SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
Commission File No. 0-4289
MINUTE MAN OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Arkansas 71-0390957
(State or other jurisdiction of (I.R.S. Employer I.D.)
incorporation or organization)
2129 North 15th Street, Melrose Park, Illinois 60160
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 681-3660
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 Par value
(Title of class)
Check 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, and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No[_]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation B-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge. In definitive proxy or
information statements incorporated by reference in Part III of this Form
1O-KSB or any amendment to this Form 10-KSB. [X]
The registrant's revenues for its most recent fiscal year was $841,402.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of September 30, 1996 is not determinable. The number of shares
of Common Stock, par value $.10, outstanding as of September 30, 1996 was
3,093,750 shares.
Documents Incorporated by Reference: None
<PAGE>
PART I
ITEM 1. Description of Business
(a) Business Development
Minute Man of America, Inc. (the "Company"), a corporation organized in 1965,
under the laws of the State of Arkansas, was engaged in operating and
franchising specialty restaurants (Minute Man Restaurants) serving fast food
items prior to 1987. All Minute Man Restaurants are located in the State of
Arkansas.
All Company-owned restaurants were sold or closed by February, 1987. Since
February, 1987, the Company operated solely as a franchiser of Minute Man
Restaurants. As of September 30, 1994, there were two restaurants operating as
Minute Man franchises. However, on December 28, 1994, the Company disposed of
all its restaurant operations in a sale to one of the franchisees. Since the
restaurant operations were sold in 1994, the Company's sole segment of business
has been the operation of Gibson Specialty Corporation.
Pursuant to terms of an Agreement dated November 7, 1994, the Company acquired
all of the common stock of Gibson Specialty Corporation (Gibson), an Illinois
corporation located in Chicago, Illinois. Gibson is a manufacturer of
specialized products sold primarily to distributors in the gaming industry.
Gibson was formed in 1954 and is a leading innovator in punchboard industry
games.
On October 15, 1996, the Company, after executing a one for four reverse common
stock split, was acquired (in a reverse merger) by Tone Products, Inc. (Tone).
The shareholders of Tone exchanged their stock in Tone for 2,000,000 post
reverse stock split common shares of the Company. After the exchange, the
shareholders of Tone held 70.5% of the outstanding stock of the Company. As
part of this transaction:
1. The Company changed its name to Tone Products, Inc.
Part I - continued
2. The board of directors was expanded from three to seven members. Tone has
placed six members on the board and one former board member remained on the
board of directors.
Tone has production and marketing locations in Illinois and Nevada. It
manufactures and distributes food products consisting primarily of juices,
sauces, and snack foods.
The purchase price of $4,000,000 is the fair value of the Company stock issued
to acquire Tone. This transaction has been accounted for as a purchase.
On December 5, 1996, the Company in a non-monetary transaction, disposed of all
of the common stock of Gibson in exchange for 75,000 shares of its Convertible
Series A preferred stock having a par value of $10 per share. Prior to the
October 15, 1996 acquisition, Gibson was the sole operating segment in the
Company. Jerry Evon, the president of Gibson, was the holder of all of the
preferred stock and was a member of the board of directors of the Company. With
the completion of this transaction, Mr. Evon resigned from the board of
directors of the Company.
<PAGE>
(b)Business of Issuer
1. Principal Products, Services, Markets
The Company originally operated and sold franchises for a chain of fast food
restaurants that operated as Minute Man Restaurants. In December 1994, the
Company sold their last two franchises eliminating this segment of the
business.
A wholly-owned subsidiary of the registrant, Gibson, which was disposed of on
December 5, 1996, manufactures and distributes punchboards, which are gaming
devices best described as non-mechanical slot machines similar in appearance to
small game boards. Gibson distributes its products to distributors in
Pennsylvania and Washington, and products are also shipped internationally to
Germany, Australia and Switzerland.
2. Distribution methods of products
Gibson ships punchboards and other gaming devices utilizing United Parcel
Service and various common carrier freight lines.
3. Status of Any Publicly Announced New Product or Service
Not applicable
4. Competitive Business Conditions, Competitive Position in the Industry,
Methods of Competition.
The Company encountered intense competition in the fast-food industry whereby
Minute Man Restaurants competed directly with both local restaurants and those
in regional and national chains and exited that business in December 1994.
Gibson has captured approximately 20% of the available market for punchboards.
The remaining market share is served by three competitors. The Company
disposed of this segment due to a lack of growth in the punchboard industry.
5. Sources and Availability of Raw Materials and Names of Principal Suppliers.
Gibson purchases large amounts of paper products from numerous suppliers.
Gibson is not dependent on any supplier and has alternative sources to obtain
needed raw materials.
6. Dependence on One or Few Customers
The Company's restaurant business activities were not dependent upon a single
customer or a few customers, and the loss of any one or a few of the Company's
restaurant customers would not have had a material adverse effect on its
activities. As a franchiser of restaurants, the Company was dependent on two
franchises for all its income, the loss of either or both franchises would have
substantially reduced the Company's revenues or eliminated them all together.
Accordingly, with the sale of the two franchises during December 1994, this
business segment was eliminated.
Gibson has one major customer who has consistently purchased products for over
twenty-five years and accounts for approximately 22% of annual sales.
7. Trademarks, Franchises, Patents, Labor Contracts, Licenses
The Company's "Minute Man" and "Magic Deal" trademarks are registered with the
United States Patent Office. The trademarks expire on April 29, 2009, and
July 25, 1998, respectively.
<PAGE>
Franchises were granted for a period of ten (10) years for a fee of $7,500.
The franchise agreement provides for franchisees to pay a royalty of 3% of
gross sales and an advertising expenditure of 3% of gross sales to be paid
either to the Company or for local advertising. The Company had two such
franchise agreements in place at September 30, 1994, however, they were sold on
December 28, 1994.
Patents or copyrights are not available for the punchboard industry and new
designs marketed by Gibson may be copied by competitors.
Gibson is required to be licensed in the states where its products are
distributed.
A standard labor agreement with the Teamsters Union is in effect between Gibson
and the factory workers covering various areas related to wages, hours worked,
holidays, vacations, grievance procedures, benefits and other related items.
This agreement was effective November 27, 1993 and remained in effect until
November 26, 1996, when it was automatically renewed under the same terms and
conditions for consecutive one year periods unless either party gives written
notice of termination or modification sixty days prior to expiration.
8. Need for Government Approval of Principal Products or Services
Not applicable
9. Effect of Existing or Probable Governmental Regulations on the Business
Not applicable
10. Estimate of the Amount Spent During Each of the Last Two Fiscal Years on
Research and Development Activities
Not applicable
11. Costs and Effects of Compliance with Environmental Laws
Not applicable
12. Number of Employees
The Company currently has approximately fifty (50) full-time employees.
