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 31,2000.
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 3,235,200 on February 28, 2000.
<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,
1999. 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 Financial Statements
(Unaudited)
As of March 31, 2000 and
For the Three and Six Month Periods Ended
March 31, 2000 and 1999
<PAGE>
Tone Products, Inc.
Consolidated Balance Sheet
(Unaudited)
March 31, 2000
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and equivalents $ 261,666
Accounts receivable - trade, net 1,216,374
Note receivable 55,150
Inventories 1,649,672
Prepaid expenses 30,274
Deferred tax asset 700
----------
Total current assets 3,213,836
Property and equipment, net 1,597,021
Intangible assets, net 698,602
Other assets 31,186
----------
Total assets $5,540,645
==========
The accompanying notes are an integral part of the consolidated
financial statements.
1
<PAGE>
Tone Products, Inc.
Consolidated Balance Sheet
(Unaudited)
March 31, 2000
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 570,726
Accounts payable - trade 628,481
Accrued expenses 236,751
Notes payable, current maturities 138,990
Income taxes payable 77,039
----------
Total current liabilities 1,651,987
Notes payable, net of current maturities 215,654
Deferred tax liability 66,584
----------
Total liabilities 1,934,225
----------
Commitments and contingencies
Shareholders' equity:
Convertible Series A preferred stock;
$10 par value; 500,000 shares
authorized; none issued and outstanding
at March 31, 2000
----------
Common stock; $0.10 par value; 50,000,000
shares authorized; 3,194,923 shares
issued and outstanding at
March 31, 2000 319,492
Additional paid-in capital 773,556
Retained earnings 2,513,372
----------
Total shareholders' equity 3,606,420
----------
Total liabilities and shareholders' equity $5,540,645
==========
The accompanying notes are an integral part of the consolidated
financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
Tone Products, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three and Six Month Periods Ended March 31, 2000 and 1999
- -------------------------------------------------------------------------------------------------------------------------
Three Month Periods Six Month Periods
Ended March 31, Ended March 31,
--------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $2,861,507 $2,665,594 $5,430,361 $5,016,659
Cost of sales 1,966,792 1,876,682 3,858,019 3,510,842
---------- ---------- ---------- ----------
Gross profit 894,715 788,912 1,572,342 1,505,817
Operating costs and expenses 698,861 644,530 1,396,963 1,367,759
---------- ---------- ---------- ----------
Income from operations 195,854 144,382 175,379 138,058
Other income 5,584 13,322 11,301 21,072
---------- ---------- ---------- ----------
Income before provision for income taxes 201,438 157,704 186,680 159,130
Provision for income taxes 87,910 59,652 90,408 59,652
---------- ---------- ---------- ----------
Net income $ 113,528 $ 98,052 $ 96,272 $ 99,478
========== ========== ========== ==========
Net income per share, basic and diluted $ 0.04 $ 0.03 $ 0.03 $ 0.03
========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
3
<PAGE>
Tone Products, Inc.
Consolidated Statements of Shareholders' Equity
(Unaudited)
For the Six Month Period Ended March 31, 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock Additional
Common Common Committed Paid-in Retained
Shares Stock To Be Issued Capital Earnings Total
------ ----- ------------ ------- -------- -----
Balance, September 30, 1999 3,235,200 $ 323,520 $ 15,364 $ 804,746 $ 2,417,100 $ 3,560,730
Cash issued in lieu of
committed shares -- -- (15,364) 5,059 -- (10,305)
Shares repurchased by the Company
and retired (40,277) (4,028) -- (36,249) -- (40,277)
Net income -- -- -- -- 96,272 96,272
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 2000 3,194,923 $ 319,492 -- $ 773,556 $ 2,513,372 $ 3,606,420
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integralpart of the consolidated financial statements.
4
<PAGE>
Tone Products, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Month Periods Ended March 31, 2000 and 1999
- ------------------------------------------------------------------------------------------------------
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 96,272 $ 99,478
Adjustments to reconcile income
to net cash provided by operating activities:
Depreciation and amortization 209,200 177,718
Decrease (increase) in assets:
Accounts receivable - trade, net (166,965) (77,086)
Inventories 75,800 (589,780)
Prepaid expenses 14,230 2,300
Deferred tax asset 227 --
Other assets (88,688) (81,840)
Increase (decrease) in liabilities:
Accounts payable - trade 225,724 403,157
Accrued expenses (128,262) (28,452)
Income taxes payable 70,635 (156,536)
Deferred tax liability 65,314 --
--------- ---------
Cash provided by (used in) operating activities 373,487 (251,041)
--------- ---------
Cash flows provided by (used in) investing activities
Purchase of property and equipment 75,542 (598,151)
--------- ---------
Cash provided by (used in) investing activities 75,542 (598,151)
--------- ---------
The accompanying notes are an integral part of the consolidated financial statements.
