<PAGE> 1
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
For the fiscal year ended April 30, 2000
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 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. [ ]
The aggregate market value of voting and non-voting common 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 July 20,
2000 was 3,400,930.
1
<PAGE> 2
Documents incorporated by reference: the definitive Proxy Statement of the
Registrant for the 2000 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.
PART I
ITEM 1 BUSINESS
GENERAL
California Beach Restaurants, Inc., ("Registrant" or "Company "), 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.
RESTAURANT OPERATIONS - CONCEPT AND MENU
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. The 10,000 square
foot interior of Gladstone's seats approximately 400, while the outside deck has
a seating capacity of approximately 300 in a 6,000 square foot area. Gladstone's
is open 365 days a year for lunch and dinner. Breakfast is served on weekends.
The Registrant completed construction of substantial improvements to its
Gladstone's restaurant in October 1999. The improvements, including the outside
deck, have enhanced the dining accomodations.
Gladstone's offers an extensive menu specializing in fresh fish and
shellfish. Gladstone's strives to purchase only the finest seafood products
including, live Maine lobster, premium Alaskan red king crab, western Australian
lobster tails and Mexican shrimp as well as the freshest fish available. Typical
fresh fish on the menu include salmon, swordfish, catfish, ahi tuna, petrale
sole, pacific red snapper, halibut and mahi-mahi. Gladstone's menu also includes
a large number of salads, pasta dishes and sandwiches in addition to its
extensive fresh fish and shellfish items.
Sandwich and salad prices begin at $9.29, with dinner entrees beginning at
$15.79. A typical dinner entree includes soup or salad, hot sourdough bread,
fresh vegetable and rice or potato. Gladstone's average check, including
beverages and desserts, is approximately $23.50. Gladstone's portion sizes are
very large and food that cannot be finished is wrapped in a gold foil animal
"sculpture." The gold foil, which is manufactured specially for Gladstone's, is
a signature element of the restaurant. Gladstone's is also well known for the
full barrels of peanuts that are always available free of charge to guests and
free "mile-high" cake for all birthday and anniversary celebrations.
2
<PAGE> 3
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 is
open for lunch and dinner from Monday through Saturday and dinner only on
Sunday. The restaurant occupies approximately 7,500 square feet with seating
capacity of approximately 260.
RJ's menu specializes in classic American food. RJ's signature items
include barbecued beef and baby back pork ribs and a very extensive salad bar.
RJ's menu also includes a wide selection of sandwiches and salads. Sandwich and
salad pricing begins at $6.99 with dinner entrees starting at $12.99. RJ's
average check is approximately $17.00. As with Gladstone's, portion sizes are
very generous and waitstaff are trained to wrap all leftovers in signature gold
foil animal sculptures.
RESTAURANT OPERATIONS - GLADSTONE'S CONCESSION AGREEMENT
Sea View operates Gladstone's pursuant to a 20-year concession agreement
with the County of Los Angeles ("County") that commenced November 1, 1997
("Concession Agreement") following the expiration of its prior agreement. During
February 1999, the Concession Agreement was amended. The Concession Agreement,
as amended, obligates Sea View to pay minimum annual rental payments of
$1,750,000 to the County. Percentage rents based on 10% of food sales and 12% of
the combined sales of alcoholic beverages, merchandise and parking lot revenue
are payable to the extent that such percentage rents exceed the minimum annual
rents. In addition to minimum annual rent and percentage rent, Sea View is
required to pay "Supplemental Rent" to the County equal to the sum of $15,000
per year plus 1% of the excess of Gladstone's gross annual revenues over
$14,000,000. The Registrant records rent expense on a straight line basis over
the life of the agreement. See Part II, Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The agreement also
requires Sea View to post a letter of credit equal to three months minimum rent
($437,500) and to maintain certain net worth levels.
The terms of the Concession Agreement afford the County the opportunity to
conduct a valuation of the Gladstone's Pacific Palisades operations
("Concession"), at any time during the first 150 months of the Concession
Agreement (commencing November 1, 1997) in the event of a sale of Gladstone's or
100% of the stock of Sea View or the Registrant, or at any time between the
beginning of the 79th month and the end of the 150th month of the Concession
Agreement. If the County elects to conduct a valuation, Sea View must thereafter
pay the greater of (1) the Supplemental Rent Payments, or (2) an amount
determined by amortizing the greater of 5% of the gross Concession value or 20%
of the net Concession value (as determined pursuant to the Concession
Agreement), less the aggregate amount of Supplemental Rent Payments paid through
the date of the valuation, using an interest rate of 9% and equal payments of
principal and interest, over the remaining term of the Concession Agreement.
RESTAURANT OPERATIONS - MARKETING
Both of the Registrant's restaurants focus on the casual segment of the
upper-end dinner house market. Management believes that its restaurants'
reputation, developed over many years, of providing guests with a unique dining
experience has been the most effective approach to attracting and retaining
business. By focusing its resources on providing superior service and value,
Gladstone's and RJ's have primarily relied on word of mouth to attract new
business.
3
<PAGE> 4
The restaurants have also developed unique promotions that are repeated on
an annual basis. For example, both Gladstone's and RJ's have a special Christmas
day promotion whereby each guest that dines in the restaurant on that day
receives a gift certificate for the amount of their Christmas day food purchase.
Additionally, Gladstone's has developed promotions tied to specific products
such as Sockeye Salmonfest during July and Lobsterfest in October. During these
promotions, which have run for several years, Gladstone's reduces menu prices
and adds numerous daily menu specials related to the featured product. On a
weekly basis, Gladstone's features special lobster prices each Thursday and
special crab prices each Friday. The Registrant uses print and radio advertising
from time to time to support its promotions.
Gladstone's also has developed other unique programs that are a key element
of its marketing plan. Placemats used at each table are printed daily, allowing
guests that have made a reservation to print a unique message such as welcoming
a special friend, announcing the celebration of a birthday, anniversary or other
special occasion. Guests are encouraged to take a placemat home as a reminder of
their special experience at Gladstone's. An electronic message board is located
in the front of the restaurant that is also used to welcome guests with special
messages. All special occasions are also celebrated with a free picture that is
placed in a customized photo sleeve to serve as a reminder of the special
experience at Gladstone's.
