U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934.
For the quarterly period ended January 25, 1998.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the transition period from _________ to __________.
Commission File Number
0-18369
BOSTON RESTAURANT ASSOCIATES, INC.
(Name of Small Business Issuer as Specified in its Charter)
Delaware 61-1162263
(State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization) Identification No.)
999 Broadway
Saugus - Massachusetts
----------------------
(Address of Principal
Executive Offices)
(781)231-7575 01906
(Issuer's Telephone Number (Zip Code)
including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes x-No __
As of January 25, 1998, 5,015,693 shares of the issuer's Common Stock, par value
$.01 per share, were outstanding.
Transitional Small Business Disclosure Format (check one) Yes No x
1
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC.
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of January 25, 1998 and
April 27, 1997 ..................................................... 3
Condensed Consolidated Statements of Operations for the
thirteen weeks and thirty-nine weeks ended January 25, 1998
and January 26, 1997................................................. 4
Condensed Consolidated Statements of Cash Flows for the thirty-nine
weeks ended January 25, 1998 and January 26, 1997 ................. 5
Notes to Condensed Consolidated Financial Statements ................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................10
PART II - OTHER INFORMATION ................................................16
Item 2 Changes In Securities and Use of Proceeds.......................16
Item 5 Other Information ..............................................16
Item 6 Exhibits and Reports on Form 8-K................................17
SIGNATURES ................................................................ 18
2
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
January 25 April 27
1998 1997
--------------------- ---------------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $243,129 $726,054
Accounts receivable $28,863 $69,729
Inventories $226,829 $209,295
Prepaid expenses and other $89,869 $27,532
------------- -------------
Total current assets $588,690 $1,032,610
Net property and equipment $2,804,291 $2,656,328
Other assets $1,326,358 $944,180
------------- -------------
Total assets $4,719,339 $4,633,118
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $375,215 $382,294
Accrued liabilities $500,030 $628,277
Current maturities:
Notes payable-stockholder $4,350 $4,261
Long-term debt $200,000 $200,000
Obligations under capital leases $34,500 $30,850
------------- -------------
Total current liabilities $1,114,095 $1,245,682
Long-term obligations:
Notes payable-stockholder, less current maturities $122,541 $125,810
Long-term debt, less current maturities $474,998 $625,000
Obligations under capital leases, less current
maturities $112,500 $138,850
Subordinated debentures $1,337,500 $1,118,750
Deferred rent $71,611 $67,024
------------- -------------
Total liabilities $3,233,245 $3,321,116
Stockholders' equity
Common stock, $.01 par value, 25,000,000
shares authorized, 5,015,693 shares issued $50,157 $50,157
Additional paid in capital $9,071,484 $9,043,199
Accumulated deficit ($7,635,547) ($7,781,354)
------------- -------------
Total stockholders' equity $1,486,094 $1,312,002
Total liabilities and stockholders' equity $4,719,339 $4,633,118
============= =============
</TABLE>
3
<PAGE>
BOSTON RESTAURANTS ASSOCIATES,INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
January 25 January 26 January 25 January 26
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $2,818,548 $2,856,969 $8,654,253 $8,669,099
Cost of food and beverage $570,668 $613,350 $1,747,761 $1,964,328
Payroll $844,099 $857,037 $2,567,632 $2,644,613
Other operating expenses $958,885 $1,030,553 $2,898,524 $2,940,801
General and administrative $350,473 $300,609 $1,095,899 $888,645
---------- ---------- ---------- ----------
Income from operations $94,423 $55,420 $344,437 $230,712
Other (income) ($2,018) ($1,190) ($4,539) ($3,494)
Interest (income) ($3,876) ($1,136) ($18,877) ($1,136)
Interest expense $73,019 $37,689 $222,046 $92,487
---------- ---------- ---------- ----------
Net Income $27,298 $20,057 $145,807 $142,855
========== ========== ========== ==========
Income per share-basic $0.01 $0.00 $0.03 $0.03
========== ========== ========== ==========
Income per share-assuming dilution $0.01 $0.00 $0.03 $0.03
========== ========== ========== ==========
Weighted average number of
common shares outstanding-basic 5,015,693 5,015,293 5,015,693 5,015,293
========== ========== ========== ==========
Weighted average number of
dilutive common shares outstanding 5,308,348 5,070,458 5,283,146 5,052,290
========== ========== ========== ==========
</TABLE>
