SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


(Mark One)
[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 [No Fee Required]

     For the fiscal year ended September  30,  2001

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 [No Fee Required]

     For the  transition  period from            to
                                     ------------  ------------
     Commission File No. 0-4289


                               TONE PRODUCTS, INC.
                  --------------------------------------------
                 (Name of small business issuer in its charter)


           Arkansas                                            71-0390957
 ------------------------------                            -------------------
(State or other jurisdiction of                           (I.R.S. Employer
  incorporation or organization)                          Identification Number)


         2129 North 15th Street
         Melrose Park, Illinois                                 60160
 --------------------------------------                        --------
(Address of principal executive offices)                      (Zip Code)

Issuer's telephone number:  (708) 681-3660

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                           $.10 Par Value Common Stock
                                (Title of Class)


Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange 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
                                       -----  -----

     As of November 30, 2001, 1,891,579 shares of the Registrant's $.10 par
value Common Stock were outstanding. As of November 30, 2001, the market value
of the Registrant's $.10 par value Common Stock, excluding shares held by
affiliates, was $370,022 based upon a closing bid price of $0.820 per share of
Common Stock on the Electronic Bulletin Board.

     Check if there is no disclosure contained herein of delinquent filers in
response to Item 405 of Regulation S-B, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.[ X ]

     The registrant's revenues for its most recent fiscal year were $12,264,085.

     The following documents are incorporated by reference into Part III, Items
9 through 12 hereof: None.

<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS
--------------------------------


     Except for the historical information contained herein, the matters set
forth in this Report include forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially. These risks and
uncertainties are detailed throughout this Report and will be further discussed
from time to time in the Company's periodic reports filed with the Commission.
The forward-looking statements included in this Report speak only as of the date
hereof.

Business

     The Company manufactures, distributes and markets under its own proprietary
brand names, as well as under private labels developed for others, a line of
specialty beverages, snack foods and condiments. The Company's product lines
include fruit and other drink concentrates; juices and juice blends; bar mixes
and cocktail bases; snow cone syrups; pancake, waffle, corn and molasses syrups;
barbecue and steak sauces, marinades and dressings; popcorn, cookies, nuts and
other snack foods.

     The Company's proprietary products are marketed under a number of its own
brand names including "Bonnie", "Hi-Tone", "Evons", "Rainbo-Rich" and "Players'
Choice." As indicated, the Company also manufactures products for its customers
under private label brand names designated by the customers, and also enters
into copacking arrangements with other manufacturers for some of its products
and acts solely as a distributor for other products.

     The Company's customers include large domestic grocery store chains (such
as Aldi's, and Von's), domestic mass merchandisers (such as Sams Club, and
Market Day), large retail food service distributors (such as Marriott, Sysco,
and Alliant), brand name soft drink bottling companies and federal, state and
local government agencies including school districts, colleges and prisons.

     The Company manufactures its own products and its private label products in
a 72,000 square foot manufacturing and distribution facility in Melrose Park,
Illinois, and a 17,000 square foot manufacturing and distribution facility in
Las Vegas, Nevada. See "Item 2". These products are marketed through the
Company's own marketing staff consisting of six individuals. Marketing efforts
include direct sales calls, attendance at trade shows, advertisements in trade
journals, and the use of food brokers and sales representatives.

     The Company's business strategy is to increase revenues by focusing on
sales of it's steak and barbeque sauce manufacturing capabilities, expanding its
private label and contract packing operations, increasing its production of
certain food specialty products including barbecue sauces and marinades and
expanding it's direct store delivery system ("DSD") at the Company's Fun City
Popcorn unit in Las Vegas, Nevada. The Company believes that existing revenues
may be increased without a pro rata increase in fixed expenses, thereby
generating economies of scale (primarily in manufacturing operations) which will
create higher levels of earnings as a percentage of total revenues.

<PAGE>


History

     Tone Products, Inc., an Illinois corporation ("TPI") was organized in
March, 1947 to manufacture and market concentrated beverage syrups. In May 1996
TPI was acquired by Minute Man of America, Inc., an Arkansas corporation ("MMA")
in a reverse merger transaction. Under the terms of the reverse merger
transaction, MMA reverse split its stock on the basis of one share for each four
shares outstanding (resulting in 773,752 shares outstanding) and initially
issued an additional 2,275,000 shares to acquire all of the outstanding shares
of TPI. As a result, the management and principal stockholders of TPI became the
management and principal stockholders of the Company. In connection with the
reverse merger transaction, MMA also sold 478,850 shares of its Common Stock at
$2.00 per share in a private placement of its securities ("Private Placement").

     In May, 1996, the Company acquired Fun City Popcorn, Inc. ("FCP") for
$875,000 in cash generated from the sale of securities under the Private
Placement and the issuance of 100,000 shares of the Company's Common Stock.

     In August, 2001 the Company spun Fun City Popcorn, Inc. off into a
separately owned publicly traded Company. Stock in FCP was issued to owners of
record of the Companies stock as of August 30, 2001, on a 1 to 1 basis.

Competition

     The specialty beverage, snack food and condiments industries are highly
competitive, and there are numerous multinational, regional and local firms that
currently compete, or are capable of competing, with the Company. Specialty
beverage competitors include Nedlog, Damon and Pride Beverages; snack food
competitors include Frito-Lay, Snak-King and Granny Goose; and condiment
competitors include Redwing and Brooks. Most of the Company's competitors are
larger than the Company and have superior financial, marketing and management
resources, and brand name recognition, than the Company. Competitive factors in
these specialty foods industries include price, product quality and product
flavor. The Company believes its products compete favorably against similar
specialty food products.

Government Regulation

     The Company is subject to various federal, state and local regulations
relating to cleanliness, maintenance of food production equipment, food storage
and food handling, and the Company is subject to unannounced on-site inspections
of its food production facilities. As a manufacturer and distributor of foods,
the Company is subject to regulation by the U.S. Food and Drug Administration
("FDA"), state food and health boards, and local health boards in connection
with the manufacturing, handling, storage, transportation, labeling and
processing of food products. Future changes in the regulations may adversely
impact the Company by raising the cost to manufacture and deliver the Company's
products and/or by affecting the perceived healthfulness of the Company's
products. A failure to comply with one or more regulatory requirements could
interrupt the Company's operations and result in a variety of sanctions,
including fines and the withdrawal of the Company's products from store shelves.
The Company holds all material licenses and permits required to conduct its
operations.

     The Company is also subject to federal and state laws establishing minimum
wages and regulating overtime and working conditions. Since some of the
Company's personnel are paid at rates not far above federal or state minimum
wage levels, future increases in federal or state minimum wage levels may result
in increases in the Company's labor costs.

<PAGE>


Trade Names and Trademarks

     The Company has registered a number of its proprietary brand names as
trademarks or trade names in Illinois or with the United States Patent office,
including "Bonnie", "Rainbo-Rich", and "Players' Choice". There can be no
assurance that the Company's trademarks or trade names will not be copied or
challenged by others.

Employees

     At November 30, 2001, the Company employed 45 individuals including its
three executive officers, 11 administrative and clerical employees and 30
factory and warehouse employees. The Company believes that its relations with
its employees are satisfactory.

ITEM 2.  DESCRIPTION OF PROPERTY
--------------------------------

     The Company leases 72,000 square feet of office, warehouse and
manufacturing space in Melrose Park, Illinois on a one year lease expiring
September 30, 2001 at a monthly rental of $33,235 or $5.54 per square foot. The
Company also leased 16,802 square feet of office and warehouse space in Las
Vegas, Nevada on a one year lease expiring May 31, 2001 at a monthly rental of
$8,544 or $6.10 per square foot. The Company leases its Melrose Park, Illinois
facility from two of its executive officers and directors. The Company believes
that the terms of both such facilities leases are fair, reasonable, and
consistent with the terms of leases which could be obtained from nonaffiliated
parties. The Company believes its facilities are adequate for its needs in the
foreseeable future and that additional space is available at reasonable rates.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

     Not applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

     Not applicable.

<PAGE>


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------

     The Company's Common Stock is traded over-the-counter on the Electronic
Bulletin Board ("EBB") under the symbol "TNPD".

     The following table sets forth for the quarters indicated the range of high
and low bid prices of the Company's Common Stock on the EBB.

