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 SEPTEMBER 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 November 3, 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
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 1
Consolidated Statements of Operations -
Nine Months and Three Months Ended
September 30, 1997 and September 30, 1996 2
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997
and September 30, 1996 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 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES
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PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 1997 1996
- ----------------------------------------------------- --------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,908,112 $ 5,485,808
Restricted cash 200,000 200,000
Accounts receivable 211,789 157,422
Inventory 312,175 256,668
Prepaids and other current assets 391,016 343,176
--------------- --------------
Total current assets 4,023,092 6,443,074
Property and equipment, net 8,301,602 6,234,061
Other assets 316,984 191,118
Restricted cash 369,123 369,123
Intangible assets, net 5,545,527 5,676,349
--------------- --------------
TOTAL ASSETS $ 18,556,328 $ 18,913,725
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------
Current liabilities:
Accounts payable $ 1,338,316 $ 1,264,798
Accrued expenses 1,239,865 1,199,092
Notes payable to related parties 312,892 328,681
Current portion of long-term debt 230,438 255,636
Current portion of obligations under capital leases 69,359 66,266
--------------- --------------
Total current liabilities 3,190,870 3,114,473
Notes payable to related parties 2,154,136 2,386,547
Obligations under capital leases 129,454 110,322
Long-term debt 643,362 816,187
Other liabilities 138,309 147,771
--------------- --------------
Total liabilities 6,256,131 6,575,300
Minority interest in partnership 208,172 215,128
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 (4,143,650) (4,112,378)
--------------- --------------
Total shareholders' equity 12,092,025 12,123,297
--------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 18,556,328 $ 18,913,725
=============== ==============
</TABLE>
See accompanying notes.
1
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CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- ------------------------
1997 1996 1997 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues $19,633,523 $14,317,569 $7,208,665 $6,009,515
Cost of sales 5,826,283 4,471,998 2,175,779 1,857,808
------------ ------------ ----------- -----------
Gross profit 13,807,240 9,845,571 5,032,886 4,151,707
Operating expenses:
Labor and benefits 6,692,401 5,053,538 2,462,211 1,965,408
Occupancy 1,791,274 1,226,936 613,329 531,220
Operating expenses 2,502,164 2,306,756 889,395 978,121
General and administrative 2,016,388 1,284,442 665,219 451,516
Depreciation and amortization 954,182 723,171 350,978 286,812
------------ ------------ ----------- -----------
Total operating expenses 13,956,409 10,594,843 4,981,132 4,213,077
------------ ------------ ----------- -----------
Income (loss) from operations (149,169) (749,272) 51,754 (61,370)
Other income (expense):
Gain on involuntary conversion of assets 190,722
Interest expense, net (76,200) (631,744) (18,085) (246,085)
Other 12,041 7,342 2,928 -
------------ ------------ ----------- -----------
Total other income (expense) 126,563 (624,402) (15,157) (246,085)
------------ ------------ ----------- -----------
Income (loss) before minority
interest and income taxes (22,606) (1,373,674) 36,597 (307,455)
Minority interest in partnership (7,866) (793) (14,042) 651
------------ ------------ ----------- -----------
Income (loss) before income taxes (30,472) (1,374,467) 22,555 (306,804)
Income tax expense (800) (8,570) (1,489)
------------ ------------ ----------- -----------
Net income (loss) $ (31,272) $(1,383,037) $ 22,555 $ (308,293)
============ ============ =========== ===========
Net income (loss) per common share $ (0.00) $ (0.37) $ 0.00 $ (0.08)
============ ============ =========== ===========
Weighted average common shares outstanding 6,408,321 3,788,878 6,408,321 3,788,878
============ ============ =========== ===========
</TABLE>
See accompanying notes.
2
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CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
--------------------------
1997 1996
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Cash flows provided by (used in) operating activities:
Net loss $ (31,272) $(1,383,037)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 954,182 723,171
Gain on sale of restaurant (17,015)
Minority interest in partnership 7,866 793
Noncash interest and consulting expense on
private placement offering warrants 50,000
Changes in assets and liabilities:
Accounts receivable (54,367) 9,279
Inventory (55,507) 15,080
Prepaids and other current assets (181,267) (1,438,787)
Other assets (125,866) (66,400)
Accounts payable 73,519 753,059
Accrued expenses 40,773 417,199
Other liabilities (9,462) 169,330
------------ ------------
Net cash provided by (used in)
operating activities 601,584 (750,313)
------------ ------------
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 (2,713,318) (1,343,281)
Proceeds from sale of restaurants, net of expenses 45,063 950,000
------------ ------------
Net cash used in investing activities (2,668,255) (3,914,889)
------------ ------------
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 (248,200) (646,436)
Payments on long-term debt (198,023) (342,658)
Capital lease payments (49,980) (36,894)
Distribution to minority interest (14,822)
------------ ------------
Net cash (used in) provided by
financing activities (511,025) 3,052,695
------------ ------------
Net decrease in cash and cash equivalents (2,577,696) (1,612,507)
Cash and cash equivalents, beginning of period 5,485,808 1,791,769
------------ ------------
Cash and cash equivalents, end of period $ 2,908,112 $ 179,262
============ ============
</TABLE>
See accompanying notes.
