<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1995
REGISTRATION NO. ______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CALIFORNIA BEACH RESTAURANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 5812 95-2693503
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
17383 SUNSET BOULEVARD, SUITE 140
PACIFIC PALISADES, CALIFORNIA 90272
(310) 459-9676
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MARK E. SEGAL
VICE PRESIDENT-FINANCE, CHIEF FINANCIAL OFFICER AND SECRETARY
CALIFORNIA BEACH RESTAURANTS, INC.
17383 SUNSET BOULEVARD, SUITE 140
PACIFIC PALISADES, CALIFORNIA 90272
(310) 459-9676
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
MEL ZIONTZ, ESQ.
ROSENFELD, MEYER & SUSMAN
9601 WILSHIRE BLVD., SUITE 444
BEVERLY HILLS, CALIFORNIA 90210
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [x]
<PAGE> 2
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE(1)
<TABLE>
<CAPTION>
=========================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class of Securities Amount to be Offering Price Offering Registration
to be Registered Registered Per Unit* Price Fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.............. 3,004,282 $.01 $30,042.82 $100.00
=========================================================================================================
</TABLE>
* Estimated solely for purpose of calculating the registration fee pursuant to
Rule 457(c) under the Securities Act of 1933 on the basis of the average of the
bid and asked price per share on the OTC Bulletin Board on November 20, 1995.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 3
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 ITEM NO. AND CAPTION PROSPECTUS CAPTION
- ----------------------------- ------------------
<S> <C> <C>
Item 1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus . . . . . . . . . . . Outside Front Cover Page
Item 2. Inside Front and Outside Back
Cover Pages of Prospectus. . . . Inside Front and Outside Back Cover Pages
Item 3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges. . . . . . . . . . . . . Prospectus Summary; Risk Factors; Summary Financial Data
Item 4. Use of Proceeds. . . . . . . . . . Use of Proceeds
Item 5. Determination of Offering Price. . *
Item 6. Dilution . . . . . . . . . . . . . *
Item 7. Selling Security Holders . . . . . Selling Shareholders
Item 8. Plan of Distribution . . . . . . . Outside Front Cover Page; Plan of Distribution
Item 9. Description of Securities to be
Registered. . . . . . . . . . . Outside Front Cover Page; Description of Capital Stock
Item 10. Interests of Named Experts and
Counsel. . . . . . . . . . . . . Legal Matters; Experts
Item 11. Information with Respect to the
Registrant
(a) Description of Business. . . . Risk Factors; Business
(b) Description of Property. . . . Business--Properties
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
FORM S-1 ITEM NO. AND CAPTION PROSPECTUS CAPTION
----------------------------- ------------------
<S> <C> <C>
(c) Legal Proceedings. . . . . . . Business--Legal Proceedings
(d) Market Price and Dividends . . Market Information
(e) Financial Statements . . . . . Index to Consolidated Financial Statements
(f) Selected Financial Data. . . . Selected Financial Data
(g) Supplemental Financial
Information. . . . . . . . . *
(h) Management's Discussion and
Analysis of Financial
Condition and Results of
Operations . . . . . . . . . Management's Discussion and Analysis
of Financial Condition and Results of
Operations
(i) Changes In and Disagreements
with Accountants on
Accounting and Financial
Disclosure . . . . . . . . . *
(j) Directors and Executive
Officers . . . . . . . . . . Management
(k) Executive Compensation . . . . Management--Executive Compensation
(l) Security Ownership of Certain
Beneficial Owners and
Management . . . . . . . . . Principal Shareholders
(m) Certain Relationships and
Related Transactions . . . . Management--Certain Relationships
and Related Transactions
Item 12. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities. . . *
- -------------------
</TABLE>
* Not applicable
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1995
3,004,282 Shares
CALIFORNIA BEACH RESTAURANTS, INC.
Common Stock
($.01 par value)
__________________________________
The 3,004,282 shares of common stock, $.01 par value (the
"Common Stock") of California Beach Restaurants, Inc. (the "Company"),
covered by this Prospectus are being offered by certain shareholders
of the Company described herein ("Selling Shareholders"). The Selling
Shareholders do not necessarily intend to sell their shares of Common
Stock but may decide to do so in the future. The Company will not
receive any proceeds from the sale of the shares offered hereunder.
The Company has been advised by the Selling Shareholders that the
shares of Common Stock offered hereby may be sold from time to time in
the over-the-counter market, on terms and at prices then prevailing or
prices related to the then market price for such shares, or in
negotiated transactions. The Selling Shareholders and any brokers or
dealers who execute sales of the shares offered hereby may be deemed
to be "underwriters," as such term is defined under the Securities Act
of 1933, as amended. See "Plan of Distribution."
SINCE AN INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE
OF RISK POTENTIAL PURCHASERS SHOULD CAREFULLY CONSIDER THE MATTERS SET
FORTH UNDER "RISK FACTORS" ON PAGES 4-6 OF THIS PROSPECTUS.
The Selling Shareholders have agreed to indemnify the Company,
and the Company has agreed to indemnify the Selling Shareholders,
against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Plan of Distribution" for a
description of arrangements between the Company and the Selling
Shareholders. Expenses of this Offering, estimated at $42,000, will
be paid by the Company.
The Common Stock is traded on the OTC Bulletin Board under the
symbol "CBHR." As of November 20, 1995, the most recent reported bid
price of the Common Stock was on October 19, 1995 at $.01.
__________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
__________________________________
THE DATE OF THIS PROSPECTUS IS __________, 1995.
<PAGE> 6
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, THE INFORMATION HEREIN HAS BEEN ADJUSTED TO REFLECT
THE COMPANY'S ONE-FOR-33.286962 REVERSE STOCK SPLIT OF ITS COMMON STOCK
EFFECTED AT THE CLOSE OF BUSINESS ON MAY 1, 1995.
THE COMPANY
California Beach Restaurants, Inc. (the "Company") is a California
corporation, the common stock of which is traded in the over-the- counter
market on the OTC Bulletin Board under the symbol "CBHR." There are currently
outstanding 3,400,975 shares of common stock of the Company (par value $.01 per
share) ("Common Stock") held of record by approximately 570 shareholders.
The Company, through its wholly owned subsidiary, Sea View
Restaurants, Inc. ("Sea View"), owns and operates two restaurants: Gladstone's
4 Fish ("Gladstone's") in Pacific Palisades, California, and R.J.'s--The Rib
Joint ("R.J.'s") in Beverly Hills, California. The Company also has licensed
the Gladstone's name and trademark to a subsidiary of MCA INC. for operation of
a restaurant at CityWalk in Universal City, California.
The Company was incorporated in California in 1971 and adopted its
present name in 1990. The Company's executive offices are located at 17383
Sunset Boulevard, Suite 140, Pacific Palisades, California, 90272 and its
telephone number is (310) 459-9676.
RISK FACTORS
The various risk factors relating to this Offering should be
considered carefully before an investment is made. See "Risk Factors."
THE OFFERING
<TABLE>
<S> <C>
Number of Shares to be sold
by the Selling Shareholders 3,004,282
Shares of Common Stock outstanding before
and after the Offering 3,400,975
Use of Proceeds The Company will not receive any proceeds from
the sale of the shares offered hereunder
by the Selling Shareholders.
OTC Bulletin Board Symbol CBHR
</TABLE>
2
<PAGE> 7
SUMMARY FINANCIAL DATA
(in thousands, except per share amounts)
The consolidated financial data in the following table is
qualified in its entirety by, and should be read in conjunction with, the
consolidated financial statements and notes thereto and other financial and
statistical information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Three Months
Year Ended April 30, Ended July 31
----------------------------------------------------- ----------------
1995 1994 1993 1992 1991 1995 1994
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Sales $14,160 $13,924 $15,144 $17,038 $18,396 $3,743 $3,753
Income (loss) from continuing
operations before extraordinary
item (3,419) (1,372) (665) (1,328) (1,313) 279 (134)
Income from discontinued
operations (b) - - 16 157 271 - -
Extraordinary item (a) 2,540 - - - - - -
Net income (loss) (879) (1,372) (649) (1,171) (1,042) 279 (134)
Income (loss) per common
share from continuing
operations before
extraordinary items ($12.21) ($4.93) ($2.35) ($4.18) ($4.13) $.11 ($.48)
Income per common share
from discontinued operations - - 0.00 0.49 0.85 - -
Income per common share
from extraordinary item 9.07 - - - - - -
Net income(loss) per common (3.14) (4.93) (2.35) (3.69) (3.28) .11 (.48)
share--primary
Net income(loss) per common
share--fully diluted (3.14) (4.93) (2.35) (3.69) (3.28) .09 (.48)
</TABLE>
<TABLE>
<CAPTION>
April 30, July 31,
---------------------------------------------------- ----------
1995 1994 1993 1992 1991 1995
------ ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $6,709 $10,369 $11,649 $12,485 $14,685 $6,761
Debt in default - 8,166 8,166 8,336 9,045 -
Convertible subordinated notes 783 - - - - 783
Long-term debt, net of current
portion 2,776 - - - 4 2,368
</TABLE>
____________
(a) Extraordinary gain recognized in connection with the December 1994
restructuring. See Note B to the consolidated financial statements.
(b) Discontinued operations of American Microsonics Corp.
See Note I to the consolidated financial statements.
3
<PAGE> 8
RISK FACTORS
In addition to the information included elsewhere in this Prospectus,
the following considerations in connection with an investment in the Common
Stock should be carefully reviewed prior to determining whether to purchase
shares of Common Stock. Accordingly, an investment in the Common Stock
involves certain important risks and should be undertaken only by persons whose
financial resources are sufficient to enable them to assume such risks. In
analyzing this Offering, potential investors should give careful consideration
to each of the following, as well as all the other information set forth in
this Prospectus.
FINANCIAL CONDITION; LEVERAGE. The Company has incurred significant
net losses in each of its last five years and, as shown in the Consolidated
Financial Statements, the Company incurred a net loss of $879,000 for the
fiscal year ended April 30, 1995. The Company did, however, generate net
income of $279,000 in the quarter ended July 31, 1995, although there can be no
assurance that the Company will continue to generate net income in the future.
The Company's principal source of cash are funds generated from
operations. The Company has no short-term borrowing capacity nor can it obtain
significant further trade credit beyond existing terms from its key vendors and
suppliers.
The Company is highly leveraged. The Company's high degree of
leverage will have important consequences to investors in this Offering,
including the following: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes, should it need to
do so, may be impaired; (ii) a substantial portion of the Company's cash flow
from operations will be dedicated to the repayment of obligations to Bank of
America National Trust and Savings Association (the "Bank") which, as of July
31, 1995, consists of the balance on a senior secured note of $3,043,000,
including $427,000 of future interest costs and the balance on a junior secured
note of $557,000, including $128,000 of future interest costs, thereby reducing
the funds available to the Company for its operations, and any future business
opportunities; and (iii) the Company's degree of leverage may make it more
vulnerable to a downturn in its business or the economy generally.
RENEWAL OF CONCESSION AGREEMENT. The concession agreement between Sea
View and the County of Los Angeles for the operation of Gladstone's and the
adjacent parking lot expires on October 31, 1997. See "Business--Properties."
The property on which Gladstone's is located is owned by the State of
California. Although the County of Los Angeles currently acts as landlord
under an agreement with the State, any future lease extension or renewal will
require the State's approval and likely the County's as well. If such
agreements are not extended or renewed beyond their present expiration time, or
if the terms of such extension or renewal are substantially less favorable to
the Company than the existing terms, then the Company's revenues (approximately
80% of which are derived from Gladstone's) would be materially adversely
impacted.
CITY OF LOS ANGELES - SUNSET PUMP PLANT. The City of Los Angeles has
scheduled a public works project to replace an aging sewer system along a
stretch of Pacific Coast Highway that includes a portion of Gladstone's parking
lot. As part of this project, an underground storage tank will be built
adjacent to a section of the parking lot. The construction of the underground
tank and related work along Pacific Coast Highway is currently scheduled to be
completed between October 1995 and May 1996, although delays may occur.
Although this work is expected to be done during Gladstone's slower months, the
ultimate impact on revenues due to construction or traffic problems is unknown
at this time. The Company is working with both the City and County of Los
Angeles to minimize any possible disruptions and determine appropriate remedies
if business is negatively impacted.
LICENSE AGREEMENT - MCA. Sea View and MCA Development Venture Two
("MCA") (a subsidiary of MCA INC.) are parties to a license agreement relating
to the use of Gladstone's trade name and trademarks at MCA's CityWalk project
in Universal City, California. The license agreement requires that MCA pay a
license fee of 0.8% of gross receipts for use of the licensed property.
Pursuant to the terms of the license agreement, there is no fixed duration of
the agreement; yet, under certain circumstances, MCA may terminate the
agreement on six months notice provided that it ceases to use all licensed
property immediately after giving such notice. The Company believes that the
Gladstone's at CityWalk is very successful and has no reason to believe that
the license agreement will be terminated at this time. However, there can be
no assurance that the license agreement will remain in effect. See
"Business--License Agreement."
4
<PAGE> 9
CERTAIN AGREEMENTS. Sand and Sea Partners and Sea Fair Partners,
entities currently owning approximately 19.6% of the Common Stock of the
Company and affiliated with J. Christopher Lewis, a director of the Company,
have entered into an agreement with the Bank to vote their shares in favor of
the Bank's two nominees to the Board of Directors. In addition, Jefferson W.
Asher, Jr., a director of the Company, is a limited partner of Sand and Sea
Partners. See "Management--Certain Relationships and Related
Transactions--December 1994 Private Placement and Debt Restructurings."
RELIANCE ON MANAGEMENT. The Company will be dependent on the services
of its Chairman of the Board, President and Chief Executive Officer, Alan
Redhead, and its Chief Financial Officer, Mark E. Segal. The Company has
employment agreements with Messrs. Redhead and Segal, which set forth certain
terms of employment for each of these individuals. The Company has no
non-disclosure or non-competition agreements with these individuals nor does
the Company have key person life insurance coverage on these individuals. If
the services of Mr. Redhead or Mr. Segal become unavailable, the business of
the Company's restaurants might be impacted negatively. See
"Management--Directors and Executive Officers--Other Compensation Agreements."
RISKS OF RESTAURANT OWNERSHIP. Restaurants historically have
represented a high risk investment in a very competitive industry. The rate of
failure for restaurants is considered to be at least as high or higher than the
rate of failure for small businesses generally. The Company's restaurants
compete with a wide variety of restaurants, ranging from national and regional
restaurant chains to other locally owned restaurants, many of which have
substantially greater financial and marketing resources than the Company. See
"Business--Competition." Various factors, some of which are intangible, bear
upon the prospective success or failure of a restaurant. These subjective
factors include the concept, decor and ambiance of the restaurant, the quality
of food and service, the location and accessibility of the restaurant, and the
experience and skill of the restaurant management. Each of these factors bears
directly upon customer acceptance of the restaurant, and each, with the
possible exception of management, represents an inherently uncertain risk which
cannot be reliably predicted. Additionally, such unforeseen events as food
poisoning or suspension of a liquor license would very likely have an adverse
impact on a restaurant's operation. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Results of Operations."
ECONOMY/NATURAL DISASTERS. Both of the Company's restaurants continue
to be adversely affected by a weak local economy that has existed in the Los
Angeles area for the past several years. The Los Angeles economy, as measured
by a number of economic indicators, including unemployment, continues to lag
behind the rest of the country. Additionally, the Los Angeles area was hit by
two natural disasters during the Company's fiscal year ended April 30, 1994.
On November 2, 1993 a major brush fire caused extensive damage to Malibu and
surrounding areas. Because of its proximity to the fire area, Gladstone's was
forced to close to the general public for two and one half days. Sales
continued to be adversely impacted for several weeks after the fires due to
various road closures which hindered access to the restaurant as well as a
general apprehension on the part of the public to venture into or through the
impacted area. On January 17, 1994, the Los Angeles metropolitan area was hit
by a major earthquake. Although neither of the Company's restaurants suffered
structural damage, both operations suffered damage from broken dishes and
glassware, broken wine and liquor bottles and loss of certain perishable
inventory. The damage caused by the earthquake significantly impacted sales at
both restaurants. Although the Company carries earthquake insurance, damages
did not exceed the policy deductible. Moreover, Pacific Coast Highway was
closed in certain areas for several days in early February 1994 and in January
and March 1995 due to mudslides. The closure of Pacific Coast Highway at any
time has a significant negative impact on sales at Gladstone's.
Gladstone's is located on the beach and is dependent, to a certain
extent, on favorable weather, tourism and freeway and highway access. Tourism
continues to be down in southern California as a result of several factors,
including the 1992 Los Angeles riots as well as the 1994 earthquake.
LIMITED PUBLIC MARKET; DISCLOSURE RELATING TO LOW PRICE STOCKS. There
is presently a limited public trading market for the Common Stock. There can
be no assurance that a more active market will develop for the Common Stock.
Purchasers in this Offering may, therefore, have difficulty selling their
shares of Common Stock, should they decide to do so. In addition, if an active
market for the Common Stock develops, there can be no assurance that such
markets will continue or that shares of Common Stock purchased in this Offering
may be sold without incurring a loss. The Company's securities may become
subject to the "penny stock rules" adopted pursuant to Section 15(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The penny
stock rules apply to companies not traded on a national stock exchange or on
the Nasdaq (but may be listed on pink sheets or the OTC
5
<PAGE> 10
Bulletin Board) whose common stock trades at less than $5.00 per share, which
have tangible net worth of less than $5,000,000 ($2,000,000 if the company has
been operating for three or more years), and which have average revenues of
less than $6,000,000 for the last three years. Such rules require, among other
things, that brokers who trade "penny stock" to persons other than "established
customers" complete certain documentation, make suitability inquiries of
investors and provide investors with certain information concerning trading in
the security, including a risk disclosure document and quote information under
certain circumstances. Many brokers have decided not to trade "penny stock"
because of the requirements of the penny stock rules and, as a result, the
number of broker-dealers willing to act as market makers in such securities is
limited.
MARKET OVERHANG. The 3,004,282 shares being registered hereunder
constitute 88.3% of the Common Stock. Such shares are proposed to be sold by
the Selling Shareholders in block trades, by brokers/dealers as principals, in
brokerage transactions in the over-the-counter market or in private sales. The
market overhang of the potential sale of these shares could have an adverse
effect on the price of the Common Stock until all of the shares being
registered hereunder have been sold.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common
Stock offered hereunder.
6
<PAGE> 11
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The consolidated financial data in the following table is qualified in
its entirety by, and should be read in conjunction with, the
consolidated financial statements and notes thereto and other
financial and statistical information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Three Months
Year Ended April 30, Ended July 31
----------------------------------------------------- ----------------
1995 1994 1993 1992 1991 1995 1994
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Sales $14,160 $13,924 $15,144 $17,038 $18,396 $3,743 $3,753
Income(loss) from continuing
operations before extraordinary
item (3,419) (1,372) (665) (1,328) (1,313) 279 (134)
Income from discontinued - - 16 157 271 - -
operations (b)
Extraordinary item (a) 2,540 - - - - - -
Net income(loss) (879) (1,372) (649) (1,171) (1,042) 279 (134)
Income(loss) per common share from
continuing operations before
extraordinary items ($12.21) ($4.93) ($2.35) ($4.18) ($4.13) $.11 ($.48)
Income per common share from
discontinued operations - - 0.00 0.49 0.85 - -
Income per common share from
extraordinary item 9.07 - - - - - -
Net income(loss) per common share-
-primary (3.14) (4.93) (2.35) (3.69) (3.28) .11 (.48)
Net income(loss) per common share-
-fully diluted (3.14) (4.93) (2.35) (3.69) (3.28) .09 (.48)
</TABLE>
<TABLE>
<CAPTION>
April 30, July 31,
---------------------------------------------------- --------
1995 1994 1993 1992 1991 1995
------ ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $6,709 $10,369 $11,649 $12,485 $14,685 $6,761
Debt in default - 8,166 8,166 8,336 9,045 -
Convertible subordinated notes 783 - - - - 783
Long-term debt, net of current
portion 2,776 - - - 4 2,368
</TABLE>
____________
(a) Extraordinary gain recognized in connection with the December 1994
restructuring. See Note B to the consolidated financial statements.
(b) Discontinued operations of American Microsonics Corp.
See Note I to the consolidated financial statements.
7
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company currently has operations in one business segment, the
ownership and operation of restaurants. The restaurant segment includes the
operations of Gladstone's in Pacific Palisades, California, and R.J.'s in
Beverly Hills, California. In previous years, the Company had manufacturing
operations which produced microphonographs and microrecords. In July 1991, the
Company decided to discontinue its manufacturing operations (see "Results of
Discontinued Operations - Manufacturing").
RESULTS OF OPERATIONS
Three Months Ended July 31, 1995 Compared With Three Months Ended July 31, 1994
Restaurant Revenues
Total sales for the three months ended July 31, 1995 were $3,743,000
compared with $3,753,000 for the same period last year, a decrease of $10,000
or .3%.
While the local economy, as measured by a number of economic
indicators, including unemployment, has lagged the rest of the country in terms
of economic recovery, there are continuing signs that a recovery is underway.
