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, 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
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(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 3,235,200 on January 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>
<TABLE>
<CAPTION>
Tone Products, Inc.
Balance Sheet (Unaudited)
December 31, 1999 & 1998
1999 1998
---- ----
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash 364,317 239,632
Accounts Receivable 971,941 763,470
Due from related party -- 8,060
Prepaids 19,694 20,172
Deferred Tax Asset 12,223 18,703
Inventory 1,617,906 1,203,936
Total Current Assets 2,986,081 2,253,703
Property Net 1,673,858 1,487,466
Other Assets 3,119 4,648
Goodwill 722,970 749,745
---------- ----------
Total Assets 5,386,028 4,495,562
CURRENT LIABILITIES
Line of Credit Payable 770,726 214,954
Accounts Payable 371,795 359,279
Note Payable - Current portion 295,097 187,682
Income Taxes Payable 10,554 (12,464)
Accrued Expenses 187,385 207,020
Accrued Property Taxes 77,241 68,962
Current Deferred Tax Liabilities -- --
Total Current Liabilities 1,712,798 1,025,433
LONG TERM LIABILITIES
Notes Payable Long Term 59,067 68,001
Capital Lease Obligation -- --
Deferred Tax Liabilities 66,584 62,150
Total Long Term Liabilities 125,652 130,151
Total Liabilities 1,838,450 1,155,584
STOCKHOLDERS' EQUITY
Capital Stock 323,520 357,961
Additional Paid in Capital 804,746 863,307
Treasury Stock (21,000) --
Common Stock Comitted 15,364 21,136
Retained Earnings 2,424,949 2,097,574
Total Shareholders Equity 3,547,579 3,339,978
---------- ----------
Total Liabilities and Stockholders' Equity 5,386,028 4,495,562
<PAGE>
Tone Products, Inc.
Consolidated Statement of Operations
For the Three Months Ended December 31, 1999 & 1998 (Unaudited)
1999 1998
---- ----
Net Sales 2,568,854 2,351,064
Cost of Sales 1,854,274 1,659,581
Gross Profit (Loss) 714,580 691,483
Operating Costs and Expense 677,401 689,689
Income (Loss) from Operations 37,179 1,794
Other Expense 16,930 (150)
Income (Loss) before provision for taxes 20,249 1,944
Provision for income taxes 12,400 --
Net (Loss) 7,849 1,944
Net income per common share:
Primary 0.00 0.00
Fully diluted 0.00 0.00
<PAGE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 1999 and 1998 (Unaudited)
1999 1998
---- ----
Cash flows from operating activities
Net income 7,849 1,944
Adjustments to reconcile income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 104,600 89,572
Decrease (increase) in assets:
Accounts receivable 70,468 211,986
Inventory 107,566 (123,570)
Prepaid expenses 44,504 252
Deferred tax asset (11,296) --
Other assets (19,278) --
Increase (decrease) in liabilities:
Line of credit payable (65,228) (25,046)
Accounts payable (30,951) (74,371)
Accrued Expenses (112,314) 68,962
Income taxes payable 4,150 (169,000)
Deferred tax liabilities -- --
Cash provided by oper
Cash flows provided by (used in) investing activities:
Purchases of property and equipment 119,112 (63,841)
Acquisition of TJ's -- --
Cash (used in) investing activities 119,112 (63,841)
Cash flows provided by (used in) financing activities:
Principle payments of debt (39,778) --
Proceeds from notes payable 11,665 24,131
Repurchase of common stock -- (160,000)
Cash provided by financing activities (28,113) (135,869)
Net increase (decrease) in cash 191,069 (218,981)
Cash at beginning of period 173,248 458,343
Cash at end of period 364,317 239,362
<PAGE>
TONE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31, 1999 and 1998 (Unaudited)
Supplemental Disclosure of Cash Flow Information
1999 1998
---- ----
Interest
18,647 7,600
Income taxes
-- --
<PAGE>
For the Year Ended September 30, 1998 and
The Three Months Ended December 31, 1999 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
Common Common Committed Treasury Paid-in Retained
Shares Stock To Be Issued Stock Capital Earnings Total
------------ ----------- ------------- ---------- ------------ ------------ -----------
Balance, September 30, 1997 3,692,102 369,211 1,012,057 1,534,228 2,915,496
------------ ----------- ------------- ---------- ------------ ------------ -----------
Shares retired that
were exchanged in the -112,490 -$11,250 11,250
reorganization (reverse merger)
of Tone Products, Inc.