ITEM 2. Description of Property
a. Location of Principal Plants and Other Property
On October 15, 1996, the Company's offices moved to 2129 North 15th Street,
Melrose Park, Illinois. The Company has a food manufacturing facility at the
Melrose Park site and in Las Vegas, Nevada. These properties are leased on
leases that expire in 1998. Ninety-six percent (96%) of their facilities are
leased from related parties who have verbally agreed to extend the leases under
market terms.
Gibson's factory occupies 11,605 square feet of office and manufacturing space
located at 300 E. Touhy, Des Plaines, IL, 60018. No agreement has been signed;
the rental is month to month. This space is subject to a lease term of one year
from January 1, 1996 at an annual rate of $5.66 per square foot.
<PAGE>
b. Investment Policies
1. Investments in real estate or interests in real estate.
The Company does not currently own any real estate property and owns only a
minimum amount of office equipment.
2. Investments in Real Estate Mortgages
Not applicable
3. Securities of or Interests in persons Primarily Engaged in Real Estate
Activities
Not applicable
Item 3. Legal Proceedings
To the knowledge of management, the Company is not currently a party to any
material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
On December 1, 1994, Special Action was taken by the Board of Directors to:
1. Instruct the Board of Directors to proceed forthwith and authorize the
Board to take all actions deemed necessary to consummate the transaction
represented by the form of a Purchase Agreement to purchase, from Pearce
West Enterprises, Ltd., and others, a certain note receivable issued by
International Slocan Developments, Ltd., in the amount of $175,000 plus
$25,000 cash in consideration of the issuance of two million (2,000,000)
shares of the Company's Common Stock of which 1,000,000 shares is governed
by the provisions of Regulation S, promulgated under the Securities Act of
1933, as amended.
2. The respective resignations of Messrs. James L. Hansen and John F. Jenkins
from all positions as officers and directors of the Company effective
December 1, 1994.
3. The following directors were elected effective December 1, 1994, and have
agreed to serve as such until their respective successors are elected and
qualified: Richard D. Collins and D.N. Fitzgerald.
4. The Board of Directors was authorized to take all actions necessary to
restate and amend the Company's By-Laws as may be appropriate to eliminate
any inconsistency between the broad terms and provisions of the Arkansas
Business Corporation Act, the object being to constitute said By-Laws with
less restrictive rather than more restrictive, terms and provisions.
On December 21, 1994, a meeting of the new Board of Directors was held at the
new Company offices located at 4406 Airport Freeway, Ft. Worth, Texas. The
purpose of this meeting was to:
1. Elect the following as officers of the Company:
President - Richard D. Collins
Secretary - David N. Fitzgerald
Assistant Secretary - Alta Collins
<PAGE>
2. Approve the consummation of a Stock Purchase Agreement to acquire all of
the Common Stock of Gibson Specialty Corporation from Jerome J. Evon in
exchange for seventy-five thousand (75,000) shares of the Company's
Preferred Stock.
3. Elect Jerome J. Evon to fill the remaining slot authorized on the Board of
Directors of the Company.
4. To take all actions necessary and desirable to effect the sale of Minute
Man Restaurant assets, including the two remaining franchises in Little
Rock and El Dorado, Arkansas to James L. Hansen in consideration of his
payment of $20,000.
On September 30, 1995, a meeting of the company's Board of Directors approved
the sale of the certain note receivable in the amount of $175,000 issued by
Slocan Developments, Ltd. for $250,000 represented by a note receivable from a
third party of $225,000 and $25,000 cash.
Item 5. Market for Common Equity and Related Stockholder Matters
a. Market information
The Company's common stock is traded in the over-the-counter market and is
quoted on the NASD bulletin board quotation system. The following represents
quotations on the Company's stock during its year ended September 30, 1995:
<TABLE>
<CAPTION>
Calendar Quarter Price Price
BID ASK
<S> <C> <C>
4th quarter 1994 1/8 3/8
lst quarter 1995 3/16 1/2
2nd quarter 1995 3/16 5/8
3rd quarter 1995 3/8 3/4
4th quarter 1995 7/16 3/4
lst quarter 1996 7/16 3/4
2nd quarter 1996 7/16 3/4
3rd quarter 1996 7/16 3/4
4th quarter 1996 1/4 .60
</TABLE>
b. Stockholders
The approximate number of holders of record of the Company's common stock as of
November 30, 1996 was 600.
c. Dividends
The Company has not paid any cash dividends on its common stocks and it is not
anticipated that dividend payments would be considered in the foreseeable
future.
Item 6. Management's Discussion and Analysis or Plan of Operation for the Fiscal
Year Ended September 30, 1996, as Compared to the Prior Year Ended September 30,
1995.
<PAGE>
a. Plan of Operation
The Company has undertaken a plan to increase revenues by exiting from the
gaming industry and returning to the food industry. On October 15, 1996, the
Company was acquired by Tone Products, Inc. (Tone), a manufacturer of food
products consisting mainly of juices, sauces, and snack foods. The Company
also disposed of its interest in its subsidiary, Gibson, in a non-monetary
exchange that was completed after the fiscal year end.
During the year, the Company's revenue was derived from the operations of
Gibson. For the year ended September 30, 1996, the Company's gross revenues
decreased by $358,603 (30%) to $841,402, primarily due to the loss of
production time while Gibson relocated its business and a down turn in demand
for punchboards. This segment was disposed of in December 1996.
b. Managements Discussion and Analysis of Financial Condition
(i) Any known trends, events or uncertainties that have or are reasonably
likely to have a material impact on short-term or long-term liquidity.
Subsequent to year end, the Company was acquired by Tone in a reverse merger.
Tone is an established, profitable company in the food industry. The Company
disposed of the unprofitable operations of Gibson.
(ii) Internal and external sources of liquidity
Tone has access to traditional operating lines of credit and term financing.
(iii) Any material commitments for capital expenditures
The Company has not made any material commitments for capital expenditures as
of September 30, 1996.
(iv) Any known trends or uncertainties that have had or that are reasonably
expected to have a material impact on net sales or revenues or income from
continuing operations. Tone had gross revenues of $6,245,918 for the nine
months ended September 30, 1996, with net income of $59,077 for the same
period.
(v) Any significant elements of income or loss that do not arise from
continuing operation.
None.
(vi) The causes for any material changes from period to period in one or more
line items of the financial statement.
The Company's net loss was due to decreased sales at Gibson and to an increase
in their material costs for the punchboards.
(vii) Any seasonal aspects that had a material effect on the financial
condition or results of operation.
Not applicable.
<PAGE>
Looking Ahead
Subsequent to the date of this report on October 15, 1996, the Company, in a
non-monetary transaction, after completing a one for four reverse common stock
split, was acquired (in a reverse acquisition) by Tone Products, Inc. ("Tone").
