1
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 quarterly period ended October 31, 1996
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 0-12226
CALIFORNIA BEACH RESTAURANTS, INC.
----------------------------------
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-2693503
- ------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
17383 Sunset Boulevard, Suite 140, Pacific Palisades, CA 90272
--------------------------------------------------------------
(Address and zip code of Principal executive offices)
(310) 459-9676
----------------------------------------------------
(Registrant's 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 the filing
requirements for at least the past 90 days.
Yes X No
----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Number of Shares Outstanding
Class at December 1, 1996
----- ----------------------------
Common Stock, $.01 par value 3,400,975
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
OCTOBER 31, 1996
INDEX
Part I - FINANCIAL INFORMATION Page Number
-----------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at October 31, 1996
and April 30, 1996 ...................................... 3
Consolidated Statements of Income for the
Three Months Ended and Six Months Ended
October 31, 1996 and 1995 ............................... 5
Consolidated Statements of Cash Flows for the
Six Months Ended October 31, 1996 and 1995 .............. 6
Notes to Consolidated Financial Statements .............. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 9
Part II - OTHER INFORMATION
Item 1. Legal Proceedings ....................................... 12
Item 2. Changes in Securities ................................... 12
Item 3. Defaults Upon Senior Securities ......................... 12
Item 4. Submission of Matters to a Vote of Security Holders ..... 12
Item 5. Other Information ....................................... 12
Item 6. Exhibits and Reports on Form 8-K ........................ 12
Signature Page .................................................. 13
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3
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
October 31, 1996 April 30, 1996
---------------- --------------
(Unaudited) (1)
Current Assets:
Cash $ 648,000 $ 624,000
Restricted cash 500,000 500,000
Trade and other receivables 51,000 27,000
Inventories 278,000 261,000
Prepaid expenses 301,000 203,000
---------- ----------
Total current assets 1,778,000 1,615,000
Fixed Assets (at cost) - net of accumulated
depreciation and amortization (Note C) 1,278,000 1,410,000
Other Assets:
Goodwill, net of accumulated
amortization 2,525,000 2,855,000
Other 192,000 180,000
---------- ----------
$5,773,000 $6,060,000
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
(1) The April 30, 1996 amounts have been extracted from the Company's Annual
Report on Form 10-K for the year ended April 30, 1996.
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
October 31, 1996 April 30, 1996
---------------- --------------
(Unaudited) (1)
Current Liabilities:
Accounts payable $ 789,000 $ 697,000
Accrued liabilities 538,000 770,000
Current portion of long-term debt (Note D) 1,285,000 1,216,000
------------ ------------
Total current liabilities 2,612,000 2,683,000
Long-term debt, less current portion (Note D) 712,000 1,500,000
Stockholders' Equity (Note E):
Common stock, $.01 par value, authorized
25,000,000 shares, issued and outstanding,
3,401,000 shares at October 31, 1996 and
at April 30, 1996 34,000 34,000
Additional paid-in capital 13,175,000 13,175,000
Accumulated deficit (10,760,000) (11,332,000)
------------ ------------
Total stockholders' equity 2,449,000 1,877,000
------------ ------------
$ 5,773,000 $ 6,060,000
============ ============
The accompanying notes to consolidated financial statements are an integral part
of this statement.
(1) The April 30, 1996 amounts have been extracted from the Company's Annual
Report on Form 10-K for the year ended April 30, 1996.
