<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 June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 1-10576
GB FOODS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0403086
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 N. HARBOR BLVD.
P.O. BOX 61093
ANAHEIM, CALIFORNIA 92803
-------------------------------------- ----------
(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 August 13, 1998, the registrant had 6,576,485 shares outstanding
of its Common Stock, $.08 par value.
<PAGE> 2
GB FOODS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at June 30, 1998 and December 31, 1997 .............. 3
Consolidated Statements of Income for the three and six months ended
June 30, 1998 and 1997 .......................................................... 4
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1998 and 1997 .......................................................... 5
Notes to Consolidated Financial Statements....................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................................ 9
PART II. OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K................................................. 12
Signatures ............................................................................... 12
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
GB FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 335,304 $ 1,129,536
Short-term investments 3,122,775 2,323,181
Accounts and notes receivable, net 316,901 276,779
Other assets 379,050 218,849
------------ ------------
Total current assets 4,154,030 3,948,345
Equipment and improvements, net 1,080,655 449,144
Notes receivable, net 227,110 338,763
Other assets 54,151 65,379
------------ ------------
$ 5,515,946 $ 4,801,631
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 441,916 $ 283,668
Accrued salaries, wages and employee benefits 132,507 114,347
Deferred franchise fees 6,000 25,000
------------ ------------
Total current liabilities 580,423 423,015
Minority interest in consolidated partnership 55,392 60,687
Shareholders' equity
Common stock, $.08 par value, authorized
50,000,000 shares; 6,576,485 shares issued
and 6,571,485 outstanding at June 30, 1998
and December 31, 1997, respectively 526,119 525,719
Additional paid-in capital 16,357,967 16,329,617
Accumulated deficit (12,003,955) (12,537,407)
------------ ------------
Total shareholders' equity 4,880,131 4,317,929
------------ ------------
$ 5,515,946 $ 4,801,631
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
GB FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Restaurant operations $ 731,756 $ 786,740 $1,430,363 $1,524,239
Franchise royalties 329,760 300,447 590,968 574,933
Franchise fees 109,350 113,793 248,676 174,502
Interest 56,177 32,814 117,801 63,805
Other 94,066 141,293 225,373 249,015
---------- ---------- ---------- ----------
1,321,109 1,375,087 2,613,181 2,586,494
---------- ---------- ---------- ----------
Restaurant operating costs:
Food and packaging 274,137 284,795 560,237 559,411
Payroll and other
employee benefits 226,038 223,421 449,120 432,211
Occupancy and other 204,693 210,686 416,569 408,290
General and administrative 332,502 399,687 648,537 822,932
---------- ---------- ---------- ----------
1,037,370 1,118,589 2,074,463 2,222,844
---------- ---------- ---------- ----------
Income (loss) before minority
interest in consolidated
partnership 283,739 256,498 538,718 363,650
Minority interest in
consolidated partnership 2,829 384 5,266 8,280
---------- ---------- ---------- ----------
Net income $ 280,910 $ 256,114 $ 533,452 $ 355,370
========== ========== ========== ==========
Basic earnings per share $ .04 $ .04 $ .08 $ .06
========== ========== ========== ==========
Diluted earnings per share $ .04 $ .04 $ .07 $ .05
========== ========== ========== ==========
Basic weighted average shares 6,397,914 6,261,843 6,396,947 6,261,843
========== ========== ========== ==========
Diluted weighted average shares 7,224,934 6,662,304 7,501,899 6,939,407
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
GB FOODS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 533,452 $ 355,370
Adjustments to reconcile net income to net
cash flows provided by (used in)
operating activities:
Depreciation and amortization 126,655 153,617
Minority interest in consolidation
partnership (5,295) 4,657
Write off uncollectible accounts and
notes receivables (23,613) --
Changes in operating assets and liabilities:
Accounts and notes receivable 95,144 13,916
Provision for doubtful accounts -- (10,199)
Accounts payable and accrued expenses 158,248 (87,361)
