<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31,1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-12226
CALIFORNIA BEACH RESTAURANTS, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-2693503
---------------------------------- ---------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
17383 Sunset Boulevard, Suite 140, Pacific Palisades, CA 90272
(Address and zip code of Principal executive offices)
(310) 459-9676
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to the
filing requirements for at least the past 90 days.
Yes X No
--------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
<TABLE>
<CAPTION>
Number of Shares Outstanding
Class at September 6 , 1996
----- ---------------------------
<S> <C>
Common Stock, $.01 par value 3,400,975
- ---------------------------- ---------------------------
</TABLE>
<PAGE> 2
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
JULY 31, 1996
INDEX
Part I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at July 31, 1996
and April 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the
Three Months Ended July 31, 1996 and 1995 . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the
Three Months Ended July 31, 1996 and 1995 . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . 9
Part II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Defaults on Senior Securities . . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Securities Holders . . . . . . . . 12
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 12
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
<PAGE> 3
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
July 31, 1996 April 30, 1996
------------- --------------
(Unaudited) (1)
<S> <C> <C>
Current Assets:
Cash $ 674,000 $ 624,000
Restricted cash 500,000 500,000
Trade and other receivables 32,000 27,000
Inventories 277,000 261,000
Prepaid expenses 246,000 203,000
------------- -------------
Total current assets 1,729,000 1,615,000
Fixed Assets (at cost) - net of accumulated
depreciation and amortization (Note C) 1,368,000 1,410,000
Other Assets:
Goodwill, net of accumulated
amortization 2,690,000 2,855,000
Other 190,000 180,000
------------- -------------
$5,977,000 $6,060,000
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
(1) The April 30, 1996 amounts have been extracted from the Company's Annual
Report on Form 10-K for the year ended April 30, 1996.
3
<PAGE> 4
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
July 31, 1996 April 30, 1996
------------- --------------
(Unaudited) (1)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 741,000 $ 697,000
Accrued liabilities 608,000 770,000
Current portion of long-term debt (Note D) 1,244,000 1,216,000
----------- -----------
Total current liabilities 2,593,000 2,683,000
Long-term debt, less current portion (Note D) 1,179,000 1,500,000
Stockholders' Equity:
Common stock, $.01 par value, authorized
25,000,000 shares, issued and outstanding,
3,401,000 shares at July 31, 1996
and at April 30, 1996 34,000 34,000
Additional paid-in capital 13,175,000 13,175,000
Deficit in retained earnings (11,004,000) (11,332,000)
----------- -----------
Total stockholders' equity 2,205,000 1,877,000
----------- -----------
$ 5,977,000 $ 6,060,000
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
(1) The April 30, 1996 amounts have been extracted from the Company's Annual
Report on Form 10-K for the year ended April 30, 1996.
4
<PAGE> 5
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended July 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Sales $4,084,000 $3,743,000
Costs and Expenses:
Cost of goods sold 3,242,000 2,904,000
Selling, general and administrative 216,000 228,000
Legal and litigation settlement 24,000 54,000
Depreciation 108,000 99,000
----------- ----------
494,000 458,000
Other income (expenses):
Interest expense (1,000) (16,000)
Amortization of intangible assets (165,000) (165,000)
Other, net 8,000 4,000
---------- ----------
Income before income taxes 336,000 281,000
Provision for income taxes 8,000 2,000
---------- ----------
Net Income $ 328,000 $ 279,000
========== ==========
Net Income per common share (Note E):
Primary $ .10 $ .11
========== ==========
Fully-diluted $ .10 $ .09
========== ==========
Weighted average number of common shares
outstanding:
Primary 3,401,000 2,461,000
Fully-diluted 3,401,000 3,400,000
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
5
<PAGE> 6
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JULY 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 328,000 $ 279,000
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 273,000 264,000
Changes in assets and liabilities:
Accounts receivable, trade (5,000) (1,000)
Inventories (16,000) (29,000)
Prepaid expenses (43,000) (41,000)
Accounts payable 44,000 79,000
Accrued interest - 16,000
Accrued liabilities (162,000) (6,000)
--------- ---------
Cash provided by operations 419,000 561,000
--------- ---------
Cash flows used in investing activities:
Increase in other assets (10,000) (4,000)
Additions to fixed assets (67,000) (73,000)
--------- ---------
Net cash used in investing activities (77,000) (77,000)
--------- ---------
Cash flows used in financing activities:
Borrowings pursuant to capital lease - 21,000
Principal payments on borrowings (292,000) (337,000)
--------- ---------
Net cash used in financing activities (292,000) (316,000)
--------- ---------
Net increase in cash 50,000 168,000
Cash at beginning of period 624,000 493,000
--------- ---------
Cash at end of period $ 674,000 $ 661,000
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,000 $ -
========= =========
Income taxes $ 12,000 $ -
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
6
<PAGE> 7
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, 1996 may not be indicative
of the results that may be expected for the year ending April 30, 1997. These
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-K for the year-ended April 30,
1996.
