TUBBYS INC, PRER14A, 2000-02-03

TUBBYS INC
PRER14A, 2000-02-03
EATING PLACES

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 4)

Filed by Registrant [ X ]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commissioner Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14(a)-11(c)

Tubby's, Inc.
------------------------------------------------
(Name of Registrant as Specified in its Charter)

-----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of filing Fee (Check the appropriate box):

[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(I)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to the Exchange Act
Rule 14a--6(i)(3).
[ X ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
[ ] Previously paid.

1) Title of each class of securities to which transaction applies;
Common Stock, par value $0.01
2) Aggregate number of securities to which transaction applies;
2,081,938
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the fee is calculated and state how it was determined); 1/50 of 1
percent of $2,290,131.80
4) Proposed maximum aggregate value of transactions; $2,290,131.80
5) Total fee paid; $458.03

[ ] Fee paid previously with preliminary materials.

[ X ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11 (a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid; $458.03
2) Form, Schedule or Registration Statement No.; Schedule 13E-3
3) Filing Party; Tubby's, Inc.
4) Date Filed; _________________

LETTER TO SHAREHOLDERS OF

Tubby's, Inc.

Dear Shareholders:

We cordially invite you to attend the Annual Meeting of
Shareholders of Tubby's, Inc. ("Tubby's") to be held on ____________, 2000 at
10:00 a.m. at the SI Hotel Newark Arpt, 128 Frontage Road, Newark, New Jersey
07114. First, as explained in the accompanying Proxy Statement, the
Shareholders of Tubby's will be asked to consider and vote upon a proposed
Agreement and Plan of Merger (the "Merger Agreement") providing for the
merger of R Corp with Tubby's, with Tubby's to be the surviving corporation.
The principal aspect of the Merger Agreement is that all shareholders, other
than three current members of Tubby's management who also constitute a
majority of its Board of Directors, will receive cash in exchange for their
shares at the merger price of $1.10 per share. Second, the shareholders will
be asked to elect Directors to serve for the ensuing year, in the event the
proposed merger is not approved.

The Board of Directors of Tubby's and R Corp are affiliated.
Messrs. Robert M. Paganes, Peter T. Paganes and Vincent J. Tatone ("Paganes,
Paganes and Tatone") constitute the Board of Directors of R. Corp and
constitute a majority of Tubby's Board of Directors. If the Merger Agreement
is approved, Paganes, Paganes and Tatone will be the only remaining
shareholders of Tubby's. They will acquire all of the benefits and detriments
of owning all of Tubby's Shares. For example, if Tubby's recent profitability
trend continues (i.e., for the nine months ended August 31, 1999, Tubby's
earned $0.12 per share versus a loss of $0.05 per share for the same period
in 1998), they will benefit from this trend. On the other hand, they will
also be responsible for the repayment of all of the loans required to fund
the Merger Agreement. Therefore, it may be in their best interests to
undervalue the shares for purposes of the merger to the detriment of
unaffiliated shareholders. Because of this inherent conflict of interest, the
terms of the Merger Agreement were determined in the context of the objective
fair market value of Tubby's assets. The Board of Directors of Tubby's sought
and received a fairness opinion from Stout Risius Ross, Inc., an independent
valuation firm, which concluded that the terms of the proposal merger are
fair from a financial point of view to the unaffiliated shareholders of
Tubby's. The Board of Directors also considered the Company's recent
delisting from the NASDAQ Small Cap Market, recent trading activity and the
current and potential future bid prices for the shares. After carefully
considering all of these factors, the Board of Directors of Tubby's concluded
that the Merger is in the best interest of the Shareholders. Accordingly, the
Board of Directors of Tubby's is recommending that the Shareholders vote FOR
approval of the Merger Agreement.

As further described in the Proxy Statement, closing upon the
Merger Agreement will result in all unaffiliated shareholders receiving
cash in exchange for their shares. Each share of Common Stock of Tubby's will
be exchanged for $1.10.

The accompanying Proxy Statement provides a description of the
terms of the proposed Merger and certain additional information to which you
are urged to give your careful attention. Whether or not you are personally
able to attend the Annual Meeting, please complete, sign, date and return the
enclosed Proxy as soon as possible. This action will not limit your right to
vote in person if you wish to attend the Annual Meeting and vote personally.

Very truly yours,

Robert M. Paganes
President and CEO

Dated: __________________

TUBBY'S, INC.
NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS

______, 2000

To the shareholders of Tubby's, Inc.:

You are cordially invited to attend the 2000 Annual Meeting of
Shareholders of Tubby's, Inc. to be held at 10:00 a.m. EST, on ____________,
__________, 2000, at the SI Hotel Newark Arpt, 128 Frontage Road, Newark, New
Jersey 07114, for the following purposes:

1. Consider and vote upon the approval of the Agreement and
Plan of Merger ("Merger Agreement") to merge R Corp with
Tubby's, Inc. ("Tubby's"), pursuant to which Tubby's
shareholders will receive cash in exchange for their shares
at the merger price of $1.10 per share.

2. To elect Directors to serve for the ensuing year and until
their successors are elected in the event the Merger is not
approved; and

3. To transact such other business as may properly come before
the meeting or any adjournment thereof.

The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.

The Board of Directors has fixed the close of business on
February 18, 2000 as the record date for the determination of shareholders
entitled to vote at the Meeting or any adjournment thereof. You are cordially
invited to attend the Meeting. Your vote is important. Whether you plan to
attend the Meeting or not, you are requested to complete, date and sign the
enclosed proxy form and return it promptly in the envelope provided for that
purpose. The enclosed proxy is being solicited on behalf of the Board of
Directors of the Company.

By Order of the Board of Directors

Vincent J. Tatone
Secretary

PROXY STATEMENT

TUBBY'S, INC.
6029 East Fourteen Mile Road
Sterling Heights, Michigan 48312-5801

2000 Annual Meeting of Shareholders

___________, 2000

INTRODUCTION

This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Tubby's, Inc., a New Jersey
corporation (the "Company" or "Tubby's"), to be voted at the 2000 Annual
Meeting of Shareholders of the Company (the "Meeting"), to be held at 10:00
a.m. EST. on ______________, 2000 at the SI Hotel Newark Arpt, 128 Frontage
Road, Newark, New Jersey 07114. The approximate mailing date of this Proxy
Statement is ___________, 2000.

All properly executed proxies received prior to the Meeting will be voted at
the Meeting in accordance with the instructions marked thereon or otherwise
as provided therein.

Unless instructions to the contrary are marked, proxies will be voted for the
approval of the Merger Agreement and for the election of three directors in
the event the Merger Agreement is not approved. Any proxy may be revoked at
any time prior to the exercise thereof by giving written notice to the
Secretary of the Company.

The Directors have fixed the close of business on February 18, 2000, as the
record date for the determination of shareholders entitled to notice of and
to vote at the Meeting and at any adjournment thereof. Shareholders on the
record date will be entitled to one vote for each share held, with no shares
having cumulative voting rights. As of November 30, 1999, the Company had
outstanding 2,583,113 shares of Common Stock, par value $0.01 per share and
approximately 7,000 record holders.

THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

TABLE OF CONTENTS

Page
----
Introduction .................................................... 2
Summary of Proxy Statement ...................................... 4
Special Factors ................................................. 7
Sources and Amounts of Funds and Other Consideration ............ 7
Purpose(s), Alternatives, Reasons and Effects ................... 8
Fairness of Transaction ......................................... 13
Reports, Opinions, Appraisals and Certain Negotiations .......... 15
Interests of Certain Persons in the Merger ...................... 16
Conditions to Merger ............................................ 17
Certain Federal Income Tax Consequences ......................... 17
Dissenters Appraisal Rights ..................................... 17
Business of Tubby's and R Corp. ................................. 17
Consolidated Selected Financial Data of Tubby's, Inc. ........... 18
Market Prices of Tubby's Common Stock ........................... 18
Description of the Transaction .................................. 19
Solicitation of Proxies ......................................... 20
Accounting Treatment ............................................ 21
Previous Contacts Between Tubby's, Interfoods of
America, Inc., and R Corp. .................................... 21
Business of Tubby's ............................................. 22
Management of Tubby's ........................................... 29
Security Ownership of Certain Beneficial Owners and
Management .................................................... 32
Management's Discussion and Analysis of Financial
Condition and Results of Operations of Tubby's ................ 33
Certain Relationships and Related Transactions of
R Corp and Tubby's ............................................ 41
Federal Income Tax Consequences ................................. 42
Legal Matters ................................................... 42
Experts ......................................................... 42
Reports and Board of Directors Meetings ......................... 42
Director's Compensation ......................................... 43
Independent Accountants ......................................... 43
Proposals of Shareholders ....................................... 43
Miscellaneous ................................................... 43
Agreement and Plan of Merger .................................... Appendix A
Fairness Opinion of Stout Risius Ross, Inc. ..................... Appendix B
Financial Statements ............................................ F1 - F36

SUMMARY OF PROXY STATEMENT

Certain information contained in this Proxy Statement is summarized below.
This summary is not intended to be complete and is qualified in all respects
by the detailed information appearing elsewhere in this Proxy Statement and
the annexes hereto. Shareholders are urged to review carefully the entire
Proxy Statement, the Agreement and Plan of Merger, which is attached hereto
as Appendix A and the other annexes hereto. Cross-references in this summary
are to captions in the Proxy Statement.

R Corp

R Corp, a Michigan corporation ("R Corp"), exists only for the
purpose of structuring the Agreement and Plan of Merger. Its shareholders
consist of the following members of Tubby's current management, who also
constitute a majority of Tubby's Board of Directors: Peter T. Paganes,
Chairman of the Board and Executive Vice-President, Vincent J. Tatone,
Director and Corporate Secretary, and Robert M. Paganes, Director, President
and CEO. Messrs. Paganes, Paganes and Tatone ("P, P & T") are the sole
shareholders of R Corp. R Corp does not own and/or operate any restaurants
and has not conducted any business other than its formation and entering into
the Agreement and Plan of Merger. R Corp's address is 6029 E. Fourteen Mile
Road, Sterling Heights, Michigan 48312. R Corp was originally established for
the purpose of acquiring all of the assets of Tubby's from Interfoods of
America, Inc., ("Interfoods") pursuant to a proposed merger between Tubby's
and Interfoods which never proceeded beyond an initial letter of intent, and
was never submitted for consideration to the shareholders of either
corporation. See "Previous Contacts Between Tubby's , Interfoods of America,
Inc., and R Corp."

Tubby's

Tubby's, Inc., a New Jersey corporation ("Tubby's"), wholly-owns
the following subsidiaries: (1) Tubby's Sub Shops, Inc., a Michigan
corporation ("TSSI'"), (2) Sub Line Co., a Michigan corporation ("Sub Line"),
(3) SUBperior Distribution Systems, Inc., a Michigan corporation ("SDS"), and
(4) Tubby's Company Stores, Inc., a Michigan corporation ("Company Stores").
TSSI franchises a chain of restaurants under the name "Tubby's Sub Shops"
that specialize in submarine sandwiches and under the name "Stuff Yer Face"
that specialize in pizza and stromboli sandwiches. As of August 31, 1999, 93
sub shops and two Stuff Yer Face restaurants were in operation. TSSI has a
wholly owned subsidiary, Tubby's Sub Shops Advertising Co., Inc., a Michigan
corporation ("TSSAC"), that manages advertising contributions that Tubby's
receives from its franchisees. Sub Line acts as a broker for machinery and
equipment that may be purchased by franchisees. SDS distributes food and
other products that may be purchased by franchisees. Company Stores owns and
operates four Tubby's Sub Shop restaurants. Unless the context otherwise
requires, any references to "Tubby's" shall also

be deemed to refer to its wholly owned subsidiaries. The principal offices of
Tubby's are located at 6029 E. Fourteen Mile Road, Sterling Heights, Michigan
48312, and its telephone number is (810) 978-8829. Tubby's Common Stock $.01
Par Value (the "Tubby's Common Stock") is traded in the over-the-counter
market with price quotations as available on the over-the-counterbulletin
board (the "OTCBB"). Tubby's Common Stock was listed on the NASDAQ Small Cap
Market until May 5, 1999, when it was delisted because of the stock's
inability to maintain a minimum bid price of $1.00.

The following diagram illustrates Tubby's current corporate structure:

Tubby's, Inc.
____________________________________
/ / \ \
/ / \ \
/ / \ \
TSSI Subline SDS Company Stores
|
|
TSSAC

Date, Time, Place and Purposes of the Annual Meeting

The Annual Meeting of Shareholders of Tubby's will be held on
__________, 2000, at 10:00 a.m. local time at the SI Hotel Newark Arpt, 128
Frontage Road, Newark, New Jersey 07114. At the Annual Meeting, the
shareholders of Tubby's will consider and vote upon a proposal to approve the
Agreement and Plan of Merger dated as of May 27, 1999 (the "Merger
Agreement") among Tubby's and R Corp. A copy of the Merger Agreement is
attached hereto as Appendix A. The approval of the Merger Agreement by the
shareholders shall be contingent upon the affirmative vote of a majority of
the outstanding shares. The failure by the shareholders of Tubby's to approve
the terms of the Merger Agreement shall result in the termination of the
Merger Agreement. The shareholders will also vote upon the election of three
Directors to serve for the ensuing year, in the event the Merger Agreement is
not approved.

Record Date; Quorum

Only holders of record of shares of Tubby's Common Stock at the
close of business on February 18, 2000 (the " record date") will be entitled
to vote at the annual meeting including any adjournment or postponement
thereof. Holders of Tubby's Common Stock are entitled to cast one vote for
each share held by them. The presence, either in person or by properly
executed proxy of holders of a majority of the outstanding shares of Tubbys
Common Stock entitled to vote is necessary to constitute a quorum at the
Annual Meeting. The presence of a majority of unaffiliated shareholders is
not necessary to constitute a quorum.

Vote Required

Pursuant to the provisions of the New Jersey Business Corporation
Act, the affirmative

vote of the holders of the majority of the outstanding shares of Tubby's
Common Stock entitled to vote is required to approve the Merger Agreement.
Holders of approximately 1,054,000 outstanding shares of Tubby's Common Stock
(approximately 40.4%), which includes 500,000 shares held by affiliates
Robert M. Paganes (259,000 shares), Peter T. Paganes (191,000 shares) and
Vincent J. Tatone (50,000 shares), have informally indicated their intention
to vote in favor of the Merger Agreement. Assuming these unaffiliated holders
vote in favor of the Merger Agreement, the approval of holders of at least an
additional 246,557 shares (approximately 9.5%) will be necessary for approval
of the Merger Agreement. The affirmative vote of the holders of the majority
of shares constituting a quorum is required for the election of Directors.
Abstentions and broker non-votes will not be counted as affirmative votes.

The Merger

R Corp, a Michigan Corporation which exists only for purposes of
structuring this transaction, would be merged into Tubby's. Tubby's would be
the surviving corporation and R Corp would no longer have any separate
existence. All of the shareholders of Tubby's, other than Paganes, Paganes
and Tatone, would receive cash from Tubby's in exchange for their shares.
Paganes, Paganes and Tatone the only shareholders of both R Corp and Tubby's,
would not receive any cash in exchange for their Tubby's shares and would
remain as Tubby's only shareholders. The merger would be funded though loans
to Tubby's, to Paganes, Paganes and Tatone, individually, and from Tubby's
general account. Paganes, Paganes and Tatone have procured a commitment for
adequate financing to complete the merger and have agreed to personally
guarantee repayment of the loan.

The shares, for purposes of the Merger Agreement, have been valued
at $1.10. Each share of Tubby's Common Stock surrendered shall be exchanged
for $1.10. There are presently outstanding 2,583,113 shares of Tubby's Common
Stock. Therefore, following completion of the Merger, and the exchange of all
outstanding shares of Tubby's Common Stock for cash, there will be
approximately 500,000 shares outstanding, which will be held by Paganes,
Paganes and Tatone. Thereafter, Tubby's will terminate its registration under
Section 12 of the Securities Exchange Act of 1934 (the "Act") and its shares
will not be publicly traded. Tubby's will no longer be a reporting company
under the Act and will operate as a private company. A copy of the Agreement
and Plan of Merger is attached as Appendix A.

After the Effective Date of the Merger, Tubby's will make the cash
payments of $1.10 per share described above as follows. Promptly after the
Effective Date of the Merger, Tubby's will mail to each shareholder a form
letter of transmittal and instructions for use in effecting the surrender for
payment therefor of certificates which prior to the Merger represented
Tubby's Common Stock. After the Effective Date of the Merger and until so
surrendered and exchanged, each outstanding certificate which prior to the
Effective Date of the Merger represented shares of Tubby's Common Stock will
be deemed for all purposes to represent only a right to receive a cash
payment of $1.10 per share, and no interest will be paid or accrued on the
amount payable upon surrender of any such certificates. Upon surrender to
Tubby's of such certificates, together with such letter of transmittal duly
executed, Tubby's will pay to the persons entitled thereto, in cash or
equivalent, the amount to which such persons are entitled. If payment is to
be made to a person other than the one in whose name the certificate
surrendered is registered, it will be a condition of such payment that the
certificate so surrendered must be properly endorsed or

otherwise in proper form for transfer and that the person requesting such
payment shall pay to Tubby's any transfer or other taxes required by reason
of the payment to a person other than the registered holder of the
certificate surrendered, or establish to the satisfaction of Tubby's that
such tax has been paid or is not applicable. If any holder of Tubby's Common
Stock is unable to surrender such holder's stock certificates because such
certificates have been lost or destroyed, such holder may deliver in lieu
thereof an affidavit and indemnity bond in form and substance and with surety
reasonably satisfactory to Tubby's.

The Merger will become effective upon the later of either (i) the
filing of the Merger Agreement with the Secretary of State of New Jersey, or
(ii) the issuance by the Secretary of State of New Jersey of a Certificate of
Merger relating to the Merger (the "Effective Date"). It is expected that if
the Merger is approved by Tubby's shareholders at the annual meeting, and
assuming that the conditions to the Merger are satisfied, the Merger will
become effective during the fourth calendar quarter of 1999.

SPECIAL FACTORS

Sources and Amounts of Funds and Other Consideration

The Merger, which will require approximately Two Million Two
Hundred Ninety Thousand ($2,290,000) Dollars, will be funded though loans
from Comerica Bank, Detroit, to Tubby's, which will be secured by all of the
assets of Tubby's and will be personally guaranteed and personally
collateralized by the pledge of additional property owned by Paganes, Paganes
and Tatone; loans to Paganes, Paganes and Tatone, individually; replacing
Tubby's current $250,000 line of credit with a new $400,000 line of credit;
and with funds from Tubby's general account, as follows:

(A) A One Million ($1,000,000) Dollar secured term loan to
Tubby's at a fixed interest rate, to be set at the time of
Closing, or interest at one-quarter percent (0.25%) above
the announced prime rate of Comerica Bank ("the Prime
Rate") amortizing over 15 years with a balloon in five
years ("Term Loan A");

(B) A Five Hundred Thousand ($500,000) Dollar interest only,
cash secured loan due in 24 months to Tubby's at an
interest rate equal to the current CD rate + 2.0% ("Term
Loan B");

(C) A Two Hundred and Fifty Thousand ($250,000) Dollar secured
term loan to Paganes, Paganes and Tatone, individually, at
an interest rate equal to one-quarter percent (0.25%)
above the Prime Rate, due in 12 months ("Term Loan C");

(D) Two Hundred Seventy Thousand ($270,000) Dollars from
Tubby's revolving line of credit which will bear interest
at one-quarter percent (0.25%) above the Prime Rate (the
"Line of Credit"); and

(E) Two Hundred and Seventy Thousand ($270,000) Dollars from
Tubby's General Account.

(F) Term Loan A, Term Loan B and the Line of Credit, will be
secured by mortgage liens on two buildings owned by
Tubby's which house Tubby's Sub Shops, located in
Southgate, Michigan, and Clinton Township, Michigan, and a
security interest in all of the assets of Tubby's, and
Paganes, Paganes and Tatone, jointly and severally, will
personally guaranty repayment of Term Loan A, Term Loan B
and the Line of Credit;

(G) Term Loan C and the personal guaranties of Paganes,
Paganes and Tatone will be secured by mortgage liens on a
condominium unit located in St. Clair Shores, Michigan,
two buildings which house franchised Tubby's Sub Shops,
located in Royal Oak and Dearborn, Michigan, two houses
located in Clinton Township and Macomb, Michigan, and a
condominium unit located in Naples, Florida. These
properties are owned by Paganes, Paganes and Tatone,
individually.

The expenses estimated to be incurred in connection with the
Merger are as follows:

Legal $ 20,000
Appraisal and Fairness Opinion Fees $ 25,000
Accounting $ 5,000
Printing and Mailing Costs $ 30,000
Transfer Agent Fees $ 15,000
Exchange Agent Fees $ 15,000
Loan Closing Costs $ 7,500
Filing Fees $ 450
=========
Total $ 127,950

Tubby's has paid $10,000 of the legal fees, all of the appraisal and fairness
opinion fees, and will be responsible for paying for all of the remaining
estimated expenses.

Purpose(s), Alternatives, Reasons and Effects

The Merger is a "going-private" transaction. Its purpose is to pay
all unaffiliated shareholders cash in exchange for all of their shares, which
will be surrendered to Tubby's and retired, and to make Tubby's a private
company which will no longer be a public reporting company under the
Securities Exchange Act of 1934. Tubby's shares will no longer be publicly
traded, its former shareholders will receive $1.10 per share for all of their
shares, and Tubby's will operate as a closely held private company.

