-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KeujAJSjeAxi9CGSsoREjvWj54ufud4dCJEg/tY9/kh5TlY71v8XJjcVvdGd663/ uudj78llIBU5EMFtlm4E5g== 0000950148-97-001872.txt : 19970730 0000950148-97-001872.hdr.sgml : 19970730 ACCESSION NUMBER: 0000950148-97-001872 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970729 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA BEACH RESTAURANTS INC CENTRAL INDEX KEY: 0000738274 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 952693503 STATE OF INCORPORATION: CA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-12226 FILM NUMBER: 97646596 BUSINESS ADDRESS: STREET 1: 17383 SUNSET BLVD STE 140 CITY: PACIFIC PALISADES STATE: CA ZIP: 90272 BUSINESS PHONE: 3104599676 MAIL ADDRESS: STREET 2: 17351 SUNSET BLVD STE 404 CITY: PACIFIC PALISADES STATE: CA ZIP: 90272 FORMER COMPANY: FORMER CONFORMED NAME: IHV CORP DATE OF NAME CHANGE: 19900912 FORMER COMPANY: FORMER CONFORMED NAME: NATURAL ORGANICS INC DATE OF NAME CHANGE: 19860318 10-K405 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended April 30, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____ to _____ Commission File 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 August 11, 1995 (the date of the last posted quote) was approximately $12,144. The number of outstanding shares of the Registrant's Common Stock as of July 15, 1997 was 3,400,975. Documents incorporated by reference; the definitive Proxy Statement of the Registrant for the 1997 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. 1 2 PART I ITEM 1 BUSINESS GENERAL California Beach Restaurants, Inc., ("Registrant"), formerly I.H.V. Corp., 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, with annual sales in excess of $13,000,000. 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 breakfast, lunch and dinner. 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 $8.95, with dinner entrees beginning at $16.75. A typical dinner entree includes soup or salad, a loaf of hot sourdough bread, fresh vegetable and rice or potato. Gladstone's average check, including beverages and desserts, is approximately $21.75. 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 barbequed beef and baby back pork ribs and a very extensive salad bar. RJ's menu also includes a wide selection of sandwiches and salads. Sandwich and salad pricing begins at $6.95 with dinner entrees starting at $12.50. RJ's average check is approximately $16.50. As with Gladstone's, 2 3 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 concession agreement with the County of Los Angeles ("County") which expires October 31, 1997. The County's standard operating procedure for contracts in excess of a certain minimum length or dollar value is to distribute a request for proposal seeking bids prior to entering into new agreements. In March 1997 the County completed the bid process and announced their intention to enter into formal negotiations with Gladstone's for a twenty year concession agreement, subject to approval by the County Board of Supervisors. On April 15, 1997 the Board of Supervisors unanimously approved the recommendation to enter into formal negotiations with Gladstone's. Sea View and the County are currently negotiating a new twenty year concession agreement which will commence on November 1, 1997. Based on Sea View's bid, it is anticipated that the new agreement will include minimum annual rental 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 revenue will be payable to the extent the percent rents exceed the minimum annual rents. Sea View also expects that the agreement will require significant renovation to the restaurant but will provide for reduced minimum rents during the period when renovations are undertaken. This reduced rental period will not exceed six months. The new agreement will also require Sea View to post a $2,000,000 letter of credit in favor of the County, as a security deposit. The County may draw upon the letter of credit if Gladstone's fails to pay rent as it comes due. The letter of credit obligation will be reduced, or eliminated, as Sea View reaches certain net worth levels. RESTAURANT OPERATIONS - MARKETING Both of the Registrant's restaurants focus on the casual segment of the upper-end dinner house market. Management believes that its restaurants' reputation, developed over many years, of providing guests with a unique dining experience has been the most effective approach to attracting and retaining business. By focusing its resources on providing superior service and value, Gladstone's and RJ's have primarily relied on word of mouth to attract new business. 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 Crabfest during the month of February, 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 which allows 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 4 RESTAURANT OPERATIONS - PURCHASING The Registrant's senior management establishes general purchasing guidelines. The executive chef, who is responsible for all quality control, develops product and quality specifications. The Registrant continuously seeks to obtain quality menu ingredients and other supplies from reliable sources at competitive prices. From time to time the Registrant will negotiate contract purchases to insure product availability and to reduce short-term exposure to price fluctuations. Management believes that all essential food and beverage products are available from several qualified suppliers. GOVERNMENT REGULATIONS The Registrant is subject to various federal, state and local laws affecting its business. Each restaurant is subject to licensing and regulation by a number of governmental authorities, including alcoholic beverage control, coastal development, health, safety and fire agencies. The Registrant has not experienced problems in obtaining or renewing required permits or licenses. The failure to receive or retain, or a delay in obtaining any significant license or permit could adversely impact the Registant'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. The Registrant has not encountered any problems relating to alcoholic beverage licenses to date. The failure to receive or retain a liquor license could adversely impact the Registrant's operations. The Registrant is also subject to "dram-shop" statutes in the state of California, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment which wrongfully served alcoholic beverages to such person. The Registrant carries liquor liability coverage as part of its existing comprehensive general liability insurance. A judgment against the Registrant under a "dram-shop" statute in excess of the Registrant's liability coverage could have a material adverse impact on the Registrant. The Registrant has not been the subject of a "dram-shop" claim to date. 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. (See Management's Discussion and Analysis of Financial Condition and Results of Operations - Cost of Goods Sold). LICENSE AGREEMENT GLADSTONE'S/UNIVERSAL CITY - In 1992 the Registrant entered into a license agreement with MCA Development Venture Two ("MCADVT"), an affiliate of MCA Inc., which permits MCADVT to use the Gladstone's 4 Fish name and trademarks at a restaurant in their CityWalk development located in Universal City, California in exchange for a royalty fee of .8% of the restaurant's gross receipts during such use. The Gladstone's 4 Fish restaurant at CityWalk opened in May 1993. Fees received pursuant to this agreement during fiscal 1997 were approximately $78,000. 4 5 TRADEMARKS The Registrant 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 319 employees in restaurant operations. None of the employees are represented by a union. The Registrant believes that its working conditions and compensation packages are competitive with those offered by its competitors and considers relations with its employees to be good. SEASONALITY The Registrant's restaurant business is seasonal due to Gladstone's location on the beach in Pacific Palisades, California. As a result, sales and operating profits are higher during the summer months. ITEM 2 PROPERTIES GLADSTONE'S LEASES. The current concession agreements with the County of Los Angeles ("County") for the operation of Gladstone's and the adjacent parking lot expire on October 31, 1997. (See Item 1 - "Restaurant Operations - Gladstone's Concession Agreement" for additional information regarding the new concession agreement). The current concession agreement for the restaurant provides for rent based on 8% of sales of food, non-alcoholic beverages and other merchandise and 10% of the sales of alcoholic beverages, with an annual minimum rent of $480,000. Rent paid under the restaurant lease for the 1997 fiscal year was approximately $1,116,000, representing approximately 8.4% of the restaurant's sales. The current monthly rental payment for the adjacent parking lot is $2,948, subject to annual cost-of-living adjustments of up to 5.5%. Rent paid during fiscal 1997 for the parking lot was $35,400. 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 further provides for monthly rental payments of $12,500 through December 1997. In January 1998, 2001 and 2004 the monthly lease payments are subject to adjustment based on Consumer Price Index changes. Rent paid in fiscal 1997 was $150,000. 5 6 EXECUTIVE OFFICE. The Registrant occupies approximately 2,000 square feet of office space in Pacific Palisades, pursuant to a lease which expires in September 1997 and provides for current monthly rental payments of approximately $2,900. The Registrant is currently negotiating an extension to its lease. ITEM 3 LEGAL PROCEEDINGS In July 1996, a former restaurant employee filed a complaint in the Superior Court for the state of California, County of Los Angeles (BC 153053), against the Registrant's wholly owned subsidiary, Sea View Restaurants, Inc., and three of its current and former employees. The complaint arises out of the plaintiff's former employment and alleges sexual harassment, wrongful termination and various related causes of action. The Registrant believes that this case is without merit and is vigorously contesting it. Additionally, 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, 1997. 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 1996 First Quarter .02 .01 Second Quarter (A) (A) Third Quarter (A) (A) Fourth Quarter (A) (A) FISCAL 1997 First Quarter (A) (A) Second Quarter (A) (A) Third Quarter (A) (A) Fourth Quarter (A) (A) FISCAL 1998 First Quarter (through 7/11/97) (A) (A)
6 7 Bid prices prior to May 1, 1995, the effective date of the Registrant's one for 33.286962 reverse stock split, have been adjusted on a pro-forma basis to reflect such stock split. At July 11, 1997, the Registrant had approximately 570 shareholders of record. (A) - Since August 14, 1995 there have been no posted bid prices for the Registrant's common stock. 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. Sea View's loan agreement prohibits the payment of dividends to the Registrant or the repurchase of Sea View's common stock by Sea View. ITEM 6 SELECTED FINANCIAL DATA The following table sets forth the selected financial data and operating data for the five years ended April 30, 1997 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, ---------------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Income Statement Data: Sales $ 15,164 $ 15,257 $ 14,160 $ 13,924 $ 15,144 Income (loss) from operations before extraordinary items 327 577 (3,419) (1,372) (665) Income (loss) per common share from operations before extraordinary items .10 .20 (12.21) (4.93) (2.35) Extraordinary item (a) -- -- 2,540 -- -- Income per common share from extraordinary item -- -- 9.07 -- -- Net Income (loss) 327 577 (879) (1,372) (649) Net Income (loss) per common share .10 .20 (3.14) (4.93) (2.35) Balance Sheet Data: Total assets 5,078 6,060 6,709 10,369 11,649 Convertible subordinated notes -- -- 783 -- -- Long-term debt, net of current portion (b) -- 1,500 2,776 8,166 8,166
