<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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.
ANAHEIM, CALIFORNIA 92803
(Address of Principal Executive Office) (Zip Code)
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE (714) 491-6400
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED:
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COMMON STOCK - $.08 PAR VALUE BOSTON STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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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
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Indicate by check mark if disclosure of delinquent filers in response
to Item 405 of Regulation S-K is not contained in this form, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates
of the registrant on February 19, 1998 was approximately $41,936,000 based upon
the closing price of the common stock, as reported on the Nasdaq Small Cap
Market.
The number of shares of the common stock of the registrant outstanding
on February 19, 1998 was 6,571,485.
<PAGE> 2
PART I
All statements, other than statements of historical fact, included in
this Form 10-K, including without limitation the statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," are, or may be deemed to be, "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). 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-K. Such potential risks and uncertainties include, without limitation,
competitive pricing and other pressures from other restaurant operators,
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-K 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.
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS.
The Company is engaged in the business of operating Mexican
quick-service restaurants under the trade name "The Green Burrito" at leased
facilities in Southern California and the sale and supervision of Green Burrito
franchises. The Company's strategic plan is to maintain a base of Company-owned
and operated restaurants ("Company Stores") in Southern California sufficient
for training, product development and testing, while developing additional Green
Burrito franchise restaurants through expansion of the Green Burrito
free-standing and dual-concept franchise businesses. As of December 31, 1997,
there were 181 Green Burrito stores, including seven Company Stores and 174
stores owned by franchisees or third parties ("Franchise Stores"), 134 of which
were Green Burrito dual-concept stores.
On July 22, 1997, Fidelity National Financial, Inc. ("Fidelity")
purchased 1,000,000 shares of Common Stock of GB Foods Corporation (the
"Company") from the former Chief Executive Officer and principal stockholder
("Controlling Shareholder"), for a purchase price of $5,000,000 cash. Fidelity
also purchased Common Stock Purchase Warrants ("Warrants") from the Company's
Controlling Shareholder pursuant to which Fidelity has the right to acquire
2,500,000 shares of the Company's Common Stock, of which 1,500,000 are
immediately exercisable at $5.00 per share (the "$5.00 Warrants") and 1,000,000
are immediately exercisable at $7.00 per share (the "$7.00 Warrants"). The $5.00
Warrants were purchased for $600,000 cash and expire November 23, 2002; the
$7.00 Warrants were purchased for $100,000 cash and expire May 1, 2005.
Simultaneously with the closing of the transaction, Fidelity transferred 30,000
$5.00 Warrants to its investment advisor.
In a separate transaction, Fidelity also acquired 1,000,000 Warrants
exercisable at $7.50 per share (the "$7.50 Warrants") from a law firm which has
provided services to the Company. The purchase price of the $7.50 Warrants was
$100,000 cash. The $7.50 Warrants expire May 1, 2005.
As a result of the purchase of the Shares and the Warrants, Fidelity
beneficially owns 42.1% of the Company, based on 6,571,485 shares outstanding at
December 31, 1997 and including the Warrants pursuant to which Fidelity has the
right to acquire an additional 3,470,000 shares. In conjunction with the
Fidelity purchases, 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 Fidelity have filled the Director and Officer
vacancies.
On December 12, 1997, the Company announced the execution of a letter
of intent to acquire all the outstanding capital stock of Timber Lodge
Steakhouse, Inc. ("TBRL"). TBRL is a public company traded on Nasdaq under the
symbol TBRL and is the operator of the Timber Lodge Steakhouse family-style
restaurants. As of
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December 31, 1997, TBRL was operating a total of 16 restaurants which were
located in the states of Minnesota, Wisconsin, Illinois, Western New York and
South Dakota. TBRL's revenues and net income for the fiscal year ended January
1, 1997 were $20,637,000 and $983,000 respectively.
On January 20, 1998, the Company executed a definitive Agreement and
Plan of Merger ("Merger Agreement") with TBRL, pursuant to which the Company
will acquire one hundred percent of the outstanding capital stock of TBRL. The
parties expect to close the transaction in April 1998. Under the terms of the
agreement, each share of TBRL common stock will be converted into the right to
receive .80 of a share of the Company's common stock together with cash in lieu
of any fractional shares (the "Exchange Ratio"). In addition, the agreement has
established a collar for the Exchange Ratio of $14.00 on the high end and $7.50
on the low end. If the Company's average closing common stock price during the
ten day trading period ending on the second business day prior to the closing,
("Average Closing Stock Price"), exceeds the limits of the collar then the
Exchange Ratio will be adjusted. If the Average Closing Stock Price is more than
$14.00, the Exchange Ratio shall be reduced to a number (rounded to the nearest
1/10000) equal to the product of the Exchange Ratio multiplied by a fraction,
the numerator of which is $14.00 and the denominator of which is the Average
Closing Stock Price. If the Average Closing Stock Price is less than $7.50, the
Company may elect to increase the Exchange Ratio to the number (rounded to the
nearest 1/10000) determined by dividing $7.61 by the Average Closing Stock
Price.
The Merger is subject to certain customary conditions, including (i)
Fairness Opinions; (ii) approvals from the shareholders of the Company and TBRL;
and (iii) the parties obtaining all regulatory approvals, including the
Securities and Exchange Commission declaring effective a Registration Statement
covering the shares of the Company's common stock to be issued in the Merger.
The Merger is also subject to the purchase by TBRL from CKE Restaurants, Inc.
("CKE") (NYSE:CKR) or its affiliate of between twelve (12) and (20) JB's
Restaurants for conversion to Timber Lodge Steakhouse restaurants. In this
regard, CKE has agreed under the Merger Agreement to negotiate in good faith
with TBRL to consummate such purchase and sale. In addition, Fidelity National
Financial, Inc. (NYSE:FNF) has agreed under the Merger Agreement that, subject
to the approval of the Merger by TBRL's shareholders, it will exercise currently
outstanding warrants to purchase shares of the Company's common stock for a cash
purchase price aggregating not less than $5,000,000. The Company plans to
utilize such proceeds, in part, for the conversion of the JB's Restaurants
acquired by TBRL into Timber Lodge Steakhouse restaurants.
On February 19, 1998, the Company entered into an Agreement and Plan
of Reorganization (the "Agreement"), pursuant to which the Company shall
acquire one hundred percent (100%) of the issued and outstanding capital stock
of JB's Restaurants, Inc. ("JB's"), a wholly owned subsidiary of CKE. Under the
Agreement, GBFC shall acquire JB's for one million (1,000,000) shares of GBFC
Common Stock. GBFC and CKE anticipate that the acquisition will Close on or
before March 1, 1998. At the Closing, the business of JB's shall be comprised
of forty-eight (48) JB's company-owned restaurants, twenty (20) JB's franchise
restaurants, and four (4) Galaxy diner restaurants. The acquisition is subject
to certain conditions, including the satisfactory completion of due diligence,
delivery by CKE and the approval by GBFC of certain disclosure schedules, the
issuance of Fairness Opinions, approvals from the respective Boards of
Directors of GBFC and CKE, regulatory approvals, the closing of the previously
announced acquisition of twelve (12) JB's restaurants by Star Buffet, Inc., the
upstream transfer by way of dividend of sixteen (16) JB's restaurants and
certain other assets to CKE. It is the intent of the parties that the
transaction qualify as a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company is engaged in one industry segment. Financial information
concerning the Company's business is included and incorporated by reference in
Part II and Part IV of this Form 10-K.
(C) NARRATIVE DESCRIPTION OF BUSINESS.
GREEN BURRITO CONCEPT. The Green Burrito stores feature a menu of
traditional Mexican food items including burritos, tostadas, enchiladas, tacos,
gorditas, chili rellenos, appetizers, soft drinks and non-alcoholic Mexican
drinks. A variety of condiments, such as jalapeno peppers, hot sauce, and mild
and hot salsa, are available at self-serve salsa bars enabling customers to
spice and garnish their food according to individual tastes. In addition, the
Company has a Mexican breakfast menu, including huevos rancheros, breakfast
burritos, chorizo and egg burritos, tostadas rancheros and orange juice.
Although Green Burrito stores offer traditional Mexican food, the
Company's recipes are specially formulated to produce milder flavors than the
flavors typically associated with Mexican food. Emphasis is on serving
substantial portions of high-quality food using only top grade ingredients,
including USDA loin steak, USDA ground beef, USDA pork, grade "A" chicken meat,
real cheddar and Monterey Jack cheese, #1-long grain rice and triple-cleaned
beans. The Company believes the prices for its menu items give customers good
value; entree selections at Company Stores currently range in price from $.99
for a "super value menu" item to $3.99 for a combination plate including two
steak tacos, salad, rice and beans. The most popular menu items include the "Big
Ed" burrito, a burrito weighing over two pounds consisting of steak, carnitas,
refried beans, rice, lettuce, tomato, guacamole, cheese and double tortillas at
a price of $4.69, and "wet burritos," consisting of refried beans, rice, cheese,
and a choice of steak, chicken, beef or pork covered with either green chili
sauce or enchilada sauce, and cheese, served with tortilla chips at a price of
$3.99. The menu also features special family prices which discount some of the
menu items for large quantity orders.
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The Company has established certain criteria which, if met, allow the
sale of alcoholic beverages for consumption on store premises with prior
approval from the Company. Several Franchise Stores serve alcoholic beverages;
however, the Company may rescind the right to serve alcoholic beverages on 30
days' written notice if the criteria are not being met.
COMPANY STORES. As of December 31, 1997, the Company operates seven
Company Stores, six of which are wholly-owned and one of which is owned by a
limited partnership of which the Company is the general partner. See
"Properties" below. The wholly-owned Company Stores in Anaheim Hills, Corona,
Glendale, La Crescenta and Long Beach were purchased from franchisees in October
1990, December 1991, April 1994, November 1994 and December 1994, respectively.
The Company, as general partner of a store (Glendora) owned by a
limited partnership, receives 76.1% of the profits, subject to a non-cumulative
preference on cash distributions to the limited partner of $8,280 per annum
against the limited partner's 23.9% interest in the profits.
FRANCHISE PROGRAM. As of December 31, 1997, the Company had 174
operating franchises, 134 of which were Green Burrito dual-concept restaurants.
See "Green Burrito Dual-Concept Stores" below. Since the inception of the
franchise program 47 franchise restaurants have been closed and the Company has
reacquired seven franchises, five of which are currently operated as Company
Stores.
When the Company commenced its franchise expansion, the initial
franchise fee was $10,000. Under the current standard Franchise Agreement for a
free-standing franchise (the "Franchise Agreement"), franchisees pay an initial
fee of $25,000 for each site at the time the Franchise Agreement is signed. The
Company treats the initial franchise fee as fully earned for financial statement
purposes upon the opening of the Franchise store. Franchisees also pay a weekly
franchise royalty equal to the greater of 5% of gross Franchise Store revenues
or $300 per week for each Franchise Store. An advertising fund contribution
equal to the greater of 1.5% of gross Franchise Store revenues or $450 is due
monthly for each Franchise Store. The Company has developed a separate Franchise
Agreement for dual-concept franchise stores. Dual-concept franchisees pay
similar fees related to the sale of Green Burrito proprietary products and
related items. The Company may from time to time change the amount of the
franchise fee, the franchise royalty and the advertising fund contribution to be
charged to franchisees.
The Franchise Agreement for free-standing stores grants the franchisee
the right to operate a Green Burrito store at specified locations and obligates
the Company to perform training and certain other assistance in consideration of
the franchisee's payment of the franchise fees, the franchise royalty and the
advertising fund contribution. The term of the Franchise Agreement is 10 years,
subject to renewal by the franchisee for two additional five-year periods,
provided that, among other things, the franchisee has fulfilled all the terms
and conditions of the Franchise Agreement, enters into the then current
Franchise Agreement with the Company and pays a renewal fee in accordance with
their initial franchise agreement. The Franchise Agreement requires franchisees
to purchase most equipment, food, supplies and products from sources approved by
the Company in order to maintain consistency and quality from store to store.
