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 December 31, 1996.
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 3,342,614 on January 31, 1997.
<PAGE>
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>
<TABLE>
TONE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and September 30, 1996
A S S E T S
<CAPTION>
December 31,
1996 September 30,
(unaudited) 1996
------------ ---------
<S> <C> <C>
Current assets:
Cash $ 216,564 $ 84,120
Accounts receivable 777,916 187,948
Due from related party 23,770 -
Inventory 1,182,991 160,488
Prepaids 36,765 -
Deferred tax asset 5,230 -
Property, net 1,998,576 194,424
Other assets - 1,748
Goodwill 1,496,119 -
------------ ---------
Total assets $ 5,737,931 $ 628,728
============ =========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F - 1
</TABLE>
<PAGE>
<TABLE>
TONE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and September 30, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
December 31,
1996 September 30,
(unaudited) 1996
------------ ---------
<S> <C> <C>
Current liabilities:
Line of credit payable $ 620,927 -
Accounts payable 592,127 $ 52,839
Advances from related party - 20,000
Note payable, current portion 226,335 -
Capital lease obligation - 8,410
Income taxes payable 58,445 -
Current deferred tax liability 2,026 -
------------ ---------
Total current liabilities 1,499,860 81,249
Notes payable long term - -
Capital lease obligation - 38,467
Deferred tax liability 71,376 -
------------ ---------
71,376 38,467
------------ ---------
Total liabilities 1,571,236 119,716
Commitments and contingencies
Shareholders' equity:
Convertible Series A preferred
stock; $10 par value;
500,000 shares authorized;
0 and 75,000 issued and
outstanding at December 31,1996
and September 30, 1996,
respectively - 750,000
Common stock; $0.10 par value;
50,000,000 shares authorized;
3,342,614 and 3,093,750 shares
issued and outstanding at
December 31, 1996 and
September 30, 1996, respectively 334,261 309,375
Capital in excess of par value 5,233,799 917,997
Accumulated deficit (1,451,365) (1,468,360)
Stock subscription proceeds 50,000 -
------------ ---------
Total shareholders' equity 4,166,695 509,012
------------ ---------
Total liabilities and
shareholders' equity $ 5,737,931 $ 628,728
============ =========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F - 2
</TABLE>
<PAGE>
<TABLE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 1996 and 1995
(Unaudited)
<CAPTION>
December 31, December 31,
1996 1995
<S> <C> <C>
------------ ---------
Sales $ 1,970,562 $ 173,110
Cost of sales 1,332,854 203,244
------------ ---------
Gross profit (loss) 637,708 (30,134)
Operating costs and expenses 551,214 54,217
------------ ---------
(Loss) income from operations 86,494 (84,351)
Other expense 18,021 -
------------ ---------
Income before provision for
income taxes 68,473 (84,351)
Provision for income taxes 51,478 -
------------ ---------
Net (loss) income $ 16,995 ($ 84,351)
============ =========
Net income (loss) per common share:
Primary $0.01 ($0.02)
Fully diluted $0.01 -
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F - 3
</TABLE>
<PAGE>
<TABLE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended December 31, 1996 (Unaudited) and
The Year Ended September 30, 1996
<CAPTION>
Common Stock
--------------------
Number of
Shares Amount
------------ ---------
<S> <C> <C>
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
Net income - -
Reverse stock split (2,319,986) (231,999)
Disposal of Gibson Specialty Corp. - -
Issuance of subscribed stock 504,350 50,435
Acquisition of Tone Products, Inc. 2,000,000 200,000
Issuance of stock for debt 64,500 6,450
Proceeds from private placement - -
------------ ---------
Balance, December 31, 1996 3,342,614 $ 334,261
============ =========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F - 4
</TABLE>
<PAGE>
<TABLE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended December 31, 1996 (Unaudited) and
The Year Ended September 30, 1996
<CAPTION>
Preferred Stock
------------------
Number of
Shares Amount
------------ ---------
<S> <C> <C>
Balance, September 30, 1995, restated 75,000 $ 750,000
Net loss - -
Collection of note receivable - -
------------ ---------
Balance, September 30, 1996 75,000 750,000
Net income - -
Reverse stock split - -
Disposal of Gibson Specialty Corp. (75,000) (750,000)
Issuance of subscribed stock - -
Acquisition of Tone Products, Inc. - -
Issuance of stock for debt - -
Proceeds from private placement - -
------------ ---------
Balance, December 31, 1996 - -
============ =========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F - 5
</TABLE>
<PAGE>
<TABLE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended December 31, 1996 (Unaudited) and
The Year Ended September 30, 1996
