TAM RESTAURANTS INC
10KSB/A, 1999-01-28
EATING PLACES
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                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

   
                                  FORM 10-KSB/A
                         Amendment No. 1 to Form 10-KSB
    


(Mark One)     [X]  ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15  (d)  OF THE
                    SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 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 number: 0-23757

                              TAM RESTAURANTS, INC.
                 (Name of small business issuer in its charter)

            Delaware                                             13-3905598
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

1163 Forest Avenue, Staten Island, New York                         10310
  (Address of principal executive offices)                        (Zip Code)

Issuer's telephone number: (718) 720-5959

Securities registered under Section 12 (b) of the Exchange Act:

Title of Each Class                    Name of Each Exchange on Which Registered
       None                                              None

Securities registered under Section 12 (g) of the Exchange Act:

                         Common Stock, $.0001 par value
                                (Title of class)

                    Redeemable Common Stock Purchase Warrants
                                (Title of class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15 (d) of the  Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  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-KSB
or any amendment to this Form 10-KSB. [ ].

The  Issuer's  revenues  for the  fiscal  year  ended  September  27,  1998 were
$16,202,892.

The  aggregate  market value of the voting and  non-voting  Common Stock held by
non-affiliates  was  approximately  $2,164,662.19 as at the close of business on
December 31, 1998.

The number of shares of Common Stock  outstanding  as of December 31, 1998,  was
3,503,000.

Documents incorporated by reference:  None


<PAGE>


                              TAM Restaurants, Inc.

                                   Form 10-KSB

                                Table of Contents


Part I.

      ITEM 1.  Description of the Business .................................   1

      ITEM 2.  Description of Property .....................................   9

      ITEM 3.  Legal Proceedings ...........................................  10

      ITEM 4.  Submission of Matters to a Vote of Security Holders..........  10

Part II.

      ITEM 5.  Market for Common Equity and Related Stockholder Matters ....  11

      ITEM 6.  Management's Discussion and Analysis of Plan of Operation ...  11

      ITEM 7.  Financial Statements ........................................  14

      ITEM 8.  Changes in and Disagreements With Accountants on Accounting
               and Financial Disclosure. ...................................  14

Part III.

      ITEM 9.  Directors, Executive Officers, Promoters and Control
               Persons; Compliance with Section 16(a) of the
               Exchange Act.................................................  15

      ITEM 10. Executive Compensation ......................................  17

      ITEM 11. Principal Stockholders ......................................  20

      ITEM 12. Certain Transactions ........................................  22

      ITEM 13. Exhibits, List and Reports on Form 8-K ......................  24

               Signatures ..................................................  26

               Consolidated Financial Statements ........................... F-1


                                      -ii-

<PAGE>


Part I

ITEM 1.  Description of the Business

     The Company  operates  Lundy Bros.  Restaurant  ("Lundy's)  a  high-volume,
casual,  upscale seafood restaurant located in Brooklyn, New York, The Boathouse
in Central Park ("The  Boathouse"),  a multi-use  facility  featuring an upscale
restaurant and catering pavilion, located on the lake in New York City's Central
Park, and American Park at the Battery  ("American  Park"), a multi-use facility
featuring an upscale  restaurant,  catering floor, two outside patios and a fast
food  kiosk,  located  at the  water's  edge in  Battery  Park,  a New York City
landmark.

Lundy's

     Lundy's is a high-volume,  casual,  upscale seafood  restaurant  located in
Brooklyn,  New York. The Company opened Lundy's in December 1995,  approximately
16 years after the original Lundy's  restaurant  closed. The original Lundy's, a
storied  Brooklyn  landmark,  originally  opened in 1934 and is believed to have
been the largest  restaurant  in the United  States during the time it was open,
with seating capacity for approximately 2,400 guests. The building which Lundy's
occupies  was  declared  a  historic  landmark  building  by the New  York  City
Landmarks Preservation Commission in 1992.

     The Lundy's Concept

     The  Lundy's  concept is  designed  to appeal to a broad range of guests by
serving generous portions of premium-quality seafood and other menu items and by
combining a grand dining  experience  with friendly and  efficient  service in a
high-energy  environment.  Lundy's  commitment  to offering its guests a casual,
exciting dining experience is highlighted by its "exhibition"  kitchen where all
meals are  cooked to order in view of its  guests,  a  lobster  pool from  which
guests can select their lobsters,  an experienced  wait staff uniformed in crisp
white linen jackets which are knowledgeable about the preparation of seafood and
the history of Lundy's, a high wait staff-to-customer  ratio to assure attentive
service and tables  covered with multiple  layers of colored linens and pristine
white butcher paper.

     Menu

     Lundy's menu  features a wide  variety of fresh  seafood  items,  including
lobster, crab, shrimp,  oysters, clams and daily fish specials,  cooked to order
in a variety of ways: steamed, sauteed,  broiled, grilled,  blackened and fried.
In addition, Lundy's offers a selection of steaks, chicken dishes, pasta dishes,
pizzas,  appetizers,  chowders,  salads and fresh-baked  desserts.  Lundy's also
offers  full bar  service,  from which a variety of brand name  alcohols,  mixed
drinks, wines and beers,  including selected micro-brewed beers, can be ordered,
at the bar or with table service.  Lundy's  feature menu selection is its "Shore
Dinner," which  consists of a chowder or salad;  steamed or baked clams, a whole
Maine lobster and chicken;  fruit pie; and a beverage,  for $22.95.  The Company
believes  that  Lundy's  is  widely  recognized  for its  "signature"  biscuits,
chowders and apple, blueberry pies and its 60 item Sunday brunch buffet.

     The menu mix has been  carefully  developed  to balance  the higher  priced
items,  such as lobster and fresh fish, with lower cost items, such as pizza and
pasta dishes. Dinner entrees range in price from $8.95 to $28.95 and the average
dinner check is approximately $33.00 per person.

     Design, Decor and Atmosphere

     Lundy's interior has been designed with a contemporary decor, rich polished
woods and granite  surfaces,  accented with copper,  pottery,  brushed-stainless
steel and earth  tones,  to impart "Old World"  elegance  and  comfort.  Lundy's
offers guests several  seating  selections in its  multi-level  interior,  which
consists of an expansive, high-ceiling main dining area; a large upstairs dining
room which is also used for

<PAGE>

special  events and to cater  private  functions;  a mezzanine  level cigar room
which  overlooks  the main dining  area;  and a 30-foot long oyster and beverage
bar; as well as outdoor seating.

     Facility Operations

     Lundy's  occupies  approximately  18,000  square  feet  and  has a  seating
capacity of approximately  730 seats.  Lundy's is open for dinner from 5:00 P.M.
to 11:00 P.M. on weekdays  (10:00 P.M. on Mondays) and for dining from 1:00 P.M.
to 12:00  midnight on Sunday.  Lundy's  oyster and  beverage bar and outside bar
(weather permitting) are also open during such hours and also from 12:00 noon to
5:00 P.M. on weekdays.

     In addition to the  restaurant  operations,  Lundy's  also houses a seafood
laboratory  where seafood is tested to assure quality and freshness,  and a gift
shop which carries a variety of "Lundy's"  and  "Brooklyn"  themed  merchandise,
such as T-shirts and other clothing,  hats,  plates and coffee and beer mugs, as
well as Lundy's  chowders  and  sauces and  seafood  related  products,  such as
lobster bibs, crackers and forks.

The Boathouse

     The Boathouse is a multi-use,  lakeside  facility which features an upscale
restaurant and catering pavilion, located on the lake in New York City's Central
Park.

     Restaurant

     The  Boathouse  restaurant,  Park  View  at The  Boathouse  ("Park  View"),
provides customers a pleasurable dining experience in a comfortable, relaxed and
romantic  atmosphere  and primarily al fresco  seating.  The  restaurant  serves
eclectic American cuisine,  under the direction of The James Beard  Foundation's
Rising  Star Chef  Nominee  John Villa,  that  changes  according  to season and
consumer trends.  The menu is limited in scope to permit the greatest  attention
to quality  while  offering  sufficient  breadth to appeal to a variety of taste
preferences.  The restaurant also offers full bar service.  Dinner entrees range
in price from $19.00 to $28.00 and the  average  dinner  check is  approximately
$44.00 per person.

     Park View's dining area occupies  approximately  6,000 square feet of space
and has a  seating  capacity  of  approximately  225  seats,  most of which  are
covered,  expanding approximately 150 feet alongside the Central Park lake. This
dining space is open from early March until early November.  Part of Park View's
dining space and other  underutilized areas in the main building were winterized
during  renovations  to The Boathouse  facility in fiscal 1998.  This new dining
space is open from early  November to early March and  features  two fire places
and seating for approximately 80 guests.

     Catering Pavilion

     The catering pavilion is  glass-enclosed,  tented and heated.  The catering
pavilion occupies  approximately 4,600 square feet of space, is surrounded by an
english  garden on two sides and resides a few feet from the Central  Park lake.
The catering pavilion hosts private functions for up to 500 persons year round.

     Other Attractions

     The Boathouse incorporates the following additional attractions:

     o    Cocktail  Area.  The  cocktail  area  offers  full bar  service  at an
          approximately  21-foot long bar with  waitress  service and features a
          jazz  band  performing  five  nights  a  week.  As  a


                                      -2-
<PAGE>

          result of the renovations to The Boathouse  facility,  the capacity of
          the cocktail area was  increased to 200 persons,  including 150 seats,
          and is open from March through early November.

     o    The  Boathouse  Express.  The Boathouse  Express is a  cafeteria-style
          convenience counter which serves specialty  sandwiches,  salads, baked
          goods  and  juices,  as  well as  standard  fast-food  items,  such as
          hamburgers, hotdogs, french fries and sodas. The Boathouse Express has
          indoor and outdoor seating available for approximately 75 persons year
          round.

     o    Carts and Kiosks.  Approximately  six to eight free standing carts and
          kiosks are strategically  located on the facility's grounds offering a
          variety of food and beverage  items,  such as fresh fruit drinks,  New
          York-style pretzels, pita sandwiches and espresso and cappuccino, from
          early March to early November.

     o    Rowboat and Bicycle Rentals and Venetian Gondola Rides.  Approximately
          110 rowboats are  available for rental by the hour on the Central Park
          lake and  approximately  120 bicycles are  available for rental by the
          hour or day from early March to early November. Additionally, Venetian
          gondola  rides on the lake are  available  from  early  March to early
          November.

     o    Merchandise  Counter. The merchandise counter carries a variety of The
          Boathouse   and  other   Central   Park  and  New  York  City   themed
          merchandised,  including T-shirts,  sweatshirts, hats and coffee mugs,
          as well as sundry items.

     o    Shuttle Bus.  The  Boathouse  operates a shuttle bus which  transports
          guests  between  the  facility  and the Fifth  Avenue and 72nd  Street
          entrance  to Central  Park.  The  shuttle  bus runs when the Park View
          restaurant  is opened  for dinner  and  during  special  events at the
          catering pavilion.

     The Company operates The Boathouse  pursuant to a 15-year license agreement
with  the City of New  York  Department  of Parks  and  Recreation  (the  "Parks
Department").  Pursuant to the license agreement, the Company is required to pay
a fee to the Parks  Department  each license year (June 30 through the following
June 29) equal to the greater of (i) $90,000  (increasing to $95,000 per year on
June 30, 1999) or (ii) the sum of 13% of gross revenue from food and merchandise
sales  and 16% of  gross  revenues  (increasing  to 17% on June 30,  1999)  from
rowboat and bicycle rentals. The Company is required to maintain certain minimum
levels of insurance with respect to the facility.  The license agreement expires
on June 29, 2000,  provided that the Parks  Department may terminate the license
upon ten days  written  notice so long as the  termination  is not  arbitrary or
capricious.  The Company expects to commence negotiations for the renewal of the
license agreement in the second quarter of fiscal 1999.

American Park

     American  Park opened in May 1998 in historic  Battery Park at the southern
tip of Manhattan in close proximity to New York's financial  district.  American
Park occupies approximately 18,300 square feet and has a seating capacity of 725
persons.

     American Park is designed with an urban mountain lodge motif, incorporating
natural fabrics,  slate,  stone, wood and brick with  modern-style  furnishings,
vibrant colors and designer  lighting.  Guests have  panoramic  views of the New
York City harbor and  landmarks  such as the Statute of Liberty,  Ellis  Island,
Governor's  Island and the  downtown  Manhattan  skyline.  American  Park offers
seating  selections  in its main  dining  room,  second  floor  dining  room and
bi-level outdoor patios.


                                      -3-
<PAGE>

     American Park's restaurant serves contemporary American cuisine featuring a
variety of fresh fish, lobsters,  large steaks and daily specials. The "all day"
menu is served year round in the 110 seat main dining room and seasonally in the
150 seat upper-level outdoor patio.

     American Park's lower level patio, with a capacity of 140 seats, extends to
the water's edge and has a casual  moderately  priced bistro type menu featuring
appetizers, grille items, sandwiches,  salads, a raw bar and selected items from
the main menu. Most of the items come from a separate  kitchen on the patio. The
lower-level  patio also  features  a bar with a capacity  of 25 bar seats and 55
persons standing and is used  extensively  during the cocktail hour and features
live entertainment during the summer.

     American  Park's  second  floor  catering  level  is used  to host  private
parties,  business  meetings,  conferences  and weddings.  The floor  features a
spectacular  panoramic view of the New York harbor and has a seating capacity of
300 persons.

     The  free-standing  outdoor kiosk serves  burgers,  hots dogs,  sandwiches,
snacks,  cold  beverages,  beer,  wine and fruit  smoothies to tourists and park
visitors from April through October.

     In December  1994,  the Company  entered into a license  agreement with the
Parks  Department to construct and operate,  American Park, in Battery Park. The
Company is  required  to pay to the Parks  Department  a fee each  license  year
(November  1 through  the  following  October  31) equal to the  greater  of (i)
$50,000  and (ii) 8% of gross  receipts  from  the  restaurant  and 10% of gross
receipts from merchandise sales (increasing to 12% on November 1, 1999). For the
license year ended October 31, 1998,  the license fee was $156,019.  The Company
is required  to maintain a certain  level of  insurance.  The license  agreement
expires on October 31, 2015,  provided,  however,  that the Parks Department may
terminate the license upon 30 days written notice.

Strategy

     The Company's strategy is to initially develop and operate a limited number
of additional Lundy's  restaurants.  The Company intends to focus its efforts in
the New York City  metropolitan  area.  The Company has  limited  experience  in
expanding its  operations  and there can be no assurance that it will be able to
successfully do so.

     The  Company's  strategy is to capitalize on what it perceives to be a high
consumer recognition of the Lundy's name in markets where there is a significant
percentage  of the  population  which  remembers and had visited the old Lundy's
restaurant.  The  Company  anticipates  that  future  Lundy's  restaurants  will
incorporate the Lundy's concept into the existing building  architecture to give
each location the atmosphere of a long-standing restaurant.

     The  Company's  long-term  plans  include  seeking to  capitalize  upon the
Lundy's name by marketing food and related  products by mail,  such as chowders,
sauces,  pies,  cookbooks,  lobster  bibs,  crackers and forks and "Lundy's" and
"Brooklyn" themed T-shirts and other clothing items, hats, plates and coffee and
beer mugs. In addition, in connection with its strategy, the Company may seek to
open   additional,   high-volume   landmark  type   restaurants  as  appropriate
opportunities arise.

Site Selection

     The choice of site  selection  is  critical to the  potential  success of a
particular restaurant.  As a result, the Company devotes a significant amount of
time and resources to identifying  and analyzing  potential  sites.  The Company
seeks to identify locations in close proximity to upscale high-traffic, suburban
residential


                                      -4-
<PAGE>

neighborhoods,  hotel complexes and/or urban business or entertainment  centers.
The Company  also seeks to identify  large  spaces in tourist  centers,  such as
government buildings, concession stands and offices in municipal parks which are
not  utilized  to their  potential.  Additionally,  to the extent  opportunities
arise,  the  Company  seeks to  identify  waterfront  locations,  which  type of
location  the  Company  believes  has a synergy  with the  Lundy's  concept  and
primarily   seafood  menu.   The  Company,   however,   has  no  commitments  or
understandings with respect to any proposed location.

