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 January 31, 1997
________________________________________
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 March 7, 1997
----- ----------------------------
Common Stock, $.01 par value 3,400,975
- ---------------------------- -----------------------------
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
JANUARY 31, 1997
INDEX
Part I - FINANCIAL INFORMATION Page Number
-----------
Item 1. Financial Statements (Unaudited)
--------------------------------
Consolidated Balance Sheets at January 31, 1997
and April 30, 1996 . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the
Three Months Ended and Nine Months Ended
January 31, 1997 and 1996 . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the
Nine Months Ended January 31, 1997 and 1996 . . . . . . . 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
January 31, 1997 April 30, 1996
---------------- --------------
(Unaudited) (1)
Current Assets:
Cash $ 192,000 $ 624,000
Restricted cash 500,000 500,000
Trade and other receivables 36,000 27,000
Inventories 291,000 261,000
Prepaid expenses 291,000 203,000
------------ ------------
Total current assets 1,310,000 1,615,000
Fixed Assets (at cost) - net of accumulated
depreciation and amortization (Note C ) 1,147,000 1,410,000
Other Assets:
Goodwill, net of accumulated
amortization 2,306,000 2,855,000
Other 190,000 180,000
------------ ------------
$ 4,953,000 $ 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
January 31, 1997 April 30, 1996
---------------- --------------
(Unaudited) (1)
Current Liabilities:
Accounts payable $ 630,000 $ 697,000
Accrued liabilities 521,000 770,000
Current portion of long-term debt (Note D) 1,698,000 1,216,000
------------ ------------
Total current liabilities 2,849,000 2,683,000
Long-term debt, less current portion (Note D) - 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 January 31, 1997 and
at April 30, 1996 34,000 34,000
Additional paid-in capital 13,175,000 13,175,000
Accumulated deficit (11,105,000) (11,332,000)
------------ ------------
Total stockholders' equity 2,104,000 1,877,000
------------ ------------
$ 4,953,000 $ 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 OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
January 31, January 31,
------------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
Sales $3,542,000 $3,723,000 $11,374,000 $11,384,000
Costs and expenses:
Cost of goods sold 3,143,000 3,231,000 9,332,000 9,135,000
Selling, general and administrative 357,000 302,000 832,000 747,000
Legal and litigation settlement 30,000 45,000 80,000 141,000
Depreciation 144,000 131,000 361,000 330,000
------------ ------------ ------------ ------------
(132,000) 14,000 769,000 1,031,000
Other income (expenses):
Interest expense (1,000) (1,000) (2,000) (43,000)
Amortization of intangible assets (221,000) (219,000) (552,000) (549,000)
Other, net 9,000 11,000 24,000 23,000
------------ ------------ ------------ ------------
Income (loss) before income taxes (345,000) (195,000) 239,000 462,000
Provision for income taxes - 2,000 12,000 8,000
------------ ------------ ------------ ------------
Net Income (loss) ($ 345,000) ($ 197,000) $ 227,000 $ 454,000
------------ ------------ ------------ ------------
Net Income (loss) per common
share (Note E):
Primary ($ .10) ($ .06) $ .07 $ .16
============ ============ ============ ============
Fully-diluted ($ .10) ($ .06) $ .07 $ .14
============ ============ ============ ============
Weighted average number of
common shares outstanding:
Primary 3,401,000 3,401,000 3,401,000 2,778,000
============ ============ ============ ============
Fully-diluted 3,401,000 3,401,000 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
NINE MONTHS ENDED JANUARY 31,
(UNAUDITED)
1997 1996
---- ----
Cash flows from operating activities:
Net Income $ 227,000 $ 454,000
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 913,000 879,000
Changes in operating assets and liabilities:
Trade and other receivables (9,000) (7,000)
Inventories (30,000) (9,000)
Prepaid expenses (88,000) (67,000)
Accounts payable (67,000) (129,000)
Accrued interest - (27,000)
Accrued liabilities (249,000) (66,000)
----------- -----------
Cash provided by operations 697,000 1,028,000
----------- -----------
Cash flows used in investing activities:
Additions to fixed assets (98,000) (145,000)
Increase in other assets (13,000) (16,000)
----------- -----------
Net cash used in investing activities (111,000) (161,000)
----------- -----------
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 (1,018,000) (1,027,000)
----------- -----------
Net cash used in financing activities (1,018,000) (1,151,000)
----------- -----------
Net increase in cash (432,000) (284,000)
Cash at beginning of period 624,000 493,000
----------- -----------
Cash at end of period $ 192,000 $ 209,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,000 $ 66,000
=========== ===========
Income taxes $ 15,000 $ 2,000
=========== ===========
The accompanying notes to consolidated financial statements are an integral
part of this statement
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
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 nine month period ended January 31, 1997 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 Restaurants, Inc. ("Sea View"). The Company's consolidated
financial statements for the three months and nine months ended January 31,
1997 and 1996 include Sea View's operations for the sixteen weeks and forty
weeks ended February 6, 1997 and February 1, 1996, respectively.
