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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission file number 0-21423

CHICAGO PIZZA & BREWERY, INC.
(Exact name of registrant as specified in its charter)

16162 Beach Boulevard
Suite 100
Huntington Beach, California 92647
(Address and zip code of Registrant's principal executive offices)

(714) 848-3747
(Registrants telephone number, including area code)

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 periods (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 ý    No o.

        As of November 7, 2002, there were 19,304,715 shares of Common Stock of the Registrant outstanding.

CHICAGO PIZZA & BREWERY, INC.

PART I.    FINANCIAL INFORMATION

Item 1.    CONSOLIDATED FINANCIAL STATEMENTS

CHICAGO PIZZA & BREWERY, INC.
CONSOLIDATED BALANCE SHEETS

See accompanying notes to unaudited consolidated financial statements.

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CHICAGO PIZZA & BREWERY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

See accompanying notes to unaudited consolidated financial statements.

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CHICAGO PIZZA & BREWERY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

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 of Chicago Pizza & Brewery, Inc., and its wholly owned subsidiary, Chicago Pizza Northwest, Inc. (the "Company") 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. Additionally, the accompanying consolidated financial statements included the accounts of BJ's Chicago Pizzeria, Lahaina, Hawaii until April 2001, when it was purchased by the Company's partner in the restaurant.

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

        Certain information and footnote disclosures normally included in 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 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, 2001. 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, 2001 has been derived from the audited financial statements.

        Effective July 1, 2002, the Company changed its fiscal year end from December 31 to the Sunday closest to December 31 in each year. In connection with this change in fiscal year, the Company also realigned its fiscal quarters whereby the first, second and third quarters will each consist of 13 weeks (4 weeks for periods 1 and 2 and 5 weeks for period 3). The fourth quarter will typically consist of 13 weeks, except approximately every fifth year it will consist of 14 weeks. Additionally, the quarter ended September 29, 2002 consists of 13 weeks which is one day less than the calendar quarter ended September 30, 2001.

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 the Company's stock option plan and outstanding warrants.

EQUITY TRANSACTIONS

        During the nine periods ended September 29, 2002, approximately 7,349,000 redeemable warrants and approximately 188,000 stock options were exercised, providing approximately $36,278,000 in cash proceeds to the Company, net of approximately $229,000 of related costs.

        On October 8, 2002, the holder of the Company's 180,000 representative warrants informed the Company that they intend to exercise all of the warrants at their exercise price of $4.82.

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LONG-TERM DEBT

        On April 11, 2002, the Company utilized approximately $3,228,000 of the cash proceeds from the exercise of warrants to pay off the term loan, including a $95,000 fee to terminate a related interest rate swap agreement on the term loan. The termination fee was charged to interest expense.

RELATED PARTY

        As of September 29, 2002, Jacmar Companies and their affiliates (collectively referred to herein as "Jacmar") owned approximately 42.0% of the Company's outstanding common stock. During fiscal 2001, Jacmar acquired 6,868,000 shares of common stock increasing its ownership to 68.5% at December 31, 2001 from 15.5% at the beginning of 2001. In connection with the above mentioned warrant and option exercises, Jacmar's ownership was diluted to approximately 42.0% as of September 29, 2002. Common stock activity for Jacmar as of December 31, 2001 was as follows:

(1)

On January 18, 2001, BJ Chicago, LLC, an affiliate of the Jacmar Companies, completed a transaction to purchase approximately 2,207,000 shares from ASSI, Inc. (a shareholder of the Company). The Company granted registration rights to Jacmar on the shares purchased from ASSI, Inc. Concurrently, the Company issued to ASSI, Inc. an option to purchase 200,000 shares of common stock at an exercise price of $4.00 per share through December 31, 2005 in exchange for a release of any claims of ASSI, Inc., against the Company and affiliates including any rights it might have had to purchase additional shares from the Company under an agreement that was pending immediately prior to the Jacmar transaction. The Company recorded $268,000, the estimated fair value of the option upon grant, as a direct cost of the stock offering.

