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, 1997.
Commission File Number 0-4289
TONE PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS 71-0390957
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2129 North 15th Street, Melrose Park, Illinois 60160
(Address of principal executive offices) (Zip Code)
(708) 681-3660
(Registrant's telephone number, including area code)
Check whether the registrant (1) has filed all reports required by Section 13 or
15(d) of the Securities Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2)has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of issuer's only class of Common Stock, $.010
par value, was 3,692,102 on January 31, 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
UNAUDITED
Dec. 31, 1997 and Dec. 31, 1996
Dec. 31, Dec. 31,
Current Assets 1997 1996
---------- ----------
Cash 227,226 216,564
Accounts Receivable 1,025,280 777,916
Due from Related party 19,070 23,770
Inventory 873,565 1,182,991
Prepaids 16,317 36,765
Deferred Tax Asset 18,108 5,230
---------- ----------
Total Current Assets 2,179,566 2,243,236
Property, Net 1,490,622 1,998,576
Other Assets -- --
Goodwill 388,044 1,496,119
---------- ----------
Total Assets 4,058,231 5,737,931
Current Liabilities
Line of Credit Payable 200,000 620,927
Accounts Payable 292,540 592,127
Advances from related Parties -- --
Note Payable Current Portion 195,344 226,335
Capital Lease obligation -- --
Income Taxes Payable 113,670 58,445
Accrued expenses 151,376 --
Accrued Property Taxes 71,644 --
Current Deferred Tax Liabilities -- 2,026
---------- ----------
Total current Liabilities 1,024,574 1,499,860
Notes Payable Long Term -- --
Capital Lease Obligation -- --
Deferred Tax Liabilities 92,778 71,376
---------- ----------
Total long term Liabilities 92,778 71,376
---------- ----------
Total Liabilities 1,117,352 1,571,236
Commitments and contingencies
Shareholders equity
Convertible Series A Preferred -- --
Common Stock 3,695,221 @ $0.10 par value 369,211 334,261
Capital in excess of par value 1,012,057 5,233,799
Stock Subscription Proceeds -- 50,000
Retained Earnings 1,559,612 (1,451,365)
Total Shareholders Equity 2,940,880 4,166,695
---------- ----------
Total Liabilities and
shareholders equity 4,058,231 5,737,931
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
For the Three Months Ended Dec. 31, 1997 and Dec. 31, 1996
Dec. 31, Dec. 31,
1997 1996
---------- ----------
Net Sales 2,292,685 1,970,562
Cost of Sales 1,617,250 1,332,854
---------- ----------
Gross Profit (Loss) 675,435 637,708
Operating Costs and Expense 641,738 551,214
Income (Loss) from Operations 33,697 86,494
Other Expense (2,565) 18,021
Income (Loss) before Provision for taxes 36,262 68,473
Provision for Income taxes 10,879 51,478
---------- ----------
Net (Loss) 25,384 16,995
Net income per common share:
Primary 0.01 0.01
Fully diluted 0.01 0.01
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Tone Products, Inc.
Consolidated Statements of Shareholders' Equity
For the Year Ended September 30, 1997 and
The Three Months Ended December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Tone Products, Inc. Tone Products, Inc.
(An Illinois Corporation) (An Arkansas Corporation)
------------------------ -----------------------------------------------
Common Common Preferred Preferred Common Common
Shares Stock Shares Stock Shares Stock
------ ----- ------ ----- ------ -----
Balance, December 31, 1995,
<S> <C> <C> <C> <C> <C> <C>
previously reported 600 $ 60,000 -- -- -- --
Shares outstanding prior to reorganization -- -- -- -- 3,093,750 $309,375
One for four reverse stock split prior
to reorganization -- -- -- -- (2,319,998) (231,999)
Shares issued in the acquisition of
Tone Products, Inc. (an Illinois
corporation) by the Company (600) (60,000) -- -- 2,275,000 227,500
------ ------- ----- ----- ----------- -------
Balance, December 31, 1995, as restated -- -- -- -- 3,048,752 304,876
Distribution of a building to the
Tone Products, Inc. (an Illinois
Corporation) shareholders -- -- -- -- -- --
Shares subscribed -- -- -- -- -- --
Net income -- -- -- -- -- --
------ ------- ----- ----- ----------- -------
Balance, September 30, 1996 -- -- -- -- 3,048,752 304,876
Shares issued in payment for debt -- -- -- -- 64,500 6,450
Shares subscribed -- -- -- -- -- --
Issuance of subscribed shares -- -- -- -- 578,850 57,885
Net income -- -- -- -- -- --
------ ------- ----- ----- ----------- --------
Balance, September 30, 1997 -- -- -- -- 3,692,102 369,211
Net income -- -- -- -- -- --
------ ------- ----- ----- ----------- --------
Balance, December 31, 1997 -- -- -- -- $ 3,692,102 $369,211
====== ======= ===== ===== =========== ========
Stock
Paid-in Subscription Retained
Capital Proceeds Earnings Total
--------- -------- -------- -------
Balance, December 31, 1995,
previously reported $ 50,127 -- $1,170,996 $ 1,281,123
Shares outstanding prior to reorganization (309,375) -- -- --
One for four reverse stock split prior
to reorganization 231,999 -- -- --
Shares issued in the acquisition of
Tone Products, Inc. (an Illinois
corporation) by the Company (117,500) (50,000) -- --
----------- ---------- ---------- -----------
Balance, December 31, 1995, as restated (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 (204,308) 988,000 1,230,073 2,318,641
Shares issued in payment for debt 122,550 -- -- 129,000
Shares subscribed -- 163,700 -- 163,700
Issuance of subscribed shares 1,093,815 (1,151,700) -- --
Net income -- -- 304,155 304,155
----------- ---------- ---------- -----------
