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, 1998
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ______________________
Commission File Number 0-12706
Tubby's, Inc.
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(Exact name of small business issuer as specified in its charter)
New Jersey 22-2166602
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(State or other jurisdiction of (I.R.S. Employer Identification
of incorporation or organization) Number)
6029 E. Fourteen Mile Road, Sterling Heights, Michigan 48312
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(Address of principal executive officers)
(810) 978-8829
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(Issuer's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to filed such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __ X __ No _______
As of April 10, 1998, there were 2,583,114 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, 1998 and November 30, 1997 3-4
Consolidated Statements of Operations,
Three Months Ended February 28, 1998
and February 28, 1997 5
Consolidated Statements of Cash Flows,
Three Months Ended February 28, 1998
and February 28, 1997 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 12
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS (UNAUDITED).
TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
ASSETS (Unaudited) (Note)
- ------------------------------------------------------- ------------ ------------
<S> <C> <C>
Current Assets:
Cash and Equivalents $ 456,867 $ 864,229
Certificate of Deposit 105,430 105,430
Marketable Securities 25,383 25,383
Accounts Receivable - Trade, less allowance
for doubtful accounts of $38,931 in 1998 and
$36,740 in 1997 709,317 443,810
Notes Receivable 62,878 66,217
Inventories 299,698 99,419
Prepaid Expenses & Other 70,335 51,449
---------- ----------
Total Current Assets 1,729,908 1,655,937
---------- ----------
Property and Equipment
Land 325,347 325,347
Buildings & Improvements 663,754 663,753
Equipment 538,919 527,265
Furniture & Fixtures 139,444 138,394
Vehicles 11,509 15,009
---------- ----------
1,678,973 1,669,768
Less: accumulated depreciation 801,551 773,576
---------- ----------
Net Property & Equipment 877,422 896,192
---------- ----------
Other Assets
Goodwill, less amortization of $83,966
and $81,118 in 1998 and 1997 272,170 229,918
Notes Receivable, less allowance for
doubtful accounts of $10,000 in 1998 and
$-0- in 1997 520,583 543,342
---------- ----------
Total Other Assets 792,753 773,260
---------- ----------
Total Assets $3,400,083 $3,325,389
========== ==========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
-3-
<PAGE>
TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
LIABILITIES & STOCKHOLDERS' EQUITY (Unaudited) (Note)
- ---------------------------------------------- ------------ -------------
<S> <C> <C>
Current Liabilities
Accounts Payable $ 402,720 $ 106,407
Accrued Liabilities:
Compensation 41,248 19,887
Other 16,018 16,153
Deferred Revenue 55,795 115,489
Long-Term Debt due within one year 17,537 220,520
----------- -----------
Total Current Liabilities 533,318 478,456
Deferred Revenue 60,616 60,867
Long-Term Debt, less amounts due in one year 137,526 139,932
----------- -----------
Total Liabilities 731,460 679,255
----------- -----------
Stockholders' Equity
Common Stock, $.01 Par Value, 6,000,000
shares authorized, 2,583,114 issued and
outstanding 25,832 25,832
Additional Paid In Capital 3,485,844 3,485,844
Retained Earnings (Deficit) (843,053) (865,542)
----------- -----------
Total Stockholders' Equity 2,668,623 2,646,134
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,400,083 $ 3,325,389
=========== ===========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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<PAGE>
TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended,
February 28, February 28,
1998 1997
------------ -----------
<S> <C> <C>
Revenues:
Restaurant Food Sales $ 199,746 $ 253,557
Distribution Food Sales 375,808 0
Franchise Fees:
Monthly 207,957 176,764
Initial 52,001 46,000
Equipment & Restaurant Sales 174,072 205,574
Advertising Fees 169,123 150,649
Commissions & Other Fees 53,971 87,449
----------- -----------
