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 May 31, 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 June 24, 1996, there were 25,381,131 shares of common stock
outstanding.
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<PAGE>
INDEX
TUBBY'S, INC. AND SUBSIDIARIES
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Balance Sheets,
May 31, 1996 and November 30, 1995...............................3-4
Consolidated Statements of Operations,
Six Months Ended May 31, 1996
and 1995...........................................................5
Consolidated Statements of Cash Flows,
Six Months Ended May 31, 1996
and 1995...........................................................6
Notes to Consolidated Financial Statements.......................7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................10-14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................15
Signatures.................................................................16
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS (UNAUDITED).
TUBBY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 1996 November 30, 1995
Assets (Unaudited) (Note)
- ------ ----------- -----------------
<S> <C> <C> <C> <C>
Current Assets:
Cash & Cash Equivalents $ 678,494 $ 951,144
Certificate of Deposit 102,989 100,000
Investments 50,000 154,590
Accounts & Notes Receivable
Accounts Receivable - Trade 232,142 282,183
Notes Receivable - Other 98,772 126,742
Notes Receivable - Related Parties 25,771 21,918
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356,685 430,843
Less Allowance - Doubtful Accounts 37,839 48,512
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318,846 382,331
Inventories 21,909 21,102
Prepaid Expenses & Other 278,815 58,876
--------- ---------
Total Current Assets 1,451,053 1,668,043
--------- ---------
Property & Equipment:
Land 253,623 253,623
Buildings & Improvements 551,723 405,358
Equipment 279,619 314,677
Furniture & Fixtures 129,809 118,104
Vehicles 15,009 15,009
--------- ---------
1,229,783 1,106,771
Less Accumulated Depreciation 554,147 526,572
--------- ---------
Net Property & Equipment 675,636 580,199
--------- ---------
Net Assets Held for Disposal 86,050 111,193
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Other Assets:
Intangibles, Less Amortization of
$61,442 ($57,369 in 1995) 328,692 346,675
Notes Receivable, Less Allowance for Doubtful
Accounts of $142,209 ($142,209 in 1995) 585,112 488,318
Notes Receivable, Related parties 36,873 75,429
--------- ---------
Total Other Assets 950,677 910,422
--------- ---------
TOTAL OTHER ASSETS $3,163,416 $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
May 31, 1996 November 30, 1995
Liabilities & Shareholders' Equity (Unaudited) (Note)
---------------------------------- ----------- ------
<S> <C> <C>
Current Liabilities:
Accounts Payable $81,510 $163,472
Accrued Liabilities:
Compensation 11,018 36,127
Other 12,604 7,597
Joint Venture, Boli's 10,000 10,000
Deferred Revenue 96,000 77,000
Long-term Debt & Capital Lease
Due Within One Year 247,915 270,427
---------- ----------
Total Current Liabilities 459,047 564,623
Deferred Revenue 125,000 94,000
Long-term Debt & Capital Leases 206,350 246,206
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Total Liabilities 790,397 904,829
---------- ----------
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 (1,082,407) (1,090,398)
--------- -----------
Total Shareholders' Equity 2,373,019 2,365,028
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $3,163,416 $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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<PAGE>
<TABLE>
<CAPTION>
TUBBY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
May 31, 1996 May 31, 1995 May 31, 1996 May 31, 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Food Sales $ 198,872 $ 319,044 $ 401,959 $ 704,107
Franchise Fees:
Monthly 161,667 179,764 309,782 328,055
Initial & Transfer 18,750 64,750 33,000 87,750
Equipment & Restaurant Sales 51,165 254,943 106,585 307,449
Advertising Fees 125,666 150,331 253,661 269,726
Commissions & Other 100,673 111,063 187,251 231,406
---------- ---------- ---------- ----------
Total Revenues 656,793 1,079,895 1,292,238 1,928,493
Costs & Expenses
Operating Expenses 511,008 544,866 966,301 1,057,345
Cost of Food Sales 141,830 245,661 285,065 521,461
Cost of Equipment & Restaurant
Sales 41,075 237,604 86,010 282,804
---------- ---------- ---------- ----------
Total Costs & Expenses 693,913 1,028,131 1,337,376 1,861,610
Operating Income (Loss) (37,120) 51,764 (45,138) 66,883
---------- ---------- ---------- ----------
Other Income (Expense)
Provision for Estimated Loss on
Disposal Tubby's Express
Restaurants - (50,000) - (50,000)
