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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended April 30, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _________________ to ________________
Commission File No. 0-12226
CALIFORNIA BEACH RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
California 95-2693503
(state or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
17383 Sunset Boulevard, Suite 140
Pacific Palisades, California 90272
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (310) 459-9676
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant based upon the average bid price in the over-the-counter market on
August 11, 1995 (the date of the last posted quote) was approximately $12,144.
The number of outstanding shares of the Registrant's Common Stock as of June 21,
1996 was 3,400,975.
Documents incorporated by reference; the definitive Proxy Statement of the
Registrant for the 1996 annual meeting of shareholders (Part III to the extent
described herein), or if such Proxy Statement is not filed within 120 days of
the Registrant's fiscal year end, such information will be included in an
amendment to this Form 10-K filed within such timeframe.
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PART I
ITEM 1 BUSINESS
GENERAL
California Beach Restaurants, Inc., ("Registrant"), formerly I.H.V.
Corp., was organized under the laws of the State of California in April 1971.
The Registrant is currently engaged in one line of business, the ownership and
operation of restaurants, including Gladstone's 4 Fish ("Gladstone's") in
Pacific Palisades, California and RJ's - Beverly Hills ("RJ's") in Beverly
Hills, California. For many years the Registrant, through its Microsonics
division, was engaged in the manufacture and sale of microphonographs and
microrecords. In July 1991, the Registrant decided to discontinue operations in
this business segment.
RESTAURANT OPERATIONS
The Registrant owns and operates the following restaurants through its
wholly-owned subsidiary, Sea View Restaurants, Inc. ("Sea View"):
GLADSTONE'S 4 FISH. 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 $13,000,000. 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 $21.75.
The Registrant operates Gladstone's pursuant to a concession agreement
with the County of Los Angeles ("County") which expires October 31, 1997. The
County's standard operating procedure for contracts in excess of a certain
minimum length and amount is to distribute a request for proposal seeking bids
prior to entering into new agreements. The County is following this procedure
with regards to the Gladstone's concession agreement and the Registrant
anticipates that this process will be concluded by December 1996. Except for the
restaurant structure itself, the Registrant owns all personal property, fixtures
and leasehold improvements at Gladstone's. The Registrant also owns the
Gladstone's trade name and existing liquor licenses and operates certain
sections of the restaurant pursuant to permits granted by the California Coastal
Commission. Gladstone's has operated at the present site since 1981. The
Registrant intends to complete a proposal to remain as the operator of this site
but there can be no assurance that such proposal will ultimately be accepted by
the County. The Registrant is currently reviewing other potential restaurant
sites for both expansion possibilities as well as for an alternate location to
lessen the impact on the business if it is unsuccessful in retaining the present
location. If the Registrant does not continue to operate Gladstone's at the
present site after October 31, 1997, or if the Registrant is unsuccessful in
finding an alternate location, it will have a material adverse impact on the
Registrant's operations.
RJ'S - BEVERLY HILLS. RJ's is located at 252 N. Beverly Drive, Beverly
Hills, California. RJ's was opened in 1979 and emphasizes its extensive salad
bar, barbecued ribs and chicken, library bar and antique ceiling fans to create
an attractive, casual dining atmosphere in the heart of Beverly Hills. RJ's had
sales of approximately $2,100,000 for the most recent fiscal year. The average
meal price at RJ's is approximately $16.00.
In April 1996, the Registrant completed a remodel of the main dining
area and bar at RJ's. In addition to the physical changes, the Registrant
changed the name of the restaurant from "RJ's - The Rib Joint" to "RJ's -
Beverly Hills." This change was made to prevent confusion on the
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part of prospective customers that RJ's only offered ribs or barbeque items. At
the same time, the menu was changed to include more selections for the non-rib
eater. New selections include fresh hand carved turkey, fresh broiled halibut
and salmon, crab cakes and several prepared salads. The Registrant also
discontinued Sunday brunch at RJ's. The discontinuation of Sunday brunch will
have a negative impact on sales but should not materially impact the
restaurant's results of operations. The Registrant incurred additional expenses
for training, supplies, uniforms and product development as a result of the
above mentioned changes. These costs were expensed as incurred.
GOVERNMENT REGULATIONS
The Registrant is subject to various federal, state and local laws
affecting its business. Each restaurant is subject to licensing and regulation
by a number of governmental authorities, including alcoholic beverage control,
coastal development, health, safety and fire agencies. The Registrant has not
experienced problems in obtaining or renewing required permits or licenses. The
failure to receive or retain, or a delay in obtaining any significant license or
permit could adversely impact the Registant's operations.
Various federal and state labor laws govern the Registrant's
relationship with its employees, including such matters as minimum wage
requirements, overtime and other working conditions. Significant additional
increases in minimum wage, mandated paid leaves of absence or mandated universal
health benefits could adversely impact the Registrant.
MANAGEMENT CONTRACTS
The Registrant does not currently manage and does not presently have
any plans to manage any restaurants not owned by the Registrant. In previous
years, the Registrant managed and attempted to secure management agreements with
several restaurants. The Registrant would consider entering into management
agreements in the future based upon satisfactory terms.
LICENSE AGREEMENT
GLADSTONE'S/UNIVERSAL CITY - In 1992 the Registrant entered into a
license agreement with MCA Development Venture Two ("MCADVT"), an affiliate of
MCA Inc., which permits MCADVT to use the Gladstone's 4 Fish name and trademarks
at a restaurant in their CityWalk development located in Universal City,
California in exchange for a royalty fee of .8% of the restaurant's gross
receipts during such use. The Gladstone's 4 Fish restaurant at CityWalk opened
in May 1993. Fees received pursuant to this agreement during fiscal 1996 were
approximately $76,000.
TRADEMARKS
The Registrant has registered several of its marks relating to the
operation of Gladstone's and R.J.'s as trademarks and service marks and regards
such marks as having significant value and as being an important factor in the
marketing of its restaurants.
