21

                                  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 27, 1998

 ---         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. 33-86166

                             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. 
                                     $0.00

     As of April 1, 1999, the aggregate market value of the Registrant's  Common
Stock held by non-affiliates of the Registrant was $1,424,430.


     As of April  1,  1999,  there  were  3,420,725  shares  outstanding  of the
Registrant's Common Stock.


                                       2
<PAGE>
                                TABLE OF CONTENTS


ITEM                                                                        PAGE
                                     PART I

1.   Business................................................................ 4
2.   Properties.............................................................. 6
3.   Legal Proceedings....................................................... 6
4.   Submission of Matters to a Vote of
     Security Holders........................................................ 6


                                     PART II

5.   Market for the Registrant's Common
     Equity and Related Stockholder
     Matters................................................................. 8
6.   Management's Discussion and Analysis
     of Financial Condition and Results
     of Operations........................................................... 9
7.   Financial Statements....................................................13
8.   Changes in and Disagreements with
     Accountants on Accounting and Financial
     Disclosure..............................................................13


                                    PART III

9.   Directors and Executive Officers
     of the Registrant.......................................................14
10.  Executive Compensation..................................................15
11.  Security Ownership of Certain Beneficial
     Owners and Management...................................................16
12.  Certain Relationships and Related
     Transactions............................................................17
13.  Exhibits and Reports on Form 8-K........................................19
     Signatures..............................................................21


                                       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's  Restaurant
in the United  Kingdom,  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 28,000,000  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 these options
the  Company  would  own  approximately  50.51%  of the  outstanding  shares  of
Celebrated.  Celebrated is publicly traded on the Alternative Index Market (AIM)
of the London Stock Exchange.

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.
Woodland Limited  Partnership owns 100% of Class A Convertible  Preferred Stock,
as well as, 100% of Class B Non Convertible  Preferred Stock. Upon amendment and
restatement of the Series A Convertible  Preferred Stock and exchange of Class B
Non-Convertible Preferred Stock into the Class A Convertible Preferred Stock, as
discussed further in item 12, Woodland would own 56.94% of the common shares.

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  

                                       4

<PAGE>

shareholders.  Celebrated's shares trade on the Alternative Investment Market of
the London Stock Exchange.

As of December  27,  1998,  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 1998 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. The hotel was being held for sale with an asking
price of approximately $3.3 million.  As of year end 1998,  Celebrated owned and
operated 10 restaurants.

The  following is a brief  description  of  Celebrated's  restaurant  operations
during 1998:

         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, 1998, Celebrated owned and operated six (6) of these restaurants
in the London, Manchester and Liverpool areas.

         During  1998,  Celebrated  introduced  significant  changes in menu and
upgraded  staff  training,  operating  standards  and  personnel in its Starvin'
Marvin's  diners in an effort to  reverse  losses,  improve  sales and  increase
operational  efficiencies.  Positive  sales trends were realized in 1998. No new
openings occurred in 1998. To further reduce losses,  the company sold one under
performing unit and closed another.

         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  1998,   Celebrated  operated  one  (1)  of  these  units,  located  in
Manchester, England.

         In December  1997, a dispute with the  landlord  over trading  patterns
prompted the company to modify its operations of the business.  Restaurant sales
at the site fell off  abruptly.  Once  resolved the business  improved from June
1998 until the year end with  average  weekly  sales of  approximately  $35,000.
Celebrated does not intend to expand the concept.

         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 consist 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.

                                       5
<PAGE>
         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  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 was 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 1998,  Celebrated had open and operating three Chili's Restaurants.  In
February 1999,  Celebrated opened its fourth Chili's restaurant.  Celebrated has
begun  negotiating on two additional  restaurant  sites upon which it intends to
develop  restaurants  during 1999.  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.

Average weekly sales in the Cambridge Chili's for 1998 are $63,000,  as compared
to 1997  weekly  sales of $62,000.  Average  weekly  sales for the Canary  Wharf
Chili's for 1998 are $57,700, as compared to $49,000 for 1997.

Celebrated did not pay a dividend in 1998 but used the cash for reinvestment and
the expansion of Chili's.


Item 2.   Properties

The  Company  also   subleases   its  US  office  from  a  related  party  on  a
month-to-month lease. The total for this facility is $768.00 per month.


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 Holders

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 27, 1998.


                                       6
<PAGE>

Item 4A.  Executive Officers of the Registrant

The executive officers of the Company are as follows:


         Name                  Age      Position

         Colin Halpern         62      President
         H. Michael Bush       44      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 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.

H.  Michael  Bush has served as Chief  Financial  Officer and  Secretary  of the
Company since November 1995. Mr. Bush also currently  serves as Chief  Executive
Officer of the  Celebrated  Group Plc,  since  February 1998. Mr. Bush served as
President and Chief Financial Officer of International  Franchise Systems,  Inc.
from December 1995 through October 1998. 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.



                                       7
<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:

                                                  1999*
                                                  -----
                                    Common                     Units
                               High           Low         High         Low

         First Quarter        $1.1875       $0.4062       Unit Not Traded

                                                  1998*
                                                  -----
                                    Common                     Units
                               High           Low         High         Low

         First Quarter        $3.125          $2.25       Unit Not Traded
         Second Quarter         2.75           1.25       Unit Not Traded
         Third Quarter         2.625           1.45       Unit Not Traded
         Fourth Quarter         2.75           0.50       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


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

                                       8

<PAGE>

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 dependent  upon the receipt
of dividends from  Celebrated.  The Company does not anticipate  that Celebrated
will pay dividends in 1999.

Number of Stockholders
As of April 1, 1999,  there were 82 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.