Interest Expense (4,592) (10,552) (11,992) (21,561)
Gain (Loss) on Sale of Fixed
Assets (2,639) - 8,466 111,930
Interest Income 28,763 22,525 54,431 41,402
Minority Interest - 50,000 - 50,000
Miscellaneous 2,195 225 2,224 7,202
---------- ---------- ---------- ----------
Total Other Income (Expense) 23,727 12,198 53,129 138,973
Income (Loss) Before Income Taxes (13,393) 63,962 7,991 205,856
Provision for Income Taxes - - - -
Net Income (Loss) ($13,393) $63,962 $7,991 $205,856
========== ========== ========== ==========
Net Income (Loss) Per Share ($0.0005) $0.0025 $0.0003 $0.0092
========== ========== ========== ==========
Weighted Average Number
of Shares Outstanding 25,381,131 25,381,131 25,381,131 22,364,738
========== ========== ========== ==========
<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)
Six Months Ended May 31,
1996 1995
Unaudited Unaudited
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<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 7,991 $ 205,856
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used) by Operating Activities:
Depreciation & Amortization 48,277 53,495
Provision for Estimated Loss on Disposal of Restaurant - 50,000
Minority Interest in Net Income (Loss) - (50,000)
Gain on Sale of Fixed Assets (8,466) (111,930)
Increase (Decrease) in Cash Due to Changes In:
Accounts & Notes Receivable 75,620 (97,001)
Inventories (807) (18,582)
Prepaid Expenses & Other (219,939) (42,818)
Accounts Payable (81,962) 28,405
Accrued Liabilities (20,102) 2,420
Deferred Revenues (30,000) (52,250)
------------ ------------
Net Cash (Used) by Operating Activities (229,388) (32,405)
Cash Flows from Investing Activities:
Maturity of Certificate of Deposits & Investments 101,601 -
Purchase of Property & Equipment (187,835) (64,590)
Net Proceeds from Sale of Property & Equipment 32,250 201,482
Intangibles - (13,910)
Other Assets - (1,019)
Note Receivable Paid 73,090 76,799
------------ ------------
Net Cash Provided by Investing Activities 19,106 198,762
Cash Flows from Financing Activities:
Payments on Long-term Debt (62,368) (60,758)
Minority Interest - 51,483
Proceeds from Issuance of Capital Stock - 460,000
------------ ------------
Net Cash Provided (Used) by Financing Activities (62,368) 450,725
Increase/Decrease in Cash: (272,650) 617,082
Cash & Equivalents at Beginning of Period 951,144 347,706
------------ ------------
Cash & Equivalents at End of Period $ 678,494 $ 964,788
============ ============
<FN>
See Accompanying Notes to Consolidated
Financial Statements
</TABLE>
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<PAGE>
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 conformity
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 May 31, 1996 and May
31, 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 May 31, 1996, there were no
unrealized gains or losses reported as cost approximated fair value.
The following information pertains to marketable equity and debt
securities at May 31, 1996:
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<TABLE>
<CAPTION>
Aggregate Unrealized Holding Aggregate
Fair Value Gains and Losses Cost Basis
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<S> <C> <C> <C>
Held to Maturity Securities
(Corporate debt securities
maturing within one year) - - -
Available for Sale Securities
(Corporate bond fund) $ 50,000 - $ 50,000
-------- --------
Total $ 50,000 $ 50,000
======== ========
</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. The gain of $14,436 was
corrected to $11,707 in the quarter ended May, 31, 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 $86,050 and $111,193
respectively have been separately disclosed in the accompanying
balance sheet for May 31, 1996, and November 30, 1995. The assets
consist primarily of:
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Net Property and Equipment $86,050 $140,283
Reserve for Estimated Loss on Disposal - (29,090)
------- --------
Net Assets Held for Disposal $86,050 $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 $181,079 in 1996 and $348,067 in 1995.
6. LITIGATION
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.
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<PAGE>
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 prior to any other distributions that may be made by the
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. On or about May 24, 1996, the
Company filed Motions to Dismiss and for Summary Judgment of
Plaintiffs' RICO and securities fraud claims, and requested the
Court to abstain from exercising federal jurisdiction over any of
Plaintiffs' remaining claims. Plaintiffs' filed responses to those
motions in June and they are scheduled for oral argument on July 21,
1996. 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.
