U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-21423
CHICAGO PIZZA & BREWERY, INC.
(Name of small business issuer as specified in its charter)
CALIFORNIA 33-0485615
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
26131 MARGUERITE PARKWAY, SUITE A, MISSION VIEJO, CA 92692
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (714) 367-8616
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
twelve 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 .
-- --
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of equity, as of the latest practicable date: At August 4, 1997, 6,408,321
shares of the small business issuer's common stock were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
December 31, 1996 and June 30, 1997 1
Consolidated Statements of Operations -
Three Months and Six Months Ended
June 30, 1996 and June 30, 1997 2
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996
and June 30, 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Results of Operations 6
Liquidity and Capital Resources 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES
<PAGE>
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
ASSETS 1996 1997
- ---------- -------------- ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5,485,808 $ 3,715,210
Restricted cash 200,000 200,000
Accounts receivable 157,422 193,908
Inventory 256,668 293,429
Prepaids and other current assets 343,176 398,113
------------- ------------
Total current assets 6,443,074 4,800,660
Property and equipment, net 6,234,061 7,434,096
Other assets 191,118 268,413
Restricted cash 369,123 369,123
Intangible assets, net 5,676,349 5,590,522
------------ ------------
TOTAL ASSETS $18,913,725 $18,462,814
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------
Current liabilities:
Accounts payable $ 1,264,798 $ 1,211,402
Accrued expenses 1,199,092 1,232,681
Notes payable to related parties 328,681 315,806
Current portion of long-term debt 255,636 230,438
Current portion of obligations under capital leases 66,266 62,935
------------ ------------
Total current liabilities 3,114,473 3,053,262
Notes payable to related parties 2,386,547 2,228,955
Obligations under capital leases 110,322 84,557
Long-term debt 816,187 680,899
Other liabilities 147,771 141,551
------------ ------------
Total liabilities 6,575,300 6,189,224
Minority interest in partnership 215,128 208,952
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized, none
issued or outstanding
Common stock, no par value, 60,000,000 shares
authorized, 6,408,321 issued and outstanding 15,039,646 15,039,646
Capital surplus 1,196,029 1,196,029
Accumulated deficit (4,112,378) (4,171,037)
------------ ------------
Total shareholders' equity 12,123,297 12,064,638
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $18,913,725 $18,462,814
============ ============
<FN>
See accompanying notes.
</TABLE>
1
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<TABLE>
<CAPTION>
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C>
Revenues $ 6,539,799 $ 6,641,662 $ 8,308,054 $12,424,858
Cost of sales 2,068,092 1,942,645 2,614,190 3,650,504
------------- ------------- ------------- -------------
Gross profit 4,471,707 4,699,017 5,693,864 8,774,354
Operating expenses:
Labor and benefits 2,339,259 2,275,406 3,088,130 4,230,189
Occupancy 590,253 602,330 730,716 1,177,946
Operating expenses 1,008,972 832,494 1,293,635 1,612,768
General and administrative 605,472 687,602 832,926 1,351,168
Depreciation and amortization 326,695 334,346 436,359 603,205
------------- ------------- ------------- -------------
Total operating expenses 4,870,651 4,732,178 6,381,766 8,975,276
Loss from operations (398,944) (33,161) (687,902) (200,922)
Other income (expense):
Gain on involuntary conversion of assets 190,722 190,722
Interest expense, net (322,553) (40,876) (385,659) (58,115)
Other 5,080 (1,107) 7,342 9,112
------------- ------------- ------------- -------------
Total other income (expense) (317,473) 148,739 (378,317) 141,719
------------- ------------- ------------- -------------
Income (loss) before minority
interest and income taxes (716,417) 115,578 (1,066,219) (59,203)
Minority interest in partnership 11,842 2,558 (1,444) 6,176
------------- ------------- ------------- -------------
Income (loss) before income taxes (704,575) 118,136 (1,067,663) (53,027)
Income tax expense (3,200) (7,081) (800)
------------- ------------- ------------- -------------
Net income (loss) $ (707,775) $ 118,136 $(1,074,744) $ (53,827)
============= ============= ============= =============
Net income (loss) per common share $(0.19) $ 0.02 $(0.28) $(0.01)
======= ======= ======= =======
Weighted average common shares outstanding 3,788,878 6,408,321 3,788,878 6,408,321
========== ========== ========== ==========
<FN>
See accompanying notes.
