10-K 1 calbeach_10k-043002.txt 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, 2002 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. [X] 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 July 21, 2002 ($0.25) was approximately $37,219. The number of outstanding shares of the Registrant's Common Stock as of July 17, 2002 was 3,400,865. Documents incorporated by reference: None. 1 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 a restaurant, Gladstone's 4 Fish ("Gladstone's") restaurant in Pacific Palisades, California. Until June 21, 2002, the Company also had operated RJ's - Beverly Hills ("RJ's") in Beverly Hills, California. (See Note 1 to Consolidated Financial Statements). RESTAURANT OPERATIONS - CONCEPT AND MENU The Registrant owns and operates Gladstone's 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 accommodations. 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 $9.99, with entrees beginning at $12.75. Gladstone's average check, including beverages and desserts, is approximately $22.50. 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. RJ'S - BEVERLY HILLS. RJ's was located at 252 N. Beverly Drive, Beverly Hills, California was opened in 1979 and emphasized 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 was open for lunch and dinner from Monday through Saturday and dinner only on Sunday. The restaurant occupied approximately 7,500 square feet with seating capacity of approximately 260. As of June 21, 2002, the Company ceased operations of RJ's. (See Note 1 to Consolidated Financial Statements). 2 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, and 1% of parking lot revenue in excess of $680,000. 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 The Registrant focuses on the casual segment of the upper-end dinner house market. Management believes that the Gladstones reputation, developed over many years, of providing guests with 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 has primarily relied on word of mouth to attract new business. Gladstones developed unique promotions that are repeated on an annual basis. For example, the Restaurant has 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. 3 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. The restaurant is subject to licensing and regulation by a number of governmental authorities, including alcoholic beverage control, and 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. 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 license 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 2002, 2001,and 2000 were approximately $63,000, $74,000, and $66,000, respectively. GLADSTONE'S LONG BEACH In November 2001, the Registrant entered into a joint venture to manage and use the Gladstone's 4 Fish name and trademarks at a restaurant to be established in the city of Long Beach California. A California limited liability company named Gladstone's 4 Fish LLC has been formed for this purpose of which the Company is a member. This restaurant's opening operations will be funded by the other member and the Registrant has no financial commitment to fund this LLC. A lease has been entered into with the landlord for a twenty-year term beginning November 2002 requiring monthly payments of $23,529 which increases to $40,167 per month over the term of the lease. Total payments will be over 6.5 million. The Registrant expects the restaurant to be open sometime in fiscal year 2004. 4 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 restaurant competes 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 restaurant is comparable in quality, and in many cases superior, to competing restaurants. There is no assurance that the Registrant's restaurant will be able to compete successfully with other restaurants in its area. EMPLOYEES The Registrant has approximately 230 non-union 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 LEASE. 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, and 1% of parking lot revenue in excess of $680,000. Rent expense under the current restaurant lease for fiscal 2002 was approximately $1,744,000, representing approximately 15.4% of the restaurant's sales. 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 provided for monthly rental payments of $13,034 through December 2000. In January 2001 it was adjusted to monthly lease payments of $14,028 based on Consumer Price Index changes. Rent paid in fiscal 2002 was $168,337. The Registrant has vacated the premises and the remaining lease period has been leased to another company for the same rental amount. (See Note 1 to Consolidated Financial Statements). The Registrant has a guarantee through December 31, 2004 requiring payment of the monthly rental payments in the event that the new lessee fails to make payments and the new lessee's deposits are inadequate to cover the remaining payments. 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 $4,069. The lease agreement includes an option to extend the term of the lease for an additional five years. 5 ITEM 3 LEGAL PROCEEDINGS ------------------------- From time to time the Registrant is involved in litigation and threatened litigation arising in the ordinary course of business. Management of the Registrant is unaware of any material litigation as of April 30, 2002. ITEM 4 MARKET FOR REGISTRANT'S COMMON EQUITY -------------------------------------------- No matter was submitted to a vote of the Registrant's stockholders during the fourth quarter of the fiscal year ended April 30, 2002. PART II ITEM 5 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ----------------------------------------------------------- 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. BID PRICE --------- FISCAL 2001 HIGH LOW ----------- ---- --- First Quarter 4.00 4.00 Second Quarter 3.00 .28 Third Quarter .31 .31 Fourth Quarter .31 .31 FISCAL 2002 ----------- First Quarter .25 .20 Second Quarter .40 .15 Third Quarter .16 .12 Fourth Quarter .25 .15 FISCAL 2003 ----------- First Quarter (through 7/24/02) .28 .23 At July 18, 2002, the Registrant had approximately 870 shareholders of record. 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 6 pay interest at 5% per annum, except as adjusted as described below. The Registrant may pay interest on the Subordinated Notes in cash or in kind. All interest due as of March 30, 2001 and March 30, 2002 was paid in kind by issuing notes with identical terms to the Subordinated Notes. On March 6, 2002 an amendment to the note purchase agreement was entered into to provide that the Subordinated Notes may not be voluntarily prepaid by the Registrant as to principal and interest without the consent of the noteholder and will mature as to principal and accrued interest on October 1, 2003 instead of March 25, 2003. Also, the interest rate was increased to 7.5% per annum (1) with respect to 50% of the principal amount of the Subordinated Notes, for the period commencing April 1, 2002 until March 31, 2003; and (2) with respect to one hundred percent (100%) of the principal amount of the Subordinated Notes for the period commencing April 1, 2003 until the maturity date. The payment of the principal and interest on the Subordinated Notes is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation (Senior Debt). 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, 2002 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~~YEARS ENDED APRIL 30, ------------------------------ 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Income Statement Data: Sales $ 12,804 $ 14,021 $ 13,382 $ 13,687 $ 14,162 Net Income (loss) (924) (127) (921) (680) (1,420) Net Income (loss) per common share: Basic and Diluted (.27) (.04) (.27) (.20) (.42) Balance Sheet Data: Total assets $ 3,440 $ 3,722 $ 3,820 $ 4,576 $ 3,321 Long-term debt, net of ~~Contents~~current portion $ 2,790 $ 2,475 $ 2,600 $ 2,499 --

7 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 a restaurant, Gladstone's 4 Fish restaurant. Until June 21, 2002, the Registrant also had operated RJ's- Beverly Hills. 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 year 2002 contained 52 weeks, fiscal 2001 contained 53 weeks, and fiscal 2000 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, although temporary, declines in seating capacity attributable to such construction adversely affected sales during the first and second quarters of 2000. CRITICAL ACCOUNTING POLICIES ---------------------------- On December 12, 2001, the Securities and Exchange Commission (SEC) issued a financial reporting release, "Cautionary Advice Regarding Disclosure about Critical Accounting Policies" ("FR-60"). The SEC alerted public companies to the need for improved disclosures about critical accounting policies. FR-60 defines "critical accounting policies" as those most important to the financial statement presentation and that require the most difficult, subjective, complex judgments. The SEC announced an expectation that public companies would provide disclosures responsive to FR-60, including disclosures in Management's Discussion and Analysis, in annual reports for fiscal years ending on or after December 31, 2001. Due to the nature of the business, few accounting policies are applicable and no critical estimates are made by the Company.The critical accounting policies of the Company are disclosed in Note 2 to the Consolidated Financial Statements. 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. Effective June 21, 2002, the Registrant ceased operations at RJ's. The Registrant reviewed the on going results at RJ's and determined that the negative contribution over the last several years was likely to continue, given the current market, and did not fit into management's planning of maximizing the value of the Gladstones trademark. Given the continuing losses at RJ's, which amounted to $265,000 in fiscal year 2002, combined with current working capital constraints, the Registrant negotiated with the landlord to vacate the premises. The landlord has sublet the property at a rent equivalent to the Registrant's current lease rate. The Registrant has sold the RJ's trademark to the new tenant. For the year ended April 30, 2002, the Registrant recorded a loss of $318,000 related to the impairment of the remaining assets of RJ's as well as accruing for costs associated with shutting down the restaurant including fees to the landlord and other professionals. Total sales for the fiscal year ended April 30, 2002 were $12,804,000, a decrease of $1,217,000 or 8.7% as compared to the year ended April 30, 2001. Sales were adversely affected by the September 11 tragedy and resultant decline in business and tourist air travel. 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 sales and headcounts for the 52 week period of fiscal 2002 were 4.75% and 3.2% less than the prior year and RJ's sales were 16.8% less than prior year. For the 8 last 12 week period of fiscal 2002, Gladstone's sales and headcounts were up 2.6% and 11% as compared to the same period in the prior year, and RJ's sales for the 12 week period of fiscal 2002 were lower by 21.6% compared to the same period in the prior year. For the year ended April 30, 2002, the Registrant recorded a loss of $318,000 related to provision for closing RJ's. The Registrant ceased operation of RJ's restaurant on June 21, 2002 which in accordance with a plan for disposal had been authorized prior to April 30, 2002 (See note 1 to the consolidated financial statements). Total sales for the fiscal year ended April 30, 2001 were $14,021,000, an increase of $639,000 or 4.8% as compared to the year ended April 30, 2000. During the fourth quarter of fiscal 1999, the Registrant commenced construction of improvements to Gladstone's restaurant, causing a temporary reduction in seating capacity and a commensurate decrease in revenue. The construction was also the main cause of the reduction in fiscal 2000 revenue for the first two quarters, which are typically the highest volume of business. 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, 2002, 2001 and 2000 were $63,000, $74,000 and $66,000, respectively, and they are included in total sales of Registrant. 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, as a percentage of sales, for the fiscal year ended April 30, 2002 was 93.6% compared to 89.2% for fiscal 2001 and 88.9% for fiscal 2000. The cost of goods sold was $11,980,000 in fiscal 2002 as compared to $12,504,000 in fiscal 2001, a decrease of $524,000 or 4.2%. The decrease in cost of goods sold in 2002 is a function of decreased sales compared to the prior year. However, the increase in cost of goods sold in fiscal 2002, as compared to fiscal 2001, as a percentage of sales, is primarily the result of increases in general liability insurance, property taxes, worker's compensation insurance, and direct labor. Gladstone's rent expense for each of fiscal year 2002 and 2001 was $1,744,000 as compared to $1,728,000 for the fiscal year ended April 30, 2000. Cost of goods sold was $12,504,000 in fiscal 2001 as compared to $11,896,000 in fiscal 2000, an increase of $608,000 or 5.1%. Cost of goods sold, as a percentage of sales, for the fiscal year ended April 30, 2001 was 89.2% compared to 88.9% for fiscal 2000. The increase is primarily related to labor costs, worker's compensation, payroll tax, and group medical insurance. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -------------------------------------------- Selling, general and administrative expenses for the year ended April 30, 2002 were $779,000 compared to $1,038,000 for the year ended April 30, 2001. As a percentage of sales, selling, general and administrative expenses were 6.1% for fiscal 2002, compared to 7.4% for fiscal 2001. 9 Selling, general and administrative expense for the year ended April 30, 2002 decreased $259,000 or 25% as compared with the year ended April 30, 2001. The decrease is due to a decrease in corporate payroll and professional fees. Selling, general and administrative expense for the year ended April 30, 2001 were $1,038,000 compared to $1,025,000 for the year ended April 30, 2000. As a percentage of sales selling, general and administrative expenses were 7.4% for fiscal 2001,compared to 7.7% for fiscal 2000. INTEREST EXPENSE ---------------- For the year ended April 30, 2002, the Registrant recorded interest expense of $205,000. Interest expense was related primarily to the note payable related to the tenant improvements, for the Gladstone's remodel, on the subordinated convertible notes, and new subordinated notes issued on December 6, 2001. For the year ended April 30, 2001, the Registrant recorded interest expense of $173,000, net of interest income of $18,000, primarily related to the note payable related to the tenant improvements, and the subordinated convertible notes. For the year ended April 30, 2000, the Registrant recorded interest expense of $282,000, net of interest income of $7,000, primarily related to the note payable with tenant improvement, and the Subordinated convertible notes. DEPRECIATION/AMORTIZATION EXPENSE --------------------------------- For the years ended April 30, 2002, 2001 and 2000 depreciation and amortization expense for fixed assets was $446,000, $426,000 and $384,000, respectively. During the year ended April 30, 2002, the Registrant added $36,000 of fixed assets. The refurbishment of Gladstone's restaurant resulted in higher depreciation in fiscal years 2002 and 2001 compared to fiscal 2000. Amortization expense primarily relates to the Registrant's Goodwill and other intangible assets and approximated $714,000 per year through April 30, 2000. In April of fiscal 2000 goodwill was fully amortized. INCOME TAX PROVISION -------------------- For the years ended April 30, 2002, 2001 and 2000 the Registrant recorded income tax expense (benefit) of ($5,000), $3,000 and $2,000, respectively. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Historically, the Company's primary source of liquidity has been cash flows from operations, supplemented by borrowings from third party lenders and related parties. In fiscal 2002, the Company used cash in operating activities of $233,000 and incurred a net loss of $924,000. The Company borrowed $440,000 from related parties in 2002 to provide for the operating cash losses. At April 30, 2002, the Company has no availability on its $475,000 line of credit with a bank which was to expire in September 2002. (See below for further discussion of this facility). At April 30, 2002 the line of credit has an outstanding balance due of $37,500 with the $437,500 balance used to collateralize a letter of credit provided by the bank. The Company is currently in negotiations to replace this bank line of credit, however there can be no assurance the Company will be able to do so. 10 Effective June 21, 2002, the Company ceased operations at RJ's. The Company reviewed the on going results at RJ's and determined that the negative contribution over the last several years was likely to continue, given the current market, and did not fit into management's planning of maximizing the value of the Gladstone's trademark. The losses at RJ's in fiscal 2002 were $265,000 in fiscal 2002. The Company believes the elimination of the RJ's losses will allow it to generate positive operating cash flow in 2003. Additionally, management believes it will be able to replace the current $475,000 bank line of credit and make all scheduled debt payments in fiscal 2003, or renegotiate the terms accordingly. The Company believes it has access to additional sources of debt to fund working capital needs through April 30, 2003. There can be no assurance the Company will be able to effectively accomplish these objectives. 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 therein), 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, except as adjusted as described below. The Registrant may pay interest on the Subordinated Notes in cash or in kind. All interest due as of March 30, 2001 and March 30, 2002 was paid in kind by issuing notes with identical terms to the Subordinated Notes. On March 6, 2002 an amendment to the note purchase agreement was entered into to provide that the Subordinated Notes may not be voluntarily prepaid by the Registrant as to principal and interest without the consent of noteholder and will mature as to principal and accrued interest on October 1, 2003 instead of March 25, 2003. Also, the interest rate was increased to 7.5% per annum (1) with respect to 50% of the principal amount of the Subordinated Notes, for the period commencing April 1, 2002 until March 31, 2003; and (2) with respect to one hundred percent (100%) of the principal amount of the Subordinated Notes for the period commencing April 1, 2003 until the maturity date. The payment of the principal and interest on the Subordinated Notes is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation (Senior Debt). The Registrant does not anticipate that it will be able to repay the Subordinated Notes when they mature. The Registrant will seek to extend or renew the Subordinated Notes or convert the Subordinated Notes into equity. Currently the Registrant has not begun these negotiations. There can be no assurance the Registrant will be able to successfully negotiate these revised terms. On October 19, 1999, the Registrant 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, 2002, the balance due under the TI Facility was $593,000. On December 6, 2001, the Registrant entered into a senior subordinated agreement with RLH Surf, an entity affiliated with J. Christopher Lewis who is the general Partner and limited partner of Sand and Sea Partners and Sea Fair Partners, the Registrant's largest shareholder. The agreement provides for a loan in the amount of up to $500,000 with annual interest rate of 15% on the outstanding principal balance of the note. The payment of the principal and interest on this note is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation and the due date has been extended from September 2002 to May 2003. As of April 30, 2002 the Registrant owed $440,000 of principal plus accrued interest. 11 On March 19, 2002, the Company and U.S. Bank amended the terms of the revolving line of credit agreement decreasing the maximum borrowing amount from $500,000 to $475,000. The agreement also calls for interest of the prime rate plus 3% on the unpaid principal balance, 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 Restaurants. 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 is to expire on September 15, 2002. As of April 30, 2002, the Registrant owed $37,500 under this agreement. The Company was in violation of a covenant and obtained forbearance from the bank through December 15, 2002 provided the Registrant makes cash collateral payments. On October 23, 2000, the Registrant extended the terms of the agreement with Gladstone's parking lot operator, Standard Parking, for a fixed term of two years, from January 1, 2001 through December 21, 2002. In addition, commencing in 2000 and during each year of the extended term of the agreement, upon request of the Registrant, the parking lot operator shall loan ("Annual Loan") to the Registrant an amount not to exceed $150,000 per year, to be paid back from parking lot income. The Annual Loan to Registrant shall not be advanced prior to November 1 nor later than December 31 of any calendar year. The Annual Loan to the Registrant, plus interest at the prime rate of interest as published in The Wall Street Journal as of the date the Annual Loan is made, shall be repaid to Standard Parking by July 31 of the calendar year immediately following the calendar year in which the loan is made. As of April 30, 2002, the Registrant owed $111,000 to Standard Parking pursuant to the Annual Loan. Capital expenditures for the years ended April 30, 2002, 2001, and 2000 totaled approximately $36,000, $192,000, and $1,332,000 respectively. The Registrant has no significant commitments for capital expenditures in fiscal 2003. The timing of the Registrant's future contractual obligations and other commercial commitments are summarized in the following table. For more information see Note 8 to the Consolidated Financial Statements.

