10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the thirteen weeks ended March 28, 2004

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 incorporation or organization)	(I.R.S. Employer Identification Number)

16162 Beach Boulevard

Suite 100

Huntington Beach, California 92647

(Address and zip code of principal executive offices)

(714) 848-3747

(Registrants telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨.

Indicate by check mark if the filer is an accelerated filer (as defined in Rule 12B-2 of the Act).    YES  x    NO  ¨.

As of April 19, 2004, there were 19,679,286 shares of Common Stock of the Registrant outstanding.

CHICAGO PIZZA & BREWERY, INC.

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	1
	Consolidated Balance Sheets – March 28, 2004 (Unaudited) and December 28, 2003	1
	Unaudited Consolidated Statements of Income – Thirteen Weeks Ended March 28, 2004 and March 30, 2003	2
	Unaudited Consolidated Statements of Shareholders’ Equity – Thirteen Weeks Ended March 28, 2004	3
	Unaudited Consolidated Statements of Cash Flows – Thirteen Weeks Ended March 28, 2004 and March 30, 2003	4
	Notes to Unaudited Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	12
Item 4.	Controls and Procedures	12
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	12
Item 2.	Changes in Securities and Use of Proceeds	13
Item 3.	Defaults Upon Senior Securities	13
Item 4.	Submission of Matters to a Vote of Security Holders	13
Item 5.	Other Information	13
Item 6.	Exhibits and Reports on Form 8-K	13
	SIGNATURES	14
Certifications

PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

CHICAGO PIZZA & BREWERY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	March 28, 2004		December 28, 2003
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,790	$	4,899
Investments		24,130		22,041
Accounts and other receivables		1,990		1,869
Inventories		852		959
Prepaids and other current assets		723		1,164
Deferred taxes		909		1,175
Total current assets		31,394		32,107
Property and equipment, net		48,691		46,306
Goodwill		4,673		4,762
Notes receivable		950		—
Other assets, net		472		530
Total assets	$	86,180	$	83,705
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,728	$	2,796
Accrued expenses		8,507		8,533
Current portion of reserve for store closures		—		55
Current portion of notes payable to related parties		38		151
Current portion of long-term debt		—		2
Total current liabilities		11,273		11,537
Deferred income taxes		363		143
Reserve for store closures		72		74
Other liabilities		842		900
Total liabilities		12,550		12,654
Commitments and contingencies
Shareholders’ equity:
Preferred stock, 5,000 shares authorized, none issued or outstanding		—		—
Common stock, no par value, 60,000 shares authorized and 19,679 and 19,649 shares issued and outstanding as of March 28, 2004 and December 28, 2003, respectively		62,662		62,513
Capital surplus		2,163		2,109
Retained earnings		8,805		6,429
Total shareholders’ equity		73,630		71,051
Total liabilities and shareholders’ equity	$	86,180	$	83,705

See accompanying notes to unaudited consolidated financial statements.

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CHICAGO PIZZA & BREWERY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

	For The Thirteen Weeks Ended
	March 28, 2004			March 30, 2003
Revenues	$	28,977		$	23,795
Costs and expenses:
Cost of sales ($3.8 million and $3.3 million related party)		7,409			6,290
Labor and benefits		10,576			8,644
Occupancy		2,230			1,759
Operating expenses		3,093			2,660
General and administrative		2,520			2,104
Depreciation and amortization		1,158			913
Restaurant opening expense		239			412
Gain from sale of Pietro’s restaurants		(1,658	)		—
Total costs and expenses		25,567			22,782
Income from operations		3,410			1,013
Other income (expense):
Interest income		105			105
Interest expense		(2	)		(8	)
Other income, net		85			162
Total other income		188			259
Income before income taxes		3,598			1,272
Income tax expense		1,222			444
Net income	$	2,376		$	828
Net income per share:
Basic	$	0.12		$	0.04
Diluted	$	0.12		$	0.04
Weighted average number of shares outstanding:
Basic		19,425			19,375
Diluted		20,518			20,145

See accompanying notes to unaudited consolidated financial statements.

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CHICAGO PIZZA & BREWERY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

	Common Stock			Capital Surplus		Retained Earnings		Total
	Shares	Amount
Balance, December 28, 2003	19,649	$	62,513	$	2,109	$	6,429	$	71,051
Exercise of stock options, net	30		149		—		—		149
Tax benefit from stock option exercises	—		—		54		—		54
Net income	—		—		—		2,376		2,376
Balance, March 28, 2004	19,679	$	62,662	$	2,163	$	8,805	$	73,630

See accompanying notes to unaudited consolidated financial statements.