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COMPETITION
The Registrant'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. Many of the Registrant's competitors
have significantly greater financial resources than the Registrant. The
restaurant business is often affected by changes in consumer tastes and
discretionary spending patterns, national and regional economic conditions,
demographic trends, consumer confidence in the economy, traffic patterns and the
type, number and location of competing restaurants. Any change in these factors
could adversely impact the Registrant. Management believes that the Registrant's
restaurants are comparable in quality, and in many cases superior, to competing
restaurants. There is no assurance that the Registrant's restaurants will be
able to compete successfully with other restaurants in their respective areas.
EMPLOYEES
The Registrant has approximately 319 employees in restaurant
operations. None of the employees are represented by a union. The Registrant
believes that its working conditions and compensation packages are competitive
with those offered by its competitors and considers relations with its employees
to be good.
SEASONALITY
The Registrant'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.
ITEM 2 PROPERTIES
GLADSTONE'S LEASES. The concession agreements with the County of Los
Angeles ("County") for the operation of Gladstone's and the adjacent parking lot
expire on October 31, 1997. See Item 1 - "Restaurant Operations - Gladstone's 4
Fish" for additional information regarding the expiration of the concession
agreements. The concession agreement for the restaurant provides for rent based
on 8% of sales of food, non-alcoholic beverages and other merchandise and 10% of
the sales of alcoholic beverages, with an annual minimum rent of $480,000. Rent
paid under the restaurant lease for the 1996 fiscal year was approximately
$1,103,000, 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 1996
for the parking lot was $35,400.
R.J.'S LEASE. In December 1994, the Registrant negotiated an amended
and restated lease for RJ's. The amended lease expires in December 2004 subject
to a non-guaranteed extension period of five years. The amended lease futher
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 1996 was $150,000.
EXECUTIVE OFFICE. The Registrant occupies approximately 2,000 square
feet of office space in Pacific Palisades, pursuant to a lease which expires in
September 1997 and provides for current monthly rental payments of $2,890.
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ITEM 3 LEGAL PROCEEDINGS
The Registrant is involved in litigation and threatened litigation
arising in the ordinary course of business. The Registrant does not believe that
resolution of any such matters will have a material adverse effect on its
business. The matter referred to in the Registrant's Form 10-Q for the quarter
ended January 31, 1996 has been resolved with no material impact on the
Registrant.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Registrant's stockholders
during the fourth quarter of the fiscal year ended April 30, 1996.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of Registrant's common stock are listed on the OTC Bulletin
Board under the symbol "CBHR".
Market price information for the Registrant's common stock listed below
is taken from the OTC Bulletin Board.
<TABLE>
<CAPTION>
BID PRICE
-----------------
FISCAL 1995 HIGH LOW
----------- ---- ---
<S> <C> <C>
First Quarter .033 .033
Second Quarter .033 .033
Third Quarter .33 .033
Fourth Quarter .33 .033
FISCAL 1996
-----------
First Quarter .02 .01
Second Quarter (A) (A)
Third Quarter (A) (A)
Fourth Quarter (A) (A)
FISCAL 1997
-----------
First Quarter (through 6/21/96) (A) (A)
</TABLE>
Bid prices prior to May 1, 1995, the effective date of the Registrant's
one for 33.286962 reverse stock split, have been adjusted on a pro-forma basis
to reflect such stock split. At June 21, 1996, the Registrant had approximately
570 shareholders of record.
(A) - Since August 14, 1995 there have been no posted bid prices for
the Registrant's common stock.
DIVIDENDS The Registrant has not paid a dividend on its common stock
since fiscal 1985. The Registrant 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 Registrant or the repurchase of Sea View's
common stock by Sea View.
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ITEM 6 SELECTED FINANCIAL DATA
The following table sets forth the selected financial data and
operating data for the five years ended April 30, 1996 and is derived from the
audited consolidated financial statements of the Registrant. 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, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and other financial and statistical information included
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales $15,257 $ 14,160 $ 13,924 $ 15,144 $ 17,038
Income (loss) from continuing
operations before extraordinary items 577 (3,419) (1,372) (665) (1,328)
Income (loss) per common share
from continuing operations before
extraordinary items .20 (12.21) (4.93) (2.35) (4.18)
Income from discontinued operations (b) -- -- -- 16 157
Income per common share from
discontinued operation -- -- -- -- .49
Extraordinary item (a) -- 2,540 -- -- --
Income per common share from
extraordinary item -- 9.07 -- -- --
Net Income (loss) 577 (879) (1,372) (649) (1,171)
Net Income (loss) per common share .20 (3.14) (4.93) (2.35) (3.69)
Balance Sheet Data:
Total assets 6,060 6,709 10,369 11,649 12,485
Debt in default -- -- 8,166 8,166 8,336
Convertible subordinated notes -- 783 -- -- --
Long-term debt, net of current portion 1,500 2,776 -- -- --
</TABLE>
(a) Extraordinary Gain recognized in connection with the December 1994
restructuring - See Note B to the Financial Statements.
(b) Discontinued Operations of American Microsonics Corp., which was
discontinued in 1991.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The Registrant currently has operations in one business segment, the
ownership and operation of restaurants.
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RESTAURANT OPERATIONS
Restaurant operations includes the results of Gladstone's 4 Fish in
Pacific Palisades, California, and RJ's - Beverly Hills in Beverly Hills,
California. See Item 1 - "Restaurant Operations - Gladstone's 4 Fish" for
additional information regarding the concession agreement pursuant to which
Gladstone's 4 Fish is operated.
Total sales for the year ended April 30, 1996 increased $1,097,000 or
7.7% compared with the year ended April 30, 1995. All restaurant operations are
currently conducted through the Registrant's wholly-owned subsidiary, Sea View.
Sea View's fiscal year included 53 weeks during the most recent fiscal year
compared with 52 weeks in the prior year. On a sales per week basis Sea View's
weekly sales were $287,900 for the 53 weeks ended May 2, 1996 compared with
$272,300 for the 52 weeks ended April 27, 1995, an increase of 5.7%. This
increase consisted of a 4.0% increase in total customer counts and a 1.7%
increase in average guest check.
The Registrant's Gladstone's 4 Fish restaurant is located on the beach
in Pacific Palisades, California and is 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 destination but is only open as
weather permits. Sales at Gladstone's for the third quarter ended January 31,
1996 and the fourth quarter ended April 30, 1996 benefitted significantly from
several successful promotional events as well as favorable weather and lower
rainfall as compared with the same period last year.