~~SECURITIES~~Contractual ~~AND~~Obligations ~~EXCHANGE~~PAYMENTS ~~COMMISSION Washington~~DUE BY PERIOD --------------------------------- --------------------------------------------------------------------------------------- Total Less than 1 1-3 years 3 - 5 years After 5 years year --------------------------------- ------------------- ---------------- --------------- ------------- -------------------- Subordinated convertible notes $1,985,000 ~~D.C.~~- ~~20549~~ $1,985,000 - - --------------------------------- ------------------- ---------------- --------------- ------------- -------------------- Long Term Debt $1,033,000 228,000 805,000 - - --------------------------------- ------------------- ---------------- --------------- ------------- -------------------- Operating Leases $27,357,000 1,765,000 3,530,000 3,530,000 18,532,000 --------------------------------- ------------------- ---------------- --------------- ------------- --------------------

~~FORM~~TOTAL 10AMOUNTS OTHER COMMERCIAL COMMITMENTS COMMITTED AMOUNT OF COMMITMENT EXPIRATION PER PERIOD -K ----------------------------------- ------------------ --------------------------------------------------------------- LESS THAN 1 1 - 3 YEARS 3 - 5 YEARS OVER 5 YEARS YEAR ------------------------------------ ------------------ --------------- --------------- --------------- --------------- Lines of Credit $37,500 37,500 - - - ------------------------------------ ------------------ --------------- --------------- --------------- --------------- Standby Letters of Credit $437,500 437,500 - - - ------------------------------------ ------------------ --------------- --------------- --------------- --------------- Guarantee for RJ's lease $448,000 168,000 280,000 - - ------------------------------------ ------------------ --------------- --------------- --------------- ---------------

NEW ACCOUNTING PRONOUNCEMENTS ----------------------------- See Note 2 Summary of Significant Accounting Policies for discussion of the Company's adoption of new accounting pronouncements. 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 financing; 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. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ------------------------------------------------------------------- The Company's interest rates are substantially fixed term rates as noted in the LIQUIDITY AND CAPITAL RESOURCES section above. 13 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA --------------------------------------------------- CALIFORNIA BEACH RESTAURANTS, INC. INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Auditors 28 Consolidated Balance Sheets - April 30, 2002 and 2001 29 Consolidated Statements of Operations for each of the three years in the period ended April 30, 2002 30 Consolidated Statements of Stockholders' Equity (Deficit) for each of the three years in the period ended April 30, 2002 31 Consolidated Statements of Cash Flows for each of the three years in the period ended April 30, 2002 32 Notes to Consolidated Financial Statements 33 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 14 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ----------------------------------------------------------- The directors of the Registrant are as follows: Name Age Title ---- --- ----- Alan Redhead 59 Chairman of the Board, President, Chief Executive Officer and Chief Financial Officer J. Christopher Lewis 46 Director Jefferson W. Asher, Jr. 77 Director Richard P. Bermingham 67 Director Robert L. Morrison 55 Director The executive officers of the Registrant are Mr. Redhead and Robert A. Kissinger, age 47, Vice President and Chief Operating Officer. Directors hold office until their term of office expires and their successors are elected and qualified. Executive officers serve at the discretion of the Board of Directors. Alan Redhead joined the Registrant in June 1992 as its Chief Executive Officer ("CEO") and as a member of its Board of Directors and executive committee. Mr. Redhead resigned as a member of the Board of Directors and the Executive Committee in November 1992. Mr. Redhead subsequently re-joined the Board of Directors in September 1993. He became Chairman of the Board in March 1995. In June 2000 he became the Registrant's Chief Financial Officer. From 1986 to 1992, Mr. Redhead was involved in various restaurant businesses and a non-profit organization. From 1974 to 1986 Mr. Redhead was with Hungry Tiger, Inc., including 7 years as its CEO. Hungry Tiger Inc. owned and operated Hungry Tiger Restaurants, Breakers Seafood Restaurants, Castagnola's Lobster House and the restaurant and catering operations at the Los Angeles Music Center. J. Christopher Lewis, a director of the Registrant since June 29, 1990 and a member of its Audit Committee, has been associated with Riordan, Lewis and Haden, a venture capital firm, for over twenty years. He is currently a director of Tetra Tech, Inc., Data Processing Resources Corporation, PIA Merchandising Co. Inc., Steven Myers and Associates, Inc., and several privately-held companies. Jefferson W. Asher, Jr. joined the Registrant as a member of the Board of Directors on November 23, 1992 and is a member of its Stock Plan and Compensation Committees. Mr. Asher has spent over twenty years as an independent management consultant and has served as an advisor to several private companies. Mr. Asher is also a member of the Board of Directors of Baldor Electric Company, a New York Stock Exchange manufacturer of industrial electric motors and drives. Richard P. Bermingham joined the Registrant as a member of the Board of Directors on March 9, 1998 and is a member of its Audit Committee. From 1980 to 1994, Mr. Bermingham was with Collins Foods International, Inc., the parent company of the Sizzler restaurant chain. Mr. Bermingham served Collins Foods International, Inc., as a member of its Board of Directors from 1970 to 1994, as President from 1980 to 1987, and as CEO from 1987 to 1994. From 1994 to 1997, Mr. Bermingham served as Vice Chairman and as a member of the Board of Directors of American Golf Corporation, a privately-held company. Currently, Mr. Bermingham is a director of Farr, Inc., and several privately-held companies. 15 Robert L. Morrison joined the Registrant as a member of the Board of Directors on December 15, 1997 and is a member of its Stock Plan and Compensation Committees. Mr. Morrison is a partner at the law firm of Pillsbury Winthrop LLP (privously Pillsbury Madison & Sutro LLP), a firm he joined in 1972. Mr. Morrison is also a director of the Friends of Child Advocates, a non-profit organization. Robert A. Kissinger joined the Registrant in March 2000 as Vice President and Chief Operating Officer and as President of Sea View Restaurants, Inc. and General Manager of Gladstone's 4 Fish. From 1997 to 2000 Mr. Kissinger served as President/CEO of the Rosti group of restaurants owned and operated by Farnigilia Toscana. From 1993 to 1997 he was Executive Vice President and Chief Operating Officer of Louise's Trattoria. None of the officers and directors of the Registrant is related to any other officer or director of the Registrant. During the year ended April 30, 2002, the Registrant paid all Board of Directors $4,000 for the board meetings. On October 7, 1992 the Registrant, faced with the loss of its directors and officers liability insurance, entered into indemnification agreements with Messrs. Redhead, and Lewis. On November 23, 1992, the Registrant entered into an indemnification agreement with Mr. Asher. The Registrant believed that the indemnification agreements were required to induce the various officers and directors to continue to serve in their existing capacities. Generally the agreements provide for indemnification by the Registrant to each of the individuals against expenses, judgments, fines and penalties incurred in connection with any proceeding to the full extent permitted by the law of the State of California and the advancement of expenses prior to any final disposition of a proceeding. Each indemnitee has agreed to repay any amount advanced if it is determined that the indemnitee was not entitled to be indemnified pursuant to the agreement. All directors and officers of the Registrant are entitled to the protection of directors' and officers' insurance policies that are maintained by the Registrant. At the Annual Meeting of Shareholders held on April 28, 1995, the Registrant's shareholders approved an amendment to the Registrant's Articles of Incorporation to eliminate, to the fullest extent permitted by California law, the monetary liability of directors of the Registrant in performing their duties. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ------------------------------------------------------- Under the securities laws of the United States, the Registrant's directors, its executive (and certain other) officers, and any persons holding more than ten percent of the Common Stock are required to report their ownership of the Common Stock and any changes in that ownership to the Securities and Exchange Commission ("Commission"). Specific due dates for these reports have been established and the Registrant is required to report in this document any failure to file by these dates during the fiscal year ended April 30, 2002. All of these filing requirements were satisfied by its directors, officers and ten- percent holders. In making these statements, the Registrant has relied on the written representations of its directors, officers and its ten- percent holders and copies of the reports that they have filed with the Commission. 16 ITEM 11 EXECUTIVE COMPENSATION ------------------------------- The following summary compensation table sets forth certain summary compensation information concerning the Registrant's executive officers for the three most recent fiscal years: SUMMARY COMPENSATION TABLE

Long Term Compensation Awards ------ Annual Compensation ---------------------------------------------- Name and Securities Underlying Principal Position Fiscal Year Salary (~~Mark~~$) ~~One~~Bonus ($) Options/SARs (#) ------------------ ----------- ---------- --------- ------------------- Alan Redhead, Chairman of 2002 $159,973 -- -- the Board, President, 2001 $207,642 -- -- Chief Executive 2000 $219,646 -- -- Officer and Chief Financial Officer Robert A. Kissinger, Vice 2002 $109,000 -- -- President and Chief 2001 $107,711 -- 110,000 Operating Officer 2000 $ 16,154 -- --