Since it became a public company in 1986, Tubby's has met with
limited success in its effort to expand its operations. Tubby's began as a
small franchising company in 1977 with submarine sandwich shops located in
the Detroit Metropolitan area. In the course of its efforts to expand,
Tubby's has opened locations in states other than Michigan. Because of
unsatisfactory

sales, most of these locations have closed

Because of its modest size, modest growth rate and limited
resources, among other things, an established market for Tubby's shares never
developed. Its short-term and long-term goals to achieve explosive national
expansion negatively affected its ability to be profitable. Nevertheless,
Paganes, Paganes and Tatone believe that Tubby's could be successfully
operated as a closely held private company. The reason for this belief is
that Tubby's could focus all of its resources on improving operations and
franchise development rather than committing substantial resources to public
company matters such as reporting requirements, public relations, shareholder
relations, and the constantly present issue of how management decisions may
affect the market price of its shares. First, it will be relieved of the
substantial expenses incurred in operating as a public company, including
legal and accounting expenses, transfer agent expenses, printing and annual
meeting expenses which, because of its relatively small size, create a
formidable burden on its limited resources, both financial and human; in
financial terms, these expenses are approximately $150,000 annually and, in
human terms, between 600 and 800 combined hours are required annually by the
small staff at its headquarters (13 full time employees). While the annual
expenses incurred constituted less than two (2%) percent of Tubby's total
costs and expenses during fiscal 1998, and committing 600 to 800 employee
hours is not insurmountable, these administrative burdens significantly
interfere with the ability of a company of Tubby's size to pursue its core
business: operating and franchising submarine sandwich shops. Second, it will
be relieved of the pressure to achieve fast national growth in order to
complete with other public restaurant companies. Rather, Paganes, Paganes and
Tatone may be content to simply operate Tubby's as a small local franchising
company, focusing on efficiency and improving existing operations, without
incurring the expenses and incurring the risk of attempting to achieve
accelerated national expansion, to maximize short-term profits. Tubby's
became public in 1986 when it merged with a Utah public "shell" corporation
(a public company with no assets) called Like Development, Inc. ("LDI"). LDI,
the surviving corporation, then changed its name to Tubby's, moved its
domicile to Michigan, and its original shareholders sold their new Tubby's
shares on the over-the-counter market primarily to Michigan residents who
were familiar with Tubby's Sub Shops. Tubby's incurred all of the expenses of
that "going public" transaction and did not receive any proceeds from the
sale of any shares. By 1990, there were approximately 600 Tubby's
shareholders.

Tubby's began its efforts to expand nationally in 1990 when it
merged with Stuff Yer Face, Inc. ("SYF"), a public New Jersey restaurant
company. SYF restaurants are full service, sit down restaurants featuring
pizza and a specialty sandwich called a "strombolli". See "Business of
Tubby's". At the time of the merger, SYF only had two remaining restaurants.
Those restaurants were sold back to the founder of SYF who continues to
operate them as franchises. As a result of the SYF merger, Tubby's acquired
sufficient assets to qualify to have its shares listed on the NASDAQ Small
Cap Market. It also inherited approximately 6,000 new shareholders.

Tubby's attempted to revise and expand the SYF concept in 1991.
It established a restaurant in Atlanta, Georgia called "Boli's" which was
based on the SYF concept. Unfortunately, that venture was not successful,
Tubby's lost its entire investment in it and the concept was not further
developed. Other attempts to develop restaurants based on the SYF concept
were also unsuccessful. Two additional SYF restaurants were opened, one
company owned and one franchise, but they both ultimately went out of
business.

In early 1993, Tubby's entered into an agreement with Sears Robuck
& Co. to establish restaurants to be called "Cafe Express" within Sears
department stores. Tubby's built and opened six "Cafe Express" restaurants
during 1993 and 1994 and had short-term plans to build up to 20 of them.
Unfortunately this project was also not successful. Three of the restaurants
were substantially unprofitable, two of them were underperforming, creating
additional losses, and one was profitable, although only marginally. Other
attempts to develop SYF restaurants were also unsuccessful.

As a result of those and other research and development projects
aimed at national growth, Tubby's sustained record losses for fiscal 1994
(more than $900,000). In late 1994, a significant management change took
place. It's prior chairman of the board and its prior president and chief
executive officer were replaced and Paganes, Paganes and Tatone assumed
managerial control over Tubby's. At that time, Tubby's was facing a financial
crisis. Because of the substantial losses it had sustained, and the increased
expenses it was incurring, it could not pay its bills and was incurring
substantial losses. As a result, Paganes, Paganes and Tatone's first priority
was to stabilize Tubby's financial condition.

First, Tubby's offered all of the Sears restaurants for sale.
Three of them could not be sold and were closed in early 1995. Two of them
were sold at a substantial loss and the one that was marginally profitable
continues to be operated as a company store. Second, Tubby's substantially
decreased its operating expenses by, among other things, applying across the
board pay cuts to all of its employees. Third, it terminated all research and
development projects and focussed all of its resources on its core business
- -- submarine sandwich shops. It focused on finding good locations and
building Sub Shops in the Detroit Metropolitan area. The plan worked; Tubby's
operations immediately achieved profitability, beginning with the first
quarter of 1995.

However, because of the substantial losses in 1993 and 1994,
Tubby's net asset value had decreased below the minimum requirement for
continued listing on the NASDAQ Small Cap Market: Tubby's net assets had
decreased to $1,600,000, $400,000 below the minimum requirement of
$2,000,000. The NASDAQ notified Tubby's that its shares would be delisted if
it did not achieve compliance within 90 days. Tubby's achieved compliance by
obtaining capital contributions in the cumulative amount of $460,000 by
selling restricted stock through private placements, which increased its net
assets above the minimum requirement Paganes, Paganes and Tatone provided
$240,000 of the total capital contributions.

Once its financial condition was stabilized, Tubby's attempted to
expand nationally through the implementation of a development agent program,
which it introduced in 1996. Development Agents ("DA's") are awarded an
exclusive geographical area in exchange for their commitment to sell
franchises pursuant to a development schedule and to perform other continuing
services. Their compensation includes commissions equal to fifty percent of
the initial franchise fees and forty percent of the royalties received by
Tubby's from the stores in their geographic area. Unfortunately, the DA
program did not achieve the goals Tubby's had intended. DA Agreements awarded
to individuals in the following territories were ultimately terminated
because of the DA's failure to achieve their development schedules: Arizona,
Texas, Pennsylvania, Cleveland, Ohio, Indiana, the province of Ontario,
Canada, Edmonton and Calgary, Canada. Tubby's currently has a DA Agreement
for the St. Louis, Missouri market. Five stores were opened in that market
within a one-year period. Unfortunately, three of those stores have recently
closed. Tubby's also continues to have DA's in Florida and Nebraska. There
are three stores in Florida and one in Nebraska.

Over the next five years Tubby's intends to further develop the
Michigan, Florida and Nebraska markets. Tubby's believes the Detroit market
can handle an additional 15 stores. It projects that it will increase the
number of new stores by 13 stores per year with an attrition rate of two
stores per year (i.e., net 11 new stores). Tubby's also projects an attrition
rate of four stores per year for existing stores which results in projected
net growth of seven stores per year (i.e., 11 net new stores minus four
existing stores). While, in light of Tubby's historical growth rate, these
projections seem ambitions and, if achieved, would be an impressive
accomplishment, in the context of the public company quick service restaurant
industry, this growth rate would be considered unremarkable. In addition,
because of the recent popularity of non-traditional stores, revenues to
Tubby's from new stores will decrease. Non-traditional stores are located in
gas stations, convenience stores and other non-traditional locations. While
these stores are generally less expensive to establish, their sales are also
generally lower. Non-traditional stores result in less revenue to Tubby's for
two reasons. First, the initial franchise fee is lower: $8,000 versus
$15,000. Second, royalties, which are a percentage of net sales, are lower
because total sales at these stores are generally lower.

Tubby's shares were listed on the NASDAQ Small Cap Market
beginning in 1990 as a result of the SYF merger. The price at which Tubby's
shares traded fluctuated from between approximately $.12 to $.80 per share
but, generally, they traded at between $.18 and $.25 per share through 1997.
Although Tubby's tried to increase shareholder value, its limited resources
and limited growth made increasing the value of its shares a difficult task.
In the fall of 1997, the NASDAQ amended its rules regarding listing
qualifications. One of the changes was that, to qualify for continued
listing, companies must maintain a minimum bid price of at least $1.00 per
share. To comply with the minimum bid price requirement, Tubby's adopted and
implemented a one for ten reverse split in February of 1998. Just prior to
the split, Tubby's shares were trading at approximately $.25 per share. After
the reverse split, the bid price for Tubby's shares began to decline from
$2.50 all the way down to $.375 in February of 1999, even though the number
of outstanding shares decreased from more than 25 Million to just over 2.5
million. In December of 1998, the NASDAQ notified Tubby's that it was not in
compliance with the minimum bid price requirement and would be delisted if
that noncompliance was not corrected within 90 days. Tubby's requested a
hearing before the NASDAQ. Tubby's intended to show that it would achieve
compliance through a proposed merger with Interfoods of America, Inc.
(OTCBB--IFDA), a Miami based Popeye's Chicken Franchisee. See Previous
Contacts Between Tubby's, Interfoods of America, Inc., and R Corp."

Earlier in the fall of 1998 (mid-September), Interfoods' president
Robert Berg contacted Tubby's and expressed an interest in a possible merger.
Mr. Berg stated that Interfoods was not interested in the submarine sandwich
business. Rather, its interest was increasing the market price for its shares
and qualifying to have its shares listed on the NASDAQ Small Cap Market. In
that regard, Mr. Berg suggested selling all of the assets of Tubby's to
Paganes, Paganes and Tatone as part of the possible merger. Tubby's was
interested in the possible merger for several reasons. First, the merger
would result in the combined company becoming a larger company which may have
increased shareholder value by increasing its ability to compete as a public
small cap company. Second, it could allow Tubby's original business, the
submarine sandwich business, to go private and Paganes, Paganes and Tatone
were interested in undertaking that challenge. Because Paganes, Paganes and
Tatone had a conflict of interest and, consistent with their obligations as
directors, Tubby's Board of Directors insisted that an independent valuation

of the fair market value of both Tubby's and Interfoods be conducted prior to
negotiating the terms of the proposed merger. Stout Risius Ross, Inc., an
independent valuation firm referred to Tubby's by its auditors BDO Seidman
LLP, conducted that valuation and concluded that the fair market value of
Tubby's and Interfoods were $2,600,000 and $12,500,000, respectively. In
early December, the two companies met at Interfoods offices in Miami,
negotiated the terms of the proposed merger and entered into a letter of
intent. See "Previous Contacts Between Tubby's, Interfoods of America, Inc.,
and R Corp. Tubby's believed that implementing that merger may have achieved
compliance with the minimum bid requirement for its shares. In March of 1999,
the NASDAQ notified Tubby's that it also appeared not to be in compliance
with the $1,000,000 market value of public float requirement either and that
it would have to demonstrate compliance with that requirement as well at the
hearing. Tubby's believed the Interfoods merger would correct that alleged
deficiency as well.

The NASDAQ hearing was scheduled for May 6, 1999. On April 23,
1999, however, Interfoods announced that it would not proceed with the
merger. Interfoods advised Tubby's that, after a thorough evaluation, its
Board of Directors had decided not to proceed. Interfoods gave no other
explanation for its decision. Tubby's requested an explanation but did not
receive one and is not aware of why Interfoods decided not to pursue the
proposed merger. Tubby's then considered another reverse spilt but concluded
that it would not result in compliance. That conclusion was based, first, on
Tubby's experience with its prior reverse split which proved that reducing
the number of outstanding shares did not result in a long term increase in
the market price of its shares and, second, another reverse split would not
correct, and would probably worsen, its compliance with the public float
requirement. Therefore, on May 5, 1999, Tubby's withdrew its request for a
hearing. Accordingly, on May 5, 1999, Tubby's shares were delisted by NASDAQ
for failure to meet those minimum requirements and trades of Tubby's shares
were automatically listed on the Over the Counter Bulletin Board ("OTCBB").
Thereafter, Tubby's announced the present proposed merger.

As a result of the delisting, Tubby's Board of Directors concluded
that increasing shareholder value would now be an even more formidable task.
There has never been a well established market for Tubby's shares; quotations
have always been limited and sporadic. The NASDAQ delisting was viewed,
objectively, as probably having a future negative effect on the already
under-established market for Tubby's shares. This was a substantial factor
which was considered by Tubby's Board of Directors. Because of Tubby's
limited resources, the current and potential future bid prices for its
shares, and the substantial expenses inherent in operating a public company,
the Board of Directors of Tubby's determined that undertaking this
transaction was appropriate at this time.

The Interfoods merger would have been an alternative to this
transaction and, therefore, warrants some discussion. That proposed merger
provided for a one for five reverse split of Tubby's shares followed by a
registered exchange offer of Tubby's shares on a one for two basis for all
Interfoods shares. Simultaneously, the surviving corporation, Tubby's, would
have changed its name to Interfoods of America, Inc., would have sold all of
Tubby's pre-merger assets to R Corp, and would have continued to operate as a
Popeye's Chicken franchisee. See "Previous Contract Between Tubby's,
Interfoods of America, Inc., and R. Corp." On April 23, 1999, however,
Interfoods advised Tubby's that it had decided not to proceed with the
proposed merger. Tubby's did not seek any additional alternatives and no
other alternatives were presented by any third party. For a comparison of the
fairness of that proposed merger within the

present proposed merger see "Fairness of the Transaction", and "Previous
Contracts Between Tubby's, Interfoods of America, Inc., and R Corp".

The most substantial effect of the Merger on Tubby's will be that
it will no longer be a public reporting company and, instead, will operate as
a private company. Its limited resources will be relieved of the substantial
burdens inherent in operating a public company and Tubby's will have more
flexibility in its day to day management. Although R Corp will no longer
exist as a separate entity, its shareholders, Paganes, Paganes and Tatone,
will be the only shareholders of Tubby's. In addition, Paganes, Paganes and
Tatone will be personally liable, pursuant to their personal guarantees and
the pledge of their personal property as collateral, for the repayment of the
loans from Comerica Bank which will be used to fund the Merger.

Unaffiliated security holders will receive $1.10 in exchange for
each of their shares, which is higher than the current market price. The
Merger will provide security holders with small numbers of shares (e.g., less
than 100 shares) an easy and efficient procedure to liquidate their shares.
Tubby's estimates that, of its approximately 7,000 shareholders, less than
600 are round lot holders (shareholders who hold 100 shares or more). This
was also an important factor considered by Tubby's in proposing the present
transaction. They will be required to recognize, for federal tax purposes, a
gain or loss on the exchange. See "Certain Federal Income Tax Consequences."
The only additional potential detriment to all shareholders, unaffiliated and
affiliated, is that they will loose the opportunity to hold the shares and,
in the event an established market develops and the market price for the
shares exceeds $1.10, sell their shares at a higher price. Any attempt to
"quantity" this detriment would be entirely premised on speculation and,
therefore, it can not reasonably be "quantified."

Finally, Paganes, Paganes and Tatone's purpose for engaging in
this transaction is to acquire Tubby's and to reverse what they believe
(obviously in hind-sight) to have been an incorrect decision to become a
public company in the first place. Stated simply, Tubby's was too small to
compete as a public company. The SYF merger, pursuant to which Tubby's
inherited approximately 6,000 shareholders, most of whom now hold shares
cumulatively valued at less than $100, further complicated its existence and
only made matters worse. While Tubby's was unable to develop nationally by
establishing thousands of sub shops, and the value of its shares did not fair
well, Paganes, Paganes and Tatone believe that Tubby's is fundamentally sound
and can be operated profitably as a small closely held company. If the merger
is approved, Paganes, Paganes and Tatone will operate Tubby's as a small
private company. Their first priority will be to improve current operations
and to maintain profitability. Growth, which may be modest, will be
secondary.

Fairness of the Transaction

Tubby's and Paganes, Paganes and Tatone believe that the merger is
fair to unaffiliated security holders. This belief is supported by the
Fairness Opinion issued by Stout Risius Ross, Inc. A copy of the Fairness
Opinion is attached as Appendix B. The material factors which form the basis
of this belief include Tubby's fair market value, as analyzed by Stout Risius
Ross, Inc., the book value and financial condition of Tubby's, its earning
capacity, current market prices and previous sales of Tubby's stock and the
sizes of the blocks transferred, and the market prices of companies in the
same industry that trade in the open market. Tubby's Board of Directors
reasonably believes that the delisting of Tubby's shares from the NASDAQ
Small Cap Market will probably negatively affect shareholder value and
considered that factor as well. However, the primary factor considered in
establishing the per share price of $1.10 was the objective fair market value
of Tubby's as a going concern. This factor was considered most appropriate
because of the nature of the transaction - - a going private transaction
pursuant to which members of the Company's management are financing the
purchase of all of the shares. First, in effect, the Company is being
purchased as a going concern. Unlike in other types of transations, such as a

stock-for-stock merger, the Company's fair market value as a going concern
was considered to be an appropriate and fair method for determining the
fairness of the per share merger price, as opposed to relying on the market
price of the shares or the Company's net asset value as primary factors.
Second, because the members of the Company's current management who are
financing purchase face an inherent, conflict of interest, they believed that
the Company's objective fair market value should be a primary factor is
establishing the proposed merger price, rather than relying on other factors
that may have resulted in a lower per share price.

Current market prices for the shares, which have been
substantially lower than $1.10, recent sales and the sizes of the blocks
transferred, which have been sporadic and small, and the NASDAQ delisting,
which were considered in Tubby's decision to undertake this transaction at
this time, were considered very little in establishing the per share price.
First, the NASDAQ delisting may have negatively affected current market
prices for the shares. Second, thousands of Tubby's shareholders (mostly
inherited in the 1990 SYF merger) hold small blocks of shares (e.g., less
than 100). Sales of such small blocks may not accurately reflect the value of
all Tubby's shares as a whole. Similarly Tubby's history and past earnings
were not considered. Tubby's past earnings were not considered because they
may not be indicative of potential future earnings. Tubby's past losses were
related, in large part, to its national expansion efforts. In addition,
Tubby's newest subsidiary, SDS, which was established in 1998, has added
substantial revenues and will increase the potential for future earnings. All
of the factors listed in this paragraph would support a per share price lower
than $1.10. Therefore, each of those factors clearly supports the fairness of
the $1.10 per share price to be paid to unaffiliated shareholders.

At August 31, 1999, Tubby's tangible book value per share was
$1.05. Tangible book value is calculated by dividing total shareholder equity
(i.e., all assets, other than good will, at book value, minus all
liabilities) by the number of outstanding shares. The book value of a
company's assets may or may not reflect its fair market value just as a
company's market capitalization (all outstanding shares multiplied by current
market price per share) may or may not. For example, prior to announcing the
present proposed merger, Tubby's shares traded as low as $.375. At that
price, Tubby's total market capitalization would be $968,668. After this
proposed merger was announced, shares traded as high as $1.00 which would
result in a market capitalization of $2,583,113. On October 11, 1999, the
last reported trade was at $.8437 which would equal a market capitalization
of $2,179,372.

In determining the per share price for the proposed merger,
Tubby's estimated the objective Fair Value of its common equity. Fair Value
was considered as the price at which property would exchange between a
willing buyer and a willing seller, when neither the former nor the latter
are under any undue compulsion to buy or sell, and both have reasonable
knowledge of the relevant facts. Tubby's began by considering its prior
valuation in connection with the proposed merger between Tubby's and
Interfoods of America, Inc. As part of that proposed merger, Interfoods'
board of directors, which would have been the board of directors of the
surviving corporation, agreed to sell all of the assets of Tubby's to R Corp
for a total purchase price of $2,500,000. Dividing that purchase price by the
number of Tubby's outstanding shares results in a per share price of $.97.
Tubby's set the per share merger price at $1.10 which, multiplied by the
number of outstanding shares, results in estimating Tubby's Fair Market Value
at $2,841,424. There are at least two reasons for this increase. First, after
it sustained a small net loss for fiscal 1998, Tubby's began to be profitable
in the first three quarters of 1999. Second, because of the clear conflict of
interest, Tubby's Board of Directors believed it would be better to
overestimate rather than to underestimate Tubby's fair market value. As it
turned out, the per share price of $1.10 was accurate, as confirmed by the
independent analysis of Stout Risius Ross, Inc. As discussed in the next
section, Stout Risius Ross, Inc., concluded that the fair value of Tubby's
shares is $1.10. Stout Risius Ross, Inc., applied two valuation methods: a
discounted cash flow method which, among other things, analyzes future
earnings, and a market comparable method which analyzes the market prices of
shares of comparable companies. Pursuant to the discounted cash flow
approach, Stout Risius Ross, Inc., concluded that the fair market value of
Tubby's shares is $1.08. Pursuant to the market comparable approach, it
concluded their fair market value is $1.12. While the latter resulted in a
value higher than $1.10 and, therefore, would detract from the fairness
determination, Stout Risius Ross, Inc., relied equally on each valuation
method. Accordingly, equally blending the result from each method resulted in
concluding that the fair value of Tubby's common equity on a per share basis
is $1.10. Paganes, Paganes and Tatone expressly adopt the analysis of Tubby's
and Stout Risuis Ross, Inc., in support of their individual conclusions that
this transaction is fair to unaffiliated shareholders. Paganes, Paganes and
Tatone relied on each of the same factors set forth in this Proxy Statement
and in the Opinion of Stout Risuis Ross, Inc., and did not rely on any other
material factors in reaching their conclusions that the proposed merger is
fair to unaffiliated shareholders.

The Board of Directors believes that this merger is more
beneficial to unaffiliated shareholders than the Interfoods merger would have
been. The proposed Interfoods merger

first provided for a one for five reverse split of Tubby's shares and,
second, for an exchange of one new share for each two shares held by
Interfoods shareholders. Tubby's shareholders would have held one share in
the surviving corporation for every five shares they held prior to the
merger. At the time, Interfoods had approximately 6,000,000 outstanding
shares. After the one for five reverse split and the exchange of Interfoods'
shares, Tubby's shareholders, including affiliates, would have held
approximately 500,000 and Interfoods shareholders would have held
approximately 3,000,000 shares in the surviving corporation. At the time the
proposed merger was announced, Interfoods shares were trading at
approximately $.40 and Tubby's shares were trading at approximately $1.00.
After the announcement, the price of Interfoods' shares increased
dramatically while the price of Tubby's shares decreased slowly but
consistently. After Interfoods announced it would not proceed with the
merger, the price of its shares began decreasing steadily. The last trade of
Interfoods shares on October 15, 1999, was reported to be at 7/16 or $.43.
Had the Interfoods merger been completed, Interfoods' assets would have
increased by $2,500,000 (the purchase price for Tubby's pre-merger assets)
and the number of its outstanding shares would have decreased from
approximately 6,000,000 to approximately 3,500,00. The long-term effect on
the market prices for Interfoods shares, however, can not be quantified with
any degree of certainly. Nevertheless, because of the one for five reverse
split of Tubby's shares, any decrease in the market prices would have been
magnified for Tubby's shareholders. In addition, like Tubby's, there is no
well-established market for Interfoods shares.