The three shareholders of Tone exchanged all of their stock in Tone for
2,000,000 post reverse stock split common shares of the Company. After the
exchange, the shareholders of Tone held 70.5% of the outstanding stock of the
Company. As part of this series of transactions the Company changed its name
to Tone Products, Inc. and the board of directors was expanded from three to
seven members. Tone has placed six members on the board and one former board
member will remain on the board.
Tone Products, Inc. founded in 1947 has evolved from a single market, one
product manufacturer, to a multi faceted business with national and
international distribution. Tone has production and marketing locations in
Melrose Park, Illinois, and Las Vegas, Nevada. It manufactures and distributes
food products consisting primarily of drink concentrates, syrups, juices,
sauces, and snack foods.
The history of Tone sales over the last ten years, was one of modest but
steady growth. In 1995 a decision was made by management to expand
production facilities. In order to exploit this production capacity and create
the potential for faster sales growth, Tone's focus was shifted from local
direct sales to distributer and institutional sales along with contract
packaging. Tone's relationships with vendors and flavor houses allowed Tone to
develop new products for its own lines as well as for customers and bring them
to market much quicker than average for the food industry. In 1997 Tone plans
to continue its focus on distributor and institutional sales as well as
developing new relationships with contract packaging customers. The net effect
of continued sales to higher volume customers should be greater utilization of
Tone's production capacity. Tone is currently running one production shift per
day with significant amounts of overtime. As the busy season (spring and
summer) unfolds, management will be analyzing the potential effects of going
to a second shift on some production lines.
In 1995 Tone added a second manufacturing facility in the Chicago area for
sauces and marinades. Adjacent to the existing plant, the new building was
originally designed to help alleviate the production backlog created by
increasing steak sauce sales. However soon after the new facility came on
line, sales of barbeque sauces started and grew steadily until they soon
forced the steak sauce production back into the original plant. Tone now
manufactures approximately fifty different types of barbeque sauces under
private labels for both local and national distribution.
Tone is confident that barbeque sauce sales in 1997 should increase by $400,000
to $1,500,000. This expected growth should come from a new contract
packaging agreement just signed as well as the introduction of gallon bottles
into discount/warehouse type retail outlets.
In 1996 Tone acquired Fun City Popcorn, a Las Vegas manufacturer and
distributor of popcorn and snack related items. Customers have traditionally
included hotels, casinos, schools, etc. Fun City Popcorn (FCP) sales have
remained level at $1,500,000 per year for the last three years. This was due
to a decision by former FCP management not to spend monies on marketing or
expansion. Since the purchase of FCP by Tone in May of 1996, FCP sales have
risen by an average of 25 percent each period over the same period last year.
Tone management has added several new product categories which include, bottled
water, novelty cookies, imported beverages, potato chips and most recently
fudge mixes. Most of the new products are sold under the label "Players
Choice" which is owned by FCP and is gaining great regional popularity. Sales
in each of these categories are going very well. The addition of a sales force
<PAGE>
has added new accounts and broadened sales in existing accounts. Las Vegas is
one of the fastest growing markets in the country and as new properties are
built and tourism increases FCP will be able to provide a much broader base
of products to hotel, restaurants and gift shops. Sales in 1996 reached
$1,700,000 and FCP expects to see sales in excess of $2,000,000 in 1997.
In June 1996 Tone entered into a contract with a group of independent soft
drink bottlers to produce fruit juice concentrates for sale to their existing
bar, hotel and restaurant customers. The juice concentrates are produced under
exacting standards and sold using the "Balboa Bay" trade name owned by Tone.
Sales of the product are handled through the independent bottlers' own sales
forces totaling nearly 200 salesmen. Sales in 1996 started strong and have
increased steadily even though the marketing program has only recently begun.
Projections for 1997 juice sales include significant increases in each of the
five participating independent bottlers as well as the addition of other
bottlers. Juice sales to soft drink distributors in 1997 should top $1,000,000.
Institutional sales of trademarked house brands should continue to grow in 1997.
Tone's house brands which have always been regionally popular, have seen new
life through nationwide distribution into the institutional market.
Sales to federal and state prison systems and other government agencies began
in 1995 and now total almost 15% of total sales. Sales of Tone's trademarked
house brands are expected to see continued growth because of increasing prison
populations as well as the construction of new prison facilities throughout
the United States.
In 1996 Tone entered into several large contract packaging agreements. Tone
added product lines that included frozen cocktail bases and bar mixes
manufactured and distributed by Tone for customers under their own private
labels. Sales in this category exceeded $1,200,000 in 1996. Tone expects both
increase sales inside their exising contracts as well as the addition of other
contracts in 1997. Sales in this category should exceed $2,000,000 in 1997.
On December 5, 1996, the Company, in a non-monetary transaction, disposed of
all of the common stock of Gibson Specialty Corp. ("Gibson"), an Illinois
Corporation, located in Des Plaines, Illinois, in exchange for 75,000 shares of
its Convertible Series A preferred stock having a par value of $10 per share.
Prior to the October 15, 1996, acquisition, Gibson was the sole operating
segment in the Company. Gibson is a manufacturer of specialized products sold
primarily to distributors in the gaming industry.
This Form 10-KSB specifies forward looking statements of management. Forward
looking statements are statements that estimate or anticipate the happening
of future events.
THE FORWARD LOOKING STATEMENTS OF MANAGEMENT SPECIFIED IN THIS FORM 10-KSB
HAVE BEEN COMPILED ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED TO BE REASONABLE. FUTURE OPERATING RESULTS OF THE COMPANY, HOWEVER,
ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION OR WARRANTY REGARDING FUTURE
OPERATING RESULTS OF THE COMPANY IS TO BE INFERRED FROM THOSE FORWARD LOOKING
STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD LOOKING STATEMENTS SPECIFIED
IN THIS FORM 10-KSB REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO
UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND
OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA
AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND AMONG REASONABLE
ALTERNATIVES REQUIRE THE EXERCISE OF JUDGEMENT. TO THE EXTENT THAT THE ASSUMED
EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM THAT PROJECTED,
AND ACCORDINGLY, NO OPINION IS EXPRESSED REGARDING THE ACHIEVABILITY OF
PARTICULAR FORWARD LOOKING RESULTS. IN ADDITION, THOSE FORWARD LOOKING
STATEMENTS HAVE BEEN COMPILED AS OF THE DATE OF THIS FORM 10-KSB AND SHOULD BE
EVALUATED WITH CONSIDERATION OF ANY CHANGES OCCURRING AFTER THE DATE OF THIS
FORM 10- KSB.
<PAGE>
NO ASSURANCE CAN BE GIVEN THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD
LOOKING STATEMENTS SPECIFIED IN THIS FORM 10-KSB ARE ACCURATE.
Item 8 - Financial Statements
a. Annual Financial Statements
The financial statements required by this item are filed as part of this
report.