Other assets (155,512) (69,719)
Salaries, wages and employee benefits 18,160 13,116
Deferred franchise fees (19,000) (12,500)
------------ ------------
Net cash provided by operating activities 728,239 360,897
Cash flows from investing activities:
Proceeds from short-term investments 10,903,897 1,015,152
Expenditures for short-term investments (11,703,491) (1,047,112)
Proceeds from the sale of equipment
and improvements -- 9,089
Expenditures for property and equipment (751,627) (25,270)
------------ ------------
Net cash used in investing activities (1,551,221) (48,141)
------------ ------------
Cash flows from financing activities:
Repayments of long-term debt -- (8,511)
Proceeds from issuance of common stock
under stock option plan 28,750 --
Distribution to minority partner -- (8,280)
------------ ------------
Net cash provided by (used in) financing
activities 28,750 (16,791)
------------ ------------
Net increase (decrease) in cash and cash
equivalents (794,232) 295,965
Cash and cash equivalents at beginning of period 1,129,536 753,601
------------ ------------
Cash and cash equivalents at end of period $ 335,304 $ 1,049,566
============ ============
Supplemental Information:
Cash paid during the period for:
Interest $ -- $ 1,028
Income taxes $ 6,100 $ 800
</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, 1997.
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. BASIC AND DILUTED NET INCOME PER SHARE
Net income per share has been calculated in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128").
Basic net income per share is based on the weighted average number of common
shares outstanding. Diluted net income per share is based on the assumption
that all dilutive convertible shares and stock options were converted or
exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the
beginning of the period (or at the time of issuance, if later), and as if
funds obtained thereby were used to purchase common stock at the average
market price during the respective period. Basic net income per share was
calculated using the average number of shares outstanding for the three
months ended June 30, 1998 and 1997 of 6,397,914 and 6,261,843, respectively
and for the six months ended June 30, 1998 and 1997 of 6,396,947 and
6,261,843, respectively. Diluted net income per share was calculated using
the average number of shares outstanding for the three months ended June 30,
1998 and 1997 of 7,224,934 and 6,662,304, respectively and for the six month
period ended June 30, 1998 and 1997 of 7,501,899 and 6,939,407,
respectively. Prior year earnings per share have been restated.
6
<PAGE> 7
2. BASIC AND DILUTED NET INCOME PER SHARE - CONTINUED
The following table has been provided to reflect the reconciliation of the
numerators and denominators of the basic and diluted earnings per share
computations.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic Earnings Per Share:
Numerator
Net income $ 280,910 $ 256,114 $ 533,452 $ 355,370
========== ========== ========== ==========
Denominator
Weighted average shares 6,576,485 6,440,414 6,575,518 6,440,414
Escrowed restricted shares 178,571 178,571 178,571 178,571
---------- ---------- ---------- ----------
6,397,914 6,261,843 6,396,947 6,261,843
========== ========== ========== ==========
Basic earnings per share $ .04 $ .04 $ .08 $ .06
========== ========== ========== ==========
Diluted Earnings Per Share:
Numerator
Net income $ 280,910 $ 256,114 $ 533,452 $ 355,370
========== ========== ========== ==========
Denominator
Basic weighted average shares 6,397,914 6,261,843 6,396,947 6,261,843
Incremental common shares
attributable to exercise of:
Escrowed restricted shares 178,571 178,571 178,571 178,571
Outstanding options 72,553 67,317 110,267 95,978
Outstanding warrants 575,896 154,573 816,114 403,015
---------- ---------- ---------- ----------
827,020 400,461 1,104,952 677,564
Diluted weighted average shares 7,224,934 6,662,304 7,501,899 6,939,407
========== ========== ========== ==========
Diluted earnings per share $ .04 $ .04 $ .07 $ .05
========== ========== ========== ==========
</TABLE>
7
<PAGE> 8
3. INCOME TAXES
At December 31, 1997, the Company had net operating loss carryforwards for
federal tax purposes of approximately $11,906,000 which, if unused to offset
future taxable income, will expire between 2008 and 2012, and approximately
$5,694,000 for state tax purposes which if unused will expire between 1999
and 2002. These net operating loss carryforwards resulted in a potential
deferred tax asset of approximately $4.4 million as of December 31, 1997.
