SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 FORM 10-KSB

    |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
        EXCHANGE ACT OF 1934 [FEE REQUIRED] 
    |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 
        EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                 For the Fiscal Year Ended November 30, 1997
                                           -----------------
                        Commission File Number 0-12706
                                              --------
                                TUBBY'S, INC.
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)

         New Jersey                                         22-2166602
------------------------------              ----------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
                        incorporation or organization)


     6029 East Fourteen Mile Road, Sterling Heights, Michigan 48312-5801
-----------------------------------------------------------------------------

       Registrant's telephone number, including area code 810/978-8829
                                                          ------------

         Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock $.01 Par Value
                         ---------------------------
                               (Title of Class)

    Indicate by check mark whether the registrant (1) has filed all reports
    required to be filed by Section 13 or 15(d) of the Securities Exchange
    Act of 1934 during the preceding 12 months (or for such shorter period
    that the registrant was required to file such reports), and (2) has been
    subject to such filing requirements for the past 90 days. Yes |X|No |_|

    Indicate by check mark if disclosure of delinquent filers pursuant to
    Item 405 of Regulation S-B is not contained herein, and will not be
    contained, to the best of registrant's knowledge, in definitive proxy or
    information statements incorporated by reference in Part III of this Form
    10-KSB or any amendment to this Form 10-KSB.

    The aggregate market value of the voting stock held by non-affiliates of
    the Registrant based upon the closing sale price of the common stock on
    February 20, 1998, as reported on the NASDAQ SmallCap Market was
    approximately $3,700,717. Shares of common stock held by each officer and
    by each person who owns 5% or more of the outstanding common stock have
    been excluded in that such persons may be deemed to be affiliates. This
    determination of affiliate status is not necessarily a conclusive
    determination for other purposes.

    Issuer's revenues for its most recent fiscal year:    $3,599,035

    As of February 20, 1998, there were 2,583,114 shares of the registrant's
    common stock outstanding. This reflects a one for ten reverse stock split
    declared by the Company on January 21, 1998. Retroactive effect has been
    given to all share and per share data contained in this document.

                     DOCUMENTS INCORPORATED BY REFERENCE
                ---------------------------------------------
                See Items 9,10,11, and 12 of this Form 10-KSB


                                          1
<PAGE>
                                    PART I
                                    ------

    ITEM 1.    BUSINESS
    -------    --------

    Introduction
    ------------

    Tubby's, Inc., the Registrant, and its subsidiaries, are referred to
    herein as the "Company" or "Tubby's."

    History
    -------

    Tubby's was founded in 1968 in Metropolitan Detroit, Michigan. The
    Company began by selling submarine sandwiches from a small store. The
    Company enjoyed success and growth and in 1977 began the sale of
    franchises of its submarine sandwich concept. In 1990, the Company,
    through a reverse merger, acquired the rights to the Stuff-Yer-Face
    Restaurants which operated primarily in New Jersey.

    General Development of Business
    -------------------------------

    The 1998 outlook for Tubby's traces its roots back to the 1994 decision
    to concentrated on a "back to basics" approach. At that time, Company
    concentrated on restructuring its management team, consolidating
    administrative functions, eliminating unprofitable operations, and
    development of new Tubby's Sub Shop franchises. The results of this
    multi-faceted undertaking began to be realized in 1995. The Company
    achieved its initial goals and returned to profitability. In 1996, the
    Company continued its "back to basics" approach while beginning its next
    phase of strategic development.

    With an eye to the future, the Company sold its first Development Agent
    Agreement ("DA Agreement") in April, 1996. By the end of 1996, the
    Company had sold a total of four DA Agreements. In 1997, six additional
    DA Agreements were sold representing a potential of an additional 102
    Tubby's Sub Shops over the next eight years. Stores that are expected to
    result from the implementation of DA Agreements are the contractual
    responsibility of the Development Agents ("DAs"). Tubby's anticipates
    that these agreements will be fulfilled on a timely basis as stipulated
    in their respective contracts. The following details the Company's
    efforts to franchise new stores in fiscal 1997 and anticipated stores in
    future years:

    This continuing strategy to sell DA Agreements, in addition to single
    store Tubby's Sub Shop franchises, has resulted in the following
    achievements in 1997, and expected openings in the first and second
    quarters of 1998:

    Six  DA Agreements Representing One Hundred Two Units: 
    o    Seventeen store openings anticipated in year one. 
    o    Eighteen store openings anticipated in year two. 
    o    Twenty store openings anticipated in year three. 
    o    Nineteen store openings anticipated in year four. 
    o    Eighteen store openings anticipated in year five. 
    o    Twelve store openings anticipated in year six and thereafter.

    Store Openings in 1997:
    o    Ten new franchised stores opened in 1997. 
    o    Six stores opened pursuant to DA Agreements in 1997.
    o    Two company owned stores were sold or leased to franchisees in 1997.

    First and Second Quarters of 1998:
    o     Fourteen new franchised stores are expected to be opened in the
          first and second quarters of 1998. Of these stores, nine are
          pursuant to DA Agreements.

                                 2
<PAGE>

    Closed and Reacquired Stores:
    o     Two franchisee owned Tubby's Sub Shop were closed in 1997.

    In February of 1998 the Company launched a new subsidiary named SUBperior
    Distribution Systems, Inc.,("SDS"). SDS was formed by management to
    become its distributor of food and restaurant supplies to the franchised
    and Company-owned Tubby's Sub Shops. SDS has contracted with an unrelated
    Detroit company that is experienced with institutional food distribution
    to provide the warehouse and distribution activities that are required.

    This General Development of Business section contains forward-looking
    statements that involve uncertainties. Actual results could differ
    materially from those in the forward-looking statements, due to a number
    of uncertainties, including but not limited to, those discussed below and
    in "Management's Discussion & Analysis of Financial Condition & Results
    of Operation."


    Description of Business
    -----------------------

    The Company develops, operates, franchises and services a system of
    restaurants which prepare and serve a comprehensive menu of submarine
    sandwiches and related items. Tubby's submarine sandwiches are all
    prepared to order and many of its sandwiches are cooked on a grill. These
    restaurants are franchised or owned and operated as company stores. The
    restaurants are located in Michigan, Ohio, New Jersey, Arizona,
    Pennsylvania, Missouri, Indiana, and Alberta, British Columbia and
    Ontario, Canada.

    The Company also franchises and services a line of restaurants known as
    Stuff-Yer-Face. These restaurants are casual, sit-down, full service
    restaurants offering a line of "stuffed pizza" products known as
    "Stromboli." These restaurants create a casual and distinctive atmosphere
    by emphasizing the humorous "Stuff-Yer-Face" name and service by friendly
    waiters and waitresses. Consistent with the Stuff-Yer-Face name, portions
    are large.

    In 1996, the Company began selling DA Agreements. A DA Agreement confers
    the right to qualified persons to operate as an independent agent, on a
    non-exclusive basis, to develop and service the Company's franchised
    stores in a specific geographical area. The DA agrees that during the
    term of the agreement he will diligently perform his obligations on
    behalf of the Company to identify and assist prospective franchisees and
    to perform site acquisition services and supervision of franchisees
    operating Tubby's Sub Shops located in the territory. The DA agrees to
    comply with the quotas as set forth in the DA Agreement.

    As of November 30, 1997, a total of eighty-eight restaurants were in
    operation consisting of four Stuff-Yer-Face restaurants (of which one was
    operated by the Company), three Tubby's Express restaurants, (of which
    one was owned by the Company), and eighty-three Tubby's Sub Shops
    restaurants, (of which three were owned by the Company). In the first and
    second quarters of 1998, fourteen new franchisee owned Tubby's Sub Shop
    restaurants are expected to open.

    In February of 1998 the Company launched a new subsidiary named SUBperior
    Distribution Systems, Inc.,("SDS"). SDS was formed by management to
    become its distributor of food and restaurant supplies to the franchised
    and Company-owned Tubby's Sub Shops. SDS has contracted with a
    unaffiliated Detroit company that is experienced with multiple location
    institutional food distribution to provide the warehouse and distribution
    activities that are required to serve Tubby's Sub Shops.

    This Business section contains forward-looking statements that involve
    uncertainties. Actual results could differ materially from those in the
    forward-looking statements, due to a number of uncertainties, including
    but not limited to, those discussed below and in "Management's Discussion
    & Analysis of Financial Condition & Results of Operation."

    Products
    --------



                                      3
<PAGE>

    Tubby's restaurants offer a uniform menu which includes over twenty
    different submarine and pita sandwiches cooked to order, French fries,
    onion chips and breaded mushrooms, potato chips, soup, and a full line of
    Pepsi-Cola soft drinks. Some restaurants also offer a line of premium ice
    cream that is sold in cones, desserts and take home packaging.

    The Company's submarine sandwiches are all prepared to order and many of
    the products, including its line of steak sandwiches, chicken sandwiches
    etc., are cooked when ordered. The Company's sandwiches are offered in
    different sizes from a length of six inches to a length in excess of five
    feet. Sandwiches in excess of twelve inches are generally ordered for
    parties, picnics and social events. The "party sub" is offered at all
    stores on an advance order basis, only. Tubby's menu is offered for carry
    out, on-site consumption and, where available, delivery.

    The Stuff-Yer-Face ("SYF") restaurants offer a menu featuring a specialty
    sandwich called a "Stromboli." A Stromboli is a closed sandwich with the
    bread freshly baked around a favorite filling selected by the customer
    together with cheeses, tomato sauce, onions and peppers. The Stromboli
    fillings, which customers may select in any combination, include
    meatballs, sausage, pepperoni, veal, steak, chicken and shrimp. The
    "Vegetaboli (R)" is a meatless "Boli" with fillings selected by the
    customer including eggplant, mushroom, broccoli and spinach. The
    sandwiches may be prepared in any combination of meat and vegetables.
    Management is of the opinion that wrapping the dough around the fillings
    improves the taste of the Stromboli over pizza through a steaming process
    which occurs inside the Stromboli. The steaming process permits the
    vegetables to retain flavor and crispness, meats to remain tender and
    juicy, and cheeses and sauce to blend together to create a fine flavor
    while also permitting the dough to crisp and brown. "Boli" sandwiches are
    served in two sizes: "Large", and a smaller size Boli, the "Baby Boli
    (R)."