</TABLE>
2
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<TABLE>
<CAPTION>
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
---------------------------
1996 1997
------------- -------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss $ (1,074,744) $ (53,827)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 377,243 603,205
Minority interest in partnership 1,444 (6,176)
Noncash interest and consulting expense on
private placement offering warrants 50,000
Changes in assets and liabilities:
Accounts receivable (2,756) (36,486)
Inventory 27,932 (36,761)
Prepaids and other current assets (724,096) (135,115)
Other assets (220,416) (77,295)
Accounts payable 856,057 (53,396)
Accrued expenses 311,581 33,589
Other liabilities 176,520 (6,220)
------------- -------------
Net cash provided by (used in)
operating activities (221,235) 231,518
------------- -------------
Cash flows used by investing activities:
Acquisition of Chicago Pizza Northwest (2,591,208)
Acquisition of Brea, California Micro-brewery
leasehold interests (930,400)
Purchase of equipment (1,367,060) (1,637,235)
Capitalized leases (145,249)
Proceeds from Abby's sale, net of expenses 950,000
------------- -------------
Net cash used in investing activities (4,083,917) (1,637,235)
------------- -------------
Cash flows provided by (used in) financing activities:
Borrowing on related party debt 3,100,000
Borrowing on short-term debt 227,912
Borrowing on long-term debt 750,771
Payments on related party debt (396,888) (170,467)
Payments on long-term debt (303,293) (160,486)
Increase in capital lease obligations 145,249
Capital lease payments (15,389) (29,096)
Distribution to minority interest (4,832)
------------- -------------
Net cash provided by (used in)
financing activities 3,508,362 (364,881)
------------- -------------
Net decrease in cash and cash equivalents (796,790) (1,770,598)
Cash and cash equivalents, beginning of period 1,791,769 5,485,808
------------- -------------
Cash and cash equivalents, end of period $ 994,979 $ 3,715,210
============= ============
<FN>
See accompanying notes.
</TABLE>
3
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CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying consolidated financial statements of Chicago Pizza &
Brewery, Inc. and its subsidiaries (the "Company") for the three months and
six months ended June 30, 1996 and 1997 have been prepared in accordance with
generally accepted accounting principles, and with the instructions to Form
10-QSB and Item 310 (b) of Regulation S-B. These financial statements have not
been audited by independent accountants, but include all adjustments
(consisting of normal recurring adjustments) which are, in Management's
opinion, necessary for a fair presentation of the financial condition, results
of operations and cash flows for such periods. However, these results are not
necessarily indicative of results for any other interim period or for the full
year. The accompanying consolidated balance sheet as of December 31,1996 has
been derived from the audited financial statements of the Company.
Certain information and footnote disclosures normally included in
financial statements in accordance with generally accepted accounting
principles have been omitted pursuant to requirements of the Securities and
Exchange Commission (SEC). A description of the Company's accounting policies
and other financial information is included in the audited consolidated
financial statements as filed with the SEC on Form 10-KSB for the year ended
December 31, 1996. Management believes that the disclosures included in the
accompanying interim financial statements and footnotes are adequate to make
the information not misleading, but should be read in conjunction with the
consolidated financial statements and notes thereto included in the Form
10-KSB.
2. RECLASSIFICATIONS:
Certain prior period items have been reclassified to conform to the
current year's presentation.
