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 December 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
                                December 27, 1999


<PAGE>

                                   FORM 10-QSB

                           Spencer's Restaurants, Inc.

                               December 27, 1999

                                      INDEX




Part I - Financial Information

Condensed Consolidated Balance Sheets as of December 27, 1999  (unaudited)     3
    and June 30, 1999

Unaudited Condensed Consolidated Statements of Operations for three months
and six months ended  December 27, 1999 and December 31, 1998                  4

Unaudited Condensed Consolidated Statements of Cash Flows for six months
    ended December 27, 1999 and December 31, 1998                              5

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


<PAGE>

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


                                                              December 27, 1999        June 30, 1999
                                                                  Unaudited
ASSETS
Cash                                                          $       1,032,825        $   2,337,675
Accounts receivable                                                       3,981                9,754
Inventory                                                                14,298               16,688
Prepaids and other assets                                                13,165               11,918
                                                              --------------------------------------
Total current assets                                                  1,064,269            2,376,035

Fixed assets, net                                                     2,085,164            1,445,079
Intangibles, net                                                         21,584               20,769
Other assets                                                             82,133               76,383
                                                              --------------------------------------
                                                                      2,188,881            1,542,231
                                                              -----------------         ------------
Total Assets                                                  $       3,253,150        $   3,918,266
                                                              --------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long term debt                                    258,344               55,838
Accounts payable                                                        812,313              689,679
Accrued expenses                                                        469,625              678,221
Dividends payable                                                       343,318              198,846
Other current liabilities                                               147,783              171,621
                                                              --------------------------------------
Total current liabilities                                     $       2,031,383            1,794,205

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

Total Liabilities                                             $       2,031,383            2,036,709

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

Common Stock                                                             29,980               29,980
  $.001 par value, 4,000,000 shares
  authorized; 29,979,013 issued and
  outstanding at December 27 and June 30, 1999

Additional paid in capital                                           20,986,092           20,794,657
Accrued dividends                                                     (343,318)            (198,846)
Accumulated deficit                                                (19,485,304)         (18,777,090)
                                                              --------------------------------------
Total stockholders' equity
                                                                      1,221,767            1,881,557

Total liabilities & stockholder's equity                      $       3,253,150            3,918,266
                                                              --------------------------------------
</TABLE>

See  accompanying  notes  to  the  unaudited  condensed  consolidated  financial
statements

<PAGE>

                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
            Unaudited Condensed Consolidated Statements of Operations
    Three Months and Six Months Ended December 27, 1999 and December 31, 1998

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

                                                           Three Months Ended:                          Six Months Ended:

                                                     December 27, 1999   December 31, 1998    December 27, 1999   December 31, 1998

 Restaurant Sales                                    $         558,114   $         414,001    $         881,811   $       1,099,265
Less: promotional sales                                       (16,453)            (14,377)             (23,904)            (44,983)
                                                     ------------------------------------------------------------------------------
Net Restaurant Sales                                           541,661            399,624               857,907           1,054,282

Cost and expenses:
Cost of food and beverage sales                                234,220            152,587               313,910             421,998
Restaurant salaries and fringe benefits.                       393,307            154,014               562,064             446,665
Occupancy and related expenses                                  27,745            136,766                55,530             376,078
Depreciation and amortization                                    7,840             11,189                17,571              22,282
Loss on restaurant closure                                           -                  -                42,800                   -
                                                     ------------------------------------------------------------------------------
Total restaurant costs and expenses                            663,112            454,556               991,875           1,267,023

Selling, general and administrative                            341,253            156,650               574,246             377,473
Interest expense, net                                                -             63,755                     -             131,185
Litigation award                                                     -          (400,000)                     -             225,000
                                                     ------------------------------------------------------------------------------
                                                               341,243          (179,595)               574,246             733,658

Total Expenses                                               1,004,365            274,961             1,566,121           2,000,681
                                                     -----------------   ----------------       ---------------    ----------------

Net Income/(loss) before Extraordinary Item                  (462,704)            124,663             (708,214)           (946,399)

Extraordinary Item:
Gain on the Extinguishment of Debt                                   -             88,950                     -              88,950
                                                     -----------------   ----------------       ---------------    ----------------