     The  Company  generally  seeks to lease  properties  with  12,000 to 20,000
square feet of total  space and seating  capacity  for 400 to 750  persons.  The
Company  anticipates that three to six months will typically be required to open
a new Lundy's  restaurant  from the time a location is identified and a lease is
negotiated.

Restaurant Operations

     Management and Employees

     Each location's operations is managed by a general manager and managers for
certain  operations of the location,  such as kitchen,  dining room (waiters and
busboys),  office (administration) and catering. The number of employees at each
location  fluctuates  from  season to season  and  depending  upon the number of
catering  events.  Because  some  restaurant  seating  areas and  certain  other
operations  at The  Boathouse  and  American  Park are not open year round,  the
Company is required to hire new  personnel  annually for each unit.  The Company
introduced a management  bonus plan, for unit level  management,  which provides
bonuses based on the financial results of the managements' particular location.

     Service and Guest Satisfaction

     The Company believes that providing friendly, courteous,  efficient service
is critical to the long-term success of each location.  The Company will attempt
to recruit  managers for future  locations  with  significant  experience in the
restaurant industry.  The Company is constantly refining its training program in
anticipation  of opening  additional  Lundy's  restaurants  to teach  restaurant
managers to promote the  Company's  team-oriented  atmosphere  among  restaurant
employees, with emphasis on preparing and serving food in accordance with strict
standards  and  providing  friendly,   courteous  and  attentive  service.  Each
location's  staff is trained on site by location  managers and other  designated
employees.  The Company believes that the selection and training of its location
managers and staff result in friendly, courteous,  efficient guest service which
contributes to a pleasurable dining experience for the guest.

     The Company monitors each location's  service and guest  satisfaction.  The
Company maintains a guest service  department which contacts several guests from
each location's  previous night's reservation list to inquire about their dining
experiences.  The guest  service  department  also  contacts  each  party  which
utilizes  the  Company's  catering  services  to  obtain  feedback  about  their
experiences. The Company also maintains a toll-free telephone line for guests to
call with complaints or suggestions about the Company's locations. All calls are
personally  responded  to by an executive  officer of the  Company.  The Company
utilizes  guest  feedback to  continually  improve its service,  update its menu
selections and otherwise improve its operations.

     Purchasing

     Obtaining a reliable  supply of quality seafood and other food and beverage
items at competitive  prices is critical to the Company's  success.  The Company
has formed long-term relationships with several seafood suppliers,  fish markets
and operators of fishing boats. Each restaurant purchases its own supply of food
and beverage items through a central  purchasing  department  which  maintains a
list of approved suppliers. The Company regularly arranges to purchase a fishing
boat's day catch of lobsters and select fish,


                                      -5-
<PAGE>

reducing its price per pound and ensuring superior quality.  The Company intends
to begin  construction of a lobster pound at its Bayonne,  New Jersey warehouse,
in the second  quarter of 1999, to further  reduce the cost of live lobsters and
ensure and adequate  supply of all sizes.  The Company has a  computerized  food
purchasing and tracking system which  maintains a current  database of suppliers
and continuously  updates supplier's pricing to enable its restaurants to obtain
the lowest prices available from Company-approved suppliers.

     The  Company  believes  its  diverse  menu  selection  reduces the risk and
minimizes  the effect of the shortage of any seafood  products.  The Company has
been able to anticipate and react to fluctuations in food costs through selected
menu price  adjustments,  purchasing  seafood directly from numerous  suppliers,
fish markets and fishing boats and promoting certain alternative menu selections
(in  response  to  availability  and  price of  supply).  To date,  the  Company
generally has not experienced  any significant  delays in receiving its food and
beverage inventories, restaurant supplies or equipment.

     Quality Control

     The  Company  maintains  a  continuous  inspection  program  for all of its
seafood  purchases.  Each  shipment of seafood and other food items is inspected
for  quality  and  weight by the  restaurant  steward.  All food  items  must be
purchased from Company-approved suppliers. In addition, Lundy's houses a seafood
laboratory where shipments of seafood are randomly tested to assure quality.

     The restaurants' management are responsible for properly training employees
and ensuring that the  Company's  restaurants  are operated in  accordance  with
strict health and quality standards.  Each restaurant employee is educated as to
the correct handling and proper characteristics of each product. Compliance with
the Company's  quality  standards are monitored by periodic  on-site  visits and
formal  periodic  inspections  by management  and  third-party  food  sanitation
consultants. The Company believes that its inspection procedure and its employee
training  practices  assist the Company in maintaining high standards of quality
for the food and services it provides.

     Restaurant Reporting

     The Company maintains financial and accounting controls for each restaurant
through a central  point-of-sale,  accounting and cash management systems. Sales
data is collected daily, and store managers are provided with daily sales,  cash
and inventory information for their respective  restaurants.  The point-of-sale,
accounting and cash management  systems enables both store-level  management and
senior management to quickly react to changing sales trends, better manage food,
beverage and labor costs,  minimize theft and improve the quality and efficiency
of accounting and audit procedures.

Catering Operations

     The Company's restaurants offer high-quality  professional,  on-premise and
off-premise  catering  services.  Each  restaurant  provides  its  own  catering
services  and  specially  designs  menus  to the  guests  requirements.  Lundy's
upstairs  dinning room is used to cater private  functions and has a capacity of
350 persons.  In addition to catering private functions in the banquet area, The
Boathouse  caters larger  functions of up to 1,000 persons in the combined space
of the catering pavilion and restaurant.  American Park can accommodate  parties
of up to 300 persons in its up upstairs  catering  space,  up to 780 persons for
the entire facility and outdoor tents to accommodate another 400 persons.

     In April 1997,  the Company  entered  into a five-year  agreement  with Bay
Cruises,  LLC ("Bay Cruises") to act as exclusive  caterer for all entertainment
cruises  conducted by Bay Cruises from any location in the New York metropolitan
area. Bay Cruises conducted  entertainment  cruises from its


                                      -6-
<PAGE>

Sheepshead  Bay dock from  December  1996 through  February  1998 when it ceased
operation. In December 1998, the Company and Bay Casino, LLC ("Bay Casino"), the
sucessor  to Bay  Cruises,  renegotiated  the  terms of the  catering  agreement
extending  the  initial  term of the  agreement  by a year with an option to the
Company for an additional five-year extension. Further, under the new agreement,
the Company will offer all beverage  service in addition to food services on Bay
Casino's  vessels.  The Company will pay Bay Casinos a license fee of 15% of all
food sales and 25% of all  beverage  sales  generated  from the  agreement.  The
Company will not receive any revenues from such  agreement  unless and until Bay
Casino resumes  operation of such cruies.  Bay Casino has advised the Company of
its plans to resume operations in the third quarter of fiscal 1999.

     During the years ended  September 28, 1997 and September 27, 1998,  Lundy's
catered 157 and 210 private functions,  respectively,  and The Boathouse catered
317 and 298  private  functions,  respectively.  During  its first six months of
operations, American Park catered 89 private functions.

Advertising and Marketing

     The Company employs a marketing  strategy that seeks continuous  visibility
and  name  recognition  through  the use of local  radio,  print  and  billboard
advertisements,  as well as community events,  for each restaurant.  The Company
contracts with public  relations and  advertising  agencies to more  effectively
coordinate its advertising efforts. The Company also publishes and distributes a
newsletter   which  apprises   readers  of  upcoming  events  at  the  Company's
restaurants  and  recent  celebrity  guests,  answers  guests'  food,  wine  and
restaurant etiquette questions and provides recipes.

     Each restaurant engages in community-based  promotions  designed to promote
the  restaurant  and foster  goodwill  within  the  community.  Each  restaurant
participates  in the Company's "make a dent with 10%" program whereby 10% of the
proceeds from three  designated  tables from the restaurant are donated to local
charities.

     Lundy's,  The Boathouse and American Park are high-profile  locations which
host many special events and receive  extensive press coverage.  All three units
have been featured in several magazines,  including  Gourmet,  Travel & Leisure,
The New York Times Magazine and New York Magazine,  and have been the subject of
several television news stories. As a result,  these restaurants receive a great
deal of  publicity  in addition to the  publicity  obtained  from the  Company's
advertising efforts.

Competition

     The  restaurant  industry is intensely  competitive  with respect to price,
service,  location and food quality and variety. There are many well-established
competitors with  substantially  greater  financial and other resources than the
Company,  as  well  as  a  significant  number  of  new  market  entrants.  Such
competitors  include  national,  regional and local  full-service  casual dining
chains, many of which specialize in or offer seafood products, as well as single
location  restaurants.  Some of the Company's competitors have been in existence
for substantially  longer periods than the Company, may be better established in
the markets where the Company's  restaurants are or may be located and engage in
extensive advertising and promotional campaigns,  both generally and in response
to efforts by  competitors  to open new  locations or introduce  new concepts or
menu  offerings.  The Company can also be  expected to face  competition  from a
broad  range  of  other  restaurants  and  food  service   establishments  which
specialize in a variety of cuisines.


                                      -7-
<PAGE>

Intellectual Property

     The Company's  business  prospects  will depend  largely upon the Company's
ability to capitalize  on favorable  consumer  recognition  of the Lundy's name.
Although the Company holds a trademark  registration for use of the Lundy's name
by the U.S.  Patent and  Trademark  Office,  there can be no assurance  that the
Company's marks do not or will not violate the  proprietary  rights of others or
that the  Company's  marks  would be upheld,  or that the  Company  would not be
prevented  from  using its  marks,  if  challenged,  any of which  could have an
adverse effect on the Company.

   
     The Company previously entered into a settlement  agreement with Sheepshead
Restaurant Associates,  Inc.  ("Sheepshead") to settle a dispute relating to the
Lundy's trademark.  As part of the settlement,  Sheepshead agreed to dismiss its
petition for the cancellation of the Lundy's trademark  registration  previously
granted to the Company.  Additionally,  the Company obtained all of Sheepshead's
alleged rights to the Lundy's marks and any goodwill  associated  therewith.  In
consideration,  the  Company  issued  to  the  four  principal  stockholders  of
Sheepshead  an  aggregate  of 22,056  shares of  unregistered  common  stock and
warrants to purchase an aggregate of 5,516 shares of common  stock.  The Company
further  agreed (i) to pay a fee of $10,000 to Sheepshead  upon the opening,  by
the Company,  of certain new  restaurants  with a seating  capacity of up to 150
persons,  (ii) to open a new restaurant  utilizing the Lundy's name by September
1999,  and  (iii) to pay to  Sheepshead  .75% of gross  revenues  in excess of a
minimum  threshold  (as  determined by the seating  capacity of the  restaurant)
earned by any new  restaurant  established  by the  Company  that  utilizes  the
Lundy's name. The settlement  agreement  further provides that if the Company is
unable to meet the  requirement  set forth in (ii) above,  the rights claimed by
Sheepshead to the Lundy's  trademark and acquired by the Company  revert back to
Sheepshead.
    

     The Company  also relies on trade  secrets and  proprietary  know-how,  and
employs  various  methods,  to protect its concepts and recipes.  However,  such
methods may not afford  complete  protection  and there can be no assurance that
others will not  independently  develop similar know-how or obtain access to the
Company's  know-how,  concepts  and  recipes.  The  Company  does  not  maintain
confidentiality and non-competition  agreements with all of its executives,  key
personnel or suppliers.  There can be no assurance that the Company will be able
to adequately protect its trade secrets.

Government Regulation

     The Company is subject to extensive state and local  government  regulation
by various governmental agencies,  including state and local licensing,  zoning,
land use,  construction and  environmental  regulations and various  regulations
relating to the sale of food and beverages,  sanitation,  disposal of refuse and
waste  products,  public  health,  safety  and  fire  standards.  The  Company's
restaurants  are subject to periodic  inspections  by  governmental  agencies to
assure  conformity with such  regulations.  Difficulties or failure in obtaining
required  licensing  or other  regulatory  approvals  could delay or prevent the
opening of a new  restaurant,  and the  suspension  of, or inability to renew, a
license at an existing  restaurant  would adversely affect the operations of the
Company.  Restaurant  operating  costs  are also  affected  by other  government
actions  which are beyond the  Company's  control,  including  increases  in the
minimum hourly wage requirements,  workers compensation  insurance rates, health
care insurance costs and unemployment and other taxes.

     The Federal Americans With Disabilities Act prohibits discrimination on the
basis of  disability  in public  accommodations  and  employment.  The Company's
restaurants  are currently  designed to be  accessible to the disabled,  and the
Company  believes  that  it  is  in  compliance  with  all  current   applicable
regulations relating to accommodations for the disabled.

     The Company is subject to "dram-shop"  statutes,  which generally provide a
person  injured by an  intoxicated  person the right to recover  damages from an
establishment  that  wrongfully  served  alcoholic  beverages to the intoxicated
person. New York law currently provides that a vendor of alcoholic beverages may
be held  liable in a civil  cause of action  for  injury or damage  caused by or
resulting from the intoxication of a minor (under 21 years of age) if the vendor
willfully,  knowingly and unlawfully sells or furnishes  alcoholic  beverages to
the minor  and knows  that the minor  will soon  thereafter  be  driving a motor
vehicle.  A  vendor  can  similarly  be held  liable  if it  knowingly  provides
alcoholic  beverages to a person who is in a noticeable  state of  intoxication,
knows that person will soon  thereafter be driving a motor vehicle and injury or
damage is caused by that person.

Insurance

     The  operation of  restaurants  subjects the Company to possible  liability
claims from others,  including customers,  employees and other service providers
for personal injury (resulting from, among other things, contaminated or spoiled
food or beverages,  accidents or injuries  caused by intoxicated  persons


                                      -8-
<PAGE>

served alcoholic  beverages by a restaurant).  The Company  maintains  insurance
(with coverage in amounts up to $2,000,000  per  occurrence  and  $10,000,000 of
umbrella liability  coverage),  including insurance relating to personal injury,
in amounts which the Company believes to be adequate. The Company also maintains
property  insurance  for each  location it operates in amounts it believes to be
adequate.  Nevertheless,  a partially or completely  uninsured claim against the
Company, if successful, could have a material adverse effect on the Company.

Employees

     As of September 27, 1998, the Company employed 643 persons, of whom 38 were
in   management   and  603  were  in   non-management   restaurant   operations.
Approximately  48 of those  individuals  were  employed on a salary  basis.  The
Company  believes  its  employee  relations  to be good.  None of the  Company's
employees is covered by a collective bargaining agreement.

ITEM 2.  Description of Property

     The  Company  leases  approximately  2,500  square  feet of space in Staten
Island, New York for its executive offices from Frank Cretella,  Chief Executive
Officer,  President,  a director and a principal stockholder of the Company. The
current  annual rent payable under the lease is currently  $37,914 and increases
by 1.5% per annum in January of each subsequent year. The lease expires December
31, 2001.  The Company  believes that this lease is on  commercially  reasonable
terms. The Company is currently contemplating leasing an additional 1,800 square
feet of space at its current  location,  beginning in February 1999, in order to
accommodate the Company's expansion.

     The Company leases 16,505 square feet of space in Sheepshead Bay, Brooklyn,
New York,  where  Lundy's is located  pursuant to a lease which expires in 2014.
The current  annual rent payable  under the lease is $309,000  during  1998.  In
December  1998 the  Company  completed  renovations  to one of the second  floor
dining  rooms  making  it better  suited  for  handling  private  functions  and
catering. This added 1,000 sq. ft. of space to the lease. The Company will begin
paying rent of $16,296 on this addition space in March 1999. Upon the expiration
of the lease, the Company has two 10-year renewal options.

     The Company leases an approximately 6,000 sq. ft. warehouse in Bayonne, New
Jersey,  from Leisure Time  Services,  Inc.,  a company  wholly-owned  by Jeanne
Cretella, Vice President, a director and a principal stockholder of the Company.
The annual rent payable  under the lease is currently  $30,338 and  increases by
1.5% per annum in January of each subsequent year. The lease expires in December
2001. The Company believes that this lease is on commercially  reasonable terms.
In December  1998,  the Company  agreed to sublease 1,000 sq. ft. of the Bayonne
warehouse to KA  Industries  for a rent of $740.83 per month.  The sublease is a
month to month  lease  terminable  upon 120 days  notice  by  either  party.  KA
Industries is a wholly owned subsidiary of Kayne Anderson Investment Management,
Inc.,  an  affiliate  of a principal  stockholder  of the  Company.  The Company
believes that this sublease is on commercially reasonable terms.

