###  

**U.S. SECURITIES AND EXCHANGECOMMISSION**

** **

**WASHINGTON, DC 20549**

** **

**FORM 10-Q**

 

| **ý** | **Quarterly report under Section 13 or 15(d) of the  Securities Exchange Act of 1934.**                                                                                                                                    |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                       |
|       | **For  the quarterly period ended October 27, 2002.**                                                                                                                                                                      |
|       |                                                                                                                                                                                                                       |
| **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.**                         |
|-----------------------------------------------------------------|
| (The exact name of  registrant as specified in its charter)     |
|                                                            |   |   |
| **Delaware**                                                    |   | **61-1162263** |
| (state or other jurisdiction of  incorporation or organization) |   | (I.R.S.  Employer  Identification No.) |
|                                                            |   |   |
| **999 Broadway  Saugus, Massachusetts 01906**                   |
| (Address of principal  executive offices)                       |
|                                                            |
| **(781)  231-7575**                                             |
| (Registrant’s telephone  number,  Including area code)     |

 

Check whether the registrant: (1) filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes   ý   No   o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12B-2 of the ExchangeAct).  Yes   o   No   ý

 

As of December 2, 2002, there were 7,035,170 shares of the issuer’sCommon Stock, par value $.01 per share, outstanding.

 

 

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BOSTON RESTAURANTASSOCIATES, INC.

 

INDEX

 
| PART I -   | FINANCIAL INFORMATION                                                                                                                             |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                              |
| Item 1.    | Financial Statements                                                                                                                              |
|       |                                                                                                                                              |
|       | Condensed  Consolidated Balance Sheets as of October 27, 2002 (unaudited) and April 28,  2002                                                     |
|       |                                                                                                                                              |
|       | Condensed Consolidated  Statements of Income for the thirteen weeks and twenty-six weeks ended  October 27, 2002 and October 28, 2001 (unaudited) |
|       |                                                                                                                                              |
|       | Condensed  Consolidated Statements of Cash Flows for the twenty-six weeks ended October  27, 2002 and October 28, 2001 (unaudited)                |
|       |                                                                                                                                              |
|       | Notes  to Condensed Consolidated Financial Statements                                                                                             |
|       |                                                                                                                                              |
| Item  2.   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                       |
|       |                                                                                                                                              |
| Item  3.   | Quantitative  and Qualitative Disclosure about Market Risk                                                                                        |
|       |                                                                                                                                              |
| Item 4.    | Controls and Procedures                                                                                                                           |
|       |                                                                                                                                              |
| PART  II - | OTHER  INFORMATION                                                                                                                                |
|       |                                                                                                                                              |
|       | SIGNATURES                                                                                                                                        |
|            |                                                                                                                                                   |  |

 

2

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BOSTONRESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES

PART 1- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSEDCONSOLIDATED BALANCE SHEETS

 
|                                                                                 |   | **October 27,  2002** |      | **April 28,  2002** |   |
|--------------------------------------------------------------------------------------|--------|-----------------------|-----------|---------------------|--------|
|                                                                                 |   | **(unaudited)**       |      |                |   |
| ASSETS                                                                               |   |                  |      |                |   |
| Current:                                                                             |   |                  |      |                |   |
| Cash and cash equivalents                                                            |   | $                     | 1,019,705 |                | $      | 932,806 |   |
| Accounts receivable                                                                  |   | 123,567               |      | 123,840             |   |
| Inventories                                                                          |   | 568,414               |      | 546,688             |   |
| Prepaid expenses and other                                                           |   | 125,864               |      | 118,189             |   |
|                                                                                 |   |                  |      |                |   |
| Total current assets                                                                 |   | 1,837,550             |      | 1,721,523           |   |
|                                                                                 |   |                  |      |                |   |
| Property and equipment:                                                              |   |                  |      |                |   |
| Building                                                                             |   | 512,500               |      | 512,500             |   |
| Leasehold improvements                                                               |   | 6,600,528             |      | 6,517,055           |   |
| Equipment, furniture and fixtures                                                    |   | 4,412,058             |      | 4,329,675           |   |
|                                                                                 |   |                  |      |                |   |
|                                                                                 |   | 11,525,086            |      | 11,359,230          |   |
|                                                                                 |   |                  |      |                |   |
| Less accumulated depreciation and amortization                                       |   | 5,982,007             |      | 5,508,234           |   |
|                                                                                 |   |                  |      |                |   |
| Net property and equipment                                                           |   | 5,543,079             |      | 5,850,996           |   |
|                                                                                 |   |                  |      |                |   |
| Other assets                                                                         |   | 1,048,712             |      | 1,068,215           |   |
|                                                                                 |   |                  |      |                |   |
| Total assets                                                                         |   | $                     | 8,429,341 |                | $      | 8,640,734 |   |
|                                                                                 |   |                  |      |                |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                            |   |                  |      |                |   |
| Current liabilities:                                                                 |   |                  |      |                |   |
| Accounts payable                                                                     |   | $                     | 517,577   |                | $      | 805,719 |   |
| Accrued expenses                                                                     |   | 1,337,673             |      | 1,440,237           |   |
| Current maturities:                                                                  |   |                  |      |                |   |
| Notes payable-stockholder                                                            |   | 5,674                 |      | 5,533               |   |
| Long-term debt                                                                       |   | 213,587               |      | 528,623             |   |
| Obligations under capital leases                                                     |   | 299,606               |      | 364,077             |   |
|                                                                                 |   |                  |      |                |   |
| Total current liabilities                                                            |   | 2,374,117             |      | 3,144,189           |   |
|                                                                                 |   |                  |      |                |   |
| Long-term obligations:                                                               |   |                  |      |                |   |
| Notes payable-stockholder, less current maturities                                   |   | 97,911                |      | 100,784             |   |
| Long-term debt, less current maturities                                              |   | 624,091               |      | 346,087             |   |
| Obligations under capital leases, less current maturities                            |   | 340,287               |      | 449,154             |   |
| Subordinated debentures                                                              |   | 1,500,000             |      | 1,500,000           |   |
| Deferred rent                                                                        |   | 382,750               |      | 376,825             |   |
| Other long-term liabilities                                                          |   | 921,098               |      | 978,026             |   |
|                                                                                 |   |                  |      |                |   |
| Total liabilities                                                                    |   | 6,240,254             |      | 6,895,065           |   |
|                                                                                 |   |                  |      |                |   |
| 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                                                                  |   | (8,779,459            | )         | (9,222,877          | )      |
|                                                                                 |   |                  |      |                |   |
| Total                                                                                |   | 2,213,779             |      | 1,770,361           |   |
| Less:                                                                                |   |                  |      |                |   |
| Treasury stock, 25,000 shares at cost                                                |   | (24,692               | )         | (24,692             | )      |
| Total stockholders’ equity                                                      |   | 2,189,087             |      | 1,745,669           |   |
|                                                                                 |   |                  |      |                |   |
| Total liabilities and stockholders’ equity                                      |   | $                     | 8,429,341 |                | $      | 8,640,734 |   |

