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, 1999
-----------------
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
of incorporation or organization) Identification 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 13, 1999, 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, 1999 and November 30, 1998 3-4
Consolidated Statements of Operations,
Three Months Ended February 28, 1999
and February 28, 1998 5
Consolidated Statements of Cash Flows,
Three Months Ended February 28, 1999
and February 28, 1998 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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS (UNAUDITED).
TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28 November 30,
1999 1998
ASSETS (Unaudited) (Note)
- -------------------------------------------- ---------- -----------
Current Assets:
Cash and equivalents $ 811,733 $ 692,196
Certificate of deposit 111,199 111,199
Accounts receivable -- trade,
less allowance for doubtful
accounts of $56,160 and $59,580 699,347 702,990
Inventories 345,385 328,280
Prepaid expenses and other 82,694 93,289
Notes receivable 57,447 59,721
---------- ----------
Total Current Assets 2,107,805 1,987,675
---------- ----------
Property and Equipment
Land 187,684 187,684
Buildings & improvements 689,514 689,514
Equipment 498,354 498,354
Furniture & fixtures 140,815 140,815
Vehicles 11,509 11,509
---------- ----------
1,527,876 1,527,876
Less: accumulated depreciation 884,900 861,659
---------- ----------
Net Property & Equipment 642,976 666,217
---------- ----------
Other Assets
Goodwill, less amortization of
$153,143 and $112,370 222,893 263,666
Notes Receivable, less allowance
for doubtful accounts of
$20,000 and $20,000 397,814 408,733
---------- ----------
Total Other Assets 620,707 672,399
---------- ----------
Total Assets $3,371,488 $3,326,291
========== ==========
See Accompanying Notes to Consolidated Financial Statements
-2-
<PAGE>
TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28, November 30,
1999 1998
LIABILITIES & STOCKHOLDERS' EQUITY (Unaudited) (Note)
- ------------------------------------ ----------- -------------
Current Liabilities
Accounts payable $ 419,204 $ 379,176
Accrued liabilities:
Compensation 38,752 20,738
Other 23,542 24,695
Deferred revenue 50,923 114,954
Long-term debt due within one year 11,724 11,455
----------- -----------
Total Current Liabilities 544,145 551,018
Deferred Revenue 32,000 40,000
Long-Term Debt, less amounts
due in one year 117,314 120,346
----------- -----------
Total Liabilities 693,459 711,364
----------- -----------
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) (833,647) (896,749)
----------- -----------
Total Stockholders' Equity 2,678,029 2,614,927
----------- -----------
Total Liabilities and
Stockholders' Equity $ 3,371,488 $ 3,326,291
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
-4-
<PAGE>
TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended,
February 28, February 28,
1999 1998
------------- -------------
Revenues:
Product sales $ 1,402,917 $ 375,808
Franchise fees:
Monthly 212,398 207,957
Initial 59,000 52,001
Food sales 195,453 199,746
Advertising fees 205,099 169,123
Equipment and restaurant sales 57,196 174,072
Commissions & other fees 26,750 71,894
----------- -----------
Total Revenues 2,158,813 1,250,601
----------- -----------
Costs & Expenses:
Cost of product sales 1,056,031 300,993
Operating expenses 841,826 636,776
Cost of food sales 129,808 138,681
Cost of equipment & restaurant sales 47,156 147,523
----------- -----------
Total Costs & Expenses 2,074,821 1,223,973
----------- -----------
Operating Income 83,992 26,628
Other Income (Expense):
Interest Expense (3,029) (3,695)
Interest Income 14,647 19,457
----------- -----------
Total Other Income (Expense) 11,618 15,762
----------- -----------
Income Before Taxes on Income 95,610 42,390
Taxes on Income 32,508 19,900
----------- -----------
Net Income 63,102 22,490
=========== ===========
Basic and Diluted Earnings Per Share $ 0.02 $ 0.01
=========== ===========
Weighted Average Common Shares Outstanding 2,538,114 2,583,114
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
-5-
<PAGE>
TUBBY'S, INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended,
February 28, February 28,
1999 1998
----------- ------------
Cash Flows From Operating Activities:
Net Income $ 63,102 $ 22,490
Adjustments To Reconcile Net Income To Net
Cash provided by (used in) Operating Activities:
Depreciation & Amortization 31,506 30,823
Taxes on Income 32,508 19,900
Increase (Decrease) In Cash Due To
Changes In:
Accounts Receivable 3,643 (265,507)
Inventories (17,105) (200,279)
