<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, for the quarter ended June 30, 1997.
Commission File Number 0-4289
TONE PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS 71-0390957
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2129 North 15th Street, Melrose Park, Illinois 60160
(Address of principal executive offices) (Zip Code)
(708) 681-3660
(Registrant's telephone number, including area code)
Check whether the registrant (1) has filed
all reports required by Section 13 or 15(d)
of the Securities 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 [ ]
The number of shares outstanding of issuer's only class of Common
Stock, $.010 par value, was 3,695,112 on June 30, 1997.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introduction
The consolidated financial statements have been prepared by Tone Products, Inc.
("Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The Company believes that the disclosures are adequate to
make the information presented not misleading when read in conjunction with the
Company's consolidated financial statements for the year ended September 30,
1996. The financial information presented reflects all adjustments, consisting
only of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented.
<PAGE> 3
TONE PRODUCTS, INC
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash 132,729 84,120
Accounts Receivable 1,179,679 187,948
Due from Related party 24,470 --
Inventory 1,231,502 160,488
Prepaids 16,576 --
Deferred Tax Asset 5,230 --
---------- ----------
Total Current Assets 2,590,186 432,556
Property, Net 1,438,348 194,424
Other Assets -- 1,748
Goodwill 405,727 --
---------- ----------
Total Assets 4,434,261 628,728
CURRENT LIABILITIES
Line of Credit Payable 295,706 --
Accounts Payable 542,818 52,839
Advances from Related Parties -- 20,000
Note Payable Current Portion 217,477 --
Capital Lease obligation -- 8,410
Income Taxes Payable 123,658 --
Accrued expenses 114,861 --
Accrued Property Taxes 77,625 --
Current Deferred Tax Liabilities 83,169 --
---------- ----------
Total current Liabilities 1,455,314 81,249
Notes Payable Long Term -- --
Capital Lease Obligation -- 38,467
Deferred Tax Liabilities 20,555 --
---------- ----------
Total long term Liabilities 20,555 38,467
---------- ----------
TOTAL LIABILITIES 1,475,869 119,716
Commitments and contingencies
Shareholders equity
Convertible Series A Preferred -- 750,000
Common Stock 3,695,112 @ $0.10 par value 369,511 309,375
Capital in excess of par value 2,300,764 917,997
Retained Earnings 288,117 (1,468,360)
Total Shareholders Equity 2,958,392 509,012
---------- ----------
Total Liabilities and
shareholders equity 4,434,261 628,728
</TABLE>
<PAGE> 4
TONE PRODUCTS, INC
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1997, 1996
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
---------- ----------
<S> <C> <C>
Net Sales 7,300,781 730,491
Cost of Sales 4,925,702 692,706
---------- ----------
Gross Profit (Loss) 2,375,079 37,785
Operating Costs and Expense 1,898,056 122,494
Income (Loss) from Operations 477,023 (84,709)
Other Expense (19,028) --
Income (Loss) before Provision for taxes 496,051 (84,709)
Provision for income taxes 149,000 --
---------- ----------
Net (Loss) 347,051 (84,709)
Net income per common share:
Primary 0.09 (0.03)
Fully diluted 0.09 (0.03)
</TABLE>
<PAGE> 5
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997, 1996
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
---------- ----------
<S> <C> <C>
Net Sales 3,098,603 307,750
Cost of Sales 2,027,361 246,931
---------- ----------
Gross Profit (Loss) 1,071,242 60,819
Operating Costs and Expense 621,798 31,189
Income (Loss) from Operations 449,444 29,630
Other Expense (4,349) --
Income (Loss) before Provision for taxes 453,793 29,630
Provision for income taxes 134,900 --
---------- ----------
Net (Loss) 318,893 29,630
Net income per common share:
Primary 0.09 0.01
Fully diluted 0.09 0.01
</TABLE>
<PAGE> 6
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 347,051 $ 59,077
Adjustments to reconcile income (loss) to net cash
provided by operating activities:
Depreciation and amortization 207,759 175,766
Decrease (increase) in assets:
Accounts receivable (240,347) (382,936)
Inventory (118,325) (228,271)
Prepaid expenses (9,891) 16,601
Deferred tax asset -- (317)
Other assets (25,515) --
Increase (decrease) in liabilities:
Line of credit payable (315,221) 610,927
Accounts payable (117,892) 53,330
Advances to shareholders -- (26,913)
Income taxes payable 95,434 (36,154)
Deferred tax liabilities 35,842 (78,657)
--------- ---------
Cash provided by operating activities (141,105) 162,453
--------- ---------
Cash flows provided by (used in) investing activities:
Purchases of property and equipment (153,813) (92,549)
Acquisition of subsidiary -- (770,254)
--------- ---------
Cash (used in) investing activities (153,813) (862,803)
--------- ---------
Cash flows provided by (used in) financing activities:
Principle payments of debt (53,384) (271,756)
Proceeds from notes payable 32,585 221,441
Subscription of common stock 292,700 788,000
--------- ---------
Cash provided by financing activities 271,901 737,685
--------- ---------
Net increase (decrease) in cash (23,017) 37,335
Cash at beginning of period 155,746 118,411
========= =========
Cash at end of period $ 132,729 $ 155,746
========= =========
</TABLE>
<PAGE> 7
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Supplemental Disclosure of Cash Flow Information
1997
----
<S> <C>
Interest $ 74,746
Income taxes $ 17,724
Supplemental Schedule of Non-Cash Investing and Financing Activities
Disposal of subsidiary:
Asets $ 544,608
Liabilities $ (119,716)
Preferred stock retired $ 750,000
Acquisition of subsidiary
Assets acquired 5,642,759
Liabilities incurred 1,798,505
Stock subscription proceeds 4,000,000
Conversion of debt to stock:
Liabilities satisfied 129,000
Stock issued 129,000
</TABLE>
<PAGE> 8
Tone Produces Inc.