                                                         Bid Price
                                                -------------------------
By Quarter Ended:                                High                Low
-----------------                                ----                ---

September 30, 2001..........................    $1.00               $0.81
June 30, 2001...............................    $0.93               $0.75
March 31, 2001..............................    $1.12               $0.87
December 31, 2000 ..........................    $0.75               $0.62

September 30, 2000 .........................    $1.00               $0.62
June 30, 2000...............................    $1.12               $0.81
March 31, 2000 .............................    $1.25               $0.87
December 1999 ..............................    $1.25               $0.93

     As of November 30, 2001, the Company had approximately 500 beneficial
holders of its Common Stock.

Dividend Policy

     The Company has never paid cash dividends on its Common Stock and intends
to retain earnings, if any, for use in the operation and expansion of its
business. The amount of future dividends, if any, will be determined by the
Board of Directors based upon the Company's earnings, financial condition,
capital requirements and other conditions.

Description of Securities

Common Stock

     The Company is authorized to issue 50,000,000 shares of $.10 par value
Common Stock. At November 30, 2001, there were 1,891,579 shares of Common Stock
outstanding. The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders, including the
election of directors. There is no right to cumulate votes in the election of
directors. The holders of Common Stock are entitled to any dividends that may be
declared by the Board of Directors out of funds legally available therefor
subject to any prior rights of holders of Preferred Stock. In the event of
liquidation or dissolution of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any outstanding shares of Preferred Stock. Holders of
Common Stock have no preemptive rights and have no right to convert their Common
Stock into any other securities. All of the outstanding shares of Common Stock
are fully paid and non-assessable.

<PAGE>


Preferred Stock

     The Company is authorized to issue 500,000 shares of Preferred Stock,
$10.00 par value, none of which are outstanding. The Preferred Stock may,
without action by the stockholders of the Company, be issued by the Board of
Directors from time to time in one or more series for such consideration and
with such relative rights, privileges and preferences as the Board may
determine. Accordingly, the Board has the power to fix the dividend rate and to
establish the provisions, if any, relating to voting rights, redemption rate,
sinking fund, liquidation preferences and conversion rights for any series of
preferred stock issued in the future.

     It is not possible at this time to state the actual effect of any
authorization of Preferred Stock upon the rights of holders of Common Stock
until the Board determines the specific rights of the holders of any series of
preferred stock. The Board's authority to issue Preferred Stock also provides a
convenient vehicle in connection with possible acquisitions and other corporate
purposes, but could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock. Accordingly, the
issuance of Preferred Stock may be used as an "anti-takeover" device without
further action on the part of the stockholders of the Company, and may adversely
affect the holders of the Common Stock.

Stock Transfer and Warrant Agent

     Security Transfer Corporation is the stock transfer agent for the Company's
Common Stock.



ITEM 6.   MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
          RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

General

Results of Operations-September 30, 2001 Compared to September 30, 2000

     Net Sales for the 12 month period ended September 30, 2001 increased to
$10,307,852 from $10,102,409 in 2000, which represents an increase of 2%. Sales
increases were a result of growth in private label barbecue sauce packaging.

     Cost of goods sold decreased to 72.5% of sales or $7,474,840 from 74.3% or
$7,508,469 a year ago.

     Operating expenses rose 4.4% to $2,360,033 from $1,902,638 for the previous
year. Legal and Accounting Expenses related to the spin off of Fun City Popcorn
as well as increased selling expenses were the cause.

     Net Income (Loss) after tax was $(270,489), down from $283,141 in 2000. The
decrease resulted from the loss from the discontinued operations of Fun City
Popcorn of $511,263, which included a $357,807 write off of goodwill and loss on
disposal of fixed assets of $87,295. in addition to the above mentioned
increases in operating expenses.


<PAGE>


Liquidity and Capital Resources

     The Company has access to traditional lines of credit and term financing.
The line of credit is capped at $1,300,000 of which $0.00 was outstanding at
November 30, 2001. The Company had not made any material commitments for capital
expenditures as of November 30, 2001 and believes it has sufficient cash
resources to meet its needs in calendar 2001.

Seasonality

     A significant percentage of the Company's business is seasonal. The sale of
beverage syrups, fruit juice concentrates and barbecue sauces are greater during
warm weather. The holiday season, Thanksgiving through the New Year, helps to
offset this seasonality to some degree. Management has established lines of
credit to offset cash shortages during slow periods and has also instituted
policies and practices to manage cash flow.

Trends

     This year we expect to lose some revenue in the private label packaging
sector. We have lost three significant customers that will represent a total
revenue decrease of approximately $2,000,000. The Company's has added salesmen
and has refocused it's efforts in the sales department to offset these losses
with new customers, however the Company does expect to feel some significant
effects of this decrease in this fiscal year, and intends to watch expenses
closely.

     The Company expects the supply of raw materials in the three largest
purchase categories to remain stable, if not increase. Liquid sweeteners, juice
concentrates and packaging materials are expected to remain in adequate supply
through fiscal 2001. The Company's purchasing power with suppliers continues to
grow, and cost of sales should not be adversely effected by raw material
purchasing calendar 2001.


     This Form 10-KSB specifies the forward looking statements of management.
Forward looking statements are statements that estimate or anticipate the
happening of future events. The forward looking statement of management
specified in this Form 10-KSB have been compiled on the basis of assumptions
made by management and considered to be reasonable. Future operating results of
the Company, however, are impossible to predict and not representation regarding
future operating results of the Company is to be inferred from those forward
looking statements. The assumptions used for purposes of the forward looking
statements specified in this Form 10-KSB represent estimates of future events
and are subject to uncertainty as to possible changes in economic, legislature,
industry, and other circumstances. As a result, the developing and selecting
assumptions from and among reasonable alternatives require the exercise of
judgement to the extent that the assumed events do not occur. The outcome may
vary substantially from that projected, and accordingly, no opinion is expressed
regarding the achievability of particular forward looking results. In addition,
those forward looking statements have been compiled as of the date of this Form
10-KSB and should be evaluated with consideration of any changes occurring after
the date of this Form 10- KSB.

<PAGE>


ITEM 7.  FINANCIAL STATEMENTS
-----------------------------


                               Tone Products, Inc.

                        Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
          Each of the Two Years in the Period Ended September 30, 2001


<PAGE>


                               Tone Products, Inc.

                 Index to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------



             Report of Independent Auditors ..................................1

             Consolidated Financial Statements of Tone Products, Inc.:

                  Consolidated  Balance Sheets,  September 30, 2001 and
                     2000.....................................................2

                  Consolidated  Statements  of  Operations  for Each of
                     the Two Years in the Period  Ended  September  30,
                     2001.....................................................4

                  Consolidated  Statements of Shareholders'  Equity for
                     Each  of  the  Two  Years  in  the  Period   Ended
                     September 30, 2001.......................................5

                  Consolidated  Statements  of Cash  Flows  for Each of
                     the Two Years in the Period  Ended  September  30,
                     2001.....................................................6

             Notes to the Consolidated Financial Statements...................9

<PAGE>


                         REPORT OF INDEPENDENT AUDITORS




     To the Board of Directors
     Tone Products, Inc.


     We have audited the accompanying consolidated balance sheets of Tone
     Products, Inc. and its subsidiaries as of September 30, 2001 and 2000, and
     the related consolidated statements of operations, shareholders' equity and
     cash flows for each of the two years in the period ended September 30,
     2001. These consolidated financial statements are the responsibility of the
     Company's management. Our responsibility is to express an opinion on these
     consolidated financial statements based on our audits.


     We conducted our audits in accordance with auditing standards generally
     accepted in the United States of America. Those standards require that we
     plan and perform the audit to obtain reasonable assurance about whether the
     financial statements are free of material misstatement. An audit includes
     examining, on a test basis, evidence supporting the amounts and disclosures
     in the financial statements. An audit also includes assessing the
     accounting principles used and significant estimates made by management, as
     well as evaluating the overall financial statement presentation. We believe
     that our audits provide a reasonable basis for our opinion.


     In our opinion, the consolidated financial statements referred to above
     present fairly, in all material respects, the financial position of Tone
     Products, Inc. and its subsidiaries as at September 30, 2001 and 2000, and
     the results of its operations and its cash flows for each of the two years
     in the period ended September 30, 2001, in conformity with accounting
     principles generally accepted in the United States of America.





     /s/  Kelly & Company
     ------------------------
          Kelly & Company


     Kelly & Company
     Newport Beach, California
     December 5, 2001

<PAGE>


                          Tone Products, Inc.

