<PAGE> 1
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 September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File 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)
1200 N. HARBOR BLVD.
P.O. BOX 61093 92803
ANAHEIM, CALIFORNIA
(Address of Principal Executive Office) (Zip Code)
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 491-6400
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 November 13, 1997, the registrant had 6,514,108 shares outstanding
of its Common Stock, $.08 par value.
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GB FOODS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at September 30, 1997 and December 31, 1996 .........................3
Consolidated Statements of Operations for the three and nine months ended
September 30, 1997 and 1996 .....................................................................4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996 .....................................................................5
Notes to Consolidated Financial Statements.......................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION........................8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K:
Signatures .....................................................................................10
Exhibit 11 Calculation of Earnings Per Share....................................................11
</TABLE>
2
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Part I. FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
GB FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(unaudited)
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,021,952 $ 753,601
Short-term investments 1,541,591 1,020,893
Accounts and notes receivable, net 363,367 365,048
Other assets 156,544 81,003
------------ ------------
Total current assets 3,083,454 2,220,545
Equipment and improvements, net 531,146 739,005
Notes receivable, net 359,404 399,098
Other assets 126,783 103,448
------------ ------------
$ 4,100,787 $ 3,462,096
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt $ 6,618 $ 10,538
Accounts payable and accrued expenses 276,120 359,329
Accrued salaries, wages and employee benefits 85,265 109,649
Deferred franchise fees -- 12,500
------------ ------------
Total current liabilities 368,003 492,016
Long-term debt, less current installments 8,931 14,835
Minority interest in consolidated partnership 57,525 60,149
Shareholders' equity
Common stock, $.08 par value, authorized 50,000,000
shares; 6,508,608 and 6,440,414 shares issued and
outstanding at September 30, 1997 and December 31,
1996, respectively 520,688 515,232
Additional paid-in capital 15,947,997 15,770,983
Accumulated deficit (12,802,357) (13,391,119)
------------ ------------
Total shareholders' equity 3,666,328 2,895,096
------------ ------------
$ 4,100,787 $ 3,462,096
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
GB FOODS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Restaurant operations $ 756,440 $ 730,819 $2,280,679 $ 2,239,352
Franchise royalties 327,521 282,415 902,454 786,739
Franchise fees 162,250 100,750 336,752 245,453
Interest 39,931 22,796 103,736 77,767
Other 136,086 112,288 385,101 254,908
---------- ---------- ---------- -----------
1,422,228 1,249,068 4,008,722 3,604,219
---------- ---------- ---------- -----------
Restaurant operating costs:
Food and packaging 278,073 277,068 837,484 850,978
Payroll and other
employee benefits 221,872 219,947 654,083 669,203
Occupancy and other 198,608 199,700 606,898 611,786
General and administrative 474,160 409,752 1,297,092 1,637,836
---------- ---------- ---------- -----------
1,172,713 1,106,467 3,395,557 3,769,803
---------- ---------- ---------- -----------
Income (loss) before minority
interest in consolidated
partnership 249,515 142,601 613,165 (165,584)
Minority interest in consolidated
partnership 2,525 2,964 10,805 11,244
Provison for income taxes 13,600 -- 13,600 --
---------- ---------- ---------- -----------
Net income (loss) $ 233,390 $ 139,637 $ 588,760 $ (176,828)
========== ========== ========== ===========
Earnings (loss) per share $ .03 $ .02 $ .08 $ (.03)
========== ========== ========== ===========
Total weighted average
shares outstanding 7,159,887 6,448,101 7,128,653 6,355,872
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
GB FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 588,760 $ (176,828)
Adjustments to reconcile net income (loss) to net
cash flows provided by (used in) operating activities:
Depreciation and amortization 227,492 257,578
Provision for doubtful accounts (16,800) 20,579
Minority interest in consolidation partnership (2,624) (187)
Changes in operating assets and liabilities:
Accounts and notes receivable 58,174 20,833
Accounts payable and accrued expenses (83,209) (271,032)
Other assets (100,403) 136,567
Salaries, wages and employee benefits (24,384) (35,531)
Deferred franchise fees (12,500) (5,000)
----------- -----------
Net cash provided by operating activities 634,506 (53,021)
Cash flows from investing activities:
Proceeds from short-term investments 1,375,936 1,975,428
Expenditures for short-term investments (1,896,634) (2,222,956)
Proceeds from the sale of equipment and improvements 31,981 76,350
Expenditures for equipment and improvements (41,804) (36,327)
----------- -----------
Net cash used in investing activities (530,521) (207,505)
----------- -----------
Cash flows from financing activities:
Repayments of long-term debt (9,824) (7,707)
Proceeds from issuance of common stock under
stock option plan 182,470 565,684
Distribution to minority partner (8,280) (11,431)
----------- -----------
Net cash provided by financing activities 164,366 546,546
----------- -----------
Net increase in cash and cash equivalents 268,351 286,020
Cash and cash equivalents at beginning of period 753,601 216,728
----------- -----------
Cash and cash equivalents at end of period $ 1,021,952 $ 502,748
=========== ===========
Supplemental Information:
Cash paid during the period for:
Interest $ 1,266 $ 2,098
Income taxes $ 13,600 $ 1,600
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
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 generally
accepted accounting principles, the instructions to Form 10-Q and Article 10
of Regulation S-X. 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 and nine months ended September 30, 1997 and 1996,
respectively:
<TABLE>
<CAPTION>
1997 1996
---- ----
3 mos 9 mos 3 mos 9 mos
----- ----- ----- -----
<S> <C> <C> <C> <C>
Dual-concept stores at beginning of period 102 84 73 41
Dual-concept stores opened during period 18 39 14 46
Dual-concept stores closed during period - (3) (11) (11)
--- --- --- ---
Dual-concept stores at end of period 120 120 76 76
=== === === ===
</TABLE>
As of September 30, 1997 and 1996, the total number of free-standing
franchise stores were 41 and 44, respectively.