(a) Extraordinary Gain recognized in connection with the December 1994 restructuring - See Note B to the Financial Statements. (b) See Note B to the Financial Statements regarding the December 1994 restructuring. 7 8 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Registrant currently has operations in one business segment, the ownership and operation of restaurants. 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. See Item 1 - "Restaurant Operations - Gladstone's 4 Fish" for additional information regarding the concession agreement pursuant to which Gladstone's 4 Fish is operated. Total sales for the year ended April 30, 1997 decreased $93,000 or .6% compared with the year ended April 30, 1996. All restaurant operations are currently conducted through the Registrant's wholly-owned subsidiary, Sea View. Sea View's fiscal year included 52 weeks during the most recent fiscal year compared with 53 weeks in the prior year. On a sales per week basis, Sea View's weekly sales were $291,600 for the 52 weeks ended May 1, 1997 compared with $287,900 for the 53 weeks ended May 2, 1996, an increase of 1.3%. 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. Sales at Gladstone's for the fourth quarter ended May 1, 1997 benefitted significantly from unseasonably warm weather and lower rainfall as compared with the same period last year. Total sales for the year ended April 30, 1996 increased $1,097,000 or 7.7% compared with the year ended April 30, 1995. Sea View's fiscal year included 53 weeks during the year ended May 2, 1996 compared with 52 weeks in the prior year. On a sales per week basis Sea View's weekly sales were $287,900 for the 53 weeks ended May 2, 1996 compared with $272,300 for the 52 weeks ended April 27, 1995, an increase of 5.7%. Sales at Gladstone's for the third and fourth quarters of fiscal 1996 benefitted significantly from several successful promotional events as well as favorable weather and lower rainfall as compared with the same periods in fiscal year 1995. 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, 1997, 1996 and 1995 were $78,000, $76,000 and $77,000, 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, 1997 was 82.0% compared to 80.9% for fiscal 1996 and 82.9% for fiscal 1995. The increase in cost of goods sold for fiscal 1997, is primarily due to significantly higher prices paid for certain key food products, including live Maine lobster, dungeness crab, fresh 8 9 poultry and most dairy products. Prices on these items, except for dungeness crab, began to moderate in the second half of the fiscal year. The Registrant has also been impacted by the implementation of a higher minimum wage. On October 1, 1996, federal legislation was signed mandating a $.50 per hour increase in the minimum wage, with a second increase of $.40 per hour scheduled for September 1, 1997. In addition, the state of California is separately increasing the minimum wage in two steps resulting in a state minimum wage of $5.75 per hour as of March 1998. This state minimum wage will be $.60 per hour above the new federal standard. At present, the state of California, unlike most states, does not allow any adjustment of minimum wage for employees that receive tips. These wage increases, unless offset by an adjustment for tipped employees, have and will continue to have an adverse impact on the Registrant's labor costs. The Registrant also believes that these mandated increases in minimum wage will result in higher prices paid for most major food products. To partially offset the higher food and labor costs, the Registrant has implemented certain menu price increases at both of its restaurants. The Registrant expects that its cost of goods sold will increase significantly based on the expected terms of Gladstone's new twenty year concession agreement. Annual minimum rent will increase to $1,750,000, which is approximately $600,000 higher than total rent expense in fiscal 1997. Additionally, Gladstone's will assume certain maintenance obligations which are currently the responsibility of the County as landlord. The decrease in cost of goods sold as a percentage of sales in fiscal 1996 compared with fiscal 1995 is primarily due to lower insurance costs, particularly in the area of workers compensation insurance. Legislative reform of the California workers compensation insurance system enabled the Registrant to renew its workers compensation insurance for the year commencing April 1, 1995 at significantly reduced rates. The Registrant's advertising expenditures for the year ended April 30, 1996 were also slightly lower than the prior year. This reduction was primarily due to marketing and advertising expenses related to a July 4th fireworks show held in fiscal 1995 which was not held in fiscal 1996. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expense for the year ended April 30, 1997, increased $99,000 or 9.8% as compared with the year ended April 30, 1996. The Registrant incurred approximately $147,000 of expenses related to the Registrant's response to the County's "Request for Proposal" for a twenty year concession agreement to remain as the operator of the restaurant site where Gladstone's currently operates. These expenses included legal fees, architectural design, proposal preparation, economic analysis and a nonrefundable fee of $25,000 paid to the County for the right to negotiate exclusively. Selling, general and administrative expenses for the year ended April 30, 1996, increased $68,000 or 7.2% as compared with the year ended April 30, 1995. This increase is primarily due to expenses incurred in connection with the Registrant's reverse stock split which became effective May 1, 1995 as well as an increase in certain incentive compensation expenses. As a percentage of sales, selling, general and administrative expenses declined slightly from 6.7% of sales for the year ended April 30, 1995 to 6.6% of sales for the year ended April 30, 1996. 9 10 LEGAL AND LITIGATION SETTLEMENT For the year ended April 30, 1997, legal and litigation settlement expenses decreased $27,000 or 17.2% as compared with the year ended April 30, 1996. This decrease is primarily due to the elimination of certain litigation that was active during the prior year. Legal and litigation settlement expenses for the year ended April 30, 1996, decreased $64,000 or 29.0% as compared with the year ended April 30, 1995. Expenses incurred during the 1996 fiscal year included costs to register 3,004,282 shares of common stock owned by certain stockholders, pursuant to an existing contractual obligation. The selling stockholders did not sell any of their shares. The Registrant is obligated to file amendments to the registration statement in order to update it at any time until December 8, 1997 when requested in writing by Bank of America (one of the selling stockholders) with the Registrant bearing all the expenses of such registration and updates up to certain limits. On December 22, 1994 the Registrant completed a restructuring of Sea View's bank loan and settlement of a contingent note. The Registrant concurrently closed a private placement of securities to finance such restructuring and settlement. Legal expenses related to the debt restructuring of $100,000 reduced the extraordinary gain that was recorded upon consummation of the transaction. Legal expenses of $98,000 related to the private placement were offset against the proceeds of such offering. INTEREST EXPENSE For the year ended April 30, 1996, the Registrant incurred interest expense of $43,000 related primarily to the 9.75% Convertible Subordinated Notes ("Convertible Notes"). The Convertible Notes were partially redeemed by the Registrant in October 1995 and the unredeemed portion of the notes converted into common stock as of October 30, 1995. The balance of the interest expense in fiscal year 1996 as well as the interest expense recorded in fiscal year 1997 is related to a capital lease for certain restaurant equipment. AMORTIZATION OF INTANGIBLE ASSETS Amortization expense relates primarily to the goodwill and covenant not to compete which were recorded in April 1990 upon the completion of the acquisition of the Registrant's restaurant operations. The five year covenant not to compete was fully amortized at April 30, 1995. The Registrant considered the restructuring transactions consummated on December 22, 1994 to represent an event which established the existence of impairment indicators. The issuance of equity securities to the bank and the private financing reflects potentially 78% of the Registrant's fully diluted voting equity. These transactions served as the basis for determining fair value in order to measure the extent of impairment. This valuation was further adjusted to reflect the uncertainty, at that time, concerning continuation of business at the Registrant's principal restaurant location beyond the current term of the concession agreement. Accordingly, during fiscal year 1995 goodwill was written down by $2,500,000 and concurrently, the amortization period was reduced from fifteen years to ten years. The combination of the write-down and reduction in amortization period will result in future annual goodwill amortization expense of approximately $714,000. INCOME TAX EXPENSE For the year ended April 30, 1997 and 1996, the Registrant recorded income tax expense of $21,000 and $16,000, respectively, representing federal and state taxes due based on Alternative Minimum Tax calculations. For the year ended April 30, 1995 the Registrant recorded income tax expense of $4,000 which represents minimum state taxes. 10 11 LIQUIDITY AND CAPITAL RESOURCES Sea View is currently negotiating with the County on the terms of a new twenty year concession agreement. Based on Gladstone's bid, it is expected that the terms of the new concession agreement, which will commence on November 1, 1997, will require Sea View to post a $2,000,000 letter of credit as a security deposit for rental payments due to the County. In the event that rents are not paid when due, the County may draw upon the letter of credit. It is further expected that the terms of the new concession agreement will provide for the reduction in the face amount of the letter of credit when Sea View's net worth exceeds certain amounts. The Registrant also intends to complete extensive renovations to Gladstone's, including certain improvements which will likely be required by the terms of the concession agreement. The timing of these renovations will ultimately be determined by the final terms of the new concession agreement. The Registrant is currently in discussions with equity and debt financing sources to raise the necessary funds or receive appropriate commitments to meet the letter of credit requirement as well as to complete the proposed renovations to Gladstone's. Reference is made to Note D of the financial statements, included under item 8 hereof, for a description of the Registrant's outstanding indebtedness to Bank of America. The Registrant believes that its existing cash and cash flow from operations over the next year will allow it to meet its payment obligations under its bank loan agreement and its normal operating expenses. The Registrant currently has no outside sources of short-term or long-term financing; however in November 1996, the Registrant signed a three year, $3,000,000 commitment letter with Finova Capital Corporation. The commitment is contingent upon the Registrant executing an agreement to remain the operator of Gladstone's at its current location for not less than twenty years. Additionally, the commitment letter is subject to numerous other conditions including executing a definitive loan agreement. The commitment also includes a $1,500,000 subline of credit for the sole purpose of financing renovations to the Gladstone's location. There can be no assurance that the Registrant will be able to conclude an agreement on acceptable terms. The Registrant is also exploring various opportunities to expand its operations. The Registrant's ability to expand is subject to the availability of debt or equity financing on terms that are acceptable to the Registrant. There can be no assurance that such financing will be available. Capital expenditures for the year ended April 30, 1997 totaled approximately $110,000. The Registrant expects that renovation costs for Gladstone's will exceed $2,500,000. The timing of such renovations is subject to the terms of a final concession agreement with the County and the receipt of all necessary permits. The Registrant expects that a portion of the renovation costs will be incurred in fiscal 1998 with the balance incurred in fiscal 1999. 