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

**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 July 28, 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.**

(Exact Name of Registrant as Specified in its Charter)

 

| **Delaware**                                                   |   | **61-1162263**                  |
|----------------------------------------------------------------|--------|---------------------------------|
| (State or Other Jurisdiction of Incorporation or Organization) |   | IRS Employer Identification No. |
|                                                           |   |                            |
| **999 Broadway  Saugus - Massachusetts 01906**                 |
| (Address of Principal Executive Offices)                       |
|                                                           |   |                            |
| **(781) 231-7575**                                             |
| (Registrant’s Telephone Number Including area code)       |

 

Checkwhether the Registrant: (1) filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days.  Yes ý   No o.

 

Indicatethe number of shares outstanding of each of the registrant classes of commonstock.  As of the latest practicaldate.  Common stock $0.01 par value7,048,072 of September 5, 2002.

 

 

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BOSTON RESTAURANT ASSOCIATES, INC.

 

INDEX

 
| PART I - FINANCIAL INFORMATION |
|--------------------------------|
|                           |   |
| Item  1.                       | Financial Statements |
|                           |   |
|                           | Condensed Consolidated Balance  Sheets as of July 28, 2002 (unaudited) and April 28, 2002 |
|                           |   |
|                           | Condensed Consolidated  Statements of Income for the thirteen weeks ended July 28, 2002 (unaudited)  and July 29, 2001 |
|                           |   |
|                           | Condensed Consolidated  Statements of Cash Flows for the thirteen weeks ended July 28, 2002  (unaudited) and July 29, 2001 |
|                           |   |
|                           | 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 |
|                           |   |
| PART II - OTHER INFORMATION    |
|                           |   |
|                           | SIGNATURES |
|                                |  |  |

 

2

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PART 1 - FINANCIALINFORMATION

ITEM 1.FINANCIAL STATEMENTS

BOSTONRESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES

CONDENSEDCONSOLIDATED BALANCE SHEETS

 
|                                                                                  |   | **July 28,  2002** |      | **April 28,  2002** |   |
|---------------------------------------------------------------------------------------|--------|--------------------|-----------|---------------------|--------|
|                                                                                  |   | **(unaudited)**    |      |                |   |
| ASSETS                                                                                |   |               |      |                |   |
| Current:                                                                              |   |               |      |                |   |
| Cash and cash equivalents                                                             |   | $                  | 873,042   |                | $      | 932,806 |   |
| Accounts receivable                                                                   |   | 131,231            |      | 123,840             |   |
| Inventories                                                                           |   | 578,359            |      | 546,688             |   |
| Prepaid expenses and other                                                            |   | 104,625            |      | 118,189             |   |
|                                                                                  |   |               |      |                |   |
| Total current assets                                                                  |   | 1,687,257          |      | 1,721,523           |   |
|                                                                                  |   |               |      |                |   |
| Property and equipment:                                                               |   |               |      |                |   |
| Building                                                                              |   | 512,500            |      | 512,500             |   |
| Leasehold improvements                                                                |   | 6,589,285          |      | 6,517,055           |   |
| Equipment, furniture and fixtures                                                     |   | 4,361,679          |      | 4,329,675           |   |
|                                                                                  |   |               |      |                |   |
|                                                                                  |   | 11,463,464         |      | 11,359,230          |   |
|                                                                                  |   |               |      |                |   |
| Less accumulated depreciation and amortization                                        |   | 5,743,182          |      | 5,508,234           |   |
|                                                                                  |   |               |      |                |   |
| Net property and equipment                                                            |   | 5,720,282          |      | 5,850,996           |   |
|                                                                                  |   |               |      |                |   |
| Other assets                                                                          |   | 1,082,129          |      | 1,068,215           |   |
|                                                                                  |   |               |      |                |   |
| Total assets                                                                          |   | $                  | 8,489,668 |                | $      | 8,640,734 |   |
|                                                                                  |   |               |      |                |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                             |   |               |      |                |   |
| Current liabilities:                                                                  |   |               |      |                |   |
| Accounts payable                                                                      |   | $                  | 693,659   |                | $      | 805,719 |   |
| Accrued expenses                                                                      |   | 1,358,484          |      | 1,440,237           |   |
| Current maturities:                                                                   |   |               |      |                |   |
| Notes payable-stockholder                                                             |   | 5,580              |      | 5,533               |   |
| Long-term debt                                                                        |   | 209,945            |      | 528,623             |   |
| Obligations under capital leases                                                      |   | 337,845            |      | 364,077             |   |
|                                                                                  |   |               |      |                |   |
| Total current liabilities                                                             |   | 2,605,513          |      | 3,144,189           |   |
|                                                                                  |   |               |      |                |   |
| Long-term obligations:                                                                |   |               |      |                |   |
| Notes payable-stockholder, less current maturities                                    |   | 99,834             |      | 100,784             |   |
| Long-term debt, less current maturities                                               |   | 678,766            |      | 346,087             |   |
| Obligations under capital leases, less current maturities                             |   | 390,084            |      | 449,154             |   |
| Subordinated debentures                                                               |   | 1,500,000          |      | 1,500,000           |   |
| Deferred rent                                                                         |   | 380,614            |      | 376,825             |   |
| Other long-term liabilities                                                           |   | 930,028            |      | 978,026             |   |
|                                                                                  |   |               |      |                |   |
| Total liabilities                                                                     |   | 6,584,839          |      | 6,895,065           |   |
|                                                                                  |   |               |      |                |   |
| Commitments and contingencies                                                         |   |               |      |                |   |
|                                                                                  |   |               |      |                |   |
| Stockholders’ equity :                                                           |   |               |      |                |   |
| Preferred stock, $0.01 par value, 10,000,000 shares authorized;  none issued     |   | —             |      | —              |   |
| Common stock, $0.01 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                                                                   |   | (9,063,717         | )         | (9,222,877          | )      |
|                                                                                  |   |               |      |                |   |
| Total                                                                                 |   | 1,929,521          |      | 1,770,361           |   |
| Less:                                                                                 |   |               |      |                |   |
| Treasury stock, 25,000 shares at cost                                                 |   | (24,692            | )         | (24,692             | )      |
| Total stockholders’ equity                                                       |   | 1,904,829          |      | 1,745,669           |   |
|                                                                                  |   |               |      |                |   |
| Total liabilities and stockholders’ equity                                       |   | $                  | 8,489,668 |                | $      | 8,640,734 |   |