Paganes, Paganes and Tatone will receive and assume the following
benefits and detriments. The benefits are, first, although they will not
receive cash in exchange for all of their shares, they will acquire all of
the equity of Tubby's. Second, they will enjoy the challenge of operating
Tubby's as a private company and, if profitable, will receive distributions
in the form of dividends. For example, Tubby's has been profitable during and
at the end of each of the first three quarters of fiscal 1999. If this trend
continues, Paganes, Paganes and Tatone would benefit accordingly. Third,
their equity will appreciate as Tubby's repays the loans from Comerica and
the principal balances of the loans decrease. The detriments of the
transaction to Paganes, Paganes and Tatone are that they will be personally
liable for the repayment of the loans and will pledge individually owned
personal assets to secure their repayment.

The transaction is structured so that the approval of a majority
of all security holders is required. Approximately 80% of the shares are held
by unaffiliated security holders. The only affiliated security holders are
Paganes, Paganes and Tatone. Other shareholders who have informally indicated
their approval of the proposed merger (See "Vote Required") are not
affiliated security holders because they do not directly, or indirectly
through any intermediaries, control, nor are they controlled by or under
common control, with Tubby's or with Paganes, Paganes and Tatone. The merger
was approved unanimously by the directors including the one director who is
not employed by Tubby's. Neither Tubby's nor anyone else retained an
unaffiliated representative to act solely on behalf of unaffiliated security
holders for the purposes of negotiating the terms of the merger and/or for
preparing a report concerning the fairness of the transaction. In addition,
the transaction does not require the approval of a majority of the shares
held by non-affiliates and actually voted on the transaction. Nevertheless,
and notwithstanding those two facts, Tubby's, and Paganes, Paganes and
Tatone, believe the proposed merger is fair to unaffiliated shareholders for
the following reasons. First, the independent analysis of Stout Risuis Ross,
Inc., was very comprehensive and analyzed Tubby's fair market value. Second,
the current market price for Tubby's shares, the history of Tubby's earnings,
the

underdeveloped market for Tubby's shares and the NASDAQ delisting each
support a lower per share price. The per share price of $1.10 is so fair
to unaffiliated shareholders that Tubby's, and Paganes, Paganes and Tatone,
believe that it was completely unnecessary to retain a separate
representative to negotiate and / or prepare a report regarding the fairness
of the transaction on behalf of unaffiliated shareholders or to require to
the votes of a majority of shares held by non-affiliates to approve it.
Tubby's, and Paganes, Paganes and Tatone, believe that neither of those
actions would have made any difference in the final analysis.

Reports, Opinions, Appraisals and Certain Negotiations

Tubby's received an opinion on July 15, 1999, relating to the
fairness of the consideration to be offered to the security holders, from
Stout Risius Ross, Inc. Stout Risius Ross, Inc., is a Michigan based
consulting firm specializing in business valuations, appraisals, and mergers
and acquisitions. Stout Risius Ross, Inc., was referred to Tubby's by its
auditors, BDO Seidman, LLP in connection with the proposed Interfoods merger.
No material relationship existed between Stout Risius Ross, Inc., and/or any
of its affiliates or representatives, and Tubby's or any of its affiliates
nor is it contemplated that any such relationship will exist in the future.
Tubby's determined the merger price of $1.10 per share, and asked Stout
Risius Ross, Inc., to render its opinion regarding the fairness of that per
share price.

In reaching its opinion that the transaction is fair from a
financial point of view to the shareholders of Tubby's, Stout Risius Ross,
Inc., performed an analysis to estimate the fair value of the common equity
of Tubby's, defined as the price at which property would exchange between a
willing buyer and a willing seller, when the former is not under any undue
compulsion to buy and the later is not under any undue compulsion to sell,
both having reasonable knowledge of the relevant facts. In general, it
considered the nature and history of Tubby's, the outlook for the economy and
industry in which Tubby's operates, the book value and financial condition of
the Company, the earning capacity of Tubby's, the dividend paying capacity of
Tubby's, whether good will or other intangible value exists within Tubby's,
previous sales of Tubby's stock and the size of the blocks transferred, and
the market prices of companies in the same or similar industries which trade
in the open market. Tubby's only instructions were for Stout Risius Ross,
Inc., to render an opinion as to the fairness of the proposed merger to
Tubby's shareholders from a financial point of view. No limitations were
imposed by Tubby's or any affiliate of Tubby's on the scope of the valuation
or Fairness Opinion. See Fairness Opinion, attached as Appendix B. Stout
Risius did not consider the merits of the transaction as compared to an
alternative business strategy. A copy of the valuation will be made available
for inspection and copying at Tubby's principal offices during regular
business hours by any interested security holder or his representative who
has been so designated in writing.

In its analysis, Stout Risius Ross, Inc., considered a variety of
valuation methods, including an income approach, market approach and an
underlying asset approach. In reaching its ultimate conclusion, it relied
equally on an income approach and market approach. The average of the two
resulted in estimating the fair market value of Tubby's at $1.10 per share.

The income approach is a valuation technique in which the fair
market value of a company is estimated on the basis of that company's earning
capacity. This approach analyzes cash flows during a projected future period
and the resulting residual cash flow thereafter. The future cash flows are
then discounted to reflect present value. Under this approach, Stout Risius

Ross, Inc., projected increases in revenues for 1999 through 2005. It then
analyzed corresponding increases in expenses. A noteworthy component in this
analysis is that 70% of new franchise growth during the projection period
will occur in nondominant market areas (outside of Metro Detroit) which
materially affects earnings primarily because of the increase in distribution
costs. After projecting revenues, expenses, capital expenditures, and
discounting residual cash flow, Stout Risius Ross, Inc., then added the value
of Tubby's nonoperating assets which included excess cash, rental property
and notes receivable. The discount rate was applied at 16.5%, which,
consistent with industry standards, is a rate of return commensurate with the
risk involved in realizing the projected cash flows. Based on 2,583,114
shares outstanding, it estimated Tubby's value of equity per share to be
$1.08.

The market comparable approach analyzes prices paid for securities
of similar companies that are publicly traded. Stout Risius Ross, Inc.,
identified and analyzed the securities of the following companies:
Schlotsky's, Inc; Miami Subs; Quizno's; and Blimpie International, Inc. Stout
Risius Ross, Inc., conducted an evaluation of these companies to determine
their earnings before interest, taxes, depreciation and amortization
("EBITDA") to establish a total capital to EBITDA multiple. Each multiple was
then adjusted on the basis of the differences between those companies and
Tubby's to account for differences in size, growth outlook, capital
structure, and other risk factors. ^ For example, Scholotysky's, Inc., has
730 franchised locations with system wide rates of 348.5 million. It has
7,516,000 shares, which traded at $11.17, resulting in a market value of 84
million. Its adjusted capital value was 86.5 million and its EBITDA was 10.3
million resulting in a capital to EBITDA multiple of 8.42. That multiple was
then adjusted downward to 4.3. Miami Subs Corp., on the other hand, had a
total capital value of 6.9 million and EBITDA of 2.4 million resulting in a
capital to EBITDA mulitple of 2.83. That multiple was then adjusted upwards
to 4.0. Quizness Corp. and Blimpie International were assigned multiples of
4.10 and 4.20 respectively. The median multiple of 4.20 was applied to
Tubby's adjusted EBITDA of $266,452 (calculated over the prior 12 months)
which, after deducting interest-bearing debt, resulted in an operating value
of $992,829. Stout Risius Ross, Inc., then applied a control premium of
twenty (20%) percent because the analysis of the comparable companies was
performed on a minority-interest basis, which resulted in an actual operating
value of $1,191,394. The value of Tubby's non-operating assets and the value
of its deferred tax assets (Net Operating Loss carry forwards) were then
added to the operating value. Applying this approach to Tubby's resulted in
estimating the equity value of Tubby's at $1.12 per share.

The underlying asset approach is only relevant when a company's
assets exceed its estimated value under the first two approaches. Because
this was not the case with Tubby's, this approach was not used.

Stout Risius Ross, Inc., relied equally on those two approaches.
Therefore, it concluded that the fair value of common equity of Tubby's is
$1.10. Tubby's, R Corp, and Paganes, Paganes and Tatone expressly adopt the
conclusion and analysis of Stout Risius Ross, Inc. In addition, R Corp, and
Paganes, Paganes and Tatone, expressly adopt the conclusion and analysis of
Tubby's, set forth in this proxy statement, and rely on each of the same
factors. R Corp, and Paganes, Paganes and Tatone, did not rely on any other
material factors in reaching their conclusion that the merger is fair to
unaffiliated shareholders.

Recommendations

The Board of Directors of Tubby's has received a favorable
fairness opinion with respect to the terms of the merger, believe that the
Merger is in the best interest of and fair to the shareholders and has
recommended that the shareholders vote FOR approval of the Merger Agreement.
For a discussion of the factors considered by Tubby's Board of Directors in
approving the Merger Agreement, see "Description of the Transaction."

Interests of Certain Persons in the Merger

General - The respective management and Boards of Directors of R
Corp and Tubby's are affiliated (Paganes, Paganes and Tatone are directors
and serve as the President, Vice President and Secretary, respectively, in
both corporations), the effect of the Merger Agreement will be considered a
"going private" transaction and the terms of the Merger Agreement were
considered and determined in the context of the objective fair market value
of the Company's assets and the fair distribution of its equity to the
shareholders of Tubby's.

Principal Shareholders of Tubby's - Paganes, Paganes and Tatone
have personally procured a commitment for adequate financing on behalf of
Tubby's to complete the Merger, and will personally guarantee the required
debt financing and pledge personal assets, in addition to all of the assets
of Tubby's, to secure the loans. Paganes, Paganes and Tatone will not receive
any cash in exchange for their shares and they will remain as the only
shareholders of Tubby's. In order to equalize the number of shares held by
each of them, Paganes, Paganes and Tatone have also entered into a Stock
Purchase, Redemption and Shareholder Agreement with Tubby's pursuant to which
some of them will purchase restricted shares of common stock from Tubby's and
Tubby's will redeem shares from the others. The price per share is equal to
the Merger price of $1.10. The Stock Purchase, Redemption and Shareholder
Agreement is contingent upon the consummation of the Merger.

Conditions to Merger: Termination: Amendment

The obligations of Tubby's and R Corp to effect the Merger are
subject to the satisfaction of several conditions, including the approval of
the Merger Agreement by the required vote of the outstanding shares of
Tubby's, closing on the bank financing, and the absence of any material
adverse changes. See the Merger Agreement attached hereto as Appendix A.

The Merger Agreement may be terminated at any time prior to the
Effective Date of the Merger, whether before or after submission or approval
by the shareholders of Tubby's, by the Board of Directors of Tubby's. The
Merger Agreement may be amended at any time prior to the Effective Date of
the Merger, whether before or after the meeting of shareholders of Tubby's,
by written Instrument executed by Tubby's and R Corp, provided that no
amendment shall change the exchange ratio (i.e., the Merger Price of $1.10
per share) set forth in the Merger Agreement without the approval of the
shareholders of Tubby's.

Material Federal Income Tax Consequences

Tax Counsel has advised that for federal income tax purposes, if
the Merger is carried out in accordance with the Merger Agreement (1) no
taxable gain or loss will be recognized by

Tubby's as a result of the Merger; (2) taxable gain or loss will be
recognized by the holders of shares of Tubby's stock upon receipt of cash in
exchange for those shares; (3) no taxable gain or loss should be recognized
by the shareholders of R Corp and the basis of their shares of Tubby's should
not be affected.

Dissenter's Appraisal Rights

Dissent and Rights of Appraisal for Tubby's Shareholders -
Pursuant to the provisions of section 14(a):11-1 et seq. of the New Jersey
General Corporation Law, and because Tubby's has in excess of 1,000
shareholders of record, shareholders of Tubby's will not be entitled to
dissent or receive appraisal rights in connection with the proposed Merger.
Nor do Tubby's Articles of Incorporation or By-Laws provide any rights to
dissent or receive appraisal rights.

Business of Tubby's

The restaurant business is highly competitive and there can be no
assurance that the merged corporation will be able to operate profitably.
Tubby's operated unprofitably from 1990 through 1994. It operated profitably
from 1995 through 1997 and had a small net loss for fiscal 1998, resulting in
a current accumulated earnings deficit of $896,749 at the end of fiscal 1998.
For the first three-quarters of fiscal 1999, ended August 31, 1999, Tubby's
had a net profit of $298,675.00. For the first three-quarters of fiscal 1998,
Tubby's had a net loss of $117,001. Revenues for the first nine months ended
August 31, 1999, increased 30.7%. See "Tubby's Financial Statements."

CONSOLIDATED FINANCIAL DATA OF TUBBY'S, INC.

The following table sets forth the consolidated selected
historical financial information for Tubby's, Inc. The consolidated selected
financial data for and as of the years ended November 30, 1998, 1997, 1996,
1995 and 1994 have been derived from the audited consolidated financial
statements of Tubby's, Inc. The selected financial data for the nine months
ended August 31, 1999 and 1998 are derived from the unaudited financial
statements of Tubby's, Inc. In the opinion of Tubby's, Inc., the interim
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such data.

(Thousands except per share amounts)
Nine Months Ended
August 31 Year Ended November 30,
------------------ --------------------------------------------------
1999 1998 1998 1997 (1) 1996 (1) 1995 (1) 1994 (1)
---- ---- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales and operating revenues
& other revenues................... $7,032 $5,380 $7,366 $3,556 $3,123 $3,662 $3.737
Income before extraordinary
items.............................. 299 (117) (31) 107 117 274 (921)
Extraordinary Items.................. 0 0 0 0 0 0 0
Net Income (Loss) ................... 299 (117) (31) 107 117 274 (921)
Net Income (Loss) per share
before extraordinary items......... 12 (0.05) (0.01) 0.04 0.05 0.11 (0.5)
Net income (loss) per share,
basic & fully diluted.............. 12 (0.05) (0.01) 0.04 0.05 0.11 (0.5)
Working Capital...................... 1,835 1,339 1,437 1,177 871 1,094(2) 64
Total Assets......................... 3,436 3,303 3,326 3,325 3,333 3,270(2) 2,683
Total Assets less goodwill........... 3,238 3,049 3,063 3,095 2,994 2,923 2,340
Dividends ........................... -- -- __ __ __ __ __
Book Value per Share $1.12 $ .98 $ 1.01 $ 1.02 $ .98 $ .93 $ .83
Tangible book value per share........ $1.05 $ .88 0.91 0.93 0.86 0.84 0.66
Ratio of earnings to fixed charges... 11.59 ___(5) ___(4) 5.08 2.65 3.52 ___(3)

<FN>

- ---------
(1) Adjusted for 1 for 10 reverse split in February of 1998.
(2) In March of 1995, Tubby's issued 575,000 shares of restricted Common
Stock pursuant to private placements in exchange for $.80 per share to
seven individuals which included three related parties.
(3) For the year ended November 30, 1994, the ratio was negative. The
deficiency, expressed in a dollar amount, was $1,089,551.
(4) For the year ended November 30, 1998, the ratio was negative; the
deficiency was $ 31,207.
(5) For the nine months ended August 31, 1998, the ratio was negative; the
deficiency was $117,001.

</TABLE>

MARKET PRICES OF TUBBY'S COMMON STOCK

The following table sets forth the high and low stock prices (bid)
for Tubby's Common Stock as reported by NASDAQ (symbol TUBY) for the calendar
years indicated and as reported by the Over the Counter Bulletin Board
("OTCBB") after May 5, 1999, when Tubby's shares were delisted by NASDAQ for
failing to maintain a $1.00 bid price and were automatically listed for
reporting by the OTCBB. There is currently no established trading market for
Tubby's common stock (excluding limited and sporadic quotations.) On May 4,
1999, the day before the present proposed merger was announced, the market
price as of the last trade was 5/16 or $.3125. The last trade on October 11,
1999 was for 27/32 or $.8437. The following quotations do not include retail
mark-ups, markdowns or commissions and represent prices between dealers and
not necessarily actual transactions.

Tubby's
-------------------------
High Low
---- ---
1997 (1)
--------
4th Qtr. 4.062 2.500

1998
--------
1st Qtr. 3.125 2.000
2nd Qtr. 2.375 1.625
3rd Qtr. 2.000 .6875
4th Qtr. 1.250 .6250

1999 (2)
--------
1st Qtr. 1.000 .375
2nd Qtr 1.000 .3125
3RD Qtr. .6250 .375

(1) Prices are adjusted to reflect a 1 for 10 reverse split which was
effective in the first quarter of 1998.
(2) The public announcement in connection with this transaction was first
made on May 5, 1999.

The approximate number of shareholders of record of Tubby's was 7,000 as of
August 31, 1999. There are no restrictions on Tubby's present or future
ability to pay dividends; however, Tubby's has never paid cash dividends on
its Common Stock.

DESCRIPTION OF THE TRANSACTION

Pursuant to the Agreement and Plan of Merger (the "Merger
Agreement") between Tubby's and R Corp, the shareholders of Tubby's are being
asked to approve a merger pursuant to which all shareholders, other than
three current members of Tubby's management, who also constitute a majority
of its Board of Directors, will receive cash in exchange for their shares.
Pursuant to the Merger Agreement, each share of outstanding Tubby's Common
Stock, other than shares held by the shareholders of R Corp, will be
exchanged for cash at the merger price of $1.10 per share. The merger price
per share was established by Tubby's Board of Directors. The fairness to
shareholders from a financial point of view is supported by a Fairness
Opinion prepared by Stout Risius Ross, Inc. A copy of the Fairness Opinion is
attached as Appendix B. Tubby's will be the surviving corporation but its
shares will no longer be publicly traded

The Board of Directors of Tubby's has determined that the Merger
is in the best interest of the shareholders of Tubby's because, among other
things, it will allow shareholders to receive $1.10 per share, which is
higher than the current market price, without incurring brokerage commissions
and/or other fees. It will also allow shareholders with small numbers of
shares (e.g., less than 100 shares), an easy and efficient procedure to
liquidate their shares. Tubby's registration will then be terminated under
the Securities Act of 1934 and it will not be a reporting company

Holders of shares of Common Stock of Tubby's are entitled to cast
one vote for each share held at all shareholder's meetings for all purposes.
Shares of Tubby's Common Stock are not redeemable, have no conversion rights
and carry no preemptive or other rights to subscribe to or purchase
additional shares in the event of any subsequent offering and/or merger. All
outstanding shares of Tubby's Common Stock are fully paid and non-assessable.
Tubby's Common Stock does not have cumulative voting rights which means that
holders of more than 50% of Tubby's Common Stock voting for the election of
Directors can elect 100% of the directors of Tubby's if they choose to do so.

After the Effective Date of the Merger, Tubby's will make the cash
payments of $1.10 per share described above as follows. Promptly after the
Effective Date of the Merger, Tubby's will mail to each such shareholder a
form letter of transmittal and instructions for use in effecting the
surrender for payment therefor of certificates which prior to the Merger
represented Tubby's Common Stock. After the Effective Date of the Merger and
until so surrendered and exchanged, each outstanding certificate which prior
to the Effective Date of the Merger represented shares of Tubby's Common
Stock owned by a shareholder who is not also a shareholder of R Corp will be
deemed for all purposes to represent only a right to receive a cash payment
of $1.10 per share, and no interest will be paid or accrued on the amount
payable upon surrender of any such certificates. Upon surrender to Tubby's of
such certificates, together with such letter of transmittal duly executed,
Tubby's will pay to the persons entitled thereto, in cash or equivalent, the
amount to which such persons are entitled. If payment is to be made to a
person other than

the one in whose name the certificate surrendered is registered, it will be a
condition of such payment that the certificate so surrendered must be
properly endorsed or otherwise in proper form for transfer and that the
person requesting such payment shall pay to Tubby's any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the certificate surrendered, or establish to the satisfaction of
Tubby's that such tax has been paid or is not applicable. If any holder of
Tubby's Common Stock is unable to surrender such holder's Tubby's stock
certificates because such certificates have been lost or destroyed, such
holder may deliver in lieu thereof an affidavit and indemnity bond in form
and substance and with surety reasonably satisfactory to Tubby's.

SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES
WITH THEIR PROXY CARDS

The terms of the Agreement and Plan of Merger, which is attached hereto as
Appendix A, are incorporated herein by reference, in their entirety.

SOLICITATION OF PROXIES

The enclosed proxy is solicited by and on behalf of the Board of
Directors of Tubby's. The Board of Directors of Tubby's has approved the
Merger Agreement and has nominated the proposed Directors. Accordingly, the
Board of Directors is recommending that the shareholders vote FOR approval of
the Merger Agreement and FOR the election of each Director. Proxies solicited
by the Board of Directors, if properly signed and returned, will be voted in
favor of the resolutions being presented to the shareholders.

A proxy may be revoked by the person giving it at any time before
the exercise thereof by written notice to the Secretary of Tubby's. All valid
proxies not revoked will be voted. Where a choice is specified on a proxy,
the shares represented by such proxy will be voted in accordance with the
specification made.

The cost of soliciting proxies, including preparing, assembling
and mailing the notice of meeting, proxy statement, formal proxy and other
soliciting materials as well as the cost of forwarding such material to the
beneficial owners of stock is being borne by Tubby's.

Even if you plan to attend the meeting please complete, date and
sign the enclosed proxy and mail it promptly in the enclosed envelope. In the
event you attend the meeting, you may revoke your proxy and vote your shares
in person.

ACCOUNTING TREATMENT

Under generally accepted accounting principles, this transaction
will be accounted for as a reorganization and Tubby's will continue to apply
current book value to its assets. Assuming completion of the Merger, Tubby's
does not intend to change its November 30 financial year-end.

PREVIOUS CONTACTS BETWEEN TUBBY'S,
INTERFOODS OF AMERICA, INC., AND R CORP

On December 15, 1998, Tubby's and Interfoods of America, Inc., a
Miami based Popeye's chicken franchisee, executed a letter of intent pursuant
to which Tubby's and Interfoods would merge, with Tubby's being the surviving
corporation. The letter of intent provided for a one for five reverse split
of outstanding Tubby's shares followed by a registered exchange offer of
Tubby's shares on a one for two basis for all Interfoods shares then
currently outstanding. Simultaneously, the surviving corporation (Tubby's),
would change its name to Interfoods of America, Inc., and sell all of Tubby's
pre-merger assets to R Corp. The purchase price for the assets was $2,500,000
payable as follows:

A. Down payment of $350,000 in cash and the redemption of Tubby's
shares held by shareholders of R Corp at the trading value
assigned to them upon the effectiveness of the one for five
reverse split.

B. The balance was to be paid pursuant to a ten-year Promissory
Note, providing for monthly payments of interest only at 7%
during the first three years. Principal and interest payments
would be made during years four through ten calculated on a
thirty-year amortization with a ten-year balloon with interest
at the rate of 7% per annum.