     The Company  operates The Boathouse in Central Park, New York City pursuant
to a license from the Parks Department which expires in June 2000.

     The Company operates  American Park in Battery Park, New York City pursuant
to a license from the Parks Department which expires in 2015.


                                      -9-
<PAGE>

ITEM 3. Legal Proceedings

     The operation of restaurants and rowboat and bicycle  rentals  subjects the
Company to potential  claims from others,  including  customers,  employees  and
other service providers for personal injury (resulting from, among other things,
contaminated  or spoiled  food or  beverages  and  accidents).  The Company is a
defendant in several  lawsuits  arising in the  ordinary  course of its business
relating to  personal  injury  claims by  plaintiffs  which are seeking  damages
substantially  in excess of the  Company's  assets and insurance  coverage.  The
lawsuits are being handled by the Company's insurance  carriers.  The Company is
vigorously  defending each lawsuit and believes that such matters are adequately
covered by  insurance  or, if not so covered,  are without  merit or are of such
nature or involve such amounts that an unfavorable  disposition would not have a
material adverse effect on the financial condition or operations of the Company.
However, since each lawsuit is in an early stage, there can be no assurance that
any of such actions will be resolved in favor of the Company or that the outcome
of any litigation or settlement  will not have a material  adverse effect on the
Company.

     On or about July 13,  1998,  an action was  brought  against the Company by
Acme Management  ("Acme") in the Supreme Court of the State of New York,  County
of Richmond,  alleging that the Company owes to Acme $337,500 for "money had and
received." It is believed that this claim relates to a dispute  between Acme and
a non-party which made a loan to the Company, which has since been repaid and/or
converted  to equity.  The Company  has not yet been  required to respond to the
action, which it intends to vigorously contest.

     On or about  September  24,  1998,  Acme  mistakenly  obtained a  judgement
against the Company in the sum of $343,828.56 in connection  with its action.  A
stipulation  vacating  the  judgement,  ab initio,  has been  executed by Acme's
counsel and filed with the court.

     In the ordinary  course of business,  the Company is a party to other legal
proceedings,  the outcome of which,  either singly, or in the aggregate,  is not
expected to be material.

ITEM 4.  Submission of Matters to a Vote of Security Holders.

     On  October  6,  1997,  by  written  consent  in lieu of a special  meeting
pursuant to Section 228 of the Delaware General Corporation Law ("DGCL") holders
of 1,679,235  shares  (approximately  67% of the issued and  outstanding  Common
Stock of the  Company)  consented to the  adoption of the  Company's  1997 Stock
Option  Plan and the  reservation  of  525,000  shares of Common  Stock from the
authorized  but unissued  shares of the Company for issuance  upon the exercise,
from time to time, of options to be granted under the plan.

     On  December  17,  1997,  by written  consent in lieu of a special  meeting
pursuant to Section 228 of the DGCL, holders of 1,679,235 shares  (approximately
67% of the issued and outstanding  Common Stock of the Company) consented to the
change of the Company's name to TAM Restaurants, Inc.

     On  December  17,  1997,  by written  consent in lieu of a special  meeting
pursuant to Section 228 of the DGCL, holders of 1,679,235 shares  (approximately
67% of the issued and outstanding  Common Stock of the Company) consented to the
1-for 1.8135268  reverse stock split of the then issued and  outstanding  Common
Stock of the Company.




                                      -10-
<PAGE>

Part II

ITEM 5.  Market for Common Equity and Related Stockholder Matters

     The Company's  Common Stock and Warrants are traded on the Nasdaq  SmallCap
Market  under the  symbols  "TAMR"  and  "TAMRW",  respectively.  The  Company's
Registration  Statement  (SEC No.  333-39937)  registering  the Common Stock and
Warrants was declared  effective by the  Securities  and Exchange  Commission on
February 10, 1998 and trading in the securities  commenced on February 10, 1998.
The Common Stock was offered and sold to the public at $5.00 per share,  and the
Warrants were offered and sold at $.10 per Warrant. The high and low closing bid
price for the Common Stock below reflects the quotations for the period in which
trading in the Common Stock took place.

    Year Ended September 27, 1998                   High                  Low
    Second Quarter Ended March 29, 1998             $5 1/8                $3 1/8
    Third Quarter Ended June 28, 1998               $4 7/16               $3 3/8
    Fourth Quarter Ended September 27, 1998         $3 3/4                $2

     As of  December  31,  1998  there  were  3,503,000  shares of Common  Stock
outstanding and held of record by approximately  54  stockholders.  In addition,
the Company  believes that there are in excess of 300  beneficial  owners of the
Common Stock and Warrants whose shares are held of record or in "street name".

ITEM 6.  Management's Discussion and Analysis of Plan of Operation

SAFE HARBOR  STATEMENT  UNDER THE PRIVATE  SECURITIES  LITIGATION  REFORM ACT OF
1995:  The  statements   which  are  not  historical   facts  contained  in  the
Management's  Discussion and Analysis of Plan of Operation and elsewhere in this
report on Form 10-KSB are  forward-looking  statements  that involve a number of
known and unknown  risks,  uncertainties  and other  factors which may cause the
actual  results,  performance  or  achievements  of the Company to be materially
different  from any future  results,  performance or  achievements  expressed or
implied by such  forward-looking  statements.  Such factors include, but are not
limited to, the risks  relating to the opening of new  restaurants,  seasonality
and other risks  detailed  in the  Company's  filings  with the  Securities  and
Exchange Commission. The words "believe", "expect",  "anticipate",  "intend" and
"plan" and similar expressions identify forward-looking statements.  Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date the statement was made.

Overview

     The Company  operates  Lundy's,  a  high-volume,  casual,  upscale  seafood
restaurant  located in Brooklyn,  New York, The Boathouse,  a multi-use facility
featuring an upscale  restaurant and catering  pavilion,  located on the lake in
New York City's Central Park, and American Park, a multi-use  facility featuring
an upscale restaurant, catering floor, two outside patios and a fast food kiosk,
located at the water's edge in Battery Park. a New York City landmark.

Results of Operations

     Year Ended September 27, 1998 Compared to Year Ended September 28, 1997

     Sales for the fiscal year ended  September  27, 1998  ("fiscal  1998") were
$16,202,892, an increase of $2,177,424, or 15.5%, as compared to $14,025,468 for
the year ended September 28, 1997 ("fiscal 1997"). The increase in sales was due
to the addition of American Park in May 1998 and the opening of Park View at The
Boathouse with celebrity chef John Villa.  Such increase was partially offset by
the temporary  cessation of catering operations at Bay Casino, LLC (formerly Bay
Cruises, LLC) and a 4.5% decline in sales at Lundy's. The Company's food, liquor
and other revenues  accounted for 74.1%, 18% and 7.9% of sales  respectively for
fiscal 1998 and 76.8%, 15.3% and 7.9% of sales, respectively, for fiscal 1997.

     Cost of sales for fiscal 1998 were  $10,199,858,  an increase of $2,124,446
or 26.3%,  as compared to  $8,075,412  for fiscal 1997.  The increase in cost of
sales was attributable to expenses  incurred with the operation of an additional
restaurant  (American Park) for five months of fiscal 1998 as compared to fiscal
1997,  start-up  inefficiencies at American Park and Park View at The Boathouse,
increased lobster prices and a shift in the menu mix at Lundy's.



                                      -11-
<PAGE>

     Gross profit for fiscal 1998 was $6,003,034 or 37.0% of sales,  as compared
to $5,950,056 or 42.4% of sales for fiscal 1997. The decrease in gross profit as
a percentage  of sales was due primarily to opening  inefficiencies  at American
Park and Park View at The Boathouse and  management  inefficiencies  at Lundy's.
The Company  made  management  changes at Lundy's and American  Park,  tightened
purchasing specifications, and implemented menu changes and stringent labor cost
controls at all of the units.  As a result  operating  profit as a percentage of
sales increased during the fourth quarter of fiscal 1998.

     Operating and  administrative  expenses for fiscal 1998 were  $7,094,273 or
43.8% of sales,  as compared to  $4,934,025  or 35.2% of sales for fiscal  1997.
Operating and administrative expenses for fiscal 1998 were higher primarily as a
result the increased costs associated with being a public company,  a ramp up of
expenditures  in  anticipation  of  the  Company's  planned  expansion,  opening
inefficiencies  at  American  Park  and  Park  View  at The  Boathouse  and  the
distraction  of the Company's key operating  officers  during the lengthy public
offering  process.  The Company has tightened cost controls at each of the units
and at the  corporate  level and has reduced  staffing and expenses  relative to
expansion.  During  fiscal 1998 and fiscal 1997,  operating  and  administrative
expenses  were  reduced  by $81,895  and  $181,012  of  management  income  fee,
respectively,  received  under the Company's  operating  agreement with American
Leisure.  A portion of the management  income fee received by the Company during
fiscal 1997, $125,000,  was an initial fee relating to the formation of American
Leisure and establishment of operations relating to the operating agreement.

     Other expenses for fiscal 1998 were $1,207,963, an increase of $453,712, or
60.2%,  as compared to $754,251 for fiscal 1997.  Other expenses for fiscal 1998
consisted of $554,376 of interest expense and $653,587 of barter expense.  Other
expenses for fiscal 1997 consisted of $341,295 of interest  expense and $412,956
of barter expense.  Approximately  $173,660 of interest  expense for fiscal 1998
relates  to the  original  issue  discount  associated  with a  $1,000,000  loan
provided to the Company by Kayne Anderson (defined below).

     As a result of the foregoing,  loss from  continuing  operations for fiscal
1998 was  $2,299,202  as  compared  to a profit from  continuing  operations  of
$261,780 for fiscal 1997.

Liquidity and Capital Resources

     The  Company's  capital  requirements  have  been and will  continue  to be
significant  and its cash  requirements  have been  exceeding its cash flow from
operations (at September 27, 1998, the Company had a working  capital deficit of
$2,091,271),  due to, among other things,  costs  associated  with  development,
opening and start-up  costs of American  Park and Park View at The Boathouse and
building a corporate infrastructure sufficient to support the Company's proposed
expanded operations.  As a result, the Company has been substantially  dependent
upon sales of its equity securities,  loans from financial  institutions and the
Company's officers,  directors and stockholders and bartering  transactions with
member dining clubs to finance a portion of its working capital requirements.

     During  fiscal  1998,  net cash  decreased  by  $60,141.  Net cash  used in
operating  activities was $2,332,461,  net cash used in investing activities was
$1,982,934,  relating to the acquisition of property and equipment primarily for
American Park, and net cash provided from financing  activities was  $4,255,254,
consisting  primarily of long-term  borrowings of $1,000,000 and net proceeds of
$3,637,249  from  sales of  equity  securities,  which was  partially  offset by
principal  payments on  long-term  debt and  capitalized  lease  obligations  of
$516,211.

     During fiscal 1997,  net cash  increased by $215,009.  Net cash provided by
operating  activities was $1,044,290,  net cash used in investing activities was
$1,117,856,  relating to the acquisition of property and equipment primarily for
American  Park,  and net cash provided from  financing  activities was $288,575,

                                      -12-
<PAGE>

consisting  primarily  of  long-term  borrowings  of  $905,158  and  proceeds of
$200,000  from  sales of  equity  securities,  which  was  partially  offset  by
principal  payments on  long-term  debt and  capitalized  lease  obligations  of
$527,558.

     The Company  enters into  bartering  agreements  with member  dining  clubs
whereby  member  dining  clubs  advance  cash to the Company in exchange for the
Company's  agreement to provide to the clubs'  members  food and  beverages at a
designated Company restaurant.  The restaurant must permit the clubs' members to
purchase  food and  beverages  at  rates  between  160%  and 200% of the  amount
advanced.  Upon entering into the agreement,  the Company records its obligation
to provide food and  beverages at the amount of the advance it receives.  Upon a
guest  purchasing food or beverages,  the Company records revenue for the amount
of food and beverage purchased by the guest, and the barter discount as a barter
expense.

     In October 1997, Kayne Anderson Non-Traditional Investments, L.P. and ARBCO
Associates,  L.P.,  affiliates of Kayne  Anderson  Investment  Management,  Inc.
(collectively, "Kayne Anderson"), loaned the Company an aggregate of $1,000,000.
The loans bear interest at the rate of 10% per annum, payable quarterly, and are
due May 31, 1999.  Upon an event of default  under the loans,  the interest rate
increases  to 15% per annum and the  Company  would be  required to pay to Kayne
Anderson 50% of the  operating  profits from  American  Park on a monthly  basis
until  the  loan is fully  repaid.  The loan is  guaranteed  by Frank  Cretella,
President,  Chief Executive Officer,  a director and a principal  stockholder of
the  Company,  and the  guarantee  is secured  by a pledge of 200,000  shares of
Common Stock owned by Frank  Cretella and Jeanne  Cretella,  Vice  President,  a
director and principal  stockholder of the Company. As partial consideration for
the loans, the Company issued to Kayne Anderson  warrants (the "KA Warrants") to
purchase  200,000 shares of Common Stock.  The KA Warrants are  exercisable at a
price of $5.00 per share (subject to adjustment under certain circumstances) and
are  exercisable  at any time until  October 31, 2002.  The Company will incur a
non-cash  interest charge of $482,000  representing  the original issue discount
relating to the  promissory  notes issued to Kayne Anderson over the life of the
promissory  notes.  In connection  with the loan,  the Company agreed to use its
best  efforts  to cause a  representative  designated  by Kayne  Anderson  to be
elected to the Company's  Board of Directors.  Kenneth Harris has been elected a
director as Kayne Anderson's  initial designee.  In August 1998, the Company and
Kayne Anderson agreed to amend the loan agreement to extend the maturity date of
the loans to September  30, 1999.  Under the terms of the  amendment the Company
agreed to substitute 50% of The Boathouse  operating profits for 50% of American
Park operating  profits if the Company failed to repay the loan by September 30,
1999.

     In February 1998, the Company  consummated an initial public offering ("the
Public  Offering") of 1,000,000  shares of Common Stock and 500,000 Warrants for
gross proceeds of $5,050,000.  After payment of the  underwriters  discounts and
commissions and expenses of the Public  Offering,  net proceeds  realized by the
Company were $3,637,249.

     At the end of fiscal 1998 the Company had used its Public Offering proceeds
to fund operating losses, replenish working capital, construct American Park and
renovate The  Boathouse.  The Company will need to raise  additional  capital to
implement its expansion  plans.  Other than the ability to enter into  bartering
transactions  with member dining clubs, the Company has no current  arrangements
with respect to, or potential  sources of, additional  financing,  and it is not
anticipated  that any  officers,  directors  or  stockholders  will  provide any
additional loans to the Company.

     On November  19,  1998 the  Company's  Board of  Directors  authorized  the
designation  of  150,000  shares  of a series  of  preferred  stock  ("Series  A
Preferred Stock) bearing a 10% cumulative  dividend  payable  quarterly in cash,
convertible into Common Stock at anytime after issuance, at the holder's option,
at the rate of one share of Common  Stock for each  share of Series A  Preferred
Stock, subject to adjustment under certain circumstances. The Series A Preferred
Stock is senior in rights and preferences to any subsequently  designated series
and/or class of preferred  stock and is entitled to one vote per share of Common
Stock into


                                      -13-
<PAGE>

which the  issued and  outstanding  shares of Series A  Preferred  Stock is then
convertible,  on all matters submitted to a vote of the Company's  stockholders.
Outstanding shares of Series A Preferred Stock are redeemable at any time by the
Company,  at its option, at the redemption price of $5.00 per share, upon timely
notice of its intent to redeem.

     In December 1998, Frank Cretella converted $720,405 of indebtedness owed by
the Company to him into  shares of Series A Preferred  Stock at the ratio of one
share of Series A Preferred Stock for each $5.00 of indebtedness outstanding. As
an  inducement to Mr.  Cretella to convert the debt to equity,  the Company also
issued Mr. Cretella  72,040  warrants to purchase the Company's  Common Stock at
$6.00 per share.

