<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 October 31, 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 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:
Number of Shares Outstanding
Class at November 29, 2000
----- ----------------------------
Common Stock, $.01 par value 3,400,927
---------------------------- ---------------------
<PAGE> 2
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
OCTOBER 31, 2000
INDEX
<TABLE>
<CAPTION>
Part I - FINANCIAL INFORMATION Page Number
----------
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at October 31, 2000
and April 30, 2000................................................ 3
Consolidated Statements of Operations for the
Three Months Ended and Six Months Ended
October 31, 2000 and 1999......................................... 5
Consolidated Statements of Cash Flows for the
Six Months Ended October 31, 2000 and 1999 ....................... 6
Notes to Consolidated Financial Statements........................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk........ 12
Part II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 12
Item 2. Changes in Securities and Use of Proceeds......................... 12
Item 3. Defaults Upon Senior Securities................................... 12
Item 4. Submission of Matters to a Vote of Security Holders............... 12
Item 5. Other Information................................................. 13
Item 6. Exhibits and Reports on Form 8-K.................................. 13
Signature Page............................................................... 14
</TABLE>
2
<PAGE> 3
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
October 31, 2000 April 30, 2000
---------------- --------------
(Unaudited) (1)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 291,000 $ 102,000
Trade and other receivables 65,000 77,000
Inventories 222,000 219,000
Prepaid expenses 216,000 220,000
---------- ----------
Total current assets 794,000 618,000
Fixed assets (at cost) - net of accumulated
depreciation and amortization 2,918,000 3,031,000
Other assets 169,000 171,000
---------- ----------
$3,881,000 $3,820,000
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
(1) The April 30, 2000 amounts have been extracted from the Company's Annual
Report on Form 10-K for the year ended April 30, 2000.
3
<PAGE> 4
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
October 31, 2000 April 30, 2000
---------------- --------------
(Unaudited) (1)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 311,000 $ 658,000
Accrued liabilities 885,000 626,000
Current portion of note payable 197,000 188,000
Revolving line of credit-related party -- 100,000
------------ ------------
Total current liabilities 1,393,000 1,572,000
Subordinated convertible notes 1,800,000 1,800,000
Note payable, less current portion 700,000 800,000
Deferred rent 373,000 383,000
Other liabilities 28,000 82,000
Stockholders' Equity:
Common stock, $.01 par value, authorized 25,000,000 shares,
issued and outstanding, 3,401,000 shares at October 31, 2000
and at April 30, 2000 34,000 34,000
Additional paid-in capital 13,175,000 13,175,000
Accumulated deficit (13,622,000) (14,026,000)
------------ ------------
Total stockholders' deficit (413,000) (817,000)
------------ ------------
$ 3,881,000 $ 3,820,000
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
(1) The April 30, 2000 amounts have been extracted from the Company's Annual
Report on Form 10-K for the year ended April 30, 2000.
4
<PAGE> 5
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 3,709,000 $ 3,523,000 $ 7,614,000 $ 6,663,000
Costs and expenses:
Cost of goods sold 3,115,000 3,054,000 6,382,000 5,837,000
Selling, general and administrative 283,000 236,000 532,000 451,000
Depreciation 99,000 100,000 189,000 150,000
----------- ----------- ----------- -----------
Operating income 212,000 133,000 511,000 225,000
Other expenses:
Interest expense (47,000) (84,000) (103,000) (170,000)
Amortization of intangible assets (2,000) (165,000) (2,000) (331,000)
----------- ----------- ----------- -----------
Income (loss) before income taxes 163,000 (116,000) 406,000 (276,000)
Provision for income taxes (2,000) -- (2,000) --
----------- ----------- ----------- -----------
Net income (loss) $ 161,000 ($ 116,000) $ 404,000 ($ 276,000)
=========== =========== =========== ===========
Net income (loss) per
common share (basic ): $ .05 ($ .03) $ .12 ($ .08)
=========== =========== =========== ===========
Net income (loss) per
common share (diluted): $ .03 ($ .03) $ .08 ($ .08)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding:
Basic 3,401,000 3,401,000 3,401,000 3,401,000
=========== =========== =========== ===========
Diluted 5,201,000 3,401,000 5,201,000 3,401,000
=========== =========== =========== ===========
</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
SIX MONTHS ENDED OCTOBER 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 404,000 ($ 276,000)
Adjustments to reconcile net income (loss)
to cash provided by operations:
Depreciation and amortization 191,000 481,000
Changes in operating assets and liabilities:
Trade and other receivables 12,000 (9,000)
Inventories (3,000) (1,000)
Prepaid expenses 4,000 (9,000)
Other assets 2,000 1,000
Accounts payable (347,000) 362,000
Accrued liabilities 259,000 (264,000)
Deferred rent (10,000) (10,000)
Other liabilities (54,000) 12,000
----------- -----------
Cash provided by operations 458,000 287,000
----------- -----------
Investing activities:
Additions to fixed assets (76,000) (1,209,000)
----------- -----------
Net cash used in investing activities (76,000) (1,209,000)
----------- -----------
Financing activities:
Borrowings -- 267,000
Principal payments on borrowings (193,000) (14,000)
----------- -----------
Net cash provided by (used in) financing activities (193,000) 253,000
----------- -----------
Net increase (decrease) in cash 189,000 (669,000)
Cash and cash equivalents at beginning of period 102,000 1,018,000
----------- -----------
Cash and cash equivalents at end of period $ 291,000 $ 349,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 103,000 $ 120,000
=========== ===========
Income taxes $ 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)
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 six month period ended October 31, 2000 may not be indicative
of the results that may be expected for the year ending April 30, 2001. 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, 2000.