Notes to Financial Statements
1. Net Income per Common Share
Primary net income per common and common equivalent share, assuming no dilution,
are computed based on the weighted average number of shares of common stock and
common stock equivalents outstanding during each year. The number of weighted
average common and common equivalent shares, as applicable, outstanding during
the nine months ended June 30, 1997, and the nine months ended June 30, 1996 was
$3,695,112 and $3,093,750, respectively. Primary and fully diluted earnings per
share are the same due to minimal trading in the Company's stock.
2. Property, Plant, and Equipment
Property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
----------- -----------
<S> <C> <C>
Leasehold improvements $ 395,623 --
Machinery and equipment 2,359,863 $ 219,815
Furniture and fixtures 101,410 10,426
Vehicles 294,273 --
----------- -----------
3,151,169 230,241
Less accumulated depreciation (1,712,821) (35,817)
----------- -----------
$ 1,438,348 $ 194,424
=========== ===========
</TABLE>
Depreciation expense was $207,769 and $16,537 for the nine months ended June 30,
1997 and 1996, respectively.
3. Income Tax
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
-------- --------
<S> <C> <C>
Current expense:
Federal $103,738 --
State 20,555 --
-------- --------
124,293 --
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C>
Deferred expense:
Federal 19,920 --
State 4,787 --
-------- --------
24,707 --
-------- --------
$149,000 --
======== ========
</TABLE>
4. Commitments and Contingencies
The Company has operating leases for certain of its facilities. Future minimum
lease payments at June 30, 1997, are as follows:
<TABLE>
<CAPTION>
Due to
Total Related Parties
-------- ---------------
<S> <C> <C>
1997 $ 74,625 $ 74,625
1998 298,500 298,500
-------- --------
Total future minimum lease payments $373,125 $373,125
======== ========
</TABLE>
The Company is the guarantor on a $300,000 promissory note with a bank for the
benefit of the shareholders. All terms and conditions of the loan agreement are
being met by the shareholders.
5. Profit-Sharing Plan
Effective January 1, 1989, the Company amended and restated a noncontributory
profit sharing retirement plan covering substantially all employees. Annual
employer contributions to the plan are made at the discretion of management.
No employer contribution was made for the nine months ended June 30, 1997.
6. Related Party Transactions
The Company leases from entities owned by certain of its shareholders certain
operating facilities. For the nine-month period ended June 30, 1997, the Company
paid the entities $225,622 in rent.
7. Common Stock
During the nine-month period ended June 30, 1997, the Company raised $292,700
through a private placement.
In addition, as part of the acquisition of Fun City, the former owner of Fun
City was issued 100,000 shares of stock.
<PAGE> 10
On December 31, 1996, the majority owners of Tone received 64,500 shares of
stock valued at $2 per share in satisfaction for a debt by the Company to them.
8. Acquisition and Disposal
A. On May 31, 1996, Tone acquired all of the outstanding stock of Fun
City Popcorn, Inc., a Nevada Corporation, for $1,075,000 as follows:
<TABLE>
<S> <C>
Cash $875,000
Stock subscribed 200,000
----------
$1,075,000
==========
</TABLE>
The acquisition has been accounted for as a purchase transaction and,
accordingly, the fair value of the purchase price was allocated to assets and
liabilities based on the estimated fair value as of the acquisition date. The
excess value of the Company's stock over and above the value of the net assets
of $442,076, recorded as goodwill is to be amortized on the straight-line basis
over 15 years. The amount of goodwill amortization for the nine months ended
June 30, 1997 was $24,559.
The net purchase price was allocated as follows:
<TABLE>
<S> <C>
Working capital $354,167
Plant and equipment 469,903
Goodwill 442,076
Other liabilities (191,146)
----------
Purchase price $1,075,000
==========
</TABLE>
B. On October 15, 1996, the Company sold (in a reverse acquisition) a
70.5% interest in Minute Man of America, Inc. ("MMA") to the
shareholders of Tone. The shareholders of Tone exchanged all of their
stock in Tone for 2,000,000 common shares of MMA. As part of this
transaction:
1. MMA changed its name to Tone Products, Inc.
2. The board of directors of MMA was expanded from three to
seven members. Tone has placed six members on the board and
one former MMA board member will remain.