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

Introduction

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's  Restaurant
in the United  Kingdom,  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 28,000,000  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 these options
the  Company  would  own  approximately  50.51%  of the  outstanding  shares  of
Celebrated.  Celebrated is publicly traded on the Alternative Index Market (AIM)
of the London Stock Exchange.

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 

                                       9
<PAGE>

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.  Woodland  Limited  Partnership  owns 100% of
Class A Convertible Preferred Stock, as well as, 100% of Class B Non Convertible
Preferred  Stock.  Upon  amendment and  restatement  of the Series A Convertible
Preferred Stock and exchange of Class B Non-Convertible Preferred Stock into the
Class A Convertible  Preferred Stock, as discussed  further in item 12, Woodland
would own 56.94% of the common shares.

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.

Since the merger in December 1997 Celebrated opened its third Chili's restaurant
in October  1998 and opened its fourth  Chili's  restaurant  in  February  1999.
Celebrated  Group is currently  negotiating two additional  stores which will be
open and operating before the year end of 1999. That will bring the total number
of Chili's restaurants operated by Celebrated Group to six.

Results of Operations

The Company realized a net loss of approximately  $2.6 million for the fifty-two
week period ended  December 27, 1998.  This was  attributable  to a $2.1 million
loss  from the  Celebrated  Group  and  continuing  general  and  administrative
expenses of the company of $0.5 million including interest expense.  The company
net income for 1997 was  approximately  $2.1  million.  The main  reason for the
reduction in income is that in 1997 the company sold the  Australian  Chili's to
Brinker realizing a $1.5 million gain, as well as merging  Restaurant House with
Celebrated Group for a net gain of $3.4 million.

At the present time the company is  evaluating  its assets to determine the best
way to increase  shareholder value. The following table sets forth expenses as a
percentage of total revenue earned at Chili's Grill and Bar  restaurants for the
period ended December 27, 1998 and for the period ended December 28, 1997.

                                            1998                  1997
                                            ----                  ----
                                            CHILI'S              CHILI'S
                                               UK                   UK
Revenues                                     100%                  100%
Costs and Expenses
     Food & Beverage                          31%                   32%
     Restaurant Labor                         19%                   19%
     Restaurant Expense                       12%                   12%
     Royalties                                 2%                    2%
     Fixed Restaurant Expense                 11%                   11%
                                            -----                 -----
Total Costs and Expenses                      75%                   76%
Gross Margin (Loss)                           25%                   27%
General & Administrative                      10%                   23%
Depreciation/Amortization                      7%                    7%
Operating Income (Loss)                        8%                  ( 6%)
Other Income (Expense)                         0%                   (2%)
                                            -----                 -----
Net Income Before Sale
Of Subsidiary/(Loss)                           8%                   (8%)

                                       10
<PAGE>

Comparison of the Fifty-Two Week Period Ended December 27, 1998 and December 28,
1997.

                                          1998                       1997
         Revenues                      $6,316,365                $5,102,299
         Operating Income/(Loss)          505,560                  (312,147)



United Kingdom

Revenues
Revenues for the three  restaurants as of December 27, 1998 totaled $6.3 million
as  compared to $5.1  million in 1997.  The  significant  increase in revenue of
approximately $1.2 million was principally  related to operational  improvements
in the restaurants. During 1998, and the opening of the third Chili's restaurant
in October  1998.  The Company  emphasized  adherence to Brinker  standards  and
procedures,  training, customer awareness and implemented a market plan focusing
on food  shots to create  brand  identity  of  Chili's  Grill & Bar.  All of the
changes,  in  complement  with a new menu  rollout,  resulted  in an increase in
average weekly sales for 1998 of approximately 15%.

Cost and Expenses
Restaurant cost of food, labor, variable and fixed expenses totaled $4.7 million
for the period ended December 27, 1998.  This is an increase of $0.5 million for
the year ended  December 27,  1998.  The  increase  was  principally  related to
increase  revenues in 1998 versus 1997.  Food costs as a  percentage  of revenue
fell from 32% in 1997 to 31% in 1998 as the Company  improved  purchasing  power
through economics of scale and sourcing more products locally.  Labor costs as a
percentage  of revenue  remained the same 19% in 1998 as the Company  maintained
its  level  of work  productivity.  Restaurant  expense  and  fixed  costs  as a
percentage of revenue  remain  constant at 23% for 1998. In 1998,  percentage of
fixed cost remained 11% due to the opening of the new restaurant. The fixed cost
of the new location offset a reduction in the original locations.

General and Administrative Expense
The total cost of general and  administrative  expenses for the fifty-two  weeks
ended December 27, 1998 were $630,000 or approximately 10% of revenues.  General
and  administrative  costs in 1997 were $1.1  million  or 23% of  revenues.  The
administrative costs to run the three 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.

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.

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.

                                       11
<PAGE>

The Company

The Company's negative working capital as of December 27, 1998 was approximately
$146,000 as compared to  negative  working  capital of $168,000 on December  28,
1997.  Total  current  assets were  $68,693 on December 27, 1998 and $368,454 on
December 28, 1997. Current  liabilities  decreased by approximately  $322,000 in
1998 to $215,000 from $537,000 in 1997.  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 29, 1997   December 30, 1996
                                                  to                  to
                                         December 27, 1998   December 28, 1997
                                            In Thousands        In Thousands
Net cash (used) in operating activities       $ (641)             $ (1,709)
Cash (used) in investing                      (    0)             (     21)
Cash provided by financing                       544                 1,414


During the fiscal year ended December 27, 1998,  the company used  approximately
$641,000 for operating  activities and for the year ended December 28, 1997, the
Company used  approximately $1.7 million for operating  activities.  The Company
had a net gain of  approximately  $2.1million  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.

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 month to month lease for its U.S. corporate office.

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 of approximately $30,000.

