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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 April 19, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 000-21745
CIAO CUCINA CORPORATION
(Exact name of small business issuer as specified in its charter)
OHIO 31-1357862
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
700 WALNUT STREET, SUITE 300, CINCINNATI, OH 45202
(Address of principal executive offices)
(513) 241-9161
(Issuer's telephone number )
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 preceding 12 months
(or for 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
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The issuer had 3,246,186 shares of Common Stock outstanding as of May 1, 1998.
Transitional Small Business Disclosure Format (check one):
Yes No X
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CIAO CUCINA CORPORATION
INDEX
PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Balance Sheets 3
April 20, 1997 and April 19, 1998
Statements of Operations 4
Sixteen weeks ended
April 20, 1997 and April 19, 1998
Statements of Cash Flows 5
Sixteen weeks ended
April 20, 1997 and April 19, 1998
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 2 Changes in Securities 14
Item 3 Defaults Upon Senior Securities 14
Item 4 Submission of Matters to a Vote of
Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
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CIAO CUCINA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
April 20,1997 April 19,1998
------------- -------------
ASSETS (Unaudited) (Unaudited)
CURRENT ASSETS
Cash and Cash Equivalents $ 2,045,417 $ 54,352
Accounts Recievable 46,959 60,555
Inventories 80,914 106,952
Prepayments 222,146 129,258
----------- -----------
Total Current Assets 2,395,436 351,117
EQUIPMENT AND IMPROVEMENTS, NET 4,737,710 6,263,848
INTANGIBLE ASSETS, NET 76,085 0
SECURITY DEPOSITS AND OTHER 323,244 386,703
----------- -----------
TOTAL ASSETS $ 7,532,475 $ 7,001,668
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt $ 53,122 $ 423,848
Current Portion of Capital Lease Obligation 0 85,349
Accounts Payable 638,157 908,144
Accrued Expenses 170,067 612,158
----------- -----------
Total Current Liabilities 861,346 2,029,499
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LONG-TERM LIABILITIES
Notes Payable 4,856 31,327
Capital Lease Obligation 0 118,253
Accrued Rentals 528,341 259,328
Deferred Lease Incentives 2,050,020 4,150,157
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Total Long-Term Liabilities 2,583,217 4,559,065
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SHAREHOLDERS' EQUITY
Common Stock-no par value, 10,000,000 shares
authorized, 3,120,386 shares issued for 1997,
and 3,246,186 shares issued for 1998 9,229,195 9,354,995
Additional Paid-In Capital (Deficit) (1,647,372) (1,629,321)
Accumulated Deficit (3,493,911) (7,312,570)
----------- -----------
Total Shareholders' Equity 4,087,912 413,104
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 7,532,475 $ 7,001,668
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CIAO CUCINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIXTEEN WEEKS ENDED
April 20, 1997 April 19, 1998
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(Unaudited) (Unaudited)
RESTAURANT REVENUES $ 2,208,875 $ 1,997,327
OPERATING EXPENSES
Food and Beverage Costs 665,052 605,719
Restaurant Labor Costs 739,094 775,164
Occupancy and Other Restaurant Expenses 655,149 661,944
Depreciation and Amortization 224,040 292,601
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2,283,335 2,335,428
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RESTAURANT OPERATIONS (74,460) (338,101)
Interest (Income) Expense, net (24,133) 20,156
Other (Income) Expense, net 8,491 5,823
General and Administrative Expenses 332,662 330,426
Restructuring Costs 0 11,081
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NET LOSS APPLICABLE TO ($ 391,480) $ 705,587
=========== ===========
COMMON STOCK
NET LOSS PER COMMON SHARE ($ 0.13) ($ 0.22)
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WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 3,114,559 3,151,380
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CIAO CUCINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIXTEEN WEEKS ENDED
April 20, 1997 April 19, 1998
-------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($ 391,480) ($705,587)
Depreciation 152,104 211,653
Amortization 71,936 80,948
Amortization of Lease Incentives (62,504) (92,352)
Loss on Disposal of Equipment 0 7,357
Changes in Operating Assets and Liabilities
