**U.S. SECURITIES AND EXCHANGECOMMISSION**

**Washington,DC 20549**

 

**FORM 10-K**

 

**(Mark One)**
| **ý** | ** ** | **Annual  report pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934.**                                                                                                                                                                                                                                                                                                                                                              |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| ** ** | ** ** | **For the fiscal year ended April 24, 2005.**                                                                                                                                                                                                                                                                                                                                                                                                                 |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **o**      | ** ** | **Transition  report pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934.**                                                                                                                                                                                                                                                                                                                                                          |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| ** ** | ** ** | **For the transition period from                                      to                                   .** |

 

**CommissionFile Number**

**0-18369**

 

**BOSTON RESTAURANT ASSOCIATES. INC.**

(Exact Name of Registrant as Specified in itsCharter)

 
| **Delaware**                                                     | ** ** | **61-1162263**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |       | (I.R.S. Employer  Identification No.) |
|                                                             |       |                                  |
| **999  Broadway, Suite 400**                                | ** ** | ** **                            |
| **Saugus.  Massachusetts**                                       | ** ** | **01906**                             |
| (Address of Principal Executive  Offices                         |       | (Zip Code)                            |

 

**(781) 231-7575**

(Registrant’s Telephone Number Including AreaCode)

 

Securities registered pursuant to Section 12(b) ofthe Securities Exchange Act of 1934:

 

**None**

 

Securities registered under Section 12(g) ofthe Securities Exchange Act of 1934:

 

**Common Stock, $.01 par value pershare**

(Title of Class)

 

Indicateby check mark whether the registrant:  (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90days.  Yes ý No o

 

Indicate by check mark if there is no disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K contained herein, andwill not be contained, to the best of the registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendments to this Form 10-K.  ý

 

Indicate by check mark whether the registrant is aaccelerated filer (as defined in Exchange Act Rule 12b-2) Yes o No ý

 

The aggregate market value of registrant’s CommonStock, $.01 par value per share, held by non-affiliates of the registrant as ofthe end of the second quarter fiscal year 2005 was $2,391,856 based upon theaverage of the closing bid and asked prices of such stock on that date asreported on the OTC Bulletin Board. As of July 15, 2005 there were7,035,170 shares of the registrant’s Common Stock, $.01 par value per shareoutstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 

 

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**INDEX**

 
| **PART I**   |         |
|-------------------|--------------|
|              |         |
| ** **        | **ITEM 1.**  | **BUSINESS** |   |
|              |         |   |   |
| ** **        | **ITEM 2.**  | **PROPERTIES** |   |
|              |         |   |   |
| ** **        | **ITEM 3.**  | **LEGAL  PROCEEDINGS** |   |
|              |         |   |   |
| ** **        | **ITEM  4.** | **SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS** |   |
|              |         |   |   |
| **PART II**  |         |
|              |         |   |   |
| ** **        | **ITEM  5.** | **MARKET  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER  PURCHASES OF EQUITY SECURITIES** |   |
|              |         |   |   |
| ** **        | **ITEM  6.** | **SELECTED  FINANCIAL DATA** |   |
|              |         |   |   |
| ** **        | **ITEM  7.** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |   |
|              |         |   |   |
| ** **        | **ITEM 7A.** | **QUANTITATIVE  AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS** |   |
|              |         |   |   |
| ** **        | **ITEM 8.**  | **FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA** |   |
|              |         |   |   |
| ** **        | **ITEM 9.**  | **CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE** |   |
|              |         |   |   |
| ** **        | **ITEM 9A.** | **CONTROLS AND  PROCEDURES** |   |
|              |         |   |   |
| ** **        | **ITEM 9B.** | **OTHER INFORMATION** |   |
|              |         |   |   |
| **PART III** |         |
|              |         |   |   |
| ** **        | **ITEM 10.** | **DIRECTORS  AND EXECUTIVE OFFICERS OF REGISTRANT** |   |
|              |         |   |   |
| ** **        | **ITEM 11.** | **EXECUTIVE  COMPENSATION** |   |
|              |         |   |   |
| ** **        | **ITEM 12.** | **SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS** |   |
|              |         |   |   |
| ** **        | **ITEM 13.** | **CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS** |   |
|              |         |   |   |
| ** **        | **ITEM 14.** | **PRINCIPAL  ACCOUNTANT FEES AND SERVICES** |   |
|              |         |   |   |
| **PART IV**  |         |
|              |         |   |   |
| ** **        | **ITEM 15.** | **EXHIBITS,  FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K** |   |

 

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**FORM 10-K**

 

**CAUTIONARYSTATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATESECURITIES LITIGATION REFORM ACT OF 1995**

 

*Forward-looking statements in thisreport, including without limitation statements relating to the adequacy of theCompany’s working capital and other resources, ability to obtain additionalfinancing, the timing of the Company’s new store openings and future expansion,and anticipated future cash flows from particular sources are made pursuant tothe safe harbor provisions of the Private Securities Litigation Reform Act of1995. Investors are cautioned that such forward-looking statements involverisks and uncertainties, including without limitation: risks associated wtihthe Company’s ability to obtain funding; potential quarterly fluctuations in the Company’s operating results;seasonality of sales; competition; risks associated with expansion; the Company’sreliance on key employees; risks generally associated with the restaurantindustry; risks associated with geographic concentration of the Company’srestaurants, risks associated with serving alcoholic beverages, and other risksand uncertainties indicated from time to time in the Company’s filings with theSecurities and Exchange Commission. In addition, forward-looking statementsgenerally can be identified by the use of forward-looking terminology such as “may”,“will” “expect”, “intend”, “ “estimate”, “anticipate” or “believe” or thenegative thereof or variations thereon or similar terminology. Although theCompany 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 toplace undue reliance on these forward-looking statements, which speak only asof the date hereof. (See “Item 1. Business - Risk Factors.’)*

 

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**PART I**

 

**ITEM 1.****              ****BUSINESS**

 

**General**

 

During the fiscal year ended April 24, 2005 (“Fiscal2005”) Boston Restaurant Associates, Inc. (the “Company”) operated a chainof nineteen restaurants including twelve fast-service, high volume pizzeriasunder the “Pizzeria Regina”- name, four full-service family-styleItalian/American restaurants under the “Polcari’s North End” name for theentire year, one Polcari’s North End restaurant for eleven months and onePizzeria Regina kiosk for seven months and one Pizzeria Regina for ninemonths.  A majority of the restaurantsare located in the Boston, Massachusetts metropolitan area.  In July, 2004 the Company opened a PizzeriaRegina in metropolitan Boston.  InNovember, 2004 the Company discontinued operations of its Pizzeria Regina inRichmond, Virginia when the lease period for that location expired.  In March 2005, the Company completed anassets sale of a Polcari’s North End Bistro in Hyannis, Massachusetts, Polcari’sNorth End of Cambridge, Massachusetts is scheduled to cease operations as of July 22,2005 in connection with the sale of certain of the assets of that location toTechnology Square Finance LLC pursuant to an agreement between the Company andTechnology square dated October 22, 2004, therefore, these three locationsare reported as discontinued operations.

 

The Pizzeria Regina restaurants feature the Company’ssignature product, its premium Neapolitan style, thin crust pizza, prepared ingas-fired brick ovens. The original Pizzeria Regina, located in Boston’shistoric North End, has served the Company’s premium brick oven pizza since1926. The Company believes that the Pizzeria Regina brand name and the pizzaitself are local symbols of superior and distinctive pizza. Of the currentlyexisting Pizzeria Regina restaurants, twelve are food court kiosks(self-service, take-out style emphasizing pizza slices with common areaseating), while the original 1926 North End Pizzeria Regina is a wait servicerestaurant (full-service style emphasizing whole pizzas with in-restaurantseating). (See “Pizzeria Regina Restaurants.’)

 

The Polcari’s North End restaurants are full-serviceItalian/American, family-style restaurants that capture the community spirit ofthe 1940s and 1950s in Boston’s Italian North End neighborhood. Theserestaurants highlight exposed gas-fired brick ovens in open view of diners,memorabilia and photographs depicting 1940s and 1950s scenes in Boston’s NorthEnd, and large tables to encourage family-style dining. (See “Polcari’s NorthEnd Restaurants.’)

 

The first Pizzeria Regina was opened in 1926, andthe predecessor corporation was incorporated in 1986. The Company became publicin 1994, and since that date has continuously operated a restaurant chain whichhas increased over time to the present 17 operating restaurants. The Company’s principaloffices are located at 999 Broadway, Saugus, Massachusetts 01906 and itstelephone number is (781) 231-7575 and its corporate website iswww.polcaris.com As used in this Report, unless otherwise indicated, the term “Company”refers to Boston Restaurant Associates, Inc. and its subsidiaries. We makeavailable, free of charge through our website, our annual report 

 

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onForm 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K,and amendments to these reports filed or furnished pursuant to Section 13(a) ofthe Securities Exchange Act of 1934 as soon as practicable after weelectronically file such material with or furnish it to the Securities andExchange Commission.

 

The information found on our website is not part ofthis or any other report we file with or furnish to the SEC.

 

**Financing**

 

For the year ended April 24, 2005, the Companyhad income from continuing operations of approximately $200,000 and sustainednet losses of approximately $429,000 after accounting for discontinuedoperations. As of that date, the Company had a working capital deficiency ofapproximately $1,339,000 and stockholders’ deficit of $164,000.

 

On January 20, 2005 the Company issued1,147,056 of Preferred Stock in a private placement transaction at a purchaseprice of $.85 per share resulting in approximately $946,000 of net cashproceeds and equity for the Company.

 

On April 21, 2005, the Company entered into anew $2,300,000 Credit Facility with Commerce Bank and Trust Company. ThisCredit Facility consists of a $1,500,000 4 year term note bearing interest atthe bank’s base rate plus 2% and an $800,000 mortgage at a fixed rate of 7%.This facility is secured by all of the assets of the Company.  The proceeds of the Credit Facility were usedto retire all prior existing debt with Commerce Bank and Trust Company.  The Company was in compliance with allfinancial covenants for fiscal year ended April 24, 2005.

 

The Company has analyzed cash flow and believes thatcash flow from operations will be sufficient to fund operations for the nexttwelve months.  The Company’s growth willbe 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 future may have a criticaleffect on the Company’s ability to raise funds through the sale of stock orotherwise.

 

**Pizzeria Regina Restaurants**

 

The Company currently operates thirteen PizzeriaRegina restaurants which are fast-service, high volume pizzerias that featurepremium brick oven pizza and cater primarily to the lunchtime diner (with theexception of the original North End location, which serves both the lunch anddinner markets). Of these thirteen restaurants, twelve are food court kiosksand the original North End Pizzeria Regina is a wait-service restaurant.

 

The Pizzeria Regina restaurants feature the Company’spremium Neapolitan style, thin crust, brick oven pizza. This pizza features aproprietary dough and pizza sauce, which the Company believes combine toproduce a distinct flavor and superior 

 

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pizza.These pizzas are offered with a wide variety of fresh vegetable and cured meattoppings. The Company believes that the premium quality of its pizza, a resultof a proprietary ingredient mix and baking process, provides appeal to both thelunch and dinner markets. The original Pizzeria Regina, located in Boston’shistoric North End, has served the Company’s premium brick oven pizza since1926.

 

The Company’s twelve food court kiosks primarilyserve pizza by the slice with multiple topping choices and operate side-by-sidewith other fast food vendors in retail malls. Menu items are presented in aself-service, take-out style designed to allow customers to order, pay for andconsume their food in a very short period of time. Customers who desire to sitdown after purchasing their food may join customers of other food court vendorsin one or more designated common areas within the mall. The focused menu,self-service, take-out style and common seating provide food court customerswith a fast, low cost dining alternative as compared to more traditionalfull-service restaurants.

 

The Company intends to seek locations for additionalPizzeria Regina food court kiosks in malls and high traffic areas. Managementestimates that the cost of opening a typical food court kiosk currently isapproximately $525,000. The Company cannot guarantee that actual costs will notsignificantly exceed these estimates, that the Company will be able to obtainfinancing necessary to construct additional food courts kiosks, that theCompany will be able to complete the construction of new kiosks on a timelybasis and within budget, if at all, or that the Company will be able to operatethese kiosks successfully.

 

**Polcari’s North End Restaurants**

 

In March 1995, the Company opened its firstPolcari’s North End restaurant in Saugus, Massachusetts, recreating arestaurant similar to one that the Company’s predecessor had operated from 1954-1989in Boston’s North End. The Polcari’s North End restaurant concept is designedto create an Italian/American casual dining ambiance that captures thecommunity spirit of the 1940s and 1950s in Boston’s Italian North Endneighborhood. The restaurant highlights exposed gas-fired brick ovens in openview of diners. In addition, memorabilia and photographs depicting scenes inBoston’s North End in the 1940s and 1950s are used to create a neighborhoodatmosphere rich with history. The restaurant also features large tables of sixor more seats to encourage family style dining and a value-oriented menu thatincludes branded Pizzeria Regina pizza, large Italian/American pasta dishes andfresh baked breads.

 

The Company has also developed a bistro-restaurantconcept, which was inspired by the success of the Saugus-based Polcari’s NorthEnd TM” restaurant. Unlike the Saugus restaurant, the bistro restaurants aresmaller in size, creating a more intimate family dining experience. Inaddition, the menu is a modified version of the Saugus-based offerings,providing for a lighter dining experience. The bistro restaurants operate underthe Polcari’s North End TM  trademark inorder to capitalize on that mark’s recognition for quality.  The Company currently operates two Polcari’sNorth End bistro Restaurants in Woburn, Massachusetts and Salem, NewHampshire.  In April 2005 theCompany completed the asset sale of a Polcari’s bistro restaurant in Hyannis,Massachusetts.  Polcari’s of Cambridge isscheduled to cease operations on July 22, 2005

 

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whenTechnology Square Finance, LLC will be required to purchase the assets ofPolcari’s of Cambridge, Inc. for three hundred thousand dollars.  In addition, rent will be forgiven for theremainder of the lease.

 

**Site Selection**

 

The Company considers the specific location of arestaurant to be critical to the restaurant’s long term success. It devotessignificant time and resources to the investigation and evaluation of eachprospective site, including consideration of local market demographics,population density, average household income levels and site characteristicssuch as visibility, accessibility and traffic.

 

The Company seeks sites for the Pizzeria Reginakiosk restaurants within high-traffic locations including food courts andretail shopping malls located in metropolitan areas. The Company also considersexisting local competition and, to the extent such information is available,the sales of other comparably priced restaurants operating in the area.

 

**Restaurant Operations**

 

The Company invests substantial time and effort inits training programs, which focus on all aspects of restaurant operations,including kitchen, bar and dining room operations, food quality andpreparation, alcoholic beverage service, liquor liability avoidance, customerservice and employee relations. The Company holds regular meetings of itsmanagers to address new products, continuing training and other aspects ofbusiness management. Managers also attend periodic seminars conducted byCompany personnel and outside experts on a broad range of topics.

 

New employees are trained by experienced employeeswho have demonstrated their ability to implement the Company’s commitment toprovide high quality food and attentive service. The Company has developedmanuals regarding its policies and procedures for restaurant operations.Supervisory management regularly visits Company restaurants and meets withtheir management teams to ensure compliance with the Company’s strategies andstandards of quality in all aspects of restaurant operations and personneldevelopment.

 

The Company seeks to attract and retain qualityrestaurant managers by providing them with an appropriate balance of autonomyand direction. Annual performance objectives and budgets for each restaurantare jointly determined by restaurant managers and senior management. To provideincentives, the Company has implemented a cash bonus program tied toachievement of specified objectives.

 

The staff for a typical Pizzeria Regina kioskrestaurant consists of one general manager, two managers and approximately 12to 15 hourly employees. The staff of the original Pizzeria Regina consists of ageneral manager, two managers, and approximately 15 to 25 hourly employees. Thestaff for a typical Polcari’s North End restaurant consists of one generalmanager, two managers, one kitchen manager and approximately 40 to 60 hourlyemployees. Most of the Company’s hourly employees are part-time personnel. Thegeneral manager of each restaurant is primarily responsible for 

 

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theday-to-day operations of the entire restaurant and for maintaining standards ofquality and performance established by the Company.

 

**Purchasing and Commissary Operations**

 

The Company maintains a commissary where pizza doughis produced for the Company’s restaurants. The dough preparation requires ahigh degree of consistency that would be more difficult to maintain at theindividual restaurant locations. The Company believes that close, centralizedmonitoring of the dough preparation ensures a more consistent premium product.All other food preparation is performed on site at the restaurant level.

 

The Company negotiates directly with wholesalesuppliers of certain high volume food ingredients such as cheese, tomato sauce,and flour to ensure consistent quality and freshness of products across itsrestaurants and to obtain competitive pricing. These ingredients are thenpurchased for the Company by a third party independent distributor at thenegotiated price and redistributed to the Company’s restaurants. All other foodingredients and beverage products are purchased directly by the general managerof each restaurant in accordance with corporate guidelines. The Companybelieves that essential food and beverage products are available from a choiceof many qualified wholesale suppliers.

 

**Advertising and Marketing**

 

The Company’s target market for the Pizzeria Reginarestaurants is very broad, consisting of individuals and families who seekfast-service and high value-to-price meals during the lunch period. The targetmarket for the Polcari’s North End restaurants is adults and families who seekmoderately priced Italian dinner entrees in a comfortable environment. TheCompany believes that its focus on premium quality, service and value is themost effective approach to attracting customers. The Company plans to rely uponlocal advertising, high volume traffic flow at retail malls and word of mouthexposure to market its restaurants.

 

**Competition**

 

The restaurant business is highly competitive.Price, restaurant location, food quality, service and attractiveness offacilities are important aspects of competition, and the competitiveenvironment is often affected by factors beyond the Company’s or a particularrestaurant’s control, including changes in the public’s tastes and eating anddrinking habits, population and traffic patterns and local economic conditions.The Company’s restaurants compete with a wide variety of restaurants rangingfrom national and regional restaurant chains (some of which have substantiallygreater financial resources than the Company) to locally-owned restaurants.There is also active competition for liquor licenses in certain markets and foradvantageous commercial real estate sites suitable for restaurants. ThePizzeria Regina restaurants compete with other fast-service, high volume foodproviders on the basis of price, value, location, menu and speed of service.The Polcari’s North End restaurants compete with other casual, full-servicerestaurants primarily on the basis of menu selection, quality, price, service,ambiance and location.

 

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**Seasonality**

 

Certain of the Company’s restaurants are subject toseasonal fluctuations in sales volume. Sales at the Pizzeria Regina restaurantsare typically higher in June through August, and in November and December dueto increased volume in shopping malls during the holiday and tourist seasonsand school vacations.

 

**Employees**

 

As of July 15, 2005 the Company hadapproximately 450 employees, of whom 11 were corporate and administrativepersonnel, approximately 56 were field supervision or restaurant managers ormanagement trainees, and the remainder were hourly restaurant personnel. Manyof the Company’s hourly employees work part-time. The Company believes that itsrelationship with its employees is good. None of the Company’s employees arecovered by a collective bargaining agreement.

 

**Trademarks and Service Marks**

 

The Company regards its trademarks and its servicemarks as having significant value and as being important factors in themarketing of its products.  The Company’smost significant trademarks are “Pizzeria Regina,” the Regina crown designlogo, and “Polcari’s North End,” each of which are U.S. registered trademarksowned by the Company. The Company has also registered with the U.S. Patent andTrade Office “Regina,” the “Polcari’s” logo, “Pizzeria Regina of Boston’s NorthEnd” and “Pizzeria Regina, Boston’s Brick Oven Pizza” as service marks.

 

**Government Regulation**

 

The Company is subject to a variety of federal,state, local laws, and regulations. Each of the Company’s restaurants issubject to licensing and regulation by a number of government authorities,including alcoholic beverage control, health, safety, sanitation, building andfire agencies in the state or municipality in which the restaurant is located.Difficulties in obtaining or failure to obtain required licenses or approvalscould delay or prevent the development of a new restaurant in a particulararea.

 

The selection of new restaurant sites is affected byfederal, state, local laws,  regulationsregarding environmental matters, zoning and land use and the sale of alcoholicbeverages. Various requirements (particularly at the local level) may result inincreases in the cost and time required for opening new restaurants, as well asincreases in the cost of operating restaurants. Difficulties in obtainingnecessary licenses or permits could cause delays in or cancellations of newrestaurant openings.

 

A significant portion of the Company’s revenues atthe Polcari’s North End restaurants and the original Pizzeria Regina locationin the North End is attributable to the sale of alcoholic beverages. Alcoholicbeverage control regulations require each of the Company’s restaurants thatserve alcohol to apply to both a state authority and municipal authorities fora license or permit to sell alcoholic beverages on the premises. Typically,licenses must be renewed annually and may be revoked or suspended for cause atany time. Alcoholic beverage control regulations affect numerous aspects of 

 

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restaurantoperations, including minimum age of patrons and employees, hours of operation,advertising, wholesale purchasing, inventory control and handling, storage anddispensing of alcoholic beverages. The failure of the Company to obtain orretain liquor service licenses could have a material adverse affect on theparticular restaurant’s operations and the business of the Company overall.

 

The Company is subject to “dram shop” statutes,which generally provide a person injured by an intoxicated person the right torecover damages from an establishment that wrongfully served alcoholicbeverages to the intoxicated person. The Company presently carries liquorliability coverage for its restaurants, as well as excess liability coverage.The Company has never been named as a defendant in a lawsuit involving “dramshop” liability. The Company cannot guarantee that dram shop insurance willcontinue to be available to the Company at commercially reasonable prices, ifat all, or that such insurance, if maintained, will be sufficient to cover anyclaims against the Company for dram shop liability for which it may be heldliable.

 

The Company’s restaurant operations are all subjectto federal and state laws governing such matters as minimum wage and healthinsurance requirements. A significant number of the Company’s personnel arepaid at rates related to the federal minimum wage, and increases in the minimumwage could increase the Company’s labor costs.

 

**Risk Factors**

 

In addition to the risks discussed elsewhere in thisForm 10-K, investors should consider carefully the following risk factorsin evaluating an investment in the Company.

 

*The Company’s Ability To Grow May Be DependentOn Additional Funding*

 

For the year ended April 24, 2005, the Companyhas sustained net losses of approximately $429,000. As of that date, theCompany had a working capital deficiency of approximately $1,257,000 andstockholders’ deficit of $164,000.  Thelong-term financial stability of the Company and compliance with the bankcovenants will be substantially dependent upon achieving sustained profitableoperations. If the Company fails to comply with bank covenants, the bank debtcould be due on demand.  The Company’sgrowth will be dependent upon obtaining adequate 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 may have a critical effect on the Company’s ability toraise funds through the sale of stock or otherwise.

 

*The Company May Be Unable to Expand As Planned*

 

The Company intends to open additional restaurantsin an orderly manner as conditions permit. The Company’s ability to openadditional Company restaurants will depend upon a number of factors, such asidentifying satisfactory sites, negotiating satisfactory leases, securingrequired governmental permits and approvals, obtaining of 

 

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anyrequired financing on acceptable terms, providing adequate supervision ofconstruction, and recruiting and training management personnel, some of whichare beyond the control of the Company. The Company cannot guarantee that itwill be able to open any other future restaurants within budget or on a timelybasis, if at all, or that any of the new restaurants will operate profitably.If the Company is unable to expand, it may reduce the Company’s ability toincrease profitability.

 

*  TheRestaurant Business Is Risky*

 

The Company’s future performance will be subject toa number of factors that affect the restaurant industry generally, including: (i) thehighly competitive nature of the industry, (ii) general and local economicconditions, (iii) changes in tastes and eating and drinking habits, (iv) changesin food costs due to shortages, inflation or other causes, (v) populationand traffic patterns, (vi) demographic trends, (vii) general employment,and wage and benefit levels in the restaurant industry, which may be affectedby changes in federal and local minimum wage requirements or by federally orlocally mandated health insurance, (viii) the number of people willing towork at or near the minimum wage and (ix) weather conditions. (See “Competition.”)

 

*We Are Dependent on Key Executive Officers*

 

The future success of the Company will depend inlarge part on the continued services of its President, George R. Chapdelaine,as well as on the Company’s ability to attract and retain other qualifiedsenior management personnel. The Company carries $2,000,000 of key man lifeinsurance on the life of Mr. Chapdelaine.

 

*Insiders Control the Company*

 

The Company’s executive officers, directors and theiraffiliates and members of their immediate families control the vote ofapproximately 68.2% of the outstanding shares of the Common Stock. As a result,they have the practical ability to implement or block changes in the Company’smanagement and direction which may or may not be in the best interest ofstockholders generally.

 

*The Company’s Restaurants Are Concentrated inMassachusetts*

 

A total of twelve of the Company’s seventeenexisting restaurants are located in eastern Massachusetts. As a result, theCompany’s results of operations may be materially affected by changes in theMassachusetts economy. The Pizzeria Regina at the Burlington Mall, Burlington,Massachusetts is currently a tenancy at will and the Landlord has commenced asummary process to terminate the tenancy at will.  The Company intends to vigorously defend thisaction.  Should the Company be requiredto vacate this space, the Company would suffer material revenue and incomeloss.

 

*Our Stock Is Relatively Illiquid and the Price IsVolatile*

 

Compared to many other publicly traded companies,the Company is relatively small and has a relatively low average daily tradingvolume. Quarterly operating results 

 

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ofthe Company or other restaurant companies, changes in general conditions in theeconomy, the restaurant industry, or the financial markets, or otherdevelopments affecting the Company, its competitors or the financial marketscould cause the market price of the Common Stock to fluctuate significantly.These broad market fluctuations may adversely affect the market price of theCommon 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, and will likely continue to be,principally traded on the OTC Bulletin Board or its successor. (See “item 5.Market for Registrant Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities.”)

 

**ITEM 2.****              ****PROPERTIES**

 

Of the Company’s seventeen restaurants operating on April 24,2005, sixteen were located in leased space and one restaurant, the North EndPizzeria Regina location, is owned by the Company.

 

All of the Company’s leases provide for a minimumannual rent, and most call for additional rent based on sales volume at theparticular location over a specified minimum level. Generally, these leases arenet leases, which require the Company to pay the cost of insurance, taxes and aportion of the lessor’s operating costs. Certain mall locations also requirethe Company to participate in upkeep of common areas and promotionalactivities.