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: whether the Registrant is able to conclude a new concession agreement with the County of Los Angeles with respect to the operation of Gladstone's at its current location or, failing that, is able to secure a suitable alternate location; the Registrant's ability to secure adequate debt or equity financing in order to comply with the terms of a new concession agreement, including the payment of significantly higher rental payments and completion of required renovations; the Registrant's ability to generate an operating profit based on the terms of the new concession agreement; the Registrant's ability to service its current indebtedness to the bank and to comply with certain restrictive covenants; 11 12 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS (CONT.) that its principal source of cash is funds generated from operations; that restaurants historically have represented a high risk investment in a very competitive industry; general and local economic conditions, which can, among other things, impact tourism, consumer spending and restaurant revenues; weather and natural disasters, such as earthquakes and fires, which can impact sales at the Registrant's restaurants; quality of management; changes in, or the failure to comply with, governmental regulations; unexpected increases in the cost of key food products, labor and other operating expenses in connection with the Registrant's business; and other factors referenced in this Form 10-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, 1997 and 1996 16 Consolidated Statements of Operations for each of the three years in the period ended April 30, 1997 18 Consolidated Statements of Stockholders' Equity (Deficit) for each of the three years in the period ended April 30, 1997 19 Consolidated Statements of Cash Flows for each of the three years in the period ended April 30, 1997 20 Notes to Consolidated Financial Statements 22 Schedule No. Description I Condensed Financial Information of Registrant California Beach Restaurants, Inc. 33
All other 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. 12 13 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 1997 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 1997 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 1997 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 1997 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. 13 14 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, 1997 and 1996 16 Consolidated Statements of Operations for each of the three years in the period ended April 30, 1997 18 Consolidated Statements of Stockholders' Equity (Deficit) for each of the three years in the period ended April 30, 1997 19 Consolidated Statements of Cash Flows for each of the three years in the period ended April 30, 1997 20 Notes to Consolidated Financial Statements 22 (2) Financial Statement Schedule Schedule No. Description I Condensed Financial Information of Registrant, California Beach Restaurants, Inc. 33
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (3) Exhibits The exhibits listed on the accompanying Index to Exhibits are filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K None (c) Exhibits All exhibits required by Item 601 are listed on the accompanying Index to Exhibits described in (a) (3) above. (d) Financial Statement Schedules All of the financial statement schedules which are required by the regulations of the Securities and Exchange Commission are either inapplicable or are included as part of Item 8 herein. 14 15 REPORT OF INDEPENDENT AUDITORS Board of Directors California Beach Restaurants, Inc. We have audited the accompanying consolidated balance sheets of California Beach Restaurants, Inc. and subsidiaries as of April 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended April 30, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of California Beach Restaurants, Inc. and subsidiaries at April 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended April 30, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. ERNST & YOUNG LLP Los Angeles, California June 6, 1997 15 16 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
APRIL 30, ---------------------------- 1997 1996 ---------- ---------- Current Assets: Cash $ 626,000 $ 624,000 Restricted cash 475,000 500,000 Trade and other receivables 51,000 27,000 Inventories 286,000 261,000 Prepaid expenses 234,000 203,000 ---------- ---------- Total current assets 1,672,000 1,615,000 ---------- ---------- Fixed Assets - net of accumulated depreciation and amortization (Note C) 1,075,000 1,410,000 Other Assets: Goodwill, net of accumulated amortization of $4,584,000 (1997) and $3,870,000 (1996) 2,141,000 2,855,000 Other 190,000 180,000 ---------- ---------- Total Assets $5,078,000 $6,060,000 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of this statement. 16 17 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY
APRIL 30, --------------------------------- 1997 1996 ------------ ------------ Current Liabilities: Accounts payable $ 673,000 $ 697,000 Accrued liabilities 713,000 770,000 Current portion of long-term debt (Note D) 1,488,000 1,216,000 ------------ ------------ Total current liabilities 2,874,000 2,683,000 Long-term debt, less current portion (Note D) -- 1,500,000 Commitments and Contingencies (Notes G and H) Stockholders' Equity (Notes B and F): Common stock, $.01 par value, authorized 25,000,000 shares, issued and outstanding 3,401,000 shares at April 30, 1997 and 1996 34,000 34,000 Series A Convertible Preferred Stock, no par value, authorized 5,000,000 shares, none issued and outstanding at April 30, 1997 and 1996 (Note F) -- -- Additional paid-in capital 13,175,000 13,175,000 Deficit in retained earnings (11,005,000) (11,332,000) ------------ ------------ Total stockholders' equity 2,204,000 1,877,000 ------------ ------------ Total Liabilities and Stockholders' Equity $ 5,078,000 $ 6,060,000 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 17 18 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED APRIL 30, ------------------------------------------------------ 1997 1996 1995 ------------ ------------ ------------ Sales $ 15,164,000 $ 15,257,000 $ 14,160,000 Costs and expenses: Cost of goods sold 12,438,000 12,335,000 11,741,000 Selling, general and administrative 1,113,000 1,014,000 946,000 Legal and litigation settlement 130,000 157,000 221,000 Depreciation 445,000 431,000 452,000 ------------ ------------ ------------ 1,038,000 1,320,000 800,000 Other income (expenses): Interest expense (2,000) (43,000) (657,000) Amortization of intangible assets (718,000) (714,000) (1,104,000) Write-down of goodwill (Note A) -- -- (2,500,000) Other, net 30,000 30,000 46,000 ------------ ------------ ------------ Income (loss) before income taxes 348,000 593,000 (3,415,000) Income tax provision (Note E) 21,000 16,000 4,000 ------------ ------------ ------------ Income (loss) before extraordinary item 327,000 577,000 (3,419,000) Extraordinary item: Gain from debt restructuring (Note B) -- -- 2,540,000 ------------ ------------ ------------ Net Income (loss) $ 327,000 $ 577,000 ($ 879,000) ============ ============ ============ Net Income (loss) per common share: Primary: Before extraordinary items $ .10 $ .20 ($ 12.21) Extraordinary items -- -- 9.07 ------------ ------------ ------------ $ .10 $ .20 ($ 3.14) ============ ============ ============ Fully-diluted $ .10 $ .18 ($ 3.14) ============ ============ ============ Weighted average number of shares outstanding: Primary 3,401,000 2,931,000 280,000 Fully-diluted 3,401,000 3,401,000 280,000
The accompanying notes to consolidated financial statements are an integral part of this statement. 18 19 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
SERIES A CONVERTIBLE COMMON STOCK PREFERRED STOCK ADDITIONAL DEFICIT IN ------------------- ------------------------- PAID-IN RETAINED SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL --------- ------- ---------- ---------- ----------- ------------ ---------- Balance at April 30, 1994 280,000 $ 3,000 -- $ -- $10,853,000 $(11,030,000) $ (174,000) Series A Convertible Preferred Stock issued pursuant to private placement -- -- 1,000,000 714,000 -- -- 714,000 Series A Convertible Preferred Stock issued pursuant to restructuring -- -- 1,223,556 980,000 -- -- 980,000 Net loss -- -- -- -- -- (879,000) (879,000) --------- ------- ---------- ----------- ----------- ------------ ----------- Balance at April 30, 1995 280,000 3,000 2,223,556 1,694,000 10,853,000 (11,909,000) 641,000 Conversion of Series A Convertible Preferred Stock into common stock 2,181,000 22,000 (2,223,556) (1,694,000) 1,672,000 -- -- Common stock issued pursuant to Rights Offering 244,000 2,000 -- -- 77,000 -- 79,000 Conversion of 9.75% Convertible Subordinated Notes 696,000 7,000 -- -- 573,000 -- 580,000 Net Income -- -- -- -- -- 577,000 577,000 --------- ------- ---------- ----------- ----------- ------------ ----------- Balance at April 30, 1996 3,401,000 34,000 -- -- 13,175,000 (11,332,000) 1,877,000 Net Income -- -- -- -- -- 327,000 327,000 --------- ------- ---------- ----------- ----------- ------------ ----------- Balance at April 30, 1997 3,401,000 $34,000 -- -- $13,175,000 $(11,005,000) $ 2,204,000 ========= ======= ========== =========== =========== ============ ===========
The accompanying notes to consolidated financial statements are an integral part of this statement. 19 20 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED APRIL 30, ------------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Cash flows from operating activities: Net Income (loss) $ 327,000 $ 577,000 $ (879,000) Adjustments to reconcile net income (loss) to cash provided by operations: Depreciation and amortization 1,163,000 1,145,000 1,613,000 Write-down of goodwill -- -- 2,500,000 Gain from debt restructuring -- -- (2,540,000) Changes in operating assets and liabilities: Restricted cash 25,000 -- (425,000) Accounts receivable, trade (24,000) (5,000) (13,000) Inventories (25,000) 1,000 (11,000) Prepaid expenses (31,000) (48,000) 2,000 Accounts payable (24,000) 32,000 125,000 Accrued interest -- (27,000) -- Accrued liabilities (57,000) 114,000 (146,000) ----------- ----------- ----------- Cash provided by operations 1,354,000 1,789,000 226,000 ----------- ----------- ----------- Cash flows used in investing activities: Increase in other assets (14,000) (33,000) (7,000) Additions to fixed assets (110,000) (259,000) (280,000) ----------- ----------- ----------- Net cash used in investing activities (124,000) (292,000) (287,000) ----------- ----------- ----------- Cash flows from financing activities: Principal payments on borrowing (1,228,000) (1,242,000) (1,595,000) Payment of contingent note and restructuring expenses -- -- (692,000) Borrowings representing accrued interest prior to restructuring -- -- 570,000 Proceeds from the sale of Series A Convertible Preferred Stock -- -- 714,000 Proceeds from issuance of 9.75% Convertible Subordinated Notes -- -- 783,000 Redemption of 9.75% Convertible Subordinated Notes -- (203,000) -- Net proceeds from Rights Offering -- 79,000 -- ----------- ----------- ----------- Net cash used in financing activities (1,228,000) (1,366,000) (220,000) =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of this statement. 20 21 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEAR ENDED APRIL 30, --------------------------------- 1997 1996 1995 -------- -------- --------- Net increase (decrease) in cash $ 2,000 $131,000 ($281,000) Cash at beginning of period 624,000 493,000 774,000 -------- -------- --------- Cash at end of period $626,000 $624,000 $ 493,000 ======== ======== =========
Supplemental disclosures of cash flow information: The Company incurred a capital lease obligation of $21,000 in connection with a lease agreement to acquire equipment during the year ended April 30, 1996. In connection with settlement of a contingent note payable, the Company recorded a $500,000 liability during the year ended April 30, 1995.
