HAIN FOOD GROUP INC, 8-K/A, 1998-07-23

HAIN FOOD GROUP INC
8-K/A, 1998-07-23
FOOD AND KINDRED PRODUCTS

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

------------------

AMENDMENT NO. 1 TO FORM 8-K

CURRENT REPORT

------------------

Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)
July 1, 1998

THE HAIN FOOD GROUP, INC.
--------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 0-22818 22-3240619
- --------------------------- ------------- -----------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)

50 Charles Lindbergh Boulevard
Uniondale, New York 11553
---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (516) 237-6200
---------------

<PAGE>

Item 7. Financial Statements and Exhibits.

The Hain Food Group, Inc. (the "Company") hereby amends its
Current Report on Form 8-K dated July 1, 1998 (filed with the Securities and
Exchange Commission on July 14, 1998) to provide the financial statements of
businesses acquired and the pro forma financial information omitted from that
report pursuant to Item 7 of Form 8-K.

(a) Financial statements of business acquired.

(i) The financial statements of (a) AMI Operating Inc. ("AOI") for each
of the years in the three year period ended July 31, 1997, (b) of Dana
Alexander Inc. ("Terra") for each of the years in the two year period ended
December 31, 1996 and for the period from January 1, 1997 to July 31, 1997
and (c) of Garden of Eatin' ("GOE") for the period from January 1, 1997
through December 23, 1997, (ii) the related reports of independent
accountants and (iii) the unaudited financial statements (a) of AOI for the
nine months ended April 30, 1998 and April 30, 1997, (b) of Terra for the
nine months ended April 30, 1998 and April 30, 1997 and (c) of GOE for the
period from December 24, 1997 to March 31, 1998 and the three months ended
March 31, 1997 are included in pages F-3 through F-62.

(b) Pro forma financial information.

The unaudited pro forma condensed combined balance sheet of the Company
as of March 31, 1998, the unaudited pro forma condensed statements of income
for the year ended June 30, 1997 and the nine months ended March 31, 1998 and
the unaudited Combined Condensed Balance Sheet of the Acquired Companies and
the unaudited Historical Combining Statements of Income of the Acquired
Companies for the fiscal year ended July 31, 1997 are included in pages F-63
through F-70.

(2.1) Agreement and Plan of Merger by and between The Hain Food Group,
Inc. and Arrowhead Mills, Inc. dated April 24, 1998. (Incorporated by
reference to Annex A to the Company's Registration Statement on Forms S-4/S-3,
File No. 333-56319).

(2.2) Agreement and Plan of Merger by and between The Hain Food Group,
Inc. and Garden of Eatin', Inc. dated April 24, 1998. (Incorporated by
reference to Annex B to the Company's Registration Statement on Forms S-4/S-3,
File No. 333-56319).

(2.3) First Amendment to Agreement and Plan of Merger by and between
The Hain Food Group, Inc. and Arrowhead Mills, Inc. dated June 25, 1998.
(Incorporated by reference to Exhibit 2.6 to the Company's Registration
Statement on Forms S-4/S-3, File No. 333-56319).

(2.4) First Amendment to Agreement and Plan of Merger by and between
The Hain Food Group, Inc. and Garden of Eatin', Inc. dated June 25, 1998.
(Incorporated by reference to Exhibit 2.5 to the Company's Registration
Statement on Forms S-4/S-3, File No. 333-56319).

(2.5) Voting Agreement and Irrevocable Proxy between The Hain Food
Group, Inc. and Alexander Dzieduszycki, The George Dana Sinkler, Jr.
Revocable Living Trust and TSG2 L.P. dated April 24, 1998 (Incorporated by
reference to Exhibit 2.3 to the Company's Registration Statement on
Forms S-4/S-3, File No. 333-56319).

(2.6) Voting Agreement and Irrevocable Proxy between The Hain Food
Group, Inc. and TSG2 L.P. and Al H. Jacobson dated April 24, 1998
(Incorporated by reference to Exhibit 2.4 to the Company's Registration
Statement on Forms S-4/S-3, File No. 333-56319).

(23.1) Consent of McGinty & Associates, Independent Auditors.

(23.2) Consent of Katz & Bloom, LLC, Independent Auditors.

(23.3) Consent of McGladrey & Pullen, LLP, Independent Auditors.

*(99.1) Press release of the Company dated July 1, 1998.

*Previously filed.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.

THE HAIN FOOD GROUP, INC.

Dated: July 23, 1998 By: /s/ Jack Kaufman
---------------------------
Jack Kaufman
Chief Financial Officer

3
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF AMI OPERATING, INC. FOR THE FISCAL YEAR ENDED
JULY 31, 1997 (AUDITED) AND THE NINE MONTHS ENDED APRIL 30, 1998 AND 1997
(UNAUDITED)

Independent Auditor's Report....................................................... F-3
Consolidated balance sheets........................................................ F-4
Consolidated statement of income................................................... F-5
Consolidated statement of stockholders' equity..................................... F-6
Consolidated statement of cash flows............................................... F-7
Notes to consolidated financial statements......................................... F-8

FINANCIAL STATEMENTS OF AMI OPERATING, INC. FOR THE FISCAL YEARS ENDED JULY 31, 1996
AND 1995(AUDITED)

Independent Auditor's Report....................................................... F-14
Consolidated balance sheet......................................................... F-15
Consolidated statements of operations.............................................. F-17
Consolidated statements of stockholders' equity.................................... F-18
Statements of cash flows........................................................... F-19
Notes to consolidated financial statements......................................... F-20

FINANCIAL STATEMENTS OF DANA ALEXANDER, INC. AS OF JULY 31, 1997 AND FOR THE PERIOD
FROM JANUARY 1, 1997 THROUGH JULY 31, 1997 (AUDITED) AND THE NINE MONTHS ENDED
APRIL 30, 1998 AND 1997 (UNAUDITED)
Independent Auditor's Report....................................................... F-28
Balance sheets..................................................................... F-29
Statements of income............................................................... F-30
Statements of stockholders' equity................................................. F-31
Statements of cash flow............................................................ F-32
Supplemental disclosure of cash flow information................................... F-33
Notes to financial statements...................................................... F-34

FINANCIAL STATEMENTS OF DANA ALEXANDER, INC. FOR THE FISCAL YEARS ENDED DECEMBER 31,
1996 AND 1995 (AUDITED)