 

The following table sets forth certain informationwith respect to the Company’s restaurant properties:

 

| **Location**                         | ** ** | **Type (1)**             | ** ** |
|--------------------------------------|------------|--------------------------|------------|
|                                 |       |                     |       |
| Auburn Mall  Auburn, MA              |       | food court               |       |
| North End  Boston, MA (2)            |       | wait service             |       |
| Faneuil Hall Marketplace  Boston, MA |       | food court               |       |
| Prudential Center  Boston, MA        |       | food court               |       |
| South Station  Boston, MA            |       | food court               |       |
| Burlington Mall(3)  Burlington, MA   |       | food court               |       |
| Technology Square(4)  Cambridge, MA  |       | Polcari’s North End |       |
| Holyoke Mall  Holyoke, MA            |       | food court               |       |

 

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| Independence Mall  Kingston, MA    |   | food court                        |   |
|------------------------------------|--------|-----------------------------------|--------|
| South Shore Plaza  Braintree, MA   |   | food court                        |   |
| Solomon Pond Mall  Marlborough, MA |   | food court                        |   |
| Oviedo Market Place  Oviedo, FL    |   | food court                        |   |
| Paramus Park  Paramus, NJ          |   | food court                        |   |
| Providence Place  Providence, RI   |   | food court                        |   |
| Salem, NH                          |   | Polcari’s North End (bistro) |   |
| Saugus, MA                         |   | Polcari’s North End          |   |
| Woburn, MA                         |   | Polcari’s North End (bistro) |   |

 

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(1)           Pizzeria Regina food court locations have noindependent seating capacity. Seating is centralized in the common areas of thefood courts. The North End seats approximately 75 customers; the Saugus Polcari’sNorth End location seats approximately 360 customers; the two bistrorestaurants each seat approximately 200 customers.

 

(2)           Company-owned. This property is subject to amortgage in favor of Commerce Bank and Trust Company. (See “Item 7. Management’sDiscussion And Analysis Of Financial Condition and Results of Operations — Liquidityand Capital Resources.’)

 

(3)           The Pizzeria Regina at the Burlington Mall,Burlington, Massachusetts is currently a tenancy at will.  See Item 3. Legal Proceedings.

 

(4)           This property is scheduled to close July 22,2005.

 

The Company occupies approximately 5,325 square feetof executive office space in Saugus, Massachusetts. The lease for this locationexpires on October 31, 2006. The Company also leases approximately 5,000square feet of warehouse space located in Somerville, Massachusetts under alease expiring on July 31, 2007 (including all extension options that maybe exercised by the Company in its discretion) and approximately 2,741 squarefeet for its commissary located in Charlestown, Massachusetts under a leaseexpiring on August 14, 2006.

 

**ITEM 3.****                 ****LEGAL PROCEEDINGS**

 

On June 15, 2004 a Charge of Discrimination wasfiled by certain of the Company’s personnel with the Massachusetts CommissionAgainst Discrimination and with the Equal Opportunity Commission. The chargewas withdrawn on October 20, 2004 from both agencies and the parties havesettled the complaint.  The settlementdid not materially adversely affect the Company.** **The Pizzeria Regina atthe Burlington Mall, Burlington, Massachusetts is currently a tenancy at willand the Landlord has commenced a summary process to terminate the tenancy atwill.  The Company intends 

 

10

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tovigorously defend this action.  Shouldthe Company be required to vacate this space, the Company would suffer materialrevenue and income loss..

 

From time to time the Company has been, and expectsto continue to be, subject to legal proceedings and claims in the ordinary courseof its business. Such claims, even if not meritorious, could result in theexpenditure of significant financial and managerial resources.

 

**ITEM 4.****               ****SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS**

 

None

 

**PART II**

 

**ITEM 5.****               ****MARKET FOR REGISTRANT’SCOMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES**

 

The Company’s Common Stock is traded publicly on theOTC Bulletin Board ). As of July 16, 2005, there were approximately 600holders of record of the Company’s Common Stock. On July 15, 2005, thelast bid and asked price of the Company’s Common Stock as reported on the OTCBulletin Board were $.40 and $.55 per share, respectively.

 

The table below represents the quarterly high andlow bid and asked prices for the Company’s Common Stock for the Company’s lasttwo fiscal years, as reported on the OTC Bulletin Board. The prices listed inthis table reflect quotations without adjustment for retail mark-up, mark-downor commission, and may not represent actual transactions.

 

11

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| ** **                             | ** ** | **High Bid** | ** ** | **Low Bid** | ** ** | **High  Asked** | ** ** | **Low  Asked** | ** ** |
|----------------------------------------|------------|--------------|------------|-------------|------------|-----------------|------------|----------------|------------|
|                                   |       |         |       |        |       |            |       |           |       |
| Fiscal Year Ended April 24,  2005 |       |         |       |        |       |            |       |           |       |
|                                   |       |         |       |        |       |            |       |           |       |
| First Quarter                          |       | $            | .65        |        | $          | .53             |       | $              | .75        |   | $ | .65 |   |
| Second Quarter                         |       | $            | .60        |        | $          | .30             |       | $              | .70        |   | $ | .36 |   |
| Third Quarter                          |       | $            | .63        |        | $          | .25             |       | $              | .75        |   | $ | .30 |   |
| Fourth Quarter                         |       | $            | .62        |        | $          | .40             |       | $              | 1.00       |   | $ | .50 |   |
|                                   |       |         |       |        |       |            |       |           |       |
| Fiscal Year Ended April 25,  2004 |       |         |       |        |       |            |       |           |       |
|                                   |       |         |       |        |       |            |       |           |       |
| First Quarter                          |       | $            | .65        |        | $          | .30             |       | $              | .95        |   | $ | .35 |   |
| Second Quarter                         |       | $            | .94        |        | $          | .48             |       | $              | 1.01       |   | $ | .80 |   |
| Third Quarter                          |       | $            | .65        |        | $          | .40             |       | $              | .85        |   | $ | .58 |   |
| Fourth Quarter                         |       | $            | .55        |        | $          | .26             |       | $              | .80        |   | $ | .39 |   |

 

The Company has never paid cash dividends on itscapital stock and does not anticipate paying any cash dividends in theforeseeable future other than dividends on Series A Preferred Stock. TheCompany intends to retain most of its future earnings to finance future growth.The Company’s Credit Facility prohibits the payment of cash dividends withoutthe lender’s prior consent.

 

12

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CompanyEquity Compensation Plans

 

The Company presently maintains a 1994 EmployeeCombination Stock Option Plan under which options are no longer issued, a 1994Director Stock Option Plan, and the Combination Stock Option and Share AwardPlan (the “2002 Plan”), pursuant to which it granted equity awards to eligiblepersons. The following table gives information about those plans.

 
| **Plan  category**                                          | ** ** | **(a)  Number of  securities to be  issued upon  exercise of  outstanding options,  warrants and rights** | ** ** | **(b)  Weighted average  exercise price of  outstanding options,  warrant and rights** | ** ** | **(c)  Number of  securities remaining  available for future  issuance under  equity  compensation plans  (excluding securities  reflected in column  (a)** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                        |       |                                                                                                      |       |                                                                                   |       |                                                                                                                                                        |       |
| Equity compensation plans  approved by security holders     |       | 1,274,800                                                                                                 |       | $                                                                                      | .77        |                                                                                                                                                        | 0          |   |
|                                                        |       |                                                                                                      |       |                                                                                   |       |                                                                                                                                                        |       |
| Equity compensation plans  not approved by security holders |       | 0                                                                                                         |       | 0                                                                                      |       | 0                                                                                                                                                           |       |
|                                                        |       |                                                                                                      |       |                                                                                   |       |                                                                                                                                                        |       |
|                                                        |       |                                                                                                      |       |                                                                                   |       |                                                                                                                                                        |       |
| Total                                                       |       | 1,274,800                                                                                                 |       | $                                                                                      | .77        |                                                                                                                                                        | 0          |   |

 

13

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**ITEM 6.****              ****SELECTED FINANCIAL DATA**

 

The following table sets forth selected financialdata for the fiscal periods indicated, a 52 week period for fiscal 2005, 2004,2003, 2002, and 2001 which have been derived from the audited financialstatements. 

 
| ** **                                                    | ** ** | **April 24,  2005** | ** ** | **April 25,  2004 (1)** | ** ** | **April 27,  2003 (1)** | ** ** | **April 28,  2002** | ** ** | **April 29,  2001** | ** ** |
|---------------------------------------------------------------|------------|--------------------------|------------|------------------------------|------------|------------------------------|------------|--------------------------|------------|--------------------------|------------|
| **Income  Statement Data:)**                                  |       |                     |       |                         |       |                         |       |                     |       |                     |       |
| Total revenues                                                |       | $                        | 22,629,052 |                         | $          | 19,482,986                   |       | $                        | 19,697,538 |                     | $          | 23,854,439 |   | $ | 21,707,907 |   |
| Costs and expenses:                                           |       |                     |       |                         |       |                         |       |                     |       |                     |       |
| Cost of food, beverages  and liquor                           |       | 4,628,052                |       | 3,769,034                    |       | 3,620,451                    |       | 4,885,952                |       | 4,644,810                |       |
| Other operating expenses                                      |       | 13,912,348               |       | 12,044,045                   |       | 11,666,240                   |       | 14,293,083               |       | 13,052,040               |       |
| General and administrative                                    |       | 2,450,578                |       | 2,738,690                    |       | 2,610,666                    |       | 2,132,756                |       | 1,837,085                |       |
| Depreciation an  amortization                                 |       | 976,686                  |       | 930,272                      |       | 922,366                      |       | 1,152,860                |       | 1,161,628                |       |
| Pre-opening costs                                             |       | 93,196                   |       | 77,140                       |       | —                       |       | —                   |       | 658,090                  |       |
| Litigation and settlement  costs (credits)                    |       | (98,259                  | )          | (246,228                     | )          | (443,445                     | )          | —                   |       | 1,847,487                |       |
| Charge for asset  impairment                                  |       | —                   |       | —                       |       | —                       |       | —                   |       | 580,000                  |       |
| Total costs and expenses                                      |       | 21,962,601               |       | 19,312,953                   |       | 18,376,278                   |       | 22,464,651               |       | 23,781,140               |       |
| Operating income (loss)                                       |       | 666,451                  |       | 170,033                      |       | 1,321,260                    |       | 1,389,788                |       | (2,073,233               | )          |
| Interest expense, net                                         |       | (475,132                 | )          | (493,200                     | )          | (377,829                     | )          | (508,072                 | )          | (456,842                 | )          |
| Other income, net                                             |       | 8,418                    |       | 221,630                      |       | 9,436                        |       | 9,015                    |       | 19,771                   |       |
| Income (loss) from  continuing operations                     |       | 199,737                  |       | (101,537                     | )          | 952,867                      |       | 890,731                  |       | (2,510,304               | )          |
| Income (loss) from  discontinued operations                   |       | (628,452                 | )          | (3,335,741                   | )          | 40,022                       |       | —                   |       | —                   |       |
| Net income (loss)                                             |       | (428,715                 | )          | (3,437,278                   | )          | 992,889                      |       | 890,731                  |       | (2,510,304               | )          |
| Less: Preferred stock  dividends                              |       | (20,583                  | )          | —                       |       | —                       |       | —                   |       | —                   |       |
| Net Income (loss)  available to common shareholders           |       | $                        | (449,298   | )                            | $          | (3,437,278                   | )          | $                        | 992,889    |                     | $          | 890,731 |   | $ | (2,510,304 | ) |
| Income (loss) per share of  common stock (Basic and Diluted): |       |                     |       |                         |       |                         |       |                     |       |                     |       |
| Continuing Operations                                         |       | $                        | .03        |                         | $          | (.01                         | )          | $                        | .13        |                     | $          | .13 |   | $ | (.36 | ) |
|                                                          |       |                     |       |                         |       |                         |       |                     |       |                     |       |
| Discontinued Operations                                       |       | $                        | (.09       | )                            | $          | (.48                         | )          | $                        | .01        |                     | $          | — |   | $ | — |   |
|                                                          |       |                     |       |                         |       |                         |       |                     |       |                     |       |
| Net income (loss)                                             |       | $                        | (.06       | )                            | $          | (.49                         | )          | $                        | .14        |                     | $          | .13 |   | $ | (.36 | ) |
| **Balance  Sheet Items:**                                     |       |                     |       |                         |       |                         |       |                     |       |                     |       |
| Total Assets                                                  |       | $                        | 6,741,301  |                         | $          | 7,740,807                    |       | $                        | 8,273,745  |                     | $          | 8,640,734 |   | $ | 9,000,203 |   |
| Long Term Obligations                                         |       | $                        | 3,981,286  |                         | $          | 2,353,177                    |       | $                        | 3,213,292  |                     | $          | 3,750,876 |   | $ | 4,527,914 |   |
| Total Liabilities                                             |       | $                        | 6,905,281  |                         | $          | 8,409,528                    |       | $                        | 5,535,187  |                     | $          | 6,895,065 |   | $ | 8,145,265 |   |

 

14

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(1) Infiscal 2005, the Company closed its Pizzeria Regina in Richmond, Virginia,completed the assets sale of Polcari’s of Hyannis, Inc. and entered intoan agreement for the asset sale of Polcari’s of Cambridge, Inc.  The sale of Polcari’s of Cambridge, Inc.,is scheduled to be completed on July 22, 2005.  The Income Statement Data for fiscal 2004 and2003 has been reclassified to reflect Polcari’s of Haynnis, Inc., Polcari’sof Cambridge, Inc., and Pizzeria Regina at Richmond, Virginia asdiscontinued operations.  See Note 13 tothe Company’s Consolidated Financial Statement.

 

**ITEM 7.****              ****MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

This Management’s Discussion and Analysis describesthe principal factors affecting the results of operations, liquidity andcapital resources, as well as the critical accounting policies of the Company.This discussion should be read in conjunction with the accompanying auditedfinancial statements, which include additional information about oursignificant accounting policies and practices and the transactions thatunderlie our financial results.

 

The Company reports the results of its PizzeriaRegina restaurants and its Polcari North End restaurants as one operatingsegment since they have similar economic characteristics.

 

Except as otherwise indicated, references to yearsmean our fiscal year ended April 24, 2005, April 25, 2004 and April 27,2003.

 

**RESULTS OF OPERATIONS**

 

**Overview:**

 

The key factors that affect our operating resultsare the impact of new store openings, comparable restaurant sales, which aredriven by comparable customer counts and check average, and our ability tomanage operating expenses such as food cost, labor and benefits and othercosts. Changes in the number of restaurants in operation can dramaticallychange the absolute dollar amounts of revenues and expenses, and opening of newstores can dramatically affect operating profits. Each restaurant unit’scontribution margin will vary over the life of the restaurant. Margins tend tobe low when a restaurant is first opened until customer traffic reaches plannedlevels. Margins can also deteriorate at the end of a unit’s life cycle due to adecline in customer traffic caused by a variety of factors outside the controlof the Company. These economic conditions impact both the Pizzeria Regina unitsand the Polcari North End units.

 

 There were 15units in operation for all fiscal 2005, one new Pizzeria Regina was added inthe third month of fiscal 2005.  Therewere 14 units in operation for all fiscal 2004, and one new Pizzeria Regina wasadded in the twelfth month of fiscal 2004.

 

15

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On January 20, 2005 the Company issued1,147,056 shares of Preferred Stock at a purchase price of $.85 per shareresulting in approximately $946,000 of net proceeds for the Company.

 

On April 21, 2005, the Company entered into anew $2,300,000 Credit Facility with Commerce Bank and Trust Company. ThisCredit Facility consists of a $1,500,000 4 year term note bearing interest atthe bank’s base rate plus 2% and an $800,000 mortgage at a fixed rate of 7%.This facility is secured by all of the assets of the Company. Commerce Bank andTrust Company waived the covenants for fiscal year ended April 24,2005.  The proceeds of the CreditFacility were used to retire all prior existing debt with Commerce Bank andTrust Company.

 

Our fiscal 2005 results reflect the effects ofopening a new Pizzeria Regina Kiosk in Boston, Massachusetts, and the openingof a new Pizzeria Regina at the Prudential Center in Boston, Massachusetts.

 

During fiscal 2005 the Company completed the assetsale of Polcari’s of Hyannis and entered into an agreement to sell the assetsof Polcari’s of Cambridge, Inc. on July 22, 2005 and closed thePizzeria Regina in Richmond, Virginia at the end of the lease term thereforethe accompanying financial table has been reclassified to reflect Polcari’s ofHyannis, Inc., Polcari’s of Cambridge, inc. and Pizzeria Regina inRichmond, Virginia as discontinued operations.

 

The following table sets forth all revenues, costsand expenses as a percentage of total revenues for the periods indicated forrevenue and expense items included in the consolidated statements ofoperations:

 

16

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| ** **                                                               | ** ** | **April 24,** | ** ** | **April 25,** | ** ** | **April 27,** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                                               | ** ** | **2005**           | ** ** | **2004**           | ** ** | **2003**           | ** ** |
|                                                                     |       |               |       |               |       |               |       |
| Revenues:                                                                |       |               |       |               |       |               |       |
| Restaurant Sales                                                         |       | 100.0              | %          | 99.9               | %          | 99.7               | %          |
| Other                                                                    |       | —             |       | .1                 |       | .3                 |       |
| Total Revenues                                                           |       | 100.0              |       | 100.0              |       | 100.0              |       |
| Costs and expenses:                                                      |       |               |       |               |       |               |       |
| Cost of food, beverages and  liquor                                      |       | 20.4               |       | 19.3               |       | 18.4               |       |
| Other operating expenses-payroll                                         |       | 29.5               |       | 30.3               |       | 29.5               |       |
| Other operating expenses  exclusive of payroll                           |       | 32.0               |       | 31.5               |       | 29.7               |       |
| General and administrative                                               |       | 10.8               |       | 14.1               |       | 13.2               |       |
| Depreciation and amortization                                            |       | 4.3                |       | 4.8                |       | 4.7                |       |
| Pre-opening costs                                                        |       | .4                 |       | .4                 |       | —             |       |
| Litigation and settlement costs  (credits)                               |       | (.4                | )          | (1.3               | )          | (2.2               | )          |
| Operating income (loss)                                                  |       | 3.0                |       | .9                 |       | 6.7                |       |
| Interest expense, net                                                    |       | (2.1               | )          | (2.5               | )          | (1.9               | )          |
| Other income, net                                                        |       | —             |       | 1.1                |       | —             |       |
| Income (loss) from continuing  operations before discontinued operations |       | .9                 |       | (.5                | )          | 4.8                |       |
| Income (loss) from discontinued  operations                              |       | (2.8               | )          | (17.1              | )          | .2                 |       |
| Net income (loss)                                                        |       | (1.9               | )%         | (17.6              | )%         | 5.0                | %          |

 

17

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**Results of Operations for the Years Ended April 24,2005 and April 25, 2004**

 

Duringfiscal 2005 the Company closed the Pizzeria Regina in Richmond, Virginia at theend of the lease term, completed the asset sale of Polcari’s of Hyannis, Inc.and entered into an agreement to sell the assets of Polcari’s of Cambridge, Inc.on July 22, 2005 therefore the following results of operations for fiscalyear ended April 24, 2005, April 25, 2004, and April 27, 2003have been reclassified to reflect Polcari’s of Hyannis, Inc., Polcari’s ofCambridge, Inc., and Pizzeria Regina in Richmond, Virginia as discontinuedoperations.

 

RestaurantSales

 

Restaurant sales in fiscal 2005 were $22,629,000compared to $19,466,000 in fiscal 2004. The Company believes the increase in restaurant sales in fiscal 2005compared to fiscal 2004 was attributable to the opening of the new PizzeriaRegina at the Prudential Center in Boston, Massachusetts in April 2004,the new Pizzeria Regina at South Station in Boston, Massachusetts in July 2004,and by the improved economy in the Northeastern United States. Sales volume forthe restaurants open throughout both fiscal 2005 and 2004 increased by 3.8%

 

Net sales at the Company’s Pizzeria Reginarestaurants increased 25.5% to $13,785,000 in fiscal 2005 from $10,985,000 infiscal 2004.  The increase in restaurantsales volume was principally due to the opening of the new Pizzeria Regina atthe Prudential Center, the new Pizzeria Regina at South Station and to anincrease in same store sales of 3.4%.

 

Net sales at the Company’s full service casualdining restaurants increased by 4.4% to $8,806,000 in fiscal 2005 from$8,436,000 in fiscal 2004. The increase in restaurant sales was primarilyattributable to an increase in same store sales of 4.4%.

 

Sales at the Company’s commissary were $38,000 infiscal 2005 compared to $45,000 in fiscal 2004. The decrease in commissarysales was primarily attributable to the closing of a domestic Pizzeria Reginafranchise in Las Vegas, Nevada in April 2004.

 

FranchiseFees and Royalties

 

During fiscal 2005, the Company recognized approximately$300 in royalties from a domestic Pizzeria Regina franchise at the Palms CasinoResort in Las Vegas, Nevada which closed on April 30, 2004, compared toapproximately $17,000 in royalties in fiscal 2004.

 

**Costs and Expenses**

 

**Cost of Food, Beverages and Liquor**

 

Cost of food, beverages and liquor as a percentageof total revenues for all restaurants was 20% in fiscal 2005 compared to 19% infiscal 2004. The increase as a percentage of total revenues was primarilyattributable to the two Pizzeria Regina locations which have higher food coststhan the other Pizzeria Regina units due to the 

 

18

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additionof food items to their menus and to an increase in costs from suppliers ingeneral.

 

The cost of food, beverages and liquor was$4,628,000 in fiscal 2005 compared to $3,769,000 in fiscal 2004. The dollarincrease was due in part to the two additional Pizzeria Regina locations and anincrease in costs from suppliers in general.

 

The cost of food, beverages, and liquor as apercentage of restaurant sales at the Pizzeria Regina restaurants was 18% infiscal 2005 compared to 16% in fiscal 2004. The increase as a percentage ofrestaurant sales was primarily due to the opening of the two new PizzeriaRegina restaurants which have higher food costs due to the additional fooditems to their menus and from an increase in cost from suppliers in general.

 

The cost of food, beverages and liquor at thePizzeria Regina restaurants was $2,447,000 in fiscal 2005 compared to $1,741,000in fiscal 2004. The dollar increase was primarily due to the opening of twoadditional Pizzeria Regina restaurants.

 

The cost of food, beverages and liquor as apercentage of restaurant sales at the Company’s full service casual diningrestaurants increased to 25% in fiscal 2005 from 24% in fiscal 2004. Theincrease as a percentage of restaurant sales was principally due to increasesin costs from suppliers in general.

 

The cost of food, beverages and liquor at theCompany’s full service casual dining restaurants was $2,181,000 in fiscal 2005compared to $2,028,000 in fiscal 2004. The dollar increase was primarily due toincreases in costs from suppliers in general.

 

**Other Operating Expenses**

 

**Payroll Expenses**. Payroll expenses as a percentage of totalrevenues for all restaurants were 29% in fiscal 2005 compared to 30% in fiscal2004. The decrease as a percentage of total revenues was attributable to theopening of the two additional Pizzeria Regina locations which generally havelower payroll costs than the Company’s full service casual diningrestaurants.  This was partially offsetby startup costs associated with the opening of these two locations because, asis typical in the restaurant industry, the Company overstaffed these locationsduring the first few months of their operations to help them succeed.

 

Payroll expenses for all the restaurants were$6,676,000 in fiscal 2005 compared to $5,914,000 in fiscal 2004. The dollarincrease in payroll expenses was primarily due to the two new Pizzeria Reginarestaurants in Boston, Massachusetts.

 

Payroll expenses at the Pizzeria Regina restaurantswere 26% of restaurant sales in fiscal 2005 compared to 25% in fiscal2004.  The increase as a percentage ofrestaurant sales was principally due to the two new Pizzeria Regina restaurantsin Boston, Massachusetts and to increased costs in employee health benefits.

 

19

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Payroll expenses at the Pizzeria Reginarestaurants were 26% of restaurant sales in fiscal 2005 compared to 25% infiscal 2004.  The increase as apercentage of restaurant sales was principally due to the two new PizzeriaRegina restaurants in Boston, Massachusetts and to increased costs in employeehealth benefits.

 

Payroll expenses at the Pizzeria Reginarestaurants were $3,585,000 in fiscal 2005 compared to $2,798,000 in fiscal2004. This dollar increase was primarily due to the opening of two new PizzeriaRegina locations and to increased costs in employee health benefits.

 

Payroll expenses at the Company’s fullservice casual dining restaurants decreased to 30% of restaurant sales infiscal 2005 from 32% of restaurant sales in fiscal 2004. The decrease as apercentage of restaurant sales was primarily attributable to lower employeeincentive costs.

 

Payroll expenses at the Company’s fullservice casual dining restaurants were $2,678,000 in fiscal 2005 compared to$2,712,000 in fiscal 2004. This dollar decrease was primarily due to loweremployee incentive costs.

 

Payroll expenses at the Company’s Commissarywere $413,000 for fiscal 2005 as compared to $404,000 in fiscal 2004.

 

**OtherOperating Expenses, Exclusive of Payroll.**

 

Other operating expenses, exclusive ofpayroll, were 32% of total revenues in fiscal 2005 compared to 31% in fiscal2004.  The increase as a percentage oftotal revenues was attributable to higher promotion, energy and maintenancecosts.

 

Other operating expenses, exclusive ofpayroll were $7,237,000 in fiscal 2005 compared to $6,130,000 in fiscal 2004.This dollar increase is primarily attributable to the new Pizzeria Regina atPrudential Center in Boston, Massachusetts, the new Pizzeria Regina at SouthStation in Boston, Massachusetts and higher energy costs.

 

Other operating expenses, exclusive ofpayroll, from the Pizzeria Regina restaurants were 33% of restaurant sales inboth fiscal 2005 and in fiscal 2004.

 

Other operating expenses, exclusive ofpayroll from the Pizzeria Regina restaurants were $4,540,000 in fiscal 2005compared to $3,624,000 in fiscal 2004. This dollar increase was primarilyattributable to the addition of two new Pizzeria Regina locations and higherenergy costs.

 

Other operating expenses, exclusive ofpayroll, from the Company’s full service casual dining restaurants increased to29 % of restaurant sales in fiscal 2005 from 28% of restaurant sales in fiscal2004. The increase as a percentage of restaurant sales was primarilyattributable to an increase in promotions at the Polcari’s bistro restaurant inSalem, New Hampshire and higher energy costs and maintenance at the Company’sfull service casual dining restaurants.

