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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 three month period ended March 31, 1997
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File 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)
23 CORPORATE PLAZA, SUITE 246
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 March 31, 1997, the registrant had 6,440,414 shares outstanding of its
Common Stock, $.08 par value.
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GB FOODS CORPORATION
Index
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<CAPTION>
PART I. FINANCIAL INFORMATION Page
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
<S> <C>
Consolidated Balance Sheets at March 31, 1997 and December 31, 1996..................................................... 3
Consolidated Statements of Operations for the three months ended
March 31, 1997 and 1996................................................................................................. 4
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 and 1996................................................................................................. 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............................................................................................................... 11
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2
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GB FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(unaudited) (unaudited)
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 801,489 $ 753,601
Short-term investments 1,041,081 1,020,893
Accounts and notes receivable 350,866 365,048
Other assets 109,656 81,003
------------ ------------
Total current assets 2,303,092 2,220,545
Equipment and improvements, net 679,325 739,005
Notes receivable 386,265 399,098
Other assets 131,951 103,448
------------ ------------
$ 3,500,633 $ 3,462,096
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt $ 7,941 $ 10,538
Accounts payable and accrued expenses 301,252 359,329
Accrued salaries, wages and employee benefits 94,729 109,649
Deferred franchise fees - 12,500
------------ ------------
Total current liabilities 403,922 492,016
Long-term debt, less current installments 38,320 14,835
Minority interest in consolidated partnership 64,037 60,149
Shareholders' equity
Common stock, $.08 par value, authorized 50,000,000 shares; and 6,440,414
shares issued and outstanding at March 31, 1997 and December 31, 1996 515,232 515,232
Additional paid-in capital 15,770,983 15,770,983
Accumulated deficit (13,291,861) (13,391,119)
------------ ------------
Net shareholders' equity 2,994,354 2,895,096
------------ ------------
$ 3,500,633 $ 3,462,096
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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GB FOODS CORPORATION
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Restaurant operations $ 737,499 $ 760,326
Franchise royalties and fees 335,195 303,815
Interest 30,991 28,159
Other 107,722 64,872
------------ ------------
1,211,407 1,157,172
------------ ------------
Restaurant operating costs:
Food and packaging 274,616 287,103
Payroll and other employee benefits 208,790 229,467
Occupancy and other operating costs 197,604 209,314
General and administrative 423,245 666,523
------------ ------------
1,104,255 1,392,407
------------ ------------
Income (loss) before minority interest
in consolidated partnership and income
tax expense 107,152 (235,235)
Minority interest in consolidated
partnership 7,896 6,852
------------ ------------
Net income (loss) $ 99,256 $ (242,087)
============ ============
Net income (loss) per share $ .02 $ (.04)
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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GB FOODS CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1997 1996
------------- --------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 82,245 $(204,556)
------------- --------------
Cash flow from investing activities
Proceeds from short-term investments 329,645 749,499
Expenditures for short-term investments 16,540 (679,958)
Proceeds from notes receivable (345,684) 10,259
Proceeds from the sale of equipment and improvements - 76,350
Expenditures for equipment and improvements (24,365) (9,793)
------------- --------------
Net cash provided by (used in) investing activities (23,864) 146,357
------------- --------------
Cash flow from financing activities
Repayments of long-term debt (2,597) (2,546)
Proceeds from issuance of common stock under stock
option plans - 54,000
Distribution to minority partner (7,896) (6,852)
------------- --------------
Net cash provided by (used in) financing activities (10,493) 44,602
------------- --------------
Net increase (decrease) in cash and cash equivalents 47,888 (13,597)
Cash and cash equivalents at beginning of period 753,601 216,728
------------- --------------
Cash and cash equivalents at end of period $ 801,489 $ 203,131
============= ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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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, 1996.
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 three months ended March 31, 1997 and 1996, respectively:
1997 1996
---- ----
Dual-concept stores at beginning of period 84 41
Dual-concept stores opened during period 5 26
---- ----
Dual-concept stores at end of period 89 67
==== ====
As of March 31, 1997 and 1996, the total number of free-standing franchise
stores were 43 and 45, respectively.
3. Net Income (Loss) Per Share
---------------------------
Net income (loss) per share are based on 6,440,414 weighted average shares
outstanding during the three months ended March 31, 1997, and 6,293,851
weighted average shares outstanding during the three months ended March 31,
1996. Outstanding stock options and warrants are considered common stock
equivalents. The assumed exercise of common stock equivalents would have an
anti-dilutive effect in 1997 and 1996 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.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128) - Earnings Per Share
which supersedes Accounting Principles Board No. 15 - Earnings Per Share.
SFAS 128 simplifies current standards for computing earnings per share (EPS)
and makes them comparable to international standards. The new standard will
eliminate the presentation of primary EPS and require the presentation of
basic EPS, which includes no common stock equivalents and thus no dilution;
requires entities with complex capital structures to present basic and
diluted EPS on the face
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of the income statement; and eliminates the modified treasury stock method of
computing potential common shares. SFAS 128 is effective for financial
statements issued for periods ending after December 31, 1997 with earlier
application not permitted. Upon adoption, all prior earnings per share are
required to be restated.
