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, 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 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 15, 1999, there were 2,583,114 shares of common stock outstanding.
INDEX
TUBBY'S, INC. AND SUBSIDIARIES
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets,
May 31, 1999 and November 30, 1998 3-4
Consolidated Statements of Operations,
Three Months and Six Months Ended May 31, 1999
and May 31, 1998 5
Consolidated Statements of Cash Flows,
Six Months Ended May 31, 1999 and
May 31, 1998 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II - OTHER INFORMATION
Item 4. Submission of matters to vote of Securities Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS (UNAUDITED).
Tubby's INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, November 30,
1999 1998
ASSETS (Unaudited) (Note)
- ------------------------------------------ ----------- -------------
Current Assets
Cash and Equivalents $ 894,704 $ 692,196
Certificate of Deposit 111,199 111,199
Accounts Receivable - Trade,
less allowance for doubtful
accounts of $60,080 and $59,580 728,639 702,990
Inventories 357,293 328,280
Prepaid expenses and other 54,588 93,289
Notes receivable 55,256 59,721
---------- ----------
Total Current Assets 2,201,679 1,987,675
---------- ----------
Property and Equipment
Land 187,684 187,684
Buildings and Improvements 689,514 689,514
Equipment 499,572 498,354
Furniture and Fixtures 142,649 140,815
Vehicles 11,509 11,509
---------- ----------
1,530,928 1,527,876
Less: accumulated depreciation 906,916 861,659
---------- ----------
Net Property & Equipment 624,012 666,217
---------- ----------
Other Assets
Goodwill, less amortization of
$214,586 and $112,370 161,450 263,666
Notes Receivable, less allowance
for doubtful accounts of $20,000
and $20,000 386,308 408,733
---------- ----------
Total Other Assets 547,758 672,399
---------- ----------
Total Assets $3,373,449 $3,326,291
========== ==========
See Accompanying Notes to Consolidated Financial Statements
Tubby's INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
May 31, November 30,
LIABILITIES & STOCKHOLDERS' EQUITY 1999 1998
(Unaudited) (NOTE)
- ------------------------------------ ----------- ------------
Current Liabilities
Accounts Payable $ 314,960 $ 379,176
Accrued Liabilities:
Compensation 41,623 20,738
Other 32,988 24,695
Deferred Revenue 44,348 114,954
Long-Term Debt due within one year 11,988 11,455
----------- -----------
Total Current Liabilities 445,907 551,018
Deferred Revenue 32,000 40,000
Long-Term Debt, less amounts
due in one year 114,282 120,346
----------- -----------
Total Liabilities 592,189 711,364
----------- -----------
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) (730,416) (896,749)
----------- -----------
Total Stockholders' Equity 2,781,260 2,614,927
----------- -----------
Total Liabilities and
Stockholders' Equity $ 3,373,449 $ 3,326,291
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
-4-
<TABLE>
<CAPTION>
TUBBY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
------------------------- ---------------------------
May 31, May 31, May 31, May 31,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product Sales $ 1,603,016 $ 1,264,929 $ 3,005,933 $ 1,640,737
Franchise Fees:
Monthly 253,841 183,718 466,239 391,675
Initial 28,000 22,500 87,000 74,501
Food Sales 198,518 192,685 393,971 392,431
Advertising Fees 191,099 166,171 396,198 335,294
Equipment and Restaurant
Sales 34,415 112,077 91,611 286,149
Commissions & Other Fees 59,619 38,204 86,369 70,881
----------- ----------- ----------- -----------
Total Revenues 2,368,508 1,980,284 4,527,321 3,191,668
----------- ----------- ----------- -----------
Costs & Expenses:
Cost of Product Sales 1,211,445 980,754 2,267,476 1,281,747
Operating Expenses 859,999 815,672 1,701,825 1,452,448
Cost of Food Sales 122,556 155,765 252,364 255,229
Cost of Equipment &
Restaurant Sales 30,663 81,378 77,819 228,901
----------- ----------- ----------- -----------
Total Costs & Expenses 2,224,663 2,033,569 4,299,484 3,218,325
----------- ----------- ----------- -----------
Operating Income (Loss) 143,845 (53,285) 227,837 (26,657)
Other Income (Expense):
Interest Expense (3,025) (1,136) (6,054) (4,831)
Interest Income 15,590 11,703 30,237 31,160
----------- ----------- ----------- -----------
Total Other Income (Expense) 12,565 10,567 24,183 26,329
----------- ----------- ----------- -----------
Income (Loss) Before Taxes
on Income 156,410 (42,718) 252,020 (328)
Taxes on Income 53,179 (19,900) 85,687 0
----------- ----------- ----------- -----------
Net Income (Loss) $ 103,231 $ (22,818) $ 166,333 $ (328)
=========== =========== =========== ===========