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
October 31, October 31,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
Sales $ 3,748,000 $ 3,918,000 $ 7,832,000 $ 7,661,000
Costs and expenses:
Cost of goods sold 2,947,000 3,000,000 6,189,000 5,904,000
Selling, general and administrative 259,000 217,000 475,000 445,000
Legal and litigation settlement 26,000 42,000 50,000 96,000
Depreciation 109,000 100,000 217,000 199,000
----------- ----------- ----------- -----------
407,000 559,000 901,000 1,017,000
Other income (expenses):
Interest expense - (26,000) (1,000) (42,000)
Amortization of intangible assets (166,000) (165,000) (331,000) (330,000)
Other, net 7,000 8,000 15,000 12,000
----------- ----------- ----------- -----------
Income before income taxes 248,000 376,000 584,000 657,000
Provision for income taxes 4,000 4,000 12,000 6,000
----------- ----------- ----------- -----------
Net Income $ 244,000 $ 372,000 $ 572,000 $ 651,000
=========== =========== =========== ===========
Net Income per common share (Note E):
Primary $ .07 $ .15 $ .17 $ .26
=========== =========== =========== ===========
Fully-diluted $ .07 $ .12 $ .17 $ .20
=========== =========== =========== ===========
Weighted average number of
common shares outstanding:
Primary 3,401,000 2,471,000 3,401,000 2,466,000
=========== =========== =========== ===========
Fully-diluted 3,401,000 3,400,000 3,401,000 3,400,000
=========== =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED OCTOBER 31,
(UNAUDITED)
1996 1995
----------- -----------
Cash flows from operating activities:
Net Income $ 572,000 $ 651,000
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 548,000 529,000
Changes in operating assets and liabilities:
Trade and other receivables (24,000) (25,000)
Inventories (17,000) (28,000)
Prepaid expenses (98,000) (61,000)
Accounts payable 92,000 160,000
Accrued interest - (27,000)
Accrued liabilities (232,000) (56,000)
----------- -----------
Cash provided by operations 841,000 1,143,000
----------- -----------
Cash flows used in investing activities:
Additions to fixed assets (85,000) (83,000)
Increase in other assets (12,000) (11,000)
----------- -----------
Net cash used in investing activities (97,000) (94,000)
----------- -----------
Cash flows from financing activities:
Net proceeds from Rights Offering - 79,000
Redemption of 9.75% convertible
subordinated notes - (203,000)
Principal payments on borrowings (720,000) (731,000)
----------- -----------
Net cash used in financing activities (720,000) (855,000)
----------- -----------
Net increase in cash 24,000 194,000
Cash at beginning of period 624,000 493,000
----------- -----------
Cash at end of period $ 648,000 $ 687,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,000 $ 65,000
=========== ===========
Income taxes $ 12,000 $ 2,000
=========== ===========
During 1995 the Company incurred a capital lease obligation of $21,000 in
connection with a lease agreement to acquire equipment.
The accompanying notes to consolidated financial statements are an integral part
of this statement
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The unaudited consolidated financial statements presented herein include the
accounts of California Beach Restaurants, Inc., and its wholly-owned
subsidiaries (the "Company"). All significant intercompany accounts and
transactions have been eliminated.
The unaudited consolidated financial statements presented herein have been
prepared in accordance with generally accepted accounting principles and the
instructions to Form 10-Q and article 10 of Regulation S-X and do not include
all of the information and footnote disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying financial statements include all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the Company's financial position and results of operations. The results of
operations for the six month period ended October 31, 1996 may not be indicative
of the results that may be expected for the year ending April 30, 1997. These
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-K for the year-ended April 30, 1996.
NOTE B - ACCOUNTING PERIODS
The Company's restaurant operations are conducted through its wholly-owned
subsidiary, Sea View. The Company's consolidated financial statements for the
three months and six months ended October 31, 1996 and 1995 include Sea View's
operations for the twelve weeks and twenty-four weeks ended October 17, 1996 and
October 12, 1995, respectively.
NOTE C - FIXED ASSETS
October 31, 1996 April 30, 1996
---------------- --------------
Leasehold improvements $ 2,741,000 $ 2,727,000
Furniture and equipment 913,000 842,000
----------- -----------
3,654,000 3,569,000
Less accumulated depreciation and amortization (2,376,000) (2,159,000)
----------- -----------
$ 1,278,000 $ 1,410,000
=========== ===========
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
NOTE D - LONG-TERM DEBT
On December 22, 1994 Sea View completed a restructuring of its bank debt and
entered into an Amended and Restated Loan Agreement ("Amended Loan"). The
Amended Loan included a senior secured note in the principal amount of
$3,000,000, bearing interest at 12% per annum, and payable at varying monthly
amounts through October 31, 1997, and a junior secured note in the amount of
$400,000 accruing interest at 12% per annum with both interest and principal
payable in a single lump sum on October 31, 1997. Interest to maturity on the
senior secured and junior secured notes is included in the carrying value of
such notes, in accordance with Financial Accounting Standards Board Statement
No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring,"
and will not be recognized as interest expense in current and future years. At
October 31, 1996 the balance of the senior secured note was $1,435,000,
including $110,000 of future interest costs, while the balance on the junior
secured note was $557,000, including $61,000 of future interest costs.
NOTE E - EARNINGS PER SHARE
Primary earnings per common share are calculated by dividing net earnings
applicable to common stock by the average of common stock outstanding and common
stock equivalents. On a fully-diluted basis, both net earnings and shares
outstanding are adjusted to assume the conversion of the 9.75% convertible
subordinated notes as of May 1, 1995.
