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, 1998.
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 3,692,102 on July 28, 1998.
<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,
1997. 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>
Tone Products, Inc.
Consolidated Balance Sheet
June 30, 1998 and June 30, 1997 (Unaudited)
June 30, June 30,
1998 1997
---------- ---------
Current Assets
Cash 212,655 132,729
Accounts Receivable 1,385,483 1,179,679
Due from Related party 13,460 24,470
Inventory 814,199 1,231,502
Prepaids 15,289 16,576
Deferred Tax Asset 18,108 5,230
---------- ----------
Total Current Assets 2,459,194 2,590,186
Property, Net 1,595,404 1,438,348
Other Assets 1,457 --
Goodwill 814,614 405,727
---------- ----------
Total Assets 4,870,669 4,434,261
Current Liabilities
Line of Credit Payable 315,000 295,706
Accounts Payable 647,618 542,818
Note Payble Current Portion 371,323 217,477
Income Taxes Payable 15,349 123,658
Accrued expenses 130,682 114,861
Accrued Property Taxes 70,422 77,625
Current Deferred Tax Liabilities -- 83,169
---------- ----------
Total Current Liabilites 1,550,394 1,455,314
Notes Payable Long Term -- --
Deferred Tax Liabilities 197,293 20,555
---------- ----------
Total Long Term Liabilities 197,293 20,555
---------- ----------
Total Liabilities 1,747,687 1,475,869
Commitments and contingencies
Shareholders equity
Common Stock 3,695,112 @ $0.10 par value 369,221 369,511
Capital in excess of par value 1,012,047 2,300,764
Retained Earnings 1,741,714 288,117
---------- ----------
Stock Subscription Proceeds
Total Shareholders' Equity 3,122,982 1,958,392
---------- ----------
Total Liablilities and
Shareholders' Equity 4,870,669 4,434,261
========== ==========
<PAGE>
Tone Products, Inc
Consolidated Statement of Operations
For the Nine Months Ended June 30, 1998 (Unaudited)
June 30, June 30,
1998 1997
---------- ----------
Net Sales 8,074,555 7,300,781
Cost of Sales 5,781,877 4,925,702
---------- ----------
Gross Profit (Loss) 2,292,678 2,375,079
Operating Costs and Expense 1,931,270 1,898,056
---------- ----------
Income (Loss) from Operations 361,408 477,023
Other Expense (8,077) (19,028)
Income (Loss) before Provision for taxes 369,485 496,051
Provision for income taxes 162,000 149,000
---------- ----------
Net (Loss) 207,485 347,051
Net income per common share:
Primary 0.06 0.09
Fully diluted 0.06 0.09
Tone Products, Inc.
Consolidated Statement of Operations
For the Three Months Ended June 30, 1998 (Unaudited)
June 30, June 30,
1998 1997
---------- ----------
Net Sales 3,362,935 3,098,603
Cost of Sales 2,492,340 2,027,361
---------- ----------
Gross Profit (Loss) 870,595 1,071,242
Operating Costs and Expense 653,196 621,795
Income (Loss) from Operations 217,399 449,447
Other Expense (Income) (3,239) (4,349)
Income (Loss) before Provision for taxes 220,638 453,796
Provision for income taxes 92,461 134,900
---------- ----------
Net (Loss) 128,177 318,896
Net income per common share:
Primary 0.03 0.09
Fully diluted 0.03 0.09
<PAGE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 1998 and 1997 (Unaudited)
1998 1997
--------- ---------
Cash flows from operating activities
Net income $ 207,485 $ 347,051
Adjustments to reconcile income (loss) to net cash
provided by operating activities:
Depreciation and amortization 209,126 207,759
Decrease (increase) in assets:
Accounts receivable (450,136) (240,347)
Inventory 235,858 (118,325)
Prepaid expenses (4,064) (9,891)
Deferred tax asset -- --
Other assets (431,663) (25,515)
Increase (decrease) in liabilities:
Line of credit payable 115,000 (315,221)
Accounts payable 290,367 (117,892)
Accrued Expenses (15,850) --
Income taxes payable (77,442) 95,434
Deferred tax liabilities 103,835 35,842
--------- ---------
Cash provided by operating activities 182,516 (141,105)
--------- ---------
Cash flows provided by (used in) investing activities:
Purchases of property and equipment (324,412) (253,813)
Acquisition of TJ's (151,000) --
--------- ---------
Cash (used in) investing activities (475,412) (253,813)
--------- ---------
Cash flows provided by (used in) financing activities:
Principle payments of debt (65,309) (53,384)
Proceeds from notes payable 221,243 32,585
Subscription of common stock -- 92,700
--------- ---------
Cash provided by financing activities 155,934 271,901
--------- ---------
Net increase (decrease) in cash (136,962) (23,017)
Cash at beginning of period 349,617 155,746
--------- ---------
Cash at end of period $ 212,655 $ 132,729
========= =========
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 1998 and 1997 (Unaudited)
Supplemental Disclosure of Cash Flow Information
1998 1997
-------- -------
Interest $48,076 $74,746
Income taxes $293,000 $17,724
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 $151,000 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)
<PAGE>
<TABLE>
<CAPTION>
Tone Products, Inc.