Prepaid Expenses & Other 10,595 (18,886)
Accounts Payable 40,028 296,313
Accrued Liabilities 16,861 21,226
Deferred Revenues (72,031) (59,945)
--------- ---------
Net Cash Provided by (Used In) Operating
Activities 109,107 (153,865)
Cash Flows From Investing Activities
Acquisition of partnership interest 0 (65,000)
Purchase Of Property & Equipment 0 (9,206)
Payments On Notes Receivable 13,193 26,098
--------- ---------
Net Cash Provided by (Used In) Investing Activities 13,193 (48,108)
Cash Flows From Financing Activities:
Payments On Long-Term Debt (2,763) (205,389)
--------- ---------
Net Cash (Used In) Financing Activities (2,763) (205,389)
--------- ---------
Net Increase (Decrease) In Cash and Equivalents 119,537 (407,362)
Cash and Equivalents, at beginning of period 692,196 864,229
--------- ---------
Cash and Equivalents, at end of period $ 811,733 $ 456,867
========= =========
See Accompanying Notes to Consolidated Financial Statements
-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 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
February 28, 1999 and February 28, 1998 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, 1998 and the Form 10-KSB as of November 30,
1998.
2. ACCOUNTING FOR INCOME TAXES
The Company has acquired net operating loss carry forwards relating to the
SYF merger of approximately $670,000 which are available to offset future
taxable income. However, to the extent such loss carry-forwards are utilized
to reduce future taxable 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, 1999, the Company had taxable income of
approximately $95,600 which resulted in a reduction of goodwill of
approximately $32,500. 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 expire from 2006 through 2009.
As a result of the proposed merger discussed in Note 4, the availability of
the net operating loss carry-forwards may be limited.
3. LITIGATION
During 1998, the Company exercised its option to purchase the building that
houses its corporate headquarters for a total cost of $425,000. However, the
seller claimed that the Company failed to strictly comply with the written
option to purchase. As a result, the Company commenced a civil action against
the seller to enforce the seller's obligation to sell the building to the
Company and is awaiting a trial date. If the Company prevails in its
litigation it expects to finance the cost of the building.
-7-
<PAGE>
4. Proposed Merger
In December 1998, the Company and Interfoods of America, Inc. ("Interfoods")
entered into a proposed merger agreement which is subject to, among other
things, approval by the shareholders of both parties. Under the terms of the
proposed merger, Tubby's shall issue to Interfoods one new share of common
stock (after giving effect to a planned one for five reverse stock split by
Tubby's) for each two shares of outstanding Interfoods stock. The surviving
corporation (Tubby's) will have approximately 3,300,000 outstanding shares
(of which Tubby's shareholders will own approximately nineteen percent).
Simultaneously with the merger, the surviving corporation (Tubby's) shall
change its name to Interfoods of America, Inc. and shall sell all of Tubby's
pre-merger assets to a related entity, the principles of which include
certain members of Tubby's current management, at a purchase price of
$2,500,000. The cash flow impact of this agreement includes Tubby's portion
of merger costs such as legal, accounting and other professional fees which
is limited to $50,000 by the agreement.
-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, 1998.
FINANCIAL CONDITION
Cash and Equivalents, Certificates of Deposit, and Investments increased by
$119,537 for the three months ended February 28, 1999, as compared with a
decrease of $407,362 for the three months ended February 28, 1998. The
current period increase in the Company's cash position resulted primarily
from net income of $63,102, and from non-cash expenses of depreciation and
amortization of $31,506, and federal tax expense of 32,508.
Consolidated revenues for the first quarter of 1999 increased by $908,212 or
72.6% compared to the first quarter of 1998. The primary reason for the
increase in revenues is that SUBperior Distribution Systems, Inc.("SDS") was
in full operation for three months during first quarter 1999 but was only
operating for one month in first quarter 1998 (inception date was February
1998). SDS Product sales in first quarter 1999 were $1,402,917 compared to
$375,808 contributing $1,027,109 of the overall increase in consolidated
revenues. Other fluctuations of lesser significance are explained below.