Total Revenues 1,232,678 919,993
----------- -----------
Costs & Expenses:
Operating Expenses 636,776 542,388
Cost Of Restaurant Food Sales 138,681 186,739
Cost Of Distribution Food Sales 300,993 0
Cost Of Equipment & Restaurant Sales 147,523 159,602
----------- -----------
Total Costs & Expenses 1,223,973 888,729
----------- -----------
Operating Income 8,705 31,264
Other Income (Expense):
Interest Expense (3,695) (5,568)
Interest Income 19,457 25,723
Miscellaneous 17,923 18,752
----------- -----------
Total Other Income (Expense) 33,685 38,907
----------- -----------
Income Before Taxes on Income 42,390 70,171
Taxes on Income 19,900 0
----------- -----------
Net Income 22,490 70,171
=========== ===========
Earnings Per Share --
Basic & Diluted $ 0.01 $ 0.03
=========== ===========
Weighted Average Common Shares Outstanding
2,583,114 2,538,114
=========== ===========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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<PAGE>
TUBBY'S, INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended,
February 28, February 28,
1998 1997
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<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 22,490 $ 70,171
Adjustments To Reconcile Net Income To
Net Cash Used By Operating Activities:
Depreciation & Amortization 30,823 34,834
Taxes on Income 19,900 0
Increase (Decrease) In Cash Due To
Changes In:
Accounts Receivable (265,507) (135,136)
Inventories (200,279) 26,457
Prepaid Expenses & Other (18,886) (14,477)
Accounts Payable 296,313 433
Accrued Liabilities 21,226 16,123
Deferred Revenues (59,945) (25,500)
--------- ---------
Net Cash (Used) By Operating Activities (153,865) (27,095)
Cash Flows From Investing Activities
Acquisition of McTub 49% interest (65,000) 0
Purchase Of Property & Equipment (9,206) (14,773)
Payments On Notes Receivable 26,098 7,848
--------- ---------
Net Cash (Used In) Provided By Investing Activities (48,108) (6,925)
Cash Flows From Financing Activities:
Payments On Long-Term Debt (205,389) (32,233)
--------- ---------
Net Cash (Used In) Financing Activities (205,389) (32,233)
--------- ---------
Net (Decrease) In Cash (407,362) (66,253)
Cash and Equivalents, at beginning of period 864,229 793,494
--------- ---------
Cash and Equivalents, at end of period $ 456,867 $ 727,241
========= =========
<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 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, 1998 and February 28, 1997 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, 1997 and the Form 10-KSB as of November 30,
1997.
2. ACCOUNTING FOR INCOME TAXES
The Company has acquired net operating loss carry forwards relating to the
SYF merger of approximately $876,000 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. In the three
months ending February 28, 1998, the Company had taxable income of
approximately $42,000 which resulted in a reduction of goodwill of $19,900.
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 $892,000 relating to losses incurred subsequent to the SYF
acquisition which expires beginning in 2006.
3. MARKETABLE SECURITIES
The Company has classified its marketable debt as available-for-sale and are
reported at fair market value with unrealized gains or losses reported as a
component of stockholders' equity. Available-for-sale securities are
comprised of corporate bonds. During the three months ending February 28,
1998, and the year ending November 30, 1997, there were no realized or
unrealized gains or losses reported as cost approximated fair value.
4. LITIGATION SETTLEMENT
In January 1998, the Company entered into a release and settlement agreement
with Patrick J. McCourt (McCourt), minority shareholder of McTub Company, in
connection with the litigation between the Company and McCourt. The agreement
required the Company to pay McCourt the sum of $200,000 which constitutes
repayment of the principle of a term
-7-
<PAGE>
note dated in October 1993. Also, in connection with the agreement, the
Company paid McCourt $65,000 for his 49% interest in McTub Company. The
agreement discharges and releases the Company from any and all claims with
McCourt.
-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, 1997.