Net Income/(loss) before Preferred Dividends                 (462,704)            213,613             (708,214)           (857,449)

Dividends on Preferred Shares                                (171,659)           (25,954)             (343,318)            (51,909)
                                                     -----------------   ----------------       ---------------    ----------------

Net Income/(loss)  Available to Common
Stockholders                                         $       (634,363)   $        187,659       $   (1,051,532)    $      (909,358)
                                                     ------------------------------------       -----------------------------------

Weighted Average of Common Shares                           29,979,013         13,130,503            29,979,013          12,693,324
Outstanding at 12/27/99 and 12/31/98:


Net Income/(Loss) Per Common Shareholder             $          (0.02)   $          0.01        $        (0.04)    $         (0.07)
                                                     ------------------------------------------------------------------------------
</TABLE>



             See the notes to the unaudited condensed consolidated
             financial statements.

<PAGE>

                  SPENCER'S RESTAURANTS, INC. AND SUBSIDIARIES
            Unaudited Condensed Consolidated Statements of Cash Flows
            Six Months Ended December 27, 1999 and December 31, 1998
<TABLE>
<S>                                                                          <C>                                <C>




                                                                             December 27, 1999                   December 31, 1998
Cash flows from operating activities:
    Net loss                                                                 $       (708,214)                           (857,449)
   Adjustments to reconcile net loss to net cash used in operating activities
            Depreciation and amortization                                               17,571                              25,085
            Loss on restaurant closure                                                  42,800
            Litigation Award                                                                                               225,000
            Gain on the Extinguishment of Debt                                                                            (88,950)
            Valuation of warrants for services                                                                               4,331
            Issuance of stock for services                                              72,909                              25,000
            Changes in assets and liabilities
                    Decrease in accounts receivable                                      5,773                              10,853
                    Decrease in inventory                                                2,390                              13,537
                    Increase in prepaid expenses and other assets                      (6,997)                             (4,738)
                    (Decrease) increase in accounts payable and accrued
                    expenses                                                          (85,962)                              88,017
                    (Decrease) increase in other current liabilities                  (23,838)                              14,521
                                                                             -----------------       -----------------------------
Net cash used in operating activities                                                (683,568)                           (544,793)

Cash flows from investing activities:
       Capital expenditures                                                          (671,282)                            (26,900)
                                                                             -----------------       -----------------------------
Net cash used in investing activities                                                (671,282)                            (26,900)

Cash flows from financing activities
       Proceeds from Issuance of preferred stock                                        50,000                                   -
       Proceeds from Issuance of Convertible Notes                                           -                             150,000
       Proceeds from issuance in common stock                                                -                             153,500
       Principal repayments from borrowings                                                  -                            (25,000)
                                                                             -----------------       -----------------------------
Net cash provided by financing activities                                               50,000                             278,500

Net decrease in cash                                                               (1,304,850)                           (293,193)

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

Cash at end of period                                                                1,032,825                              18,135
                                                                             -----------------       -----------------------------

Cash paid during the period for:

       Interest                                                                              -                              51,036

       Income taxes                                                                          -                                   -
</TABLE>

            See the  notes to the  unaudited  condensed  consolidated
            financial statements.

<PAGE>


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


1. Description of Business

      As  of  December  27,  1999,   Spencer's   Restaurant's  and  subsidiaries
("Company")   owned  and  operated  two  restaurants:   One  in  South  Norwalk,
Connecticut and the other in Danbury,  Connecticut.  The South Norwalk location,
Rattlesnake  Ventures Inc., features a casual dining concept with a Southwestern
theme.

     The Danbury restaurant, opened on November 3, 1999, is the prototype of the
new Spencer's Restaurants theme.  "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 condensed 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 December  27,
1999 and June 30,  1999,  and the results of  operations  and cash flows for the
periods  ended  December  27,  1999 and  December  31,  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 December 27, 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 unaudited condensed 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 assembled a new management
team and developed a new  restaurant  theme which was introduced at the recently
reacquired Danbury, Connecticut location (as described in note number one above,
"Description of Business").

