U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ___________________
Commission File Number 0-12706
Tubby's, Inc.
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(Exact name of small business issuer as specified in its charter)
New Jersey 22-2166602
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(State or other jurisdiction of (I.R.S. Employer Identification
of incorporation or organization) Number)
6029 E. Fourteen Mile Road, Sterling Heights, Michigan 48312
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(Address of principal executive officers)
(810) 978-8829
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(Issuer's telephone number, including area code)
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 filed such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __ X __ No ______
As of April 10, 1996, there were 25,381,131 shares of common stock
outstanding.
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INDEX
TUBBY'S, INC. AND SUBSIDIARIES
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Balance Sheets,
February 29, 1996 and November 30, 1995.................3-4
Consolidated Statements of Operations,
Three Months Ended February 29, 1996
and February 28, 1995.....................................5
Consolidated Statements of Cash Flows,
Three Months Ended February 29, 1996
and February 28, 1995.....................................6
Notes to Consolidated Financial Statements.............7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........12-14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.........................15
Signatures.................................................................16
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PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS (UNAUDITED).
<TABLE>
<CAPTION>
TUBBY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 29, 1996 November 30, 1995
Assets (Unaudited) (Note)
------ ----------------- -----------------
<S> <C> <C> <C> <C>
Current Assets:
Cash & Cash Equivalents $ 923,261 $ 951,144
Certificate of Deposit 100,000 100,000
Investments 105,004 154,590
Accounts & Notes Receivable
Accounts Receivable - Trade 297,962 282,183
Notes Receivable - Other 125,538 126,742
Notes Receivable - Related Parties 22,400 21,918
--------- ---------
445,900 430,843
Less Allowance - Doubtful Accounts 48,512 48,512
--------- ---------
397,388 382,331
Inventories 12,294 21,102
Prepaid Expenses & Other 159,351 58,876
---------- ----------
Total Current Assets 1,697,298 1,668,043
---------- ----------
Property & Equipment:
Land 253,623 253,623
Buildings & Improvements 382,874 405,358
Equipment 281,139 314,677
Furniture & Fixtures 120,371 118,104
Vehicles 15,009 15,009
---------- ----------
1,053,016 1,106,771
Less Accumulated Depreciation 536,606 526,572
---------- ----------
Net Property & Equipment 516,410 580,199
---------- ----------
Net Assets Held for Disposal 89,583 111,193
---------- ----------
Other Assets:
Goodwill, less Amortization of
$58,942 ($57,369 in 1995) 331,192 346,675
Notes Receivable, less Allowance for Doubtful
Accounts of $142,209 ($142,209 in 1995) 533,950 488,318
Notes Receivable, Related Parties 71,366 75,429
---------- ----------
Total Other Assets 936,508 910,422
---------- ----------
$3,239,799 $3,269,857
========== ==========
<FN>
Note: The balance sheet at November 30, 1995 has been derived from the
audited financial statements at that date, but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See Accompanying Notes to Consolidated
Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
TUBBY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 29, 1996 November 30, 1995
Liabilities & Shareholders' Equity (Unaudited) (Note)
---------------------------------- ----------------- -----------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 139,768 $ 163,472
Accrued Liabilities:
Compensation 10,194 36,127
Other 11,067 7,597
Joint Venture, Boli's 10,000 10,000
Deferred Revenue 97,200 77,000
Long-term Debt & Capital Lease
Due Within One Year 272,899 270,427
----------- -----------
Total Current Liabilities 541,128 564,623
Deferred Revenue 86,500 94,000
Long-term Debt & Capital Leases 225,759 246,206
----------- -----------
Total Liabilities 853,387 904,829
----------- -----------
Shareholders' Equity:
Common Stock, $.001 Par Value,
30,000,000 Shares Authorized,
25,381,131 Issued & Outstanding
(25,381,131 Shares in 1995) 25,382 25,382
Additional Paid-in Capital 3,430,044 3,430,044
Accumulated Deficit (1,069,014) (1,090,398)
----------- -----------
Total Shareholders' Equity 2,386,412 2,365,028
----------- -----------
$ 3,239,799 $ 3,269,857
=========== ===========
<FN>
Note: The balance sheet at November 30, 1995 has been derived from the
