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, 2002
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-12226
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CALIFORNIA BEACH RESTAURANTS, INC.
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(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-2693503
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
17383 Sunset Boulevard, Suite 140, Pacific Palisades, CA 90272
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(Address and zip code of Principal executive offices)
(310) 459-9676
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(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 6, 2002
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Common Stock, $.01 par value 3,400,926
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CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
JANUARY 31, 2002
INDEX
Part I - FINANCIAL INFORMATION Page Number
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Item 1. Financial Statements (Unaudited)
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Consolidated Balance Sheets at January 31, 2002
and April 30, 2001..........................................................3
Consolidated Statements of Operations for the
Three Months Ended and Nine Months Ended
January 31, 2002 and 2001...................................................5
Consolidated Statements of Cash Flows for the
Nine Months Ended January 31, 2002 and 2001.................................6
Notes to Consolidated Financial Statements..................................7
Item 2. Management's Discussion and Analysis of Financial
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Condition and Results of Operations.........................................9
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.................13
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Part II - OTHER INFORMATION
Item 1. Legal Proceedings..........................................................13
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Item 2. Changes in Securities and Use of Proceeds..................................13
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Item 3. Defaults Upon Senior Securities............................................14
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Item 4. Submission of Matters to a Vote of Security Holders........................14
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Item 5. Other Information..........................................................14
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Item 6. Exhibits and Reports on Form 8-K...........................................14
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Signature Page........................................................................15
2
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
January 31, 2002 April 30, 2001
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(Unaudited) (1)
Current Assets:
Cash $ 232,000 $ 221,000
Trade and other receivables 97,000 42,000
Inventories 232,000 236,000
Prepaid expenses 189,000 269,000
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Total current assets 750,000 759,000
Fixed Assets (at cost) - net of accumulated
depreciation and amortization 2,485,000 2,797,000
Other assets 167,000 166,000
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$ 3,402,000 $ 3,722,000
============= =============
The accompanying notes to consolidated financial statements are an integral part
of this statement.
(1) The April 30, 2001 amounts have been extracted from the Company's Annual
Report on Form 10-K for the year ended April 30, 2001.
3
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
January 31, 2002 April 30, 2001
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(Unaudited) (1)
Current Liabilities:
Accounts payable $ 559,000 $ 666,000
Accrued liabilities 759,000 885,000
Notes Payable-Related Party 300,000 --
Current portion of note payable 222,000 207,000
Revolving Line of credit 262,000 63,000
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Total current liabilities 2,102,000 1,821,000
Note payable, less current portion 424,000 585,000
Subordinated convertible notes 1,890,000 1,890,000
Deferred rent 344,000 361,000
Other liabilities -- 9,000
Stockholders' (Deficit):
Common stock, $.01 par value, authorized
25,000,000 shares, issued and outstanding,
3,401,000 shares at January 31, 2002 and
at April 30, 2001 34,000 34,000
Additional paid-in capital 13,175,000 13,175,000
Accumulated deficit (14,567,000) (14,153,000)
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Total stockholders' (deficit) (1,358,000) (944,000)
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$ 3,402,000 $ 3,722,000
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The accompanying notes to consolidated financial statements are an integral part
of this statement.
(1) The April 30, 2001 amounts have been extracted from the Company's Annual
Report on Form 10-K for the year ended April 30, 2001.
4
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
January 31, January 31,
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2002 2001 2002 2001
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Sales $ 2,836,000 $ 3,346,000 $ 9,999,000 $ 10,960,000
Costs and expenses:
Cost of goods sold 3,027,000 3,272,000 9,291,000 9,654,000
Selling, general and administrative 247,000 272,000 657,000 804,000
Depreciation 138,000 137,000 346,000 326,000
Amortization of intangible assets 2,000 1,000 4,000 3,000
------------- ------------- ------------- -------------
(578,000) (336,000) (299,000) 173,000
Other expenses:
Interest expense (30,000) (49,000) (120,000) (152,000)
Income (loss) before income taxes (608,000) (385,000) (419,000) 21,000
Benefit (provision) for income taxes 6,000 (1,000) 5,000 (3,000)
------------- ------------- ------------- -------------
Net Income (loss) ($ 602,000) ($ 386,000) ($ 414,000) $ 18,000
============= ============= ============= =============
Net Income (loss) per common share:
Basic ($ .18) ($ .11) ($ .12) $ .01
============= ============= ============= =============
Diluted ($ .18) ($ .11) ($ .12) $ .00
============= ============= ============= =============
Weighted average number of common shares outstanding:
Basic 3,401,000 3,401,000 3,401,000 3,401,000
============= ============= ============= =============
Diluted 3,401,000 3,401,000 3,401,000 5,291,000
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The accompanying notes to consolidated financial statements are an integral part of this statement.