Independent Auditor's Report....................................................... F-40
Balance sheet...................................................................... F-41
Statement of operations and retained earnings...................................... F-42
Statements of common stock and paid in capital..................................... F-43
Statement of cash flows............................................................ F-44
Supplemental disclosure of cash flow information................................... F-45
Notes to financial statements...................................................... F-46

FINANCIAL STATEMENTS OF GARDEN OF EATIN', INC. AS OF DECEMBER 23, 1997
(AUDITED) AND FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 23, 1997
(UNAUDITED) AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND THE PERIOD FROM DECEMBER 24, 1997 THROUGH MARCH 31, 1998 (UNAUDITED) AND
THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
Independent Auditor's Report....................................................... F-51
Balance sheets..................................................................... F-52
Statements of operations........................................................... F-53
Statements of stockholders' equity................................................. F-54
Statements of cash flows........................................................... F-55
Notes to financial statements...................................................... F-57
</TABLE>

F-1
<PAGE>
<TABLE>
<S> <C>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (UNAUDITED)

Unaudited pro forma combined financial statements.................................. F-63
Pro forma condensed combined balance sheet as of March 31, 1998.................... F-64
Pro forma condensed statement of income for the year ended June 30, 1997........... F-65
Pro forma condensed statement of income for the nine months ended March 31, 1998... F-66
Notes to pro forma condensed combined financial Information........................ F-67
Combining condensed balance sheets of Acquired Companies........................... F-69
Historical combining statements of income for Acquired Companies for the fiscal
year ended July 31, 1997......................................................... F-70
</TABLE>

F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
AMI Operating, Inc. and Subsidiaries
Hereford, Texas

We have audited the accompanying consolidated balance sheet of AMI
Operating, Inc. and Subsidiaries (collectively, "Arrowhead") as of July 31,
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of Arrowhead's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides 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 AMI
Operating, Inc. and Subsidiaries as of July 31, 1997 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

McGladrey & Pullen, LLP

Anaheim, California
May 27, 1998

F-3

<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
APRIL 30,
JULY 31, 1997 1998
------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS (Note 5)
Current Assets
Cash............................................................................. $ -- $ 69,000
Accounts receivable, net of allowance for doubtful accounts 1997 $256,000; 1998
$338,000(Notes 2 and 6)........................................................ 2,245,000 2,026,000
Other receivables................................................................ 223,000 12,000
Inventories (Notes 3 and 6)...................................................... 4,759,000 4,187,000
Prepaid expenses................................................................. 98,000 203,000
Deferred taxes (Note 8).......................................................... 290,000 290,000
------------- -------------
Total current assets......................................................... 7,615,000 6,787,000
Property, Plant and Equipment, net (Notes 4 and 6)................................. 3,855,000 3,731,000
Package Design Costs, net of accumulated amortization 1997 $590,000; 1998
$837,000......................................................................... 865,000 746,000
Other Assets....................................................................... 44,000 44,000
------------- -------------
$ 12,379,000 $ 11,308,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Checks in excess of bank balance................................................. $ 258,000 $ --
Note payable (Note 5)............................................................ 2,000,000 --
Current maturities of long-term debt (Note 6).................................... 418,000 --
Accounts payable................................................................. 1,186,000 1,334,000
Accrued expenses................................................................. 510,000 727,000
Income taxes payable............................................................. 450,000 175,000
------------- -------------
Total current liabilities.................................................... 4,822,000 2,236,000
Long-Term Debt, less current maturities, 1998 amount payable to stockholder (Note
6)............................................................................... 1,399,000 3,018,000
Deferred Taxes (Note 8)............................................................ 415,000 415,000
Commitments and Contingencies (Notes 3, 7 and 9)
Stockholders' Equity (Note 10)
Preferred stock, par value $.01 per share; authorized 2,000,000 shares; issued
and outstanding none........................................................... -- --
Common stock, par value $1.00 per share; authorized 10,000,000 shares; issued and
outstanding 1,000 shares....................................................... 1,000 1,000
Additional paid-in capital....................................................... 2,376,000 2,376,000
Retained earnings................................................................ 3,366,000 3,262,000
------------- -------------
5,743,000 5,639,000
------------- -------------
$ 12,379,000 $ 11,308,000
------------- -------------
------------- -------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
APRIL 30, APRIL 30,
1997 1998
JULY 31, 1997 (UNAUDITED) (UNAUDITED)
------------- ------------- -------------
<S> <C> <C> <C>
Net Sales (Note 2).................................................. $ 25,977,000 $ 19,646,000 $ 21,201,000
Cost of Sales....................................................... 19,436,000 14,628,000 15,500,000
------------- ------------- -------------
Gross profit.................................................. 6,541,000 5,018,000 5,701,000
Management Fee to Stockholder....................................... 240,000 180,000 180,000
Selling, General and Administrative Expenses........................ 4,547,000 3,076,000 3,489,000
------------- ------------- -------------
Operating income.............................................. 1,754,000 1,762,000 2,032,000
Interest Expense.................................................... 394,000 280,000 256,000
------------- ------------- -------------
Income before income taxes.................................... 1,360,000 1,482,000 1,776,000
Provision for Income Taxes (Note 8)................................. 570,000 622,000 746,000
------------- ------------- -------------
Net income.................................................... $ 790,000 $ 860,000 1,030,000
------------- ------------- -------------
------------- ------------- -------------
Basic and diluted earnings per share................................ $ 790 $ 860 $ 1,030
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding................ 1,000 1,000 1,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-5
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, July 31, 1996....................................... $ 1,000 $ 2,094,000 $ 2,576,000 $ 4,671,000
Shares of parent company common stock issued as payment of
accounts payable......................................... -- 105,000 -- 105,000
Shares of parent company common stock for services......... -- 177,000 -- 177,000
Net income................................................. -- -- 790,000 790,000
----------- ------------ ------------ ------------
Balance, July 31, 1997....................................... 1,000 2,376,000 3,366,000 5,743,000
Dividends on common stock $1,134/share (unaudited)........... -- -- (1,134,000) (1,134,000)
Net income (unaudited)..................................... -- -- 1,030,000 1,030,000
----------- ------------ ------------ ------------
Balance, April 30, 1998 (unaudited)....................... $ 1,000 $ 2,376,000 $ 3,262,000 $ 5,639.000
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-6
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
NINE NINE
MONTHS MONTHS
ENDED ENDED
JULY 31, APRIL 30, APRIL 30,
1997 1997 1998
------------ ---------------- ----------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash Flows from Operating Activities
Cash received from customers................................ $24,916,000 $ 18,436,000 $ 21,631,000
Income tax refunds received................................. 50,000 23,000 --
Cash paid to suppliers and employees.......................... (23,590,000) (17,469,000) (17,730,000)
Interest paid............................................... (410,000) (299,000) (196,000)
Income taxes paid........................................... (103,000) (1,021,000)
------------ ---------------- ----------------
Net cash provided by operating activities............. 863,000 691,000 2,684,000
------------ ---------------- ----------------
Cash Flows from Investing Activities
Proceeds from sale of equipment............................. 35,000 7,000 --
Purchase of property, plant and equipment................... (566,000) (386,000) (295,000)
Capitalized package design costs............................ (163,000) (140,000) (128,000)
------------ ---------------- ----------------
Net cash (used in) investing activities............... (694,000) (519,000) (423,000)
------------ ---------------- ----------------
Cash Flows from Financing Activities
Decrease in checks in excess of bank balance................ (167,000) (386,000) (258,000)
Net payments on revolving credit agreement.................. (306,000) (300,000) (2,000,000)
Proceeds from long-term borrowings.......................... 1,229,000 800,000 3,232,000
Principal payments on long-term borrowings.................. (950,000) (311,000) (2,032,000)
Cash dividends paid......................................... -- -- (1,134,000)
------------ ---------------- ----------------
Net cash (used in) financing activities............... (194,000) (197,000) (2,192,000)
------------ ---------------- ----------------
Net increase (decrease) in cash....................... (25,000) (25,000) 69,000
Cash
Beginning of period......................................... 25,000 25,000 --
------------ ---------------- ----------------
End of period............................................... $ -- $ -- $ 69,000
------------ ---------------- ----------------
------------ ---------------- ----------------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income.................................................. $ 790,000 $ 860,000 $ 1,030,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 531,000 386,000 419,000
Amortization.............................................. 273,000 201,000 247,000
Gain on sale of equipment................................. (27,000) (2,000) --
Bad debts................................................. 58,000 42,000 59,000
Common stock issued for services.......................... 177,000 -- --
Deferred taxes............................................ (72,000) (38,000) --
Change in assets and liabilities:
(Increase) decrease in:
Receivables............................................. (1,199,000) (1,252,000) 371,000
Inventories............................................. (128,000) 10,000 572,000
Prepaid expenses........................................ (11,000) (93,000) (106,000)
Increase (decrease) in:
Accounts payable and accrued expenses................... (89,000) (60,000) 367,000
Income taxes payable.................................... 560,000 637,000 (275,000)
------------ ---------------- ----------------
Net cash provided by operating activities............. $ 863,000 $ 691,000 $ 2,684,000
------------ ---------------- ----------------
------------ ---------------- ----------------
Supplemental Schedule of Noncash Investing and Financing
Activities
Parent company common stock issued as payment for accounts
payable................................................... $ 105,000 $ -- $ --
------------ ---------------- ----------------
------------ ---------------- ----------------
Offset of note receivable against related note payable...... $ 168,000 $ 168,000 $ --
------------ ---------------- ----------------
------------ ---------------- ----------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-7

