<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 quarterly period ended June 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 (I.R.S. Employer Identification No.)
of 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 August 13, 1997, the registrant had 6,493,748 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 June 30, 1997 and December 31, 1996. 3
Consolidated Statements of Operations for the three and six months
ended June 30, 1997 and 1996....................................... 4
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 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
Item 6 Exhibits and Reports on Form 8-K......................... 11
Signatures ........................................................ 11
</TABLE>
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
GB FOODS CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1997 1996
(unaudited)
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,049,566 $ 753,601
Short-term investments 1,052,853 1,020,893
Accounts and notes receivable, net 387,394 365,048
Other assets 118,208 81,003
------------ ------------
Total current assets 2,608,021 2,220,545
Equipment and improvements, net 608,108 739,005
Notes receivable, net 373,035 399,098
Other assets 129,422 103,448
------------ ------------
$ 3,718,586 $ 3,462,096
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt $ 7,425 $ 10,538
Accounts payable and accrued expenses 271,968 359,329
Accrued salaries, wages and employee benefits 122,765 109,649
Deferred franchise fees - 12,500
------------ ------------
Total current liabilities 402,158 492,016
Long-term debt, less current installments 9,437 14,835
Minority interest in consolidated partnership 56,525 60,149
Shareholders' equity
Common stock, $.08 par value, authorized 50,000,000
shares; 6,440,414 shares issued and
outstanding at June 30, 1997 and December 31,
1996, respectively 515,232 515,232
Additional paid-in capital 15,770,983 15,770,983
Accumulated deficit (13,035,749) (13,391,119)
------------ ------------
Total shareholders' equity 3,250,466 2,895,096
------------ ------------
$ 3,718,586 $ 3,462,096
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
GB FOODS CORPORATION
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
1997 1996 1997 1996
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant operations $ 786,740 $ 748,207 $1,524,239 $1,508,533
Royalties 300,447 278,931 574,933 504,324
Franchise fees 113,793 66,281 174,502 144,703
Interest 32,814 26,812 63,805 54,971
Other 141,293 77,748 249,015 142,620
---------- ---------- ---------- ----------
1,375,087 1,197,979 2,586,494 2,355,151
---------- ---------- ---------- ----------
Restaurant operating costs:
Food and packaging 284,795 286,807 559,411 573,910
Payroll and other employee benefits 223,421 219,789 432,211 449,256
Occupancy and other 210,686 202,772 408,290 412,086
General and administrative 399,687 561,561 822,932 1,228,084
---------- ---------- ---------- ----------
1,118,589 1,270,929 2,222,844 2,663,336
---------- ---------- ---------- ----------
Income (loss) before minority interest in
consolidated partnership 256,498 (72,950) 363,650 (308,185)
Minority interest in consolidated partnership 384 1,428 8,280 8,280
---------- ---------- ---------- ----------
Net income (loss) $ 256,114 $ (74,378) $ 355,370 $ (316,465)
========== ========== ========== ==========
Earnings (loss) per share $ .04 $ (.01) $ .05 $ (.05)
========== ========== ========== ==========
Total weighted average shares outstanding 6,940,414 6,417,226 6,940,414 6,355,538
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
GB FOODS CORPORATION
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 355,370 $ (316,465)
Adjustments to reconcile net income (loss) to net
cash flows provided by (used in) operating activities:
Depreciation and amortization 153,617 174,728
Minority interest in consolidation partnership 4,657 8,280
Changes in operating assets and liabilities:
Accounts and notes receivable 13,916 20,176
Provision for doubtful accounts (10,199) 8,215
Accounts payable and accrued expenses (87,361) (202,344)
Other assets (69,719) 34,552
Salaries, wages and employee benefits 13,116 (11,330)
Deferred franchise fees (12,500) (5,000)
----------- -----------
Net cash flows provided by (used in) operating activities 360,897 (289,188)
Cash flows from investing activities:
Proceeds from short-term investments 1,015,152 911,582
Expenditures for short-term investments (1,047,112) (1,068,379)
Proceeds from the sale of equipment and improvements 9,089 100,831
Expenditures for equipment and improvements (25,270) (33,481)
----------- -----------
Net cash used in investing activities (48,141) (89,447)
