** **

**U.S. SECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

**FORM 10-Q**

**x**                              Quarterlyreport under Section 13 or 15(d) of the Securities Exchange Act of 1934. Forthe quarterly period ended October 29, 2006.

**o**                                 Transitionreport under Section 13 or 15(d) of the Securities Exchange Act of 1934.  For the transition period from                      to                      .

**Commission File Number0-18369**

**BOSTON RESTAURANT ASSOCIATES, INC.**

(ExactName of Registrant as Specified in its Charter)

| **Delaware**                                                     |   | **61-1162263**                     |
|------------------------------------------------------------------|--------|------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |   | (IRS Employer  Identification No.) |

 

**Six Kimball Lane**

**Suite 210**

**Lynnfield, Massachusetts01940**

(Address of PrincipalExecutive Offices)

**(339) 219-0466**

(Registrant’s TelephoneNumber Including area code)

**Suite 400**

**999 Broadway**

**Saugus, MA 01906**

(Former Address ifChanged since last Report)

Indicate by check whether theregistrant: (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during preceding 12 months (or forsuch 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 o.

Indicate by check whether theregistrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

| Large Accelerated Filer o |   | Accelerated  Filer o |   | Non-Accelerated  Filer x |
|--------------------------------|--------|---------------------------|--------|-------------------------------|

 

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).  Yes* *o*   *No x.

Indicate the number of sharesoutstanding of each of the registrant classes of common stock as of the latestpractical date: Common stock $0.01 par value 7,035,170 shares as of December 5,2006.

 

 

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**BOSTON RESTAURANT ASSOCIATES,INC.**

**INDEX**

 
|                               | ** ** | ** **                                                                                                                                    | ** ** | **Page** | ** ** |
|-------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| PART I - FINANCIAL STATEMENTS |       |                                                                                                                                          |       |
|                          |       |                                                                                                                                          |       |     |       |
| Item  1.                      |       | Financial  Statements                                                                                                                         |       |     |       |
|                          |       |                                                                                                                                          |       |     |       |
|                          |       | Condensed Consolidated Balance Sheets as of October  29, 2006 (unaudited) and April 30, 2006                                                  |       | 3        |       |
|                          |       |                                                                                                                                          |       |     |       |
|                          |       | Unaudited Condensed Consolidated Statements of Income  for the thirteen and twenty-six weeks ended October 29, 2006 and October 23,  2005     |       | 4        |       |
|                          |       |                                                                                                                                          |       |     |       |
|                          |       | Unaudited Condensed Consolidated Statements of Cash  Flows for the thirteen and twenty-six weeks ended October 29, 2006 and  October 23, 2005 |       | 5        |       |
|                          |       |                                                                                                                                          |       |     |       |
|                          |       | Notes to Condensed Consolidated Financial Statements                                                                                          |       | 6        |       |
|                          |       |                                                                                                                                          |       |     |       |
| Item 2.                       |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                   |       | 11       |       |
|                          |       |                                                                                                                                          |       |     |       |
| Item 3.                       |       | Quantitative and Qualitative Disclosure About Market  Risk                                                                                    |       | 24       |       |
|                          |       |                                                                                                                                          |       |     |       |
| Item 4.                       |       | Controls and Procedures                                                                                                                       |       | 24       |       |
|                          |       |                                                                                                                                          |       |
| PART II - OTHER  INFORMATION  |       | 26                                                                                                                                            |       |
|                          |       |                                                                                                                                          |       |     |       |
| Item 1.                       |       | Legal  Proceedings                                                                                                                            |       | 26       |       |
|                          |       |                                                                                                                                          |       |     |       |
| Item 1A.                      |       | Risk  Factors                                                                                                                                 |       | 26       |       |
|                          |       |                                                                                                                                          |       |     |       |
| Item 2.                       |       | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                                  |       | 28       |       |
|                          |       |                                                                                                                                          |       |     |       |
| Item 3.                       |       | Defaults Upon Senior Securities                                                                                                               |       | 28       |       |
|                          |       |                                                                                                                                          |       |     |       |
| Item 4.                       |       | Submission of Matters to a Vote of Security Holders                                                                                           |       | 29       |       |
|                          |       |                                                                                                                                          |       |     |       |
| Item 5.                       |       | Other  Information                                                                                                                            |       | 29       |       |
|                          |       |                                                                                                                                          |       |     |       |
| Item 6.                       |       | Exhibits                                                                                                                                      |       | 29       |       |
|                          |       |                                                                                                                                          |       |     |       |
|                          |       | SIGNATURES                                                                                                                                    |       | 30       |       |

 

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**PART I - FINANCIAL INFORMATION**

**ITEM 1. FINANCIALSTATEMENTS**

**BOSTONRESTAURANT ASSOCIATES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS**
| ** **                                                                                       | ** ** | **October 29,** | ** ** | **April 30,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------|------------|--------------------|------------|
| ** **                                                                                       | ** ** | **2006**             | ** ** | **2006**           | ** ** |
| ** **                                                                                       | ** ** | **(unaudited)**      | ** ** | ** **         | ** ** |
| ASSETS                                                                                           |       |                 |       |               |       |
| Current:                                                                                         |       |                 |       |               |       |
| Cash and cash  equivalents                                                                       |       | $                    | 526,659    |               | $          | 811,517 |   |
| Accounts  receivable                                                                             |       | 161,622              |       | 127,370            |       |
| Inventories                                                                                      |       | 488,479              |       | 474,167            |       |
| Prepaid expenses  and other                                                                      |       | 161,866              |       | 213,465            |       |
|                                                                                             |       |                 |       |               |       |
| Total current  assets                                                                            |       | 1,338,626            |       | 1,626,519          |       |
|                                                                                             |       |                 |       |               |       |
| Property and equipment:                                                                          |       |                 |       |               |       |
| Building                                                                                         |       | 512,500              |       | 512,500            |       |
| Leasehold  improvements                                                                          |       | 8,138,740            |       | 6,935,321          |       |
| Equipment,  furniture and fixtures                                                               |       | 5,180,572            |       | 4,700,528          |       |
|                                                                                             |       |                 |       |               |       |
|                                                                                             |       | 13,831,812           |       | 12,148,349         |       |
|                                                                                             |       |                 |       |               |       |
| Less accumulated  depreciation and amortization                                                  |       | 9,244,331            |       | 8,838,098          |       |
|                                                                                             |       |                 |       |               |       |
| Net property and  equipment                                                                      |       | 4,587,481            |       | 3,310,251          |       |
|                                                                                             |       |                 |       |               |       |
| Goodwill                                                                                         |       | 453,643              |       | 453,643            |       |
|                                                                                             |       |                 |       |               |       |
| Other assets                                                                                     |       | 1,168,185            |       | 1,000,265          |       |
|                                                                                             |       |                 |       |               |       |
| Total assets                                                                                     |       | $                    | 7,547,935  |               | $          | 6,390,678 |   |
|                                                                                             |       |                 |       |               |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                       |       |                 |       |               |       |
| Current liabilities:                                                                             |       |                 |       |               |       |
| Accounts payable                                                                                 |       | $                    | 959,086    |               | $          | 997,659 |   |
| Accrued expenses                                                                                 |       | 1,375,433            |       | 1,422,477          |       |
| Current  maturities:                                                                             |       |                 |       |               |       |
| Notes  payable-stockholder                                                                       |       | 6,896                |       | 6,736              |       |
| Long-term debt                                                                                   |       | 393,098              |       | 374,754            |       |
|                                                                                             |       |                 |       |               |       |
| Total current  liabilities                                                                       |       | 2,734,513            |       | 2,801,626          |       |
|                                                                                             |       |                 |       |               |       |
| Long-term obligations:                                                                           |       |                 |       |               |       |
| Notes  payable-stockholder, less current maturities                                              |       | 72,208               |       | 75,695             |       |
| Long-term debt,  less current maturities                                                         |       | 1,378,046            |       | 1,579,291          |       |
| Subordinated  debentures                                                                         |       | 1,450,000            |       | 1,450,000          |       |
| Deferred rent                                                                                    |       | 430,529              |       | 351,559            |       |
| Other long-term  liabilities                                                                     |       | 53,000               |       | 77,095             |       |
|                                                                                             |       |                 |       |               |       |
| Total  liabilities                                                                               |       | 6,118,296            |       | 6,335,266          |       |
|                                                                                             |       |                 |       |               |       |
| Commitments and  contingencies                                                                   |       |                 |       |               |       |
|                                                                                             |       |                 |       |               |       |
| Stockholders’ equity :                                                                      |       |                 |       |               |       |
|                                                                                             |       |                 |       |               |       |
|                                                                                             |       |                 |       |               |       |
| Preferred stock  Series A, $.01 par value, 1,176,470 shares authorized, 1,147,056 shares  issued |       | 946,278              |       | 946,278            |       |
|                                                                                             |       |                 |       |               |       |
| Preferred stock  Series B, $.01 par value, 1,953,916 shares authorized, 1,714,285 shares  issued |       | 1,190,000            |       | 0                  |       |
|                                                                                             |       |                 |       |               |       |
| Common stock,  $.01 par value, 25,000,000 shares authorized, 7,060,170 shares issued             |       | 70,602               |       | 70,602             |       |
| Additional paid  in capital - common                                                             |       | 10,960,396           |       | 10,960,396         |       |
| Accumulated  deficit                                                                             |       | (11,712,945          | )          | (11,897,172        | )          |
|                                                                                             |       |                 |       |               |       |
| Total                                                                                            |       | 1,454,331            |       | 80,104             |       |
| Less:                                                                                            |       |                 |       |               |       |
| Treasury stock,  25,000 shares at cost                                                           |       | (24,692              | )          | (24,692            | )          |
| Total  stockholders’ equity                                                                 |       | 1,429,639            |       | 55,412             |       |
|                                                                                             |       |                 |       |               |       |
| Total liabilities and  stockholders’ equity                                                 |       | $                    | 7,547,935  |               | $          | 6,390,678 |   |