Earnings (Loss) Per Share
Basic & Diluted $ 0.04 $ (0.01) $ 0.06 $ 0.00
=========== =========== =========== ===========
Weighted Average Commo
Shares Outstanding 2,583,114 2,583,114 2,583,114 2,583,114
=========== =========== =========== ===========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
-5-
TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
-----------------------
May 31, May 31,
1999 1998
--------- ----------
Cash Flows From Operating Activities:
Net Income (Loss) $ 166,333 $ (328)
Adjustments To Reconcile Net Income(Loss)
To Net Cash Used and Provided By Operating
Activities:
Depreciation & Amortization 61,786 78,367
Taxes on Income 85,687 0
Increase (Decrease) In Cash Due To
Changes In:
Accounts Receivable (25,649) (172,927)
Inventories (29,013) (314,710)
Prepaid Expenses & Other 38,701 (63,340)
Accounts Payable (64,216) 383,618
Accrued Liabilities 29,178 42,906
Deferred Revenues (78,606) (35,982)
--------- ---------
Net Cash (Used In) Provided By Operating
Activities 184,201 (82,396)
Cash Flows From Investing Activities
Sale of Certificate of Deposits 0 (1,683)
Acquisition of McTub 49% interest 0 (65,000)
Purchase Of Property & Equipment (3,052) (17,111)
Payments On Notes Receivable 26,890 45,681
--------- ---------
Net Cash (Used In) Provided by Investing
Activities 23,838 (38,113)
Cash Flows From Financing Activities:
Payments On Long-Term Debt (5,531) (210,849)
--------- ---------
Net Cash (Used In) Financing Activities (5,531) (210,849)
--------- ---------
Net (Decrease) Increase In Cash 202,508 (331,358)
Cash and Equivalents, at beginning of period 692,196 864,229
--------- ---------
Cash and Equivalents, at end of period $ 894,704 $ 532,871
========= =========
See Accompanying Notes to Consolidated Financial Statements
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 conformance 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,
1999 and May 31, 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 operating income, the related tax benefit will first be
credited to goodwill until fully eliminated and then to income. In the six
months ending May 31, 1999, the Company had taxable income of approximately
$252,000 that resulted in a reduction of goodwill of approximately $85,700.
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 $640,000 relating to losses incurred subsequent to the SYF
acquisition which expire beginning in 2006.
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 $425,000. However, the
seller claimed that the Company failed to strictly comply with the written
option to purchase. As a result, the Company commenced a civil action against
the seller to enforce the seller's obligation to sell the building to the
Company and is awaiting a trial date. If the Company prevails in its
litigation, it expects to finance the cost of the building
4. PROPOSED MERGER
On May 5, 1999, the Company announced that the proposed merger between the
Company and Interfoods of America, Inc., a Miami based Popeye's Chicken
franchisee, which was previously announced by both Companies on December 16,
1998, had been canceled. At the same time, the company announced a new
proposed merger between it and a private Michigan corporation, R Corp, whose
shareholders include certain members of Tubby's current management. Pursuant
to this proposed merger, all of the shareholders of Tubby's, other than
shareholders that are shareholders of R Corp, would receive cash in exchange
for their shares. The Company announced that, although the
-7-
price per share had not been definitively set, the shares would be valued at
somewhere between eighty cents and a dollar ($.80 -- $1.00) and that,
ultimately, the proposed merger would be subject to a vote of the Company's
shareholders. On July 16, 1999, the Company definitively established the
merger price at $1.10 per share. The proposed merger is contingent on
receiving a fairness opinion from an independent valuation firm and a written
commitment from a lender for adequate financing to complete the proposed
merger. After those contingencies are satisfied, the Company intends to file
a preliminary Proxy Statement and to present the proposed merger for a vote
of the Company's Shareholders.
-8-
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
$202,508 for the six months ended May 31,1999, compared with a decrease of
$331,358 for the six months ended May 31, 1998. The current period increase
in the Company's cash position resulted primarily from net income of
$166,333, non-cash expenses of depreciation and amortization of $61,786 and
federal tax expense of $85,687 and from decreases in accounts payable of
$64,216 and in deferred revenue of $78,606.
