<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 January 31, 1997
________________________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to__________________
Commission file number 0-12226
___________
CALIFORNIA BEACH RESTAURANTS, INC.
______________________________________________________
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-2693503
_______________________________ ______________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
17383 Sunset Boulevard, Suite 140, Pacific Palisades, CA 90272
_______________________________________________________________
(Address and zip code of Principal executive offices)
(310) 459-9676
_______________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to the
filing requirements for at least the past 90 days.
Yes X No
_____________ _____________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
<TABLE>
<CAPTION>
Number of Shares Outstanding
Class at March 7, 1997
----- ----------------------------
<S> <C>
Common Stock, $.01 par value 3,400,975
- ---------------------------- -----------------------------
</TABLE>
<PAGE> 2
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
JANUARY 31, 1997
INDEX
<TABLE>
<S> <C>
Part I - FINANCIAL INFORMATION Page Number
-----------
Item 1. Financial Statements (Unaudited)
--------------------------------
Consolidated Balance Sheets at January 31, 1997
and April 30, 1996 . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the
Three Months Ended and Nine Months Ended
January 31, 1997 and 1996 . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the
Nine Months Ended January 31, 1997 and 1996 . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 9
Part II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 12
Item 2. Changes in Securities . . . . . . . . . . . . . . 12
Item 3. Defaults Upon Senior Securities . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 12
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
<PAGE> 3
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
January 31, 1997 April 30, 1996
---------------- --------------
(Unaudited) (1)
<S> <C> <C>
Current Assets:
Cash $ 192,000 $ 624,000
Restricted cash 500,000 500,000
Trade and other receivables 36,000 27,000
Inventories 291,000 261,000
Prepaid expenses 291,000 203,000
------------ ------------
Total current assets 1,310,000 1,615,000
Fixed Assets (at cost) - net of accumulated
depreciation and amortization (Note C ) 1,147,000 1,410,000
Other Assets:
Goodwill, net of accumulated
amortization 2,306,000 2,855,000
Other 190,000 180,000
------------ ------------
$ 4,953,000 $ 6,060,000
============ ============
</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>
January 31, 1997 April 30, 1996
---------------- --------------
(Unaudited) (1)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 630,000 $ 697,000
Accrued liabilities 521,000 770,000
Current portion of long-term debt (Note D) 1,698,000 1,216,000
------------ ------------
Total current liabilities 2,849,000 2,683,000
Long-term debt, less current portion (Note D) - 1,500,000
Stockholders' Equity (Note E):
Common stock, $.01 par value, authorized
25,000,000 shares, issued and outstanding,
3,401,000 shares at January 31, 1997 and
at April 30, 1996 34,000 34,000
Additional paid-in capital 13,175,000 13,175,000
Accumulated deficit (11,105,000) (11,332,000)
------------ ------------
Total stockholders' equity 2,104,000 1,877,000
------------ ------------
$ 4,953,000 $ 6,060,000
============ ============
</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 OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
------------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C>
Sales $3,542,000 $3,723,000 $11,374,000 $11,384,000
Costs and expenses:
Cost of goods sold 3,143,000 3,231,000 9,332,000 9,135,000
Selling, general and administrative 357,000 302,000 832,000 747,000
Legal and litigation settlement 30,000 45,000 80,000 141,000
Depreciation 144,000 131,000 361,000 330,000
------------ ------------ ------------ ------------
(132,000) 14,000 769,000 1,031,000
Other income (expenses):
Interest expense (1,000) (1,000) (2,000) (43,000)
Amortization of intangible assets (221,000) (219,000) (552,000) (549,000)
Other, net 9,000 11,000 24,000 23,000
------------ ------------ ------------ ------------
Income (loss) before income taxes (345,000) (195,000) 239,000 462,000
Provision for income taxes - 2,000 12,000 8,000
------------ ------------ ------------ ------------
Net Income (loss) ($ 345,000) ($ 197,000) $ 227,000 $ 454,000
------------ ------------ ------------ ------------
Net Income (loss) per common
share (Note E):
Primary ($ .10) ($ .06) $ .07 $ .16
============ ============ ============ ============
Fully-diluted ($ .10) ($ .06) $ .07 $ .14
============ ============ ============ ============
Weighted average number of
common shares outstanding:
Primary 3,401,000 3,401,000 3,401,000 2,778,000
============ ============ ============ ============
Fully-diluted 3,401,000 3,401,000 3,401,000 3,400,000
============ ============ ============ ============
</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
NINE MONTHS ENDED JANUARY 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 227,000 $ 454,000
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 913,000 879,000