Although revenues decreased slightly during the three months ended July 31,
1995, the comparable period last year benefited from increased tourism
resulting from Los Angeles' role as host city to the 1994 World Cup soccer
matches. Additionally, Gladstone's is located on the beach in Pacific
Palisades, California and is dependent, to a certain extent, on favorable
weather and tourism. Weather during May and June of the current year did not
compare favorably to the comparable period last year. See "Risk
Factors--Economy/Natural Disasters."
As a result of typically more favorable weather and higher tourism
during the summer months from May through September the Company'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 Company's restaurant
operations.
Cost of goods sold for the three months ended July 31, 1995 was
$2,904,000, or, as a percentage of sales, 77.6%, compared with $3,056,000, or,
as a percentage of sales, 81.4% during the same period last year. This
decrease is due to several factors. Approximately 60% of this decrease is due
to lower labor costs. This is a result of more efficient use of restaurant
staff as well as significantly lower rates on workers compensation insurance.
The reduction in workers compensation insurance should result in lower labor
costs through March 31, 1996, the end of the current policy year.
Additionally, in the comparable period last year the Company incurred expenses
related to a July 4th fireworks show and non-recurring expenses due to the
implementation of a new menu and service approach for Gladstone's outdoor
dining area.
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, 1995, cost of goods sold was $11,741,000 or, as a
percentage of sales, 82.9%.
Selling, General and Administrative Expenses
For the three months ended July 31, 1995, selling, general and
administrative expenses were $228,000 compared with $210,000 for the same
period last year, an increase of $18,000 or 8.6%. This increase is primarily
due to expenses incurred in connection with the Company's one-for-33.286962
reverse stock split of its Common Stock (the "Reverse Stock Split") which
became effective on May 1, 1995.
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Legal and Litigation Settlement Expenses
For the three months ended July 31, 1995, legal and litigation
settlement expenses were $54,000 compared with $45,000 for the same period last
year, an increase of $9,000 or 20.0%. This increase is primarily due to
expenses incurred in defending a lawsuit brought by a former employee of the
Company. See "Business--Legal Proceedings."
Interest Expense
For the three months ended July 31, 1995, interest expense of $16,000
relates to the Company's 9.75% Convertible Subordinated Notes Due October 31,
1995 (the "Notes"). The unredeemed portion of the Notes converted into Common
Stock on October 30, 1995. After October 31, 1995 the Company will not have
any significant interest expense.
For the three months ended July 31, 1994, interest expense of $226,000
related to the term loan which was borrowed to fund the acquisition of the
Company's restaurant operations. On December 22, 1994 the Company entered into
an Amended and Restated Loan Agreement ("Amended Loan"). Interest to maturity
on the Amended Loan has been included in the carrying value of such debt, 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.
Amortization of Intangible Assets
For the three months ended July 31, 1995, amortization expense was
$165,000 compared with $257,000 for the same period last year, a decrease of
$92,000 or 35.8%. This decrease is due to the Company's covenant not to
compete becoming fully amortized as of April 30, 1995. Amortization expense
now relates completely to the Company's Goodwill and will approximate $714,000
per year.
Fiscal Year Ended April 30, 1995 Compared with Fiscal Year Ended April 30, 1994
and Fiscal Year Ended April 30, 1994 Compared with Fiscal Year Ended April 30,
1993
Total sales for the year ended April 30, 1995 were $14,160,000
compared with $13,924,000 for the year ended April 30, 1994, an increase of
$236,000 or 1.7%. All restaurant operations are currently conducted through
the Company's wholly-owned subsidiary, Sea View. Sea View's fiscal year
included 52 weeks during the most recent fiscal year compared with 53 weeks in
the prior year. On a sales per week basis Sea View's weekly sales were
$272,300 for the 52 weeks ended April 27, 1995 compared with $262,700 for the
53 weeks ended April 28, 1994, an increase of 3.7%.
Total sales during the Company's fourth quarter ended April 30, 1995
were $3,146,000 compared with $3,000,000 for the fourth quarter of the prior
year, an increase of 4.9%. This marked the third consecutive quarter of sales
increases as compared to the previous year. The Company was adversely impacted
by multiple natural disasters during the past two years including the Malibu
fires in November 1993, the major earthquake which struck the Los Angeles
metropolitan area on January 17, 1994 and the record rainfall which resulted in
heavy flooding, mudslides and road closures in January and March 1995.
Gladstone's is located on the beach with its primary access provided by the
Pacific Coast Highway. This highway, and access to it, has been severely
impacted by each of the natural disasters described above. Although
Gladstone's has not been physically damaged by these events, the inability to
access the restaurant results in significant sales decreases. Because of its
location on the beach, Gladstone's is also dependent, to a certain extent, on
favorable weather and tourism. Gladstone's has a large outside deck
overlooking the Pacific Ocean which is a very popular area but is only open as
weather permits. See "Risk Factors-- Economy/Natural Disasters."
Total sales for the year ended April 30, 1994 were $13,924,000
compared with $15,144,000 for the year ended April 30, 1993, a decrease of
$1,220,000 or 8.1%. Sea View's fiscal year included 53 weeks during the year
ended April 30, 1994 compared with 52 weeks in the prior year. On a sales per
week basis, Sea View's weekly sales
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were $262,700 for the 53 weeks ended April 28, 1994 compared with $291,200 for
the 52 weeks ended April 22, 1993, a decrease of 9.8%.
The Los Angeles area was hit by two natural disasters during the
Company's fiscal year ended April 30, 1994. On November 2, 1993 a major brush
fire caused extensive damage to Malibu and surrounding areas. Because of its
proximity to the fire area, Gladstone's was forced to close to the general
public for two and one half days. Sales continued to be adversely impacted for
several weeks after the fires due to various road closures which hindered
access to the restaurant as well as a general apprehension on the part of the
public to venture into or through the impacted area. The Company filed a claim
with its business interruption insurance carrier for losses sustained while the
restaurant was closed. The Company received $20,000 in settlement of this
claim which is included in other income for the year ended April 30, 1994. On
January 17, 1994 the Los Angeles metropolitan area was hit by a major
earthquake. Although neither of the Company's restaurants suffered structural
damage, both operations suffered damage from broken dishes and glassware,
broken wine and liquor bottles and loss of certain perishable inventory. Such
direct losses totaled approximately $10,000. In addition, both restaurants
were closed on January 17, 1994 and also closed early the next three evenings
to comply with the local curfew that was in effect. The damage caused by the
earthquake significantly impacted sales at both restaurants. Pacific Coast
Highway was closed in certain areas for several days and was only open in one
direction for approximately one week thereafter. This road was subsequently
reopened, although in early February 1994 it was again closed for several days
in certain areas due to mud slides. The closure of Pacific Coast Highway at
any time has a significant negative impact on sales at Gladstone's. Revenues
at Gladstone's were also impacted by the closure of certain sections of the
Santa Monica freeway which collapsed during the earthquake. The Santa Monica
freeway is the main route connecting downtown Los Angeles to the beach area
where Gladstone's is located. Although detour routes were established, they
resulted in significant additional drive time. The freeway ultimately reopened
in May 1994. Although the Company carries earthquake insurance, damages did
not exceed the policy deductible. See "Risk Factors--Economy/Natural
Disasters."
In May 1993, MCA Development, Inc. ("MCAD") opened a Gladstone's at
its CityWalk project in Universal City, California pursuant to a license
agreement between the Company and a subsidiary of MCAD. License fees for the
fiscal years ended April 30, 1995 and 1994 were $77,000 and $68,000,
respectively. See "Business--License Agreement."
In June 1993 the City of Los Angeles enacted legislation which
prohibits smoking in restaurants located in the City. Gladstone's is located
within the city limits of Los Angeles. The Company does not believe that the
smoking ban has had a material adverse impact on its operations.
Cost of Goods Sold
Cost of goods sold for the fiscal year ended April 30, 1995 was
$11,741,000, or, as a percentage of sales, 82.9%, compared with $11,402,000, or
as a percentage of sales, 81.9% for fiscal 1994 and $12,300,000, or as a
percentage of sales, 81.2% for fiscal 1993.
The increase in fiscal 1995 is due to several factors. During the
year ended April 30, 1995, liquor sales, as a percentage of total sales,
declined by approximately 9% reflecting the general public's continued
moderation of alcohol consumption. Liquor sales have a significantly lower
cost than food sales, thus a higher ratio of food to liquor sales will result
in a higher cost of sales percentage. Secondly, in October 1994, Gladstone's
ran a major lobster promotion. Lobster sales, during this promotion, had a
significantly higher cost percentage than other menu items. This promotion was
well received by the patrons of Gladstone's, and as a result, Gladstone's
extended price reductions on certain lobster meals in an effort to capture
additional market share of the local lobster business. Thirdly, the cost of
certain fresh fish and shellfish were markedly higher during the second and
third quarters compared to the same period of the prior year. Lastly, labor
costs at Gladstone's were higher during the summer months due to the
implementation of a new menu and new service approach for the Gladstone's
outdoor dining area. These changes were implemented in an effort to improve
service quality to the patrons of this outdoor area.
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Due to legislative reform of California's workers compensation system,
the Company was able to renew its workers compensation insurance for the year
commencing April 1, 1995 at significantly reduced rates. This should result in
lower labor costs, as a percentage of sales, in fiscal 1996. Legislation is
pending at both the federal and state level to increase the current minimum
wage. An increase in the minimum wage will have an adverse impact on the
Company's labor costs.
The increase in cost of goods sold in fiscal 1994 as compared to
fiscal 1993 was primarily due to increased advertising expenditures, increases
in certain insurance related expenses and higher utility costs.
Selling, General and Administrative Expenses
For the year ended April 30, 1995, selling, general and administrative
expenses were $946,000 compared with $1,045,000 for the prior year, a decrease
of $99,000 or 9.5%. This decrease is primarily due to a reduction in
compensation and termination expenses related to the elimination of an
executive position.
For the year ended April 30, 1994, selling, general and administrative
expenses were $1,045,000 compared with $965,000 for fiscal 1993, an increase of
$80,000 or 8.3%. This increase is primarily due to compensation and severance
expenses associated with the Company's vice president - operations, a position
that was vacant during a significant portion of fiscal 1993. In May 1993, the
Company hired a vice president - operations. In December 1993, this position
was eliminated. Pursuant to the terms of an existing employment contract the
Company was responsible for nine months of severance pay based on the
executive's base salary. The Company accrued $78,000 which represented the
maximum amount of severance pay that would be due based on the terms of the
contract.
Legal and Litigation Settlement
For the year ended April 30, 1995 legal and litigation settlement
expenses were $221,000 compared with $497,000 for fiscal 1994, a decrease of
$276,000 or 55.5%. In November 1993, the Company settled two existing lawsuits
to which it was a party. Based on the terms of these settlement agreements the
Company recorded litigation settlement expenses of $225,000. See "Note H of
Notes to Consolidated Financial Statements." There were no such litigation
settlement expenses incurred during the year ended April 30, 1995 nor does the
Company anticipate such expenses in fiscal 1996 in connection with current
legal proceedings.
On December 22, 1994 the Company completed a restructuring of Sea
View's bank loan and settlement of the contingent note (the "Contingent Note")
with The Restaurant Enterprises Group, Inc., now Family Restaurants Inc.
("FRI"). The Company concurrently closed a private placement of securities to
finance such restructuring and settlement. See "Liquidity and Capital
Resources" for further description of the restructuring and settlement
transactions. Legal expenses related to the debt restructuring of $100,000
reduced the extraordinary gain that was recorded upon consummation of the
transaction. Legal expenses of $98,000 related to the private placement were
offset against the proceeds of such offering.
For the year ended April 30, 1994, legal and litigation settlement
expenses were $497,000 compared with $278,000 for fiscal 1993, an increase of
$219,000 or 78.8%. This increase is due to the litigation settlement expenses
described above.
Interest Expense
Interest expense of $657,000 in fiscal 1995, $890,000 in fiscal 1994
and $894,000 in fiscal 1993 relates primarily to the $10,000,000 term loan
which was borrowed in April 1990 to fund the acquisition of the Company's
restaurant operations. On December 2, 1994, the Company and the Bank executed
a term sheet outlining the conditions pursuant to which the Bank would agree to
restructure the existing senior secured debt. This restructuring was
consummated on December 22, 1994. Interest to maturity on the restructured
bank debt has been included in the carrying value of such debt, 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. See "Note B of
Notes to Consolidated Financial Statements" and "Note D of Notes to Unaudited
Consolidated Financial Statements."
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Amortization of Intangible Assets
Amortization expense of $1,104,000 in fiscal 1995, $1,115,000 in
fiscal 1994, and $1,115,000 in fiscal 1993 relates primarily to the goodwill
and covenant not to compete which were recorded in April 1990 upon the
completion of the acquisition of the Company's restaurant operations. The five
year covenant not to compete was fully amortized at April 30, 1995.
The Company considered the transactions described in "Liquidity and
Capital Resources" to represent an event which established the existence of
impairment indicators. The issuance of equity securities to the Bank and the
private financing reflects potentially 78% of the Company's fully diluted
voting equity. These transactions served as the basis for determining fair
value in order to measure the extent of impairment. This valuation was further
adjusted to reflect the uncertainty concerning continuation of business at the
Company's principal restaurant location beyond the current term of the
concession agreement. Accordingly, goodwill has been written down by
$2,500,000 and concurrently, the amortization period has been reduced from
fifteen years to ten years. The combination of the write-down and reduction in
amortization period will result in future annual amortization expense of
approximately $714,000. See "Note A of Notes to Consolidated Financial
Statements."
Income Tax Expense
For the years ended April 30, 1995 and 1994, the Company recorded
income tax expense of $4,000 which represents minimum state taxes.
For the year ended April 30, 1993, the Company recorded an income tax
benefit from continuing operations of $4,000 which consisted of a benefit of
$11,000 from the utilization of the operating loss of Sea View to offset the
income generated by the Company's discontinued operations less $7,000 in
minimum state taxes. See "Note E of Notes to Consolidated Financial
Statements."
Results of Discontinued Operations - Manufacturing
In July 1991, the Company decided to discontinue the manufacturing of
microphonographs and microrecords through its wholly-owned subsidiary, American
Microsonics Corp. ("Microsonics"). On October 31, 1991 Microsonics entered
into a definitive agreement to sell substantially all of its assets, consisting
primarily of machinery and equipment, patents and inventories for $100,000 in
cash and stock and rights which the buyer agreed to repurchase for $55,000 in
cash. The buyer subsequently defaulted on its obligation to repurchase the
securities and in May 1992 the Company and Microsonics filed a complaint in the
Superior Court of the State of California against the buyer for breach of
contract. In January 1993 the Company reached a settlement agreement whereby
the buyer paid $30,000 in cash and assumed certain liabilities totaling $2,000.
Based on this settlement less expenses of $5,000, the Company recorded a gain
on disposition of $16,000 net of taxes of $11,000 for the year ended April 30,
1993. See "Note I of Notes to Consolidated Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
On December 22, 1994 the Company completed a restructuring of Sea
View's existing bank debt and settlement of the Contingent Note. The Company
concurrently closed a private placement of securities to finance such
restructuring and settlement. For background on the bank debt and Contingent
Note see "Management--Certain Relationships and Related Transactions--December
1994 Private Placement and Debt Restructurings."
At the date of the debt restructuring, the Company owed the Bank
$8,166,000 in principal and $1,514,000 in accrued and unpaid interest. The
Amended Loan provided for payment by Sea View of an aggregate of $4,700,000 of
which $1,300,000 was paid prior to or concurrent with closing. The balance of
$3,400,000 was represented by two notes: a senior secured note in the 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. Such notes are
guaranteed by the Company. As additional consideration for the debt
restructuring, the Company issued to the Bank, 1,223,556 shares of a new issue
of Series A Preferred Stock that converted into 1,200,000 shares of Common
Stock on May 1, 1995 upon the filing of a Certificate of Amendment to the
Articles of Incorporation of
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<PAGE> 17
the Company effecting the Reverse Stock Split (constituting 30% of the combined
voting power of all outstanding shares on a fully diluted basis). The Bank is
also entitled to two representatives on the Board of Directors of the Company
until the restructured debt has been repaid or the Bank has sold at least 25%
of its stock holdings. Also, the Bank will be entitled to participate in
certain future equity offerings by the Company in order to maintain its
percentage equity ownership and will be entitled to a prepayment on its
restructured loan equal to 35% of the net proceeds of any such future equity
offering by the Company.
Sea View and the Bank entered into a First Amendment to Amended and
Restated Loan Agreement, dated as of August 1, 1995, which amended the covenant
of Sea View regarding the calculation of "Minimum Free Cash Flow" (i) during
the quarter ended April 30, 1995 to reduce the amount of unreimbursed legal and
accounting expenses ("Expenses") included in net income not to exceed $45,000
incurred or accrued in connection with the Company's April 28, 1995 Annual
Meeting of Shareholders and the Reverse Stock Split; (ii) for subsequent
quarters to reduce Expenses not to exceed $50,000 incurred or accrued in the
aggregate for all fiscal quarters in connection with the subscription rights
offering described below and this Offering; and (iii) to increase "Minimum Free
Cash Flow" for the period ended October 31, 1997 from $638,414 to $688,414.
The private placement financing which raised the funds necessary to
effect the debt restructuring and Contingent Note settlement, involved a total
investment of $1,600,000, excluding expenses, consisting of $817,290 of Series
A Preferred Stock and $782,710 of Notes. In October 1995, the Company effected
a rights offering in which shareholders who did not participate in the December
1994 private placement or otherwise were excluded by contract were offered
rights to subscribe for 4.7215 shares of Common Stock for each share owned as
of September 11, 1995 (the "Subscription Rights Offering") at a price of $.83
per share. 244,020 shares of Common Stock were purchased in the Subscription
Rights Offering. The proceeds of the Subscription Rights Offering of
$202,536.60 were used to redeem a portion of the Notes on a pro rata basis.
The unredeemed portion of the Notes converted into 696,207 shares of Common
Stock on October 30, 1995.
Sea View also reached a settlement with FRI regarding the Contingent
Note held by FRI. Sea View had been obligated for additional purchase
consideration, arising out of its acquisition of two restaurants from FRI, of
up to $5,000,000, payable with interest accruing at the rate of 12.5% per annum
from April 1990, if and when the concession agreement between the County of Los
Angeles and Sea View for Gladstone's is extended or renewed beyond its existing
expiration date of October 31, 1997. The Bank had conditioned a restructure of
its senior secured debt on, among other things, satisfactory settlement of the
Contingent Note. Accordingly, as part of the bank debt restructuring, the
Company paid $500,000 to FRI in full satisfaction of the Contingent Note. See
"Management--Certain Relationships and Related Transactions--December 1994
Private Placement and Debt Restructurings."
The Company currently has no outside sources of short-term or
long-term financing. Although the Company remains highly leveraged after the
completion of the debt restructuring, due primarily to the repayment terms of
the remaining loan principal, the Company believes that its existing cash and
cash flow from operations over the next year will allow it to meet its debt
obligations under the Amended Loan and its normal operating expenses.
Capital expenditures for the year ended April 30, 1995 totaled
approximately $280,000 and capital expenditures for the three months ended July
31, 1995 totalled approximately $73,000. The Company estimates that capital
requirements for fiscal 1996 will total approximately $175,000.
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BUSINESS
GENERAL
The Company, formerly l.H.V. Corp., was organized under the laws of
the State of California in April 1971. The Company is currently engaged in one
line of business, the ownership and operation of restaurants. For many years
the Company, through its Microsonics division, was engaged in the manufacture
and sale of microphonographs and microrecords. In July 1991, the Company
decided to discontinue operations in this business segment. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Discontinued Operations--Manufacturing" and "Note I of
Notes to Consolidated Financial Statements." In August 1989, the Company
formed a wholly-owned subsidiary, Sea View. In April 1990, Sea View
consummated the acquisition of two restaurants, Gladstone's in Pacific
Palisades, California and RJ's in Beverly Hills, California.
RESTAURANT OPERATIONS
The Company owns and operates the following restaurants through Sea
View:
GLADSTONE'S. Gladstone's is one of Southern California's best known
fresh seafood restaurants. In 1972, the original Gladstone's was opened as a
small, 80-seat establishment in Santa Monica Canyon near the Pacific ocean in
Santa Monica, California. In 1981, Gladstone's was moved to its present
location on the beach at the intersection of Sunset Boulevard and Pacific Coast
Highway in Pacific Palisades, California. Based on restaurant industry
surveys, Gladstone's is one of the top grossing restaurants in America, with
annual sales in excess of $11,800,000. With its seaside open deck, covered
patio, bar, main dining room and two private dining areas the overall concept
of Gladstone's is that of a warm, casual and friendly restaurant. The average
meal price at Gladstone's is approximately $21.50.