4
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
January 25 January 26
1998 1997
<S> <C> <C>
Cash flows provided by operating activities $335,451 ($113,706)
----------- -----------
Cash flows from investing activities:
Capital expenditures ($861,242) ($643,901)
---------- -----------
Cash flows used for investing activities ($861,242) ($643,901)
---------- -----------
Cash flows from financing activities:
Repayments of long-term debt ($150,003) ($142,548)
Repayments of capital lease obligations ($22,701) $0
Repayments of stockholder loans ($3,180) ($3,004)
Repayment of subordinated debentures $0 (84,000)
Proceeds from subordinated debentures $218,750 $700,000
Proceeds from long-term debt $0 $571,945
---------- -----------
Cash flows provided by financing activities $42,866 $1,042,393
---------- ----------
Increase (decrease) in cash and cash equivalents ($482,925) $284,786
Cash and cash equivalents at beginning of period $726,054 $159,564
---------- ----------
Cash and cash equivalents at end of period $243,129 $444,350
========== ==========
</TABLE>
5
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
January 25, 1998
(unaudited)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Boston Restaurant Associates, Inc. and its subsidiaries
(collectively, the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation. The condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, these financial
statements include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation. Operating results for the
thirteen-week period and thirty-nine week period ended January 25, 1998 are not
necessarily indicative of the results that may be expected for the year ending
April 26, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB, for the year ended April 27, 1997. The balance sheet at April 27, 1997
has been derived from the audited financial statements at that date.
The accompanying statements of operations and cash flows for the fiscal 1998
period reflect the consolidated operations and cash flows of one casual dining
Italian restaurant for the entire period, one casual dining Italian restaurant
for a portion of this period and six Pizzeria Regina restaurants for the entire
period, and five Pizzeria Regina restaurants for a portion of the period. The
accompanying statements of operations and cash flows for the fiscal 1997 period
reflect the consolidated operations and cash flows of two casual dining Italian
restaurants and seven Pizzeria Regina restaurants for the entire period, and
three Pizzeria Regina restaurants for a portion of the period.
2. NET INCOME PER SHARE
In the third quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128
requires the presentation of both basic and diluted earnings per share and
replaces previously required standards for computing and presenting earnings per
share. Earnings per share amounts for all periods have been presented and where
appropriate restated to conform to the requirements of SFAS 128.
The following is a reconciliation of the denominator (number of shares) used in
the computation of earnings per share. The numerator (net income) is the same
for the basic and diluted computations.
6
<PAGE>
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
January 25, January 26, January 25, January 26,
1998 1997 1998 1997
----- ------ ---- ----
<S> <C> <C> <C> <C>
Basic 5,015,693 5,015,293 5,015,693 5,015,293
Shares
Effect of
dilutive
Securities:
Options 292,655 55,165 267,453 36,997
---------- ---------- --------- ---------
Dilutive
Shares 5,308,348 5,070,458 5,283,146 5,052,290
========== ========== ========= =========
</TABLE>
The following table summarizes securities that were outstanding as of January
25, 1998 and January 26, 1997, but not included in the calculation of net income
per share because such securities are antidilutive:
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
January 25, January 26, January 25, January 26,
1998 1997 1998 1997
----- ---- ------ ----
<S> <C> <C> <C> <C>
Options 57,000 204,500 57,000 367,400
Warrants 2,335,875 2,335,875 2,335,875 2,335,875
Convertible 1,070,000 560,000 1,070,000 560,000
Debentures
</TABLE>
3. NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130") and Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131").
SFAS 130 establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all
7
<PAGE>
changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
SFAS 131, which supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and 131 are effective for financial statements for periods beginning
after December 15, 1997 and require comparative information for earlier years to
be restated. Because of the recent issuance of these standards, management has
been unable to fully evaluate the impact, if any, these standards may have on
future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these standards.