 

Other operating expenses, exclusive ofpayroll, from the Company’s full service casual dining restaurants were$2,569,000 in fiscal 2005 compared to $2,381,000 in fiscal 2004. The dollarincrease was primarily attributable to the increase in promotions at thePolcari’s bistro restaurant in Salem, New Hampshire and higher energy costs andmaintenance at the Company’s full service casual dining restaurants.

 

20

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Other operating expenses also includecommissary expenses, which were $128,000 in fiscal 2005 and $125,000 in fiscal2004.

 

**Generaland Administrative Expenses**

 

General and administrative expenses were 11%of total revenues in fiscal 2005 compared to 14% in fiscal 2004.  The decrease as a percentage of totalrevenues was attributable to a higher revenue base and lower employee incentivecosts and lower consulting costs.

 

General and administrative expenses were$2,451,000 in fiscal 2005, compared to $2,739,000 in fiscal 2004. The dollardecrease was primarily attributable to lower employee incentive costs andconsulting costs.

 

**Depreciationand Amortization Expenses**

 

Depreciation and amortization expenses as a percentage of totalrevenues were 4% in the fiscal 2005 period compared to 5% in the fiscal 2004period.  The decrease as a percentage oftotal revenue was attributable to a higher revenue base.

 

Depreciation and amortization expense was$977,000 in fiscal 2005, as compared to $930,000 in fiscal 2004.  The increase in depreciation and amortizationexpense was primarily due to the addition of two Pizzeria Regina restaurants inBoston, Massachusetts.

 

**Pre-OpeningCosts**

 

Pre-opening expenses in fiscal 2005 were$93,000 compared to $77,000 in fiscal 2004. The costs which consist of labor, rent and training materials areprimarily attributable to the opening of the new Pizzeria Regina restaurant atSouth Station in Boston, Massachusetts in fiscal 2005 and to the new PizzeriaRegina restaurant at the Prudential Center restaurant in Boston, Massachusettsin fiscal 2004.

 

**Litigationand Settlement Credits**

 

In 1998 the Company formed a joint venture withItalian Ventures, LLC, a Kentucky limited liability company (“Italian Ventures”),and entered into a development agreement with it. Approximately eight monthsafter the joint venture and development agreement were entered into, theCompany filed a lawsuit against Italian Ventures and certain related partiesseeking dissolution of the joint venture. In fiscal 2001, the Company reached asettlement of the dispute with Italian Ventures, LLC in which it agreed to payroyalties on future revenues from certain “Bistro restaurants”, as defined inthe settlement agreement. The Company accrued a liability of $955,000 in thefourth quarter of fiscal 2001 as the estimated cost of the obligation to paythe future royalties, based upon a forecast of Bistro restaurant gross salesfor the period May 2001 through April 2008 using historical information andestimates of growth of existing Bistro units, as well as anticipated futureBistro unit openings and closings. In the fourth quarter of fiscal 2003, theCompany reduced the accrual by $443,000 to reflect the Company’s revisedestimate of its remaining obligation under the settlement agreement withItalian 

 

21

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Ventures. In2004, the Company experienced the opening of an under performing Polcari’s inCambridge, Massachusetts, which caused the Company to reassess its expansionplans due to financial constraints.  As aresult of this reassessment in fiscal 2004 the amount of accrual was reduced by$246,000 to $258,000 to reflect the Company’s revised estimates of theremaining obligations under the settlement agreement with Italian Ventures.   In fiscal 2005, the Company closed a Polcari’sbistro restaurant in Hyannis, Massachusetts. As a result, the Company reduced the accrual by $98,000 to reflect theCompany’s revised estimate of its remaining obligation under the settlementagreement with Italian Ventures.  As ofthe end of fiscal 2005, the total remaining accrual was $126,000.

 

**OtherIncome**

 

Other income was $8,000 in fiscal 2005compared to $222,000 in fiscal 2004. The prior year’s other income mainlyconsisted of insurance proceeds related to the temporary closing of the FaneuilHall Pizzeria Regina restaurant.

 

**InterestExpense and Interest Income**

 

Interest expense decreased to $478,000 infiscal 2005, compared to $496,000 in fiscal 2004. This decrease was primarilydue to a decrease in interest expense under the Company’s credit facility.

 

Interest income was $3,000 in both fiscal2005 and fiscal 2004 years.

 

22

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**DiscontinuedOperations**

 

In fiscal 2005, the Company completed the asset sale of Polcari’s ofHyannis, Inc. and entered into an agreement for the asset sale of Polcari’s ofCambridge, Inc.  The Company received approximately$552,000 of net proceeds from the sale of Polcari’s of Hyannis.  The sale of Polcari’s of Cambridge, Inc. isscheduled to be completed on July 22, 2005 and the net proceeds will berecorded when the sale is completed.  InNovember 2004, at the end of the lease term, the Company ceased operations ofthe Pizzeria Regina in Richmond, Virginia. The Company has reclassified its financial results to reflect Polcari’sof Hyannis, Inc., Polcari’s of Cambridge, Inc., and Pizzeria Regina inRichmond, Virginia as discontinued operations.

 

The loss from discontinued operations was $628,000 in fiscal 2005compared to $3,336,000 in fiscal 2004. In fiscal 2005, the loss fromdiscontinued operations represents operating losses from the Polcari’s bistrorestaurant in Hyannis, Massachusetts, the Polcari’s North End restaurant inCambridge, Massachusetts, and the Pizzeria Regina restaurant in Richmond,Virginia of $643,000 and a gain of $15,000 from the disposal of certain assetsof the Polcari’s bistro in Hyannis, Massachusetts.  In fiscal 2004, the loss of $3,336,000 fromdiscontinued operations represents operating losses from the Polcari’s bistrorestaurant in Hyannis, Massachusetts the Pizzeria Regina restaurant inRichmond, Virginia and the Polcari’s North End in Cambridge, Massachusetts,including an impairment charge of $2,163,000 related to the write-down ofcertain long lived assets for that location.

 

The Company reviewed the carrying value of its long lived assets andnoted that the expected future cash flows for this location were not sufficientto recover the recorded carrying value of long-lived assets at thislocation.  Accordingly, the Companyrecognized an impairment charge to reduce the carrying value of long livedassets at this location.   The Companyrecognized an impairment charge to reduce the carrying value of leaseholdimprovements to zero and restaurant equipment to an estimated fair market valuebased on the estimated residual value of the equipment.

 

**Results ofOperations for the Years Ended April 25, 2004 and April 27, 2003**

 

During fiscal 2005 the Company closed the Pizzeria Regina in Richmond,Virginia at the end of the lease term, completed the asset sale of Polcari’s ofHyannis, Inc. and entered into an agreement to sell the assets of Polcari’s ofCambridge, Inc. on July 22, 2005 therefore the following results of operationsfor fiscal year ended April 24, 2005, April 25, 2004, and April 27, 2003 havebeen reclassified to reflect Polcari’s of Hyannis, Inc., Polcari’s ofCambridge, Inc., and Pizzeria Regina in Richmond, Virginia as discontinuedoperations.

 

23

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Restaurant Sales

 

Restaurant sales in fiscal 2004 were$19,466,000 compared to $19,633,000 in fiscal 2003. Sales for the restaurants openthroughout both fiscal 2004 and 2003 decreased by .9%. The Company believes thedecrease in restaurant sales in fiscal 2004 compared to fiscal 2003 wasattributable to the impact on consumer behavior of the economic slowdown in theNortheast and to the temporary closing of the Faneuil Hall Pizzeria Reginarestaurant in Boston, Massachusetts.  TheFaneuil Hall location was closed as the result of a fire that occurred in thecommon duct work located in its mall complex. The Company believes that this is unlikely to occur in the future.  The Company’s loss of sales as a result ofthis closing however was offset by $176,000 of insurance proceeds that wereincluded in revenue for fiscal 2004.

 

Net sales at the Company’s Pizzeria Reginarestaurants decreased .7% to $10,985,000 in fiscal 2004 from $11,061,000 infiscal 2003. The decrease in restaurant sales was principally due to thetemporary closing of the Faneuil Hall location from May 9, 2003 to July 2,2003. The loss of revenue from that location was partially compensated bypayments under the Company’s insurance policies, which are included in otherincome.

 

Net sales at the Company’s full servicecasual dining restaurants decreased by 1.3% to $8,436,000 in fiscal 2004 from$8,545,000 in fiscal 2003. The decrease in restaurant sales was attributable tothe continued economic slow down in the Northeast.

 

Sales at the Company’s commissary were$45,000 in fiscal 2004 compared to $27,000 in fiscal 2003. The increase incommissary sales was primarily attributable to an increase in product shipmentsto our distributors for the out-of-state Pizzeria Reginas and the PizzeriaRegina franchise in Las Vegas, Nevada.

 

Franchise Fees and Royalties

 

During fiscal 2004, the Company recognized$17,000 in royalties from a domestic Pizzeria Regina franchise at the PalmsCasino Resort in Las Vegas, Nevada which closed on April 30, 2004. Duringfiscal 2003, the Company recognized $50,000 in franchise fee revenues and$14,000 related to royalties.

 

**Costs andExpenses**

 

**Cost ofFood, Beverages and Liquor**

 

Cost of food, beverages and liquor as apercentage of total revenues for all restaurants was 19 % in fiscal 2004compared to 18% in fiscal 2003. The increase as a percentage of total revenueswas primarily attributable to increases in costs from suppliers in general.

 

The cost of food, beverages and liquor was$3,769,000 in fiscal 2004 compared to $3,620,000 in fiscal 2003. The dollarincrease was due to increase in costs from suppliers in general.

 

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The cost of food, beverages, and liquor as apercentage of restaurant sales at the Pizzeria Regina restaurants was 16% infiscal 2004 compared to 15% in fiscal 2003. The increase as a percentage ofrestaurant sales was primarily due to higher cheese costs.

 

The cost of food, beverages and liquor at thePizzeria Regina restaurants was $1,741,000 in fiscal 2004 compared to$1,666,000 in fiscal 2003. The dollar increase was primarily due to highercheese costs and increases in costs from suppliers in general, which werepartially offset by the Company’s lower consumption of these supplies due tolower sales from these restaurants.

 

The cost of food, beverages and liquor as apercentage of restaurant sales at the Company’s full service casual diningrestaurants increased to 24% in fiscal 2004 from 23% in fiscal 2003. Theincrease as a percentage of restaurant sales was principally due to theincreases in costs from suppliers in general.

 

The cost of food, beverages and liquor at theCompany’s full service casual dining restaurants was $2,028,000 in fiscal 2004compared to $1,954,000 in fiscal 2003. The dollar increase was primarily due toincreases in costs from suppliers in general.

 

**OtherOperating Expenses**

 

Payroll Expenses. Payroll expenses as apercentage of total revenues for all restaurants were 30% in both fiscal 2004and in fiscal 2003.

 

Payroll expenses for all the restaurants were$5,914,000 in fiscal 2004 compared to $5,811,000 in fiscal 2003. The dollarincrease in payroll expenses was primarily due to increased employee incentivesand health benefit costs.

 

Payroll expenses at the Pizzeria Reginarestaurants were 25% of restaurant sales in both fiscal 2004 and in fiscal2003.

 

Payroll expenses at the Pizzeria Reginarestaurants were $2,798,000 in fiscal 2004 compared to $2,742,000 in fiscal2003. This dollar increase was primarily due to an increased cost in employeeincentives and health benefits.

 

Payroll expenses at the Company’s fullservice casual dining restaurants was 32% of restaurant sales in both fiscal2004 and in fiscal 2003.

 

Payroll expenses at the Company’s fullservice casual dining restaurants were $2,712,000 in fiscal 2004 compared to$2,698,000 in fiscal 2003. This dollar increase was primarily due to anincrease in employee incentives and health benefit costs.

 

Payroll expenses at the Company’s Commissarywere $404,000 for fiscal 2004 as compared to $371,000 in fiscal 2003.

 

**OtherOperating Expenses, Exclusive of Payroll.**

 

Other operating expenses, exclusive of payroll,were 31% of total revenues in fiscal 2004 compared to 30% in fiscal 2003. Theincrease in operating expenses, 

 

25

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exclusive ofpayroll, as a percentage of total revenues was primarily due to the temporaryclosing of Faneuil Hall location, where the Company nonetheless continued toincur some of such costs without any corresponding revenue, to an increase inrent expense and to higher energy costs.

 

Other operating expenses, exclusive ofpayroll were $6,130,000 in fiscal 2004 compared to $5,855,000 in fiscal 2003.This dollar increase is primarily attributable to the temporary closing of theFaneuil Hall location, where the Company nonetheless continued to incur some ofsuch costs without any corresponding revenue, to an increase in rent expenseand to higher energy costs.

 

Other operating expenses, exclusive ofpayroll, from the Pizzeria Regina restaurants were 33% of restaurant sales infiscal 2004 compared to 32% in fiscal 2003. The increase as a percentage ofsales was primarily attributable to the temporary closing of the Faneuil Halllocation, where the Company nonetheless continued to incur some of such costswithout any corresponding revenue.

 

Other operating expenses, exclusive ofpayroll from the Pizzeria Regina restaurants were $3,624,000 in fiscal 2004compared to $3,567,000 in fiscal 2003. This dollar increase was primarilyattributable to the temporary closing of the Faneuil Hall location whichresulted in additional operating expenses.

 

Other operating expenses, exclusive ofpayroll, from the Company’s full service casual dining restaurants increased to28 % of total revenues in fiscal 2004 from 25% of total revenues in fiscal2003. The increase as a percentage of restaurant sales was primarily attributableto an increased rent expenses, higher energy costs and the reduction in samestores revenue.

 

Other operating expenses, exclusive ofpayroll, from the Company’s full service casual dining restaurants were$2,381,000 in fiscal 2004 compared to $2,178,000 in fiscal 2003. The dollarincrease was primarily due to a $126,000 increase in rent expenses and tohigher energy costs.

 

Other operating expenses also includecommissary expenses, which were $125,000 in fiscal 2004 and $110,000 in fiscal2003.

 

**Generaland Administrative Expenses**

 

General and administrative expenses were 14%of total revenues in fiscal 2004 as compared to 13% in fiscal 2003.

 

General and administrative expenses were$2,739,000 in fiscal 2004, compared to $2,611,000 in fiscal 2003. The dollarincrease were primarily attributable to consulting costs.

 

**Depreciationand Amortization Expenses**

 

Depreciation and amortization expense was$930,000 in fiscal 2004, as compared to $922,000 in fiscal 2003, amounting to5% of total revenues in both fiscal years.

 

26

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**Pre-OpeningCosts**

 

Pre-opening expenses in fiscal 2004 were$77,000 compared to $0 in fiscal 2003. The pre-opening expenses which consistedof labor, advertising, rent and training materials were related to the newPizzeria Regina restaurant at the Prudential Center in Boston, Massachusettsand the planned opening of the new Pizzeria Regina restaurant at South Stationin Boston, Massachusetts.

 

**Litigationand Settlement Credits**

 

In 1998 the Company formed a joint venturewith Italian Ventures, LLC, a Kentucky limited liability company (“ItalianVentures”), and entered into a development agreement with it. Approximatelyeight months after the joint venture and development agreement were enteredinto, the Company filed a lawsuit against Italian Ventures and certain relatedparties seeking dissolution of the joint venture. In fiscal 2001, the Companyreached a settlement of the dispute with Italian Ventures, LLC in which itagreed to pay royalties on future revenues from certain “Bistro restaurants”,as defined in the settlement agreement. The Company accrued a liability of$955,000 in the fourth quarter of fiscal 2001 as the estimated cost of theobligation to pay the future royalties, based upon a forecast of Bistrorestaurant gross sales for the period May 2001 through April 2008 usinghistorical information and estimates of growth of existing Bistro units, aswell as anticipated future Bistro unit openings and closings. In the fourth quarterof fiscal 2003, the Company reduced the accrual by $443,000 to reflect theCompany’s revised estimate of its remaining obligation under the settlementagreement with Italian Ventures. In 2004, the Company experienced the openingof an under performing Polcari’s in Cambridge, Massachusetts which caused theCompany to reassess its expansion plans due to financial constraints.  As a result of this reassessment in fiscal2004 the amount of accrual was reduced by $246,000 to $258,000 to reflect theCompany’s revised estimates of the remaining obligations under the settlementagreement with Italian Ventures.

 

**OtherIncome**

 

Other income was $222,000 in fiscal 2004compared to $9,000 in fiscal 2003. The increase in other income is attributableto insurance proceeds of $184,000 related to the temporary closing of theFaneuil Hall Pizzeria Regina.

 

**InterestExpense and Interest Income**

 

Interest expense increased to $496,000 infiscal 2004, compared to $381,000 in fiscal 2003. This increase was primarilydue to a increase in interest expense under the Company’s credit facility.

 

Interest income was $3,000 in both fiscal2004 and fiscal 2002.

 

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**DiscontinuedOperations**

 

The loss from discontinued operations was $3,336,000 in fiscal 2004,compared to income of $40,000 in fiscal 2003. In fiscal 2004, the loss from discontinued operations representsoperating losses from the Polcari’s bistro restaurant in Hyannis, Massachusetts,the Pizzeria Regina in Richmond, Virginia, and the Polcari’s North Endrestaurant in Cambridge, Massachusetts, which includes an impairment charge of$2,163,000.

 

The Company reviewed the carrying value of its long lived assets andnoted that the expected future cash flows for this location were not sufficientto recover the recorded carrying value of long-lived assets at thislocation.  The Company recognized animpairment charge to reduce the carrying value of long lived assets at thislocation.   The Company recognized animpairment charge to reduce the carrying value of leasehold improvements tozero and restaurant equipment to an estimated fair market value based on theestimated residual value of the equipment.

 

In fiscal 2003 the income from discontinued operations relate toPolcari’s bistro restaurant in Hyannis, Massachusetts, the Pizzeria Reginarestaurant in Richmond, Virginia, and the Polcari’s North End restaurant inCambridge, Massachusetts.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

Our primary sources of funding during fiscal2005 were cash provided by operations, the disposition of assets relating tothe Company’s discontinued operations and the issuance of Preferred Stock.

 

On January 20, 2005 the Company completed theprivate placement transaction of 1,147,056 of Preferred Stock with a purchaseprice of $.85 per share resulting in approximately $975,000 of equity for theCompany.

 

On April 21, 2005, the Company entered into anew $2,300,000 Credit Facility with Commerce Bank and Trust Company. ThisCredit Facility consists of a $1,500,000 4 year term note bearing interest atprime plus 2% and an $800,000 mortgage at a fixed rate of 7%. This facility issecured by all of the assets of the Company. The Company was in compliance withthe bank covenants for fiscal year ended April 24, 2005.  The proceeds of the Credit Facility were usedto retire all prior existing debt with Commerce Bank and Trust Company.  During April 2005, the Company completed theasset sale of Polcari’s of Hyannis, Massachusetts for approximately $552,000 ofnet proceeds.    The Company believes that income and cashflow for operations will be sufficient to meet the Company’s financialrequirements for the next twelve months.

 

At April 24, 2005, the Company had a workingcapital deficit of $1,339,000 compared to a deficit of $4,304,000 at the end offiscal 2004, and cash and cash equivalents of approximately $687,000, comparedto $652,000 at the end of fiscal 2004. The principal reasons for the largerworking capital deficit in fiscal 2004 were the classification of the bank debtas current due to covenant violations at the end of fiscal 

 

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2004 and the largerloss incurred in fiscal 2004.  For theyear ended April 24, 2005, the Company has sustained net losses ofapproximately $429,000. As of that date, the Company had a stockholders’deficit of $164,000 as compared to a deficit of $669,000 at the end of fiscal2004.

 

 Duringfiscal 2005, the Company had a net increase in cash and cash equivalents of$35,000, reflecting net cash provided by operating activities of $651,000, netcash used for investing activities of $250,000 and net cash used for byfinancing activities of $366,000.

 

Net cash provided by operating activities of$650,000 included depreciation and amortization expense of $1,103,000, warrantsgranted in exchange for the stockholder loan of $8,000, an increase of accruedexpenses of $314,000 a decrease in accounts receivable of $29,000, a decreasein inventories of $139,000, and a decrease in prepaid expenses of $33,000. Thiswas partially offset by a net loss of $429,000, an increase of other assets of$20,000, a decrease in other long-term liabilities of $18,000 a decrease indeferred rent of $134,000, a decrease in accounts payable of $277,000 and areduction of the litigation settlement of $98,000. Net cash used for investingactivities of $250,000 reflects capital expenditures associated with the newPizzeria Regina at the Prudential Center in Boston, Massachusetts, the newPizzeria Regina at South Station in Boston, Massachusetts and various otherPizzeria Regina restaurants and Polcari’s North End bistro restaurantspartially offset by the asset sale of Polcari’s of Haynnis, Massachusetts. Netcash used for financing activities of $366,000 consisted of proceeds from theCredit Facility and, the preferred stock subscription, and sale of assetspartially offset by net repayments for long-term debt, capital leaseobligations and stockholder loans.

 

At April 24, 2005, the Company had currentliabilities of $2,924,000, including $715,000 of accounts payable, $1,607,000of accrued expenses, current maturities of long term obligations in the amountof $391,000 and current liabilities for discontinued operations of $211,000. AtApril 24, 2005, the Company had long-term obligations, less current maturities,in the amount of $3,981,000, including $82,000 of notes payable to astockholder, $1,947,000 due under its credit facility with Commerce Bank andTrust Company, $1,450,000 of convertible subordinated debentures, $367,000 ofdeferred rent, and $135,000 of other long-term liabilities primarily related tothe litigation settlement agreement with Italian Ventures, LLC.

 

The Company has no additional significantcapital commitments in fiscal 2006.  TheCompany believes that its existing resources, including its loan facility,together with cash flow generated from operations, will be sufficient to fundits cash flow requirements and maintain debt covenant compliance for the nexttwelve months.  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 future may have a criticaleffect on the Company’s ability to raise funds through the sale of stock orotherwise.

 

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**ContractualObligations**

 

The Company has long-term contractualobligations primarily in the form of leases and debt obligations. The followingtable summarizes the Company’s contractual obligations and their aggregatematurities as of April 24, 2005. (See discussions of cash flows, financialposition and capital resources as well as the Notes to the April 24, 2005consolidated financial statements for further details).

 
| **Contractual  Obligations**    | ** ** | **Total**  | ** ** | **Less than 1  year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
|---------------------------------|------------|------------|------------|-----------------------|------------|---------------|------------|---------------|------------|------------------------|------------|
| Long term  debt obligations (1) |       | $          | 3,750,000  |                  | $          | 353,396       |       | $             | 793,720    |                   | $          | 1,152,884 |   | $ | 1,450,000 |   |
| Capital  lease obligations (2)  |       | 31,152     |       | 31,152                |       | —        |       | —        |       | —                 |       |
| Operating  lease obligations    |       | 14,041,249 |       | 2,850,575             |       | 5,001,633     |       | 3,479,641     |       | 2,709,400              |       |
| Purchase  obligations           |       | —     |       | —                |       | —        |       | —        |       | —                 |       |
| Shareholder  Note (3)           |       | 88,850     |       | 6,420                 |       | 13,785        |       | 15,123        |       | 53,522                 |       |
| Total                           |       | 17,911,251 |       | 3,241,543             |       | 5,809,138     |       | 4,647,648     |       | 4,212,922              |       |
|                                 |            |            |            |                       |            |               |            |               |            |                        |            |  |  |  |  |  |

 

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(1)           Consistsprincipally of bank borrowings under the Credit Facility and the $1,450,000principal amount of long term convertible debentures.

(2)           Consistsprincipally of equipment leases.

(3)           Consistsprincipally of shareholder note.

 

The Company requires cash to pay itsoperating expenses and to service the obligations listed above. The Company’sprincipal sources of funds are its operations. The Company cannot guaranteethat its operations will generate cash in future periods.

 

The Credit Facility requires compliance withvarious financial covenants, of which the most restrictive are cash to debtratio and profitability. If the Company defaults under any of the provisions ofthe Credit Facility, all amounts outstanding under each of the term facilitiesbecome due and payable, and the bank may proceed against its collateral, whichincludes substantially all of the Company’s assets. As of April 24, 2005 theCompany was in compliance with the financial covenants of the Credit Facility.

 

**CRITICAL ACCOUNTING POLICIES**

 

The Company considers its accounting policieswith respect to the use of estimates, long-lived assets and goodwill, andrevenue recognition as the most critical to its results of operations andfinancial condition.

 

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**Use of Estimates**

 

The preparation of financial statements inconformity with generally accepted accounting principles in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities, and disclosure of contingentassets and liabilities at the date of the financial statements, and reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates. For example, in fiscal 2001 the Companyrecorded a non-recurring charge for a litigation settlement agreement. Thisestimate was based on projected sales of current and future bistro restaurants,which assumed the number and timing of new Bistro Restaurants as defined in thesettlement agreement as demonstrated by our discussion of the this accrual inour results of operations. The actual royalty payments ultimately required tobe paid may vary significantly from both the Company’s original and its revisedestimates.

 

**Long-Lived Assets**

 

The Company evaluates its long-lived assetsunder the provisions of Statement of Financial Accounting Standards No. 144 (“SFASNo. 144”). SFAS No. 144 establishes accounting standards for the impairment oflong-lived assets and certain identifiable intangibles to be held and used andfor long-lived assets, and certain identifiable intangibles to be disposed of.

 

Whenever events or changes in circumstancesindicate that the carrying amounts of the assets may not be recoverable, theCompany reviews the carrying values of its long-lived and identifiableintangible assets for possible impairment, as appropriate. In fiscal 2004, theCompany recorded an impairment charge of $2,163,000, included in discontinuedoperations, related to the write-down of certain long-lived assets. The Companydetermined that the future cash flows which the Company estimated would bereceived from Polcari’s North End located in Cambridge, Massachusetts would notbe sufficient to recover the recorded carrying value of the long-lived assetsapplicable to that location.

 

**Goodwill**

 

Goodwill resulting from the excess of costover fair value of net assets acquired is being tested for impairment inaccordance with the guidelines in SFAS No. 142. SFAS No. 142 requires amongother things, that companies no longer amortize goodwill but test goodwill forimpairment at least annually. As of April 27, 2003, the Company’s goodwill of$453,643 was associated with the acquisition of Capucino’s, Inc. in 1994. Noadjustment to the $453,643 balance of goodwill was deemed necessary during theyear ended April 24, 2005. Prior to the adoption of SFAS 142, the Companyamortized goodwill over twenty years, which resulted in amortization of $37,806in both 2002 and 2001.

