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, 1998
------------
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 July 13, 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,
May 31, 1998 and November 30, 1997 3-4
Consolidated Statements of Operations,
Three Month's and Six Months Ended May 31, 1998
and May 31, 1997 5
Consolidated Statements of Cash Flows,
Six Months Ended May 31, 1998
and May 31, 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PART II - OTHER INFORMATION
Item 4. Submission of matters to vote of Securities Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS (UNAUDITED).
<TABLE>
<CAPTION>
TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, November 30,
1998 1997
ASSETS (Unaudited) (Note)
- ----------------------------------------------- ----------- -----------
<S> <C> <C>
Current Assets
Cash and Equivalents $ 532,871 $ 864,229
Certificate of Deposit 105,398 105,430
Marketable Securities 27,098 25,383
Accounts Receivable - Trade, less
allowance for doubtful accounts of
$57,427 in 1998 and $36,740 in 1997 616,737 443,810
Notes Receivable 62,878 66,217
Inventories 414,129 99,419
Prepaid Expenses & Other 114,789 51,449
---------- ----------
Total Current Assets 1,873,900 1,655,937
---------- ----------
Property and Equipment
Land 325,347 325,347
Buildings & Improvements 663,754 663,753
Equipment 546,825 527,265
Furniture & Fixtures 139,444 138,394
Vehicles 11,509 15,009
---------- ----------
1,686,879 1,669,768
Less: accumulated depreciation 829,997 773,576
---------- ----------
Net Property & Equipment 856,882 896,192
---------- ----------
Other Assets
Goodwill, less amortization
of $103,064 and $81,118 in
1998 and 1997 272,972 229,918
Notes Receivable, less allowance for
doubtful accounts of $10,000 in
1998 and $-0- in 1997 501,000 543,342
---------- ----------
Total Other Assets 773,972 773,260
---------- ----------
Total Assets $3,504,754 $3,325,389
========== ==========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
May 31, November 30,
LIABILITIES & STOCKHOLDERS' EQUITY 1998 1997
(Unaudited) (NOTE)
- ------------------------------------- ----------- -----------
<S> <C> <C>
Current Liabilities
Accounts Payable $ 490,025 $ 106,407
Accrued Liabilities:
Compensation 21,541 19,887
Other 57,405 16,153
Deferred Revenue 92,007 115,489
Long-Term Debt due within one year 17,640 220,520
----------- -----------
Total Current Liabilities 678,618 478,456
Deferred Revenue 48,367 60,867
Long-Term Debt, less amounts due
in one year
131,963 139,932
----------- -----------
Total Liabilities 858,948 679,255
----------- -----------
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) (865,870) (865,542)
----------- -----------
Total Stockholders' Equity 2,645,806 2,646,134
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,504,754 $ 3,325,389
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TUBBY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Month ended Six Month ended
-------------------------- ---------------------------
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Restaurant Food Sales $ 192,685 $ 246,328 392,431 499,885
Distribution Food Sales 1,264,929 0 1,640,737 0
Franchise Fees:
Monthly 183,718 189,793 391,675 366,557
Initial 22,500 42,750 74,501 88,750
Equipment & Restaurant Sales 112,077 120,118 286,149 325,692
Advertising Fees 166,171 158,031 335,294 308,680
Commissions & Other Fees 18,065 14,431 32,819 14,519
----------- ----------- ----------- -----------
Total Revenues 1,960,145 771,451 3,153,606 1,604,083
----------- ----------- ----------- -----------
Costs & Expenses:
Operating Expenses 815,672 612,277 1,452,448 1,154,665
Cost Of Restaurant
Food Sales 155,765 86,761 255,229 186,139
Cost Of Distribution
Food Sales 980,754 0 1,281,747 0
Cost Of Equipment & Restaurant
Sales 81,378 100,448 228,901 260,050
----------- ----------- ----------- -----------
Total Costs & Expenses 2,033,569 799,486 3,218,325 1,600,854
----------- ----------- ----------- -----------
Operating Income (Loss) (73,424) (28,035) (64,719) 3,229
Other Income (Expense):
Interest Expense (1,136) (4,916) (4,831) (10,484)
Interest Income 11,703 11,469 31,160 37,192
Miscellaneous 20,139 23,892 38,062 42,644
----------- ----------- ----------- -----------
Total Other Income (Expense) 30,706 30,445 64,391 69,352
----------- ----------- ----------- -----------
Income (Loss) Before Taxes
on Income (42,718) 2,410 (328) 72,581
Taxes on Income (19,900) 0 0 0
----------- ----------- ----------- -----------
Net Income (Loss) (22,818) 2,410 (328) 72,581
=========== =========== =========== ===========
Earnings (Loss) Per Share --
Basic & Diluted $ (0.01) $ 0.00 $ 0.00 $ 0.03
=========== =========== =========== ===========
Weighted Average Common
