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

**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 January 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.**

(Name of SmallBusiness Issuer 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**                                             |
| (Issuer’s  Telephone Number, Including area code)          |
|                                                            |

Check whether the issuer:(1) filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes  **ý** –  No  **o**

 

As of 1 March, 2002,there were 7,035,170 shares of the issuer’s Common Stock, par value $.01 pershare, outstanding.

 

 

 

BOSTON RESTAURANTASSOCIATES, INC.

 

INDEX

 
| PART I – FINANCIAL  INFORMATION |
|--------------------------------------|
|                                 |
| Item 1.                              | Financial Statements |
|                                 |
|                                 | Condensed  Consolidated Balance Sheets as of January 27, 2002 and April 29, 2001 |
|                                 |
|                                 | Condensed  Consolidated Statements of Income for the thirteen weeks and thirty-nine  weeks ended January 27, 2002 and January 28, 2001 |
|                                 |
|                                 | Condensed  Consolidated Statements of Cash Flows for the thirty-nine weeks ended January  27, 2002 and January 28, 2001 |
|                                 |
|                                 | Notes  to Condensed Consolidated Financial Statements |
|                                 |
| Item  2.                             | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|                                 |
| PART II – OTHER INFORMATION     |
|                                 |
|                                 | SIGNATURES |
|                                      |  |  |  |  |

 

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BOSTON RESTAURANT ASSOCIATES,INC. AND SUBSIDIARIES

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCESHEETS

 

 
|                                                                                 |   | **January 27,** |      | **April 29,** |   |
|--------------------------------------------------------------------------------------|--------|-----------------|-----------|---------------|--------|
|                                                                                 |   | **2002**        |      | **2001**      |   |
|                                                                                 |   | **(unaudited)** |      |          |   |
| ASSETS                                                                               |   |            |      |          |   |
| Current:                                                                             |   |            |      |          |   |
| Cash and cash equivalents                                                            |   | $               | 711,816   |          | $      | 333,048 |   |
| Accounts receivable                                                                  |   | 124,490         |      | 124,312       |   |
| Inventories                                                                          |   | 570,646         |      | 579,270       |   |
| Prepaid expenses and other                                                           |   | 103,985         |      | 39,265        |   |
|                                                                                 |   |            |      |          |   |
| Total current assets                                                                 |   | 1,510,937       |      | 1,075,895     |   |
|                                                                                 |   |            |      |          |   |
| Property and equipment:                                                              |   |            |      |          |   |
| Building                                                                             |   | 512,500         |      | 512,500       |   |
| Leasehold improvements                                                               |   | 6,498,472       |      | 6,463,726     |   |
| Equipment, furniture and fixtures                                                    |   | 4,299,268       |      | 4,257,568     |   |
|                                                                                 |   |            |      |          |   |
|                                                                                 |   | 11,310,240      |      | 11,233,794    |   |
|                                                                                 |   |            |      |          |   |
| Less accumulated depreciation and amortization                                       |   | 5,204,663       |      | 4,484,399     |   |
|                                                                                 |   |            |      |          |   |
| Net property and equipment                                                           |   | 6,105,577       |      | 6,749,395     |   |
|                                                                                 |   |            |      |          |   |
| Other assets                                                                         |   | 1,093,063       |      | 1,174,913     |   |
|                                                                                 |   |            |      |          |   |
| Total assets                                                                         |   | $               | 8,709,577 |          | $      | 9,000,203 |   |
|                                                                                 |   |            |      |          |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                            |   |            |      |          |   |
| Current liabilities:                                                                 |   |            |      |          |   |
| Accounts payable                                                                     |   | $               | 897,060   |          | $      | 1,219,424 |   |
| Accrued expenses                                                                     |   | 1,268,358       |      | 1,501,744     |   |
| Current maturities:                                                                  |   |            |      |          |   |
| Notes payable-stockholder                                                            |   | 5,441           |      | 5,259         |   |
| Long-term debt                                                                       |   | 554,447         |      | 543,082       |   |
| Obligations under capital leases                                                     |   | 346,857         |      | 347,842       |   |
|                                                                                 |   |            |      |          |   |
| Total current liabilities                                                            |   | 3,072,163       |      | 3,617,351     |   |
|                                                                                 |   |            |      |          |   |
| Long-term obligations:                                                               |   |            |      |          |   |
| Notes payable-stockholder, less current maturities                                   |   | 102,659         |      | 106,318       |   |
| Long-term debt, less current maturities                                              |   | 453,882         |      | 868,002       |   |
| Obligations under capital leases, less current maturities                            |   | 549,033         |      | 813,235       |   |
| Subordinated debentures                                                              |   | 1,500,000       |      | 1,500,000     |   |
| Deferred rent                                                                        |   | 378,294         |      | 282,359       |   |
| Other long-term liabilities                                                          |   | 988,996         |      | 958,000       |   |
|                                                                                 |   |            |      |          |   |
| Total liabilities                                                                    |   | 7,045,027       |      | 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                                                                  |   | (9,303,996      | )         | (10,113,608   | )      |
|                                                                                 |   |            |      |          |   |
| Total                                                                                |   | 1,689,242       |      | 879,630       |   |
| Less:                                                                                |   |            |      |          |   |
| Treasury stock, 25,000 shares at cost                                                |   | (24,692         | )         | (24,692       | )      |
| Total stockholders’ equity                                                      |   | 1,664,550       |      | 854,938       |   |
|                                                                                 |   |            |      |          |   |
| Total liabilities and stockholders’ equity                                      |   | $               | 8,709,577 |          | $      | 9,000,203 |   |

