UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
/ X /        SECURITIES EXCHANGE ACT OF 1934

             For the fiscal year ended December 28, 1997

             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. 0-26838

                             RED HOT CONCEPTS, INC.
             (Exact name of Registrant as specified in its charter)


         DELAWARE                                       52-1887105
(State or other jurisdiction of              (I.R.S. employer identification
incorporation or organization)                No.)

                            6701 Democracy Boulevard
                                    Suite 300
                               Bethesda, MD 20817
               (Address of principal executive offices) (Zip Code)

                                 (301) 493-4553
              (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

                                              NONE

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.01 par value

<PAGE>

             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

             Indicate by check mark if disclosure of delinquent  filers pursuant
to  Item  405 of  Regulation  S-K is  not  contained  herein,  and  will  not be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
             Yes X  No

            State issuer's revenues for its most recent fiscal year.
                                   $11,111,274

             As of April 1, 1998, the aggregate market value of the Registrant's
Common Stock held by non-affiliates of the Registrant was $4,893,507.


             As of April 1, 1998, there were 3,420,782 shares outstanding of the
Registrant's Common Stock.


                                       2

<PAGE>
                                TABLE OF CONTENTS

ITEM                                                                      PAGE
                                     PART I

1.       Business.......................................................... 4
2.       Properties........................................................ 7
3.       Legal Proceedings................................................. 7
4.       Submission of Matters to a Vote of
         Security Holders.................................................. 7


                                     PART II

5.       Market for the Registrant's Common
         Equity and Related Stockholder
         Matters.......................................................... 9
6.       Management's Discussion and Analysis
         of Financial Condition and Results
         of Operations....................................................11
7.       Financial Statements.............................................15
8.       Changes in and Disagreements with
         Accountants on Accounting and Financial
         Disclosure.......................................................15


                                    PART III

9.       Directors and Executive Officers
         of the Registrant...............................................16
10.      Executive Compensation..........................................17
11.      Security Ownership of Certain Beneficial
         Owners and Management...........................................19
12.      Certain Relationships and Related
         Transactions....................................................19
13.      Exhibits and Reports on Form 8-K................................21
         Signatures......................................................23

                                       3
<PAGE>


Item 1.  Business

General

Red Hot Concepts, Inc. ("the Company") was incorporated in the state of Delaware
on June 14,  1994.  The  Company  was formed to operate  and develop the Chili's
Grill & Bar restaurant concept owned by Brinker International,  Inc. ("Brinker")
outside the United States.

From  incorporation  until  December 15, 1997,  the Company,  through its wholly
owned United Kingdom subsidiary,  Restaurant House Limited ("Restaurant House"),
had the  exclusive  right to own and  operate  Chili's  Grill & Bar  restaurants
("Chili's Restaurants") in the United Kingdom.

From  November  1995 until  December 18, 1997,  the Company,  through its wholly
owned  Australian  subsidiary,  Red Hot  Pacific  ("Red  Hot  Pacific")  had the
exclusive  rights to own and operate  Chili's  Restaurants  in Australia and New
Zealand.

During 1997, the Company operated five Chili's  Restaurants,  three in Australia
and two in the United Kingdom. The Company opened its first Chili' Restaurant in
the  United  Kingdom  and in London in October  1995 and  opened two  additional
restaurants in March and May 1996. At the end of 1996, the Company closed one of
its  restaurants.  In November 1995, the Company  acquired its first two Chili's
Restaurants in Australia  through the purchase of a  wholly-owned  subsidiary of
Brinker  that owned the  operating  rights to those  restaurants,  one which was
opened in August 1994 and the second in  February  1995.  The  Company  opened a
third restaurant in Australia in September 1996.

On  December  15,  1997 the  Company  merged its  wholly  owned  United  Kingdom
subsidiary,   Restaurant   House,   with  and  into  The  Celebrated  Group  Plc
("Celebrated")  pursuant to the Agreement dated November 18, 1997 by and between
the Company and  Celebrated  ("the "Merger  Agreement").  Pursuant to the Merger
Agreement,  the  Company  sold  all of  the  issued  and  outstanding  stock  of
Restaurant  House to Celebrated in exchange for 28,00,000  shares of Celebrated.
Upon  consummation  of the  Merger,  the  Company  owns  approximately  45.6% of
Celebrated.  As part of the Merger,  the Company received options to purchase an
additional 6,000,000 shares of Celebrated upon the exercise of which the Company
would own approximately 50.51% of the outstanding shares of Celebrated.

On December  18, 1997 the Company  sold to Brinker the assets of its  Australian
subsidiary,  Chili's Texas Grill Plc., for $2.68 million. The Company used $1.25
million  of the  proceeds  from the sale to repay a  short-term  loan to Brinker
dating from February  1997. An  additional  $700,000 was used  primarily for the
payment of a related party debt. The Company purchased the Australian operations
from Brinker in November 1995.

As a result of the above transactions, the Company is a holding company the sole
operation  of  which  consists  of  the  owning  of  approximately  46%  of  the
outstanding  equity of Celebrated which is recorded under the equity method. The
Company is currently the single largest shareholder of Celebrated. The Company's
common  stock is  owned  36% by  Woodland  Limited  Partnership  and 64 % by the
public.

The Celebrated Group Plc

Celebrated was incorporated in September 1988 in Berkshire,  England, as Elegant
Leisure Ltd. The Company was initially formed to develop and operate  mid-priced
hotels.  Since that time,  Celebrated  has expanded its business  operations  to
include several restaurant chains operating throughout Great Britain. Celebrated
is a public company,  45.6 % of which is owned by the Company and 54.4% by other
public  shareholders.  Celebrated's  shares trade on the Alternative  Investment
Market of the London Stock Exchange.

                                       4
<PAGE>

As of December  28,  1997,  Celebrated's  business  interests  included  Chili's
Restaurants,   Starvin'   Marvin'   American   diners,   J.W.   Johnson's  theme
bar-restaurants  and the Llyndir  Hall Hotel,  a 3-star  country  house near the
Welsh border in England. In late 1997 Celebrated decided to divest itself of its
hotel  business to enable it to focus its financial  resources on developing its
newly acquired  Chili's  concept.  As of year-end 1997, the hotel was being held
for sale with asking price of approximately  $3.75 million. As of year end 1997,
Celebrated owned and operated 10 restaurants.

The  following is a brief  description  of  Celebrated's  restaurant  operations
during 1997:

         Starvin'  Marvin's -  Starvin'  Marvin's  is an  American  diner  brand
restaurant.  The first of these American-style diners was opened in May 1993 and
the business chain was purchased by Celebrated in August 1994. These restaurants
are open from early in the morning until late at night, offering  American-style
deli food either as snacks or full meals.  The restaurants  are  manufactured in
the  traditional   diner  style,   out  of  stainless  steel  cladding  that  is
pre-fabricated in the United States and shipped to the UK for final assembly. As
of  December  29,  1997,  Celebrated  owned  and  operated  seven  (7) of  these
restaurants in the London, Manchester and Liverpool areas.

         During 1997,  Celebrated  introduced a new menu in its Starvin' Marvin'
diners in an effort to  improve  sales and  increase  operational  efficiencies.
Positive sales trends were not realized before the end of 1997. However, current
average sales per week for the 7 restaurants is  approximating  $72,000.  No new
openings are expected in 1998.

         J.W. Johnson's - Celebrated acquired this all-day theme  bar-restaurant
from receivership in December 1993. The design  incorporates a large bar area in
front,  with a restaurant in back,  serving casual,  international  cuisine.  At
year-end  1997,   Celebrated  operated  one  (1)  of  these  units,  located  in
Manchester, England.

         In June 1996, J.W. Johnson's  restaurant was the victim of a bomb blast
that disrupted trading  throughout the Manchester city center.  Restaurant sales
at the site  fell off  abruptly  following  the  blast,  but  business  improved
throughout 1997 and average weekly sales are approximating  $50,000.  Celebrated
does not  intend to expand  the  concept  and  during  May 1998  converted  J.W.
Johnson's into a Chili's.

         AJ's Family Restaurants - From May 1996 until November 1997, Celebrated
owned this 16-unit chain of casual roadside  restaurants.  On November 12, 1997,
Celebrated sold the operations to a third party for approximately  $4.5 million.
The disposal of the chain is seen by Celebrated as a major step in  centralizing
the  company's  operations  to  focus  financial  and  management  resources  on
developing additional Chili's restaurants.

         Chili's Grill & Bar  Restaurants-  Celebrated  acquired the development
rights for Chili's  Restaurants in the United Kingdom through its acquisition of
Restaurant House, the entity which owned the exclusive rights to own and operate
Chili's Restaurants in the United Kingdom pursuant to an amended development and
license agreement with Brinker.

         Chili's  Restaurants  are full service  restaurants  featuring a casual
atmosphere and a limited menu of freshly prepared appetizers,  chicken, beef and
seafood entrees, hamburgers and other sandwiches, salads, barbecue ribs, fajitas
and other  southwestern and Mexican-style  cuisine,  desserts and a full-service
bar. Emphasis is placed on serving substantial  portions of high quality food at
modest prices and providing excellent service.  Chili's Restaurants  consists of
booth seating,  tile-top tables, hanging plants and wood and brick walls covered
by interesting  memorabilia.  Chili's  Restaurants are generally open between 12
and 14 hours a day, seven days a week, for lunch,  dinner and late-night  meals,
and feature quick, efficient table service designed to minimize customer waiting
time and facilitate customer turnover.

         Celebrated's  exclusive development rights for these restaurants in the
United  Kingdom  are  governed  by the  terms  of the  Chilis'  Development  and
Licensing  Agreement  ("the  UK  Development

                                       5
<PAGE>

Agreement").  The UK  Development  Agreement  grants the  exclusive  right until
November,  2006 to develop  and  operate  Chili's  restaurants  within a defined
period  so long as  Celebrated  has open  and  operating  a  minimum  number  of
restaurants  in accordance  with a development  schedule  during the term of the
agreement. Celebrated is required to have open and operating a minimum number of
four Chili's  restaurants  by November 1, 1998. If  Celebrated  falls behind the
development  schedule by more than one restaurant in any given year,  Celebrated
could lose its exclusive development rights. If at the end of the term of the UK
Development Agreement Celebrated is in compliance with the agreement,  it may be
renewed for any  additional  ten year period.  At year end 1997,  Celebrated had
open and  operating two Chili's  Restaurants.  During the first quarter of 1998,
Celebrated  began  negotiating on two additional  restaurant sites upon which it
intends to develop  restaurants  during 1998.  Celebrated  expects to open these
facilities  prior to the end of this year and anticipates  having 11 restaurants
open by the end of the year 2000.

Sales in the  Cambridge  Chili's  are  averaging  $65,000 per week and in Canary
Wharf are averaging $54,700 per week.

Celebrated  does not intend to pay a dividend  in 1998 but will use the cash for
reinvestment and the expansion of Chili's.


                                       6
<PAGE>

Item 2.  Properties

The Company  subleases from a related company its principal place of business in
the United Kingdom which is located at Unit 6, Maryland Road,  Tongwell,  Milton
Keynes.  The  leased  space is  approximately  800  square  feet and  houses the
administrative  offices.  The rent for this  facility is  (pound)500  ($783) per
month.

The  Company  also   subleases   its  US  office  from  a  related  party  on  a
month-to-month  lease that  expires  on June 30,  1998.  The total rent  payable
during the term of the lease is approximately $1,500.


Item 3.  Legal Proceedings

The Company is not a party to any litigation or  governmental  proceedings  that
management  believes  would  result in  judgments  or fines  that  would  have a
material adverse effect on the Company.


Item 4.  Submissions of Matters to a Vote of Security Officers

A  special  meeting  of  stockholders  was held  November  3,  1997 to vote on a
proposal to reverse split outstanding shares three-to-one. Total number of votes
cast  was  10,587,442,   with  10,305,887  For,  256,020  Against,   and  25,535
Abstaining.

No matters were submitted to a vote of the holders of the Company's Common Stock
during the fourth quarter of the Company's fiscal year ended December 28, 1997.


Item 4A. Executive Officers of the Registrant

The executive officers of the Company are as follows:

       Name                      Age      Position

       Colin Halpern              61      President
       H. Michael Bush            43      Chief Financial Officer and Secretary

Colin  Halpern has served as President  and  Director of the Company  since June
1994.  He also  currently  serves as a member of the Board of  Directors  of the
Celebrated Group Plc, President,  Secretary,  Treasurer and Director of Crescent
Capital, Inc., and President,  Chief Executive Officer and Chairman of the Board
of Directors of NPS Technologies Group, Inc., all of which are public companies.
He has held these positions since July 1994 and August 1983,  respectively.  Mr.
Halpern  also  serves as the  Chairman of the Board of  International  Franchise
Systems  Inc., a public  company  operating  certain  restaurants  in the United
Kingdom.  From 1985 to the present,  Mr. Halpern has also served as the Chairman
of Universal  Service  Corp.  Mr.  Halpern was formerly the  President and Chief
Executive  Officer of DRC  Industries,  Inc., a company that, from November 1975
through October 1985, had a Budget  Rent-A-Car  master license agreement for the
New York metropolitan area, including LaGuardia and John F. Kennedy Airports.

In June 1991,  the SEC sought and received,  and NPS  Technologies  Group,  Inc.
("NPS")  consented to the entering of, an order against NPS and its officers and
employees that required NPS to file certain  periodic  reports with the SEC that
had not been timely filed and  permanently  restrained and enjoined NPS and such
officers and employees from failing to file in proper form with the SEC accurate
and  complete  reports  required  to be filed by NPS  pursuant  to the rules and
regulations  of the SEC. Mr. Halpern is the President and Director of NPS, which
is currently  inactive.  Since June 1991,  certain of NPS' reports have not been
timely filed by NPS and other  reports  have not been filed in proper form.  The
SEC  has  taken  no  further  action  against  NPS or any  of its  officers  and
employees.