See index at F-1.
b. Interim Financial Statements
Not applicable.
c. Financial Statements of Businesses Acquired
Not applicable.
d. Pro Forma Financial Information
Not applicable
Item 8. Changes in Registrant's Certifying Accountants
Samson, Robbins & Associates, P.L.L.C. (SRA), was dismissed as the Company's
auditors on October 3, 1996.
Neither of SRA's reports on the Company's financial statements for the past two
fiscal years contained an adverse opinion or a disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with the audits of the Company's financial statements for each
of the two fiscal years ended September 30, 1995 and September 30, 1994, and
in the subsequent interim period, there were no disagreements with SRA on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope and procedures which, if not resolved to the satisfaction of
SRA would have caused SRA to make reference to the matter in their report.
On October 3, 1996, the Company appointed Kelly & Company as its new
independent auditors. The Company did not consult with Kelly & Company or any
other accounting firm regarding the application of accounting principles to a
specific transaction, either completed or proposed, or the type of opinion that
might be rendered regarding the Company's financial statements, nor did the
company consult with Kelly & Company with respect to any accounting
disagreement or any reportable event at any time prior to the appointment of
such firm.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(A) of the Exchange Act
a. Identify directors and executive officers
The Company's directors and executive officers are elected for a term of one
year or until their successors are elected and qualified.
<PAGE>
Directors and Executive Officers effective December 1, 1994 are:
Name/Age Position Held With Company
Richard D. Collins/64 President, Chief Executive officer &
Director
D.N. Fitzgerald/71 Secretary and Director
Jerome J. Evon/31 Director
Mr. Collins has been an independent financial consultant for the last nine
years as well as an investor in several private companies. Since February
1994, Mr. Collins has been director of Star Mineta, Ltd., a company listed on
the Vancouver Stock Exchange. From 1976 to 1984, he served as President, Chief
Financial Officer and Director of MDI. Mr. Collins is a certified public
accountant.
Mr. Fitzgerald is President of Dave Fitzgerald, Inc. and Exit Oilfield
Equipment, Inc. and until 1991 was President of Oil Patch Sales and Rentals,
Inc., all privately held oilfield investment and equipment companies. He is
currently also a director of TMBR/Sharp Drilling, Inc.
Mr. Evon was elected as a director of the Company effective December 1. 1994.
He has been President of Gibson Specialty Corporation since October 1990.
Prior to 1990 he was involved in the family business, Tone Products,
a non-carbonated beverage manufacturer.
On October 15, 1996, Messrs. Collins, Fitzgerald, and Evon resigned from the
board of directors and were replaced by a new board of directors consisting of
Michael W. Evon, Timothy E. Evon, Thomas J. Evon, Thomas F. Krucker, Chuck
Ehemann, and Jack Cory.
Mr. Michael W. Evon is Vice President and National Sales Manager of Tone
Products, Inc.
Mr. Timothy E. Evon, President of Tone Products, Inc., and Manager of the
day to day operations of Tone.
Mr. Thomas J. Evon, serving as Secretary/Treasurer for Tone Products, Inc., has
developed his specialty working with governmental agencies over the past 17
years.
Mr. Thomas F. Krucker boasts 30 years experience in national marketing and
sales within the food industry.
Mr. Chuck Ehemann has worked in the food industry for over 20 years and will
act as a consultant to the Company with primary focus on new product
development.
Mr. Jack Cory has over 30 years experience in the snack food industry,
primarily in California and Nevada. In May 1996 he sold Fun City Popcorn to
Tone Products, Inc.
b. Identify Significant Employees
Mr. Jerome J. Evon (a Director) is President of Gibson Specialty Corporation,
a wholly-owned subsidiary of the Company. Mr. Evon has managed the operations
of Gibson since he purchased it in 1990. Mr. Evon left the Company on December
5, 1996.
<PAGE>
c. Family Relationships
Michael W. Evon, Timothy E. Evon, Thomas J. Evon and Jerome J. Evon are
brothers.
d. Involvement in certain legal proceedings
Not applicable.
Item 10. Executive Compensation
The Company approved stock options to certain key employees and directors at a
purchase price of $.50 per share on September 30, 1995. The total stock options
approved were two hundred fifty thousand(250,000) shares. At September 30,
1995, none of these options were issued.
Mr. Evon received a salary of $40,800 for managing the operations of Gibson
Specialty Corp.
Item 11. Security Ownership of Certain Owners and Management
The following table indicates the amount of common stock of the Company which
is beneficially owned, as of September 30, 1996, by the directors of the
Company and owners of more than five percent of the Company's common stock,
naming them, and by the directors and officers of the Company and owners of
more than 5% of the Company's common stock as a group, without naming then.
The table includes beneficial ownership data for all persons known to the
Company to be the beneficial owner as of September 30, 1996, of more than five
percent (5%) of the Company's Common Stock.
<TABLE>
<CAPTION>
Upon Conversion of
Preferred to
Common Shares
Owner Shares Percent Shares Percent
<S> <C> <C> <C> <C>
Cede & Co. 869,433 28.10% 869,443 18.90%
Philadep & Co. 714,823 23.10% 714,823 15.60%
D.N. Fitzgerald 291,667 9.40% 291,667 6.30%
R.D. Collins 522,917 16.90% 522,917 11.30%
Jerome J. Evon 125,000* 4.04% 1,625,000 35.37%
<FN>
* Mr. Evon is owner of 75,000 shares of Company's preferred stock which are
convertible into 1,500,000 shares of common stock at the option of the
Company's Board of Directors.
</TABLE>
<PAGE>
On October 15, 1996, the Company approved a one for four reverse stock split
and exchanges 2,000,000 shares of the Company for the stock of Tone. The
following table reflects beneficial ownership after this transaction and the
December 5, 1996, disposal of Gibson.
<TABLE>
<CAPTION>
Owner Shares Percent
<S> <C> <C>
Cede & Co. 217,361 7.8%
Philadep & Co. 178,706 6.4%
D.N. Fitzgerald 72,917 2.6%
Richard D. Collins 130,729 4.7%
Jerome J. Evon 31,250 1.1%
Timothy Evon 666,666 23.5%
Thomas Evon 666,666 23.5%
Michael Evon 666,666 23.5%
</TABLE>
Item 12. Certain Relationships and Related Transactions
On November 7, 1994, the registrant signed a Stock Purchase Agreement with
Jerome J. Evon (current Director) for the acquisition of one hundred percent
(100%) of the common shares of Gibson Specialty Corporation in exchange for
seventy-five thousand (75,000) shares of the registrant's $10 par value Series
A Preferred Stock.
