U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO ______
COMMISSION FILE NUMBER 0-21423
CHICAGO PIZZA & BREWERY, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0485615
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
16162 BEACH BOULEVARD
SUITE 100
HUNTINGTON BEACH, CALIFORNIA 92647
(Address and zip code of Registrant's principal executive offices)
(714) 848-3747
(Registrants telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
--- ---
As of May 1, 2001, there were 8,458,321 shares of Common Stock of the
Registrant outstanding and 7,964,584 Redeemable Warrants of the Registrant
outstanding.
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 1
Consolidated Balance Sheets -
March 31, 2001 (Unaudited) and December 31, 2000 1
Unaudited Consolidated Statements of Operations -
Three Months Ended March 31, 2001 and
March 31, 2000 2
Unaudited Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and
March 31, 2000 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures about Market Risk 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL INFORMATION
CHICAGO PIZZA & BREWERY, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2001 2000
(UNAUDITED)
------------------ ------------------
ASSETS:
Current assets:
Cash and cash equivalents $1,750,889 $1,405,379
Accounts receivable 134,172 181,325
Inventory 648,710 570,147
Prepaids and other current assets 331,968 305,685
------------------ ------------------
Total current assets 2,865,739 2,462,536
Property and equipment, net 19,240,671 19,534,640
Deferred income taxes 1,369,546 1,773,545
Intangible assets, net 5,727,259 5,759,972
Other assets 721,969 461,675
------------------ ------------------
Total assets $29,925,184 $29,992,368
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $1,811,097 $3,147,436
Accrued expenses 3,908,552 3,471,946
Current portion of notes payable to related parties 385,048 378,068
Current portion of long-term debt 949,638 838,756
Current portion of obligations under capital lease 3,962 22,592
------------------ ------------------
Total current liabilities 7,058,297 7,858,798
Long-term debt 3,589,467 3,828,629
Notes payable to related parties 892,053 990,933
Reserve for store closures 876,518 876,830
Other liabilities 1,163,321 1,130,420
------------------ ------------------
Total liabilities 13,579,656 14,685,610
------------------ ------------------
Commitments and contingencies
Minority interest in partnership 270,591 263,343
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized, none issued
or outstanding -
Common stock, no par value, 60,000,000 shares authorized and
7,658,321 shares issued and outstanding as of March 31,
2001 and December 31, 2000 16,076,132 16,076,132
Capital surplus 1,243,280 975,280
Accumulated deficit (1,244,475) (2,007,997)
------------------ ------------------
Total shareholders' equity 16,074,937 15,043,415
------------------ ------------------
Total liabilities and shareholders' equity $29,925,184 $29,992,368
================== ==================
The accompanying notes are an integral part of these consolidated
financial statements.
1
CHICAGO PIZZA & BREWERY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------------------
2001 2000
----------------- -----------------
Revenues $15,369,298 $10,178,645
Cost of sales 4,077,021 2,801,755
----------------- -----------------
Gross profit 11,292,277 7,376,890
Costs and expenses:
Labor and benefits 5,557,619 3,687,975
Occupancy 1,195,414 833,937
Operating expenses 1,654,912 1,107,196
Preopening costs 9,565 146,109
General and administrative 982,278 913,049
Depreciation and amortization 513,989 425,881
----------------- -----------------
Total cost and expenses 9,913,777 7,114,147
----------------- -----------------
Income from operations 1,378,500 262,743
Other income (expense):
Interest expense (157,007) (78,179)
Interest income 505 3,253
Other income (expense), net (1,539) (1,162)
----------------- -----------------
Total other income (expense) (158,041) (76,088)
----------------- -----------------
Income before minority interest and income taxes 1,220,459 186,655
Minority interest in partnership (7,249) (7,423)
----------------- -----------------
Income before income taxes 1,213,210 179,232
----------------- -----------------
Income tax expense (449,688) (6,323)
----------------- -----------------
Net income $763,522 $172,909
================= =================
Net income per share:
Basic and dilutive net income per share $0.10 $0.02
================= =================
Weighted average number of shares outstanding:
Basic 7,658,321 7,658,321
================= =================
Dilutive 7,941,216 7,665,388
================= =================
The accompanying notes are an integral part of these consolidated
financial statements.