The Company opened four new franchised stores during first quarter 1999
compared to three in first quarter 1998 and has signed franchise agreements
for an additional eight with projected opening dates during the second
quarter of 1999. Four franchised stores were closed during first quarter
1999, compared to two closings in first quarter 1998. At February 28, 1999,
the Company operated three restaurants and franchised eighty-five
restaurants. Franchised restaurants are located in Michigan, Missouri,
Arizona, Ohio, Florida, New Jersey and the Canadian province of Ontario.
Results of operations for the three months ended February 28, 1999 as
compared with the three months ended February 28, 1998.
Revenues for the three months ended February 28, 1999, increased by 72.6% to
$2,158,813. Income Before Taxes On Income increased by 126% to $95,610 as
compared to the same period in 1998. The increase in Total Revenues was
attributable to:
o SDS Product sales increased by $1,027,109 or 273%. This is primarily
due to the fact that there are three months of operation in first
quarter 1999 but only one month of operation in first quarter 1998
(inception date of SDS was February 1998).
o Initial franchise fees increased 13.5% to $59,000. This is the result
of recognition of initial fees on the four stores that opened during
first quarter 1999 as well as recognition of the Development Agent
("DA") portion of the initial fee at the time the company paid the DA.
The DA portion of the initial fee is due not later than twenty days
following receipt of
-9-
<PAGE>
the signed franchise agreement and the initial fee from the franchisee.
In first quarter 1999 there were ten such initial fees compared to five
in first quarter 1998.
o A $35,976 or 21.3% increase in Advertising fees is the result of an
increase in the number of stores which are generally required to pay
advertising fees equal to the greater of $100 per week or 3 1/2% of
total weekly adjusted gross sales, as well as an overall increase in
store sales.
o A $116,876 or 67% decrease in Equipment & Restaurant Sales is the
result of the continuing trend toward building the lower cost
non-traditional Tubby's Sub Shops rather than the traditional Tubby's
Sub Shop. In addition, many of the new franchisees, particularly the
growing number of out-of-state stores, are electing to handle store
construction/improvments on their own rather than using the Subline
Company, reducing purchases from Subline to equipment only.
o A $45,144 or 63% decrease in Commissions & Other Fees resulting
primarily from the vendor commissions being recognized in SDS
(effective February 1, 1998) as a reduction of Cost of Product Sales
rather than as a source of income.
Total Costs & Expenses increase by $850,848 or 69.5%. The percentage of Total
Costs and Expenses to Total Revenue decreased from 98% 1998 to 96% in 1999.
Operating Income increased to $83,992 as compared to $26,628 in the prior
year.
o Cost of Product Sales decreased from 80% in the first quarter of 1998
to 75% in the first quarter of 1999. This is the result of ongoing
purchase price negotiations as well as volume discounts.
o Operating Expenses increased by $205,050 or 32% in 1999, though as a
percentage of Total Revenues the category decreased to 39% in 1999 from
51% in 1998. This percentage decrease in Operating Expenses reflects
the increased utilization of existing resources and the fixed nature of
certain ongoing expenses. The significant changes in operating expenses
include an increase of $100,150 (275%) in outbound freight related to
three months versus one month of SDS operations, an increase of
$85,107(68%) in advertising expenses, an increase of $27,392 (466%) in
commissions paid to Development Agents, a $10,477 (25%) decrease in
Depreciation, and a decrease of $16,299 (109%) in Bad Debts.
o Cost of Food Sales as a percentage of Food Sales decreased from 69% in
first quarter 1998 to 66% in first quarter 1999. The first quarter 1998
included operations of one company-owned store which due to its
physical layout had higher than normal labor costs. That store was
closed in June of 1998 as a result of a lease non-renewal, and
therefore, first quarter 1999 did not include operations of that higher
cost store.
o Cost of Equipment Sales decline as a percentage of Equipment &
Restaurant Sales from 85% in 1998 to 82% in 1999 reflecting increased
gross profit margins.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Equivalents, Certificates of Deposit, and Investments increased by
$119,537 for the three months ended February 28,1999, as compared with an
decrease of $407,362 for the
-10-
<PAGE>
three months ended February 28, 1998. The current period increase in the
Company's cash position resulted primarily from Net income of $63,102 and
non-cash expenses of depreciation and amortization of $31,506 and estimated
federal tax expense of $32,508.
