###  

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

### **Washington, DC 20549**

###  

## **FORM 10-Q**

##  

| **ý** | **Quarterly report under Section 13 or 15(d) of the  Securities Exchange Act of 1934.**                                                                             |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                          |
|       | **For the quarterly period ended July 24,  2005.**                                                                                                                       |
|       |                                                                                                                                                                          |
| **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**

 

**BOSTONRESTAURANT ASSOCIATES, INC.**

(Exact Name ofRegistrant as Specified in its Charter)

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

 

**999Broadway**

**Saugus,Massachusetts01906**

(Address of PrincipalExecutive Offices)

 

**(781) 231-7575**

(Registrant’s TelephoneNumber Including areacode)

 

Indicate by check whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes  ý   No o.

 

Indicate by check whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes o   No ý.

 

Indicate the number of shares outstanding of each of theregistrant classes of common stock as of the latest practical date.  Common stock $0.01 par value 7,035,170 as of August 26,2005.

 

 

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BOSTON RESTAURANTASSOCIATES, INC.

 

INDEX

 
| PART I -  FINANCIAL STATEMENTS |                                                                                                                               |
|-------------------------------------|------------------------------------------------------------------------------------------------------------------------------------|
|                                |                                                                                                                               |   |
| Item 1.                             | Financial Statements                                                                                                               |   |
|                                |                                                                                                                               |   |
|                                | Condensed  Consolidated Balance Sheets as of July 24, 2005 (unaudited) and  April 24, 2005                               |   |
|                                |                                                                                                                               |   |
|                                | Unaudited  Condensed Consolidated Statements of Operations for the thirteen weeks ended  July 24, 2005 and July 25, 2004 |   |
|                                |                                                                                                                               |   |
|                                | Unaudited  Condensed Consolidated Statements of Cash Flows for the thirteen weeks ended  July 24, 2005 and July 25, 2004 |   |
|                                |                                                                                                                               |   |
|                                | Notes  to Condensed Consolidated Financial Statements                                                                              |   |
|                                |                                                                                                                               |   |
| Item  2.                            | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                        |   |
|                                |                                                                                                                               |   |
| Item  3.                            | Quantitative  and Qualitative Disclosure About Market Risk                                                                         |   |
|                                |                                                                                                                               |   |
| Item 4.                             | Controls and Procedures                                                                                                            |   |
|                                |                                                                                                                               |   |
| PART II - OTHER INFORMATION    |                                                                                                                               |
|                                |                                                                                                                               |   |
| Item 6.                             | Exhibits                                                                                                                           |   |
|                                |                                                                                                                               |   |
|                                | SIGNATURES                                                                                                                         |   |

 

----

 