 

See accompanying notes.

 

3

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BOSTON RESTAURANTSASSOCIATES,INC. AND SUBSIDIARIES

 

CONDENSEDCONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 
|                                                         |   | **Thirteen Weeks Ended** |      | **Thirty-nine Weeks Ended** |   |
|--------------------------------------------------------------|--------|--------------------------|-----------|-----------------------------|--------|
|                                                         |   | **January 27,**          |      | **January 28,**             |   | **January 27,** |   | **January 28,** |   |
|                                                         |   | **2002**                 |      | **2001**                    |   | **2002** |   | **2001** |   |
| Revenues:                                                    |   |                     |      |                        |   |   |   |   |   |
| Restaurant sales                                             |   | $                        | 6,231,727 |                        | $      | 5,645,385 |   | $ | 18,195,578 |   | $ | 15,550,595 |   |
| Franchise fees and Royalties                                 |   | 10,931                   |      | 9,147                       |   | 23,032 |   | 71,361 |   |
|                                                         |   |                     |      |                        |   |   |   |   |   |
| Total revenues                                               |   | 6,242,658                |      | 5,654,532                   |   | 18,218,610 |   | 15,621,956 |   |
|                                                         |   |                     |      |                        |   |   |   |   |   |
| Costs and expenses:                                          |   |                     |      |                        |   |   |   |   |   |
| Cost of food, beverages and liquor                           |   | 1,222,275                |      | 1,188,743                   |   | 3,815,110 |   | 3,264,856 |   |
| Payroll                                                      |   | 1,850,874                |      | 1,705,599                   |   | 5,641,513 |   | 4,583,886 |   |
| Other operating expenses                                     |   | 1,793,515                |      | 1,678,053                   |   | 5,268,185 |   | 4,661,289 |   |
| General and administrative                                   |   | 556,831                  |      | 442,991                     |   | 1,512,361 |   | 1,286,807 |   |
| Depreciation and amortization                                |   | 265,983                  |      | 280,077                     |   | 793,138 |   | 751,816 |   |
| Pre-opening costs                                            |   | 0                        |      | 228,909                     |   | 0 |   | 649,196 |   |
|                                                         |   |                     |      |                        |   |   |   |   |   |
| Total costs and expenses                                     |   | 5,689,478                |      | 5,524,372                   |   | 17,030,307 |   | 15,197,850 |   |
|                                                         |   |                     |      |                        |   |   |   |   |   |
| Operating income                                             |   | 553,180                  |      | 130,160                     |   | 1,188,303 |   | 424,106 |   |
|                                                         |   |                     |      |                        |   |   |   |   |   |
| Other income                                                 |   | 1,119                    |      | 4,131                       |   | 5,642 |   | 13,573 |   |
| Interest income                                              |   | 397                      |      | 4,456                       |   | 2,655 |   | 32,334 |   |
| Interest expense                                             |   | (124,060                 | )         | (135,746                    | )      | (386,988 | ) | (367,758 | ) |
|                                                         |   |                     |      |                        |   |   |   |   |   |
| Net Income                                                   |   | $                        | 430,636   |                        | $      | 3,001 |   | $ | 809,612 |   | $ | 102,255 |   |
|                                                         |   |                     |      |                        |   |   |   |   |   |
| Income per share-basic                                       |   | $                        | 0.06      |                        | $      | 0.00 |   | $ | 0.12 |   | $ | 0.01 |   |
|                                                         |   |                     |      |                        |   |   |   |   |   |
| Income per share-diluted                                     |   | $                        | 0.06      |                        | $      | 0.00 |   | $ | 0.12 |   | $ | 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 common shares outstanding-diluted |   | 7,035,170                |      | 7,035,170                   |   | 7,036,735 |   | 7,035,170 |   |