In addition to the four new restaurants that opened in the first quarter of
1999, eight new Tubby's Sub Shops are expected to open by the end of the
second quarter, and four franchise agreements have been signed with projected
opening dates in the third and fourth quarter. All restaurants scheduled to
be opened by the end of 1999 are expected to be owned and operated by
franchisees. These stores have elected to contract construction or
improvements themselves rather than using the Subline Company to do it. If
these stores open as planned, the Company may realize operating income from
the sale of equipment of about $4,500 from each store, as well as initial
licensing fees, and ongoing monthly royalty and advertising fees.
The company believes it has sufficient liquidity to meet the operating needs
of the company in 1999. 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 13, 1999, the
entire line of credit was available to the Company.
During 1998, the Company exercised its option to purchase the building that
houses its corporate headquarters for a total cost of $425,000. However, the
seller claimed that the Company failed to strictly comply with the written
option to purchase. As a result, the Company commenced a civil action against
the seller to enforce the seller's obligation to sell the building to the
Company and is awaiting a trial date. If the Company prevails in its
litigation, it expects to finance the cost of the building.
In December 1998, the Company and Interfoods of America, Inc. ("Interfoods")
entered into a proposed merger agreement which is subject to, among other
things, approval by the shareholders of both parties. Under the terms of the
proposed merger, Tubby's shall issue to Interfoods one new share of common
stock (after giving effect to a planned one for five reverse stock split by
Tubby's) for each two shares of outstanding Interfoods stock. The surviving
corporation (Tubby's) will have approximately 3,300,000 outstanding shares
(of which Tubby's shareholders will own approximately nineteen percent).
Simultaneously with the merger, the surviving corporation (Tubby's) shall
change its name to Interfoods of America, Inc. and shall sell all of Tubby's
pre-merger assets to a related entity, the principles of which include
certain members of Tubby's current management, at a purchase price of
$2,500,000. The cash flow impact of this agreement includes Tubby's portion
of merger costs such as legal, accounting and other professional fees which
is limited to $50,000 by the agreement.
Year 2000
The Company, like most owners of computer hardware and software, will be
required to modify certain portions of its hardware and software so that it
will function properly in the year 2000. The Company is evaluating its system
as to year 2000 compliance. Most of the company's hardware is year 2000
compliant. The Company has no custom programmed software. The Company has
received a letter of assurance from the unrelated company that handles SDS
warehousing and distribution that their system is year 2000 compliant. The
Company plans to contact other third party vendors to evaluate their year
2000 compliance status. Management believes that year 2000 costs will be
immaterial, however, due to the complexities involved, management cannot
provide assurances that the year 2000 issue will not have an impact on the
Company's operation.
-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, 1999.
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.
Robert M. Paganes
-----------------------------
By: Robert M. Paganes
President/CEO
Dated: April 13, 1999
Theresa M. Borto
-----------------------------
By: Theresa M. Borto
Chief Financial Officer
Dated: April 13, 1999
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> FEB-28-1999
<CASH> $ 922,932
<SECURITIES> 0
<RECEIVABLES> 1,230,768
<ALLOWANCES> 76,160
<INVENTORY> 345,385
<CURRENT-ASSETS> 2,107,805
<PP&E> 1,527,876
<DEPRECIATION> 884,900
<TOTAL-ASSETS> 3,371,488
<CURRENT-LIABILITIES> 544,145
<BONDS> 0
<COMMON> 25,832
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,371,488
<SALES> 1,655,566
<TOTAL-REVENUES> 2,173,460
<CGS> 1,232,995
<TOTAL-COSTS> 2,077,850
<OTHER-EXPENSES> 841,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,029
<INCOME-PRETAX> 95,610
<INCOME-TAX> 32,508
<INCOME-CONTINUING> 63,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,102
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