<CAPTION>
Capital
Excess Of Accumulated
Par Value (Deficit)
------------ ---------
<S> <C> <C>
Balance, September 30, 1995, restated $ 862,997 ($ 1,013,128)
Net loss - (455,232)
Collection of note receivable 55,000 -
------------ ---------
Balance, September 30, 1996 917,997 (1,468,360)
Net income - 16,995
Reverse stock split 231,999 -
Disposal of Gibson 240,988 -
Issuance of subscribed stock 958,265 -
Acquisition of Tone Products, Inc. 2,762,000 -
Issuance of stock for debt 122,550 -
Proceeds from private placement - -
------------ ---------
Balance, December 31, 1996 $ 5,233,799 ($1,451,365)
============ =========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F - 6
</TABLE>
<PAGE>
<TABLE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Months Ended December 31, 1996 (Unaudited) and
The Year Ended September 30, 1996
<CAPTION>
Related
Party
Note Stock
Receivable Subscribed Total
-------- --------- -----------
<S> <C> <C> <C>
Balance, September 30, 1995, restated ($175,000) - $ 734,244
Net loss - - (455,232)
Collection of note receivable 175,000 - 230,000
-------- --------- -----------
Balance, September 30, 1996 - - 509,012
Net income - - 16,995
Reverse stock split - - -
Disposal of Gibson - - (509,012)
Issuance of subscribed stock - ($1,008,700) -
Acquisition of Tone Products, Inc. - 1,038,000 4,000,000
Issuance of stock for debt - - 129,000
Proceeds from private placement - 20,700 20,700
-------- --------- -----------
Balance, December 31, 1996 - $50,000 $4,166,695
======== ========= ===========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F - 7
</TABLE>
<PAGE>
<TABLE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 1996 and 1995 (Unaudited)
<CAPTION>
December 31, December 31,
1996 1995
<S> <C> <C>
------------ ---------
Cash flows from operating activities:
Net income (loss) $16,055 ($84,351)
Adjustments to reconcile income (loss) to net
cash provided by operating activities:
Depreciation and amortization 107,212 8,174
Decrease (increase) in assets:
Accounts receivable 137,646 124,649
Inventory (69,814) -
Prepaid expenses (30,080) -
Increase (decrease) in liabilities:
Line or credit payable (18,800) -
Accounts payable (51,242) (63,806)
Indebtedness to shareholders - 2,500
Income taxes payable 30,221 -
Deferred tax liabilities (46,506) -
------------ ---------
Cash provided by (used in)
operating activities 75,632 (12,834)
------------ ---------
Cash flows provided by (used in) investing
activities:
Purchases of property and equipment (23,573) (10,532) ------------ ---------
Purchase of investments - 40,000
Acquisition of subsidiary 155,746 -
Disposal of Gibson (84,120) -
------------ ---------
Cash provided by investing activities 48,053 29,468
------------ ---------
Cash flows provided by (used in)
financing activities:
Principle payments of debt (11,941) -
Subscription of common stock 20,700 -
------------ ---------
Cash provided by financing activities 8,759 -
------------ ---------
Net increase in cash 132,444 16,634
Cash at beginning of period 84,120 24,687
------------ ---------
Cash at end of period $ 216,564 $ 41,321
============ =========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F - 8
</TABLE>
<PAGE>
<TABLE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For the Three Months Ended December 31, 1996 and 1995 (Unaudited)
Supplemental Disclosure of Cash Flow Information
<CAPTION>
December 31, December 31,
1996 1995
<S> <C> <C>
------------ ---------
Interest $ 27,476 -
Income taxes $ 15,737 -
Supplemental Schedule of Non-Cash Investing and Financing Activities
Disposal of subsidiary:
Assets $ 544,608
Liabilities ($ 119,716)
Preferred stock retired ($ 750,000)
Acquisition of subsidiary:
Assets acquired $ 5,642,759
Liabilities assumed ($ 1,798,505)
Stock issued ($ 4,000,000)
Conversion of debt to stock:
Liabilities satisfied $ 129,000
Stock issued ($ 129,000)
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F - 9
</TABLE>
<PAGE>
TONE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________
1. Earnings/(Loss) per Common Share
Primary earnings/(loss) 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 three months ended December
31, 1996, and the three months ended December 31, 1995 was 3,218,182
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:
December 31, September 30,
1996 1996
------------ -------------
Leasehold improvements $ 369,889 -
Machinery and equipment 2,861,792 $ 219,815
Furniture and fixtures 96,252 10,426
Vehicles 288,338 -
------------ -------------
3,616,271 230,241
Less: accumulated depreciation (1,617,695) (35,817)
------------ -------------
$ 1,998,576 $ 194,424
============ =============
Depreciation expense was $80,191 and $8,174 for the three months ended
December 31, 1996 and December 31, 1995, respectively.