On  December  27,  1998 the company  converted  $1,500,000  of loans and accrued
interest from a related  party,  into 100,000  shares of Series A Convertible 8%
Preferred Stock. The Company's Board of Directors approved this agreement.

                                       12

<PAGE>
The company intends to amend and restate the Series A Preferred Stock terms. The
company  will  authorize  an  additional  1,900,000  shares.  The then  total of
2,000,000 shares will be changed to $2.00 par value. The agreed dividend will be
8% and will be  cumulative.  The shares will have a  liquidation  preference  of
$2.00 plus an amount equal to an imputed  dividend of 8% per annum. In addition,
the shares will be convertible into 1.1 common shares for each preferred share.

After  amendment  of the  Series A  Preferred  Stocks,  Woodland  has  agreed to
exchange its 725,000  shares of Series B  Non-Convertible  Preferred  Stocks for
725,000  shares of Series A Preferred  Stocks.  In addition,  100,000  shares of
Series A Convertible Preferred Stocks will be amended to 750,000 shares of $2.00
par value Series A Preferred Stocks.

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 1999.  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

Moore  Stephens,  P.C. were  previously  the principal  accountants  for Red Hot
Concepts, Inc. On April 9, 1999, that firms appointment as principal accountants
was terminated. The decision to terminate was approved by the board of directors
on April 6,  1999.  In  connection  with the audits of the  fiscal  years  ended
December 28, 1997 and the subsequent interim period, there were no disagreements
with Moore Stephens,  P.C. on any matter of accounting  principles or practices,
financial  statement  disclosures,  or  auditing  scope  or  procedures,   which
disagreements  if not resolved to their  satisfaction  would have caused them to
make  reference  in  connection  with  their  opinion  to  the  subject  of  the
disagreement.

The  audit  reports  of  Moore  Stephens,  P.C.  on the  consolidated  financial
statements of Red Hot Concepts,  Inc. and  subsidiaries  as of and for the years
ended  December  28, 1997 and  December  29,  1996,  did not contain any adverse
opinion or  disclaimer  of opinion,  nor were they  qualified  or modified as to
uncertainty, audit scope, or accounting principles other than the uncertainty as
to the ability of the company to continue as a going concern.

On April 6, 1999,  Red Hot  appointed  Wayne P.  Hickey,  P.C. to replace  Moore
Stephens,  P.C.  as their  independent  auditors  of Red Hot for the fiscal year
ended December 27, 1998.

The  company  has  agreed to provide  indemnification  to Moore  Stephens,  P.C.
subject to certain conditions,  for legal and other costs that might be incurred
in  defending  itself  in the  event  of  threatened  or  actual  litigation  in
connection with the resources of its auditors report on the financial  statement
of the company.

                                       13
<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 62, 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., a 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 44, 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,  Mr.  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 61,  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.

                                       14
<PAGE>

Aaron L. Lebedow,  age 63, 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  27, 1998 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>
Colin Halpern             1998(3)       72,000           0              27,238            0                    0            0
President(3)              1997(3)       72,000        10,000            27,238            0                3,332            0
                          1996          72,000           0              15,840            0                1,666            0

H. Michael Bush           1998          37,333           0                 0              0                    0            0
Chief Financial Officer,  1997          66,667        10,000               0              0                    0            0
Secretary                 1996          50,000        10,000               0              0               30,000            0


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

(2) For 1998,  Colin Halpern's  compensation  includes $15,840 car allowance and
$7,443 for insurance and for 1997 includes  $15,840 car allowance and $7,443 for
insurance and for 1996 includes $15,840 car 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.
</FN>
</TABLE>


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 1998 and held at the end of fiscal year 1998.

                        Option Grants in Last Fiscal Year

                                Individual Grants

  Name   Options   % of Total Options Granted    Exercise or     Expiration Date
         Granted   to Employees in Fiscal Year   Base Price(1)
         (#)(1)
                              None

                                       15
<PAGE>

(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              3,332               1,666              $ --               $ --
H. Michael Bush                  0               0             19,999              10,001              $ --               $ --

<FN>
(1) Represents the difference  between the option exercise price and the closing
market price for the Company's Common Stock.
</FN>
</TABLE>

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 1998,  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 1998, 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.


Item 11.    Security Ownership of Certain Beneficial Owners and Management

The table below sets forth certain information as of April 1, 1999 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, 1999, 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.

                                       16

<PAGE>

Names and Address of                  Amount and Nature of         Percentage of
  Beneficial Owner                    Beneficial Ownership             Class 

Woodland Limited Partnership(1)             1,245,833                   36%
1301 K Street, NW, Suite 1100
Washington, DC  20005

Colin Halpern                                  23,332(2)                  *

Robert P. Flack                                21,666(2)                  *

Aaron L. Lebedow                               20,000                     *

All directors and officers
as a group (3 persons)                         64,998(2)                  *

*   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, 1999.


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 included  accrued  interest
payable of  $230,065.  This note was due in June 1998.  In May 1998 the due date
was extended to January 1999. During 1998, additional funds were advanced to the
company from  Woodland of $488,683  including  accrued  interest for the current
period. The total of these amounts for 1997 and 1998,  totaling  $1,500,000 were
converted  to  100,000  shares of Series A  Convertible  8%  Preferred  Stock at
December 27, 1998.

The company intends to amend and restate the Series A Preferred Stock terms. The
company  will  authorize  an  additional  1,900,000  shares.  The then  total of
2,000,000 shares will be changed to $2.00 par value. The agreed dividend will be
8% and will be  cumulative.  The shares will have a  liquidation  preference  of
$2.00 plus an amount equal to an imputed  dividend of 8% per annum. In addition,
the shares will be convertible into 1.1 common shares for each preferred share.