Changes in operating assets and liabilities:
Trade and other receivables (9,000) (7,000)
Inventories (30,000) (9,000)
Prepaid expenses (88,000) (67,000)
Accounts payable (67,000) (129,000)
Accrued interest - (27,000)
Accrued liabilities (249,000) (66,000)
----------- -----------
Cash provided by operations 697,000 1,028,000
----------- -----------
Cash flows used in investing activities:
Additions to fixed assets (98,000) (145,000)
Increase in other assets (13,000) (16,000)
----------- -----------
Net cash used in investing activities (111,000) (161,000)
----------- -----------
Cash flows from financing activities:
Net proceeds from Rights Offering - 79,000
Redemption of 9.75% convertible
subordinated notes - (203,000)
Principal payments on borrowings (1,018,000) (1,027,000)
----------- -----------
Net cash used in financing activities (1,018,000) (1,151,000)
----------- -----------
Net increase in cash (432,000) (284,000)
Cash at beginning of period 624,000 493,000
----------- -----------
Cash at end of period $ 192,000 $ 209,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,000 $ 66,000
=========== ===========
Income taxes $ 15,000 $ 2,000
=========== ===========
</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 nine month period ended January 31, 1997 may not be
indicative of the results that may be expected for the year ending April 30,
1997. These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for the
year-ended April 30, 1996.
NOTE B - ACCOUNTING PERIODS
The Company's restaurant operations are conducted through its wholly-owned
subsidiary, Sea View Restaurants, Inc. ("Sea View"). The Company's consolidated
financial statements for the three months and nine months ended January 31,
1997 and 1996 include Sea View's operations for the sixteen weeks and forty
weeks ended February 6, 1997 and February 1, 1996, respectively.
NOTE C - FIXED ASSETS
<TABLE>
<CAPTION>
January 31, 1997 April 30, 1996
----------------- --------------
<S> <C> <C>
Leasehold improvements $ 2,749,000 $ 2,727,000
Furniture and equipment 918,000 842,000
------------- -------------
3,667,000 3,569,000
Less accumulated depreciation and amortization (2,520,000) (2,159,000)
------------- -------------
$1,147,000 $1,410,000
============= =============
</TABLE>
7
<PAGE> 8
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
NOTE D - LONG-TERM DEBT
On December 22, 1994 Sea View completed a restructuring of its bank debt and
entered into an Amended and Restated Loan Agreement ("Amended Loan"). The
Amended Loan included a senior secured note in the principal amount of
$3,000,000, bearing interest at 12% per annum, and payable at varying monthly
amounts through October 31, 1997, and a junior secured note in the amount of
$400,000 accruing interest at 12% per annum with both interest and principal
payable in a single lump sum on October 31, 1997. Interest to maturity on the
senior secured and junior secured notes is included in the carrying value of
such notes, in accordance with Financial Accounting Standards Board Statement
No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring,"
and will not be recognized as interest expense in current and future years. At
January 31, 1997 the balance of the senior secured note was $1,141,000,
including $62,000 of future interest costs, while the balance on the junior
secured note was $557,000, including $45,000 of future interest costs.
NOTE E - EARNINGS PER SHARE
Primary earnings per common share are calculated by dividing net earnings
applicable to common stock by the average of common stock outstanding and
common stock equivalents. On a fully-diluted basis, both net earnings and
shares outstanding are adjusted to assume the conversion of the 9.75%
convertible subordinated notes as of May 1, 1995.
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
certain minimum length and amount is to distribute a Request for Proposal
("RFP") seeking bids prior to entering into new agreements. In August 1996,
the County published an RFP for a twenty year concession agreement to operate
at the restaurant site where Gladstone's currently operates. The Registrant
believes that this process will be concluded, based on the County's current
schedule, in April 1997. Except for the restaurant structure itself, the
Registrant owns all personal property, fixtures and leasehold improvements at
Gladstone's. The Registrant also owns the Gladstone's trade name and existing
liquor licenses and operates certain sections of the restaurant pursuant to
permits granted by the California Coastal Commission. Gladstone's has operated
at the present site since 1981. The Registrant has submitted a proposal to
remain as the operator of this site but there can be no assurance that such
proposal will ultimately be accepted by the County. The Registrant is
currently reviewing other potential restaurant sites for both expansion
possibilities as well as for an alternate location to reduce the impact on the
business should it be unsuccessful in retaining the present location. If the
Registrant does not continue to operate Gladstone's at the present site after
October 31, 1997, or if the Registrant is unsuccessful in finding a suitable
alternate location, it will have a material adverse impact on the Registrant's
operations.