EARNINGS PER SHARE
Subordinated convertible notes are convertible into common stock at a rate of $1
per share and thus have potential for dilution on earnings. The following table
explains the effect of this on weighted average number of common shares
outstanding.
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, 2000 October 31,2000
---------------- ---------------
<S> <C> <C>
Net Income-basic $ 161,000 $ 404,000
Add back interest expense from convertible note 14,000 28,000
---------- ----------
Net Income-diluted $ 175,000 $ 432,000
========== ==========
Weighted Average outstanding common shares-basic 3,401,000 3,401,000
Shares issuable upon exercise of conversion 1,800,000 1,800,000
---------- ----------
Weighted Average outstanding common shares-diluted 5,201,000 5,201,000
========== ==========
</TABLE>
Options to purchase common stock outstanding at October 31,2000 had exercise
price greater than the average market price of common stock. These options were
excluded from the respective computations of diluted earnings per share because
their effect would be anti-dilutive.
7
<PAGE> 8
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 six months ended October 31, 2000
and 1999 include Sea View's operations for the twelve weeks and twenty-four
weeks ended October 12, 2000 and October 14, 1999, respectively.
FIXED ASSETS
<TABLE>
<CAPTION>
October 31, 2000 April 30, 2000
---------------- --------------
<S> <C> <C>
Leasehold improvements 4,623,000 4,580,000
Furniture and equipment 2,060,000 2,027,000
----------- -----------
6,683,000 6,607,000
Less accumulated depreciation and amortization (3,765,000) (3,576,000)
----------- -----------
$ 2,918,000 $ 3,031,000
=========== ===========
</TABLE>
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.
Total sales for the three months ended October 31, 2000 were $3,709,000 compared
with $3,523,000 for the same period last year, an increase of $186,000 or 5.3%.
For the six months ended October 31, 2000, total sales were $7,614,000 compared
with $6,663,000 for the same period last year, an increase of $951,000 or 14.3%.
During the three and six month periods ended October 31, 1999, construction of
the renovations to the Registrant's Gladstone's restaurant temporarily caused a
substantial decrease in seating capacity. The decline in revenues for the three
and six month periods ended October 31, 1999 is attributable to that factor.
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.
Cost of goods sold for the three months ended October 31, 2000 was $3,115,000,
or, as a percentage of sales, 84.0% compared with $3,054,000, or, as a
percentage of sales, 86.7% during the same period last year. Cost of goods sold
for the six months ended October 31, 2000 was $6,382,000, or, as a percentage of
sales, 83.8% compared with $5,837,000, or, as a percentage of sales, 87.6%
during the same period last year.
The decrease in cost of goods sold as a percentage of sales is primarily
attributable to the higher sales levels.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, 2000, cost of goods sold,
as a percentage of sales, was 88.9%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
For the three months ended October 31, 2000, selling, general and administrative
expenses were $283,000 compared with $236,000 for the same period last year, an
increase of $47,000 or 20.0%. For the six months ended October 31, 2000,
selling, general and administrative expenses were $532,000 compared with
$451,000 for the same period last year, an increase of $81,000 or 18.0%. The
increase in selling, general and administrative expenses for the three
9
<PAGE> 10
and six month periods ended October 31, 2000 as compared to the comparable
periods in the prior year is attributable to the Registrant's on going employee
related legal matters.