After  amendment  of the  Series A  Preferred  Stocks,  Woodland  has  agreed to
exchange its 725,000  shares of Series B  Non-Convertible  Preferred  Stocks for
725,000  shares of Series A Preferred  Stocks.  In addition,  100,000  shares of
Series A Convertible Preferred Stocks will be amended to 750,000 shares of $2.00
par value Series A Preferred Stocks.

                                       17
<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  $1.00 par value  Series A  convertible
preferred shares.  On September 25, 1997,  Woodland agreed to exchange its $1.00
par value Series A  non-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.  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.

On December 27, 1998, Woodland agreed to convert $1,500,00 working capital loans
and accrued  interest,  as well as,  725,000  shares of $2.00 Par Value Series B
Non-Convertible  8%  Preferred  Stock into  1,475,000  shares of $2.00 Par Value
Series B  Convertible  8%  Preferred  Stock.  The agreed  dividend  is 8% and is
cumulative.

At  December  27,  1998,  dividends  in arrears on the Series B  Non-Convertible
Preferred Stock amounted to $174,000 or $0.24 per share.

Mr.  Halpern  also is the  Chairman  of the  Board  of  International  Franchise
Systems,  Inc.  ["IFS"].  IFS  charged  a  management  fee  to the  Company  for
administrative services for the year ended December 28, 1997 of $45,000. 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. The remaining amount was assumed by Celebrated Group.

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 27, 1998 and  December 28, 1997,  the total
amount due to the Company is $31,149.

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  27,  1998 was  $32,000.  At  December  27, 1998 there was a balance of
$94,500 due and owing by the Company to this firm.

The Chief Financial  Officer of the Company was also the Chief Financial Officer
of IFS until October 1998.  For the year ended  December 28, 1997 the charge for
his services was $130,000 and was allocated between the two companies. The Chief
Financial  Officer of the  company is also is Chief  Financial  Officer  and the
Chief Executive Officer of the Celebrated Group, Plc.

                                       18

<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

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

                                       19

<PAGE>

         (*)   Filed herewith.
         (**)  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

(b)      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



                                       20
<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:  April 21, 1999 


          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              April 21, 1999
----------------------      (Chief Executive Officer)
Colin Halpern          


/s/H. Michael Bush          Chief Financial Officer             April 21, 1999
----------------------      and Secretary (Principal
H. Michael Bush             Financial and Accounting
                            Officer


/s/Robert Pace Flack        Director                            April 21, 1999
----------------------
Robert Pace Flack

/s/Aaron L. Lebedow         Director                            April 21, 1999
----------------------
Aaron L. Lebedow


                                       21

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

INDEX TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


                                                                            Page

Independent Auditor's Report..........................................F-1...F-2

Consolidated Balance Sheet as of December 27, 1998....................F-3...F-4

Consolidated Statements of Operations for the fifty-two weeks ended
December 27, 1998 and December 28, 1997...............................F-5

Consolidated Statements of Stockholders' Equity for the period 
December 28, 1997 to December 27, 1998................................F-6

Consolidated Statements of Cash Flows for the fifty-two weeks ended
December 27, 1998 and December 28, 1997...............................F-7...F-8

Notes to Consolidated Financial Statements............................F-9...F-22





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




<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 27, 1998,  and the related
consolidated  statement of operations,  stockholders' equity, and cash flows for
the fifty-two week period ended December 27, 1998. These consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  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 27, 1998,  and the
consolidated  results of their operations and their cash flows for the fifty-two
week period ended  December 27, 1998,  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  $641,144 in cash for operations;  and have a working
capital deficit of $146,373 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.






                                                    WAYNE P. HICKEY, P. C.
                                                    Certified Public Accountant.

Bohemia, New York
April 10, 1999


                                      F-1
<PAGE>
                          INDEPENDENT AUDITOR'S REPORT

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


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

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  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  audit
provides a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Red Hot Concepts,  Inc. and its subsidiaries for the fifty-two
week period ended  December 28, 1997,  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.  The December 28, 1997 consolidated  financial  statements of Red
Hot  Concepts,   Inc.  and  its  subsidiaries   reflect  recurring  losses  from
operations;  utilization  of  $1,709,064 in cash for  operations;  and 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 Accountant.

Cranford, New Jersey
May 22, 1998


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

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 27, 1998
--------------------------------------------------------------------------------

                                                 December 27,
Assets:                                               1998
                                                 -------------
Current Assets:
   Cash                                          $    12,293
   Restricted Cash                                    30,000
   Due from Celebrated Group                          26,400
   Prepaid Expenses                                        0
   Accrued Interest Receivable                             0
                                                 -----------

   Total Current Assets                          $    68,693
                                                 -----------

Property and Equipment:
   Furniture and Fixtures                        $    10,861
   Less:  Accumulated Depreciation                    (6,164)
                                                 -----------

   Property and Equipment - Net                  $     4,697
                                                 -----------

Other Assets:
   Officer Loan Receivable                       $    31,149
   Investment in Celebrated Group                  3,257,096
                                                 -----------

   Total Other Assets                            $ 3,288,245
                                                 -----------

   Total Assets                                  $ 3,361,635
                                                 ===========


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

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

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 27, 1998
--------------------------------------------------------------------------------


                                                                    December 27,
                                                                        1998
                                                                    ------------
Liabilities and Stockholders' Equity:
Current Liabilities
   Accounts Payable and Accrued Expenses                            $   215,066
                                                                    -----------

Long-Term Liabilities:
   Accrued Interest Payable - Related Party                                   0
   Due to Related Party                                             $    55,500
                                                                    -----------

   Total Long-Term Liabilities                                      $    55,500
                                                                    -----------

Commitments and Contingencies [16]                                            0

Stockholders' Equity:
   Series A Convertible 8% Preferred Stock, $1.00 Par Value
     100,000 Shares Authorized, Issued and Outstanding                1,500,000