Shares committed and fully paid
but not issured in the $21,136 21,136
acquisition of T.J. Distributing
Net income 561,401 561,401
------------ ----------- ------------- ---------- ------------ ------------ -----------
Balance, September 30, 1998 3,579,612 $357,961 $21,136 $1,023,307 $2,095,629 $3,498,033
------------ ----------- ------------- ---------- ------------ ------------ -----------
Shares repurchased and retired -347,900 -34,790 -223,984 -94,500 -$353,274
Stock issued acquisition of TJ's 3,488 349 -5,772 5,423
Net Income 415,971 $415,971
------------ ----------- ------------- ---------- ------------ ------------ -----------
Balance, September 31, 1999 3,235,200 $323,520 $15,364 $804,746 $2,417,100 $3,560,730
============ =========== ============= ========== ============ ============ ===========
Treasury Stock -21,000 -$21,000
Net Income 7,849 $7,849
------------ ----------- ------------- ---------- ------------ ------------ -----------
Balance, December 31, 1999 3,235,200 323,520 $15,364 -$21,000 $804,746 $2,424,949 $3,547,579
</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, 1999,
and the three months ended December 31, 1998 was 3,235,200 and 3,692,102,
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,
1999 1998
----------- ------------
Leasehold improvements $ 581,651 $ 484,676
Machinery and equipment 2,776,560 2,511,262
Furniture and fixtures 287,393 111,766
Vehicles 430,908 509,280
----------- -----------
4,076,512 3,630,984
Less: accumulated depreciation (2,402,654) (2,143,518)
----------- -----------
$ 1,673,858 $ 1,487,466
=========== ===========
Depreciation expense was $88,740 and $89,572 for the three months ended December
31, 1999 and December 31, 1998, respectively.
<PAGE>
3. Income Tax
The components of the provision for income taxes are as follows:
December 31, December 31,
1999 1998
------------ ------------
Current expense:
Federal $10,300 $ 9,379
State 2,100 1,500
------- -------
$12,400 $10,879
------- -------
Deferred expense (benefit):
Federal $54,063 --
State 12,521 --
------- -------
66,584
------- -------
$78,984 $10,879
======= =======
4. Commitments and Contingencies
The Company has operating leases for certain of its facilities. Future
minimum lease payments at December 31, 1999, are as follows:
Due To
Total Related Parties
-------- ----------------
2000 $319,738 $ 312,305
2001 82,008 82,008
-------- ---------
Total future minimum lease payments $401,746 $ 394,313
======== =========
<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, 1999.
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,
1999, the Company paid the entities $113,435 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
December 31, 1999 was 3,535,200 and 3,726,378 was used in calculating the
earnings per share for the six months ended December 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 1st fiscal quarter ended December 31, 1999, increased 9% to
$2,568,854 from $2,351,064 in the same period last year. Net income for the 1st
fiscal quarter ended December 31, 1999, increased to $7,849 or $0.00 diluted
earnings per share from $1,944 or $0.00 diluted earnings per share last year.
Contributing to the revenue gains were barbeque sauce products, sales of which
increased 12%, as well as private label beverage bases. Costs remain consistent
with previous quarters. Labor shortages are being felt, but do not as yet
contribute significantly to costs.
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 14, 2000 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, 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> DEC-31-1999
<CASH> 364
<SECURITIES> 0
<RECEIVABLES> 972
<ALLOWANCES> 0
<INVENTORY> 1,618
<CURRENT-ASSETS> 2,986
<PP&E> 4,076
<DEPRECIATION> 2,402
<TOTAL-ASSETS> 5,386
<CURRENT-LIABILITIES> 1,713
<BONDS> 0
0
0
<COMMON> 323
<OTHER-SE> 2,101
<TOTAL-LIABILITY-AND-EQUITY> 5,386
<SALES> 2,569
<TOTAL-REVENUES> 2,569
<CGS> 1,854
<TOTAL-COSTS> 2,531
<OTHER-EXPENSES> 17
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 20
<INCOME-TAX> 12
<INCOME-CONTINUING> 8
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