FINANCIAL CONDITION
Cash and Equivalents, Certificates of Deposit, and Investments decreased by
$407,362 for the three months ended February 28,1998, as compared with a
decrease of $66,253 for the three months ended February 28, 1997. The current
period decrease in the Company's cash position resulted primarily from the
commencement of operation on February 1, 1998, of Subperior Distribution
Systems, Inc., ("SDS"), the Company's new food distribution subsidiary, and
the release and settlement of litigation, (see note #4 of the Consolidated
Financial Statements).
Excluding the sales resulting from SDS's first month of operations,
consolidated revenues decreased by $63,123 primarily as a result of decreased
Restaurant Food Sales of $53,811. Two company-owned restaurants were sold to
franchisees in the third and fourth quarters of 1997. First quarter 1997
sales resulting from these Company-owned restaurants totaled $57,522. Other
fluctuations of lesser significance are explained below.
With six new franchised Tubby's Subs Shops opening in Windsor, Ontario,
Missouri and in Michigan during the first three months of 1998, the Company's
increased efforts to develop the Southeastern Michigan region as well as
other out-of-state areas are successfully continuing. The Company views the
results of SDS's first month of operations to be very encouraging, also. SDS
personnel were able to quickly and effectively resolved the start-up glitches
that are common in most new operations of this magnitude. SDS's results are
explained below.
At February 28, 1998, the Company operated five restaurants and franchised
eighty-eight restaurants. Franchised restaurants are located in Michigan,
Missouri, Arizona, Ohio, Pennsylvania, Indiana, New Jersey and the Canadian
provinces of Ontario and British Columbia.
Results of operations for the three months ended February 28, 1998 as
compared with the three months ended February 28, 1997.
Revenues for the three months ended February 28, 1998, increased by 34% to
$1,232,678. Income Before Taxes On Income decreased by 40% to $42,390 as
compared to the same period in 1997. The increase in Total Revenues was
attributable to:
o SDS's first month of operation resulting in sales of $375,808.
o A $53,811 or 21% decrease in Food Sales resulted primarily from the
sale of two Company-
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<PAGE>
owned restaurants to franchisees in the third and fourth quarters of
1997.
o A $31,193 or 18% increase in Monthly Franchise Fees resulting from the
improved food sales of existing restaurants and food sales of new
restaurants opened in the past year. Franchise Fees are determined based
upon food sales.
o A $6,001 or 13% increase in Initial Franchise Fees resulting from the
opening of six new franchisee-owned Tubby's Sub Shops in the three
months ending February 28, 1998, as compared to five restaurants that
opened in the same period in 1997.
o A $31,502 or 15% decrease in Equipment & Restaurant Sales resulting
from a change in Company policy regarding construction at franchised
restaurants. Prior construction costs were paid by Tubby's and then
reimbursed by the franchisee to the Company. Construction costs
pertaining to the new restaurants that opened in the first quarter of
1998 were paid directly by the franchisees.
o A $18,474 or 12% increase in Advertising Fees resulting from the
improved food sales of existing restaurants and food sales of new
restaurants opened in the past year. Advertising Fees are determined
based upon food sales and are recognized only to the extent of expenses
incurred.
o A $33,478 or 38% decrease in Commissions & Other Fees resulting from
the vendor commissions being recognized in SDS as a reduction of Cost Of
Distribution Food Sales rather then as a source of income.
Total Costs & Expenses increase by $335,244 or 38%. As a percentage of Total
Revenue, Total Costs & Expenses increased from 97% of Total Revenue in 1997
to 99% in 1998. Operating Income decreased to $8,705 from an Operating Income
of $31,264 in the prior year.
o Operating Expenses increased by $94,388 or 17% in 1998, though as a
percentage of Total Revenues the category decreased to 52% in 1998 from
59% in 1997. This percentage decrease in Operating Expenses reflects the
increased utilization of existing resources and the fixed nature of
certain ongoing expenses.
o Cost of Restaurant Food Sales as a percentage of Restaurant Food Sales
decreased by 4% in 1998 to 69% of Restaurant Food Sales when compared to
1997 results.
