-----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, D5ECz7fmKuNKxQb/3gYIg/PhPBYU2DDB/DWymrwUYAmZzXkbLT7I/QZOylqyb4Gt bSzJu50EF337tjj7dtUNWw== 0001019687-03-000539.txt : 20030324 0001019687-03-000539.hdr.sgml : 20030324 20030324134208 ACCESSION NUMBER: 0001019687-03-000539 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030131 FILED AS OF DATE: 20030324 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12226 FILM NUMBER: 03613546 BUSINESS ADDRESS: STREET 1: 17383 SUNSET BLVD STE 140 CITY: PACIFIC PALISADES STATE: CA ZIP: 90272 BUSINESS PHONE: 3104599676 MAIL ADDRESS: STREET 1: 17351 SUNSET BLVD STE 404 STREET 2: 17351 SUNSET BLVD STE 404 CITY: PACIFIC PALISADES STATE: CA ZIP: 90272 FORMER COMPANY: FORMER CONFORMED NAME: NATURAL ORGANICS INC DATE OF NAME CHANGE: 19860318 FORMER COMPANY: FORMER CONFORMED NAME: IHV CORP DATE OF NAME CHANGE: 19900912 10-Q 1 calbeach_10q-013103.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ( X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2003 ---------------------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------ ------------------ Commission file number 0-12226 CALIFORNIA BEACH RESTAURANTS, INC. ---------------------------------- (Exact name of Registrant as specified in its charter) CALIFORNIA 95-2693503 ---------- ---------- (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 17383 Sunset Boulevard, Suite 140, Pacific Palisades, CA 90272 -------------------------------------------------------------- (Address and zip code of Principal executive offices) (310) 459-9676 --------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to the filing requirements for at least the past 90 days. Yes X No ------------ ------------- Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes No X ------------ ------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: Number of Shares Outstanding Class at March 14, 2003, ----- ------------------ Common Stock, $.01 par value 3,401,191 - ---------------------------- ------------------------- CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES JANUARY 31, 2003 INDEX Part I - FINANCIAL INFORMATION Page Number ----------- Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets at January 31, 2003 and April 30, 2002............................................3 Consolidated Statements of Operations for the Three Months Ended and Nine Months Ended January 31, 2003 and 2002.....................................5 Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2003 and 2002 .................6 Notes to Consolidated Financial Statements....................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........................11 Item 3. Quantitative and Qualitative Disclosures about Market Risk...18 Item 4. Controls and Procedures......................................18 Part II - OTHER INFORMATION Item 1. Legal Proceedings............................................18 Item 2. Changes in Securities and Use of Proceeds....................18 Item 3. Defaults Upon Senior Securities..............................19 Item 4. Submission of Matters to a Vote of Security Holders..........19 Item 5. Other Information............................................19 Item 6. Exhibits and Reports on Form 8-K.............................19 Signature Page..........................................................20 2 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS January 31, 2003 April 30, 2002 ---------------- -------------- (Unaudited) (1) Current Assets: Cash and cash equivalents $ 57,000 $ 284,000 Restricted cash 438,000 -- Trade and other receivables 60,000 48,000 Inventories 178,000 234,000 Prepaid expenses 193,000 349,000 ---------- ---------- Total current assets 926,000 915,000 Fixed assets (at cost) - net of accumulated depreciation and amortization 2,096,000 2,387,000 Other assets 125,000 138,000 ---------- ---------- $3,147,000 $3,440,000 =========== =========== The accompanying notes to consolidated financial statements are an integral part of this statement. (1) The April 30, 2002 amounts have been extracted from the Company's Annual Report on Form 10-K for the year ended April 30, 2002. 3 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' DEFICIT
January 31, 2003 April 30, 2002 ------------- ------------- (Unaudited) (1) Current Liabilities: Revolving line of credit $ -- $ 37,000 Current portion of note payable 248,000 228,000 Current portion - Standard Parking 38,000 -- Notes payable- related parties 1,215,000 -- Subordinated convertible notes 1,985,000 -- Accounts payable 419,000 965 000 Accrued liabilities 970,000 622,000 Accrual for disposal of location 9,000 318,000 ------------- ------------- Total current liabilities 4,884,000 2,170,000 Note payable, less current portion 176,000 365,000 Notes payable- related parties -- 440,000 Notes payable-Standard Parking 250,000 -- Deferred rent 322,000 339,000 Other liabilities 6,000 9,000 Subordinated convertible notes -- 1,985,000 Stockholders' Deficit: Preferred stock, no par value, authorized 1,818,755 shares, none issued and outstanding at April 30, 2002 and January 31, 2003 -- -- Common stock, $.01 par value, authorized 25,000,000 shares, issued and outstanding, 3,401,000 shares at January 31, 2003 and at April 30, 2002 34,000 34,000 Additional paid-in capital 13,175,000 13,175,000 Accumulated deficit (15,700,000) (15,077,000) ------------- ------------- Total stockholders' deficit (2,491,000) (1,868,000) ------------- ------------- $ 3,147,000 $ 3,440,000 ============= =============
The accompanying notes to consolidated financial statements are an integral part of this statement. (1) The April 30, 2002 amounts have been extracted from the Company's Annual Report on Form 10-K for the year ended April 30, 2002. 4 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended January 31, January 31, ------------- ------------- 2003 2002 2003 2002 ---- ---- ---- ---- Sales $ 2,610,000 $ 2,836,000 $ 9,034,000 $ 9,999,000 Costs and expenses: Cost of goods sold 2,741,000 3,027,000 8,272,000 9,291,000 Selling, general and administrative 484,000 247,000 890,000 657,000 Depreciation and amortization 100,000 140,000 275,000 350,000 ------------ ------------ ------------ ------------ Operating loss (715,000) (578,000) (403,000) (299,000) Interest expense (89,000) (30,000) (219,000) (120,000) ------------ ------------ ------------ ------------ Loss before income taxes (804,000) (608,000) (622,000) (419,000) Provision for income taxes -- 6,000 -- (5,000) ------------ ------------ ------------ ------------ Net loss $ (804,000) $ (602,000) $ (622,000) $ (414,000) ============ ============ ============ ============ Net loss per common share (basic and diluted): $ (.24) $ (.18) $ (.18) $ (.12) ============ ============ ============ ============ Weighted average number of common shares outstanding: Basic and diluted 3,401,000 3,401,000 3,401,000 3,401,000 ============ ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 5 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JANUARY 31, (UNAUDITED) 2003 2002 ---------- ---------- Cash flows from operating activities: Net loss $(622,000) $(414,000) Adjustments to reconcile net loss to cash used in operations: Depreciation and amortization 275,000 350,000 Changes in operating assets and liabilities: Trade and other receivables (12,000) (55,000) Inventories 56,000 -- Prepaid expenses 156,000 75,000 Other assets 13,000 (4,000) Accrual for disposal of location (181,000) -- Accounts payable (547,000) (107,000) Accrued liabilities 348,000 (126,000) Deferred rent (17,000) (17,000) Other liabilities (3,000) (9,000) ---------- ---------- Cash used in operations (534,000) (307,000) ---------- ---------- Investing activities: Additions to fixed assets (112,000) (35,000) Increase in restricted cash (438,000) _ ---------- ---------- Net cash used in investing activities (550,000) (35,000) ---------- ---------- Financing activities: Borrowings from notes payable-related parties and increase in Subordinated debt 775,000 499,000 Borrowings-Standard Parking note 300,000 -- Principal payments on borrowings (218,000) (146,000) ---------- ---------- Net cash provided by financing activities 857,000 353,000 ---------- ---------- Net (decrease) increase in cash (227,000) 11,000 Cash and cash equivalents at beginning of period 284,000 221,000 ---------- ---------- Cash and cash equivalents at end of period $ 57,000 $ 232,000 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 151,000 $ 120,000 ========== ========== Income taxes $ -- $ -- The accompanying notes to consolidated financial statements are an integral part of this statement 6 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The unaudited consolidated financial statements presented herein include the accounts of California Beach Restaurants, Inc., and its wholly-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated. Restaurant operations include the results of Gladstone's 4 Fish in Pacific Palisades, California, and RJ's - Beverly Hills in Beverly Hills, California through June 21, 2002. Effective June 21, 2002, the Company ceased operations at RJ's. The Company reviewed the on going results at RJ's and determined that the negative contribution over the last several years was likely to continue. Given the continuing losses at RJ's, which amounted to $265,000 in fiscal year 2002, and $27,000 in the quarter ended July 31, 2002, combined with current working capital constraints, the Company negotiated with the landlord to vacate the premises. The landlord has sublet the property at a rent equivalent to the Company's current lease rate. The Company has a guarantee through December 31, 2004 requiring payment of the monthly rental payments in the event that the new lessee fails to make payments and the new lessee's deposits are inadequate to cover the remaining payments. The Company has sold the RJ's trademark to the new tenant. For the year ended April 30, 2002, the Company recorded a loss of $318,000 related to provision for closing RJ's, including accruing for costs associated with shutting down the restaurant including fees to the landlord and other professionals. The revenues and operating loss for RJ's were $1,401,702 and $265,000 in 2002, $1,715,650 and $146,000 in 2001, and $1,643,274 and $108,000 in 2000, respectively. Revenues and operating losses for RJ's were $168,490 and $2,132 in the first quarter of fiscal 2003, and $365,979 and $57,427 in the first quarter of fiscal 2002, respectively. The unaudited consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the Company's financial position and results of operations. The results of operations for the nine-month period ended January 31, 2003 may not be indicative of the results that may be expected for the year ending April 30, 2003. These statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K for the year-ended April 30, 2002. NOTE 2 - BASIC AND DILUTED EARNINGS PER COMMON SHARE The Company presents two earnings per share amounts, basic earnings per common share and diluted earnings per common share. Basic earnings per common share includes only the weighted average shares outstanding and excludes the dilutive effect of options, warrants and convertible securities. Subordinated convertible notes are convertible into common stock at a rate of $1 per share and thus have 7 