On December 1, 1994, the Company entered into an agreement to purchase from
Pearce West Enterprises, Ltd., a Canadian company, and others, a certain note
receivable from International Slocan Developments, Ltd., in the amount of
$175,000 and $25,000 cash in consideration of the issuance of two (2) million
shares of the Company's common stock. This note receivable was subsequently
assigned to Eastman Bond and Shares, Ltd., a Canadian company, in exchange for
a note receivable in the amount of $225,000 and $25,000 cash. The stock was
distributed as follows:
<TABLE>
<CAPTION>
Owner Shares
<S> <C>
Pearce West Enterprises, Ltd. 1,000,000
D. N. Fitzgerald 291,667
Jerry Evon 125,000
R. D. Collins 291,667
Eastman Bond & Shares, Ltd. 168,900
Others 122,766
---------
2,000,000
<FN>
*Mr. Fitzgerald, Mr. Evon and Mr. Collins became directors of the Company
after the agreement with Pearce West Enterprises, Ltd., was approved.
</TABLE>
On December 28, 1994, the registrant signed a purchase agreement with
James L. Hansen (former office and Director) to sell all restaurant assets and
related franchises for a price of $20,000.
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K
a. The following exhibits are filed as required as a part of this report:
(1) Underwriting agreement
Not applicable
(2) Plan of acquisition, reorganization, arrangement, liquidations, or
succession
Not applicable.
(3) Articles of Incorporation and by-laws
Previously provided
(4) Instruments defining the rights of holders, including debentures
Not applicable.
(5) Opinion re: legality
Not applicable.
(6) No exhibit required
(7) Opinion re: liquidation preference
Not required.
(8) Opinion re: tax matters
Not required.
(9) Voting trust agreement
Not applicable.
(10) Material contracts
Previously provided.
(11) Statement re: computation of per share earnings
Information included in Note 11 to Financial Statements.
(12) No exhibit required
(13) Annual or quarterly reports, Form 10Q
Not applicable.
<PAGE>
(14) Material foreign patents
Not applicable.
(15) Letter on unaudited interim financial statements
Not applicable.
(16) Letter on change in certifying accountant
Included in Form 8-K dated October 3, 1996.
(17) Letter on director resignation
Not required.
(18) Letter on change in accounting principles
Not applicable.
(19) Previously unfiled documents
Not applicable.
(20) Reports furnished to security holders
Not required.
(21) Other documents or statements to security holders
Not required.
(22) Subsidiaries of the registrant
Gibson Specialty Corporation - Illinois
Inactive Subs
Homeward Bound Group, Inc.
Artex Restaurants, Inc.
(23) Published report regarding matters submitted to vote
Not applicable.
(24) Consent of experts and counsel
Not applicable.
(25) Power of attorney
Not applicable.
(26) Statement of eligibility of trustee
Not required.
(27) Invitations for competitive bids
Not required.
(28) Additional exhibits
Not applicable.
(29) Information from reports furnished to state insurance authorities
Not applicable.
b. Reports on Form 8-K
The Company filed a Form 8-K dated October 3, 1996, reporting on Item 4
(change in registrant's certifying accountant)
<PAGE>
MINUTE MAN OF AMERICA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended
September 30, 1996 and 1995
MINUTE MAN OF AMERICA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
__________________
Report of Independent Auditors F - 1
Consolidated Financial Statements of Minute Man of America, Inc.:
Consolidated Balance Sheets, September 30, 1996 and 1995 F - 2
Consolidated Statements of Operations for the Years Ended
September 30, 1996 and 1995 F - 3
Consolidated Statements of Shareholders' Equity for the
Years Ended September 30, 1996 and 1995 F - 4
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996 and 1995 F - 5
Notes to Consolidated Financial Statements F - 7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Minute Man of America, Inc.
We have audited the accompanying consolidated balance sheet of Minute Man of
America, Inc. and its wholly-owned subsidiary as of September 30, 1996, and
the related consolidated statements of operations, shareholders' equity, and
cashflows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit. The consolidated financial statements of Minute Man of America, Inc.
as of September30, 1995 were audited by other auditors, whose report dated
January 4, 1996, expressed an unqualified opinion on those statements. As
discussed in Note 13 to the consolidated financial statements, the Company
has restated its 1995 financial statements during the year to change the
method used to record payments to a preferred stockholder in conformity with
generally accepted accounting principles. The other auditors reported on the
1995 financial statements before the restatement.
We conducted our audit 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 accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Minute Man of America, Inc. and its wholly-owned subsidiary as of September
30, 1996, and the consolidated results of their operations and their cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 13 to the consolidated financial statements, a certain
error resulting in the overstatement of net income for the year ended September
30, 1995 (which financial statements were audited by other auditors) was
discovered by management of the Company during the current year. Accordingly,
the 1995 financial statements have been restated to correct the error. We also
audited the adjustments described in Note 13 that were applied to restate the
1995 financial statements. In our opinion such adjustments are appropriate
and have been properly applied.
/s/Kelly & Company
Kelly & Company
Newport Beach, California
October 25, 1996
F - 1
<PAGE>
<TABLE>
MINUTE MAN OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and 1995
________________
A S S E T S
<CAPTION>
Restated
1996 1995
------- --------
<S> <C> <C>
Current assets:
Cash $ 84,120 $ 24,687
Accounts receivable 187,948 286,056
Inventories 160,488 226,448
Prepaid expenses - 393
-------- --------
Total current assets 432,556 537,584
Property and equipment 194,424 209,698
Other assets 1,748 12,964
Excess of cost over net assets
acquired, net - 99,393
-------- --------
Total assets $ 628,728 $ 859,639
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 52,839 $ 105,395
Indebtedness to related parties 20,000 -
Obligation under capital lease 8,410 -
-------- --------
Total current liabilities 81,249 105,395
-------- --------
Obligation under capital lease
less current maturity 38,467 -
Indebtedness to related parties - 20,000
-------- --------
38,467 20,000
-------- --------
Total liabilities 119,716 125,395
-------- --------
Commitments and contingencies
Shareholders' equity:
Convertible Series A preferred stock; $10 par
value; authorized 500,000 shares, 75,000
issued and outstanding in 1996 and 1995 750,000 750,000
Common stock $.10 par value; 50,000,000 shares
authorized; 3,093,750 issued and outstanding
in 1996 and 1995 309,375 309,375
Capital in excess of par value 917,997 862,997
Accumulated(deficit) (1,468,360) (1,013,128)
Unsecured note receivable due from related
related party - (175,000)
-------- --------
Total shareholders' equity 509,012 734,244
-------- --------
Total liabilities and shareholders' equity $ 628,728 $ 859,639
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
</TABLE>
<PAGE>
<TABLE>
MINUTE MAN OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 1996 and 1995
________________
<CAPTION>
Restated
1996 1995
------- ---------
<S> <C> <C>
Net sales $ 841,402 $ 1,200,005