                      Consolidated Balance Sheets

                   As of September 30, 2001 and 2000
--------------------------------------------------------------------------------


                                     ASSETS


                                                   2001         2000
                                                ----------   ----------

Current assets:
Cash and equivalents                            $   93,658   $  107,087
Accounts receivable - trade, net                 1,017,499      899,877
Inventories                                        662,974      927,161
Prepaid income taxes                                38,183      117,947
Other prepaids                                      12,154       10,025
Net current assets of discontinued operations         --        282,860
Deferred income taxes                                9,078         --
                                                ----------   ----------
Total current assets                             1,833,546    2,344,957
Property and equipment, net                      1,137,095    1,242,103
Trade name, net                                    198,666      248,333
Other assets                                        46,804       66,573
Due from Fun City Popcorn, Inc.                    122,566      154,228
Noncurrent assets of discontinued operations          --        437,362
                                                ----------   ----------
Total assets                                    $3,338,677   $4,493,556
                                                ==========   ==========


                   The accompanying notes are an integral part
                    of the consolidated financial statements.

                                        2

<PAGE>
<TABLE>
<CAPTION>


                                   Tone Products, Inc.

                               Consolidated Balance Sheets

                            As of September 30, 2001 and 2000
---------------------------------------------------------------------------------------

                          LIABILITIES AND SHAREHOLDERS' EQUITY

                                                                 2001           2000
                                                             -----------    -----------
Current liabilities:
<S>                                                          <C>            <C>
Line of credit                                               $    45,315    $   125,000
Accounts payable  trade                                          347,617        321,526
Accrued expenses                                                 260,823        280,911
Notes payable, current maturities                                 95,787        120,787
Income taxes payable                                               1,795           --
                                                             -----------    -----------
Total current liabilities                                        751,337        848,224

Notes payable, net of current maturities                         410,376        509,613
Deferred tax liability                                            63,838         62,570
                                                             -----------    -----------
Total liabilities                                              1,225,551      1,420,407
                                                             -----------    -----------
Commitments and contingencies

Shareholders' equity:
Convertible Series A preferred stock; $10 par value;
 500,000 shares authorized; none issued and outstanding
 at September 30, 2001 and 2000                                     --             --
Common stock; $0.10 par value; 50,000,000 shares
 authorized; 2,722,910 and 2,722,910 shares issued
 and 1,891,579 and 2,395,260 shares 272,291 outstanding at
 September 30, 2001 and 2000, respectively                       272,291        272,291
Common stock held in treasury, 831,331 and 327,650
shares at September 30, 2001 and 2000, respectively              (83,133)       (32,765)
                                                             -----------    -----------
                                                                 189,158        239,526
Additional paid in capital                                        98,994        529,222
Retained earnings                                              1,824,954      2,304,401
                                                             -----------    -----------
Total shareholders' equity                                     2,113,106      3,073,149
                                                             -----------    -----------
Total liabilities and shareholders' equity                   $ 3,338,657    $ 4,493,556
                                                             ===========    ===========


                       The accompanying notes are an integral part
                        of the consolidated financial statements.

                                            3
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                 Tone Products, Inc.

                        Consolidated Statements of Operations

          For Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------------



                                                              2001             2000
                                                          ------------    ------------
<S>                                                       <C>             <C>
Net sales                                                 $ 10,307,852    $ 10,102,409
Cost of sales                                                7,474,840       7,508,469
                                                          ------------    ------------
Gross profit                                                 2,833,012       2,593,940
Operating costs and expenses                                 2,360,033       1,902,638
                                                          ------------    ------------
Income from operations                                         472,979         691,302
                                                          ------------    ------------
Other income (expense):
Interest expense                                               (77,295)        (76,517)
Interest income                                                  6,885           4,612
Other income, net                                                  949           3,746
                                                          ------------    ------------
                                                               (69,461)        (68,159)
                                                          ------------    ------------
Income from continuing operations before
 income taxes                                                  403,518         623,143
Provision for income taxes                                     162,744         239,110
                                                          ------------    ------------
Income from continuing operations                              240,774         384,033

Discontinued operations:
Loss from discontinued operations of Fun City Popcorn,
 Inc., net of applicable income taxes expense (benefit)
 of $4,858 in 2001 (Note 19)
and ($5,346) in 2000                                          (511,263)       (100,892)
                                                          ------------    ------------
Net income (loss)                                         $   (270,489)   $    283,141
                                                          ============    ============


Net income (loss) per share from continuing
operations, basic and diluted                             $      (0.11)   $       0.12
                                                          ============    ============
Net income (loss) per common share,
basic and diluted                                         $      (0.13)   $       0.09
                                                          ============    ============


                       The accompanying notes are an integral part
                        of the consolidated financial statements.

                                           4
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                        Tone Products, Inc.

                          Consolidated Statements of Shareholders' Equity

                 For Each of the Two Years in the Period Ended September 30, 2001
-------------------------------------------------------------------------------------------------


                                                                      Common Stock   Common Stock
                                            Common        Common         Held in      Committed
                                            Shares         Stock        Treasury     To Be Issued
                                         -----------    -----------    -----------    -----------
<S>                                        <C>          <C>            <C>            <C>
Balance, September 30, 1999                3,235,200    $   323,520           --      $    15,364

Treasury stock:
 Shares repurchased                         (839,940)          --      $   (83,994)          --
 Shares retired                                 --          (51,229)        51,229           --
Cash paid in lieu of issuance of
 committed shares                               --             --             --          (15,364)
Net income                                      --             --             --             --
                                         -----------    -----------    -----------    -----------
Balance, September 30, 2000                2,395,260        272,291        (32,765)          --
Treasury stock:
 Shares repurchased                         (503,681)          --          (50,368)          --
Stock dividend  pro rata distribution
of the stock of Fun City Popcorn, Inc.          --             --             --             --
Net loss                                        --             --             --             --
                                         -----------    -----------    -----------    -----------
Balance, September 30, 2001                1,891,579    $   272,291    $   (83,133)          --
                                         ===========    ===========    ===========    ===========


                            The accompanying notes are an integral part
                             of the consolidated financial statements.

                                                 5
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                Tone Products, Inc.

                  Consolidated Statements of Shareholders' Equity

         For Each of the Two Years in the Period Ended September 30, 2001

                                     (Con't)
----------------------------------------------------------------------------------


                                         Additional
                                           Paid-in       Retained
                                           Capital       Earnings         Total
                                         -----------    -----------    -----------
<S>                                      <C>            <C>            <C>
Balance, September 30, 1999              $   804,746    $ 2,417,100    $ 3,560,730

Treasury stock:
 Shares repurchased                         (280,583)      (395,839)      (760,416)
 Shares retired                                 --             --             --
Cash paid in lieu of issuance of
 committed shares                              5,059           --          (10,305)
Net income                                      --          283,141        283,141
                                         -----------    -----------    -----------
Balance, September 30, 2000                  529,222      2,304,402      3,073,150
Treasury stock:
 Shares repurchased                         (430,228)          --         (480,596)
Stock dividend  pro rata distribution
of the stock of Fun City Popcorn, Inc.          --         (208,959)      (208,959)
Net loss                                        --         (270,489)      (270,489)
                                         -----------    -----------    -----------
Balance, September 30, 2001              $    98,994    $ 1,824,954    $ 2,113,106
                                         ===========    ===========    ===========


                    The accompanying notes are an integral part
                     of the consolidated financial statements.

                                        5
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                  Tone Products, Inc.

                         Consolidated Statements of Cash Flows

            For Each of the Two Years in the Period Ended September 30, 2001
----------------------------------------------------------------------------------------



                                                                  2001          2000
                                                              -----------    -----------
Cash flows provided by (used in) operating activities:
<S>                                                           <C>            <C>
Net income (loss)                                             $  (270,489)   $   283,141
    Less: loss from discontinued operations                       511,263        100,890
                                                              -----------    -----------
Net income from continuing operations                             240,774        384,031
Adjustments to reconcile net income to net cash provided by
 operating activities:
  Depreciation and amortization                                   301,196        283,701
  Loss (gain) on sale of assets                                      (949)         4,005
Decrease (increase) in assets:
  Accounts receivable  trade, net                                (117,572)       (81,845)
  Inventories                                                     264,187        504,632
  Other prepaids                                                   (2,129)       (11,285)
  Prepaid income taxes                                             79,764       (117,947)
  Deferred tax asset                                               (9,078)        14,614
  Other assets                                                     19,740          1,441
Increase (decrease) in liabilities:
  Accounts payable  trade                                          26,091         19,628
  Accrued expenses                                                (20,088)       (26,221)
  Income taxes payable                                             (1,685)       (19,660)
  Deferred tax liability                                           27,314          1,836
                                                              -----------    -----------
Net cash provided by operating activities of
 continuing operations                                            807,565        956,930
Net cash provided by operating activities of
 discontinued operations                                           77,894         63,173
                                                              -----------    -----------
Cash provided by operations                                       885,459      1,020,103
                                                              -----------    -----------


                        The accompanying notes are an integral part
                         of the consolidated financial statements.