NOTE B - ACCOUNTING PERIODS
The Company's restaurant operations are conducted through its wholly-owned
subsidiary, Sea View Restaurants, Inc. ("Sea View"). The Company's
consolidated financial statements for the three months ended July 31, 1996 and
1995 include Sea View's operations for the twelve weeks ended July 25, 1996 and
July 20, 1995, respectively.
NOTE C - FIXED ASSETS
<TABLE>
<CAPTION>
July 31, 1996 April 30, 1996
------------- --------------
<S> <C> <C>
Leasehold improvements $2,739,000 $2,727,000
Furniture and equipment 896,000 842,000
---------- ----------
3,635,000 3,569,000
Less accumulated depreciation
and amortization (2,267,000) (2,159,000)
---------- ----------
$1,368,000 $1,410,000
========== ==========
</TABLE>
7
<PAGE> 8
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, 1996 the balance of the senior secured note was $1,858,000, including
$158,000 of future interest costs, while the balance on the junior secured note
was $557,000, including $73,000 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.
8
<PAGE> 9
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
RESTAURANT REVENUES
Restaurant operations include the results of Gladstone's 4 Fish ("Gladstone's")
in Pacific Palisades, California and RJ's - Beverly Hills in Beverly Hills,
California. The Registrant operates Gladstone's pursuant to a concession
agreement with the County of Los Angeles ("County") which expires October 31,
1997. The County's standard operating procedure for contracts in excess of a
certain minimum length and amount is to distribute a Request for Proposal
("RFP") seeking bids prior to entering into new agreements. In August 1996,
the County published an RFP for a twenty year concession agreement to operate
at the restaurant site where Gladstone's currently operates. The Registrant
believes that this process will be concluded, based on the County's current
schedule, in early 1997. Except for the restaurant structure itself, the
Registrant owns all personal property, fixtures and leasehold improvements at
Gladstone's. The Registrant also owns the Gladstone's trade name and existing
liquor licenses and operates certain sections of the restaurant pursuant to
permits granted by the California Coastal Commission. Gladstone's has operated
at the present site since 1981. The Registrant 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 reduce the impact on the
business should it be unsuccessful in retaining the present location. If the
Registrant does not continue to operate Gladstone's at the present site after
October 31, 1997, or if the Registrant is unsuccessful in finding an alternate
location, it will have a material adverse impact on the Registrant's
operations.
Total sales for the three months ended July 31, 1996 were $4,084,000 compared
with $3,743,000 for the same period last year, an increase of $341,000 or
9.1%. This increase consisted of a 7.3% increase in total customer counts and
a 1.8% increase in average guest check.
Gladstone's 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 Gladsone's for the
three months ended July 31, 1996 benefitted from favorable weather and strong
tourism in the Los Angeles area.
As a result of typically more favorable weather and higher tourism during the
summer months from May through September, the Registrant's sales and operating
profits have historically been higher in the first and second quarters of its
fiscal year.
9
<PAGE> 10
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
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 for the three months ended July 31, 1996 was $3,242,000, or,
as a percentage of sales, 79.4% compared with $2,904,000, or, as a percentage
of sales, 77.6% during the same period last year. This increase is primarily
due to significantly higher prices paid for certain key food products,
including live Maine lobster, fresh whole chickens and chicken breasts and most
dairy products. Except for the lobster, these price increases are due to the
severe drought in certain parts of the country which resulted in higher grain
costs and reduced milk supplies. These higher prices have continued through
August 1996.
Federal legislation was recently signed mandating a $.50 per hour increase in
the minimum wage as of October 1, 1996. Additionally, a second increase of
$.40 per hour will take place on September 1, 1997. At present, the state of
California does not allow any adjustment of minimum wage for employees that
receive tips. These increases, unless offset by an adjustment for tipped
employees, will have an adverse impact on the Registrant's labor costs. The
Registrant does expect to increase certain menu prices to partially offset the
above-mentioned increases in both food products as well as labor costs.
Cost of goods sold will typically be slightly lower during the first and second
quarters due to additional economies of scale that can be achieved with labor
and certain other costs when sales levels are higher. For the fiscal year
ended April 30, 1996, cost of goods sold, as a percentage of sales, was 80.9%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the three months ended July 31, 1996, selling, general and administrative
expenses were $216,000 compared with $228,000 for the same period last year, a
decrease of $12,000 or 5.3%. This decrease is primarily due to expenses
incurred in connection with the Registrant's reverse stock split which became
effective on May 1, 1995. Such expenses were not incurred during the quarter
ended July 31, 1996.
