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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 March 31, 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)
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<S> <C>
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)
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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 May 14, 1998, the registrant had 6,576,485 shares outstanding of
its Common Stock, $.08 par value.
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GB FOODS CORPORATION
INDEX
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Page
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at March 31, 1998 and December 31, 1997 ............ 3
Consolidated Statements of Operations for the three ended
March 31, 1998 and 1997 ........................................................ 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 ........................................................ 5
Notes to Consolidated Financial Statements...................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION........ 9
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K............................... 11
Signatures ..................................................................... 11
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Part I. FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements
GB FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
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<CAPTION>
March 31, December 31,
1998 1997
(unaudited)
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<S> <C> <C>
Current assets
Cash and cash equivalents $ 228,667 $ 1,129,536
Short-term investments 3,713,342 2,323,181
Accounts and notes receivable, net 295,042 276,779
Other assets 212,648 218,849
------------- ------------
Total current assets 4,449,699 3,948,345
Equipment and improvements, net 439,068 449,144
Notes receivable, net 244,118 338,763
Other assets 95,282 65,379
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$ 5,228,167 $ 4,801,631
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 463,220 $ 283,668
Accrued salaries, wages and employee benefits 83,289 114,347
Deferred franchise fees 25,000 25,000
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Total current liabilities 571,509 423,015
Minority interest in consolidated partnership 57,437 60,687
Shareholders' equity
Common stock, $.08 par value, authorized 50,000,000
shares; 6,576,485 and 6,571,485 shares issued and
outstanding at March 31, 1998 and December 31,
1997, respectively 526,119 525,719
Additional paid-in capital 16,357,967 16,329,617
Accumulated deficit (12,284,865) (12,537,407)
-------------- -------------
Total shareholders' equity 4,599,221 4,317,929
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$ 5,228,167 $ 4,801,631
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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)
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<CAPTION>
Three Months Ended March 31,
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1998 1997
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<S> <C> <C>
Revenues:
Restaurant operations $ 698,607 $ 737,499
Franchise royalties 261,208 274,486
Franchise fees 139,326 60,709
Interest 61,624 30,991
Other 131,307 107,722
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1,292,072 1,211,407
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Restaurant operating costs:
Food and packaging 286,100 274,616
Payroll and other employee benefits 223,082 208,790
Occupancy and other 211,876 197,604
General and administrative 316,035 423,245
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1,037,093 1,104,255
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Income (loss) before minority
interest in consolidated
partnership 254,979 107,152
Minority interest in consolidated
partnership (2,437) (7,896)
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Net income $ 252,542 $ 99,256
============ =============
Basic earnings per share $ .04 $ .02
============ =============
Diluted earnings per share $ .03 $ .01
============ =============
Basic weighted average shares 6,395,970 6,261,843
============ =============
Diluted weighted average shares 7,813,151 7,194,907
============ =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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GB FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
Three Months Ended March 31,
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1998 1997
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Cash flows from operating activities:
Net income $ 252,542 $ 99,256
Adjustments to reconcile net income to net cash
flows provided by (used in) operating activities:
Depreciation and amortization 62,223 87,316
Write off of uncollectible accounts (23,613) (3,600)
Minority interest in consolidation partnership (3,250) 3,888
Changes in operating assets and liabilities:
Accounts and notes receivable 99,995 22,534
Accounts payable and accrued expenses 179,552 (13,627)
Other assets (26,972) (56,495)
Salaries, wages and employee benefits (31,058) (35,884)
Deferred franchise fees 0 (12,500)
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Net cash provided by operating activities 509,419 90,888
Cash flows from investing activities:
Proceeds from short-term investments 5,851,175 329,645
Expenditures for short-term investments (7,241,336) (345,683)
Expenditures for equipment and improvements (48,877) (24,365)
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Net cash used in investing activities (1,439,038) (40,403)
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Cash flows from financing activities:
Repayments of long-term debt 0 (2,597)
Proceeds from issuance of common stock under
stock option plan 28,750 0
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Net cash provided by financing activities 28,750 (2,597)
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Net increase in cash and cash equivalents (900,869) 47,888
Cash and cash equivalents at beginning of period 1,129,536 753,601
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Cash and cash equivalents at end of period $ 228,667 $ 801,489
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Supplemental Information:
Cash paid during the period for:
Interest $ 0 $ 633
Income taxes $ 6,100 $ 800
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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 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. Franchise Store Activity
The following is a summary of dual-concept franchise store activity during
the three months ended March 31, 1998 and 1997, respectively:
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1998 1997
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3 mos 3 mos
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Dual-concept stores at beginning of period 134 84
Dual-concept stores opened during period 17 5
Dual-concept stores closed during period (1) 0
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Dual-concept stores at end of period 150 89
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As of March 31, 1998 and 1997, the total number of free-standing franchise
stores were 40 and 43, respectively.