----------- -----------
Cash flows from financing activities:
Repayments of long-term debt (8,511) (5,148)
Proceeds from issuance of common stock under
stock option plan - 562,350
Distribution to minority partner (8,280) (11,431)
----------- -----------
Net cash provided by (used in) financing activities (16,791) 545,771
----------- -----------
Net increase in cash and cash equivalents 295,965 167,136
Cash and cash equivalents at beginning of period 753,601 216,728
----------- -----------
Cash and cash equivalents at end of period $ 1,049,566 $ 383,864
=========== ===========
Supplemental Information:
Cash paid during the period for:
Interest $ 1,028 $ 1,424
Income taxes $ 800 $ 800
</TABLE>
The accompanying notes are an integral part of the 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 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 six months ended June 30, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Dual-concept stores at beginning of period 84 41
Dual-concept stores opened during period 18 32
---- ----
Dual-concept stores at end of period 102 73
==== ====
</TABLE>
As of June 30, 1997 and 1996, the total number of free-standing franchise
stores were 42 and 44, 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 June 30, 1997 and 6,417,226 for
the three months ended June 30, 1996. Net income (loss) per share are based
on 6,440,414 weighted average shares outstanding during the six months ended
June 30, 1997, and 6,355,538 weighted average shares outstanding during the
six months ended June 30, 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 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 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 common stock equivalents and thus no dilution;
6
<PAGE>
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 June 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.
As of June 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. Subsequent Event
----------------
On July 22, 1997, Fidelity National Financial, Inc. ("Fidelity") purchased
1,000,000 shares of the Company's common stock from the Company's principal
shareholder and 3,500,000 common stock purchase warrants from such
shareholder and another unrelated party for an aggregate of $5,800,000 in
cash. Of the 3,500,000 warrants purchased, 1,500,000 are exercisable at
$5.00 per share, 1,000,000 are exercisable at $7.00 per share, and 1,000,000
are exercisable at $7.50 per share. On a fully-diluted basis, the common
stock and warrants purchased represent a 41% interest in the Company.
In conjunction with the purchase, three of the company's directors have
resigned which included both the Chief Executive Officer and Chief Financial
Officer of the Company. Key officers of the insurance company have filled
the director and officer vacancies.
7
<PAGE>
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 second quarter of 1997 increased $177,108 (15%)
to $1,375,087 compared with revenues of $1,197,979 during the same period in
1996. Total revenues for the six months ended June 30, 1997 increased $231,343
(10%) to $2,586,494 compared to $2,355,151 for the same period in 1996.
Revenues from restaurant operations for the second quarter of 1997 increased
$38,533 (5%) to $786,740 compared with $748,207 for the corresponding period in
1996. For the six months ended June 30, 1997 revenue from restaurant operations
increased $15,706 (1%) to $1,524,239 compared with $1,508,533 for the same
period in 1996. This increase in same store revenue was primarily attributable
to increased radio and print advertisements during the second quarter of 1997.
As of June 30, 1997 and 1996 the Company owned 7 stores.
Franchise royalties earned in the second quarter of 1997 increased $21,516
(8%) to $300,447 from $278,931 for the second quarter in 1996. Franchise
royalties earned for the six months ended June 30, 1997 increased $70,609 (14%)
to $574,933 from $504,324 for the corresponding period in 1996. This increase
in revenue was primarily due to the increase in the number of dual-concept
franchise stores in operation.
8
<PAGE>
The following is a summary of dual-concept franchise store activity during the
three month and six month periods ended June 30, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
3 Months 6 Months
----------- ---------------
1997 1996 1997 1996
---- ---- -------- ----
<S> <C> <C> <C> <C>
Dual-concept stores at beginning of period 89 67 84 41
Dual-concept stores opened during period 13 6 18 32
---- ---- ---- ----
Dual-concept stores at end of period 102 73 102 73
==== ==== ==== ====
</TABLE>
The total number of free standing franchise stores were 42 and 44, at June 30,
1997 and 1996, respectively.
