<PAGE>


                                    FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   (MARK ONE)
            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                    For the fiscal year ended January 3, 2001
                                       OR
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                             SECURITIES EXCHANGE ACT OF 1934
             For the transition period from __________ to __________
                        Commission File Number: 333-62775
                           NE RESTAURANT COMPANY INC.
             (Exact name of registrant as specified in its charter)

                Delaware                                        06-1311266
                --------                                        ----------
   (State or other jurisdiction of                           (I.R.S. Employer
   incorporation or organization)                            Identification No.)

5 Clock Tower Place, Suite 200, Maynard, MA                        01754
-------------------------------------------                        -----
 (Address of principal executive offices)                        (Zip Code)

       Registrant's telephone number, including area code: (978) 897-1400

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

Title of each class                    Name of each exchange on which registered
       None
-------------------                       ------------------------------------

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

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

                                      None
                                    ---------
                                 Title of class

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

                                 Yes |X| No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. |X|


Documents Incorporated By Reference
-----------------------------------
None
<PAGE>

  CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
               PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

      All statements other than statements of historical facts included in this
Annual Report on Form 10-K, including, without limitation, statements set forth
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations" regarding the Company's future financial position, business
strategy, budgets, projected costs and plans and objectives of management for
future operations, are forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "intend," "estimate," "anticipate" or "believe"
or the negative thereof or variations thereon or similar terminology. Although
the Company believes that the expectations reflected in such forward-looking
statements will prove to have been correct, it can give no assurance that such
expectations will prove to have been correct. Investors are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Factors that could cause or contribute to such differences include those
discussed in the risk factors set forth in Item 7 below (the "Risk Factors") as
well as those discussed elsewhere herein.

                                     PART I

ITEM 1. BUSINESS

Overview

      The Company is an operator of full-service, casual dining restaurants in
the northeastern United States. The Company's wholly owned subsidiary,
Bertucci's Restaurant Corp. ("Bertucci's") owns and operates a restaurant
concept under the name Bertucci's Brick Oven Pizzeria(R). The Company also
develops and operates two distinct restaurant franchises, Chili's Grill & Bar(R)
("Chili's") and On The Border Mexican Cafe(R) ("On The Border"), under franchise
agreements with Brinker International, Inc., a publicly-owned company ("Brinker"
or the "Franchisor").

      In July 1998, the Company completed its acquisition of Bertucci's' parent
entity, Bertucci's, Inc., a publicly-owned restaurant company for a purchase
price, net of cash received, of approximately $89.4 million (the "Acquisition").
As of January 3, 2001, Bertucci's owned and operated 72 full-service, casual
dining, Italian-style restaurants under the name Bertucci's Brick Oven
Pizzeria(R) located primarily in New England and Mid-Atlantic United States.
Bertucci's opened 17 Bertucci's restaurants in 1994, nine in 1995, four in 1996,
four in 1997 and six in 1998. During 1999, the Company closed the Bertucci's
test kitchen restaurant in Wakefield, Massachusetts and also closed ten
under-performing Bertucci's restaurants. In January of 2000, the Company closed
seven additional Bertucci's restaurants, thereby completing the planned
Bertucci's closings identified shortly after the Acquisition. The Company closed
the sole Sal & Vinnie's Sicilian Steakhouse(TM) ("Sal and Vinnie's") restaurant
(part of the Acquisition) in December of 2000.

      The Company was founded in 1991 as a Massachusetts corporation, serving
first as a general partner to a Massachusetts limited partnership and then as
the successor entity to such partnership and two other limited partnerships, and
was re-incorporated in Delaware on October 20, 1994. The Company was formed to
acquire 15 Chili's restaurants from a prior franchisee. From 1991 until January
3, 2001, the Company has grown through the addition of 25 new Chili's and seven
On The Border restaurants in New England. The Company opened three Chili's
restaurants in 1994, seven in 1995, four in 1996, two in 1997, two in 1998, five
in 1999 and two in 2000. The Company opened one On The Border restaurant in
1996, three in 1998, one in 1999 and two in 2000. The Company has increased the
average sales per restaurant of its Chili's restaurants from approximately $1.8
million in fiscal 1991, the final year of ownership by the prior franchisee, to
$2.9 million in fiscal 2000. As of January 3, 2001, the Company operated 40
Chili's and seven On The Border restaurants (collectively, the "Brinker Concept
Restaurants") in five New England states.
<PAGE>

      On November 20, 2000, the Company entered into an agreement to sell to
Brinker ("Purchaser") the Brinker Concept Restaurants, all development rights
for future Brinker Concept Restaurants and four Chili's restaurants currently
under development by the Company (the "Brinker Sale"). Total consideration,
subject to closing adjustments, is approximately $93 million. The Brinker Sale
calls for the transition of the 47 franchised restaurant properties including
inventory, facilities, equipment, management teams and the four Chili's
restaurants currently under development by the Company to Brinker. Brinker will
assume the mortgage debt on the Company's Brinker Concept Restaurants, and shall
pay the Company additional cash consideration. The Company expects to finalize
the Brinker Sale in April 2001.

Concepts

      The Company's restaurants are full-service restaurants, featuring a
variety of high quality foods at moderate prices accompanied by quick, efficient
and friendly table service. The Company's restaurants are all casual dining
concepts which are intended to fill a market niche between the fine-dining and
fast-food segments of the restaurant industry. These restaurants are designed to
appeal to a broad customer base of adults and families with children.

      Bertucci's. Bertucci's restaurants feature Italian-style entrees made from
original recipes, including gourmet pizza and specialty pasta dishes. Bertucci's
differentiates itself from other restaurants by offering a variety of freshly
prepared foods using high-quality ingredients and brick-oven baking techniques.
Bertucci's also distinguishes itself with a contemporary European-style and an
open-kitchen design. The first Bertucci's was opened in Somerville,
Massachusetts in 1981. As a proprietary concept, Bertucci's provides the Company
with significant flexibility.

      Chili's. Chili's restaurants feature a variety of "All-American" foods
with a southwestern emphasis. The Chili's concept was initiated in 1975 with the
opening of the first Chili's restaurant in Dallas, Texas. As of January 3, 2001,
the Chili's restaurant system consisted of 714 restaurants in 47 states, of
which 479 were Franchisor-owned and 235 were franchised. The Company does not
expect to open any additional Chili's restaurants as a result of the pending
Brinker Sale.

      On The Border. On The Border restaurants feature a Tex-Mex menu served in
a distinctive dining atmosphere reminiscent of a Mexican cantina. The On The
Border concept was initiated in 1982 with the opening of the first On The Border
restaurant in Dallas, Texas. As of January 3, 2001, the On The Border restaurant
system in the United States consisted of 116 restaurants in 29 states, of which
87 were Franchisor-owned and 29 were franchised. The Company does not expect to
open any additional On The Border restaurants as a result of the pending Brinker
Sale.

Restaurant Overview and Menu

      The Company's restaurants are full-service, casual dining restaurants,
featuring high quality food at moderate prices accompanied by quick, efficient
and friendly table service designed to minimize guest waiting time and
facilitate table turnover. All of the Company's restaurants open at January 3,
2001 are open for lunch and dinner seven days a week. To encourage patronage by
families with children, the Company's restaurants feature lower-priced
children's menus in addition to the standard menus.

      Bertucci's. Bertucci's restaurants offer a distinctive menu and a
contemporary European-style design that offers a unique dining experience at a
reasonable price. Bertucci's signature product, gourmet pizza, is offered with a
wide variety of cheese, vegetable and meat toppings and is prepared in brick
ovens. Management believes that Bertucci's original recipes and brick-oven
baking techniques combine to produce a superior pizza that is difficult to
duplicate. In addition to pizzas, Bertucci's menu features a variety of pasta
items, appetizers, soups, salads, calzones and desserts that are prepared
according to Bertucci's original recipes. Natural, fresh ingredients are a
cornerstone of the Bertucci's concept. In an effort to ensure the uniform
high-quality and freshness of its menu offerings, Bertucci's prepares all of its
own dough and sauces. Wine and beer are available at all Bertucci's locations
and full bar service is available at some Bertucci's restaurants. Price points
are $6.99 for lunch entrees and generally range from $7.99 to $13.99 for dinner
entrees. Most items on the menu may be purchased for take-out service or
delivery, which together accounted for approximately 25% of net sales in fiscal
2000.

      Chili's Grill and Bar. Chili's restaurants feature a casual dining
atmosphere and a menu of "All-American" food items with a southwestern emphasis,
including a variety of hamburger, fajita, chicken, steak, seafood and vegetarian
entrees, as well as a number of sandwich, barbecue, salad, appetizer and dessert
selections, prepared fresh daily according to recipes
<PAGE>

specified by Brinker. The Company has its own executive chef who has worked with
senior management to develop certain innovative and regional menu items to
supplement the basic Chili's menu, including a "boneless buffalo wings"
appetizer, a "fish & chips" entree and a New England clam chowder, each of which
have proven popular with the Company's guests. Each Chili's restaurant also has
a fully licensed bar serving beer, wine and cocktails. Price points for entrees
generally range from $5.99 to $14.99.

      On The Border. On The Border restaurants also feature a casual yet
distinctive dining atmosphere, focusing on the cuisine of the border region
between Texas and Mexico. The On The Border menu offers an assortment of
authentic fajita, chicken, steak, shrimp, barbecued ribs, enchilada, burrito and
other Tex-Mex specialties, prepared fresh daily according to recipes specified
by Brinker. There is a luncheon menu as well as a full dinner menu. Each On The
Border restaurant also has a full-service bar which specializes in Tex-Mex
alcoholic beverages, including a variety of popular margaritas. Price points
generally range from $5.99 to $7.49 for lunch entrees and from $7.49 to $14.99
for dinner entrees.

Restaurant Design

      Bertucci's. Bertucci's restaurants are freestanding or in-line buildings
averaging approximately 6,200 square feet in size with a seating capacity of
approximately 170 people. Each of Bertucci's restaurants features a contemporary
European-style, open-kitchen design centered around brick ovens. Ingredients are
displayed and food is prepared on polished granite counters located in front of
the brick ovens, in plain view of diners. Bertucci's restaurants historically
have been built in varying sizes and designs, with no two interior decors
exactly alike. Management believes that unit economics would benefit from a
standardized design which the Company expects to implement for restaurants to be
opened in the future. The Company expects to introduce service bars in new
restaurants instead of full bar areas to further increase utilization of space.
Finally, the Company expects to introduce a more cost-efficient, standardized
interior decor.

      Chili's. The Company's Chili's restaurants are prototypically
free-standing buildings that average approximately 5,800 square feet in size and
have a seating capacity of approximately 190 people. The Chili's decor includes
booth and table seating with table-tops inlaid with decorative ceramic tiles,
beamed ceilings, tiled or brick floors, and wood paneled and brick walls. The
walls are decorated with a variety of nostalgic American artifacts, with a
significant number of items evoking images of the American southwest. Live
cactus and other greenery are placed in clay pots or hanging baskets throughout
the restaurant.

      On The Border. The Company's On The Border restaurants are free-standing
buildings averaging approximately 7,800 square feet in size with a seating
capacity of approximately 305 people. The On The Border decor includes booth and
table seating, stucco walls, some with frescoes depicting images of the Mexican
"vaquero" cowboy, wrought iron and glass light fixtures and an array of Mexican
handicrafts, many of which emphasize the "vaquero" theme. Each restaurant has a
large stone fireplace with a gas-fired flame, an authentic handmade tortilla
machine producing fresh product within the guests' view and a four-season patio
which incorporates outdoor dining as the weather permits.

Franchise and Development Agreements

      The Company operates its Chili's and On The Border restaurants under
individual franchise agreements that are part of broader exclusive development
agreements (the "Area Development Agreements") with the Franchisor. These
agreements grant the Company the exclusive right to develop up to 55 Chili's
restaurants (inclusive of the 40 Chili's restaurants that the Company operated
as of January 3, 2001) in New England and Westchester County, New York. The Area
Development Agreement requires the Company to develop a minimum of three Chili's
restaurants each year in accordance with a specified schedule during the term of
the agreement in order to maintain its exclusive development rights. If the
Company opens fewer restaurants than required by the development schedule in any
development territory, the Franchisor has the right to terminate the Company's
development rights in the territory where the deficiency occurs. In addition, a
breach under an Area Development Agreement could constitute a default under the
Company's borrowing arrangements, permitting the applicable lender to declare
all amounts borrowed thereunder immediately due and payable. The Chili's Area
Development Agreement expires in 2005. The On The Border Area Development
Agreement expired
<PAGE>

following the announcement of the upcoming Brinker Sale, and the Company does
not plan to extend the On The Border Area Development Agreement.

      Under the Area Development Agreement, the Company is responsible for all
costs and expenses incurred in locating, acquiring, and developing restaurant
sites, although the Franchisor must approve each proposed restaurant site and
the related real estate purchase contract or lease agreement. The franchise
agreements convey the right to use the Franchisor's trade names, trademarks, and
service marks with respect to specific restaurant units. The Franchisor also
provides general construction specifications, designs, color schemes, signs and
equipment, recipes for food and beverage products, marketing concepts, and
materials. Generally, each new franchise agreement requires an initial $40,000
franchise fee that is, typically, in addition to a $10,000 nonrefundable
development fee per proposed restaurant, paid under the Area Development
Agreements. The franchise agreements also require payment to Brinker of a
royalty fee of 4.0% of annual net sales. In addition, pursuant to its franchise
agreements, the Company contributes 0.5% of monthly net sales from each of its
Chili's or On The Border restaurant to Brinker for advertising and marketing to
benefit all restaurants in the Chili's or On The Border system, respectively.
The Company is also required to spend at least 2.0% of annual net sales on local
advertising. Furthermore, according to the franchise agreements, the Franchisor
may require the Company to pay an additional amount of advertising. The
Franchisor required all franchisees to pay an additional 1.0% of net sales from
September 2000 through June 2001.

      Due to the pending Brinker Sale, the Company does not expect to open any
additional Chili's or On The Border restaurants. In connection with the Brinker
Sale, the Company plans to terminate all Area Development Agreements in
connection with the Brinker Sale.

Restaurant Development

      Expansion. The Company expects to continue its steady growth strategy
through the opening of new Bertucci's restaurants over the next several years.
The Company expects to finance the development of Bertucci's through a
combination of cash from operations, proceeds from the Brinker Sale, borrowings
under its senior bank facility (the "Senior Bank Facility") and, loans from
restaurant industry institutional lenders. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and Notes 5, 6 and 7 to the Consolidated Financial
Statements. Management has designed a new Bertucci's restaurant prototypical
kitchen and take-out area in preparation for restaurant expansion of the
Bertucci's concept. The first restaurant with the new prototypical design opened
in Danbury, Connecticut in late January 2001.

      Site Selection and Construction. Management's site selection strategy for
new restaurants focuses on high-density, high-traffic, high-visibility sites
which are, for the most part, positioned within existing markets to take
advantage of certain operational efficiencies. Management seeks out sites with a
mixture of retail, office, residential and entertainment concentration which
promote both lunch and dinner business. Management devotes significant time and
resources to identify and analyze potential sites, as it believes that site
selection is crucial to its success. Management also believes that multiple
locations focused in defined geographic areas will result in increased market
penetration, brand recognition and permit advertising, management, purchasing
and administrative efficiencies. The typical time period required to select a
site and build and open a full-service restaurant is approximately 18 months.

Quality Control

      Bertucci's. Each Bertucci's restaurant typically has a general manager and
two to three assistant managers who are responsible for assuring compliance with
Bertucci's operating procedures and for the training and supervision of
restaurant employees. The general managers report to district managers who
oversee, on average, between six and ten Bertucci's restaurants. The Company
believes that through improved centralized training, a consistent and
independent shopper's program, and other support for district managers, the
quality control operations of Bertucci's can be further enhanced.

      Chili's and On The Border. The Company's general and assistant managers
are responsible for assuring compliance with the Company's operating procedures.
Both the Company and the Franchisor have uniform operating standards and
specifications relating to the quality, preparation and selection of menu items,
maintenance and cleanliness of the premises, and employee conduct. Compliance
with these standards and specifications is monitored by periodic on-site visits
and inspections by area supervisors and directors of operations and by
representatives of the Franchisor. Each restaurant
<PAGE>

typically has a general manager and three to four assistant managers who
together train and supervise employees and are, in turn, supported by Quality
Assurance Managers and Regional Directors of Operations. The Company's
operational structure encourages all employees to assume a proprietary role in
ensuring that such standards and specifications are consistently adhered to.

Management Incentive Programs

      Management has developed a profit-based reward system for its restaurant
level managers such that their bonus levels are directly tied to an individual
restaurant's profitability. The Company believes this incentive program has
contributed significantly to the entrepreneurial spirit of its restaurants and,
ultimately, to overall guest satisfaction and Company profitability.

Training

      The Company places significant emphasis on the proper training of its
employees. To maintain its high service and quality standards, the Company has
developed its own training programs that are coordinated through the Company's
training department. Each level of Company training is designed to increase
product quality, operational safety, overall productivity and guest satisfaction
and to foster the concept of "continuous improvement."

      The Company requires new non-management employees to undergo extensive
training administered by restaurant-level managers to improve the confidence,
productivity, proficiency level and customer relations skills of such employees.
The Company also requires all of its general and restaurant managers to complete
a comprehensive management training program developed by the Company. This
program instructs management trainees in detailed, concept-specific food
preparation standards and procedures as well as administrative and human
resource functions. This training is largely conducted at specified restaurants
which are designated as "training restaurants" and also incorporates training
manuals and other written guides. At the end of the process, trainee skills are
tested by a variety of means including a full-day written examination. Initial
instruction is typically followed up by periodic supplemental training. When the
Company opens a new restaurant, management positions are typically staffed with
personnel who have had previous experience in a management position at another
restaurant. In addition, a highly experienced opening team assists in opening
the restaurant. Prior to opening, all staff personnel undergo a week of
intensive training conducted by the restaurant opening team. The training
includes drills in which test meals and beverages are served.

Advertising and Marketing

      The Company's overall marketing objective is to grow brand equity by
building revenues and increasing profitability. Management utilizes strategies
that create customer trial of new products/events so as to increase the share of
visits and average guest check, yet maintain a unique dining experience and
brand personality. The Company recognizes the need to build brand awareness in
order to increase market share. Its advertising plan is designed to increase
brand awareness, trial and share of visits from its target market by providing
media coverage in markets where the Company has sufficient penetration to
support media at competitive levels. In those markets where the Company has its
highest penetration, television and radio advertising is provided. In its
secondary markets, the Company utilizes more cost-effective localized marketing
vehicles including newspaper inserts, radio and direct mail.

      Pursuant to its franchise agreements with the Franchisor, the Company
contributes 0.5% of net sales from each Chili's and On The Border restaurant to
the Franchisor for advertising and marketing to benefit all of the Franchisor's
restaurants. The Franchisor uses these funds to develop advertising and sales
promotion materials and concepts. The Company is also required to spend a
minimum of 2.0% of net sales from each restaurant on local advertising. In
addition, according to the franchise agreements, the Franchisor may require the
Company to pay an additional amount of advertising. The Franchisor required all
franchisees to pay an additional 1.0% of net sales from September 2000 through
June 2001.
<PAGE>

Purchasing

      The Company negotiates directly with suppliers of food and beverage
products and other restaurant supplies to ensure consistent quality and
freshness of products and to obtain competitive prices. Although the Company
believes that essential restaurant supplies and products are available on short
notice from several sources, the Company uses one full-service distributor for
the substantial portion of restaurant supplies and product requirements, with
such distributor charging the Company fixed mark-ups over prevailing wholesale
prices. The Company has a five-year contract with its full-service distributor
which is terminable by either party upon 60 days prior notice. The Company also
has arrangements with several smaller and regional distributors for the balance
of its purchases. These distribution arrangements have allowed the Company to
benefit from economies of scale and resulting lower commodity costs. Smaller
day-to-day purchasing decisions are made at the individual restaurant level. The
Company has not experienced any significant delays in receiving food and
beverage inventories or restaurant supplies.

Information Systems and Restaurant Reporting

      The Company's information systems provide detailed monthly financial
statements for each restaurant, bi-monthly restaurant inventories, menu mix,
cash management and payroll analysis, as well as daily operating statistics such
as sales, labor, guest check and average table turns. The varying levels of
systems data are consolidated and processed by the Company at its headquarters
daily, weekly or monthly as management deems appropriate. In addition, the
Company has an in-house payroll system which the Company believes is more
efficient for restaurant managers than third-party payroll systems.

Trademarks, Servicemarks and Other Intellectual Property

      As a franchisee of Brinker, the Company has contractual rights to use
certain Franchisor-owned trademarks, servicemarks and other intellectual
property relating to the Chili's and On The Border concepts.

      Bertucci's has registered, among others, the names "Bertucci's" and
"Bertucci's Brick Oven Pizzeria" as service marks and trademarks with the United
States Patent and Trademark Office. Management is aware of names similar to that
of Bertucci's used by third parties in certain limited geographical areas. Such
third-party use may prevent the Company from licensing the use of the Bertucci's
mark for restaurants in such areas. Except for these areas, management is not
aware of any infringing uses that could materially affect the Bertucci's
business.

Competition

      The Company's business and the restaurant industry in general are highly
competitive and are often affected by changes in consumer tastes and dining
preferences, by local and national economic conditions and by population and
traffic patterns. The Company competes directly or indirectly with all
restaurants, from national and regional chains to local establishments, as well
as with other foodservice providers. Many of its competitors are significantly
larger than the Company and have substantially greater resources.

Employees

      At January 3, 2001, the Company had approximately 2,713 full-time
employees (of whom approximately 113 are based at the Company's executive
office) and approximately 7,399 part-time employees. The Company expects to
employ significantly fewer people immediately following and in connection with
the Brinker Sale. None of the Company's employees are covered by a collective
bargaining agreement. The Company believes its relations with its employees are
good.

