8
7
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
_X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER
1, 1995.
__ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __TO ___.
Commission file number 0-16348
Ciatti's, Inc.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1564262
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5555 West 78th Street Edina, Minnesota 55439
(Address of principal executive offices) Zip Code
(612) 941-0108
(Issuers telephone number)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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______
The Company had 732,835 shares of Common Stock, $.01 par value
per share, outstanding as of October 31, 1995.
CIATTI'S, INC.
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Balance Sheets as of July 2, 1995 3,4
October 1, 1995.
Statements of Operations for 5
the three months ended October 1, 1995
and October 2, 1994.
Statements of Cash Flows for the 6,7
three months ended October 1, 1995 and
October 2, 1994.
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9,10
Part II. OTHER INFORMATION 11
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CIATTI'S, INC. AND SUBSIDIARY
Balance Sheets
October 1, 1995 and July 2, 1995
October 1, July 2,
Assets 1995 1995
--------- ---------
(unaudited) (unaudited)
Current assets:
Cash and cash equivalents $ 1,851,283 $ 2,096,521
Short-term investments 97,232 97,232
Receivables 44,021 36,750
Income tax receivable 63,958 121,157
Inventories 175,691 188,668
Prepaid expenses and
other current assets 139,105 137,951
Current installment of
note receivable 46,740 35,108
--------- ---------
Total current assets 2,418,030 2,713,387
Property and equipment:
Buildings 610,829 610,829
Equipment 5,480,766 5,378,194
Leasehold improvements 2,656,590 2,634,629
Automobiles 15,058 30,074
--------- ---------
8,763,243 8,653,726
Less accumulated depreciation and
amortization (5,053,155) (4,856,719)
--------- ---------
3,710,088 3,797,007
Other Assets:
Investment in preferred stock 1,050,000 1,050,000
Note receivable less
current portion 111,707 123,339
--------- ---------
1,161,707 1,173,339
--------- ---------
$ 7,289,825 $ 7,683,733
========= =========
See accompanying notes to financial statements.
(continued)
CIATTI'S, INC. AND SUBSIDIARY
Balance Sheets, continued
October 1, 1995 and July 2, 1995
October 1, July 2,
Liabilities and Stockholders' Equity 1995 1995
--------- ---------
(unaudited) (unaudited)
Current liabilities:
Current installments of long
term debt $142,984 $ 141,188
Current installment of preferred
stock subscription payable 150,000 150,000
Accounts payable 725,831 686,131
Salaries and wages payable 233,884 299,768
Other accrued liabilities 547,182 691,937
--------- ---------
Total current liabilities 1,799,881 1,969,024
Note payable bank, less current
installments 284,896 319,224
Obligations under capital lease,
less current installment 402,250 409,955
Preferred stock subscription payable
less current installment 450,000 450,000
--------- ---------
Total liabilities 2,937,027 3,148,203
Stockholders' equity:
Preferred stock, $.01 par value.
Authorized 10,000,000 shares; none
issued or outstanding - -
Common stock, $.01 par value. Authorized
10,000,000 shares; issued and
outstanding 732,486 shares at
October 1, 1995 and
732,486 at July 2, 1995 7,325 7,325
Additional paid-in capital 4,332,921 4,332,921
Retained earnings 12,552 195,284
--------- ---------
Total stockholders' equity 4,352,798 4,535,530
--------- ---------
$ 7,289,825 $ 7,683,733
========= =========
See accompanying notes to financial statements.
