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, 1997
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.
--------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
of incorporation or organization) Number)
6029 East 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 July 1, 1997, there were 25,831,131 shares of common stock outstanding.
<PAGE>
TUBBY'S, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Balance Sheets,
May 31, 1997 and November 30, 1996 3- 4
Consolidated Statements of Operations,
Three and Six Months Ended May 31, 1997 and 1996 5
Consolidated Statements of Cash Flows,
Six Months Ended May 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7- 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-15
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS (UNAUDITED).
TUBBY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, 1997 November 30, 1996
ASSETS (Unaudited) (Note)
- ------------------------------------ -------------- -----------------
<S> <C> <C>
Current Assets
Cash & Cash Equivalents $ 878,396 $ 793,494
Certificate of Deposit 100,000 100,000
Marketable Securities 25,000 25,000
Accounts Receivable - Trade, less
allowance for doubtful accounts of
$20,850 in 1997 and 1996 290,198 245,267
Notes Receivable 55,816 72,091
Inventories 46,876 104,805
Prepaid Expenses & Other 120,295 110,644
---------- ----------
Total Current Assets 1,516,581 1,451,301
---------- ----------
Property & Equipment
Land 325,347 325,347
Buildings & Improvements 727,587 693,347
Equipment 438,144 440,705
Furniture & Fixtures 229,881 217,464
Vehicles 15,009 15,009
---------- ----------
1,735,968 1,691,872
Less: Accumulated Depreciation 715,475 654,255
---------- ----------
Net Property & Equipment 1,020,493 1,037,617
---------- ----------
Other Assets
Goodwill, less amortization of
$74,862 and $68,045 in 1997 and 1996 331,424 338,241
Notes Receivable, less allowance for doubtful
accounts of $5,894 in 1997 and 1996 490,974 505,380
---------- ----------
Total Other Assets 822,398 843,621
---------- ----------
Total Assets $3,359,472 $3,332,539
========== ==========
Note: The balance sheet at November 30, 1996 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.
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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<PAGE>
TUBBY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, 1997 November 30, 1996
LIABILITIES & STOCKHOLDERS' EQUITY (Unaudited) (Note)
- -------------------------------------------- ------------ -----------------
<S> <C> <C>
Current Liabilities
Accounts Payable $ 178,689 $ 189,929
Accrued Liabilities:
Compensation 17,642 21,075
Other 24,551 13,305
Deferred Revenue 83,992 87,000
Long-Term Debt due within one year 245,058 266,825
---------- ----------
Total Current Liabilities 549,932 578,134
Deferred Revenue 48,000 40,000
Long-Term Debt, less amounts due in one year 150,324 175,770
---------- ----------
Total Liabilities 748,256 793,904
---------- ----------
Stockholders' Equity
Common Stock, $.001 Par Value, 60,000,000
Shares Authorized, 25,831,131 Issued &
Outstanding 25,832 25,832
Additional Paid-In Capital 3,485,844 3,485,844
Retained Earnings (Deficit) (900,460) (973,041)
----------- ----------
Total Stockholders' Equity 2,611,216 2,538,635
---------- ----------
Total Liabilities and Stockholders' Equity $3,359,472 $3,332,539
========== ==========
Note: The balance sheet at November 30, 1996 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.