RESTAURANT OPERATIONS - PURCHASING
The Registrant's senior management establishes general purchasing
guidelines. The Registrant continuously seeks to obtain quality menu ingredients
and other supplies from reliable sources at competitive prices. From time to
time the Registrant will negotiate contract purchases to insure product
availability and to reduce short-term exposure to price fluctuations. Management
believes that all essential food and beverage products are available from
several qualified suppliers.
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 Registrant's operations.
Alcoholic beverage control regulations require that each restaurant apply
to a state authority for a license or permit to sell alcoholic beverages on the
premises. Licenses must be renewed annually and may be revoked or suspended, for
cause, at any time. Alcoholic beverage control regulations relate to numerous
aspects of the daily operation of each restaurant, including minimum age of
patrons and employees, hours of operation, advertising, wholesale purchasing and
storage and dispensing of alcoholic beverages. Failure by the Registrant to
retain its liquor license could adversely impact the Registrant'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.
4
<PAGE> 5
LICENSE AGREEMENT
GLADSTONE'S/UNIVERSAL CITY - In 1992 the Registrant entered into a license
agreement with MCA Development Venture Two ("MCADVT"), an affiliate of Universal
Studios, 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 2000 were
approximately $66,000.
TRADEMARKS
The Registrant and/or Sea View 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.
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 261 employees in restaurant operations.
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 current concession agreement for the restaurant
provides for rent based on 10% of sales of food and non-alcoholic beverages and
12% of the sales of alcoholic beverages, merchandise, and parking lot revenue,
with an annual minimum rent of $1,750,000 and annual supplemental rent of
$15,000 plus 1% of Gladstone's Pacific Palisades annual gross revenue in excess
of $14,000,000. Rent paid under the current restaurant lease for Fiscal 2000 was
approximately $1,750,000, representing approximately 15.6% of the restaurant's
sales.
5
<PAGE> 6
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 provides for
monthly rental payments of $13,034 through December 2000. In January 2001 and
2004 the monthly lease payments are subject to further adjustment based on
Consumer Price Index changes. Rent paid in Fiscal, 2000 was $156,404.
EXECUTIVE OFFICE. The Registrant occupies approximately 2,000 square feet
of office space in Pacific Palisades, pursuant to a lease that expires in
September 2002 and provides for current monthly rental payments of approximately
$3,467. The lease agreement includes an option to extend the term of the lease
for an additional five years.
ITEM 3 LEGAL PROCEEDINGS
The Registrant is involved in litigation and threatened litigation arising
in the ordinary course of business. Management of the Registrant does not
believe that resolution of any such matters will have a material adverse effect
on its business.
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, 2000.
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 1999 HIGH LOW
----------- ---- ---
<S> <C> <C>
First Quarter (A) (A)
Second Quarter (A) (A)
Third Quarter (A) (A)
Fourth Quarter (A) (A)
FISCAL 2000
-----------
First Quarter (A) (A)
Second Quarter (A) (A)
Third Quarter (A) (A)
Fourth Quarter (A) (A)
FISCAL 2001
-----------
First Quarter (through 7/15/00) (A) (A)
</TABLE>
6
<PAGE> 7
At July 20, 2000, the Registrant had approximately 870 shareholders of
record.
(A) Since August 11, 1995 there have been no posted bid prices for the
Registrant's common stock.
CONVERTIBLE NOTES On March 30, 1999, the Registrant completed a private
offering of $1,800,000 of subordinated, convertible notes ("Subordinated Notes")
to a limited number of existing shareholders of the Registrant who are
"accredited investors" within the meaning of Regulation D promulgated under the
Securities Act of 1933, as amended. The proceeds of the offering were used to
retire existing indebtedness to Outside LLC (as defined herein), and to finance
the renovations at Gladstone's. The Subordinated Notes are immediately
convertible into common stock of the Registrant at a rate of $1 per share, and
pay interest at 5% per annum. The Registrant may pay interest on the
Subordinated Notes in cash or in kind. All Interest due as of March 30, 2000 was
paid in cash. The Subordinated Notes mature on March 30, 2003; provided,
however, that the holders of the Subordinated Notes may elect to receive payment
for fifty percent of the outstanding Subordinated Notes on March 30, 2002.
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.
ITEM 6 SELECTED FINANCIAL DATA
The following table sets forth the selected financial data and operating
data for the five years ended April 30, 2000 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,
--------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales $ 13,382 $ 13,687 $ 14,162 $ 15,164 $ 15,257
Net Income (loss) (921) (680) (1,420) 327 577
Net Income (loss) per common share:
Basic (.27) (.20) (.42) .10 .20
Diluted (.27) (.20) (.42) .10 .18
Balance Sheet Data:
Total assets $ 3,820 $ 4,576 $ 3,321 $ 5,078 $ 6,060
Long-term debt, net of current portion $ 2,600 $ 2,499 -- -- 1,500
</TABLE>
7
<PAGE> 8
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. The Registrant's restaurant operations
are conducted through its wholly owned subsidiary, Sea View. Sea View's fiscal
year is the 52 or 53 week period ending on the Thursday closest to April 30. The
Fiscal Years 2000, 1999, and 1998 each contained 52 weeks.
The Registrant completed the construction of substantial improvements to
its Gladstone's restaurant in October 1999. The improvements have enhanced the
dining accommodations available to Gladstone's patrons. Construction of the
improvements to Gladstone's was performed while the restaurant remained open to
the public; however, substantial, albeit temporary, declines in seating capacity
attributable to such construction adversely affected sales during the first and
second quarters of Fiscal 2000.
RESTAURANT OPERATIONS
Restaurant operations include the results of Gladstone's 4 Fish in Pacific
Palisades, California, and RJ's - Beverly Hills in Beverly Hills, California.
Total sales for the fiscal year ended April 30, 2000 were $13,382,000, a
decrease of $305,000 or 2.2% as compared to the year ended April 30, 1999. 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. Gladstone's 4 Fish Fiscal 2000 revenues were adversely affected by the
restaurant remodel during the summer months of 1999. The remodel caused a
temporary reduction in seating capacity and a commensurate reduction in revenue.
