###  

 

### **U.S. SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, DC 20549**

** **

**FORM 10-QSB**

** **

** **
| **ý** |   | **Quarterly report under Section 13 or 15(d)  of the Securities Exchange Act of 1934.**  |
|------------|--------|------------------------------------------------------------------------------------------|
|       |   |                                                                                     |
|       |   | **For the quarterly period ended October 28,  2001.**                                    |
|       |   |                                                                                     |
| **o**      |   | **Transition report under Section 13 or 15(d)  of the Securities Exchange Act of 1934.** |
|       |   |                                                                                     |
|       |   | **For the transition period from  _________ to __________.**                        |
|       |   |                                                                                     |
|       |   | **Commission File Number 0-18369**                                                       |

** **

** **

**BOSTON RESTAURANT ASSOCIATES, INC.**

(Name of Small Business Issuer as Specifiedin its Charter)

 

 

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

 

| **999 Broadway**                        |
|-----------------------------------------|
| **Saugus, Massachusetts 01906**         |
| (Address of Principal Executive Offices |

 

| **(781) 231-7575**          |
|-----------------------------|
| (Issuer's Telephone Number, |
| Including area code)        |

 

Check whether the issuer: (1) filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes  ý  - No  o

 

As of December 3, 2001, there were 7,035,170 shares of the issuer'sCommon Stock, par value $.01 per share, outstanding.

 

 

 

BOSTON RESTAURANTASSOCIATES, INC.

 

INDEX

 

 
| PART I -   | FINANCIAL INFORMATION                                                                                                                 |   |
|------------|---------------------------------------------------------------------------------------------------------------------------------------|--------|
|       |                                                                                                                                  |   |
| Item 1.    | Financial Statements                                                                                                                  |   |
|       |                                                                                                                                  |   |
|       | Condensed Consolidated Balance Sheets as of  October 28, 2001 and April 29, 2001                                                      |
|       |                                                                                                                                  |   |
|       | Condensed Consolidated Statements of Income  for the thirteen weeks and twenty-six weeks ended October 28, 2001 and  October 29, 2000 |
|       |                                                                                                                                  |   |
|       | Condensed Consolidated Statements of Cash  Flows for the twenty-six weeks ended October 28, 2001 and October 29, 2000                 |
|       |                                                                                                                                  |   |
|       | Notes to Condensed Consolidated Financial  Statements                                                                                 |   |
|       |                                                                                                                                  |   |
| Item 2.    | Management's Discussion and Analysis of  Financial Condition                                                                          |   |
|       | Results of Operations                                                                                                                 |   |
|       |                                                                                                                                  |   |
| PART II  - | OTHER  INFORMATION                                                                                                                    |   |
|       |                                                                                                                                  |   |
|       | SIGNATURES                                                                                                                            |   |
|            |                                                                                                                                       |        |  |

BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES

PART 1 -FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

 
|                                                                                 |   | **October 28,** |      | **April 29,** |   |
|--------------------------------------------------------------------------------------|--------|-----------------|-----------|---------------|--------|
|                                                                                 |   | **2001**        |      | **2001**      |   |
|                                                                                 |   | (unaudited)     |      |          |   |
| ASSETS                                                                               |   |            |      |          |   |
| Current:                                                                             |   |            |      |          |   |
| Cash and cash equivalents                                                            |   | $               | 373,444   |          | $      | 333,048 |   |
| Accounts receivable                                                                  |   | 143,153         |      | 124,312       |   |
| Inventories                                                                          |   | 572,742         |      | 579,270       |   |
| Prepaid expenses and other                                                           |   | 115,368         |      | 39,265        |   |
|                                                                                 |   |            |      |          |   |
| Total current assets                                                                 |   | 1,204,707       |      | 1,075,895     |   |
|                                                                                 |   |            |      |          |   |
| Property and equipment:                                                              |   |            |      |          |   |
| Building                                                                             |   | 512,500         |      | 512,500       |   |
| Leasehold improvements                                                               |   | 6,480,935       |      | 6,463,726     |   |
| Equipment, furniture and fixtures                                                    |   | 4,290,055       |      | 4,257,568     |   |
|                                                                                 |   |            |      |          |   |
|                                                                                 |   | 11,283,490      |      | 11,233,794    |   |
|                                                                                 |   |            |      |          |   |
| Less accumulated depreciation and  amortization                                      |   | 4,964,374       |      | 4,484,399     |   |
|                                                                                 |   |            |      |          |   |
| Net property and equipment                                                           |   | 6,319,116       |      | 6,749,395     |   |
|                                                                                 |   |            |      |          |   |
| Other assets                                                                         |   | 1,098,340       |      | 1,174,913     |   |
|                                                                                 |   |            |      |          |   |
| Total assets                                                                         |   | $               | 8,622,163 |          | $      | 9,000,203 |   |
|                                                                                 |   |            |      |          |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                 |   |            |      |          |   |
| Current liabilities:                                                                 |   |            |      |          |   |
| Accounts payable                                                                     |   | $               | 1,105,980 |          | $      | 1,219,424 |   |
| Accrued expenses                                                                     |   | 1,235,862       |      | 1,501,744     |   |
| Current maturities:                                                                  |   |            |      |          |   |
| Notes payable-stockholder                                                            |   | 5,395           |      | 5,259         |   |
| Long-term debt                                                                       |   | 567,748         |      | 543,082       |   |
| Obligations under capital leases                                                     |   | 336,097         |      | 347,842       |   |
|                                                                                 |   |            |      |          |   |
| Total current liabilities                                                            |   | 3,251,082       |      | 3,617,351     |   |
|                                                                                 |   |            |      |          |   |
| Long-term obligations:                                                               |   |            |      |          |   |
| Notes payable-stockholder, less current  maturities                                  |   | 103,585         |      | 106,318       |   |
| Long-term debt, less current maturities                                              |   | 577,825         |      | 868,002       |   |
| Obligations under capital leases, less  current maturities                           |   | 639,893         |      | 813,235       |   |
| Subordinated debentures                                                              |   | 1,500,000       |      | 1,500,000     |   |
| Deferred rent                                                                        |   | 339,858         |      | 282,359       |   |
| Other long-term liabilities                                                          |   | 976,006         |      | 958,000       |   |
|                                                                                 |   |            |      |          |   |
| Total liabilities                                                                    |   | 7,388,249       |      | 8,145,265     |   |
|                                                                                 |   |            |      |          |   |
| Commitments and contingencies                                                        |   |            |      |          |   |
|                                                                                 |   |            |      |          |   |
| Stockholders' equity :                                                               |   |            |      |          |   |
| Preferred stock, $.01 par value, 10,000,000  shares authorized;  none issued    |   | 0               |      | 0             |   |
| Common stock, $.01 par value, 25,000,000  shares authorized, 7,060,170 shares issued |   | 70,602          |      | 70,602        |   |
| Additional paid in capital                                                           |   | 10,922,636      |      | 10,922,636    |   |
| Accumulated deficit                                                                  |   | (9,734,632      | )         | (10,113,608   | )      |
|                                                                                 |   |            |      |          |   |
| Total                                                                                |   | 1,258,606       |      | 879,630       |   |
| Less:                                                                                |   |            |      |          |   |
|  Treasury stock, 25,000 shares at cost                                          |   | (24,692         | )         | (24,692       | )      |
| Total stockholders' equity                                                           |   | 1,233,914       |      | 854,938       |   |
|                                                                                 |   |            |      |          |   |
| Total liabilities and stockholders' equity                                           |   | $               | 8,622,163 |          | $      | 9,000,203 |   |

 

 

See accompanying notes.

BOSTON RESTAURANTS ASSOCIATES,INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 
|                                                           |   | **Thirteen Weeks Ended** |      | **Twenty-six Weeks Ended** |   |
|----------------------------------------------------------------|--------|--------------------------|-----------|----------------------------|--------|
|                                                           |   |                     |      |                       |   |   |   |   |   |
|                                                           |   | **October 28,**          |      | **October 29,**            |   | **October 28,** |   | **October 29,** |   |
|                                                           |   | **2001**                 |      | **2000**                   |   | **2001** |   | **2000** |   |
|                                                           |   |                     |      |                       |   |   |   |   |   |
| Revenues:                                                      |   |                     |      |                       |   |   |   |   |   |
| Restaurant sales                                               |   | $                        | 5,984,620 |                       | $      | 5,051,320 |   | $ | 11,963,851 |   | $ | 9,905,210 |   |
| Franchise fees                                                 |   | -                        |      | 35,000                     |   | - |   | 35,000 |   |
| Royalties                                                      |   | 5,431                    |      | 14,914                     |   | 12,101 |   | 27,214 |   |
|                                                           |   |                     |      |                       |   |   |   |   |   |
| Total revenues                                                 |   | 5,990,051                |      | 5,101,234                  |   | 11,975,952 |   | 9,967,424 |   |
|                                                           |   |                     |      |                       |   |   |   |   |   |
| Costs and expenses:                                            |   |                     |      |                       |   |   |   |   |   |
| Cost of food, beverages and liquor                             |   | 1,275,041                |      | 1,073,410                  |   | 2,592,836 |   | 2,076,113 |   |
| Payroll                                                        |   | 1,834,485                |      | 1,438,639                  |   | 3,790,638 |   | 2,878,287 |   |
| Other operating expenses                                       |   | 1,726,711                |      | 1,490,383                  |   | 3,474,670 |   | 2,983,236 |   |
| General and administrative                                     |   | 465,227                  |      | 418,537                    |   | 955,530 |   | 843,816 |   |
| Depreciation and amortization                                  |   | 261,473                  |      | 245,115                    |   | 527,155 |   | 471,739 |   |
| Pre-opening costs                                              |   | 0                        |      | 315,254                    |   | 0 |   | 420,287 |   |
|                                                           |   |                     |      |                       |   |   |   |   |   |
| Total costs and expenses                                       |   | 5,562,937                |      | 4,981,338                  |   | 11,340,829 |   | 9,673,478 |   |
|                                                           |   |                     |      |                       |   |   |   |   |   |
| Operating income                                               |   | 427,114                  |      | 119,896                    |   | 635,123 |   | 293,946 |   |
|                                                           |   |                     |      |                       |   |   |   |   |   |
| Other income                                                   |   | 1,550                    |      | 5,071                      |   | 4,523 |   | 9,442 |   |
| Interest income                                                |   | 244                      |      | 13,101                     |   | 2,258 |   | 27,878 |   |
| Interest expense                                               |   | (144,074                 | )         | (120,621                   | )      | (262,928 | ) | (232,012 | ) |
|                                                           |   |                     |      |                       |   |   |   |   |   |
| Net Income                                                     |   | $                        | 284,834   |                       | $      | 17,447 |   | $ | 378,976 |   | $ | 99,254 |   |
|                                                           |   |                     |      |                       |   |   |   |   |   |
| Income per share-basic                                         |   | $                        | 0.04      |                       | $      | 0.00 |   | $ | 0.05 |   | $ | 0.01 |   |
|                                                           |   |                     |      |                       |   |   |   |   |   |
| Income per share-diluted                                       |   | $                        | 0.04      |                       | $      | 0.00 |   | $ | 0.05 |   | $ | 0.01 |   |
|                                                           |   |                     |      |                       |   |   |   |   |   |
| Weighted average number of common shares  outstanding-basic    |   | 7,035,170                |      | 7,035,170                  |   | 7,035,170 |   | 7,035,170 |   |
|                                                           |   |                     |      |                       |   |   |   |   |   |
| Weighted average number of dilutive common  shares outstanding |   | 7,035,170                |      | 7,035,170                  |   | 7,038,806 |   | 7,035,170 |   |