NOTE C - FIXED ASSETS
January 31, 1997 April 30, 1996
----------------- --------------
Leasehold improvements $ 2,749,000 $ 2,727,000
Furniture and equipment 918,000 842,000
------------- -------------
3,667,000 3,569,000
Less accumulated depreciation and amortization (2,520,000) (2,159,000)
------------- -------------
$1,147,000 $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
January 31, 1997 the balance of the senior secured note was $1,141,000,
including $62,000 of future interest costs, while the balance on the junior
secured note was $557,000, including $45,000 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 April 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 January 31, 1997 were $3,542,000
compared with $3,723,000 for the same period last year, a decrease of $181,000
or 4.9%.
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 January 31, 1997 were impacted by unfavorable weather
during December and January, including rainfall totals which were significantly
above normal.
Sales for the nine months ended January 31, 1997 were $11,374,000 compared with
$11,384,000 for the same period last year, a decrease of $10,000 or .1%.
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 January 31, 1997 was $3,143,000,
or, as a percentage of sales, 88.7% compared with $3,231,000, or, as a
percentage of sales, 86.8% during the same period last year. Cost of goods
sold for the nine months ended January 31, 1997 was $9,332,000, or, as a
percentage of sales, 82.0% compared with $9,135,000, or, as a percentage of
sales, 80.2% 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, dungeness crab, fresh poultry and most
dairy products. Prices on these items, except for the dungeness crab, began to
moderate during the quarter and the Registrant expects that the impact on the
balance of the year will be less severe. Prices on dungeness crab are expected
to reach record highs this year. Gladstone's uses significant amounts of
dungeness crab and is currently evaluating available options to mitigate the
impact on its cost of sales.
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 is
separately increasing 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 January 31, 1997, selling, general and
administrative expenses were $357,000 compared with $302,000 for the same
period last year, an increase of $55,000 or 18.2%. 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 nine months ended January 31, 1997, selling, general and administrative
expenses were $832,000 compared with $747,000 for the same period last year, an
increase of $85,000 or 11.4%. This increase is also due to the matters
described above.
LEGAL AND LITIGATION SETTLEMENT
For the three months and nine months ended January 31, 1997, legal and
litigation settlement expenses were $30,000 and $80,000, respectively, compared
with $45,000 and $141,000, 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 nine months ended January 31, 1997 and 1996, the Registrant incurred
interest expense of $2,000 and $43,000, respectively. Interest expense for the
nine months ended January 31, 1996 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 nine months ended January 31, 1997 amortization
expense was $221,000 and $552,000, respectively, compared with $219,000 and
$549,000 for the same periods last year. Amortization expense primarily
relates to the Registrant's Goodwill.
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 nine months ended January 31, 1997 totaled
approximately $98,000. 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
10.56 - Commitment Letter - Finova Capital Corporation
re: $3,000,000 Credit Facility
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: March 12, 1997 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
10.56 Commitment Letter - Finova
Capital Corporation Filed herewith electronically
27 Financial data schedule Filed herewith electronically
14