Seasonality and Fluctuations in Quarterly Operating Results.

     The  Company's  business is  seasonal.  The  bicycle,  rowboat  rentals and
outdoor  dining at The  Boathouse  are open only  March  through  November.  The
catering  facilities,  indoor  section of the Park View  restaurant and the fast
food  operation  are opened year round,  but at a  substantially  reduced  sales
volume  during  the  winter  due to the  Boathouse's  location  in the middle of
Central Park.

     The two outdoor  patios at  American  Park and the fast food kiosk are only
open March  through  November and its  location in Battery  Park also  restricts
winter sales potential.  The indoor  restaurant and catering level are open year
round.

     Lundy's is a waterside  location and  attracts  more guests  during  warmer
months. As a result, the Company's average weekly restaurant sales and operating
cash flow  generally  increases  from April through  October and decreases  from
November through March.

     The Company  also  expects  that future  quarterly  operating  results will
fluctuate as a result of the timing of and  expenses  related to the openings of
new  restaurants  (as the Company  will incur  significant  expenses  during the
months  preceding  the  opening  of a  restaurant),  as well  as due to  various
factors,  including the seasonal nature of its business,  weather  conditions in
New York City,  the health of New York City's economy in general and its tourism
industry in  particular.  Accordingly,  the  Company's  sales and  earnings  may
fluctuate  significantly  from quarter to quarter and operating  results for any
quarter will not  necessarily  be indicative of the results that may be achieved
for a full year.

Year 2000

     The  Company  is  currently  evaluating  the impact of the Year 2000 on its
management and information  systems. At this time,  management believes that the
impact  of the Year  2000 will have no  material  effect  on its  operations  or
financial results.

Inflation

     The effect of inflation on the Company has not been significant  during the
last two fiscal years.

ITEM 7.   Financial Statements

     The  Consolidated   Financial  Statements  of  the  Company  appear  herein
following Item 13 below. Commencing on Page F-1

ITEM 8.   Changes  in and  Disagreements  With  Accountants  on  Accounting  and
          Financial Disclosure.

     Not applicable



                                      -14-
<PAGE>

Part III.

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

     The following are the directors and executive officers of the Company:

Name                     Age     Position
- ------------------      ------   -----------------------------------------------
Frank Cretella            40     President, Chief Executive Officer and Director
Jeanne Cretella           40     Vice President and Director
Anthony B. Golio          38     Vice President
Kenneth L. Harris         56     Chairman of the Board
Peter J. Salvatore        61     Director
Barry E. Krantz           54     Director
Frank Argenziano          51     Director

     Frank Cretella  co-founded  the Company's  predecessor in 1981 and has been
President,  Chief  Executive  Officer  and  a  director  of  the  Company  since
inception.

     Jeanne Cretella co-founded the Company's  predecessor in 1981, and has been
Vice  President,  Secretary and a director of the Company since  inception.  Ms.
Cretella is the wife of Frank Cretella.

     Anthony B. Golio has been Vice President of the Company since October 1997.
In June 1996, Mr. Golio founded The Pineapple  Group Inc., a consulting  company
to the restaurant industry. From February 1994 until October 1996, Mr. Golio was
director of operations of Whiskey River Restaurant  Group, a restaurant  holding
company. From January 1991 through February 1994, Mr. Golio was Vice President -
Operations and Marketing of HMG, Inc., a restaurant  holding company.  From 1988
to 1991,  Mr.  Golio was manager of guest  services  of the New York  Zoological
Society. From 1984 to 1988, Mr. Golio was area manager of Chi-Chi's Restaurants,
Inc.

     Kenneth L. Harris has been  Chairman of the Board of the Company since June
1997. Since March 1998, Mr. Harris has been a Senior Vice President and Managing
Director of Kayne Anderson Investment  Management,  Inc. Since January 1995, Mr.
Harris has been  President and Chief  Executive  Officer of Platinum  Restaurant
Group, a management  consulting  firm.  From February 1994 through January 1995,
Mr.  Harris was Chief  Operating  Officer of HOB  Entertainment,  Inc.,  a theme
restaurant  company.  From January 1975 through  January  1994,  Mr.  Harris was
employed  by  W.R.  Grace  &  Co.  ("Grace")  and  its  subsidiary,   Restaurant
Enterprises Group, Inc. ("REGI"), most recently as President and Chief Executive
Officer of REGI's Dinnerhouse division.

     Peter J. Salvatore has been a director of the Company since February, 1998.
Mr.  Salvatore  has been  Managing  Director of Spear  Leeds & Kellogg,  an NASD
member firm, since March 1991.

     Barry E. Krantz has been a director of the Company  Since  February,  1998.
Mr. Krantz has been an independent  restaurant  industry consultant since August
1995. Mr. Krantz was Chief Operating Officer and a director of REGI from January
1989 through January 1994 when it was sold by Grace to an investor  group.  From
January 1994 to August 1995, Mr. Krantz was President,  Chief Operating  Officer
of Family  Restaurants,  Inc.,  the successor of REGI. Mr. Krantz is currently a
director of Sizzler  International,  Inc. and Fresh Choice,  Inc., both publicly
traded companies in the restaurant industry.

     Frank  Argenziano  became a director of the Company on November  19,  1998.
Since February 1989, Mr.  Argenziano has been Chief Financial Officer of Paragon
Capital Corporation, a member of the NASD. From 1970 to 1989, Mr. Argenziano was
employed at Schroder & Co. Inc., formerly Wertheim & Co. Inc.



                                      -15-
<PAGE>

     All  directors  currently  hold  office  until the next  annual  meeting of
stockholders  and  until  their  successors  are  duly  elected  and  qualified.
Executive  officers of the Company serve at the direction of the Board and until
their  successors  are  duly  elected  and  qualified.  The  Company  reimburses
directors for  reasonable  travel  expenses  incurred in  connection  with their
activities  on behalf of the Company but does not pay its directors any fees for
Board participation.  Each outside Director is granted 5,000 options annually to
purchase Company common shares as compensation for services.

     The Company has agreed that it will,  for the period  ending  February  10,
2001, upon the request of the Underwriter,  nominate and use its best efforts to
elect a designee  of the  Underwriter  (which  designee  may change from time to
time) as a director of the Company or, at the Underwriter's option, appoint such
designee as a non-voting advisor to the Company's Board of Directors.  In August
1998, the Underwriter  exercised its right and designated Frank Argenziano to be
a member of the Board of Directors.  Mr.  Argenziano was elected to the Board of
Directors on November 19, 1998.

Audit Committee

     The Board of Directors  has  established  an audit  committee  comprised of
Kenneth  Harris and Peter  Salvatore.  The audit  committee is  responsible  for
making   recommendations   concerning  the  engagement  of  independent   public
accountants,  reviewing the plans and results of the audit  engagement  with the
independent  public accounts,  approving  professional  services provided by the
independent public accounts and reviewing the adequacy of the Company's internal
accounting contracts.

Executive Committee

     The Board of Directors has established an executive  committee comprised of
Kenneth  Harris,  Frank Cretella and Jeanne  Cretella.  The executive  committee
meets on a monthly basis to review the Company's  operating  results pursuant to
directives  of the  Board  of  Directors  and to make  operating  and  strategic
decisions on items authorized by the Board.

Real Estate Committee

     The Board of Directors has established a real estate committee comprised of
Kenneth Harris,  Barry Krantz and Peter Salvatore.  The real estate committee is
responsible  for  reviewing   proposed  real  estate   transactions  and  making
recommendations to the Board of Directors with respect to specific transactions.

Compensation Committee

     The Board of Directors has established a compensation  committee  comprised
of Kenneth Harris, Barry Krantz and Peter Salvatore.  The compensation committee
is  responsible  for  determining  compensation  for  executive  officers of the
Company,  and for reviewing and  presenting the Board of Directors with proposed
bonus grants, stock option grants and employment contracts.

Compliance with Section 16(a) of the Securities Exchange Act

     Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended  (the
"Securities Exchange Act"),  requires the Company's officers and directors,  and
persons  who own more than 10% of a  registered  class of the  Company's  equity
securities,  to file  reports of  ownership  and changes in  ownership  with the
Securities and Exchange Commission ("SEC"). Officers, directors and greater than
10%  stockholders  are  required by SEC  regulation  to furnish the Company with
copies of all Section 16(a) forms they file.

     Based solely on the Company's  review of the copies of such forms  received
by the Company,  the Company believes that,  during the year ended September 27,
1998, all filing requirements applicable to its


                                      -16-
<PAGE>

   
officers,  directors and greater than 10% beneficial  owners were complied with,
except that (i) a Form 3 for Peter J.  Salvatore  was filed late,  (ii) a From 3
for Barry E.  Krantz was filed late,  and (iii) a Form 4 for Peter J.  Salvatore
reporting one transaction in February 1998 was filed late.
    

ITEM 10.  Executive Compensation

     The  following  table sets forth certain  compensation  paid by the Company
during the fiscal  years  ended  September  27,  1998,  September  28,  1997 and
September 29, 1996 to Frank Cretella,  its President and Chief Executive Officer
and  certain  compensation  paid by the  Company to Anthony B.  Golio,  its Vice
President for the fiscal year ended  September 27, 1998. No other officer of the
Company received compensation in excess of $100,000 for any such fiscal year.

                           Summary Compensation Table

                                                 Annual Compensation
                                     -------------------------------------------
                                                                    Other Annual
Name and Principal Position          Year    Salary        Bonus    Compensation
- ---------------------------          ----    ------        -----    ------------
Frank Cretella ...................   1998   $175,000      $  0       $  2,000
  President and Chief
  Executive Officer
                                     1997   $175,000(1)   $  0       $  2,000

                                     1996   $168,000      $  0       $  2,000

Anthony B. Golio .................   1998   $102,445      $  0       $      0
 Vice President

- --------------
(1)  Mr. Cretella deferred  approximately $25,000 of his salary from fiscal 1997
     and such payment was made in fiscal 1998.



                                      -17-
<PAGE>

     The following table provides  information relating to stock options awarded
to each of the  above-named  executive  officers during the year ended September
27, 1998. All such options were awarded under the Stock Option Plan.

<TABLE>
<CAPTION>
                                                              Option Grants in Fiscal 1998
                                           ------------------------------------------------------------------
                                              Number of        % of Total 
                                               Shares        Options Granted     Exercise
                                             Underlying      to Employees in     Price Per         Expiration
Name and Principal Position                Options Granted    Fiscal 1998(1)     Share (2)           Date
- ---------------------------                ---------------   ---------------     ---------         ----------
<S>                                            <C>                  <C>             <C>             <C>
Frank Cretella
  President and Chief Executive Officer..      37,500               15%             $5.00           2/10/2003

                                               18,750 (3)            8%             $5.00           2/10/2004

                                               18,750 (4)            8%             $5.00           2/10/2005
Anthony B. Golio
 Vice President..........................      12,500                5%             $5.00           2/10/2003

                                                6,250 (3)            3%             $5.00           2/10/2004

                                                6,250 (4)            3%             $5.00           2/10/2005
</TABLE>

- ----------
(1)  The  number of options  granted to  employees  during  fiscal  1998 used to
     compute  this  percentage  excludes  options to purchase  48,625  shares of
     Common Stock due the termination of such options pursuant to their terms.

(2)  Options were granted at an exercise price equal to the fair market value of
     the Company's Common Stock on the date of grant, as determined by the Board
     of Directors.

(3)  These options vest on the first  anniversary  of the date of grant provided
     that the optionee is then employed by the Company.

(4)  These options vest on the second  anniversary of the date of grant provided
     that the optionee is then employed by the Company.


Employment Agreements

     Effective February 10, 1998, the Company entered into three-year employment
agreements  with Frank  Cretella and Jeanne  Cretella,  which are  automatically
renewable and provide for an annual base  compensation  of $175,000 and $75,000,
respectively,  and such bonuses as the Board of Directors  may from time to time
determine.  Each of the employment  agreements  requires the officer to devote a
majority of such officer's  business time to the Company's  business and affairs
and  contains a  provision  that such  officer  will not  compete or engage in a
business  competitive  with the current or  anticipated  business of the Company
during  the  term of the  employment  agreement  and for a  period  of one  year
thereafter.  Each  of the  agreements  also  provides  that  if the  officer  is
terminated  without cause  (including as a result of a change in control),  such
officer will be entitled to receive severance pay equal to the base compensation
through the term of the  agreement,  provided that if such officer is terminated
during the third year or the last year of any renewal term, such officer will be
entitled  to  receive  additional  compensation  equal to the base  compensation
received  from the  Company  during  the  one-year  period  prior to the date of
termination.

Consulting Agreement

     In July 1996, the Company entered into a two-year consulting agreement with
Kenneth L. Harris,  Chairman of the Board of the Company,  pursuant to which Mr.
Harris (through Platinum Restaurant Group, a


                                      -18-
<PAGE>

company wholly owned by Mr. Harris) has provided strategic planning,  restaurant
operations, marketing and site evaluation consulting services for a fee equal to
$2,500 per month  through  December  1997 and $5,000 per month  thereafter.  The
agreement is automatically  renewable for successive  one-year  periods,  unless
either party gives written notice of its intention not to renew the agreement at
least  30 days  prior  to the end of the  term or  renewal  term.  In  addition,
pursuant to the  consulting  agreement,  in March,  1998 the Company paid to Mr.
Harris $50,000 as payment for consulting  services rendered to the Company prior
to entering into the consulting agreement.

1997 Stock Option Plan

     In October 1997,  the Company's  stockholders  approved a stock option plan
(the "Option  Plan")  pursuant to which 525,000 shares of Common Stock have been
reserved for  issuance  upon the  exercise of options  designated  as either (i)
incentive  stock options  ("ISOs")  under the Internal  Revenue Code of 1986, as
amended (the "Code") or (ii) nonqualified options. ISOs may be granted under the
Option Plan to officers and employees of the Company.  Non-qualified options may
be  granted  to  consultants,  directors  (whether  or not they are  employees),
employees or officers of the Company.

     The purpose of the Option Plan is to encourage  stock  ownership by certain
directors,  officers and employees of the Company and other persons instrumental
to the success of the Company. The Option Plan is intended to qualify under Rule
16b-3 under the Exchange Act, and is administered by the Board of Directors. The
Board, within the limitations of the Option Plan, determines the persons to whom
options  will be  granted,  the number of shares to be  covered by each  option,
whether the options  granted are  intended to be ISOs,  the duration and rate of
exercise of each option,  the option  purchase price per share and the manner of
exercise, and the time, manner and form of payment upon exercise of an option.

     ISOs granted  under the Option Plan may not be granted at a price less than
the fair market  value of the Common Stock on the date of grant (or 110% of fair
market  value in the case of persons  holding 10% or more of the voting stock of
the Company).  The aggregate  fair market value of shares for which ISOs granted
to any employee are  exercisable  for the first time by such employee during any
calendar  year  (under all stock  option  plans of the  Company  and any related
corporation)  may not exceed $100,000.  Non-qualified  options granted under the
Option Plan may not be granted at a price less than the fair market value of the
Common Stock on the date of grant.  Options  granted  under the Option Plan will
expire not more than ten years from the date of grant (five years in the case of
ISOs granted to persons holding 10% or more of the voting stock of the Company).
All  options  granted  under  the  Option  Plan are not  transferable  during an
optionee's  lifetime  but are  transferable  at  death by will or by the laws of
descent and  distribution.  In general,  upon  termination  of  employment of an
optionee,  all options  granted to such person which are not  exercisable on the
date  of such  termination  immediately  terminate,  and any  options  that  are
exercisable terminate 90 days following termination of employment.