      Management believes that the Company's continued success will depend to a
large degree on its ability to attract and retain good management employees.
While the Company will continually have to address the high level of employee
<PAGE>

attrition normal in the food-service industry, the Company has taken steps to
attract and keep qualified management personnel through the implementation of a
variety of employee benefit plans, including a management incentive plan, a
401(k) plan, and a non-qualified stock option plan for its key employees.

Government Regulations

      Each of the Company's restaurants is subject to licensing and regulation
by a number of governmental authorities, which include health, safety, fire and
alcoholic beverage control agencies in the state or municipality in which the
restaurant is located. Difficulties or failures in obtaining required licenses
or approvals could delay or prevent the opening of a new restaurant in a
particular area.

      Alcoholic beverage control regulations require each of the Company's
restaurants to apply to a state authority and, in certain locations, county or
municipal authorities for a license or permit to sell alcoholic beverages on the
premises and to provide service for extended hours and on Sundays. Typically,
licenses or permits must be renewed annually and may be revoked or suspended for
cause at any time. Alcoholic beverage control regulations relate to numerous
aspects of the daily operations of the Company's restaurants, including minimum
age of patrons and employees, hours of operation, advertising, wholesale
purchasing, inventory control and handling, storage, and dispensing of alcoholic
beverages.

      The Company is also subject to various other federal, state and local laws
relating to the development and operation of restaurants, including those
concerning preparation and sale of food, relationships with employees (including
minimum wage requirements, overtime and working conditions and citizenship
requirements), land use, zoning and building codes, as well as other health,
sanitation, safety and environmental matters.

Environmental Compliance

      In connection with the sale of Bertucci's headquarters located in
Wakefield, Massachusetts, initial environmental testing disclosed isolated
deposits of several volatile organic compounds. Further testing confirmed the
limitation and location of the deposit. Bertucci's expended approximately
$30,000 in environmental investigation and remediation costs in 1999. Pursuant
to the sales agreement by and between Bertucci's and the purchaser of the
Wakefield headquarters property ("Wakefield Property Buyer"), all future costs
related to environmental concerns shall be the responsibility of the Wakefield
Property Buyer. The sale of the Bertucci's headquarters was consummated in
November 1999.
<PAGE>

ITEM 2.  PROPERTIES

      The Company's executive office is located in Maynard, Massachusetts. The
office is occupied under the terms of a lease covering approximately 39,000
square feet that is scheduled to expire in 2007 and has two five-year options to
renew. One of the Company's previous offices in Westborough, Massachusetts is
currently being sub-leased. The Company sold the 60,000 square foot Wakefield,
Massachusetts office building (previously the Bertucci's headquarters) in
November 1999.

Restaurant Locations

      The table below identifies the location of the restaurants operated by the
Company during fiscal 2000.

<TABLE>
<CAPTION>
                     -------------------------------------   ------------------------------------------
State                Bertucci's    Bertucci's   Bertucci's    Chili's     Chili's Openings    Chili's
                     12/29/1999   Closings in   01/03/2001   12/29/1999    in fiscal 2000    01/03/2001
                                  fiscal 2000
                     -------------------------------------   ------------------------------------------
<S>                          <C>           <C>          <C>          <C>                <C>          <C>
Connecticut                   9            --            9           11                  1           12
Illinois                      7            (7)          --           --                 --           --
Maine                        --            --           --            1                 --            1
Maryland                      5            --            5           --                 --           --
Massachusetts                34            --           34           15                  1           16
New Hampshire                 3            --            3            7                 --            7
New York                      3            --            3           --                 --           --
New Jersey                    4            --            4           --                 --           --
Pennsylvania                  6            --            6           --                 --           --
Rhode Island                  2            --            2            4                 --            4
Virginia                      4            --            4           --                 --           --
Washington D.C.               2            --            2           --                 --           --
                     -------------------------------------   ------------------------------------------
Total                        79            (7)          72           38                  2           40
                     -------------------------------------   ------------------------------------------

<CAPTION>
                     --------------------------------------------------   -----------
State                On The Border     On The Border      On The Border   Grand Total
                        12/29/99     Openings in fiscal     01/03/2001      1/3/2001
                                            2000
                     --------------------------------------------------   -----------
<S>                             <C>                  <C>             <C>          <C>
Connecticut                      2                    1               3            24
Illinois                        --                   --              --            -- (a)
Maine                           --                    1               1             2
Maryland                        --                   --              --             5
Massachusetts                    3                   --               3            53
New Hampshire                   --                   --              --            10
New York                        --                   --              --             3
New Jersey                      --                   --              --             4
Pennsylvania                    --                   --              --             6
Rhode Island                    --                   --              --             6
Virginia                        --                   --              --             4
Washington D.C.                 --                   --              --             2
                     --------------------------------------------------   -----------
Total                            5                    2               7           119
                     --------------------------------------------------   -----------
</TABLE>

(a)   The seven restaurants in Illinois were closed as of January 31, 2000.

      Of the 119 restaurants operated by the Company at January 3, 2001, the
Company owned the land for 12 restaurants and leased the land for all other
restaurants. The leases for most of the existing restaurants are for terms of 15
years and provide for additional option terms and, in the case of a limited
number of leases, a specified annual rental plus additional rents based on sales
volumes exceeding specified levels. Leases for future restaurants will likely
include similar rent provisions. Bertucci's restaurant lease terms range from
less than one to 40 years. The majority of such leases provide for an option to
renew for additional terms ranging from five years to 20 years. All of
Bertucci's leases provide for a specified annual rental and most leases call for
additional rent based on sales volumes exceeding specified levels.

ITEM 3. LEGAL PROCEEDINGS

      The Company is involved in various legal proceedings from time to time
incidental to the conduct of its business. In the opinion of management, any
ultimate liability arising out of such proceedings will not have a material
adverse effect on the financial condition or results of operations of the
Company.

      Management is not aware of any litigation to which the Company is a party
that is likely to have a material adverse effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

      As of March 15, 2001, there was no established public trading market for
any class of common equity security of the Company.

Record Holders

      As of March 15, 2001, there were approximately 78 holders of Common Stock
of the Company, $.01 par value per share. As of March 15, 2001, the Company did
not have any other class of common equity security issued and outstanding.

Dividends

      In August 1997, the Company made a dividend and return of capital payout
to shareholders of $8.31 per share from additional paid-in capital, with the
excess payout being charged to retained earnings. In addition, the Company
repurchased 716,429 shares of common stock at $11.63 per share. The Company's
repurchase of shares of common stock was recorded as treasury stock, at cost,
and resulted in a reduction of Stockholders' (Deficit) Equity.

      Other than the aforementioned dividend, the Company has not paid any other
dividends to date. Furthermore, the Company does not foresee declaring or paying
any cash dividends in the immediate future. Moreover, certain of the Company's
borrowing arrangements prohibit the payment of cash dividends without the
lender's approval.

Recent Sales of Unregistered Securities

      None.
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

      The data for fiscal years ended 1996 through 2000 are derived from audited
financial statements of the Company. Selected consolidated financial data should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
and the Notes thereto included elsewhere in this Form 10-K. Historical results
are not necessarily indicative of results to be expected in the future. The
Acquisition of Bertucci's in 1998 and the 53rd week of 2000 affects the
comparability of results on a year-to-year basis.

<TABLE>
<CAPTION>
                                                                 Fiscal Year Ended
                                                     January 3,    December 29,   December 30,   December 31,   December 31,
                                                      2001 (a)         1999           1998           1997           1996
                                                     ---------       ---------      ---------      ---------     ---------
<S>                                                  <C>             <C>            <C>            <C>           <C>
Income Statement Data (in thousands)
Net sales                                            $ 284,933       $ 267,665      $ 160,805      $  81,364     $  70,094
                                                     ---------       ---------      ---------      ---------     ---------
Cost of sales and expenses
  Cost of sales                                         74,266          73,860         44,377         23,384        21,203
  Operating expenses (e)                               162,577         154,750         91,596         44,642        37,429
  General and administrative expenses (e)               16,386          15,400          8,638          4,327         3,726
  Deferred rent, depreciation and amortization and
  preopening expenses                                   18,127          17,863         10,921          3,911         3,679
  Loss on abandonment of Sal & Vinnie's                  2,031              --             --             --            --
                                                     ---------       ---------      ---------      ---------     ---------
    Total cost of sales and expenses                   273,387         261,873        155,532         76,263        66,037
                                                     ---------       ---------      ---------      ---------     ---------
    Income from operations                              11,546           5,792          5,273          5,100         4,057

Interest expense, net                                   15,050          14,007          8,004          1,918         1,053
                                                     ---------       ---------      ---------      ---------     ---------
  (Loss) income before income tax (benefit)
  provision and change in accounting principle          (3,504)         (8,215)        (2,731)         3,183         3,005

(Benefit) provision for income taxes                      (115)         (2,357)          (902)         1,083         1,047
                                                     ---------       ---------      ---------      ---------     ---------
  (Loss) income before change in accounting
  principle                                             (3,389)         (5,858)        (1,829)         2,100         1,958

Change in accounting principle, net of tax                  --            (678)            --             --            --
                                                     ---------       ---------      ---------      ---------     ---------
  Net (loss) income                                  $  (3,389)      $  (6,536)     $  (1,829)     $   2,100     $   1,958
                                                     =========       =========      =========      =========     =========

Basic and diluted (loss) earnings per share before
change in accounting principle                       $   (1.14)      $   (1.97)     $   (0.89)     $    1.22     $    0.98
Change in accounting principle per share             $      --       $   (0.22)     $      --      $      --     $      --
Basic and diluted (loss) earnings per share          $   (1.14)      $   (2.19)     $   (0.89)     $    1.22     $    0.98

Other Financial Data:
EBITDA (in thousands) (b)                            $  31,704       $  23,655      $  16,194      $   9,012     $   7,737
EBITDA margin (c)                                         11.7%            8.8%          10.1%          11.1%         11.0%
Comparable restaurant sales (d)                            4.8%            2.1%           1.6%           2.7%         -0.4%
</TABLE>

(a)   Fiscal 2000 was comprised of 53 weeks. All other years presented were
      comprised of 52 weeks.

(b)   "EBITDA" is defined as income from operations before deferred rent,
      depreciation, amortization, preopening costs and loss on abandonment of
      Sal & Vinnie's. EBITDA is not a measure of performance defined by
      Generally Accepted Accounting Principles ("GAAP"). EBITDA should not be
      considered in isolation or as a substitute for net income or the
      statement of cash flows which have been prepared in accordance with
      GAAP. The Company believes EBITDA provides useful information regarding
      the Company's ability to service its debt and the Company understands
      that such information is considered by certain investors to be an
      additional basis for evaluating a company's ability to pay interest and
      repay debt. The EBITDA measures presented herein may not be comparable
      to similarly titled measures of other companies.
<PAGE>

(c)   EBITDA margin represents EBITDA divided by net sales.

(d)   The Company defines comparable restaurant sales as net sales from
      restaurants that have been open for at least one full fiscal year. The
      comparable sales in 2000, 1999 and 1998 relate to the combined company
      (Bertucci's, Chili's, On The Border and, for 1999 only, Sal & Vinnie's)
      while the 1997 and 1996 comparable sales relate to Chili's only (On The
      Border did not have a comparable restaurant as defined until Fiscal Year
      1998).

(e)   Prior year costs (operating expenses and general and administrative
      expenses) have been restated to conform to current year presentation.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      The following discussion should be read in conjunction with "Item 1.
Business," "Item 6. Selected Financial Data," the Company's Consolidated
Financial Statements and Notes thereto and the information described under the
caption "Risk Factors" below.

General

      The Company is an operator of full-service, casual dining restaurants in
the northeastern United States. The Company's wholly owned subsidiary,
Bertucci's Restaurant Corp. ("Bertucci's") owns and operates a restaurant
concept under the name Bertucci's Brick Oven Pizzeria(R). The Company also
develops and operates two distinct restaurant franchises, Chili's Grill & Bar(R)
("Chili's") and On The Border Mexican Cafe(R) ("On The Border"), under franchise
agreements with Brinker International, Inc., a publicly-owned company ("Brinker"
or the "Franchisor").

      In July 1998, the Company completed its acquisition of Bertucci's' parent
entity, Bertucci's, Inc., a publicly-owned restaurant company for a purchase
price, net of cash received, of approximately $89.4 million (the "Acquisition").
As of January 3, 2001, Bertucci's owned and operated 72 full-service, casual
dining, Italian-style restaurants under the name Bertucci's Brick Oven
Pizzeria(R) located primarily in New England and Mid-Atlantic United States.
Bertucci's opened 17 Bertucci's restaurants in 1994, nine in 1995, four in 1996,
four in 1997 and six in 1998. During 1999, the Company closed the Bertucci's
test kitchen restaurant in Wakefield, Massachusetts and also closed ten
under-performing Bertucci's restaurants. In January of 2000, the Company closed
seven additional Bertucci's restaurants, thereby completing the planned
Bertucci's closings identified shortly after the Acquisition. The Company closed
the sole Sal & Vinnie's Sicilian Steakhouse(TM) restaurant (part of the
Acquisition) in December of 2000.

      The Company acquired the Bertucci's and Sal and Vinnie's concepts pursuant
to the terms of an Agreement and Plan of Merger dated as of May 13, 1998,
whereby the Company (through a wholly-owned subsidiary) acquired on July 21,
1998 all of the issued and outstanding shares of common stock of Bertucci's,
Inc. for an aggregate purchase price of approximately $89.4 million. The Company
financed the Acquisition primarily through the issuance of $100 million of 10
3/4% senior notes due 2008 (the "Senior Notes"). These Senior Notes were
exchanged for Senior Notes with the same terms pursuant to a registered exchange
offer that was completed in November 1998. The Company's results of operations
for fiscal 1998, fiscal 1999 and fiscal 2000 include the operations of
Bertucci's from and after July 21, 1998, approximately 29 months. See Notes 2
and 7 to the Consolidated Financial Statements.

      The Acquisition included 90 Bertucci's restaurants and one Sal & Vinnie's
restaurant. The Company closed its Bertucci's test kitchen in Wakefield,
Massachusetts in 1999, sold the former Bertucci's headquarters located in
Wakefield, Massachusetts in 1999 and closed seventeen other under-performing
Bertucci's restaurants by the end of January 2000. The assets related to these
locations, which are primarily property and equipment, had been assigned a value
of approximately $6.6 million based on estimated sale proceeds. The gross sale
proceeds, net of fees, from the Bertucci's headquarters and several
under-performing restaurants was $4.8 million in fiscal 1999 and $648,000 in
fiscal 2000. The Company closed the remaining seven under-performing restaurant
locations prior to January 31, 2000. Those seven locations had combined net
sales of approximately $418,000 and a combined approximate $31,000 loss from
operations during 2000. During fiscal year 1999, the seventeen under-performing
restaurant locations and the test kitchen location had combined net sales of
approximately $14.7 million and an approximate loss from operations of
approximately $1.5 million (not including approximately $100,000 of direct
general and administrative expenses). The results of operations for the test
kitchen and
<PAGE>

the other seventeen restaurants during the period from date of the Acquisition
to January 3, 2001 have been included in the consolidated statements of income.

      The Company has entered into franchise agreements with Brinker to operate
the 47 Chili's and On The Border restaurants (collectively, the "Brinker Concept
Restaurants"). In addition, the Company has entered into an Area Development
Agreement to exclusively develop additional restaurants in New England and
Westchester County, New York. On November 20, 2000, the Company entered into an
agreement to sell to Brinker ("Purchaser") the Brinker Concept Restaurants, all
development rights for future Brinker Concept Restaurants and four Chili's
restaurants currently under development by the Company (the "Brinker Sale").
Total consideration, subject to closing adjustments, is approximately $93
million. The Brinker Sale calls for the transition of the 47 franchised
restaurant properties including inventory, facilities, equipment, management
teams and four Chili's restaurants currently under development by the Company to
Brinker. Brinker will assume the mortgage debt on the Company's Brinker Concept
Restaurants, and shall pay the Company additional cash consideration. The
Company expects to finalize the Brinker Sale in April 2001.

      For all the Company's restaurants, net sales consist of food, beverage and
alcohol sales. Cost of sales consists of food, beverage and alcohol costs as
well as supplies used in carry-out and delivery sales. Total operating expenses
consist of five primary categories: (i) labor expenses; (ii) restaurant
operations; (iii) facility costs; (iv) office expenses; and (v) non-controllable
expenses, which include such items as company advertising expenses, Brinker's
royalty and advertising fees, rent and insurance. General and administrative
expenses include costs associated with those departments of the Company that
assist in restaurant operations and management of the business, including
accounting, management information systems, training, executive management,
purchasing and construction.

Results of Operations

      The following table sets forth the percentage-relationship to net sales,
unless otherwise indicated, of certain items included in the Company's income
statement, as well as certain operating data, for the periods indicated:

<TABLE>
<CAPTION>
Income Statement Data:                                                       For Fiscal Year Ended
                                                                      January 3,   December 29,   December 30,
                                                                         2001          1999           1998
                                                                      ----------   ------------   ------------
<S>                                                                     <C>           <C>            <C>
Net sales                                                               100.0%        100.0%         100.0%
                                                                        -----         -----          -----
Cost of sales and expenses
  Cost of sales                                                          26.1          27.6           27.6
  Operating expenses                                                     57.1          57.8           57.0
  General and administrative expenses                                     5.8           5.8            5.4
  Depreciation, amortization, deferred rent and preopening expenses       6.4           6.7            6.8
  Loss on abandonment of Sal & Vinnie's                                   0.7            --             --
                                                                        -----         -----          -----
    Total cost of sales and expenses                                     96.1          97.9           96.8
                                                                        -----         -----          -----
    Income from operations                                                3.9           2.1            3.2
Interest expense, net                                                     5.3           5.2            5.0
                                                                        -----         -----          -----
  Loss before income tax benefit and change in accounting principle      (1.4)         (3.1)          (1.8)
Benefit for income taxes                                                   --          (0.9)          (0.6)
                                                                        -----         -----          -----
  Loss before change in accounting principle                             (1.4)         (2.2)          (1.2)
Change in accounting principle, net of tax                                 --          (0.3)            --
                                                                        -----         -----          -----
    Net loss                                                             (1.4)         (2.5)          (1.2)
                                                                        =====         =====          =====
</TABLE>
<PAGE>

Year Ended January 3, 2001 Compared to Year Ended December 29, 1999

      Net Sales. Net sales increased $17.3 million, or 6.5%, to $284.9 million
in fiscal 2000, from $267.7 million in fiscal 1999. Most of the increase was
attributable to a 4.8% comparable sales increase at the Company's restaurants.
The 53rd week added approximately $4.8 million of sales while two new Chili's
that opened during fiscal 2000 and five Chili's that opened in 1999 contributed
an additional $9.0 million. Two new On The Border restaurants that opened in
fiscal 2000 and one that opened in 1999 supplied $6.6 million of incremental
sales. These positive results were partially offset by the closings of 17
Bertucci's restaurants during 1999 and early 2000, which accounted for an
unfavorable variance of $14.3 million. Average sales per restaurant increased
12.2% to $2.3 million in fiscal 2000, from just under $2.1 million the previous
year primarily due to strong comparable sales growth at Bertucci's, a greater
proportion of Brinker Concept Restaurants and the closing of the
under-performing Bertucci's previously mentioned.

      Cost of Sales. Cost of sales increased by $406,000 or 0.5%, to $74.3
million in fiscal 2000 from $73.9 million in fiscal 1999. Expressed as a
percentage of net sales, cost of sales decreased by 1.5% to 26.1% in fiscal 2000
from 27.6% in fiscal 1999. The Company believes the reduction in cost of sales
resulted from several causal factors. First, Bertucci's continued to develop the
theoretical cost system which allowed management to pinpoint and control costs.
Management believes that approximately 0.5% of the decrease is as a result of
improved cost control measures. Second, product costs showed favorable movement
against 1999 due to a combination of purchasing practices (specifically poultry,
flour, oils and produce) and favorable market conditions (cheese costs during
fiscal 2000 dipped to a 30 year low). Third, price increases in January and
August at the Brinker Concept Restaurants further drove down cost percentages.
Fourth, the Company saw a benefit in gross margin as a result of closing the
aforementioned under-performing Bertucci's restaurants. Last, menu engineering
at Bertucci's, specifically the introduction of several poultry and seafood
pasta offerings, partially offset the decrease as these menu items were higher
in cost percentage but also higher in dollar margin.

      Operating Expenses. Operating expenses increased by $7.8 million, or 5.1%,
to $162.6 million in fiscal 2000 from $154.8 million in fiscal 1999. Expressed
as a percentage of net sales, operating expenses decreased to 57.1% in fiscal
2000 from 57.8% in fiscal 1999. The dollar increase was primarily attributable
to new restaurant development, increased labor costs (partially offset by
increased productivity), an increase in restaurant repairs and maintenance and
the impact of the 53rd week of fiscal 2000. The Company believes that
approximately $2.2 million of the fiscal 2000 operating expenses resulted from
the 53rd week of operations. The percentage decrease was primarily attributable
to cost control measures, primarily at Bertucci's, increased leverage of higher
sales against fixed costs, the favorable impact of the Bertucci's
under-performing restaurant closings and the impact of the 53rd week of
operations which accounted for approximately 0.3% of the favorable variance.