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
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
$374,251 for the six months ended May 31, 1996, as compared with an increase
of $617,082 for the six months ended May 31, 1996. The current period decrease
in the Company's cash position resulted, in part, from the costs related to
the construction of three restaurants (one of which is Company owned and
operated and another which is only Company owned), the pre-payment of future
franchise development expenses, the purchase of new equipment, and the
reduction of vendor payables. The Company also acquired the equipment, land
and building of the Company-owned restaurants, referred to above, for
approximately $170,000, which it anticipates it will rent to Tubby's Sub Shop
franchisees in July, 1996. The anticipated July, 1996, sale of these three
restaurants in the third quarter of 1996 will generate greater then $320,000
in cash. 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 results of its operations.
The sale of a company store, the opening of two new franchised restaurants,
and the transfer of an existing franchise restaurant resulted in the
recognition of initial and transfer franchise fees as well as continuing
monthly franchise and advertising fees. The opening of five additional new
locations and the sale of two Company owned locations are anticipated by the
end of the third quarter at August 31, 1996, and will similarly result in the
recognition of initial and transfer franchise fees, continuing monthly
franchise and advertising fees, and rental income. Additionally, with the sale
of two out-of-state Development Agent agreements, the Company anticipates the
opening of five locations each in both the Cleveland, Ohio and Phoenix,
Arizona markets within the next twelve months. Though the Company did incur a
$13,393 second quarter loss, the current year remains profitable. The
anticipated opening and sale of seven restaurants in the third quarter of 1996
as well as the potential opening of restaurants associated with the
Development Agent agreements in the third and fourth quarters should enable
the Company to achieve its second consecutive profitable year.
Results of operations for the three months ended May 31, 1996 as compared with
the three months ended May 31, 1995.
The Company incurred an Operating Loss of $37,120 and a Net Loss of $13,393
for the three months ending May 31, 1996. For the three months ending May 31,
1995, the Company incurred an Operating Profit of $51,764 and Net Income of
$63,962. The Company believes that the current quarter's results were
depressed by legal fees of $36,000 resulting from the current litigation (see
Note 7 of the Consolidated Financial Statements), franchise
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<PAGE>
development expenses of $26,000 resulting from ongoing efforts to establish
Development Agent agreements in new regions of the country, and the delay of
new restaurant openings and sale of Company-owned restaurants into the third
quarter of 1996.
Revenues for the three months ended May 31, 1996, decreased by 39.2% to
$656,793. This decrease was largely attributable to a $120,172 or 37.7%
decline in Food Sales and a $203,778 or 79.9% decline on Equipment &
Restaurant Sales. The decline in Food Sales primarily resulted from the 1995
sale of two unprofitable Tubby's Express restaurants and the 1996 closing of
an additional Tubby's Express restaurant. Revenues resulting from these
restaurants for the three months ending May 31, 1995, totaled $131,489. The
decline in Equipment & Restaurant Sales reflect the delayed opening of the
Tubby's Sub Shops referred to above.
Monthly Franchise Fees declined $18,097 or 10.1% and Initial & Transfer
Franchise Fees declined by $46,000 or 71%. The decline of Monthly Franchised
Fees is attributable to reduced estimates of fees expected from new and
existing Tubby's Sub Shops. Initial & Transfer Franchise Fees reflect the
opening of five restaurants in 1995 and two restaurants in 1996. The Company
expects that a significant increase in Initial & Transfer Franchise Fees as
well as Equipment & Restaurant Sales will result from the anticipated opening
and sale of seven Tubby's Sub Shops in the third quarter of 1996.
Advertising Fees decreased by $24,665 or 16.4 % in 1996 as compared to the
same period in 1995. The decline of Advertising Fees is attributable to the
reduced estimates of fees expected from new and existing Tubby's Sub Shops.
Operating Expenses decreased by $33,858 or 6.2% in 1996, though as a
percentage of Total Revenues the category increased to 77.8% in 1996 from
50.5% 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 77% in 1995 to 71.3% in 1996, reflecting the
increased efforts by the Company's Operations team to control costs. Cost of
Equipment sales decline as a percentage of Equipment & Restaurant Sales from
93.2% in 1995 to 80.3% in 1996 reflecting increased gross profit margins
associated with volume purchasing.
Interest Expense decreased by $5,960 or 56.5% from 1995 to 1996 reflecting the
continued reduction of long term debt, lower interest rates, and the efforts
of management to avoid additional debt.