Total sales for the three months ended January 31, 1997 were $3,542,000
compared with $3,723,000 for the same period last year, a decrease of $181,000
or 4.9%.
Gladstone's is located on the beach in Pacific Palisades, California and is
dependent, to a certain extent, on favorable weather and tourism. Sales for
the three months ended January 31, 1997 were impacted by unfavorable weather
during December and January, including rainfall totals which were significantly
above normal.
Sales for the nine months ended January 31, 1997 were $11,374,000 compared with
$11,384,000 for the same period last year, a decrease of $10,000 or .1%.
As a result of typically more favorable weather and higher tourism during the
summer months from May through September the Registrant's sales and operating
profits have historically been higher in the first and second quarters of its
fiscal year.
COST OF GOODS SOLD
Cost of goods sold includes all food, beverages, liquor, direct labor and other
operating expenses, including rent, of the Registrant's restaurant operations.
9
<PAGE> 10
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
COST OF GOODS SOLD (CONT.)
Cost of goods sold for the three months ended January 31, 1997 was $3,143,000,
or, as a percentage of sales, 88.7% compared with $3,231,000, or, as a
percentage of sales, 86.8% during the same period last year. Cost of goods
sold for the nine months ended January 31, 1997 was $9,332,000, or, as a
percentage of sales, 82.0% compared with $9,135,000, or, as a percentage of
sales, 80.2% during the same period last year. These increases are primarily
due to significantly higher prices paid for certain key food products,
including live Maine lobster, dungeness crab, fresh poultry and most
dairy products. Prices on these items, except for the dungeness crab, began to
moderate during the quarter and the Registrant expects that the impact on the
balance of the year will be less severe. Prices on dungeness crab are expected
to reach record highs this year. Gladstone's uses significant amounts of
dungeness crab and is currently evaluating available options to mitigate the
impact on its cost of sales.
The Registrant has also been impacted by the implementation of a higher minimum
wage. On October 1, 1996, federal legislation was signed mandating a $.50 per
hour increase in the minimum wage, with a second increase of $.40 per hour
scheduled for September 1, 1997. In addition, the state of California is
separately increasing the minimum wage in two steps resulting in a state
minimum wage of $5.75 per hour as of March 1998. This state minimum wage will
be $.60 per hour above the new federal standard. At present, the state of
California, unlike most states, does not allow any adjustment of minimum wage
for employees that receive tips. These wage increases, unless offset by an
adjustment for tipped employees, have and will continue to have an adverse
impact on the Registrant's labor costs. The Registrant also believes that
these mandated increases in minimum wage will result in higher prices paid for
most major food products. To partially offset the higher food and labor costs,
the Registrant has implemented certain menu price increases at both of its
restaurants.
Cost of goods sold will typically be slightly lower during the first and second
quarters due to additional economies of scale that can be achieved with labor
and certain other costs when sales levels are higher. For the fiscal year
ended April 30, 1996, cost of goods sold, as a percentage of sales, was 80.9%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the three months ended January 31, 1997, selling, general and
administrative expenses were $357,000 compared with $302,000 for the same
period last year, an increase of $55,000 or 18.2%. This increase is due to
expenses incurred in preparing the Registrant's response to the County's RFP
for a twenty year concession agreement to remain as the operator of the
restaurant site where Gladstone's currently operates. These expenses will
continue to be incurred until this matter is concluded.
For the nine months ended January 31, 1997, selling, general and administrative
expenses were $832,000 compared with $747,000 for the same period last year, an
increase of $85,000 or 11.4%. This increase is also due to the matters
described above.
LEGAL AND LITIGATION SETTLEMENT
For the three months and nine months ended January 31, 1997, legal and
litigation settlement expenses were $30,000 and $80,000, respectively, compared
with $45,000 and $141,000, respectively, for the same periods last year.
The respective decreases are primarily due to the elimination of certain
litigation that was active during the comparable periods last year.