<PAGE>
TONE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
3. Income Tax
The components of the provision for income taxes are as follows:
December 31, December 31,
1996 1995
------------ -------------
Current expense:
Federal $ 36,533 -
State 9,425 -
------------ -------------
45,958 -
------------ -------------
Deferred expense (benefit):
Federal 4,688 -
State 832 -
------------ -------------
5,520 -
------------ -------------
$ 51,478 -
============ =============
4. Commitments and Contingencies
The Company has operating leases for certain of its facilities. Future
minimum lease payments at December 31, 1996, are as follows:
Due to
Total Related Parties
-------- --------
1997 $200,168 $188,828
1998 91,875 91,875
-------- --------
Total future minimum lease payments $292,043 $280,703
======== ========
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
three-months ended December 31, 1996.
<PAGE>
TONE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
6. Related Party Transactions
The Company leases from entities owned by certain of its shareholders
certain operating facilities. For the three-month period ended December
31, 1996, the Company paid the entities $62,943 in rent.
7. Common Stock
During the three-month period ended December 31, 1996, the Company raised
$20,700 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.
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:
Cash $875,000
Stock subscribed 200,000
---------
$1,075,000
=========
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
to be amortized on the straight-line basis over 15 years. The amount
of goodwill amortization for the three months ended December 31, 1996
was $8,841.
The net purchase price was allocated as follows:
Working capital $354,167
Plant and equipment 469,903
Goodwill 442,076
Other liabilities (191,146)
---------
Purchase price $1,075,000
=========
<PAGE>
TONE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Continued
8. Acquisition and Disposal, Continued
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. This transaction has been
accounted for as a purchase.
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 to be amortized on the straight-
line basis over 15 years. The amount of goodwill amortization
for the three months ended December 31, 1996 was $18,180.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and Tone for the
three-month period ended December 31, 1995, as if the acquisition had
occurred at the beginning of 1995.
December 31,
1996
----------
Net sales $1,649,274
Net earnings 206,108
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.
<PAGE>
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 acqusition of Tone.
RESULTS OF OPERATIONS
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's long and short term equity is good. The Company is negotiating
extensions of its credit lines to finance a continuing increase in sales.
<PAGE>
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
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: February 19, 1997 TONE PRODUCTS, INC.
/S/ TIMOTHY EVON
Timothy Evon
Director and President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM
10-QSB FOR THE QUARTER ENDED DECEMBER 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 217
<SECURITIES> 0
<RECEIVABLES> 802
<ALLOWANCES> 0
<INVENTORY> 1183
<CURRENT-ASSETS> 2241
<PP&E> 3616
<DEPRECIATION> 1618
<TOTAL-ASSETS> 5738
<CURRENT-LIABILITIES> 1500
<BONDS> 0
<COMMON> 334
0
6
<OTHER-SE> 3832
<TOTAL-LIABILITY-AND-EQUITY> 5738
<SALES> 1971
<TOTAL-REVENUES> 1971
<CGS> 1333
<TOTAL-COSTS> 1333
<OTHER-EXPENSES> 569
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 68
<INCOME-TAX> 51
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