 

See accompanying notes.

3

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**BOSTON RESTAURANTS ASSOCIATES, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF INCOME(unaudited)**

 
| ** **                                                     | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                                     | ** ** | **October 29,**               | ** ** | **October 23,**                 | ** ** | **October 29,** | ** ** | **October 23,** | ** ** |
| ** **                                                     | ** ** | **2006**                           | ** ** | **2005**                             | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues:                                                      |       |                               |       |                                 |       |   |   |   |   |
| Restaurant sales                                               |       | $                                  | 5,892,615  |                                 | $          | 5,755,534 |   | $ | 11,657,142 |   | $ | 11,492,376 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Total revenues                                                 |       | 5,892,615                          |       | 5,755,534                            |       | 11,657,142 |   | 11,492,376 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Costs and expenses:                                            |       |                               |       |                                 |       |   |   |   |   |
| Cost of food,  beverages and liquor                            |       | 1,087,608                          |       | 1,108,240                            |       | 2,123,303 |   | 2,214,181 |   |
| Payroll                                                        |       | 1,712,755                          |       | 1,662,945                            |       | 3,374,208 |   | 3,315,604 |   |
| Other operating  expenses                                      |       | 1,956,131                          |       | 1,943,666                            |       | 3,873,552 |   | 3,810,964 |   |
| General and  administrative                                    |       | 638,833                            |       | 571,147                              |       | 1,272,104 |   | 1,214,830 |   |
| Depreciation and  amortization                                 |       | 230,921                            |       | 231,845                              |       | 433,296 |   | 463,690 |   |
| Pre-opening  costs                                             |       | 130,623                            |       | —                               |       | 168,527 |   | — |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Total costs and  expenses                                      |       | 5,756,871                          |       | 5,517,843                            |       | 11,244,990 |   | 11,019,269 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Operating Income                                               |       | 135,744                            |       | 237,691                              |       | 412,152 |   | 473,107 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Other income                                                   |       | 1,646                              |       | 16,816                               |       | 2,969 |   | 18,769 |   |
| Interest income                                                |       | 3,809                              |       | 4,032                                |       | 9,509 |   | 6,450 |   |
| Interest expense                                               |       | (90,589                            | )          | (93,876                              | )          | (183,519 | ) | (189,605 | ) |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Income from continuing  operations                             |       | 50,610                             |       | 164,663                              |       | 241,111 |   | 308,721 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Discontinued  operations:                                      |       |                               |       |                                 |       |   |   |   |   |
| Income (Loss)  from operations                                 |       | 0                                  |       | (3,818                               | )          | 0 |   | (62,286 | ) |
| Gain (Loss) from  disposal of discontinued operations          |       | 0                                  |       | 0                                    |       | 0 |   | 132,004 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Income (Loss) from  discontinued operations                    |       | 0                                  |       | (3,818                               | )          | 0 |   | 69,718 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Net Income                                                     |       | 50,610                             |       | 160,845                              |       | 241,111 |   | 378,439 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Less: preferred  stock dividends                               |       | (36,958                            | )          | (19,281                              | )          | (56,884 | ) | (39,000 | ) |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Income available to  common shareholders                       |       | $                                  | 13,652     |                                 | $          | 141,564 |   | $ | 184,227 |   | $ | 339,439 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Income per share of  common stock (Basic):                     |       |                               |       |                                 |       |   |   |   |   |
| Continuing Operations                                          |       | $                                  | 0.00       |                                 | $          | 0.02 |   | $ | 0.03 |   | $ | 0.04 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Discontinued Operations                                        |       | $                                  | 0.00       |                                 | $          | 0.00 |   | $ | 0.00 |   | $ | 0.01 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Income available to  common shareholders                       |       | $                                  | 0.00       |                                 | $          | 0.02 |   | $ | 0.03 |   | $ | 0.05 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Income per share of  common stock (Diluted):                   |       |                               |       |                                 |       |   |   |   |   |
| Continuing Operations                                          |       | $                                  | 0.00       |                                 | $          | 0.02 |   | $ | 0.03 |   | $ | 0.04 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Discontinued Operations                                        |       | $                                  | 0.00       |                                 | $          | 0.00 |   | $ | 0.00 |   | $ | 0.01 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Income available to  common shareholders                       |       | $                                  | 0.00       |                                 | $          | 0.02 |   | $ | 0.03 |   | $ | 0.05 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Weighted  average number of common shares outstanding-basic    |       | 7,035,170                          |       | 7,035,170                            |       | 7,035,170 |   | 7,035,170 |   |
|                                                           |       |                               |       |                                 |       |   |   |   |   |
| Weighted average number  of dilutive common shares outstanding |       | 7,235,560                          |       | 7,179,751                            |       | 7,239,368 |   | 7,154,755 |   |

 

See accompanying notes.

4

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**BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**
| ** **                                            | ** ** | **Twenty-six Weeks Ended** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                            | ** ** | **October 29,**                 | ** ** | **October 23,** | ** ** |
| ** **                                            | ** ** | **2006**                             | ** ** | **2005** | ** ** |
| Net cash provided by  operating activities            |       | $                                    | 451,717    |   | $ | 534,462 |   |
|                                                  |       |                                 |       |   |   |
| Cash flows from  investing activities:                |       |                                 |       |   |   |
| Capital  expenditures                                 |       | (1,683,463                           | )          | (199,567 | ) |
| Proceeds from  sale of assets                         |       | 0                                    |       | 81,714 |   |
|                                                  |       |                                 |       |   |   |
| Net cash used for  investing activities               |       | (1,683,463                           | )          | (117,853 | ) |
|                                                  |       |                                 |       |   |   |
| Cash flows from  financing activities:                |       |                                 |       |   |   |
| Repayments of  long-term debt                         |       | (182,901                             | )          | (173,304 | ) |
| Repayments of  capital lease obligations              |       | 0                                    |       | (31,152 | ) |
| Repayments of  stockholder loans                      |       | (3,327                               | )          | (3,171 | ) |
| Proceeds from  preferred stock subscription           |       | 1,190,000                            |       | 0 |   |
| Payments of  preferred dividends                      |       | (56,884                              | )          | (39,000 | ) |
|                                                  |       |                                 |       |   |   |
| Net cash provided by  (used for) financing activities |       | 946,888                              |       | (246,627 | ) |
|                                                  |       |                                 |       |   |   |
| Net increase (decrease)  in cash and cash equivalents |       | (284,858                             | )          | 169,982 |   |
|                                                  |       |                                 |       |   |   |
| Cash and cash  equivalents at beginning of period     |       | 811,517                              |       | 687,207 |   |
|                                                  |       |                                 |       |   |   |
| Cash and cash  equivalents at end of period           |       | $                                    | 526,659    |   | $ | 857,189 |   |

 

See accompanying notes.

5

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**BOSTONRESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES****NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

## **OCTOBER 29, 2006**

## **(unaudited)**

**1.  NATURE OF BUSINESS AND BASIS OF PRESENTATION**

The accompanying unauditedcondensed consolidated financial statements have been prepared in accordancewith generally accepted accounting principles for interim financial informationand with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included.  Operating results for the thirteen-weekperiod and twenty-six week period ended October 29, 2006 are not necessarilyindicative of the results that may be expected for the year ending April 29,2007.  For further information, refer tothe consolidated financial statements and footnotes thereto included in theCompany’s annual report on Form 10-K for the year ended April 30, 2006.  The balance sheet at April 30, 2006 has beenderived from the audited financial statements at that date.