Option Grants in Last Fiscal Year OPTION/SAR GRANTS IN LAST FISCAL YEAR -------------------------------------

~~[X]~~Number ~~Annual~~of ~~Report~~% ~~Pursuant~~of Total Securities Options/SARS Underlying Granted to ~~Section~~Options/SARs 13Employees in Fiscal Exercise or 15Base Name Granted(d#) ofYear ~~the~~Price ~~Securities~~($/Share) ~~Exchange~~Expiration ~~Act~~Date of---- ~~1934~~---------- ---- ---------------- --------------- Alan Redhead None N/A N/A N/A Robert A. Kissinger None N/A N/A N/A

No stock options or SARs were granted in fiscal year 2002. 17 Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option -------------------------------------------------------------------------- Values ------ No options were exercised in the fiscal year ended April 30, 2002. The following table sets forth certain information concerning executive officers and the aggregated fiscal year-end value of the unexercised options of each of the named executive officers. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES

~~For~~---------------------------------------------------------------------------------------------------------------- Number of Securities Underlying ------------------------------- Shares Unexercised Value of Unexercised Acquired on Value Options/SARs at Fiscal In the ~~fiscal~~Money ~~year~~options/SARs ~~ended~~Exercise(#) ~~April 30~~Realized($) Year-End at Fiscal Year-End ($)(1) ---------------------------------------------------------------------------------------------------------------- Name Exercisable Unexercisable Exercisable Unexercisable ---------------------------------------------------------------------------------------------------------------- Alan Redhead None $-- 335,000 ~~2001~~ -- $ -- $ -- Robert A. Kissinger None $-- 31,625 78,375 $ -- $ --

(1) Market value of underlying securities at year-end, minus the exercise or base price of "in the money" options. EQUITY COMPENSATION PLAN INFORMATION The following table gives information about the Registrant's common stock that may be issued upon the exercise of options, warrants and rights under the Registrant's Omnibus Stock Plan as of April 30, 2002, the only equity compensation plan of the Registrant in existence.

or ------------------------------- ---------------------------- ---------------------------- ---------------------------- Plan Category Number of securities to be Weighted-average exercise Number of securities issued upon exercise of price of outstanding remaining available for outstanding options, options, warrants and future issuance under warrants and rights rights equity compensation plans (excluding securities reflected in column (a)) (a) (b) (c) ------------------------------- ---------------------------- ---------------------------- ---------------------------- Equity compensation plans 582,000 $.83 418,000 approved by security holders(1) ------------------------------- ---------------------------- ---------------------------- ---------------------------- Equity compensation plans not approved by security holders ------------------------------- ---------------------------- ---------------------------- ---------------------------- TOTAL 582,000 $.83 418,000 ------------------------------- ---------------------------- ---------------------------- ----------------------------

(1) Represents options granted under the Omnibus Stock Plan, which was approved by stockholders in 1995. 18 Other Compensation Agreements Effective November 14, 1997, the Registrant entered into an employment agreement with Alan Redhead, the Registrant's Chief Executive Officer. The agreement sets forth certain of the terms of employment, including the right to receive twelve months of salary as severance pay upon (i) termination of employment without cause (as defined in the agreement) or (ii) resignation for good reason (as defined in the agreement). The term of Mr. Redhead's agreement was three years. For each of 2000 and 2001, Mr. Redhead's agreement has been extended for one year on October 15, 2001 to November 2002 for 70% of his time, and his current base salary is $159,000, subject to annual cost of living adjustments. For purposes of Mr. Redhead's employment agreement, "cause" is defined to mean (i) the willful engaging by the employee in misconduct which is or could reasonably be expected to become materially injurious to the Registrant, monetarily or otherwise; (ii) conviction of a felony or any crime involving moral turpitude; or (iii) participation in any fraud against or theft from the Registrant. "Good reason" is defined to mean (i) the failure of the Registrant to vest the employee with the powers and authority of his office or any removal of the employee from or failure to re-elect the employee to his office; (ii) a reduction by the Registrant in the employee's base salary; (iii) the requirement by the Registrant that the employee be based anywhere other than within 25 miles of the employee's present office location; (iv) the disposition of the business of the Registrant; or (v) a failure by the Registrant to comply with any material provision, or group of provisions that are material in the aggregate, of the employment agreement. Effective March 6, 2000, the Registrant entered into an employment agreement with Robert A. Kissinger, the Registrant's Vice President and Chief Operating Officer, President of Sea View Restaurants, Inc. and General Manager of Gladstone's 4 Fish. The agreement sets forth certain of the terms of employment, including a base salary of $105,000 (which currently is $115,000) and the right to receive six months' salary as severance pay upon (i) termination of employment without cause (as defined in the agreement), or (ii) resignation for good reason (as defined in the agreement). The Omnibus Stock Plan The Omnibus Stock Plan (the "Plan") was adopted by the Board of Directors in March 1995 and was approved by the shareholders of the Registrant on April 28, 1995. The Plan 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 (collectively "awards"). The shares awarded shall be authorized but unissued shares. If an award granted under the Plan expires, terminates or lapses for any reason, without the issuance of shares of Common Stock thereunder, or if the Registrant receives any shares of Common Stock as the exercise price of any award, such shares shall again be available under the Plan. Under the Plan, options or awards granted and outstanding as of the date the Plan terminates are not affected or impaired by such termination. In the event of a merger, consolidation, reorganization, recapitalization, spin-off, stock dividend or stock split, or combination or other increase or reduction in the number of issued shares of Common Stock, or extraordinary cash dividend or any other similar event, the Board of Directors or the Committee (as defined herein) may, in order to prevent the dilution or enlargement of rights under awards, make such adjustments in the number and type of shares covered by, or with respect to which payments are measured under, outstanding awards and the exercise prices specified therein as may be determined to be appropriate and equitable. The Committee may provide in the agreement evidencing any award for adjustments to such award in order to prevent the dilution or enlargement of rights thereunder or to provide for acceleration of benefits thereunder in the event of a change in control, merger, consolidation, reorganization, recapitalization, sale or exchange of substantially all assets or dissolution of, or spinoff or similar transaction by, the Registrant. 19 The options granted to date by the Committee provide that such options shall become fully exercisable upon a "change of control" of the Registrant. A "change of control" is deemed to have occurred (i) if individuals who, as of the date of such award, constitute the board of directors of the Registrant ("Incumbent Board") cease for any reason to constitute at least a majority of the board, provided that a person becoming a director subsequent to the date of the award whose election, or nomination for election by the Registrant's shareholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest) shall be considered a member of the Incumbent Board; or (ii) upon approval by the shareholders of the Registrant of (a) a reorganization, merger or consolidation, in each case, with respect to which persons who were the shareholders of the Registrant immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 60% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated corporation's then outstanding voting securities, (b) a liquidation or dissolution of the Registrant or (c) the sale of all or substantially all of the Registrant's assets; or (iii) upon the acquisition (other than from the Registrant) by any person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 51% or more of either the then outstanding shares or the combined voting power of the Registrant's then outstanding voting securities entitled to vote generally in the election of directors, but excluding, for this purpose, any such acquisition by the Registrant or any of its subsidiaries, or any employee benefit plan (or related trust) of the Registrant or its subsidiaries, or any corporation with respect to which, following such acquisition, more than 60% of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by the individuals and entities who were the beneficial owners of the voting securities of the Registrant immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the then outstanding combined voting power of the then outstanding voting securities of the Registrant entitled to vote generally in the election of directors. The purpose of the Plan, which, in addition to non-qualified stock options and stock appreciation rights, provides for the granting of incentive stock options (which qualify under the provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and restricted stock and various types of awards described herein, is to promote the long term financial interests and growth of the Registrant by (i) attracting and retaining executive personnel, (ii) motivating executive personnel by means of growth-related incentives; (iii) providing incentive compensation opportunities that are competitive with those of other comparable corporations, and (iv) furthering the identity of interests of participants with those of the shareholders of the Registrant. The Plan is not subject to the Employee Retirement Income Security Act of 1974. The Plan is not qualified under Section 401(a) of the Code. Participants in the Plan are selected by the Stock Plan Committee of the Board of Directors (the "Committee") which administers the Plan. The Plan contemplates that awards will be granted to key employees, to directors and to consultants, and that participants will be such employees or directors of or consultants to the Registrant and its affiliates, including officers of the Registrant, as from time to time are designated as such by the Committee. The Plan requires that the Committee consist of at least two directors of the Registrant who are "non-employee directors" as such term is used in Rule 16b-3 under the Exchange Act. Members of the Committee are selected by and serve at the pleasure of the Board of Directors. Each member of the Committee is a director of the Registrant. Under the Plan and subject to the limitations thereunder, the Committee is authorized: (i) to select participants in the Plan, (ii) to make awards in such forms and amounts as it shall determine, (iii) to 20 impose such limitations, restrictions and conditions upon such awards as it shall deem appropriate, (iv) to interpret the Plan and to adopt, amend and rescind administrative guidelines and other rules and regulations relating to the Plan, (v) to correct any defect or omission or to reconcile any inconsistency in the Plan or in any award granted thereunder and (vi) to make all other determinations and to take all other actions necessary or advisable for the implementation and administration of the Plan. The Board of Directors or the Committee may suspend or terminate the Plan or any portion thereof at any time and may amend it from time to time in such respects as the Board of Directors or the Committee may deem advisable; provided, however, that no such amendment will be made, without shareholder approval to the extent such approval is required by law, agreement or the rules of any exchange upon which the Common Stock is listed, and provided further, that the Plan will terminate no later than March 9, 2005. No such amendment, suspension or termination will impair the rights of participants under outstanding awards without the consent of the participants affected thereby or make any change that would disqualify the Plan, or any other plan of the Registrant intended to be so qualified from the exemption provided by Rule 16b-3. The Committee may amend or modify any award in any manner to the extent that the Committee would have had the authority under the Plan to initially grant such award. No such amendment or modification will impair the rights of any participant under any award without the consent of such participant. Under the Plan, a participant to whom an option is granted will have the right to purchase the number of shares of Common Stock covered by the option, subject to the terms and provisions of the Plan. The option price to be paid by a participant is determined by the Committee and is set forth in a stock option agreement between the Registrant and the participant. Such price cannot be less than 100% of the fair market value of the Common Stock on the date on which the option in respect thereof is granted as to incentive stock options within the meaning of Section 422 of the Code, or any successor provision, and the par value of a share of Common Stock as to other options. Under the Plan, the purchase price of an option is payable in cash or by the surrender, at the fair market value on the date on which the option is exercised, of shares of Common Stock, by any combination of cash and such shares or with any other consideration. In addition, the Plan authorizes the Committee to grant stock appreciation rights ("SAR"). No SARs have been granted under the Plan. SARs and options which are not incentive stock options may, in the Committee's discretion, provide that in connection with exercises thereof the holders will receive cash payments in amounts necessary to reimburse holders for their income tax liability resulting from such exercise and the payment made pursuant to this provision. Incentive stock options (within the meaning of Section 422 of the Code) may be granted at the option of the Committee under the Plan. The fair market value of the Common Stock is determined as of the time of award of the option to which it is subject. Incentive stock options are subject to a $100,000 exercise limitation per year. Any option granted under the Plan must be fully exercised prior to its expiration on the date determined by the Committee or on an earlier termination date in the case of termination of employment or consultant status. With respect to the options granted to date, the Committee has provided in the stock option agreement that if such participant's employment by the Registrant or its subsidiaries is terminated for any reason, other than death or disability, such participant may exercise an option within the period ending on the earlier of three months after such termination or the date the option expires in accordance with its terms. If such participant dies or is disabled 21 prior to termination of employment, he or his legatees, executors, distributees or personal representatives may, subject to the provisions of the Plan, exercise the option granted to such participant within the period ending on the earlier of (i) twelve months after the date of such death or disability or (ii) the date the option expires in accordance with its terms. The option of a participant who dies after termination may be exercised in respect to the same number of shares in the same manner and to the extent as if such participant were then living. The right of any participant to exercise an option granted to such participant may not be transferred, assigned, pledged or hypothecated in any way other than by will or the laws of descent and distribution. Options are exercisable by a participant during his lifetime only by him. The Plan also permits the Committee to grant shares of Common Stock to a participant subject to the terms and conditions imposed by the Committee ("restricted stock"). No shares of restricted stock have been awarded under the Plan. Under the Plan, in addition to stock options, stock appreciation rights and restricted stock, participants may be awarded performance shares, convertible debentures, other convertible securities and any other forms of awards that the Committee in its discretion may determine are consistent with the objectives and limitations of the Plan. No such awards have been granted under the Plan. On August 1, 1995, the Registrant and Bank of America NT & SA ("Bank") entered into an amendment to stock purchase agreement under which the Registrant agreed to issue the Bank securities equivalent in form if more than 600,000 shares of Common Stock in the aggregate are issued by the Registrant under the Plan or other similar plan, or otherwise, to directors, officers, employees, consultants, or other persons providing services to the Registrant for so long as the Bank or its permitted successor holds not less than 75% of the shares of Common Stock currently held by the Bank. Until August 1, 1996, the Bank would pay only nominal consideration for any stock issued pursuant to the amendment, and thereafter would, with certain exceptions, pay the same consideration as provided in any such issuances of shares in excess of the 600,000 share amount. See "Certain Relationships and Related Transactions--Agreements with Bank of America" ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ------------------------------------------------------------------------ The following tables set forth information as to the shares of the Common Stock owned as of July 1, 2002 by (i) each person known to the Registrant to be the beneficial owner of more than five percent of the Common Stock, (ii) each director, (iii) each executive officer named in the summary compensation table, and (iv) all directors and executive officers of the Registrant as a group. Unless otherwise indicated in the footnotes following the table, the persons as to whom the information is given had sole voting and investment power over the shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable.