Total sales for the year ended April 30, 1995 increased $236,000 or
1.7% compared with the year ended April 30, 1994. Sea View's fiscal year
included 52 weeks during the year ended April 30, 1995 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%. This increase consisted of a 2.4%
increase in total customer counts and a 1.3% increase in average guest check.
Sales for the year ended April 30, 1995 were positively impacted by the
modest recovery in the local economy. In addition, comparisons to the prior year
were also affected by the two natural disasters which occurred during the year
ended April 30, 1994, including the Malibu fires in November 1993 and the major
earthquake in January 1994. Both of these events significantly impacted sales
for a period of time following the disaster.
In May 1993, MCA Development, Inc.("MCAD") opened a Gladstone's 4 Fish
at its Citywalk project in Universal City, California pursuant to a license
agreement between the Registrant and a subsidiary of MCAD. License fees for the
fiscal years ended April 30, 1996, 1995 and 1994 were $76,000, $77,000 and
$68,000, respectively.
In June 1993 the city of Los Angeles enacted legislation which
prohibits smoking in restaurants located in the city. The Registrant's
Gladstone's 4 Fish restaurant is located within the city limits of Los Angeles.
The Registrant does not believe that the smoking ban has had a material adverse
impact on its operations.
COST OF GOODS SOLD
Cost of goods sold includes all food, beverages, liquor, direct labor
and other operating expenses, including rent, of the Registrant's restaurant
operations. Cost of goods sold, as a percentage of sales, for the fiscal year
ended April 30, 1996 was 80.9% compared to 82.9% for fiscal 1995 and 81.9% for
fiscal 1994.
The decrease in cost of goods sold as a percentage of sales in fiscal
1996 compared with fiscal 1995 is primarily due to lower insurance costs,
particularly in the area of workers compensation insurance. Legislative reform
of the California workers compensation insurance
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system enabled the Registrant to renew its workers compensation insurance for
the year commencing April 1, 1995 at significantly reduced rates. The
Registrant's advertising expenditures for the year ended April 30, 1996 were
also slightly lower than the prior year. This reduction was primarily due to
marketing and advertising expenses related to a July 4th fireworks show held in
fiscal 1995 which was not held in fiscal 1996.
The increase in cost of goods sold as a percentage of sales in fiscal
1995 compared to fiscal 1994 was 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 resulted in a higher cost of sales
percentage. Secondly, in October 1994 the Registrant's Gladstone's 4 Fish 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 4 Fish and as a result Gladstone's
has extended price reductions on certain lobster meals in an effort to capture
additional market share of 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 last 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 as part of a successful effort to improve service
quality to the patrons of this outdoor area.
Legislation is currently pending at both the federal and state level to
increase the current minimum wage. At present, the state of California does not
allow any adjustment of minimum wage for tipped employees. A significant
increase in the minimum wage that is not offset by an adjustment for employees
who receive tips will have an adverse impact on the Registrant's labor costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses for the year ended April
30, 1996, increased $68,000 or 7.2% as compared with the year ended April 30,
1995. This increase is primarily due to expenses incurred in connection with the
Registrant's reverse stock split which became effective May 1, 1995 as well as
an increase in certain incentive compensation expenses. As a percentage of
sales, selling general and administrative expenses declined slightly from 6.7%
of sales for the year ended April 30, 1995 to 6.6% of sales for the year ended
April 30, 1996.
Selling, general and administrative expenses for the year ended April
30, 1995, decreased $99,000 or 9.5% as compared with the year ended April 30,
1994. This decrease is primarily due to a reduction in compensation and
termination expenses related to the elimination of an executive position.
LEGAL AND LITIGATION SETTLEMENT
Legal and litigation settlement expenses for the year ended April 30,
1996, decreased $64,000 or 29.0% as compared with the year ended April 30, 1995.
Expenses incurred during the year include costs to register 3,004,282 shares of
common stock owned by certain stockholders, pursuant to an existing contractual
obligation. The selling stockholders do not necessarily intend to sell their
shares but may decide to do so in the future. The Registrant is obligated to
file amendments to the registration statement in order to update it at any time
for up to two years when requested in writing by Bank of America (one of the
selling stockholders) with the Registrant bearing all the expenses of such
registration and updates up to certain limits.
Legal and litigation settlement expenses for the year ended April 30,
1995, decreased $276,000 or 55.5% as compared with the year ended April 30,
1994. In November 1993, the Registrant executed settlement agreements in two
major lawsuits to which it was a party. Based on the terms of the settlement
agreements, the Registrant recorded litigation settlement expenses
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of $225,000. There were no such litigation settlement expenses incurred during
the year ended April 30, 1995.
On December 22, 1994 the Registrant completed a restructuring of Sea
View's bank loan and settlement of a contingent note. The Registrant
concurrently closed a private placement of securities to finance such
restructuring and settlement. 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.
INTEREST EXPENSE
For the year ended April 30, 1996, the Registrant incurred interest
expense of $43,000 related primarily to the 9.75% Convertible Subordinated Notes
("Convertible Notes"). The Convertible Notes were partially redeemed by the
Registrant in October 1995 and the unredeemed portion of the notes converted
into common stock as of October 30, 1995. The balance of the interest expense is
related to a capital lease for certain restaurant equipment.
For the year ended April 30, 1995, the Registrant incurred interest
expense of $657,000 related primarily to the $10,000,000 term loan which was
borrowed in April 1990 to fund the acquisition of the Registrant's restaurant
operations. On December 2, 1994 the Registrant and its 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.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization expense relates primarily to the goodwill and covenant not
to compete which were recorded in April 1990 upon the completion of the
acquisition of the Registrant's restaurant operations. The five year covenant
not to compete was fully amortized at April 30, 1995.
The Registrant considered the restructuring transactions consummated on
December 22, 1994 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 Registrant'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
Registrant's principal restaurant location beyond the current term of the
concession agreement. Accordingly, during fiscal year 1995 goodwill was written
down by $2,500,000 and concurrently, the amortization period was 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.