5
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JANUARY 31,
(UNAUDITED)
2002 2001
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Cash flows from operating activities:
Net Income (loss) ($414,000) $ 18,000
Adjustments to reconcile net income (loss)
to cash provided by (used in) operations:
Depreciation and amortization 350,000 329,000
Changes in operating assets and liabilities:
Trade and other receivables (55,000) 32,000
Inventories -- 5,000
Prepaid expenses 76,000 (17,000)
Other assets (4,000) 3,000
Accounts payable (107,000) (288,000)
Accrued liabilities (126,000) 267,000
Deferred rent (17,000) (17,000)
Other liabilities (9,000) (56,000)
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Cash provided by (used in) operations (307,000) 276,000
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Investing activities:
Additions to fixed assets (35,000) (97,000)
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Net cash used in investing activities (35,000) (97,000)
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Financing activities:
Borrowings 499,000 --
Principal payments on borrowings (146,000) (251,000)
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Net cash provided by (used in) financing activities 353,000 (251,000)
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Net (decrease) increase in cash 11,000 (72,000)
Cash at beginning of period 221,000 102,000
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Cash at end of period $ 232,000 $ 30,000
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 120,000 $ 78,000
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Income taxes $ -- $ --
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The accompanying notes to consolidated financial statements are an integral part
of this statement
6
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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" or "Registrant"). All significant intercompany
accounts and transactions have been eliminated.
The unaudited consolidated financial statements presented herein have been
prepared in accordance with accounting principles generally accepted in the
United States 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 three and nine month periods ended January 31,
2002 may not be indicative of the results that may be expected for the year
ending April 30, 2002. 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, 2001.
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, for each of
January 31, 2002 and 2001 include Sea View's operations for the sixteen weeks
and forty weeks ended, for each of February 7, 2002 and February 1, 2001,
respectively.
FIXED ASSETS
January 31, 2002 April 30, 2001
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Leasehold improvements $ 4,676,000 $ 4,664,000
Furniture and equipment 2,163,000 2,140,000
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6,839,000 6,804,000
Less accumulated depreciation and amortization (4,354,000) (4,007,000)
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$ 2,485,000 $ 2,797,000
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EARNINGS PER SHARE
Subordinated convertible notes are convertible into common stock at a rate of $1
per share and thus have potential for dilution on earnings. However because of
the net loss in both three months ended January 31, 2002 and 2001 and nine
months ended January 31, 2002 these notes had an anti-dilutive effect.
7
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
LINE OF CREDIT
On June 22, 2001, the Registrant entered into an amendment to extend, $500,000
revolving line of credit agreement with US Bank through September 15, 2002. The
agreement provides for interest at prime plus 1% on all amounts borrowed,
requires a commitment fee of 1/2% on all unborrowed amounts, and is secured by
certain assets of the Registrant, including its license agreement with MCA for
use of the name Gladstone's. It is also guaranteed by Sea View. The agreement
requires the Registrant to comply with certain cash flow and liquidity
covenants, and includes a 60 consecutive days out of debt requirement. The
Registrant did not meet certain covenant requirements for the quarter ended
January 31, 2002, and a waiver was obtained from the bank. The Registrant
utilized $437,500 of the capacity of the revolving line of credit as collateral
support for a letter of credit issued by US Bank pursuant to the Concession
Agreement. The letter of credit expires on September 15, 2002.
This agreement also provides a temporary increase in the terms of the revolving
line of credit agreement to provide for a $200,000 increase in the maximum
amount of the line of credit from $500,000 to $700,000. The additional $200,000
of available borrowing capacity will be available to the Registrant during the
period December 1, 2001 through April 30, 2002 only, after which the line of
credit will revert to its original $500,000 borrowing limit.
