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 JUNE 30, 2000
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)
26131 MARGUERITE PARKWAY
SUITE A
MISSION VIEJO, CALIFORNIA 92692
(Address and zip code of Registrant's principal executive offices)
(949) 367-8616
(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 August 1, 2000, there were 7,658,321 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 -
June 30, 2000 (Unaudited) and December 31, 1999 1
Unaudited Consolidated Statements of Operations -
Three Months Ended and Six Months Ended
June 30, 2000 and June 30, 1999 2
Unaudited Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and
June 30, 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Item 3. Quantitative and Qualitative Disclosures about Market Risk 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL INFORMATION
CHICAGO PIZZA & BREWERY, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2000 1999
(Unaudited)
------------ ------------
ASSETS:
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . .$ 648,195 $ 188,811
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . 162,002 141,968
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474,291 455,880
Prepaids and other current assets . . . . . . . . . . . . . . . . 214,136 271,854
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . 1,498,624 1,058,513
Property and equipment, net . . . . . . . . . . . . . . . . . . . 16,737,787 12,529,913
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 369,015 353,595
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . 5,119,322 5,202,085
------------ ------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . .$23,724,748 $19,144,106
============ ============
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . .$ 2,443,739 $ 1,114,757
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . 2,171,340 1,710,984
Current portion of notes payable to related parties . . . . . . . 364,108 350,341
Current portion of long-term debt . . . . . . . . . . . . . . . . 397,442 284,919
Current portion of obligations under capital lease. . . . . . . . 93,680 146,942
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 5,470,309 3,607,943
Notes payable to related parties. . . . . . . . . . . . . . . . . 1,183,457 1,368,807
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . 2,863,548 687,331
Obligations under capital lease . . . . . . . . . . . . . . . . . 4,636 22,574
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 474,115 109,131
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 9,996,065 5,795,786
------------ ------------
Commitments and contingencies
Minority interest in partnership. . . . . . . . . . . . . . . . . 257,876 249,159
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 June 30, 2000
and December 31, 1999 . . . . . . . . . . . . . . . . . . . . 16,076,132 16,076,132
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . 975,280 975,280
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (3,580,605) (3,952,251)
------------ ------------
Total shareholders' equity. . . . . . . . . . . . . . . . . . . . 13,470,807 13,099,161
------------ ------------
Total liabilities and shareholders' equity. . . . . . . . . . . .$23,724,748 $19,144,106
============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
1
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
2000 1999 2000 1999
------------ ----------- ------------ ------------
Revenue. . . . . . . . . . . . . . . . . . $12,346,798 $9,947,282 $22,525,443 $18,039,685
Cost of sales. . . . . . . . . . . . . . . 3,402,097 2,790,237 6,203,852 5,014,633
------------ ----------- ------------ ------------
Gross profit . . . . . . . . . . . . . . . 8,944,701 7,157,045 16,321,591 13,025,052
Cost and expenses:
Labor and benefits . . . . . . . . . . . . 4,411,629 3,529,931 8,099,604 6,507,561
Occupancy. . . . . . . . . . . . . . . . . 993,196 751,154 1,827,133 1,460,377
Operating expenses . . . . . . . . . . . . 1,286,677 1,016,763 2,393,873 1,924,526
Preopening costs . . . . . . . . . . . . . 311,998 126,711 458,107 321,913
Restaurant closure expense . . . . . . . . 114,300 169,071 114,300 169,071
General and administrative . . . . . . . . 1,024,424 752,074 1,937,473 1,415,768
Depreciation and amortization. . . . . . . 462,144 389,550 888,025 743,755
------------ ----------- ------------ ------------
Total cost and expenses . . . . . . . 8,604,368 6,735,254 15,718,515 12,542,971
------------ ----------- ------------ ------------
Income from operations . . . . . . . . . . 340,333 421,791 603,076 482,081