INCOME TAX EXPENSE
For the year ended April 30, 1996, the Registrant recorded income tax
expense of $16,000, representing federal and state taxes due based on
Alternative Minimum Tax calculations.
For the years ended April 30, 1995 and 1994, the Registrant recorded
income tax expense of $4,000 which represents minimum state taxes.
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LIQUIDITY AND CAPITAL RESOURCES
On December 22, 1994, the Registrant completed a restructuring of Sea
View's existing bank debt and settlement of a contingent subordinated note. 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 ("Convertible Preferred Stock") and $782,710 of Convertible
Notes. Reference is made to Notes B and D of the financial statements included
under Item 8 hereof for a description of the Registrant's debt restructuring and
outstanding bank debt. The Registrant held an annual meeting of shareholders on
April 28, 1995. At this meeting the shareholders approved a one for 33.286962
reverse stock split of the Registrant's common stock. The reverse stock split
became effective on May 1, 1995 upon the filing of a Certificate of Amendment to
the Articles of Incorporation of the Registrant. As a result of the reverse
stock split, the Convertible Preferred Stock automatically converted into
2,180,748 shares of common stock on May 1, 1995.
On October 18, 1995 the Registrant completed a Rights Offering to
certain shareholders that did not participate in the December 22, 1994 private
placement. Eligible shareholders as of September 11, 1995 received 4.7215 rights
for each share of common stock that they owned. Each right entitled the holder
to purchase one share of common stock at $.83 per share. The proceeds of the
offering were used to partially redeem the Registrant's Convertible Notes which,
if not redeemed, were scheduled to convert into common stock as of October 30,
1995.
The Registrant raised $202,537 from the exercise of 244,020 rights. The
proceeds from the offering were distributed to the holders of the Convertible
Notes on a pro-rata basis. The unredeemed portion of the Convertible Notes
converted into 696,207 shares of common stock. Expenses of the offering, which
were paid by the Registrant, approximated $124,000.
The Registrant currently has no outside sources of short-term or
long-term financing. Although the Registrant remains highly leveraged after the
completion of the bank debt restructuring, due primarily to the repayment terms
of the remaining loan principal, the Registrant believes that its existing cash
and cash flow from operations over the next year will allow it to meet its debt
obligations under the amended loan agreement and its normal operating expenses.
Capital expenditures for the year ended April 30, 1996 totaled
approximately $259,000. The Registrant estimates that capital requirements for
fiscal 1997 will total approximately $225,000.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, certain
statements in this Form 10-K, including statements in this Item and in
"Business" are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievement of the Registrant, or industry
results, to be materially different from any future results, performance or
achievments expressed or implied by such forward-looking statements. Such
factors include, among others, the following: whether the Registrant is able to
enter into a new concession agreement with the County of Los Angeles with
respect to the operation of Gladstone's at its current location or, failing
that, is able to secure a suitable alternate location; the significant
indebtedness of the Registrant, including the Registrant's ability to service
its indebtedness to the bank and to comply with certain restrictive covenants;
that the Registrant has no short term or long term borrowing capacity, is highly
leveraged and its principal source of cash is funds generated from operations;
that restaurants historically have represented a high risk investment in a very
competitive industry; general and local economic conditions, which can, among
other things, impact tourism and restaurant revenues; weather and natural
disasters, such as earthquakes and fires, which can impact sales at the
Registrant's restaurants; quality of management; changes in, or the failure to
comply with, governmental regulations; and other factors referenced in this Form
10-K.
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ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CALIFORNIA BEACH RESTAURANTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Report of Independent Auditors 14
Consolidated Balance Sheets - April 30, 1996 and 1995 15
Consolidated Statements of Operations for each of the three
years in the period ended April 30, 1996 17
Consolidated Statements of Stockholders' Equity (Deficit) for
each of the three years in the period ended April 30, 1996 18
Consolidated Statements of Cash Flows for each of the
three years in the period ended April 30, 1996 19
Notes to Consolidated Financial Statements 21
Schedule No. Description
------------ -----------
III Condensed Financial Information of Registrant
California Beach Restaurants, Inc. 31
VIII Valuation and Qualifying Accounts 35
</TABLE>
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.
11
<PAGE> 12
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and executive officers is incorporated
herein by reference from the sections entitled "Election of Directors" and
"Section 16(a) Reporting Delinquencies" in the Registrant's 1996 Proxy
Statement, or if such Proxy Statement is not filed within 120 days of the
Registrant's fiscal year end, such information will be included in an amendment
to this Form 10-K filed within such timeframe.
ITEM 11 EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference from the section entitled "Executive Compensation" in the Registrant's
1996 Proxy Statement, or if such Proxy Statement is not filed within 120 days of
the Registrant's fiscal year end, such information will be included in an
amendment to this Form 10-K filed within such timeframe.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the section entitled
"Security Ownership of Certain Beneficial Owners and Management" in the
Registrant's 1996 Proxy Statement, or if such Proxy Statement is not filed
within 120 days of the Registrant's fiscal year end, such information will be
included in an amendment to this Form 10-K filed within such timeframe.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
is incorporated herein by reference from the section entitled "Certain
Relationships and Related Transactions" in the Registrant's 1996 Proxy
Statement, or if such Proxy Statement is not filed within 120 days of the
Registrant's fiscal year end, such information will be included in an amendment
to this Form 10-K filed within such timeframe.
12
<PAGE> 13
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Auditors 14
Consolidated Balance Sheets - April 30, 1996 and 1995 15
Consolidated Statements of Operations for each of the three years
in the period ended April 30, 1996 17
Consolidated Statements of Stockholders' Equity (Deficit) for
each of the three years in the period ended April 30, 1996 18
Consolidated Statements of Cash Flows for each of the three years
in the period ended April 30, 1996 19
Notes to Consolidated Financial Statements 21
(2) Financial Statement Schedules
Schedule No. Description
------------ -----------
III Condensed Financial Information of Registrant,
California Beach Restaurants, Inc. 31
VIII Valuation and Qualifying Accounts 35
</TABLE>
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.
(3) Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed
as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
None
(c) Exhibits
All exhibits required by Item 601 are listed on the accompanying Index
to Exhibits described in (a) (3) above.