 

Accompanyingnotes are an integral part of these condensed financial statements.

 

3

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BOSTON RESTAURANTSASSOCIATES,INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTSOF INCOME

(unaudited)

 
|                                                          |   | **Thirteen Weeks Ended** |      |
|---------------------------------------------------------------|--------|--------------------------|-----------|
|                                                          |   | **July 28,  2002**       |      | **July 29,  2001** |   |
|                                                          |   | **(unaudited)**          |      |   |   |
| Revenues:                                                     |   |                     |      |   |   |
| Restaurant sales                                              |   | $                        | 5,626,541 |   | $ | 5,979,231 |   |
| Royalties                                                     |   | 3,437                    |      | 6,670 |   |
|                                                          |   |                     |      |   |   |
| Total revenues                                                |   | 5,629,978                |      | 5,985,901 |   |
|                                                          |   |                     |      |   |   |
| Costs and expenses:                                           |   |                     |      |   |   |
| Cost of food, beverages and liquor                            |   | 1,089,491                |      | 1,317,795 |   |
| Payroll                                                       |   | 1,694,692                |      | 1,956,153 |   |
| Other operating expenses                                      |   | 1,703,053                |      | 1,747,959 |   |
| General and administrative                                    |   | 625,561                  |      | 490,303 |   |
| Depreciation and amortization                                 |   | 254,190                  |      | 265,682 |   |
|                                                          |   |                     |      |   |   |
| Total costs and expenses                                      |   | 5,366,987                |      | 5,777,892 |   |
|                                                          |   |                     |      |   |   |
| Operating income                                              |   | 262,991                  |      | 208,009 |   |
|                                                          |   |                     |      |   |   |
| Other income                                                  |   | 5,202                    |      | 2,973 |   |
| Interest income                                               |   | 615                      |      | 2,014 |   |
| Interest expense                                              |   | (109,648                 | )         | (118,854 | ) |
|                                                          |   |                     |      |   |   |
| Net income                                                    |   | $                        | 159,160   |   | $ | 94,142 |   |
|                                                          |   |                     |      |   |   |
| Income per share-basic                                        |   | $                        | 0.02      |   | $ | 0.01 |   |
|                                                          |   |                     |      |   |   |
| Income per share-diluted                                      |   | $                        | 0.02      |   | $ | 0.01 |   |
|                                                          |   |                     |      |   |   |
| Weighted average number of common shares outstanding-basic    |   | 7,035,170                |      | 7,035,170 |   |
|                                                          |   |                     |      |   |   |
| Weighted average number of dilutive common shares outstanding |   | 7,043,646                |      | 7,035,170 |   |

 

Accompanying notes are anintegral part of these condensed financial statements.

