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, 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 2,726,471 on Aug 7, 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 Balance Sheet
(Unaudited)
June 30, 2000
--------------------------------------------------------------------------------
Tone Products, Inc.
Consolidated Financial Statements
(Unaudited)
As of June 30, 2000 and
For the Three and Nine Month Periods Ended June 30, 2000 and 1999
The accompanying notes are an integral part of the consolidated
financial statements.
1
<PAGE>
Tone Products, Inc.
Consolidated Balance Sheet
(Unaudited)
June 30, 2000
ASSETS
Current assets:
Cash and equivalents $ 207,396
Accounts receivable - trade, net 1,372,254
Note receivable 59,281
Inventories 1,563,399
Prepaid expenses 48,300
Deferred tax asset 9,096
----------
Total current assets 3,259,726
Property and equipment, net 1,545,743
Intangible assets, net 654,582
Other assets 31,186
----------
Total assets $5,491,237
==========
The accompanying notes are an integral part of the consolidated
financial statements.
2
<PAGE>
Tone Products, Inc.
Consolidated Balance Sheet
(Unaudited)
June 30, 2000
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 827,997
Accounts payable - trade 462,116
Accrued expenses 246,364
Notes payable, current maturities 108,377
Income taxes payable 134,005
----------
Total current liabilities 1,778,859
Notes payable, net of current maturities 210,691
Deferred tax liability 60,406
----------
Total liabilities 2,049,956
----------
Commitments and contingencies
Shareholders' equity:
Convertible Series A preferred stock; $10 par
value; 500,000 shares authorized; none
issued and outstanding at June 30, 2000 --
Common stock; $0.10 par value; 50,000,000
shares authorized; 2,726,471 shares issued
and outstanding at June 30, 2000 272,647
Additional paid-in capital 396,294
Retained earnings 2,772,340
----------
Total shareholders' equity 3,441,281
----------
Total liabilities and shareholders' equity $5,491,237
==========
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
Tone Products, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three and Nine Month Periods Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Three Month Periods Nine Month Periods
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 3,682,970 $ 3,699,867 $ 9,113,331 $ 8,716,524
Cost of sales 2,588,178 2,612,132 6,446,197 6,076,734
----------- ----------- ----------- -----------
Gross profit 1,094,792 1,087,735 2,667,134 2,639,790
Operating costs and expenses 657,348 713,218 2,054,311 2,084,752
----------- ----------- ----------- -----------
Income from operations 437,444 374,517 612,823 555,038
Other income (expense) 4,637 (15,000) 15,938 (16,664)
----------- ----------- ----------- -----------
Income before provision for income taxes 442,081 359,517 628,761 538,374
Provision for income taxes 183,113 143,807 273,521 240,000
----------- ----------- ----------- -----------
Net income $ 258,968 $ 215,710 $ 355,240 $ 298,374
=========== =========== =========== ===========
Net income per share, basic and diluted $ 0.08 $ 0.06 $ 0.11 $ 0.09
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Tone Products, Inc.
Consolidated Statement of Shareholders' Equity
(Unaudited)
For the Nine Month Period Ended June 30, 2000
Common Stock Additional
Common Common Committed Paid-in Retained
Shares Stock To Be Issued Capital Earnings Total
------ ----- ------------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
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 (508,729) (50,873) -- (413,511) -- (464,384)
Net income -- -- -- -- 355,240 355,240
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2000 2,726,471 $ 272,647 -- $ 396,294 $ 2,772,340 $ 3,441,281
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
5
</TABLE>
<PAGE>
Tone Products, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Month Periods Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 355,240 $ 298,374
Adjustments to reconcile income to net cash
provided by operating activities:
Depreciation and amortization 313,801 268,716
Decrease (increase) in assets:
Accounts receivable - trade, net (329,845) (391,001)
Note receivable (59,281) --
Inventories 162,073 (571,339)
Prepaid expenses (3,796) (16,469)
Deferred tax asset (8,169) --
Other assets (26,538) (92)
Increase (decrease) in liabilities:
Accounts payable - trade 59,370 473,402
Accrued expenses (53,335) (35,376)
Income taxes payable 127,601 (152,936)
Deferred tax liability (6,178) --
--------- ---------
Cash provided by (used in) operating activities 530,943 (126,721)
--------- ---------
Cash flows provided by (used in) investing activities
Purchase of property and equipment (89,702) (617,583)
--------- ---------
Cash provided by (used in) investing activities (89,702) (617,583)
--------- ---------
Cash flows provided by (used in) financing activities:
Proceeds from (payments on) lines of credit (7,957) 580,726
Payment on notes payable (65,625) (45,789)
Proceeds from the issuance of notes payable 141,178 133,456
Cash issued in lieu of committed shares (10,305) --
Purchase and retirement of Company common stock (464,384) --
Cash provided by (used in) financing activities (407,093) 668,393
--------- ---------
Net increase (decrease) in cash 34,148 (75,911)
Cash at beginning of period 173,248 458,343
--------- ---------
Cash at end of period $ 207,396 $ 382,432
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
6
</TABLE>
<PAGE>
Tone Products, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Month Periods Ended June 30, 2000 and 1999
Supplemental Disclosure of Cash Flow Information
2000 1999
---- ----
Interest paid $ 57,023 $ 41,750
Income taxes paid $ 160,521 $ 253,612
The accompanying notes are an integral part of the consolidated
financial statements.