3. ORGANIZATION:
The accompanying financial statements of the Company for the three months
and six months ended June 30, 1996 and 1997 are presented on a consolidated
basis, and include the accounts of the Company, Chicago Pizza Northwest, Inc.
and BJ's Lahaina, L.P. during the periods owned. All significant intercompany
transactions and balances have been eliminated.
On March 29, 1996, the Company acquired 26 restaurants located in Oregon
and Washington by providing the funding for the Debtor's (Pietro's Corp.) Plan
of Reorganization. The Company funded the Debtor's Plan of Reorganization on
March 29, 1996, and thereby acquired all the stock in the reorganized entity
known as Chicago Pizza Northwest, Inc. On May 15, 1996, the Company agreed to
sell seven of the restaurants purchased from Pietro's Holdings. Two of the
restaurants were sold on May 31, 1996, two additional restaurants were sold on
June 24, 1996 and three additional restaurants were sold on June 26, 1996.
On June 1, 1997, an additional restaurant acquired from Pietro's Holdings
was sold to an independent operator. This restaurant, located in North Bend,
Oregon did not figure significantly in the Company's future plans and would
have required a commitment by the Company to a long-term lease extention.
On February 19, 1997, the Pietro's restaurant located in Aloha, Oregon
was heavily damaged by fire. The Company has received a preliminary settlement
from the insurance carrier for the loss of personal property. This settlement,
due to the coverage provided by the Company's replacement cost policy,
4
<PAGE>
resulted in the recognition of a gain during the second quarter of 1997 on
this involuntary conversion of assets. The Company is presently in the early
stages of refurbishing the restaurant and will resume operations at this
location. A business interruption insurance policy will substantially offset
the loss of business during the rebuilding period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and notes thereto included
elsewhere in this Form 10-QSB. Except for the historical information
contained herein, the discussion in this Form 10-QSB contains certain forward
looking statements that involve risks and uncertainties, such as statements of
the Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Form 10-QSB should be read as being applicable to all
related forward-looking statements wherever they appear in this Form 10-QSB.
The Company's actual results could differ materially from those discussed
here. Factors that could cause or contribute to such differences include
those factors discussed herein including, without limitation: (i) the
Company's ability to manage growth and conversions, (ii) construction delays,
(iii) marketing and other limitations as a result of the Company's historic
concentration in Southern California and current concentration in the
Northwest, (iv) restaurant and brewery industry competition, (v) impact of
certain brewery business considerations, including without limitation,
dependence upon suppliers and related hazards, (vi) increase in food costs and
wages, including without limitation the recent increase in minimum wage, (vii)
consumer trends, (viii) potential uninsured losses and liabilities, (ix)
trademark and servicemark risks, and (x) other general economic and regulatory
conditions and requirements.
GENERAL
In March and April, 1996, the Company opened two new restaurants in
Westwood Village (Los Angeles) and Brea, California, respectively. In
addition, on March 29, 1996 the Company acquired 26 restaurants located in
Washington and Oregon by providing the funding for a plan of reorganization
filed with the U.S. Bankruptcy Court by Pietro's Corporation, a Washington
state corporation. The Company sold 7 of the 26 restaurants in the second
quarter 1996 and 1 of the restaurants in the second quarter 1997. The Company
has also developed a restaurant and brewery in Boulder, Colorado in February
1997 and converted a Pietro's restaurant to the BJ's concept in Eugene,
Oregon in April 1997. Consequently, the results of operations for 1997 are
not necessarily comparable to the results of operations for the same period in
1996.
The Company's revenues are derived primarily from food and beverage sales
at its restaurants. The Company's expenses consist primarily of food and
beverage costs, labor costs (consisting of wages and benefits), operating
expenses (consisting of marketing costs, repairs and maintenance, supplies,
utilities and other operating expenses), occupancy costs, general and
administrative expenses and depreciation and amortization expenses.