 

4

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BOSTON RESTAURANTASSOCIATES, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS

 

(unaudited)

 
|                                             |   | **July 28,  2002** |    | **July 29,  2001** |   |
|--------------------------------------------------|--------|--------------------|---------|--------------------|--------|
|                                             |   |               |    |               |   |
| Cash flows provided by operating activities      |   | $                  | 116,674 |               | $      | 135,505 |   |
|                                             |   |               |    |               |   |
| Cash flows from  investing  activities:     |   |               |    |               |   |
| Capital expenditures                             |   | (104,234           | )       | (15,065            | )      |
|                                             |   |               |    |               |   |
| Cash flows used for investing activities         |   | (104,234           | )       | (15,065            | )      |
|                                             |   |               |    |               |   |
| Cash flows from financing activities:            |   |               |    |               |   |
| Repayments of long-term debt                     |   | (908,304           | )       | (131,282           | )      |
| Repayments of capital lease obligations          |   | (85,302            | )       | (107,463           | )      |
| Repayments of stockholder loans                  |   | (903               | )       | (1,291             | )      |
| Proceeds from long-term debt                     |   | 922,305            |    | —             |   |
|                                             |   |               |    |               |   |
| Cash flows used for financing activities         |   | (72,204            | )       | (240,036           | )      |
|                                             |   |               |    |               |   |
| Decrease in cash and cash equivalents            |   | (59,764            | )       | (119,596           | )      |
|                                             |   |               |    |               |   |
| Cash and cash equivalents at beginning of period |   | 932,806            |    | 333,048            |   |
|                                             |   |               |    |               |   |
| Cash and cash equivalents at end of period       |   | $                  | 873,042 |               | $      | 213,452 |   |

 

Accompanying notes are an integral part of these condensed financialstatements.

 

5

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BOSTONRESTAURANT ASSOCIATES, INC.  ANDSUBSIDIARIES

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

JULY 28, 2002

(unaudited)

 

1.  NATURE OF BUSINESS AND BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with generally acceptedaccounting principles for interim financial information and with theinstructions to Form 10-Q.  Accordingly,they do not include all of the information and footnotes required by generallyaccepted accounting 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 ended July 28, 2002 arenot necessarily indicative of the results that may be expected for the yearending April 27, 2003.  For furtherinformation, refer to the consolidated financial statements and footnotesthereto included in the Company’s annual report on Form 10-K for the year endedApril 28, 2002.  The balance sheet atApril 28, 2002 has been derived from the audited financial statements at thatdate.

 

The accompanying statements of income and cash flowsfor the fiscal 2003 and fiscal 2002 periods reflect the consolidated operationsand cash flow of four casual dining Italian restaurant and twelve PizzeriaRegina restaurants for the entire period.

 

2.  NET INCOME PER SHARE

 

TheCompany follows Statement of Financial Accounting Standards No. 128, “Earningsper 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 forthe basic and diluted computations.

 

6

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|                           |   | **Thirteen weeks ended** |   |
|--------------------------------|--------|--------------------------|--------|
|                           |   | **July 28,  2002**       |   | **July 29,  2001** |   |
| Basic Shares                   |   | 7,035,170                |   | 7,035,170 |   |
|                           |   |                     |   |   |   |
| Effect of Dilutive Securities: |   |                     |   |   |   |
|                           |   |                     |   |   |   |
| Options                        |   | 8,476                    |   | — |   |
|                           |   |                     |   |   |   |
| Diluted Shares                 |   | 7,043,646                |   | 7,035,170 |   |

 