audited financial statements at that date, but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See Accompanying Notes to Consolidated
Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
TUBBY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
February 29, 1996 February 28, 1995
----------------- -----------------
<S> <C> <C>
Revenues:
Food Sales $ 203,087 $ 385,063
Franchise Fees:
Monthly 148,115 148,291
Initial 14,250 23,000
Equipment & Restaurant Sales 55,420 52,506
Advertising Fees 127,995 119,395
Commissions & Other Fees 75,928 120,343
------------ ------------
Total Revenues 624,795 848,598
------------ ------------
Costs & Expenses:
Operating Expenses 455,293 512,479
Cost of Food Sales 143,235 275,800
Cost of Equipment & Restaurant Sales 44,935 45,200
------------ ------------
Total Costs & Expenses 643,463 833,479
------------ ------------
Operating Income (Loss) (18,668) 15,119
------------ ------------
Other Income (Expense):
Interest Expense (7,400) (11,009)
Gain on Sale of Fixed Assets 11,105 111,930
Interest Income 25,668 18,877
Miscellaneous 10,679 6,977
------------ ------------
Total Other Income (Expense) 40,052 126,775
------------ ------------
Income Before Income Taxes 21,384 141,894
Provision for Income Taxes -- --
------------ ------------
Net Income $ 21,384 $ 141,894
============ ============
Earnings per Share $ 0.001 $ 0.007
============ ============
Common Shares Outstanding (Average) 25,381,131 21,390,746
============ ============
<FN>
See Accompanying Notes to Consolidated
Financial Statements
</TABLE>
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<TABLE>
<CAPTION>
TUBBY'S INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
February 29, 1996 February 28, 1995
----------------- -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 21,384 $ 141,894
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Depreciation & Amortization 24,469 47,235
Provision for Estimated Loss on Disposal
of Restaurant -- (14,982)
Gain on Sale of Fixed Assets (11,105) (111,930)
Increase (Decrease) in Cash Due to Changes In:
Accounts & Notes Receivable (15,779) (145,483)
Inventories 8,808 16,801
Prepaid Expenses & Other (100,475) (34,327)
Accounts Payable (23,704) (43,539)
Accrued Liabilities (22,463) (8,489)
Deferred Revenues 12,700 1,000
--------- ---------
Net Cash (Used) by Operating Activities (106,165) (151,820)
--------- ---------
Cash Flows from Investing Activities:
Maturity of Certificate of Deposits & Investments 49,586 --
Purchase of Property & Equipment (9,732) --
Net Proceeds from Sale of Property & Equipment 32,250 135,000
Other Assets -- (1,020)
Note Receivable Paid 24,153 28,796
--------- ---------
Net Cash Provided By Investing Activities 96,257 162,776
--------- ---------
Cash Flows from Financing Activities:
Payments on Long-term Debt (17,975) (18,849)
Proceeds from Issuance of Capital Stock -- 460,000
--------- ---------
Net Cash Provided (Used) by Financing Activities (17,975) 441,151
--------- ---------
Increase (Decrease) in Cash (27,883) 452,107
Cash & Equivalents at Beginning of Period 951,144 347,706
--------- ---------
Cash & Equivalents at End of Period $ 923,261 $ 799,813
========= =========
<FN>
See Accompanying Notes to Consolidated
Financial Statements
</TABLE>
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TUBBY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements do not include all of the
information and footnotes necessary for the annual presentation of
financial position, results of operation and cash flows in conforming
with generally accepted accounting principles. In the opinion of the
company, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flow at February 29, 1996
and February 28, 1995 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These
consolidated financial statements should be read in conjunction with
the financial statements and notes thereto as of November 30, 1995
and the Form 10-KSB as of November 30, 1995.
2. ACCOUNTING FOR INCOME TAXES
The Company has acquired net operating loss carry forwards relating
to the SYF merger of approximately $1,250,000 which are available to
offset future taxable income. However, to the extent such loss carry
forwards are utilized to reduce future operating income, the related
tax benefit will first be credited to goodwill until fully eliminated
and then to income. Utilization of these losses is limited based on
the taxable income generated by the activity that generated these
losses and expire beginning in 1999.
The Company also has net operating loss carry forwards for tax
purposes of approximately $637,616 relating to losses incurred
subsequent to the SYF acquisition which expires beginning in 2006.