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIC AND DILUTED (LOSS) PER COMMON SHARE (CONTINUED) a potential for dilution on earnings. However, because of the net loss in both three and nine months ended January 31,2003 and 2002 these notes had an anti-dilutive effect. Therefore the Company has not presented the diluted earnings per share amounts. Nine Months Ended Jan. 31, 2003 Jan. 31, 2002 ------------ ------------ BASIC AND DILUTED (LOSS) PER COMMON SHARE: Net income available to common shareholders $ (622,000) $ (414,000) Weighted average shares outstanding 3,401,000 3,401,000 ------------ ------------ Basic and diluted (loss) per common share $ (0.18) $ (0.12) ============ ============ Three Months Ended Jan. 31, 2003 Jan. 31, 2002 ------------ ------------ BASIC AND DILUTED (LOSS) PER COMMON SHARE: Net income available to common shareholders $ (804,000) $ (602,000) Weighted average shares outstanding 3,401,000 3,401,000 ------------ ------------ Basic and diluted (loss) per common share $ (0.24) $ (0.18) ============ ============ NOTE 3 - ACCOUNTING PERIODS The Company's restaurant operations are conducted through its wholly owned subsidiary, Sea View Restaurants, Inc. ("Sea View"). The Company's consolidated financial statements for the three months and nine months ended January 31, 2003 and 2002 include Sea View's operations for the sixteen weeks and forty weeks ended February 06, 2003 and February 07, 2002, respectively. NOTE 4 - FIXED ASSETS January 31, 2003 April 30, 2002 ---------------- -------------- Leasehold improvements 4,012,000 4,656,000 Furniture and equipment 1,923,000 2,184,000 ------------ ------------ 5,935,000 6,840,000 Less accumulated depreciation and amortization (3,839,000) (4,453,000) ------------ ------------ $ 2,096,000 $ 2,387,000 ============ ============ 8 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5 - NOTES PAYABLE On March 30, 1999, the Company completed a private offering of $1,800,000 of subordinated, convertible notes ("Subordinated Notes") to a limited number of existing shareholders of the Company who are "accredited investors" within the meaning of Regulation D promulgated under the Securities Act of 1933, as amended. The proceeds of the offering were used to retire existing indebtedness to Outside LLC (as defined therein), and to finance the renovations at Gladstone's. The Subordinated Notes are immediately convertible into common stock of the Company at a rate of $1 per share, and pay interest at 5% per annum, except as adjusted as described below. The Company may pay interest on the Subordinated Notes in cash or in kind. All interest due as of March 30, 2001, $90,000, and March 30, 2002, $95,000, was paid in kind by issuing notes with identical terms to the Subordinated Notes. On March 6, 2002 an amendment to the note purchase agreement was entered into to provide that the Subordinated Notes may not be voluntarily prepaid by the Company as to principal and interest without the consent of note holder and will mature as to principal and accrued interest on October 1, 2003 instead of the March 25, 2003. Also, the interest rate was increased to 7.5% per annum (1) with respect to 50% of the principal amount of the Subordinated Notes, for the period commencing April 1, 2002 until March 31, 2003; and (2) with respect to one hundred percent (100%) of the principal amount of the Subordinated Notes for the period commencing April 1, 2003 until the maturity date. The payment of the principal and interest on the Subordinated Notes is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation (Senior Debt). The Company does not anticipate that it will be able to repay the Subordinated Notes when they mature. The Company will seek to extend or renew the Subordinated Notes or convert the Subordinated Notes into equity. Currently the Company has begun these negotiations, but there can be no assurance the Company will be able to successfully negotiate these revised terms. As of January 31, 2003, the Company owed $1,985,000 of principal plus $101,000 of accrued interest. On October 19, 1999, the Company entered into an agreement for tenant improvement and equipment financing with Lyon Credit Corporation ("TI Facility") of $1,089,000 to be repaid over a 5-year period with interest at the rate of 9.94%. The Company paid $58,000 on the principal balance in the quarter ended January 31, 2003. At January 31, 2003, the balance due under the TI Facility was $424,000. On March 19, 2002, the Company and U.S. Bank amended the terms of the revolving line of credit agreement decreasing the maximum borrowing amount from $500,000 to $475,000. The agreement requires the Company to comply with certain cash flow and liquidity covenants. The Company utilized $437,500 of the capacity of the revolving line of credit as collateral support for a letter of credit issued by U.S. Bank pursuant to the Concession Agreement. The letter of credit expired on September 15, 2002. The Company was in violation of a covenant and obtained forbearance from the bank through December 15, 2002 provided the Company made cash collateral payments of $437,500. As of January 31, 2003 the Company made the full amount of collateral payments of $437,500 in a restricted account at U.S. Bank. 9 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5 - NOTES PAYABLE, CONTINUED On October 2, 2002, the Company extended the terms of the agreement with Gladstone's parking lot operator, Standard Parking, for a fixed term of six years, from January 1, 2003, through December 31, 2008. In addition the parking lot operator loaned to the Company $300,000 (the " Loan Amount"). This Loan Amount, plus interest at the greater of (a) ten percent (10%) or (b) the prime rate of interest as published in The Wall Street Journal, plus three percent (3%), is to be repaid in equal monthly installments over the six year extended term from parking lot revenue. NOTE 6 - NOTES PAYABLE-RELATED PARTIES On December 6, 2001, the Company entered into a senior subordinated agreement with RLH Surf, an entity affiliated with J. Christopher Lewis who is the general partner and limited partner of Sand and Sea Partners and Sea Fair Partners, the Company's largest shareholder. The agreement provides for a loan in the amount of up to $500,000 with annual interest rate of 15% on the outstanding principal balance of the note. The payment of the principal and interest on this note is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation and the due date has been extended from September 2002 to May 15, 2003. As of January 31, 2003 the Company owed $440,000 of principal plus $ 59,000 of accrued interest. Given the Company's cash flow it may not have enough cash to pay this obligation and will seek to change the maturity date. On November 6, 2002, the Company entered into a senior subordinated agreement with RLH Surf. The agreement provides for a loan in the amount of $275,000 with annual interest rate of 15% on the outstanding principal balance of the note. The payment of the principal and interest on this note is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation. As of January 31, 2003 the Company owed $275,000 of principal plus $10,000 of accrued interest. The due date has been extended from September 2002 to May 15, 2003. Given the Company's cash flow it may not have enough cash to pay this obligation and will seek to change the maturity date. On January 23, 2003, the Company entered into a senior subordinated agreement with RLH Surf. The agreement provides for a loan in the amount of $500,000 with annual interest rate of 15% on the outstanding principal balance of the note. The payment of the principal and interest on this note is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation. As of January 31, 2003 the Company owed $500,000 of principal plus $3,000 of accrued interest. The due date has been extended from September 2002 to May 15, 2003. Given the Company's cash flow it may not have enough cash to pay this obligation and will seek to change the maturity date. 10 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES - ---------------------------- On December 12, 2001, the Securities and Exchange Commission (SEC) issued a financial reporting release, "Cautionary Advice Regarding Disclosure about Critical Accounting Policies" ("FR-60"). The SEC alerted public companies to the need for improved disclosures about critical accounting policies. FR-60 defines "critical accounting policies" as those most important to the financial statement presentation and that require the most difficult, subjective, complex judgments. The SEC announced an expectation that public companies would provide disclosures responsive to FR-60, including disclosures in Management's Discussion and Analysis, in annual reports for fiscal years ending on or after December 31, 2001. Due to the nature of the business, few critical accounting policies are applicable and no subjective, complex judgments have been made by the Company with respect to accounting estimates. The critical accounting policies of the Company are disclosed in Note 2 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10K for the year ended April 30, 2002. The Company's restaurant operations are conducted through its wholly-owned subsidiary, Sea View Restaurants, Inc. ("Sea View"). The Company's consolidated financial statements for the three months and nine months ended January 31, 2003 and 2002 include Sea View's operations for the sixteen weeks and forty weeks ended February 6, 2003 and February 7, 2002, respectively. RESTAURANT REVENUES - ------------------- Restaurant operations include the results of Gladstone's 4 Fish ("Gladstone's") in Pacific Palisades, California and RJ's - Beverly Hills in Beverly Hills, California-through June 21, 2002. Effective June 21, 2002, the Company ceased operations at RJ's. The Company reviewed the on going results at RJ's and determined that the negative contribution over the last several years was likely to continue. Given the continuing losses at RJ's, which amounted to $265,000 in fiscal year 2002, and $27,000 in the quarter ended July 31, 2002, combined with current working capital constraints, the Company negotiated with the landlord to vacate the premises. The landlord has sublet the property at a rent equivalent to the Company's current lease rate. The Company has a guarantee through December 31, 2004 requiring payment of the monthly rental payments in the event that the new lessee fails to make payments and the new lessee's deposits are inadequate to cover the remaining payments. The Company has sold the RJ's trademark to the new tenant. For the year ended April 30, 2002, the Company recorded a loss of $318,000 related to provision for closing RJ's, including accruing for costs associated with shutting down the restaurant including fees to the landlord and other professionals. The revenues and operating loss for RJ's were $1,401,702 and $265,000 in 2002, $1,715,650 and $146,000 in 2001, and $1,643,274 and $108,000 in 2000, respectively. Revenues and operating losses for RJ's were 11 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESTAURANT REVENUES, CONTINUED - ------------------------------ $168,490 and $2,132 in the first quarter of fiscal 2003, and $365,979 and $57,427 in the first quarter of fiscal 2002, respectively. Total sales for