2
CHICAGO PIZZA & BREWERY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------------
2001 2000
---------------- ----------------
Cash flows provided by (used in) operating activities:
Net income $763,522 $172,909
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 513,989 425,881
Minority interest in partnership 7,249 7,423
Loss on sale of assets 1,000
Changes in assets and liabilities:
Accounts receivable 47,153 (111)
Inventory (78,563) (15,391)
Prepaids and other current assets 241,717 (70,376)
Deferred income tax benefit 403,999
Other assets (266,602) (19,340)
Accounts payable (1,336,339) 1,081,756
Accrued expenses 436,606 184,740
Other liabilities 32,893 103,571
---------------- ----------------
Net cash provided by operating activities 765,624 1,872,062
---------------- ----------------
Cash flows used in investing activities:
Purchases of equipment (180,998) (2,810,319)
---------------- ----------------
Cash flows provided by (used in) financing activities:
Loan proceeds 9,052 1,390,500
Payments on related party debt (91,900) (84,919)
Payments on debt (137,332) (75,734)
Capital lease payments (18,936) (35,904)
---------------- ----------------
Net cash provided by (used in) financing activities (239,116) 1,193,943
---------------- ----------------
Net increase in cash and cash equivalents 345,510 255,686
Cash and cash equivalents, beginning of period 1,405,379 188,811
---------------- ----------------
Cash and cash equivalents, end of period $1,750,889 $444,497
================ ================
The accompanying notes are an integral part of these consolidated
financial statements.
3
CHICAGO PIZZA & BREWERY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Chicago Pizza
& Brewery, Inc. and its subsidiaries (the "Company") for the three months
ended March 31, 2001 and 2000 have been prepared in accordance with generally
accepted accounting principles, and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. 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.
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-K for the year ended December 31,
2000. 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-K. The accompanying consolidated balance sheet as of December 31, 2000 has
been derived from the audited financial statements.
RELATED PARTY
On January 18, 2001, the Jacmar Companies and their affiliates (collectively
referred to herein as "Jacmar") closed a transaction to purchase
approximately 2.2 million shares from ASSI, Inc. (a shareholder of the
Company). Jacmar, prior to this transaction, owned approximately 15.5% of the
Company's outstanding common stock. In addition, Jacmar also closed a
transaction on March 13, 2001 to purchase approximately 661,000 shares from
two of the Company's officers. These stock purchases resulted in an increase
in the percentage ownership of Jacmar and their affiliates to approximately
53.0% of the outstanding stock of the Company. As a result of these
acquisitions, Jacmar has become a controlling corporation (i.e., parent
company) of Chicago Pizza & Brewery, Inc., and any significant capital
transactions are treated for accounting purposes in accordance with
parent/subsidiary relationships. The Company granted registration rights to
Jacmar on the shares purchased from ASSI, Inc. and Jacmar assisted the
Company in obtaining additional financing for new restaurant projects.
In connection with the sale of shares by ASSI, Inc. to Jacmar in January
2001, the Company issued an option to ASSI, Inc. in exchange for a release of
any claims of ASSI, Inc., including any rights it might have had to purchase
additional shares from the Company under an agreement that was pending
immediately prior to the Jacmar transaction. The option is exercisable for
200,000 shares at an exercise price of $4.00 per share, and is exercisable
until December 31, 2005. The fair value of such options, $268,000, has been
recorded as deferred financing costs.
The Company also entered into an agreement on February 22, 2001 to sell an
aggregate of 800,000 shares of common stock to Jacmar at $2.50 per share.
This transaction closed on April 30, 2001. Upon closing, Jacmar owned 57.4%
of the Company's outstanding stock. In addition, the Company has agreed to
sell to Jacmar up to an additional 3.2 million shares at $2.50 on or before
August 15, 2001. The exact amount of shares to be purchased of the 3.2
million shares the Company has made available and the date of purchase are to
be determined by Jacmar, provided that the Company's obligation to sell the
shares expires on August 15, 2001. The sale of these shares is subject to a
shareholder vote and the receipt of a favorable fairness opinion. The Company
agreed to grant registration rights on the shares purchased by Jacmar under
this agreement.