4. CONVERTIBLE SUBORDINATED DEBENTURES
During the current fiscal year the Company completed a private placement of
$1,500,000 of Convertible Subordinated Debentures. These debentures bear
interest at 8% through December 31, 1997; 10% through December 31, 1998; 12%
through December 31, 1999; and 14% through 2011 (straight-lined at 13.2%
annually) payable semi-annually. The debentures are convertible at any time at
the holder's option into the Company's common stock at a conversion rate of
$1.25 per share. The debentures are mandatorily convertible and can be redeemed
under certain conditions, as defined. The debentures are due December 2011.
5. MATERIAL SUBSEQUENT EVENTS AND CONTINGENCIES
Franchising
- -----------
In December, 1998, the Company formed a wholly owned subsidiary
("BRAII") for the purpose of offering Pizzeria Regina franchise opportunities
both domestically and internationally. BRAII has filed a Uniform Franchise
Offering Circular in Connecticut, Florida, Kentucky and Pennsylvania, and is
actively seeking franchisees with operational experience.
In January 1998 the Company entered into an International Development
Agreement with Regina International, a corporation controlled by a Company
director, to
8
<PAGE>
pursue and develop franchise territories outside the Americas, anticipated to be
principally in Europe, the Far East and the Pacific Rim. Under that agreement,
Regina International agrees to use its best efforts to market and promote the
Company's franchise system within its development territory and to sell a
minimum numbers of franchises during the initial 5 1/2 year term. The
Company is obligated to pay Regina International a development fee of $7,000 per
month for the first 60 months of the agreement. This monthly fee accrues but is
not payable until the month following the month in which BRAII's positive cash
flow equals or exceeds $7,000 after payment of all accrued but unpaid direct
costs and expenses incurred in connection with marketing and promotion of the
Company's franchise system, and is payable thereafter only to the extent there
continues to be positive cash flow. The Company will expense the monthly fee as
incurred, regardless of when payment is required to be made. BRAII must pay
Regina International a royalty of 40% of the excess of gross revenues from
Regina International's activities over the expenses incurred by either BRAII or
Regina International in the marketing and promotion of the Company's franchise
system within the development area, with the royalty percentage subject to
adjustment based upon the ratio of revenues to expenses. Either party has the
right to seek negotiation of the agreement upon 180 days written notice at the
end of the term, and if they cannot reach agreement upon mutually agreeable
terms, each has the right to buy out the balance of the agreement's term for a
one-time buy out fee equal to the excess of the revenues of BRAII over the
marketing and promotional expenses referred to above for the five year period
preceding the buy out. The buy out fee is payable to the Company in cash or its
common stock, subject to certain requirements.
Rights Offering
- ---------------
The Company has distributed non-transferable subscription rights to
holders of record of outstanding Common Stock on February 18, 1998, entitling
them to subscribe for and purchase an aggregate of up to 2,006,277 additional
shares of the Company's outstanding Common Stock at the subscription price of
$1.00 per share on or before March 25, 1998. The Company's directors have
collectively subscribed for approximately 1,200,000 of the shares. If the Rights
Offering is successful, the Company anticipates using the net proceeds estimated
at $1,800,000 for general corporate purposes, repayment of indebtedness and
opening of additional restaurant locations.
Contingent Liability
- --------------------
In connection with the sale of a restaurant to a non-affiliated third
party by the Company's predecessor, the Company is a guarantor of the lease
payments under the lease assumed by the buyer expiring in fiscal 2001. This
non-affiliated third party is currently in the process of reorganization under
chapter eleven of the Bankruptcy Code and to date is not in default of the
lease.
9
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
- ---------------------
Overview
- --------
In the thirteen weeks ended January 25, 1998, the Company recorded net
income of $27,298 compared to $20,057 for the quarter ended January 26, 1997.
The Company's profit in the current fiscal quarter is substantially attributable
to the income generated by the Company's Pizzeria Regina restaurant business.