Certain pre-opening costs, including direct and incremental costs
associated with the opening of a new restaurant, are amortized over a period
of one year from the opening date of such restaurant. These costs include
primarily those incurred to train a new restaurant management team, food,
beverage and supply costs incurred to test all equipment and systems, and any
rent or operating expenses incurred prior to opening. Construction costs,
including leasehold capital improvements are amortized over the remaining
useful life of the related asset, or for leasehold improvements, over the
initial term of the lease, if less.
The Company utilizes a calendar year-end for financial reporting
purposes.
5
<PAGE>
RESULTS OF OPERATIONS
Three-Month Period Ended June 30, 1997 Compared to Three-Month Period
Ended June 30, 1996
Revenues. Total revenues for the three-month period ended June 30, 1997
increased to $6,642,000, from $6,540,000 for the comparable period in 1996, an
increase of $102,000 or 1.6%. The increase in revenues for the three-month
period ended June 30, 1997 was due primarily to the opening of the BJ's Pizza,
Grill & Brewery restaurant in Boulder, Colorado in February of 1997, an
increase in sales at the BJ's restaurants open the entire comparable period of
9.0% and the increase in sales due to the conversion of the Pietro's
restaurant in Eugene, Oregon to the BJ's concept in April, 1997. The converted
restaurant in Eugene achieved a $199,000 or 127.6% increase in sales from the
second quarter of 1996 compared to the second quarter of 1997 despite being
closed 25 days for renovation during the 1997 period. The increase in total
revenues was achieved despite the sale of 7 Pietro's restaurants in May and
June 1996, a decrease in sales at the Pietro's restaurants open the entire
comparable period of 3.8%, the sale of 1 Pietro's restaurant in May 1997, the
closure for conversion to the BJ's concept of a Pietro's restaurant in
Portland, Oregon (Stark St.) for 2 weeks in June 1997 and the closure of the
Pietro's restaurant in Aloha, Oregon for the entire second quarter of 1997 due
to fire damage. The increase in comparable store sales at the BJ's
restaurants was primarily due to increased customer counts at its Brea,
California and Lahaina, Maui, Hawaii restaurants. The decrease in comparable
store sales at the Pietro's restaurants was primarily due to the decrease in
coupon based advertising. Management believes that as the Pietro's
restaurants are converted to the BJ's concept such restaurants will experience
significant sales increases.
Cost of Sales. Cost of food, beverages and paper (cost of sales) for the
restaurants decreased to $1,943,000 for the three months ended June 30, 1997
from $2,068,000 for the comparable period in 1996, a decrease of $125,000 or
6.0%. As a percentage of revenues, cost of sales decreased to 29.3% for the
period from 31.6% for the comparable period in 1996. The decrease in cost of
sales as a percentage of revenues is primarily due to more efficient
purchasing and enhanced control systems at the BJ's restaurants and a
reduction in discounting at the Pietro's restaurants.
Labor. Labor costs for the restaurants decreased to $2,275,000 for the
three-month period ended June 30, 1997 from $2,339,000 for the comparable
period in 1996, a decrease of $64,000 or 2.7%. As a percentage of revenues,
labor decreased to 34.3% for the period from 35.8% for the comparable period
in 1996. During the first half of 1996 labor costs were elevated in the BJ's
restaurants due to increased staffing and training relating to the
implementation of the major menu and concept expansion and the openings of
the BJ's restaurants in Westwood Village (Los Angeles) and Brea, California,
in March and April of 1996, respectively. The decrease in labor cost as a
percentage of revenue was achieved despite an increase in the Federal,
California and Oregon minimum wage.
Occupancy. Occupancy costs increased to $602,000 for the three-month
period ended June 30, 1997 from $590,000 for the comparable period in 1996, an
increase of $12,000 or 2.0%. As a percentage of revenues, occupancy increased
to 9.1% for the period from 9.0% for the comparable period in 1996.
Management believes that occupancy costs as a percentage of revenues will
decrease as anticipated revenue increases are achieved from the conversion of
the Pietro's restaurants to the BJ's concept.
