<PAGE>
UNITED STATES
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 period ended June 30, 1996
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 1-10576
GB FOODS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0403086
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 NEWPORT CENTER DRIVE
NEWPORT BEACH, CALIFORNIA 92660
(Address of Principal Executive Office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 640-6004
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of June 30, 1996, the registrant had 6,447,434 shares outstanding of its
Common Stock, $.08 par value.
1
<PAGE>
GB FOODS CORPOATION
Index
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets (unaudited) at June 30, 1996 and
December 31, 1995.............................................................3
Condensed Consolidated Statements of Operations (unaudited)
for the six and three months ended June 30, 1996 and 1995.....................4
Consolidated Statements of Cash Flows (unaudited) for the six
months ended June 30, 1996 and 1995...........................................5
Notes to Consolidated Financial Statements (unaudited)........................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................................7
Part II. OTHER INFORMATION....................................................9
</TABLE>
2
<PAGE>
GB FOODS CORPORATION
Consolidated Balance Sheets
(unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 383,864 $ 216,728
Short-term investments 920,627 763,830
Accounts and notes receivable 270,933 268,277
Other assets 99,992 125,841
---------- ----------
Total current assets 1,675,416 1,374,676
Equipment and improvements 1,033,615 1,268,290
Notes receivable 488,643 519,690
Other assets 97,955 114,061
---------- ----------
$3,295,629 $3,276,717
========== ==========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities
Current installments of long-term debt $ 10,086 $ 10,203
Accounts payable and accrued expenses 360,182 562,409
Accrued salaries, wages and employee benefits 97,869 109,199
Deferred franchise fees 75,000 80,000
---------- ----------
Total current liabilities 543,137 761,811
Long-term debt, less current installments 20,224 25,372
Minority interest in consolidated partnership 57,569 60,720
Shareholders' equity
Common stock, $.08 par value, authorized 50,000,000
shares; 6,447,434 and 6,284,684 shares issued and
outstanding at June 30, 1996 and December 31, 1995,
respectively 515,794 502,774
Additional paid-in capital 15,818,044 15,268,714
Accumulated deficit (13,659,139) (13,342,674)
---------- ----------
Net shareholders' equity 2,674,699 2,428,814
---------- ----------
$3,295,629 $3,276,717
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
GB FOODS CORPORATION
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
-------------------------------------- ----------------------------------------
1996 1995 1996 1995
------------------ ----------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant operations $1,508,533 $ 2,582,767 $ 748,207 $1,318,244
Royalties 504,324 374,969 278,931 201,828
Franchise fees 144,703 42,500 66,281 42,500
Interest 54,971 46,906 26,812 23,049
Other 142,620 211,187 77,748 146,328
------------------ ----------------- ------------------ -------------------
2,355,151 3,258,329 1,197,979 1,731,949
------------------ ----------------- ------------------ -------------------
Restaurant operating costs:
Food and packaging 573,910 958,338 286,807 500,094
Payroll and other employee benefits 449,256 800,989 219,789 395,432
Occupancy and other 412,086 729,524 202,772 376,844
General and administrative 1,228,084 1,445,499 561,561 741,948
Litigation settlements and related
costs - 825,753 - 109,360
------------------ ----------------- ------------------ -------------------
2,663,336 4,760,103 1,270,929 2,123,678
------------------ ----------------- ------------------ -------------------
Loss before minority interest in
consolidated partnership (308,185) (1,501,774) (72,950) (391,729)
Minority interest in consolidated
partnership 8,280 8,280 1,428 348
------------------ ----------------- ------------------ -------------------
Net loss $ (316,465) $(1,510,054) $ (74,378) $ (392,077)
================== ================= ================== ===================
Net loss per share $ (.05) $ (.25) $ (.01) $ (.06)
================== ================= ================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
GB FOODS CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------
1996 1995
----------------- ------------------
<S> <C> <C>
Net cash flow from operating activities $ (290,126) $ (701,653)
----------------- ------------------
Cash flow from investing activities
Proceeds from short-term investments 911,582 1,081,413
Expenditures for short-term investments (1,068,379) (720,564)
Proceeds from notes receivable 25,464 -
Proceeds from the sale of equipment and improvements 76,305 198,686
Expenditures for equipment and improvements (33,481) (112,632)
----------------- ------------------
Net cash flow from investing activities (88,509) 446,903
----------------- ------------------
Cash flow from financing activities
Proceeds from long-term debt - 31,098
Repayments of long-term debt (5,148) (4,090)
Proceeds from issuance of common stock 562,350 272,667
Distribution to minority partner (11,431) (13,432)
----------------- ------------------
Net cash flow from financing activities 545,771 286,243
----------------- ------------------
Net increase in cash and cash equivalents 167,136 31,493
Cash and cash equivalents at beginning of period 216,728 414,570
----------------- ------------------
Cash and cash equivalents at end of period $ 383,864 $ 446,063
================= ==================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
(unaudited)
1. Summary of Certain Accounting Policies
- -----------------------------------------
The accompanying unaudited consolidated financial statements of GB Foods
Corporation (the "Company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three and six
months ended June 30, 1996 are not necessarily indicative of what results
will be for the year ending December 31, 1996. These statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 31,
1995.