                                       7
<PAGE>

H.  Michael  Bush has served as Chief  Financial  Officer and  Secretary  of the
Company since November  1995.  Mr. Bush also  currently  serves as President and
Chief  Financial  Officer of  International  Franchise  Systems,  Inc. and Chief
Executive  Officer  of the  Celebrated  Group Plc,  positions  he has held since
December 1995 and February 1998, respectively. Prior to joining the Company, Mr.
Bush worked at Mobil Oil  Corporation.  He served at Mobil in various  financial
capacities  from 1980  through  November  1995,  including  Manager of Financial
Analysis,  Controls and Joint Venture Reporting and Senior Tax Planning Advisor.
From 1976  through  1980,  Mr. Bush  worked for Unisys.  Mr. Bush is a certified
public accountant.



                                       8
<PAGE>

                                     PART II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
         Matters

Market Information

         The Company's  Common Stock is traded  separately and as part of a unit
(a "Unit") which includes one share of Common Stock, one warrant to purchase one
share of stock  through  November  3,  2000 at  $36.00*  per  share (a  "Class B
Warrant").  The  Company's  Units  and  Common  Stock are  quoted on the  NASDAQ
Small-Cap Market System under the symbols RHCSU and RHCS, respectively.
The Company's Class B Warrant is currently not traded.

         The high and low sale prices of the Common  Stock and Units as reported
by NASDAQ were as follows:
                                                      1998
                                    Common                          Units
                              High            Low             High         Low
         First Quarter       $3.125         $2.25              Unit Not Traded

                                                      1997*
                                    Common                          Units
                              High            Low             High         Low
         First Quarter        $9.375        $3.5625           $8.625      $3.00
         Second Quarter        4.3125        1.125             3.00        2.25
         Third Quarter         4.125         1.125             Unit Not Traded
         Fourth Quarter        6.00          1.875             Unit Not Traded

                                                      1996*
                                    Common                          Units
                              High            Low             High         Low
         First Quarter      Common Stock Not Traded          $12.00       $3.75
         Second Quarter     Common Stock Not Traded            8.25        4.875
         Third Quarter       $9.375         $6.75             12.75        4.50
         (Common beginning October 18, 1996)
         Fourth Quarter       11.25          7.125            12.00        6.00

                                                      1995*
                                    Common                          Units
                              High            Low             High         Low
         Third Quarter     Common Stock Not Traded           $24.00      $18.00
         (beginning August 8, 1995)
         Fourth Quarter    Common Stock Not Traded            24.00        4.50

*Prices  listed  reflect  effect of November  1997  three-for-one  reverse stock
split.

Dividends

         The Company  has not paid any cash  dividends  on its Common  Stock and
does not intend to pay cash  dividends on its Common  Stock for the  foreseeable
future.  The  Company  intends  to retain  future  earnings  to  finance  future
developments.  The Company's ability to pay dividends in the future is

                                       9
<PAGE>

dependent  upon the receipt of dividends from  Celebrated.  The Company does not
anticipate that Celebrated will pay dividends in 1998.

Number of Stockholders

As of April 1, 1998,  there were 75 record holders of the Company's Common Stock
and 60 record  holders of the Class B Warrants.  The Company  believes there are
approximately 1500 beneficial owners of the Company's Common Stock.



                                       10
<PAGE>

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Introduction

Red Hot Concepts ("the  Company") was  incorporated  in the state of Delaware on
June 14, 1994. The common shares are owned 36% by Woodland  Partnership Ltd. and
the remaining  shares are publicly held. The Company was formed to establish and
develop  the  Chili's  Grill & Bar  restaurant  concept  franchised  by  Brinker
International Inc. outside the United States.

At December 31, 1997, the Company no longer had the exclusive  rights to operate
Chili's restaurants in the United Kingdom or Australia. From November 1995 until
December 18, 1997, the Company owned the Chili's concept  development rights for
Australia  and New Zealand.  During 1997,  the Company  operated  three  Chili's
restaurants in Australia (two in suburban Sydney and one in suburban Melbourne).
However,  on December 18, 1997,  the Company sold its Australian and New Zealand
operations back to Chili's franchisor, Brinker International, for $2.68 million.

From July 1994 until  December 15, 1997,  the Company owned the UK rights to the
Chili's concept.  During 1997, the Company  operated two Chili's  restaurants in
the UK (one in Canary Wharf and one in  Cambridge).  On December  15, 1997,  the
Company merged its UK operations  into the  Celebrated  Group Plc. The Company's
exclusive  development  rights for Chili's  restaurants in the UK transferred to
Celebrated in the merger.

Celebrated  is publicly  traded on the  Alternative  Index  Market  (AIM) of the
London Stock Exchange.  As part of the merger,  Red Hot Concepts acquired 46% of
Celebrated's  outstanding  stock  and  an  option  to  acquire  a 50%  ownership
interest.  In early  1998,  a  principal  officer  and a director of the Company
assumed comparable roles at Celebrated, in addition to retaining their positions
with the Company.




                                       11
<PAGE>

Results of Operations

The Company realized net income of approximately  $2.1 million for the fifty-two
week period ended December 28, 1997 partly attributable to the $3.4 million gain
associated  with the merger of the UK  subsidiary  in  exchange  for  Celebrated
shares  and a $1.5  million  gain  on the  sale  of the  assets  and  rights  of
Australia.  These gains were offset by high  administrative  expenses associated
with divesting the UK and Australian operations and the amortization of interest
associated  with warrants  issued on notes  payable.  The Company's net loss for
1996 was  approximately  $6.3 million.  The main reason for the  improvement  of
approximately  $8.4  million was the sale of Australia to Brinker of the Chili's
concept  for a net gain of $1.5  million,  the merger of  Restaurant  House with
Celebrated for a net gain of $3.4 million and improved sales of approximately $2
million.

The following table sets forth expenses as a percentage of total revenue for the
period ended December 28, 1997 and for the period ended December 29, 1996.

<TABLE>
<CAPTION>
                                                1997                             1996
                                                                Consolidated  Consolidated
                                    UK      Australia     Parent   Total         Total
<S>                                  <C>            <C>            <C>            <C> 
Revenues                             100%           100%           100%           100%

Costs and Expenses
   Food & Beverage                    32%            31%            32%           (32%)
   Restaurant Labor                   19%            28%            24%           (26%)
   Restaurant Expense                 12%            13%            12%           (15%)
   Royalties                           2%             2%             2%            (2%)
   Fixed Restaurant Expense           11%            21%            16%           (27%)
                                     ----           ----           ----           ----
Total Costs and Expenses              76%            95%            86%          (102%)

Gross Margin (Loss)                   27%             5%            14%            (2%)

General & Administrative              23%            10%            16%           (29%)
Depreciation/Amortization              7%             6%             6%           (11%)
Closing Costs of Restaurant           --             --             --            (23%)
                                     ----           ----           ----           ----
Operating Loss                        (6%)          (12%)           (8%)          (63%)
Other Income (Expense)                (2%)           (1%)           (2%)            4%
                                     ----           ----           ----           ----

Net Income Before Sale
Of Subsidiary/(Loss)                  (8%)          (13%)          (10%)          (67%)
</TABLE>


Comparison of the Fifty-Two Week Period Ended December 28, 1997 and December 29,
1996.
<TABLE>
<CAPTION>
                                     Australia       United Kingdom               Total
<S>                                 <C>                <C>                      <C>        
         Revenues                   $6,008,975         $5,102,299               $11,111,274
         Operating Income/(Loss)      (700,380)          (312,147)               (1,012,527)
</TABLE>

United Kingdom

Revenues
Revenues for the two  restaurants as of December 8, 1997 totaled $5.1 million as
compared  to $4.1  million  in 1996.  The  significant  increase  in  revenue of
approximately $1 million was principally related to operational  improvements in
the  restaurants.  During  1997,  the Company  emphasized  adherence  to Brinker
standards and procedures,  training, customer awareness and implemented a market
plan  focusing on food 

                                       12
<PAGE>

shots to create brand identity of Chili's Texas Grill & Bar. All of the changes,
in complement with a new menu rollout, resulted in an increase in average weekly
sales for 1997 of approximately 40%.

Cost and Expenses

Restaurant cost of food, labor, variable and fixed expenses totaled $4.2 million
for the period ended  December 28, 1997.  This is a decrease of $0.7 million for
the year ended  December 29,  1996.  The  decrease  was  principally  related to
operational  improvements  and to less number of store  operating  weeks in 1997
versus 1996 (104 versus 128).  Food costs as a  percentage  of revenue fell from
35% in 1996 to 32% in 1997 as the  Company  improved  purchasing  power  through
economics  of  scale  and  sourcing  more  products  locally.  Labor  costs as a
percentage  of  revenue  fell  from  27% to 19% in 1997 as the  Company  reduced
restaurant staff after store grand openings, and implemented programs to improve
staff training and work  productivity.  Restaurant  expense and fixed costs as a
percentage of revenue  decreased in 1997 to 23% from 55% in 1996.  This decrease
in the percentage was principally related to high fixed expenses associated with
the central London restaurant in comparison to the revenues generated.

General and Administrative Expense

The total cost of general and  administrative  expenses for the fifty-two  weeks
ended  December  28,  1997 were $1.1  million or 23% of  revenues.  General  and
administrative  costs  in  1996  were  $1.1  million  or  27% of  revenues.  The
administrative costs to run the two restaurants were reduced significantly in an
effort  to  achieve  overall  profitability  in the  United  Kingdom.  In  1997,
significant costs were incurred to develop the brand, hire and train personnel.

Closing Costs for Restaurant

The Company  closed one restaurant in Central London in December 1996. The costs
incurred  to close the  restaurant  in  addition  to the write off of  leasehold
improvements,  inventories,  pre-opening costs and equipment total $2,198,451 or
53% of the total U.K. sales revenues in 1996.

Merger with Celebrated

The Company's basis in Restaurant house at December 15, 1997 was $1,996,270. The
value of the  shares  in  Celebrated  were  $5,375,790.  Therefore,  the gain of
$3,379,250 was realized on this transaction.

Australia

Revenues

Total revenues for the fifty-two weeks ended December 28, 1997 were $6.0 million
versus $5.3  million for the same period last year.  The increase in revenues of
approximately  $700,000 was attributed to more restaurant  trading weeks (150 in
1996  versus 139 in 1996) and an  increase  in same  store  sales of 5% over the
previous  year.  Sales  trends  improved in 1997  through a  combination  of new
customer  trial,  repeat  business,   and  effective  sales  building  marketing
programs.

Cost and Expense

For the fifty-two weeks ended December 28, 1997, the total cost of food,  labor,
variable and fixed restaurant expenses were $4.7 million. The cost of food sales
as a  percentage  of revenue was 31% during the year as compared to 30% in 1996.
The cost of sales  percentage  slightly  increased  during  1997 as the  Company
experienced  price increases on key products and certain  inefficiencies  in the
restaurants.  Labor costs as a percentage of revenue were 28% during 1997 versus
26% in 1996.  Labor costs as a percentage of revenue were increased  during 1997
as a result of sales  building  efforts  after the store  openings  and  certain
inefficiencies  in the restaurants.  Other  restaurant  variable and fixed costs
were 34% of  revenue.


                                       13
<PAGE>

Other  variable  and fixed  costs  were  higher in 1997 as a result of opening a
third restaurant which increased the fixed costs.

General and Administrative Expenses

The total cost of general and  administrative  expenses for the fifty-two  weeks
ended  December  28, 1997 were  approximately  $600,000  or 10% of revenue.  The
administrative  costs to run the  three  restaurants  were  higher in 1997 in an
effort to achieve overall  profitability  in Australia.  In 1996, the most costs
were  incurred to develop the brand in Australia and integrate the business into
the structure of the parent company.

Sale of Assets in Australia

The  Company  sold the assets of Chili's  Texas  Grill and the  Chili's  concept
development  rights in Australia  and New Zealand to Brinker  International  for
$2.68  million.  The net value of the assets  were  $1,189,984.  Therefore,  the
Company realized a gain of $1,490,016.

Liquidity and Capital Resources

As the Company no longer has  operations on a going forward  basis,  the Company
will no longer have revenues, but will continue to have expenses and reflect the
equity  portion of the  earnings  of  Celebrated.  The  Company  has reduced its
administrative expenses through the transfer of the CFO to the Celebrated Group,
and currently, has an administrative headcount of two.

The Company anticipates its cash requirements to be approximately  $700,000.  In
the  short-term,  the Company will rely on  short-term  advances  from a related
party to finance  the  requirements.  The Company is  investigating  alternative
sources of capital whether it is bank financing or another equity transaction.


The Company

The Company's negative working capital as of December 28, 1997 was approximately
$168,000 as compared to negative working capital of $3.1 million on December 29,
1996.  Total current  assets were $368,454 on December 28, 1997 and $1.5 million
on December 29, 1996. Current  liabilities  decreased by $4.1 million in 1997 to
$537,130 from $4.6 million in 1996.  The primary  decrease in current assets and
liabilities  was attributed to the merger of the UK operations  into  Celebrated
and the sale of the Australian operations.

         The  following  chart  represents  the net funds raised  and/or used in
operating, financing and investment activities for both periods.

                                           December 30, 1996    January 1, 1996
                                                to                      to
                                           December 28, 1997   December 29, 1996
                                               In Thousands       In Thousands
Net cash (used) in operating activities        $ (1,709)            $ (1,573)
Cash (used) in investing                         (21)                 (4,804)
Cash provided by financing                        1,414                5,289

During the fiscal year ended December 28, 1997,  the Company used  approximately
$1.7  million  for  operating  activities.   The  Company  had  a  net  gain  of
approximately  $2.1 million  which was reduced by non-cash  adjustments  of $3.6
million.  Accounts receivable  decreased by approximately  $20,000,  inventories
decreased by $23,000 and an increase of prepaid expenses of $6,000. The accounts
payables,  accrued  liabilities,  and other payables  decreased by approximately
$185,000.


