1
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 July 12, 1998
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: 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, CINCINNATI, OH 45202
(Address of principal executive offices)
(513) 929-0700
(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
--- ---
The issuer had 3,357,989 shares of Common Stock outstanding as of August 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
July 13,1997 and July 12, 1998
Statements of Operations 4
Twelve weeks and twenty-eight weeks ended
July 13,1997 and July 12, 1998
Statements of Cash Flows 5
Twelve weeks and twenty-eight weeks ended
July 13,1997 and July 12, 1998
Notes to Financial Statements 6
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 15
Item 6 Exhibits and Reports on Form 8-K 15
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CIAO CUCINA CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
July 13,1997 July 12,1998
ASSETS (Unaudited) Unaudited)
--------- -----------
CURRENT ASSETS
Cash and Cash Equivalents $ 1,316,835 $ 55,175
Accounts Receivable 51,474 57,661
Inventories 85,663 51,883
Prepayments 259,126 132,208
--------------- ---------------
Total Current Assets 1,713,098 296,927
EQUIPMENT AND IMPROVEMENTS, net 4,892,509 6,087,535
INTANGIBLE ASSETS, net 96,607 0
SECURITY DEPOSITS AND OTHER 474,871 341,163
--------------- ---------------
TOTAL ASSETS $ 7,177,085 $ 6,725,625
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current Portion of Long-Term Debt $ 52,643 $ 70,756
Shareholder Demand Notes 0 600,000
Current Portion of Capital Lease Obligation 0 96,691
Accounts Payable 733,214 1,171,275
Accrued Expenses 205,517 486,125
--------------- ---------------
Total Current Liabilities 991,374 2,424,847
LONG-TERM LIABILITIES
Notes Payable 4,520 0
Capital Lease Obligation 0 92,753
Accrued Rentals 519,993 259,631
Deferred Lease Incentives 2,003,142 4,056,946
--------------- ---------------
Total Long-Term Liabilities 2,527,655 4,409,330
SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock- no par value, 10,000,000 shares
authorized, 3,120,386 shares issued in 1997
and 3,357,989 in 1998, 9,229,195 9,276,937
Additional Paid-in Deficit (1,647,372) (1,647,372)
Accumulated Deficit (3,923,767) (7,738,117)
--------------- ---------------
Total Shareholders' Equity (Deficit) 3,658,056 (108,552)
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY (DEFICIT) $ 7,177,085 $ 6,725,625
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CIAO CUCINA CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Twenty-Eight Weeks Ended For the Twelve Weeks Ended
July 13, July 12, July 13, July 12,
1997 1998 1997 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Loss ($ 821,336) ($ 1,037,922) ($ 429,856) ($ 332,335)
Depreciation 256,382 387,966 104,279 176,313
Amortization 73,172 80,948 1,235 0
Amortization of Lease Incentives (109,383) (185,563) (46,878) (93,211)
Loss on Disposal of Equipment 0 7,357 0 0
Changes in Operating Assets and Liabilities
Decrease (Increase) in -
Accounts Receivable (9,097) 107,621 (4,515) 50,894
Inventories 1,540 68,819 (4,749) 55,069
Prepayments (15,286) 43,485 (36,980) (2,950)
Pre-opening Costs (38,819) 0 (21,757) 0
Increase (Decrease) in -
Accounts Payable 188,798 (430,978) 95,057 71,350
Accrued Expenses (392,684) 34,310 35,450 (126,033)
Accrued Rentals 10,908 78,386 (8,348) 303
--------------- --------------- --------------- ---------------
Net Cash Used by Operating Activities (855,805) (845,571) (317,062) (200,600)
--------------- --------------- --------------- ---------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of Equipment and Improvements (620,960) (158,172) (259,078) 0
Proceeds from Sale of Assets 0 0 0 0
Cash Paid for Intangible Assets (4,884) 0 (150,326) 0
Cash Paid for Note Receivable (48,000) 0 0 0
Cash Paid for Security Deposits (25,427) (1,082) (1,301) 0
--------------- --------------- --------------- ---------------