 

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**Revenue Recognition**

 

Substantially all restaurant sales representretail sales to the general public through Company-owned restaurants. Suchamounts are recognized as revenue at the point of sale.

 

Franchise fees resulting from the sale ofindividual franchise locations are recognized as revenue upon the commencementof franchise operations. Revenues from the sale of area development rights arerecognized proportionately as the franchised restaurants commence operations.Franchise royalties, which are based on a percentage of franchised restaurants’sales are recognized when revenue is earned.

 

**Recently Issued Accounting Standards**

 

In December2004, the FASB revised SFAS No. 123, Share Based Payment, or SFAS No. 123R.SFAS No. 123R supersedes APB Opinion No. 25, Accounting for Stock Issued toEmployees, and amends Statement No. 95, Statement of Cash Flows. Under SFAS No.123R, companies must calculate and record in the income statement the cost ofequity instruments, such as stock options, awarded to employees for servicesreceived. The cost of the equity instruments is to be measured based on thefair value of the instruments on the date they are granted and is required tobe recognized over the period during which the employees are required to provideservices in exchange for the equity instruments.  SFAS No. 123R is effective for the Company commencingin fiscal year 2007.

 

The adoption of SFAS No. 123R is expected tohave a significant impact on the Company’s financial statements.  The impact of adopting SFAS No. 123R cannotbe accurately estimated at this time, as it will depend on the market value andthe amount of share-based awards granted in future periods.

 

In November 2004, the Financial Accounting StandardsBoard, or the FASB, issued SFAS No. 151, I*nventory Costs, AnAmendment of ARB. No. 43, Chapter 4*. SFAS No. 151 clarifies thatabnormal amounts of idle facility expense, freight, handling costs and wastematerials should be recognized as current period charges in allcircumstances.  The Company is requiredto adopt SFAS No. 151 on May 1, 2006.  We do not expect the adoptions of SFAS No. 151 to have a material impacton our financial position, results of operations or cash flow.

 

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**ITEM 7A.****QUANTITATIVE AND QUALITATIVEDISCLOSURE ABOUT MARKET RISKS.**

 

**Interest Rate Risk.**

 

We have exposure to interest rate riskrelated to certain instruments entered into for other than trading purposes.Specifically, borrowings under the Credit Facility described in Item 7 bearinterest at a variable rate based on the bank’s prime rate. A 100 basis pointchange in the Credit Facility interest rate (approximately 7.75% at April 24,2005) would cause the interest expense for fiscal 2005 to change byapproximately $15,000. This computation is determined by considering the impactof hypothetical interest rates on our variable long-term debt at April 24,2005. However, the nature and amount of our borrowings under the CreditFacility may vary as a result of future business requirements, marketconditions covenant compliance and other factors.

 

Our other outstanding long-term debt bearsfixed rates of interest. The Company believes there is no material exposure toa market interest rate risk that could affect future results of operations orfinancial conditions.

 

**Commodity Price Risk.**

 

Many of the food products and other operatingessentials purchased by us are affected by commodity pricing and are,therefore, subject to price volatility caused by weather, production problems,delivery difficulties and other factors that are beyond our control. Oursupplies and raw materials are available from several sources and we are notdependent upon any single source for these items. The Company negotiatesdirectly with wholesale suppliers of certain high volume food ingredients suchas cheese, tomato sauce, and flour to ensure consistent quality and competitivepricing. These ingredients are then purchased for the Company by a third partyindependent distributor at the negotiated price and redistributed to theCompany’s restaurants. All other food ingredients and beverage products arepurchased directly by the general manager of each restaurant in accordance withcorporate guidelines. Certain significant items that could be subject to pricefluctuations are cheese and flour products. The Company believes that it willbe able to pass through increased commodity costs by adjusting menu pricing inmost cases. However, we believe that any changes in commodity pricing thatcannot be offset by changes in menu pricing or other product deliverystrategies would not be material.

 

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**ITEM 8****                   FINANCIALSTATEMENTS AND SUPPLEMENTAL DATA**

 

BOSTON RESTAURANT ASSOCIATES, INC. ANDSUBSIDIARIES INDEX

 

 TO FINANCIAL STATEMENTS

 
| Index to  Financial Statements                           |   |
|----------------------------------------------------------|--------|
| Report of Independent Registered Public  Accounting Firm |   |
| Consolidated  Financial Statements                       |   |
| Balance sheets                                           |   |
| Statements  of operations                                |   |
| Statements of stockholders’ equity                  |   |
| Statements  of cash flows                                |   |
| Summary of accounting policies                           |   |
| Notes to consolidated financial statements               |   |

 

The Company’s Financial Statements, togetherwith the Report of the Registered Public Accounting Firm have been included atItem 15 and appear at Pages F-1 through F-36.

 

**ITEM 9.****                  CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**ITEM 9A.****               CONTROLSAND PROCEDURES**

 

As of the end of the period covered by thisreport, the Company’s Chief Executive Officer and Chief Financial Officerperformed an evaluation of the effectiveness of the Company’s disclosurecontrols and procedures (as defined in SEC Rule 13a-15 or 15d-15), which havebeen designed to ensure that material information related to the Company istimely disclosed. Based upon that evaluation, they concluded that thedisclosure controls and procedures were effective and remained materiallyunchanged in the fourth quarter of year ended April 24, 2005.

 

**ITEM 9B.****               OTHERINFORMATION**

 

None.

 

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**PART III**

 

**ITEM 10.****DIRECTORS ANDEXECUTIVE OFFICERS OF THE REGISTRANT**

 

**The following table sets forth informationwith respect to directors:**

 
| **Directors**          | ** ** | **Age** | ** ** | **Position**                                     | ** ** | **Since** | ** ** |
|------------------------|------------|---------|------------|--------------------------------------------------|------------|-----------|------------|
|                   |       |    |       |                                             |       |      |       |
| George R.  Chapdelaine |       | 60      |       | Chief Executive Officer, President and  Director |       | 1994      |       |
|                   |       |    |       |                                             |       |      |       |
| Hugh Devine            |       | 58      |       | Director                                         |       | 2000      |       |
|                   |       |    |       |                                             |       |      |       |
| Edward P.  Grace III   |       | 55      |       | Director                                         |       | 2004      |       |
|                   |       |    |       |                                             |       |      |       |
| Roger Lipton           |       | 64      |       | Director                                         |       | 1996      |       |
|                   |       |    |       |                                             |       |      |       |
| John P.  Polcari, Jr.  |       | 74      |       | Director                                         |       | 1994      |       |
|                   |       |    |       |                                             |       |      |       |
| Peter E.  Salas        |       | 51      |       | Director                                         |       | 2005      |       |
|                   |       |    |       |                                             |       |      |       |
| Robert C.  Taft        |       | 51      |       | Director                                         |       | 2004      |       |

 

Mr.Chapdelaine was elected President, Chief Executive Officer and a director ofthe Company in April 1994.  Mr.Chapdelaine served as President, Chief Executive Officer and a director ofPizzeria Regina, Inc., a predecessor of the Company, from 1982 until it wasacquired by the Company in April 1994. Prior to 1982, Mr. Chapdelaine worked in the food service industry invarious capacities, including as an independent marketing consultant, a generalmanager of the Food Service division for H.P. Hood, Inc. and a sales managerfor Chiquita Brands, a subsidiary of United Brands.  Mr. Chapdelaine holds an MBA from ClarkUniversity and graduated with a B.S. in Hotel and Restaurant Management fromOklahoma State University.  He currentlyserves on the Board of the Massachusetts Restaurant Association.

 

Mr. Devine hasbeen the President of Devine & Pearson Advertising, Inc. (an advertisingand communications agency with 29 years experience marketing to the foodservice industry) since 1976.  Mr. Devineis nationally recognized for identifying marketing opportunities for clients,both food service operators and manufacturers of food, beverages, equipment andsupplies.  He serves on the boards ofdirectors of the YMCA, American Association of Advertising Agencies andAdvertising Club of Greater Boston.

 

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Mr. Grace has been President of Phelps GraceInternational, Inc., an investment management company, and Managing Director ofGrace Venture Partners, LP. since 1998.  Mr. Grace has over 30 yearsexperience in the food service industry.  He was the founder, Chairman,President and CEO of Bugaboo Creek Steak House, Inc., operator of both TheCapital Grill, a 20location fine dining restaurant, and theBugaboo Creek Steak House, a casual dining restaurant chain with locationsthroughout the East Coast, from 1989 until 1996. He was Vice Chairman and aDirector of RARE Hospitality International, Inc. from 1996 to 1998.  From1992 until 1994 he was the Chairman of Homestyle Buffet, Inc., a 34 locationbuffet style restaurant chain.  Mr. Grace has served as the director of anumber of public and private companies, including Professional FacilitiesManagement, Inc., Not Your Average Joe’s Inc., The Gemesis Corporation and PsiloQuest, Inc.  He is currentlya Trustee of Johnson & Wales University and of Bryant College and in thepast has served on the boards of a number of other trade associations, andeducational and philanthropic organizations, including the National RestaurantAssociation.

 

Mr. Lipton hasbeen President of Lipton Financial Services, Inc. (a money management andinvestment banking firm, specializing in restaurant, franchising and retailingindustries) since 1993.  Since February1995, he has also been a Managing Director of Axiom Capital Management, Inc., aNASD broker/dealer.  From 1981 untilFebruary 1995, he was Managing Director of Ladenburg, Thalmann & Co., Inc.,a broker/dealer and investment banking firm.

 

Mr. Polcariwas a founder of Pizzeria Regina, Inc. and has been employed by the Company andits predecessor in various capacities from its inception.  He is a recipient of the National RestaurantAssociation’s state restaurateur of the year award for the Commonwealth ofMassachusetts.

 

Mr. Salas hasbeen President of Dolphin Asset Management Corp. and its related companiessince he founded it in 1988.  Prior toestablishing Dolphin, he was with J.P. Morgan Investment, Inc. for ten years,becoming Co-manager, Small Company Fund and Director-Small Cap Research.

 

Mr. Taft hasbeen the CEO of Caffino, Inc., a chain of double drive-through espresso bars,since September 2003.  He has over 25years experience in the food service industry. During 2002 and 2003 Mr. Taft was Chief Concept Officer of UltimateFranchise System, Inc., and was President of Sonofresco from 2001 to 2002   He was Chief Operating Officer ofFuddruckers, Inc., a fast casual restaurant chain with over 200 franchised andcompany owned locations, from 1999 until 2001. From 1996 until 1999, he served as President of the Au Bon Pain BakeryCafes unit of Au Bon Pain, Inc., a fast service chain with over 250 locations.  From 1993 until 1996, Mr. Taft was thePresident and CEO of Papa Gino’s, Inc. He has served on the boards of Ultimate Franchise Systems, Inc. and theWashington and Massachusetts Restaurant Associations.

 

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**Compensation of Directors**

 

Non-employee directors of the Companypresently do not receive cash compensation for their services asdirectors.  The Company provides healthinsurance benefits or the cash equivalent to its directors and reimburses themfor their out-of-pocket expenses in attending board meetings.  In addition, directors were eligible for thegrant of stock options under the 2002 Combination Stock Option and Share AwardPlan. 400,000 options to purchase shares of common stock were awarded todirectors under these plans during fiscal 2005; 100,000 shares each to Mr.Grace and Mr. Taft and 50,000 shares each to Mr. Chapdelaine, Mr. Devine,Mr. Lipton and Mr. Polcari.

 

**Management**

 

AnthonyBuccieri, 51, was appointed Vice President of Operations in April 1994.  Mr. Buccieri joined a predecessor of theCompany in 1974 and has served in various capacities since that date, includingas operations supervisor since 1983. Ms. Fran Ross, 53, was appointed a CompanyVice President in, February 1995 and Chief Financial Officer in October 1995.

 

**CORPORATE GOVERNANCE**

 

**General**

 

The Board of Directors of the Companybelieves that good corporate governance is important to ensure that the Companyis managed for the long-term benefit of its stockholders.  In response to the wave of corporate scandalsand Congress’s enactment of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”),in the Fall of 2002 the Board reviewed our corporate governance policies andpractices and compared them to the provisions of Sarbanes-Oxley, the new andproposed rules of the SEC under that statute and practices suggested by variousauthorities in corporate governance. Based upon that review, in December 2002 the Board of Directors tooksteps to implement the then proposed new rules and listing standards. Inparticular, the Board:

 

•      adopted a newcharter for our Audit Committee reflecting the requirements of Sarbanes—Oxleyand the rules adopted or then proposed for audit committees;

 

•      adopted acharter for our Compensation Committee;

 

•      created aCorporate Governance and Nominating Committee (initially consisting of theentire Board) and adopted its charter;

 

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•      Reviewed theindependence standards for directors then being proposed or adopted by the SECand Nasdaq and assessed the independence of existing board and committeemembers under those standards; and

 

•      adopted a Codeof Ethics and a Code of Conduct which applies to all executive officers,directors, employees and agents of the Company.

 

Subsequent tothe December 2002 meeting, the Board also approved adjustments in the actionstaken at that meeting to conform to changes in regulations subsequently adoptedby the SEC and the Nasdaq Stock Market, Inc.

 

**Board of Directors and Committees**

 

The Board of Directors has responsibility forestablishing broad corporate policies and reviewing our overall performancerather than day-to-day operations. The Board’s primary responsibility is tooversee the management of the Company and, in so doing, to serve the bestinterests of the Company and its stockholders. Management keeps the directorsinformed of Company activity through regular written reports and presentationsat Board and committee meetings.

 

The Board of Directors held five meetingsduring the fiscal year ended April 24, 2005. All of the Company’s directors are encouraged to attend the Company’sannual meeting of stockholders. All of the Company’s directors were inattendance at the Company’s September, 2004 Annual Meeting.

 

The Board of Directors also acted by unanimouswritten consent in lieu of a special meeting on two occasions.  Each current director attended at least 75%of the meetings of the Board of Directors and of committees of which he or shewas a member held during the last fiscal year. Under the standards of the Nasdaq Stock Market, Inc. (NASD Rule4200(a)(15)), the Company has determined that five of the seven directors,Messrs. Devine, Grace, Lipton, Salas and Taft, satisfy the requirements to be an independent director.

 

The Board currently has the followingcommittees: an Audit Committee, a Compensation Committee, and a CorporateGovernance and Nominating Committee.

 

*Audit Committee*.  The primary function of our Audit Committeeis to assist the Board in fulfilling its oversight responsibilities with respectto the management of the Company.  TheAudit Committee is directly responsible for the oversight of : (i) theintegrity of the Company’s disclosure controls and procedures; (ii) theintegrity of the Company’s internal controls over financial reporting; and(iii) the qualifications, independence, appointment, compensation andperformance of the Company’s independent auditors.  It also is responsible for administering theCompany’s Code of 

 

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Ethics and Code of Conduct, the establishmentof “whistle-blowing” procedures, and the oversight of certain other compliancematters.

 

Under its charter adopted in December 2002,as subsequently amended and supplemented by SEC and stock market rules, theAudit Committee must consist of not less than one or more than three directors,all of whom satisfy the independence standards of the SEC, the Nasdaq StockMarket.  The Audit Committee has beencomposed of Mr. Devine, Mr. Grace and Mr. Taft, all of whom the Board of Directorsdetermined satisfy those standards.  In2005, the Board of Directors reviewed the qualifications of Mr. Grace and Mr.Taft and determined that each was an “audit committee financial expert” asdefined by SEC rules.  The AuditCommittee held five meetings during the fiscal year ended April 24, 2005.

 

*Compensation Committee*.  The purpose of the Compensation Committee isto assist the Board in the discharge of its responsibilities related to thefair and competitive compensation of executives and key employees of theCompany.  It is charged with periodicreview of the compensation philosophy of the Company, annual evaluation of theperformance of the principal executives and key employees, annual review of thetotal compensation of those persons, approval of grants under and supervisionof the administration of stock plans, and issuance of an annual report tostockholders in accordance with SEC rules.

 

Under its charter as adopted in December2002, the Compensation Committee must consist of a minimum of one director, andeach member must be a non-employee, outside director under various standards ofthe tax laws and rules of the SEC, who also satisfies the independencerequirements of the Nasdaq Stock Market. The Compensation Committee currently has been composed of Mr. Devine,Mr. Grace and Mr. Lipton all of whom the Board determined satisfy thosestandards.

 

The Compensation Committee held one meetingduring the fiscal year ended April 24, 2005.

 

*Corporate Governance and**Nominating Committee*.  The purposeof the Corporate Governance and Nominating Committee is to review and evaluatethe Company’s policies, codes of conduct and guidelines, evaluate and makerecommendations to the Board concerning Board committees, review and evaluatethe CEO and other senior management (other than related to compensation), serveas a focal point for management succession planning, and identify and evaluatecandidates for nomination as directors.

 

Under its charter as adopted in December2002, the Corporate Governance and Nominating Committee may consist of eitherthe entire Board or, if less than the entire Board, a committee of not lessthan two non-employee members of the Board of Directors, each of whom satisfiesthe independence requirements of the Nasdaq Stock Market.  The Board of Directors considered thefunctions of the Corporate Governance and Nominating Committee and the factthat two of the directors who are not independent within the meaning of theNasdaq definition are major stockholders and collectively the owners ofapproximately 20.8% of the Company’s outstanding capital 

 

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stock, and determined that it was appropriatefor the entire Board of Directors to serve as the Corporate Governance andNominating Committee.  The Board met asthe Corporate Governance and Nominating Committee once during the last fiscalyear.

 

Under its charter, the CorporateGovernance and Nominating Committee is responsible for identifying candidatesto serve as directors (whether such directorships are filled by the Board or bystockholders), gathering information on such candidates, conducting interviewsof candidates and their references, and making recommendations to the fullBoard of Directors.

 

The Corporate Governance andNominating Committee may consider nominees recommended by stockholders andother sources, such as directors, officers, third party search firms or otherappropriate sources.  In evaluatingcandidates, it will consider personal integrity, sound business judgment, businessand professional skills and experience, independence (as defined under SEC andNasdaq rules), diversity, potential conflicts of interest, the extent to whicha candidate would fill a present need, and concern for the long term interestsof stockholders.  In any particularsituation, the committee may focus on persons possessing a particularbackground, experience or qualifications which the Committee believes would beimportant to enhance the effectiveness of the Board.  The evaluation process for stockholderrecommendations is the same as for candidates from any other source.

 

**ITEM 11.****EXECUTIVECOMPENSATION**

 

The followingSummary Compensation Table sets forth the compensation during each of the lastthree fiscal years of the Chief Executive Officer and of each executive officerand others whose annual salary and bonus exceeded $100,000 for services in allcapacities to the Company during fiscal 2005 (collectively, the “NamedExecutive Officers”).  There were noother compensation or long-term compensation awards for the Named ExecutiveOfficers during these periods.

 

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##### SUMMARYCOMPENSATION TABLE

#####  

AnnualCompensation

 
| **Name  and  Principal  Positions** | ** ** | **Fiscal  Year  Ended** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)** | ** ** |
|-------------------------------------|------------|-------------------------|------------|-----------------|------------|----------------|------------|
|                                |       |                    |       |            |       |           |       |
| George R. Chapdelaine               |       | 4/24/2005               |       | 232,000         |       | 0              |       |
| President  and CEO                  |       | 4/25/2004               |       | 222,000         |       | 0              |       |
|                                |       | 4/28/2003               |       | 215,000         |       | 73,000         |       |
|                                |       |                    |       |            |       |           |       |
| Anthony Buccieri                    |       | 4/24/2005               |       | 135,000         |       | 0              |       |
| Vice President  Operations          |       | 4/25/2004               |       | 129,000         |       | 0              |       |
|                                |       | 4/27/2003               |       | 123,000         |       | 42,000         |       |
|                                |       |                    |       |            |       |           |       |
| Fran V. Ross                        |       | 4/24/2005               |       | 130,000         |       | 0              |       |
| Vice President  and Chief           |       | 4/25/2004               |       | 125,000         |       | 0              |       |
| Financial Officer                   |       | 4/27/2003               |       | 119,000         |       | 40,000         |       |
|                                |       |                    |       |            |       |           |       |
| John Polcari,  Jr.                  |       | 4/24/2005               |       | 105,000         |       | 0              |       |
|                                |       | 4/25/2004               |       | 99,900          |       | 25,000         |       |
|                                |       | 4/27/2003               |       | 99,900          |       | 0              |       |

 

**Company Equity Compensation Plans**

 

The Company presently maintains a 1994 Director Stock Option Plan and a1994 Employee Combination Stock Option Plan under which options are no longerissued, and the Combination Stock Option and Share Award Plan (the “2002 Plan”),pursuant to which it granted equity awards to eligible persons.  The following table gives information aboutthose plans.

 

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| ** **                                                  | ** ** | ** **               | ** ** | ** **              | ** ** | **(c)**                     | ** ** |
|-------------------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                  | ** ** | ** **               | ** ** | ** **              | ** ** | **Number of**               | ** ** |
| ** **                                                  | ** ** | **(a)**                  | ** ** | ** **              | ** ** | **securities remaining**    | ** ** |
| ** **                                                  | ** ** | **Number**               | ** ** | ** **              | ** ** | **available for future**    | ** ** |
| ** **                                                  | ** ** | **securities to be**     | ** ** | **(b)**                 | ** ** | **issuance under**          | ** ** |
| ** **                                                  | ** ** | **issued upon**          | ** ** | **Weighted average**    | ** ** | **equity**                  | ** ** |
| ** **                                                  | ** ** | **exercise of**          | ** ** | **exercise price of**   | ** ** | **compensation plans**      | ** ** |
| ** **                                                  | ** ** | **outstanding options,** | ** ** | **outstanding options** | ** ** | **(excluding securities**   | ** ** |
| **Plan category**                                           | ** ** | **warrants and rights**  | ** ** | **warrant and rights**  | ** ** | **reflected in column (a)** | ** ** |
|                                                        |       |                     |       |                    |       |                        |       |
| Equity  compensation plans approved by security holders     |       | 1,274,800                |       | $                       | .77        |                        | 0          |   |
|                                                        |       |                     |       |                    |       |                        |       |
| Equity  compensation plans not approved by security holders |       | 0                        |       | 0                       |       | 0                           |       |
|                                                        |       |                     |       |                    |       |                        |       |
| Total                                                       |       | 1,274,800                |       | $                       | .77        |                        |  0    |   |

 

**StockOptions**

 

The followingtable presents certain information concerning stock options held by the NamedExecutive Officers.  No stock optionswere granted to or exercised by the Named Executive Officers during the lastfiscal year.

 

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FISCAL YEAR-END OPTION VALUES

 
| ** **            | ** ** | **Number of**      | ** ** | ** **            | ** ** |
|-----------------------|------------|--------------------|------------|-----------------------|------------|
| ** **            | ** ** | **Shares of**      | ** ** | ** **            | ** ** |
| ** **            | ** ** | **Common Stock**   | ** ** | **Value**             | ** ** |
| ** **            | ** ** | **Underlying**     | ** ** | **Unexercised**       | ** ** |
| ** **            | ** ** | **Unexercised**    | ** ** | **In-the-Money**      | ** ** |
| ** **            | ** ** | **Options at**     | ** ** | **Options at**        | ** ** |
| ** **            | ** ** | **April 24, 2005** | ** ** | **April 24, 2005($)** | ** ** |
| ** **            | ** ** | **Exercisable/**   | ** ** | **Exercisable/**      | ** ** |
| **Name**              | ** ** | **Unexercisable**  | ** ** | **Unexercisable**     | ** ** |
|                  |       |               |       |                  |       |
| George R. Chapdelaine |       |               |       |                  |       |
| CEO                   |       | 230,000/0          |       | N/A                   |       |
| Anthony Buccieri      |       | 89,900/0           |       | N/A                   |       |
| Fran V. Ross          |       | 89,900/0           |       | N/A                   |       |
| John Polcari,  Jr.    |       | 80,000/0           |       | N/A                   |       |

 

**Employment Contract**

 

The Company and Mr. Chapdelaine, the Chief Executive Officer andPresident of the Company, entered into a two year employment agreement datedApril 23, 2004.  Mr. Chapdelaine was alsoprovided with an automobile plus the cost of annual insurance and with suchother employee benefits as were generally available to employees or officers ofthe Company.  Pursuant to the employmentagreement, the Company agreed to grant Mr. Chapdelaine stock options to acquire100,000 shares of Common Stock that vest over two years.

 

Under the terms of the employment agreement, if Mr. Chapdelaine’semployment with the Company is terminated by the Company without cause, or ifMr. Chapdelaine terminates his employment with the Company for good reason(either a material reduction in his overall level of responsibility or therelocation of the Company’s executive offices to a location that is more than35 miles from Boston, Massachusetts, in each case without his consent) or due toa change in control of the Company, then the Company must continue to pay Mr.Chapdelaine his then-current base salary, payable monthly, during a one-yearseverance period, and Mr. Chapdelaine may not compete with the Company duringthat period.

 

Mr. Chapdelaine’s employment agreement also contains a non-competitionprovision that prohibits Mr. Chapdelaine from directly or indirectly competingwith the Company as long as he is an employee of the Company and, in the caseof his 

 

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voluntarilytermination or his termination by the Company for cause, for a period of twoyears thereafter.  The agreement alsocontains confidentiality provisions that provide that Mr. Chapdelaine may notdisclose proprietary information of the Company, other than in furtherance ofthe business of the Company or in response to a court order.

 

**Bonus Program**

 

The Company has adopted an incentive program under which keycontributors, selected by the Compensation Committee, will be paid cashbonuses.  The aggregate amount of thesebonuses will be based upon a formula related to the financial performance ofthe Company.  Bonuses, if any, will beallocated by the Compensation Committee among the individual employees basedupon their performance during the year. No bonuses were paid during the last fiscal year.

 

 

**CompensationCommittee Report**

 

The Compensation Committee of the Board of Directors, comprised ofindependent directors, is responsible for assisting the Board in the dischargeof its responsibilities related to the fair and competitive compensation ofexecutives and key employees of the Company. Among other responsibilities, the Compensation Committee reviews andrecommends to the Board of Directors the compensation of the Chief ExecutiveOfficer and each of the other executive officers of the Company.