 

See accompanying notes

 

BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited)

 
|                                                    |   | **Twenty-six Weeks Ended** |    |
|---------------------------------------------------------|--------|----------------------------|---------|
|                                                    |   |                       |    |   |   |
|                                                    |   | **October 28,**            |    | **October 29,** |   |
|                                                    |   | **2001**                   |    | **2000** |   |
|                                                    |   |                       |    |   |   |
| Cash flows provided by operating activities             |   | $                          | 543,287 |   | $ | 1,067,451 |   |
|                                                    |   |                       |    |   |   |
| Cash flows from  investing activities:             |   |                       |    |   |   |
| Capital expenditures                                    |   | (49,696                    | )       | (1,650,815 | ) |
|                                                    |   |                       |    |   |   |
| Cash flows used for investing activities                |   | (49,696                    | )       | (1,650,815 | ) |
|                                                    |   |                       |    |   |   |
| Cash flows from  financing activities:             |   |                       |    |   |   |
| Repayments of long-term debt                            |   | (265,511                   | )       | (202,466 | ) |
| Repayments of capital lease obligations                 |   | (185,087                   | )       | (119,918 | ) |
| Repayments of stockholder loans                         |   | (2,597                     | )       | (2,464 | ) |
| Proceeds from long-term debt                            |   | 0                          |    | 800,000 |   |
|                                                    |   |                       |    |   |   |
| Cash flows provided by (used for) financing  activities |   | (453,195                   | )       | 475,152 |   |
|                                                    |   |                       |    |   |   |
| Increase (decrease) in cash and cash  equivalents       |   | 40,396                     |    | (108,212 | ) |
|                                                    |   |                       |    |   |   |
| Cash and cash equivalents at beginning of  period       |   | 333,048                    |    | 947,386 |   |
|                                                    |   |                       |    |   |   |
| Cash and cash equivalents at end of period              |   | $                          | 373,444 |   | $ | 839,174 |   |

 

 

BOSTON RESTAURANT ASSOCIATES, INC.  AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 28, 2001

(unaudited)

 

 

NATURE OF BUSINESS AND BASIS OF PRESENTATION

 

The accompanying unauditedcondensed consolidated financial statements have been prepared in accordancewith generally accepted accounting principles for interim financial informationand with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included.  Operating results for the thirteen-weekperiod, and twenty-six week period, ended October 28, 2001 are not necessarilyindicative of the results that may be expected for the year ending April 28,2002.  For further information, refer tothe consolidated financial statements and footnotes thereto included in theCompany's annual report on Form 10-KSB for the year ended April 29, 2001.  The balance sheet at April 29, 2001 has beenderived from the audited financial statements at that date.

 

The accompanying statements of income and cash flows for the fiscal2002 period reflect the consolidated income and cash flows of four casualdining Italian restaurants and twelve Pizzeria Regina restaurants for theentire period.  The accompanyingstatements of income and cash flows for the fiscal 2001 period reflect theconsolidated operations and cash flows of two casual dining Italian restaurantsand twelve Pizzeria Regina restaurants for the entire period and one additionalPizzeria Regina restaurant and one casual dining Italian restaurant for part ofthe period.

 

### NET INCOME PER SHARE

 

The Company follows Statement of Financial Accounting Standards No.128, “Earnings per Share” (SFAS 128).