10
<PAGE> 11
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
INTEREST EXPENSE
For the nine months ended January 31, 1997 and 1996, the Registrant incurred
interest expense of $2,000 and $43,000, respectively. Interest expense for the
nine months ended January 31, 1996 primarily related to the 9.75% convertible
subordinated notes. These notes were partially redeemed by the Registrant in
October 1995 and the unredeemed portion of the notes converted into common
stock as of October 30, 1995. The Registrant does not expect to incur any
significant interest expense through the end of its current fiscal year.
AMORTIZATION OF INTANGIBLE ASSETS
For the three months and nine months ended January 31, 1997 amortization
expense was $221,000 and $552,000, respectively, compared with $219,000 and
$549,000 for the same periods last year. Amortization expense primarily
relates to the Registrant's Goodwill.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant currently has no outside sources of short-term or long-term
financing; however, in November 1996, the Registrant signed a three year,
$3,000,000 commitment letter with Finova Capital Corporation to pay off
existing indebtedness to Bank of America and to finance its ongoing working
capital requirements. The commitment is contingent upon the Registrant
executing an agreement to remain the operator of Gladstone's at its current
location for not less than twenty years. Additionally, the commitment letter
is subject to numerous other conditions including executing a definitive loan
agreement. The commitment would also include a $1,500,000 subline of credit
for the sole purpose of financing renovations to the Gladstone's location.
Although the Registrant remains highly leveraged, due primarily to the
repayment terms of the remaining loan principal, the Registrant believes that
its existing cash and cash flow from operations over the next year will allow
it to meet its debt obligations under its current bank loan as well as its
normal operating expenses. If the concession agreement is retained and the
Registrant continues to meet its currently scheduled debt obligations, the
Registrant would anticipate that its liquidity position will improve
significantly.
Capital expenditures for the nine months ended January 31, 1997 totaled
approximately $98,000. The Registrant estimates that capital requirements for
fiscal 1997 will be approximately $175,000.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, certain statements in
this Form 10-Q, including statements in this item, are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievement of the Registrant, or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward looking statements. Such factors include, among
others, the following: whether the Registrant is able to enter into a new
concession agreement with the County of Los Angeles with respect to the
operation of Gladstone's at its current location or, failing that, is able to
secure a suitable alternate location; the indebtedness of the Registrant,
including the Registrant's ability to service its indebtedness to the bank and
to comply with certain restrictive covenants; that the Registrant currently has
no short term or long term borrowing capacity, is highly leveraged and its
principal source of cash are funds generated from operations; that restaurants
historically have represented a high risk investment in a very competitive
industry; general and local economic conditions, which can, among other things,
impact tourism, consumer spending and restaurant revenues; quality of
management; changes in, or the failure to comply with, governmental
regulations; unexpected increases in the cost of key food products, labor and
other operating expenses in connection with the Registrant's business; and
other factors referenced in this Form 10-Q and in the Registrant's Annual
Report on Form 10-K for the year ended April 30, 1996.
11
<PAGE> 12
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments in the matter discussed in
the Registrant's Form 10-Q for the period ended July 31, 1996.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
10.56 - Commitment Letter - Finova Capital Corporation
re: $3,000,000 Credit Facility
27 - Financial data schedule
Reports on Form 8-K
None
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: March 12, 1997 By: Alan Redhead
------------------------------------
Alan Redhead
Chief Executive Officer
(Duly Authorized Officer)
By: Mark E. Segal
------------------------------------
Mark E. Segal
Vice President - Finance
and Chief Financial Officer
13
<PAGE> 14
INDEX TO EXHIBITS
ITEM
NUMBER DESCRIPTION METHOD OF FILING
10.56 Commitment Letter - Finova
Capital Corporation Filed herewith electronically
27 Financial data schedule Filed herewith electronically
14
<PAGE> 1
355 SOUTH GRAND AVENUE SUITE 2400
LOS ANGELES, CA 90071
TEL 213 253 1600
FAX 213 625 2486
November 4, 1996
California Beach Restaurants, Inc.
17383 Sunset Boulevard, Suite 140
Pacific Palisades, California 90272
Re: Commitment for $3,000,000 Secured Credit Facility
Gentlemen:
We are pleased to advise you that FINOVA Capital Corporation
("Lender"), agrees to provide a loan to California Beach Restaurants, Inc.
("Borrower") for the purpose and on the terms and conditions set forth below.
Purpose
Borrower shall use the proceeds of the loan made by Lender to
pay its indebtedness to Bank of America and to finance its ongoing working
capital requirements.