3. 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 upon 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 period. Basic net income per share was
calculated using the average number of shares outstanding for the respective
three month period ended March 31, 1998 and 1997 of 6,395,970 and 6,261,843,
respectively. Diluted net income per share was calculated using the average
number of shares outstanding for the respective three month period ended
March 31, 1998 and 1997 of 7,813,151 and 7,194,907, respectively.
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3. Basic and diluted net Income per share - continued
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations.
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<CAPTION>
Three Months Ended March 31
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1998 1997
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Basic Earnings per share:
- -------------------------
Numerator
Net income $ 252,542 $ 99,256
============ ============
Denominator
- -----------
Basic weighted average number of
common shares outstanding during the
period 6,574,541 6,440,414
Escrowed restricted shares issued and
outstanding excluded from basic earnings
per share 178,571 178,571
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6,395,970 6,261,843
============ ============
Basic net income per share $ 0.04 $ 0.02
============ ============
Diluted Earnings per share:
- ---------------------------
Numerator
- ---------
Net income $ 252,542 $ 99,256
============ ============
Denominator
- -----------
Basic weighted average number of
common shares outstanding during the
period 6,395,970 6,261,843
Incremental common shares attributable to
exercise of: escrowed restricted shares 178,571 178,571
outstanding options 254,150 120,515
outstanding warrants 984,461 633,978
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1,417,782 933,064
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Diluted weighted average shares 7,813,151 7,194,907
============ ============
Diluted net income per share $ 0.03 $ 0.01
============ ============
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4. Income Taxes
At March 31, 1998, 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 will expire if unused between 1999
and 2002. No significant provision for income taxes has been provided due
to the utilization of net operating loss carryforwards.
As of March 31, 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.
5. Stock-based Compensation Plans
On February 26, 1998, the Company granted options to officers and directors
of the Company to purchase 405,000 shares of the Company's common stock at
$8.25 per share, which represented the fair market value of the Company's
common stock on such date.
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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 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 first quarter of 1998 increased $80,665, or 7%,
to $1,292,072 compared with revenues of $1,211,407 during the same period in
1997.
Revenues from restaurant operations for the first quarter of 1998 decreased
$38,892, or 5%, to $698,607 compared with $737,499 for the corresponding period
in 1997. The decrease was the result of unusually heavy rain in Southern
California throughout the first quarter of 1998. As of March 31, 1998 and 1997
the Company owned 7 stores.
Franchise royalties earned in the first quarter of 1998 decreased $13,278,
or 5%, to $261,208 from $274,486 for the first quarter in 1997. The decrease in
royalties earned was primarily due to the lower revenue at both dual-concept and
franchise stores as a result of the unusually heavy rain in Southern California
throughout the first quarter of 1998.
Franchise fee income increased $78,617 to $139,326 in the first quarter of
1998 as compared with $60,709 in the first quarter of 1997. This favorable
increase was the result of increased dual-concept store openings in the first
quarter of 1998 of 17 as compared to 5 in the first quarter of 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 the three month period ended March 31, 1998 as compared with
the same periods in 1997. Cost of sales from restaurant operations (food,
packaging, payroll and other employee benefits) as a percentage of revenues were
69%
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and 64% for the first quarters of 1998 and 1997, respectively. Occupancy and
other operating costs from restaurant operations expressed as a percentage of
revenues were 30% and 27% for the first quarter of 1998 and 1997, respectively.
The percentage increases were the direct result of lower revenues in the first
quarter of 1998.
General and administrative expenses decreased $113,310, or 27%, to $309,935
in the first quarter of 1998 compared with $423,245 incurred in the first
quarter of 1997. 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 would 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. 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 not had a material
impact on the Company's current operations. At March 31, 1998, approximately 45
of the 56 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
$3,942,009 at March 31, 1998 and $3,452,717 at December 31, 1997. The increase
in cash, cash equivalents and short-term investments is primarily the result of
the operating income generated for the three months ended March 31, 1998.
Management believes the Company's cash; cash equivalents and short-term
investments will be sufficient to finance current and forecasted operations and
obligations.
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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:
On March 4, 1998, the Company filed a report on Form 8-K regarding the
execution of a definitive Agreement and Plan of Reorganization to acquire
100% of the outstanding capital stock of JB's Restaurants, Inc.
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
May 14, 1998 ------------------------------
Gary R. Nelson
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 229
<SECURITIES> 3,713
<RECEIVABLES> 353
<ALLOWANCES> 58
<INVENTORY> 0
<CURRENT-ASSETS> 4,450
<PP&E> 2,012
<DEPRECIATION> 1,573
<TOTAL-ASSETS> 5,228
<CURRENT-LIABILITIES> 572
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0
0
<COMMON> 526
<OTHER-SE> 4,073
<TOTAL-LIABILITY-AND-EQUITY> 5,228
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<CGS> 509
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<LOSS-PROVISION> 0
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