3
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 nine months and
three months ended September 30, 1997 and 1996 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 consolidated
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 nine months
and three months ended September 30, 1997 and 1996 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 extension.
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
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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.
4. INTANGIBLE ASSETS:
The Company periodically evaluates the carrying value of goodwill
including the related amortization periods. The Company determines whether
there has been impairment by comparing the anticipated undiscounted future
cash flows from operations of the acquired restaurants with the carrying value
of the goodwill.
5. INCOME TAXES:
As of December 31, 1996, the Company had net operating loss carryforwards
for federal and California purposes of approximately $4,069,000 and
$2,065,000, respectively. The utilization of net operating loss ("NOL") and
credit carryforwards may be limited under the provisions of Internal Revenue
Code Section 382 and similar state provisions due to the Initial Public
Offering in 1996. The Company has not previously generated taxable income, and
there is no opportunity to carryback losses to prior periods. The Company
therefore has not recognized a deferred tax asset as of September 30, 1997.
6. SUBSEQUENT EVENTS:
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 was estimated at $700,000. In October
1997 the Company agreed to a settlement and mutual release of this lease in
the amount of $150,000. The Company had recorded a liability for accrued rent
in accordance with the terms of the lease for $17,000 during the second
quarter and an additional $26,000 during the third quarter ending September
30, 1997. A charge for the balance of the settlement will be taken by the
Company in the fourth quarter of 1997 in the amount of $107,000.
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.
5
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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 has converted four of the Pietro's restaurants to the BJ's
restaurant and/or brewery concept in April, July, August and October 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.
RESULTS OF OPERATIONS
Nine-Month Period Ended September 30, 1997 Compared to Nine-Month Period
Ended September 30, 1996
Revenues. Total revenues for the nine-month period ended September 30,
1997 increased to $19,634,000 from $14,318,000 for the comparable period in
1996, an increase of $5,316,000 or 37.1%. Excluding the Northwest
Restaurants, which were not owned the entire comparable period of 1996, total
revenues for the nine-month period ended September 30, 1997 increased to
$11,355,000 from $7,897,000 for the comparable period in 1996, an increase of
$3,458,000 or 43.8%. 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
nine-month comparable period increased to $6,113,000 in 1997 from $5,692,000
in 1996, an increase of $421,000 or 7.4%.
Cost of Sales. Cost of food, beverages and paper (cost of sales) for the
restaurants increased to $5,826,000 for the nine-month period ended September
30, 1997 from $4,472,000 for the comparable period in 1996, an increase of
$1,354,000 or 30.3%. However, as a percentage of revenues, cost of sales
decreased to 29.7% for the 1997 period from 31.2% for the comparable period
in 1996. The decrease in cost of sales as a percentage of revenues was
primarily due to (i) additional non-recurring costs incurred during the first
half of 1996 associated with the testing and initial implementation phase of
the menu expansion, (ii) special promotional pricing of certain of the new
menu items through May 1996, (iii) more efficient purchasing and enhanced
control systems, and (iv) a reduction in discounting at the Pietro's
restaurants. These factors were partially offset by the generally higher cost
of sales relative to revenues at the Pietro's restaurants, which were owned by
the Company for the entire nine month period in 1997 but for only six months
of the comparable period in 1996.
6
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Labor. Labor costs for the restaurants increased to $6,692,000 for the
nine-month period ended September 30, 1997 from $5,054,000 for the comparable
period in 1996, an increase of $1,638,000 or 32.4%. However, as a percentage
of revenues, labor costs decreased to 34.1% for the 1997 period from 35.3% 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. These factors
were partially offset by the increased staffing relating to the re-opening of
the three converted Pietro's restaurants in 1997.
Occupancy. Occupancy costs increased to $1,791,000 for the nine-month
period ended
September 30, 1997 from $1,227,000 for the comparable period in 1996, an
increase of $564,000 or 46.0%. As a percentage of revenues, occupancy costs
increased to 9.1% for the 1997 period from 8.6% for the comparable period in
1996. The increase in occupancy costs as a percentage of revenue was
primarily due to annual rental increases experienced in several of the
restaurant locations.