2. Net Loss Per Share
- ---------------------
Net loss per share are based on 6,417,226 and 6,355,538 weighted average
shares outstanding during the three and six months ended June 30, 1996,
respectively and 6,223,540 and 6,049,504 weighted average shares outstanding
during the three and six months ended June 30, 1995, respectively.
Outstanding stock options and warrants are considered common stock
equivalents. The assumed exercise of common stock equivalents would have an
anti-dilutive effect in 1996 and 1995 and therefore have not been included in
the number of weighted average shares outstanding for the net loss per share
calculation.
3. Termination Agreement
- ------------------------
The Company executed a development agreement in June 1995 with Rally's
Hamburger's Inc. ("Rally's") for the development of Rally's/Green Burrito
dual-concept restaurants to be located primarily in the Midwest. In April
1996, the Company and Rally's executed an agreement providing for the
termination of the development agreement; however, Rally's may continue to
operate the existing Rally's/Green Burrito dual-concept units developed
pursuant to the agreement, until April 1998. Royalty payments will be paid to
the Company until the dual-concept units discontinue selling the Green
Burrito branded foods. At June 30, 1996 there were 13 Rally's/Green Burrito
units in operation.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The Company's revenues are primarily derived from restaurant operations at
Company-owned stores and franchise royalties and fees received from franchise
stores. Total revenues for the second quarter of 1996 decreased $533,970 (31%)
to $1,197,979 compared to revenues of $1,731,949 during the same period in 1995.
Total revenues for the six months ended June 30, 1996 decreased $903,178 (28%)
to $2,355,151 compared to $3,258,329 for the same period in 1995.
Revenues from restaurant operations for the second quarter of 1996
decreased $570,037 (43%) to $748,207 compared to $1,318,244 for the
corresponding period in 1995. Revenues from restaurant operations for the six
months ended June 30, 1996 decreased $1,074,234 (42%) to $1,508,533 compared to
$2,582,767 for the same period in 1995. This decrease in revenue was primarily
attributable to the sale of five Company-owned stores to a franchisee in October
of 1995, and the closure of one Company-owned store at the end of February 1996.
In addition, same store sales decreased 5% and 4% for the three and six months
ended June 30, 1996, respectively. As of June 30, 1996 and 1995, the Company
had seven and 13 Company-owned stores, respectively.
Franchise royalties for the second quarter of 1996 increased $77,103 (38%)
to $278,931 from $201,828 earned during the second quarter of 1995. Franchise
royalties for the six months ended June 30, 1996 increased $129,355 (35%) to
$504,324 from $374,969 earned in the same period in 1995, primarily due to an
increase in the number of dual-concept franchise stores in operation. The
following is a summary of dual-concept franchise store activity during the six
months ended June 30, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
1996 1995
----- ----
<S> <C> <C>
Dual-concept stores at beginning of period 41 6
Dual-concept stores opened during period 35 4
Dual-concept stores closed during period (3) -
---- ----
Dual-concept stores at end of period 73 10
==== ====
</TABLE>
The total number of free-standing franchise stores was comparable at 44, at
both June 30, 1996 and 1995.