<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INFORMATION RELATING TO THE INTERIM PERIODS APRIL 30, 1998 AND 1997 IS
UNAUDITED

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS:

AMI Operating, Inc. ("Arrowhead"), formally known as Arrowhead Mills, Inc.,
manufactures and distributes organic foods and pastas throughout the United
States on credit terms that Arrowhead establishes for individual customers. The
Arrowhead's customers are primarily wholesale distributors. Arrowhead's
customers take certain unauthorized credits upon payment. Arrowhead rebills the
customer for the amount of the credit. The allowance for doubtful accounts at
July 31, 1997 includes a specific allowance for these items of approximately
$187,000. At July 31, 1997, these receivables totaled approximately $280,000.
Arrowhead operates under compliance with specific sections of the Food, Drug and
Cosmetic Act of 1938 and the Good Manufacturing Practices Act of 1967 and
subsequent revisions.

On November 17, 1997, Arrowhead's stockholders exchanged all of their stock
in Arrowhead with a newly formed holding company which is using the name
Arrowhead Mills, Inc. All stock and earnings per share information is presented
as if this transaction occurred at the beginning of the earliest period
presented.

UNAUDITED INTERIM FINANCIAL INFORMATION:

The unaudited interim financial information presented herein as of
April 30, 1998 and for the periods ended April 30, 1997 and 1998 reflects
all adjustments which are, in the opinion of management, necessary for a fair
presentation for the periods presented. Such adjustments are of a normal
recurring nature. The financial information is not intended to be a complete
presentation in accordance with generally accepted accounting principles.
Interim financial results are not necessarily indicative of the results
Arrowhead will incur during its fiscal year.

A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:

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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements include accounts of AMI Operating,
Inc. and its wholly-owned subsidiaries, DNF Acquisition Company, Deboles
Nutritional Foods, Inc. and Deaf Smith Farms, Inc., collectively referred to as
Arrowhead. All significant intercompany balances have been eliminated in
consolidation.

CASH CONCENTRATION:

At July 31, 1997, Arrowhead had approximately $292,000 on deposit in a
single financial institution. Deposits in excess of $100,000 are not insured by
the FDIC.

F-8
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION RELATING TO THE INTERIM PERIODS APRIL 30, 1998 AND 1997 IS
UNAUDITED

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES:

Inventories are stated at the lower of cost (first-in, first-out method) or
market.

PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives as follows:

<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings and improvements............................................................ 15-40
Machinery and equipment............................................................... 5-20
Office furniture...................................................................... 5-10
Vehicles.............................................................................. 3-5
</TABLE>

PACKAGE DESIGN COSTS:

Arrowhead capitalizes costs incurred for the design of its packaging. These
costs are amortized over the estimated life of the packaging of five years.

LONG-LIVED ASSETS:

Arrowhead evaluates long-lived assets for impairment under Financial
Accounting Standards Board (FASB) Statement No. 121, "ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF". Under those rules, long-term
and intangible assets are evaluated for possible impairment when events or
circumstances indicate the carrying amount of those assets may not be
recoverable. Recoverability is assessed based on the gross undiscounted
estimated future cash flows before interest charges. If an impairment is
indicated, the amount would be determined by comparing the estimated fair value
to the carrying value of the asset being evaluated. In the absence of quoted
market prices, fair value is estimated by using the projected cash flows
discounted at a rate commensurate with the risks involved.

ADVERTISING:

Arrowhead expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was approximately $150,000 during
the year ended July 31, 1997. There is no prepaid advertising as of July 31,
1997.