Cash paid during the year for: Interest $ 2,000 $70,000 -- ======= ======= ====== Income taxes $30,000 $ 2,000 $4,000 ======= ======= ======
The accompanying notes to consolidated financial statements are an integral part of this statement. 21 22 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS The Company has operations in a single business segment, the ownership and management of two restaurants, Gladstone's 4 Fish and RJ's - Beverly Hills. FISCAL YEAR The Company's fiscal year ends on April 30. 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. Fiscal year 1997 ended on May 1, 1997 and contained 52 weeks. Fiscal year 1996 ended on May 2, 1996 and contained 53 weeks while fiscal year 1995 ended on April 27, 1995 and 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. RESTRICTED CASH At April 30, 1997 and 1996, the Company had $475,000 and $500,000, respectively, in restricted cash, primarily pursuant to a financial covenant of the Company's restructured bank loan (see Note B). 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. 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 7 years, whichever is less. INCOME TAXES The Company uses the liability method of accounting for income taxes pursuant to the adoption of Statement of Financial Accounting Standards No. 109 ("SFAS 109") Accounting for Income Taxes on May 1, 1993. REVERSE STOCK SPLIT On April 28, 1995, the Company's shareholders approved a one for 33.286962 reverse stock split with respect to the outstanding shares of common stock which became effective May 1, 1995, upon the filing of a Certificate of Amendment to the Company's Articles of Incorporation. All references to share and per share amounts of common stock have been adjusted to give effect to the reverse stock split. 22 23 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED PER SHARE DATA Primary earnings per common share are calculated by dividing net earnings applicable to common stock by the weighted average of common stock outstanding and common stock equivalents. On a fully diluted basis, where applicable, shares outstanding have been adjusted to assume the conversion of the 9.75% Convertible Subordinated Notes ("Convertible Notes") as of the beginning of the year and net income has been adjusted to reflect the addition of $38,000 in interest expense recorded during 1996. In 1995 common stock equivalents and other potentially dilutive securities have been excluded from per share calculations as their effect would be antidilutive. INTANGIBLE ASSETS Intangible assets are stated at cost and are being amortized as follows:
TERM METHOD -------- --------------- Goodwill 10 years Straight Line Covenant not to compete 5 years Straight Line Deferred loan costs 7 years Interest method
The covenant not to compete and all deferred loan costs have been fully amortized as of April 30, 1995. The Company's only remaining separately identifiable intangible asset is goodwill. It is the Company's policy to separately value all purchased intangible assets other than goodwill and to assign such identifiable intangible assets separate amortization lives. The Company considered the transactions described in Note B to represent an event which established the existence of impairment indicators. The issuance of equity securities to the bank and the private financing reflects potentially 78% of the Company's fully diluted voting equity. These transactions served as the basis for determining fair value in order to measure the extent of the impairment. This valuation was further adjusted to reflect the uncertainty concerning continuation of business at the Company's principal restaurant location beyond the current term of the concession agreement. Accordingly, during the year ended April 30, 1995 goodwill was written down by $2,500,000 and concurrently, the amortization period was reduced from fifteen years to ten years. The combination of the write-down and reduction in amortization period will result in future annual amortization expense of approximately $714,000. FINANCIAL INSTRUMENTS Based on the restructuring transactions described in Note B, the fair value of the long-term debt is estimated to be the same as amounts reported in the Company's balance sheet. STOCK-BASED COMPENSATION The Company has elected to continue to account for its stock-based compensation arrangements using the intrinsic value-based method prescribed by Accounting Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. Management has determined that the effect of applying Financial Accounting Standards Board No. 123's fair value method to the Company's stock-based compensation plans results in net income that is not materially different from amounts reported under APB No. 25, since the exercise price of the Company's employee stock options equals or exceeds the market price of the underlying stock on the date of grant and therefore no compensation expense is recognized. 23 24 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED RECENT ACCOUNTING PRONOUNCEMENTS The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" effective with its fiscal year ending April 30, 1997. SFAS No. 121 requires an entity to review 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. There was no impact on the Company as a result of implementing SFAS No. 121. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Accounting for Earnings Per Share", which will be effective for the Company in fiscal 1998. At that time, the Company will be required to change the method currently used to compute earnings per share and restate all prior periods. The impact of SFAS No. 128 is not expected to be material. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. NOTE B - RESTRUCTURING OF SENIOR AND SUBORDINATED CONTINGENT DEBT AND PRIVATE PLACEMENT On December 22, 1994, the Company completed a restructuring of Sea View's bank loan and settlement of a contingent note, and concurrently completed a private placement of securities to finance such restructuring and settlement. In April 1992, Sea View received notification from its bank that all amounts outstanding under the loan were due and payable. In late August 1994, Sea View's bank commenced formal foreclosure proceedings against the loan's collateral which included all of Sea View's assets. Additionally, Sea View was potentially liable under a Subordinated Contingent Promissory Note ("Contingent Note") to a third party issued in connection with the Company's acquisition of Sea View's operating assets in 1990. This Contingent Note could have resulted in a maximum amount due of $5,000,000, assuming a fifteen year extension of the Gladstone's 4 Fish restaurant concession agreement, plus interest at 12.5% from April 2, 1990. The bank required as a condition to the bank debt restructuring that the Contingent Note be settled or otherwise restructured to the bank's satisfaction. Accordingly, as part of the bank debt restructuring, the Company paid $500,000 in full satisfaction of the Contingent Note. The gain from the debt restructuring has been reduced by this payment. At the date of the bank debt restructuring, the Company owed the bank $8,166,000 in principal and $1,514,000 in accrued and unpaid interest. The restructured bank loan provided for the payment by Sea View of an aggregate of $4,700,000, of which $1,300,000 was paid on or before December 22, 1994, and a balance of $3,400,000 which was represented by two notes; 24 25 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - RESTRUCTURING OF SENIOR AND SUBORDINATED CONTINGENT DEBT AND PRIVATE PLACEMENT - CONTINUED a senior secured note in the amount of $3,000,000, bearing interest at 12% per annum, and payable at varying monthly amounts through October 31, 1997, and a junior secured note in the amount of $400,000 accruing interest at 12% per annum with both interest and principal payable in a single lump sum on October 31, 1997. Interest to maturity on the senior secured and junior secured notes of $563,000 and $157,000, respectively has been included in the carrying value of such notes, in accordance with Financial Accounting Standards Board Statement No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring", and will not be recognized as interest expense in current and future years. Such notes are guaranteed by the Company. As additional consideration for the debt restructuring, the Company issued to the bank,1,223,556 shares of a new issue Series A Convertible Preferred Stock ("Convertible Preferred Stock") that converted into 1,200,000 shares of common stock on May 1, 1995 upon the filing of a Certificate of Amendment to the Articles of Incorporation of the Company effecting a one for 33.286962 reverse stock split (constituting 30% of the combined voting power of all outstanding shares on a fully diluted basis). The bank is also entitled to two representatives on the Board of Directors of the Company until the restructured debt has been repaid or the bank has sold at least 25% of its stock holdings. Also, the bank will be entitled to participate in certain future equity offerings by the Company in order to maintain its percentage equity ownership and will be entitled to a prepayment of its restructured loan equal to 35% of the net proceeds of any such future equity offering by the Company. For the year ended April 30, 1995, the Company recognized an extraordinary gain of $2,540,000 on the bank debt restructuring and settlement of the Contingent Note. No tax expense or benefit was recognized from this transaction, as the resulting gain was not taxable. The private financing which raised the funds necessary to effect the bank debt restructuring and Contingent Note settlement, involved a total investment of $1,600,000, excluding expenses, consisting of $817,290 of Convertible Preferred Stock and $782,710 of Convertible Notes. 1,000,000 shares of the Convertible Preferred Stock were issued at $.81729 per share. These shares automatically converted into common stock on May 1, 1995 upon the filing of a Certificate of Amendment to the Articles of Incorporation of the Company effecting a one for 33.286962 reverse stock split. On October 18, 1995 the Company completed a Rights Offering to certain shareholders that did not participate in the December 22, 1994 private placement. Eligible shareholders as of September 11, 1995 received 4.7215 rights for each share of common stock that they owned. Each right entitled the holder to purchase one share of common stock at $.83 per share. The proceeds of the offering were used to partially redeem the Company's Convertible Notes, which, if not redeemed, were scheduled to convert into common stock as of October 30, 1995. The Company raised $203,000 from the exercise of 244,020 rights. The proceeds from the offering were distributed to the holders of the Convertible Notes on a pro-rata basis. The unredeemed portion of the Convertible Notes converted into 696,000 shares of common stock. 25 26 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - FIXED ASSETS Detail of the Company's fixed assets are listed below:
APRIL 30, ------------------------------- 1997 1996 ----------- ----------- Leasehold improvements $ 2,754,000 $ 2,727,000 Furniture and equipment 925,000 842,000 ----------- ----------- 3,679,000 3,569,000 Less accumulated depreciation and amortization (2,604,000) (2,159,000) ----------- ----------- $ 1,075,000 $ 1,410,000 =========== ===========
NOTE D - LONG-TERM DEBT Long-term debt consists of the following:
APRIL 30, ------------------------------- 1997 1996 ----------- ----------- Notes payable to bank, payable monthly in varying amounts through October 1997, including accrued interest through the term of the debt $ 1,488,000 $ 2,704,000 Capitalized lease obligation, payable monthly through March 1998 with interest at 10.5% -- 12,000 Less current portion (1,488,000) (1,216,000) ----------- ----------- $ -- $ 1,500,000 =========== ===========
During 1990 Sea View entered into a loan agreement with a bank in connection with the acquisition of its restaurant operations. On December 22, 1994 Sea View completed a restructuring of its bank debt and entered into an Amended and Restated Loan Agreement ("Amended Loan") (See Note B). The Amended Loan included a senior secured note in the principal amount of $3,000,000, bearing interest at 12% per annum, and payable at varying monthly amounts through October 31, 1997, ($176,000 in fiscal 1995, $874,000 in fiscal 1996, $1,050,000 in fiscal 1997 and $900,000 in fiscal 1998), and a junior secured note in the amount of $400,000 accruing interest at 12% per annum with both interest and principal payable in a single lump sum on October 31, 1997. Interest to maturity on the senior secured and junior secured notes of $563,000 and $157,000, respectively was included in the carrying value of such notes, in accordance with Financial Accounting Standards Board Statement No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring," and will not be recognized as interest expense in current and future years. At April 30, 1997, the balance of the senior secured note was $931,000, including $31,000 of future interest costs and the balance on the junior secured note was $557,000, including $30,000 of future interest costs. At April 30, 1996, the balance of the senior secured note was $2,147,000, including $199,000 of future interest costs and the balance on the junior secured note was $557,000, including $87,000 of future interest costs. 26 27 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - LONG-TERM DEBT - CONTINUED The Amended Loan requires that Sea View must meet certain financial covenants and restricts capital expenditures, payment of dividends, repurchases of common stock, acquisitions or mergers, disposition of property and the ability to incur or assume additional indebtedness. NOTE E - INCOME TAXES The provision for income taxes consists of the following:
YEAR ENDED APRIL 30, -------------------------------------------- 1997 1996 1995 ------------ ------- ---------- Current: Federal $ 2,000 $12,000 $ -- State 19,000 4,000 4,000 ------------ ------- ---------- $ 21,000 $16,000 $ 4,000 ============ ======= ========== Deferred: Federal $ -- $ -- $ -- State -- -- -- ------------ ------- ---------- $ -- $ -- $ -- ============ ======= ==========
As of April 30, 1997, the Company has available for federal income tax purposes net operating loss carryovers available to offset certain future taxable income of approximately $5,588,000 and state net operating loss carryovers of approximately $1,145,000 which expire from 1998 through 2010. During the year ended April 30, 1990, two changes in control of the Company occurred. As a result, $2,025,000 of net operating losses which expire through 2001 are subject to certain restrictions which limit their future use to approximately $181,000 per year. As a result of the limitation, approximately $514,000 of the net operating loss carryforward may expire without any utilization. The restructuring transactions described in Note B also resulted in a change of control as of December 22, 1994. As a result of changes in control in prior years, net operating losses of $3,875,000 which expire from 2006 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 $997,000 of these net operating loss carryforwards may expire without any utilization. The restructuring transactions described in Note B qualified for the Stock-for-Debt exception in Internal Revenue Code Section 108. Accordingly, the cancellation of debt income amount was not taxable for income tax purposes. 27 28 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE E - INCOME TAXES - CONTINUED The effective income tax rate on income (loss) varied from the statutory federal income tax rate as follows:
1997 1996 1995 ------ ------ ------- Statutory federal rate 35.0% 35.0% (35.0%) Increase (decrease): State income taxes, net of federal tax benefit 5.5 .7 .5 Reduction in valuation reserve as a result of the utilization of net operating loss carryforwards (35.0) (35.0) -- Alternative Minimum Tax .5 2.0 -- Operating losses which resulted in no current Federal tax benefit -- -- 35.0 ------ ------ ------ Effective income tax rate 6.0% 2.7% .5% ====== ====== ======
As of April 30, 1997 and 1996, 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 Company's financial statements, are as follows:
1997 1996 ----------- ----------- Depreciation and amortization $ 1,568,000 $ 1,518,000 Nondeductible accruals 49,000 27,000 Net operating loss carryforwards 2,025,000 2,100,000 ----------- ----------- Total deferred assets 3,642,000 3,645,000 ----------- ----------- Valuation allowance (3,642,000) (3,645,000) ----------- ----------- Net deferred assets $ -- $ -- =========== ===========
NOTE F - STOCKHOLDERS' EQUITY Convertible Preferred Stock: On December 22, 1994, the Company issued 1,223,556 shares of Convertible Preferred Stock to its bank pursuant to an agreement whereby the bank restructured certain outstanding senior secured debt (See Note B). These shares were valued at $980,000 net of issuance expenses of $20,000. The Company also sold 1,000,000 shares of Convertible Preferred Stock at $.81729 per share in a private placement on December 22, 1994. Funds received from this private placement were used to effect the restructuring of the senior secured debt. On May 1, 1995, the bank's Convertible Preferred Stock and the private placement Convertible Preferred Stock automatically converted into 1,200,000 and 980,748 shares of common stock, respectively, upon the filing of a Certificate of Amendment to the Articles of Incorporation of the Company effecting a one for 33.286962 reverse stock split. Upon such conversion, no shares of Convertible Preferred Stock remain outstanding. 28 29 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - STOCKHOLDERS' EQUITY - CONTINUED Rights Offering: On October 18, 1995, the Company completed a Rights Offering to certain shareholders that did not participate in the December 22, 1994 private placement. Eligible shareholders as of September 11, 1995 received 4.7215 rights for each share of stock that they owned. Each right entitled the holder to purchase one share of common stock at $.83 per share. The Company raised approximately $203,000 from the exercise of 244,020 rights. Stock Options: During 1984, the Company adopted the non-statutory stock option plan which provided for the grant of options to purchase up to approximately 27,000 shares of the Company's common stock to eligible employees and non-employees of the Company. Options granted pursuant to this plan were approved by the Company's Board of Directors. The Board of Directors also determined the option price which could not be less than 85% of the fair market value at the date of grant. In March 1995, the Board of Directors terminated this plan except as to 450 options which remain outstanding. In July 1992, the Company's Board of Directors approved the 1992 incentive stock option plan and the 1992 non-statutory stock option plan, subject to shareholder approval of the plans. These plans provided for the grant of options to purchase up to approximately 60,000 shares of the Company's common stock at prices not less than 100 percent of market price at the date of grant. Options under the plan were subject to vesting provisions of up to five years. In March 1995, the Board of Directors terminated this plan, the outstanding options thereunder were cancelled with the optionholder's consent and the Board adopted the Omnibus Stock Plan. The Omnibus Stock Plan, which received shareholder approval in April 1995, provides for the issuance of a maximum of 1,000,000 shares of common stock giving effect to the one for 33.286962 reverse stock split approved by shareholders in April 1995. 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 all of these plans have expiration dates which do not exceed ten years from the date of grant. 29 30 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - STOCKHOLDERS' EQUITY - CONTINUED The following schedule summarizes the changes in stock options for the three years ended April 30, 1997 under the plans:
WEIGHTED AVERAGE NUMBER OF EXERCISE EXERCISE OPTIONS PRICE PRICE -------- ------------ ----- Outstanding at April 30, 1994 39,600 $4.99-$33.29 $5.35 Granted 590,000 .83 .83 Cancelled (39,100) 4.99 4.99 Exercised -- -- -- -------- ------------ ----- Outstanding at April 30, 1995 590,500 $ .83-$33.29 $ .86 Granted 30,000 .83 .83 Cancelled (41,000) .83 .83 Exercised -- -- -------- ------------ ----- Outstanding at April 30, 1996 579,500 $.83-$33.29 $ .86 Granted -- -- -- Cancelled (40,500) .83-33.29 1.23 Exercised -- -- -- -------- ------------ ----- Outstanding at April 30, 1997 539,000 $ .83 $ .83 ======== ============ ===== Exercisable at April 30, 1997 446,700 $ .83 $ .83 ======== ============ =====