The Registrant issued two promissory notes for $300,000 to RLH Surf, an entity
affiliated with one of the Registrant's principal stockholders and with a member
of its board of directors for period ended January 31, 2002. This agreement
provided for an interest rate of 15% per annum. The Registrant will pay interest
in cash on March 2, May 31, August 31, and November 30 of each year for the
quarters ending the immediately preceding January 31, April 30, July 31,and
October 31 respectively. The principal amount of this note will mature on
September 30, 2002. The principal and interest payment on this note are junior
and subordinate, in all aspects, to the prior payment in full of Senior Debt of
the Registrant.
8
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
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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.
Total sales for the three months ended January 31, 2002 were $2,836,000 compared
with $3,346,000 for the same period last year, a decrease of $510,000 or 15.2%.
For the nine months ended January 31, 2002, total sales were $9,999,000 compared
with $10,960,000 for the same period last year, a decrease of $961,000 or
8.8%.Total number of customers for the three months ended January 31, 2002, were
133,048 compared with 139,608 for the same period last year, a decrease of 6,560
or 4.7%. For the nine months ended January 31, 2002, total number of customers
were 414,567 compared with 463,610 for the same period last year, a decrease of
49,043 or 10.6%.
The Registrant believes that the decrease in sales at Gladstone's for the three
months and nine months ended January 31, 2002 as compared to the comparable
period in the prior year is due to the September 11, 2001 tragedy and resulting
decline in travel and tourism, combined with the mild recession of 2001.
COST OF GOODS SOLD
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Cost of goods sold includes all food, beverages, liquor, direct labor and other
operating expenses, including rent, of the Registrant's restaurant operations.
Cost of goods sold for the three months ended January 31, 2002 was $3,027,000 or
106.7%, as a percentage of sales, compared with $3,272,000 or 97.8%, as a
percentage of sales, during the same period last year. The change is a result of
the decrease in sales volume and the increase in fixed costs (rent, utilities,
taxes, and insurances) as a percentage of sales and dollars.
Cost of goods sold for the nine months ended January 31, 2002 was $9,291,000 or
92.9%, as a percentage of sales, compared with $9,654,000, or 88.1%, as a
percentage of sales, during the same period last year. The change is a result of
the decrease in sales volume and the increase in fixed costs (rent, utilities,
taxes, and insurances) as a percentage of sales and dollars.
9
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
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For the three months ended January 31, 2002, selling, general and administrative
expenses were $247,000 compared with $272,000 for the same period in the prior
year, a decrease of $25,000, or 9.2%. The elimination of payroll coordinator as
a separate position and reduction in the CEO's salary compensation are the
primary cause of the decrease.
For the nine months ended January 31, 2002, selling, general and administrative
expenses were $657,000 compared with $804,000 for the comparable period in the
previous year, a decrease of $147,000, or 18.3%.The decrease in litigation costs
along with reduction in payroll for CEO, and elimination of payroll coordinator
as a separate position are primary reason for this reduction.
DEPRECIATION AND AMORTIZATION OF INTANGIBLE ASSETS
- ----------------------------------------------
For the three months and nine months ended January 31, 2002, depreciation
expense was $138,000 and $346,000, respectively, compared with $137,000 and
$326,000, respectively, for the same periods last year.
10
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
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On March 30, 1999, the Registrant completed a private offering of $1,800,000 of
subordinated, convertible notes ("Subordinated Notes") to a limited number of
existing shareholders of the Registrant who are "accredited investors" within
the meaning of Regulation D promulgated under the Securities Act of 1933, as
amended. The proceeds of the offering were used to retire existing indebtedness
to Outside LLC, an entity affiliated with the Registrant, and to finance the
renovations at Gladstone's. The Subordinated Notes are immediately convertible
into common stock of the Registrant at a rate of $1 per share, and pay interest
at 5% per annum. The Registrant may pay interest on the Subordinated Notes in
cash or in kind. The Subordinated Notes mature on March 30, 2003; as of this
time the nature of this note is long term and the Registrant intends to convert
the principal and any unpaid interest into common stock.
