Cuppy's Speaks Out on Accusations, SBT, AAFD and More

MUSCLE SHOALS, Ala. (Blue MauMau) - Dale Nabors, new owner of Cuppy's Coffee and More, took time out from a busy schedule to answer questions surrounding the allegations and comments posted recently on Blue MauMau. First and foremost, he exclaimed that no charges have been filed against him. "I have not been personally charged or served. I have asked my legal counsel at both offices if they know anything about it. The only thing I have seen on it is the anonymous guest post on Blue MauMau."

Nabors also answered questions regarding accusations of criminal behavior connected to his company which has been hinted at by posters who are following the Cuppy's story. He said he had not focused a lot of his time on the things that have been done in the past, but he has seen things that he wouldn't have done if he had been in charge. "Do I think a franchisor should have an entity like Elite which was allowed to accept money and sign purchase orders before a franchise agreement was approved? No, I don’t. Was it structured in way that probably met legal requirements? I think it probably was. But does that make it right? No." He said when Cuppy's resumes selling franchises, which he suspended after acquiring the company last April, it will be a much more normal process of franchising.

In the past, Nabors said almost simultaneous to signing a franchise agreement a franchisee would enter into an Elite purchase order. Then, in most cases, the PO was signed long before they ever got a lease. Then construction contracts had been entered into for a space that had been undetermined which he says is part of what created a tremendous number of the problems, problems that the company had faced in the past and that they are still dealing with today. 

Does Nabors think that anybody went out and intentionally committed a crime? He says no. He feels things were done in the wrong order, the wrong sequence of time. But he adds, "I do think it’s a crime to have 168 stores sitting out here on the pipeline that need to be built out, that need to get opened. That’s why my focus has been to resolve these construction issues."  And he does think it is a crime to continue to sell franchises when franchisees are maximizing their success.

SBT and that Infamous "Exhibit D" 

Nabors is quick to state there was never a contract with SBT (Supreme Building Technologies). "SBT had been a company that previous ownership and management had partnered with to do build outs. So Elite was intended to serve as a construction management company. It was to manage the process of build outs for franchisees. They in turn then subcontracted out the construction aspects of the projects to SBT as it related to in-line construction."

Nabors said the same owners of SBT also owned MBM (Modular Buildings of Monroe), which also had no contract with Elite. He said, "It was simply based on an initial agreement for one project and then that parlayed into additional projects being completed. The way the business was being conducted is what dictated the relationship." But he adds, "What I quickly realized and understood was that because one of the principals of SBT and MBM had been made the president of Elite, that created a lot of conflict. It created a lot of bad business decisions being made and there was sloppy bookkeeping on both ends. It created somewhat of a nightmare."

Although Nabors believes that MBM can produce a quality building in a manufacturing environment, he does not believe that SBT can perform quality construction services across the country. "A lot has been said in the blogs about the infamous Exhibit D, which is where I had supposedly agreed to continue to use SBT. But what has been missed is that I agreed that projects that had been sold where Elite contracts were in place, prior to the acquisition, SBT would be able to continue to do the build outs contingent upon their ability to perform the work. To perform it well, in a reasonable amount of time, and at a fair price." Nabors said it quickly became obvious that SBT could not do that. "If they were unable to do those constructions I was not in any way bound to continue to use them."

As he continued to dig into the problems due to the offset of poor quality, planning and permitting problems, delays in construction where rents were paid on behalf of customers, he found most were created by a principal in SBT, who was also serving as the president of Elite.  Nabors explained in detail how Hayes would operate between the two companies, mainly playing both sides.  He said money was moving between the two entities at such a fast pace, with poor bookkeeping on both ends, it was hard to keep up with what was really going on. That went on for 14 to 16 months.   

After Nabors requested the resignation of Brian Hayes and ended the relationship with the builder, he received the lawsuit for monies allegedly owed to SBT, claiming $1.7 million. In a meeting with SBT and the attorneys he hired in Indiana, they showed the appropriate accounting on how it all transpired. They are currently negotiating a settlement agreement because the company does owe SBT some money. But he said it is nowhere near the $1.7 million after the offsets and adjustments are made. "We showed them factually what we believe the number to be and we have agreed to pay them those monies if they settle the agreement."

They also solicited SBT's help on delayed projects of franchisee who were caught in the middle of the SBT fiasco.  SBT has agreed to remove the liens it filed against the franchisees' and landlords' properties—liens they feel were filed inappropriately. He has seen the paperwork on one so far, so time will tell if they are dismissed.

Cuppy's New National Partner

According to Nabors, Cuppy's has 89 stores open and operating, which consists of approximately 40 double drive-through (modular buildings) and 40 free-standing inline cafe models. The rest are split between carts and kiosks. There are approximately 168 stores to be completed with build outs. Of those there are roughly 60 that have leases and are at the top of the build out schedule. "With the remaining stores, we are continuing to assist franchisees to find good locations. But at the same time we are bringing in new construction partners to facilitate and aid the franchisees with their construction, we are not pushing the others to quickly sign leases until we get these 60 open with their build outs." 