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CHICAGO PIZZA & BREWERY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	For The Thirteen Weeks Ended
	March 28, 2004			March 30, 2003
Cash flows from operating activities:
Net income	$	2,376		$	828
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,158			913
Deferred income taxes		486			53
Tax benefit from stock options exercised		54			39
Gain on sale of Pietro’s restaurants		(1,658	)		—
Changes in assets and liabilities:
Accounts and other receivables		(130	)		(33	)
Inventories		107			(20	)
Prepaids and other current assets		442			225
Other assets, net		10			3
Accounts payable		(68	)		(1,968	)
Accrued expenses		(141	)		72
Reserve for store closures		(57	)		(8	)
Other liabilities		(11	)		(74	)
Net cash provided by operating activities		2,568			30
Cash flows from investing activities:
Purchases of property and equipment		(3,872	)		(3,320	)
Purchases of investments		(5,439	)		(14,072	)
Proceeds from investments sold		3,350			8,234
Proceeds from sale of Pietro’s restaurants		1,250			—
Proceeds from sale of restaurant equipment, net of expenses		—			36
Net cash used in investing activities		(4,711	)		(9,122	)
Cash flows from financing activities:
Payments on long-term debt		(2	)		(3	)
Proceeds from exercise of stock options		149			43
Payments on notes payable to related parties		(113	)		(107	)
Net cash provided by (used in) financing activities		34			(67	)
Net decrease in cash and cash equivalents		(2,109	)		(9,159	)
Cash and cash equivalents, beginning of period		4,899			29,053
Cash and cash equivalents, end of period	$	2,790		$	19,894

See accompanying notes to unaudited consolidated financial statements.

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CHICAGO PIZZA & BREWERY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of Chicago Pizza & Brewery, Inc. and its wholly owned subsidiaries. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.

The accompanying consolidated financial statements have not been audited by our independent auditors. The financial statements include all adjustments (consisting of normal recurring accruals), which are, in our opinion, necessary for a fair presentation of our financial position, 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 our full year.

Certain information and footnote disclosures normally included in consolidated financial statements in accordance with accounting principles generally accepted in the United States have been omitted pursuant to requirements of the Securities and Exchange Commission (SEC). A description of our accounting policies and other financial information is included in our audited consolidated financial statements as filed with the SEC on Form 10-K for the year ended December 28, 2003. We believe that the disclosures included in our accompanying interim financial statements and footnotes are adequate to make the information not misleading, but should be read in conjunction with our consolidated financial statements and notes thereto included in the Form 10-K. The accompanying consolidated balance sheet as of December 28, 2003 has been derived from our audited financial statements.

Effective July 1, 2002, we changed our fiscal year end from December 31 to the Sunday closest to December 31 in each year. In connection with this change in fiscal year, we also realigned our fiscal quarters whereby the first, second and third quarters will each consist of 13 weeks. The fourth quarter will typically consist of 13 weeks, except approximately every fifth year it will consist of 14 weeks. The fourth quarter of 2004 will consist of 14 weeks.

INVESTMENTS

All investments are classified as held-to maturity and are reported at amortized cost and realized gains and losses are reflected in earnings.

Investments consist of the following (in thousands):

	March 28, 2004		December 28, 2003
U.S. and government agency securities	$	213	$	964
International and government agency securities		739		—
U.S. corporate notes and bonds		23,178		21,077
Total Investments	$	24,130	$	22,041

Average maturity for the Company’s total investment portfolio was 9 months as of March 28, 2004 and December 28, 2003.

NET INCOME PER SHARE

Net income per share is computed in accordance with Financial Accounting Standards Board (FASB) No. 128, Earnings Per Share. Basic net income per share is computed based on the weighted average of common shares outstanding during the period. Diluted net income per share is computed based on the weighted average number of common shares and common stock equivalents outstanding during the period, which includes options outstanding under our stock option plan.

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RELATED PARTY

As of March 28, 2004, Jacmar Companies and their affiliates (collectively referred to herein as “Jacmar”) owned approximately 41.5% of our outstanding common stock.

Jacmar, through its specialty wholesale food distributorship, is our largest supplier of food, beverage and paper products. Jacmar sells products to us at prices comparable to those offered by unrelated third parties. Jacmar supplied us with approximately $3.8 million and $3.3 million of food, beverage and paper products for the thirteen weeks ended March 28, 2004 and March 30, 2003, respectively, and we had accounts payable related to these products of approximately $1.1 million and $1.1 million at March 28, 2004 and March 30, 2003, respectively.

RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements (Interpretation 46). Interpretation 46 significantly changes previous consolidation guidance pertaining to special purpose entities (“SPEs”). Interpretation 46 clarifies the application of ARB No. 51 to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. These entities are defined as variable interest entities or VIEs. Most SPEs will be evaluated for consolidation under the Interpretation as VIEs. All enterprises with variable interests in VIEs created after January 31, 2003 are required to apply the provisions of the Interpretation immediately. All enterprises with variable interest in VIEs created before February 1, 2003 are required to apply the provisions of the Interpretation during the fiscal quarter ended March 31, 2004. The adoption of Interpretation 46 did not impact our consolidated financial position, results of operations or cash flows for the thirteen weeks ended March 28, 2004.

RESTAURANT CLOSURES

On December 31, 2002, we sold our Pietro’s restaurant on Lombard Street in Portland, Oregon. This sale yielded no gain after recording a reserve of $23,000 for our guarantee of the lease liability, which extends through a portion of 2005. Additionally, on June 15, 2003, we closed our BJ’s restaurant on Stark Street in Portland, Oregon. The net book value of the restaurant’s assets was included in the reserve for store closures; therefore no loss was recorded in 2003 as a result of the closing.

In the fourth quarter of 2003, the tenant at Lombard became delinquent in rent payments. The Lombard landlord sought relief under our guarantee of the lease liability. In February 2004, the landlord released us from any additional liability in exchange for a cash payment of $55,000.

During 2003, our store closure reserve was reduced by $56,000, of which $31,000 was utilized for property, equipment and lease payments in connection with the closure of the Stark and Lombard restaurants in Oregon. The remaining balance of $25,000 was recorded as a reduction in store closure expense primarily due to more favorable lease settlements than anticipated. At December 28, 2003, the balance of our reserve, which included $55,000 in current liabilities and $74,000 in long-term liabilities, was for the lease liability related to our Lombard restaurant and the remaining lease liability related to our McMinnville restaurant that was sold in 2001.

In the thirteen weeks ended March 28, 2004, our store closure reserve was reduced by $57,000, of which $55,000 was utilized for the cash payment to our Lombard landlord.

STOCK BASED COMPENSATION

We have elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and related interpretations in accounting for our employee stock options. Under APB No. 25, because the exercise price of employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recorded. We have adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123). We measure compensation cost/purchase price of stock options issued to non-employees using the fair value techniques of SFAS 123.

6

We have adopted the disclosure-only provisions of SFAS 123, and will continue to use the intrinsic value based method of accounting prescribed by APB No. 25. Under APB No. 25, no compensation cost has been recognized for options granted with an option price equal to the grant date market value of our common stock. Had compensation cost for our options granted been determined based on the fair value of the option at the grant date for the 1996 Stock Option Plan, consistent with the provisions of SFAS 123, our net income and net income per share would have been decreased to the pro forma amounts indicated below:

	For the Thirteen Weeks Ended
	March 28, 2004			March 30, 2003
Net income, as reported	$	2,376		$	828
Employee compensation expense		(115	)		(82	)
Net income, pro forma	$	2,261		$	746
Net income per share, as reported:
Basic	$	0.12		$	0.04
Diluted	$	0.12		$	0.04
Net income per share, pro forma:
Basic	$	0.12		$	0.04
Diluted	$	0.11		$	0.04

The fair value of each option grant issued is estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: (a) no dividend yield on our stock, (b) expected volatility of our stock ranging from 41.1% to 42.8%, (c) a risk-free interest rate ranging from 2.97% to 3.39% and (d) expected option life of five years.

DIVIDEND POLICY

We have not paid any dividends since our inception and we have currently not allocated any funds for the payment of dividends. Rather, it is our current policy to retain earnings for expansion of our operations, remodeling of existing restaurants and other general corporate purposes and to not pay any cash dividends in the foreseeable future. Should we decide to pay dividends in the future, such payments would be at the discretion of the Board of Directors.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

STATEMENT REGARDING FORWARD LOOKING DISCLOSURE

The following discussion and analysis should be read in conjunction with our 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 our 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. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, without limitation, those factors discussed herein and in our annual report as reported on Form 10-K as of December 28, 2003 and for the year then ended including, without limitation: (i) our ability to manage growth and conversions, (ii) construction delays, (iii) marketing and other limitations as a result of our historic concentration in Southern California, (iv) restaurant and brewery industry competition, (v) impact of certain brewery business considerations, including without limitation, dependence upon suppliers and related hazards, (vi) consumer trends, (vii) potential uninsured losses and liabilities, (viii) fluctuating commodity costs including food and energy, (ix) trademark and servicemark risks, (x) government regulations, (xi) licensing costs, and (xii) other general economic and regulatory conditions and requirements.