The sale of the 800,000 shares to Jacmar enabled the Company to obtain an $8
million bank loan facility, including a $4 million term loan to replace its
existing debt and an additional $4 million line of credit to fund expansion
on an as-needed basis. The terms of the loan are described under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Restaurant Development Loan."
4
The Company has approximately 8 million warrants outstanding, which, before
the sale of additional shares to Jacmar , have an exercise price of $5.50 per
share. The sale of the 800,000 shares of common stock to Jacmar in April 2001
triggered the anti-dilution provision of the warrant agreement, resulting in
an adjustment of the exercise price of the warrants to $5.35 per share. If
the entire 3.2 million additional shares are purchased by Jacmar pursuant to
the agreement, the warrant exercise price would be adjusted to $4.89 per
share.
Jacmar, through its specialty wholesale food distributorship, is the
Company's largest supplier of product and paper goods. Jacmar supplied the
Company with approximately $1,987,00 and $4,200,000 of food and beverage
products for the quarter ended March 31, 2001 and the year ended December 31,
2000, respectively. As of March 31, 2001, the Company had payables to Jacmar
of approximately $724,000.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. It also requires that gains or losses
resulting from the changes in value of those derivatives be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. Adoption of SFAS No. 133, as amended by SFAS No. 137 in June
1999, is required for the fiscal year beginning January 1, 2001; the adoption
had no impact on the Company's consolidated financial position, results of
operations or cash flows.
SUBSEQUENT EVENT
During April 2001, the Company sold its restaurant location on Burnside Road
in Portland, Oregon. This BJ's restaurant, since its conversion from the
Pietro's concept, had not met the Company's revenue and profitability
expectations and experienced a negative cash flow over the past three years.
The Company received approximately $60,000 for the improvements, equipment
and furniture at this location. An amount adequate to cover the net costs of
closing this restaurant was provided for in the reserve for store closures
established during 2000.
On April 30, 2001, an existing partner in BJ's Chicago Pizzeria, Lahaina,
Hawaii purchased the other partnership interests, including those of the
Company, in this restaurant. The restructured entity will continue to operate
under the name of BJ's Chicago Pizzeria pursuant to a license agreement with
the Company. The company received approximately $114,000 for its general and
limited partnership interests, as well as a continuing interest in
distributions based on gross receipts from operations. During the first
quarter of 2001, the partnership provided 3.2% of the Company's consolidated
revenue for the period, and its assets comprised 1.2% of the Company's
consolidated assets at March 31, 2001.
DIVIDEND POLICY
The Company has not paid any dividends since its inception and has currently
not allocated any funds for the payment of dividends. Rather, it is the
current policy of the Company to retain earnings, if any, for expansion of
its operations, remodeling of existing restaurants and other general
corporate purposes and to not pay any cash dividends in the foreseeable
future. Should the Company decide to pay dividends in the future, such
payments would be at the discretion of the Board of Directors.
5
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 Unaudited Consolidated Financial Statements and notes thereto
included elsewhere in this Form 10-Q. Except for the historical information
contained herein, the discussion in this Form 10-Q 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-Q should be read as being
applicable to all related forward-looking statements wherever they appear in
this Form 10-Q. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such
differences include, without limitation, those factors discussed herein and
in the Company's annual report as reported on Form 10-K dated December 31,
2000 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 Oregon, (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.
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED MARCH 31, 2001 COMPARED TO THREE-MONTH PERIOD
ENDED MARCH 31, 2000.
REVENUES. Total revenues for the three months ended March 31, 2001
increased to $15,369,000 from $10,179,000 for the comparable period in 2000,
an increase of $5,190,000 or 51.0%. The increase is primarily the result of:
The opening of BJ's Restaurant & Brewhouses in Valencia, California,
Burbank, California and Huntington Beach, California in March, June and
October 2000, respectively. These new locations, along with the opening
of a BJ's Restaurant & Brewery in West Covina, California in August
2000 provided additional revenues of $4,947,000 during the first
quarter of 2001 when compared with the first quarter of 2000.