                                             6
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                    Tone Products, Inc.

                         Consolidated Statements of Cash Flows

            For Each of the Two Years in the Period Ended September 30, 2001
----------------------------------------------------------------------------------------


                                                                    2001         2000
                                                                  ---------    ---------

Cash flows provided by (used in) investing activities
<S>                                                               <C>          <C>
 Purchase of property and equipment                               $(151,693)   $(114,368)
 Sale of property and equipment                                       6,121        4,461
 Payment on amounts due from Fun City Popcorn, Inc.                   9,096         --
 Cash invested - discontinued operations                             10,241     (39,680)
                                                                  ---------    ---------
Net cash used in investing activities of
 continuing operations                                             (126,235)    (149,587)
Net cash used in investing activities of
 discontinued operations                                              1,687       (2,190)
                                                                  ---------    ---------
Cash used in investing activities                                  (124,548)    (151,777)
                                                                  ---------    ---------
Cash flows provided by (used in) financing activities:
 Net proceeds (payments) from the line of credit                    (79,685)    (453,195)
 Payment on notes payable                                          (124,237)     (93,697)
 Satisfaction of committed stock                                       --        (10,305)
 Repurchase of Company common stock                                (480,596)    (338,812)
                                                                  ---------    ---------
Net cash used in financing activities of continuing
 operations                                                        (684,518)    (896,009)
Net cash used in financing activities of discontinued
 operations                                                         (89,822)     (21,303)
                                                                  ---------    ---------
Cash used in financing activities                                  (774,340)    (917,312)
                                                                  ---------    ---------
Net decrease in cash                                                (13,429)     (48,986)
Cash and equivalents at beginning of period                         107,087      156,073
                                                                  ---------    ---------
Cash and equivalents at end of period                             $  93,658    $ 107,087
                                                                  =========    =========


                     Supplemental Disclosure of Cash Flow Information


Interest paid                                                     $  77,295    $  76,517
Income taxes paid                                                 $ 103,609    $ 352,800


                        The accompanying notes are an integral part
                         of the consolidated financial statements.


                                             7
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                 Tone Products, Inc.

                      Consolidated Statements of Cash Flows

         For Each of the Two Years in the Period Ended September 30, 2001
-----------------------------------------------------------------------------------



       Supplemental Schedule of NonCash Investing and Financing Activities


                                                               2001         2000
                                                             ---------    ---------
Dividend  spinoff of investment in Fun City Popcorn, Inc.:
<S>                                                          <C>          <C>
Retained earnings                                            $ 208,959         --
Investment in Fun City Popcorn, Inc.                         $(208,959)        --

Repurchase of common shares:

  Retained earnings                                               --      $ 395,839
  Common stock                                                    --      $  46,845
  Additional paidin capital                                       --      $ (21,080)
  Line of credit                                                  --      $(421,604)

Retirement of treasury stock:
  Common stock                                                    --      $  51,229
  Common stock held in treasury                                   --      $ (51,229)

Debt refinancing:
  Line of credit                                                  --      $ 589,412
  Note payable                                                    --      $(589,412)


                     The accompanying notes are an integral part
                     of the consolidated financial statements.


                                         8
</TABLE>

<PAGE>


                               Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


1.   Description of Business
     -----------------------

     Operations

     Tone Products, Inc. (an Arkansas corporation)(the "Company"), its
     subsidiary, Tone Products, Inc. (an Illinois corporation)("Tone Products"),
     and its former subsidiary, Fun City Popcorn, Inc. (a Nevada
     Corporation)("Fun City") are engaged in the purchase, manufacture, and
     wholesale distribution of food products in the beverage, dry mix beverage,
     snack, syrup, condiments, and sauce categories.


     On June 17, 2001 the Company's board of directors voted to distribute all
     of the shares of Fun City on a pro rata basis to the Company's shareholders
     (Note 19). As a result, effective September 30, 2001, Fun City is no longer
     a wholly owned subsidiary of the Company.


2.   Summary of Significant Accounting Policies
     ------------------------------------------

     Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of
     the Company and its wholly owned subsidiary, Tone Products. All significant
     intercompany transactions have been eliminated.

     Recognition of Revenue

     Revenues are recognized when the Company's products are shipped. Provisions
     for discounts and rebates to customers, estimated returns and allowances,
     and other adjustments are provided for in the same period the related
     revenues are recorded.

     Cash and Equivalents

     The Company invests portions of its excess cash in highly liquid
     investments. Cash and equivalents include time deposits and commercial
     paper with original maturities of three months or less. The Company has no
     requirements for compensating balances. The Company maintains cash balances
     in accounts, which exceeded the federally insured limits by $0 and $32,804
     at September 30, 2001 and 2000, respectively; however, the Company has not
     experienced any losses in such accounts.

     Inventories

     Inventories are stated at the lower of cost or market. Cost is determined
     on a standard cost basis, which approximates the first in - first out
     method of valuation. The Company's management monitors inventories for
     excess, obsolete, and calendar date sensitive items and makes necessary
     valuation corrections when such adjustments are required.

                                       9

<PAGE>


                               Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


2.   Summary of Significant Accounting Policies, Continued
     -----------------------------------------------------

     Property and Equipment

     Property and equipment are recorded at cost and are depreciated using the
     straight-line method over the expected useful lives noted below.
     Expenditures for normal maintenance and repairs are charged to operations.
     The cost and related accumulated depreciation of assets are removed from
     the accounts upon retirement or other disposition, and the resulting profit
     or loss is reflected in the statement of operations. Renewals and
     betterments that materially extend the life of the assets are capitalized.

                                                          Estimated
                                                         Useful Lives
                                                         ------------

           Property and equipment                             7 years
           Furniture and fixtures                         5 - 7 years
           Vehicles                                       5 - 7 years
           Leasehold improvements                             5 years

     Trade Name

     The trade name represents the acquisition cost at the date the intangible
     asset was acquired. The trade name was being amortized over its estimated
     useful life of fifteen years utilizing the straight-line method. During the
     year ended September 30, 2001, the trade name's estimated useful life was
     evaluated and determined to have five years remaining. Accordingly, the
     remaining useful life of the trade name was reduced to five years.

     Treasury Stock

     In the year ended September 30, 1999, the Company's board of directors
     authorized the repurchase, at management's discretion, of shares of the
     Company's common stock. Shares repurchased under the board of directors'
     authorization may be retired or held for later reissuance. The Company
     accounts for its treasury share transactions utilizing the par value
     method.

                                       10

<PAGE>


                               Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


2.   Summary of Significant Accounting Policies, Continued
     -----------------------------------------------------

     Impairment of Long-Lived Assets


     The Company periodically evaluates its long-lived assets, including
     intangible assets for potential impairment. When circumstances indicate
     that the carrying amount of an asset is not recoverable, as demonstrated by
     the projected undiscounted cash flows, an impairment loss is recognized. In
     June 2001, the Company determined that an impairment of certain acquisition
     goodwill of its then subsidiary Fun City Popcorn, Inc. had occurred.
     Accordingly the Company wrote off the remaining unamortized amounts (Note
     19). The Company's management determined that there was no such impairment
     present at September 30, 2000.

     Income Taxes

     The Company accounts for income taxes under the liability method. Under the
     liability method, deferred tax assets and liabilities are determined based
     on differences between financial reporting and tax bases of assets and
     liabilities. They are measured using the enacted tax rates and laws that
     will be in effect when the differences are expected to reverse. The Company
     is required to adjust its deferred tax liabilities in the period when tax
     rates or the provisions of the income tax laws change. Valuation allowances
     are established when necessary to reduce deferred tax assets to the amounts
     expected to be realized.

