<PAGE>
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 September 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 Identification No.)
incorporation or organization)
1100 NEWPORT CENTER DRIVE, SUITE 200
NEWPORT BEACH, CALIFORNIA 92660
(Address of Principal Executive Office) (Zip Code)
REGISTRANTS 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 September 30, 1996, the registrant had 6,448,768 shares outstanding of
its Common Stock, $.08 par value.
<PAGE>
GB FOODS CORPORATION
Index
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 1996 and December 31, 1995................................ 3
Consolidated Statements of Operations for the three and nine months ended
September 30, 1996 and 1995............................................................................ 4
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995............................................................................ 5
Notes to Consolidated Financial Statements............................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................................. 8
PART II. OTHER INFORMATION............................................................................ 11
SIGNATURES............................................................................................. 12
</TABLE>
2
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GB FOODS CORPORATION
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents........ $ 502,748 $ 216,728
Short-term investments........... 1,011,358 763,830
Accounts and notes receivable.... 295,303 268,277
Other assets..................... 15,575 125,841
---------- ----------
Total current assets............ 1,824,984 1,374,676
Equipment and improvements, net... 954,530 1,268,290
Notes receivable 471,831 519,690
Other assets 94,771 114,061
---------- ----------
$3,346,116 $3,276,717
========== ==========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities
Current installments of long-term debt................ $ 10,301 $ 10,203
Accounts payable and accrued expenses................. 291,377 562,409
Accrued salaries, wages and employee benefits......... 73,668 109,199
Deferred franchise fees............................... 75,000 80,000
------------ ------------
Total current liabilities............................ 450,346 761,811
Long-term debt, less current installments.............. 17,567 25,372
Minority interest in consolidated partnership.......... 60,533 60,720
Shareholders' equity
Common stock, $.08 par value, authorized 50,000,000
shares; 6,448,768 and 6,284,684 shares issued and
outstanding at September 30, 1996 and December 31,
1995, respectively................................... 515,900 502,774
Additional paid-in capital............................ 15,821,272 15,268,714
Accumulated deficit................................... (13,519,502) (13,342,674)
------------ ------------
Net shareholders' equity............................. 2,817,670 2,428,814
------------ ------------
$ 3,346,116 $ 3,276,717
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
GB FOODS CORPORATION
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 730,819 $ 1,337,961 $ 2,239,352 $ 3,920,728
Royalties 282,415 216,508 786,739 591,477
Franchise fees 100,750 232,500 245,453 275,000
Interest 22,796 18,878 77,767 65,784
Other 112,288 42,090 254,908 253,277
---------- ---------- ---------- -----------
1,249,068 1,847,937 3,604,219 5,106,266
---------- ---------- ---------- -----------
Restaurant operating costs:
Food and packaging 277,068 492,713 850,978 1,451,051
Payroll and other
employee benefits 219,947 383,247 669,203 1,184,236
Occupancy and other 199,700 384,756 611,786 1,114,280
General and administrative 409,752 773,244 1,637,836 2,218,743
Litigation settlements and related
costs - - - 825,753
---------- ---------- ---------- -----------
1,106,467 2,033,960 3,769,803 6,794,063
---------- ---------- ---------- -----------
Income (loss) before minority
interest in consolidated
partnership 142,601 (186,023) (165,584) (1,687,797)
Minority interest in consolidated
partnership 2,964 3,915 11,244 12,195
---------- ---------- ---------- -----------
Net income (loss) $ 139,637 $ (189,938) $ (176,828) $(1,699,992)
========== ============ ============ ===========
Net income (loss) per share $ .02 $ (.03) $ (.03) $ (.28)
========== ============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
GB FOODS CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Net cash flow used in operating activities $ (94,000) $ (649,443)
----------- -----------
Cash flows from investing activities
Proceeds from short-term investments 1,975,428 1,390,962
Purchases of short-term investments (2,222,956) (1,031,895)
Proceeds from notes receivable 40,979 -
Proceeds from the sale of equipment and improvements 76,350 198,686
Expenditures for equipment and improvements (36,327) (286,267)
----------- -----------
Net cash flow provided by (used in) investing activities (166,526) 271,486
----------- -----------
Cash flows from financing activities
Proceeds from long-term debt - 31,098
Repayments of long-term debt (7,707) (7,824)
Proceeds from issuance of common stock
under stock option plans 565,684 298,331
Distribution to minority partner (11,431) (13,780)
----------- -----------
Net cash flow provided by financing activities 546,546 307,825
----------- -----------
Net increase (decrease) in cash and cash equivalents 286,020 (70,132)
Cash and cash equivalents at beginning of period 216,728 414,570
----------- -----------
Cash and cash equivalents at end of period $ 502,748 $ 344,438
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
(unaudited)
1. General
-------
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. 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.