The accompanying statementsof operations and cash flows for the fiscal 2007 period reflect theconsolidated operations and cash flow of three casual dining Italianrestaurants and, thirteen Pizzeria Regina restaurants for the entire period andone Pizzeria Regina for part of the period. For the fiscal 2006 period there werethree casual dining Italian restaurants and thirteen Pizzeria Reginarestaurants for the entire period.

In fiscal 2006, theCompany completed the asset sale of Polcari’s of Cambridge, Inc. on July 22,2005.  The accompanying financialstatements reflect Polcari’s of Cambridge, Inc. as discontinued operations.

**2.  NET INCOME (LOSS) PER SHARE**

TheCompany follows Statement of Financial Accounting Standards No. 128, “Earningsper Share” (“SFAS 128”).

The following is areconciliation of the denominator (number of shares) used in the computation ofearnings per share.  The numerator, netincome (loss), is the same for the basic and diluted computations.

6

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| ** **                     | ** ** | **Thirteen weeks ended** | ** ** | **Twenty-six weeks ended** | ** ** |
|--------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                     | ** ** | **October 29,  2006**         | ** ** | **October 23,  2005**           | ** ** | **October 29,  2006** | ** ** | **October 23,  2005** | ** ** |
| Basic Shares                   |       | 7,035,170                          |       | 7,035,170                            |       | 7,035,170 |   | 7,035,170 |   |
| Effect of Dilutive Securities: |       |                               |       |                                 |       |   |   |   |   |
| Options                        |       | 200,390                            |       | 144,581                              |       | 204,198 |   | 119,585 |   |
| Diluted  Shares                |       | 7,235,560                          |       | 7,179,751                            |       | 7,239,368 |   | 7,154,755 |   |

 

Thefollowing table summarizes securities that were outstanding as of October 29,2006 and October 23, 2005, but not included in the calculation of net incomeper share available to common shareholders because such securities areanti-dilutive:
| ** **                              | ** ** | **Thirteen weeks ended** | ** ** | **Twenty-six weeks ended** | ** ** |
|-----------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                              | ** ** | **October 29,  2006**         | ** ** | **October 23,  2005**           | ** ** | **October 29,  2006** | ** ** | **October 23,  2005** | ** ** |
| Options                                 |       | 630,000                            |       | 829,800                              |       | 630,000 |   | 829,800 |   |
| Warrants                                |       | 525,000                            |       | 601,000                              |       | 525,000 |   | 601,000 |   |
| Convertible  Debentures                 |       | 1,160,000                          |       | 1,160,000                            |       | 1,160,000 |   | 1,160,000 |   |
| Convertible Preferred  Stock (Series A) |       | 1,147,056                          |       | 1,147,056                            |       | 1,147,056 |   | 1,147,056 |   |
| Convertible Preferred  Stock (Series B) |       | 1,714,285                          |       | —                               |       | 1,714,285 |   | — |   |

 

7

----

 

**3. RECENT ACCOUNTINGPRONOUNCEMENTS**

OnMay 1, 2006 the Company adopted FAS 123R SFAS No. 123R supersedes APB OpinionNo. 25, Accounting for Stock Issued to Employees, and amends Statement No. 95,Statement of Cash Flows. Under SFAS No. 123R, companies must calculate andrecord in the income statement the cost of equity instruments, such as stockoptions, awarded to employees for services received. The cost of the equityinstruments is to be measured based on the fair value of the instruments on thedate they are granted and is required to be recognized over the period duringwhich the employees are required to provide services in exchange for the equityinstruments.

Theadoption of SFAS No. 123R had no impact on the Company’s financial statementsas all stock options awarded to employees were fully vested prior to May 1,2006.

In  fiscal 2006 the Company accounted for stockoptions using the intrinsic value method in accordance with AccountingPrinciples Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB25”) and related interpretations. Accordingly, the Company had recognized no compensation cost for itsstock option plans.  The Company followedthe disclosure provisions of Statement of Financial Accounting Standards No.123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation,” and SFAS No.148, “Accounting for Stock-Based Compensation - Transition and Disclosure” (“SFASNo. 148”),  which require the disclosureof the effects of fair value accounting on earnings and earnings per share ofcommon stock on a pro forma basis.

 Had compensation cost for the Company’s stockoptions been determined based upon the fair value at the grant date for awardsunder the plans consistent with the methodology prescribed under SFAS No. 123,the Company’s net income (loss) would have been adjusted to the pro formaamounts indicated below along with the additional disclosures required by SFASNo. 148 as follows:

8

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| ** **                                                                            | ** ** | **Thirteen Weeks Ended  October 23, 2005** | ** ** | **Twenty-Six Weeks Ended  October 23, 2005** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| * *                                                                              | * *   | * *                                                       | * *   | * *                                                    | * *   |
| Net income as  reported                                                               |       | $                                                              | 160,845    |                                                        | $          | 378,439 |   |
| Less: dividends                                                                       |       | (19,281                                                        | )          | (39,000                                                     | )          |
| Net income available  to common stockholders as reported                              |       | 141,564                                                        |       | 339,439                                                     |       |
| Add:                                                                                  |       |                                                           |       |                                                        |       |
| Stock-based employee compensation expense included  inreported net income, net of tax |       | —                                                         |       | —                                                      |       |
| Deduct:                                                                               |       |                                                           |       |                                                        |       |
| Total stock-based Compensation expense determined  under fair value based method      |       | —                                                         |       | (3,709                                                      | )          |
|                                                                                  |       |                                                           |       |                                                        |       |
| Net income-pro  forma                                                                 |       | $                                                              | 141,564    |                                                        | $          | 335,730 |   |
|                                                                                  |       |                                                           |       |                                                        |       |
| Basic and  diluted earnings per share:                                                |       |                                                           |       |                                                        |       |
| As reported                                                                           |       | $                                                              | .02        |                                                        | $          | .05 |   |
| Pro forma                                                                             |       | $                                                              | .02        |                                                        | $          | .05 |   |

 

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**4.  MERGER AGREEMENT**

OnMarch 17, 2006, the Company entered into an Agreement and Plan of Merger (the “MergerAgreement”) by and among the Company, Dolphin Direct Equity Partners, LP (“Dolphin”)and Braidol Acquisition Corp., (“Braidol”) a wholly-owned subsidiary ofDolphin, which was amended on August 15, 2006 and November 3, 2006, wherebyBraidol will merge (the “Merger”) with and into the Company with the Companysurviving the Merger. Under the terms of the Merger Agreement, the commonstockholders of the Company, would be entitled to receive an amount equal to$0.70, without interest, per share of common stock and the holders of theCompany’s Series B preferred stock will receive $.70 per share plus accrued andunpaid dividends for such stock as set forth in the certificate of designation.Under the terms of the Merger Agreement, the Series A preferred stockholders ofthe Company would be entitled to receive a liquidation preference of $0.85 pershare ($974,998) plus accrued and unpaid dividends as set forth in thecertificate of designation for the Series A preferred stock, without interest,as well as the product of the number of shares of common stock that such sharesof preferred stock are convertible into immediately prior to the merger and$.70, without interest. The consummation of the Merger is subject to customaryclosing conditions, including the approval of the stockholders of the Company.In addition, the consummation of the Merger is subject to the condition thatcertain transaction costs incurred by the Company not exceed $650,000.  The Company has capitalized certain of thesecosts as deferred merger costs at October 29, 2006.  If the merger does not close, the capitalizedcosts would be changed to operations.  Inany event the Company is required pay certain of Dolphin’s expenses undercertain circumstances if the merger is not completed.  The Company is required to pay a terminationfee of up to $225,000 less any expenses it has paid for the benefit of Dolphinand its affiliates.  The proxy was filedon November 8, 2006.  The meeting ofshareholders is currently scheduled for December 13, 2006.

