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, 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 3,597,612 on January 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
Dec. 31, 1998 and Dec. 31, 1997
Unaudited
Dec. 31, Dec. 31,
1998 1997
---- ----
Current Assets
Cash 239,362 227,226
Accounts Receivable 763,470 1,025,280
Due from Related party 8,060 19,070
Inventory 1,203,936 873,565
Prepaids 20,172 16,317
Deferred Tax Asset 18,703 18,108
---------- ----------
Total Current Assets 2,253,703 2,179,566
Property, Net 1,487,466 1,490,622
Other Assets 4,648 0
Goodwill 749,745 388,044
---------- ----------
Total Assets 4,495,562 4,058,231
Line of Credit Payable 214,954 200,000
Accounts Payable 359,279 292,540
Note Payble Current Portion 187,682 195,344
Capital Lease obligation 0 0
Income Taxes Payable (12,464) 113,670
Accrued expenses 207,020 151,376
Accrued Property Taxes 68,962 71,644
Current Defferred Tax Liabilities 0 0
---------- ----------
Total current Liabilites 1,025,433 1,024,574
Notes Payble Long Term 68,001 0
Capital Lease Obligation 0 0
Deferred Tax Liabilities 62,150 92,778
---------- ----------
Total long term Liabilities 130,151 92,778
---------- ----------
Total Liabilities 1,155,584 1,117,352
Commitments and contingencies
Shareholders equity
Common Stock 3,579,612 @ $0.10 par value 357,961 369,211
Common Stock Committed 21,136 --
Capital in excess of par value 863,307 1,012,057
Retained Earnings 2,097,574 1,559,612
Total Shareholders Equity 3,339,978 2,940,880
---------- ----------
Total Liablilities and
shareholders equity 4,495,562 4,058,232
<PAGE>
Tone Products, Inc.
Consolidated Statement of Operations
For the Three Months Ended Dec. 31, 1998, 1997
Unaudited
Dec. 31, Dec. 31,
1998 1997
---- ----
Net Sales 2,351,064 2,292,685
Cost of Sales 1,659,581 1,617,250
---------- ----------
Gross Profit (Loss) 691,483 675,435
Operating Costs and Expense 689,689 641,738
Income (Loss) from Operations 1,794 33,697
Other Expense (150) (2,565)
Income (Loss) before Provision for taxes 1,944 36,262
Provision for income taxes 0 10,879
---------- ----------
Net (Loss) 1,944 25,384
Net income per common share:
Primary 0.00 0.01
Fully diluted 0.00 0.01
<PAGE>
<TABLE>
<CAPTION>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended Dec. 31, 1998 and
For the Three Months Ended Dec. 31, 1997 and
1998 1997
---- ----
Cash flows from operating activities
<S> <C> <C>
Net income $ 1,944 $ 25,384
Adjustments to reconcile income (loss) to net cash
provided by operating activities:
Depreciation and amortization 89,572 72,097
Decrease (increase) in assets:
Accounts receivable 211,986 (68,163)
Inventory (123,570) 125,491
Prepaid expenses 252 (4,836)
Deferred tax asset 0 0
Other assets 0 4,090
Increase (decrease) in liabilities:
Line of credit payable (25,046) 0
Accounts payable (74,371) (277,224)
Accrued property taxes 68,962 0
Income taxes payable (169,000) (141,090)
Deferred tax liabilities 0 0
--------- ---------
Cash provided by operating activities (19,271) (264,251)
--------- ---------
Cash flows provided by (used in) investing activities:
Purchases of property and equipment (63,841) (96,119)
Acquisition of subsidiary 0 0
--------- ---------
Cash (used in) investing activities (63,841) (96,119)
--------- ---------
Cash flows provided by (used in) financing activities:
Principle payments of debt (20,046)
Proceeds from notes payable 24,131 0
Repurchase of common stock (160,000) 0
--------- ---------
Cash provided by financing activities (135,869) (20,046)
--------- ---------
Net increase (decrease) in cash (218,981) (380,416)
Cash at beginning of period 458,343 349,617
--------- ---------
Cash at end of period $ 239,362 ($ 30,799)
========= =========
</TABLE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended Dec. 31, 1998
Supplemental Disclosure of Cash Flow Information
1998
----
Interest $7,600
Income taxes $ 0
<PAGE>
<TABLE>
<CAPTION>
Tone Products, Inc.