Decrease (Increase) in-
Accounts Receivable (4,582) 56,727
Inventories 6,289 13,750
Prepayments 21,694 46,435
Increase (Decrease) in-
Accounts Payable 93,741 391,301
Accrued Expenses (305,940) 160,343
Accrued Restructuring 0 (893,629)
Accrued Rentals 19,256 78,083
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (399,486) (644,971)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment and Improvements (305,629) (158,172)
Cash Paid for Security Deposits 0 (1,082)
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NET CASH USED BY INVESTING ACTIVITIES (305,629) (159,254)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Notes Payable 0 400,000
Payments of Notes Payable (1,035) (831)
Payments on Capital Leases 0 (27,477)
Payments of Syndication Costs (122,194) 0
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NET CASH PROVIDED (USED) BY FINANCING ACITIVITIES (123,229) 371,692
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(DECREASE) IN CASH AND CASH EQUIVALENTS (828,344) (432,533)
CASH AND CASH EQUIVALENTS -
beginning of period 2,873,761 486,885
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CASH AND CASH EQUIVALENTS
end of period $ 2,045,417 $ 54,352
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CIAO CUCINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIXTEEN WEEKS ENDED
April 20, 1997 April 19, 1998
-------------- --------------
(Unaudited) (Unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
CASH PAID FOR INTEREST $ 578 $ 10,119
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SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Conversion of Participating Debenture
to Common Stock $50,000 --
======= ==========
Issuance of Common Stock in Satisfaction of
Accounts Payable -- $ 125,800
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Equipment and Improvements Paid by Landlord -- $3,141,032
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Deferred Lease Incentives -- $ 201,664
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Security Deposits Forfeited -- $ 9,813
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CIAO CUCINA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. PRESENTATION OF INTERIM INFORMATION
In the opinion of the management of Ciao Cucina Corporation, the accompanying
unaudited condensed consolidated financial statements include all normal
adjustments considered necessary to present fairly the financial position as of
April 20, 1997 and April 19, 1998 and the results of operations and cash flows
for the sixteen weeks ended April 20, 1997 and April 19, 1998. Interim results
are not necessarily indicative of results for a full year.
The condensed consolidated financial statements and notes are presented as
permitted by Form 10-QSB, and do not contain certain information included in the
Company's audited financial statements and notes for the fiscal year ended
December 28, 1997. See the Company's Annual Report on Form 10-KSB, File No.
000-21745.
2. COMMITMENTS
As was previously announced, on December 10, 1997, the Company engaged
Parentis Corporation ("Parentis") as a financial consultant to assist with
various efforts to reduce overhead and restructure liabilities associated with
non-performing restaurant units. Pursuant to that agreement, Parentis was to
receive certain fees for its services, including a "success fee" which would be
determined by applying a percentage to the aggregate amount of liabilities it
assisted the Company in eliminating. By negotiating the settlement and
termination of certain lease agreements, according to the engagement agreement,
Parentis was eligible to receive in excess of $240,000. In recognition of the
Company's cash condition, on March 16, 1998, Parentis agreed to a success fee
of: (a)$40,000 in cash; (b) 85,000 common shares of the Company; and (c)
warrants to purchase 80,000 common shares of the Company at $1.25 per share.
On December 15, 1997, the Company entered into a settlement agreement with
Roger Taylor, pursuant to which he resigned as an officer and director of the
Company and his employment agreement was terminated. Under the settlement
agreement, he received three months severance.
On January 16, 1998, Blue Chip Capital Fund Limited Partnership ("Blue
Chip") loaned the Company $500,000. The loan bears interest at the rate of 14%
per annum, and is due on December 31, 1998. The loan is secured by a security
interest in all of the Company's assets. In connection with this loan, Blue Chip
received warrants to purchase 200,000 shares of the Company's common stock at a
price of $1.35 a share.