In the first quarter of 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 4 of the Consolidated Financial Statements). In the second quarter
of 1996, an additional charge of $2,639 reduced the $14,346 gain referred to
above to a gain of $11,707. Interest Income increased in 1996 by $6,238 or
27.7% 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.
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<PAGE>
For the three months ended May 31, 1995, the Company provided an additional
$50,000 for the Estimated Loss On Disposal of its Tubby's Express Restaurants.
There was no additional provision in the three months ending May 31, 1996.
In April, 1996, the Company sold a Development Agent agreement for the
Cleveland, Ohio region. This agreement calls for the agent to develop five
Tubby's Sub Shops in the first year of the agreement and a total of fifty (50)
Tubby's Sub Shops in the Cleveland market over a period of eight years. As
each restaurant opens, the Company will realize reduced initial franchise fees
and ongoing monthly franchise fees. Beginning in August, 1996, the Development
Agent is required to pay the Company for marketing rights a minimum of $1,100
per month for thirty-six months.
Results of operations for the six months ended May 31, 1996 as compared with
the six months ended May 31, 1995.
The Company incurred a Operating Loss of $45,138 and a Income of $7,991 for
the six months ending May 31, 1996. For the six months ending May 31, 1995,
the Company incurred an Operating Profit of $66,883 and Net Income of
$205,856. The Company believes that this year's results were depressed by
legal fees of $43,182 resulting from the current litigation (see Note 7 of the
Consolidated Financial Statements), franchise development expenses of $33,428
resulting from ongoing efforts to establish Development Agent agreements in
new regions of the country, and the delay of new restaurant openings and sale
of Company-owned restaurants into the third quarter of 1996.
Revenues for the six months ended May 31, 1996, decreased by 39.2% to
$656,793. This decrease was largely attributable to a $302,148 or 42.9%
decline in Food Sales and a $200,864 or 65.3% decline on Equipment &
Restaurant Sales. The decline in Food Sales primarily resulted from the 1995
sale or closing of four unprofitable Tubby's Express restaurants and the 1996
closing of an additional Tubby's Express restaurant. Revenues resulting from
these restaurants for the six months ending May 31, 1995, totaled $323,934.
Monthly Franchise Fees declined $18,273 or 5.6% and Initial & Transfer
Franchise Fees declined by $54,750 or 62.4%. The decline of Monthly Franchised
Fees is attributable to the reduced estimates of fees expected from new and
existing Tubby's Sub Shops. Initial & Transfer Franchise Fees reflect the
opening of six restaurants in 1995, and the opening of two restaurants and
transfer of three restaurants in 1996. The Company expects that a significant
increase in Initial & Transfer Franchise Fees as well as Equipment &
Restaurant Sales will result from the anticipated opening and sale of seven
Tubby's Sub Shops in the third quarter of 1996.
Advertising Fees decreased by $16,065 or 6 % in 1996 as compared to the same
period in 1995. The decline of Advertising Fees is attributable to the reduced
estimates of fees expected from new and existing Tubby's Sub Shops.
Commissions & Other Fees decreased by $44,155 or 19.1% in 1996 as compared to
1995. This declines resulted primarily from timing differences in the
recognition of vendor rebates. It is anticipated that this revenue decline
will be recovered over the remaining six months of 1996.
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<PAGE>
Operating Expenses decreased by $91,044 or 8.6% in 1996, though as a
percentage of Total Revenues the category increased to 74.8% in 1996 from
54.8% 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 74.1% in 1995 to 70.1% in 1996, reflecting the
increased efforts by the Company's Operations team to control costs. Cost of
Equipment sales decline as a percentage of Equipment & Restaurant Sales from
92% in 1995 to 80.7% in 1996 reflecting increased gross profit margins
associated with volume purchasing.
Interest Expense decreased by $9,569 or 44.4% from 1995 to 1996 reflecting the
continued reduction of long term debt, lower interest rates, and the efforts
of management to avoid additional debt.
In the first quarter of 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 4 of the Consolidated Financial Statements). In the second quarter
of 1996, an additional charge of $2,639 reduced the $14,346 gain referred to
above to gain of $11,707. Interest Income increased in 1996 by $13,029 or
31.5% as a result of the investment earnings derived from idle funds invested
for the full six month period in 1996 rather then a shorter period in 1995.
For the six months ended May 31, 1995, the Company provided an additional
$50,000 for the Estimated Loss On Disposal of its Tubby's Express Restaurants.