7
<PAGE>
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 June 30, 2000, the results of its operations for the
three month and nine month periods ended June 30, 2000 and 1999 and the related
condensed statements of shareholders' equity and cash flows for the nine month
periods ended June 30, 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 June 30, 2000, property and equipment consisted of the following:
Property and equipment $ 2,996,674
Furniture and fixtures 212,550
Vehicles 322,967
Leasehold improvements 582,476
-----------
4,114,667
Less: accumulated depreciation (2,568,924)
-----------
Total property and equipment $ 1,545,743
===========
Depreciation expense for the three month periods ended June 30, 2000 and 1999
was $88,740 and $73,712, respectively and for the nine month periods ended June
30, 2000 and 1999 was $266,220 and $221,135, respectively.
<PAGE>
3. Income Taxes
------------
The components of the provision for income taxes for the nine month
periods ended June 30, 2000 and 1999 are:
2000 1999
-------- --------
Current tax expense:
Federal $ 246,860 $ 203,000
State 41,008 37,000
-------- --------
287,868 240,000
-------- --------
Deferred tax expense (benefit):
Federal (11,650) 18,703
State (2,698) --
-------- --------
(14,348) 18,703
-------- --------
Total provision $ 273,520 $ 258,703
======== ========
Significant components of the Company's deferred income tax assets and
liabilities as of June 30, 2000 are:
2000
----
Deferred income tax asset:
Accounting reserves $ 8,691
State taxes 3,281
Other 986
--------
Total deferred income tax asset 12,958
Valuation allowance --
--------
Net deferred income tax asset 12,958
--------
Deferred income tax liability:
Depreciation 64,267
--------
Total deferred income tax liability 64,267
--------
Net deferred income tax liability $ 51,309
========
<PAGE>
3. Income Taxes, Continued
-----------------------
Reconciliation of the effective tax rate to the U.S. statutory rate for
the nine month periods ended June 30, 2000 and 1999 is as follows:
2000 1999
---- ----
Tax expense at U.S. statutory rate 34.0% 34.0%
State tax provision 3.9 6.9
Non-deductible expenses 3.7 7.2
Other 1.9 --
--------- ---------
Effective income tax rate 43.5% 48.1%
========= =========
4. Related Party Transactions
--------------------------
Facilities Operating Leases
The Company leases its facilities from entities owned by major
shareholders. For the three month periods ended June 30, 2000 and 1999,
the Company paid facility rent of $121,731 and $118,003, respectively and
for the nine month periods ended June 30, 2000 and 1999 paid facility rent
of $356,897 and $354,010, respectively.