(d) Financial Statement Schedules
All of the financial statement schedules which are required by the
regulations of the Securities and Exchange Commission are either inapplicable or
are included as part of Item 8 herein.
13
<PAGE> 14
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, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended April 30, 1996. Our audits
also included the financial statement schedules listed in the Index at Item
14(a). These financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules 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 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, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended April 30, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, 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
Los Angeles, California
June 7, 1996
14
<PAGE> 15
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
April 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Current Assets:
Cash $ 624,000 $ 493,000
Restricted cash (Note A ) 500,000 500,000
Trade and other receivables 27,000 22,000
Inventories 261,000 262,000
Prepaid expenses 203,000 155,000
---------- ----------
Total current assets 1,615,000 1,432,000
---------- ----------
Fixed Assets (at cost) - net of accumulated
depreciation and amortization (Note C) 1,410,000 1,562,000
Other Assets:
Goodwill, net of accumulated
amortization of $3,870,000 (1996) and
$3,157,000 (1995) (Note A ) 2,855,000 3,568,000
Other 180,000 147,000
---------- ----------
$6,060,000 $6,709,000
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
15
<PAGE> 16
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
April 30,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 697,000 $ 665,000
Accrued interest -- 27,000
Accrued liabilities 770,000 656,000
Current portion of long-term debt (Note D) 1,216,000 1,161,000
------------ ------------
Total current liabilities 2,683,000 2,509,000
Long-term debt, less current portion (Note D) 1,500,000 2,776,000
9.75% Convertible Subordinated
Notes (Note B) -- 783,000
Commitments and Contingencies (Notes G and H)
Stockholders' Equity (Notes B and F):
Common stock, $.01 par value, authorized
25,000,000 shares, issued and outstanding
3,401,000 shares at April 30, 1996 and
280,000 at April 30, 1995 34,000 3,000
Series A Convertible Preferred Stock, no par
value, authorized 5,000,000 shares, issued
and outstanding none at April 30, 1996 and
2,223,556 at April 30, 1995 (Note F) -- 1,694,000
Additional paid-in capital 13,175,000 10,853,000
Deficit in retained earnings (11,332,000) (11,909,000)
------------ ------------
Total stockholders' equity 1,877,000 641,000
------------ ------------
$ 6,060,000 $ 6,709,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
16
<PAGE> 17
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Sales $ 15,257,000 $ 14,160,000 $ 13,924,000
Costs and expenses:
Cost of goods sold 12,335,000 11,741,000 11,402,000
Selling, general and administrative 1,014,000 946,000 1,045,000
Legal and litigation settlement 157,000 221,000 497,000
Depreciation 431,000 452,000 381,000
------------ ------------ ------------
1,320,000 800,000 599,000
Other income (expenses):
Interest expense (43,000) (657,000) (890,000)
Amortization of intangible assets (714,000) (1,104,000) (1,115,000)
Write-down of goodwill (Note A) -- (2,500,000) --
Other, net 30,000 46,000 38,000
------------ ------------ ------------
Income (loss) before income taxes 593,000 (3,415,000) (1,368,000)
Income tax provision (Note E) 16,000 4,000 4,000
------------ ------------ ------------
Income (loss) before extraordinary item 577,000 (3,419,000) (1,372,000)
Extraordinary item:
Gain from debt
restructuring (Note B) -- 2,540,000 --
------------ ------------ ------------
Net Income (loss) $ 577,000 ($ 879,000) ($ 1,372,000)
============ ============ ============
Net Income (loss) per common
share: (Note A)
Primary:
Before extraordinary items $ .20 $ (12.21) $ (4.93)
Extraordinary items -- 9.07 --
------------ ------------ ------------
$ .20 $ (3.14) $ (4.93)
============ ============ ============
Fully-diluted $ .18 $ (3.14) $ (4.93)
============ ============ ============
Weighted average number of shares outstanding:
Primary 2,931,000 280,000 278,400
Fully-diluted 3,401,000 280,000 278,400
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
17
<PAGE> 18
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A Convertible
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, 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
Conversion of Series A
Convertible Preferred Stock
into common stock 2,181,000 22,000 (2,223,556) (1,694,000) 1,672,000 -- --
Common stock issued
pursuant to Rights Offering 244,000 2,000 -- -- 77,000 -- 79,000
Conversion of 9.75%
Convertible Subordinated
Notes 696,000 7,000 -- -- 573,000 -- 580,000
Net Income -- -- -- -- -- 577,000 577,000
--------- ------- ---------- ---------- ----------- ------------ ----------
Balance at April 30, 1996 3,401,000 $34,000 -- -- $13,175,000 ($11,332,000) $1,877,000
========= ======= ========== ========== =========== ============ ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
18
<PAGE> 19
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ 577,000 ($ 879,000) ($1,372,000)
Adjustments to reconcile net income (loss)
to cash provided by operations:
Depreciation and amortization 1,145,000 1,613,000 1,582,000
Write-down of goodwill -- 2,500,000 --
Gain from debt restructuring -- (2,540,000) --
Decrease in allowance for
doubtful accounts -- -- (52,000)
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 (5,000) (13,000) 49,000
Inventories 1,000 (11,000) 25,000
Prepaid expenses (48,000) 2,000 (70,000)
Accounts payable 32,000 125,000 (334,000)
Accrued interest (27,000) -- --
Accrued liabilities 114,000 (146,000) 358,000
----------- ----------- -----------
Cash provided by operations 1,789,000 226,000 190,000
Cash flows used in investing activities:
Proceeds from sale of fixed assets -- -- 5,000
Increase (decrease) in other assets (33,000) (7,000) 4,000
Additions to fixed assets (259,000) (280,000) (380,000)
----------- ----------- -----------
Net cash used in investing activities (292,000) (287,000) (371,000)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments on borrowing (1,242,000) (1,595,000) (11,000)
Payment of contingent note and
restructuring expenses -- (692,000) --
Borrowings representing accrued interest
prior to restructuring -- 570,000 --
Proceeds from the sale of Series A
Convertible Preferred Stock -- 714,000 --
Proceeds from issuance of 9.75% Convertible
Subordinated Notes -- 783,000 --
Redemption of 9.75% Convertible
Subordinated Notes (203,000) -- --
Net proceeds from Rights Offering 79,000 -- --
----------- ----------- -----------
Net cash used in financing
activities (1,366,000) (220,000) (11,000)
----------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integralpart of this statement.