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GENERAL

We own and operate 30 restaurants located in California, Oregon, Colorado, Arizona and Texas and receive fees from one licensed restaurant in Lahaina, Maui. Each of our restaurants is operated either as a BJ’s Restaurant & Brewery, a BJ’s Pizza & Grill or a BJ’s Restaurant & Brewhouse. Our menu features our award-winning, signature deep-dish pizza, our own handcrafted beers as well as a wide selection of appetizers, entrees, pastas, sandwiches, specialty salads and desserts. We have nine BJ’s Restaurant & Brewery restaurants that feature in-house brewing facilities where our handcrafted beers are produced.

We recently sold three Pietro’s Pizza restaurants which served primarily Pietro’s thin-crust pizza in a very casual, counter-service environment. As further described elsewhere herein, effective March 15, 2004, we sold these three Pietro’s restaurants to employees of those restaurants.

In calculating our comparable restaurant sales, we include a restaurant in the comparable base once it has been opened for eighteen periods.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, our unaudited Consolidated Statements of Income expressed as percentages of total revenues. The results of operations for the thirteen weeks ended March 28, 2004 are not necessarily indicative of the results to be expected for the full fiscal year.

	For The Thirteen Weeks Ended
	March 28, 2004		March 30, 2003
Revenues	100.0	%	100.0	%
Costs and expenses:
Cost of sales	25.6		26.4
Labor and benefits	36.5		36.3
Occupancy	7.7		7.4
Operating expenses	10.7		11.2
General and administrative	8.7		8.8
Depreciation and amortization	4.0		3.9
Gain from sale of Pietro’s restaurants	(5.7	)	—
Restaurant opening expense	0.8		1.7
Total cost and expenses	88.3		95.7
Income from operations	11.7		4.3
Other income (expense):
Interest income	0.4		0.4
Interest expense	—		—
Other income, net	0.3		0.7
Total other income	0.7		1.1
Income before income taxes	12.4		5.4
Income tax expense	4.2		1.9
Net income	8.2	%	3.5	%

Thirteen Weeks Ended March 28, 2004 Compared to Thirteen Weeks Ended March 30, 2003.

Revenues. Total revenues for the thirteen weeks ended March 28, 2004 increased to $29.0 million from $23.8 million during the comparable thirteen-week period of 2003, an increase of $5.2 million or 21.8%. The increase is primarily the result of:

• The opening of the following new locations provided additional revenues of $4.5 million in 2004 when compared with 2003:

Location	Concept	Opening Date
Addison, Texas	Restaurant & Brewhouse	May 2003
Cerritos, California	Restaurant & Brewhouse	July 2003
San Jose, California	Restaurant & Brewhouse	October 2003
Willowbrook, Texas	Restaurant & Brewhouse	January 2004

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• An increase in our same restaurants sales for the comparable thirteen-week period of $1.3 million or 7.7%. This increase is primarily due to an increase in customer counts, a menu price increase of approximately 1.5% effective during May 2003, and an additional increase of approximately 2% effective during November 2003.

• The above-mentioned increases were partially offset by $174,000 of sales related to the closure of our BJ’s Portland, Oregon restaurant (Stark Street) on June 15, 2003 and approximately $123,000 of sales related to the sale of our 3 Pietro’s restaurants on March 15, 2004.

Cost of Sales. Cost of food, beverages and paper (cost of sales) for our restaurants increased to $7.4 million during the thirteen weeks ended March 28, 2004 from $6.3 million during the comparable thirteen week period of 2003, an increase of $1.1 million or 17.5%. As a percentage of sales, cost of sales decreased to 25.6% for the current thirteen-week period from 26.4% for the comparable prior-year thirteen-week period. This decrease is a result of increased menu prices and our continuous monitoring of costs, especially in our Texas market where we have reduced our purchase prices through improved vendor pricing. We continue to work with our vendors to control food costs; however, there can be no assurance that future supplies and costs for commodities used in our restaurants will not fluctuate due to weather and other market conditions.

Labor and Benefits. Labor and benefit costs for our restaurants increased to $10.6 million during the thirteen weeks ended March 28, 2004 from $8.6 million during the comparable thirteen week period of 2003, an increase of $2.0 million or 23.3%. As a percentage of sales, labor and benefit costs increased to 36.5% for the current thirteen-week period from 36.3% for the comparable prior-year thirteen-week period. This increase is primarily the result of revising our restaurants incentive compensation package.