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

   Common Stock, 12,000,000 Shares Authorized,
     3,420,782 Shares Issued and Outstanding                             34,207

   Additional Paid-in Capital                                         8,443,416

   Accumulated Deficit                                               (8,213,359)

   Accumulated Other Comprehensive Income                              (123,195)
                                                                    -----------

   Total Stockholders' Equity                                       $ 3,091,069
                                                                    -----------

   Total Liabilities and Stockholders' Equity                       $ 3,361,635
                                                                    ===========


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

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

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                Fifty-Two Weeks Ended       
                                                           December 27,         December 28,
                                                             1 9 9 8              1 9 9 7
                                                             -------              -------

<S>                                                       <C>                  <C>         
Revenues                                                  $          0         $ 11,111,274
                                                          ------------         ------------

Cost of Revenues:
   Cost of Revenues                                                  0            3,517,890
   Restaurant Expense                                                0            6,044,690
                                                          ------------         ------------

   Total Cost of Revenues                                            0            9,562,580
                                                          ------------         ------------

   Gross Margin                                                      0            1,548,694

General and Administrative Expenses                            451,402            2,966,720

Depreciation and Amortization                                    1,524              777,833
                                                          ------------         ------------

   Operating Loss                                             (452,926)          (2,195,859)
                                                          ------------         ------------

Net (Loss) of Unconsolidated Investee                       (2,118,694)                   0
                                                          ------------         ------------

Other Income [Expense]:
   Other Income                                                      0               15,383
   Interest Income                                               5,409               46,052
   Interest Expense - Related Party                            (75,886)            (613,219)
   Gain on Merger of UK Subsidiary into Celebrated                   0            3,379,520
   Gain on Sale of Rights in Chili's Restaurants                     0            1,490,016
                                                          ------------         ------------

   Other Income [Expense] - Net                                (70,477)           4,317,752
                                                          ------------         ------------

   Income [Loss] Before Income Tax Expense                  (2,642,097)           2,121,893

Federal and State Income Tax Expense                                 0                    0
                                                          ------------         ------------

   Net Income [Loss]                                        (2,642,097)           2,121,893

Preferred Stock Dividends                                     (116,000)             (58,000)
                                                          ------------         ------------

   Net Income [Loss] Available to Stockholders            $ (2,758,097)        $  2,063,893
                                                          ============         ============

Net Income [Loss] Per Common Share:
   Basic                                                  $       (.81)        $        .58
                                                          ============         ============

   Weighted Average Number of Shares Outstanding             3,420,725            3,585,713
                                                          ============         ============
</TABLE>


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

                                      F-5
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
                                                                                           Series B       
                                                                                       Non-Convertible    
                                               Common Stock [11E]      Additional      Preferred Stock     
                                             Number of                  Paid-in       Number of            
                                              Shares         Amount     Capital        Shares     Amount    
                                              ------         ------     -------        ------     ------    
<S>                                         <C>             <C>       <C>             <C>        <C>        
Balance - December 29, 1996                  3,087,449       30,874    8,945,789            --           -- 

Issuances of Common Stock [9C]                 333,333        3,333       (3,333)           --           -- 
Convertible Debt to Preferred Stock [9D]            --           --           --       725,000    1,450,000 
Adjustment for Unamortized Value of
Warrants Cancelled [7]                              --           --     (499,040)           --           -- 
Comprehensive Income;
  Net Income for the fifty-two week
  period ended December 28, 1997                    --           --           --            --           -- 
  Other Comprehensive Income;
  Foreign Currency Translation
  Adjustment                                        --           --           --            --           -- 
                                                                                                            
Comprehensive Income                                --           --           --            --           -- 
                                             ---------      -------   ----------       -------   ---------- 

Balance - December 28, 1997                  3,420,782      $34,207   $8,443,416       725,000   $1,450,000 

Issuances of Common Stock [9C]                      --           --           --            --           --
Non-Convertible Preferred Stock Converted           --           --           --            --           -- 
 To Convertible Preferred Stock

Notes Payable Converted to Convertible              --           --           --            --           -- 
  Preferred Stock  [9D]
Comprehensive income;
  Net [Loss] for the fifty-two week
  period ended December 27, 1998                    --           --           --            --           -- 
                                                                                                            
Comprehensive Income                                --           --           --            --           -- 
                                             ---------      -------   ----------       -------   ---------- 

Balance - December 27, 1998                  3,420,782      $34,207   $8,443,416       725,000   $1,450,000  
                                             =========      =======   ==========       =======   ========== 
</TABLE>

<TABLE>
<CAPTION>
                                                  Series A
                                                 Convertible                                 Accumulated
                                               Preferred Stock       Compre-                     Other          Total
                                             Number of               hensive    Accumulated  Comprehensive  Stockholders'
                                              Shares       Amount    Income      [Deficit]      Income         Equity
                                              ------       ------    ------      ---------      ------         ------
<S>                                       <C>       <C>           <C>          <C>             <C>          <C>       
Balance - December 29, 1996                     --           --           --    (7,693,155)      (57,170)    1,226,338

Issuances of Common Stock [9C]                  --           --           --            --            --            --
Convertible Debt to Preferred Stock [9D]        --           --           --            --            --     1,450,000
Adjustment for Unamortized Value of
Warrants Cancelled [7]                          --           --           --            --            --      (499,040)
Comprehensive Income;
  Net Income for the fifty-two week
  period ended December 28, 1997                --           --    2,121,893     2,121,893            --     2,121,893
  Other Comprehensive Income;
  Foreign Currency Translation
  Adjustment                                    --           --      (66,025)           --       (66,025)      (66,025)
                                                                 -----------
Comprehensive Income                            --           --    2,055,868            --            --            -- 
                                           -------   ----------  ===========   -----------     ---------    ----------

