startup and  operating  costs  associated  with the new
Spencer's restaurant opened 11/3/99.

Cash Flows from  Investing  Activities  were  ($294,942)  for the quarter  ended
September 30, 1999 whereas in 1998,  same quarter,  ($26,900)  accounted for the
cash flows from investing  activities.  This difference can be attributed to the
preparations of the new restaurant, Spencer's. The Company does not have further
commitments  for  capital  expenditures  beyond the  completion  of the  Danbury
location   (approximately   $300,000)  except  those  normally  associated  with
day-to-day  operations.  However,  the Company does plan to expand the Spencer's
concept and should that occur, further capital expenditures would be required.

    Given the above,  cash during the quarter ended September 30, 1999 decreased
by $419,716 as  compared  to a decrease of $305,607  during the same  quarter in
1998.

    At  September  30,  1999,  the  following  obligations  are  past due and in
default; $18,750 of Series C subordinated notes payable, matured in August 1997,
a $2089  subordinated  note payable matured in August 1996 (the Company has been
unable to locate either note holder).

   Management  believes that the  finalization  of its Cost Reduction  Plan, the
launch of its new restaurant  concept,  Spencer's,  and its  $6,000,000  private
placement financing will enable the Company to achieve profitable operations and
restore liquidity. However, no assurances can be made that these objectives will
be met.

<PAGE>

SUBSEQUENT EVENTS

     On November 3, 1999, Spencer's Restaurant opened in Danbury, CT. Please see
Notes 11and 6 above regarding the new Spencer's.

     On December 15,  1999,  the  Company's  contract  with its Chief  Financial
Officer was terminated.

     On December 31,  1999, a contract  expired for  consulting  services  being
provided the Company by Shelly Frank.

     On January 31, 2000 the Company accepted the resignation of its Senior Vice
President, Nicolo Ottomanelli.  Mr. Ottomanelli remains on the Board of Director
and provides consulting services to the Company on an as needed basis.

     On February 9, 2000, at the Annual Shareholders  Meeting,  the shareholders
approved the 1999 Stock Option Plan and the 1999  Non-Employee  Director's Stock
Option Plan. The shareholders also re elected to the Board;  Kenneth R. Berry to
a three-year term, Stephen A. Stein to a two-year term and Nicolo Ottomanelli to
a one-year term.

<PAGE>

SAFE HARBOR STATEMENT

     Certain  statements in this Form 10-QSB,  including  information  set forth
under  "Management's   Discussion  and  Analysis"  constitute   "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995 (the  "Act").  The  Company  desires to avail  itself of  certain  "safe
harbor"  provisions of the Act and is therefore  including  this special note to
enable the Company to do so.  Forward-looking  statements  included in this Form
10-QSB or hereafter  included in other publicly  available  documents filed with
the Securities and Exchange  Commission,  reports to the Company`s  stockholders
and other  publicly  available  statements  issued or  released  by the  Company
involve known and unknown  risks,  uncertainties,  and other factors which could
cause the  Company's  actual  results,  performance  (financial or operating) or
achievements  to differ  from the  future  results,  performance  (financial  or
operating)  or  achievements  expressed  or  implied  by  such  forward  looking
statements. Such future results are based upon management's best estimates based
upon current  conditions and the most recent results of operations.  These risks
include,  but are not limited to, risks associated with potential  acquisitions,
successful  implementation  of the  Company`s  cost  containment  plan  and  new
operating  strategy,  immediate need for additional  capital,  competition,  and
other  risks  detailed  in the  Company`s  Securities  and  Exchange  Commission
filings,  including  its Annual  Report on Form 10-KSB for the fiscal year 1999,
each of which could adversely affect the Company's  business and the accuracy of
the forward looking statements contained herein.

<PAGE>

PART II - OTHER INFORMATION


Item 1: - Legal Proceedings

South Norwalk, Connecticut

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

     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


Danbury, Connecticut

     A  foreclosure  action was  commenced in September or October 1998 by Union
Savings Bank (the "Bank") against the landlord of The  Rattlesnake  Southwestern
Grill (closed for  renovations) in Danbury,  Connecticut  based on the landlords
mortgage arrears.  Rattlesnake Danbury, Inc., the lessee of the restaurant,  has
been joined as a defendant. The Company negotiated the purchase of this property
from the mortgage holder for $1,350,000 in March 1999.

Lynbrook, New York

     The  Company is  defending  an action  brought by Jack  Cioffi  Trust,  the
landlord of a former  Rattlesnake  restaurant  in Lynbrook  New York leased by a
subsidiary of the Company. The action against the Company is based on an alleged
guaranty of the lease  payments  due from the  subsidiary  of the  Company.  The
Company is of the position that the landlord waived the guarantee at the time of
the  surrender of the premises in  September  1997.  The action seeks the sum of
approximately  $190,000.  A Compliance  Conference was adjourned until March 22,
2000. The Company intends to vigorously defend this action.

Item 2 - Changes in Securities and Use of Proceeds

None.

Item 3 - Defaults Upon Senior Securities

None in this quarter.

Item 4 - Submission of Matters to a Vote of Stockholders during July of 1999:

     The  Stockholders of the Company,  a majority  thereof,  voted to amend the
number of shares  available  for issuance  regarding  the  Company's  1999 Stock
Option Plan, from 10,000,000 to 25,000,000 shares.

    Stockholders also voted to amend the number of shares available for issuance
from 2,000,000 to 5,000,000 regarding the Company's 1999 Director's Stock Option
Plan.

    Additionally, Stockholders resolved that appropriate officers of the Company
are to be  authorized  and  directed  to take  such  actions  and  execute  such
documents, which they deem necessary or advisable to carry out the intent of the
above noted resolutions.

Item 5. - Other Information.

     The Company's Common Stock is not listed on the NASDAQ Small Cap Market and
as of November 4, 1997 was suspended  from trading on the Boston Stock  Exchange
(the "BSE").  The BSE has applied for the de-listing of the Company common stock
from such exchange pursuant to Rule 12d-2f2.

     The Company  securities are traded on the NASDAQ Bulletin Board. Due to the
nature of such  markets and the "penny  stock'  rules to which the common  stock
trades  (Rule  15g-9  promulgated  under the SEC Act)  there may not be a liquid
trading market in the common stock.

Item 6. - Exhibits and Reports on Forms 8-K.

     During the quarter ended September 30 1999, the Company filed no reports on
Form 8-K.

<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                           Spencer's Restaurants, Inc.
                                  (Registrant)






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





                         By: /s/ Henry Zowine
                             -------------------
                                  Henry Zowine
                                Chief Accountant