In the opinion of management, all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation have
been included. Operating results for interim periods are not necessarily
indicative of results expected for a full year.
2. Franchise Store Activity
------------------------
The following is a summary of dual-concept franchise store activity during
the nine months ended September 30, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
1996 1995
----- ----
<S> <C> <C>
Dual-concept stores at beginning of period 41 5
Dual-concept stores opened during period 49 28
Dual-concept stores closed during period (14) -
---- ----
Dual-concept stores at end of period 76 33
==== ====
</TABLE>
The total number of free-standing franchise stores was 44 at both September
30, 1996 and 1995.
3. Net Income (Loss) Per Share
---------------------------
Net income (loss) per share are based on 6,448,101 and 6,355,872 weighted
average shares outstanding during the three and nine months ended September
30, 1996, respectively and 6,273,517 and 6,124,175 weighted average shares
outstanding during the three and nine months ended September 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
income (loss) per share calculation in any of the periods presented.
6
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4. 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 September 30, 1996 there were two Rally's/Green
Burrito units in operation.
5. Stockholder Rights Agreement
----------------------------
On July 9, 1996 the Company adopted 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 was not
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's stockholders (with the
exception of William M. Theisen, the Company's Chief Executive Officer, his
related interests, and current holders of warrants to purchase 1,000,000 or
more shares of the Company's common stock) received one right for each
outstanding share of the Company's common stock. Each right entitles its
holder to buy one share of the Company's common stock at an exercise price of
$29. The Company can redeem the rights at $.001 each at any time before a
non-exempt person acquires 15% of the Company's common stock. The rights will
trade with, and are not detachable from, the Company's common stock until the
rights become exercisable.
The rights become exercisable if a person or group (other than certain exempt
persons) acquires 15% or more of the Company's common stock or announces a
tender offer for 15% or more of the Company's common stock. If such a person
acquires 15% or more of the Company's common stock, each right would enable a
Company stockholder to acquire shares of the Company's 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 a 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 was made on August 1, 1996 payable to
eligible stockholders of record on August 1, 1996. The rights expire on July
9, 2006. The rights dividend distribution is not taxable to the Company's
stockholders.
7
<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 third quarter of 1996 decreased $598,869 (32%)
to $1,249,068 compared to revenues of $1,847,937 during the same period in 1995.
Total revenues for the nine months ended September 30, 1996 decreased $1,502,047
(29%) to $3,604,219 compared to $5,106,266 for the same period in 1995.
Revenues from restaurant operations for the third quarter of 1996 decreased
$607,142 (45%) to $730,819 compared to $1,337,961 for the corresponding period
in 1995. Revenues from restaurant operations for the nine months ended
September 30, 1996 decreased $1,681,376 (43%) to $2,239,352 compared to
$3,920,728 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
1995, and the closure of one Company-owned store at the end of February 1996.
In addition, same store sales decreased 7% and 5% for the three and nine months
ended September 30, 1996, respectively. As of September 30, 1996 and 1995, the
Company had seven and 13 Company-owned stores, respectively.
Franchise royalties earned in the third quarter of 1996 increased $65,907
(30%) to $282,415 from $216,508 earned in the third quarter of 1995. Franchise
royalties for the nine months ended September 30, 1996 increased $195,262 (33%)
to $786,739 from $591,477 earned in the same period in 1995. The increases for
the comparable three and nine month periods are primarily due to the increase in
the number of dual-concept franchise stores in operation. The following is a
summary of dual-concept franchise store activity during the nine months ended
September 30, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
1996 1995
----- ----
<S> <C> <C>
Dual-concept stores at beginning of period 41 5
Dual-concept stores opened during period 49 28
Dual-concept stores closed during period (14) -
---- ----
Dual-concept stores at end of period 76 33
==== ====
</TABLE>
The total number of free-standing franchise stores was 44 at both September
30, 1996 and 1995.
Franchise fee income decreased $131,750 (57%) to $100,750 in the third
quarter of 1996 from $232,500 in the third quarter of 1995. The decrease in
franchise fee income for the comparable three months is due to a decrease in the
number of dual-concept franchise store openings from 24 in the third quarter of
1995 to 14 in the third quarter of 1996. Although the number of dual-concept
stores opened during the comparable nine month periods in 1995 and 1996
increased from 28 to 49, franchise fee income decreased $29,547 (11%) to
$245,453 in the nine months ended September 30, 1996 from $275,000 in the
comparable period in 1995. This
8
<PAGE>
decrease relates primarily to 14 dual-concept stores opened in 1996 which were
not required to pay franchise fees because they are considered test stores.