Thefollowing table summarizes securities that were outstanding as of July 28, 2002and July 29, 2001, but not included in the calculation of net income per sharebecause such securities are anti-dilutive:

 
|                    |   | **Thirteen weeks ended** |   |
|-------------------------|--------|--------------------------|--------|
|                    |   | **July 28,  2002**       |   | **July 29,  2001** |   |
| Options                 |   | 802,146                  |   | 790,446 |   |
|                    |   |                     |   |   |   |
| Warrants                |   | 500,000                  |   | 500,000 |   |
|                    |   |                     |   |   |   |
| Convertible  Debentures |   | 1,200,000                |   | 1,200,000 |   |

 

3.  REVOLVING CREDIT FACILITY

 

On April 30, 2002, the Company entered into a new$3,500,000 revolving credit facility with Commerce Bank and Trust.  Borrowings under the credit facility bearinterest at the bank’s base rate plus 2%. The new credit facility expires in April 2004.  Subsequent to year end, the term notes under the credit facilityin effect at April 28, 2002 were converted into one term note under thenew credit facility.  The new term notebears interest at 6.75% which rate is subject to adjustment after each year tothe bank’s base rate plus 2% and is payable over four years.

 

7

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ITEM 2.          Management’s Discussion andAnalysis of Financial Condition and Results of Operations

 

Results of Operations

 

# Overview

 

TheCompany’s restaurant sales decreased 5.9% in the first quarter of fiscal2003.  Restaurant sales in the mostrecent quarter were $5,627,000 compared to sales of $5,979,000 in the firstquarter of fiscal 2002.  The company’smanagement believes the decrease in revenue is primarily attributable to theunusually hot weather in New England during July and a continuing economic slowdown in the Northeast.  The net incomefor the first quarter of fiscal 2003 was $159,000 compared to $94,000 for thesame quarter of fiscal 2002.  Theincrease in profit is the result of improved cost controls in the restaurants.

 

ThirteenWeeks Ended July 28, 2002 as Compared to Thirteen Weeks ended July 29, 2001Restaurant Sales.

 

Restaurant sales in the most recent quarter were$5,627,000, compared to restaurant sales in the prior year’s period of$5,979,000.  The decrease in restaurantsales in the fiscal 2003 period compared to the fiscal 2002 period wasattributable to the unusually hot weather in New England  in July and a continuing economic slow downin the Northeast.

 

Sales for the restaurants open throughout both fiscal 2003and 2002 periods decreased by approximately 5.9%.  Net sales at the Company’s Pizzeria Regina restaurants decreasedto $2,859,000 in the current period from $2,889,000 in the prior year’s period.  The decrease in restaurant sales wasprincipally due to the unusually hot weather conditions in New England in Julyand a continuing economic slow down in the Northeast.

 

Net sales at the Company’s full service casual diningrestaurants decreased to $2,762,000 in the current period from $3,087,000 inthe prior year’s period.  This decreasewas primarily attributable to the unusually hot weather in New England duringthis fiscal period in July and a continuing economic slow down in theNortheast.

 

Net sales at the Company’s commissary were $6,000 inthe current period compared to $3,000 in the prior year’s period.

 

# Royalties

 

During the current year period, the Company recognized$3,000 in royalties from a domestic Pizzeria Regina franchise opened at thePalms Casino Resort in Las Vegas, Nevada, compared to $7,000 in royalties inthe prior year’s period from its international Polcari’s North End franchisewhich has subsequently ceased operation due to international events.

 

8

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# Costsand Expenses

 

Costof Food, Beverages and Liquor.

 

Cost of food, beverages and liquor as a percentage oftotal revenues were 19% in the current period, as compared to 22% in the prioryear’s period.  The decrease as apercentage of total revenues was primarily attributable to improved costcontrol systems and lower cheese costs.

 

Thecost of food, beverage and liquor was $1,089,000 in the current period comparedto $1,318,000 in the prior year’s period. The dollar decrease was due in partto the reduction in revenues for the first quarter of fiscal 2003 and in partimproved cost control systems.

 

The cost of food, beverages and liquor as a percentageof restaurant sales at the Pizzeria Regina restaurants was 15% and 17% in thefiscal 2003 and 2002 periods, respectively. The decrease in the cost of food, beverage and liquor as a percentage ofrestaurant sales was principally due to lower cheese costs and improved costcontrol systems.

 

The cost of food, beverage and liquor at PizzeriaRegina restaurants was $430,000 in the current period compared to $482,000 inthe prior year’s period.