      General and Administrative Expenses. General and administrative expenses
increased $986,000, or 6.4%, to $16.4 million in fiscal 2000 from $15.4 million
in fiscal 1999. Expressed as a percentage of net sales, general and
administrative expenses remained constant at 5.8% for both 2000 and 1999. The
dollar increase was primarily due to increased payroll (mostly Bertucci's
operating, recruiting and training to further strengthen operations), increased
bonus expense as a result of improved performance and twelve months of rent
associated with the corporate headquarters verses five months in 1999. The
Company believes the impact of the 53rd week of operations accounts for
approximately $200,000 of the increase.

      Deferred Rent, Depreciation, Amortization and Preopening Expenses.
Deferred rent, depreciation, amortization and preopening expenses increased by
$264,000, or 1.5%, to $18.1 million in fiscal 2000 from $17.9 million in fiscal
1999. Expressed as a percentage of net sales, deferred rent, depreciation,
amortization and preopening expenses decreased to 6.4% in fiscal 2000 from 6.7%
in fiscal 1999. The dollar increase was primarily due to increased capital
improvements at Bertucci's, opening four additional Brinker Concept Restaurants
and incremental depreciation on the corporate headquarters build-out partially
offset by a $500,000 decrease in preopening expenses. During fiscal 2000,
preopening expenses amounted to approximately $900,000.

      Loss on Abandonment of Sal & Vinnie's. The Company closed the only Sal &
Vinnie's in late fiscal 2000 and abandoned the restaurant property in return for
lease termination. This transaction resulted in a loss of approximately $2.0
million in fiscal 2000.
<PAGE>

      Interest Expense. Interest expense increased $1.0 million, or 7.4%, to
$15.0 million in fiscal 2000 from $14.0 million in fiscal 1999. This increase
was attributable to new FFCA Loans entered into since 1999. Interest was
approximately $10.9 million on the Senior Notes, $3.9 million on the FFCA Loans
and $0.2 million from the Company's line of credit during fiscal 2000.

      Income Tax Benefit. In fiscal 2000, the Company recorded a benefit for
income taxes of $115,000 on a loss before income tax expense of approximately
$3.5 million. The decrease in the benefit resulted primarily from improved
financial performance and the non-deductibility of goodwill associated with the
Acquisition.

Year Ended December 29, 1999 Compared to Year Ended December 30, 1998

      Net Sales. Net sales increased $106.9 million, or 66.5%, to $267.7 million
in fiscal 1999, from $160.8 million in fiscal 1998. Most of the increase was
attributable to the inclusion of Bertucci's for twelve months of 1999 but
approximately five months during 1998 as the result of the Acquisition. An
additional component of the increase was from the Company's opening of six new
Bertucci's, eight new Chili's and four new On The Border restaurants during 1998
and 1999. The remainder of the increase was a result of increased comparable
restaurant sales in 1999 versus the same period 1998. Comparable restaurant
sales for locations opened prior to 1998 increased 2.1% from fiscal 1998 to
fiscal 1999. Average sales per restaurant increased 5.9% to almost $2.1 million
in fiscal 1999, from just under $2.0 million the previous year.

      Cost of Sales. Cost of sales increased by $29.5 million, or 66.4%, to
$73.9 million in fiscal 1999 from $44.4 million in fiscal 1998. Expressed as a
percentage of net sales, cost of sales remained flat at 27.6% in both fiscal
1999 and fiscal 1998. This statistic is comprised of two significant changes in
the Company's business. The inclusion of Bertucci's results in 1998 helped to
decrease the Company's overall cost of sales. However, the increase in cheese
costs during the Summer of 1999 impacted the cost of sales at Bertucci's by
approximately 2% of net sales.

      Operating Expenses. Operating expenses increased by $63.2 million, or
68.9%, to $154.8 million in fiscal 1999 from $91.6 million in fiscal 1998.
Expressed as a percentage of net sales, operating expenses increased to 57.8% in
fiscal 1999 from 57.0% in fiscal 1998. The dollar increase was primarily
attributable to the inclusion of Bertucci's for twelve months in 1999 but for
approximately five months in 1998 as a result of the Acquisition. The percentage
increase was primarily attributable to increased hourly labor costs driven by a
tight labor market and mandated Federal and state minimum wage increases, as
well as to increased labor costs arising from increased staffing of
restaurant-level management implemented to strengthen restaurant operations.

      General and Administrative Expenses. General and administrative expenses
increased $6.8 million, or 78.2%, to $15.4 million in fiscal 1999 from $8.6
million in fiscal 1998. Expressed as a percentage of net sales, general and
administrative expenses increased to 5.8% in 1999 from 5.4% in fiscal 1998. The
dollar increase was primarily due to the Acquisition as well as new rental
payments for the Company's headquarters. The percentage increase was primarily
attributable to increased general and administrative staffing, particularly
increases in payroll, training and recruitment costs related to hiring
additional restaurant managers to better staff the Company's restaurants.

      Deferred Rent, Depreciation, Amortization and Preopening Expenses.
Deferred rent, depreciation, amortization and preopening expenses increased by
$7.0 million, or 63.6%, to $17.9 million in fiscal 1999 from $10.9 million in
fiscal 1998. Expressed as a percentage of net sales, deferred rent,
depreciation, amortization and preopening expenses decreased to 6.7% in fiscal
1999 from 6.8% in fiscal 1998. The dollar increase was due to the combination of
the incremental seven months of Bertucci's results in 1999 versus 1998 as a
result of the Acquisition, opening six additional Brinker concept restaurants,
opening six Bertucci's restaurants, the write-down of approximately $0.4 million
associated with the Westborough executive offices, approximately $1.4 million of
preopening expenses and amortization of approximately $2.3 million of the $34
million goodwill associated with the Acquisition.

      Interest Expense. Interest expense increased $6.0 million, or 75.0%, to
$14.0 million in fiscal 1999 from $8.0 million in fiscal 1998. This increase was
attributable to the sale of the Senior Notes in July 1998 and to the FFCA Loans
entered into since August 1998. Interest was approximately $10.8 million on the
Senior Notes, $3.0 million on the FFCA Loans and $0.2 million on borrowings from
the Company's line of credit during fiscal 1999.
<PAGE>

      Income Tax Expense. In fiscal 1999, the Company realized an income tax
benefit of 30.3% of loss before income tax expense, compared to an income tax
benefit of 33.0% of loss before income tax expense in fiscal 1998. The primary
unfavorable variance was due to the non-deductibility of goodwill associated
with the Acquisition.

      Change in Accounting Principle. The Company adopted the American Institute
of Certified Public Accountants' Statement of Position 98-5 (SOP 98-5) as of the
first day of fiscal 1999. Upon adoption, the Company incurred a pre-tax
cumulative effect of a change in accounting principle of approximately $1.1
million. Net of income taxes, the expense was approximately $0.7 million. This
charge was primarily for the write-off of unamortized preopening costs which
were previously amortized over the 12-month period subsequent to a restaurant
opening. Effective with the first day of fiscal 1999, the Company expenses all
preopening costs as incurred. The costs are included in Deferred Rent,
Deprecation, Amortization and Preopening expenses in the accompanying Statement
of Operations.

Liquidity and Capital Resources

      The Company has met its capital expenditures and working capital needs
through a combination of operating cash flow, borrowings under the FFCA Loans,
bank borrowings, the sale of the Senior Notes and the sale of Common Stock.

      Fiscal Year Ended January 3, 2001. Net cash flows from operating
activities were $10.4 million for fiscal 2000 as compared to $6.5 million for
fiscal 1999. Net loss from operations for this period was $3.4 million and the
non-cash reconciling items of deferred rent, depreciation, amortization,
deferred taxes and non-cash loss on the Sal & Vinnie's abandonment increased
cash flows by $19.5 million. This compares favorably by approximately $3.0
million to the results in 1999. The Company believes the 53rd week of operations
accounts for approximately $500,000 of the favorable variance which includes
incremental cash from operations of approximately $1.3 million offset by an
$800,000 increase in prepaid expenses, mostly prepaid rents, applied to fiscal
2001. Accrued expenses decreased by $4.6 million mostly as a result of a
reduction of accrued payroll, restaurant closing reserves and occupancy expenses
which were partially offset by an increase in accrued taxes. The Company also
used cash from operations to increase working capital needs for four newly
developed restaurant locations. Net cash used in investing activities for fiscal
2000 was $12.1 million. Approximately $14.5 million was used for developing,
building and opening new restaurants, paying franchise fees, acquiring liquor
licenses and for capital additions at existing restaurants including a point of
sale ("POS") computer upgrade at half of the Bertucci's locations. The sale of
four Bertucci's restaurants accounted for approximately $1.7 million of cash
inflow in addition to $648,000 of cash provided by the sale of an adjacent
parcel of land to one of the Chili's properties and the sale of a liquor license
(the Company maintained a beer and wine license) at a Bertucci's location. Net
cash provided by financing activities was $1.8 million for fiscal 2000. During
this period, $3.8 million was borrowed from FFCA Acquisition Corporation
("FFCA") for new restaurant mortgages (Note 7 of the consolidated financial
statements), $1.8 million was used for repaying principle on FFCA mortgages and
approximately $0.2 was used for capital lease payments and the purchase of
common shares to treasury.

      Fiscal Year Ended December 29, 1999. Net cash flows from operating
activities were $6.5 million for fiscal 1999 as compared to $17.2 million for
fiscal 1998. Approximately $5.0 million of the $10.7 million difference was a
result of additional interest incurred on the Senior Notes in 1999 versus 1998.
Net loss from operations for this period was $6.5 million and the non-cash
reconciling item of deferred rent, depreciation, amortization and pre-tax change
in accounting principle increased cash flows by $17.6 million. Accrued expenses
decreased by $4.5 million mostly as a result of a reduction of accrued payroll,
restaurant closing reserves, occupancy expenses and other liabilities which were
partially offset by an increase in unredeemed gift certificates. The Company
also used cash from operations to increase working capital needs for newly
developed restaurant locations and for the Bertucci's restaurants acquired
during fiscal 1998. Increases in deferred taxes and accounts payable were
partially offset by a net decrease in other working capital accounts, a decrease
in inventories and an increase in prepaid expenses. Net cash used in investing
activities for fiscal 1999 was $14.4 million. Approximately $19.2 million was
used for developing, building and opening new restaurants, paying franchise fees
and for capital additions at existing restaurants. The sale of assets (primarily
the former Bertucci's headquarters located in Wakefield, Massachusetts)
accounted for approximately $4.8 million of additional cash to the Company in
1999. Net cash provided by financing activities was $10.1 million for fiscal
1999. During this period, $11.3 million was borrowed from FFCA Acquisition
Corporation ("FFCA") for new restaurant mortgages (Note 7 of the consolidated
financial statements), $1.0 million was used for repaying principle on FFCA
mortgages and approximately $0.2 was used for capital lease payments and return
of capital.
<PAGE>

      The Company's capital expenditures were $14.2 million, $19.0 million and
$19.4 million, for fiscal 2000, 1999 and 1998, respectively. In fiscal 2000,
capital expenditures for maintenance and repair of the Company's restaurants and
the new POS implementation were approximately $6.9 million. The remainder of the
capital spending was directly associated with new restaurant development. The
company expects to open four to five Bertucci's restaurants in 2001 and no
Brinker Concept Restaurants due to the pending Brinker Sale in Fiscal Year 2001.

      In August 1997, the Company paid a dividend and return of capital
distribution to shareholders of approximately $16.7 million from additional
paid-in capital, with the excess payout being charged to retained earnings. In
addition, as part of such transaction, the Company repurchased a portion of its
capital stock, for an aggregate amount of approximately $8.3 million. The
Company's repurchase of shares of common stock was recorded as treasury stock,
at cost, and resulted in a reduction of shareholders' equity. These payments
were funded through the use of proceeds from the FFCA Loan.

      As of January 3, 2001, the Company had approximately $141.3 million of
consolidated indebtedness, including $100.0 million of indebtedness pursuant to
the Senior Notes, $41.3 million of borrowings under the FFCA Loans and $37,000
of capital lease obligations. In addition, the Company has a Senior Bank
Facility in the amount of $20.0 million. As a January 3, 2001, the Company had
no amounts outstanding under this facility. Significant liquidity demands will
arise from debt service on the Senior Notes, the FFCA Loans and borrowings, if
any, under the Senior Bank Facility. The Brinker Sale includes the assumption of
all of the Company's FFCA Loans which are associated solely with the Brinker
Concept Restaurants (as of the time of this filing, there are no FFCA Loans
associated with Bertucci's).

      The Senior Notes bear interest at the rate of 10 3/4% per annum, payable
semi-annually on January 15 and July 15, with payments that commenced on January
15, 1999. The Senior Notes are due in full on July 15, 2008. From July 15, 2003
through July 15, 2006, the Company may, at its option, redeem any or all of the
Senior Notes at face value, plus a declining premium, which begins at
approximately 5%. After July 15, 2006, the Senior Notes may be redeemed at face
value. In addition, anytime through July 15, 2001, the Company may redeem up to
35% of the Senior Notes, subject to restrictions, with the net proceeds of one
or more equity offerings, meeting certain criteria, at a redemption price of
110.75% of their principal amount. Additionally, under certain circumstances,
including a change of control or following certain asset sales, the holders of
the Senior Notes may require the Company to repurchase the Senior Notes, at a
redemption price of 101%. Pursuant to the Indenture that governs the Senior
Notes (the "Indenture"), the Company has one year from the date of the Brinker
Sale to determine how it shall use the proceeds from the Brinker Sale. See Note
7 to the Consolidated Financial Statements.

      On August 6, 1997, the Company's wholly owned limited partnership NERC
Limited Partnership ("NERCLP") entered into a loan agreement with FFCA in the
aggregate amount of $22.4 million, evidenced by promissory notes maturing on
various dates from September 2002 through September 2017, with interest at 9.67%
per annum. NERCLP mortgaged 17 restaurant properties to FFCA as collateral for
these initial FFCA Loans. On or about August 28, 1997, NERCLP obtained
additional financing from FFCA in the aggregate amount of $1.9 million,
evidenced by promissory notes maturing on various dates from September 2007
through September 2017, with interest at 9.701% per annum. These additional FFCA
Loans were collateralized by mortgages on three restaurant properties. Between
July 2, 1998 and December 10, 1998, a second wholly owned limited partnership of
the Company, NERC Limited Partnership II, obtained additional financing from
FFCA in the aggregate amount of $5.7 million, evidenced by promissory notes
maturing on various dates from January 2006 to January 2019, with interest rates
ranging from 8.440% to 9.822% per annum. During 1999, the company obtained FFCA
Loans of $11.3 million which were collateralized by mortgages on eight combined
Chili's and On The Border properties. During 2000, the Company obtained FFCA
Loans of $3.8 million which were collateralized by mortgages on three combined
Chili's and On The Border properties. For the years ended January 3, 2001 and
December 30, 1999 interest related to the FFCA Loans was $3.9 million and $3.0
million, respectively. The Brinker Sale includes the assumption of FFCA Loans
associated with the Brinker Concept Restaurants. See Notes 1 and 7 to the
Consolidated Financial Statements.

      The Senior Bank Facility consists of a revolving credit facility providing
for revolving loans to the Company in an aggregate principal amount not to
exceed $20.0 million and includes a $1.0 million sub-limit for the issuance of
letters of credit for the account of the Company. The Senior Bank Facility
expires in August 2001 and is secured by tangible and intangible assets of the
Company but is not secured by a security interest in any liquor licenses held by
the Company or any of its subsidiaries (or in the equity securities of any such
subsidiary directly holding such licenses). The Senior Bank Facility contains
certain financial covenants with which the Company was in compliance at the end
of fiscal 2000. See Note 5 to the Consolidated Financial Statements.
<PAGE>

      The Company believes that a combination of cash flow generated from its
operations, together with available borrowings under the Senior Bank Facility,
proceeds from the Brinker Sale and loans from restaurant industry institutional
lenders and similar secured indebtedness, should be sufficient to fund its debt
service requirements, lease obligations, working capital needs, current expected
capital expenditures and other operating expenses for the next twelve months.
The Company's future operating performance and ability to service or refinance
the Senior Notes and the Senior Bank Facility will be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond the Company's control.

Impact of Inflation

      Inflationary factors such as increases in labor, food or other operating
costs could adversely affect the Company's operations. The Company does not
believe that inflation has had a material impact on its financial position or
results of operations for the periods discussed above. Management believes that
through the proper leveraging of purchasing size, labor scheduling, and
restaurant development analysis, inflation will not have a material adverse
effect on income during the foreseeable future. There can be no assurance that
inflation will not materially adversely affect the Company.

Seasonality

      The Company's quarterly results of operations have fluctuated and are
expected to continue to fluctuate depending on a variety of factors, including
the timing of new restaurant openings and related pre-opening and other startup
expenses, net sales contributed by new restaurants, increases or decreases in
comparable restaurant sales, competition and overall economic conditions. The
Company's business is also subject to seasonal influences of consumer spending,
dining out patterns and weather. As is the case with many restaurant companies,
the Company typically experiences lower net sales and net income during the
first and fourth fiscal quarters. Because of these fluctuations in net sales and
net income (loss), the results of operations of any quarter are not necessarily
indicative of the results that may be achieved for a full fiscal year or any
future quarter.

Effect of Recently Issued Accounting Standards

      In April 1998, the AICPA issued its Statement of Position 98-5 ("SOP
98-5"), Reporting on the Costs of Start-Up Activities. SOP 98-5 requires that
costs incurred during start-up activities, including organization costs, be
expensed as incurred. SOP 98-5 is effective for financial statements for fiscal
years beginning after December 15, 1998. Application of SOP 98-5 is as of the
beginning of the fiscal year in which it is first adopted and is reported as a
cumulative effect of a change in accounting principle.

      The Company adopted SOP 98-5 as of the first day of fiscal 1999. Upon
adoption, the Company incurred a pre-tax cumulative effect of a change in
accounting principle of approximately $1.1 million. This charge was primarily
for the write-off of unamortized preopening costs which were previously
amortized over the 12-month period subsequent to a restaurant opening.

New Accounting Pronouncements

      In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS No. 133), Accounting for Derivative Instruments and Hedging Activities.
This statement established accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts and for hedging activities) be recorded in the balance sheet
as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedging accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS 133 is effective for fiscal years beginning
after June 15, 2000.

      In June 2000, the FASB issued SFAS No. 138, Accounting for Derivative
Instruments and Hedging Activities - An amendment of FASB Statement No. 133,
which amended SFAS no. 133 and added guidance for certain derivative
<PAGE>

instruments and hedging activities. The new standard, SFAS No. 133 as amended by
SFAS No. 138, requires recognition of all derivatives as either assets or
liabilities at fair value. One of the primary amendments to SFAS No. 133 that is
covered by SFAS No. 138 establishes an exemption for normal purchases and normal
sales that will be delivered in quantities expected to be used or sold over a
reasonable period in the normal course of business. The Company has completed
its analysis and review of contracts associated with the adoption of this
standard and has determin3ed that the adoption of this standard will not have a
material impact on the Company's fiscal position or results of operations.

Year 2000 Disclosure

      Many currently installed computer systems and software products were coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields were required to accept four digit entries to
distinguish twenty-first century dates from twentieth century dates. Prior to
January 1, 2000, the Company assessed the potential impact of Year 2000 issues
on the processing of date-sensitive information by the Company's automated
information and point-of-sale systems. While there can be no assurance that Year
2000 matters have been entirely eradicated, the Company has not experienced any
material adverse affects from Year 2000 issues.

Risk Factors

      This Report contains forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Report
should be read as being applicable to all forward looking statements wherever
they appear in this Report. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed elsewhere
in this Report.

      Substantial Leverage; Potential Inability to Service Indebtedness. As a
result of the Acquisition, the Company is highly leveraged. At the end of fiscal
2000, the Company's aggregate outstanding indebtedness was $141.3 million, the
Company's shareholders' equity was $4.1 million and the Company's working
capital deficit, deficiency of earnings to fixed charges and losses were $16.3
million, $3.5 million and $3.4 million, respectively. The Company's ratio of
earnings to fixed charges for fiscal 2000 was 0.8 times.

      The Company's high degree of leverage could have important consequences to
holders of Senior Notes, including but not limited to the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired in the future; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for its
operations and other purposes, including investments in development and capital
spending; (iii) the Company may be substantially more leveraged than certain of
its competitors, which may place the Company at a competitive disadvantage; and
(iv) the Company's substantial degree of leverage may limit its flexibility to
adjust to changing market conditions, reduce its ability to withstand
competitive pressures and make it more vulnerable to a downturn in general
economic conditions or in its business. The Company's ability to repay or to
refinance its obligations with respect to its indebtedness will depend on its
future financial and operating performance, which, in turn, will be subject to
prevailing economic and competitive conditions and to certain financial,
business, legislative, regulatory and other factors, many of which are beyond
the Company's control. These factors could include operating difficulties,
increased operating costs, product pricing pressures, the response of
competitors, regulatory developments, and delays in implementing strategic
projects. The Company's ability to meet its debt service and other obligations
may depend in significant part on the extent to which the Company can implement
successfully its business strategy. There can be no assurance that the Company
will be able to implement its strategy fully or that the anticipated results of
its strategy will be realized.

      If the Company's cash flow and capital resources are insufficient to fund
its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets, or seek to obtain additional equity capital,
or to refinance or restructure its debt. There can be no assurance that the
Company's cash flow and capital resources will be sufficient for payment of
principal of, and premium, if any, and interest on, its indebtedness in the
future, or that any such alternative measures would be successful or would
permit the Company to meet its scheduled debt service obligations. In addition,
because the Company's obligations under the Senior Bank Facility bear interest
at floating rates, an increase in interest rates could adversely affect, among
other things, the Company's ability to meet its debt service obligations.
<PAGE>

      If the Company is required to reduce or delay capital expenditures, the
Company may fail to meet its obligations under its Area Development
Agreements, under which the Company is required to open three new Chili's
restaurants each year in accordance with a specified schedule over
approximately the next three years. A breach under the Area Development
Agreements may cause the Company to lose its exclusive right to develop
Chili's restaurants in Connecticut, New Hampshire, Maine, Massachusetts,
Rhode Island, Vermont and Westchester County, New York. A breach under the
Area Development Agreements could also constitute a default under the Senior
Bank Facility and the FFCA Loans, permitting the applicable lender to declare
all amounts due thereunder immediately due and payable. The Brinker Sale will
alleviate the requirement to meet area development agreements and subsequent
FFCA issues resulting from same.

