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

**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 28,  2002.**                                             |

 

| **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.**                           |
|------------------------------------------------------------------|
| (Name of Registrant as  Specified in its Charter)                |
|                                                             |   |   |
| **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 Area Code)        |

 

Securities registered pursuant to Section 12(b) of the SecuritiesExchange Act of 1934:

 

| **Title of Each Class**                 |   | **Name of Each Exchange  on Which Registered** |
|-----------------------------------------|--------|------------------------------------------------|
|                                    |   |                                           |
| Common stock, $.01 par  value per share |   | Boston Stock Exchange                          |

 

Securities registeredunder Section 12(g) of the Securities Exchange Act of 1934:

 

|             | Common Stock, $.01 par  value per share |   |
|------------------|-----------------------------------------|--------|
| (Title of Class) |

 

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the ExchangeAct during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ýNo 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 of thisForm 10-K or any amendments to this Form 10-K.   ý

 

The aggregate market value of registrant’s CommonStock, $.01 par value per share, held by non-affiliates of the registrant as ofJuly 22, 2002 was  $5,768,839 based uponthe average of the closing bid and asked prices of such stock on that date asreported on the OTC Bulletin Board.  Asof July 22, 2002 there were 7,035,170 shares of the registrant’s Common Stock,$.01 par value per share outstanding.

 

DOCUMENTS INCORPORATED BYREFERENCE

 

Portions of the registrant’s Proxy Statement involvingthe election of directors, which is expected to be filed within 120 days afterthe end of the registrant’s fiscal year, are incorporated by reference in PartIII of this Report.

 

 

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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 AND RELATED STOCKHOLDER MATTERS** |
|          |   |   |
|          | **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** |
|          |   |   |
| **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.** | **EXHIBITS , FINANCIAL STATEMENT  SCHEDULES AND REPORTS ON FORM 8-K** |

 

2

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**FORM 10-K**

 

**PART I**

 

**ITEM 1.          BUSINESS**

 

**General**

 

During the fiscal year ended April 28, 2002 (“Fiscal2002”) Boston Restaurant Associates, Inc. (the “Company”) operated a chain ofsixteen restaurants — twelve fast-service, high volume pizzerias under thePizzeria Regina name, and four full-service family-style Italian/Americanrestaurants under the “Polcari’s North End ä”name.  Of the twelve Pizzeria Reginarestaurants, eleven are food court kiosks (self-service, take-out styleemphasizing pizza slices with common area seating), while the original 1926North End Pizzeria Regina is a wait service restaurant (full-service styleemphasizing whole pizzas with in-restaurant seating).  A majority of the restaurants are located in the Boston,Massachusetts metropolitan area.

 

The Pizzeria Regina restaurants feature the Company’ssignature product, its premium Neapolitan style, thin crust pizza, prepared ingas-fired brick ovens.  The originalPizzeria Regina, located in Boston’s historic North End, has served theCompany’s premium brick oven pizza since 1926. The Company believes that the Pizzeria Regina brand name and the pizzaitself are local symbols of superior and distinctive pizza.  (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.  These restaurants highlight exposedgas-fired brick ovens in open view of diners, memorabilia and photographsdepicting 1940s and 1950s scenes in Boston’s North End, and large tables toencourage family-style dining.  (See *“Polcari’sNorth End Restaurants.”*)

 

The Company’s long term plan is to expand itsoperations by opening additional Company-operated Pizzeria Regina food courtkiosks in high volume retail areas as the opportunities present themselves, andby opening additional restaurants under the Polcari’s North EndTM name.  The rate at which the Company is able toopen new Company-operated restaurants will be determined by many factors,including the Company’s overall financial and management resources, success inobtaining adequate financing, identifying satisfactory sites, negotiatingsatisfactory leases, securing requisite governmental permits and approvals, andtraining management personnel.  TheCompany cannot be certain that it will have the resources to expand, thatactual expansion costs will be as anticipated, or that current and future siteswill operate profitably.

 

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The Company’s principal offices are located at 999Broadway, Saugus, Massachusetts 01906 and its telephone number is (781)231-7575.  As used in this Report,unless otherwise indicated, the term “Company” refers to Boston RestaurantAssociates, Inc. and its subsidiaries.

 

 

**Pizzeria Regina Restaurants**

 

The Company currently operates twelve Pizzeria Reginarestaurants which are fast-service, high volume pizzerias that feature premiumbrick oven pizza and cater primarily to the lunchtime diner (with the exceptionof the original North End location, which serves both the lunch and dinnermarkets).  Of these twelve restaurants,eleven are food court kiosks and the original North End Pizzeria Regina is await-service restaurant.

 

The Pizzeria Regina restaurants feature the Company’spremium Neapolitan style, thin crust, brick oven pizza.  This pizza features a proprietary dough andpizza sauce, which the Company believes combine to produce a distinct flavorand superior pizza.  These pizzas areoffered with a wide variety of fresh vegetable and cured meat toppings.  The Company believes that the premiumquality of its pizza, a result of a proprietary ingredient mix and bakingprocess, provides appeal to both the lunch and dinner markets.  The original Pizzeria Regina, located inBoston’s historic North End, has served the Company’s premium brick oven pizzasince 1926.

 

The Company’s eleven food court kiosks primarily servepizza by the slice with multiple topping choices and operate side-by-side withother 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 sit down after purchasing their food mayjoin customers of other food court vendors in one or more designated commonareas within the mall.  The focusedmenu, self-service, take-out style and common seating provide food courtcustomers with a fast, low cost dining alternative as compared to moretraditional full-service restaurants.

 

The Company intends over the longer term to openadditional Pizzeria Regina food court kiosks. Based on the Company’s own experience and articles from trade journals,the Company believes there is a trend at retail malls to retrofit and upgradefood courts to emphasize fast food as a focal point of malls.  The Company further believes that lunchtimediners who visit retail shopping malls seek high quality, quick service mealsin a food court setting, and that the premium quality of the Company’s brickoven pizza should position it to compete effectively in food court locations.

 

Management estimates that the cost of opening atypical food court kiosk currently is approximately $400,000. The Companycannot guarantee that actual costs will not significantly exceed theseestimates, that the Company will be able to obtain financing necessary to constructadditional food courts kiosks, that the Company will be

 

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able to complete theconstruction of new kiosks on a timely basis and within budget, if at all, orthat the Company will be able to operate these kiosks successfully.

 

 

**Polcari’sNorth End Restaurants**

 

In March 1995, the Company opened its first Polcari’sNorth End restaurant in Saugus, Massachusetts, recreating a restaurant similarto one that the Company’s predecessor had operated from 1954-1989 in Boston’sNorth End.  The Polcari’s North Endrestaurant concept is designed to create an Italian/American casual diningambiance that captures the community spirit of the 1940s and 1950s in Boston’sItalian North End neighborhood.  Therestaurant highlights exposed gas-fired brick ovens in open view ofdiners.  In addition, memorabilia andphotographs depicting scenes in Boston’s North End in the 1940s and 1950s areused to create a neighborhood atmosphere rich with history.  The restaurant also features large tables ofsix or more seats to encourage family style dining and a value-oriented menuthat includes branded Pizzeria Regina pizza, large Italian/American pastadishes and fresh baked breads.  TheCompany currently has one franchise location in Las Vegas, Nevada.

 

The Company has also developed a bistro-restaurantconcept, which was inspired by the success of the Saugus-based Polcari’s NorthEndTM restaurant.  Unlike the Saugusrestaurant, the bistro restaurants are smaller in size, creating a moreintimate 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 under the Polcari’s North EndTM trademarkin order to capitalize on that mark’s recognition for quality.  The Company currently operates fourPolcari’s North End ä Restaurants in: Saugus, Massachusetts;Hyannis, Massachusetts; Woburn, Massachusetts and Salem, New Hampshire.

 

 

**SiteSelection**

 

The Company considers the specific location of arestaurant to be critical to the restaurant’s long term success.  It devotes significant time and resources tothe investigation and evaluation of each prospective site, includingconsideration of local market demographics, population density, averagehousehold income levels and site characteristics such as visibility,accessibility and traffic.

 

The Company seeks sites for the Pizzeria Regina kioskrestaurants within high-traffic food courts or retail shopping malls located inmetropolitan areas.  It seeks sites forPizzeria Regina wait-service restaurants in densely populated areas.  It seeks sites for Polcari’s North Endrestaurants located near high-volume, middle market traffic centers, such asretail and residential areas with populations of at least 100,000 personswithin a five-mile radius.  For eachtype of restaurant, the Company also considers existing local 

 

5

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competition and, to theextent such information is available, the sales of other comparably pricedrestaurants operating in the area.

 

 

**RestaurantOperations**

 

The Company invests substantial time and effort in itstraining 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.  TheCompany holds regular meetings of its managers to address new products,continuing training and other aspects of business management.  Managers also attend periodic seminarsconducted by Company personnel and outside experts on a broad range of topics.

 

New employees are trained by experienced employees whohave demonstrated their ability to implement the Company’s commitment toprovide high quality food and attentive service.  The Company has developed manuals regarding its policies andprocedures for restaurant operations. Senior 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.

 

TheCompany seeks to attract and retain quality restaurant managers by providingthem with an appropriate balance of autonomy and direction.  Annual performance objectives and budgetsfor each restaurant are jointly determined by restaurant managers and seniormanagement.  To provide incentives, theCompany has implemented a cash bonus program tied to achievement of specifiedobjectives.

 

Thestaff for a typical Pizzeria Regina kiosk restaurant consists of one generalmanager, two managers and approximately 12 to 15 hourly employees.  The staff of the original Pizzeria Reginaconsists of a general manager, two managers, and approximately 15 to 25 hourlyemployees.  The staff for a typicalPolcari’s North End restaurant consists of one general manager, two managers,one kitchen manager and approximately 40 to 60 hourly employees.  Most of the Company’s hourly employees arepart-time personnel.  The generalmanager of each restaurant is primarily responsible for the day-to-dayoperations of the entire restaurant and for maintaining standards of qualityand performance established by the Company.

 

The Company believes centralized financial andmanagement controls are fundamental to improving operating margins.  These controls are maintained through theuse of an automated data processing system and prescribed reporting procedures.  Each restaurant has a point-of-sale systemthat captures restaurant operating information.  The restaurants forward daily sales reports, vendor invoices,payroll information and other data to the Company’s corporate headquarters.  Company management uses this data tocentrally monitor costs and sales mix, and to prepare periodic financialmanagement 

 

6

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reports.  This system is also used for budgetanalysis, planning and determination of menu composition.  Restaurant managers perform daily inventoriesof key supplies.  All other supplies areinventoried weekly at the Pizzeria Regina restaurants and monthly at thePolcari’s North End restaurants.  Cashis controlled through deposits of sales proceeds in local operating accountsfollowing each restaurant shift with respect to the Pizzeria Regina locationsand following each business day with respect to the Polcari’s North Endlocations.  The balances in thoseaccounts are wire transferred daily to the Company’s principal operatingaccount.

 

 

**Purchasingand Commissary Operations**

 

The Company maintains a commissary where pizza doughis produced for the Company’s restaurants. The dough preparation requires a high degree of consistency that wouldbe more difficult to maintain at the individual restaurant locations.  The Company believes that close, centralizedmonitoring of the dough preparation ensures a more consistent premiumproduct.  All other food preparation isperformed 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 food ingredients and beverageproducts are purchased directly by the general manager of each restaurant inaccordance with corporate guidelines. The Company believes that each essential food and beverage products areavailable from a choice of many qualified wholesale suppliers.

 

 

**Advertisingand 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 target market for the Polcari’s NorthEnd restaurants is adults and families who seek moderately priced Italiandinner entrees in a comfortable environment. The Company believes that its focus on premium quality, service andvalue is the most effective approach to attracting customers.  The Company plans to rely upon localadvertising, high volume traffic flow at retail malls and word of mouthexposure to market its restaurants.

 

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**Competition**

 

The restaurant business is highly competitive.  Price, restaurant location, food quality,service and attractiveness of facilities are important aspects of competition,and the competitive environment is often affected by factors beyond theCompany’s or a particular restaurant’s control, including changes in thepublic’s tastes and eating and drinking habits, population and traffic patternsand local economic conditions.  TheCompany’s restaurants compete with a wide variety of restaurants ranging fromnational and regional restaurant chains (some of which have substantiallygreater financial resources than the Company) to locally-owned restaurants.  There is also active competition for liquorlicenses in certain markets and for advantageous commercial real estate sitessuitable for restaurants.  The PizzeriaRegina restaurants compete with other fast-service, high volume food providerson the basis of price, value, location, menu and speed of service.  The Polcari’s North End restaurants competewith other casual, full-service restaurants primarily on the basis of menuselection, quality, price, service, ambiance and location.

 

 

**Seasonality**

 

Certain of the Company’s restaurants are subject to seasonal fluctuations in salesvolume.  Sales at the Pizzeria Reginarestaurants are typically higher in June through August, and in November andDecember due to increased volume in shopping malls during the holiday andtourist seasons and school vacations.

 

 

**Employees**

 

As of  July 22,2002, the Company had approximately 600 employees, of whom 14 were corporateand administrative personnel, 56 were field supervision or restaurant managersor management trainees, and the remainder were hourly restaurantpersonnel.  Many of the Company’s hourlyemployees work part-time.  The Companybelieves that its relationship with its employees is good.  None of the Company’s employees are coveredby a collective bargaining agreement.

 

 

**Trademarksand Service Marks**

 

The Company regards its trademarks and its servicemarks as having significant value and as being important factors in themarketing of its products.  These marks,which appear in its advertisements, menus and elsewhere, are widelyrecognized.  The Company’s mostsignificant trademarks are “Pizzeria Regina,” the Regina crown design logo, and“Polcari’s North End,” each of which are U.S. registered trademarks owned bythe Company.  The Company has alsoregistered with the U.S. Patent and Trade Office  

 

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“Regina,” the “Polcari’s”logo, “Pizzeria Regina of Boston’s North End” and  “Pizzeria Regina, Boston’s Brick Oven Pizza” as service marks.

 

 

**GovernmentRegulation**

 

The Company is subject to a variety of federal, stateand local laws and regulations.  Each ofthe Company’s restaurants is subject to licensing and regulation by a number ofgovernment authorities, including alcoholic beverage control, health, safety,sanitation, building and fire agencies in the state or municipality in whichthe restaurant is located.  Difficultiesin obtaining or failure to obtain required licenses or approvals could delay orprevent the development of a new restaurant in a particular area.

 

The selection of new restaurant sites is affected byfederal, state and local laws and regulations regarding environmental matters,zoning and land use and the sale of alcoholic beverages.  Varied requirements (particularly at thelocal level) may result in increases in the cost and time required for openingnew restaurants, as well as increases in the cost of operatingrestaurants.  Difficulties in obtainingnecessary licenses or permits could cause delays in or cancellations of newrestaurant openings.