Other Income (Expense):
Interest expense . . . . . . . . . . . . . (98,817) (82,719) (176,669) (149,977)
Interest income. . . . . . . . . . . . . . 274 16,860 3,527 26,787
Other income (expense), net. . . . . . . . (680) 7,340 (1,843) 8,107
------------ ----------- ------------ ------------
Total other income (expense) . . . . . . . (99,223) (58,519) (175,312) (115,083)
------------ ----------- ------------ ------------
Income before minority interest, income
taxes and change in accounting . . . . 241,110 363,272 427,764 366,998
Minority interest in partnership . . . . . (19,822) (10,403) (27,244) (20,059)
------------ ----------- ------------ ------------
Income before income taxes and
change in accounting . . . . . . . . . 221,288 352,869 400,520 346,939
Income tax expense . . . . . . . . . . . . (22,551) (8,960) (28,874) (10,575)
------------ ----------- ------------ ------------
Income before change in accounting . . . . 198,737 343,909 371,646 336,364
Cumulative effect of change in accounting. (106,175)
------------ ----------- ------------ ------------
Net income . . . . . . . . . . . . . . . . $ 198,737 $ 343,909 $ 371,646 $ 230,189
============ =========== ============ ============
Net income (loss) per share:
Basic and dilutive:
Income before cumulative effect of
change in accounting . . . . . . . . . $ 0.03 $ 0.04 $ 0.05 $ 0.05
Cumulative effect of change in accounting. (0.02)
Net income . . . . . . . . . . . . . . $ 0.03 $ 0.04 $ 0.05 $ 0.03
============ =========== ============ ============
Weighted average number of shares
outstanding:
Basic. . . . . . . . . . . . . . . . . . . 7,658,321 7,658,321 7,658,321 7,161,083
============ =========== ============ ============
Dilutive . . . . . . . . . . . . . . . . . 7,667,157 7,667,598 7,666,318 7,170,058
============ =========== ============ ============
<FN>
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 SIX MONTHS ENDED JUNE 30,
---------------------------------
2000 1999
------------ ------------
Cash flows provided by (used in) operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 371,646 $ 230,189
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . 888,025 743,755
Change in accounting principle . . . . . . . . . . . . 106,175
Minority interest in partnership . . . . . . . . . . . 27,244 20,059
Loss on disposal of assets . . . . . . . . . . . . . . 75,300 136,925
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . (20,034) (17,171)
Inventory. . . . . . . . . . . . . . . . . . . . . (18,411) (47,258)
Prepaids and other current assets. . . . . . . . . 57,718 (142,533)
Other assets . . . . . . . . . . . . . . . . . . . (40,198) (8,389)
Accounts payable . . . . . . . . . . . . . . . . . 1,328,982 158,819
Accrued expenses . . . . . . . . . . . . . . . . . 426,010 337,160
Other liabilities. . . . . . . . . . . . . . . . . 2,824 (6,484)
------------ ------------
Net cash provided by operating activities . . . 3,099,106 1,511,247
------------ ------------
Cash flows provided by (used in) investing activities:
Purchases of equipment . . . . . . . . . . . . . . . . (5,085,659) (2,249,598)
Proceeds from sale of restaurant equipment . . . . . . 22,000 48,867
------------ ------------
Net cash used in investing activities. . . . . . . . . (5,063,659) (2,200,731)
Cash flows provided by (used in) financing activities:
Proceeds from sale of common stock . . . . . . . . . . 1,000,000
Loan proceeds. . . . . . . . . . . . . . . . . . . . . 2,440,500 699,604
Landlord contribution for tenant improvements. . . . . 396,508
Payments on related party debt . . . . . . . . . . . . (171,583) (175,123)
Payments on debt . . . . . . . . . . . . . . . . . . . (151,760) (143,708)
Capital lease payments . . . . . . . . . . . . . . . . (71,200) (62,424)
Distribution to minority interest partners . . . . . . (18,528)
------------ ------------
Net cash provided by financing activities . . . 2,423,937 1,318,349
------------ ------------
Net increase in cash and cash equivalents . . . 459,384 628,865
Cash and cash equivalents, beginning of period . . . . 188,811 1,490,705
------------ ------------
Cash and cash equivalents, end of period . . . . . . . $ 648,195 $ 2,119,570
============ ============
<FN>
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
and six months ended June 30, 2000 and 1999 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, 1999. 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, 1999 has been derived from the audited financial
statements.