The following is a reconciliation of the denominator (number of shares)used in the computation of earnings per share. The numerator (net income) is the same for the basic and dilutedcomputations.

** **
|                               |   | **Thirteen weeks ended** |   | **Twenty-six weeks ended** |   |
|------------------------------------|--------|--------------------------|--------|----------------------------|--------|
|                               |   |                     |   |                       |   |   |   |   |   |
|                               |   | **October 28,**          |   | **October 29,**            |   | **October 28,** |   | **October 29,** |   |
|                               |   | **2001**                 |   | **2000**                   |   | **2001** |   | **2000** |   |
|                               |   |                     |   |                       |   |   |   |   |   |
| Basic   Shares                     |   | 7,035,170                |   | 7,035,170                  |   | 7,035,170 |   | 7,035,170 |   |
|                               |   |                     |   |                       |   |   |   |   |   |
|                               |   |                     |   |                       |   |   |   |   |   |
| Effect of   Dilutive   Securities: |   |                     |   |                       |   |   |   |   |   |
|                               |   |                     |   |                       |   |   |   |   |   |
|                               |   |                     |   |                       |   |   |   |   |   |
| Options                            |   | Ø                   |   | Ø                     |   | 3,636 |   | Ø |   |
|                               |   |                     |   |                       |   |   |   |   |   |
|                               |   |                     |   |                       |   |   |   |   |   |
| Diluted   Shares                   |   | 7,035,170                |   | 7,035,170                  |   | 7,038,806 |   | 7,035,170 |   |

 

 

The following table summarizes securities that were outstanding as ofOctober 28, 2001 and October 29, 2000, but not included in the calculation ofnet income per share because such securities are anti-dilutive:

 

 
|                     |   | **Thirteen weeks ended** |   | **Twenty-six weeks ended** |   |
|--------------------------|--------|--------------------------|--------|----------------------------|--------|
|                     |   |                     |   |                       |   |   |   |   |   |
|                     |   | **October 28,**          |   | **October 29,**            |   | **October 28,** |   | **October 29,** |   |
|                     |   | **2001**                 |   | **2000**                   |   | **2001** |   | **2000** |   |
|                     |   |                     |   |                       |   |   |   |   |   |
|                     |   |                     |   |                       |   |   |   |   |   |
| Options                  |   | 809,646                  |   | 1,317,246                  |   | 749,646 |   | 1,317,246 |   |
|                     |   |                     |   |                       |   |   |   |   |   |
|                     |   |                     |   |                       |   |   |   |   |   |
| Warrants                 |   | 500,000                  |   | 550,000                    |   | 500,000 |   | 550,000 |   |
|                     |   |                     |   |                       |   |   |   |   |   |
|                     |   |                     |   |                       |   |   |   |   |   |
| Convertible   Debentures |   | 1,200,000                |   | 1,200,000                  |   | 1,200,000 |   | 1,200,000 |   |

 

 

 

ITEM 2.           Management's Discussion and Analysis ofFinancial Condition and Results of Operations

 

# Results of Operations

 

# Overview

 

The Company’s restaurant sales increased 18%in the second quarter of fiscal 2002, compared to the same period in fiscal2001.  Restaurant sales in the mostrecent quarter were $5,985,000 compared to sales of $5,051,000 in the secondquarter of fiscal 2001.  The net incomefor the second quarter of fiscal 2002 was $285,000 compared to $17,000 for thesame quarter of fiscal 2001.  Theincreases in revenue and profit are the result of the contribution of the twonew Polcari’s North End bistro restaurants located in Woburn,Massachusetts and Hyannis, Massachusetts which opened in October, 2000 andJanuary, 2001, respectively and the lack of pre-opening expenses.

 

Thirteen Weeks Ended October 28, 2001 asCompared to Thirteen Weeks ended October 29, 2000

Restaurant Sales.

 

Restaurant sales in the mostrecent quarter were $5,985,000, compared to restaurant sales in the prioryear's period of $5,051,000.  Theincrease in restaurant sales in the fiscal 2002 period compared to the fiscal2001 period was attributable to the opening of two new Polcari’s North Endbistro restaurants.  The Woburn,Massachusetts and the Hyannis, Massachusetts locations opened in October, 2000and January, 2001, respectively.

 

Sales for the restaurantsopen throughout both fiscal 2002 and 2001 periods decreased by approximately1.7%.

 

Net sales at the Company’sPizzeria Regina restaurants decreased to $2,954,000 in the current period from$3,065,000 in the prior year’s period. The decrease in restaurant sales was principally due to the closing of aPizzeria Regina restaurant at the end of its lease and a decrease in aggregatesame-store sales for existing Pizzeria Regina restaurants.

 

Net sales at the Company'sfull service casual dining restaurants increased to $3,024,000 in the currentperiod from $1,973,000 in the prior year’s period.  This increase was primarily attributable to the addition of salesfrom the two new Polcari’s North End bistro restaurants in Woburn,Massachusetts and Hyannis, Massachusetts and increased customer traffic at theSaugus, Massachusetts Polcari’s North End restaurant.

