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, 1999.
Commission File Number 0-4289
TONE PRODUCTS, INC.
-------------------
(Exact name of registrant as specified in its charter)
ARKANSAS 71-0390957
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(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
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(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 July 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
June 30, 1999 and June 30, 1998 (Unaudited)
June 30, June 30,
Current Assets 1999 1998
--------- ----------
Cash 382,432 212,655
Accounts Receivable 1,366,157 1,385,483
Due from Related party 9,047 13,460
Inventory 1,651,705 814,199
Prepaids 36,893 15,289
Deferred Tax Asset 18,703 18,108
---------- ----------
Total Current Assets 3,464,937 2,459,194
Property, Net 1,789,421 1,595,404
Other Assets 47,673 1,457
Goodwill 718,024 814,614
---------- ----------
Total Assets 6,020,055 4,870,669
Current Liabilities
Line of Credit Payable 820,726 315,000
Accounts Payable 869,686 647,618
Note Payble Current Portion 396,430 371,323
Income Taxes Payable 3,600 15,349
Accrued expenses 161,612 130,682
Accrued Property Taxes 69,444 70,422
Current Defferred Tax Liabilities -- --
---------- ----------
Total current Liabilites 2,321,498 1,550,394
Notes Payble Long Term -- --
Deferred Tax Liabilities 62,150 197,293
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Total long term Liabilities 62,150 197,293
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Total Liabilities 2,362,610 1,747,687
Commitments and contingencies
Shareholders equity
Common Stock 3,583,100 @ $0.10 par value 358,310 369,221
Capital in excess of par value 1,022,958 1,012,047
Capital Stock Commitment 21,136
Retained Earnings 2,394,003 1,741,714
Treasury Stock (160,000)
Total Shareholders Equity 3,636,407 3,122,982
---------- ----------
Total Liablilities and
shareholders equity 6,020,055 4,870,669
<PAGE>
Tone Products, Inc.
Consolidated Statement of Operations
For the Three Months Ended June 30 1999 and 1998 (Unaudited)
June 30, June 30,
1999 1998
--------- ---------
Net Sales 3,699,867 3,362,935
Cost of Sales 2,612,132 2,492,340
Gross Profit (Loss) 1,087,735 870,595
Operating Costs and Expense 713,218 636,286
Income (Loss) from Operations 374,517 234,309
Other Expense (Income) 15,000 13,671
Income (Loss) before Provision for taxes 359,517 220,638
Provision for income taxes 143,807 92,461
Net (Loss) 215,710 128,177
Net income per common share:
Primary 0.06 0.04
Fully diluted 0.06 0.04
Tone Products, Inc
Consolidated Statement of Operations
For the Nine Months Ended June 30 1999 and 1998 (Unaudited)
June 30, June 30,
1999 1998
--------- ---------
Net Sales 8,716,524 8,074,555
Cost of Sales 6,076,734 5,781,877
Gross Profit (Loss) 2,639,790 2,292,678
Operating Costs and Expense 2,084,752 1,883,194
Income (Loss) from Operations 555,038 409,484
Other Expense 16,664 39,999
Income (Loss) before Provision for taxes 538,374 369,485
Provision for income taxes 240,000 162,000
Net (Loss) 298,374 207,485
Net income per common share:
Primary 0.09 0.06
Fully diluted 0.09 0.06
<PAGE>
<TABLE>
<CAPTION>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 1999 and 1998 (Unaudited)
<S> <C> <C>
Cash flows from operating activities 1999 1998
---- -----
Net income 298,374 207,485
Adjustments to reconcile income (loss) to net cash
provided by operating activities:
Depreciation and amortization 268,716 209,126
Decrease (increase) in assets:
Accounts receivable (391,001) (450,136)
Inventory (571,339) 235,858
Prepaid expenses (16,469) (4,064)
Other assets (92) (431,663)
Increase (decrease) in liabilities:
Line of credit payable 580,726 115,000
Accounts payable 473,402 290,367
Accrued Expenses (35,376) (15,850)
Income taxes payable (152,936) (77,442)
Deferred tax liabilities -- 103,835
Cash provided by operating activities 454,005 182,516
Cash flows provided by (used in) investing activities:
Purchases of property and equipment (617,583) (342,412)
Acquisition of TJ's -- (151,000)
Cash (used in) investing activities (617,583) 475,412
Cash flows provided by (used in) financing activities:
Principle payments of debt (45,789) (65,309)
Proceeds from notes payable 133,456 221,243
Cash provided by financing activities 87,667 155,934
Net increase (decrease) in cash (75,911) (136,962)
Cash at beginning of period 458,343 349,617
Cash at end of period 382,432 212,655
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 41,750 48,076
Income taxes 253,612 293,000
Supplemental Schedule of Non-Cash Investing and Financing Activities
Acquisition of subsidiary:
Asets acquired -- 151,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tone Products, Inc.