(2)

On March 13, 2001, Jacmar completed a transaction to purchase approximately 661,000 shares of the Company's outstanding common stock from two of the Company's officers.

(3)

The Company entered into an agreement on February 22, 2001 to sell an aggregate of 800,000 shares of common stock to Jacmar at $2.50 per share, with an option, exercisable by Jacmar prior to August 15, 2001, for an additional 3,200,000 shares of common stock at $2.50 per share. The 800,000 share transaction closed on April 30, 2001. Jacmar then fully exercised its option to acquire 3,200,000 shares on August 14, 2001. The Company received a favorable fairness opinion regarding the private placement, and the sale was approved by a vote of the shareholders at the Company's annual shareholders' meeting held on July 18, 2001. The Company agreed to grant registration rights on the shares purchased by Jacmar under this agreement.

        Jacmar, through its specialty wholesale food distributorship, is the Company's largest supplier of food, beverage and paper products. Jacmar sells products to the Company at prices comparable to those offered by unrelated third parties. Jacmar supplied the Company with approximately $8,216,000 and $6,599,000 of food, beverage and paper products for the nine periods ended September 29, 2002 and September 30, 2001, respectively, and had trade payables related to these products of approximately $1,090,000 and $755,000 at September 29, 2002 and September 30, 2001, respectively.

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Additionally, the Company paid Jacmar approximately $15,000 for the three periods ended September 29, 2002 for various consulting services.

        ASSI, Inc. has filed a complaint in California against officers and shareholders of the Company in connection with the January 18, 2001 transaction between BJ Chicago LLC and ASSI, Inc. This litigation is described in Part II, Item 1, however management of the Company believes that all the allegations in the complaint and arbitration demand are without merit.

RECENTLY ISSUED ACCOUNTING STANDARDS

        In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed after June 30, 2001. Statement 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. Statement 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. Additionally, Statement 142 requires that goodwill included in the carrying value of equity method investments no longer be amortized.

        The Company adopted Statement 142 in the first quarter of 2002. Application of the non-amortization provisions of Statement 142 resulted in a decrease in amortization expense, when compared to 2001, of approximately $114,000 for the nine periods ended September 29, 2002. Pursuant to Statement 142, the Company completed the process to test goodwill for impairment and determined no write down of goodwill and intangibles was required. Other than the elimination of goodwill amortization, the Company does not expect that these standards will have a significant impact on the Company's financial statements.

        In August, 2001, the FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes Statement 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a Disposal of a Segment of a Business. Statement 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Company adopted Statement 144 as of January 1, 2002. The adoption had no impact on the Company's financial position or results of operations.

RESTAURANT CLOSURES

        In February 2002, the Company closed one of its Pietro's restaurants in Eugene, Oregon. The restaurant was not meeting the Company's revenue and profitability expectations and experienced a negative cash flow over the past two years. During 2000, the Company established a reserve for restaurant closures and included an amount adequate to cover the estimated net costs for the Eugene, Oregon closure.

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 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.

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

FORWARD LOOKING STATEMENT

        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, 2001 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, (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 increase in minimum wage in California, (vii) consumer trends, (viii) potential uninsured losses and liabilities, (ix) increasing insurance costs, (x) trademark and servicemark risks, (xi) government regulations (xii) licensing costs, and (xiii) other general economic and regulatory conditions and requirements.

GENERAL

        The Company owns and operates 28 restaurants located in Southern California, Arizona, Oregon and Colorado and receives fees from one licensed restaurant in Lahaina, Maui. Each of these restaurants is operated as either BJ's Pizza & Grill, BJ's Restaurant & Brewery, BJ's Restaurant & Brewhouse or, located exclusively in Oregon, Pietro's Pizza. The menu at the BJ's restaurants features BJ's award winning, signature deep-dish pizza, BJ's own handcrafted beers as well as a great selection of appetizers, entrees, pastas, sandwiches, specialty salads and desserts. The eight BJ's Restaurant & Brewery restaurants feature in-house brewing facilities where BJ's handcrafted beers are produced. The four Pietro's Pizza restaurants serve primarily Pietro's thin-crust pizza in a very casual, counter-service environment.