19
<PAGE> 20
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net increase (decrease) in cash $131,000 ($281,000) ($192,000)
Cash at beginning of period 493,000 774,000 966,000
-------- --------- ---------
Cash at end of period $624,000 $ 493,000 $ 774,000
======== ========= =========
</TABLE>
Supplemental disclosures of cash flow information:
The Company incurred a capital lease obligation of $21,000 in connection with a
lease agreement to acquire equipment during the year ended April 30, 1996.
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:
<TABLE>
<S> <C> <C> <C>
Interest $70,000 $ -- $375,000
======= ======= ========
Income taxes $ 2,000 $ 4,000 $ 4,000
======= ======= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
20
<PAGE> 21
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Company has operations in a single business segment, the ownership
and management of two restaurants, Gladstone's 4 Fish and RJ's - Beverly Hills.
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
Restaurants, Inc. ("Sea View"). Sea View's fiscal year is the 52 or 53 week
period ending on the Thursday closest to April 30. Fiscal year 1996 ended on May
2, 1996 and contained 53 weeks. Fiscal year 1995 ended on April 27, 1995 and
contained 52 weeks while fiscal year 1994 ended on April 28, 1994 and 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, 1996 and 1995, the Company had $500,000 in restricted
cash. Of this amount, $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 1996 and 1995 represent a letter of credit outstanding which secures
payment of certain deductible amounts pursuant to the Company's fiscal year 1994
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 of accounting for income taxes
pursuant to the adoption of Statement of Financial Accounting Standards No. 109
("SFAS 109") Accounting for Income Taxes on May 1, 1993.
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.
21
<PAGE> 22
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
PER SHARE DATA
Primary earnings per common share are calculated by dividing net
earnings applicable to common stock by the weighted average of common stock
outstanding and common stock equivalents. On a fully diluted basis, where
applicable, shares outstanding have been adjusted to assume the conversion of
the 9.75% Convertible Subordinated Notes ("Convertible Notes") as of the
beginning of the year and net income has been adjusted to reflect the addition
of $38,000 in interest expense recorded during 1996.
In 1995 and 1994 common stock equivalents and other potentially
dilutive securities have been excluded from per share calculations as their
effect would be antidilutive.
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,
during the year ended April 30, 1995 goodwill was written down by $2,500,000 and
concurrently, the amortization period was reduced from fifteen years to ten
years. The combination of the write-down and reduction in amortization period
will result in future amortization expense of approximately $714,000.
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 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.
22
<PAGE> 23
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
STOCK-BASED COMPENSATION
The Company accounts for its stock compensation arrangements under the
provisions of Accounting Principles Board (APB) No. 25, "Accounting for Stock
Issued to Employees" and intends to continue to do so.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
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 the
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
23
<PAGE> 24
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
bank,1,223,556 shares of a new issue Series A Convertible Preferred Stock
("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.
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
Convertible Preferred Stock and $782,710 of Convertible Notes. 1,000,000 shares
of the Convertible 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.
On October 18, 1995 the Company completed a Rights Offering to certain
shareholders that did not participate in the December 22, 1994 private
placement. Eligible shareholders as of September 11, 1995 received 4.7215 rights
for each share of common stock that they owned. Each right entitled the holder
to purchase one share of common stock at $.83 per share. The proceeds of the
offering were used to partially redeem the Company's Convertible Notes, which,
if not redeemed, were scheduled to convert into common stock as of October 30,
1995.
The Company raised $203,000 from the exercise of 244,020 rights. The
proceeds from the offering were distributed to the holders of the Convertible
Notes on a pro-rata basis. The unredeemed portion of the Convertible Notes
converted into 696,000 shares of common stock.
NOTE C - FIXED ASSETS
Detail of the Company's fixed assets are listed below:
<TABLE>
<CAPTION>
April 30,
---------------------
1996 1995
---- ----
<S> <C> <C>
Leasehold improvements $ 2,727,000 $ 2,606,000
Furniture and equipment 842,000 725,000
----------- -----------
3,569,000 3,331,000
Less accumulated depreciation and amortization (2,159,000) (1,769,000)
----------- -----------
$ 1,410,000 $ 1,562,000
=========== ===========
</TABLE>
24
<PAGE> 25
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
April 30,
1996 1995
---------------------
<S> <C> <C>
Notes payable to bank, payable monthly in varying
amounts through October 1997, including accrued
interest through the term of the debt $ 2,704,000 $ 3,937,000
Capitalized lease obligation, payable monthly
through March 1998 with interest at 10.5% 12,000 --
Less current portion (1,216,000) (1,161,000)
----------- -----------
$ 1,500,000 $ 2,776,000
=========== ===========
</TABLE>
During 1990 Sea View entered into a loan agreement with a bank in
connection with the acquisition of its restaurant operations. 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,
1996, the balance of the senior secured note was $2,147,000, including $199,000
of future interest costs and the balance on the junior secured note was
$557,000, including $87,000 of future interest costs. At April 30, 1995, the
balance of the senior secured note was $3,380,000, including $482,000 of future
interest costs and 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.
25
<PAGE> 26
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Current:
Federal $12,000 $ -- $ --
State 4,000 4,000 4,000
------- ------ ------
$16,000 $4,000 $4,000
======= ====== ======
Deferred:
Federal $ -- $ -- $ --
State -- -- --
------- ------ ------
$ -- $ -- $ --
======= ====== ======
</TABLE>
As of April 30, 1996, the Company has available for federal income tax
purposes net operating loss carryovers available to offset certain future
taxable income of approximately $5,900,000 and state net operating loss
carryovers of approximately $1,400,000 which expire from 1997 through 2010.