    The Stuff-Yer-Face restaurants also serve hamburgers, steak sandwiches,
    and pizzas together with side orders which include, among other things,
    French fries, onion rings, and fried mozzarella sticks. The restaurants
    also serve "Lite-Stuff"(R), consisting of a variety of fresh salads and
    club sandwiches. One location serves alcoholic beverages. Each of the
    present Stuff-Yer-Face restaurants are sit-down, full service restaurants
    utilizing waitress and waiter service. Beverages and side orders are
    served while the customer's order is being prepared. When the order is
    ready, each customer is served at his table by the waiter or waitress.
    Each restaurant also accommodates phone orders for take out sales.

    Franchising
    -----------

    The Company franchises all of its restaurant concepts, including the
    Tubby's Sub Shop and Stuff-Yer-Face concepts.

    The Company believes that customer satisfaction is critical to the
    long-term success of the Company and emphasizes quality, proven, well
    trained entrepreneurs in its Franchisee selection process. All potential
    Franchisees are carefully screened by top members of the Management team
    who all participate in the Franchisee approval process.

    Franchises for Tubby's Sub Shops restaurants have been offered since
    1977. The Company offers potential Franchisees a choice of a Single-Unit
    Franchise Agreement or a DA Agreement. Tubby's management is continuing
    to concentrate its resources on the expansion of Tubby's and
    Stuff-Yer-Face restaurants through locating qualified DAs and
    implementing DA Agreements.

    A Tubby's Franchisee is responsible to supply sufficient capital for
    construction, remodeling and equipment costs required to bring a location
    to the standard specifications of a Tubby's store. SubLine Co.
    ("SubLine"), a subsidiary of Tubby's, may, at the option of the
    Franchisee, construct the restaurant, provide leasehold improvements and
    supply the necessary equipment. Alternately, the Franchisee may purchase
    the required construction drawings from the Company and do the work
    himself. Regardless of how constructed, all restaurants must meet the
    Company's specifications before they are allowed to enter the system.



                                      4
<PAGE>

    The License Agreement gives the Franchisee the right to use Tubby's
    trademarks, service marks and methods of operation to operate a Tubby's
    restaurant at a specific location that is approved by Tubby's. The
    initial term of a Tubby's Franchise Agreement is ten (10) years with the
    Franchisee generally having the option to renew. The initial license fee,
    which is payable upon execution of the Franchise Agreement is $15,000 for
    a traditional location. For non-traditional sites, such as convenience
    store locations, the Franchise fee is $8,000. Persons who commit to the
    construction of more than one franchise could have a reduced up-front
    franchise fee. The initial franchise fee compensates Tubby's for 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. New Tubby's License Agreements require the Franchisee to
    pay Tubby's a weekly royalty equal to the greater of $125 per restaurant
    or six percent (6%) (as of January, 1996) of the Franchisee's adjusted
    gross weekly sales. Previously, Tubby's Licensing Agreements required the
    franchisee to pay Tubby's a weekly royalty equal to the greater of $125
    per restaurant or four percent (4%) of the Franchisee's adjusted gross
    weekly sales. Most of the already existing Franchise Agreements require
    the Franchisee to pay Tubby's a weekly advertising fee equal to the
    greater of $100 per restaurant or three and one-half percent (3 1/2%) of
    the Franchisee's adjusted gross weekly sales. Those advertising fees are
    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 along with menu and food quality specifications,
    to purchase supplies from Tubby's approved sources, and to permit
    inspections and audits by Tubby's.

    DA Agreements require franchisees to pay a licensing fee, similar to
    those described above, to the Company. Upon receipt of a licensing fee,
    however, the Company is required to pay a commission to the DA of 50% of
    the amount collected. Similarly, the receipt of royalty payments by the
    Company from stores licensed under a DA Agreement also require that a
    commission be paid to the DA of 28% of the royalty fee if collected at a
    rate under 6% of sales and 40% of the royalty fee if collected at a rate
    of 6% or higher of sales.

    Franchised restaurants are operated in accordance with uniform standards
    required of all Franchisees. These standards include such items as
    selection, quality, preparation and approval of menu items, signage,
    decor, equipment, uniforms, suppliers, hours of operation, cleanliness,
    appearance, etc. All standards are developed by the Company and
    implemented in conjunction with its Franchisees.

    The Company offers ongoing Franchisee support as well as scheduled and
    unscheduled site inspections. All services are designed to ensure
    customer satisfaction, efficient franchise operation and compliance with
    the Company's standards.

    In addition to the above standards, the Company also has financial
    reporting requirements. These requirements include weekly/monthly sales
    reporting and royalty and advertising payments, monthly financial
    statement submission and the maintenance of books and records that will
    allow the Company to audit those records if it so desires. The Company
    has the right to terminate a Franchise Agreement if the Franchisee fails
    to meet the requirements imposed by the above standards.

    Training
    --------

    The Company emphasizes Franchisee training as a means of ensuring the
    quality and value of the products delivered to its customers, and the
    profitability and long-term sales growth to the Company. Training is an
    essential part of the Franchisee experience. In order to enter the
    Tubby's system, a Franchisee is required to complete an extensive
    training program as part of the orientation process.

    Tubby's provides a complete course of instructions 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 its restaurants. Salaries, expenses of travel, food and
    lodging for a Franchisee and his/her representative are at the
    Franchisee's own expense. The training program consists of a minimum of
    150 



                                      5
<PAGE>

    hours of in-store operations, under direct supervision of qualified
    personnel, in addition to classroom sessions at Tubby's corporate
    offices.

    After successfully completing the training program, Tubby's provides
    assistance to new franchisees by providing a member of Tubby's staff to
    the Franchisee's location for at least three days out of the first nine
    weeks of operation.

    Tubby's may charge a fee for the training described above. However, it is
    only obligated to provide such training for a Franchisee's first
    location. Additional training is available at a fee, as is assistance at
    a subsequent location.

    Tubby's commitment to training is not limited to the initial training
    provided at the time a Franchisee enters the system. The Company offers
    training and education to its Franchisees on an ongoing basis. This
    training includes restaurant operation, management training, equipment
    training and marketing assistance. The Company emphasizes continued
    training as part of its Franchisee support program.

    Supplies
    --------

    As of February 2, 1998, the Company initiated operation of its SUBperior
    Distribution Systems, Inc. ("SDS") subsidiary that sells food and
    proprietary items to its Franchisees. The Company also maintains an
    approved supplier list and the Franchisees are able to select the
    approved supplier of their choice. The Company's believes that its new
    subsidiary, SDS, will be able 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.

    The Franchisees are also required to purchase fixtures and equipment
    meeting Tubby's specifications from suppliers that are 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 that has been
    specially manufactured for use in Tubby's restaurants. SubLine 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 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 why
    SubLine is able to offer competitive prices is that, when it acts as a
    broker, it can often obtain volume discounts for the items that are sold
    to Tubby's Franchisees. SubLine will make a profit on equipment it
    purchases and resells. It does not make a profit in connection with the
    assistance it offers regarding leasehold improvements.

    Advertising
    -----------

    Tubby's Franchisees are generally required to pay advertising fees equal
    to the greater of $100 per week or 3 1/2% of total weekly adjusted gross
    sales of that Franchisee's restaurant. Those funds are administered by
    Tubby's Sub Shop Advertising Co., a subsidiary of the Company, and are
    used to pay for shared production and media advertising costs as well as
    other promotional costs. Marketing and promotion is voted on by an
    advertising council. This council is made up of Franchisees and employees
    of the Company and works with the Company in setting advertising programs
    and the timing of those programs.

    The Company has historically emphasized local print media, direct mail,
    television and radio as its form of advertising. Such advertising is
    generally cost prohibitive for an individual Franchisee, but can be cost
    effective when included with other Franchisees. All funds received for
    advertising are spent for advertising purposes only, except for a portion
    which is retained by the Company to cover administrative costs.

    The Company has two full time employees devoted exclusively to the
    process of marketing and advertising for its Franchisees on both an
    individual and on a system wide basis. As a result of the efforts of
    these 



                                      6
<PAGE>

    people, and the efforts of the Advertising Council, the Company has
    expanded and refined its marketing efforts and in 1998 will continue its
    advertising campaign.


    Company Stores
    --------------

    The Company owned and operated five Company restaurants as of November
    30, 1997. Three of the Company restaurants operate as Tubby's Sub Shops,
    one restaurant operates as a Stuff-Yer-Face, and one restaurant operates
    as a Tubby's Express. In 1997, the Company sold one Tubby's Sub Shop and
    leased another, with an option to buy the restaurant, to franchisees.
    Both restaurants are operated as a Tubby's Sub Shop by the respective
    franchisees.

