BACK BAY RESTAURANT GROUP INC, 10-K, 1999-03-29

BACK BAY RESTAURANT GROUP INC
10-K, 1999-03-29
EATING & DRINKING PLACES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------------
FORM 10-K
---------------------

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

FOR THE FISCAL YEAR ENDED DECEMBER 27, 1998

COMMISSION FILE NUMBER 0-19810

BACK BAY RESTAURANT GROUP, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 284 NEWBURY STREET 04-2812651
(State or other BOSTON, MASSACHUSETTS 02115 (I.R.S. Employer
jurisdiction of (Address of principal executive Identification No.)
incorporation or offices, including Zip Code)
organization)

(617) 536-2800
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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

The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing price of the registrant's Common Stock as
quoted on the National Association of Securities Dealers Automatic Quotation
System on March 2, 1999 was $16,845,486.

On March 2, 1999, there were 3,462,142 shares of the registrant's Common
Stock outstanding.

1
<PAGE>

BACK BAY RESTAURANT GROUP, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I

PAGE

Item 1. Business 4

Item 2. Properties 10

Item 3. Legal Proceedings 10

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

PART II

Item 5. Market for Registrant's Common Stock and Related 11
Stockholder Matters

Item 6. Selected Consolidated Financial Data 11

Item 7. Management's Discussion and Analysis of Financial Condition 13
and Results of Operations

Item 8. Financial Statements and Supplementary Data 21

Item 9. Changes in and Disagreements With Accountants on Accounting 39
Disclosure and Financial Disclosure

PART III

Item 10. Directors and Executive Officers of the Registrant 40

Item 11. Executive Compensation 42

Item 12. Security Ownership of Certain Beneficial Owners and 47
Management

Item 13. Certain Relationships and Related Transactions 49

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 51

2
<PAGE>

CAUTIONARY STATEMENT

This Form 10-K Annual Report, including without limitation "Management's
Discussion and Analysis of Financial Condition and Results of Operation,"
contains various "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
and Exchange Act of 1934, as amended. Forward-looking statements represent the
Company's expectations or belief concerning future events, including the
following: any statements regarding future sales and gross profit percentages,
any statements regarding the continuation of historical trends, and any
statements regarding the sufficiency of the Company's cash balances and cash
generated from operating and financing activities for the Company's future
liquidity and capital resource needs. Without limiting the foregoing, the words
"believes," "anticipates," "plans," "expects," and similar expressions are
intended to identify forward-looking statements. The Company cautions that
these statements are further qualified by important economic and competitive
factors that could cause actual results to differ materially from those in the
forward-looking statements, including, without limitation, risks of the
restaurant industry, including a highly competitive industry with many
well-established competitors with greater financial and other resources than
the Company, and the impact of changes in consumer tastes, local, regional and
national economic conditions, demographic trends, traffic patterns, employee
availability and cost increases. In addition, the Company's ability to expand
is dependent upon various factors, such as the availability of attractive sites
for new restaurants, the ability to negotiate suitable lease terms, the ability
to generate or borrow funds to develop new restaurants and obtain various
government permits and licenses and the recruitment and training of skilled
management and restaurant employees. Accordingly, such forward-looking
statements do not purport to be predictions of future events or circumstances
and may not be realized.

3
<PAGE>

PART I

ITEM 1. BUSINESS

GENERAL

Back Bay Restaurant Group, Inc. (the "Company") owns and operates full
service restaurants located in New England, New York, New Jersey and Washington,
D.C. As of February 24, 1999, the Company operated 34 restaurants, 14 of which
feature Northern Italian cuisine and are operated under the Papa.Razzi trade
name and 20 of which offer casual American dining. Since it opened its first
restaurant in 1964, the Company has followed an operating philosophy of
providing value to its customers by featuring generous portions of high quality
food, a level of service that is typical of higher priced restaurants, and
moderate prices.

The Company emphasizes freshness, quality, cleanliness, service and
distinctive decor in each of its restaurants. Menu items are prepared on the
restaurant premises from original recipes by skilled and experienced chefs. The
Company employs two executive chefs who are responsible for developing new menu
items, setting presentation standards and working with unit level chefs as
needed to improve performance and resolve problems. The Company's restaurants
use fresh ingredients almost exclusively and generally do not rely on frozen or
prepared foods as do some national chains. The Company employs quality control
consultants who conduct frequent unannounced inspections of its restaurants. The
Company believes that its adherence to the high-quality food standards has
promoted strong customer loyalty and has contributed to the longevity of its
restaurant concepts.

The Company recognizes that menus, and sometimes restaurant concepts, need
to be changed periodically to satisfy changing public tastes. The Company's core
restaurant concepts have proven adaptable to changing customer preferences and
the Company believes that its ability to modify and refresh its existing
restaurants by periodically revising their menus and concepts allows the Company
to maintain or increase its customer base within its market area.

The Company's restaurants provide specialty menus in addition to their
standard menus, such as weekend brunch menus. Both standard and specialty menus
are periodically updated by the executive chefs according to changing customer
preferences. The Company considers the extensive selection of items on its menus
to be an important factor in the appeal of its restaurants.

All of the Company's restaurants offer a full liquor selection and all have
a bar. The Company believes that, although such beverage service contributes to
the overall success of a restaurant, attention to the quality of the food and
service increases repeat customer business and minimizes volume fluctuations
associated with trends in bar popularity. All of the Company's restaurants are
open seven days a week and serve lunch and dinner.

4
<PAGE>

NORTHERN ITALIAN-STYLE MENU AND CONCEPT

The Papa.Razzi concept creates a distinctive upscale, casual dining
atmosphere. Each of the Papa.Razzi restaurants features earth colors, marble or
granite and light wood decor to create the ambiance of a European trattoria. The
Papa.Razzi menu is tailored to this dining atmosphere and offers a selected
array of Northern Italian cuisine featuring several types of freshly prepared
pasta with sauces. The menu also includes a variety of pizzas with creative
toppings which are flash cooked in brick ovens under extreme heat to create a
thin, light crust and preserve the flavor and consistency of the toppings.

The "secondi" or entree portion of the Papa.Razzi menu offers a selection
of grilled and sauteed veal, chicken, seafood and meat dishes.

The Papa.Razzi concept and menu allow the Company to take advantage of the
lower food costs and popularity of Italian food. The Papa.Razzi restaurants have
proven equally suitable for urban and shopping mall locations.

In 1998 the average lunch and dinner checks per customer at Papa.Razzi were
approximately $13.00 and $20.25, respectively. Sales of alcoholic beverages
accounted for 25.8% of Papa.Razzi revenues in 1998.

AMERICAN-STYLE MENUS, CONCEPTS AND TRADE NAMES

The Company's American-style restaurants offer substantially similar menus
which emphasize fresh, moderately-priced fare, including a variety of chicken
and seafood dishes, grilled steaks, gourmet hamburgers, Mexican dishes, pasta,
soups and salads.

While the Company's American-style restaurants are operated under several
trade names, each restaurant creates a warm, casual dining atmosphere attracting
a wide diversity of customers. The Company's strategy of using different
restaurant names enhances its ability to open a number of restaurants in a
strong restaurant market, such as the Back Bay section of Boston where the
Company operates four American-style restaurants. Although the menus of
American-style restaurants are substantially similar, menu items vary slightly
and different prices are charged, depending on the restaurant's location and
trade name.

In 1998, the average lunch and dinner checks per customer at the Company's
American-style restaurants were approximately $12.00 and $16.00, respectively.
Sales of alcoholic beverages accounted for 28.6% of American concept revenues in
1998.

5
<PAGE>

RESTAURANT LOCATIONS

The following table presents certain information regarding the restaurants
operated by the Company as of February 24, 1999.

<TABLE>
<CAPTION>
Approx. Restaurant
Date Seating Size (Approx. Lease (1)
Opened Location Name Capacity Sq. Ft.) Expiration
<S> <C> <C> <C> <C> <C>
Northern Italian Concept
- - ------------------------
Nov. 1989 Boston, MA Papa.Razzi 220 6,700 2010
June 1991 Chestnut Hill, MA Papa.Razzi 160 4,050 2014
Oct. 1991 Cambridge, MA Papa.Razzi 219 6,170 2007
June 1992 Concord, MA Papa.Razzi 220 14,000 2019
Aug. 1992 West Hartford, CT Papa.Razzi 239 5,000 2014
Nov. 1992 White Plains, NY Papa.Razzi 280 6,750 2022
Dec. 1992 Burlington, MA Papa.Razzi 350 12,600 2017
Mar. 1993 Wellesley, MA Papa.Razzi 320 9,300 2018
June 1993 Cranston, RI Papa.Razzi 225 6,000 2018
Oct. 1993 Short Hills, NJ Papa.Razzi 202 5,450 2009
May 1994 Hanover, MA Papa.Razzi 230 7,200 2023
June 1994 Westbury, NY Papa.Razzi 280 10,200 2016
Sept. 1994 Paramus, NJ Papa.Razzi 220 5,800 2005
Feb. 1995 Georgetown, D.C. Papa.Razzi 243 8,400 2015

American Concept
- - ----------------
June 1973 Chestnut Hill, MA Charley's Eating & Drinking Saloon 170 5,000 2014
Sept. 1975 Dedham, MA J.C. Hillary's 270 7,920 2011
Oct. 1975 Boston, MA Abe & Louie's (2) (3) 411 9,870 2006
Oct. 1978 Boston, MA The Famous Atlantic Fish Company (3) 169 4,557 2006
Dec. 1984 Boston, MA Joe's American Bar & Grill 251 6,317 2010
Nov. 1985 Waterford, CT Charley's Eating & Drinking Saloon 190 7,108 2000
Aug. 1986 Wayland, MA Hillary's 188 6,100 2015
Feb. 1987 Nashua, NH Charley's Eating & Drinking Saloon 208 6,597 2002
Sept. 1988 West Hartford, CT Joe's American Bar & Grill 230 8,000 2014
Sept. 1989 Woburn, MA Joe's American Bar & Grill (4) 275 8,100 2023
Jan. 1990 North Attleboro, MA Charley's Eating & Drinking Saloon 239 6,633 2005
July 1990 Trumbull, CT J.C. Hillary's 250 7,090 2005
Nov. 1990 Boston, MA Charley's Eating & Drinking Saloon 270 7,888 2011
Dec. 1992 Peabody, MA Joe's American Bar & Grill 268 6,016 2008
Dec. 1993 Hanover, MA Joe's American Bar & Grill 260 7,400 2023
Oct. 1994 Paramus, NJ Joe's American Bar & Grill 240 6,100 2005
Dec. 1994 Short Hills, NJ Joe's American Bar & Grill 195 5,300 2009
Sept.1996 Braintree, MA Joe's American Bar & Grill 310 9,200 2016
May 1997 Boston, MA Joe's American Bar & Grill 344 7,500 2016
Aug. 1998 Fairfield, CT Joe's American Bar & Grill 226 7,000 2026
</TABLE>

(1) Assumes that the Company exercises all of its extension options.
(2) Operated as a J.C. Hillary's until February of 1998.
(3) Operated under a lease with an affiliate of Charles F. Sarkis, President
and Chief Executive Officer of the Company.
(4) Operated as J.C. Hillary's until November of 1997.

6
<PAGE>

GROWTH STRATEGY

The Company's current growth strategy is to expand its operations on a
very select basis in markets along the Boston-Washington, D.C. corridor.
However, if a suitable opportunity arose, the Company would also consider
expansion into other metropolitan markets. The Company does not franchise and
currently has no plans to develop a domestic franchise program. The ability of
the Company to open new restaurants and achieve its expansion goals is
dependent upon, among other factors, locating satisfactory sites, obtaining or
generating adequate capital, negotiating favorable leases or purchasing land or
buildings on acceptable terms, securing appropriate government permits and
approvals, obtaining liquor licenses and recruiting and training additional
qualified restaurant management personnel.