 

A significant portion of the Company’s revenues at thePolcari’s North End restaurants and the original Pizzeria Regina location inthe North End is attributable to the sale of alcoholic beverages.  Alcoholic beverage control regulationsrequire each of the Company’s restaurants that serve alcohol to apply to both astate authority and municipal authorities for a license or permit to sellalcoholic beverages on the premises. Typically, licenses must be renewed annually and may be revoked orsuspended for cause at any time. Alcoholic beverage control regulations affect numerous aspects ofrestaurant operations, including minimum age of patrons and employees, hours ofoperation, advertising, wholesale purchasing, inventory control and handling,storage and dispensing of alcoholic beverages. The failure of the Company to obtain or retain liquor service licensescould have a material adverse affect on the particular restaurant’s operationsand the business of the Company generally.

 

The Company is subject to “dram shop” statutes, whichgenerally 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 $1,000,000 of liquor liability coveragefor its restaurants, as well as excess liability coverage of $10,000,000 peroccurrence, with a $10,000 deductible. The Company has never been named as a defendant in a lawsuit involving“dram shop” liability.  The Companycannot guarantee that dram shop insurance will continue to be available to theCompany at commercially reasonable prices, if at all, or that such insurance,if maintained, will be sufficient to cover any claims against the Company fordram shop liability for which it may be held liable.

 

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The Company’s restaurant operations are all subject tofederal and state laws governing such matters as minimum wage and healthinsurance requirements.  A significantnumber of the Company’s personnel are paid at rates related to the federalminimum wage, and increases in the minimum wage could increase the Company’slabor costs.

 

 

**RiskFactors**

 

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

 

*TheCompany May Be Unable to Expand As Planned*

 

The Company’s ability to open additional Companyrestaurants will depend upon a number of factors, such as identifying satisfactorysites, negotiating satisfactory leases, securing required governmental permitsand approvals, providing adequate supervision of construction, and recruitingand training management personnel, some of which are beyond the control of theCompany. The Company cannot guarantee that it will be able to open any newrestaurants within budget or on a timely basis, if at all, or that any of thenew restaurants will operate profitably. If the Company is unable to expand, it may reduce the Company’s abilityto increase profitability.

 

*PossibleNeed of Additional Funding*

 

The Company believes that its anticipated cash flowfrom operations, together with existing line of credit, will be sufficient tofund its working capital needs and current expansion plans for at least the next 12 months.  However, it cannot guarantee that this willbe the case.  Changes in the Company’sbusiness or its business plan could affect its capital needs. (See “*Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations - Liquidity and Capital Resources*.”)

 

*TheRestaurant Business Is Risky*

 

The Company’s future performance will be subject to anumber of factors that affect the restaurant industry generally,including:  (i) the highly competitivenature of the  industry, (ii) generaland local economic conditions, (iii) changes in tastes and eating and drinkinghabits,  (iv) changes in food costs dueto shortages, inflation or other causes, (v) population and traffic patterns,(vi) demographic trends, (vii) general employment, and wage and benefit levelsin the restaurant industry, which may be affected by changes in federal andlocal minimum wage requirements or by federally or locally mandated healthinsurance, and (viii) the number of people willing to work at or near theminimum wage.  (See “*Competition*.”)

 

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*We AreDependent on Key Executive Officers*

 

The future success of the Company will depend in largepart on the continued services of its President, George R. Chapdelaine, as wellas on the Company’s ability to attract and retain other qualified seniormanagement personnel.  The Companycarries $2,000,000 of key man life insurance on the life of Mr. Chapdelaine.

 

*InsidersControl the Company*

 

The Company’s executive officers, directors and theiraffiliates and members of their immediate families control the vote ofapproximately 45.2%****of the outstanding shares of the CommonStock. As a result, they have the practical ability to implement or block changesin the Company’s management and direction which may or may not be in the bestinterest of stockholders generally.

 

*TheCompany’s Restaurants Are Concentrated in Eastern Massachusetts*

 

A total of thirteen of the Company’s sixteen existingrestaurants are located in Massachusetts. As a result, the Company’s results of operations may be materiallyaffected by changes in the Massachusetts economy.

 

*OurStock Is Relatively Illiquid and the Price Is Volatile*

 

Compared to many other publicly traded companies, theCompany is relatively small and has a relatively low average daily tradingvolume.  Quarterly operating results 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 securitiesare, and will likely continue to be, principally traded on the OTC BulletinBoard or its successor. (See “*Item 5. Market for Registrant Common Equity andRelated Stockholder Matters*.”)

 
| **ITEM 2.** | **PROPERTIES** |
|-------------|----------------|

 

All of the Company’sexisting restaurants are located in leased space, except for the North EndPizzeria Regina location, which is owned by the Company.  All of the Company’s leases provide for aminimum annual rent, and most call for additional rent based on sales volume atthe particular location over a specified minimum level.  Generally, these leases are net leases,which require the Company to pay the cost of insurance, taxes and a portion ofthe lessor’s operating costs.  Certainmall locations also require the Company to participate in upkeep of commonareas and promotional activities.

 

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The following table sets forth certain information with respect to theCompany’s restaurant properties:

 
| **Location**             |   | **Approx.  Sq.   Ft.** |   | **Lease   Expiration Date** |   | **Type (1)**                       |   |
|--------------------------|--------|------------------------|--------|-----------------------------|--------|------------------------------------|--------|
|                     |   |                   |   |                        |   |                               |   |
| Auburn Mall              |   | 924                    |   | 1/31/08                     |   | food court                         |   |
| Auburn, MA               |   |                   |   |                        |   |                               |   |
|                     |   |                   |   |                        |   |                               |   |
| North End                |   | 4,300                  |   | N/A                         |   | wait service                       |   |
| Boston, MA (2)           |   |                   |   |                        |   |                               |   |
|                     |   |                   |   |                        |   |                               |   |
| Faneuil Hall Marketplace |   | 750                    |   | 12/31/05                    |   | food court                         |   |
| Boston, MA               |   |                   |   |                        |   |                               |   |
|                     |   |                   |   |                        |   |                               |   |
| Burlington Mall          |   | 1,018                  |   | 11/30/05                    |   | food court                         |   |
| Burlington, MA           |   |                   |   |                        |   |                               |   |
|                     |   |                   |   |                        |   |                               |   |
| Holyoke Mall             |   | 749                    |   | 1/31/09                     |   | food court                         |   |
| Holyoke, MA              |   |                   |   |                        |   |                               |   |
|                     |   |                   |   |                        |   |                               |   |
| Cape Cod Mall            |   | 5,338                  |   | 1/31/11                     |   | Polcari’s North               |   |
| Hyannis, MA              |   |                   |   |                        |   | End (bistro)                       |   |
|                     |   |                   |   |                        |   |                               |   |
| Independence Mall        |   | 637                    |   | 1/31/09                     |   | food court                         |   |
| Kingston, MA             |   |                   |   |                        |   |                               |   |
|                     |   |                   |   |                        |   |                               |   |
| South Shore Plaza        |   | 700                    |   | 8/31/06                     |   | food court                         |   |
| Braintree, MA            |   |                   |   |                        |   |                               |   |
|                     |   |                   |   |                        |   |                               |   |
| Solomon Pond Mall        |   | 1,085                  |   | 1/30/07                     |   | food court                         |   |
| Marlborough, MA          |   |                   |   |                        |   |                               |   |
|                     |   |                   |   |                        |   |                               |   |
| Oviedo Market Place      |   | 714                    |   | 4/01/08                     |   | food court                         |   |
| Oviedo, FL               |   |                   |   |                        |   |                               |   |
|                     |   |                   |   |                        |   |                               |   |
| Paramus Park             |   | 696                    |   | 7/31/09                     |   | food court                         |   |
| Paramus, NJ              |   |                   |   |                        |   |                               |   |
|                     |   |                   |   |                        |   |                               |   |
| Providence Place         |   | 960                    |   | 10/30/09                    |   | food court                         |   |
| Providence, RI           |   |                   |   |                        |   |                               |   |
|                     |   |                   |   |                        |   |                               |   |
| Regency Square           |   | 605                    |   | 11/03/04                    |   | food court                         |   |
| Richmond, VA             |   |                   |   |                        |   |                               |   |
|                     |   |                   |   |                        |   |                               |   |
| Salem, NH                |   | 6,430                  |   | 1/18/10                     |   | Polcari’s North               |   |
|                     |   |                   |   |                        |   | End (bistro)                       |   |
|                     |   |                   |   |                        |   |                               |   |
| Saugus, MA               |   | 11,000                 |   | 11/30/12                    |   | Polcari’s North End           |   |
|                     |   |                   |   |                        |   |                               |   |
| Woburn, MA               |   | 12,000                 |   | 4/30/10                     |   | Polcari’s North End  (bistro) |   |

 

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(1)           Pizzeria Regina food court locationshave no independent seating capacity. Seating is centralized in the common areas of the food courts.  The North End seats approximately 75customers; the Saugus Polcari’s North End location seats approximately 400customers; the three bistro restaurants each seat approximately 200 customers.

 

(2)           Company-owned.  This property is subject to a mortgage in favorof Commerce Bank and Trust Company. (See *“Item7.  Management’s Discussion And AnalysisOf Financial Condition and Results of Operations — Liquidity and CapitalResources.”*) Includes approximately 1,000 square feet located in twoadjacent condominiums owned by the Company which have not been built-out as ofthe date of this Report.

 

12

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The Company occupies approximately 4,000 square feetof executive office space  in Saugus,Massachusetts.  The lease for thislocation expires in October 31, 2006. The Company also leases approximately 5,000 square feet of warehousespace located in Somerville, Massachusetts under a lease expiring on July 31,2002 (including all extension options that may be exercised by the Company inits discretion) and approximately 2,741 square feet for its commissary locatedin Charlestown, Massachusetts under a lease expiring on August 14, 2002.   The Company is currently negotiating toextend the commissary and warehouse leases.

 
| **ITEM  3.** | **LEGAL PROCEEDINGS** |
|--------------|-----------------------|

 

The Company is involvedin various legal matters in the ordinary course of its business.  Each of these other matters is subject tovarious uncertainties and some of these other matters may be resolvedunfavorably to the Company.  Managementbelieves that any liability that may ultimately result from these other matterswill not have a material adverse effect on the Company’s financial position.

 
| **ITEM 4.** | **SUBMISSION OF MATTERS TO A VOTE OF  SECURITY HOLDERS** |
|-------------|----------------------------------------------------------|

 

During the fourth quarter of the fiscal year coveredby this report, no matters were submitted to a vote of security holders of theCompany.

######  

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###### **PART II**

 
| **ITEM 5.** | **MARKET FOR REGISTRANT’S COMMON  EQUITY AND RELATED STOCKHOLDER MATTERS** |
|-------------|---------------------------------------------------------------------------------|

 

The Company’s Common Stock is traded publicly on theOTC Bulletin Board and on the Boston Stock Exchange (BSE symbol: “BNR”).  As of July 22, 2002, there wereapproximately 600 holders of record of the Company’s Common Stock.  On July 22, 2002, the last bid and askedprice of the Company’s Common Stock as reported on the OTC Bulletin Board were ** **$.70 and $.94 per share,respectively.

 

The table below represents the quarterly high and lowbid and asked prices for the Company’s Common Stock for the Company’s last twofiscal years, as reported on the OTC Bulletin Board.  The prices listed in this table reflect quotations withoutadjustment for retail mark-up, mark-down or commission, and may not representactual transactions.

 
|                              |   | **High Bid** |   | **Low Bid** |   | **High Asked** |   | **Low Asked** |   |
|-----------------------------------|--------|--------------|--------|-------------|--------|----------------|--------|---------------|--------|
|                              |   |         |   |        |   |           |   |          |   |
| Fiscal Year  Ended April 28, 2002 |   |         |   |        |   |           |   |          |   |
|                              |   |         |   |        |   |           |   |          |   |
| First Quarter                     |   | $            | .81    |        | $      | .62            |   | $             | 1.03   |   | $ | .65 |   |
| Second Quarter                    |   | $            | .62    |        | $      | .50            |   | $             | 0.80   |   | $ | .55 |   |
| Third Quarter                     |   | $            | .70    |        | $      | .50            |   | $             | 1.01   |   | $ | .52 |   |
| Fourth Quarter                    |   | $            | .97    |        | $      | .55            |   | $             | 1.02   |   | $ | .60 |   |
|                              |   |         |   |        |   |           |   |          |   |
| Fiscal Year  Ended April 29, 2001 |   |         |   |        |   |           |   |          |   |
|                              |   |         |   |        |   |           |   |          |   |
| First Quarter                     |   | $            | .94    |        | $      | .75            |   | $             | 1.03   |   | $ | .78 |   |
| Second Quarter                    |   | $            | .84    |        | $      | .75            |   | $             | 1.06   |   | $ | .87 |   |
| Third Quarter                     |   | $            | .87    |        | $      | .75            |   | $             | 1.06   |   | $ | .87 |   |
| Fourth Quarter                    |   | $            | .87    |        | $      | .75            |   | $             | 1.06   |   | $ | .85 |   |

 

The Company has neverpaid cash dividends on its capital stock and does not anticipate paying anycash dividends in the foreseeable future. Rather, the Company intends to retain all of its future earnings tofinance future growth.