GREEN BURRITO DUAL-CONCEPT STORES. Since 1992, the Company has pursued
the franchising of Green Burrito products alongside an existing quick-service
restaurant line thereby enabling one restaurant facility to offer two restaurant
concepts (the "dual concept"). The Company has entered into the following
dual-concept arrangements since 1992:
Arby's/Green Burrito. During August 1992, the Company issued a
franchise to an Arby's, Inc. ("Arby's") franchisee for a restaurant located in
Long Beach, California. The Arby's franchisee remodeled an existing Arby's unit
to include the Green Burrito dual-concept in the same facility. A second
Arby's/Green Burrito store, located in Santa Maria, California, opened in
January 1994.
Carl's Jr./Green Burrito. During May 1995, the Company reached an
agreement with Carl Karcher Enterprises, Inc., the operator and franchisor of
Carl's Jr. restaurants, and CKE Restaurants, Inc., its parent company
(hereinafter jointly referred to as "CKE"), pursuant to which CKE agreed to
convert a minimum of 40 CKE-owned Carl's Jr. restaurants per year into Carl's
Jr./Green Burrito dual-concept stores over a five-year period commencing July
15, 1995. In February 1997, the Company and CKE modified the agreement to
provide for the conversion of a minimum of 60 Carl's Jr. restaurants per year to
Carl's Jr./Green Burrito dual-concept stores. CKE also agreed to allow its
franchisees to convert their restaurants into Carl's Jr./Green Burrito
dual-concept stores. The initial term of the franchise agreements for CKE-owned
locations is 15 years with a 10-year renewal period. The franchise
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agreements also allow for an early termination on a per-store basis if royalties
payable to the Company for such location are less than an average of $250 per
month for any calendar year. As of December 31, 1997, all Carl's Jr./Green
Burrito stores were in compliance with this requirement. As of December 31,
1997, there were 115 Carl's Jr./Green Burrito restaurants in operation in
California and Arizona.
Rally's/Green Burrito. The Company executed a development agreement in
June 1995 with Rally's Hamburger's Inc. ("Rally's") for the development of
Rally's/Green Burrito dual-concept restaurants to be located primarily in the
Midwest. The Company also granted Rally's a conditional 10-year warrant to
purchase 1,000,000 shares of the Company's common stock at an exercise price of
$7.50 per share. In April 1996, the Company and Rally's executed an agreement
providing for the termination of the development agreement and the cancellation
of the outstanding warrant. As of December 31, 1996, all 14 of the Rally's
dual-concept stores had been closed.
WSMP/Green Burrito. During July 1995, the Company entered into a
test-store agreement with WSMP, Inc. ("WSMP"), a North Carolina-based food
manufacturing and restaurant company. WSMP restaurant operations include
company-owned and franchise units, primarily in the Southeast. The majority of
these restaurants are Western Steer units, including their traditional Western
Steer Family Restaurant and newer remodels known as Western Steer Steak, Buffet
and Bakery Restaurants. Prime Sirloin and Bennett's are the other two main
segments of the WSMP restaurant division. Pursuant to the test-store agreement,
six store locations were mutually selected for the test, one of which is still
currently operating. The test, as provided in the test-store agreement,
concluded on December 26, 1995. As of December 31, 1997, the parties had
evaluated the results of the test and determined not to progress to a formal
franchise relationship.
Hardee's/Green Burrito. During November 1995, the Company entered into
a test-store agreement with Hardee's Food System, Inc. ("Hardee's"). Pursuant to
the test-store agreement, 20 Hardee's store locations (14 in Tulsa, Oklahoma
area and six in Nebraska and / or Southeastern states) will be converted to
Hardee's/Green Burrito restaurants. As of December 31, 1996, fifteen Hardee's
dual-concept stores were in operation. The duration of the test, as provided in
the test-store agreement, will continue until July 1, 1997. However, the test
period has been informally extended as a result of the recent acquisition of
Hardee's by CKE. The continued conversion of additional Hardee's stores will be
contingent upon the success and consumer acceptance of the converted stores.
Long John Silvers/Green Burrito. During July 1997, the company executed
a dual-concept franchise agreement with American Seafoods Partners ("ASP"),
which is a wholly owned subsidiary of Restaurant Management Company ("RMC") a
Franchisee operator of 120 Pizza Hut stores and 30 Long John Silver stores. One
store was converted in LasVegas New Mexico and opened in September 1997. The
continued conversion of additional Long John Silver dual-concept stores will be
contingent upon the success and consumer acceptance of the converted store.
Texaco/CKE/Green Burrito. During October 1997, the Company executed a
dual-concept franchise agreement with CKE and Texaco Refining and Marketing
("Texaco") where by they will co-develop 50 Carl's Jr./Texaco dual-brand
locations including 15 branded with Green Burrito. The new locations will be
developed in the Western United States over the next three years.
FRANCHISE PROMOTION. The Company is discussing arrangements for
dual-concept store franchises with other quick-service franchisors and intends
to pursue the sale of franchises to operators of free-standing restaurants as
well as operators of other franchises for dual-concept purposes.
COMPETITION. The quick-service restaurant industry is intensely
competitive in the attraction of consumers and franchisees and in obtaining
suitable sites for new stores. Some of the key competitive factors in the
restaurant industry are the quality and value of the food products offered,
quality of service, cleanliness, name identification, restaurant location, price
and attractiveness of facilities. The Company and its franchisees compete with
restaurants of all types in the local market areas surrounding individual stores
and particularly with quick-service restaurants and Mexican restaurants for a
share of the consumers' restaurant food dollars.
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The Company believes its primary competition in the quick-service
segment of the restaurant industry is from established national quick-service
restaurant chains offering Mexican food, hamburgers, pizza, and chicken such as
Taco Bell, El Pollo Loco, Del Taco, Burger King, McDonalds, Wendy's, Pizza Hut
and KFC. These restaurants offer strong competition and have national name
recognition and greater advertising, financial, and other resources than the
Company. These competitors also have a far greater density of store sites and
substantially larger facilities. The Company also competes with local
quick-service restaurant chains and both quick-service and full-service
"mom-and-pop" restaurants in specific local markets.
The Company believes that its product is distinguishable from its
competitors because (i) the Green Burrito menu is different than menus of most
Mexican quick-service restaurants; (ii) Green Burrito food is prepared with
high-quality, natural ingredients resulting in food quality comparable to a
full-service restaurant; and (iii) the Company generally has larger portioning
standards giving the customer a good value overall for the price.
FRANCHISE AND OTHER GOVERNMENTAL REGULATION. The restaurant industry is
subject to extensive federal, state, and local regulation governing, among other
things, health and sanitation standards, equal opportunity employment, minimum
wage and licensing for the sale of food. In addition, the Company is subject to
extensive federal and state regulations governing franchise operations and sales
which impose registration and disclosure requirements on franchisors in the
offer and sale of franchises and, in certain cases, dictating substantive
standards that govern the relationship between franchisor and franchisees.
Various federal and state labor laws govern relationships with employees,
including such matters as minimum wage requirements, overtime, and other working
conditions.
MATERIALS. The Company's ability to maintain consistent quality
throughout its restaurants depends in part upon the ability to acquire food
products and related items from reliable vendors in accordance with Company
specifications. The Company has no long-term contracts for any food items used
in its restaurants and the Company is not dependent upon any single source for
ingredients. All essential ingredients for the Company's specially-formulated
recipes, beverage products, and other supplies are available, or upon short
notice could be made available, from alternative qualified suppliers.
EMPLOYEES. On December 31, 1997, the Company had 78 employees, of whom
12 were employed in the corporate office and 66 were employed in the seven
Company Stores. Of the total employees in the Company Stores, 9 were employed as
salaried managers and 57 were employed as hourly food handlers. The Company has
never experienced a work stoppage and believes its employee relations to be
good. No employee of the Company is represented by a union.
ITEM 2. PROPERTIES.
The Company leases retail locations for its restaurant operations as
described below:
<TABLE>
<CAPTION>
Monthly Approximate Lease Optional Renewal
Location Rental Square Footage Expiration Date Period (years)
- -------- ------ -------------- --------------- --------------
<S> <C> <C> <C> <C>
Anaheim Hills $ 3,465 2,100 January 2000 10
Corona 4,153 2,500 March 2001 10
Downey 3,475 1,000 January 1998 0
Glendale 2,773 1,470 March 1999 0
Glendora 2,214 1,000 April 1998 5
La Crescenta 3,505 1,400 January 1999 0
Long Beach 3,168 1,200 May 1998 5
-------
Total $22,753
=======
</TABLE>
The leases for the retail locations generally contain rent escalation
provisions, most of which are tied to increases in the consumer price index.
Some of the leases also provide for payment of additional rent based on a
percentage of sales. No additional rents have been required pursuant to these
provisions.
All of the Franchise Stores are located in leased premises not owned by
the Company. Franchise Store leases typically run for five to 10 years with one
or two five-year renewal options. As a condition of the Franchise Agreement,
each lease for a Franchise Store must contain language granting an option to the
Company to assume the lease if the Agreement is terminated for any reason or if
the franchisee is in default under the lease.
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The Company's principal executive office is located in Anaheim,
California in a 650 square foot facility which is leased through October 1998,
at the rate of approximately $2,500 per month from CKE.
The Company is also the primary lessee of four facilities, formerly
occupied by the Company, which have been subleased to unrelated third parties. A
2,800 square foot facility in Newport Beach, California is leased through June
1998 with payments of approximately $5,200 per month and is subleased by the
Company through the lease term for approximately $4,800 per month. An 8,800
square foot facility also in Newport Beach, California is leased through
September 2000 for payments of approximately $16,000 per month and is subleased
by the Company through the lease term for approximately $16,000 per month. A
20,000 square foot building in Anaheim, California is leased through May 1998
for payments of approximately $9,200 per month, substantially all of which is
subleased by the Company through the lease term for approximately $8,700 per
month. The Company continues to utilize approximately 500 square feet of the
Anaheim facility. A 5,300 square foot facility which is leased through July 1998
at the rate of $9,300 per month and is subleased by the Company through the
lease terms for an amount in excess of the Company's obligation
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock trades on the Nasdaq Small Cap Market tier
of the Nasdaq Stock Market, under the symbol "GBFC." The Company's common stock
is also listed on the Boston Stock Exchange under the symbol "GBF." The
following table sets forth, for the calendar periods indicated, the high and low
sales price for the Company's common stock as reported on the Nasdaq Small Cap
Market. The prices represent quotations between dealers, without adjustment for
retail mark up, mark down or commission, and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
SALES PRICE
-----------
HIGH LOW
---- ---
<S> <C> <C>
1996
----
1st Quarter 10-5/8 6-7/8
2nd Quarter 10-3/8 6
3rd Quarter 8-1/2 5-3/4
4th Quarter 7-3/8 5-1/2
1997
----
1st Quarter 8-1/8 6-3/8
2nd Quarter 6-1/4 4-3/4
3rd Quarter 14-3/8 4-7/8
4th Quarter 14-1/4 9-1/2
</TABLE>
The Company has not paid dividends on its common stock since its
incorporation and anticipates that, for the foreseeable future, earnings, if
any, will continue to be retained for use in its business. On December 31, 1997,
the approximate number of record holders of the Company's common stock was 209;
however, the Company believes that the number of beneficial owners exceeds 1,000
persons.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data for the five years ended December
31, 1997 is derived from the Consolidated Financial Statements of the Company.
The following information should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained elsewhere in this report. The data has been adjusted to take into
account the discontinuance of the Commissary operations in the fourth quarter of
1992.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues $5,380 $ 4,994 $ 6,599 $ 6,612 $ 5,469
Total expenses excluding litigation
settlement and related costs (4,526) (5,042) (7,716) (8,287) (6,351)
Litigation settlements and related costs - - (805) (2,869) (4,195)
Income (loss) from continuing operations 854 (48) (1,922) (4,544) (5,077)
Income on disposal of
commissary operations - - - - 87
Net income (loss) 854 (48) (1,922) (4,544) (4,990)
Basic net income (loss) per share from
continuing operations 0.13 (0.01) (0.31) (0.87) (1.03)
Diluted net income (loss) per share from
continuing operations 0.11 (0.01) (0.31) (0.87) (1.03)
Basic net income (loss) per share 0.13 (0.01) (0.31) (0.87) (1.01)
Diluted net income (loss) per share 0.11 (0.01) (0.31) (0.87) (1.01)
Basic weighted average shares 6,471,262 6,356,287 6,161,244 5,208,008 4,941,145
outstanding
Diluted weighted average shares 7,751,921 6,356,287 6,161,244 5,208,008 4,941,145
outstanding
Total assets 4,802 3,462 3,277 4,267 5,007
Long-term debt - 15 25 8 11
</TABLE>
No dividends were paid or declared during the five years ended December
31, 1997.