The Company's growth strategy is focused on obtaining the most desirable
location in each market in which it wishes to operate. Once the location is
selected, the Company selects the restaurant concept that management believes
will most likely take best advantage of the specific characteristics of the
site. For example, the Company has not developed a Northern Italian Concept
restaurant since February 1995. During the same period, three American Concept
restaurants have been developed and two American Concept restaurants were
converted to other American Concept brands. Profitability of the American
Concept restaurants is moderately greater as a percent of sales than the
Northern Italian Concept restaurants. The increased profitability of the
American Concept restaurants is largely attributable to the higher profit
margins of the Joe's American Bar & Grill restaurants. Profit margins at Joe's
American Bar & Grill restaurants, in the aggregate, are higher than the other
American Concept and Northern Italian Concept restaurants because of higher
average sales per restaurant. The higher average sales figure per restaurant
allows for a larger contribution to profitability after payment of fixed costs.
The profit margins of the American Concept restaurants are comparable to the
profit margins of the Northern Italian restaurants if Joe's American Bar &
Grill is excluded from such calculation.

SITE SELECTION, DESIGN AND CONSTRUCTION

The Company believes that location is a key factor in a restaurant's
ability to operate a profitable lunch and dinner business and considers several
demographic factors in selecting sites, including the size of the middle to
upper income residential population, the proximity of retail and office
facilities, traffic patterns and the visibility of the location. Senior
management inspects and approves each restaurant site. The Company generally
designs its restaurants utilizing outside architects under the supervision of
its in-house architect.

MANAGEMENT TRAINING AND RESTAURANT OPERATIONS

The Company invests a substantial amount of time in training and testing
its restaurant personnel. Management trainees must complete a ten-week on-site
training program during which they are familiarized with kitchen, bar and
dining room operations of the restaurant and are instructed in areas such as
food quality and preparation, customer service, alcoholic beverage service,
liquor liability avoidance and employee relations. Periodic seminars are
conducted by Company personnel and outside experts on a broad range of topics
to provide additional training for its managers. The training programs are
designed to ensure that uniform standards of quality and service are followed
in all of the restaurants and are further designed so that the managers can be
transferred from one American concept restaurant to another, or one Papa.Razzi
restaurant to another, with minimal disruption.

The Company believes that an important element of its success lies in
employee adherence to the Company's standard of quality. The Company encourages
the promotion of its qualified restaurant employees to managerial positions and
maintains employee morale by rewarding individual achievement through increased
salaries and bonuses. The Company has an incentive program under which general
managers, chefs and regional managers may receive bonuses and stock option
grants based on the contribution to the Company's earnings by the restaurants
for which they are responsible.

The Company employs regional managers who are each responsible for
supervising an average of seven restaurants. The day-to-day operations of each
restaurant, including personnel management, food procurement, inventory control
and guest relations, are the responsibility of a general manager who generally
reports to a regional manager. The management staff of a typical Company
restaurant consists of one general manager, two assistant managers, one chef
and one sous chef. Each restaurant also employs approximately 80 hourly
employees, many of whom work part-time.

Centralized financial and management controls, which are fundamental in
controlling restaurant operating margins, are maintained through the use of an
automated data processing system and prescribed reporting procedures. Each
restaurant has a point of sale system that captures restaurant operating
information. The restaurants forward daily sales reports, vendor invoices,
payroll

7
<PAGE>

information and other data to the Company's corporate headquarters. Company
management utilizes this data to monitor quality, cost and sales mix and to
prepare periodic financial and management reports. This system is also used for
budget analyses, planning, and determining menu composition. Restaurant
managers perform daily inventories on key products and weekly inventories on
all products. Cash is controlled through frequent deposits of sales proceeds in
local operating accounts, the balances of which are wire transferred regularly
to the Company's principal account.

PURCHASING AND SUPPLIES

The Company centrally controls the purchasing criteria for its
restaurants, including criteria related to acceptable suppliers and product
quality. Management develops product specifications and continually monitors
vendors to ensure that food suppliers comply with the Company's quality
standards. The Company's restaurants purchase certain perishable items,
beverages and other branded items directly from company-specified suppliers.
The Company is not dependent on any single supplier and believes that adequate
alternative suppliers are available.

EMPLOYEES

At December 27, 1998, the Company employed approximately 2,600 persons,
approximately twenty of whom were corporate personnel and approximately 220 of
whom were associated with the management or supervision of the restaurants. The
Company considers relations with its employees to be good.

MARKETING

Management believes that the Company's commitment to customer service and
value is the most effective approach to attracting customers. Accordingly, the
Company has historically focused its resources on providing its customers with
superior service and value, and has relied primarily on word of mouth to
attract new and repeat customers. Management believes that its strategy of
locating multiple restaurants under the same name within a defined geographic
area has enabled newer restaurants to benefit from the name recognition and
reputation for quality developed by existing restaurants. The Company employs
little print or direct mail advertising, and conducts some radio advertising
and local restaurant promotions. During 1998, the Company's expenditures for
advertising were less than one percent of its revenues.

In September 1994, the Company instituted its Preferred Guest Program.
Under the program, preferred guests receive a $20 dining certificate good at
any of the Company's restaurants each time $200 in food and beverage purchases
are reflected in the customer's account. The Company records the liability
associated with dining certificates as they vest. As of March 1, 1999, the
Company had approximately 20,000 members in its Preferred Guest Program.

COMPETITION

The restaurant business is highly competitive and is affected by, among
other things, changes in eating habits and preferences, local, regional and
national economic conditions, population trends and traffic patterns. The
Company competes within each market with locally-owned restaurants as well as
with national and regional restaurant chains, some of which operate more
restaurants and have greater financial resources and longer operating histories
than the Company. The principal bases of competition in the industry are the
quality and price of the food products served. Restaurant location, quality and
speed of service, name identification and attractiveness of facilities are also
important. The acquisition of sites is highly competitive as well, with the
Company often competing with other restaurant companies and retail businesses
for suitable sites for the development of new restaurants.

GOVERNMENTAL REGULATION

The Company is subject to various federal, state and local laws affecting
its business. Each of the Company's restaurants is subject to licensing by
governmental authorities and a variety of regulatory provisions relating to
zoning of restaurant sites, alcoholic beverage control, sanitation, health and
safety and the environment. Difficulties or failures in obtaining required
licenses or approvals may delay or prevent the Company from opening new
restaurants.

Alcoholic beverage control regulations require each of the Company's
restaurants to apply to a state authority and, in certain locations, county and
municipal authorities for a license and permit to sell alcoholic beverages on
the premises. Typically, licenses must

8
<PAGE>

be renewed annually and may be revoked or suspended for cause at any time.
Alcoholic beverage control regulations relate to numerous aspects of the daily
operations of the Company's restaurants, including minimum age of patrons and
employees, hours of operation, advertising, wholesale purchasing, inventory
control and handling, and storage and dispensing of alcoholic beverages. The
failure to receive or retain, or a delay in obtaining, a liquor license in a
particular location could adversely affect the Company's ability to obtain such
a license elsewhere. The Company has not encountered any material problems
relating to alcoholic beverage licenses to date.

Various federal and state labor laws govern the Company's relationship
with its employees, including such matters as minimum wage requirements,
overtime and other working conditions. Significant additional
government-imposed increases in minimum wages, paid leaves of absence, mandated
health benefits or increased tax payment requirements for employees who receive
gratuities could have a material adverse effect on the Company's results of
operations.

SERVICE MARKS

The Company regards its service marks as having significant value and as
being an important factor in the marketing of its services. The Company has
registered as service marks the words Papa.Razzi, Papa.Razzi's Cucina, Joe's
American Bar & Grill, J.C. Hillary's, Hillary's, Charley's Eating & Drinking
Saloon, Atlantic Fish Company, Rayz Riverside Cafe, and Abe & Louie's with the
United States Patent and Trademark Office. The Company's policy is to pursue
registration of its marks and to strenuously oppose infringement of its marks.

The Company is aware of similar names being used in some areas. To the
extent that these names were in use prior to the Company's registration of the
name as a service mark, the Company may be prevented from operating under the
name in the area of such prior use. The Company does not expect any such prior
use of similar names to have a material effect on its operations.

SEASONALITY

A large proportion of the Company's restaurants are located in mall
locations or other retail areas. Consequently, the Company's sales are
generally highest during the holiday shopping season in the fourth quarter of
each year and lowest during the first quarter of each year.

<PAGE>

ITEM 2. PROPERTIES

All of the Company's restaurant locations are held under long term leases.
See "Business - Restaurant Locations" and "- Site Selection, Design and
Construction." The Company's leases generally provide for a fixed base rent plus
additional rent based on the level of sales generated by the restaurant. Most of
the Company's leases require the Company to pay all or a portion of the costs of
owning and operating the premises, including the cost of insurance, taxes and
maintenance.

ITEM 3. LEGAL PROCEEDINGS

The Company is subject to various claims and legal actions, such as slip
and fall and other general liability claims, that arise in the ordinary course
of its business. The Company does not believe that any of these claims will have
a material adverse effect on its business or results from operations.

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

No matter was submitted to a vote of stockholders during the fourth quarter
of fiscal year 1998.

10
<PAGE>

PART II

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

The Company's common stock is traded over-the-counter on the NASDAQ
National Market System under the symbol PAPA. As of February 15, 1999, there
were approximately 50 holders of record of the Company's Common Stock. The
Company believes there are substantially more beneficial owners of its Common
Stock than there are holders of record.

The Company has not paid dividends since becoming a public company. The
Company presently intends to retain all earnings for use in the operation and
expansion of its business and has no present intention to pay cash dividends.

The quarterly range of high and low sales prices for the Common Stock as
reported on NASDAQ for fiscal years 1997 and 1998 are as follows:

1997 1998
HIGH LOW HIGH LOW

<S> <C> <C> <C> <C>
1st Fiscal Quarter $4.00 $2.63 $7.75 $4.63
2nd Fiscal Quarter 5.50 2.88 9.00 7.00
3rd Fiscal Quarter 8.00 4.25 9.31 6.38
4th Fiscal Quarter 8.50 5.50 9.88 6.38
</TABLE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table summarizes certain historical financial information
derived from the Consolidated Financial Statements of the Company. The Selected
Consolidated Financial Information (except for Restaurant Operating Data) for
the fiscal years ended December 25, 1994, December 31, 1995, December 29, 1996,
December 28, 1997 and December 27, 1998 is derived from the audited Consolidated
Financial Statements. This information should be read in conjunction with and is
qualified by reference to the Consolidated Financial Statements of the Company
and the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included elsewhere in this Annual Report.

11
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED
DEC. 25, DEC. 31, DEC. 29, DEC. 28, DEC. 27,
1994 1995 1996 1997 1998
------- -------- ------- ------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales $85,831 $ 93,496 $87,753 $94,904 $99,396
Costs and expenses:
Cost of sales 23,230 25,980 24,785 26,401 27,509
Payroll and related costs 27,633 30,102 28,327 30,221 31,004
Operating expenses 18,948 21,440 20,398 22,121 23,173
Depreciation and amortization 4,541 4,891 3,880 4,197 4,223
------- -------- ------- ------- -------
Total restaurant operating expenses 74,352 82,413 77,390 82,940 85,909
------- -------- ------- ------- -------
Income from restaurant operations 11,479 11,083 10,363 11,964 13,487
General and administrative expenses 10,517 15,129 8,874 8,669 9,180
------- -------- ------- ------- -------
Operating income/(loss) 962 (4,046) 1,489 3,295 4,307
Interest expense 118 795 748 548 297
Interest income (4) -- -- -- --
------- -------- ------- ------- -------
Income/(loss) before income taxes 848 (4,841) 741 2,747 4,010
Income taxes 347 (2,031) 274 1,016 1,326
------- -------- ------- ------- -------
Net income/(loss) $ 501 $ (2,810) $ 467 $ 1,731 $ 2,684
======= ======== ======= ======= =======
Net income/(loss) per share Basic $ 0.14 $ (0.82) $ 0.14 $ 0.50 $ 0.78
======= ======== ======= ======= =======
Diluted $ 0.14 $ (0.82) $ 0.14 $ 0.50 $ 0.73
======= ======== ======= ======= =======
Average common shares and equivalents
Basic 3,600 3,430 3,434 3,432 3,452
Diluted 3,623 3,431 3,436 3,474 3,659

RESTAURANT OPERATING DATA:
Average sales per restaurant open for full period (1) $ 2,570 $ 2,595 $ 2,613 $ 2,744 $ 3,014
Restaurants open for full period 30 33 33 32 32
Percentage change in comparable restaurant sales (1) (3.5%) (2.2%) (0.8%) 0.04% 5.4%
Total restaurants open at end of period 37 33 34 34 34

BALANCE SHEET DATA (AT YEAR END):
Total assets $47,314 $ 46,100 $43,911 $43,072 $46,645
Long term debt 7,600 7,525 6,025 4,000 4,000
Current maturities of long term debt 542 2,500 1,500 -- --
Total stockholders' equity 27,537 24,727 25,202 27,012 29,816
</TABLE>

(1) Does not include the 53rd week in the fiscal year ended December 31, 1995.