     Advertising Costs

     Advertising costs are expensed as they are incurred. Advertising expense
     was $17,186 and $4,396 for the years ended September 30, 2001 and 2000,
     respectively.

     Use of Estimates

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

     Financial Statement Classification

     Certain amounts within the 2000 consolidated financial statements have been
     reclassified in order to conform to the 2001 consolidated financial
     statement presentation.

                                       11

<PAGE>


                               Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


2.   Summary of Significant Accounting Policies, Continued
     -----------------------------------------------------

     New Accounting Pronouncements

     In June 2001, the FASB issued SFAS No. 141, Business Combinations, Which
     addresses financial accounting and reporting for business combinations.
     SFAS No. 141 supercedes Accounting Principles Board ("APB") No. 16,
     Business Combinations and amends or supercedes a number of interpretations
     of that opinion. It also amends SFAS No. 38, Accounting for Preacquisition
     Contingencies of Purchased Enterprises. SFAS No. 141 will apply to all
     business combinations initiated after June 30, 2001. However, the Company
     does not have any business combinations in process or planned as of the
     report date.

     In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangibles,
     which addresses financial accounting and reporting for goodwill and other
     intangible assets subsequent to their acquisition. SFAS No. 142 supercedes
     APB No. 17, Intangible Assets. Provisions of SFAS No. 142 will be effective
     for all fiscal years beginning after December 15, 2001. As such the Company
     is not required to adopt the new statement until the year ending September
     30, 2002. The Company is currently evaluating the effect that
     implementation of the new standard will have on its results of operations
     and financial position. However, adoption of SFAS No. 142 is not expected
     to have a significant effect on the Company's balance sheets, statements of
     operations, or statements of cash flows.

3.   Accounts Receivable - Trade, Net
     --------------------------------

     During the years ended September 30, 2001 and 2000, the Company recognized
     bad debt expense of $74,233 and $14,588, respectively. As of September 30,
     2001 and 2000, the provision for uncollectable accounts receivable was
     $20,998 and $0, respectively.


4.   Inventories
     -----------

     At September 30, 2001 and 2000 inventories consisted of the following:

                                               2001             2000
                                               ----             ----
         Raw materials                     $   433,625      $   604,562
         Finished goods                        229,348          322,599
                                           -----------      -----------

         Total inventories                 $   662,974      $   927,161
                                           ===========      ===========

     During the year ended September 30, 2000, the Company purchased fabricated
     parts to manufacture new Company developed drink dispensing machine. The
     costs of these parts, including purchases made during the year ended
     September 30, 2000 amounted to $236,439 and were included in work in

                                       12

<PAGE>


                               Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


4.   Inventories, Continued
     ----------------------

     process inventory. The Company issued the drink dispensing machines at no
     cost to the customers as part of a new drink product sales program during
     the year ended September 30, 2000. This new product sales program was
     eventually cancelled due to lack of customer interest. The still remaining
     fabricated parts were sold at scrap value and the loss resulting from their
     sale was reported in the cost of sales portion of the statement of
     operations for the year ended September 30, 2000.


5.   Property and Equipment
     ----------------------

     At September 30, 2001 and 2000, property and equipment consisted of the
     following:

                                                       2001             2000
                                                       ----             ----
         Property and equipment                   $  2,470,119     $  2,348,587
         Furniture and fixtures                         63,458           63,458
         Vehicles                                      220,456          221,570
         Leasehold improvements                        527,411          521,411
                                                  ------------     ------------
                                                     3,281,444        3,755,026
              Less: accumulated depreciation        (2,144,349)      (1,912,923)
                                                  ------------     ------------

         Total property and equipment, net        $  1,137,095     $  1,242,103


     Depreciation expense for the years ended September 30, 2001 and 2000 was
     $251,529 and $343,870, respectively.


6.   Intangible Assets
     -----------------

     At September 30, 2001 and 2000, intangible assets were comprised of the
     following:


     Tradename

                                                           2001          2000
                                                           ----          ----
         Acquisition cost of the Balboa Bay tradename   $ 300,000     $ 300,000
                                                        ---------     ---------
                                                          300,000       300,000
              Less: accumulated amortization             (101,334)      (51,667)
                                                        ---------     ---------
         Intangible assets, net                         $ 198,666     $ 248,333
                                                        =========     =========

                                       13

<PAGE>


                               Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


6.   Intangible Assets, Continued
     ----------------------------

     Goodwill

     At September 30, 2001 and 2000, goodwill was comprised of the following:

                                                              2001       2000
                                                              ----       ----
         Goodwill resulting from the Company's
          acquisition of Fun City Popcorn, Inc.            $ 442,076  $ 442,076
         Goodwill  resulting from the acquisition
          of T.J. Distributing by Fun City Popcorn, Inc.     121,136    121,136
                                                           ---------  ---------

                                                             563,212    563,212
              Less: accumulated amortization                (205,405)  (172,823)
                                                           ---------  ---------

                                                             357,807    390,389
         Impairment  write-off  (included in the loss
          from discontinued operations)                     (357,807)      --
                                                           ---------  ---------
         Goodwill, net (included in non-current assets of
           discontinued operations)                             --    $ 390,389
                                                           =========  =========

     Amortization expense for the years ended September 30, 2001 and 2000 was
     $49,667 and $20,000, respectively.


7.   Line of Credit
     --------------
                                                              2001       2000
                                                              ----       ----
     At September 30, 2001 and 2000, the
     Company had an operating line of credit
     with a bank with a maximum amount of
     $1,300,000 available, collateralized by
     certain Tone Products assets (with a net
     carrying amount of approximately
     $3,300,000 at September 30, 2001) and
     guaranteed by its two largest
     shareholders, who are also corporate
     officers and members of the board of
     directors of the Company (the "largest
     shareholders"). The bank line of credit
     had a weighted average interest rate of
     7.80% and 8.70% for the years ended
     September 30, 2001 and 2000,
     respectively. The bank line of credit
     expires in February 2002 and is eligible
     for a one-year extension. It is the
     Company's intention at this time to
     extend any unpaid balance at the due
     date.                                                 $  45,316  $ 125,000
                                                           =========  =========

                                       14

<PAGE>


                               Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


8.   Accrued Expenses
     ----------------

     At September 30, 2001 and 2000, accrued expenses consist of the following:

                                                             2001        2000
                                                             ----        ----

         Accrued co-operative promotional expenses        $  76,224   $  74,804
         Accrued real estate taxes                           57,113      45,043
         Accrued payroll and payroll taxes                   65,389      51,750
         Due to shareholder                                    --        39,908
         Other accrued expenses                              62,097      64,309
                                                          ---------   ---------
           Total accrued expenses                         $ 260,823   $ 280,911
                                                          =========   =========

9.   Notes Payable
     -------------

     At September 30, 2001 and 2000, notes payable consist of the following:


     Collateralized

                                                             2001        2000
                                                             ----        ----

     Note payable to a bank, collateralized
     by certain Tone Products assets (with a
     net carrying amount of approximately
     $3,300,000 at September 30, 2001),
     payable in monthly principal
     installments of $3,690 plus accrued
     interest. The note payable was paid in
     full during the year ended September 30,
     2001. Interest was calculated at the
     bank's prime rate plus three-quarters of
     a point (8.00% and 10.00% per annum at
     the date the debt was paid in full and
     September 30, 2000, respectively).                        --     $  25,857

                                       15

<PAGE>


                               Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


9.   Notes Payable, Continued
     ------------------------

     Collateralized, Continued

                                                             2001        2000
                                                             ----        ----

     Term credit agreement with a bank, which
     is a long term line of credit, with a
     maximum amount of $422,000 available,
     collateralized by all Tone Products
     assets (with a net carrying amount of
     approximately $3,300,000 at September
     30, 2001) and guaranteed by the largest
     shareholders, requiring minimum monthly
     payments of $6,791 with any remaining
     unpaid balance due July 2005. Interest
     is calculated at a fixed rate of 9.00%
     per annum.                                           $ 369,118   $ 414,619


     Term credit agreement with a bank, with
     a maximum amount of $300,000 available,
     collateralized by all Tone Products
     assets (with a net carrying amount of
     approximately $3,300,000 at September
     30, 2001), requiring minimum monthly
     payments of $3,571 with any remaining
     unpaid balance due June 2003. Interest
     is calculated at the bank's prime rate
     less one-quarter of a point (5.50% per
     annum at September 30, 2001). In March
     2000, this term credit agreement was
     converted from a line of credit.                       120,738     154,928


     Notes payable, collateralized by certain
     of the Company's vehicles (with a net
     carrying amount of approximately $41,000
     at September 30, 2001). The notes
     provide for monthly installments of
     principal and interest of $3,411,
     maturing through September 2002. At
     September 30, 2001, the interest is
     calculated at rates varying between .90%
     and 7.50% per annum.                                    16,307      34,996
                                                          ---------   ---------

     Total notes payable                                    506,163     630,400
         Less: current maturities                           (95,787)   (120,787)
                                                          ---------   ---------
     Long term portion of notes payable                   $ 410,376   $ 509,613
                                                          =========   =========

                                       16

<PAGE>


                               Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


9.   Notes Payable, Continued
     ------------------------

     Maturities of notes payable for the years ending September 30:


         2002                                                         $  95,787
         2003                                                           147,122
         2004                                                            60,244
         2005                                                           203,010
         2006                                                              --

      Interest expense during the years ended September 30, 2001 and 2000 was
      $90,644 and $62,698, respectively.