Balance - December 28, 1997                     --           --                $(5,571,262)    $(123,195)   $4,233,166

Issuances of Common Stock [9C]                  --           --           --            --            --            --
Non-Convertible Preferred Stock Converted       --           --           --            --            --            --
 To Convertible Preferred Stock

Notes Payable Converted to Convertible     100,000    1,500,000           --            --            --     1,500,000
  Preferred Stock  [9D]
Comprehensive income;
  Net [Loss] for the fifty-two week
  period ended December 27, 1998                --           --   (2,642,097)   (2,642,097)           --    (2,642,097)
                                                                 -----------
Comprehensive Income                            --           --   (2,642,097)           --            --            --
                                           -------   ----------  ===========   -----------     ---------    ----------

Balance - December 27, 1998                100,000   $1,500,000                $(8,213,359)    $(123,195)   $3,091,069
                                           =======   ==========                ===========     =========    ==========
</TABLE>
Foreign Currency Translation:
Prior to December 28, 1997,  the  functional  currency for the Company's  United
Kingdom subsidiary and Australian  subsidiary was the British pound sterling and
Australian dollar, respectively. The translation from British pound sterling and
Australian  dollars into U.S.  dollars was 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.  For the period  December 27, 1998 the  translation  from
British pound  sterling into U.S.  dollars for the  investment in the Celebrated
group was done using current exchange rates in effect at year end.


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 27,      December 28,
                                                                           1 9 9 8          1 9 9 7
                                                                           -------          -------
Operating Activities:
<S>                                                                      <C>              <C>        
   Net Income [Loss]                                                     $(2,642,097)     $ 2,121,893
                                                                         -----------      -----------
   Adjustments to Reconcile Net Income [Loss] to
    Net Cash [Used for] Provided by Operating Activities:
     Depreciation and Amortization                                             1,524          777,833
     Loss on Sale of Fixed Assets                                                  0            6,295
     Loss on Writeoff of Intangible Assets                                         0           78,515
     Offset of Officer Loan Receivable Against Consulting Agreement                0           78,398
     Net Loss of Unconsolidated Investee                                   2,118,694                0
     Amortization of Warrant Cost                                                  0          246,000
     Gain on Sale of Assets of CTG and Rights in Chili's Restaurants               0       (1,490,016)
     Gain on Merger of UK Subsidiary into Celebrated                               0       (3,379,520)

   Changes in Assets and Liabilities:
     [Increase] Decrease in:
       Accounts Receivable                                                   165,586           19,740
       Inventories                                                                 0           23,425
       Prepaid Expenses and Other Current Assets                              37,213           (6,552)

     Increase [Decrease] in:
       Accounts Payable                                                     (322,064)        (282,959)
       Accrued Expenses                                                            0          105,000
       Other Payables and Accrued Interest                                         0           (7,116)
                                                                         -----------      -----------

     Total Adjustments                                                   $ 2,000,953      $(3,830,957)
                                                                         -----------      -----------

   Net Cash - Operating Activities                                       $  (641,144)     $(1,709,064)
                                                                         -----------      -----------

Investing Activities:
   Purchase of Furniture and Fixtures                                              0          (20,965)
                                                                         -----------      -----------

   Net Cash - Investing Activities                                       $         0      $   (20,965)
                                                                         -----------      -----------

Financing Activities:
   Advances from Related Parties                                             544,182          965,184
   Payments to Related Parties                                                     0         (859,715)
   Repayment of Loan                                                               0       (1,347,100)
   Net Proceeds from Sale of Assets of CTG and
     Rights in Chili's Restaurants                                                 0        2,655,141
                                                                         -----------      -----------

   Net Cash - Financing Activities                                       $   544,182      $ 1,413,510
                                                                         -----------      -----------

Effect of Exchange Rate Changes on Cash                                  $         0      $  (108,374)
                                                                         -----------      -----------

   Net [Decrease] in Cash - Forward                                      $   (96,962)     $  (424,893)
</TABLE>

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

                                      F-7
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                  Fifty-Two Weeks Ended       
                                                                              December 27,     December 28,
                                                                                1 9 9 8          1 9 9 7
                                                                                -------          -------
<S>                                                                          <C>              <C>         
   Net [Decrease] in Cash - Forwarded                                        $   (96,962)     $  (424,893)

Cash - Beginning of Periods                                                      109,255          534,148
                                                                             -----------      -----------

   Cash - End of Periods                                                     $    12,293      $   109,255
                                                                             ===========      ===========

Supplemental Disclosures of Cash Flow Information:
   Cash paid during the periods for:
     Interest                                                                $         0      $   613,219
     Income Taxes                                                            $         0      $         0

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
   Conversion of Related Party Debt to Preferred Stock                       $ 1,500,000      $ 1,450,000

   Cancellation of Warrants                                                  $         0      $   499,040
</TABLE>


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

                                      F-8
<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 using 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 27, 1998 and
December 28, 1997 was $1,524 and $529,850, respectively.

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  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
27, 1998 and December 28, 1997 were $0 and $472,786, 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 27, 1998 and December 28, 1997, have been
calculated in accordance with SFAS No. 128.

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 2,699,847 are not currently  dilutive,  but may be in
the future.

Foreign  Currency  Translation  - For the period  prior to  December  28,  1997,
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. For the period ended December 27,1998 the investment in
Celebrated  Group has been translated into U.S.  dollars using the current rates
at year end.

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

[2] Summary of Significant Accounting Policies [Continued]

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 27, 1998,  management  expects  these
assets to be fully recoverable.