<PAGE>

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

The following discussion should be read in conjunction with the
Consolidated Financial Statements which are included herein.

RESULTS OF OPERATIONS

The following table sets forth the components of income from operations as
a percentage of net sales for the periods indicated:

YEAR ENDED
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>

Sales 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 28.2 27.8 27.7
Payroll and related costs 32.3 31.9 31.2
Operating expenses 23.3 23.3 23.3
Depreciation and amortization 4.4 4.4 4.2
----- ----- -----
Total restaurant operating expenses 88.2 87.4 86.4
----- ----- -----
Income from restaurant operations 11.8 12.6 13.6
General and administrative expenses 10.1 9.1 9.2
----- ----- -----
Operating income/(loss) 1.7 3.5 4.4
Interest expense 0.9 0.6 0.3
----- ----- -----
Income/(loss) before income taxes 0.8 2.9 4.1
Income taxes 0.3 1.1 1.4
----- ----- -----
Net income/(loss) 0.5 1.8 2.7
===== ===== =====

</TABLE>

<PAGE>

Fiscal Year 1998 Compared to Fiscal Year 1997

SALES

Sales increased by $4,492,000 or 4.7%, to $99,396,000 in 1998 from
$94,904,000 in 1997. Same store sales increased $4,828,000, or 5.4%, in the
fifty-two weeks in 1998 as compared to the fifty-two weeks in 1997.

The Company closed one location in June, 1997 and closed an additional
location during the first quarter of 1998. The Company renovated another
location which was closed for approximately eight months in 1998 and re-opened
in October of 1998. The lost revenues from these locations in 1998 were
partially offset by two new locations of which one opened in May, 1997 and the
other in August, 1998.

The Company operated 34 restaurants at December 27, 1998 and 34 restaurants
at December 28, 1997. Total restaurant customer count for comparable stores for
the fifty-two weeks ended December 27, 1998 increased 2.6% to 5,177,000 from
5,047,000 in the comparable period in 1997.

COST OF SALES

Cost of sales as a percentage of sales decreased to 27.7% in 1998 from
27.8% in 1997. This decrease was attributable to a 0.4% decrease in beverage
cost as a percentage of beverage revenue (22.6% in 1998 versus 23.0% in 1997).
The beverage cost decrease, as a percentage of beverage revenue, was due
principally to modest sales price increases in selected beverages for certain
locations. Food cost as a percentage of food revenue was 29.6% for both 1998 and
1997.

PAYROLL AND RELATED COSTS

Payroll and related costs as a percentage of sales decreased to 31.2% in 1998
from 31.9% in 1997. The decrease in payroll and related costs as a percentage of
sales is primarily attributable to the Company having increased sales from same
stores in 1998 as compared to 1997.

OPERATING EXPENSES

Operating expenses as a percentage of sales were at 23.3% for both 1998 and
1997. Operating expenses increased in 1998 to $23,173,000 from $22,121,000 in
1997. The increase in operating expenses in dollars is primarily attributable to
increased occupancy costs and increases in other various operating expenses.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization increased by $26,000 in 1998 to $4,223,000 from
$4,197,000 in 1997. Included in the 1998 and 1997 amortization is the
amortization of pre-opening costs of new restaurants opened during the prior
12-month period. The Company amortizes such pre-opening costs over the 12-month
period immediately following an opening or conversion.

<PAGE>

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased by $511,000 in 1998 to $9,180,000
from $8,669,000 in 1997. The increase is primarily attributable to increases in
salaries and wages and legal expenses, which were partially offset by decreases
in advertising and insurance expenses.

INTEREST EXPENSE

Interest expense decreased by $251,000 in 1998 to $297,000 from $548,000 in
1997. This decrease was attributable to decreased borrowings as well as a
decrease in the Company's effective borrowing rate.

INCOME TAXES

Income taxes increased by $310,000 in 1998 to $1,326,000 from $1,016,000 in
1997. The increased expense in 1998 reflects the pre-tax income of $4,010,000 as
compared to $2,747,000 in 1997. The income tax expense at December 27, 1998
includes a state tax refund of approximately $157,000 from the Commonwealth of
Massachusetts for amended tax returns that were filed for 1994 and 1995 as a
result of a change in the way the Commonwealth of Massachusetts treats the
taxation of investments in subsidiaries. The estimated effective tax rate was
37% for both periods.

<PAGE>

FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

Sales

Sales increased by $7,151,000, or 8.2%, to $94,904,000 in 1997 from
$87,753,000 in 1996. Same store sales increased $31,000, or 0.04%, in the 52
weeks in 1997 as compared to the 52 weeks in 1996.

The overall increase in sales in 1997 as compared with 1996 was primarily
attributable to sales from two new stores opened by the Company in September,
1996 and May, 1997, which contributed $8,057,000. This amount was partially
offset by one store which closed in June 1997. The decrease in sales from the
closed store was approximately $909,000.

The Company operated 34 restaurants at December 28, 1997, and 34
restaurants at December 29, 1996. Total restaurant customer count for 1997
increased 4.6% to 5,307,000 from 5,076,000 in 1996.

Cost of Sales

Cost of sales as a percentage of sales decreased to 27.8% in 1997 from
28.2% in 1996. This decrease was attributable to a 0.3% decrease in food cost as
a percentage of food revenue (29.6% in 1997 versus 29.9% in 1996), and a 0.7%
decrease in beverage cost as a percentage of beverage revenue (23.0% in 1997
versus 23.7% in 1996). The food cost decrease, as a percentage of food revenue,
was due principally to price decreases in olive oil and pasta. The beverage
cost decrease, as a percentage of beverage revenue, was due principally to
modest sales price increases in selected wines.

Payroll and Related Costs

Payroll and related costs as a percentage of sales decreased to 31.9% in
1997 from 32.3% in 1996. Payroll and related costs increased by $1,894,000 in
1997 to $30,221,000 from $28,327,000 in 1996. The increase in dollars is
primarily attributable to the payroll for the two new restaurants referred to
above.

Operating Expenses

Operating expenses increased by $1,723,000 in 1997 to $22,121,000 from
$20,398,000 in 1996. The increase in operating expenses is primarily
attributable to the two new restaurants referred to above. Operating expenses as
a percentage of sales remained constant from year to year at 23.3%.

16
<PAGE>

Depreciation and Amortization

Depreciation and amortization increased by $317,000 in 1997 to $4,197,000
from $3,880,000 in 1996. The increase in depreciation and amortization is
principally attributable to the two new restaurants referred to above. Included
in the 1997 and 1996 amortization is the amortization of pre-opening costs of
new restaurants opened during the prior 12-month period. The Company amortizes
such pre-opening costs over the 12-month period immediately following an opening
or conversion.

General and Administrative Expenses

General and administrative expenses decreased by $205,000 in 1997 to
$8,669,000 from $8,874,000 in 1996. The decrease is primarily attributable to a
decrease in insurance expense which was partially offset by increases in
salaries and wages and marketing expenses.

Interest Expense

Interest expense decreased by $200,000 in 1997 to $548,000 from $748,000 in
1996. This decrease was attributable to the Company's reduced borrowings in 1997
as compared to 1996.

Income Taxes

Income taxes increased by $742,000 in 1997 to an expense of $1,016,000 from
an expense of $274,000 in 1996. The increased expense in 1997 reflects the
pre-tax income of $2,747,000 in 1997 as compared to the pre-tax income of
$741,000 in 1996. The estimated effective tax rate was 37% for both periods.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company, similar to many restaurant businesses, requires little or no
working capital because it does not have significant inventory or trade
receivables and receives several weeks of trade credit in purchasing food and
supplies. At December 27, 1998, the Company's cash position was $2,598,000 and
the Company had a net working capital deficit of $7,683,000. At December 28,
1997, the Company's cash position was $1,915,000 and the Company had a net
working capital deficit of $7,736,000.

The Company requires capital primarily for the development and construction of
new restaurants and the conversion of existing restaurants. In recent years, the
Company's primary sources of capital have been cash flow from its operations,
borrowings and landlord contributions to restaurant construction costs. The
Company intends to be very selective in its approval of sites for new units and
will be limiting the number of restaurant openings in 1999. The Company expects
to fund any capital expenditures for 1999 from internally generated cash. The
Company believes that cash flow from operations and credit available under the
revolving loan agreement will be sufficient to meet future needs.

On May 7, 1998, the Company executed an Amended and Restated Loan Agreement
with BankBoston, NA. Under the Amended Loan Agreement, the Company can borrow up
to $20,000,000 on a three year revolver that thereafter converts to a four year
term note.

18
<PAGE>

YEAR 2000 DISCLOSURE

The Company is aware of the potential for industry wide business disruption
which could occur due to problems related to the "Year 2000 issue." It is the
belief of the Company that the Company has a prudent plan in place to address
these issues. The components of our plan include: an assessment of internal
systems for modification and/or replacement; communication with external vendors
to determine their state of readiness to maintain an uninterrupted supply of
goods and services to the Company; an evaluation of our equipment as to its
ability to function properly after the turn of the century; an evaluation of
facility related issues; and the development of a contingency plan.

STATE OF READINESS

The Company has developed a comprehensive plan to reduce the probability of
operational difficulties due to Year 2000 related failures. While there is still
a significant amount of work to do the Company believes that it is on track
towards a timely completion. Overall, the Company estimates the organization to
be approximately 85% complete in regard to the identification and remediation of
Year 2000 issues.

INTERNAL SYSTEMS

The process the Company is following to achieve Year 2000 compliance for
internal systems is as follows: The Company expects to have all of its financial
accounting software to be year 2000 compliant by the end of the second quarter
of 1999. The Company expects to have the hardware components of its financial
accounting system to be Year 2000 compliant by the end of the first quarter of
1999. The Company has point of sales cash register systems at all of its
locations. Eleven of these systems will not roll over to the year 2000.
Programming will be completed to resolve this issue by the end of the second
quarter of 1999. All restaurant operating systems will be compliant by the end
of the third quarter of 1999. Testing is current with no issues identified.

SUPPLIERS

The Company is in the process of communicating with its external vendors to
gain an understanding of their state of readiness to maintain an uninterrupted
supply of goods and services to the Company. The Company has contacted many of
its suppliers regarding the Year 2000 issue. The Company has been assured by its
major suppliers that there will be no interruption of the delivery of goods and
services.

EQUIPMENT

The Company is in the process of completing an inventory of currently used
equipment at the Company. The Company will determine the Year 2000 readiness
through communication with the equipment manufacturers and testing where
appropriate. At this time the Company is not aware of any equipment which is
affected by the Year 2000 issue and will not be repaired or replaced prior to
operating problems. The Company, as in most companies, remains aware of the
potential for imbedded logic within microchips to cause equipment failure. The
Company believes that our action plan provides a prudent approach towards
evaluating equipment, however, some equipment may prove not feasible or
impossible to test.