 

Net sales at the Company’scommissary were $7,000 in the current period compared to $13,000 in the prioryear’s period.  The decrease incommissary sales was primarily attributable to the closure of a franchiserestaurant.

 

# Royalties

 

During the current yearperiod, the Company recognized $5,000 in royalties from franchise operationscompared to $15,000 in royalties franchise operations in the prior year’speriod.  The decrease in royalties wasprimarily attributable to the closure of a franchise restaurant.

#  

# Costs and Expenses

 

Cost of Food, Beverages and Liquor.

 

Cost of food, beverages andliquor as a percentage of total revenues were 21% for both fiscal 2002 andfiscal 2001 periods.

 

Thecost of food, beverage and liquor was $1,275,000 in the current period comparedto $1,073,000 in the prior year’s period. The dollar increase was attributableto the opening of the two new Polcari’s North End bistro restaurants duringfiscal 2001.

 

The cost of food, beveragesand liquor as a percentage of restaurant sales at the Pizzeria Reginarestaurants was 17% for both fiscal 2002 and 2001 periods.

 

The cost offood, beverage and liquor at Pizzeria Regina restaurants was $490,000 in thecurrent period compared to $524,000 in the prior year’s period.  This decrease was primarily attributable tothe closing of a Pizzeria Regina restaurant at the end of its lease.

 

The cost of food, beveragesand liquor as a percentage of restaurant sales at the Company's full servicecasual dining restaurants was 26% in the current period and 28% in the prioryear’s period.  This decrease, as a percentageof restaurant sales, was primarily due to improved cost controls at therestaurants.

 

The cost offood, beverage and liquor, at the Company’s full service casual diningrestaurants, was $785,000 in the current period compared to $549,000 in the prioryear’s period.  This dollar increase wasprimarily due to the opening of the two new Polcari’s North End bistrorestaurants during fiscal 2001.

 

# Other Operating Expenses

 

Payroll Expenses.

 

Payroll expenses were 31% oftotal revenues in the current period compared to 28% of total revenues in theprior year's period.  The increase inpayroll expenses as a percentage of total revenues was attributable to theopening of the two new Polcari’s North End bistro restaurants, which havehigher payroll expenses as a percentage of total revenues than the PizzeriaRegina restaurants.

 

Payroll expenses were$1,834,000 in the current period compared to $1,439,000 in the prior year’speriod.  The dollar increase in payrollexpenses was primarily due to the opening of two new Polcari’s North Endbistro restaurants and is partially offset by the closing of a Pizzeria Reginalocation in fiscal 2001.

 

Payroll expenses at thePizzeria Regina restaurants were 25% of net sales in the current periodcompared to 24% of net sales in the prior year’s period.

 

Payroll expenses of the Pizzeria Regina restaurants were $748,000 inthe current period compared to $747,000 in the prior year’s period.

 

Payroll expenses at theCompany's full service casual dining restaurants increased to 33% of net salesin the current period from 32% of sales in the prior year's period.  The increase was primarily attributable tothe opening of two new Polcari’s North End bistro restaurants in fiscal 2001.

 

Payroll expenses at the Company’s full service casual diningrestaurants were $995,000 in the current period compared to $628,000 in theprior year’s period.  This dollarincrease was primarily due to labor costs associated with the two additionalPolcari’s North End bistro restaurants opened in fiscal 2001.

 

Payroll expenses at theCompany's Commissary were $91,000 for the fiscal 2002 period as compared to$64,000 in the fiscal 2001 period.  Thedollar increase in payroll expenses was primarily due to an increase in personnelat the Commissary to meet the added production requirements of the newPolcari’s North End bistro restaurants.

 

Other Operating Expenses, Exclusive ofPayroll.

 

Otheroperating expenses, exclusive of payroll, were 29% of total revenues in boththe fiscal 2002 and fiscal 2001 periods.

 

Otheroperating expenses, exclusive of payroll were $1,727,000 in the current periodcompared to $1,490,000 in the prior year’s period.

 

Otheroperating expenses, exclusive of payroll, from the Pizzeria Regina restaurantswas 32% of total revenues in both fiscal 2002 and fiscal 2001 periods.

 

Other operating expenses,exclusive of payroll, from the Pizzeria Regina restaurants decreased to$957,000 in the current period from $991,000 in the prior year's period.  This dollar decrease was primarily due to theclosure of a Pizzeria Regina restaurant at the end of it lease.

 

Otheroperating expenses, exclusive of payroll, from the Company’s full servicecasual dining restaurants increased to 25% of net sales in the current periodfrom 21% of net sales in the prior year’s period.

 

Other operating expenses,exclusive of payroll, from the Company's full service casual dining restaurantsincreased to $743,000 in the current period from $421,000 in the prior year'speriod. The increase was primarily attributable to the opening of the two newPolcari’s North End bistro restaurants in fiscal 2001.  Other operating expenses also includecommissary expenses, which were $25,000 in the current period, as compared to$21,000 in the prior year’s period. Other operating expenses also include franchise costs of $2,000 in thecurrent period, as compared to $57,000 in the prior year’s period.