    Expansion Progress and Restaurant Development
    ---------------------------------------------

    Expansion is an important part of Tubby's growth plans. The Company
    carefully studies possible locations and evaluates those potential sites
    based on a variety of criteria including traffic patterns, population,
    availability of drive-thru permits and other relevant criteria. The
    following table shows a summary of the Company's franchise activity and
    Company store activity over the last five years:

<TABLE>
<CAPTION>

                                                                    Fiscal Year Ended November 30,
        Tubby's/Tubby's Express/SYF Restaurants                  1997   1996    1995   1994   1993
                                                                 ----   ----    ----   ----   ----
                                                        <S>       <C>     <C>   <C>     <C>    <C>
                                                        Opened     16      7     10      7      5
                                                        Closed      2      2      3      1      4
                                               Ending Number (1)   88     74     69     62      56
<FN>
(1) Company owned Tubby's Sub Shops include three in 1997, five in 1996,
    two in 1995 and three in 1993. Tubby's Express stores include three, one
    of which is operated under a joint venture operating agreement in 1997
    and 1996, four, one of which was operated under a joint venture operating
    agreement in 1995, six, five of which were operated under a joint venture
    operating agreement, in 1994, and four in 1993. SYF restaurants include
    four in 1997 and 1996, (one of which is Company owned), four in 1995, and
    three in 1994, and 1993.
</TABLE>

    Stores that are expected to result from the implementation of DA
    Agreements are the contractual responsibility of the respective DAs.
    Tubby's anticipates that these agreements will be fulfilled on a timely
    basis as stipulated in their respective contracts. The following details
    the Company's efforts to franchise new stores in fiscal 1997 and
    anticipated stores pursuant to DA Agreements and an Area Development
    Agreement in future years:

    Store Openings in 1997:
    o    Ten new franchised stores opened in 1997. 
    o    Six stores opened pursuant to DA Agreements in 1997. 
    o    Two company owned stores were sold to franchisees in 1997.

    Six  DA Agreements Representing One Hundred Two Units in Years After
         1997: 
    o    Seventeen store openings anticipated in year one. 
    o    Eighteen store openings anticipated in year two. 
    o    Twenty store openings anticipated in year three. 
    o    Nineteen store openings anticipated in year four. 
    o    Eighteen store openings anticipated in year five. 
    o    Twelve store openings anticipated in year six and thereafter.

    One Area Development Agreement Representing Five Units:
    o    Two store anticipated to open in 1998.
    o    One store anticipated to open in 1999.
    o    Two  stores are anticipated to open after 1999.

    As of February 2, 1998, the Company initiated operation of its SUBperior
    Distribution Systems, Inc. ("SDS") subsidiary that sells food and
    proprietary items to its Franchisees. The Company also maintains an



                                      7
<PAGE>

    approved supplier list and the Franchisees are able to select the
    approved supplier of their choice. The Company's believes that its new
    subsidiary, SDS, will be able to provide its franchised and Company owned
    Tubby's Sub Shops with uniform and consistently high quality products at
    equivalent or lower prices then previously charged.

    This Development section contains forward-looking statements that involve
    uncertainties. Actual results could differ materially from those in the
    forward-looking statements, due to a number of uncertainties, including
    but not limited to, those discussed below and in "Management's Discussion
    & Analysis of Financial Condition & Results of Operation."

    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 location, quality and speed of
    service, advertising and attractiveness of facilities.

    Tubby's competes with restaurant chains and other restaurants serving a
    variety of quick service products. Some of Tubby's competitors operate
    more restaurants and have greater financial resources, greater name
    recognition and more experienced operational organizations than Tubby's.
    In an effort to obtain greater name recognition in new markets outside of
    the metropolitan Detroit area, the Company has participated in numerous
    national industry trade shows. Additionally, the Company now places
    advertisements in leading industry publications as well as on the
    Internet. Although Tubby's believes it can operate favorably, it may be
    at a competitive disadvantage with respect to chains with greater name
    recognition and marketing capability. Furthermore, competition for
    management, other key operating personnel and restaurant sites could
    increase as Tubby's operations expand and as the general economy
    improves.

    As a result of the standards Tubby's has set for its franchisees, it
    competes with other franchisors for high quality, well capitalized
    franchisees. Tubby's management considers the amount of the initial
    investment required of the franchisee, the perceived potential for
    business success, return on investment, assistance provided by the
    franchisor and the franchisor's name recognition and reputation to be the
    most significant competitive factors in franchising. The Company believes
    that the present economy will intensify this competition.

    Trademarks and Service Marks
    ----------------------------

    The Company has registered trademark and service marks including
    "Tubby's", "Boli's" and the "Stuff-Yer-Face" names and logos. These
    trademarks and service marks, as well as others, are registered with the
    United States Patent and Trademark Office and are of material importance
    to the Company.

    Seasonal Operation
    ------------------

    Although weather can be a factor in the sales of the Company's products,
    the Company does not consider this business to be seasonal.

    Regulation
    ----------

    The Company is subject to Federal Trade Commission regulations and
    several state laws which regulate the offer, sale and licensing process
    of Franchisors. In addition to the FTC, most states have laws which
    regulate and control the Franchisor/Franchisee relationships.

    Many states also have laws regulating franchise operations, including
    registration and disclosure requirements in the offer and sale of
    franchises and the application of statutory standards regulating



                                      8
<PAGE>
    

    franchise relationships. Tubby's believes it is operating in substantial
    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 Stuff-Yer-Face Franchisees serving
    alcoholic beverages, 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 wage, 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.

    In addition to the above rules and regulations, Tubby's Company stores
    are subject to state and local laws governing such items as health,
    sanitation, licensing, etc. All stores are subject to local inspection
    and ongoing permit approval. Local inspections govern items that Tubby's
    believes are essential to providing a quality customer experience and
    bringing customers back after their initial visit. Tubby's works hard to
    comply with these laws and regulations.

    Customers
    ---------

    The Company is not dependent on a single customer.

    Backlog
    -------

    Company-owned restaurants have no backlog orders.

    Research and Development
    ------------------------

    The Company works hard to ensure that the menu meets the needs of its
    customers. Research and development efforts are done in conjunction with
    suppliers, franchisees and the general public. New products, if approved,
    are introduced via a variety of marketing programs. While the Company
    considers research and development to be essential to the successful
    long-term operation of the Company, its expenditures in this area at this
    time are not material.

    Employees
    ---------

    As of November 30, 1997, the Company employed fifteen people in the
    management and administration of the corporation. In addition, the
    Company owned three Tubby's Sub Shop restaurants, one Stuff-Yer-Face
    restaurant, and one Tubby's Express store. These stores employ about
    seventy-one people, including related store managers. None of Tubby's
    employees are covered by collective bargaining agreements. The Company
    considers its employee relations to be good.

    ITEM 2.    PROPERTIES
    -------    ----------

    The Company leases approximately 9,000 square feet in an office building
    which it uses as its headquarters and warehouse under a five year lease.
    Tubby's believes that these facilities offer sufficient space to allow it
    to conduct its business affairs. As of January, 1998, the Company had
    notified the lessor of its corporate headquarters building that, pursuant
    to its lease, it intended to exercise its option to purchase the building
    at a contract price of $425,000.



                                      9
<PAGE>

    The Company owns two parcels of real estate. One parcel is leased to a
    Franchisee. The other parcel is currently being offered for sale. All of
    the Company's real estate has been pledged as collateral on outstanding
    mortgage loans and notes.

    The Company leases all its Company stores including its Stuff-Yer-Face
    and Tubby's Express locations. These leases are for various terms and
    various expiration dates.

    ITEM 3.    LEGAL PROCEEDINGS
    -------    -----------------

    On August 17, 1995, a civil action was commenced against the Company in
    the United States District Court for the Eastern District of Michigan.
    Patrick J. McCourt, as Trustee of the Patrick J. McCourt trust and as
    President of McCourt Corporation, purchased restricted shares of Tubby's
    common stock pursuant to private placements in June, July and November of
    1993 and formed the McTub Company, a general partnership with Tubby's, in
    August of 1993 for the purpose of owning and operating certain
    quick-serve restaurants originally under the name "Cafe Express."
    Plaintiffs complaint sought rescission of those transactions and, in
    connection therewith, alleged violation of federal securities
    regulations, fraudulent misrepresentation, violation of the Racketeer
    Influenced and Corrupt Organizations Act ("RICO"), dissolution of
    partnership and accounting, violation of Michigan Securities Act, and
    Michigan's Franchise Investment Law. Plaintiffs purchased a total of 1.5
    million shares at $0.25 per share for a total purchase price of $375,000
    and plaintiffs' total investment in the McTub Company was approximately
    $400,000. The Company filed an answer in which it denied liability to
    plaintiffs. In addition, the Company filed a cross-claim against the
    McTub Company seeking a declaratory judgment that the Company is entitled
    to a distribution in the amount of $105,000 prior to any other
    distributions that may be made by that Company. After the close of
    discovery, the Company filed motions for summary judgment of plaintiffs'
    securities fraud claims and to dismiss plaintiffs' RICO claims under
    state law, without prejudice. Thereafter, orders were entered granting
    judgment in the Company's favor with regard to plaintiffs' securities
    fraud claims and dismissing plaintiffs' RICO claims, with prejudice, and
    dismissing all of plaintiffs' remaining claims, without prejudice.

    Plaintiffs then commenced an action in the Circuit Court for the County
    of Oakland (the "Oakland County Action"). In the Oakland County Action,
    plaintiffs assert the same allegations of "fraud" that were asserted and
    dismissed in the federal action but are only seeking rescission of the
    McTub Partnership Agreement and/or money damages in connection with the
    formation of that partnership. This case did not involve any "securities"
    claims regarding the shares of common stock purchased by McCourt. The
    Company filed an answer denying liability, a counter-complaint in which
    it asserted a claim for fraud against McCourt, and a cross-claim against
    the McTub Company seeking certain declaratory relief in connection with
    loans to the partnership that were procured by its partners. Also, the
    Company filed an action in the Circuit Court for the County of Macomb in
    which it asserted a claim for dissolution of the partnership (the "Macomb
    County Action"). That action was transferred to the Circuit Court for the
    County of Oakland and consolidated with the Oakland County Action.

    In January 1998, the parties reached a settlement agreement regarding all
    of their claims. Pursuant to the January 7, 1998 release and settlement
    agreement, the McTub partnership paid McCourt $200,000 in 1998 as
    repayment of McCourt's 1993 loan in that amount to the partnership,
    without interest. In addition, the McTub Partnership paid McCourt $65,000
    in 1998 in exchange for McCourt's entire ownership interest in the
    partnership. Finally, the parties mutually released each other from any
    and all claims, actions or causes of action whatsoever from the beginning
    of time to the date of the settlement agreement which either party may
    have had.