 

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| **ITEM  6.** | **SELECTED FINANCIAL DATA** |
|--------------|-----------------------------|

 

The following table sets forth for the fiscal periodsindicated, a 52 week period for fiscal 2002, 2001, 1999, 1998, and a 53 weekperiod for fiscal 2000.

 
|                                          |   | **Fiscal  Year Ended** |       |
|-----------------------------------------------|--------|------------------------|------------|
|                                          |   | **April 28,  2002**    |       | **April 29,   2001** |   | **April 30,   2000** |   | **April 25,   1999** |   | **April 26,   1998** |   |
| **Income Statement Data:**                    |   |                   |       |   |   |   |   |   |   |   |   |
|                                          |   |                   |       |   |   |   |   |   |   |   |   |
| Total Revenues                                |   | $                      | 23,854,439 |   | $ | 21,707,907 |   | $ | 16,013,321 |   | $ | 12,173,934 |   | $ | 11,255,049 |   |
|                                          |   |                   |       |   |   |   |   |   |   |   |   |
| Costs and  expenses:                          |   |                   |       |   |   |   |   |   |   |   |   |
| Cost of food,  beverages and liquor           |   | 4,885,952              |       | 4,644,810 |   | 3,284,015 |   | 2,546,026 |   | 2,267,331 |   |
| Other operating  expenses                     |   | 14,293,083             |       | 13,052,040 |   | 9,471,227 |   | 7,114,457 |   | 6,780,778 |   |
| General and administrative                    |   | 2,132,756              |       | 1,837,085 |   | 1,719,071 |   | 1,663,649 |   | 1,377,464 |   |
| Depreciation and  amortization                |   | 1,152,860              |       | 1,161,628 |   | 762,346 |   | 545,092 |   | 469,559 |   |
| Pre-opening  costs                            |   | —                 |       | 658,090 |   | 453,002 |   | 42,197 |   | 33,787 |   |
| Litigation and  Settlement Costs              |   | —                 |       | 1,847,487 |   | — |   | — |   | — |   |
| Charge for asset  impairment                  |   | —                 |       | 580,000 |   | — |   | — |   | — |   |
|                                          |   |                   |       |   |   |   |   |   |   |   |   |
| Total Costs and  Expenses                     |   | 22,464,651             |       | 23,781,140 |   | 15,689,661 |   | 11,911,421 |   | 10,928,919 |   |
|                                          |   |                   |       |   |   |   |   |   |   |   |   |
| Operating Income  (loss)                      |   | 1,389,788              |       | (2,073,233 | ) | 323,660 |   | 262,513 |   | 326,130 |   |
|                                          |   |                   |       |   |   |   |   |   |   |   |   |
| Interest  Expense, net                        |   | (508,072               | )          | (456,842 | ) | (327,164 | ) | (241,973 | ) | (279,645 | ) |
| Other Income,  net                            |   | 9,015                  |       | 19,771 |   | 5,171 |   | 4,963 |   | 6,395 |   |
| Income (loss)  before minority interest       |   | 890,731                |       | (2,510,304 | ) | 1,667 |   | 25,503 |   | 52,880 |   |
| Minority  interest in net loss of subsidiary  |   | —                 |       | — |   | 63,867 |   | 34,133 |   | — |   |
| Net Income  (loss)                            |   | $                      | 890,731    |   | $ | (2,510,304 | ) | $ | 65,534 |   | $ | 59,636 |   | $ | 52,880 |   |
|                                          |   |                   |       |   |   |   |   |   |   |   |   |
| Net Income  (loss) per share of common stock: |   |                   |       |   |   |   |   |   |   |   |   |
| Basic and  Diluted                            |   | $                      | .13        |   | $ | (.36 | ) | $ | 0.01 |   | $ | 0.01 |   | $ | 0.01 |   |
|                                          |   |                   |       |   |   |   |   |   |   |   |   |
| **Balance Sheet Items:**                      |   |                   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Total Assets                                  |   | 8,640,734              |       | 9,000,203 |   | 8,307,876 |   | 6,887,694 |   | 6,764,975 |   |
| Long Term  Obligations                        |   | 3,750,876              |       | 4,527,914 |   | 2,964,630 |   | 2,417,410 |   | 2,493,546 |   |
| Total  Liabilities                            |   | 6,895,065              |       | 8,145,265 |   | 4,942,634 |   | 3,534,285 |   | 3,576,896 |   |

 

15

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| **ITEM 7.** | **MANAGEMENT’S DISCUSSION AND  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|-------------------------------------------------------------------------------------------------|

 

The following set forth the results from operationsfor fiscal 2002, 2001 and 2000.

 

**Results of Operations for the Years Ended April 28,2002 and April 29, 2001**

 

# **Restaurant Sales**

 

Restaurant sales in fiscal 2002 were $23,828,000compared to  $21,610,000 in fiscal 2001.The dollar increase in restaurant sales was primarily attributable to a fullyear of operations of two new bistro restaurants (the new Woburn, MassachusettsPolcari’s North End bistro restaurant in October of 2000, and the new Hyannis,Massachusetts Polcari’s North End bistro restaurant in January of 2001).

 

Net sales at the Company’s Pizzeria Regina restaurantsdecreased to $11,905,000 in fiscal 2002 from $12,241,000 in fiscal 2001,principally due to the closing of a Pizzeria Regina restaurant at the end ofits lease and a decrease in same-store sales for existing Pizzeria Reginarestaurants in food courts currently undergoing renovation.  Sales for the Pizzeria Regina  restaurants open throughout both fiscal 2002and fiscal 2001 decreased by .6 of 1%

 

Net sales at the Company’s full service casual diningrestaurants increased to $11,906,000 in fiscal 2002 from $9,329,000 in fiscal2001.  The increase was primarilyattributable to the additional sales of two new bistro restaurants opened forthe entire period of fiscal 2002.  Salesfor the Company’s full service casual dining restaurants open throughout bothfiscal 2002 and fiscal 2001 decreased by .3 of 1%.

 

Sales at the Company’s commissary were $17,000 infiscal 2002 compared to $40,000 in fiscal 2001.  The decrease in commissary sales was primarily attributable tothe closure of a franchise restaurant in the prior year.

 

# **Franchise Fees andRoyalties**

 

During fiscal 2002, the Company recognized $20,000 infranchise fee revenues and $6,000 in royalties from a domestic Pizzeria Reginafranchise opened at the Palms Casino Resort in Las Vegas, Nevada.  During fiscal 2001, the Company recognized$98,000 in franchise fee revenues, $35,000 relating to the opening of aninternational Polcari’s North End franchise, and $63,000 related to royalties.

 

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**Costs and Expenses**

 

**Cost of Food, Beverages and Liquor**

 

Cost of food, beverages and liquor as a percentage oftotal revenues for all restaurants was 20% in fiscal 2002 compared to 21% infiscal 2001.

 

The cost of food, beverages and liquor was $4,886,000in fiscal 2002 compared to $4,645,000 in fiscal 2001. The dollar increase wasdue to the two new bistro restaurants opened for a full year in fiscal 2002.

 

The cost of food, beverages, and liquor as apercentage of total revenues at the Pizzeria Regina restaurants was 15% infiscal 2002, compared to 16% in fiscal 2001. The decrease in the cost of food, beverages and liquor as a percentageof total sales was principally due to lower cheese costs and cost controlsystems.

 

The cost of food, beverages and liquor at the PizzeriaRegina restaurants was $1,790,000 in fiscal 2002 compared to $1,989,000 infiscal 2001.  The dollar decrease wasprincipally due to the closing of a Pizzeria Regina restaurant at the end ofits lease, as well as lower cheese costs and improved cost control systems.

 

The cost of food, beverages and liquor as a percentageof total revenues at the Company’s full service casual dining restaurantsdecreased to 26% in fiscal 2002 from 28% in fiscal 2001, primarily due toimproved cost controls.

 

The cost of food, beverages and liquor at theCompany’s full service casual dining restaurants was $3,096,000 in fiscal 2002compared to $2,656,000 in fiscal 2001. This dollar increase was primarily due to two Polcari’s North End bistrorestaurants opened for an entire year in fiscal 2002.

 

 

**OtherOperating Expenses**

 

**Payroll Expenses**.     Payroll expenses as a percentage of total revenues for allrestaurants were 31% in both fiscal 2002 and fiscal 2001.

 

Payroll Expenses for allthe restaurants were $7,424,000 in fiscal 2002 compared to $6,627,000 in fiscal2001.  The dollar increase in payrollexpenses was primarily due to the opening of two new Polcari’s North End bistrorestaurants, partially offset by the closing of a Pizzeria location in fiscal2001.

 

Payroll expenses at the Pizzeria Regina restaurantswere 26% of  total revenues in fiscal2002 compared to 25% of total revenues in fiscal 2001.

 

17

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Payroll Expenses at thePizzeria Regina restaurants were $3,041,000 in fiscal 2002 compared to$3,046,000 in fiscal 2001.  This dollardecrease was primarily due to the closure of a Pizzeria Regina restaurant inSeptember, 2000 at the termination of its lease.

 

Payroll expenses at the Company’s full service casualdining restaurants decreased  to 34% oftotal revenues in fiscal 2002 from 35% of total revenues in fiscal 2001. Thepercentage decrease was primarily attributable to lower labor costs associatedwith the staffing of the bistro restaurants.

 

Payroll Expenses at theCompany’s full service casual dining restaurants were $4,001,000 in fiscal 2002compared to $3,311,000 in fiscal 2001. This dollar increase was primarily due to a full year of labor costsassociated with the two additional Polcari’s North End bistro restaurantsopened in fiscal 2001.

 

Payroll expenses at theCompany’s Commissary were $382,000 for fiscal 2002 as compared to $270,000 infiscal 2001.  The dollar increase inpayroll expenses was primarily due to an increase in personnel at theCommissary to meet the added production requirements of the new Polcari’s NorthEnd bistro restaurants.

 

**Other Operating Expenses, Exclusive of Payroll.    **Other operatingexpenses, exclusive of payroll, were 29% of total revenues in fiscal 2002compared to 30% in fiscal 2001.

 

Other operating expenses,exclusive of payroll were $6,869,000 in fiscal 2002 compared to $6,425,000 infiscal 2001.  This dollar increase wasprimarily due to the addition of two new Polcari North End bistro restaurantsand costs associated with increased sales.

 

Other operating expenses, exclusive of payroll, fromthe Pizzeria Regina restaurants were 32% of total revenues in both fiscal 2002and fiscal 2001.

 

Other operating expenses,exclusive of payroll from the Pizzeria Regina restaurants were $3,798,000 infiscal 2002 compared to $3,939,000 in fiscal 2001.  This dollar decrease was principally due to the closure of a PizzeriaRegina restaurant at the end of its lease.

 

Other operating expenses,exclusive of payroll, from the Company’s full service casual dining restaurantsincreased to 25% of total revenues in fiscal 2002 from 24% of total revenues infiscal 2001.

 

Other operating expenses,exclusive of payroll from the Company’s full service casual dining restaurantswere $2,958,000 in fiscal 2002 compared to $2,266,000 in fiscal

 

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2001.  Thisdollar increase was principally due to two bistro restaurants opened the entireyear in fiscal 2002.

 

Other operating expensesalso include commissary expenses, which were $107,000 in fiscal 2002 and$103,000 in fiscal 2001, respectively. In addition, other operating expenses included $6,000 in fiscal 2002 and$117,000 in fiscal 2001, which included costs associated with joint venture andfranchising activities.

 

 

**Generaland Administrative Expenses**

 

General and administrative expenses were 9% of totalrevenues in both fiscal 2002 and fiscal 2001.

 

General andadministrative expenses were $2,133,000 in fiscal 2002, compared to $1,837,000in fiscal 2001.  This dollar increasewas primarily attributable to employee incentives, state excise taxes,consulting costs and rent.

 

 

**Depreciationand Amortization Expenses**

 

Depreciation and amortization expense was 5% of totalrevenues in both fiscal 2002 and fiscal 2001.

 

Depreciation andamortization expense was $1,153,000 in fiscal 2002, as compared to $1,162,000in fiscal 2001.  The dollar decrease indepreciation and amortization expense was primarily attributable to the assetimpairment charge related to three Pizzeria Regina locations taken in thefourth quarter of fiscal 2001, partially offset by the opening of the two newPolcari’s North End bistro restaurants in fiscal 2001.

 

 

**Pre-OpeningCosts**

 

There were no pre-openingexpenses in fiscal 2002 compared to $658,000 in fiscal 2001.

 

 

**InterestExpense and Interest Income**

 

Interest expense increased to $508,000 in fiscal 2002,compared to $492,000 in fiscal 2001. This increase was primarily due to the interest expense associated withthe amortization of the discount to present value of a litigation settlement,partially offset by a decrease in interest expense under the Company’s creditfacility.

 

Interest income was $0 infiscal 2002 as compared to $36,000 in fiscal 2001.  The decrease in interest income was attributable to a decrease incash reserves.

 

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**Results of Operations for the Years Ended April 29,2001 and April 30, 2000**

 

# **Restaurant Sales**

 

Restaurant sales in the 52 week fiscal 2001 were$21,610,000, compared to  $15,961,000 inthe 53 week fiscal 2001. The dollar increase in restaurant sales wasattributable to the opening of three new Pizzeria Regina kiosks and three newbistro restaurants between June 1999 and January 2001 (the Kingston,Massachusetts Pizzeria Regina food court kiosk in June of 1999, the newHolyoke, Massachusetts Pizzeria Regina food court kiosk in September of 1999,the new Providence, Rhode Island Pizzeria Regina food court kiosk in October of1999, the new Salem, New Hampshire Polcari’s North End bistro restaurant inJanuary of 2000, the new Woburn, Massachusetts Polcari’s North End bistrorestaurant in October of 2000, and the new Hyannis, Massachusetts Polcari’sNorth End bistro restaurant in January of 2001).  This was partially offset by the closure of a Pizzeria Reginarestaurant in September of 2000 at the end of its lease.

 

Net sales at the Company’s Pizzeria Regina restaurantsincreased to $12,241,000 in fiscal 2001 from $11,358,000 in fiscal 2000,principally due to the addition of a full year of sales from the three newPizzeria Regina restaurants and an increase in aggregate same-store sales forexisting Pizzeria Regina restaurants, partially offset by the closure of onePizzeria Regina restaurant in September of 2000 at the end of its lease.  Sales for the Pizzeria Regina  restaurants open throughout both fiscal 2001and fiscal 2000 increased by 4.9%.

 

Net sales at the Company’s full service casual diningrestaurants increased to $9,329,000 in fiscal 2001 from $4,540,000 in fiscal2000.  The increase was primarilyattributable to the addition of sales at the two new bistro restaurants openedin fiscal 2001 and an additional bistro restaurant open for the entire periodof fiscal 2001, and increased sales of 10.8% at the Saugus, MassachusettsPolcari’s North End restaurant.

 

Sales at the Company’s commissary were $40,000 infiscal 2001 compared to $63,000 in fiscal 2000.  The decrease in commissary sales was primarily attributable tothe closure of a franchise restaurant during fiscal 2001.

 

 

# **Franchise Fees andRoyalties**

 

During fiscal 2001, the Company recognized $98,000 infranchise fee revenues, $35,000 relating to the opening of an internationalPolcari’s North End franchise, and $63,000 related to royalties.  During fiscal 2000, the Company recognized$53,000 in franchise fee revenues, $20,000 relating to the opening of adomestic Pizzeria Regina franchise, and $33,000 related to royalties.

 

20

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**Costs and Expenses**

 

**Cost of Food, Beverages and Liquor**

 

Cost of food, beverages and liquor as a percentage oftotal revenues for all restaurants was 21% in both fiscal 2001 and fiscal 2000.

 

The cost of food, beverages and liquor was $4,645,000in fiscal 2001 compared to $3,284,000 in fiscal 2000. The dollar increase wasdue to the two new bistro restaurants opened in fiscal 2001, an additionalbistro restaurant opened for the entire year in fiscal 2001 and three PizzeriaRegina kiosks opened for the entire year in fiscal 2001.

 

The cost of food, beverages, and liquor as apercentage of total revenues at the Pizzeria Regina restaurants was 16% infiscal 2001, compared to 17% in fiscal 2000. The decrease in the cost of food, beverages and liquor as a percentageof total sales was principally due to lower cheese costs.

 

The cost of food, beverages and liquor at PizzeriaRegina was $1,989,000 in fiscal 2001 compared to $1,932,000 in fiscal2000.  This dollar increase wasprincipally due to the three new Pizzeria Regina kiosks being open for a fullyear in fiscal 2001 compared to a partial year in fiscal 2000.

 

The cost of food, beverages and liquor as a percentageof total revenues at the Company’s full service casual dining restaurantsdecreased to 28% in fiscal 2001 from 30% in fiscal 2000, primarily due toimproved cost controls.

 

The cost of food, beverages and liquor, at theCompany’s full service casual dining restaurants, was $2,656,000 in fiscal 2001compared to $1,352,000 in fiscal 2000. This dollar increase was primarily due to the opening of the two newPolcari’s North End bistro restaurants during fiscal 2001 and the New Hampshirebistro restaurant being open for the entire year in fiscal 2001.

 

 

**OtherOperating Expenses**

 

**Payroll Expenses**.   Payroll expenses were 31% of total revenue in fiscal 2001,compared to 29% of total revenues in fiscal 2000.