PART 1 -FINANCIAL INFORMATION

ITEM 1. FINANCIALSTATEMENTS

BOSTONRESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES

CONDENSEDCONSOLIDATED BALANCE SHEETS

 
| ** **                                                                              | ** ** | **July 24,** | ** ** | **April 24,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------|------------|--------------------|------------|
| ** **                                                                              | ** ** | **2005**          | ** ** | **2005**           | ** ** |
| ** **                                                                              | ** ** | **(unaudited)**   | ** ** | ** **         | ** ** |
| ASSETS                                                                                  |       |              |       |               |       |
| Current:                                                                                |       |              |       |               |       |
| Cash and cash equivalents                                                               |       | $                 | 773,534    |               | $          | 687,207 |   |
| Accounts receivable                                                                     |       | 115,432           |       | 111,404            |       |
| Inventories                                                                             |       | 504,668           |       | 460,745            |       |
| Prepaid expenses and other                                                              |       | 58,323            |       | 161,529            |       |
| Current assets of discontinued operations                                               |       | 95,443            |       | 164,597            |       |
|                                                                                    |       |              |       |               |       |
| Total current assets                                                                    |       | 1,547,400         |       | 1,585,482          |       |
|                                                                                    |       |              |       |               |       |
| Property and equipment:                                                                 |       |              |       |               |       |
| Building                                                                                |       | 512,500           |       | 512,500            |       |
| Leasehold improvements                                                                  |       | 6,684,749         |       | 6,651,396          |       |
| Equipment, furniture and fixtures                                                       |       | 4,578,080         |       | 4,567,460          |       |
|                                                                                    |       |              |       |               |       |
|                                                                                    |       | 11,775,329        |       | 11,731,356         |       |
|                                                                                    |       |              |       |               |       |
| Less accumulated depreciation and amortization                                          |       | 7,820,987         |       | 7,598,139          |       |
|                                                                                    |       |              |       |               |       |
| Net property and equipment                                                              |       | 3,954,342         |       | 4,133,217          |       |
|                                                                                    |       |              |       |               |       |
| Goodwill                                                                                |       | 453,643           |       | 453,643            |       |
|                                                                                    |       |              |       |               |       |
| Other assets                                                                            |       | 430,490           |       | 443,495            |       |
|                                                                                    |       |              |       |               |       |
| Noncurrent assets of discontinued operations                                            |       | 0                 |       | 125,464            |       |
|                                                                                    |       |              |       |               |       |
| Total assets                                                                            |       | $                 | 6,385,875  |               | $          | 6,741,301 |   |
|                                                                                    |       |              |       |               |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)                                      |       |              |       |               |       |
| Current liabilities:                                                                    |       |              |       |               |       |
| Accounts payable                                                                        |       | $                 | 689,085    |               | $          | 715,021 |   |
| Accrued expenses                                                                        |       | 1,290,765         |       | 1,606,671          |       |
| Current maturities:                                                                     |       |              |       |               |       |
| Notes payable-stockholder                                                               |       | 6,526             |       | 6,420              |       |
| Long-term debt                                                                          |       | 360,349           |       | 353,396            |       |
| Obligations under capital leases                                                        |       | 3,695             |       | 31,152             |       |
| Current liabilities of discontinued operations                                          |       | 124,707           |       | 211,335            |       |
|                                                                                    |       |              |       |               |       |
| Total current liabilities                                                               |       | 2,475,127         |       | 2,923,995          |       |
|                                                                                    |       |              |       |               |       |
| Long-term obligations:                                                                  |       |              |       |               |       |
| Notes payable-stockholder, less current maturities                                      |       | 80,748            |       | 82,430             |       |
| Long-term debt, less current maturities                                                 |       | 1,853,831         |       | 1,946,604          |       |
| Obligations under capital leases, less current  maturities                              |       | 0                 |       | 0                  |       |
| Subordinated debentures                                                                 |       | 1,450,000         |       | 1,450,000          |       |
| Deferred rent                                                                           |       | 364,673           |       | 367,206            |       |
| Other long-term liabilities                                                             |       | 127,601           |       | 135,046            |       |
| Noncurrent liabilities of discontinued operations                                       |       | 0                 |       | 0                  |       |
|                                                                                    |       |              |       |               |       |
| Total liabilities                                                                       |       | 6,351,980         |       | 6,905,281          |       |
|                                                                                    |       |              |       |               |       |
| Commitments and contingencies                                                           |       |              |       |               |       |
|                                                                                    |       |              |       |               |       |
| Stockholders’ equity(deficit) :                                                    |       |              |       |               |       |
| Preferred stock, $.01 par value, 10,000,000 shares  authorized, 1,147,056 shares issued |       | 946,278           |       | 946,278            |       |
| Common stock, $.01 par value, 25,000,000 shares  authorized, 7,060,170 shares issued    |       | 70,602            |       | 70,602             |       |
| Additional paid in capital - common                                                     |       | 10,960,396        |       | 10,960,396         |       |
| Accumulated deficit                                                                     |       | (11,918,689       | )          | (12,116,564        | )          |
|                                                                                    |       |              |       |               |       |
| Total                                                                                   |       | 58,587            |       | (139,288           | )          |
| Less:                                                                                   |       |              |       |               |       |
| Treasury stock, 25,000 shares at cost                                                   |       | (24,692           | )          | (24,692            | )          |
| Total stockholders’ equity(deficit)                                                |       | 33,895            |       | (163,980           | )          |
|                                                                                    |       |              |       |               |       |
| Total liabilities and stockholders’ equity(deficit)                                |       | $                 | 6,385,875  |               | $          | 6,741,301 |   |

 

Seeaccompanying notes.

 

3

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BOSTON RESTAURANTS ASSOCIATES,INC. AND SUBSIDIARIES

 

CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 
| ** **                                                               | ** ** | **Thirteen Weeks Ended** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                               | ** ** | **July 24,**        | ** ** | **July 25,** | ** ** |
| ** **                                                               | ** ** | **2005**                 | ** ** | **2004** | ** ** |
|                                                                     |       |                     |       |   |   |
| Revenues:                                                                |       |                     |       |   |   |
| Restaurant sales                                                         |       | $                        | 5,736,842  |   | $ | 5,385,450 |   |
| Franchise fees                                                           |       | 0                        |       | 269 |   |
|                                                                     |       |                     |       |   |   |
| Total revenues                                                           |       | 5,736,842                |       | 5,385,719 |   |
|                                                                     |       |                     |       |   |   |
| Costs and expenses:                                                      |       |                     |       |   |   |
| Cost of food, beverages and liquor                                       |       | 1,105,941                |       | 1,172,575 |   |
| Payroll                                                                  |       | 1,652,659                |       | 1,567,639 |   |
| Other operating expenses                                                 |       | 1,867,298                |       | 1,687,480 |   |
| General and administrative                                               |       | 643,683                  |       | 616,393 |   |
| Depreciation and amortization                                            |       | 231,845                  |       | 229,354 |   |
| Pre-opening costs                                                        |       | 0                        |       | 89,954 |   |
|                                                                     |       |                     |       |   |   |
| Total costs and expenses                                                 |       | 5,501,426                |       | 5,363,395 |   |
|                                                                     |       |                     |       |   |   |
| Operating Income                                                         |       | 235,416                  |       | 22,324 |   |
|                                                                     |       |                     |       |   |   |
| Other income                                                             |       | 1,953                    |       | 2,505 |   |
| Interest income                                                          |       | 2,418                    |       | 95 |   |
| Interest expense                                                         |       | (95,729                  | )          | (119,089 | ) |
|                                                                     |       |                     |       |   |   |
| Income (Loss) from continuing operations before  discontinued operations |       | 144,058                  |       | (94,165 | ) |
|                                                                     |       |                     |       |   |   |
| Discontinued operations :                                                |       |                     |       |   |   |
| Income (Loss) from operations                                            |       | (58,468                  | )          | (218,492 | ) |
| Gain (Loss) from disposal of discontinued operations                     |       | 132,004                  |       | 0 |   |
|                                                                     |       |                     |       |   |   |
| Income (Loss) from discontinued operations                               |       | 73,536                   |       | (218,492 | ) |
|                                                                     |       |                     |       |   |   |
| Net Income (Loss)                                                        |       |                     | 217,594    |   |   |  (312,657 | ) |
|                                                                     |       |                     |       |   |   |
| Less: preferred stock dividends                                          |       | (19,719                  | )          |   | 0 |   |
|                                                                     |       |                     |       |   |   |
| Income (Loss) available to common shareholders                           |       | $                        | 197,875    |   | $ | (312,657 | ) |
|                                                                     |       |                     |       |   |   |
| Income (Loss) per share of common stock (Basic and  Diluted)             |       |                     |       |   |   |
|                                                                     |       |                     |       |   |   |
| Continuing Operations                                                    |       | $                        | 0.02       |   | $ |  (0.01 | ) |
|                                                                     |       |                     |       |   |   |
| Discontinued Operations                                                  |       | $                        | 0.01       |   | $ |  (0.03 | ) |
|                                                                     |       |                     |       |   |   |
| Net Income (Loss)                                                        |       | $                        | 0.03       |   | $ |  (0.04 | ) |
|                                                                     |       |                     |       |   |   |
| Weighted average number of common shares  outstanding-basic              |       | 7,035,170                |       | 7,035,170 |   |
|                                                                     |       |                     |       |   |   |
| Weighted average number of dilutive common shares  outstanding           |       | 7,125,068                |       | 7,035,170 |   |