 

Seeaccompanying notes

 

4

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BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(unaudited)

 
|                                                    |   | **Thirty-nine Weeks Ended** |      |
|---------------------------------------------------------|--------|-----------------------------|-----------|
|                                                    |   | **January  27,**       |      | **January  28,** |   |
|                                                    |   | **2002**                    |      | **2001** |   |
| Cash flows provided by operating  activities            |   | $                           | 1,126,635 |   | $ | 1,292,798 |   |
|                                                    |   |                        |      |   |   |
| Cash flows from  investing activities:             |   |                        |      |   |   |
| Capital expenditures                                    |   | (76,448                     | )         | (1,967,576 | ) |
|                                                    |   |                        |      |   |   |
| Cash flows used for investing activities                |   | (76,448                     | )         | (1,967,576 | ) |
|                                                    |   |                        |      |   |   |
| Cash flows from  financing activities:             |   |                        |      |   |   |
| Repayments of long-term debt                            |   | (402,755                    | )         | (328,046 | ) |
| Repayments of capital lease obligations                 |   | (265,187                    | )         | (209,520 | ) |
| Repayments of stockholder loans                         |   | (3,477                      | )         | (3,722 | ) |
| Proceeds from long-term debt                            |   | 0                           |      | 800,000 |   |
|                                                    |   |                        |      |   |   |
| Cash flows provided by (used for)  financing activities |   | (671,419                    | )         | 258,712 |   |
|                                                    |   |                        |      |   |   |
| Increase (decrease) in cash and cash  equivalents       |   | 378,768                     |      | (416,066 | ) |
|                                                    |   |                        |      |   |   |
| Cash and cash equivalents at beginning of  period       |   | 333,048                     |      | 947,386 |   |
|                                                    |   |                        |      |   |   |
| Cash and cash equivalents at end of period              |   | $                           | 711,816   |   | $ | 531,320 |   |

 

See accompanying notes.

 

5

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BOSTON RESTAURANTASSOCIATES, INC.  AND SUBSIDIARIES

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

JANUARY 27, 2002

(unaudited)

 

 

NATURE OF BUSINESS ANDBASIS OF 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 Form10-QSB.  Accordingly, they do notinclude all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements.  In the opinion of management, alladjustments (consisting of normal recurring accruals) considered necessary fora fair presentation have been included. Operating results for the thirteen-week period, and thirty-nine weekperiod, ended January 27, 2002 are not necessarily indicative of the resultsthat may be expected for the year ending April 28, 2002.  For further information, refer to theconsolidated 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 accompanyingstatements of income and cash flows for the fiscal 2002 period reflect theconsolidated income and cash flows of four casual dining Italian restaurantsand twelve Pizzeria Regina restaurants for the entire period.

NET INCOME PER SHARE

 

The Company followsStatement of Financial Accounting Standards No. 128, “Earnings per Share” (SFAS128).

The following is areconciliation of the denominator (number of shares) used in the computation ofearnings per share.  The numerator (netincome) is the same for the basic and diluted computations.

 

6

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|                            |   | **Thirteen  weeks ended** |   | **Thirty-nine  weeks ended** |   |
|---------------------------------|--------|---------------------------|--------|------------------------------|--------|
|                            |   | **January 27,**           |   | **January 28,**              |   | **January 27,** |   | **January 28,** |   |
|                            |   | **2002**                  |   | **2001**                     |   | **2002** |   | **2001** |   |
|                            |   |                      |   |                         |   |   |   |   |   |
| Basic Shares                    |   | 7,035,170                 |   | 7,035,170                    |   | 7,035,170 |   | 7,035,170 |   |
|                            |   |                      |   |                         |   |   |   |   |   |
| Effect  of Dilutive Securities: |   |                      |   |                         |   |   |   |   |   |
|                            |   |                      |   |                         |   |   |   |   |   |
| Options                         |   | Ø                    |   | Ø                       |   | 1,565 |   | Ø |   |
|                            |   |                      |   |                         |   |   |   |   |   |
| Diluted Shares                  |   | 7,035,170                 |   | 7,035,170                    |   | 7,036,735 |   | 7,035,170 |   |
|                            |   |                      |   |                         |   |   |   |   |   |