FACILITY RELATED ISSUES

The Company is in the process of completing an inventory and evaluating
facilities related equipment with the potential for Year 2000 related failures.
The Company will determine the Year 2000

<PAGE>

readiness through communication with the equipment manufactures and testing
where appropriate. At this time the Company is not aware of any facilities
related equipment which is affected by the Year 2000 issue and will not be
repaired or replaced prior to operating problems. The Company, as in most
companies, remains aware of the potential for imbedded logic within microchips
to cause equipment failure. The Company believes that our action plan provides a
prudent approach towards evaluating production equipment, however, some
equipment may prove not feasible or impossible to test.

COSTS

The Company is evaluating the total cost of Year 2000 compliance. At this
time the Company estimates the total cost of Year 2000 related activities to be
less than $100,000, of which the Company has paid approximately $30,000 through
December 27, 1998.

CONTINGENCY PLAN

At this time the Company is not aware of any internal systems or external
vendors issues related to the Year 2000 which would prevent, or seriously impact
the Company from continuing operations before, during, or after the turn of the
century.

Although the Company believes that we are taking prudent action related to
the identification and resolution of issues related to the Year 2000 our
assessment is still in progress. The Company may never be able to know with
certainty whether certain key vendors are compliant, especially those outside
the United States. There are also technical vagaries to logic imbedded within
microchips which may prove not feasible or impossible to test.

The Company continues to evaluate the risks associated with potential Year
2000 related failures. As the Company better understands the risks within our
unique set of business partners, production processes, and internal systems, the
Company will develop a formal contingency plan to alleviate the impact of high
potential or serious failures. The Company anticipates having this contingency
plan outlined by the end of the first quarter of 1999.

RISKS

The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition. The Year 2000 Project is expected to significantly reduce
the Company's level of uncertainty about the Year 2000 problem and, in
particular, about the Year 2000 compliance and readiness of its material
external agents. The Company believes that, with the implementation of new
business systems and completion of the Project as scheduled, the possibility of
significant interruptions of normal operations should be reduced. Readers are
cautioned that forward-looking statements contained in the Year 2000 Update
should be read in conjunction with the Company's disclosures under the heading;
"CAUTIONARY STATEMENT."

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

PAGE

Report of Independent Accountants 22
Consolidated Balance Sheets as of December 28, 1997 and
December 27, 1998 23
Consolidated Statements of Operations for the Years
Ended December 29, 1996, December 28, 1997 and
December 27, 1998 24
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 29, 1996,
December 28, 1997 and December 27, 1998 25
Consolidated Statements of Cash Flows for the Years Ended
December 29, 1996, December 28, 1997 and December 27, 1998 26
Notes to Consolidated Financial Statements 27

21
<PAGE>

[PWC Logo]

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
the Back Bay Restaurant Group, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Back
Bay Restaurant Group, Inc. and its subsidiaries (the "Company") at December 27,
1998 and December 28, 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 27, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Boston, Massachusetts
February 12, 1999, except as to the
information presented in Note 10,
for which the date is March 26, 1999.

22
<PAGE>

BACK BAY RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands)

<TABLE>
<CAPTION>
DECEMBER 28, 1997 DECEMBER 27, 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,915 $ 2,598
Accounts receivable 219 140
Inventories 783 834
Prepaid expenses and other current assets 874 1,025
Deferred income taxes 259 251
------- -------
Total current assets 4,050 4,848
------- -------
Buildings and improvements 4,303 4,303
Furniture, fixtures and equipment 18,119 20,187
Leasehold improvements 32,339 35,790
Lease rights 2,826 2,826
------- -------
57,587 63,106
Less: accumulated depreciation and amortization 27,182 30,063
------- -------
Net property, plant and equipment 30,405 33,043
------- -------
Other assets:
Goodwill, net of accumulated amortization 4,884 4,716
Trade names and trademarks, net of
accumulated amortization 1,252 1,208
Deferred income taxes 1,698 1,981
Other assets, net of accumulated amortization 783 849
------- -------
Total other assets 8,617 8,754
------- -------
Total assets $43,072 $46,645
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,333 $ 3,253
Accrued expenses 8,058 8,463
Income taxes payable 395 815
------- -------
Total current liabilities 11,786 12,531
------- -------
Deferred rent 216 192
Other long term liability 58 106
Long term debt 4,000 4,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; authorized
20,000 shares; 3,431 shares issued and
outstanding in 1997 and 3,461 in 1998 36 37
Additional paid-in capital 23,118 23,237
Retained earnings 5,657 8,341
------- -------
28,811 31,615
Less treasury stock, 208 shares at cost
in 1997 and 1998 1,799 1,799
------- -------
Total stockholders' equity 27,012 29,816
------- -------
Total liabilities and stockholders' equity $43,072 $46,645
======= =======

</TABLE>

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

23
<PAGE>

BACK BAY RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)

<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-TWO FIFTY-TWO
WEEKS ENDED WEEKS ENDED WEEKS ENDED
DECEMBER 29, 1996 DECEMBER 28, 1997 DECEMBER 27, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sales $87,753 $94,904 $99,396
Costs and expenses:
Cost of sales 24,785 26,401 27,509
Payroll and related costs 28,327 30,221 31,004
Operating expenses 20,398 22,121 23,173
Depreciation and amortization 3,880 4,197 4,223
------- ------- -------
Total restaurant operating expenses 77,390 82,940 85,909
------- ------- -------
Income from restaurant operations 10,363 11,964 13,487
General and administrative expenses 8,874 8,669 9,180
------- ------- -------
Operating income 1,489 3,295 4,307
Interest expense 748 548 297
------- ------- -------
Income before income taxes 741 2,747 4,010
Income taxes 274 1,016 1,326
------- ------- -------
Net income $ 467 $ 1,731 $ 2,684
------- ======= =======

Net income per share Basic $ 0.14 $ 0.50 $ 0.78
======= ======= =======
Diluted $ 0.14 $ 0.50 $ 0.73
======= ======= =======

Average common shares and equivalents
Basic 3,434 3,432 3,452
Diluted 3,436 3,474 3,659

</TABLE>

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

24
<PAGE>

BACK BAY RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>

Balance, December 31, 1995 $ 36 $23,031 $ 3,459 $ (1,799) $24,727
Net income -- -- 467 -- 467
Restricted stock compensation -- 8 -- -- 8
------- ------- ------- -------- -------

Balance, December 29, 1996 36 23,039 3,926 (1,799) 25,202
Net income -- -- 1,731 -- 1,731
Exercise of stock option -- 7 -- -- 7
Restricted stock compensation -- (8) -- -- (8)
Deferred stock compensation -- 80 -- -- 80
------- ------- ------- -------- -------

Balance, December 28, 1997 36 23,118 5,657 (1,799) 27,012
Net income -- -- 2,684 -- 2,684
Exercise of stock option 1 113 -- -- 114
Restricted stock compensation -- 6 -- -- 6
------- ------- ------- -------- -------

Balance, December 27, 1998 $ 37 $23,237 $ 8,341 $ (1,799) $29,816
======= ======= ======= ======== =======

</TABLE>

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

25
<PAGE>

BACK BAY RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 29, DECEMBER 28, DECEMBER 27,
1996 1997 1998
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 467 $ 1,731 $ 2,684
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,966 4,293 4,296
Loss on disposal of fixed assets -- -- 43
Loss on equity investment 473 -- --
Changes in operating assets and liabilities:
Decrease in accounts receivable 103 33 79
(Increase)/decrease in inventories 2 (96) (51)
Increase in prepaid expenses and other
current assets (371) (265) (316)
Decrease in prepaid income taxes 13 -- --
(Increase)/decrease in other assets 22 (87) (102)
Increase/(decrease) in accounts payable and accrued expense (404) 1,059 493
Increase in income taxes payable 284 111 420
Decrease in deferred rent (44) (225) (24)
Increase in other long term liability -- 58 48
(Increase)/decrease in deferred taxes 282 (90) (275)
------- ------- -------
Net cash provided by operating activities 4,793 6,522 7,295
------- ------- -------

Cash flows from investing activities:
Investment in partnership (157) -- --
Capital expenditures (3,843) (3,887) (6,739)
Acquisition of other assets (275) -- --
Proceeds from sale of fixed assets -- 1,382 7
------- ------- -------
Net cash used for investing activities (4,275) (2,505) (6,732)
------- ------- -------

Cash flows from financing activities:
Proceeds from debt 300 -- --
Principal payments of debt (2,800) (3,525) --
Cancellation of stock option -- (8) --
Cancellation of deferred stock compensation -- 80 --
Restricted stock compensation -- -- 6
Exercise of stock option -- 7 114
------- ------- -------
Net cash provided by (used for) financing activities (2,500) (3,446) 120
------- ------- -------
Net increase (decrease) in cash and cash equivalents (1,982) 571 683
Cash and cash equivalents at beginning of period 3,326 1,344 1,915
------- ------- -------
Cash and cash equivalents at end of period $ 1,344 $ 1,915 $ 2,598
======= ======= =======

Supplemental disclosures of cash flow information:
Interest paid $ 823 $ 584 $ 308
======= ======= =======
Income taxes paid $ 315 $ 1,032 $ 1,392
======= ======= =======

</TABLE>

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

26
<PAGE>

BACK BAY RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
Back Bay Restaurant Group, Inc. (the "Company") (formerly Westwood
Restaurant Group, Inc., a Massachusetts corporation) was reincorporated in
Delaware in 1991. The Company was a wholly-owned subsidiary of The Westwood
Group, Inc. ("WGI") prior to the Company's initial public offering effective on
March 13, 1992.

NATURE OF OPERATIONS
The Company owns and operates full service restaurants located in New
England, New York, New Jersey and Washington, D.C. As of March 1, 1999, the
Company operated 34 restaurants, 14 of which feature Northern Italian cuisine
and are operated under the Papa.Razzi trade name and 20 of which offer casual
American dining.

FISCAL YEAR
The Company's fiscal year ends on the Sunday closest to the end of December
and includes 52 weeks in 1996, 52 weeks in 1997 and 52 weeks in 1998.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Back Bay
Restaurant Group, Inc. and its wholly owned subsidiaries. All inter-company
balances and transactions have been eliminated. Investments in non-consolidated
companies which are at least 20% owned are carried on the equity method.

PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS
The Company considers all certificates of deposit and highly liquid
marketable securities with maturities of three months or less at the date of
purchase to be cash equivalents.

INVENTORIES
Inventories, principally food supplies, are stated at cost, as determined
by the first-in, first-out method.

27
<PAGE>

BACK BAY RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

PRE-OPENING COSTS
Pre-opening costs represent staff training costs, rent and other costs
incurred exclusively prior to and specifically for a restaurant opening. These
costs are deferred and amortized over a 12-month period following the month of
the opening.

In April 1998, AcSec issued Statement of Position No. 98-5 (SOP 98-5)
which requires start-up activities to be expensed instead of capitalized. The
Statement is effective for financial statements for periods beginning after
December 15, 1998. Initial application of the SOP should be as of the beginning
of the fiscal year in which the SOP is first adopted. Implementation of this
Statement will result in $183,000 of expense for capitalized start-up costs in
the first quarter of next year.

PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated
using the straight-line method over the following estimated useful lives:

Asset Classification Estimated Useful Life
Buildings and improvements.............. 30 Years
Furniture, fixtures and equipment....... 5-10 Years

Leasehold improvements are amortized over the lesser of the assets'
estimated useful lives or the lease terms, principally fifteen to twenty years.
Lease rights are amortized over the lives of the related leases.

Gains or losses are recognized upon the disposal of property, plant and
equipment, and the related accumulated depreciation and amortization are removed
from the accounts. Fully depreciated assets and the related accumulated
depreciation are removed from the accounts upon retirement. Maintenance, repairs
and betterments that do not enhance the value of or increase the life of assets
are charged to operations as incurred.

Interest is capitalized in connection with the construction of new
locations. The capitalized interest is recorded as part of the asset to which it
relates and is amortized over the asset's estimated useful life. Capitalized
interest amounted to $23,000 in 1996, $0 in 1997 and $0 in 1998.