 

Payroll Expenses were$6,627,000 in fiscal 2001 compared to $4,621,000 in fiscal 2000, due to theopening of two new Polcari’s bistro restaurants and an additional Polcari’sbistro and three Pizzeria Regina kiosks opened for the entire year in fiscal2001.

 

Payroll expenses at the Pizzeria Regina restaurantswere 25% of  total revenues in fiscal2001 compared to 26% of total revenues in fiscal 2000 due to increased laborefficiency.

 

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Payroll Expenses were$3,046,000 in fiscal 2001 compared to $2,997,000 in fiscal 2000.  This dollar increase was primarily due tothe addition of three Pizzeria Regina food court kiosks open for the entireyear in fiscal 2001.

 

Payroll expenses at theCompany’s full service casual dining restaurants increased  to 35% of net sales in fiscal 2001 from 31%of net sales in fiscal 2000. The percentage increase was primarily attributableto labor costs associated with the training and staffing of the new bistrorestaurants.

 

Payroll Expenses were$3,311,000 in fiscal 2001 compared to $1,386,000 in fiscal 2000.  This dollar increase was primarily due tolabor costs associated with the training and staffing of two new bistrorestaurants and an additional bistro restaurant open for the entire year infiscal 2001.

 

Payroll expenses at theCompany’s Commissary were $270,000 for fiscal 2001 as compared to $238,000 infiscal 2000.  The dollar increase inpayroll expenses was primarily due to an increase in personnel at theCommissary to meet the added production requirements of the new bistrorestaurants and Pizzeria Regina kiosks.

 

**Other Operating Expenses, Exclusive of Payroll.**  Other operating expenses, exclusive ofpayroll, were 30% of total revenues in both fiscal 2001 and fiscal 2000.

 

Other operating expenses,exclusive of payroll were $6,425,000 in fiscal 2001 compared to $4,850,000 infiscal 2000.

 

Other operating expenses,exclusive of payroll, from the Pizzeria Regina restaurants was 32% of totalrevenues in fiscal 2001 from 30% of total revenue in fiscal 2000.

 

Other operating expenses,exclusive of payroll were $3,939,000 in fiscal 2001 compared to $3,423,000 infiscal 2000.  This dollar increase wasprincipally due to three additional Pizzeria Regina kiosks being open for theentire year in fiscal 2001.

 

Other operating expenses,exclusive of payroll, from the Company’s full service casual dining restaurantsdecreased to 24% of net sales in fiscal 2001 from 25% of net sales in fiscal2000 due to increased controls.

 

Other operating expenses,exclusive of payroll, were $2,266,000 in fiscal 2001 compared to $1,125,000 infiscal 2000.  This dollar increase wasprincipally due to the opening of two new bistro restaurants in fiscal 2001 andan additional bistro restaurant open for the entire year in fiscal 2001.

 

Other operating expensesalso include commissary expenses, which were $103,000 in fiscal 2001 and$62,000 in fiscal 2000, respectively. In addition, other

 

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operating expenses included $117,000 in joint venturecosts and franchising costs in fiscal 2001 and $240,000 in fiscal 2000.

 

**Generaland Administrative Expenses**

 

General andadministrative expenses were 9% of total revenues in fiscal 2001, compared to11% of total revenues in fiscal 2000. The decrease in general and administrative expenses as a percentage oftotal revenues was primarily due to the additional sales generated by the twonew bistro restaurants opened in fiscal 2001, and an additional bistrorestaurant and three Pizzeria Regina kiosks open for the entire period in fiscal2001.

 

General andadministrative expenses were $1,837,000 in fiscal 2001, compared to $1,719,000in fiscal 2000.  This dollar increasewas primarily attributable to computer software consulting costs, outsideaccountants’ review of quarterly financial statements now required by the SECrules, and medical insurance costs.

 

 

**Depreciation and Amortization Expenses**

 

Depreciation andamortization expense was 5% of total revenues in both fiscal 2000 and fiscal2001.

 

Depreciation andamortization expense was $1,162,000 in fiscal 2001, as compared to $762,000 infiscal 2000.  The dollar increase indepreciation and amortization expense was primarily attributable to capitalizedcosts related to the opening of the three new Pizzeria Regina kiosks and thethree new bistro restaurants.

 

 

**Pre-OpeningCosts**

 

Pre-opening costs were$658,000 in fiscal 2001 compared to $453,000 in fiscal 2000.  Pre-opening costs for fiscal 2001 consistedprimarily of costs associated with the opening of the two new bistrorestaurants.  There were alsopre-opening costs in fiscal 2001 associated with franchising ventures.

 

 

**Litigation and Settlement Costs**

 

In fiscal 2001,the Company incurred litigation and settlement costs of $1,847,000 related tosettlement of the dispute with Italian Ventures LLC; there were no litigationand settlement costs for fiscal 2000. Of the total amount, $955,000 was attributable to the actual settlement,and $892,000 was attributable to legal fees and other costs related to thelitigation.

 

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**Charge For Asset Impairment**

 

The Companyrecorded an impairment charge of $580,000 in the fourth quarter of fiscal 2001which is included in the consolidated statements of operations related to thewrite-down of certain long-lived assets. The Company reviewed the carrying value of its long-lived assets andnoted that the expected future cash flows for three of its Pizzeria Reginalocations were not sufficient to recover the recorded carrying value oflong-lived assets at those locations. Accordingly, the Company recognized an impairment charge to reduce thecarrying value of leasehold improvements to zero and restaurant equipment atthose three locations to their estimated fair market value.  The Company currently plans to continue tooperate these restaurants for their remaining lease terms.

 

 

**InterestExpense and Interest Income**

 

Interest expenseincreased to $492,000 in fiscal 2001, compared to $375,000 in fiscal 2000.  This increase was primarily due toadditional borrowings under the Company’s credit facility and to additionalequipment leases associated with the two new bistro restaurants opened infiscal 2001 and an additional bistro restaurant and the three new PizzeriaRegina kiosks open for the entire year in fiscal 2001.

 

Interest income decreasedto $36,000 in fiscal 2001 as compared to interest income in fiscal 2000 of$48,000.  The decrease in interestincome was attributable to a decrease in cash reserves.

 

# **Liquidity andCapital Resources**

 

At April 28, 2002, the Company had negative networking capital of $1,423,000 compared to $2,541,000 in 2001 and cash and cashequivalents of approximately $933,000.

 

During fiscal2002, the Company had a net increase in cash and cash equivalents of $600,000,reflecting net cash provided by operating activities of $1,617,000, net cashused for investing activities of $128,000 and net cash used for financingactivities of $889,000.

 

Net cash providedby operating activities included net income of $891,000, a decrease in inventoriesof $33,000, an increase in deferred rent of $94,000, an increase in otherlong-term liabilities of $20,000 and depreciation and amortization expense of$1,153,000, partially offset by an increase in prepaid expenses of $79,000, anincrease in other assets of $20,000, a decrease in accounts payable of $414,000and a reduction in accrued expenses of $61,000.  Net cash used for investing activities of $128,000 reflectscapital costs associated with the various Pizzeria Regina restaurants and thePolcari’s North End bistro restaurants. Net cash used for financing activities of $889,000 consisted of netrepayments of long-term debt, capital lease obligations and stockholder loans.

 

24

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At April 28, 2002,the Company had current liabilities of $3,144,000, including $806,000 ofaccounts payable, $1,440,000 of accrued expenses and current maturities of longterm obligations in the amount of $898,000. At April 28, 2002, the Company had long-term obligations, less currentmaturities, in the amount of $3,751,000, including $346,000 due under itscredit facility with Fleet Bank, $101,000 of notes payable to a stockholder,$449,000 due under the capital lease obligations, $1,500,000 of convertiblesubordinated debentures, $377,000 of deferred rent, and $978,000 of otherlong-term liabilities primarily related to the litigation settlement agreementwith Italian Ventures, LLC. While the Company believes that its existingresources, cash flow from operations will be sufficient to allow it to meet itsobligations over the next twelve months, there can be no guarantee that thatwill be the case.

 

The Company’sfuture minimum payments under contractual obligations related to CapitalLeases, Operating Leases, Term Notes and Shareholder Note as of April 28, 2002are as follows:

 
| **Year Ending**                              |   | **Capital  Leases** |    | **Operating  Leases** |   | **Term  Notes** |   | **Shareholder  Note** |    |
|----------------------------------------------|--------|---------------------|---------|-----------------------|--------|-----------------|--------|-----------------------|---------|
|                                         |   |                |    |                  |   |            |   |                  |    |
| 2003                                         |   | $                   | 420,507 |                  | $      | 2,567,000       |   | $                     | 528,623 |   | $ | 5,533 |   |
| 2004                                         |   | 240,469             |    | 2,546,000             |   | 283,329         |   | 5,854                 |    |
| 2005                                         |   | 214,701             |    | 2,523,000             |   | 62,758          |   | 6,114                 |    |
| 2006                                         |   | 63,457              |    | 1,995,000             |   | —          |   | 5,005                 |    |
| 2007                                         |   | —              |    | 1,770,000             |   | —          |   | 6,726                 |    |
| Thereafter                                   |   | —              |    | 3,742,000             |   | ­—    |   | 77,085                |    |
| Total minimum payments                       |   | 939,134             |    | 15,143,000            |   | 874,710         |   | 106,317               |    |
| Less amount representing interest            |   | (125,903            | )       | —                |   | —          |   | —                |    |
| Present value of net minimum  Lease payments |   | 813,231             |    | —                |   | —          |   | —                |    |
| Less current maturities                      |   | 364,077             |    | —                |   | 528,623         |   | 5,533                 |    |
| Long term maturities                         |   | 449,154             |    | —                |   | 346,087         |   | 100,784               |    |
|                                              |        |                     |         |                       |        |                 |        |                       |         |  |  |  |  |

 

Additionally, theCompany has convertible substantiated debentures with an outstanding balance of$1,500,000 at April 28, 2002.  Theconvertible debentures have no minimum yearly payments except for interest at astraight-lined rate of 13.2%.  Thedebentures are due on December 31, 2011.

 

On April 30,2002, the Company entered into a new $3,500,000 revolving credit facility witha new bank.  Borrowings under the creditfacility bear interest at the bank’s base rate plus 2%.  The new credit facility expires in April2004.  Subsequent to year end, the termnotes under the credit facility in effect at April 28, 2002 were convertedinto one

 

25

----

 

term note under the newcredit facility.  The new term notebears interest at 6.75% which rate is subject to adjustment after each year tothe bank’s base rate plus 2% and is payable over four years.

 

**Critical Accounting Policies**

 

The Companyconsiders its accounting policies with respect to the use of estimates,long-lived assets and goodwill, and revenue recognition as the most critical toits results of operations and financial condition.

 

**Use of Estimates**

 

The preparation offinancial statements in conformity with generally accepted accountingprinciples 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 results could differ from thoseestimates.  In fiscal 2001 the Companyrecorded a non-recurring charge of approximately $955,000 which represented theCompany’s best estimate of total royalty payments expected to be made pursuantto a litigation settlement agreement. This estimate was based on projected sales of current and future bistrorestaurants, which assumed the number and timing of new bistrorestaurants.  The actual royaltypayments ultimately required to be paid may vary significantly from theCompany’s estimate.  Similarly, theimpairment charge taken in fiscal 2001 and discussed below was based uponestimates of future cash flows from certain restaurants which may differsignificantly from actual cash flows.

 

**Long-Lived Assets and Goodwill**

 

The Company evaluates itslong-lived assets under the provisions of Statement of Financial AccountingStandards No. 121 (“SFAS No. 121”), “Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to be Disposed of.”  SFAS No. 121 establishes accountingstandards for the impairment of long-lived assets and certain identifiableintangibles to be held and used and for long-lived assets, and certainidentifiable intangibles to be disposed of.

 

Whenever events orchanges in circumstances indicate that the carrying amounts of the assets maynot be recoverable, the Company reviews the carrying values of its long-livedand identifiable intangible assets for possible impairment, as appropriate. Infiscal 2001, the Company recorded an impairment charge of $580,000 related tothe write-down of certain long-lived assets. The Company determined that the future cash flows which the Companyestimated would be received from three of the Company’s Pizzeria Reginalocations would not be sufficient to recover the recorded carrying value of thelong-lived assets applicable to those locations.

 

26

----

 

As of April 28,2002 the Company had a net carrying amount of goodwill of approximately$454,000.  In the first quarter offiscal 2003, the Company will evaluate its long-lived assets and goodwill inaccordance with new accounting pronouncements which the Company will adopt inthe first quarter of fiscal 2003.  (See“*NewAccounting Pronouncements.*”)

 

**Revenue Recognition**

 

Substantially allrestaurant sales represent retail sales to the general public throughCompany-owned restaurants.  Such amountsare recognized as revenue at the point of sale.

 

Franchise fees resultingfrom the sale of individual franchise locations are recognized as revenue uponthe commencement of franchise operations. Revenues from the sale of area development rights are recognizedproportionately as the franchised restaurants commence operations.  Franchise royalties, which are based on apercentage of franchised restaurants’ sales are recognized when revenue isearned.

 

**New Accounting Pronouncements**

 

In June 2001, theFinancial Accounting Standards Board finalized FASB Statements No. 141,“Business Combinations” (SFAS 141), and No. 142, “Goodwill and OtherIntangible Assets” (SFAS 142). SFAS 141 requires the use of the purchase method of accounting andprohibits the use of the pooling-of-interests method of accounting for businesscombinations initiated after June 30, 2001.  SFAS 141 also requires that the Company recognize acquiredintangible assets apart from goodwill if they meet certain criteria.  SFAS 141 applies to all businesscombinations initiated after June 30, 2001 and for purchase businesscombinations completed on or after July 1, 2001.  It also requires, upon adoption of SFAS 142, that theCompany reclassify the carrying amounts of intangible assets and goodwill basedon the criteria in SFAS 141.

 

SFAS 142requires, among other things, that companies no longer amortize goodwill, butinstead test goodwill for impairment at least annually.  In addition, SFAS 142 requires that theCompany identify reporting units for the purposes of assessing potential futureimpairments of goodwill, reassess the useful lives of other existing recognizedintangible assets, and cease amortization of intangible assets with anindefinite useful life.  An intangibleasset with an indefinite useful life should be tested for impairment inaccordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning afterDecember 15, 2001 to all goodwill and other intangible assets recognizedat that date, regardless of when those assets were initially recognized.  It also requires the Company to complete atransitional goodwill impairment test by six months from the date ofadoption.  The Company is also requiredto reassess the useful lives of other intangible assets within the firstinterim quarter after adoption of SFAS 142.

 

27

----

 

The Company’sprevious business combinations were accounted for using the purchasemethods.  All future businesscombinations will be accounted for under the purchase method, which may resultin the recognition of goodwill and other intangible assets, some of which maysubsequently be charged to operations, either by amortization or impairmentcharges.  For purchase businesscombinations completed prior to June 30, 2001, the net carrying amount ofgoodwill was approximately $454,000 and other intangible assets was $0 as ofApril 28, 2002.  Amortization expenseduring fiscal 2002, 2001 and 2000 was approximately $38,000, $38,000 and$38,000 respectively.  The Company willadopt SFAS 141 and SFAS 142 in the first quarter of fiscal 2003.  The Company does not expect the adoption ofSFAS 141 and SFAS 142 to impact its future financial position andresults of operations.