Operating Expenses. Operating expenses decreased to $832,000 for the
three-month period ended June 30, 1997 from $1,009,000 for the comparable
period in 1996, a decrease of $177,000 or 17.5%. As a percentage of revenue,
operating expenses decreased to 12.5% for the period from 15.4% for the
comparable period in 1996. The primary reason for the decrease in operating
expenses as a percentage of revenue was an increased focus on operating the
restaurants more efficiently as well as the implementation of improved expense
monitoring systems. Operating expenses include restaurant-level operating
costs, the major components of which include marketing, repairs and
maintenance, supplies and utilities.
6
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General and Administrative Expenses. General and administrative expenses
increased to $688,000 for the three-month period ended June 30, 1997 from
$605,000 for the comparable period in 1996, an $83,000 or 13.7% increase. As
a percentage of revenue, general and administrative expenses increased to
10.4% for the period from 9.2% for the comparable period in 1996. The
increase in general and administrative costs both in total and as a percentage
of sales for the period is primarily due to the increased expenses associated
with being a publicly held company and the hiring of additional personnel
relating to the physical and operational conversions of the Pietro's
restaurants to the BJ's concept.
Depreciation and Amortization. Depreciation and amortization increased
to $334,000 for the three-month period ended June 30, 1997 from $327,000 for
the comparable period in 1996, an increase of $7,000 or 2.1%. The increase in
depreciation and amortization is primarily due to the addition of the Boulder,
Colorado restaurant in February of 1997 and the amortization of pre-opening
costs associated with the Boulder, Colorado and Eugene, Oregon restaurants,
offset significantly by the reduction of pre-opening expenses from the
openings of the Westwood Village (Los Angeles) and Brea, California
restaurants in March and April of 1996, respectively.
Interest Expense, Net. Interest expense, net of interest income of
$48,000, decreased to $41,000 for the three-month period ended June 30, 1997
from $323,000, net of interest income of $15,000, for the comparable period in
1996, a decrease of $282,000. The decrease was primarily due to (i) the
conversion in October 1996 of $3,000,000 in convertible debt, issued in
February 1996, into common stock and warrants and the resulting elimination of
interest expense and finance costs associated with the convertible debt and
(ii) the increase in interest income from invested proceeds from the Company's
initial public offering in October 1996.
RESULTS OF OPERATIONS
Six-Month Period Ended June 30, 1997 Compared to Six-Month Period Ended
June 30, 1996
Revenues. Total revenues for the six-month period ended June 30, 1997
increased to $12,425,000 from $8,308,000 for the comparable period in 1996, an
increase of $4,117,000 or 49.6%. Excluding the Northwest Restaurants, which
were not owned the entire comparable period of 1996, total revenues for the
six-month period ended June 30, 1997 increased to $7,076,000 from $4,751,000
an increase of $2,325,000 or 48.9% for the comparable period in 1996. The
increase was primarily due to the opening of the Westwood Village (Los
Angeles) and Brea, California restaurants in March and April 1996
respectively, as well as the opening of the Boulder, Colorado restaurant in
February, 1997. Revenues for the seven stores open the entire six-month
comparable period increased to $3,800,000 in 1997 from $3,621,000 in 1996 or
4.9%.
Cost of Sales. Cost of food, beverages and paper (cost of sales) for the
restaurants increased to $3,651,000 for the six-month period ended June 30,
1997 from $2,614,000 for the comparable period in 1996, an increase of
$1,037,000 or 39.7%. However, as a percentage of revenues, cost of sales
decreased to 29.4% for the period from 31.5% for the comparable period in
1996. Excluding the Northwest Restaurants, as a percentage of revenues, cost
of sales decreased to 28.6% for the period from 30.8% for the comparable
period in 1996. The decrease in cost of sales as a percentage of revenue was
primarily due to additional non-recurring costs incurred during 1996 relating
to the testing and initial implementation phase of the menu expansion, special
promotional pricing of certain of the new menu items through May 1996 and more
efficient purchasing and enhanced control systems.