INCOME TAXES:

Deferred income taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.

F-9
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION RELATING TO THE INTERIM PERIODS FEBRUARY 28, 1998 AND 1997 IS
UNAUDITED

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE:

Earnings per share are computed for all periods presented in accordance with
FASB Statement No. 128, "Earnings Per Share," using the weighted average number
of common shares outstanding during the respective periods.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

In 1997, Arrowhead adopted FASB Statement No. 107, "DISCLOSURES ABOUT FAIR
VALUES OF FINANCIAL INSTRUMENTS". The following methods and assumptions were
used to estimate the fair value of each class of financial instruments:

CASH AND CASH EQUIVALENTS: The carrying amount approximates fair value
because of the short maturity of those instruments.

NOTES PAYABLE AND LONG-TERM DEBT: The carrying amount approximates fair
value because the interest rate fluctuates with the lending banks' prime
rate.

NOTE 2. MAJOR CUSTOMERS

Arrowhead had net sales to two customers in fiscal year 1997 that
individually accounted for more than 10% of Arrowhead's net sales. Net sales to
these customers were approximately $2,801,000 and $2,659,000 and net trade
receivables from these customers were $167,820 and $265,000, respectively.
For the nine months ended April 30, 1998 net sales to these customers were
$2,340,000 and $2,447,000 and as of April 30, 1998 trade receivables were
$157,000 and $297,000 respectively.

NOTE 3. INVENTORIES AND COMMITMENTS

<TABLE>
<CAPTION>
APRIL 30,
JULY 31, 1998
1997 (UNAUDITED)
------------ ----------------
<S> <C> <C>
Raw materials................................................ $2,419,000 $ 2,072,000
Finished goods............................................... 904,000 996,000
Resale products.............................................. 659,000 567,000
Packaging.................................................... 777,000 552,000
------------ ----------------
$4,759,000 $ 4,187,000
------------ ----------------
------------ ----------------
</TABLE>

Arrowhead had fixed price commitments as of July 31, 1997 to purchase
approximately $850,000 of grains and other commodities through May 1998, to be
used in production. Arrowhead has not purchased any futures or option contracts.

F-10
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION RELATING TO THE INTERIM PERIODS APRIL 30, 1998 AND 1997 IS
UNAUDITED

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<S> <C>
Land............................................................ $ 117,000
Buildings and improvements...................................... 2,557,000
Machinery and equipment......................................... 4,597,000
Office furniture................................................ 85,000
Vehicles........................................................ 579,000
Construction in progress........................................ 37,000
---------
7,972,000
Less accumulated depreciation................................... 4,117,000
---------
$3,855,000
---------
---------
</TABLE>

NOTE 5. NOTE PAYABLE

At July 31, 1997, Arrowhead had a $2,000,000 revolving line of credit with a
bank. The line was collateralized by substantially all of the assets of
Arrowhead. The agreement bore interest at prime rate (8.5% at July 31, 1997)
plus 1% and matured in February 1998. The agreement was personally guaranteed by
a stockholder/officer of Arrowhead and contained nonfinancial covenants. Total
borrowings on the revolving line of credit were $2,000,000 as of July 31, 1997.

NOTE 6. LONG-TERM DEBT

Long-term debt at July 31, 1997 consists of the following:

<TABLE>
<S> <C>
Note payable to bank, secured by deed of trust and equipment,
payable in monthly installments of $21,000, including interest
at prime rate plus .5%, through November 2000. The note
contains a financial covenant on cash flow coverage........... $ 711,000

Note payable to bank, secured by accounts receivable and
inventory, payable in monthly installments of $17,000,
including interest at prime rate plus 1% through August
2001.......................................................... 687,000

Note payable to bank, secured by certain equipment, payable in
monthly installments of $9,000, including interest at prime
rate plus 1% through April 2002............................... 411,000

Various others.................................................. 8,000
---------
1,817,000
Less current maturities......................................... 418,000
---------
$1,399,000
---------
---------
</TABLE>

The aggregate amount of long-term debt maturing in future years are as
follows: 1998 $418,000; 1999 $453,000; 2000 $494,000; 2001 $363,000; and 2002
$89,000.

F-11
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION RELATING TO THE INTERIM PERIODS APRIL 30, 1998 AND 1997 IS
UNAUDITED

NOTE 6. LONG-TERM DEBT (CONTINUED)
UNAUDITED INTERIM INFORMATION:

On November 17, 1997, Arrowhead's parent borrowed $21,000,000 and repaid all
of Arrowhead's notes payable and long-term debt totaling $3,232,000. Arrowhead
has recorded a payable to its parent as long-term debt.

NOTE 7. EMPLOYEE BENEFIT PLAN

Arrowhead has a qualified 401(k) employee benefit plan for substantially all
employees who have met the minimum age and service requirements. Each
participant is able to defer a maximum of 15% of their annual compensation or
$10,000, whichever is less, subject to any restrictions imposed by ERISA
requirements. Arrowhead contributes an amount equal to 50% of each employee's
contribution up to the first 5% of the employee's weekly compensation.
Additionally, Arrowhead may make discretionary contributions. During fiscal year
1997, Arrowhead did not make any discretionary contributions. Arrowhead's total
matching contributions to the Plan for fiscal year 1997 were approximately
$33,000.

NOTE 8. INCOME TAXES

The provision for income taxes consist of the following:

<TABLE>
<S> <C>
Current........................................................... $ 642,000
Deferred.......................................................... (72,000)
---------
$ 570,000
---------
---------
</TABLE>

A reconciliation of income tax expense to the amount computed by applying
statutory income tax rates to earnings before income taxes:

<TABLE>
<S> <C>
Federal income tax................................................ $ 476,000
State income tax, net of federal benefit.......................... 82,000
Nondeductible expenses............................................ 9,000
Other............................................................. 3,000
---------
$ 570,000
---------
---------
</TABLE>

Significant components of Arrowhead's deferred tax assets and liabilities as
of July 31, 1997 are as follows:

<TABLE>
<S> <C>
Deferred Tax Assets
Allowance for doubtful accounts................................ $ 102,000
Compensation................................................... 150,000
Inventory...................................................... 38,000
---------
Total deferred tax assets.................................. 290,000
Deferred Tax Liabilities
property, plant and equipment.................................. (415,000)
---------
$(125,000)
---------
---------
</TABLE>

F-12
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION RELATING TO THE INTERIM PERIODS APRIL 30, 1998 AND 1997 IS
UNAUDITED

NOTE 8. INCOME TAXES (CONTINUED)
The components giving rise to the net deferred tax assets (liabilities)
described above, have been included in the accompanying consolidated balance
sheet as of July 31, 1997 as follows:

<TABLE>
<S> <C>
Current assets................................................... $ 290,000
Noncurrent (liabilities)......................................... (415,000)
---------
$(125,000)
---------
---------
</TABLE>

NOTE 9. CONTINGENCIES

Arrowhead is self-insured for certain workers compensation and medical
claims. Arrowhead is insured for claims over $20,000 per employee per year up to
$1,000,000 aggregate per employee and $3,000,000 aggregate for Arrowhead.