     Management  believes that the  finalization  of its cost reduction plan and
approximately  $6,000,000 in 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 Company's
strategic  plans, 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 Company did file a  registration  statement on August 16, 1999 and plans
to file an amended registration during the 4th quarter.

     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  for the first and second  quarters  have been accrued at 8%
per annum.  The Company  plans to pay these  dividends in the form of additional
shares of Series B Stock during the 4th quarter.

          Dividends were paid in September 1999 in the form of 7,954 additional
shares of Series B Preferre dStock.

     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  3, 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.  The  Company  incurred a $42,800  loss due to the
finalization of the restaurant closure.

     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.

     On December 15,  1999,  the  Company's  contract  with its Chief  Financial
Officer was terminated without payment or further remuneration.


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 May 5, 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 have an
adverse  affect on the Company's  consolidated  financial  position,  results of
operations and liquidity.

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 30, 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 and the Spencer's  Restaurant in Danbury,  CT. 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.

Operating  results for the quarter ended  December 27, 1999 as compared with the
quarter and six months ended December 31, 1998 are as follows:

     Gross  restaurant  sales  increased 34.8% to $558,114 for the quarter ended
December 27, 1999 from $414,001 for quarter ended December 31, 1998. For the six
months  ended  December  27,  1999 gross  restaurant  sales  decreased  19.8% to
$881,811 from  $1,099,265 for the six months ended December 31, 1998.  Likewise,
net restaurant  sales  increased  35.5% to $541,661 for the quarter in 1999 from
$399,624  for this same quarter in 1998.  For the six months ended  December 27,
1999 net restaurant  sales  decreased 18.6% to $857,907 from  $1,054,282.  These
increases in restaurant sales for the quarter ended December 27, 1999 are due in
part to the new Spencer's restaurant opening in November of 1999.

     Promotional  sales  increased  from  $14,377  for the  three  months  ended
December 31, 1998 to $16,453 for the quarter  ending  December  27,  1999.  This
14.4%  increase is  attributable  to the  commencement  of operations of the new
Spencer's  Restaurant which opened November 3, 1999.  Promotional  sales for the
six months  ended  December 27, 1999  decreased  from $44,983 for the six months
ended December 31, 1998 to $23,904, a 46.9% decrease.

     Cost of food and beverage sales increased as a percentage of net sales from
38.2% for the three  months  ended  December  31,  1998 to 43.2% for the quarter
ended December 27, 1999. The percentage  increase is  attributable  to Training,
Research and Development,  and other pre-opening costs expensed this year due to
the change in accounting  rules and the opening of a new restaurant  (SOP 98-5).
The cost of food and beverage  sales  increased to $234,220 for the three months
ended  December 27, 1999 from  $152,587 for the three months ended  December 31,
1998.  For the six months ended December 27, 1999, the cost of food and beverage
sales decreased as a percentage of net sales from 40.0% for the six months ended
December  31, 1998 to 36.6%.  The cost of food and beverage  sales  decreased to
$313,910  for the six months ended  December 27, 1999 from  $421,998 for the six
months ended December 31, 1998.

     Restaurant  salaries and fringe benefits,  which consist of direct salaries
of restaurant  managers,  hourly  employee  wages and related  fringe  benefits,
increased to $393,307 for the three months ended December 27, 1999 from $154,014
for the three months ended  December 31, 1998. The increase is  attributable  to
several  factors,  including the new  restaurant  opening  during on November 3,
1999,  preparation of staff  regarding  same, and a Manager in Training  Program
geared  towards  future  expansion.  For the six months ended  December 27, 1999
restaurant  salaries and fringe benefits increased to $562,064 from $446,665 for
the six months ended December 31, 1998.  This increase is mostly  attibutable to
the new restaurant opening of Spencer's in November, 1999.