 

See accompanyingnotes.

 

4

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BOSTON RESTAURANTASSOCIATES, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS

 

(unaudited)

 
| ** **                                           | ** ** | **Thirteen Weeks Ended** | ** ** |
|------------------------------------------------------|------------|--------------------------|------------|
| ** **                                           | ** ** | **July 24,**        | ** ** | **July 25,** | ** ** |
| ** **                                           | ** ** | **2005**                 | ** ** | **2004** | ** ** |
|                                                 |       |                     |       |   |   |
| Net cash provided by operating activities            |       | $                        | 163,439    |   | $ | 409,937 |   |
|                                                 |       |                     |       |   |   |
| Cash flows from investing activities:                |       |                     |       |   |   |
| Capital expenditures                                 |       | (43,973                  | )          | (474,072 | ) |
| Proceeds from sale of assets                         |       | 81,714                   |       | 0 |   |
|                                                 |       |                     |       |   |   |
| Net cash provided by (used for) investing activities |       | 37,741                   |       | (474,072 | ) |
|                                                 |       |                     |       |   |   |
| Cash flows from financing activities:                |       |                     |       |   |   |
| Repayments of long-term debt                         |       | (85,820                  | )          | (180,088 | ) |
| Repayments of capital lease obligations              |       | (27,457                  | )          | (45,550 | ) |
| Repayments of stockholder loans                      |       | (1,576                   | )          | (1,500 | ) |
|                                                 |       |                     |       |   |   |
| Net cash used for financing activities               |       | (114,853                 | )          | (227,138 | ) |
|                                                 |       |                     |       |   |   |
| Net increase (decrease) in cash and cash equivalents |       | 86,327                   |       | (291,273 | ) |
|                                                 |       |                     |       |   |   |
| Cash and cash equivalents at beginning of period     |       | 687,207                  |       | 651,754 |   |
|                                                 |       |                     |       |   |   |
| Cash and cash equivalents at end of period           |       | $                        | 773,534    |   | $ | 360,481 |   |

 

See accompanying notes.

 

5

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BOSTON RESTAURANTASSOCIATES, INC.  AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 24, 2005

(unaudited)

 

1.  NATURE OFBUSINESS 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 footnotesrequired by generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included.  Operating results for the thirteen-weekperiod ended July 24, 2005 are not necessarily indicative of the resultsthat may be expected for the year ending April 30, 2006.  For further information, refer to theconsolidated financial statements and footnotes thereto included in the Company’sannual report on Form 10-K for the year ended April 24, 2005.  The balance sheet at April 24, 2005 hasbeen derived from the audited financial statements at that date.

 

The accompanying statements of operations and cashflows for the fiscal 2006 period reflect the consolidated operations and cashflow of three casual dining Italian restaurants and thirteen Pizzeria Reginas forthe 13 weeks and fiscal 2005 periods reflect the consolidated operations andcash flow of three casual dining Italian restaurant and twelve Pizzeria Reginarestaurants for the entire period and one Pizzeria Regina for 2 days.

 

In fiscal 2005, the Company completed the asset saleof Polcari’s of Hyannis, Inc.  andclosed the Pizzeria Regina in Richmond, Virginia at the end of the leaseterm.  The sale of Polcari’s of Cambridge, Inc.was completed on July 22, 2005.  Theaccompanying financial statements have been reclassified to reflect Polcari’sof Hyannis, Inc., Polcari’s of Cambridge, Inc. and Pizzeria Regina atRichmond, Virginia as discontinued operations.