Occupancy. Occupancy costs increased to $2.2 million during the thirteen weeks ended March 28, 2004 from $1.8 million during the comparable thirteen-week period of 2003, an increase of $400,000 or 22.2%. The increase reflects the four additional restaurants we opened in May, July and October 2003 and January 2004, partially offset by the closure of our BJ’s Portland, Oregon restaurant (Stark Street) in June 2003 and the sale of our 3 Pietro’s restaurants on March 15, 2004. As a percentage of revenues, occupancy costs increased to 7.7% for the current thirteen-week period from 7.4% for the comparable prior-year thirteen-week period. This increase is primarily due to increased revenues resulting in increased percentage rent liability.

Operating Expenses. Operating expenses increased to $3.1 million during the thirteen weeks ended March 28, 2004 from $2.7 million during the comparable thirteen-week period of 2003, an increase of $400,000 or 14.8%. As a percentage of sales, operating expenses decreased to 10.7% for the current thirteen-week period from 11.2% for the comparable prior-year thirteen-week period. This decrease is a result of increased menu prices and increased same store sales of 7.7%.

General and Administrative Expenses. General and administrative expenses increased to $2.5 million during the thirteen weeks ended March 28, 2004 from $2.1 million during the comparable thirteen-week period of 2003, an increase of $400,000 or 19.0%. As a percentage of revenues, general and administrative expenses decreased to 8.7% for the current thirteen-week period from 8.8% for the comparable prior-year thirteen-week period. As a percentage of sales general and administrative expenses have remained stable, however there has been a total dollar increase due to additional costs related to the hiring of 5 new executives in the last year.

Depreciation and Amortization. Depreciation and amortization increased to $1.2 million during the thirteen weeks ended March 28, 2004 from $913,000 during the comparable thirteen-week period of 2003, an increase of $287,000 or 31.4%. The increase was primarily due to our acquisition of restaurant equipment, furniture, leasehold improvements and brewery equipment totaling $3.3 million and $11.7 million for the restaurant opened in 2004 and for the four restaurants opened in 2003, respectively, coupled with two restaurants opened over the last year that had ground leases resulting in higher leasehold improvement costs.

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Gain from Sale of Pietro’s Restaurants. In February 2004, we executed an agreement to sell our three Pietro’s restaurants effective on March 15, 2004 resulting in a $1.7 million gain. The buyers, formerly employees, purchased the restaurant assets and related trademarks for the Pietro’s brand. The $2.2 million sales price includes cash proceeds of $1.3 million and two notes receivable from the buyers totaling $950,000, with terms of five and ten years. The ten-year note is in the amount of $700,000, bears interest at prime plus one percent with a minimum interest rate of 5% and a maximum interest rate of 7% and requires fixed monthly payments of principal and interest over the ten-year term. The five-year note is in the amount of $250,000, bears interest at prime plus one percent and requires fixed monthly payments of principal and interest over the five-year term.

For our three Pietro’s restaurants, sales were $644,000 and $767,000 and pre-tax income was $111,000 and $154,000 for the thirteen periods ended March 28, 2004 and March 30, 2003, respectively. The net book value of the assets sold as of March 28, 2004 was $330,000.

Restaurant Opening Expense. Restaurant opening expenses decreased to $239,000 during the thirteen weeks ended March 28, 2004 from $412,000 during the comparable thirteen-week period of 2003, a decrease of $173,000. The decrease is primarily due to management directed programs to enhance expense control and reduce new employee hiring costs. Additionally, fiscal year 2003 included $177,000 of costs related to our Willowbrook, Texas restaurant which opened in January 2004; however fiscal year 2002 included $112,000 of costs related to our Clear Lake, Texas restaurant which opened in January 2003. Our opening costs will fluctuate from period to period, depending upon, but not limited to, the number of restaurant openings, the size and concept of the restaurants being opened and the complexity of the staff hiring and training process.

Interest Income (Expense), Net. Interest income (expense), net increased to $103,000 during the thirteen weeks ended March 28, 2004 from $97,000 during the comparable thirteen-week period of 2003, an increase of $6,000. Interest income (expense) net has remained relatively stable.

Other Income, Net. Other income, net decreased to $85,000 during the thirteen weeks ended March 28, 2004 from $162,000 in the comparable thirteen-week period of 2003, a decrease of $77,000. The decrease was primarily due to decreased license fee income from our interest in BJ’s Lahaina, Maui, Hawaii restaurant and the sale of our Pietro’s restaurant which generated gaming income.