The weighted average remaining contractual life of these options is eight 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. Pursuant to the terms of certain stock purchase agreements relating to the Company's December 1994 private placement, investors together with the bank, holding at least 20% of the common stock into which the Convertible Preferred Stock was converted have two demand registration rights to require the Company to register such shares for resale under the Securities Act of 1933 for resale to the public. Such investors, together with the bank, will also be entitled to certain incidental registration rights. The Company will pay the expenses in connection with any such incidental registrations and two such demand registrations. In December 1995, the Company effected a registation for resale of 3,004,282 shares on behalf of certain shareholders. No shares were sold pursuant to such registration statement. 30 31 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - LEASES The Company leases restaurant and office facilities under various non-cancelable operating leases with remaining terms ranging from one to nine 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, 1997 are summarized below:
1997 1996 1995 ---------- ---------- ---------- Restaurants: Fixed minimum rentals $ 630,000 $ 630,000 $ 630,000 Percentage rentals 636,000 606,000 521,000 Other fixed minimum rentals 70,000 70,000 70,000 ---------- ---------- ---------- Total $1,336,000 $1,306,000 $1,221,000 ========== ========== ==========
The parking lot for the Company's Gladstone's 4 Fish restaurant is operated by a parking operator pursuant to a management agreement whereby the Company pays a monthly fee for the operation of the parking facility. The Company receives all revenues and pays all operating expenses under this arrangement. During fiscal 1997, 1996 and 1995 the Company received $151,000, $163,000 and $150,000, respectively pursuant to this arrangement, net of all expenses (except rent). These amounts have been recorded as a reduction to cost of goods sold. Aggregate minimum annual rental commitments at April 30, 1997 were as follows:
Year Ending April 30, --------------------- 1998 $ 422,000 1999 150,000 2000 150,000 2001 150,000 2002 150,000 Thereafter 400,000 ---------- $1,422,000 ==========
Sea View operates Gladstone's pursuant to a concession agreement with the County of Los Angeles ("County") which expires October 31, 1997. The County's standard operating procedure for contracts in excess of a certain minimum length or dollar value is to distribute a request for proposal seeking bids prior to entering into new agreements. In March 1997 the County completed the bid process and announced their intention to enter into formal negotiations with Gladstone's for a twenty year concession agreement, subject to approval by the County Board of Supervisors. On April 15, 1997 the Board of Supervisors unanimously approved the recommendation to enter into formal negotiations with Gladstone's. 31 32 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - LEASES - CONTINUED Sea View and the County are currently negotiating a new twenty year concession agreement which will commence on November 1, 1997. Based on Sea View's bid, it is anticipated that the new agreement will include minimum annual rental 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 revenue will be payable to the extent the percent rents exceed the minimum annual rents. Sea View also expects that the agreement will require significant renovation to the restaurant but will provide for reduced minimum rents during the period when renovations are undertaken. This reduced rental period will not exceed six months. The new agreement will also require Sea View to post a $2,000,000 letter of credit in favor of the County, as a security deposit. The County may draw upon the letter of credit if Gladstone's fails to pay rent as it comes due. The letter of credit will be reduced as Sea View reaches certain net worth levels. NOTE H - COMMITMENTS AND CONTINGENCIES Employment Agreements: Effective May 21, 1993, the Company entered into employment agreements with Messrs. Redhead and Segal, the Company's Chief Executive Officer and Vice President - Finance, respectively at that time. These employment agreements set forth certain of the terms of employment for each of these individuals, including the right to receive nine 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 Mr. Redhead's agreement is four years and provides for a current base salary of $210,000 subject to annual cost of living adjustments. Mr. Segal's agreement is for three years and provides for a current base salary of $108,000 subject to annual cost of living adjustments. In April 1996, Mr. Segal's agreement was extended for an additional year. The Company's Board of Directors has approved a bonus arrangement for Messrs. Redhead and Segal that is contingent upon (i) execution of a new concession agreement for Gladstone's for a minimum of ten years, on terms acceptable to the Board of Directors, and (ii) the repayment in full of the Company's current debt obligations to Bank of America. Mr. Redhead's bonus will be 1.25 times his annual salary and Mr. Segal's bonus will be 1.0 times his annual salary. The payment of such bonuses, if earned, is subject to the Board's determination that adequate cash resources exist for such payment. The Company has not recorded any expense related to these bonuses as of April 30, 1997, due to the contingent nature of such obligation. 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 of the Company. 32 33 SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED BALANCE SHEETS
APRIL 30, ---------------------------- 1997 1996 ---------- ---------- ASSETS CURRENT ASSETS Cash $ 298,000 $ 300,000 Due from affiliates 845,000 833,000 ---------- ---------- Total current assets 1,143,000 1,133,000 INVESTMENT IN WHOLLY-OWNED SUBSIDIARIES 1,904,000 1,566,000 ---------- ---------- $3,047,000 $2,699,000 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES $ 843,000 $ 822,000 STOCKHOLDERS' EQUITY 2,204,000 1,877,000 ---------- ---------- $3,047,000 $2,699,000 ========== ==========
See notes to condensed financial statements. 33 34 SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONT. CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED APRIL 30, ----------------------------------------- 1997 1996 1995 --------- --------- --------- Sales $ -- $ -- $ -- Costs and Expenses: Selling, general and administrative (Note B) -- -- -- --------- --------- --------- -- -- -- Interest expense -- (38,000) (27,000) Other Income 10,000 10,000 7,000 --------- --------- --------- Income (loss) before income taxes and equity in net loss of subsidiaries 10,000 (28,000) (20,000) Income tax provision(Note C) 21,000 16,000 4,000 Equity in net income (loss) of subsidiaries 338,000 621,000 (855,000) --------- --------- --------- Net income (loss) $ 327,000 $ 577,000 ($879,000) ========= ========= =========
See notes to condensed financial statements. 34 35 SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONT. CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED APRIL 30, --------------------------------------------------- 1997 1996 1995 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (loss) $ 327,000 $ 577,000 ($ 879,000) Adjustments to reconcile net Income (loss) to cash provided by (used in) operations: Equity in (income) loss of subsidiaries (338,000) (621,000) 855,000 Changes in assets and liabilities: Accrued liabilities 21,000 (11,000) 27,000 Due to (from) affiliates (12,000) 189,000 (1,467,000) ----------- ----------- ----------- Cash provided by (used in) operations (2,000) 134,000 (1,464,000) FINANCING ACTIVITIES: Proceeds from the sale of Convertible Preferred Stock -- -- 714,000 Proceeds from issuance of Convertible Notes -- -- 783,000 Net proceeds from Rights Offering -- 79,000 -- Redemption of Convertible Notes -- (203,000) -- ----------- ----------- ----------- Cash provided by financing activities -- (124,000) 1,497,000 ----------- ----------- ----------- Increase (Decrease) in cash (2,000) 10,000 33,000 Cash at beginning of period 300,000 290,000 257,000 ----------- ----------- ----------- Cash at end of period $ 298,000 $ 300,000 $ 290,000 =========== =========== ===========
See notes to condensed financial statements. 35 36 SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONT. CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS NOTE A -- ACCOUNTING POLICIES In the parent company - only financial statements, the Company's investment in its wholly-owned subsidiaries is stated at cost adjusted for equity in undistributed income and losses of the subsidiaries since date of acquisition. Net undistributed losses aggregated $3,909,000 at April 30, 1997. Parent company - - only financial statements should be read in conjunction with the Company's consolidated financial statements. NOTE B -- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES The Company allocates indirect corporate selling, general and administrative expenses to each subsidiary based on the revenues generated by that subsidiary. All revenues were generated by Sea View Restaurants, Inc. for the three years ended April 30, 1997 thus no indirect selling, general and administrative expenses were allocated to the parent company. NOTE C -- INCOME TAXES The Company files its federal and state income tax returns on a consolidated basis. Under a tax sharing agreement California Beach Restaurants, Inc. has with its subsidiaries, the subsidiaries provide for income taxes on a separate basis as if they filed their own income tax returns. Any tax benefit which results from filing consolidated tax returns are recognized by the parent company. 36 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Los Angeles, in the State of California, on July 24, 1997. CALIFORNIA BEACH RESTAURANTS, INC. By:Alan Redhead ----------------------------------------- Alan Redhead, Chief Executive Officer Mark E. Segal ----------------------------------------- Mark E. Segal, Chief Financial 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 July 24, 1997 - ------------------------------------ Executive Officer and Director Alan Redhead (Principal Executive Officer) Mark E. Segal Vice President-Finance July 24, 1997 - ------------------------------------ Chief Financial Officer and Mark E. Segal Secretary (Principal Financial and Accounting Officer) J. Christopher Lewis Director July 24, 1997 - ------------------------------------ J. Christopher Lewis Jefferson W. Asher, Jr. Director July 24, 1997 - ------------------------------------ Jefferson W. Asher, Jr. Scott C. Dew Director July 24, 1997 - ------------------------------------ Scott C. Dew Faisal Shah Director July 24, 1997 - ------------------------------------ Faisal Shah George Nicolais Director July 24, 1997 - ------------------------------------ George Nicolais Barry A. Chase Director July 24, 1997 - ------------------------------------ Barry A. Chase
37 38 INDEX TO EXHIBITS Item 14(a) 3