OTHER INCOME AND EXPENSES
-------------------------
For the three and six months ended October 31, 2000, interest expense was
$47,000 and $103,000, respectively. Interest expense for the three and six
months ended October 31, 1999 was $84,000 and $170,000, respectively. The
decrease in interest expense for the three and six month periods ended October
31, 2000, as compared to the comparable periods in the prior year, is
attributable to the reduction in the outstanding balance of the letter of credit
from $2,000,000 to $437,500.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
On March 30, 1999, the Registrant completed a $1,800,000 private offering 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,
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.
In addition in 1999,The Registrant has entered into an agreement for tenant
improvement and equipment financing with Lyon Credit Corporation ("TI
Facility"). The terms of the agreement provide for the extension of up to
$1,089,000 of credit, to be repaid over a 5 year period with interest at the
rate of 9.94%.This financing is secured by certain tenant improvements and
equipment. At October 31, 2000, the balance due under the TI Facility was
$897,000.
On June 16, 2000, the Registrant entered into a one year, $500,000 revolving
line of credit agreement with U.S. Bank, with a temporary increase to $700,000
effective November 1, 2000, through March 31, 2001. 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 Registrant, including its license
agreement with MCA for use of the name Gladstone's. It is also guaranteed by Sea
View. The agreement requires the Registrant to comply with certain cash flow and
liquidity covenants, and includes a 60 consecutive days out of debt requirement.
The Registrant 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 16,2001and requires a
commitment fee of 2%. At October 31, 2000, the Registrant had no borrowings
outstanding under the line of credit.
The Registrant is exploring various opportunities to expand its operations. The
Registrant's ability to expand is subject to the availability of debt or equity
financing on terms that are acceptable to the Registrant. There can be no
assurance that such financing will be available.
Capital expenditures for the six months ended October 31, 2000 totaled $76,000.
10
<PAGE> 11
On October 23, 2000, the Registrant extended the terms of the agreement with
Gladstone's parking lot operator for fixed term of two years, from January 1,
2001, through and including December 21, 2002. In addition, during calendar year
2000 and during each year of the extended term of the agreement, upon request of
the Registrant, parking lot operator shall loan to The Registrant an amount not
to exceed $150,000 per year and to be paid back from parking lot income.
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: 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; 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-Q and the Registrant's other filings with the
SEC.
11
<PAGE> 12
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable as the Registrant is a small business issuer as defined
by SEC regulations.
PART II
OTHER INFORMATION
-----------------
Item 1. Legal Proceedings.
------------------
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.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
None
Item 3. Defaults Upon Senior Securities.
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
On October 16, 2000, the Registrant held its annual stockholders'
meeting. The stockholders voted on two proposals: the election of directors
and ratification of Ernst & Young LLP as the Registrant's independent
auditors.
The stockholders elected the following individuals to serve as
directors of the Registrant:
1. Alan Redhead: 2,771,841 (99.98%) votes for; 566 (.02%) withheld
2. J. Christopher Lewis: 2,771,833 (99.98%) votes for; 573 (.02%)
withheld
3. Jefferson W. Asher, Jr.: 2,771,841 (99.98%) votes for; 566 (.02%)
withheld
4. Richard P. Bermingham; 2,771,833 (99.98%) votes for; 573 (.02%)
withheld
5. Robert L. Morrison; 2,771,841 (99.98%) votes for; 566 (.02%) withheld
The stockholders voted in favor of a proposal to ratify the
appointment of Ernst & Young LLP as the Registrant's independent auditors
for the fiscal year ending April 30, 2001 (2,771,797 (99.98%) voted for the
proposal; 134 (.01%) voted against the proposal, and 471 (.01%) abstained
from voting on the proposal).
12
<PAGE> 13
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
10.78 - Amendment of Parking Management Agreement, dated as of
October 23, 2000 between Seaview Restaurants, Inc., and
Standard Parking, Inc.
27 - Financial data schedule
Reports on Form 8-K
-------------------
None
13
<PAGE> 14
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: December 13, 2000 By: /s/ Alan Redhead
------------------------------
Alan Redhead
Chief Executive Officer
Chief Financial Officer
14
<PAGE> 15
CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
ITEM
NUMBER DESCRIPTION
------ -----------
10.78 Amendment of Parking Management Agreement, dated as of October 31,
2000,between Seaview Restaurants, Inc., and Standard Parking, Inc.
and related documents. (A)
27 Financial data schedule (A)
(A) FILED HEREWITH ELECTRONICALLY
15