                                       14
<PAGE>

Cash  used  in  investing  activities  of  approximately  $21,000  is  primarily
attributed to furniture and fixtures for the new restaurants in Australia.

Cash  provided  by  financing  activities  for the year was  approximately  $1.4
million which includes the net proceeds from the sale of the assets in Australia
of approximately $2.65 million. Advances from a related party were $265,000 with
repayments of approximately $1,507,000.  The repayment terms on the intercompany
advances have been extended to January 1999.

The  Company  has a lease  for its U.S.  corporate  office  which  is  renewable
annually.

To finance the construction  and opening of the second and third  restaurants in
the U.K.,  the Company  obtained debt  financing  and  financing  from a related
party.  The Company has signed a Fixed Rate Loan  Agreement for 650,000  British
Pounds  (approximately  $1 million) with the National  Westminster Bank PLC. The
terms of the loan were for seven years at an interest rate of the U.K. base rate
plus three percent.  The Company transferred the liability to Celebrated as part
of the merger agreement.

The Company  secured a short-term  loan of $1.6 million from Brinker in February
1997. The interest rate was 8% and the monies were to be repaid either in August
1997 or March 1998. The Company repaid the debt to Brinker in December 1997 from
the proceeds from the sale of the Australian operation.

In Australia, Brinker has assumed obligation for the existing leases and Company
commitments on new restaurants sites. The Company's only obligation in Australia
is to pay the trade  payables  prior to December  19, 1997 and the  professional
fees associated with the sale of the business.

The Company  converted  $1,450,000  of long term debt to  convertible  preferred
shares. The Company's Board of Directors approved these agreements.

The Company has  improved  short term  liquidity  through a number of  different
steps including the reduction of  administrative  expenses and headcount and the
rescheduling of payment terms on the advances from Woodland Limited Partnership.
The Company  believes that additional  capital or borrowing will be necessary to
finance  working capital in the short term. The Company does not anticipate that
Celebrated  will pay dividends in 1998.  The Company does not currently have any
commitments to secure  financing and there is no assurance that the Company will
be able to secure  financing  in the future and that even if the Company is able
to obtain financing, such financing will be available on terms acceptable to the
Company. If the Company's plans change, or if the assumptions or estimates prove
to be inaccurate,  of it the Company is unable to raise more funds,  the Company
will reduce its holdings in Celebrated.


Inflation

To date, inflation has not had a material effect on the Company's operations.


Item 7.  Financial Statements

         See the Financial  Statements data listed in the accompanying  Index to
Financial Statements on Page F-1 herein. Information required by other schedules
called for under  Regulation  S-X is either not applicable or is included in the
financial statements or notes thereto.

Item  8.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosures

         Not Applicable.


                                       15
<PAGE>

                                    PART III


Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act

The Directors and Executive  Officers,  their ages, their principal  occupations
during  the past  five  years  or  more,  and  directorships  of each in  public
companies in addition to the Company are as follows:

Colin Halpern,  age 61, has served as Chairman of the Board since June 1994, and
served as  President  of the Company  from June 1994 until August 1996 and again
from May 1997 to present.  He serves as  Chairman of the Board of  International
Franchise Systems,  Inc., as position he has held since December 1993. He served
as President of International  Franchise Systems,  Inc. from December 1993 until
May 1996.  He also  currently  serves as  President,  Secretary,  Treasurer  and
Director of Crescent Capital,  Director of Celebrated Group Plc., and President,
Chief  Executive  Officer  and  Chairman  of  the  Board  of  Directors  of  NPS
Technologies  Group, Inc., all of which are public companies.  He has held these
positions  since July 1994,  January  1998 and August  1983,  respectively.  Mr.
Halpern also served as Executive  Vice  President of Lafayette  Industries  from
January 1992 to December 1996.  From 1985 to the present,  Mr. Colin Halpern has
also served as the Chairman of Universal  Services Group, Inc. Mr. Colin Halpern
was formerly the Chairman and Chief Executive Officer of DRC Industries, Inc., a
company that, from November 1975 through  October 1985, had a Budget  Rent-A-Car
master license agreement for the New York metropolitan area, including LaGuardia
and John F. Kennedy Airports.

In June 1991,  the SEC sought and received,  and NPS  Technologies  Group,  Inc.
("NPS")  consented to the entering of, an order against NPS and its officers and
employees that required NPS to file certain  periodic  reports with the SEC that
had not been timely filed and  permanently  restrained and enjoined NPS and such
officers and employees from failing to file in proper form with the SEC accurate
and  complete  reports  required  to be filed by NPS  pursuant  to the rules and
regulations  of the SEC. Mr. Colin Halpern is the President and Director of NPS,
which is currently  inactive.  Since June 1991, certain of NPS' reports have not
been timely  filed by NPS and other  reports have not been filed in proper form.
The SEC has taken no  further  action  against  NPS or any of its  officers  and
employees.

H. Michael  Bush,  age 43, has served as Chief  Financial  Officer and Secretary
since  joining  the  Company in  November  1995.  Mr.  Bush also serves as Chief
Financial Officer and Secretary of International Franchise Systems, Inc., the UK
licensee of Domino's Pizza.  Since May 1996, Bush has served as Acting President
of  International  Franchise  Systems,  Inc. In addition,  Mr. Bush is currently
serving as Chief Executive Officer of the Celebrated Group Plc, the company that
merged  with Red Hot  Concepts,  Inc.  in  December  1997.  Prior to joining the
Company, Mr. Bush worked at Mobil Oil Corporation. He served at Mobil in various
financial  capacities  from 1980 through  November  1995,  including  Manager of
Financial  Analysis,  Accounting  Manager and Senior Tax Planning Advisor.  From
1976 through  1980,  Mr. Bush worked at Unisys.  Mr. Bush is a certified  public
accountant.

Robert  Pace  Flack,  age 60,  has  served as a director  of the  Company  since
December 1995.  Since December 1995, he has served as Chief  Executive  Officer,
President  and  Director of Kona  Restaurant  Group,  Inc. He is also  currently
serving as a management  consultant  for business  development  and for the food
service  industry  as a director  of Business  Development  Services,  a private
company.  From June 1989 to December 1994, Mr. Flack has held several  positions
and most recently served as the President and Chief  Executive  Officer of Sonic
Industries,  a NASDAQ listed, fast food service,  drive-in restaurant chain with
over  1,300  outlets,  90% of which  are  franchised.  He has  served  in senior
management  positions  with  several  restaurant  companies  including  El Chico
Corporation (NASDAQ), Pizza Inn, Inc. (AMEX) and Village Kitchen Foods, Inc. Mr.
Flack is a member of the National  Restaurant  Association and the International
Franchise Association.  Mr. Flack is also a director of International  Franchise
Systems, Inc. and of Lincoln National Bank, Oklahoma.



                                       16
<PAGE>

Aaron L. Lebedow,  age 62, has served as a director of the Company since January
1998.  Mr.  Lebedow is founder and  President of Global  MarkeTactics,  a market
planning  consulting  firm, and a position he has held since 1994.  From 1966 to
1993, Mr.  Lebedow  served as Chairman and  co-founder of Technomic  Consultants
International,  a strategic marketing consulting firm with offices globally. Mr.
Lebedow  serves as a director for the Council of Jewish  Elderly,  a position he
has held since 1987.


Item 10.  Executive and Director Compensation

Summary Compensation Table

      The following table sets forth the aggregate cash compensation paid by the
Company for the  fifty-two  weeks  ended  December  28, 1997 to those  executive
officers  whose  salary  and bonus  exceeded  $100,000  and the Chief  Executive
Officer.
<TABLE>
<CAPTION>
                                                                           Long-Term Compensation
                            Annual Compensation                 Awards
                                                        Other      Restricted   Securities
Name and                          Salary                Annual       Stock      Underlying    All Other
Principal                      Compensation   Bonus  Compensation   Award (s)    Options    Compensation
Position                 Year       ($)       ($)(1)    ($)(2)        ($)           (#)          ($)
<S>      <C>             <C>       <C>            <C>   <C>            <C>        <C>             <C>
Colin Halpern            1997(3)   72,000    10,000     27,238         0          3,332           0
President(3)             1996      72,000         0     15,840         0          1,666           0
                         1995      72,000         0     60,156         0              0           0

H. Michael Bush          1997      66,667    10,000          0         0              0           0
Chief Financial Officer, 1996      50,000    10,000          0         0         30,000           0
Secretary
</TABLE>

(1) Represents amounts paid under the Company bonus plan.

(2) For 1997,  Colin Halpern's  compensation  includes $18,322 car allowance and
$8916 for insurance  and for 1996 includes  $15,840 car allowance and $7,443 for
insurance and for 1995 includes $15,840 car allowance,  $7443 for insurance, and
$32,760 for housing  allowance.  Where no amount is given,  the dollar  value of
perquisites  paid to the named  executive  officer does not exceed the lesser of
$50,000 or 10% of the total of annual  salary and bonus  reported  for the named
executive officer.

(3) Colin Halpern has served as President since May 1997.



                                       17
<PAGE>

The  following  tables  set  forth,  as  to  the  executive  officers,   certain
information  relating to options for the  purchase of Common  Stock  granted and
exercised during fiscal year 1997 and held at the end of fiscal year 1997.

                        Option Grants in Last Fiscal Year

                                Individual Grants
<TABLE>
<CAPTION>

            Name                Options      % of Total Options Granted    Exercise or     Expiration Date
                                Granted      to Employees in Fiscal Year   Base Price(1)
                                 (#)(1)
<S>                             <C>                      <C>                   <C>            <C>  
Colin Halpern                   1,666(2)                 1%                    $8.25          01/01/07
                                1,666(2)                 1%                   $3.9375         04/01/07
</TABLE>

(1) Reflects three-for-one reverse split, which occurred on November 28, 1997.

(2) Represents  options granted under the Company's 1996  Non-Employee  Director
Plan. Mr. Colin Halpern was not an executive  officer of the Company at the time
of grant.  Such options are exercisable after the first anniversary of the grant
until ten years from the date of grant.

                       Aggregated Option Exercises in Last
                      Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
                                              # of Securities     # of securities       Value of           Value of
                                                 Underlying          underlying        unexercised       unexercised
                                                Unexercised         unexercised       in-the-money       in-the-money
                  Shares          Value          Options at         options at          option at         option at
                acquired on      Realized          FY-End             FY-End           FY-End (1)         FY-End (1)
    Name        exercise (#)        ($)          Exercisable       Unexercisable       Exercisable       Unexercisable
    ----        ------------        ---          -----------       -------------       -----------       -------------
<S>                  <C>             <C>            <C>                 <C>                <C>               <C> 
Colin Halpern        0               0              1,666               3,332              $ --              $ --
H. Michael Bush      0               0              9,999              20,001              $ --              $ --
</TABLE>

(1) Represents the difference  between the option exercise price and the closing
market price for the Company's Common Stock on December 31, 1997 ($1.50).

Director Compensation

Directors  who are officers or employees  of the Company  receive no  additional
compensation  for  service as members of the Board of  Directors  or  committees
thereof. Directors who are not officers or employees of the Company receive such
compensation  for their services as the Board of Directors may from time to time
determine.  Non-employee  directors receive an annual fee of $5,000 and a fee of
$1,000 for each board,  committee,  and  shareholder  meeting  attended.  During
fiscal year 1997,  non-employee  directors participated in the 1996 Non-Employee
Directors  Stock  Option Plan (See Note 16A of Notes to  Financial  Statements),
which  plan was  adopted  by the  shareholders  at the 1997  annual  meeting  of
shareholders.  During fiscal year 1997, Mr. Melvin Lazar was granted  options to
acquire  6,664  shares  of  common  stock  (reflecting  the  November  28,  1997
three-for-one reverse stock split) at an exercise price of $8.25, $3.9375, $1.50
and $4.03  (1,666  shares at each  price)  under the plan.  These  options  have
expired. In addition,  Mr. Franklin Abelman was granted options to acquire 3,332
shares of common stock at an exercise  price of $8.25 and $3.9375  (1,666 shares
at each price) under the plan. These options have also expired.


                                       18
<PAGE>

Item 11.  Security Ownership of Certain Beneficial Owners and Management

         The table  below sets  forth  certain  information  as of April 1, 1998
regarding the beneficial ownership,  as defined in regulations of the Securities
and Exchange Commission,  of Common Stock of (i) each person who is known to the
Company to be the beneficial owner of more than 5% of the outstanding  shares of
the  Company's  Common Stock,  (ii) each director of the Company,  and (iii) all
directors  and  executive  officers  as a group.  On April 1,  1998,  there were
3,420,725 shares of the Company's Common Stock and options  outstanding.  Unless
otherwise  specified,  the named beneficial owner has sole voting and investment
power.  The  information in the table below was furnished by the persons listed.
"Beneficial Ownership" as used herein has been determined in accordance with the
rules and regulations of the Securities and Exchange Commission and is not to be
construed as a representation  that any of such shares are in fact  beneficially
owned by any person.
<TABLE>
<CAPTION>
Names and Address of                  Amount and Nature of                          Percentage of
 Beneficial Owner                      Beneficial Ownership                             Class
<S>                                            <C>                                       <C>   
Woodland Limited Partnership(1)             1,245,833                                   36%
1301 K Street, NW, Suite 1100
Washington, DC 20005

Colin Halpern                                  3,332(2)                                    *

Robert P. Flack                                1,666(2)                                    *

Aaron L. Lebedow                                -0-                                        *

All directors and officers
as a group (3 persons)                         14,997(2)                                   *
</TABLE>

*  Less than 1%

(1) From December 1993, Woodland Limited  Partnership,  a limited partnership of
which Woodland Group is the General Partner,  owns  approximately 36% of Red Hot
Concepts issued and outstanding shares of Common Stock.  Woodland Group is owned
one-third  by Mr. Jay Halpern,  one-third  by Ms. Nancy Gillon and  one-third by
Mrs. Gail Halpern.  Gail Halpern is the wife of Colin  Halpern.  Jay Halpern and
Nancy  Gillon are the  children  of Gail and Colin  Halpern.  By reason of their
indirect  ownership of approximately  100% of the outstanding stock of Woodland,
Mr. Jay Halpern,  Ms. Gillon and Mrs. Halpern may be deemed to have a beneficial
interest in the shares owned by Woodland Limited Partnership.  Messrs.  Halpern,
Ms. Gillon and Mrs. Halpern disclaim beneficial ownership of such securities.