 

2.  NET INCOME(LOSS) PER SHARE

 

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

 

The following is a reconciliation of the denominator(number of shares) used in the computation of earnings per share.  The numerator, net income (loss), is the samefor the basic and diluted computations.

 
| ** **                     | ** ** | **Thirteen weeks ended** | ** ** |
|--------------------------------|------------|--------------------------|------------|
| ** **                     | ** ** | **July 24,  2005**  | ** ** | **July 25,  2004** | ** ** |
|                           |       |                     |       |   |   |
| Basic Shares                   |       | 7,035,170                |       | 7,035,170 |   |
|                           |       |                     |       |   |   |
| Effect of Dilutive Securities: |       |                     |       |   |   |
|                           |       |                     |       |   |   |
| Options                        |       | 89,898                   |       | 0 |   |
| Diluted Shares                 |       | 7,125,068                |       | 7,035,170 |   |

###  

The following table summarizessecurities that were outstanding as of July 24, 2005 and July 25,2004, but not included in the calculation of net income (loss) per sharebecause such securities are anti-dilutive:

 
| ** **                  | ** ** | **Thirteen  weeks ended** | ** ** |
|-----------------------------|------------|---------------------------|------------|
| ** **                  | ** ** | **July 24,  2005**   | ** ** | **July 25,  2004** | ** ** |
|                        |       |                      |       |   |   |
| Options                     |       | 737,410                   |       | 834,800 |   |
|                        |       |                      |       |   |   |
| Warrants                    |       | 601,000                   |       | 576,000 |   |
|                        |       |                      |       |   |   |
| Convertible Debentures      |       | 1,160,000                 |       | 1,160,000 |   |
|                        |       |                      |       |   |   |
| Convertible Preferred Stock |       | 1,147,056                 |       | — |   |

 

The Company accounts for stock options using theintrinsic value method in accordance with Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees,” (“APB 25”) and relatedinterpretations.  Accordingly, theCompany has recognized no compensation cost for its stock option plans.  The Company follows the disclosure provisionsof Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”),“Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting 

 

6

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for Stock-Based Compensation - Transition andDisclosure” (“SFAS No. 148”),  whichrequire the disclosure of the effects of fair value accounting on earnings andearnings per share of common stock on a pro forma basis.

 

  Hadcompensation cost for the Company’s stock options been determined based uponthe fair value at the grant date for awards under the plans consistent with themethodology prescribed under SFAS No. 123, the Company’s net income (loss)would have been adjusted to the pro forma amounts indicated below along withthe additional disclosures required by SFAS No. 148 as follows:

 
| ** **                                                                                    | ** ** | **Thirteen Weeks  Ending** | ** ** | **Thirteen Weeks  Ending** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                                                                    | ** ** | **July 24, 2005**     | ** ** | **July 25, 2004**     | ** ** |
|                                                                                          |       |                       |       |                       |       |
| Net income (loss)                                                                             |       | $                          | 217,594    |                       | $          | (312,657 | ) |
| Less dividends                                                                                |       | (19,719                    | )          | -0-                        |       |
| Net income (loss) available to Common Stockholders  as reported                               |       | 197,785                    |       | (312,657                   | )          |
| Add:                                                                                          | * *   | * *                   | * *   | * *                   | * *   |
| Stock-based employee compensation expense included  in reported net income (loss,) net of tax |       | —                     |       | —                     |       |
| Deduct:                                                                                       | * *   | * *                   | * *   | * *                   | * *   |
| Total stock-based compensation expense determined  under fair value based method              |       | (3,709                     | )          | (20,369                    | )          |
| Net loss – pro forma                                                                     |       | $                          | 194,166    |                       | $          | (333,026 | ) |
| Basic and diluted loss per share:                                                             |       |                       |       |                       |       |
| As reported                                                                                   |       | $                          | .03        |                       | $          | (.04 | ) |
| Pro forma                                                                                     |       | $                          | .03        |                       | $          | (.05 | ) |

 

7

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3.                                       CONTINGENCY

 

The Pizzeria Regina at theBurlington Mall, Burlington, Massachusetts is currently operating under atenancy at will and the Landlord commenced a summary process on July 14,2005 to terminate the tenancy at will. The Company intends to vigorously defend this action however, theoutcome is uncertain.  Should the Companybe required to vacate this space, the Company would suffer material revenue andincome loss.

 

4.                                       NEWACCOUNTING PRONOUNCEMENTS

 

None

 

ITEM 2.                             Management’s Discussionand Analysis of Financial Condition and Results of Operations

 

### RESULTS OF OPERATIONS

###  

# Overview

 

The Company’s restaurant salesin the most recent quarter were $5,737,000 compared to sales of $5,385,000 in thefirst quarter of fiscal 2005, an increase of 6.5%.  The Company’s management believes that theincrease in revenue is primarily attributable to the opening of the new PizzeriaRegina at the South Station in Boston, Massachusetts in July 2004 and anincrease in same store sales. The Company had a net income for the firstquarter of fiscal 2006 of $218,000, compared to a net loss of $313,000 for thesame quarter of fiscal 2005.  The Company’smanagement believes that the increase in profit is the result of the gain onthe sale of Polcari’s of Cambridge, Inc. and the contribution of the twoadditional Pizzeria Regina’s opened in the spring and summer of last year.