      Restrictive Debt Covenants. The Indenture for the Senior Notes, the Senior
Bank Facility and the FFCA Loans impose significant operating and financial
restrictions on the Company (and its subsidiaries). Such restrictions will
affect, and in many respects significantly limit or prohibit, among other
things, the ability of the Company to incur additional indebtedness, pay
dividends or make other distributions, make certain investments, create certain
liens, sell certain assets, enter into certain transactions with affiliates, or
engage in certain mergers or consolidations involving the Company. In addition,
the Senior Bank Facility and the FFCA Loans contain other and more restrictive
covenants and require the Company (and its subsidiaries) to maintain specified
financial ratios and satisfy certain financial tests. The Company's ability to
meet such financial ratios and tests may be affected by events beyond its
control, and there can be no assurance that the Company will meet such tests.
These restrictions could limit the ability of the Company to obtain future
financing, make needed capital expenditures, withstand a future downturn in its
business or the economy, or otherwise conduct necessary corporate activities. A
failure by the Company to comply with the restrictions contained in the
Indenture, the FFCA Loans or the Senior Bank Facility could lead to a default
under the terms of the Indenture, the FFCA Loans or the Senior Bank Facility. In
the event of a default, the applicable lender could elect to declare all amounts
borrowed pursuant thereto, and all amounts due under other instruments
(including but not limited to the Indenture, the FFCA Loans or the Senior Bank
Facility, as applicable) that may contain cross-acceleration or cross-default
provisions may also be declared to be, immediately due and payable, together
with accrued and unpaid interest, and the lenders could terminate all
commitments thereunder. In such event, there can be no assurance that the
Company would be able to make such payments or borrow sufficient funds from
alternative sources to make any such payment. Even if additional financing could
be obtained, there can be no assurance that it would be on terms that are
favorable or acceptable to the Company. In addition, the indebtedness of the
Company or its subsidiaries under the FFCA Loans and Senior Bank Facility is
secured by a substantial portion of the assets of the Company or its
subsidiaries and, upon the occurrence of a default and the acceleration of such
indebtedness, the holders of such indebtedness could seize such assets and sell
them as a means to satisfy all or part of such indebtedness. The Senior Bank
Facility also contains provisions that prohibit any modification of the
Indenture in any manner adverse to the senior lenders and that limit the
Company's ability to refinance the Senior Notes without the consent of such
senior lenders. The reduced size of the Company as a result of the Brinker Sale
may further affect the Company's ability to satisfy the debt covenants.

      Consent of Franchisor to Acquisition Subject to Continuing Compliance with
Certain Agreements. The Franchisor's consent to the Acquisition was granted
subject to the terms and conditions of its franchise agreements and Area
Development Agreements with the Company, including, without limitation, the
development schedule and menu restrictions contained in such agreements. Under
these agreements, the Company is prohibited from directly or indirectly engaging
in the operation of any restaurant which utilizes or duplicates the menu, trade
secrets or service marks of either Chili's or On The Border restaurants. In
addition, the Company is obligated to use its "best efforts" to promote and
develop the Chili's and On The Border concepts. Although it has no present
intention of doing so, the Company, among other things, would be prevented from
developing menu items for the Bertucci's concept in violation of such
agreements.

      Potential Inability to Manage Geographic Expansion. All of the restaurants
operated by the Company prior to the Acquisition were located in New England. As
a result of consummation of the Acquisition, nearly one-third of the Company's
restaurants were outside of New England. As of this filing, and partially as a
result of closing seventeen restaurants outside New England, approximately 20%
of the Company's restaurants are currently outside of New England. Furthermore,
approximately 33% of Bertucci's are located outside of New England. The ability
of the Company's management to effectively recognize and account for diverse
regional conditions and to manage restaurants that are geographically remote
will be critical to the success of the Company. Any inability of the Company to
successfully manage its geographic expansion may have a material adverse effect
on the Company.
<PAGE>

      The Company's future operating results will depend largely upon its
ability to open and operate new or newly acquired restaurants successfully and
to manage a growing business profitably. This will depend on a number of factors
(some of which are beyond the control of the Company), including (i) selection
and availability of suitable restaurant locations, (ii) negotiation of
acceptable lease or financing terms, (iii) securing of required governmental
permits and approvals, (iv) timely completion of necessary construction or
remodeling of restaurants, (v) hiring and training of skilled management and
personnel, (vi) successful integration of new or newly acquired restaurants into
the Company's existing operations and (vii) recognition and response to regional
differences in guest menu and concept preferences.

      The Company identifies and sources its real estate through a third-party
consultant who specializes in New England and Mid-Atlantic real estate. This
consultant is retained by the Company on an exclusive basis to facilitate sites
in Connecticut and substantially all of Massachusetts. The consultant is paid by
the Company on a contingency basis. Although the Company believes that it would
be able to replace such consultant if it were required to do so, any disruption
in the services of such consultant or the Company's inability to replace such
consultant, when required, may have a material adverse effect on the Company.

      There can be no assurance that the Company's expansion plans can be
achieved on a timely and profitable basis or that it will be able to achieve
results similar to those achieved in existing locations in prior periods or that
such expansion will not result in reduced sales at existing restaurants that
have been recently opened or newly acquired restaurants. Any failure to
successfully and profitably execute its expansion plans could have a material
adverse effect on the Company.

      Pending Brinker Sale. The Company has been an operator of more than 100
restaurants since the Acquisition. The Company invested in, among other things,
technology, personnel and facilities to maintain and service more restaurants
than will exist after the Brinker Sale. As a result, the Company may not be able
to manage the smaller entity efficiently. Furthermore, the Company will reduce
from three brands to one single brand, which may affect the Company's site
selection criteria. In addition, having only one brand may impact the Company's
ability to obtain favorable pricing, and capitalize on other economies of scale.
Finally, pursuant to the Indenture that governs the Senior Notes, the Company
has one year from the date of the Brinker Sale to determine how it shall use the
proceeds from the Brinker Sale. The use of funds could put a significant demand
on the Company's liquidity.

      Changes in Food Costs and Supplies; Key Supplier. The Company's
profitability is dependent on, among other things, its continuing ability to
offer fresh, high quality food at moderate prices. Various factors beyond the
Company's control, such as adverse weather, labor disputes or other unforeseen
circumstances, may affect its food costs and supplies. While management has been
able to anticipate and react to changing food costs and supplies to date through
its purchasing practices and menu price adjustments, there can be no assurance
that it will be able to do so in the future.

      The Company obtains approximately 75% to 80% of its supplies through a
single vendor pursuant to a contract for delivery and distribution, with the
vendor charging fixed mark-ups over prevailing wholesale prices. The Company has
a five-year contract with this vendor which expires in May 2004 and is otherwise
terminable by either party upon 60 days' prior notice. The Company believes that
it would be able to replace any vendor if it were required to do so; however,
any disruption in supply from vendors or the Company's inability to replace
vendors, when required, may have a material adverse effect on the Company.

      Possible Adverse Impact of Economic, Regional and Other Business
Conditions on the Company. The Company's business is sensitive to guests'
spending patterns, which in turn are subject to prevailing regional and national
economic conditions such as interest rates, taxation and consumer confidence.
Most of the restaurants owned by the Company are located in the northeastern and
Mid-Atlantic United States, with a large concentration in New England. In
addition, the Company anticipates substantially all restaurants to be opened in
fiscal 2001 will be in states where the Company presently has operations or in
contiguous states. As a result, the Company is, and will continue to be,
susceptible to changes in regional economic conditions, weather conditions,
demographic and population characteristics, consumer preferences and other
regional factors.

      Dependence Upon Key Personnel. The Company's business depends upon the
efforts, abilities and expertise of its executive officers and other key
employees. The Company has no long-term employment contracts with, and does not
maintain "key-man" life insurance for, any of its executive officers or key
employees. The loss of the services of certain of these executive officers or
key employees or the inability to retain key personnel required to effect a
successful integration of the Bertucci's business with the Company's business
existing prior to the Acquisition would have a material adverse
<PAGE>

effect on the Company. As a result of the pending Brinker Sale, Richmond A.
Brittingham, Vice President of the Company, will no longer be employed by the
Company.

      Competition. The restaurant industry is intensely competitive with respect
to, among other things, price, service, location and food quality. The Company
competes with many well-established national, regional and locally-owned
foodservice companies with substantially greater financial and other resources
and longer operating histories than the Company, which, among other things, may
better enable them to react to changes in the restaurant industry. With respect
to quality and cost of food, size of food portions, decor and quality service,
the Company competes with casual dining, family-style restaurants offering
eat-in and take-out menus, including Applebee's International, Inc., TGI
Friday's Inc., a subsidiary of Carlson Hospitality Worldwide, Ruby Tuesday Inc.,
and as a result of the Acquisition, also competes with Italian-style restaurant
concepts such as Uno Restaurant Corporation and Olive Garden Restaurants, a
division of Darden Restaurants Inc. Many of the Company's restaurants are
located in areas of high concentration of such restaurants. Among other things,
the Company also vies with all competitors in attracting guests, in obtaining
premium locations for restaurants (including shopping malls and strip shopping
centers) and in attracting and retaining employees.

      Possible Adverse Impact of Government Regulation on the Company. The
restaurant business is subject to extensive federal, state and local laws and
regulations relating to the development and operation of restaurants, including
those concerning alcoholic beverage sales, preparation and sale of food,
relationships with employees (including minimum wage requirements, overtime and
working conditions and citizenship requirements), land use, zoning and building
codes, as well as other health, sanitation, safety and environmental matters.
Compliance with such laws and regulations can impede the operations of existing
Company restaurants and may delay or preclude construction and completion of new
Company restaurants. The Company is subject in certain states 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. The Company carries liquor liability
coverage as part of its existing comprehensive general liability insurance. In
addition, the Company may also in certain jurisdictions be required to comply
with regulations limiting smoking in restaurants.

      Reliance on Information Systems. The Company relies on various information
systems to manage its operations and regularly makes investments to upgrade,
enhance or replace such systems. Any disruption affecting the Company's
information systems could have a material adverse effect on the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS.

      The Company has market risk associated with interest rate risk. The
Company manages its exposure through its regular financing activities. Interest
rate changes would result in a change in the fair value of the Company's debt
facilities due to the difference between the market interest rate and the rate
at the date of issuance of the debt facilities. Furthermore, the Company has no
exposure to specific risks related to derivatives or other "hedging" types of
financial instruments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The financial statements and supplementary data are listed under Part IV,
Item 14 in this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

      None.
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The following table sets forth certain information with respect to the
executive officers and directors of the Company at the time of this filing:

<TABLE>
<CAPTION>
          Name           Age                        Position
          ----           ---                        --------
<S>                       <C> <C>
Benjamin R. Jacobson...   56  Chairman of the Board of Directors, President, Chief
                                Executive Officer and Treasurer
Raymond P. Barbrick....   48  Executive Vice President, President of Bertucci's &
                                Director
Irene Betourne.........   42  Vice President - Training
Richmond A. Brittingham   52  Vice President, President of the Brinker Concept
                                Restaurants
Rosario Del Nero.......   48  Vice President
Lewis P. Holt..........   47  Vice President - Construction
Gregory A. Pastore.....   36  Vice President - Development & General Counsel
Kurt J. Schnaubelt.....   37  Vice President - Finance
Paul J. Seidman .......   44  Vice President - Food & Beverage and Procurement
Stephen F. Mandel, Jr..   45  Director
James J. Morgan........   58  Director
James R. Parish........   54  Director
</TABLE>

      Benjamin R. Jacobson. Mr. Jacobson has served as Chairman of the Board of
Directors of the Company since 1991 and as President and Chief Executive Officer
since October 1999. Since 1989, Mr. Jacobson has served as the Managing General
Partner of Jacobson Partners, which specializes in direct equity investments.
Mr. Jacobson is a director of Childtime, Inc. and a number of privately-held
corporations.

      Raymond P. Barbrick. Mr. Barbrick has been employed in the restaurant
industry for 31 years and currently serves as Executive Vice President of the
Company, President of Bertucci's and Director. He served as the Company's Vice
President of Operations for the Brinker Concept Restaurants from January 1998
until October 1999. Prior to that, he served as Senior Director of Operations,
from 1992 through 1997, with responsibility for all of the Company's Chili's
restaurants in Connecticut and western Massachusetts. Prior to joining the
Company, Mr. Barbrick was employed by Back Bay Restaurant Group, where he held
the position of director of regional operations from 1989 to 1992.

      Irene Betourne. Ms. Betourne has been employed in the restaurant industry
for 26 years. She has served the Company as Senior Director of Training from
1993 until her promotion to Vice President of Training in October 2000. Ms.
Betourne's responsibilities include design and delivery of all training
including new restaurant openings, management development, adherence to state
mandated education requirements (foodservice safety and sanitation, alcohol
service training, etc.) and recruiting. Prior to joining the Company, Ms.
Betourne held several positions within the industry including Director of
Franchise Operations and Training for Boston Market.

      Richmond A. Brittingham. Mr. Brittingham has been employed in the
restaurant industry for 32 years and currently serves as Vice President of the
Company and President of the Brinker Concept Restaurants. He served as the
Company's Regional Director for the South Region from 1992 until 1999. In such
capacity, he was responsible for the operational performance of all the
Company's Chili's restaurants in southeastern Massachusetts and Rhode Island.
Prior to joining the Company, Mr. Brittingham served as director of operations
for Legal Sea Foods Company.

      Rosario Del Nero. Mr. Del Nero has been employed in the restaurant
industry for 18 years. He has served as Corporate Executive Chef for Bertucci's
since 1992 and was promoted to Vice President of the Company in January 2000.
His responsibilities include product and ingredient development, recipe design
and documentation, training and quality enhancement. His vast and detailed
knowledge of language, food and cuisine, especially those of the Mediterranean,
provide for a foundation of authenticity. Mr. Del Nero's previous industry
experience, both in the United States and abroad, includes positions as
independent restaurateur, culinary arts instructor and food consultant to
restaurants and manufacturers.
<PAGE>

      Lewis P. Holt. Mr. Holt has been employed in the restaurant industry for
25 years and currently serves as the Company's Vice President of Construction.
Mr. Holt's responsibilities include overseeing all phases of building and
kitchen design, construction and permitting for all of the Company's
restaurants. He is also responsible for overseeing the facilities in of all
restaurants including maintenance capital and renovations and remodeling. Mr.
Holt has served as Director of Construction for Legal Seafoods of Boston and he
held construction and design positions for Pizzeria Uno restaurants. Mr. Holt
has been working for the Company since 1992.

      Gregory A. Pastore. Mr. Pastore serves as the Company's Vice President of
Development, General Counsel and Secretary. His responsibilities include
employee relations, compensation and benefits, risk management, restaurant and
alternate venue development, and management of the Company's corporate and legal
affairs. Prior to joining the Company in 1999, Mr. Pastore was affiliated with
the Boston law firm of Hutchins, Wheeler & Dittmar, where his international
practice concentrated on mergers and acquisitions, commercial real estate
development and related financing.

      Kurt J. Schnaubelt. Mr. Schnaubelt has been employed in the restaurant
industry for 21 years. He has served as the Company's Director of Financial
Reporting, Planning and Analysis from January 1999 until March 2001 when he was
promoted to Vice President of Finance. His responsibilities include all
accounting, finance, reporting, planning and analysis functions as well as
Information Technologies. Mr. Schnaubelt has held several other positions in the
Company including Assistant Controller, Accounting Manager and Restaurant
Manager. His other experience includes serving as the Controller for Quikava, a
double drive through coffee and specialty beverage concept located in New
England. Mr. Schnaubelt is a Certified Management Accountant and a Certified
Financial Manager.

      Paul J. Seidman. Mr. Seidman has been employed in the restaurant industry
for 28 years and has served as the Company's Vice President of Food & Beverage
and Procurement since January of 1998. Mr. Seidman's responsibilities include
all food and beverage specifications, purchasing, and cost control as well as
leading the menu and product development team. Mr. Seidman has held numerous
positions in the industry, most recently as Vice President of Food & Beverage
and Corporate Executive Chef for the Bayport Restaurant Group.

      Stephen F. Mandel, Jr. Mr. Mandel has served as a director of the Company
since December 1997. Since July 1997, Mr. Mandel has served as managing
director, portfolio manager and consumer retail/analyst at Lone Pine Capital
LLC, a hedge fund which he founded. Prior to that, he served as senior managing
director and consumer analyst at Tiger Management Corporation from 1990 to 1997
and served on that company's management committee, as director of equities and
portfolio manager. Prior to 1990, Mr. Mandel served as a vice president and
mass-market retailing analyst at Goldman, Sachs and Co.

      James J. Morgan. Mr. Morgan has served as a director of the Company since
December 1997. From 1963 until his retirement in 1997, Mr. Morgan was employed
by Philip Morris U.S.A. where he served as President and Chief Executive Officer
from 1994 until his retirement in 1997. Prior to 1994, Mr. Morgan served in
various capacities at Philip Morris including Senior Vice President of
Marketing, and Corporate Vice President of Marketing Planning of the Philip
Morris Companies Inc.

      James R. Parish. Mr. Parish has been employed in the restaurant industry
for 23 years and has served as a director of the Company since July 1998. Since
1991, Mr. Parish has served as Chief Executive Officer of Parish Partners, Inc.
From 1995 to 1996, Mr. Parish served as Chief Executive Officer of Sfuzzi, Inc.
From 1983 to 1991, Mr. Parish served as Executive Vice President and Chief
Financial Officer of Chili's Inc. (now named Brinker International, Inc.).

      On March 16, 2001, David J. Nace tendered his resignation as Executive
Vice President, Chief Financial Officer and Director of the Company.

Term of Directors

      The Company's directors serve in such capacity until the next annual
meeting of the shareholders of the Company or until their successors are duly
elected and qualified.
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation

    The following table summarizes the compensation for the most current three
fiscal years for the Company's Chief Executive Officer and each of its four
other most highly compensated executive officers (the Chief Executive Officer
and such other officers, collectively, the "Named Executive Officers"):

<TABLE>
<CAPTION>
                                     ------------------------------------------------------------------------
                                                      Annual Compensation              Long Term Compensation
---------------------------          ------------------------------------------------------------------------
Name and Principal Position             Salary($)       Bonus($)    Other Annual       Securities Underlying
                                                                   Compensation ($)          Options (#)
---------------------------          --------------   -------------------------------------------------------
<S>                              <C>    <C>            <C>               <C>                 <C>
Benjamin R. Jacobson             2000        --             --                --             149,599
Chief Executive Officer          1999        --             --                --              49,599
                                 1998        --             --                --              49,599

Raymond P. Barbrick              2000   164,038         75,070             8,400              44,776
Executive Vice President         1999   133,962        108,002             8,100              29,776
                                 1998   109,154         92,344             7,200              24,568

David J. Nace, Sr.               2000   157,692 (a)         --           118,092 (b)              --
Executive Vice President         1999        --             --                --                  --
                                 1998        --             --                --                  --

Paul V. Hoagland                 2000   184,000             --           454,813 (c)          41,635
Executive Vice President         1999   184,000             --            10,378              41,635
                                 1998   171,575 (d)    159,000            88,205 (e)          41,635

Kathleen P. Federico             2000   140,956 (f)     21,449             7,000                  --
Vice President                   1999   131,500         23,449             6,192               5,761
                                 1998        --             --                --                  --
</TABLE>

Summary Compensation Table

(a)   Mr. Nace tendered his resignation with the Company effective March 16,
      2001.
(b)   Includes travel expenses and applicable taxes.
(c)   Distribution from the NE Restaurant Company Deferred Compensation Plan.
      Mr. Hoagland tendered his resignation with the Company on August 31, 2000.
(d)   Includes auto lease payments paid by the Company and compensation to cover
      certain taxes incurred by such officer in connection with the payment by
      the Company in August 1997 of a dividend and return of capital
      contribution to shareholders of $8.31 per share and the related repurchase
      by the Company of certain shares of common stock at $11.63 per share.
(e)   Includes $3,252 payable for fiscal 1998 but deferred pursuant to the
      Non-qualified Deferred Compensation Plan.
(f)   Ms. Federico tendered her resignation with the Company on October 13,
      2000.
<PAGE>

Options Granted in Last Fiscal Year

    The following table sets forth information concerning options granted during
fiscal 2000 to each of the Named Executive Officers.