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 27, 1998 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 $510,926 and $2,195,859 for the fifty-two week periods ended
December  27, 1998 and 1997,  respectively.  The  Company had a working  capital
deficit  of  $146,373  and an  accumulated  deficit  at  December  27,  1998  of
$8,213,359.  The Company has been funded through December 27, 1998 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.

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

[3] Going Concern (Continued)

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.


[4] Significant Risks and Uncertainties

[A] Concentrations of Credit Risk - Cash - At December 27, 1998, the Company had
approximately  $30,000 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 27,  1998,  one letter of credit in the amount of $30,000
had been issued on the Company's behalf and is secured by a cash account,  which
is reflected as restricted on the balance sheet.

[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 27, 1998,  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] Leases
Red Hot subleases its U.S. office from a related party for approximately  $800 a
month. The lease is month to month. 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.

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 27, 1998 and December
28, 1997 was $9,096 and $932,489, respectively.

[6] 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.

                                      F-12

<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
--------------------------------------------------------------------------------

[6] Fair Value of Financial Instruments [Continued]

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 $55,500
is based on current  rates at which the Company  could borrow funds with similar
remaining maturities.

[7] 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  27,  1998,  there is no balance  due to
Woodland. 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  was  originally due in May 1998 and was extended by
Woodland to January  1999.  This loan was exchanged  for  convertible  preferred
stock discussed below on December 27, 1998.  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  27, 1998,  no  additional  amortization  was
charged to  operations,  as the  warrants  were  cancelled  upon  conversion  to
preferred shares.

On December 27, 1998 Woodland agreed to convert  $1,500,000 of loans and accrued
interest into 100,000  shares of Series A Convertible  8% Preferred  Stock.  The
Company's Board of Directors approved this agreement.

At  December  27,  1998  dividends  in arrears  on the Series B  non-convertible
preferred stock amounted to $174,000 or $.24 per share.

                                      F-13
<PAGE>

RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
--------------------------------------------------------------------------------
[7] Related Party Transactions [Continued]

At  December  27,  1998,  Woodland  owns  approximately  36%  of  the  Company's
outstanding  common  stock.  Woodland also owns 100 % of the Class A Convertible
Preferred  Stock, as well as, 100% of Class B  Non-Convertible  Preferred Stock.
Upon amendment and  restatement of the Series A Convertible  Preferred Stock and
exchange of the Class B Preferred  Stock into Class A Preferred  Stock  Woodland
would own  1,475,000  shares  of  Series A  Convertible  Preferred  Stock.  Upon
Conversion  of the Series A  Convertible  Preferred  Shares  Woodland  would own
approximately 57% of the Company's outstanding common stock.

Mr.  Halpern  also is the  Chairman  of the  Board  of  International  Franchise
Systems,  Inc.  ["IFS"].  IFS  charged  a  management  fee  to the  Company  for
administration  services of $45,000 for the year end of December 28, 1997. There
were no amounts  charged for services in the year end of December 27, 1998.  IFS
and one of its wholly-owned  subsidiaries subleased a facility to the Company in
the United  Kingdom.  For the year ended  December  28,  1997,  the Company paid
$133,449 for this facility.  No amounts were charged to the company for the year
ended December 27, 1998.

The Company has  advanced  funds to and paid  various  expenses on behalf of Mr.
Halpern.  At December 27, 1998 and December 28, 1997 the total amount due to the
Company is $31,149.

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 27, 1998 was $32,000.  At December 27, 1998 there was a $94,500 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.

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. On February 11, 1998 the
Chief Financial  Officer of the company became the Chief  Financial  Officer and
Chief Executive Officer of the Celebrated Group, Plc. No amount was allocated to
IFS or Celebrated of his salary of $37,333 for 1998.

[8] 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.

                                      F-14
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
--------------------------------------------------------------------------------

[8] Provision for Income Taxes [Continued]

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  1998.
Therefore,  no loss carryforward was used during 1998. 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  27,  1998,  Red  Hot  had  a  deferred  tax  asset
attributable  to  its  United  States  net  operating  loss   carryforwards   of
approximately  $1,279,000,   which  was  offset  by  a  valuation  allowance  of
approximately  $1,279,000.  The  change in the  valuation  allowance  during the
fiscal year ended December 27, 1998 was approximately $105,000.

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
       $     510,926                            December 31, 2013


[9] 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.

                                      F-15
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
--------------------------------------------------------------------------------

[9] Stock Transactions (Continued)

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  27,  1998,  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.  For the year ended December 27, 1998, no amounts have been
amortized, as the warrants were canceled after conversion to preferred stock.

On December 27, 1998 Woodland agreed to convert  $1,500,000 of loans and accrued
interest into 100,000  shares of Series A Convertible  8% Preferred  Stock.  The
Company's Board of Directors approved this agreement.

The company intends to amend and restate the Series A Preferred Stock terms. The
company  will  authorize  an  additional  1,900,000  shares.  The then  total of
2,000,000 shares will be changed to $2.00 par value. The agreed dividend will be
8% and will be  cumulative.  The shares will have a  liquidation  preference  of
$2.00 plus an amount equal to an imputed  dividend of 8% per annum. In addition,
the shares will be convertible into 1.1 common shares for each preferred share.

After  amendment  of the  Series A  Preferred  Stocks,  Woodland  has  agreed to
exchange its 725,000  shares of Series B  Non-Convertible  Preferred  Stocks for
725,000  shares of Series A Preferred  Stocks.  In addition,  100,000  shares of
Series A Convertible Preferred Stocks will be amended to 750,000 shares of $2.00
par value Series A Preferred Stocks.

At  December  27,  1998  dividends  in arrears  on the Series B  non-convertible
preferred stock amounted to $174,000 or $.24 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.


[10] 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.

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 Red Hot reduced its additional  paid-in capital by $2,488 in
consolidation.

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

[11] 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.