Arrowhead is in the process of discovery relating to an employee lawsuit. No
dollar damages have been claimed. Management believes the outcome of this suit
will not have a material effect on the financial statements.

NOTE 10. SUBSEQUENT EVENT (UNAUDITED)

On April 24, 1998, Arrowhead's parent, Arrowhead Mills, Inc. ("AMI"), signed
an agreement and plan of merger whereby AMI agreed to exchange 100% of AMI's
common stock for a combination of cash and common stock of the Hain Food Group,
Inc., a public company. This transaction closed on July 1, 1998. These
financial statements do not include any adjustments which may be required as
a result of this transaction.

F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors
AMI Operating, Inc. and Subsidiaries
Hereford, Texas 79045

We have audited the accompanying consolidated balance sheet of AMI
Operating, Inc. and Subsidiaries (collectively, "Arrowhead") as of July 31,
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended July 31, 1996 and 1995. These
consolidated financial statements are the responsibility of Arrowhead's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 AMI
Operating, Inc. and Subsidiaries at July 31, 1996, and the results of their
operations and cash flows for the years ended July 31, 1996 and 1995, in
conformity with generally accepted accounting principles.

McGinty & Associates, P.C.
October 4, 1996
Except for Note 10, as to
which the date is June 1, 1998

F-14
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

JULY 31, 1996

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash......................................................................... $ 25,273
Accounts receivable:
Trade, net of $243,068 allowance for doubtful accounts--Notes 1 and 7...... 1,321,549
Income tax refund receivable............................................... 139,234
Employees.................................................................. 956
Advances to suppliers...................................................... 5,235
Note receivable.............................................................. 167,758
Inventories--Notes 1 and 2:
Resale products............................................................ 530,858
Finished goods............................................................. 1,356,383
Raw materials.............................................................. 2,094,493
Packaging.................................................................. 649,241
Prepaid expenses............................................................. 86,153
Deferred tax asset........................................................... 13,947
----------
6,391,080
----------
Property, plant and equipment--Note 1:
Land......................................................................... 117,679
Buildings.................................................................... 2,496,598
Machinery and equipment...................................................... 4,224,859
Vehicles..................................................................... 584,692
Furniture.................................................................... 83,838
----------
7,507,666
Accumulated depreciation..................................................... 3,725,700
----------
3,781,966
Construction in progress..................................................... 45,626
----------
3,827,592
----------
Other assets:
Intangibles--Notes 1 and 8................................................... 975,677
Other........................................................................ 43,180
----------
1,018,857
----------
$11,237,529
----------
----------
</TABLE>

See Accompanying "Notes to Consolidated Financial Statements"

F-15
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

JULY 31, 1996

<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--Note 3........................................................ $2,430,001
Current maturities of long-term debt......................................... 871,968
Trade accounts payable....................................................... 1,185,134
Bank overdraft............................................................... 425,183
Other payables and accrued expenses.......................................... 677,098
Income taxes payable......................................................... 28,635
----------
5,618,019
----------
Long-term liabilities:
Long-term debt, net of current maturities--Note 5............................ 710,003
Deferred income taxes........................................................ 210,829
Other........................................................................ 27,000
----------
947,832
----------
6,565,851
----------
Stockholders' equity:
Common stock, par value $1.00 per share; authorized 10,000,000 shares; issued
and outstanding 1,000 shares............................................... 1,000
Additional paid-in capital................................................... 2,094,304
Retained earnings............................................................ 2,576,374
----------
4,671,678
----------
$11,237,529
----------
----------
</TABLE>

See Accompanying "Notes to Consolidated Financial Statements"

F-16
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED JULY 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Net sales.......................................................................... $ 24,628,185 $ 22,425,781
Cost of goods sold................................................................. 18,322,754 15,843,926
------------- -------------
Gross profit....................................................................... 6,305,431 6,581,855
Management fee to stockholder...................................................... 177,015 85,000
Selling, administrative and general expenses....................................... 5,881,937 8,667,793
------------- -------------
Income (loss) from operations...................................................... 246,479 (2,170,938)
------------- -------------
Other income (expense):
Interest income.................................................................. 3,478 9,350
Interest expense................................................................. (325,981) (273,013)
------------- -------------
Total other income (expense)................................................. (322,503) (263,663)
------------- -------------
(Loss) before income taxes......................................................... (76,024) (2,434,601)
Income taxes....................................................................... 122,019 409,799
------------- -------------
Net loss........................................................................... $ (198,043) $ (2,844,400)
------------- -------------
------------- -------------
Basic and diluted loss per share................................................... $ (198) $ (2,844)
------------- -------------
------------- -------------
Weighted average number of common shares outstanding............................... 1,000 1,000
------------- -------------
------------- -------------
</TABLE>

See Accompanying "Notes to Consolidated Financial Statements"

F-17
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED JULY 31, 1996 AND 1995

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, July 31, 1994....................................... $ 1,000 $ 2,005,774 $ 5,618,817 $ 7,625,591
Net loss, 1995............................................... -- -- (2,844,400) (2,844,400)
----------- ------------ ------------ ------------
Balance, July 31, 1995....................................... 1,000 2,005,774 2,774,417 4,781,191
Issuable 2,951 shares of parent company common stock for
services................................................... -- 88,530 -- 88,530
Net loss, 1996............................................... -- -- (198,043) (198,043)
----------- ------------ ------------ ------------
Balance July 31, 1996........................................ $ 1,000 $ 2,094,304 $ 2,576,374 $ 4,671,678
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>

See Accompanying "Notes to Consolidated Financial Statements"