3. INVESTMENTS
Effective December 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Accordingly, the Company
has classified its marketable debt securities into held-to-maturity
and available-for-sale categories. Securities classified as held-to-
maturity are reported at amortized cost and available-for-sale are
reported at fair market value with unrealized gains or losses
incurred in stockholders' equity. At February 29, 1996, there were no
unrealized gains or losses reported as cost approximated fair value.
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The following information pertains to marketable equity and debt
securities at February 29, 1996:
<TABLE>
<CAPTION>
Aggregate Unrealized Holding Aggregate
Fair Value Gains and Losses Cost Basis
---------- ---------------- ----------
<S> <C> <C>
Held to Maturity Securities
(Corporate debt securities
maturing within one year) -- -- --
Available for Sale Securities
(Corporate bond fund) $105,004 -- $105,004
-------- --------
Total $105,004 $105,004
======== ========
</TABLE>
4. PROPERTY & EQUIPMENT
In January, 1996, the Company sold one of its stand alone restaurants
for $90,000. The sale consisted of $25,000 cash and a $65,000
promissory note maturing January 15, 2001. A franchise transfer fee
of $6,250 and a gain of $14,346 was recognized on the sale in the
quarter ended February 29, 1996. Revenues from this restaurant, which
was acquired on April 1, 1995, totaled $23,380 in 1996 and $141,923
in 1995.
5. ASSETS HELD FOR DISPOSAL
During the year ended November 30, 1995, the Company provided for the
sale of one its Tubby's Express restaurants and the closing of
another. At that time management provided $111,193 for the expected
losses from operations and on disposal of these locations. In
December, 1995, Management did close one of these restaurants. The
remaining restaurant is expected to be sold in 1996. No loss is
expected from the sale of this store.
The net assets held for disposal of $89,583 and $111,193 respectively
have been separately disclosed in the accompanying balance sheet for
February 29, 1996, and November 30, 1995. the assets consist
primarily of:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net Property and Equipment $ 89,583 $ 140,283
Reserve for Estimated Loss on Disposal -- (29,090)
--------- ---------
Net Assets Held for Disposal $ 89,583 $ 111,193
========= =========
</TABLE>
Revenue from the store closed in December, 1995, totaled $21,236 on
1996 and $198,852 in 1995. Revenue from the remaining open store
totaled $96,478 in 1996 and $348,067 in 1995.
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6. SUBSEQUENT EVENTS
In December, 1995, the Company offered to purchase the Tubby's Sub
Shop restaurant equipment of a bankrupted franchisee for $120,000
comprised of a cash payment of $50,000 and accounts receivable owed
the Company of $70,000. The purchase price of $120,000 was determined
based upon historical valuation methods used with other outside
franchisees. Additionally, the Company offered to purchase the
building and land where this restaurant is located from its owner for
$165,000.
As of February 29, 1996, the Company had paid initial deposits of
$14,000 to the bankruptcy trustee and the owner of the building and
land where the restaurant is located. In April, 1996, the Company
began renovations of the restaurant and anticipates its grand
re-opening in May, 1996. The Company believes it has sufficient
liquidity to acquire the restaurant, and the building and land. Both
offers have been accepted by the parties involved. Final closings are
anticipated in April, 1996.
7. LITIGATION
A. Tubby's, Inc. v Alexander P. Bardy. On or about January 6, 1995, the
Company initiated a civil action in the Circuit Court for the County
of Macomb against Alexander P. Bardy, its former President & CEO. The
Complaint seeks reimbursement from the Defendant for unauthorized
expenses and expenditures, money damages as a result of the
Defendant's usurpation of corporate opportunities, fraudulent
misrepresentations, breach of contract and negligence, and sought a
declaratory judgment regarding the type of stock available to the
Defendant pursuant to his Stock Option Agreement. The Defendant
denied any liability to the Company and filed a
"Counter-Complaint/Third-Party Complaint" alleging breach of the
Stock Option Agreement against the Company and the following Officers
and/or Directors: Vincent J. Tatone, Robert M. Paganes, P. Terrance
Paganes, and J. Thomas Paganes. Thereafter, the Third-Party
Defendants moved to be dismissed from the
"Counter-Complaint/Third-Party Complaint", which the Court granted in
part and denied in part, without prejudice. The Court dismissed all
claims against the individuals for breach of contract but did not
dismiss other possible claims asserted for the reason that discovery
had not been completed. On October 30, 1995, the Court granted the
Company's Motion for Entry of a Declaratory Judgment regarding the
type of stock available to the Defendant under his stock option
agreement, ordered that Defendant would have 30 days in which to
exercise his options and dismissed the Defendant's request for
injunctive relief. The Defendant did not exercise those options
within the 30 day period. In January of 1996, the Third-Party
Defendants renewed their Motion to Dismiss. On February 6, 1996, the
Court treated this Motion as a Motion for Reconsideration and granted
the Motion, which dismissed all claims by Mr. Bardy which were
asserted in the Third-Party Complaint and precludes the re-litigation
of those claims in any other action. The parties agreed to resolve
this action through binding arbitration and an arbitrator was
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<PAGE>
appointed by the Court. The arbitration proceeding is scheduled to
occur in June, 1996. The Company intends to vigorously pursue and
defend the matter and estimates the possibility of an unfavorable
outcome to be remote.