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.

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


[11] Stock Options and Warrants [Continued]

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 27, 1998 and December 28,
1997 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 29, 1996*                   197,699         5.82              --           --

Options Granted - Directors Plan                            20,000         4.98              --       8.5 years
Options Granted - Stock Plan                                19,333         3.38              --       8.6 years
Options Granted - Non-Qualified                              7,000         5.62              --       8.6 years
Options Exercised                                               --           --              --           --
Options Canceled                                          (186,361)          --              --           --
                                                       -----------

   Options Outstanding -December 28, 1997                   57,671         3.53
                                                       ===========    =========

Options Granted - Directors Plan                            11,662         2.07              --       9.5 years
Options Granted - Stock Plan                                     0            0              --           --
Options Granted - Non-Qualified                                  0            0              --           --
Options Exercised                                                0            0              --           --
Options Canceled                                            (4,333)           0              --           --
                                                       -----------

   Options Outstanding -December 27, 1998                   65,000         4.53
                                                       ===========    =========
</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
--------------------------------------------------------------------------------


[11] 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:

<TABLE>
<CAPTION>
                                                                               Years ended
                                                                              December 31,
                                                                    1 9 9 8                  1 9 9 7
                                                                    -------                  -------
<S>                                                             <C>                      <C>            
Net Income [Loss]:
   As Reported                                                  $   (2,642,097)          $     2,121,893
                                                                ===============          ===============

   Pro Forma                                                    $   (2,700,751)          $     2,077,340
                                                                ===============          ===============

Net Income [Loss] Per Share:
   As Reported                                                  $          (.81)         $            .58
                                                                ================         ================

   Pro Forma                                                    $          (.81)         $            .58
                                                                ================         ================
</TABLE>


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 27, 1998 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  27,  1998,  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 9]. No
warrants were exercised during the fifty-two week period ended December 27, 1998
or December 28, 1997.


                                      F-19
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
--------------------------------------------------------------------------------

[12] 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 27, 1998:

<TABLE>
<CAPTION>
                                      United           United
                                      States           Kingdom        Australia     Eliminations      Consolidated
                                      ------           -------        ---------     ------------      ------------
<S>                              <C>              <C>             <C>              <C>              <C>            
Revenues                         $             0  $            0  $             0  $            0   $             0
Gross Margin [Loss]              $             0  $            0  $             0  $            0   $             0
Net Income [Loss]                $      (523,403) $   (2,118,694) $             0  $            0   $    (2,642,097)
Assets                           $     3,361,635  $            0  $             0  $            0   $     3,361,635
Liabilities                      $       270,566  $            0  $             0  $            0   $       270,566
Company's Investment in
   Foreign Subsidiaries          $     3,257,096  $            0  $             0  $            0   $     3,257,096


For the fifty-two weeks ended December 28, 1997:

                                      United           United
                                      States           Kingdom        Australia     Eliminations      Consolidated
                                      ------           -------        ---------     ------------      ------------

Revenues                         $             0  $    5,102,299  $     6,008,975  $            0   $    11,111,274
Gross Margin [Loss]              $    (1,175,659) $    2,152,653  $     1,318,687  $            0   $    (2,244,954)
Net Income [Loss]                $    (2,095,750) $     (403,754) $      (700,380) $            0   $     2,110,849
Assets                           $     6,664,605  $            0  $       314,638  $            0   $     5,781,614
Liabilities                      $       885,002  $            0  $     1,457,320  $            0   $     1,548,447
Company's Investment in
   Foreign Subsidiaries          $     5,375,790  $            0  $             0  $            0   $     5,375,790
</TABLE>


[13] 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.  At December 27, 1998 this
amount has been reduced to $30,000.

                                      F-20
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
--------------------------------------------------------------------------------

[13] 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.


[14] New Authoritative Accounting Pronouncements

The  Financial  Accounting  Standards  Board  ["FASB"]  has issued SFAS No. 130,
"Reporting  Comprehensive  Income."  SFAS No. 130 was effective for fiscal years
beginning after December 15, 1997.  Reclassification of financial statements for
earlier periods provided for comparative purposes was required.  The company has
adopted  SFAS  No.  130  in the  preparation  of  December  27,  1998  financial
statement.

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. The company has adopted SFAS No. 131 in the preparation of December 27,
1998 financial statement.


[15] 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
--------------------------------------------------------------------------------

[16] 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. At December 27,
1998 the investment was valued at $3,257,096. 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.  In 1998,  the  Celebrated  Group share price did not exceed the option
price and the company did not exercise its option.

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.  Celebrated  Group still has exclusive
development rights for Chili's restaurant in the UK at December 27, 1998.

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.


[17] Subsequent Events

[A] Amendment and Restatement of Series A Convertible Preferred Stock Terms -

The company intends to amend and restate the Series A Preferred Stock terms. The
company  will  authorize  an  additional  1,900,000  shares.  The then  total of
2,000,000 shares will be changed to $2.00 par value. The agreed dividend will be
8% and will be  cumulative.  The shares will have a  liquidation  preference  of
$2.00 plus an amount equal to an imputed  dividend of 8% per annum. In addition,
the shares will be convertible into 1.1 common shares for each preferred share.

After  amendment  of the  Series A  Preferred  Stocks,  Woodland  has  agreed to
exchange its 725,000  shares of Series B  Non-Convertible  Preferred  Stocks for
725,000  shares of Series A Preferred  Stocks.  In addition,  100,000  shares of
Series A Convertible Preferred Stocks will be amended to 750,000 shares of $2.00
par value Series A Preferred Stocks.

[B]  Additional  Related  Party  Advances - In the first  quarter  of 1999,  the
Company received additional cash advances from a related party of $93,400.




                              . . . . . . . . . . .



                                      F-22