F-18
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED JULY 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers.................................................... $ 25,075,654 $ 22,416,995
Interest received............................................................... 3,478 6,790
Income tax refunds received..................................................... 103,865 --
Cash paid to suppliers and employees............................................ (23,939,858) (20,994,457)
Interest paid................................................................... (360,618) (283,682)
Income taxes paid............................................................... (542,090) (317,657)
-------------- --------------
Cash provided by operations................................................. 340,431 827,989
-------------- --------------
Cash flows from investing activities:
Proceeds from sale of property.................................................. 870,764 --
Repayment of advances to officer................................................ -- 29,955
Purchase of land................................................................ (2,950) (12,500)
Payments for buildings and improvements......................................... (49,269) (26,080)
Payments to related party for buildings and improvements........................ (802,264) --
Purchase of equipment........................................................... (626,252) (591,732)
Payments for trademarks......................................................... -- (2,938)
Payments for package design costs............................................... (592,265) (246,466)
-------------- --------------
Cash (used for) investing activities........................................ (1,202,236) (849,761)
-------------- --------------
Cash flows from financing activities:
Proceeds from borrowings........................................................ 3,300,000 400,000
Proceeds from sale of stock..................................................... 107,886 --
Repayment of borrowings......................................................... (2,718,757) (454,476)
Dividends Paid.................................................................. -- (244,104)
-------------- --------------
Cash provided by (used for) financing activities............................ 689,129 (298,580)
-------------- --------------
Net decrease in cash.............................................................. (172,676) (320,352)
Cash, beginning of year..................................................... 197,949 518,301
-------------- --------------
Cash, end of year........................................................... $ 25,273 $ 197,949
-------------- --------------
-------------- --------------
</TABLE>

See Accompanying "Notes to Consolidated Financial Statements"

F-19
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 1996 AND 1995

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS:

AMI Operating, Inc. ("Arrowhead") formerly known as Arrowhead Mills, Inc.,
manufactures and distributes organic foods and pastas primarily throughout the
United States on credit terms that Arrowhead establishes for individual
customers. Arrowhead's customers are primarily wholesale distributors. Arrowhead
operates under compliance with specific sections of the Food, Drug and Cosmetic
Act of 1938 and the Good Manufacturing Practices Act of 1967 and subsequent
revisions.

PRINCIPLES OF CONSOLIDATION:

The accompanying consolidated financial statements include the accounts of
Arrowhead and all of its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.

ALLOWANCE FOR DOUBTFUL ACCOUNTS:

The allowance for doubtful accounts is based on a historical ratio of net
account charge-offs to trade accounts receivable outstanding at year end,
supplemented by additional allowances based on management's evaluation of open
account balances and cash discounts offered at the end of the period.

INVENTORIES:

Inventories are stated at the lower of cost, determined by the first-in,
first-out method (FIFO), or market. Obsolete, slow-moving and damaged
merchandise is valued at estimated net realizable value.

PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment are stated at cost. Property additions and
improvements are charged to the property accounts while maintenance and repairs,
which do not materially improve or prolong assets lives, are charged against
earnings. Related costs and accumulated depreciation are removed from their
respective accounts upon disposal of properties, and any gain or loss on
disposition is credited or charged to earnings.

Arrowhead uses the straight-line methods of depreciation. Estimated useful
lives for buildings range from 15 to 40 years, and estimated useful lives for
machinery and equipment range from 5 to 20 years.

Contract construction costs are accumulated during periods of construction.
These expenditures are depreciated over the estimated useful lives of the assets
when the assets are placed in service.

F-20
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1996 AND 1995

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
DEFERRED INCOME TAXES:

Deferred income taxes are provided on timing differences between financial
statement and income tax reporting. A deferred tax asset has also been
recognized for the timing differences relating to a non-compete agreement.

NET INCOME PER SHARE:

Net income per share is computed for all periods presented in accordance
with FASB Statement No. 128, "Earnings per Share," based on the weighted average
number of shares outstanding during the period.

OTHER ASSETS:

Intangibles are carried at cost, net of accumulated amortization. Trademarks
and organization costs are amortized using the straight-line method over periods
of five to forty years. Package design costs are amortized using the
straight-line method over periods of five years.

CASH AND CASH EQUIVALENTS:

For purposes of the statement of cash flows, Arrowhead considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.

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.

ADVERTISING:

Advertising costs, except for costs associated with direct-response
advertising, are charged to operations when the advertising first takes place.
The costs of direct-response advertising are capitalized and amortized over the
period during which future benefits are expected to be received. The advertising
expense for 1996 was $463,533 ($489,829 in 1995). There is no prepaid or
capitalized direct-response advertising at July 31, 1996.

NOTE 2. INVENTORIES:

The inventories used in determining cost of sales for the years ended July
31, are as follows:

F-21
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1996 AND 1995

NOTE 2. INVENTORIES: (CONTINUED)
An evaluation reserve of $152,948 was charged against inventories at July
31, 1996. This amount results from adjustments to market value relating to bulk
grain inventories.

NOTE 3. NOTES PAYABLE:

Notes payable at July 31, 1996 consist of the following:

<TABLE>
<S> <C>
Revolving notes payable to bank, with a maximum credit limit of
$2,500,000, $500,000 due August 1996 with the balance due
January 1997 plus interest payable quarterly at 1% above the
prime rate which was 9.25% on July 31, 1996,(9.75% in 1995)
secured by accounts receivable and inventory.................... $2,300,001

7.0% demand note payable to stockholder, partially secured...... 30,000

Note payable to TSG2 L.P., Arrowhead's controlling stockholder,
due on demand with interest due monthly at 1.0% above the prime
rate which was 9.25% on July 31, 1996, unsecured................ 100,000
---------
$2,430,001
---------
---------
</TABLE>

The provisions of the revolving note payable places restrictions on stock
repurchases, fixed asset purchases, indebtedness created and dividends.

NOTE 4. PROFIT SHARING PLAN:

Arrowhead adopted a defined contribution profit sharing plan effective
August 1, 1984 which covers substantially all employees. The eligibility
requirements under the plan are 21 years of age or one year of service. The
annual contribution to the plan is discretionary and determined by the board of
directors. A contribution has been accrued in the amount of $15,000 for 1996 and
$35,000 for 1995.

