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 28, 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.
____________________________________________________________________________
(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 E. Fourteen Mile Road, Sterling Heights, Michigan 48132
- ----------------------------------------------------------------------------
(Address of principal executive officers)
(810) 978-8829
____________________________________________________________________________
(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, 1997, there were 25,831,131 shares of common stock
outstanding.
<PAGE>
INDEX
TUBBY'S, INC. AND SUBSIDIARIES
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Balance Sheets,
February 28, 1997 and November 30, 1996 3-4
Consolidated Statements of Operations,
Three Months Ended February 28, 1997
and February 29, 1996 5
Consolidated Statements of Cash Flows,
Three Months Ended February 28, 1997
and February 29, 1996 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS (UNAUDITED).
<TABLE>
<CAPTION>
TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28, November 30,
1997 1996
ASSETS (Unaudited) (Note)
- --------------------------------------------- -----------------------------------------
<S> <C> <C>
Current Assets:
Cash and Equivalents $ 727,241 $ 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 380,403 245,267
Notes Receivable 77,941 72,091
Inventories 78,348 104,805
Prepaid Expenses & Other 125,121 110,644
---------- ----------
Total Current Assets 1,514,054 1,451,301
---------- ----------
Property and Equipment
Land 325,347 325,347
Buildings & Improvements 709,469 693,347
Equipment 439,356 440,705
Furniture & Fixtures 217,464 217,464
Vehicles 15,009 15,009
---------- ----------
1,706,645 1,691,872
Less: accumulated depreciation 685,680 654,255
---------- ----------
Net Property & Equipment 1,020,965 1,037,617
---------- ----------
Other Assets
Goodwill, less amortization of $71,454
and $68,045 in 1997 and 1996 334,832 338,241
Notes Receivable, less allowance for
doubtful accounts of $5,894 in 1997 and 1996 491,682 505,380
---------- ----------
Total Other Assets 826,514 843,621
---------- ----------
Total Assets $3,361,533 $3,332,539
=========== ==========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28, November 30,
1997 1996
LIABILITIES & STOCKHOLDERS' EQUITY (Unaudited) (Note)
- --------------------------------------------- -------------- --------------
<S> <C> <C>
Current Liabilities
Accounts Payable $ 190,362 $ 189,929
Accrued Liabilities:
Compensation 34,093 21,075
Other 16,410 13,305
Deferred Revenue 61,500 87,000
Long-Term Debt due within one year 241,890 266,825
---------- ----------
Total Current Liabilities 544,255 578,134
Deferred Revenue 40,000 40,000
Long-Term Debt, less amounts due in one year 168,472 175,770
---------- ----------
Total Liabilities 752,727 793,904
---------- ----------
Stockholders' Equity
Common Stock, $.001 Par Value, 60,000,000
shares authorized, 25,831,131 issued and
outstanding 25,832 25,832
Additional Paid In Capital 3,485,844 3,485,844
Retained Earnings (Deficit) (902,870) (973,041)
---------- ----------
Total Stockholders' Equity 2,608,806 2,538,635
---------- ----------
Total Liabilities and Stockholders' Equity $3,361,533 $3,332,539
========== ==========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended,
February 28, February 29,
1997 1996
------------ ---------------
<S> <C> <C>
Revenues:
Food Sales $253,557 $203,087
Franchise Fees:
Monthly 176,764 148,115
Initial 46,000 14,250
Equipment & Restaurant Sales 205,574 55,420
Advertising Fees 150,649 127,995
Commissions & Other Fees 87,449 75,928
---------- ----------
Total Revenues 919,993 624,795
---------- ----------
Costs & Expenses:
Operating Expenses 542,388 455,293
Cost Of Food Sales 186,739 143,235
Cost Of Equipment & Restaurant Sales 159,602 44,935
---------- ----------
Total Costs & Expenses 888,729 643,463
---------- ----------
Operating Income (Loss) 31,264 (18,668)
Other Income:
Interest Expense (5,568) (7,400)
Gain On Sale Of Fixed Assets 0 11,105
Interest Income 25,723 25,668
Miscellaneous 18,752 10,679
---------- ----------
Total Other Income (Expense) 38,907 40,052
---------- ----------
Net Income $ 70,171 $ 21,384
========== ==========
Earnings (Loss) Per Share $ 0.003 $ 0.001
========== ==========
Common Shares Outstanding (Average) 25,831,131 25,381,131
========== ==========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
TUBBY'S, INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended,
February 28, February 29,
1997 1996
------------ ---------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 70,171 $ 21,384
Adjustments To Reconcile Net Income To
Net Cash Provided By Operating Activities:
Depreciation & Amortization 34,834 24,469
Gain On Sale Of Fixed Assets 0 (11,105)
Increase (Decrease) In Cash Due To
Changes In:
Accounts Receivable (135,136) (15,779)
Inventories 26,457 8,808
Prepaid Expenses & Other (14,477) (100,475)