There was no additional provision in the six months ending May 31, 1996.
Liquidity and Capital Resources
Cash and Equivalents, Certificates of Deposit, and Investments declined by
$374,254 in the six months ending May 31, 1996. The declined was attributable
to several factors; the most significant being construction of three new
Tubby's Sub Shops for about $145,000 and the purchase of the land and building
of one of these restaurants for $169,000. The anticipated July, 1996, sale of
these three restaurants in the third quarter of 1996, will generate in excess
of $320,000 in cash. 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 results of its operations.
In addition to three restaurants referred to above, four new Tubby's Sub Shops
are expected to open by the end of the third quarter of August 31, 1996. Of
these seven new Tubby's Sub Shops scheduled to be opened by August 31, 1996,
five restaurants will be operated by franchisees. It is expected that the two
remaining restaurants will also be sold to franchisees.
In April, 1996, the Company sold a Development Agent agreement for the
Cleveland, Ohio region. This agreement calls for the agent to develop five
Tubby's Sub Shops in the first year of the agreement and a total of fifty (50)
Tubby's Sub Shops in the Cleveland market over a period of eight years. As
each restaurant opens, the Company will realize reduced initial franchise fees
and ongoing monthly franchise fees. Beginning in August, 1996, the Development
Agent is required to pay the Company for marketing rights a minimum of $1,100
per month for thirty-six months. Additional Development Agent agreements were
sold
-13-
<PAGE>
after May 31, 1996, for the markets in the State of Arizona and the City of
Detroit. These Development Agreements are not expected to require significant
outlays of Company funds.
In June, 1996, a former employee exercised a portion of his available stock
options. The Company was paid $25,000 for 200,000 shares at $.125 each. When
these shares are issued, outstanding shares of the Company's common stock will
total 25,581,131.
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 July 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 June 30, 1996, the Company had three new locations
scheduled to open by July 31, 1996. The Company is responsible for the
construction and equipment installation of these locations, all of which will
be operated by franchisees. Also, in the third quarter the Company anticipates
the construction of two new Tubby's Sub Shops costing about $190,000. Though,
the Company anticipates that these locations will eventually be sold to
franchisees, the Company believes it has sufficient working capital to
internally finance this project.
-14-
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following information is furnished with respect to the annual meeting
holders of the registrants, held during June, 1996.
(a) A meeting was held on June 13, 1996.
(b) At such meeting, all of the nominees for election as directors were
elected for a one year term of office. The votes cast with respect
to each nominee for election as a director is as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
-------------------------- ------------- ---------------
<S> <C> <C>
J. Thomas Paganes 14,811,525 1,202,000
Robert M. Paganes 18,427,350 1,202,000
Peter T. Paganes 19,068,083 1,202,000
Vincent J. Tatone 18,428,567 1,202,000
John M. Fayad 18,070,533 1,202,000
Ralph R. Roberts 15,551,043 2,000
Ronald Boraks 18,067,183 1,202,000
</TABLE>
(c) A second proposal, increasing the number of authorized shares from
30,000,000 to 60,000,000 was approved by a majority of the Company's
shares as follows:
Votes For Votes Against
--------- -------------
19,815,590 1,279,300
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 six months ended May 31, 1996.
-15-
<PAGE>
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: July 10, 1996
/s/ Melvyn B. Erdos
----------------------------------
By: Melvyn Erdos
Treasurer, Chief Financial Officer
Dated: July 10, 1996
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> MAY-31-1996
<CASH> $ 781,483
<SECURITIES> 50,000
<RECEIVABLES> 1,120,879
<ALLOWANCES> 180,040
<INVENTORY> 21,909
<CURRENT-ASSETS> 1,451,053
<PP&E> 1,315,833
<DEPRECIATION> 554,147
<TOTAL-ASSETS> 3,163,416
<CURRENT-LIABILITIES> 459,047
<BONDS> 0
<COMMON> 25,382
0
0
<OTHER-SE> 2,361,030
<TOTAL-LIABILITY-AND-EQUITY> 3,163,416
<SALES> 508,544
<TOTAL-REVENUES> 1,357,359
<CGS> 371,075
<TOTAL-COSTS> 966,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,992
<INCOME-PRETAX> 7,991
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,991
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,991
<EPS-PRIMARY> .000
<EPS-DILUTED> .000
</TABLE>