Consolidated Statements of Shareholders' Equity
For the Year Ended September 30, 1997 and
The Nine Months Ended June 30, 1998 (Unaudited)
Tone Products, Inc. Tone Products, Inc.
(An Illinois Corporation) (An Arkansas Corporation)
------------------------- -------------------------
Common Common Preferred Preferred
Shares Stock Shares Shares
------ ----- ------ ------
<S> <C> <C> <C> <C>
Balance, December 31, 1995,
previously reported 600 $ 60,000 -- --
Shares outstanding prior
to reorganization -- -- -- --
One for four reverse
stock split prior
to reorganization -- -- -- --
Shares issued in the
acquisition of
Tone Products, Inc
(an Illinois
corporation) by the Company (600) (60,000) -- --
---------------------------------------------
Balance, December 31, 1995,
as restated -- -- -- --
Distribution of a building
to the
Tone Products, Inc.
(an Illinois
Corporation) shareholders -- -- -- --
Shares subscribed -- -- -- --
Net income -- -- -- --
---------------------------------------------
Balance, September 30, 1996 -- -- -- --
Shares issued in
payment for debt -- -- -- --
Shares subscribed -- -- -- --
Issuance of
subscribed shares -- -- -- --
Net income -- -- -- --
---------------------------------------------
Balance, September 30, 1997 -- -- -- --
Net Income -- -- -- --
Balance, June 30, 1998 -- -- -- --
<PAGE>
Tone Products, Inc.
Consolidated Statements of Shareholders' Equity
For the Year Ended September 30, 1997 and
The Nine Months Ended June 30, 1998 (Unaudited)
Tone Products, Inc.
(An Arkansas Corporation)
------------------------- Stock
Common Common Paid-in Subscription Retained
Shares Stock Capital Proceeds Earnings Total
------ ----- ------- -------- -------- -----
Balance, December 31, 1995,
previously reported -- -- $ 50,127 -- $ 1,170,996 $ 1,281,123
Shares outstanding prior
to reorganization 3,093,750 $ 309,375 (309,375) -- -- --
One for four reverse
stock split prior
to reorganization (2,319,998) (231,999) 231,999 -- -- --
Shares issued in the
acquisition of
Tone Products, Inc
(an Illinois
corporation) by the
Company 2,275,000 227,500 (117,500) (50,000) -- --
-----------------------------------------------------------------------------------
Balance, December 31, 1995,
as restated 3,048,752 304,876 (144,749) (50,000) 1,170,996 1,281,123
Distribution of a building
to the
Tone Products, Inc.
(an Illinois
Corporation) shareholders -- -- (59,559) -- -- (59,559)
Shares subscribed -- -- -- 1,038,000 -- 1,038,000
Net income -- -- -- -- 59,077 59,077
-----------------------------------------------------------------------------------
Balance, September 30, 1996 3,048,752 304,876 (204,308) 988,000 1,230,073 2,318,641
Shares issued in
payment for debt 64,500 6,450 122,550 -- -- 129,000
Shares subscribed -- -- -- 163,700 -- 167,700
Issuance of
subscribed shares 578,850 57,885 1,093,815 (1,151,700) -- --
Net income -- -- -- -- 304,155 304,155
------------------------------------------------------------------------------------
Balance, September 30, 1997 3,692,102 369,211 1,012,057 -- 1,534,228 2,915,496
Net Income -- -- -- -- 104,309 --
------------------------------------------------------------------------------------
Balance, June 30, 1998 $3,692,102 $ 369,211 $ 1,012,057 -- $ 1,741,714 $3,122,982
====================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
</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 June 30, 1998, and
the three months ended June 30, 1997 was 3,692,102 and 3,692,102,
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:
June 30, June 30,
1998 1997
----------- -----------
Leasehold improvements $ 484,811 $ 395,623
Machinery and equipment 2,361,564 2,359,863
Furniture and fixtures 220,748 101,410
Vehicles 331,789 294,273
----------- -----------
3,572,044 3,151,169
Less: accumulated depreciation (1,976,640) (1,712,821)
----------- -----------
$ 1,595,404 $ 1,438,348
=========== ===========
Depreciation expense was $189,765 and $207,769 for the nine months ended June
30, 1998 and June 30, 1997, respectively.