Net Cash Used by Investing Activities (699,271) (159,274) (410,705) 0
--------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Short-Term Debt 0 601,423 0 201,423
Payments on Capital Leases 0 (27,477) 0 0
Repayment of Long-Term Debt (1,850) (831) (815) 0
--------------- --------------- --------------- ---------------
Net Cash Provided (Used) (1,850) 573,115 (815) 201,423
--------------- --------------- --------------- ---------------
by Financing Activities
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,556,926) (431,710) (728,582) 823
CASH AND CASH EQUIVALENTS -
beginning of period 2,873,761 486,885 2,045,417 54,352
--------------- --------------- --------------- ---------------
CASH AND CASH EQUIVALENTS -
end of period $ 1,316,835 $ 55,175 $ 1,316,835 $ 55,175
--------------- --------------- --------------- ---------------
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CIAO CUCINA CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Twenty-Eight Weeks Ended For the Twelve Weeks Ended
July 13, July 12, July 13, July 12,
1997 1998 1997 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash Paid for Interest $ 6,790 $ 19,901 $ 421 $ 9,782
--------------- --------------- --------------- ---------------
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Conversion of Participating Debenture to Common Stock $ 50,000 $ 0 $ 0 $ 0
--------------- --------------- --------------- ---------------
Issuance of Common Stock in Satisfaction of Accts Payable $ 0 $ 187,603 $ 0 $ 61,803
--------------- --------------- --------------- ---------------
Issuance of Common Stock in Satisfaction
of Employee Claims $ 0 $ 50,000 $ 0 $ 50,000
--------------- --------------- --------------- ---------------
Equipment and Improvements Paid by Landlord $ 0 $ 3,141,032 $ 0 $ 0
--------------- --------------- --------------- ---------------
---------------
Deferred Lease Incentives $ 0 $ 201,664 $ 0 $ 0
--------------- --------------- --------------- ---------------
Security Deposits Forfeited $ 0 $ 54,271 $ 0 $ 44,458
--------------- --------------- --------------- ---------------
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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
July 13, 1997 and July 12, 1998 and the results of operations and cash flows for
the twelve weeks and twenty-eight weeks ended July 13, 1997 and July 12, 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
On July 1, 1998, the Company entered into a settlement agreement with Huntley
Financial Group ("Huntley"). Huntley had been engaged by the Company to
negotiate a termination of its lease for its Hackensack, New Jersey location.
Under the Settlement Agreement, the Company agreed to pay Huntley $35,000.00,
payable in eight monthly installments of $4,375.00.
On August 1, 1998, the Company closed its corporate office in Cincinnati,
Ohio. In connection therewith, the Company entered into the following agreements
dated August 3, 1998:
(a) Lease Termination Agreement, pursuant to which the office
lease was terminated effective August 1, 1998. Under this
Agreement, the Company agreed: (i) to pay the landlord
$25,789.69 for all the amounts due under the office lease
through August 1, 1998; (ii) to pay the landlord $5,703.01 on
each of August 1, 1998 and April 30, 1999; and (iii) to issue
to the landlord $100,000 of the Company's common stock. Valued
based on the closing price on the August 1 effective date.
(b) Third Amendment to Lease, pursuant to which the Company
provided the landlord of its Downtown, Cincinnati, Ohio
location an $80,613.62 promissory note to repay the landlord
for past due amounts under its lease for such location. The
principal of this note is to be paid in four installments: (i)
$11,406.02 on or before August 15, 1998; (ii) $25,000.00 on or
before November 15, 1998; (iii) $25,000.00 on or before
February 15, 1999; and (iv) $10,742.53 on or before June 15,
1999.