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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<PAGE>
TUBBY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31, May 31, May 31,
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Food Sales $ 246,328 $ 198,872 $ 499,885 $ 401,959
Franchise Fees:
Monthly 189,793 161,667 366,557 309,782
Initial & Transfer 42,750 18,750 88,750 33,000
Marketing Rights 14,519 - 14,519 -
Equipment & Restaurant Sales 120,118 51,165 325,692 106,585
Advertising Fees 158,031 125,666 308,680 253,661
Commissions & Other Fees 107,807 100,673 212,718 187,251
--------- -------- ---------- ----------
Total Revenues 879,346 656,793 1,816,801 1,292,238
Costs & Expenses:
Operating Expenses 612,277 511,008 1,154,665 966,301
Cost of Food Sales 177,018 141,830 363,757 285,065
Cost of Equipment &
Restaurant Sales 100,448 41,075 260,050 86,010
--------- -------- ---------- ----------
Total Costs & Expenses 889,743 693,913 1,778,472 1,337,376
Operating Income (Loss) (10,397) (37,120) 38,329 (45,138)
--------- -------- ---------- ----------
Other Income (Expense):
Interest Expense (4,916) (4,592) (10,484) (11,992)
Gain on Sale of Fixed Assets - (2,639) - 8,466
Interest Income 17,820 28,763 43,543 54,431
Miscellaneous (97) 2,195 1,193 2,224
--------- -------- ---------- ----------
Total Other Income (Expense) 12,807 23,727 34,252 53,129
Net Income (Loss) $ 2,410 $(13,393) $ 72,581 $7,991
========= ======== ======== ======
Net Income (Loss) Per Share $0.000 $ (0.001) $ 0.003 $0.000
========= ======== ======== ======
Common Shares
Outstanding (Average) 25,831,131 25,381,131 25,831,131 25,381,131
========== ========== ========== ==========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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<PAGE>
TUBBY'S INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended May 31,
1997 1996
Unaudited Unaudited
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 72,581 $ 7,991
Adjustments to Reconcile Net Income to Net
Cash Provided (Used) by Operating Activities:
Depreciation & Amortization 68,037 48,277
Gain on Sale of Fixed Assets - (8,466)
Increase (Decrease) in Cash Due to Changes In:
Accounts Receivable (44,931) 75,620
Inventories 57,929 (807)
Prepaid Expenses & Other (9,651) (219,939)
Accounts Payable (11,240) (81,962)
Accrued Liabilities 7,813 (20,102)
Deferred Revenues 4,992 (30,000)
-------- --------
Net Cash Provided (Used) by Operating Activities 145,530 (229,388)
Cash Flows from Investing Activities:
Sale of Certificate of Deposits & Marketable Securities - 101,601
Purchase of Property & Equipment (44,096) (187,835)
Net Proceeds from Sale of Property & Equipment - 32,250
Payments on Notes Receivable 30,681 73,090
-------- --------
Net Cash (Used In) Provided by Investing Activities (13,415) 19,106
Cash Flows from Financing Activities:
Payments on Long-term Debt (47,213) (62,368)
------- -------
Net Cash (Used In) Provided by Financing Activities (47,213) (62,368)
Net Increase (Decrease) in Cash: 84,902 (272,650)
Cash & Equivalents at Beginning of Period 793,494 951,144
-------- --------
Cash & Equivalents at End of Period $878,396 $678,494
======== ========
<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, 1997 and May
31, 1996 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, 1996 and
the Form 10-KSB as of November 30, 1996.
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
The Company has classified its marketable debt into held-to-maturity
and available-for-sale categories. Securities classified as
held-to-maturity are reported at amortized cost and available-for-sale
securities are reported
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<PAGE>
at fair market value with unrealized gains or losses reported as a
component of stockholders' equity. During the six months ending May
31, 1997, and the year ending November 30, 1996, there were no
realized or unrealized gains or losses reported as cost approximated
fair value.
4. LITIGATION
On August 17, 1995, a civil action was commenced against the Company
in the United States District Court for the Eastern District of
Michigan. 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 originally under the
name "Cafe Express." Plaintiffs' complaint sought rescission of those
transactions and, in connection therewith, alleged violation of
federal securities regulations, fraudulent misrepresentation,
violation of the Racketeer Influenced and Corrupt Organizations Act
("RICO"), 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 that Company. After the close of
discovery, the Company filed motions for summary judgment of
plaintiffs' securities fraud claims and to dismiss plaintiffs' RICO
claims, which the Court granted in July of 1996. The Court also
granted the Company's motion to dismiss all of plaintiffs' remaining
claims, which asserted claims under state law, without prejudice.
Thereafter, orders were entered granting judgment in the Company's
favor with regard to plaintiffs' securities fraud claims and
dismissing plaintiffs' RICO claims, with prejudice, and dismissing all
of plaintiffs' remaining claims, without prejudice.
Thereafter, plaintiffs commenced an action in the Circuit Court for
the County of Oakland (the "Oakland County Action"). In the Oakland
County Action, plaintiffs assert the same allegations of "fraud" that
were asserted and dismissed in the federal action but are only seeking
rescission of the McTub Partnership Agreement and/or money damages in
connection with the formation of that partnership. This case does not
involve any "securities" claims regarding the shares of common stock
-8-
<PAGE>
purchased by McCourt. The Company filed an answer denying liability, a
counter-complaint in which it asserts a claim for fraud against
McCourt, and a cross-claim against the McTub Company seeking certain
declaratory relief in connection with loans to the partnership that
were procured by its partners. Also, the Company filed an action in
the Circuit Court for the County of Macomb, in which it asserted a
claim for dissolution of the partnership (the "Macomb County Action").