(2) Represents options to purchase shares of Common Stock exercisable within 60
days of April 1, 1998.



Item 12.  Certain Relationships and Related Transactions

Woodland Limited Partnership ["Woodland"] is a partnership controlled by members
of Mr. Colin Halpern's family.  Mr. Halpern is the President and Chairman of the
Board of the Company.  As of December 28, 1997,  the balance due to Woodland for
funds advanced to the Company was $1,011,317  which  includes  accrued  interest
payable of  $230,065.  This note is due in June 1998.  During  1997,  funds were
advanced for $265,184 and  repayments  of $1,506,815  were made to Woodland.

                                       19
<PAGE>

In June 1996, as partial consideration for the conversion of short-term advances
to a note  payable  loan,  the Company  issued a common stock  purchase  warrant
entitling  Woodland to purchase  166,667 shares of the Company's common stock at
$7.50 per share  for a period of 24 months  commencing  on the date of the loan.
The warrants  will be  redeemable  at $.01 per share if the closing bid price of
the Company's  common stock exceeds $30 for 10  consecutive  trading days ending
within five days of the notice of redemption.  In December 1996, Woodland agreed
to extend the note due until June 1998 and the  shares of the  Company's  common
stock at $5.25 per share for a term  expiring  December 31, 1999. As of December
29, 1996, the note was recorded net of the fair value of these stock warrants at
$694,556 [See Note 6]. Interest expense  amortized on purchase  warrants for the
52 week period ended December 28, 1997 is $130,000.  The warrants were cancelled
with conversion of the notes to equity.

In March 1997, the Company agreed with Woodland  Limited  Partnership to convert
$750,000  of  long-term  debt to  100,000  shares of $1.00  par  value  Series A
convertible preferred shares. On September 25, 1997, Woodland agreed to exchange
its $1.00 par value Series A convertible  preferred  shares to 375,000 $2.00 par
value Series B non-convertible preferred shares.

On September  25, 1997,  Woodland  agreed to convert an  additional  $700,000 of
notes  payable into 350,000 $2.00 par value Series B  non-convertible  preferred
shares.  The agreed dividend is 8% and is cumulative.  The preferred shares hold
the sale voting rights as the common shares.  The warrants  issued in connection
with notes  payable were valued at $145,522 and was  accounted for as a discount
to the notes payable to Woodland.  At December 28, 1997,  the Company  amortized
$116,000 as interest expense.

At  December  28,  1997,  dividends  in arrears on the Series B  non-convertible
preferred stock amounted to $58,000 or $.08 per share.

Mr.  Halpern  also is the  Chairman  of the  Board  of  International  Franchise
Systems,  Inc.  ["IFS"].  At December  31, 1995,  IFS had advanced  funds to the
Company in the amount of $183,635.  During 1996,  the entire  amount was repaid.
IFS charges a management fee to the Company for administration services. For the
years ended  December 28, 1997 and December  29,1996,  this  management  fee was
$45,000 and $25,000, respectively, and those amounts were charged to operations.
IFS and one of its wholly-owned  subsidiaries sublease a facility to the Company
in the United  Kingdom.  For the year ended  December 28, 1997, the Company paid
$133,449 for this facility.  During the fifty-two week period ended December 31,
1995,  IFS  transferred  motor vehicles under capital lease at the remaining net
lease value to the Company.  These motor  vehicles  were returned to the leasing
company upon  cancellation of the lease and the related asset and liability were
written off during 1996.

The Company has  advanced  funds to and paid  various  expenses on behalf of Mr.
Halpern.  During 1996, the total amount advanced to Mr. Halpern was $15,148 with
repayments of $35,000. At December 28, 1997, the total amount due to the Company
is  $31,149.  This  amount is being  offset  through  reimbursements  due to Mr.
Halpern.

Mr. Halpern's son is an attorney with a law firm that provides legal services to
the Company. Legal expense incurred with this firm for the fifty-two weeks ended
December  28,  1997 was  $20,000.  At  December  28, 1997 there was a balance of
$115,000 due and owing by the Company to this firm.

The Chief Financial  Officer of the Company is also the Chief Financial  Officer
of IFS. The charge for his  services  was $130,000 and is allocated  between the
two companies.

                                       20
<PAGE>

Item 13.  Exhibits and Reports on Form 8-K

         (a) Exhibits

         1(A)(2)             Underwriting Agreement

          (B)(1)             Form of Selected Dealers Agreement

          (C)(2)             Warrant Agreement

         3(A)(2)             Certificate of Incorporation

          (C)(2)             Bylaws of Registrant

         4(A)(3)             Form of Common Stock Certificate

          (B)(3)             Class B Common Stock Purchase Warrant
                             Specimens

         10(A)(2)            Development Agreement dated July 15, 1994 between
                             Brinker International, Inc. and Restaurant 
                             House Limited

         10(A)(i)(4)         License Agreement dated January 27, 1995 between
                             Brinker International, Inc. and Restaurant House 
                             Limited
          
         10(A)(ii)(4)        Letter Agreement dated January 9, 1995 by
                             Brinker International, Inc.

           (B)(2)            Employment Agreement between Registrant and
                             Colin Halpern

           (C)(2)            Unit Purchase Option

           (D)(2)            Escrow Agreement among the Company, the 
                             Underwriter, Jersey Transfer and Trust Co., and
                             United Jersey Bank

           (E)(4)(**)        Form of Incentive Stock Option Plan

         21(2)               Subsidiaries of the Registrant

         10(F)(5)            Development Agreement between Brinker
                             International, Inc. and Red Hot Concepts-Pacific,
                             Inc. dated November 8, 1995

         10(G)(5)            Share Sale Agreement between Red Hot
                             Concepts-Pacific, Inc. and Brinker Australia, Inc.
                             dated November 8, 1995

         11(**)              1996 Non-Employee Directors Stock Option Plan

         10(H)(6)            Merger Agreement between Celebrated Group Plc and
                             Red Hot Concepts, Inc. dated December 16, 1997

         10(I)(6)            Sale Agreement between Brinker International, Inc.
                             and Red Hot Concepts, Inc. dated December 19, 1997

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

                                       21
<PAGE>

         (**) Denotes Compensatory Plans

1    Incorporated   by   reference,   filed  as  an  exhibit   to   Registrant's
     Post-Effective  Amendment  No.  1 to SB-2  filed  with the  Securities  and
     Exchange Commission on November 8, 1994.
2    Incorporated by reference, filed as an exhibit to Registrant's Registration
     Statement on Form SB-2,  filed with the Securities and Exchange  Commission
     on November 8, 1994.
3    Incorporated   by   reference,   filed  as  an  exhibit   to   Registrant's
     Pre-Effective  Amendment  No. 1 to SB-2,  filed  with  the  Securities  and
     Exchange Commission on November 8, 1994.
4    Incorporated  by reference  previously  filed as an exhibit to Registrant's
     Pre-Effective  Amendment  No.  2 to SB-2  filed  with  the  Securities  and
     Exchange Commission on November 8, 1994.
5    Incorporated by reference filed as Exhibit to Registrant's  8-K, filed with
     the Securities and Exchange Commission on November 28, 1995.
6    Incorporated by reference filed as Exhibit to Registrant's  8-K, filed with
     the Securities and Exchange Commission on December 19, 1997

          (f)  Reports on Form 8-K

                     March 26, 1997         Extension of Class A Common Stock 
                                            Purchase Warrant

                     May 13, 1997           Naming New President

                     August 27, 1997        Letter of Intent to Merge with 
                                            Celebrated Group Plc

                     October 28, 1997       Continued Listing on Nasdaq SmallCap
                                            Market

                     November 28, 1997      Reverse Split of Common Stock

                     December 19, 1997      Merger with Celebrated Group Plc and
                                            Sale of Australian Subsidiary to 
                                            Brinker International, Inc.

                     December 30, 1997      Amendment to December 19, 1997 8-K



                                       22
<PAGE>

                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.


                                       RED HOT CONCEPTS, INC.



                                       By:/s/Colin Halpern
                                          Colin Halpern, President

                                       Date: June 1, 1998


     In accordance with the requirements of the Securities Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the date indicated.


/s/Colin Halpern               President and Director              June 1, 1998
Colin Halpern                  (Chief Executive Officer)


/s/H. Michael Bush             Chief Financial Officer             June 1, 1998
H. Michael Bush                and Secretary (Principal
                               Financial and Accounting
                               Officer


/s/Robert Pace Flack           Director                            June 1, 1998
Robert Pace Flack

/s/Aaron L. Lebedow            Director                            June 1, 1998
Aaron L. Lebedow

                                       23

<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES


INDEX TO FINANCIAL STATEMENTS



                                                                           Page

Independent Auditor's Report............................................    F-1

Consolidated Balance Sheet as of December 28, 1997...................... F-2.F-3

Consolidated Statements of Operations for the fifty-two weeks ended
December 28, 1997 and December 29, 1996.................................    F-4

Consolidated Statements of Stockholders' Equity for the period December 30, 1996
to December 28, 1997....................................................    F-5

Consolidated Statements of Cash Flows for the fifty-two weeks ended
December 28, 1997 and December 29, 1996................................. F-6.F-7

Notes to Consolidated Financial Statements..............................F-8.F-21



                         . . . . . . . . . . . . . . . .

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

To the Stockholders and Board of Directors of
   Red Hot Concepts, Inc.


                  We have audited the accompanying consolidated balance sheet of
Red Hot Concepts,  Inc. and its  subsidiaries  as of December 28, 1997,  and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for the fifty-two  week periods  ended  December 28, 1997 and December 29,
1996. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

                  In our opinion, the consolidated financial statements referred
to above present fairly, in all material  respects,  the consolidated  financial
position of Red Hot Concepts, Inc. and its subsidiaries as of December 28, 1997,
and the  consolidated  results of their operations and their cash flows for each
of the fifty-two  week periods ended December 28, 1997 and December 29, 1996, in
conformity with generally accepted accounting principles.

                  The accompanying  consolidated  financial statements have been
prepared assuming that Red Hot Concepts, Inc. and its subsidiaries will continue
as a  going  concern.  As  discussed  in  Note 3 to the  consolidated  financial
statements,  Red Hot Concepts, Inc. and its subsidiaries have suffered recurring
losses from  operations;  have utilized  $1,709,064 in cash for operations;  and
have a working  capital deficit of $168,676 that raise  substantial  doubt about
Red Hot  Concepts,  Inc.  and its  subsidiaries'  ability to continue as a going
concern.  Management's plans in regard to these matters are described in Note 3.
The consolidated  financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

                                      MOORE STEPHENS, P. C.
                                      Certified Public Accountants.

Cranford, New Jersey
May 22, 1998

                                      F-1
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 28, 1997.



Assets:
Current Assets:
   Cash                                    $109,255
   Restricted Cash                          210,390
   Due from Celebrated Group                 11,596
   Prepaid Expenses                          24,213
   Accrued Interest Receivable               13,000
                                         ----------

   Total Current Assets                     368,454
                                         ----------

Property and Equipment:
   Furniture and Fixtures                    10,861
   Less: Accumulated Depreciation             4,640
                                         ----------

   Property and Equipment - Net               6,221
                                         ----------

Other Assets:
   Officer Loan Receivable                   31,149
   Investment in Celebrated Group         5,375,790
                                         ----------

   Total Other Assets                     5,406,939
                                         ----------

   Total Assets                          $5,781,614
                                         ==========


The  Accompanying  Notes are an Integral  Part of these  Consolidated  Financial
Statements.


                                      F-2
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 28, 1997.
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity:
Current Liabilities
<S>                                                                                       <C>     
   Accounts Payable and Accrued Expenses                                                  $537,130
                                                                                       -----------

Long-Term Liabilities:
   Accrued Interest Payable - Related Party                                                230,065
   Due to Related Party                                                                    781,253
                                                                                       -----------

   Total Long-Term Liabilities                                                           1,011,318
                                                                                       -----------

Commitments and Contingencies [16]                                                              --
                                                                                       -----------

Stockholders' Equity:
   Series A Convertible Preferred Stock, $1.00 Par Value, 100,000 Shares
     Authorized, No Shares Issued and Outstanding                                               --

   Series B Non-Convertible 8% Preferred Stock, $2.00 Par Value, 725,000 Shares
     Authorized, Issued and Outstanding                                                  1,450,000

   Common Stock, $.01 Par Value, 20,000,000 Shares Authorized,
     3,420,782 Shares Issued and Outstanding                                                34,207

   Additional Paid-in Capital                                                            8,443,416

   Accumulated Deficit                                                                  (5,571,262)

   Cumulative Foreign Currency Translation Adjustment                                     (123,195)
                                                                                       -----------

   Total Stockholders' Equity                                                            4,233,166
                                                                                       -----------

   Total Liabilities and Stockholders' Equity                                           $5,781,614
                                                                                       ===========
</TABLE>

The  Accompanying  Notes are an Integral  Part of these  Consolidated  Financial
Statements.