**5.  UNREGISTERD SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

### OnJuly 12, 2006, we entered into an agreement whereby at our option, subject tosatisfaction of certain terms and conditions, Dolphin Direct Equity Partners,LP (“Dolphin”) and other qualified investors would purchase up to 1,411,764shares of Series A Participating Preferred Stock $.01 par value per share inone or more private transactions and in such amounts as we request.  On August 15, 2006 in consideration of theamendment of the merger agreement to extend the termination date of thatagreement and increase the expenses we may incur in connection therewith, weamended and restated that agreement to provide for the sale and issuance ofSeries B Preferred Stock, $0.01 par value per share instead of Series AParticipating Preferred Stock.  Eachshare of Series B Preferred Stock may be converted at any time at the optionholder of such share into one share of our common stock, $.01 par value pershare and is entitled to one vote.  Theinvestors will pay $0.70 per share of Series B Preferred Stock, for aggregategross proceeds of up to $1,200,000.  Theprice per share of Series B Preferred Stock is less than the original price pershare of $0.85 for the Series A Participating Preferred Stock.  However, unlike the Series A ParticipatingPreferred Stock, the Series B Preferred

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###  

### Stockis not entitled to receive a cash liquidation payment in addition toparticipating on an as converted to common stock basis in the proceeds for anacquisition of the Company.  As of thedate of this report, we have requested two draw downs of $600,000 each.  As of the date of this report, Dolphin hasprovided $1,200,000 for the purchase of 1,714,285 shares of Series B PreferredStock in satisfaction of the draw downs. Mr. Salas, a principal of Dolphin Equity Partners, LP is a member of theCompany’s board of directors.

### Weagreed pursuant to a rights agreement between the Company and the investors to(i) use best efforts to register the resale of the shares of Common stockissuable upon the conversion of the shares of Series B Preferred Stock upondemand of a sufficient number of the holders of the Series B Preferred Stockand (ii) include such shares of Common Stock in any registration statement forthe benefit of the Company or any third party upon request of a sufficientnumber of the holders of the Series B Preferred Stock.

### Wehave sold and will sell the shares of Series B Preferred Stock pursuant tocertain exemptions from registration provided by Rule 506 of Regulation D andSection 4(2) of the Securities Act of 1933, as amended.

### Asof the date of this report the net proceeds of $1,190,000 provided by Dolphinfor the purchase of 1,714,285 shares of Series B Preferred Stock is reported asstockholder’s equity on****the balancesheet.

### **6.  CONSTRUCTION OF A NEW LOCATION**

### TheCompany has completed the construction of a new Pizzeria Regina in Medford,Massachusetts.  As of October 29, 2006the Company had capital expenditures in the approximate amount of $1,600,000for this new restaurant.

**ITEM 2.      Management’s Discussion and Analysisof Financial Condition and Results of****Operations**

### **RESULTS OF OPERATIONS**

OnMarch 17, 2006, the Company entered into an Agreement and Plan of Merger (the “MergerAgreement”) by and among the Company, Dolphin Direct Equity Partners, LP (“Dolphin”)and Braidol Acquisition Corp., (“Braidol”) a wholly-owned subsidiary ofDolphin, which was amended on August 15, 2006 and November 3, 2006, wherebyBraidol will merge (the “Merger”) with and into the Company with the Companysurviving the Merger. Under the terms of the Merger Agreement, the commonstockholders of the Company, would be entitled to receive an amount equal to$0.70, without interest, per share of common stock and the holders of theCompany’s Series B preferred stock will receive $.70 per share plus accrued andunpaid dividends for such stock as set forth in the certificate of designation.Under the terms of the Merger Agreement, the Series A preferred stockholders ofthe Company would be entitled to receive a liquidation preference of $0.85 pershare ($974,998) plus accrued and unpaid dividends as set forth in thecertificate of designation for the Series A preferred stock,

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withoutinterest, as well as the product of the number of shares of common stock thatsuch shares of preferred stock are convertible into immediately prior to themerger and $.70, without interest. The consummation of the Merger is subject tocustomary closing conditions, including the approval of the stockholders of theCompany. In addition, the consummation of the Merger is subject to thecondition that certain transaction costs incurred by the Company not exceed $650,000.  The Company has capitalized certain of thesecosts as deferred merger costs at October 29, 2006.

Inany event, the Company is required to pay certain of Dolphin’s expenses.  Under certain circumstance, if the Merger isnot completed, the Company is required to pay a termination fee of up to$325,000, less any expenses it has paid for the benefit of Dolphin and itsaffiliates.  As of the date hereof,Dolphin and its affiliate Dolphin Offshore Partners, L.P. hold a 50.7%beneficial interest in the Company’s common stock.  Peter Salas, a member of the Company’s Boardof Directors, is President of Dolphin Asset Management Corp. an affiliate ofDolphin, and its related companies.

Ifthe Merger is successfully completed, the Company will operate as a privatecompany with no SEC reporting obligations. Currently the stockholder meeting is scheduled for December 13, 2006.

In fiscal 2006, theCompany completed the sale of Polcari’s of Cambridge, Inc.  The accompanying financial statements reflectPolcari’s of Cambridge, Inc. as discontinued operations.

The Company’s restaurant sales in the most recentquarter were $5,893,000 compared to sales of $5,756,000 in the second quarterof fiscal 2006, an increase of 2.4%.  TheCompany believes that the increase in revenue is primarily attributable to anincrease in traffic at our mall location. The Company had income for the second quarter of fiscal 2007 of $51,000,compared to net income of $161,000 for the same quarter in fiscal 2006.  This decrease in income is attributable topre-opening costs associated with the new Pizzeria Regina in Medford,Massachusetts.  The key factors that affect our operatingresults are the impact of new store openings, comparable restaurant sales,which are driven by customer counts and check average, and our ability tomanage operating expenses such as food cost, labor and benefits and othercosts.  Changes in the number ofrestaurants in operation can increase or decrease total Company revenues and expenses,and the build out and opening of new stores can affect operating profits.  Each restaurant unit’s contribution marginwill vary over the life of the restaurant. Margins tend to be low when a restaurant is first opened until customertraffic reaches planned levels.  Marginscan also deteriorate at the end of a unit’s life cycle due to a decline incustomer traffic caused by a variety of factors outside the control of theCompany.  These economic conditionsimpact both the Pizzeria Regina units and the Polcari’s North End units.

In the fiscal 2007 period,there were 16 units in operation for the entire period and one for part of theperiod.  In the fiscal 2006 period therewere 16 units in operation for the entire period.  The following table sets forth all revenues,costs and expenses as a percentage for the periods indicated for revenue andexpense items included in the consolidated statements of operations:

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| ** **                                                        | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six weeks Ended** | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                                        | ** ** | **October 29,  2006**         | ** ** | **October 23,  2005**           | ** ** | **October 29,   2006** | ** ** | **October 23,  2005** | ** ** |
| (1)                                                               |       |                               |       |                                 |       |   |   |   |   |
| Revenues:                                                         |       |                               |       |                                 |       |   |   |   |   |
| Restaurant sales                                                  |       | 100                                | %          | 100                                  | %          | 100 | % | 100 | % |
| Other                                                             |       |                               |       | —                               |       |   |   | — |   |
|                                                              |       |                               |       |                                 |       |   |   |   |   |
| Total revenues                                                    |       |                               | %          | 100                                  | %          |   | % | 100 | % |
|                                                              |       |                               |       |                                 |       |   |   |   |   |
| Costs and  expenses:                                              |       |                               |       |                                 |       |   |   |   |   |
| Cost of food, beverages and liquor                                |       | 18.5                               |       | 19.3                                 |       | 18.2 |   | 19.3 |   |
| Other operating expenses-payroll                                  |       | 29.0                               |       | 28.9                                 |       | 29.0 |   | 28.8 |   |
| Other operating expenses exclusive of payroll                     |       | 33.2                               |       | 33.8                                 |       | 33.2 |   | 33.2 |   |
| General and administrative                                        |       | 10.9                               |       | 9.9                                  |       | 10.9 |   | 10.6 |   |
| Depreciation and amortization                                     |       | 3.9                                |       | 4.0                                  |       | 3.7 |   | 4.0 |   |
| Pre-opening costs                                                 |       | 2.2                                |       | —                               |       | 1.5 |   | — |   |
| Operating income                                                  |       | 2.3                                |       | 4.1                                  |       | 3.5 |   | 4.1 |   |
| Interest  expense, net                                            |       | (1.5                               | )          | (1.5                                 | )          | (1.5 | ) | (1.6 | ) |
| Other income                                                      |       | —                             |       | .3                                   |       | — |   | .2 |   |
| Income from  continuing operations before discontinued operations |       | .8                                 |       | 2.9                                  |       | 2.0 |   | 2.7 |   |
| Income from  discontinued operations                              |       | —                             |       | (.1                                  | )          | — |   | .6 |   |
| Net income                                                        |       | .8                                 | %          | 2.8                                  | %          | 2.0 | % | 3.3 | % |

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(1)  The sale of Polcari’s of Cambridge, Inc. wascompleted on July 22, 2005.  Thefinancial statements included with this report reflect Polcari’s of Cambridge,Inc., as discontinued operations.