ITEM SEQUENTIALLY NUMBER DESCRIPTION NUMBERED PAGE - ------ ----------- ------------- 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. (A) 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)* 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)
38 39
ITEM SEQUENTIALLY NUMBER DESCRIPTION NUMBERED PAGE - ------ ----------- ------------- 10.41 Guarantor Confirmation and Amendment dated December 22, 1994 between California Beach Restaurants, Inc. and Bank of America NT & SA(13) 10.42 Stock Purchase Agreement dated December 22, 1994 between California Beach Restaurants, Inc. and Bank of America NT & SA(13) 10.43 Shareholders and Noteholders Agreement dated as of December 22, 1994 among Sand and Sea Partners, Sea Fair Partners and Bank of America NT & SA(13) 10.45 Securities Purchase Agreement dated December 22, 1994 between California Beach Restaurants, Inc. and the purchasers named therein(13) 10.47 California Beach Restaurants, Inc. Omnibus Stock Plan(A)* 10.49 Amended and Restated lease for RJ's dated January 1, 1995 (15) 10.50 Stock Option Agreement between the Registrant and Alan Redhead dated March 13, 1995 (15)* 10.51 Stock Option Agreement between the Registrant and Mark E. Segal dated March 13, 1995 (15)* 10.52 Stock Option Agreement between the Registrant and Jefferson W. Asher, Jr. dated March 13, 1995 (15)* 10.53 First Amendment to Amended and Restated Loan Agreement dated as of August 1, 1995, between Sea View Restaurants, Inc. and Bank of America NT & SA (16) 10.54 Amendment to Stock Purchase Agreement dated as of August 1, 1995 between the Registrant and Bank of America NT & SA (16) 10.55 Amendment No. 1 to executive employment agreement of Mark E. Segal, dated April 30, 1996 (17) * 10.56 Commitment Letter - Finova Capital Corporation re: $3,000,000 Secured Credit Facility (18) 21.1 Subsidiaries of the Registrant (15) 23.1 Consent of Ernst & Young LLP (A) 27.0 Financial Data Schedule (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.** *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. 39 EX-10.18 2 EXHIBIT 10.18 1 EXHIBIT 10.18 AMENDMENT TO REGISTRATION RIGHTS AGREEMENT This AMENDMENT TO REGISTRATION RIGHTS AGREEMENT ("Amendment") dated as of February 25, 1991 is entered into by and among California Beach Restaurants, Inc., a California corporation (the "Company") and the various holders which are parties hereto (collectively, the "Holders," and each, a "Holder"). Whereas, the Company (formerly known as I.H.V. Corp.) and the Holders are parties to that certain Registration Rights Agreement dated as of March 30, 1990 (the "Registration Rights Agreement"); and Whereas, Robert J. Morris ("Morris") and Richard S. Stevens ("Stevens"), the sole shareholders of California Beach Capital, Inc., a California corporation and a Holder ("CBC"), have taken action to dissolve CBC; and Whereas, Morris and Stevens each is a "Holder" as defined in the Registration Rights Agreement; and Whereas, Stevens is resigning as President, Chief Operating Officer and Assistant Secretary of the Company effective upon the occurrence of certain events, including without limitation, the amendment of the Registration Rights Agreement as set forth herein; Now, therefore, based upon the foregoing premises and for good and valuable consideration, the receipt and legal sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Defined Terms. The definition of Shares contained in Section 1.1 (1) is hereby amended to read in its entirety as follows: (g) Shares. The following securities: (i) the shares of Common Stock issued to certain of the Holders pursuant to the Securities Purchase Agreement, (ii) prior to the dissolution of CBC, the 552,041 shares of Common Stock which were issued to CBC in exchange for the transfer by CBC to Sea View Restaurants, Inc., a California corporation and wholly-owned subsidiary of the Company, of various management contracts and other contractual rights, (iii) prior to the dissolution of CBC, the 2,710,204 shares of Common Stock purchased by CBC from Samuel Schulman on June 30, 1989, (iv) the Option Shares, (v) the shares of Common Stock issued to the individuals described on Schedule 1.1(1) attached hereto in the amounts described in such Schedule as of the date hereof, (vi) after the dissolution of CBC, 1,488,368 shares of Common Stock held 2 beneficially and of record by Morris, (vii) after the dissolution of CBC, 1,488,368 shares of Common Stock owned beneficially and of record by Stevens, and (viii) up to an additional 5,000,000 shares of Common Stock issued by the Company or issuable upon exercise of options or warrants or upon conversion of other securities issued by the Company from time to time after the date hereof and designated by the Company in writing as included within the definition of Shares under this Agreement. 2. Continuing Effectiveness. All other terms and provisions of the Registration Rights Agreement not amended hereby shall remain in full force and effect. 3. Counterparts. This Amendment may be executed in two or more counterparts, and by each party on separate counterparts, each of which shall be an original and all of which, taken together, shall constitute one and the same document. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to Registration Rights Agreement as of the date first above written. CALIFORNIA BEACH RESTAURANTS, INC. By: /s/ Alan S. Klee ------------------------------------ By: /s/ Robert J. Morris ------------------------------------ CALIFORNIA BEACH CAPITAL, INC. By: /s/ Richard S. Stevens ------------------------------------ By: /s/ Robert J. Morris ------------------------------------ /s/ Robert J. Morris --------------------------------------- ROBERT J. MORRIS /s/ Richard S. Stevens --------------------------------------- RICHARD S. STEVENS 2 3 SAND AND SEA PARTNERS /s/ J. Christopher Lewis --------------------------------------- By: J. Christopher Lewis General Partner SEA FAIR PARTNERS /s/ J. Christopher Lewis --------------------------------------- By: J. Christopher Lewis General Partner W.R. GRACE & CO. By: /s/ --------------------------------------- Its: Treasurer and Senior Vice President /s/ Eli Broad --------------------------------------- ELI BROAD CUSHMAN/SEA VIEW PARTNERS --------------------------------------- By Cushman/Equities Corporation General Partner By: /s/ Robert W. Schulz ------------------------------------ Robert W. Schulz, President CUSHMAN K/SEA VIEW PARTNERS By Cushman/Equities Corporation General Partner By: /s/ Robert W. Schulz ------------------------------------ Robert W. Schulz, President 3 EX-10.47 3 EXHIBIT 10.47 1 EXHIBIT 10.47 CALIFORNIA BEACH RESTAURANTS, INC. OMNIBUS STOCK PLAN, AS AMENDED JUNE 20, 1997 1. Purpose. The purpose of California Beach Restaurants, Inc.'s Omnibus Stock Plan (the "Plan") is to promote the long term financial interests and growth of California Beach Restaurants, Inc. (the "Company") by (a) attracting and retaining executive personnel, (b) motivating executive personnel by means of growth-related incentives, (c) providing incentive compensation opportunities that are competitive with those of other comparable corporations; and (d) furthering the identity of interests of participants with those of the shareholders of the Company. 2. Definitions. The following definitions are applicable to the Plan: "Affiliate" means any entity in which the Company has a direct or indirect equity interest which is so designated by the Committee. "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute. "Committee" means a committee of two or more directors of the Company who are "Non-Employee Directors" as such term is used in Rule 16b-3 provided that if there are not at least two such directors, Committee means a committee of two or more directors of the Company and in such case any grants or awards hereunder to a participant subject to Section 16 of the Securities Exchange Act of 1934, as amended, shall also be approved by the Board of Directors of the Company. To the extent that it is desired that compensation resulting from a particular award be excluded from the deduction limitation of Section 162(m) of the Code, all directors comprising the Committee granting such award also shall be "outside directors" within the meaning of Code Section 162(m). "common stock" means the common stock, par value $.01, of the Company or such other securities as may be substituted therefor pursuant to paragraph 5(c). The "fair market value" of the common stock shall be determined in accordance with procedures established by the Committee. "participant" means any key employee of, director of, or consultant to the Company or an Affiliate selected by the Committee. "Rule 16b-3" means such rule adopted under the Securities Exchange Act of 1934, as amended, or any successor rule. 2 "Termination Date" means March 9, 2005, the date 10 years from when the Plan was adopted by the Board of Directors of the Company. 3. Limitation on Aggregate Shares. The number of shares of common stock with respect to which awards may be granted under the Plan and which may be issued upon the exercise or payment thereof shall not exceed, in the aggregate, 1,000,000 shares; provided, however, that to the extent any awards expire unexercised or unpaid or are cancelled, terminated or forfeited in any manner without the issuance of shares of common stock thereunder, or if the Company receives any shares of common stock as the exercise price of any award, such shares shall again be available under the Plan. Such 1,000,000 shares of common stock shall be authorized and unissued shares. 