 

The objective of the Compensation Committee in determining thecompensation of the Company’s executive officers is to provide a basecompensation which allows the Company to attract and retain experiencedtalent.  The Compensation Committee’sphilosophy is to align the executive officers’ interests with the success ofthe Company; therefore, the Committee has established bonus payments based onthe Company’s performance.  The cash compensationfor each executive officer consists of a base salary plus the potential for anannual performance bonus. Mr. Chapdelaine’s salary for fiscal 2005 was basedupon his pre-existing contract, and the amount of his bonus for fiscal 2005 wasbased upon his performance in relation to financial targets.  The Company entered into a new employmentagreement with Mr. Chapdelaine in April 2004. The terms of this new employment agreement are in line with theCompensation Committee’s executive officer compensation philosophy.

 

COMPENSATION COMMITTEE: Hugh Devine, EdwardP. Grace, III, Roger Lipton

 

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**Performance Graph**

 

The following graph compares the change inBoston Restaurant Associates, Inc.’s cumulative total stockholder returnthe last five fiscal years with the cumulative return on the Russell 2000 andthe Standard & Poor Index for Hotel, Restaurant and Leisure for thatperiod.

 

 

**ADDITIONALINFORMATION**

 

**Section 16(a) Beneficial OwnershipReporting Compliance**

 

Section 16(a) of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), requires the Company’sdirectors and executive officers, and persons who beneficially own more than10% of the Company’s Common Stock, to file reports of ownership and changes inownership on Forms 3, 4 and 5 with the Securities and Exchange Commission.Reporting persons are also required to furnish the Company with copies of allForms 3, 4, and 5 they file.

 

Based solely on the Company’s review of thecopies of Forms 3, 4 and 5 which it has received and written representationsfrom certain reporting persons the Company believes that all of its directors,executive officers, and greater than 10% stockholders complied with all Section 16(a) filingrequirements applicable to them during the Company’s fiscal year ended April 24,2005.

 

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**Indemnification****Agreements**

 

The Company has entered into indemnificationagreements with each of its directors and anticipates that it will enter intosimilar agreements with any future directors. Generally, the indemnificationagreements attempt to provide the maximum protection permitted by Delaware lawwith respect to indemnification of directors.

 

The indemnification agreements provide thatthe Company will pay certain amounts incurred by a director in connection withany civil or criminal action or proceeding and specifically including actionsby or in the name of the Company (derivative suits) where the individual’sinvolvement is by reason of the fact that he is or was a director. Such amountsinclude, to the maximum extent permitted by law, attorney’s fees, judgments,civil or criminal fines, settlement amounts, and other expenses customarilyincurred in connection with legal proceedings. Under the indemnificationagreements, a director will not receive indemnification if he is found not tohave acted in good faith and in a manner he reasonably believed to be in or notopposed to the best interests of the Company.

 

**ITEM 12.****               SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND ELATED STOCKHOLDERMATTERS**

 

The following table sets forth certaininformation regarding the beneficial ownership of the Company’s Common Stock asof July 15, 2005 by (i) each person who is known by the Company toown beneficially more than five percent of the outstanding shares of CommonStock, (ii) each current director and nominee for director of the Company,(iii) each of the Named Executive Officers listed in the SummaryCompensation Table below, and (iv) all current directors, nominees andexecutive officers of the Company, as a group. Except where otherwiseindicated, this information is based upon information provided to the Companyby the named person.

 

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| **Name and Address**                                                                                                       | ** ** | **Number of Shares  Beneficially  Owned(1) (2)** | ** ** | **Percentage of Outstanding  Shares** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                                 | ** ** | ** **                                            | ** ** | ** **                            | ** ** |
| George R.  Chapdelaine (3)  c/o Boston Restaurant Associates, Inc.  999 Broadway  Saugus, MA 01906                         |       | 960,390                                               |       | 13.7                                  | %          |
|                                                                                                                       |       |                                                  |       |                                  |       |
| Anthony  Buccieri (9)  c/o Boston Restaurant Associates, Inc.  999 Broadway, Suite 400  Saugus, MA 01906              |       | 95,000                                                |       | 1.3                                   | %          |
|                                                                                                                       |       |                                                  |       |                                  |       |
| Hugh Devine  (4)  Devine & Pearson  Crown Colony Park  300 Congress Street  Quincy, MA 02169                      |       | 110,000                                               |       | 1.5                                   | %          |
|                                                                                                                       |       |                                                  |       |                                  |       |
| Edward P.  Grace III (8)  Grace Venture Partners  Sun Trust Center, suite 1850  200 South Orange Avenue  Orlando, FL 32801 |       | 243,547                                               |       | 3.4                                   | %          |
|                                                                                                                       |       |                                                  |       |                                  |       |
| Roger Lipton  (5)(6)  983 Park Avenue  New York, NY 10028                                                                  |       | 1,888,223                                             |       | 26.5                                  | %          |
|                                                                                                                       |       |                                                  |       |                                  |       |
| John P.  Polcari, Jr. (5)(7)  c/o Boston Restaurant Associates, Inc.  999 Broadway  Saugus, MA 01906                  |       | 947,745                                               |       | 13.3                                  | %          |
|                                                                                                                       |       |                                                  |       |                                  |       |
| Fran V. Ross  (9)  c/o Boston Restaurant Associates, Inc.  999 Broadway, suite 400  Saugus, MA 01906                       |       | 114,801                                               |       | 1.6                                   | %          |

 

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| Peter E.  Salas (10)(11)  Dolphin Asset Management Corp.  129 East 17th Street  New York, NY 10003 |   | 1,625,588 |   | 21.7   | %      |
|---------------------------------------------------------------------------------------------------------|--------|-----------|--------|--------|--------|
|                                                                                                    |   |      |   |   |   |
| Robert C.  Taft (12)  Caffino  3130 Crow Canyon Park Place,  Suite 120  San Ramon, CA 94583        |   | 230,573   |   | 3.2    | %      |
|                                                                                                    |   |      |   |   |   |
| Jordan Index  Fund, Lp. (13)  1876 Woodhollow Lane, Apt. 306  Maryland Heights, MO 63043                |   | 903,186   |   | 11.7   | %      |
|                                                                                                    |   |      |   |   |   |
| All  directors, and executive officers  as a group (9 persons) (14)                                     |   | 6,098,220 |   | 71.2   | %      |

 

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(1)           Unlessotherwise indicated in other footnotes, to the knowledge of the Company, allpersons listed have sole voting and investment power with respect to shares ofCommon Stock, except to the extent shared with spouses under applicable law.

 

(2)           Incomputing the number of shares beneficially owned and the percentage ofownership of that person, shares of Common Stock subject to options or warrantsexercisable within 60 days after the date of the information in the table aredeemed outstanding. However, such shares are not deemed outstanding for thepurpose of computing percentage ownership of any other person.

 

(3)           Basedupon information contained in a Schedule 13G Amendment as filed with theSecurities and Exchange Commission on February 11, 2005. Includes 230,000shares issuable pursuant to stock options.

 

(4)           Includes110,000 shares issuable pursuant to stock options.

 

(5)           Includes80,000 shares issuable pursuant to stock options.

 

(6)           Basedupon information contained in a Schedule 13D, Amendment 2, as filed withthe Securities and Exchange Commission on February 11, 2004.

 

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(7)           Basedupon information contained in a Schedule 13G Amendment as filed with theSecurities and Exchange Commission on February 11, 2005. Includes 123,658shares issued to Lucille Salhany and Mr. Polcari jointly with rights ofsurvivorship and 12,741 shares held by Ms. Salhany for the benefit ofcertain family members.

 

(8)           Includes100,000 shares issuable pursuant to stock options and 117,647 shares issuablepursuant to convertible Preferred Stock.

 

(9)           Includes89,900 shares issuable pursuant to stock options.

 

(10)         Basedupon information contained in a Schedule 13D, as amended, as filed withthe Securities and Exchange Commission on March 31, 1998, and writteninformation provided by Dolphin Management, Inc.

 

(11)         Includes470,588 shares issuable pursuant to convertible Preferred Stock.

 

(12)         Basedon information provided by Mr.Taft does not include 77,800 shares held byrelatives of Mr. Taft for which he disclaims any beneficial ownership,however 100,000 shares issuable pursuant to stock options and 29,411 sharesissuable pursuant to convertible preferred stock are included.

 

(13)         Basedupon information contained in a Schedule 13G as filed with the Securitiesand Exchange Commission on February 13, 1998. Includes 500,000 sharesissuable pursuant to currently exercisable warrants.

 

(14)         Includes879,800 shares issuable pursuant to stock options and 617,646 shares issuablepursuant to convertible Preferred Stock.

 

**ITEM 13.****               CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS**

 

The Company had subordinateddebentures outstanding at April 24, 2005 consisted of convertiblesubordinated debentures in the amount of $1,450,000 bearing interest at 8%through 31 December, 1997; 10% through 31 December, 1998; 12% through 31 December 1999;and 14% through 2011, equivalent to a blended rate of approximately 13.2%annually, payable semi-annually and convertible into the Company’s Common Stockat a conversion rate of $1.25 per share. The Company can redeem the convertibledebentures under certain conditions. The debentures are due 31 December 2011.Mr. Lipton, a member of the Board of Directors of the Company, received afee equal to 5% of the proceeds as compensation for services in connection withthis transaction in fiscal 1997.

 

On January 20, 2005, the Company sold1,147,056 shares of our Series A Preferred Stock, $.01 par value pershare, to 11 accredited investors in a private transaction pursuant tosubscription agreements between each such investor and the Company. Each shareof Series A Preferred Stock may be converted at any time at the option ofthe holder of such share into one share of the Company’s Common Stock, $.01 parvalue per share. The investors paid $0.85 per share, for aggregate grossproceeds of $975,000.

 

49

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The Company agreed pursuant to a rightsagreement between the Company and the investors to (i) register the resaleof the shares of Common Stock issuable upon the conversion of the shares of Series APreferred Stock upon demand of a sufficient number of the holders of the Series APreferred Stock and (ii) include such shares of Common Stock in anyregistration statement for the benefit of the Company or any third party uponrequest of a sufficient number of the holders of the Series A PreferredStock.

 

The Company sold the shares of Series APreferred Stock pursuant to certain exemptions from registration provided by Rule 506of Regulation D and Section 4(2) of the Securities Act of 1933, asamended. Directors of the Company own 147,501 shares of this stock.

 

During fiscal 2005 the Companycompleted the asset sale of Polcari’s of Hyannis to Not Your Average Joe’s forapproximately $552,000 in net proceeds. Mr. Grace, a member of the boardof directors for Boston Restaurant Associates, Inc. is also a member ofthe board of Not Your Average Joe’s and abstained from the voting on thismatter, and did not participate in the negotiations.

 

During fiscal 2005 a warrant topurchase 25,000 shares of common stock at an exercise price of $0.70 per shareexpiring August 19, 2009 was granted to the spouse of , Mr. Polcari,a director,  in consideration for apromissory note which was repaid in December, 2004.

 

**ITEM 14.****               PRINCIPALACCOUNTANT FEES AND SERVICES**

 

As noted, the Audit Committeeappointed BDO Seidman, LLP as the Company’s independent registered publicaccounting firm to audit the consolidated financial statements of the Companyand its subsidiaries for the fiscal year ending April 24, 2005. BDOSeidman, LLP has audited the Company’s financial statements annually since1994, and has served either the Company or its predecessor as independentpublic accountants for more than 19 years. The Audit Committee believes it isdesirable and in the best interest of the Company to continue employment ofthat firm.

 

*Audit Fees*.BDO Seidman, LLP billed the Company an aggregate of $132,625 and $117,000 forthe fiscal years ended April 24, 2005 and April 25, 2004,respectively, for professional services rendered by BDO Seidman, LLP inconnection with its audit of the Company’s financial statements, its review ofthe Company’s quarterly reports on Form 10-Q, and services normallyprovided in connection with statutory or regulatory filings or engagements.

 

*AuditRelated Fees*. BDO Seidman, LLP billed the Company anaggregate of $9,735 and $10,250 in the fiscal years ended April 24, 2005and April 25, 2004, respectively, for professional services rendered byBDO Seidman, LLP for assurance and related services reasonably related to theperformance of an audit or review.

 

*Tax Fees*. BDOSeidman, LLP billed the Company $28,225 and $30,000 for the fiscal years ended April 24,2005 and April 25, 2004, respectively for tax compliance, tax advice andtax planning.

 

50

----

 

*All OtherFees*. BDO Seidman, LLP did not bill the Company forprofessional services not otherwise described above in the fiscal years ended April 24,2005 and April 25, 2004, respectively.

 

Commencing January 1, 2003, in each casewhere approval was sought for the provision of non-audit services, the AuditCommittee considered whether the independent auditors’ provision of suchservices to the Company is compatible with maintaining the auditors’independence and determined that they were.

 

**Audit Committee Policy on Pre-Approval of Services of IndependentAuditors**

 

The Audit Committee’s policy is topre-approve all audit and permissible non-audit services provided by theindependent auditors. These services may include audit services, audit-relatedservices, tax services and other services.

 

**Audit Committee Report**

 

Management has the primary responsibility forthe financial statements and the reporting process, including the systems ofinternal control over financial reporting. Management has represented to theAudit Committee that the Company’s consolidated financial statements for thefiscal year ended April 24, 2005 were prepared in accordance withaccounting principles generally accepted in the United States. The AuditCommittee has reviewed and discussed the consolidated financial statements withmanagement and separately with the independent accountants. The Audit Committeealso reviewed with the independent auditors the accounting policies andpractices critical to the Company’s financial statements, the alternativetreatments within generally accepted accounting principles for policies andpractices related to material items that have been discussed with management,the ramifications of each alternative, and the independent auditors’ preferredtreatment. It also reviewed the material written communications betweenmanagement and the independent auditors.

 

The Company’s independent auditors providedthe Audit Committee with the written disclosures and the letter required byIndependence Standards Board Standard No. 1 (Independence Discussions withAudit Committees). Independence Standards Board Standard No. 1 requiresauditors annually to disclose in writing all relationships that in the auditor’sprofessional opinion may reasonably be thought to bear on independence, toconfirm their independence and to engage in a discussion of independence. TheAudit Committee also reviewed with the independent auditors the SEC rules withrespect to independence of auditors. The audit committee received from theCompany’s auditors written communication of the matters required by Statementon Auditing Standards No. 61 and discussed these matters with the Company’sauditors.

 

The Audit Committee assumed theresponsibility for pre-approval of the performance of all audit and non-auditservices by its independent auditors effective

 

51

----

 

January 1, 2003. In each case where approval was sought for theprovision of non-audit services after that date, the Audit Committee consideredwhether the independent auditors’ provisions of such services to the Company iscompatible with maintaining the auditors’ independence, and determined thatthey were compatible.

 

Based on the above review and procedures, theAudit Committee recommended to the Board of Directors that the Company’saudited consolidated financial statements for fiscal year April 24, 2005be included in the Company’s Annual Report on Form 10-K for that fiscalyear. Further, the Audit Committee has appointed BDO Seidman, LLP as theCompany’s Independent Registered Public Accounting Firm for the fiscal yearending April 30, 2006.

 

AUDIT COMMITTEE; Hugh Devine, Edward P. GraceIII, Robert C. Taft

 

**PART IV**

 

**ITEM 15.****               EXHIBITSAND FINANCIAL STATEMENT SCHEDULES**

 

(a)           FINANCIAL STATEMENTSAND SCHEDULES

 

(1)           FinancialStatements listed under Part II, Item 8

 

(2)           FinancialStatement Schedules have been omitted because the required information is notapplicable or required, or because the required information is shown either inthe Financial Statements or the notes thereto.

 

EXHIBITS

 
| **Exhibit  Number** | ** ** | ** **                                                                                                                            | ** ** | **Reference  Number** |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|
| 3.01                |       | Amended Certificate of Incorporation of the  Registrant                                                                               |       | G-3.01*               |
|                |       |                                                                                                                                  |       |                  |
| 3.02                |       | Amended By-Laws of the Registrant                                                                                                     |       | A-3(b)*               |
|                |       |                                                                                                                                  |       |                  |
| 3.03                |       | Designation of Preferred Stock                                                                                                        |       | O-3.02*               |
|                |       |                                                                                                                                  |       |                  |
| 4.01                |       | Description of Stock (contained in the  Amended Certificate of Incorporation of the Registrant, filed as  Exhibit 3.01).         |       | G-4.01*               |
|                |       |                                                                                                                                  |       |                  |
| 4.02                |       | Form of Certificate evidencing shares  of Common Stock                                                                           |       | D-4(b)*               |
|                |       |                                                                                                                                  |       |                  |
| 10.01               |       | Loan Agreement between Boston Restaurant  Associates, Inc. and Commerce Bank & Trust Company dated  April 30, 2002 |       | K-6(a)(i)             |

 

52

----

 
| 10.02  |   | Note from Boston Restaurant  Associates, Inc. to Commerce Bank & Trust Company dated  April 30, 2002                                        |   | K-6(a)(ii)              |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|
|   |   |                                                                                                                                                           |   |                    |
| 10.03  |   | Security Agreement between Boston  Restaurant Associates, Inc. and Commerce Bank & Trust Company  dated April 30, 2002                      |   | K-6(a)(iii)             |
|   |   |                                                                                                                                                           |   |                    |
| 10.04  |   | Form of Indemnification Agreement with  each of the directors and certain officers of the Registrant                                                      |   | A-10(bb)*               |
|   |   |                                                                                                                                                           |   |                    |
| 10.05  |   | Incentive Stock Option Plan**                                                                                                                                  |   | B- I 0(h)*              |
|   |   |                                                                                                                                                           |   |                    |
| 10.06  |   | 2002 Combination Stock Option and Share  Award Plan**                                                                                                          |   | J-10(h)*                |
|   |   |                                                                                                                                                           |   |                    |
| 10.07  |   | Charter of the Audit Committee of Boston  Restaurant Associates, Inc., as adopted December 6, 2002 as amended  March 5, 2004                    |   | 1-99*                   |
|   |   |                                                                                                                                                           |   |                    |
| 10.09  |   | Second Allonge to Loan Agreement between  Boston Restaurant Associates, herewith Inc. and Commerce Bank &  Trust Company dated February 13, 2004 |   | M-6(2)(i))*             |
|   |   |                                                                                                                                                           |   |                    |
| 10.10  |   | First Allonges to Notes from Boston  Restaurant Associates, Inc. to Commerce Bank & Trust Company  dated February 13, 2004                  |   | M-6(a) (ii) * |
|   |   |                                                                                                                                                           |   |                    |
| 10.11  |   | Stock Purchase Warrant issued by Boston  Restaurant Associates, Inc. in favor of Commerce Bank & Trust  Company dated February 13, 2004     |   | M-6a(iii)*              |
|   |   |                                                                                                                                                           |   |                    |
| 10.12  |   | Employment agreement between Boston  Restaurant Associates, Inc. and George R. Chapdelaine dated  April 23, 2004**                                   |   | M-99*                   |
|   |   |                                                                                                                                                           |   |                    |
| 10.13  |   | Stock Option Agreement                                                                                                                                         |   | N-10(h)*                |
|   |   |                                                                                                                                                           |   |                    |
| 10.14  |   | Loan Agreement between Boston Restaurant  Associates, Inc. and Commerce Bank & Trust Company dated  April 21, 2005                          |   | Filed Herewith          |
|   |   |                                                                                                                                                           |   |                    |
| 10.15  |   | Loan Agreement between Boston Restaurant Associates, Inc.  and Commerce Bank & Trust Company dated April 21, 2005                           |   | Filed Herewith          |

 

53

----

 
| 10.16  |   | Mortgage in favor of Commerce  Bank & Trust Company dated April 21, 2005                                                                                      |   | Filed Herewith |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|
|   |   |                                                                                                                                                                        |   |           |
| 10.17  |   | Security Agreement between Boston  Restaurant Associates, Inc. and Commerce Bank & Trust Company  dated April 21, 2005                                   |   | Filed Herewith |
|   |   |                                                                                                                                                                        |   |           |
| 14     |   | Code of Ethics                                                                                                                                                              |   | L-14*          |
|   |   |                                                                                                                                                                        |   |           |
| 21     |   | Subsidiaries of the Registrant                                                                                                                                              |   | A-21*          |
|   |   |                                                                                                                                                                        |   |           |
| 23     |   | Consent of BDO Seidman, LLP                                                                                                                                                 |   | Filed herewith |
|   |   |                                                                                                                                                                        |   |           |
| 31.01  |   | Certification of Chief Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                    |   | Filed herewith |
|   |   |                                                                                                                                                                        |   |           |
| 31.02  |   | Certification of Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                    |   | Filed herewith |
|   |   |                                                                                                                                                                        |   |           |
| 32.01  |   | Certifications of Chief Executive Officer  and Chief Financial Officer to 18 U.S.C. Section1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |   | Filed herewith |

 

----

| *      |   | In accordance with Rule 12b-32 under  the Securities Exchange Act of 1934, as amended, reference is made to the  documents previously filed with the Securities and Exchange Commission, which  documents are hereby incorporated by reference. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                 |
| **     |   | Management Contract or Compensatory Plan or  Arrangement                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                 |
| A      |   | Incorporated by reference to the Company’s  Registration Statement on Form SB-2 (Registration  No. 33-81068). The number set forth herein is the number of the  Exhibit in said registration statement.                          |
|   |   |                                                                                                                                                                                                                                                 |
| B      |   | Incorporated by reference to the Company’s  registration statement on Form S-1 (File No. 33-31748). The number  set forth herein is the number of the Exhibit in said registration  statement.                                   |
|   |   |                                                                                                                                                                                                                                                 |
| C      |   | Incorporated by reference to the Company’s  annual report on Form 10-K for the year ended April 30, 1991. The  number set forth herein is the number of the Exhibit in said annual  report.                                      |
|   |   |                                                                                                                                                                                                                                                 |
| D      |   | Incorporated by reference to the Company’s  annual report on Form 10-K for the year ended April 30, 1994. The  number set forth herein is the number of the Exhibit in said annual  report.                                      |

 

54

----

 
| E      |   | Incorporated by reference to the Company’s  quarterly report on Form 10-QSB for the period ended January 25,  1998. The number set forth herein is the number of the Exhibit in said quarterly  report. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                        |   |   |
| F      |   | Incorporated by reference to the Company’s  annual report on Form 10-KSB for the year ended April 26, 1998. The  number set forth herein is the number of the Exhibit in said annual  report.           |
|   |   |                                                                                                                                                                                                                        |   |   |
| G      |   | Incorporated by reference to the Company’s  annual report on Form 10-KSB for the year ended April 25, 1999. The  number set forth herein is the number of the Exhibit in said annual  report.           |
|   |   |                                                                                                                                                                                                                        |   |   |
| H      |   | Incorporated by reference to the Company’s  quarterly report on Form 10-QSB for period ended July 25, 1999. The  number set forth herein is the number of the Exhibit in said quarterly  report.        |
|   |   |                                                                                                                                                                                                                        |   |   |
| I      |   | Incorporated by reference to the Company’s  quarterly report on Form 10-QSB for period ending January, 2001. The  number set forth herein is the number of the Exhibit in said quarterly  report.            |
|   |   |                                                                                                                                                                                                                        |   |   |
| J      |   | Incorporate by reference to the Company’s  Annual report on Form 10-K for the year ended April 28, 2002. The  number set forth herein is the number of the Exhibit in said annual  report.              |
|   |   |                                                                                                                                                                                                                        |   |   |
| K      |   | Incorporated by reference to the Company’s  quarterly report on Form 10-Q for period ended July 28, 2002. The  number set forth herein is the number of the Exhibit in said quarterly  report.          |
|   |   |                                                                                                                                                                                                                        |   |   |
| L      |   | Incorporated by reference to the Company’s  quarterly report on Form 10-Q for period ended January 25, 2004.  The number set forth herein is the number of the Exhibit in said  quarterly report.       |
|   |   |                                                                                                                                                                                                                        |   |   |
| M      |   | Incorporated by reference to the Company’s  annual report on Form 10-K for period ended April 25, 2004. The  number set forth herein is the number of the Exhibit in said annual  report                |
|   |   |                                                                                                                                                                                                                        |   |   |
| N      |   | Incorporated by reference to the Company’s  annual report on Form 8-K dated September 16, 2004. The number set  forth herein in the number of the Exhibit in said schedule.                             |
|   |   |                                                                                                                                                                                                                        |   |   |
| O      |   | Incorporated by reference to the Company’s  annual report on Form 8-K dated January 21, 2005. The number set  forth herein in the number of the Exhibit in said schedule.                               |

 

55

----

 

Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
|                     | BOSTON RESTAURANT ASSOCIATES, INC. |
|--------------------------|------------------------------------|
|                     | By:                                | s/George R. Chapdelaine |   |
| Date: July 19, 2005 |                               | George R. Chapdelaine, President |

 

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

 
| **SIGNATURES**                                                           | ** ** | **DATE**   | ** **         |
|--------------------------------------------------------------------------|------------|------------|--------------------|
| ** **                                                               | ** ** | ** ** | ** **         |
| /s/ George R. Capdelaine                                                 |       |       | July 19, 2005 |   |
| George R. Chapdelaine, Chief                                             |       |       |               |   |
| Executive Officer, President and  Director (principal executive officer) |       |       |               |   |
|                                                                     |       |       |               |   |
| /s/Fran V. Ross                                                          |       |       | July 19, 2005 |   |
| Fran V. Ross, Chief Financial Officer                                    |       |       |               |   |
|                                                                     |       |       |               |   |
| /s/Robert Fabrizio                                                       |       |       | July 19, 2005 |   |
| Robert Fabrizio, Chief Accounting Officer                                |       |       |               |   |
|                                                                     |       |       |               |   |
| /s/Hugh Devine                                                           |       |       | July 19, 2005 |   |
| Hugh Devine, Director                                                    |       |       |               |   |
|                                                                     |       |       |               |
| /s/Edward P. Grace, III                                             |       |       | July 19, 2005 |   |
| Edward P. Grace, III, Director                                      |       |       |               |   |
|                                                                     |       |       |               |
| /s/Roger Lipton                                                          |       |       | July 19, 2005 |   |
| Roger Lipton, Director                                                   |       |       |               |   |
|                                                                     |       |       |               |   |
| /s/John P. Polcari. Jr.                                                  |       |       | July 18, 2005 |   |
| John P. Polcari, Jr., Director                                      |       |       |               |   |
|                                                                     |       |       |               |   |
| /s/ Peter E. Salas                                                       |       |       | July 19, 2005 |   |
| Peter E. Salas, Director                                                 |       |       |               |   |
|                                                                     |       |       |               |   |
| /s/Robert C. Taft                                                        |       |       | July 19, 2005 |   |
| Robert C. Taft, Director                                                 |       |       |               |   |
|                                                                          |            |            |                    |  |  |

 

56

----

 

**Boston Restaurant Associates, Inc. and Subsidiaries**

 

**Consolidated Financial Statements**

**April 24, 2005**

 

----

 
| Consolidated financial statements:                                                                                     |   |
|------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                   |   |
| Report of Independent Registered Public Accounting Firm                                                                |   |
|                                                                                                                   |   |
| Balance  sheets as of April 24, 2005 and April 25, 2004                                                      |   |
|                                                                                                                   |   |
| Statements of operations for each of the  three years in the period ended April 24, 2005                          |   |
|                                                                                                                   |   |
| Statements of stockholders’ equity (deficit) for each of the three  years in the period ended April 24, 2005 |   |
|                                                                                                                   |   |
| Statements of cash flows for each of the  three years in the period ended April 24, 2005                          |   |
|                                                                                                                   |   |
| Summary of accounting policies                                                                                         |   |
|                                                                                                                   |   |
| Notes to consolidated financial statements                                                                             |   |

 

----

 

**Report of Independent Registered Public Accounting Firm**

 

To the Board of Directors and Stockholders of

Boston Restaurant Associates, Inc.