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
RESTAURANT REVENUES
Restaurant operations include the results of Gladstone's 4 Fish ("Gladstone's")
in Pacific Palisades, California and RJ's - Beverly Hills in Beverly Hills,
California. The Registrant operates Gladstone's pursuant to a concession
agreement with the County of Los Angeles ("County") which expires October 31,
1997. The County's standard operating procedure for contracts in excess of
certain minimum length and amount is to distribute a Request for Proposal
("RFP") seeking bids prior to entering into new agreements. In August 1996, the
County published an RFP for a twenty year concession agreement to operate at the
restaurant site where Gladstone's currently operates. The Registrant believes
that this process will be concluded, based on the County's current schedule, in
early 1997. Except for the restaurant structure itself, the Registrant owns all
personal property, fixtures and leasehold improvements at Gladstone's. The
Registrant also owns the Gladstone's trade name and existing liquor licenses and
operates certain sections of the restaurant pursuant to permits granted by the
California Coastal Commission. Gladstone's has operated at the present site
since 1981. The Registrant has submitted a proposal to remain as the operator of
this site but there can be no assurance that such proposal will ultimately be
accepted by the County. The Registrant is currently reviewing other potential
restaurant sites for both expansion possibilities as well as for an alternate
location to reduce the impact on the business should it be unsuccessful in
retaining the present location. If the Registrant does not continue to operate
Gladstone's at the present site after October 31, 1997, or if the Registrant is
unsuccessful in finding a suitable alternate location, it will have a material
adverse impact on the Registrant's operations.
Total sales for the three months ended October 31, 1996 were $3,748,000 compared
with $3,918,000 for the same period last year, a decrease of $170,000 or 4.3%.
Gladstone's is located on the beach in Pacific Palisades, California and is
dependent, to a certain extent, on favorable weather and tourism. Sales for the
three months ended October 31, 1996 were impacted by a slightly shorter summer
season due to an early Labor Day and by the non-recurrence of the PGA golf
championship which was held in Pacific Palisades in 1995 and resulted in
additional business for Gladstone's. Additionally, October 1996 was impacted by
unfavorable weather compared with October 1995 and by fires in the Malibu area
which resulted in various road closures making access to Gladstone's more
difficult.
Sales for the six months ended October 31, 1996 were $7,832,000 compared with
$7,661,000 for the same period last year, an increase of $171,000 or 2.2%.
As a result of typically more favorable weather and higher tourism during the
summer months from May through September the Registrant's sales and operating
profits have historically been higher in the first and second quarters of its
fiscal year.
COST OF GOODS SOLD
Cost of goods sold includes all food, beverages, liquor, direct labor and other
operating expenses, including rent, of the Registrant's restaurant operations.
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
COST OF GOODS SOLD (CONT.)
Cost of goods sold for the three months ended October 31, 1996 was $2,947,000,
or, as a percentage of sales, 78.6% compared with $3,000,000, or, as a
percentage of sales, 76.6% during the same period last year. Cost of goods sold
for the six months ended October 31, 1996 was $6,189,000, or, as a percentage of
sales, 79.0% compared with $5,904,000, or, as a percentage of sales, 77.1%
during the same period last year. These increases are primarily due to
significantly higher prices paid for certain key food products, including live
Maine lobster, fresh whole chickens and chicken breasts and most dairy products.
Prices on these items have recently begun to moderate and the Registrant expects
that the impact on the balance of the year should be much less severe.
The Registrant has also been impacted by the implementation of a higher minimum
wage. On October 1, 1996, federal legislation was signed mandating a $.50 per
hour increase in the minimum wage, with a second increase of $.40 per hour
scheduled for September 1, 1997. In addition, the state of California will
separately increase the minimum wage in two steps resulting in a state minimum
wage of $5.75 per hour as of March 1998. This state minimum wage will be $.60
per hour above the new federal standard. At present, the state of California,
unlike most states, does not allow any adjustment of minimum wage for employees
that receive tips. These wage increases, unless offset by an adjustment for
tipped employees, have and will continue to have an adverse impact on the
Registrant's labor costs. The Registrant also believes that these mandated
increases in minimum wage will result in higher prices paid for most major food
products. To partially offset the higher food and labor costs, the Registrant
has implemented certain menu price increases at both of its restaurants.