                                      F-3
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                 Fifty-Two Weeks Ended
                                                           December 28,         December 29,
                                                             1 9 9 7              1 9 9 6
<S>                                                        <C>                   <C>       
Revenues                                                   $11,111,274           $9,438,739
                                                          ------------         ------------

Cost of Revenues:
   Cost of Revenues                                          3,517,890            3,045,621
   Restaurant Expense                                        6,044,690            6,543,898
                                                          ------------         ------------

   Total Cost of Revenues                                    9,562,580            9,589,519
                                                          ------------         ------------

   Gross Margin [Loss]                                       1,548,694             (150,780)

Closure of Restaurant                                               --            2,198,452

General and Administrative Expenses                          2,966,720            2,778,986

Depreciation and Amortization                                  777,833              805,279
                                                          ------------         ------------

   Operating Loss                                           (2,195,859)          (5,933,497)
                                                          ------------         ------------

Minority Interest in Net Income of Subsidiary                       --                 (634)
                                                          ------------         ------------

Other Income [Expense]:
   Other Income                                                 15,383                   --
   Interest Income                                              46,052               23,627
   Interest Expense - Related Party                           (613,219)            (220,103)
   Interest Expense                                                 --             (164,222)
   Gain on Merger of UK Subsidiary into Celebrated           3,379,520                   --
   Gain on Sale of Rights in Chili's Restaurants             1,490,016                   --
                                                          ------------         ------------

   Other Income [Expense] - Net                              4,317,752             (360,698)
                                                          ------------         ------------

   Income [Loss] Before Income Tax Expense                   2,121,893           (6,294,829)

Federal and State Income Tax Expense                                --                   --
                                                          ------------         ------------

   Net Income [Loss]                                         2,121,893           (6,294,829)

Preferred Stock Dividends                                      (58,000)                  --
                                                          ------------         ------------

   Net Income [Loss] Available to Stockholders              $2,063,893          $(6,294,829)
                                                          ============         ============

Net Income [Loss] Per Common Share:
   Basic                                                          $.58               $(2.72)
                                                          ============         ============
   Diluted                                                        $.58               $(2.72)
                                                          ============         ============

   Weighted Average Number of Shares Outstanding             3,585,713            2,309,976

Dilutive Potential Common Shares                                    --                   --
                                                          ------------         ------------

   Adjusted Weighted Average Common Shares                   3,585,713            2,309,976
                                                          ============         ============
</TABLE>
The  Accompanying  Notes are an Integral  Part of these  Consolidated  Financial
Statements.

                                      F-4
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
                                                                                                            Cumulative
                                                                   Series B Non-Convertible                  Foreign
                                   Common Stock [11E]    Additional       Preferred Stock                    Currency     Total
                                  Number of               Paid-in       Number of              Accumulated Translation Stockholders'
                                    Shares     Amount     Capital        Shares      Amount     [Deficit]   Adjustment   Equity
<S>                              <C>         <C>       <C>                <C>      <C>           <C>            <C>        <C>  
  Balance - December 31, 1995      1,587,449   $15,874   $4,781,451          --  $        --   $(1,398,326)   $(14,416)  $3,384,583

Additional Offering Costs [11B]           --        --      (55,000)         --           --            --          --      (55,000)
Issuance of Common Stock [Net
  of $103,252 of Expenses] [11C]   1,500,000    15,000    2,581,748          --           --            --          --    2,596,748
Funds Received in 1996 for 
  533,333 Shares
  of Common Stock to be Issued in
  1997 [11C]                              --        --      800,000          --           --            --          --      800,000
Fair Value of Stock Purchase
  Warrants [9]                            --        --      840,078          --           --            --          --      840,078
Issuance of Common Stock of
  Subsidiary for Lease 
  Guaranty [12]                           --        --       (2,488)         --           --            --          --       (2,488)
Net Loss for the fifty-two week
  period ended December 29, 1996          --        --           --          --           --    (6,294,829)         --   (6,294,829)
Foreign Currency Translation
  Adjustment                              --        --           --          --           --            --     (42,754)     (42,754)
                                   ---------   -------   ----------     -------   ----------   -----------   ---------   ----------

  Balance - December 29, 1996      3,087,449    30,874    8,945,789          --           --    (7,693,155)    (57,170)   1,226,338

Issuances of Common Stock [11C]      333,333     3,333       (3,333)         --           --            --          --           --
Convertible Debt to Preferred 
  Stock [11D]                             --        --           --     725,000    1,450,000            --          --    1,450,000
Adjustment for Unamortized Value of
  Warrants Cancelled [9]                  --        --     (499,040)         --           --            --          --     (499,040)
Net Income [Loss] for the 
  fifty-two week
  period ended December 28, 1997          --        --           --          --           --     2,121,893          --    2,121,893
Foreign Currency Translation
  Adjustment                              --        --           --          --           --            --     (66,025)     (66,025)
                                   ---------   -------   ----------     -------   ----------   -----------   ---------   ----------

  Balance - December 28, 1997      3,420,782   $34,207   $8,443,416     725,000   $1,450,000   $(5,571,262)  $(123,195)  $4,233,166
                                   =========   =======   ==========     =======   ==========   ===========   =========   ==========
</TABLE>

Foreign Currency Translation:
The  functional  currency  for  the  Company's  United  Kingdom  subsidiary  and
Australian  subsidiary  is the British  pound  sterling and  Australian  dollar,
respectively. The translation from British pound sterling and Australian dollars
into U.S. dollars is performed for balance sheet accounts using current exchange
rates in effect at the balance  sheet date and for revenue and expense  accounts
using a weighted  average  exchange rate during the period.  The gains or losses
resulting from such  translation are included in  stockholders'  equity.  Equity
transactions  denominated in British pound sterling and Australian  dollars have
been translated  into U.S.  dollars using the effective rate of exchange at date
of issuance.

The  Accompanying  Notes are an Integral  Part of these  Consolidated  Financial
Statements.

                                      F-5
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                  Fifty-Two Weeks Ended
                                                                             December 28,       December 29,
                                                                               1 9 9 7            1 9 9 6
Operating Activities:
<S>                                                                          <C>                <C>         
   Net Income [Loss]                                                         $2,121,893         $(6,294,829)
                                                                            -----------         -----------
   Adjustments to Reconcile Net Income [Loss] to Net
   Cash [Used for] Provided by
     Operating Activities:
     Depreciation and Amortization                                              777,833             805,287
     Loss on Sale of Fixed Assets                                                 6,295                  --
     Loss on Writeoff of Intangible Assets                                       78,515                  --
     Offset of Officer Loan Receivable Against Consulting Agreement              78,398                  --
     Writeoff of Leased Asset Upon Lease Cancellation                                --              41,251
     Writeoff of Restaurant Closure                                                  --           2,198,452
     Minority Interest in Net Income of Subsidiary                                   --                 634
     Amortization of Warrant Cost                                               246,000              95,038
     Gain on Sale of Assets of CTG and Rights in Chili's Restaurants         (1,490,016)                 --
     Gain on Merger of UK Subsidiary into Celebrated                         (3,379,520)                 --

   Changes in Assets and Liabilities:
     [Increase] Decrease in:
       Accounts Receivable                                                       19,740             165,802
       Inventories                                                               23,425             (79,656)
       Prepaid Expenses and Other Current Assets                                 (6,552)           (464,354)

     Increase [Decrease] in:
       Accounts Payable                                                        (282,959)          2,258,125
       Accrued Expenses                                                         105,000            (261,418)
       Other Payables and Accrued Interest                                       (7,116)            (37,139)
                                                                            -----------         -----------

     Total Adjustments                                                       (3,830,957)          4,722,022
                                                                            -----------         -----------

   Net Cash - Operating Activities                                           (1,709,064)         (1,572,807)
                                                                            -----------         -----------

Investing Activities:
   Purchase of Furniture and Fixtures                                           (20,965)         (4,057,257)
   Purchase of Intangible Capital Assets                                             --            (664,113)
   Advances to Officers                                                              --            (118,162)
   Payment by Officers                                                               --              35,000
                                                                            -----------         -----------

   Net Cash - Investing Activities                                              (20,965)         (4,804,532)
                                                                            -----------         -----------

Financing Activities:
   Proceeds from Sale of Common Stock                                                --           3,396,748
   Payment of Offering Costs                                                         --             (55,000)
   Advances from Related Parties                                                965,184           2,861,000
   Payments to Related Parties                                                 (859,715)         (1,608,753)
   Capital Lease Payments                                                            --             (42,251)
   Loan Proceeds                                                                     --           1,000,000
   Repayment of Loan                                                         (1,347,100)           (262,949)
   Net Proceeds from Sale of Assets of CTG and
     Rights in Chili's Restaurants                                            2,655,141                  --
                                                                            -----------         -----------

   Net Cash - Financing Activities                                            1,413,510           5,288,795
                                                                            -----------         -----------

Effect of Exchange Rate Changes on Cash                                        (108,374)            (32,280)
                                                                            -----------         -----------

   Net [Decrease] in Cash - Forward                                           $(424,893)        $(1,120,824)
</TABLE>
The  Accompanying  Notes are an Integral  Part of these  Consolidated  Financial
Statements.

                                      F-6
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                      Fifty-Two Weeks Ended
                                                                                 December 28,       December 29,
                                                                                   1 9 9 7            1 9 9 6
<S>                                                                               <C>               <C>         
   Net [Decrease] in Cash - Forwarded                                             $(424,893)        $(1,120,824)

Cash - Beginning of Periods                                                         534,148           1,654,969
                                                                                -----------         -----------

   Cash - End of Periods                                                           $109,255            $534,145
                                                                                ===========         ===========

Supplemental Disclosures of Cash Flow Information:
   Cash paid during the periods for:
     Interest                                                                      $613,219             $64,103
     Income Taxes                                                               $        --         $        --

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
   Note Payable Issued in Connection with the UK Development
     Agreement                                                                  $        --            $220,000

   Deferred Lease Guarantee of Subsidiary                                       $        --            $497,181

   Liability for Guarantee Agreement                                            $        --           $(497,180)

   Minority Share of Stock Issuance of Subsidiary                               $        --                 $(1)

   Conversion of Related Party Debt to Preferred Stock                           $1,450,000         $        --

   Cancellation of Warrants                                                        $499,040         $        --
</TABLE>

The  Accompanying  Notes are an Integral  Part of these  Consolidated  Financial
Statements.

                                      F-7
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


[1] Organization and Nature of Business

Corporate  Structure - Red Hot Concepts,  Inc. ["Red Hot"] was  incorporated  in
Delaware on June 14,  1994.  Its  principal  offices  are  located in  Bethesda,
Maryland. Until December 15, 1997, Red Hot owned 100% of the stock of Restaurant
House Limited ["Restaurant  House"], a United Kingdom corporation  headquartered
in Milton Keynes, England. On December 15, 1997, Red Hot exchanged its shares in
Restaurant House for shares in Celebrated Group Plc  ["Celebrated"],  a publicly
traded company in the United Kingdom ["UK"] [See Note 19].

Red Hot Concepts - Pacific,  Inc.,  ["Red Hot Pacific"] a Delaware  corporation,
was formed in September  1995 and is owned 95% by Red Hot. In November 1995, Red
Hot Pacific  acquired all of the stock of Chili's Texas Grill Pty Ltd.  ["CTG"],
an Australian  company. On December 19, 1997, Red Hot Pacific sold the assets of
CTG and the Chili's  Concept  Australia  and New Zealand  development  rights to
Brinker International, Inc. ["Brinker"] [See Note 18].

Description  and Nature of Business - The Company had the exclusive right to own
and operate Chili's Grill and Bar restaurants ["Chili's  Restaurants"]  pursuant
to development and license agreements,  in the UK, Australia and New Zealand. On
December 15 and December 19, 1997, Red Hot sold the exclusive  rights for the UK
and Australia/New Zealand restaurants, respectively. As a result, the Company is
a holding  company,  the sole  operation of which  consists of its  ownership of
Celebrated recorded under the equity method.  Celebrated was initially formed to
develop and operate  mid-priced  hotels.  Celebrated  has  expanded its business
operations to include several  restaurants  chains  operating  throughout  Great
Britain.  Celebrated is a public company, 45.6% of which is owned by the Company
and  54.5%  by  other  public  shareholders.  Celebrated's  shares  trade on the
Alternative Investment Market of the London Stock Exchange.  Celebrated owns the
exclusive rights for Chili's Restaurants in the UK, along with other concepts.

[2] Summary of Significant Accounting Policies

Principles of Consolidation - The consolidated  financial statements include the
accounts of Red Hot and its wholly-owned and  majority-owned  subsidiaries until
the date of divestiture.  All significant intercompany accounts and transactions
have been eliminated.  The Company has used the equity method to account for the
holdings in  Celebrated.  The Company has an option to acquire  more than 50% of
the outstanding shares of Celebrated. If exercised, the Company will report on a
consolidated basis.

Property and Equipment - Property and equipment are stated at cost. Depreciation
on  equipment  is computed  primarily  using the  straight-line  method over the
estimated useful lives of the assets,  which range from 3 to 7 years.  Leasehold
improvements  were  amortized  over  the  lesser  of  the  useful  life  of  the
improvements  or the lease term,  which averaged 20 years.  The Company began to
record  depreciation of its assets in October 1995,  when operations  commenced.
Depreciation  expense for the fifty-two week periods ended December 28, 1997 and
December 29, 1996 was $529,850 and $428,270, respectively.

