U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 July 26, 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 I.R.S. Employer
Jurisdiction of Identification
Incorporation or No.)
Organization)
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
for 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 September 4, 1998, 7,024,170 shares of the issuer's Common Stock, par
value $.01 per share, were outstanding.
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of July 26, 1998 and
April 26, 1998 .............................................................. 3
Condensed Consolidated Statements of Operations for the thirteen weeks
ended July 26, 1998 and July 27, 1997 ........................................ 4
Condensed Consolidated Statements of Cash Flows for the thirteen
weeks ended July 26, 1998 and July 27, 1997 ................................. 5
Notes to Condensed Consolidated Financial Statements ......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ....................................................... 8
PART II - OTHER INFORMATION ......................................................... 12
SIGNATURES ................................................................. 13
</TABLE>
-2-
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
JULY 26 APRIL 26
1998 1998
------------ ------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 1,617,277 $ 1,788,361
Accounts receivable $ 55,314 $ 46,958
Inventories $ 213,204 $ 212,071
Prepaid expenses and other $ 55,836 $ 49,152
------------ ------------
Total current assets $ 1,941,631 $ 2,096,542
Net property and equipment $ 3,440,524 $ 3,345,273
Other assets $ 1,305,450 $ 1,323,160
------------ ------------
Total assets $ 6,687,605 $ 6,764,975
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 375,566 $ 314,124
Accrued liabilities $ 329,488 $ 490,525
Current maturities:
Notes payable-stockholder $ 4,606 $ 4,495
Long-term debt $ 200,000 $ 200,000
Obligations under capital leases $ 77,024 $ 74,206
------------ ------------
Total current liabilities $986,684 $ 1,083,350
Long-term obligations:
Notes payable-stockholder, less current maturities $ 120,105 $ 121,336
Long-term debt, less current maturities $ 375,000 $ 425,000
Obligations under capital leases, less current maturities $ 341,202 $ 361,548
Subordinated debentures $ 1,500,000 $ 1,500,000
Deferred rent $ 93,818 $ 85,662
------------ ------------
Total liabilities $ 3,416,809 $ 3,576,896
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 25,000,000
shares authorized, 7,024,170 and $ 70,242 $ 70,220
7,021,970 shares issued
Additional paid in capital $10,864,012 $10,846,333
Accumulated deficit ($7,663,458) ($7,728,474)
------------ ------------
Total stockholders' equity $ 3,270,796 $ 3,188,079
Total liabilities and stockholders' equity $ 6,687,605 $ 6,764,975
============ ============
</TABLE>
See accompanying notes.
-3-
<PAGE>
BOSTON RESTAURANTS ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
July 26 July 27
1998 1997
----------- -----------
<S> <C> <C>
Net sales $2,956,700 $2,845,885
----------- -----------
Cost of food, beverages and liquor $ 597,671 $ 574,507
Payroll $ 870,031 $ 835,548
Other operating expenses $ 891,945 $ 832,882
General and administrative $ 330,328 $ 373,239
Depreciation and amortization $ 134,335 $ 102,378
----------- -----------
Total costs and expenses $2,824,310 $2,718,554
----------- -----------
Operating income $ 132,390 $ 127,331
Other income ($967) ($927)
Interest income ($16,269) ($9,099)
Interest expense $ 84,623 $ 71,524
----------- -----------
Net Income $ 65,003 $ 65,833
=========== ===========
Income per share-basic $ 0.01 $ 0.01
=========== ===========
Income per share-diluted $ 0.01 $ 0.01
=========== ===========
Weighted average number of
common shares outstanding-basic 7,023,445 5,015,693
=========== ===========
Weighted average number of
dilutive common shares outstanding 7,424,825 5,156,014
=========== ===========
</TABLE>
See accompanying notes.