ORGANIZATION
Chicago Pizza & Brewery, Inc. (the "Company" or "BJ's") owns and operates 27
restaurants located in Southern California, Oregon and Colorado and an interest
in one restaurant in Lahaina, Maui. Each of these restaurants is operated as
either a BJ's Restaurant & Brewery, a BJ's Restaurant & Brewhouse, a BJ's Pizza
& Grill - OTC or a Pietro's Pizza restaurant. The menu at the BJ's restaurants
feature BJ's award-winning, signature deep-dish pizza, BJ's own hand-crafted
beers as well as a great selection of appetizers, entrees, pastas, sandwiches,
specialty salads and desserts. The five BJ's Pizza, Grill & Brewery restaurants
feature in-house brewing facilities where BJ's hand-crafted beers are produced.
The eight Pietro's Pizza restaurants serve primarily Pietro's thin-crust pizza
in a very casual, counter-service environment.
The Company's current focus is on the development of the larger footprint
BJ's restaurants in high profile locations with favorable demographics. The
Company opened BJ's Restaurant & Brewhouses in Valencia, California and Burbank,
California in March 2000 and June 2000, respectively. During the first quarter
2000, the Company acquired a restaurant location in West Covina, California and
anticipates opening a BJ's Restaurant & Brewery in early summer 2000. The
Company also has signed a lease for an existing restaurant location in
Huntington Beach, California and anticipates opening a BJ's Restaurant &
Brewhouse in mid-summer 2000. The Company is currently in negotiations for
additional sites in California, Arizona and Washington.
On June 16, 2000, the Company's lease on a restaurant acquired from
Pietro's Holdings expired. Two five-year options were available to the Company,
but the restaurant did not figure significantly in the Company's future plans.
The Company chose not to exercise its option, and closed the Pietro's restaurant
at this location. The Company incurred a non-cash charge of $25,000 on disposal
of improvements and equipment related to the closure of this restaurant.
RECENTLY ISSUED ACCOUNTING STANDARDS
As had been the practice of many restaurant entities, the Company
previously deferred its restaurant preopening costs and amortized them over the
twelve-month period following the opening of each new restaurant. In April 1998,
the Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position 98-5 (SOP 98-5),
Accounting for the Costs of Start-Up Activities. SOP 98-5 requires all costs of
start-up activities that are not otherwise capitalizable as long-lived assets to
be expensed as incurred. The Company adopted SOP 98-5 during the first quarter
of 1999. This accounting standard accelerates the Company's recognition of costs
4
associated with the opening of new restaurants but will benefit the post-opening
results of new restaurants. The Company's total deferred preopening costs were
$106,175 at January 1, 1999. As provided by SOP 98-5, the Company wrote off the
balance of deferred preopening costs during the first quarter of 1999.
Other recently issued standards of the FASB are not expected to affect the
Company, as conditions to which those standards apply are absent from the
Company's operations.
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.
LONG-TERM CONSTRUCTION LOAN
In February 2000, the Company entered into an agreement with a bank for a
collateralized term loan for a maximum amount of $4,000,000. There is an initial
twelve-month draw down period and a subsequent thirty-six month term out period.
At June 30, 2000, the outstanding principal balance under this borrowing
arrangement was $2,440,500. The weighted average interest rate from the date of
initial drawdown through June 30, 2000 was 9.88% percent. The Company paid a one
percent loan fee.
Under the terms of the agreement, the Company is required to maintain, as one of
several financial covenants, a leverage ratio, defined as total liabilities less
subordinated debt divided by net worth less intangible assets plus subordinated
debt, of no more than 1.0 to 1.0, tested on a quarterly basis. At June 30, 2000,
the leverage ratio was 1.2 to 1.0. However, the lender has agreed to waive its
remidies until September 25, 2000 to allow the Company to bring its leverage
ratio in line with this financial covenant.
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, 1999 including, without limitation:
(i) the Company's ability to manage growth and conversions, (ii) construction
delays, (iii) marketing and other limitations as a result of the Company's
historic concentration in Southern California and current concentration in the
Northwest, (iv) restaurant and brewery industry competition, (v) impact of
certain brewery business considerations, including without limitation,
dependence upon suppliers and related hazards, (vi) increase in food costs and
wages, including without limitation the recent increase in minimum wage, (vii)
consumer trends, (viii) potential uninsured losses and liabilities, (ix)
trademark and servicemark risks, and (x) other general economic and regulatory
conditions and requirements.