     Effective as of February  10, 1998 the Company  granted  options  under the
Option Plan to purchase an aggregate of 293,250 shares. Of such options, options
to purchase  75,000,  50,000,  35,000,  and 25,000  shares  were  granted to Mr.
Cretella, Mrs. Cretella, Mr. Harris and Mr. Golio, respectively,  at an exercise
price of $5.00 per share. Of the options granted to each of Mr.  Cretella,  Mrs.
Cretella,  Mr. Harris and Mr. Golio, 50% vested immediately and the balance will
vest in increments of 25% of the shares covered thereby on each of the first and
second  anniversaries of the date of grant,  respectively.  On November 19, 1998
the Board authorized the grant of 204,000 options under the Option Plan. Of such
options,  options to purchase 75,000,  50,000, 17,500 and 12,500 were authorized
for granting to each of Mr. Cretella,  Mrs. Cretella,  Mr. Harris and Mr. Golio,
respectively,  no  earlier  than five days  after the date on which the  Company
files its Form 10KSB for fiscal 1998.  All of such options vest in increments of
50% on the date of grant and 25% on each of the first and  second  anniversaries
of the date of grant and are  exercisable  upon vesting at a price that is equal
to the closing bid price of the Company's Common Stock on the date of grant. The
options  expire  five  years  from  the  date of  vesting,  subject  to  earlier
termination.


                                      -19-
<PAGE>

Compensation to Directors

     Each  outside  director  receives  options to purchase  5,000 shares of the
Company's  Common  Stock for each year of  service  rendered  as a member of the
Board of Directors. On November 19, 1998 the Board authorized that 5,000 options
under the  Options  Plan be  granted to each of Messrs,  Harris,  Salvatore  and
Krantz,  on the date that is five days after the date on which the Company files
its Form 10KSB for fiscal 1998,  for services  rendered  during  fiscal 1998. On
November 19, 1998 the Board  authorized that 5,000 options under the Option Plan
be granted to each of Messrs.  Harris,  Salvatore,  Krantz and Argenziano on the
date of the  Company's  annual  meeting  of  stockholders,  for  services  to be
rendered during fiscal 1999. All options are non-qualified  stock options,  vest
in full on the date of grant and expire five years from date of grant.

     Mr. Harris provided  consulting  services to the Company under the terms of
his consulting  agreement.  In fiscal 1998 he received  compensation of $97,500,
including $50,000 for services rendered prior to fiscal 1998.

     Mr.  Krantz  provided  consulting  services  to the  Company  and  received
compensation of $1,360 in fiscal 1998.

Indemnification and Exculpation Provisions

     The Company's Certificate of Incorporation  provides for indemnification of
officers and  directors  to the fullest  extent  permitted  by Delaware  law. In
addition, under the Company's Certificate of Incorporation, no director shall be
liable  personally to the Company or its  stockholders  for monetary damages for
breach  of  fiduciary  duty as a  director;  provided  that the  Certificate  of
Incorporation  does not eliminate the liability of a director for (i) any breach
of the director's duty of loyalty to the Company or its stockholders;  (ii) acts
or omissions  not in good faith or which  involve  intentional  misconduct  or a
knowing violation of law; (iii) acts or omissions in respect of certain unlawful
dividend payments or stock  redemptions or repurchases;  or (iv) any transaction
from which such director derives improper personal benefit. The Company has also
obtained directors and officers insurance.

ITEM 11.  Principal Stockholders

     The following table sets forth certain  information as of December 21, 1998
(based on  information  obtained from the persons named below),  relating to the
beneficial ownership of shares of Common Stock by: (i) each person or entity who
is  known  by the  Company  to own  beneficially  five  percent  or  more of the
outstanding  Common Stock,  (ii) each of the  Company's  directors and (iii) all
directors and executive officers of the Company as a group.

                                                      Number of    Percentage of
                                                        Shares         Shares
                                                     Beneficially   Beneficially
Name and Address of Beneficial Owners(1)                Owned         Owned(2)
- ----------------------------------------             ------------  -------------
Frank Cretella .................................     1,979,566(3)      52.0%
Jeanne Cretella ................................     1,979,566(3)      52.0
Richard A. Kayne (4) ...........................       598,082(5)      16.2
  KAIM Non-Traditional, L.P. 
Offense Group Associates, L.P. (6) .............       193,898(7)       5.5
Peter J. Salvatore(8) ..........................       184,371(9)       5.3
Kenneth L. Harris ..............................       155,282(10)      4.4
Frank Argenziano (11) ..........................         9,000(12)        *
Barry Krantz ...................................         5,000(13)        *
All directors and executive officers as a group
 (seven persons) ...............................     2,372,004(14)     61.0%



                                      -20-
<PAGE>

- ----------
*    Less than 1%

(1)  Unless otherwise indicated,  the address for each named individual or group
     is in care of TAM Restaurants, Inc., 1163 Forest Avenue, Staten Island, New
     York 10310.

(2)  Unless otherwise indicated,  the Company believes that all persons named in
     the table have sole voting and investment  power with respect to all shares
     of Common  Stock  beneficially  owned by them. A person is deemed to be the
     beneficial  owner of securities  that can be acquired by such person within
     60 days from the date of this  Prospectus  upon the  exercise  of  options,
     warrants or convertible  securities.  Each  beneficial  owner's  percentage
     ownership is determined by assuming that options,  warrants or  convertible
     securities  that are held by such  person  (but not those held by any other
     person)  and  which  are  exercisable  within  60 days of the  date of this
     Prospectus   have  been  exercised  and   converted.   Assumes  a  base  of
     approximately  3,503,000  shares of Common  Stock  outstanding,  before any
     consideration is given to other outstanding options or warrants.

(3)  Represents  (i) 1,179,235  shares held jointly by Frank Cretella and Jeanne
     Cretella,  (ii)  500,000  shares held by trusts of which Mr.  Cretella is a
     co-trustee and Mr. and Mrs.  Cretella's  daughter is the  beneficiary.  Mr.
     Cretella has sole voting and dispositive  power over the shares held in the
     trusts  (iii)  93,750  shares of Common  Stock  issuable  upon  exercise of
     options held by Frank Cretella, (iv) 62,500 shares of Common Stock issuable
     upon  exercise of options held by Jeanne  Cretella,  (v) 144,081  shares of
     Common Stock issuable upon  conversion of Series A Preferred  Stock held by
     Frank Cretella. Does not include (i) 56,250 shares of Common Stock issuable
     upon  exercise of options  held by Frank  Cretella,  (ii) 37,500  shares of
     Common Stock  issuable  upon  exercise of options held by Jeanne  Cretella,
     (iii) Selling Securityholders'  Warrants to purchase 4,724 shares of Common
     Stock  held by Jeanne  Cretella  and (iv)  72,040  shares  of Common  Stock
     issuable upon exercise of a warrant held by Frank Cretella.

(4)  The  address  for Richard A. Kayne and KAIM  Non-Traditional,  L.P.  ("KAIM
     N-T") is 1800 Avenue of the Stars,  Second Floor,  Los Angeles,  California
     90067.

(5)  Based solely on a Schedule 13D, and amendments thereto,  jointly filed with
     the Securities and Exchange  Commission by Mr. Kayne and KAIM N-T for which
     each party reports shared voting and dispositive power over securities held
     by several investment funds, including Offense Group Associates,  L.P. (see
     footnote  (7)  below),  for  which  KAIM N-T acts as  general  partner  and
     investment advisor,  except for one investment fund for which KAIM N-T acts
     solely as  investment  advisor.  Both  parties  report  shared  voting  and
     dispositive  powers  over a portion of the  securities  held under a 401(K)
     plan of an  affiliated  entity.  Mr.  Kayne  is an  officer,  director  and
     controlling  stockholder of the company that acts as the general partner of
     KAIM N-T. Includes 200,000 shares of Common Stock issuable upon exercise of
     warrants held by two investment  funds.  Does not include 120,141 shares of
     Common Stock  issuable  upon  exercise of warrants  held by the  investment
     funds.

(6)  The address for Offense Group Associates,  L.P. ("OGALP") is 1800 Avenue of
     the Stars, Second Floor, Los Angeles, California 90067.

(7)  Based  solely on a Schedule  13D,  filed with the  Securities  and Exchange
     Commission by OGALP,  reporting  shared voting and dispositive  powers over
     the securities held by OGALP, an investment  fund,  together with KAIM N-T,
     its general  partner and  investment  advisor and Mr.  Kayne,  the officer,
     director  and  controlling  stockholder  of the  company  that  acts as the
     general partner of KAIM N-T. Does not include 53,599 shares of Common Stock
     issuable upon exercise of warrants held OGALP.



                                      -21-
<PAGE>

(8)  The address for Mr. Salvatore is 35 Seagate Road,  Staten Island,  New York
     10310.

(9)  Includes (i) 9,082 shares of Common Stock held by Peter and Gail  Salvatore
     Foundation,  Inc.,  a trust  of which by Mr.  and  Mrs.  Salvatore  are the
     beneficiaries  and (ii) 5,000 shares of Common Stock issuable upon exercise
     of  options  to be  granted  to Mr.  Salvatore.  Does not  include  Selling
     Securityholders' Warrants to purchase 88,191 shares of Common Stock.

(10) Includes (i) 110,282  shares owned  jointly by Kenneth and Maureen  Harris,
     (ii) 5,000 shares owned by Maureen  Harris,  (iii) 35,000  shares of Common
     Stock  issuable  upon exercise of options held by Mr. Harris and (iv) 5,000
     shares of Common Stock  issuable upon options to be granted to Mr.  Harris.
     Does not include (i) 2,500 shares of Common Stock issuable upon exercise of
     warrants  held by Mrs.  Harris,  and (ii)  17,500  shares of  Common  Stock
     issuable  upon  exercise of options held by Mr.  Harris.  Mr.  Harris is an
     officer of an affiliate of KAIM N-T but does not have voting or dispositive
     power over the Company's  securities reported by KAIM N-T (see footnote (5)
     above),   and  therefore   disclaims  any  beneficial   ownership  of  such
     securities.

(11) The address for Mr.  Argenziano  is 7 Hanover  Square,  New York,  New York
     10004

(12) Represents  9,000  shares  of the  Company's  Common  Stock  issuable  upon
     exercise of warrants held by Mr.  Argenziano.  Does not include 4,500 share
     of the  Company's  Common Stock  issuable upon exercise of warrants held by
     Mr. Argenziano.

(13) Represents  5,000  shares  of the  Company's  Common  Stock  issuable  upon
     exercise of options to be granted to Mr. Krantz.

(14) Includes an aggregate of 384,331  shares of Common Stock  issuable upon the
     exercise of options and warrants.  Does not include an aggregate of 295,705
     shares of Common Stock issuable upon exercise of options and warrants.


ITEM 12.  Certain Transactions

     Prior  to  January  1994,  Ernest  Cretella,   father  of  Frank  Cretella,
President,  Chief Executive Officer,  a director and a principal  stockholder of
the Company,  loaned the Company  $100,000.  In January  1994,  Ernest  Cretella
borrowed $125,000 from a bank, which was then loaned to the Company, and secured
the loan by mortgaging his personal residence. The Company repaid $50,000 of the
outstanding  indebtedness owed to Ernest Cretella and the Company agreed to make
Ernest  Cretella's  mortgage  payments to the bank.  In September  1995,  Ernest
Cretella  converted the additional $50,000 principal amount of indebtedness owed
to him into  25,000  shares of Common  Stock and  2,500  warrants.  The  Company
remains obligated to make Ernest  Cretella's  mortgage  payments.  In July 1996,
Ernest  Cretella,  loaned the  Company an  additional  $55,000.  Such loan bears
interest at the rate of 10% per annum,  payable  quarterly,  and is due June 30,
2000.

     In March 1994, the Company  entered into a lease  agreement to sublease the
space  where  Lundy's is  located.  Frank  Cretella  personally  guaranteed  the
Company's  obligations  to pay rent during the time which it occupies the leased
premises.

     During 1994, Frank Cretella loaned the Company $12,500.  In September 1996,
Mr. Cretella borrowed $65,000 from the Company.  During the year ended September
28, 1997, Mr. Cretella repaid the $52,500 owed to the Company.

     During 1995 and 1996,  the Company  borrowed an aggregate of $840,000  from
Fleet Bank,  N.A.  Such loans were  collateralized  by the  Company's  principal
executive offices,  which are owned by Mr. Cretella, the warehouse leased by the
Company and owned by Leisure Time Services,  Inc.  ("Leisure  Time"),  a company
owned by Jeanne Cretella,  Vice President,  director and a principal stockholder
of the Company, and Mr. and


                                      -22-
<PAGE>

Ms. Cretella's personal  residence,  and guaranteed by Mr. and Mrs. Cretella and
Leisure  Time. In June 1997,  Mr.  Cretella  agreed to pay to Fleet  $640,000 as
payment for the amount owed by the Company (approximately $720,000 as of October
15, 1997).  In August 1997,  Mr.  Cretella paid to Fleet $140,000 as part of the
settlement. Mr. Cretella paid the balance of the principal owed to Fleet and the
Company paid accrued interest of approximately  $39,000 owed to Fleet in October
1997. As consideration for repaying the loan, the Company issued to Mr. Cretella
a  promissory  note in the  original  principal  amount of $720,405  which bears
interest  at the  rate  of  10%  per  annum.  Interest  is  payable  in  monthly
installments  of  $6,003,  with the  outstanding  principal  balance  payable in
November  2002 upon  maturity  of the  note.  In  December  1998,  Mr.  Cretella
converted  $720,405  of  indebtedness  owed to him by the Company  into  144,081
shares of Series A Preferred  Stock.  As further  inducement to Mr.  Cretella to
convert  the debt to equity  the  Company  also  issued to Mr.  Cretella  72,040
warrants to purchase the Company's  Common Stock at $6.00 per share. The Company
received a fairness opinion with respect to this transaction.

     Prior to his employment by the Company, from October 1996 through September
1997, Anthony Golio, Vice President of the Company, provided consulting services
to the Company through The Pineapple Group, Inc., a restaurant  consulting firm,
wholly-owned by Mr. Golio,  for which he was paid an aggregate of $88,000.  Such
consulting services included  organizational and managerial training,  labor and
cost  management,  negotiating  with  vendors  and  creating  and  restructuring
management programs.

     In June 1996, the Company borrowed $88,000 from Joseph De Giulio, father of
Jeanne Cretella.  The loan bears interest at the rate of 10% per annum. Interest
is payable in monthly  installments of $733 and the principal is due on June 22,
2001.

     In October 1996,  the Company  entered into a 10-year  operating  agreement
with American Leisure, a company  wholly-owned by Frank Cretella,  to manage the
food  concessions  at the Central Park Zoo and the Staten Island Zoo in New York
City for which the Company receives a management fee equal to 5% of gross sales.
During the year ended September 27, 1998, the Company  received  $81,895 in fees
from American Leisure.  At September 27, 1998, American Leisure owed the Company
$78,107,  which has no  specified  repayment  terms.  Effective  November  1998,
American Leisure no longer operated the food concession at the Central Park Zoo,
accordingly, the operating agreement is no longer in effect with respect to such
concession.

     In October 1996, the Company loaned to Leisure Time $153,863, pursuant to a
note which is payable in monthly installments of $1,996.01,  that bears interest
at a rate of 9.56% per annum and expires on October 1, 2006.  At  September  27,
1998, Leisure Time owed the Company an additional $24,155, representing advances
made during such fiscal year. The advances have no specified repayment terms.

     In October  1996,  the  Company  entered  into a lease  agreement  with Mr.
Cretella,  pursuant to which the Company leases its executive  offices in Staten
Island,  New  York.  Annual  rent  under  the lease  was  $37,500  during  1998,
increasing by 1.5%  commencing  in January of each  subsequent  year.  The lease
expires  on  December  31,  2001.  The  Company  believes  that this lease is on
commercially reasonable terms.

     In October 1996,  the Company  entered into a lease  agreement with Leisure
Time,  pursuant to which the Company leases a warehouse in Bayonne,  New Jersey.
Annual  rent  under the lease  was  $30,000,  during  1998,  increasing  by 1.5%
commencing in January of each subsequent year. The lease expires on December 31,
2001. The Company believes that this lease is on commercially reasonable terms.