RJ'S. RJ's is located at 252 N. Beverly Drive, Beverly Hills,
California. RJ's was opened in 1979 and emphasizes its "Green Grocery" salad
bar containing over 80 items, barbecued ribs and chicken, stained glass
windows, library bar and antique ceiling fans to create an attractive, casual
dining atmosphere. RJ's had sales of approximately $2,200,000 for the most
recent fiscal year. In an effort to generate increased customer counts, the
Company made several changes to RJ's menu in the fall of 1993. These changes
included lowering certain prices, including the Green Grocery salad bar with
regular dinner entrees and utilizing one menu throughout the day instead of
separate lunch and dinner menus. Such changes have resulted in improved
customer count of approximately 7% in the most recent fiscal year, but this has
not increased sales volumes due to a decrease in the average check amount. The
average meal price at RJ's is approximately $16.00.
ACQUISITIONS OF GLADSTONE'S AND RJ'S. In April 1990, Sea View
consummated the acquisition (the "Acquisition") of Gladstone's and RJ's from
FRI for an aggregate purchase price of approximately $13,500,000. Expenses
incurred to consummate this transaction approximated $1,100,000. Additionally,
Sea View was liable for a contingent purchase price of up to an additional
$5,000,000, payable with interest accruing at the rate of 12.5% per annum from
April 1990, if and when the concession agreement between the County of Los
Angeles and Sea View for Gladstone's was extended or renewed by the County of
Los Angeles beyond an expiration date of October 31, 1997. If the terms and
conditions of such extension or renewal were unsatisfactory to Sea View, Sea
View would not be obligated to enter into such extension or renewal and would
not be obligated to pay the additional contingent purchase price. In
connection with the Acquisition, Sea View also entered into a purchase
agreement under which it could, for $1,000,000, subject to certain conditions,
acquire the concession and development rights to construct a restaurant on the
site of the former Jetty restaurant on the Pacific Coast Highway in Pacific
Palisades, California. In June 1992, Sea View reached agreement with FRI
whereby Sea View terminated any rights it may have had pursuant to this
agreement. Upon consummation of the acquisition of Gladstone's and RJ's, FRI
agreed to a covenant not to compete with the two restaurants in their
respective territories for a period of five (5) years, excluding the Jetty
site. This covenant not to compete expired in April 1995.
In order to consummate the Acquisition, the Company raised $3,000,000
through a private placement of 5,000,000 shares of its Common Stock and Sea
View borrowed $10,000,000 from the Bank pursuant to a self-amortizing loan,
payable monthly, which was to mature in March 1997. In addition, Sea View
obtained a revolving credit working capital facility from the Bank for
additional borrowings of up to $500,000. Sea View borrowed
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$250,000 under this revolving line of credit and also borrowed $200,000 from
FRI in order to complete the Acquisition. The borrowings under the bank line
of credit and from FRI were subsequently repaid. As collateral for the loan,
the Bank was granted a first priority security interest in all the assets of
Sea View, including the Gladstone's concession agreements and the RJ's
leasehold interest and in the trademarks and trade names of the two
restaurants. In addition, the Company has guaranteed full repayment of the
Loan and has also pledged all of the stock of Sea View to the Bank. The Loan
Agreement requires compliance with financial covenants, including compensation,
capital expenditures, net worth, and several financial ratios. As a result of
certain covenant defaults, in August 1991 the Bank terminated the $500,000
revolving working capital facility.
In June 1992, Sea View negotiated a preliminary restructure agreement
with the Bank. This agreement required that Sea View meet several conditions
by September 30, 1992 or the agreement, by its terms, would expire. Sea View
was unable to meet such conditions and on September 30, 1992 the proposed
restructure agreement expired. Sea View did not make any scheduled principal
or interest payments from September 1992 until the December 1994 restructuring,
except for payments of $375,000 made during the fiscal year ended April 30,
1994.
On December 22, 1994, the Company completed a restructuring of Sea
View's bank loan and settlement of the Contingent Note and concurrently
completed a private placement of securities to finance such restructuring and
settlement. In October 1995, the Company completed the Subscription Rights
Offering, the proceeds of which were used to redeem a portion of the Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
MANAGEMENT CONTRACTS
The Company does not currently manage and does not presently have any
plans to manage any restaurants not owned by the Company. In previous years,
the Company managed and attempted to secure management agreements with several
restaurants. The Company would consider entering into management agreements in
the future based upon satisfactory terms.
LICENSE AGREEMENT
GLADSTONE'S/UNIVERSAL CITY. In March 1991, California Beach Palm,
Inc. ("CBP"), a wholly-owned subsidiary of the Company, entered into a
management agreement with MCA Development, Inc. ("MCAD"), a subsidiary of MCA
INC., for the development and management of an approximately 14,000 square foot
Gladstone's restaurant in MCAD's CityWalk project in Universal City,
California. The Company also guaranteed CBP's performance under the management
agreement. This management agreement was subsequently assigned from CBP to CB
Universal Corporation ("CBU"), which at that time was a wholly-owned subsidiary
of the Company. In March 1992 CBU and MCA Development Venture Two ("MCADVT"),
an affiliate of MCAD, entered into a restated management agreement which
modified certain provisions, including base and incentive management fees as
well as funding obligations of MCADVT. In April 1992, as part of a settlement
agreement with Morris, the Company transferred to Morris all of the outstanding
capital stock of CBU, thereby relinquishing its interest in and obligations
under the restated management agreement. Also, as part of the settlement
agreement with Morris, the Company entered into a license agreement with MCADVT
which permits MCADVT to use the Gladstone's name and trademarks at the CityWalk
restaurant in exchange for a royalty fee of .8% of the restaurant's gross
receipts during such use. Pursuant to the terms of the license agreement,
there is no fixed duration of the agreement; yet, under certain circumstances,
MCA may terminate the agreement on six months notice provided that it ceases to
use all licensed property immediately after giving such notice. MCADVT also
released the Company from its guarantee of CBU's performance under the restated
management agreement. The Gladstone's restaurant at CityWalk opened in May
1993. Fees received pursuant to this agreement during fiscal 1994 were
approximately $68,000 and during fiscal 1995 were approximately $77,000.
TRADEMARKS
The Company has registered the Gladstone's name and logo as trademarks
and service marks with the United States Patent and Trademark Office and the
State of California. The Company has also registered the name "R.J.'s, The Rib
Joint" as a trademark and service mark with the State of California. None of
the Company's registered
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marks has an expiration date within the next nine years. The Company regards
such marks as important to its business.
COMPETITION
The Company's restaurants compete with a wide variety of restaurants,
ranging from national and regional restaurant chains to locally owned
restaurants. Restaurants historically have represented a high risk investment
in a very competitive industry. The Company competes in the fine-dining segment
of the restaurant industry, which is competitive with respect to service, food
quality (including taste, freshness, healthfulness and nutritional value) and
location, and which is affected by changes in consumer preferences, tastes and
eating habits; demographic trends and traffic patterns; increases in food and
labor costs; and national, regional and local economic conditions. While the
Company believes that there is no competitor or small number of competitors
dominant in the markets in which the Company's restaurants operate, there is no
assurance that the Company's restaurants will be able to compete successfully
with other restaurants in their respective areas.
Management believes that the Company's restaurants are comparable in
quality, and in many cases superior to competing restaurants. The Company
believes that among its competitive strengths are the locations of its
restaurants and the quality of its food products.
While the Company believes that the beach-front location of
Gladstone's affords a competitive advantage, such location is also susceptible
to natural disasters which can hinder access to Gladstone's, and tourism and
weather, independently or collectively, can impact Gladstone's competitiveness.
Moreover, the fine-dining segment of the restaurant industry is susceptible to
any downturn in the economy. See "Risk Factors--Economy/Natural Disasters" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations." In addition, many of the Company's
competitors have significantly greater financial resources than the Company.
EMPLOYEES
The Company has approximately 320 employees in restaurant operations.
None of the employees are represented by a union. The Company believes that
its relationship with its employees is satisfactory.
SEASONALITY
The Company's restaurant business is seasonal due to Gladstone's
location on the beach in Pacific Palisades, California. As a result, sales and
operating profits are higher during the summer months. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations."
PROPERTIES
GLADSTONE'S LEASES. The original concession/lease agreements with the
County of Los Angeles ("County") for the operation of Gladstone's and the
adjacent parking lot expire on October 31, 1997 as a result of the exercise of
a five-year option in March 1992. Under the terms of the concession agreement,
exercise of the option required the establishment by mutual agreement of new
percentage and minimum rents for the option period. In September 1992,
following completion of an independent appraisal conducted on behalf of the
County, Sea View reached agreement with the County on the percentage and
minimum rents for the option period. The agreement calls for an increase in
the annual minimum base rent from approximately $26,000 to $480,000.
Percentage rental rates of 8% of the adjusted net sales of food and 10% of the
adjusted net sales of alcoholic beverages remain unchanged. Based on
Gladstone's historical sales volumes, percentage rentals paid have
significantly exceeded the new minimum base rent. Therefore, the Company does
not believe that the higher base rent will result in an increase to total rent
expense. Rent paid under the restaurant lease for the 1995 fiscal year was
approximately $995,000, representing approximately 8.4% of the restaurant's
sales. The current monthly rental payment for the adjacent parking lot is
$2,948, subject to annual cost-of-living adjustments of up to 5.5%. Rent paid
during fiscal 1995 for the parking lot was $35,400.
16
<PAGE> 21
RJ'S LEASE. Concurrent with the December 1994 debt restructuring, the
Company negotiated an amended and restated lease for RJ's. The amended lease
expires in December 2004 subject to a possible extension period of five years.
The amended lease further provides for monthly rental payments of $12,500
through December 1997. In January 1998, 2001 and 2004, the monthly lease
payments are subject to adjustment based on Consumer Price Index changes. Rent
paid in fiscal 1995 was $150,000.
EXECUTIVE OFFICE. The Company occupies approximately 2,000 square
feet of office space in Pacific Palisades, pursuant to a lease which expires in
September 1997 and provides for monthly rental payments of $2,871.
LEGAL PROCEEDINGS
In February 1995 the Company received notification from the office of
City Attorney for Los Angeles that enforcement action may be taken against the
Company for alleged misleading advertising related to the Company's
"Lobsterfest" promotion in October 1994. In August 1995, the Company entered
into a stipulated judgment with the City Attorney's office whereby the Company
did not admit any wrongdoing but agreed to pay $30,000 and to run a lobster
promotion for four weeks prior to the end of 1995, subject to certain
conditions. The Company believes it has complied with the terms of the
settlement.
In September 1994, the Company received notice of a complaint filed in
Los Angeles County Superior Court by a former employee seeking unspecified
damages for various causes of action, including wrongful termination. The
Company has filed an answer to the complaint denying any liability. The
Company believes that this claim is without merit and intends to defend this
action vigorously. This matter is currently scheduled for trial in April 1996.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
Alan Redhead 53 Chairman of the Board, President, Chief Executive Officer
J. Christopher Lewis 39 Director
Jefferson W. Asher, Jr. 70 Director
Scott C. Dew 37 Director
George Nicolais 51 Director
Samuel M. Victor 39 Director
Barry A. Chase 39 Director
Richard S. Stevens 65 Director
Mark E. Segal 37 Vice President - Finance,
Chief Financial Officer and Secretary
</TABLE>
The Company's bylaws provide for a range of five to nine directors and
allow the Board of Directors to set the exact number of authorized directors
within that range. The current number of authorized directors established by
the Board of Directors is eight, and there are no vacancies on the Board.
Directors are elected at each Annual Meeting of Shareholders to serve
thereafter until their successors have been duly elected and qualified or until
their earlier resignation or removal. Executive officers serve at the
discretion of the Board of Directors.
17
<PAGE> 22
Alan Redhead joined the Company in June 1992 as its Chief Executive
Officer ("CEO") and as a member of its Board of Directors and executive
committee. Mr. Redhead resigned as a member of the Board of Directors and the
executive committee in November 1992. Mr. Redhead subsequently rejoined the
Board of Directors in September 1993. He became Chairman of the Board in March
1995. Since 1986, Mr. Redhead has been president of Ellergreen, Inc.
Ellergreen is the general partner of Ricardo O'Brien's, a California limited
partnership which has owned and operated several restaurants. Since 1982 Mr.
Redhead has also been involved with the CLARE Foundation, a non-profit
organization based in Santa Monica, California, as a director and, during
portions of 1991 and 1992, as its Chief Executive Officer. From 1974 to 1986
Mr. Redhead was with Hungry Tiger, Inc., including 7 years as its CEO. Hungry
Tiger Inc. owned and operated Hungry Tiger Restaurants, Breakers Seafood
Restaurants, Castagnola's Lobster House and the restaurant and catering
operations at the Los Angeles Music Center.
J. Christopher Lewis, a director of the Company since June 29, 1990
and a member of its Audit and Stock Plan Committees, has been associated with
Riordan, Lewis and Haden, a venture capital firm, for the past eleven years.
He is currently a director of Tetra Tech, Inc. and several privately-held
companies.
Jefferson W. Asher, Jr. joined the Company as a member of the Board of
Directors on November 23, 1992 and is a member of its Audit Committee. Mr.
Asher has spent the past twenty years as an independent management consultant
and currently serves as an advisor to several private companies. Mr. Asher is
also a member of the Board of Directors of Baldor Electric Company, a New York
Stock Exchange manufacturer of industrial electric motors and drives.
Scott C. Dew joined the Company as a member of the Board of Directors
on March 13, 1995 and is a member of its Stock Plan and Compensation
Committees. Since June 1995, Mr. Dew has been General Counsel for
Rubin-Pachulski Properties, Inc., a real estate investment firm. Mr. Dew was
previously an attorney with the law firm of Levene & Eisenberg, P.C. since
1985.
George Nicolais joined the Company as a member of the Board of
Directors on April 28, 1995 and is a member of the Audit Committee. Mr.
Nicolais was nominated for election to the Board at the request of the Bank
pursuant to the exercise of its contractual rights with the Company. See
"Management--Certain Relationships and Related Transactions--December 1994
Private Placement and Debt Restructurings." Mr. Nicolais has been President of
George Nicolais & Associates, Inc., a firm providing financial advisory and
management consulting services, since 1976.
Samuel M. Victor joined the Company as a member of the Board of
Directors on April 28, 1995 and is a member of its Stock Plan and Compensation
Committees. Mr. Victor was nominated for election to the Board at the request
of the Bank, pursuant to the exercise of its contractual rights with the
Company. See "Management--Certain Relationships and Related
Transactions--December 1994 Private Placement and Debt Restructurings." Mr.
Victor has been Managing Director of Chanin and Company, an investment banking
firm, since March 1990. Mr. Victor is also a member of the board of directors
of Spectravision Inc. and Bucyrus-Erie Company. In June 1995 Spectravision
filed a bankruptcy petition under Chapter 11 of the federal bankruptcy laws.
Barry A. Chase joined the Company as a member of the Board of
Directors on April 28, 1995, and is a member of the Audit Committee. Mr.
Chase was nominated for election to the Board at the request of John C.
Cushman, III, pursuant to the exercise of Mr. Cushman's contractual rights with
the Company. See "Management--Certain Relationships and Related Transactions
- --December 1994 Private Placement and Debt Restructurings." Mr. Chase was a
consultant to Cushman Equities Corporation from 1990 to 1991 and has been
President of such corporation since 1991. Since 1993, he has also been
President of Cushman Investment and Development Corporation, a real estate
developer.
Richard S. Stevens was formerly President and Chief Operating Officer
of the Company from June 1989 through February 1991, at which time he resigned
from the Company to pursue other business interests. Mr. Stevens was also a
director of the Company from June 1989 to April 1992. Mr. Stevens rejoined the
Board on April 28, 1995. Mr. Stevens has been involved in the field of
recreational development and resort operations for the past twenty-five years
and is currently President and owner of Recreational Advisors International,
Inc., a management consulting firm.
18
<PAGE> 23
Mark E. Segal joined the Company in July 1991 as Vice President-
Finance and Chief Financial Officer. From October 1987 through June 1991, Mr.
Segal was Vice President-Finance of Martin Lawrence Limited Editions, Inc., a
New York Stock Exchange retailer and wholesaler of fine art. From January 1984
through September 1987 Mr. Segal was Controller and Assistant Treasurer for
Orange Julius International, Inc. He is a Certified Public Accountant and
spent four years with the international accounting firm of KPMG-Peat Marwick.
None of the officers and directors of the Company is related to any
other officer or director of the Company. Effective May 1, 1994 the Company
reduced the Board of Directors fees to $500 per month for each outside Board
member. During fiscal 1995 the Company accrued $12,000 of such Board fees.
Effective May 1, 1995, the Company established the Board of Directors fees at
$500 per meeting attended for each outside Board member.
On October 7, 1992 the Company, faced with the loss of its directors
and officers liability insurance, entered into indemnification agreements with
Messrs. Redhead, Lewis and Segal. On November 23, 1992, the Company entered
into an indemnification agreement with Mr. Asher. The Company believed that
the indemnification agreements were required to induce the various officers and
directors to continue to serve in their existing capacities. Generally, the
agreements provide for indemnification by the Company to each of the
individuals against expenses, judgments, fines and penalties incurred in
connection with any proceeding to the full extent permitted by the law of the
State of California and the advancement of expenses prior to any final
disposition of a proceeding. Each indemnitee has agreed to repay any amount
advanced if it is determined that the indemnitee was not entitled to be
indemnified pursuant to the agreement. All directors and officers of the
Company are entitled to the protection of directors' and officers' insurance
policies that are maintained by the Company.
At the Annual Meeting of Shareholders held on April 28, 1995, the
Company's shareholders approved an amendment to the Company's Articles of
Incorporation to eliminate, to the fullest extent permitted by California law,
the monetary liability of directors of the Company in performing their duties.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain summary
compensation information concerning the Company's executive officers for the
three most recent fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation (1) Awards
------------------------------------ --------------
Securities
Name and Fiscal Underlying
Principal Position Year Salary($) Bonus($) Options/SARs(#)
------------------ ------ --------- -------- ---------------
<S> <C> <C> <C> <C>
Alan Redhead, 1995 $207,00 - 335,000
President and Chief 1994 204,00 - -
Executive Officer 1993 153,00 - 30,041(A)
Mark E. Segal, Vice 1995 111,00 - 110,000
President--Finance 1994 108,00 - -
1993 104,00 - 9,012(A)
</TABLE>
___________________
(A) Such options were canceled in connection with options issued in fiscal
year 1995.
19
<PAGE> 24
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning
individual grants of stock options during the fiscal year ended April 30, 1995
to each of the named executive officers. No SARs were granted in the fiscal
year ended April 30, 1995:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base
Name Granted(#)(1) Fiscal Year Price ($/Share) Expiration Date
- ---- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Alan Redhead 335,000 56.8% $.83 March 13, 2005
Mark E. Segal 110,000 18.6% $.83 March 13, 2005
</TABLE>
(1) The options granted to Messrs. Redhead and Segal, and other participants
with two or more years of service with the Company, vested 50% on grant,
and the balance vests quarterly over a three-year period. Options are
granted at prices not less than the market value of the Company's common
stock on the date of grant. Options granted to participants with less
than two years but more than one year of service vested 25% on grant, and
the balance vests quarterly over a three-year period. Options granted to
participants with less than one year of service vest quarterly over a
three-year period. In addition, (1) 50% of the then unvested options will
vest on the date of renewal of the Concession Agreement between the County
of Los Angeles and Sea View Restaurants, Inc.; and (ii) the options will
vest in full upon a change of control of the Company.
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option
Values
No options were exercised in the fiscal year ended April 30, 1995.
The following table sets forth certain information concerning executive
officers and the aggregated fiscal year-end value of the unexercised options of
each of the named executive officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired on Value Options/SARs at Fiscal In the Money Options/SARs
Exercise(#) Realized($) Year-End (#) at Fiscal Year-End ($)(1)
----------- ----------- -------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alan Redhead - $- 167,500 167,500 $ - $ -
Mark E. Segal - $- 55,000 55,000 $ - $ -
</TABLE>
(1) Market value of underlying securities at year-end, minus the exercise
or base price of "in the-money" options.
Compensation Pursuant to Plans
During fiscal 1984, the Company adopted a non-statutory stock option
plan ("NSOP") pursuant to which options to purchase approximately 27,000 shares
of Common Stock could be granted to employees or non-employees of the Company.
Under the NSOP, options could be granted to any person when the Board of
Directors, in its sole discretion, determined that the grant of options to such
person would be in the best interests of the Company. The option price would
be established by the Board of Directors at the time the option was granted
20
<PAGE> 25
but could not be less than 85% of the market price of Common Stock at the time
of grant of the option. Options would expire not later than ten years after
the date of grant. As of April 30, 1995, options to purchase 450 shares of
Common Stock, at $33.29 per share were outstanding under the NSOP. The options
expire in 1997. In March 1995, the Board of Directors terminated the NSOP
except as to the outstanding options.
In July 1992, the Company's Board of Directors approved the 1992
incentive stock option plan and the 1992 non-statutory stock option plan,
subject to shareholder approval of the plans. These plans provided for the
granting of options to purchase up to approximately 60,000 shares of Common
Stock at a price not less than 100 percent of the market price at the date of
grant. Options granted pursuant to these plans were subject to vesting
provisions of up to five years. In March 1995, the Board of Directors
terminated such plan, the outstanding options thereunder were canceled with the
option holders consent, and the Board adopted the Omnibus Stock Plan.