C. The Promissory Note was also to provide for an option to obtain
prepayment discounts as follows: R Corp would receive a 25%
discount from the principal balance if it paid all amounts due
prior to the fourth anniversary date of the closing and would
receive a 20% discount if it paid all the amounts due prior to
the eighth anniversary date.

D. The letter of intent also provided that the parties would enter
into a three-year Consulting Agreement. R Corp would provide
consultation regarding the Company's historical accounting
procedures, records, public relations, legal and other
corporate matters in exchange for compensation from Interfoods
as follows: $225,000 in year one; $150,000 in year two; and
$100,000 in year three.

Because Interfoods had more than 6,000,000 shares outstanding and Tubby's
would have only had 516,623 after the one for five reverse split, Tubby's
shareholders would have held approximately 20% of the outstanding shares in
the surviving corporation.

On April 23, 1999, Interfoods advised Tubby's that, after a
thorough evaluation, its Board of Directors had decided not to proceed with
the proposed merger. Thereafter, Tubby's announced the present proposed
merger on May 5,1999.

The Merger Agreement that has been executed with respect to this
transaction, which is the subject of this proxy statement, varies from the
previous proposal in many ways. Under this transaction, shareholders will
receive $1.10 in exchange for each share of Tubby's Common Stock. Under the
Interfoods proposal, Tubby's shareholders would have received one share of
Tubby's Common Stock in exchange for every five shares. In addition, under
this transaction, shareholders can take the proceeds of the exchange and use
them in the investment of their choice rather than automatically becoming
shareholders of the surviving corporation which

would have changed its name to Interfoods and continued largely in the fried
chicken segment of the quick service food industry.

BUSINESS OF TUBBY'S

Introduction

Tubby's, Inc. ("Tubby's") was originally incorporated on May 16,
1984 in the State of Utah under the name "Like Development, Inc." Like
Development did not conduct any business until May 23, 1986 when it acquired
all of the outstanding capital stock of Tubby's Sub Shops, Inc., a Michigan
corporation in exchange for 7,424,961 shares of Like Development's Common
Stock that were issued to the former shareholders of Tubby's Sub Shops, Inc.
At the time of that reorganization, Like Development also changed its name to
"Tubby's Sub Shops, Inc."

Tubby's Sub Shops, Inc., was originally incorporated in the State
of Michigan on December 2, 1977 for the purpose of franchising the rights to
operate Tubby's Sub Shops restaurants. The founders of Tubby's had been
operating restaurants under the Tubby's name since 1968 and, after developing
a Plan of Operation for those restaurants that would enable others to operate
similar restaurants, they founded Tubby's in 1977 to franchise the rights to
operate those restaurants. The founders of Tubby's then assigned their
trademarks, know-how, and existing agreements to Tubby's.

In September 1987, Like Development changed its domicile from Utah
to Michigan and changed the name of the company to "Tubby's, Inc.", a
wholly-owned subsidiary of Like Development that was incorporated in Michigan
for that purpose. As a result, each share of Like Developments' Common Stock
was converted to one share of Tubby's, Inc., Common Stock. Like Developments
authorized capital stock and the number of shares of its outstanding capital
stock were unchanged as a result of its re-domicile from Utah to Michigan.

In March of 1990, Tubby's and Stuff Yer Face ("SYF"), a New Jersey
restaurant company, merged with SYF as the surviving corporation. First,
shareholders of SYF approved a one for three reverse split of the outstanding
shares of Common Stock of SYF. Simultaneously, shareholders of both
corporations approved an Agreement and Plan of Merger pursuant to which each
share of Tubby's outstanding Common Stock was exchanged for one share of the
post split Common Stock of SYF. As part of that merger, the founders of SYF
entered into Employment Agreements and were granted options for the right to
purchase two SYF restaurants to be operated as franchises. The Employment
Agreements and Option Agreement became effective upon the closing of the
merger. As a result of that merger, shareholders of Tubby's Common Stock
owned approximately 67% of the outstanding SYF stock. Also as part of that
merger, SYF immediately changed its name to "Tubby's, Inc."

Tubby's currently has five wholly owned subsidiaries:

Tubby's Sub Shops, Inc., a Michigan corporation, grants
licenses to franchisees, pursuant to franchise agreements, to
own and operate Tubby's Sub Shops and SYF restaurants, in
exchange for franchisee fees and continuing royalties.

SUBperior Distribution Systems, Inc. ("SDS"), a Michigan
corporation, purchases

and distributes food and other products used in the operation
of Tubby's Sub Shops restaurants through contracts with
manufacturers and with warehousing and distribution companies.

Sub Line Company, Inc., a Michigan corporation, purchases,
sells and brokers equipment used in the construction of
Tubby's Sub Shop restaurants.

Tubby's Company Stores, Inc. a Michigan corporation, owns and
operates Tubby's Sub Shops restaurants. Company Stores
currently owns and operates three restaurants located in
Southeastern Michigan.

Tubby's Sub Shops Advertising Company, Inc., a Michigan
corporation, administers the advertising fund made up of
advertising contributions made by all Tubby's Sub Shop
restaurants.

Description of Tubby's Restaurants

Tubby's Sub Shops are sit down and carry out restaurants that
feature approximately twenty types of submarine sandwiches along with soup,
french fries, onion rings, breaded mushrooms, a selection of desserts and
soft drinks and other beverages. No table service is provided in a Tubby's
restaurants. Customers place and pay for their orders at a serving counter
and their food is then prepared to order, with most of the sandwiches being
grilled. When the order is ready, it is picked up at the counter. Customers
may also place their orders by telephone, either for consumption at the
restaurant or for carry out. Tubby's restaurants do not offer any alcoholic
beverages.

Tubby's restaurants are usually located in a neighborhood shopping
center or in a free standing building that has been designed and built as a
Tubby's restaurant or converted from another use. The decor of the Tubby's
restaurants has been designed to create a pleasing atmosphere for the
restaurant's customers. The building that is required for a Tubby's
restaurant will range from approximately 1,200 square feet to 2,500 square
feet. The cost of a new Tubby's restaurant will vary depending upon many
factors, including the size of the restaurant, whether it is new construction
or conversion of an existing building, whether it is to be purchased or
leased and prevailing real estate and construction costs. See "Franchising"
for description of the Tubby's Franchise Agreement.

SYF restaurants promote a specialty sandwich called a "Stromboli."
A Stromboli is a closed sandwich with bread freshly baked around a favorite
filling selected by the customer together with cheese, tomato sauce, onions
and peppers. The fillings available are meatballs, sausage, pepperoni, veal,
chicken, shrimp, eggplant, mushrooms, broccoli and spinach. SYF restaurants
also offer pizza, hamburgers, and numerous side orders like french fries,
onion rings, mozzarella sticks and others. SYF's restaurants are sit down,
full service restaurants with table service. SYF restaurants may also offer
beer and wine. At August 31, 1999, 91 Tubby's and two SYF restaurants were
operating.

Restaurant Development and Expansion

The following table shows the growth of the company's franchised
restaurants during its last six fiscal years:

Fiscal Year Ended November 30
-----------------------------------------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Tubby's Restaurants
Opened ............ 5 7 10 7 16 10
Closed ............ 4 1 3 2 2 10
Ending Number ..... 56 62 69 74 88 88

All operating Tubby's restaurants, of which as of August 31, 1999
there were 93 operating, are located in Michigan other than three restaurants
which are located in Florida, two in Missouri, one in Nebraska, one in Iowa,
two in Arizona and two in New Jersey. During the year ended November 30, 1998
10 Tubby's franchised restaurants closed and 10 new Tubby's franchised
restaurants opened, of which five are located in the Detroit metropolitan
area. Of the 10 restaurants that closed, four were located in Michigan, two
in Windsor, Ontario Canada, one in Indiana, one in Pennsylvania and two in
Ohio.

Competition

The restaurant business is highly competitive and is often
affected by changes in taste and eating habits of the public, by local and
national economic conditions affecting spending habits and by population and
traffic patterns. Tubby's believes that the quality and price of food
products offered are the principal means of competition in the restaurant
industry. Also of importance are site locations, quality and speed of
service, advertising and attractiveness of facilities.

Tubby's competes with restaurant chains and other restaurants
serving a variety of foods which operate more restaurants and have greater
financial resources, greater name recognition and marketing capability.
Furthermore, competition for management and other key operating personnel and
for restaurant sites could increase as Tubby's operations expand.

In the sale of franchises, Tubby's competes with franchisors of
other restaurants and franchisors of a variety of other products and
services. Tubby's management considers the amount of the initial investment
required of the franchisee, the perceived potential for business success and
return on investment, the assistance provided by the franchisor and the
franchisor's name recognition and reputation to be the most significant
competitive factors in franchising.

Franchising

Franchises for Tubby's Sub Shops and SYF restaurants have been
offered since 1977. The Company currently offers single-unit franchise
agreements, area development agreements and development agent agreements.
Except as noted below, the terms and conditions of the franchise agreements
used by Tubby's are the same.

The franchisee is responsible for all construction and remodeling
costs required to bring a location up to the standard specifications of a
Tubby's store. Subline Co., a subsidiary of

Tubby's, Inc., may, at the option of the franchisee, assist in the
construction of the restaurant or in the leasehold improvements. Also, the
franchisee may purchase the required construction drawings and equipment from
Subline Co.

The single-unit franchise agreement gives the franchisee the right
to use Tubby's or SYF's trademarks, service marks and methods of operation to
operate a Tubby's or SYF restaurant at a specific location that is approved
by Tubby's. The initial term of Tubby's current franchise agreement is ten
(10) years with the franchisee generally having two five year options to
renew. The initial license fee, which is payable upon execution of the
franchise agreement, is $15,000 for a traditional Tubby's franchise and
$15,000 for a SYF franchise, with a reduction in that fee provided to persons
who purchase more than one franchise and to existing franchisees. The initial
license fee for nontraditional restaurants, such as ones located in
convenience store, gas stations, etc., is $8,000, also payable upon execution
of the franchise agreement. The initial franchise fee compensates Tubby's for
the cost of various services provided by Tubby's to franchisees, such as
management and operations training, review of restaurant site selection,
restaurant design assistance, specifications and equipment lists, assistance
in locating suppliers and operating assistance during the initial opening of
a restaurant. Tubby's current franchise agreement requires the franchisee to
pay Tubby's a weekly royalty equal to the greater of $100 dollars per
restaurant or six percent (6%) of the franchisee's gross weekly sales. All of
the existing franchise agreements require the franchisee to pay Tubby's a
weekly advertising fee equal to the greater of $50 per restaurant or three
and a half percent (3 1/2%) of the franchisee's gross weekly sales. Those
advertising fees are administered by Tubby's or its affiliates or designees
and used to pay for shared production and media advertising costs and other
promotional costs. The franchise agreement further requires the franchisee,
among other things, to comply with Tubby's standards and procedures of
operation and menu and food quality specifications, to purchase supplies from
Tubby's approved sources and to permit inspections and audits by Tubby's.

If a potential franchisee desires to establish multiple
restaurants in a defined geographical area or wishes to have the right to
procure other persons to apply to become franchisees within a designated
area, that franchisee may enter into an Area Development or Development Agent
Agreement. At this time Tubby's has entered into one Area Development and
five Development Agent Agreements.

Tubby's does not make projections regarding sales volume of
existing or future stores. Many factors influence an individual store's sales
volume and/or profitability. Items affecting the success of a particular
franchise include, but are not limited to, site location, local competition,
local advertisement, direct owner participation, management's restaurant
experience, respective financing and capitalization costs and control of
labor costs.

Training

Tubby's provides a complete course of instruction relating to the
operations, methods, and other related procedures, with emphasis placed on
the preparation and serving of the specialty food items that are
characteristic of Tubby's restaurants. This course is offered to a licensed
franchisee, and for one additional franchisee or management representative.
Salaries, expenses of travel, food and lodging for franchisees and their
representatives are at the franchisee's own expense. The training program
consists of a minimum 120 hours of in-store operations, under

direct supervision of qualified personnel, in addition to classroom sessions
at Tubby's corporate offices. After successfully completion of training,
Tubby's will provide assistance by providing a member of its staff to the
franchisee's location for three (3) days out of the first nine (9) weeks of
operation. Tubby's does not charge for the training described above, but it
is only obligated to provide training for a franchisee's first location.
Additional training of management, employees, etc,, is available at a fee, as
is assistance at a subsequent location.

Quality Control and Supervision

Tubby's requires all of its franchisees to satisfy certain quality
control standards governing both the products and services that are offered
by its franchisees. Operating specifications for Tubby's restaurants are
documented by Tubby's in its operations manuals that are provided to all
franchisees. Tubby's audits performance and adherence to such standards by
performing periodic inspections of each restaurant.

Supplies

The materials, inventories and other items required to equip and
operate a Tubby's restaurant are generally available from several sources.
Although franchisees are not required to make any purchases from Tubby's, in
order to maintain quality control, Tubby's does require its franchisees to
purchase certain designated food and supply items from suppliers that have
been approved by Tubby's. The approval of suppliers is based upon the quality
of the items they supply and their conformity with specifications established
by Tubby's.

Subline is an approved supplier of certain equipment and also acts
as a broker for several approved suppliers of machinery, equipment and food
products that are sold to Tubby's franchisees and others. Although Tubby's
franchisees are not required to purchase any of that equipment from Subline
or utilize Subline's brokerage services, Tubby's believes that many of them
do so because the costs of utilizing Subline's services are often less than
the prices charged by other sources. One reason Subline is able to offer
competitive prices is that it can often obtain volume discounts for the items
that are sold to Tubby's franchisees. Subline will make a profit on any
equipment it sells in an amount equal to the sales price of that equipment
minus Subline's costs incurred in connection with that equipment. In most
instances, the terms of purchase from Subline are more favorable than terms
available from unaffiliated third parties. A portion of Subline's volume
discounts are passed on to the franchisee. Additionally, franchisees have
standing open accounts with Subline.

SDS is an approved supplier of food and other products that are
sold to franchisees. Although franchisees are not required to purchase any
products from SDS, many of them do so because SDS offers lower prices, higher
quality, superior service and certain purchase incentives.

Advertising

Each franchisee is required to pay advertising fees equal to the
greater of $50 per week or 3 1/2% of total weekly gross sales of that
franchisee's restaurant. Those funds are administered by Tubby's Sub Shops
Advertising Co., Inc. ("TSSAC"), and are used to pay for shared production

and media advertising costs as well as other promotional costs. Local
advertising campaigns are conducted through radio, television, local
newspapers, direct mailing and billboards and other media that would be cost
prohibitive for an individual franchisee. All monies received for advertising
are escrowed and spent for advertising purposes only. A portion is retained
by the franchisor to cover administrative costs. Generally, franchisees
located in states other than Michigan pay 1% of weekly gross sales to TSSAC
and are required to spend an additional 2 1/2% on local marketing until such
time as the number of franchises in their area reaches an "area of dominant
influence" large enough to warrant the formation of an advertising
cooperative.

Trademarks and Service Marks

Tubby's name and logo and SYF's logo are registered as trademarks
and service marks with the United States Patent and Trademark Office.

Regulation

Many states have laws regulating franchise operations, including
registration and disclosure requirements in the offer and sale of franchises
and the application of statutory standards regulating franchise
relationships. Tubby's is also subject to the Federal Trade Commission
regulations relating to disclosure requirements in the sale of franchises.
Tubby's believes it is operating in compliance with applicable laws and
regulations governing its operations.

Each of the restaurants operated by Tubby's franchisees is subject
to licensing and regulation by the health, sanitation, safety, fire
department and, in the case of restaurants serving alcoholic beverages (i.e.,
SYF restaurants), the alcoholic beverage control agencies in the state or
municipality where located. Difficulties or failures in obtaining the
required licensing or approval could result in delays or cancellations in the
opening of new restaurants.

Federal and state environmental regulations have not had a
material effect on the operations of Tubby's or its franchisees, but more
stringent and varied requirements of local governmental bodies with respect
to zoning, land use and environmental factors could delay construction of new
restaurants.

Tubby's and its franchisees are also subject to the Fair Labor
Standards Act, which governs such matters as minimum wages, overtime, and
other working conditions. A significant portion of the food service personnel
employed by Tubby's franchisees are paid at rates related to the federal
minimum wage, and accordingly, increases in the minimum wage increase the
labor cost incurred by Tubby's franchisees.

Employees

As of November 30, 1998, Tubby's and its subsidiaries employed 45
persons. This includes 13 at corporate offices (4 officers, 3 managers, 6
clerical) and 32 at Company owned restaurants (3 managers and 19 part-time
employees). None of Tubby's employees are covered by collective bargaining
agreements. Tubby's considers its employee relations to be good.

Properties

Tubby's leases an approximately 8,000 square foot office building
at 6029 E. Fourteen Mile Road, Sterling Heights, Michigan 48312 where its
principal executive offices are located. The lease provided for a five year
initial term which ended June 30, 1998, and, thereafter, month-to-month, with
monthly rent of $3,200, plus insurance and taxes. The lease also includes an
option to purchase the building for $425,000 until the termination of the
lease. Tubby's believes that the building is suitable and adequate for its
current operation. Tubby's also owns a Tubby's restaurant located in Clinton
Township, Michigan, which it operates, and a Tubby's restaurant located in
Southgate, Michigan that it leases to an unaffiliated franchisee at a monthly
rental of $2,300.00.

Legal Proceedings

A. Civil Actions.

1. Tubby's, Inc. v Walter Lasko (Macomb County Circuit Court Case No.
98-3499-CK). In August 1998, the Company commenced a civil action
against Walter Lasko in the circuit court for the County of
Macomb, Michigan. The Complaint asserts claims for specific
performance, equitable estoppel and unjust enrichment in
connection with Mr. Lasko's refusal to honor the option to
purchase the office building where its headquarters are located.
The Company originally entered into a five year lease with an
option to purchase the office building prior to the expiration of
the lease. The Defendant claims that the Company failed to
strictly comply with the written option to purchase by failing to
provide a timely written notice that it was exercising the option.
At this time, the Company is awaiting a trial date and intends to
vigorously pursue its claim to specifically enforce the
Defendant's obligation to sell the office building to the Company.

2. Tubby's Sub Shops, Inc., a Michigan corporation, and SUBperior
Distribution Systems, Inc., a Michigan corporation v Sun Valley
Foods Company d/b/a AAA Warehouse & Cold Storage Company, a
Michigan corporation, and Greg Tatarian, and Sun Valley Foods
Company d/b/a AAA Warehouse & Cold Storage Company, a Michigan
corporation, and Greg Tatarian, individually v Tubby's Sub Shops,
Inc. a Michigan corporation, SUBperior Distribution Systems, Inc.
a Michigan corporation and Sun Valley Foods Company d/b/a AAA
Warehouse & Cold Storage Company, a Michigan corporation v
Tubby's, Inc., a New Jersey corporation (Macomb County Circuit
Court Case No. 98-3796-CK). On September 18, 1998, the Company
commenced a civil action against Sun Valley Foods Company and Greg
Tatarian, its President, individually in the circuit court for the
County of Macomb. The Complaint asserts claims for breach of
contract, reimbursement for overpayments, fraudulent
misrepresentation, and reimbursement for damaged and/or missing
inventory. In the fall of 1997, the Company entered into a
warehousing and distribution contract with Sun Valley and these
claims arose out of Sun Valley's failure to perform pursuant to
that contract. At present,

this action is in the discovery phase. The Company intends to
pursue settlement negotiations and, if not successful, to
vigorously pursue these claims through trial or arbitration.

3. 1266020 Ontario Limited, Tony Houad, Natalie Kemeny v T & J
Franchising Systems LTD., Tubby's Sub Shops Inc., Theresa
Hutchinson and Jerry Hutchinson (Ontario Court General Division
Case No. 45035); 1266115 Ontario Limited, Rita Marra, Biagio
Marra, Christina Gatto, Brunno Gatto and Theresa Williams v T & J
Franchising Systems LTD, Tubby's Sub Shops Inc., Theresa
Hutchinson and Jerry Hutchinson (Ontario Court General Division
Case No. 45033). On October 16, 1998, the above plaintiffs
commenced actions against T & J Franchising Systems LTD and its
shareholders Theresa and Jerry Hutchinson ("T & J") and Tubby's. T
& J are former development agents for Tubby's whose geographic
area included all of Ontario, Canada. T & J are also former
franchisees of Tubby's. In that regard they sold two of their
franchises to the plaintiffs in these cases who now claim that T &
J misrepresented the prior sales of those franchises. Their claim
against Tubby's is that Tubby's is liable for the
misrepresentations of its former development agents in connection
with the sales of those stores. They are seeking damages in the
amount of their investments and losses. Tubby's has retained local
counsel in Ontario, has denied any liability and intends to
vigorously defend against these claims.

4. Scott McBeath v 1266092 Ontario Limited, T & J Franchising Systems
LTD, Tubby's Sub Shops Inc., Jerry Hutchinson and Theresa
Hutchinson (Ontario Court General Division Case No. 44278). On
June 16, 1998, Scott McBeath commenced this action against the
above listed defendants. McBeath claims that he paid T & J $50,000
(Canadian) as payment in full to acquire a 50% ownership interest
in a Tubby's Sub Shop franchise owned by 1266092 Ontario Limited
whose shareholders were Terry and Jerry Hutchinson. This claim is
for reimbursement of that payment. The claim against Tubby's is
that Tubby's should be liable for its former development agent's
fraud and conversion. Tubby's has retained counsel in Ontario, has
denied any liability and intends to vigorously defend this case.

MANAGEMENT OF TUBBY'S

The directors and executive officers of Tubby's are as follows:

Name Age Position Held with Tubby's
- ---- --- --------------------------

Robert M. Paganes........ 42 President, Chief Executive Officer
and Director

P. Terrance Paganes...... 57 Executive Vice President and
Director

Vincent J. Tatone........ 42 Secretary and Director

Ronald Boraks............ 39 Director

PRESIDENT & CEO - ROBERT M. PAGANES. Mr. Paganes has been the CEO of
Tubby's since August 12, 1994, has been the President of Tubby's since
June 10, 1994, and was Executive Vice-President and Secretary of
Tubby's from June 21, 1991 to June 10, 1994. Mr. Paganes has been an
Officer and Director of Tubby's and its predecessor TSSI since December
2, 1977. Mr. Paganes is also one of the Tubby's franchisees.

CHAIRMAN OF THE BOARD & VICE-PRESIDENT - PETER T. PAGANES
Mr. Paganes has been the Chairman of the Board of Tubby's since August
12, 1994, and was the Vice-Chairman of the Board of Tubby's from June
21, 1991, to August 12, 1994, and has been a Director of Tubby's and
its predecessor TSSI since December 2, 1977. Mr. Paganes has also been
a Vice-President of Tubby's since December 2, 1977. Mr. Paganes is also
one of the Company's franchisees; Peter T. Paganes and Robert M.
Paganes are brothers.