     In October 1997, Kayne Anderson Non-Traditional Investments, L.P. and ARBCO
Associates,  L.P. affiliates of Kayne Anderson,  loaned the Company an aggregate
of $1,000,000.  The loans bear interest at the rate of 10% per annum and are due
May 31,  1999.  The loan is  guaranteed  by  Frank  Cretella,  President,  Chief
Executive  Officer, a director and a principal  stockholder of the Company,  and
the guarantee is secured by a pledge of 200,000  shares of Common Stock owned by
Frank Cretella and Jeanne  Cretella,  Vice  President,  a director and principal
stockholder of the Company. As partial  consideration for the loans, the Company
issued to Kayne Anderson warrants (the "KA Warrants") to purchase 200,000 shares
of Common Stock.  The KA Warrants are  exercisable at a price of $5.00 per share
(subject to adjustment under certain  circumstances)  and are exercisable at any
time until  October 31,  2002.  In August,  1998 the Company and Kayne  Anderson
agreed to amend the loan  agreement  whereby the maturity  date of


                                      -23-
<PAGE>

the loans was extended to September 30, 1999.  Kayne Anderson is an affiliate of
KAIM Non-Traditional, LP, a principal stockholder of the Company.

     In December  1998, the Company  entered into a licensing  agreement with KA
Industries,  a wholly owned  subsidiary of Kayne  Anderson,  to market  products
bearing the names Lundy's, The Boathouse,  and Stork Club through KA Industries'
"Mrs.  Beasley's"  mail  order  catalog  and  retail  outlets.  Pursuant  to the
agreement the Company is to receive a royalty on products sold.

     In December 1998, the Company agreed to sublease 1,000 sq. ft. of its 6,000
sq. ft. Bayonne  warehouse to KA Industries,  a wholly owned subsidiary of Kayne
Anderson,  to operate a bakery. The sublease is a month to month lease at a rent
of  $740.83  per month  terminable  upon 120 days  notice by  either  party.  In
conjunction with this transaction, KA Industries advanced $30,000 to the Company
to make modifications the Bayonne warehouse to accommodate the bakery as well as
an in-house  laundry and a lobster pound with such advance  recaptured from rent
and other charges due the Company from KA Industries.

     From time to time the Company has entered into equipment  financing  leases
which have been guaranteed by Mr. Cretella and/or Leisure Time.

     Any future  transactions with affiliates will be on terms no less favorable
to the Company  than could be  obtained  from  unaffiliated  parties and will be
approved by a majority of the independent and disinterested members of the Board
of  Directors,  outside the  presence of any  interested  directors  and, to the
extent deemed  appropriate  by the Board of  Directors,  the Company will obtain
stockholder   approval  or  fairness   opinions  in  connection  with  any  such
transaction.

ITEM 13.  Exhibits, Lists and Reports on Form 8-K

     (a)  Financial Statements

     See list of Financial Statements on F-1

     (b)  Reports on Forms 8-K and 8-K/A

     The Company  did not file any  reports  with the  Securities  and  Exchange
     Commission on Form 8-K for the year ended September 27, 1998.

     (c)  Exhibits

     Exhibit
     Number      Description
     ------      -----------
     3.1         Certificate  of  Incorporation,  as amended,  of the Registrant
                 (1).

     3.2         Bylaws, as amended, of the Registrant (1).

     4.1         Form of Registrant's Common Stock Certificate (1)

     4.4         Form of registrant's Public Warrant Certificate (1).

     10.1        License Agreement between TAM Restaurant Group, Inc.  (formerly
                 TAM Concessions, Inc.) and City of New York Department of Parks
                 and Recreation, dated February 8, 1985, as modified (1).

     10.2        License Agreement  between Shellbank  Restaurant Corp. and City
                 of New York Department of Parks and Recreation,  dated December
                 14, 1997 (1).

     10.3        Lease by and between Lundy's  Management  Corp. and Bay Landing
                 Restaurant Corp. dated July 24, 1994, as amended (1).

     10.4        Lease by and  between Mr.  Frank  Cretella  and the  Registrant
                 dated October 1, 1996 (1).

     10.5        Lease by and between  Leisure Time Services and the  Registrant
                 dated October 1, 1996 (1).


                                      -24-
<PAGE>

     10.6        Management Agreement by and between the Registrant and American
                 Leisure  Today,  Inc.,  formerly  MAT  Operating  Corp.,  dated
                 October 1, 1996 (1).

     10.7        Loan  Agreement by and between the Registrant and each of ARBCO
                 Associates,    L.P.   and   Kayne   Anderson    Non-Traditional
                 Investments, L.P. dated as of October 31, 1997 (1).

     10.8        Form of  Employment  Agreement  between  Registrant  and  Frank
                 Cretella (1).

     10.9        Form of  Employment  Agreement  between  Registrant  and Jeanne
                 Cretella (1).

     10.10       1997 Stock Option Plan (1).

     10.11       Promissory Note of the Registrant dated October 15, 1997 issued
                 to Frank Cretella (1).

   
     27          Financial Data Schedule (2).
    

- ----------
(1)  Incorporated  by  reference  to  the  comparable  exhibit  filed  with  the
     Company's  Registration Statement on Form SB-2, and the amendments thereto,
     SEC No. 333-39937.

   
(2)  Previously  filed as an  exhibit  with the  Company's  Form  10-KSB for the
     fiscal year ended September 27, 1998.
    


                                      -25-
<PAGE>

                                   SIGNATURES

   
     In  accordance  with  the  requirements  of  Section  13 or  15(d)  of  the
Securities  Exchange Act of 1934,  the Registrant has duly caused this amendment
to this  report to be signed on its behalf by the  undersigned,  thereunto  duly
authorized.


                                          TAM RESTAURANT, INC.




Dated:  January 27, 1999                  By: /s/ FRANK CRETELLA
                                          --------------------------------------
                                            Frank Cretella
                                            President, Chief Executive Officer
                                              and Director



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

        Signatures                 Title(s)                           Date
        ----------                 --------                           ----

/s/ FRANK CRETELLA            President, Chief Executive        January 27, 1999
- ------------------------      Officer and Director
Frank Cretella


/s/  ANTHONY B. GOLIO         Vice President (Principal         January 27, 1999
- ------------------------      Financial and Accounting
Anthony B. Golio              Officer)
    


                                      -26-
<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                                                        Contents

================================================================================

     Report of independent certified public accountants                     F-2

     Consolidated financial statements:
          Balance sheet                                                     F-3
          Statements of operations                                          F-4
          Statements of changes in stockholders' equity                     F-5
          Statements of cash flows                                          F-6
          Notes to consolidated financial statements                   F-7-F-26



                                                                             F-1

<PAGE>

Report of Independent Certified Public Accountants



To the Board of Directors and Stockholders
TAM Restaurants, Inc.
Staten Island, New York


We have audited the accompanying  consolidated balance sheet of TAM Restaurants,
Inc. and  Subsidiaries  as of September 27, 1998,  and the related  consolidated
statements of  operations,  changes in  stockholders'  equity and cash flows for
each of the two years in the period ended  September 27, 1998.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of TAM
Restaurants,  Inc. and Subsidiaries as of September 27, 1998, and the results of
their  operations  and their  cash flows for each of the two years in the period
ended  September 27, 1998,  in conformity  with  generally  accepted  accounting
principles.


/s/ BDO Seidman, LLP

BDO Seidman, LLP


New York, New York

December 15, 1998



                                                                             F-2

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                                      Consolidated Balance Sheet

================================================================================

September 27, 1998
- --------------------------------------------------------------------------------
Assets
Current:
    Cash                                                            $   221,484
    Accounts receivable - net of allowance for
        doubtful accounts of $15,000                                    660,522
    Inventory                                                           381,758
    Prepaid expenses and other                                          349,425
- --------------------------------------------------------------------------------
          Total current assets                                        1,613,189
Property and equipment - net                                          5,941,616
Due from affiliates                                                     216,750
Other assets                                                            671,270
Loan receivable - officer                                                39,129
- --------------------------------------------------------------------------------
                                                                    $ 8,481,954
================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
    Current portion of long-term debt                               $   497,865
    Current portion of loans payable, related parties                     1,618
    Current portion of capitalized lease obligations                    116,217
    Accounts payable                                                    962,703
    Contract deposits payable                                           370,292
    Accrued expenses and other                                        1,755,765
- --------------------------------------------------------------------------------
          Total current liabilities                                   3,704,460
- --------------------------------------------------------------------------------
Long-term liabilities:
    Deferred rent expense                                               272,169
    Deferred income                                                       6,000
    Long-term debt - net of current portion                             772,879
    Loans payable, related parties - net of current portion           1,011,994
    Capitalized lease obligations - net of current portion              215,441
    Barter advances - net of current portion                            353,030
- --------------------------------------------------------------------------------
          Total long-term liabilities                                 2,631,513
- --------------------------------------------------------------------------------
          Total liabilities                                           6,335,973
- --------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
    Preferred stock, $.0001 par value, 1,000,000 shares
        authorized; no shares issued and outstanding                         --
    Common stock, $.0001 par value, 19,000,000 shares
        authorized; 3,503,000 shares issued and outstanding                 350
    Additional paid-in capital                                        7,226,975
    Accumulated deficit                                              (5,081,344)
- -------------------------------------------------------------------------------
          Total stockholders' equity                                  2,145,981
- --------------------------------------------------------------------------------
                                                                    $ 8,481,954
================================================================================
                    See accompanying notes to consolidated financial statements.

                                                                             F-3

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                           Consolidated Statements of Operations

================================================================================

                                                            Year ended
                                                  ------------------------------
                                                  September 28,    September 27,
                                                       1997            1998
- --------------------------------------------------------------------------------
Sales                                             $ 14,025,468     $ 16,202,892
Cost of sales                                        8,075,412       10,199,858
- --------------------------------------------------------------------------------
          Gross profit                               5,950,056        6,003,034
Operating and administrative expenses                4,934,025        7,094,273
- --------------------------------------------------------------------------------
          Income (loss) from operations              1,016,031       (1,091,239)
- --------------------------------------------------------------------------------
Other expenses:
    Interest expense                                   341,295          554,376
    Barter expense                                     412,956          653,587
- --------------------------------------------------------------------------------
          Total other expenses                         754,251        1,207,963
- --------------------------------------------------------------------------------
Net income (loss)                                 $    261,780     $ (2,299,202)
================================================================================
Net income (loss) per common share -
    basic and diluted                             $        .11     $       (.73)
================================================================================
Weighted average number of common shares
    outstanding - basic and diluted                  2,478,943        3,129,426
================================================================================
                    See accompanying notes to consolidated financial statements.


                                                                             F-4

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


<TABLE>
                                          Consolidated Statements of Changes in Stockholders' Equity

====================================================================================================
<CAPTION>
Years ended September 28, 1997 and September 27, 1998
- ----------------------------------------------------------------------------------------------------
                                               Common stock           Additional
                                            -------------------         paid-in         Accumulated
                                             Shares      Amount         capital           deficit
- ----------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>          <C>               <C>
Balance, September 29, 1996                 2,444,859    $  244       $ 2,907,802       $(3,043,922)
Issuance of common stock                       55,141         6           199,994                --
Net income                                         --        --                --           261,780
- ----------------------------------------------------------------------------------------------------
Balance, September 28, 1997                 2,500,000       250         3,107,796        (2,782,142)
Initial public offering of common stock     1,000,000       100         3,637,149                --
Warrants issued in connection with debt            --        --           482,000                --
Exercise of warrants                            3,000        --                30                --
Net loss                                           --        --                --        (2,299,202)
- ----------------------------------------------------------------------------------------------------
Balance, September 27, 1998                 3,503,000    $  350       $ 7,226,975       $(5,081,344)
====================================================================================================
</TABLE>
                    See accompanying notes to consolidated financial statements.


                                                                             F-5

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                           Consolidated Statements of Cash Flows

<TABLE>
===========================================================================================
<CAPTION>
                                                                        Year ended
                                                               -----------------------------
                                                               September 28,   September 27,
                                                                   1997            1998
- -------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>
Cash flows from operating activities:
    Net income (loss)                                           $   261,780    $(2,299,202)
    Adjustments to reconcile net income (loss) to
       net cash provided by (used in) operating activities:
          Depreciation and amortization expense                     334,896        553,431
          Deferred rent expense                                      76,452         47,633
          Amortization of original issue discount                        --        173,660
          Deferred income                                           (35,181)        (1,819)
          Increase in allowance for doubtful accounts                    --         15,000
          (Increase) decrease in:
             Accounts receivable                                    (51,420)      (388,154)
             Inventory                                                3,272       (177,052)
             Prepaid expenses and other                             (95,850)        16,641
             Other assets                                           (65,619)      (552,051)
          Increase (decrease) in:
             Accounts payable                                      (551,171)       439,879
             Contract deposits payable                               24,980        106,983
             Accrued expenses                                     1,142,151       (267,410)
- -------------------------------------------------------------------------------------------
                Net cash provided by (used in)
                    operating activities                          1,044,290     (2,332,461)

Cash flows from investing activities:
    Acquisition of property and equipment                        (1,117,856)    (1,982,934)
- -------------------------------------------------------------------------------------------
Cash flows from financing activities:
    Net repayments of officer's loans                                 7,143          7,330
    Loans receivable                                                 32,393         (3,060)
    Repayment of revolving credit line                             (130,000)            --
    Proceeds from long-term debt and warrants                       905,158      1,000,000
    Principal payments on long-term debt and capitalized
        lease obligations                                          (527,558)      (516,211)
    Repayments (advances) from affiliates and others                (70,239)         1,594
    Deferred stock offering costs                                  (128,322)       128,322
    Proceeds from capital stock issue                               200,000             --
    Net proceeds from initial public offering of common stock            --      3,637,249
    Proceeds from exercise of warrants                                   --             30
- -------------------------------------------------------------------------------------------
                Net cash provided by financing activities           288,575      4,255,254
- -------------------------------------------------------------------------------------------
Net increase (decrease) in cash                                     215,009        (60,141)
Cash, beginning of year                                              66,616        281,625
- -------------------------------------------------------------------------------------------
Cash, end of year                                               $   281,625    $   221,484
===========================================================================================
</TABLE>
                    See accompanying notes to consolidated financial statements.

                                                                             F-6

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

1.   Summary of         Nature of Business
     Significant
     Accounting         TAM  Restaurants,  Inc. (the "Company") was incorporated
     Policies           under  the laws of the  State of  Delaware  in July 1996
                        under the name TAM Restaurant  Holding Corp. and changed
                        its name to TAM Restaurants,  Inc.  Effective  September
                        29, 1996,  the Company  acquired all of the  outstanding
                        capital stock of TAM Restaurant Group, Inc., Bay Landing
                        Restaurant  Corp.  and Shellbank  Restaurant  Corp.  The
                        Company operates Lundy Bros.  Restaurant,  ("Lundy's") a
                        high volume,  casual, upscale seafood restaurant located
                        in Brooklyn,  New York,  The  Boathouse in Central Park,
                        ("Boathouse"),  a multi-use  facility  which features an
                        upscale restaurant and catering pavilion, located on the
                        lake in New York City's  Central Park and American  Park
                        at  the  Battery   ("American   Park"),   a  high-volume
                        premium-quality  restaurant  located at the water's edge
                        in Battery Park (Manhattan).  In addition, the Company's
                        restaurants offer high-quality professional, on-premises
                        and off-premises catering services.

                        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.

                        Accounting Period

                        The  Company  reports on a 52/53 week year ending on the
                        last  Sunday  in  September.  The  fiscal  years for the
                        consolidated  financial statements presented all consist
                        of 52-week periods. References to years relate to fiscal
                        years rather than calendar years.

                        Revenue Recognition

                        Revenue is recognized at the point of sale.

                                                                             F-7

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        Inventory

                        Inventory  is  stated  at the  lower of cost,  first-in,
                        first-out,  or market.  Inventory consists of itmes used
                        in operations and items held for resale.

                        Property and Equipment

                        Property and equipment are carried at cost. Depreciation
                        of equipment, furniture and fixtures and amortization of
                        leasehold    improvements   are   provided   using   the
                        straight-line and  double-declining  balance methods for
                        financial  reporting  purposes  at  rates  based  on the
                        following estimated useful lives:

                                                                  Years
                        --------------------------------------------------------
                        Transportation equipment                    5
                        Furniture and fixtures                     5-7
                        Equipment                                  5-10
                        Leasehold improvements           Remaining life of lease
                        ========================================================

                        Expenditures  for major  renewals and  betterments  that
                        extend the useful  lives of property and  equipment  are
                        capitalized.  Expenditures  for  maintenance and repairs
                        are charged to expense as incurred.