Gladstone's for the three months ended January 31, 2003 were $2,610,000 compared with $2,416,000 for the same period last year, an increase of $194,000 or 8%. RJ's sales for the three months ended January 31, 2002 were $420,000. For the nine months ended January 31, 2003, total sales for Gladstone's were $8,866,000 compared with $8,890,000 for the same period last year, a decrease of $24,000 or .3%. RJ's sales for the nine months ended January 31, 2003 were $168,000 compared with $1,109,000 for the same period last year. The current economic recession has significantly impacted sales and cash flow for the third quarter of fiscal year 2003. Historically as a result of typically more favorable weather and higher tourism during the summer months from May through September, the Registrant's sales and operating profits have been higher in the first and second quarters of its fiscal year. COST OF GOODS SOLD - ------------------ Cost of goods sold includes all food, beverages, liquor, direct labor and other operating expenses, including rent, of the Registrant's restaurant operations. Cost of goods sold for Gladstone's for the three months ended January 31, 2003 was $2,741,000, or, as a percentage of sales, 105% compared with $2,563,000, or, as a percentage of sales, 106.1% during the same period last year. RJ's cost of goods sold for the three months ended January 31, 2002 were $464,000. Cost of goods sold for Gladstone's for the nine months ended January 31, 2003 was $8,119,000, or, as a percentage of sales, 91.6% compared with $8,066,000, or, as a percentage of sales, 90.7% during the same period last year. RJ's cost of goods sold the the nine months ended January 31, 2003 were $153,000 compared with $1,225,000 for the same period last year. The decrease in cost of goods sold as a percentage of sales compared with same period last year is attributable to the decreases in general liability insurance, property taxes, and utilities as a percentage of sales. Cost of goods sold will typically be slightly lower during the first and second quarters due to additional economies of scale that can be achieved with labor and certain other costs when sales levels are higher. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - -------------------------------------------- For the three months ended January 31, 2003, selling, general and administrative expenses were $484,000 compared with $247,000 for the same period last year, an increase of $237,000 or 95.9%. For the nine months ended January 31, 2003, selling, general and administrative expenses were $890,000 compared with $657,000 for the same period last year, an increase of $233,000 or 35.5%. The increase in selling, general and administrative expenses for the three and nine month periods ended January 31, 2003 as compared to the comparable periods in the 12 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. prior year is primarily attributable to the severance benefits of $82,000 accrued for the Company's former Chief Executive Officer, Alan Redhead, and legal expenses of $170,000 related to financing and other corporate matters. DEPRECIATION AND AMORTIZATION - ----------------------------- For the three and nine months ended January 31, 2003, depreciation expense was $100,000 and $275,000, respectively, compared with $140,000 and $350,000, respectively, for the same periods last year. The decrease is mainly attributable to the disposal of RJ's assets. INTEREST EXPENSE - ---------------- For the three and nine months ended January 31, 2003, interest expense was $89,000 and $218,000, respectively. Interest expense for the three and nine months ended January 31, 2002 was $30,000 and $120,000, respectively. The increase in interest expense for the three and nine month periods ended January 31, 2003,as compared to the comparable periods in the prior year, is attributable primarily to the interest on the notes payable to RLH Surf, a related party. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Effective June 21, 2002, the Company ceased operations at RJ's. The Company reviewed the on going results at RJ's and determined that the negative contribution over the last several years was likely to continue. The losses at RJ's in fiscal 2002 were $265,000 in fiscal 2002 and for the first quarter of fiscal 2003 were $2,000. The Company has not made interest payments aggregating $72,000 on debt of $1,215,000 to related parties, and $101,000 on related to subordinated convertible notes in the amount of $1,985,000, respectively. The Company will likely not have sufficient cash flow from operations to make the scheduled principal payments. The Company has in the past relied upon the related parties to renegotiate the terms of outstanding obligations, defer interest payments and extend principal maturities. There is no assurance these related parties will be willing to amend agreements in the future. The Company's obligations are discussed in further detail below. On March 30, 1999, the Company completed a private offering of $1,800,000 of subordinated, convertible notes ("Subordinated Notes") to a limited number of existing shareholders of the Company who are "accredited investors" within the meaning of Regulation D promulgated under the Securities Act of 1933, as amended. The proceeds of the offering were used to retire existing indebtedness to Outside LLC (a party affiliated with the Chairman of the Board of the Company), and to finance the renovations at Gladstone's. The Subordinated Notes are immediately convertible into common stock of the Company at a rate of $1 per share, and pay interest at 5% per annum, except as adjusted as described below. The Company may pay interest on the Subordinated Notes in cash or in kind. All interest due as of March 30, 2001, $90,000, and March 30, 2002, $95,000, was paid in kind by issuing notes with identical terms to the Subordinated Notes. On March 6, 2002 an amendment to the note purchase agreement was entered into to provide that the Subordinated Notes may not be voluntarily prepaid by the Company as to principal and interest without the consent of the note holder and will mature as to principal and accrued interest on October 1, 2003 instead of 13 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. LIQUIDITY AND CAPITAL RESOURCES, CONTINUED - ------------------------------------------ the March 25, 2003. Also, the interest rate was increased to 7.5% per annum (1) with respect to 50% of the principal amount of the Subordinated Notes, for the period commencing April 1, 2002 until March 31, 2003; and (2) with respect to one hundred percent (100%) of the principal amount of the Subordinated Notes for the period commencing April 1, 2003 until the maturity date. The payment of the principal and interest on the Subordinated Notes is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation (Senior Debt). The Company does not anticipate that it will be able to repay the Subordinated Notes when they mature. The Company will seek to extend or renew the Subordinated Notes or convert the Subordinated Notes into equity. Currently the Company has begun these negotiations, but there can be no assurance the Company will be able to successfully negotiate these revised terms. As of January 31, 2003, the Company owed $1,985,000 of principal plus $101,000 of accrued interest. On October 19, 1999, the Company entered into an agreement for tenant improvement and equipment financing with Lyon Credit Corporation ("TI Facility") of $1,089,000 to be repaid over a 5-year period with interest at the rate of 9.94%. The Company paid $58,000 on the principal balance in the quarter ended January 31, 2003. At January 31, 2003, the balance due under the TI Facility was $424,000, of which $176,000 is long term and $248,000 is short term debt. On December 6, 2001, the Company entered into a senior subordinated agreement with RLH Surf, an entity affiliated with J. Christopher Lewis who is the general partner and limited partner of Sand and Sea Partners and Sea Fair Partners, the Company's largest shareholder. The agreement provides for a loan in the amount of up to $500,000 with annual interest rate of 15% on the outstanding principal balance of the note. The payment of the principal and interest on this note is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation and the due date has been extended from September 2002 to May 15, 2003. As of January 31, 2003 the Company owed $440,000 of principal plus $ 59,000 of accrued interest. Given the Company's cash flow it may not have enough cash to pay this obligation and will seek to change the maturity date. On March 19, 2002, the Company and U.S. Bank amended the terms of the revolving line of credit agreement decreasing the maximum borrowing amount from $500,000 to $475,000. The agreement requires the Company to comply with certain cash flow and liquidity covenants. The Company utilized $437,500 of the capacity of the revolving line of credit as collateral support for a letter of credit issued by U.S. Bank pursuant to the Concession Agreement. The letter of credit expired on September 15, 2002. The Company was in violation of a covenant and obtained forbearance from the bank through December 15, 2002 provided the Company made cash collateral payments of $437,500. As of January 31, 2003 the Company made the full amount of collateral payments of $437,500 in a restricted account at U.S. Bank. On October 2, 2002, the Company extended the terms of the agreement with Gladstone's parking lot operator, Standard Parking, for a fixed term of six years, from January 1, 2003, through December 31, 2008. In addition the parking lot operator loaned to the Company $300,000 referred to as " Loan Amount". This Loan, the Amount, plus interest at the greater of (a) ten percent (10%) or (b) 14 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. LIQUIDITY AND CAPITAL RESOURCES, CONTINUED - ------------------------------------------ the prime rate of interest as published in The Wall Street Journal, plus three percent (3%) will be paid back in equal monthly installments over the six year extended term from parking lot revenue. On November 6, 2002, the Company entered into a senior subordinated agreement with RLH Surf. The agreement provides for a loan in the amount of $275,000 with annual interest rate of 15% on the outstanding principal balance of the note. The payment of the principal and interest on this note is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation. As of January 31, 2003 the Company owed $275,000 of principal plus $10,000 of accrued interest. The due date of the loan has been extended to May 15, 2003. Given the Company's cash flow it may not have enough cash to pay this obligation and will seek to change the maturity date. On January 23, 2003, the Company entered into a senior subordinated agreement with RLH Surf. The agreement provides for a loan in the amount of $500,000 with annual interest rate of 15% on the outstanding principal balance of the note. The payment of the principal and interest on this note is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation. As of January 31, 2003 the Company owed $500,000 of principal plus $3,000 of accrued interest. The due date of the loan has been extended to May 15, 2003. Given the Company's cash flow it may not have enough cash to pay this