 

We have audited the accompanying consolidated balance sheets of BostonRestaurant Associates, Inc. and subsidiaries as of April 24, 2005 andApril 25, 2004, and the related consolidated statements of operations,stockholders’ equity (deficit), and cash flows for each of the three years inthe period ended April 24, 2005. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform an audit of its internal controlover financial reporting. Our audits included consideration of internal controlover financial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of BostonRestaurant Associates, Inc. and subsidiaries at April 24, 2005 and April 25,2004, and the results of their operations and their cash flows for each of thethree years in the period ended April 24, 2005, in conformity withaccounting principles generally accepted in the United States of America.

 

 
|   | /s/ BDO Seidman, LLP |   |
|--------|----------------------|--------|

 

 

Boston, Massachusetts

June 24, 2005

 

F-2

----

 

**Boston Restaurant Associates, Inc.and SubsidiariesConsolidated Balance Sheets**

 
| ** **                                                  | ** ** | **April 24, 2005** | ** ** | **April 25, 2004** | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| **Assets** (Note 5)                                         |       |                    |       |                    |       |
|                                                        |       |                    |       |                    |       |
| **Current:**                                                |       |                    |       |                    |       |
| Cash and cash equivalents                                   |       | $                       | 687,207    |                    | $          | 651,754 |   |
|                                                        |       |                    |       |                    |       |
| Accounts receivable                                         |       | 111,404                 |       | 113,985                 |       |
|                                                        |       |                    |       |                    |       |
| Inventories (Note 1)                                        |       | 460,745                 |       | 478,524                 |       |
|                                                        |       |                    |       |                    |       |
| Prepaid expenses and other                                  |       | 161,529                 |       | 189,119                 |       |
|                                                        |       |                    |       |                    |       |
| Current assets of discontinued operations  (Note 13)        |       | 164,597                 |       | 318,560                 |       |
|                                                        |       |                    |       |                    |       |
| Total current assets                                        |       | 1,585,482               |       | 1,751,942               |       |
|                                                        |       |                    |       |                    |       |
| **Property and equipment**  (Notes 9 and 13):               |       |                    |       |                    |       |
| Building                                                    |       | 512,500            |       | 512,500            |       |
| Leasehold improvements                                      |       | 6,651,396               |       | 6,169,369               |       |
| Equipment, furniture and fixtures                           |       | 4,567,460               |       | 4,255,627               |       |
|                                                        |       | 11,731,356              |       | 10,937,496              |       |
|                                                        |       |                    |       |                    |       |
| Less accumulated depreciation and  amortization             |       | 7,598,139               |       | 6,664,446               |       |
|                                                        |       |                    |       |                    |       |
| Net property and equipment                                  |       | 4,133,217               |       | 4,273,050               |       |
|                                                        |       |                    |       |                    |       |
| **Other assets**,** **net (Note 2)                     |       | 443,495                 |       | 463,270                 |       |
| ** **                                                  |       |                    |       |                    |       |
| **Goodwill**(Note 3)                                        |       | 453,643                 |       | 453,643                 |       |
| **Noncurrent assets of discontinued  operations (Note 13)** |       | 125,464                 |       | 798,902                 |       |
| Total Assets                                                |       | $                       | 6,741,301  |                    | $          | 7,740,807 |   |

* *

*See accompanying summary of accounting policies and notes toconsolidated financial statements*.

 

F-3

----

 

**Boston Restaurant Associates, Inc.and SubsidiariesConsolidated Balance Sheets**

 
| ** **                                                                                                                                                           | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
|                                                                                                                                                                 |       |                     |       |                     |       |
| **Liabilities and Stockholders’ Deficit**                                                                                                                       |       |                     |       |                     |       |
| **Current liabilities:**                                                                                                                                             |       |                     |       |                     |       |
| Accounts payable                                                                                                                                                     |       | $                        | 715,021    |                     | $          | 838,431 |   |
|                                                                                                                                                                 |       |                     |       |                     |       |
| Accrued expenses (Note 4)                                                                                                                                            |       | 1,606,671                |       | 1,396,930                |       |
|                                                                                                                                                                 |       |                     |       |                     |       |
| Current maturities (Notes 5, 6 and 9):                                                                                                                               |       |                     |       |                     |       |
| Long-term debt                                                                                                                                                       |       | 353,396                  |       | 3,383,158                |       |
| Notes payable – stockholder                                                                                                                                     |       | 6,420                    |       | 6,114                    |       |
| Obligations under capital leases                                                                                                                                     |       | 31,152                   |       | 106,997                  |       |
| Current liabilities of discontinued  operations (Note 13)                                                                                                            |       | 211,335                  |       | 324,721                  |       |
|                                                                                                                                                                 |       |                     |       |                     |       |
| Total current liabilities                                                                                                                                            |       | 2,923,995                |       | 6,056,351                |       |
|                                                                                                                                                                 |       |                     |       |                     |       |
| **Long-term obligations:**                                                                                                                                           |       |                     |       |                     |       |
| Long-term debt, less current maturities  (Note 5)                                                                                                                    |       | 1,946,604                |       | —                   |       |
| Notes payable - stockholder, less current  maturities (Note 6)                                                                                                       |       | 82,430                   |       | 88,850                   |       |
| Obligations under capital leases, less  current maturities (Note 9)                                                                                                  |       | —                   |       | 31,152                   |       |
|                                                                                                                                                                 |       |                     |       |                     |       |
| Deferred rent (Note 9)                                                                                                                                               |       | 367,206                  |       | 351,880                  |       |
|                                                                                                                                                                 |       |                     |       |                     |       |
| Subordinated debentures (Notes 7 and 10)                                                                                                                             |       | 1,450,000                |       | 1,450,000                |       |
| Other long-term liabilities (Note 9)                                                                                                                                 |       | 135,046                  |       | 251,016                  |       |
| Noncurrent liabilities of discontinued  operations (Note 13)                                                                                                         |       | —                   |       | 180,279                  |       |
|                                                                                                                                                                 |       |                     |       |                     |       |
| Total liabilities                                                                                                                                                    |       | 6,905,281                |       | 8,409,528                |       |
|                                                                                                                                                                 |       |                     |       |                     |       |
| **Commitments and contingencies (Notes 9 and  10)**                                                                                                                  |       |                     |       |                     |       |
| ** **                                                                                                                                                           |       |                     |       |                     |       |
| **Stockholders’ equity (deficit) (Notes 7 and  10):**                                                                                                           |       |                     |       |                     |       |
| Preferred stock, $.01 par value, 10,000,000  shares authorized; 1,147,056 shares issued and outstanding at April 24,  2005                                      |       | 946,278                  |       | —                   |       |
| Common stock, $.01 par value 25,000,000  shares authorized; issued 7,060,170 shares; outstanding 7,035,170 shares as  of April 24, 2005 and April 25, 2004 |       | 70,602                   |       | 70,602                   |       |
| Additional paid-in capital                                                                                                                                           |       | 10,960,396               |       | 10,952,635               |       |
| Accumulated deficit                                                                                                                                                  |       | (12,116,564              | )          | (11,667,266              | )          |
|                                                                                                                                                                 |       | (139,288                 | )          | (644,029                 | )          |
|                                                                                                                                                                 |       |                     |       |                     |       |
| Less: treasury stock, 25,000 shares at cost  as of April 24, 2005 and April 25, 2004                                                                       |       | (24,692                  | )          | (24,692                  | )          |
|                                                                                                                                                                 |       |                     |       |                     |       |
| Total stockholder’s deficit                                                                                                                                     |       | (163,980                 | )          | (668,721                 | )          |
|                                                                                                                                                                 |       |                     |       |                     |       |
| Total liabilities and stockholders’ deficit                                                                                                                     |       | $                        | 6,741,301  |                     | $          | 7,740,807 |   |

* *

*See accompanying summary of accounting policies and notes toconsolidated financial**statements.*

 

F-4

----

 

**Boston Restaurant Associates, Inc.**

**and Subsidiaries**

**Consolidated Statements of Operations**

 
| **Years ended**                                                                                                  | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** | **April 27,  2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------|------------|
|                                                                                                             |       |                     |       |                     |       |                     |       |
| **Revenues:**                                                                                                    |       |                     |       |                     |       |                     |       |
| Restaurant sales                                                                                                 |       | $                        | 22,628,783 |                     | $          | 19,466,386               |       | $ | 19,633,263 |   |
| Franchise fees (Note 9)                                                                                          |       | 269                      |       | 16,600                   |       | 64,275                   |       |
|                                                                                                             |       |                     |       |                     |       |                     |       |
| Total revenues                                                                                                   |       | 22,629,052               |       | 19,482,986               |       | 19,697,538               |       |
|                                                                                                             |       |                     |       |                     |       |                     |       |
| **Costs and expenses:**                                                                                          |       |                     |       |                     |       |                     |       |
| Cost of food, beverages and liquor                                                                               |       | 4,628,052                |       | 3,769,034                |       | 3,620,451                |       |
| Other operating expenses                                                                                         |       | 13,912348                |       | 12,044,045               |       | 11,666,240               |       |
|                                                                                                             |       |                     |       |                     |       |                     |       |
| General and administrative                                                                                       |       | 2,450,578                |       | 2,738,690                |       | 2,610,666                |       |
|                                                                                                             |       |                     |       |                     |       |                     |       |
| Depreciation and amortization                                                                                    |       | 976,686                  |       | 930,272                  |       | 922,366                  |       |
| Pre-opening costs                                                                                                |       | 93,196                   |       | 77,140                   |       | —                   |       |
| Litigation and settlement credits (Note 9)                                                                       |       | (98,259                  | )          | (246,228                 | )          | (443,445                 | )          |
|                                                                                                             |       |                     |       |                     |       |                     |       |
| Total costs and expenses                                                                                         |       | 21,962,601               |       | 19,312,953               |       | 18,376,278               |       |
|                                                                                                             |       |                     |       |                     |       |                     |       |
| **Operating income (loss)**                                                                                      |       | 666,451                  |       | 170,033                  |       | 1,321,260                |       |
| ** **                                                                                                       |       |                     |       |                     |       |                     |       |
| **Interest expense**,  net of interest income of $2,905, $2,890 and $2,989 in 2005, 2004 and 2003,  respectively |       | (475,132                 | )          | (493,200                 | )          | (377,829                 | )          |
| ** **                                                                                                       |       |                     |       |                     |       |                     |       |
| **Other income, net**                                                                                            |       | 8,418                    |       | 221,630                  |       | 9,436                    |       |
| ** **                                                                                                       |       |                     |       |                     |       |                     |       |
| **Income (loss) from continuing operations**                                                                     |       | 199,737                  |       | (101,537                 | )          | 952,867                  |       |
| ** **                                                                                                       |       |                     |       |                     |       |                     |       |
| **Discontinued Operations (Note 13):**                                                                           |       |                     |       |                     |       |                     |       |
| ** **                                                                                                       |       |                     |       |                     |       |                     |       |
| Income (loss) from operations                                                                                    |       | (643,667                 | )          | (3,335,741               | )          | 40,022                   |       |
|                                                                                                             |       |                     |       |                     |       |                     |       |
| Gain from disposal of discontinued  operations                                                                   |       | 15,215                   |       | —                   |       | —                   |       |
| ** **                                                                                                       |       |                     |       |                     |       |                     |       |
| **Income (loss) from discontinued operations**                                                                   |       | (628,452                 | )          | (3,335,741               | )          | 40,022                   |       |
| **Net Income (loss)**                                                                                            |       | (428,715                 | )          | (3,437,278               | )          | 992,889                  |       |
| ** **                                                                                                       |       |                     |       |                     |       |                     |       |
| **Less: preferred stock dividends**                                                                              |       | (20,583                  | )          | —                   |       | —                   |       |
| ** **                                                                                                       |       |                     |       |                     |       |                     |       |
| **Income (loss) available to common  shareholders**                                                              |       | $                        | (449,298   | )                        | $          | (3,437,278               | )          | $ | 992,889 |   |
| **Income (loss) per share of common stock  (Basic and Diluted) (Note 12)**                                       |       |                     |       |                     |       |                     |       |
| ** **                                                                                                       |       |                     |       |                     |       |                     |       |
| Continuing Operations                                                                                            |       | $                        | .03        |                     | $          | (.01                     | )          | $ | .13 |   |
|                                                                                                             |       |                     |       |                     |       |                     |       |
| Discontinued Operations                                                                                          |       | (.09                     | )          | (.48                     | )          | .01                      |       |
|                                                                                                             |       |                     |       |                     |       |                     |       |
| Net Income (loss)                                                                                                |       | $                        | (.06       | )                        | $          | (.49                     | )          | $ | .14 |   |

* *

*See accompanying summary of accounting policies and notes toconsolidated financial statements*.

 

F-5

----

 

Consolidated Statement of Stockholders’Equity (Deficit)

 
| ** **                                                    | ** ** | **Preferred  Stock  $.01 Par Value** | ** ** | **Common  Stock  $.01 Par Value** | ** ** | **Additional  Paid-in** | ** ** | **Accumulated** | ** ** | **Treasury  Stock** | ** ** | **Total  Stockholders**’ | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------------|------------|-------------------------|------------|-----------------|------------|---------------------|------------|-------------------------------|------------|
| ** **                                                    | ** ** | **Shares**                           | ** ** | **Amount**                        | ** ** | **Shares**              | ** ** | **Amount**      | ** ** | **Capital**         | ** ** | **Deficit**                   | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Equity  (Deficit)** | ** ** |
| .                                                             |       |                                 |       |                              |       |                    |       |            |       |                |       |                          |       |   |   |   |   |   |   |
| **Balance,** April 28, 2002                              |       | —                               |       | —                            |       | $                       | 7,060,170  |            | $          | 70,602              |       | $                             | 10,922,63  |   | $ | (9,222,877 | ) | 25,000 |   | $ | (24,692 | ) | $ | 1,745,669 |   |
| Net income for  the year                                      |       | —                               |       | —                            |       | —                  |       | —          |       | —              |       | 992,889                       |       | — |   | — |   | 992,889 |   |
| **Balance**, April 27, 2003                              |       | —                               |       | —                            |       | 7,060,170               |       | 70,602          |       |                | 10,922,63  |                          | (8,229,988 | ) | 25,000 |   | (24,692 | ) | 2,738,558 |   |
| Issuance of  warrants in exchange for bank waiver             |       | —                               |       | —                            |       | —                  |       | —          |       | 29,999              |       | —                        |       | — |   | — |   | 29,999 |   |
| Net loss for the  year                                        |       | —                               |       | —                            |       | —                  |       | —          |       | —              |       | (3,437,278                    | )          | — |   | — |   | (3,437,278 | ) |
| **Balance**, April 25, 2004                              |       |                                 |       |                              |       | 7,060,170               |       | 70,602          |       | 10,952,635          |       | (11,667,266                   | )          | 25,000 |   | (24,692 | ) | (668,721 | ) |
| Issuance of  warrants                                         |       | —                               |       | —                            |       | —                  |       | —          |       | 7,761               |       | —                        |       | — |   | — |   | 7,761 |   |
| Issuance of  Preferred Stock net of issuance costs of $29,000 |       | 1,147,056                            |       | 946,278                           |       | —                  |       | —          |       | —              |       | —                        |       | — |   | — |   | 946,278 |   |
| Preferred Stock  Dividends                                    |       | —                               |       | —                            |       | —                  |       | —          |       | —              |       | (20,583                       | )          | — |   | — |   | (20,583 | ) |
| Net loss for the  year                                        |       | —                               |       | —                            |       | —                  |       | —          |       | —              |       | (428,715                      | )          | — |   | — |   | (428,715 | ) |
| Balance,  April 24, 2005                                 |       | 1,147,056                            |       | $                                 | 946,278    |                    | 7,060,170  |            | $          | 70,062              |       | $                             | 10,960,396 |   | $ | (12,116,564 | ) | 25,000 |   | $ | (24,692 | ) | $ | (163,980 | ) |
|                                                               |            |                                      |            |                                   |            |                         |            |                 |            |                     |            |                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*See accompanying summary of accounting policies and notes toconsolidated financial statements.*

 

F-6

----

 

**Boston Restaurant Associates, Inc.**

**and Subsidiaries**

** **

**Consolidated Statements of Cash Flows**

 
| **Years ended**                                                 | ** ** | **April 24, 2005** | ** ** | **April 25, 2004** | ** ** | **April 27, 2003** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------------|------------|
| **Cash flows from operating activities:**                       |       |                    |       |                    |       |                    |       |
| Income (loss) from operations (Note 11)                         |       | $                       | 199,737    |                    | $          | (101,537                | )          | $ | 952,867 |   |
| Income (loss) from discontinued operations                      |       | (628,452                | )          | (3,335,741              | )          | 40,022                  |       |
| Net Income (loss)                                               |       | (428,715                | )          | (3,437,278              | )          | 992,889                 |       |
| Adjustments to reconcile net income                             |       |                    |       |                    |       |                    |       |
| (loss) to net cash provided by operating  activities:           |       |                    |       |                    |       |                    |       |
| Depreciation and amortization                                   |       | 1,102,927               |       | 1,231,399               |       | 1,056,889               |       |
| Litigation and settlement credits                               |       | (98,259                 | )          | (246,228                | )          | (443,445                | )          |
| Warrants in consideration of loan agreement                     |       | 7,761                   |       | 29,999                  |       | —                  |       |
| Charge for asset impairment                                     |       | —                  |       | 2,162,584               |       | —                  |       |
| Changes in operating assets and liabilities:                    |       |                    |       |                    |       |                    |       |
| Accounts receivable                                             |       | 29,544                  |       | (32,852                 | )          | (13,283                 | )          |
| Inventories                                                     |       | 139,595                 |       | (194,880                | )          | 5,658                   |       |
| Prepaid expenses and other                                      |       | 32,774                  |       | (29,693                 | )          | (46,421                 | )          |
| Other assets                                                    |       | (20,330                 | )          | (18,429                 | )          | (59,760                 | )          |
| Accounts payable                                                |       | (276,824                | )          | 478,399                 |       | (225,649                | )          |
| Accrued expenses                                                |       | 314,034                 |       | 96,960                  |       | (120,432                | )          |
| Deferred rent                                                   |       | (134,263                | )          | 105,198                 |       | 19,446                  |       |
| Other long-term liabilities                                     |       | (17,711                 | )          | (9,454                  | )          | (27,883                 | )          |
|                                                            |       |                    |       |                    |       |                    |       |
| Net cash provided by operating activities                       |       | 650,533                 |       | 135,725                 |       | 1,138,009               |       |
| **Cash flows from investing activities**                        |       |                    |       |                    |       |                    |       |
| Capital expenditures                                            |       | (801,883                | )          | (3,040,138              | )          | (402,199                | )          |
| Proceeds from sale of assets                                    |       | 552,332                 |       | —                  |       | —                  |       |
|                                                            |       |                    |       |                    |       |                    |       |
| Net cash used for investing activities                          |       | (249,551                | )          | (3,040,138              | )          | (402,199                | )          |
| **Cash flows from financing activities:**                       |       |                    |       |                    |       |                    |       |
| Repayments of long-term debt                                    |       | (3,383,158              | )          | (384,348                | )          | (1,064,509              | )          |
| Repayments of capital lease obligations                         |       | (222,535                | )          | (195,366                | )          | (364,178                | )          |
| Repayments of stockholder loans                                 |       | (6,114                  | )          | (5,820                  | )          | (5,533                  | )          |
| Repayments of subordinated convertible  debentures              |       | —                  |       | —                  |       | (50,000                 | )          |
| Proceeds from preferred stock net of  Issuance costs of $29,000 |       | 946,278                 |       | —                  |       | —                  |       |
|                                                            |       |                    |       |                    |       |                    |       |
| Proceeds from issuance of long-term debt                        |       | 2,300,000               |       | 3,035,000               |       | 922,305                 |       |
|                                                            |       |                    |       |                    |       |                    |       |
| Net cash provided by (used for) financing  activities           |       | (365,529                | )          | 2,449,466               |       | (561,915                | )          |
| **Net increase (decrease) in cash and cash  equivalents**       |       | 35,453                  |       | (454,947                | )          | 173,895                 |       |
| **Cash and cash equivalents,**  beginning of year               |       | 651,754                 |       | 1,106,701               |       | 932,806                 |       |
| ** **                                                      |       |                    |       |                    |       |                    |       |
| **Cash and cash equivalents,**  end of year                     |       | $                       | 687,207    |                    | $          | 651,754                 |       | $ | 1,106,701 |   |

 

*Seeaccompanying summary of accounting policies and notes to consolidated financialstatements.*

 

F-7

----

 

**Boston Restaurant Associates, Inc.and Subsidiaries**

** **

**Summary of Accounting Policies**

 
| **Nature of Business and Basis of Presentation****(see also Note 1)** |   | The Company is engaged in the restaurant business. As of  April 24, 2005, the Company operated thirteen pizza restaurants and four  casual Italian dining restaurants. As of April 25, 2004, the Company  operated thirteen pizza restaurants and five casual Italian dining  restaurants. As of April 27, 2003 the Company operated twelve pizza  restaurants and four casual Italian dining restaurants.  The consolidated financial statements  include the accounts of the Company and its majority-owned subsidiaries. All  significant intercompany balances and transactions have been eliminated. |
|-----------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **Fiscal Year**                                                       |   | The Company’s fiscal year ends on the last Sunday in April. Fiscal  years 2005, 2004 and 2003 included 52 weeks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| ** **                                                            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **Use of Estimates**                                                  |   | The preparation of financial statements in conformity with generally  accepted accounting principles of the United States of America requires  management to make estimates and assumptions that affect the reported amounts  of assets and liabilities and disclosure of contingent assets and liabilities  at the date of the financial statements and reported amounts of revenues and  expenses during the reporting period. Actual results could differ from those  estimates.                                                                                                                                           |
| ** **                                                            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **Cash Equivalents**                                                  |   | The Company considers all highly liquid debt instruments purchased  with maturities of three months or less to be cash equivalents. As of  April 24, 2005 and April 25, 2004, cash equivalents were not  material.                                                                                                                                                                                                                                                                                                                                                                                                  |
| ** **                                                            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **Financial Instruments**                                             |   | The estimated fair values of the Company’s financial instruments,  which consist of cash and cash equivalents, accounts receivable, accounts  payable, accrued expenses, and certain long-term obligations, approximate  their carrying values based on their maturity dates and prevailing market  interest rates.                                                                                                                                                                                                                                                                                                      |
| ** **                                                            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **Inventories**                                                       |   | Inventories are valued at the lower of cost (first-in, first-out) or  market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

F-8

----

 
| **Property and Equipment** |   | Property and equipment are stated at cost. Depreciation is computed  using straight-line methods over the estimated useful lives of the assets.  Leasehold improvements are amortized over the estimated useful lives of the  improvements or the length of the related lease excluding renewal option  periods, which ever is shorter.                                                                                                                        |
|----------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **Other Assets**           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| ** **                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *Deferred Financing Costs* |   | Costs incurred in connection with obtaining financing are amortized  over the terms of the related debt.                                                                                                                                                                                                                                                                                                                                                       |
| * *                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *Lease Acquisition Rights* |   | Costs incurred in connection with the purchases of leases are being  amortized over the shorter of the term of the leases or the expected benefit  periods.                                                                                                                                                                                                                                                                                                    |
| * *                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **Goodwill**               |   | Goodwill resulting from the excess of cost over the fair value of net  assets acquired is being tested for impairment in accordance with the  guidelines in SFAS No. 142.                                                                                                                                                                                                                                                                                 |
| ** **                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **Revenue Recognition**    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| ** **                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *Restaurant Sales*         |   | Substantially all restaurant sales represent retail sales to the  general public through Company-owned restaurants. Such amounts are recognized  as revenue at the point of sale.                                                                                                                                                                                                                                                                              |
| * *                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *Franchise Fees*           |   | Franchise fees resulting from the sale of individual franchise  locations are recognized as revenue upon the commencement of franchise  operations. Revenues from the sale of area development rights are recognized  proportionately as the franchised restaurants, subject to the area  development agreements, commence operations. Franchise royalties, which are  based on a percentage of franchised restaurants’ sales, are recognized as  earned. |
| * *                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **Advertising Costs**      |   | Advertising costs are expensed when incurred. Advertising expense  amounted to approximately $411,000, $507,000, and $380,000 in 2005, 2004 and  2003, respectively.                                                                                                                                                                                                                                                                                           |

 

F-9

----

 
| **Pre-Opening Costs** |   | All nonrecurring costs, such as recruiting, training pre-opening rent  and other initial direct administrative expenses associated with the opening  of new restaurant locations, are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-----------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **Taxes on Income**   |   | The Company accounts for income taxes under the asset and liability  method pursuant to Statement of Financial Accounting Standards No. 109  (“SFAS No. 109”), “Accounting for Income Taxes.” Under SFAS  No. 109, deferred income taxes are recognized for the future tax  consequences attributable to differences between the financial statement  carrying amounts of existing assets and liabilities and their respective tax  basis. Deferred tax assets and liabilities are measured using enacted tax  rates expected to apply to taxable income in the years in which those temporary  differences are expected to be recovered or settled. The effect of any tax  rate change on deferred taxes is recognized in income in the period that  includes the enactment date of the tax rate change. Realizability of deferred  tax assets is assessed and if not more likely than not, a valuation allowance  is recorded to write down the deferred tax assets to their net realizable  value. |
| ** **            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **Stock Options**     |   | The Company accounts for stock options using the intrinsic value  method in accordance with Accounting Principles Board Opinion No. 25,  “Accounting for Stock Issued to Employees,” (“APB 25”) and related  interpretations. Accordingly, the Company has recognized no compensation cost  for its stock option plans. The Company issues stock options with exercise prices  equal to or above the prevailing market rate on the grant date and  specifically at a 110% of market rate to holders of 10% or more of common  stock. The Company follows the disclosure provisions of Statement of  Financial Accounting Standards No. 123 (“SFAS No. 123”),  “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148  which require the prominent disclosure of the effects of fair value  accounting on earnings and earnings per share of common stock on a pro forma  basis.                                                                               |