<TABLE>
<CAPTION>
                                                                                          Potential
                                                                                       Realizable Value
                             Number of                                                at Assumed Annual
                             Securities                                                  Stock Price
                             Underlying    % of Total                                  Appreciation for
                              Options      Granted in   Exercise    Expiration          Option Term(c)
       Name                 Granted (a)   Fiscal 2000   Price (b)      Date           5%           10%
<S>                           <C>            <C>         <C>        <C>          <C>           <C>
Benjamin R. Jacobson          100,000        50.1%       $ 17.51    3/14/2010    $ 1,101,200   $ 2,790,600
Raymond P. Barbrick            15,000         7.5%       $  9.22    3/14/2010    $    86,762   $   220,410
David J. Nace, Sr. (d)         30,000        15.0%       $  9.22    3/14/2010    $   173,523   $   440,820
Paul V. Hoagland                    0         0.0%       $  9.22    3/14/2010    $        --   $        --
Kathleen P. Federico                0         0.0%       $  9.22    3/14/2010    $        --   $        --
</TABLE>

(a)   Each of the options granted becomes exercisable at the rate of 25% on or
      after each of the second, third, fourth and fifth anniversaries of the
      date of grant. Each of the options expires 10 years from the date of the
      grant. See "Stock Option and Other Plans for Employees--Stock Option
      Plan."
(b)   The exercise price was fixed at the date of the grant and represented the
      fair market value per share of common stock on such date for those options
      granted at $9.22. The $17.51 grant reflected the price agreed to by Mr.
      Jacobson pursuant to the option price at the time of the Acquisition.
(c)   In accordance with the rules of the Commission, the amounts shown on this
      table represent hypothetical gains that could be achieved for the
      respective options if exercised at the end of the option term. These gains
      are based on assumed rates of stock appreciation of 5% and 10% compounded
      annually from the date the respective options were granted to their
      expiration date and do not reflect the Company's estimates or projections
      of future prices of the Company's common stock. The gains shown are net of
      the option exercise price, but do not include deductions for taxes or
      other expenses associated with the exercise. Actual gains, if any, on
      stock option exercises will depend on the future performance of the
      Company's common stock, the option holders' continued employment through
      the option period, and the date on which the options are exercised.
(d)   Mr. Nace forfeited his options as a result of his resignation on March 16,
      2001.
<PAGE>

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values

      The following table sets forth information concerning option exercises
during fiscal 2000, and the fiscal year-end value of unexercised options for
each of the Named Executive Officers.

<TABLE>
<CAPTION>
                                                                                     Value Of
                                                                                    Unexercised
                                                            Number Of               In-The-Money
                                                            Securities               Options At
                            Shares                         Underlying At           Fiscal Year-End
                         Acquired on      Value           Fiscal Year-End           Exerciseable/
                Name       Exercise    Realized(a)   Exerciseable/Unexercisable   Unexerciseable(b)
<S>                           <C>          <C>          <C>             <C>             <C>
Benjamin R. Jacobson          0            $0           37,199   /      112,400         $0/$0
Raymond P. Barbrick           0             0           15,951   /       28,825          0/0
David J. Nace, Sr.            0             0                0   /       30,000          0/0
Paul V. Hoagland              0             0           29,085   /       17,551          0/0
Kathleen P. Federico          0             0                0   /            0          0/0
</TABLE>

(a)   The amount "realized" reflects the appreciation on the date of exercise
      (based on the fair market value of the shares on the date of exercise over
      the purchase price).
(b)   Based upon a price of $9.22

Employment Agreements

      Executive officers of the Company are elected by the Board of Directors
and serve at the discretion of the Board. At the date of this filing, the
Company is not party to any employment agreements with executive officers.

Stock Option and Other Plans for Employees

      Stock Option Plan. On September 15, 1997, the Board of Directors of the
Company established the 1997 Equity Incentive Plan, which includes a
nonqualified stock option plan (the "Stock Option Plan"), for certain key
employees and directors. The Stock Option Plan is administered by the Board of
Directors of the Company and may be modified or amended by the Board of
Directors in any respect.

      Options granted to employees under the Stock Option Plan are generally
exercisable cumulatively at the rate of 25% on or after each of the second,
third, fourth and fifth anniversaries of the date of grant and options granted
to directors thereunder are generally exercisable immediately upon grant.
Options granted under the Stock Option Plan to date expire 90 days following the
fifth anniversary of the date of the grant. Between September 15, 1997 and
December 31, 1997, 331,123 options were granted at a price of $11.63 per share
under the Stock Option Plan (of which 11,020 options have been exercised as of
January 3, 2001). In addition, between July 21, 1998 and October 19, 1998,
58,429 options were granted at a price of $17.51 per share under the Stock
Option Plan of which none have been exercised as of January 3, 2001. During
2000, a total of 199,750 options were granted, including 100,000 at a price of
$17.51 per share plus 99,750 options at a price of $9.22 per share. At December
31, 1997, there were 1,316,656 shares of common stock of the Company
outstanding. An additional 1,669,966 such shares were issued pursuant to the
Equity Investment resulting in 2,986,622 shares of common stock outstanding at
December 30, 1998 and also at December 29, 1999. At January 3, 2001, 2,978,955
shares of common stock were outstanding.

      Management Incentive Plan. Certain management employees of the Company,
including directors of operations, managing partners (who are senior general
managers), general managers and assistant managers are eligible, at the
discretion of the Company, to participate in the Company's management incentive
plan that provides incentives and rewards for performance with bonus awards that
reflect a percentage of each restaurant's cash contribution. Payments under the
management incentive plan are payable monthly or in accordance with the then
current payroll cycle of the Company.
<PAGE>

      Non-qualified Deferred Compensation Plan. The Company had established the
NE Restaurant Company Deferred Compensation Plan (the "Non-qualified Deferred
Compensation Plan") pursuant to which certain eligible executives of the Company
may elect to defer a portion of their salary. The Company maintained an
irrevocable grantor trust which has been established by the Company, as grantor,
pursuant to The Merrill Lynch Non-qualified Deferred Compensation Plan Trust
Agreement, dated December 21, 1993, by and between the Company and Merrill Lynch
Trust Company of America, an Illinois corporation, as trustee, for the purpose
of paying benefits under the Non-qualified Deferred Compensation Plan.

      The trust assets were held separately from other funds of the Company, but
remained subject to claims of the Company's general creditors in the event of
the Company's insolvency. In January 2000, the Non-qualified Deferred
Compensation Plan was terminated and the balances were paid to the participants.

      During 1999, the Company has also established the NE Restaurant Company,
Inc. Executive Savings and Investment Plan (the "Executive Savings and
Investment Plan") to which highly compensated executives of the company may
elect to defer a portion of their salary and or earned bonus. The Company
maintains an irrevocable grantor trust which has been established by the
Company, as grantor, pursuant to the Scudder Kemper Investments Non-Qualified
Deferred Compensation Plan Trust Agreement, dated September 20, 1999. The
agreement is between the Company and Scudder Kemper Investments, as trustee, for
the purpose of paying benefits under non-qualified deferred compensation plan.

      The trust assets are held separately from other funds of the Company, but
remain subject to claims of the Company's general creditors in the event of the
Company's insolvency. As of January 3, 2001, there were 20 participants in the
plan with a total market value of approximately $316,000.

      401(k). During 1999, the Company maintained two defined contribution plans
(the "Bertucci's 401(k) Plan" and the "NE Restaurant 401(k) Plan"). Under the
Bertucci's 401(k) Plan, substantially all employees of the Company may defer a
portion of their current salary, on a pretax basis, to the 401(k) Plan. The
Company makes a matching contribution to the 401(k) Plan that is allocated,
based on a formula as defined by the 401(k) Plan, to the 401(k) Plan
participants. During fiscal 2000, the Company terminated the NE Restaurant
401(k) Plan. As of May 1, 1999 all eligible participants were transferred to the
Bertucci's 401(k) Plan in order to consolidate the Plans after the Acquisition.
Matching contributions made by the Company for the years ended January 3, 2001,
December 29, 1999 and December 30, 1998 were approximately $138,000, $89,000 and
$160,000, respectively. Two officers of the Company are also the 401(k) Plan's
trustees.

Compensation of Directors

      Each of the Company's directors is reimbursed for any expenses incurred by
such director in connection with such director's attendance at a meeting of the
Board of Directors, or committee thereof. In addition, all directors are
eligible to receive options under the Company's stock option plans. Directors
receive no other compensation from the Company for serving on the Board of
Directors.

Compensation Committee Interlocks and Insider Participation

      Effective as of January 1, 1998, the Board of Directors appointed a
Compensation Committee and an Audit Committee. Currently, the Compensation
Committee is comprised of Messrs. Jacobson, Mandel and Morgan and the Audit
Committee is comprised of Messrs. Parish and Mandel.

      Prior to 1998, the Board of Directors of the Company did not have a formal
compensation committee and decisions with respect to executive officer
compensation were made by Mr. Jacobson and other non-management directors. Mr.
Jacobson has in the past and will in the future provide certain consulting
services to the Company. See "Item 13. Certain Relationships And Related
Transactions."
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table provides information at March 19 2001, with respect to
ownership of the Company's common stock $0.01 par value per share (the "Company
Common Stock"), by (i) each beneficial owner of five percent or more of the
Company's Common Stock, (ii) each director of the Company, (iii) each of the
Named Executive Officers and (iv) all directors and officers as a group. For the
purpose of computing the percentage of the shares of Company Common Stock owned
by each person or group listed in this table, shares which are subject to
options exercisable within 60 days after March 15, 2001 have been deemed to be
outstanding and owned by such person or group, but have not been deemed to be
outstanding for the purpose of computing the percentage of the shares of Company
Common Stock owned by any other person. Except as indicated in the footnotes to
this table, the persons named in the table have sole voting and investment power
with respect to all shares of Company Common Stock shown as beneficially owned
by them.

                                            Shares
                                         Beneficially   Percent
Name and Address of Beneficial Owner        Owned       of Class
------------------------------------        -----       --------
Puma Limited Partnership(1)                 727,012       24.4%
101 Park Avenue
New York, New York 10176

Thomas R. Devlin(2)                         234,504        7.9%
1313 North Webb Road
P.O. Box 782170
Wichita, Kansas 67206

Benjamin R. Jacobson(3)                     691,872       23.2%
595 Madison Avenue
New York, New York 10022

Stephen F. Mandel, Jr. (4)                   89,602        3.0%

James J. Morgan (5)                          19,162 *

Dennis D. Pedra (6)                         190,670        6.4%

James R. Parish                              11,422 *

Paul V. Hoagland (7)                         78,777        2.6%

Raymond P. Barbrick                           7,467 *

All directors and executive officers as a
group (11 persons)                          756,199       25.4%

 * Less than 1%.
<PAGE>

(1)   Puma Limited Partnership, a New York limited partnership ("Puma")
      previously held its interest in the Company through Puma's wholly-owned
      subsidiary Holdings Group, Inc., a Delaware holding company ("HGI"). To
      permit Puma to directly hold such shares, HGI was merged with and into the
      Company pursuant to a merger agreement dated as of August 31, 1996 among
      HGI, Puma and the Company.
(2)   Includes 53,207 shares of Company Common Stock held by J.P. Acquisition
      Fund II, L.P., a Delaware limited partnership ( "JPAF II "), representing
      Mr. Devlin's pro rata interest as a limited partner of JPAF II.
(3)   Includes (a) 481,016 shares of Company Common Stock held by JPAF II, (b)
      49,599 shares of Company Common Stock issuable upon exercise of
      outstanding stock options exercisable within 60 days after September 30,
      1998 held by Jacobson Partners and (c) 13,800 shares of Company Common
      Stock held by trusts for the benefit of Mr. Jacobson's children, with
      respect to which a third party is trustee and has voting control. JPAF,
      Inc., a Delaware corporation, is the general partner of JPAF II and Mr.
      Jacobson is president of JPAF, Inc. Mr. Jacobson is a general partner of
      Jacobson Partners, which is the sole shareholder of JPAF, Inc. Mr.
      Jacobson disclaims beneficial ownership of the shares described (i) in
      clause (a) above, except to the extent of his general partnership interest
      in JPAF II, and (ii) in clause (c) above.
(4)   Includes 2,596 shares of Company Common held by Lone Spruce, L.P., 6,812
      shares of Company Common Stock held by Lone Balsam, L.P. 6,812 shares of
      Company Common Stock held by Lone Sequoia, L.P. and 73,382 shares of
      Company Common Stock held by Lone Cypress, Ltd. Each of Lone Spruce, L.P.,
      Lone Balsam, L.P. and Lone Sequoia, L.P., is a Delaware limited
      partnership of which Lone Pine Associates LLC is the general partner. Mr.
      Mandel is the managing member of Lone Pine Associates LLC. Lone Cypress
      Ltd. is a Cayman Islands company of which Lone Pine Capital LLC is the
      investment manager. Mr. Mandel is the managing member of Lone Pine Capital
      LLC. Mr. Mandel disclaims beneficial ownership of all such shares.
(5)   Includes 6,651 shares of Company Common Stock held by JPAF II,
      representing Mr. Morgan's pro rata interest as a limited partner of JPAF
      II.
(6)   Includes 30,000 shares of Company Common Stock held by trusts for the
      benefit of Mr. Pedra's children, with respect to which Mr. Pedra's sister
      is trustee and has sole voting control. Mr. Pedra disclaims beneficial
      ownership of all such shares.
(7)   Includes 14,000 shares of Company Common Stock held in custodial accounts
      for the benefit of Mr. Hoagland's children, with respect to which Mr.
      Hoagland is custodian and has sole voting control. Mr. Hoagland disclaims
      beneficial ownership of all such shares.

Shareholders Agreement

      The Company and the current shareholders of the Company are parties to a
Shareholders' Agreement, dated as of December 31, 1993 (the "Shareholders
Agreement").

      The Shareholders Agreement provides, among other things, that (i) a
shareholder may not transfer his or its shares in the Company, whether
voluntarily or by operation of law, other than in certain limited circumstances
specified therein, including transfers through a right of first refusal
procedure, distributions by a partnership to its partners, and gifts, trust
contributions or bequests to or in favor of family members, (ii) the Company
shall have the option to purchase the shares of any shareholder who is a manager
of the Company following the termination of such shareholder's employment with
the Company for any reason at a purchase price equal to book value or fair
market value depending upon the reason for such termination as permitted under
the Indenture, (iii) if the Company fails to exercise its option to purchase as
described in the immediately preceding clause (ii), the remaining shareholders
shall have the option to purchase the applicable shares, (iv) in certain
circumstances, a shareholder seeking to transfer shares shall have the option to
require the Company to purchase such shareholder's shares, (v) no transfer of
shares may occur unless the transferee thereof agrees to be bound by the terms
of the Shareholders Agreement and (vi) all share certificates shall bear
customary legends and all share transfers must be in compliance with applicable
securities laws.
<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      In consideration of certain financial advisory services provided by
Benjamin R. Jacobson to the Company, Mr. Jacobson received from the Company a
consulting fee with reimbursement of certain travel and other incidental
expenses. The amounts paid to Mr. Jacobson for financial consulting fees were
$500,000 paid in 2000 for the services related to year ended January 3, 2001
plus an additional $125,000 paid in 2000 for services performed in 1999. The
Company paid Mr. Jacobson $313,000 for the year ended December 29, 1999,
$330,000 for the year ended December 30, 1998 and $160,000 for each of the two
years ended December 31, 1997, and 1996. In addition, Mr. Jacobson was paid
$400,000 for consulting fees associated with obtaining the FFCA mortgages. In
connection with the Acquisition, and in lieu of the Company's arrangement with
Mr. Jacobson, the Company entered into a financial advisory services agreement
with Jacobson Partners, Limited Partnership ("Jacobson Partners"), a limited
partnership of which Mr. Jacobson is the managing general partner. Under this
agreement, Jacobson Partners will provide various financial advisory services to
the Company, including, among other things, assistance in preparing internal
budgets, performing cash management activities, maintaining and improving
accounting and other management information systems, negotiating financing
arrangements, complying with public reporting and disclosure requirements and
communicating with creditors and investors. In consideration of these services,
the Company has entered into an agreement with Jacobson Partners whereby the
Company would pay Jacobson Partners $500,000 per year together with
reimbursement of certain travel and other incidental expenses. The Company
believes the financial advisory services agreement was made on terms that are no
less favorable to the Company than those that could be obtained from an
unrelated party. In addition, Jacobson Partners received from the Company a $1.0
million cash fee as compensation for Jacobson Partners' services as financial
advisors in connection with the Acquisition and related financing. Jacobson
Partners is the sole shareholder of the corporate general partner of JPAF II,
which owns approximately 16.1% of the outstanding common stock of the Company.
Mr. Jacobson is the Chairman of the Board of Directors of the Company.

      The Company had established the NE Restaurant Company Deferred
Compensation Plan (the "Non-qualified Deferred Compensation Plan") pursuant to
which certain eligible executives of the Company may elect to defer a portion of
their salary. The Company maintained an irrevocable grantor trust which has been
established by the Company, as grantor, pursuant to The Merrill Lynch
Non-qualified Deferred Compensation Plan Trust Agreement, dated December 21,
1993, by and between the Company and Merrill Lynch Trust Company of America, an
Illinois corporation, as trustee, for the purpose of paying benefits under the
Non-qualified Deferred Compensation Plan.

      The trust assets were held separately from other funds of the Company, but
remained subject to claims of the Company's general creditors in the event of
the Company's insolvency. As of December 29, 1999, the two trust account
balances for two officers were $475,333 and $671,549, respectively. In January
2000, the Non-qualified Deferred Compensation Plan was terminated and the
balances were paid to the participants.

      During 1999, the Company has also established the NE Restaurant Company,
Inc. Executive Savings and Investment Plan (the "Executive Savings and
Investment Plan") to which highly compensated executives of the company may
elect to defer a portion of their salary and or earned bonus. The Company
maintains an irrevocable grantor trust which has been established by the
Company, as grantor, pursuant to the Scudder Kemper Investments non-qualified
deferred compensation plan trust agreement, dated September 20, 1999. The
agreement is between the Company and Scudder Kemper Investments, as trustee, for
the purpose of paying benefits under non-qualified deferred compensation plan.

      The trust assets are held separately from other funds of the Company, but
remain subject to claims of the Company's general creditors in the event of the
Company's insolvency. As of January 3, 2001, there were 20 participants in the
plan with a total market value of approximately $316,000.
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K

(a)   The following documents are filed as part of this report:

      (1)   Financial Statements:

            Report of Independent Public Accountants.

            Consolidated Balance Sheets as of January 3, 2001 and December 29,
            1999.

            Consolidated Statements of Operations for each of the years ended
            January 3, 2001, December 29, 1999 and December 30, 1998.

            Consolidated Statements of Stockholders' Equity for each of the
            years ended January 3, 2001, December 29, 1999 and December 30,
            1998.

            Consolidated Statements of Cash Flows for each of the years ended
            January 3, 2001, December 29, 1999 and December 30, 1998.

            Notes to Consolidated Financial Statements.

      (2)   Financial Statement Schedules:
            Schedule II: Valuation and Qualifying Accounts

      (3)   Exhibit Index

(b)   On November 20, 2000 the Company filed a Current Report on Form 8-K.
<PAGE>

                                   SIGNATURES

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

                              NE RESTAURANT COMPANY, INC.
                              Registrant


                              By: /s/ Benjamin R. Jacobson
                                 ---------------------------------------------
                                 Benjamin R. Jacobson, Chairman of the Board

                              Date: March 30, 2001

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

SIGNATURE                      TITLE                          DATE
---------                      -----                          ----

/s/ Benjamin R. Jacobson       Chairman of the Board of       March 30, 2001
-------------------------      Directors, President and
Benjamin R. Jacobson           Chief Executive Officer,
                               Treasurer (Principal
                               Executive Officer)

/s/ Raymond P. Barbrick        Executive Vice President,      March 30, 2001
-------------------------      Director
Raymond P. Barbrick

/s/ Kurt J. Schnaubelt         Vice President (Principal      March 30, 2001
-------------------------      Financial Officer and
Kurt J. Schnaubelt             Principal Accounting Officer)

/s/ Stephen F. Mandel          Director                       March 30, 2001
-------------------------
Stephen F. Mandel

/s/ James R. Parish            Director                       March 30, 2001
-------------------------
James R. Parish
<PAGE>

                            EXHIBIT LISTING AND INDEX

      Exhibit                           Description
        No.                             -----------
        ---

        2.1*   Agreement and Plan of Merger, dated as of May 13, 1998 among
               Bertucci's, Inc., NE Restaurant Company, Inc. ("NERCO") and
               NERC Acquisition Corp.

        3.1*   Certificate of Incorporation of NERCO.

        3.2*   Certificate of Amendment of Certificate of Incorporation of
               NERCO, dated August 1, 1998.

        3.3*   Certificate of Amendment of Certificate of Incorporation of
               NERCO, dated August 20, 1998.

        3.4*   By-laws of NERCO.

        3.5*   Articles of Incorporation of Bertucci's of Baltimore County,
               Inc., as amended.

        3.6*   Bylaws of Bertucci's of Baltimore County, Inc.

        3.7*   Articles of Incorporation of Bertucci's of White Marsh, Inc.

        3.8*   Bylaws of Bertucci's of White Marsh, Inc.

        3.9*   Articles of Incorporation of Bertucci's of Columbia, Inc.

       3.10*   Bylaws of Bertucci's of Columbia, Inc.

       3.11*   Articles of Incorporation of Bertucci's of Anne Arundel
               County, Inc.

       3.12*   Bylaws of Bertucci's of Anne Arundel County, Inc.

       3.13*   Articles of Incorporation of Bertucci's of Bel Air, Inc.

       3.14*   Bylaws of Bertucci's of Bel Air, Inc.

       3.15*   Articles of Organization of Sal & Vinnie's Sicilian
               Steakhouse, Inc.

       3.16*   By-Laws of Sal & Vinnie's Sicilian Steakhouse, Inc.

       3.17*   Articles of Organization of Berestco, Inc., as amended

       3.18*   By-Laws of Berestco, Inc.

       3.19*   Articles of Organization of Bertucci's Restaurant Corp., as
               amended

       3.20*   By-Laws of Bertucci's Restaurant Corp.

       3.21*   Articles of Organization of Bertucci's, Inc., as amended

       3.22*   By-Laws of Bertucci's, Inc.

       3.23*   Articles of Organization of Bertucci's Securities Corporation

       3.24*   By-Laws of Bertucci's Securities Corporation

        4.1*   Indenture, date July 20, 1998 between NERCO and United States
               Trust Company of New York ("U.S. Trust") as Trustee (including
               the form of 10 3/4% Senior Note due July 15, 2008).