 

The key factors that affect our operating resultsare the impact of new store openings, comparable restaurant sales, which aredriven by comparable customer counts and check average, and our ability tomanage operating expenses such as food cost, labor and benefits and othercosts.  Changes in the number ofrestaurants in operation can change the absolute dollar amounts of revenues andexpenses, and the build out and opening of new stores can affect operatingprofits.  Each restaurant unit’scontribution margin will vary over the life of the restaurant.  Margins tend to be low when a restaurant isfirst opened until customer traffic reaches planned levels.  Margins can also deteriorate at the end of aunit’s life cycle due to a decline in customer traffic caused by a variety offactors outside the control of the Company. These economic conditions impact both the Pizzeria Regina units and thePolcari’s North End units.

 

The Pizzeria Regina at the Burlington Mall,Burlington, Massachusetts is currently operating under a tenancy at will andthe Landlord commenced a summary process on July 14, 2005 to terminate thetenancy at will.  The Company intends tovigorously defend

 

8

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this action. Should the Company be required to vacate this space, the Company wouldsuffer material revenue and income loss.

 

In the fiscal 2006 period, there were 16 units inoperation for the entire period, and in the fiscal 2005 period there were 15units in operation for the entire period and one Pizzeria Regina in operationsfor two days.   The following table setsforth all revenues, costs and expenses as a percentage of total revenues forthe periods indicated for revenue and expense items included in theconsolidated statements of operations:

 
| ** **                                                               | ** ** | **July 24,  2005** | ** ** | **July 25,  2004** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| (1)                                                                      |       |                    |       |                    |       |
| Revenues:                                                                |       |                    |       |                    |       |
| Restaurant sales                                                         |       | 100                     | %          | 100                     | %          |
| Other                                                                    |       | —                  |       | —                  |       |
|                                                                     |       |                    |       |                    |       |
| Total revenues                                                           |       | 100                     | %          | 100                     | %          |
|                                                                     |       |                    |       |                    |       |
| Costs and expenses:                                                      |       |                    |       |                    |       |
| Cost of food, beverages and liquor                                       |       | 19.3                    |       | 21.8                    |       |
| Other operating expenses- payroll                                        |       | 28.9                    |       | 29.1                    |       |
| Other operating expenses exclusive of payroll                            |       | 32.5                    |       | 31.3                    |       |
| General and administrative                                               |       | 11.2                    |       | 11.4                    |       |
| Depreciation and amortization                                            |       | 4.0                     |       | 4.3                     |       |
| Pre-opening costs                                                        |       | —                  |       | 1.7                     |       |
| Operating income (loss)                                                  |       | 4.1                     |       | .4                      |       |
| Interest expense, net                                                    |       | (1.6                    | )          | (2.2                    | )          |
| Other income                                                             |       | —                  |       | —                  |       |
| Income (loss) from continuing operations before  discontinued operations |       | 2.5                     |       | (1.8                    | )          |
| Income (loss) from discontinued operations                               |       | 1.3                     |       | (4.0                    | )          |
| Net Income (loss)                                                        |       | 3.8                     | %          | (5.8                    | )%         |

 

9

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----

(1)  In fiscal 2005, the Company completed the asset sale of Polcari’s ofHyannis, Inc. and closed the Pizzeria Regina in Richmond, Virginia at theend of the lease term.  The sale ofPolcari’s of Cambridge, Inc. was completed on July 22, 2005.  The financial statements included with thisreport have been reclassified to reflect Polcari’s of Hyannis, Inc.,Polcari’s of Cambridge, Inc., and Pizzeria Regina at Richmond, Virginia asdiscontinued operations.

 

Thirteen Weeks Ended July 24, 2005 asCompared to Thirteen Weeks ended July 25, 2004

 

Restaurant Sales

 

Restaurant sales in the most recent quarter were$5,737,000 compared to restaurant sales in the prior year’s period of $5,386,000.  The Company’s management believes that the increasein revenue is primarily attributable to the Pizzeria Regina at the SouthStation in Boston, Massachusetts being open for the entire period and anincrease in same store sales.  Salesvolume for the restaurants open throughout both fiscal 2006 and 2005 periods increasedby 1.3%

 

Net sales at the Company’s Pizzeria Reginarestaurants increased to $3,489,000 in the current period from $3,228,000 inthe prior year’s period.  The increase inrestaurant sales was principally due to the Pizzeria Regina at South Stationbeing opened for the entire period.  Thisincrease was partially offset by a decline in same store sales of 0.6%

 

Net sales at the Company’s full service casual diningrestaurants increased to $2,233,000 in the current period from $2,152,000 in theprior year’s period.  The increase inrestaurant sales was primarily attributable to an increase in same store salesof 3.8%.

 

Net sales to third parties at the Company’scommissary were $15,000 in the current period compared to $6,000 in the prior year’speriod.

 

# Costsand Expenses

 

Cost of Food, Beverages and Liquor

 

Cost of food, beverages and liquor as a percentageof total revenues for all restaurants was 19% in the fiscal 2006 period comparedto 22% in the fiscal 2005 period.  The decreaseas a percentage of total revenues was primarily attributable to two PizzeriaRegina locations that eliminated certain food items from their menus and to adecrease in cheese costs.