 

The following tablesummarizes securities that were outstanding as of January 27, 2002 and January28, 2001, but not included in the calculation of net income per share becausesuch securities are anti-dilutive:

 
|                    |   | **Thirteen  weeks ended** |   | **Thirty-nine  weeks ended** |   |
|-------------------------|--------|---------------------------|--------|------------------------------|--------|
|                    |   | **January 27,**           |   | **January 28,**              |   | **January 27,** |   | **January 28,** |   |
|                    |   | **2002**                  |   | **2001**                     |   | **2002** |   | **2001** |   |
|                    |   |                      |   |                         |   |   |   |   |   |
| Options                 |   | 809,646                   |   | 1,107,246                    |   | 749,646 |   | 1,107,246 |   |
|                    |   |                      |   |                         |   |   |   |   |   |
| Warrants                |   | 500,000                   |   | 525,000                      |   | 500,000 |   | 525,000 |   |
|                    |   |                      |   |                         |   |   |   |   |   |
| Convertible  Debentures |   | 1,200,000                 |   | 1,200,000                    |   | 1,200,000 |   | 1,200,000 |   |

 

7

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

 

Results of Operations

 

Overview

 

TheCompany’s restaurant sales increased 10% in the third quarter of fiscal 2002,compared to the same period in fiscal 2001. Restaurant sales in the most recent quarter were $6,232,000 compared tosales of $5,645,000 in the third quarter of fiscal 2001.  The net income for the third quarter offiscal 2002 was $431,000 compared to $3,000 for the same quarter of fiscal2001.  The increases in revenue andprofit are the result of the contribution of the new Polcari’s North End bistro restaurant located in Hyannis,Massachusetts which opened in January, 2001, and increased revenue and incomefrom the Company’s Pizzeria Regina restaurants.  In addition, the Company did not incur any pre-opening expensesduring the third quarter of fiscal 2002.

 

ThirteenWeeks Ended January 27, 2002 as Compared to Thirteen Weeks ended January 28,2001 Restaurant Sales.

 

Restaurant sales in the most recent quarter were $6,232,000, comparedto restaurant sales in the prior year’s period of $5,645,000.  The increase in restaurant sales in thefiscal 2002 period compared to the fiscal 2001 period was attributable to theopening of the new Polcari’s North End bistro restaurant and the increase atPizzeria Regina restaurants.  TheHyannis, Massachusetts location opened in January, 2001.

 

Net sales at the Company’s Pizzeria Regina restaurants increased to$3,272,000 in the current period from $3,208,000 in the prior year’speriod.  The increase in restaurantsales was principally due to the increased consumer purchases.

 

Net sales at the Company’s full service casual dining restaurantsincreased to $2,953,000 in the current period from $2,425,000 in the prioryear’s period.  This increase wasprimarily attributable to the addition of sales from the new Polcari’s NorthEnd bistro restaurant in Hyannis, Massachusetts and increased customer trafficat the Saugus, Massachusetts Polcari’s North End restaurant.

 

Net sales at the Company’s commissary were $7,000 in the current periodcompared to $12,000 in the prior year’s period.  The decrease in commissary sales was primarily attributable tothe decrease in purchases from franchisees.

 

8

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Franchise Fees andRoyalties

 

During the current year period, the Company recognized royalties of$3,000 from franchise operations compared to $9,000 in royalties from franchiseoperations in the prior year’s period. The decrease in royalties was primarily due to the impairment of thebusiness conditions of an international franchisee.

 

The Company also recognized $8,000 in franchise fees from its newPizzeria Regina franchise at The Palms in Las Vegas, NV.  The new Pizzeria Regina franchise opened onNovember 15, 2001.

 

Costs and Expenses

 

Costof Food, Beverages and Liquor.

 

Cost of food, beverages and liquor as a percentage of restaurant saleswas 20% in the current period compared to 21% in the prior years period.  The decrease in cost of food, beverages andliquor as a percentage of restaurant sales is primarily due to the improvedcost controls at the Company’s full service casual dining restaurants.

 

The cost of food, beverage and liquor was $1,222,000 in the currentperiod compared to $1,189,000 in the prior year’s period. The dollar increasewas attributable to the opening of a new Polcari’s North End bistro restaurantduring fiscal 2001.