In November 1997, the Company opened a new Pizzeria Regina food court
kiosk at the Regency Square Mall in Richmond, VA. The Company continues to
evaluate potential future sites for possible expansion of its Pizzeria Regina
operations.
During December 1997, the Company closed its only Bel Canto Restaurant
located in Lexington, MA and negotiated an early termination of the lease at
that location.
The Company's Common Stock currently is quoted on the Nasdaq Small Cap
Market. The continued quotation of the Company's Common Stock on the Nasdaq
Small Cap Market is conditioned upon the Company meeting certain asset,
capitalization or income tests and stock price tests established by The Nasdaq
Stock Market, Inc. ("Nasdaq"). Effective on February 23, 1998, Nasdaq increased
the requirements to maintain eligibility for continued quotation to a bid price
of at least $1.00 per share plus (i) net tangible assets in excess of
$2,000,000, or (ii) a market capitalization of at least $35,000,000 or (iii)
annual net income of $500,000. On February 26, 1998, the Company was notified by
Nasdaq that it was subject to delisting as a result of the fact that the Company
does not presently meet the net tangible assets test which became effective on
February 23, 1998. The Company has requested a hearing on the proposed
delisting.
In anticipation of the new listing requirements for the Nasdaq SmallCap
Market, the Company filed a registration statement in January 1998 for a rights
offering to raise approximately $2,000,000 from the sale of its Common Stock.
The offering was commenced on February 26, 1998 and subscriptions already have
been received for in excess of $1,200,000. If more than approximately $1,666,000
is sold in the rights offering, the Company believes that it will meet the net
tangible assets and the other tests set forth by Nasdaq. If the Company fails to
raise at least approximatley $1,666,000 in the rights offering or fails any of
the other applicable tests, the Common Stock may be delisted from quotation on
such system. The effects of delisting include the limited release of the market
prices of the Company's securities and limited news coverage of the Company.
Delisting may restrict investors' interest in the Common Stock and materially
and adversely affect the trading market and prices for the Common Stock and the
Company's ability to issue additional securities or to secure additional
financing.
10
<PAGE>
Thirteen Weeks Ended January 25, 1998 as Compared to Thirteen Weeks ended
January 26, 1997
- --------------------------------------------------------------------------------
Revenues. Net sales in the current period were $2,819,000 compared to net sales
in the prior year's period of $2,857,000. Net sales at the Company's Pizzeria
Regina restaurants increased to $2,038,000 from $2,037,000 in the prior year's
period, while net sales at the Company's full service casual dining restaurants
(Polcari's North End and Bel Canto's) decreased to $778,000 from $810,000 in the
prior year's period. The decrease in net sales in the fiscal 1998 period as
compared to the fiscal 1997 period was due to the closure of the self-service
in-line Pizzeria Regina at the Burlington Mall in October of 1997, the closure
of the two Brookline Pizzeria Regina restaurants in May and October of 1997 at
the completion of their leases (due to the inability to renegotiate a market
value lease), and the closure of the Lexington Bel Canto in December of 1997.
These closures were partially offset by the opening of the new Paramus, NJ.
Pizzeria Regina food court kiosk in August of 1997 and the opening of the new
Pizzeria Regina food court kiosk at The Regency Square Mall in Richmond, VA on
November of 1997.
Cost of Food and Beverages. Cost of food and beverages as a percentage of net
sales was 20% in the fiscal 1998 period as compared to 21% in the fiscal 1997
period.
The cost of food and beverages as a percentage of net sales at the Pizzeria
Regina restaurants was 17% and 18% in the fiscal 1998 and 1997 periods,
respectively. This decline as a percentage of net sales was principally due to
lower food costs and the addition of Pizzeria Regina food court restaurants,
which generally have lower food and beverage costs.
The cost of food and beverages as a percentage of net sales at the Company's
full service casual dining restaurants was 29% and 31% in the fiscal 1998 and
1997 periods, respectively. This decline as a percentage of net sales at the
Company's Polcari's North End restaurant was due to a change in menu mix and
menu price increases.