 

The cost of food, beverage and liquor was $1,106,000in the fiscal 2006 period compared to $1,173,000 in the fiscal 2005 period. Thedollar decrease was due in part to the

 

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elimination of certain food items at two PizzeriaRegina locations and to a decrease in cheese costs.

 

The cost of food, beverages and liquor as apercentage of restaurant sales at the Pizzeria Regina restaurants was 16% in thecurrent period compared to 19% in the prior year’s period.  The decrease as a percentage of restaurantsales was primarily due to the elimination of food items at two Pizzeria Reginalocations and to a decrease in cheese costs.

 

The cost of food, beverage and liquor at PizzeriaRegina restaurants was $549,000 in the current period compared to $605,000 inthe prior year’s period.  The dollar decreasewas primarily due to two Pizzeria Regina locations which eliminated food itemsfrom their menus and reduced cheese costs.

 

The cost of food, beverages and liquor as apercentage of restaurant sales at the Company’s full service casual dining restaurantsdecreased to 25% in the period compared to 26% in the prior year’s period.  The decrease as a percentage of restaurant saleswas principally due to improved cost control systems and lower cheese costs.

 

The cost of food, beverage and liquor at the Company’sfull service casual dining restaurants was $557,000 in the current periodcompared to $568,000 in the prior year’s period.  The dollar decrease was primarily due toimproved cost control systems and lower cheese costs.

 

# OtherOperating Expenses

 

Payroll Expenses

 

Payroll expenses as a percentage of total revenues forall restaurants were 29% in both the fiscal 2006 and fiscal 2005 periods.

 

Payroll expenses were $1,653,000 in the fiscal 2006period, compared to $1,568,000 in the fiscal 2005 period.  The dollar increase in payroll expenses wasprimarily due to the Pizzeria Regina at South Station in Boston, Massachusettsbeing open for the entire period.

 

Payroll expenses at the Pizzeria Regina restaurantswere 25% of restaurant sales in both the current and the prior year’s period.

 

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Payroll expenses of the Pizzeria Regina restaurantswere $864,000 in the current period compared to $805,000 in the prior year’speriod.  This dollar increase was primarilydue to the Pizzeria Regina at South Station in Boston, Massachusetts beingopened for the entire period.

 

Payroll expenses at the Company’s full service casualdining restaurants were 31% of restaurant sales in both the current and theprior year’s period.

 

Payroll expenses at the Company’s full service casualdining restaurants were $688,000 in the current period compared to $664,000 inthe prior year’s period.  This dollarincrease was primarily due to higher employee incentive costs.

 

Payroll expenses at the Company’s Commissary were$101,000 for the current period as compared to $99,000 in the prior year’speriod.

 

Other Operating Expenses, Exclusive of Payroll

 

Other operating expenses, exclusive of payroll, were 33%of total revenues in the fiscal 2006 period compared to 31% in the fiscal 2005period.  The increase as a percentage oftotal revenues was primarily attributable to costs associated with the PizzeriaRegina at the BurlingtonMall, Burlington, Massachusetts including legal costs.

 

Other operating expenses, exclusive of payroll, were$1,867,000 in the fiscal 2006 period compared to $1,687,000 in the fiscal 2005period. The increase in operating expenses, exclusive of payroll, was primarilydue to the Pizzeria Regina at South Station in Boston, Massachusetts being openfor the entire period and the costs associated with the Pizzeria Regina at theBurlington Mall, Burlington, Massachusetts.

 

Other operating expenses, exclusive of payroll, forthe Pizzeria Regina restaurants as a percentage of restaurant sales were 34% inthe current period compared to 32% in the prior year’s period.  The increase as a percentage of restaurantsales was primarily attributable to costs associated with the Pizzeria Reginaat the Burlington Mall.

 

Other operating expenses, exclusive of payroll, fromthe Pizzeria Regina restaurants were $1,202,000 in the current period, comparedto $1,049,000 in the prior year’s period. The dollar increase was primarily attributable to the Pizzeria Regina atSouth Station in Boston, Massachusetts being open for the entire period andcosts associated with the Pizzeria Regina at the Burlington Mall, Burlington,Massachusetts,

 

Other operating expenses, exclusive of payroll, forthe Company’s full service casual dining restaurants as a percentage ofrestaurant sales were 28% in both the current and the prior year’s period.

 

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Other operating expenses, exclusive of payroll, forthe Company’s full service casual dining restaurants were $630,000 in thecurrent period compared to $611,000 in the prior year’s period.  The dollar increase was primarily attributableto higher energy costs and maintenance at the Company’s full service casualdining restaurants.

 

Other operating expenses, exclusive of payroll, alsoinclude commissary expenses which were $35,000 in the current period comparedto $27,000 in the prior years period.

 

General and Administrative Expenses

 

General and administrative expenses were 11% of totalrevenues in both fiscal 2006 and fiscal 2005 period.

 

General and administrative expenses were $644,000 inthe current period, compared to $616,000 in the prior year’s period.  This dollar increase was primarilyattributable to higher employee incentive costs.