 

In October 2001, the FASBissued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets,” which addresses financial accounting and reporting for the impairmentor disposal of long-lived assets.  Thisstatement supersedes SFAS No. 121, “Accounting for the Impairment of Long-LivedAssets and for Long-Lived Assets To Be Disposed Of,” and APB OpinionNo. 30,  “Reporting the Results ofOperations - Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions forthe Disposal of a Segment of a Business.” SFAS No. 144 becomes effective for the fiscal years beginning afterDecember 15, 2001. The Company will adopt SFAS No. 144 in the firstquarter of fiscal 2003. The Company does not expect the adoption of SFASNo. 144 to impact its financial position and results of operations.

 

**“SafeHarbor” Statement Under the Private Securities Litigation Reform Act of 1995**

 

Forward-looking statements in this report, includingwithout limitation statements relating to the adequacy of the Company’s workingcapital and other resources, cash conservation program, its ability to obtainadditional financing, and the timing of the Company’s expansion, are madepursuant to the safe harbor provisions of the Private Securities LitigationReform Act of 1995.  Investors arecautioned that such forward-looking statements involve risks and uncertainties,including without limitation:  potentialquarterly fluctuations in the Company’s operating results; seasonality ofsales; competition; risks associated with expansion; the Company’s reliance onkey employees; risks generally associated with the restaurant industry; risksassociated with geographic concentration of the Company’s restaurants; risksassociated with serving alcoholic beverages; and other risks and uncertaintiesindicated from time to time in the Company’s filings with the Securities andExchange Commission.  (See *“Item 1.Business - Risk Factors.”*)

 

28

----

 
| **ITEM 7A.** | **QUANTITATIVE AND QUALITATIVE  DISCLOSURE ABOUT MARKET RISKS.** |
|--------------|------------------------------------------------------------------|

 

Except for the Company’srevolving credit facility which has a variable rate of interest the Companybelieves there is no material exposure to a market risk that could affectfuture results of operations or financial conditions.

 
| **ITEM 8.** | **FINANCIAL STATEMENTS AND  SUPPLEMENTARY DATA** |
|-------------|--------------------------------------------------|

 

BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES

 

INDEX TO FINANCIAL STATEMENTS

 
| Index to Financial Statements                       |
|-----------------------------------------------------|
| Report  of Independent Certified Public Accountants |
| 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, together with the Report ofIndependent Certified Public Accountants have been included at Item 14 andappear at Pages F-1 through F-30

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

 

None.

 

# **PARTIII**

 
| **ITEM 10.** | **DIRECTORS AND EXECUTIVE OFFICERSOF  THE REGISTRANT** |
|--------------|--------------------------------------------------------|

 

The information requiredby this Item 10 is hereby incorporated by reference to the Company’s definitiveproxy statement to be filed by the Company within 120 days after the close ofits 2002 fiscal year.

 

29

----

 
| **ITEM 11.** | **EXECUTIVE COMPENSATION** |
|--------------|----------------------------|

 

The informationrequired by this Item 11 is hereby incorporated by reference to the Company’sdefinitive proxy statement to be filed by the Company within 120 days after theclose of its 2002 fiscal year.

 
| **ITEM 12.** | **SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS** |
|--------------|------------------------------------------------------------------------------------------------------|

 

The informationrequired by this Item 12 is hereby incorporated by reference to the Company’sdefinitive proxy statement to be filed by the Company within 120 days after theclose if its 2002 fiscal year.

 
| **ITEM 13.** | **CERTAIN RELATIONSHIPS AND RELATED  TRANSACTIONS** |
|--------------|-----------------------------------------------------|

 

The information requiredby this Item 13 is hereby incorporated by reference to the Company’s definitiveproxy statement to be filed by the Company within 120 days after the close ofits 2002 fiscal year.

 

30

----

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

 

(a)                                  FINANCIALSTATEMENTS AND SCHEDULES

(1)            Financial Statementslisted under Part II, Item 8

(2)            Financial StatementSchedules have been omitted because the required information is not applicableor required, or because the required information is shown either in theFinancial Statements or the notes thereto.

 

(b)           REPORTSON FORM 8-K

 

(i)  None

 

(c)           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*)              |
|                |   |                                                                                                                                                                                       |   |                  |
| 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*)              |
|                |   |                                                                                                                                                                                       |   |                  |
| 4.16                |   | Form of Option granted to Mr. Chapdelaine and Mr.  Polcari in consideration of their guaranties of Boston Restaurant Associates,  Inc. obligations under the H.C.B. Corporation leases     |   | F-4.04 *         |
|                |   |                                                                                                                                                                                       |   |                  |
| 10.04               |   | Lease dated October 14, 1986 between Polcari  Enterprises, Inc., and Costa Fruit & Produce Co., Inc. regarding the  Registrant’s commissary located in Charlestown, Massachusetts |   | A-10 (o*)             |
|                |   |                                                                                                                                                                                       |   |                  |
| 10.09               |   | 1994 Combination Stock Option Plan**                                                                                                                                                       |   | A-10 (r*)             |
|                |   |                                                                                                                                                                                       |   |                  |
| 10.10               |   | Form of Indemnification Agreement with each of the  directors and certain officers of the Registrant**                                                                                     |   | A-10 (bb*)            |
|                |   |                                                                                                                                                                                       |   |                  |
| 10.11               |   | Incentive Stock Option Plan**                                                                                                                                                              |   | B-10 (h*)             |
|                |   |                                                                                                                                                                                       |   |                  |
| 10.12               |   | 1994 Non-Employee Director Stock Option Plan, as  amended**                                                                                                                                |   | C-10 (h*)             |
|                |   |                                                                                                                                                                                       |   |                  |
| 10.26               |   | Employment Contract of George R. Chapdelaine dated  July 1, 1999**                                                                                                                         |   | H-99.A *         |
|                |   |                                                                                                                                                                                       |   |                  |
| 21                  |   | Subsidiaries of the Registrant                                                                                                                                                             |   | A-21 *           |
|                |   |                                                                                                                                                                                       |   |                  |
| 23                  |   | Consent of BDO Seidman, LLP                                                                                                                                                                |   | Filed Herewith        |
|                |   |                                                                                                                                                                                       |   |                  |
| 99                  |   | Charter of the Audit Committee of Boston Restaurant  Associates, Inc., as adopted December 8, 2000                                                                                         |   | I-99 *                |

 

----

| *      |   | 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.                                                 |
|   |   |                                                                                                                                                                                                                                            |
| 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 ending 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.                                           |

 

31

----

 

(d)                                 FINANCIALSTATEMENT SCHEDULES

 

The Financial StatementSchedules required by this item, if any, are listed under Item 14(a)(2).

 

32

----

 

Signatures

 

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

 
|                | BOSTON RESTAURANT ASSOCIATES, INC. |                             |
|---------------------|------------------------------------|----------------------------------|
|                |                               |                             |   |
| Date: July 25, 2002 | By:                                | /s/ George R. Chapdelaine        |   |   |
|                |                               | George R. Chapdelaine, President |   |
|                     |                                    |                                  |  |  |

 

Pursuant to the requirements of  the Securities Exchange Act of 1934, thisreport 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. Chapdelaine                                                                               |   |   | July 25, 2002 |   |
| George R. Chapdelaine, Chief  Executive Officer, President and  Director (principal executive officer) |   |   |          |
|                                                                                                   |   |   |          |
| /s/ Fran V. Ross                                                                                       |   |   | July 25, 2002 |   |
| Fran V. Ross, Chief Financial Officer  (principal financial officer)                                   |   |   |          |
|                                                                                                   |   |   |          |
| /s/ Hugh Devine                                                                                        |   |   | July 25, 2002 |   |
| Hugh Devine, Director                                                                                  |   |   |          |
|                                                                                                   |   |   |          |
| /s/ Robert Karam                                                                                       |   |   | July 25, 2002 |   |
| Robert Karam, Director                                                                                 |   |   |          |
|                                                                                                   |   |   |          |
| /s/ Roger Lipton                                                                                       |   |   | July 25, 2002 |   |
| Roger Lipton, Director                                                                                 |   |   |          |
|                                                                                                   |   |   |          |
| /s/ John P. Polcari, Jr.                                                                               |   |   | July 25, 2002 |   |
| John P. Polcari, Jr., Director                                                                         |   |   |          |
|                                                                                                   |   |   |          |
| /s/ Lucille Salhany                                                                                    |   |   | July 25, 2002 |   |
| Lucille Salhany, Director                                                                              |   |   |          |

 

33

----

 
| **Boston  Restaurant****Associates, Inc. and  Subsidiaries**                         |   |
|--------------------------------------------------------------------------------------|--------|
|                                                                                 |   |
| **Consolidated Financial Statements  Years Ended April 28, 2002 and April 29, 2001** |   |

 

----

 
| **Boston  Restaurant Associates, Inc.****and Subsidiaries** |   |
|-------------------------------------------------------------|--------|
|                                                        |   |
| **Contents**                                                |   |

 
| **Report  of Independent Certified Public Accountants** |
|---------------------------------------------------------|
|                                                    |
|                                                    |
| **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             |

 

F-1

----

 

**Report of Independent Certified PublicAccountants**

 

Tothe Board of Directors and Stockholders of

BostonRestaurant Associates, Inc.

 

Wehave audited the accompanying consolidated balance sheets of Boston RestaurantAssociates, Inc. and subsidiaries as of April 28, 2002 and April 29, 2001,and the related consolidated statements of operations, stockholders’ equity,and cash flows for each of the three years in the period ended April 28,2002.  These financial statements arethe responsibility of the Company’s management.  Our responsibility is to express an opinion on these financialstatements based on our audits.

 

Weconducted our audits in accordance with auditing standards generally acceptedin the United States of America.  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Boston RestaurantAssociates, Inc. and subsidiaries at April 28, 2002 and April 29, 2001,and the results of their operations and their cash flows for each of the threeyears in the period ended April 28, 2002, in conformity with accountingprinciples generally accepted in the United States of America.

 

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

 

 

Boston,Massachusetts

June21, 2002

 

F-2

----

 
| **Boston  Restaurant Associates, Inc.****and Subsidiaries** |   |
|-------------------------------------------------------------|--------|
|                                                        |   |
| **Consolidated  Balance Sheets**                            |   |

 
|                                           |   | **April 28,  2002** |          | **April 29,  2001** |   |
|------------------------------------------------|--------|---------------------|---------------|---------------------|--------|
|                                           |   |                |          |                |   |
| **Assets**(Note 4)                             |   |                |          |                |   |
|                                           |   |                |          |                |   |
| **Current:**                                   |   |                |          |                |   |
| Cash and cash equivalents                      |   | **$**               | **932,806**   |                | $      | 333,048 |   |
| Accounts receivable                            |   | **123,840**         |          | 124,312             |   |
| Inventories (Note 1)                           |   | **546,688**         |          | 579,270             |   |
| Prepaid expenses and other                     |   | **118,189**         |          | 39,265              |   |
|                                           |   |                |          |                |   |
| Total current assets                           |   | **1,721,523**       |          | 1,075,895           |   |
|                                           |   |                |          |                |   |
| **Property  and equipment**(Notes 8 and 12):   |   |                |          |                |   |
| Building                                       |   | **512,500**         |          | 512,500             |   |
| Leasehold improvements                         |   | **6,517,055**       |          | 6,463,726           |   |
| Equipment, furniture and fixtures              |   | **4,329,675**       |          | 4,257,568           |   |
|                                           |   |                |          |                |   |
|                                           |   | **11,359,230**      |          | 11,233,794          |   |
|                                           |   |                |          |                |   |
| Less accumulated depreciation and amortization |   | **5,508,234**       |          | 4,484,399           |   |
|                                           |   |                |          |                |   |
| Net property and equipment                     |   | **5,850,996**       |          | 6,749,395           |   |
|                                           |   |                |          |                |   |
| **Other  assets**,**net******(Note  2)         |   | **1,068,215**       |          | 1,174,913           |   |
|                                           |   |                |          |                |   |
|                                           |   | **$**               | **8,640,734** |                | $      | 9,000,203 |   |

 

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

 

F-3

----

 
|                                                                                                               |   | **April 28,  2002** |          | **April 29,  2001** |       |
|--------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------------|---------------------|------------|
|                                                                                                               |   |                |          |                |       |
| **Liabilities  and Stockholders’ Equity**                                                                     |   |                |          |                |       |
|                                                                                                               |   |                |          |                |       |
| **Current  liabilities:**                                                                                          |   |                |          |                |       |
| Accounts payable                                                                                                   |   | **$**               | **805,719**   |                | $          | 1,219,424 |   |
| Accrued expenses  (Note 3)                                                                                         |   | **1,440,237**       |          | 1,501,744           |       |
| Current  maturities (Notes 4, 5, and 8):                                                                           |   |                |          |                |       |
| Long-term debt                                                                                                     |   | **528,623**         |          | 543,082             |       |
| Notes payable -  stockholder                                                                                       |   | **5,533**           |          | 5,259               |       |
| Obligations  under capital leases                                                                                  |   | **364,077**         |          | 347,842             |       |
|                                                                                                               |   |                |          |                |       |
| Total current  liabilities                                                                                         |   | **3,144,189**       |          | 3,617,351           |       |
|                                                                                                               |   |                |          |                |       |
| **Long-term  obligations:**                                                                                        |   |                |          |                |       |
| Long-term debt,  less current maturities (Note 4)                                                                  |   | **346,087**         |          | 868,002             |       |
| Notes payable -  stockholder, less current maturities (Note 5)                                                     |   | **100,784**         |          | 106,318             |       |
| Obligations  under capital leases, less current maturities (Note 8)                                                |   | **449,154**         |          | 813,235             |       |
| Deferred rent  (Note 8)                                                                                            |   | **376,825**         |          | 282,359             |       |
| Subordinated  debentures (Notes 6 and 9)                                                                           |   | **1,500,000**       |          | 1,500,000           |       |
| Other long-term  liabilities (Note 8)                                                                              |   | **978,026**         |          | 958,000             |       |
|                                                                                                               |   |                |          |                |       |
| Total  liabilities                                                                                                 |   | **6,895,065**       |          | 8,145,265           |       |
|                                                                                                               |   |                |          |                |       |
| **Commitments  and contingencies**(Notes 8 and 9)                                                                  |   |                |          |                |       |
|                                                                                                               |   |                |          |                |       |
| **Stockholders’  equity** (Notes 6 and 9):                                                                    |   |                |          |                |       |
| Preferred stock,  $.01 par value, 10,000,000 shares authorized; none issued                                        |   | —              | ** **    | **—**          | ** ** |
| Common stock,  $.01 par value 25,000,000 shares authorized; issued 7,060,170 shares;  outstanding 7,035,170 shares |   | **70,602**          |          | 70,602              |       |
| Additional  paid-in capital                                                                                        |   | **10,922,636**      |          | 10,922,636          |       |
| Accumulated  deficit                                                                                               |   | **(9,222,877**      | **)**         | (10,113,608         | )          |
|                                                                                                               |   |                |          |                |       |
|                                                                                                               |   | **1,770,361**       |          | 879,630             |       |
|                                                                                                               |   |                |          |                |       |
| Less treasury  stock, 25,000 shares at cost                                                                        |   | **(24,692**         | **)**         | (24,692             | )          |
|                                                                                                               |   |                |          |                |       |
| Total  stockholders’ equity                                                                                   |   | **1,745,669**       |          | 854,938             |       |
|                                                                                                               |   |                |          |                |       |
|                                                                                                               |   | **$**               | **8,640,734** |                | $          | 9,000,203 |   |