 

The cost of food, beverages and liquor as a percentage of restaurantsales at the Pizzeria Regina restaurants was 15% and 16% in the fiscal 2002 and2001 periods respectively.  Thedecrease, as a percentage of restaurant sales was principally due to lowercheese costs and improved cost control systems.

 

The cost of food, beverage and liquor at Pizzeria Regina restaurantswas $505,000 in the current period compared to $515,000 in the prior year’speriod.  This decrease was primarilyattributable to lower cheese costs and improved cost control systems.

 

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 28% 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 $717,000 in the current period compared to$674,000 in the prior year’s period. This dollar increase was primarily due to the opening of a new Polcari’sNorth End bistro restaurant during fiscal 2001.

 

Other Operating Expenses

 

PayrollExpenses.

 

Payroll expenses were 30% of restaurant sales for both fiscal 2002 and2001 periods.

 

9

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Payroll expenses were$1,851,000 in the current period compared to $1,706,000 in the prior year’speriod.  The dollar increase in payrollexpenses was primarily due to the opening of the new Polcari’s North End bistrorestaurant.

 

Payroll expenses at the Pizzeria Regina restaurants were 24% ofrestaurant sales for both fiscal 2002 and 2001 periods.

 

Payroll expenses of the Pizzeria Regina restaurants were $788,000 inthe current period compared to $765,000 in the prior year’s period. Theincrease in payroll expenses was attributed to costs associated with increasedsales.

 

Payroll expenses at the Company’s full service casual diningrestaurants decreased to 33% of restaurant sales in the current period from 36%of restaurant sales in the prior year’s period.  The decrease was primarily attributable to improved labor costcontrols.

 

Payroll expenses at the Company’s full service casual diningrestaurants were $964,000 in the current period compared to $869,000 in theprior year’s period.  This dollarincrease was primarily due to labor costs associated with the additionalPolcari’s North End bistro restaurant opened in fiscal 2001.

 

Payroll expenses at the Company’s Commissary were $99,000 for thefiscal 2002 period as compared to $72,000 in the fiscal 2001 period.  The dollar increase in payroll expenses wasprimarily due to an increase in personnel at the Commissary to meet the addedproduction requirements of the new Polcari’s North End bistro restaurant.

 

OtherOperating Expenses, Exclusive of Payroll.

 

Other operating expenses, exclusive of payroll, were 29% of restaurantsales in fiscal 2002 period, compared to 30% of restaurant sales in fiscal 2001period.

 

Other operating expenses, exclusive of payroll were $1,794,000 in thecurrent period compared to $1,678,000 in the prior year’s period.  This dollar increase was primarily due tothe addition of a Polcari’s North End bistro restaurant and costs associatedwith increased sales.

 

Other operating expenses, exclusive of payroll, from the PizzeriaRegina restaurants was 30% of total revenues in both fiscal 2002 and fiscal2001 periods.

 

Other operating expenses, exclusive of payroll, from the PizzeriaRegina restaurants increased to $993,000 in the current period from $974,000 inthe prior year’s period.  This dollarincrease was primarily due to costs associated with increased sales.

 

Other operating expenses, exclusive of payroll, from the Company’s fullservice casual dining restaurants were 26% of restaurant sales in both fiscal2002 and fiscal 2001 periods.

 

10

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Other operating expenses, exclusive of payroll, from the Company’s fullservice casual dining restaurants increased to $775,000 in the current periodfrom $620,000 in the prior year’s period. The increase was primarilyattributable to the opening of the new Polcari’s North End bistro restaurant infiscal 2001.  Other operating expensesalso include commissary expenses, which were $21,000 in the current period, ascompared to $20,000 in the prior year’s period.  In addition, other operating expenses included $5,000 in the currentperiod, compared to $64,000 in the prior year’s period, which included costsassociated with the dissolution of the joint venture and franchisingactivities.

 

Generaland Administrative Expenses.

 

General and administrative expenses were 9% of restaurant salesrevenues in the current period, compared to 8% in the prior year’s period.

 

General and administrative expenses were $557,000 in the currentperiod, compared to $443,000 in the prior year’s period.  This dollar increase was primarilyattributable to state excise taxes and additional rent.

 

Depreciationand Amortization Expenses.

 

Depreciation and amortization expense was 4% of restaurant sales in thecurrent period, compared to 5% of restaurant sales in the prior year’s period.