B. Patrick J. McCourt, the Patrick J. McCourt Trust, and McCourt
Corporation, a Michigan corporation v Tubby's, Inc., a New Jersey
corporation, the McTub Company, a Michigan partnership, Robert M.
Paganes, P. Terrance Paganes, J. Thomas Paganes, and Vincent J.
Tatone. On August 17, 1995, a civil action was commenced in the
United States District Court for the Eastern District of Michigan by
the above named Plaintiffs. Patrick J. McCourt, as Trustee of the
Patrick J. McCourt Trust and as President of McCourt Corporation,
purchased restricted shares of Tubby's Common Stock pursuant to
private placements in June, July and November of 1993 and formed the
McTub Company, a general partnership with Tubby's in August of 1993
for the purpose of owning and operating certain quick- service
restaurants. Plaintiffs' Complaint seeks recision of those
transactions and, in connection therewith, alleged violation of
Federal Securities regulations, fraudulent misrepresentation,
violation of the Racketeer Influenced and Corrupt Organizations Act,
dissolution of partnership and accounting, violation of Michigan
Securities Act, and Michigan's Franchise Investment Law. Plaintiffs
purchased a total of 1.5 million shares at 25(cent)per share for a
total purchase price of $375,000 and Plaintiffs' total investment in
the McTub Company was approximately $400,000. The Company filed an
Answer in which it denied liability to Plaintiffs. In addition, the
Company filed a Cross-Claim against the McTub Company seeking a
declaratory judgment that the Company is entitled to a distribution
in the amount of $105,000.00 prior to any other distributions that
may be made by that Company, and filed a Third-Party Complaint
against Alexander P. Bardy, the Company's former President and Chief
Executive Officer, and Kevin J. Sullivan, the Company's former Chief
Financial Officer. In the Third-Party Complaint, the Company denies
any liability to Plaintiffs but asserts, alternatively, in the event
that it is determined to be liable to Plaintiffs for any amount of
money damages, Third-Party Defendants would be liable to the Company
for all such damages, plus any additional damages sustained by the
Company in connection with the Complaint. Thereafter, the Company and
Mr. Sullivan stipulated to dismissing Mr. Sullivan as a Third-Party
Defendant pursuant to a Settlement Agreement in which the parties
agreed to preserve, under certain circumstances, all claims that each
party could assert. The Company intends to zealously defend against
the claims asserted in the Complaint and to zealously prosecute its
Cross- Claim and Third-Party Complaint. The Company is unable at this
time to estimate the probability of a successful conclusion to the
litigation or to estimate the possible loss to the Company if it is
not successful.
C. Alexander P. Bardy v J. Thomas Paganes, P. Terrance Paganes, Robert
M. Paganes, and Vincent J. Tatone. On or about January 17, 1996,
after the Court in Tubby's, Inc. v Alexander P. Bardy described above
in item A, denied Mr. Bardy's Motion to Amend his
"Counter-Complaint/Third-Party Complaint", Mr. Bardy filed a
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<PAGE>
separate action in the Circuit Court for the County of Macomb against
the above named Defendants. This Complaint re-alleges the same claims
asserted by Mr. Bardy in the previously pending action but adds two
additional counts: tortious interference with Mr. Bardy's Stock
Option Agreement and defamation against Defendant Tatone. On February
6, 1996, when the Court granted the Motion to Dismiss in the
previously pending action, the Court also ruled that Mr. Bardy would
be precluded from re-litigating any of his claims that were dismissed
in that case. The Defendants in this case are being indemnified by
the Company because this matter arises out of their employment with
the Company. This matter has been consolidated with the action
described in Item A and will also be resolved through the arbitration
proceeding scheduled to occur in June, 1996.