LEGAL AND LITIGATION SETTLEMENT EXPENSES
For the three months ended July 31, 1996, legal and litigation settlement
expenses were $24,000 compared with $54,000 for the same period last year, a
decrease of $30,000 or 55.5%. This decrease is primarily due to the
elimination of certain litigation that was active during the three months ended
July 31, 1995.
INTEREST EXPENSE
For the three months ended July 31, 1995, interest expense of $16,000 related
to the Registrant's 9.75% Convertible Subordinated Notes. In October 1995,
these notes were partially redeemed, with the balance converting into common
stock.
AMORTIZATION OF INTANGIBLE ASSETS
For the three months ended July 31, 1996 and 1995, amortization expense was
$165,000. Amortization expense relates completely to the Registrant's Goodwill
and will approximate $714,000 per year.
10
<PAGE> 11
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Registrant currently has no outside sources of short-term or long-term
financing. The Registrant is seeking to refinance its existing bank debt and
borrow an additional amount to provide for capital expenditures at Gladstone's
(assuming retention of the concession agreement beyond October 31, 1997) and
for future growth opportunities. The Registrant may also consider other forms
of financing, if appropriate. There can be no assurance that additional
financing will be available on favorable terms, if at all.
Although the Registrant remains highly leveraged, due primarily to the
repayment terms of the remaining loan principal, the Registrant believes that
its existing cash and cash flow from operations over the next year will allow
it to meet its debt obligations under the Amended Loan as well as its normal
operating expenses. If the concession agreement is retained and the Registrant
continues to meet its currently scheduled debt obligations, the Registrant
would anticipate that its liquidity position will improve significantly.
Capital expenditures for the three months ended July 31, 1996 totaled
approximately $67,000. The Registrant estimates that capital requirements for
fiscal 1997 will be approximately $175,000.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, certain statements in
this Form 10-Q, including statements in this item, are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievement of the Registrant, or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward looking statements. Such factors include, among
others, the following: whether the Registrant is able to enter into a new
concession agreement with the County of Los Angeles with respect to the
operation of Gladstone's at its current location or, failing that, is able to
secure a suitable alternate location; the indebtedness of the Registrant,
including the Registrant's ability to service its indebtedness to the bank and
to comply with certain restrictive covenants; that the Registrant currently has
no short term or long term borrowing capacity, is highly leveraged and its
principal source of cash are funds generated from operations; that restaurants
historically have represented a high risk investment in a very competitive
industry; general and local economic conditions, which can, among other things,
impact tourism, consumer spending and restaurant revenues; quality of
management; changes in, or the failure to comply with, governmental
regulations; unexpected increases in the cost of key food products, labor and
other operating expenses in connection with the Registrant's business; and
other factors referenced in this Form 10-Q and in the Registrant's Annual
Report on Form 10-K for the year ended April 30, 1996.
11
<PAGE> 12
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On July 2, 1996, a former employee of the Registrant, filed a
complaint in the Superior Court for the State of California, County
of Los Angeles (BC 153053), against the Registrant's wholly owned
subsidiary, Sea View Restaurants, Inc., and three of its current and
former employees. The complaint arises out of the plaintiff's
former employment, and alleges sexual harassment, wrongful
termination and various related causes of action. The Registrant
believes that this case is without merit, and is vigorously
contesting it.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
27 - Financial Data Schedule
Reports on Form 8-K
None
12
<PAGE> 13
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
Signature(s)
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
California Beach Restaurants, Inc. (Registrant)
Dated: September 10, 1996 By: Alan Redhead
___________________________
Alan Redhead
Chief Executive Officer
(Duly Authorized Officer)
By Mark E. Segal
___________________________
Mark E. Segal
Vice President - Finance
and Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
COMPANY'S CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 1,174,000
<SECURITIES> 0
<RECEIVABLES> 32,000
<ALLOWANCES> 0
<INVENTORY> 277,000
<CURRENT-ASSETS> 1,729,000
<PP&E> 3,635,000
<DEPRECIATION> (2,267,000)
<TOTAL-ASSETS> 5,977,000
<CURRENT-LIABILITIES> 2,593,000
<BONDS> 0
0
0
<COMMON> 34,000
<OTHER-SE> 2,171,000
<TOTAL-LIABILITY-AND-EQUITY> 5,977,000
<SALES> 4,084,000
<TOTAL-REVENUES> 4,084,000
<CGS> 3,242,000
<TOTAL-COSTS> 3,590,000
<OTHER-EXPENSES> 157,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,000
<INCOME-PRETAX> 336,000
<INCOME-TAX> 8,000
<INCOME-CONTINUING> 328,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 328,000
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