Operating Expenses. Operating expenses increased to $2,502,000 for the
nine-month period ended September 30, 1997 from $2,307,000 for the comparable
period in 1996, an increase of $195,000 or 8.5%. However, as a percentage of
revenues, operating expenses decreased to 12.7% for the 1997 period from 16.1%
for the comparable period in 1996. The primary reason for the decrease in
operating expenses as a percentage of revenues for the nine-month period ended
September 30, 1997 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 $2,016,000 for the nine-month period ended September 30, 1997
from $1,284,000 for the comparable period in 1996, an increase of $732,000 or
57.0%. As a percentage of revenues, general and administrative expenses
increased to 10.3% for the 1997 period from 9.0% for the comparable period in
1996. The increase in general and administrative expenses in total and as a
percentage of revenues for the nine-month period ended September 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 $954,000 for the nine-month period ended September 30, 1997 from $723,000
for the comparable period in 1996, an increase of $231,000 or 32.0%. The
increase was primarily due to (i) the acquisition of the Northwest Restaurants
in March, 1996, (ii) the opening of the Westwood Village (Los Angeles) and
(iii) Brea, California restaurants in March and April 1996, (iv) the opening
of the Boulder, Colorado restaurant in February, 1997 and (v) the amortization
of pre-opening costs associated with the Boulder, Colorado restaurant and the
converted Pietro's restaurants.
Interest Expense, Net. Interest expense, net of interest income,
decreased to $76,000 for the nine-month period ended September 30, 1997 from
$632,000 for the comparable period in 1996, a decrease of $556,000 or 88.0%.
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.
Three-Month Period Ended September 30, 1997 Compared to Three-Month
Period Ended September 30, 1996
Revenues. Total revenues for the three-month period ended September 30,
1997 increased to $7,209,000, from $6,010,000 for the comparable period in
1996, an increase of $1,199,000 or 20.0%. The
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increase in revenues for the three-month period ended September 30, 1997 was
due primarily to (i) the opening of the BJ's Pizza, Grill & Brewery restaurant
in Boulder, Colorado in February of 1997, (ii) an increase in sales of 13.8%
at the BJ's restaurants open the entire comparable period, and (iii) the
increase in sales due to the conversion of three of the Pietro's restaurants
in Oregon to the BJ's concept in 1997. The converted restaurants achieved the
following increases in revenue during the three-month period ended September
30, 1997 as compared to the comparable period in 1996:
<TABLE>
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aa aa Revenues for the Revenues for the
aa aa Three-Months Ended Three-Months Ended
Location Date Converted September 30, 1997 September 30, 1996
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Eugene April, 1997 $ 361,000 $ 130,000
Stark St. July, 1997 $ 305,000 $ 191,000
Jantzen Bch. August, 1997 $ 204,000* $ 152,000
</TABLE>
* Closed for five weeks during the period for conversion.
The increase in total revenues was achieved despite a decrease in sales at the
Pietro's restaurants open the entire comparable period of 3.6% and the closure
of the Pietro's restaurant in Aloha, Oregon for the entire third 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 and check averages
which management believes are reflective of continued acceptance of the
enhanced BJ's menu and concept. The decrease in revenues at the Pietro's
restaurants was primarily due to the decrease in coupon based advertising.
Management believes that as the remaining 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 increased to $2,176,000 for the three-months ended September 30,
1997 from $1,858,000 for the comparable period in
1996, an increase of $318,000 or 17.1%. As a percentage of revenues, cost of
sales decreased to 30.2% for the period in 1997 from 30.9% for the comparable
period in 1996. Several offsetting factors impacted cost of sales for the
three-months ended September 30, 1997. Those factors contributing to a
reduction in cost of sales as a percentage of revenue were: (i) a decrease in
the cost of cheese, (ii) more efficient purchasing and enhanced control
systems at the mature (open for more than one year) BJ's restaurants, and
(iii) a reduction in discounting at the Pietro's restaurants. Partially
offsetting the above-mentioned factors was an increased cost of sales, as
anticipated, at the restaurants recently converted from Pietro's to BJ's.
Management anticipates that newly-converted restaurants will achieve the cost
of sales levels of mature restaurants within a three-month period after
conversion.
Labor. Labor costs for the restaurants increased to $2,462,000 for the
three-month period ended September 30, 1997 from $1,965,000 for the comparable
period in 1996, an increase of $497,000 or 25.3%. As a percentage of
revenues, labor costs increased to 34.2% for the period in 1997 from 32.7% for
the comparable period in 1996. The increase in labor cost as a percentage of
revenue was primarily due to an increase in the Federal, California and Oregon
minimum wage as well as planned increased staffing levels at the
newly-converted restaurants. Management anticipates that newly-converted
restaurants will achieve the staffing levels of mature restaurants within a
six-month period after conversion.