INTANGIBLE ASSETS
Intangible assets, including goodwill, trade names and trademarks are
stated at cost and are amortized over 40 years on a straight-line basis.
Accumulated amortization was approximately $2,291,000 and $2,503,000 as of
December 28, 1997 and December 27, 1998, respectively.

IMPAIRMENT OF LONG LIVED ASSETS
Periodically, management assesses, based on undiscounted cash flows, if
there has been a permanent impairment in the carrying value of its long lived
assets and, if so, the amount of any such impairment by comparing anticipated
discounted future operating income from acquired businesses with the carrying
value of the related long lived assets. In performing this analysis, management
considers such factors as current results, trends and future prospects, in
addition to other economic factors.

28
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

Effective December 29, 1997, the Company adopted Statement of Financial
Accounting Standard No. 130 ("SFAS 130"), "Reporting Comprehensive Income." This
statement establishes new rules for the reporting and display of comprehensive
income and its components. The adoption of this statement had no impact on the
Company's financial statements.

Effective December 29, 1997, the Company adopted Statement of Financial
Accounting Standard No. 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Related Information." This statement revised guidelines for
determining an entity's operating segments and the type of financial information
to be disclosed. The adoption of this statement had no impact on the Company's
financial statements as the Company has one operating segment.

As of the beginning of fiscal 1998, management adopted Statement of
Position No. 98-1 (SOP 98-1) which requires certain costs incurred in developing
or obtaining internal-use computer software to be capitalized. The SOP is
effective for fiscal years beginning after December 15, 1998. However, earlier
application is encouraged in fiscal years for which financial statements have
not been issued. The Company has made the early adoption election and has
capitalized approximately $41,000 as of December 27, 1998.

29
<PAGE>

BACK BAY RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

INCOME TAXES
Deferred tax assets and liabilities are recognizable based on temporary
differences between the financial statement and tax basis of assets and
liabilities using current statutory tax rates.

PREFERRED GUEST PROGRAM
The Company provides a liability for gift certificates issued to
participants in its preferred guest program. The liability associated with these
certificates is recorded as they vest.

2. PREPAID EXPENSES AND OTHER CURRENT ASSETS (in thousands)

Prepaid expenses and other current assets consisted of the following:

<TABLE>
<CAPTION>
December 28, 1997 December 27, 1998
----------------- -----------------

<S> <C> <C>
Preopening costs $73 $183
Prepaid insurance 25 99
Prepaid rent 548 582
Other 228 161
---- ------
Total $874 $1,025
==== ======
</TABLE>

30
<PAGE>

BACK BAY RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

3. ACCRUED EXPENSES (in thousands)

Accrued expenses consisted of the following:

<TABLE>
<CAPTION>
December 28, 1997 December 27, 1998
----------------- -----------------

<S> <C> <C>
Payroll and payroll taxes $1,889 $2,395
Rent expense 2,275 2,590
Reserve for store closings 771 550
Insurance 1,204 779
Meals Tax 366 653
Gift Certificates 760 972
Other 793 524
------ ------
Total accrued expenses $8,058 $8,463
====== ======
</TABLE>

4. LONG-TERM DEBT (in thousands)

Long-term debt consists of the following:

<TABLE>
<CAPTION>
December 28, 1997 December 27, 1998
----------------- -----------------
<S> <C> <C>
Revolving Credit and Term Loan Agreement base
rate or, at the option of the Company, LIBOR
plus 1.0% (6.0% at December 27, 1998) 4,000 4,000

Less: current maturities -- --
------ ------
Total long-term debt $4,000 $4,000
====== ======
</TABLE>

31
<PAGE>

BACK BAY RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Company has a revolving credit and term loan agreement (the "Loan
Agreement") with BankBoston (the "Bank"). At December 27, 1998, the Company had
an outstanding balance of $4,000,000 under the Loan Agreement. On May 7, 1998,
the Company executed an amended and restated loan agreement with BankBoston, NA.
Under the amended Loan Agreement, the Company can borrow up to $20,000,000 on a
three year revolver that converts to a 4 year term note. The pricing of the loan
is on a sliding scale based on a ratio of senior debt to EBITDA. The Company's
obligation under the Loan Agreement is collateralized by certain property, plant
and equipment and intangible assets. The Loan Agreement contains restrictions
relating to future indebtedness, contingent liabilities, encumbrances, the
merger, acquisition or sale of assets, additional stock issuance, equity
distributions, cash dividends, and redemptions, capital expenditures,
investments, ERISA and transactions with affiliates. The Loan Agreement also
requires the maintenance of certain financial ratios and covenants, of which the
most restrictive covenant is the total debt service coverage. Under this
arrangement the Company and its subsidiaries are required, for each period of
four consecutive fiscal quarters, commencing with the period ending March 29,
1998, to maintain a ratio of consolidated cash available to pay fixed charges to
consolidated fixed charges of not less than 1.50 to 1. The Company was in
compliance with all its covenants at December 27, 1998.

32
<PAGE>

BACK BAY RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

5. COMMITMENTS AND CONTINGENCIES

LEASES
The Company leases facilities under operating leases expiring at various
dates through January 2027, which includes available option renewal periods.
Most of the leases require payment of certain additional expenses such as
maintenance, repairs, insurance and real estate taxes, and additional contingent
rentals based on a percentage of sales specific to each leased facility. Rent is
charged to operations on a straight-line basis for certain leases with
escalation clauses. Rent expense for the years ended December 29, 1996, December
28, 1997 and December 27, 1998 was approximately $5,518,000, $6,083,000 and
$6,156,000 respectively (including approximately $734,000, $855,000 and $907,000
in 1996, 1997 and 1998 respectively, attributable to percentage rent in excess
of base amounts).

The Company has entered into a lease for a restaurant space with Charles
F. Sarkis, Chief Executive Officer, stockholder and director of the Company and
beneficial owner of the leased property. Payments under this lease are $300,000
annually, commencing October 1, 1991 and ending September 30, 2006. The Company
is also liable for real estate taxes, insurance and building operating expenses
as defined in the lease.

Future minimum payments relating to all operating leases as of December 27, 1998
are as follows:

<TABLE>
<CAPTION>
Years Amount
----- ------
<S> <C>
1999 $ 5,171,000
2000 4,951,000
2001 4,794,000
2002 4,666,000
2003 4,472,000
Thereafter 24,127,000
-----------
$48,181,000
===========
</TABLE>

33
<PAGE>

BACK BAY RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

LITIGATION
The Company is involved in routine litigation from time to time. The
litigation in which the Company is currently involved, in the opinion of Company
management, is not material to the Company's consolidated financial condition or
results of operations.

6. INCOME TAXES

The following is a comparative analysis of the provisions for income taxes:

<TABLE>
<CAPTION>
December 29, 1996 December 28, 1997 December 27, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>

Income before income taxes $741,000 $2,747,000 $4,010,000
======== ========== ===========
Provision for income taxes
Federal 183,000 701,000 1,135,000
State 91,000 315,000 191,000
-------- ---------- -----------
Income tax provision $274,000 $1,016,000 $1,326,000
======== ========== ===========

Components of the provision/benefit
Current
Federal $177,000 $686,000 $1,345,000
State 124,000 421,000 256,000
-------- ---------- -----------
301,000 1,107,000 1,601,000
Deferred
Federal 6,000 15,000 (210,000)
State (33,000) (106,000) (65,000)
-------- ---------- -----------
(27,000) (91,000) (275,000)
-------- ---------- -----------
Total $274,000 $1,016,000 $1,326,000
======== ========== ===========

</TABLE>

34
<PAGE>

BACK BAY RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
DECEMBER 29, 1996 DECEMBER 28, 1997 DECEMBER 27, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
ASSETS

Pre-opening costs $ 129,000 $ 134,000 $ 119,000
Deferred rentals 177,000 87,000 77,000
Reserves and accruals 1,234,000 1,060,000 928,000
Step-rents 520,000 820,000 945,000
Credit carryforwards 358,000 -- --
State net operating loss carryforwards 435,000 566,000 631,000
Other 32,000 -- --
Fixed assets
-- 403,000 686,000
---------- ---------- ----------

GROSS DEFERRED TAX ASSETS $2,885,000 $3,070,000 $3,386,000
---------- ---------- ----------

LIABILITIES
Fixed assets $ 13,000 -- --
Intangibles 570,000 547,000 523,000
---------- ---------- ----------

GROSS DEFERRED TAX LIABILITIES $ 583,000 $ 547,000 $ 523,000
---------- ---------- ----------

NET (LIABILITY)/ASSET BEFORE VALUATION $2,302,000 $2,523,000 $2,863,000
ALLOWANCE
Valuation allowance (435,000) (566,000) (631,000)
---------- ---------- ----------
Adjusted net (liability)/asset $1,867,000 $1,957,000 $2,232,000
========== ========== ==========

</TABLE>

The state net operating losses expire between 1999 and 2012.

The valuation allowance is provided against state net operating loss
carry-forwards, the realization of which are uncertain due to state separate
entity limitations and short carry-forward periods.

35
<PAGE>

BACK BAY RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

A reconciliation of the statutory federal income tax rate and effective tax
rate as a percentage of pretax income is as follows:

Statutory federal rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 8.1 7.6 3.2
Non-deductible goodwill amortization 7.7 2.1 1.4
Wage based tax credits (12.8) (7.3) (6.6)
Other -- 0.6 1.1
----- ---- -----
37.0% 37.0% 33.1%
===== ==== =====

</TABLE>

7. STOCK-BASED COMPENSATION PLAN

The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plan. FASB Statement No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123") was issued by the FASB in 1995 and, if fully adopted,
changes the methods for recognition of cost on plans similar to that of the
Company. Adoption of SFAS 123 is optional; however, pro forma disclosures as if
the Company adopted the cost recognition requirements under SFAS 123 was
required in 1996. The Company adopted the disclosure provision of SFAS 123 and
has applied Opinion No. 25 and related Interpretations in accounting for its
plans.

On December 26, 1991, the Company adopted a stock option plan (the
"Plan") pursuant to which certain directors, officers and key employees of the
Company may be granted options to acquire shares of the Company's common stock.
The Plan includes provisions for both incentive and non-qualified stock options.
Each grant that is issued has a term life of not greater than 10 years and a
general vesting period of three years. At the 1993 Annual Meeting of
Stockholders, the Company's stockholders approved an amendment to the Plan to
increase the number of shares of common stock available for issuance under the
Plan upon the exercise of stock options to 730,000 shares. Annual grants are
determined by a disinterested committee (the "Committee") of the Company's Board
of Directors. Incentive Stock Options may be granted at an exercise price of not
less than the fair market value of the common stock at the date of grant.
Non-Qualified Stock Options may be granted at an exercise price of not less than
85% of the fair market value of the common stock at the date of the grant.
Options granted to officers and key employees vest on a schedule determined by
the Committee and options granted to directors become exercisable on December 31
of the year in which they are granted. At December 27, 1998 the Company has
granted options for 536,436 shares of common stock at prices of $2.88 to $8.88
per share. At December 27, 1998, there were 190,257 options outstanding that are
vested. At December 27, 1998, 164,521 shares were available for future option
grants.

36
<PAGE>

BACK BAY RESTARUANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

A summary of the Company's stock option activity as of December 27, 1998,
December 28, 1997 and December 29, 1996 is presented below:

1996 1997 1998
---------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 447,056 $8.67 459,615 $7.87 576,832 $4.28
Granted at fair market value 106,764 4.13 530,337 4.17 12,600 7.26
Exercised -- -- (1,811) 4.25 (26,966) 4.20
Canceled (94,205) 7.27 (411,309) 8.15 (26,030) 4.85
------- ------- -------
Outstanding at end of year 459,615 7.87 576,832 4.28 536,436 4.29
======= ======= =======
Options exercisable at year-end 355,201 8.97 35,700 6.21 190,257 4.33
======= ======= =======
Options available for future grant 270,119 151,091 164,521
======= ======= =======
Weighted average fair value of
options granted during the year $2.32 $2.07 $4.09
===== ===== =====

</TABLE>

37
<PAGE>

BACK BAY RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The fair value of each option granted during 1998 is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions: (1) dividend yield of 0, (2) expected volatility of 60%, (3)
risk-free interest rate ranging from 4.461% to 5.660% and (4) expected life of
5.0 years.