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 substantially consistent in the three and nine months ended September
30, 1996 as compared to the same periods in 1995. Cost of sales from restaurant
operations (food, packaging, payroll and other employee benefits) as a
percentage of sales were 68% and 65% for the quarters ended September 30, 1996
and 1995, respectively, and 68% and 67% for the nine months ended September 30,
1996 and 1995, respectively. Occupancy and other operating costs from
restaurant operations expressed as a percentage of sales were 28% and 29% for
the quarters ended September 30, 1996 and 1995, respectively, and 28% for the
nine months ended September 30, 1996 and 1995.
General and administrative expenses decreased to $409,752 in the third
quarter of 1996 compared to $773,244 in the third quarter of 1995 primarily
because of a charge of approximately $100,000 recorded in the third quarter of
1995 to reserve for costs associated with the relocation of the corporate
office. In addition, there was a reduction in payroll expenses, legal and
consulting fees, and other costs related to the development of the dual-concept
business in the third quarter of 1996. General and administrative expenses
decreased to $1,637,836 in the nine months ended September 30, 1996 compared to
$2,218,743 for the nine months ended September 30, 1995 primarily for the
reasons discussed previously, and a $100,000 charge recorded in the second
quarter of 1995 associated with the anticipated cost to relocate an existing
franchise store.
The Company incurred litigation settlements and related costs in the nine
months ended September 30, 1995 of $825,753. This amount includes 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 and recorded a charge of $109,360 in the second quarter of 1995
related to the settlement of the Carl Karcher Enterprises, Inc. litigation.
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. The federal statutory
9
<PAGE>
minimum wage was increased to $4.75 effective October 1, 1996. At October 1,
1996, approximately 40 of the Company's 73 hourly employees were 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
primarily through price increases.
Liquidity and Capital Resources
The Company had working capital of $1,374,638 at September 30, 1996
compared to $612,865 at December 31, 1995 including cash and cash equivalents of
$502,748 at September 30, 1996 and $216,728 at December 31, 1995. The increase
in working capital is primarily due to proceeds from the issuance of common
stock under stock option plans. Management believes the Company's cash, cash
equivalents and short-term investments will be sufficient to finance current and
forecasted operations and obligations.
10
<PAGE>
PART II
OTHER INFORMATION
Item 2. Change in Securities
See Item 6, Exhibits and Reports on Form 8-K.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
- --------
Exhibit 27 Financial Data Schedule, filed herewith.
Reports on Form 8-K
- -------------------
Stockholder Rights Plan. 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 was not 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's stockholders (with
the exception of William M. Theisen, the Company's Chief Executive Officer, his
related interests, and current holders of warrants to purchase 1,000,000 or more
shares of the Company's common stock) received one right for each outstanding
share of the Company's common stock. Each right entitles its holder to buy one
share of the Company's common stock at an exercise price of $29. The Company
can redeem the rights at $.001 each at any time before a non-exempt person
acquires 15% of the Company's common stock. The rights will trade with, and are
not detachable from, the Company's common stock until the rights become
exercisable.
The rights become exercisable if a person or group (other than certain
exempt persons) acquires 15% or more of the Company's common stock or announces
a tender offer for 15% or more of the Company's common stock. If such a person
acquires 15% or more of the Company's common stock, each right would enable a
Company stockholder to acquire shares of the Company's 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 a 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 was made on August 1, 1996 payable to
eligible stockholders of record on August 1, 1996. The rights expire on July 9,
2006. The rights dividend distribution is not taxable to the Company's
stockholders.
Change in Principal Accountants. On October 28, 1996, the Company filed a
Special Report on Form 8-K reporting the dismissal of its principal accountants,
Cacciamatta Accountancy Corporation (formerly known as Saddington.Cacciamatta),
and the appointment of Grant Thornton LLP as the Company's new principal
accountants.
11
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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: November 1, 1996 By: /s/ WILLIAM M. THEISEN
-------------------------------
William M. Theisen
Chief Executive Officer,
President and
Chairman of the Board
Date: November 1, 1996 By: /s/ GEORGE J. KUBAT
--------------------------------
George J. Kubat
Chief Financial Officer
(Principal Accounting Officer)
</TABLE>
12
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 502,748
<SECURITIES> 1,011,358
<RECEIVABLES> 484,643
<ALLOWANCES> 189,341
<INVENTORY> 0
<CURRENT-ASSETS> 1,824,984
<PP&E> 2,216,043
<DEPRECIATION> 1,261,513
<TOTAL-ASSETS> 3,346,116
<CURRENT-LIABILITIES> 450,346
<BONDS> 60,533
0
0
<COMMON> 515,900
<OTHER-SE> 2,301,770
<TOTAL-LIABILITY-AND-EQUITY> 3,346,116
<SALES> 3,271,544
<TOTAL-REVENUES> 3,604,219
<CGS> 1,520,181
<TOTAL-COSTS> 2,131,967
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (176,828)
<INCOME-TAX> 0
<INCOME-CONTINUING> (176,828)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (176,828)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