 

Depreciation and Amortization Expenses

 

Depreciation and amortization expenses were 4% of totalrevenues in both the fiscal 2006 and fiscal 2005 periods.

 

Depreciation and amortization expense was $232,000in the current period, compared to $229,000 in the prior year’s period.

 

Pre-Opening Costs

 

Pre-opening costs were $0 in the fiscal 2006 periodcompared to $90,000 in the fiscal 2005 period. The pre-opening expenses, whichconsists of labor, advertising, rent and training materials, related primarily tothe opening of the new Pizzeria Regina at South Station in Boston, Massachusettsin July 2004.

 

Other Income

 

Other income was $2,000 in the fiscal 2006 periodcompared to $3,000 in the fiscal 2005 period.

 

Interest Expense and Interest Income

 

Interest expense was $96,000 in the current periodas compared to $119,000 in the prior year’s period. This dollar decrease wasprimarily due to a decrease in interest expense under the Company’s new creditfacility.

 

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Interest income was $2,000 in the current periodcompared to $0 in the prior year’s period.

 

### Discontinued Operations

 

Inthe fiscal 2006 period, the sale of Polcari’s of Cambridge, Inc. wascompleted on July 22, 2005.  Infiscal 2005, the Company completed the asset sale of Polcari’s of Hyannis, Inc.and closed the Pizzeria Regina in Richmond, Virginia at the end of the leaseterm.  The Company has reclassified itsfinancial results to reflect Polcari’s of Hyannis, Inc., Polcari’s ofCambridge, Inc. and Pizzeria Regina in Richmond, Virginia as discontinuedoperations.

 

Theincome from discontinued operations was $74,000 in the fiscal 2006 periodcompared to a loss of $218,000 in fiscal 2005 period. In the fiscal 2006 periodthe income from discontinued operations represents operating losses from thePolcari’s bistro restaurant in Hyannis, Massachusetts, the Polcari’s North Endrestaurant in Cambridge, Massachusetts and the Pizzeria Regina restaurant inRichmond, Virginia of $58,000 and a gain of $132,000 from the disposal ofcertain assets of the Polcari’s North End Restaurant in Cambridge,Massachusetts.  In the fiscal 2005period, the loss of $218,000 from discontinued operations represents operatinglosses from the Polcari’s bistro restaurant in Hyannis, Massachusetts, thePolcari’s North End restaurant in Cambridge, Massachusetts, and the PizzeriaRegina restaurant in Richmond, Virginia.

 

### LIQUIDITY AND CAPITAL RESOURCES

 

At July 24, 2005, the Company had negative networking capital of $928,000compared to negative working capital of $1,339,000 at April 24, 2005.  During the thirteen weeks ended July 24,2005, the Company had a net increase in cash and cash equivalents of $86,000reflecting net cash provided by operating activities of $163,000, net cashprovided by investing activities of $38,000 and net cash used for financingactivities of $115,000.

 

Net cash provided by operating activities includedincome of $218,000, a decrease in inventories of $92,000, a decrease in prepaidexpenses of $103,000, a decrease in other assets of $4,000, and depreciation andamortization expenses of $232,000, which were partially offset by a decrease inother long-term liabilities of $7,000, an increase in accounts receivables of$27,000, a decrease in accounts payable of $48,000, a decrease in accruedexpenses of $401,000, and decrease in deferred rent of $3,000.  Net cash provided by investing activities of$38,000 included the asset sale of Polcari’s North End in Cambridge,Massachusetts partially offset by capital expenditures related to variousPizzeria Reginas and Polcari’s North End bistro restaurants and a Polcari’sNorth End

 

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restaurant.  Net cash used for financing activities of $115,000consisted of net repayments of long term debt, lease obligations andstockholders loans.

 

At July 24, 2005, theCompany had current liabilities of $2,475,000, including $689,000 of accountspayable, $1,291,000 of accrued liabilities, current maturities of long term obligationsin the amount of $370,000 and current liabilities from discontinued operationsof $125,000.  At July 24, 2005, theCompany had long-term obligations, less current maturities, in the amount of$3,877,000, including $81,000 of notes payable to a stockholder, $1,854,000 dueunder its credit facility with Commerce Bank and Trust Company, $1,450,000 ofconvertible subordinated debentures, $365,000 of deferred rent, and $127,000 ofother long-term liabilities.

 

On April 21, 2005 the Company refinanced itsdebt with Commerce Bank and Trust Company and a new $2,300,000 Credit Facilitywas established.  This Credit Facilityconsists of a $1,500,000 4 year term note bearing interest at the bank base rateplus 2% and an $800,000 mortgage in favor of Commerce bank and Trust Company ata fixed rate of 7%.  The mortgage has atwenty year amortization schedule with a complete payment of principal dueat the end of five years.  All borrowingunder the Credit Facility are collateralized by substantially all of the assetsof the Company and are subject to various financial covenants.  At July 24, 2005 the Company was incompliance with all financial covenants.

 

The Company has no additional significant capitalcommitments in fiscal 2006.  The Companybelieves that its existing resources, including its loan facility, togetherwith cash flow generated from operations, will be sufficient to fund its cashflow requirements and maintain debt covenant compliance for the next twelvemonths.  However, the Company’s growthwill be dependent upon obtaining additional financing.  There can be no assurance that any futureadditional financing will be available on commercially reasonable terms, or atall, and the success or lack of success of the Company’s restaurants openedwithin the last year and planned to be opened in the future may have a criticaleffect on the Company’s ability to raise funds through the sale of stock orotherwise.