The Omnibus Stock Plan
The Omnibus Stock Plan (the "Plan") was adopted by the Board of
Directors in March 1995 and was approved by the Company's shareholders on April
28, 1995. The Plan provides for the issuance of a maximum of 1,000,000 shares
of Common Stock. The Plan provides for the issuance of stock options, stock
appreciation rights, restricted stock and other awards (collectively "awards").
The shares awarded will be authorized but unissued shares. If an
award granted under the Plan expires, terminates or lapses for any reason,
without the issuance of shares of Common Stock thereunder, or if the Company
receives any shares of Common Stock as the exercise price of any award, such
shares will again be available under the Plan.
Under the Plan, options or awards granted and outstanding as of the
date the Plan terminates will not be affected or impaired by such termination.
In the event of a merger, consolidation, reorganization, recapitalization,
spin-off, stock dividend or stock split, or combination or other increase or
reduction in the number of issued shares of Common Stock, or extraordinary cash
dividend or any other similar event, the Board of Directors or the Committee
(as defined on the following page) may, in order to prevent the dilution or
enlargement of rights under awards, make such adjustments in the number and
type of shares covered by, or with respect to which payments are measured
under, outstanding awards and the exercise prices specified therein as may be
determined to be appropriate and equitable. The Committee may provide in the
agreement evidencing any award for adjustments to such award in order to
prevent the dilution or enlargement of rights thereunder or to provide for
acceleration of benefits thereunder in the event of a change in control,
merger, consolidation, reorganization, recapitalization, sale or exchange of
substantially all assets or dissolution of, or spinoff or similar transaction
by, the Company.
The options granted to date by the Committee provide that such options
shall become fully exercisable upon a "change of control" of the Company. A
"change of control" is deemed to have occurred (i) if individuals who, as of
the date of such award, constitute the Board of Directors of the Company
("Incumbent Board") cease for any reason to constitute at least a majority of
the Board, provided that a person becoming a director subsequent to the date of
the award whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection with an
actual or threatened election contest) shall be considered a member of the
Incumbent Board; or (ii) upon approval by the shareholders of the Company of
(a) a reorganization, merger or consolidation, in each case, with respect to
which persons who were the shareholders of the Company immediately prior to
such reorganization, merger or consolidation do not, immediately thereafter,
own more than 60% of the combined voting power entitled to vote generally in
the election of directors of the reorganized, merged or consolidated
corporation's then outstanding voting securities, (b) a liquidation or
dissolution of the Company or (c) the sale of all or substantially all of the
Company's assets; or (iii) upon the acquisition (other than from the Company)
by any person, entity or "group," within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 51% or more of either the
then outstanding shares or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors, but excluding, for this purpose, any such acquisition by the Company
or any of its subsidiaries, or any employee benefit plan (or related trust) of
the Company or its subsidiaries, or any corporation with respect to which,
following such acquisition, more than 60% of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is
21
<PAGE> 26
then beneficially owned, directly or indirectly, by the individuals and
entities who were the beneficial owners of the voting securities of the Company
immediately prior to such acquisition in substantially the same proportion as
their ownership, immediately prior to such acquisition, of the then outstanding
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors.
The purpose of the Plan, which, in addition to non-qualified stock
options and stock appreciation rights, provides for the granting of incentive
stock options which qualify under the provisions of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and restricted stock and various
types of awards described under "Other Awards Under the Plan," is to promote
the long term financial interests and growth of the Company by (i) attracting
and retaining executive personnel, (ii) motivating executive personnel by means
of growth-related incentives; (iii) providing incentive compensation
opportunities that are competitive with those of other comparable corporations,
and (iv) furthering the identity of interests of participants with those of the
shareholders of the Company.
The Plan is not subject to the Employee Retirement Income Security Act
of 1974. The Plan is not qualified under Section 401(a) of the Code.
Participants in the Plan are selected by the Stock Plan Committee of
the Board of Directors (the "Committee") which administers the Plan. The Plan
contemplates that awards will be granted to key employees, to directors and to
consultants, and that participants will be such employees or directors of or
consultants to the Company and its affiliates, including officers of the
Company, as from time to time are designated as such by the Committee. The
Plan requires that the Committee consist of at least two directors of the
Company who are "disinterested persons" as such term is used in Rule 16b-3
under the Exchange Act. Members of the Committee are selected by and serve at
the pleasure of the Board of Directors. Each member of the Committee is a
director of the Company. Under the Plan and subject to the limitations
thereunder, the Committee is authorized: (i) to select participants in the
Plan, (ii) to make awards in such forms and amounts as it shall determine,
(iii) to impose such limitations, restrictions and conditions upon such awards
as it shall deem appropriate, (iv) to interpret the Plan and to adopt, amend
and rescind administrative guidelines and other rules and regulations relating
to the Plan, (v) to correct any defect or omission or to reconcile any
inconsistency in the Plan or in any award granted thereunder and (vi) to make
all other determinations and to take all other actions necessary or advisable
for the implementation and administration of the Plan.
The Board of Directors or the Committee may suspend or terminate the
Plan or any portion thereof at any time and may amend it from time to time in
such respects as the Board of Directors or the Committee may deem advisable;
provided, however, that no such amendment will be made without shareholder
approval to the extent such approval is required by law, agreement or the rules
of any exchange upon which the Common Stock is listed, and provided further,
that the Plan will terminate no later than March 9, 2005. No such amendment,
suspension or termination will impair the rights of participants under
outstanding awards without the consent of the participants affected thereby or
make any change that would disqualify the Plan, or any other plan of the
Company intended to be so qualified, from the exemption provided by Rule 16b-3.
On August 1, 1995, the Company and the Bank entered into an amendment
to stock purchase agreement under which the Company agreed to issue the Bank
securities equivalent in form if more than 600,000 shares of Common Stock in
the aggregate are issued by the Company under the Plan or other similar plan,
or otherwise, to directors, officers, employees, consultants, or other persons
providing services to the Company for so long as the Bank or its permitted
successor holds not less than 75% of the shares of Common Stock currently held
by the Bank. Until August 1, 1996, the Bank will pay only nominal consideration
for any stock issued pursuant to the amendment, and thereafter will, with
certain exceptions, pay the same consideration as provided in any such
issuances of shares in excess of the 600,000 share amount. See "Management--
Certain Relationships and Related Transactions--December 1994 Private Placement
and Debt Restructurings."
Other Compensation Agreements
Effective May 21, 1993 the Company entered into employment agreements
with Messrs. Redhead and Segal. These employment agreements set forth certain
of the terms of employment for each of these individuals,
22
<PAGE> 27
including the right to receive nine months salary as severance pay upon (i)
termination of employment without cause (as defined below) or (ii) resignation
for good reason (as defined below).
For purposes of each of these individuals' employment agreements,
"cause" is defined to mean (i) the willful engaging by the employee in
misconduct which is or could reasonably be expected to become materially
injurious to the Company, monetarily or otherwise; (ii) conviction of a felony
or any crime involving moral turpitude; or (iii) participation in any fraud
against or theft from the Company. "Good reason" is defined to mean (i) the
failure of the Company to vest the employee with the powers and authority of
his office or any removal of the employee from or failure to reelect the
employee to his office; (ii) a reduction by the Company in the employee's base
salary; or (iii) the requirement by the Company that the employee be based
anywhere other than within 25 miles of the employee's present office location.
The term of Mr. Redhead's agreement is four years, expiring May 21,
1997, and provides for a base salary of $200,000, subject to annual cost of
living adjustments. His current salary is $207,000. Mr. Segal's agreement is
for three years, expiring May 21, 1996, and provides for a base salary of
$103,000, subject to annual cost of living adjustments. His current salary is
$106,000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
December 1994 Private Placement and Debt Restructurings
On December 22, 1994, the Company completed a $1,600,000 private
placement of the Series A Preferred Stock and Notes to certain existing
shareholders, members of management and new investors. The purpose of the
private placement was to implement certain debt restructurings of the Company
as follows: Sea View was the borrower and the Company was the guarantor under a
loan agreement ("Loan Agreement") with the Bank which, prior to the private
placement, had an outstanding principal balance plus accrued interest of
approximately $9,680,000 ("Loan"), which was in default. The Loan was secured
by substantially all of the assets of Sea View. On August 24, 1994, the Bank
recorded a notice of foreclosure with respect to all of the real property and
personal property collateral for the Loan. In light of these severe financial
circumstances, the Company's Board of Directors concluded that a consensual
debt restructuring offered the best opportunity to enable the Company to
continue its business, preserve value for the Company's shareholders and
maintain creditor relationships. Accordingly, the Company entered into a term
sheet with the Bank on December 2, 1994, pursuant to which the Bank agreed not
to publish a foreclosure sale notice, or foreclose on the collateral if certain
payments (as described below) were made by the Company to the Bank by December
22, 1994. If the Company had not reached an agreement to restructure the Loan,
the Bank would have proceeded with such foreclosure actions in December 1994.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Additionally, Sea View was the issuer of a certain Contingent
Promissory Note ("Contingent Note") payable to jojo's Restaurant, Inc., a
wholly-owned subsidiary of Family Restaurants, Inc. (collectively "FRI"). The
Contingent Note became payable upon the renewal of the Concession Agreement
between Sea View and the County of Los Angeles with respect to Gladstone's.
The Contingent Note was in the principal amount of $5,000,000 with contingent
accrued interest of 12.5% from April 2, 1990 of approximately $4,000,000. The
Company and Sea View were in default under the Loan, and in the event of the
renewal of the Concession Agreement, would be unable to pay the Contingent
Note. The Bank required as a condition to the debt restructuring that the
Contingent Note be settled. Accordingly, as part of the debt restructuring,
the Company paid FRI $500,000 on December 22, 1994 in full satisfaction of the
Contingent Note.
The Bank agreed to compromise the Loan by amending the Loan Agreement
to provide for the payment by Sea View of an aggregate of $4,700,000, payable
$300,000 on December 2, 1994; $1,000,000 not later than December 22, 1994; and
the balance of $3,400,000 in two notes: a senior secured note in the principal
amount of $3,000,000, bearing interest at the rate of 12% per annum and payable
at varying monthly amounts through October 31, 1997, and a junior secured note
in the principal 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.
Such notes are guaranteed by the Company. As additional consideration for the
restructuring of the Loan, and pursuant to the terms of a Stock Purchase
Agreement dated as of December 22, 1994 between the Company and the Bank (the
"Stock Purchase
23
<PAGE> 28
Agreement"), the Company issued to the Bank on December 22, 1994, 1,223,556
shares of Series A Preferred Stock that converted into 1,200,000 shares of
Common Stock on May 1, 1995 upon the filing of a Certificate of Amendment to
the Articles of Incorporation of the Company effecting the Reverse Stock Split
(constituting 30% of the combined voting power of all outstanding shares of
capital stock on a fully diluted basis). Additionally, as described below, the
Bank is entitled to participate together with investors in the private
placement in certain demand and incidental registration rights with respect to
future registered offerings by the Company of its capital stock and the Bank is
entitled to participate in any future equity offerings by the Company to the
extent required to maintain its then percentage equity ownership in the
Company, and to a mandatory prepayment of the restructured Loan in an amount
equal to 35% of the net proceeds of any such future equity offering by the
Company. The Company has a right of first refusal under the Stock Purchase
Agreement with respect to any private sale or transfer of the shares held by
the Bank.
Pursuant to the terms of the Stock Purchase Agreement, the Bank is
entitled to two nominees on the Company's Board of Directors until it holds
either less than 75% of the stock purchased or the restructured Loan is repaid,
and upon the election of two nominees from the Bank, the Company is obligated
to revise its bylaws (i) to entitle the Bank to designate any successor
directors to fill vacancies resulting from the resignation or death of
directors serving at the direction of the Bank, (ii) to provide for a quorum of
not less than 3 directors, including one director designated by the Bank, (iii)
to provide that there shall be no delegation of the powers of the Board of
Directors to a committee without a vote of at least one Bank designated
director, and (iv) to cause the bylaws of Sea View to provide that Sea View
will have the same Board of Directors as the Company, and that Sea View will
not be authorized to issue securities without the approval of both Bank
designated directors, or if there are none, by the written consent of the Bank.
Pursuant to the foregoing, the Bank selected George Nicolais and Samuel M.
Victor as its nominees for election to the Company's Board of Directors, they
were elected at the Annual Meeting of Shareholders held on April 28, 1995 and
the Company's bylaws have been appropriately amended.
The private placement was effected pursuant to the terms of a
Securities Purchase Agreement among the Company and the purchasers, dated as of
December 22, 1994 ("the Securities Purchase Agreement"). The purchasers
invested $1,600,000 consisting of $817,290 of Series A Preferred Stock and
$782,710 of Notes. Sand and Sea Partners and Sea Fair Partners, California
limited partnerships of which J. Christopher Lewis, a director of the Company,
is general partner, each purchased 126,026 shares of Series A Preferred Stock
for $103,000 in cash and $209,500 principal amount of Notes. Eli Broad, an
over 10% shareholder of the Company, purchased 168,036 shares of Series A
Preferred Stock for $137,334 in cash and $37,666 principal amount of Notes;
Alan Redhead, President and Chief Executive Officer and a director of the
Company, purchased 352,384 shares of Series A Preferred Stock for $288,000 in
cash; and Mark E. Segal, Vice President-Finance, Chief Financial Officer and
Secretary of the Company, purchased 39,154 shares of Series A Preferred Stock
for $32,000 in cash. Each share of Series A Preferred Stock automatically
converted into .980748 shares of Common Stock (or a total of 2,180,748 shares,
approximately 55% of the outstanding Common Stock of the Company on a fully
diluted basis) upon the effective date of the Reverse Stock Split. On April
28, 1995, the Company's shareholders approved the Reverse Stock Split. A
Certificate of Amendment to the Articles of Incorporation of the Company was
filed on May 1, 1995 to effect the Reverse Stock Split.
In October 1995, the Company effected its Subscription Rights Offering
in which shareholders who did not participate in the December 1994 private
placement or otherwise were excluded by contract were offered rights to
subscribe for 4.7215 shares of Common Stock for each share owned as of
September 11, 1995 at a price of $.83 per share. 244,020 shares of Common
Stock were purchased in the Subscription Rights Offering. The proceeds of the
Subscription Rights Offering of $202,536.60 were used to redeem a portion of
the Notes on a pro rata basis. The unredeemed portion of the Notes converted
into 696,207 shares of Common Stock on October 30, 1995.
Pursuant to the terms of the Stock Purchase Agreement and the
Securities Purchase Agreement, the Company is obligated, to the extent
permitted under applicable securities laws and subject to reasonable costs, to
use its best efforts to register under the Securities Act of 1933 ("Securities
Act") the resale of the Common Stock issued upon the conversion of the Series
A Preferred Stock and Notes and to maintain such registration for a reasonable
period to facilitate resale. This Offering is intended to effect such
registration.
Also, the Company and the Bank entered into an Amendment to Stock
Purchase Agreement dated as of August 1, 1995 ("Amendment"), amending the Stock
Purchase Agreement by providing that the Company will, no
24
<PAGE> 29
later than November 15, 1995, register for resale the Common Stock held by the
Bank pursuant to Rule 415 under the Securities Act and will file amendments in
order to update it at any time for up to two years when requested in writing by
the Bank, with the Company bearing all the expenses of such registration and
updates up to certain limits. This Offering is intended to effect such
registration. The purchasers of Series A Preferred Stock and Notes in the
December 1994 private placement may include in this Offering the shares of
Common Stock received by them (i) upon conversion of the Series A Preferred
Stock in connection with the Reverse Stock Split and (ii) to the extent the
proceeds of the Subscription Rights Offering did not fully redeem the Notes.
Certain other shareholders of the Company who have registration rights are also
afforded an opportunity to include shares in this Offering, subject to the
terms and conditions of such registration rights. The Company also agreed, in
the Amendment, to issue the Bank securities equivalent in form if more than
600,000 shares of Common Stock in the aggregate are issued by the Company under
the Company's Omnibus Stock Plan or other similar plan, or otherwise, to
directors, officers, employees, consultants, or other persons providing
services to the Company for so long as the Bank or its permitted successor
holds not less than 75% of the shares of Common Stock currently held by the
Bank. Until August 1, 1996, the Bank will pay only nominal consideration for
any stock issued pursuant to the Amendment, and thereafter will, with certain
exceptions, pay the same consideration as provided in any such issuance of
shares in excess of the 600,000 share amount. See "Management--Executive
Compensation--The Omnibus Stock Plan."
Also, investors in the private placement, together with the Bank,
holding at least 20% of the shares of Common Stock into which the Series A
Preferred Stock have been converted have two demand registration rights to
require the Company to register such shares for resale under the Securities Act
and applicable state securities laws for resale to the public. This right of
registration shall continue until such time as in the opinion of counsel for
the Company such registration is no longer necessary for shareholders to sell
the shares of Common Stock without registration. Such investors, together with
the Bank, are also be entitled to certain incidental registration rights. The
Company will pay the expenses in connection with any such incidental
registrations and two such demand registrations.
Pursuant to the terms of the Stock Purchase Agreement and the
Securities Purchase Agreement, and in order to provide the Company with a more
reasonable capital structure, the Company held a meeting of the shareholders of
the Company to vote upon, among other things, the Reverse Stock Split. As
noted above, the Reverse Stock Split was approved at the April 28, 1995 Annual
Meeting of Shareholders.
Pursuant to the terms of the Stock Purchase Agreement and the
Securities Purchase Agreement, the Company agreed to use its best efforts to
effectuate the Subscription Rights Offering, the proceeds of which were used to
partially redeem the Notes. The purpose of the Subscription Rights Offering
was to afford to those shareholders of the Company who did not participate in
the December 1994 private placement the opportunity to purchase shares of
Common Stock on terms as substantially similar as practicable to the terms
provided to the investors in the private placement.
Sea View and the Bank entered into a First Amendment to Amended and
Restated Loan Agreement, dated as of August 1, 1995, which amended the covenant
of Sea View regarding maintenance of "Minimum Free Cash Flow" during certain
periods with respect to the accounting treatment of certain expenses, including
expenses of this Offering and the Subscription Rights Offering. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
As a condition to the closing of the Stock Purchase Agreement and the
Securities Purchase Agreement, Sand and Sea Partners, Sea Fair Partners and the
Bank entered into a Shareholders and Noteholders Agreement dated as of December
22, 1994 (the "Shareholders Agreement") pursuant to which Sand and Sea Partners
and Sea Fair Partners agreed to vote their shares of the Company in a manner
that would elect to the Board of Directors of the Company two individuals
designated by the Bank until such time as the Bank holds less than 75% of its
current holdings in Common Stock or repayment in full of the Company's
$3,400,000 indebtedness to the Bank. The Company's three directors also agreed
under the Shareholders Agreement, when requested by the Bank, to take all Board
action and all steps necessary to assist shareholder action in order to elect
two designees of the Bank to the Board of Directors, including increasing the
size of the Board to six. Two Bank nominees were elected to the Board of
Directors at the April 28, 1995 Annual Meeting of Shareholders. See
"Management." The Shareholders Agreement is subject to the shareholders
agreement dated April 10, 1990 ("1990 Shareholders Agreement") among Sand and
Sea Partners, Sea Fair Partners, John C. Cushman, III, and other investors in a
1990 private placement of
25
<PAGE> 30
Common Stock in the Company. The 1990 Shareholders Agreement provides that
Sand and Sea Partners, Sea Fair Partners and other investors will cause certain
representatives of the investor group to be nominated to the Board. Pursuant
to such agreement, Mr. Cushman requested that Barry A. Chase be nominated for
election to the Board of Directors. At a meeting of the Board of Directors on
April 28, 1995, Mr. Chase was elected as an additional Director.
In October 1995, Jefferson W. Asher, Jr., a director of the Company,
purchased a 7.5% limited partnership interest in Sand and Sea Partners.
CERTAIN REGISTRATION RIGHTS
The Company, Richard S. Stevens, Sand and Sea Partners, Sea Fair
Partners, Eli Broad, Cushman/Sea View Partners, Cushman K/Sea View Partners and
certain other shareholders of the Company are parties to a Registration Rights
Agreement which, as amended, provides that the Company shall use its best
efforts to register under the Securities Act the shares of any of the
shareholders who are party to the Registration Rights Agreement, and who
requests such registration with regard to a certain minimum number of shares of
Common Stock, at certain times when the Company otherwise proposes to register
certain of its securities. Such registration rights apply to this Offering.
The parties to the Registration Rights Agreement, except Stevens, individually
and collectively may make a total of two written demands for registration of
their shares so long as the demand relates to at least 20% of the registerable
shares of Common Stock then outstanding. The Company will pay the expenses in
connection with any such incidental registrations and two such demand
registrations. In certain circumstances such shareholders also have a
contractual right of first refusal to purchase, on a pro-rata basis, any equity
securities of the Company that the Company may propose to sell at a price less
than fair market value.