Occupancy. Occupancy costs increased to $613,000 for the three-month
period ended September 30, 1997 from $531,000 for the comparable period in
1996, an increase of $82,000 or 15.4%. As a percentage of revenues, occupancy
costs decreased to 8.5% for the period in 1997 from 8.8% for the comparable
period in 1996. Management believes the decrease in occupancy costs as a
percentage of revenues is primarily due to increased revenues and that
occupancy costs as a percentage of revenues will continue to decline as
additional Pietro's restaurants are converted to BJ's.
8
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Operating Expenses. Operating expenses decreased to $889,000 for the
three-month period ended September 30, 1997 from $978,000 for the comparable
period in 1996, a decrease of $89,000 or 9.1%. As a percentage of revenues,
operating expenses decreased to 12.3% for the 1997 period from 16.3% 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.
General and Administrative Expenses. General and administrative expenses
increased to $665,000 for the three-month period ended September 30, 1997 from
$452,000 for the comparable period in 1996, an increase of $213,000 or 47.1%.
As a percentage of revenues, general and administrative expenses increased to
9.2% for the 1997 period from 7.5% for the comparable period in 1996. The
increase in general and administrative expenses both in total and as a
percentage of revenues 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 $351,000 for the three-month period ended September 30, 1997 from $287,000
for the comparable period in 1996, an increase of $64,000 or 22.3%. The
increase in depreciation and amortization is primarily due to (I) the addition
of the Boulder, Colorado restaurant in February 1997, (ii) the depreciation
associated with the physical conversion costs of the three Pietro's
restaurants converted to BJ's and (iii) the amortization of pre-opening costs
associated with the Boulder, Colorado restaurant and the converted Pietro's
restaurants. The above-mentioned factors were partially offset by the
reduction of pre-opening expense amortization relating to the Westwood Village
(Los Angeles) and Brea, California restaurants which were opened in March and
April of 1996, respectively.
Interest Expense, Net. Interest expense, net of interest income,
decreased to $18,000 for the three-month period ended September 30, 1997 from
$246,000 for the comparable period in 1996, a decrease of
$228,000 or 92.7%. 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.
LIQUIDITY 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 provided by
operating activities for the nine-month period ended September 30, 1997 was
$602,000 and net cash used by operating activities for the nine-month period
ended September 30, 1996 was $750,000. 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 nine-months ended September 30, 1996. The balance of
capital expenditures for that period, and total capital expenditures for the
nine-months period ending September 30, 1997, were for the acquisition of
restaurant and brewery equipment and leasehold improvements to
9
<PAGE>
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
$3,000,000 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, a BJ's Pizza Grill &
Brewery in Portland, Oregon (Jantzen Beach) in August 1997 and a BJ's Pizza,
Grill & Brewery in Portland Oregon (Lloyd Center) in October 1997. Management
intends to continue to develop and convert the Northwest Restaurants through
1997 and to complete the conversion in the third 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.
SEASONALITY AND ADVERSE WEATHER
The Company's results of operations have historically been impacted by
seasonality, which directly impacts tourism at the Company's coastal
locations. The summer months (June through August) have been higher volume
periods than other periods of the year.
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.
10
<PAGE>
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 was estimated at $700,000. In October
1997 the Company agreed to a settlement and mutual release of this lease in
the amount of $150,000. The Company had recorded a liability for accrued rent
in accordance with the terms of the lease for $17,000 during the second
quarter and an additional $26,000 during the third quarter ending September
30, 1997. A charge for the balance of the settlement will be taken by the
Company in the fourth quarter of 1997 in the amount of $107,000.
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
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)
November 13, 1997 By: /s/ PAUL A. MOTENKO
--------------------
Paul A. Motenko
Chief Executive Officer, Vice
President,
Secretary and Chairman of the Board
Of Directors
By: /s/ JEREMIAH J. HENNESSY
-----------------------------
Jeremiah J. Hennessy
President, Chief Operating Officer,
Chief Financial Officer and Director
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<LEGEND>
Exhibits 27.1 Financial Data Schedule
This schedule contains summary financial information extracted from Chicago
Pizza & Brewery, Inc. Consolidated financial statements for the nine month
period ended September 30, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,908
<SECURITIES> 0
<RECEIVABLES> 212
<ALLOWANCES> 0
<INVENTORY> 312
<CURRENT-ASSETS> 4,023
<PP&E> 9,888
<DEPRECIATION> 1,586
<TOTAL-ASSETS> 18,556
<CURRENT-LIABILITIES> 3,191
<BONDS> 0
0
0
<COMMON> 15,040
<OTHER-SE> 1,196
<TOTAL-LIABILITY-AND-EQUITY> 18,556
<SALES> 19,634
<TOTAL-REVENUES> 19,634
<CGS> 5,826
<TOTAL-COSTS> 19,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78
<INCOME-PRETAX> (30)
<INCOME-TAX> 1
<INCOME-CONTINUING> (31)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