Labor. Labor costs for the restaurants increased to $4,230,000 for the
six-month period ended June 30, 1997 from $3,088,000 for the comparable period
in 1996, an increase of $1,142,000 or 37.0%. However, as a percentage of
revenues, labor decreased to 34.0% for the period from 37.2% for the
7
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comparable period in 1996. Excluding the Northwest Restaurants, as a
percentage of revenues, labor costs
decreased to 34.2% for the six-month period ended June 30, 1997 from 39.8% for
the comparable period in 1996. The decrease in labor costs as a percentage of
revenue was primarily due to the elevated labor costs in the first half of
1996 associated with the planned extra staffing during the opening months of
the Westwood Village (Los Angeles) and Brea, California restaurants and the
implementation of the major menu and concept expansion in 1996.
Occupancy. Occupancy costs increased to $1,178,000 for the six-month
period ended June 30, 1997 from $731,000 for the comparable period in 1996, an
increase of $447,000 or 61.1%. As a percentage of revenues, occupancy
increased to 9.5% for the period from 8.8% for the comparable period in 1996.
Excluding the Northwest Restaurants, as a percentage of revenues, occupancy
costs increased to 8.3% for the six-month period ended June 30, 1997 from 8.0%
for the comparable period in 1996. The increase in occupancy costs as a
percent of revenue was primarily due to annual rental increases experienced in
several of the restaurants.
Operating Expenses. Operating expenses increased to $1,613,000 for the
six-month period ended June 30, 1997 from $1,294,000 for the comparable
period in 1996, an increase of $319,000 or 24.7%. However, as percentage of
revenues, operating expenses decreased to 13.0% for the period from 15.6% for
the comparable period in 1996. Excluding the Northwest Restaurants, as a
percentage of revenue, operating expenses decreased to 11.0% for the six-month
period ended June 30, 1997 from 15.1% for the comparable period in 1996. The
primary reason for the decrease in operating expenses in total and as a
percentage of revenues was an increased focus on operating the restaurants
more efficiently as well as the implementation of improved expense monitoring
systems. Operating expenses include restaurant-level operating costs, the
major components of which include marketing, repairs and maintenance, supplies
and utilities.
General and Administrative Expenses. General and administrative expenses
increased to $1,351,000 for the six-month period ended June 30, 1997 from
$833,000 for the comparable period in 1996, a $518,000 or 62.2% increase. As a
percentage of revenue, general and administrative expenses increased to 10.9%
for the six-month period ended June 30, 1997 from 10.0% for the comparable
period in 1996. The increase in general and administrative expenses in total
and as a percentage of revenues for the six-month period ended June 30, 1997
was due to the acquisition of the Northwest Restaurants in March 1996,
increased expenses associated with being a publicly held company and the
hiring of additional personnel relating to the physical and operational
conversion of the Pietro's restaurants to the BJ's concept.
Depreciation and Amortization. Depreciation and amortization increased
to $603,000 for the six-month period ended June 30, 1997 from $436,000 for the
comparable period in 1996, an increase of $167,000 or 38.3%. The increase was
primarily due to the acquisition of the Northwest restaurants in March 1996
and the opening of the Westwood Village (Los Angeles) and Brea, California
restaurants in March and April 1996, and the opening of the Boulder,
Colorado restaurant in February 1997.
Interest Expense, Net. Interest expense, net of interest income of
$118,000, decreased to $58,000 for the six-month period ended June 30, 1997
from $386,000, net of interest income of 30,000, for the comparable period in
1996, a decrease of $328,000 or 85.0%. The decrease was primarily due to (i)
the conversion in October 1996 of $3,000,000 in convertible debt, issued in
February 1996, into common stock and warrants and the resulting elimination of
interest expense and finance costs associated with the convertible debt and
(ii) the increase in interest income from investment of the proceeds of the
Company's initial public offering in October 1996.