 

Depreciation and amortization expense was $266,000 in the currentperiod, compared to $280,000 in the prior year’s period.  The dollar decrease was attributable to theasset impairment charge related to three Pizzeria Regina locations taken in thefourth quarter of fiscal 2001, partially offset by the opening of the newPolcari’s North End bistro restaurant in fiscal 2001.

 

InterestExpense and Interest Income.

 

Interest expense was $124,000 in the current period as compared to$136,000 in the prior year’s period. Interest income was $400 in the currentperiod, as compared to $4,000 in the prior year’s period.

 

Thirty-nineWeeks Ended January 27, 2002 as Compared to Thirty-nine Weeks ended January 28,2001 Restaurant Sales.

 

Restaurant sales in the current period were $18,196,000, compared torestaurant sales in the prior year’s period of $15,551,000.  The increase in restaurant sales in thefiscal 2002 period compared to the fiscal 2001 period was attributable to theopening of two new Polcari’s North End bistros.  The Woburn, Massachusetts and the Hyannis, Massachusettslocations opened in October, 2000 and January, 2001, respectively.  Sales for the restaurants open throughoutboth fiscal 2002 and 2001 periods decreased by approximately six tenths of onepercent (.6%).

 

Net sales at the Company’s Pizzeria Regina restaurants decreased to$9,115,000 in the current period from $9,450,000 in the prior year’speriod.  The decrease in restaurantsales was principally due to the

 

11

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closing of a Pizzeria Regina restaurant at the end of its lease and adecrease in aggregate same-store sales for existing Pizzeria Regina restaurantsin food courts currently undergoing renovation.

 

Net sales at the Company’s full service casual dining restaurantsincreased to $9,064,000 in the current period from $6,066,000 in the prioryear’s period.  This increase wasprimarily attributable to the addition of sales from the two new Polcari’sNorth End bistro restaurants in Woburn, Massachusetts and Hyannis,Massachusetts and increased customer traffic at the Saugus, MassachusettsPolcari’s North End restaurant.

 

Net sales at the Company’s commissary were $17,000 in the currentperiod compared to $35,000 in the prior year’s period.  The decrease in commissary sales wasprimarily attributable to the closure of a franchise restaurant.

 

Franchise Fees and Royalties

 

During the current year period, the Company recognized $23,000 infranchise fees and royalties from its franchise operations compared to $71,000in franchise fees and royalties from its franchise operations in the prioryear’s period.  The decrease wasprimarily attributable to the impairment of business conditions of aninternational franchise resulting in a reduction of royalties.

 

Costs and Expenses

 

Cost of Food, Beverages andLiquor.

 

Cost of food, beverages and liquor as a percentage of restaurant saleswere 21% in both fiscal 2002 and 2001 periods.

 

The cost of food, beverage and liquor was $3,815,000 in the currentperiod compared to $3,265,000 in the prior year’s period. The dollar increasewas due to the opening of two new Polcari’s North End bistro restaurants infiscal 2001.

 

The cost of food, beverages and liquor as a percentage of restaurantsales at the Pizzeria Regina restaurants was 16% in the current period comparedto 17% in the prior year’s period.  Thedecrease in cost of food, beverage and liquor as a percentage of restaurantsales was principally due to the lower cheese costs and cost control systems.

 

The cost of food, beverage and liquor at Pizzeria Regina restaurantswas $1,477,000 in the current period compared to $1,566,000 in the prior year’speriod.  The dollar decrease wasprincipally due to the closing of a Pizzeria Regina restaurant at the end ofits lease, as well as, lower cheese costs and improved cost control systems.

 

The cost of food, beverages and liquor as a percentage of restaurantsales at the Company’s full service casual dining restaurants was 26% in thecurrent period and 28% in the prior year’s period.  This decrease as a percentage of restaurant sales was due toimproved cost controls at the restaurants.

 

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The cost of food, beverage and liquor, at the Company’s full servicecasual dining restaurants, was $2,338,000 in the current period compared to$1,699,000 in the prior year’s period. This dollar increase was primarily due to the opening of the two newPolcari’s North End bistro restaurants during fiscal 2001.

 

Other Operating Expenses

 

Payroll Expenses.

 

Payroll expenses were 31% of restaurant sales in the current periodcompared to 29% of restaurant sales in the prior year’s period.  The increase in payroll expenses as apercentage of restaurant sales was attributable to the opening of the two newPolcari’s North End bistro restaurants, which have higher payroll expenses as apercentage of restaurant sales than the Pizzeria Regina restaurants.