Accounts Payable 433 (23,704)
Accrued Liabilities 16,123 (22,463)
Deferred Revenues (25,500) 12,700
-------- --------
Net Cash (Used) By Operating Activities (27,095) (106,165)
Cash Flows From Investing Activities
Sale of Certificate of Deposits and Marketable 0 49,586
Securities
Purchase Of Property & Equipment (14,773) (9,732)
Net Proceeds From Sale Of Property & Equipment 0 32,250
Payments On Notes Receivable 7,848 24,153
--------- --------
Net Cash (Used In) Provided By Investing Activities (6,925) 96,257
Cash Flows From Financing Activities:
Payments On Long-Term Debt (32,233) (17,975)
-------- --------
Net Cash (Used In) Financing Activities (32,233) (17,975)
-------- --------
Net (Decrease) In Cash (66,253) (27,883)
Cash and Equivalents, at beginning of period 793,494 951,144
--------- --------
Cash and Equivalents, at end of period $ 727,241 $923,261
========= ========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
-6-
<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 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 28, 1997 and February 29, 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 at
fair market value with unrealized gains or losses reported as a component of
stockholders' equity. During the three months ending February 28, 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
-7-
<PAGE>
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 cents 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 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 parties have
agreed to non-binding facilitation of all claims in an attempt to resolve
their disputes. This is scheduled to occur in May, 1997. 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.
-8-
<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, 1996.
FINANCIAL CONDITION
- -------------------
Cash and Equivalents, Certificates of Deposit, and Investments decreased by
$66,253 for the three months ended February 28,1997 as compared with a
decrease of $77,469 for the three months ended February 29, 1996. The current
period decrease in the Company's cash position resulted primarily from the
increased accounts receivable related to the construction of new franchised
Tubby's Sub Shops. Additionally, the pre-payment of future franchise
development expenses, the purchase of new equipment, and the reduction of
long term debts utilized cash in the current period. The decrease in cash
position of the prior year similarly resulted from franchise development
expenses, the purchase of new equipment, and the reduction of vendor
payables.
With the increased effort to develop new franchised Tubby's Sub Shops in the
Detroit area as well as other out-of-state areas, the Company experienced
greatly improved revenues and net income for the three months ended February
28, 1997. Five new franchised restaurants opened in the first quarter of 1997
including one out-of-state location and one non-traditional location in a
petroleum station. The company anticipates an additional six Tubby's Sub
Shops will open in the second quarter months ending May 31, 1997. Of these
six Tubby's Sub Shops, two restaurants will be located out-of-state. At
February 28, 1997, the Company operated seven restaurants and franchised
seventy-two restaurants.
Results of operations for the three months ended February 28, 1997 as
compared with the three months ended February 29, 1996.
Revenues for the three months ended February 28, 1997, increased by 47.2% to
$919,993. Net Income for this period increased by 228.1% to $70,171 as
compared to the same period in 1996. This broadly based increase in Total
Revenues was attributable to:
o A $50,470 or 24.9% increase in Food Sales resulted from one Company
owned restaurant that was opened in October, 1996, and one
restaurant that was acquired from a delinquent franchisee in
September, 1996.
o A $28,649 or 19.3% increase in Monthly Franchise Fees resulting from
the improved food sales of existing restaurants and additional food
sales of new restaurants opened in the past year. Franchise Fees are
determined based upon food sales.
o A $31,750 or 222.8% increase in Initial Franchise Fees resulting
from the opening of five new franchisee-owned Tubby's Sub Shops in
the three months ending February 28, 1997, as compared to two
restaurants that opened in the same period in 1996.
-9-
<PAGE>
o A $150,154 or 270.9% increase in Equipment & Restaurant Sales
resulting from the five restaurants that opened in the previous
three months compared to two restaurants that open in the same
period last year.
o A $22,654 or 17.7% increase in Advertising Fees resulting from the
improved food sales of existing restaurants and additional food
sales of new restaurants opened in the past year. Advertising Fees
are determined based upon food sales.
o A $11,521 or 15.2% increase in Commissions & Other Fees resulting
from the vendor commissions associated with improved food sales of
existing restaurants and additional food sales of new restaurants
opened in the past year.