SECRETARY & DIRECTOR - VINCENT J. TATONE Mr. Tatone has been Secretary
of Tubby's since August 12, 1994, and has been a Director of Tubby's
since January 30, 1993. Mr. Tatone was an officer and shareholder of
the law firm of Lites & Tatone, P.C. of Detroit, Michigan from
September 1992 until April 1994. From September 1987 to September 1992,
Mr. Tatone practiced with the law firm of Bodman, Longley and Dahling
of Detroit, Michigan. He became Corporate Counsel of Tubby's in April
1994.

DIRECTOR - RONALD BORAKS
Ronald Boraks has been a Director of Tubby's since June of 1996. Mr.
Boraks has been in the real estate and property management business for
the past 15 years. He has a bachelor of science degree in operations
management from Wayne State University and a juris doctor degree from
the University of Detroit School of Law. Mr. Boraks is licensed by the
State of Michigan as an attorney, real estate broker and residential
builder and specializes in financial and administrative management. Mr.
Boraks is an officer and director of Certified Realty, Inc., located in
Farmington Hills, Michigan.

The by-laws of Tubby's, the surviving corporation, provide that
directors shall serve a term of one year or until their successors are
appointed or duly elected. The directors listed above are proposed to be
elected and hold office until the 2000 Annual Meeting and until their
successors are elected and qualified, in the event the Merger Agreement is
not approved. All of the nominees have indicated their willingness to serve,
but if any of them should decline or be unable to serve, it is intended that
the enclosed proxy will be noted for the election of such persons as are
nominated as replacements by the Board of Directors in accordance with the
By-Laws.

Compensation of Tubby's Officers and Directors

Set forth below is, for the fiscal years ended November 30, 1998,
1997, and 1996 all cash compensation paid to each of the executive officers
or directors of Tubby's and to all officers and Directors of Tubby's as a
group:

Restricted Securities
Name and Principal(s) Other Annual Stock Underlying
Position Year Salary Compensation Award SAR's
--------------------- ---- ------ ------------ --------- ----------
Robert M. Paganes 1998 $76,000.00 0 0 0
President and CEO 1997 $74,000.00 0 0 0
1996 62,500.00 0 0 0

P. Terrance Paganes 1998 $75,000.00 0 0 0
Vice President 1997 $75,000.00 0 0 0
1996 $62,500.00 0 0 0

Vincent J. Tatone 1998 $75,000.00 0 0 0
Secretary 1997 $65,000.00 0 0 0
1996 $50,000.00 0 0 0

Theresa M. Borto 1998 $32,500.00 0 0 0
Chief Financial Officer 1997 -- -- -- --
1996 -- -- -- --

Melvyn Erdos 1998 $32,500.00 0 0 0
Chief Financial Officer 1997 $65,000.00 0 0 0
1996 57,500.00 0 0 0

Tubby's anticipates paying the following salaries to its officers
during its current fiscal year: Robert M. Paganes - $100,000; P. Terrance
Paganes - $75,000 and Vincent J. Tatone - $87,500. Tubby's does have stock
option plans in effect for its employees, including officers, but no stock
options were granted in fiscal 1998 and Tubby's anticipates that none will be
granted in its current fiscal year.

SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Set forth below is certain information concerning management and
other persons who are known by the Company to own beneficially more than 5%
of the Company's Common Stock, $0.001 par value, on November 30, 1998.

<TABLE>
<CAPTION>
Amount and Nature Percent of
Name of Beneficial Owner of Ownership (1) Class(2)
- ------------------------ ----------------- ----------
<S> <C> <C>
Robert M. Paganes .......................... 259,775 10.0%
6029 E. Fourteen Mile Road President
Sterling Heights, Michigan 48312 Director

Peter T. Paganes ........................... 191,400 7.4%
6029 E. Fourteen Mile Road Vice President
Sterling Heights, Michigan 48312 Director

Vincent J. Tatone .......................... 50,000 3.1%(3)
6029 E. Fourteen Mile Road Secretary
Sterling Heights, Michigan 48312 Director

Ronald Boraks .............................. 0 --
38345 West Ten Mile Road, Suite 300 Director
Farmington Hills, Michigan 48335

J. Thomas Paganes .......................... 187,738 7.3%
38633 Moravian Shareholder
Mount Clemens, Michigan 48043

All Executive Officers & Directors as a
Group (5 persons) ....................... 501,175 19.4%

<FN>
(1) The nature of ownership is sole voting and investment power unless
otherwise indicated.
(2) As of June 3, 1999.
(3) Pursuant to the rules of the Securities and Exchange Commission, the
Company's Common Stock which is not outstanding but which is subject to
options is deemed to be outstanding for the purpose of computing the
percentage of outstanding Common Stock owned by the optionee, but not
deemed to be outstanding for the purpose of computing the percentage
owned by any other person. Vincent J. Tatone has an option to purchase
30,000 shares of Common Stock under Tubby's Statutory Employee Stock
Option Plan.
</TABLE>

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
$95,709 for the nine months ended August 31,1999, compared with a decrease of
$215,707 for the nine months ended August 31, 1998. The decrease during the
same period in 1998 was primarily due to repayment of long term debt. The
current period increase in the Company's cash position resulted primarily
from net income of $298,675, non-cash expenses of depreciation and
amortization of $95,389 and federal tax expense of $158,729, also a non-cash
expense because of the utilization of NOL's, net of a decrease in accounts
payable of $114,215 and the purchase of assets, including goodwill, of
$229,462. The purchased assets included the purchase of a high volume store
from an unaffiliated franchisee for $220,000, cash.

Consolidated Revenues increased by $1,651,910 primarily as a result of an
increase in SDS Product Sales of $1,634,187. Consolidated Expenses increased
by $1,015,531 primarily due to an increase in Cost of Product Sales of
$1,139,117. Other fluctuations of lesser significance are explained below.

The Company opened fourteen new franchised stores during the first nine
months of 1999 compared to eight stores in the first nine months of 1998 and
has signed franchise agreements for an additional five with projected opening
dates during the fourth quarter 1999. Nine franchised stores were closed
during the first nine months of 1999 compared to six in 1998 and one
previously closed store was re-opened.

At August 31, 1999, the Company operated four restaurants and franchised
eighty-nine 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 August 31, 1999 as compared
with the three months ended August 31, 1998.

The current three-month period shows a Net Income of $132,342 as compared to
a Net Loss of $116,673 in the same three months of the prior year.

Revenues for the three months ended August 31, 1999 increased by $316,257 or
14.5% to $2,504,523. The increase in Revenues was attributable to:

o An increase in SDS Product Sales for the quarter of $268,991 or 20% due to
additional products stocked by SDS in third quarter 1999 compared to third
quarter 1998. o Food Sales increased by $74,727 or 28.4%. This is
primarily due to the acquisition of a new Company-owned store.

o Advertising fees were $193,760, up 20.6% from the same period last year.
This increase reflects 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. In addition,
there was approximately $24,000 of deferred advertising revenue in the
three months ended August 31, 1998 whereas there was $0 deferred revenue
at the end of the current three-month period.

o Equipment and Restaurant Sales decreased $39,291 or 52% for the three
months ended August 31, 1999 as compared to the three months ended August
31, 1998 despite the increase in the number of stores opened (five in
third quarter 1999 compared to two in third 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, all of the stores opened in the third quarter 1999 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 August 31, 1999 decreased
by $65,628 or 2.8% compared to the three months ended August 31, 1998. The
decrease in Total Costs was attributable to:

o Cost of Product Sales was $1,185,960 or 73.6% of Product Sales for the
three months ended August 31, 1999 compared to $1,032,572 or 76.9% for the
three months ended August 31, 1998. The increase of $153,388 represents
increased sales, primarily through sales of additional stock items, during
third quarter 1999 compared to third 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 decreased by $205,404 or 19.8% reflecting primarily a
decrease of approximately $181,000 in outbound freight costs due to a
change of distributors. o The Cost of Restaurant Food Sales increased in
third quarter 1999, compared to 1998, by $21,191 or 11.2%. This is
primarily because the company acquired an additional company-owned store,
as of June 30, 1999.

o Cost of Equipment Sales decreased as a percentage of Equipment &
Restaurant Sales from 86% in 1998 to 84% in 1999 reflecting increased
gross profit margins.

The loss on disposal of assets of $43,586 represents leasehold improvements
that were abandoned when the Company closed a store. The store had been under
an agreement whereby a manager would operate the store with the option to
purchase. When the manager opted not to purchase, the Company decided to
close the location rather than to sell it.

Results of Operations for the nine months ended August 31, 1999 as compared
to the nine months ended August 31, 1998.

The company realized Net Income of $298,675 for the nine months ending
August 31, 1999 as compared to a Net Loss of $(117,001) for the nine months
ending August 31, 1998.

Total Revenues for the nine months ending August 31, 1999 increased by
$1,651,910 or 30.7% to $7,031,844. The increase in Total Revenues was
attributable to:

o An increase in Product Sales of $1,634,187 or 54.8%. The SDS inception
date was February 1998; therefore, there were only seven months of SDS
operation in the financial results for the nine months ending August 31,
1998 whereas there are nine months of operations in the same period ended
August 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 nine months ended August 31, 1999 were
$729,643, up 8.7%. The increase reflects 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.

o Restaurant Food Sales increased by $76,267, or 11.6% in the nine-month
period ended August 31, 1999 as compared to the nine-month period ended
August 31, 1998. This increase is the net effect of closing one company
store in 1998 and opening another company store in 1999.

o Increase of $93,949 or 18.9% in Advertising Fees. The increase reflects
the income derived from the increased franchisee food sales and the
advertising efforts of the Company. In addition, the nine-month period
ended August 31, 1999 reflects approximately $32,000 of revenue that was
deferred from November 30, 1998.

o Equipment and Restaurant Sales decreased $233,829 or 64.7% for the nine
months ended August 31, 1999 as compared to the nine months ended August
31, 1998 despite the increase in the number of stores opened (fourteen in
1999 compared to eight 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 1999 elected to handle store construction/renovations and
some of the equipment purchases internally rather than through The Subline
Company.

Total Costs & Expenses for the nine months ended August 31, 1999 increased by
$1,015,531 or 18.3% as compared to the nine months ended August 31, 1998.

o Cost of Product Sales was $3,453,436 or 74.8% of Product Sales for the
nine months ended August 31, 1999 compared to $2,314,319 or 77.6% for the
nine months ended August 31, 1998. The SDS inception date was February
1998; therefore, there were only seven months of SDS operation in the
financial results for the nine months ending August 31, 1998, whereas
there are nine months of operations in the same period ended August 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 $43,973 or 1.8% in the nine months ended
August 31, 1999. The increase is comprised of increases in Advertising of
$94,279, and Professional Services of $45,530, as well as a decrease in
Shareholder Compliance Costs of $39,362 and many small decreases
reflective of management's ongoing cost control measures.

o Cost of Equipment Sales increased as a percentage of Equipment &
Restaurant Sales from 81% for the nine month period ended August 31, 1998
to 85% in 1999 reflecting decreasing gross profit margins.

The loss on disposal of assets of $43,586 represents leasehold improvements
that were abandoned when the Company closed a store. The store had been under
an agreement whereby a

manager would operate the store with the option to purchase. When the manager
opted not to purchase, the Company decided to close the location rather than
to sell it.

LIQUIDITY AND CAPITAL RESOURCES

Cash and Equivalents, Certificates of Deposit, and Investments increased by
$95,709 for the nine months ended August 31,1999, compared with a decrease of
$215,707 for the nine months ended August 31, 1998. The decrease during the
same period in 1998 was primarily due to repayment of long term debt. The
current period increase in the Company's cash position resulted primarily
from net income of $298,675, non-cash expenses of depreciation and
amortization of $95,389 and federal tax expense of $158,729, also a non-cash
expense because of the utilization of NOL's, (See 10KSB for fiscal year ended
November 30, 1998, Note 7), net of a decrease in accounts payable of $114,215
and the purchase of assets, including goodwill, of $229,462. The purchased
assets included the purchase of a high volume store from an unaffiliated
franchisee for $220,000, cash.

Cash and equivalents increased by $95,709 for the nine months
ended August 31, 1999. The increase is composed of the following significant
cash flows: Net Cash Flows Provided By Operating Activities Was $276,810,
Compared To Net Cash Used By Operating Activities Of $188,602 For The Same
Period In 1998.

Operating activities creating significant cash inflows:

o Net income of $298,675, compared to net loss of $117,001 for the same
period in 1998.
o Non-cash adjustments for depreciation and amortization of $95,389,
compared to $125,846, for the for the same period in 1998.

o A non-cash expense for taxes on income of $158,729 (because of the
utilization of NOL's), compared to $0 for the same period in 1998.

o Prepaid expenses decreased by $11,980, compared to an increase of $57,878
for the same period in 1998.

Operating activities creating significant cash out flows:

o Accounts receivable increased by $85,599, compared to an increase of
$228,059 for the same period in 1998. Both increases are primarily related
to SDS operations; SDS began operating in February 1998 and revenues
increased for the first nine months of 1999.

o Inventories increased by $65,929, compared to an increase of $223,859 for
the same period in 1998.

o Accounts payable decreased by $114,215, compared to an increase of
$293,803 for the same period in 1998.

o Deferred revenues increased by $86,954, compared to an increase of $21,863
for the same period in 1998.

Net Cash Used In Investing Activities Was $172,740, Compared To Net Cash
Provided By Investing Activities Of $191,931 For The Same Period In 1998.

Cash flows from investing activities:

o Payments on notes receivable of $42,624, compared to $129,425 for the same
period in 1998.

o Net proceeds from the sale of equipment and property of $14,098, compared
to $147,138 for the same period in 1998.

Cash flows used in investing activities:

o Purchase of property and equipment for $109,462, compared to $19,616 for
the same period in 1998.

o Purchase of goodwill and a covenant not to compete for $120,000, compared
to $0 for the same period in 1998.

Cash Flows Used In Financing Activities Was $8,361, Compared To $219,036 For
The Same Period In 1998.

Cash used in financing activities:

o Payment of long-term debt of $8,361, compared to $219,036 for the same
period in 1998, which was used to repay a note in connection with the
dissolution of the McTub partnership.

As a result of the above sources and uses of cash and the expected
continued cash flows, the Company believes it has sufficient liquidity to
meet the short-term and long-term needs of the Company. The Company also
maintains a $250,000 revolving line of credit with a local financial
institution. The line of credit, which would provide long-term liquidity,
credit can be drawn upon as needed to meet future cash requirements. As of
August 31, 1999, the entire line of credit was available to the Company.

Results of Operations - Comparison of the years ended November 30, 1998
and 1997

Tubby's and its consolidated subsidiaries experienced an increase in 1998
total revenues of $3,810,297 or 107.2%. The Company had a loss before taxes
of $31,207 in 1998 versus income before taxes of $202,799 in 1997 which is a
115.4% decrease. Net loss after taxes was $31,207 in 1998 versus net income
after taxes of $107,499 in 1997.

The increase in revenues is attributable to revenues generated by the new
distribution subsidiary, SDS, of $4,397,578, a decrease in food sales of
$151,082, or 16.2%, an increase in monthly franchise fees of $110,339, or
14%, a decrease in equipment and restaurant sales of $184,116, or 32%, and a
decrease in commissions and other fees of $367,589, or 76.6%.

The revenues of the distribution subsidiary represent revenues generated
since the launch of SDS on February 2, 1998. SDS product sales continued to
grow each month as the franchisees became familiar and comfortable with the
new distribution system.

The decrease in food sales revenues is primarily attributable to one Company
owned restaurant that was closed in June 1998 due to a lease non-renewal. The
food sales attributable to this restaurant was $210,846 in the seven months
it operated in 1998 compared to $383,849 in twelve months of 1997.

The increase in monthly franchise fees is a result of improved food sales
system-wide. The Company believes that this overall increase in food sales is
the result of the strong Detroit area economy as well as the increased
efforts of the Marketing Director in advertising and marketing Tubby's
Submarine Shops and their products.

The decrease in the equipment and restaurant sales revenue is a result of
opening 10 stores in 1998 as compared to 16 stores in 1997. The trend toward
building the lower cost non-traditional Tubby's Sub Shops rather than the
traditional Tubby's Sub Shop continues. In 1997, seven of the ten new stores
were of the non-traditional type. In addition, many of the new franchisees,
particularly the growing number of out-of-state stores, are electing to
handle store construction/improvements on their own rather than using the
Subline Company, reducing purchases from Subline to equipment only.

Commissions and other fees are comprised of marketing rights, material sales,
rental income of existing Company owned franchisee operated Tubby's Sub
Shops, and, in 1997, vendor rebates. The decrease of $367,589, or 76.6%,
relates primarily to vendor rebates. In 1998, vendor rebates are classified
as a reduction in costs of SDS products sold, whereas in 1997 vendor rebates
of $364,629 are included in commissions and other fees.

The costs of SDS product sales were $3,402,997 during the ten months of
operation in 1998 with a gross margin of $994,581, or 22.6%. Management
continues to believe strongly in the value of SDS and its ability to provide
its franchised and Company-owned Tubby's Sub Shops with uniform and
consistently high quality products at equivalent or lower prices than
previously charged.

Operating expenses increased in 1998 by $881,817 or 37.4%. Incremental
operating expenses of SDS which began operations in February 1998 represents
approximately $703,000 of the increase. The largest portion of the SDS
operating expenses is the cost of warehousing and distribution of $592,000.
Advertising, promotional, and various marketing expenses increased by
$138,000 in 1998 as the Company expanded its marketing efforts in regions
where Tubby's stores are located. Commissions paid to development agents
increased by $68,000. The Company anticipates continued increases in
commissions paid to development agents as the development agent agreements
are fulfilled over the next twenty years. Salaries increased by $147,000, or
23.6%. The increase in salaries included additional staffing related to SDS
operation, full year salaries for the staff positions in purchasing and
marketing which were filled in April 1997 and July 1997, respectively, and
annual merit increases. Expenses related to Franchise Development decreased
by approximately $115,000, or 67.6%, primarily due to attendance at fewer
trade shows.

The cost of food sales at Company-owned stores decreased by $155,018, or
23.2% primarily due to the closing of one store in June 1998 due to lease
non-renewal. The gross margin for 1998 was 34% compared to 28.3% in 1997.
Company-owned stores absorb certain costs that franchised stores do not,
including costs related to training new franchisees.

The costs of equipment and restaurant sales decreased by $129,118, or 27.5%.
The gross margin for 1998 was 12.8% compared to 18.3% in 1997. The decrease
in margin is due to increased price competition in equipment sales. The
Company has taken steps to reduce the operating expenses related to the sale
of equipment and restaurant construction and expects improved financial
results in 1999.

Other income (expense) decreased by $43,625, or 30.5%, in 1998 as compared to
1997. This decrease was primarily due to a decrease in interest income of
$38,479 or 35.5% in 1998 because the Company utilized its excess funds to
provide short term funding for SDS inventory and accounts receivable.

Liquidity and Capital Resources

For the year ended November 30, 1998, cash and equivalents decreased by
$172,033 when compared to 1997 during which cash and equivalents increased by
$70,735. The decrease during fiscal 1998 is composed of the following
significant cash flows:

Net Cash Flows Used By Operating Activities Was $84,098 In 1998
Compared To Net Cash Provided By Operating Activities Of $169,799 In
1997

Operating Activities Creating Significant Cash Inflows:

o Non-cash adjustments to the Net Loss included Depreciation and
Amortization for 1998 of $136,704, compared to $135,468 for 1997.

o Provision for doubtful accounts was $71, 896, compared to $0 for
1997

o Accounts payable increased by $272,769 as a result of the new SDS
operations, compared to decrease of $83,522 for 1997.

Operating Activities Creating Significant Cash Out Flows:

o Net Loss of $31,207, compared to a Net Income of $107,499 for 1997.

o Accounts receivable increased by $282,479 as a result of the new
SDS operations, compared to an increase of $198,543, in 1997.

o Inventories increased by $228,861 also as a result of SDS
operations, compared to a decrease of $3,386 for 1997.

o Prepaid expenses increased by $16,409, compared to a decrease of
$59,195 for 1997.

Net Cash Flows Provided By Investing Activities Was $140,716 in 1998,
Compared To Net Cash Flows Used By Investment Activities of $16,921 In 1997.

Cash Flows From Investing Activities:

o Net Proceeds From Sale Of Property and Equipment of $156,502,
compared to $5,000 for 1997.

o Payments on Notes receivable of $92,508, compared to $52,912 for
1997.

Cash Used In Investing Activities:

o Purchases of Property and Equipment of $37,525, compared to $69,020
for 1997.

o Acquisition of McTub 49% Minority Interest of $65,000, compared to
$0 for 1997.

Cash Flows Used in Financing Activities Was $228,651, Compared To Cash
Flows Used In Financing Activities Of $82,143 In 1997.

Cash Used In Financing Activities:

o Payments of long-term debt of $228,651 which is comprised of the
repayment of a note in connection with dissolving the McTub
partnerships and to principal reduction on notes owed by the
Company, compared to payment of long-term debt of $232,143 and
proceeds from long-term debt of $150,000 for 1997.

Year 2000

The Company, like most owners of computer hardware and software, has been
required to modify certain portions of its hardware and software so that it
will function properly in the year 2000. The Company evaluated its system as
to year 2000 compliance. All of the Company's hardware was year 2000
compliant. The company has no custom-programmed software. Certain purchased
software packages have been upgraded to the year 2000 compliant versions. The
work was started on September 20, 1999 and was completed November 13, 1999.
All devices that may be susceptible to Y2K issues have been inventoried. The
entire project took a total of 50.5 hours totaling $5,112.50. We are
currently 100% completed. 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 has received responses from
other third party vendors confirming they are year 2000 compliant. Management
believes that the Company will not incur any additional year 2000 costs;
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. After conducting various tests, the outside software consultant
has assured the Company that he does not anticipate any Y2K system defects.
Worst case scenario would include an entire system failure. In the case of
this event, the Company would be able to operate on a manual basis during the
interim of the system adjustments without any great detriment. The Company
does a back up of all network files on a daily basis, which could be used to
restore any lost information.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OF TUBBY'S AND R. CORP

The shareholders of R Corp, Robert M. Paganes, Peter T. Paganes
and Vincent J. Tatone, who are also directors, officers and shareholders of
Tubby's, Inc., have entered into a

Stock Purchase, Redemption and Shareholder Agreement with Tubby's. The
purpose of the agreement, which is conditioned on shareholder approval of the
Merger Agreement, is to equalize the equity ownership between these three
individuals in the surviving corporation. Therefore, the agreement provides
that the Company will redeem 109,000 shares of Tubby's Common Stock from
Robert M. Paganes and 41,000 shares from Peter T. Paganes at the merger price
of $1.10 and provides for the sale of 100,000 shares to Vincent J. Tatone at
the same price. Each individual will then own 150,000 shares of Tubby's
Common Stock, assuming the Merger Agreement is approved. In addition, these
individuals have each agreed to personally guarantee loans to Tubby's, and to
obtain loans to themselves, individually, the proceeds of which will be used
to fund the Merger Agreement, and have each agreed to pledge property owned
by them in roughly equal amounts as collateral to secure repayment of the
guaranteed loans.