 

*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 28,  2002** |           | **April 29,  2001** |   | **April 30,  2000** |   |
|----------------------------------------------------------------------------------------------------------------|--------|---------------------|----------------|---------------------|--------|---------------------|--------|
|                                                                                                           |   |                |           |                |   |                |   |
| **Revenues:**                                                                                                  |   |                |           |                |   |                |   |
| Restaurant sales                                                                                               |   | **$**               | **23,827,993** |                | $      | 21,609,893          |   | $ | 15,960,743 |   |
| Franchise fees  (Note 8)                                                                                       |   | **26,446**          |           | 98,014              |   | 52,578              |   |
|                                                                                                           |   |                |           |                |   |                |   |
| Total revenues                                                                                                 |   | **23,854,439**      |           | 21,707,907          |   | 16,013,321          |   |
|                                                                                                           |   |                |           |                |   |                |   |
| **Costs  and expenses:**                                                                                       |   |                |           |                |   |                |   |
| Cost of food,  beverages and liquor                                                                            |   | **4,885,952**       |           | 4,644,810           |   | 3,284,015           |   |
| Other operating  expenses                                                                                      |   | **14,293,083**      |           | 13,052,040          |   | 9,471,227           |   |
| General and  administrative                                                                                    |   | **2,132,756**       |           | 1,837,085           |   | 1,719,071           |   |
| Depreciation and  amortization                                                                                 |   | **1,152,860**       |           | 1,161,628           |   | 762,346             |   |
| Pre-opening  costs                                                                                             |   | **—**          |           | 658,090             |   | 453,002             |   |
| Litigation and  settlement costs (Note 8)                                                                      |   | **—**          |           | 1,847,487           |   | —              |   |
| Charge for asset  impairment (Note 12)                                                                         |   | **—**          |           | 580,000             |   | —              |   |
|                                                                                                           |   |                |           |                |   |                |   |
| Total costs and  expenses                                                                                      |   | **22,464,651**      |           | 23,781,140          |   | 15,689,661          |   |
|                                                                                                           |   |                |           |                |   |                |   |
| **Operating  income** (loss)                                                                                   |   | **1,389,788**       |           | (2,073,233          | )      | 323,660             |   |
|                                                                                                           |   |                |           |                |   |                |   |
| **Interest  expense**, net of interest income of $0, $35,509 and $48,257  in 2002, 2001 and 2000, respectively |   | **(508,072**        | **)**          | (456,842            | )      | (327,164            | )      |
|                                                                                                           |   |                |           |                |   |                |   |
| **Other  income**, net                                                                                         |   | **9,015**           |           | 19,771              |   | 5,171               |   |
|                                                                                                           |   |                |           |                |   |                |   |
| Income (loss)  before minority interest                                                                        |   | **890,731**         |           | (2,510,304          | )      | 1,667               |   |
|                                                                                                           |   |                |           |                |   |                |   |
| **Minority  interest in net loss of subsidiary**                                                               |   | **—**          |           | —              |   | 63,867              |   |
|                                                                                                           |   |                |           |                |   |                |   |
| **Net  income (loss)**                                                                                         |   | **$**               | **890,731**    |                | $      | (2,510,304          | )      | $ | 65,534 |   |
|                                                                                                           |   |                |           |                |   |                |   |
| **Net  income (loss) per share of common stock** (Note 11):                                                    |   |                |           |                |   |                |   |
| Basic and  diluted                                                                                             |   | **$**               | **.13**        |                | $      | (.36                | )      | $ | 0.01 |   |

 

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

 

F-5

----

 
| **Boston  Restaurant Associates, Inc.****and Subsidiaries** |   |
|-------------------------------------------------------------|--------|
|                                                        |   |
| **Consolidated  Statements of Stockholders’ Equity**   |   |

 
|                        |   | **Common Stock  $ .01 Par Value** |   | **Additional  Paid-in** |   | **Accumulated** |   | **Treasury Stock** |   | **Total  Stockholders’** |       |
|-----------------------------|--------|-----------------------------------|--------|-------------------------|--------|-----------------|--------|--------------------|--------|-------------------------------|------------|
|                        |   | **Shares**                        |   | **Amount**              |   | **Capital**     |   | **Deficit**        |   | **Shares**                    |       | **Amount** |   | **Equity** |   |
|                        |   |                              |   |                    |   |            |   |               |   |                          |       |   |   |   |   |
| **Balance**, April 25, 1999 |   | 7,060,170                         |   | $                       | 70,602 |            | $      | 10,922,636         |   | $                             | (7,668,838 | ) | — |   | $ | — |   | $ | 3,324,400 |   |
|                        |   |                              |   |                    |   |            |   |               |   |                          |       |   |   |   |   |
| Purchase  of treasury stock |   | —                            |   | —                  |   | —          |   | —             |   | 25,000                        |       | (24,692 | ) | (24,692 | ) |
|                        |   |                              |   |                    |   |            |   |               |   |                          |       |   |   |   |   |
| Net  income for the year    |   | —                            |   | —                  |   | —          |   | 65,534             |   | —                        |       | — |   | 65,534 |   |
|                        |   |                              |   |                    |   |            |   |               |   |                          |       |   |   |   |   |
| **Balance**, April 30, 2000 |   | 7,060,170                         |   | 70,602                  |   | 10,922,636      |   | (7,603,304         | )      | 25,000                        |       | (24,692 | ) | 3,365,242 |   |
|                        |   |                              |   |                    |   |            |   |               |   |                          |       |   |   |   |   |
| Net loss for the year       |   | —                            |   | —                  |   | —          |   | (2,510,304         | )      | —                        |       | — |   | (2,510,304 | ) |
|                        |   |                              |   |                    |   |            |   |               |   |                          |       |   |   |   |   |
| **Balance**, April 29, 2001 |   | 7,060,170                         |   | 70,602                  |   | 10,922,636      |   | (10,113,608        | )      | 25,000                        |       | (24,692 | ) | 854,938 |   |
|                        |   |                              |   |                    |   |            |   |               |   |                          |       |   |   |   |   |
| Net income for the year     |   | —                            |   | —                  |   | —          |   | 890,731            |   | —                        |       | — |   | 890,731 |   |
|                        |   |                              |   |                    |   |            |   |               |   |                          |       |   |   |   |   |
| **Balance**, April 28, 2002 |   | 7,060,170                         |   | $                       | 70,602 |            | $      | 10,922,636         |   | $                             | (9,222,877 | ) | 25,000 |   | $ | (24,692 | ) | $ | 1,745,669 |   |

 

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

 

F-6

----

 
| **Boston  Restaurant Associates, Inc.****and Subsidiaries** |   |
|-------------------------------------------------------------|--------|
|                                                        |   |
| **Consolidated Statements of Cash  Flows**                  |   |
| **(Note  10)**                                              |   |

 
| **Years  ended**                                                                          |   | **April 28,  2002** |        | **April 29,  2001** |   | **April 30,  2000** |   |
|-------------------------------------------------------------------------------------------|--------|---------------------|-------------|---------------------|--------|---------------------|--------|
|                                                                                      |   |                | ** **  |                |   |                |   |
| **Cash flows from operating  activities:**                                                |   |                | ** **  |                |   |                |   |
| Net income  (loss)                                                                        |   | **$**               | **890,731** | ** **          | $      | (2,510,304          | )      | $ | 65,534 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |   |                | ** **  |                |   |                |   |
| Depreciation and  amortization                                                            |   | **1,152,860**       | ** **  | 1,161,628           |   | 762,346             |   |
| Litigation  settlement                                                                    |   | **—**          | ** **  | 955,000             |   | —              |   |
| Charge for asset  impairment                                                              |   | **—**          | ** **  | 580,000             |   | —              |   |
| Minority  interest in net loss of subsidiary                                              |   | **—**          | ** **  | —              |   | (63,867             | )      |
| Changes in  operating assets and liabilities:                                             |   |                | ** **  |                |   |                |   |
| Accounts  receivable                                                                      |   | **472**             | ** **  | (75,036             | )      | (17,155             | )      |
| Inventories                                                                               |   | **32,582**          | ** **  | (208,598            | )      | (156,015            | )      |
| Prepaid expenses  and other                                                               |   | **(78,924**         | **)**       | 7,650               |   | 4,170               |   |
| Other assets                                                                              |   | **(20,024**         | **)**       | (52,450             | )      | (81,013             | )      |
| Accounts payable                                                                          |   | **(413,705**        | **)**       | 823,087             |   | 159,567             |   |
| Accrued expenses                                                                          |   | **(61,507**         | **)**       | 407,134             |   | 381,521             |   |
| Deferred rent                                                                             |   | **94,466**          | ** **  | 133,622             |   | 42,224              |   |
| Other long-term  liabilities                                                              |   | **20,026**          | ** **  | 65,000              |   | —              |   |
|                                                                                      |   |                | ** **  |                |   |                |   |
| Net cash  provided by operating activities                                                |   | **1,616,977**       | ** **  | 1,286,733           |   | 1,097,312           |   |
|                                                                                      |   |                | ** **  |                |   |                |   |
| **Cash flows from investing  activities:**                                                |   |                | ** **  |                |   |                |   |
| Capital  expenditures                                                                     |   | **(127,739**        | **)**       | (1,944,929          | )      | (2,452,581          | )      |
| Proceeds from  sales of fixed assets                                                      |   | **—**          | ** **  | —              |   | 7,000               |   |
|                                                                                      |   |                | ** **  |                |   |                |   |
| Net cash used  for investing activities                                                   |   | **(127,739**        | **)**       | (1,944,929          | )      | (2,445,581          | )      |
|                                                                                      |   |                | ** **  |                |   |                |   |
| **Cash flows from financing  activities:**                                                |   |                | ** **  |                |   |                |   |
| Repayments of  long-term debt                                                             |   | **(536,374**        | **)**       | (456,446            | )      | (262,471            | )      |
| Repayments of  capital lease obligations                                                  |   | **(347,846**        | **)**       | (294,702            | )      | (155,601            | )      |
| Repayments of  stockholder loans                                                          |   | **(5,260**          | **)**       | (4,994              | )      | (4,738              | )      |
| Proceeds from  issuance of long-term debt                                                 |   | **—**          | ** **  | 800,000             |   | 845,000             |   |
| Minority  interest investment in subsidiary                                               |   | **—**          | ** **  | —              |   | 34,858              |   |
| Purchase of  treasury stock                                                               |   | **—**          | ** **  | —              |   | (24,692             | )      |
|                                                                                      |   |                | ** **  |                |   |                |   |
| Net cash  provided by (used for) financing activities                                     |   | **(889,480**        | **)**       | 43,858              |   | 432,356             |   |
|                                                                                      |   |                | ** **  |                |   |                |   |
| **Net increase (decrease) in cash and  cash equivalents**                                 |   | **599,758**         | ** **  | (614,338            | )      | (915,913            | )      |
|                                                                                      |   |                | ** **  |                |   |                |   |
| **Cash and cash equivalents**,  beginning of year                                         |   | **333,048**         | ** **  | 947,386             |   | 1,863,299           |   |
|                                                                                      |   |                | ** **  |                |   |                |   |
| **Cash and cash equivalents**,  end of year                                               |   | **$**               | **932,806** | ** **          | $      | 333,048             |   | $ | 947,386 |   |

 

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

 

F-7

----

 
| **Boston  Restaurant Associates, Inc.****and Subsidiaries** |   |
|-------------------------------------------------------------|--------|
|                                                        |   |
| **Summary of Accounting Policies**                          |   |

 
| **Nature of Business  And Basis of  Presentation** |   | The Company is engaged in the restaurant  business.  As of April 28, 2002  and April 29, 2001, the Company operated twelve pizza restaurants and  four casual Italian dining restaurants.   As of April 30, 2000, the Company operated thirteen pizza  restaurants and two 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 2002 and 2001 included 52 weeks.   Fiscal year 2000 included 53 weeks.                                                                                                                                                                                                                                                                                                                                                                          |
|                                               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **Use of Estimates**                               |   | The preparation of financial  statements in conformity with generally accepted accounting principles  requires management to make estimates and assumptions that affect the  reported amounts of assets and liabilities and disclosure of contingent  assets and liabilities at the date of the financial statements and reported  amounts of revenues and expenses during the reporting period.  Actual results could differ from those  estimates.                                                                                  |
|                                               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **Cash Equivalents**                               |   | For purposes of the statements  of cash flows, the Company considers all highly liquid debt instruments  purchased with maturities of three months or less to be cash  equivalents.  As of April 28,  2002 and April 29, 2001, 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  accelerated and 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, including anticipated renewal periods, whichever is shorter.                                                                                               |
|------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **Other Assets**             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| *Goodwill*                   |   | Goodwill resulting from the excess of cost over the  fair value of net assets acquired is being amortized on a straight-line basis  over 20 years.                                                                                                                                                                                                                                                                                                                          |
|                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| *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 terms of the leases.                                                                                                                                                                                                                                                                                                                                                                |
|                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **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 $385,000, $243,000 and $177,000 in 2002, 2001 and 2000,  respectively.                                                                                                                                                                                                                                                                                                   |

 

F-9

----

 
| **Pre-Opening Costs**                            |   | All nonrecurring costs, such as recruiting, training  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. |
|                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **Stock Options**                                |   | The Company follows the provisions of Statement of  Financial Accounting Standards No. 123, “Accounting for Stock-Based  Compensation.”  The Company has  elected to continue to account for stock options at their intrinsic value  with disclosure of the effects of fair value accounting on earnings and  earnings per share of common stock on a pro forma basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **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.                                                                                                        |

 

F-10

----

 
| **Long-Lived Assets**              |   | The Company evaluates its long-lived assets under  the provisions of Statement of Financial Accounting Standards No. 121  (“SFAS No. 121”), “Accounting for the Impairment of Long-Lived Assets  and for Long-Lived Assets to be Disposed of.”  SFAS No. 121 establishes accounting standards for the  impairment of long-lived assets and certain identifiable intangibles to be  held and used and for long-lived assets and certain identifiable intangibles  to be disposed of.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                               |   | 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 2001, the Company recorded an impairment charge  related to the write-down of certain long-lived assets (see Note 12).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                               |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **New Accounting  Pronouncements** |   | In June 2001, the Financial  Accounting Standards Board finalized FASB Statements No. 141, “Business  Combinations” (“SFAS No. 141”), and No. 142, “Goodwill and Other  Intangible Assets” (“SFAS No. 142”).   SFAS No. 141 requires the use of the purchase method of  accounting and prohibits the use of the pooling-of-interests method of  accounting for business combinations initiated after June 30, 2001.  SFAS No. 141 also requires that the  Company recognize acquired intangible assets apart from goodwill if they meet  certain criteria.  SFAS No. 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 No. 142, that the Company reclassify the carrying amounts of  intangible assets and goodwill based on the criteria in SFAS No. 141. |