-4-
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
July 26 July 27
1998 1997
----------- ---------
<S> <C> <C>
Cash flows provided by operating activities $ 109,441 $144,979
----------- ---------
Cash flows from investing activities:
Capital expenditures ($211,877) ($77,804)
----------- ---------
Cash flows used for investing activities ($211,877) ($77,804)
----------- ---------
Cash flows from financing activities:
Repayments of long-term debt ($50,000) ($50,000)
Repayments of capital lease obligations ($17,528) ($7,289)
Repayments of stockholder loans ($1,120) ($1,004)
Proceeds from subordinated debentures $ 0 $193,750
----------- ---------
Cash flows provided by (used for) financing activities ($68,648) $135,457
----------- ---------
Increase (decrease) in cash and cash equivalents ($171,084) $202,632
Cash and cash equivalents at beginning of period $1,788,361 $726,054
----------- ---------
Cash and cash equivalents at end of period $1,617,277 $928,686
=========== =========
</TABLE>
See accompanying notes.
-5-
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 26, 1998
(unaudited)
NATURE OF BUSINESS AND BASIS OF PRESENTATION
The accompanying unaudited 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, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the thirteen-week period ended July 26, 1998 are not necessarily
indicative of the results that may be expected for the year ending April 25,
1999. 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 26, 1998. The balance sheet at April 26, 1998 has been
derived from the audited financial statements at that date.
The accompanying statements of operations and cash flows for the fiscal 1999
period reflect the consolidated operations and cash flows of one casual dining
Italian restaurant and nine Pizzeria Regina restaurants for the entire period
and one additional Pizzeria Regina restaurant for part of the period. The
accompanying statements of operations and cash flows for the fiscal 1998 period
reflect the consolidated operations and cash flows of two casual dining Italian
restaurants, and six Pizzeria Regina restaurants for the entire period and three
Pizzeria Regina restaurants for part of the period.
NET INCOME PER SHARE
The Company follows Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128").
The following is a reconciliation of the denominator (number of shares) used in
the computation of earnings per share. The numerator (net income) is the same
for the basic and diluted computations.
-6-
<PAGE>
Thirteen weeks ended
July 26 July 27
1998 1997
---- ----
Basic Shares 7,023,445 5,015,693
Effect of
Dilutive Securities:
Options 401,380 140,321
--------- ---------
Diluted Shares 7,424,825 5,156,014
--------- ---------
The following table summarizes securities that were outstanding as of July 26,
1998 and July 27, 1997, but not included in the calculation of net income per
share because such securities are anti-dilutive:
Thirteen weeks ended
July 26 July 27
1998 1997
---- ----
Options 47,000 15,000
Warrant 2,843,000 2,693,000
Convertible
Debentures 1,200,000 1,050,000
-7-
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
Results of Operations
Overview
In the thirteen weeks ending July 26, 1998, the Company recorded net income of
$65,003 compared to $65,833 for the quarter ending July 27, 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.
Thirteen Weeks Ended July 26, 1998 as Compared to Thirteen Weeks ended July 27,
1997
Revenues. Net sales in the current period were $2,957,000 compared to net sales
in the prior year's period of $2,846,000. The increase in net sales in the
fiscal 1999 period, as compared to the fiscal 1998 period, was attributable to
the opening of the new Paramus, New Jersey Pizzeria Regina food court kiosk in
August of 1997; the opening of the new Richmond, Virginia Pizzeria Regina food
court kiosk in November of 1997; the opening of the new Oviedo, Florida Pizzeria
Regina food court kiosk in March of 1998; and the opening of the new Auburn,
Massachusetts Pizzeria Regina food court kiosk in May of 1998. This was
partially offset by 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 at those
locations, and the closure of the Lexington Bel Canto Restaurant. Comparable
sales for the restaurants open throughout both fiscal 1999 and 1998 periods
increased by approximately 6.4%. Net sales at the Company's Pizzeria Regina
restaurants increased to $2,266,000 in the current period from $1,933,000 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 $687,000 in the current period from
$906,000 in the prior year's period. The decrease was primarily attributable to
closure of the Lexington Bel Canto restaurant in December 1997, which was
partially offset by increased sales of approximately $32,000 at the Polcari's
North End restaurant.
Costs and Expenses
Cost of Food and Beverages. Cost of food and beverages as a percentage of net
sales was 20% in both fiscal 1999 and fiscal 1998 periods.