F-22
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1996 AND 1995

NOTE 5. LONG-TERM DEBT, NET OF CURRENT MATURITIES:

Long-term debt, net of current maturities at July 31, 1996 consists of the
following:

<TABLE>
<S> <C>
Note payable to bank, payable in monthly installments of
$20,983, including interest at 1/2% above prime, which was 8.75%
at July 31, 1996, through November 2000, secured by a deed of
trust and equipment............................................. $ 889,948

Note payable to former employee, payable in quarterly
installments of $4,000 plus interest at 6.8%, through January
1998, unsecured................................................. 24,000

13% notes payable to former subsidiary stockholders, interest
only payments due quarterly, with principal due April 1997,
unsecured....................................................... 627,002

8% note payable to former subsidiary stockholder, payable in
bi-weekly installments of $2,346, including interest, through
April 1997, unsecured........................................... 41,021
---------
1,581,971
Less current maturities......................................... 871,968
---------
$ 710,003
---------
---------
</TABLE>

Following are maturities of long-term debt for each of the next five years
and in the aggregate:

<TABLE>
<CAPTION>
YEAR ENDED
JULY 31,
------------
<S> <C>
1997........................................................ $ 871,968
1998........................................................ 196,337
1999........................................................ 214,223
2000........................................................ 233,737
2001........................................................ 65,706
------------
$ 1,581,971
------------
------------
</TABLE>

NOTE 6. TRANSACTIONS WITH RELATED PARTIES AND CONCENTRATION:

Arrowhead paid $255,553 to companies controlled by stockholders or directors
for products or services in 1996 ($471,815 in 1995). Arrowhead also incurred
$907,264 to a company controlled by a stockholder/director for the construction
of a new warehouse in 1996. At July 31, 1996, amounts due these companies
included in trade accounts payable were $114,399.

Arrowhead sells a substantial portion of its products to one unrelated
customer. During 1996 sales to that customer aggregated $6,192,366 ($5,048,210
in 1995). At July 31, 1996, amounts due from that customer included in trade
accounts receivable were $276,375.

F-23
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1996 AND 1995

NOTE 7. ALLOWANCE FOR DOUBTFUL ACCOUNTS:

The activity in the allowance for doubtful accounts during the year ended
July 31, 1996 is summarized as follows:

<TABLE>
<S> <C>
Balance, beginning of year........................................ $ 123,001
Add: Amounts charged to operations............................... 168,206
---------
291,207
---------
Less: Charge-offs, net of recoveries:
Charge-offs.................................................. 48,227
Recoveries................................................... (88)
---------
Net charge-offs.............................................. 48,139
---------
Balance, end of year.............................................. $ 243,068
---------
---------
</TABLE>

F-24
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 1996 AND 1995

NOTE 8. INTANGIBLES:

Intangibles at July 31, 1996 are as follows:

<TABLE>
<S> <C>
Package design costs............................................ $1,246,884
Trademarks...................................................... 43,718
Organization Costs.............................................. 2,000
---------
1,292,602
Less accumulated amortization................................... (316,925)
---------
$ 975,677
---------
---------
</TABLE>

Amortization expense for 1996 was $165,893 ($176,007 in 1995).

NOTE 9. SUPPLEMENTAL CASH FLOW INFORMATION:

The following is a reconciliation of net loss to net cash provided by
operations:

<TABLE>
<CAPTION>
1996 1995
----------- -------------
<S> <C> <C>
Net loss.......................................................... $ (198,043) $ (2,844,400)
----------- -------------
Adjustments to reconcile net loss to net cash provided by
operations:
Depreciation.................................................... 464,836 436,208
Amortization.................................................... 165,893 176,007
Stock issued for services....................................... 88,530 --
Provision for losses on accounts receivable..................... 168,206 42,590
Write-down of goodwill.......................................... -- 3,647,076
(Gain) Loss on sale of assets................................... (203,659) --
Transfers of vehicles as wages.................................. 13,386 14,003
Changes in assets and liabilities:
Decrease (increase) in trade accounts receivable.............. (115,113) (9,086)
Decrease (increase) in other receivables...................... (281,262) (53,168)
Decrease (increase) in inventories............................ (275,905) (1,250,194)
Decrease (increase) in prepaid expenses....................... 20,476 (13,696)
Decrease (increase) in other assets........................... 31,385 --
Increase (decrease) in trade payables and bank overdraft...... 651,257 288,354
Increase (decrease) in income taxes payable................... (158,829) 201,986
Increase (decrease) in other payables and accrued expenses.... (159,258) 134,378
Increase (decrease) in retirement plan and bonuses payable.... 178,059 120,687
Increase (decrease) in deferred taxes payable................. (49,528) (62,756)
----------- -------------
Total adjustments........................................... 538,474 3,672,389
----------- -------------
Net cash provided by operations................................... $ 340,431 $ 827,989
----------- -------------
----------- -------------
</TABLE>

F-25
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1996 AND 1995

NOTE 9. SUPPLEMENTAL CASH FLOW INFORMATION: (CONTINUED)
Cash for the year ended July 31, 1996 and 1995 consisted of checking and
petty cash accounts in the amount of $25,273 and $197,949, respectively.

NOTE 10. SIGNIFICANT STOCK TRANSACTIONS:

On September 18, 1995 Arrowhead acquired DNF Acquisition Co. in a business
combination accounted for in a manner similar to a pooling of interests. DNF
Acquisition Co. is the sole stockholder of DeBoles Nutritional Foods, Inc.,
which manufactures and sells natural pastas. DNF Acquisition Co. became a wholly
owned subsidiary of Arrowhead through the exchange of 154,917 shares of
Arrowhead's common stock for all of the stock of DNF Acquisition Co. The
accompanying financial statements for 1995 have been restated to give effect to
the combination. For all periods presented, DNF Acquisition Co. and its wholly
owned subsidiary, DeBoles Nutritional Foods, Inc., were under common control
with Arrowhead.

On April 24, 1998, Arrowhead's parent Arrowhead Mills, Inc. ("AMI") signed,
an agreement and plan of merger whereby AMI agreed to exchange 100% of AMI's
common stock for cash and common stock in The Hain Food Group, Inc., a public
company.