8
<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
This discussion and analysis contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, which are subject to the "safe harbor" created by those sections. The
Company's actual future results could differ materially from those projected in
the forward-looking statements. The Company assumes no obligation to update the
forward-looking statements or such factors.
Comparison of the Year Ended December 31, 1997 to the Year Ended
December 31, 1996. Total revenues from operations for the year ended December
31, 1997 were $5,380,000, an increase of 8% from $4,994,000 earned in the
comparable period in 1996. Revenues for the years ended December 31, 1997 and
1996, respectively, included $3,019,000 and $2,988,000 from restaurant
operations, $1,229,000 and $1,069,000 from royalties, $409,000 and $390,000 from
franchise fees, $495,000 and $349,000 from other sources, $143,000 and $105,000
from interest income, and $85,000 and $93,000 from frozen food operations.
Revenues from restaurant operations for 1997 increased 1% to $3,019,000
compared to $2,988,000 earned in 1996, as the result of an increase in same
store sales. Store-operating months decreased to 84 in 1997 from 86 in 1996. The
Company anticipates revenues from restaurant operations in 1998 to remain
consistent with revenues from 1997. At December 31, 1997 and 1996, respectively,
seven Company Stores were open (including the one consolidated partnership-owned
store in both years).
Revenues from franchise royalties increased 15% to $1,229,000 for the
year ended December 31, 1997 from $1,069,000 earned in the comparable period in
1996. Royalties from dual-concept Franchise Stores range from 3% to 4% of Green
Burrito sales while royalties from free-standing Franchise Stores are typically
5% of sales. The following table is a summary of Franchise Store activity during
1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
DUAL-CONCEPT FRANCHISE STORES
Stores at beginning of year 84 41
Stores opened during year 53 59
Stores closed during the year (3) (16)
-------- --------
Stores at end of year 134 84
======== ========
Number of dual-concept
Franchise Store operating months 1,291 833
======== ========
Royalty income $579,000 $387,000
======== ========
FREE-STANDING FRANCHISE STORES
Stores at beginning of year 43 47
Stores closed during the year (3) (4)
-------- --------
Stores at end of year 40 43
======== ========
Number of free-standing
Franchise Store operating months 503 532
======== ========
Royalty income $650,000 $682,000
======== ========
</TABLE>
Royalty income from dual-concept Franchise Stores for the year ended
December 31, 1997 increased $192,000, to $579,000 in 1997 from $387,000 earned
in 1996, as the result of the increase in store operating months to 1,291 in
1997 compared with 833 in 1996. The increase in store operating months is the
result of a net increase of 50 dual-concept franchise stores during 1997. The
net increase of 50 dual-concepts stores in 1997 is the result of 52 CKE openings
plus 1 Long John Silver opening, less 3 WSMP closings. Royalty income from
free-standing Franchise Stores for the year ended December 31, 1997 decreased
$32,000 from the amount earned in 1996 as a result of the reduction in
store-operating months. The store operating months decreased as a result of the
closure of 3 stores. The Company anticipates royalties earned from dual-concept
Franchise Stores to grow in 1998 while royalties earned in 1998 from
free-standing Franchise Stores are anticipated to remain comparable to 1997
royalties.
9
<PAGE> 10
Revenues from franchise fees increased 5% to $409,000 for the year
ended December 31, 1997 from $390,000 earned in the comparable period in 1996,
primarily due to the opening of 53 dual-concept stores during 1997 as compared
to a net 44 openings in 1996. Although there were 59 openings in 1996, the 15
Hardee's store openings were considered "test stores" and did not pay any
franchise fees. Franchise fees from dual-concept stores range from $5,000 to
$7,500 per store. At a minimum, the Company expects to earn franchise fees in
the year ended December 31, 1998 at a level comparable to 1997.
Revenues from other sources increased $145,000 to $494,000 for the year
ended December 31, 1997 from $349,000 earned in the comparable period in 1996.
Included in other revenue are volume incentives received from various vendors.
Revenues from frozen food operations decreased 9% to $85,000 for the
year ended December 31, 1997 from $93,000 earned in the comparable period in
1996. Late in the second quarter of 1995, the Company made a strategic decision
to discontinue its retail frozen burrito business for the time being while the
Company focuses on other growth plans. The Company is continuing to sell a small
quantity of frozen burritos through various channels, but is not actively
pursuing the development of this business.
On an aggregate basis, cost of sales from restaurant operations (food,
packaging, payroll and other employee benefits), expressed as a percentage of
sales, averaged 65% for December 31, 1997 and 67% for 1996. Cost of sales for
the years ended December 31, 1997 and 1996, respectively, included $1,077,000
and $1,132,000 from food and packaging and $871,000 and $880,000 from payroll
and other employee benefits. The favorable decrease in cost of sales was the
direct result of lower food and packaging costs negotiated with vendors in 1997.
On an aggregate basis, occupancy and other operating costs (including
utilities, housekeeping, liability insurance, repairs and maintenance, and other
miscellaneous items), expressed as a percentage of sales, averaged approximately
27% for both the years ended December 31, 1997 and 1996. Occupancy and other
operating costs for the years ended December 31, 1997 and 1996 totaled $821,000
and $810,000, respectively.
The frozen foods division incurred operating costs of $76,000 and
$81,000 resulting in income of $9,000 and $12,000 for the years ended December
31, 1997 and 1996 respectively.
General and administrative expense for the years ended December 31,
1997 and 1996 was $1,667,000 and $2,123,000, respectively, representing 31% and
43% of total revenue for each respective year. The decrease in general and
administrative expenses is primarily the result of decreased corporate expenses
relating to the change of control and relocation and downsizing of the corporate
office and staff.
Comparison of the Year Ended December 31, 1996 to the Year Ended
December 31, 1995. Total revenues from operations for the year ended December
31, 1996 were $4,994,000, a decrease of 24% from $6,599,000 earned in the
comparable period in 1995. Revenues for the years ended December 31, 1996 and
1995, respectively, included $2,988,000 and $4,818,000 from restaurant
operations, $1,069,000 and $845,000 from royalties, $390,000 and $322,000 from
franchise fees, $349,000 and $305,000 from other sources, $105,000 and $89,000
from interest income, and $93,000 and $220,000 from frozen food operations.
Revenues from restaurant operations for 1996 decreased 38% to
$2,988,000 compared to $4,818,000 earned in 1995, as a result of a decrease in
store-operating months to 86 in 1996 from 144 in 1995. This decrease in
store-operating months is due to the sale of five Company stores in late 1995
and the closure of one Company store in February 1996. In addition, same-store
sales decreased 4%. Management believes same-store sales decreased primarily
because of increased competition from new fast-food restaurant openings in close
proximity to the Company Stores. At December 31, 1996 and 1995, respectively,
seven and eight Company Stores were open (including the one consolidated
partnership-owned store in both years).
10
<PAGE> 11
Revenues from franchise royalties increased 27% to $1,069,000 for the
year ended December 31, 1996 from $845,000 earned in the comparable period in
1995. Royalties from dual-concept Franchise Stores range from 3% to 4% of Green
Burrito sales while royalties from free-standing Franchise Stores are typically
5% of sales. The following table is a summary of Franchise Store activity during
1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
DUAL-CONCEPT FRANCHISE STORES
Stores at beginning of year 41 5
Stores opened during year 59 37
Stores closed during the year (16) (1)
-------- --------
Stores at end of year 84 41
======== ========
Number of Dual-concept
Franchise Store operating months 833 220
======== ========
Royalty income $387,000 $ 78,000
======== ========
FREE-STANDING FRANCHISE STORES
Stores at beginning of year 47 45
Stores closed during year (4) (3)
Stores purchased from Company by franchisee - 5
-------- --------
Stores at end of year 43 47
======== ========
Number of Free-standing
Franchise Store operating months 532 540
======== ========
Royalty income $682,000 $767,000
======== ========
</TABLE>
Royalty income from dual-concept Franchise Stores for the year ended
December 31, 1996 increased $309,000, to $387,000 in 1996 from $78,000 earned in
1995, as the result of the increase in store operating months to 833 in 1996
compared with 220 in 1995. The increase in store operating months is the result
of a net increase of 43 dual-concept franchise stores during 1996. The net
increase of 43 dual-concepts stores in 1996 is the result of 43 CKE openings
plus 15 Hardee's store openings and one WSMP opening, less 14 Rally's closings
and two WSMP closings. However, the 15 Hardee's store openings are considered
"test-stores" and do not earn royalties. Royalty income from free-standing
Franchise Stores for the year ended December 31, 1996 decreased $85,000 over the
amount earned in 1995 as a result of the reduction in store-operating months.
The store operating months decreased as a result of the closure of four stores.
Revenues from franchise fees increased 21% to $390,000 for the year
ended December 31, 1996 from $322,000 earned in the comparable period in 1995,
primarily due to the opening of 59 dual-concept stores during 1996. Of the 59
dual-concept stores opened in 1996, 15 were considered test-stores and were not
required to pay a franchise fee and the balance paid franchise fees ranging from
$5,000 to $7,500 per store.
Revenues from other sources increased $44,000 to $349,000 for the year
ended December 31, 1996 from $305,000 earned in the comparable period in 1995.
Included in other revenue are volume incentives received from various vendors.
Also included in other revenue in 1995 is a non-recurring workers compensation
refund totaling $115,000.
Revenues from frozen food operations decreased 58% to $93,000 for the
year ended December 31, 1996 from $220,000 earned in the comparable period in
1995. Late in the second quarter of 1995, the Company made a strategic decision
to discontinue its retail frozen burrito business for the time being while the
Company focuses on other growth plans. The Company is continuing to sell a small
quantity of frozen burritos through various channels, but is not actively
pursuing the development of this business.
11
<PAGE> 12
On an aggregate basis, cost of sales from restaurant operations (food,
packaging, payroll and other employee benefits), expressed as a percentage of
sales, averaged 67% for both the years ended December 31, 1996 and 1995. Cost of
sales for the years ended December 31, 1996 and 1995, respectively, included
$1,132,000 and $1,795,000 from food and packaging and $880,000 and $1,443,000
from payroll and other employee benefits.
On an aggregate basis, occupancy and other operating costs (including
utilities, housekeeping, liability insurance, repairs and maintenance, and other
miscellaneous items), expressed as a percentage of sales, averaged approximately
28% for both the years ended December 31, 1996 and 1995. Occupancy and other
operating costs for the years ended December 31, 1996 and 1995 totaled $810,000
and $1,363,000 respectively.
The frozen foods division incurred operating costs of $81,000 and
$228,000 resulting in income of $12,000 and a loss of $8,000 for the years ended
December 31, 1996 and 1995 respectively.
General and administrative expense for the years ended December 31,
1996 and 1995 was $2,123,000 and $2,872,000, respectively, representing 43% and
44% of total revenue for each respective year. The decrease in general and
administrative expenses is primarily the result of decreased legal and
accounting fees. During 1995, a large amount of legal and accounting fees were
incurred related to litigation settlements.
There were no litigation settlements for the year ended December 31,
1996, compared with $805,000 for comparable period in 1995. In 1995, the Company
incurred expenses of approximately $648,000 related to certain settlements with
non-litigating franchisees and incurred other legal settlement costs totaling
$157,000.
Impact of Company Expansion Plans on Operations. The management of the
Company anticipates that continued expansion of the dual-concept restaurant
business will improve the Company's liquidity and profitability by generating
additional franchise fees and royalties. The Company anticipates that its
existing management will be able to supervise the additional franchise sales and
existing Franchise Stores, as well as manage the Company Stores without the
addition of significant personnel in the next 12 months.