CIATTI'S, INC. AND SUBSIDIARY
Statements of Operations
Three months ended
October 1, October 2,
1995 1994
--------- ---------
(unaudited) (unaudited)
Sales $ 4,205,421 5,060,091
Cost of food and beverage 1,214,399 1,525,583
--------- ---------
Gross profit 2,991,022 3,534,508
Restaurant operating expenses
Labor and benefits 1,457,479 1,660,878
Direct and occupancy 1,472,261 1,584,486
--------- ---------
2,929,740 3,245,364
--------- ---------
Earnings from restaurant
operations 61,282 289,144
General and administrative expenses 275,608 274,366
--------- ---------
Earnings (loss) from operations (214,326) 14,778
Other income (expense)
Interest expense (22,268) (18,448)
Interest income 24,078 21,242
Other, net 4,784 8,492
--------- ---------
Total other income (expense) 6,594 11,286
--------- ---------
Earnings (loss) before income
taxes and extraordinary item (207,732) 26,064
Income taxes - 7,000
-------- --------
Earnings (loss) before
extraordinary item (207,732) 19,064
Extraordinary item:
Tax benefit of net operating
loss carrybacks 25,000 -
-------- --------
Net earnings (loss) $ (182,732) 19,064
======== ========
Net earnings (loss) per share: (.25) .02
======== ========
Weighted average number of common
and common equivalent share 732,486 757,335
======== ========
See accompanying notes to financial statements.
CIATTI'S INC. AND SUBSIDIARY
Statements of Cash Flows
Three months ended October 1, 1995 and October 2, 1994
Three months ended
October 1, October 2,
1995 1994
--------- ---------
(unaudited) (unaudited)
OPERATING ACTIVITIES:
Net earnings (loss) $(182,732) 19,064
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 211,453 266,616
Changes in operating assets and
liabilities:
Accounts receivable (7,272) (13,645)
Income tax receivable 57,199 -
Inventories 12,977 14,520
Prepaid expenses and other
current assets (1,154) 3,694
Accounts payable 39,700 (279,557)
Salaries and wages payable (65,884) (96,800)
Other accrued liabilities (144,755) (14,291)
-------- --------
Net cash used by operating
activities (80,468) (100,399)
INVESTING ACTIVITIES:
Payments for purchases of property
and equipment (124,533) (4,949)
-------- -------
Net cash used in investing
activities $(124,533) (4,949)
See accompanying notes to financial statements.
(continued)
CIATTI'S, INC. AND SUBSIDIARY
Statements of Cash Flows
Three months ended October 1, 1995 and October 2, 1994
Three months ended
October 1, October 2,
1995 1994
--------- ---------
(unaudited) (unaudited)
FINANCING ACTIVITIES:
Decrease in long term debt $ (40,237) (31,143)
Net proceeds from the exercise
of common stock options - 264
--------- ---------
Net cash used in
financing activities (40,237) (30,879)
Net increase (decrease) in
cash and cash equivalents (245,238) (136,227)
Cash and cash equivalents
at beginning of year 2,096,521 2,356,527
--------- ---------
Cash and cash equivalents at
end of period $1,851,283 2,220,300
========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 22,268 18,448
Income taxes - 7,000
See accompanying notes to financial statements.
CIATTI'S INC. AND SUBSIDIARY
Notes to Financial Statements
(UNAUDITED)
(1) Financial Statements
The balance sheet as of October 1, 1995, the statements of
operations for the three months ended October 1, 1995 and October
2, 1994, and the statements of cash flows for the three months
ended October 1, 1995 and October 2, 1994 have been prepared by
the Company without audit. In the opinion of management, all
adjustments (all of which are normal and recurring in nature)
necessary to present fairly the financial position at October 1,
1995, and results of operations and cash flows activity for the
periods ended October 1, 1995 and October 2, 1994 have been made.
The balance sheet at July 2, 1995 has been taken from the
Company's audited financial statements as of that date. Results
of operations for interim periods are not necessarily indicative
of the full fiscal year.
(2) Net Earnings (Loss) Per Share
Net earnings (loss) per common and common equivalent share have
been computed by dividing net earnings by the weighted average
number of common and common equivalent shares outstanding during
the period. Common equivalent shares included in the computation
represent shares issuable upon the exercise of stock options.