On January 19, 1998, the Company closed its Ft. Lauderdale store and
entered into a settlement agreement with the landlord. Under the Settlement
Agreement, the Company conveyed all of its assets and licenses located at the
location to the landlord, except a 51,662.50 Letter of Credit furnished to the
landlord when the lease was signed, which was returned to the Company in June.
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On February 11, 1998, the Company entered into a settlement agreement
terminating its lease in The Oviedo Marketplace in Orlando, Florida. The project
was then in a design phase. Under the settlement agreement, the Company agreed
to pay the landlord a total of $88,142.75, $14,698.46 of which was paid upon
execution of the agreement, with the balance payable in five equal monthly
installments beginning March, 1998.
On February 11, 1998, the Company entered into a settlement agreement
terminating its lease at the Riverside Square shopping center in Hackensack, New
Jersey. The Company had previously closed this location. Under the settlement
agreement, the Company agreed to pay the landlord: (1) upon execution of the
agreement, $20,000 in cash and the $100,000 letter of credit furnished to the
landlord when the lease was signed; (2) $12,500 per month from February 1, 1998
through April 21, 1998; (3) $25,000 per month from May 1, 1998 through December
1, 1998; (4) and $162,500 on December 15, 1998. The company's obligations under
the settlement agreement are secured by a security interest in net cash flow
after operating expenses derived from the Company's downtown Cincinnati, Ohio
location, through a lockbox arrangement.
On or about March 17, 1998, the Company agreed to pay Michael Schuster
Associates ("MSA"), an architectural and design firm engaged by the Company for
new locations, $40,800 in cash and to issue MSA 40,800 common shares, as payment
in full for services previously rendered by MSA. The Company agreed to pay the
cash amount in eight equal monthly installments of $5,100, commencing April 1,
1998.
On April 1, 1998, the Company entered into a Settlement and Consulting
Agreement, as amended on April 13, 1998, (the "Consulting Agreement") with Carl
A. Bruggemeier, pursuant to which Mr. Bruggemeier resigned as an officer and
director of the Company and his Employment Agreement with the Company was
terminated. Under the Consulting Agreement, Mr. Bruggemeier agreed to provide
consulting services to the Company for ten months beginning April 1, 1998, and
the Company agreed to pay him a consulting fee of $10,000 per month. The Company
paid Mr. Bruggemeier his consulting fee for April, 1998. On May 27, 1998, the
Consulting Agreement was further amended to replace the ongoing monthly
consulting fee with: (a) a one-time payment of $10,000; and (b) 50,000 shares of
the Company's common stock, of which 40,000 shares have been issued to Mr.
Bruggemeier and 10,000 shares are being held in escrow to secure the performance
by Mr. Bruggemeier of his obligations under the Consulting Agreement.
In connection with the Consulting Agreement, Mr. Bruggemeier executed a
Nonrecourse Promissory Note (the "Note") in favor of Glaser Capital Partners
(the "Payee") in the principal amount of $60,000. The Note bears interest at the
rate of 8% per annum and is due upon the earlier: (1) any sale by the Company of
all or substantially all of its assets; (2) any merger involving the Company in
which the Company is not the surviving entity; or (3) any bankruptcy or similar
action brought by or against the Company. Payee's sole recourse under the Note
against Mr. Bruggemeier is to receive his shares of the Company's common stock
held in escrow by the Ohio Secretary of State under the Escrow Agreement dated
November 20, 1996, if and when the shares are released from such escrow. The
Company has guaranteed full payment of the Note.