(c) Third Amendment to Sublease, pursuant to which the Company
provided the landlord of its Harpers Point, Cincinnati, Ohio
location a $20,541.43 promissory
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note to repay the landlord for past due amounts under its
lease for such location. The principal of this note is be paid
in two installments: (i) $14,674.84 on or before August 15,
1998; and (ii) $5,866.58 on or before June 15, 1999.
In August, 1998, the Company entered into a Settlement Agreement and Release
with Carroll Consulting, Inc., pursuant to which the Company agreed to pay
Carroll Consulting $4,750 on or before August 15, 1998, and $4,750 on or before
September 15, 1998. Carroll Consulting releases all claims it had against the
Company, its subsidiary Ciao Playhouse, Inc., and David Walker, its general
manager for its Cleveland, Ohio location.
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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. In June, 1998, the Company entered into a management
agreement with The Glazier Group, Inc., a New York-based restaurant company,
which has managed the operations of the Company since that time.
The Company does not have a long operating history and has recently made
significant changes to its management. Consequently, the Company believes that
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 second
quarters (twelve weeks) ended on July 13, 1997 and July 12, 1998, respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the twelve weeks and the twenty-eight
weeks ended July 13, 1997 and July 12, 1998, certain items from the Company's
condensed consolidated Statement of Operations expressed as a percentage of net
revenues.
Twelve Weeks Ended Twenty-eight Weeks Ended
Statement of Operations Data: July 13, 1997 July 12, 1998 July 13, 1997 July 12, 1998
------------- ------------- ------------- -------------
RESTAURANT REVENUES (1) 100.0% 100.0% 100.0% 100.0%
OPERATING EXPENSES
Food and Beverage Cost 30.4 34.5 30.2 32.1
Restaurant Labor Costs (2) 36.5 38.0 34.7 38.4
Occupancy and Other Restaurant Expenses (3) 33.4 27.1 31.2 30.5
Depreciation and Amortization 7.0 11.5 8.9 13.3
RESTAURANT OPERATIONS (7.3) (11.0) (5.0) (14.4)
Interest (Income) Expense, net (1.3) 0.3 (1.2) 0.7
Other (Income) Expense, net 0.4 (0.5) 0.4 (0.1)
General and Administrative Expenses (4) 22.0 10.9 17.9 14.1
Restructuring Costs 0.0 0.0 0.0 0.3
NET LOSS (28.4)% (21.7)% (22.1)% (29.4)%
(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 second quarter of fiscal 1998 increased from
$1,511,675 in 1997 to $1,532,668 in 1998, an increase of $20,993 or a percentage
increase of 1.4%. Restaurant revenues year to date 1998 have decreased from
$3,720,550 in 1997 to $3,529,995 in 1998, a decrease of $190,555 or a percentage
decrease of 5.1%. The modest increase for the quarter was due to an increase in
sales in one restaurant unit. The year to date decrease was due to a variety of
factors, including lower foot traffic in areas where restaurants are located
inside or adjacent to entertainment areas which had slower theatre schedules
than year ago.
FOOD AND BEVERAGE COSTS
Food and beverage costs for the second quarter of 1998 increased from $459,407
in 1997 to $528,088 in 1998, an increase of $68,681 or a percentage increase of
15.0%. As a percentage of sales, food and beverage costs increased for the
quarter from 30.4% to 34.5%, a percentage increase of 4.1%.
On a year to date basis, food and beverage costs increased $1,124,459 in 1997 to
$1,133,807 in 1998, an increase of $9,348 or a percentage increase of .8%. As a
percentage of sales, food and beverage costs year to date increased from 30.2%
to 32.1%, a percentage increase of 1.9%. The dollar increases in the food and
beverage costs are attributable in part to inventory adjustments.