4. Awards. The Committee may grant to participants, in accordance with this paragraph 4 and the other provisions of the Plan, stock options, stock appreciation rights ("SARs"), restricted stock and other awards. (a) Options. (i) Options granted under the Plan may be incentive stock options ("ISOs") within the meaning of Section 422 of the Code or any successor provision, or in such other form, consistent with the Plan, as the Committee may determine. ISOs may only be granted to employee participants. (ii) The option price per share of common stock shall be fixed by the Committee at not less than (A) 100% of the fair market value of a share of common stock on the date of grant as to ISOs and (B) the par value of a share of common stock as to other options. (iii) Options shall be exercisable at such time or times as the Committee shall determine at or subsequent to grant. (iv) Options shall be exercised in whole or in part by written notice to the Company (to the attention of the Corporate Secretary) and payment in full of the option price. Payment of the option price may be made, at the discretion of the optionee, and to the extent permitted by the Committee, (A) in cash (including check, bank draft, or money order), (B) in common stock (valued at the fair market value thereof on the date of exercise), (C) by a combination of cash and common stock or (D) with any other consideration. (b) SARs. (i) An SAR shall entitle its holder to receive from the Company, at the time of exercise of such right, an amount equal to the excess of the fair market value (at 2 3 the date of exercise) of a share of common stock over a specified price fixed by the Committee multiplied by the number of shares as to which the holder is exercising the SAR. SARs may be in tandem with any previously or contemporaneously granted option or independent of any option. The specified price of a tandem SAR shall be the option price of the related option. The amount payable may be paid by the Company in common stock (valued at its fair market value on the date of exercise), cash or a combination thereof, as the Committee may determine, which determination shall be made after considering any preference expressed by the holder. (ii) An SAR shall be exercised by written notice to the Company (to the attention of the Corporate Secretary) at any time prior to its stated expiration. To the extent a tandem SAR is exercised, the related option will be cancelled and, to the extent the related option is exercised, the tandem SAR will be cancelled. (c) Restricted Stock. (i) The Committee may award to any participant shares of common stock, subject to this paragraph 4(c) and such other terms and conditions as the Committee may prescribe (such shares being called "restricted stock"). Each certificate for restricted stock shall be registered in the name of the participant and deposited, together with a stock power endorsed in blank, with the Company. (ii) There shall be established for each restricted stock award a restriction period (the "restriction period") of such length as shall be determined by the Committee. Shares of restricted stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as hereinafter provided, during the restriction period. Except for such restrictions on transfer and such other restrictions as the Committee may impose, the participant shall have all the rights of a holder of common stock as to such restricted stock. The Committee, in its sole discretion, may permit or require the payment of cash dividends to be deferred and, if the Committee so determines, reinvested in additional restricted stock or otherwise invested. At the expiration of the restriction period, the Company shall redeliver to the participant (or the participant's legal representative or designated beneficiary) the certificates deposited pursuant to this paragraph. (iii) Except as provided by the Committee at the time of grant or otherwise, upon termination of employment for any reason during the restriction period all shares still subject to restriction shall be forfeited by the participant. (d) Other Awards. (i) Other awards, including, without limitation, performance shares, convertible debentures, other convertible securities and other forms of awards 3 4 measured in whole or in part by the value of shares, the performance of the participant or the performance of the Company, may be granted under the Plan. Such awards may be payable in common stock, cash or both, and shall be subject to such restrictions and conditions, as the Committee shall determine. At the time of such an award, the Committee shall, if applicable, determine a performance period and performance goals to be achieved during the performance period, subject to such later revisions as the Committee shall deem appropriate to reflect significant unforeseen event such as changes in laws, regulations or accounting practices, unusual or non-recurring items or occurrences. Following the conclusion of each performance period, the Committee shall determine the extent to which performance goals have been attained or a degree of achievement between maximum and minimum levels during the performance period in order to evaluate the level of payment to be made, if any. (ii) A participant may elect to defer all or a portion of any such award in accordance with procedures established by the Committee. Deferred amounts will be subject to such terms and conditions and shall accrue such yield thereon (which may be measured by the fair market value of the common stock and dividends thereon) as the Committee may determine. Payment of deferred amounts may be in cash, common stock or a combination thereof, as the Committee may determine. Deferred amounts shall be considered an award under the Plan. The Committee may establish a trust to hold deferred amounts or any portions thereof for the benefit of participants. (e) Cash Payments. SARs and options which are not ISOs 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 paragraph 4(e). 5. Miscellaneous Provisions. (a) Administration. The Plan shall be administered by the Committee. Subject to the limitations of the Plan, the Committee shall have the sole and complete authority: (i) to select participants in the Plan, (ii) to make awards in such forms and amounts as it shall determine, (iii) to 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 hereunder 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 Committee's determinations on matters within its authority shall be conclusive and binding upon the Company and all other persons. All expenses associated with the Plan shall be borne by the Company, subject to such allocation to its Affiliates and operating units as it deems appropriate. 4 5 The Committee may, to the extent that any such action will not prevent awards to participants subject Section 16 of the Securities Exchange Act of 1934, as amended, from complying with Rule 16b-3, delegate any of its authority hereunder to such persons as it deems appropriate. (b) Non-Transferability. Subject to the provisions of paragraph 5(f), and except as otherwise provided by the Committee at the time of grant or thereafter no award under the Plan, and no interest therein, shall be transferable by the participant otherwise than by will or the laws of descent and distribution. Except as otherwise provided by the Committee, all awards shall be exercisable or received during the participant's lifetime only by the participant or the participant's legal representative. Any purported transfer contrary to this provision will nullify the award. (c) Adjustments Upon Certain Changes. In the event of a merger, consolidation, reorganization, recapitalization, spinoff, 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 may, in order to prevent the dilution or enlargement of rights under awards, make such adjustments in the number and type of shares authorized by the Plan, 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 Company. (d) Tax Withholding. The Committee shall have the power to withhold, or require a participant to remit to the Company, an amount sufficient to satisfy any withholding or other tax due with respect to any amount payable and/or shares issuable under the Plan, and the Committee may defer such payment or issuance unless indemnified to its satisfaction. Subject to the consent of the Committee, a participant may make an irrevocable election to have shares of common stock otherwise issuable under an award withheld, tender back to the Company shares of common stock received pursuant to an award or deliver to the Company previously acquired shares of common stock having a fair market value sufficient to satisfy all or part of the participant's estimated tax obligations associated with the transaction. Such election must be made by a participant prior to the date on which the relevant tax obligation arises. The Committee may disapprove of any election and may limit, suspend or terminate the right to make such elections. 5 6 (e) Listing and Legal Compliance. The Committee may suspend the exercise or payment of any award so long as it determines that securities exchange listing or registration or qualification under any securities laws is required in connection therewith and has not been completed on terms acceptable to the Committee. (f) Beneficiary Designation. Subject to paragraph 5(b), participants may name, from time to time, beneficiaries (who may be named contingently or successively) to whom benefits under the Plan are to be paid in the event of their death before they receive any or all such benefit. Each designation will revoke all prior designations by the same participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the participant in writing with the Committee during the participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the participant's death shall be paid to the participant's estate. (g) Rights of Participants. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any participant's employment at any time, nor confer upon any participant any right to continue in the employ of the Company for any period of time or to continue his or her present or any other rate of compensation. No employee shall have a right to be selected as a participant, or, having been so selected, to be selected again as a participant. (h) Amendment, Suspension and Termination of 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 shall 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 shall terminate no later than the Termination Date, and no awards may be granted thereafter to any participant. No such amendment, suspension or termination shall impair the rights of participants under outstanding awards without the consent of the participants affected thereby or make any change that would disqualify awards to participants subject to Section 16 of the Securities Exchange Act of 1934, as amended, 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 shall impair the rights of any participant under any award without the consent of such participant. 6 EX-23.1 4 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-97554) pertaining to the Omnibus Stock Plan of California Beach Restaurants, Inc. of our report dated June 6, 1997, with respect to the consolidated financial statements and schedules of California Beach Restaurants, Inc. included in the Annual Report (Form 10-K) for the year ended April 30, 1997. ERNST & YOUNG LLP Los Angeles, California July 24, 1997 40 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR APR-30-1997 MAY-01-1996 APR-30-1997 1,101,000 0 51,000 0 286,000 1,672,000 3,679,000 (2,604,000) 5,078,000 2,874,000 0 0 0 34,000 2,170,000 5,078,000 15,164,000 15,164,000 12,438,000 14,126,000 688,000 0 2,000 348,000 21,000 327,000 0 0 0 327,000 .10 .10
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