 

General and Administrative Expenses.

 

General and administrativeexpenses were 8% of total revenues for both fiscal 2002 and fiscal 2001periods.

 

General and administrativeexpenses were $465,000 in the current period, compared to $419,000 in the prioryear’s period.  This dollar increase wasprimarily attributable to an increase in consulting fees.

 

Depreciation and Amortization Expenses.

 

Depreciation andamortization expense was 4% of total revenues in the current period, comparedto 5% of total revenues in the prior year’s period.

 

Depreciation andamortization expense was $261,000 in the current period, compared to $245,000in the prior year’s period.  The dollarincrease was attributable to the opening of the two new Polcari’s North Endbistro restaurants.

 

Interest Expense and Interest Income.

 

Interest expense was$144,000 in the current period as compared to $121,000 in the prior year'speriod. Interest income was $0 in the current period, as compared to $13,000 inthe prior year’s period.

 

Income Taxes.

 

There is no provision forFederal or State Income taxes due to the availability of net operating losscarry forwards.

 

Twenty-six Weeks Ended October 28, 2001 asCompared to Twenty-six Weeks ended October 29, 2000

Restaurant Sales.

 

Restaurant sales in thecurrent period were $11,964,000, compared to restaurant sales in the prioryear's period of $9,905,000.  Theincrease in restaurant sales in the fiscal 2002 period compared to the fiscal2001 period was attributable to the opening of two new Polcari’s North Endbistros.  The Woburn, Massachusetts andthe Hyannis, Massachusetts locations opened in October, 2000 and January, 2001,respectively.  Sales for the restaurantsopen throughout both fiscal 2002 and 2001 periods decreased by approximately2.5%.

 

Net sales at the Company’sPizzeria Regina restaurants decreased to $5,843,000 in the current period from$6,242,000 in the prior year’s period. The decrease in restaurant sales was principally due to the closing of aPizzeria Regina restaurant at the end of its lease and a decrease in aggregatesame-store sales for existing Pizzeria Regina restaurants.

 

Net sales at the Company'sfull service casual dining restaurants increased to $6,111,000 in the currentperiod from $3,641,000 in the prior year’s period.  This increase was primarily attributable to the addition of salesfrom the two new Polcari’s North End bistro restaurants in Woburn,Massachusetts and Hyannis, Massachusetts and increased customer traffic at theSaugus, Massachusetts Polcari’s North End restaurant.

 

Net sales at the Company’scommissary were $10,000 in the current period compared to $22,000 in the prioryear’s period.  The decrease incommissary sales was primarily attributable to the closure of a franchiserestaurant.

 

# Royalties

 

During the current yearperiod, the Company recognized $12,000 in royalties from its franchiseoperations compared to $27,000 in royalties from its franchise operations inthe prior year’s period.  The decreasein royalties was primarily attributable to the closure of a franchiserestaurant.

 

# Costs and Expenses

 

Cost of Food, Beverages and Liquor.

 

Cost of food, beverages andliquor as a percentage of total revenues were 22% in the current period, ascompared to 21% in the prior year’s period.

 

Thecost of food, beverage and liquor was $2,593,000 in the current period comparedto $2,076,000 in the prior year’s period. The dollar increase was due to theopening of two new Polcari’s North End bistro restaurants in fiscal 2001.

 

The cost of food, beveragesand liquor as a percentage of restaurant sales at the Pizzeria Reginarestaurants was 17% for both fiscal 2002 and 2001 periods.

 

The cost of food,beverage and liquor at Pizzeria Regina restaurants was $972,000 in the currentperiod compared to $1,051,000 in the prior year’s period.

 

The cost of food, beveragesand liquor as a percentage of restaurant sales at the Company's full servicecasual dining restaurants was 27% in the current period and 28% in the prioryear’s period.  This decrease as apercentage of restaurant sales was due to improved cost controls at therestaurants.

 

The cost offood, beverage and liquor, at the Company’s full service casual diningrestaurants, was $1,621,000 in the current period compared to $1,025,000 in theprior year’s period.  This dollarincrease was primarily due to the opening of the two new Polcari’s North Endbistro restaurants during fiscal 2001.

 

# Other Operating Expenses

 

Payroll Expenses.

 

Payroll expenses were 32% oftotal revenues in the current period compared to 29% of total revenues in theprior year's period.  The increase inpayroll expenses as a percentage of total revenues was attributable to theopening of the two new Polcari’s North End bistro restaurants, which havehigher payroll expenses as a percentage of total revenues than the PizzeriaRegina restaurants.

 

Payroll expenses were $3,791,000 in the current period compared to$2,878,000 in the prior year’s period. The dollar increase in payroll expenses was primarily due to the openingof two new Polcari’s North End bistro restaurants, partially offset by theclosing of a Pizzeria Regina location in fiscal 2001.

 

Payroll expenses at the PizzeriaRegina restaurants were 26% of net sales in the current periods from 25% of netsales in the prior year’s period.