Effect of Inflation. Food and labor costs are significant inflationary
factors in the Company's operations. Many of the Company's employees are paid
hourly rates related to the statutory minimum wage, therefore, increases in the
minimum wage increase the Company's costs. On October 1, 1996, the federal
statutory minimum wage was increased to $4.75 per hour. This increase in the
statutory minimum wage has not had a material impact on the Company's current
operations as the majority of the Company's hourly employees have been paid in
excess of the statutory minimum wage. On March 1, 1997 the California statutory
minimum wage was increased to $5.00 per hour and again increased on September 1,
1997 to $5.15 per hour. At September 1, 1997, approximately 20 of the 57 hourly
employees are paid the California statutory minimum wage. In addition, most of
the Company's leases require it to pay base rents with escalation provisions
based on the consumer price index, in addition to percentage rentals based on
revenues, and to pay taxes, maintenance, insurance, repairs, and utility costs,
all of which are expenses subject to inflation. The Company has been able to
offset the effects of inflation to date through small price increases and
economies resulting from the purchase of food products in increased quantities
due to the increased number of Green Burrito stores.
Liquidity and Capital Resources. The Company's cash and short-term
investments increased $1,678,000 to $3,453,000 at December 31, 1997 compared to
$1,775,000 at December 31, 1996, due to increases in cash flow from operations
and issuances of common stock. Net cash provided by operating activities was
$1,142,000 in 1997 as compared to $265,000 in 1996. The increase was attributed
to improved operating results and collections of notes receivable.
Management believes the Company's cash, cash equivalents and short-term
investments will be sufficient to finance current and forecasted operations and
obligations. It is anticipated that long-term cash requirements will be funded
by the implementation of the Company's current expansion plans, which primarily
involve the expansion of the number of Green Burrito dual-concept stores through
franchising. These expansion plans are not anticipated to require significant
increases in personnel prior to achieving positive cash flow from such
dual-concept franchising efforts. It is anticipated that these expansion plans
will significantly improve the Company's cash flow from operations once they are
fully achieved. If the Company's expansion plans are neither completed nor
successful, the Company will rely on cash, cash equivalents and short-term
investments and will pursue other financing alternatives to fund operations
until such time as alternative expansion plans can be formulated and achieved.
12
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Consolidated Financial Statements and Schedule:
<TABLE>
<S> <C>
Reports of Independent Certified Public Accountants..............................14
Consolidated Balance Sheets as of December 31, 1997 and 1996.....................16
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.................................................17
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995...........................................18
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.................................................19
Notes to Consolidated Financial Statements.......................................21
Schedule II - Valuation and Qualifying Accounts..................................34
</TABLE>
Schedules not included above have been omitted because of the absence of
the conditions under which they are required or because the information
called for is shown in the consolidated financial statements or in the
notes thereto.
13
<PAGE> 14
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and
Shareholders of
GB Foods Corporation
We have audited the accompanying consolidated balance sheets of GB Foods
Corporation as of December 31, 1997 and 1996 and the related consolidated
statements of operations, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of GB Foods
Corporation as of December 31, 1997 and 1996, and the consolidated results of
its operations and its consolidated cash flows for the years then ended in
conformity with generally accepted accounting principles.
We have also audited Schedule II of GB Foods Corporation for the years ended
December 31, 1997 and 1996. In our opinion, this schedule presents fairly, in
all material respects, the information required to be included therein.
/s/ GRANT THORNTON LLP
Irvine, California
January 30, 1998, except for
Note 16 as to which the date
is February 19, 1998
14
<PAGE> 15
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and
Shareholders of
GB Foods Corporation
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of GB Foods Corporation and its subsidiary
(the "Company") for the year ended December 31, 1995. In connection with our
audit of the consolidated financial statements, we also have audited the
consolidated financial statement schedule for the year ended December 31, 1995.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of the Company's operations and
their cash flows for the year ended December 31, 1995, in conformity with
generally accepted accounting principles. Also in our opinion, the related
consolidated financial statement schedule taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/ CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
February 23, 1996
15
<PAGE> 16
GB FOODS CORPORATION
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1996
------------ -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,129,536 $ 753,601
Short-term investments 2,323,181 1,020,893
Accounts receivable, net of allowance for doubtful
accounts of $81,613 in 1997 and $75,613 in 1996 198,076 185,465
Current portion of notes receivable 78,703 179,583
Other assets 218,849 81,003
------------ ------------
Total current assets 3,948,345 2,220,545
Equipment and improvements, net 449,144 739,005
Notes receivable, net 338,763 399,098
Other assets 65,379 103,448
------------ ------------
$ 4,801,631 $ 3,462,096
============ ============
LIABILITITES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt $ - $ 10,538
Accounts payable and accrued expenses 283,668 359,329
Accrued salaries, wages and employee benefits 114,347 109,649
Deferred franchise fees 25,000 12,500
------------ ------------
Total current liabilities 423,015 492,016
Long-term debt, less current installments - 14,835
Minority interest in consolidated partnership 60,687 60,149
Commitments and contingencies
Shareholders' equity
Common stock, $.08 par value, authorized 50,000,000
shares; 6,571,485 and 6,440,414 shares issued and
outstanding in 1997 and 1996, respectively 525,719 515,232
Additional paid-in capital 16,329,617 15,770,983
Accumulated deficit (12,537,407) (13,391,119)
------------ ------------
Total shareholders' equity 4,317,929 2,895,096
------------ ------------
$ 4,801,631 $ 3,462,096
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE> 17
GB FOODS CORPORATION
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Restaurant operations $3,018,949 $2,987,609 $ 4,818,483
Royalties 1,229,498 1,069,190 845,059
Franchise fees 409,253 389,392 322,165
Frozen food operations 85,142 93,250 220,116
Interest 143,097 105,299 88,795
Other 494,365 348,939 304,354
---------- ---------- -----------
5,380,304 4,993,679 6,598,972
---------- ---------- -----------
Restaurant operating costs:
Food and packaging 1,077,433 1,132,226 1,794,864
Payroll and other employee benefits 870,533 879,830 1,442,601
Occupancy and other operating costs 820,704 810,437 1,363,245
Frozen food operating costs:
Food and packaging 74,228 78,787 218,375
Other operating costs 1,280 2,524 9,299
General and administrative 1,667,063 2,123,068 2,871,507
Litigation settlements and related costs - - 804,753
---------- ---------- -----------
4,511,241 5,026,872 8,504,644
---------- ---------- -----------
Income (loss) before minority interest in
consolidated partnership 869,063 (33,193) (1,905,672)
Minority interest in consolidated partnership (15,351) (15,252) (16,774)
---------- ---------- -----------
Net income (loss) $ 853,712 $ (48,445) $(1,922,446)
========== ========== ===========
Basic net income (loss) per share $ .13 $ (.01) $ (.31)
========== ========== ===========
Diluted net income (loss) per share $ .11 $ (.01) $ (.31)
========== ========== ===========
Basic weighted average shares 6,471,262 6,356,287 6,161,244
========== ========== ===========
Diluted weighted average shares 7,751,921 6,356,287 6,161,244
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE> 18
GB FOODS CORPORATION
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional Total
Number Litigation Deferred paid-in Accumulated shareholders'
of shares Amount settlements compensation capital deficit equity
--------- --------- ------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 5,671,556 $ 453,724 $ 2,523,000 $ (52,175) $11,780,200 $(11,420,228) $3,284,521
Settlement of litigation - - 648,000 - - - 648,000
Issuance of common stock 108,000 8,640 (648,000) - 639,360 - -
Issuance of common stock 400,000 32,000 (2,523,000) - 2,491,000 - -
Issuance of common stock
under stock option plans 105,128 8,410 - - 358,154 - 366,564
Amortization of stock awards - - - 52,175 - - 52,175
Net loss - - - - - (1,922,446) (1,922,446)
------------ --------- ------------ ----------- ----------- ------------ -----------
Balance, December 31, 1995 6,284,684 502,774 - - 15,268,714 (13,342,674) 2,428,814
Issuance of common stock
under stock option plans 155,730 12,458 - - 502,269 - 514,727
Net loss - - - - - (48,445) (48,445)
------------ --------- ------------ ----------- ----------- ----------- ----------
Balance, December 31, 1996 6,440,414 515,232 - - 15,770,983 (13,391,119) 2,895,096
Issuance of common stock
under stock option plans 131,071 10,487 - - 558,634 - 569,121
Net income - - - - - 853,712 853,712
------------ --------- ------------ ----------- ----------- ------------ ----------
Balance, December 31, 1997 6,571,485 $ 525,719 $ - $ - $16,329,617 $(12,537,407) $4,317,929
============ ========= ============ =========== =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE> 19
GB FOODS CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 853,712 $ (48,445) $(1,922,446)
Adjustments to reconcile net income (loss) to net
cash flows provided by (used
in) operating activities:
Litigation settlements - - 648,000
Stock issued in exchange for services - - 39,130
Amortization of stock awards - - 52,175
Provision for doubtful accounts 790 87,663 84,051
Depreciation and amortization 296,857 344,573 438,453
Minority interest in consolidated partnership 14,210 15,252 16,774
Loss on disposal of equipment and improvements - 154,123 65,072
Changes in operating assets and liabilities:
Accounts and current notes receivable 67,680 (100,209) (171,421)
Other current assets (150,926) 44,838 25,831
Non-current notes receivable 80,135 40,867 10,608
Other non-current assets 38,069 (3,330) 9,079
Accounts payable and accrued expenses (75,661) (203,080) (52,891)
Salaries, wages and employee benefits 4,698 450 (5,103)
Deferred franchise fees 12,500 (67,500) (95,000)
----------- ----------- -----------
Net cash provided by (used in)
operating activities 1,142,064 265,202 (857,688)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from short-term investments 5,175,131 2,082,108 1,921,481
Purchases of short-term investments (6,477,419) (2,339,171) (1,304,313)
Proceeds from equipment and improvements 69,209 76,351 207,727
Expenditures for equipment and improvements (63,126) (36,319) (494,241)
----------- ----------- ------------
Net cash provided by (used in) investing
activities (1,296,205) (217,031) 330,654
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from long-term debt - - 31,098
Repayments of revolving line of credit
and long-term debt (25,373) (10,202) (11,645)
Proceeds from issuance of common stock
primarily under stock option plans 569,121 514,727 327,434
Distributions to minority partner (13,672) (15,823) (17,695)
----------- ----------- ------------
Net cash provided by financing activities 530,076 488,702 329,192
----------- ----------- ------------
</TABLE>
(continued)
19
<PAGE> 20
GB FOODS CORPORATION
Consolidated Statements of Cash Flows - Continued
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1997 1996 1995
---------- -------- ---------
<S> <C> <C> <C>
Net increase (decrease) in cash and
cash equivalents 375,935 536,873 (197,842)
Cash and cash equivalents at beginning of year 753,601 216,728 414,570
---------- -------- ---------
Cash and cash equivalents at end of year $1,129,536 $753,601 $ 216,728
========== ======== =========
Supplemental Information:
Cash paid during the year for:
Interest $ 1,266 $ 2,719 $ 2,234
Income taxes $ 1,600 $ 1,600 $ 1,600
Non-cash investing and financing activities:
Assets sold for notes receivable $ - $ - $ 465,056
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 21
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
1. Organization and summary of significant accounting policies
-----------------------------------------------------------
Business activities
-------------------
GB Foods Corporation and its wholly-owned subsidiary GB Franchise
Corporation (the "Company") sell and supervise Mexican quick-service
franchise restaurants, primarily in Southern California, under the trade
name "The Green Burrito." The Company is currently expanding its franchise
business in certain regional markets throughout the country. The Company
also owns and operates a small number of Green Burrito restaurants in
Southern California.
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of GB Foods
Corporation, GB Franchise Corporation and an investment in a
partnership-owned restaurant in which the Company has a majority interest.
All significant intercompany balances and transactions have been
eliminated.
Cash, cash equivalents and short-term investments
-------------------------------------------------
All highly liquid investments with an original maturity of three months or
less at the date of purchase are considered cash equivalents. Investments
with original maturities between three and 12 months are considered
short-term investments. Short-term investments, consisting of U.S.
government and agency securities, are classified as held to maturity and
are carried at cost which approximates market.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any
losses in such accounts. The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Long-lived assets
-----------------
Equipment and improvements are recorded at cost and depreciated over their
estimated useful lives, ranging from two to seven years, using the
straight-line method. Leasehold improvements are amortized over the lesser
of the estimated useful life of the related asset or the respective lease
term.
All of the Company's long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate the carrying amount may not be
recovered. If the sum of the expected future cash flows is less than the
carrying amount of the asset, a loss is recognized.