 

F-11

----

 
|   |   | SFAS No. 142  requires, among other things, that companies no longer amortize goodwill, but  instead test goodwill for impairment at least annually.  In addition, SFAS No. 142 requires  that the Company identify reporting units for the purposes 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.   An intangible asset with an indefinite useful life should be tested  for impairment in accordance with the guidance in SFAS No. 142.  SFAS No. 142 is required to be  applied in fiscal years beginning after December 15, 2001 to all  goodwill and other intangible assets recognized at that date, regardless of  when those assets were initially recognized.   It also requires the Company to complete a transitional goodwill  impairment test by six months from the date of adoption.  The Company is also required to reassess  the useful lives of other intangible assets within the first interim quarter  after adoption of SFAS No. 142. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   | The  Company’s previous business combinations were accounted for using the  purchase methods.  All future business  combinations will be accounted for under the purchase method, which may  result in the recognition of goodwill and other intangible assets, some of  which may subsequently be charged to operations, either by amortization or  impairment charges.  For purchase  business combinations completed prior to June 30, 2001, the net carrying  amount of goodwill was approximately $454,000 and other intangible assets was  $0 as of April 28, 2002.  Amortization  expense related to goodwill was approximately $38,000, $38,000 and $38,000  for the fiscal years 2002, 2001 and 2000, respectively.  The Company will adopt SFAS No. 141  and SFAS No. 142 in the first quarter of fiscal 2003.  The Company does not expect the adoption  of SFAS No. 141 and SFAS No. 142 to impact its future financial  position and results of operations.                                                                                                                                                            |

 

F-12

----

 
|   |   | In October 2001, the FASB  issued SFAS No. 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.  This statement supersedes SFAS No. 121, “Accounting for  the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed  Of,” and APB Opinion No. 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.”  SFAS No. 144  becomes effective for the fiscal years beginning after December 15,  2001. The Company will adopt SFAS No. 144 in the first quarter of fiscal  2003.  The Company does not expect the  adoption of SFAS No. 144 to impact its financial position and results of  operations. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

F-13

----

 
| **Boston  Restaurant Associates, Inc.****and Subsidiaries** |   |
|-------------------------------------------------------------|--------|
|                                                        |   |
| **Notes  to Consolidated Financial Statements**             |   |

 
| **1.             Inventories**   |   | Inventories consist of the following:  |
|----------------------------------------------------------------------------------------------|--------|----------------------------------------|
|                                                                                         |   |                                   |
|                                                                                         |   |                                   |   | **April 28,  2002** |   | **April 29,  2001** |   |
|                                                                                         |   |                                   |   |   | ** ** |   | ** ** |
|                                                                                         |   | Food, beverages, and liquor            |   | **$** | **212,678** |   | $ | 240,201 |   |
|                                                                                         |   | Paper goods and supplies               |   | **334,010** |   | 339,069 |   |
|                                                                                         |   |                                   |   |   | ** ** |   | ** ** |
|                                                                                         |   | Total                                  |   | **$** | **546,688** |   | $ | 579,270 |   |
|                                                                                         |   |                                   |   |   |   |   |   |   |   |
|                                                                                         |   |                                   |
| **2.             Other  Assets** |   | Other assets consist of the following: |
|                                                                                         |   |                                   |
|                                                                                         |   |                                   |   | **April 28,  2002** |   | **April 29,  2001** |   |
|                                                                                         |   |                                   |   |   |   |   |   |
|                                                                                         |   | Goodwill                               |   | **$** | **765,133** |   | $ | 765,133 |   |
|                                                                                         |   | Deposits and other                     |   | **254,195** |   | 397,913 |   |
|                                                                                         |   | Lease acquisition rights               |   | **290,700** |   | 290,700 |   |
|                                                                                         |   | Deferred financing costs               |   | **298,007** |   | 238,630 |   |
|                                                                                         |   |                                   |   |   |   |   |   |
|                                                                                         |   |                                   |   | **1,608,035** |   | 1,692,376 |   |
|                                                                                         |   |                                   |   |   |   |   |   |
|                                                                                         |   | Less accumulated  amortization         |   | **539,820** |   | 517,463 |   |
|                                                                                         |   |                                   |   |   |   |   |   |
|                                                                                         |   | Other assets, net                      |   | **$** | **1,068,215** |   | $ | 1,174,913 |   |
|                                                                                              |        |                                        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-14

----

 
| **3.             Accrued Expenses**                               |   | Accrued expenses consist of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|                                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | **April 28,  2002** |   | **April 29,  2001** |   |
|                                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |   |
|                                                                                                                          |   | Professional  fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | **$** | **222,639** |   | $ | 395,804 |   |
|                                                                                                                          |   | Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | **554,704** |   | 332,430 |   |
|                                                                                                                          |   | Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | **170,164** |   | 183,796 |   |
|                                                                                                                          |   | Accrued rent                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | **138,306** |   | 181,252 |   |
|                                                                                                                          |   | Gift  certificates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | **159,674** |   | 154,709 |   |
|                                                                                                                          |   | Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | **102,491** |   | 151,634 |   |
|                                                                                                                          |   | Taxes other than  income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | **92,259** |   | 102,119 |   |
|                                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |   |
|                                                                                                                          |   | Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | **$** | **1,440,237** |   | $ | 1,501,744 |   |
|                                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **4.             Revolving Credit  Facility and  Long-Term Debt** |   | In November 1998, the Company obtained a $2,000,000  revolving credit facility with a bank.   At the Company’s option, borrowings used to repay existing bank debt  or to finance construction of new restaurant locations may be in the form of  a term loan, payable over a four year period with variable interest rate  options.  Borrowings used to fund  short-term working capital needs bear interest at the bank’s base lending  rate plus 1%.  Such borrowings plus  accrued interest are due in full within 30 days of issuance.  There were no short-term working capital  borrowings outstanding at April 28, 2002 and April 29, 2001.  The Revolving Credit Facility Agreement  requires compliance with various financial covenants including total debt to  tangible net worth ratio, debt service ratio and certain earnings  ratios.  Outstanding borrowings  against this credit facility amounted to $874,710 and $1,411,084 at  April 28, 2002 and April 29, 2001, respectively, and consisted of  term notes payable as detailed below.   All borrowings under the revolving credit facility are collateralized  by substantially all of the Company’s assets. |

 

F-15

----

 
| *                Long-Term  Debt* |   | Long-term debt consists of the following:                                                                                                                                                                       |
|--------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                         |   |                                                                                                                                                                                                            |
|                                                                                                         |   |                                                                                                                                                                                                            |   | **April 28,  2002** |   | **April 29,  2001** |   |
|                                                                                                         |   |                                                                                                                                                                                                            |   |   |   |   |   |
|                                                                                                         |   | Notes payable to  a bank bearing interest at 9.68%, representing borrowings against the  Company’s revolving credit facility, payable in aggregate monthly  installments of $12,605 through July 2004.     |   | **$** | **306,726** |   | $ | 420,322 |   |
|                                                                                                         |   |                                                                                                                                                                                                            |   |   |   |   |   |
|                                                                                                         |   | Notes payable to  a bank bearing interest at 9.68%, representing borrowings against the  Company’s revolving credit facility, payable in aggregate monthly  installments of $7,563 through July 2004.      |   | **184,037** |   | 252,194 |   |
|                                                                                                         |   |                                                                                                                                                                                                            |   |   |   |   |   |
|                                                                                                         |   | Notes payable to  a bank bearing interest at 7.84%, representing borrowings against the  Company’s revolving credit facility, payable in aggregate monthly  installments of $12,984 through November 2002. |   | **89,409** |   | 231,282 |   |
|                                                                                                         |   |                                                                                                                                                                                                            |   |   |   |   |   |
|                                                                                                         |   | Notes payable to  a bank bearing interest at 8.89%, representing borrowings against the  Company’s revolving credit facility, payable in aggregate monthly  installments of $8,443 through June 2003.      |   | **112,956** |   | 199,007 |   |
|                                                                                                         |   |                                                                                                                                                                                                            |   |   |   |   |   |
|                                                                                                         |   | Notes payable to  a bank bearing interest at 9.12%, representing borrowings against the  Company’s revolving credit facility, payable in aggregate monthly  installments of $7,607 through August 2003.    |   | **115,138** |   | 191,216 |   |
|                                                                                                         |   |                                                                                                                                                                                                            |   |   |   |   |   |
|                                                                                                         |   | Notes payable to  a bank bearing interest at 8.89%, representing borrowings against the  Company’s revolving credit facility, payable in aggregate monthly  installments of $4,967 through June 2003.      |   | **66,444** |   | 117,063 |   |
|                                                                                                         |   |                                                                                                                                                                                                            |   |   |   |   |   |
|                                                                                                         |   | Total                                                                                                                                                                                                           |   | **874,710** |   | 1,411,084 |   |
|                                                                                                         |   |                                                                                                                                                                                                            |   |   |   |   |   |
|                                                                                                         |   | Less current maturities                                                                                                                                                                                         |   | **528,623** |   | 543,082 |   |
|                                                                                                         |   |                                                                                                                                                                                                            |   |   |   |   |   |
|                                                                                                         |   | Long-term debt                                                                                                                                                                                                  |   | **$** | **346,087** |   | $ | 868,002 |   |

 

F-16

----

 
|                                                                                                         |   | Maturities of long-term debt  are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                         |   | **Fiscal  year ending**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | **Amount** |   |
|                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |
|                                                                                                         |   | 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $ | 528,623 |   |
|                                                                                                         |   | 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 283,329 |   |
|                                                                                                         |   | 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 62,758 |   |
|                                                                                                         |   | 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | — |   |
|                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |
|                                                                                                         |   | Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $ | 874,710 |   |
|                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                         |   | Subsequent to year end, on April 30, 2002, the  Company entered into a new $3,500,000 revolving credit facility with a new  bank.  Borrowings under the new credit  facility bear interest at the bank’s base rate plus 2%.  The new credit facility expires in April  2004.  Subsequent to year end, the  term notes under the credit facility in effect at April 28, 2002 were  converted into one term note under the new credit facility.  The new term note bears interest at 6.75%,  which is subject to adjustment after each year to the bank’s base rate plus  2% and is payable over four years. |
|                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **5.             Notes  Payable -  Stockholder** |   | Notes payable - stockholder  consists of two notes, with 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** |   |
|                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |
|                                                                                                         |   | 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $ | 5,533 |   |
|                                                                                                         |   | 2004                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 5,854 |   |
|                                                                                                         |   | 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 6,114 |   |
|                                                                                                         |   | 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 5,005 |   |
|                                                                                                         |   | 2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 6,726 |   |
|                                                                                                         |   | Thereafter                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 77,085 |   |
|                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |
|                                                                                                         |   | Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $ | 106,317 |   |
|                                                                                                              |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |  |  |  |  |

 

F-17

----

 
| **6.             Subordinated  Debentures** |   | Subordinated debentures with an outstanding balance  at both April 28, 2002 and April 29, 2001 of $1,500,000 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 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. |
|---------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **7.             Taxes on Income  (Loss)**  |   | At April 28, 2002, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $ | 1,542,000 |   | 2004-2009 |   |
|                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |
|                                                                                                    |   | Net operating  losses incurred before and after acquisition and available for immediate  offset against taxable income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $ | 4,137,000 |   | 2001-2013 |   |

 

F-18

----

 
|   |   | Deferred tax assets are comprised of the following:                                                                                                                                                                                                                                                                 |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                |   | **April 28,  2002** |   | **April 29,  2001** |   |
|   |   |                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |
|   |   | Deferred tax  assets:                                                                                                                                                                                                                                                                                               |   |   |   |   |   |
|   |   | Net operating  loss carryforwards                                                                                                                                                                                                                                                                                   |   | **$** | **2,272,000** |   | $ | 2,565,600 |   |
|   |   | Fixed assets                                                                                                                                                                                                                                                                                                        |   | **690,000** |   | 608,800 |   |
|   |   | Pre-opening  costs                                                                                                                                                                                                                                                                                                  |   | **240,800** |   | 319,600 |   |
|   |   | Accruals and  other reserves                                                                                                                                                                                                                                                                                        |   | **411,700** |   | 489,600 |   |
|   |   | Valuation allowance                                                                                                                                                                                                                                                                                                 |   | **(3,614,500** | **)** | (3,983,600 | ) |
|   |   |                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |
|   |   | Net deferred tax  assets                                                                                                                                                                                                                                                                                            |   | **$** | — |   | $ | **—** |   |
|   |   |                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |
|   |   | 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 are  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 28,  2002** |   | **April 29,  2001** |   | **April 30,  2000** |   |
|   |   |                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |
|   |   | Statutory rate                                                                                                                                                                                                                                                                                                      |   | **34.0** | **%** | (34.0 | )% | 34.0 | % |
|   |   |                                                                                                                                                                                                                                                                                                                |   |   | ** ** |   |   |   |   |
|   |   | Change in  valuation allowance                                                                                                                                                                                                                                                                                      |   | **(34.0** | **)** | 34.0 |   | (34.0 | ) |
|   |   |                                                                                                                                                                                                                                                                                                                |   |   | ** ** |   |   |   |   |
|   |   | Effective tax rate                                                                                                                                                                                                                                                                                                  |   | **—** | **%** | — | % | — | % |
|        |        |                                                                                                                                                                                                                                                                                                                     |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-19

----

 
| **8.             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 28,  2002** |   | **April 29,  2001** |   |
|                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |
|                                                                                                           |   | Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | **$** | **1,739,896** |   | $ | 1,739,896 |   |
|                                                                                                           |   | Less accumulated  amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | **797,965** |   | 442,913 |   |
|                                                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |
|                                                                                                           |   | Net leased  property under capital leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | **$** | **941,931** |   | $ | 1,296,983 |   |

 

F-20

----

 
|   |   | Aggregate minimum rental requirements under capital  leases and operating leases as of April 28, 2002, are approximately as  follows: |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                       |
|   |   | **Fiscal year ending**                                                                                                                     |   | **Capital  Leases** |   | **Operating  Leases** |   |
|   |   |                                                                                                                                       |   |   |   |   |   |
|   |   | 2003                                                                                                                                       |   | $ | 420,507 |   | $ | 2,567,000 |   |
|   |   | 2004                                                                                                                                       |   | 240,469 |   | 2,546,000 |   |
|   |   | 2005                                                                                                                                       |   | 214,701 |   | 2,523,000 |   |
|   |   | 2006                                                                                                                                       |   | 63,457 |   | 1,995,000 |   |
|   |   | 2007                                                                                                                                       |   | — |   | 1,770,000 |   |
|   |   | Thereafter                                                                                                                                 |   | — |   | 3,742,000 |   |
|   |   |                                                                                                                                       |   |   |   |   |   |
|   |   | Total minimum  lease payments                                                                                                              |   | 939,134 |   | $ | 15,143,000 |   |
|   |   |                                                                                                                                       |   |   |   |   |   |
|   |   | Amount  representing interest                                                                                                              |   | (125,903 | ) |   |   |
|   |   |                                                                                                                                       |   |   |   |   |   |
|   |   | Present value of  net minimum lease payments                                                                                               |   | 813,231 |   |   |   |
|   |   |                                                                                                                                       |   |   |   |   |   |
|   |   | Less current maturities                                                                                                                    |   | 364,077 |   |   |   |
|   |   |                                                                                                                                       |   |   |   |   |   |
|   |   | Long-term  maturities                                                                                                                      |   | $ | 449,154 |   |   |   |