Development  and License  Agreements - Development  and license  agreements were
stated at cost which included the purchase  price and related  costs,  primarily
professional  fees.  The  exclusive  development  rights  under the  development
agreements were amortized by the  straight-line  method over the 10-year term of
the  development  agreements.  The  cost  of  the  license  agreement  for  each
restaurant  was amortized by the  straight-line  method over the 20-year term of
the license.

Restaurant  Development  and  Start-Up  Costs  -  Restaurant  development  costs
relating to the design and  construction  of the restaurants are stated at cost.
Upon the  restaurants'  opening,  these costs are  classified  as  property  and
equipment  and  amortized  over their  useful  life,  which  averages  20 years.
Start-up costs related to hiring, training and other direct costs were stated at
cost and amortized over the first twenty-four months of restaurant operations.

Deferred  Lease  Guaranty - The Company had entered  into an  agreement  to have
guaranteed,  under  certain  circumstances,  a minimum  of 5 and up to 12 of its
operating  leases for properties.  These  guarantees were to be amortized over 5
years  under  the  straight-line  method  [See Note  16C].  This  

                                      F-8
<PAGE>

agreement  was  terminated  upon  the  sale  of  CTG  and  the  Chili's  Concept
Australia/New Zealand development rights.


                                      F-9
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2

[2] Summary of Significant Accounting Policies [Continued]

Revenue Recognition - The Company recognizes revenue at the point of sale to the
customer.

Advertising and Promotion  Expense - In accordance with  development and license
agreements  [See Notes 15A and 15B],  the Company is required to spend a minimum
of 1/2 of 1% of the prior year's  average  annual gross  receipts on advertising
and  promotion.  Advertising  and  promotion  costs are  expensed  as  incurred.
Advertising  and promotion  costs for the fifty-two  week periods ended December
28, 1997 and December 29, 1996 were $472,786 and $581,943, respectively.

Earnings [Loss] Per Share - The Financial  Accounting Standards Board has issued
Statement of Financial  Accounting  Standards  ["SFAS"] No. 128,  "Earnings  per
Share";  which is effective for financial  statements  issued for periods ending
after December 15, 1997.  Accordingly,  earnings per share data in the financial
statements  for the year  ended  December  28,  1997,  have been  calculated  in
accordance  with SFAS No. 128.  Prior periods  earnings per share data have been
recalculated  as  necessary to conform  prior years data to SFAS No. 128.  Prior
periods'  earnings per share data have been restated to give retroactive  effect
for the one for three reverse stock split in November of 1997.

SFAS No. 128 supersedes  Accounting  Principles  Board Opinion No. 15, "Earnings
per  Share,"  and  replaces  its  primary  earnings  per share  with a new basic
earnings per share  representing the amount of earnings for the period available
to each share of common stock outstanding during the reporting period.  SFAS No.
128 also requires a dual presentation of basic and diluted earnings per share on
the face of the statement of operations for all companies  with complex  capital
structures.  Diluted  earnings per share reflects the amount of earnings for the
period available to each share of common stock outstanding  during the reporting
period,  while giving effect to all dilutive  potential  common shares that were
outstanding during the period,  such as common shares that could result from the
potential exercise or conversion of securities into common stock.

The  computation  of diluted  earnings  per share  does not  assume  conversion,
exercise,  or contingent  issuance of securities that would have an antidilutive
effect on earnings  per share [i.e.,  increasing  earnings per share or reducing
loss per share].  The dilutive  effect of  outstanding  options and warrants and
their   equivalents  are  reflected  in  dilutive  earnings  per  share  by  the
application  of the treasury  stock method which  recognizes the use of proceeds
that could be  obtained  upon  exercise of options  and  warrants  in  computing
diluted  earnings  per share.  It  assumes  that any  proceeds  would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive  effect only when the average  market price of the
common  stock  during the period  exceeds the  exercise  price of the options or
warrants.

Potential common shares of 1,070,018 are not currently  dilutive,  but may be in
the future.

Foreign  Currency  Translation - Balance sheet  amounts  denominated  in British
pound sterling and Australian  dollars have been  translated  into U.S.  dollars
using the year end rate of exchange.  Operational results denominated in British
pound sterling and Australian  dollars have been  translated  into U.S.  dollars
using the average yearly rate of exchange.  Equity  transactions  denominated in
British pound sterling and  Australian  dollars have been  translated  into U.S.
dollars using the effective  rate of exchange at date of issuance. 

Impairment  - Certain  long-term  assets of the  Company  are  reviewed at least
annually as to whether their  carrying  value has become  impaired,  pursuant to
guidance  established  in  Statement of  Financial  Standards  ["SFAS"] No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed  Of."  Management  considers  assets to be impaired if the  carrying
value  exceeds  the  future   projected  cash  flows  from  related   operations
[undiscounted and without interest  charges].  If impairment is deemed to exist,
the assets will be written down to fair value or projected discounted cash flows
from  related  operations.  As of December 29, 1997,  management  expects  these
assets to be fully recoverable.

                                      F-10
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3



[2] Summary of Significant Accounting Policies [Continued]

Stock Options Issued to Employees - The Company adopted SFAS No. 123 "Accounting
for Stock-Based  Compensation"  on January 1, 1996 for financial note disclosure
purposes and will  continue to apply the  intrinsic  value method of  Accounting
Principles  Board  ["APB"]  Opinion  No.  25  "Accounting  for  Stock  Issued to
Employees" for financial reporting purposes.

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

Reclassification  - Certain items in the prior year's financial  statements have
been reclassified to conform to the December 28, 1997 presentation.

[3] Going Concern

The  accompanying  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.

Since the Company's operations commenced in October 1995, revenues have not been
sufficient  to cover the  Company's  fixed  administrative  costs  resulting  in
operating  losses of $2,195,859  and  $5,933,497  for the fifty-two week periods
ended  December  28,  1997 and 1996,  respectively.  The  Company  had a working
capital  deficit of $168,676 and an accumulated  deficit at December 28, 1997 of
$5,571,262.  The Company has been funded through December 28, 1997 through loans
from related parties and affiliated  entities,  equity transactions and the sale
of operations in Australia and UK.

In December  1997,  the Company  sold the assets of CTG and the Chili's  Concept
Australia/New Zealand development rights [See Note 18].

The Company reached agreement in December 1997 with Celebrated to exchange stock
in its UK subsidiary for shares of Celebrated. Under the arrangement, Celebrated
owns the exclusive  development  rights to Chili's Grill & Bar in the UK and has
the capital  obligation to build  restaurants  consistent  with the  development
schedule.  The Company is the single  largest  shareholder  of  Celebrated.  The
Company  does not  anticipate  receiving  a dividend  distribution  in 1998 from
Celebrated.

The Company does not  currently  have any  commitments  to secure  financing and
there is no assurance  that the Company will be able to secure  financing in the
future and that even if the Company is able to obtain financing,  such financing
will be available on terms  acceptable to the Company.  If the  Company's  plans
change,  or if the  assumptions  or estimates  prove to be  inaccurate or if the
Company is unable to raise  more funds  through  equity or debt  financing,  the
Company will reduce its holdings in Celebrated. 

The Company has also taken steps to further reduce its administrative expense
for its monthly corporate operating activities. To meet these corporate
expenses, the Company intends to seek bank financing and continue with related
party advances or seek additional equity financing.

There can be no assurances that management's  plans to reduce operating expenses
and obtain  additional  financing to fund  operations  will be  successful.  The
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification  of  recorded  assets,  or the  amounts  and
classification  of liabilities  that might be necessary in the event the Company
cannot continue in existence.

                                      F-11
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4

[4] Significant Risks and Uncertainties

[A] Concentrations of Credit Risk - Cash - At December 28, 1997, the Company had
approximately $180,000 on deposit in Australia.  Australia does not have federal
insurance on balances maintained in banks. There is no collateral in relation to
deposits.  At December 28, 1997,  one letter of credit in the amount of $110,000
had been issued on the Company's behalf and is secured by a cash account,  which
is reflected as restricted  on the balance  sheet.  At December 28, 1997,  there
have been no drawings  under this  letter of credit and there is no  outstanding
balance due related to it.

[B] Operations in Foreign Countries - The Company is subject to numerous factors
relating  to  conducting  business  in a  foreign  country  [including,  without
limitation,  economic,  political and currency  risks] any of which could have a
significant impact on the Company's operations.

[C] Economic  Dependency - Due to the nature of the licenses granted pursuant to
the  development  agreements  with  Brinker  [See Note 16],  the  success of the
Company was in part  dependent  upon the overall  success of Brinker and Chili's
Restaurants,  including Brinker's financial condition,  management and marketing
success.  As of December 28, 1997,  the Company has no  outstanding  obligations
with Brinker,  however,  the Brinker  obligation  was  transferred to Celebrated
which  could  have a  material  adverse  effect  on the  Celebrated's  financial
condition.

[5] Other Assets

Other assets, at December 28, 1997, consists of the following:
<TABLE>
<CAPTION>
                                                                           Accumulated
                                                                          Amortization
                                                                          December 28,
                                                             Cost            1 9 9 7       Adjustments         Net
<S>                                                     <C>             <C>            <C>              <C>          
Deferred Lease Guarantees                               $      497,181  $      49,718  $     (447,463)  $          --
Development and License Agreements                             749,351         95,960        (653,391)             --
Restaurant Development and Start-Up Costs                      984,068        528,281        (455,787)             --
                                                        --------------  -------------  --------------   -------------

   Totals                                               $    2,230,600  $     673,959  $   (1,556,641)  $          --
   ------                                               ==============  =============  ==============   =============
</TABLE>

Amortization  expense of the deferred  lease  guarantees  for the fifty-two week
periods  ended  December 28, 1997 and December 29, 1996 was $24,859 and $24,859,
respectively.

Amortization  expense for development  and license  agreements for the fifty-two
week  periods  ended  December  28, 1997 and  December  29, 1996 was $16,890 and
$58,198, respectively.

Amortization  expense  of  restaurant  development  and  startup  costs  for the
fifty-two  week  periods  ended  December  28,  1997 and  December  29, 1996 was
$206,234 and $293,952, respectively.

The  write-off of the above assets  during 1997 relate to the sale of the assets
in Australia and the stock exchange in the UK [See Notes 14 and 15A]. [6] Debt

United  Kingdom - In March 1996, the Company  obtained a loan for  approximately
$1,000,000  to  finance  the  opening  of its  second  restaurant  in the UK. On
December 15,  1997,  the  outstanding  balance of $674,810  was  transferred  to
Celebrated as of December 15, 1997.  Red Hot has no obligation for the repayment
of the loan.

                                      F-12
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5


[6] Debt [Continued]

United Kingdom [Continued] - As consideration for the UK Development  Agreement,
the Company  agreed to pay Brinker  $320,000,  of which  $100,000  was paid upon
execution  of the UK  Development  Agreement  [See Note 16A].  The  $100,000  is
non-refundable. The remaining $220,000 was transferred to Celebrated in December
of 1997. Celebrated paid this liability in April of 1998.

Australia - During  November  1995,  in connection  with a share sale  agreement
between the Company and Brinker  Australia,  Inc., a wholly-owned  subsidiary of
Brinker,  the Company  incurred a note  payable  obligation  of  $300,000.  Upon
execution of the agreement, $100,000 was paid and another $100,000 was also paid
in November 1996. The remaining  balance of $100,000 was cancelled upon the sale
of the Australia/New Zealand development rights to Brinker in December of 1997.

In  connection  with the guaranty  agreement  with  Brinker [See Note 16C],  the
Company was required to buy back their  subsidiary's  shares of stock at the end
of the five year term of the  agreement  for a minimum of  $1,000,000  [See Note
16C]. The liability of  approximately  $500,000 at December 28, 1996 represented
the Company's minimum liability for the repurchase of the stock at September 30,
2001 discounted at 15% for five years.  This  transaction was cancelled upon the
sale of the Australia/New Zealand development rights to Brinker.

[7] Leases

Red Hot subleases its U.S. office from a related party for approximately  $2,000
a month.  The  lease  expires  June  1998.  Restaurant  House  subleased  office
facilities for  approximately  $400 a month from a wholly owned  subsidiary of a
related  company.  This  obligation was transferred to Celebrated as of December
15, 1997.

CTG leased its office  facilities for a monthly payment of approximately  $2,000
in Australia under a 2 year lease term, expiring September 1998.

The Company had 5 operating  leases for  restaurant  sites  ranging from 2 to 25
years. Two of these leases,  one with a 5 year term and one with a 11 year term,
had renewal options,  exercisable at the Company's  option,  for successive five
year terms through 2012.  All operating  leases have been  transferred to either
Celebrated or Brinker in December 1997.

Rent expense for the fifty-two week periods ended December 28, 1997 and December
29, 1996 was $932,489 and $959,307, respectively.

[8] Fair Value of Financial Instruments

Generally  accepted  accounting  principles require disclosing the fair value of
financial  instruments to the extent practicable for financial instruments which
are  recognized  or  unrecognized  in the balance  sheet.  The fair value of the
financial instruments disclosed herein is not necessarily  representative of the
amount  that  could be  realized  or  settled,  nor does the fair  value  amount
consider the tax consequences of realization or settlement.

In assessing the fair value of financial instruments, the Company uses a variety
of methods and  assumptions,  which are based on estimates of market  conditions
and risks existing at the time. For certain instruments, including cash and cash
equivalents,  accounts  receivable and accounts payable, it was assumed that the
carrying amount approximated fair value because of the short maturities of these
instruments. The fair value of long-term debt due to a related party of $781,253
is based on current  rates at which the Company  could borrow funds with similar
remaining maturities.