5
<PAGE>
Tone Products, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Month Periods Ended March 31, 2000 and 1999
- -------------------------------------------------------------------------------------------------------------
2000 1999
---- ----
Cash flows provided by (used in) financing activities:
Proceeds from (payments on) lines of credit $(266,279) $ 489,954
Payment on notes payable (43,750) (39,778)
Proceeds from the issuance of notes payable -- 103,063
Cash issued in lieu of committed shares (10,305) --
Purchase and retirement of Company common stock (40,277) --
--------- ---------
Cash provided by (used in) financing activities (360,611) 553,239
--------- ---------
Net increase (decrease) in cash 88,418 (295,953)
Cash at beginning of period 173,248 458,343
--------- ---------
Cash at end of period $ 261,666 $ 162,390
========= =========
Supplemental Disclosure of Cash Flow Information
2000 1999
---- ----
Interest paid $ 39,236 $ 22,735
Income taxes paid -- $ 346,957
The accompanying notes are an integral part of the consolidated financial statements.
6
</TABLE>
<PAGE>
Tone Products, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
As of March 31, 2000
For the Six Month Periods Ended March 31, 2000 and 1999
- --------------------------------------------------------------------------------
1. Basis of Presentation
---------------------
In the opinion of the management of Tone Products, Inc. (the "Company"),
the accompanying unaudited condensed financial statements contain all
adjustments, consisting of only normal recurring adjustments necessary to
present fairly its financial position as of March 31, 2000, the results of
its operations for the three month and six month periods ended March 31,
2000 and 1999 and the related condensed statements of shareholders' equity
and cash flows for the six month periods ended March 31, 2000 and 1999.
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 the rules and
regulations promulgated by the Securities and Exchange Commission. The
interim unaudited consolidated financial statements should be read in
conjunction with the financial statements and footnotes included in the
Company's Annual Report on Form 10-KSB for the year ended September 30,
1999.
2. Property and Equipment
----------------------
At March 31, 2000, property and equipment consisted of the following:
Property and equipment $ 2,960,743
Furniture and fixtures 207,342
Vehicles 338,679
Leasehold improvements 581,651
------------
4,088,415
Less: accumulated depreciation (2,491,394)
-----------
Total property and equipment $ 1,597,021
============
Depreciation expense for the three month periods ended March 31, 2000 and
1999 was $88,740 and $74,729, respectively and for the six month periods
ended March 31, 2000 and 1999 was $177,480 and $147,423, respectively.
The accompanying notes are an integral part
of the consolidated financial statements.
7
<PAGE>
Tone Products, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
As of March 31, 2000
For the Six Month Periods Ended March 31, 2000 and 1999
- --------------------------------------------------------------------------------
3. Income Taxes
------------
The components of the provision for income taxes for the six month periods
ended March 31, 2000 and 1999 are:
2000 1999
---- ----
Current tax expense:
Federal $ 83,299 $ 48,513
State 11,886 11,139
---------- ----------
95,185 59,652
---------- ----------
Deferred tax expense (benefit):
Federal (3,879) -
State (898) -
---------- ----------
(4,777) -
---------- ----------
Total provision $ 90,408 $ 59,652
========== ==========
Significant components of the Company's deferred income tax assets and
liabilities as of March 31, 2000 are:
2000
----
Deferred income tax asset:
State taxes $ 3,893
Other 987
---------
Total deferred income tax asset 4,880
Valuation allowance -
---------
Net deferred income tax asset 4,880
---------
Deferred income tax liability:
Depreciation 65,760
---------
Total deferred income tax liability 65,760
---------
Net deferred income tax liability $ 60,880
=========
The accompanying notes are an integral part
of the consolidated financial statements.
8
<PAGE>
Tone Products, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
As of March 31, 2000
For the Six Month Periods Ended March 31, 2000 and 1999
- --------------------------------------------------------------------------------
3. Income Taxes, Continued
-----------------------
Reconciliation of the effective tax rate to the U.S. statutory rate for the
six month periods ended March 31, 2000 and 1999 is as follows:
2000 1999
---- ----
Tax expense at U.S. statutory rate 34.0 % 34.0 %
State tax provision 3.8 7.0
Non-deductible expenses 9.4 -
Other - (3.5)
------- -------
Effective income tax rate 47.2 % 37.5 %
======= =======
4. Related Party Transactions
--------------------------
Facilities Operating Leases
The Company leases its facilities from entities owned by major
shareholders. For the three month periods ended March 31, 2000 and 1999,
the Company paid facility rent of $121,731 and $112,307, respectively and
for the six month periods ended March 31, 2000 and 1999 paid facility rent
of $235,166 and $236,007, respectively.
5. Commitments
-----------
The Company leases its facilities on operating leases with future minimum
lease payments at March 31, 2000, as follows:
2001 $ 319,738
2002 82,008
2003 56,712
------------
Total future minimum lease payments $ 458,458
============
The accompanying notes are an integral
part of the consolidated financial statements.