Consolidated Statements of Shareholders' Equity
For the Year Ended September 30, 1998 and
The Nine Months Ended June 30, 1999 (Unaudited)
Common Stock
Common Common Committed Treasury
Shares Stock To Be Issued Stock
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
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
----------- ----------- ----------- -----------
Shares retired that were exchanged in
the reorganization (reverse merger) of
Tone Products, Inc. (112,490) $ (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
----------- ----------- ----------- -----------
Common stock Purchased
Treasury Stock Purchased (160,000)
Stock issued acquisition of TJ's 3,488 349
Net Income
----------- ----------- ----------- -----------
Balance, June 30, 1999 3,583,100 $ 358,310 $ 21,136 $ (160,000)
=========== =========== =========== ===========
Table is continued below
- ------------------------
Stock
Paid-in Subscription Retained
Capital Proceeds Earnings Total
----------- ----------- ---------- ----------
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
----------- ----------- ---------- ----------
Shares retired that were exchanged in
the reorganization (reverse merger) of
Tone Products, Inc. 11,250
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 $ 1,023,307 $ 2,095,629 $ 3,498,033
----------- ----------- ----------- -----------
Common stock Purchased
Treasury Stock Purchased $ (160,000)
Stock issued acquisition of TJ's (349)
Net Income 298,374 $ 298,374
----------- ----------- =========== ===========
Balance, June 30, 1999 $ 1,022,958 $ 2,394,003 $ 3,636,407
=========== =========== =========== ===========
</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, 1999, and
the three months ended June 30, 1998 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:
June 30, June 30,
1999 1998
---- ----
Leasehold improvements $ 581,651 $ 484,811
Machinery and equipment 2,912,336 2,361,564
Furniture and fixtures 231,323 220,748
Vehicles 340,996 331,789
----------- -----------
4,066,306 3,572,044
Less: accumulated depreciation (2,276,885) (1,712,821)
----------- -----------
$ 1,789,421 $ 1,438,348
=========== ===========
Depreciation expense was $221,135 and $189,765 for the six months ended June 30,
1999 and June 30, 1998, respectively.
<PAGE>
3. Income Tax
The components of the provision for income taxes are as follows:
June 30, June 30,
1999 1998
---- ----
Current expense:
Federal $203,000 $137,000
State 37,000 25,000
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$240,000 $162,000
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Deferred expense (benefit):
Federal $ 18,703 --
State -- --
-------- --------
-------- --------
$158,703 $162,000
======== ========
4. Commitments and Contingencies
The Company has operating leases for certain of its facilities. Future
minimum lease payments at June 30, 1999, are as follows:
Due To
Total Related Parties
----- ---------------
1999 $118,003 $ 118,003
2000 472,014 472,014
-------- --------
Total future minimum lease payments $590,017 $590,017
======== ========
<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 nine-months ended June
30, 1999.
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, 1999, the
Company paid the entities $354,010 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 June 30, 1999 was 3,566,378
and 3,726,378 was used in calculating the earnings per share for the
six months ended June 30, 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 3rd fiscal quarter ended June 30, 1999, increased 10% to
$3,699,867 from $3,362,935 in the same period last year. Net income for the 3rd
fiscal quarter ended June 30, 1999, increased 68% to $215,710 or $0.06 diluted
earnings per share from $128,177 or $0.04 diluted earnings per share last year.
Revenues for the 9 month period ended June 30, 1999, increased 8% to $8,716,524
from $8,074,555 in the same period last year. Net income for the 9 month period
ended June 30, 1999 increased 43% to $298,374 or $0.09 diluted earnings per
share form $207,485 or $0.06 diluted earnings per share in the year ago period.
Contributing to the revenue gains were our smoothie and cappuccino products, as
well as barbecue sauces. New customers were added in both categories during the
quarter.
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>
SIGNATURES
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 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 JUNE 30, 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> JUN-30-1999
<CASH> 382
<SECURITIES> 0
<RECEIVABLES> 1,366
<ALLOWANCES> 0
<INVENTORY> 1,651
<CURRENT-ASSETS> 3,464
<PP&E> 4,066
<DEPRECIATION> 2,276
<TOTAL-ASSETS> 6,020
<CURRENT-LIABILITIES> 2,362
<BONDS> 0
0
0
<COMMON> 358
<OTHER-SE> 3,299
<TOTAL-LIABILITY-AND-EQUITY> 6,020
<SALES> 3,699
<TOTAL-REVENUES> 3,699
<CGS> 2,612
<TOTAL-COSTS> 3,325
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> 359
<INCOME-TAX> 143
<INCOME-CONTINUING> 215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 215
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