The summer months typically result in higher sales due to Gladstone's location
on the beach.
Total sales for the fiscal year ended April 30, 1999 were $13,687,000, a
decrease of $475,000 or 3.4% as compared to the year ended April 30, 1998.
Gladstone's 4 Fish revenues were adversely affected during the first quarter of
Fiscal 1999 by inclement weather and road closures resulting from the "El Nino"
storms. Additionally, during the Fourth Quarter of Fiscal 1999, the Registrant
commenced construction of improvements to Gladstone's causing a temporary
reduction in seating capacity and a commensurate decrease in revenue.
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, 2000, 1999 and 1998 were $66,000, $71,000 and
$81,000, respectively.
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
8
<PAGE> 9
sold, as a percentage of sales, for the fiscal year ended April 30, 2000 was
88.9% compared to 87.1% for fiscal 1999 and 87.4% for fiscal 1998.
The increase in cost of goods sold in Fiscal 2000, as compared to Fiscal
1999 and Fiscal 1998, as a percentage of sales, is the result of increased
operating costs incurred during the first and second quarters of Fiscal 2000
attributable to the construction of improvements to Gladstone's during normal
operating hours while the restaurant remained open to the public. The
Registrant's efforts to minimize inconvenience and provide uninterrupted service
to the public during that time resulted in temporary increases in labor and
other operating costs that are not expected to recur. Rent expense was
consistent in Fiscal 2000 on less sales, also contributing to the increase in
cost of sales as a percent of sales.
Cost of goods sold was $11,928,000 in Fiscal 1999 as compared to
$12,371,000 in Fiscal 1998, a decrease of $443,000 or 3.5%. Cost of goods sold,
as a percentage of sales, for the fiscal year ended April 30, 1999 was 87.1%
compared to 87.4% for fiscal 1998. Gladstone's rent expense for the fiscal year
ended April 30, 1999 was $1,728,000 as compared to $1,501,000 for the fiscal
year ended April 30, 1998. Rents required by Gladstone's Concession Agreement
are substantially greater than those associated with the prior agreement between
Sea View and the County. Minimum annual rent expense under the new Concession
Agreement is $1,728,000. The Registrant's concerted effort to reduce costs
resulted in the decline in the amount of cost of goods sold, as a percentage of
sales, in Fiscal 1999, as compared to Fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expense for the year ended April 30,
2000, was $950,000 compared to $956,000 for the year ended April 30, 1999. As a
percentage of sales selling, general and administrative expense was 7.1% for
Fiscal 2000,compared to 7.0% for Fiscal 1999.
Selling, general and administrative expense for the year ended April 30,
1999 decreased $740,000 or 43.6% as compared with the year ended April 30, 1998.
The decrease is due to the Registrant's continuing efforts to reduce such
expenses, as well as the non-recurrence of certain unusual expenses relating to
the execution of the new Concession Agreement for Gladstone's, including an
executive bonus of $370,000, financing costs of $131,000, and consulting fees of
$68,000 that were included in the results of operations for the year ended April
30, 1998.
LEGAL AND LITIGATION SETTLEMENT
Legal and litigation settlement expenses for the year ended April 30,2000
decreased by $29,000 or 27.9% as compared with the year ended April 30, 1999.
The decrease was associated with a general decrease in outstanding legal
matters.
Legal and litigation settlement expenses for the year ended April 30, 1999
decreased by $349,000, or 77.0% as compared with the year ended April 30, 1998.
The decrease in such expenses is primarily due to the inclusion in the operating
results for year ended April 30, 1998 of legal expenses and settlement costs
relating to a litigation matter that was
9
<PAGE> 10
resolved that year. The remaining decrease is attributable to the Registrant's
utilization of in-house counsel for representation in certain matters and
management of external counsel in other matters.
INTEREST EXPENSE
For the year ended April 30, 2000, the Registrant recorded interest expense
of $282,000, net of interest income of $7,000, primarily relating to the note
payable with Lyon Credit, for the Gladstone's remodel, and interest expense on
the convertible notes.
For the year ended April 30, 1999, the Registrant recorded interest expense
of $303,000, net of interest income of $5,000, primarily related to the cost of
maintaining the letter of credit required by the Concession Agreement and to the
cost of the registrant's revolving line of credit.
DEPRECIATION/AMORTIZATION EXPENSE
For the years ended April 30, 2000,1999 and 1998 depreciation expense was
$384,000, $362,000 and $299,000, respectively. During the year ended April 30,
2000, the Registrant placed $1,507,000 of assets that were classified as
construction in progress at April 30,1999 into service, and also purchased an
additional $1,332,000 of fixed assets, resulting in an increase in depreciation
expense over prior years. The assets placed in service pertain to the renovation
of the Gladstone's location completed in July of 1999. Amortization expense
relates completely to the Registrant's Goodwill and other intangible assets and
approximated $714,000 per year.
INCOME TAX PROVISION
For the year ended April 30, 2000,1999 and 1998 the Registrant recorded
income tax expense of $2,000, $2,000 and $38,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
On March 30, 1999, the Registrant completed a private offering of
$1,800,000 of subordinated, convertible notes ("Subordinated Notes") to a
limited number of existing shareholders of the Registrant who are "accredited
investors" within the meaning of Regulation D promulgated under the Securities
Act of 1933, as amended. The proceeds of the offering were used to retire
existing indebtedness to Outside LLC, an entity affiliated with one of the
Company's directors and principal shareholders, and to finance the renovations
at Gladstone's. The Subordinated Notes are immediately convertible into common
stock of the Registrant at a rate of $1 per share, and pay interest at 5% per
annum. The Registrant may pay interest on the Subordinated Notes in cash or in
kind. The Subordinated Notes mature on March 30, 2003; provided, however, that
the holders of the Subordinated Notes may elect to receive payment for fifty
percent of the outstanding Subordinated Notes on March 30, 2002.
The Registrant has entered into an agreement for tenant improvement and
equipment financing with Lyon Credit Corporation ("TI Facility") of $1,089,000
to be repaid over a 5 year period with interest at the rate of 9.94%. At April
30, 2000, the balance due under the TI Facility was $988,000.