 

The cost of food, beverages and liquor as a percentageof restaurant sales at the Company’s full service casual dining restaurants was24% in the current period and 27% in the prior year’s period.  The decrease in the cost of food, beverageand liquor as a percentage of restaurant sales was due to improved cost controlsystems at the restaurants.

 

The cost of food, beverage and liquor, at theCompany’s full service casual dining restaurants, was $659,000 in the currentperiod compared to $836,000 in the prior year’s period.  The dollar decrease was primarily due to thereduction in revenue and improved cost control systems.

 

# OtherOperating Expenses

 

PayrollExpenses.

 

Payroll expenses were 30% of total revenues in thecurrent period compared to 33% of total revenues in the prior year’speriod.  The decrease in payrollexpenses as a percentage of total revenues was attributable to improved laborefficiency and to the reallocation of operational supervisors to general andadministration overhead.

 

Payroll expenses were $1,695,000 in the current periodcompared to $1,956,000 in the prior year’s period.  The dollar decrease in payroll expenses was primarily due to areduction in revenue, improved labor efficiency and to the reclassification ofoperational supervisors to general and administrative overhead.  If the operation supervisors had not beenreallocated, the current payroll expenses would have been $1,753,000 in the currentperiod compared to $1,956,000 in the prior year’s period.

 

Payroll expenses at the Pizzeria Regina restaurantswere 26% of restaurant sales in both fiscal periods.

 

9

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Payroll expenses of the Pizzeria Regina restaurantswere $730,000 in the current period compared to $757,000 in the prior year’speriod.  This dollar decrease wasprimarily due to a reduction in manhours reflecting lower revenues.

 

Payroll expenses at the Company’s full service casualdining restaurants decreased to 32% of restaurant sales in the current periodfrom 36% 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 casualdining restaurants were $874,000 in the current period compared to $1,101,000in the prior year’s period.  This dollardecrease was primarily due to a reduction in revenue and to improved laborefficiency.

 

Payroll expenses at the Company’s Commissary were$91,000 for the fiscal 2003 period as compared to $98,000 in the fiscal 2002period.

 

OtherOperating Expenses, Exclusive of Payroll.

 

Other operating expenses, exclusive of payroll, were30% of total revenues in the current period, compared to 29% of total revenuesin the prior year’s period.  The increasein operating expenses, exclusive of payroll, as a percentage of total revenueswas primarily due to the reduction in revenue.

 

Other operating expenses, exclusive of payroll were$1,703,000 in the current period compared to $1,748,000 in the prior year’speriod.

 

Other operating expenses, exclusive of payroll, fromthe Pizzeria Regina restaurants were 33% of total revenues in both fiscalperiods.

 

Other operating expenses, exclusive of payroll, fromthe Pizzeria Regina restaurants decreased to $956,000 in the current periodfrom $961,000 in the prior year’s period.

 

Other operating expenses, exclusive of payroll, fromthe Company’s full service casual dining restaurants increased to 26% of netsales in the current period from 25% of net sales in the prior year’speriod.  The increase in operatingexpenses, exclusive of payroll, as a percentage of total revenues was primarilydue to the reduction in revenue.

 

Other operating expenses, exclusive of payroll, fromthe Company’s full service casual dining restaurants decreased to $723,000 inthe current period from $764,000 in the prior year’s period. The decrease wasprimarily attributable to improved labor cost controls and a reduction inrevenue.  Other operating expenses alsoinclude commissary expenses, which was $24,000 in the current period, ascompared to $23,000 in the prior year’s period.

 

Generaland Administrative Expenses.

 

General and administrative expenses were 11% of totalrevenues in the current period, compared to 8% of total revenues in the prioryear’s period.

 

10

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General and administrative expenses were $626,000 inthe current period, compared to $490,000 in the prior year’s period.  This dollar increase was primarilyattributable to the reallocation of operational supervisors to general andadministrative and employee incentives. If the operational supervisors had not been reallocated, the general andadministrative expenses would have been $568,000 in the current period comparedto $490,000 in the prior year’s period.

 

Depreciationand Amortization Expenses.

 

Depreciation and amortization expense was 5% of totalrevenues in the current period, compared to 4% of total revenues in the prioryear’s period.

 

Depreciation and amortization expense was $254,000 inthe current period, compared to $266,000 in the prior year’s period.  The dollar decrease was principally due tovarious assets attaining full depreciation.