That action was transferred to the Circuit Court for the County of
Oakland and should be consolidated with the Oakland County Action. 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.
-9-
<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, 1996.
FINANCIAL CONDITION
Cash and Equivalents, Certificates of Deposit, and Marketable Securities
increased by $84,902 for the six months ended May 31, 1997, as compared with
a decrease of $374,251 for the six months ended May 31, 1996. The current
period increase in the Company's cash position resulted primarily from its
Net Income of $72,581, Depreciation and Amortization of $68,037, and a
$57,929 decrease in Inventory resulting from a reduction of new restaurant
construction-in-progress offset by a $44,931 increase in Accounts Receivable
and purchases of new equipment of $44,096. The decrease in cash position of
the prior year resulted from an increase in new restaurant construction at
that time, the prepayment of franchise development expenses, the purchase of
new equipment and the reduction of vendor payables.
The Company opened five new franchised Tubby's Sub Shops in each of the first
two quarters of 1997. In addition, the Company anticipates an additional
eleven new franchisee-owned locations will open by the end of its fourth
quarter of 1997. New Development Agent agreements were also sold for certain
counties in the state of Michigan, the state of Texas, and the provinces of
Alberta and British Columbia, Canada. Additional new Development Agent
agreements are expected by the end of 1997 with related new restaurant
openings in 1998. Restaurants opened pursuant to Development Agent agreements
generally require that Initial and Monthly Franchise Fees be shared with the
respective development agent and, as a result, less income is recognized by
the Company. Though the Company believes that planned new restaurants will
open as anticipated, the responsibility to open and operate these locations
by franchisees, who are unrelated to the Company, is ultimately not in the
control of the Company. Unforeseen obstacles may either delay, alter or
permanently prevent planned openings of franchisee-owned restaurants and
accordingly may delay, alter or prevent Tubby's, Inc. from achieving it's
anticipated goals for future growth of the Company.
-10-
<PAGE>
Results of operations for the three months ended May 31, 1997 as compared
with the three months ended May 31, 1996.
- -----------------------------------------------------------------------------
The Company incurred an Operating Loss of $10,397 and Net Income of $2,410
for the three months ending May 31, 1997. For the three months ending May 31,
1996, the Company incurred an Operating Loss of $37,120 and a Net Loss of
$13,393 The Company believes that the current quarter's results were
depressed by franchise development expenses of $71,617 resulting from the
Company's increased efforts directed at expansion outside the Detroit area,
shareholder relations expense of $33,340 resulting from costs relating to the
printing and distribution of year-end shareholder publications and increased
efforts to enhance shareholder value, and a $33,318 loss resulting from the
operation of Company-owned restaurants. The Franchise Development Expense of
the current year is expected to result in increase revenue and profit in
future periods as additional Tubby's Sub Shops open in regions outside the
Detroit area.
Revenues for the three months ended May 31, 1997, increased $222,553 or 33.9%
to $879,346 as compared to the same period in 1996. This broad based increase
was attributable to a $47,456 or 23.9% increase in Food Sales, $28,126 or
17.4% increase in Monthly Franchise Fees, $24,000 or 128% increase in Initial
& Transfer Franchise Fees, Marketing rights of $14,519, a $68,953 or 134.8%
in Equipment & Restaurant Sales, a $32,365 or 25.8% increase in Advertising
Fees, and a $7,134 or 7.1% increase in Commissions & Fees.
The increase in Food Sales of $47,456 was attributable to two Tubby's Sub
Shops that were reacquired from delinquent franchisees and a newly opened
Company-owned restaurant all occurring during the fourth quarter of 1996.
Subsequent to May 31, 1997, one of the reacquired restaurants was leased to a
new franchisee for $500 per month accompanied with a $3,000 deposit. The
monthly payments and the deposit will be applied to the purchase price of the
restaurant should the franchisee exercise his option to purchase the
restaurant during the twenty-four month period of the agreement. If the
franchisee fails to exercise the option to acquire the restaurant; all funds
received from him will be kept by Tubby's, Inc., and recognized as income.
Until such time as when the disposition of the restaurant is determined, the
Company will incur monthly depreciation charges of approximately $1,480 which
will be partially offset by income resulting from franchise fees of 6% of
food sales.