10.  Other Income
     ------------

     For each of the two years in the period ended September 30, 2001, the
     components of other income are:

                                                             2001        2000
                                                             ----        ----

         Gain (loss) on the sale of assets, net           $     949   $  (4,005)
         Miscellaneous other income                            --         7,751

           Total other income, net                        $     949   $   3,746
                                                          =========   =========

11.  Income Taxes
     ------------

     At September 30, 2001 and 2000, the components of the provision for income
     taxes are:

                                                             2001        2000
                                                             ----        ----
         Current tax expense:

              Federal                                     $ 155,008   $ 188,707
              State                                          30,161      33,953
                                                          ---------   ---------
                                                            185,168     222,660
                                                          ---------   ---------

         Deferred tax expense (benefit):

              Federal                                       (18,944)    (13,356)
              State                                          (3,480)     (3,094)
                                                          ---------   ---------
                                                            (22,424)    (16,450)
                                                          ---------   ---------

          Total provision                                 $ 162,744   $ 239,110
                                                          =========   =========

                                       17

<PAGE>


                               Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


11.  Income Taxes, Continued
     -----------------------

     Significant components of the Company's deferred income tax assets and
     liabilities at September 30, 2001 and 2000 are:

                                                            2001         2000
                                                            ----         ----
         Deferred income tax asset:

              Allowances for doubtful accounts            $   8,672        --
              State taxes                                     3,501   $   4,060
              Other                                             987         987
                                                          ---------   ---------
         Total deferred income tax asset                     13,160       5,047
              Valuation allowance                              --          --
                                                          ---------   ---------
         Net deferred income tax asset                       13,160       5,047
                                                          ---------   ---------
         Deferred income tax liability:

              Depreciation                                   67,920      67,617
                                                          ---------   ---------
         Total deferred income tax liability                 67,920      67,617
                                                          ---------   ---------
         Net deferred income tax liability                $  54,760   $  62,570
                                                          =========   =========

     Reconciliation of the effective tax rate to the U.S. statutory rate is as
     follows:

                                                             2001        2000
                                                             ----        ----

         Tax expense at U.S. statutory rate                  34.0 %      34.0 %
         State tax provision                                  4.1         4.5
         Non-deductible expenses                              1.1         6.9
         Other                                               (1.2)       (0.2)
                                                             ------      ------
         Effective income tax rate                           38.0 %      45.2 %
                                                             ======      ======

12.  Stock-Based Compensation
     ------------------------

     The Company's 1997 Stock Option Plan (the "plan") adopted in November 1997
     provides for the issuance of up to 500,000 options to purchase shares of
     its common stock to selected officers, outside directors, employees, and
     consultants. The plan's options vest pro rata over a five-year period and
     expire ten years from the date of grant. Under the term of the plan,
     options granted may be either non-qualified options or incentive stock
     options ("ISOs"). The exercise price for non-qualified options or ISOs may
     not be less than the quoted market price of the stock on date the option is
     granted. As of September 30, 2001, no options have ever been granted.

                                       18

<PAGE>


                               Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


13.  Disclosures about Fair Values of Financial Instruments
     ------------------------------------------------------

     The estimated fair value amounts of all financial instruments on the
     Company's September 30, 2001 and 2000 balance sheets, which are held for
     nontrading purposes, have been determined by using available market
     information and appropriate valuation methodologies.


     Fair value is described as the amount at which the instrument could be
     exchanged in a current transaction between informed willing parties, other
     than in a forced liquidation. However, considerable judgment is necessarily
     required in interpreting market data to develop the estimates of fair
     value. Accordingly, the estimates presented herein are not necessarily
     indicative of the amounts that the Company could realize in a current
     market exchange. The use of different market assumptions and/or estimation
     methodologies may have a material effect on the estimated fair value
     amounts. The Company does not have any off balance sheet financial
     instruments.


     The following methods and assumptions were used by the Company in
     estimating fair value disclosures for financial statements:

           Cash and equivalents, accounts receivable - trade, inventories,
           prepaids, accounts payable - trade, line of credit, and certain other
           current liability amounts, as reported in the balance sheet,
           approximate fair value due to the short term maturities of these
           instruments.

           The fair value of non-current notes payable is estimated
           by determining the net present value of future payments. The carrying
           amounts on the balance sheet approximate fair value.

14.  Employee Benefit Plans
     ----------------------

     Profit-Sharing Plan


     In November 1998, the Company terminated its non-contributory profit
     sharing plan (the "plan") that covered substantially all employees. No
     employer contribution was ever made.

     Employee Retirement Plan

     In November 1998, the Company adopted an employee benefit plan, whereby
     eligible employees may elect to defer a portion of their annual
     compensation, up to a maximum of 15%, pursuant to Section 401(k) of the
     Internal Revenue Code. Substantially all employees are eligible to

                                       19

<PAGE>


                              Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


14.  Employee Benefit Plans, Continued
     ---------------------------------

     Employee Retirement Plan, Continued

     participate. The Company matches contributions on a discretionary basis as
     determined by the board of directors, not to exceed 50% of the first 5% of
     the employees elected deferral. The Company recognized $32,819 and $0 of
     expense relating to the employee retirement plan for the years ended
     September 30, 2001 and 2000, respectively.


15.  Related Party Transactions
     --------------------------

     Facilities Operating Leases

     The Company leases its Chicago area facility from an entity owned by the
     two largest shareholders. For the years ended September 30, 2001 and 2000,
     the Company paid this entity facility rent of $390,042 and $333,060
     respectively.


     The Company leased its Las Vegas area facility from a former major Company
     shareholder who was the owner of Fun City prior to its acquisition by the
     Company. For the years ended September 30, 2001 and 2000, the Company paid
     the former major shareholder facility rent of $61,506 and $82,008,
     respectively. The Company relocated the Fun City facility in the Las Vegas
     area to a site that was not owned by a related party.

     Due from Related Party

     As of September 30, 2001 and 2000, the Company had amounts due from Fun
     City of $122,566 and $154,228, respectively. As of the date of the
     "spin-off", September 30, 2001, Fun City and the Company agreed that the
     principal plus accrued interest as of that date will be due on or before
     September 30, 2004. The amount is unsecured with interest calculated at a
     fixed rate of 6.0% per annum. Fun City is a related party as both Fun City
     and the Company are under the control of the largest shareholders who
     collectively own more than 50% of the voting shares of each company.

                                       20

<PAGE>


                              Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


16.  Commitments and Contingencies
     -----------------------------

     Leases

     The Company leases its facilities from related parties (Note 14) on
     operating leases with future minimum lease payments at September 30, 2001,
     as follows:

                2002                                        $   352,548
                2003                                            352,548
                2004                                            352,548
                                                            -----------
                2005                                            352,548
                2006                                            352,548
                                                            -----------

                Total future minimum lease payments         $ 1,762,740
                                                            ===========

     Rental expense was $379,532 and $353,896 during the years ended September
     30, 2001 and 2000, respectively.

     Loan Guarantee

     In prior years, during the ordinary course of business, the Company had
     guaranteed the bank borrowing of its then subsidiary, Fun City. There is
     one remaining Fun City note payable to a bank guaranteed by the Company
     with a balance of $12,372 at September 30, 2001. The loan is due in January
     2003, when the Company anticipates that the loan will be paid in full. As
     of the report date, the loan is paid current.