     Occupancy  and  other  related  expenses,  which  include  linen,  repairs,
maintenance,  utilities,  rent,  insurance and other occupancy related expenses,
decreased to $27,745 for the three months ended  December 27, 1999 from $136,766
for the three months ended December 31, 1998. The decrease is due to the closure
of  unprofitable  units.  As a percentage of net restaurant  sales,  these costs
decreased from 34.2% in the three months ended December 31, 1998 to 5.1% for the
quarter  ended  December  27, 1999.  For the six months ended  December 27, 1999
occupancy and other related expenses  decreased to $55,530 from $376,078 for the
six months ended  December 31, 1998.  As a percentage  of net  restaurant  sales
these costs  decreased  from 35.6% to 6.4% for the six months ended December 31,
1998 and December 27, 1999 respectively.

     Depreciation  and amortization  expense,  decreased from $11,189 or 2.8% of
net restaurant  sales for the three months ended December 31, 1998, to $7,840 or
1.4% of net sales for the three months ended December 27, 1999. Depreciation and
amortization  expense decreased from $22,282 or 2.1% of net restaurant sales for
the six months  ended  December  31,  1998 to $17,571 or 2.0% of net  restaurant
sales for the six months ended December 27, 1999.

     Selling,  general and administrative  expenses increased from $156,650,  or
39.2% of net sales for the quarter  ended  December  31, 1998,  to $341,253,  or
63.0% of net sales, for the three months ended December 27, 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 or start-up costs that
are not otherwise allowed to be capitalized. Selling, general and administrative
expenses  increased from $377,473 or 35.8% of net  restaurant  sales for the six
months ended December 31, 1998 to $574,246 or 66.9% of net restaurant  sales for
the six months ended December 27, 1999.

     The Company did not incur any interest  expense,  net, for the three months
ended  December 27, 1999 and for the six months ended December 27, 1999 compared
to costs of $63,755 and $131,185  for the three  months ended  December 31, 1998
and the six months ended December 31, 1998  respectively.

     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  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 the
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 charge  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 the other defendants  against the Company in the event the plaintiff's appeal
is  successful.

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 December 27, 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.

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  $19,485,304
inclusive of a net loss for the six months ended  December 27, 1999 of $708,214.
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 note 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 shares of Series A
Preferred Stock exchanged their holdings for 55,370 shares of Series B Preferred
Stock and waived the payment of accumulated dividends of $259,545.


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

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

     The Company did file a registration  statement on August 16, 1999 and plans
to file an amended registration statement during the 4th quarter.

     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  for the first and second  quarters  have been  accrued at 8% per
annum. The Company plans to pay these dividends in the form of additional shares
of Series B Preferred Stock during the 4th quarter.

     Dividends  were  paid in  September  1999 in the form of  7,954  additional
shares of Series B Preferred Stock.

     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 six months ended December 27,
1999  were  ($683,568)  as  opposed  to  ($544,793)  for the same  period in the
previous year.

     Cash Flows used in Investing  Activities were ($671,282) for the six months
ended  December  27, 1999 whereas in 1998,  for the first six months,  ($26,900)
accounted for the cash flows used in 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  except  those  normally  associated  with  day-to-day
operations.  However,  the Company does plan to expand the Spencer's concept and
should that occur, further capital expenditures would be required.

     Cash Flows from Financing  Activities were $50,000 for the six months ended
December  27,  1999 due to the sale of Series B  Preferred  Stock in July,  1999
whereas  in 1998 for six  months  cash  flows  from  financing  activities  were
$278,500.

    Given the above,  cash  during  the six  months'  ended  December  27,  1999
decreased by  $1,304,850  as compared to a decrease of $293,193  during the same
six months in 1998.

     At  December  27,  1999,  the  following  obligations  are  past due and in
default; $18,750 of Series C subordinated notes payable, matured in August 1997,
and $2,089  subordinated  note  payable  matured in August 1996 (the Company has
been unable to locate either note or note holder).

   Management  believes that the  finalization  of its Cost Reduction  Plan, the
launch of its new  restaurant  concept,  Spencer's,  and  $6,000,000  in 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.

SUBSEQUENT EVENTS

     On December  31, 1999, a contract  scheduled  to expire  October,  2001 for
consulting services being provided the Company was terminated by the consultant.

     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.  His
contract  was  terminated  effective  with the  resignation  without  payment or
further remuneration.

     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.

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.

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 May 5, 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 the  quarter
ending December 27, 1999:

None.


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 December 27, 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 Acting CFO






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