 

Payroll expenses of the Pizzeria Regina restaurants were $1,505,000 inthe current period compared to $1,569,000 in the prior year’s period.  This dollar decrease was primarily due tothe closure of Pizzeria Regina restaurant in September of 2000 at thetermination of its lease.

 

Payroll expenses at theCompany's full service casual dining restaurants increased to 34% of net salesin the current period from 32% of net sales in the prior year's period.  The increase was primarily attributable tothe opening of two new Polcari’s North End bistro restaurants in fiscal 2001.

 

Payroll expenses at the Company’s full service casual dining restaurantswere $2,096,000 in the current period compared to $1,181,000 in the prioryear’s period.  This dollar increase wasprimarily due to labor costs associated with the two additional Polcari’s NorthEnd bistro restaurants opened in fiscal 2001.

 

Payroll expenses at theCompany's Commissary were $190,000 for the fiscal 2002 period as compared to$128,000 in the fiscal 2001 period.  Thedollar increase in payroll expenses was primarily due to an increase inpersonnel at the Commissary to meet the added production requirements of thenew Polcari’s North End bistro restaurants.

 

Other Operating Expenses, Exclusive ofPayroll.

 

Otheroperating expenses, exclusive of payroll, were 29% of total revenues in thecurrent period, compared to 30% of total revenues in the prior year’s period.

 

Otheroperating expenses, exclusive of payroll were $3,475,000 in the current periodcompared to $2,983,000 in the prior year’s period.

 

Otheroperating expenses, exclusive of payroll, from the Pizzeria Regina restaurantswas 33% of total revenues in the current period from 32% of total revenue inthe prior year’s period.

 

Other operating expenses,exclusive of payroll, from the Pizzeria Regina restaurants decreased to$1,918,000 in the current period from $1,968,000 in the prior year'speriod.  This dollar decrease wasprimarily due to the closure of a Pizzeria Regina restaurant at the end of itslease.

 

Otheroperating expenses, exclusive of payroll, from the Company’s full servicecasual dining restaurants increased to 25% of net sales in the current periodfrom 22% of net sales in the prior year’s period.

 

Other operating expenses,exclusive of payroll, from the Company's full service casual dining restaurantsincreased to $1,507,000 in the current period from $807,000 in the prior year'speriod. The increase was primarily attributable to the opening of the two newPolcari’s North End bistro restaurants in fiscal 2001.  Other operating expenses also includecommissary expenses, which was $49,000 in the current period, as compared to$40,000 in the prior year’s period.  Inaddition, other operating expenses included $1,000 in fiscal 2002 and $168,000in fiscal 2001, which included cost associated with joint venture andfranchising activities.

 

General and Administrative Expenses.

 

General and administrativeexpenses were 8% of total revenues for both fiscal 2002 and fiscal 2001periods.

 

General and administrativeexpenses were $956,000 in the current period, compared to $844,000 in the prioryear’s period.  This dollar increase wasprimarily attributable to consulting costs.

 

Depreciation and Amortization Expenses.

 

Depreciation andamortization expense was 4% of total revenues in the current period, comparedto 5% of total revenues in the prior year’s period.

 

Depreciation and amortizationexpense was $527,000 in the current period, compared to $472,000 in the prioryear’s period.  The dollar increase wasprimarily attributable to the opening of the two new Poclari’s North End bistrorestaurants in fiscal 2001, partially offset by the asset impairment chargerelated to three Pizzeria Regina locations taken in the fourth quarter offiscal 2001.

 

Interest Expense and Interest Income.

 

Interest expense was$263,000 in the current period as compared to $232,000 in the prior year'speriod.

Interest income was $2,000in the current period, as compared to $28,000 in the prior year’s period.

 

Income Taxes.

 

There is no provision forFederal or State Income taxes due to the availability of net operating losscarry forwards.

 

 

Liquidity and Capital Resources.

 

At October 28, 2001, the Company had negativenet working capital of $2,046,000 and cash and cash equivalentsof approximately $373,000.

 

During the twenty-six weeksended October 28, 2001, the Company had a net increase in cash and cash equivalentsof  $40,000 reflecting net cash providedby operating activities of $543,000, net cash used for investing activities of$50,000 and net cash used for financing activities of $453,000.

 

Net cash provided byoperating activities included net income of $379,000, a decrease in otherassets of $29,000, an increase in deferred rent of $57,000, a decrease ininventories of $7,000 and depreciation and amortization expense of $527,000,and an increase in other long-term liabilities of $18,000, partially offset bya reduction in accrued expenses of $266,000, an increase in accounts receivableof $19,000, an increase in prepaid expenses of $76,000, and a reduction inaccounts payable of $113,000.  Net cashused for investing activities reflects costs associated with the purchase ofequipment for the restaurants.  Net cashused for financing activities of $453,000 consisted of net repayments oflong-term debt, lease obligations and stockholder loans.