On May 20, 1998, the Company entered into a letter of intent (the "LOI")
with The Glazier Group, Inc., a New York corporation ("Glazier Group"), pursuant
to which a to-be-formed wholly owned subsidiary of the Company shall merge with
and into Glazier Group (the
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"Merger"). Upon the closing of the Merger, the shareholders of Glazier
Group shall receive such number of common shares of the Company that equal 81%
of the aggregate outstanding shares of the Company. The LOI contemplates that
upon, or as soon as possible after, the closing of the Merger, the Company will
conduct a secondary public offering of its common stock to raise a minimum of
$12 Million (the "Secondary Offering"). Upon the closing of the Merger: (1) the
Company shareholders shall receive the right to purchase a share of common stock
for each share held at the price per share in the Secondary Offering; and (2)
the shareholders of Glazier Group shall receive warrants to purchase up to 8% of
the Company, for an exercise price of $1.25 per share, conditioned upon the
achievement of certain performance milestones by a new Glazier Group restaurant.
The Merger is conditioned upon: (a) execution of definitive agreements by June
30, 1998, and a closing by December 31, 1998; (b) completion of due diligence
which is currently underway; (c) approval by the respective Boards of Directors;
(d) the receipt of all required approvals and consents; and (e) receipt, by July
1, 1998, of a highly confident letter from an underwriter acceptable to Glazier
Group regarding the Secondary Offering. The Company may not solicit other
prospective purchasers or merger partners while the LOI is in effect, but may
respond to solicitations received by it, provided the Company shall reimburse
Glazier Group for all legal and accounting expenses incurred by it as a result
of the merger up to a maximum of $50,000 if the Company enters into any sale or
merger agreement with any other party on or before June 30, 1998.
On May 21, 1998, the Company entered into a Management Agreement with
Glazier Group delegating all responsibility and authority for management of the
Company's restaurant operation to the Glazier Group. The Agreement will
terminate on the earlier of: (a) the closing of the Merger; (b) the termination
of the LOI or any merger agreement executed in connection therewith; or (c)
December 31, 1999. Under the Agreement, the Company shall pay Glazier Group a
management fee equal to 4% of food and beverage revenues generated by the
Company's restaurants. The management fee is payable monthly within 15 days
after the end of each 4-week period to the extent cash flow allows. To the
extent cash flow is insufficient to pay the fee, the fee will accrue with
interest at the rate of 8.5% per annum and be payable on the earlier of (1) the
closing of the Secondary Offering, or (2) one year from the termination of the
LOI or any merger agreement executed in connection therewith.
On May 22, 1998, Blue Chip loaned the Company $100,000. The loan bears
interest at the rate of 14% per annum, and is due on December 31, 1998. In
connection with this loan, Blue Chip received warrants to purchase 100,000
shares of the Company's common stock at a price of $1.35 a share.
On May 22, 1998, Catherine C. Jetter resigned as an officer and director of
the Company and its subsidiary.
On May 22, 1998, the Company agreed to pay Parentis for services rendered:
(1) $2,850 in cash; and (2) 36,803 shares of the Company's authorized but
unissued common stock; and to pay Parentis for services rendered after May 19,
1998, a fee equal to $1,500 per week.
On June 10, 1998, the Company entered into an agreement ("the Engagement
Agreement") with Glaser Capital Corporation ("Glaser") to serve as its advisor
in connection with the possible merger with Glazier Group. Pursuant to the
Engagement Agreement, as a result of the signing of the LOI with Glazier Group,
Glaser was issued 25,000 shares of the Company's common stock.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company owns and operates five restaurants serving authentic Mediterranean
cuisine under the name "Ciao Cucina"and "Ciao Baby Cucina". Four of the
Company's five restaurants have been in operation for more than one year. Its
newest restaurant opened in January, 1998. Additionally, the Company closed one
mature restaurant in late 1997 and opened a restaurant in late 1997 that was
closed in early 1998.
The Company has a limited operating history and the results achieved to date
by the Company's restaurants may not be indicative of future results.