The Registrant has entered into an agreement for tenant improvement and
equipment financing with Lyon Credit Corporation ("TI Facility"). The terms of
the agreement provide for the extension of up to $1,089,000 of credit, to be
repaid over a 5 year period with interest at the rate of the yield to maturity
of the five year Treasury Note plus 4 percent (9.94% at January 31, 2002). This
financing is secured by certain tenant improvements and equipment. At January
31, 2002, the balance due under the TI Facility was $646,000 of which $424,000
is long term and $222,000 is short term debt.
On June 22, 2001, the Registrant entered into an amendment to extend its
$500,000 revolving line of credit agreement with US Bank ("Line of Credit")
through September 15, 2002. This agreement provides for interest at prime plus
1% on all amounts borrowed, requires a commitment fee of 1/2%on all unborrowed
amounts, and is secured by certain assets of the Registrant, including its
license agreement with MCA for use of the name Gladstone's. It is also
guaranteed by Sea View. The agreement requires the Registrant to comply with
certain cash flow and liquidity covenants, and includes a 60 consecutive days
out of debt requirement. The Registrant utilized $437,500 of the capacity of the
revolving line of credit as collateral support for a letter of credit issued by
US Bank pursuant to the Concession Agreement. The letter of credit expires on
September 15, 2002 and requires a commitment fee of 1%. This agreement also
provides a temporary bulge in the terms of the revolving line of credit
agreement to provide for a $200,000 increase in the maximum amount of the line
of credit from $500,000 to $700,000. The additional $200,000 of available
borrowing capacity will be available to the Registrant during the period
December 1, 2001 through April 30,2002 only, after which the line of credit will
revert to its original $500,000 borrowing limit. All of this line of credit is
considered short term debt. At January 31, 2002, the balance due under the Line
of Credit was $262,500.
The Registrant issued two promissory notes for $300,000 to RLH Surf, an entity
affiliated with one of the Registrant's principal stockholders and with a member
of its board of directors for period ended January 31, 2002. This agreement
provided for an interest rate of 15% per annum. The Registrant will pay interest
in cash on March 2, May 31, August 31, and November 30 of each year for the
quarters ending the immediately preceding January 31, April 30, July 31,and
October 31 respectively. The principal amount of this note will mature on
September 30, 2002. The principal and interest payment on this note are junior
and subordinate, in all aspects, to the prior payment in full of Senior Debt of
the Registrant.
The Registrant is exploring various opportunities to expand its operations. The
Registrant's ability to expand is subject to the availability of debt or equity
financing on terms that are acceptable to the Registrant. There can be no
assurance that such financing will be available. The Registrant believes it will
have sufficient funds form operations and borrowings to meet its anticipated
requirements for working capital and capital expenditures during the next twelve
months.
11
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
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: the Registrant's ability to secure adequate debt or equity
financing in order to comply with the terms of the Gladstone's Concession
Agreement, including the maintenance of a letter of credit, the Registrant's
ability to generate an operating profit based on the terms of the Gladstone's
Concession Agreement;; that its principal source of cash is 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; weather and natural disasters, such as earthquakes and
fires, which can impact sales at the Registrant's restaurants; 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 the Registrant's other filings with the
Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable as the Registrant is a small business issuer as
defined by SEC regulations.
PART II
OTHER INFORMATION
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Item 1. Legal Proceedings.
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The Registrant is subject to normal and routine litigation. The
amount of liability from the claims and actions against the Company
cannot be determined with certainty, but in the opinion of
management, the ultimate liability from all pending legal proceedings
should not materially affect the results of operations and liquidity
of the Company.
Item 2. Changes in Securities and Use of Proceeds.
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None
13
Item 3. Defaults Upon Senior Securities.
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None
Item 4. Submission of Matters to a Vote of Security Holders.
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Not applicable.
Item 5. Other Information
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Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
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(a) Reports on Form 8-K
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None
14
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
Signature(s)
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Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has caused this report to be signed on its behalf by the undersigned thereunto
authorized.
California Beach Restaurants, Inc. (Registrant)
Dated: March 15, 2002 By: /s/ Alan Redhead
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Alan Redhead
Chief Executive Officer
Chief Financial Officer
15
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Item
Number Description
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None
16