Federal Income Tax Consequences

As a part of the Merger, Shareholders of Tubby's will exchange
each share of the Common Stock of Tubby's for cash at the merger price of
$1.10. Any gain or loss realized under this exchange of property must be
recognized for federal income tax purposes by the shareholders. With regard
to Tubby's, no gain or loss will be recognized by Tubby's as a result of this
transaction. Tubby's will not be acquiring any assets nor will it be assuming
any of the liabilities of R Corp because R Corp has no assets or liabilities
other than its rights under the Merger Agreement.

THE FOREGOING IS ONLY A GENERAL DESCRIPTION OF THE FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER. NO DISCUSSION IS INCLUDED WITH RESPECT TO THE
STATE AND LOCAL INCOME TAX CONSEQUENCES OF THE TRANSACTION. EACH SHAREHOLDER
IS URGED TO CONSULT HIS TAX ADVISOR WITH RESPECT TO THE CONSEQUENCES TO HIM
OF THE CONSUMMATION OF THE MERGER AGREEMENT.

Legal Matters

Certain legal matters with respect to the Merger will be passed
upon by Bodman, Longley & Dahling, LLP, Detroit, Michigan as special counsel
for Tubby's.

Experts

The financial statements of Tubby's, Inc. and its subsidiaries as
of November 30, 1998, November 30, 1997 and November 30, 1996, and for the
years then ended, have been audited by BDO Seidman, LLP, Independent
Certified Public Accountants, Detroit, to the extent and for the periods set
forth in their reports appearing elsewhere herein, and are included herein
in reliance upon such reports and given upon the authority of said firm as
experts in auditing and accounting.

The terms of the Merger Agreement were examined by Stout Risius
Ross, Inc., and, as set forth in their Fairness Opinion, copy at Appendix B,
that firm opined that the terms of the Merger Agreement are fair and
equitable, from a financial point of view, to all of the shareholders of
Tubby's.

Reports and Board of Directors Meetings

To the best of Tubby's knowledge, based solely upon a review of Forms 3 and 4
furnished to Tubby's during its most recent fiscal year, one director, Mr.
Tatone, failed to file on a timely basis reports required by Section 16(a) of
the Securities Exchange Act of 1934. He filed one late report.

There were six (6) meetings of the Board of Directors held during the past
fiscal year. Each director attended at least seventy-five percent of the
meetings of the Board of Directors during the fiscal year ended November 30,
1998. Tubby's does not have standing audit, nominating or compensation
committees of the Board of Directors, or similar committees.

Directors' Compensation

A fee of $500 per meeting attended was paid to each independent,
non-employee, Director for their services as such for the fiscal year ended
November 30, 1998. The total amount paid to independent Directors as a group
was $6,000. Mr. John Fayad resigned as a director on September 19, 1999. He
did not cite any disagreements with management as a factor in his decision to
resign. The reason he gave was that he lacked sufficient time to contribute
because of numerous other commitments.

Independent Accountants

The Board of Directors has selected BDO Seidman, LLP, independent public
accountants, to examine the financial statements of the Company for the year
ending November 30, 1999. A representative from BDO Seidman, LLP, will be
present at the meeting and will be available to respond to appropriate
questions.
Proposals of Shareholders

If the Merger is not approved by the shareholders of Tubby's, shareholder
proposals for the year 2000 Annual Meeting of Shareholders must be received
by the Company at 6029 E. Fourteen Mile Road, Sterling Heights, Michigan
48312-5801 before the close of business on January 3, 2000 for consideration
for inclusion in Tubby's proxy statement. Shareholder proposals should be
addressed to the attention of Tubby's Secretary.

Miscellaneous

The Board of Directors is not aware of any other business that
will be presented for action at the Meeting. If any other business comes
before the Meeting, the Management Proxy Committee has been directed by the
Board of Directors to cast such votes at their discretion. The cost of
preparing and mailing the notice of meeting, proxy statement and proxy to the
shareholders will be borne by Tubby's.

By Order of the Board of Directors

Vincent J. Tatone
Secretary

Dated: __________, 1999

Appendix A

Agreement and Plan of Merger

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of May 27, 1999, by and
between Tubby's, Inc., a New Jersey corporation ("Tubby's") and R Corp, a
Michigan corporation ("R Corp").

RECITALS

A. The Boards of Directors of Tubby's and R Corp deem the merger of R
Corp into Tubby's on the terms herein set forth to be desirable
and in the best interests of the shareholders and, subject to
approval by Tubby's shareholders, desire to adopt this Agreement
and Plan of Merger.

B. The Boards of Directors of Tubby's and R Corp, and the
shareholders of R Corp, have approved this Agreement and Plan of
Merger (the "Agreement") and have directed that the Agreement and
merger contemplated hereby be submitted to the shareholders of
Tubby's for adoption.

Now therefore, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained herein,
Tubby's and R Corp hereby agree that R Corp shall be merged into Tubby's,
which shall be the surviving corporation, and that the plan, terms and
conditions of such merger shall be as follows:

ARTICLE I
Merger of R Corp Into Tubby's

1.01 The Merger. On the Effective Date of the Merger (as defined in
Section 4.02), R Corp shall be merged into Tubby's, the separate
existence of R Corp (except as it may be continued by operation of
law) shall cease and Tubby's as the surviving corporation shall
continue its corporate existence under the laws of the State of
New Jersey and Tubby's shall possess all the rights, privileges,
immunities, powers, franchises and authority, of a public as well
as of a private nature, and be subject to all the restrictions,
disabilities and duties of R Corp.

1.02 Instruments. When requested by Tubby's, or by its successors or
assigns, the officers and directors of R Corp last in office shall
execute and deliver such instruments for transfer and shall take
or cause to be taken such further or such other actions as shall
be reasonably necessary in order to vest or perfect in Tubby's, or
to confirm of record or otherwise to Tubby's, title to and
possession of all the rights, powers, franchises and authority of
R Corp.

ARTICLE II
Articles of Incorporation, Directors, Officers and By-Laws

2.01 Articles of Incorporation. Except as provided below, the articles
of incorporation of Tubby's, as in effect on the Effective Date of
the Merger, shall be the articles of incorporation of Tubby's, as
the surviving corporation, until they are amended as provided
herein or by law.

2.02 Directors and Officers. Upon the Effective Date of the Merger, the
Board of Directors of Tubby's, the surviving corporation, shall
consist of the persons who were Directors and officers of Tubby's
prior to the Merger. Said Directors shall hold offices provided in
the by-laws of the surviving corporation.

2.03 By-Laws. The by-laws of Tubby's as in effect on the Effective Date
of the Merger shall be the by-laws of the surviving corporation,
until they are amended as provided therein or by law.

ARTICLE III
Exchange of Shares

The manner of exchanging the shares of Tubby's shall be as
follows:

3.01 Basis of Exchange of Tubby's Shares.

(A) Each share of common stock, $.01 par value, of Tubby's
outstanding on the Effective Date shall be exchanged for cash
at the Merger Price of $1.10, other than shares of Tubby's
held by shareholders of R Corp, which will not be exchanged.

(B) Each share of Tubby's common stock exchanged and held by
Tubby's as treasury stock shall be cancelled and retired and
no shares of common stock of Tubby's shall be issued with
respect thereto.

3.02 Exchange Agent. As promptly as feasible after the Effective Date,
Tubby's will make available to an exchange agent, for the holders
of record of certificates of common stock of Tubby's, cash in
sufficient quantities as shall enable shares of Tubby's to be
surrendered and exchanged as herein provided.

3.03 Surrender and Exchange of Shares. As promptly as feasible after
the Effective Date, each holder of an outstanding certificate or
certificates representing common stock of Tubby's shall be
notified by the Exchange Agent and shall surrender such
certificate or certificates to the Exchange Agent in the manner
specified in the Exchange Agent's notification and such holders
shall be entitled upon such surrender to received in exchange cash
in the amount of $1.10 per share represented by the

certificate or certificates so surrendered. Until so surrendered,
each outstanding certificate which, prior to the Effective Date,
represented common stock of Tubby's, shall not be transferable on
the books of Tubby's.

From and after the Effective Date, the sole rights of the holders
of certificates representing common stock of Tubby's, except as otherwise
provided by law, shall be to exchange the common stock of Tubby's for cash
pursuant to the merger as herein provided.

3.04 Transfers. If any cash for common stock of Tubby's is to be issued
in a name other than that in which the certificate for common
stock of Tubby's surrendered for exchange is registered, such
exchange shall be on the condition that the certificate so
surrendered shall be properly endorsed and otherwise enclosed for
transfer acceptable to the Exchange Agent and the person
requesting such exchange shall pay to Tubby's or the Exchange
Agent any transfer or other taxes required by reason of the
issuance of such cash for common stock of Tubby's or the Exchange
Agent shall have determined that such tax has been paid or is not
applicable.

3.05 Termination of Exchange Agent's Duties. One year after the
Effective Date, all cash which has been received by the Exchange
Agent and has not been distributed as hereinbefore provided, shall
be returned to Tubby's or its agent and the duties of the Exchange
Agent shall thereupon terminate. Thereafter, subject to the
applicable law, any stock holder of Tubby's who has not
theretofore surrendered his certificate or certificates for
exchange as herein provided shall be entitled, upon surrender of
such certificate or certificates to Tubby's or its agent, to
receive cash for the number of shares of common stock of Tubby's
as set forth under this Agreement, without interest thereon.

3.06 Financing. The Shareholders of R Corp agree to personally
guarantee debt financing in the amount of $1,750.00 and agree to
pledge personal collateral, if necessary, to procure said
financing to be used for the exchange of shares on behalf of
Tubby's.

ARTICLE IV
Closing; Effective Date of Merger

4.01 Closing. The closing of the transactions contemplated by this
Agreement shall take place at the offices of Tubby's located at
6029 E. Fourteen Mile Road, Sterling Heights, Michigan 48312, at
such date and time, within five business days after the
satisfaction or waiver of the last of the conditions set forth in
this Agreement to be satisfied or waived, as the parties may fix.
The closing of such transactions is herein called the "Closing"
and the

date of that Closing is referred to herein as the "Closing Date."
The Closing Date may be the same date as the Effective Date.

4.02 Effective Date. Subject to the conditions in this Agreement and to
the execution and filing of a Certificate of Merger in the manner
required by the New Jersey Business Corporation Act and the filing
of any documents that may be required by the Act, the Merger shall
become effective at the close of business on such date as such
filings are made or at such other date as stated in the
Certificate of Merger (the "Effective Date"). Such filings shall
be made on or as soon as practicable after the Closing.

ARTICLE V
Representations and Warranties of Tubby's

Tubby's hereby warrants and represents to R Corp as follows:

5.01 Organization, Standing, Qualification, etc. Tubby's is a
corporation duly organized, validly existing and in good standing
under the laws of the State of New Jersey and has all requisite
corporate power and is duly authorized, qualified, franchised and
licensed and to carry on its business as it is presently being
conducted. Tubby's is qualified to do business in all states where
the nature of Tubby's business and the ownership of its properties
require it to become qualified as a foreign corporation.

5.02 Capitalization. The authorized capital stock of Tubby's consists
of 6,000,000 shares of common stock, with $.01 par value, of which
2,583,113 shares will be issued and outstanding as of the
Effective Date of the Merger. All outstanding shares are duly
authorized, fully paid, validly issued and nonassessable in
accordance with applicable law. No dividends or other distribution
of the assets of Tubby's have been declared or paid in the capital
stock of Tubby's. There are no outstanding warrants, options,
preemptive rights or rights to subscribe for or purchase any
shares of Tubby's capital stock or any outstanding securities that
are convertible into Tubby's capital stock.

5.03 Authorization. The Board of Directors of Tubby's has approved this
Agreement and the transactions contemplated hereby, has authorized
the execution and delivery of this Agreement by Tubby's, and has
authorized the submission of this Agreement and the transaction
contemplated hereby to the Tubby's shareholders for their
consideration with the recommendation that it be approved. Tubby's
has full power, authority and legal right to enter into this
Agreement and to consummate the transactions contemplated hereby
and this Agreement constitutes a legal, valid and binding
obligation of Tubby's enforceable in accordance with its terms.

5.04 Subsidiaries. Other than directly or indirectly owning all of the
capital stock of: (1) Tubby's Sub Shops, Inc., a Michigan
corporation; (2) Tubby's Sub Shops Advertising Co., Inc., a
Michigan corporation; (3) Sub Line Co., a Michigan corporation;
(4) Tubby's Company Stores, Inc., a Michigan corporation; and (5)
SUBperior Distribution Systems, Inc., a Michigan corporation
(collectively referred to herein as the "Subsidiaries"). Tubby's
does not own, directly or indirectly, any interest or investment,
whether equity or debt, in any corporation, business, trust or
other entity. Unless the context otherwise requires, any
references herein to Tubby's shall be deemed to include the
Subsidiaries.

5.05 Compliance, Articles, Bylaws and Other Instruments. Tubby's is not
in violation or default of any term or its Articles of
Incorporation or Bylaws, or of any agreement, contract,
commitment, instrument, indenture, judgment, decree of order,
applicable to it and has timely filed all reports and any other
documents required by it to be filed with any governmental agency.
The execution, delivery and performance of this Agreement and the
taking of action contemplated hereby will not result in any
violation of or be in conflict with or constitute a default under
(a) the Articles of Incorporation or Bylaws of Tubby's, or (b) any
material agreement or instrument to which Tubby's or any
consolidated subsidiary is a party or by which it is bound, or (c)
any material judgment, decree or order to which Tubby's is
subject, or result in the creation of any material lien, charge or
encumbrance on any of the properties of Tubby's.

5.06 Financial Statements.

(a) Attached are the audited consolidated balance sheet of Tubby's
and its subsidiaries as of November 30, 1998, and related
audited consolidated statements of operation and changes of
financial position for the year then ended, including the
notes thereto and an unaudited consolidated balance sheet of
Tubby's and its subsidiaries as of May 31, 1999 and related
unaudited consolidated financial statements of operation and
changes in financial position for the period then ended (the
"Tubby's Financial Statements").

(b) All such financial statements have been prepared with
generally accepted accounting principles consistently applied
throughout the periods involved. As of the date of any of such
balance sheets except as and to the extent reflected or
reserved against therein, Tubby's did not have any liabilities
or obligations (absolute or contingent) which should be
reflected in a balance sheet or the notes thereto prepared in
accordance with generally accepted accounting principles, and
all assets reflected therein are promptly reported and
presently fairly the value of the assets of Tubby's in
accordance with generally accepted accounting principles. Such
statements of operations present fairly the results of
operations of Tubby's for the periods indicated. Such
statements of changes in

financial position present fairly the information, which
should be presented therein in accordance with generally,
accepted accounting principles.

(c) The financial and other books and records of Tubby's are in
all material respects complete and correct and have been
maintained in accordance with good business and accounting
practice.

5.07 Title and Related Matters. Tubby's has good and marketable title
to all of its properties, interests in properties and assets, real
and personal, which are reflected in the latest balance sheet
included in the Tubby's Financial Statements or acquired after
that date (except properties, interests in properties and assets
sold or otherwise disposed of since such date in the ordinary
course of business), free and clear of all mortgages, liens,
pledges, charges or encumbrances except: (I) statutory liens or
claims not yet delinquent, (ii) such imperfections of title and
easements as do not and will not materially detract from or
interfere with the present or proposed use of the properties
subject thereto or affected thereby, or otherwise materially
impair present business operations of such properties; or (iii) as
described in the Tubby's Financial Statements.

5.08. Inventory. The inventories of raw materials, work in progress and
finished goods (collectively called "Inventories") shown on the
most recent balance sheet of Tubby's included in the Tubby's
Financial Statements consisted, and all such Inventories as of the
Closing Date will consist, of items of a quality and quantity
usable and saleable in the ordinary course of business by Tubby's,
except for obsolete and slow-moving items and items below standard
quality, all of which have been written down on the books of
Tubby's to net realizable market value or have been provided for
by adequate reserves. All items included in the Inventories are
the property of Tubby's, except for sales made in the ordinary
course of business since the date of the last balance sheet. For
each of the sales of Inventories, either the purchaser had made
full payment or the purchaser's liability to make payment is
reflected on the books of Tubby's. No items included in the
Inventories have been pledged as collateral or are held by Tubby's
on consignment from others. The Inventories shown on the most
recent balance sheet included in the Tubby's Financial Statements
are based on quantities determined by physical count or
measurement, taken within the preceding 12 months, and are valued
at the lower of cost or market value (with cost determined on a
first-in, first-out basis), all in accordance with generally
accepted accounting principles applied on a basis consistent with
that of prior years.

5.09. Trade Secrets. Tubby's owns all inventions, franchises,
discoveries, research, improvements, engineering processes,
methods, practices, systems, designs, drawings, formulae, trade
secrets, ideas or other know-how (collectively, the "Tubby's
know-how") which are utilized by Tubby's in

the conduct of its business, and no existing or former
shareholder, officer or employee of Tubby's or any other person
has any right or interest in any Tubby's know-how. Tubby's owns
all of the Tubby's know-how free and clear of all liens or other
forms of encumbrance.

5.10. Insurance Policies. Tubby's has maintained and now maintains (I)
insurance on all its assets and business of a type customarily
insured, covering property damage and loss of income by fire or
casualty, and (ii) adequate insurance protection against all
liabilities, claims, and risks against which it is customary to
insure.

5.11. Tax Returns. Within the times and in the manner prescribed by law,
Tubby's has filed all federal, state and local tax returns
required by law and has paid all taxes, assessments and penalties
due and payable. All taxes and governmental charges levied or
assessed against the property or the business of Tubby's have been
paid, other than taxes or charges the payment of which is not yet
due or which, if due, is not yet delinquent or is being contested
in good faith or has not been finally determined.

5.12. Shareholder List. Tubby's will provide an alphabetical list, as of
August 30, 1999, of all of the shareholders of Tubby's and the
number of shares of Tubby's common stock owned by each of them.
That list shall indicate which stock certificates have stop
transfer orders and restrictive legends placed upon the.

5.13. Stock Transfer Records. The stock transfer books and stockholders
of Tubby's are in good order, complete, accurate, and up to date,
and with all necessary signatures, and set forth all stock and
securities issued, transferred and surrendered. No duplicate
certificate has been issued at anytime heretofore without an
indemnity agreement and/or bond being posted. No transfer has been
made without surrender of the proper certificate duly endorsed.
All certificates so surrendered have been duly cancelled.

5.14. Corporate Record Books. The corporate record books of Tubby's are
in good order, complete, accurate, up to date, with all necessary
signatures, and set forth all meetings and actions set forth in
all certificates of votes of stockholders or directors furnished
to anyone at any time.

5.15. Compliance with Laws and Regulations. To the best of its
knowledge, Tubby's has complied with all applicable statutes and
regulations of any federal, state or other applicable jurisdiction
or agency thereof (including, without limitation, any law, any
applicable licensing, building, zoning or other law, ordinance or

regulation) affecting Tubby's properties or the operation of
Tubby's business and has timely filed all reports and any other
documents required by it to be filed with any governmental agency,
except (i) to the extent that noncompliance would not materially
and adversely affect the business, operations, properties assets
or condition of Tubby's or (ii) to the extent that noncompliance
would not result in any material liability.

ARTICLE VI
Covenants of Tubby's Prior to the Merger

Between the date hereof and the Effective Date of the Merger:

6.01. Stockholders Meeting. The Board of Directors of Tubby's will
submit this Agreement to its stockholders for their approval, and
will recommend such approval, at a meeting thereof to be duly
called and held at the earliest practicable date as may be agreed
upon in writing by R Corp and Tubby's. That shareholders' meeting
will be duly called, convened and conducted in accordance with all
applicable requirements of the corporation laws of the State of
New Jersey and in accordance and with all applicable provisions of
the Articles of Incorporation and Bylaws of Tubby's and the
resolutions adopted by the shareholders at that meeting will
constitute the duly authorized actions of Tubby's and will be in
full force and effect as of the Closing Date.

6.02. Representations. Tubby's will take all action necessary to render
accurate, as of the Effective Date of the Merger, Tubby's
representations and warranties contained herein, and it will
refrain from taking any action which would render any such
representation or warranty inaccurate as of such time. Tubby's
wi11 use its best efforts to perform or cause to be satisfied each
covenant or condition to be performed or satisfied by it.

6.03. Approvals. Tubby's will use its best efforts to obtain all
licenses or other approvals required to be obtained by it from any
appropriate governmental or regulatory body or other person in
connection with the carrying out of the transactions contemplated
by this Agreement and the continued operation of its business
after the merger.

6.04. Negotiations with Third Parties. Tubby's will not, without the
prior approval of R Corp, engage in, or encourage discussions or
negotiations with third parties relating to or otherwise approve
(or approve without prior discussions with R Corp any unsolicited
offer regarding) any merger, sale, or other disposition of any
substantial part of Tubby's assets or stock.

ARTICLE VII
Obligations of R Corp and its Shareholders

7.01. Personal Guarantees and Pledge of Personal Assets. R Corp and its
Shareholders, agree to personally guarantee debt financing for
Tubby's in the amount of $1,750,000 to be used to complete the
Merger, and to pledge personal assets as collateral to secure the
repayment of said indebtedness.

7.02. Stock Purchase, Redemption, and Shareholders Agreement. The
Shareholders of R Corp agree to execute a Stock Purchase,
Redemption and Shareholders' Agreement, with Tubby's for the
purpose of equalizing the number of shares of Tubby's stock owned
by each of them and to evidence their agreement to personally
guarantee the debt financing referenced in section 7.01 and their
agreement to pledge personal property as collateral for the
repayment of the indebtedness.