Advertising costs
-----------------
Advertising costs are charged to operations when incurred. Advertising
expense for the years ended December 31, 1997, 1996 and 1995 was $55,347,
$56,913, and $86,873, respectively.
Income taxes
------------
The Company recognizes income taxes using the liability method, under which
deferred tax assets and liabilities are determined based on the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes. Deferred tax assets are reduced by a valuation
allowance when it is more likely than not that they will not be realized.
Basic and diluted net income (loss) per share
---------------------------------------------
Net income (loss) per share is calculated in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"),
which superseded APB Opinion No. 15. Net income (loss) per share for all
periods presented has been restated to reflect the adoption of SFAS 128.
Basic net income (loss) per share is based upon the weighted average number
of common shares outstanding. Diluted net income (loss) 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.
(continued)
21
<PAGE> 22
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
1. Organization and summary of significant accounting policies (continued)
-----------------------------------------------------------------------
Franchise revenues
------------------
Franchise royalties are recognized as earned on a monthly basis. For the
majority of the Franchise Stores currently in operation, they are required
to pay a weekly franchise royalty equal to the greater of 5% of gross
Franchise Store revenues or a minimum per week as specified in each
franchise agreement. The Company has developed a separate Franchise
Agreement for dual-concept franchise stores. Dual-concept franchisees pay
similar fees related to the sale of Green Burrito proprietary products and
related items. The Company may from time to time change the amount of the
franchise royalty fee charged to the franchisees.
The Company recognizes initial franchise fees when the related franchise
store commences operations. Initial franchise fees currently range from
$5,000 to $25,000 for each franchise restaurant pursuant to the respective
franchise agreement.
Following is a summary of franchise store activity:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ----------
<S> <C> <C> <C>
Franchise stores at beginning of year 127 88 50
Franchise stores opened during year 53 59 37
Franchise stores closed during year (6) (20) (4)
Company stores sold to franchisee - - 5
------------ ----------- ----------
Franchise stores at end of year 174 127 88
============ ========== ==========
</TABLE>
As of December 31, 1997, CKE Restaurants, Inc. (CKE) owned and operated
115 dual-concept franchise stores. Franchise revenues generated from the
CKE dual-concept franchise stores were approximately $942,000 for the year
ended December 31, 1997, which represented approximately 18% of total
revenues.
Stock-based compensation
------------------------
Statement of Financial Accounting Standard (SFAS) No. 123 "Accounting for
Stock-Based Compensation" was issued by the Financial Accounting Standards
Board (FASB) in October 1995, and is effective for transactions entered
into after December 15, 1995. SFAS No. 123 provides for companies to
recognize compensation expense associated with stock-based compensation
plans over the anticipated service period based on the fair value of the
award at the date of grant. However, SFAS No. 123 allows for companies to
continue to measure compensation costs as prescribed by APB Opinion (APB)
No. 25, "Accounting for Stock Issued to Employees." The Company has elected
to continue its current policy, which is to account for stock-based
compensation plans under APB No. 25.
Use of estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
2. Notes receivable
----------------
Notes receivable consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Notes receivable $ 499,835 $ 666,260
Less allowance for doubtful notes (82,369) (87,579)
--------- ---------
417,466 578,681
Less current portion of notes receivable (78,703) (179,583)
--------- ---------
$ 338,763 $ 399,098
========= =========
</TABLE>
(continued)
22
<PAGE> 23
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
2. Notes receivable (continued)
----------------------------
Included in notes receivable at December 31, 1997 and 1996, is an
installment note receivable totaling $384,197 and $454,829, respectively,
from a franchisee and current shareholder who purchased the assets of and
franchise rights to five Company-owned restaurants from the Company in
October 1995. The note bears interest at 8% per annum and requires
principal and interest payments of $8,009 until the note is paid in full in
October 2002. The note is collateralized by the assets of the related
restaurants and a pledge of company common stock.
Also included in notes receivable at December 31, 1997 and 1996, is an
installment note totaling $91,424 and $98,787, respectively. The note arose
when the Company sold the assets of its restaurant located in Paramount,
California and entered into a franchise agreement with the purchaser of the
assets for a franchise fee of $10,000. The note bears interest at 8% per
annum and is payable in monthly principal and interest installments of
$1,250 until paid in full in May 2006. The note is substantially reserved
as of December 31, 1997 and 1996.
3. Equipment and improvements
--------------------------
Equipment and improvements, at cost, are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Vehicles $ 53,460 $ 124,644
Equipment, furniture and fixtures 1,174,602 1,200,109
Leasehold improvements 735,063 884,884
----------- -----------
1,963,125 2,209,637
Less accumulated depreciation
and amortization (1,513,981) (1,470,632)
----------- -----------
Net equipment and improvements $ 449,144 $ 739,005
=========== ===========
</TABLE>
In October 1996, the Company signed a lease for a new Corporate office with
a commencement date of January 15, 1997. Consequently, the Company has
written off the leasehold improvements and built-in furniture at the old
Corporate office that had a net book value of $128,278 as of December 31,
1996.
In October 1995, the Company sold the assets of five Company-owned
restaurants and the franchise rights to operate the restaurants for $52,262
in cash and an installment note of $500,000. Included in the installment
note balance is an aggregate franchise fee of $50,000 for the five stores
related to the sales of the franchise rights by the Company to the
purchaser of the assets. The Company recorded a loss on the sales of the
assets of $31,414.
4. Long-term debt
--------------
Long-term debt at December 31, 1996 was comprised of notes payable to banks
at interest rates ranging from 7% to 9%, which were collateralized by
automobiles. All the notes were paid off during 1997.
5. Minority interest
-----------------
Green Burrito-Glendora #21, a California limited partnership
("GB-Glendora") comprised of the Company and one other limited partner,
owns and operates a Green Burrito store located in Glendora, California.
The Company has controlling interest in GB-Glendora and accordingly, the
related assets, liabilities and results of operations are consolidated. The
limited partner's ownership interest in the store is recorded as minority
interest. The limited partner has a non-cumulative preference on cash
distributions of $8,280 per year against the limited partner's 23.9%
interest in the profits of the store. GB-Glendora had net income of
$48,910, $53,064 and $59,403 in 1997, 1996 and 1995, respectively.
(continued)
23
<PAGE> 24
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
6. Income taxes
------------
A reconciliation between the actual income tax provision (benefit) and the
federal statutory rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- ----------------
Amount % Amount % Amount %
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Computed income tax provision
(benefit) at statutory
rate $ 290,000 34% $(16,000) (34%) $(654,000) (34%)
Operating loss (with) without
current tax benefit (290,000) (34%) 16,000 34% 654,000 34%
--------- ---- -------- ---- --------- ----
Income tax benefit $ - - $ - - $ - -
========= ==== ======== ==== ========= ====
</TABLE>
At December 31, 1997, the Company had a net operating loss carryforward 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.
A valuation allowance has been recognized for 1997 and 1996 to offset the
related deferred tax assets due to the uncertainty of realizing any benefit
therefrom. During 1997, no changes occurred in the conclusions regarding
the need for a 100% valuation allowance in all tax jurisdictions.
Significant components of the Company's deferred tax assets as of December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net operating loss carryforwards $ 4,381,000 $ 4,756,000
Receivables and other reserves 65,000 65,000
Other 53,000 67,000
----------- -----------
Current deferred tax assets 4,499,000 4,888,000
Depreciation 236,000 325,000
----------- -----------
4,735,000 5,213,000
Valuation allowance (4,735,000) (5,213,000)
----------- -----------
Total deferred tax assets $ - -
=========== ===========
</TABLE>
7. Litigation settlements
----------------------
In 1995, the Company issued 108,000 shares of Company common stock to
certain Green Burrito franchisees in exchange for a release of potential
claims against the Company, and, in certain instances, as recognition for a
reduction in the radius protection clause of the related franchise
agreements. Accordingly, the Company recorded a charge of $648,000 in the
year ended December 31, 1995.
Also in 1995, the Company concluded an agreement with certain Green Burrito
franchisees and former franchisees to settle all outstanding claims against
the Company and certain former officers and directors of the Company.
During 1995, the Company issued 400,000 shares of Company common stock to
the franchisees in full satisfaction of the settlement agreement.
(continued)
24
<PAGE> 25
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
8. Stockholder rights agreement
----------------------------
On July 9, 1996 the Company adopted a Stockholder Rights Agreement designed
to protect stockholders from abusive takeover tactics and to preserve for
stockholders the long-term value of the Company. The Rights Agreement was
not adopted in response to any effort to acquire control of the Company,
and the Board of Directors is not aware of any such effort.
Under the Stockholder Rights Agreement, the Company's stockholders (with
the exception of the Company's former Chief Executive Officer and Chairman,
his related interests, and current holders of warrants to purchase
1,000,000 or more shares of the Company's common stock) received one right
for each outstanding share of the Company's common stock. Each right
entitles its holder to buy one share of the Company's common stock at an
exercise price of $29. The Company can redeem the rights at $.001 each at
any time before a non-exempt person acquires 15% of the Company's common
stock. The rights will trade with, and are not detachable from, the
Company's common stock until the rights become exercisable.
The rights also become exercisable if a person or group (other than certain
exempt persons) acquires 15% or more of the Company's common stock or
announces a tender offer for 15% or more of the Company's common stock. If
such a person acquires 15% or more of the Company's common stock, each
right would then enable a Company stockholder to acquire such number of
shares of the Company's common stock having a market value of twice the
right's exercise price, or in effect, at a 50% discount to the market
price. If the Company were acquired by a merger or similar transaction
after such an event, each right would then enable a Company stockholder to
buy such number of shares of the acquiring company having a market value of
twice the right's exercise price, or in effect, at a 50% discount to the
market price.
The rights dividend distribution was made on August 1, 1996 payable to
eligible stockholders of record on August 1, 1996. The rights expire on
July 9, 2006.
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.
9. Issuance of common stock and common stock purchase warrants
-----------------------------------------------------------
In May 1995, the Company authorized the issuance of three common stock
purchase warrants to acquire a total of 3,000,000 shares of Company common
stock. These three warrants were granted at an exercise price that exceeded
the closing market price of the Company's common stock on the grant date.
Each of these common stock purchase warrants is further discussed below.
In May 1995, as partial consideration for legal services rendered in
connection with the negotiation of the settlement and development agreement
with Carl Karcher Enterprises, Inc. ("CKE"), the Company agreed to issue a
common stock purchase warrant to the law firm representing the Company. The
warrant had a purchase price of $100 and provides for the purchase of
1,000,000 shares of Company common stock at an exercise price of $7.50 per
share, exercisable after May 1, 1996 and expiring on April 30, 2005.
In May 1995, the Company authorized a common stock purchase warrant
agreement with Rally's Restaurants, Inc. ("Rally's") as part of the
consideration for entering into a development agreement with the Company.
The conditional warrant had a purchase price of $100 and provides for the
purchase of 1,000,000 shares of Company common stock at an exercise price
of $7.50 per share expiring June 7, 2005. Exercisability was contingent
upon Rally's compliance with the development agreement. In April 1996, the
Company and Rally's executed an agreement providing for the termination of
the development agreement. Consequently, the 1,000,000 common stock
purchase warrants that were granted to Rally's were canceled.
(continued)
25
<PAGE> 26
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
9. Issuance of common stock and common stock purchase warrants (continued)
-----------------------------------------------------------------------
In May 1995, in recognition of extraordinary personal efforts in connection
with the negotiations of the settlement and development agreement with CKE,
and the development agreement with Rally's, and in accordance with the
incentive component of the Company's compensation philosophy for its former
President and Chief Executive Officer, the Company issued a common stock
purchase warrant to its then President and Chief Executive Officer. The
warrant had a purchase price of $100 and provides for the purchase of
1,000,000 shares of Company common stock at an exercise price of $7.00 per
share expiring May 1, 2005.
On July 22, 1997, Fidelity National Financial, Inc. ("Fidelity") purchased
1,000,000 shares of Common Stock of GB Foods Corporation (the "Company")
from the former Chief Executive Officer and principal stockholder
("Controlling Shareholder"), for a purchase price of $5,000,000 cash.