Income Tax Expense. Income tax expense increased to $1.2 million during the thirteen weeks ended March 28, 2004 from $444,000 during the comparable thirteen-week period of 2003, an increase of $756,000. The increase was primarily due to increased income before taxes of $2.3 million. Our effective income tax rate for the thirteen weeks ended March 28, 2004 was 34.0%.

LIQUIDITY AND CAPITAL RESOURCES

Our overall operating activities, as detailed in the unaudited Consolidated Statements of Cash Flows, provided $2.6 million of net cash during the thirteen week period ended March 28, 2004, a $2.5 million increase from the $30,000 generated during the comparable thirteen weeks of 2003. The increase in cash from operating activities for the thirteen weeks ended March 28, 2004 in comparison to the thirteen weeks ended March 30, 2003 is primarily due to the timing of payments to vendors included in accounts payable.

Total capital expenditures for the acquisition of our restaurant and brewery equipment and leasehold improvements to construct new restaurants were $3.1 million for the thirteen weeks ended March 28, 2004. These expenditures were primarily related to the development of our new restaurant in Willowbrook, Texas which opened in January 2004 and the construction of our Summerlin, Nevada, Laguna Hills, Rancho Cucamonga, San Bernardino, Folsom, Fresno and Roseville, California locations. In addition, for the thirteen weeks ended March 28, 2004, total capital expenditures related to the maintenance of existing and mature stores were $785,000.

We have signed leases for, and plan to open, restaurants in Laguna Hills, California and Summerlin, Nevada in the second quarter of 2004, and Rancho Cucamonga, San Bernardino, Fresno, and Roseville, California in the second half of 2004. Additionally, we have signed a lease for, and plan to open, a restaurant in Folsom, California and North Dallas, Texas in the winter of 2004 / 2005.

In recent years, we have funded our capital requirements primarily through cash flow from operations and the exercise of redeemable warrants during 2002. Our capital requirements related to opening additional restaurants will continue to be significant. We anticipate total capital expenditures between $17 million and $18 million in 2004 with the majority of expenditures associated with the seven new store openings previously stated. Other capital expenditures are expected to be consistent with prior year trends and will be primarily directed toward maintenance capital associated with existing and mature stores. We expect to fund all capital requirements using operating cash flow and our cash on hand and investments. Our future cash requirements and the adequacy of available funds will depend on many factors, including the pace of expansion, real estate markets, site locations and the nature of the arrangements negotiated with landlords. We believe that our current cash flow and our cash and investments balances together with anticipated cash flows from operations will be sufficient to satisfy our working capital and capital expenditure requirements on a short-term and long-term basis. Changes in our operating plans, acceleration of our expansion plans, lower than anticipated sales, increased expenses or other events may cause us to seek additional financing sooner than anticipated. Additional financing may not be available on acceptable terms, or at all. Failure to obtain additional financing, as needed, could have a material adverse effect on our business and results of operations.

10

IMPACT OF INFLATION

The impact of inflation on food, labor, energy and occupancy costs can significantly affect our operations. Many of our employees are paid hourly rates related to Federal and State minimum wage laws. Minimum wages have been increased numerous times and remain subject to future increases.

SEASONALITY AND ADVERSE WEATHER

Our results of operations have historically been impacted by seasonality, which directly impacts tourism at our coastal locations. The summer months (June through August) have traditionally been higher volume periods than other periods of the year.

CRITICAL ACCOUNTING POLICIES

We believe the following areas comprise our critical accounting policies: 1) accounting for property and equipment, 2) accounting for self insurance liability and 3) accounting for income taxes.

Property and Equipment

Property and equipment accounting requires estimates of the useful lives for the assets for depreciation purposes and selection of depreciation methods. We believe the useful lives reflect the actual economic life of the underlying assets. We have elected to use the straight-line method of depreciation for financial statement purposes. Renewals and betterments that materially extend the useful life of an asset are capitalized while maintenance and repair costs are charged to operations as incurred. Judgment is often required in the decision to distinguish between an asset which qualifies for capitalization versus an expenditure which is for maintenance and repairs.

We review property and equipment (which includes leasehold improvements) and intangible assets with finite lives for impairment when events or circumstances indicate these assets might be impaired. We test impairment using historical cash flows and other relevant facts and circumstances as the primary basis for our estimates of future cash flows. The analysis is performed at the restaurant level for indicators of impairment. If impairment indicators were identified, then assets would be recorded at fair value. This process requires the use of estimates and assumptions, which are subject to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment charges for these assets. As of March 28, 2004, no impairment indicators have been identified.