3. Net Income (Loss) Per Share
---------------------------
Net income (loss) per share is based on 7,159,887 weighted average shares
outstanding during the three months ended September 30, 1997 and 6,448,101
for the three months ended September 30, 1996. Net income (loss) per share
is based on 7,128,653 weighted average shares outstanding during the nine
months ended September 30, 1997, and 6,355,872 weighted average shares
outstanding during the nine months ended September 30, 1996. Outstanding
stock options and warrants are considered common stock equivalents and had a
dilutive effect in 1997. The assumed exercise of common stock equivalents
would have an anti-dilutive effect in 1996 and therefore have not been
included in the number of weighted average shares outstanding.
In March 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
6
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common stock equivalents and thus no dilution; requires entities with
complex capital structures to present basic and diluted EPS on the face 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 fiscal years ending after December 15, 1997 with
earlier application not permitted. Upon adoption, all prior earnings per
share are required to be restated.
4. Income Taxes
------------
At September 30, 1997, the Company had net operating loss carryforward for
federal tax purposes of approximately $12,846,000 which, if unused to offset
future taxable income, will expire between 2008 and 2012, and approximately
$6,656,000 for state tax purposes which will expire if unused between 1999
and 2002. The provision for income taxes established for the Company in the
third quarter of 1997 includes both the estimated federal alternative
minimum tax and franchise taxes due.
As of September 30, 1997, the Company has continued to provide a valuation
allowance to offset the related deferred tax assets due to the uncertainty
of realizing any benefit therefrom. The Company will continue to evaluate
the need for a 100% valuation allowance.
5. Stockholder Rights Agreement
----------------------------
On July 22, 1997, the Company exercised its right to redeem all the rights
under the July 9, 1996 Stockholders Rights Agreement for an exercise price
of $.001 per right or total consideration of $6,494. Under the terms of the
Stockholders Rights Agreement each right entitled its holder to buy one
share of the Company's common stock at an exercise price of $29.00 per
share.
6. Stock-based Compensation Plans
------------------------------
On August 26, 1997, the Company granted options to officers and directors of
the Company to purchase 445,000 shares of the Company's common stock at
$8.625 per share, which represented the fair market value of the Company's
common stock on such date.
7. Recent Accounting Pronouncements
--------------------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS 130 requires all items that are
required to be recognized under accounting standards as components of
comprehensive income to be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130
does not require a specific format for that financial statement, but
requires that an enterprise display an amount representing total
comprehensive income for the period covered by that financial statement.
SFAS 130 requires an enterprise to (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement
of financial position. SFAS 130 is effective for fiscal years beginning
after December 15, 1997. Management has not determined whether the adoption
of SFAS 130 will have a material impact on the Company's financial position
or results of operations.
7
<PAGE> 8
7. Recent Accounting Pronouncements - continued
--------------------------------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for public
business enterprises to report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. This statement supersedes FASB Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to
remove the special disclosure requirements for previously unconsolidated
subsidiaries. SFAS 131 requires, amoung other items, that a public business
enterprise report a measure of segment profit or loss, certain secific
revenue and expense items, segment assets, information about the revenues
derived from the enterprise's products or services and major customers. SFAS
131 also requires that the enterprise report descriptive information about
the way that the operating segments were determined and the products and
services provided by the operating segments. SFAS 131 is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to
be restated. SFAS 131 need not be applied to interim financial statements in
the initial year of its application, but comparative information for interim
periods in the initial year of application is to be reported in financial
statements for interim periods in the second year of application. Management
has not determined whether the adoption of SFAS 131 will have a material
impact on the Copmany's financial reporting.
8
<PAGE> 9
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 third quarter of 1997 increased $173,160, or 14%,
to $1,422,228 compared with revenues of $1,249,068 during the same period in
1996. Total revenues for the nine months ended September 30, 1997 increased
$404,503, or 11%, to $4,008,722 compared with revenues of $3,604,219 for the
same period in 1996.