Consolidated Statements of Shareholders' Equity
For the Year Ended September 30, 1998 and
The Three Months Ended December 31, 1998 (Unaudited)
Common Stock
Common Common Committed
Shares Stock To Be Issued
----------- ----------- ------------
<S> <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
Net Income
----------- ----------- -----------
Balance, December 31, 1998 3,579,612 $ 357,961 $ 21,136
=========== =========== ===========
(Continued)
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 (160,000)
Net Income 1,944
----------- ----------- ----------- -----------
Balance, December 31, 1998 $ 863,307 $ 2,097,573 $ 3,339,977
=========== =========== =========== ===========
</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, 1998,
and the three months ended December 31, 1997 was 3,597,612 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:
December 31, December 31,
1998 1997
----------- -----------
Leasehold improvements $ 498,676 $ 456,115
Machinery and equipment 2,511,262 2,861,792
Furniture and fixtures 111,766 96,252
Vehicles 509,280 288,338
----------- -----------
3,630,984 3,616,271
Less: accumulated depreciation (2,143,518) (1,617,695)
----------- -----------
$ 1,487,466 $ 1,998,576
=========== ===========
Depreciation expense was $89,572 and $72,097 for the three months ended December
31, 1998 and December 31, 1997, respectively.
<PAGE>
3. Income Tax
The components of the provision for income taxes are as follows:
Dec. 31, Dec. 31,
1998 1997
---- ----
Current expense:
Federal -- $ 9,379
State -- 1,500
------- -------
-- $10,879
------- -------
Deferred expense (benefit):
Federal $18,703 --
State -- --
------- -------
--
------- -------
$18,703 $10,879
======= =======
4. Commitments and Contingencies
The Company has operating leases for certain of its facilities. Future
minimum lease payments at December 31, 1998, are as follows:
Due To
Total Related Parties
-------- ---------------
1998 $250,820 $238,000
1999 -- --
-------- --------
Total future minimum lease payments $250,820 $238,000
======== ========
<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 December 31, 1998.
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,
1998, the Company paid the entities $123,700 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 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
December 31, 1998 was 3,722,890 and was used in calculating the earnings
per share for the six months ended March 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 three months ended December 31, 1998 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 December 31, 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 have increased as a result of increased sauce sales
and fruit juice sales. Revenues for the first fiscal quarter ended December 31,
1998, increased 2.5% to $2,351,064 from $2,292,685 in the same period last year.
Net income for the first fiscal quarter ended December 31,1998, decreased to
$1,944 from $25,384 last year. Increased expenses related to the development of
new products for release in the spring of 1999 were the cause of the decline in
net income.
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: February 12, 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 DECEMBER 31, 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-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 239
<SECURITIES> 0
<RECEIVABLES> 763
<ALLOWANCES> 0
<INVENTORY> 1,203
<CURRENT-ASSETS> 2,253
<PP&E> 3,630
<DEPRECIATION> 2,143
<TOTAL-ASSETS> 4,495
<CURRENT-LIABILITIES> 1,025
<BONDS> 0
0
0
<COMMON> 357
<OTHER-SE> 2,982
<TOTAL-LIABILITY-AND-EQUITY> 4,495
<SALES> 2,351
<TOTAL-REVENUES> 2,351
<CGS> 1,660
<TOTAL-COSTS> 2,349
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 2
<INCOME-TAX> 0
<INCOME-CONTINUING> 2
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