<PAGE>
3. Income Tax
The components of the provision for income taxes are as follows:
June 30, June 30,
1998 1997
-------- --------
Current expense:
Federal $137,000 $103,738
State $ 25,000 20,555
-------- --------
$162,000 $124,293
-------- --------
Deferred expense (benefit):
Federal -- 19,920
State -- 4,787
-------- --------
24,707
-------- --------
$162,000 $149,000
======== ========
4. Commitments and Contingencies
The Company has operating leases for certain of its facilities. Future
minimum lease payments at June 30, 1998, are as follows:
Due To
Total Related Parties
-------- --------
1998 $ 81,757 $ 81,757
1999 408,785 408,785
-------- --------
Total future minimum lease payments $490,542 $490,542
======== ========
<PAGE>
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 six-months ended June
30, 1998.
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, 1998, the
Company paid the entities $327,028 in rent.
The Company secured ownership of the registered trade name "Balboa Bay" by
purchasing it for $300,000 from certain of its shareholders. Sales of products
under the "Balboa Bay" trade name in 1997 had increased by $350,000 to
$1,054,000.
7. Common Stock
Transactions Prior to the One for Four Reverse Stock Split
Stock Subscription
During the nine months ended September 30, 1996, the Company raised
$838,000 through a private placement. The 419,000 shares involved in
the stock subscription were not issued until subsequent to September
30, 1996. The shares involved were post stock split shares.
Acquisition of Fun City Popcorn, Inc.
As part of the acquisition price of Fun City Popcorn, Inc., its former
owner, who is now on the Company's Board of Directors, received
100,000 shares at $2.00 per share value. The shares involved were post
stock split shares.
Stock Split
In October 1996, concurrent with a business combination, the Company's
shareholders approved a one for four reverse stock split of the
Company's common stock. Accordingly, $231,999 was transferred from
common stock to paid in capital representing the par value of the
shares canceled in the reverse split.
<PAGE>
7. Common Stock, Continued
Transactions Subsequent to the One for Four Reverse Stock Split
Acquisition of Tone
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 TPI. The shareholders of TPI exchanged all of their
stock in TPI for 2,275,000 common shares of MMA.
Common Stock Issued in Exchange for Debt
In 1997 the Company issued 64,500 shares of common stock in payment of
debt of the $129,000.
Issuance of Subscribed Stock
In 1997 the Company issued 578,850 shares of stock that had been
subscribed during a private placement.
14. Earnings per Common Share
The computation of both primary and fully diluted earnings 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 primary and fully diluted weighted
average common and common equivalent shares, as applicable,
outstanding during the nine months ended June 30, 1998 was 3,692,102
and was used in calculating the earnings per share for the nine months
ended June 31, 1998 and 1997 respectively.
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
==========
<PAGE>
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 six months ended June 30, 1997 was
$19,361.
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
===========
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 six months ended June 30, 1998 was $19,361.
<PAGE>
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
RESULTS OF OPERATIONS
Revenues
The Company's revenues are derived principally from the sale of food products at
its two facilities.
Revenues for the 3rd fiscal quarter ended June 30, 1998, increased 9% to
$3,362,935 from $3,098,603 in the same quarter last year.
The revenue increase over the year ago period was a result of increased sales of
beverage concentrates in 4/1 gallon containers. Sales of 4/1 gallon beverage
concentrates rose $400,000 from the year ago period. Contracts for private label
packaging accounted for $160,000 of that increase. Sales of bag in the box
beverage concentrates were down $120,000 from the year ago period.
Net income for the 3rd fiscal quarter ended June 30, 1998, decreased to $128,177
or $0.03 diluted earnings per share from $318,896 or $0.09 diluted earnings per
share last year.
Net income for the period lagged behind last years performance, due to the
application of an inventory costing change in the third quarter last year. That
costing change disproportionately effected earnings in the year ago period. Fun
City Popcorn posted losses of $42,000 during the quarter. Some of that loss was
anticipated as Fun City assimilates it's recent acquisition of a direct store
delivery distribution company in Las Vegas.
LIQUIDITY AND CAPITAL RESOURCES
The Company's long and short term equity is good. The Company has completed
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
None
<PAGE>
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 14, 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 THREE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 213
<SECURITIES> 0
<RECEIVABLES> 1,385
<ALLOWANCES> 0
<INVENTORY> 814
<CURRENT-ASSETS> 2,459
<PP&E> 3,572
<DEPRECIATION> 1,976
<TOTAL-ASSETS> 4,870
<CURRENT-LIABILITIES> 1,550
<BONDS> 0
0
0
<COMMON> 369
<OTHER-SE> 3,123
<TOTAL-LIABILITY-AND-EQUITY> 4,870
<SALES> 3,363
<TOTAL-REVENUES> 3,363
<CGS> 2,492
<TOTAL-COSTS> 3,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 221
<INCOME-TAX> 92
<INCOME-CONTINUING> 128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