Revenues from restaurant operations for the third quarter of 1997 increased
$25,621, or 4%, to $756,440 compared with $730,819 for the corresponding period
in 1996. For the nine months ended September 30, 1997 revenue from restaurant
operations increased $41,327, or 2%, to $2,280,679 compared with $2,239,352 for
the same period in 1996. As of September 30, 1997 and 1996 the Company owned 7
stores.
Franchise royalties earned in the third quarter of 1997 increased $45,106,
or 16%, to $327,521 from $282,415 for the third quarter in 1996. Franchise
royalties earned for the nine months ended September 30, 1997 increased
$115,715, or 15%, to $902,454 from $786,739 for the corresponding period in
1996. This increase in royalties earned was primarily due to the increase in the
number of dual-concept franchise stores in operation.
Franchise fee income increased $61,500, or 61%, to $162,250 in the third
quarter of 1997 as compared with $100,750 in the third quarter of 1996. This
favorable increase was the result of increased dual-concept store openings in
the third quarter of 1997 of 18 as compared to 14 in the third quarter of 1996.
Also contributing to this favorable increase was the sale of a new franchise for
a stand alone store for $25,000. Franchise fee income increased $91,299, or 37%,
to $336,752 for the nine month period ended September 30, 1997 from $245,453 for
the corresponding period in 1996. During the nine month period ended September
30, 1997 there were 39 dual-concept franchise store openings compared with 46
9
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dual-concept store openings for the nine month period ended September 30, 1996.
However, no franchise fees were received from 14 test stores opened during 1996.
On an aggregate basis, cost of sales and occupancy and other operating costs
expressed as a percentage of sales for the Company owned restaurants have
remained substantially unchanged during the three and nine month periods ended
September 30, 1997 as compared with the same periods in 1996. Cost of sales from
restaurant operations (food, packaging, payroll and other employee benefits) as
a percentage of revenues were 66% and 68% for the third quarters of 1997 and
1996, respectively and for both the nine months ended September 30, 1997 and
1996, respectively. Occupancy and other operating costs from restaurant
operations expressed as a percentage of revenues were 26% and 27% for the third
quarter of 1997 and 1996, respectively and 27% for the nine month periods ended
September 30, 1997 and 1996, respectively.
General and administrative expenses increased $64,408, or 16%, to $474,160
in the third quarter of 1997 compared with $409,752 incurred in the third
quarter of 1996. General and administrative expenses decreased $340,744, or 21%,
to $1,297,092 for the nine month period ended September 30, 1997 as compared to
$1,637,836 for the nine months ended September 30, 1996. The decrease is
primarily due to 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.
EFFECT OF INFLATION
The Company's food and labor costs are subject to inflation. 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. On March 1, 1997 the California statutory minimum wage was increased to
$5.00 per hour and again increased on September 1, 1997 to $5.15 per hour. This
increase in the statutory minimum wage has not had a material impact on the
Company's current operations. At September 30, 1997, approximately 26 of the 62
hourly employees were paid the California statutory minimum wage. In addition,
most of the Company's leases have escalation provisions based on the consumer
price index and increases in store revenues. Most leases also require the
Company 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 quantities due to the
increased number of franchise stores.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and short-term investments of $2,559,304
at September 30,1997 and $1,774,494 at December 31, 1996. The increase in cash,
cash equivalents and short-term investments is primarily the result of the
operating income generated for the nine months ended September 30, 1997.
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> 11
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 Calculation of Earnings Per Share
Exhibit 27 Financial Data Schedule (included in electronic filing only)
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/ GARY R. NELSON
November 13 , 1997 ----------------------------
Gary R. Nelson
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
11 Calculation of Earnings Per Share
27 Financial Data Schedule (included in electronic filing only)
</TABLE>
<PAGE> 1
EXHIBIT 11
GB FOODS CORPORATION
CALCULATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended Sept. 30,
-------------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
EARNINGS PER SHARE
- ------------------
Net income (loss) $ 233 $ 140 $ 589 $ (177)
====== ====== ====== =======
Weighted average number
of shares outstanding during
the period 6,487 6,448 6,456 6,356
Incremental common shares
attributable to exercise of
outstanding options and warrants 672 0 672 0
------ ------ ------ -------
Total shares 7,159 6,448 7,128 6,356
====== ====== ====== =======
Earnings (loss) per share $ .03 $ .02 $ .08 $ (.03)
====== ====== ====== =======
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,022
<SECURITIES> 1,542
<RECEIVABLES> 884
<ALLOWANCES> 161
<INVENTORY> 35
<CURRENT-ASSETS> 3,083
<PP&E> 2,009
<DEPRECIATION> 1,478
<TOTAL-ASSETS> 4,101
<CURRENT-LIABILITIES> 368
<BONDS> 9
0
0
<COMMON> 521
<OTHER-SE> 3,145
<TOTAL-LIABILITY-AND-EQUITY> 4,101
<SALES> 2,337
<TOTAL-REVENUES> 4,009
<CGS> 1,540
<TOTAL-COSTS> 3,395
<OTHER-EXPENSES> 11
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 603
<INCOME-TAX> 14
<INCOME-CONTINUING> 589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 589
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