Fidelity also purchased Common Stock Purchase Warrants ("Warrants") from
the Company's Controlling Shareholder pursuant to which Fidelity has the
right to acquire 2,500,000 shares of the Company's Common Stock, of which
1,500,000 are immediately exercisable at $5.00 per share (the "$5.00
Warrants") and 1,000,000 are immediately exercisable at $7.00 per share
(the "$7.00 Warrants"). The $5.00 Warrants were purchased for $600,000 cash
and expire November 23, 2002; the $7.00 Warrants were purchased for
$100,000 cash and expire May 1, 2005. Simultaneously with the closing of
the transaction Fidelity transferred 30,000 Warrants with an exercise price
of $5.00 to its investment advisor.
In a separate transaction, Fidelity also acquired 1,000,000 Warrants
exercisable at $7.50 per share (the "$7.50 Warrants") from the
aforementioned law firm which had provided services to the Company. The
purchase price of the $7.50 Warrants was $100,000 cash. The $7.50 Warrants
expire May 1, 2005.
As a result of the purchase of the Shares and the Warrants, Fidelity
beneficially owns 42.1% of the Company, based on 6,571,485 shares
outstanding at December 31, 1997 and including the Warrants pursuant to
which Fidelity has the right to acquire an additional 3,470,000 shares. In
conjunction with the Fidelity purchases, 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 Fidelity have filled the
Director and Officer vacancies.
In conjunction with its 1990 initial public offering, the Company entered
into an escrow agreement with three former executives pursuant to which the
former executives deposited certain shares of the Company's common stock,
originally acquired by them in 1988, into an escrow account to be released
upon the achievement of certain income levels by the Company. These
restricted shares continue to be included in shares outstanding. As of
December 31, 1996, 178,571 shares were in the escrow account to be returned
to the Company for cancellation if the Company has not reported earnings of
$1,500,000 for any twelve-month period concluding with the twelve-month
period ending June 30, 1997. On May 5, 1997, the Board of Directors
extended the terms of the escrow through June 30, 1998.
Warrant transactions for 1997, 1996 and 1995 described above are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ----------------------- -------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
----------- -------- ------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Warrants
outstanding
January 1, .. 4,000,000 $6.12 5,000,000 $6.40 2,000,000 $5.00
Granted......... - - - - 3,000,000 7.33
Canceled........ - - (1,000,000) 7.50 - -
----------- ------------ ---------
Warrants
outstanding
December 31,.. 4,000,000 $6.12 4,000,000 $6.12 5,000,000 $6.40
=========== ============ =========
</TABLE>
(continued)
26
<PAGE> 27
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
10. Stock-based compensation plans
------------------------------
The Company has two stock option plans and from time-to-time grants other
nonstatutory options. Options are granted to eligible employees and
directors, officers and consultants who are actively involved in the
development of the business of the Company. Generally, the exercise price
of options granted approximates the fair market value of the Company's
common stock on the date of grant. Currently outstanding options become
exercisable either immediately or over a period of up to three years and
expire five-to-ten years after the grant date. The following provides
additional information on these plans and other options:
Incentive stock option plan
---------------------------
In 1989, the Board of Directors of the Company adopted an Incentive Stock
Option Plan ("ISOP"). Under the ISOP, all key employees, including officers
and directors (who are also employees) of the Company are eligible to
receive options to purchase up to an aggregate of 125,000 shares for any
one person. To be eligible to receive options under the ISOP, an employee
must have been a full-time employee in good standing with the Company for
one year. The total number of options authorized under the plan is 312,500.
During 1995, the Company granted options for the purchase of 44,000 shares
of the Company's common stock to employees. The exercise price of the
options were $5.75. As of December 31, 1997, the Company has 77,555 options
available for future grant under the plan.
Non - qualified stock option plan
---------------------------------
In October 1989, the Company adopted a non-qualified stock option plan (the
"NQSOP") for directors who are not full-time employees of the Company and
individuals who act as consultants to the Company or who are actively
involved in the development of the business of the Company. The plan
provides for the issuance of a maximum of 125,000 shares of Company common
stock at the market price thereof on the date of grant. Each option lapses,
if not previously exercised or extended, on the tenth anniversary of the
date of grant or 90 days after the optionee has terminated continuous
activity with the Company. As of December 31, 1997, there are no remaining
options available for grant under this plan.
Other options issued
--------------------
On December 23, 1997, the Company granted an option for the purchase of
50,000 shares of the Company's common stock at its market price of $10.38
per share to an officer of the Company. The shares vest one year from the
date of grant.
On August 26, 1997, the Company granted options for the purchase of 445,000
shares of the Company's common stock at its market price of $8.63 per share
to officers and directors of the Company. The shares vest one year from the
date of grant.
In October 1996, the Company granted options for the purchase of 100,000
shares of Company common stock at $6.50 per share to an officer and
director of the Company, with 50,000 shares vesting immediately, and 50,000
shares vesting one year from the date of grant. The officer resigned in
July 1997 and the unvested shares were immediately vested. No options have
been exercised.
During 1995, the Company also granted options for the purchase of 260,000
shares of Company common stock to other directors, officers and consultants
that immediately vested. The exercise price of the options ranged from
$5.75 to $7.00.
(continued)
27
<PAGE> 28
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
10. Stock-based compensation plans (continued)
------------------------------------------
Combined plan transactions for 1997, 1996 and 1995 for the ISOP's, NQSOP's,
and other options described above are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ----------------------- -------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
----------- --------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Options
outstanding
January 1, .. 634,083 $5.66 705,167 $5.00 426,224 $3.63
Granted......... 495,000 8.80 100,000 6.50 304,000 6.78
Canceled........ - - (1,667) 5.75 (2,000) 5.75
Exercised....... (131,071) 4.34 (169,417) 3.45 (23,057) 2.95
----------- --------- -----------
Options
outstanding
December 31,.. 998,012 $7.39 634,083 $5.66 705,167 $5.00
=========== ========= ============
</TABLE>
The following information applies to options outstanding at December 31,
1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- --------------------------
Weighted
average Weighted Weighted
remaining average average
Number contractual exercise Number exercise
outstanding life (years) price exercisable price
------------ ------------- -------- ----------- ---------
Range of
exercise
prices
<S> <C> <C> <C> <C> <C>
$1.80 - $2.70 48,388 2 $1.80 48,388 $1.80
$2.71 - $4.05 42,000 4 3.46 42,000 3.46
$4.06 - $6.08 30,000 4 5.75 30,000 5.75
$6.09 - $7.00 382,624 7 6.82 382,624 6.82
$7.01 - $8.63 445,000 10 8.63 - -
$8.64 - $10.38 50,000 10 $10.38 - -
------------ -------------
998,012 503,012 $5.99
============ =============
</TABLE>
(continued)
28
<PAGE> 29
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
10. Stock-based compensation plans (continued)
------------------------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock.
Had compensation cost for the plan been determined based on the fair value
of options and warrants at the grant dates consistent with the method of
SFAS No. 123, the Company's net earnings and earnings per share would have
been:
<TABLE>
<CAPTION>
1997 1996 1995
------- --------- -----------
<S> <C> <C> <C>
Net income (loss)
As reported $853,712 $ (48,445) $(1,922,446)
Pro forma $216,867 $(154,989) $(8,861,577)
Basic earnings per share
As reported .13 (.01) (.31)
Pro forma .03 (.02) (1.44)
Diluted earnings per share
As reported .11 (.01) (.31)
Pro forma .03 (.02) (1.44)
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants made before 1995. The fair value of these options was estimated
at the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions for 1997, 1996, and 1995:
Expected life (years)........... 3 - 10
Risk-free interest rate ........ 5.5%
Volatility...................... 30% - 70%
The weighted fair value of options granted during the years ended December
31, 1997, 1996, and 1995 for which the exercise price approximated the
market price on the grant date was $3.22, $1.86, and $5.37 respectively.
The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
Management also believes that if the model took into consideration other
important factors, such as the block size of an option granted to an
individual, transferability restrictions on the sale of stock by CEO's or
directors, or other relevant factors, the fair value measurement of these
options would be substantially less.
(continued)
29
<PAGE> 30
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
11. Basic and diluted net income (loss) per share
---------------------------------------------
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1997 1996 1995
----------------- ------------------ ---------------
<S> <C> <C> <C>
Basic Earnings per share:
-------------------------
Numerator
---------
Net income (loss) $ 853,712 $ (48,445) $ (1,922,446)
================= ================== ===============
Denominator
-----------
Basic weighted average number of
common shares outstanding during the
period 6,471,262 6,356,287 6,161,244
================= ================== ===============
Basic net income (loss) per share $ .13 $ (.01) $ (.31)
================= ================== ===============
Diluted Earnings per share:
---------------------------
Numerator
---------
Net income (loss) $ 853,712 $ (48,445) $ (1,922,446)
================= ================== ===============
Denominator
-----------
Basic weighted average number of
common shares outstanding during the
period 6,471,262 6,356,287 6,161,244
Incremental common shares
attributable to exercise of:
outstanding options 140,225 - -
outstanding warrants 1,140,434 - -
----------------- ------------------ ---------------
1,280,659 - -
----------------- ------------------ ---------------
Diluted weighted average shares 7,751,921 6,356,287 6,161,244
================= ================== ===============
Diluted net income (loss) per share $ .11 $ (.01) $ (.31)
================= ================== ===============
</TABLE>
12. Other related party transactions
--------------------------------
During 1994, an officer and director (who resigned his positions with the
Company in June 1994), purchased three existing Franchise Stores paying the
Company a $2,500 transfer fee for two of the stores and paying no transfer
fee for the third. The Company's standard transfer fee is $5,000. Further,
the royalty fee for one of these stores was waived by the Company from
September 1, 1994 through February 28, 1995, while the royalty fee for
another was waived from September 1, 1994 through August 31, 1995. The
third store pays the standard 5% royalty fee. A director of the Company
provided legal services to the Company valued at $55,261, $48,467 and
$95,055 during 1997, 1996 and 1995, respectively.
(continued)
30
<PAGE> 31
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
13. Commitments and contingencies
-----------------------------
The Company's executive offices and all properties used for restaurant
operations are leased under operating leases expiring on various dates
through 2001. Certain leases require payment of contingent rentals based
upon a percentage of restaurant sales. No contingent rentals were required
in 1997, 1996, or 1995.
In October 1997, the Company relocated the Corporate office and signed a
new one year lease. The old office has been subleased for an amount greater
than the Company's current obligation.
As of December 31, 1997, future minimum rental payments and sublease income
under all non-cancelable operating leases for years ending December 31 are
as follows:
<TABLE>
<CAPTION>
Rental Sublease
Payments Income
------------- ----------
<S> <C> <C>
1998 $ 599,417 $ 383,494
1999 358,793 234,569
2000 222,484 150,921
2001 14,015 -
2002 - -
------------- ----------
$ 1,194,709 $ 768,984
============= ==========
</TABLE>
Rental expense under all agreements for the years ended December 31, 1997,
1996, and 1995 was $383,674, $489,046, and $624,787, respectively. Sublease
rental income for the years ended December 31, 1997, 1996 and 1995 was
$383,405, $167,556 and $115,163 respectively.
The Company sold five operating restaurants in 1995 and one in 1993 and
assigned the related leases to the respective purchasers. The Company
remains liable pursuant to the original lease agreements under the
respective leases in the event of a default by the purchasers. Following is
a summary of the Company's commitment pursuant to these leases.
<TABLE>
<CAPTION>
Rental
Payments
-----------
<S> <C>
1998 $ 210,028
1999 197,400
2000 152,900
2001 20,000
2002 13,600
Thereafter -
-----------
$ 593,928
===========
</TABLE>
The Company has not incurred expenses in any of the years presented related
to these assigned leases.
The Company is involved in legal proceedings, claims and litigation arising
in the ordinary course of business. Management believes that any resulting
liability should not materially affect the Company's financial position or
results of operations.
14. Fair value of financial instruments
-----------------------------------
The carrying amount of the Company's financial instruments approximates
their estimated fair value at December 31, 1997 and 1996. The fair value of
cash and cash equivalents was based on the carrying value of such assets.
The estimated fair value of short-term investments were based on quoted
market prices. The fair value of notes receivable and long-term debt, were
estimated based on discounted cash flows using market rates at the balance
sheet date. The use of discounted cash flows can be significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. The derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instrument.
(continued)
31
<PAGE> 32
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
15. 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 determined that the
adoption of SFAS 130 will not have a material impact on the Company's
financial position or results of operations.