3. Prior to the issuance of the 2,000,000 shares to the owners
of Tone, the Company did a 1 for 4 reverse split of its stock
reducing the number of outstanding shares by 2,320,312 shares.
The purchase price of $4,000,000 is the fair value of the MMA stock issued to
acquire the Company.
The acquisition has been accounted for as a purchase transaction and,
accordingly, the fair value of the purchase price
<PAGE> 11
was allocated to assets and liabilities based on the estimated fair value as of
the acquisition date.
The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company and Tone for the nine-month period ended
June 30, 1996, as if the acquisition had occurred at the beginning of 1995.
<TABLE>
<CAPTION>
June 30,
1996
---------
<S> <C>
Net sale $8,031,272
Net earnings 262,342
</TABLE>
C. On December 5, 1996, the Company, disposed of the former sole
operating segment in MMA. It exchanged all of the stock of Gibson to
the former owner of Gibson in exchange for 75,000 shares of preferred
stock in the Company which were simultaneously retired by the Company.
The sale will not have a significant effect on reported sales or
earnings in the future.
9. Elimination of the Accumulated Deficit in Shareholders' Equity
On April 1, 1997, the Company eliminated the accumulated deficit amount on its
balance sheet through a readjustment also known as a "quasi reorganization" in
accordance with the state law of Arkansas. Capital in excess of par value was
used to eliminate in its entirety the then current accumulated deficit of
$1,487,960 on the balance sheet under stockholders' equity. Retained earnings
shown on the balance sheet in the future will reflect earnings beginning April
1, 1997. The accumulated deficit that was eliminated as of April 1, 1997, it its
entirety represented results from discontinued operations of the Company.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
OVERVIEW
As outlined below, the Company's overall financial condition as compared to
September 30, 1996 has changed significantly due to the disposal of Gibson and
the acquisition of Tone and as a result, these financial statements are not
comparable.
Tone Products, Inc. was founded in 1947 and has evolved over the years from a
single market, single product manufacturer to a multi-product manufacturer with
national and international distribution. At the Company's Illinois facility they
manufacture beverage and juice concentrates, frozen cocktail bases and drink
mixes, barbecue and steak sauces, flavored syrups and marinades and dressings.
From their Nevada facility the Company distributes cookies and other snack items
as well as a line of flavored popcorn items that they manufacture.
RESULTS OF OPERATIONS
<PAGE> 12
Revenues
The Company's revenues are derived principally from the sale of food products at
its two facilities. Sales have increased dramatically as the Company's business
is much more viable. Since the Company disposed of Gibson and acquired Tone, its
financial statements are not comparable. Generally sales at Tone are up more
than 20% from the prior year. Tone's sales are traditionally higher in the
summer and fall months due to their product mix and the more seasonal usage of
the barbecue sauces, flavored syrups, and some of the drink mixes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's long and short term equity is good. The Company has negotiated
extensions and expansion of its credit lines to finance a continuing increase in
sales.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
In October 1996, a Certificate of Amendment to the Articles of Incorporation was
filed with the Secretary of State of the State of Arkansas which had the effect
of reverse splitting the common shares of the corporation on a one for four
basis. Accordingly, for every four common shares held by a shareholder prior to
the split, such shareholder holds one common share following the split. Since
the split pertains to all common shares of the corporation, each holder of
common shares maintained his or her overall equity position in the corporation.
The split did not effect the rights and preferences of the common shares per se,
but had the limited effect of reducing the total amount of common shares
outstanding.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Not applicable
<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Not applicable
(b) Reports on Form 8-K:
(1) The Company filed a Form 8-K dated October 30, 1996, reporting on
Items 1 and 2 (Acquisition of Tone)
(2) The Company filed a Form 8-K dated December 20, 1996, reporting
on Item 2 (Disposal of Gibson)
Pursuant to the requirement 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.
Date: August 11, 1997 TONE PRODUCTS, INC.
/s/ TIMOTHY EVON
- ------------------------------
Timothy Evon
Director and President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 132,729
<SECURITIES> 0
<RECEIVABLES> 1,204,149
<ALLOWANCES> 0
<INVENTORY> 1,231,502
<CURRENT-ASSETS> 2,590,186
<PP&E> 3,151,169
<DEPRECIATION> 1,712,821
<TOTAL-ASSETS> 4,434,261
<CURRENT-LIABILITIES> 1,455,314
<BONDS> 0
0
0
<COMMON> 369,511
<OTHER-SE> 2,588,881
<TOTAL-LIABILITY-AND-EQUITY> 4,434,261
<SALES> 7,300,781
<TOTAL-REVENUES> 7,319,809
<CGS> 4,925,702
<TOTAL-COSTS> 699,315
<OTHER-EXPENSES> 1,123,995
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,746
<INCOME-PRETAX> 496,051
<INCOME-TAX> 149,000
<INCOME-CONTINUING> 347,051
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 347,051
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