CONSULTING AGREEMENT
Effective June 30, 1989, the Company and Samuel Schulman (who at such
time was an over 5% shareholder of the Company) entered into a consulting
agreement pursuant to which Mr. Schulman would provide business consultation
services to the Company's American Microsonics Corp. subsidiary on a
non-exclusive basis for a term of five years. During the term of the
consulting agreement, Mr. Schulman was entitled to annual compensation equal
to 25% of the Company's annual pre-tax profits (as defined in the consulting
agreement) from Microsonics over $500,000, including but not limited to any
recoveries from claims or actions for patent infringement. Mr. Schulman was
not entitled to any compensation under this consulting agreement for the fiscal
years ended April 30, 1993, 1994 and 1995. This agreement expired on June 30,
1994.
LEGAL SERVICES
Scott C. Dew, a director of the Company since March 1995, was a
shareholder in the law firm of Levene & Eisenberg, P.C. until June 1995. The
Company retained such law firm during the fiscal year ended April 30, 1995 to
render legal services in connection with certain debt restructuring matters.
CERTAIN COMPENSATION ARRANGEMENTS
Reference is made to "Management--Executive Compensation -- Other
Compensation Arrangements" for a description of employment arrangements and
other arrangements between the Company and certain officers and directors.
PRINCIPAL SHAREHOLDERS
The following tables set forth information as to the shares of Common
Stock owned as of November 1, 1995 by (i) each person known to the Company to
be the beneficial owner of more than five percent of the Common Stock, (ii)
each director, (iii) each executive officer named in the summary compensation
table, and (iv) all directors and executive officers of the Company as a group.
Unless otherwise indicated in the footnotes following the table, the persons as
to whom the information is given had sole voting and investment power over the
shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
26
<PAGE> 31
<TABLE>
<CAPTION>
Amount of Beneficial Ownership(1)
Name and Address of ---------------------------------
Beneficial Owners No. Shares % Ownership*
- ----------------- ---------- ------------
<S> <C> <C>
Bank of America National Trust 1,200,000 35.3%
and Savings Association
555 California Street, 18th Floor
Department 15027
San Francisco, CA 94104
Richard S. Stevens 44,713 1.3%
15111 N. Hayden Road
Scottsdale, AZ 85260
Eli Broad 228,345 6.7%
1999 Avenue of the Stars
Suite 3170
Los Angeles, CA 90067
Sand and Sea Partners(3) 332,478 9.8%
300 S. Grand Avenue
29th Floor
Los Angeles, CA 90071
Sea Fair Partners(3) 332,478 9.8%
300 S. Grand Avenue
29th Floor
Los Angeles, CA 90071
J. Christopher Lewis(3) 664,956 19.6%
300 South Grand Ave.
29th Floor
Los Angeles, CA 90071
Alan Redhead 541,017(5) 15.0%
California Beach Restaurants, Inc.
17383 Sunset Boulevard
Suite 140
Pacific Palisades. CA 90272
Jefferson W. Asher, Jr. 43,603(6) 1.3%
4118 Stansbury Avenue
Sherman Oaks, CA 91423
Mark E. Segal 102,567(7) 3.0%
California Beach Restaurants, Inc.
17383 Sunset Boulevard
Suite 140
Pacific Palisades, CA 90272
Scott C. Dew 0 0%
1901 Avenue of the Stars
Suite 1600
Los Angeles, CA 90067
</TABLE>
27
<PAGE> 32
<TABLE>
<S> <C> <C>
George Nicolais 0(8) 0%
c/o George Nicolais &
Associates, Inc.
3452 East Foothill Blvd.
Pasadena, CA 91107
Samuel M. Victor 0(8) 0%
Chanin and Company
11111 Santa Monica Boulevard
Suite 210
Los Angeles, CA 90025
Barry A. Chase 17,571(9) *
c/o Cushman Equities
Corporation
601 S. Figueroa Street
47th Floor
Los Angeles, CA 90017-5752
John C. Cushman III(10) 268,894 7.9%
601 S. Figueroa Street
47th Floor
Los Angeles, CA 90017-5752
All directors and executive 1,414,427(11) 38.4%
officers as a group(9 persons)
</TABLE>
* Denotes holdings less than 1%.
(1) The number of shares and percentages in these columns are based on
3,400,975 shares of Common Stock outstanding.
(3) J. Christopher Lewis, a director of the Company, is the general
partner and a limited partner of Sand and Sea Partners and Sea Fair
Partners, which together own 664,956 shares of Common Stock. Mr.
Lewis disclaims beneficial ownership of the shares owned by such
partnerships, except with respect to (i) 25,268 shares which represent
a limited partnership interest in each partnership of approximately
3.8% and (ii) an additional undetermined number of such shares by
virtue of his rights as a general partner under the limited
partnership agreement. As general partner of such partnership, Mr.
Lewis may have the power to direct the voting or disposition of such
shares and therefore may be deemed to beneficially own all the shares
held by such partnerships.
(5) Includes currently exercisable options to purchase 195,417 shares of
Common Stock issued under the Omnibus Stock Plan.
(6) Reflects currently exercisable options to purchase 18,667 shares of
Common Stock issued under the Omnibus Stock Plan and 24,936 shares
which represent his limited partnership interest of 7.5% in Sand and
Sea Partners.
(7) Includes currently exercisable options to purchase 64,166 shares of
Common Stock issued under the Omnibus Stock Plan.
(8) Does not include 1,200,000 shares owned by the Bank. Messrs. Nicolais
and Victor were nominated for election to the Board of Directors of
the Company at the request of the Bank pursuant to the exercise of its
28
<PAGE> 33
contractual rights with the Company. Messrs. Nicolais and Victor
disclaim beneficial ownership of all securities of the Company owned
by the Bank.
(9) Includes 14,500 shares indirectly owned by Mr. Chase through North
American Trust. Does not include 268,894 shares deemed to be
beneficially owned by John C. Cushman, III, including shares held by
partnerships in which Cushman Equities Corporation is a general
partner and the Cushman Family Trust. Mr. Chase is president of
Cushman Equities Corporation but holds no equity interest in such
corporation. Mr. Chase was nominated for election to the Board of
Directors of the Company at the request of Mr. Cushman pursuant to the
exercise of Mr. Cushman's contractual rights with the Company. Mr.
Chase disclaims beneficial ownership of all securities of the Company
beneficially owned by Mr. Cushman.
(10) Includes 128,911 shares held by Cushman Sea View Partners, a
California general partnership, 85,938 shares held by Cushman K Sea
View Partners, and 54,045 shares held by the Cushman Family Trust.
Mr. Cushman is a general partner in Cushman Sea View Partners and
Cushman K Sea View Partners and may be deemed to beneficially own
Cushman Equities Corporation, which is also a general partner of such
partnerships.
(11) Includes currently exercisable options to purchase 278,251 shares of
Common Stock issued under the Omnibus Stock Plan.
SELLING SHAREHOLDERS
The following table sets forth, as of November 1, 1995, certain
information provided to the Company by the Selling Shareholders with respect to
the Common Stock owned and which may be sold from time to time by such Selling
Shareholders:
<TABLE>
<CAPTION>
Percent Of Outstanding
Shares Owned Shares Which May Shares Owned After Common Stock Owned After
Before Be Offered Offering, Assuming All Offering, Assuming All
Name Offering Hereby Offered Shares Are Sold Offered Shares Are Sold*
- ---- -------- ------ ----------------------- ------------------------
<S> <C> <C> <C> <C>
Bank of America NT&SA 1,200,000 1,200,000 0 0%
Richard S. Stevens 44,713(1) 44,713 0 0%
Sand and Sea Partners 332,478 332,478 0 0%
Sea Fair Partners 332,478 332,478 0 0%
Eli Broad 228,351 198,304 30,041 *
Cushman K Sea View 85,937 15,021 70,917 2.1%
Partners
Cushman Sea View Partners 128,911 22,531 106,380 3.1%
Alan Redhead 345,600(2) 345,600 0 0%
Howard Higholt, M.D. 94,334 94,334 0 0%
Charles W. Luther & Joan 59,579 59,579 0 0%
Luther
</TABLE>
29
<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C>
Arnold Phillip Lieberman 84,404 84,404 0 0%
Corinne M. Lieberman as
Co-Trustees, Marital Trust
under Declaration of the
Lieberman Family Trusts of
August 2, 1989
Al Ehringer 33,004 30,000 3,004 *
Strome Family Trust, Mark 139,018 139,018 0 0%
Strome as Trustee
Alan Tivoli 67,922 67,422 500 *
Mark E. Segal 38,400(3) 38,400 0 0%
</TABLE>
* Denotes holdings less than 1%.
(1) Richard S. Stevens is a Director of the Company.
(2) Alan Redhead is Chairman of the Board, President, Chief Executive
Officer and a Director of the Company. Does not include currently
exercisable options to purchase 195,417 shares of Common Stock issued
under the Omnibus Stock Plan.
(3) Mark Segal is Vice President-Finance, Chief Financial Officer and
Secretary of the Company. Does not include currently exercisable
options to purchase 64,167 shares of Common Stock issued under the
Omnibus Stock Plan.
For other information regarding the nature of any position, office or
other material relationship which the Selling Shareholders have had with the
Company within the past three years, reference is made to "Management--Certain
Relationships and Related Transactions."
DESCRIPTION OF CAPITAL STOCK
The Company's total authorized capital stock consists of 25,000,000
shares of $.01 par value Common Stock (of which 3,400,975 shares are
outstanding) and 5,000,000 shares of no par value preferred stock (of which no
shares are outstanding). All of the outstanding shares of Common Stock are
fully paid and non-assessable. Each share of Common Stock is entitled to one
vote at shareholders' meetings and will be equal to each other share of Common
Stock with respect to voting rights, liquidation rights and dividend rights.
Pursuant to Section 708 of the California Corporations Code, in the election of
directors, each shareholder may cumulate his votes and give any one candidate a
number of votes equal to the number of directors to be elected multiplied by
the number of votes to which the shareholder's shares are entitled, or may
distribute such votes among as many candidates as the shareholder may
determine. However, no shareholder will be entitled to cumulate votes unless
such candidates' names have been placed in nomination prior to the voting and
at least one shareholder has given notice at the meeting prior to the voting of
intent to cumulate votes. A majority of the shares of Common Stock eligible to
vote at a meeting constitutes a quorum for voting purposes. Holders of shares
of Common Stock are entitled to cast one vote per share. Shareholders do not
have pre-emptive rights to purchase additional shares of Common Stock. The
shares of Common Stock have no conversion or redemption rights. Each holder of
shares of Common Stock on liquidation is entitled to receive a pro rata share
of the Company's assets available for distribution to such shareholders after
required liquidation payment is made on any outstanding shares of preferred
stock.
The Board of Directors, may, without further action by the
shareholders, issue shares of preferred stock, fix or alter dividend rights,
dividend rates, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), redemption price or prices and
liquidation preferences of a wholly unissued series of preferred stock, with
the designation of any such series and the number of shares to constitute any
such unissued series. The Board of Directors of the Company has not created
any series of preferred stock, which has not been
30
<PAGE> 35
fully redeemed or converted into Common Stock. The Company has no current
intention to issue shares of preferred stock.
The transfer agent and registrar for the shares of Common Stock is
Chemical Mellon Shareholder Services.
MARKET INFORMATION
The shares of Common Stock are traded in the over-the-counter market.
Effective August 21, 1990, the Common Stock was quoted on the Nasdaq system
under the symbol "CALB". On November 10, 1992 the shares of Common Stock were
delisted by Nasdaq as a result of the Company's failure to meet the minimum bid
price requirement of $1.00. Subsequent to November 10, 1992 the Common Stock
has been listed on the OTC Bulletin Board under the symbol "CBHR".
Market price information for the Common Stock listed below is taken
from the OTC Bulletin Board.
<TABLE>
<CAPTION>
BID PRICE(1)
-------------------------
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1994
First Quarter $2.06 $.033
Second Quarter $ .33 $.033
Third Quarter $ .033 $.033
Fourth Quarter $ .033 $.033
FISCAL 1995
First Quarter $ .033 $.033
Second Quarter $ .033 $.033
Third Quarter $ .33 $.033
Fourth Quarter $ .33 $.033
FISCAL 1996
First Quarter $ .02 $.001
Second Quarter $ .02 $.001
Third Quarter (through 11/20/95) $ .02 $.001
</TABLE>
- --------------
(1) The bid prices prior to May 1, 1995 have been adjusted to give
retroactive effect to the Reverse Stock Split.
As of November 20, 1995, the most recent bid price for one share of
Common Stock was $.01 as quoted on the OTC Bulletin Board on October 19, 1995.
At November 1, 1995, the Company had approximately 570 shareholders of record.
The Company has not paid a dividend on its Common Stock since fiscal
1985. The Company presently intends to retain any earnings to repay
indebtedness and finance its operations and does not anticipate declaring cash
dividends in the foreseeable future. Sea View's loan agreement prohibits the
payment of dividends to the Company or the repurchase of Sea View's common
stock by Sea View.
31
<PAGE> 36
PLAN OF DISTRIBUTION
The sale of the shares of Common Stock offered hereby is not being
underwritten. Sales may be made by the Selling Shareholders in the
over-the-counter market or otherwise at prices and on terms then prevailing or
at prices related to the then current market price of the Common Stock, or in
negotiated transactions. In this regard, the shares may be sold in one or more
of the following types of transactions: (1) a block trade, in which the broker
or dealer so engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
(ii) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (iii) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (iv)
directly in private transactions at negotiated prices. In effecting sales,
brokers or dealers engaged by the Selling Shareholders may arrange for other
brokers or dealers to participate. Brokers or dealers will receive commissions
or discounts from the Selling Shareholder in amounts to be negotiated prior to
any sale. The Selling Shareholder offering and selling the shares of Common
Stock and any broker or dealer participating in any such distribution may be
deemed to be "underwriters" (as defined in the Securities Act) with respect to
such sales. The Company has agreed to indemnify the Selling Shareholders, and
the Selling Shareholders have agreed to indemnify the Company, against certain
civil liabilities, including liabilities under the Securities Act.
The Company has agreed to file amendments in order to update this
Registration Statement at any time for up to two years when requested in
writing by the Bank, with the Company bearing all the expenses of such
registration and updates up to certain limits.
The Company has agreed that it will furnish the Selling Shareholders a
reasonable number of copies of this Prospectus.
LEGAL MATTERS
Certain legal matters pertaining to the securities offered hereby will
be passed upon for the Company by Rosenfeld, Meyer & Susman, Beverly Hills,
California.
EXPERTS
The consolidated financial statements of the Company at April 30, 1995
and 1994, and for each of the three years in the period ended April 30, 1995,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the SEC. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices of the SEC:
Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, New York
10048; and Midwest Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may be
obtained at prescribed rates from the Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company has filed with the SEC a Registration Statement under the
Securities Act with respect to the securities offered hereby. This Prospectus
does not contain all of the information set forth or incorporated by reference
in the Registration Statement and the exhibits and schedules thereto as
permitted by the rules and regulations of the SEC. For further information
with respect to the Company and the securities offered hereby, reference is
hereby made to such Registration Statement and to the exhibits and schedules
thereto. The Registration Statement can be inspected without charge at the
office of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
32
<PAGE> 37
Washington, D.C. 20549, and copies may be obtained therefrom at prescribed
rates. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the SEC. Each such statement is qualified in its
entirety by such reference.
33
<PAGE> 38
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet at April 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statement of Operations for each of the three years in the period ended April 30, 1995 . . . . . . . F-5
Consolidated Statement of Shareholders' Equity (Deficit) for each of the three years in the period ended
April 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statement of Cash Flows for the each of the three years in the period ended April 30, 1995 . . . . . F-7
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Consolidated Balance Sheet at July 31, 1995 (unaudited) and April 30, 1995 . . . . . . . . . . . . . . . . . . . F-22
Consolidated Statement of Operations for the three months ended July 31, 1995 and 1994 (unaudited) . . . . . . . F-24
Consolidated Statement of Cash Flows for the three months ended July 31, 1995 and 1994 (unaudited) . . . . . . . F-25
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
</TABLE>
F-1
<PAGE> 39
Report of Independent Auditors
Board of Directors
California Beach Restaurants, Inc.
We have audited the accompanying consolidated balance sheets of California
Beach Restaurants, Inc. and subsidiaries as of April 30, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended April 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
California Beach Restaurants, Inc. and subsidiaries at April 30, 1995 and 1994,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended April 30, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Century City
Los Angeles, California
May 30, 1995
F-2
<PAGE> 40
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
April 30,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Current Assets:
Cash $ 493,000 $ 774,000
Restricted Cash (Note A) 500,000 75,000
Trade and other receivables 22,000 9,000
Inventories 262,000 251,000
Prepaid expenses 155,000 157,000
---------- -----------
Total current assets 1,432,000 1,266,000
---------- -----------
Fixed Assets (at cost) - net of accumulated
depreciation and amortization (Note C) 1,562,000 1,734,000
Other Assets:
Goodwill, net of accumulated
amortization (Notes A and C) 3,568,000 6,714,000
Covenant not to compete, net of
accumulated amortization (Notes A and C) - 458,000
Other 147,000 197,000
---------- -----------
$6,709,000 $10,369,000
========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-3
<PAGE> 41
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
April 30,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
Current Liabilities:
Accounts payable $ 665,000 $ 540,000
Accrued interest 27,000 944,000
Accrued liabilities 656,000 829,000
Debt in default (Notes B and D) - 8,166,000
Notes payable (Note D) - 64,000
Current portion of Long-term debt (Note D) 1,161,000 -
------------ ------------
Total current liabilities 2,509,000 10,543,000
Long-term debt, less current portion (Note D) 2,776,000 -
9.75% Convertible subordinated notes (Note B) 783,000 -
Commitments and Contingencies (Notes G and H)
Stockholders' Equity (Deficit) (Notes B and F):
Common stock, $.01 par value, authorized
25,000,000 shares, issued and outstanding
280,000 shares 3,000 3,000
Series A convertible preferred stock, no par
value, authorized 5,000,000 shares, issued
and outstanding 2,223,556 shares at April 30,
1995 and none at April 30, 1994 (Note F) 1,694,000 -
Additional paid-in capital 10,853,000 10,853,000
Deficit in retained earnings (11,909,000) (11,030,000)
------------ ------------
Total stockholders' equity (deficit) 641,000 (174,000)
------------ ------------
$ 6,709,000 $ 10,369,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-4
<PAGE> 42
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------------------------
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
Sales $14,160,000 $13,924,000 $15,144,000
Costs and expenses:
Cost of goods sold 11,741,000 11,402,000 12,300,000
Selling, general and administrative 946,000 1,045,000 965,000
Legal and litigation settlement 221,000 497,000 278,000
Depreciation 452,000 381,000 325,000
----------- ----------- -----------
800,000 599,000 1,276,000
Other income (expenses):
Interest expense (657,000) (890,000) (894,000)
Amortization of intangible assets (1,104,000) (1,115,000) (1,115,000)
Write-down of goodwill (Note A) (2,500,000) - -
Other, net 46,000 38,000 64,000
----------- ----------- -----------
Loss from continuing
operations before income taxes (3,415,000) (1,368,000) (669,000)
Income tax provision (benefit)(Note E) 4,000 4,000 (4,000)
----------- ----------- -----------
Loss from continuing operations
before extraordinary item (3,419,000) (1,372,000) (665,000)
Discontinued operations (Note I):
Gain on disposal, net of taxes - - 16,000
----------- ----------- -----------
Extraordinary item:
Gain from debt restructuring (Note B) 2,540,000 - -
----------- ----------- -----------
Net loss ($879,000) ($1,372,000) ($649,000)
=========== =========== ===========
Income (loss) per common share:
Continuing operations ($ 12.21) ($ 4.93) ($ 2.35)
Discontinued operations - - -
Extraordinary item 9.07 - -
----------- ----------- -----------
Net loss per common share ($ 3.14) ($ 4.93) ($ 2.35)
=========== =========== ===========
Weighted average number of common
shares outstanding 280,000 278,400 276,500
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-5
<PAGE> 43
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional
------------ --------------- paid-in Accumulated
Shares Amount Shares Amount capital deficit Total
------ ------ ------ ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1992 274,000 $3,000 - $ - $10,837,000 ($9,009,000) $ 1,831,000
Exercise of stock options 1,500 - - - 7,000 - 7,000
Common stock issued
for services 1,500 - - - 5,000 - 5,000
Net loss - - - - - (649,000) (649,000)
------- ------ --------- ---------- ----------- ------------ -----------
Balance at April 30, 1993 277,000 3,000 - - 10,849,000 (9,658,000) 1,194,000
Common stock issued
for litigation settlement 3,000 - - - 4,000 - 4,000
Net loss - - - - - (1,372,000) (1,372,000)
------- ------ --------- ---------- ----------- ------------ -----------
Balance at April 30, 1994 280,000 3,000 - - 10,853,000 (11,030,000) (174,000)
Series A convertible
preferred stock issued
pursuant to private
placement - - 1,000,000 714,000 - - 714,000
Series A convertible
preferred stock issued
pursuant to restructuring - - 1,223,556 980,000 - - 980,000
Net loss - - - - - (879,000) (879,000)
------- ------ --------- ---------- ----------- ------------ -----------
Balance at April 30, 1995 280,000 $3,000 2,223,556 $1,694,000 $10,853,000 ($11,909,000) $ 641,000
======= ====== ========= ========== =========== ============ ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-6
<PAGE> 44
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations ($879,000) ($1,372,000) ($665,000)
Adjustments to reconcile loss from
continuing operations to cash provided
by operations:
Depreciation and amortization 1,613,000 1,582,000 1,527,000
Write-down of goodwill 2,500,000 - -
Gain from debt restructuring (2,540,000) - -
Increase (decrease) in allowance for
doubtful accounts - (52,000) (10,000)
Common stock issued for litigation settlement - 4,000 -
Notes issued for litigation settlement - 75,000 -
Changes in operating assets and liabilities:
Restricted Cash (425,000) (75,000) -
Accounts receivable, trade (13,000) 49,000 7,000
Inventories (11,000) 25,000 (25,000)
Prepaid expenses 2,000 (70,000) (4,000)
Accounts payable 125,000 (334,000) (382,000)
Accrued liabilities (146,000) 358,000 362,000
---------- ----------- ---------
Cash provided by continuing operations 226,000 190,000 810,000
Cash provided by discontinued operations - - 16,000
---------- ----------- ---------
Cash provided by operations 226,000 190,000 826,000
---------- ----------- ---------
Cash flows used in investing activities:
Proceeds from sale of fixed assets - 5,000 -
Proceeds from the sale of other assets - - 24,000
Increase (decrease) in other assets (7,000) 4,000 -
Additions to fixed assets (280,000) (380,000) (255,000)
---------- ----------- ---------
Net cash used in investing activities (287,000) (371,000) (231,000)
---------- ----------- ---------
Cash flows from financing activities:
Principal payments on borrowing (1,595,000) (11,000) (174,000)
Payment of contingent note and restructuring expenses (692,000) - -
Borrowings representing accrued interest
prior to restructuring 570,000 - -
Proceeds from the sale of preferred stock 714,000 - -
Proceeds from issuance of 9.75% convertible
subordinated notes 783,000 - -
Exercise of stock options - - 7,000
---------- ----------- ---------
Net cash used in financing activities (220,000) (11,000) (167,000)
---------- ----------- ---------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-7
<PAGE> 45
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net increase (decrease) in cash ($281,000) ($192,000) $428,000
Cash at beginning of period 774,000 966,000 538,000
--------- --------- --------
Cash at end of period $ 493,000 $ 774,000 $966,000
========= ========= ========
Supplemental disclosures of cash flow
information:
In connection with settlement of a contingent note
payable, the Company recorded a $500,000
liability during the year ended April 30, 1995.