obligation and will seek to change the maturity date. In December 2002, "Sea View" sold food, beverages, goods and/or services credits amounting to $375,000 to iDine Restaurant Group, Inc., for which iDine paid $187,500. Such credit obligations were guaranteed by the Company and are secured by the assignment of certain assets of "Sea View" and the Company. "Sea View" operates Gladstone's pursuant to a 20-year Concession Agreement with the County of Los Angeles ("County") that commenced November 1, 1997 ("Concession Agreement") following the expiration of its prior agreement. In January 2003, the County sent "Sea View" a notice of default under the Concession Agreement for back rent and interest in the aggregate amount of approximately $310,000. Sea View has cured this default by paying the required amount to the County. The Company and Pendragon Partners, LLC ("Pendragon"), an entity affiliated with Alan Redhead, a director of the Company and its former Chief Executive Officer, are parties to a Master Agreement relating to the use of Gladstone's trade name and trademarks at up to three restaurants (each pursuant to a standard form of license agreement). The Long Beach, California restaurant that the Company's affiliate, Gladstone's 4 Fish, LLC, intended to manage will be included under this arrangement; however, the Company will solely be a licensor of its trademarks and, pursuant to the Master Agreement, the Company will seek to transfer to Pendragon the obligations of Gladstone's 4 Fish, LLC in connection with the proposed Long Beach Restaurant. (If the Company is not successful in transferring such obligations to Pendragon, this could have a material adverse effect on the Company.) Under the Master Agreement, if the Long Beach restaurant 15 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. LIQUIDITY AND CAPITAL RESOURCES, CONTINUED - ------------------------------------------ generates $5,000,000 in gross sales for any 12 month period, Pendragon will have the right to develop two additional restaurants in the territory of California, Hawaii and Nevada; provided, however, that Pendragon will not have the right to develop any such restaurant (a) within a 20 mile radius of the Gladstone's restaurant located in Malibu, California or (b) within a 10 mile radius of (i) the Gladstone's restaurant located in Universal City, California, or (ii) any restaurants which the Company may hereafter own, operate, manage, develop or license. The Company will receive an initial fee of $100,000 for each restaurant opened by Pendragon, as well as an additional 1% of gross sales from each such restaurant, which fee will increase to 2% of gross sales from each restaurant for gross sales in excess of $5,000,000 for any calendar year. The Master Agreement will terminate on the earlier to occur of the following: (i) the date upon which Pendragon opens, or causes to be opened, three restaurants, and (ii) in January 2008, unless the Company has not approved the development of at least three restaurants (and has rejected the development of at least one proposed site) by such date, in which event such date will be extended by one year to January 2009. If Pendragon requests permission to develop a restaurant at a proposed site and such development is not approved by the Company, then for two years following the disapproval of such proposed site, the Company will not, directly or indirectly, develop, own, operate or manage, or license, franchise or grant to any person or entity the right to develop, operate, manage or own, in whole or part, on such exact site; provided that the foregoing restriction will not apply in the event the Company has previously commenced the development of a restaurant at such site. The Board of Directors of the Company has in the past discussed and continues to discuss the possibility of the Company "going private." In the event the Board of Directors determined to take the Company private, which would require shareholder approval, the Company would no longer be a public corporation with a public market for trading shares of Common Stock. The Company's registration under the Securities Exchange Act would be terminated upon the application of the Company to the SEC if there were to be fewer than 300 holders of record of the Common Stock. Termination of registration of the Common Stock under the Exchange Act would substantially reduce the information required to be furnished by the Company to its stockholders and would render inapplicable many provisions of the Exchange Act, including the new corporate governance requirements under the Sarbanes-Oxley Act of 2002, requirements that the Company furnish stockholders with proxy materials regarding stockholders' meetings, requirements that the Company's officers, directors and 10% stockholders file certain reports concerning ownership of the Company's securities, and requirements that any profit made by these officers, directors and 10% stockholders through purchases and sales of the Company's equity securities within any six-month period be paid over to the Company. The timing of the Registrant's future contractual obligations and other commercial commitments are summarized in the following table. 16 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. LIQUIDITY AND CAPITAL RESOURCES, CONTINUED - ------------------------------------------
CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD - --------------------------------- --------------------------------------------------------------------------------------- Total Remaining 3 1-3 years 3 - 5 years After 5 years month FY 2003 - --------------------------------- ------------------- ---------------- --------------- --------------- ------------------ Subordinated convertible notes $ 1,985,000 - $1,985,000 - - - --------------------------------- ------------------- ---------------- --------------- --------------- ------------------ Parking Lot Operator $ 288,000 $ 9,000 $ 109,000 $ 170,000 - --------------------------------- ------------------- ---------------- --------------- --------------- ------------------ Notes Payable-related parties $ 1,215,000 $ 775,000 $ 440,000 Long Term Debt $ 424,000 $ 59,000 $ 365,000 - - - --------------------------------- ------------------- ---------------- --------------- --------------- ------------------ Operating Leases $26,033,000 $ 441,000 $3,530,000 $3,530,000 $18,532,000 - --------------------------------- ------------------- ---------------- --------------- --------------- ------------------ AMOUNT OF COMMITMENT EXPIRATION PER PERIOD --------------------------------------------------------------- TOTAL AMOUNTS REMAINING 3 1 - 3 YEARS 3 - 5 YEARS OVER 5 YEARS OTHER COMMERCIAL COMMITMENTS COMMITTED MONTH FY 2003 - --------------------------------------- ----------------- ---------------- -------------- --------------- --------------- Standby Letters of Credit (1) $438,000 - - - - --------------------------------------- ----------------- ---------------- -------------- --------------- --------------- Guarantee for RJ's lease $322,000 42,000 280,000 - - - --------------------------------------- ----------------- ---------------- -------------- --------------- ---------------
(1) The standby letter of credit is collateralized by restricted cash. SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS - ------------------------------------------------- Except for the historical information contained herein, certain statements in this Form 10-Q, including statements in this Item are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievement of the Registrant, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: the Registrant's liquidity; the Registrant's ability to secure adequate financing to comply with the terms of the Concession Agreement and to satisfy payment obligations under any indebtedness; the Registrant's ability to generate an operating profit based on the terms of the Concession Agreement; that its principal source of cash is funds generated from operations; that 17 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS, CONTINUED - ------------------------------------------------------------ restaurants historically have represented a high risk investment in a very competitive industry; general and local economic conditions, which can, among other things, impact tourism, consumer spending and restaurant revenues; weather and natural disasters, such as earthquakes and fires, which can impact sales at the Registrant's restaurants; quality of management; changes in, or the failure to comply with, governmental regulations; unexpected increases in the cost of key food products, labor and other operating expenses in connection with the Registrant's business; and other factors referenced in this Form 10-Q and the Registrant's other filings with the SEC. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable as the Registrant is a small business issuer as defined by SEC regulations. ITEM 4 - CONTROLS AND PROCEDURES Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the chief executive officer and chief financial officer (who is the same person), of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Company's management, including the chief executive officer and acting chief financial officer, concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC reports. There were no significant changes in the Company's internal controls or other factors that could significantly affect these internal controls subsequent to the date of their evaluation. PART II OTHER INFORMATION Item 1. Legal Proceedings. - ------- ------------------ From time to time the Company is involved in litigation and threatened litigation arising in the ordinary course of business. Management of the Company is unaware of any material litigation as of January 31, 2003. Item 2. Changes in Securities and Use of Proceeds - ------- ----------------------------------------- None 18 PART II OTHER INFORMATION, CONTINUED Item 3. Defaults Upon Senior Securities - ------- ------------------------------- The Company has made no interest payments on its senior subordinated debt agreement with RLH Surf. These interest payments amount to $72,000 Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- None Item 5. Other Information - ------- ----------------- Not applicable. Item 6. Exhibits and Reports on Form 8-K. - ------- --------------------------------- (a) The following exhibits are filed as part of this report: 10.83 Promissory Noted dated November 6, 2002 issued to RLH Surf 10.84 Promissory note dated January 23, 2003 issued to RLH Surf 10.85 Senior Sub Ordinated Loan Agreement issued to RLH Surf 99.1 Certification of CEO/CFO (b) Reports on Form 8-K On January 27, 2003 the Company filed a report, under Item 5, announcing the appointment of Dick Powell as President of the Company. 