    Thereafter, the parties stipulated to the entry of an order dismissing
    both consolidated cases with prejudice and without costs which the Court
    entered on January 28, 1998.



                                      10
<PAGE>

    ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    -------    ---------------------------------------------------

    There is no information required to be reported hereunder.

                                   Part II
                                   -------

    ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY & RELATED STOCKHOLDER
    -------    -----------------------------------------------------------
               MATTERS
               -------

    The following table sets forth the high and low stock prices for the
    Company's $.01 par value common stock as reported by NASDAQ for the
    fiscal years indicated.

    The following quotations do not include retail mark-ups, markdowns or
    commissions and represent prices between dealers and not necessarily
    actual transactions. The past performance of the Tubby's, $.01 par value
    common stock is not necessarily indicative of future performance.
<TABLE>
<CAPTION>

                       1996                                      1997
                       ----                                      ----
               High          Low                        High          Low
               ----          ---                        ----          ---
     <S>       <C>         <C>            <C>           <C>           <C>
    Quarter 1  $7 13/16    $1  1/4        Quarter 1      $4  1/16    $2   1/2
    Quarter 2   4 11/16     2  1/2        Quarter 2       4  3/8      2  13/16
    Quarter 3   3  3/4      2  3/16       Quarter 3       4  3/8      2   3/16
    Quarter 4   3  7/16     1  9/16       Quarter 4       5           2   1/2
</TABLE>

    As of February 20, 1998, the approximate number of shareholders of record
    of the Company was 7,000. The Company has never paid cash dividends on
    its common stock. Payment of dividends is within the discretion of the
    Company's Board of Directors and depends, among other factors, on
    earnings, capital requirements and the operating and financial condition.
    At the present time, the Company's anticipated financial capital
    requirements will be such that it intends to follow a policy of retaining
    earnings in order to finance the development of its business.

    The Company announced that effective January 21, 1998, that it had
    declared a reverse stock split. As a result of this split, the amount of
    its outstanding shares has been reduced from approximately 26 million to
    less than 2.6 million. In connection with the reverse split, Tubby's
    amended its Articles of Incorporation to reduce the amount of its
    authorized shares from 60 million to 6 million shares so that the
    percentage of authorized shares that remains unissued does not exceed the
    percentage of authorized shares that was unissued before the share
    combination.

    ITEM 6.    MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION &
    -------    -----------------------------------------------------------
               RESULTS OF OPERATIONS
               ---------------------

    The following discussion and analysis should be read in conjunction with
    the Consolidated Financial Statements and Notes thereto. This section
    contains forward-looking statements that involve uncertainties. Actual
    results could alter materially from those in the forward-looking
    statements, due to a number of uncertainties, including but not limited
    to, those discussed below and in the "Business" section.

    Financial Overview
    ------------------

    Tubby's and its consolidated subsidiaries experienced an increase in 1997
    Total Revenues of $475,819, or 15.2%. The Company earned income before
    taxes of $202,799, in 1997 versus $117,357, in 1996. The increase in
    revenues is attributable to increases in Food sales of $134,010, or
    16.8%, Monthly Franchise fees of $126,885, or 19.3%, Advertising fees of
    $80,927, or 14.2%, and Commissions and other fees of $155,341, or 42.2%.
    Equipment and restaurant sales decreased by $35,637 or 5.8%. Ten new
    franchised stores opened in 1997 as well as six additional stores opened
    pursuant to DA agreements. Additionally, two company owned restaurants
    were sold or leased to franchisees in 1997.



                                     11
<PAGE>

    Operating Income in 1997 of $102,928 increased by 57.2% or $37,464 as
    compared to 1996. This increase in Operating Income was primarily a
    result of the $155,341 increase in Commissions and other fees as well as
    less dramatic increases in the other categories of revenue as referred to
    above. Operating expenses increase from 62.2% of Total Revenues in 1996
    to 65.5% or an increase of $415,448 in 1997. Cost of food sales decreased
    from 73.8% of Food sales in 1996 to 71.7% in 1997. Cost of equipment and
    restaurants sales also decreased disproportionately from 86.5% of revenue
    in 1996 to 81.7% in 1997. Other Income also increased by 92.5% to $99,871
    in 1997 reflecting increased interest income and decreased interest
    expense.

    One Company owned and operated restaurant was sold to a franchisee in
    September, 1997. An additional Company owned and operated restaurant that
    had been reacquired from a delinquent franchisee in 1996 was leased to a
    franchisee in June, 1997, with an option to purchase it after two years.
    Both restaurants continue to operate as Tubby's Sub Shops. The Food sales
    attributed to these restaurants were $150,714 in 1997.

    In November, 1995, the Company hired a new director of franchise
    development. This individual brought to Tubby's five years of restaurant
    industry experience in franchise sales. The Company attended, as an
    exhibitor, several national industry trade shows in its effort to gain
    national recognition and expand into new regions of the country. Among
    the impressive results of 1997, DA Agreements representing one
    hundred-two new Tubby's Sub Shops, over the next eight years, were
    initiated for potions of Texas, Missouri, Indiana, Illinois, Michigan and
    the provinces of Alberta, British Columbia and Ontario, Canada. Stores
    that are expected to result from the implementation of DA Agreements are
    the contractual responsibility of the DAs. Tubby's anticipates that these
    agreements will be fulfilled on a timely basis as stipulated in their
    respective contracts. Six Tubby's Sub Shops opened pursuant to DA
    Agreements in 1997. Ten other Tubby's Sub Shops opened in 1997.

    Tubby's currently conducts most of its business in the Metropolitan
    Detroit, Michigan region. The Detroit area economy is largely tied to the
    results of the domestic automotive industry. Employment and spending
    patterns of the people living in this area tend to mirror the operating
    results of these companies and their suppliers. During the last several
    years the domestic automobile industry improved significantly. As the
    domestic automobile industry hired additional workers the local economy
    also improved and so did the operating results of many of Tubby's
    franchised restaurants. The strength of Detroit's local economy is
    expected to continue in 1998. As additional stores are opened in other
    cities, royalty fee income derived from these stores will at least be
    partially dependent upon the economy in those areas. Although weather can
    be a factor in the sales of the Company's products, the Company does not
    consider this business to be seasonal.

    Results of Operations
    ---------------------

    Comparison of the years ended November 30, 1997 and 1996
    --------------------------------------------------------
    Tubby's and its consolidated subsidiaries experienced an increase in 1997
    Total Revenues of $475,819 or 15.2%. The Company earned income before
    taxes of $202,799 in 1997 versus $117,357 in 1996 which is a 72.8%
    increase. Net Income after taxes was $107,499 in 1997 versus $117,357 in
    1996 when no taxes on income were reflected (see Footnote #8 of the Notes
    to Consolidated Financial Statements).

    The increase in revenues is attributable to increased Food sales of
    $134,010, or 16.8%, Monthly Franchise fees of $126,885, or 19.3%,
    Advertising fees of $80,927, or 14.2%, and Commissions and other fees of
    $155,341, or 42.2%. Equipment and restaurant sales decreased by $35,637
    or 5.8%. Ten new franchised stores opened in 1997 as well as six
    additional stores opened pursuant to DA agreements. Additionally, two
    Company owned restaurants were sold or leased to franchisees in 1997.

    The increase in Food sales revenues is primarily attributable to one
    Company owned restaurant that was opened and one existing restaurant that
    was reacquired from a delinquent franchisee both in the fourth quarter of
    1996. The Company owned restaurant was sold to a franchisee in September,
    1997. The reacquired restaurant was leased with an option to buy to a new
    franchisee in June, 1997. Both restaurants continue to operate as Tubby's
    Sub Shops. The Food sales attributable to these restaurants were $150,714
    in 



                                      12
<PAGE>
    

    1997. Operating Income in 1997 derived from Food sales increased by
    $54,413 or 26.1% from 1996. The increase in operating Income from Food
    sales was largely attributable to the two restaurants previously
    mentioned.

    The increased Monthly Franchise fees of $126,885 and Advertising fees of
    $80,927 in 1997 reflect increases in system wide sales resulting from the
    opening of new Tubby's Sub Shops and the accelerated efforts of the
    Company's marketing department. The Company believes that the strong
    economy will continue into 1998. With at least fourteen new Tubby's Sub
    Shops planned for the first six months of 1998 and more planned for the
    remainder of the year, and with the additional efforts of the Company's
    new marketing manager, system wide food sales should dramatically
    increase resulting in increased fees collected.

    The increase in Initial Franchise fees of $14,293 in 1997 consists of the
    amounts received from two new Tubby's Sub Shops and fees received from
    sixteen franchisees who either transferred ownership of existing
    franchisee owned restaurants or opened additional restaurants at reduced
    licensing fees in 1997. Initial fees in 1996 consisted of amounts
    received from two new franchisees and fees received from thirteen
    franchisees who either transferred ownership of existing Tubby's Sub
    Shops or open additional restaurants at reduced licensing fees. Reduced
    Initial licensing fees are collected from Tubby's Sub Shops opened
    pursuant to a DA Agreement, opened in non-traditional sites, or opened by
    existing franchisees.

    The Company experienced a decrease in Equipment and restaurant sales of
    $35,637 as result of the trend towards franchisees opening
    non-traditional Tubby's Sub Shops or opening restaurants pursuant to DA
    Agreements. In both of these situations, the Company frequently sells the
    franchisee the appropriate restaurant equipment but frequently does not
    participate in the construction of the leasehold improvements either due
    the restaurant being located in an established business site such as a
    service station or being located outside of the Detroit region. The
    Company did increase the Operating Income derived from Equipment and
    restaurant sales by $21,053 or 25% as a result of increased profit
    margins.