ARTICLE VIII
Representations and Warranties of R Corp

R Corp hereby represents or warrants to Tubby's as follows:

8.01. Organization, Standing, Qualification, etc. R Corp is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Michigan and has all requisite
corporate power and is duly authorized, qualified, franchised and
licensed under all applicable properties and assets and to carry
on its business as it is presently being conducted. R Corp is
qualified to do business in all states where the nature of R
Corp's business and the ownership of its properties require it to
become qualified as a foreign corporation.

8.02. Capitalization. The authorized capital stock of R Corp consists of
60,000 shares of common stock, par value, of which 3,000 shares
are issued and outstanding. All outstanding shares are duly
authorized, fully paid, validly issued and nonassessable in
accordance with applicable law. No dividends or other distribution
of the assets of R Corp have been declared or paid in the capital
stock of R Corp. There are no outstanding warrants, options,
preemptive rights or rights to subscribe for or purchase any
shares of R Corp capital stock or any outstanding securities that
are convertible into R Corp capital stock.

8.03. Articles of Incorporation and Bylaws. The complete Articles of
Incorporation and the Bylaws of R Corp as will be in effect on the
Closing Date are attached.

8.04. Authorization. The Board of Directors of R Corp has approved this
Agreement and the transactions contemplated hereby, has authorized
the execution and delivery of this Agreement by R Corp, and has
authorized the submission of this Agreement and the transaction
contemplated hereby to the R Corp shareholders for their
consideration with the recommendation that it be approved. R Corp
has full power, authority and legal right to enter into this
Agreement and to consummate the transactions contemplated hereby
and this Agreement constitutes a legal, valid and binding
obligation of R Corp enforceable in accordance with its terms.

ARTICLE IX
Conditions to Obligations of R Corp and Tubby's

The obligations of Tubby's and R Corp to effect the Merger are as
follows:

9.01. Stockholder Approval. Before the Closing, Tubby's Shareholders
shall have approved this Agreement.

9.02. Financing. Before submitting this Agreement for consideration and
approval to Tubby's shareholders, R Corp and it shareholders shall
have procured adequate financing for Tubby's to be used to
complete the Merger. Before the closing, Tubby's and the
shareholders of R Corp shall have closed on all required financing
transactions.

9.03. Fairness Opinion. Before submitting this Agreement for approval by
Tubby's stockholders, Tubby's shall have received a favorable
fairness opinion from Stout, Risuis, Ross, Valuation Consultants,
Inc.

9.04. No Material Adverse Change. Prior to the Closing, there shall not
have occurred any material adverse change in the financial
condition, business or operations of Tubby's.

ARTICLE X
Miscellaneous

10.01 Amendments. This Agreement may be amended at any time, prior to
the Effective Date of the Merger, whether before or after the
meeting of stockholders, by a written instrument executed by R
Corp and Tubby's with the approval of their respective Boards of
Directors, provided that no amendment shall change the exchange
ratios set forth in Section 3.01 without the approval of the
stockholders of both Tubby's and R Corp.

10.02 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Michigan without
reference to

its principles of conflicts of laws. However, any questions of
corporate law with respect to Tubby's or its subsidiaries shall be
governed by New Jersey corporate law.

10.03 Complete Agreement - Severability. This Agreement contains the
entire understanding between the parties and supercedes any and
all prior agreements between the parties. If any provision of the
Agreement is found to be void by any court of competent
jurisdiction, the remaining provisions shall remain in full force
and effect

10.04 Multiple Copies. This Agreement may be executed on multiple
copies, each of which shall Constitute an original, but all of
which shall constitute one and the same agreement.

IN WITNESS WHEREOF, R Corp and Tubby's have caused this Agreement and Plan of
Merger to be executed as of the date first above written.

R CORP TUBBY'S, INC.

/s/ Vincent J. Tatone /s/ Robert M. Paganes
------------------------------ -----------------------------
By: Vincent J. Tatone By: Robert M. Paganes
Its: Secretary Its: President

Appendix B

Fairness Opinion

Stout Risius Ross, Inc.,

July 15, 1999

Board of Directors
Tubby's, Inc.
c/o Mr. Robert Paganes
6029 East 14 Mile Road
Sterling Heights, MI 48312-5802

Members of the Board:

We understand Tubby's, Inc. ("Tubby's" or the "Company") is considering a
merger with R Corp pursuant to which all shareholders of the Company (the
"Shareholders"), other than those shareholders that are also shareholders of
R Corp, will receive cash in exchange for their shares of Tubby's, Inc. at
the price of $1.10 per share. The aforementioned plan of merger is referred
to hereinafter as the "Transaction."

You have requested, from a financial point of view, our opinion as to the
fairness of this Transaction to the Shareholders of the Company. To arrive at
our opinion, we performed an analysis to estimate the Fair Value of the
common equity of the Company. We define Fair Value as the price at which
property would exchange between a willing buyer and a willing seller, when
the former is not under any undue compulsion to buy and the latter is not
under any undue compulsion to sell, both having reasonable knowledge of the
relevant facts.

In general, we considered the following factors in performing our analysis:
the nature and history of the Company; the outlook for the economy and
industry in which the Company operates; the book value and financial
condition of the Company; the earning capacity of the Company; the dividend
paying capacity of the Company; whether goodwill or other intangible value
exists within the Company; previous sales of the Company's stock and the size
of the block transferred; and the market prices of companies in the same or
similar industries which trade in the open market.

In arriving at our opinion, we reviewed the Agreement and Plan of Merger (the
"Agreement") and the associated proxy statement (the "Proxy Statement"), and
held discussions with members of senior management of the Company concerning
its business, industry, historical financial performance, and projected
franchise openings and closings for the next five years. We examined the
Company's audited and internally prepared financial statements for the years
ended November 30, 1995 to 1998 and the Company's internally prepared interim
financial statements for the six months ended May 31, 1999. We considered, to
the extent available, the financial terms of certain other

transactions involving target companies similar to Tubby's. In addition, we
performed a discounted cash flow analysis based on the Company's future
prospects and also a market comparable approach (which estimates value based
on the price of comparable publicly traded stocks) to test the reasonableness
of the proposed transaction terms.

Management's projections regarding store franchise openings and closings
formed the basis of the discounted cash flow analysis. In addition to the
foregoing, we conducted such other analyses and examinations and considered
such other publicly available financial, economic, and market criteria as we
deemed appropriate in arriving at our opinion.

We did not perform an independent valuation of all of the underlying assets
and liabilities of the Company, nor have we been furnished with any such
evaluation or appraisal.

Our opinion is premised on the assumption that the financial condition and
prospects of the Company as of the date of this letter, including the balance
sheet of the Company, has not changed materially since May 31, 1999, the date
the latest financial information was available. In rendering our opinion, we
have assumed and relied, without independent verification, upon the accuracy
and completeness of all financial and other information that was publicly
available, furnished by the Company, or otherwise reviewed by or discussed
with us. In that regard, we have relied upon Tubby's management as to the
reasonableness and achievability of the financial and operating forecasts
provided to us, and we have assumed that such forecasts reflect the best
currently available estimates and judgements of management.

In connection with performing our services for the Board of Directors, we
have not been authorized by the Company to solicit, nor have we solicited,
third-party indications of interest for the acquisition of all or any part of
the Company. Further, we were not requested to consider, and our opinion does
not address, the relative merits of the contemplated Transaction as compared
to any alternative business strategies that may exist for the Company or the
effect of any other transactions in which the Company might engage.

Our opinion is necessarily based on market, economic and other conditions as
they exist and can be evaluated on, and on the information made available to
us as of the date hereof.

We are acting as financial advisor to the Board of Directors of the Company
and will receive a fee from the Company for our services. However, our
compensation for providing financial advisory services to the Board is
neither based nor contingent on the results of our analysis. Further, none of
our

employees who worked on this engagement has any known financial interest in
the assets or equity of the Company or the outcome of our analysis. In
addition, the Company has agreed to indemnify us for certain liabilities
arising out of our engagement.

Our work is only to be utilized by the Board of Directors of the Company as
one input to consider in the process of analyzing the contemplated
Transaction. Further, our opinion is not intended to be, nor does it
constitute, a recommendation to any of the Shareholders as to how such
Shareholder should act in regard to the Transaction described in the first
paragraph of this letter.

Our opinion may not be published or otherwise used or referred to, without
our prior written consent. We understand that this opinion letter, subject to
us giving written consent, may be attached to a Proxy Statement that will be
sent to the Shareholders. In giving such consent, we do not hereby admit that
we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission thereunder.

Based upon and subject to the forgoing, including the various assumptions and
limitations set forth herein, it is our opinion that as of the date hereof,
the Transaction, as detailed in the Agreement, is fair from a financial point
of view to the Shareholders of the Company.

Yours very truly,

STOUT RISIUS ROSS, INC.

/s/ Gregory A. O'Hara
- -------------------------------
Gregory A. O'Hara
Managing Director

FINANCIAL STATEMENTS

F-1

INDEX TO FINANCIAL STATEMENTS

Interim Unaudited Consolidated Financial Statements
As of August 31, 1999

Consolidated Balance Sheets.........................................F-3

Consolidated Statements of Operations...............................F-5

Consolidated Statements of Cash Flows...............................F-6

Notes to Unaudited Financial Statements.............................F-7

Consolidated Financial Statements, November 30, 1998, 1997 and 1996

Report of Independent Certified Public Accountants..................F-9

Consolidated Balance Sheets as of November 30,
1998, 1997 and 1996.................................................F-10

Consolidated Statements of Operations...............................F-12

Consolidated Statements of Stockholders' Equity.....................F-13

Consolidated Statements of Cash Flows...............................F-14

Notes to Consolidated Financial Statements
November 30, 1998, 1997 and 1996....................................F-15

F-2

TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

August 31, November 30,
1999 1998
ASSETS (Unaudited) (Note)
- ------ ----------- -----------
Current Assets
Cash and Equivalents $ 787,905 $ 692,196
Certificate of Deposit 111,199 111,199
Accounts Receivable - Trade, less
allowance for doubtful accounts of
$65,196 and $59,580 757,576 702,990
Inventories 394,209 328,280
Prepaid expenses and other 81,309 93,289
Notes receivable 82,941 59,721
----------- -----------

Total Current Assets 2,215,139 1,987,675
----------- -----------

Property and Equipment
Land 187,684 187,684
Buildings and Improvements 691,235 689,514
Equipment 500,405 498,354
Furniture and Fixtures 144,835 140,815
Vehicles 11,509 11,509
----------- -----------
1,535,668 1,527,876
Less: accumulated depreciation (886,935) 861,659
----------- -----------

Net Property & Equipment 648,733 666,217
----------- -----------

Other Assets
Goodwill, less amortization of
$294,984 and $112,370 198,810 263,666
Notes Receivable, less allowance
for Doubtful accounts of $20,000
and $20,000 373,902 408,733
----------- -----------
Total Other Assets 572,712 672,399
----------- -----------

Total Assets $ 3,436,584 $ 3,326,291
=========== ===========

See Accompanying Notes to Consolidated Financial Statements

F-3

TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)

August 31, November 30,
LIABILITIES & STOCKHOLDERS' EQUITY 1999 1998
(Unaudited) (NOTE)
- ---------------------------------- ----------- ------------
Current Liabilities
Accounts Payable $ 264,961 $ 379,176
Accrued Liabilities:
Compensation 44,455 20,738
Other 22,126 24,695
Deferred Revenue 36,000 114,954
Long-Term Debt due within one year 12,262 11,455
---------- ----------

Total Current Liabilities 379,804 551,018

Deferred Revenue 32,000 40,000

Long-Term Debt, less amounts due in one year 111,178 120,346
---------- ----------

Total Liabilities 522,982 711,364
---------- ----------

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) (598,074) (896,749)
---------- ----------

Total Stockholders' Equity 2,913,602 2,614,927
---------- ----------

Total Liabilities and Stockholders' Equity $3,436,584 $3,326,291
========== ==========

See Accompanying Notes to Consolidated Financial Statements

F-4

TUBBY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended Nine Months Ended
------------------------- --------------------------
August 31, August 31, August 31, August 31,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product Sales $1,611,757 $1,342,766 $4,617,690 $2,983,503
Franchise Fees:
Monthly 263,404 279,382 729,643 671,057
Initial 24,500 36,500 111,500 111,001
Food Sales 337,514 262,787 731,485 655,218
Advertising Fees 193,760 160,715 589,958 496,009
Equipment and Restaurant Sales 36,239 75,530 127,850 361,679
Commissions & Other Fees 37,349 30,586 123,718 101,467
---------- ---------- ---------- ----------
Total Revenues 2,504,523 2,188,266 7,031,844 5,379,934
---------- ---------- ---------- ----------

Costs & Expenses:
Cost of Product Sales 1,185,960 1,032,572 3,453,436 2,314,319
Operating Expenses 831,733 1,037,137 2,533,558 2,489,585
Cost of Food Sales 209,835 188,644 462,199 443,873
Cost of Equipment & Restaurant Sales 30,349 65,152 108,168 294,053
---------- ---------- ---------- ----------
Total Costs & Expenses 2,257,877 2,323,505 6,557,361 5,541,830
---------- ---------- ---------- ----------

Operating Income (Loss) 246,646 (135,239) 474,483 (161,896)

Other Income (Expense):
Interest Expense (2,961) (5,817) (9,015) (10,648)
Loss on disposal of assets (43,586) 0 (43,586) 0
Interest Income 14,731 24,383 44,968 55,543
---------- ---------- ---------- ----------
Total Other Income (Expense) (31,816) 18,566 (7,633) 44,895
---------- ---------- ---------- ----------

Income (Loss) Before Taxes on Income 214,830 (116,673) 466,850 (117,001)
Taxes on Income 82,488 0 168,175 0
---------- ---------- ---------- ----------
Net Income (Loss) $ 132,342 $ (116,673) $ 298,675 $ (117,001)
========== ========== ========== ==========
Earnings (Loss) Per Share --
Basic & Diluted $ 0.05 $ (0.05) $ 0.12 $ (0.05)
========== ========== ========== ==========
Weighted Average Common
Shares Outstanding 2,583,114 2,583,114 2,583,114 2,583,114
========== ========== ========== ==========

<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>

F-5

TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended
-----------------------
August 31, August 31,
1999 1998
---------- ----------
Cash Flows From Operating Activities:
Net Income (Loss) $ 298,675 $(117,001)
Adjustments To Reconcile Net Income(Loss)
To Net Cash Used and Provided By
Operating Activities:
Depreciation & Amortization 95,389 125,846
Taxes on Income 158,729 0
(Gain) Loss on disposal of assets 43,586 (1,287)
Increase (Decrease) In Cash Due To
Changes In:
Accounts Receivable (85,599) (228,059)
Inventories (65,929) (223,859)
Prepaid Expenses & Other 11,980 (57,878)
Accounts Payable (114,215) 293,803
Accrued Liabilities 21,148 41,696
Deferred Revenues (86,954) (21,863)
--------- ---------

Net Cash (Used In) Provided By
Operating Activities 276,810 (188,602)

Cash Flows From Investing Activities
Sale of Certificate of Deposits 0 (16)
Acquisition of McTub 49% interest 0 (65,000)
Purchase of Property & Equipment (109,462) (19,616)
Goodwill & Covenant not to Compete (120,000) 0
Payments On Notes Receivable 42,624 129,425
Proceeds on sale of Property 14,098 147,138
--------- ---------

Net Cash (Used In) Provided by
Investing Activities (172,740) 191,931

Cash Flows From Financing Activities:
Payments On Long-Term Debt (8,361) (219,036)
--------- ---------

Net Cash (Used In) Financing Activities (8,361) (219,036)
--------- ---------

Net (Decrease) Increase In Cash 95,709 (215,707)

Cash and Equivalents, at beginning of period 692,196 864,229
--------- ---------

Cash and Equivalents, at end of period $ 787,905 $ 648,522
========= =========

See Accompanying Notes to Consolidated Financial Statements

F-6

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 August
31, 1999 and August 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 nine
months ending August 31, 1999, the Company had taxable income of
approximately $466,800 that resulted in a reduction of goodwill of
approximately $168,175. 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.

F-7

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 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 Company has received a fairness opinion from an independent
valuation firm and a written commitment from a lender for adequate financing
to complete the proposed merger. The Company has filed a preliminary proxy
statement and a form Schedule 13-E with the Securities and Exchange
Commission ("SEC"). Once the preliminary proxy statement is approved for
distribution, the Company will set a date for its annual meeting at which it
will present the proposed merger for a vote of the Company's Shareholders.

F-8

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
Tubby's, Inc. and Subsidiaries
Sterling Heights, Michigan

We have audited the accompanying consolidated balance sheets of
Tubby's, Inc. and Subsidiaries as of November 30, 1998, 1997 and 1996,
and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Tubby's, Inc. and Subsidiaries at November 30, 1998, 1997 and 1996, and
the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.

BDO Seidman, LLP

Troy, Michigan
January 22, 1999

F-9

TUBBY'S INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

November 30,
------------------------------
Assets 1998 1997 1996
---- ---- ----
Current Assets
Cash and equivalents $ 692,196 $ 864,229 $ 793,494
Certificate of deposit 111,199 105,430 100,000
Accounts receivable - trade, less
allowance for doubtful accounts
of $59,580, $36,740 & $20,850 702,990 443,810 245,267
Inventories 328,280 99,419 102,805
Prepaid expenses and other 93,289 76,832 135,644
Notes receivable 59,721 66,217 72,091
---------- ---------- ----------
Total Current Assets 1,987,675 1,655,937 1,449,301
---------- ---------- ----------
Property and Equipment
Land 187,684 325,347 $ 325,347
Building and improvements 689,514 663,753 693,347
Equipment 498,354 527,265 440,705
Furniture and fixtures 140,815 138,394 219,464
Vehicles 11,509 15,009 15,009
---------- ---------- ----------
1,527,876 1,669,768 1,693,872
Less accumulated depreciation 861,659 773,576 654,255
---------- ---------- ----------
Net Property and Equipment 666,217 896,192 1,039,617
---------- ---------- ----------

Other Assets
Notes receivable, less allowance
for doubtful accounts of $20,000,
$0, & $5,894 408,733 543,342 505,380
Goodwill, less amortization of
$112,370, $81,118, & $68,045 263,666 229,918 338,241
---------- ---------- ----------
Total Other Assets 672,399 773,260 843,621
---------- ---------- ----------
Total Assets $3,326,291 $3,325,389 $3,332,539
========== ========== ==========

See accompanying summary of accounting policies and notes to consolidated
financial statements.

F-10

TUBBY'S, INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

November 30,
--------------------------------------
Liabilities and Stockholders' Equity 1998 1997 1996
---- ---- ----
Current Liabilities
Accounts payable $ 379,176 $ 106,407 $ 189,929
Accrued liabilities
--Compensation 20,738 19,887 21,075
--Other 24,695 16,153 13,305
Deferred revenue 114,954 115,489 87,000
Long-term debt due in one year 11,455 220,520 266,825
---------- ---------- ----------

Total Current Liabilities 551,018 478,456 578,134

Deferred Revenue 40,000 60,867 40,000

Long Term Debt, less amounts due
in one year 120,346 139,932 175,770
---------- ---------- ----------

Total Liabilities 711,364 679,255 793,904
---------- ---------- ----------

Stockholders' Equity
Common stock, $.01 par value,
6,000,000 shares authorized,
2,583,114 issued and outstanding 25,832 25,832 25,832
Additional paid in capital 3,485,844 3,485,844 3,485,844
Retained earnings (deficit) (896,749) (865,542) (973,041)
---------- ---------- ----------

Total Stockholders' Equity 2,614,927 2,646,134 2,538,635
---------- ---------- ----------

Total Liabilities and
Stockholders' Equity $3,326,291 $3,325,389 $3,332,539
========== ========== ==========

See accompanying summary of accounting policies and notes to consolidated
financial statements.

F-11

<TABLE>
<CAPTION>
TUBBY'S, INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended November 30,
----------------------------------
Consolidated Statements of Operations 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues
Product sales $ 4,397,578 $ -- $ --
Franchise fees
--Monthly 896,298 785,959 659,074
--Initial 139,501 132,543 118,250
Food sales 779,918 931,000 796,990
Advertising fees 649,118 650,909 569,982
Equipment and restaurant sales 391,311 575,427 611,064
Commissions and other fees 112,259 479,848 367,856
----------- ----------- -----------

Total Revenues 7,365,983 3,555,686 3,123,216
----------- ----------- -----------

Costs and Expenses
Cost of product sales 3,402,997 -- --
Operating expenses 3,239,755 2,357,938 1,942,490
Cost of food sales 512,836 667,854 588,257
Cost of equipment and restaurant sales 341,197 470,315 527,005
----------- ----------- -----------

Total Costs and Expenses 7,496,785 3,496,107 3,057,752
----------- ----------- -----------

Operating Income (Loss) (130,802) 59,579 65,464
----------- ----------- -----------

Other Income (Expense)
Interest income 69,951 108,430 94,899
Interest expense (13,829) (9,572) (28,235)
Loss on sale of fixed assets (5,546) -- (5,880)
Miscellaneous 49,019 44,362 (8,891)
----------- ----------- -----------

Total Other Income 99,595 143,220 51,893
----------- ----------- -----------
Income (Loss) Before Taxes on Income (31,207) 202,799 117,357

Taxes on Income -- 95,300 --
----------- ----------- -----------

Net Income (Loss) (31,207) 107,499 117,357
=========== =========== ===========

Basic and Diluted Earnings (Loss)
Per Share (.01) .04 .05
=========== =========== ===========

Weighted Average Common
Shares Outstanding 2,583,114 2,604,720 2,563,259
=========== =========== ===========

<FN>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
</TABLE>

F-12

<TABLE>
<CAPTION>
TUBBY'S, INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Common Additional Retained Total
Stock Paid-In Earnings Stockholders
Shares Amount Capital (Deficit) Equity
------ ------ ------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance, at December 1, 1995 2,538,114 $ 25,382 $ 3,430,044 $(1,090,398) $ 2,365,028

Issuance of common stock 45,000 450 55,800 56,250

Net income -- -- -- 117,357 117,357
--------- -------- ----------- ----------- -----------

Balance, at December 1, 1996 2,583,114 $ 25,832 $ 3,485,844 $ (973,041) $ 2,538,635

Net income -- -- -- 107,499 107,499
--------- -------- ----------- ----------- -----------

Balance, at November 30, 1997 2,583,114 25,832 3,485,844 (865,542) 2,646,134

Net loss -- -- -- (31,207) (31,207)
--------- -------- ----------- ----------- -----------

Balance, at November 30, 1998 2,583,114 $ 25,832 $ 3,485,844 $ (896,749) $ 2,614,927
========= ======== =========== =========== ===========

<FN>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
</TABLE>

F-13

<TABLE>
<CAPTION>
TUBBY'S, INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended November 30,
------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ (31,207) $ 107,499 $ 117,357
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities
Depreciation and amortization 136,704 135,468 105,226
Provision for doubtful accounts 71,896 -- --
Loss on sale of fixed assets 5,546 -- 5,880
Taxes on income -- 95,300 --
Increase (Decrease) In Cash Due to Changes In
Accounts receivable (282,479) (198,543) (11,596)
Inventories (228,861) 3,386 (67,965)
Prepaid expenses and other (16,457) 59,195 (65,506)
Accounts payable 272,769 (83,522) 26,457
Accrued liabilities 9,393 1,660 (19,344)
Deferred revenue (21,402) 49,356 (44,000)
--------- --------- ---------

Net Cash (Used In)Provided By Operating Activities (84,098) 169,799 46,509
--------- --------- ---------

Cash Flows From Investing Activities
Increase in certificate of deposit (5,769) (5,813) (25,000)
Net proceeds from sale of property and equipment 156,502 5,000 13,500
Purchase of property and equipment (37,525) (69,020) (462,155)
Payments on notes receivable 92,508 52,912 134,936
Sale of certificate of deposit and marketable
securities -- -- 154,590
Other assets -- -- (2,242)
Acquisition of partnership Interest (65,000) -- --
--------- --------- ---------
Net Cash Provided by (Used In) Investing Activities 140,716 (16,921) (186,371)
--------- --------- ---------

Cash Flows From Financing Activities
Payments on long-term debt (228,651) (232,143) (74,038)
Proceeds from long-term debt -- 150,000 --
Proceeds from issuance of capital stock -- -- 56,250
--------- --------- ---------
Net Cash Used In Financing Activities (228,651) (82,143) (17,788)
--------- --------- ---------

Net Increase (Decrease) in Cash & Cash Equivalents (172,033) 70,735 (157,650)
Cash and Equivalents, at beginning of period 864,229 793,494 951,144
--------- --------- ---------

Cash and Equivalents, at end of period $ 692,196 $ 864,229 $ 793,494
========= ========= =========
<FN>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
</TABLE>

F-14

TUBBY'S, INCORPORATED & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 and 1996

1. SUMMARY OF ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Tubby's Inc., its wholly-owned subsidiaries (the "Company" or "Tubby's"), and
additionally in 1997 and 1996, its fifty-one percent interest in the McTub
Company (Tubby's Express). Intercompany balances and transactions have been
eliminated.