An increase in the BJ's restaurants same store sales for the
comparable periods of $455,000, or 5.4%.
The increase in revenues resulting from the above factors was partially
offset by the closing of Pietro's pizzerias in Longview, Washington and
Salem, Oregon in June and December 2000, respectively. These two Pietro's had
combined sales of $191,000 during the first quarter of 2000.
COST OF SALES. Cost of food, beverages and paper (cost of sales) for
the restaurants increased to $4,077,000 for the three months ended March 31,
2001 from $2,802,000 for the comparable period of 2000, an increase of
$1,275,000 or 45.5%. As a percentage of sales, cost of sales decreased to
26.5% for the current quarter from 27.5% for the comparable prior-year
quarter. The Company's same-store BJ's cost of sales, as a percentage of
sales, decreased to 27.0% from 27.9% during the three months ended March 31,
2001 compared to the comparable period of 2000. The overall improvement in
cost of sales percentage was primarily due to the increase in revenues
discussed above, and improved food and beverage cost control in the Arcadia
and La Mesa, California brewhouses and the restaurant and brewery in Woodland
Hills, California all of which opened during 1999. As a percentage of their
revenues, these stores collectively reduced cost of sales to 27.6% for the
first quarter of 2001, compared to 29.0% for the comparable quarter of 2000.
A reduction in food costs as a percentage of sales is in line with the
Company's experience as operations at newly developed restaurants are refined
and the restaurant matures.
6
LABOR. Labor costs for the Company increased to $5,558,000 in the
three months ended March 31, 2001 from $3,688,000 for the comparable period
in 2000, an increase of $1,870,000 or 50.7%. As a percentage of revenues,
labor costs remained constant at 36.2% for both the 2001 and 2000 periods,
despite increases in the California minimum wage and the workers compensation
assessment, which became effective January 2001 and November 2000,
respectively.
OCCUPANCY. Occupancy costs increased to $1,195,000 during the three
months ended March 31, 2001 from $834,000 during the comparable period in
2000, an increase of $361,000, or 43.3%. The increase reflects the four
additional BJ's concept restaurants that were open the entire first quarter
of 2001. As a percentage of revenues, occupancy costs decreased to 7.8% in
the 2001 period from 8.2% of the comparable 2000 period. The primary reasons
for the decrease in occupancy costs relative to revenues was the addition of
high volume restaurants and the increase in same-store sales, which combined
to cause a greater proportion of rent expense to be based on percentage rent
computations.
OPERATING EXPENSES. Operating expenses increased to $1,655,000
during the three months ended March 31, 2001 from $1,107,000 during the
comparable period in 2000, an increase of $548,000 or 49.5%. Operating
expenses include restaurant-level operating costs, the major components of
which include marketing, repairs and maintenance, supplies and utilities. The
opening of the three BJ's Restaurant & Brewhouses and one BJ's Restaurant &
Brewery during 2000 accounted for $449,000 of the increased operating
expenses during the first quarter of 2001. As a percentage of revenues,
operating expenses were relatively stable, decreasing to 10.8% in the 2001
period from 10.9% in the 2000 period despite significant increases in energy
rates charged by California utilities.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $982,000 during the three months ended March 31, 2001
from $913,000 during the comparable period in 2000, an increase of $69,000.
As a percentage of revenues, however, general and administrative expenses
decreased to 6.4% from 9.0% for the comparable period of 2000. During 1999
and continuing in 2000, the Company hired management and committed resources
to systems and staff development to plan and manage the Company's growth
strategy. As the intended growth in restaurant revenues materialized during
2000 and continued in the first quarter of 2001, general and administrative
expenses as a percentage of revenue decreased in comparison to the comparable
period of 2000.
PREOPENING COSTS. Due to the timing of restaurant development, the
Company incurred minimal costs during the first quarter of 2001 related to
the opening of future restaurants. During the comparable period of 2000,
costs of $146,000 were incurred due to preparations for the opening in March
of its restaurant in Valencia, California. These costs will fluctuate from
period to period, depending upon, but not limited to, the number of
restaurants under development, the size and concept of the restaurants being
developed and the complexity of the staff hiring and training process. The
Company expects expenditures related to the opening of restaurants to
increase during 2001 as additional restaurants are developed.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased to $514,000 during the three-month period ended March 31, 2001 from
$426,000 for the comparable period of 2000, an increase of $88,000 or 20.7%.