9
<PAGE>
Tone Products, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
As of March 31, 2000
For the Six Month Periods Ended March 31, 2000 and 1999
- --------------------------------------------------------------------------------
6. Earnings Per Share
------------------
The computation of earnings per common share for the three and six month
periods ended March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
For the Three Month
Periods Ended March 31,
-----------------------
2000 1999
---- ----
<S> <C> <C>
Basic earnings per common share:
Net income (numerator) $ 113,528 $ 98,052
Weighted-average shares outstanding
(denominator) 3,235,200 3,583,100
---------- ----------
Basic earnings per common share $ 0.04 $ 0.03
========== ==========
Diluted earnings per common share:
Net income (numerator) $ 113,528 $ 98,052
---------- ----------
Weighted-average shares outstanding 3,235,200 3,583,100
Shares committed to be issued -- 13,793
Shares outstanding for the diluted
earnings per common share calculation
after assumed issuance(denominator) 3,235,200 3,596,893
---------- ----------
Diluted earnings per common share $ 0.04 $ 0.03
========== ==========
For the Six Month
Periods Ended March 31,
-----------------------
2000 1999
---- ----
Basic earnings per common share:
Net income (numerator) $ 96,272 $ 99,478
Weighted-average shares outstanding
(denominator) 3,726,378 3,726,378
---------- ----------
Basic earnings per common share $ 0.03 $ 0.03
========== ==========
Diluted earnings per common share:
Net income (numerator) $ 96,272 $ 99,478
---------- ----------
Weighted-average shares outstanding 3,726,378 3,726,378
Shares committed to be issued -- 13,793
Shares outstanding for the diluted
earnings per common share calculation
after assumed issuance (denominator) 3,726,378 3,740,171
---------- ----------
Diluted earnings per common share $ 0.03 $ 0.03
========== ==========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
10
<PAGE>
Tone Products, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
As of March 31, 2000
For the Six Month Periods Ended March 31, 2000 and 1999
- --------------------------------------------------------------------------------
7. Common Stock
------------
Shares Committed
In 1998, the Company committed to issue 13,793 shares of its common stock
at a fair value of $21,136 over a four-year period as part of the purchase
price of a business. In the year ended September 30, 1999, the Company
issued 3,488 of the committed shares. During the six month period ended
March 31, 2000 the Company paid $10,305 in lieu of the remaining committed
shares and recognized additional paid-in capital of $5,059. Treasury Stock
During the six month period ended March 31, 2000, the Company also
repurchased 40,277 shares of its common stock for $40,277.
8. Geographical Business Segments
------------------------------
The Company operates in two geographical business segments. Each of the
business segments are separate legal entities and each operate in a
distinct geographical area with unique product lines. Certain financial
information is presented below:
<TABLE>
<CAPTION>
Tone Fun City
Products, Inc. Popcorn, Inc. Total
-------------- ------------- -----
<S> <C> <C> <C>
Three month period ended March 31, 2000:
Revenue $ 2,301,193 $ 560,314 $ 2,861,507
EBITDA 242,067 91,653 333,720
Three month period ended March 31, 1999:
Revenue 2,080,983 584,611 2,665,594
EBITDA 185,181 77,501 262,682
Six month period ended March 31, 2000:
Revenue 4,320,341 1,110,020 5,430,361
EBITDA 361,972 85,242 447,214
Revenue 3,862,251 1,154,408 5,016,659
EBITDA 301,094 57,743 358,837
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
12
<PAGE>
Tone Products, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
As of March 31, 2000
For the Six Month Periods Ended March 31, 2000 and 1999
- --------------------------------------------------------------------------------
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 sales of
private label beverage products and barbaque sauces.
Revenues for the 2nd fiscal quarter ended March 31, 2000, increased 7% to
$2,861,507 from $2,665,594 in the same period last year. Net income for the 2nd
fiscal quarter ended March 31, 2000, increased to $113,528 or $0.04 diluted
earnings per share from $98,052 or $0.03 diluted earnings per share last year.
Revenues for the six month period ended March 31, 2000, increased 8% to
$5,430,361 from $5,016,659 in the same period last year. Net income for the six
month period ended March 31, 2000, increased to $96,272 or $0.04 diluted
earnings per share from $99,478 or $0.03 diluted earnings per share last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's long and short term equity is good.
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.
13
<PAGE>
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
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: March 11, 2000 TONE PRODUCTS, INC
/s/ TIMOTHY EVON
------------------------------------
Timothy Evon
Director and President
14
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 261
<SECURITIES> 0
<RECEIVABLES> 1,209
<ALLOWANCES> 0
<INVENTORY> 1,649
<CURRENT-ASSETS> 3,214
<PP&E> 4,076
<DEPRECIATION> 2,402
<TOTAL-ASSETS> 5,540
<CURRENT-LIABILITIES> 1,634
<BONDS> 0
0
0
<COMMON> 323
<OTHER-SE> 2,940
<TOTAL-LIABILITY-AND-EQUITY> 5,540
<SALES> 2,861
<TOTAL-REVENUES> 2,861
<CGS> 1,966
<TOTAL-COSTS> 2,665
<OTHER-EXPENSES> (5)5
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 201
<INCOME-TAX> 88
<INCOME-CONTINUING> 114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