Consolidated Revenues increased by $1,335,653 primarily as a result of an
increase in SDS Product Sales of $1,365,196. Consolidated Expenses increased
by $1,081,159 primarily due to an increase in Cost of Product Sales of
$985,729. Other fluctuations of lesser significance are explained below.
The Company opened ten new franchised stores during the first six months of
1999 compared to six stores in the first six months of 1998 and has signed
franchise agreements for an additional six with projected opening dates
during the third and fourth quarter 1999. Five franchised stores were closed
during the first six months of 1999 compared to three in 1998 and one
previously closed store was re-opened.
At May 31, 1999, the Company operated three restaurants and franchised
ninety-one restaurants. Franchised restaurants are located in Michigan,
Missouri, Nebraska, Iowa, Florida, Arizona, New Jersey and the Canadian
province of Ontario.
Results of operations for the three months ended May 31, 1999 as compared
with the three months ended May 31, 1998.
The current three-month period shows a Net Income of $103,231 as compared to
a Net Loss of $22,818 in the same three months of the prior year.
Revenues for the three months ended May 31, 1999 increased by $388,224 or
19.6% to $2,368,508. The increase in Revenues was attributable to:
o An increase in SDS Product Sales for the quarter of $338,087 or 26.7%
due to additional products stocked by SDS in second quarter 1999
compared to second quarter 1998.
o Monthly Franchise Fees for the quarter were $253,841 and Advertising
fees were $191,099, up 38.2% and 15.0%, respectively, from the same
period last year. These increases reflect the income derived from the
increased franchisee food sales resulting from the advertising efforts
of the Company and the additional monthly fees derived from its new
franchisees. As successful new franchised Tubby's Sub Shops are opened,
Monthly Franchise Fees and Advertising fees are expected to increase,
accordingly.
-9-
o Equipment and Restaurant Sales decreased $77,662 or 69.3% for the three
months ended May 31, 1999 as compared to the three months ended May 31,
1998 despite the increase in the number of stores opened (six in second
quarter 1999 compared to three in second quarter 1998). The decrease is
a result of the continuing trend toward building the lower cost,
non-traditional Tubby's Sub Shops rather than the traditional type. In
addition, many of the stores opened in the second quarter 1999 were
out-of-state stores which elected to handle store
construction/renovations and some of the equipment purchases internally
rather than through The Subline Company.
Total Costs & Expenses for the three months ended May 31, 1999 increased by
$191,094 or 9.4% compared to the three months ended May 31, 1998. The
increase in Total Costs was attributable to:
o Cost of Product Sales was $1,211,445 or 75.6% of Product Sales for the
three months ended May 31, 1999 compared to $980,754 or 77.5% for the
three months ended May 31, 1998. The increase of $230,691 represents
increased sales, primarily through sales of additional stock items,
during second quarter 1999 compared to second quarter 1998. The
decrease in cost of product sold as a percentage of sales represents
the continued efforts to provide quality products at a lower cost.
o Operating expenses increased by $44,327 or 5% reflecting increases in
Advertising and Commissions paid to Development Agents and decreases in
Bad Debt Expense and Shareholder Compliance Costs.
o The Cost of Restaurant Food Sales decreased in second quarter 1999,
compared to 1998, by $33,209 or 21.3%. This is primarily because a
company owned store, open in second quarter 1998 and incurring Cost of
Food of $42,377, was closed June 1998.
o Cost of Equipment Sales increased as a percentage of Equipment &
Restaurant Sales from 73% in 1998 to 89% in 1999 reflecting decreased
gross profit margins.
Results of Operations for the six months ended May 31, 1999 as compared to
the six months ended May 31, 1998.
The company realized Net Income of $166,333 for the six months ending May 31,
1999 as compared to a Net Loss of $(328) for the six months ending May 31,
1998.