Total Costs & Expenses increase by $245,266 or 38.1%. As a percentage of
Total Revenue, Total Expenses decreased from 103% of Total Revenue in 1996 to
96.6% in 1997 resulting in a $49,932 increase in Operating Income to $31,264
from an Operating Loss of $18,668 in the prior year.
o Operating Expenses increased by $87,095 in 1997, though as a
percentage of Total Revenues the category decreased to 59% in 1997
from 72.9% in 1996. This percentage decrease in Operating Expenses
reflects the increased utilization of existing resources and the
fixed nature of certain ongoing expenses.
o Cost of Food Sales as a percentage of Food Sales remained relatively
constant at approximately 70% in 1997 and in 1996.
o Cost of Equipment Sales decline as a percentage of Equipment &
Restaurant Sales from 81.1% in 1996 to 77.6% in 1997 reflecting
increased gross profit margins associated with volume purchasing.
o Interest Expense decreased by $1,832 or 24.8% from 1996 to 1997
reflecting the continued reduction of long term debt and
management's determination to strengthen the Company's financial
position by not incurring unnecessary new debt. The Company expects
further interest expense reductions resulting from the refinancing
of existing long term debt at a lower interest rate as well as the
accelerated payoff of other long term debt.
o The 1996 Gain On Sale Of Fixed Assets of $11,105 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. The $14,346 gain on the sale of the Company owned
restaurant was reversed in the fourth quarter of 1996.
o Interest Income derived from the investment of idle funds remained
constant in 1997 as compared to 1996. Lower Interest Income is
anticipated in future periods as less idle funds are available for
investing due to the increased pace of development by the Company.
The 1997 increase in Miscellaneous of 75.6% results from increased
rent receipts derived from the July, 1996, acquisition by the
Company of the building, equipment and land of a bankrupt
franchisee. This location is currently operating as a Tubby's Sub
Shop and is rented to an existing franchisee.
-10-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and Equivalents, Certificates of Deposit, and Investments declined by
$66,253 in the three months ending February 28, 1997. This declined in
liquidity was attributable to several factors; the most significant being a
$135,000 increase in accounts receivable arising from the construction and
sale of new franchised Tubby's Sub Shops. Company liquidity is expected to
further decline as a result of the accelerated pace of franchise development
that is anticipated to continue through the remainder of 1997.
Other uses of Company liquidity include the pre-payment of franchise
development expenses, the purchase of new equipment and improvements at it's
Company owned restaurants, and the reduction of long term debt. The
prepayment of franchise development expenses is expected to decrease over the
remaining three quarters of 1997 due to seasonal nature of the Company's
expansion efforts. The Company anticipates reduced outlays for new equipment
and improvements over the remainder of 1997, also. In the first quarter of
1997, the Company accelerated the pay-off of a portion of its long term debt
to facilitate the initiation of a new banking relationship. The new banking
relationship provided both the re-financing of long term debt and a revolving
line of credit at more favorable terms as compared to the Company's previous
banking relationship. The pace of long term debt amortization is expected to
decrease as certain elements of long term debt are paid off over the next
three quarters of 1997.
In addition to five new restaurants opened in the first quarter of 1997, six
new Tubby's Sub Shops are expected to open by the end of the second quarter,
four new Tubby's Sub Shops are expected to open by the end of the third
quarter and five Tubby's Sub Shops are expected to open by the end of the
fourth quarter. All restaurants scheduled to be opened by the end of 1997 are
expected to be owned and operated by franchisees. The Company anticipates
that it will be operating seven restaurants and franchise eighty-seven
restaurants by the end of 1997.
The Company maintains 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, 1997, 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, 1997, the Company has six new
locations scheduled to open by May 31, 1997. The Company may be responsible
for the construction and equipment installation of some of these locations.
The Company anticipated estimated costs will vary between $50,000 to $100,000
each. The Company believes it has sufficient working capital to internally
finance these projects.
-11-
<PAGE>
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 28, 1997.
-12-
<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
----------------------------------
By: Robert M. Paganes
President, Chief Executive Officer
Dated: April 13, 1996
Melvyn B. Erdos
-----------------------
By: Melvyn Erdos
Chief Financial Officer
Dated: April 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> FEB-28-1997
<CASH> $ 827,241
<SECURITIES> 25,000
<RECEIVABLES> 976,770
<ALLOWANCES> 26,744
<INVENTORY> 78,348
<CURRENT-ASSETS> 1,514,054
<PP&E> 1,706,645
<DEPRECIATION> 685,680
<TOTAL-ASSETS> 3,361,533
<CURRENT-LIABILITIES> 544,255
<BONDS> 0
<COMMON> 25,832
0
0
<OTHER-SE> 2,582,974
<TOTAL-LIABILITY-AND-EQUITY> 3,361,533
<SALES> 459,131
<TOTAL-REVENUES> 964,468
<CGS> 346,341
<TOTAL-COSTS> 547,956
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,568
<INCOME-PRETAX> 70,171
<INCOME-TAX> 0
<INCOME-CONTINUING> 70,171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,171
<EPS-PRIMARY> .003
<EPS-DILUTED> .003
</TABLE>