5
RESULTS OF OPERATIONS
Three-Month Period Ended June 30, 2000 Compared to Three-Month Period Ended June
30, 1999.
Revenues. Total revenues for the three months ended June 30, 2000 increased to
$12,347,000 from $9,947,000 for the comparable period in 1999, an increase of
$2,400,000 or 24.1%. The increase is primarily the result of:
The opening of a BJ's Restaurant & Brewery in Woodland Hills, California in
April 1999 and BJ's Restaurant & Brewhouses in La Mesa, California and Valencia,
California in November 1999 and March 2000, respectively. These new locations,
along with the opening of a BJ's Restaurant & Brewhouse on the last day of the
quarter in Burbank, California, provided an increase in revenues of $2,140,000
during the second quarter of 2000 when compared with the second quarter of 1999.
An increase in the BJ's restaurants same store sales for the comparable periods
of $636,000, or 9.0%. Management believes this increase was due to (i) an
increase in customer counts in the California and Colorado restaurants, and (ii)
an increase in check averages resulting from a price increase implemented in
November 1999.
The increase in revenues resulting from the above factors was partially offset
by:
The closing of a BJ's in The Dalles, Oregon in May 1999 and Pietro's pizzerias
in Eugene, Oregon in June 1999 and Longview, Washington in June 2000. The
closures of these locations reduced second quarter 2000 revenues by $339,000
compared with 1999, when they were operating a substantial portion of the
quarter.
A decrease in the Pietro's restaurants same store sales for the comparable
periods of $46,000, or 4.1%.
Cost of Sales. Cost of food, beverages and paper (cost of sales) for the
restaurants increased to $3,402,000 for the three months ended June 30, 2000
from $2,790,000 for the comparable period of 1999, an increase of $612,000 or
21.9%. As a percentage of sales, cost of sales decreased to 27.6% for the
current quarter from 28.0% for the comparable prior-year quarter. The Company's
same-store cost of sales, as a percentage of sales, was relatively stable at
27.7% during the three months ended June 30, 2000, compared to 27.8% for the
comparable period of 1999. 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, California restaurant and the
restaurant and brewery in Woodland Hills, California both of which opened in
early 1999. As a percentage of their revenues, these stores collectively reduced
food costs to 28.9% for the first quarter of 2000, compared to 29.8% for the
comparable quarter of 1999. 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.
Labor. Labor costs for the Company increased to $4,412,000 in the three
months ended June 30, 2000 from $3,530,000 for the comparable period in 1999, an
increase of $882,000 or 25.0%. As a percentage of revenues, labor costs
increased to 35.7% in the 2000 period from 35.5% in the 1999 period. The overall
and percentage increases are primarily attributable to the opening of restaurant
and brewhouses in La Mesa, California in November 1999 and Valencia, California
in March 2000, which accounted for $844,000 of labor costs during the second
quarter of 2000. The Company intentionally overstaffs new restaurants during the
startup phase of operations to allow for newly trained employees, an initial
higher customer count and to ensure a good dining experience by its customers.
Same-store labor costs increased $190,000, primarily to support the higher level
of revenues, to $2,995,000 or 6.8%, for the quarter ended June 30, 2000, from
$2,805,000 for the comparable period of 1999. The factors resulting in increased
labor costs for the second quarter of 2000 were partially offset by the closure
of three Northwest restaurants. The closures collectively resulted in a $127,000
reduction in labor costs in comparison with the second quarter of 1999. As a
percentage of revenues same-store labor costs for the second quarter of 2000
decreased to 34.1% from 34.2% from the comparable period of 1999.
6
Occupancy. Occupancy costs increased to $993,000 during the three months
ended June 30, 2000 from $751,000 during the comparable period in 1999, an
increase of $242,000, or 32.3%. The increase reflects the four additional BJ's
concept restaurants which were open the entire second quarter of 2000. As a
percentage of revenues, occupancy costs increased to 8.0% in the 2000 period
from 7.6% in the 1999 period. The primary reason for the percentage increase in
occupancy costs relative to revenues was the decrease in sales at the Northwest
Pietro's restaurants. None of the Pietro's pizza restaurants experienced a level
of sales that required the payment of rent based on a percentage of sales.