The increase in Monthly Franchise Fees to $189,793 for the three months
ending May 31, 1997, reflect income derived from the increased franchisee
food sales resulting from the advertising efforts of the Company and the
additional monthly fees derived from its new franchisees. As new franchised
Tubby's Sub Shops are opened, Monthly Franchise Fees are expected to
increase.
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<PAGE>
The Initial & Transfer Franchise Fees for the three months ending May 31,
1997, of $42,750 were attributable to the transfer of one franchised sub shop
at $6,250, the opening of three franchised sub shops at reduced fees totaling
$13,500 pursuant to Development Agent agreements, and the opening of two sub
shops at the full fees totaling $23,000. The Initial & Transfer Franchise
Fees from the same period of 1996 resulted from the $6,250 fee from the
transfer of one sub shop, and $12,500 of initial fees resulting from the
opening of two new sub shops.
Marketing Rights fees of $14,519 are derived from Development Agent
agreements and are paid by the respective agent for the privilege of
marketing Tubby's Sub Shop franchises in a specific geographic region.
Marketing Rights fees vary by geographic area and are generally due to
Tubby's, Inc. as additional sub shops are franchised and opened in each
respective region. There were no Marketing Rights income in the prior year.
Equipment & Restaurant income of $120,118 represent sales of equipment to
four new and several existing franchisees. The increase in Equipment &
Restaurant income in 1997 as compared to 1996 is attributable to the increase
pace of new Tubby's Sub Shop openings occurring this year. With the planned
opening of the eleven additional franchisee-owned sub shops as referred to
above, Equipment & Restaurant sales are expected to remain strong through the
last six months of 1997.
The increase in Monthly Advertising Fees to $158,031 for the three months
ending May 31, 1997, reflect the advertising efforts of the Company and the
additional monthly fees derived from its new Detroit area franchisees. As new
franchised Tubby's Sub Shops are opened in the Detroit area, Monthly
Franchise Fees are expected to increase. Advertising Fees collected from
Tubby's franchisees are used to offset the related advertising costs. As
such, revenue from Advertising Fees is recognized only to the extent that
equivalent or greater expenses are incurred.
The increase in Commissions & Other Fees to $107,807 represents increase
rental income of $2,350 per month derived from a Company-owned but franchisee
operated Tubby's Sub Shop and reduced estimates of vendor rebates.
The 19.8% increase in Operating Expenses for the three months ending May 31,
1997, of $101,269 is largely comprised of a $45,606 increase in spending for
franchise development and a $48,844 increase in spending for advertising
related expenses as compared to the same period in 1996. As a percentage of
Total Revenues, Operating Expenses decreased from 77.8% to 69.6% for the
three months ending May 31, 1997, as compared to the same three months in
1996. Cost of Food Sales for the three months ending May 31, 1997, increased
proportionately to the increase in Food Sales when compared to the same time
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<PAGE>
period in 1996. Cost of Equipment & Restaurant Sales for the three months
ending May 31, 1997, increased from 80.3% of Equipment & Restaurant Sales to
83.6% when compared to the prior year.
Interest Income for the three months ending May 31, 1997, declined to $17,820
from $28,763 of the similar period in 1996. The decline in Interest Income is
due in part to generally lower interest rates available for short term
corporate investments and the Company's increased investment in Company-owned
restaurants. One Company-owned restaurant, which was purchased in July, 1996,
is leased and operated by a franchisee beginning August 1, 1996. Lease income
from this location of $2,350 per month is included in Commissions & Other
Fees.
Results of operations for the six months ended May 31, 1997 as compared with
the six months ended May 31, 1996.
- -----------------------------------------------------------------------------
The Company incurred Operating Income of $38,329 and Net Income of $72,581
for the six months ending May 31, 1997. For the six months ending May 31,
1996, the Company incurred an Operating Loss of $45,138 and Net Income of
$7,991. The Company believes that this year's results were depressed by
Franchise Development Expense of $96,942 for the six months ending May 31,
1997, as compared to $33,428 for the same period of 1996 and losses of
$50,470 associated with the operation of its company-owned restaurants this
year as compared to losses of $17,745 from the prior year. Franchise
Development Expense results from the Company's increased efforts directed at
expansion outside the Detroit area. These current year expenses are expected
to result in increase revenue and profit in future periods as additional
Tubby's Sub Shops are opened in regions outside the Detroit area. The
previous years' results were also depressed by legal fees of $43,182
resulting from the current litigation (see Note 4 of the Consolidated
Financial Statements), and the delay of new restaurant openings and sale of
Company-owned restaurants into the third quarter of 1996.