 

Theaccompanying notes are an integral part of these financial statements

 

3

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BOSTON RESTAURANTS ASSOCIATES, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 
|                                                          |   | **Thirteen Weeks Ended** |      | **Twenty-six Weeks Ended** |   |
|---------------------------------------------------------------|--------|--------------------------|-----------|----------------------------|--------|
|                                                          |   | **October 27,  2002**    |      | **October 28,  2001**      |   | **October 27,  2002** |   | **October 28,  2001** |   |
|                                                          |   |                     |      |                       |   |   |   |   |   |
| Revenues:                                                     |   |                     |      |                       |   |   |   |   |   |
| Restaurant sales                                              |   | $                        | 5,750,002 |                       | $      | 5,984,620 |   | $ | 11,376,543 |   | $ | 11,963,851 |   |
| Royalties                                                     |   | 3,723                    |      | 5,431                      |   | 7,160 |   | 12,101 |   |
|                                                          |   |                     |      |                       |   |   |   |   |   |
| Total revenues                                                |   | 5,753,725                |      | 5,990,051                  |   | 11,383,703 |   | 11,975,952 |   |
|                                                          |   |                     |      |                       |   |   |   |   |   |
| Costs and expenses:                                           |   |                     |      |                       |   |   |   |   |   |
| Cost of food, beverages and liquor                            |   | 1,110,854                |      | 1,275,041                  |   | 2,200,345 |   | 2,592,836 |   |
| Payroll                                                       |   | 1,721,012                |      | 1,834,485                  |   | 3,415,704 |   | 3,790,638 |   |
| Other operating expenses                                      |   | 1,659,164                |      | 1,726,711                  |   | 3,362,217 |   | 3,474,670 |   |
| General and administrative                                    |   | 609,749                  |      | 465,227                    |   | 1,235,310 |   | 955,530 |   |
| Depreciation and amortization                                 |   | 265,159                  |      | 261,473                    |   | 519,349 |   | 527,155 |   |
|                                                          |   |                     |      |                       |   |   |   |   |   |
| Total costs and expenses                                      |   | 5,365,938                |      | 5,562,937                  |   | 10,732,925 |   | 11,340,829 |   |
|                                                          |   |                     |      |                       |   |   |   |   |   |
| Operating income                                              |   | 387,787                  |      | 427,114                    |   | 650,778 |   | 635,123 |   |
|                                                          |   |                     |      |                       |   |   |   |   |   |
| Other income                                                  |   | 1,105                    |      | 1,550                      |   | 6,307 |   | 4,523 |   |
| Interest income                                               |   | 780                      |      | 244                        |   | 1,395 |   | 2,258 |   |
| Interest expense                                              |   | (105,414                 | )         | (144,074                   | )      | (215,062 | ) | (262,928 | ) |
|                                                          |   |                     |      |                       |   |   |   |   |   |
| Net income                                                    |   | $                        | 284,258   |                       | $      | 284,834 |   | $ | 443,418 |   | $ | 378,976 |   |
|                                                          |   |                     |      |                       |   |   |   |   |   |
| Income per share-basic                                        |   | $                        | 0.04      |                       | $      | 0.04 |   | $ | 0.06 |   | $ | 0.05 |   |
|                                                          |   |                     |      |                       |   |   |   |   |   |
| Income per share-diluted                                      |   | $                        | 0.04      |                       | $      | 0.04 |   | $ | 0.06 |   | $ | 0.05 |   |
|                                                          |   |                     |      |                       |   |   |   |   |   |
| Weighted average number of common shares outstanding-basic    |   | 7,035,170                |      | 7,035,170                  |   | 7,035,170 |   | 7,035,170 |   |
|                                                          |   |                     |      |                       |   |   |   |   |   |
| Weighted average number of dilutive common shares outstanding |   | 7,041,358                |      | 7,035,170                  |   | 7,042,553 |   | 7,038,806 |   |