Self Insurance Liability

We are self-insured for our employee workers’ compensation program. We maintain coverage with a third party insurer to limit the total exposure for this program. The accrued liability associated with this program is based on our estimate of the ultimate costs to settle known claims as well as claims incurred but not yet reported to us (“IBNR claims”) as of the balance sheet date. Our estimated liability is not discounted and is based on information provided by our insurance broker and insurer, combined with our judgments regarding a number of assumptions and factors, including the frequency and severity of claims, our claims development history, case jurisdiction, related legislation, and our claims settlement practice. Significant judgment is required to estimate IBNR claims as parties have yet to assert such claims. If actual claims trends, including the severity or frequency of claims, differ from our estimates, our financial results could be impacted.

Income Taxes

Deferred tax accounting requires that we evaluate net deferred tax assets to determine if these assets will more likely than not be realized in the foreseeable future. This test requires projection of our taxable income into future years to determine if there will be income sufficient to realize the tax assets (future tax deductions and FICA tax credit carryforwards). The preparation of the projections requires considerable judgment and is subject to change to reflect future events and changes in the tax laws. Our net deferred tax asset at March 28, 2004 totaled $546,000.

11

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk exposures are related to cash and cash equivalents and investments. We invest our excess cash in highly liquid short-term investments with maturities of less than twelve months as of the date of purchase. These investments are not held for trading or other speculative purposes. Changes in interest rates affect the investment income we earn on our investments and, therefore, impact our cash flows and results of operations. During the first quarter of 2004, the average interest rate earned on cash and cash equivalents and investments was approximately 1.6%.

We purchase food and other commodities for use in our operations, based upon market prices established with our suppliers. Many of the commodities purchased by us can be subject to volatility due to market supply and demand factors outside of our control. To manage this risk in part, we attempt to enter into fixed price purchase commitments, with terms typically up to one year, for many of our commodity requirements. Dairy costs can also fluctuate due to government regulation. We believe that substantially all of our food and supplies are available from several sources, which helps to diversify our overall commodity cost risk. We also believe that we have the ability to increase certain menu prices, or vary certain menu items offered, in response to food commodity price increases. Some of our commodity purchase arrangements may contain contractual features that limit the price paid by establishing certain price floors or caps. The Company does not use financial instruments to hedge commodity prices, since our purchase arrangements with suppliers, to the extent that we can enter into such arrangements, help control the ultimate cost that we pay.

Item 4. CONTROLS AND PROCEDURES

Our management, including our principal executive officers and principal financial officer, conducted an evaluation of our disclosure controls and procedures; as such term is defined under Rule 13(a)-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on their evaluation, our principal executive officers and principal financial officer concluded that our disclosure controls and procedures are effective.

There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph above.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Restaurants such as those operated by us are subject to litigation in the ordinary course of business, most of which we expect to be covered by our general liability insurance. Punitive damages awards and employee unfair practice claims, however, are not covered by our general liability insurance. To date, we have 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, employee unfair practice claims or any other actions.

The following paragraphs describe certain legal actions recently settled or pending:

The ASSI Action

In connection with the resolution of the ASSI Action disclosed in our Form 10-K, ASSI exercised all of its options and received net shares of 144,132, all of which were sold by ASSI under a registration statement previously filed by us.

We received a cash payment of $700,000 from ASSI in connection with the settlement of all disputes between the parties and the disposition of ASSI’s option rights. In a separate agreement between us and the Jacmar parties, we agreed to pay $450,000 of the $700,000 received from ASSI to one of the Jacmar parties in return for a release from the Jacmar parties of any claims they might have for indemnity from us arising as a result of the ASSI Action or other claims asserted by ASSI.

Our share of the settlement proceeds of $250,000 was recorded as other income in the fourth quarter of 2003.

12

Labor Related Matters

On March 10, 2003, a former employee of ours, on behalf of himself and other employees and former employees of ours similarly situated and working in California, filed a class action complaint in the Superior Court of California for the County of Orange against us. The complaint alleges that we violated provisions of the California Labor Code covering meal and rest beaks for employees, along with associated acts of unfair competition and seeks payment of wages for all meal and rest breaks allegedly denied to our California employees for the period from October 1, 2000 to the present. We reached a tentative proposal (“Proposal”) with class counsel to settle the meal and rest break class action case pending in California. The Proposal, which is subject to a definitive agreement and is not yet binding, and which will be subject to Court approval if finalized between counsel, provides that members of the plaintiff class may make claims for certain lost wages against an approximately $950,000 settlement fund, funded by us. Pursuant to the Proposal, our liability to the employees would not exceed the amount of the settlement fund. If the Court approves the Agreement, the action will be dismissed with prejudice, after the parties’ obligations under the Agreement are satisfied. The Proposal was developed from mediation, which was concluded in December of 2003. Accordingly, we recorded $950,000 in other expense during the fourth quarter of 2003 to reflect this liability at December 28, 2003. As of the date of this Report, we and the plaintiff have made some modifications to the Proposal, the terms of which will not materially change our obligation under the Proposal, and a pre-approval hearing for the proposed settlement has been scheduled for May 2004.