10
<PAGE> 11
On July 7, 1999, the Company entered into a one year, $500,000 revolving
line of credit agreement with U.S. Bank (formerly Santa Monica Bank). The
agreement provides for interest at prime plus 1% on all amounts borrowed,
requires a commitment fee of 1/2 %, and is secured by certain assets of the
Company, including its license agreement with MCA for use of the name
Gladstone's. It is also guaranteed by Sea View. The agreement requires the
Company to comply with certain cash flow and liquidity covenants, and includes a
60 consecutive days out of debt requirement. The Company utilized $437,500 of
the capacity of the revolving line of credit as collateral support for a letter
of credit issued by U.S. Bank pursuant to the Concession Agreement. The letter
of credit was to expire on July 6, 2000, and subsequently has been renewed
until July 6, 2001.
On September 30, 1999, the Company and U.S. Bank amended the terms of the
revolving line of credit agreement to provide for a $200,000 increase in the
maximum amount of the line of the credit from $500,000 to $700,000. The
additional $200,000 of available borrowing capacity will be available to the
Company during the period November 1, 1999 through March 31, 2000 only, after
which the line of credit will revert to its original $500,000 borrowing limit.
At April 30, 2000 no borrowings were outstanding under the line of credit. Line
of credit expires on July 6, 2001.
On March 22, 2000, Sea View entered into a four-month, $250,000 line of
credit agreement with Space Partners, an entity affiliated with one of the
Registrant's principal stockholders and with a member of its board of directors.
This agreement provided for interest of 10% on all amounts borrowed, required a
commitment fee of $2,500 and was guaranteed by the Registrant. Interest expense
associated with the agreement totaled $1,666 for fiscal year 2000. At April 30,
2000 the outstanding balance was $100,000.
Capital expenditures for the years ended April 30, 2000, 1999, and 1998
totaled approximately $1,332,000, $1,498,000, and $204,000 respectively. The
registrant has no significant commitments for capital expenditures in fiscal
2001.
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 achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: the Registrant's ability to secure adequate debt or
equity financing in order to comply with the terms of the concession agreement;
the Registrant's ability to generate an operating profit based on the terms of
the Concession Agreement; that its principal source of cash is funds generated
from operations and outside financings; that restaurants historically have
represented a high risk investment in a very competitive industry; general and
local economic conditions, which can, among other things, impact tourism,
consumer spending and restaurant revenues; weather and natural disasters, such
as earthquakes and fires, which can impact sales at the Registrant's
restaurants; quality of management; changes in, or the failure to comply with,
governmental regulations; unexpected increases in the cost of key food products,
labor and other operating expenses in connection with the Registrant's business;
and other factors referenced in this Form 10-K and the Registrant's other
filings with the SEC.
11
<PAGE> 12
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CALIFORNIA BEACH RESTAURANTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors 15
Consolidated Balance Sheets - April 30, 2000 and 1999 16
Consolidated Statements of Operations for each of the three
years in the period ended April 30, 2000 17
Consolidated Statements of Stockholders' Equity (Deficit) for
each of the three years in the period ended April 30, 2000 18
Consolidated Statements of Cash Flows for each of the
three years in the period ended April 30, 2000 19
Notes to Consolidated Financial Statements 20
</TABLE>
All 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.
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) Beneficial Ownership Reporting Compliance" in the Registrant's
2000 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 Form10-K filed within such timeframe.
12
<PAGE> 13
ITEM 11 EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference from the section entitled "Executive Compensation" in the Registrant's
2000 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 Form10-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 2000 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 Form10-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 2000 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 Form10-K filed within such timeframe.
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 15
Consolidated Balance Sheets - April 30, 2000 and 1999 16
Consolidated Statements of Operations for each of the three years 17
in the period ended April 30, 2000
Consolidated Statements of Stockholders' Equity (Deficit) for 18
each of the three years in the period ended April 30, 2000
Consolidated Statements of Cash Flows for each of the three years 19
in the period ended April 30, 2000
Notes to Consolidated Financial Statements 20
</TABLE>
13
<PAGE> 14
(2) Financial Statement Schedule 3
All 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.
14
<PAGE> 15
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, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended April 30, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2000 and 1999,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended April 30, 2000, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Los Angeles, California
June 14, 2000
15
<PAGE> 16
California Beach Restaurants, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
APRIL 30
2000 1999
----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 102,000 $ 1,018,000
Trade and other receivables 77,000 50,000
Inventories 219,000 211,000
Prepaid expenses 220,000 310,000
----------------------------
Total current assets 618,000 1,589,000
Fixed assets, net of accumulated depreciation
and amortization 3,031,000 2,083,000
Other assets:
Goodwill, net of accumulated amortization of $6,724,000 (2000)
and $6,010,000 (1999) -- 714,000
Other 171,000 190,000
----------------------------
Total assets $ 3,820,000 $ 4,576,000
============================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities:
Accounts payable $ 658,000 $ 287,000
Accrued liabilities 626,000 1,021,000
Current portion of note payable 188,000 123,000
Revolving line of credit - related party 100,000 --
----------------------------
Total current liabilities 1,572,000 1,431,000
Note payable, less current portion 800,000 699,000
Subordinated convertible notes 1,800,000 1,800,000
Deferred rent 383,000 405,000
Other liabilities 82,000 137,000
Stockholders' equity (deficit):
Common stock, $.01 par value, authorized 25,000,000 shares, issued and
outstanding 3,401,000 shares at April 30, 2000 and
1999 34,000 34,000
Preferred stock, no par value, authorized 1,818,755 shares, none
issued and outstanding at April 30, 2000 and 1999 -- --
Additional paid-in capital 13,175,000 13,175,000
Accumulated deficit (14,026,000) (13,105,000)
----------------------------
Total stockholders' equity (deficit) (817,000) 104,000
----------------------------
Total liabilities and stockholders' equity (deficit) $ 3,820,000 $ 4,576,000
============================
</TABLE>
See accompanying notes
16
<PAGE> 17
California Beach Restaurants, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
2000 1999 1998
--------------------------------------------
<S> <C> <C> <C>
Sales $ 13,382,000 $ 13,687,000 $ 14,162,000
Costs and expenses:
Cost of goods sold 11,896,000 11,928,000 12,371,000
Selling, general and administrative 950,000 956,000 1,696,000
Legal and litigation settlement 75,000 104,000 453,000
Depreciation and amortization 384,000 362,000 299,000
--------------------------------------------
77,000 337,000 (657,000)
Other income (expenses):
Interest expense, net (282,000) (303,000) (15,000)
Amortization of intangible assets (714,000) (712,000) (714,000)
Other, net -- -- 4,000
--------------------------------------------
Loss before income taxes (919,000) (678,000) (1,382,000)
Income tax provision 2,000 2,000 38,000
--------------------------------------------
Net Loss $ (921,000) $ (680,000) $ (1,420,000)
============================================
Net Loss per common share:
Basic $ (.27) $ (.20) $ (.42)
============================================
Diluted $ (.27) $ (.20) $ (.42)
============================================
Weighted average shares outstanding:
Basic 3,401,000 3,401,000 3,401,000
Diluted 3,401,000 3,401,000 3,401,000
</TABLE>
See accompanying notes
17
<PAGE> 18
California Beach Restaurants, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at May 1, 1997 3,401,000 $ 34,000 $ 13,175,000 $(11,005,000) $ 2,204,000
Net loss -- -- -- (1,420,000) (1,420,000)
-----------------------------------------------------------------------
Balance at April 30, 1998 3,401,000 34,000 13,175,000 (12,425,000) 784,000
Net loss -- -- -- (680,000) (680,000)
-----------------------------------------------------------------------
Balance at April 30, 1999 3,401,000 34,000 13,175,000 (13,105,000) 104,000
Net loss -- -- -- (921,000) (921,000)
-----------------------------------------------------------------------
Balance at April 30, 2000 3,401,000 $ 34,000 $ 13,175,000 $(14,026,000) $ (817,000)
=======================================================================
</TABLE>
See accompanying notes.