                        Trademarks

                        The name Lundy Bros.  (registered  July 9, 1996) and the
                        logo  F.W.I.L.   (registered   December  17,  1996)  are
                        registered  with the United  States Patent and Technical
                        Office.  Each  registration  will remain in force for 10
                        years,  subject  to  the  filing  of  a  Declaration  of
                        Continuing Use between the fifth and sixth anniversaries
                        of the  registration  date.  Included in other assets at
                        September 27, 1998 is $108,607 of net trademark costs.

                        Pre-Opening Costs

                        Pre-opening  costs are deferred.  Expenditures  deferred
                        primarily  relate to salaries  paid to employees  during
                        training, food and beverage preparation costs associated
                        with the  development of the menus and other  restaurant
                        operating  expenses  incurred  prior to  opening  to the
                        public. Amortization begins once the restaurant is fully
                        operational  and open to the public and is provided  for
                        using the  straight-line  method over a period of twelve
                        months.

                                                                             F-8

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        In April 1998, the Financial  Accounting Standards Board
                        ("FASB")  issued  Statement  of Position  ("SOP")  98-5,
                        "Reporting on the Costs of Start-Up  Activities",  which
                        provides guidance on the financial reporting of start-up
                        costs and organization costs. SOP 98-5 requires costs of
                        start-up   activities  and  organization   costs  to  be
                        expensed as incurred.

                        SOP 98-5 is effective for fiscal years  beginning  after
                        December 15, 1998 with early  adoption  encouraged.  The
                        Company  has not  elected  early  implementation  of SOP
                        98-5.   Had  it  done  so,  the  balance   remaining  in
                        pre-opening  costs of $366,024  (Note 5) would have been
                        expensed during the year ended September 27, 1998.

                        Barter Advances

                        The Company has entered into various barter  agreements,
                        which  it uses  as a  source  of  financing.  Under  the
                        agreements,  the Company is advanced cash in exchange to
                        provide food and beverage to the barter  companies.  For
                        every dollar advanced,  the Company must return $1.60 to
                        $2.00 in food and beverage sales.

                        Contract Deposits Payable

                        Contract  deposits  payable are  deposits  received  for
                        future catering events. Revenue is recognized when these
                        events occur.

                        Income Taxes

                        The Company accounts for its income taxes using the FASB
                        Statement of Financial Accounting Standards ("SFAS") No.
                        109,  "Accounting  for Income  Taxes"  ("SFAS No. 109"),
                        which requires the establishment of a deferred tax asset
                        or liability for the recognition of future deductible or
                        taxable   amounts  and  operating  loss   carryforwards.
                        Deferred  tax  expense  or benefit  is  recognized  as a
                        result of the  changes  in the  assets  and  liabilities
                        during the year.  Valuation  allowances are  established
                        when necessary to reduce  deferred tax assets to amounts
                        expected to be realized.

                        Rent Expense

                        The Company  amortizes its rental space at Lundy's using
                        the straight-line method over the life of the lease.

                                                                             F-9

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        Advertising Expenses

                        Advertising   expenses  are  charged  to  earnings  when
                        incurred.

                        Concentration of Credit Risk

                        The Company extends credit based on an evaluation of the
                        customer's   financial   condition,   generally  without
                        requiring collateral.  Exposure to losses on receivables
                        is principally  dependent on each  customer's  financial
                        condition.  The Company monitors its exposure for credit
                        losses and maintains  allowances for anticipated losses.
                        No individual customer is considered to be significant.

                        Net Income (Loss) Per Share

                        In  February   1997,  the  FASB  issued  SFAS  No.  128,
                        "Earnings per Share" ("SFAS No.  128"),  which  replaced
                        the  calculation  of primary and fully diluted  earnings
                        per share with  basic and  diluted  earnings  per share.
                        Unlike  primary  earnings per share,  basic earnings per
                        share excludes any dilutive effects of options, warrants
                        and convertible  securities.  Diluted earnings per share
                        includes all such dilutive effects and, as such, is very
                        similar  to  the   previously   reported  fully  diluted
                        earnings per share.  Earnings per share  amounts for all
                        periods have been  conformed to SFAS No. 128.  There was
                        no material effect upon the adoption of SFAS No. 128.

                        Disclosure of Fair Value of Financial Instruments

                        The carrying amount of financial  instruments  including
                        cash,  accounts  receivable,  accounts payable,  accrued
                        expenses and short-term debt  approximated fair value as
                        of September  27, 1998 because of the  relatively  short
                        maturity of these  instruments.  The  carrying  value of
                        long-term debt  approximates  the fair value for similar
                        debt  issues  based on quoted  market  prices or current
                        rates  offered  to the  Company  for  debt  of the  same
                        maturities. Due to the unspecified payment terms, it was
                        not  practicable  to estimate  the fair value of amounts
                        due from  affiliates and due from an officer.  Loans due
                        to  and  due  from  affiliates  approximate  fair  value
                        because the repayment  terms are subject to management's
                        discretion.

                                                                            F-10

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        Stock-Based Compensation

                        In  October   1995,   the  FASB  issued  SFAS  No.  123,
                        "Accounting  for  Stock-Based  Compensation"  ("SFAS No.
                        123").  SFAS No. 123  encourages  entities  to adopt the
                        fair  value  method  in  place  of  the   provisions  of
                        Accounting  Principles Board Opinion No. 25, "Accounting
                        for Stock Issued to Employees"  ("APB No. 25"),  for all
                        arrangements  under which  employees  receive  shares of
                        stock or other equity instruments of the employer or the
                        employer  incurs  liabilities  to  employees  in amounts
                        based on the price of its  stock.  In fiscal  1997,  the
                        Company  adopted the intrinsic value method as permitted
                        by SFAS No. 123 and will  account for such  transactions
                        in  accordance  with APB No. 25 and, as required by SFAS
                        No. 123,  will provide pro forma  information  regarding
                        net income as if  compensation  costs for the  Company's
                        stock system plan had been determined in accordance with
                        the fair value  method  presented  by SFAS No. 123.  The
                        adoption of the standard did not have a material  effect
                        on the consolidated financial statements.

                        Long-Lived Assets

                        In  fiscal  1997,  the  Company  adopted  SFAS No.  121,
                        "Accounting for the Impairment of Long-Lived  Assets and
                        for  Long-Lived  Assets to be  Disposed  Of"  ("SFAS No.
                        121").  SFAS No. 121 requires,  among other  things,  an
                        impairment loss on assets to be held and gains or losses
                        from  assets  that are  expected to be disposed of to be
                        included  as  a  component  of  income  from  continuing
                        operations   before  taxes  on  income.   The  Company's
                        implementation  of this standard did not have a material
                        effect on the consolidated financial statements.

                        Recent Accounting Standards

                        In June 1997,  the FASB issued SFAS No. 130,  "Reporting
                        Comprehensive    Income"   ("SFAS   No.   130"),   which
                        establishes  standards  for  reporting  and  display  of
                        comprehensive  income,  its components  and  accumulated
                        balances. Comprehensive income is defined to include all
                        changes   in  equity   except   those   resulting   from
                        investments by owners and distributions to owners. Among

                                                                            F-11

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        other disclosures,  SFAS No. 130 requires that all items
                        that  are  required  to  be  recognized   under  current
                        accounting  standards  as  components  of  comprehensive
                        income be  reported  in a  financial  statement  that is
                        displayed  with the same  prominence as other  financial
                        statement.

                        SFAS No. 130 is effective for financial  statements  for
                        periods  beginning  after December 15, 1997 and requires
                        comparative   information   for  earlier   years  to  be
                        restated.  This  statement is not expected to affect the
                        Company's financial statements or disclosures.

                        In June 1997, the FASB issued SFAS No. 131, "Disclosures
                        About Segments of an Enterprise and Related Information"
                        ("SFAS  No.  131"),   which   supersedes  SFAS  No.  14,
                        "Financial   Reporting   for   Segments  of  a  Business
                        Enterprise".  SFAS No. 131 establishes standards for the
                        way  that  public  companies  report  information  about
                        operating  segments in annual  financial  statements and
                        requires   reporting  of  selected   information   about
                        operating  segments  in  interim  financial   statements
                        issued to the public. It also establishes  standards for
                        disclosures regarding products and services,  geographic
                        areas  and  major   customers.   SFAS  No.  131  defines
                        operating  segments  as  components  of a company  about
                        which separate  financial  information is available that
                        is evaluated  regularly by the chief operating  decision
                        maker  in  deciding  how to  allocate  resources  and in
                        assessing performance.

                        SFAS No. 131 is effective for financial  statements  for
                        periods  beginning  after December 15, 1997 and requires
                        comparative   information   for  earlier   years  to  be
                        restated.  The  statement  is not expected to affect the
                        Company's financial statements or disclosures.


                                                                            F-12

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

2.   Inventory          Inventory consisted of:

                        September 27, 1998
                        --------------------------------------------------------
                        Food and beverage                               $ 34,448
                        Liquor                                           113,155
                        Paper                                              2,594
                        Retail merchandise                                97,662
                        Small wares, utensils, and supplies              133,899
                        --------------------------------------------------------
                                                                        $381,758
                        ========================================================



3.   Prepaid Expenses   Prepaid expenses and other consisted of:
     and Other

                        September 27, 1998
                        --------------------------------------------------------
                        Refundable deposit                              $ 10,000
                        Income taxes receivable                          143,782
                        Prepaid expenses                                  86,708
                        Other receivables                                108,935
                        --------------------------------------------------------
                                                                        $349,425
                        ========================================================



4.   Property and
     Equipment          Property and equipment consisted of:

                        September 27, 1998
                        --------------------------------------------------------
                        Transportation equipment and trailers            282,319
                        Furniture and fixtures                           453,349
                        Equipment                                      1,557,868
                        Leasehold improvements                         5,673,568
                        Assets acquired under capital leases             577,706
                        Computer software                                 61,701
                        --------------------------------------------------------
                                                                       8,606,511
                        Less:  Accumulated depreciation and
                                 amortization                          2,664,895
                        --------------------------------------------------------
                                                                      $5,941,616
                        ========================================================

                                                                            F-13

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        Depreciation and  amortization  expense totaled $332,321
                        and   $553,431  for  the  years  ended  1997  and  1998,
                        respectively.


5.   Other Assets       Other assets consisted of:

                        September 27, 1998
                        --------------------------------------------------------
                        Trademarks, net of accumulated amortization
                          of $7,725                                    $108,607
                        Refundable rent security deposits               139,703
                        Pre-opening costs, net of accumulated
                          amortization of $260,864                      366,024
                        Other                                            56,936
                        --------------------------------------------------------
                                                                       $671,270
                        ========================================================

6.   Accrued Expenses   Accrued expenses and other consisted of:
     and Other

                        September 27, 1998
                        --------------------------------------------------------
                        Sales tax                                    $  179,924
                        Accrued rent and related taxes                  457,400
                        Barter advances, current portion                286,775
                        Payroll, payroll taxes and benefits             461,815
                        Other                                           369,851
                        --------------------------------------------------------
                                                                     $1,755,765
                        ========================================================

                                                                            F-14

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

7.   Borrowings         The Company's loans outstanding consisted of:

<TABLE>
<CAPTION>
                        September 27, 1998
                        ------------------------------------------------------------------
<S>                                                                             <C>
                        Loan from related party.(a)                             $  115,207
                     
                        Loan payable from outside investment firm
                           bearing interest at 10% per annum, payable
                           quarterly, due September 30, 1999, net of
                           original issue discount of $308,340. (See
                           Notes 10 and 16). An officer from the
                           investment firm is Chairman of the Board of
                           Directors. The loan is guaranteed by a
                           principal stockholder of the Company and is
                           secured by a pledge of 200,000 shares of
                           common stock held by such stockholder.                  691,660
                        Installment loan payable in 60 monthly
                           payments of $3,187 to Brooklyn Union Gas
                           Company, including interest at a rate of 10%
                           beginning December 1, 1995. The loan is
                           collateralized by equipment with a net book
                           value of $127,500.                                       71,697
                        Unsecured loans from private investors bearing
                           interest at rates from 8% to 15% per annum,
                           maturing at various times through 2002.                 487,527
                        Unsecured loan payable from Chief Executive
                           Officer bearing interest of 10%, due in 2002.
                           (See Note 16)                                           720,405
                        Unsecured loan payable from related parties,
                           bearing interest of 10% to 15%, due
                           June 2000.                                              178,000
                        Other                                                       19,860
                        ------------------------------------------------------------------
                                                                                 2,284,356
                        Less: Current portion due within one year                  499,483
                        ------------------------------------------------------------------
                        Long-term                                               $1,784,873
                        ==================================================================
</TABLE>

                                                                            F-15

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        Maturities  of long-term  debt at September 27, 1998 are
                        as follows:

                        --------------------------------------------------------
                        1999                                         $  499,483
                        2000                                          1,143,079
                        2001                                            111,159
                        2002                                             10,598
                        2003                                            722,565
                        Thereafter                                      105,812
                        --------------------------------------------------------
                        Total maturities                              2,592,696
                        Less: Unamortized portion of original issue
                                discount                                308,340
                        --------------------------------------------------------
                                                                     $2,284,356
                        ========================================================

                        --------------
                        (a) This loan is secured by the personal  residence of a
                            stockholder.  The  Company  has  agreed  to make the
                            mortgage payments to  the  bank. The  mortgage bears
                            interest  at  7.25%  and  is  payable in 360 monthly
                            installments of $853, including interest and  is due
                            in 2024.

8.   Capital Lease      The  Company  leases  equipment  and  various  leasehold
     Obligations        improvements  under capital leases.  The assets acquired
                        under  capital  leases  have  a  cost  of  $577,706  and
                        accumulated amortization of $246,048 as of September 27,
                        1998.  Amortization  of the leased assets is included in
                        depreciation expense.

                                                                            F-16

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================



                        The following is a schedule,  by year, of future minimum
                        lease payments under capitalized  leases,  together with
                        the present value of the net minimum  lease  payments at
                        September 27, 1998.

                        --------------------------------------------------------
                        Payments for the year ending:
                            1999                                       $176,110
                            2000                                        132,219
                            2001                                         75,186
                            2002                                         52,939
                            2003                                         13,547
                        --------------------------------------------------------
                        Total minimum lease payments                    450,001
                        Less:  Amount representing interest             118,343
                        --------------------------------------------------------
                        Present value of net minimum lease
                          payments                                      331,658
                        Less:  Current portion                          116,217
                        --------------------------------------------------------
                        Long-term lease obligations                    $215,441
                        ========================================================

9.   Commitments and    The Company has entered into various lease and licensing
     Contingencies      agreements, which expire through 2016.

                        Certain of the  Company's  license and lease  agreements
                        require  the  payment of rent based on a  percentage  of
                        gross  receipts.  Future minimum rental  payments are as
                        follows:

                        Year ending September
                        --------------------------------------------------------
                        1999                                         $  525,586
                        2000                                            511,573
                        2001                                            453,219
                        2002                                            408,042
                        2003                                            398,991
                        Thereafter                                    5,651,890
                        --------------------------------------------------------
                                                                     $7,949,301
                        ========================================================

                                                                            F-17

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        Rent expense,  real estate taxes and common area charges
                        for the years ended September 28, 1997 and September 27,
                        1998 totaled  $1,428,079 and  $1,566,893,  respectively.
                        TAM Restaurant  Group, Inc. has a license agreement with
                        the Central Park Zoo.  American Leisure (a related party
                        owned by the Chief  Executive  Officer)  has assumed the
                        operation  of the  concession  granted  by such  license
                        agreement as a result of a restructuring.  However,  TAM
                        Restaurant Group, Inc. is still responsible as a primary
                        concessionaire  until  October  1998  when  the  license
                        expires.  The license  requires  payment of 39% of total
                        sales as a  licensing  fee.  Sales  for the  year  ended
                        September 27, 1998 relating to this license  amounted to
                        $1,261,311.

                        TAM Restaurant Group, Inc. is currently being audited by
                        New York  State for  sales and use taxes for the  period
                        December  1,  1989 to June 28,  1993.  The  Company  has
                        accrued  $50,000 for  additional  taxes that may be due,
                        exclusive  of  interest  and  penalties,  if any.  As of
                        December 1998, this audit has not been completed.