The following table summarizes information about stock options
outstanding at December 27, 1998:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ---------------------------
Number Wgtd. Ave. Wgtd. Ave. Number Wgtd. Ave.
Outstanding Remaining Exercise Exercisable Exercise
Range of Exercise Prices at 12/27/98 Contr. Life Price at 12/27/98 Price
- - - ------------------------ ----------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>

$ 2.5000 - $ 6.0000 507,573 8.3 $4.0994 177,128 $4.0742
$ 6.0100 - $10.0000 28,863 8.0 $7.6183 13,129 $ 7.765
$10.0100 - $14.0000 0 0 0 0 0
$14.0100 - $18.0000 0 0 0 0 0
------- --- ------- ------- -------
536,436 8.3 $4.2888 190,257 $4.3307
======= === ======= ======= =======
</TABLE>

Had compensation cost for the Company 1998 grants under the Plan been
determined consistent with SFAS 123, the Company's compensation expense would
have increased by $369,000, $242,000 and $63,000, respectively for 1998, 1997
and 1996. The Company's net income, net income applicable to common share
owners, and net income per common share for 1998 would approximate the pro forma
amounts below (in thousands except per share data):

<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
1996 1997 1998 1996 1997 1998
------- ------ ----- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>

Net income $ 467 $1,731 $2,684 $ 427 $1,578 $2,451
Net income applicable to common
share owners $ 467 $1,731 $2,684 $ 427 $1,578 $2,451
Net income per share Basic $ 0.14 $ 0.50 $ 0.78 $ 0.12 $ 0.45 $ 0.71
Net income per share Diluted $ 0.14 $ 0.50 $ 0.73 $ 0.12 $ 0.45 $ 0.67

</TABLE>

The effects of applying SFAS in this pro forma are not indicative of future
amounts. SFAS 123 does not apply to awards prior to 1995.

38
<PAGE>

BACK BAY RESTAURANT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

8. FASB 128 EARNINGS PER SHARE

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
DECEMBER 29, 1996 DECEMBER 28, 1997 DECEMBER 27, 1998
------------------------- ------------------------ ------------------------
Per Per Per
Income Shares Shares Income Shares Share Income Shares Share
------ ------ ------ ------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Basic EPS
Income available to
common stockholders $467 3,434 $0.14 $1,731 3,432 $0.50 $2,684 3,452 $0.78
Effect of Diluted Securities
Stock options -- 2 -- -- 42 -- -- 207 0.05
Diluted EPS $467 3,436 $0.14 $1,731 3,474 $0.50 $2,684 3,659 $0.73

</TABLE>

9. STORE CLOSINGS AND RELATED MATTERS

During 1995 the Company recorded $5,138,000 in charges relating to
management's plan to reduce the Company's cost structure by taking a number of
steps, including closing three under-performing restaurants. These charges
related principally to severance payments to terminated employees, the write off
of certain professional and other fees and expenses incurred in the development
of locations anticipated to be built, but subsequently not built, outstanding
lease obligations and anticipated losses relating to the disposal of fixed
assets for locations closed in 1995 or anticipated to close in 1996.

At December 29, 1996 the Company had settled its lease obligations for
two of the three stores that closed in 1995 at terms more favorable than
originally estimated and had closed an additional location. The closed location,
which was a joint venture accounted for under the equity method of accounting,
was closed during the third quarter of 1996 and the related charges were offset
against the accrual. During 1997 the Company closed another location and sold
one undeveloped restaurant site. The net asset value of both these locations
were offset against the accrual. Included in the charges for 1997 were cash
payments of approximately $312,000 to settle lease obligations. During 1998 the
Company closed one location. The net asset value of this location was reserved
for in 1995 and the related charges were offset against the accrual. Included in
the charges for 1998 were cash payments of approximately $32,000 to settle lease
obligations. The Company has eliminated the provision which was previously set
up for the conversion of a location to a different concept, and has added to
the plan a provision for the net asset value of an additional location. As of
December 27, 1998 the remaining accrual is $550,000, which management believes
is adequate to complete the plan by the end of fiscal 1999.

10. SUBSEQUENT EVENT

On March 26, 1999 a majority of the Company's shareholders approved a merger
agreement between the Company and SRC Holdings, Inc., a Delaware Corporation
(the "Acquiror"), pursuant to which the Acquiror will be merged (the "Merger")
with and into the Company, with the Company being the surviving corporation of
the Merger. The Acquiror is a newly incorporated entity organized by Charles F.
Sarkis, the Company's Chairman and Chief Executive Officer. As a result of the
merger, the holders of common stock, other than certain affiliated shareholders,
will receive $10.25 in cash in exchange for each share of Common Stock of the
Company that they own.

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

Not applicable.

39
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information regarding each Director of the
Company.

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE AND DIRECTOR
NAME CURRENT DIRECTORSHIPS AGE SINCE
---- ----------------------- --- --------
<S> <C> <C> <C>
(Class I -- Term to Expire 2001)
Joseph M. Cassin.................. Partner in the New York law firm Cassin, Cassin 58 1992
& Joseph.

Richard P. Dalton................. President and Chief Executive Officer of WGI 50 1992
since October 1992, Executive Vice President of
WGI from 1988 to 1992 and Chief Operating
Officer of WGI since 1989. From 1988 until 1989
he served as Chief Financial Officer of WGI,
from 1984 until 1988 he served as Vice President
of WGI and from 1974 to 1989 he served as
Treasurer of WGI. Mr. Dalton is also a Director
of WGI.

Irwin Chafetz..................... President and principal of Interface Group- 62 1995
International, New England's largest charter
tour operator. Until April 1995, he was Vice
President and a principal of Interface
Group-Nevada, Inc., which operated COMDEX, the
largest American trade show. Mr. Chafetz is also
a Director of Syratech Corporation.

(Class II -- Term to Expire 1999)

Richard K. Howe................... President and Co-owner of Penobscot Bay 54 1992
Provisions Co. Consultant to John Hancock
Freedom Securities Corporation and its
subsidiary, Tucker Anthony, Inc. from July 1992
to March 1996. Prior to July 1992, Mr. Howe was
an Executive Vice President and Director of
Tucker Anthony, Inc. and an officer and/or
Director of its parent corporation and
affiliates. Mr. Howe is also a Director of Chic
by H.I.S., Inc.

Francis P. Bissaillon............. Chief Financial Officer of the Company since 50 1994
March 1993. Executive Vice President since
October 1995, Secretary since June 1997 and Vice
President from March 1993 to October 1995. Prior
to working for the Company, Mr. Bissaillon
served as Chief Operating Officer of La Quinta
Motor Inns, Inc. ("La Quinta"). Prior to July
1991, Mr. Bissaillon served as Senior Vice
President-Administration and Treasurer of La
Quinta.

(Class III -- Term to Expire 2000)

Charles F. Sarkis................. President, Chief Executive Officer and Chairman 59 1983
of the Board of Directors of the Company since
1983 and Chairman of the Board of The Westwood
Group, Inc. ("WGI") since 1978. Prior to October
1992, served as President and Chief Executive
Officer of WGI.
</TABLE>

40
<PAGE>

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE AND DIRECTOR
NAME CURRENT DIRECTORSHIPS AGE SINCE
---- ----------------------- --- --------
<S> <C> <C> <C>
Robert S. Parker.................. Dean Emeritus and Robert S. Parker Professor of 60 1992
Strategy and Finance of the School of Business
Administration at Georgetown University since
1986. Prior to that time, he was a partner at
McKinsey & Company, Inc., an international
management consulting firm. Mr. Parker is also a
Director of Middlesex Mutual Assurance Co., Inc.
and Excel Limited, which are insurance
companies.
</TABLE>

During 1998, the Board of Directors held three meetings. Each Director who
is not an officer or employee of the Company is entitled to receive $1,500 for
each meeting of the Board of Directors he attends and $1,500 for each committee
meeting he attends that takes place on a date other than the date of a Board of
Directors meeting. All of the Directors attended at least 75% of the aggregate
of the Board and relevant committee meetings during 1998.

The Audit Committee, composed of Richard K. Howe and Robert S. Parker, held
three meetings during 1998. The Audit Committee recommends to the Board of
Directors the independent public accountants to be engaged by the Company;
reviews with the independent public accountants and management the Company's
internal accounting procedures and controls; and reviews with the independent
public accountants the scope and results of the auditing engagement.

The Compensation Committee, composed of Joseph M. Cassin, Irwin Chafetz,
Richard P. Dalton and Robert S. Parker, held two meetings during 1998. The
Compensation Committee administers the Company's compensation plans and makes
decisions regarding the compensation of senior management and other matters
relating to compensation.

The Company does not have a nominating committee.

EXECUTIVE OFFICERS

Certain information regarding the identity and background of the Company's
executive officers is set forth below. All of the Company's executive officers
have been elected for terms continuing until their successors are duly elected
and qualified.

Charles F. Sarkis, age 59, is Chairman of the Board, President and Chief
Executive Officer of the Company and has served in such capacities for the
Company and its predecessors since 1964.

Francis P. Bissaillon, age 50, has served as Chief Financial Officer of the
Company since March 1993. Mr. Bissaillon has served as an Executive Vice
President of the Company since October 1995, as Secretary since June 1997 and
served as Vice President from March 1993 to October 1995.

Mark L. Hartzfeld, age 52, has served as an Executive Vice President and
Chief Operating Officer of the Company since October 1995. He served as Senior
Vice President of Real Estate and Development of the Company from 1992 to
October 1995, and prior to that served as Vice President of Development since
1986.

Robert J. Ciampa, age 43, has served as Vice President, Chief Accounting
Officer and Treasurer of the Company since October 1992. Mr. Ciampa has served
as Chief Accounting Officer of the Company and its predecessors since 1978.

Ann Marie Lagrotteria, age 34, has served as Vice President, Operations and
Training since August 1997 and served as Director of Training from September
1995 to August 1997. Ms. Lagrotteria has been involved in restaurant operations
with the Company for eleven years.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely on the review of Forms 3, 4 and 5 and all amendments thereto
furnished to the Company with respect to its most recent fiscal year, it appears
that each Director, Officer and 10% Beneficial Owner of Common Stock of the
Company complied with Section 16(a) of the Securities Exchange Act of 1934.

41
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The Summary Compensation Table shows certain compensation information for
the fiscal years ended 1998, 1997 and 1996 for the Company's Chief Executive
Officer and to each of the Company's other executive officers whose annual
compensation exceeds $100,000. This information includes the dollar value of
base salaries and bonus awards and the number of stock options granted.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
NAME AND ----------------------- COMPENSATION ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) AWARDS-OPTIONS(2) COMPENSATION($)
------------------ ---- --------- ----------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Charles F. Sarkis,................. 1998 378,441 -- -- 39,595
President and 1997 340,435 90,000 92,500(3) 72,671(4)
Chief Executive Officer 1996 338,979 -- -- 35,650
Francis P. Bissaillon,............. 1998 233,125 -- -- --
Executive Vice President, Chief 1997 190,029 30,000 55,000(3) 16,200(4)
Financial Officer and Secretary 1996 187,664 -- -- --
Mark L. Hartzfeld,................. 1998 265,116 -- -- 14,575
Executive Vice President 1997 205,013 50,000 60,000(3) 13,212(4)
and Chief Operating Officer 1996 199,534 -- -- 6,100
Robert J. Ciampa,.................. 1998 108,274 -- -- --
Vice President, Chief Accounting 1997 104,633 4,000 23,250(3) 6,840(4)
Officer, Treasurer and Assistant 1996 101,233 -- -- --
Secretary
Ann Marie Lagrotteria,............ 1998 106,463 -- -- --
Vice President, Operations 1997 82,197 20,000 31,165(3) --
and Training 1996 66,110 -- 4,000 --
</TABLE>

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

(1) Cash bonuses and option grants are included in compensation for the year for
which they were earned, even if actually paid or granted in the subsequent
year. Bonuses for 1997 were paid in May 1998 and were not reflected in the
Company's Form 10K/A for the fiscal year ended December 28, 1997

(2) Represents the number of shares of the Company's Common Stock subject to
options.