8
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LIQUIDTY AND CAPITAL RESOURCES
On October 15, 1996 the Company completed its initial public offering
(the "Offering") of 1,800,000 shares of Common Stock and 1,800,000 Redeemable
Warrants. On November 26, 1996, the representative of the underwriters of the
Offering exercised the over-allotment option pursuant to the Prospectus to
purchase 270,000 additional Redeemable Warrants (the "Over-Allotment Option").
The Offering, including the Over-Allotment Option resulted in approximately
$6,804,000 in net proceeds. The funds have been and will be used for the
continued development of the Northwest Restaurants and other sites if
possible, as well as for the reduction of debt and increased working capital.
Since the completion of the Offering in October of 1996, the Company has
invested in restaurant development and reduced debt. Net cash used by
operating activities for the six-month period ended June 30, 1996 was $221,000
and net cash provided by operating activities for the six-month period ended
June 30, 1997 was $232,000. The acquisitions of the 26 Northwest Restaurants,
net of the proceeds from the sale of 7 of those restaurants, and the Brea
leasehold interests accounted for $2,572,000 of total capital expenditures for
the six-months ended June 30, 1996. The balance of capital expenditures for
that period, and total capital expenditures for the six-months period ending
June 30, 1997, were for the acquisition of restaurant and brewery equipment
and leasehold improvements to develop or convert the acquired restaurants.
During 1995 and early 1996 the Company incurred a number of non-recurring
charges in connection with the development and implementation of its extended
menu, restaurant concept change and brewery concept for the BJ's Pizza, Grill
& Brewery and BJ's Pizza & Grill restaurants. Expenditures for the new menu
items included food development costs, menu development costs, menu design and
printing, management and staff training and new kitchen equipment to
facilitate new menu items. Expenditures for the BJ's Pizza, Grill & Brewery
and BJ's Pizza & Grill restaurant concepts included new interior design, logo
design, signage design and uniform design. Expenditures for the brewery
concept included the hiring of a director of brewing operations, beer menu
development costs and brewery design.
Management believes that the Company can become profitable through
increased sales as a result of its expanded menu developed in 1996 and the
continuing conversion and refurbishment of the Northwest Restaurants.
Management also believes that profitability may be enhanced by reduced costs
associated with Company produced beer and vendor volume purchasing discounts
made possible with the acquisition of the Northwest Restaurants.
The Company currently intends to utilize the remaining proceeds of the
Offering primarily for the conversion and refurbishment of the Northwest
Restaurants and the acquisition of other sites, if possible, as well as for
working capital purposes. Management currently anticipates a total of
$4,000,000 in additional capital expenditure requirements, which includes
requirements for the Northwest Restaurant conversions and other sites, if
possible. The Company opened a BJ's Pizza Grill & Brewery in Boulder, Colorado
in February 1997 and a BJ's Pizza & Grill in Eugene, Oregon and Portland,
Oregon (Stark St.) in April and July 1997, respectively and is scheduled to
open a BJ's Pizza Grill & Brewery in Portland, Oregon (Jantzen Beach) in
August 1997. Management intends to continue to develop and convert the
Northwest Restaurants through 1997 and to complete the conversion in the
second quarter of 1998. Management believes that the net proceeds from the
Company's Offering and operating cash flow will be sufficient for the Company
to fund its operations and continue to meet its business plan over the next 12
months. While Management will be required to close certain restaurants or
sections of such restaurants while undergoing conversion, management believes
that it can reduce the impact of such closings by coordinating with
neighboring locations, where possible, to continue delivery operations.
However, there can be no assurance that future events, including problems,
delays, additional expenses and difficulties encountered in expansion and
conversion of restaurants, will not adversely impact the Company's ability to
meet its operational objectives or require additional financing, or that such
financing will be available if necessary.