Amount
Lender will make a term loan ("Term Loan") to Borrower in an
amount of up to Three Million Dollars ($3,000,000). Lender will also provide a
capital expenditure subline up to One Million Five Hundred Thousand Dollars
($1,500,000) for the sole purpose of renovating the Gladstone's 4 Fish
location. The capital expenditure line ("Capex Line") will be limited in
amount to the difference between the undrawn amount of the Term Loan and Three
Million Dollars. The Term Loan and the Capex Line are hereinafter collectively
referred to as the "Loans." Advances under the Capex Line shall be in
increments of not less than $200,000, requests for an advance shall be
accompanied by information detailing the specific use of the proceeds, all in
form and substance acceptable to Lender in its sole discretion and the advances
will only be used for actual expenses incurred by Borrower, which expenses
shall be subject to Lender's approval. All Loans shall be provided upon the
terms and conditions set forth in this letter of commitment (this "Letter of
Commitment") and in the Loan and Security Agreement between Borrower and Lender
and related documents, instruments and agreements, all in form and substance
satisfactory to Lender in its sole discretion (the "Loan Agreement").
<PAGE> 2
California Beach Restaurants, Inc.
November 4, 1996
Page 2
Term
Three (3) years (the "Initial Term") with renewals thereafter in the
sole discretion of Lender.
Terms and Repayment
Interest Rate. The Loans shall bear interest at a rate equal to the
Prime Rate based on a 360-day year plus two and three quarters percent (2.75%)
per annum. "Prime Rate" shall mean the reference (or equivalent) rate as
announced from time to time by Citibank, N.A., New York, New York. The Prime
Rate may or may not be the lowest rate charged to such bank's most creditworthy
corporate borrowers. Rate changes shall be effective on the date of
announcement. For purposes of availability, Borrower's account will be
credited upon Lender's receipt of good funds. In the event of a default under
the Loan Agreement, a default rate shall apply of two percent (2%) per annum in
addition to the otherwise applicable rate.
Term of Loans. The Loans shall be amortized based upon a sixty (60)
month amortization schedule but repaid in thirty-five (35) consecutive monthly
payments of principal with a balloon payment due and payable in month
thirty-six (36) for all then remaining unpaid amounts of principal, accrued but
unpaid interest and fees and charges. The unpaid amount of the Capex Line
shall be fully paid co-terminus with the Term Loan. In addition to the
foregoing, annually at the sole option of Lender, Borrower shall be required to
prepay, without a prepayment charge, an amount equal to 50% of Excess Cash Flow
to be applied to the unpaid amount of the Term Loan and then, upon payment of
the Term Loan, to the Capex Line, in the inverse order of payments otherwise
due. The definition of Excess Cash Flow shall be determined by Lender in its
sole discretion and shall be calculated and payable thirty days after Lender
receives Borrower's annual audited financial statements.
<PAGE> 3
California Beach Restaurants, Inc.
November 4, 1996
Page 3
Fees
Commitment Fee. In consideration of the issuance by Lender of this
Letter of Commitment, Borrower shall pay to Lender a fee (the "Commitment Fee")
in the amount of $30,000. The Commitment Fee shall be paid to Lender
concurrently with your acceptance of this Letter of Commitment. The Commitment
Fee shall not be refundable under any circumstances and shall be deemed fully
earned on the date hereof.
Closing Fee. In consideration of the financial accommodations
described herein, Borrower shall pay Lender on the Closing Date a closing fee
in the amount of $30,000 (the "Closing Fee").
Renewal Fee. Provided the term of the Loan is extended beyond the end
of the three year Initial Term (the "Initial Maturity Date"), Borrower shall
pay Lender upon each anniversary of the Initial Maturity Date a renewal fee of
$15,000, which represents one half of one percent (0.5%) of the total amount of
the maximum Loans.
Audit Fee. Borrower shall pay Lender an ongoing field examination and
collateral monitoring fee of $500 per day per auditor for each day of auditing
plus out-of-pocket expenses incurred in connection therewith.
Success Fee. Borrower shall pay Lender a success fee of $100,000 at
the end of the Initial Maturity Date.