Franchise fee income increased $47,512 (72%) to $113,793 in the second
quarter of 1997 from $66,281 in the second quarter of 1996 primarily due to 13
dual-concept franchise store openings during the second quarter of 1997 compared
with six dual-concept store openings for the second quarter of 1996. Franchise
fee income increased $29,799 (21%) to $174,502 for the six month period ended
June 30, 1997 from $144,703 for the corresponding period in 1996. During the
six month period ended June 30, 1997 there were 18 dual-concept franchise store
openings compared with 32 dual-concept store openings for the six month period
ended June 30, 1996 consisting of several test stores, which were not required
to pay franchise fees.
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 six month periods ended
June 30, 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 65% and 68% for both the second quarters of 1997 and
1996, respectively and for both the six months ended June 30, 1997 and 1996,
respectively. Occupancy and other operating costs from restaurant operations
expressed as a percentage of sales were 27% for both the second quarter and six
month period ended June 30, 1997 and 1996, respectively.
General and administrative expenses decreased $161,874 (29%) to $399,687 in
the second quarter of 1997 compared to $561,561 incurred in the second quarter
of 1996. General and administrative expenses decreased $405,152 (33%) to
$822,932 for the six month period ended June 30, 1996 compared to $1,228,084 for
the six months ended June 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.
9
<PAGE>
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. This increase in the statutory minimum wage has not had a material impact
on the Company's current operations. On March 1, 1997 the California statutory
minimum wage was increased to $5.00 per hour. At June 30, 1997, approximately
35 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
$2,102,419 at June 30, 1997 and $1,774,494 at December 31, 1996. The increase
in cash, cash equivalents and short-term investments is primarily due to net
income from operations. 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 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)
(b) Reports on Form 8-K:
On August 7, 1997 the Company filed a report on Form 8-K regarding a
change of control which occurred on July 22, 1997 when Fidelity National
Financial, Inc. purchased 1,000,000 shares of the Company's common stock and
3,500,000 common stock purchase warrants. On a fully-diluted basis, the common
stock and warrants purchased represent a 41% interest in the Company.
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
August 13, 1997 -------------------------
Gary R. Nelson
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11
<PAGE>
EXHIBIT 11
GB FOODS CORPORATION
CALCULATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30. Six Months Ended June 30,
---------------------------- --------------------------
1997 1996 1997 1996
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE
- ------------------
Net income (loss) $ 256 $ (74) $ 355 $ (316)
======== ======== ======= ========
Weighted average number
of shares outstanding during
the period 6,440 6,417 6,440 6,355
Incremental common shares
attributable to exercise of
outstanding options and warrants 500 0 500 0
-------- -------- ------- --------
Total shares 6,940 6,417 6,940 6,356
======== ======== ======= ========
Earnings (loss) per share $ .04 $ (.01) $ .05 $ (.05)
======== ======== ======== ========
</TABLE>
<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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,049,566
<SECURITIES> 1,052,853
<RECEIVABLES> 466,007
<ALLOWANCES> 78,613
<INVENTORY> 0
<CURRENT-ASSETS> 2,608,021
<PP&E> 2,044,248
<DEPRECIATION> 1,436,138
<TOTAL-ASSETS> 3,718,586
<CURRENT-LIABILITIES> 374,066
<BONDS> 94,053
0
0
<COMMON> 515,232
<OTHER-SE> 2,735,234
<TOTAL-LIABILITY-AND-EQUITY> 3,718,586
<SALES> 1,561,924
<TOTAL-REVENUES> 2,586,492
<CGS> 997,351
<TOTAL-COSTS> 1,225,493
<OTHER-EXPENSES> 8,280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 355,368
<INCOME-TAX> 0
<INCOME-CONTINUING> 355,368
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 355,368
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