    Commissions and other fees are comprised of vendor rebates, marketing
    rights, and rental income of existing Company owned franchisee operated
    Tubby's Sub Shops. Vendor rebates increased in 1997 by $49,005 or 15.5%
    as compared to 1996. This increase resulted primarily from the increased
    systems wide food sales mention above. Rental income increased by $17,968
    or 34.4% as compared to 1996. The increase in rental income resulted from
    the rental, in July of 1996, of a newly acquired existing Tubby's Sub
    Shop to a franchisee for the entire year of 1997. Marketing rights were
    first received in 1997 by the Company. In 1997, the Company received
    $45,019 for Marketing rights sold pursuant to DA Agreements.

    Operating expenses increased in 1997 by $415,448 or 21.4%. Additionally,
    Operating expenses increased disproportionately from 62.2% to 65.5% of
    Total Revenue. Operating expenses have increased as the Company continues
    to expand. The previously unfilled staff positions of purchasing and
    marketing were staffed at an expense of approximately $100,000 in 1997.
    Building rent of Company owned stores increased by about $38,000.
    Building rent is expected to decrease in the coming year as two Company
    owned restaurants were either sold or leased to franchisees. Advertising,
    promotional, and various marketing and franchise development expenses
    increased by $393,000 in 1997 as the Company expanded its marketing
    efforts in regions where Tubby's are located and further emphasis was
    placed on franchise development in other regions of North America.
    Certain operating expenses decreased, also. The most noteworthy decrease
    occurred in Legal fees which declined by $95,272 or 86.4% resulting from
    an overall decline in legal activity that required outside counsel and
    most other legal matters being handled by in-house counsel.

    Interest Income increased by $13,531 or 14.3% in 1997. This increase was
    attributable to interest income of $21,168 received from a franchisee
    currently in bankruptcy proceedings. Interest income is recorded when
    received. Management anticipates that interest income will decrease in
    1998 as Tubby's growth accelerates. The Company's working capital is
    utilized during the construction phase, on a short term basis, to finance
    the new construction and equipment purchases of franchised restaurants.
    Upon the completion of a new restaurant, the franchisee is invoiced for
    the construction and equipment costs with a profit margin. As the pace of
    new restaurant construction accelerates; additional amounts of working
    capital will be utilized and interest income derived from idle funds will
    decrease as a result. Additionally, in 



                                      13
<PAGE>

    February, 1998, the Company initiated operation of its SUBperior
    Distribution Systems, Inc. (SDS) subsidiary that sells food and
    proprietary items to its Franchisees. Due to characteristics of its
    business cycle, SDS is expected to maintain a sizable inventory and
    accounts receivable. To maximize profits SDS will also take advantage of
    purchase discounts that are normally available. The Company will utilize
    its excess funds to provide short term funding as required.

    Interest Expense decreased in 1997 by $18,663 or 66.1% when compared to
    1996. Management expects this trend to not continue in 1998. As noted in
    the preceding paragraph, SDS is expected to utilize some portion or all
    of the Company's excess funds. To the extent that additional funds are
    required, the Company may utilize its revolving lines of credit. SDS
    maintains a $250,000 revolving line of credit with a financial
    institution in addition to a similar line of credit maintained by Tubby's
    Sub Shops, Inc. Interest for both lines of credit accrue on the unpaid
    balance at 1/2% over the prime rate charged by the financial institution.
    As of November 30, 1997, there were no borrowings under either line of
    credit.

    Liquidity and Capital Resources
    -------------------------------

    Cash and Equivalents combined with Investments increased by $76,548 when
    compared to 1996. The acquisition of property and equipment utilized
    $69,020 if cash in 1997 as compared to $462,155 in cash in 1996. An
    increase in Accounts Receivable of $198,543 and a decrease in Accounts
    Payable of $83,522 utilized Cash and Equivalents of $282,065.

    Cash Flows From Operating Activities Was $169,799 in 1997
    ---------------------------------------------------------

    Operating Activities Creating Significant Cash Inflows:
    -------------------------------------------------------
    o    Net Income of $107,499.
    o    Non-cash adjustments to the Net Income included Depreciation and
         Amortization for 1997 of $135,468 and Taxes on Income of $95,300,
         (see Footnote #8 of the Notes to Consolidated Financial Statements).
    o    Decreases in Prepaid expenses of $59,195 resulting from the payment
         of certain non-reoccurring marketing expenses.
    o    Increases in Deferred revenue of $49,356 representing primarily the
         prepayment of initial licensing fees for Tubby's Sub Shops that are
         expected to open during the first two quarters of 1998.

    Operating Activities Creating Significant Cash Out Flows:
    ---------------------------------------------------------
    o    Accounts receivable increased by $198,543 primarily as a result of
         equipment sales occurring near the end of the fourth quarter.
    o    Decreases in Accounts payable of $83,522 resulting from acceleration
         of processing of accounts payable.


    Cash Flows Used By Investing Activities Was $16,921 in 1997
    -----------------------------------------------------------

    Cash Flows From Investing Activities:
    -------------------------------------
    o    Net Proceeds From Sale Of Property and Equipment of $5,000.
    o    Payments on Notes receivable of $52,912.

    Cash Used In Investing Activities:
    ----------------------------------
    o    Purchase of Certificate of Deposit and Investments of $5,813.
    o    Purchases of Property and Equipment of $69,020.

    Cash Flows From Financing Activities decreased by $82,143
    ---------------------------------------------------------

    Items Creating Cash In Flows:
    -----------------------------
    o    Proceeds From long-term debt of $150,000 results from the refinancing
         through a new financial institution of Company owned but franchisee
         operated Tubby's Sub Shop.



                                     14
<PAGE>

    Cash Used In Financing Activities:
    ----------------------------------
    o    Payments of Long-Term Debt of $232,143 relates to principal
         reduction on notes owed by the Company relating to the refinancing
         mentioned above and other payments of Company debt.

    Other Liquidity Related Items
    -----------------------------

    To generate sufficient cash flow to meet the needs of the Company, the
    Company must continue to operate profitably. In order for this to occur,
    Company owned restaurants must operate profitably and new stores must be
    added to the system.

    During fiscal year 1994, Tubby's concentrated on a "back to basics"
    approach to its business. The Company concentrated on eliminating
    unprofitable operations, consolidating administrative functions and
    development of new sub shop franchises. With a leaner and more focused
    management team, the Company was able in 1995 to concentrate on its core
    business of franchising Tubby's Sub Shops and becoming profitable. In
    1996, the Company continued its focus on its core business of franchising
    Tubby's Sub Shops while remaining profitable. During 1996 and 1997 the
    Company began the implementation of its strategy to become a national
    chain of franchised restaurants rather then a regional chain as it had
    been in previous years. The Company initiated four DA Agreements in 1996
    and an additional six DA Agreements in 1997.

    Expense control remains a critical element leading to the continued
    profitability of the Company. Management is continuing its ongoing review
    of expenses and is initiating cost reductions where appropriate. In the
    fourth quarter of the 1994 fiscal year management initiated significant
    salary and expense reductions--the full benefit of which is still being
    realized.

    During 1998, the Company has identified several items which will impact
    cash flow and the liquidity of the Company. Those items are:

    Items Creating Cash Inflows
    ---------------------------

    o    In the first quarter of 1998, the Company expects to complete those
         locations that were under construction at the end of 1997 and
         realize $181,000 in cash from the respective sales at that time.

    o    In February, 1998, the Company lunched its new subsidiary, SUBperior
         Distribution Systems, Inc., (`SDS"). SDS was created by management
         to become its distributor of food and restaurant supplies to the
         franchisee and Company owned Tubby's Sub Shops. SDS has contracted
         with an unrelated Detroit based company that is experienced with
         multiple location institutional food distribution to provide
         warehouse and distribution services that are necessary to serve
         Tubby's Sub Shops. The Company believes SDS will be able to provide
         its franchisee and Company owned restaurants with uniform and
         consistently high quality products at equivalent or lower prices
         then previously charged.

    o    The Company anticipates the construction and opening of as many as
         fourteen new restaurants in the first two quarters of 1998. If these
         restaurants open as planned, the Company will realize operating
         income from the sale of equipment of about $10,000 from each store.
         The Company will also receive initial licensing fees, and ongoing
         monthly royalty and advertising fees. Reduced fees are derived from
         stores that are opened pursuant to DA Agreements.

    The Company also has sufficient equipment inventory (see Footnote #3 of
    the Consolidated Financial Statements) to meet some of the needs of the
    new Franchisees entering the system. Based on the existing commitments
    for new Franchisees, the Company anticipates that it will convert most of
    its existing inventory to cash in the 1998 year.



                                      15
<PAGE>

    Items Creating Cash Outflows
    ----------------------------

    o    At November 30 ,1997, the Company had four restaurants at various
         stages of construction. These new locations will require significant
         additional expenditures before completion. These restaurants are
         franchise owned and operated. Upon their completion, the Company
         will recoup its investments in these locations. The Company believes
         that it has sufficient liquidity to complete these restaurants.

    o    The Company's SDS subsidiary will require a significant investment
         in inventory to meet the needs of its restaurants and those owned by
         franchisees. As the inventory is sold it will be replenished and
         accounts receivable generated. The Company believes that with a
         combination of internal funding and existing lines of credit
         sufficient funds are available to maintain its inventory and
         accounts receivable.

    o    In January, 1998, pursuant to its corporate headquarters lease, the
         Company notified its landlord of their intention to purchase the
         building at the contract price of $425,000. The Company has a
         confirmed commitment for funding the entire purchase. The terms of
         the commitment are 100% financing at a fixed rate of 8.25% for five
         years with a fifteen year amortization. After five years, a new
         commitment will be required.

    o    In January, 1998, the Company paid $265,000 pursuant to a settlement
         agreement of claims by Patrick J. McCourt, as Trustee of the Patrick
         J. McCourt Trust and as President of McCourt Corporation, (See Item
         3, Legal Proceedings).

    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 needs of the Company in 1998. The Company maintains two $250,000
    lines of credit with a local financial institution to meet short term
    financial needs. Management believes that as a result of its "back to
    basics" approach, the recognition of these reoccurring items, and the
    ongoing reduction in operating expenses, the Company's operations will
    continue to improve in 1997.