During the year ended April 30, 1990, two changes in control of the
Company occurred. As a result, $1,600,000 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
$695,000 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 $3,970,000 which expire from 2006 through 2010 are subject to certain
restrictions which limit their future use to approximately $277,000 per year. As
a result of this limitation, approximately $997,000 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) varied from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal rate 35.0% (35.0%) (35.0%)
Increase (decrease):
State income taxes, net of
federal tax benefit .7 .5 .3
Reduction in valuation reserve as a
result of the utilization of net
operating loss carryforwards (35.0) -- --
Alternative Minimum Tax 2.0 -- --
Operating losses which resulted in
no current Federal tax benefit -- 35.0 35.0
------ ------ ------
Effective income tax rate 2.7% .5% .3%
====== ====== ======
</TABLE>
26
<PAGE> 27
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - INCOME TAXES - CONTINUED
As of April 30, 1996 and 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>
1996 1995
---- ----
<S> <C> <C>
Depreciation and amortization $ 1,518,000 $ 1,373,000
Nondeductible accruals 27,000 54,000
Net operating loss carryforwards 2,100,000 2,326,000
----------- -----------
Total deferred assets 3,645,000 3,753,000
----------- -----------
Valuation allowance (3,645,000) (3,753,000)
----------- -----------
Net deferred assets $ -- $ --
=========== ===========
</TABLE>
NOTE F - STOCKHOLDERS' EQUITY
Convertible Preferred Stock:
On December 22, 1994, the Company issued 1,223,556 shares of
Convertible Preferred Stock to its bank pursuant to an agreement whereby the
bank restructured certain outstanding senior secured debt (See Note B). These
shares were valued at $980,000 net of issuance expenses of $20,000. The Company
also sold 1,000,000 shares of Convertible Preferred Stock 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 Stock and the private
placement Convertible Preferred Stock 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 Stock remain outstanding.
Rights Offering:
On October 18, 1995, the Company completed a Rights Offering to certain
shareholders that did not participate in the December 22, 1994 private
placement. Eligible shareholders as of September 11, 1995 received 4.7215 rights
for each share of stock that they owned. Each right entitled the holder to
purchase one share of common stock at $.83 per share. The Company raised
approximately $203,000 from the exercise of 244,020 rights.
Stock Options:
During 1984, the Company adopted the non-statutory stock option plan
which 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.
27
<PAGE> 28
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - STOCKHOLDERS' EQUITY - CONTINUED
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 participants as
selected by the Stock Plan Committee 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.
The following schedule summarizes the changes in stock options for the
three years ended April 30, 1996 under the plans:
<TABLE>
<S> <C> <C>
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
------- ------------
Granted 30,000 $ .83
Cancelled (41,000) $ .83
Exercised -- $ -
------- ------------
Outstanding at April 30, 1996 579,500 $ .83-$33.29
======= ============
Exercisable at April 30, 1996 367,300 $ .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.
28
<PAGE> 29
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - STOCKHOLDERS' EQUITY - CONTINUED
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 Convertible 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. In December 1995, the Company effected a registation for resale
of 3,004,282 shares on behalf of certain shareholders. No shares have been sold
pursuant to such registration statement.
NOTE G - LEASES
The Company leases restaurant and office facilities under various
non-cancelable operating leases with remaining terms ranging from one to nine
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, 1996 are summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Restaurants:
Fixed minimum rentals $ 630,000 $ 630,000 $ 641,000
Percentage rentals 606,000 521,000 478,000
Other fixed minimum rentals 70,000 70,000 72,000
---------- ---------- ----------
Total $1,306,000 $1,221,000 $1,191,000
========== ========== ==========
</TABLE>
Sea View operates Gladstone's 4 Fish pursuant to a concession agreement
with the County of Los Angeles which expires October 31, 1997. The County's
standard operating procedure for contracts in excess of a certain minimum length
and amount is to distribute a request for proposal seeking bids prior to
entering into new agreements. The County is following this procedure for the
Gladstone's concession agreement and the Company anticipates that this process
will be concluded by December 1996. Gladstone's has operated at the present site
since 1981. The Company intends to complete a proposal to remain as the operator
of this site but there can be no assurance that such proposal will ultimately be
accepted by the County. If the Company does not continue to operate Gladstone's
at the present site after October 31, 1997, or if the Company is unsuccessful in
finding an alternate location it will have a material adverse impact on the
Company's 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 1996, 1995 and 1994 the Company received $163,000,
$150,000 and $119,000, respectively pursuant to this arrangement, net of all
expenses (except rent). These amounts have been recorded as a reduction to cost
of goods sold.
29
<PAGE> 30
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - LEASES - CONTINUED
Aggregate minimum annual rental commitments at April 30, 1996 were as follows:
<TABLE>
<CAPTION>
Year Ending April 30,
---------------------
<S> <C>
1997 $ 700,000
1998 422,000
1999 150,000
2000 150,000
2001 150,000
Thereafter 550,000
----------
$2,122,000
==========
</TABLE>
NOTE H - COMMITMENTS AND CONTINGENCIES
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 current base salary of
$210,000 subject to annual cost of living adjustments. Mr. Segal's agreement is
for three years and provides for a current base salary of $108,000 subject to
annual cost of living adjustments. In April 1996, Mr. Segal's agreement was
extended for an additional year.
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.
30
<PAGE> 31
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 300,000 $ 290,000
Due from affiliates 833,000 1,022,000
---------- ----------
Total current assets 1,133,000 1,312,000
INVESTMENT IN WHOLLY-OWNED SUBSIDIARIES 1,566,000 945,000
---------- ----------
$2,699,000 $2,257,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 822,000 $ 833,000
9.75% CONVERTIBLE SUBORDINATED
NOTES -- 783,000
STOCKHOLDERS' EQUITY 1,877,000 641,000
---------- ----------
$2,699,000 $2,257,000
========== ==========
</TABLE>
See notes to condensed financial statements.
31
<PAGE> 32
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONT.
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended April 30,
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales $ -- $ -- $ --
Costs and Expenses:
Selling, general and administrative (Note B) -- -- --
--------- --------- -----------
-- -- --
Interest expense (38,000) (27,000) --
Other Income 10,000 7,000 6,000
--------- --------- -----------
Income (loss) before income taxes and equity
in net loss of subsidiaries (28,000) (20,000) 6,000
Income tax provision(Note C) 16,000 4,000 4,000
Equity in net income (loss) of subsidiaries 621,000 (855,000) (1,374,000)
--------- --------- -----------
Net income (loss) $ 577,000 ($879,000) ($1,372,000)
========= ========= ===========
</TABLE>
See notes to condensed financial statements.