Cost of sales 847,652 1,082,826
-------- ---------
Gross profit (loss) (6,250) 117,179
Operating costs and expenses 375,467 156,168
-------- ---------
Income (loss) from operations (381,717) (38,989)
-------- ---------
Other income (expense):
(Loss) on disposal of assets (43,950) -
Relocation expense (26,900) -
Interest expense ( 7,251) -
Interest income 5,225 -
-------- ---------
( 72,876) -
-------- ---------
Loss from continuing operations
before provision for income taxes (454,593) (38,989)
Provision for income taxes 639 243
-------- ---------
Loss from continuing operations (455,232) (39,232)
-------- ---------
Discontinued operations net of applicable taxes:
Loss from discontinued operations - (14,441)
Gain on sale of franchise - 20,000
-------- ---------
Income from discontinued operations - 5,559
-------- ---------
Net loss ($ 455,232) ($ 33,673)
======== =========
Earnings per common equivalent share:
Loss from continuing operations ($ 0.1471) ($ 0.0157)
Income (loss) from discontinued operations:
(Loss) on discontinued operations - (0.0058)
Gain on sale of discontinued operations - 0.0080
-------- ---------
Net loss ($ 0.1471) ($ 0.0135)
======== =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 3
</TABLE>
<PAGE>
<TABLE>
MINUTE MAN OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended September 30, 1996 and 1995
<CAPTION>
Common Stock
_____________________
Number of
Shares Amount
_________ ________
<S> <C> <C>
Balance, September 30, 1994 1,093,750 $109,375
Issuance of common stock 2,000,000 200,000
Net loss - -
_________ ________
Balance, September 30, 1995, restated 3,093,750 309,375
Net loss - -
Collection of note receivable - - - -
_________ ________
Balance, September 30, 1996 3,093,750 $309,375
========== =========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
F - 4
</TABLE>
<PAGE>
<TABLE>
MINUTE MAN OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Continued
For the Years Ended September 30, 1996 and 1995
<CAPTION>
Preferred Stock
______________________
Number of
Shares Amount
_________ ________
<S> <C> <C>
Balance, September 30, 1994 75,000 $750,000
Issuance of common stock - -
Net loss - -
_________ ________
Balance, September 30, 1995 75,000 750,000
Net loss - -
Collection of note receivable - -
_________ ________
Balance, September 30, 1996 75,000 $ 750,000
======== ========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
F - 5
</TABLE>
<PAGE>
<TABLE>
MINUTE MAN OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Continued
For the Years Ended September 30, 1996 and 1995
<CAPTION>
Capital In
Excess Of Accumulated
Par Value (Defecit) Par Value
__________ ____________
<S> <C> <C>
Balance, September 30, 1994 $862,997 ($979,455)
Issuance of common stock - -
Net loss - (33,673)
__________ ____________
Balance, September 30, 1995 862,997 (1,013,128)
Net loss - (455,232)
Collection of note receivable 55,000 -
__________ ____________
Balance, September 30, 1996 $917,997 ($1,468,360)
========== ============
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
F - 6
</TABLE>
<PAGE>
<TABLE>
MINUTE MAN OF AMERICA, INC.
CONSOLIDATED STATEMENTSS OF SHAREHOLDERS' EQUITY
Continued
For the Years Ended September 30, 1996 and 1995
<CAPTION>
Related
Party
Note
Receivable Total
____________ __________
<S> <C> <C>
Balance, September 30, 1994 - $742,917
Issuance of common stock ($175,000) 25,000
Net loss - (33,673)
____________ __________
Balance, September 30, 1995 (175,000) 734,244
Net loss - (455,232)
Collection of note receivable 175,000 230,000
____________ __________
Balance, September 30, 1996 - $509,012
============ ==========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
F - 7
</TABLE>
<PAGE>
<TABLE>
MINUTE MAN OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1996 and 1995
________________
<CAPTION>
Restated
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 455,233) ($ 33,673)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 124,524 32,732
Gain on sale of discontinued operations - (20,000)
Decrease (increase) in assets:
Accounts receivable 98,108 17,829
Inventories 65,960 (23,793)
Loss on disposal of assets 43,950 -
Other assets 10,805 -
Prepaids 393 210
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (52,556) 18,357
Indebtedness to related parties - (4,351)
-------- --------
Net cash (164,048) (12,689)
Cash flows provided by (used in) investing
activities
Purchases of property and equipment (1,250) (15,750)
Proceeds from sale of discontinued operations - 20,000
-------- --------
Net cash (1,250) 4,250
Cash flows provided by (used in) financing
activities
Repayment of capital lease principal (5,269) -
Collection of note receivable 230,000 25,000
-------- --------
Net cash 224,731 25,000
-------- --------
Net increase in cash 59,433 16,561
Cash at beginning of period 24,687 8,126
-------- --------
Cash at end of period $ 84,120 $ 24,687
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
</TABLE>
<PAGE>
<TABLE>
MINUTE MAN OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Continued
For the Years Ended September 30, 1996 and 1995
________________
<CAPTION>
Supplemental Disclosure of Cash Flow Information
Restated
1996 1995
------ --------
<S> <C> <C>
Cash paid during the year for:
Interest $12,250 $45,047
State income taxes $639 $243
Supplemental Schedule of Non-Cash Investing and Financing Activities
Assets acquired by capital lease:
Assets acquired $52,146 -
Capital leases incurred ($52,146) -
Exchange of common stock for note receivable:
Note receivable - $200,000
Common stock - ($200,000)
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 9
</TABLE>
<PAGE>
MINUTE MAN OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________
1. Summary of Significant Accounting Policies
Operations and Revenue Recognition
Minute Man of America, Inc. (the "Company") was incorporated in the State of
Arkansas in 1965. Prior to 1987, the Company was engaged in several food
service related operations through various subsidiaries. However, all subsidiary
companies' operations were discontinued and they were disposed of prior to
fiscal 1988 due to non-profitability. The Company was also engaged as a
franchiser of fast food specialty restaurants. In December 1994, the Company
disposed of the two remaining restaurant franchises to a former related party
(See Note 12).
On November 7, 1994, the Company purchased Gibson Specialty Corp. ("Gibson")
through a stock purchase agreement which was effective as of September 30, 1994.
The Company issued 75,000 shares of $10 par value Convertible Series A
preferred stock in exchange for all of Gibson's outstanding common stock (Note
9). Gibson manufactures and distributes gaming devices which can be described
as non-mechanical slot machines similar in appearance to small game boards,
from a single location. Gibson sells its products primarily to social
establishments and distributors in locations where gambling is permitted.
Revenue is recognized at the time product is shipped.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Gibson. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Equivalents
Cash and equivalents include time deposits and commercial paper with original
maturities of three months or less. The Company has no requirements for
compensating balances.
Concentration of Credit Risk
The Company grants credit to its customers in the normal course of business.
The Company maintains cash balances at two banks where the aggregate balances
of the accounts at each of the institutions are insured by the Federal Deposit
Insurance Corporation up to $100,000.
