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 March 31, 1999.
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 3,583,100 on April 28, 1999.
<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,
1998. 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
March 31 1999 and March 31, 1998 and 1999 (Unaudited)
March 31, March 31,
Current Assets 1999 1998
--------- ---------
Cash 162,390 186,243
Accounts Receivable 1,052,542 1,043,327
Due from Related party 5,360 16,370
Inventory 1,670,146 1,099,646
Prepaids 153,834 18,282
Deferred Tax Asset 18,703 18,108
--------- ---------
Total Current Assets 3,062,975 2,381,976
Property, Net 1,628,555 1,602,951
Other Assets 18,535 --
Goodwill 733,884 828,525
--------- ---------
Total Assets 5,443,948 4,813,452
Current Liabilities
Line of Credit Payable 729,954 540,000
Accounts Payable 746,932 550,404
Note Payble Current Portion 242,749 396,854
Income Taxes Payable 0 31,330
Accrued expenses 152,270 128,658
Accrued Property Taxes 52,644 53,622
Current Defferred Tax Liabilities -- --
--------- ---------
Total current Liabilites 1,924,548 1,700,868
Notes Payble Long Term -- --
Deferred Tax Liabilities 81,888 92,778
--------- ---------
Total long term Liabilities 81,888 92,778
--------- ---------
Total Liabilities 2,006,436 1,793,646
Commitments and contingencies
Shareholders equity
Common Stock 3,583,100 @ $0.10 par value 358,310 369,221
Capital in excess of par value 1,044,094 1,012,047
Retained Earnings 2,195,108 1,638,538
Treasury Stock -160,000 --
Total Shareholders Equity 3,437,512 3,019,806
--------- ---------
Total Liablilities and
shareholders equity 5,443,948 4,813,452
<PAGE>
Tone Products, Inc
Consolidated Statement of Operations
For the Three Months Ended March 31, 1999 and 1998 (Unaudited)
March 31, March 31,
1999 1998
---------- ----------
Net Sales $2,665,594 $2,418,972
Cost of Sales 1,876,682 1,738,801
Gross Profit (Loss) 788,912 680,171
Operating Costs and Expense 644,530 543,928
Income (Loss) from Operations 144,382 136,243
Other Expense -13,322 -2,237
Income (Loss) before Provision for taxes 157,704 138,480
Provision for income taxes 59,652 55,392
Net (Loss) 98,052 83,088
Net income per common share:
Primary 0.03 0.02
Fully diluted 0.03 0.02
Tone Products, Inc.
Consolidated Statement of Operations
For the Six Months Ended March 31, 1999 and 1998 (Unaudited)
March 31, March 31,
1999 1998
---------- ----------
Net Sales $5,016,659 $4,711,621
Cost of Sales 3,510,842 3,285,651
Gross Profit (Loss) 1,505,817 1,425,970
Operating Costs and Expense 1,367,759 1,256,962
Income (Loss) from Operations 138,058 169,008
Other Expense (Income) -21,072 -4,840
Income (Loss) before Provision for taxes 159,130 173,848
Provision for income taxes 59,652 69,539
Net (Loss) 99,478 104,309
Net income per common share:
Primary 0.03 0.03
Fully diluted 0.03 0.03
<PAGE>
<TABLE>
<CAPTION>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 1999 and 1998 (Unaudited)
Cash flows from operating activities
<S> <C> <C>
Net income 98,052 104,309
Adjustments to reconcile income (loss) to net cash
provided by operating activities:
Depreciation and amortization 179,144 145,871
Decrease (increase) in assets:
Accounts receivable -77,086 -107,980
Inventory -589,780 -49,589
Prepaid expenses 2,300 -2,943
Deferred tax asset -- --
Other assets -81,840 -294,220
Increase (decrease) in liabilities:
Line of credit payable 489,954 340,000
Accounts payable 403,157 179,866
Accrued Expenses -28,452 -16,948
Income taxes payable -156,536 -223,501
Deferred tax liabilities -- --
Cash provided by operating activities 238,913 74,865
Cash flows provided by (used in) investing activities:
Purchases of property and equipment -598,151 -268,704
Acquisition of TJ's -- -151,000
Cash (used in) investing activities -598,151 -419,704
Cash flows provided by (used in) financing activities:
Principle payments of debt -39,778 -39,778
Proceeds from notes payable 103,063 221,243
Cash provided by financing activities 63,285 181,465
Net increase (decrease) in cash -295,953 -163,374
Cash at beginning of period 458,343 349,617
Cash at end of period 162,390 186,243
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 1999 and 1998 (Unaudited)
Supplemental Disclosure of Cash Flow Information
1999 1998
---- ----
Interest 22,735 31,166
Income taxes 346,957 293,000
Supplemental Schedule of Non-Cash Investing and Financing Activities
Disposal of subsidiary:
Asets 0 151,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tone Products, Inc.