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**Thirteen Weeks Ended October 29,2006 as Compared to Thirteen Weeks ended October 23, 2005****.**

Restaurant sales in the mostrecent quarter were $5,893,000 compared to restaurant sales in the prior year’speriod of $5,756,000.  The Companybelieves that the increase in revenue was primarily attributable to an increasein mall sales.  Sales volume for therestaurants open throughout both fiscal 2007 and 2006 increased by 1.6%.

Net sales at the Company’sPizzeria Regina restaurants increased to $3,710,000 in the current period from$3,613,000 in the prior year’s period. This increase in sales was attributable to an increase in mall trafficand to the opening of the new Pizzeria Regina in Medford, Massachusetts onOctober 26, 2006.  Same store salesincreased by 1.5%.

Net sales at the Company’sfull service casual dining restaurants increased to $2,162,000 in the currentperiod from $2,121,000 in the prior year’s period. This increase in sales wasprimarily attributable to increased sales at the newly renovated Polcari’s inSaugus, Massachusetts, partially offset by a decrease in sales at the Polcari’sbistro restaurant in Salem, New Hampshire. Same store sales increased 1.9% for the current period.

Net sales to third partiesat the Company’s commissary were $21,000 in the current period compared to$22,000 in the prior year’s period.

**Costs and Expenses**

Cost of Food, Beverages and Liquor.

The cost of food, beveragesand liquor as a percentage of total revenues for all restaurants was 18% in thefiscal 2007 period compared to 19% in the fiscal 2006 period.  The decrease as a percentage of totalrevenues was primarily attributable to a decrease in cheese costs and costsfrom suppliers in general.

The cost of food, beveragesand liquor was $1,088,000 in the current period compared to $1,108,000 in theprior year’s period. The dollar decrease was due in part to a decrease incheese costs.

The cost of food, beveragesand liquor as a percentage of restaurant sales at the Pizzeria Reginarestaurants was 15% in the fiscal 2007 period compared to 16% in the fiscal2006 period.  The decrease as apercentage of restaurant sales was primarily due to a decrease in cheese costs.

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The cost of food, beveragesand liquor at Pizzeria Regina restaurants was $560,000 in the current periodcompared to $571,000 in the prior year’s period. The dollar decrease wasprimarily due to reduced cheese costs.

The cost of food, beveragesand liquor as a percentage of restaurant sales at the Company’s full servicecasual dining restaurants was 24% in the fiscal 2007 period compared to 25% inthe fiscal 2006 period. The decrease as a percentage of restaurant sales wasprincipally due to decreases in costs from suppliers in general.

The cost of food, beveragesand liquor at the Company’s full service casual dining restaurants was $528,000in the current period compared to $537,000 in the prior year’s period.  The dollar decrease was primarily due todecreases in costs from suppliers in general.

# **Other Operating Expenses**

PayrollExpenses.

Payroll expenses as a percentage of totalrevenues for all restaurants were 29% in both the fiscal 2007 and the fiscal2006 periods.

Payroll expenses were$1,713,000 in the current period, compared to $1,663,000 in the prior year’speriod.  The dollar increase in payroll expenseswas primarily due to the opening of the new Pizzeria Regina in Medford,Massachusetts.

Payroll expenses at thePizzeria Regina restaurants were 24% of restaurant sales in both the currentand the prior year’s period.

Payroll expenses of thePizzeria Regina restaurants were $903,000 in the current period compared to$863,000 in the prior year’s period. This dollar increase was primarily due to the opening of the newPizzeria Regina in Medford, Massachusetts.

Payroll expenses at theCompany’s full service casual dining restaurants were 32% of restaurant salesin both the current and prior year’s period.

Payroll expenses at theCompany’s full service casual dining restaurants were $695,000 in the currentperiod compared to $685,000 in the prior year’s period.  This dollar increase was primarily due tocosts associated with increased sales.

Payroll expenses at theCompany’s Commissary were $115,000 in both the fiscal 2007 and the fiscal 2006periods.

Other Operating Expenses, Exclusive of Payroll.

Other operatingexpenses exclusive of payroll were 33% of total revenues in the fiscal 2007period compared to 34% in the fiscal 2006 period.   The decrease as a percentage of totalrevenues was primarily attributable to the elimination of legal costs associated with the Pizzeria Reginaat Burlington Mall, Burlington, Massachusetts relating to the renegotiation ofthe lease in fiscal 2006.

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Other operating expenses,exclusive of payroll, were $1,956,000 in the current period compared to$1,944,000 in the prior year’s period. The increase in operating expenses,exclusive of payroll, was primarily attributable to an increase in advertisingcosts, maintenance costs and higher energy costs at the Company’s full servicecasual dining restaurants, which was partially offset by the elimination oflegal costs associated with the Pizzeria Regina at Burlington Mall, Burlington,Massachusetts relating to the renegotiation of the lease in fiscal 2006.

Other operating expensesexclusive of payroll, for the Pizzeria Regina restaurants as a percentage ofrestaurant sales were 34% in the current period compared to 35% in the prioryear’s period.   The decrease as apercentage of restaurant sales was primarily due to the elimination of legalcosts associated with Pizzeria Regina at the Burlington Mall, Burlington,Massachusetts in fiscal 2006.

Other operating expenses,exclusive of payroll, from the Pizzeria Regina restaurants were $1,251,000 inthe current period, compared to $1,271,000 in the prior year’s period.  This dollar decrease is primarily due to theelimination of legal costs associated with the Pizzeria Regina at theBurlington Mall, Burlington, Massachusetts in fiscal 2006.

Other operating expensesexclusive of payroll, for the Company’s full service casual dining restaurantsas a percentage of restaurant sales were 31% in the current period compared to30% in the prior years period.  Theincrease as a percentage of restaurant sales was primarily attributable tohigher advertising costs, maintenance costs, and higher energy costs.

Other operating expenses,exclusive of payroll, for the Company’s full service casual dining restaurantswere $676,000 in the current period compared to $642,000 in the prior year’speriod. The dollar increase was primarily attributable to higher advertisingcosts, maintenance costs and energy costs.

Other operating expensesalso include commissary expenses, which were $29,000 for the fiscal 2007 periodas compared to $31,000 in the fiscal 2006 period.

General and Administrative Expenses.

General and administrativeexpenses were 11% of total revenues in the fiscal 2007 period to 10% in thefiscal 2006 period.  The increase as apercentage of total revenues was attributable to higher legal costs andmanagement trainees.

General and administrativeexpenses were $639,000 in the current period compared to $571,000 in the prioryear’s period.  The dollar increase wasprimarily attributable to higher legal costs and management trainees.

Depreciation and Amortization Expenses.

Depreciation andamortization expenses were 4% of total revenues in both fiscal 2007 and fiscal2006 periods.

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Depreciation andamortization expense was $231,000 in the current period compared to $232,000 inthe prior year’s period.

Pre-Opening Costs.

Pre-opening costs consistingprimarily of labor, rent and training materials for the current period were$131,000 compared to $0 in the prior year’s period.   Pre-Opening costs were attributable to a newPizzeria Regina which was opened in Medford, Massachusetts on October 26, 2006.

**Other Income**

Other income was $2,000 inthe current fiscal period compared to $17,000 in the prior year’s fiscalperiod.  The decrease in other income wasprimarily due to a business interruption insurance reimbursement for thePizzeria Regina restaurant in Paramus, New Jersey which occurred in fiscal2006.

**Interest Expense and InterestIncome**

Interest expense was $91,000in the current period as compared to $94,000 in the prior year’s period.

Interest income was $4,000in both the current and prior year’s period.

**Discontinued Operations**

In the fiscal 2006period, the sale of Polcari’s of Cambridge, Inc. was completed on July 22,2005.

The loss fromdiscontinued operations was $0 in the fiscal 2007 period compared to a loss of$4,000 in fiscal 2006 period. In the fiscal 2006 period the loss fromdiscontinued operations represents operating losses from the Polcari’s NorthEnd restaurant in Cambridge, Massachusetts.

**Twenty-six weeks Ended October29, 2006**

Restaurant sales for thetwenty-six weeks ended October 29, 2006 were $11,657,000 compared to restaurantsales in the prior year’s period of $11,492,000.  The increase in revenue was primarilyattributable to an increase in mall consumer spending.  Sales volume for the restaurants openthroughout both fiscal 2007 and 2006 periods increased by 1.1%

Net sales at the Company’sPizzeria Regina restaurants increased to $7,299,000 in the current twenty- sixweek period from $7,102,000 in the prior year’s period.  The increase in restaurant sales wasprincipally due to the increase in mall traffic and to the opening of a newPizzeria Regina in Medford, Massachusetts on October 26, 2006.  The same store sales for the Pizzeria Reginarestaurants increased 2.2% in the current period.