9
<PAGE>
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share," which establishes standards for computing and
presenting earnings per share. SFAS No. 128 requires the replacement of
primary earnings per share with basic earnings per share. Basic earnings per
share excludes dilution, and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding during the period. The Company will be required to adopt the
provisions of SFAS No. 128 for 1997. It is not expected that the adoption of
SFAS No. 128 will have a material impact on earnings per share results
reported by the Company under the Company's current capital structure.
Other recently issued standards of the FASB are not expected to affect
the Company as conditions to which those standards apply are absent.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company closed its La Jolla Prospect restaurant in 1995 and the lease
was assigned, subject to a continuing guarantee by the Company, to a third
party restaurant operator. That operator defaulted on the terms of the lease
as of May 1997 and filed bankruptcy under Chapter 7. The owner of the property
has filed an action against the Company for the full rental obligation through
the remaining term of the lease, which is estimated at $700,000. The Company
is currently soliciting other restaurant operators to lease the property, and
management believes the property will be leased in the near future. The
Company has recorded a liability in the amount of the accrued rent through
June 30, 1997, and Management does not believe that the action filed by the
owner of the property will result in material liability to the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 12, 1997, the Company held its Annual Meeting of Shareholders.
Shareholders voted upon the the election of directors and upon the
ratification of Coopers & Lybrand, L.L.P., as the Company's independent public
accountants for the fiscal year ending December 31, 1997. Paul Motenko,
Jeremiah Hennessy, Alexander Puchner, Barry Grumman, Stanley Schneider, Steven
Mayer, Robert Burke and Ernest Klinger, all of whom were directors prior to
the Annual Meeting and were nominated by management for re-election, were
re-elected at the meeting. The following votes were cast for each nominee:
(Table on following page.)
10
<PAGE>
<TABLE>
<CAPTION>
NAME FOR WITHHELD
-------------------- --------- --------
<S> <C> <C>
Paul A. Moteklo 4,033,048 29,700
Jeremiah J. Hennessy 4,032,748 30,000
Alexander Puchner 4,024,448 38,300
Barry J. Grumman 4,032,048 30,700
Stanley B. Schneider 4,031,048 31,700
Steven F. Mayer 4,023,448 39,300
Robert Burke 4,024,448 38,300
Ernest T. Klinger 4,024,448 38,300
</TABLE>
The following votes were cast for the ratification of Coopers & Lybrand,
L.L.P., as the Company's independent public accountants for the fiscal year
ending December 31, 1997: For: 4,049,262; Against: 11,400; Abstain: 2,086.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHICAGO PIZZA & BREWERY, INC.
(Registrant)
August 13, 1997 By: /s/ PAUL A. MOTENKO
--------------------
Paul A. Motenko
Chief Executive Officer, Vice
President and Chairman of the
Board of Directors
By: /s/ JEREMIAH J. HENNESSY
-------------------------
Jeremiah J. Hennessy
President, Chief Operating
Officer, Chief Financial
Officer and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.1 Financial Data Schedule
This schedule contains summary financial information extracted from Chicago
Pizza & Brewery, Inc. consolidated financial statements for the six month
period ended June 30, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,715
<SECURITIES> 0
<RECEIVABLES> 194
<ALLOWANCES> 0
<INVENTORY> 293
<CURRENT-ASSETS> 4,801
<PP&E> 8,761
<DEPRECIATION> 1,327
<TOTAL-ASSETS> 18,463
<CURRENT-LIABILITIES> 3,053
<BONDS> 0
0
0
<COMMON> 15,040
<OTHER-SE> 1,196
<TOTAL-LIABILITY-AND-EQUITY> 18,463
<SALES> 12,425
<TOTAL-REVENUES> 12,425
<CGS> 3,650
<TOTAL-COSTS> 8,975
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> (53)
<INCOME-TAX> 1
<INCOME-CONTINUING> (54)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