                                      F-13
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6


[9] Related Party Transactions

Woodland Limited Partnership ["Woodland"] is a partnership controlled by members
of Mr. Colin Halpern's family.  Mr. Halpern is the President and Chairman of the
Board of the Company.  As of December 28, 1997,  the balance due to Woodland for
funds advanced to the Company was $1,011,317,  which includes  accrued  interest
payable of  $230,065.  This  obligation  is due in  January of 1999 [Note  20B].
During  1997  funds  received  from the  sale of the  Australian  subsidiary  of
$2,060,000  were  received  by the  Company and were  transferred  to  Woodland.
Woodland  returned  $1,347,100  to the Company to be utilized for the payment of
the  outstanding  note to Brinker.  The  balance of $712,900  was treated by the
Company  as  a  reduction  to  the  amount  owed  to   Woodland.   In  addition,
approximately  $1,000,000  was  advanced to the Company by Woodland  for working
capital purposes.

In June 1996, as partial consideration for the conversion of short-term advances
to a note  payable  loan,  the Company  issued a common stock  purchase  warrant
entitling  Woodland to purchase  166,667 shares of the Company's common stock at
$7.50 per share  for a period of 24 months  commencing  on the date of the loan.
The warrants  will be  redeemable  at $.01 per share if the closing bid price of
the Company's  common stock exceeds $30 for 10  consecutive  trading days ending
within five days of the notice of redemption.  In December 1996, Woodland agreed
to extend the note due until June 1998 and,  the Company  issued a common  stock
purchase warrant entitling  Woodland to purchase an additional 166,667 shares of
the Company's stock at $5.25 per share for a term expiring December 31, 1999. As
of December 29, 1996, the note was recorded net of the fair value of these stock
warrants  at  $694,556  [See Note 6].  Interest  expense  amortized  on purchase
warrants  for the 52 week  period  ended  December  28,  1997 is  $130,000.  The
warrants were cancelled when conversion of the notes to equity.

In March 1997, the Company agreed with Woodland  Limited  Partnership to convert
$750,000  of  long-term  debt to  100,000  shares of $1.00  par  value  Series A
convertible preferred shares. On September 25, 1997, Woodland agreed to exchange
its $1.00 par value Series A convertible  preferred  shares to 375,000 $2.00 par
value Series B non-convertible preferred shares.

On September  25, 1997,  Woodland  agreed to convert an  additional  $700,000 of
notes  payable into 350,000 $2.00 par value Series B  non-convertible  preferred
shares.  The agreed dividend is 8% and is cumulative.  The preferred shares hold
the same voting rights as the common shares.  Warrants issued in connection with
notes payable were valued at $145,522 and was accounted for as a discount to the
notes payable to Woodland.  At December 28, 1997, the Company amortized $116,000
as interest expense.

At  December  28,  1997  dividends  in arrears  on the Series B  non-convertible
preferred stock amounted to $58,000 or $.08 per share.

At  December  28,  1997,  Woodland  owns  approximately  36%  of  the  Company's
outstanding common stock.

Mr.  Halpern  also is the  Chairman  of the  Board  of  International  Franchise
Systems,  Inc.  ["IFS"].  At December  31, 1995,  IFS had advanced  funds to the
Company in the amount of $183,635.  During 1996,  the entire  amount was repaid.
IFS charges a management fee to the Company for administration services. For the
years ended  December 28, 1997 and December  29,1996,  this  management  fee was
$45,000 and $25,000, respectively, and those amounts were charged to operations.
IFS and one of its wholly-owned  subsidiaries sublease a facility to the Company
in the United  Kingdom.  For the year ended  December 28, 1997, the Company paid
$133,449 for this facility.  During the fifty-two week period ended December 31,
1995,  IFS  transferred  motor vehicles under capital lease at the remaining net
lease value to the Company.  These motor  vehicles  were returned to the leasing
company upon  cancellation of the lease and the related asset and liability were
written off during 1996.

The Company has  advanced  funds to and paid  various  expenses on behalf of Mr.
Halpern.  During 1996, the total amount advanced to Mr. Halpern was $15,148 with
repayments of $35,000. At December 28, 1997, the total amount due to the Company
is  $31,149.  This  amount is being  offset  through  reimbursements  due to Mr.
Halpern.

                                      F-14
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7


[9] Related Party Transactions [Continued]

Mr. Halpern's son is an attorney with a law firm that provides legal services to
the Company. Legal expense incurred with this firm for the fifty-two weeks ended
December  28,  1997 was  $199,575.  At  December  28,  1997 there was a $115,000
balance due and owing by the Company to this firm.

In September 1996, the Company hired a new President.  At that time, he received
advances  from the Company of $3,014 and a loan of $100,000 from the Company for
a term of two years at 6%  interest.  At December  29,  1996,  accrued  interest
receivable and interest income on this loan was $1,000.  In 1997,  approximately
$25,000 of the loan was repaid and the  balance  of  approximately  $78,000  was
applied to his consulting agreement [See Note 16G].

The Chief Financial  Officer of the Company is also the Chief Financial  Officer
of IFS. The Company paid the Chief Financial Officer for his employment $205,000
during 1997, however, $130,000 was allocated to IFS.

[10] Provision for Income Taxes

Pursuant to United  States tax laws,  if the  Company's  subsidiaries  organized
under the laws of the UK or Australia  are not engaged in business in the United
States,  profits  of such  subsidiaries  will not be  subject  to United  States
taxation,  until distributed as dividends.  However, the Company would receive a
credit against federal income tax liability that would otherwise result from any
distributions  from its  subsidiaries  for any UK or Australian  corporate taxes
paid by its UK or Australian subsidiaries on these distributions, as well as for
any UK or Australian  dividend and royalty withholding taxes imposed directly on
the Company.

The Company had approximately  $5,921,000 of net operating losses,  which can be
used to offset future UK taxable income, arising in the same trade. Under UK tax
provisions,  there is no time limit for the utilization of net operating losses.
These net operating losses were transferred to Celebrated.

Australia tax provisions  are recorded under the liability  method of Australian
tax effect  accounting,  whereby  income tax  expense is based on the  operating
profit  before  income  tax  adjusted  for  any  permanent  differences  between
financial  reporting and taxable  income.  At December 28, 1997,  the Australian
subsidiary had recorded a deferred tax asset based on timing differences between
financial  reporting and taxable  income of  approximately  $534,000,  which was
offset by a valuation allowance of approximately $534,000.

Red Hot files a consolidated United States federal income tax return with one of
its related companies,  Red Hot Pacific. There is no income tax provision as Red
Hot  and  its  subsidiary,  Red Hot  Pacific,  incurred  a net  loss  for  1996.
Therefore,  no loss carryforward was used during 1996. In 1997, Red Hot incurred
capital  gains tax of  approximately  $1,364,000  on the sale and  merger of its
subsidiaries.  This amount was offset against its  utilization of operating loss
carryforwards.  At  December  28,  1997,  Red  Hot  had  a  deferred  tax  asset
attributable  to  its  United  States  net  operating  loss   carryforwards   of
approximately  $1,174,000,   which  was  offset  by  a  valuation  allowance  of
approximately  $1,174,000.  The  change in the  valuation  allowance  during the
fiscal year ended December 28, 1997 was approximately $540,000.

The  following  summarizes  the  operating  tax  loss  carryforwards  by year of
expiration.

                                                        Expiration Date of
    Amount in Consolidation                           Tax Loss Carryforward

       $      49,379                                    December 31, 2009
       $     437,510                                    December 31, 2010
       $   1,408,452                                    December 31, 2011
       $   1,384,173                                    December 31, 2012

                                      F-15
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8



[11] Stock Transactions

[A] Related Party Contribution - In May 1995, in connection with the filing of a
post-effective  amendment to its  Registration  Statement  changing the offering
price for the shares in its initial public  offering from $15 to $18,  Woodland,
the  holder  of all the  shares  of common  stock of the  Company,  at the time,
contributed back to the Company 316,667 shares of common stock.

[B] Initial Public Offering of Units - In August 1995, the Company completed its
initial  public  offering [the "IPO"].  In connection  with the IPO, the Company
sold 1,012,347 Units,  each Unit consisting of one share of common stock and two
common stock purchase warrants,  at $6 per Unit. Each Unit holder is entitled to
exercise the two stock purchase  warrants to purchase shares of common stock for
an eighteen month and a five year period commencing  November 1995 at $18.00 and
$36.00 per share,  respectively.  As of December  29, 1996,  1,012,347  warrants
exercisable  at $18.00 and $36.00 per share  through  December 1997 and November
2000,  respectively were outstanding.  Additionally,  the underwriter of the IPO
received  options to purchase  66,667 shares of common stock at $24.75 per share
exercisable  for a four year period  commencing  February 1996. The net proceeds
received  by  the  Company  from  the  IPO  were   $4,697,325   after  deducting
underwriting  discounts and expense  reimbursements to the underwriter  totaling
$758,158 and offering  costs of $618,599.  Additional  offering costs of $55,000
relating to this IPO were paid in 1996.

[C]  Regulation S Offering - In June,  August,  November and December  1996, the
Company  had  Regulation  S share  offerings  and  incurred  offering  costs  of
$103,252. In these offerings,  the Company sold 1,000,000 shares of common stock
at $1.20 per share,  500,000 shares of common stock at $3.00 per share,  333,333
shares of common stock at $1.50 per share and 200,000  shares of common stock at
$1.50 per share,  respectively.  In 1996, the Company issued 1,500,000 shares of
common stock for net proceeds of $2,596,748.

In December of 1996,  the Company  received  $800,000  for stock to be issued in
1997 for 1996 stock  subscriptions.  On January 23,  1997,  the  Company  issued
333,333 shares of the 533,333 unissued shares of stock sold under a Reg. S share
offering.  As of December  28,  1997,  the Company has not issued the  remaining
200,000  shares of stock to two  entities  because the Company is  currently  in
dispute  with the  subscribers  regarding  the price to be paid.  For  financial
reporting  purposes,  the Company has calculated the earnings per share with the
assumption that the 200,000 disputed shares had been issued.

[D]  Conversion  of Related Party Debt to Preferred  Stock - In March 1997,  the
Company  agreed  with  Woodland  Limited  Partnership  to  convert  $750,000  of
long-term  debt to  100,000  shares  of $1.00  par  value  Series A  convertible
preferred shares.  On September 25, 1997,  Woodland agreed to exchange its $1.00
par value  convertible  preferred  shares to  375,000  $2.00 par value  Series B
non-convertible preferred shares.

On September  25, 1997,  Woodland  agreed to convert an  additional  $700,000 of
notes  payable into 350,000 $2.00 par value Series B  non-convertible  preferred
shares.  The agreed dividend is 8% and is cumulative.  The preferred shares hold
the same voting rights as the common shares.  Warrants issued in connection with
notes payable were valued at $145,522 and was accounted for as a discount to the
notes payable to Woodland.  At December 28, 1997, the Company amortized $116,000
as interest expense.

At  December  28,  1997  dividends  in arrears  on the Series B  non-convertible
preferred stock amounted to $58,000 or $.08 per share.

[E] Reverse Stock Split - On November 26, 1997, the Company's Board of Directors
approved a 3 for 1 reverse stock split.  The par value of the shares remained at
$.01 per share. The financial  statements have been  retroactively  adjusted for
this split.

                                      F-16
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9



[12] Stock Transactions of Subsidiary

In September  1996,  Red Hot Pacific issued 53 shares of common stock to Brinker
in connection with a guaranty agreement valued at $1 [See Note 16C].

The above  issuance  reduced Red Hot  ownership  of Red Hot Pacific from 100% to
95%.  As a result  of this  stock  transaction  and  related  liability  for the
guaranty  agreement [See Notes 6 and 16C] Red Hot reduced its additional paid-in
capital by $2,488 in consolidation.

[13] Stock Options and Warrants

[A] Stock  Options - The 1996  Non-Employee  Directors  Stock  Options  Plan was
amended January 1, 1997. The 1995 Stock Plan was terminated  effective  December
31,  1996 and  replaced  by the 1996  Stock  Incentive  Plan  which was  adopted
effective August 1, 1996.

Pursuant to the Stock Plan,  officers  and key  employees  of the  Company,  are
eligible  to receive  awards of stock  options  [with or without  limited  stock
appreciation  rights].  Options  granted  under the Stock Plan may be "incentive
stock options" ["ISO"], or non-qualified  stock options ["NQSO"].  Limited Stock
Appreciation Rights ["LSARs"] may be granted simultaneously with the grant of an
option or [in the case of NQSOs] at any time during its term.

The Company has reserved  266,666  shares [in  reflection  of the  three-for-one
reverse  stock  split] of its common stock for issuance of awards under the 1996
Stock Plan and 100,000  shares of common stock under the Director  Plan [subject
to  anti-dilution  and  similar  adjustments].  Under  the  Director  Plan,  any
non-employee  member of the Board of Directors is  automatically  granted a NQSO
for 1,666 shares [in reflection of the three-for-one reverse stock split] on the
first  business  day of January,  April,  July and  October of each year.  These
options vest after one year. Under the Consultants  Plan, either stock or NQSO's
can be granted to eligible consultants and advisors.

The 1996 Stock Plan,  Director  Plan [as amended] and the  Consultants  Plan are
administered  by a committee  [the  "Committee"],  established  by the Company's
Board of  Directors.  Subject to the  provisions  of the 1996 Stock Plan and the
Consultants  Plan, the Committee  determines the type of award, when and to whom
awards will be  granted,  and the number of shares  covered by each  award,  the
terms,  provisions and kind of  consideration  payable [if any], with respect to
awards under these two Plans. In addition,  the Committee has sole discretionary
authority  to  interpret  all  three  Plans and to adopt  rules and  regulations
related thereto.