     Concentration of Credit Risk

     Financial instruments, which potentially subject the Company to
     concentrations of credit risk, consist primarily of trade accounts
     receivable. The Company sells products to private and public companies
     supplying the food services industry, certain governmental entities, and
     public institutions primarily within a 300-mile radius of its Illinois
     facility. Exposure to losses on accounts receivable is principally
     dependent on the individual customer's financial condition, as credit sales
     are not collateralized. The Company monitors its exposure to credit losses
     and reserves for those accounts receivable that it deems to be not
     collectible. No single customer accounted for more than 10% of the accounts
     receivable at September 30, 2001 and 2000 nor of the revenues for the years
     then ended.

                                       21

<PAGE>


                              Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


17.  Earnings (Loss) Per Share
     -------------------------

     Basic earnings (loss) per share ("EPS") is computed by dividing income
     (loss) available to common shareholders by the weighted average number of
     common shares outstanding for the year. Diluted EPS is similar to basic EPS
     except that the weighted average of common shares outstanding is increased
     to include the number of additional common shares that would have been
     outstanding if potentially dilutive common shares had been issued, unless
     their effect would be antidilutive.


     The computation of basic and diluted earnings (loss) per common share at
     September 30, 2001 and 2000 are as follows:

                                                              2001       2000
                                                              ----       ----
         Basic and diluted earnings (loss):
              Income from continuing operations            $ 240,774  $ 384,033
              Loss from discontinued operations             (511,263)  (100,892)
                                                           ---------  ---------
                  Net income (loss) (numerator)            $(270,489) $ 283,141
                                                           =========  =========
         Weighted-average shares outstanding
             (denominator)                                 2,018,990  3,115,860
                                                           =========  =========

         Basic and diluted earnings (loss) per
              common share:

              Income from continuing operations            $    0.12  $    0.12
              Loss from discontinued operations                (0.25)     (0.03)
                                                           ---------  ---------

         Basic and diluted earnings (loss) per
              common share                                 $   (0.13) $    0.09
                                                           =========  =========

18.  Common Stock
     ------------

     Shares Committed

     During the year ended September 30, 1998, the Company committed to issue
     13,793 shares of its common stock over a four-year period as part of the
     acquisition cost of a business. The fair value of the commitment to issue
     the common shares over four years was $21,136. In the year ended September
     30, 2000, the Company paid $10,305 in full satisfaction of the obligation
     in lieu of issuing the remaining 10,305 committed shares of common stock.

     Shares Repurchased and Retired

     During the years ended September 30, 2001 and 2000, the Company repurchased
     503,681 and 839,940 shares of its common stock for $480,596 and $760,416,
     respectively. During the year ended September 30, 2000, 512,290 shares that
     were repurchased were retired. Of these repurchased shares, 468,452 during

                                       22

<PAGE>


                              Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


18.  Common Stock, Continued
     -----------------------

     Shares Repurchased and Retired, Continued

     the year ended September 30, 2000 were repurchased from one of the largest
     shareholders who formerly was a corporate officer and a member of the board
     of directors at an amount greater than the original issuance value
     resulting in a decrease to retained earnings of $395,842 for the year ended
     September 30, 2000.

     Treasury Shares

     The Company accounts for treasury stock under the Par Value Method whereby
     the treasury stock account is recorded at the aggregate par value of the
     shares reacquired and the excess of the purchase price over the par value
     is recorded to the additional paid in capital account. If the Company's
     purchase price is in excess of the amount the shares were originally sold
     to the shareholder, that excess is charged to retained earnings.

19.  Spin-Off Transaction
     --------------------

     On June 17, 2001, the Company's board of directors voted to distribute all
     of the Company's shares of its wholly-owned subsidiary, Fun City Popcorn,
     Inc. ("Fun City") on a pro rata basis to the Company's shareholders of
     record on July 17, 2001, and effective September 30, 2001 distributed the
     Fun City shares to the Company's shareholders. The transaction is accounted
     for as a spin-off, and as a result, retained earnings have been decreased
     by the carrying value of the Company's investment in Fun City of $208,959
     or $0.11 per common share on 1,891,579 shares of record. Accordingly, Fun
     City has been reflected as a discontinued operation for all periods
     presented.


     Selected information for the discontinued Fun City operations is presented
     below:

                                                         For the Year Ended
                                                            September 30,
                                                      -------------------------
                                                         2001          2000
                                                      -----------   -----------

         Revenue                                      $ 1,940,274   $ 2,161,676
         Cost of sales                                  1,561,667     1,759,905
                                                      -----------   -----------
              Gross profit                                378,607       401,771
         Operating and other expenses                     490,463       502,663
         Impairment write-off of goodwill                 357,807          --
                                                      -----------   -----------
         Net loss                                     $  (571,263)  $  (100,892)
                                                      ===========   ===========

                                       23

<PAGE>


                              Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


19.  Spin-Off Transaction, Continued


     The net assets of the discontinued Fun City segment are summarized as of
     September 30, 2000:


         Current assets:

              Cash                                              $    56,855
              Accounts receivable                                   142,635
              Inventory                                             247,593
              Prepaid income taxes                                   14,614
              Other current assets                                    7,614
                                                                -----------
                  Total current assets                              469,311
                                                                -----------
         Current liabilities:

              Accounts payable and other liabilities                 60,049
              Line of credit                                         89,954
              Notes payable, current                                 36,448
                                                                -----------
                  Total current liabilities                         186,451
                                                                -----------

         Current assets of discontinued operations, net         $   282,860


         Non-current assets:

              Property and equipment, net                       $   235,311
              Intangible assets, net                                390,389
              Other non-current assets                                4,648
                                                                -----------
                  Total non-current assets                          630,348
                                                                -----------
         Non-current liabilities:

              Deferred income taxes - non-current                       935
              Notes payable - non-current                            37,823
              Due to Tone Products, Inc.                            154,228
                                                                -----------
                  Total non-current liabilities                     192,986
                                                                -----------

         Non-current assets of discontinued operations, net     $   437,362
                                                                ===========

                                       24

<PAGE>


                              Tone Products, Inc.

                 Notes to the Consolidated Financial Statements

                    As of September 30, 2001 and 2000 and For
             Each of the Two Years in the Period Ended September 30, 2001
--------------------------------------------------------------------------------


19.  Spin-Off Transaction, Continued
     -------------------------------

     No net assets, current or non-current, as of September 30, 2001 are
     presented as the discontinued operation was "spun off" in a stock dividend
     to the Company's shareholders prior to the year-end.

     The acquisition of Fun City in 1996 by the Company was based in part on a
     business model, which contemplated sales of the Company's products to the
     Las Vegas casino community through Fun City's existing customers and
     distribution system. Several attempts have been made since the acquisition
     to introduce these products into this market, which have not been
     successful. More recently, due to consolidations in this Las Vegas market
     place, Fun City's ability to introduce beverage products to the casinos has
     become more limited. Accordingly, the Company and Fun City have decided not
     to pursue further attempts by Fun City to sell the Company's products.
     Accordingly, at June 17, 2001 the Company and Fun City have evaluated the
     goodwill recorded in connection with the acquisition of Fun City and
     concluded that it is impaired. As a result, the remaining Fun City
     unamortized acquisition goodwill of $264,263 has been written off and is
     included in discontinued operations.

     In 1998, Fun City acquired T.J. Distributing in an attempt to expand its
     customer base through which to market its own products as well as those of
     the Company. When Fun City and the Company decided that Fun City would not
     pursue further attempts to sell the Company's products, the goodwill
     related to the acquisition of T.J. Distributing was evaluated and was
     determined to be impaired. As a result, on June 17, 2001 the Company wrote
     off the related unamortized goodwill of $93,544 and is included in
     discontinued operations.

     The Company and Fun City have entered into certain oral agreements
     governing various ongoing relationships, including the provision of support
     services and a tax allocation agreement. The tax allocation agreement
     provides for the allocation of tax attributes to each company as if it had
     actually filed with respective tax authorities.

20.  Geographical Business Segments
     ------------------------------

     The Company approved the spin-off of its Fun City operations on June 17,
     2001. Accordingly, the business segment information for the discontinued
     Fun City segment is presented in Note 19, and the Company's Tone Products
     segment is the only continuing operation presented in the consolidated
     financial statements.