The increase was due to the acquisition of restaurant equipment, furniture
and improvements and brewery equipment totaling $8,934,000 during 2000 for
the three restaurant and brewhouses and one restaurant and brewery opened
during that year.
INTEREST EXPENSE. Interest expense increased to $157,000 during the
quarter ended March 31, 2001 from $78,000 during the comparable period in
2000, an increase of $79,000, or 101.3%. This increase was primarily due to
the additional debt incurred by the Company to finance leasehold improvements
and equipment for the new restaurants in Valencia, Burbank, West Covina and
Huntington Beach, California. Commencing in February 2000, various amounts
were borrowed under the Company's then primary credit facility. The maximum
amount of $4,000,000 provided by that facility was reached during October
2000. Monthly repayments as required by a refinancing agreement commenced in
March 2001.
7
LIQUIDITY AND CAPITAL RESOURCES
The Company's overall operating activities, as detailed in the Consolidated
Statement of Cash Flows, provided $766,000 net cash during the three months
ended March 31, 2001, a $1,106,000, or 59.1%, decrease from the $1,872,000
generated in the comparable quarter of the prior year. The decrease in cash
from operating activities during the first quarter of 2001 was due primarily
to a $1,336,000 reduction in accounts payable since the end of 2000. This
reduction was partially offset by the utilization of the Company's deferred
tax benefit and increases in accrued expenses and other liabilities during
the three-month period ended March 31, 2001.
Management believes that the Company's current resources and operational
cashflow is sufficient to sustain its operations for at least the next year.
The Company is in the early stages of development of two new restaurants and
has available a $4,000,000 revolving construction loan facility for these and
other locations. The Company raised additional capital of approximately
$2,000,000 as a result of the April 2001 private sale of 800,000 shares of
common stock to Jacmar at $2.50 per share. The Company may raise up to an
additional $8,000,000 in connection with the possible sale of up to 3,200,000
shares of common stock to Jacmar at $2.50 per share, pursuant to an agreement
under which the Company has agreed to make these shares available for
purchase until August 15, 2001. The exact amount of shares to be purchased by
Jacmar and the date of purchase are to be determined by Jacmar, and the sale
is subject to a shareholder vote and the receipt of a favorable fairness
opinion.
RESTAURANT DEVELOPMENT LOAN
In February 2001, the Company entered into an agreement with a bank for a
collateralized credit facility for a maximum amount of $8,000,000. There was
an initial funding of $4,000,000 to replace an existing loan on terms more
favorable to the Company. The funded term loan portion of the facility bears
interest at 2.0 percent per annum in excess of the bank's LIBOR rate. Under
the former credit facility, advances were made at interest rates of 3.5
percent per annum in excess of the bank's LIBOR rate. The rates keyed to
LIBOR are fixed for various lengths of time at the Company's option. Current
indebtedness bears an interest rate of 7.15%. The borrowed funds, augmented
by the Company's operating cashflow, were used for construction and equipment
costs related to the development of the four restaurants opened during 2000.
As required by the agreement, monthly principal repayments of $66,667
commenced on March 13, 2001.
Under the revolving portion of this credit facility, the Company is able to
borrow amounts from time to time, in aggregate not to exceed $4,000,000, to
finance capital expenditures associated with the opening of new restaurants,
and for working capital purposes. The rates for these borrowings will be 2.0
percent per annum in excess of the bank's LIBOR rate and fixed for various
lengths of time at the Company's option. Amounts borrowed under the revolving
portion of the facility can be converted into one or more four-year term
loans in minimum amounts of $1,000,000 at the Company's option. Term loans
created through the conversion facility will be charged interest in
accordance with the same LIBOR-based rate structure as the revolving portion.