 

Payroll expenses were $5,642,000 in the current period compared to$4,584,000 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 Pizzeria Regina restaurants were 25% ofrestaurant sales in both fiscal 2002 and 2001 periods.

 

Payroll expenses of the Pizzeria Regina restaurants were $2,293,000 inthe current period compared to $2,335,000 in the prior year’s period.  This dollar decrease was primarily due to theclosure of Pizzeria Regina restaurant in September of 2000 at the terminationof its lease.

 

Payroll expenses at the Company’s full service casual diningrestaurants were 34% of restaurant sales in both fiscal 2002 and 2001 periods.

 

Payroll expenses at the Company’s full service casual diningrestaurants were $3,060,000 in the current period compared to $2,050,000 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 the Company’s Commissary were $289,000 for thefiscal 2002 period as compared to $199,000 in the fiscal 2001 period.  The dollar increase in payroll expenses wasprimarily due to an increase in personnel at the Commissary to meet the addedproduction requirements of the new Polcari’s North End bistro restaurants.

 

Other Operating Expenses,Exclusive of Payroll.

 

Other operating expenses, exclusive of payroll, were 29% of restaurantsales in the current period, compared to 30% of restaurant sales in the prioryear’s period.

 

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Other operating expenses, exclusive of payroll were $5,268,000 in thecurrent period compared to $4,661,000 in the prior year’s period.  This dollar increase was primarily due tothe addition of two new Polcari North End bistro restaurants and costsassociated with increased sales.

 

Other operating expenses, exclusive of payroll, from the PizzeriaRegina restaurants was 32% of restaurant sales in the current period from 31%of restaurant sales in the prior year’s period due to increased occupancycosts.

 

Other operating expenses, exclusive of payroll, from the PizzeriaRegina restaurants decreased to $2,911,000 in the current period from$2,942,000 in the prior year’s period. This dollar decrease was primarily due to the closure of a PizzeriaRegina restaurant at the end of its lease.

 

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

 

Other operating expenses, exclusive of payroll, from the Company’s fullservice casual dining restaurants increased to $2,282,000 in the current periodfrom $1,427,000 in the prior year’s period. The increase was primarilyattributable to the opening of the two new Polcari’s North End bistrorestaurants in fiscal 2001.

 

Other operating expenses also include commissary expenses of  $70,000 in the current period, as comparedto $60,000 in the prior year’s period. In addition, other operating expenses included $5,000 in fiscal 2002 and$232,000 in fiscal 2001, which included costs associated with joint venture andfranchising activities.

 

General and AdministrativeExpenses.

 

General and administrative expenses were 8% of restaurant sales forboth fiscal 2002 and fiscal 2001 periods.

 

General and administrative expenses were $1,512,000 in the currentperiod, compared to $1,287,000 in the prior year’s period.  This dollar increase was primarilyattributable to state excise taxes, consulting costs and rent.

 

Depreciation and AmortizationExpenses.

 

Depreciation and amortization expense was 4% of restaurant sales in thecurrent period, compared to 5% of restaurant sales in the prior year’s period.

 

Depreciation and amortization expense was $793,000 in the currentperiod, compared to $752,000 in the prior year’s period.  The dollar increase was primarilyattributable to the opening of the two new Polcari’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.

 

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InterestExpense and Interest Income.

 

Interest expense was $387,000 in the current period as compared to$368,000 in the prior year’s period. Interest income was $3,000 in the currentperiod, as compared to $32,000 in the prior year’s period.

 

Liquidity and Capital Resources.

 

At January 27, 2002, the Company had negative networking capital of $1,561,000 and cash and cash equivalents of approximately$712,000.

 

During the thirty-nine weeks ended January 27, 2002, the Company had anet increase in cash and cash equivalents of $379,000 reflecting net cash provided by operating activities of$1,127,000, net cash used for investing activities of $76,000 and net cash usedfor financing activities of $671,000.

 

Net cash provided by operating activities included net income of$810,000, a decrease in other assets of $9,000, an increase in deferred rent of$96,000, a decrease in inventories of $9,000 and depreciation and amortizationexpense of $793,000, and an increase in other long-term liabilities of $31,000,partially offset by a reduction in accrued expenses of $233,000, an increase inprepaid expenses of $65,000, and a reduction in accounts payable of$322,000.  Net cash used for investingactivities of $76,000 reflects costs associated with the purchase of equipmentfor the restaurants.  Net cash used forfinancing activities of $671,000 consisted of net repayments of long-term debt,lease obligations and stockholder loans.