[Amount ]of ~~Transition~~Beneficial ~~Report~~Ownership(1) ~~Pursuant~~Name toand ~~Section~~Address 13of orBeneficial 15Owners No. Shares % Ownership ------------------------------------- ---------- ----------- Bank of America National Trust and Savings Association 555 California Street, 18th Floor Department 15027 San Francisco, CA 94104 1,200,000 35.3% Eli Broad 1999 Avenue of the Stars, Suite 3170 Los Angeles, CA 90067 779,735(d2) 19.7% 22 Amount of ~~the~~Beneficial ~~Securities~~Ownership(1) ~~Exchange~~Name ~~Act~~and Address of ~~1934~~Beneficial Owners No. Shares % Ownership ------------------------------------- ---------- ----------- Sand and Sea Partners 300 S. Grand Avenue, 29th Floor Los Angeles, CA 90071 1,157,128(3) 27.2% Sea Fair Partners 300 South Grand Avenue, 29th Floor Los Angeles, CA 90071 332,478(3) 7.8% J. Christopher Lewis 300 South Grand Avenue, 29th Floor Los Angeles, CA 90071 1,489,606(3) 35.0% Alan Redhead California Beach Restaurants, Inc. 17383 Sunset Boulevard, Suite 140 Pacific Palisades. CA 90272 790,878(4) 22.5% Jefferson W. Asher, Jr. 4765 Park Encino Lane, #134 Encino, CA 91436 89,569(5) 2.6% Richard P. Bermingham 2105 Stoney Hill Road Los Angeles, CA 90049 0 0% Robert L. Morrison 725 Figueroa St., Suite 1200 Los Angeles, CA 90017 0 0% John C. Cushman III 601 S. Figueroa St., 47th Floor Los Angeles, CA 90017-5752 434,311(6) 12% Robert A. Kissinger California Beach Restaurants, Inc. 17383 Sunset Boulevard, Suite 140 Pacific Palisades, CA 90272 31,625(7) * All directors and executive officers as a group (6 persons) 2,435,985(8) 49.5%

*Denotes holdings of less than 1% (1) The number of shares and percentages in these columns are based on 3,400,865 shares of Common Stock outstanding and the number of shares convertible from the Subordinated Notes for each respective shareholder. (2) Includes 551,390 shares of Common Stock that are subject to a currently convertible note. (3) J. Christopher Lewis, a director of the Company, is the general partner and a limited partner of Sand and Sea Partners and Sea Fair Partners, which together own 634,956 shares of Common Stock; in addition, Sand and Sea Partners is deemed the beneficial owner of an additional 854,650 shares of Common Stock that are subject to a currently convertible note. Mr. Lewis disclaims beneficial ownership of the shares owned by such partnerships, except with respect to (i) 25,268 shares which represent a limited partnership interest in each partnership of approximately 3.8% and (ii) an additional undetermined number of such shares by virtue of his rights as a general partner under the limited partnership agreement. As general partner of such partnership, Mr. Lewis may have the power to direct the voting or disposition of such shares and therefore may be deemed to beneficially own all the shares held by such partnerships. 23 (4) Includes currently exercisable options to purchase 335,000 shares of Common Stock issued under the Omnibus Stock Plan, and 110,278 shares of Common Stock that are subject to a currently subordinated convertible note. (5) Includes currently exercisable options to purchase 32,000 shares of Common Stock issued under the Omnibus Stock Plan and 27,569 shares of Common Stock that are subject to a currently subordinated convertible note owned by a family trust. (6) Includes 128,911 shares held by Cushman Sea View Partners, a California general partnership, 85,938 shares held by Cushman K Sea View Partners, and 54,045 shares held by the Cushman Family Trust. The Cushman Family Trust is deemed the beneficial owner of an additional 165,417 shares of Common Stock that are subject to a currently convertible note. Mr. Cushman is a general partner in Cushman Sea View Partners and Cushman K Sea View Partners and may be deemed to beneficially own Cushman Equities Corporation, which is also a general partner of such partnerships. (7) Includes currently exercisable options to purchase 31,625 shares of Common Stock issued under the Omnibus Stock Plan. (8) Includes currently exercisable options to purchase 387,625 shares of Common Stock issued under the Omnibus Stock Plan and 945,000 shares of Common Stock that are subject to a currently convertible note. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ------------------------------------------------------- Agreements with Bank of America In consideration for the restructuring of a loan from Bank of America (The Bank), and pursuant to the terms of a Stock Purchase Agreement dated as of December 22, 1994 between the Registrant and the Bank (the "Stock Purchase Agreement"), the Registrant issued to the Bank on December 22, 1994, 1,223,556 shares of Series A Preferred Stock that converted into 1,200,000 shares of Common Stock on May 1, 1995 (constituting 30% of the combined voting power of all outstanding shares of capital stock on a fully diluted basis). Additionally, as described below, the Bank is entitled to participate together with investors in the private placement in certain demand and incidental registration rights with respect to future registered offerings by the Registrant of its capital stock and the Bank is entitled to participate in any future equity offerings by the Registrant to the extent required to maintain its then percentage equity ownership in the Registrant. The Registrant has a right of first refusal under the Stock Purchase Agreement with respect to any private sale or transfer of the shares held by the Bank. Also, the Registrant and the Bank entered into an Amendment to Stock Purchase Agreement dated as of August 1, 1995 ("Amendment"), amending the Stock Purchase Agreement. The Registrant agreed, in the Amendment, to issue the Bank securities equivalent in form if more than 600,000 shares of Common Stock in the aggregate are issued by the Registrant under the Registrant's Omnibus Stock Plan or other similar plan, or otherwise, to directors, officers, employees, consultants, or other persons providing services to the Registrant for so long as the Bank or its permitted successor holds not less than 75% of the shares of Common Stock currently held by the Bank. Until August 1, 1996, the Bank would have paid only nominal consideration for any stock issued pursuant to the Amendment, and thereafter would, with certain exceptions, pay the same consideration as provided in any such issuance of shares in excess of the 600,000 share amount. See "Executive Compensation--The Omnibus Stock Plan." 24 Also, investors in the private placement, together with the Bank, holding at least 20% of the shares of Common Stock into which the Series A Preferred Stock have been converted have two demand registration rights to require the Registrant to register such shares for resale under the Securities Act and applicable state securities laws for resale to the public. This right of registration shall continue until such time as in the opinion of counsel for the Registrant such registration is no longer necessary for shareholders to sell the shares of Common Stock without registration. Such investors, together with the Bank, are also being entitled to certain incidental registration rights. The Registrant will pay the expenses in connection with any such incidental registrations and two such demand registrations. 1990 Shareholders Agreement There exists a shareholders agreement dated April 10, 1990 ("1990 Shareholders Agreement") among Sand and Sea Partners, Sea Fair Partners (both of which are affiliates of J.Christopher Lewis a director of the Registrant), John C. Cushman, III, and other investors in a 1990 private placement of Common Stock in the Registrant. The 1990 Shareholders Agreement provides that Sand and Sea Partners, Sea Fair Partners and other investors will cause certain representatives of the investor group to be nominated to the Board. Certain Registration Rights The Registrant, Richard S. Stevens, Sand and Sea Partners, Sea Fair Partners, Eli Broad, Cushman/Sea View Partners, Cushman K/Sea View Partners and certain other shareholders of the Registrant are parties to a Registration Rights Agreement which, as amended, provides that the Registrant shall use its best efforts to register under the Securities Act the shares of any of the shareholders who are party to the Registration Rights Agreement, and who requests such registration with regard to a certain minimum number of shares of Common Stock, at certain times when the Registrant otherwise proposes to register certain of its securities. The parties to the Registration Rights Agreement, except Stevens, individually and collectively may make a total of two written demands for registration of their shares so long as the demand relates to at least 20% of the registerable shares of Common Stock then outstanding. The Registrant will pay the expenses in connection with any such incidental registrations and two such demand registrations. In certain circumstances such shareholders also have a contractual right of first refusal to purchase, on a pro-rata basis, any equity securities of the Registrant that the Registrant may propose to sell at a price less than fair market value. In connection with the March 1999 note offering referenced below, the Registrant afforded such purchasers certain incidental and demand registration rights with respect to the securities of the Registrant acquired thereunder. Certain Compensation Arrangements Reference is made to "Executive Compensation -- Other Compensation Agreements" for a description of employment arrangements and other arrangements between the Registrant and certain officers and directors. 25 Certain Financing Arrangements 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, except as adjusted as described below. The Registrant may pay interest on the Subordinated Notes in cash or in kind. All interest due as of March 30, 2001 and March 30, 2002 was paid in kind by issuing notes with identical terms to the Subordinated Notes. On March 6, 2002 an amendment to the note purchase agreement was entered into to provide that the Subordinated Notes may not be voluntarily prepaid by the Registrant as to principal and interest without the consent of the noteholder and will mature as to principal and accrued interest on October 1, 2003 instead of March 25, 2003. Also, the interest was increased to 7.5% per annum (1) with respect to 50% of the principal amount of the Subordinated Notes, for the period commencing April 1, 2002 until March 31, 2003; and (2) with respect to one hundred percent (100%) of the principal amount of the Subordinated Notes for the period commencing April 1, 2003 until the maturity date. The payment of the principal and interest on the Subordinated Notes is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation (Senior Debt). Purchasers included Alan Redhead, the Registrant's Chairman of the Board and Chief Executive Officer, who purchased $100,000 of Subordinated Notes; Sand and Sea Partners, an over 5% shareholder of the Registrant and which is affiliated with J. Christopher Lewis, which purchased $775,000 of Subordinated Notes; a family trust of which Jefferson W. Asher, Jr., a director of the Registrant, is trustee, which purchased $25,000 of Subordinated Notes; Eli Broad, an over 5% shareholder of the Registrant, who purchased $500,000 of Subordinated Notes; and a family trust of which John C. Cushman III, who may be deemed an over 5% shareholder of the Registrant, is trustee, which purchased $150,000 of Subordinated Notes. On December 6, 2001, the Registrant entered into a senior subordinated agreement with RLH Surf, an entity affiliated with J. Christopher Lewis who is the general Partner and limited partner of Sand and Sea Partners and Sea Fair Partners, the Registrant's largest shareholder. The agreement provides for a loan in the amount of up to $500,000 with annual interest rate of 15% on the outstanding principal balance of the note. The payment of the principal and interest on this note is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation. As of April 30, 2002 the Registrant owed $440,000 of principal plus accrued interest. 26 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Financial Statements ----------------------------- Page No. -------- Report of Independent Auditors 28 Consolidated Balance Sheets - April 30, 2002 and 2001 29 Consolidated Statements of Operations for each of the three years 30 in the period ended April 30, 2002 Consolidated Statements of Stockholders' Equity (Deficit) for 31 each of the three years in the period ended April 30, 2002 Consolidated Statements of Cash Flows for each of the three years 32 in the period ended April 30, 2002 Notes to Consolidated Financial Statements 33 (2) Financial Statement Schedules ---------------------------------- 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. 27 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders California Beach Restaurants, Inc. We have audited the accompanying consolidated balance sheets of California Beach Restaurants, Inc. and subsidiaries as of April 30, 2002 and 2001, 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, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 from 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, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended April 30, 2002, in conformity with accounting principles generally accepted in the United States. The accompanying consolidated financial statements have been prepared assuming California Beach Restaurants, Inc. and subsidiaries will continue as a going concern. As more fully described in Note 1, the Company has incurred recurring operating losses and has a working capital deficiency. In addition, the Company has not complied with a covenant of a loan agreement with a bank. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regards to these matters are more fully described in Note 1. Accordingly, the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability or classifications of liabilities that may result from the outcome of this uncertainty. /S/ERNST & YOUNG LLP Los Angeles, California August 9, 2002 28 California Beach Restaurants, Inc. and Subsidiaries Consolidated Balance Sheets