The company expects earnings per share as reported to be the same as basic
earnings per share under the new standards. Due to the elimination of the
modified treasury stock method, the Company expects to present diluted
earnings per share. Had the Company adopted the new standard effective
January 1, 1997, the pro forma diluted earnings per share would be $0.01 for
the quarter ended March 31, 1997.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All statements, other than statements of historical fact, included in this
Form 10-Q are, or may be deemed to be, "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934. Such forward-looking statements
involve assumptions, known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of GB Foods
Corporation ("the Company") to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements contained in this Form 10-Q. Such potential risks and uncertainties
include, without limitation, competitive pricing and other pressures from other
restaurant operations, economic conditions generally and in Company's primary
markets, consumer spending patterns, perceived quality and value of the
Company's products, availability of capital, cost of labor, food costs,
occupancy costs and other risk factors detailed herein and in other of the
Company's filings with the Securities and Exchange Commission. The forward-
looking statements are made as of the date of this Form 10-Q and the Company
assumes no obligation to update the forward-looking statements or to update the
reasons actual results could differ from those projected in such forward-looking
statements. Therefore, readers are cautioned not to place undue reliance on
these forward-looking statements.
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 first quarter of 1997 increased $54,235 (5%) to
$1,211,407 compared to revenues of $1,157,172 during the same period in 1996.
Revenues from restaurant operations for the first quarter of 1997 decreased
$22,827 (3%) to $737,499 compared to $760,326 for the corresponding period in
1996. This decrease in revenue was primarily attributable to the closure of one
Company-owned store at the end of February 1996. In addition, same store sales
increased (2%) for the three months ended March 31, 1997 and decreased (3%) for
the three months ended March 31, 1996. The total number of company owned
stores was comparable at seven as of March 31, 1997 and 1996.
Franchise royalties and fees earned in the first quarter of 1997 increased
$31,380 (9%) to $335,195 compared to $303,815 for the corresponding period in
1996, this increase is primarily due to an increase in franchise royalties,
which were partially offset by a decrease in franchise fees. Franchise
royalties earned in the first quarter of 1997 increased $49,093 (22%) to
$274,486 from $225,393 for the first quarter in 1996. This increase in revenue
was primarily due to the increase in the number of dual-concept franchise stores
in operation. Franchise fee income decreased $17,713 (23%) to $60,709 in the
first quarter of 1997 from $78,422 in the first quarter of 1996 due to only five
dual-concept stores being opened during the first quarter of 1997, compared to
26 dual-concept store openings during the first quarter of 1996 of which 12 paid
franchise fees and 14 were test stores and did not pay franchise fees.
8
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The following is a summary of dual-concept franchise store activity during the
three months ended March 31, 1997 and 1996, respectively:
1997 1996
---- ----
Dual-concept stores at beginning of quarter 84 41
Dual-concept stores opened during quarter 5 26
---- ----
Dual-concept stores at end of quarter 89 67
==== ====
The total number of free standing franchise stores were 43 and 45, at March
31, 1997 and 1996, 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
substantially consistent in the three months ended March 31, 1997 as compared to
the same periods in 1996. Cost of sales from restaurant operations (food,
packaging, payroll and other employee benefits) as a percentage of sales were
66% and 68% for the quarters ended March 31, 1997 and 1996, respectively.
Occupancy and other operating costs from restaurant operations expressed as a
percentage of sales were 27% and 28% for the quarters ended March 31, 1997 and
1996, respectively.
General and administrative expenses decreased to $423,246 in the first quarter
of 1997 compared to $666,523 incurred in the first quarter of 1996 primarily
because of a general reduction in payroll expenses, legal and consulting fees,
and other costs related to the development of the dual-concept business.
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. On October 1, 1996, the federal statutory minimum wage was
increased to $4.75 per hour. This increase in the statutory minimum wage has
not had a material impact on the Company's current operations as the majority of
the Company's hourly employees have been paid in excess of the statutory minimum
wage. On March 1, 1997 the California statutory minimum wage was increased to
$5.00 per hour. At March 31, 1997, approximately 40 of the 67 hourly employees
are paid the California 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
9
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inflation to date through small price increases and economies resulting from the
purchase of food products in increased quantities due to the increased number of
Green Burrito stores.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and short-term investments of
$1,842,570 at March 31, 1997 and $1,774,494 at December 31, 1996. The increase
in cash, cash equivalents and short-term investments is primarily due to cash
flow from operating activities. Management believes the Company's cash, cash
equivalents and short-term investments will be sufficient to finance current and
forecasted operations and obligations.
10
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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
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibits
- --------
Exhibit 27 Financial Data Schedule filed herewith
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.
GB FOODS CORPORATION
Date: By: /s/ WILLIAM M. THEISEN
----------------------------------
May 5, 1997 William M. Theisen
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Date: By: /s/ GEORGE J. KUBAT
----------------------------------
May 5, 1997 George J. Kubat
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 801,489
<SECURITIES> 1,041,081
<RECEIVABLES> 433,480
<ALLOWANCES> 82,614
<INVENTORY> 0
<CURRENT-ASSETS> 2,303,092
<PP&E> 2,043,426
<DEPRECIATION> 1,364,009
<TOTAL-ASSETS> 3,500,633
<CURRENT-LIABILITIES> 403,922
<BONDS> 102,357
0
0
<COMMON> 515,232
<OTHER-SE> 2,479,122
<TOTAL-LIABILITY-AND-EQUITY> 3,500,633
<SALES> 755,799
<TOTAL-REVENUES> 1,211,407
<CGS> 484,940
<TOTAL-COSTS> 681,010
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 99,256
<INCOME-TAX> 0
<INCOME-CONTINUING> 99,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,256
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