18
<PAGE> 19
California Beach Restaurants, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
2000 1999 1998
------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (921,000) $ (680,000) $(1,420,000)
Adjustments to reconcile net loss to cash provided
by operations:
Depreciation and amortization 1,098,000 1,074,000 1,013,000
Loss on retirement of fixed assets -- -- 34,000
Changes in operating assets and liabilities:
Restricted cash -- -- 475,000
Trade and other receivables (27,000) (11,000) 12,000
Inventories (8,000) (49,000) 124,000
Prepaid expenses 90,000 11,000 (87,000)
Accounts payable 371,000 (281,000) (105,000)
Accrued liabilities (395,000) 126,000 182,000
Deferred rent (22,000) 198,000 207,000
Other liabilities (55,000) (30,000) 167,000
-----------------------------------------
Net cash provided by operations 131,000 358,000 602,000
INVESTING ACTIVITIES
(Increase) decrease in other assets 19,000 (16,000) 16,000
Additions to fixed assets (1,332,000) (1,498,000) (204,000)
-----------------------------------------
Net cash used in investing activities (1,313,000) (1,514,000) (188,000)
FINANCING ACTIVITIES
Borrowings from subordinated notes and note
payable 166,000 2,622,000 --
Principal payments on borrowings -- -- (1,488,000)
Borrowings from related party 200,000 300,000 700,000
Payment to related party (100,000) (1,000,000) --
-----------------------------------------
Net cash provided by (used in)
financing activities 266,000 1,922,000 (788,000)
-----------------------------------------
Net (decrease) increase in cash (916,000) 766,000 (374,000)
Cash at beginning of year 1,018,000 252,000 626,000
-----------------------------------------
Cash at end of year $ 102,000 $ 1,018,000 $ 252,000
=========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 284,000 $ 292,000 $ 22,000
Income taxes $ -- $ 2,000 $ 7,000
</TABLE>
See accompanying notes.
19
<PAGE> 20
California Beach Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 30, 2000
1. 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 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. The fiscal
years ended on April 27, April 29, and April 30 for fiscal years 2000, 1999 and
1998, respectively, and each contained 52 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.
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.
LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable intangibles
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. Impairment losses are recognized when the carrying
amount of the asset exceeds the estimated fair value of the asset. At April 30,
2000 and 1999, the Company believes there has been no impairment of the value of
such assets.
FINANCIAL INSTRUMENTS
The carrying value of financial instruments such as cash, receivables, accounts
payable and accrued liabilities approximates their fair values based on the
short-term maturities of these instruments. The Company limits its exposure to
credit loss by placing its cash with high credit quality financial institutions.
The carrying value of debt instruments approximates its fair value based on
references to similar instruments.
20
<PAGE> 21
California Beach Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 30, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 18 years, whichever is less.
GOODWILL
Goodwill is stated at cost and is being amortized using the straight-line method
over 10 years. In Fiscal 2000, goodwill was fully amortized.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under this
method, deferred income taxes are provided for difference between the financial
reporting and tax bases of assets and liabilities and are measured using enacted
tax rates and laws expected to be in effect when temporary differences are
expected to reverse.
RESTAURANT AND ROYALTY REVENUES
Revenues from the operation of the restaurants are recognized when
sales occur. Royalty fees are based on the licensee restaurant's gross receipts
and are recorded by the Company in the period related restaurant's revenues are
earned. Fees received pursuant to this agreement during fiscal 2000, 1999 and
1998 were $66,000, $71,000 and $81,000, respectively.