~~For~~APRIL ~~the~~30 ~~transition~~2002 ~~period~~2001 ~~from~~-------------------------------------- ~~_______________~~ASSETS toCurrent ~~_______________~~ assets: Cash $ 284,000 $ 221,000 Trade and other receivables 48,000 42,000 Inventories 234,000 231,000 Prepaid expenses 349,000 265,000 -------------------------------------- Total current assets 915,000 759,000 Fixed assets, net of accumulated depreciation and amortization 2,387,000 2,797,000 Other assets 138,000 166,000 -------------------------------------- Total assets $ 3,440,000 $ 3,722,000 ====================================== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Revolving line of credit - bank $ 37,000 $ 63,000 Current portion of note payable 228,000 207,000 Accounts payable 965,000 666,000 Accrued liabilities 623,000 885,000 Accrual for disposal of location 318,000 - -------------------------------------- Total current liabilities 2,171,000 1,821,000 Note payable, less current portion 365,000 585,000 Notes payable - related parties 440,000 - Deferred rent 339,000 361,000 Other liabilities 9,000 9,000 5% Subordinated convertible notes 1,985,000 1,890,000 Commitments and Contingencies Stockholders' equity (deficit): Preferred stock, no par value, authorized 1,818,755 shares, none issued and outstanding at April 30, 2002 and 2001 - - Common stock, $.01 par value, authorized 25,000,000 shares, issued and outstanding 3,401,000 shares at April 30, 2002 and 2001 34,000 34,000 Additional paid-in capital 13,175,000 13,175,000 Accumulated deficit (15,077,000) (14,153,000) -------------------------------------- Total stockholders' equity (deficit) (1,868,000) (944,000) -------------------------------------- Total liabilities and stockholders' equity (deficit) $ 3,440,000 $ 3,722,000 ======================================

SEE ACCOMPANYING NOTES. 29 California Beach Restaurants, Inc. and Subsidiaries Consolidated Statements of Operations

~~Commission~~YEAR ~~File~~ENDED ~~No. 0~~APRIL 30 2002 2001 2000 -~~12226~~ ------------------------------------------------------- Sales $ 12,804,000 $ 14,021,000 $ 13,382,000 Costs and expenses: Cost of goods sold 11,980,000 12,504,000 11,896,000 Selling, general and administrative 779,000 1,038,000 1,025,000 Depreciation and amortization 451,000 430,000 1,098,000 Loss on disposal of restaurant 318,000 - - -------------------------------------------------------- (724,000) 49,000 (637,000) Other income (expenses): Interest expense, net (205,000) (173,000) (282,000) -------------------------------------------------------- Loss before income taxes (929,000) (124,000) (919,000) Income tax provision (benefit) (5,000) 3,000 2,000 -------------------------------------------------------- Net Loss $ (924,000) $ (127,000) $ (921,000) ======================================================== Net Loss per common share: Basic and Diluted $ (.27) $ (.04) $ (.27) Weighted average shares outstanding: Basic and Diluted 3,401,000 3,401,000 3,401,000

SEE ACCOMPANYING NOTES. 30 California Beach Restaurants, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (Deficit)

~~CALIFORNIA~~Additional ~~BEACH~~Common ~~RESTAURANTS~~Stock Paid-in Accumulated Shares Amount Capital Deficit Total ----------------------------------------------------------------------------------------- Balance at April 30, ~~INC.~~ 1999 3,401,000 34,000 13,175,000 (~~Exact~~13,105,000) ~~name~~104,000 ofNet ~~registrant~~loss as- ~~specified~~- in- ~~its~~(921,000) ~~charter~~(921,000) ----------------------------------------------------------------------------------------- Balance at April 30, 2000 3,401,000 34,000 13,175,000 (14,026,000) (817,000) Net loss - - - (127,000) (127,000) ----------------------------------------------------------------------------------------- Balance at April 30, 2001 3,401,000 34,000 13,175,000 (14,153,000) (944,000) Net loss - - - (924,000) (924,000) ----------------------------------------------------------------------------------------- Balance at April 30, 2002 3,401,000 $ 34,000 $ 13,175,000 $ (15,077,000) $ (1,868,000) =========================================================================================

SEE ACCOMPANYING NOTES. 31 California Beach Restaurants, Inc. and Subsidiaries Consolidated Statements of Cash Flows

California		95-2693503
(state or other jurisdiction of Incorporation or organization)		(IRS Employer Identification No.)
17383 Sunset Boulevard, Suite 140 Pacific Palisades, California		90272
(Address of principal executive office)		(Zip Code)

SEE ACCOMPANYING NOTES. 32 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 1. BUSINESS AND BASIS OF PRESENTATION California Beach Restaurants, Inc., ("Registrant" or "Company") has operations in one business segment, the ownership and management of two restaurants, Gladstone's 4 Fish and RJ's - Beverly Hills. Effective June 21, 2002, the Registrant ceased operations at RJ's. The Registrant reviewed the on going results at RJ's and determined that the negative contribution over the last several years was likely to continue, and given the current market and did not fit into management's planning of maximizing the value of the Gladstones trademark. Given the continuing losses at RJ's, which amounted to $265,000 in fiscal year 2002, combined with current working capital constraints, the Registrant negotiated with the landlord to vacate the premises. The landlord has sublet the property at a rent equivalent to the Registrant's current lease rate. The Company has a guarantee through December 31, 2004 requiring payment of the monthly rental payments in the event that the new lessee fails to make payments and the new lessee's deposits are inadequate to cover the remaining payments. The Registrant has sold the RJ's trademark to the new tenant. For the year ended April 30, 2002, the Registrant recorded a loss of $318,000 related to the provision for closing RJ's, including accruing for costs associated with shutting down the restaurant including fees to the landlord and other professionals. The Company anticipates the restaurant shutdown activities will be completed by the end of the second quarter of fiscal 2003 and none of the costs accrued had been used as of April 30, 2002. The revenues and operating loss for RJ's were $1,401,702 and $265,000 in 2002, $1,715,650 and $146,000 in 2001, and $1,643,274 and $108,000 in 2000, respectively. The consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of the Company's business. The Company's ability to continue as a going concern is dependent upon various factors including, among others, its ability to generate profits, reduce its operating losses and negative cash flows, and extend or replace its line of credit which is due to expire on September 15, 2002. At April 30, 2002, the Company was in violation of a covenant of the $475,000 line of credit with U.S. Bank and obtained an agreement from the bank to forbear the debt through December 15, 2002 provided the Company makes cash collateral payments. The line of credit is used for the letter of credit required under the Gladstones lease. During the year ended April 30, 2002, the Company had negative cash flow from operations of approximately $233,000 and incurred a net loss of approximately $924,000. These losses have adversely impacted California Beach Restaurants, Inc.'s working capital position. To fund these working capital needs, the Company borrowed $440,000 from related parties during the year ended April 30, 2002. These borrowings were originally due to mature in calendar 2002, but have been extended to May 2003. Management believes sales in fiscal 2002 were adversely affected by the September 11 tragedy and resultant decline in business and tourist air travel. 33 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 Management believes the Company will be able to generate sufficient revenue, reduce operating expenses and extend or replace the line of credit or obtain additional sources of debt in order to fund ongoing operations through April 30, 2003. Management has taken actions to reduce operating losses by shutting down its RJ's location (discussed elsewhere in this footnote) and it believes the effects on operating results from the economic conditions experienced in fiscal 2002 will not be as severe in fiscal 2003. Accordingly, the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability or classifications of liabilities that may result from the outcome of this uncertainty. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 May 2, May 3, and April 27 for fiscal years 2002, 2001 and 2000, respectively. The fiscal years 2002 and 2000 contained 52 weeks, and fiscal 2001 contained 53 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, 2002 and 2001, the Company believes there has been no impairment of the value of such assets, other than the accrual recorded for the net book value of the assets at RJ's discussed above in Note 1. 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 are not estimable at April 30, 2002. 34 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 2. 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 was 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 the 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 LICENSE REVENUES Revenues from the operation of the Company-owned restaurants are recognized when sales occur. License fees are based on the licensee restaurant's gross receipts and are recorded by the Company in the period the related restaurant's revenues are earned. Fees received pursuant to this agreement during years ended April 30, 2002, 2001, and 2000 were $63,000, $74,000 and $66,000, respectively. ADVERTISING COSTS The Company expenses advertising costs as such costs are incurred. The Company expensed $86,000, $55,000 and $110,000 for the years ended April 30, 2002, 2001 and 2000, 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". BASIC AND DILUTED LOSS PER COMMON SHARE The Company presents basic loss per common share and diluted loss per common share in accordance with Financial Accounting Standards Board No. 128, "Earnings Per Share." Basic loss per common share includes only the weighted average shares outstanding and excludes the dilutive 35 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) effect of options, warrants and convertible securities. The number of shares that were excluded from earnings per share as of April 30, 2002, 2001, and 2000 because their effect was antidilutive pursuant to paragraph 40 of SFAS 128 were 1,985,000, 1,890,000 and 1,800,000, respectively. For the years ended April 30, 2002, 2001, and 2000 basic and diluted loss per common share are the same due to the antidilutive effect of potential common stock equivalents. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. NEW ACCOUNTING PRONOUNCEMENTS The Company has accounted for the cessation of its RJ's operations under the provisions of EITF No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." In June 2002 the Financial Accounting Standards Board (FASB) issued FASB No. 146. "Accounting for Costs Associated with Exit or Disposal Activities." The Company will adopt the accounting requirement of FASB 146 in fiscal 2003 and does not anticipate the effects to the financial statements to be material. In August 2001, the FASB issued standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This standard requires the recognition and measurement of the impairment of long-lived assets to be held and used and the measurement of long-lived assets to be disposed by sale. This standard is effective for fiscal years beginning after December 15, 2001. The Company does not expect a material impact on its results of operations or financial condition as a result of the adoption of this standard. 3. FIXED ASSETS Details of fixed assets are as follows: APRIL 30 2002 2001 ----------------------------- Leasehold improvements 4,656,000 4,664,000 Furniture and equipment 2,184,000 2,140,000 ----------------------------- 6,840,000 6,804,000 Less accumulated depreciation and amortization (4,453,000) (4,007,000) ----------------------------- $2,387,000 $2,797,000 ============================= 36 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 4. NOTES PAYABLE - RELATED PARTIES On December 6, 2001, the Registrant entered into a senior subordinated agreement with RLH Surf, an entity affiliated with one of the Registrant's principal stockholders and a member of its board of directors. The agreement provides for a loan amount up to $500,000 with annual interest rate of 15% on the outstanding principal balance of the note. The payment of the principal and interest on the Subordinated Note is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation. As of April 30, 2002 Registrant owed $400,000 to RLH Surf, and $40,000 to Dr. Howard Higholt on the principal plus accrued interest. The note was originally payable on September 30, 2002, however the maturity date was extended by the noteholders through May 30, 2003. 5. DEBT 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, 2001 and March 30, 2002 was paid in kind by issuing a note with identical terms to the Subordinated Notes including $95,000 earned in 2002 and $90,000 in 2001. On March 6, 2002 there was an amendment to the note purchase agreement which states; that above notes may not be voluntarily prepaid by the Registrant as to principal and interest without the consent of noteholder and will mature as to principal and accrued interest on October 1, 2003. Notwithstanding, the interest rate shall be increased to 7.5% per annum (1) with respect to 50% of the principal amount of this note, for the period commencing April 1, 2002 until March 31, 2003; and (2) with respect to one hundred percent (100%) of the principal amount of this Note for the period commencing April 1, 2003 until the maturity date. The payment of the principal and interest on the Subordinated Notes is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation (Senior Debt). On October 15, 1999 the Registrant 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, 2002, the balance due under the TI Facility was $593,000. On March 19, 2002, the Company and U.S. Bank amended the terms of a revolving line of credit agreement decreasing the maximum borrowing amount from $500,000 to $475,000. The agreement also calls for an interest rate of prime plus 3% on the unpaid principal balance, 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 Restaurants. 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 37 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 5. DEBT (CONTINUED) collateral support for a letter of credit issued by U.S. Bank pursuant to the Concession Agreement. The revolving line of credit and the letter of credit was originally to expire on September 15, 2002. At April 30, 2002, the Registrant owed $37,500 under this agreement. The Company was in violation of a covenant and obtained an agreement from the bank to forbear the debt through December 15, 2002 provided the Company makes cash collateral payments. On October 23, 2000, the Registrant extended the terms of the agreement with Gladstone's parking lot operator, Standard Parking, for a fixed term of two years, from January 1, 2001 through December 21, 2002. In addition, commencing in 2000 and during each year of the extended term of the agreement, upon request of the Registrant, the parking lot operator shall loan ("Annual Loan") to the Registrant an amount not to exceed $150,000 per year, to be paid back from parking lot income. The Annual Loan to Registrant shall not be advanced prior to November 1 nor later than December 31 of any calendar year. The Annual Loan to the Registrant, plus interest at the prime rate of interest as published in The Wall Street Journal as of the date the Annual Loan is made, shall be repaid to Standard Parking by July 31, of the calendar year immediately following the calendar year in which the loan is made. As of April 30, 2002, Registrant owed $111,000 to Standard Parking pursuant to the Annual Loan. This balance is recorded in accrued liabilities in the accompanying financial statements. Maturities under existing financing agreements to third parties and related parties are as follows: YEAR AMOUNT ---- ------ 2003 $ 265,000 2004 2,678,000 2005 112,000 -------------------- $ 3,055,000 ==================== 38 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 6. INCOME TAXES The provision for income taxes consists of the following: YEAR ENDED APRIL 30 2002 2001 2000 ------------------------------------------------------ Current: Federal $ - $ - $ - State (5,000) 3,000 2,000 ------------------------------------------------------ $ (5,000) $ 3,000 $ 2,000 ====================================================== Deferred: Federal $ - $ - $ - State - - - ------------------------------------------------------ $ - $ - $ - ====================================================== As of April 30, 2002, the Company has available for federal income tax purposes net operating loss carryovers available to offset certain future taxable income of approximately $5,166,000 and state net operating loss carryovers of approximately $1.9 million, which expire at various dates from 2002 through 2022. As a result of changes in control in prior years, net operating losses of approximately $3,093,000 that expire through 2010 are subject to certain restrictions, which limit their future use to approximately $277,000 per year. 39 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 6. INCOME TAXES (CONTINUED) The effective income tax rate on income (loss) varied from the statutory federal income tax rate as follows:

~~Registrant’s~~2002 ~~telephone~~2001 ~~number:~~2000 ------------------------------------------------------ Statutory federal rate (~~310~~34.0) ~~459~~% (34.0)% (34.0)% Increase (decrease): State income taxes, net of federal tax benefit .2 .2 .2 Operating losses which resulted in no current federal tax benefit 33.8 33.8 33.8 -~~9676~~ ----------------------------------------------------- Effective income tax rate -% -% -% ======================================================

As of April 30, 2002 and 2001, 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 financial statements, is as follows: 2001 2001 ------------------------------------ Depreciation and amortization $ 670,000 $ 720,000 Accruals 93,000 81,000 Net operating loss carryforwards 1,908,000 1,602,000 ------------------------------------ Total deferred assets 2,671,000 2,403,000 Less valuation allowance (2,671,000) (2,403,000) ------------------------------------ Net deferred assets $ - $ - ==================================== 40 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 7. 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 2001, dividend yields of 0% for 2001, weighted-average volatility factors of the expected market price of the Company's common stock of 6.8; and a weighted-average expected life of the option of ten years. The amortization of the fair value of options granted was immaterial for 2002, 2001 and 2000. The Company did not grant options in 2002. 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. 41 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 7. STOCKHOLDERS' EQUITY (CONTINUED) STOCK OPTIONS (CONTINUED) The following schedule summarizes the changes in stock options for the three years ended April 30, 2002 under the plans:

~~Securities~~NUMBER ~~registered~~OF ~~pursuant~~EXERCISE toWEIGHTED ~~Section 12~~AVERAGE OPTIONS PRICE EXERCISE PRICE ---------------------------------------------------------- Outstanding at April 30, 1999 437,000 $.83 $.83 Granted - - - Canceled (b50,000) of.83 ~~the~~.83 ~~Act: None~~ Exercised - - - ---------------------------------------------------------- Outstanding at April 30, 2000 387,000 .83 .83 Granted 195,000 .90 .90 Canceled (10,000) .83 .83 Exercised - - - ---------------------------------------------------------- Outstanding at April 30, 2001 582,000 .83 .83 Granted - - - Canceled - - - Exercised - - - ---------------------------------------------------------- Outstanding at April 30, 2002 582,000 - .83 =================== Exercisable at April 30, 2002 418,000 ===================

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. 42 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 8. LOSS PER COMMON SHARE A reconciliation of the numerator and denominator of basic loss per share and diluted loss per share is as follows:

~~Securities~~YEAR ~~registered~~ENDED ~~pursuant~~APRIL to30 ~~Section 12~~2002 2001 2000 ----------------------------------------------------- Basic and Diluted net loss per share computation: Numerator $ (g924,000) of$ ~~the~~(127,000) ~~Act~~$ (921,000) Denominator: ~~Common~~ ~~Stock~~Weighted average common shares outstanding 3,401,000 3,401,000 3,401,000 ----------------------------------------------------- Basic and Diluted net loss per share $ (.0127) ~~par~~$ ~~value~~ (~~Title~~.04) of$ ~~Class~~(.27) =====================================================

43 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 9. 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, 2002 are summarized below:

~~Indicate~~2002 by2001 ~~check~~2000 ~~mark~~------------------------------------------------------ ~~whether~~Restaurants: ~~the~~Fixed ~~Registrant~~minimum ~~(1) has~~rentals ~~filed~~$ ~~all~~1,875,000 ~~reports required~~$ to1,875,000 be$ ~~filed~~1,849,000 byPercentage ~~Section 13~~rentals or- ~~15(d)~~- of- ~~the~~Other ~~Securities~~fixed ~~Exchange~~minimum ~~Act~~rentals ~~of 1934~~54,000 ~~during~~54,000 ~~the~~63,000 ~~preceding~~------------------------------------------------------ ~~12 months~~Total ~~(or~~$ ~~for~~1,929,000 ~~such~~$ ~~shorter~~1,929,000 ~~period~~$ ~~that the Registrant was required to file such reports)~~1,912,000 ~~and (2) has been subject to such filing requirements for the past 90 days.~~ ======================================================

On November 1, 1997, Sea View and the County of Los Angeles (County) executed a new 20-year concession agreement (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 was 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, 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. 44 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 9. 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 an entity affiliated with one of the Company's principal stockholders and with a member of its board of directors. Since 1999, the Company has been using U.S. Bank to provide for the letter of credit agreement and used them for business banking needs starting in fiscal 2001. 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. The parking lot operator collects all parking lot revenues and pays all operating expenses and remits a net check reduced by the monthly operating fee to the Registrant on a monthly basis. under this arrangement. During fiscal 2002, 2001, and 2000, the Company received $119,000, $161,000, and $147,000, respectively, pursuant to this arrangement, net of all expenses (except rent). These amounts have been recorded as a reduction to cost of goods sold. 45 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 9. COMMITMENTS AND CONTINGENCIES (CONTINUED) LEASES (CONTINUED) Aggregate minimum annual rental commitments at April 30, 2002 were as follows: Year Ending April 30, 2003 $ 1,765,000 2004 1,765,000 2005 1,765,000 2006 1,765,000 2007 1,765,000 Thereafter 18,532,000 -------------------- $ 27,357,000 ==================== The above table does not include the lease obligations for RJ's which are $168,000 in 2003, $168,000 in 2004, and $112,000 in 2005. In June 2002, the Company entered into an agreement to vacate the premises and the remaining lease period has been leased to another company for the same rental amount. The Company has a guarantee through December 31, 2004 requiring payment of the monthly rental amount in the event that the new lessee fails to make payments and the new lessee's deposits are inadequate to cover the remaining payments. EMPLOYMENT AGREEMENTS Effective November 4, 1997, the Company entered into a three-year 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). In each of 2000 and 2001, the term of the agreement was extended for one year for 70% of his time, and his current base salary is $159,000 subject to annual cost of living adjustments. Effective March 6, 2000, the Company entered into an employment agreement with the Company's Chief Operating Officer. The agreement sets forth certain of the terms of employment, including current base salary of $115,000 and the right to receive 6 months salary as severance pay upon (i) termination of employment without cause (as defined in the agreement) or (ii) resignation for good reason (as defined in the agreement). This agreement has no expiration date. Officers are entitled to a 20% bonus of their salary if earnings before interest, taxes and deprecation are $800,000 or greater; 25% of their salary if $825,000 or greater; or 30% if $850,000 or greater. LITIGATION From time to time the Company is involved in litigation and threatened litigation arising in the ordinary course of business. Management of the Company is unaware of any material litigation as of April 30, 2002. 46 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 10. INTEREST IN JOINT VENTURE In November 2001, the Registrant entered into a joint venture to manage and use the Gladstone's 4 Fish name and trademarks at a restaurant to be established in the city of Long Beach, California. A California limited liability company named Gladstone's 4 Fish LLC has been formed for this purpose of which the Company is a member. The restaurant's opening operations will be funded by the other LLC member and the Company has no financial commitment to fund this LLC. A lease has been entered into with the landlord for a twenty-year term beginning November 2002 requiring monthly payments of $23,5299 which increases to $40,167 per month over the term of the lease. Total payments will be over 6.5 million. The Company expects the restaurant to be open sometime in fiscal year 2004. In fiscal year 2002, the Company advanced $30,000 to Gladstone's 4 Fish LLC. The Company will manage the restaurant and has no financial commitments to the Gladstone's 4 fish LLC. 47 California Beach Restaurants, Inc. and Subsidiaries Notes to Consolidated Financial Statements April 30, 2002 11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended April 30, 2002, 2001 and 2000:

~~Yes~~QUARTER ~~[X]~~ENDED NoYEAR ~~[ ]~~ ------------------------ ENDED JULY 31 OCT. 31 JAN. 31 APRIL 30 APRIL 30 ------- -------- -------- --------- --------- (IN THOUSANDS,EXCEPT PER SHARE DATA) ------------------------------------ 2002 ---- Sales $ 3,896 $ 3,267 $ 2,836 $ 2,805 $ 12,804 Operating Income (loss) $ 227 $ 52 $ (576) $ (95) $ (392) Net Income (loss) $ 179 $ 9 $ (602) $ (510) $ (924) Net Income (loss) per common share:(1) Basic $ 0.05 $ 0.01 $ (0.18) $ (0.12) $ (0.27) Diluted $ 0.04 $ 0.01 $ (0.18) $ (0.12) $ (0.27) Weighted avg. shares outstanding: Basic 3,401 3,401 3,401 3,401 3,401 Diluted 5,291 5,291 3,401 3,401 3,401 2001 ---- Sales $ 3,905 $ 3,709 $ 3,346 $ 3,061 $ 14,021 Operating Income (loss) $ 299 $ 212 $ (335) $ (123) $ 53 Net Income (loss) $ 243 $ 161 $ (386) $ (145) $ (127) Net Income (loss) per common share:(1) Basic $ 0.07 $ 0.05 $ (0.11) $ (0.05) $ (0.04) Diluted $ 0.07 $ 0.03 $ (0.11) $ (0.05) $ (0.04) Weighted avg. shares outstanding: Basic 3,401 3,401 3,401 3,401 3,401 Diluted 5,201 5,201 3,401 3,401 3,401 2000 ---- Sales $ 3,140 $ 3,523 $ 3,595 $ 3,124 $ 13,382 Operating Income (loss) $ 92 $ 133 $ (272) $ 124 $ 77 Net Income (loss) $ (160) $ (116) $ (539) $ (106) $ (921) Net Income (loss) per common share:(1) Basic $ (0.05) $ (0.03) $ (0.16) $ (0.03) $ (0.27) Diluted $ (0.05) $ (0.03) $ (0.16) $ (0.03) $ (0.27) Weighted avg. shares outstanding: Basic 3,401 3,401 3,401 3,401 3,401 Diluted 3,401 3,401 3,401 3,401 3,401

(1) Per common share amounts for the quarters and full years have each been calculated separately. Accordingly, quarterly amounts may not add to the annual amounts because of differences in the average common shares outstanding during each period and, with regard to diluted per common share amounts only, because of the effect of potentially dilutive securities only in the periods in which the effect would have been dilutive. 48 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 August 9, 2002. California Beach Restaurants, Inc. By: 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. Signature Title Date --------- ----- ---- Alan Redhead Chairman of the Board Chief August 9,2002 ------------------------ Executive Officer, Director, and Alan Redhead Chief Financial Officer, (Principal Accounting Officer) J. Christopher Lewis Director August 9,2002 ------------------------ J. Christopher Lewis Jefferson W. Asher, Jr. Director August 9,2002 ------------------------ Jefferson W. Asher, Jr. Richard P. Bermingham Director August 9,2002 ------------------------ Richard P. Bermingham Robert L. Morrison Director August 9,2002 ------------------------ Robert L. Morrison 49 INDEX TO EXHIBITS Item 14(a) 3 ITEM METHOD OF NUMBER DESCRIPTION FILING ------ ----------- ------ 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) 10.14 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) 10.28 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) 10.42 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* 10.49 Amended and Restated lease for RJ's dated January 1, 1995 (15) 50 ITEM METHOD OF NUMBER DESCRIPTION FILING ------ ----------- ------ 10.50 Stock Option Agreement between the Registrant and Alan Redhead dated March 13, 1995 (15)* 10.52 Stock Option Agreement between the Registrant and Jefferson W. Asher, Jr. dated March 13, 1995 (15)* 10.54 Amendment to Stock Purchase Agreement dated as of August 1, 1995 between the Registrant and Bank of America NT & SA (16) 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) 10.60 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 dated October 19, 1999 and related documents. (27) 51 ITEM METHOD OF NUMBER DESCRIPTION FILING ------ ----------- ------ 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. (29) 10.74 Executive employment agreement dated as of March 6, 2000 between the Registrant and Robert Kissinger. * (29) 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. (29) 10.76 Standby letter of credit agreement between California Beach Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), dated July 6, 2000. (29) 10.77 Amendment to business loan agreement between California Beach Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), dated March 25,2000. (29) 10.78 Amendment of Parking Management Agreement, dated as of October 23, 2000 between Sea View Restaurants, Inc., and Standard Parking, Inc.(30) 10.79 Revolving line of credit agreement between California Beach Restaurants, Inc., Sea View Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), dated June 22, 2001.(31) 10.80 Amendment to business loan agreement between California Beach Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), dated March 26,2001.(31) 10.81 Agreement between RLH Surf and the Registrant made on December 6, 2001.(A) 10.82 Amendment to Note purchase agreement dated March 6, 2002. (A) 21.1 Subsidiaries of the Registrant (15) 23.1 Consent of Ernst & Young LLP (A) 99.1 Certification of Chief Executive officer and Chief Financial officer (A) (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.** 52 (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 ** (29) Previously filed with Form 10-K for the fiscal year ended April 30, 2000 ** (30) Previously filed with Form 10-Q for the quarter ended October 31, 2000 ** (31) Previously filed with Form 10-K for the fiscal year ended April 30, 2001 ** * 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. 53

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 July 11, 2001 ($0.20) was approximately $37,219.