Operating Expenses. Operating expenses increased to $1,287,000 during the three
months ended June 30, 2000 from $1,107,000 during the comparable period in 1999,
an increase of $270,000 or 26.5%. Operating expenses include restaurant-level
operating costs, the major components of which include marketing, repairs and
maintenance, supplies and utilities. The opening of the BJ's Restaurant &
Brewery in Woodland Hills, California in April 1999 and the BJ's Restaurant &
Brewhouses in La Mesa, California and Valencia, California in November 1999 and
March 2000, respectively, accounted for $218,000 of the increase during the
second quarter of 2000. As a percentage of revenues, operating expenses
increased to 10.4% in the 2000 period from 10.2% in the 1999 period. Management
believes the primary reasons for the increase in operating expenses as a
percentage of revenues were recent price or rate increases in services,
utilities and various supplies.
General and Administrative Expenses. General and administrative expenses
increased to $1,024,000 during the three months ended June 30, 2000 from
$752,000 during the comparable period in 1999, an increase of $272,000 or 36.2%.
As a percentage of revenues general and administrative expenses increased to
8.3% from 7.6% of the comparable period of 1999. The increase in general and
administrative expenses was primarily due to acquiring resources to plan and
implement the Company's growth strategy, incurring costs in locating and
evaluating sites for future restaurants and developing staff and systems to
manage current and planned future expansion.
Preopening Costs. Since January 1999, the Company expenses costs associated
with the opening of new restaurants as incurred. During the three-month period
ending June 30, 2000, the Company incurred costs of $312,000 due to preparations
for the openings of its new restaurant and brewhouses in Valencia and Burbank,
California and the development of the restaurant and brewery in West Covina and
restaurant and brewhouse in Huntington Beach, California. During the second
quarter of 1999 the Company was preparing one restaurant for opening. These
costs will fluctuate from year to year, possibly significantly, 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.
Depreciation and Amortization. Depreciation and amortization increased to
$462,000 during the three- month period ended June 30, 2000 from $390,000 during
the comparable period in 1999, an increase of $72,000 or 18.5%. This increase
was primarily due to the addition of restaurant equipment, furniture and
improvements and brewery equipment totaling $6,256,000 for the restaurant and
brewery opened in Woodland Hills, California and restaurant and brewhouses in
Arcadia, La Mesa and Valencia, California.
Interest Expense. Interest expense increased to $99,000 during the quarter
ended June 30, 2000 from $83,000 during the comparable period in 1999, an
increase of $16,000, or 19.3%. 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 and Burbank, California, as well
as the restaurants being constructed in West Covina, and Huntington Beach,
California. Interest expense related to these projects, including amortization
of the loan fee, was $50,000 during the second quarter of 2000; this amount was
partially offset by reduced interest expense on older debt due to normal
principal amortization.
Six-Month Period Ended June 30, 2000 Compared to Six-Month Period Ended June 30,
1999.
Revenues. Total revenues for the six months ended June 30, 2000 increased to
$22,525,000 from $18,040,000 for the comparable period in 1999, an increase of
$4,485,000 or 24.9%. The increase is primarily the result of:
7
The opening of restaurant and brewhouses in Arcadia, La Mesa and Valencia,
California in January 1999, November 1999 and March 2000, respectively, and a
restaurant & brewery in Woodland Hills, California in April 1999. These new
locations provided an increase in revenues of $4,134,000 during the first six
months of 2000.
An increase in the BJ's restaurants same store sales for the comparable periods
of $1,196,000, or 10.1%. Management believes this increase was due to (i) an
increase in customer counts in the California and Colorado restaurants, and (ii)
an increase in check averages resulting from a price increase implemented in
November 1999.
The increase in revenues from the above factors was partially offset by:
The closing of a restaurant and brewhouse in The Dalles, Oregon in May 1999 and
Pietro's pizzerias in Eugene, Oregon and Longview, Washington in June 1999 and
June 2000, respectively. The closures of these locations reduced revenues for
the first six months of 2000 by $695,000 when compared with 1999, when they were
open for much of the six-month period.