Franchise fee income for the second quarter of 1996 increased $23,781 (56%)
to $66,281 from $42,500 earned during the second quarter of 1995 because of the
opening of nine dual-concept franchise stores in the second quarter of 1996
compared to four in the second quarter of 1995. Franchise fee income for the
six months ended June 30, 1996 increased $102,203 (240%) to $144,703 from
$42,500 earned in the same period in 1995 because of the opening of 35 dual-
concept franchise stores in the six months ended June 30, 1996, of which a total
of 21 were required to pay franchise fees. The remaining 14 dual-concept stores
opening in the first two quarters of 1996 were not required to pay franchise
fees because they were considered test stores.
Cost of sales from restaurant operations (food, packaging, payroll and
other employee benefits) expressed as a percentage of sales, ranged from 64% to
78% and 64% to 79% for the three months ended June 30, 1996 and 1995,
respectively. Occupancy and other operating costs from restaurant operations
expressed as a percentage of sales, ranged from 21% to 33% and 22% to 45% for
the three months ended June 30, 1996 and 1995, respectively. Cost of sales from
7
<PAGE>
restaurant operations expressed as a percentage of sales, ranged from 64% to 75%
and 63% to 79% for the six months ended June 30, 1996 and 1995, respectively.
Occupancy and other operating costs from restaurant operations expressed as a
percentage of sales, ranged from 21% to 43% and 21% to 40% for the six months
ended June 30, 1996 and 1995, respectively. On an aggregate basis, cost of
sales and occupancy and other operating costs expressed as a percentage of sales
for the Company restaurants have remained relatively consistent in the three and
six months ended June 30, 1996 as compared to the same periods in 1995.
General and administrative expenses decreased to $561,561 in the second
quarter of 1996 compared to $741,948 incurred in the second quarter of 1995.
Primarily because of a $100,000 charge recorded in the second quarter of 1995
associated with the anticipated cost to relocate an existing franchise store,
and decreased legal fees. General and administrative expenses decreased to
$1,228,084 in the six months ended June 30, 1996 compared to $1,445,499 for the
six months ended June 30, 1995
The Company experienced litigation settlements and related costs in the
three and six months ended June 30, 1995 of $109,360 and $825,753, respectively.
The Company recorded a charge of $109,360 in the second quarter of 1995 related
to the settlement of the CKE litigation. The Company recorded a charge of
$669,000 in the first quarter of 1995 as the result of an agreement to issue
Company common stock to certain franchisees in exchange for a release of
potential claims against the Company and, in certain instances, as recognition
for a reduction in the mile radius protection clause of the related franchise
agreements. In addition, the Company recorded costs related to the settlement
of a lawsuit with current and former franchisees totaling $47,393 in the first
quarter of 1995.
Impact of Company Expansion Plans on Operations. The management of the
Company anticipates that continued expansion of the dual-concept restaurant
business will improve the Company's liquidity and profitability by generating
additional franchise fees and royalties. The Company anticipates that its
existing management will be able to supervise the additional franchise sales and
existing franchise stores, as well as manage the Company-owned stores without
the addition of significant personnel in the next 12 months.
Effect of Inflation. Food and labor costs are significant inflationary
factors in the Company's operations. Many of the Company's employees are paid
hourly rates related to the statutory minimum wage, therefore, increases in the
minimum wage increase the Company's costs. In 1990, the federal statutory
minimum wage was increased to $4.25 per hour. This increase in the statutory
minimum wage has not had a material impact on the Company's current operations
as the Company's hourly employees have been paid the statutory minimum wage
since 1989. At June 30, 1996, approximately 9 of the Company's 64 hourly
employees are paid the statutory minimum wage. In addition, most of the
Company's leases require it to pay base rents with escalation provisions based
on the consumer price index, in addition to percentage rentals based on
revenues, and to pay taxes, maintenance, insurance, repairs, and utility costs,
all of which are expenses subject to inflation. The Company has been able to
offset the effects of inflation to date through small price increases and
economies resulting from the purchase of food products in increased numbers due
to the increased number of Green Burrito stores.
Liquidity and Capital Resources
The Company had working capital of $1,132,279 at June 30, 1996 compared to
$612,865 at December 31, 1995 including cash and cash equivalents of $383,864 at
June 30, 1996 and $216,728 at December 31, 1995. Management believes the
Company's cash, cash equivalents and short-term investments will be sufficient
to finance current and forecasted operations and obligations.