Payroll Expenses. Payroll expenses were $844,000 (30 % of net sales) in the
current period compared to $857,000 (30% of net sales) in the prior year's
period.
Payroll expenses at the Pizzeria Regina restaurants decreased to $536,000 (26%
of sales) in the current period from $555,000 (27% of net sales) in the prior
year's period. The decrease in dollar amount of payroll expenses at the Pizzeria
Regina restaurants was primarily attributable to the closure of the Company's
two Brookline Pizzeria Regina restaurants and the self-service in-line Pizzeria
Regina at the Burlington Mall, which was partially offset by the opening of the
new Paramus Park Mall food court location and the Regency Square Mall food court
kiosk.
Payroll expenses at the Company's full service casual dining restaurant
decreased to $263,000 (34% of net sales) in the current period from $274,000
(34% of net sales) in the prior year's period. The decrease in dollar amount of
payroll expenses is primarily attributable to the closure of the Lexington Bel
Canto restaurant in December of 1997.
11
<PAGE>
Payroll expenses at the Company's Commissary were $45,000 for the fiscal 1998
period as compared to $28,000 in the fiscal 1997 period. The increase is
primarily due to the purchasing director's salary associated with the
Commissary.
Other Operating Expenses. Other operating expenses in the current period were
$959,000 (34% of net sales), compared to $1,031,000 (36% of net sales) in the
prior year's period. The decrease in other operating expenses in the current
period was primarily attributable to the closure of the two Brookline Pizzeria
Regina restaurants and the self-service in-line Pizzeria Regina at the
Burlington Mall and the closure of the Lexington Bel Canto restaurant. The
decrease in other operating expenses was partially offset by the Company's
policy to expense pre-opening costs as incurred. Therefore, the Company incurred
pre-opening expenses associated with the Pizzeria Regina in Paramus Park Mall
and the Pizzeria Regina in Regency Square Mall and with the opening of other new
locations.
Other operating expenses from the Pizzeria Regina restaurants decreased to
$629,000 (31% of net sales) in the current period from $678,000 (33% of net
sales) in the prior year's period.
Other operating expenses at the Company's full service casual dining restaurants
decreased to $305,000 (39% of net sales) in the current period from $331,000
(41% of net sales) in the prior year's period. Other operating expenses also
include commissary expenses, which decreased to $15,000 in the current period,
as compared to $22,000 in the prior year's period. In addition, other operating
expenses in the current period include pre-opening expenses of $10,000
associated with the opening of new locations.
General and Administrative Expenses. General and administrative expenses were
$350,000 (12% of net sales) in the current period, as compared to $301,000 (11 %
of net sales) in the prior year's period. The increase in general and
administrative expenses was due, principally, to an increase in legal costs,
real estate site selection consulting expense and support staff.
Interest Expense. Interest expense increased to $73,000 in the current period as
compared to $38,000 in the prior year's period. This increase was due to
borrowings under the Company's new credit facility and the issuance of
convertible subordinated debentures.
Thirty-nine Weeks Ended January 25, 1998 as Compared to Thirty-nine Weeks ended
January 26, 1997
- --------------------------------------------------------------------------------
Revenues. Net sales in the current period were $8,654,000 compared to net sales
in the prior year's period of $8,669,000. Net sales at the Company's Pizzeria
Regina restaurants increased to $6,038,000 from $6,002,000 in the prior year's
period. Net sales at the Company's full service casual dining restaurants
(Polcari's North End and Bel Canto's) decreased to $2,602,000 from $2,636,000 in
the prior year's period. The slight decrease in net sales was attributable to
the closure of the self-service in-line Pizzeria Regina at the Burlington Mall
in October of 1997 and the closure of the two Brookline Pizzeria Regina
12
<PAGE>
restaurants in May and October of 1997 at the completion of their leases (due to
the inability to renegotiate a market value lease at the Brookline locations)
and the closure of the Lexington Bel Canto Restaurant, which was partially
offset by the opening of the new Paramus, NJ Pizzeria Regina Food Court in
August of 1997 and the opening of the new Richmond, VA Pizzeria Regina food
court in November of 1997.