        In calculating 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, the Consolidated Statements of Income for the Company expressed as percentages of total revenues. The results of operations for the three

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periods and nine periods ended September 29, 2002 are not necessarily indicative of the results to be expected for the full fiscal year.

Quarter Ended September 29, 2002 Compared to Quarter Ended September 30, 2001.

        Revenues.    Total revenues for the quarter ended September 29, 2002 increased to $19,046,000 from $16,618,000 for the comparable period in 2001, an increase of $2,428,000 or 14.6%. The increase is primarily the result of:

        The opening of the following new locations provided additional revenues of $2,281,000 during the third quarter of 2002 when compared with the third quarter of 2001:

        An increase in the Company's same restaurants sales for the comparable quarter of $461,000 or 3.0%. This increase is primarily due to an increase in customer counts and a menu price increase of approximately 2% at the beginning of fiscal year 2002.

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        The above mentioned increases were partially offset by the sale or closure of three restaurants in Oregon, and the sale of the Hawaii joint venture in 2001, and the closure of the Eugene, Oregon restaurant in February 2002.

        Cost of Sales.    Cost of food, beverages and paper (cost of sales) for the restaurants increased to $4,727,000 for the quarter ended September 29, 2002 from $4,504,000 for the comparable period of 2001, an increase of $223,000 or 5.0%. As a percentage of sales, cost of sales decreased to 24.8% for the current quarter from 27.1% for the comparable prior-year quarter.

        The overall improvement in cost of sales percentage was primarily due to more favorable commodity prices, especially cheese, newly negotiated vendor contracts with more favorable pricing and the menu price increase posted by the Company at the beginning of 2002. Commodity prices, especially cheese, are currently at historical low levels. As noted above, the Company has entered into new vendor contracts to control food costs, however, there can be no assurance that future supplies and costs for commodities used in the Company's restaurants will not fluctuate due to weather and other market conditions.

        During the fourth quarter of 2002, the Company will be operating four new restaurants. Cost of sales is typically higher for new restaurants during the first quarter of operation as the new management team trains kitchen personnel and learns the consumption patterns of the customers.

        Labor.    Labor costs for the Company increased to $6,901,000 for the quarter ended September 29, 2002 from $5,860,000 during the comparable period in 2001, an increase of $1,041,000 or 17.8%. As a percentage of revenues, labor costs increased to 36.2% for the current quarter from 35.3% for the comparable prior-year quarter. This increase was primarily a result of higher workers compensation rates, increased minimum wage rates in California effective January 1, 2002, and increased health insurance rates.

        Occupancy.    Occupancy costs increased to $1,422,000 for the quarter ended September 29, 2002 from $1,217,000 during the comparable period in 2001, an increase of $205,000 or 16.8%. The increase reflects the additional restaurant which opened in October 2001, and the two new stores opened in August 2002 and September 2002, respectively, partially offset by the sale or closure of three restaurants in Oregon, the sale of the Hawaii joint venture in 2001 and the closure of the Eugene, Oregon restaurant in February 2002. As a percentage of revenues, occupancy costs were relatively stable, increasing to 7.5% for the current quarter from 7.3% for the comparable prior-year quarter.

        Operating Expenses.    Operating expenses increased to $2,299,000 for the quarter ended September 29, 2002 from $1,718,000 during the comparable period in 2001, an increase of $581,000 or 33.8%. As a percentage of sales, operating expenses increased to 12.1% for the current quarter from 10.3% for the comparable prior-year quarter. The increase is primarily due to the following; (i) increased credit card fees