The Company is required to maintain a ratio of EBITDA (earnings before
interest, taxes, depreciation and amortization), less taxes paid, less
maintenance capital expenditures to consolidated debt service of not less
than 2.0 to 1.0 at the close of each fiscal quarter for the four consecutive
quarters then ending. The Company must also not exceed a ratio of funded
indebtedness (borrowed funds including capital leases) to EBITDA of 1.75 to
1.0. Capital expenditures related to the opening of new stores cannot exceed
$7,000,000 annually.
In conjunction with the loan agreement, the Company granted a
collateralized interest to the bank in all of the Company's inventory,
accounts, equipment and trademarks, whether now owned or hereinafter
acquired. Also included under this security agreement are all proceeds,
including insurance proceeds, from the sale, destruction, loss or other
disposition of the collateralized property.
8
IMPACT OF INFLATION
Impact of inflation on food, labor and occupancy costs can significantly
affect the Company's operations. Many of the Company's employees are paid
hourly rates related to the federal minimum wage, which has been increased
numerous times and remains subject to future increases.
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 traditionally been
higher volume periods than other periods of the year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in commodity prices, since
many of the food products purchased by the Company are affected by commodity
pricing, and, therefore, are vulnerable to unpredictable price fluctuations.
Over the recent past, the Company has experienced price volatility in such
products as cheese and produce. The Company buys a significant portion of its
product from Jacmar, and has only minimal forward purchasing agreements with
other suppliers. Material changes in commodity prices could negatively affect
the Company's margins in the short-term.
Longer-term changes in commodity pricing would affect most of the restaurant
industry as well the Company. The Company most likely would be able to
mitigate increased commodity prices by increasing menu prices, thereby
passing them through to consumers, and by varying its menu product mix.
However, competitive circumstances could limit menu pricing and/or mix
strategies, and, in those circumstances, commodity price fluctuations would
negatively impact the Company's margins. Management believes, however, that
were such circumstances to occur, they would not materially impact the
Company's results of operations.
The Company is exposed to market risk from changes in interest rates on debt.
The Company's exposure to interest rate risk relates to its $4,000,000 term
loan and $4,000,000 revolving line of credit. Borrowings under the agreement
bear interest at 2.0 percent per annum in excess of the lender's LIBOR rate,
and may be fixed for various lengths of time at the Company's option.
Borrowings outstanding under the agreement were $3,942,000 at March 31, 2001.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Restaurants such as those operated by the Company are subject to a continuous
stream of litigation in the ordinary course of business, most of which the
Company expects to be covered by its general liability insurance. Punitive
damages awards, however, are not covered by the Company's general liability
insurance. To date, the Company has not paid punitive damages with respect to
any claims, but there can be no assurance that punitive damages will not be
awarded with respect to any future claims or any other actions. Although the
Company is not currently a party to any legal proceedings that would have a
material adverse effect upon the Company's business or financial position, it
is possible that in the future the Company could become a party to such
proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
9
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
3.1 Amended and Restated Articles of Incorporation of the
Company, as amended incorporated by reference to the
Company's Registration Statement on Form SB-2,
effective October 8, 1996 (SEC File No. 333-5182-LA),
referred to herein as the "Registration Statement".
3.2 Bylaws of the Company, as amended, incorporated by
reference to Exhibit 3.2 of Form 10-Q dated March 31,
1999.
4.1 Specimen Common Stock Certificate of the Company
(incorporated by reference to Exhibit 4.1 of the
Registration Statement).
4.2 Warrant Agreement (incorporated by reference to
Exhibit 4.2 of the Registration Statement).
4.3 Specimen Common Stock Purchase Warrant (incorporated
by reference to Exhibit 4.3 of the Registration
Statement).
4.4 Form of Representative's Warrant (incorporated by
reference to Exhibit 4.4. of the Registration
Statement).
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter
ended March 31, 2001.
10
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)
May 11, 2001 By: /s/ PAUL A. MOTENKO
--------------------
Paul A. Motenko
Chairman of the Board of Directors,
Co-Chief Executive Officer, Vice
President and Secretary
By: /s/ JEREMIAH J. HENNESSY
-------------------------
Jeremiah J. Hennessy
Director, Co-Chief Executive Officer
and Chief Operating Officer
By: /s/ WILLIAM JUNGINGER
-------------------------
William Junginger
Chief Financial Officer