 

At October 28, 2001, the Company had currentliabilities of $3,251,000, including $1,106,000 of

accounts payable, $1,236,000 of accruedexpenses and current maturities of long term obligations in the amount of$909,000.  At October 28, 2001, theCompany had long-term obligations, less current maturities, in the amount of$4,137,000, including $578,000 due under its credit facility with Fleet Bank,$103,000 of notes payable to a stockholder, $640,000 due under the capitallease obligations, $1,500,000 of convertible subordinated debentures, $340,000of deferred rent, and $976,000 of other long-term liabilities primarily relatedto the litigation settlement agreement with Italian Ventures, LLC.

.

The Company believes thatits existing resources, cash flow from operations, and implementations ofcontemplated cash flow measures will be sufficient to allow it to meet itsobligations over the next twelve months. A line of credit with Fleet Bank iscurrently inaccessible.  The Company maypursue additional debt or equity financing if the Board of Directors determinesnecessary or appropriate.  There is noguarantee that the Company will be able to obtain additional financing onreasonable terms, or that it will be able to obtain additional financing atall.

 

RecentAccounts Pronouncements

 

In June 2001, the FinancialAccounting Standards Board finalized FASB Statements No. 141, BusinessCombinations (“SFAS 141”) and No. 142, Goodwill and Other Intangible Assets(“SFAS 142”).  SFAS 141 requires the useof the purchase method of accounting and prohibits the use of the pooling-of-interestsmethod of accounting for business combinations initiated after June 30,2001.  SFAS 141 also requires that theCompany recognize acquired intangible assets apart from goodwill if theacquired intangible assets meet certain criteria.  SFAS 141 applies to all business combinations initiated afterJuly 1, 2002 and for purchase business combinations completed on or after July1, 2001.  It also requires, uponadoption of SFAS 142, that the Company reclassify the carrying amounts ofintangible assets and goodwill based on the criteria in SFAS 141.

 

SFAS 142 requires, among otherthings, that companies no longer amortize goodwill, but instead test goodwillfor impairment at least annually.  Inaddition, SFAS 142 requires that the Company identify reporting units for thepurpose of assessing potential future impairments of goodwill, reassess theuseful lives of other existing recognized intangible assets, and ceaseamortization of intangible assets with an indefinite useful life.  An intangible asset with an indefiniteuseful life should be tested for impairment in accordance with the guidelinesin SFAS 142.  SFAS 142 is required to beapplied in fiscal years beginning after December 15, 2001 to all goodwill andother intangible assets recognized at that date, regardless of when thoseassets were initially recognized.  SFAS142 requires the Company to complete a transitional goodwill impairment testsix months from the date of adoption. The Company is also required to reassess the useful lives of other intangibleassets within the first interim quarter after adoption of SFAS 142.

 

The Company’s previous businesscombination was accounted for using the purchase method.  As of October 28, 2001, the net carryingamount of goodwill is $473,000. Amortization expense during the three-month period ended October 28,2001 was $9,000.  Currently, the Companyis assessing but has not yet determined how the adoption of SFAS 141 and SFAS142 will impact its financial position and results of operation.

 

# “Safe Harbor” Statement, Under the PrivateSecurities Litigation Reform Act of 1995

 

Forward-looking statements in this report, including without limitationstatements relating to the adequacy of the Company’s resources, and the timingof the Company’s expansion, are made pursuant to the safe harbor provisions ofthe Private Securities Litigation Reform Act of 1995.  Investors are cautioned that such forward-looking statementsinvolve risks and uncertainties, including without limitation: potentialquarterly fluctuations in the Company’s operating results; seasonality ofsales; competition; risks associated with expansion; the Company’s reliance onkey employees; risks generally associated with the restaurant industry; risksassociated with geographic concentration of the Company’s restaurants; risksassociated with serving alcoholic beverages; and other risks and uncertaintiesindicated from time to time in the Company’s filings with the Securities andExchange Commission.

 

 

 

## PART II

 

## OTHER INFORMATION

 

ITEM 1. Legal Proceedings.

 

The Company is involved invarious legal matters in the ordinary course of its business.  Each of these matters is subject to variousuncertainties and some of these matters may be resolved unfavorably to theCompany.  Management believes that any liabilitythat may ultimately result from these matters will not have a material adverseeffect on the Company’s financial position.

 

ITEM 2. Changes in Securities.

 

None.

 

ITEM 3. Defaults Upon Senior Securities.

 

None.

 

ITEM 4. Submission of Matters to a Vote ofSecurity Holders.

 

None.

 

ITEM 5. Other Information.

 

### None.

 

ITEM 6. Exhibits and Reports On Form 8-K.

 

(a)              Exhibits.

 

None

 

(b)              Reports OnForm 8-K.

 

None.

 

 

#### SIGNATURES

 

 

 

In accordance with the requirements of the Securities Exchange Act of1934, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                   |   | BOSTON RESTAURANT ASSOCIATES, INC.   |
|------------------------|--------|--------------------------------------|
|                   |   |                                 |   |
|                   |   |                                 |   |
|                   |   |                                 |   |
| Date: December 3, 2001 |   | By:                                  | /s/ George R. Chapdelaine |
|                   |   | George R. Chapdelaine, President and |
|                   |   | Chief Executive Officer              |