        4.2*   Supplemental Indenture, dated as of July 21, 1998 by and
               among Bertucci's, Inc., Bertucci's Restaurant Corp.,
               Bertucci's Securities Corporation, Berestco, Inc., Sal &
               Vinnie's Sicilian Steakhouse, Inc., Bertucci's of Anne
               Arundel County, Inc., Bertucci's of Columbia, Inc.,
               Bertucci's of Baltimore County, Inc., Bertucci's of Bel Air,
               Inc. and Bertucci's of White Marsh, Inc. (collectively, the
               "Guarantors"), NERCO and U.S. Trust

        4.3*   Purchase Agreement, dated July 13, 1998 by and among NERCO,
               Chase Securities Inc. and BancBoston Securities Inc.

        4.4*   Amendment No. 1 to the Purchase Agreement, dated July 21,
               1998 by and among NERCO, Chase Securities Inc., BancBoston
               Securities Inc. and the Guarantors

        4.5*   Exchange and Registration rights Agreement, dated July 20,
               1998 by and among NERCO, Chase Securities Inc. and BancBoston
               Securities Inc.

        4.6*   Amendment No. 1 to Exchange and Registration Rights
               Agreement, dated July 21, 1998 by and among NERCO, Chase
               Securities Inc., BancBoston Securities Inc. and the
               Guarantors.

        4.7*   Form of Stockholders Agreement, dated as of December 31, 1993
               between the stockholders of NERCO and NERCO.

        4.8*   Form of Stockholders Agreement, dated September 15, 1997 by and
               among certain stockholders of NERCO and NERCO.

<PAGE>

      Exhibit                           Description
        No.                             -----------
        ---

       10.1*   1997 Equity Incentive Plan of NERCO, dated September 15, 1997 for
               certain key employees and directors of NERCO.

       10.2*   Form of NE Restaurant Company, Inc. 401(k) profit Sharing
               Plan, dated January 1, 1996.

       10.3*   Form of NE Restaurant Company Deferred Compensation Plan for
               certain eligible executives of NERCO.

       10.4*   Employment Agreement by and between NE Restaurant Company
               Limited Partnership, NE Restaurant (Glastonbury) Limited
               Partnership and NE Restaurant (Cambridge) Limited
               Partnership(collectively, the "Partnerships"), the respective
               general partners of the Partnerships, NERCO,  NE Restaurant
               (Connecticut), Inc. and NE Restaurant (Cambridge), Inc. and
               Dennis D. Pedra, dated September 30, 1991 (the "Pedra
               Employment Agreement").

       10.5*   Employment Agreement by and between NE Restaurant Company
               Limited Partnership, NE Restaurant (Glastonbury) Limited
               Partnership and NE Restaurant (Cambridge) Limited Partnership
               (collectively, the "Partnerships"), the respective general
               partners of the Partnerships, NERCO, NE Restaurant
               (Connecticut), Inc. and NE Restaurant (Cambridge), Inc. and
               Paul V. Hoagland, dated September 30, 1991 (the "Hoagland
               Employment Agreement").

       10.6*   Amendment to the Pedra Employment Agreement, dated December
               31, 1993.

       10.7*   Amendment to the Hoagland Employment Agreement, dated
               December 31, 1993.

       10.8*   Form of Chili's Grill & Bar Restaurant Development Agreement,
               dated May 17, 1994 between Brinker International, Inc. and
               NERCO.

       10.9*   On The Border Restaurant Development Agreement, dated June
               23, 1997 between Brinker International, Inc. and NERCO
               (including form of Franchise Agreement) as amended

       10.10*  Lease of Headquarters of the Company at 80A Turnpike Road,
               Westborough, Massachusetts, dated September 30, 1997, as amended
               on March 25, 1998.

       10.11*  Form of Credit Agreement among BankBoston, N.A., Chase Bank
               of Texas, N.A. NERCO, the Guarantors and Bertucci's of
               Montgomery County, Inc., dated as of July 21, 1998.

       10.13*  Loan Agreement, dated August 6, 1997 by and between FFCA
               Acquisition Corporation and NERC Limited Partnership.

       10.14*  First Amendment to Loan Agreement, dated August 6, 1997 by and
               between FFCA Acquisition Corporation and NERC Limited
               Partnership.

       10.15*  Form of Promissory Note between FFCA Acquisition Corporation
               and NERC Limited Partnership.

       10.18*  Form of Amendment to NE Restaurant Company, Inc. 401(k)
               Profit Sharing Plan, dated April 29, 1996.

       10.19*  Form of Amendment of Chili's Grill & Bar Restaurant
               Development Agreement, dated as of June 1, 1997 by and
               between Brinker International, Inc. and NE Restaurant
               Company, Inc.

       10.20*  Form of Chili's Grill & Bar Restaurant Franchise Agreement
               between Brinker International, Inc. and NE Restaurant
               Company, Inc.

       10.21*  Financial Advisory Services Agreement, dated July 21, 1998 by and
               between the Company and Jacobson Partners.

       10.22*  Loan Agreement, dated June 30, 1998 by and between FFCA
               Acquisition Corporation and NERC Limited Partnership II.

       10.23*  Form of Promissory Note between FFCA Acquisition Corporation and
               NERC Limited Partnership II.

      10.28**  Second Amendment to the On The Border Restaurant Development
               Agreement as of May 30, 1999 by and between Brinker
               International, Inc. and NERCO

      10.29**  Primary Distribution Agreement dated as of May 13, 1999 by
               and between Maines Paper & Food Service, Inc. and NERCO

      10.30**  NERCO Savings and Investment Plan dated as of April 29, 1999
<PAGE>

      Exhibit                           Description
        No.                             -----------
        ---

      10.31**  NE Restaurant Company, Inc. Executive Savings and Investment
               Plan dated September 2, 1999

       12.1*   Statement Regarding Computation of Ratio of Earnings to Fixed
               Charges.

       21.1*   Subsidiaries of Registrant.

      27.1(1)  Financial Data Schedule

---------------------
*     Filed as an Exhibit, with the same Exhibit number, to Amendment No. 3 to
      the Registrant's registration statement on Form S-4 filed with the
      Securities and Exchange Commission on November 12, 1998.
**    Filed as an Exhibit, with the same Exhibit number to Registrant's
      quarterly report on form 10-Q filed with the Securities and Exchange
      Commission on May 15, 2000.

(1)   Filed herewith.
<PAGE>

                    Report of Independent Public Accountants

To the Board of Directors of NE Restaurant Company, Inc.:

We have audited the accompanying consolidated balance sheets of NE Restaurant
Company, Inc., a Delaware Corporation (the Company), and its subsidiaries as of
January 3, 2001 and December 29, 1999, and the related consolidated statements
of operations, changes in stockholders' (deficit) equity and cash flows for each
of the three years in the period ended January 3, 2001. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of NE Restaurant Company, Inc. and
its subsidiaries as of January 3, 2001 and December 29, 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended January 3, 2001 in conformity with accounting principles generally
accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements is presented for purposes of complying with the Securities and
Exchange Commissions rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.


/s/ Arthur Andersen LLP


Boston, Massachusetts
February 23, 2001
<PAGE>

                           NE RESTAURANT COMPANY, INC.
                           CONSOLIDATED BALANCE SHEETS
                    (Dollars in thousands except share data)

<TABLE>
<CAPTION>
                                                                         January 3,  December 29,
                                                                            2001         1999
                                                                         ----------  ------------
<S>                                                                      <C>          <C>
                        ASSETS
Current Assets:
      Cash                                                               $   7,602    $   7,579
      Credit card receivables                                                  838        1,631
      Inventories                                                            1,885        1,804
      Prepaid expenses and other current assets                              2,617          669
      Assets held for sale - short term                                        200        1,848
      Prepaid and current deferred income taxes                              5,433        8,648
                                                                         ---------    ---------
                 Total current assets                                       18,575       22,178
                                                                         ---------    ---------

Property and Equipment, at cost:
      Land and land right                                                    7,858        8,422
      Buildings                                                             12,549       12,200
      Leasehold improvements                                                83,973       76,018
      Furniture and equipment                                               50,455       44,732
                                                                         ---------    ---------
                                                                           154,835      141,372
      Less - Accumulated depreciation                                      (40,196)     (27,662)
                                                                         ---------    ---------
                                                                           114,639      113,710
      Construction work in process                                           2,917        4,300
                                                                         ---------    ---------
                 Net property and equipment                                117,556      118,010

Goodwill, net                                                               28,404       30,682
Deferred Finance Costs, net                                                  8,025        8,761
Liquor Licenses                                                              3,014        3,057
Restricted Investments                                                          --        1,178
Deferred Taxes, noncurrent                                                   6,451        4,295
Other Assets, net                                                            1,569        1,417
                                                                         ---------    ---------
  TOTAL ASSETS                                                           $ 183,595    $ 189,578
                                                                         =========    =========

             LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
      Mortgage loans payable - current portion                           $   1,541    $   1,255
      Accounts payable                                                      14,510       14,508
      Accrued expenses                                                      18,817       22,551
      Capital lease obligation - current portion                                37           73
                                                                         ---------    ---------
                 Total current liabiliites                                  34,905       38,387
Line of Credit Loans                                                            --           --
Capital lease obligation, net of current portion                                --           58
Mortgage Loan Payable, net of current portion                               39,737       38,017
Bonds Payable, net of current portion                                      100,000      100,000
Deferred Rent and Other Long-Term Liabilities                                4,887        5,590
                                                                         ---------    ---------
                 Total liabilities                                         179,529      182,052
Commitments and Contingencies
Stockholders' Equity:
      Common stock, $.01 par value
         Authorized -  4,000,000 shares
         Issued - 3,666,370 at January 3, 2001 and December 29, 1999            37           37
      Less - Treasury shares of 687,415 and 679,748 at January 3, 2001
         and December 29, 1999, respectively                                (8,088)      (8,017)
      Additional paid-in capital                                            29,004       29,004
      Accumulated deficit                                                  (16,887)     (13,498)
                                                                         ---------    ---------
                 Total stockholders' equity                                  4,066        7,526
                                                                         ---------    ---------
                TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $ 183,595    $ 189,578
                                                                         =========    =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>

                           NE RESTAURANT COMPANY, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
             (Dollars in thousands except share and per share data)

<TABLE>
<CAPTION>
                                                                             53 Weeks Ended    52 Weeks Ended    52 Weeks Ended
                                                                                January 3,       December 29,      December 30,
                                                                                   2001              1999              1998
                                                                             --------------    --------------    --------------
<S>                                                                            <C>               <C>               <C>
Net sales                                                                      $   284,933       $   267,665       $   160,805
                                                                               -----------       -----------       -----------

Cost of sales and expenses
      Cost of sales                                                                 74,266            73,860            44,377
      Operating expenses                                                           162,577           154,750            91,596
      General and administrative expenses                                           16,386            15,400             8,639
      Deferred rent, depreciation, amortization and preopening expenses             18,127            17,863            10,921
      Loss on abandonment of Sal & Vinnie's                                          2,031                --                --
                                                                               -----------       -----------       -----------
           Total cost of sales and expenses                                        273,387           261,873           155,533
                                                                               -----------       -----------       -----------

      Income from operations                                                        11,546             5,792             5,272

Interest expense, net                                                               15,050            14,007             8,004
                                                                               -----------       -----------       -----------

      Loss before income tax benefit                                                (3,504)           (8,215)           (2,732)

Income tax benefit                                                                    (115)           (2,357)             (902)

                                                                               -----------       -----------       -----------
      Loss before change in accounting principle                                    (3,389)           (5,858)           (1,830)

Change in accounting principle, net of tax                                              --              (678)               --

                                                                               -----------       -----------       -----------
      Net loss                                                                 $    (3,389)      $    (6,536)      $    (1,830)
                                                                               ===========       ===========       ===========

      Basic and diluted loss per share before change in accounting principle   $     (1.14)      $     (1.97)      $     (0.89)

      Change in accounting principle per share                                          --             (0.22)               --
                                                                               -----------       -----------       -----------

      Basic and diluted loss per share                                         $     (1.14)      $     (2.19)      $     (0.89)
                                                                               ===========       ===========       ===========

Weighted Average Shares Outstanding                                              2,981,414         2,988,050         2,053,692
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>

                           NE RESTAURANT COMPANY, INC.
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                              Common Stock          Treasury Stock                                         Total
                                          --------------------  ---------------------                                  Stockholders'
                                          Number of             Number of                Additional Paid   Accumulated   (Deficit)
                                            Shares     Amount     Shares      Amount        In Capital       Deficit      Equity
                                          ---------  ---------  ---------   ---------       ---------       ---------    ---------
<S>                                       <C>        <C>         <C>        <C>             <C>             <C>          <C>
Balance December 31, 1997                 2,006,000  $      20   (689,344)  $  (8,017)      $      22       $  (5,132)   $ (13,107)

     Net Loss                                    --         --         --          --              --          (1,830)      (1,830)
     Equity Investment                    1,660,370         17      9,596          --          29,032              --       29,049
                                          ---------  ---------  ---------   ---------       ---------       ---------    ---------
Balance December 30, 1998                 3,666,370         37   (679,748)     (8,017)         29,054          (6,962)      14,112
     Net Loss                                    --         --         --          --              --          (6,536)      (6,536)
     Return of Capital                           --         --         --          --             (50)             --          (50)
                                          ---------  ---------  ---------   ---------       ---------       ---------    ---------
Balance December 29, 1999                 3,666,370         37   (679,748)     (8,017)         29,004         (13,498)       7,526
     Net Loss                                    --         --         --          --              --          (3,389)      (3,389)
     Repurchase of 7,667 shares at $9.23         --         --     (7,667)        (71)             --              --          (71)
                                          ---------  ---------  ---------   ---------       ---------       ---------    ---------
Balance January 3, 2001                   3,666,370  $      37   (687,415)  $  (8,088)      $  29,004       $ (16,887)   $   4,066
                                          =========  =========  =========   =========       =========       =========    =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>

                    NE RESTAURANT COMPANY, INC.
               CONSOLIDATED STATEMENTS OF CASH FLOW
                      (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                  53 Weeks Ended       52 Weeks Ended        52 Weeks Ended
                                                                  January 3, 2001     December 29, 1999    December 30, 1998
                                                                  ---------------     -----------------    -----------------
<S>                                                                  <C>                  <C>                  <C>
Cash Flows from Operating Activities
         Net loss                                                    $  (3,389)           $  (6,536)           $  (1,830)
                                                                     ---------            ---------            ---------

         Adjustments to reconcile net loss to net cash provided by
         operating activities:
                  Change in accounting principle                            --                1,135                   --
                  Non-cash loss on abandonment of Sal & Vinnie's         2,031                   --                   --
                  Depreciation, amortization and deferred rent          17,233               16,418               10,921
                  Deferred income taxes                                    245               (2,412)              (1,571)
         Changes in operating assets and liabilities-
                  Refundable and prepaid income taxes                       --                   --               (1,266)
                  Inventories                                             (157)                 260                 (268)
                  Prepaid expenses, receivables and other               (1,165)                (317)                (336)
                  Accrued expenses                                      (3,663)              (4,453)               9,643
                  Accounts payable                                          16                3,072                3,042
                  Other operating assets and liabilities                  (780)                (708)              (1,113)
                                                                     ---------            ---------            ---------
                        Total adjustments                               13,760               12,994               19,052
                                                                     ---------            ---------            ---------
Net cash provided by operating activities                               10,371                6,458               17,222
                                                                     ---------            ---------            ---------

Cash Flows from Investing Activities
         Business acquired, net of cash                                     --                   --              (89,358)
         Additions to property and equipment                           (14,191)             (18,983)             (19,355)
         Land and liquor license sale proceeds                             648                   --                   --
         Proceeds from sale of restaurants and office                    1,648                4,753                   --
         Franchise/development fees paid                                  (230)                (240)                (240)
         Acquisition of liquor licenses                                    (65)                  --                  (64)
         Additions to preopening costs                                      --                   --               (1,954)
                                                                     ---------            ---------            ---------
Net cash used in investing activities                                  (12,190)             (14,470)            (110,971)
                                                                     ---------            ---------            ---------

Cash Flows from Financing Activities
         Borrowings of mortgage loans                                    3,825               11,272                5,677
         Repayments of mortgage loans                                   (1,819)                (995)                (802)
         Financing costs                                                    --                   --               (7,877)
         Return of capital                                                  --                  (50)                  --
         Issuance of common shares                                          --                   --               29,048
         Repurchase of treasury shares                                     (71)                  --                   --
         Principal payments under capital lease obligations                (93)                 (93)                 (89)
         Net payments under lines of credit                                 --                   --              (27,000)
         Issuance of Senior Notes                                           --                   --              100,000
                                                                     ---------            ---------            ---------
Net cash provided by financing activities                                1,842               10,134               98,957
                                                                     ---------            ---------            ---------

Net Increase in Cash                                                        23                2,123                5,208
Cash, beginning of year                                                  7,579                5,456                  248
                                                                     ---------            ---------            ---------
Cash, end of year                                                    $   7,602            $   7,579            $   5,456
                                                                     =========            =========            =========

Supplemental Disclosure of Cash Flow Information:
         Cash paid for interest, net of amounts capitalized          $  10,437            $  13,808            $   3,756
                                                                     =========            =========            =========
         Cash paid for income taxes                                  $     129            $      --            $     457
                                                                     =========            =========            =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>

                           NE RESTAURANT COMPANY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JANUARY 3, 2001

(1)  ORGANIZATION AND OPERATIONS

     NE Restaurant Company, Inc. (the Company) (a Delaware corporation) was
     incorporated on January 1, 1994. The Company was formed to acquire and
     operate restaurants located in Massachusetts, New Hampshire, Maine,
     Vermont, Rhode Island, Connecticut and portions of New York. As of January
     3, 2001, the Company operated 40 Chili's and seven On The Border
     restaurants in five New England states. The restaurants are operated under
     franchise agreements with Brinker International, Inc. (Brinker) (a Texas
     corporation). The restaurants offer a full bar and dining service featuring
     a limited menu of broadly appealing food items prepared daily according to
     special Chili's and On The Border recipes.

     In July 1998, the Company completed its acquisition of Bertucci's Inc.
     (Bertucci's), a publicly owned restaurant company. As of January 3, 2001,
     the Company owned and operated 72 full-service casual dining, Italian-style
     restaurants under the name Bertucci's Brick Oven Pizzeria located primarily
     in the Northeastern and Mid-Atlantic United States. The Company had
     operated one Sal & Vinnie's Sicilian Steakhouse located in Massachusetts
     which was also part of the acquisition. During 2000, the Company abandoned
     the restaurant in exchange for termination of its lease obligation and
     recorded a $2.0 million loss on abandonment.

     On August 6, 1997, the Company formed a wholly-owned limited partnership,
     NERC Limited Partnership (NERCLP), to obtain mortgage loans from FFCA
     Acquisition Corporation (FFCA) discussed below. On April 3, 1998, the
     Company formed a wholly owned limited partnership, NERC Limited Partnership
     II (NERCLPII) to obtain the additional FFCA loans, discussed below.

     On November 20, 2000, the Company entered into an agreement to sell to
     Brinker the Company's Chili's and On The Border Restaurants (collectively,
     the Brinker Concept Restaurants), all development rights for future Brinker
     Concept Restaurants and four Chili's restaurants currently under
     development by the Company (the "Brinker Sale"). Total consideration,
     including assumption of FFCA Loans, subject to closing adjustments, is
     approximately $93 million. The Brinker Sale calls for the transition of the
     47 franchised restaurant properties including facilities, equipment and
     management teams to Brinker. Brinker will assume the mortgage debt on the
     Company's Brinker Concept Restaurants in addition to cash consideration.
     The Company expects to finalize the Brinker Sale in April 2001. See
     Management's Discussion and Analysis, pages 12-13 of this report. The
     assets Brinker is purchasing from the Company are detailed in the table
     below (dollars in thousands).
<PAGE>

                   Assets and Liabilities                      Amount ($000's)
                   ----------------------                      ---------------
Cash                                                               $    530
Inventory                                                               850

Land & land rights                                                    5,876
Buildings                                                             5,953
Leasehold improvements                                               37,692
Furniture and equipment                                              25,201
                                                                   --------
   Sub-Total                                                         74,722
Accumulated depreciation                                            (20,931)
                                                                   --------
   Sub-Total                                                         53,791

Construction work in process                                            338
                                                                   --------
  Net property and equipment                                         54,129

Liquor licenses                                                       1,208

TOTAL ASSETS                                                       $ 56,717
                                                                   ========

Mortgage loans - total including current portion                     41,278

TOTAL LIABILITIES                                                  $ 41,278
                                                                   ========

NET ASSETS                                                         $ 15,439
                                                                   ========

     These assets are recorded in the Company's consolidated balance sheets
     included in this report. All significant intercompany accounts and
     transactions have been eliminated in consolidation.

     Change in Year End

     The Company's fiscal year is the 52 or 53-week period ended on the
     Wednesday closest to December 31st. Fiscal year 2000 presented consists of
     53 weeks while each of the other years presented consist of 52 weeks.

(2)  ACQUISITION

     On July 21, 1998, the Company through a wholly owned subsidiary, NE
     Restaurant Acquisition Corp., completed its acquisition of Bertucci's
     pursuant to the terms of an Agreement and Plan of Merger dated as of May
     13, 1998 (the "Acquisition"). The Company purchased all of the issued and
     outstanding shares of Bertucci's common stock at a price of $10.50 per
     share. The total purchase price was $89.4 million. NE Restaurant
     Acquisition Corp. had no operations prior to the acquisition and was
     subsequently merged into the Company. In connection with the Acquisition,
     the Company sold $100,000,000 principal amount of 10 3/4% Senior Notes due
     July 15, 2008. The net proceeds along with equity financing of
     approximately $29.0 million were used to consummate the Acquisition, repay
     certain outstanding indebtedness of the Company and Bertucci's and pay fees
     and expenses incurred in connection with the financing and the Acquisition.