 

At January 27, 2002, the Company had currentliabilities of $3,072,000, including $897,000 of accounts payable, $1,268,000of accrued expenses and current maturities of long term obligations in theamount of $907,000.  At January 27,2002, the Company had long-term obligations, less current maturities, in theamount of $3,973,000, including $454,000 due under its credit facility withFleet Bank, $103,000 of notes payable to a stockholder, $549,000 due under thecapital lease obligations, $1,500,000 of convertible subordinated debentures,$378,000 of deferred rent, and $989,000 of other long-term liabilitiesprimarily related to the litigation settlement agreement with Italian Ventures,LLC.

 

The Company believes that its existing resources and cash flow fromoperations will be sufficient to allow it to meet its obligations over the nexttwelve months. The line of credit with Fleet Bank terminated in May, 2001.  The Company may pursue additional debt orequity financing if the Board of Directors determines necessary or appropriate.  There is no guarantee that the Company willbe able to obtain additional financing on reasonable terms, or that it will beable to obtain additional financing at all.

 

Recent Accounts Pronouncements

 

In June 2001, the Financial Accounting Standards Board finalized FASBStatements No. 141, Business Combinations (“SFAS 141”) and No. 142, Goodwilland Other Intangible Assets (“SFAS 142”). SFAS 141 requires the use of the purchase method of accounting andprohibits the use of the pooling-of-interests method of accounting for businesscombinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangibleassets apart from goodwill if the acquired

 

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intangible assets meet certain criteria.  SFAS 141 applies to all business combinations initiated afterJune 30, 2001 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 of intangibleassets and goodwill based on the criteria in SFAS 141.

 

SFAS 142 requires, among other things, that companies no longeramortize goodwill, but instead test goodwill for impairment at leastannually.  In addition, SFAS 142requires that the Company identify reporting units for the purpose of assessingpotential future impairments of goodwill, reassess the useful lives of otherexisting recognized intangible assets, and cease amortization of intangibleassets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested forimpairment in accordance with the guidelines in SFAS 142.  SFAS 142 is required to be applied in fiscalyears beginning after December 15, 2001 to all goodwill and other intangibleassets recognized at that date, regardless of when those assets were initiallyrecognized.  SFAS 142 requires theCompany to complete a transitional goodwill impairment test six months from thedate of adoption.  The Company is alsorequired to reassess the useful lives of other intangible assets within thefirst interim quarter after adoption of SFAS 142.

 

The Company’s previous business combination was accounted for using thepurchase method.  As of January 27,2002, the net carrying amount of goodwill is $463,000.  Amortization expense during the three-monthperiod and nine month period ended January 27, 2002 was $9,000 and$28,000.  Currently, the Company isassessing but has not yet determined how the adoption of SFAS 141 and SFAS 142will impact its financial position and results of operation.

 

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

 

Forward-lookingstatements in this report, including without limitation, statements relating tothe adequacy of the Company’s resources, and the timing of the Company’sexpansion, are made pursuant to the safe harbor provisions of the PrivateSecurities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involverisks and uncertainties, including without limitation: potential quarterly fluctuationsin the Company’s operating results; seasonality of sales; competition; risksassociated with expansion; the Company’s reliance on key employees; risksgenerally associated with the restaurant industry; risks associated withgeographic concentration of the Company’s restaurants; risks associated withserving alcoholic beverages; and other risks and uncertainties indicated fromtime to time in the Company’s filings with the Securities and ExchangeCommission.

 

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PART II

 

OTHER INFORMATION

 

ITEM1. 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 ofSecurity Holders.

 

None.

 

ITEM 5. Other Information.

 

None.

 

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

 

(a)                                  Exhibits.

 

None

 

(b)                                 Reports On Form8-K.

 

None.

 

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SIGNATURES

 

In accordance with therequirements of the Securities Exchange Act of 1934, the registrant caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|                | BOSTON RESTAURANT  ASSOCIATES, INC.   |
|---------------------|---------------------------------------|
|                |                                  |
|                |                                  |
| Date: 6 March, 2002 | By:                                   | /s/ | George R. Chapdelaine |   |
|                | George R. Chapdelaine,  President and |
|                | Chief Executive Officer               |

 

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