8
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company convened its annual stockholders meeting on May 22, 1996. The
stockholders voted to (I) elect William M. Theisen, Michael J. Scherr, T.
Anthony Gregory, Bruce H. Haglund, and George J. Kubat as directors to serve
until the next annual meeting of stockholders; and (II) to ratify the
appointment of Saddington.Cacciamatta as independent auditors for 1996.
The votes cast for the election of directors were as follows:
<TABLE>
<CAPTION>
Nominee Votes Cast For Votes Cast Against
- ----------------------- -------------- ------------------
<S> <C> <C>
William M. Theisen 5,175,525 40,976
Michael J. Scherr 5,175,525 40,976
T. Anthony Gregory 5,175,525 40,976
Bruce H. Haglund 5,176,525 39,976
George J. Kubat 5,175,525 40,976
</TABLE>
The votes cast for the appointment of Saddington.Cacciamatta as independent
auditors for 1996 were 5,177,973 for and 35,706 against, with 2,822 abstentions.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibits
- --------
Exhibit 27
Reports on Form 8-K
- -------------------
On July 17, 1996, the Company filed a Special Report on Form 8-K reporting
the adoption on July 9, 1996 of a Stockholder Rights Agreement designed to
protect stockholders from abusive takeover tactics and to preserve for
stockholders the long-term value of the Company. The Rights Agreement has not
been adopted in response to any effort to acquire control of the Company and the
Board of Directors is not aware of any such effort.
Under the Stockholder Rights Agreement, the Company' Board declared a
dividend distribution of one right for each outstanding share of the Company
common stock. Upon becoming exercisable, each right would entitle its holder to
buy one share of the Company common stock at an exercise price of $29. The
rights will become exercisable if a person or group (other than certain exempt
persons) acquires 15% or more of the Company common stock or announces a tender
offer for 15% or more of the Company common stock.
9
<PAGE>
The Company can redeem the rights at $.001 each at anytime before a non-
exempt person acquires 15% of the Company common stock. If such a person
acquires 15% or more of the Company' common stock, each right would enable the
Company stockholder to acquire the Company common stock having a market value of
twice the right's exercise price, or in effect, at a 50% discount to the market
price. If the Company were acquired by a merger or similar transaction after
such an event, each right would enable the Company stockholder to buy shares of
the acquiring company having a market value of twice the right's exercise price,
or in effect, at a 50% discount to the market price.
The rights dividend distribution will be made on August 1, 1996 payable to
stockholders of record on August 1, 1996. The rights will expire on July 9,
2006. The rights dividend distribution is not taxable to the Company
stockholders. The Rights Agreement exempts ownership of the Company common
stock by William M. Theisen, the Company's Chief Executive Officer, and his
related interests and current holders of warrants to purchase 1,000,000 or more
shares of the Company common stock.
Certificates representing the rights will not be issued at this time, and
the rights will trade with, and will not be detachable from, the Company common
stock until the rights become exercisable.
The information set forth herein reflects all adjustments which are, in the
opinion of management, necessary to a fair statement of the results for the
interim period.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
GB FOODS CORPORATION
<S> <C>
Date: August 2, 1996 By: William M. Thiesen
--------------------------------------
William M. Theisen
Chief Executive Officer, President and
Chairman of the Board
Date: August 2, 1996 By: George J. Kubat
------------------------------
George J. Kubat
Chief Financial Officer
(Principal Accounting Officer)
</TABLE>
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
GB Foods Corporation financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 383,864
<SECURITIES> 920,627
<RECEIVABLES> 466,914
<ALLOWANCES> 195,981
<INVENTORY> 0
<CURRENT-ASSETS> 1,675,416
<PP&E> 2,213,197
<DEPRECIATION> 1,179,582
<TOTAL-ASSETS> 3,295,629
<CURRENT-LIABILITIES> 543,137
<BONDS> 20,224
0
0
<COMMON> 515,794
<OTHER-SE> 2,158,905
<TOTAL-LIABILITY-AND-EQUITY> 3,295,629
<SALES> 2,157,560
<TOTAL-REVENUES> 2,355,151
<CGS> 1,023,166
<TOTAL-COSTS> 1,435,252
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (316,465)
<INCOME-TAX> 0
<INCOME-CONTINUING> (316,465)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (316,465)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