Total Revenues for the six months ending May 31, 1999 increased by $1,335,653
or 41.8% to $4,527,321. The increase in Total Revenues was attributable to:
o An increase in Product Sales of $1,365,196 or 83.2%. The SDS inception
date was February 1998; therefore, there were only four months of SDS
operation in the financial results for the six months ending May 31,
1998 whereas there are six months of operations in the same period
ended May 31, 1999. This represents approximately $820,000 of the
increase. The balance of the increase is due to sales to new stores and
sales of additional products stocked by SDS in 1999 compared to 1998.
o Monthly Franchise fees for the six months ended May 31, 1999 were
$466,239 and Advertising Fees were $396,198, up 19.0% and 18.2%,
respectively. These increases reflect the income
-10-
derived from the increased franchisee food sales resulting from the
advertising efforts of the Company and the additional monthly fees
derived from its new franchisees.
o Equipment and Restaurant Sales decreased $194,538 or 68.0% for the six
months ended May 31, 1999 as compared to the six months ended May 31,
1998 despite the increase in the number of stores opened (ten in 1999
compared to six in 1998). The decrease is a result of the continuing
trend toward building the lower cost, non-traditional Tubby's Sub Shops
rather than the traditional type. In addition, many of the stores
opened in the first and second quarters of 1999 were out-of-state
stores which elected to handle store construction/renovations and some
of the equipment purchases internally rather than through The Subline
Company.
Total Costs & Expenses for the six months ended May 31, 1999 increased by
$1,081,159 or 33.6% as compared to the six months ended May 31, 1998.
o Cost of Product Sales was $2,267,476 or 75.4% of Product Sales for the
six months ended May 31, 1999 compared to $1,281,747 or 78.1% for the
six months ended May 31, 1998. The SDS inception date was February
1998; therefore, there were only four months of SDS operation in the
financial results for the six months ending May 31, 1998, whereas there
are six months of operations in the same period ended May 31, 1999.
This represents approximately $641,000 of the increase. The balance of
the increase is due to cost of additional products stocked by SDS in
1999 compared to 1998.
o Operating Expenses increased by $249,377 or 17.2% in the six months
ended May 31, 1999. Approximately $176,700 of the increase is due to
there being only four months of SDS operations included in the six
months ended May 31, 1998 compared to six months included in the six
months ended May 31, 1999. The balance of the increase is comprised of
increases in Advertising of $89,053 and Commissions paid to Development
Agents of $30,131, as well as a decrease in Shareholder Compliance
Costs of $27,992 and in Bad Debts Expense of $25,204.
o Cost of Equipment Sales increased as a percentage of Equipment &
Restaurant Sales from 80% for the six month period ended May 31, 1998
to 85% in 1999 reflecting decreasing gross profit margins.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Equivalents, Certificates of Deposit, and Investments increased by
$202,508 for the six months ended May 31, 1999, compared with a decrease of
$331,358 for the six months ended May 31, 1998. The current period increase
in the Company's cash position resulted primarily from net income of
$166,333, non-cash expenses of depreciation and amortization of $61,786 and
federal tax expense of $85,687 and from decreases in accounts payable of
$64,216 and in deferred revenue of $78,606.
In addition to the ten new restaurants that opened in the first six months of
1999, six new Tubby's Sub Shops are expected to open by the end of the fourth
quarter. All six of these restaurants will be owned and operated by
franchisees. These stores have elected to contract construction/renovations
themselves rather than using The Subline Company.
The Company maintains a $250,000 revolving line of credit with a local
financial institution. The line
-11-
of credit can be drawn upon as needed to meet future cash requirements. As of
July 15, 1999, the entire line of credit was available to the Company.
On June 30, 1999, the Company purchased one of its high volume stores from a
franchisee for a total purchase price of $220,000 cash. This store will be
used as the Company's primary training facility.
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. Certain purchased
software packages will need to be upgraded to the year 2000 compliant
versions. 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 is in the process of contacting 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.
-12-
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 May 31, 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.
/s/ Robert M. Paganes
---------------------
By: Robert M. Paganes
President/Chief Executive Officer
Dated: July 19, 1999
/s/ Theresa M. Borto
--------------------
By: Theresa M. Borto
Chief Financial Officer
Dated: July 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> MAY-31-1999
<CASH> $ 1,005,903
<SECURITIES> 0
<RECEIVABLES> 1,250,283
<ALLOWANCES> 80,080
<INVENTORY> 357,293
<CURRENT-ASSETS> 2,201,679
<PP&E> 1,530,928
<DEPRECIATION> 906,916
<TOTAL-ASSETS> 3,373,449
<CURRENT-LIABILITIES> 445,907
<BONDS> 0
<COMMON> 25,832
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,373,449
<SALES> 1,835,949
<TOTAL-REVENUES> 2,368,508
<CGS> 1,364,664
<TOTAL-COSTS> 2,224,663
<OTHER-EXPENSES> 859,999
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,025
<INCOME-PRETAX> 156,410
<INCOME-TAX> 53,179
<INCOME-CONTINUING> 103,231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,231
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