Cost of Food and Beverages. Cost of food and beverages as a percentage of net
sales was 20% in the fiscal 1998 period as compared to 23% in the fiscal 1997
period.
The cost of food and beverages as a percentage of net sales at the Pizzeria
Regina restaurants was 16% and 19% in the fiscal 1998 and 1997 periods,
respectively. This decline as a percentage of net sales was principally due to
lower food costs and the addition of Pizzeria Regina food court restaurants
which generally have lower food and beverage costs.
The cost of food and beverages as a percentage of net sales at the Company's
full service casual dining restaurants was 29% and 31% in the fiscal 1998 and
1997 periods respectively. This decline as a percentage of net sales was due to
a change in menu mix and menu price increases at the Company's Polcari's North
End restaurant.
Payroll Expenses. Payroll expenses were $2,568,000 (30% of net sales) in the
current period compared to $2,645,000 (31% of net sales) in the prior year's
period.
Payroll expenses at the Pizzeria Regina restaurants decreased to $1,607,000 (27%
of sales) in the current period from $1,687,000 (28% of net sales) in the prior
year's period. The decrease in dollar amount of payroll expenses at the Pizzeria
Regina restaurants was primarily attributable to the closure of the Company's
two Brookline Pizzeria Regina restaurants and the self-service in-line Pizzeria
Regina at the Burlington Mall, which was partially offset by an increase in
payroll expenses associated with the new Paramus Park Mall food court location
in August of 1997 and the new Regency Square Mall food court location in
November of 1997.
Payroll expenses at the Company's full service casual dining restaurant
decreased to $849,000 (33% of net sales) in the current period from $869,000
(33% of net sales) in the prior year's period. The decrease in dollar amount of
payroll expenses is primarily attributable to the closure of the Lexington Bel
Canto restaurant in December of 1997. Payroll expenses at the Company's
Commissary was $112,000 for the fiscal 1998 period as compared to $89,000 in the
fiscal 1997 period. The increase is primarily due to the purchasing director's
salary associated with the Commissary.
Other Operating Expenses. Other operating expenses in the current period were
$2,899,000 (33% of net sales), compared to $2,941,000 (34% of net sales) in the
prior year's period. The decrease in dollar amount of other operating expenses
in the current period was primarily attributable to the closure of the Company's
two Brookline Pizzeria Regina restaurants and the self-service in-line Pizzeria
Regina at the Burlington Mall and the closure of the Lexington Bel Canto
Restaurant. The decrease in other operating
13
<PAGE>
expenses was partially offset by the Company's policy to expense pre-opening
costs as incurred. Therefore, the Company incurred pre-opening expenses
associated with the Pizzeria Regina in Paramus Park Mall, the Pizzeria Regina
in Regency Square Mall and with the opening of other new locations.
Other operating expenses from the Pizzeria restaurants increased slightly to
$1,958,000 (32% of net sales) in the current period from $1,955,000 (33% of net
sales) in the prior year's period.
Other operating expenses at the Company's full service casual dining restaurants
decreased to $865,000 (33% of net sales) in the current period from $923,000
(35% of net sales) in the prior year's period. Other operating expenses also
include commissary expenses, which decreased to $47,000 in the current period,
as compared to $63,000 in the prior year's period. In addition the Company
realized pre-opening expenses of $29,000 in the current period.
General and Administrative Expenses. General and administrative expenses were
$1,096,000 (13% of net sales) in the current period, as compared to $889,000
(10% of net sales) in the prior year's period. The increase in general and
administrative expenses was due, principally, to an increase in legal costs,
real estate site selection consulting expenses, and support staff.
Interest Expense. Interest Expense increased to $222,000 in the current period
as compared to $92,000 in the prior year's period. This increase was due to
borrowings under the Company's new credit facility and the issuance of
convertible subordinated debentures.
Liquidity and Capital Resources.
At January 25, 1998, the Company had a negative net working capital of
approximately $525,000 and cash and cash equivalents of approximately $243,000.