Prepayment Penalty. Upon prepayment of the Loans by Borrower,
Borrower shall pay to Lender a prepayment penalty on the Loans based on the
percentages below of the amount prepaid:
<TABLE>
<CAPTION>
Year Percentage Applied
<S> <C>
1 3%
2 2%
3 and thereafter 1%
</TABLE>
Collateral
The Loan will be secured by a first priority perfected security
interest in (i) all of Borrower's now owned or hereafter acquired personal
property, including, but not limited to, its inventory, accounts, equipment,
chattel paper, documents, instruments, trademarks, patents, general
intangibles, all royalty payments, cash, tax refunds and deposit accounts,
together with all books and records relating to the foregoing, (ii) an
assignment as collateral security of Borrower's lease
<PAGE> 4
California Beach Restaurants, Inc.
November 4, 1996
Page 4
with the County of Los Angeles covering the Gladstone's location with the right
of Lender to assign the lease to a third party subject to the approval of the
proposed lessee by the County of Los Angeles, (iii) an assignment as collateral
security of Borrower's lease covering the RJ's location with the right of
Lender to assign the lease to a third party with the consent of the landlord,
which consent shall not be unreasonably withheld and (iv) all proceeds of the
foregoing, including insurance proceeds of or relating to any of the foregoing,
as well as products and replacements of, accessions to, and substitutions for
the foregoing property and interests in property (hereinafter collectively
referred to as the "Collateral").
Conditions Precedent To Closing
On or before the funding of the Loan (the "Closing Date"), the
following conditions precedent, which are for Lender's sole benefit, shall have
been satisfied or waived by Lender in its discretion and in a manner
satisfactory to Lender and its counsel:
1. Borrower and Lender shall have executed and delivered a
satisfactory Loan Agreement and such other documents, opinions, instruments and
agreements as Lender shall request.
2. All consents necessary to permit the secured financing
transaction contemplated by this Letter of Commitment to be consummated
pursuant to the terms and conditions of this Letter of Commitment and the Loan
Agreement shall have been obtained.
3. Borrower shall have made representations and warranties to
Lender customary for transactions of this type as Lender deems reasonable and
necessary.
4. All costs, fees and expenses required to be paid by Borrower
on or prior to the Closing Date shall have been paid.
5. Borrower shall have delivered to Lender appropriate approvals
of Borrower's Board of Directors authorizing the transaction contemplated in
this Letter of Commitment in form and substance acceptable to Lender in Lender's
sole discretion.
6. No material adverse change in the business, operations,
profits or prospects of Borrower or in the condition of the assets of Borrower
shall have occurred during the period
<PAGE> 5
California Beach Restaurants, Inc.
November 4, 1996
Page 5
commencing with September 30, 1996 and ending on the Closing Date (the "Interim
Period").
7. During the Interim Period, Borrower and its representatives
shall have provided Lender with all financial and other information which
Lender may have reasonably requested, including without limitation Borrower's
cash flow projections and pro-forma opening balance sheet which shall show that
(i) the Loans will provide sufficient funds for Borrower's projected working
capital needs, (ii) Borrower will have sufficient capital for the conduct of
its business following the funding of the Loans, and (iii) Borrower will not
incur debts beyond its ability to pay such debts as they mature.
8. Lender shall have received executed Intercreditor and
Subordination Agreements, as applicable, each in form and substance
satisfactory to Lender. The lease payments to the County of Los Angeles will
not be required to be subordinated.
9. Lender shall have received Landlord/Mortgagee Waivers with
respect to each of the locations occupied by Borrower. Landlord waivers will
include, without limitation, the right of Lender to remain on the premises for
up to ninety (90) days, and all waivers shall otherwise be in form and
substance satisfactory to Lender and from such parties as Lender deems
necessary.
10. Lender shall have received insurance certificates and Lender's
Loss Payable Endorsements in form and substance satisfactory to Lender naming
Lender as "Loss Payee" on the insurance policy or policies covering the
Collateral and copies of all insurance policies confirming insurance by
Borrower in amounts, coverage, form and by insurers satisfactory to Lender in
its sole discretion.
11. Lender shall have received and approved, in its sole
discretion, such Phase I environmental reports (the "Assessments"), in form and
substance acceptable to Lender, covering Borrower's assets and locations as
Lender shall deem necessary or desirable. The Assessments shall be performed
at Borrower's expense and shall include, in Lender's discretion, core
samplings. The Assessments shall be conducted by an environmental engineer
acceptable to Lender and the results of the Assessments shall be in form and
substance acceptable to Lender in its sole discretion.
12. No Event of Default under the Loan Agreement shall exist as of
the Closing Date.
<PAGE> 6
California Beach Restaurants, Inc.