The number of outstanding shares of the Registrant’s Common Stock as of July 5, 2001 was 3,400,930.

TABLE OF CONTENTS

PART I
	Item 1 BUSINESS
	Item 2 PROPERTIES
	Item 3 LEGAL PROCEEDINGS
	Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	Item 5 MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	Item 6 SELECTED FINANCIAL DATA
	Item 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
	Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	Item 11 EXECUTIVE COMPENSATION
	Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
	Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
		Consolidated Balance Sheets
		Consolidated Statements of Operations
		Consolidated Statements of Stockholders’ Equity (Deficit)
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
SIGNATURES
INDEX TO EXHIBITS
EXHIBIT 10.79
EXHIBIT 10.80
EXHIBIT 23.1

Documents incorporated by reference: the definitive Proxy Statement of the Registrant for the 2001 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 accommodations.

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 $9.99, with dinner entrees beginning at $17.45. 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 $24.21. 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.

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 $8.75 with dinner entrees starting at $13.99. RJ’s average check is approximately $18.56. 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 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.

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, and 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.

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 license 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 2001, 2000, and 1999 were approximately $74,000, $66,000,and $71,000, respectively.

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 260 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 Lease. 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, and 1% of parking lot revenue in

excess of $680,000. Rent paid under the current restaurant lease for fiscal 2001 was approximately $1,765,000, representing approximately 14.3% of the restaurant’s sales.

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 it was adjusted to monthly lease payments of $14,028 based on Consumer Price Index changes. Rent paid in fiscal, 2001 was $161,376.

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 $4,069. 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, 2001.

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.

	Bid Price
	High		Low
Fiscal 2000
First Quarter		.05		.05
Second Quarter		2.00		.05
Third Quarter		2.00		.05
Fourth Quarter		6.00		.05
Fiscal 2001
First Quarter		4.00		.13
Second Quarter		3.00		.28
Third Quarter		.88		.25
Fourth Quarter		.31		.31

	Bid Price
	High		Low
Fiscal 2002
First Quarter (through 7/15/01)		.25		.20

At July 20, 2001, the Registrant had approximately 870 shareholders of record.

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, 2001 was paid in kind by issuing a note with identical terms to the Subordinated Notes. The Subordinated Notes mature on March 30, 2003; however, the holders of the Subordinated Notes may elect to receive payment for fifty percent of the outstanding Subordinated Notes on March 30, 2002 to the extent debt outstanding to Lyon Credit Corporation (Senior Debt) has been paid in full. The payment of the principal and interest on the Subordinated Notes is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation.

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, 2001 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.

			Years ended April 30,
			2001			2000			1999			1998			1997
			(in thousands, except per share amounts)
Income Statement Data:
	Sales		$	14,021		$	13,382		$	13,687		$	14,162		$	15,164
	Net Income (loss)			(127	)		(921	)		(680	)		(1,420	)		327
	Net Income (loss) per common share:
		Basic		(.04	)		(.27	)		(.20	)		(.42	)		.10
		Diluted		(.04	)		(.27	)		(.20	)		(.42	)		.10
Balance Sheet Data:

	Years ended April 30,
	2001		2000		1999		1998		1997
	(in thousands, except per share amounts)
Total assets	$	3,722	$	3,820	$	4,576	$	3,321	$	5,078
Long-term debt, net of current portion	$	2,475	$	2,600	$	2,499		—		—

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 year 2001 contained 53 weeks, and fiscal 2000 and 1999 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, although temporary, declines in seating capacity attributable to such construction adversely affected sales during the first and second quarters of 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, 2001 were $14,021,000, an increase of $639,000 or 4.8% as compared to the year ended April 30, 2000. 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 2001 revenues were adversely affected by the inclement weather conditions in fourth quarter of fiscal 2001. The 1999 remodel caused a temporary reduction in seating capacity and a commensurate reduction in revenue in the first two quarters of fiscal 2000. 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, 2000 were $13,382,000, a decrease of $305,000 or 2.2% as compared to the year ended April 30, 1999. 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. The above construction was also the main cause of the reduction in fiscal 2000 revenue for the first two quarters which are typically the highest volume of business.

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, 2001, 2000 and 1999 were $74,000, $66,000 and $71,000, 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 sold, as a percentage of sales, for the fiscal year ended April 30, 2001 was 89.2% compared to 88.9% for fiscal 2000 and 87.1% for fiscal 1999.

The cost of goods sold was $12,504,000 in fiscal 2001 as compared to $11,896,000 in fiscal 2000, an increase of $608,000 or 5.1%. The increase in cost of goods sold in fiscal 2001, as compared to fiscal 2000, as a percentage of sales, is the result of increased operating costs incurred during fiscal 2001, primarily related to increased labor costs resulting from the minimum wage increase effective January 1, 2001. Additional increases included management labor, worker’s compensation, payroll taxes, management bonus, and group medical insurance. Other costs effected were repair and maintenance, and utilities. Gladstone’s rent expense for the fiscal year ended April 30, 2001 was $1,744,000 as compared to $1,728,000 for the fiscal year ended April 30, 2000.

Cost of goods sold was $11,896,000 in fiscal 2000 as compared to $11,928,000 in fiscal 1999, a decrease of $32,000 or 0.3%. Cost of goods sold, as a percentage of sales, for the fiscal year ended April 30, 2000 was 88.9% compared to 87.1% for fiscal 1999. 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 2000, as compared to fiscal 1999.

Selling, General and Administrative Expenses

Selling, general and administrative expense for the year ended April 30, 2001, was $895,000 compared to $950,000 for the year ended April 30, 2000. As a percentage of sales selling, general and administrative expense was 6.4% for fiscal 2001, compared to 7.1% for fiscal 2000.

Selling, general and administrative expense for the year ended April 30, 2001 decreased $55,000 or 5.8% as compared with the year ended April 30, 2000. The decrease is due to the Registrant’s continuing efforts to reduce such expenses, as well as combining Chief Financial Officer and Chief Executive Officer positions in April of 2000.

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.

Legal and Litigation Settlement

Legal and litigation settlement expenses for the year ended April 30, 2001 increased by $68,000 or 90.1% as compared with the year ended April 30, 2000. The increase was associated with a general increase in outstanding legal matters.

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 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, 2001, the Registrant recorded interest expense of $173,000, net of interest income of $18,000. Interest expense was related primarily to the note payable with Lyon Credit, for the Gladstone’s remodel, and interest expense on the Subordinated convertible notes.

For the year ended April 30, 2000, the Registrant recorded interest expense of $282,000, net of interest income of $7,000, primarily related to the note payable with Lyon Credit, for the Gladstone’s remodel, and interest expense on the Subordinated 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, 2001, 2000 and 1999 depreciation expense was $426,000, $384,000 and $362,000, 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. This also resulted in increased depreciation during 2001. 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 for fiscal 2000 and fiscal 1999. In April of fiscal 2000 goodwill was fully amortized.

Income Tax Provision

For the year ended April 30, 2001, 2000 and 1999 the Registrant recorded income tax expense of $3,000, $2,000 and $2,000, 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 to the extent debt outstanding to Lyon Credit Corporation has been paid in full. The

payment of the principal and interest on the Subordinated Notes is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation.

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, 2001, the balance due under the TI Facility was $792,000.

On June 16, 2000, 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, 2001, and subsequently has been renewed until September 15, 2002.

On March 26, 2001, the Company and U.S. Bank amended the terms of the revolving line of credit agreement to provide for an increase of $200,000 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, 2000 through May 31, 2001 only, after which the line of credit will revert to its original $500,000 borrowing limit. At April 30, 2001, $62,500 of borrowings were outstanding under the line of credit. The line of credit expires on September 15, 2002.

On October 23, 2000, the Registrant extended the terms of the agreement with Gladstone’s parking lot operator called Standard Parking for fixed term of two years, from January 1, 2001 through and including December 21, 2002. In addition, commencing in 2000 and during each year of the extended term of the agreement, upon request of the Registrant, the parking lot operator shall loan (“Annual Loan”) to the Registrant an amount not to exceed $150,000 per year, to be paid back from parking lot income. The Annual Loan to Registrant shall not be advanced prior to November 1 nor later than December 31 of any calendar year. The Annual Loan to the Registrant, plus interest at the prime rate of interest as published in The Wall Street Journal as of the date the Annual Loan is made, shall be repaid to Standard Parking by July 31, of the calendar year immediately following the calendar year in which the loan is made. As of April 30, 2001 Registrant owed $120,000 to Standard Parking pursuant to the Annual Loan.

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 which was paid down in fiscal 2001. There were no borrowings in fiscal 2001 from Space Partners.

Capital expenditures for the years ended April 30, 2001, 2000, and 1999 totaled approximately $192,000, $1,332,000, and $1,498,000 respectively. The registrant has no significant commitments for capital expenditures in fiscal 2002.

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.

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

	Page
Report of Independent Auditors		15
Consolidated Balance Sheets — April 30, 2001 and 2000		16
Consolidated Statements of Operations for each of the three years in the period ended April 30, 2001		17
Consolidated Statements of Stockholders’ Equity (Deficit) for each of the three years in the period ended April 30, 2001		18
Consolidated Statements of Cash Flows for each of the three years in the period ended April 30, 2001		19
Notes to Consolidated Financial Statements		20

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 2001 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 Form 10-K filed within such timeframe.

Item 11 EXECUTIVE COMPENSATION

Information concerning executive compensation is incorporated herein by reference from the section entitled “Executive Compensation” in the Registrant’s 2001 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 Form 10-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 2001 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 Form 10-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 2001 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 Form 10-K filed within such timeframe.

PART IV

Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) Financial Statements

	Page No.
Report of Independent Auditors		15
Consolidated Balance Sheets — April 30, 2001 and 2000		16
Consolidated Statements of Operations for each of the three years in the period ended April 30, 2001		17
Consolidated Statements of Stockholders’ Equity (Deficit) for each of the three years in the period ended April 30, 2001		18
Consolidated Statements of Cash Flows for each of the three years in the period ended April 30, 2001		19
Notes to Consolidated Financial Statements		20

(2) Financial Statement Schedules

(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

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.

Report of Independent Auditors

Board of Directors and Shareholders California Beach Restaurants, Inc.

We have audited the accompanying consolidated balance sheets of California Beach Restaurants, Inc. and subsidiaries as of April 30, 2001 and 2000, 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, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 from 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, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended April 30, 2001, in conformity with accounting principles generally accepted in the United States.

/S/ ERNST & YOUNG LLP

Los Angeles, California June 20, 2001

California Beach Restaurants, Inc. and Subsidiaries

Consolidated Balance Sheets

		April 30
		2001			2000
Assets
Current assets:
	Cash	$	221,000		$	102,000
	Trade and other receivables		42,000			77,000
	Inventories		231,000			219,000
	Prepaid expenses		265,000			220,000
Total current assets			759,000			618,000
Fixed assets, net of accumulated depreciation and amortization			2,797,000			3,031,000
Other assets			166,000			171,000
Total assets		$	3,722,000		$	3,820,000
Liabilities and stockholders’ equity (deficit)
Current liabilities:
	Accounts payable	$	666,000		$	658,000
	Accrued liabilities		885,000			626,000
	Current portion of note payable		207,000			188,000
	Notes payable — related party		—			100,000
	Revolving line of credit — bank		63,000			--
Total current liabilities			1,821,000			1,572,000
Note payable, less current portion			585,000			800,000
Subordinated convertible notes			1,890,000			1,800,000
Deferred rent			361,000			383,000
Other liabilities			9,000			82,000
Stockholders’ equity (deficit):
	Preferred stock, no par value, authorized 1,818,755 shares, none issued and outstanding at April 30, 2001 and 2000		—			--
	Common stock, $.01 par value, authorized 25,000,000 shares, issued and outstanding 3,401,000 shares at April 30, 2001 and 2000		34,000			34,000
	Additional paid-in capital		13,175,000			13,175,000
	Accumulated deficit		(14,153,000	)		(14,026,000	)
Total stockholders’ equity (deficit)			(944,000	)		(817,000	)
Total liabilities and stockholders’ equity (deficit)		$	3,722,000		$	3,820,000

See accompanying notes.

California Beach Restaurants, Inc. and Subsidiaries

Consolidated Statements of Operations

		Year ended April 30
		2001			2000			1999
Sales		$	14,021,000		$	13,382,000		$	13,687,000
Costs and expenses:
	Cost of goods sold		12,504,000			11,896,000			11,928,000
	Selling, general and administrative		895,000			950,000			956,000
	Legal and litigation settlements		143,000			75,000			104,000
	Depreciation and amortization		426,000			384,000			362,000
			53,000			77,000			337,000
Other income (expenses):
	Interest expense, net		(173,000	)		(282,000	)		(303,000	)
	Amortization of intangible assets		(4,000	)		(714,000	)		(712,000	)
Loss before income taxes			(124,000	)		(919,000	)		(678,000	)
Income tax provision			3,000			2,000			2,000
Net Loss		$	(127,000	)	$	(921,000	)	$	(680,000	)
Net Loss per common share:
	Basic	$	(.04	)	$	(.27	)	$	(.20	)
	Diluted	$	(.04	)	$	(.27	)	$	(.20	)
Weighted average shares outstanding:
	Basic		3,401,000			3,401,000			3,401,000
	Diluted		3,401,000			3,401,000			3,401,000

See accompanying notes.