19 CALIFORNIA BEACH RESTAURANTS, INC. AND SUBSIDIARIES Signature(s) ------------ Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. California Beach Restaurants, Inc. (Registrant) Dated: March 21, 2003 By: /S/ Richard L. Powell ------------------------ Richard L. Powell Chief Executive Officer Chief Financial Officer 20 CERTIFICATION I, Richard L. Powell, certify that: 1. I have reviewed this quarterly report on Form 10-Q of California Beach Restaurants, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying Officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 21, 2003 /S/ Richard L. Powell ----------------------------- Richard L. Powell Chief Executive Officer & Chief Financial Officer 21 INDEX TO EXHIBITS ITEM NUMBER DESCRIPTION - ------ ----------- 10.83 Promissory Note dated November 6, 2002 issued to RLH Surf 10.84 Promissory Note dated January 23, 2003 issued to RLH Surf 10.85 Senior Sub Ordinated Loan Agreement issued to RLH Surf 99.1 Certification of Chief Executive Officer and Chief Financial Officer (A) (A) FILED HEREWITH ELECTRONICALLY All filings were made at the commission's office in Washington D.C.; The Company's SEC file number is 0-12226. 22 EX-10.83 3 calbeach_10qex10-83.txt EXHIBIT 10.83 CALIFORNIA BEACH RESTAURANTS, INC. PROMISSORY NOTE NOVEMBER 6, 2002 ---------------- Los Angeles, California $275,000 FOR VALUE RECEIVED, CALIFORNIA BEACH RESTAURANTS, INC., a California corporation (the "COMPANY"), promises to pay in lawful money of the United States of America to RLH Surf (the "LENDER"), or order, the principal sum of Two Hundred and Seventy Five Thousand Dollars ($275,000) or such lesser amount as may be outstanding, on March 5, 2003, subject to the following terms and conditions: 1. INTEREST. 1.1 INTEREST. The Company shall pay interest on the outstanding principal amount of this Note at the rate of fifteen percent (15%) per annum; provided, that if any installment of principal or interest hereunder is not paid when due, or upon and during the continuance of an Event of Default, the outstanding principal amount of the Loans shall bear interest at seventeen percent (17%) per annum; provided further, that in no event shall such rates exceed the maximum lawful interest rate permitted by the laws of the State of California. If, for any circumstances whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, then IPSO FACTO, the obligation to be fulfilled shall be reduced to the limit of such validity; and if, for any circumstance, the Lender shall ever receive as interest an amount which would be excessive interest, such amount shall be applied to the reduction of the unpaid balance due hereunder and not to the payment of interest. The Company will pay interest in cash on March 5. Interest will be calculated on the basis of a year of 360 days and paid for the actual number of days elapsed. 2. MATURITY. This Note may be voluntarily prepaid by the Company as to principal and interest without the consent of Lender at anytime prior to the Maturity Date in accordance with the terms of the Agreement. If not sooner paid, the principal amount of this Note will mature, and shall be paid in immediately available funds in cash on May 15, 2003. 3. SUBORDINATION. The payment of the principal of, and interest on, this Note and any amendments or replacements hereof and any other security interest, lien, claim or right now or hereafter asserted by the Lender with respect to the indebtedness of the Company to the Lender created hereunder, shall be subject, junior and subordinate, in all respects, to the prior payment in full of Senior Debt of the Company, and to any security interest, lien, claim or right now or hereafter asserted by Senior Debtholders or their successors and assigns with respect to such Senior Debt or with respect to any collateral therefore. The Lender further agrees that upon the occurrence of a Senior Debt Default and without notice of such Senior Debt Default to the Lender, (x) the Senior Debtholders, or their respective successors or assigns, are entitled to be paid all Senior Debt before the Lender is entitled to receive any payments in respect of this Note, 1 (y) the Company may not make any payments to the Lender or with respect to the Note until such payment of all outstanding Senior Debt to the Senior Debtholders has been made in full in cash and (z) for a period not to exceed one hundred eighty (180) days following such Senior Debt Default the Lender may not pursue any enforcement action against the Company. Any payments made to the Lender in violation of this Section 3 shall be held in trust for the benefit of the Senior Debtholders (or their respective successors or assigns) and turned over upon the demand of the Senior Debtholders. Notwithstanding the foregoing, in the absence of a Senior Debt Default, the Company shall be permitted to pay interest on and principal of this Note in accordance with its terms. The Senior Debtholders are intended third party beneficiaries of this Section 3. 4. LOAN AGREEMENT. This Note is one of several Notes issued pursuant to that certain Senior Subordinated Loan Agreement dated as of November 5, 2002 (the "AGREEMENT"), by and among the Company, the Lender, and the other lenders party thereto, each of whom is subject to, and entitled to the benefits of, the Agreement. Notwithstanding any provisions to the contrary contained herein, this Note is subject and entitled to certain terms, conditions, covenants and agreements in the Agreement. Reference to the Agreement shall in no way impair the absolute and unconditional obligation of the Company to pay both principal and interest hereon as provided herein. All capitalized terms used but not defined herein shall be defined as set forth in the Agreement. 5. UNSECURED. The Notes are unsecured general obligations of the Company, subordinated to the Senior Debt. 6. TRANSFER. This Note may not be transferred, except to another Lender or to a Recipient. 7. AMENDMENTS. This Note may not be amended, modified or supplemented without the written consent of the Lender. Without limiting the foregoing, no amendment to any other Note issued pursuant to the Agreement shall, or shall be deemed to, amend, modify or supplement this Note. 2 IN WITNESS WHEREOF. This Note has been executed and delivered by the Company to the Lender as of the date first written above. CALIFORNIA BEACH RESTAURANTS, INC By: /S/ Dick Powell ------------------------------------ Dick Powell, President Date: _________________________________ 3 EX-10.84 4 calbeach_10qex10-84.txt EXHIBIT 10.84 CALIFORNIA BEACH RESTAURANTS, INC. PROMISSORY NOTE JANUARY 23, 2003 ---------------- Los Angeles, California $500,000 FOR VALUE RECEIVED, CALIFORNIA BEACH RESTAURANTS, INC., a California corporation (the "COMPANY"), promises to pay in lawful money of the United States of America to RLH Surf, (the "LENDER"), or order, the principal sum of Five Hundred Thousand Dollars ($500,000) or such lesser amount as may be outstanding, on March 5, 2003, subject to the following terms and conditions: 1. INTEREST. 1.1 INTEREST. The Company shall pay interest on the outstanding principal amount of this Note at the rate of fifteen percent (15%) per annum; provided, that if any installment of principal or interest hereunder is not paid when due, or upon and during the continuance of an Event of Default, the outstanding principal amount of the Loans shall bear interest at seventeen percent (17%) per annum; provided further, that in no event shall such rates exceed the maximum lawful interest rate permitted by the laws of the State of California. If, for any circumstances whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, then IPSO FACTO, the obligation to be fulfilled shall be reduced to the limit of such validity; and if, for any circumstance, the Lender shall ever receive as interest an amount which would be excessive interest, such amount shall be applied to the reduction of the unpaid balance due hereunder and not to the payment of interest. The Company will pay interest in cash on March 5, 2003. Interest will be calculated on the basis of a year of 360 days and paid for the actual number of days elapsed. 2. MATURITY. This Note may be voluntarily prepaid by the Company as to principal and interest without the consent of Lender at anytime prior to the Maturity Date in accordance with the terms of the Agreement. If not sooner paid, the principal amount of this Note will mature, and shall be paid in immediately available funds in cash on May 15, 2003. 3. SUBORDINATION. The payment of the principal of, and interest on, this Note and any amendments or replacements hereof and any other security interest, lien, claim or right now or hereafter asserted by the Lender with respect to the indebtedness of the Company to the Lender created hereunder, shall be subject, junior and subordinate, in all respects, to the prior payment in full of Senior Debt of the Company, and to any security interest, lien, claim or right now or hereafter asserted by Senior Debtholders or their successors and assigns with respect to such Senior Debt or with respect to any collateral therefore. The Lender further agrees that upon the occurrence of a Senior Debt Default and without notice of such Senior Debt Default to the Lender, (x) the Senior Debtholders, or their respective successors or assigns, are entitled to be paid all Senior Debt before the Lender is entitled to receive any payments in respect of this Note, (y) the Company may not make any payments to the Lender or with respect to the Note until such payment of all outstanding Senior Debt to 1 the Senior Debtholders has been made in full in cash and (z) for a period not to exceed one hundred eighty (180) days following such Senior Debt Default the Lender may not pursue any enforcement action against the Company. Any payments made to the Lender in violation of this Section 3 shall be held in trust for the benefit of the Senior Debtholders (or their respective successors or assigns) and turned over upon the demand of the Senior Debtholders. Notwithstanding the foregoing, in the absence of a Senior Debt Default, the Company shall be permitted to pay interest on and principal of this Note in accordance with its terms. The Senior Debtholders are intended third party beneficiaries of this Section 3. 4. LOAN AGREEMENT. This Note is one of several Notes issued pursuant to that certain Senior Subordinated Loan Agreement dated as of November 5, 2002 (the "AGREEMENT"), by and among the Company, the Lender, and the other lenders party thereto, each of whom is subject to, and entitled to the benefits of, the Agreement. Notwithstanding any provisions to the contrary contained herein, this Note is subject and entitled to certain terms, conditions, covenants and agreements in the Agreement. Reference to the Agreement shall in no way impair the absolute and unconditional obligation of the Company to pay both principal and interest hereon as provided herein. All capitalized terms used but not defined herein shall be defined as set forth in the Agreement. 5. UNSECURED. The Notes are unsecured general obligations of the Company, subordinated to the Senior Debt. 6. TRANSFER. This Note may not be transferred, except to another Lender or to a Recipient. 