 

NEW ACCOUNTING PRONOUNCEMENTS

 

None

 

“SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIESLITIGATION REFORM ACT OF 1995

 

*Forward-looking statements inthis report, including without limitation statements relating to the adequacyof the Company’s working capital and other resources ability to obtainadditional financing, the timing of the Company’s new store openings and futureexpansion, and anticipated future cash flows from particular locations are madepursuant to the safe harbor provisions of the Private Securities LitigationReform Act of 1995.  Investors arecautioned that such forward-looking statements involve risks and uncertainties,including without limitation:  potentialquarterly fluctuations in the Company’s operating results; seasonality ofsales; competition; risks associated with expansion; the*

 

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*Company’s reliance on key employees;risks generally 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.  In addition, forward-lookingstatements generally can be identified by the use of forward-lookingterminology such as “may,” “will”, “except,” “expect,” “intend,” “estimate,” “anticipate”or “believe” or the negative thereof or variations thereon similarterminology.  Although the Companybelieves that the expectations reflected in such forward-looking statementswill prove to have been correct, it can give no assurance that such expectationswill prove to have been correct. Investors are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date hereof.*

 

Item 3.  Quantitativeand Qualitative Disclosure about Market Risk

 

Interest Rate Risk.

 

We have exposure to interest rate risk related tocertain instruments entered into for other than trading purposes.  Specifically, borrowings under the CreditFacility described in Item 2 bear interest at a variable rate based on the bank’sprime rate plus 2%. A 100 basis point change in the Credit Facilityinterest rate (approximately 8.25% at July 24, 2005) would cause the interestexpense for fiscal 2006 to change by approximately $10,000. This computation isdetermined by considering the impact of hypothetical interest rates on our variablelong-term debt at July 24, 2005. However, the nature and amount of ourborrowings under the Credit Facility may vary as a result of future businessrequirements, market conditions, covenant compliance and other factors.

 

Our other outstanding long-term debt bears fixedrates of interest. The Company believes there is no material exposure to amarket interest rate risk that could affect future results of operations orfinancial conditions.

 

CommodityPrice Risk.

 

Many of the food products and other operatingessentials purchased by us are affected by commodity pricing and are,therefore, subject to price volatility caused by weather, production problems,delivery difficulties and other factors that are beyond our control.  Our supplies and raw materials are availablefrom several sources and we are not dependent upon any single source for theseitems. The Company negotiates directly with wholesale suppliers of certain highvolume food ingredients such as cheese, tomato sauce, and flour to ensureconsistent quality and competitive pricing. These ingredients are thenpurchased for the Company by a third party independent distributor at thenegotiated price and redistributed to the Company’s restaurants.  All other food ingredients and beverageproducts are purchased directly by the general manager of each restaurant inaccordance with corporate guidelines. Certain significant items that could be subject to price fluctuationsare cheese and flour products. The Company believes that it will be able

 

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to pass through increased commodity costs byadjusting menu pricing in most cases. However, we believe that any changes incommodity pricing that cannot be offset by changes in menu pricing or otherproduct delivery strategies would not be material.

 

ITEM 4.  Controlsand Procedures

 

As of July 24, 2005, ourChief Executive Officer and Chief Financial Officer performed an evaluation ofthe effectiveness of the Company’s disclosure controls and procedures (asdefined in SEC Rule 13a-15(e)), which have been designed to ensure thatmaterial information related to the Company is made known to them and timelydisclosed.  The Company’s management,including the CEO and CFO, does not expect that the Company’s disclosurecontrols or internal controls will prevent all errors and all fraud. A controlsystem, no matter how well conceived and operated, can provide only reasonable,not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system mustreflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs. Because of the inherentlimitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues and instances of fraud, if any,within the company have been detected. Notwithstanding the foregoing, however,based upon their evaluations, our CEO and CFO concluded that the Company’sdisclosure controls are effective to provide a reasonable level of assurancethat material information relating to the Company is accumulated andcommunicated to management, including the CEO and CFO, as appropriate, to allowtimely decisions regarding required disclosure.

 

There have been no changes inthe Company’s internal control over financial reporting that occurred duringthe period covered by this report that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

## PART II

##  

## OTHERINFORMATION

##  

ITEM 1. Legal Proceedings.

 

None

 

ITEM 2. Unregistered Sales of Equity Securities andUse of Proceeds.

 

None.

 

ITEM 3. Defaults Upon Senior Securities.

 

None.

 

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ITEM 4. Submission of Matters to a Vote of SecurityHolders.

 

None.

 

ITEM 5. Other Information.

 

### None.

###  

ITEM6. Exhibits 

 

Exhibit 31: Sarbanes-Oxley Section 302 Certification

 

Exhibit 32: Sarbanes-Oxley Section 906Certification

 

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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: August 29, 2005 |                               | By: | /s/ George R. Chapdelaine |   |
|                       |                               |   | George R. Chapdelaine, President and |
|                       |                               |   | Chief Executive Officer |

 

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