(3) Includes stock options granted in connection with an exchange of newly
issued stock options for stock options previously held by the executive
officer. (See "Executive Compensation - Stock Option Repricing.")

(4) Includes bonus earned in 1993 which was deferred and subsequently paid out
in cash in 1997.

OPTION GRANTS IN FISCAL YEAR 1998 AND YEAR-END OPTION VALUES

There were no options granted to executive officers in fiscal year 1998.

42
<PAGE>

The table below summarizes for each of the named executive officers the
total number of unexercised options, if any, held at December 27, 1998 and the
aggregate dollar value of in-the-money unexercised options held at December 27,
1998. The value of unexercised in-the-money options at fiscal year-end is the
difference between the exercise or base price and the fair market value of the
underlying stock on December 27, 1998, which was $9.50 per share, the closing
price of the Company's stock on the Nasdaq national market system. These values
have not been, and may never be, realized. The underlying options have not been,
and may not be, exercised; and actual gains, if any, on exercise will depend on
the value of the Company's Common Stock on the date of exercise. None of the
named individuals in the following table exercised options in the fiscal year
ended December 27, 1998.

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#) AT FISCAL YEAR-END($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles F. Sarkis......................... 30,833 61,667 165,727 331,460
Francis P. Bissaillon..................... 28,333 36,667 155,415 197,085
Mark L. Hartzfeld......................... 35,000 40,000 192,812 215,000
Robert J. Ciampa.......................... 7,750 15,500 41,656 83,312
Ann Marie Lagrotteria..................... 13,054 22,111 71,166 119,347
</TABLE>

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

(1) In-the-Money Options are those where the fair market value of the underlying
securities exceeds the exercise price of the option.

43
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the Company's fiscal year ended December 27, 1998 and during its
current fiscal year, Charles F. Sarkis has served as an executive officer of the
Company and as Chairman of the Board of WGI, and Richard P. Dalton has served as
a member of the Company's Compensation Committee and as an executive officer of
WGI.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors is composed solely of
non-employee Directors. The Compensation Committee determines all aspects of the
compensation to be paid to Charles F. Sarkis, the Chief Executive Officer,
Francis P. Bissaillon, the Chief Financial Officer, and Mark L. Hartzfeld, the
Chief Operating Officer, and determines all aspects of the compensation of the
Company's other executive officers, except their base salaries which are
determined by senior management. The objectives of the Compensation Committee in
determining the type and amount of executive officer compensation are to provide
a level of compensation which allows the Company to attract and retain superior
talent and to align the executive officers' interests with those of the
Company's stockholders. The compensation of the Company's executive officers
includes (i) cash compensation, consisting of a base salary and, if earned, a
performance bonus, (ii) long-term incentive compensation in the form of stock
options, and (iii) participation in various benefit plans, most of which are
generally available to employees of the Company.

Cash Compensation. Cash compensation of the Company's executive officers
consists of a base salary and, if earned, an annual performance bonus. The
Compensation Committee sets the base salaries of Messrs. Sarkis, Bissaillon and
Hartzfeld at levels competitive with those of executive officers at similarly
situated restaurant companies, taking into consideration the individual
experience of these officers. In determining Mr. Sarkis' base salary, the
Compensation Committee reviewed national and regional compensation information
for executives in the restaurant industry, including surveys regarding the
compensation of restaurant executives prepared by DeCotiis Erhard Strategic
Consulting Group, Inc.

Management level employees, including executive officers, are eligible to
receive cash bonuses based on the Company's performance. In May 1998 the Company
paid cash bonuses to executive officers that were for the Company's 1997
performance.

Stock Options. The executive officers, as well as other key employees, are
eligible to participate in the Company's Stock Option Plan. The purpose of the
Stock Option Plan is to provide increased incentives to salaried employees, to
encourage new employees to become affiliated with the Company and to align the
interests of such persons with those of the Company's stockholders. The Stock
Option Plan is administered by the Compensation Committee. The Compensation
Committee has the authority to determine the individuals to whom the stock
options are awarded, the terms upon which option grants shall be made and the
number of shares subject to each option, all subject to the terms and conditions
of the Stock Option Plan.

44
<PAGE>

Other Compensation. The Company provides certain other benefits to the
executive officers, such as health insurance, that are generally available to
Company employees. In addition, officers and key employees of the Company
(including the named executive officers) may be eligible to receive supplemental
disability insurance coverage, automobile allowance and insurance benefits.

Compensation Committee
Joseph M. Cassin, Chairman
Irwin Chafetz
Richard P. Dalton
Robert S. Parker

45
<PAGE>

Comparison of Five-Year Cumulative Total Returns
Performance Graph for
Back Bay Restaurant Group, Inc.

Prepared by the Center for Research in Security Prices
Produced on 03/26/1999 including data to 12/24/1998

Legend

<TABLE>
<CAPTION>
12/1993 12/1994 12/1995 12/1996 12/1997 12/1998
<S> <C> <C> <C> <C> <C> <C>
Back Bay Restaurant Group, Inc. 100.0 42.9 21.4 15.0 33.0 54.6
Nasdaq Stock Market (US Companies) 100.0 98.9 141.8 174.6 205.8 297.3
NASDAQ Stocks (SIC 5800-5899 US Companies) 100.0 73.1 89.4 86.9 73.9 66.0
Eating and drinking places
</TABLE>

Note:

A. The lines represent annual index levels derived from compounded daily
returns that include all dividends.

B. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.

C. The index level for all series was set to $100.0 on 12/23/1993.
<PAGE>

The preceding stock performance price graph compares the cumulative total
return on the Company's Common Stock with the cumulative total return of The
NASDAQ Stock Market Index of U.S. stocks and of the NASDAQ stocks for eating and
drinking places. The beginning of the measurement period for the Company, March
20, 1992, the date of the Company's initial public offering, and the beginning
of the measurement period for The NASDAQ Stock Market Index and the NASDAQ
stocks for eating and drinking places is March 31, 1992. The last day of each
measurement period is the last business day in each calendar year.

The stock price performance on the graph above is not necessarily
indicative of future price performance.

EMPLOYMENT AND SEVERANCE AGREEMENTS

The Company entered into a three-year employment agreement with Mr. Sarkis
on January 16, 1992 which provides that Mr. Sarkis will be employed as President
and Chief Executive Officer and that the term of his employment under the
agreement will continue from year to year thereafter unless either party
terminates the agreement. Effective December 27, 1993, Mr. Sarkis' base
compensation under the agreement was adjusted to $335,000 per year and may be
readjusted from time to time by the Board of Directors or its Compensation
Committee. In addition, Mr. Sarkis may receive annual bonuses as determined by
the Board of Directors or its Compensation Committee. The Company may terminate
Mr. Sarkis' employment only for cause. The employment agreement contains a
non-competition covenant which prohibits Mr. Sarkis, until the later of five
years from the date of the agreement, the date of a change of control, or such
time that neither he nor WGI owns more than 3% of the outstanding shares of
Common Stock of the Company, from engaging in any competing business, directly
or indirectly. Mr. Sarkis' real estate investments in two properties which
currently are leased to the Company are not subject to the non-competition
covenant.

The Company has entered into Change of Control Severance Agreements
("Severance Agreements") with Charles F. Sarkis, Francis P. Bissaillon, Mark L.
Hartzfeld, Robert J. Ciampa and Ann Marie Lagrotteria. The Severance Agreements
provide that if there were a change of control (as defined in the Severance
Agreements) of the Company, and such officer's employment by the Company is
terminated during the next two years for any reason other than dismissal by the
Company for cause (as defined in the Severance Agreements), the officer would be
entitled to certain benefits. These benefits include receipt of a payment equal
to the sum of three times the amount of the officer's annual salary and bonus, a
pro rated amount of the officer's current year bonus, the amount of salary and
bonus deferred in prior years and not yet received by the officer, and, in
certain circumstances, a gross-up for certain taxes payable by the officer in
connection with the receipt of payments under the Severance Agreements. The
Severance Agreements also provide that upon a qualifying termination of
employment, the officer's stock options will become fully vested and that the
Company will continue the officer's life, medical and disability insurance for
two years after the termination of the officer's employment to the extent that
these benefits are not provided by another employer, and that any
non-competition agreements between the Company and the employee shall not be
effective.

46
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial
ownership (as defined in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934) as of February 15, 1999, the Record Date, except as
otherwise indicated below, of Company Common Stock by each person known by the
Company to own beneficially more than 5% of Company Common Stock, by each of
the Company's Directors and named executive officers and by all of the
Company's Directors and executive officers as a group.

<TABLE>
<CAPTION>
Common Stock
Beneficially Owned(1)
---------------------
Directors, Executive Officers Number Percent of
and 5% Beneficial Owners(2) of Shares Common Stock
----------------------------- --------- ------------
<S> <C> <C>
Charles F. Sarkis 244,666(3)(4) 7.1%
Francis P. Bissaillon 34,333(5) 1.0%
Joseph M. Cassin 6,000(6) *
Irwin Chafetz 88,000(7) 2.5%
Richard P. Dalton 10,000(3)(8) *
Richard K. Howe 6,000(9) *
Robert S. Parker 5,000(8) *
Mark L. Hartzfeld 35,500(10) 1.0%
Robert J. Ciampa 7,750(8) *
Ann Marie Lagrotteria 14,025(11) *
All Directors and executive officers as a group (10 persons) 451,274(3) 13.0%

5% Beneficial Owners
William B. Finneran 782,486(12) 22.6%
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, NY 10281

The Westwood Group, Inc. 673,451(13) 19.5%
190 V.F.W. Parkway
Revere, MA 02151

John Hancock Mutual Life Insurance Company 271,126(14) 7.8%
P.O. Box 111
Boston, MA 02117

Hathaway Associates 190,100(15) 5.5%
119 Rowayton Avenue
Rowayton, CT 06853
</TABLE>

47
<PAGE>

<TABLE>
<CAPTION>
Common Stock
Beneficially Owned(1)
----------------------------------
Directors, Executive Officers Number Percent of
and 5% Beneficial Owners(2) of Shares Common Stock
- - -------------------------------- ------------------ -------------
<S> <C> <C>
Dimensional Fund Advisors Inc. 180,100(16) 5.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
</TABLE>

* Less than one percent

(1) Except as otherwise noted, persons in the table have sole voting and
investment power with respect to all shares of Company Common Stock shown
as beneficially owned by them.
(2) Unless otherwise indicated, the address of each beneficial owner is 284
Newbury Street, Boston, Massachusetts 02115.
(3) Does not include 673,451 Shares owned by The Westwood Group, Inc. ("WGI").
Mr. Sarkis owns securities representing approximately 88.63% of the voting
power of WGI's outstanding Shares of Company Common Stock and
approximately 66.85% of the outstanding Shares and is Chairman of the
Board of WGI. Mr. Dalton is President and a Director of WGI.
(4) Includes 30,833 Shares Mr. Sarkis has the right to acquire within sixty
(60) days under options granted to him pursuant to the Company Stock
Option Plan.
(5) Includes 28,333 Shares Mr. Bissaillon has the right to acquire within
sixty (60) days under options granted to him pursuant to the Company Stock
Option Plan.
(6) Includes 5,000 Shares Mr. Cassin has the right to acquire within sixty
(60) days under options granted to him pursuant to the Company Stock
Option Plan. Excludes 2,000 Shares of Company Common Stock owned by Mr.
Cassin's wife. Mr. Cassin disclaims beneficial ownership of the Shares
owned by his wife.
(7) Includes 5,000 Shares Mr. Chafetz has the right to acquire within sixty
(60) days under options granted to him pursuant to the Company Stock
Option Plan and 5,000 Shares Mr. Chafetz has the right to acquire within
sixty (60) days pursuant to a stock option grant (not under the Company
Stock Option Plan).
(8) Represents Shares such Director or officer has the right to acquire within
sixty (60) days under options granted to such Director or officer pursuant
to the Company Stock Option Plan.
(9) Consists of 1,000 Shares Mr. Howe owns jointly with his wife and 5,000
Shares Mr. Howe has the right to acquire within sixty (60) days under
options granted to him pursuant to the Company Stock Option Plan.
(10) Includes 35,000 Shares Mr. Hartzfeld has the right to acquire within
sixty (60) days under options granted to him pursuant to the Company
Stock Option Plan.
(11) Includes 970 Shares beneficially owned by Ms. Lagrotteria, 24 of which
have been purchased through the Company's employee stock purchase plan in
open market transactions within the last sixty (60) days and 13,055 of
which Ms. Lagrotteria has the right to acquire within sixty (60) days
under options granted to her pursuant to the Company Stock Option Plan.
(12) Shareholdings information is based on Mr. Finneran's Schedule 13D dated
September 14, 1995.
(13) Shareholdings information is based on WGI's Schedule 13G dated June 1,
1994.
(14) Shareholdings information is based on John Hancock Mutual Life Insurance
Company's Schedule 13G dated February 8, 1999.
(15) Shareholdings information is based on telephonic information provided to
the Company by a representative of Hathaway Associates.
(16) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 180,100 Shares of
Company Common Stock as of December 31, 1998, all of which Shares are
held in portfolios of DFA Investment Dimensions Group, Inc., a registered
open-end investment company, or in a series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional Fund Advisors Inc. serves as
investment manager. Dimensional disclaims beneficial ownership of all
such Shares. Shareholdings information is based on Dimensional's Schedule
13G dated February 11, 1999.