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, among other items, that a public business
enterprise report a measure of segment profit or loss, certain specific
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 to
be restated. SFAS 131 need not be applied to interim financial statements
in the initial year of 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 determined that the adoption of SFAS 131 will not have a
material impact on the Company's financial reporting.
16. Subsequent Events
-----------------
On December 12, 1997, the Company announced the execution of a letter of
intent to acquire all the outstanding capital stock of Timber Lodge
Steakhouse, Inc. ("TBRL"). TBRL is a public company traded on Nasdaq under
the symbol TBRL and is the operator of the Timber Lodge Steakhouse
family-style restaurants. As of December 31, 1997, TBRL was operating a
total of 16 restaurants which were located in the states of Minnesota,
Wisconsin, Illinois, Western New York and South Dakota. TBRL's revenues and
net income for the fiscal year ended January 1, 1997 were $20,637,000 and
$983,000 respectively.
On January 20, 1998, the Company executed a definitive Agreement and Plan
of Merger ("Merger Agreement") with TBRL, pursuant to which the Company
will acquire one hundred percent of the outstanding capital stock of TBRL.
The parties expect to close the transaction in April 1998. Under the terns
of the agreement, each share of TBRL common stock will be converted into
the right to receive .80 of a share of the Company's common stock together
with cash in lieu of any fractional shares (the "Exchange Ratio"). In
addition, the agreement has established a collar for the Exchange Ratio of
$14.00 on the high end and $7.50 on the low end. If the Company's average
closing common stock price during the ten day trading period ending on the
second business day prior to the closing, ("Average Closing Stock Price"),
exceeds the limits of the collar then the Exchange Ratio will be adjusted.
If the Average Closing Stock Price is more than $14.00, the Exchange Ratio
shall be reduced to a number (rounded to the nearest 1/10000) equal to the
product of the Exchange Ratio multiplied by a fraction, the numerator of
which is $14.00 and the denominator of which is the Average Closing Stock
Price. If the Average Closing Stock Price is less than $7.50, the Company
may elect to increase the Exchange Ratio to the number (rounded to the
nearest 1/10000) determined by dividing $7.61 by the Average Closing Stock
Price.
(continued)
32
<PAGE> 33
GB FOODS CORPORATION
Notes to Consolidated Financial Statements
16. Subsequent Events (continued)
-----------------------------
The Merger is subject to certain customary conditions, including (i)
Fairness Opinions; (ii) approvals from the shareholders of the Company and
TBRL; and (iii) the parties obtaining all regulatory approvals, including
the Securities and Exchange Commission declaring effective a Registration
Statement covering the shares of the Company's common stock to be issued in
the Merger. The Merger is also subject to the purchase by TBRL from CKE
Restaurants, Inc. ("CKE") (NYSE:CKR) or its affiliate of between twelve
(12) and (20) JB's Restaurants for conversion to Timber Lodge Steakhouse
restaurants. In this regard, CKE has agreed under the Merger Agreement to
negotiate in good faith with TBRL to consummate such purchase and sale. In
addition, Fidelity National Financial, Inc. (NYSE:FNF) has agreed under the
Merger Agreement that, subject to the approval of the Merger by TBRL's
shareholders, it will exercise currently outstanding warrants to purchase
shares of the Company's common stock for a cash purchase price aggregating
not less than $5,000,000. The Company plans to utilize such proceeds, in
part, for the conversion of the JB's Restaurants acquired by TBRL into
Timber Lodge Steakhouse restaurants. The Chairman and Chief Executive
Officer of Fidelity is also the Chairman and Chief Executive Officer
of CKE.
On February 19, 1998, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement"), pursuant to which the Company shall
acquire one hundred percent (100%) of the issued and outstanding capital
stock of JB's Restaurants, Inc. ("JB's"), a wholly owned subsidiary of CKE.
Under the Agreement, GBFC shall acquire JB's for one million (1,000,000)
shares of GBFC Common Stock. GBFC and CKE anticipate that the acquisition
will Close on or before March 1, 1998. At the Closing, the business of JB's
shall be comprised of forty-eight (48) JB's company-owned restaurants,
twenty (20) JB's franchise restaurants, and four (4) Galaxy diner
restaurants. The acquisition is subject to certain conditions, including
the satisfactory completion of due diligence, delivery by CKE and the
approval by GBFC of certain disclosure schedules, the issuance of Fairness
Opinions, approvals from the respective Boards of Directors of GBFC and
CKE, regulatory approvals, the closing of the previously announced
acquisition of twelve (12) JB's restaurants by Star Buffet, Inc., the
upstream transfer by way of dividend of sixteen (16) JB's restaurants and
certain other assets to CKE. It is the intent of the parties that the
transaction qualify as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended.
33
<PAGE> 34
GB FOODS CORPORATION
Schedule II VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance
beginning costs and Amounts at end
Description of period expenses written-off Other of period
- ----------- ------------ --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts
and notes $ 163,192 $ 790 $ - $ - $ 163,982
============ ========= ========= ======== ==========
Allowance for deferred tax assets $ 5,213,000 $(478,000) $ - $ - $4,735,000
============ ========= ========= ======== ==========
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts
and notes $ 196,918 $ 87,663 $ (88,457) $(32,932) $ 163,192
============ ========= ========= ======== ==========
Allowance for deferred tax assets $ 5,178,000 $ 35,000 $ - $ - $5,213,000
============ ========= ========= ======== ==========
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts
and notes $ 242,455 $ 84,051 $(129,588) $ - $ 196,918
============ ========= ========= ======== ==========
Allowance for deferred tax assets $ 4,476,000 $ 702,000 $ - $ - $5,178,000
============ ========= ========= ======== ==========
</TABLE>
34
<PAGE> 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On October 28, 1996, the Company filed a Special Report on Form 8-K
reporting the change of its principal accountants from Cacciamatta Accountancy
Corporation (formerly known as SaddingtonoCacciamatta), to Grant Thornton LLP.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors
The following sets forth certain information for each director of the
Company as of December 31, 1997.
Director
Name of Nominee Age Since Position with the Company
- --------------- --- -------- -------------------------
William P. Foley, II 53 1997 Chairman and Director
Andrew F. Puzder 47 1997 Chief Executive Officer and Director
Frank P. Willey 44 1997 Director
Bruce H. Haglund 46 1989 Director
T.Anthony Gregory 59 1989 Director
William P. Foley, II became Chairman of the Board and a Director of the
Company in July 1997. Mr. Foley is also Chairman of the Board and Chief
Executive Officer of Fidelity, a company engaged in title insurance and related
services. Mr. Foley is also the Chairman of the Board and Chief Executive
Officer of CKE, a company engaged in the fast food business. He is also a member
of the Boards of Directors of Rally's, Checkers, Data Works Corporation and
Micro General Corporation.
Andrew F. Puzder became Chief Executive Officer and a Director of the
Company in July 1997. Mr. Puzder also serves as an Executive Vice President and
Chief Corporate Counsel for CKE. Mr. Puzder is also an Executive Vice President
for Fidelity. Mr. Puzder has been with Fidelity since January 1995. From March
1994 to December 1994, he was a partner with the law firm of Stradling, Yocca,
Carlson & Rauth. Prior to that, he was a partner with the law firm of Lewis,
D'Amato, Brisbois & Bisgard, from September 1991 through March 1994, and he was
a partner of the Stolar Partnership from February 1984 through September 1991.
Frank P. Willey became a Director in July 1997. He is also the
President of Fidelity National Financial, Inc. and has been a director since
February 1984. He was the General Counsel of Fidelity National Financial, Inc.
from 1984 to January 1995. Mr. Willey also serves on the Boards of Directors of
CKE, Southern Pacific funding Corporation, and Ugly Duckling Holdings, Inc.
Bruce H. Haglund has served as a Director of the Company since 1989.
Mr. Haglund is an attorney in private practice in Orange County, California and
has been a principal in the law firm of Gibson, Haglund & Johnson since April
1994. He was a principal in the law firm of Phillips, Haglund, Haddan & Jeffers
from February 1991 to April 1994. From 1984 to February 1991, he was a partner
in the law firm of Gibson & Haglund, and from 1980 to 1984 was an associate with
the firm. He is also a director of Aviation Distributors, Inc.
T. Anthony Gregory has served as a Director of the Company since 1989.
Since 1962, Mr. Gregory has owned and operated U.S. Customs Air Bonded
Warehouse. In June 1989, Mr. Gregory opened U.S. Customs Bonded Container and
Freight Station, and in August 1989 opened Custom Air Trucking Company. Mr.
Gregory was Vice President and Secretary of Equitable Saving & Loan Association,
a holding company for several savings and loan companies from 1963 to 1965.
Executive Officers
Andrew F. Puzder, see "Directors" above.
Nicholas J. Caddeo, 51 has been an Executive Vice President and Chief
Operating Officer of the Company since August 1992. Prior to joining the
Company, he was employed for more than 20 years by Foodmaker, Inc., the
corporate operator of Jack-in-the-Box restaurants, serving as a Regional Manager
for the Los Angeles area from January 1985 to July 1992.
Gary R. Nelson, 50 was appointed Executive Vice President, Chief
Financial Officer in August 1997. Mr. Nelson also serves as the Senior Vice
President of Mergers and Acquisitions for Fidelity National Title Insurance
Company since 1992. Mr. Nelson previously served as the Senior Vice President,
Chief Financial Officer and Treasurer of Fidelity National Financial, Inc. from
1988 to 1991. Mr. Nelson is a Certified Public Accountant.
35
<PAGE> 36
M'Liss Jones Kane, 45 was appointed Vice President-Secretary in August
1997. Mrs. Kane also serves as the Senior Vice President Corporate Cousel and
Corporate Secretary for Fidelity National Financial, Inc. since 1995. Mrs. Kane
also serves as Corporate Counsel and Assistant Secretary of CKE. Mrs. Kane
previously served as Vice President, General Counsel and Secretary of ICN
Biomedicals, Inc. and subsequently in addition became Vice President, general
Counsel of SPI Pharmaceuticals, Inc.
Carl A. Strunk, 59 was appointed Executive Vice President, Finance in
December 1997. Mr. Strunk also serves as Executive Vice President , Chief
Financial Officer for CKE. He also serves as the Executive Vice President,
Finance for Fidelity National Financial, Inc. and has been with Fidelity since
1992. Mr. Strunk previously served as President of Land Resources Corporation
from 1986 to 1991. Mr. Strunk is a Certified Public Accountant and is also a
member of the Board of Directors of Micro General Corporation.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation of William P. Foley, II, the Company's Chairman of the Board and
Director, Andrew F. Puzder, the Company's Chief Executive Officer, Nicholas J.
Caddeo, the Company's Chief Operating Officer, and Gary R. Nelson, the Company's
Chief Financial Officer, for each of the three years in the period ended
December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-term Compensation
------------------- -----------------------
Name and Principal Position Year Salary Other(1) Stock Options
- --------------------------- ---- ------ -------- ----- -------
<S> <C> <C> <C> <C> <C>
William P. Foley, II (2) 1997 $ 0 0 0 0
Chairman of the Board and 1996 $ 0 0 0 0
Director 1995 $ 0 0 0 0
Andrew F. Puzder (3) 1997 $ 0 0 0 0
Chief Executive Officer 1996 $ 0 0 0 0
1995 $ 0 0 0 0
Nicholas J. Caddeo 1997 $ 92,900 $ 9,600 0 0
Chief Operating Officer 1996 $ 82,800 $ 11,800 0 0
and Executive Vice President 1995 $ 92,600 $ 11,205 0 0
Gary R. Nelson (4) 1997 $ 10,000 0 0 0
Chief Financial Officer and 1996 $ - 0 0 0
Executive Vice President 1995 $ - 0 0 0
</TABLE>
(1) The remuneration described in the table does not include the cost to the
Company of benefit furnished to the named executive officer, including
premiums for health insurance and other personal benefits provided to such
individual that are extended to employees of the Company in connection with
their employment. The value of such benefits cannot be precisely determined;
however, the executive officer named above did not receive other
compensation in excess of the lesser of $25,000 or 10% of such cash
compensation.
(2) Became Chairman of the Board and a Director in August 1997.
(3) Became Chief Executive Officer in August 1997.
(4) Became Chief Financial Officer in August 1997.