 

Theaccompanying notes are an integral part of these financial statements

 

4

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BOSTONRESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES

 

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited)

 
|                                             |   | **Twenty-six Weeks Ended** |      |
|--------------------------------------------------|--------|----------------------------|-----------|
|                                             |   | **October 27,  2002**      |      | **October 28,  2001** |   |
|                                             |   |                       |      |   |   |
| Cash flows provided by operating activities      |   | $                          | 465,857   |   | $ | 543,287 |   |
|                                             |   |                       |      |   |   |
| Cash flows from  investing  activities:     |   |                       |      |   |   |
| Capital expenditures                             |   | (165,856                   | )         | (49,696 | ) |
|                                             |   |                       |      |   |   |
| Cash flows used for investing activities         |   | (165,856                   | )         | (49,696 | ) |
|                                             |   |                       |      |   |   |
| Cash flows from  financing  activities:     |   |                       |      |   |   |
| Repayments of long-term debt                     |   | (959,337                   | )         | (265,511 | ) |
| Repayments of capital lease obligations          |   | (173,338                   | )         | (185,087 | ) |
| Repayments of stockholder loans                  |   | (2,732                     | )         | (2,597 | ) |
| Proceeds from long-term debt                     |   | 922,305                    |      | 0 |   |
|                                             |   |                       |      |   |   |
| Cash flows used for financing activities         |   | (213,102                   | )         | (453,195 | ) |
|                                             |   |                       |      |   |   |
| Increase in cash and cash equivalents            |   | 86,899                     |      | 40,396 |   |
|                                             |   |                       |      |   |   |
| Cash and cash equivalents at beginning of period |   | 932,806                    |      | 333,048 |   |
|                                             |   |                       |      |   |   |
| Cash and cash equivalents at end of period       |   | $                          | 1,019,705 |   | $ | 373,444 |   |

 

Theaccompanying notes are an integral part of these financial statements

 

5

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BOSTON RESTAURANTASSOCIATES, INC.  AND SUBSIDIARIES

## NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 27, 2002

(unaudited)

 

1.  NATURE OF BUSINESS AND BASISOF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statementshave been prepared in accordance with generally accepted accounting principlesfor interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.  Inthe opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included.  Operating results for the thirteen-weekperiod, and twenty-six week period, ended October 27, 2002 are not necessarilyindicative of the results that may be expected for the year ending April 27,2003.  For further information, refer tothe consolidated financial statements and footnotes thereto included in theCompany’s annual report on Form 10-K for the year ended April 28, 2002.  The balance sheet at April 28, 2002 has beenderived from the audited financial statements at that date.

 

The accompanying statements of income and cash flows for the fiscal2003 and fiscal 2002 periods reflect the consolidated operations and cash flowof four casual dining Italian restaurants and twelve Pizzeria Reginarestaurants for the entire 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.

 

6

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|                            |   | **Thirteen  weeks ended** |   | **Twenty-six  weeks ended** |   |
|---------------------------------|--------|---------------------------|--------|-----------------------------|--------|
|                            |   | **October 27,  2002**     |   | **October 28,  2001**       |   | **October 27,  2002** |   | **October 28,  2001** |   |
|                            |   |                      |   |                        |   |   |   |   |   |
| BasicShares                     |   | 7,035,170                 |   | 7,035,170                   |   | 7,035,170 |   | 7,035,170 |   |
|                            |   |                      |   |                        |   |   |   |   |   |
| Effect of  Dilutive Securities: |   |                      |   |                        |   |   |   |   |   |
|                            |   |                      |   |                        |   |   |   |   |   |
| Options                         |   | 6,188                     |   | 0                           |   | 7,383 |   | 3,636 |   |
|                            |   |                      |   |                        |   |   |   |   |   |
| Diluted Shares                  |   | 7,041,358                 |   | 7,035,170                   |   | 7,042,553 |   | 7,038,806 |   |

 