On February 5, 2004, another former employee of ours, on behalf of herself, and all others similarly situated, filed a class action complaint in Los Angeles County Superior Court, claiming: (1) failure to pay reporting time minimum pay; (2) failure to allow meal breaks; (3) failure to allow rest breaks; (4) reimbursement for fraud and deceit; (5) punitive damages for fraud and deceit; and (6) disgorgement of illicit profits. It is possible that this matter will be consolidated with the class action currently pending in Orange County Superior Court. It is not certain what effect the filing of the new action will have on the approval of the Proposal by the Court. As of the date of this Report, the plaintiff in the action has filed an amended complaint, but no other action has been taken.

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

31	Section 302 Certifications of Co-Chief Executive Officers and Chief Financial Officer
32	Section 906 Certification of Co-Chief Executive Officers and Chief Financial Officer

(b) Reports on Form 8-K

The Company filed a Report on Form 8-K dated as of March 15, 2004 announcing that Louis M. Mucci has accepted the position of Chief Financial Officer.

The Company filed a Report on Form 8-K dated as of April 12, 2004 announcing first quarter 2004 revenues and comparable restaurant sales.

The Company filed a Report on Form 8-K dated as of April 27, 2004 announcing its financial results for the thirteen weeks ended March 28, 2004.

13

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CHICAGO PIZZA & BREWERY, INC. (Registrant)
May 3, 2004	By:	/s/ PAUL A. MOTENKO
		Paul A. Motenko Chairman of the Board of Directors, Co-Chief Executive Officer, Vice President and Secretary
	By:	/s/ JEREMIAH J. HENNESSY
		Jeremiah J. Hennessy Director, Co-Chief Executive Officer and President
	By:	/s/ LOUIS M. MUCCI
		Louis M. Mucci Chief Financial Officer and Director

14

EX-31

EXHIBIT 31

CHICAGO PIZZA & BREWERY, INC.

Certification of Co-Chief Executive Officer

I, Paul A. Motenko, Chairman of the Board of Directors, Co-Chief Executive Officer, Vice President and Secretary certify that:

1. I have reviewed this quarterly report on Form 10-Q of Chicago Pizza & Brewery, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2004

/s/ PAUL A. MOTENKO

Paul A. Motenko

Chairman of the Board of Directors,

Co-Chief Executive Officer,

Vice President and Secretary

CHICAGO PIZZA & BREWERY, INC.

Certification of Co-Chief Executive Officer

I, Jeremiah J. Hennessy, Director, Co- Chief Executive Officer and President certify that:

1. I have reviewed this quarterly report on Form 10-Q of Chicago Pizza & Brewery, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2004

/s/ JEREMIAH J. HENNESSY

Jeremiah J. Hennessy

Director, Co-Chief Executive

Officer and President

CHICAGO PIZZA & BREWERY, INC.

Certification of Chief Financial Officer

I, Louis M. Mucci, Chief Financial Officer certify that:

1. I have reviewed this quarterly report on Form 10-Q of Chicago Pizza & Brewery, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2004

/s/ LOUIS M. MUCCI

Louis M. Mucci

Chief Financial Officer and

Director

EX-32

EXHIBIT 32

CHICAGO PIZZA & BREWERY, INC.

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Paul A. Motenko and Jeremiah J. Hennessy, Co-Chief Executive Officers of the Company and Louis M. Mucci, Chief Financial Officer of the Company, certify to their knowledge:

(1) The Quarterly Report on Form 10-Q of the Company for the quarter ended March 28, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

In Witness Whereof, each of the undersigned has signed this Certification as of this May 3, 2004.

/s/ PAUL A. MOTENKO	/s/ JEREMIAH J. HENNESSY	/s/ LOUIS M. MUCCI
Paul A. Motenko Chairman of the Board of Directors, Co-Chief Executive Officer, Vice President and Secretary	Jeremiah J. Hennessy Director, Co-Chief Executive Officer and President	Louis M. Mucci Chief Financial Officer and Director