7. AMENDMENTS. This Note may not be amended, modified or supplemented without the written consent of the Lender. Without limiting the foregoing, no amendment to any other Note issued pursuant to the Agreement shall, or shall be deemed to, amend, modify or supplement this Note. 2 IN WITNESS WHEREOF. This Note has been executed and delivered by the Company to the Lender as of the date first written above. CALIFORNIA BEACH RESTAURANTS, INC By: /S/ Dick Powell ------------------------------------ Dick Powell, President Date: _________________________________ 3 EX-10.85 5 calbeach_10qex10-85.txt EXHIBIT 10.85 SENIOR SUBORDINATED LOAN AGREEMENT THIS SENIOR SUBORDINATED LOAN AGREEMENT (the "AGREEMENT") is entered into as of the 23rd day of January, 2003, by and among California Beach Restaurants, Inc., a California corporation (the "COMPANY") and the party listed on the signature page hereto (the "LENDER"). In consideration of the covenants and agreements contained herein, the Company and the Lender agree as follows: 1. LOAN. 1.1 Subject to the terms and conditions contained herein, and in reliance upon the representations, warranties and agreements contained herein, on the date hereof the Lender shall advance amounts (the "LOAN") to the Company in an amount equal to $500,000. The Loan made by the Lender shall be evidenced by a Promissory Note made by the Company to the Lender, substantially in the form of EXHIBIT A (the "NOTE"). 1.2 It is the intent of the parties hereto that the Loan be senior to the rights and claims of the Company's 5% Convertible Subordinated Notes Due October 1, 2003 (the "JUNIOR NOTES"). 1.3 INTEREST. Interest on the Loan shall be payable on the outstanding daily unpaid principal amount until payment in full at the rates set forth herein, to the extent permitted by applicable laws, before and after default, before and after maturity, before and after any judgment and before and after the commencement of any proceeding under any Debtor Relief Law (as hereinafter defined), with interest on overdue interest to bear interest at the Default Rate (as hereinafter defined). Interest shall accrue on the Loan at the rate of fifteen percent (15%) per annum, and shall be due and payable in cash on March 5, 2003. Notwithstanding the foregoing, if any installment of principal or interest under the Note or any other amount payable to the Lender hereunder is not paid when due, or upon and during the continuance of an Event of Default, the outstanding principal amount of the Loan shall bear interest at seventeen percent (17%) per annum (the "DEFAULT RATE") to the extent permitted by applicable law, until paid in full. 1.4 MATURITY; PREPAYMENT. If not sooner paid, the principal amount of the Loan shall be paid in immediately available funds in cash on March 5, 2003 (the "MATURITY DATE"). The Note may be voluntarily prepaid at any time at the election of the Company; PROVIDED, that (i) any partial prepayment shall be in an amount not less than $25,000 in the aggregate and (ii) each prepayment shall be accompanied by a prepayment of interest accrued to the date of payment on the amount of principal paid. The Company shall provide the Lender a notice setting forth (a) the effective date of such prepayment, (b) the amount of principal to be prepaid, (c) the amount of principal outstanding following such prepayment, and (d) the amount of interest payable with respect to the prepaid principal. 1 1.5 COMPUTATIONS; OTHER PAYMENT PROVISIONS. All computations of interest and fees shall be calculated on the basis of a year of 360 days and paid for the actual number of days elapsed. If any payment to be made by the Company shall come due on a day other than a Business Day, payment shall be made on the next succeeding Business Day and the extension of time shall be reflected in computing interest. The amount of each payment hereunder and under the Note shall be made to the Lender in lawful money of the United States, without deduction, offset or counterclaim and in immediately available funds on the day of payment (which much be a Business Day). All payments of principal received after 1:00 p.m., California time, on any Business Day, shall be deemed received on the next succeeding Business Day for purposes of calculating interest thereon. All payments made under this Agreement and the Note shall be made free and clear of, and without reduction by reason of, any tax, assessment or other charge imposed by any governmental entity or authority. The Lender shall keep a record of advances made by it hereunder and payments of principal with respect to the Note, and such record shall be presumptive evidence of the principal amount owing under the Note; PROVIDED, that failure to keep such record shall in no way affect the obligation of the Company to pay all principal amounts advanced hereunder, and interest thereon, as set forth herein. 1.6 SUBORDINATION. The payment of the principal of, and interest on, the Loan or the Note and any amendments or replacements thereof and any other security interest, lien, claim or right now or hereafter asserted by the Lender with respect to the indebtedness of the Company to the Lender created hereunder, shall be subject, junior and subordinate, in all respects, to the prior payment in full of Senior Debt (as hereinafter defined) of the Company, and to any security interest, lien, claim or right now or hereafter asserted by Senior Debtholders (as hereinafter defined) or their successors and assigns with respect to such Senior Debt or with respect to any collateral therefor. The Lender further agrees that upon the occurrence of a default or event of default (as such terms are defined in the Senior Debt Documents (a "SENIOR DEBT DEFAULT") and without notice of such Senior Debt Default to the Lender, (x) the Senior Debtholders, or their respective successors or assigns, are entitled to be paid all Senior Debt before the Lender is entitled to receive any payments in respect of this Agreement or the Note, (y) the Company may not make any payments to the Lender or with respect to this Agreement or the Note until such payment of all outstanding Senior Debt to the Senior Debtholders has been made in full in cash and (z) for a period not to exceed one hundred eighty (180) days following such Senior Debt Default the Lender may not pursue any enforcement action against the Company. Any payments made to the Lender in violation of this Section 1.7 shall be held in trust for the benefit of the Senior Debtholders (or their respective successors or assigns) and turned over upon the demand of the Senior Debtholders. Notwithstanding the foregoing, in the absence of a Senior Debt Default, the Company shall be permitted to pay interest on and principal of 2 the Loan and the Note in accordance with the terms hereof and thereof. "SENIOR DEBT" shall mean all indebtedness of the Company to (i) Lyon Credit Corporation ("LCC") pursuant to a Promissory Note dated as of April 27, 1999 made by the Company to LCC, a Security Agreement dated as of March 15, 1999 by and between the Company and LCC, and a Security Agreement dated as of April 27, 1999 by and between Sea View Restaurants, Inc. ("SEA VIEW") and LCC, as such documents may be amended, modified, supplemented or restated (the "LCC LOAN DOCUMENTS") and (ii) U.S. Bank National Association ("U. S. BANK" and, together with LCC, the "SENIOR DEBTHOLDERS") pursuant to a Business Loan Agreement dated as of June 22, 2001 by and between the Company and U. S. Bank, a Promissory Note dated as of June 22, 2001 made by the Company to U.S. Bank, a Commercial Security Agreement dated as of June 22, 2001 by and among the Company, U.S. Bank and Sea View and a Commercial Pledge Agreement dated as of June 22, 2001 by and among the Company, U.S. Bank and Sea View, as such documents may be amended, modified, supplemented or restated (the "U.S. BANK LOAN DOCUMENTS" and, together with the LCC Loan Documents, the "SENIOR DEBT DOCUMENTS"), and shall include, but shall not be limited to, all principal, unpaid interest, penalties, costs, fees, premiums and other amounts due Senior Debtholders, or their successors or assigns, pursuant to their respective security loan, security, financing and other agreement, documents or loan instruments and any amendments to or replacements of any of the foregoing. Notwithstanding the foregoing, in the absence of a Senior Debt Default, the Company shall be permitted to pay interest on and principal of the Loan in accordance with their terms. The Senior Debtholders are intended third party beneficiaries of this Section 1.6. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Lender that: 2.1 ORGANIZATION AND QUALIFICATION. The Company and each of its Subsidiaries (as hereinafter defined) is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has the requisite corporate power to carry on its business as it is now being conducted, and to own the properties and assets it now owns. The Company and each of its subsidiaries is duly qualified, licensed or domesticated, and in good standing as a foreign corporation authorized to do business in each state or jurisdiction wherein the nature of its activities or its properties owned or leased makes such qualification, licensing or domestication necessary, except where the failure to so qualify, be licensed, domesticated or in good standing would not have a material adverse effect on the Company and its Subsidiaries, considered as a whole. The Company has delivered to the Lender, if it has requested, complete and accurate copies of its Articles of Incorporation and Bylaws and those of each Subsidiary which owns assets constituting in excess of 5% of the total assets of the Company and its Subsidiaries on a consolidated basis, together with all amendments thereto. 3 2.2 AUTHORIZATION. All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance by the Company of this Agreement and the Note and for the consummation of the transactions contemplated herein and in Exhibit B, and otherwise for the authorization, issuance and delivery of the Note, has been taken and all actions by the board of directors have been unanimous by all members of the board of directors, except for one director who abstained from the vote. This Agreement and the Note upon execution and delivery by the Company, will be valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. 