November 4, 1996
Page 6
13. Lender shall have received confirmation that it has obtained a
first priority perfected security interest in the Collateral subject only to
such liens and encumbrances, if any, as Lender may approve in its discretion in
writing.
14. Prior to the Closing Date, Borrower shall have delivered true
and correct copies of any pension or other employee benefit plan(s) covering
its employees to Lender and Lender shall have approved of same in Lender's
discretion.
15. Borrower shall not have entered into any material commitment,
material transaction, or transaction for borrowings during the Interim Period
which is not in the ordinary course of business.
16. Borrower shall not have made any material change in its
accounting method or principles during the Interim Period.
17. There shall not have been instituted or threatened, during the
Interim Period, any material litigation or proceeding in any court or
administrative forum to which Borrower is a party.
18. Lender shall have received such opinions of counsel for
Borrower as Lender may reasonably require.
19. Lender and Borrower shall have agreed on financial covenants
acceptable to Lender in its discretion. It is expected that the financial
covenants shall include senior and total debt coverage, capital expenditure
limitations and minimum net worth.
20. On the Closing Date and after giving effect to Lender's
initial fundings, Borrower will have minimum available cash of not less than
$500,000 after bringing all suppliers to within 30 days of written terms and
after giving effect to verified cash in Borrower's bank account.
21. Lender shall have received and approved in its discretion a
background report on Alan Readhead.
22. Borrower shall have won the bid for the lease of the real
estate for the Gladstone's location. Such lease shall be for a term of not
less than 20 years and shall be assignable to Lender as collateral security;
provided that the County of Los Angeles may have a right to approve a new
tenant.
23. Lender shall have received an assignment as collateral
security of Borrower's lease for the location of R.J.'s.
<PAGE> 7
California Beach Restaurants, Inc.
November 4, 1996
Page 7
Covenants
The Agreement shall provide for, and the Loans shall be subject to,
certain covenants, including but not limited to the following:
1. Certain customary financial covenants as stated above.
2. Certain covenants limiting dividends, advances or loans to
affiliates and aggregate compensation to officers, including bonuses.
3. Certain covenants concerning, among other things, limitations
on mergers, changes in business, consolidations, acquisitions and business
expansions; loans and total indebtedness; affiliate transactions, partnerships
and joint ventures; adverse transactions; guaranties; liens and subordinated
debt; distributions; subsidiaries; dispositions of assets, and such other
matters and covenants as Lender shall reasonably require.
4. Certain covenants concerning material changes in management or
material changes in Borrower's ownership.
5. A covenant that Borrower shall not in any manner grant a
security interest in or otherwise encumber the Collateral, except as may be
provided in the Loan Documents, provided, that Borrower shall have the right to
purchase new equipment financed by purchase money security interests subject to
a limit to be established by Lender in Lender's reasonable discretion prior to
the Closing Date.
6. Certain covenants concerning the delivery of various financial
information, including, without limitation, (a) delivery of annual consolidated
and consolidating financial statements (including balance sheet, income and
cash flow statements) of Borrower audited by a certified public accounting firm
acceptable to the Lender within 90 days after the end of each fiscal year; (b)
delivery of annual consolidated and consolidating operating budgets (including
balance sheet, income and cash flow statements) of Borrower broken down by
month for the upcoming fiscal year, within 30 days prior to the end of each
fiscal year; (c) delivery of monthly internally prepared consolidating
financial statements of Borrower and quarterly compliance certificate within 30
days after the end of each fiscal month; and (d) such other reports as may be
reasonably requested by Lender from time to time.
<PAGE> 8
California Beach Restaurants, Inc.
November 4, 1996
Page 8
Approval of Documents
This Letter of Commitment contains a general summary of certain terms
of the transaction contemplated hereby and is subject to agreement and
execution upon satisfactory terms of the Loan Agreement which will include
other terms and conditions, including but not limited to, the terms and
conditions that are contained in Lender's standard form of Loan Agreement.
The Loan Documents will be in form and substance satisfactory to, and
subject to the approval of, Lender and its counsel in their sole discretion.
Without limiting the foregoing, all documents (except in the absolute
discretion of Lender) shall be governed by Arizona law, the parties will agree
to jurisdiction in Maricopa County, Arizona and will waive their right to a
trial by jury.
Closing Date
It is expected that the Closing Date will be on or prior to April 30,
1997, or earlier. If, for any reason, the requirements of this Letter of
Commitment are not met or if the transactions contemplated by this Letter of
Commitment are not funded by April 30, 1997, or such later date as Borrower and
Lender shall mutually agree in writing, Lender will have no further obligation
hereunder and Lender's commitment will automatically terminate.