Shares Outstanding 2,583,114 2,583,114 2,583,114 2,583,114
=========== =========== =========== ===========
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Month Ended
----------------------
May 31, May 31,
1998 1998
---------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ (328) $ 72,581
Adjustments To Reconcile Net Income To
Net Cash Used and Provided By
Operating Activities:
Depreciation & Amortization 78,367 68,037
Taxes on Income 0 0
Increase (Decrease) In Cash Due To
Changes In:
Accounts Receivable (172,927) (44,931)
Inventories (314,710) 57,929
Prepaid Expenses & Other (63,340) (9,651)
Accounts Payable 383,618 (11,240)
Accrued Liabilities 42,906 7,813
Deferred Revenues (35,982) 4,992
--------- ---------
Net Cash (Used) By Operating Activities (82,396) 145,530
Cash Flows From Investing Activities
Sale of Certificate of Deposits (1,683) 0
Acquisition of McTub 49% interest (65,000) 0
Purchase Of Property & Equipment (17,111) (44,096)
Payments On Notes Receivable 45,681 30,681
--------- ---------
Net Cash (Used In) Provided by
Investing Activities (38,113) (13,415)
Cash Flows From Financing Activities:
Payments On Long-Term Debt (210,849) (47,213)
--------- ---------
Net Cash (Used In) Financing Activities (210,849) (47,213)
--------- ---------
Net (Decrease) Increase In Cash (331,358) 84,902
Cash and Equivalents, at beginning of period 864,229 793,494
--------- ---------
Cash and Equivalents, at end of period $ 532,871 $ 878,396
========= =========
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 May 31,
1998 and May 31, 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. 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 six months ending May 31, 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 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.
-7-
<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
$331,358 for the six months ended May 31,1998, as compared with an increase
of $84,902 for the six months ended May 31, 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). Consolidated Revenues increased by $1,549,523 as a result of
SDS's Product Sales of $1,640,737 and a decrease in Company-owned Restaurant
Food Sales of $107,454. Two Company-owned restaurants were sold to
franchisees in the third and fourth quarters of 1997. Sales in the six months
ended May 31, 1997 resulting from these Company-owned restaurants totaled
$121,608.
With ten new franchised Tubby's Subs Shops opening in Windsor, Ontario,
Missouri and in Michigan during the first six 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 four months 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 May 31, 1998, the Company operated four restaurants and franchised
ninety-one 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 May 31, 1998 as compared
with the three months ended May 31, 1997.
Revenues for the three months ended May 31, 1998, increased by $1,188,694 or
154% to $1,960,145. The increase in Total Revenues was attributable to:
o SDS's first three months of operations resulting in sales of $1,264,929.
o A $53,643 or 22% decrease in Food Sales resulted primarily from the sale
of two Company-owned restaurants to franchisees in the third and fourth
quarters of 1997.
-8-
<PAGE>
o A $20,250 decrease in Initial and Transfer Franchise Fees. The Initial and
Transfer Franchise Fees for the three months ending May 31, 1998 of
$22,500 were attributable to the transfer of one Sub Shop at $3,500 and
the opening of three Sub shops at fees totaling $19,000. The Initial and
Transfer Franchise Fees from the same period of 1997 resulted from the
$6,250 fee from the transfer of one Sub Shop and $26,500 of initial fees
resulting from the opening of five new Sub Shops.
Total Costs & Expenses for the three months ended May 31, 1998 increased by
$1,234,083 or 154% as compared the three months ended May 31, 1997. Operating
Loss increased to $73,424 from an Operating Loss of $28,035 in the prior
year.
o Operating Expenses increased by $203,395 or 33% in 1998. The increase is
primarily due to operating expenses related to the opening of SDS in
February 1998.
o The Cost of Restaurant Food Sales increased in 1998 compared to 1997 due
to vendor commissions being recorded as a reduction in Cost of
Distribution Food Sales through SDS rather than as a reduction in Cost of
Restaurant Food Sales.
o Cost of Distribution Food Sales was 76% of Distribution Food Sales for the
three months ended May 31, 1998.
o Cost of Equipment Sales decreased as a percentage of Equipment &
Restaurant Sales from 84% in 1997 to 73% in 1998 reflecting increased
gross profit margins.
o Interest Expense decreased by $3,780 or 77% from 1997 to 1998 reflecting
the continued reduction of long term debt.