ADVERTISING COSTS
The Company expenses advertising costs as such costs are incurred. The Company
expensed $110,000, $68,000 and $86,000 for the years ended April 30, 2000, 1999
and 1998, respectively, in connection with advertising.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
21
<PAGE> 22
California Beach Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 30, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIC AND DILUTED LOSS PER COMMON SHARE
The Company presents two loss per share amounts, basic loss per common share and
diluted loss per common share. Basic loss per common share includes only the
weighted average shares outstanding and exclude the dilutive effect of options,
warrants and convertible securities. For the years ended April 30, 2000, 1999,
and 1998 basic and diluted loss per common share are the same due to the
antidilutive effect of potential common shares outstanding.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
affecting the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
22
<PAGE> 23
California Beach Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 30, 2000
2. FIXED ASSETS
Details of fixed assets are as follows:
<TABLE>
<CAPTION>
APRIL 30
2000 1999
-------------------------
<S> <C> <C>
Construction in progress $ - $ 1,507,000
--------------------------
Leasehold improvements 4,580,000 2,737,000
Furniture and equipment 2,027,000 1,031,000
--------------------------
6,607,000 5,275,000
Less accumulated depreciation and amortization (3,576,000) (3,192,000)
--------------------------
$ 3,031,000 $ 2,083,000
==========================
</TABLE>
3. REVOLVING LINE OF CREDIT - RELATED PARTY
On March 22, 2000, Sea View entered into a four-month, $250,000 line of credit
agreement with Space Partners, an entity affiliated with one of the Company's
principal stockholders and a member of its board of directors. This agreement
provides for interest of 10% on all amounts borrowed, requires a commitment fee
of $2,500 and is guaranteed by the Company. Interest expense associated with the
agreement totaled $1,666 for fiscal year 2000. At April 30, 2000 the balance
outstanding was $100,000.
4. DEBT
On March 30, 1999, the Company completed a $1,800,000 private offering of
subordinated convertible notes due March 25, 2003 (Subordinated Notes). The
Subordinated Notes were sold to certain existing stockholders. The Subordinated
Notes bear interest at 5% per annum and are immediately convertible into common
stock of the Company at a rate of $1 per share. Interest is payable in cash or
in kind. The Subordinated Notes mature on March 30, 2003; provided,
23
<PAGE> 24
California Beach Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 30, 2000
4. DEBT (CONTINUED)
however, that the holders of the Subordinated Notes may elect to receive payment
for fifty percent of the outstanding Subordinated Notes on March 30, 2002. The
table below reflects the full exercise of said election by the holders of the
Subordinated Notes. The Subordinated Notes agreements limit indebtedness for
borrowed money of the Company in excess of $4,000,000 until the Subordinated
Notes are fully paid or converted.
In addition, in 1999, the Company entered into an agreement for tenant
improvements and equipment financing with Lyon Credit Corporation for up to
$1,089,000 in credit. The financing is to be repaid over a five year period with
interest at the rate of yield to maturity of the five year treasury note plus 4%
(9.94% at April 30, 2000). The financing is secured by certain tenant
improvements and equipment. A total of $988,000 was outstanding under this
financing as of April 30, 2000.
On July 7, 1999 the Company entered into a one year, $500,000 revolving line of
credit agreement with U. S. Bank. The agreement provides for interest at prime
plus 1% on all amounts borrowed, requires a commitment fee of 1/2%, and is
secured by certain assets of the Company, including its license agreement with
MCA for use of the name Gladstone's. The Agreement is also guaranteed by Sea
View. The agreement requires the Company to comply with certain cash flow and
liquidity covenants, and includes a 60 consecutive days out of debt requirement.
The Company utilized $437,500 of the capacity of the revolving line of credit as
collateral support for a letter of credit issued by U.S. Bank pursuant to the
Concession Agreement. The letter of credit expires July 6, 2001.
On September 30, 1999, the Company and U.S. Bank amended the terms of the
revolving line of credit agreement to provide for a $200,000 increase in the
maximum amount of the line of the credit from $500,000 to $700,000. The
additional $200,000 of available borrowing capacity will be available to the
Company during the period November 1, 1999 through March 31, 2000, after
which the line of credit will revert to its original $500,000 borrowing limit.
At April 30, 2000 no borrowings were outstanding under the line of credit. Line
of credit expires on July 6, 2001.
Maturities under existing financing agreements are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
2001 $ 188,000
2002 1,107,000
2003 1,128,000
2004 252,000
2005 113,000
----------
$2,788,000
==========
</TABLE>
24
<PAGE> 25
California Beach Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 30, 2000
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
2000 1999 1998
----------------------------------------
<S> <C> <C> <C>
Current:
Federal $ - $ - $ 26,000
State 2,000 2,000 12,000
-----------------------------------------
$ 2,000 $ 2,000 $ 38,000
=========================================
Deferred:
Federal $ - $ - $ -
State - - -
-----------------------------------------
$ - $ - $ -
=========================================
</TABLE>
As of April 30, 2000, the Company has available for federal income tax purposes
net operating loss carryovers available to offset certain future taxable income
of approximately $4,605,000 and state net operating loss carryovers of
approximately $1,599,000 which expire at various dates from 2000 through 2020.
As a result of changes in control in prior years, net operating losses of
approximately $3,740,000 that expire 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 $693,000 of these net operating
loss carryforwards may expire without any utilization.
25
<PAGE> 26
California Beach Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 30, 2000
5. INCOME TAXES (CONTINUED)
The effective income tax rate on income (loss) varied from the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------
<S> <C> <C> <C>
Statutory federal rate (34.0)% (34.0)% (34.0)%
Increase (decrease):
State income taxes, net of federal tax
benefit .2 .2 .1
Operating losses which resulted in no
current federal tax benefit 33.8 33.8 34.0
------------------------------
Effective income tax rate -% -% .1%
==============================
</TABLE>
As of April 30, 2000 and 1999, 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 Registrant's
financial statements, is as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------
<S> <C> <C>
Depreciation and amortization $ 3,084,000 $ 2,803,000
Nondeductible accruals 86,000 55,000
Net operating loss carryforwards 1,707,000 1,636,000
--------------------------
Total deferred assets 4,877,000 4,494,000
Less valuation allowance (4,877,000) (4,494,000)
--------------------------
Net deferred assets $ -- $ --
==========================
</TABLE>
26
<PAGE> 27
California Beach Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 30, 2000
6. STOCKHOLDERS' EQUITY
STOCK OPTIONS
The Omnibus Stock Plan, which received stockholder approval in April 1995,
provides for the issuance of a maximum of 1,000,000 shares of common stock. The
plan provides for the issuance of stock options, stock appreciation rights,
restricted stock and other awards to participants as selected by the Stock Plan
Committee of the board of directors, which administers the plan. Options granted
pursuant to this plan have expiration dates, which do not exceed 10 years from
the date of grant.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions: weighted-average risk-free interest rate of 6% for 2000, 1999 and
1998, dividend yields of 0% for 2000, 1999 and 1998, weighted-average volatility
factors of the expected market price of the Company's common stock of .001; and
a weighted-average expected life of the option of five years. There have been no
posted bid prices for the Company's common stock since 1995. The amortization of
the fair value of options granted was immaterial for 2000, 1999 and 1998.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
27
<PAGE> 28
California Beach Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 30, 2000
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
The following schedule summarizes the changes in stock options for the three
years ended April 30, 2000 under the plans:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE WEIGHTED AVERAGE
OPTIONS PRICE EXERCISE PRICE
----------------------------------------
<S> <C> <C> <C>
Outstanding at April 30, 1997 539,000 $.83 $.83
Granted 48,000 .83 .83
Canceled (15,000) .83 .83
Exercised - - -
----------------------------------------
Outstanding at April 30, 1998 572,000 .83 .83
Granted - - -
Canceled (135,000) .83 .83
Exercised - - -
----------------------------------------
Outstanding at April 30, 1999 437,000 .83 .83
Granted - - -
Canceled (50,000) .83 .83
Exercised - - -
----------------------------------------
Outstanding at April 30, 2000 387,000 .83 .83
===========
Exercisable at April 30, 2000 387,000
===========
</TABLE>
The weighted average remaining contractual life of these options is five years.