The Company uses a 52/53 week year which is generally comprised of 13
four-week periods. The Company's fiscal 1997 and 1998 first quarters (sixteen
weeks) ended on April 20, 1997 and April 19, 1998, respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the sixteen weeks ended April 20, 1997
and April 19, 1998, certain items from the Company's condensed consolidated
Statement of Operations expressed as a percentage of net revenues.
Sixteen Weeks Ended Sixteen Weeks Ended
STATEMENT OF OPERATIONS DATA: April 19, 1998 April 20, 1997
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RESTAURANT REVENUES (1) 100.0% 100.0%
OPERATING EXPENSES
Food and Beverage Costs 30.3% 30.1%
Restaurant Labor Costs (2) 38.8% 33.5%
Occupancy and Other Restaurant Expenses (3) 36.9% 29.7%
Depreciation and Amortization 10.9% 10.1%
RESTAURANT OPERATIONS (16.9)% (3.4)%
Interest Income (Expense), net (1.0)% 1.1%
Other Income (Expense) (0.0)% (0.3)%
General and Administrative Expenses (4) (16.5)% (15.1)%
NET LOSS (34.4)% (17.7)%
(1) Revenues consist of restaurant food and beverage sales.
(2) Restaurant labor consists of hourly and management payroll, benefits and
taxes.
(3) Occupancy and other restaurant expenses include rent, utilities,
advertising, repairs and maintenance and operating supplies.
(4) General and administrative expenses include corporate salaries, benefits and
taxes, rent, insurance, professional services, travel and other expenses.
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RESTAURANT REVENUES
Restaurant revenues for the first quarter of fiscal 1998 decreased versus the
first quarter of fiscal 1997 by $211,548 a decrease of 9.6%. Same store revenues
for the first quarter of fiscal 1998 decreased by $285,952, a decrease of 14.7%.
The decline is largely attributable to performance of the Cincinnati and Memphis
restaurants, both units are heavily dependent on theater schedules in their
respective areas.
FOOD AND BEVERAGE COSTS
Food and beverage costs for the first quarter of 1997 decreased by $59,333 or
8.9%. As a percentage of sales, food and beverage costs increased from 30.1% to
30.3%, a percentage increase of .2%.
RESTAURANT LABOR
Restaurant labor for the first quarter of 1998 increased $36,070 or 4.9%
compared to the first quarter of 1997. As a percentage of revenues, restaurant
labor costs for the first quarter 1998 versus 1997 increased from 33.5% to 38.8%
an increase of 5.3%. The increase in restaurant labor is attributable to the
Cleveland unit, where the additional cost of banquet facility management
exceeded the costs which had been associated with the Hackensack, New Jersey
restaurant included in fiscal 1997 results but closed prior to fiscal 1998.
OCCUPANCY AND OTHER RESTAURANT EXPENSES
Occupancy and other restaurant expenses for the first quarter of 1998
exceeded occupancy and other restaurant expenses for the first quarter of 1997
by $81,467 or 12.4%. As a percentage of sales, occupancy and other restaurant
expenses increased to 36.9% for the first quarter of 1998 from 29.7% for the
first quarter of 1997 or an increase of 7.2%. The increase in occupancy costs is
attributable to the Cleveland unit, where the Corporation has additional costs
associated with the banquet facility.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expenses for the first quarter of 1998 decreased
over the first quarter of 1997 by $2,236. As a percentage of revenues, general
and administrative expenses increased from 15.1% in 1997 to 16.5% in 1998, an
increase of 1.4%.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased $6,111 for the first quarter of 1998
over the first quarter of 1997 or 2.7%.
As a percentage of sales, depreciation and amortization increased for the
first quarter of 1998 to 10.9% from 10.1% for the first quarter of 1997.