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
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The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto and with the
Company's Form 10-KSB and audited financial statements and notes thereto for
the fiscal year-ended November 30, 1995.
FINANCIAL CONDITION
Cash and Equivalents, Certificates of Deposit, and Investments decreased by
$77,469 for the three months ended February 29,1996 as compared with an
increase of $452,107 for the three months ended February 28, 1995. The current
period decrease in the Company's cash position resulted, in part, from the
costs related to new restaurant construction, the pre-payment of future
franchise development expenses, the purchase of new equipment, and the
reduction of vendor payables. The increase in cash position of the prior year
resulted from the cash sale of a Company-owned restaurant, the private
placement of restricted stock, and the significant cost cutting measures
enacted at that time.
The Company closed its last unprofitable Tubby's Express restaurant in
December, 1995, and anticipates the sale of its remaining profitable Tubby's
Express restaurants during 1996, (see Note #5, Assets Held for Disposal).
Though, the closing of the unprofitable restaurant will reduce food sales, the
losses associated with this restaurant will be eliminated. The sale of the
profitable restaurant will better allow the Company to focus on developing new
Tubby's or Stuff-Yer-Face franchisees and the opening of new Tubby's Sub
Shops.
The sale of a company store and the opening of a new franchised restaurant
resulted in the recognition of initial franchise fees as well as continuing
monthly franchise and advertising fees. The opening of six additional new
locations, one of which will be Company owned, is anticipated by the end of
the third quarter at August 31, 1996 and will similarly result in the
recognition of initial franchise fees and continuing monthly franchise and
advertising fees. The Company believes that with a profitable first quarter
and the anticipated openings of six restaurants in the second and third
quarters it is well poised to achieve its second consecutive profitable year.
Results of operations for the three months ended February 28, 1996 as compared
with the three months ended February 28, 1995.
- ------------------------------------------------------------------------------
Revenues for the three months ended February 28, 1995, decreased by 26.4% to
$624,795. This decrease was largely attributable to a $181,976 or 47.3%
decline in Food Sales. The decline in Food Sales primarily resulted from the
1995 closing or sale of four unprofitable Tubby's Express restaurants and the
1996 closing of an additional Tubby's Express
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<PAGE>
restaurant. Revenues that resulted from these restaurants for the three months
ending February 28, 1995, totaled $192,444, and for the restaurant that closed
in 1996 revenues totaled $21,236.
Monthly Franchise Fees remained constant though Initial Franchise Fees
declined by $8,750 or 38%. Of the two new franchised restaurants that opened
in 1996, one franchise generated a transfer fee of $6,250 while the second
franchise generated an Area Development Agreement fee of $8,000. Of the two
new franchised restaurants that opened in 1995, one franchise generated a
initial franchise fee of $15,000 while the second transfer generated an Area
Development Agreement fee $8,000.
Equipment & Restaurant Sales increased by $2,914 or 5.6% in 1996. Advertising
Fees increased by $8,600 or 7.2 % in 1996. Commissions & Other Fees decreased
by $44,415 or 36.9%. This decline resulted primarily from timing differences
in the recognition of vendor rebates. It is anticipated that this revenue
decline will be recovered over the remaining nine months of 1996.
Operating Expenses decreased by $57,186 in 1996 though as a percentage of
Total Revenues the category increased to 72.9% in 1996 from 60.4% in 1995.
This proportionate increase in Operating Expenses reflects the fixed nature of
certain ongoing expenses. Cost of Food Sales as a percentage of Food Sales
declined from 71.6% in 1995 to 70.5% in 1996. Cost of Equipment sales decline
as a percentage of Equipment & Restaurant Sales from 86.1% in 1995 to 81.1% in
1996 reflecting increased gross profit margins associated with volume
purchasing.
