10-Q 1 v70575e10-q.txt 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2001 ---------------------------- 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 Identification Number) incorporation or organization) 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 March 7, 2001 ----- ------------------ Common Stock, $.01 par value 3,400,927 2 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES JANUARY 31, 2001 INDEX Part I - FINANCIAL INFORMATION Page Number ----------- Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets at January 31, 2001 and April 30, 2000.................................................3 Consolidated Statements of Operations for the Three Months Ended and Nine Months Ended January 31, 2001 and 2000..........................................5 Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2001 and 2000........................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...................................13 Item 4. Submission of Matters to a Vote of Security Holders...............13 Item 5. Other Information.................................................13 Item 6. Exhibits and Reports on Form 8-K..................................13 Signature Page............................................................14 2 3 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS

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 4 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

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 5 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes to consolidated financial statements are an integral part of this statement. 5 6 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JANUARY 31, (UNAUDITED)

The accompanying notes to consolidated financial statements are an integral part of this statement 6 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 accounting principles generally accepted in the United States and the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all of the information and footnote disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the Company's financial position and results of operations. The results of operations for the Three and nine month periods ended January 31, 2001 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. ACCOUNTING PERIODS The Company's restaurant operations are conducted through its wholly-owned subsidiary, Sea View Restaurants, Inc. ("Sea View"). The Company's consolidated financial statements for the three months and nine months ended, for each of January 31, 2001 and 2000 include Sea View's operations for the sixteen weeks and forty weeks ended, for each of February 1, 2001 and February 3, 2000, respectively. FIXED ASSETS

7 8 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) LINE OF CREDIT On June 16, 2000, the Registrant entered into an amendment to extend for one year its , $500,000 revolving line of credit agreement with US Bank. The agreement provides for interest at prime plus 1% on all amounts borrowed, requires a commitment fee of 1/2% on all unborrowed amounts, 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 US Bank pursuant to the Concession Agreement. The letter of credit expires on July 6, 2001. This agreement also provides a temporary bulge in the terms of the revolving line of credit agreement to provide for a $200,000 increase in the maximum amount of the line of credit from $500,000 to $700,000. The additional $200,000 of available borrowing capacity will be available to the Registrant during the period November 1, 2000 through March 31, 2001 only, after which the line of credit will revert to its original $500,000 borrowing limit. 8 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 January 31, 2001 were $3,346,000 compared with $3,595,000 for the same period last year, a decrease of $249,000 or 6.9%. For the nine months ended January 31, 2001, total sales were $10,960,000 compared with $10,258,000 for the same period last year, an increase of $702,000 or 6.8%. The Registrant believes that the decrease in sales at Gladstone's for the three months ended January 31, 2001 as compared to the comparable period in the prior year is the result of ongoing construction of a sewer line on Pacific Coast highway in Santa Monica. 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 January 31, 2001 was $3,272,000 or 97.8%, as a percentage of sales, compared with $3,417,000 or 95.0%, as a percentage of sales, during the same period last year. The change is a result of the increase in fixed costs (rent,utilities,taxes,and insurances) as a percentage of sales. Cost of goods sold for the nine months ended January 31, 2001 was $9,654,000 or 88. 1%, as a percentage of sales, compared with $9,254,000, or 90.2%, as a percentage of sales, during the same period last year. The change is due to decrease in fixed costs (rent, utilities , taxes and insurances) as a percentage of sales. 9 10 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES SELLING, GENERAL AND ADMINISTRATIVE EXPENSES For the three months ended January 31, 2001, selling, general and administrative expenses were $272,000 compared with $314,000 for the same period in the prior year, a decrease of $42,000, or 13.4%. The elimination of separate position as chief financial officer, and implementation of certain strategies are the primary cause of the decrease. For the nine months ended January 31, 2001, selling, general and administrative expenses were $804,000 compared with $765,000 for the comparable period in the previous year, an increase of $39,000, or 5.1%.The increase is the results of Registrant ongoing litigation expenses. DEPRECIATION/AMORTIZATION OF INTANGIBLE ASSETS For the three months and nine months ended January 31, 2001, depreciation expense was $137,000 and $326,000, respectively, compared with $136,000 and $286,000, respectively, for the same periods last year.Amortization expense relates completely to the Registrant's Goodwill and other intangible assets. In April of Fiscal 2000, goodwill was fully amortized. 10 11 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES 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 Overhead (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. 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"). 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 the yield to maturity of the five year Treasury Note plus 4 percent (9.94%at January 31,2001).This financing is secured by certain tenant improvements and equipment. At January 31, 2001, the balance due under the TI Facility was $840,000. On June 16, 2000, the Registrant entered into an amendment to extend for one year its $500,000 revolving line of credit agreement with US Bank ("Line of Credit"). The agreement provides for interest at prime plus 1% on all amounts borrowed, requires a commitment fee of 1/2%on all unborrowed amounts, 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 US Bank pursuant to the Concession Agreement. The letter of credit expires on July 6, 2001 and requires a commitment fee of 1%. This agreement also provides a temporary bulge in the terms of the revolving line of credit agreement to provide for a $200,000 increase in the maximum amount of the line of credit from $500,000 to $700,000. The additional $200,000 of available borrowing capacity will be available to the Registrant during the period November 1, 2000 through March 31, 2001 only, after which the line of credit will revert to its original $500,000 borrowing limit. 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. The Registrant believes it will have sufficient funds form operations and borrowings to meet its anticipated requirements for working capital and capital expenditures during the next twelve months. 11 12 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES 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 secure adequate debt or equity financing in order to comply with the terms of the Gladstone's Concession Agreement, including the maintenance of a letter of credit, the Registrant's ability to generate an operating profit based on the terms of the Gladstone's 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 Securities and Exchange Commission. 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 Registrant is subject to normal and routine litigation. The amount of liability from the claims and actions against the Company cannot be determined with certainty, but in the opinion of management, the ultimate liability from all pending legal proceedings should not materially affect the results of operations and liquidity of the Company. Item 2. Changes in Securities and Use of Proceeds. None 12 13 Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Reports on Form 8-K None 13 14 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES Signature(s) Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has caused this report to be signed on its behalf by the undersigned thereunto authorized. California Beach Restaurants, Inc. (Registrant) Dated: March 15, 2001 By: /s/ Alan Redhead -------------------------------------------- Alan Redhead Chief Executive Officer Chief Financial Officer 14 15 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES INDEX TO EXHIBITS Item Number Description ------ ----------- None 15

CALIFORNIA BEACH RESTAURANTS INC 10-Q