Balance, September 30, 1997 1,012,057 -- 1,534,228 2,915,496
Net income -- -- 25,384 --
----------- ---------- ---------- -----------
Balance, December 31, 1997 $1,012,057 -- $1,559,612 $2,940,880
=========== ========== ========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For the Three Months Ended Dec. 31, 1997 and Dec. 31, 1996
Dec. 31, Dec. 31,
1997 1996
--------- ---------
Cash flows from operating activities
Net income $ 25,384 $ 16,055
Adjustments to reconcile income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 72,097 107,212
Decrease (increase) in assets:
Accounts receivable (68,163) 137,646
Inventory 125,491 (69,814)
Prepaid expenses (4,836) (30,080)
Deferred tax asset -- --
Other assets 4,090 --
Increase (decrease) in liabilities:
Line of credit payable -- (18,800)
Accounts payable (277,224) (51,242)
Advances to shareholders -- --
Income taxes payable (141,090) 30,221
Deferred tax liabilities -- (46,506)
--------- ---------
Cash provided by operating activities (264,251) 75,632
--------- ---------
Cash flows provided by (used in) investing activities:
Purchases of property and equipment (96,119) (23,573)
Disposal of Gibson -- (84,120)
Acquisition of subsidiary -- 155,746
--------- ---------
Cash (used in) investing activities (96,119) 48,053
--------- ---------
Cash flows provided by (used in) financing activities:
Principle payments of debt (20,046) (11,941)
Proceeds form notes payable -- --
Subscription of common stock -- 20,700
--------- ---------
Cash provided by financing activities (20,046) 8,759
--------- ---------
Net increase (decrease) in cash (380,416) 132,444
Cash at beginning of period 349,617 84,120
--------- ---------
Cash at end of period ($ 30,799) $ 216,564
========= =========
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For the Three Months Ended Dec. 31, 1997 and Dec. 31, 1996
Supplemental Disclosure of Cash Flow Information
1997 1996
--------- ----------
Interest $ 15,666 $ 27,476
Income taxes $ 10,879 $ 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 -- ($ 750,000)
Assets acquired -- 5,642,759
Liabilities incurred -- (1,798,505)
Stock subscription proceeds -- (4,000,000)
Conversion of debt to stock:
Liabilities satisfied -- 129,000
Stock issued -- (129,000)
The accompanying notes are an integral part
of the consolidated financial statements.
<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, 1997,
and the three months ended December 31, 1996 was 3,692,102 and 3,218,182,
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, December 31,
1997 1996
------------------------------
Leasehold improvements $ 456,115 $ 369,889
Machinery and equipment 2,396,428 2,861,792
Furniture and fixtures 103,365 96,252
Vehicles 311,789 288,338
----------- -----------
3,276,697 3,616,271
Less: accumulated depreciation (1,850,129) (1,617,695)
----------- -----------
$ 1,426,568 $ 1,998,576
=========== ===========
Depreciation expense was $72,097 and $80,191 for the three months ended December
31, 1997 and December 31, 1996, respectively.
<PAGE>
3. Income Tax
The components of the provision for income taxes are as follows:
December 31, December 31,
1997 1996
------------ ------------
Current expense:
Federal $ 9,379 $36,533
State 1,500 9,425
------- -------
$10,879 $45,958
------- -------
Deferred expense (benefit):
Federal -- 4,688
State -- 832
------- -------
5,520
------- -------
$10,879 $51,478
======= =======
4. Commitments and Contingencies
The Company has operating leases for certain of its facilities. Future
minimum lease payments at December 31, 1997, are as follows:
Due To
Total Related Parties
-------- --------
1998 $390,132 $375,012
1999 -- --
-------- --------
Total future minimum lease payments $390,132 $375,012
======== ========
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.
<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
three-months ended December 31, 1997.
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,
1997, the Company paid the entities $108,307 in rent.
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 $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 three months ended
December 31, 1997 was 3,722,890 and was used in calculating the earnings
per share for the three months ended December 31, 1997 and 1996
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 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
===========
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, 1997 was
$8,842.
<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. Sales have increased dramatically as a result of increased
sauce sales and fruit juice sales. Sales at Tone are up $322,123, which
represents a 16% increase from the same period in the prior year.
Net income increased by $8,389 which represents an increase of 33% over the same
period in the previous 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
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: February 15, 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 DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
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<RECEIVABLES> 1,025
<ALLOWANCES> 0
<INVENTORY> 874
<CURRENT-ASSETS> 2,179
<PP&E> 3,276
<DEPRECIATION> 1,850
<TOTAL-ASSETS> 4,058
<CURRENT-LIABILITIES> 1,024
<BONDS> 0
0
0
<COMMON> 369
<OTHER-SE> 2,571
<TOTAL-LIABILITY-AND-EQUITY> 4,058
<SALES> 2,293
<TOTAL-REVENUES> 2,293
<CGS> 1,617
<TOTAL-COSTS> 2,259
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<INTEREST-EXPENSE> 16
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</TABLE>