5. Commitments
-----------
The Company leases its facilities on operating leases with future minimum
lease payments at June 30, 2000, as follows:
2001 $ 165,273
2002 82,008
2003 56,712
---------
Total future minimum lease payments $ 303,993
=========
<PAGE>
6. Earnings Per Share
------------------
The computation of earnings per common share for the three and nine month
periods ended June 30, 2000 and 1999 are as follows:
For the Three Month
Periods Ended June 30,
2000 1999
---- ----
Basic earnings per common share:
Net income (numerator) $ 258,968 $ 215,710
Weighted-average shares outstanding
(denominator) 3,178,547 3,581,950
---------- ----------
Basic earnings per common share $ 0.08 $ 0.06
========== ==========
Diluted earnings per common share:
Net income (numerator) $ 258,968 $ 215,710
---------- ----------
Weighted-average shares outstanding 3,178,547 3,581,950
Shares committed to be issued -- 13,793
---------- ----------
Shares outstanding for the diluted earnings
per common share calculation after
assumed issuance (denominator) 3,178,547 3,595,743
---------- ----------
Diluted earnings per common share $ 0.08 $ 0.06
========== ==========
For the Nine Month
Periods Ended June 30,
2000 1999
---- ----
Basic earnings per common share:
Net income (numerator) $ 355,240 $ 298,374
(denominator) 3,154,008 3,444,699
---------- ----------
Basic earnings per common share $ 0.11 $ 0.09
========== ==========
Diluted earnings per common share:
Net income (numerator) $ 355,240 $ 298,374
---------- ----------
Weighted-average shares outstanding 3,154,008 3,444,699
Shares committed to be issued -- 13,793
---------- ----------
Shares outstanding for the diluted earnings
per common share calculation after
assumed issuance (denominator) 3,154,008 3,458,492
---------- ----------
Diluted earnings per common share $ 0.11 $ 0.09
========== ==========
<PAGE>
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 nine month period ended
June 30, 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 nine month period ended June 30, 2000, the Company also
repurchased 508,729 shares of its common stock for $464,384.
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
-------------- ------------- -----
Three month period ended June 30, 2000:
<S> <C> <C> <C>
Revenue $ 3,148,064 $ 534,906 $ 3,682,970
Operating income (loss) 451,738 (14,294) 437,444
Depreciation and amortization 70,925 33,675 104,600
Identifiable assets 4,309,670 1,173,398 5,483,068
Expenditures for long lived assets 25,252 1,000 26,252
Three month period ended June 30, 1999:
Revenue $ 3,084,094 $ 615,771 $ 3,699,865
Operating income (loss) 381,674 (7,157) 374,517
Depreciation and amortization 58,067 33,675 1,742
Identifiable assets 4,700,217 1,298,702 5,998,919
Expenditures for long lived assets 98,125 -- 98,125
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
8. Geographical Business Segments, Continued
-----------------------------------------
Tone Fun City
Products, Inc. Popcorn, Inc. Total
-------------- ------------- -----
Nine month period ended June 30, 2000:
<S> <C> <C> <C>
Revenue $ 7,468,403 $ 1,644,928 $ 9,113,331
Operating income (loss) 644,414 (31,591) 612,823
Depreciation and amortization 212,775 101,026 313,801
Identifiable assets 4,309,670 1,173,398 5,483,068
Expenditures for long lived assets 77,492 1,000 78,492
Nine month period ended June 30, 1999:
Revenue $ 6,946,345 $ 1,770,179 $ 8,716,524
Operating income (loss) 579,630 (24,592) 555,038
Depreciation and amortization 174,201 94,515 268,716
Identifiable assets 4,700,217 1,298,702 5,998,919
Expenditures for long lived assets 470,575 28,406 498,981
</TABLE>
<PAGE>
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.
Net income for the 3rd fiscal quarter ended June 30, 2000, increased to $258,968
or $0.08 diluted earnings per share from $215,710 or $0.06 diluted earnings per
share last year. Earnings increased despite the fact that revenues for the 3rd
fiscal quarter ended June 30, 2000, remained relatively unchanged at $3,682,970
from $3,699,867 in the same period last year.
Increases in net income are the result of beneficial shifts in sales mix at both
the Las Vegas and Melrose Park operations. Sales of lower margin items have been
replaced by sales with higher gross margins.
Revenues for the nine month period ended June 30, 2000, increased 4.5% to
$9,113,331 from $8,716,524 in the same period last year. Net income for the nine
month period ended June 30, 2000, increased to $355,240 or $0.11 diluted
earnings per share from $298,374 or $0.09 diluted earnings per share last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's long and short-term liquidity and capital resources are good.
<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
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 10, 2000 TONE PRODUCTS, INC
By /s/ TIMOTHY EVON
----------------------
Timothy Evon
Director and President
<PAGE>