During the thirty-nine weeks ended January 25, 1998, the Company had a net
decrease in cash and cash equivalents of $483,000, reflecting net cash provided
by operating activities of $335,000, net cash used for investing activities of
$861,000 and net cash provided by financing activities of $43,000. Net cash
provided by operating activities included the decrease in accounts receivable of
$41,000, partially offset by an increase in prepaid expenses of $62,000 and a
decrease in accrued liabilities of $128,000. Approximately $586,000 of the net
cash used in investing activities was costs associated with the opening of the
new Paramus, NJ Pizzeria location and the cost new Pizzeria Regina food court
kiosk at the Regency Square Mall in Richmond, VA, and approximately $49,000 in
costs was associated with the opening of the new Pizzeria Regina food court
kiosks in Oviedo, FL and Auburn, MA . Net cash used in investing activities also
reflects costs associated with the production of ovens for future Pizzeria
Regina expansion. Net cash provided by financing activities reflects the receipt
of $219,000 of proceeds from the convertible subordinated debentures private
placement and the use of $716,000 to repay long term debt, lease obligations and
stockholder loans.
14
<PAGE>
The Company opened Pizzeria Regina food court kiosks at the Paramus Park Mall,
Paramus, NJ on August 7, 1997 and at the Regency Square Mall, Richmond, VA on
November 30, 1997. The Company has entered into a lease for a food court kiosk
in the Oviedo Mall, Oviedo, FL which is planning to open in March of 1998. The
Company has also entered into a lease for a food court kiosk in the Auburn Mall,
Auburn, MA, which is planning to open in the spring of 1998.
At January 25, 1998, the Company had current liabilities of $1,114,000,
including $375,000 of accounts payable, $500,000 of accrued liabilities and
current maturities of long-term obligations in the amount of $239,000. At
January 25, 1998, the Company had long-term obligations, less current
maturities, in the amount of $2,119,000, including $475,000 due under its credit
facility with Haymarket Co-Operative Bank, $123,000 of loans payable to
stockholder, $112,000 due under the capital lease obligations, $1,337,500 of
convertible subordinated debentures, and $72,000 of deferred rent. The President
and the Treasurer of the Company and each of the Company's subsidiaries have
guaranteed the Company's obligations to the bank. As of March 8, 1998, the
Company had borrowed the full amount available under its bank credit facility.
The Company believes that its existing resources, cash flow from operations and
borrowings under its credit facility will be sufficient to allow it to meet its
obligations over the next twelve months. The Company intends to fund its current
obligations and operating expenses through cash generated from operations. The
Company has commenced the rights offering to raise approximately $1,800,000 (net
of expenses) from the sale of Common Stock. The net proceeds of the rights
offering will be used for working capital, repayment of indebtedness and to
finance its expansion plans and other cash flow requirements. There can be no
assurance that cash flows will improve in an amount sufficient to allow the
Company to fund its current obligations and operating expenses, that the rights
offering will be successful, or that the Company will be able to obtain
additional financing upon favorable terms, if at all. Failure of the Company to
do so could result in the Company's failure to be able to meet its cash flow
requirements.
New Accounting Standards
- ------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130") and Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131").
SFAS 130 establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
15
<PAGE>
SFAS 131, which supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and 131 are effective for financial statements for periods beginning
after December 15, 1997 and require comparative information for earlier years to
be restated. Because of the recent issuance of these standards, management has
been unable to fully evaluate the impact, if any, these standards may have on
future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these standards.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
- --------------------------------------------------------------------------------
Forward-looking statements in this report, including without, limitation,
statements relating to the adequacy of the Company's resources, and the timing
of the Company's expansion are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that such forward-looking statements involve risks and uncertainties, including
without limitation: potential quarterly fluctuations in the Company's operating
results; seasonality of sales; competition; risks associated with expansion; the
Company's reliance on key employees; risks generally associated with the
restaurant industry; risks associated with geographic concentration of the
Company's restaurants; risks associated with serving alcoholic beverages; risks
associated with possible Nasdaq Small Cap Market delisting and the success of
the Company's rights offering; and other risks and uncertainties indicated from
time to time in the Company's filings with the Securities and Exchange
Commission.