Cash paid during the year for:
Interest $ - $ 375,000 $352,000
========= ========= ========
Income taxes $ 4,000 $ 4,000 $ 5,000
========= ========= ========
Supplemental schedule of non-cash
investing and financing activities:
Issuance of common stock for services - - $ 5,000
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-8
<PAGE> 46
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Company has continuing operations in a single business segment,
the ownership and management of two restaurants, Gladstone's 4 Fish and RJ's
the Rib Joint.
FISCAL YEAR
The Company's fiscal year ends on April 30. The Company's restaurant
operations are conducted through its wholly-owned subsidiary, Sea View. Sea
View's fiscal years ending April 27, 1995 and April 22, 1993 contained 52
weeks, while fiscal year ended April 28, 1994 contained 53 weeks.
CONSOLIDATION
The consolidated financial statements of California Beach Restaurants,
Inc. and subsidiaries include the accounts of the parent company and its
wholly-owned subsidiaries. All material intercompany accounts and transactions
have been eliminated in consolidation.
RESTRICTED CASH
At April 30, 1995 and 1994, the Company had $500,000 and $75,000,
respectively, in Restricted Cash. In 1995 $475,000 is restricted pursuant to a
financial covenant of the Company's restructured bank loan (see Note B). The
remainder of Restricted Cash in 1995 and 1994 represent letters of credit
outstanding which secure payment of certain deductible amounts pursuant to the
Company's general liability insurance policy. The terms of this letter of
credit require that it be fully collateralized by a separate restricted bank
account.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined principally by the first-in, first-out method. Inventories consist
primarily of food, beverages and other restaurant supplies.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation on furniture and
equipment is computed by the straight-line method using lives ranging from 3 to
8 years. Leasehold improvements are amortized over the remaining terms of the
leases (including options expected to be exercised) or the estimated lives of
the improvements, principally 7 years, whichever is less.
INCOME TAXES
The Company uses the liability method for computing deferred taxes
given the adoption of the Statement of Financial Accounting Standards No. 109
("SFAS 109") Accounting for Income Taxes on May 1, 1993. The adoption of SFAS
109 did not have a material effect on the Company's financial position or
results of operations.
REVERSE STOCK SPLIT
On April 28, 1995, the Company's shareholders approved a one for
33.286962 reverse stock split with respect to the outstanding shares of common
stock which became effective May 1, 1995, upon the filing of a Certificate of
Amendment to the Company's Articles of Incorporation. All references to share
and per share amounts of common stock have been adjusted to give effect to the
reverse stock split.
F-9
<PAGE> 47
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
PER SHARE DATA
Per share data is based on the weighted average number of shares of
common stock outstanding. Common stock equivalents, consisting of stock
options and Series A Convertible Preferred Stock and other potentially dilutive
securities (9.75% Convertible Subordinated Notes) have been excluded from per
share calculations as their effect would be antidilutive. Supplementary
earnings (loss) per share reflecting the conversion of the Series A Convertible
Preferred Stock as of December 22, 1994, the date of issuance, would be
($.84), based on 1,052,000 weighted average common shares outstanding.
ACQUISITION COSTS
Acquisition costs are stated at cost and are being amortized as
follows:
<TABLE>
<CAPTION>
Term Method
---- ------
<S> <C> <C>
Goodwill 10 years Straight Line
Covenant not to compete 5 years Straight Line
Deferred loan costs 7 years Interest method
</TABLE>
The covenant not to compete and all deferred loan costs have been
fully amortized as of April 30, 1995. The Company's only remaining separately
identifiable intangible asset is goodwill. It is the Company's policy to
separately value all purchased intangible assets other than goodwill and to
assign such identifiable intangible assets separate amortization lives.
The Company considered the transactions described in Note B to
represent an event which established the existence of impairment indicators.
The issuance of equity securities to the bank and the private financing
reflects potentially 78% of the Company's fully diluted voting equity. These
transactions served as the basis for determining fair value in order to measure
the extent of the impairment. This valuation was further adjusted to reflect
the uncertainty concerning continuation of business at the Company's principal
restaurant location beyond the current term of the concession agreement.
Accordingly, goodwill has been written down by $2,500,000 and concurrently, the
amortization period has been reduced from fifteen years to ten years. The
combination of the write-down and reduction in amortization period will result
in future amortization expense which will approximate the amount recorded in
prior years.
It is the Company's policy to periodically review the carrying value
of its intangible assets (principally goodwill) in relation to the operating
performance and the future undiscounted cash flows of the underlying business.
Adjustments to the carrying value are made if the sum of expected future net
cash flows over the remaining amortization period is less than the book value
of the intangibles, or if events or circumstances also establish the existence
of impairment indicators.
FINANCIAL INSTRUMENTS
Based on the recent restructuring transactions described in Note B,
the fair value of the long-term debt is estimated to be the same as amounts
reported in the Company's balance sheet.
RECLASSIFICATIONS
The Consolidated Financial Statements for the year ended April 30,
1994 contain certain reclassifications to conform to the current year
presentation.
F-10
<PAGE> 48
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - RESTRUCTURING OF SENIOR AND SUBORDINATED
CONTINGENT DEBT AND PRIVATE PLACEMENT
On December 22, 1994, the Company completed a restructuring of Sea
View's bank loan and settlement of a contingent note, and concurrently
completed a private placement of securities to finance such restructuring and
settlement.
In April 1992 Sea View received notification from its bank that all
amounts outstanding under the loan were due and payable. In late August 1994,
Sea View's bank commenced formal foreclosure proceedings against the loan's
collateral which included all of Sea View's assets. Additionally, Sea View was
potentially liable under a Subordinated Contingent Promissory Note ("Contingent
Note") to a third party issued in connection with the Company's acquisition of
Sea View's operating assets in 1990. This Contingent Note could have resulted
in a maximum amount due of $5,000,000, assuming a fifteen year extension of the
Gladstone's 4 Fish restaurant concession agreement, plus interest at 12.5% from
April 2, 1990. The bank required as a condition to the bank debt restructuring
that the Contingent Note be settled or otherwise restructured to the bank's
satisfaction. Accordingly, as part of the bank debt restructuring, the Company
paid $500,000 in full satisfaction of the Contingent Note. The gain from debt
restructuring has been reduced by this payment.
At the date of the bank debt restructuring, the Company owed the bank
$8,166,000 in principal and $1,514,000 in accrued and unpaid interest. The
restructured bank loan provided for the payment by Sea View of an aggregate of
$4,700,000, of which $1,300,000 was paid on or before December 22, 1994, and
a balance of $3,400,000 which was represented by two notes; a senior secured
note in the 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 of $563,000
and $157,000, respectively has been 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. Such
notes are guaranteed by the Company. As additional consideration for the debt
restructuring, the Company issued to the bank, 1,223,556 shares of a new issue
Series A Convertible Preferred Stock that converted into 1,200,000 shares of
Common Stock on May 1, 1995 upon the filing of a Certificate of Amendment to
the Articles of Incorporation of the Company effecting a one for 33.286962
reverse stock split (constituting 30% of the combined voting power of all
outstanding shares on a fully diluted basis). The bank is also entitled to two
representatives on the Board of Directors of the Company until the restructured
debt has been repaid or the bank has sold at least 25% of its stock holdings.
Also, the bank will be entitled to participate in certain future equity
offerings by the Company in order to maintain its percentage equity ownership
and will be entitled to a prepayment of its restructured loan equal to 35% of
the net proceeds of any such future equity offering by the Company. For the
year ended April 30, 1995 the Company recognized an extraordinary gain of
$2,540,000 on the bank debt restructuring and settlement of the Contingent
Note. No tax expense or benefit was recognized from this transaction, as the
resulting gain was not taxable.
F-11
<PAGE> 49
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - RESTRUCTURING OF SENIOR AND SUBORDINATED
CONTINGENT DEBT AND PRIVATE PLACEMENT - CONTINUED
The private financing which raised the funds necessary to effect the
bank debt restructuring and Contingent Note settlement, involved a total
investment of $1,600,000, excluding expenses, consisting of $817,290 of
Series A Convertible Preferred Stock and $782,710 of 9.75% Convertible
Subordinated Notes. 1,000,000 shares of the Series A Preferred Stock were
issued at $.81729 per share. These shares automatically converted into Common
Stock on May 1, 1995 upon the filing of a Certificate of Amendment to the
Articles of Incorporation of the Company effecting a one for 33.286962 reverse
stock split. The 9.75% Convertible Subordinated Notes will automatically
convert into 939,252 shares of Common Stock on October 31, 1995 if they have
not been redeemed prior to such date.
The Company held a meeting of its shareholders on April 28, 1995. At
this meeting the shareholders approved a one for 33.286962 reverse stock split
with respect to the outstanding shares of Common Stock. The Company intends to
effect a rights offering to shareholders of approximately $800,000, the
proceeds of which will be used to redeem the Convertible Subordinated Notes.
This rights offering would be on a pro rata basis and will be made only by the
means of a prospectus declared effective by the Securities and Exchange
Commission. The Company reserves the right to increase the size of the rights
offering and to change any of the terms thereof.
F-12
<PAGE> 50
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - DETAILS OF CERTAIN FINANCIAL STATEMENT COMPONENTS
FIXED ASSETS
<TABLE>
<CAPTION>
April 30,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Leasehold improvements $2,606,000 $2,328,000
Furniture and equipment 725,000 647,000
Construction in progress - 76,000
---------- ----------
3,331,000 3,051,000
Less accumulated depreciation and amortization (1,769,000) (1,317,000)
---------- ----------
$1,562,000 $1,734,000
========== ==========
</TABLE>
OTHER ASSETS
<TABLE>
<CAPTION>
April 30,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Goodwill $6,725,000 $9,225,000
Less accumulated amortization (3,157,000) (2,511,000)
---------- ----------
$3,568,000 $6,714,000
========== ==========
Covenant not to compete $2,500,000 $2,500,000
Less accumulated amortization (2,500,000) (2,042,000)
---------- ----------
$ - $ 458,000
========== ==========
</TABLE>
NOTE D - NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consists of the following:
NOTES PAYABLE
<TABLE>
<CAPTION>
April 30,
-------------------------
1995 1994
---- ----
<S> <C> <C>
8% note payable, due November 1994,
including accrued interest - $52,000
Non-interest bearing note payable in
monthly installments of $2,083 through
October 1994 - 12,000
---------- ----------
$ - $64,000
========== ==========
</TABLE>
LONG-TERM DEBT
<TABLE>
<S> <C> <C>
Notes payable to bank, payable monthly in varying
amounts through October 1997, with 1995 including
accrued interest through the term of the debt $3,937,000 $8,166,000
Less current portion (1,161,000) -
Less debt in default, classified as current - (8,166,000)
---------- ----------
$2,776,000 $ -
========== ==========
</TABLE>
F-13
<PAGE> 51
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - NOTES PAYABLE AND LONG-TERM DEBT - CONTINUED
The 8% note payable and the non-interest bearing note payable were
issued in connection with litigation settlement agreements.
During 1990 Sea View entered into a loan agreement ("Agreement") with
a bank in connection with the acquisition of its restaurant operations. The
Agreement provided for short-term borrowings of up to $500,000 and a
$10,000,000 term note. Interest on the borrowings was, at the Company's
option, the bank's prime rate plus 1 3/4% or the London Interbank Offered Rate
("LIBOR") plus 3%. The bank loans are collateralized by all of Sea View's
assets. The Company also pledged the shares of Sea View and its subsidiaries
and guaranteed the loans.
The Agreement requires that Sea View must meet certain financial
covenants relating to net worth, debt to equity ratio and cash flow coverage.
The Agreement also restricts capital expenditures, the payment of dividends or
the repurchase of common stock, except as provided by the terms of the
Agreement, and loans or advances by Sea View to the Company. Extensions of the
Gladstone's leases beyond October 1997 (see Note I), are subject to the bank's
approval.
Sea View was in default of the Agreement since September 1992 for
failure to make scheduled principal or interest payments. The bank also
notified Sea View that all amounts outstanding under the Agreement were
immediately due and payable. On December 22, 1994 Sea View completed a
restructuring of its bank debt and entered into an Amended and Restated Loan
Agreement ("Amended Loan") (See Note B). 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,
($176,000 in fiscal 1995, $874,000 in fiscal 1996, $1,050,000 in fiscal 1997
and $900,000 in fiscal 1998), 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 of $563,000 and $157,000, respectively
was 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 April 30, 1995 the balance of
the senior secured note was $3,380,000, including $482,000 of future interest
costs, while the balance on the junior secured note was $557,000, including
$140,000 of future interest costs.
The Amended Loan requires that Sea View must meet certain financial
covenants and restricts capital expenditures, payment of dividends, repurchases
of common stock, acquisitions or mergers, disposition of property and the
ability to incur or assume additional indebtedness.
F-14
<PAGE> 52
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Continuing Operations:
Current:
Federal $ - $ - ($9,000)
State 4,000 4,000 5,000
------ ------ -------
$4,000 $4,000 ($4,000)
====== ====== =======
Deferred:
Federal $ - $ - $ -
State - - -
------ ------ -------
$ - $ - $ -
====== ====== =======
Discontinued Operations:
Current:
Federal $ - $ - $ 9,000
State - - 2,000
------ ------ -------
$ - $ - $ -
====== ====== =======
Deferred:
Federal $ - $ - $ -
State - - -
------ ------ -------
$ - $ - $ -
====== ====== =======
</TABLE>
As of April 30, 1995, the Company has available for federal income tax
purposes net operating loss carryovers available to offset certain future
taxable income of approximately $6,317,000 which expire from 1996 through 2010.
F-15
<PAGE> 53
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - INCOME TAXES - CONTINUED
During the year ended April 30, 1990 two changes in control of the
Company occurred. As a result, $2,245,000 of net operating losses which expire
through 2001 are subject to certain restrictions which limit their future use
to approximately $181,000 per year. As a result of the limitation,
approximately $1,329,000 of the net operating loss carryforward may expire
without any utilization. The restructuring transactions described in Note B
also resulted in a change of control as of December 22, 1994. As a result, net
operating losses of $4,073,000 which expire from 2006 through 2010 are subject
to certain restrictions which limit their future use to approximately $218,000
per year. As a result of this limitation, approximately $1,475,000 of these
net operating loss carryforwards may expire without any utilization.
The restructuring transactions described in Note B qualified for the
Stock-for-Debt exception in Internal Revenue Code Section 108. Accordingly,
the cancellation of debt income amount was not taxable for income tax purposes.
The effective income tax rate on income (loss) from continuing
operations varied from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1995 1994 1992
---- ---- ----
<S> <C> <C> <C>
Statutory federal rate (35.0%) (35.0%) (34.0%)
Increase (decrease):
State income taxes, net of
federal tax benefit .5 .3 .7
Operating losses which resulted in
no current Federal tax benefit 35.0 35.0 32.7
----- ----- ------
Effective income tax rate (benefit) .5% .3% (.6%)
===== ===== ======
</TABLE>
As of April 30, 1995, the tax effect of the net operating loss
carryforwards and net deferred tax assets, for which a 100% valuation allowance
has been provided and which have not been recognized in the Company's financial
statements are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Depreciation and amortization $1,373,000 266,000
Nondeductible accruals 54,000 70,000
Net operating loss carryforwards 2,326,000 2,095,000
---------- ----------
Total deferred assets 3,753,000 2,431,000
---------- ----------
Valuation allowance (3,753,000) (2,431,000)
---------- ----------
Net deferred assets $ - $ -
========== ==========
</TABLE>
F-16
<PAGE> 54
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - STOCKHOLDERS' EQUITY
Convertible Preferred Stock:
On December 22, 1994, the Company issued 1,223,556 shares of a new
issue of Series A Convertible Preferred Stock ("Convertible Preferred") to its
bank pursuant to an agreement whereby the bank restructured certain outstanding
senior secured debt (See Note B). This stock was valued at $980,000 net of
issuance expenses of $20,000. The Company also sold 1,000,000 shares of
Convertible Preferred at $.81729 per share in a private placement on December
22, 1994. Funds received from this private placement were used to effect the
restructuring of the senior secured debt.
On May 1, 1995, the bank's Convertible Preferred and the private
placement Convertible Preferred automatically converted into 1,200,000 and
980,748 shares of common stock, respectively, upon the filing of a Certificate
of Amendment to the Articles of Incorporation of the Company effecting a one
for 33.286962 reverse stock split. Upon such conversion no shares of
Convertible Preferred remain outstanding.
Stock Options:
During 1984 the Company adopted two stock option plans. The incentive
stock option plan provided for the grant of options to purchase up to
approximately 10,500 shares of the Company's common stock to eligible
employees. All options granted pursuant to this plan were at a price not less
than the fair market value at the date of grant. No options were outstanding
under this plan and in March 1995 the plan was terminated by the Board of
Directors. The non-statutory stock option plan provided for the grant of
options to purchase up to approximately 27,000 shares of the Company's common
stock to eligible employees and non-employees of the Company. Options granted
pursuant to this plan were approved by the Company's Board of Directors. The
Board of Directors also determined the option price which could not be less
than 85% of the fair market value at the date of grant. In March 1995 the
Board of Directors terminated this plan except as to 450 options which remain
outstanding.
In July 1992 the Company's Board of Directors approved the 1992
incentive stock option plan and the 1992 non-statutory stock option plan,
subject to shareholder approval of the plans. These plans provided for the
grant of options to purchase up to approximately 60,000 shares of the Company's
common stock at prices not less than 100 percent of market price at the date of
grant. Options under the plan were subject to vesting provisions of up to five
years. In March 1995, the Board of Directors terminated this plan, the
outstanding options thereunder were cancelled with the optionholder's consent
and the Board adopted the Omnibus Stock Plan.
The Omnibus Stock Plan, which received shareholder approval in April
1995, provides for the issuance of a maximum of 1,000,000 shares of common
stock giving effect to the one for 33.286962 reverse stock split approved by
shareholders in April 1995. The plan provides for the issuance of stock
options, stock appreciation rights, restricted stock and other awards to
particpants as selected by the Stock Plan Committe of the Board of Directors
which administers the plan.
Options granted pursuant to all of these plans have expiration dates
which do not exceed ten years from the date of grant.