 

F-21

----

 
|                                                                                                     |   | Deferred rent liabilities of $376,825 and $282,359  as of April 28, 2002 and April 29, 2001, 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 $2,790,000, $2,720,000 and $2,191,000 during fiscal 2002, 2001  and 2000, respectively, which included contingent rent of approximately  $95,000, $108,000 and $81,000, 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 2002, the Company recognized  $26,446 in franchise fee revenues, $20,000 relating to the opening of a  domestic Pizzeria Regina franchise and $6,446 related to royalties.  During fiscal 2001, the Company recognized  $98,014 in franchise fee revenues, $35,000 relating to the opening of an  international Polcari’s North End franchise, and $63,014 related to  royalties.  During fiscal 2000, the  Company recognized $52,578 in franchise fee revenues, $20,000 relating to the  opening of a domestic Pizzeria Regina franchise, and $32,578 related to  royalties.  Royalty revenues related  to a franchise controlled by a former Company director were approximately $0,  $300 and $67,000 in fiscal 2002, 2001 and 2000, respectively. |
|                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| *International  Development  Agreement*                                                                  |   | In January 1998, the Company entered into an  International Development Agreement (“Development Agreement”) with Regina  International, Ltd (“Regina International”), a corporation controlled by a  then Company director, to pursue and develop franchise territories outside  the Americas, anticipated to be principally in Europe, the Far East, and the  Pacific Rim.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

F-22

----

 
|                                         |   | The Development Agreement, which was for an initial  term of five and a half years, required the Company to pay a monthly  development fee of $7,000 beginning the month after the first territory fee  had been received and for sixty months, provided the Development Agreement  had not been earlier terminated.   Pursuant to this agreement, a Polcari’s North End Restaurant opened in  Saudi Arabia in September 2000.  The  Development Agreement was terminated during fiscal 2001 due to the relocation  of Regina International’s Chief Executive Officer.                                                                     |
|----------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                         |   | The Company recorded approximately $57,000 in  development fees during fiscal 2001, prior to the termination of the  Development Agreement.  For fiscal  2002 and 2000, no development fees or royalties had been earned.                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *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. |

 

F-23

----

 
|            |   | Under the terms of the settlement agreement,  commencing with the month of May 2001 and ending with the month of April  2008, Italian Ventures shall be entitled to receive from the Company, in  exchange for any and all ownership interest held by Italian Ventures, a  royalty equal to 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 shall 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  equals $1,700,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|-----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|            |   | The Company recorded a non-recurring charge of  approximately $955,000 in the fourth quarter of fiscal 2001 which is included  in litigation and settlement costs in the consolidated statements of  operations.  The corresponding  settlement liability was recorded on the Company’s balance sheet for $955,000  as of April 29, 2001.  The  settlement liability represents the Company’s best estimate of the total  royalty payments expected to be made during the seven year settlement period.  This estimate is 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 2002, the Company made  royalty payments of approximately $42,000 and recorded interest expense of  approximately $57,000 related to the amortization of the discount to present  value.  The liability outstanding as  of April 28, 2002 was $970,026 of which $892,026 was recorded in other  long-term liabilities.  Additionally,  legal fees and other costs related to the litigation of approximately  $892,000 were recorded during fiscal 2001. |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| *Legal Matters* |   | The Company is involved in various legal matters in  the ordinary course of its business.   Each of these other matters is subject to various uncertainties and  some of these other matters may be resolved unfavorably to the Company.  Management believes that any liability  that may ultimately result from these other matters will not have a material  adverse effect on the Company’s financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

 

F-24

----

 
| **9.             Stockholders’  Equity** |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-----------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *Preferred Stock*                                                                                         |   | In September 1998, the Company’s stockholders  authorized the Company to issue up to 10,000,000 shares of preferred stock,  $.01 par value per share.  The  preferred stock may be issued in one or more series.  The terms of the issuances will be  determined by the Board of Directors on the dates of the issuances and may  include provisions for voting rights, preferences, conversion and redemption  rights, and other limitations or restrictions.                                                                                                                                                                                                                                                                                              |
|                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *Stock Options  and Warrants*                                                                             |   | In July 1994, the Company’s stockholders approved  the 1994 Combination Stock Option Plan (the “1994 Combination Plan”) and the  1994 Non-Employee Director Stock Option Plan (the “1994 Director Plan”).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                      |   | The 1994 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 1994 Combination Plan is to be administered by a committee  designated by the Board of Directors.   Options under the 1994 Combination Plan may not be granted after July  2004 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 1994 Combination Plan. |

 

F-25

----

 
|   |   | The 1994 Director Plan, as amended, provides for the  granting to each eligible non-employee director of the Company options to  purchase shares of the Company’s common stock.  Options granted under the 1994 Director Plan are granted with  an exercise price equal to the fair market value of the Company’s common  stock at the grant date, vest over six months and expire ten years from the  grant date.  A total of 500,000 shares  have been reserved for issuance under the 1994 Director Plan. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   | Changes in options outstanding under the 1994 Plans,  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 which have expired are summarized as follows:                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | **Shares** |   | **Weighted-  Average  Exercise  Price** |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   |   |   |
|   |   | **Balance**,  April 25, 1999                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 1,130,746 |   | $ | 1.08 |   |
|   |   | Granted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 136,500 |   | 1.00 |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   |   |   |
|   |   | **Balance**,  April 30, 2000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 1,267,246 |   | 1.07 |   |
|   |   | Granted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 80,000 |   | 0.89 |   |
|   |   | Expired                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | (411,500 | ) | (0.93) |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   |   |   |
|   |   | **Balance**,  April 29, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 935,746 |   | 1.11 |   |
|   |   | Granted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 120,000 |   | 0.71 |   |
|   |   | Expired                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | (193,600 | ) | (0.98 | ) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   |   |   |
|   |   | **Balance**,  April 28, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 862,146 |   | $ | 1.08 |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   | As of April 28, 2002, options for 840,346  shares were exercisable at prices ranging from $0.62 to $2.38.  As of April 29, 2001, options for  821,066 shares were exercisable at prices ranging from $0.81 to $2.38.  As of April 30, 2000, options for  1,056,646 shares were exercisable at prices ranging from $0.88 to $2.38.                                                                                                                                                                       |

 

F-26

----

 
|   |   | The following tables summarizes stock options  outstanding and exercisable at April 28, 2002: |                |
|--------|--------|----------------------------------------------------------------------------------------------------|---------------------|
|   |   |                                                                                               |                |
|   |   |                                                                                               |                | **Options  Outstanding** |   |   |
|   |   | **Range of  Exercise  Prices**                                                                     |                | **Number  Outstanding** | ** ** | **Weighted-  Average  Remaining  Contractual  Life (years)** |   | **Weighted-  Average  Exercise  Price** | ** ** |   |
|   |   | $                                                                                                  | 0.62 - $ 1.17       |   | 639,800 |   | 6.6 |   | $ | 0.96 |   |   |
|   |   |   1.24 -    1.56                                                               |                | 177,346 |   | 1.9 |   | 1.32 |   |   |
|   |   |   1.88 -    2.38                                                               |                | 45,000 |   | 4.7 |   | 1.93 |   |   |
|   |   |                                                                                               |                |   |   |   |   |   |   |   |
|   |   | $                                                                                                  | 0.62 - $ 2.38       |   | 862,146 |   | 5.5 |   | $ | 1.08 |   |   |
|   |   |                                                                                               |                |   |   |   |   |   |   |   |   |
|   |   |                                                                                               |                | **Options Exercisable** | ** ** |
|   |   | **Range of  Exercise  Prices**                                                                     |                | **Number  Exercisable** |   | **Weighted-  Average  Exercise  Price** |   |
|   |   | $                                                                                                  | 0.62 - $ 1.17       |   | 623,800 |   | $ | 0.96 |   |
|   |   |   1.24 -    1.56                                                               |                | 171,546 |   | 1.31 |   |
|   |   |   1.88 -    2.38                                                               |                | 45,000 |   | 1.93 |   |
|   |   |                                                                                               |                |   |   |   |   |
|   |   | $                                                                                                  |  0.62 - $ 2.38 |   | 840,346 |   | $ | 1.07 |   |
|        |        |                                                                                                    |                     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-27

----

 
|   |   | At April 28, 2002, warrants outstanding, all of  which are exercisable, 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. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | The convertible subordinated debentures with an  outstanding balance of $1,500,000 as of April 28, 2002 are convertible  into common shares at $1.25 per share. Accordingly, 1,200,000 shares have  been reserved for conversion of the subordinated debentures.                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | At April 28, 2002, 2,808,346 shares of common  stock were reserved with respect to outstanding options, warrants and  convertible debentures.                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | During fiscal 2002, there were no warrants issued  and no warrants expired.                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | During fiscal 2001, warrants to purchase 50,000  shares of common stock at $2.80 per share expired.  During fiscal 2000, warrants to purchase 210,000 and 1,708,000  shares of common stock at $2.00 and $3.20 per share, respectively, expired.  Warrants to purchase 75,000 units (375,000 shares of common stock) at $3.20  per share also expired during fiscal 2000.           |

 

F-28

----

 
|   |   | The Company accounts for its stock-based  compensation plans using the intrinsic value method.  Accordingly, no compensation cost has been  recognized for its stock option plans.   Had compensation cost for the Company’s two stock option plans and  options issued in connection with the guarantee of certain debt been  determined based on the fair value at the grant dates for awards under those  plans consistent with the method of SFAS No. 123, the Company’s net  income (loss) and income (loss) per share would have been adjusted to the pro  forma amounts indicated below: |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   | **April 28,  2002** |   | **April 29,  2001** |   | **April 30,  2000** |   |   |
|   |   | Net income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | As reported | ** ** | **$** | **890,731** |   | $ | (2,510,304 | ) | $ | 65,534 |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Pro forma | ** ** | **$** | **831,861** |   | $ | (2,592,922 | ) | $ | 3,532 |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |   |
|   |   | Basic and diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |
|   |   | income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | As reported | ** ** | **$** | **0.13** |   | $ | (0.36 | ) | $ | 0.01 |   |
|   |   | per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | Pro forma | ** ** | **$** | **0.12** |   | $ | (0.37 | ) | $ | 0.00 |   |
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
|   |   | In determining the pro forma amounts above, the  Company estimated the fair value of each option granted using the  Black-Scholes option pricing model with the following weighted-average  assumptions: |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                     |   | **April 28,  2002** |   | **April 29,  2001** |   | **April 30,  2000** |   |
|   |   | Risk free  interest rate                                                                                                                                                                                 |   | **4.6 - 5.4** | **%** | 4.8 - 5.8 | % | 5.9 - 6.5 | % |
|   |   | Expected dividend  yield                                                                                                                                                                                 |   | — |   | — |   | — |   |
|   |   | Expected lives                                                                                                                                                                                           |   | **9.2 years** |   | 9.5 years |   | 9.5 years |   |
|   |   | Expected  volatility                                                                                                                                                                                     |   | **75** | **%** | 75 | % | 58 | % |
|   |   | Fair value of  options granted                                                                                                                                                                           |   | **$** | **0.59** |   | $ | 0.71 |   | $ | 0.69 |   |
|        |        |                                                                                                                                                                                                          |  |  |  |  |  |  |  |  |  |  |

 

F-29

----

 
| **10.          Supplemental                Cash Flow                Information** |   | Cash paid for interest and  income taxes as is as follows: |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                 |   |                                                       |   | **April 28,  2002** |   | **April 29,  2001** |   | **April 30,  2000** |   |
|                                                                                                                                                                                                                                                                                 |   |                                                       |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                 |   | Interest                                                   |   | **$** | **462,970** |   | $ | 504,124 |   | $ | 348,059 |   |
|                                                                                                                                                                                                                                                                                 |   | Income taxes                                               |   | **$** | **—** |   | $ | — |   | $ | — |   |

 
|   |   | Noncash investing and financing activities are as  follows: |
|--------|--------|-------------------------------------------------------------|
|   |   |                                                        |
|   |   |                                                        |   | **April 28,  2002** |   | **April 29,  2001** |   | **April 30,  2000** |   |
|   |   | Capital leases  entered into during the year                |   | **$** | — |   | $ | 774,930 |   | $ | 398,871 |   |
|        |        |                                                             |  |  |  |  |  |  |  |  |  |  |

 
| **11.          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 28,  2002** |   | **April 29,  2001** |   | **April 30,  2000** |   |
|                                                                                                         |   |                                                                                                                                                                                                                  |   |   |   |   |   |   |   |
|                                                                                                         |   | Basic shares                                                                                                                                                                                                          |   | **7,035,170** |   | 7,035,170 |   | 7,046,545 |   |
|                                                                                                         |   |                                                                                                                                                                                                                  |   |   |   |   |   |   |   |
|                                                                                                         |   | Effect of  dilutive securities:                                                                                                                                                                                       |   |   |   |   |   |   |   |
|                                                                                                         |   | Options                                                                                                                                                                                                               |   | **3,206** |   | — |   | 168 |   |
|                                                                                                         |   |                                                                                                                                                                                                                  |   |   |   |   |   |   |   |
|                                                                                                         |   | Diluted shares                                                                                                                                                                                                        |   | **7,038,376** |   | 7,035,170 |   | 7,046,713 |   |

 

F-30

----

 
|                                                                                   |   | The following table summarizes securities that were  outstanding as of April 28, 2002 and April 29, 2001, but not  included in the calculations of net income (loss) per share because such  securities are antidilutive:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|----------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | **April 28,  2002** |   | **April 29,  2001** |   | **April 30,  2000** |   |
|                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |
|                                                                                   |   | Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | **802,146** |   | 935,746 |   | 1,120,246 |   |
|                                                                                   |   | Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | **500,000** |   | 500,000 |   | 550,000 |   |
|                                                                                   |   | Convertible  debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | **1,200,000** |   | 1,200,000 |   | 1,200,000 |   |
|                                                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **12.          Asset Impairment  Charge** |   | The Company recorded an impairment charge of $580,000  in the fourth quarter of fiscal 2001 which is included in the consolidated  statements of operations related to the write-down of certain long-lived  assets.  The Company reviewed the  carrying value of its long-lived assets and noted that the expected future  cash flows for three of its Pizzeria Regina locations were not sufficient to  recover the recorded carrying value of long-lived assets at those  locations.  Accordingly, the Company  recognized an impairment charge to reduce the carrying value of leasehold  improvements to zero and restaurant equipment at those three locations to  their estimated fair market value.   The Company currently plans to continue to operate these restaurants  for their remaining lease terms. |

 

F-31

----