PART II
ITEM 2. Changes in Securities and Use of Proceeds.
------------------------------------------
At January 25, 1998 a Registration Statement had been filed but had not yet
become effective relating to the proposed issuances of 2,006,277 Rights (four
tenths of one Right for each share of stock outstanding) to purchase Common
Stock at a price of $1.00 per share. The Registration Statement was declared
effective and the rights offering commenced February 26, 1998.
ITEM 5. Other Information.
------------------
The Company entered into an International Development Agreement with
Regina
16
<PAGE>
International, a corporation controlled by a Company director, to pursue
and develop franchise territories outside the Americas, anticipated to be
principally in Europe, the Far East and the Pacific Rim. Under that agreement,
Regina International agrees to use its best efforts to market and promote the
Company's franchise system within its development territory and to sell a
minimum numbers of franchises during the initial 5 1/2 year term. The Company is
obligated to pay Regina International a development fee of $7,000 per month for
the first 60 months of the agreement. This monthly fee accrues but is not
payable until the month following the month in which BRAII's positive cash flow
equals or exceeds $7,000 after payment of all accrued but unpaid direct costs
and expenses incurred in connection with marketing and promotion of the
Company's franchise system, and is payable thereafter only to the extent there
continues to be positive cash flow. The Company will expense the monthly fee as
incurred, regardless of when payment is required to be made. BRAII must pay
Regina International a royalty of 40% of the excess of gross revenues from
Regina International's activities over the expenses incurred by either BRAII or
Regina International in the marketing and promotion of the Company's franchise
system within the development area, with the royalty percentage subject to
adjustment based upon the ratio of revenues to expenses. Either party has the
right to seek negotiation of the agreement upon 180 days written notice at the
end of the term, and if they cannot reach agreement upon mutually agreeable
terms, each has the right to buy out the balance of the agreement's term for a
one-time buy out fee equal to the excess of the revenues of BRAII over the
marketing and promotional expenses referred to above for the five year period
preceding the buy out. The buy out fee is payable to the Company in cash or its
common stock, subject to certain requirements.
ITEM 6. Exhibits and Reports On Form 8-K.
---------------------------------
(a) Exhibits.
---------
10(x) International Development Agreement dated as of January 1, 1998
between Boston Restaurant Associates, Inc. and Regina
International, Ltd. (Incorporated by reference to the Company's
Registration Statement on Form S-2 (File No. 333-43999). The
number set forth herein is the number of the Exhibit in said
Registration Statement).
(b) Reports On Form 8-K. - None
17
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BOSTON RESTAURANT ASSOCIATES, INC.
By: /s/ George R. Chapdelaine
Date: March 8, 1998 -----------------------------------
George R. Chapdelaine, President and
Chief Executive Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from condensed
consolidated balance sheets as of January 25, 1998 and April 27, 1997 (audited)
and condensed consolidated statement of operations for the thirteen weeks ended
January 25, 1998 and January 26, 1997 (unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000926295
<NAME> BOSTON RESTAURANT ASSOCIATES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-26-1998
<PERIOD-START> OCT-27-1997
<PERIOD-END> JAN-25-1998
<EXCHANGE-RATE> 1.00
<CASH> 243,129
<SECURITIES> 0
<RECEIVABLES> 28,863
<ALLOWANCES> 0
<INVENTORY> 226,829
<CURRENT-ASSETS> 588,690
<PP&E> 4,809,302
<DEPRECIATION> 2,005,011
<TOTAL-ASSETS> 4,719,339
<CURRENT-LIABILITIES> 1,114,095
<BONDS> 0
0
0
<COMMON> 50,157
<OTHER-SE> 1,435,937
<TOTAL-LIABILITY-AND-EQUITY> 4,719,339
<SALES> 2,818,548
<TOTAL-REVENUES> 2,824,442
<CGS> 570,668
<TOTAL-COSTS> 2,724,125
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,019
<INCOME-PRETAX> 27,298
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,298
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