However, SFAS No. 109 requires that a valuation allowance be recorded
against tax assets which are not likely to be realized. Due to the uncertain
nature of the ultimate realization of the deferred tax asset, based upon the
Company's past operating performance and expiration dates of the loss
carryforwards, the Company established a full valuation allowance at
December 31, 1997 against these carryforward benefits and is recognizing
the benefits only as reassessment demonstrates they are realizable.
Realization is entirely dependent upon future earnings in specific tax
jurisdictions. While the need for this valuation allowance is subject to
periodic review, if the allowance is reduced, the tax benefits of the
carryforwards will be recorded in future operations as a reduction of the
Company's income tax expense.
As of June 30, 1998, 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.
4. SUBSEQUENT EVENT
On July 13, 1998 the Company announced that the Board of Directors set
record and meeting dates for meetings at which the shareholders will be
asked to approve the previously announced merger with Timber Lodge
Steakhouse, Inc. (Nasdaq: TBRL) and the acquisition of JB's Family
Restaurants, Inc. from CKE Restaurants, Inc. The shareholders meeting will
be held at the Four Seasons Biltmore, 1260 Channel Drive, Santa Barbara,
California, on September 1, 1998 at 10:00 a.m. local time. All shareholders
of record at the close of business on July 31, 1998 will be entitled to vote
at the meeting. A registration statement pertaining to the TBRL merger and
the JB's acquisition has been filed with the Securities and Exchange
Commission and has been declared effective. The registration statement
includes the Company's prospectus for the TBRL shareholders and the proxy
statements of both companies combined into a single document.
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
the 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 1998 decreased $53,978 or (4%)
to $1,321,109 compared with revenues of $1,375,087 during the same period in
1997. Total revenues for the six months ended June 30, 1998 increased $26,687 or
1% to $2,613,181 compared to $2,586,494 for the same period in 1997.
Revenues from restaurant operations for the second quarter of 1998
decreased $54,984 or (7%) to $731,756 compared with $786,740 for the
corresponding period in 1997. For the six months ended June 30, 1998 revenue
from restaurant operations decreased $93,876 or (6%) to $1,430,363 compared with
$1,524,239 for the same period in 1997.
Franchise royalties earned in the second quarter of 1998 increased
$29,313 or 10% to $329,760 from $300,447 for the second quarter in 1997.
Franchise royalties earned for the six months ended June 30, 1998 increased
$16,035 or 3% to $590,968 from $574,933 for the corresponding period in 1997.
This increase in revenue was primarily due to the increase in the number of
dual-concept franchise stores in operation.
9
<PAGE> 10
The following is a summary of dual-concept franchise store activity
during the three month and six month periods ended June 30, 1998 and 1997,
respectively:
<TABLE>
<CAPTION>
3 Months 6 Months
-------------- ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Dual-concept stores at beginning of period 150 89 134 84
Dual-concept stores opened during period 12 13 28 18
--- --- --- ---
Dual-concept stores at end of period 162 102 162 102
=== === === ===
</TABLE>
The total number of free standing franchise stores were 41 and 42, at
June 30, 1998 and 1997, respectively.
Franchise fee income decreased $4,443 or (4%) to $109,350 in the second
quarter of 1998 from $113,793 in the second quarter of 1997 primarily due to 12
dual-concept franchise store openings during the second quarter of 1998 compared
with 13 dual-concept store openings for the second quarter of 1997. Franchise
fee income increased $74,174 or 43% to $248,676 for the six month period ended
June 30, 1998 from $174,502 for the corresponding period in 1997. During the six
month period ended June 30, 1998 there were 28 dual-concept franchise store
openings compared with 18 dual-concept store openings for the six month period
ended June 30, 1997.