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
April 30, 2000
7. LOSS PER COMMON SHARE
A reconciliation of the numerator and denominator of basic earnings per share
and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
2000 1999 1998
-----------------------------------------------
<S> <C> <C> <C>
Basic and Diluted net loss per share computation:
Numerator $ (921,000) $ (680,000) $ (1,420,000)
Denominator:
Weighted average common shares
outstanding 3,401,000 3,401,000 3,401,000
-----------------------------------------------
Total shares 3,401,000 3,401,000 3,401,000
================================================
Basic and Diluted net loss
per share $ (.27) $ (.20) $ (.42)
================================================
</TABLE>
29
<PAGE> 30
California Beach Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 30, 2000
8. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases restaurant and office facilities under various noncancelable
operating leases with remaining terms ranging from one to twenty 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, 2000 are summarized below:
<TABLE>
<CAPTION>
2000 1999 1998
----------------------------------------------------
<S> <C> <C> <C>
Restaurants:
Fixed minimum rentals $ 1,849,000 $ 1,851,000 $ 1,256,000
Percentage rentals - - 383,000
Other fixed minimum rentals 63,000 61,000 53,000
----------------------------------------------------
Total $ 1,912,000 $ 1,912,000 $ 1,692,000
====================================================
</TABLE>
On November 1, 1997, Sea View and the County of Los Angeles (County) executed a
new 20-year concession agreement. The previous agreement expired on October 31,
1997. The agreement, as amended February 9, 1999, includes minimum annual rent
payments of $1,750,000, an increase of approximately $600,000 over rents paid in
fiscal 1997. Percentage rents based on 10% of food sales and 12% of the sales of
alcoholic beverages, merchandise and parking lot revenues will be payable to the
extent that percentage rents exceed the minimum annual rent. In addition, the
agreement requires an annual supplemental rent payment of $15,000 plus 1% of
Gladstone's annual gross revenue in excess of $14,000,000. The agreement further
required the expenditure of at least $2,700,000 for renovations to the
restaurant facility by August 9, 1999. During the first two years of the
agreement, minimum annual rent is reduced by $218,750 per year. Minimum annual
rent will be adjusted every three years to 75% of average total rent paid per
year for the prior three years, but in no event less than the current minimum
rent. Minimum and percentage rent will be adjusted to fair market rental value
after 10 years to the extent fair market rental value exceeds minimum and
percentage rents.
The terms of the Concession Agreement afford the County the opportunity to
conduct a valuation of the Gladstone's Pacific Palisades operations
("Concession"), at any time during the first 150 months of the Concession
Agreement (commencing November 1, 1997) in the event of a sale of Gladstone's or
100% of the stock of Sea View or the Registrant, or at any time between the
beginning of the 79th month and the end of the 150th month of the Concession
Agreement. If the County elects to conduct a valuation, Sea View must thereafter
pay the greater of (1) the Supplemental Rent Payments, or (2) an amount
determined by amortizing the greater of 5% of the gross Concession value or 20%
of the net Concession value (as determined pursuant to the Concession
Agreement), less the aggregate amount of Supplemental Rent Payments paid through
the date of the valuation, using an interest rate of 9% and equal payments of
principal and interest, over the remaining term of the Concession Agreement.
30
<PAGE> 31
California Beach Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 30, 2000
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASES (CONTINUED)
The amended agreement also requires Sea View to post a letter of credit equal to
three months minimum rent ($437,500) and maintenance of certain net worth
levels, as defined. Initially, the Company posted the letter of credit by
utilizing cash collateral provided by Overhead Partners, L.P. (Overhead), an
entity affiliated with one of the Company's principal stockholders and with a
member of its board of directors. In consideration for provided the cash
collateral, the Company paid Overhead $80,000 in 1998 and $200,000 in 1999.
The agreement also provides, in certain circumstances, approval rights to the
County in the event transactions constituting a Change in Ownership or Financing
Event, as such terms are defined in the agreement, occur. These provisions may
adversely affect the Company's ability to engage in such transactions.
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
2000, 1999 and 1998, the Company received $147,000, $185,000 and $146,000,
respectively, pursuant to this arrangement, net of all expenses (except rent).
These amounts have been recorded as a reduction to cost of goods sold.
31
<PAGE> 32
California Beach Restaurants, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
April 30, 2000
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASES (CONTINUED)
Aggregate minimum annual rental commitments at April 30, 2000 were as follows:
<TABLE>
Year Ending April 30,
<S> <C>
2001 $ 1,950,000
2002 1,951,000
2003 1,925,000
2004 1,906,000
2005 1,765,000
Thereafter 21,875,000
---------------
$ 31,372,000
================
</TABLE>
EMPLOYMENT AGREEMENTS
Effective November 4, 1997, the Company entered into an employment agreement
with the Company's Chief Executive Officer. The agreement sets forth certain of
the terms of employment, including the right to receive 12 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 the agreement is three years and provides for a current
base salary of $214,000 subject to annual cost of living adjustments.