Results of Operations for the six months ended May 31,1998 as compared to the
six months ended May 31, 1997.
The company incurred an Operating Loss of $64,719 and Net Loss of $328 for
the six months ending May 31, 1998 as compared to an Operating Income of
$3,229 and Net Income of $72,581 for the six months ending May 31, 1997.
Total Revenues for the six months ending May 31, 1998 increased by $1,549,523
or 97% to $3,153,606. The increase in Total Revenues was attributable to:
o SDS's first four months of operations resulting in $1,640,737 in
Distribution Food Sales.
o A $107,454 or 21% decrease in Restaurant Food Sales resulted primarily
from the sale of two Company-owned restaurants to franchisees in the third
and fourth quarters of 1997.
o An increase in Monthly Franchise Fees of $25,118 or 7% and in Advertising
Fees of $26,614 or 8% resulting from improved Food Sales of existing
restaurants and Food Sales of new restaurants opened in the past year.
o A $39,543 or 12% decrease in Equipment Sales.
-9-
<PAGE>
Total Costs & Expenses for the six months ended May 31, 1998 increased by
$1,617,471 or 101% as compared to the six months ended may 31, 1997.
o perating Expenses increased by $297,783 or 26% in 1998. Incremental
operating expenses related to SDS operations were approximately $178,000.
The balance of the increase is comprised of increases in commissions paid
to Development Agents, Reserve For Bad Debts, Printing Costs and Salaries,
as well as a decrease in Franchise Development Costs.
o The Cost of Restaurant Food Sales increased in 1998 compared to 1997 due
to vendor commissions being recorded as a reduction in Cost of Food
Distribution through SDS rather than as a reduction in Cost of Restaurant
Food Sales.
o Cost of Distribution Food Sales was 78% of Distribution Food Sales for the
six months ended May 31,1998
o Cost of Equipment Sales remained at 80% of Equipment & Restaurant Sales
for both six month periods.
o Interest Expense decreased by $5,653 or 54% from 1997 to 1998 reflecting
continued reduction of long term debt. The company has entered into a
commitment for the purchase of the building that houses it's 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 in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Equivalents, Certificates of Deposit, and Investments decreased by
$331,358 for the six months ended May 31,1998, as compared with a increase of
$84,902 for the six months ended May, 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 during the first six months of 1998. 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. Increases in Cash and
Equivalents is primarily from Depreciation and Amortization and from payments
on Notes Receivable.
The increase in Cash and Equivalents for the six months ended May 31, 1997
was primarily from Net Income of $72,581, Depreciation and Amortization of
$68,037 and decreases in inventory of $57,929 offset by a $44,931 increase in
Accounts Receivable and Purchases of new equipment of $44,096.
In addition to the ten new restaurants that opened in the first six months of
1998, three new Tubby's Sub Shops are expected to open by the end of the
third quarter and seven Tubby's
-10-
<PAGE>
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 four restaurants and franchising one hundred restaurants by the end
of 1998.
The Company maintains 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 July 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 July 13, 1998, the Company has three new
locations scheduled to open by August 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.
-11-
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following information is furnished with respect to the annual meeting
holders of the registrants, held during May, 1998.
(a) A meeting was held on May 21, 1998
(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 1,965,351 28,113
Peter T. Paganes 1,964,801 28,663
Vincent J. Tatone 1,965,912 27,552
John M. Fayad 1,965,309 28,155
Ronald Boraks 1,960,341 33,123
</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 three
months ended May 31, 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/ Robert M. Paganes
-----------------------
By: Robert M. Paganes
President/Chief Executive Officer
Dated: July 13, 1998
/s/ Theresa M. Borto
-----------------------
By: Theresa M. Borto
Chief Financial Officer
Dated: July 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> MAY-31-1998
<CASH> $ 638,269
<SECURITIES> 27,098
<RECEIVABLES> 1,180,615
<ALLOWANCES> 67,427
<INVENTORY> 414,129
<CURRENT-ASSETS> 1,873,900
<PP&E> 1,686,879
<DEPRECIATION> 829,997
<TOTAL-ASSETS> 3,504,,754
<CURRENT-LIABILITIES> 678,618
<BONDS> 0
<COMMON> 25,832
0
0
<OTHER-SE> 2,619,974
<TOTAL-LIABILITY-AND-EQUITY> 3,504,754
<SALES> 1,569,691
<TOTAL-REVENUES> 1,991,987
<CGS> 1,217,897
<TOTAL-COSTS> 816,808
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,136
<INCOME-PRETAX> (42,718)
<INCOME-TAX> (19,900)
<INCOME-CONTINUING> (22,818)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,818)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