o Cost of Distribution Food Sales was 80% of Distribution Food Sales in
SDS's first month of operation.
o Cost of Equipment Sales decline as a percentage of Equipment & Restaurant
Sales from 78% in 1997 to 85% in 1998 reflecting decreased gross profit
margins.
o Interest Expense decreased by $1,873 or 34% from 1997 to 1998
reflecting the continued reduction of long term debt. The Company has
entered into a commitment for the purchase of the building that houses
its corporate headquarters for the total cost of $425,000. Long term
financing will be obtained in connection with the purchase of the
building and, as a result, interest expense will increase.
-10-
<PAGE>
o Interest Income derived from the investment of idle funds decreased in
1998 as compared to 1997 and is expected to decline further in the
remainder of 1998. Less idle funds are available resulting primarily
from the commencement of operation on February 1, 1998, of SUBperior
Distribution Systems, Inc., ("SDS"), the Company's new food distribution
subsidiary, and the release and settlement of litigation, (see note #4
of the Consolidated Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
Cash and Equivalents, Certificates of Deposit, and Investments decreased by
$407,362 for the three months ended February 28,1998, as compared with a
decrease of $66,253 for the three months ended February 28, 1997. The current
period decrease in the Company's cash position resulted primarily from the
commencement of operation on February 1, 1998, of SUBperior Distribution
Systems, Inc., ("SDS"), the Company's new food distribution subsidiary, and
the release and settlement of litigation, (see note #4 of the Consolidated
Financial Statements).
With the startup of the SDS distribution entity, Accounts Receivable,
Inventory and acquisitions utilized approximately $215,000 of the cash
reserves of the Company. The release and settlement of the litigation
referred to above utilized an additional $265,000 of cash reserves. Other
uses of Company liquidity include the pre-payment of franchise development
expenses, the reduction of Deferred Revenues, and the reduction of long term
debt. The prepayment of franchise development expenses is expected to
decrease over the remaining three quarters of 1998 due to seasonal nature of
the Company's expansion efforts. The Company anticipates reduced outlays for
new equipment and improvements over the remainder of 1998, also.
In addition to the six new restaurants that opened in the first quarter of
1998, three new Tubby's Sub Shops are expected to open by the end of the
second quarter, five 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
1998 are expected to be owned and operated by franchisees. The Company
anticipates that it will be operating five restaurants and franchising one
hundred restaurants by the end of 1998.
The Company maintains a two $250,000 revolving lines of credit with a local
financial institution. These lines of credit can be drawn upon as needed to
meet future cash requirements. As of April 13, 1998, 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 13, 1998, the Company has three new
locations scheduled to open by May 31, 1998. 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.
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<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, 1998.
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.
SIGNATURES.
TUBBY'S, INC.
/s/ Peter T. Paganes
------------------------------------
By: Peter T. Paganes
Vice President
Dated: April 13, 1998
/s/ Melvyn B. Erdos
------------------------------------
By: Melvyn Erdos
Chief Financial Officer
Dated: April 13, 1998
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> FEB-28-1998
<CASH> $ 562,297
<SECURITIES> 25,383
<RECEIVABLES> 1,243,847
<ALLOWANCES> 54,825
<INVENTORY> 299,698
<CURRENT-ASSETS> 1,729,908
<PP&E> 1,678,973
<DEPRECIATION> 801,551
<TOTAL-ASSETS> 3,400,083
<CURRENT-LIABILITIES> 533,318
<BONDS> 0
<COMMON> 25,832
0
0
<OTHER-SE> 2,642,791
<TOTAL-LIABILITY-AND-EQUITY> 3,400,083
<SALES> 749,626
<TOTAL-REVENUES> 1,270,058
<CGS> 587,197
<TOTAL-COSTS> 640,471
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 3,695
<INCOME-PRETAX> 42,390
<INCOME-TAX> 19,900
<INCOME-CONTINUING> 22,490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,490
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