Interest Expense decreased by $3,609 or 32.8% from 1995 to 1996 reflecting the
continued reduction of long term debt, lower interest rates, and management's
determination to strengthen the Company's financial position by not incurring
unnecessary new debt.
The $110,930 Gain On Sale Of Fixed Assets in 1995 resulted from the sale of a
Company owned restaurant with a depreciated basis of $24,070. In 1996, the
$11,105 Gain On Sale Of Fixed Assets resulted from a $14,346 gain on the sale
of a Company owned restaurant that was acquired in April, 1995, and an
additional loss of $3,241 resulting from the closure of a Company owned
Tubby's Express restaurant in December, 1995, (see Note 5 of the Consolidated
Financial Statements).
Interest Income increased in 1996 by $6,791 or 36% as a result of the
investment earnings derived from idle funds invested for the full three month
period in 1996 rather then a shorter period in 1995. The 1996 increase in
Miscellaneous of 53% resulted primarily from increased rent receipts.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Equivalents, Certificates of Deposit, and Investments declined by
$77,469 in the three months ending February 29, 1996. The declined was
attributable to several factors; the
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most significant being construction in progress of a new Tubby's Sub Shop. At
February 29, 1996, the Company had spent $66,700 of the approximately $82,000
the restaurant was estimated to cost. The restaurant is expected to be
operated by the Company until it is sold to a franchisee. Other factors
significantly effecting the decline in liquidity are a $15,779 increase in
Accounts Receivable, a $46,167 decrease in Accrued Liabilities and Accounts
Payable, the purchase of $9,732 of Property & Equipment, and Net Proceeds From
Sale of Property & Equipment of $32,250.
In addition to one new franchised restaurant opened and one company owned
restaurant sold in the first quarter of 1996, six new Tubby's Sub Shops are
expected to open by the end of the third quarter of August 31, 1996. Of these
six new Tubby's Sub Shops scheduled to be opened by August 31, 1996, five
restaurants are expected to be operated by franchisees. It is expected that
the one remaining restaurant referred to above will be also sold to a
franchisee.
In December, 1995, the Company initiated a $250,000 revolving line of credit
with a local financial institution. This line of credit can be drawn upon as
needed to meet future cash requirements. As of April 8, 1996, the entire line
of credit was available to the Company.
The Company is responsible for supervising construction and equipment
installation for some new locations. As part of that process, the Company will
contract for the purchase of equipment and execute construction contracts.
Although the Company is reimbursed entirely for its costs, it often must
prepay some costs. As of April 8, 1996, the Company has three new locations
scheduled to open by May 31, 1996. The Company is responsible for the
construction and equipment installation two of these locations, one of which
will be a Company owned restaurant. The estimated costs that will be incurred
to open the Company owned restaurant is anticipated to be $82,000. Though, the
Company anticipates that this location will eventually be sold to a
franchisee, the Company believes it has sufficient working capital to
internally finance this project.
In December, 1995, in addition to the above mention restaurants, the Company
offered to purchase the Tubby's Sub Shop restaurant equipment of a bankrupted
franchisee for $120,000 comprised of a cash payment of $50,000 and accounts
receivable owed the Company of $70,000. The purchase price of $120,000 was
determined based upon historical valuation methods used with other outside
franchisees. Additionally, the Company offered to purchase the building and
land where this restaurant is located from its owner for $165,000. As of
February 29, 1996, the Company had paid initial deposits of $14,000 to the
bankruptcy trustee and the owner of the building and land where the restaurant
is located. In April, 1996, the Company began renovations of the restaurant
and anticipates its grand reopening in May, 1996. The Company believes it has
sufficient liquidity to acquire the restaurant, and the building and land.
Both offers have been accepted by the parties involved. Final closings are
anticipated in April, 1996. The Company anticipated that it will initially
open this restaurant as a Company owned restaurant.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) There are no exhibits submitted with this report.
(b) Reports on Form 8-K. There were no reports on Form 8-K
filed by the Registrant during the three months ended
February 29, 1996.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TUBBY'S, INC.
/s/ Robert M. Paganes
------------------------------------------
By: Robert M. Paganes
President, Chief Executive Officer
Dated: April 13, 1996
/s/ Melvyn B. Erdos
------------------------------------------
By: Melvyn B. Erdos
Chief Financial Officer
Dated: April 13, 1996
1Q-10QSB
-16-
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