Nature of Operations

The Company's revenue is derived from: (1) franchise and advertising fees for
the rights to operate sit down and carry-out restaurants specializing in
submarine sandwiches, hamburgers or steak sandwiches, pizzas or ice cream;
(2) distribution of food and restaurant supplies to franchisees (beginning in
1998); (3) food sales at Company owned stores; (4) equipment sales to
franchisees; and (5) vendor commissions and rebates. The Company and its
franchisees operate restaurants in Michigan, Ohio, New Jersey, Arizona,
Missouri, Nebraska and the province of Ontario Canada.

Number of Restaurants in Operation: November 30,
------------------------
1998 1997 1996
---- ---- ----
Operated by Franchisees
Beginning of year 84 68 63
Franchises opened 10 16 6
Franchises closed (9) (0) (1)
End of year 85 84 68

Operated by the Company
Beginning of year 4 6 3
Stores opened 0 0 4
Stores sold 0 (2) 0
Stores closed (1) 0 (1)
End of year 3 4 6

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash and equivalents, certificates of
deposit, and accounts and notes receivable. At times such cash and
equivalents in banks are in excess of the respective financial institution's
FDIC insurance limit. The Company attempts to minimize credit risk by
reviewing all franchisees' credit history before extending credit and by
monitoring franchisees' credit exposure on a continuing basis. The Company
establishes an allowance for possible losses on accounts and notes
receivable, when necessary, based upon factors surrounding the credit risk of
specific customers, historical trends and other information.

Fair Values of Financial Instruments

The carrying amounts of cash and equivalents, certificates of deposit,
accounts receivable, accounts payable and accrued expenses approximate fair
value because of the short maturity of these items.

The carrying amounts of the long-term debt issued pursuant to the Company's
credit agreements and notes receivable approximate fair value because the
interest rates on these instruments approximate market rates.

F-15

Use of Estimates

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect (1) the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities as of the date of the
financial statements, and (2) revenues and expenses during the reporting
period. Actual results could differ from these estimates.

Cash and Equivalents and Certificate of Deposit

Cash and equivalents consist of cash, certificates of deposit, money market
funds, U.S. Treasury bills and commercial paper with maturity dates not
exceeding three months.

Certificates of deposit with maturity dates exceeding three months are
separately classified on the balance sheet.

Inventories

Inventories include food, restaurant supplies and equipment held for resale
to franchisees. Inventories are stated at the lower of cost or market, with
cost determined by the first-in, first-out method for food and restaurant
supplies and specific identification methods for equipment.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed over the
useful lives of the assets ranging from 5 to 40 years, using the
straight-line method. Depreciation expense was $106,843, $122,395, $94,550 in
1998, 1997 and 1996, respectively.

Goodwill

Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at acquisition. The Company is amortizing
goodwill over periods ranging from three years to forty years.

The Company reviews goodwill for impairment based upon the estimated
undiscounted cash flows over the remaining life of the goodwill. If
necessary, impairment will be measured based on the difference between
discounted future cash flows and the net book value of the related goodwill.

Revenue Recognition

Monthly franchise fees are recognized based on the franchisees' sales as
earned, except where collection is not deemed probable. Advertising fees are
recognized as the related expenses are incurred.

Initial franchise fees and fees from Area Development Agreements ("ADA's")
are deferred until the Company has substantially met its obligations under
the franchise agreement, which is generally at the time the store is opened.
Deferred revenues under ADA's are recognized as revenue on a pro rata basis
as each store opens.

The Company recognizes product sales at the time of shipment.

Advances under vendor rebate agreements are deferred and recognized as
revenue over the term of the agreements.

Advertising Costs

The Company expenses the cost of advertising as incurred. Advertising expense
was approximately $650,000 in 1998 and 1997 and $582,000 in 1996.

Taxes on Income

Deferred income taxes are recognized for the tax consequences of temporary
differences between the financial reporting bases and the tax bases of the
Company's assets and liabilities. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.

F-16

Income tax expense is the tax payable for the period and the change during
the period in deferred tax assets and liabilities.

Earnings Per Share

In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings per Share." SFAS No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to the SFAS 128 requirements. The following
table presents the earnings per share calculations:

For the Year Ended November 30, 1998 1997 1996
- ------------------------------ ---- ---- ----
Numerator for Basic and Diluted Earnings
per Share Net income (loss) $ (31,207) $ 107,499 $ 117,357

Denominator
Denominator for basic earnings
per share - weighted average shares 2,583,114 2,583,114 2,567,719

Effect of dilutive securities
stock options -- 21,606 6,540

Dilutive Potential Common Stock
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 2,583,114 2,604,720 2,563,259

Basic Earnings (Loss) Per Share $ (.01) $ .04 $ .05

Diluted Earnings (Loss) Per Share $ (.01) $ .04 $ .05

As a result of the net loss in 1998, no stock options were included in the
computation of diluted earnings per share. Options to purchase 65,467 shares
of common stock at prices ranging from $1.50 to $8.40 in 1998 were
outstanding which would not have been included in the computation of diluted
earnings per share in any event because the options' exercise price was
greater than the average market price of the common shares.

Options to purchase 60,467 shares of common stock at prices ranging from
$3.60 to $8.40 in 1997 and 1996, were outstanding, but were not included in
the computation of diluted earnings per share because the options exercise
price was greater than the average market price of the common shares.

In January 1998, the Company declared a one for ten reverse stock split. As a
result, the amount of outstanding shares was reduced from 25,831,131 to
2,583,114. In connection with the reverse stock split, the Company amended
its Articles of Incorporation to reduce the number of shares authorized from
60,000,000 to 6,000,000. Retroactive effect has been given to all share and
per share data contained in the consolidated financial statements.

Long-lived Assets

The Company reviews the carrying values of its long-lived assets for possible
impairment whenever events or changes in circumstance indicate that the
carrying amount of the assets may not be recoverable. The Company evaluates
whether impairment exists on the basis of undiscounted future cash flows from
operations before interest for the remaining useful life of the assets. Any
long-lived assets held for disposal are reported at the lower of these
carrying amounts or fair value less costs to sell.

Recent Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." This
statement is effective for financial periods beginning after December 15,
1997 and requires comparative information for earlier years to be restated.
Management has not determined the impact, if any, this statement may have on
future financial statement disclosures.

F-17

Additionally, SFAS 130, "Reporting Comprehensive Income" was issued in June
1997. Statement of Position (SOP) 98-5, "Reporting on the Cost of Start-Up
Activities", was issued in April 1998 and SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities", was issued in June 1998.
These statements are effective in fiscal 1999 and 2000 and are not expected
to have a material impact on the consolidated financial statements.

Reclassifications

Certain 1997 balances have been reclassified for purposes of comparison to
the 1998 balances.

2. INVENTORIES

Inventories at November 30, 1998, 1997and 1996 are summarized as follows:

1998 1997 1996
---- ---- ----
Food, restaurant supplies, paper goods $297,475 $ 28,989 $ 21,811
Equipment 30,805 70,430 80,994
-------- -------- --------
$328,280 $ 99,419 $102,805
======== ======== ========

3. NOTES RECEIVABLE

Notes receivable consisted of the following at November 30, 1998, 1997
and 1996.

1998 1997 1996
---- ---- ----
Note receivable, due in monthly
installments with interest at 10%
collateralized by a second
mortgage on property, maturing in 2007 $307,663 $330,296 $347,629

Various notes receivable, due in monthly
installments with interest at various
interest rates up to 10%, collateralized
by equipment, maturing through 2001 180,791 279,263 229,842
-------- -------- --------
488,454 609,559 557,471

Less: Amounts due within one year 59,721 66,217 72,091
Allowance for doubtful accounts 20,000 -- --
-------- -------- --------
Total Notes Receivable - Noncurrent $408,733 $543,342 $505,380
======== ======== ========

In 1998, the Company's recorded investment in impaired loans totaled $60,000,
with $20,000 of related credit loss allowance. The Company's recorded
investment in impaired loans totaled $43,000 in 1997 and 1996, with no
related credit loss allowance in 1997 and 1996. The average recorded
investment in impaired loans during 1998 was approximately $51,000 with no
related interest income recognized. The average recorded investment in
impaired loans during 1997 was $43,000; this balance was completely reduced
in 1998 by payments of approximately $33,000 with the remaining balance being
written off. Interest income on impaired loans is recognized only when
payments are received. Interest income recognized in 1997 was approximately
$21,000.

4. REVOLVING CREDIT AGREEMENT

In January 1997, the Company entered into a $250,000 line-of-credit with a
bank with interest payable at the bank's prime rate plus one-half percent
(8.25% at November 30, 1998). Short-term borrowings are due on demand and are
secured by a blanket lien on all assets of the Company and a pledged $100,000

F-18

certificate of deposit. No borrowings were outstanding under the
line-of-credit at November 30, 1998, 1997 and 1996.

5. LONG-TERM DEBT

Long-term debt consisted of the following at November 30, 1998, 1997
and 1996.

1998 1997 1996
---- ---- ----
Mortgage notes payable in equal
monthly installments of $1,930
through March, 2002, at which time
a balloon payment is due; with interest
payable at 9.25% $131,801 $142,084 $180,704

Note payable - stockholder (see Note 13) -- 200,000 200,000

Other -- 18,368 19,857

Notes payable - paid during 1997 -- -- 42,034
-------- -------- --------
131,801 402,486 400,561
Less amounts due within one year 11,455 220,520 266,825
-------- -------- --------
$120,346 $181,966 $133,736
======== ======== ========

The Company has pledged substantially all of its property and equipment as
collateral for repayment of debt.

1998 Annual maturities of long-term debt are as follows:

1999 $ 11,455
2000 12,560
2001 13,772
2002 94,014
--------
$131,801
========

6. RELATED PARTIES

Peter T. Paganes and Robert M. Paganes are directors, officers and
shareholders of the Company and J. Thomas Paganes, their brother, is a
shareholder of the Company. These three shareholders own approximately
24% of the Company's outstanding common stock in 1998, 1997 and 1996.
They each own and operate franchised stores. The following is a summary
of activity with these stockholders and their restaurants as of and for
the years ended November 30, 1998, 1997 and 1996.

1998 1997 1996
---- ---- ----
Product sales (1998), franchise
and advertising fees $867,809 $156,412 $150,215

Accounts receivable 55,922 29,191 26,262

Interest income -- 1,431 3,401

Notes receivable, due in quarterly
installments plus interest at 9% -- -- 24,436

F-19

7. INCOME TAXES

Significant components of deferred tax assets and liabilities consisted of
the following at November 30, 1998, 1997 and 1996.

Deferred Tax Assets and Liabilites 1998 1997 1996
- ----------------------------------- ---- ---- ----
Net operating loss carry-forwards $ 531,000 $ 531,000 $ 725,000
Deferred revenue 71,000 78,000 43,000
Depreciation 27,000 24,000 13,000
Allowance for doubtful accounts 27,000 12,000 10,000
Installment sale (25,000) (27,000) --
Change to Accrual Method-
Section 481(a) adjustment (20,000) (30,000) --
Other (23,000) 1,000 2,000
------- ----- -----

Net Deferred Tax Asset 588,000 589,000 793,000

Valuation allowance on net
deferred tax asset (588,000) (589,000) (793,000)
--------- --------- ---------
Deferred Taxes $ -- $ -- $ --
========= ========= =========

The following reconciles the expected income tax rate to the effective income
tax rate.

1998 1997 1996
---- ---- ----
Income taxes at federal statutory rate (34.0)% 34.0% 34.0%
Tax expense resulting from utilization of NOLs -- 47.0 --
Valuation allowance adjustment (1.1) (40.9) (53.7)
Non-deductible goodwill and entertainment
expenses 44.1 8.3 14.6
Other (9.0) (1.4) 5.1
---- ---- ----
Effective Tax Rate 00.0 % 47.0% 00.0 %
==== ==== ====

The Company has acquired net operating loss carry-forwards 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 1997, the Company had taxable income of
approximately $288,000 which when utilizing the loss carry-forwards resulted
in a reduction of goodwill of $95,300. Utilization of these losses is limited
based on the taxable income generated by the activity that generated these
losses and the carry-forwards 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 above
mentioned acquisition which expire from 2006 through 2009.

As a result of the proposed merger discussed in Note 14 of the consolidated
financial statements, the availability of the net operating loss
carry-forwards may be limited.

8. STOCK OPTION PLAN

The Company has stock option plans under which key employees may be granted
options to purchase a specific number of shares of the Company's stock with
option prices approximating market prices at the date of grant. Options are
subject to the terms of each plan.

The Company applies Accounting Principles Board Opinion No. 25 in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized for the Plan. Had compensation expense for the Company's stock
option plans been determined based on the fair value at the grant dates
consistent with

F-20

the method of SFAS No. 123, the Company's net income and net income per share
would have been the following pro forma amounts:

1998 1997 1996
---- ---- ----
Net Income (Loss)
As reported $(31,207) 107,499 117,357
Pro forma (43,963) 52,277 117,357

Earnings Per Share
As reported
Basic (.01) .04 .05
Diluted (.01) .04 .05
Pro forma
Basic (.02) .02 .05
Diluted (.02) .02 .05

As of November 30, 1998, 283,383 shares were reserved under the Incentive
Stock Option Plan and 83,300 were reserved under the non-statutory Incentive
Stock Option Plan. A summary of the options under both plans is as follows:

Weighted Average
Shares Exercise Price
------ -----------------
Incentive Stock Option Plan

Outstanding, at December 1, 1995
(2,967 exercisable) 112,967 $ 2.50
Exercised (45,000) 1.20
Expired (7,500) 3.10

Outstanding, at November 30, 1996
(60,467 exercisable) 60,467 3.10
Granted 13,500 3.30

Outstanding, at November 30, 1997
(60,467 exercisable at weighted
average exercise price of $3.10) 73,967 3.20
Forfeited (37,000) 2.70

Outstanding at November 30, 1998
(36,967 exercisable) 36,967 3.60

Weighted Average
Shares Exercise Price
------ -----------------
Non-Statutory Incentive Option Plan

Outstanding at December 1, 1995 and
November 30, 1996
(20,000 exercisable) 20,000 $ 3.60
Granted 20,500 1.60

Outstanding at November 30, 1997
(20,000 exercisable at weighted
average exercise price of $3.60) 40,500 $ 2.60
Forfeited (12,000) 1.50

Outstanding at November 30, 1998
(28,500 exercisable) 28,500 $ 3.05

F-21

The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for grants in 1997: dividend yield of 0%; expected volatility of
74%; risk free interest rate of 6.2%; and expected lives of 3.3 years.

The weighted average grant date fair value options granted in 1997 was $2.00.
No options were granted in 1998.

The following is a summary of stock options outstanding at November 30, 1998:

Options Outstanding and Exercisable
------------------------------------
Weighted Average Weighted
Remaining Average
Contractual Exercise
Price Range Number Life (Years) Price
----------- ------ ------------ ------------

Incentive Stock Option Plan
$ 3.10 -4.40 36,833 6.0 3.60
8.40 134 2.0 8.40
------ --- -----
36,967 6.0 $3.60

Non-Statutory Plan
$ 1.50 - 1.90 8,500 8.5 $1.75
3.60 20,000 2.0 3.60
------ --- -----
28,500 4.0 $3.05

9. EMPLOYEE BENEFIT PLAN

In 1997, the Company implemented a 401(k) plan covering substantially all
full-time employees. The Company matches each employee's contribution up to a
predetermined limit. The Company's contribution expense amounted to
approximately $3,000 in 1998 and 1997.

10. OPERATING LEASES

The Company leases buildings, equipment, and restaurant space under various
operating leases. The future minimum rental payments, under all operating
leases containing minimum annual rental payments, are as follows:

1999 $ 56,513
2000 44,795
2001 29,256
--------
$130,564
========

Total rent expense under the operating leases was approximately $102,000,
$120,000, and $129,000 for 1998, 1997 and 1996, respectively.

11. COMMITMENT AND CONTINGENCY

In connection with the distribution of food and restaurant supplies to
franchisees, the Company entered into an agreement effective November 1, 1998
with an unaffiliated entity that is experienced with multiple location
institutional food distribution to provide warehouse and distribution
services for the Company. Minimum annual billings to the Company for these
services must be $425,000. Failure to generate the

F-22

volume necessary to achieve such annual billings will constitute a
termination of the agreement. In connection with such termination or if the
agreement is terminated without cause by the Company prior to September 1,
2002, the Company agrees to pay the unaffiliated entity the following amounts
based on specific termination dates:

o Prior to September 1, 1999 - $225,000
o September 1, 1999 - August 31, 2000 - $150,000
o September 1, 2000 - August 31, 2001 - $ 75,000
o September 1, 2001 - August 31, 2002 - $ 50,000

12. Supplemental Disclosure of Cash Flow Information

Cash paid for interest during 1998, 1997 and 1996 amounted to $13,829,
$17,572 and $28,235, respectively. Cash paid for income taxes during 1996
amounted to $10,000. No amounts were paid for income taxes in 1998 and 1997.

During 1997, the Company exchanged property and equipment for a note
receivable totaling $85,000.

13. LITIGATION SETTLEMENT

o 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
resulting in an increase in goodwill during 1998. The agreement
discharged and released the Company from any and all claims with
McCourt.

o 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.

14. SUBSEQUENT EVENTS

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 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 principals of which include certain members of
Tubby's current management, for $2,500,000.

15. SUBSEQUENT EVENTS {UNAUDITED}

In April 1999, Interfoods advised the Company that, after a thorough
evaluation, its Board of Directors decided not to proceed with the proposed
merger.

F-23

<PAGE>
[Proxycard front]
TUBBY'S, INC.

Proxy Solicited on Behalf of the Board of Directors for
Annual Shareholders Meeting ________, 2000

The undersigned hereby appointed PETER T. Paganes and ROBERT M.
Paganes, jointly and severally, proxies, with the full power of substitution,
to represent the undersigned at the Annual Meeting of Shareholders of
Tubby's, Inc., to be held at the SI Hotel Newark Arpt, 128 Frontage Road,
Newark, New Jersey 07114 _______________ at 10:00 a.m., or at any
adjournments thereof, and to vote all shares of common stock of Tubby's,
Inc., which the undersigned is entitled to vote, and act with all the powers
the undersigned would possess if personally present at the meeting:

1. "FOR" / / "AGAINST" / / "WITHHOLD VOTE FOR" / /

The approval of the Agreement and Plan of Merger for the proposed Merger of
Tubby's, Inc. and R Corp:

2. "FOR" / / "AGAINST" / / "WITHHOLD VOTE FOR" / /

The election of the following persons as Directors of the Company to hold
office until the next Annual Meeting and until their successors shall have
been elected and qualified:

Robert M. Paganes, Peter T. Paganes, Vincent J. Tatone

A VOTE FOR ANY OF THE ABOVE MAY BE WITHHELD BY LINING OUT THEIR NAME(S).

3. In their discretion, for or against such other matters as may
properly come before the meeting or any adjournment or
adjournment thereof:

The Board of Directors recommends a vote "FOR" Items 1 and 2.

Unless otherwise directed herein, the proxy or proxies appointed
hereby are authorized to vote "FOR" Items 1 and 2 and to vote in their
discretion with respect to all other matters which may come before the
meeting or any adjournments thereof.

If only one of the above-named proxies shall be present in person
or by substitute at the Meeting, or any adjournment thereof, then that one,
either in person or by substitute, may exercise all of the powers hereby
given.
This proxy may be revoked prior to its exercise.

(Continued on the reverse side)

[Proxycard back]

(Continued from reverse side)

Any proxy or proxies heretofore given to vote such shares are
hereby revoked.

Dated:_______________________________, 1999

-------------------------------------------

Please sign exactly as name appears hereon.
Executors, administrators, trustees, etc. should
give full title as such

(This proxy is solicited by the Board of Directors)
- -------------------------------------------------------------------------
IMPORTANT: PLEASE DATE, SIGN AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE, NO POSTAGE REQUIRED.