OPTIONS GRANTED IN FISCAL YEAR 1997
During the fiscal year ended December 31, 1997, non-qualified stock
options were granted to William P. Foley, II, Andrew F. Puzder, Nicholas J.
Caddeo and Gary R. Nelson at an exercise price of $8.63 per share, 150,000,
100,000, 25,000 and 50,000 shares respectively. The options vest at the end of
one year from issuance.
36
<PAGE> 37
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1997 AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number of options, both exercisable
and unexercisable, held by each of the executive officers of the Company as of
December 31, 1997 and the value of any in-the-money options, assuming that the
value of the shares was $10.88, the fair market value of the Company's common
stock on December 31, 1997.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1997 December 31, 1997
Acquired on Value ------------------------- -------------------------
Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William P. Foley, II 0 0 0 150,000 0 $337,500
Andrew F. Puzder 0 0 0 100,000 0 $225,000
Nicholas J. Caddeo 0 0 7,500 25,000 $81,563 $ 56,250
Gary R. Nelson 0 0 0 50,000 0 $112,500
</TABLE>
COMPENSATION OF THE BOARD OF DIRECTORS
The members of the Board of Directors who are not employees receive
$1,000 for their attendance in person at Board meetings and $500 if they are
present at a Board meeting telephonically. Members of the Board of Directors
have also received nonstatutory stock options in the past in recognition of
their service as members of the Board of Directors. Effective August 1997,
Members of the Board of Directors were granted an annual grant of 20,000 options
per year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of December 31,
1997, relating to the beneficial ownership of the Company's common stock by (i)
all persons known by the Company to beneficially own more than 5% of the
outstanding shares of the Company's common stock, (ii) each director, director
nominee and officer of the Company and, (iii) all officers and directors of the
Company as a group. Unless otherwise noted, each of the shareholders listed owns
less than 1% of the outstanding common stock of the Company. The Company had
6,571,485 shares outstanding as of December 31, 1997.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of Shares
Beneficial Owner (1) (2) (3) Beneficially Owned (1) Outstanding (4)
- ---------------------------- ---------------------- --------------------
<S> <C> <C>
Fidelity National Financial, Inc. (5) 4,509,500 42.1%
17911 Von Karman Ave.
Irvine, CA 92614
William M. Theisen (6) 769,826 7.2%
c/o Business Ventures
210 Regency Parkway, Suite 12
Omaha, NE 68114
T. Anthony Gregory (7) 127,661 1.2%
25651 Paseo de la Paz
San Juan Capistrano, CA 92675
Bruce H. Haglund (8) 115,794 1.1%
2010 Main St., Suite 400
Irvine, CA 92614
Nicholas J. Caddeo (9) 28,200 0.3%
William P. Foley, II (10) 0 0.0%
All officers and directors 4,781,155 44.6%
as a group (4 persons) (11)
</TABLE>
37
<PAGE> 38
(1) Unless otherwise noted, the Company believes that all shares are
beneficially owned and that all persons named in the table have sole voting
and investment power with respect to all shares of Company common stock
owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from December 31, 1997 upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from December 31, 1997 have been exercised.
(3) Unless otherwise indicated, the address of each stockholder listed is 1200
North Harbor Blvd., Anaheim, California 92803.
(4) Assumes 10,712,373 shares outstanding, including 6,571,485 shares currently
outstanding and 4,140,888 issuable upon exercise of presently exercisable
stock options and warrants held by the above-listed shareholders.
(5) Includes 3,470,000 shares issuable upon the exercise of presently
exercisable warrants on the basis of 10,712,373 shares outstanding as set
forth in footnote 4 above.
(6) Includes 500,000 shares issuable upon the exercise of presently exercisable
warrants. Also includes 107,286 shares held by Gemini Aviation and Marine
Services, Inc. which is a corporation wholly owned by Mr. Theisen.
(7) Includes 74,194 shares issuable upon the exercise presently exercisable
nonstatutory stock options.
(8) Includes 89,194 shares issuable upon the exercise of presently exercisable
nonstatutory stock options.
(9) Includes 7,500 shares issuable upon the exercise of presently exercisable
incentive stock options.
(10) Excludes the 4,509,500 beneficial ownership of all Fidelity shares as
controlled by William P. Foley, II.
(11) Includes an aggregate of 170,888 shares issuable upon the exercise of
presently exercisable stock options and all the Fidelity shares as
controlled by William P. Foley, II..
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
General
The Company believes that the transactions hereunder were the result of
arm's-length negotiations, and the terms of each such transaction was no less
favorable to the Company as would have been available from an unaffiliated third
party. The transactions discussed below were negotiated either (i) before the
parties became affiliates; (ii) after the parties ceased to be affiliates; or
(iii) with a majority of a disinterested members of the Company's Board of
Directors. Furthermore, it is the policy of the Company that a majority of the
disinterested members of the Company's Board of Directors must approve
related-party transactions.
Payments to Director for Professional Services
The law firm of Gibson, Haglund & Johnson, of which Mr. Haglund, the
Company's Secretary and a Director, is a principal, received compensation in the
form of legal fees for services rendered to the Company in 1997 of $33,886.
38
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report on Form 10-K:
1. Consolidated Financial Statements
Report of Independent Certified Public Accountants................14
Balance Sheets....................................................16
Statements of Operations..........................................17
Statements of Shareholders' Equity................................18
Statements of Cash Flows..........................................19
Notes to Financial Statements.....................................21
2. Schedule to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts...................34
3. Index to Exhibits
Exhibit 11 Calculation of Earnings per share.....................42
(b) Reports on Form 8-K
On July 22, 1997, the Company filed a Special 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 December 12, 1997, the Company filed a Special Report on Form 8-K
announcing the execution of a Letter of Intent whereby the Company will acquire
all the outstanding capital stock of Timber Lodge Steakhouses, Inc. a public
company trading under the symbol TBRL on the Nasdaq Exchange.
SUPPLEMENTAL INFORMATION
An annual report and an information statement shall be furnished to the
security holders of the Company subsequent to the filing of this Form 10-K. The
Company shall furnish copies of the annual report to security holders and the
proxy statement to the Securities and Exchange Commission when it is sent to the
security holders.
39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Andrew F. Puzder
-----------------------------
Andrew F. Puzder
Chief Executive Officer
Date: February 19, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ William P. Foley, II Chairman of the Board, February 19, 1998
- --------------------------- Director
William P. Foley, II
/s/ Andrew F. Puzder Chief Executive Officer, February 19, 1998
- --------------------------- Director
Andrew F. Puzder (Principal Executive Officer)
/s/ Gary R. Nelson Chief Financial Officer, February 19, 1998
- --------------------------- (Principal Financial and
Gary R. Nelson Accounting Officer)
/s/ Frank P. Willey Director February 19, 1998
- ---------------------------
Frank P. Willey
/s/ Bruce H. Haglund Director February 19, 1998
- ---------------------------
Bruce H. Haglund
/s/ T. Anthony Gregory Director February 19, 1998
- ---------------------------
T. Anthony Gregory
</TABLE>
40
<PAGE> 41
GB FOODS CORPORATION
INDEX TO EXHIBITS
The following exhibits are being filed with this Annual Report on Form 10-K
and/or are incorporated by reference therein in accordance with the designated
footnote references.
3.1 Restated Certificate of Incorporation (3)
3.2 Bylaws of the Company, as amended (1)
4.1 Rights Agreement dated as of July 9, 1996 between GB Foods Corporation
and American Securities Transfer Incorporated. All rights were redeemed
on July 22, 1997 (6)
10.1 Incentive Stock Option Plan and form of Non-qualified Stock Option
Agreement (1)
10.2 Non-qualified Stock Option Plan and form of Non-qualified Stock Option
Agreement (1)
10.3 Form of Franchise Agreement (7)
10.4 Form of Dual-concept Franchise Agreement (7)
10.5 Green Burrito-Glendora #21 Limited Partnership Agreement (1)
10.6 Operations Support Agreement between GB Foods, Inc. and GB Franchise
Corporation dated April 1, 1989 (1)
10.7 Office Lease between the Company and The Irvine Company dated July 1,
1994 (7)
10.8 Stock Purchase Agreement between William M. Theisen and the Company
dated October 29, 1992, including Amendment to Stock Purchase Agreement
dated November 4, 1992 and Second Amendment to Stock Purchase Agreement
dated November 23, 1992 (4)
10.9 Amended Warrant Agreement and Form of Warrant Certificate between the
Company and William M. Theisen dated November 23, 1992 (7)
10.10 Form of Irrevocable Proxy Agreement between Ruben M. Rodriguez, Gary A.
McArthur, and Robert V. Gibson, as "Stockholders," and William M.
Theisen (4)
10.11 Sub-Lease dated March 29, 1993 between the Company and T&J Sausage
Kitchen, Inc. (5)
10.12 Warrant agreement dated May 1, 1995 between the Company and McGrath,
North, Mullin & Kratz, P.C.The Warrant was purchased by Fidelity on
July 22, 1997 (7)(9)
10.13 Stock Option Agreement between the Company and George J. Kubat dated
October 3, 1996 (8)
10.14 Fidelity Stock and Warrant Purchase Agreements dated July 22, 1997 (9)
10.15 Letter of Intent to acquire stock of Timber Lodge Steakhouse dated
December 12, 1997 (10)
11 Computation of earnings per share
17 Board of Directors Letters of Resignation dated July 22, 1997 for
William M. Theisen, George L. Kubat, and Michael J. Scherr (9)
21 List of Subsidiaries of the Registrant (2)
27 Financial Data Schedule
(1) Filed with the Company's Registration Statement on Form S-18, dated August
21, 1990, and incorporated by reference.
(2) Filed with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, and incorporated by reference.
(3) Filed with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, and incorporated by reference.
(4) Filed with the Company's Report on Form 8-K dated November 23, 1992, and
incorporated by reference.
(5) Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, and incorporated by reference.
(6) Filed with the Company's Report on Form 8-K for July 9, 1995 and
incorporated by reference.
(7) Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated by reference.
(8) Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated by reference
(9) Filed with the Company's Report on form 8-K for July 22, 1997 and
incorporated by reference
(10) Filed with the Company's Report on Form 8-K for December 12, 1997 and
incorporated by reference
41
<PAGE> 1
EXHIBIT 11
GB FOODS CORPORATION
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1997 1996 1995
----------------- ------------------ ---------------
<S> <C> <C> <C>
Basic Earnings per share:
-------------------------
Numerator
Net income (loss) $ 853,712 $ (48,445) $ (1,922,446)
================= ================== ===============
Denominator
-----------
Basic weighted average number of
common shares outstanding during the
period 6,471,262 6,356,287 6,161,244
================= ================== ===============
Basic net income (loss) per share $ .13 $ (.01) $ (.31)
================= ================== ===============
Diluted Earnings per share:
---------------------------
Numerator
---------
Net income (loss) $ 853,712 $ (48,445) $ (1,922,446)
================= ================== ===============
Denominator
-----------
Basic weighted average number of
common shares outstanding during the
period 6,471,262 6,356,287 6,161,244
Incremental common shares
attributable to exercise of:
outstanding options 140,225 - -
outstanding warrants 1,140,434 - -
----------------- ------------------ ---------------
1,280,659 - -
----------------- ------------------ ---------------
Diluted weighted average shares 7,751,921 6,356,287 6,161,244
================= ================== ===============
Diluted net income (loss) per share $ .11 $ (.01) $ (.31)
================= ================== ===============
</TABLE>
<TABLE> <S> <C>
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,130
<SECURITIES> 2,323
<RECEIVABLES> 697
<ALLOWANCES> 164
<INVENTORY> 41
<CURRENT-ASSETS> 3,948
<PP&E> 1,963
<DEPRECIATION> 1,514
<TOTAL-ASSETS> 4,802
<CURRENT-LIABILITIES> 423
<BONDS> 0
0
0
<COMMON> 526
<OTHER-SE> 3,792
<TOTAL-LIABILITY-AND-EQUITY> 4,802
<SALES> 3,104
<TOTAL-REVENUES> 5,380
<CGS> 2,844
<TOTAL-COSTS> 4,511
<OTHER-EXPENSES> 15
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 867
<INCOME-TAX> 13
<INCOME-CONTINUING> 854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 854
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.11
</TABLE>