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RESTAURANT OPERATIONS
The Company's loss from restaurant operations of $74,460 in the first
quarter of 1997 increased to a loss of $338,101 in the first quarter of 1998, or
a change of $263,641. The increased loss from operations is largely attributable
to the changes in results at two of the same store units, Cincinnati and
Memphis, and results from the Cleveland restaurant unit which opened during
January, 1998. On a combined basis, caused by decreases in revenues at
Cincinnati and Memphis, net income from these same store units for the first
quarter of fiscal 1998 decreased by $161,892 versus the first quarter of 1997.
The Cleveland unit registered a loss of $240,804 for the first quarter of fiscal
1998, of which pre-opening expenses represented $130,256.
INTEREST EXPENSE
Interest expense increased $44,289 for the first quarter 1998 compared to
1997.
NET LOSS
The net loss for the first quarter of 1998 increased by $314,107 over 1997 or
80.2%.
LIQUIDITY AND CAPITAL RESOURCES
As of April 19, 1998, the Company's current liabilities of $2,029,499
exceeded current assets of $351,117, resulting in negative working capital of
$1,678,382.
Net cash used by operating activities increased $245,485 for the first
quarter of 1998 as compared to the first quarter of 1997. This was due primarily
to decreases in accrued restructuring expenses.
Cash used in investing activities decreased from $305,629 for the first
quarter of 1997 to $159,254, a decrease of $146375.
Cash flows from financing activities increased for the first quarter of 1998
as compared to 1997 from negative $123,229 to $371,692, a increase of $494,921.
OUTLOOK
THE STATEMENTS CONTAINED IN THIS OUTLOOK ARE BASED ON CURRENT EXPECTATIONS.
THESE STATEMENTS ARE FORWARD LOOKING AND ACTUAL RESULTS MAY DIFFER MATERIALLY
DUE TO VARIOUS FACTORS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THE
EFFECT OF UNANTICIPATED DELAYS IN THE DEVELOPMENT OF NEW RESTAURANTS AND COSTS
OF EXPANSION, ADVERSE EFFECTS IF GROWTH IS NOT MANAGED PROPERLY, EXPOSURE TO
COST FLUCTUATIONS, AVAILABILITY OF LABOR, COMPETITION FROM OTHER RESTAURANTS,
CHANGING TRENDS, GOVERNMENT REGULATION, AVAILABILITY OF LOCATIONS WITH FAVORABLE
LANDLORD INCENTIVES AND ABILITY TO SECURE REQUIRED PERMITS AND LICENSING.
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The Company has agreed in principal to enter into a settlement agreement
with Huntley Financial Group ("Huntley"), a consultant hired by the Company to
assist it in negotiating a termination of its New Jersey lease. Under the
settlement, the Company would pay Huntley a total of $35,000, $4,375 of which
would be payable upon execution of a definitive settlement agreement, and the
balance payable in seven equal monthly installments. A definitive agreement has
been prepared and submitted to Huntley, but has not yet been executed.
The Company has agreed in principal to enter into a settlement agreement
terminating its lease in Ballston Commons Mall in Arlington, Virginia. The
project was then in the design phase. Under the settlement, the Company would
pay the landlord a total of $30,000, $5,000 of which would be payable upon
execution of a definitive settlement agreement, and the balance payable in five
equal monthly installments. A definitive agreement has been prepared and
submitted to the landlord, but has not yet been executed.
The Company has previously stated that it is executing a stabilization plan
which was developed to reduce the cash losses associated with operations. This
plan has involved the closing of units which failed to cover their direct
operating expenses and the implementation of certain reductions in corporate
overhead. It is not possible to forecast with certainty the effects of these
changes. From a timing standpoint, these changes should have impact during the
second quarter of fiscal 1998.
The Company has previously announced that it has entered into an LOI to
merge with Glazier Group. There are numerous conditions to the merger, and it is
not possible to forecast with certainty whether it will occur. Glazier Group has
been engaged to manage restaurant operations for the Company while the merger is
pending.