RESTAURANT LABOR
Restaurant labor for the second quarter of 1998 increased from $551,958 in
l997 to $582,065 in 1998, an increase of $30,107 or a percentage increase of
5.5%. As a percentage of revenues, restaurant labor costs for the second quarter
1998 versus 1997 increased from 36.5% to 38.0%, an increase of 1.5%. Year to
date 1998, restaurant labor costs increased from $1,291,052 in 1997 to
$1,357,229, an increase of $66,177 or a percentage increase of 5.1%. As a
percentage of sales, restaurant labor costs year to date increased from 34.7% to
38.4%, an increase of 3.7%.
The increase in restaurant labor costs for the quarter and year to date are
attributable to a combination of higher costs associated with The Glazier Group,
Inc. as a management company, which the Company believes will be offset by lower
corporate expenses within reasonable time.
OCCUPANCY AND OTHER RESTAURANT EXPENSES
Occupancy and other restaurant expenses for the second quarter of 1998
decreased from $504,966 in 1997 to $414,736 in 1998, a decrease of $90,230 or a
percentage decrease of 17.9%. As a percentage of sales, occupancy and other
restaurant expenses decreased to 27.1% for the
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second quarter of 1998 from 33.4% for the second quarter of 1997 or a decrease
of 6.3%. Year to date, occupancy and other restaurant expenses decreased from
$1,160,115 in 1997 to $1,076,680 in 1998, a decrease of $83,435 or a percentage
decrease of 7.2%. As a percentage of sales, occupancy and other restaurant
expenses decreased from 31.2% to 30.5%, a percentage decrease of .7%.
The decreases for quarter and year to date were both attributable to the mix of
restaurant units in operation, reflecting in large part the closing during the
1st Quarter of 1998 of one mature unit included in the year ago results.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $105,514 in 1997 to $176,313 in
1998, an increase of $70,799 or a percentage increase of 67.1%. This increase is
due to the opening of the Company's Cleveland restaurant and the depreciation
schedule of assets previously placed in service.
Year to date, depreciation and amortization increased from $329,554 to
$468,914, an increase of $139,360 or a percentage increase of 42.3%. This
increase was also due to the opening of the Company's Cleveland restaurant and
the depreciation schedule of assets previously placed in service.
As a percentage of sales, depreciation and amortization increased for the
second quarter of 1998 to 11.5% from 7.0% for the second quarter of 1997, an
increase of 4.5%. Year to date, as a percentage of sales, depreciation and
amortization increased 8.9% to 13.3%, an increase of 4.4%.
RESTAURANT OPERATIONS
The Company's loss from restaurant operations of $110,170 in the second
quarter of 1997 increased to a loss of $168,534 in the second quarter of 1998,
or an increase of $58,364. Year to date, the loss from restaurant operations for
1997 of $184,630 increased to a loss of $506,635 an increase of $322,005. The
increase in loss for the quarter was largely attributable to increased
depreciation and amortization, as otherwise revenue gains were able to absorb
the increases in other operating expenses. The increase in the year to date loss
was also largely attributable to increases in depreciation and amortization,
although revenues for 1998 year to date were lower than 1997.
INTEREST (INCOME) EXPENSE
Interest expense exceeded interest income for the second quarter of 1998 by
$4,477, while interest income had exceeded interest expense for the second
quarter of 1997 by $19,652. This represented a change of $24,129 for the second
quarter 1998 compared with 1997. Year to date 1997, interest income exceeded
interest expense by $43,785. Year to date 1998, interest expense exceeded
interest income by $24,633, a change of $68,418.
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GENERAL ADMINISTRATIVE EXPENSES
General and administrative expenses for the second quarter of 1998 decreased
from $332,807 in 1997 to $167,155 in 1998, a decrease of $165,652 or a
percentage decrease of 49.8%. As a percentage of revenues, general and
administrative expenses decreased from 22.0% in 1997 to 10.9% in 1998, a
decrease of 11.1%. Year to date, general and administrative expenses decreased
from $665,469 in 1997 to $497,581 in 1998, a decrease of $167,888 or a
percentage decrease of 25.3%. As a percentage of sales, general and
administrative expenses decreased from 17.9% in 1997 to 14.1% in 1998, a
percentage decrease of 3.8%. The decrease during the quarter was primarily due
to the engagement of a management company, thereby replacing certain general and
administrative expenses at a percentage of revenues which translated to lower
costs. The lower expense year to date also reflects staff reductions which were
made gradually during the first quarter of the 1998 year.