The cost of food and beverages as a percentage of net sales at the Pizzeria
Regina restaurants was 17% and 16% in the fiscal 1999 and 1998 periods,
respectively. The cost of food and beverages as a percentage of net sales
increased at the Pizzeria Regina restaurants, principally due to increased sales
of gourmet pizzas, which have a higher selling price and higher food cost than
traditional pizzas.
-8-
<PAGE>
The cost of food and beverages as a percentage of net sales at the Company's
full service casual dining restaurants was 32% and 29% in the fiscal 1999 and
1998 periods, respectively. The increase in cost as a percentage of net sales
was due to the closure of the Lexington Bel Canto restaurant, which had lower
food and beverage costs.
Payroll Expenses. Payroll expenses were $870,000 (29 % of net sales) in the
current period compared to payroll expenses in the prior year's period of
$836,000 (29% of net sales).
Payroll expenses at the Pizzeria Regina restaurants increased to $605,000 (27%
of sales) in the current period from $514,000 (27% of net sales) in the prior
year's period. The increase in payroll expenses at the Pizzeria Regina
restaurants was primarily attributable to the opening of the four new Pizzeria
Regina food court kiosks, which was partially offset by a decrease in payroll
expenses associated with the closure of three Pizzeria Regina restaurants
Payroll expenses at the Company's full service casual dining restaurants
decreased to $217,000 (32% of net sales) in the current period from $295,000
(33% of net sales) in the prior year's period, reflecting the closure of the
only remaining Bel Canto restaurant. Payroll expenses at the Company's
Commissary were $48,000 for the fiscal 1999 period as compared to $27,000 in the
fiscal 1998 period. This increase is primarily due to the reclassification of
the purchasing director's salary to the Commissary's payroll expense.
Other Operating Expenses, Exclusive of Payroll. Other operating expenses
exclusive of payroll in the current period were $892,000 (30% of net sales),
compared to $833,000 (29% of net sales) in the prior year's period. The increase
in other operating expenses in the current period was primarily attributable to
the opening of the four new Pizzeria Regina's food courts kiosks. The Company's
policy is to expense pre-opening costs as incurred. The Company recognized
pre-opening expenses associated with the Pizzeria Regina in Auburn, MA which
opened in May 1998, and costs associated with future expansion. This increase in
other operating expenses was partially offset by the closure of three Pizzeria
Regina restaurants.
Other operating expenses from the Pizzeria Regina restaurants increased to
$693,000 (31% of net sales) in the current period from $559,000 (29% of net
sales) in the prior year's period. This increase is primarily attributable to
the addition of four new Pizzeria Regina food court kiosks, partially offset by
the closure of the self-service in-line Pizzeria Regina restaurant at the
Burlington Mall and the closure of two Brookline Pizzeria Regina restaurants.
Other operating expenses at the Company's full service casual dining restaurants
decreased to $183,000 (27% of net sales) in the current period from $259,000
(29% of net sales) in the prior year's period. This decrease was primarily
attributable to the closure of the Lexington, Bel Canto restaurant. Other
operating expenses also include commissary expenses, which decreased to $14,000
in the current period, as compared to $15,000 in the prior year's period. In
addition, the Company realized pre-opening expenses of $2,000 in the fiscal 1999
period.
General and Administrative Expenses. General and administrative expenses were
$330,000 (11% of net sales) in the current period, as compared to $373,000 (13 %
of net sales) in the
-9-
<PAGE>
prior year's period. The decrease in general and administrative expenses was
due, principally, to a reduction in legal costs.
Depreciation and Amortization Expenses. Depreciation and amortization expense
was $134,000 (5% of net sales) in fiscal 1999 period, compared to $102,000 (4%
of net sales) in fiscal 1998 period. The increase in depreciation and
amortization expense was attributable to the opening of the four new Pizzeria
Regina food court kiosks.
Interest Expense and Interest Income. Interest expense increased to $85,000 in
the current period from $72,000 in the prior year's period. This increase in
interest expense was associated with borrowings under the Company's new credit
facility and the issuance of convertible subordinated debentures.
Interest income increased to $16,000 in fiscal 1999 from $9,000 in fiscal 1998.
The increase in interest income was attributable to the proceeds from the March
1998 Rights Offering.
Liquidity and Capital Resources
At July 26, 1998, the Company had net working capital of approximately $955,000
and cash and cash equivalents of approximately $1,617,000.