                        Effective  February 10, 1998,  the Company  entered into
                        three-year   employment   agreements   with  the   Chief
                        Executive  Officer  and  a  Vice  President,  which  are
                        automatically  renewable  and provide for an annual base
                        compensation of $175,000 and $75,000,  respectively, and
                        such bonuses as the Board of Directors  may from time to
                        time determine.

   
                        In connection  with a settlement  agreement  relating to
                        the Lundy's trademark,  the Company is obligated to open
                        a new Lundy's  restaurant by September  1999 or lose the
                        rights to the  trademark.  Additionally,  the Company is
                        required  to pay a fee of  .75%  of  gross  revenues  in
                        excess  of a minimum  threshold  (as  determined  by the
                        seating  capacity  of the  restaurant),  after the first
                        year  of  operations,  earned  by  any  new   restaurant
                        established  by the Company  utilizing the Lundy's name.
                        For the years ending  September  28, 1997 and  September
                        27,  1998 no  amounts  have  been  incurred  under  this
                        agreement.
    

10.  Related Party      In March 1994,  Leisure Time  Services,  Inc.,  which is
     Transactions       owned by a  stockholder  of the  Company,  was formed to
                        purchase,  repair and store  equipment  and supplies for
                        the  Company,  as well as to assist  the  Company in the
                        performance of special catering events. Rent paid by the
                        Company   for  the  years   ended   1997  and  1998  for
                        utilization of a warehouse was $30,000, respectively. As
                        of  September  27,  1998,  included in the  accompanying
                        consolidated  balance sheets under the caption "due from
                        affiliates"  is  $141,986,  which was used to secure the
                        title on the New Jersey warehouse.

                                                                            F-18

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        The  balance  of this  loan is  being  repaid  in  equal
                        monthly  installments of $1,996,  including  interest at
                        9.6% through  2006.  Additionally,  included in due from
                        affiliates  is $24,155 of  additional  amounts  due from
                        Leisure Time Services,  Inc. with no specific  repayment
                        term.

                        In October  1996,  the Company  entered into a lease for
                        its corporate  offices with its principal  stockholders.
                        The lease  expires in  December  2001 and  provides  for
                        annual  rental  payments of  approximately  $38,000 plus
                        real estate taxes.

                        Additionally,  the Company occasionally  advanced monies
                        to officers of the  Company.  No terms of  repayment  or
                        interest rates have been  determined on these  advances.
                        As of September  27,  1998,  the balance in this account
                        was $39,129.

                        The Company is indebted to  relatives  of the  principal
                        stockholder  in the amounts of $178,000 as of  September
                        27, 1998. The notes are unsecured and bear interest from
                        10%  to  15%  per  annum.   Interest  expense  to  these
                        relatives was approximately  $28,000 for the years ended
                        1997 and 1998, respectively.

                        For the years  ended  1997 and  1998,  the  Company  has
                        reduced  operating  expenses  by $181,012  and  $81,895,
                        respectively,  representing  management  fee income from
                        American Leisure. At September 27, 1998, included in due
                        from  affiliates  is $78,107 due from  American  Leisure
                        with no specific repayment term.

                        In  July  1996,  the  Company  entered  into a  two-year
                        consulting  agreement  with its Chairman of the Board of
                        Directors,  pursuant to which he has provided  strategic
                        planning,  restaurant  operations,  marketing  and  site
                        evaluation consulting services for a fee equal to $2,500
                        per month  through  December  1997 and  $5,000 per month
                        thereafter. The agreement is automatically renewable for
                        successive  one-year periods,  unless either party gives
                        written  notice  of  its  intention  not  to  renew  the
                        agreement  at least 30 days prior to the end of the term
                        or renewal term. In addition, pursuant to the consulting
                        agreement,  in March 1998,  the Company  paid $50,000 as
                        payment for consulting  services rendered to the Company
                        prior to entering into the  consulting  agreement.  (See
                        Notes 7 and 16.)

                                                                            F-19

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

11.  Capital Stock      At   September 27,  1998,  there  was  an  aggregate  of
     and Warrants       1,160,000   warrants   outstanding  at  exercise  prices
                        between  $4.53 and $7.25 per share  expiring  at various
                        times through 2003, as follows:
                        
                        In October  1997, as partial  consideration  for a loan,
                        the Company granted warrants to purchase 200,000 shares,
                        at an  exercise  price of $5.00 per share,  expiring  in
                        October 2002. These warrants were valued at $482,000 and
                        recorded as a debt discount. (See Note 7.)

                        As part of its initial public offering in February 1998,
                        the  Company  offered  and sold  warrants  (the  "Public
                        Warrants") to purchase  500,000  shares,  at an exercise
                        price of $6.00 per share,  expiring  in  February  2003.
                        Also  upon  the   consummation  of  its  initial  public
                        offering,   the  Company  issued  warrants  to  purchase
                        310,000  shares,  which  are  identical  to  the  Public
                        Warrants,  upon the  conversion  of an equal  amount  of
                        outstanding warrants.

                        Additionally,  during February 1998, the Company sold to
                        the underwriter of the initial public offering, warrants
                        to purchase  100,000  shares,  at an  exercise  price of
                        $6.00  per  share  and   warrants  to  purchase   50,000
                        underlying  warrants at an  exercise  price of $0.12 per
                        underlying   warrant.   Each   underlying   warrant   is
                        exercisable  at an  exercise  price of $7.25 per  share.
                        These warrants expire in February 2003.

                        In December 1997, the Company effected a 1-for-1.8135268
                        reverse  stock  split.  All shares and per share data in
                        the consolidated financial statements have been adjusted
                        to give retroactive effect to the reverse stock split.

                        The Board of Directors is  authorized to fix the rights,
                        preferences,  privileges and  restrictions of any series
                        of  preferred  stock,  including  the  dividend  rights,
                        original issue price,  conversion rights, voting rights,
                        terms of redemption, liquidation preferences and sinking
                        fund   terms   thereof,   and  the   number   of  shares
                        constituting any such series and the designation thereof
                        and  to  increase  or  decrease  the  number  of  shares
                        subsequent to the issuance of shares of such series (but
                        not below the  number  of  shares  of such  series  then
                        outstanding).

12.  Stock Option Plan  The Company has a stock option plan (the "Option  Plan")
                        pursuant to which  525,000  shares of common  stock have
                        been  reserved for issuance upon the exercise of options
                        designated  as  either  (i)   incentive   stock  options
                        ("ISOs")  under the Internal  Revenue  Code of 1986,  as
                        amended (the "Code") or (ii) nonqualified  options. ISOs
                        may be granted  under the Option  Plan to  officers  and
                        employees  of the Company.  Nonqualified  options may be
                        granted to consultants,  directors  (whether or not they
                        are employees), employees or officers of the Company.

                                                                            F-20

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        The  purpose of the Option  Plan is to  encourage  stock
                        ownership by certain  directors,  officers and employees
                        of the Company  and other  persons  instrumental  to the
                        success of the  Company.  The Option Plan is intended to
                        qualify  under Rule 16b-3 under the Exchange Act, and is
                        administered  by the  Board  of  Directors.  The  Board,
                        within the  limitations  of the Option Plan,  determines
                        the persons to whom options will be granted,  the number
                        of shares to be  covered  by each  option,  whether  the
                        options  granted are  intended to be ISOs,  the duration
                        and rate of exercise of each option, the option purchase
                        price  per share and the  manner  of  exercise,  and the
                        time,  manner and form of payment  upon  exercise  of an
                        option.

                        The Company  applies APB  Opinion  25,  "Accounting  for
                        Stock  Issued to  Employees"  ("APB  Opinion  25"),  and
                        related  Interpretations  in  accounting  for the Option
                        Plan.  Under APB  Opinion 25, no  compensation  cost was
                        recognized  because the exercise  price of the Company's
                        employee  stock options  equaled the market price of the
                        underlying stock on the date of grant.

                        FASB  Statement   123,   "Accounting   for   Stock-Based
                        Compensation"  ("SFAS No. 123"), requires the Company to
                        provide pro forma  information  regarding net income and
                        earnings  per  share  as if  compensation  cost  for the
                        Company's  stock  option  plan  had been  determined  in
                        accordance with the fair value method prescribed in SFAS
                        No. 123.  The Company  estimates  the fair value of each
                        stock   option   at  the   grant   date  by  using   the
                        Black-Scholes  option-pricing  model with the  following
                        weighted  average  assumptions  used for grants in 1998:
                        dividend yield of 0%;  expected  volatility of 46.1% for
                        1998;  risk-free  interest rates of 5.47%;  and expected
                        lives of 3 years.

                                                                            F-21

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        Under the  accounting  provisions of FASB Statement 123,
                        the  Company's  net income and  earnings per share would
                        have  been  reduced  to the pro forma  amounts  for 1999
                        indicated below:

                        --------------------------------------------------------
                        Net loss:
                           As reported                              $(2,299,202)
                           Pro forma                                 (2,611,763)
                        Net loss per share (basic and diluted):
                            As reported                                    (.73)
                            Pro forma                                      (.83)
                        ========================================================

                        A summary of the status of the  Company's  stock  option
                        plan as of September  27, 1998,  and changes  during the
                        year ended, is presented below:
<TABLE>
<CAPTION>
                                                                                   Weighted
                                                                                   average
                                                                   Shares       exercise price
                        ----------------------------------------------------------------------
                        <S>                                        <C>             <C>
                        Outstanding at beginning of year                --         $   --
                        Granted                                    293,500           5.00
                        Exercised                                       --             --
                        Forfeited                                   48,625           5.00
                        ----------------------------------------------------------------------
                        Outstanding at end of year                 244,875          $5.00
                        ======================================================================
                        Options exercisable at year-end            130,437          $5.00
                        ======================================================================
                        Weighted average fair value of
                          options granted during the year                           $2.13
                        ======================================================================
</TABLE>

                                                                            F-22

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        The following table summarizes  information  about stock
                        options outstanding at September 27, 1998.

<TABLE>
<CAPTION>
                                                     Options outstanding                      Options exercisable
                                           ---------------------------------------         -------------------------
                                                           Weighted
                                                            average       Weighted                         Weighted
                                             Number        remaining      average           Number of      average
                            Range of       outstanding    contractual     exercise         exercisable     exercise
                        exercise prices    at 9/27/98        life          price           at 9/27/98       price
                        --------------------------------------------------------------------------------------------
                           <S>               <C>             <C>           <C>                <C>          <C>
                           $5.00             244,875         5 years       $5.00              130,437      $5.00
                        ============================================================================================
</TABLE>

13.  Income Taxes       There is no current or  deferred  income tax expense for
                        the years  ended  1997 and  1998.  The  Company  in 1997
                        utilized net operating  loss  carryforwards  and in 1998
                        was in a  loss  position.  

                        The   Company's   deferred  tax  assets,   deferred  tax
                        liabilities and deferred tax asset  valuation  allowance
                        are as follows:

<TABLE>
<CAPTION>
                                                                   September 28,     September 27,
                                                                       1997              1998
                        --------------------------------------------------------------------------
                        <S>                                          <C>             <C>
                        Deferred rent expense                        $106,000        $  128,000
                        Deferred expenses                             112,000                --
                        Net operating loss carryforward               679,000         1,476,000
                        Other                                          27,000            55,000
                        --------------------------------------------------------------------------
                        Total deferred tax assets                     924,000         1,659,000
                        Less:  Valuation allowance                   (924,000)       (1,659,000)
                        --------------------------------------------------------------------------
                        Total deferred tax liabilities                     --                --
                        --------------------------------------------------------------------------
                        Net deferred tax asset                       $     --        $       --
                        ==========================================================================
</TABLE>

                        For  tax   purposes,   the  Company  has   approximately
                        $3,100,000 of net  operating  loss  carryforwards  as of
                        September 27, 1998, which expire through 2011.

                                                                            F-23

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

14. Pending Litigation  The  operation  of  restaurants  and rowboat and bicycle
                        rentals  subjects the Company to  potential  claims from
                        others, including customers, employees and other service
                        providers for personal  injury  (resulting  from,  among
                        other things,  contaminated or spoiled food or beverages
                        and  accidents).  The Company is a defendant  in several
                        lawsuits  arising in the ordinary course of its business
                        relating to personal  injury claims by plaintiffs  which
                        are  seeking  damages  substantially  in  excess  of the
                        Company's  assets and insurance  coverage.  The lawsuits
                        are being handled by the Company's  insurance  carriers.
                        The Company is  vigorously  defending  each  lawsuit and
                        believes  that such  matters are  adequately  covered by
                        insurance  or, if not so covered,  are without  merit or
                        are of such  nature  or  involve  such  amounts  that an
                        unfavorable   disposition  would  not  have  a  material
                        adverse effect on the financial  condition or operations
                        of the  Company.  However,  since each  lawsuit is in an
                        early stage,  there can be no assurance that any of such
                        actions will be resolved in favor of the Company or that
                        the outcome of any  litigation  or  settlement  will not
                        have a material adverse effect on the Company.

                                                                            F-24

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        In the  ordinary  course of  business,  the Company is a
                        party to other legal proceedings,  the outcome of which,
                        either singly,  or in the aggregate,  is not expected to
                        be material.

15.  Cash Flow          Cash paid for interest and income taxes is as follows:
     Disclosure

                                                 September 28,     September 27,
                        Year ended                   1997              1998
                        --------------------------------------------------------
                        Interest                   $302,372          $381,716
                        Income taxes                     --            40,279
                        ========================================================

                        Noncash transactions included the following:

                        For the year  ended  September  27,  1998,  the  Company
                        entered into new capital lease obligations of $221,135.

16.  Subsequent Events  In  November  1998,  the  Company's  Board of  Directors
                        authorized the designation of 150,000 share of series of
                        preferred  stock ("Series A Preferred  Stock") bearing a
                        10%  cumulative  dividend  payable  quarterly  in  cash,
                        convertible into common stock at anytime after issuance,
                        at holder's  option,  at the rate of one share of common
                        stock  for each  share  of  Series  A  Preferred  Stock,
                        subject to adjustment under certain  circumstances.  The
                        Series  A  Preferred  Stock  is  senior  in  rights  and
                        preferences to any subsequently designated series and/or
                        class of preferred stock and is entitled to one vote per
                        share  of  common   stock  into  which  the  issued  and
                        outstanding  shares of Series A Preferred  Stock is then
                        convertible,  on all matters  submitted to a vote of the
                        Company's  stockholders.  Outstanding shares of Series A
                        Preferred  Stock  are  redeemable  at  any  time  by the
                        Company, at its option, at the redemption price of $5.00
                        per share, upon timely notice of its intent to redeem.

                        In December 1998, the Company's Chief Executive  Officer
                        converted  $720,405  of  indebtedness  owed to him  into
                        144,081  shares of Series A  Preferred  Stock and 72,040
                        warrants to purchase  the  Company's  common stock at $6
                        per share. (See Notes 7 and 11.)

                        In December  1998 the Company  entered  into a licensing
                        agreement  with  KA   Industries,   an  affiliate  of  a
                        principal stockholder of the Company, to market products
                        bearing the names Lundy's, The Boathouse, and Stork Club
                        through KA  Industries'  Mrs.  Beasley's  retail stores,
                        third-party   catalogues   and  retail   establishments.
                        Pursuant to the  agreement,  the Company is to receive a
                        royalty on products sold.

                                                                            F-25

<PAGE>

                                                           TAM Restaurants, Inc.
                                                                and Subsidiaries


                                      Notes to Consolidated Financial Statements

================================================================================

                        In  December   1998,   the  Company   entered   into  an
                        arrangement  with KA  Industries to operate a commissary
                        for a bakery,  in-house  laundry and lobster  pound.  In
                        conjunction  with the  arrangement,  the Company entered
                        into  a  month-to-month  sublease  of a  portion  of its
                        Bayonne  warehouse at  approximately  $741 per month. In
                        addition,  KA Industries advanced the Company $30,000 to
                        make  modifications  to the Bayonne  warehouse with such
                        advance  recaptured  from rent and other charges due the
                        Company from KA Industries. (See Notes 7 and 10.)

                                                                            F-26

       


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