A decrease in the Pietro's pizzeria restaurants same store sales for the
comparable periods of $95,000, or 4.2%.
Cost of Sales. Cost of food, beverages and paper (cost of sales) for the
restaurants increased to $6,204,000 for the six months ended June 30, 2000 from
$5,015,000 for the comparable period of 1999, an increase of $1,189,000 or
23.7%. As a percentage of sales, cost of sales declined to 27.5% from 27.8 for
the six-month period of 1999. The Company's same-store cost of sales, as a
percentage of sales, improved to 27.5% during the six months ended June 30, 2000
from 27.9% for the comparable period of 1999. The improvement in same store cost
of sales was partially offset by the higher food costs associated with the
opening of the new restaurants in La Mesa and Valencia, California. As a
percentage of their revenues, these new stores collectively incurred food costs
of 28.8% for the first six months of 2000. A higher cost of sales percentage in
the early months of operations is in line with the Company's experience when
opening new restaurants.
Labor. Labor costs for the restaurants increased to $8,110,000 for the six
months ended June 30, 2000 from $6,508,000 for the comparable period in 1999, an
increase of $1,602,000 or 24.6%. As a percentage of revenues, labor costs
decreased to 36.0% in the 2000 period from 36.1% in the 1999 period. The
overall increase is attributable to the opening of the new California
restaurants; labor costs at these three restaurants totaled $984,000. The
decrease as a percentage of sales was primarily due to more efficient staffing
of the Arcadia and Woodland Hills, California restaurants. Opened in January and
April 1999, respectively, their collective labor costs as a percentage of
revenues improved to 35.6% from 41.2% for the comparable 1999 six-month period.
The Company intentionally overstaffs new restaurants during the startup phase of
operations to allow for newly trained employees, an initial higher customer
count and to ensure a good dining experience by its customers. Same-store labor
costs increased $422,000, or 8.7%, to $5,277,000 for the six months ended June
30, 2000 from $4,855,000 for the comparable period of 1999. As a percentage of
revenues same-store labor costs for the three months of 1999 increased to 34.8%
from 34.5% for the comparable period of 1999. Management feels the increase in
same-store labor costs as a percentage of revenues is due primarily to a 4.2%
decrease in sales at the northwest Pietro's restaurants.
Occupancy. Occupancy costs increased to $1,827,000 during the six months
ended June 30, 2000 from $1,460,000 during the comparable period in 1999, an
increase of $367,000, or 25.1%. As a percentage of revenues, occupancy costs
were stable at 8.1% for both the 2000 and 1999 six-month periods. Due to
increased revenues, the BJ's restaurants same-store occupancy costs as a
percentage of sales decreased to 7.1% from 7.5% for the comparable 1999 period.
This was offset by an increase at the same store Pietro's restaurants of
occupancy costs as a percentage of sales to 11.6% for the six-months ending June
30, 2000 compared to 10.7% for the comparable period of the prior year.
Operating Expenses. Operating expenses increased to $2,394,000 during the six
months ended June 30, 2000 from $1,924,000 during the comparable period in 1999,
an increase of $470,000 or 24.4%. The restaurant & brewery opened in April 1999
8
and the restaurant & brewhouses opened in November 1999 and March 2000,
respectively, accounted for $450,000 of the increase during the first two
quarters of 2000. As a percentage of revenues, operating expenses decreased to
10.6% in the 2000 period from 10.7% in the 1999 period. Operating expenses
include restaurant-level operating costs, the major components of which include
marketing, repairs and maintenance, supplies and utilities. Management believes
the decrease in operating expenses as a percentage of revenues reflects a focus
on more efficient operations at recently opened restaurants.
General and Administrative Expenses. General and administrative expenses
increased to $1,937,000 during the six months ended June 30, 2000 from
$1,416,000 during the comparable period in 1999, an increase of $249,000 or
36.8%. As a percentage of revenues general and administrative expenses increased
to 8.6% from 7.8% of the comparable period of 1999. The increase in general and
administrative expenses was primarily due to acquiring resources to plan and
implement the Company's growth strategy, incurring costs in locating and
evaluating sites for future restaurants and developing staff and systems to
manage anticipated future expansion.