Miscellaneous
This Letter of Commitment has been issued in reliance upon the
accuracy of the information furnished to Lender by or on behalf of Borrower.
If any law or regulation affecting Lender's entering into the
transaction contemplated hereby shall impose upon Lender any material
obligation, fee, liability, loss, cost, expense or damage which is not
contemplated by this Letter of Commitment, the commitment evidenced by this
Letter of Commitment may be terminated by Lender without liability of any kind
or nature.
The commitment evidenced by this Letter of Commitment shall not be
assignable by Borrower, by operation of law or otherwise, and may not be relied
upon by any other party.
This Letter of Commitment and, when executed and delivered, the Loan
Agreement, set forth the entire agreement of the parties with respect to the
subject matter hereof and supersede all other written or oral understandings
with respect thereto.
<PAGE> 9
California Beach Restaurants, Inc.
November 4, 1996
Page 9
The terms of this Letter of Commitment may not be waived, amended,
modified or altered unless such waiver, amendment, modification or alteration
is expressly stated as such and specifically agreed to by the parties hereto in
writing, and shall be enforceable by Lender and its successors or assigns.
This Letter of Commitment and all documents executed and contemplated to be
executed pursuant hereto shall be governed by and construed in accordance with
the internal laws (as opposed to the conflicts of law provisions) of the State
of Arizona.
In the event of a dispute hereunder, the prevailing party shall be
entitled to an award of all costs, expenses and attorneys fees incurred by it
in enforcing this Letter of Commitment whether or not suit is required.
All third party "out of pocket" costs and fees (including Lender's
reasonable attorneys fees, search fees and appraisal costs) incident to
Lender's due diligence, documentation and closing of the Loans shall be for
Borrower's account and paid by Borrower, whether or not the Closing Date occurs
or the Loans are actually funded.
Effective Date
The commitment of Lender hereunder shall become effective on the date
of receipt by Lender of an executed copy hereof (and the Commitment Fee of
$30,000), if agreed to by Borrower on or before the close of business on
November 7, 1996.
JURY TRIAL AND OTHER WAIVERS.
Borrower HEREBY:
Irrevocably submits to the jurisdiction of any state or
federal court located in Maricopa County, Arizona, over any action or
proceeding to enforce or defend any matter arising from or related to
this Letter of Commitment;
Irrevocably waives, to the fullest extent Borrower may
effectively do so, the defense of an inconvenient forum to the
maintenance of any such action or proceeding;
Agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in any other jurisdiction by
suit on the judgment or in any other manner provided by law; and
Agrees not to institute any legal action or proceeding against
Lender or any of Lender's directors, officers, employees, agents or
property, concerning any
<PAGE> 10
California Beach Restaurants, Inc.
November 4, 1996
Page 10
matter arising out of or relating to this Letter of commitment in any court
other than one located in Maricopa County, Arizona.
Nothing in the foregoing paragraph shall affect or impair Lender's
right to serve legal process in any manner permitted by law or Lender's right
to bring any action or proceeding against Borrower or Borrower's property in
the courts of any other jurisdiction.
BORROWER AND LENDER WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION
TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS LETTER OF
COMMITMENT.
Very truly yours,
FINOVA CAPITAL CORPORATION
By:______________________________
Acknowledged and Agreed to
this 5th day of November 1996:
California Beach Restaurants, Inc.
By:______________________________
Name: Mark Segal
Title: Vice President-Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 692,000
<SECURITIES> 0
<RECEIVABLES> 36,000
<ALLOWANCES> 0
<INVENTORY> 291,000
<CURRENT-ASSETS> 1,310,000
<PP&E> 3,667,000
<DEPRECIATION> (2,520,000)
<TOTAL-ASSETS> 4,953,000
<CURRENT-LIABILITIES> 2,849,000
<BONDS> 0
0
0
<COMMON> 34,000
<OTHER-SE> 2,070,000
<TOTAL-LIABILITY-AND-EQUITY> 4,953,000
<SALES> 11,374,000
<TOTAL-REVENUES> 11,374,000
<CGS> 9,332,000
<TOTAL-COSTS> 10,605,000
<OTHER-EXPENSES> 530,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,000
<INCOME-PRETAX> 239,000
<INCOME-TAX> 12,000
<INCOME-CONTINUING> 227,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,000
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