 

F-10

----

 
| ** ** |   | Had compensation cost for the Company’s stock options been determined  based upon the fair value at the grant date for awards under the plans  consistent with the methodology prescribed under SFAS No. 123, the  Company’s net income (loss) would have been adjusted to the pro forma amounts  indicated below along with the additional disclosures required by SFAS  No. 148 are as follows: |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| **Years ended April**                                                            | ** ** | **2005** | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|----------------------------------------------------------------------------------|------------|----------|------------|------------|------------|------------|------------|
| Net Income (loss)                                                                |       | $        | (428,715   | )          | $          | (3,437,278 | )          | $ | (992,889 |   |
| Less: dividends                                                                  |       | (20,853  | )          | —     |       | —     |       |
| Net income (loss) available to common  stockholders as reported                  |       | (449,298 | )          | (3,437,278 | )          | 992,889    |       |
|                                                                             |       |     |       |       |       |       |       |
| Deduct:                                                                          |       |     |       |       |       |       |       |
| Total stock-based compensation expense  determined under fair value based method |       | 201,330  |       | 11,429     |       | 53,853     |       |
|                                                                             |       |     |       |       |       |       |       |
| Net income (loss) available to common  stockholders-pro forma                    |       | $        | (650,628   | )          | $          | (3,448,707 | )          | $ | 939,036 |   |
|                                                                             |       |     |       |       |       |       |       |
| Basic and diluted earnings per share:                                            |       |     |       |       |       |       |       |
| As reported                                                                      |       | (.06     | )          | $          | (.49       | )          | $          | 0.14 |   |
| Pro forma                                                                        |       | (.09     | )          | $          | (.49       | )          | $          | 0.13 |   |

 

F-11

----

 
| **Net Income (Loss) Per Share of Common Stock** |   | The Company follows Statement of Financial Accounting Standards  No. 128 (“SFAS No. 128’), “Earnings per Share.” Under SFAS  No. 128, basic earnings per share excludes the effect of any dilutive  options, warrants or convertible securities and is computed by dividing the  net income (loss) available to common shareholders by the weighted average  number of common shares outstanding for the period. Diluted earnings per  share is computed by dividing the net income (loss) available to common  shareholders by the sum of the weighted average number of common shares and  common share equivalents computed using the average market price for the period  under the treasury stock method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **Long-Lived Assets**                           |   | The Company follows Statement of Financial Accounting Standards No  144 (“SFAS 144”) “Accounting for the Impairment or Disposal of Long-Lived  Assets”, which addresses financial accounting and reporting for the  impairment or disposal of long-lived assets. Although SFAS 144 supersedes  Statement of Financial Accounting Standard No. 121 (“SFAS 121”),  “Accounting for the Impairment of Long-Lived Assets To Be Disposed Of”, it  retains many of the fundamental provisions of SFAS 121. SFAS 144 also  supersedes the accounting and reporting provisions of Accounting Principles  Board Opinion No. 30 (“APB 30”), “Reporting the Results of  Operations-Reporting the Effects of Disposal of a Segment of a Business, and  Extraordinary, Unusual and Infrequently Occurring Events and Transactions”  for the disposal of a segment of a business. However, it retains the  requirement of ABP 30 to report separately discontinued operations and  extends that reporting to a component of an entity that either has been  disposed of, by sale, abandonment, or in a distribution to owners, or is  classified as held for sale. In fiscal 2005 the Company discontinued certain  of its restaurant locations (see Note 13). |
| ** **                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                            |   | The Company reviews the carrying values of its long-lived and  identifiable intangible assets for possible impairment whenever events or  changes in circumstances indicate that the carrying amounts of the assets may  not be recoverable. In fiscal 2004, the Company recorded an impairment charge  of approximately $2.2 million related to the write-down of certain long-lived  assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

F-12

----

 
| **New Accounting Pronouncements** |   | In December 2004, the FASB revised SFAS No. 123, *Share Based Payment,* or SFAS No. 123R. SFAS  No. 123R supersedes APB Opinion No. 25,*Accounting for Stock Issued to Employees*, and amends Statement  No. 95, Statement of Cash Flows. Under SFAS No. 123R, companies  must calculate and record in the income statement the cost of equity  instruments, such as stock options, awarded to employees for services  received. The cost of the equity instruments is to be measured based on the  fair value of the instruments on the date they are granted and is required to  be recognized over the period during which the employees are required to  provide services in exchange for the equity instruments. SFAS No. 123R  is effective for the Company at the beginning of fiscal year 2007. |
|-----------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                              |   | The adoption of SFAS No. 123R is expected to have a significant  impact on the Company’s financial statements. The impact of adopting SFAS  No. 123R cannot be accurately estimated at this time, as it will depend  on the market value and the amount of share—based awards granted in future  periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                              |   | In November 2004, the FASB,  issued SFAS No. 151, I*nventory Costs, An  Amendment of ARB. No. 43, Chapter 4*. SFAS N0. 151 clarifies  that abnormal amount of idle facility expense, freight, handling costs and  waste materials should be recognized as current period charges in all  circumstances. We are required to adopt SFAS No. 151 on May 1,  2006. We do not expect the adoptions of SFAS No. 151 to have a material  impact on our financial position, results of operations or cash flows.                                                                                                                                                                                                                                                                                                          |

 

F-13

----

 

**Boston Restaurant Associates, Inc.**

**and Subsidiaries**

**Notes to Consolidated Financial Statement**

 
| **1.** | ** ** | **Inventories** | Inventories consist of the following: |
|--------|------------|-----------------|---------------------------------------|

 
| ** **                  | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** |
|-----------------------------|------------|--------------------------|------------|--------------------------|------------|
|                        |       |                     |       |                     |       |
| Food, beverages, and liquor |       | $                        | 204,291    |                     | $          | 222,984 |   |
| Paper goods and supplies    |       | 256,454                  |       | 255,540                  |       |
|                        |       |                     |       |                     |       |
| Total                       |       | $                        | 460,745    |                     | $          | 478,524 |   |

 
| **2.** | ** ** | **Other Assets, Net** | Other assets net, consist of the following: |
|--------|------------|-----------------------|---------------------------------------------|

 
| ** **                     | ** ** | **April 24,  2005** | ** ** | **April 25  2004** | ** ** |
|--------------------------------|------------|--------------------------|------------|-------------------------|------------|
| Deposits and other             |       | $                        | 222,955    |                    | $          | 247,362 |   |
| Lease acquisition rights       |       | 290,700                  |       | 290,700                 |       |
| Deferred financing costs       |       | 398,436                  |       | 346,882                 |       |
|                           |       | 912,091                  |       | 884,944                 |       |
|                           |       |                     |       |                    |       |
| Less: accumulated amortization |       | 468,596                  |       | 421,674                 |       |
|                           |       |                     |       |                    |       |
| Other assets, net              |       | $                        | 443,495    |                    | $          | 463,270 |   |

 
| **3.**     | ** ** | **Goodwill** | Effective April 29, 2002 the Company adopted FASB Statement  No. 141, Business Combinations (“SFAS 141”) and No. 142, Goodwill  and Other Intangible Assets (“SFAS 142”). SFAS 141 requires the use of the  purchase method of accounting and prohibits the use of the  pooling-of-interest method of accounting for business combinations initiated  after June 30, 2001. SFAS 141 also requires that the Company recognize  acquired intangible assets apart from goodwill if the acquired intangible  assets meet certain criteria. SFAS 141 applies to all business combinations  initiated after June 30, 2001 and for purchase business combinations  completed on or after July 1, 2001. It also requires, upon adoption of  SFAS 142, that the Company reclassify the carrying amounts of intangible  assets and goodwill based on the criteria in SFAS 141. |
|------------|------------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| ** ** | ** ** | ** **   | SFAS 142 requires, among other things, that companies no longer  amortize goodwill, but test goodwill for impairment at least annually. In  addition, SFAS 142, requires that the Company identify reporting units for  the purpose of assessing potential future impairments of goodwill, reassess  the useful lives of other existing recognized intangible assets, and cease  amortization of intangible assets with an indefinite useful life.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

F-14

----

 
| ** ** | ** ** | ** **           | An intangible asset with an indefinite useful life should be tested  for impairment in accordance with the guidelines in SFAS 142. SFAS 142 is  required to be applied to all goodwill and other intangible assets regardless  of when those assets were initially recognized. |
|------------|------------|----------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **           |                                                                                                                                                                                                                                                                           |
| ** ** | ** ** | ** **           | As of April 29, 2002, the Company’s goodwill of $453,643 was  associated with the acquisition of Capucino’s, Inc. in 1994. No adjustment  to the $453,643 balance of goodwill was deemed necessary through  April 24, 2005.                           |
| ** ** | ** ** | ** **           |                                                                                                                                                                                                                                                                           |
| **4.**     | ** ** | **Accrued Expenses** | Accrued expenses consist of the following:                                                                                                                                                                                                                                     |

 
| ** **                    | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** |
|-------------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                    | ** ** | ** **               | ** ** | ** **               | ** ** |
| Professional fees             |       | $                        |       | 183,954                  |       | $ |   | 187,935 |   |
| Compensation                  |       | 688,289                  |       | 663,299                  |       |
| Interest                      |       | 132,961                  |       | 150,421                  |       |
| Accrued rent                  |       | 48,979                   |       | 24,992                   |       |
| Accrued dividends             |       | 20,583                   |       | —                   |       |
| Gift certificates             |       | 177,163                  |       | 158,638                  |       |
| Other                         |       | 271,725                  |       | 135,316                  |       |
|                          |       |                     |       |                     |       |
| Taxes other than income taxes |       | 83,017                   |       | 76,329                   |       |
|                          |       |                     |       |                     |       |
| Total                         |       | $                        |       | 1,606,671                |       | $ |   | 1,396,930 |   |

 
| **5.**     | ** ** | **Credit Facility and  Long-Term Debt** | On April 21, 2005 the Company 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 bearing  interest at the bank base rate plus 2% and an $800,000 mortgage in favor of  Commerce Bank and Trust Company at a fixed rate of 7%. The mortgage has a  twenty year amortization schedule with a complete payment of principal  due at the end of five years. All borrowing under the Credit Facility are  collateralized by substantially all of the assets of the Company and are  subject to various financial covenants. |
|------------|------------|-----------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| ** ** | ** ** | ** **                              | On April 30, 2002, the Company entered into a $3,500,000 credit  facility with Commerce Bank and Trust Company. The credit facility permitted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

F-15

----

 
| ** ** | ** ** | ** ** | the Company to borrow amounts to pay the costs for new restaurant  openings and repay over a fixed term of either four or five years. Each  borrowing under the then existing credit facility bore interest at the bank’s  base rate plus 1.75% until the conversion date, subject to an annual  adjustment to the bank’s then current base rate plus 2.0%.                                                                         |
|------------|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ** ** | ** ** | ** ** | The Company  borrowed $922,000, under the facility on April 30, 2002 to pay off the  term notes under the prior bank facility. The note for that borrowing bore  interest at 6.75% for the first year through April 27, 2003, was  adjusted to 6.25% after the annual adjustment on April 30, 2003. It was  further adjusted to 7.25% on February 13, 2004 and 7.00% after the  annual adjustment on April 30, 2004. |
| ** ** | ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| ** ** | ** ** | ** ** | During the  first quarter of fiscal 2004 the Company borrowed $2,500,000 under the  facility for the capital expenses associated with the construction of  Polcari’s North End in Cambridge, Massachusetts, at an interest rate of 6%  adjusted to 7% in February 13, 2004. Long-term debt consists of the  following:                                                                                                              |

 
| ** ** | ** ** | ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                       | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** |
|------------|------------|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
|       |       |       |       | Note payable to a bank bearing interest at  7.75% (subject to adjustments to the bank’s base rate plus 2%) representing  $1,500,000 borrowings, payable in aggregate monthly installments of principal  and interest of $36,525 through April, 2009                                                                         |       | $                        | 1,500,000  | ** **               | **$**      | **—** | ** ** |
| ** ** | ** ** | ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                       | ** ** | ** **               | ** ** | ** **               | ** ** |
|       |       |       |       | Mortgage in favor of Commerce Bank and  Trust Company, bearing interest at 7%, representing borrowing against the  Company’s property in Boston’s North End payable in aggregate monthly  installments of principal and interest of $6,253 through April, 2010 with the  then outstanding principal due in April, 2010 |       | 800,000                  |       | —                   |       |
|            |            |            |            |                                                                                                                                                                                                                                                                                                                                  |            |                          |            |                          |            |  |  |

 

F-16

----

 
| ** ** |   | ** ** |   | Notes payable to a bank bearing interest at  7.25% (subject to adjustment each year to the bank’s base rate plus 2%),  representing borrowings against the Company’s revolving credit facility,  payable in aggregate monthly installments of $22,108 through April 2006.  Notes refinanced in 2005                                                                             |   | —    |      | 509,471   |    |
|------------|--------|------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|-----------|-----------|---------|
|       |   |       |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |      |      |      |    |
|       |   |       |   | Notes payable to a bank bearing interest at  7.00%, (subject to adjustment each year to the bank’s base rate plus 2%  representing borrowings against the Company’s revolving credit facility,  payable in aggregate monthly installments of $54,187 through June 2008.  Notes refinanced in 2005.                                                                              |   | —    |      | 2,338,687 |    |
|       |   |       |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |      |      |      |    |
|       |   |       |   | Notes payable to a bank bearing interest at  6.75% (subject to adjustment at the conversion date of the note to the bank’s  base rate plus 2%) representing borrowings against the Company’s revolving  credit facility, payable of interest only payments until August 13, 2004  and then in monthly installments of $10,767 through February, 2009. Note  refinanced in 2005. |   | —    |      | $         | 535,000 |   |
|       |   |       |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |      |      |      |    |
|       |   |       |   | Total                                                                                                                                                                                                                                                                                                                                                                                          |   | 2,300,000 |      | 3,383,158 |    |
|       |   |       |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |      |      |      |    |
|       |   |       |   | Less current  maturities                                                                                                                                                                                                                                                                                                                                                                       |   | 353,396   |      | 3,383,158 |    |
|       |   |       |   | Long-term  debt                                                                                                                                                                                                                                                                                                                                                                                |   | $         | 1,946,604 |      | $       | — |   |
|            |        |            |        |                                                                                                                                                                                                                                                                                                                                                                                                |        |           |           |           |         |  |  |

 

F-17

----

 
| ** ** | ** ** | ** ** | Maturities of long-term debt are as follows: |
|------------|------------|------------|----------------------------------------------|

 
| **Fiscal year ending** | ** ** | **Amount** | ** ** |
|------------------------|------------|------------|------------|
| 2006                   |       | $          | 353,396    |   |
| 2007                   |       | 381,620    |       |
| 2008                   |       | 412,100    |       |
| 2009                   |       | 440,465    |       |
| 2010                   |       | 712,419    |       |
|                   |       |       |       |
| Total                  |       | $          | 2,300,000  |   |

 
| **6.**     | ** ** | **Notes Payable – Stockholder** |                                                                                                                                                                                                                                                                                                           |
|------------|------------|--------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                           | Notes payable – stockholder consists of two notes, with an aggregate  principal amount of $88,850 and interest at 7.18% and 8%, payable in  aggregate monthly installments of principal and interest of $810, maturing  January 2017. Maturities of notes payable – stockholder are as follows: |

 
| **Fiscal year ending** | ** ** | **Amount** | ** ** |
|------------------------|------------|------------|------------|
| 2006                   |       | $          | 6,420      |   |
| 2007                   |       | 6,736      |       |
| 2008                   |       | 7,049      |       |
| 2009                   |       | 7,391      |       |
| 2010                   |       | 7,732      |       |
| Thereafter             |       | 53,522     |       |
|                   |       |       |       |
| Total                  |       | $          | 88,850     |   |

 
| **7.**     | ** ** | **Subordinated Debentures** |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|------------|------------|-----------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                  | Subordinated debentures with an outstanding balance of $1,450,000 at  April 24, 2005 and April 25, 2004 consist of convertible debentures  bearing interest at variable rates of 8% through December 31, 1997, 10%  through December 31, 1998, 12% through December 31, 1999 and 14%  through December 31, 2011, payable semi-annually and convertible into  the Company’s common stock at a conversion rate of $1.25 per share. The  Company has recorded interest costs related to these debentures at a  straight-lined rate of 13.2%. The convertible debentures are convertible at  the option of the holder, at any time, and automatically convert into shares  of common stock at the conversion rate if the |

 

F-18

----

 
| ** ** | ** ** | ** **          | average bid price of the Company’s common stock for any sixty  consecutive trading days is equal to or greater than $3.00. The debentures  are due on December 31, 2011. A member of the Board of Directors of the  Company received a fee equal to 5% of the proceeds as compensation for  services in fiscal 1997 in connection with this transaction. |
|------------|------------|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **          | ** **                                                                                                                                                                                                                                                                                                                                                         |
| **8.**     | ** ** | **Taxes on Income** |                                                                                                                                                                                                                                                                                                                                                               |
| ** ** | ** ** | ** **          | At April 24, 2005 the Company has the following net operating  loss carryforwards, subject to review by the Internal Revenue Service,  available to offset future federal taxable income:                                                                                                                                                                     |

 

 
| ** **                                                                                                             | ** ** | **Amount** | ** ** | **Expiration  Dates** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|-----------------------|------------|
| Net operating losses purchased in a 1994  acquisition, whose use is limited.                                           |       | $          |       | 729,000               |       | 2005 - 2009 |   |
|                                                                                                                   |       |       |       |                  |       |   |
| Net operating losses incurred before and  after acquisition and available for immediate offset against taxable income. |       | 4,210,000  |       | 2008 - 2024           |       |
|                                                                                                                        |            |            |            |                       |            |  |  |

 
|   | Deferred tax assets are comprised of the following: |
|--------|-----------------------------------------------------|

 
| ** **                       | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** |
|----------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Deferred tax assets:             |       |                     |       |                     |       |
| Net operating loss carryforwards |       | $                        | 1,976,000  |                     | $          | 1,603,000 |   |
| Fixed assets                     |       | 1,595,000                |       | 1,780,000                |       |
|                             |       |                     |       |                     |       |
| Pre-opening costs                |       | 161,000                  |       | 238,000                  |       |
|                             |       |                     |       |                     |       |
| Accruals and other reserves      |       | 50,000                   |       | 117,000                  |       |
| Valuation allowance              |       | (3,782,000               | )          | (3,738,000               | )          |
|                             |       |                     |       |                     |       |
| Net deferred tax assets          |       | $                        | —     |                     | —     |   |
|                                  |            |                          |            |                          |            |  |  |

 

F-19

----

** **
| ** ** | ** ** | ** ** | The Company has provided a valuation allowance equal to 100% of its  total deferred tax assets in recognition of the uncertainty regarding the  ultimate amount of the deferred tax assets that will be realized. Pre-  opening costs have been capitalized and amortized over a five year period for  tax purposes. |
|------------|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                           |
| ** ** | ** ** | ** ** | A  reconciliation of the statutory federal income tax rate and the effective tax  rate as a percentage of income (loss) before taxes on income (loss) is as  follows:                                                                                                                                                |

 
| ** **                    | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** | **April 27,  2003** | ** ** |
|-------------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                    | ** ** | ** **               | ** ** | ** **               | ** ** | ** **               | ** ** |
| Statutory rate                |       | 34.0                     | %          | (34.0                    | )%         | 34.0                     | %          |
|                          |       |                     |       |                     |       |                     |       |
| Change in valuation allowance |       | (34.0                    | )          | 34.0                     |       | (34.0                    | )          |
|                          |       |                     |       |                     |       |                     |       |
| Effective tax rate            |       | —                   | %          | —                   | %          | —                   | %          |

 
| **9.**     | ** ** | **Commitments and Contingencies** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|------------|------------|-----------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | *Leases*                          | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| ** ** | ** ** | * *                          | The Company is obligated under noncancellable operating leases for  its leased restaurant locations, office, commissary and warehouse space.  Lease terms range from five to twenty years and, in certain instances,  include options to extend the original terms. Generally, the Company is  required to pay its proportionate share of real estate taxes, insurance,  common area, and other operating costs in addition to annual base rent.  Substantially all restaurant leases provide for contingent rent based on sales  in excess of specified amounts. The Company also leases equipment under  capital leases. |
| ** ** | ** ** | * *                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| ** ** | ** ** | * *                          | The  following is an analysis of equipment held under capital leases, included in  property and equipment in the accompanying consolidated balance sheets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 
| ** **                               | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** |
|------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Equipment                                |       | $                        | 424,761    |                     | $          | 1,739,896 |   |
| Less accumulated amortization            |       | 303,401                  |       | 1,266,454                |       |
|                                     |       |                     |       |                     |       |
| Net leased property under capital leases |       | $                        | 121,360    |                     | $          | 473,442 |   |

 

F-20

----

 
| ** ** | ** ** | * * | Aggregate minimum rental requirements under capital and operating  leases as of April 24, 2005, are approximately as follows: |
|------------|------------|----------|------------------------------------------------------------------------------------------------------------------------------------|

 
| **Fiscal year ending**                      | ** ** | **Capital Leases** | ** ** | **Operating Leases** | ** ** |
|---------------------------------------------|------------|--------------------|------------|----------------------|------------|
| 2006                                        |       | $                  | 31,969     |                 | $          | 2,850,575 |   |
| 2007                                        |       | —             |       | 2,635,558            |       |
| 2008                                        |       | —             |       | 2,366,075            |       |
| 2009                                        |       | —             |       | 2,045,631            |       |
| 2010                                        |       | —             |       | 1,434,010            |       |
| Thereafter                                  |       | —             |       | 2,709,400            |       |
|                                        |       |               |       |                 |       |
| Total minimum lease payments                |       | 31,969             |       | $                    | 14,041,249 |   |
|                                        |       |               |       |                 |       |
| Amount representing interest                |       | (817               | )          |                 |       |
|                                        |       |               |       |                 |       |
| Present value of net minimum lease payments |       | 31,152             |       |                 |       |
|                                        |       |               |       |                 |       |
| Less current maturities                     |       | 31,152             |       |                 |       |
|                                        |       |               |       |                 |       |
| Long-term maturities                        |       | $                  | —     |                 |       |   |
|                                             |            |                    |            |                      |            |  |  |  |  |

 
| ** ** | ** ** | * * | Deferred rent liabilities of $367,206 and $351,880 as of  April 24, 2005 and April 25, 2004, respectively, were recorded in  order to recognize lease escalation provisions on a straight-line basis for  certain operating leases. |
|------------|------------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | * * |                                                                                                                                                                                                                                          |
| ** ** | ** ** | * * | Rent expense under all operating leases amounted to approximately  $3,079,000, $3,015,000 and, $2,810,000 during fiscal 2005, 2004 and 2003,  respectively, which included contingent rent of approximately                                   |

 

F-21

----

 
| ** ** | ** ** | * *                                    | $97,000, $60,000, and  $69,000 respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|------------|------------|---------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | * *                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ** ** | ** ** | *Franchising*                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ** ** | ** ** | * *                                    | In  December 1997, the Company formed Boston Restaurant Associates  International, Inc. (“BRAII”), a wholly-owned subsidiary, for the  purpose of offering Pizzeria Regina and Polcari’s franchise opportunities  both domestically and internationally. During fiscal 2005 the Company  recognized approximately $269 in royalties. During fiscal 2004, the Company  recognized approximately $17,000 in royalties. During fiscal 2003, the  Company recognized approximately $64,000 in franchise fee revenues, $50,000  related to territory fees and $14,000 related to royalties.                       |
| ** ** | ** ** |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ** ** | ** ** | *Joint  Venture and Development Agreements* |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ** ** | ** ** | * *                                    | In  December 1998, the Company formed a joint venture with Italian Ventures,  LLC (“Italian Ventures”), a Kentucky corporation controlled by two then  Company directors, and entered into a Development Agreement (the “Agreement”)  for the purpose of developing domestic casual Italian dining restaurants. The  Company had a 51% equity interest in the joint venture entity, Regina  Ventures, LLC (“Regina Ventures”).                                                                                                                                                                     |
| ** ** | ** ** |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ** ** | ** ** |                                        | The  relationship fell apart shortly after formation of the joint venture. Despite  the fact that no restaurant development ever took place, Italian Ventures  made a series of claims against the Company. During fiscal 2000, the Company  became involved in legal proceedings with Italian Ventures, LLC. On  May 10, 2001 the parties entered into a settlement agreement resolving  their disputes. As part of the settlement, the Company and Italian Ventures  terminated the development agreement and operating agreement among the  parties and also terminated the lawsuit and arbitration proceeding between  them. |
| ** ** | ** ** |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ** ** | ** ** |                                        | Under the  terms of the settlement agreement, commencing with the month of May 2001  and ending with the month of April 2008, Italian Ventures was entitled  to receive from the Company, in exchange for any and all ownership interest  held by Italian Ventures, a royalty equal to                                                                                                                                                                                                                                                                                                                                      |

 