NET LOSS
The net loss for the second quarter of 1998 decreased from $429,856 in 1997 to
$332,335 in 1998, a decrease of $97,521 or a percentage decrease of 22.7%. Year
to date, the net loss increased from $821,336 in 1997 to $1,037,922 in 1998, an
increase of $216,586, a percentage increase of 26.4%. The year to date increase
was due to the increased loss for the first quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for capital expenditures and
operating expenses. Historically, the Company's primary sources of cash have
been from operations, bank borrowing, and the issuance of subordinated
debentures and preferred stock. In late November 1996, the Company completed an
initial public offering of 1,000,000 shares of its Common Stock at an initial
public offering price of $7.00 per share. Net proceeds of the offering were
approximately $6.1 million. Of this, approximately $2,900,000 was used to repay
certain indebtedness. The balance of the net proceeds were used for the
development and opening of new restaurants and working capital.
In conjunction with the initial public offering, all outstanding shares of the
Company's Series A and Series B preferred stock and an outstanding note in the
principal amount of $150,000 were converted to Common Stock. In the first
quarter of 1997, a $50,000 convertible subordinated debenture holder elected to
convert the debenture to Common Stock of the Company.
Due to continuing operating losses and depletion of working capital, the
Company borrowed an additional $600,000 during the period January through May of
1998. The proceeds from these borrowings were used to fund operations and
settlements with certain creditors in association with closing non-performing
restaurants.
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The Company historically had working capital deficiencies, which it believes
are typical in the restaurant industry. As of July 12, 1998, the Company's
current liabilities of $2,424,847 exceeded its current assets of $296,927,
resulting in negative working capital of $2,127,920. The negative working
capital is due largely to Accounts Payable of $1,171,275 and Accrued Expenses of
$486,125 which include certain costs associated with lease termination
agreements entered into in connection with the closing of non-performing units
and the cancellation of certain new restaurant plans. Additional Short Term Debt
of $600,000 raised to fund operating losses and payments required for lease
termination settlements also had impact on working capital.
Net cash used by operating activities decreased $116,462 for the second
quarter of 1998 as compared to the second quarter of 1997. Year to date, net
cash used by operating activities decreased $10,234 from $855,805 in 1997 to
$845,571 in 1998.
Cash used in investing activities decreased from $410,705 for the second
quarter of 1997 to $0 for the second quarter of 1998. Year to date, cash used in
investing activities decreased from $699,271 in 1997 to $159,254 in 1998. The
year to date decrease in cash used by investing activities reflects the
suspension of new restaurant development and the resulting elimination of needs
to purchase equipment and other fixed assets beyond those expenditures required
for exiting units.
Net cash provided by financing activities increased for the first quarter of
1998 as compared to 1997 from $815 used to net cash provided of $201,423, an
increase of $202,238. The cash provided by financing activities for the second
quarter of 1998 consisted of borrowings. Year to date, net cash provided by
financing activities increased from $1,850 used to $573,115 provided. This
increase of $574,965 reflects the short-term borrowings of $600,000 less
payments on capital leases of $27,477 and the $831 remainder of long-term debt.
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, exposure
to cost fluctuations, availability of labor, competition from other restaurants,
changing trends, and government regulation.
The Company has previously stated that, due to the lack of cash flow from
operations and the historical growth of its corporate structure, steps needed to
be taken to reduce overhead and close certain non-performing units. In
connection with this plan, the Company suspended its development activities for
new units and embarked on a program designed to stabilize operations and cash
flow.