F-10
<PAGE>
1. Summary of Significant Accounting Policies, Continued
Inventories
Inventories are stated at the lower of cost or market. The cost of inventories
is determined using the first-in, first-out ("FIFO") method. The Company
monitors its inventory for excess or obsolete items and makes any valuation
corrections when such adjustments are identified.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the expected useful lives noted below. Expenditures
for normal maintenance and repairs are charged to income, and significant
improvements are capitalized. The cost and related accumulated depreciation
of assets are removed from the accounts upon retirement or other disposition;
only resulting profit or loss is reflected in the statement of operations.
Estimated Useful
Life
_____________
Machinery and equipment 10 years
Office furniture and fixtures 7 years
Intangible Asset
The Company adopted the recognition of economic impairment of long lived assets
and assets disposed of in accordance with Statement of Financial Accounting
Standards No. 121 (SFAS 121) during its 1996 fiscal year.
The excess of the purchase price of Gibson over its net assets is presented as
goodwill at September 30, 1995 and is amortized over a 15-year period using the
straight line method for the year then ended. Subsequent to September 30, 1996,
the Company decided to dispose of its interest in its subsidiary, Gibson, which
impairs the life of the intangible asset. As a result, the balance of goodwill
has been charged to amortization expense as of September 30, 1996.
Income Taxes
The Company accounts for deferred income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109).
Deferred income taxes are computed based on the tax liability or benefit in
future years of the reversal of
F-11
<PAGE>
1. Summary of Significant Accounting Policies, Continued
Income Taxes, Continued
temporary differences in the recognition of income or deduction of expenses
between financial and tax reporting purposes. The net difference between tax
expense and taxes currently payable is reflected in the balance sheet as
deferred taxes. Deferred tax assets and/or liabilities are classified as
current and noncurrent based on the classification of the related asset or
liability for financial reporting purposes, or based on the expected reversal
date for deferred taxes that are not related to an asset or liability. The
Company files a consolidated federal income tax return.
Financial Instruments
In assessing the fair value of financial instruments, the Company uses a
variety of methods and assumptions, which are based on estimates of market
conditions and risks existing at the balance sheet date.
The carrying amount of cash and equivalents, accounts receivable, and accounts
payable approximates fair value because of the short-term maturity of these
financial instruments. The carrying amount of capital leases approximates fair
value as the borrowing rate approximates the current market rate for similar
borrowings.
Advertising Costs
Advertising costs are expensed as they are incurred.
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F - 12
<PAGE>
Reclassification
Certain amounts have been reclassified within the 1995 financial statements in
order to conform with the current year presentation.
2. Accounts Receivable
Sales to one customer in 1996 and 1995 accounted for approximately 22% and 20%
of the total revenue. The aggregate amounts of accounts receivable for this
customer were $103,601 and $199,179, at September 30, 1996 and 1995,
respectively.
The Company has an allowance for uncollectible accounts of $8,000 and $4,260 at
September 30, 1996 and 1995, respectively.
3. Inventories
Inventories consisted of the following at September 30:
1996 1995
------- --------
Raw Materials $27,922 $23,919
Work-in progress 34,156 51,847
Finished goods 98,410 150,682
------- --------
$160,488 $226,448
======= =======
4. Property and Equipment
Property and equipment consist of the following at September 30:
1996 1995
------- --------
Machinery and equipment $219,815 $221,357
Office furniture and fixtures 10,426 10,426
------- --------
230,241 231,783
Less: accumulated depreciation (35,817) (22,085)
------- --------
$194,424 $209,698
======= =======
F - 13
<PAGE>
Depreciation expense was $24,719 and $22,085 for the years ended September 30,
1996 and 1995, respectively. For the year ended September 30, 1996, the
Company leased various pieces of machinery and equipment with a capitalized
value of $52,146 and a related depreciation expense of $2,670.
5. Related Party Transactions
Office space, clerical and accounting services were provided to the Company,
by a stockholder, and the office overhead fees totaling $6,511 were charged
to the Company in 1995.
In 1994 the Company acquired a note receivable ("NR1") with a face value of
$175,000 and $25,000 in cash issued by an unrelated entity in exchange for
two million shares of the Company's common stock. Certain individuals related
to the transferor entity subsequent to the transfer of the note receivable
became officers, directors, and stockholders of the Company. On September
30, 1995, NR1 was exchanged by the Company for a second note receivable
("NR2") which had a face value of $225,000. Based upon concerns of full
collectibility for NR2, the Company did not reflect the increased face value.
During 1996, the Company surrendered NR2 in full satisfaction from its maker
for $230,000. As the complete transaction is the result of issuance of
Company common stock, the gain recognized has been treated as an addition
to capital in excess of par value.
The Company had two remaining franchises which were still in operation as
"Minute Man" restaurants at October 1, 1994. A royalty fee of 3% of gross
sales is paid to the Company by each franchise. A shareholder owned one of
the restaurants and paid royalties of $616 in fiscal 1995. These two
franchises were sold to a franchisee who was also a stockholder and officer
during December 1994.
6. Commitments and Contingencies
Operating Lease
During the year ended September 30, 1996, the Company relocated its facility
and entered into a month to month operating lease for its facility. A
formal lease agreement has not been executed; the monthly payment for the
new facility is $5,430.
Rental expenses resulting from operating lease agreements were $71,141
and $121,000, for the years ended September 30, 1996 and 1995, respectively.
7. Capital Leases
F - 14
<PAGE>
During 1996, the Company entered into two long term lease agreements.
Obligations under capital lease at September 30, 1996 consist of the
following:
Capital lease secured by equipment with
an effective annual interest rate of 14%
with monthly payments of $1,074,
due January 2001. $41,695
Capital lease secured by equipment with
an effective annual interest rate of
14% with monthly payments of $130,
due March 2001. 5,182
------
$46,877
Future minimum lease payments under capital leases at September 30, 1996 are
as follows:
1997 $14,447
1998 14,447
1999 14,447
2000 14,447
2001 5,049
------
Total minimum lease payments 62,837
Less: amount representing interest (15,960)
-------
Present value of minimum lease payments 46,877
Less: current maturities (8,410)
-------
Obligation under capital lease, long term $38,467
======
F - 15
<PAGE>
8. Income Taxes
The components of the provision for income taxes for the years ended
September 30, 1996 and 1995 are:
1996 1995
---- ----
Current expense:
Federal - -
State $639 $243
----- ----
639 243
Deferred expense:
Federal - -
State - -
----- ----
- -
Total provision $639 $243
Significant components of the Company's deferred income tax assets are as
follows at September 30:
1996 1995
---- ----
Deferred income tax assets:
Net operating loss $374,000 $374,000
Goodwill 35,810 -
Inventory 94,487 -
Depreciation 17,053 -
Other 3,127 -
Total deferred income tax asset 524,477 374,000
Valuation allowance (524,477) (374,000)
Net deferred income tax asset - -
The Company's effective tax rate on income before income taxes differs from
the U.S. statutory tax rate as follows:
1996 1995
U.S. statutory rate (benefit) (34.0 %) 34.0 %
Valuation allowance 34.0 % (34.0 %)
State taxes 0.2% -
Net deferred income tax asset 0.2% -
F - 16
<PAGE>
The net operating loss carryforward is $1,075,640. The loss will begin
to expire in 1997.