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Net sales at the Company’sfull service casual dining restaurants decreased to $4,302,000 in thetwenty-six week current period from $4,355,000 in the prior year’s period.  This decrease was primarily attributable to adecrease in discretionary spending.  Thesame store sales for the full service casual dining restaurants decreased 1.2%in the current period.

Net sales at the Company’scommissary were $56,000 in the current period compared to $35,000 in the prioryear’s period.  This increase was due tosales to a licensee.

# **Costs and Expenses**

Cost of Food, Beverages and Liquor.

The cost of food, beverages and liquor as apercentage of total revenues for all restaurants was 18% in the current periodcompared to 19% in the prior year’s period. The decrease as a percentage of total revenues was primarilyattributable to a decrease in cheese costs and costs from suppliers in general.

The cost of food, beveragesand liquor was $2,123,000 in the current twenty-six week period compared to$2,214,000 in the prior year’s period. The dollar decrease was due in part to adecrease in cheese costs and costs from suppliers in general.

The cost of food, beveragesand liquor as a percentage of restaurant sales at the Pizzeria Reginarestaurants was 15% in the fiscal 2007 period compared to 16% in the fiscal2006 period.  The decrease as apercentage of restaurant sales was principally due to a decrease in cheesecosts.

The cost of food, beveragesand liquor at Pizzeria Regina restaurants was $1,090,000 in the current periodcompared to $1,121,000 in the prior year’s period.  The dollar decrease was due to a decrease incheese costs.

The cost of food, beveragesand liquor as a percentage of restaurant sales at the Company’s full servicecasual dining restaurants was 24% in the current period compared to 25% in theprior year’s period.  The decrease as apercentage of restaurant sales was principally due to decreases in costs fromsuppliers in general.

The cost of food, beveragesand liquor at the Company’s full service casual dining restaurants was$1,033,000 in the current twenty-six week period compared to $1,093,000 in theprior year’s period.  The dollar decreasewas primarily due to decreases in costs from suppliers in general.

# **Other Operating Expenses**

Payroll Expenses.

Payroll expenses as a percentage of the totalrevenues for all restaurants were 29% in both fiscal 2007 and fiscal 2006periods.

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Payroll expenses were$3,374,000 in the current period, compared to $3,316,000 in the prior year’stwenty-six week period.  The dollarincrease in payroll expenses was primarily due to the opening of the newPizzeria Regina in Medford, Massachusetts.

Payroll expenses at thePizzeria Regina restaurants were 24% of restaurant sales in both the currentand in the prior year’s period.

Payroll expenses of thePizzeria Regina restaurants were $1,761,000 in the current twenty-six weekperiod compared to $1,727,000 in the prior year’s period.  This dollar increase was primarily due to theopening of the new Pizzeria Regina in Medford, Massachusetts.

Payroll expenses as apercentage of restaurant sales at the Company’s full service casual diningrestaurants were 32% of restaurant sales in both the current and the prior year’speriod.

Payroll expenses at theCompany’s full service casual dining restaurants were $1,392,000 in the currenttwenty-six week period compared to $1,373,000 in the prior year’s period.  This dollar increase was primarily due tohigher employee incentive costs.

Payroll expenses at theCompany’s Commissary were $221,000 for the fiscal 2007 period as compared to $216,000in the fiscal 2006 period.

Other Operating Expenses, Exclusive of Payroll.

Other operating expenses, exclusive of payroll,were 33% of total revenues in both the fiscal 2007 and fiscal 2006 periods.

Other operating expenses,exclusive of payroll, were $3,874,000 in the current twenty-six week periodcompared to $3,811,000 in the prior year’s period. The increase in operatingexpenses, exclusive of payroll, as a percentage of total revenues was primarilydue to an increase in advertising costs,maintenance costs, and higher energycosts at the Company’s full service casual dining restaurants, partially offsetby the elimination of legal costs associated with the Pizzeria Regina at theBurlington Mall, Burlington, Massachusetts in fiscal 2006.

Other operating expenses,exclusive of payroll, for the Pizzeria Regina restaurants as a percentage ofrestaurant sales were 34% in the current period compared to 35% in the prioryear’s period.  The decrease as apercentage of sales was primarily attributable to the elimination of legalcosts associated with the Pizzeria Regina at the Burlington Mall, Burlington,Massachusetts in fiscal 2006.

Other operating expenses,exclusive of payroll, from the Pizzeria Regina restaurants were $2,456,000 inthe current twenty-six week period, compared to $2,473,000 in the prior year’speriod.  This dollar decrease isprimarily due to the elimination of legal costs associated with the PizzeriaRegina at the Burlington Mall in fiscal 2006.

Other operating expenses,exclusive of payroll, for the Company’s full service casual dining restaurantsas a percentage of restaurant sales were 32% in the current fiscal periodcompared to 29% in the prior year’s period. The increase as a percentage of

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sales was primarilyattributable to higher advertising costs, maintenance costs, and energy costs.

Other operating expenses,exclusive of payroll, for the Company’s full service casual dining restaurantswere $1,357,000 in the current twenty-six week period compared to $1,272,000 inthe prior year’s period.  The dollarincrease was primarily due to higher advertising costs, maintenance costs, andenergy costs.

Other operating expensesalso include commissary expenses, which were $61,000 in the fiscal 2007 periodcompared to $66,000 in the fiscal 2006 period.

Generaland Administrative Expenses.

Generaland Administrative expenses were 11% of total revenues in both the fiscal 2007period and the fiscal 2006 period.

General and administrativeexpenses were $1,272,000 in the current period, compared to $1,215,000 in theprior year’s period.  The dollar increasewas primarily attributable to higher legal costs and manager trainees.

Depreciation and Amortization Expenses.

Depreciation andamortization expense were 4% of total revenues in the both fiscal 2007 andfiscal 2006 periods.

Depreciation andamortization expense was $433,000 in the current period, compared to $464,000in the prior year’s period. This decrease was due to the impairment charge ofthe Polcari’s bistro restaurant in Salem, New Hampshire that was taken in thefourth quarter of fiscal 2006 which reduced the carrying value of the assets.

Pre-Opening Costs.

Pre-opening costs for thecurrent period were $169,000 in the fiscal 2007 period compared to $0 in thefiscal 2006 period.  These costs whichconsist of labor, rent and training materials are attributable to the openingof the new Pizzeria Regina restaurant in Medford, Massachusetts on October 26,2006

**Other Income**

Other income was $3,000 inthe current period compared to $19,000 in the prior year’s period.  The decrease was primarily due to aninsurance reimbursement for the Pizzeria Regina restaurant in Paramus, NewJersey which occurred in fiscal 2006.

**Interest Expense and InterestIncome**

Interest expense was$184,000 in the current period as compared to $190,000 in the prior year’speriod.

Interest income was $10,000in the current period compared to $6,000 in the prior year’s period.

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**DiscontinuedOperations**

In the fiscal 2006period, the sale of Polcari’s of Cambridge, Inc. was completed on July 22,2005.  The Company’s financial resultsreflect Polcari’s of Cambridge, Inc. as discontinued operations.

The income fromdiscontinued operations was $0 in the fiscal 2007 period compared to $70,000 infiscal 2006 period. In the fiscal 2006 period the income from discontinuedoperations represents operating losses from the Polcari’s North End restaurantin Cambridge, Massachusetts and a gain of $132,000 from the disposal of certainassets of the Polcari’s North End Restaurant in Cambridge, Massachusetts.

### **LIQUIDITY AND CAPITAL RESOURCES**

AtOctober 29, 2006, the Company had negative net working capital of $1,396,000 compared to negative net working capital of$1,175,000 at April 30, 2006.  It iscommon for companies in the restaurant industry to operate with net workingcapital deficits.  We are able to operatewith a substantial working capital deficit because (1) restaurantoperations and most food service operations are conducted primarily on a cash(and cash equivalent) basis with a low level of accounts receivable,(2) rapid turnover allows a limited investment in inventories, and(3) accounts payable for food, beverages and supplies usually become dueafter the receipt of cash from the related sales. During the twenty-six weeksended October 29, 2006, the Company had a net decrease in cash and cashequivalents of  $285,000, reflecting netcash provided by  operating activities of$452,000, net cash used for investing activities of $1,683,000 and net cashprovided by financing activities of $946,000.