Item 2. Management's Discussion and Analysis or Plan of Operation
RESULTS OF OPERATIONS
Sales. Sales of $4,205,421 for the first quarter of fiscal 1996
represent a decrease of $854,670 from the $5,060,091 for the
first quarter in fiscal 1995. The sales decrease is mainly due
to two factors. First, the Minneapolis, Minnesota location was
closed for the entire quarter. Second, sales decreased at most
of the Company's restaurants due to increased competition. For
fiscal 1996, the Company is conducting an advertising campaign
which will use television, direct mail and billboards. The
advertising plan did not go into effect until late in the first
quarter and therefore the expected benefits of the expenditures
have yet to be realized. The Company expects the advertising
campaign to slow the sales decreases but the continued
competitiveness of the industry will make sales increases hard to
accomplish.
Cost of Food and Beverage. Cost of food and beverage as a
percentage of sales decreased to 28.9% in the first quarter of
fiscal 1996 compared to 30.1% in the same quarter in fiscal 1995.
The decrease is mainly due to the Company's efforts to negotiate
better purchase agreements with vendors.
Restaurant Operating Expenses. Labor and benefits expense as a
percentage of sales increased to 34.7% in the first quarter of
fiscal 1996 compared to 32.8% in the same quarter in fiscal 1995.
The increase as a percentage of sales is mainly due to the
decreased sales at the restaurants.
Direct and occupancy expense as a percentage of sales increased
to 35.0% in the first quarter of fiscal 1996 compared to 31.3% in
the same quarter in fiscal 1995. The increase as a percentage of
sales is due to the decreased sales at the restaurants and an
increase in advertising and promotional expense. The cost of the
fiscal 1996 advertising campaign has raised advertising and
promotional expense to 3.8% of sales for the first quarter
compared to 2.4% of sales in the same quarter for fiscal 1995.
The Company expects the promotional and advertising expense to
remain near four percent for the remainder of fiscal 1996.
Corporate and Operations Overhead. General and administrative
expenses increased to 6.6% of sales for the first quarter of
fiscal 1996 compared to 5.4% for the first quarter of fiscal
1995. The increase as a percentage of sales is mainly due to the
decrease in sales at the restaurants. The Company expects general
and administrative expenses to be approximately 6.5% for the rest
of fiscal 1996.
Other Income and Expense. The Company had more long term debt
outstanding during the first quarter of fiscal 1996 which
increased the amount of interest expense to $22,268 from $18,448
in fiscal 1995. The increase in interest income is due to the
increase in the amount of funds available for investment and
slightly higher interest rates.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At October 1, 1995 the Company had cash and cash equivalents of
$1,851,283 which is a $245,238 decrease from the cash and cash
equivalents at July 2, 1995. Major influences on cash and cash
equivalents during the first quarter of fiscal 1996 include:
$80,468 used in operations, $124,533 spent on equipment and
leasehold improvements for the first Bruegger's Bagel Bakery (R)
and $40,237 spent on long term debt principal payments.
The Company has two notes which are payable over the next five
years with a Minneapolis bank. The proceeds from the borrowings
were used to buy fixtures for new restaurants. As of October 1,
1995 the Company has an outstanding balance on the notes of
$403,359. The interest rate on the credit agreements range from
1% above the bank's prime rate to 11 1/2% fixed. The Company has
a commitment from a Minneapolis bank to provide $750,000 in
financing for four Bruegger's Bagel Bakery (R) restaurants. The
commitment is contingent on the financial strength of the Company
and can be terminated in the event of an adverse change in the
financial performance of the Company. The Company anticipates
borrowing against the financing commitment during the second and
third quarter of fiscal 1996.
The Company currently plans to open four Bruegger's Bagel Bakery (R)
restaurants during fiscal 1996. As of November 1, 1995 the
Company has one Bruegger's Bagel Bakery (R) open and two under
construction. The Company believes that its current working
capital, together with the funds generated from operations, will
be sufficient to satisfy its liquidity and short-term capital
resource needs for the next twelve months. The construction of
additional Breugger's Bagel Bakery (R) restaurants may require the
Company to obtain additional debt or equity financing.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
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
none
(b) Reports on Form 8-K.
none
SIGNATURES
Pursuant to 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.
CIATTI'S, INC.
(Registrant)
Dated November 4, 1995 Christopher L. Collier
Vice President and Chief
Financial Officer