 

InterestExpense and Interest Income.

 

Interest expense was $110,000 in the current period ascompared to $119,000 in the prior year’s period. This decrease was primarilydue to a decrease in interest expense under the Company’s credit facility.

 

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

 

Liquidityand Capital Resources.

 

AtJuly 28, 2002, the Company had negative net working capital of $918,000 andcash and cash equivalents of approximately $873,000.

 

During the thirteen weeks ended July 28, 2002, theCompany had a net decrease in cash and cash equivalents of  $60,000 reflecting net cash provided byoperating activities of $117,000, net cash used for investing activities of$104,000 and net cash used for financing activities of $72,000.

 

Net cash provided by operating activities included netincome of $159,000, a decrease in prepaid expenses of $14,000, an increase indeferred rent of $4,000 and depreciation and amortization expense of $254,000,partially offset by a reduction in accrued expenses of $82,000, an increase inaccounts receivables of $7,000, an increase in inventories of $32,000, anincrease in other assets of $33,000, a decrease in other long-term liabilitiesof $48,000, and a reduction in accounts payable of $112,000.  Net cash used for investing activitiesreflects costs associated with leasehold improvements and with the purchase ofequipment for the restaurants.  Net cashused for financing activities of $72,000 consisted of net repayments oflong-term debt, lease obligations and stockholder loans offset by proceeds fromCommerce Bank and Trust as discussed below.

 

On April 30, 2002, the Company entered into a new$3,500,000 revolving credit facility with Commerce Bank and Trust to replaceits prior facility.  Borrowings underthe new credit 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 to the bank’s base rate plus 2% and is payable over four years.

 

11

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AtJuly 28, 2002, the Company had current liabilities of $2,606,000, including$694,000 of accounts payable, $1,359,000 of accrued liabilities and currentmaturities of long term obligations in the amount of $553,000.  At July 28, 2002, the Company had long-termobligations, less current maturities, in the amount of $3,979,000, including$679,000 due under its credit facility with Commerce Bank and Trust, $100,000of notes payable to a stockholder, $390,000 due under capital leaseobligations, $1,500,000 of convertible subordinated debentures, $380,000 ofdeferred rent, and $930,000 of other long-term liabilities.

 

The Company believes that its existing resources, cashflow from operations, and implementations of contemplated cash measures will besufficient to allow it to meet its obligations over the next twelvemonths.  The Company may pursue additionaldebt or equity financing if the Board of Directors determines this to benecessary or appropriate.  However,there is no guarantee that the Company will be able to obtain additionalfinancing on reasonable terms, or that it will be able to obtain additionalfinancing at all.

 

Critical Accounting Policies

 

The Company considers its accounting policies withrespect to the use of estimates, goodwill, and revenue recognition as the mostcritical to its results of operations and financial condition.

 

Use of Estimates

 

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities, and disclosure of contingentassets and liabilities at the date of the financial statements, and reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.  In fiscal 2001 the Companyrecorded a non-recurring charge of approximately $955,000 which represented theCompany’s best estimate of total royalty payments expected to be made pursuantto a litigation settlement agreement. This estimate was based on projected sales of current and future bistrorestaurants, which assumed the number and timing of new bistrorestaurants.  The actual royaltypayments ultimately required to be paid may vary significantly from theCompany’s estimate.

 

Goodwill 

 

As of July 28, 2002 the Company had a net carryingamount of goodwill of approximately $454,000. The Company has evaluated itslong-lived assets and goodwill in accordance with new accountingpronouncements.

 

In June 2001, the Financial Accounting Standards Boardfinalized FASB Statements No. 141, “Business Combinations” (SFAS 141),and No. 142, “Goodwill and Other Intangible Assets” (SFAS 142).  SFAS 141 requires the use of thepurchase method of accounting and prohibits the use of the pooling-of-interestsmethod of accounting for business combinations initiated after June 30, 2001.  SFAS 141 also requires that the Companyrecognize acquired intangible assets apart from goodwill if they meet certaincriteria.  SFAS 141 applies to allbusiness combinations initiated after June 30, 2001 and for purchase

 

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business combinationscompleted on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Companyreclassify the carrying amounts of intangible assets and goodwill based on thecriteria in SFAS 141.