     The purchase price, including expenses related to the acquisition has been
     allocated to assets and liabilities based on estimated fair market values
     on July 21, 1998. The difference between the purchase price and the net
     assets acquired of $34 million has been recorded as goodwill and is being
     amortized over 15 years. Amortization expense for the period from the date
     of Acquisition to December 30, 1998 was approximately $1.0 million, and
     $2.3 million for each of the years ended December 29, 1999 and January 3,
     2001.
<PAGE>

     The purchase price has been allocated to assets acquired and liabilities
     assumed, as follows (dollars in thousands):

Cash                           $    3,669
Accounts receivable                   204
Inventories                         1,204
Other current assets                2,982
Property and equipment             67,976
Assets held for sale                6,601
Other assets                        7,353
Accounts payable                   (3,620)
Accrued liabilities               (12,851)
Line of credit and notes
payable                           (13,525)
Other liabilities                    (929)
                               ----------

      Net assets acquired          59,064

Goodwill                           33,963

Total purchase price               93,027
Cash acquired                      (3,669)
                               ----------

      Net purchase price       $   89,358
                               ==========

     Assets Held for Sale

     The acquisition of Bertucci's included 90 Bertucci's restaurants and one
     Sal & Vinnie's restaurant. The Company sold the former Bertucci's
     headquarters located in Wakefield, Massachusetts, and closed the Bertucci's
     test kitchen restaurant located in the former Bertucci's headquarters. The
     Company also closed 17 other under-performing Bertucci's restaurants. The
     assets related to these locations, which are primarily property and
     equipment, have been assigned a value of approximately $6.6 million based
     on estimated sale proceeds. For the year ended January 3, 2001 and from the
     date of the Acquisition to January 3, 2001, these locations had combined
     net sales of approximately $418,000 and $22.1 million and an approximate
     combined loss from operations of $31,000 and $2.2 million, respectively.
     Any operating profit or loss related to these locations held for sale has
     been included in the consolidated statements of income through the date of
     closing, as the operating locations to be sold had not been identified at
     the date of the Acquisition. As of January 3, 2001, all of these locations
     have been closed, including the former Bertucci's headquarters. The Company
     has received net proceeds from the sale of these assets of approximately
     $6.4 million since the Acquisition, approximately $1.7 million of which was
     received in fiscal 2000.

     As of the date of Acquisition, the Company accrued approximately $3.0
     million related to closing these locations, consisting of estimated lease
     commitments beyond the closings and certain exit costs. During fiscal 1999
     and 2000, the Company utilized approximately $0.8 million and $2.0 million,
     respectively, of the store closing reserves. During 2000, the Company
     accrued an additional $0.5 million of costs related to exiting the final
     four locations. This accrual was charged to earnings and included in
     operating expenses in the accompanying statements of income. The accrued
     costs are included in accrued expenses in each of the consolidated balance
     sheets presented above.

     The following presents the approximate unaudited pro forma consolidated
     statements of income of the Company for the years ended January 3, 2001,
     December 29, 1999 and December 30, 1998. The statements below give pro
     forma effect to the acquisition of Bertucci's as if the Acquisition, the
     sale of $100,000,000 principal amount of 10 3/4% Notes and the closing of
     the restaurant locations discussed above had occurred on January 1, 1998
     (dollars in thousands).
<PAGE>

<TABLE>
<CAPTION>
                                                                 January 3, 2001    December 29, 1999   December 30, 1998
                                                                 ---------------    -----------------   -----------------
<S>                                                                 <C>                 <C>                 <C>
Net sales                                                           $ 284,515           $ 252,920           $ 243,414

Cost of sales and expenses
Cost of sales                                                          74,088              69,483              64,980
Operating expenses                                                    162,077             142,448             139,992
General and administrative expenses                                    16,079              15,721              12,574
Deferred rent, depreciation, amortization and preopening expenses      18,127              17,863              18,167
                                                                    ---------           ---------           ---------
Total costs and expenses                                              270,371             245,516             235,713

   Income from operations                                              14,144               7,404               7,701

Interest expense, net                                                  15,050              14,007              14,474
                                                                    ---------           ---------           ---------

Loss before income taxes                                                 (906)             (6,603)             (6,773)

Income tax provision (benefit)                                            675              (1,826)             (1,838)
                                                                    ---------           ---------           ---------
   Loss before change in accounting principle                          (1,581)             (4,777)             (4,935)
Change in accounting principle, net of tax                                 --                (678)                 --
                                                                    ---------           ---------           ---------
Net loss                                                            $  (1,581)          $  (5,455)          $  (4,935)
                                                                    =========           =========           =========
</TABLE>

     In computing the pro forma earnings, earnings have been reduced by the net
     interest expense on indebtedness incurred in connection with the
     Acquisition and related amortization of deferred finance costs. In
     addition, earnings have been increased by the losses incurred by the
     locations to be closed discussed above and decreased by the amortization of
     goodwill related to the Acquisition. The pro forma information presented
     does not purport to be indicative of the results that would have been
     reported if these transactions had occurred on January 1, 1998 or that may
     be reported in the future.

(3)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Reclassification

     Certain reclassifications have been made to prior year financial statements
     to make them consistent with the current year's presentation.

     Use of Management 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. Significant estimates include the reserve for
     closing restaurant locations (see Note 2). Actual results could differ from
     those estimates.
<PAGE>

     Inventories

     Inventories are carried at the lower of first-in, first-out cost or market
     value, and consist of the following (dollars in thousands):

                                                   2000             1999
                                                  ------           ------

     Food                                         $1,186           $1,059
     Liquor                                          614              663
     Supplies                                         85               82
                                                  ------           ------

           Total inventory                        $1,885           $1,804
                                                  ======           ======

     Property and Equipment

     Property and equipment are carried at cost. The Company provides for
     depreciation and amortization using the straight-line method to charge the
     cost of properties to expense over the estimated useful lives of the
     assets. The lives used are as follows:

           Asset Classification                             Estimated
                                                           Useful Life

      Buildings and building improvements                  20-40 years
      Leasehold improvements                      Shorter of term of the lease
                                                     (ranging between 10-20
                                                     years) or life of asset
      Furniture and equipment                              3-10 years

     Included in furniture and equipment in the accompanying consolidated
     balance sheets is the opening amount of small kitchen and dining room
     equipment and utensils including but not limited to pots, pans, dishes,
     flatware and blenders ("Smallwares"). The Company capitalizes a normal
     complement of Smallwares for each location prior to the restaurant's
     opening date and expenses all Smallwares purchased after each store's
     opening date.

     Long-Lived Assets

     In 1996, the Financial Accounting Standards Board (FASB) issued Statement
     of Financial Accounting Standards (SFAS) No. 121, Accounting for the
     Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
     of. The Company's long-lived assets consist primarily of goodwill, real
     estate and leasehold improvements related to its restaurant operations.
     SFAS No. 121 requires management to consider whether long-lived assets have
     been impaired by comparing undiscounted future cash flows expected to be
     generated from utilizing these assets to their carrying amounts. If cash
     flows are not sufficient to recover the carrying amount of the assets,
     impairment has occurred and the assets should be written down to their fair
     market value. Significant estimates and assumptions regarding future sales,
     cost trends, productivity and market maturity are required to be made by
     management in order to test for impairment under this standard. For
     long-lived assets to be disposed of, SFAS No. 121 requires that long-lived
     assets be reported at the lower of carrying amount or fair value less cost
     to sell. The November 2000 agreement with Brinker established the expected
     value for the Company's Brinker Concept Restaurant assets. Based on current
     facts, estimates and assumptions, management believes that no assets are
     impaired under this standard and the carrying amount of the Brinker Concept
     Restaurant assets is recorded at less than the expected value to be
     received in the transaction. There is no assurance that management's
     estimates and assumptions will prove correct.

     Land Right

     In 1994, the Company executed an agreement to prepay the rent associated
     with a 99-year lease for land in Southington, Connecticut. Prepaid rental
     payments totaled $735,000 and are reflected as a land right in the
     accompanying consolidated balance sheets. The lease is renewable for an
     additional 99 years for a payment of $1. This right would be transferred to
     Purchaser under the terms of the Brinker Sale.
<PAGE>

     Capitalized Interest

     The Company capitalizes interest costs during the construction period on
     capital expenditures funded by debt. Total interest costs incurred and
     amounts capitalized are as follows (dollars in thousands):

                                       2000           1999          1998
                                       ----           ----          ----

     Total interest expense         $   15,118     $   14,073    $    8,200
     Less - Amount capitalized              68             66           196
                                    ----------     ----------    ----------

           Interest expense, net    $   15,050     $   14,007    $    8,004
                                    ==========     ==========    ==========

     Other Assets

     Other assets are comprised partially of development and franchise fees (see
     Note 10). Development fees are amortized over seven years, and franchise
     fees are amortized over the life of the franchise agreements (20 years).
     Accumulated amortization of these assets amounts to approximately $867,212
     and $682,543 at January 3, 2001 and December 29, 1999, respectively.

     Other assets also include investments restricted for the payment of certain
     officers' deferred compensation. These investments are stated at market
     value at December 29, 1999. There is no recorded deferred compensation at
     January 3, 2001 as the plan has been terminated. Since these securities
     were from time to time bought and sold at the discretion of the officers
     they were classified as trading securities.

     Preopening Expenses

     In April 1998, the American Institute of Certified Public Accountants
     (AICPA) issued its Statement of Position (SOP) 98-5, Reporting on the Costs
     of Start-Up Activities. SOP 98-5 requires that costs incurred during
     start-up activities, including organization costs, be expensed as incurred.
     SOP 98-5 was effective for financial statements for fiscal years beginning
     after December 15, 1998. The Company adopted SOP 98-5 as of the first day
     of fiscal 1999. Upon adoption, the Company incurred a cumulative effect of
     a change in accounting principle of approximately $1.1 million
     (approximately $0.7 million net of tax) in 1999. This charge was primarily
     to write off unamortized preopening costs that were previously amortized
     over the 12-month period subsequent to a restaurant opening. These costs
     primarily consist of costs incurred to develop new restaurant management
     teams; travel and lodging for both the training and opening unit management
     teams; and the food, beverage and supplies costs incurred to perform
     role-play testing of all equipment, concept systems and recipes.
<PAGE>

     Accrued Expenses

     Accrued expenses consisted of the following as of January 3, 2001 and
     December 29, 1999 (dollars in thousands):

                                                2000        1999
                                                ----        ----

        Accrued occupancy costs              $      963  $      897
        Accrued payroll and related benefits      6,372       7,220
        Accrued interest                          5,112       4,999
        Accrued advertising                       1,085       1,692
        Accrued royalties                           654         553
        Unredeemed gift certificates              2,256       2,100
        Accrued income taxes                        286         645
        Store closing reserves                      774       2,282
        Other accrued liabilities                 1,315       2,163
                                             ----------  ----------
        TOTAL                                $   18,817  $   22,551
                                             ==========  ==========

     Deferred Finance Costs

     Underwriting, legal and other direct costs incurred in connection with the
     issuance of the senior notes and mortgages discussed below have been
     capitalized and are being amortized over the life of the related
     borrowings.

     Liquor Licenses

     Liquor licenses purchased are accounted for at the lower of cost or market.
     Annual renewal fees are expensed as incurred.

     Fair Value of Financial Instruments

     The Company's financial instruments consist mainly of cash and cash
     equivalents, accounts receivable, accounts payable, line of credit loans
     and long-term debt. The carrying amounts of the Company's cash and cash
     equivalents, accounts receivable and accounts payable approximate fair
     value due to the short-term nature of these instruments. The senior bank
     facility loans bear interest at a variable market rate and therefore, the
     carrying amount approximates fair value. The fair value of the Company's
     senior notes and mortgage loans based on quoted market prices for similar
     issues approximate the current carrying value.

     Comprehensive Income

     In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
     SFAS No. 130, which is effective for fiscal 1999, establishes standards for
     the reporting and display of comprehensive income and its components.
     Comprehensive income is defined as the change in equity of a business
     enterprise during a period from transactions and other events and
     circumstances from non-owner sources. Comprehensive income for fiscal 2000,
     1999 and 1998 is equal to net income as reported.

     Segment Reporting

     In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
     Enterprise and Related Information. SFAS No. 131 supersedes SFAS No. 14,
     Financial Reporting for Segments of a Business Enterprise and requires that
     a company report annual and interim financial and descriptive information
     about its reportable operating segments. Operating segments, as defined,
     are components of an enterprise 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 allows aggregation of similar operating segments
     into a single operating segment if the businesses are considered similar
     under the criteria. The Company believes it meets the aggregation criteria
     for its operating segments.
<PAGE>

     New Accounting Pronouncements

     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
     Instruments and Hedging Activities. This statement established accounting
     and reporting standards requiring that every derivative instrument
     (including certain derivative instruments embedded in other contracts and
     for hedging activities) be recorded in the balance sheet as either an asset
     or liability measured at its fair value. SFAS No. 133 requires that changes
     in the derivative's fair value be recognized currently in earnings unless
     specific hedging accounting criteria are met. Special accounting for
     qualifying hedges allows a derivative's gains and losses to offset related
     results on the hedged item in the income statement, and requires that a
     company must formally document, designate and assess the effectiveness of
     transactions that receive hedge accounting. SFAS No. 133 is effective for
     fiscal years beginning after June 15, 2000.

     In June 2000, the FASB issued SFAS No. 138, Accounting for Derivative
     Instruments and Hedging Activities - An Amendment of FASB Statement No.
     133, which amended SFAS no. 133 and added guidance for certain derivative
     instruments and hedging activities. The new standard, SFAS No. 133 as
     amended by SFAS No. 138, requires recognition of all derivatives as either
     assets or liabilities at fair value. One of the primary amendments to SFAS
     No. 133 that is covered by SFAS No. 138 establishes an exemption for normal
     purchases and normal sales that will be delivered in quantities expected to
     be used or sold over a reasonable period in the normal course of business.
     The Company has completed its analysis and review of contracts associated
     with the adoption of this standard and has determined that the adoption of
     this standard will not have a material impact on the Company's fiscal
     position or results of operations.

(4)  INCOME TAXES

     The Company accounts for income taxes under the liability method in
     accordance with SFAS No. 109. The components of the benefit for income
     taxes for the years ended January 3, 2001, December 29, 1999 and December
     30, 1998 are as follows (dollars in thousands):

                                                    2000       1999       1998
                                                    ----       ----       ----
Current -
   Federal                                        $  (329)   $  (277)   $   460
   State                                             (103)      (125)       209
                                                  -------    -------    -------
                                                     (432)      (402)       669
                                                  -------    -------    -------
Deferred -
   Federal                                            242     (1,659)    (1,081)
   State                                               75       (753)      (490)
                                                  -------    -------    -------
                                                      317     (2,412)    (1,571)
                                                  -------    -------    -------
Total benefit for income taxes                       (115)    (2,814)      (902)
Benefit on change in accounting principle              --       (457)        --
                                                  -------    -------    -------
Benefit on continuing loss                        $  (115)   $(2,357)   $  (902)
                                                  =======    =======    =======
<PAGE>

     A reconciliation of the amount computed by applying the statutory federal
     income tax rate of 34% to loss before taxes and change in accounting
     principle for the years ended January 3, 2001, December 29, 1999 and
     December 30, 1998 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                          2000       1999       1998
                                                                          ----       ----       ----
<S>                                                                     <C>        <C>        <C>
Income tax benefit computed at federal statutory rate                   $  (776)   $(2,793)   $  (929)
State taxes, including expired state benefits, net of federal benefit       108       (485)      (216)
FICA tax credit                                                            (221)      (340)      (210)
Targeted jobs tax credit                                                     --         (2)        (3)
Goodwill amortization                                                       774        774        485
Other                                                                        --         32        (29)
                                                                        -------    -------    -------
Income tax benefit                                                      $  (115)   $(2,814)   $  (902)
                                                                        =======    =======    =======
</TABLE>

     Significant items giving rise to deferred tax assets and deferred tax
     liabilities at January 3, 2001, December 29, 1999 and December 30, 1998 are
     as follows (dollars in thousands):

                                                 2000        1999        1998
                                                 ----        ----        ----
Deferred tax assets-
  Deferred rent                                $  1,834    $  1,684    $  1,010
  Store closing write downs and liabilities       2,608       6,155       7,467
  Deferred and accrued compensation               1,295         991         549
  Net operating loss carryforwards                5,571       4,169          --
  Accrued expenses and other                      1,584       1,997       1,658
                                               --------    --------    --------
                                                 12,892      14,996      10,684
Deferred tax liabilities-
  Accelerated tax depreciation                      (67)     (1,656)       (971)
  Preopening expenses                                --          --        (344)
  Liquor licenses                                  (418)       (397)       (119)
  Other                                            (523)         --          --
                                               --------    --------    --------
                                                 (1,008)     (2,053)     (1,434)
                                               --------    --------    --------

Total net deferred tax assets                  $ 11,884    $ 12,943    $  9,250
                                               ========    ========    ========

Current portion                                $  5,433    $  8,648    $  9,265
                                               ========    ========    ========

Noncurrent portion                             $  6,451    $  4,295    $    (15)
                                               ========    ========    ========

     As of January 3, 2001, the Company had net operating loss carryforwards for
     federal purposes of approximately $13.8 million that are subject to review
     by the Internal Revenue Service. The net operating loss carryforwards begin
     to expire in 2014 and are subject to limitations on their use in any one
     year if there should be a change in control of the Company.

     No valuation allowance has been provided as the Company believes it is more
     likely than not that all of the net deferred tax assets will be realized.
<PAGE>

(5)  SENIOR BANK FACILITY

     During 1998, the Company entered into the Senior Bank Facility with
     BankBoston, N.A. and Chase Bank of Texas, N.A (the Banks). The Senior Bank
     Facility replaced the existing line of credit loans between the Company and
     BankBoston. The Senior Bank Facility is secured by substantially all the
     tangible and intangible assets of the Company and its subsidiaries, other
     than NERCLP and NERCLP II. The Senior Bank Facility is in effect until
     August 2001, under which the Company may borrow up to $20,000,000 and will
     include a $1,000,000 sub-limit for the issuance of letters of credit. The
     Company pays a commitment fee of 0.5% on the aggregate undrawn portion of
     the Senior Bank Facility. Borrowings bear interest at the Company's option
     of either, the LIBOR rate, as defined in the agreement, plus an applicable
     margin based on the Company's ratio of debt to earnings before interest,
     taxes, depreciation, amortization, deferred rent and preopening expenses
     (EBITDA), or the Base Rate, as defined in the agreement, plus an applicable
     margin based on the Company's ratio of debt to EBITDA. The weighted average
     interest rate on the line of credit loans and the Senior Bank Facility
     during months with outstanding borrowings in 2000 and 1999 was 10.59% and
     9.27%, respectively. No borrowings were outstanding as of January 3, 2001
     and December 29, 1999.

     The loan agreement contains various restrictive covenants that, among other
     thing, require the Company to comply with specified financial ratios and
     tests, including minimum interest coverage, minimum fixed charge coverage,
     and maximum leverage ratios, minimum net worth levels and maximum capital
     expenditure amounts. The Company was in compliance with these covenants at
     January 3, 2001.

(6)  CAPITAL LEASE OBLIGATION

     During 1996, the Company entered into a capital lease for restaurant
     equipment. At the expiration of the lease in 2001, the Company may purchase
     the equipment at the then fair market value.

     The minimum lease payments due under the lease as of January 3, 2001 are as
     follows (dollars in thousands):

      Year-
      2001                                                             $38

      Less--Interest                                                     1
                                                                       ---
      Net Total                                                        $37
                                                                       ===
      Current portion of obligation                                    $37
                                                                       ===
      Long-term portion of obligation                                  $--
                                                                       ===

(7)  MORTGAGE LOANS AND NOTES PAYABLE

     On August 6, 1997, NERCLP entered into a loan agreement (the Loan
     Agreement) with FFCA in the aggregate amount of $22,400,000 (the Initial
     FFCA Loans), evidenced by promissory notes maturing on various dates from
     September 2002 through September 2017, with interest at 9.67% per annum.
     Proceeds from the FFCA Loans were used to pay the Company for real estate
     assets sold and transferred to NERCLP. The Company then used the sale
     proceeds to make certain payments to its shareholders (see Note 13). NERCLP
     mortgaged 17 restaurant properties to FFCA as collateral for the Initial
     FFCA Loans. On or about August 28, 1997, NERCLP obtained additional
     financing from FFCA in the aggregate amount of $1,850,000 (the 1997
     Additional FFCA Loans), evidenced by promissory notes maturing on various
     dates from September 2007 through September 2017, with interest at 9.701%
     per annum. The 1997 Additional FFCA Loans were collateralized by mortgages
     on three restaurant properties. Between July 2, 1998 and December 10, 1998,
     NERCLPII obtained additional financing from FFCA in the aggregate amount of
     $5,677,000 (the 1998 Additional FFCA Loans, which together with the Initial
     FFCA Loans and the 1997 Additional
<PAGE>

     FFCA Loans are hereinafter referred to as the FFCA Loans), evidenced by
     promissory notes maturing on various dates from January 2006 to January
     2019, with interest rates ranging from 8.440% to 9.822% per annum. The 1998
     Additional FFCA Loans were collateralized by mortgages on 4 restaurant
     properties. During 2000, the Company obtained FFCA loans totaling $3.8
     million collateralized by mortgages on three restaurant properties. The net
     book value of all properties covered by mortgages granted to FFCA on the
     dates of borrowing was $45.2 million. For the years ended January 3, 2001
     and December 29, 1999 interest related to the FFCA Loans was $3.9 and $3.0
     million, respectively.