Effective March 6, 2000, the Company entered into an employment agreement with
the Company Chief Operating Officer. The agreement sets forth certain of the
terms of employment, including base salary of $105,000 and the right to receive
6 months 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).
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, results of operations or cash flows of the Company.
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto authorized in the City of Los Angeles, in the State of
California, on July 28, 2000.
California Beach Restaurants, Inc.
By: /s/ Alan Redhead
-----------------------------------
Alan Redhead, Chief Executive 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 28, 2000
------------------------------------ Executive Officer, Director, and
Alan Redhead Chief Financial Officer
/s/ J. Christopher Lewis Director July 28, 2000
------------------------------------
J. Christopher Lewis
/s/ Jefferson W. Asher, Jr. Director July 28, 2000
------------------------------------
Jefferson W. Asher, Jr.
/s/ Richard P. Bermingham Director July 28, 2000
------------------------------------
Richard P. Bermingham
/s/ Robert L. Morrison Director July 28, 2000
------------------------------------
Robert L. Morrison
</TABLE>
33
<PAGE> 34
INDEX TO EXHIBITS
Item 14(a) 3
<TABLE>
<CAPTION>
ITEM METHOD OF
NUMBER DESCRIPTION FILING
----------
<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)
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. (19)
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)*
</TABLE>
34
<PAGE> 35
<TABLE>
<S> <C>
10.33 Executive employment agreement dated as of May 21, 1993 between the
Registrant and Mark E. Segal(10)*
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(A)*
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 (17) *
10.56 Commitment Letter - Finova Capital Corporation re: $3,000,000 Secured
Credit Facility (18)
10.57 Concession Agreement dated as of November 1, 1997 by and between
County of Los Angeles and Sea View Restaurants, Inc. (20)
10.58 Non Disturbance and Attornment Agreement dated September 26, 1997 by
and Between the State of California Department of Parks and Recreation
and Sea View Restaurants, Inc. (20)
10.59 Letter of Credit Agreement dated as of November 1, 1997 by and between
California Beach Restaurants, Inc., Sea View Restaurants, Inc. and
Overhead Partners, L.P., a California Limited Partnership. (20)
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C>
10.60 Line of Credit Agreement dated as of November 24, 1997 by and between
Outside LLC, a California Limited Liability Company and Sea View
Restaurants, Inc., with guaranty by California Beach Restaurants, Inc.
(20)
10.61 Executive employment agreement dated as of November 14, 1997 between
the Registrant and Alan Redhead. (21) *
10.62 Assignment of trademarks, service marks and registrations thereof,
between Sea View Restaurants, Inc., and the Registrant, dated October
30, 1997. (22)
10.63 Non-exclusive royalty free license agreement, between the Registrant
and Sea View Restaurants, Inc., dated October 30, 1997. (22)
10.64 Letter of Credit Agreement, dated as of July 22, 1998, by and between
California Beach Restaurants, Inc., Sea View Restaurants, Inc., and
Overhead Partners L.P., a California Limited Partnership (23)
10.65 Letter of Credit Agreement, dated as of November 1, 1998, by and
between California Beach Restaurants, Inc., Sea View Restaurants,
Inc., and Overhead Partners L.P., a California Limited Partnership
(24)
10.66 Line of Credit Agreement, dated as of November 30, 1998, by and
between Sea Sea View Restaurants, Inc., and Outside LLC, a California
Limited Liability Company (24)
10.67 First Amendment to Concession Agreement For Will Rogers State Beach
Park Restaurant, by and between the County of Los Angeles, and Sea
View Restaurants, Dated February 9, 1999 (25)
10.68 Note Purchase Agreement among the Registrant and certain other
purchasers, dated as of March 30, 1999, including Exhibit A thereto,
the 5% Convertible Subordinated Note Due March 30, 2003.(26)
10.69 Note Agreement, between California Beach Restaurants, Inc., Sea View
Restaurants, Inc., and Lyon Credit Corporation and related documents.
(27)
10.70 Revolving line of credit agreement between California Beach
Restaurants, Inc., Sea View Restaurants, Inc.,and U.S. Bank (formerly
Santa Monica Bank),dated July 7, 1999. (27)
10.71 Standby letter of credit agreement between California Beach
Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), Dated
July 9, 1999. (27)
10.72 Change in Terms Agreement, dated as of September 30, 1999, Between
California Beach Restaurants, Inc. and U.S. Bank and Related
Documents. (28)
10.73 Line of Credit agreement, dated as of March 22, 2000, by and between
Sea View Restaurants, Inc., and Space Partners, a California general
partnership.(A)
10.74 Executive employment agreement dated as of March 6, 2000 between the
Registrant and Robert Kissinger.(A)*
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C>
10.75 Revolving line of credit agreement between California Beach
Restaurants, Inc., Sea view Restaurants, Inc., and U.S. Bank (formerly
Santa Monica Bank), Dated July 6, 2000.(A)
10.76 Standby letter of credit agreement between California Beach
Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), Dated
July 6, 2000.(A)
10.77 Amendment to business loan agreement between California Beach
Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank),
Dated March 25, 2000.(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. **
(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. **
(17) Previously filed with Form 10-K for the fiscal year ended April 30,
1996. **
(18) Previously filed with Form 10-Q for the quarter ended January 31,
1997.**
(19) Previously filed with Form 10-K for the fiscal year ended April 30,
1997.**
(20) Previously filed with Form 10-Q for the quarter ended October 31,
1997.**
(21) Previously filed with Form 10-Q for the quarter ended January 31,
1998.**
(22) Previously filed with Form 10-K for the fiscal year ended April 30,
1998.**
(23) Previously filed with Form 10-Q for the quarter ended July 31, 1998.**
(24) Previously filed with Form 10-Q for the quarter ended October 31,
1998.**
(25) Previously filed with Form 10-Q for the quarter ended January 31,
1999.**
(26) Incorporated by reference to Amendment No. 1 to Schedule 13D filed with
the Commission on April 16, 1999, on behalf of Alan Redhead.**
(27) Previously filed with Form 10-Q for the quarter ended July 31, 1999.**
(28) Previously filed with Form 10-Q for the quarter ended October 31, 1999.**
* 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.
37