Net cash provided byoperating activities included income of $241,000, a decrease in prepaidexpenses of $52,000, and increase in deferred rent of $79,000, and depreciationand amortization expense of $433,000 which were partially offset by a decreasein accounts payable of $39,000, a decrease in other long-term liabilities of$24,000 and a decrease in accrued expenses of $47,000 and an increase in otherassets of $195,000, an increase in inventories of $14,000, and an increase inaccounts receivables of $34,000.  Netcash used for investing activities includes capital expenditures of $1,683,000related to the new Pizzeria Regina restaurant in Medford, Massachusetts,Polcari’s North End restaurant and various Pizzeria Regina restaurants.  Net cash provided by financing activities of$946,000 consisted of net proceeds from preferred stock subscriptions of$1,190,000 offset by repayments of long term debt, lease obligations, andpayments of preferred dividends.

AtOctober 29, 2006, the Company had current liabilities of $2,735,000, including$959,000 of accounts payable, $1,376,000 of accrued liabilities, currentmaturities of long term obligations in the amount of $400,000.  At October 29, 2006, the Company hadlong-term obligations, less current maturities, in the amount of $3,384,000including,  $1,378,000 due under itscredit facility with Commerce Bank and Trust Company, $72,000 of notes payableto a stockholder, $1,450,000 of convertible subordinated debentures, $431,000of deferred rent, and $53,000 of other long-term liabilities.

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On April 21, 2005 theCompany refinanced its debt with Commerce Bank and Trust Company and a new$2,300,000 Credit Facility was established. This Credit Facility consists of a $1,500,000 4 year term note bearinginterest at the bank base rate plus 2% and an $800,000 mortgage in favor ofCommerce bank and Trust Company at a fixed rate of 7%.  The mortgage has a twenty year amortizationschedule with a complete payment of principal due at the end of fiveyears.  All borrowing under the CreditFacility are collateralized by substantially all of the assets of the Companyand are subject to various financial covenants. At October 29, 2006 the Company was in compliance with all financialcovenants.

### On July 12, 2006, weentered in to an agreement (the “Series A Agreement”) whereby at our option,subject to satisfaction of certain terms and conditions, Dolphin Direct EquityPartners, LP (“Dolphin”) and other qualified investors would purchase up to1,411,764 shares of Series A Participating Preferred Stock $.01 par value pershare in one or more private transactions and in such amounts as werequest.  On August 15, 2006 in considerationof the amendment of the merger agreement to extend the termination date of thatagreement and increase the expenses we may incur in connection therewith, weamended and restated the Series A Agreement to provide for the sale andissuance of Series B Preferred Stock, $0.01 par value per share instead ofSeries A Participating Preferred Stock. Each share of Series B Preferred Stock may be converted at any time atthe option of the holder of such share into one share of our common stock, $.01par value per share and is entitled to one vote.  The investors will pay $0.70 per share ofSeries B Preferred Stock, for aggregate gross proceeds of up to$1,200,000.  The price per share ofSeries B Preferred Stock is less than the original price per share of $0.85 forthe Series A Participating Preferred Stock. However, unlike the Series A Participating Preferred Stock, the Series BPreferred Stock is not entitled to receive a cash liquidation payment inaddition to participating on an as converted to common stock basis in theproceeds for an acquisition of the Company. As of the date of this report, we have requested two draw downs of$600,000 each.  As of the date of thisreport, Dolphin has provided $1,200,000, the full amount available, for thepurchase of 1,714,285 shares of Series B Preferred Stock.  Mr. Salas, a principal of Dolphin EquityPartners, LP is a member of the board of directors.

 The Company has spent approximately $1,600,000 in capital improvements in connection with a new restaurant in Medford,Massachusetts.  Regardless of whether theCompany completes the Merger described above, the Company believes that itsexisting resources, together with cash flow generated from operations, will besufficient to fund its cash flow requirements and maintain debt covenantcompliance for the next twelve months. Under certain circumstances, if theMerger is not completed, the Company is required to pay a termination fee of upto $325,000, less any expenses it has paid for the benefit of Dolphin and itsaffiliates. In addition, the Company estimates that it will be required toincur direct transaction costs of $650,000 in connection with the Merger, whichinclude fees related to financial advisors, attorneys, accountants andfinancial printers.

However, the Company’sgrowth will be dependent upon obtaining additional financing.  There can be no assurance that any futureadditional financing will be available on commercially reasonable terms, or atall, and the success or lack of success of the Company’s restaurants openedwithin the last year and planned to be opened in the

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future may have acritical effect on the Company’s ability to raise funds through the sale ofstock or otherwise.

**NEW ACCOUNTING PRONOUNCEMENTS**

NoneApplicable.

# **“SAFE HARBOR” STATEMENTUNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995**

*Forward-looking statements in this report, including withoutlimitation statements relating to the adequacy of the Company’s working capitaland other resources, ability to obtain additional financing, the timing of theCompany’s new store openings and future expansion, and  anticipated future cash flows from particularlocations are made pursuant to the safe harbor provisions of the PrivateSecurities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involverisks and uncertainties, including without limitation:  potential quarterly fluctuations in theCompany’s operating results; seasonality of sales; competition; risksassociated with expansion; the Company’s reliance on key employees; risksgenerally associated with the restaurant industry; risks associated withgeographic concentration of the Company’s restaurants; risks associated withserving alcoholic beverages; and other risks and uncertainties indicated elsewherein this report and from time to time in the Company’s filings with theSecurities and Exchange Commission.  Inaddition, forward-looking statements generally can be identified by the use offorward-looking terminology such as “may,” “will,” “except,” “expect,” “intend,”“estimate,” “anticipate” or “believe” or the negative thereof or variationsthereon or similar terminology.  Althoughthe Company believes that the expectations reflected in such forward-lookingstatements will prove to have been correct, it can give no assurance that suchexpectations will prove to have been correct. Investors are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date hereof.*

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**Item3.  Quantitative and QualitativeDisclosure about Market Risk**

Interest Rate Risk.

We have exposure tointerest rate risk related to certain instruments entered into for other thantrading purposes.  Specifically,borrowings under the Credit Facility described in Item 2 bear interest at avariable rate based on the bank’s prime rate plus 2%. A 100 basis point changein the Credit Facility interest rate (approximately 10.25% at October 29, 2006)would cause the interest expense for fiscal 2007 to change by approximately$5,000. This computation is determined by considering the impact ofhypothetical interest rates on our variable long-term debt at October 29, 2006.However, the nature and amount of our borrowings under the Credit Facility mayvary as a result of future business requirements, market conditions, covenantcompliance and other factors.

Our other outstandinglong-term debt bears fixed rates of interest. The Company believes there is nomaterial exposure to a market interest rate risk that could affect futureresults of operations or financial conditions.

Commodity Price Risk.

Many of the foodproducts and other operating essentials purchased by us are affected bycommodity pricing and are, therefore, subject to price volatility caused byweather, production problems, delivery difficulties and other factors that arebeyond our control.  Our supplies and rawmaterials are available from several sources and we are not dependent upon anysingle source for these items. The Company negotiates directly with wholesalesuppliers of certain high volume food ingredients such as cheese, tomato sauce,and flour to ensure consistent quality and competitive pricing. Theseingredients are then purchased for the Company by a third party independentdistributor at the negotiated price and redistributed to the Company’srestaurants.  All other food ingredientsand beverage products are purchased directly by the general manager of eachrestaurant in accordance with corporate guidelines.  Certain significant items that could besubject to price fluctuations are cheese and flour products. The Companybelieves that it will be able to pass through increased commodity costs byadjusting menu pricing in most cases. However, we believe that any changes incommodity pricing that cannot be offset by changes in menu pricing or otherproduct delivery strategies would not be material.

**ITEM 4.  Controls and Procedures**

Asof  October 29, 2006, our Chief ExecutiveOfficer and Chief Financial Officer performed an evaluation of theeffectiveness of the Company’s disclosure controls and procedures (as definedin SEC Rule 13a-15(e)), which have been designed to ensure that materialinformation related to the Company is made known to them and timelydisclosed.  The Company’s management,including the CEO and CFO, does not expect that the Company’s disclosurecontrols or internal controls will prevent all error and all fraud. A controlsystem, no matter how well conceived and operated, can provide only reasonable,not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system mustreflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs. Because of the inherentlimitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues and instances of fraud, if any,within the Company have been detected. Notwithstanding the foregoing, however,based upon their evaluations, our CEO and CFO concluded that the Company’s disclosurecontrols are effective to provide a reasonable level of assurance that materialinformation relating to the Company is accumulated and communicated tomanagement, including

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theCEO and CFO, as appropriate, to allow timely decisions regarding requireddisclosure.