F-17
<PAGE> 55
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - STOCKHOLDERS' EQUITY (CONTINUED)
The following schedule summarizes the changes in stock options for the
three years ended April 30, 1995 under the plans:
<TABLE>
<S> <C> <C>
Outstanding at April 30, 1992 15,800 $2.00 - $33.29
Granted 39,100 $ 4.99
Cancelled (10,800) $ 19.97
Exercised (1,500) $2.00 - $8.32
------- --------------
Outstanding at April 30, 1993 42,600 $4.99 - $33.29
------- --------------
Granted - $ -
Cancelled (3,000) $ 8.32
Exercised - $ -
------- --------------
Outstanding at April 30, 1994 39,600 $4.99 - $33.29
------- --------------
Granted 590,000 $ .83
Cancelled (39,100) $ 4.99
Exercised - $ -
------- --------------
Outstanding at April 30, 1995 590,500 $.83 - $33.29
======= ==============
Exercisable at April 30, 1995 279,200 $.83 - $33.29
======= ==============
</TABLE>
Pursuant to an existing Registration Rights Agreement, if the Company
registers any class of equity security under the Securities Act of 1933,
certain investors with a certain minimum number of shares of the Company's
common stock, individually or in aggregate, can request that their shares be
included in such registration.
Pursuant to the terms of certain stock purchase agreements relating to
the Company's December 1994 private placement, investors together with the
bank, holding at least 20% of the common stock into which the Series A
Preferred Stock was converted have two demand registration rights to require
the Company to register such shares for resale under the Securities Act of 1933
for resale to the public. Such investors, together with the bank, will also be
entitled to certain incidental registration rights. The Company will pay the
expenses in connection with any such incidental registrations and two such
demand registrations.
F-18
<PAGE> 56
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - LEASES
The Company leases restaurant facilities under various non-cancelable
operating leases with remaining terms ranging from four to ten years. The
terms of certain of the leases require additional rental payments based on a
percentage of the restaurants' sales in excess of a minimum amount. Total
amounts charged to rent expense under the Company's operating leases for the
three years ended April 30, 1995 are summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Restaurants:
------------
Fixed minimum rentals $ 630,000 $ 641,000 $ 448,000
Percentage rentals 521,000 478,000 797,000
Other fixed minimum rentals 70,000 72,000 76,000
---------- ---------- ----------
Total $1,221,000 $1,191,000 $1,321,000
========== ========== ==========
</TABLE>
Sea View operates Gladstone's 4 Fish pursuant to a concession
agreement with the County of Los Angeles. In March 1992, Sea View exercised
its option to extend the term of the concession agreement for the five-year
period commencing November 1, 1992 through October 31, 1997. Under the terms
of the concession agreement, exercise of the option resulted in the
establishment by mutual agreement of new percentage and minimum rents for the
option period. In September 1992, following completion of an independent
appraisal conducted on behalf of the County, Sea View reached agreement with
the County on the percentage and minimum rents for the option period. The
Agreement calls for an increase in the annual minimum base rent from
approximately $26,000 to $480,000 with no change in the current percentage
rental rates. Based on historical sales volumes, percentage rentals paid have
significantly exceeded the new minimum base rent. Therefore, the increase in
the annual base rent is not expected to have any significant impact on Sea
View's future operations.
The parking lot for the Company's Gladstone's 4 Fish restaurant is
operated by a parking operator pursuant to a management agreement whereby the
Company pays a monthly fee for the operation of the parking facility. The
Company receives all revenues and pays all operating expenses under this
arrangement. During fiscal 1995, 1994 and 1993 the Company received $150,000,
$119,000 and $103,000, respectively pursuant to this arrangement, net of all
expenses (except rent). These amounts have been recorded as a reduction to
cost of goods sold.
Aggregate minimum annual rental commitments at April 30, 1995 were
as follows:
<TABLE>
<CAPTION>
Year Ending April 30,
----------------------
<S> <C>
1996 $700,000
1997 700,000
1998 422,000
1999 150,000
2000 150,000
Thereafter 700,000
----------
$2,822,000
==========
</TABLE>
F-19
<PAGE> 57
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - COMMITMENTS AND CONTINGENCIES
Board of Directors Fees:
Effective December 1, 1992 the Company commenced an accrual of Board
of Directors fees of $2,500 per month for each member of its Board of
Directors. Such fees were accrued due to the considerable amount of time
required in pursuing a restructuring of the Company's existing bank loan as
well as for negotiations which were being conducted with several parties
involved in litigation with the Company. Effective May 1, 1993 the Company
reduced the Board of Directors' fees to $500 per month for each outside board
member. For fiscal years ended April 30, 1995, 1994 and 1993 $12,000, $14,500
and $37,500 of such Board fees have been incurred.
Employment Agreements:
Effective May 21, 1993 the Company entered into employment agreements
with Messrs. Redhead and Segal, the Company's Chief Executive Officer and Vice
President - Finance, respectively at that time. These employment agreements
set forth certain of the terms of employment for each of these individuals,
including the right to receive nine months of salary as severance pay upon (i)
termination of employment without cause (as defined in the agreements) or (ii)
resignation for good reason (as defined in the agreements). The term of Mr.
Redhead's agreement is four years and provides for a base salary of $200,000
subject to annual cost of living adjustments. Mr. Segal's agreement is for
three years and provides for a base salary of $103,000 subject to annual cost
of living adjustments.
Consulting agreement:
Effective June 30, 1989, the Company and Samuel Schulman entered into
a consulting agreement, pursuant to which Mr. Schulman would provide business
consultation services to the Company's American Microsonics Corp. subsidiary on
a non exclusive basis for a term of five years. During the term of the
consulting agreement, Mr. Schulman is entitled to annual compensation equal to
25% of the pre-tax profits, as defined, from the Company's wholly-owned
subsidiary, American Microsonics Corp. (whose operations have been
discontinued-see Note I), over $500,000, including but not limited to any
recoveries from claims or actions for patent infringement. For the three
years ending April 30, 1995, no compensation was payable pursuant to this
agreement. This agreement expired on June 30, 1994.
Litigation:
The Company is involved in litigation and threatened litigation
arising in the ordinary course of business. However, it is the opinion of
management that these actions, when finally concluded, will not have a material
adverse effect upon the financial position of the Company. In November 1993
the Company settled two lawsuits. Based on the terms of these settlement
agreements, for the fiscal year ended April 30, 1994 the Company recorded
litigation settlement expenses of $225,000.
F-20
<PAGE> 58
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - DISCONTINUED OPERATIONS
In July 1991, the Company decided to discontinue the operations of its
American Microsonics Corp. ("Microsonics") subsidiary, a microphonograph and
microrecord manufacturer. This decision was made after the Company's primary
customer for these products notified the Company that it was placing its final
order. Sales to this customer of microphonographs and related products
amounted to 99% of this segment's revenues in fiscal 1991.
On October 31, 1991, Microsonics entered into a definitive agreement
to sell substantially all of its assets, consisting primarily of machinery and
equipment, patents and inventories, for $100,000 in cash and stock and warrants
which the buyer agreed to repurchase for $55,000. The buyer also assumed
certain existing liabilities primarily related to lease obligations on two
facilities.
The buyer subsequently defaulted on its obligation to repurchase the
stock and warrants and in May 1992 the Company and Microsonics filed a
complaint in the Superior Court of the State of California against the buyer
for breach of contract. In January 1993 the Company reached a settlement
agreement whereby the buyer paid $30,000 in cash and assumed certain
liabilities totaling $2,000. Based on this settlement less expenses of $5,000,
the Company has recorded a gain on disposition of $16,000, net of taxes of
$11,000 for the year ended April 30, 1993.
Where appropriate, the financial statements reflect the operating
results and balance sheet items of the discontinued operations separately from
continuing operations. Operating results for the discontinued operations for
the three years ended April 30, 1995 are summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating Revenue $ - $ - $ -
Income Before Taxes - - 27,000
Income Taxes - - 11,000
Net Income - - 16,000
</TABLE>
F-21
<PAGE> 59
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
July 31, 1995 April 30, 1995
------------- --------------
(Unaudited) (1)
<S> <C> <C>
Current Assets:
Cash $ 661,000 $ 493,000
Restricted cash 500,000 500,000
Trade and other receivables 23,000 22,000
Inventories 291,000 262,000
Prepaid expenses 196,000 155,000
---------- ----------
Total current assets 1,671,000 1,432,000
Fixed Assets (at cost) - net of accumulated
depreciation and amortization (Note C) 1,535,000 1,562,000
Other Assets:
Goodwill, net of accumulated amortization 3,404,000 3,568,000
Other 151,000 147,000
---------- ----------
$6,761,000 $6,709,000
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
(1) The April 30, 1995 amounts have been extracted from the Company's
Annual Report on Form 10-K for the year ended April 30, 1995.
F-22
<PAGE> 60
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
July 31, 1995 April 30, 1995
------------- --------------
(Unaudited) (1)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 744,000 $ 665,000
Accrued interest 43,000 27,000
Accrued liabilities 650,000 656,000
Current portion of long-term debt
(Note D) 1,253,000 1,161,000
------------ ------------
Total current liabilities 2,690,000 2,509,000
Long-term debt, less current portion (Note D) 2,368,000 2,776,000
9.75% convertible subordinated notes 783,000 783,000
Stockholders Equity:
Common stock, $.01 par value, authorized
25,000,000 shares, issued and outstanding,
2,461,000 shares at July 31, 1995
and 280,000 at April 30, 1995 1,697,000 3,000
Series A convertible preferred stock, no par
value, authorized 5,000,000 shares, issued
and outstanding none at July 31, 1995 and
2,223,556 at April 30, 1995 - 1,694,000
Additional paid-in capital 10,853,000 10,853,000
Accumulated deficit (11,630,000) (11,909,000)
------------ ------------
Total stockholders' equity 920,000 641,000
------------ ------------
$ 6,761,000 $ 6,709,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
(1) The April 30, 1995 amounts have been extracted from the Company's
Annual Report on Form 10-K for the year ended April 30, 1995.
F-23
<PAGE> 61
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended July 31,
--------------------------------
1995 1994
---- ----
<S> <C> <C>
Sales $3,743,000 $3,753,000
Costs and Expenses:
Cost of goods sold 2,904,000 3,056,000
Selling, general and administrative 228,000 210,000
Legal and litigation settlement 54,000 45,000
Depreciation 99,000 96,000
---------- ----------
458,000 346,000
Other income (expenses):
Interest expense (16,000) (226,000)
Amortization of intangible assets (165,000) (257,000)
Other, net 4,000 4,000
---------- ----------
Income (loss) before income taxes 281,000 (133,000)
Provision for income taxes 2,000 1,000
---------- ----------
Net Income (loss) $279,000 ($134,000)
========== ==========
Net Income (loss) per common share (Note E):
Primary $ .11 ($ .48)
========== ==========
Fully-diluted $ .09 ($ .48)
========== ==========
Weighted average number of common shares
outstanding:
Primary 2,461,000 280,000
Fully-diluted 3,400,000 280,000
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
F-24
<PAGE> 62
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JULY 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ 279,000 ($134,000)
Adjustments to reconcile net loss
to cash provided by operations:
Depreciation and amortization 264,000 353,000
Deferred loan fees - 20,000
Changes in assets and liabilities:
Accounts receivable, trade (1,000) (16,000)
Inventories (29,000) (22,000)
Prepaid expenses (41,000) (10,000)
Accounts payable 79,000 216,000
Accrued interest 16,000 205,000
Accrued liabilities (6,000) (123,000)
--------- ----------
Cash provided by operations 561,000 489,000
--------- ----------
Cash flows used in investing activities:
Increase in other assets (4,000) -
Additions to fixed assets (73,000) (193,000)
--------- ----------
Net cash used in investing activities (77,000) (193,000)
--------- ----------
Cash flows from financing activities:
Borrowings pursuant to capital lease 21,000 -
Principal payments on borrowings (337,000) (3,000)
--------- ----------
Net cash used in financing activities (316,000) (3,000)
--------- ----------
Net increase in cash 168,000 293,000
Cash at beginning of period 493,000 774,000
--------- ----------
Cash at end of period $ 661,000 $1,067,000
========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ - $ -
========= ==========
Income taxes $ - $ -
========= ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
F-25
<PAGE> 63
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 three month period ended July 31, 1995 may not be indicative
of the results that may be expected for the year ending April 30, 1996. 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,
1995.
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 ended July 31, 1995 and
1994 include Sea View's operations for the twelve weeks ended July 20, 1995 and
July 21, 1994, respectively.
NOTE C - DETAILS OF CERTAIN FINANCIAL STATEMENT COMPONENTS
Fixed Assets
<TABLE>
<CAPTION>
July 31, 1995 April 30, 1995
------------- --------------
<S> <C> <C>
Leasehold improvements $ 2,621,000 $ 2,606,000
Furniture and equipment 782,000 725,000
----------- -----------
3,403,000 3,331,000
Less accumulated depreciation and amortization (1,868,000) (1,769,000)
----------- -----------
$ 1,535,000 $ 1,562,000
=========== ===========
</TABLE>
F-26
<PAGE> 64
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - NOTES PAYABLE AND 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
July 31, 1995 the balance of the senior secured note was $3,043,000, including
$397,000 of future interest costs, while the balance on the junior secured note
was $557,000, including $128,000 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.
F-27
<PAGE> 65
<TABLE>
<S> <C>
=================================================================== =====================================================
No dealer, salesman or any other person has been authorized to give
any information or to make any representations other than those
contained in this Prospectus in connection with the offer made by
this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized
by the Company or the Selling Shareholders. This Prospectus does
not constitute an offer to sell or the solicitation of an offer to
buy any security other than the securities offered by this
Prospectus, nor does it constitute an offer to sell or a
solicitation of any offer to buy the securities by anyone in any
jurisdiction in which such offer or solicitation is not authorized,
or in which the person making such offer or solicitation is not 3,004,282 Shares
qualified to do so, or to any person to whom it is unlawful to make
such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information CALIFORNIA BEACH RESTAURANTS, INC.
contained herein is correct as of any time subsequent to the date
hereof. Common Stock
Page
----
Prospectus Summary 2 PROSPECTUS
Risk Factors 4
Use of Proceeds 6
Selected Financial Data 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Business 14
Management 17
Principal Shareholders 26
Selling Shareholders 29
Description of Capital Stock 30
Market Information 31
Plan of Distribution 32
Legal Matters 32
Experts 32
Available Information 32
Index to Financial Statements F-1 ___________, 1995
=================================================================== ====================================================
</TABLE>
<PAGE> 66
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all
estimated costs and expenses (all of which will be paid by the Registrant,
other than underwriting discounts, commissions or expenses and the fees and
disbursements of other than one counsel for the Selling Shareholders, which are
to be paid by the Selling Shareholders, and other than certain expenses in
connection with updates to this Registration Statement, a portion of which
expenses in certain circumstances will be borne by Bank of America NT&SA) in
connection with the issuance and distribution of the securities being
registered pursuant to this Registration.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID BY THE REGISTRANT
-----------------------------------
<S> <C>
Securities and Exchange Commission registration fee . . $ 100
Accounting fees and expenses . . . . . . . . . . . . . . 2,500
Legal fees and expenses . . . . . . . . . . . . . . . . 25,000
Printing and Engraving Expenses . . . . . . . . . . . . 10,000
Blue sky fees and expenses . . . . . . . . . . . . . . . 2,500
Transfer agent fees and expenses . . . . . . . . . . . . 1,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 900
---------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 42,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant has adopted provisions in its Articles of
Incorporation which limit the liability of its directors. As permitted by the
California Corporations Code (the "California Code"), directors will not be
liable to the Registrant for monetary damages arising from a breach of their
fiduciary duty as directors in certain circumstances. Such limitation does not
affect liability for any breach of a director's duty to the Registrant or its
shareholders: (i) with respect to approval by the director of any transaction
from which he or she derives an improper personal benefit; (ii) with respect to
acts or omissions involving an absence of good faith, that he or she believes
to be contrary to the best interests of the Registrant or its shareholders,
that involve intentional misconduct or a knowing and culpable violation of law,
that constitute an unexcused pattern or inattention that amounts to an
abdication of his or her duty to the Registrant or its shareholders, or that
show a reckless disregard for his or her duty to the Registrant or its
shareholders in circumstances in which he or she was, or should have been
aware, in the ordinary course of performing his or her duties, of a risk of
serious injury to the Registrant or its shareholders; or (iii) based on
transactions between the Registrant and its directors or another corporation
with interrelated directors or on improper distributions, loans or guarantees
under applicable sections of the California Code. Such limitation of liability
also does not affect the availability of equitable remedies such as injunctive
relief or rescission. Section 317 of the California Code and the Registrant's
Bylaws make provision for the indemnification of directors, officers and other
corporate agents in terms sufficiently broad to indemnify such persons, under
certain circumstances, for liabilities arising under the Securities Act. The
Registrant has obtained an insurance policy in the amount of $1,000,000 in
respect of potential liabilities of its officers and directors.
The Registrant has entered into indemnification agreements with
certain of its directors and officers. See "Management--Directors and
Executive Officers."
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
II-1
<PAGE> 67
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Between November 1, 1992 and October 31, 1995, the following
securities were sold by the Registrant which were not registered under the
Securities Act:
On December 22, 1994, the Company effected a private placement of its
securities with certain existing shareholders, members of management and new
investors. The purchasers invested $1,600,000 consisting of $817,290 of Series
A Preferred Stock and $782,710 of Notes. See "Management--Certain
Relationships and Related Transactions--December 1994 Private Placement and
Debt Restructurings."
<TABLE>
<CAPTION>
PURCHASE PRINCIPAL
NUMBER OF SHARES PRICE AMOUNT
OF PREFERRED STOCK OF SHARES OF NOTES
------------------ --------- ---------
<S> <C> <C> <C>
Sand and Sea Partners 126,026 $103,000 $209,500
Sea Fair Partners 126,026 103,000 209,500
Eli Broad 168,036 137,334 37,666
Alan Redhead 352,384 288,000 -
Mark Segal 39,154 32,000 -
Al Ehringer 30,589 25,000 -
Alan Tivoli 2,801 2,289 72,711
Strome Family Trust, Mark Strome as Trustee 57,100 46,667 93,333
Marital Trust under Declaration of the Lieberman Family
Trusts of August 2, 1989, Arnold Phillip Lieberman and
Corinne M. Lieberman as Co-Trustees 34,667 28,333 56,667
Howard Higholt, M.D. 38,746 31,667 63,333
Charles W. Luther & Joan Luther 24,471 20,000 40,000
--------- -------- --------
1,000,000 $817,290 $782,710
</TABLE>
All such securities were issued under the exemption from registration
provided by Section 4(2) of the Securities Act. The conversion of the
Preferred Shares into shares of Common Stock on May 1, 1995 and the conversion
of the Notes into shares of Common Stock on October 30, 1995 were exempt under
Section 3(a)(9) of the Securities Act.
As partial consideration for the restructuring of Sea View's bank
loan, the Registrant issued to the Bank of America NT&SA on December 22, 1994,
1,223,556 shares of Series A Preferred Stock. See "Management--Certain
Relationships and Related Transactions--December 1994 Private Placement and
Debt Restructurings." Such shares were issued under the exemption from
registration provided by Section 4(2) of the Securities Act. The conversion of
the Series A Preferred Stock into shares of Common Stock on May 1, 1995 was
exempt under Section 3(a)(9) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
3.1 Restated Articles of Incorporation as amended to date, including
Certificate of Determination of Rights and Preferences of Series A
Convertible Preferred Stock (15)
3.2 By-Laws, as amended to date(15)
4.1 Form of 9.75% Convertible Subordinated Notes due October 31,
1995(13)
4.2 Specimen certificate for California Beach Restaurants, Inc. common
stock, par value $.01(16)
5 Opinion of Rosenfeld, Meyer & Susman*
</TABLE>
II-2
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
10.6 Loan Agreement dated as of April 2, 1990 between Sea View
Restaurants, Inc. and Security Pacific National Bank(4)
10.7 Securities Purchase Agreement dated as of March 26, 1990 between
I.H.V. Corp., Robert J. Morris, Richard S. Stevens, California Beach
Capital Inc. and certain investors(4)
10.8 Shareholders Agreement dated as of March 30, 1990 by and among
I.H.V. Corp., Robert J. Morris, Richard S. Stevens, California Beach
Capital Inc. and certain investors(4)
10.9 Stock Repurchase and Co-Sale Agreement dated as of March 30, 1990 by
and among I.H.V. Corp., Robert J. Morris, Richard S. Stevens,
California Beach Capital, Inc. and certain investors(4)
10.10 Registration Rights Agreement dated as of March 30, 1990 between
I.H.V. Corp., Robert J. Morris, Richard S. Stevens, California Beach
Capital, Inc. and certain investors(4)
10.11 Pledge Agreement dated as of April 2, 1990 executed by I.H.V. Corp.
in favor of Security Pacific National Bank(5)
10.12 Guaranty dated as of April 2, 1990 executed by I.H.V. Corp. in favor
of Security Pacific National Bank(5)
10.13 Amended and Restated Concession Agreement No. 31923 for Will Rogers
State Beach Park Restaurant dated April 2, 1981, as amended
(Gladstone's restaurant lease)(5)
10.14 Concession Agreement No. 45334 for the Operation and Maintenance of
Parking Lot 4 at Will Rogers State Beach Park dated August 23, 1983,
as amended (Gladstone's parking lot lease)(5)
10.15 Lease dated as of April 2, 1990 for RJ's(5)
10.16 Amendment to Shareholders Agreement dated as of February 25, 1991
among Registrant, California Beach Capital, Inc., Robert J. Morris,
Richard S. Stevens, Sand and Sea Partners, Sea Fair Partners, W.R.