     The Loan Agreements with FFCA contain restrictive covenants that requires
     the maintenance of Fixed Charge Coverage Ratios of 1.25:1, as determined on
     each December 31, with respect to each of the FFCA mortgaged restaurant
     properties individually. Fixed Charge Coverage Ratio is defined in the Loan
     Agreement to mean the ratio of (a) the sum of net income, depreciation and
     amortization, interest expense and operating lease expense, less a
     corporate overhead allocation equal to 5% of gross sales, for an FFCA
     mortgaged restaurant property to (b) the sum of FFCA debt service payments,
     equipment lease and equipment loan payments and ground lease rental
     payments for such restaurant property. If the Fixed Charge Coverage Ratio
     is not achieved by any individual restaurant, the Company is required to
     pay FFCA an amount sufficient to comply with the Fixed Charge Coverage
     Ratio. The Company was in compliance with these covenants as of January 3,
     2001.

     Existing loan documents between FFCA, NERCLP and NERCLPII are
     cross-defaulted and cross-collateralized with all other loan agreements,
     existing or forthcoming, between FFCA, NERCLP and NERCLPII or the Company,
     subject to certain limited exceptions.

     On July 13, 1998, the Company issued $100 million of 10 3/4% Senior Notes
     due 2008 (the Notes). Interest on the Notes is payable semi-annually on
     January 15 and July 15, with payments commencing on January 15, 1999. The
     net proceeds were $92.0 million, after expenses in connection with the
     offering. The proceeds were used to fund the purchase price of the
     acquisition of Bertucci's, Inc. and its subsidiaries and, along with equity
     contributions, to repay outstanding bank debt. After July 15, 2003, the
     Company may, at its option, redeem any or all of the Notes at face value,
     plus a premium of up to approximately 5% through July 15, 2006. Thereafter,
     the Notes may be redeemed at face value. In addition, anytime through July
     15, 2001, the Company may redeem up to 35% of the Notes, subject to
     restrictions, with the net proceeds of one or more Equity Offerings, as
     defined, at a redemption price of 110.75% of the principal amount of such
     Notes. Additionally, under certain circumstances, including a change of
     control or following certain asset sales, the holders of the Notes may
     require the Company to repurchase the Notes, at a redemption price of 101%.
     The Notes are fully and unconditionally guaranteed, on a joint and several
     basis, on an unsecured senior basis, by all of the Company's subsidiaries,
     other than those that are, or will become, parties to the FFCA loans or
     other similar secured financings. These Senior Notes were exchanged for
     Senior Notes with the same terms pursuant to a registered exchange offer
     that was completed in November 1998.

     The loan payments due under the FFCA loans and the Notes as of January 3,
     2001 are as follows (dollars in thousands):

      Year Ending:
        2001                   $    1,541
        2002                        1,671
        2003                        1,726
        2004                        1,842
        2005                        1,874
        Thereafter                132,625
                               ----------

                               $  141,279
                               ----------

     The Brinker Sale includes the transfer to Brinker of all debt due and
     payable to FFCA by the company.
<PAGE>

(8)  COMMITMENTS AND CONTINGENCIES

     Operating Leases

     The Company has entered into numerous lease arrangements, primarily for
     restaurant land, equipment and buildings, which are noncancelable and
     expire on various dates through 2028.

     Some operating leases contain rent escalation clauses whereby the rent
     payments increase over the term of the lease. Rent expense includes base
     rent amounts, percentage rent payable periodically, as defined in each
     lease, and rent expense accrued to recognize lease escalation provisions on
     a straight-line basis over the lease term. Rent expense recognized in
     operating expenses in the accompanying consolidated statements of income
     was approximately $15,061,000, $15,938,000 and $10,292,000 for the years
     ended January 3, 2001, December 29, 1999 and December 30, 1998,
     respectively. The excess of accrued rent over amounts paid is classified as
     deferred rent in the accompanying consolidated balance sheets.

     The approximate minimum rental payments due under all noncancelable
     operating leases as of January 3, 2001 are as follows (dollars in
     thousands):

       Year-
         2001                         $   15,618
         2002                             14,895
         2003                             13,025
         2004                             12,137
         2005                             11,441
         Thereafter                       63,797
                                      ----------

                                      $  130,913
                                      ----------

     Certain leases require the payment of an additional amount, calculated as a
     percentage of annual sales, as defined in the lease agreement, which
     exceeds annual minimum rentals. The percentage rent factors generally range
     from 3% to 6% of sales.

     Contingencies

     The Company is subject to various legal proceedings that arise in the
     ordinary course of business. Based on discussion with the Company's legal
     counsel, management believes that the amount of ultimate liability with
     respect to these actions will not be material to the financial position or
     results of operations of the Company.

(9)  RELATED PARTIES

     Under the terms of the corporation agreements, the stockholders have
     consented to the payment of an ongoing financial consulting fee to Jacobson
     Partners, Limited Partnership ("Jacobson Partners"), a stockholder of the
     corporation. The amounts paid to Jacobson Partners for financial consulting
     fees were $625,000, $313,000 and $330,000 for the years ended January 3,
     2001, December 29, 1999 and December 30, 1998, respectively, and are
     included in general and administrative expenses in the accompanying
     consolidated statements of income. In addition, during fiscal 1998,
     Jacobson Partners was paid $400,000 for consulting fees associated with
     obtaining the above mentioned mortgages and $1,000,000 for consulting fees
     related to the Acquisition and related financing.

     The Company had a nonqualified deferred compensation plan (the Plan) for
     certain officers and management personnel, which allowed them to defer
     receiving a portion of their compensation. This compensation was not
     taxable to the employee or deductible to the Company for tax purposes until
     the compensation was paid. An officer of the Company, who was also a
     participant in the Plan, was the trustee of the Plan.
<PAGE>

(10) FRANCHISE AND DEVELOPMENT AGREEMENTS

     All of the Company's Chili's and On the Border restaurants operate under
     franchise agreements with Brinker. The agreements provide, among other
     things, that the Company pay an initial franchise fee of $40,000 per
     restaurant and a royalty fee of approximately 4% of sales. The initial
     franchise fee is payable in two installments of $20,000. The first
     installment is due on or before the construction commencement date. The
     second installment is due at least 10 days prior to the date on which the
     restaurant opens for business. The initial franchise fees are capitalized
     and amortized over the term of the franchise agreement. Royalty fees
     averaged 3.8% of Brinker Concept Restaurant sales in 2000, 1999 and 1998.
     In addition, the Company is required to pay an advertising fee to Brinker
     of .5% of sales and spend an additional 2.0% of sales on local advertising.
     In return, Brinker is obligated to provide certain support for restaurant
     operations, site selection and promotion. Royalty and advertising fees are
     expensed as incurred. In addition, according to the franchise agreements,
     the Franchisor may require the Company to pay an additional amount of
     advertising. The Franchisor required all franchisees to pay an additional
     1.0% of net sales from September 2000 through June 2001.

     In 1991, the Company entered into a development agreement with Brinker
     whereby the Company was granted the exclusive right to develop additional
     Chili's franchises within a certain geographic territory. In 1995, the
     Company paid $150,000 to renew the agreement. The Company is required to
     develop a certain number of Chili's restaurants during the term of the
     agreement in order to maintain its exclusive development rights. In fiscal
     2000, the Company paid an additional $150,000 to renew the area development
     agreement through 2005. Brinker will repay $150,000 to the Company as part
     of the Brinker Sale.

     Also during 1995, the Company paid $50,000 to Brinker in exchange for both
     the right to open its first On The Border franchise and the option to enter
     into an On The Border development agreement in the future. In 1997, the
     Company elected the option to enter into the On The Border development
     agreement, and the above $50,000 fee was applied against the cost of the
     development agreement. The On The Border development agreement expired
     after the announcement of the Brinker Sale.

     The Company expects the franchise and area development rights to be
     terminated pursuant to the Brinker Sale.

(11) 401(K) PROFIT SHARING PLAN AND DEFERRED COMPENSATION PLAN(S)

     The Company maintains two defined contribution plans: the Bertucci's 401(k)
     Plan and the NE Restaurant 401(k) Plan. Under the Bertucci's 401(k) Plan,
     substantially all employees of the Company may defer a portion of their
     current salary, on a pretax basis, to the 401(k) Plan. The Company makes a
     matching contribution to the Bertucci's 401(k) Plan that is allocated,
     based on a formula as defined by the Bertucci's 401(k) Plan, to the
     Bertucci's 401(k) Plan participants. The Company is currently in the
     process of terminating the NE Restaurant 401(k) Plan and as of May 1, 1999
     all eligible participants were transferred to the Bertucci's 401(k) Plan in
     order to consolidate the Plans after the Acquisition. In connection with
     the termination of the NE Restaurant 401(k) Plan, all amounts became fully
     vested. Matching contributions made by the Company for the years ended
     January 3, 2001, December 29, 1999 and December 30, 1998 were approximately
     $138,000, $89,000 and $160,000, respectively. Prior to the termination of
     the NE Restaurant 401(k) Plan, two officers of the Company were also the NE
     Restaurant 401(k) Plan's trustees.

     The Company had established the NE Restaurant Company Deferred Compensation
     Plan (the Nonqualified Deferred Compensation Plan) pursuant to which
     certain eligible executives of the Company may elect to defer a portion of
     their salary. The Company maintained an irrevocable grantor trust which has
     been established by the Company, as grantor, pursuant to The Merrill Lynch
     Nonqualified Deferred Compensation Plan Trust Agreement, dated December 21,
     1993, by and between the Company and Merrill Lynch Trust Company of
     America, an Illinois corporation, as trustee, for the purpose of paying
     benefits under the Nonqualified Deferred Compensation Plan.

     The trust assets were held separately from other funds of the Company, but
     remained subject to claims of the Company's general creditors in the event
     of the Company's insolvency. As of December 29, 1999, the two trust account
     balances for two officers were $475,333 and $671,549, respectively. In
     January 2000, the Nonqualified Deferred Compensation Plan was terminated
     and the balances were paid to the participants.
<PAGE>

     During 1999, the Company has also established the NE Restaurant Company,
     Inc. Executive Savings and Investment Plan (the Executive Savings and
     Investment Plan) to which highly compensated executives of the company may
     elect to defer a portion of their salary and or earned bonus. The Company
     maintains an irrevocable grantor trust which has been established by the
     Company, as grantor, pursuant to the Scudder Kemper Investments
     nonqualified deferred compensation plan trust agreement, dated September
     20, 1999. The agreement is between the Company and Scudder Kemper
     Investments, as trustee, for the purpose of paying benefits under
     nonqualified deferred compensation plan.

     The trust assets are held separately from other funds of the Company, but
     remain subject to claims of the Company's general creditors in the event of
     the Company's insolvency. As of January 3, 2001, there were 20 participants
     in the plan with a total market value of approximately $316,000.

(12) STOCK OPTION PLAN

     On September 15, 1997, the Board of Directors of the Company established
     the 1997 Equity Incentive Plan, which included a nonqualified stock option
     plan (the Option Plan), for certain key employees and directors. The Option
     Plan is administered by the Board of Directors of the Company and may be
     modified or amended by the Board of Directors in any respect.

     Between September 15, 1997 and December 4, 1997, 331,123 options were
     granted. Between July 21, 1998 and October 19, 1998, 58,429 options were
     granted. During 1999, 36,110 options were granted. During fiscal 2000,
     199,750 options were granted. The options are exercisable as follows:

         Two years beyond options grant date                       25%
         Three years beyond option grant date                      50%
         Four years beyond option grant date                       75%
         Five years beyond option grant date                      100%

     The Company accounts for the Option Plan under APB Opinion No. 25, under
     which no compensation cost has been recognized since the options are
     granted at fair market value.

     Had compensation cost for the Option Plan been determined consistent with
     SFAS No. 123, Accounting for Stock Based Compensation, the Company's net
     loss and earnings per share would have been reduced to the following pro
     forma amounts:

                                     2000       1999       1998
                                     ----       ----       ----
          Net loss, in thousands
            As reported            $(3,389)   $(6,536)   $(1,829)
            Pro Forma              $(3,563)   $(6,801)   $(2,051)

          Loss per share
            As reported            $ (1.14)   $ (2.19)   $ (0.89)
            Pro Forma              $ (1.14)   $ (2.19)   $ (0.89)

     Potentially dilutive shares are excluded from dilutive shares outstanding
     for the years ended December 30, 1998, December 29, 1999 and January 3,
     2001 because they are anti-dilutive due to the losses of the Company. The
     number of potentially dilutive shares excluded from the earnings per share
     calculation was 2,981,414, 2,988,050 and 2,053,692 for the years ended
     December 30, 1998, December 29, 1999 and January 3, 2001, respectively.
<PAGE>

     A summary of the Option Plan activity for the years ended January 3, 2001
     and December 29, 1999 and December 30, 1998 is presented in the table and
     narrative below.

<TABLE>
<CAPTION>
                                                             2000                    1999                  1998
                                                             ----                    ----                  ----
                                                     Weighted                Weighted              Weighted
                                                      Average    Exercise     Average   Exercise    Average    Exercise
                                                      Shares      Price       Shares     Price      Shares      Price
<S>                                                  <C>         <C>          <C>       <C>         <C>        <C>
Outstanding at beginning of year                      414,642    $  12.84     378,532   $  12.67    331,123    $  11.63
Granted                                               199,750    $  13.37      36,110   $  15.00     58,429    $  17.51
Exercised                                                  --    $     --          --   $     --    (11,020)   $ (11.63)
Forfeited                                            (163,141)   $ (13.02)         --   $     --         --    $     --
Expired                                                    --    $     --          --   $     --         --    $     --
                                                -----------------------------------------------------------------------
Outstanding at end of year                            451,251    $  13.01     414,642   $  12.84    378,532    $  12.67
                                                =======================================================================

Exercisable at end of year                            131,899    $  13.06      80,026   $  11.63         --    $     --

Weighted average fair value of each option granted               $   3.53               $   3.28               $   3.24
</TABLE>

     The 451,251 options outstanding at January 3, 2001 have a remaining
     weighted average contractual life of approximately five years.

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes option pricing model with the following assumptions used
     for grants in 2000: weighted average risk-free interest rates of 6.31%,
     weighted average expected lives of five years and expected volatility of
     0%. The weighted average risk-free interest rates used were 5.66% for 1999
     and 5.29% for 1998.

(13) STOCKHOLDERS' EQUITY

     In August 1997, the Company made a dividend and return of capital payout to
     shareholders of $8.31 per share from additional paid-in capital, with the
     excess payout being charged to retained earnings. In addition, the Company
     repurchased 716,429 shares of common stock at $11.63 per share. The
     Company's repurchase of shares of common stock was recorded as treasury
     stock, at cost, and resulted in a reduction of stockholders' equity
     (deficit). During 1999, the Company returned capital of $50,000 that was
     previously paid into the Company from two employees. During 2000, the
     Company repurchased 7,667 shares at $9.23 per share from a previous
     shareholder. The transaction is reflected in treasury stock on the
     accompanying statement of financial position.

(14) SUBSIDIARY GUARANTORS

     The Notes (see Note 7) are fully and unconditionally guaranteed on an
     unsecured senior basis by all of the Company's existing and future
     subsidiaries, other than those that are, or will become, parties to the
     FFCA loans or other similar secured financings (such guarantors,
     collectively, the Guarantor Subsidiaries). Those subsidiaries that are, or
     will become, parties to the FFCA loans and other similar secured financings
     are collectively known as the "Non-Guarantor Subsidiaries."

     The following are the 2000 consolidating financial statements of the
     combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries:
<PAGE>

                               NE RESTAURANT COMPANY, INC.
                    CONSOLIDATING BALANCE SHEETS AS OF JANUARY 3, 2001
                                  (Dollars in thousands)

<TABLE>
<CAPTION>
                                                               Combined              Combined
                                                               Guarantor          Non-Guarantor
                                                             Subsidiaries          Subsidiaries           Consolidated
                                                             ------------          ------------           ------------
<S>                                                            <C>                   <C>                   <C>
                          ASSETS
Current Assets:
      Cash                                                     $   7,602             $      --             $   7,602
      Credit card receivables                                        838                    --                   838
      Inventories                                                  1,885                    --                 1,885
      Prepaid expenses and other current assets                    2,617                    --                 2,617
      Assets held for sale - short term                              200                    --                   200
      Prepaid and current deferred income taxes                    5,433                    --                 5,433
                                                               ---------             ---------             ---------
              Total current assets                                18,575                    --                18,575
                                                               ---------             ---------             ---------

Property and Equipment, at cost:
      Land and land right                                          2,461                 5,397                 7,858
      Buildings and building improvements                          6,826                 5,723                12,549
      Leasehold improvements                                      52,106                31,867                83,973
      Furniture and equipment                                     31,595                18,861                50,456
                                                               ---------             ---------             ---------
                                                                  92,988                61,848               154,836
      Less - Accumulated depreciation                            (23,586)              (16,610)              (40,196)
                                                               ---------             ---------             ---------
                                                                  69,402                45,238               114,640
      Construction work in process                                 2,917                    --                 2,917
                                                               ---------             ---------             ---------
              Net property and equipment                          72,319                45,238               117,557

Goodwill, net                                                     28,404                    --                28,404
Deferred finance costs, net                                        5,996                 2,029                 8,025
Liquor licenses                                                    3,014                    --                 3,014
Deferred taxes, noncurrent                                         6,451                    --                 6,451
Other assets, net                                                  1,569                    --                 1,569
                                                               ---------             ---------             ---------
              TOTAL ASSETS                                     $ 136,328             $  47,267             $ 183,595
                                                               =========             =========             =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
      Mortgage loans payable - current portion                 $      25             $   1,516             $   1,541
      Accounts payable                                            14,510                    --                14,510
      Accrued expenses                                            18,817                    --                18,817
      Capital lease obligation- current portion                       --                    37                    37
      Intercompany Payable                                        (6,575)                6,575                    --
                                                               ---------             ---------             ---------
              Total current liabiliites                           26,777                 8,128                34,905
Mortgage loans payable, net of current portion                        --                39,737                39,737
Bonds payable, net of current portion                            100,000                    --               100,000
Deferred rent and other long-term liabilities                      4,887                    --                 4,887
                                                               ---------             ---------             ---------
              TOTAL LIABILITIES                                  131,664                47,865               179,529
Commitments and contingencies
Stockholders' Equity:
      Common stock, $.01 par value
         Authorized 4,000,000 shares
         Issued - 3,666,370 at January 3, 2001                        37                    --                    37
      Less Treasury stock of 687,415 shares at cost               (8,088)                   --                (8,088)
      Additional paid in capital                                  29,004                    --                29,004
      Accumulated deficit                                        (16,289)                 (598)              (16,887)
                                                               ---------             ---------             ---------
              TOTAL STOCKHOLDERS' EQUITY                           4,664                  (598)                4,066
                                                               ---------             ---------             ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                     $ 136,328             $  47,267             $ 183,595
                                                               =========             =========             =========
</TABLE>
<PAGE>

                           NE RESTAURANT COMPANY, INC.
    CONSOLIDATING STATEMENTS OF INCOME FOR FISCAL YEAR ENDED JANUARY 3, 2001
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                             Combined                Combined
                                                             Guarantor            Non-Guarantor
                                                           Subsidiaries            Subsidiaries            Consolidated
                                                           ------------            ------------            ------------
<S>                                                          <C>                     <C>                     <C>
Net sales                                                    $ 284,933               $      --               $ 284,933
                                                             ---------               ---------               ---------

Cost of sales and expenses
      Cost of sales                                             74,266                      --                  74,266
      Operating expenses                                       171,190                  (8,613)                162,577
      General and administrative expenses                       16,386                      --                  16,386
      Deferred rent, depreciation,
           amortization and preopening expenses                 13,380                   4,747                  18,127
      Loss on abandonment of Sal & Vinnie's                      2,031                      --                   2,031
                                                             ---------               ---------               ---------
           Total cost of sales and expenses                    277,252                  (3,865)                273,387
                                                             ---------               ---------               ---------

      Income from operations                                     7,681                   3,865                  11,546

Interest expense, net                                           11,184                   3,865                  15,050
                                                             ---------               ---------               ---------

      Loss before income tax benefit                            (3,504)                     --                  (3,504)

Benefit for income taxes                                          (115)                     --                    (115)

                                                             ---------               ---------               ---------
      Net loss                                               $  (3,389)              $      --               $  (3,389)
                                                             =========               =========               =========
</TABLE>
<PAGE>

                           NE RESTAURANT COMPANY, INC.


Schedule II: VALUATION AND QUALIFYING ACCOUNTS

For the year ended January 3, 2001

<TABLE>
<CAPTION>
         Column A                Column B                             Column C            Column D            Column E
                                                                      Additions
                                                                         (1)                (1)
Description (1)               Balance at         Charged to        Charged to other    Deductions --     Balance at end of
                              beginning of        costs and        accounts --         describe          period
                              period              expenses         describe
<S>                            <C>                <C>                <C>                <C>                 <C>
Store closing reserves 1998        $ 0               $ 0             $ 3,040,000             $0             $ 3,040,000
Store closing reserves 1999    $ 3,040,000           $ 0                 $ 0             ($758,476)         $ 2,281,524
Store closing reserves 2000    $ 2,281,524        $ 479,443              $ 0            ($1,987,182)         $ 773,785
</TABLE>

(1) As described in Note 2 to the consolidated financial statements, restaurant
closing reserves have been established as part of the Acquisition of Bertucci's.
These reserves are related to estimated future lease commitments and exit costs
to close 18 Bertucci's locations. Usage to date includes costs related to
facility closings, restaurant employee severance and legal fees associated with
the restaurant closings.