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Affiliates

Mr. Sarkis is the majority stockholder of The Westwood Group, Inc. The
Westwood Group, Inc. owns 673,451 shares or 19.5% of the Common Stock of the
Company. The following is a summary of certain arrangements between the Company
and The Westwood Group, Inc., its subsidiaries, Mr. Sarkis and Mr. Sarkis'
affiliates. Certain of these arrangements were made while the Company was a
wholly-owned subsidiary of The Westwood Group, Inc. and accordingly, were
established by related parties and were not subject to arms length
negotiations. The Company's By-Laws provide that all future proposed agreements
between the Company and The Westwood Group, Inc., Mr. Sarkis or their
respective affiliates are subject to advance approval by a majority of the
independent members of the Company's Board of Directors.

Prior to 1994, the Company and The Westwood Group, Inc. were parties to
agreements pursuant to which the Company operated the concession business and
received certain other revenues in connection with the operation of Wonderland
Greyhound Park and Foxboro Park, two parimutuel race tracks owned by The
Westwood Group, Inc. In May 1994, the Company transferred its concession and
related operations to The Westwood Group, Inc. in return for a $770,000 term
note, to which $200,000 owed by The Westwood Group, Inc. to the Company was
added, to bring the total principal amount of the note to $970,000. This note
was subsequently amended to provide that principal and interest payments under
the note would not begin until April 1, 1999.

The Company intends to consummate the transactions contemplated by that
certain Merger Agreement, dated as of December 3, 1998 (the "Merger Agreement"),
by and between the Company and SRC Holdings, Inc., a Delaware corporation (the
"Acquiror"), pursuant to which the Acquiror will be merged (the "Merger") with
and into the Company, with the Company being the surviving corporation of the
Merger. The Acquiror is a newly incorporated entity organized by Charles F.
Sarkis, the Company's Chairman, President and Chief Executive Officer, for the
purpose of effecting the transactions set forth in the Merger Agreement. The
disinterested members of the Board of Directors (the "Board") and a special
committee of the Board, comprised solely of the independent, nonemployee
directors of the Company (the "Special Committee"), have each unanimously voted
to approve the Merger Agreement and the Merger and have determined that the
Merger is fair to, and in the best interest of, the Company and the holders of
the Common Stock of the Company. In addition, holders of a majority of the
Common Stock, as a group, including holders of a majority of Common Stock held
by Non-Affiliated Stockholders (as defined in the Merger Agreement) have also
approved the adoption of the Merger Agreement at a Special Meeting of
stockholders of the Company held on March 26, 1999. As a result of the Merger,
the holders of Common Stock, other than Mr. Sarkis, the Westwood Group, Inc.,
Mark L. Hartzfeld, Francis P. Bissaillon, Ann Marie Lagrotteria and Richard P.
Dalton (collectively, the "Affiliated Stockholders"), will receive $10.25 in
cash in exchange for each share of Common Stock of the Company that they own.
The Affiliated Stockholders will continue to be stockholders of the surviving
corporation. Following the Merger, the Company will no longer meet the
requirements of a public company and its shares will no longer be listed or
traded in the public market. It is currently anticipated that the Merger will
occur on or about March 31, 1999.

<PAGE>

Lease Arrangements

In December 1991, Boraschi Cafe, Inc., a wholly-owned subsidiary of the
Company, entered into a lease which formalized a prior leasing arrangement for
14,427 square feet of restaurant space in Boston, Massachusetts which Mr.
Sarkis beneficially owns. The lease, which expires on September 30, 2006,
provides for annual rent of $300,000 and that the Company is responsible for
utilities, maintenance and taxes. The restaurants operated at this location are
Abe & Louie's and The Famous Atlantic Fish Company.

50
<PAGE>

PART IV

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

1. Financial Statements and related schedules filed as part of this report
are listed in the index to Financial Statements and Schedules.

2. The Company filed on December 11, 1998 a report on Form 8-K dated as of
December 3, 1998, during the last quarter of the fiscal year ended
December 27, 1998, relating to the execution of the Merger Agreement
and the amendment to the Shareholders Rights Agreement, dated as of
December 20, 1994.

3. The following exhibits are filed as part of this report.

Exhibit Index
-------------

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

2.1** Merger Agreement dated as of December 3, 1998, by and
between the Company and SRC Holdings, Inc.

3.1* Certificate of Incorporation of the Company, as amended

3.2* By-Laws of the Company, as amended

10.1* Amended and Restated Stock Option Plan

10.2* Lease dated January 10, 1992 between The Westwood Newbury
Restaurant, Inc., a subsidiary of the Company, and 284
Newbury Street Trust First Amendment thereto dated as of
July 1, 1993

10.3* Lease dated January 10, 1992 between the Company and 284
Newbury Street Trust, and the First Amendment thereto dated
as of July 1, 1993

10.4* Lease dated December 1, 1991 between Boraschi Cafe, Inc. and
Charles F. Sarkis

10.5* Employment Agreement dated as of January 16, 1992 between
the Company and Charles F. Sarkis

10.6* Form of Change of Control Severance Agreements between the
Company and certain executives.

10.7* Letter Agreement dated January 16, 1992 between the Company
and The Westwood Group, Inc.

10.8*** Amended and Restated Revolving Credit and Term Loan
Agreement between the Company (and its subsidiaries)
and BankBoston, N.A. dated as of May 7, 1998.

51
<PAGE>

21 List of Subsidiaries of the Company

23 Consent of PricewaterhouseCoopers to the incorporation of
its report Company's Registration Statements on Form S-8 and
S-3

27 Financial Data Schedule

* Incorporated by reference from Back Bay Restaurant Group, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 26, 1993, as filed
with the Securities and Exchange Commission.

** Incorporated by reference from Back Bay Restaurant Group, Inc.'s Report on
Form 8-K dated as of December 3, 1998, as filed with the Securities and
Exchange Commission.

*** Incorporated by reference from Back Bay Restaurant Group, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 28, 1998, as filed with the
Securities and Exchange Commission.

52
<PAGE>

SIGNATURES

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

BACK BAY RESTAURANT GROUP, INC.

By: /s/ Charles F. Sarkis
-------------------------------
Charles F. Sarkis
Chairman, President and
Chief Executive Officer

March 26, 1998

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

SIGNATURE TITLE DATE

/s/ Charles F. Sarkis Chairman of the Board of March 26, 1999
- - - -------------------------- Directors, President and
Charles F. Sarkis Chief Executive Officer

/s/ Francis P. Bissaillon Director, Executive Vice March 26, 1999
- - - -------------------------- President, Chief Financial
Francis P. Bissaillon Officer and Secretary

/s/ Robert J. Ciampa Vice President, Chief March 26, 1999
- - - -------------------------- Accounting Officer and
Robert J. Ciampa Treasurer

/s/ Joseph M. Cassin Director March 26, 1999
- - - --------------------------
Joseph M. Cassin

/s/ Irwin Chafetz Director March 26, 1999
- - - --------------------------
Irwin Chafetz

/s/ Richard P. Dalton Director March 26, 1999
- - - --------------------------
Richard P. Dalton

/s/ Richard K. Howe Director March 26, 1999
- - - --------------------------
Richard K. Howe

/s/ Robert S. Parker Director March 26, 1999
- - - --------------------------
Robert S. Parker

The following is a list of the directly and indirectly owned subsidiaries
of Back Bay Restaurant Group, Inc., all of which are 100% owned, except Linpro
Greentree, Inc., which is 99% owned:

BBRG OPERATING, INC.
THE 199, INC.
BACK BAY MEDIA, INC.
BBRG MASSACHUSETTS RESTAURANTS, INC.
BBRG NEW JERSEY RESTAURANTS, INC.
BBRG PARAMUS RESTAURANTS, INC.
BBRG RHODE ISLAND RESTAURANTS, INC.
BBRG RYE RESTAURANT, INC.
BBRG WASHINGTON RESTAURANTS, INC.
BBRG WATERFRONT, INC.
BORASCHI CAFE, INC.
EASTERN PURCHASING & DESIGN, INC.
LINPRO GREENTREE, INC.
PHEASANT MALL RESTAURANT GROUP, INC.
PRA, INC.
STANHOPE STREET RESTAURANT, INC.
WATERFORD RESTAURANT GROUP, INC.
WESTFOUR, INC.
THE WESTWOOD DEDHAM RESTAURANT, INC.
THE WESTWOOD HARTFORD RESTAURANT GROUP, INC.
THE WESTWOOD NEWTON RESTAURANT GROUP, INC.
THE WESTWOOD SHORT HILLS RESTAURANT GROUP, INC.
THE WESTWOOD TRUMBULL RESTAURANT GROUP, INC.
THE WESTWOOD WHITE PLAINS RESTAURANT, INC.
THE WESTWOOD WOBURN RESTAURANT GROUP, INC.

[PWC logo]

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements of Back Bay Restaurant Group, Inc. on Form S-8 (File Nos. 33-68574
and 33-68576) and Form S-3 (File No. 33-76424) of our report dated February 12,
1999, except as to the information presented in Note 10 for which the date is
March 26, 1999, relating to the consolidated financial statements of Back Bay
Restaurant Group, Inc. as of December 27, 1998, which report appears in this
Form 10-K.

PricewaterhouseCoopers LLP

Boston, Massachusetts
March 29, 1999

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Back Bay Restaurant Group, Inc., for the year ended
December 27, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> DEC-27-1998
<CASH> 2,598,000
<SECURITIES> 0
<RECEIVABLES> 140,000
<ALLOWANCES> 0
<INVENTORY> 834,000
<CURRENT-ASSETS> 4,848,000
<PP&E> 63,106,000
<DEPRECIATION> 30,063,000
<TOTAL-ASSETS> 46,645,000
<CURRENT-LIABILITIES> 12,531,000
<BONDS> 4,298,000
0
0
<COMMON> 3,461,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 46,645,000
<SALES> 99,396,000
<TOTAL-REVENUES> 99,396,000
<CGS> 27,509,000
<TOTAL-COSTS> 85,909,000
<OTHER-EXPENSES> 9,180,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 297,000
<INCOME-PRETAX> 4,010,000
<INCOME-TAX> 1,326,000
<INCOME-CONTINUING> 2,684,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,684,000
<EPS-PRIMARY> .78
<EPS-DILUTED> .73

</TABLE>