In the spring of 1988, the Company entered negotiations with The Glazier
Group, Inc. ("Glazier"), a New York restaurant company, for the possible merger
of the Company with Glazier. Upon concluding that a merger with Glazier would be
in the best interests of shareholders, the Company entered into a letter of
intent ("LOI") to merge subject to various
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conditions. These conditions included but were not limited to the execution of a
definitive merger agreement and the receipt of a commitment for financing, to
Glazier's satisfaction, from an underwriter to raise additional financing for
the combined company.
Simultaneous with the execution of the LOI, the Company and Glazier entered
into a management agreement whereby Glazier would manage the Company's
operations in return for a management fee, thereby allowing the Company to
further reduce overhead. The Company believed that this arrangement would
produce net savings to the Company and serve to improve operations through the
oversight of Glazier.
Early results from this management arrangement are inconclusive. While certain
expenses have been reduced, others have increased and the Company has continued
to generate a loss from restaurant operations. Progress has been made through
changes in restaurant management and certain improvements to menus, and the
Company has been working with Glazier to develop presentations to possible
underwriters for financing of the business post-merger.
At this time, due to the conditions which are material to the possible merger,
the Company cannot be certain that the merger will occur. Consequently, the
Company continues to work with Glazier to improve results from operations under
the terms of the management agreement. Current emphasis is being placed on
reducing food, beverage and labor costs while implementing new menus. The
Company continues to believe that a merger will be in the best interest of
shareholders, and attention is being devoted to realizing that objective.
If the merger is not completed as planned, the Company intends to resume
management control of the restaurant operations through the recruitment and
hiring of operations management to replace the services which have been provided
by Glazier. Relatedly, the Company would still require additional financing,
although no commitments have yet been obtained.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about June 22, 1998, Carroll Consulting, Inc., filed suit against
the Company, its subsidiary Ciao Playhouse, Inc. and David Walker, its
general manager at its Cleveland, Ohio location alleging a breach of
certain non-competition and related agreements entered into between
Walker and Carroll Consulting. This lawsuit was settled on August 16,
1998. See the discussion contained under "Commitments" on page 7.
ITEM 2. CHANGES IN SECURITES
The Company is obligated to issue $100,000 of common stock (valued
based on the closing price as of the August 1 effective date) to its landlord
for its Downtown, Cincinnati, Ohio location. See the discussion contained in the
"Commitments: on page 6. These shares will be issued pursuant to Regulation D
and/or Rule 4(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on May
26, 1998, for the purpose of electing its board of directors and voting on a
proposed stock option plan. The result of the matters voted on was as follows:
For Against or Withheld
Election of Directors:
Roger Lipton 2,588,657 16,900
Marvin Rosenberg 2,588,557 17,000
Jack Wyant 2,588,407 17,150
Stock Option Plan 1,235,780 1,369,777
ITEM 5. OTHER INFORMATION
N/A
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EX-99.1. Settlement Agreement dated July 9, 1998, between
Company and Huntley Financial Group.
EX-99.2. Settlement Agreement and Release among the Company,
Ciao Playhouse, Inc., David Walker and Carroll
Consulting.
EX-99.3. Lease Termination Agreement dated August 13, 1998,
between the Company and Hibben Building, Ltd.
EX-99.4. Third Amendment to Lease dated August 3, 1998,
between the Company and Hibben Building, Ltd.
EX-99.5. Promissory Note in the principal amount of $80,613.62
dated July 31, 1998, from the Company to Hibben
Building, Ltd.
EX-99.6. Third Amendment to Sublease dated August 3, 1998,
between the Company and Towne Investment Co.
EX-99.7. Promissory Note in the principal amount of $20,541.42
dated July 31, 1998, from the Company to Towne
Investment Co.
(b) Reports on Form 8-K:
1. Current Report (May 26, 1998) attaching the Company's
press release dated May 21, 1998. No financial
statements were required or filed.
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: September 4, 1998 By: /s/ Stephen J. Kent
-------------------
Stephen J. Kent
President