Cost of goods sold will typically be slightly lower during the first and second
quarters due to additional economies of scale that can be achieved with labor
and certain other costs when sales levels are higher. For the fiscal year ended
April 30, 1996, cost of goods sold, as a percentage of sales, was 80.9%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the three months ended October 31, 1996, selling, general and administrative
expenses were $259,000 compared with $217,000 for the same period last year, an
increase of $42,000 or 19.4%. This increase is due to expenses incurred in
preparing the Registrant's response to the County's RFP for a twenty year
concession agreement to remain as the operator of the restaurant site where
Gladstone's currently operates. These expenses will continue to be incurred
until this matter is concluded.
For the six months ended October 31, 1996, selling, general and administrative
expenses were $475,000 compared with $445,000 for the same period last year, an
increase of $30,000 or 6.7%. This increase is also due to the matters described
above.
LEGAL AND LITIGATION SETTLEMENT
For the three months and six months ended October 31, 1996, legal and litigation
settlement expenses were $26,000 and $50,000, respectively, compared with
$42,000 and $96,000, respectively, for the same periods last year.
The respective decreases are primarily due to the elimination of certain
litigation that was active during the comparable periods last year.
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
INTEREST EXPENSE
For the three months and six months ended October 31, 1995 the Registrant
incurred interest expense of $26,000 and $42,000, respectively, primarily
related to the 9.75% convertible subordinated notes. These notes were partially
redeemed by the Registrant in October 1995 and the unredeemed portion of the
notes converted into common stock as of October 30, 1995. The Registrant does
not expect to incur any significant interest expense through the end of its
current fiscal year.
AMORTIZATION OF INTANGIBLE ASSETS
For the three months and six months ended October 31, 1996 amortization expense
was $166,000 and $331,000, respectively, compared with $165,000 and $330,000 for
the same periods last year. Amortization expense relates completely to the
Registrant's Goodwill and will approximate $714,000 per year.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant currently has no outside sources of short-term or long-term
financing, however, in November 1996, the Registrant signed a three year,
$3,000,000 commitment letter with Finova Capital Corporation to pay off existing
indebtedness to Bank of America and to finance its ongoing working capital
requirements. The commitment is contingent upon the Registrant executing an
agreement to remain the operator of Gladstone's at its current location for not
less than twenty years. Additionally, the commitment letter is subject to
numerous other conditions including executing a definitive loan agreement. The
commitment would also include a $1,500,000 subline of credit for the sole
purpose of financing renovations to the Gladstone's location.
Although the Registrant remains highly leveraged, due primarily to the repayment
terms of the remaining loan principal, the Registrant believes that its existing
cash and cash flow from operations over the next year will allow it to meet its
debt obligations under its current bank loan as well as its normal operating
expenses. If the concession agreement is retained and the Registrant continues
to meet its currently scheduled debt obligations, the Registrant would
anticipate that its liquidity position will improve significantly.
Capital expenditures for the six months ended October 31, 1996 totaled
approximately $85,000. The Registrant estimates that capital requirements for
fiscal 1997 will be approximately $175,000.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, certain statements in
this Form 10-Q, including statements in this item, are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievement of the Registrant, or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward looking statements. Such factors include, among others,
the following: whether the Registrant is able to enter into a new concession
agreement with the County of Los Angeles with respect to the operation of
Gladstone's at its current location or, failing that, is able to secure a
suitable alternate location; the indebtedness of the Registrant, including the
Registrant's ability to service its indebtedness to the bank and to comply with
certain restrictive covenants; that the Registrant currently has no short term
or long term borrowing capacity, is highly leveraged and its principal source of
cash are funds generated from operations; that restaurants historically have
represented a high risk investment in a very competitive industry; general and
local economic conditions, which can, among other things, impact tourism,
consumer spending and restaurant revenues; quality of management; changes in, or
the failure to comply with, governmental regulations; unexpected increases in
the cost of key food products, labor and other operating expenses in connection
with the Registrant's business; and other factors referenced in this Form 10-Q
and in the Registrant's Annual Report on Form 10-K for the year ended April 30,
1996.
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments in the matter discussed in the
Registrant's Form 10-Q for the period ended July 31, 1996.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
27 - Financial data schedule
Reports on Form 8-K
None
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
Signature(s)
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
California Beach Restaurants, Inc. (Registrant)
Dated: December 12, 1996 By: Alan Redhead
---------------------------------------
Alan Redhead
Chief Executive Officer
(Duly Authorized Officer)
By Mark E. Segal
---------------------------------------
Mark E. Segal
Vice President - Finance
and Chief Financial Officer
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INDEX TO EXHIBITS
ITEM NUMBER DESCRIPTION METHOD OF FILING
27 Financial data schedule Filed herewith electronically
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