There have been no changes inthe Company’s internal control over financial reporting that occurred duringthe period covered by this report that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

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## **PART II**

## **OTHER INFORMATION**

**ITEM 1. Legal Proceedings.**

From time to time theCompany has been, and expects to continue to be, subject to legal proceedingsand claims in the ordinary course of its business.  Such claims, even if not meritorious, couldresult in the expenditure of significant financial and managerial resources.

**ITEM1A.****Risk Factors.**

The following riskfactors incorporate all material changes from the risk factors disclosed in ourAnnual Report on Form 10-K for the fiscal year ended April 30, 2006.

*The Company’s Ability To Grow May Be Dependent On AdditionalFunding*

Asof October 29, 2006, the Company had a working capital deficiency ofapproximately $1,396,000 and stockholders’ equity of $1,430,000. The long-termfinancial stability of the Company and compliance with the bank covenants willbe substantially dependent upon achieving sustained profitable operations. Ifthe Company fails to comply with bank covenants, the bank debt could be due ondemand. The Company’s growth will be dependent upon obtaining adequateadditional financing. There can be no assurance that any future additionalfinancing will be available on commercially reasonable terms, or at all, andthe success or lack of success of the Company’s restaurants opened withinrecent years may have a critical effect on the Company’s ability to raise fundsthrough the sale of stock or otherwise.

*The Company May Be Unable to Expand As Planned*

TheCompany intends to open additional restaurants in an orderly manner asconditions permit. The Company’s ability to open additional Company restaurantswill depend upon a number of factors, such as identifying satisfactory sites,negotiating satisfactory leases, securing required governmental permits andapprovals, obtaining of any required financing at acceptable terms, providingadequate supervision of construction, and recruiting and training managementpersonnel, some of which are beyond the control of the Company. The Companycannot guarantee that it will be able to open any other future restaurantswithin budget or on a timely basis, if at all, or that any of the newrestaurants will operate profitably. If the Company is unable to expand, it mayreduce the Company’s ability to increase profitability.

*The Restaurant Business Is Risky*

TheCompany’s future performance will be subject to a number of factors that affectthe restaurant industry generally, including: (i) the highly competitive natureof the industry, (ii) general and local economic conditions, (iii) changes intastes and eating and drinking habits, (iv) changes in food costs due toshortages, inflation or other causes, (v) population and traffic patterns, (vi)demographic trends, (vii) general employment, and wage and benefit levels inthe restaurant industry, which may be affected by changes in

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federaland local minimum wage requirements or by federally or locally mandated healthinsurance, (viii) the number of people willing to work at or near the minimumwage and (ix) weather conditions.

*We Are Dependent on Key Executive Officers*

Thefuture success of the Company will depend in large part on the continuedservices of its President, George R. Chapdelaine, as well as on the Company’sability to attract and retain other qualified senior management personnel. TheCompany carries $2,000,000 of key man life insurance on the life of Mr.Chapdelaine.

*Insiders Control the Company*

TheCompany’s executive officers, directors and their affiliates and members oftheir immediate families control the vote of approximately 72.9% of theoutstanding shares of the Common Stock. As a result, they have the practicalability to implement or block changes in the Company’s management and directionwhich may or may not be in the best interest of stockholders generally.

*The Merger May Not Be Completed*

OnMarch 17, 2006 the Company entered into and Agreement and Plan of Merger by andamong the Company, Dolphin Direct Equity Partners, LP and Braidol AcquisitionCorp., a wholly owned subsidiary of Dolphin which was amended on August 15,2006 and November 3, 2006 by which Braidol will merge with and into the Companywith the Company surviving the Merger. The consummation of the Merger issubject to customary closing conditions, including the approval of stockholdersof the Company. Should the merger be completed, stockholder’s common andpreferred stock would be redeemed and stockholders would no longer participatein any future earnings, should there be any future earnings. In addition, theconsummation of the Merger is subject to the condition that certain transactioncosts incurred by the Company not exceed $650,000.  Under certain circumstances, if the Merger isnot completed, the Company is required to pay a termination fee of up to$325,000, less any expenses it has paid for the benefit of Dolphin and itsaffiliates. In addition, the Company estimates that it will be required toincur direct transaction costs of $650,000, which include fees related tofinancial advisors, attorneys, accountants and financial printers. The Companyhas capitalized certain of these costs as deferred merger costs at October 29,2006. If the Merger is not closed, the Company’s financial results, includingearnings per share, could suffer, and the Company’s market price could decline.

*The Company’s Restaurants Are Concentrated in Massachusetts*

Atotal of twelve of the Company’s seventeen existing restaurants are located ineastern Massachusetts. As a result, the Company’s results of operations may bematerially affected by changes in the Massachusetts economy.

*Our Stock Is Relatively Illiquid and the Price Is Volatile*

Comparedto many other publicly traded companies, the Company is relatively small andhas a relatively low average daily trading volume. Quarterly operating resultsof the Company or other restaurant companies, changes in general conditions inthe economy, the restaurant industry, or the financial markets, or otherdevelopments

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affectingthe Company, its competitors or the financial markets could cause the marketprice of the Company’s Common Stock to fluctuate significantly. These broadmarket fluctuations may adversely affect the market price of the Company’sCommon Stock. In addition, the low trading volume may make it difficult for astockholder to buy or sell a significant amount of stock without affecting themarket price. The Company’s securities are principally traded on the OTCBulletin Board or its successor.

**ITEM 2. Unregistered Sales ofEquity Securities and Use of Proceeds.**

### OnJuly 12, 2006, we entered in to an agreement whereby at our option, subject tosatisfaction of certain terms and conditions, Dolphin Direct Equity Partners,LP (“Dolphin”) and other qualified investors would purchase up to 1,411,764shares of Series A Participating Preferred Stock $.01 par value per share inone or more private transactions and in such amounts as we request.  On August 15, 2006 in consideration of theamendment of the merger agreement to extend the termination date of thatagreement and increase the expenses we may incur in connection therewith, weamended and restated that agreement to provide for the sale and issuance ofSeries B Preferred Stock, $0.01 par value per share instead of Series AParticipating Preferred Stock.  Eachshare of Series B Preferred Stock may be converted at any time at the optionholder of such share into one share of our common stock, $.01 par value pershare and is entitled to one vote.  Theinvestors will pay $0.70 per share of Series B Preferred Stock, for aggregategross proceeds of up to $1,200,000.  Theprice per share of Series B Preferred Stock is less than the original price pershare of $0.85 for the Series A Participating Preferred Stock.  However, unlike the Series A ParticipatingPreferred Stock, the Series B Preferred Stock is not entitled to receive a cashliquidation payment in addition to participating on an as converted to commonstock basis in the proceeds for an acquisition of the Company.  As of the date of this report, we haverequested two draw downs of $600,000 each. As of the date of this report, Dolphin has provided the entire $1,200,000for the purchase of 1,714,285 shares of Series B Preferred Stock.  Mr. Salas, a principal of Dolphin EquityPartners, LP is a member of the board of directors.

### Weagreed pursuant to a rights agreement between the Company and the investors to(i) use best efforts to register the resale of the shares of Common stockissuable upon the conversion of the shares of Series B Preferred Stock upondemand of a sufficient number of the holders of the Series B Preferred Stockand (ii) include such shares of Common Stock in any registration statement forthe benefit of the Company or any third party upon request of a sufficientnumber of the holders of the Series B Preferred Stock.

### Wehave sold and will sell the shares of Series B Preferred Stock pursuant to certainexemptions from registration provided by Rule 506 of Regulation D and Section4(2) of the Securities Act of 1933, as amended.

**ITEM 3. Defaults Upon SeniorSecurities.**

None.

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**ITEM 4. Submission of Mattersto a Vote of Security Holders.**

None.

**ITEM 5. Other Information.**

None.

**ITEM 6. Exhibits.**

Exhibit 31.1 and 32.2: Sarbanes-Oxley Section 302 Certification

Exhibit 32.1 and 32.2: Sarbanes-Oxley Section 906Certification

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#### **SIGNATURES**

Inaccordance with the requirements of the Securities Exchange Act of 1934, theregistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.
|                        | BOSTON RESTAURANT ASSOCIATES,  INC. |
|------------------------|-------------------------------------|
|                   |                                |   |   |
|                   |                                |   |   |
| Date: December 5, 2006 |                                | By: | /s/ George R. Chapdelaine |
|                   |                                |   | George R. Chapdelaine,  President and |
|                   |                                |   | Chief Executive Officer |
|                   |                                |   |   |

 

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