    Recent Accounting Pronouncements
    --------------------------------

    The Financial Accounting Standards Board has issued SFAS No. 128
    "Earnings per Share" which modifies the standards for computing earnings
    per share. The statement is effective for financial statements issued for
    periods ending after December 15, 1997. This statement is not expected to
    have a material impact on the Company's computation of earnings per
    share.

    In June 1997, the Financial Accounting Standards Board issued Statement
    of Financial Accounting Standards No. 130, Reporting Comprehensive Income
    (SFAS 130), which establishes standards for reporting and display of
    comprehensive income, its components and accumulated balances.
    Comprehensive income is defined to include all changes in equity except
    those resulting from investments by owners and distributions to owners.
    Among other disclosures, SFAS 130 requires that all items that are
    required to be recognized under current accounting standards as
    components of comprehensive income be reported in a financial statement
    that is displayed with the same prominence as other financial statements.

    SFAS 130 is effective for financial statements for periods beginning
    after December 15, 1997 and requires comparative information for earlier
    years to be restated. Because of the recent issuance of this standard,
    management has been unable to fully evaluate the impact, if any, the
    standard may have on future financial statement disclosures. Results of
    operations and financial position, however, will be unaffected by
    implementation of this standard.

    In June 1997, the Financial Accounting Standards Board issued SFAS No.
    131, Disclosures about Segments of an Enterprise and Related Information,
    (SFAS 131) which supersedes SFAS No. 14, Financial Reporting for Segments
    of a Business Enterprise. SFAS 131 establishes standards for the way that
    public companies report information about operating segments in annual
    financial statements and requires reporting of selected information about
    operating segments in interim financial statements issued to the public.
    It also 



                                     16
<PAGE>
    

    establishes standards for disclosures regarding products and
    services, geographic areas and major customers. SFAS 131 defines
    operating segments as components of a company about which separate
    financial information is available that is evaluated regularly by the
    chief operating decision maker in deciding how to allocate resources and
    in assessing performance.

    SFAS 131 is effective for financial statements for periods beginning
    after December 15, 1997 and requires comparative information for earlier
    years to be restated. Because of the recent issuance of this standard,
    management has been unable to fully evaluate the impact, if any, it may
    have on future financial statement disclosures. Results of operations and
    financial position, however, will be unaffected by implementation of this
    standard.

    Year 2000 Costs
    ---------------

    The Company, like most owners of computer software, will be required to
    modify certain portions of its software so that it will function properly
    in the year 2000. Maintenance or modification costs will be expensed as
    incurred, while the costs of any new software will be capitalized and
    amortized over the software's useful life. Management believes these
    "year 2000" costs will be immaterial.


    Impact of Inflation
    -------------------

    The Company does not believe inflation has had a material impact on
    earnings during the past several years. The Company has demonstrated an
    ability to manage its assets, adjust retail prices, and use long-term
    debt for real estate holdings - made less expensive by inflation - and
    take such other steps as necessary to mitigate the effects of inflation.



                                      17
<PAGE>

    ITEM 7.    FINANCIAL STATEMENTS
<TABLE>
<CAPTION>


                     TUBBY'S, INCORPORATED & SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS


                                                                        November 30,
    ASSETS                                                         1997              1996
                                                                   ----              ----
 <S>                                                               <C>          <C>       
    Current Assets
       Cash and equivalents                                       $  864,229   $  793,494
       Certificate of deposit                                        105,430      100,000
       Marketable securities                                          25,383       25,000
       Accounts receivable - trade, less allowance for doubtful
          accounts of $36,740 and $20,850 in 1997 and 1996           443,810      245,267
       Notes receivable                                               66,217       72,091
       Inventories                                                    99,419      102,805
       Prepaid expenses and other                                     51,449      110,644
                                                                  ----------   ----------

Total Current Assets                                               1,655,937    1,449,301
                                                                  ----------   ----------

Property and Equipment
       Land                                                          325,347      325,347
       Building and improvements                                     663,753      693,347
       Equipment                                                     527,265      440,705
       Furniture and fixtures                                        138,394      219,464
       Vehicles                                                       15,009       15,009
                                                                  ----------   ----------


                                                                   1,669,768    1,693,872
       Less accumulated depreciation                                 773,576      654,255
                                                                  ----------   ----------

Net Property and Equipment                                           896,192    1,039,617
                                                                  ----------   ----------

Other Assets
       Goodwill, less amortization of $81,118
          and $68,045 in 1997 and 1996                               229,918      338,241
       Notes receivable, less allowance for doubtful
          accounts of $-0- and $5,894 in 1997 and 1996               543,342      505,380
                                                                  ----------   ----------

Total Other Assets                                                   773,260      843,621
                                                                  ----------   ----------

Total All Assets                                                  $3,325,389   $3,332,539
                                                                  ==========   ==========

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


                                      18
<PAGE>
<TABLE>
<CAPTION>

                     TUBBY'S, INCORPORATED & SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS

                                                                November 30,
    LIABILITIES  AND  STOCKHOLDERS'  EQUITY                1997              1996
                                                           ----              ----
<S>                                                     <C>            <C>        
    Current Liabilities
       Accounts payable                                 $   106,407    $   189,929
       Accrued liabilities
       --Compensation                                        19,887         21,075
       --Other                                               16,153         13,305
       Deferred revenue                                     115,489         87,000
       Long-term debt due in one year                       220,520        266,825
                                                        -----------    -----------

Total Current Liabilities                                   478,456        578,134

Deferred Revenue                                             60,867         40,000

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

Total Liabilities                                           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
       Additional paid in capital                         3,485,844      3,485,844
       Retained earnings (deficit)                         (865,542)      (973,041)
                                                        -----------    -----------

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


Total Liabilities and Stockholders' Equity              $ 3,325,389    $ 3,332,539
                                                        ===========    ===========
<FN>
       See accompanying summary of accounting policies and notes to
consolidated financial statements.
</TABLE>



                                      19
<PAGE>
<TABLE>
<CAPTION>


                     TUBBY'S, INCORPORATED & SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS


                                                   Year Ended November 30,
    CONSOLIDATED  STATEMENTS  OF  OPERATIONS       1997              1996
                                                   ----              ----
<S>                                             <C>            <C>        
    Revenues
       Food  sales                              $   931,000    $   796,990
       Franchise fees
       --Monthly                                    785,959        659,074
       --Initial                                    132,543        118,250
       Advertising fees                             650,909        569,982
       Equipment and restaurant sales               575,427        611,064
       Commissions and other fees                   523,197        367,856
                                                -----------    -----------

Total Revenues                                    3,599,035      3,123,216
                                                -----------    -----------

Costs and Expenses
       Operating expenses                         2,357,938      1,942,490
       Cost of food sales                           667,854        588,257
       Cost of equipment and restaurant sales       470,315        527,005
                                                -----------    -----------

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

Operating Income                                    102,928         65,464
                                                -----------    -----------

Other Income (Expense)
       Interest income                              108,430         94,899
       Interest expense                              (9,572)       (28,235)
       Gain (loss) on sale of fixed assets             --           (5,880)
       Miscellaneous                                  1,013         (8,891)
                                                -----------    -----------

Total Other Income                                   99,871         51,893
                                                -----------    -----------

Income Before Taxes on Income                       202,799        117,357

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

Net Income                                          107,499        117,357
                                                ===========    ===========

Earnings Per Share                                      .04            .05
                                                ===========    ===========

Weighted Average Common Shares Outstanding        2,604,720      2,556,720
                                                ===========    ===========
<FN>
       See accompanying summary of accounting policies and notes to
consolidated financial statements.
</TABLE>



                                      20
<PAGE>
<TABLE>
<CAPTION>

                     TUBBY'S, INCORPORATED & SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                               COMMON                   ADDITIONAL      RETAINED
                               STOCK                    PAID-IN         EARNINGS
                               SHARES      AMOUNT       CAPITAL         (DEFICIT)    TOTAL
                               ------      ------       -------         ---------    -----
<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 November 30, 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
                             ==========   =======   ===========    ==========     ==========

<FN>

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


                                      21
<PAGE>
<TABLE>
<CAPTION>


                     TUBBY'S, INCORPORATED & SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                           Year Ended November 30,
                                                                             1997              1996
                                                                             ----              ----
<S>                                                                           <C>          <C>      
    Cash Flows From Operating Activities
       Net income                                                             $ 107,499    $ 117,357
       Adjustments to reconcile net income to net
          cash provided by operating activities
       Depreciation and amortization                                            135,468      105,226
       Taxes on income                                                           95,300         --
       Loss on sale of fixed assets                                                --          5,880
       Increase (Decrease) In Cash Due to Changes In
       Accounts receivable                                                     (198,543)     (11,596)
       Inventories                                                                3,386      (67,965)
       Prepaid expenses and other                                                59,195      (65,506)
       Accounts payable                                                         (83,522)      26,457
       Accrued liabilities                                                        1,660      (19,344)
       Deferred revenues                                                         49,356      (44,000)
                                                                              ---------    ---------

Net Cash Provided by Operating Activities                                       169,799       46,509
                                                                              ---------    ---------

Cash Flows From Investing Activities
       Purchase of property and equipment                                       (69,020)    (462,155)
       Payments on note receivable                                               52,912      133,899
       Increase in certificate of deposit and marketable securities (5,813)     (25,000)
       Net proceeds from sale of property and equipment                           5,000       13,500
       Sale of certificate of deposit and marketable securities                    --        154,590
       Other assets                                                                --         (2,242)
Net Cash Used In Investing Activities                                           (16,921)    (186,371)
                                                                              ---------    ---------

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

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

Cash and Equivalents, at end of period                                        $ 864,229    $ 793,494
                                                                              =========    =========
<FN>

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



                                      22
<PAGE>

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


    1.  SUMMARY  OF  ACCOUNTING  POLICIES

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

    Natures of Operations
    ---------------------
    The Company's and its subsidiaries' 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) food sales at Company owned
    stores; (3) equipment sales to franchisees; and (4) vendor commissions
    and rebates. The Company and its franchisees operate restaurants in
    Michigan, Ohio, New Jersey, Pennsylvania, Arizona, Missouri, Indiana and
    the provinces of Ontario and Alberta Canada.