9. Preferred Stock
The Company has 500,000 authorized shares of $10 par value Convertible Series
A preferred stock, of which 75,000 shares are issued and outstanding. The
preferred stockholders have no voting privileges. No preferred stock
dividends have been paid, as they were not allowable under the governing
state law. The shares are convertible at the option of the Company to twenty
shares of common stock for each share of preferred stock issued.
10. Common Stock
On November 7, 1994, the Company signed a stock purchase agreement with Gibson
for the acquisition of all of the common shares of Gibson in exchange for
75,000 shares of the Company's $10 par value Convertible Series A preferred
stock. This agreement had an effective date of September 30, 1994. The
Company accounted for the acquisition as a purchase. The acquired assets,
reflected at fair market value, less the existing liabilities were recorded
by the Company resulting in an excess of cost over net assets in
the amount of $106,494.
In addition, the Company approved 250,000 stock options to certain key
employees and directors at a purchase price of $0.50 per share on September
30, 1995. At September 30, 1996, none of these options were issued or
outstanding.
11. Loss per Common Share
Primary loss per common and common equivalent share 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 years ended September 30, 1996 and 1995 was 3,093,750 and 3,996,490,
respectively. Stock options approved by the Board of Directors on September
30, 1995 have been excluded as they are neither issued nor outstanding. The
Convertible Series A preferred shares are considered common equivalents;
however, they have been excluded for the years ended September 30, 1996 and
1995 because the effects would be anti-dilutive.
F - 16
<PAGE>
11. Loss per Common Share, Continued
After September 30, 1996, the Company executed a reverse common stock split
as described in Note 14. Supplementary earnings per share data is presented
below.
Loss per common equivalent share
after effect of reverse stock split:
1996 1995
Loss from continuing operations ($0.5886) ($0.0629)
Income (loss) from discontinued operations:
(Loss) on discontinued operations - (0.0231)
Gain on sale of discontinued operations - 0.0320
-------- ---------
Net loss ($0.5886) ($0.0540)
12. Discontinued Operations
During 1995, the Company approved the sale of the two remaining fast food
specialty restaurant franchises and discontinued this line of business.
Revenues and associated expenses relative to this line of business have
been excluded from results of continuing operations. The following are the
revenues and associated expenses of the discontinued operations for the year
ended September 30, 1995.
Selling, general and administrative expense ($17,904)
Royalties 3,426
Interest Income 37
--------
Loss from discontinued operations ($14,441)
F - 17
<PAGE>
13. Prior Period Adjustment
During the year a certain error, discovered by management resulting in the
understatement of previously reported income of the prior year, was corrected
resulting in the following changes to retained earnings as of September 30,
1995, and the related consolidated statement of operations for the year then
ended:
Accumulated Net Earnings (Loss)
(Deficit) Income (Loss) Per Share
As previously reported ($1,013,128) $11,374 $0.0028
Understatement of interest
expense (45,047) (45,047)
Overstatement of dividends 45,047 -
----------- -------- --------
As adjusted ($1,013,128) ($33,673) ($0.0135)
14. Subsequent Events
A. On October 15, 1996, the Company, after executing a one for four reverse
common stock split, was acquired (in a reverse merger) by Tone Products, Inc.
("Tone"). The shareholders of Tone exchanged their stock in Tone for
2,000,000 post reverse stock split common shares of the Company. After the
exchange, the shareholders of Tone held 70.5% of the outstanding stock of
the Company. As part of this transaction:
1. The Company changed its name to Tone Products, Inc.
2. The board of directors was expanded from three to seven members.
Tone has placed six members on the board and one former board member
remained on the board of directors.
Tone has production and marketing locations in Illinois and Nevada. It
manufactures and distributes food products consisting primarily of juices,
sauces, and snack foods.
The purchase price of $4,000,000 is the fair value of the Company stock
issued to acquire Tone. This transaction has been accounted for as a
purchase.
F - 18
<PAGE>
14. Subsequent Events, Continued
B. On December 5, 1996, the Company, in a non-monetary transaction, disposed
of all of the common stock of Gibson in exchange for 75,000 shares of its
Convertible Series A preferred stock having a par value of $10 per share.
Prior to the October 15, 1996 acquisition, Gibson was the sole operating
segment in the Company. Jerry Evon, the president of Gibson, was the holder
of all of the preferred stock and was a member of the board of directors of
the Company. With the completion of this transaction, Mr. Evon resigned from
the board of directors of the Company.
The reorganization of Gibson that resulted in the distribution of the assets
and liabilities to a Company shareholder was recorded at net cash value in
compliance with the recording of non-monetary and non-reciprocal transfers
to owners.
As the subsequent events are significant to the Company's financial
statements, a pro forma balance sheet at September 30, 1996, and a pro forma
income statement for the year ended September 30, 1996 are included in this
footnote. These pro forma financial statements assume the transaction
occurred on October 1, 1995.
F - 19
<PAGE>
MINUTE MAN OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________
14. Subsequent Events, Continued
Pro Forma Statements of Operations (Unaudited)
September 30, 1996
_________________
Minute Man
Of America, Inc. Pro Forma
September 30, 1996 Adjustments Pro Forma
___________________ ___________ __________
Sales $841,402 (A) $6,245,918
(B) (841,402) $6,245,918
Cost of Sales 847,652 (A) (4,590,317)
(B) 847,652 4,590,317
___________ __________
Gross profit (loss) (6,250) 1,655,601
Operating costs and expenses 375,467 (A) (1,460,877)
(B) 343,475 1,492,869
____________ ___________ _________
(Loss) income from operations (381,717) 162,732
(60,397)
Other income (expense) (72,876) (B) 41,407 (91,866)
Income before provision for ____________ __________
income taxes (454,593) 70,866
Provision for income taxes 639 (A) (75,250)
(B) 69 (75,820)
____________ ____________ ___________
Net (loss) income ($455,232) $450,278 ($4,954)
(A) To show effect of Tone acquisition as if it had taken place on
October 1, 1995
(B) To show effect of disposal of Gibson as if it had taken place on
October 1, 1995.
F - 20
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MINUTE MAN OF AMERICA INC.
By:/S/ Timothy Evon
Timothy Evon
Chief Executive Officer, Director Treasurer Date: January 10, 1996
In accordance with the Exchange Act, this report has been signed below by the
following person on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Michael Evon
Michael Evon
Secretary & Director
Date: January 10, 1996
F - 21
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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