The following table summarizes securities that were outstanding as ofOctober 27, 2002 and October 28, 2001, but not included in the calculation ofnet income per share because such securities are anti-dilutive:

 
|                    |   | **Thirteen  weeks ended** |   | **Twenty-six  weeks ended** |   |
|-------------------------|--------|---------------------------|--------|-----------------------------|--------|
|                    |   | **October  27,  2002**    |   | **October  28,  2001**      |   | **October  27,  2002** |   | **October  28,  2001** |   |
|                    |   |                      |   |                        |   |   |   |   |   |
| Options                 |   | 792,146                   |   | 809,646                     |   | 792,146 |   | 749,646 |   |
|                    |   |                      |   |                        |   |   |   |   |   |
| Warrants                |   | 500,000                   |   | 500,000                     |   | 500,000 |   | 500,000 |   |
|                    |   |                      |   |                        |   |   |   |   |   |
| Convertible  Debentures |   | 1,200,000                 |   | 1,200,000                   |   | 1,200,000 |   | 1,200,000 |   |

 

7

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ITEM2.    Management’s Discussion and Analysis of FinancialCondition and Results of Operations

 

Results of Operations

 

Overview

 

The Company’s net income for the second quarterof fiscal 2003 was $284,000 as compared to $285,000 for the same quarter offiscal 2002.  While the economicconditions in the Northeast led to a decline in revenues to $5,750,000 in thesecond quarter of 2003 as compared to $5,985,000 in the same quarter of 2002,the Company was able to improve margins and maintain its net income due toimproved operating controls.

 

Thirteen Weeks Ended October 27,2002 as Compared to Thirteen Weeks ended October 28, 2001

 

Restaurant Sales.

 

Restaurant sales in the most recent quarter were $5,750,000, comparedto restaurant sales in the prior year’s period of $5,985,000. Sales for the restaurantsopen throughout both fiscal 2003 and 2002 periods decreased by approximately3.9%.  The company believes that thedecrease in restaurant sales in the fiscal 2003 period compared to the fiscal2002 period was attributable to a continuing economic slow down in theNortheast.

 

Net sales at the Company’s Pizzeria Regina restaurants decreased by1.5% to $2,912,000 in the current period from $2,954,000 in the prior year’speriod. Net sales at the Company’s full service casual dining restaurantsdecreased by 6.4% to $2,833,000 in the current period from $3,024,000 in theprior year’s period.  The Companybelieves this decrease was primarily attributable to a continuing economic slowdown in the Northeast which had a greater effect on the full service restaurantsthan on the fast food operations.

 

Net sales at the Company’s commissary were $5,000 in the current periodcompared to $7,000 in the prior year’s period.

 

8

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Royalties

 

During the current year period, the Company recognized $4,000 inroyalties from a domestic Pizzeria Regina franchise opened at the Palms CasinoResort in Las Vegas, Nevada, compared to $5,000 in royalties in the prioryear’s period from its Polcari’s North End franchise in Saudi Arabia which hassubsequently ceased operation due to international events.

 

Costs and Expenses

 

Cost of Food, Beverages andLiquor.

 

Cost of food, beverages and liquor as a percentage of total revenueswas 19% in the current period, as compared to 21% in the prior year’speriod.  The decrease as a percentage oftotal revenues was primarily attributable to improved cost control systems andlower cheese costs.

 

The cost of food, beverage and liquor was $1,111,000 in the currentperiod compared to $1,275,000 in the prior year’s period.  The dollar decrease was due in part to thereduction in the amount of product sold for the second quarter of fiscal 2003and in part to improved cost control systems.

 

The cost of food, beverages and liquor as a percentage of restaurantsales at the Pizzeria Regina restaurants was 15% and 17% in the fiscal 2003 and2002 periods, respectively.  Thedecrease in the cost of food, beverage and liquor as a percentage of restaurantsales was principally due to lower cheese costs and improved cost controlsystems.

 

The cost of food, beverage and liquor at Pizzeria Regina restaurantswas $444,000 in the current period compared to $490,000 in the prior year’speriod.

 

The cost of food, beverages and liquor as a percentage of restaurantsales at the Company’s full service casual dining restaurants was 24% in thecurrent period and 26% in the prior year’s period.  This decrease as a percentage of restaurant sales was primarilydue to improved cost controls at the restaurants.

 

The cost of food, beverage and liquor at the Company’s full servicecasual dining restaurants, was $667,000 in the current period compared to$785,000 in the prior year’s period. The dollar decrease was primarily due to the amount of product sold andimproved cost control systems.

 

Other Operating Expenses

 

Payroll Expenses.

 

Payroll expenses were 30% of total revenues in the current periodcompared to 31% of total revenues in the prior year’s period.  The decrease in payroll expenses as apercentage of total revenues was attributable to improved labor efficiency andto the reallocation of operational supervisors to general and administrationoverhead.

 

9

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Payroll expenses were $1,721,000 in the current period compared to$1,834,000 in the prior year’s period. The dollar decrease in payroll expenses was primarily due to a reductionin hours worked as a result of diminished sales, improved labor efficiency andto the reclassification of operational supervisors to general and administrativeoverhead.  If the operation supervisorshad not been reallocated, the current payroll expenses would have been$1,785,000 in the current period compared to $1,834,000 in the prior year’speriod.