    Concentrations of Credit Risk
    -----------------------------
    Financial instruments which potentially subject the Company to
    concentrations of credit risk consist principally of cash, cash
    equivalents, certificates of deposit, marketable securities 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. The
    Company also establishes an allowance for possible losses, when
    necessary, for declines in market value of its marketable securities.

    Fair Values of Financial Instruments
    ------------------------------------
    The carrying amounts of cash, cash equivalents, certificates of deposit,
    marketable securities, 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 approximate fair value because the interest
    rates on these instruments approximate market rates.

    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.




                                      23
<PAGE>

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

    Inventories
    -----------
    Inventories include food and equipment held for resale to franchisees.
    Inventories are stated at the lower of cost (primarily on a specific
    identification basis) or market.

    Property and Equipment
    ----------------------
    Property and equipment are stated at cost. Depreciation is computed over
    the useful lives of the assets ranging from 5 to 19 years, using the
    straight-line method. Depreciation expense was $122,395 and $94,550 in
    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 amortizes
    goodwill over periods not exceeding 40 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 undiscounted cash flows and the
    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 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.

    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 $651,000 and $582,000 in 1997 and 1996,
    respectively.

    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. 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
    ------------------
    The computation of earnings per share is based on the weighted average
    number of outstanding common shares and equivalents. Common share
    equivalents included in the computation represent shares issuable upon
    assumed exercise of stock options which would have a dilutive effect in
    years where there are earnings.



                                      24
<PAGE>

    In January 1998, the Company declared a one for ten reverse stock split.
    As a result, the amount of outstanding shares has been reduced from
    25,831,131 to 2,583,114. In connection with the reverse stock split, the
    Company amended it 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.

    The Financial Accounting Standards Board has issued SFAS No. 128
    "Earnings per Share" which modifies the standards for computing earnings
    per share. The statement is effective for financial statements issued for
    periods ending after December 15, 1997. The statements is not expected to
    have a material impact on the Company's computation of earnings per
    share.

    Long-lived Assets
    -----------------
    The Company adopted the provision of Statement of Financial Accounting
    Standards No. 121 (SFAS 121) "Accounting for the Impairment of Long-lived
    Assets and for Long-lived Assets to be disposed of" during the year ended
    November 30, 1997. SFAS 121 establishes accounting standards for the
    impairment of long-lived assets, certain identifiable intangibles, and
    related goodwill to be held and used, and for long-lived assets and
    certain identifiable intangibles to be disposed of. The effect of
    adopting this standard did not have a financial impact on the Company.

    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 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 Statement
    of Financial Accounting Standards No. 130, Reporting Comprehensive Income
    (SFAS 130), which establishes standards for reporting and display of
    comprehensive income, its components and accumulated balances.
    Comprehensive income is defined to include all changes in equity except
    those resulting from investments by owners and distributions to owners.
    Among other disclosures, SFAS 130 requires that all items that are
    required to be recognized under current accounting standards as
    components of comprehensive income be reported in a financial statement
    that is displayed with the same prominence as other financial statements.

    SFAS 130 is effective for financial statements for periods beginning
    after December 15, 1997 and requires comparative information for earlier
    years to be restated. Because of the recent issuance of this standard,
    management has been unable to fully evaluate the impact, if any, the
    standard may have on future financial statement disclosures. Results of
    operation and financial position, however, will be unaffected by
    implementation of this standard.

    In June 1997, the Financial Accounting Standards Board issued SFAS No.
    131, Disclosures about Segments of an Enterprise and Related Information,
    (SFAS 131) which supersedes SFAS No. 14, Financial Reporting for Segments
    of a Business Enterprise. SFAS 131 establishes standards for the way that
    public companies report information about operating segments in annual
    financial statements and requires reporting of selected information about
    operating segments in interim financial statements issued to the public.
    It also establishes standards for disclosures regarding products and
    services, geographic areas and major customers. SFAS 131 defines
    operating segments as components of a company about which separate
    financial information is available that is evaluated regularly by the
    chief operating decision maker in deciding how to allocate resources and
    in assessing performance.

    SFAS 131 is effective for financial statements for periods beginning
    after December 15, 1997 and requires comparative information for earlier
    years to be restated. Because of the recent issuance of this standard,
    management has been unable to fully evaluate the impact, if any, it may
    have on future financial statement disclosures. Results of operations and
    financial position, however, will be unaffected by implementation of this
    standard.

    2.   MARKETABLE SECURITIES

    The Company has classified its marketable securities as
    available-for-sale and are reported at fair market value with unrealized
    gains or losses reported as a component of stockholders' equity.
    Available-for-sale 



                                      25
<PAGE>

    securities are comprised of corporate bonds. During each of the fiscal
    years and as of November 30, 1997 and 1996, there were no realized or
    unrealized gains or losses reported as cost approximated fair value.

    At November 30, 1997, corporate bonds included in available-for-sale
    securities have contractual maturities exceeding ten years.

    3.  INVENTORIES

        Inventories at November 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>


                         1997      1996
                       --------   -------
<S>                    <C>        <C>     
Equipment              $ 70,430   $ 80,994
Food and paper goods     28,989     21,811
                       --------   --------

                       $ 99,419   $102,805
                       ========   ========
</TABLE>

    4.  NOTES  RECEIVABLE

    Notes receivable consisted of the following at November 30, 1997 and
1996.
<TABLE>
<CAPTION>

                                                             1997         1996
                                                             ----         ----
<S>                                                          <C>        <C>     
Note receivable, due in monthly installments
   with interest at 10%, collateralized by a second
   mortgage on property, maturing in 2007                    $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                                      279,263    229,842
                                                             --------   --------

                                                              609,559    577,471
Less amounts due within one year                               66,217     72,091
                                                             --------   --------

Total Notes Receivable - Noncurrent                          $543,342   $505,380
                                                             ========   ========
</TABLE>

    The Company's recorded investment in impaired loans totaled $43,000, with
    no related credit loss allowance, in 1997 and 1996. The average recorded
    investment in impaired loans during 1997 was $43,000, with related
    interest income recognized in 1997 of approximately $21,000. Interest
    Income on impaired loans is recognized only when payments are received.

    5.  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 (9.0% at November 30, 1997). 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 certificate of deposit. No borrowings were outstanding
    under the line-of-credit at November 30, 1997 and 1996.

    6.  LONG-TERM  DEBT

    Long-term debt consisted of the following at November 30, 1997 and 1996.
<TABLE>
<CAPTION>

                                                               1997           1996
                                                               ----           ----
<S>                                                              <C>        <C>     
Notes payable- stockholder (see Note 13)                         $200,000   $200,000
</TABLE>



                                      26
<PAGE>
<TABLE>
<CAPTION>

                                                               1997           1996
                                                               ----           ----
<S>                                                              <C>        <C>     
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%                                                  142,084    180,704

Other obligations payable in equal monthly
   installments of $1,100 through September
   2000, with interest of up to 9%                                 18,368     19,857

Notes payable - paid during 1997                                     --       42,034
                                                                 ________   ________
                                                                  360,452    442,595
Less amounts due within one year                                  220,520    266,825
                                                                 ________   ________
                                                                 $139,932   $175,770
                                                                 ========   ========
</TABLE>

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

    Annual maturities of long-term debt are as follows:
<TABLE>


                                                                 <S>        <C>     
                                                                 1998       $220,520
                                                                 1999         16,223
                                                                 2000         15,906
                                                                 2001         13,700
                                                                 2002         94,103
                                                                 -------------------
                                                                            $360,452
</TABLE>

    7.  RELATED  PARTIES

    Two founding stockholders of the Company are directors and are also
    officers. These stockholders own approximately 17% of the outstanding
    common stock. In addition to their responsibilities to the Company, they
    also own and operate three franchised Tubby's restaurants. The following
    is a summary of activity with these stockholders and their restaurants as
    of and for the years ended November 30, 1997 and 1996.
<TABLE>
<CAPTION>

                                                    1997        1996
<S>                                               <C>        <C>     
Accounts receivable                               $ 29,191   $ 26,262

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

Franchise and advertising fees                     151,130    150,215

Interest income                                      1,431      3,401
</TABLE>

    8.  INCOME TAXES

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

<TABLE>
        Deferred Tax Assets                        1997            1996
        ---------------------                      ----            ----
<S>                                               <C>           <C>     
               Net operating loss carry-forwards  $615,000      $725,000
               Allowance for doubtful accounts      60,000        43,000
               Deferred revenue                     22,000        13,000
               Depreciation                         12,000        10,000
               Other                                 1,000         2,000
                                                  --------   -----------
</TABLE>


                                      27
<PAGE>
<TABLE>
<S>                                               <C>           <C>
           Net Deferred Tax Asset                  710,000       793,000

               Valuation allowance on net 
                deferred tax asset                (710,000)     (793,000)
                                                  --------      -------- 
               Deferred Taxes                     $     --      $      --
                                                  ========      ========= 
</TABLE>

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

    The following reconciles the expected income tax rate to 
the effective income tax rate.
<TABLE>
<CAPTION>

                                                     1997      1996
                                                    -----     -----
<S>                                                 <C>      <C>
Income taxes (benefit) at federal statutory rate     34.0%    34.0%
Tax expense resulting from utilization of NOLs       47.0        --
Valuation allowance adjustment                      (40.9)   (53.7)
Non-deductible goodwill and entertainment
   expenses                                           8.3     14.6
Other                                                (1.4)     5.1
                                                     ----      ---
Effective Tax Rate                                   47.0%      --%
                                                     ====      ===
</TABLE>

    The Company has acquired net operating loss carry-forwards of
    approximately $918,000 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 of 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.