Consolidated Statements of Shareholders' Equity
For the Year Ended September 30, 1998 and
The Six Months Ended March 31, 1999 (Unaudited)
Common Stock Stock
Common Common Committed Treasury Paid-in Subscription
Shares Stock To Be Issued Stock Capital Proceeds
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1996 3,048,752 304,876 -204,308 988,000
Shares issued in payment
for debt 64,500 6,450 122,550 --
Shares subscribed -- -- -- 163,700
Issuance of subscribed shares 578,850 57,885 1,093,815 -1,151,700
Net income -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1997 3,692,102 369,211 1,012,057 --
---------- ---------- ---------- ---------- ---------- ----------
Shares retired that were exchanged in
the reorganization (reverse merger) of
Tone Products, Inc. -112,490 -$11,250 11,250
Shares committed and fully paid but not
issued in the acquisition of T.J. Distributing $ 21,136
Net income
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1998 3,579,612 $ 357,961 $ 21,136 $1,023,307
---------- ---------- ---------- ---------- ---------- ----------
Common stock Purchased
Treasury Stock Purchased -160,000
Stock issued acquisition of TJ's 3,488 349 -349
Net Income
---------- ---------- ---------- ---------- ---------- ----------
Balance, March 31, 1999 3,583,100 $ 358,310 $ 21,136 -$160,000 $1,022,958
========== ========== ========== ========== ========== ==========
Table continued on next page.
<PAGE>
Tone Products, Inc.
Consolidated Statements of Shareholders' Equity
For the Year Ended September 30, 1998 and
The Six Months Ended March 31, 1999 (Unaudited)
(Continued)
Retained
Earnings Total
---------- ----------
Balance, September 30, 1996 1,230,073 2,318,641
Shares issued in payment
for debt -- 129,000
Shares subscribed -- 163,700
Issuance of subscribed shares -- --
Net income 304,155 304,155
---------- ----------
Balance, September 30, 1997 1,534,228 2,915,496
---------- ----------
Shares retired that were exchanged in
the reorganization (reverse merger) of
Tone Products, Inc.
Shares committed and fully paid but not
issued in the acquisition of T.J. Distributing 21,136
Net income 561,401 561,401
---------- ----------
Balance, September 30, 1998 $2,095,629 $3,498,033
---------- ----------
Common stock Purchased
Treasury Stock Purchased -$160,000
Stock issued acquisition of TJ's
Net Income 99,478 $ 99,478
---------- ==========
Balance, March 31, 1999 $2,195,107 $3,437,511
========== ==========
</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 March 31, 1999, and
the three months ended March 31, 1999 was 3,583,100 and 3,695,221,
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:
March 31, March 31,
1999 1998
----------- -----------
Leasehold improvements $ 567,740 $ 456,115
Machinery and equipment 2,656,997 2,583,776
Furniture and fixtures 111,766 144,655
Vehicles 336,148 331,789
----------- -----------
3,845,783 3,516,336
Less: accumulated depreciation (2,217,229) (1,913,385)
----------- -----------
$ 1,628,554 $ 1,602,950
=========== ===========
Depreciation expense was $147,423 and $126,510 for the six months ended
March 31, 1999 and March 31, 1998, respectively.
<PAGE>
3. Income Tax
The components of the provision for income taxes are as follows:
March 31, March 31,
1999 1998
------- -------
Current expense:
Federal $48,513 $57,370
State 11,139 12,169
------- -------
$59,652 $69,539
------- -------
Deferred expense (benefit):
Federal $18,703 --
State -- --
------- -------
------- -------
$18,703 $69,539
======= =======
4. Commitments and Contingencies
The Company has operating leases for certain of its facilities. Future
minimum lease payments at March 31, 1999, are as follows:
Due To
Total Related Parties
----- ---------------
1999 $236,007 $ 236,007
2000 472,014 472,014
-------- --------
Total future minimum lease payments $708,021 $708,021
======== ========
<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 March
31, 1999.
6. Related Party Transactions
The Company leases from entities owned by certain of its shareholders
certain operating facilities. For the six-month period ended March 31, 1999, the
Company paid the entities $236,007 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 three months ended
March 31, 1999 was 3,726,378 and was used in calculating the earnings per
share for the six months ended March 31, 1999 and 1998 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 March 31, 1999 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 three months ended March 31, 1999 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 have increased as a result of increased sauce
sales.
Revenues for the 2nd fiscal quarter ended March 31, 1999, increased 10% to
$2,665,594 from $2,418,972 in the same period last year. Net income for the 2nd
fiscal quarter ended March 31, 1999, increased to $98,052 or $.03 diluted
earnings per share from $83,088 or $.02 diluted earnings per share last year.
Revenues for the 6 month period ended March 31, 1999, increased 6% to $5,016,659
from $4,711,621 in the same period last year. Net income for the 6 month period
ended Marsh 31, 1999, decreased 5% to $99,478 or $.03 diluted earnings per share
from $104,309 or $.03 diluted earnings per share in the year ago period. The
decrease in net income is a result of expenses related to new smoothie and
frozen cappacino products. Specifically the cost dispensing equipment and
Patent/legal expenses. Some level of these expenses will continue, however
revenue from sales of these products should more than offset the expenses after
this initial year.
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: April 15, 1999 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 MARCH 31, 1999 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-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 162
<SECURITIES> 0
<RECEIVABLES> 1,052
<ALLOWANCES> 0
<INVENTORY> 1,670
<CURRENT-ASSETS> 3,062
<PP&E> 3,846
<DEPRECIATION> 2,217
<TOTAL-ASSETS> 5,444
<CURRENT-LIABILITIES> 1,925
<BONDS> 0
0
0
<COMMON> 358
<OTHER-SE> 3,078
<TOTAL-LIABILITY-AND-EQUITY> 5,444
<SALES> 2,666
<TOTAL-REVENUES> 2,666
<CGS> 1,876
<TOTAL-COSTS> 2,521
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22
<INCOME-PRETAX> 159
<INCOME-TAX> 60
<INCOME-CONTINUING> 99
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