 

SFAS 142 requires, among other things, thatcompanies no longer amortize goodwill, but instead test goodwill for impairmentat least annually.  In addition,SFAS 142 requires that the Company identify reporting units for thepurposes of assessing potential future impairments of goodwill, reassess theuseful lives of other existing recognized intangible assets, and ceaseamortization of intangible assets with an indefinite useful life.  An intangible asset with an indefinite usefullife should be tested for impairment in accordance with the guidance inSFAS 142.  SFAS 142 isrequired to be applied in fiscal years beginning after December 15, 2001to all goodwill and other intangible assets recognized at that date, regardlessof when those assets were initially recognized.  It also requires the Company to complete a transitional goodwillimpairment test by six months from the date of adoption.  The Company is also required to reassess theuseful lives of other intangible assets within the first interim quarter afteradoption of SFAS 142.

 

Revenue Recognition

 

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

 

Franchise feesresulting from the sale of individual franchise locations are recognized asrevenue upon the commencement of franchise operations.  Revenues from the sale of area developmentrights are recognized proportionately as the franchised restaurants commenceoperations.  Franchise royalties, whichare based on a percentage of franchised restaurants’ sales are recognized whenrevenue is earned.

 

New Accounting Pronouncements

 

The Company’s previous business combinations wereaccounted for using the purchase methods. All future business combinations will be accounted for under thepurchase method, which may result in the recognition of goodwill and otherintangible assets, some of which may subsequently be charged to operations,either by amortization or impairment charges. For purchase business combinations completed prior to June 30,2001, the net carrying amount of goodwill was approximately $454,000 and otherintangible assets was $0 as of July 28, 2002.

 

In October 2001,the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets,” which addresses financial accounting and reporting for theimpairment or disposal of long-lived assets. This statement supersedes SFAS No. 121, “Accounting for the Impairmentof Long-Lived Assets and for Long-Lived Assets To Be Disposed Of,” and APBOpinion No. 30,  “Reporting theResults of Operations - Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions for the Disposal of a Segment of a Business.”  SFAS No. 144 becomes effective for thefiscal years beginning after December 15, 2001. The Company has adoptedSFAS No. 144.

 

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“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.

 

Item 3.  Quantitative and QualitativeDisclosure about Market Risk

 

# InterestRate Exposure

 

Managementbelieves based on the Company’s overall interest exposure at July 28,2002,including all interest rate-sensitive instruments, a near-term change ininterest rates based on historical interest rate movements would not materiallyaffect the consolidated results of operations or financial position.

 

# FoodCommodity Price Exposure

 

TheCompany has potential exposure to changes in food commodity prices includingblock cheese prices.  Managementbelieves that projected near term changes in food commodity prices will nothave a material impact on the Company’s consolidated financial condition andresults of operations.

 

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## PART II

 

## OTHER INFORMATION

 

ITEM1. Legal Proceedings.

 

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

 

ITEM2. Changes in Securities and Use of Proceeds.

 

None.

 

ITEM3. Defaults Upon Senior Securities.

 

None.

 

ITEM4. Submission of Matters to a Vote of Security Holders.

 

None.

 

ITEM5. Other Information.

###  

### None.

 

ITEM6. Exhibits and Reports On Form 8-K.

 

(a)                                  Exhibits.

 

(i)                                     Loan Agreement between Boston RestaurantAssociates, Inc. & Commerce Bank and Trust Company

(ii)                                  Note between Boston Restaurant Associates, Inc.and Commerce Bank & Trust Company

(iii)                               Security Agreement between Boston Restaurant Associates, Inc. andCommerce Bank & Trust Company

 

(b)                                 Reports On Form 8-K.

 

April30, 2002 – Boston Restaurant Associates, Inc. entered into a New RevolvingCredit Facility.

 

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#### SIGNATURES

 

Inaccordance with the requirements of the Securities Exchange Act of 1934, theregistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
| BOSTON RESTAURANT ASSOCIATES, INC. |
|------------------------------------|
|                               |   |   |
|                               |   |   |
| Date:  September 6, 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:   September 6, 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, 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 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 theeffectiveness of the registrant’s disclosure controls and procedures as of adate  within 90 days prior to the filingdate of this 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 the registrant’sboard of directors (or persons performing the equivalent functions):

 

(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:   September 6, 2002 | /s/ Fran Ross                       |
|--------------------------------|-------------------------------------|
|                           | Fran  Ross, Chief Financial Officer |

 

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