An option may be granted under the 1996 Stock Plan and the  Consultants  Plan on
such terms and  conditions as the  Committee  may approve,  and generally may be
exercised  for a period  of up to 10 years  from the date of  grant.  Generally,
options will be granted under the Stock Plan with an exercise price equal to the
"Fair Market Value" [as defined in the Plan] on the date of grant.  The exercise
price for options  granted under the  Consultants  Plan may not be less than 60%
"Fair Market  Value" [as defined in the Plan] on the date of grant.  In the case
of ISOs  granted  under the Stock  Plan,  certain  limitations  will  apply with
respect to the aggregate value of option shares which can become exercisable for
the first time during any one calendar year, and certain additional  limitations
will apply to "Ten Percent  Stockholders"  [as defined in the Stock  Plan].  The
Committee may provide for the payment  resulting from the exercise of the option
in cash,  by delivery of other  common  stock  having fair market value equal to
such option price or by a combination thereof.

                                      F-17
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10


[13] Stock Options and Warrants [Continued]

An option  granted  under the 1996 Stock Plan or the  Consultants  Plan shall be
exercisable at such time or times as the  Committee,  in its  discretion,  shall
determine, except that no stock option shall be exercisable after the expiration
of ten years [five years in the case of an incentive  stock option  granted to a
"Ten  Percent  Employee",  as  defined  in the Stock  Plan] from the date of the
grant.  The Stock Plan contains  special rules governing the time of exercise in
the case of  death,  disability  or other  termination  of  employment  and also
provides for acceleration of the  exercisability  of options upon certain events
involving a change in control of the Company. Options granted under the Director
Plan are  exercisable  one year  after  the  grant is made for a period  of nine
years.  The Director Plan also contains  special  exercise rules in the event of
death or other termination.

The Company's  Board of Directors may at any time and from time to time suspend,
amend,  modify or terminate the Plans.  However,  to the extent  required by the
Securities Exchange Act of 1934 or other applicable law, no such amendment shall
be  effective  unless  approved  by the  holders of a majority of the issued and
outstanding  securities of the Company  entitled to vote.  In addition,  no such
change may  adversely  affect any option  previously  granted,  except  with the
written  consent  of the  optionee  to be made to extent  inconsistent  with the
Securities laws or other applicable law.

Information pertaining to stock options as of December 28, 1997 and December 29,
1996 for the Company and for the years then ended is as follows:
<TABLE>
<CAPTION>
                                                                                                            Weighted
                                                                                                             Average
                                                                            Weighted        Exercisable     Remaining
                                                         Common              Average           Stock       Contractual
                                                         Shares          Exercise Price       Options         Life
<S>                                                         <C>              <C>           <C>              <C>       
Options Outstanding - December 31, 1995*                        --    $        --              --                --

Options Granted - Directors Plan                            16,666           7.77              --           9.50 years
Options Granted - Stock Plan                               101,033           5.61              --            9.6 years
Options Granted - Non-Qualified                             80,000           5.64              --            9.6 years
Options Exercised                                               --             --              --                --
Options Canceled                                                --             --              --                --
                                                       -----------

Options Outstanding - December 29, 1996*                   197,699           5.82              --                --

Options Granted - Directors Plan                            20,000           4.98              --           9.50 years
Options Granted - Stock Plan                                19,333           3.38              --            9.6 years
Options Granted - Non-Qualified                              7,000           5.62              --            9.6 years
Options Exercised                                               --             --              --                --
Options Canceled                                          (186,361)            --                                --
                                                       -----------

   Options Outstanding -December 28, 1997                   57,671    $      3.53
   --------------------------------------              ===========
</TABLE>
   * As adjusted to reflect three-for-one reverse stock split.

                                      F-18
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11

[13] Stock Options and Warrants [Continued]

No  compensation  cost was  recognized  in income  under any of the stock option
plans.

Had  compensation  cost been  determined on the basis of fair value  pursuant to
SFAS No. 123, net income and earnings per share would have been as follows:

                                                       Years ended
                                                       December 31,
                                             1 9 9 7                  1 9 9 6
Net Income [Loss]:
   As Reported                                $2,121,893            $(6,294,829)
                                      ==================          =============

   Pro Forma                                  $2,077,340            $(6,780,179)
                                      ==================          =============

Net Income [Loss] Per Share:
   As Reported                                      $.58                 $(2.73)
                                      ==================          =============

   Pro Forma                                        $.58                 $(2.94)
                                      ==================          =============

At the grant dates,  the weighted  average fair value of the above options under
the Director  Plan,  Stock Plan and  Non-Qualified  Stock Plan for the fifty-two
week period ended December 28, 1997 were $.35, $.91 and $.93, respectively.

The fair  value  used in the pro  forma  data was  estimated  by using an option
pricing model which took into account as of the grant date,  the exercise  price
and the expected life of the option,  the current price of the underlying  stock
and its expected  volatility,  expected dividends on the stock and the risk-free
interest rate for the expected term of the option. The following is the weighted
average of the data used for the following items.

          Risk-Free             Expected              Expected        Expected
        Interest Rate             Life               Volatility       Dividends

            5.86%                5 Years               81.99%             --

[B]  Common  Stock  Purchase  Warrants - As of  December  28,  1997,  there were
1,012,347 Class B warrants outstanding, which were issued in August 1995 as part
of a public offering. Holders of 1,012,347 Class A warrants, also issued as part
of the public  offering,  were entitled to purchase one share of common stock at
$18.00 per share until December 31, 1997. The Class A warrants  expired  without
exercise.  Holders of each Class B warrant are entitled to purchase one share of
common  stock at $36.00 per share  until  November  30,  2000 [See Note 11].  No
warrants were  exercised  during the fifty-two  week periods ended  December 28,
1997 or December 29, 1996.

                                      F-19
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12



[15] Operations by Geographic Area

The summary of financial  information for the Company's operations by geographic
area is as follows:

For the fifty-two weeks ended December 28, 1997:
<TABLE>
<CAPTION>
                                      United           United
                                      States           Kingdom        Australia     Eliminations      Consolidated
<S>                              <C>              <C>             <C>              <C>              <C>            
Revenues                         $            --  $    5,102,299  $     6,008,975  $           --   $    11,111,274
Gross Margin [Loss]              $    (1,175,659) $    2,152,653  $     1,318,687  $           --   $    (2,244,954)
Net Income [Loss]                $    (2,095,750) $     (403,754) $      (700,380) $           --   $     2,110,849
Assets                           $     6,664,605  $           --  $       314,638  $           --   $     5,781,614
Liabilities                      $       885,002  $           --  $     1,457,320  $           --   $     1,548,447
Company's Investment in
   Foreign Subsidiaries          $     5,375,790  $           --  $            --  $           --   $     5,375,790

For the fifty-two weeks ended December 29, 1996:

                                      United           United
                                      States           Kingdom        Australia     Eliminations      Consolidated

Revenues                           $          --  $    4,111,276  $     5,327,463  $           --   $     9,438,739
Gross Margin [Loss]                $          --  $     (772,127) $       621,347  $           --   $      (150,780)
Net Loss                           $  (1,446,063) $   (4,886,761) $        37,995  $           --   $    (6,294,829)
Assets                             $   9,467,397  $    4,870,430  $     2,345,930  $   (8,926,620)  $     7,757,137
Liabilities                        $   2,248,248  $    4,661,411  $     2,256,568  $   (2,638,551)  $     6,527,676
Company's Investment in
   Foreign Subsidiaries            $   6,371,300  $           --  $            --  $   (6,371,300)  $            --
</TABLE>

[16] Commitments

[A]  Guaranty  Agreement  - In  September  1996,  the  Company  entered  into an
agreement  with Brinker  pursuant to which  Brinker  agreed to  guaranty,  under
certain  circumstances,  a minimum of five and up to 12 leases for properties in
the Territory developed as Chili's Restaurants.

Brinker was issued 53 shares of stock of the Company's subsidiary  [representing
5% of the  outstanding  shares] in connection with the Guaranty  Agreement.  The
Guaranty  Agreement  was valued at $497,181,  which was the net present value of
the obligation under the Guaranty Agreement. The unamortized balance at December
19, 1997 was $447,463 [See Note 5].

The  Guaranty  Agreement  was  terminated  with the Company upon the sale of the
Australia/New Zealand development rights to Brinker on December 19, 1997.

[B] Employment  Agreements - In 1996, the Company had entered into an employment
agreement  with one officer.  The agreement was for a 2 year term with aggregate
compensation  of $144,000,  including  incentive  stock options.  This agreement
expired at December 31, 1997.

[C] Letter of Credit - At December  28, 1997, a letter a credit in the amount of
$110,000  had been  issued on the  Company's  behalf,  and is  secured by a cash
account, which is restricted on the balance sheet.

                                      F-20
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13


[16] Commitments [Continued]

[D] Rental Guaranty - The National  Australia Bank had a bank guarantee covering
the lease on one restaurant in the amount of approximately $105,000. This was in
turn covered by a stand-by  letter of credit from Brinker.  If the bank calls in
payment for this guaranty,  the bank would call upon the  Australian  subsidiary
first,  and then the  Brinker  letter of credit.  Red Hot was  released  of this
obligation in December 1997.

[E] Consulting Agreement - On May 1, 1997, the Company entered into a consulting
agreement  with the former  president  of the Company for a period of six months
for  $30,000.  This  agreement  expired upon the sale of the assets in Australia
[See Note 18]. The Company had the right to offset any compensation owed to this
individual against a note with a balance of $81,212 owed to the Company.

[17] New Authoritative Accounting Pronouncements

The  Financial  Accounting  Standards  Board  ["FASB"]  has issued SFAS No. 130,
"Reporting  Comprehensive  Income."  SFAS No. 130 is effective  for fiscal years
beginning   after   December  15,  1997.   Earlier   application  is  permitted.
Reclassification  of  financial  statements  for earlier  periods  provided  for
comparative  purposes  is  required.  SFAS  No.  130 is not  expected  to have a
material impact on the Company.

The FASB has issued SFAS No. 131,  "Disclosures  About Segments of an Enterprise
and  Related  Information."  SFAS No. 131  changes how  operating  segments  are
reported in annual  financial  statements and requires the reporting of selected
information  about  operating  segments in interim  financial  reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December 15,
1997, and comparative  information for earlier years is to be restated. SFAS No.
131 need not be applied to interim  financial  statements in the initial year of
its  application.  SFAS No. 131 is not expected to have a material impact on the
Company.

[18] Sale of Rights in Chili's Restaurants

From November 1995 until December 18, 1997, the Company had the exclusive  right
to own and operate Chili's  Restaurants in Australia and New Zealand pursuant to
a Development  and Franchise  Agreement with Brinker.  On December 18, 1997, the
Company  sold the assets of CTG and the  Chili's  Concept in  Australia  and New
Zealand to Brinker International, Inc. ["Brinker"] for $2,680,000. The Company's
counsel  advised  the  Company  that this  transaction  did not  require Red Hot
Concepts' shareholder approval. The Company used $1,347,100 of proceeds to repay
the Brinker loan and used approximately $700,000 to pay a related party debt.

The obligation  under this agreement was  transferred to Brinker on December 19,
1997,  therefore,  the  Company  no longer has the  exclusive  rights to operate
Chili's restaurants in the UK or Australia.

The  Company's  net value of these assets on December  18, 1997 was  $1,189,984.
Therefore, a gain of $1,490,016 was recognized on this transaction.

The parent  company  has agreed not to  withdraw  support by way of loans to the
detriment of the Australian's economic entity's solvency or other creditors.

                                      F-21
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #14

[19] Merger with Celebrated

The Company had the exclusive  right to own and operate  Chili's  Restaurants in
the UK pursuant to an amended  development  and license  agreement with Brinker.
During 1997, the Company operated two Chili's restaurants in the UK. On December
15, 1997, the Company  completed the merger of its  wholly-owned  United Kingdom
subsidiary,  Restaurant  House Limited with and into the  Celebrated  Group Plc.
pursuant to an agreement  dated November 18, 1997.  Company  counsel advised the
Company  that the  transaction  did not  require  Red Hot  Concepts  shareholder
approval.  Pursuant to the merger agreement,  the Company sold all of the issued
and  outstanding  stock  of  Restaurant  House to  Celebrated  in  exchange  for
28,000,000 shares of Celebrated.  Upon  consummation of the merger,  the Company
owns approximately 45.6% of Celebrated and is accounted for on the equity method
as the Company does not have  financial or  operational  control of  Celebrated.
This  investment  was valued at  $5,375,790 at December 28, 1997. As part of the
merger, the Company received options to purchase an additional  6,000,000 shares
of Celebrated upon exercise of which the Company would own approximately  50.51%
of the outstanding  shares of Celebrated.  At December 28, 1997, the Company did
not have the  financial  resources  to exercise  the  options for the  6,000,000
shares of Celebrated  for a total cost of  approximately  $1,200,000 nor did the
Company  have  viable  plans to obtain  the  financial  resources  necessary  to
exercise these options.

The Company's  exclusive  development  rights for Chili's  restaurants in the UK
transferred  to Celebrated in the merger.  As of December 28, 1997,  the Company
has no obligation under the Agreement.

The  Company's  basis in  Restaurant  House  Limited at  December  15,  1997 was
$1,996,270, therefore, a gain of $3,379,250 was realized on this transaction.

[20] Subsequent Events

[A] Employment Agreement - In March 1998, the principal financial officer of the
Company assumed the Chief Executive Officer and Chief Financial Officer roles at
Celebrated,  in addition to retaining his principal  financial  officer position
with the Company.

[B]  Extension of Due Date of Related Party Payable - On May 18, 1998, a related
party agreed to extend the Company's  obligation of $1,011,318  that becomes due
in June of 1998 until January of 1999.  There was no  compensation  for granting
this extension.

[C]  Additional  Related  Party  Advances - In the first  quarter  of 1998,  the
Company received additional cash advances from a related party of $285,100.

                              . . . . . . . . . . .


                                      F-22