2.2 ABSENCE OF CERTAIN CHANGES. Since October 31, 2002, the Company and each of its Subsidiaries has conducted its business only in the ordinary course and has not, except as fairly described on SCHEDULE 2.3 hereto, or the Company's Form 10-Q for the quarter period ended October 31, 2002 (the "Company's 10-Q"), or pursuant to this Agreement: (a) suffered any material adverse change in its operations, properties or financial condition or prospects; (b) incurred any increase in indebtedness for borrowed money over the level thereof reflected on its audited consolidated balance sheet as of April 30, 2002 (the "COMPANY BALANCE SHEET"), except for borrowings made in the ordinary course of business; (c) discharged or paid any obligation or liability material to it, other than current liabilities shown on the Company Balance Sheet and current liabilities incurred since the date of the Company Balance Sheet discharged or paid in the ordinary course of business or consistent with past practice; (d) permitted any of its assets to be subject to any material security interest, restriction or charge of any kind other than purchase money security interests; (e) received any notice of termination of, or default under, any contract, lease or other agreement, or suffered any material damage, destruction or loss (whether or not covered by insurance); (f) issued or sold any of its securities, or issued or sold any options, rights or warrants with respect thereto, or acquired any capital stock or other securities of any corporation or any interest in any business enterprise, or otherwise made any loan or advance to or investment in any person, firm or corporation, except for normal business advances to employees consistent with past practice; (g) written off as uncollectible any accounts receivable, except for write-offs in the ordinary course of business or consistent with past practice, or in any event in excess of an aggregate of $25,000; 4 (h) canceled or compromised any debts or waived or permitted to lapse any claims or rights of substantial value, or sold, leased, transferred or otherwise disposed of any of its properties or assets (real, personal or mixed, tangible or intangible) except in the ordinary course of business or consistent with past practice; (i) granted any general increase in the compensation of officers or employees (including any such increase pursuant to any bonus, pension, profit sharing or other plan or commitment) or any increase in the compensation payable or to become payable to any officer or employee, except for increases in the ordinary course of business or consistent with past practice; (j) made any material capital expenditure or commitment for any addition to property, plant or equipment not in the ordinary course of business, or in any event in excess of an aggregate of $50,000; (k) declared, paid or set aside for payment any dividend or other distribution in respect of its capital stock, or directly or indirectly, redeemed, purchased or otherwise acquired any shares of its capital stock or other securities of the Company or any of its Subsidiaries; (l) paid, loaned or advanced any amount to, or sold, transferred or leased any properties or assets to, or entered into any agreement or arrangement with, any of its officers, directors or "affiliates," as such term is defined in the rules and regulations of the Securities and Exchange Commission (the "SEC"), except for normal business advances to employees consistent with past practice, directors' fees, compensation to officers and compensation increases permitted by clause (i) of this Section 2.3; (m) settled any claim, action or proceeding pending or threatened against or relating to the Company or any of its Subsidiaries before any court or governmental or regulatory authority or body for an amount in excess of an aggregate of $25,000; or (n) agreed, whether in writing or otherwise, to take any action described in this Section 2.3. 5 2.3 FINANCIAL STATEMENTS AND REPORTS. (a) The Company has timely filed all required forms, reports, statements and documents with the SEC, all of which have complied in all material respects with all applicable requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"), and the Securities Exchange Act of 1934 (the "EXCHANGE ACT"). The Company has delivered to the Lender true and complete copies of the Company's (i) Annual Report on Form 10-K for the fiscal years ended April 30, 2000, 2001 and 2002, (ii) Proxy Statements relating to all meetings of the Company's shareholders (whether annual or special) held since April 30, 2000, (iii) all other forms, reports, statements and documents filed by the Company with the SEC since April 30, 2000, and (iv) all reports, statements, documents and other information provided by the Company to public security holders since April 30, 2000 (collectively, the items referred to in clauses (i) through (iv) are hereinafter referred to as the "COMPANY Reports"). As of their respective dates, the Company Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company and its Subsidiaries included or incorporated by reference in the Company Reports were prepared in accordance with generally accepted accounting principles applied on a consistent basis and present fairly the financial position, results of operations and changes in financial position of the Company and its Subsidiaries as of the dates and for the periods indicated, except that the unaudited interim financial statements may not contain all of the footnotes required by generally accepted accounting principles and may be subject to year-end adjustment. (b) The Company has delivered to the Lender true and complete copies of the Company's balance sheet as of October 31, 2002 (the "INTERIM BALANCE Sheet"). The Interim Balance Sheet was prepared in accordance with (i) generally accepted accounting principles applied on a consistent basis and (ii) the rules and requirements of the SEC. The Interim Balance Sheet presents fairly the consolidated financial position of the Company and its Subsidiaries as of July 31, 2002. The total assets of the Company, as set forth on the Interim Balance Sheet, equals or exceeds $2,000,000. The Lender agrees to keep the Interim Balance Sheet confidential. 6 2.4 NO UNDISCLOSED LIABILITIES. Except as and to the extent reflected on the Company Balance Sheet and the footnotes thereto, as of October 31, 2002, neither the Company nor any of its Subsidiaries had any liabilities or obligations (absolute, accrued, contingent or otherwise) material to the Company and its Subsidiaries taken as a whole of a nature required by generally accepted accounting principles to be reflected on a consolidated balance sheet of the Company and its Subsidiaries ("LIABILITIES"). Since October 31, 2002, neither the Company nor any of its Subsidiaries has incurred any Liabilities material to the Company and its Subsidiaries taken as a whole, except Liabilities incurred in the ordinary course of business. 2.5 CONSENTS AND APPROVALS. (a) No notice to or filing with, and no authorization, consent or approval of, any domestic or foreign court or any public or governmental body or authority is necessary for the execution and delivery of this Agreement and the Note by the Company and the performance of its obligations hereunder, except for notices or filings the failure to give or make, and authorizations, consents and approvals the failure to obtain, would not, individually or in the aggregate, have a material adverse effect on the financial condition, business or results of operations of the Company and its Subsidiaries taken as a whole or adversely affect the ability of the Company perform its obligations under this Agreement or the Note (a "MATERIAL ADVERSE EFFECT"). (b) No authorization, consent or approval of any person or entity is necessary for the execution and delivery by the Company of this Agreement and the Note, and the performance of its obligations hereunder, other than (i) pursuant to Section 2.6(a) and (ii) the consent of U.S. Bank, which has either been obtained by the Company or which the Company will use its best efforts to obtain. (c) Upon execution and delivery of a Junior Note Consent by the holder thereof, such Junior Note will be subordinated to, and junior in the right of payment of, the Loan and the Note. True and correct copies of the Junior Note Consents will be provided to the Lender promptly (but in any case within 5 Business Days) after execution and delivery thereof by the parties thereto. 7 2.6 NO VIOLATIONS. Except as set forth on SCHEDULE 2.7 hereto, the execution and delivery of this Agreement does not, and the documents and agreements required to be executed in connection herewith and the performance by the Company and its Subsidiaries of their obligations hereunder and the consummation of the transactions contemplated hereby will not, violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any of the Subsidiaries under any of the terms, conditions or provisions of (i) the respective charters or bylaws of the Company or the Subsidiaries, (ii) subject to compliance with the statutes and regulations referred to in Section 2.6 above, any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction or writ applicable to the Company or any of the Subsidiaries or any properties or assets of the Company or any of the Subsidiaries, or (iii) any note, bond, mortgage, indenture, license, franchise, permit, concession, contract, agreement, lease or other instrument or agreement of any kind to which the Company or any of the Subsidiaries is now a party or by which the Company or any of the Subsidiaries or any of their respective properties or assets may be bound, excluding from the foregoing clauses (ii) and (iii) violations, conflicts, breaches, defaults, terminations, accelerations or creations of liens, security interests, charges or encumbrances which would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries are not being conducted in violation of any law, ordinance or regulation of any governmental entity ("VIOLATIONS"), except for Violations which either individually or in the aggregate will not have a Material Adverse Effect. Set forth on SCHEDULE 2.7 hereto is a list of all Violations of which the Company has knowledge which could, individually or in the aggregate, have a Material Adverse Effect. 2.7 LITIGATION, ETC. Except as described on SCHEDULE 2.8 hereto, there is no claim, action or proceeding pending or, to the best knowledge of the Company, threatened against or relating to the Company or any of its Subsidiaries before any court or governmental or regulatory authority or body acting in an adjudicative capacity which individually or in the aggregate, if adversely determined, would have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is subject to any outstanding order, writ, injunction or decree which individually or in the aggregate could have a Material Adverse Effect. 8 2.8 LEASE/CONCESSION AGREEMENTS. All leases and concession agreements pursuant to which the Company and each of its Subsidiaries leases real property and improvements material to the conduct of its business and operations (collectively, the "LEASES") are in full force and effect and constitute legal, valid and binding obligations of the parties thereto, enforceable in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to or limiting creditors' rights or by legal principles of general applicability governing the availability of equitable remedies. Neither the Company nor any of its Subsidiaries has assigned its rights and interests under the Leases. Except as set forth in the Company's 10-Q, nothing has come to the attention of the Company which (whether with or without notice, lapse of time or both) would constitute a material breach or default by any party under the Leases. 2.9 TAXES. All tax returns required to be filed by the Company and its Subsidiaries have been duly and timely filed, and all taxes, interest, penalties, assessments and/or deficiencies shown to be due on such tax returns or for which the Company has received tax notices have in all respects been paid or adequate provision for the payment thereof has been made. The Company and its Subsidiaries have no material tax deficiency or claim outstanding, assessed or, to the best of knowledge of the Company, proposed against the Company and its Subsidiaries. 2.10 LICENSES, PERMITS AND AUTHORIZATIONS. The Company and its Subsidiaries have all approvals, licenses or other permits of all governmental or regulatory agencies, whether federal, state or local, the absence of which would materially impair the operations of their businesses taken as a whole as they are presently being conducted. Set forth on SCHEDULE 2.11 hereto is a list of all California Department of Alcoholic Beverage Control licenses and permits issued to the Company and its Subsidiaries and in effect on the date hereof or which will be in effect on the Closing Date. 3. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees as follows: 9 3.1 ANNUAL AND QUARTERLY FINANCIAL INFORMATION. The Company will furnish the following reports to the Lender for so long as the Loan is outstanding pursuant to this Agreement: (a) As soon as practicable after the end of each fiscal year, and in any event within 120 days after the end of each fiscal year, consolidated balance sheets of the Company and its Subsidiaries, as of the end of such fiscal year, and consolidated statements of income and consolidated statements of changes in financial position of the Company and its Subsidiaries for such year, prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants of reputable standing selected by the Company. Notwithstanding the foregoing, at any time the Company is required to file reports pursuant to the Exchange Act, the obligation contained in this clause (a) shall be satisfied by delivery of a copy of the Company's annual report on Form 10-K for each fiscal year within fifteen Business Days of filing thereof with the SEC. (b) As soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within 45 days thereafter, a consolidated balance sheet of the Company and its Subsidiaries as of the end of each such quarterly period, and consolidated statements of income and consolidated cash flow statements of the Company and its Subsidiaries for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles (subject to normal audit adjustment and except that no supporting statements, schedules, footnotes or other such disclosure required by generally accepted accounting principles need be included), all in reasonable detail and signed, subject to changes resulting from year-end audit adjustments, by the Chief Financial Officer of the Company. Notwithstanding the foregoing, at any time the Company is required to file reports pursuant to the Exchange Act, the obligation contained in this clause (b) shall be satisfied by delivery of a copy of the Company's quarterly report on Form 10-Q for each quarterly accounting period within fifteen Business Days of filing thereof with the SEC. (c) The Company will furnish to the Lender promptly (but in any event within fifteen Business Days) after the mailing to its stockholders generally of each annual report, proxy statement or other report or communication, a copy of each such report, proxy statement or other report or communication and promptly (but in any event within fifteen business days) after any filing by the Company with the SEC or any governmental agency or agencies substituted for such commission, or with any national securities exchanges of any annual or periodic or special report or registration statement, a copy of such report or statement and copies of all press releases and other statements made available generally by the Company to the public concerning material developments in the Company's business. 10 3.2 REIMBURSEMENT OF EXPENSES. The Company shall pay all expenses of the Lender included in connection with this Agreement, the Note and the enforcement thereof, including the reasonable fees and expenses of counsel. 3.3 LIMITATION ON INDEBTEDNESS. The Company will not incur Indebtedness without the prior written consent of the Lender, other than Indebtedness to the Senior Debtholders in accordance with the terms of the Senior Debt Documents. "INDEBTEDNESS" shall mean obligations for money borrowed, obligations evidenced by bonds, debentures, notes or other similar instruments, reimbursement obligations with respect to letters of credit, bankers' acceptances or similar facilities, the purchase price of property or services (excluding trade accounts payable or accrued liabilities arising in the ordinary course of business which are not overdue or which are being contested in good faith), obligations under capitalized leases, and guarantees and other similar obligations. 3.4 SUBSEQUENT TRANSACTION. The Company agrees to use its reasonable commercial efforts to effectuate the transactions set forth in the Term Sheet attached hereto as Exhibit B on or prior to February 21, 2003. 4. EVENTS OF DEFAULT; REMEDIES. 4.1 DEFAULTS AND REMEDIES. The occurrence of any one or more of the following shall constitute an event of default hereunder ("EVENT OF DEFAULT"), whatever the reason therefor: (a) the Company fails to pay any installment of principal on any of the Notes on the date when due; (b) the Company fails to pay any installment of interest on any of the Notes within (30) days after the date when due; (c) the Company fails to perform, observe or comply with any term, covenant or agreement contained in this Agreement or the Note; (d) any representation or warranty in this Agreement or any document delivered by the Company pursuant to this Agreement, shall fail to be true and correct in all material respects; or (e) proceedings for relief under any bankruptcy law or any law for the relief of debtors ("DEBTOR RELIEF LAW") shall be instituted by or against the Company, or any order, judgment or dissolution or division; PROVIDED, HOWEVER, with respect to an involuntary petition in bankruptcy, such petition shall not have been dismissed within sixty (60) days after the filing of such petition; 11 then, and in any such event, so long as the same may be continuing, the Lender may, by notice in writing to the Company declare all amounts owing with respect to this Agreement or the Note to be, and it shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; PROVIDED that in the event of any Event of Default specified in Section 5.1(e) all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Lender. 4.2 REMEDIES. Upon the occurrence and continuance of any Event of Default, the Lender may proceed to protect, exercise, and enforce its respective rights and remedies under this Agreement and the Note and all rights available at law or in equity. 4.3 WAIVER OF DEFAULT. Any Event of Default waived in accordance with Section 6.1 shall be deemed to have been cured and not to be continuing; but no such waiver shall be deemed a continuing waiver or shall extend to or affect any subsequent like default or impair any rights arising therefrom. 5. MISCELLANEOUS. 5.1 AMENDMENT; WAIVERS. Any consent or approval required or permitted by this Agreement to be given by the Lender may be given, and any term of this Agreement may be amended, and the performance or observance by the Company of any terms of this Loan Agreement, or the continuance of any Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Company and the Lender. Notwithstanding the foregoing, no amendment, modification or waiver shall, without the written consent of the Lender (i) reduce or forgive the principal amount of the Loan, or reduce the rate or rates of interest on the Note; (ii) postpone or extend the Maturity Date or any other regularly scheduled dates for payments of principal of, or interest on, the Loan, or modify any of the provisions relating to amounts, timing or application of payments or prepayments of the Loan (it being understood that any vote to rescind any acceleration made pursuant to Section 4.1 of amounts owing with respect to the Loan shall require the approval of the Lender); (iii) amend or waive any provision relating to the subordination of the claims of the holders of the Junior Notes or any other obligations subordinated to the Note; or (iv) amend or modify the terms of the subordination of the Note to the claims of the Senior Debtholders or agree to subordinate the Note to any other obligations of the Company. 5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as provided hereinafter, all of the warranties and representations made by the Company and the Lender in this Agreement or any document, certificate, schedule or instrument delivered in connection herewith shall survive the Closing and shall continue in effect, notwithstanding any investigation by or on behalf of the Lender. 12 5.3 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement and the Note (a) constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, among the parties or any of them with respect to the subject matter hereof and (b) may be assigned, in whole or in part, by the Lender or by operation of law. 5.4 ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any federal or state court located in the State of California (as to which the parties agree to submit to jurisdiction for the purposes of such action), this being in addition to any other remedy to which they are entitled at law or in equity. 5.5 FURTHER ASSURANCES. The Company shall, at its expense and without expense to the Lender, do, execute and deliver such further acts and documents as the Lender may from time to time reasonably request for the assurance and confirming unto the Lender the rights hereby created or intended now or hereafter so to be, or for carrying out the intention or facilitating the performance of the terms of this Agreement and the Note. 5.6 VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. 5.7 NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered, if delivered in person, when confirmation is received, if sent by telecopier, on the next Business Day, if accepted for overnight delivery by a nationally-known courier guaranteeing overnight delivery service (charges prepaid), or three Business Days after being deposited in the U.S. mail if sent by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the address or telecopier number set forth opposite each such party's name on the signature page or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. 5.8 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California regardless of the laws that might otherwise govern under principles of conflicts of laws applicable thereto. 13 5.9 DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted for convenience of reference only and are not interpreted to be a part of or to affect the meaning or interpretation of this Agreement. 5.10 PARTIES IN INTEREST. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and except as expressly set forth in Section 1.6, nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. 5.11 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 14 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the day and year first above written. CALIFORNIA BEACH RESTAURANTS, INC. By: /S/ Richard Powell ------------------------------ Richard Powell President 17383 Sunset Boulevard, Suite 140 Pacific Palisades, CA 90272 Attention: President Address: Telecopier Number: (310) 459-9356 THE LENDER: RLH SURF, a California General Partnership By: /S/ J. Christopher Lewis -------------------------------- J. Christopher Lewis General Partner RLH Surf 300 S. Grand Avenue, 29th Floor Los Angeles, California 90071 Attention: J. Christopher Lewis Address for Notices: Telecopier Number: (213) 229-8597 15 EX-99.1 6 calbeach_10qex99-1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of California Beach Restaurants, Inc. (the "Company") on Form 10-Q for the period ending January 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dick Powell, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ Richard L. Powell ----------------------------------------- Richard L. Powell Chief Executive Officer & Chief Financial Officer March 21, 2003 -----END PRIVACY-ENHANCED MESSAGE-----