 

Payroll expenses at the Pizzeria Regina restaurants were 25% ofrestaurant sales in both fiscal periods.

 

Payroll expenses of the Pizzeria Regina restaurants were $718,000 inthe current period compared to $748,000 in the prior year’s period.  This dollar decrease was primarily due to areduction in man-hours as a result of diminshed sales.

 

Payroll expenses at the Company’s full service casual diningrestaurants decreased to 32% of restaurant sales in the current period from 33%of sales in the prior year’s period. The decrease was primarily attributable to improved labor efficiency.

 

Payroll expenses at the Company’s full service casual diningrestaurants were $907,000 in the current period compared to $995,000 in theprior year’s period.  This dollardecrease was primarily due to a reduction in man-hours due to diminished salesand to improved labor efficiency.

 

Payroll expenses at the Company’s Commissary were $96,000 for thefiscal 2003 period as compared to $91,000 in the fiscal 2002 period.

 

Other Operating Expenses,Exclusive of Payroll.

 

Other operating expenses, exclusive of payroll, were 29% of totalrevenues in both the fiscal 2003 and fiscal 2002 periods.

 

Other operating expenses, exclusive of payroll, were $1,659,000 in thecurrent period compared to $1,727,000 in the prior year’s period, primarily dueto a reduction in cost as a result of diminished sales.

 

Other operating expenses, exclusive of payroll, from the PizzeriaRegina restaurants were 33% of restaurant sales in the current period, comparedto 32% of restaurant sales in the prior year’s period.  The increase in operating expenses,exclusive of payroll, as a percentage of restaurant sales is a reflection ofthe reduced revenue base.

 

Other operating expenses, exclusive of payroll, from the PizzeriaRegina restaurants decreased to $948,000 in the current period from $957,000 inthe prior year’s period.

 

Other operating expenses, exclusive of payroll, from the Company’s fullservice casual dining restaurants decreased to 24% of restaurant sales in thecurrent period from 25% of restaurant sales in the prior year’s period.

 

10

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Other operating expenses, exclusive of payroll, from the Company’s fullservice casual dining restaurants decreased to $683,000 in the current periodfrom $743,000 in the prior year’s period. The dollar decrease was primarilyattributable to diminishing sales. Other operating expenses also include commissary expenses, which were$28,000 in the current period, as compared to $25,000 in the prior year’speriod.  Other operating expenses alsoincluded franchise costs of $2,000 in the prior year’s period.

 

General and AdministrativeExpenses.

 

General and administrative expenses were 11% of total revenues in thecurrent period, compared to 8% of total revenues in the prior year’s period.

 

General and administrative expenses were $610,000 in the currentperiod, compared to $465,000 in the prior year’s period.  Both the percentage and dollar increase wasattributable to an increase in insurance premiums and to the reallocation ofoperational supervisors to general and administrative and employeeincentives.  If the operationalsupervisors had not been reallocated, the general and administrative expenseswould have been $546,000 in the current period compared to $465,000 in the prioryear’s period.

 

Depreciation and AmortizationExpenses.

 

Depreciation and amortization expense was 5% of total revenues in thecurrent period, as compared to 4% of total revenues in the prior year’speriod.  The increase in depreciationand amortization expense as a percentage of total revenues was primarily areflection of the reduced revenue base.

 

Depreciation and amortization expense was $265,000 in the currentperiod, compared to $261,000 in the prior year’s period.

 

Interest Expense and InterestIncome.

 

Interest expense was $105,000 in the current period as compared to$144,000 in the prior year’s period. This decrease was primarily due to a decrease in interest expenses underthe Company’s credit facility.

 

Interest income was $1,000 in the current period, as compared to $200in the prior year’s period.

 

Income Taxes.

 

There is no provision for Federal or State Income taxes due to theavailability of net operating loss carry forwards.

 

Twenty-six Weeks Ended October27, 2002 as Compared to Twenty-six Weeks ended October 28, 2001

 

11

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Restaurant Sales.

 

Restaurant sales in the current period were $11,377,000, compared torestaurant sales in the prior year’s period of $11,964,000. Sales for the restaurantsopen throughout both fiscal 2003 and 2002 periods decreased by approximately4.9%.  The Company believes the decreasein restaurant sales in the fiscal 2003 period compared to the fiscal 2002period was attributable to a continuing economic slow down in the Northeast.Net sales at the Company’s Pizzeria Regina restaurants decreased to $5,771,000in the current period from $5,843,000 in the prior year’s period.  The decrease in restaurant sales wasprincipally due to a continuing economic slow down in the Northeast.

 

Net sales at the Company’s full service casual dining restaurantsdecreased to $5,596,000 in the current period from $6,111,000 in the prioryear’s period.  This decrease wasprimarily attributable to a continuing economic slow down in the Northeast.

 

Net sales at the Company’s commissary were $10,000 in both fiscalperiods.

 

Royalties

 

During the current year period, the Company recognized $7,000 inroyalties from a domestic Pizzeria Regina franchise opened at the Palms CasinoResort in Las Vegas, Nevada, compared to $12,000 in royalties in the prioryear’s period from its international Polcari’s North End franchise which hassubsequently ceased operation due to international events.