32
<PAGE> 33
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,
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income (loss) $ 577,000 $ (879,000) $(1,372,000)
Adjustments to reconcile net Income (loss)
to cash provided by (used in) operations:
Common stock issued for litigation settlement -- -- 4,000
Equity in (income) loss of subsidiaries (621,000) 855,000 1,374,000
Changes in assets and liabilities:
Accrued liabilities (11,000) 27,000 (1,000)
Due to (from) affiliates 189,000 (1,467,000) 15,000
--------- ----------- -----------
Cash provided by (used in) operations 134,000 (1,464,000) 20,000
FINANCING ACTIVITIES:
Proceeds from the sale of Convertible
Preferred Stock -- 714,000 --
Proceeds from issuance of Convertible Notes -- 783,000 --
Net proceeds from Rights Offering 79,000 -- --
Redemption of Convertible Notes (203,000) -- --
--------- ----------- -----------
Cash provided by financing activities (124,000) 1,497,000 --
--------- ----------- -----------
Increase in cash 10,000 33,000 20,000
Cash at beginning of period 290,000 257,000 237,000
--------- ----------- -----------
Cash at end of period $ 300,000 $ 290,000 $ 257,000
========= =========== ===========
</TABLE>
See notes to condensed financial statements.
33
<PAGE> 34
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONT.
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES 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 $4,247,000 at April 30, 1996. 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, 1996 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.
34
<PAGE> 35
CALIFORNIA BEACH RESTAURANTS, INC.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
DESCRIPTION BEGINNING COSTS AND AT END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
<S> <C> <C> <C> <C>
Fiscal year ended
April 30,
1996 $ -- $ -- $ -- $ --
1995 -- -- -- --
1994
Allowance for doubtful 52,000 -- (52,000) (A) --
accounts
</TABLE>
(A) - Write off of uncollectible amount.
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Los Angeles, in the
State of California, on July 15, 1996.
CALIFORNIA BEACH RESTAURANTS, INC.
By: /s/ Alan Redhead
---------------------------------------
Alan Redhead, Chief Executive Officer
/s/ Mark E. Segal
---------------------------------------
Mark E. Segal, Chief Financial Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Alan Redhead Chairman of the Board,Chief July 15, 1996
- -------------------------- Executive Officer and Director
Alan Redhead (Principal Executive Officer)
/s/ Mark E. Segal Vice President-Finance July 15, 1996
- -------------------------- Chief Financial Officer and
Mark E. Segal Secretary (Principal Financial and
Accounting Officer)
/s/ J. Christopher Lewis Director July 15, 1996
- --------------------------
J. Christopher Lewis
/s/ Jefferson W. Asher, Jr. Director July 15, 1996
- --------------------------
Jefferson W. Asher, Jr.
/s/ Scott C. Dew Director July 15, 1996
- --------------------------
Scott C. Dew
Director
- --------------------------
Faisal Shah
/s/ George Nicolais Director July 15, 1996
- --------------------------
George Nicolais
/s/ Barry A. Chase Director July 15, 1996
- --------------------------
Barry A. Chase
</TABLE>
36
<PAGE> 37
INDEX TO EXHIBITS
Item 14(a) 3
<TABLE>
<CAPTION>
ITEM SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------ ----------- -------------
<S> <C> <C>
3.1 Restated Articles of Incorporation of California Beach
Restaurants, Inc., 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)
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)
10.13 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)
10.18 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)
10.24 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)*
</TABLE>
37
<PAGE> 38
<TABLE>
<S> <C> <C>
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)
10.45 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)
10.55 Amendment No. 1 to executive employment agreement of Mark E.
Segal, dated April 30, 1996* (A)
21.1 Subsidiaries of the Registrant (15)
23.1 Consent of Ernst & Young LLP (A)
27.0 Financial Data Schedule (A)
</TABLE>
(A) FILED HEREWITH ELECTRONICALLY
( 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.**
( 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.**
(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 with Form S-1 on August 4, 1995, Registration No.
33-95240.**
* This is a management contract or compensatory plan or arrangement.
** All filings were made at the Commission's office in Washington D.C.; The
Registrant's SEC file number is 0-12226.
38
<PAGE> 1
Exhibit 10.55
AMENDMENT NO. 1 TO
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EXECUTIVE EMPLOYMENT AGREEMENT ("Amendment") is
effective as of this 30th day of April, 1996, between California Beach
Restaurants, Inc., a California corporation (the "Company") and Mark E. Segal
("Executive").
The Company and Executive are parties to that certain Executive
Employment Agreement (the "Agreement"), dated as of May 21, 1993, and the
parties have determined that it is in their mutual best interest to extend the
term thereunder.
In consideration of the above recitals and the mutual covenants
contained herein, it is agreed as follows:
1. Section 3 of the Agreement is amended in its entirety to read as follows:
"3. Term. The employment of the Executive by the Company, under the
terms and conditions of this Agreement, will commence on the date
hereof and terminate four(4) years from the date hereof, unless
sooner terminated as hereinafter provided."
2. In all other respects, the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
EXECUTIVE CALIFORNIA BEACH RESTAURANTS, INC.
a California corporation
/s/ Mark E. Segal /s/ Alan Redhead
- -------------------------------- ------------------------------
Mark E. Segal Alan Redhead, Chief Executive Officer
and President
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-97554) pertaining to the Omnibus Stock Plan of California Beach
Restaurants, Inc. of our report dated June 7, 1996, with respect to the
consolidated financial statements and schedules of California Beach Restaurants,
Inc. included in the Annual Report (Form 10-K) for the year ended April 30,
1996.
ERNST & YOUNG LLP
Los Angeles, California
July 16, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 1,124,000
<SECURITIES> 0
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<DEPRECIATION> (2,159,000)
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0
0
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<CGS> 12,335,000
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<INCOME-TAX> 16,000
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<EPS-PRIMARY> .20
<EPS-DILUTED> .18
</TABLE>