The Company has previously stated that it expected that cash generated by
operations and proceeds received from recent financing would be sufficient to
meet obligations until December 1998. Based on results for the first quarter of
fiscal 1998, the Company is not confident that this is any longer the case. The
Company believes that its possible merger with Glazier Group will provide needed
liquidity through the financing which is contemplated by Glazier Group and which
is a condition to the merger as described in the LOI. In the event that the
merger is not consummated as planned, the Company has discussed additional
financing with other sources of capital but does not have any commitments at
this time.
The Company has previously stated that it was notified by Nasdaq that it
would be delisted due to the Company's failure to meet continuing listing
requirements as established by Nasdaq. The Company requested an oral hearing
with Nasdaq to explain plans the Company has to cure its deficiency. These plans
are largely dependent on the possible merger with Glazier Group. On June 11,
1998, an oral hearing with Nasdaq was held and the Company discussed its plans.
It is not yet clear whether Nasdaq will continue the Company's listing pending
the merger. Nasdaq has requested that the Corporation's deficiency in tangible
net worth versus Nasdaq requirements be cured prior to the merger, and the
Company is doubtful that it will be able to do so.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 26, 1998, a lawsuit was filed against the Company in Washington,
D.C. captioned Mary Erickson v. Ciao Cucina Corporation, Case No. 98 CA003231,
in which the plaintiff, a kitchen employee, alleged sexual harassment by the
chef. The plaintiff seeks $300,000 in damages. Discovery has not yet been
completed, and it is thus too early to assess the outcome of the case, but the
Company believes the plaintiff's claims are without merit.
ITEM 2. CHANGES IN SECURITIES
On March 16, 1998, the Company issued 85,000 common shares to Parentis.
See discussion contained under "Commitments" on Page 7.
On March 23, 1998, the Company issued 40,800 common shares to Michael
Schuster Associates ("MSA"), an architectural and design firm engaged by the
Company for new locations. See discussion contained under "Commitments" on Page
8.
On June 9, 1998, the Company issued 50,000 common shares to Carl A.
Bruggemeier. See discussion contained under "Commitments" on Page 8.
On June 9, 1998, the Company issued 36,803 common shares to Parentis
Corporation. See discussion contained under "Commitments" on Page 9.
On June 15, 1998, the Company issued 25,000 common shares to Glaser
Capital Corp. Se discussion contained under "Commitments" on Page 9.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
N/A
ITEM 5. OTHER INFORMATION
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
1. Settlement and Consulting Agreement between the Company and Carl A.
Bruggemeier dated April 1, 1998, with Amendment No. 1 dated April 13, 1998, and
Amendment No. 2 dated May 27, 1998.
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2. Nonrecourse Note of Carl A. Bruggemeier as guaranteed by the Company.
3. Letter of Intent dated May 20, 1998, between the Company and The
Glazier Group, Inc.
4. Management Agreement dated May 21, 1998, between the Company and The
Glazier Group, Inc.
5. Promissory Note dated May 22, 1998, between the Company and Blue Chip
Capital Fund Limited Partnership.
6. Warrant dated May 22, 1998, between the Company and Blue Chip Capital
Fund Limited Partnership.
7. Note Purchase Agreement dated May 22, 1998, between the Company and
Blue Chip Capital Fund Limited Partnership.
8. Amended and Restated Registration Rights Agreement dated May 22, 1998,
between the Company and Blue Chip Capital Fund Limited Partnership.
b) Reports on form 8-K:
1. Current Report (January 20, 1998), attaching the Company's press
release dated January 20, 1998.
2. Current Report (April 1, 1998), attaching the Company's press release
dated April 16, 1998.
3. Current Report (May 21, 1998), attaching the Company's press release
dated May 21, 1998.
Each of the above reports on Form 8-K reported information described herein. No
financial statements were required or filed.
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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.
CIAO CUCINA CORPORATION
Date: June 16, 1998 By: /s/ Stephen J. Kent
-------------------------
Stephen J. Kent
President
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