F-22

----

 
| ** ** | ** ** |   | seven tenths of one percent (0.7%) of the  monthly gross sales of each Polcari’s Bistro restaurant (as specifically  defined therein); provided, however, that Italian Ventures would not be  entitled to receive any additional royalties from the Company once the total  of all royalties paid                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|------------|------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** ** | ** ** |   | to Italian Ventures by the Company on a  cumulative basis during the seven year period equaled $1,700,000. The  settlement payments do not reflect any transfer of rights from Italian  Ventures to the Company nor did the Company derive or receive any on-going  benefit to its operations as a result of the settlement. The Company  determined that a loss had been incurred in settlement of litigation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ** ** | ** ** |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** ** | ** ** |   | Accordingly,  the Company recorded a non-recurring charge of approximately $955,000 in the  fourth quarter of fiscal 2001. The corresponding settlement liability was  recorded on the Company’s balance sheet for $955,000 at April 29, 2001.  The settlement liability represented the Company’s best estimate of the total  royalty payments expected to be made during the seven year settlement period.  This estimate was based on 0.7% of the projected sales of current and future  Polcari’s Bistro Restaurants of approximately $1,250,000 discounted to  reflect the present value of $955,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| ** ** | ** ** |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** ** | ** ** |   | During  fiscal 2005, the Company made royalty payments of approximately $49,000 and  recorded interest expense of approximately $15,000 related to the  amortization of the discount to present value. In the fourth quarter of  fiscal 2005, the Company reviewed the estimate of future royalties based upon  the sale of a bistro in Hyannis. As a result, the accrual related to the  settlement liability was reduced by approximately $98,000 to reflect the  Company’s revised estimate of its remaining obligation under the settlement  agreement with Italian Ventures. The $98,000 reduction in the settlement  liability is recorded as income in the consolidated statements of operations  for fiscal 2005. During fiscal 2004, the Company made royalty payments of  approximately $48,000 and recorded interest expense of $28,000 related to the  amortization of the discount to present value. The Company also reduced the  settlement reserve by approximately $246,000 based on a revised expansion  plan which is recorded in the consolidated statement of operations in fiscal  2004. The Company also reduced the settlement reserve by approximately  $443,000 based on a revised expansion plan which was recorded in the consolidated  statement of operations in fiscal 2003. |

 

F-23

----

 
| ** ** | ** ** | *Legal  Matters*      | On  June 15, 2004 a Charge of Discrimination was filed by certain of the  Company’s personnel with the Massachusetts Commission Against Discrimination  and with the Equal Opportunity Commission. The charge was withdrawn on  October 20, 2004 from both agencies and the parties have settled the  complaint. The settlement did not materially adversely affect the Company.                                                                                                                                                                                                                                                                                                                                                                                                 |
|------------|------------|-----------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| ** ** | ** ** |                  | From time to  time the Company has been, and expects to continue to be, subject to legal  proceedings and claims in the ordinary course of its business. Such claims,  even if not meritorious, could result in the expenditure of significant  financial and managerial resources.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** ** | ** ** |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| ** ** | ** ** | *Interest  Rate Risk* | We have  exposure to interest rate risk related to certain instruments entered into  for other than trading purposes. Specifically, borrowings under the Credit  Facility bear interest at a variable rate based on the bank’s prime rate. A  100 basis point change in the Credit Facility interest rate (approximately  7.75% at April 24, 2005) would cause the interest expense for fiscal  2005 to change by approximately $15,000. This computation is determined by  considering the impact of hypothetical interest rates on our variable  long-term debt at April 24, 2005. However, the nature and amount of our  borrowings under the Credit Facility may vary as a result of future business  requirements, market conditions covenant compliance and other factors. |
| ** ** | ** ** |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| ** ** | ** ** |                  | Our other  outstanding long-term debt bears fixed rates of interest. The Company  believes there is no material exposure to a market interest rate risk that  could affect future results of operations or financial conditions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 

F-24

----

 
|       |       | *Commodity  Price Risk*                                | Many of the  food products and other operating essentials purchased by us are affected by  commodity pricing and are, therefore, subject to price volatility caused by  weather, production problems, delivery difficulties and other factors that  are beyond our control. Our supplies and raw materials are available from  several sources and we are not dependent upon any single source for these  items. The Company negotiates directly with wholesale suppliers of certain  high volume food ingredients such as cheese, tomato sauce, and flour to  ensure consistent quality and competitive pricing. These ingredients are then  purchased for the Company by a third party independent distributor at the  negotiated price and redistributed to the Company’s restaurants. All other  food ingredients and beverage products are purchased directly by the general  manager of each restaurant in accordance with corporate guidelines. Certain  significant items that could be subject to price fluctuations are cheese and  flour products.                                                                                                                                      |
|------------|------------|--------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **10.**    | ** ** | **Stockholders’ Equity (Deficit)***Series A* | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ** ** | ** ** | *Preferred Stock*                                      | On January 20, 2005, the Company sold 1,147,056 shares of its  Series A Preferred Stock, $.01 par value per share, to 11 accredited  investors in a private transaction pursuant to subscription agreements  between each such investor and the Company. Each share of Series A  Preferred Stock may be converted at any time at the option of the holder of  such share into one share of its Common Stock, $.01 par value per share at a  conversion price of $.85 and pays an 8% annual dividend payable quarterly.  The investors paid $0.85 per share, for aggregate gross proceeds of $975,000  and shall have the right to vote in all matters, the number of votes equal at  any time to the number of shares of Common Stock to which Series A  Preferred Stock would be convertible at the then applicable conversion price.  The holder of Series A Preferred Stock, prior to any distribution to  holders of Common Stock, shall be entitled to receive pro rata a preferential  amount equal to $0.85 per share of Series A Preferred Stock held by them  plus all accrued but unpaid dividends. Directors of the Company own 147,058  shares of this stock. |

 

F-25

----

 
| ** ** | ** ** | ** **                    | ** ** | The Company agreed pursuant to a rights  agreement between the Company and the investors to (i) register the  resale of the shares of Common Stock issuable upon the conversion of the  shares of Series A Preferred Stock upon demand of a sufficient number of  the holders of the Series A Preferred Stock and (ii) include such  shares of Common Stock in any registration statement for the benefit of the  Company or any third party upon request of a sufficient number of the holders  of the Series A Preferred Stock.                                                                                                                                                                                                                            |
|------------|------------|-------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                    | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|       |       |                          |       | The Company  sold the shares of Series A Preferred Stock pursuant to certain  exemptions from registration provided by Rule 506 of Regulation D and  Section 4(2) of the Securities Act of 1933, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|       |       |                          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| * *   | * *   | *Stock  Options and Warrants* | * *   | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       |       |                          |       | In September 2002, the Company’s  stockholders approved the 2002 Combination Stock Option and Share Award Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|       |       |                          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|       |       |                          |       | The 2002  Combination Plan provides for the granting of incentive stock options  intended to qualify under the requirements of the Internal Revenue Code and  options not qualified as incentive stock options. Incentive stock options may  only be granted to employees of the Company. Non-employees contributing to  the success of the Company are eligible to receive non-qualified stock  options. The 2002 Combination Plan is administered by a committee designated  by the Board of Directors. Options under the 2002 Combination Plan may not be  granted after September 19, 2012 and the exercise price shall be at  least equal to the fair market value of the common stock at the grant date.                                                                   |
|       |       |                          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|       |       |                          |       | Incentive  stock options may be granted to holders of more than 10% of the Company’s  common stock at an exercise price of at least 110% of the fair market value  of the Company’s common stock at the grant date. The terms of the options  granted are to be determined by the committee, but in no event shall the term  of any incentive stock option extend beyond three months after the time a  participant ceases to be an employee of the Company. No options may be  exercised more than five years after the date of the grant for 10%  stockholders, or ten years after the date of grant for all other  participants. A total of 500,000 shares of common stock have been reserved  for issuance under the 2002 Combination Plan of which, none are available |

 

F-26

----

 
| ** ** | ** ** | * * | for future grants.                                                                                                                                                                                                                                |
|------------|------------|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | * * |                                                                                                                                                                                                                                              |
| ** ** | ** ** | * * | Changes in options outstanding under the 2002 Plan, options issued in  connection with the guarantees of certain leases and debt by the Company’s  President and Treasurer, and options issued under prior plans are summarized  as follows: |

 
| ** **                       | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** |
|----------------------------------|------------|------------|------------|-----------------------------------------|------------|
|                             |       |       |       |                                    |       |
| **Balance,**April 28,  2002 |       | 862,146    |       | $                                       | 1.08       |   |
| Granted                          |       | 60,000     |       | 0.62                                    |       |
| Expired                          |       | (148,346   | )          | 1.36                                    |       |
| **Balance,**April 27,  2003 |       | 773,800    |       | $                                       | 1.00       |   |
| Granted                          |       | 100,000    |       | 0.70                                    |       |
| Expired                          |       | —     |       | —                                  |       |
| **Balance,**April 25,  2004 |       | 873,800    |       | $                                       | 0.96       |   |
| Granted                          |       | 440,000    |       | .39                                     |       |
| Expired                          |       | (39,000    | )          | 1.00                                    |       |
| **Balance,**April 24,  2005 |       | 1,274,800  |       | $                                       | .77        |   |

 
| ** ** | ** ** | * * | As of  April 24, 2005, options for 1,234,800 shares were exercisable at prices  ranging from $.37 to $2.38. |
|------------|------------|----------|------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | * * |                                                                                                             |
| ** ** | ** ** | * * | The following tables  summarizes stock options outstanding and exercisable at April 24, 2005:               |

 
| ** **                      | ** ** | **Options Outstanding** | ** ** |
|---------------------------------|------------|-------------------------|------------|
| **Range of  Exercise   Prices** | ** ** | **Number  Outstanding** | ** ** | **Weighted-  Average  Remaining  Contractual  Life (years)** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** |
| $0.37 -  $1.17                  |       | 1,199,800               |       | 6.0 |   | $ | .71 |   |
| 1.24 - 1.56                     |       | 40,000                  |       | 2.4 |   | 1.32 |   |
| 1.88 - 2.38                     |       | 35,000                  |       | 2.0 |   | 1.95 |   |
| $0.37 -  $2.38                  |       | 1,274,800               |       | 5.7 |   | $ | .77 |   |

 

F-27

----

 
| ** **                     | ** ** | **Options Exercisable** | ** ** |
|--------------------------------|------------|-------------------------|------------|
| **Range of  Exercise  Prices** | ** ** | **Number  Exercisable** | ** ** | **Weighted-Average  Exercise  Price** | ** ** |
| $0.37 -  $1.17                 |       | 1,159,800               |       | $ | .72 |   |
| 1.24 - 1.56                    |       | 40,000                  |       | 1.32 |   |
| 1.88 - 2.38                    |       | 35,000                  |       | 1.95 |   |
|                           |       |                    |       |   |   |
| $0.37 -  $2.38                 |       | 1,234,800               |       | $ | .78 |   |

 
| ** ** | ** ** | * * | In determining the pro  forma amounts, the Company estimated the fair value of each option granted  using the Black-Scholes option pricing model with the following  weighted-average assumptions: |
|------------|------------|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| ** **                    | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** | **April 27,  2003** | ** ** |
|-------------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------|------------|
| Risk free interest rate       |       | 2.0                      | %          | 1.0                      | %          | 4.0                      | %          |
| Expected dividend yield       |       | —                   |       | —                   |       | —                   |       |
| Expected lives                |       | 9.0 years                |       | 10.0 years               |       | 9.6 years                |       |
| Expected volatility           |       | 75                       | %          | 75                       | %          | 75                       | %          |
| Fair value of options Granted |       | $                        | 0.29       |                     | $          | 0.54                     |       | $ | 0.50 |   |
|                               |            |                          |            |                          |            |                          |            |  |  |  |

 
| ** ** | ** ** | * * | At April 24, 2005,  warrants outstanding, consist of warrants to purchase 350,000 and 150,000  shares of common stock at an exercise price of $3.00 per share, expiring  December 31, 2006 and January 25, 2008, respectively, granted in  consideration for brokerage services related to the issuance of convertible  subordinated debentures, warrants to purchase 76,000 shares of common stock  at an exercise price of $.50 per share, expiring February 13, 2010,  granted in consideration of covenant waiver fees by Commerce Bank &  Trust Company, and warrants to purchase 25,000 shares of common stock at an  exercise price of $.70 per share, expiring August 19, 2009, granted to a  spouse of a director in consideration for a short-term promissory note which  was repaid in December 2004. Interest expense for this related party  note was $15,000 in fiscal 2005. All warrants are exercisable except warrants  issued in fiscal 2005. |
|------------|------------|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

F-28

----

 
| ** ** | ** ** | * *                               | The convertible subordinated debentures with an outstanding balance  of $1,450,000 as of April 25, 2004 are convertible into common shares at  $1.25 per share. Accordingly, 1,160,000 shares have been reserved for  conversion of the subordinated debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|------------|------------|----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | * *                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| ** ** | ** ** | * *                               | At April 24, 2005, 4,182,856 shares of common stock were  reserved with respect to outstanding options, warrants, convertible  debentures and convertible preferred stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| ** ** | ** ** | * *                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| ** ** | ** ** | * *                               | During fiscal 2005 no warrants expired and warrants to purchase  25,000 shares of common stock at an exercise price of $0.70 per share  expiring August 19, 2009 were granted to a spouse of a director in  consideration for a short-term promissory note which was repaid in  December 2004. These warrants were valued using the Black-Scholes option  pricing model which resulted in a fair value of approximately $7,761 recorded  in interest expense in the consolidated statement of operations for fiscal  2005. During fiscal 2004, no warrants expired and warrants to purchase 76,000  shares of common stock at an exercise price of $.50 per share expiring February 12,  2011 were granted in consideration of covenant waiver fees by Commerce Bank  and Trust Company. During fiscal 2003, there were no warrants issued and no  warrants expired. |
| ** ** | ** ** | * *                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **11.**    | ** ** | **Supplemental Cash Flow Information** |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| ** ** | ** ** | ** **                             | Cash paid for interest and income taxes is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 
| ** **                                                  | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** | **April 27,  2003** | ** ** |
|-------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------|------------|
| Interest                                                    |       | $                        | 508,282    |                     | $          | 453,957                  |       | $ | 361,340 |   |
| Income taxes                                                |       | $                        | —     |                     | $          | —                   |       | $ | — |   |
|                                                        |       |                     |       |                     |       |                     |       |
| Noncash investing and  financing activities are as follows: |       |                     |       |                     |

 
| ** **                | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** | **April 27,  2003** | ** ** |
|---------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------|------------|
| Cash dividends to be paid |       | $                        | 20,583     |                     | —     |                     | —     |   |
|                           |            |                          |            |                          |            |                          |            |  |

 

F-29

----

 
| **12.**    | ** ** | **Net Income (Loss)** |                                                                                                                                                                                                            |
|------------|------------|-----------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | **Per Share of**      |                                                                                                                                                                                                            |
| ** ** | ** ** | **Common Stock**      |                                                                                                                                                                                                            |
| ** ** | ** ** | * *              | The following is a reconciliation of the denominator (number of  shares) used in the computation of earnings per share. The numerator (net  income or loss) is the same for the basic and diluted computations. |

 
| ** **                        | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** | **April 27  2003** | ** ** |
|-----------------------------------|------------|--------------------------|------------|--------------------------|------------|-------------------------|------------|
| Basic shares                      |       | 7,035,170                |       | 7,035,170                |       | 7,035,170               |       |
| Effective of dilutive securities: |       |                     |       |                     |       |                    |       |
| Options                           |       | 58,294                   |       | —                   |       | —                  |       |
| Warrants                          |       | —                   |       | —                   |       | 5,784                   |       |
| Diluted shares                    |       | 7,093,464                |       | 7,035,170                |       | 7,040,954               |       |

 
| The  following table summarizes securities that were outstanding as of  April 24, 2005, April 25, 2004 and April 27, 2003, but not  included in the calculations of net income (loss) per share because such  securities are antidilutive: |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| ** **             | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** | **April 27,  2003** | ** ** |
|------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------|------------|
| Options                |       | 834,800                  |       | 873,800                  |       | 653,800                  |       |
|                   |       |                     |       |                     |       |                     |       |
| Warrants               |       | 601,000                  |       | 576,000                  |       | 500,000                  |       |
| Convertible debentures |       | 1,160,000                |       | 1,160,000                |       | 1,160,000                |       |
| Preferred Stock        |       | 1,147,056                |       | —                   |       | —                   |       |

 
| The following table is a reconciliation of Income (loss) from continuing  operations available to common stockholders for the years of April 24,  2005, April 25, 2004, and April 27, 2003. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

F-30

----

 
| ** **                                                                   | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** | **April 27,  2003** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------|------------|
| Income (loss) from  continuing operations                                    |       | $                        | 199,737    |                     | $          | (101,537                 | )          | $ | 952,867 |   |
| Less: Preferred dividends                                                    |       | (20,583                  | )          | —                   |       | —                   |       |
| Income (loss) from  continuing operations  available to common  stockholders |       | $                        | 179,154    |                     | $          | (101,537                 | )          | $ | 952,867 |   |

 
| The following table is a reconciliation of net income (loss)  available to common stockholders for the years of April 24, 2005,  April 25, 2004 and April 27, 2003. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| ** **                                          | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** | **April 27,  2003** | ** ** |
|-----------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------|------------|
| Net Income (loss)                                   |       | $                        | (428,715   | )                        | $          | (3,437,278               | )          | $ | 992,889 |   |
| Less: Preferred dividends                           |       | (20,583                  | )          | —                   |       | —                   |       |
| Net income (loss) available  to common stockholders |       | $                        | (449,298   | )                        | $          | (3,437,278               | )          | $ | 992,889 |   |

 
| **13.** | ** ** | **Discontinued  Operations** | In fiscal 2005, the Company completed the asset sale of Polcari’s of Hyannis, Inc.  and entered into and agreement for the asset sale of Polcari’s of Cambridge,  Inc, and closed the Pizzeria Regina in Richmond, Virginia at the end of the  lease term. The Company received approximately $552,000 of net proceeds from  the sale of Polcari’s of Hyannis, Inc. to Not Your Average Joe’s. A  member of the board of directors of Boston Restaurant Associates, Inc.  is also a member of the board of directors of Not Your Average Joe’s and  abstained from voting and did not participate in the negotiations. The sale  of Polcari’s of Cambridge, Inc. is scheduled to be completed on  July 22, 2005 and the net proceeds will be recorded when the sale is  completed. The accompanying financial statements have been reclassified to  reflect both Polcari’s of Hyannis, Inc. and Polcari’s of  Cambridge, Inc. and Pizzeria Regina at Richmond, Virginia as  discontinued operations. |
|---------|------------|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

F-31

----

 
| The following summarizes the results of operations of the  discontinued operations. |
|-------------------------------------------------------------------------------------|

 
| **Years Ended**                            | ** ** | **April 24, 2005** | ** ** | **April 25, 2004** | ** ** | **April 27, 2003** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------------|------------|
|                                       |       |                    |       |                    |       |                    |       |
| Revenue                                    |       | $                       | 3,995,006  |                    | $          | 3,807,270               |       | $ | 2,844,337 |   |
|                                       |       |                    |       |                    |       |                    |       |
| Operating Expenses                         |       | 4,599,761               |       | 7,123,870               |       | 2,774,893               |       |
|                                       |       |                    |       |                    |       |                    |       |
| Other (Income)/Expenses                    |       | 38,912                  |       | 19,141                  |       | 29,422                  |       |
|                                       |       |                    |       |                    |       |                    |       |
| Income (loss) from Discontinued Operations |       | $                       | (643,667   | )                       | $          | (3,335,741              | )          | $ | 40,022 |   |

 
| ** ** | ** ** | ** ** | Discontinued  operations in 2005 includes a gain of $15,215 from the disposal of Polcari’s  of Hyannis, Inc.’s assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|------------|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| ** ** | ** ** | ** ** | The  discontinued operating expense for 2004 included an impairment charge of  $2,162,584. In 2004 the Company reviewed the carrying value of its long-lived  asset and noted that the expected future cash flows for Polcari’s in  Cambridge, Massachusetts was not sufficient to recover the recorded carrying  value of long-lived asset at this location. Accordingly, the Company  recognized an impairment charge to reduce the carrying value of leasehold  improvement to zero and restaurant equipment to the fair market value based  on the estimated residual value of the equipment which was determined to be  $81,714. |

 

F-32

----

 
| Assets and liabilities of the discontinued operations are as follows: |
|-----------------------------------------------------------------------|

 
| ** **                                                | ** ** | **April 24,  2005** | ** ** | **April 25,  2004** | ** ** |
|-----------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Accounts receivable                                       |       | $                        | 29,027     |                     | $          | 55,990 |   |
| Inventory                                                 |       | 135,570                  |       | 257,386                  |       |
| Prepaid expenses                                          |       | —                   |       | 5,184                    |       |
| Current assets of discontinued operations                 |       | $                        | 164,597    |                     | $          | 318,560 |   |
|                                                      |       |                     |       |                     |       |
| Deposits                                                  |       | $                        | 43,750     |                     | $          | 50,564 |   |
| Fixed assets                                              |       | 81,714                   |       | 748,338                  |       |
| Non-current assets of discontinued  operations            |       | $                        | 125,464    |                     | $          | 798,902 |   |
|                                                      |       |                     |       |                     |       |
| Accounts payable                                          |       | $                        | 66,624     |                     | $          | 220,038 |   |
| Accrued expenses                                          |       | 144,711                  |       | 19,835                   |       |
| Obligations under capital leases                          |       | —                   |       | 84,848                   |       |
| Liabilities of discontinued operations-current            |       | $                        | 211,335    |                     | $          | 324,721 |   |
|                                                      |       |                     |       |                     |       |
| Deferred rent                                             |       | $                        | —     |                     | $          | 149,589 |   |
| Obligation under capital leases                           |       | —                   |       | 30,690                   |       |
| Total liabilities of discontinued operations-non  current |       | $                        | —     |                     | $          | 180,279 |   |

 

F-33

----

 
| **14.**    | ** ** | **Quarterly**      |                                                                                         |
|------------|------------|--------------------|----------------------------------------------------------------------------------------------|
| ** ** | ** ** | **Financial Data** |                                                                                         |
| ** ** | ** ** | **(Unaudited)**    |                                                                                         |
| ** ** | ** ** | ** **         | The following table sets  forth selected quarterly financial data for fiscal 2005 and 2004 : |

 
| **Year ended April 24, 2005**                  | ** ** | **1**st**Quarter** | ** ** | **2**nd**Quarter** | ** ** | **3**rd**Quarter** | ** ** | **4**th**Quarter** | ** ** |
|-----------------------------------------------------|------------|--------------------|------------|--------------------|------------|--------------------|------------|--------------------|------------|
| Revenues                                            |       | $                  | 5,385,719  |               | $          | 5,856,724          |       | $                  | 5,826,725  |   | $ | 5,559,884 |   |
| Operating income (loss)                             |       | 22,281             |       | 268,394            |       | 281,878            |       | 93,898             |       |
| Income (loss) from Continuing operations            |       | (94,165            | )          | 140,708            |       | 168,454            |       | (15,260            | )          |
| Loss from discontinued Operations                   |       | (218,492           | )          | (5,354             | )          | (163,640           | )          | (240,966           | )          |
| Net income (loss)                                   |       | (312,657           | )          | 135,354            |       | 4,814              |       | (256,226           | )          |
| Less: preferred stock dividends                     |       | —             |       | —             |       | —             |       | (20,583            | )          |
| Net income (loss) available to common  shareholders |       | (312,657           | )          | 135,354            |       | 4,814              |       | (276,809           | )          |
| Earnings (loss) per common share                    |       |               |       |               |       |               |       |               |       |
| Basic:                                              |       |               |       |               |       |               |       |               |       |
| Income (loss) from continuing operations            |       | (.01               | )          | .02                |       | .02                |       | —             |       |
| Loss from discontinued operations                   |       | (.03               | )          | —             |       | (.02               | )          | (.04               | )          |
| Net Income (loss) available to common  shareholders |       | (.04               | )          | .02                |       | —             |       | (.04               | )          |
| Diluted:                                            |       |               |       |               |       |               |       |               |       |
| Income (loss) from continuing operations            |       | (.01               | )          | .02                |       | .02                |       | —             |       |
| Loss from discontinued operations                   |       | (.03               | )          | —             |       | (.02               | )          | (.04               | )          |
| Net income (loss) available to common  shareholders |       | (.04               | )          | .02                |       | —             |       | (.04               | )          |
|                                                     |            |                    |            |                    |            |                    |            |                    |            |  |  |  |  |

 

F-34

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| **Year ended April 25, 2004  (reclassified)**  | ** ** | **1****st****Quarter** | ** ** | **2****nd****Quarter** | ** ** | **3****rd****Quarter** | ** ** | **4****th****Quarter** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| Revenues                                            |       | $                      | 4,621,966  |                   | $          | 4,982,944              |       | $                      | 5,054,190  |   | $ | 4,823,886 |   |
| Operating loss (income)                             |       | (145,240               | )          | 170,976                |       | 310,755                |       | (166,458               | )          |
| income (loss) from continuing operations            |       | (17,386                | )          | 65,654                 |       | 201,101                |       | (350,906               | )          |
| Loss from discontinued operations                   |       | (139,502               | )          | (360,985               | )          | (340,080               | )          | (2,495,174             | )          |
| Net income (loss)                                   |       | (156,888               | )          | (295,331               | )          | (138,979               | )          | (2,846,080             | )          |
| Less: preferred stock dividends                     |       | —                 |       | —                 |       | —                 |       | —                 |       |
| Net income (loss) available to common  shareholders |       | (156,888               | )          | (295,331               | )          | (138,979               | )          | (2,846,080             | )          |
| Earnings (loss) per common share                    |       |                   |       |                   |       |                   |       |                   |       |
| Basic:                                              |       |                   |       |                   |       |                   |       |                   |       |
| Income (loss) from continuing operations            |       | —                 |       | .01                    |       | .03                    |       | (.05                   | )          |
| Loss from discontinued operations                   |       | (.02                   | )          | (.05                   | )          | (.05                   | )          | (.35                   | )          |
| Net income (loss) available to common  shareholders |       | (.02                   | )          | (.04                   | )          | (.02                   | )          | (.40                   | )          |
| Diluted:                                            |       |                   |       |                   |       |                   |       |                   |       |
| Income (loss) from continuing operations            |       | —                 |       | .01                    |       | .03                    |       | (.05                   | )          |
| Loss from discontinued operations                   |       | (.02                   | )          | (.05                   | )          | (.05                   | )          | (.35                   | )          |
| Net income (loss) available to common  shareholders |       | (.02                   | )          | (.04                   | )          | (.02                   | )          | (.40                   | )          |
|                                                     |            |                        |            |                        |            |                        |            |                        |            |  |  |  |  |

 
| The quarterly financial statements for year ended April 25, 2004  have been reclassified to reflect the effects for the discontinued operations  (see note 13). |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

F-35

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| **15.** | ** ** | **Subsequent  Events  (Unaudited)** | The Pizzeria Regina at the Burlington Mall, Burlington, Massachusetts is  currently a tenancy at will and the Landlord commenced a summary process on  July 14, 2005 to terminate the tenancy at will. The Company intends to  vigorously defend this action. Should the Company be required to vacate this  space, the Company would suffer material revenue and income loss. |
|---------|------------|-------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

F-36

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