Nabors said they have partnered in a strategic alliance relationship with a national contractor that has been part of a company involved with Starbuck's acquisition of Seattle's Best Coffee in opening 600 locations in a 12-month period. He explained, "So they had a proven track record in getting coffee shops open—opened quickly across the country—being part of a network of experienced contractors. We finally got the agreement finalized and as of Monday they were on their first five job sites."

Cuppy's now has five crews working on the build outs of the stores. Nabors said the estimated white box status which the franchisees are responsible for, to full trade dress, is approximately a 10-day process. "Our goal currently is to do 16 stores a month and ramp up from there. We want to have 60 stores with leases signed completed by the end of the year. As we are moving through this we will be able to handle the pipeline to expedite leases for the remaining franchisees, so we can roll straight into getting those build outs done as quickly as possible.

Nabors said the 168 build outs they are looking at should be completed by the end of the first quarter of 2009.

Financing and Cost Reduction

Nabors explained that the Cuppy's franchisee support component was very small compared to the construction components that existed. "When I acquired the franchise, Elite had the construction agreements with the franchisees, Cuppy's the franchisor had the funding for Cuppy's as they opened the 168. Those stores are royalty paying franchisees. Based on projections of what those stores should do and what the royalty payments will be, and putting us at 300 stores, that will fund Cuppy's very nicely.

When asked how he was financing Cuppy's, Nabors explained he was having to put capital into the businesses to keep them moving forward, and some of those monies in turn are used for construction and build out. He said there had been projects that monies were paid on and those monies went into a general operating account and were not used specifically for a project. Now, he said, there are projects that need to be completed. Each is a stand-alone project and the funds are for those projects. They are basically going into the equivalent of a checkbook register and there are certain incremental draws that are received and payments made. He said they are balancing it out. "I’m putting money into the company, and the company is putting money into the projects. In a roundabout way I guess it’s fair to say yes, I am putting money into the company to cover some of these projects. But these are very few projects."

Most of the projects they have, according to Nabors, are in good shape, but the projects they are challenged by are those that were at midstream, where former management allowed monies to go into the general operating accounting instead of allowing the profitability from that project to go into the general operating account. "So of the 168 projects, we’ve got seven or eight that we are having to struggle through, but we are going to be able to take care of them," he said. 

Nabors said he does not have any investors, although they have talked to a number of people who are interested. But at this time they feel it would not be good to accept outside investment monies because the company does not need to take on additional debt load.

The key success of Cuppy's is to reduce the overhead costs, which Nabors says they have been doing gradually since he acquired it. "The company had an enormous overhead in Ft. Walton Beach, Florida. As publicized, it had 146 employees at one time. It has also been reported that it leased 19,000 sq ft of office space overlooking the Gulf of Mexico, which was not cheap real estate."

Cuppy's relocation to Alabama was part of that cost reduction. "We are bringing the company in line so we can operate within a budget, as opposed to going outside and pulling in equity investors. With the current state of the company, not a lot of people would be interested in investing." He said there is no reason to put it further in debt when they have the capability of working through it with the resources they have. But he states, "The real key to that is getting our stores open in the shortest amount of time."

In summarizing Cuppy's goals, Nabors said as they transition from the old model of the past, where the company was a lot more focused on construction and less on serving the franchisees, they are reducing their expenses associated with that dramatically. He said, "We'll gradually be building up the Cuppy's side, the franchisor side, based on the revenues from those future royalties on the stores to be opened.  

Is Cuppy's the Best or Worst Decision You Ever Made?

Nabors said he wakes up every morning asking himself whether acquiring Cuppy's has been the best or worst decision he ever made. "When I woke up the other morning and saw that posting on Blue MauMau falsely stating that Dale Nabors was served with federal charges, I thought about my children in school and having one of their friends coming up to them and saying, hey, I hear your daddy was served with federal charges. I've relocated the company to Muscle Shoals where I live in a great community with great people who are excited to see a new company come in. We hope to grow and hire good, honest, hard-working people that are committed to serving our franchisees. So the whole Muscle Shoals gets bashed. That bothers me. "

He continued saying that the one thing everybody has to understand is they have to protect the brand. There are 80 stores open, another 160 that need to open. Franchisees have made their investment and all they want to do is accomplish their personal goals and objectives, but this trash is simply hurting them. "Can I save it? I don't know." But he said he is committed to doing everything in his power to do so. He feels his motives for buying the company were right and he doesn't regret it.

Nabors said, "There is no money to be made with the mess we have right now. The money is to be made if we can rectify this, get our stores open and profitable, get franchisees feeling good about paying royalties, and bringing our overhead and operation costs in line where we can live off the monies we bring in from royalties.

But he says, "Only time will tell if it was a great or terrible business decision."

(Reporter's note:  More articles to be published on Cuppy's Speaking Out (Topics: AAFD and Funding Solutions.)

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• Official Response of SBT
• FranSynergy Cleans Cuppy's House