                                       25

<PAGE>


ITEM 8.   CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------
NONE


PART III

ITEM 9.   DIRECTORS,   EXECUTIVE   OFFICERS,   PROMOTERS  AND  CONTROL  PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
--------------------------------------------------------------------------------

Directors and Executive Officers

     The following table sets forth certain information regarding the Company's
executive officers and directors:
                                                              Officer or
       Name              Age     Office                       Director Since(1)
       ----              ---     ------                       -----------------

Timothy E. Evon          48      President, Chairman of the    October, 1996
                                 Board, Chief Executive
                                 Officer, and Director

Thomas J. Evon           47      Vice-President - Special      November, 1996
                                 Accounts, and Director

William H. Hamen         41      Secretary, Treasurer,
                                 Chief Financial Officer
                                 and Director                  November, 1996



(1)  Reflects the date TPI was acquired by the Company. Messrs. Evon and Evon
     had been directors of TPI, the Company's predecessor, from September 1978.

     Directors hold office for a period of one year from their election at the
annual meeting of stockholders and until their successors are duly elected and
qualified. Officers of the Company are elected by, and serve at the discretion
of, the Board of Directors. Directors not employed by the Company do not receive
fees for attending Board of Directors' meetings but are reimbursed for
out-of-pocket expenses. Timothy E. Evon and Thomas J. Evon are brothers.

Background

     The following is a summary of the business experience of each executive
officer and director of the Company for at least the last five years:

     Timothy E. Evon has been President of TPI, and subsequently the Company,
since 1989 and is responsible for the Company's overall operations, with
emphasis upon management of production facilities and sauce operations.

<PAGE>


     Thomas J. Evon has been an executive officer of TPI, and subsequently the
Company, since 1989 with principal responsibility for marketing the Company's
products primarily to government agencies, including school districts, colleges
and prisons.

     William H. Hamen has been the Company's controller since 1996 and was named
its Secretary, Treasurer and Chief Financial Officer in November 1998 with
principal responsibility for accounting and related functions. Previously, Mr.
Hamen was an independent systems consultant and a computer network engineer
since 1992.


ITEM 10.  EXECUTIVE COMPENSATION
--------------------------------

     The following table sets forth certain information concerning compensation
paid to the Company's Chief Executive Officer for the years ended September 30,
2000 and 2001. Timothy E. Evon currently receives an annual salary of $132,600.

<TABLE>
<CAPTION>
                                     Summary Compensation Table

                                              Annual                       Long Term
                                           Compensation                   Compensation
                                           ------------                   ------------
     Name and                                  Other Annual    Awards                    All Other
Principal Position          Year      Salary      Bonus      Compensation    Options    Compensation
-------------------         ----      ------    ---------    ------------    -------    ------------
<S>                         <C>       <C>           <C>                <C>        <C>   <C>
Timothy E. Evon,            2001      $115,215      $23,000      $0             $0           $0
Chief Executive Officer     2000      $104,300       $3,450      $0             $0           $0

Thomas J. Evon,             2001      $101,380      $20,000      $0             $0           $0
Vice President

</TABLE>

Stock Option Plan

     In November 1997, the Company adopted its 1997 Stock Option Plan (the
"Plan"), which provides for the grant to employees, officers, directors and
consultants of options to purchase up to 500,000 shares of Common stock,
consisting of both "incentive stock options" within the meaning of Section 422A
of the United States Internal Revenue Code of 1986 (the "Code") and
"non-qualified" options. Incentive stock options are issuable only to employees
of the Company, while non-qualified options may be issued to non-employee
directors, consultants and others, as well as to employees of the Company.

     The Plan is administered by the Board of Directors, which determines those
individuals who shall receive options, the time period during which the options
may be partially or fully exercised, vesting periods required for issuance of
options, the number of shares of Common Stock that may be purchased under each
option and the option price.

<PAGE>


     The per share exercise price of the Common Stock subject to an incentive
stock option may not be less than the fair market value of the Common Stock on
the date the option is granted. The per share exercise price of the Common Stock
subject to a non-qualified option is established by the Board of Directors. The
aggregate fair market value (determined as of the date the option is granted) of
the Common Stock that any employee may purchase in any calendar year pursuant to
the exercise of incentive stock options may not exceed $100,000. No person who
owns, directly or indirectly, at the time of the granting of an incentive stock
option to him, more than 10% of the total combined voting power of all classes
of stock of the Company is eligible to receive any incentive stock options under
the Plan unless the option price is at least 110% of the fair market value of
the Common Stock subject to the option, determined on the date of grant.
Non-qualified options are not subject to these limitations.

     No incentive stock option may be transferred by an optionee other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee, the option will be exercisable only by him or her. In the event of
termination of employment other than by death or disability, the optionee will
have three months after such termination during which he or she can exercise the
option. Upon termination of employment of an optionee by reason of death or
permanent total disability, his or her option remains exercisable for 12 months
thereafter to the extent it was exercisable on the date of such termination. No
similar limitation applies to non-qualified options.

     Options under the Plan must be granted within ten years from the effective
date of the Plan. The incentive stock options granted under the Plan cannot be
exercised more than ten years from the date of grant except that incentive stock
options issued to 10% or greater stockholders are limited to five year terms.
All options granted under the Plan provide for the payment of the exercise price
in cash or by delivery to the Company of shares of Common Stock already owned by
the optionee having a fair market value equal to the exercise price of the
options being exercised, or by a combination of such methods of payment.
Therefore, an optionee may be able to tender shares of Common Stock to purchase
additional shares of Common Stock and may theoretically exercise all of his
stock options with no additional investment other than his original shares. Any
unexercised options that expire or that terminate upon an optionee ceasing to be
an officer, director or an employee of the Company become available once again
for issuance.

     As of the date of this Report, options to purchase 400,000 shares have been
granted under the Plan, of which 170,000 options have been issued to the
Company's executive officers and directors. Options are exercisable at $1.00 to
$1.75 per share until November 2007, and none of such options have been
exercised.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

     The following table sets forth certain information as of November 30, 2001
concerning stock ownership of the Company's Common Stock by all persons known to
the Company to own beneficially 5% or more of the outstanding shares of Common
Stock, by each director and by all directors and officers as a group.

     Except as otherwise noted, the persons named in the table own the shares
beneficially and of record and have sole voting and investment power with
respect to all shares of Common Stock shown as owned by them, subject to

<PAGE>


community property laws, where applicable. Each stockholder's address is in care
of the Company at 2129 North 15th Street, Melrose Park, Illinois 60160. The
table also reflects all shares of Common Stock which may be acquired within 60
days from the date hereof upon exercise of stock options or common stock
purchase warrants.

                                        Number of
                                        Shares of
                                         Common
                                       Stock Owned                   Percent of
                                        of Record                   Common Stock
       Name                        and Beneficially(1)                 Owned
       ----                        -------------------                 -----

Timothy E. Evon                          748,166                       31.2%
Thomas J. Evon                           748,166                       31.2%
William H. Hamen                         108,500                        4.5%
Cede & Co.                               190,394                        7.9%
All officers and directors             1,604,832                       67.1%
as a group (3 persons)
-----------

(1) Includes Stock Options exercisable within 60 days from the date hereof.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     The Company believes that the transactions described below were fair,
reasonable and consistent with the terms of transactions which the Company could
have entered into with nonaffiliated third parties. All future transactions with
affiliates will be approved by a majority of the Company's disinterested
directors.

     The Company leases office, warehouse and factory space in Melrose Park,
Illinois from certain of its executive officers and directors. See "Item 2 -
Description of Property."

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------

     a. Exhibits: None
     b. Reports on Exhibit 8K: None


<PAGE>


                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned,
hereunto duly authorized, in Melrose Park, Illinois, on December 24, 2001.


                                                TONE PRODUCTS, INC.



                                                By  /s/  Timothy E. Evon
                                                  ------------------------------
                                                         Timothy E. Evon
                                                         President

     Pursuant to the requirements of the Securities Act of 1933, as amended,
this Report has been signed below by the following persons on the dates
indicated.

       Signature                        Title                        Date
       ---------                        -----                        ----

/s/  Timothy E. Evon            President Chief Executive      December 24, 2001
---------------------------     Officer, and Director
     Timothy E. Evon


/s/  Thomas J. Evon             Vice-President - Special       December 24, 2001
---------------------------     Accounts and Director
     Thomas J. Evon


/s/  William H. Hamen           Secretary, Treasurer,          December 24, 2001
---------------------------     Chief Financial Officer
     William H. Hamen           (Principal Accounting Officer)
                                and Director