 

Costs and Expenses

 

Cost of Food, Beverages andLiquor.

 

Cost of food, beverages and liquor as a percentage of total revenueswas 19% in the current period, as compared to 22% in the prior year’speriod.  The decrease as a percentage oftotal revenues was primarily attributable to improved cost control systems andlower cheese costs.

 

The cost of food, beverage and liquor was $2,200,000 in the currentperiod compared to $2,593,000 in the prior year’s period.  The dollar decrease was due in part to thediminished sales and in part to improved cost control systems.

 

The cost of food, beverages and liquor as a percentage of restaurantsales at the Pizzeria Regina restaurants was 15% and 17% in the fiscal 2003 and2002 periods, respectively.  Thedecrease in the cost of food, beverage and liquor as a percentage of restaurantsales was principally due to lower cheese costs and improved cost controlsystems.

 

The cost of food, beverage and liquor at Pizzeria Regina restaurantswas $881,000 in the current period compared to $972,000 in the prior year’speriod.

 

The cost of food, beverages and liquor as a percentage of restaurantsales at the Company’s full service casual dining restaurants was 24% in thecurrent period and 27% in the prior year’s period.

 

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This decrease as a percentage of restaurant sales was primarily due toimproved cost controls at the restaurants.

 

The cost of food, beverage and liquor at the Company’s full servicecasual dining restaurants was $1,319,000 in the current period compared to$1,621,000 in the prior year’s period. The dollar decrease was primarily due to the diminished sales andimproved cost control systems.

 

Other Operating Expenses

 

Payroll Expenses.

 

Payroll expenses were 30% of total revenues in the current periodcompared to 32% of total revenues in the prior year’s period.  The decrease in payroll expenses as apercentage of total revenues was attributable to improved labor efficiency andto the reallocation of operational supervisors to general and administrationoverhead.

 

Payroll expenses were $3,416,000 in the current period compared to$3,791,000 in the prior year’s period. The dollar decrease in payroll expenses was primarily due to a reductionin man-hours worked as a result of diminished sales, improved labor efficiencyand to the reclassification of operational supervisors to general andadministrative overhead.  If theoperation supervisors had not been reallocated, the current payroll expenseswould have been $3,538,000 in the current period compared to $3,791,000 in the prioryear’s period.

 

Payroll expenses at the Pizzeria Regina restaurants were 25% ofrestaurant sales in the current period compared to 26% of restaurant sales inthe prior year’s period.

 

Payroll expenses of the Pizzeria Regina restaurants were $1,448,000 inthe current period compared to $1,505,000 in the prior year’s period.  This dollar decrease was primarily due to areduction in man-hours worked as a result of diminished sales.

 

Payroll expenses at the Company’s full service casual diningrestaurants decreased to 32% of restaurant sales in the current period from 34%of restaurant sales in the prior year’s period.  The decrease was primarily attributable to improved laborefficiency.

 

Payroll expenses at the Company’s full service casual dining restaurantswere $1,781,000 in the current period compared to $2,096,000 in the prioryear’s period.  This dollar decrease wasprimarily due to a reduction in man-hours worked a result of diminished salesand to improved labor efficiency.

 

Payroll expenses at the Company’s Commissary were $187,000 for thefiscal 2003 period as compared to $190,000 in the fiscal 2002 period.

 

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Other Operating Expenses,Exclusive of Payroll.

 

Other operating expenses, exclusive of payroll, were 30% of totalrevenues in the current period, compared to 29% of total revenues in the prioryear’s period.  The increase inoperating expenses, exclusive of payroll, as a percentage of total revenues wasprimarily due to the reduction in revenue.

 

Other operating expenses, exclusive of payroll were $3,362,000 in thecurrent period compared to $3,475,000 in the prior year’s period.  This dollar decrease was primarily due todiminished sales.

 

Other operating expenses, exclusive of payroll, from the PizzeriaRegina restaurants were 33% of restaurant sales in both the fiscal 2003 andfiscal 2002 periods.

 

Other operating expenses, exclusive of payroll, from the PizzeriaRegina restaurants decreased to $1,905,000 in the current period from $1,918,000in the prior year’s period.  This dollardecrease was primarily due to the reduction in revenue.

 

Other operating expenses, exclusive of payroll, from the Company’s fullservice casual dining restaurants were 25% of restaurant sales in both thefiscal 2003 and fiscal 2002 periods.

 

Other operating expenses, exclusive of payroll, from the Company’s fullservice casual dining restaurants decreased to $1,406,000 in the current periodfrom $1,507,000 in the prior year’s period. The decrease was primarily attributableto improved labor cost controls and a reduction in revenue.  Other operating expenses also includecommissary expenses, which were $51,000 in the current period, as compared to$50,000 in the prior year’s period.

 

General and Administrative Expenses.

 

General and administrative expenses were 11% of total revenues in thecurrent period, compared to 8% of total revenues in the prior year’s period.