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
increased during both the three and six month periods ended June 30, 1998 as
compared to the same periods in 1997. These unfavorable increases are the direct
result of increased payroll expenses resulting from the September 1, 1997 and
March 1, 1998 increases in the California minimum wage and lower revenues from
Company owned restaurants in 1998 as compared with 1997. Cost of sales from
restaurant operations (food, packaging, payroll and other employee benefits) as
a percentage of sales were 68% and 65% for the second quarters of 1998 and 1997,
respectively and 71% and 65% for the six months ended June 30, 1998 and 1997,
respectively. Occupancy and other operating costs from restaurant operations
expressed as a percentage of sales were 28% and 27% for the second quarter of
1998 and 1997, respectively and 29% and 27% for the six month period ended June
30, 1998 and 1997, respectively. This unfavorable increase is the direct result
of increases in the California minimum wage and lower revenues in 1998 as
compared to 1997.
General and administrative expenses decreased $67,185 or (17%) to
$332,502 in the second quarter of 1998 compared to $399,687 in the second
quarter of 1997. General and administrative expenses decreased $174,395 or (21%)
to $648,537 for the six month period ended June 30, 1998 compared to $822,932
for the six months ended June 30, 1997. The decrease is primarily due to a
general reduction in the corporate payroll, legal and consulting expenses, and
other costs related to the development of the dual-concept business.
10
<PAGE> 11
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.
YEAR 2000 SYSTEM COMPLIANCE
Because many systems have been programmed to use two-digits (rather than
four) to define the applicable year, all companies must analyze their systems
and make necessary software and hardware changes to ensure that automated
processes will correctly identify "00" as the year "2000" rather than "1900,"
when the date changes to January 1, 2000. As of June 30, 1998 the Company had
completed its preliminary review of all its data related systems and the year
2000 should not have a material adverse impact on the Company's financial
position, results of operations or cash flows in future periods. However, the
inability of suppliers or distributors and other vendors to resolve such
processing issues in a timely manner could have a material adverse impact on the
Company. Accordingly, the Company will establish alternative suppliers,
distributors and or vendors, which are year 2000 compliant.
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. The
California minimum wage was again increased on March 1, 1998 to $5.75 per hour.
The continued increase in the statutory minimum wage has negatively impacted the
Company's margins in its direct operations. At June 30, 1998, approximately 38
of the 53 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 majority of 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
$3,458,079 at June 30, 1998 and $3,452,717 at December 31, 1997. The increase in
cash, cash equivalents and short-term investments is primarily due to net income
from operations, net of investments in property and equipment. During the second
quarter ended June 30, 1998, the Company used $690,000 to acquire a restaurant
facility (land and building) which the Company leases to a third party.
Management believes the Company's cash, cash equivalents and short-term
investments will be sufficient to finance current and forecasted operations and
obligations.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 Financial Data Schedule (included in electronic filing only)
(b) Reports on Form 8-K:
None
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
(Registrant)
Date: August 14, 1998 By: /s/ TED ABAJIAN
--------------------------------
Ted Abajian
Chief Financial Officer
(Principal Financial and
Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 335
<SECURITIES> 3,123
<RECEIVABLES> 375
<ALLOWANCES> 58
<INVENTORY> 0
<CURRENT-ASSETS> 4,154
<PP&E> 2,715
<DEPRECIATION> 1,634
<TOTAL-ASSETS> 5,516
<CURRENT-LIABILITIES> 580
<BONDS> 0
0
0
<COMMON> 526
<OTHER-SE> 4,354
<TOTAL-LIABILITY-AND-EQUITY> 5,516
<SALES> 1,430
<TOTAL-REVENUES> 2,613
<CGS> 1,009
<TOTAL-COSTS> 1,009
<OTHER-EXPENSES> 1,065
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 539
<INCOME-TAX> 6
<INCOME-CONTINUING> 533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 533
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.07
</TABLE>