    9.  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
    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 Option 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 has been determined based on the fair value
    at the grant dates consistent with the method of SFAS No. 123, the
    Company's net income and net income per share would have been the
    following pro forma amounts:
<TABLE>
<CAPTION>

                         1997           1996
                         ----           ----
<S>                  <C>              <C>    
Net Income
As reported          $   107,499      117,357
Pro forma                 52,276      117,357

Earnings Per Share
As reported                  .04          .05
Pro forma                    .02          .05
</TABLE>

    As of November 30, 1997, 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 is as follows:



                                      28
<PAGE>

<TABLE>
<CAPTION>

                                                        Weighted Average
                                              Shares     Exercise Price
                                              ------     --------------
<S>                                            <C>            <C> 
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)                 73,967        3.20
</TABLE>

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

<TABLE>
<CAPTION>

                                                        Weighted Average
                                               Shares    Exercise Price
                                               ------    --------------
<S>                                            <C>            <C> 
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
</TABLE>

-----------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                        Weighted Average
                                               Shares    Exercise Price
                                               ------    --------------
<S>                                            <C>            <C> 
Outstanding at November 30, 1997
           (20,000 exercisable)                 40,500        2.60
</TABLE>

    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.

    The following is a summary of stock options outstanding at November 30,
    1997:

<TABLE>
<CAPTION>

                                                             Options Outstanding
                                                             -------------------
                                                         Weighted Average  Weighted
                                                            Remaining       Average
                                                          Contractual      Exercise
    Price Range                             Number         Life (Years)     Price
    -----------                             ------         ------------     -----
<S>                                          <C>             <C>          <C>   
    Incentive Stock Option Plan
    $ 1.60 -1.90                             20,000          7.7          $ 1.80
      3.10 -4.40                             53,833          7.3            3.70
      8.40                                      134          6.0            8.40
                                             ------          ---          ------
                                             73,967          7.4          $ 3.20
     Non-Statutory Plan
    $  1.50 - 1.90                           20,500          9.7          $ 1.60
       3.60                                  20,000          4.0            3.60
                                             ------          ---          ------
                                             40,500          6.9          $ 2.60
</TABLE>


                                      29
<PAGE>

<TABLE>
<CAPTION>
                                                                       Options Exercisable
                                                                         Weighted Average
    Price Range                             Number                        Exercise Price
    -----------                             ------                        --------------
<S>                                          <C>                          <C>   
    Incentive Stock Option Plan
               $1.60 -1.90                   20,000                       $ 1.80
                3.10 -4.40                   40,333                         3.70
                8.40                            134                         8.40
                                             ------                       ------
                                             60,467                       $ 3.10
     Non-Statutory Plan
               $ 3.60                        20,000                       $ 3.60
  
    The weighted average exercise price of the 60,467 shares which were
    exercisable at November 30, 1996, was $3.10.

    10. 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 1997.

    11. 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:


</TABLE>
<TABLE>

               <S>          <C>
               1998         $ 76,540
               1999           44,370
               2000           30,560
               2001           14,300
                            --------
                            $ 65,770
</TABLE>

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

    12. SUPPLEMENTAL  DISCLOSURE  OF  CASH  FLOW  INFORMATION

               Cash paid during the year for:
<TABLE>
<CAPTION>

               Year Ended November 30,                1997           1996
                                                      ----           ----
               <S>                                  <C>           <C>    
               Interest                             $17,572       $28,235
               Income taxes                              --        10,000
</TABLE>

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

    13. LITIGATION SETTLEMENT

    In January 1998, the Company entered into a release and settlement
    agreement with Patrick J. McCourt (McCourt), minority shareholder of
    McTub Company, in connection with the litigation between the Company and
    McCourt. The agreement required the Company to pay McCourt the sum of
    $200,000 



                                      30
<PAGE>

    which constitutes repayment of the principle of a term note dated in
    October 1993. The liability under the term note is included in the
    "long-term debt due in one year" caption in the accompanying consolidated
    balance sheets. Also, in connection with the agreement, the Company
    agreed to pay McCourt $65,000 in 1998 for his 49% interest in McTub
    Company. The agreement discharges and releases the Company from any and
    all claims with McCourt.

    14. SUBSEQUENT EVENTS

    o   Subsequent to November 30, 1997, the Company entered into a
        commitment for the purchase of the building that houses its corporate
        headquarters fort the total cost of $425,000. Long term financing
        will be obtained in connection with the purchase of the building.

    o   In February 1998, the Company began a new subsidiary named SUBperior
        Distribution Systems, Inc. ("SDS"). SDS was formed by management to
        become its distributor of food and restaurant supplies to the
        franchised and Company-owned Tubby's Sub Shops. SDS has contracted
        with an unaffiliated company that is experienced with multiple
        location institutional food distribution to provide the warehouse and
        distribution to provide the warehouse and distribution activities
        that are required to serve Tubby's Sub Shops. In connection with the
        addition of the new subsidiary the Company entered into an additional
        line-of-credit agreement, which allows for maximum borrowings of
        $250,000 with interest payable at prime plus one-half percent.




                                      31
<PAGE>
              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS






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


    We have audited the accompanying consolidated balance sheets of Tubby's,
    Inc. and Subsidiaries as of November 30, 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, 1997 and 1996, and the
    results of their operations and their cash flows for the years then ended
    in conformity with generally accepted accounting principles.





                                                   BDO Seidman, LLP



    Troy, Michigan
    February 3, 1998




                                      32
<PAGE>

    ITEM 8.    CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
    -------    --------------------------------------------------------------
               FINANCIAL DISCLOSURE
               --------------------

    There is no information required to be reported hereunder.

    ITEM 9.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    -------    --------------------------------------------------

    Information with respect to the directors and executives officers of the
    Company, is incorporated herein by reference to the Company's proxy
    statement to be filed with the Securities and Exchange Commission
    pursuant to the Regulation 14A, not later than 120 days after the end of
    the fiscal year covered by this Report.

    Directors and Executive Officers of the Registrant
    --------------------------------------------------

    All of the executive officers of Tubby's as of February 20, 1998, are
    shown below. Each of the executive officers has a term of office until
    the June, 1998 Board of Directors meeting.
<TABLE>
<CAPTION>


                NAME/ AGE            POSITION HELD WITH REGISTRANT
                ---------            -----------------------------
          <S>                        <C> 
         Robert M. Paganes /41       President and Chief Executive Officer
         Peter T. Paganes/55         Vice President
         Vincent J. Tatone /41       Secretary
         Melvyn Erdos, CPA/49        Treasurer and Chief Financial Officer
</TABLE>

    Messrs. Paganes are brothers and shareholders of the Company. There are
    no other relationships among the executive officers.

    ITEM 10.   EXECUTIVE COMPENSATION
    --------   ----------------------

    The information required in response to this Item is incorporated herein
    by reference to the Company's proxy statement to be filed with the
    Securities and Exchange Commission pursuant to Regulation 14A, not later
    than 120 days after the end of the fiscal year covered by this Report.

    ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    --------   --------------------------------------------------------------

    The information required in response to this Item is incorporated herein
    by reference to the Company's proxy statement to be filed with the
    Securities and Exchange Commission pursuant to Regulation 14A, not later
    than 120 days after the end of the fiscal year covered by this Report.

    ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    --------   ----------------------------------------------

    The information required in response to this Item is incorporated herein
    by reference to the Company's proxy statement to be filed with the
    Securities and Exchange Commission pursuant to Regulation 14A, not later
    than 120 days after the end of the fiscal year covered by this Report.



                                      33
<PAGE>


    ITEM 13.   EXHIBITS AND REPORTS ON 8K
    --------   --------------------------

<TABLE>
<CAPTION>

                                                                                 Page
      <S>      <C>                                                               <C>
        (a)    Documents filed as a part of this report:

        (1)    Financial Statements:

               Consolidated Balance Sheets as of November 30, 1997 and 1996.....18, 19


               Consolidated Statements of Operations for the Years Ended
               November 30, 1997 and 1996...........................................20

               Consolidated Statements of Shareholders' Equity for the
               Years Ended November 30, 1997 and 1996...............................21

               Consolidated Statement of Cash Flows for the Years Ended
               November 30, 1997 and 1996...........................................22

               Notes to Consolidated Financial Statements...........................23

               Report of Independent Auditors.......................................31

               (b) Reports on Form 8-K

               (1) The Company filed Form 8-K dated January 15, 1998,
                reporting the Board of Directors approval of a one for ten
                reverse stock split effective January 21, 1998.

               (c) Exhibits:

               Name/Type of Exhibit
               03     Articles of  Incorporation  for new  subsidiary  - 
                      SUBperior  Distribution  Systems,     Inc.
               10     Material Contract - Sun Valley Foods Company
               21     Subsidiaries of the registrant
               23     Consent of independent certified public accountants
</TABLE>



                                      34
<PAGE>

                                  SIGNATURES


    PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE
    SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.


                                    TUBBY'S, INC.


                                    Robert M. Paganes
                                    -----------------
                                    By:    Robert M. Paganes
                                    Its:   President & Chief Executive Officer


                                    Melvyn Erdos
                                    ------------
                                    By:    Melvyn Erdos
                                    Its:   Treasurer & Chief Financial Officer



    PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
    REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE
    REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.

<TABLE>
<CAPTION>

    SIGNATURE             TITLE                                         DATE
    ---------             -----                                         ----
    <S>                   <C>                                           <C>
  /s/Peter T. Paganes     Chairman of the Board, Vice-President        02/27/98

  /s/Robert M. Paganes    President, Chief Executive Officer, Director 02/27/98

  /s/Vincent J. Tatone    Secretary, Director                          02/27/98

  /s/John M. Fayad        Director                                     02/27/98

  /s/Ronald D. Boraks     Director                                     02/27/98
</TABLE>



                                      35