 

General and administrative expenses were $1,235,000 in the currentperiod, as compared to $956,000 in the prior year’s period.  Both the dollar percentage and increase wasprimarily attributable to an increase in insurance premiums and to employeeincentives and to the reallocation of operational supervisors to general andadministrative.  If the operationalsupervisors had not been reallocated, the general and administrative expenseswould have been $1,113,000 in the current period compared to $956,000 in theprior year’s period.

 

Depreciation and AmortizationExpenses.

 

Depreciation and amortization expense was 5% of total revenues in thecurrent period, compared to 4% of total revenues in the prior year’speriod.  The increase in depreciationand amortization expense as a percentage of total revenues was primarily due tothe reduction in revenue.

 

Depreciation and amortization expense was $519,000 in the currentperiod, compared to $527,000 in the prior year’s period.

 

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Interest Expense and InterestIncome.

 

Interest expense was $215,000 in the current period as compared to$263,000 in the prior year’s period. This decrease was primarily due to a decrease in interest expense underthe Company’s credit facility.

 

Interest income was $1,000 in the current period, as compared to $2,000in the prior year’s period.

 

Income Taxes.

 

There is no provision for Federal or State Income taxes due to theavailability of net operating loss carry forwards.

 

Liquidity and Capital Resources.

 

At October 27, 2002, the Company had negative networking capital of $537,000, and cash and cash equivalents ofapproximately $1,020,000.

 

During the twenty-six weeks ended October 27, 2002, the Company had anet increase in cash and cash equivalents of $87,000, reflecting net cash provided by operating activities of$466,000, net cash used for investing activities of $166,000 and net cash usedfor financing activities of $213,000.

 

Net cash provided by operating activities included net income of$443,000, an increase in deferred rent of $6,000, and depreciation andamortization expense of $519,000, partially offset by a reduction in accruedexpenses of $103,000, an increase in inventories of $22,000, an increase inprepaid expenses of $8,000, an increase in other assets of $25,000, a reductionin other long-term liabilities of $56,000, and a reduction in accounts payableof $288,000.  Net cash used forinvesting activities reflects costs associated with the purchase of equipmentfor the restaurants.  Net cash used forfinancing activities of $213,000 consisted of net repayments of long-term debt,lease obligations and stockholder loans offset by proceeds from Commerce Bankand Trust as discussed below.

 

On April 30, 2002, the Company entered into a new $3,500,000 revolvingcredit facility with Commerce Bank and Trust to replace its priorfacility.  Borrowings under the newcredit facility bear interest at the bank’s base rate plus 2%.  The new credit facility expires in April2004.  The term notes under theCompany’s prior credit facility were converted into a single term note underthe new credit facility.  The new termnote bears interest at 6.75%, which rate is subject to adjustment after eachyear at the bank’s base rate plus 2% and is payable over four years.  Currently the Company has accessedapproximately $835,000 of the credit facility.

 

At October 27, 2002, the Company had currentliabilities of $2,374,000, including $517,000 of accounts payable, $1,338,000of accrued expenses and current maturities of long term obligations in theamount of $519,000.  At October 27,2002, the Company had long-term obligations, less current maturities, in theamount of $3,866,000, including $624,000 due under its credit facility withCommerce Bank & Trust Company, $98,000 of notes payable to a stockholder,$340,000 due under 

 

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the capital lease obligations, $1,500,000 ofconvertible subordinated debentures, $383,000 of deferred rent, and $921,000 ofother long-term liabilities primarily related to the litigation settlementagreement with Italian Ventures, LLC.

 

The Company believes that its existing resourcesand cash flow from operations will be sufficient to allow it to meet itsobligations over the next twelve months. The Company may pursue additional debt or equity financing if the Boardof Directors determines this to be necessary or appropriate.  However, there is no guarantee that theCompany will be able to obtain additional financing on reasonable terms, orthat it will be able to obtain additional financing at all.

 

New Accounting Pronouncements

 

The Company’s previous business combinations were accounted for usingthe purchase methods.  All futurebusiness combinations will be accounted for under the purchase method, whichmay result in the recognition of goodwill and other intangible assets, some ofwhich may subsequently be charged to operations, either by amortization orimpairment charges.  As of October 27,2002 for purchase business combinations completed prior to June 30, 2001,the net carrying amount of goodwill was approximately $454,000 and there wereno other intangible assets.

 

In October 2001, the FASB issued SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets,” which addresses financialaccounting and reporting for the impairment or disposal of long-livedassets.  This statement supersedes SFASNo. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets To Be Disposed Of,” and APB Opinion No. 30,  “Reporting the Results of Operations -Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions forthe Disposal of a Segment of a Business.” SFAS No. 144 becomes effective for the fiscal years beginning afterDecember 15, 2001. The Company has adopted SFAS No. 144.

 

“Safe Harbor” Statement Under the Private SecuritiesLitigation Reform Act of 1995

 

Forward-looking statements in this report, including without limitationstatements relating to the adequacy of the Company’s working capital and otherresources,  its ability to obtainadditional financing, and the timing of any future expansion, are made pursuantto the safe harbor provisions of the Private Securities Litigation Reform Actof 1995.  Investors are cautioned thatsuch forward-looking statements involve risks and uncertainties, includingwithout limitation:  potential quarterlyfluctuations in the Company’s operating results; seasonality of sales;competition; risks associated with expansion; the Company’s reliance on keyemployees; 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.