Grace & Co., Cushman K/Sea View Partners(7)
10.17 Amendment to Stock Repurchase and Co-Sale Agreement dated as of
February 25, 1991, among Registrant, California Beach Capital, Inc.,
Robert J. Morris, Richard S. Stevens, Sand and Sea Partners, Sea
Fair Partners, W.R. Grace & Co., Cushman/Sea View Partners and
Cushman K/Sea View Partners(7)
10.18 Amendment to Registration Rights Agreement dated as of February 25,
1991 among Registrant, California Beach Capital, Inc., Robert J.
Morris, Richard S. Stevens, Sand and Sea Partners, Sea Fair
Partners, W.R. Grace & Co., Eli Broad, Cushman/Sea View Partners and
Cushman K/Sea View Partners(7)
10.20 Letter Agreement dated June 12, 1991 between Security Pacific Bank
and Sea View Restaurants, Inc.(8)
10.24 License Agreement, dated April 21, 1992, between Sea View
Restaurants, Inc. and MCA Development Venture Two(9)
10.26 Indemnification agreement dated as of October 7, 1992 between the
Registrant and Alan Redhead(10)
</TABLE>
II-3
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
10.27 Indemnification agreement dated as of October 7, 1992 between the
Registrant and Mark E. Segal(10)
10.28 Indemnification agreement dated as of October 7, 1992 between the
Registrant and J. Christopher Lewis(10)
10.30 Indemnification agreement dated November 23, 1992 between the
Registrant and Jefferson W. Asher, Jr.(10)
10.31 Amendment number 6 to concession agreement number 31923 for Will
Rogers State Beach Park Restaurant(10)
10.32 Executive employment agreement dated as of May 21, 1993 between the
Registrant and Alan Redhead(10)
10.33 Executive employment agreement dated as of May 21, 1993 between the
Registrant and Mark E. Segal(10)
10.38 Notice of Default and election to sell under deed of trust as filed
by Bank of America NT & SA(12)
10.40 Amended and Restated Loan Agreement dated as of December 22, 1994
between Sea View Restaurants, Inc. and Bank of America NT & SA(13)
10.41 Guarantor Confirmation and Amendment dated December 22, 1994 between
California Beach Restaurants, Inc. and Bank of America NT & SA(13)
10.42 Stock Purchase Agreement dated December 22, 1994 between California
Beach Restaurants, Inc. and Bank of America NT & SA(13)
10.43 Shareholders and Noteholders Agreement dated as of December 22, 1994
among Sand and Sea Partners, Sea Fair Partners and Bank of America
NT & SA(13)
10.44 Note Cancellation Agreement dated December 22, 1994 among California
Beach Restaurants, Inc., Sea View Restaurants, Inc., Family
Restaurants, Inc. and Jojo's Restaurants, Inc.(13)
10.45 Securities Purchase Agreement dated December 22, 1994 between
California Beach Restaurants, Inc. and the purchasers named
therein(13)
10.47 California Beach Restaurants, Inc. Omnibus Stock Plan(14)
10.49 Amended and Restated Lease for RJ's dated January 1, 1995(15)
10.50 Stock Option Agreement between the Registrant and Alan Redhead dated
March 13, 1995(15)
10.51 Stock Option Agreement between the Registrant and Mark E. Segal
dated March 13, 1995(15)
10.52 Stock Option Agreement between the Registrant and Jefferson W.
Asher, Jr. dated March 13, 1995(15)
10.53 First Amendment to Amended and Restated Loan Agreement dated as of
August 1, 1995, between Sea View Restaurants, Inc. and Bank of
America NT & SA(16)
10.54 Amendment to Stock Purchase Agreement dated as of August 1, 1995
between the Registrant and Bank of America NT & SA(16)
21.1 Subsidiaries of Registrant(15)
</TABLE>
II-4
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
23.1 Consent of Ernst & Young LLP*
23.2 Consent of Rosenfeld, Meyer & Susman (included in Exhibit 5)*
24.1 Power of Attorney (included with signature page)*
</TABLE>
* Filed herewith.
(4) Previously filed with Form 8-K filed April 27, 1990.
(5) Previously filed with Form 10-K for the fiscal year ended April 30,
1990.
(7) Previously filed with Form 10-Q for the quarter ended January 31,
1991.
(8) Previously filed with Form 10-K for the fiscal year ended April 30,
1991.
(9) Previously filed with Form 8-K filed April 28, 1992.
(10) Previously filed with Form 10-K for the fiscal year ended April 30,
1993.
(12) Previously filed with Form 10-Q for the quarter ended July 31, 1994.
(13) Previously filed with Form 8-K filed January 18, 1995.
(14) Previously filed as Schedule A to the Registrant's Proxy Statement
dated March 24, 1995.
(15) Previously filed with Form 10-K for the fiscal year ended April 30,
1995.
(16) Previously filed as an exhibit to the Registration Statement on Form
S-1 (Registration No. 33-95240) on August 4, 1995.
(B) FINANCIAL STATEMENT SCHEDULES:
Schedule No. Description
III Condensed Financial Information of
California Beach Restaurants, Inc.
VIII Valuation and Qualifying Accounts
The foregoing schedules are included in Part II of this Registration
Statement. All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
Items 17. Undertakings
The undersigned Registrant hereby undertakes the following:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
post-effective amendment thereof) which, individually or in the aggregate,
present a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
II-5
<PAGE> 71
Provided, however, that paragraphs 1(i) and 1(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained
in the periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act that are incorporated by reference
to the registration statement.
(2) That, for the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Company of
expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE> 72
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereto duly authorized, in the City
of Los Angeles, State of California on this 21st day of November, 1995.
CALIFORNIA BEACH RESTAURANTS, INC.
By: ALAN REDHEAD
---------------------------------------------
Alan Redhead, Chairman of the Board,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Alan Redhead and Mark E. Segal,
and each of them acting alone, his lawful attorneys-in-fact or agent, with full
powers of substitution and resubstitution of him and in his name, place and
stead, in any and all capacities, to sign any or all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents each acting alone
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
ALAN REDHEAD Director, Chairman of the November 21, 1995
- ------------------------------------- Board, President and Chief
Alan Redhead Executive Officer
Director November __, 1995
- -------------------------------------
J. Christopher Lewis
JEFFERSON W. ASHER, JR. Director November 21, 1995
- -------------------------------------
Jefferson W. Asher, Jr.
SCOTT C. DEW Director November 21, 1995
- -------------------------------------
Scott C. Dew
Director November __, 1995
- -------------------------------------
George Nicolais
</TABLE>
II-7
<PAGE> 73
<TABLE>
<S> <C> <C>
SAMUEL M. VICTOR Director November 21, 1995
- -------------------------------------
Samuel M. Victor
Director November __, 1995
- -------------------------------------
Barry A. Chase
RICHARD S. STEVENS
- -------------------------------------
Richard S. Stevens Director November 21, 1995
MARK E. SEGAL
- ------------------------------------- Vice President - Finance, Chief November 21, 1995
Mark E. Segal Financial and Accounting Officer
and Secretary [Principal Financial
and Accounting Officer]
</TABLE>
II-8
<PAGE> 74
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30,
1995 1994
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 290,000 $257,000
Due from affiliates 1,022,000 175,000
---------- --------
Total current assets 1,312,000 432,000
INVESTMENT IN WHOLLY-OWNED SUBSIDIARIES 945,000 200,000
---------- --------
$2,257,000 $632,000
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $833,000 $806,000
9.75% CONVERTIBLE SUBORDINATED NOTES 783,000 -
STOCKHOLDERS' EQUITY (DEFICIT) 641,000 (174,000)
---------- --------
$2,257,000 $632,000
========== ========
</TABLE>
S-1
<PAGE> 75
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONT.
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended April 30,
--------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales $ - $ - $ -
Costs and Expenses:
Selling, general and administrative (Note B) - - -
--------- ----------- ---------
Interest expense (27,000) - -
Other Income 7,000 6,000 5,000
--------- ----------- ---------
Income (loss) before income taxes and equity
in net loss of subsidiaries (20,000) 6,000 5,000
Income tax provision (benefit )(Note C) 4,000 4,000 (4,000)
Equity in net loss of subsidiaries (855,000) (1,374,000) (658,000)
--------- ----------- ---------
Net loss ($879,000) ($1,372,000) ($649,000)
========= =========== =========
</TABLE>
S-2
<PAGE> 76
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONT.
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended April 30,
--------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss ($879,000) ($1,372,000) ($649,000)
---------- ----------- ---------
Adjustments to reconcile net loss
to cash provided by (used in) operations:
Common stock issued for litigation settlement - 4,000 -
Equity in loss of subsidiaries 855,000 1,374,000 658,000
Changes in assets and liabilities:
Accrued liabilities 27,000 (1,000) (302,000)
Due to (from) affiliates (1,467,000) 15,000 277,000
---------- ------------ ---------
Cash provided by (used in) operations (1,464,000) 20,000 (16,000)
FINANCING ACTIVITIES:
Proceeds from the sale of preferred stock 714,000 - -
Proceeds from issuance of 9.75% convertible
subordinated notes 783,000 - -
Exercise of stock option - - 7,000
---------- ----------- ---------
Cash provided by financing activities 1,497,000 - 7,000
---------- ----------- ---------
INCREASE (DECREASE) IN CASH $33,000 $20,000 ($9,000)
======= ======= =======
Supplemental schedule of non-cash investing
activities:
Issuance of common stock for services - - $5,000
</TABLE>
S-3
<PAGE> 77
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONT.
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTE TO CONDENSED FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES
In the parent company - only financial statements, the Company's investment in
its wholly-owned subsidiaries is stated at cost adjusted for equity in
undistributed income and losses of the subsidiaries since date of acquisition.
Net undistributed losses aggregated $4,825,000 at April 30, 1995. Parent
company - only financial statements should be read in conjunction with the
Company's consolidated financial statements.
NOTE B -- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company allocates indirect corporate selling, general and administrative
expenses to each subsidiary based on the revenues generated by that subsidiary.
All revenues were generated by Sea View Restaurants, Inc. for the three years
ended April 30, 1995 thus no indirect selling, general and administrative
expenses were allocated to the parent company.
NOTE C -- INCOME TAXES
The Company files its federal and state income tax returns on a consolidated
basis. Under a tax sharing agreement California Beach Restaurants, Inc. has
with its subsidiaries, the subsidiaries provide for income taxes on a separate
basis as if they filed their own income tax returns. Any tax benefit which
results from filing consolidated tax returns are recognized by the parent
company.
S-4
<PAGE> 78
CALIFORNIA BEACH RESTAURANTS, INC.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Other Charges-
Year Ended Beginning Costs and Other Accounts- Add (Deduct)- Balance at
April 30, Description of Year Expenses Describe Describe End of Year
- ----------- ---------------------------- ------------- ---------- ------------------- --------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1995 Allowance for doubtful $ - $0 $ - $0
accounts
1994 Allowance for doubtful $52,000 $0 ($52,000)(A) $0
accounts
1993 Allowance for doubtful $62,000 $0 ($10,000) (A) $52,000
accounts
</TABLE>
(A) Write-off of uncollectible amount
S-5
<PAGE> 79
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT TITLE NUMBERED PAGE
------ ------------- -------------
<S> <C> <C>
3.1 Restated Articles of Incorporation as amended to date, including
Certificate of Determination of Rights and Preferences of Series A
Convertible Preferred Stock (15)
3.2 By-Laws, as amended to date(15)
4.1 Form of 9.75% Convertible Subordinated Notes due October 31,
1995(13)
4.2 Specimen certificate for California Beach Restaurants, Inc. common
stock, par value $.01(16)
5 Opinion of Rosenfeld, Meyer & Susman*
10.6 Loan Agreement dated as of April 2, 1990 between Sea View
Restaurants, Inc. and Security Pacific National Bank(4)
10.7 Securities Purchase Agreement dated as of March 26, 1990 between
I.H.V. Corp., Robert J. Morris, Richard S. Stevens, California Beach
Capital Inc. and certain investors(4)
10.8 Shareholders Agreement dated as of March 30, 1990 by and among
I.H.V. Corp., Robert J. Morris, Richard S. Stevens, California Beach
Capital Inc. and certain investors(4)
10.9 Stock Repurchase and Co-Sale Agreement dated as of March 30, 1990 by
and among I.H.V. Corp., Robert J. Morris, Richard S. Stevens,
California Beach Capital, Inc. and certain investors(4)
10.10 Registration Rights Agreement dated as of March 30, 1990 between
I.H.V. Corp., Robert J. Morris, Richard S. Stevens, California Beach
Capital, Inc. and certain investors(4)
10.11 Pledge Agreement dated as of April 2, 1990 executed by I.H.V. Corp.
in favor of Security Pacific National Bank(5)
10.12 Guaranty dated as of April 2, 1990 executed by I.H.V. Corp. in favor
of Security Pacific National Bank(5)
10.13 Amended and Restated Concession Agreement No. 31923 for Will Rogers
State Beach Park Restaurant dated April 2, 1981, as amended
(Gladstone's restaurant lease)(5)
10.14 Concession Agreement No. 45334 for the Operation and Maintenance of
Parking Lot 4 at Will Rogers State Beach Park dated August 23, 1983,
as amended (Gladstone's parking lot lease)(5)
10.15 Lease dated as of April 2, 1990 for RJ's(5)
10.16 Amendment to Shareholders Agreement dated as of February 25, 1991
among Registrant, California Beach Capital, Inc., Robert J. Morris,
Richard S. Stevens, Sand and Sea Partners, Sea Fair Partners, W.R.
Grace & Co., Cushman K/Sea View Partners(7)
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT TITLE NUMBERED PAGE
------ ------------- -------------
<S> <C> <C>
10.17 Amendment to Stock Repurchase and Co-Sale Agreement dated as of
February 25, 1991, among Registrant, California Beach Capital, Inc.,
Robert J. Morris, Richard S. Stevens, Sand and Sea Partners, Sea
Fair Partners, W.R. Grace & Co., Cushman/Sea View Partners and
Cushman K/Sea View Partners(7)
10.18 Amendment to Registration Rights Agreement dated as of February 25,
1991 among Registrant, California Beach Capital, Inc., Robert J.
Morris, Richard S. Stevens, Sand and Sea Partners, Sea Fair
Partners, W.R. Grace & Co., Eli Broad, Cushman/Sea View Partners and
Cushman K/Sea View Partners(7)
10.20 Letter Agreement dated June 12, 1991 between Security Pacific Bank
and Sea View Restaurants, Inc.(8)
10.24 License Agreement, dated April 21, 1992, between Sea View
Restaurants, Inc. and MCA Development Venture Two(9)
10.26 Indemnification agreement dated as of October 7, 1992 between the
Registrant and Alan Redhead(10)
10.27 Indemnification agreement dated as of October 7, 1992 between the
Registrant and Mark E. Segal(10)
10.28 Indemnification agreement dated as of October 7, 1992 between the
Registrant and J. Christopher Lewis(10)
10.30 Indemnification agreement dated November 23, 1992 between the
Registrant and Jefferson W. Asher, Jr.(10)
10.31 Amendment number 6 to concession agreement number 31923 for Will
Rogers State Beach Park Restaurant(10)
10.32 Executive employment agreement dated as of May 21, 1993 between the
Registrant and Alan Redhead(10)
10.33 Executive employment agreement dated as of May 21, 1993 between the
Registrant and Mark E. Segal(10)
10.38 Notice of Default and election to sell under deed of trust as filed
by Bank of America NT & SA(12)
10.40 Amended and Restated Loan Agreement dated as of December 22, 1994
between Sea View Restaurants, Inc. and Bank of America NT & SA(13)
10.41 Guarantor Confirmation and Amendment dated December 22, 1994 between
California Beach Restaurants, Inc. and Bank of America NT & SA(13)
10.42 Stock Purchase Agreement dated December 22, 1994 between California
Beach Restaurants, Inc. and Bank of America NT & SA(13)
10.43 Shareholders and Noteholders Agreement dated as of December 22, 1994
among Sand and Sea Partners, Sea Fair Partners and Bank of America
NT & SA(13)
</TABLE>
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT TITLE NUMBERED PAGE
------ ------------- -------------
<S> <C> <C>
10.44 Note Cancellation Agreement dated December 22, 1994 among California
Beach Restaurants, Inc., Sea View Restaurants, Inc., Family
Restaurants, Inc. and Jojo's Restaurants, Inc.(13)
10.45 Securities Purchase Agreement dated December 22, 1994 between
California Beach Restaurants, Inc. and the purchasers named
therein(13)
10.47 California Beach Restaurants, Inc. Omnibus Stock Plan(14)
10.49 Amended and Restated Lease for RJ's dated January 1, 1995(15)
10.50 Stock Option Agreement between the Registrant and Alan Redhead dated
March 13, 1995(15)
10.51 Stock Option Agreement between the Registrant and Mark E. Segal
dated March 13, 1995(15)
10.52 Stock Option Agreement between the Registrant and Jefferson W.
Asher, Jr. dated March 13, 1995(15)
10.53 First Amendment to Amended and Restated Loan Agreement dated as of
August 1, 1995, between Sea View Restaurants, Inc. and Bank of
America NT & SA(16)
10.54 Amendment to Stock Purchase Agreement dated as of August 1, 1995
between the Registrant and Bank of America NT & SA(16)
21.1 Subsidiaries of Registrant(15)
23.1 Consent of Ernst & Young LLP*
23.2 Consent of Rosenfeld, Meyer & Susman (included in Exhibit 5)*
24.1 Power of Attorney (included with signature page)*
</TABLE>
* Filed herewith.
(4) Previously filed with Form 8-K filed April 27, 1990.
(5) Previously filed with Form 10-K for the fiscal year ended April 30,
1990.
(7) Previously filed with Form 10-Q for the quarter ended January 31,
1991.
(8) Previously filed with Form 10-K for the fiscal year ended April 30,
1991.
(9) Previously filed with Form 8-K filed April 28, 1992.
(10) Previously filed with Form 10-K for the fiscal year ended April 30,
1993.
(12) Previously filed with Form 10-Q for the quarter ended July 31, 1994.
(13) Previously filed with Form 8-K filed January 18, 1995.
(14) Previously filed as Schedule A to the Registrant's Proxy Statement
dated March 24, 1995.
(15) Previously filed with Form 10-K for the fiscal year ended April 30,
1995.
(16) Previously filed as an exhibit to the Registration Statement on Form
S-1 (Registration No. 33-95240) on August 4, 1995.
<PAGE> 1
EXHIBIT 5
ROSENFELD, MEYER & SUSMAN
[LETTERHEAD]
November 21, 1995
California Beach Restaurants, Inc.
17383 Sunset Boulevard, Suite 140
Pacific Palisades, CA 90272
Re: CALIFORNIA BEACH RESTAURANTS, INC. REGISTRATION STATEMENT ON
FORM S-1
Gentlemen:
You have requested our opinion as counsel for California Beach
Restaurants, Inc., a California corporation (the "Company"), in connection with
the registration under the Securities Act of 1933, as amended, of an aggregate
of 3,004,282 shares of common stock, par value $.01 (the "Shares"), of the
Company which may be sold from time to time by the Selling Shareholders named
under the heading "Selling Shareholders" in the Prospectus forming a part of
the Registration Statement on Form S-1 proposed to be filed with the Securities
and Exchange Commission on November 21, 1995.
In connection therewith, we have examined originals or photostatic or
certified copies of such documents, certificates and corporate or other records
as we have deemed necessary or appropriate as a basis for the opinion expressed
herein. In such examination we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as copies and the
authenticity of the originals of such latter documents.
In rendering our opinion herein, we have assumed the satisfaction of
the following conditions: the issuance by any necessary regulatory agencies of
appropriate permits, consents, approvals, authorizations and orders relating to
<PAGE> 2
California Beach Restaurants, Inc.
November 21, 1995
Page 2
the offering and sale of the Shares in their respective jurisdictions; the
Registration Statement being declared effective; and the sale of the Shares in
the manner set forth in the Registration Statement and pursuant to said
permits, consents, approvals, authorizations and orders.
Based upon the foregoing, and having regard for such legal
considerations as we have deemed relevant, we are of the opinion that the
Shares are, and when sold in the manner set forth in the Registration
Statement, will be legally issued, fully paid and non-assessable.
This opinion is addressed solely to the Company and no one else has
the right to rely upon it, nor may anyone release it, quote from it or employ
it in any transaction other than those discussed herein without our written
consent. However, we hereby consent to the filing of this opinion as an
Exhibit to the Registration Statement and to the reference to us under the
heading "Legal Matters" in the Registration Statement.
Very truly yours,
/s/ ROSENFELD, MEYER & SUSMAN
----------------------------------
ROSENFELD, MEYER & SUSMAN
RM&S:nb
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated May 30, 1995, in the Registration Statement (Form S-1)
and related Prospectus of California Beach Restaurants, Inc. for the
registration of 3,004,282 shares of its common stock.
Our audits also included the financial statement schedules of California Beach
Restaurants, Inc. listed in Item 16(b). These schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Century City
Los Angeles, California
November 21, 1995