Total Revenue for the six months ending May 31, 1997, increased by 40.6% to
$1,816,801. This broad based increase when compared to the same time period
of 1996 resulted from a $97,926 or 24.4% increase in Food Sales, a $56,775 or
18.3% increase in Monthly Franchise Fees, a $55,750 or 168.9% increase in
Initial & Transfer Franchise Fees, Marketing Rights of $14,519, a $219,107 or
205.6% increase in Equipment & Restaurant Sales, a $55,019 or 21.7% increase
in Advertising Fees, and a $25,467 or 13.6% increase in Commissions & Fees.
The $97,926 increase in Food Sales was attributable to two Tubby's Sub Shops
that were reacquired from delinquent franchisees and a newly opened
Company-owned restaurant all occurring during the fourth quarter of 1996.
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<PAGE>
Subsequent to May 31, 1997, one of the reacquired restaurants was leased to a
new franchisee for $500 per month accompanied with a $3,000 deposit. The
monthly payments and the deposit will be applied to the purchase price of the
restaurant should the franchisee exercise his option to purchase the
restaurant during the twenty-four month period of the agreement. If the
franchisee fails to exercise the option to acquire the restaurant; all funds
received from him will be kept by Tubby's, Inc., and recognized as income.
Until such time as when the disposition of the restaurant is determined, the
Company will incur monthly depreciation charges of approximately $1,480 which
will be partially offset by income resulting from franchise fees of 6% of
food sales.
The increase in Monthly Franchise Fees to $366,557 for the six months ending
May 31, 1997, reflect income derived from the increased franchisee food sales
resulting from the advertising efforts of the Company and the additional
monthly fees derived from its new franchisees. As new franchised Tubby's Sub
Shops are opened, Monthly Franchise Fees are expected to increase.
The Initial & Transfer Franchise Fees for the six months ending May 31, 1997,
of $88,750 were attributable to the transfer of one franchised sub shop at
$6,250, the opening of four franchised sub shops at reduced fees totaling
$17,500 pursuant to Development Agent agreements, and the opening of six sub
shops at the full fees totaling $65,000. The Initial & Transfer Franchise
Fees from the same period of 1996 resulted from the $12,500 transfer fee of
two sub shops, $20,500 of initial fees resulting from the opening of three
new sub shops.
Marketing Rights fees of $14,519 are derived from Development Agent
agreements and are paid by the respective agent for the privilege of
marketing Tubby's Sub Shop franchises in a specific geographic region.
Marketing Rights fees vary by geographic area and are generally due to
Tubby's, Inc. as additional sub shops are franchised and opened in each
respective region. There were no Marketing Rights income in the prior year.
Equipment & Restaurant of $325,692 represent sales of equipment to nine new
and several existing franchisees. The increase in Equipment & Restaurant
sales in 1997 as compared to 1996 is attributable to the increase pace of new
Tubby's Sub Shop openings occurring this year. With the planned opening of
the eleven additional franchisee-owned sub shops as referred to above,
Equipment & Restaurant sales are expected to remain strong through the last
six months of 1997.
The increase in Monthly Advertising Fees to $308,680 for the six months
ending May 31, 1997, reflect income derived from the increased franchisee
food sales resulting from the advertising efforts of the Company and the
additional monthly fees derived from its new franchisees in the Detroit area.
As new franchised
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Tubby's Sub Shops are opened in the Detroit area, Monthly Franchise Fees are
expected to increase. Advertising Fees collected from Tubby's franchisees are
used to offset the related advertising costs. As such, revenue from
Advertising Fees is recognized only to the extent that equivalent or greater
expenses are incurred.
The increase in Commissions & Other Fees to $212,718 represents increase
rental income of $2,350 per month derived from of a Company-owned but
franchisee operated Tubby's Sub Shop and reduced estimates of vendor rebates.
The 19.5% increase in Operating Expenses for the six months ending May 31,
1997, of $188,364 is largely comprised of a $63,514 increase in spending for
franchise development and a $87,141 increase in spending for advertising
related expenses as compared to the same period in 1996. As a percentage of
Total Revenues, Operating Expenses decreased from 74.8% to 63.6% for the six
months ending May 31, 1997, as compared to the same six months in 1996. Cost
of Food Sales for the six months ending May 31, 1997, increased as a
percentage of Food Sales from 70.9% to 72.8% when compared to the same time
period in 1996. Cost of Equipment & Restaurant Sales for the six months
ending May 31, 1997, remained relatively constant at 79.8% of Equipment &
Restaurant Sales when compared to the same period in 1996.