California Beach Restaurants, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity (Deficit)

		Common Stock				Additional
						Paid-in		Accumulated
		Shares		Amount		Capital		Deficit			Total
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	)
	Net loss		—		—		—		(127,000	)		(127,000	)
Balance at April 30, 2001			3,401,000	$	34,000	$	13,175,000	$	(14,153,000	)	$	(944,000	)

See accompanying notes.

California Beach Restaurants, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

				Year ended April 30
				2001			2000			1999
Operating activities
Net loss				$	(127,000	)	$	(921,000	)	$	(680,000	)
Adjustments to reconcile net loss to cash provided by operations:
		Depreciation and amortization			430,000			1,098,000			1,074,000
		Changes in operating assets and liabilities:
			Trade and other receivables		35,000			(27,000	)		(11,000	)
			Inventories		(12,000	)		(8,000	)		(49,000	)
			Prepaid expenses		(45,000	)		90,000			11,000
			Accounts payable		8,000			371,000			(281,000	)
			Accrued liabilities		259,000			(395,000	)		126,000
			Deferred rent		(22,000	)		(22,000	)		198,000
			Other liabilities		(73,000	)		(55,000	)		(30,000	)
Net cash provided by operations					453,000			131,000			358,000
Investing activities
Additions to fixed assets					(192,000	)		(1,332,000	)		(1,498,000	)
(Increase) decrease in other assets					—			19,000			(16,000	)
Net cash used in investing activities					(192,000	)		(1,313,000	)		(1,514,000	)
Financing activities
Borrowings from subordinated notes and note payable					353,000			166,000			2,622,000
Principal payments on borrowings					(395,000	)		—			—
Borrowings from related party					—			200,000			300,000
Payment to related party					(100,000	)		(100,000	)		(1,000,000	)
Net cash (used in) provided by financing activities					(142,000	)		266,000			1,922,000
Net (decrease) increase in cash					119,000			(916,000	)		766,000
Cash at beginning of year					102,000			1,018,000			252,000
Cash at end of year				$	221,000		$	102,000		$	1,018,000
Supplemental disclosures of cash flow information
	Cash paid during the year for:
		Interest		$	98,000		$	284,000		$	292,000
		Income taxes		$	3,000			—		$	2,000

See accompanying notes.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

1. Summary of Significant Accounting Policies

Business

The Company has operations in one 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 May 3, April 27, and April 29 for fiscal years 2001, 2000 and 1999, respectively. The fiscal year 2001 contained 53 weeks, and fiscal 2000 and 1999 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, 2001 and 2000, 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.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

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 was 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 the 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 License Revenues

Revenues from the operation of the Company-owned restaurants are recognized when sales occur. License 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 years ended April 30, 2001, 2000, and 1999 were $74,000, $66,000 and $71,000, respectively.

Advertising Costs

The Company expenses advertising costs as such costs are incurred. The Company expensed $55,000, $110,000 and $68,000 for the years ended April 30, 2001, 2000 and 1999, 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”.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

1. Summary of Significant Accounting Policies (continued)

Basic and Diluted Loss per Common Share

The Company presents basic loss per common share and diluted loss per common share in accordance with Financial Accounting Standard Board No. 128, “Earnings Per Share.” Basic loss per common share includes only the weighted average shares outstanding and excludes the dilutive effect of options, warrants and convertible securities. For the years ended April 30, 2001, 2000, and 1999 basic and diluted loss per common share are the same due to the antidilutive effect of potential common stock equivalents.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

2. Fixed Assets

Details of fixed assets are as follows:

	April 30
	2001			2000
Leasehold improvements		4,664,000			4,580,000
Furniture and equipment		2,140,000			2,027,000
		6,804,000			6,607,000
Less accumulated depreciation and amortization		(4,007,000	)		(3,576,000	)
	$	2,797,000		$	3,031,000

3. Note Payable — 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 .The entire borrowed amount was paid back in fiscal 2001 and there were no additional borrowings in fiscal 2001.

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,

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

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 to the extent debt outstanding to Lyon Credit Corporation has been paid in full. The payment of the principal and interest on the Subordinated Note is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation. The table below reflects the payment of the Subordinated Notes in 2003, after repayment of Lyon Credit Corporation. 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 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% (effective rate of 9.94% at April 30, 2001). The financing is secured by certain tenant improvements and equipment. A total of $792,000 was outstanding under this financing as of April 30, 2001.

On June 16,2000 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 and all covenants have been met. 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. At April 30, 2001, a total of $62,500 was outstanding in addition to the letter of credit. The letter of credit expires September 15, 2002.

On March 26, 2001, 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, 2000 through May 31, 2001 only, after which the line of credit will revert to its original $500,000 borrowing limit. At April 30, 2001, $62,500 of borrowings were outstanding under the line of credit. The line of credit expires on September 15, 2002.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

Maturities under existing financing agreements are as follows:

Year	Amount
2002	$	270,000
2003		2,118,000
2004		252,000
2005		105,000
	$	2,745,000

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

5. Income Taxes

The provision for income taxes consists of the following:

		Year ended April 30
		2001		2000		1999
Current:
	Federal	$	—	$	—	$	--
	State		3,000		2,000		2,000
		$	3,000	$	2,000	$	2,000
Deferred:
	Federal	$	—	$	—	$	—
	State		—		—		—
		$	—	$	—	$	—

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 2001 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.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

5. Income Taxes (continued)

The effective income tax rate on income (loss) varied from the statutory federal income tax rate as follows:

		2001			2000			1999
Statutory federal rate			(34.0	)%		(34.0	)%		(34.0	)%
Increase (decrease):
	State income taxes, net of federal tax benefit		.2			.2			.2
	Operating losses which resulted in no current federal tax benefit		33.8			33.8			33.8
Effective income tax rate			—	%		—	%		.1	%

As of April 30, 2001 and 2000, 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 financial statements, is as follows:

	2001			2000
Depreciation and amortization	$	720,000		$	711,000
Nondeductible accruals		81,000			70,000
Net operating loss carryforwards		1,602,000			1,579,000
Total deferred assets		2,403,000			2,360,000
Less valuation allowance		(2,403,000	)		(2,360,000	)
Net deferred assets	$	—		$	—

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

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 2001, 2000 and 1999, dividend yields of 0% for 2001, 2000 and 1999, weighted-average volatility factors of the expected market price of the Company’s common stock of 6.8; and a weighted-average expected life of the option of ten years. The amortization of the fair value of options granted was immaterial for 2001, 2000 and 1999.

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.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

6. Stockholders’ Equity (continued)

Stock Options (continued)

The following schedule summarizes the changes in stock options for the three years ended April 30, 2001 under the plans:

		Number of			Exercise		Weighted Average
		Options			Price		Exercise Price
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
	Granted		195,000			.90		.90
	Canceled		(10,000	)		.83		.83
	Exercised		—			—		--
Outstanding at April 30, 2001			572,000			—		.87
Exercisable at April 30, 2001			418,000

The weighted average remaining contractual life of these options is six years. The fair value of the options granted in fiscal year 2001 was determined to be $ 0.10.

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.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

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:

			Year ended April 30
			2001			2000			1999
Basic and Diluted net loss per share computation:
	Numerator		$	(127,000	)	$	(921,000	)	$	(680,000	)
	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		$	(.04	)	$	(.27	)	$	(.20	)

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

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, 2001 are summarized below:

		2001		2000		1999
Restaurants:
	Fixed minimum rentals	$	1,875,000	$	1,849,000	$	1,851,000
	Percentage rentals		—		—		--
Other fixed minimum rentals			54,000		63,000		61,000
Total		$	1,929,000	$	1,912,000	$	1,912,000

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.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

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. Since 1999, the Company has been using U.S. Bank to provide for letter of credit agreement and used them for business banking needs starting fiscal 2001.

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. The Company receives all revenues and pays all operating expenses under this arrangement. During fiscal 2001, 2000 and 1999, the Company received $161,000, $147,000 and $185,000, respectively, pursuant to this arrangement, net of all expenses (except rent). These amounts have been recorded as a reduction to cost of goods sold.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

8. Commitments and Contingencies (continued)

Leases (continued)

Aggregate minimum annual rental commitments at April 30, 2001 were as follows:

Year Ending April 30, 2002		$	1,978,000
	2003		1,952,000
	2004		1,933,000
	2005		1,906,000
	2006		1,765,000
	Thereafter		20,298,000
		$	29,832,000

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 $159,000 subject to annual cost of living adjustments.

Effective March 6, 2000, the Company entered into an employment agreement with the Company’s Chief Operating Officer. The agreement sets forth certain of the terms of employment, including current base salary of $115,000 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.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

9. Quarterly Results of Operations (Unaudited)

The following is a summary of the quarterly results of operations for the years ended April 30, 2001, 2000 and 1999:

		Quarter Ended												Year
														Ended
		July 31			Oct. 31			Jan. 31			April 30			April 30
		(in thousands, except per share data)
2001
Sales		$	3,905		$	3,709		$	3,346		$	3,061		$	14,021
Operating Income (loss)		$	299		$	212		$	(335	)	$	(123	)	$	53
Net Income (Loss)		$	243		$	161		$	(386	)	$	(145	)	$	(127	)
Net Income (Loss) per common share:
	Basic	$	0.07		$	0.05		$	(0.11	)	$	(0.05	)	$	(0.04	)
	Diluted	$	0.07		$	0.03		$	(0.11	)	$	(0.05	)	$	(0.04	)
Weighted avg. shares outstanding:
	Basic		3,401			3,401			3,401			3,401			3,401
	Diluted		3,401			5,201			3,401			3,401			3,401
2000
Sales		$	3,140		$	3,523		$	3,595		$	3,124		$	13,382
Operating Income (Loss)		$	92		$	133		$	(272	)	$	124		$	77
Net Income (Loss)		$	(160	)	$	(116	)	$	(539	)	$	(106	)	$	(921	)
Net Income (Loss) per common share:
	Basic	$	(0.05	)	$	(0.03	)	$	(0.16	)	$	(0.03	)	$	(0.27	)
	Diluted	$	(0.05	)	$	(0.03	)	$	(0.16	)	$	(0.03	)	$	(0.27	)
Weighted avg. shares outstanding:
	Basic		3,401			3,401			3,401			3,401			3,401
	Diluted		3,401			3,401			3,401			3,401			3,401
1999
Sales		$	3,554		$	3,584		$	3,475		$	3,074		$	13,687
Operating Income (Loss)		$	281		$	308		$	(270	)	$	18		$	337
Net Income (Loss)		$	85		$	69		$	(569	)	$	(265	)	$	(680	)
Net Income (Loss) per common share:
	Basic	$	0.03		$	0.02		$	(0.17	)	$	(0.08	)	$	(0.20	)
	Diluted	$	0.03		$	0.02		$	(0.17	)	$	(0.08	)	$	(0.20	)
Weighted avg. shares outstanding:
	Basic		3,401			3,401			3,401			3,401			3,401
	Diluted		3,401			3,401			3,401			3,401			3,401

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.

Signature	Title	Date
/s/ Alan Redhead Alan Redhead	Chairman of the Board Chief Executive Officer, Director, and Chief Financial Officer	July 27, 2001
/s/ J. Christopher Lewis J. Christopher Lewis	Director	July 27, 2001
/s/ Jefferson W. Asher, Jr. Jefferson W. Asher, Jr.	Director	July 27, 2001
/s/ Richard P. Bermingham Richard P. Bermingham	Director	July 27, 2001
/s/ Robert L. Morrison Robert L. Morrison	Director	July 27, 2001

INDEX TO EXHIBITS

Item 14(a) 3

Item		Method of
Number	Description	Filing
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)*

Item		Method of
Number	Description	Filing
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*
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)

Item		Method of
Number	Description	Filing
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.
10.74	Executive employment agreement dated as of March 6, 2000 between the Registrant and Robert Kissinger.*

Item		Method of
Number	Description	Filing
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.
10.76	Standby letter of credit agreement between California Beach Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), Dated July 6, 2000.
10.77	Amendment to business loan agreement between California Beach Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), Dated March 25, 2000.
10.78	Amendment of Parking Management Agreement, dated as of October 23, 2000 between Seaview Restaurants, Inc., and Standard Parking, Inc.(29)
10.79	Revolving line of credit agreement between California Beach Restaurants, Inc., Sea view Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), Dated June 22, 2001.(A)
10.80	Amendment to business loan agreement between California Beach Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), Dated March 26, 2001.(A)
21.1	Subsidiaries of the Registrant (15)
23.1	Consent of Ernst & Young LLP (A)

(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 **
(29)		Previously filed with Form 10-Q for the quarter ended October 31, 2000 **
*		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.

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