Preopening Costs. During the six-month period ended June 30, 2000, the
Company incurred costs of $322,000 due to preparations for the openings of its
new restaurants in Valencia and Burbank, California and the restaurants under
development in West Covina and Huntington Beach, California. These costs will
fluctuate from year to year, possibly significantly, 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.
Depreciation and Amortization. Depreciation and amortization increased to
$888,000 during the six- month period ended June 30, 2000 from $744,000 during
the comparable period in 1999, an increase of $144,000 or 19.4%. This increase
was primarily due to the addition of restaurant equipment, furniture and
improvements and brewery equipment totaling $6,256,000 for the restaurant and
brewery opened in Woodland Hills, California and restaurant and brewhouses in
Arcadia, La Mesa and Valencia, California. Depreciation of capital assets at
these locations increased depreciation expense by $155,000 during the first two
quarters of 2000. This increase was partially offset by the closing of three
Northwest restaurants since late May of 1999.
Interest Expense. Interest expense increased to $177,000 during the
six-months ended June 30, 2000 from $150,000 during the comparable period in
1999, an increase of $27,000, or 18.0%. This increase was primarily due to the
additional debt incurred by the Company to finance equipment for the new
restaurants in Valencia and Burbank, California, as well as the restaurants
being constructed in West Covina, and Huntington Beach, California. Interest
expense related to these projects, including amortization of the loan fee,
totaled $63,000 during the first two quarters of 2000; this amount was partially
offset by reduced interest expense on older debt due to normal principal
amortization.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities, as detailed in the Consolidated
Statement of Cash Flows, provided $3,099,000 net cash during the six months
ended June 30, 2000, a $1,588,000, or 105.1%, increase over the $1,511,000
generated in the comparable period of the prior year. This increase in cash from
operating activities during the first two quarters of 2000 was primarily due to
a $1,329,000 increase in accounts payable during the six-month period, which
reflects the accumulation of invoices related to restaurant construction that
become due during the various stages of development. Capital expenditures for
the acquisition of restaurant and brewery equipment and leasehold improvements
to construct new restaurants totaled $5,086,000 and $1,221,000 for the six
months ended June 30, 2000 and 1999, respectively, an increase of $2,836,000,
or 126.0%. These expenditures were required to develop the new restaurants in
Valencia, California and Burbank, California, as well as two additional
restaurants currently under construction and scheduled for opening dates in late
August and late September 2000. Debt reduction on loans exclusive of recent
fundings for construction, including the principal portion of capitalized lease
payments, for the six months ended June 30, 2000 and 1999 totaled $395,000 and
$381,000, respectively.
The Company intends to continue the development of additional restaurants.
Management believes that the Company's current resources and operational
cashflow is sufficient to sustain its operations for at least the next year. In
9
order to fund the opening of additional restaurants the Company will require,
and intends to raise, additional capital through either increased bank
borrowings, the issuance of debt or equity securities, or the formations of
additional investment or loan arrangements, or a combination of the foregoing.
The Company presently has no firm commitments in that regard and can give no
assurances that management can successfully implement such objectives.
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 a distributor, 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.
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.
In June 2000 the Company settled a lawsuit brought by the owner and
landlord of property in Aloha, Oregon, where the Company formerly operated a
Pietro's restaurant. The restaurant was heavily damaged by fire in February 1997
and the Company chose not to rebuild a new restaurant on the site. The Company
made a one-time payment to the landlord of $40,000 as well as other minor
considerations. As part of the settlement, the Company has ceased paying rent,
and has no further obligations to the landlord. The Company also incurred a
non-cash charge of $49,000 on the abandonment of preliminary reconstruction done
after the fire.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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), 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).
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
June 30, 2000.
11
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)
August 14, 2000 By: /s/ PAUL A. MOTENKO
--------------------
Paul A. Motenko
Co-Chief Executive Officer, Vice
President,Secretary and Co-Chairman
of the Board of Directors
By: /s/ JEREMIAH J. HENNESSY
-------------------------
Jeremiah J. Hennessy
Co-Chief Executive Officer and
Co-Chairman of the Board of
Directors
By: /s/ ERNEST T. KLINGER
----------------------
Ernest T. Klinger
President, Chief Financial Officer
and Co-Chairman of the Board of
Directors