Interest Expense decreased by $1,508 or 12.6% from 1996 to 1997 reflecting
the continued reduction of long term debt, lower interest rates, and the
efforts of management to avoid additional debt.
Interest Income for the six months ending May 31, 1997, declined to $43,543
from $54,431 of the similar period in 1996. The decline in Interest Income is
due in part to generally lower interest rates available for short term
corporate investments and the Company's increased investment in Company-owned
restaurants. One Company-owned restaurant, which was purchased in July, 1997,
is leased and operated by a franchisee beginning August 1, 1996. Lease income
from this location of $2,350 per month is included in Commissions & Other
Fees.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Equivalents, Certificates of Deposit, and Marketable Securities
increased by $84,902 for the six months ended May 31, 1997, as compared with
a decrease of $374,251 for the six months ended May 31, 1996. The current
period increase in the Company's cash position resulted primarily from its
Net Income of $72,581, Depreciation and Amortization of $68,037, and a
$57,929 decrease in Inventory resulting from a reduction new restaurant
construction-in-progress offset by a $44,931 increase in Accounts Receivable
and purchases of new equipment of $44,096. The decrease in cash position of
the prior year
-15-
<PAGE>
resulted from an increase in new restaurant construction at that time, the
prepayment of franchise development expenses, the purchase of new equipment
and the reduction of vendor payables.
The Company opened five new franchised Tubby's Sub Shops in each of the first
two quarters of 1997. In addition, the Company anticipates an additional
eleven new franchisee-owned locations will open by the end of its fourth
quarter of 1997. New Development Agent agreements were also sold for certain
counties in the state of Michigan, the state of Texas, and the provinces of
Alberta and British Columbia, Canada. Additional new Development Agent
agreements are expected by the end of 1997 with related new restaurant
openings in 1998. Restaurants opened pursuant to Development Agent agreements
generally require that Initial and Monthly Franchise Fees be shared with the
respective development agent and, as a result, less income is recognized by
the Company. Though the Company believes that the planned new restaurants
will open as anticipated, the responsibility to open and operate these
locations is that of the franchisees, who are unrelated to the Company, and
ultimately not in the control of the Company. Unforeseen obstacles may either
delay, alter or permanently prevent planned openings of franchisee-owned
restaurants and accordingly may delay, alter or prevent Tubby's, Inc. from
achieving it's anticipated goals for future growth of 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 May 31, 1997, the Company had as many as
eleven new locations scheduled to open by November 30, 1997. The Company may
be responsible for the construction and equipment installation of these
locations, all of which will be owned and operated by franchisees. The
Company anticipates that it has sufficient working capital to internally
finance these projects.
-16-
<PAGE>
PART I- 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, 1997.
(a) A meeting was held on June 12, 1997.
(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>
Robert M. Paganes 18,889,436 591,150
Peter T. Paganes 18,877,103 604,483
Vincent J. Tatone 18,878,437 575,149
John M. Fayad 18,896,837 583,749
Ronald Boraks 18,860,903 619,683
</TABLE>
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, 1997.
-17-
<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.
Robert M. Paganes /s
--------------------------------------
By: Robert M. Paganes
President, Chief Executive Officer
Dated: July 10, 1997
Melvyn Erdos /s
---------------------------------------
By: Melvyn Erdos
Treasurer, Chief Financial Officer
Dated: July 10, 1997
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
<CASH> $978,396
<SECURITIES> 25,000
<RECEIVABLES> 863,732
<ALLOWANCES> 26,744
<INVENTORY> 46,876
<CURRENT-ASSETS> 1,516,581
<PP&E> 1,735,968
<DEPRECIATION> 715,475
<TOTAL-ASSETS> 3,359,472
<CURRENT-LIABILITIES> 549,932
<BONDS> 0
<COMMON> 25,832
0
0
<OTHER-SE> 2,585,384
<TOTAL-LIABILITY-AND-EQUITY> 3,359,472
<SALES> 366,446
<TOTAL-REVENUES> 897,069
<CGS> 277,466
<TOTAL-COSTS> 617,193
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,916
<INCOME-PRETAX> 2,410
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,410
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,410
<EPS-PRIMARY> .000
<EPS-DILUTED> .000
</TABLE>