During the thirteen weeks ended July 26, 1998, the Company had a net decrease in
cash and cash equivalents of $171,000 reflecting net cash provided by operating
activities of $109,000, net cash used for investing activities of $212,000 and
net cash used for financing activities of $68,000.
Net cash provided by operating activities included an increase in accounts
payable of $61,000, partially offset by an increase in accounts receivable of
$8,000, a reduction in accrued expenses of $161,000, and an increase in deferred
rent of $8,000. Net cash used for investing activities reflects partial costs
associated with the opening of the new Auburn, MA Pizzeria Regina location and
renovations of the executive office in Saugus, MA. Net cash used for financing
activities reflects $69,000 to repay long-term debt, lease obligations and
stockholder loans.
The Pizzeria Regina food court kiosk opened at the Auburn Mall, Auburn, MA on
May 7, 1998. The Company entered into a lease for a food court kiosk in Holyoke,
MA to open in the first quarter of fiscal 2000. The Company anticipates that the
cost of opening this restaurant will be approximately $350,000. There can be no
assurance that the Company will open this restaurant on a timely basis or within
budget.
At July 26, 1998, the Company had current liabilities of $987,000, including
$376,000 of accounts payables, $329,000 of accrued liabilities and current
maturities of long term obligations in the amount of $282,000. At July 26, 1998,
the Company had long-term obligations, less current maturities, in the amount of
$2,430,000, including $375,000 due under its credit facility with Haymarket
Co-Operative Bank, $120,000 of loans payable to stockholder, $341,000 due under
the capital lease obligations, $1,500,000 of convertible
-10-
<PAGE>
subordinated debentures, and $94,000 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 September 4, 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,
borrowing under its credit facility, and the net proceeds from the March 1998
Rights Offering 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 net proceeds of
the March 1998 Rights Offering will be used for repayment of indebtedness, to
finance its expansion plans and for other working capital 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, 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.
Year 2000 Systems
The Company has undertaken a review concerning the ability of its internal
information systems, including its internal accounting systems, to handle date
information and to function appropriately from and after January 1, 2000, and
does not believe that the total cost to address any changes required as a result
of the so-called "Year 2000 Problem" will be material. The Company has reviewed
various scenarios, including the worst case scenario, and concluded there will
be no material impact on the Company.
"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; and
other risks and uncertainties indicated from time to time in the Company's
filings with the Securities and Exchange Commission.
-11-
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings.
------------------
No material litigation.
ITEM 2. Changes in Securities.
----------------------
None.
ITEM 3. Defaults Upon Senior Securities.
--------------------------------
None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None.
ITEM 5. Other Information.
------------------
None
ITEM 6. Exhibits and Reports On Form 8-K.
---------------------------------
(a) Exhibits.
(27) Financial Data Schedule
(b) Reports On Form 8-K.
None.
-12-
<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.
Date: September 4, 1998 By: /s/ George R. Chapdelaine
------------------------------------
George R. Chapdelaine, President and
Chief Executive Officer
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS AS OF JULY 26, 1998 AND APRIL 26, 1998 (AUDITED) AND
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED JULY
26, 1998 AND JULY 27, 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-25-1999
<PERIOD-START> APR-27-1998
<PERIOD-END> JUL-26-1998
<EXCHANGE-RATE> 1.00
<CASH> 1,617,277
<SECURITIES> 0
<RECEIVABLES> 55,314
<ALLOWANCES> 0
<INVENTORY> 213,204
<CURRENT-ASSETS> 1,941,631
<PP&E> 5,670,113
<DEPRECIATION> 2,229,589
<TOTAL-ASSETS> 6,687,605
<CURRENT-LIABILITIES> 986,684
<BONDS> 0
0
0
<COMMON> 70,235
<OTHER-SE> 3,270,796
<TOTAL-LIABILITY-AND-EQUITY> 6,687,605
<SALES> 2,956,700
<TOTAL-REVENUES> 2,957,667
<CGS> 597,671
<TOTAL-COSTS> 2,824,310
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,623
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,003
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