 

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Item 3.    Quantitativeand Qualitative Disclosure about Market Risk

 

Interest Rate Exposure

 

Management believes based on the Company’soverall interest exposure at October 27, 2002, including all interestrate-sensitive instruments, a near-term change in interest rates based onhistorical interest rate movements would not materially affect the consolidatedresults of operations or financial position.

 

Food Commodity Price Exposure

 

The Company has potential exposure to changes infood commodity prices including block cheese prices.  Management believes that projected near term changes in foodcommodity prices will not have a material impact on the Company’s consolidatedfinancial condition and results of operations.

 

Item 4.    Controlsand Procedures

 

Within the 90-day period priorto the date of this report, the Company’s management including the Company’sChief Executive Officer and Chief Financial Officer performed an evaluation ofthe effectiveness of the Company’s disclosure controls and procedures (asdefined in SEC Rule 13a-14), which have been designed to ensure that materialinformation related to the Company is timely disclosed.  Based upon that evaluation, they concludedthat the disclosure controls and procedures were effective.

 

Since the last evaluation of theCompany’s internal controls and procedures for financial reporting, the Companyhas made no significant changes in those internal controls and procedures or inother factors that could significantly affect the Company’s internal controlsand procedures for financial reporting.

 

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PART II

 

OTHER INFORMATION

 

ITEM 1. Legal Proceedings.

 

The Company is involved in various legal matters in the ordinary courseof its business.  Each of these mattersis subject to various uncertainties and some of these matters may be resolvedunfavorably to the Company.  Managementbelieves that any liability that may ultimately result from these matters willnot have a material adverse effect 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 of SecurityHolders.

 

A proposal to approve the 2002Combination Stock Option and Share Award Plan was ratified by a vote of themajority of security holders.

 

ITEM 5. Other Information.

 

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

 

(a)                                  Exhibits.

 

Exhibit 99:   906 Certification

 

(b)                                 Reports On Form 8-K.

 

None.

 

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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 2, 2002 |   | By:                                                           |  /s/ George  R. Chapdelaine |   |
|                   |   | George R. Chapdelaine, President and  Chief Executive Officer |

 

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I, George R. Chapdelaine, certify that:

 

1.               I have reviewedthis report on Form 10-Q of Boston Restaurant Associates, Inc.;

 

2.               Based on myknowledge, this report does not contain any untrue statement of a material factor omit to state a material fact necessary to make the statements made, inlight of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;

 

3.               Based on myknowledge, the financial information included in this report, and the financialstatements on which the financial information is based, fairly present in allmaterial respects the financial condition, results of operations, changes innet assets, and cash flows (if the financial statements are required to includea statement of cash flows) of the registrant as of, and for, the periodspresented in this report;

 

4.               The registrant’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in rule 30a-2(c)under the Investment Company Act) for the registrant and have:

 

(a)           designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisreport is being prepared;

 

(b)          evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this report (the “EvaluationDate”); and

 

(c)           presented in thisreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee of theregistrant’s board of directors (or persons performing the equivalentfunctions):

 

(a)           all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize, andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

(b)          any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.               The registrant’sother certifying officers and I have indicated in this report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:   December 2, 2002 | /s/ George R. Chapdelaine                                      |   |
|-------------------------------|----------------------------------------------------------------|--------|
|                          | George R. Chapdelaine,  President and  Chief Executive Officer |

 

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I, Fran Ross, certify that:

 

1.                I have reviewedthis report on Form 10-Q of Boston Restaurant Associates, Inc.;

 

2.               Based on myknowledge, this report does not contain any untrue statement of a material factor omit to state a material fact necessary to make the statements made, inlight of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;

 

3.               Based on myknowledge, the financial information included in this report, and the financialstatements on which the financial information is based, fairly present in allmaterial respects the financial condition, results of operations, changes innet assets, and cash flows (if the financial statements are required to includea statement of cash flows) of the registrant as of, and for, the periodspresented in this report;

 

4.               The registrant’s othercertifying officers and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in rule 30a-2(c) under theInvestment Company Act) for the registrant and have:

 

(a)          designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisreport is being prepared;

 

(b)         evaluated the effectivenessof the registrant’s disclosure controls and procedures as of a date  within 90 days prior to the filing date ofthis report (the “Evaluation Date”); and

 

(c)           presented in thisreport our conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee of theregistrant’s board of directors (or persons performing the equivalentfunctions):

 

(a)          all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize, andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

(b)         any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the registrant’s internal controls; and

 

6.               The registrant’sother certifying officers and I have indicated in this report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:   December 2, 2002 |   | /s/ Fran Ross                       |   |
|-------------------------------|--------|-------------------------------------|--------|
|                          |   | Fran Ross, Chief Financial  Officer |

 

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