NOTE 11. INCOME TAXES:

Income tax expense for the years ended July 31, 1996 and 1995 is comprised
of the following:

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current provision--federal............................................ $ 194,892 $ 428,128
Current provision--state.............................................. 51,651 44,428
Deferred provision--federal........................................... (124,524) (62,625)
Deferred provision--state............................................. -- (132)
---------- ----------
$ 122,019 $ 409,799
---------- ----------
---------- ----------
</TABLE>

A reconciliation of income tax expense to the amount computed by applying
statutory income tax rates to earnings before income taxes for the years ended
July 31, 1996 and 1995 is as follows:

<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Federal income tax................................................... $ (25,848) $ (827,764)
State income tax, net of federal benefit............................. (4,561) (146,076)
Nondeductible expenses............................................... 36,327 1,432,669
Taxable income not recorded on books................................. 155,345 --
Deductions not recorded on books..................................... (35,938) (14,612)
Other................................................................ (3,306) (34,418)
---------- -----------
$ 122,019 $ 409,799
---------- -----------
---------- -----------
</TABLE>

F-26
<PAGE>
AMI OPERATING, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 1996 AND 1995

NOTE 11. INCOME TAXES: (CONTINUED)
Significant components of Arrowhead's deferred tax assets and liabilities as
of July 31, 1996 are as follows:

<TABLE>
<S> <C>
Deferred tax asset-non-compete agreement......................... $ 13,947
Deferred tax liabilities-property, plant and equipment........... (210,829)
---------
$(196,882)
---------
---------
</TABLE>

The components giving rise to the net deferred liability described above,
have been included in the accompanying consolidated balance sheet as of July 31,
1996 as follows:

<TABLE>
<S> <C>
Current assets................................................... $ 13,947
Noncurrent liabilities........................................... (210,829)
---------
$(196,882)
---------
---------
</TABLE>

NOTE 12. GOODWILL WRITE-DOWN:

During the year ended July 31, 1995, management determined that due to a
significant decline in sales, the value originally assigned to goodwill relating
to a previous acquisition was permanently impaired. This decline resulted mainly
from reduced orders from one of Arrowhead's former major customers. Arrowhead
believes that the significantly reduced orders from this former customer, as
well as increased competition in the market place, has caused this impairment.
Accordingly, Arrowhead has charged selling, administrative and general expenses
for $3,647,076 for goodwill write-down.

NOTE 13. SUBSIDIARY YEAR END:

The accompanying consolidated financial statements include the accounts of
AMI Operating, Inc. and its subsidiaries at July 31, 1996 and for the year then
ended. For the year ended July 31, 1995 the subsidiaries' results from
operations and cash flows include the period January 1, 1995 through September
17, 1995, which represents the acquisition date as described in Note 10.
Intercompany transactions and balances have been eliminated in consolidation.

F-27
<PAGE>
INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Dana Alexander, Inc.
Brooklyn, New York

We have audited the accompanying balance sheet of Dana Alexander, Inc.
("Terra") as of July 31, 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for the seven month period from
January 1, 1997 through July 31, 1997. These financial statements are the
responsibility of Terra's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dana Alexander, Inc. as of
July 31, 1997 and the results of its operations and its cash flows for the seven
months then ended in conformity with generally accepted accounting principles.

McGladrey & Pullen, LLP

Anaheim, California
May 22, 1998

F-28
<PAGE>
DANA ALEXANDER, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
POST
PRE ACQUISITION
ACQUISITION ---------------
-------------- APRIL 30,
JULY 31, 1997 1998
-------------- ---------------
<S> <C> <C>
(UNAUDITED)
ASSETS (Note 5)
Current Assets
Cash........................................................................... $ 67,000 $ 70,000
Accounts receivable, net of allowance for doubtful accounts 1997 $57,000; 1998
$77,000 (Note 2)............................................................. 1,220,000 1,392,000
Other receivables.............................................................. 55,000 40,000
Inventories (Note 3)........................................................... 711,000 887,000
Prepaid expenses............................................................... 259,000 285,000
-------------- ---------------
Total current assets....................................................... 2,312,000 2,674,000
Equipment and Leasehold Improvements, net (Note 4)............................... 873,000 965,000
Package Design Costs, net of accumulated amortization 1997 $38,000; 1998 $74,000
(unaudited).................................................................... 166,000 130,000
Intangible Assets, net of accumulated amortization 1997 $4,000; 1998 $131,000
(unaudited).................................................................... 41,000 10,584,000
Debt Issue Costs, net............................................................ -- 416,000
Other Assets..................................................................... 29,000 47,000
-------------- ---------------
$ 3,421,000 $ 14,816,000
-------------- ---------------
-------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit (Note 5)........................................................ $ 275,000 $ 1,640,000
Current maturities of long-term debt (Note 5).................................. 36,000 645,000
Due to parent company.......................................................... -- 191,000
Trade accounts payable......................................................... 674,000 767,000
Accrued expenses............................................................... 500,000 615,000
Income taxes payable........................................................... 161,000 --
Deferred taxes (Note 6)........................................................ 20,000 20,000
-------------- ---------------
Total current liabilities.................................................. 1,666,000 3,878,000
-------------- ---------------
Long-Term Debt, less current maturities (Note 5)................................. 53,000 14,803,000
-------------- ---------------
Commitments and Contingencies (Notes 5 and 7)
Stockholders' Equity (Deficit) (Note 8)
Common stock, no par value ; authorized 400 shares; issued and outstanding
218.18 shares................................................................ 1,000 1,000
Additional paid-in capital..................................................... 209,000 4,822,000
Excess of consideration paid over consideration received....................... -- (8,855,000)
Retained earnings, April 30, 1998 since November 17, 1997...................... 1,492,000 167,000
-------------- ---------------
1,702,000 (3,865,000)
-------------- ---------------
$ 3,421,000 $ 14,816,000
-------------- ---------------
-------------- ---------------
</TABLE>

See Notes to Financial Statements.

F-29
<PAGE>
DANA ALEXANDER, INC.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
PRE ACQUISITION
------------------------------------------
PERIOD FROM POST ACQUISITION
AUGUST 1, -----------------
SEVEN MONTHS NINE MONTHS 1997 PERIOD FROM
ENDED ENDED THROUGH NOVEMBER 18, 1997
JULY 31, APRIL 30, NOVEMBER 17, THROUGH
1997 1997 1997 APRIL 30, 1998
------------ ------------- ------------- -----------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Net Sales (Note 2)............................... $7,765,000 $ 9,331,000 $ 3,937,000 $ 7,288,000
Cost of Sales.................................... 4,360,000 5,290,000 2,287,000 4,339,000
------------ ------------- ------------- -----------------
GROSS PROFIT............................... 3,405,000 4,041,000 1,650,000 2,949,000
Selling, general and administrative expenses
(Note 7)....................................... 2,195,000 2,887,000 1,296,000 1,774,000
Amortization of goodwill......................... -- -- -- 125,000
Officer bonuses.................................. 70,000 170,000 220,000 --
Management fee to stockholder.................... 105,000 225,000 40,000 --
------------ ------------- ------------- -----------------
OPERATING INCOME........................... 1,035,000 759,000 94,000 1,050,000
Interest Expense................................. 30,000 16,000 8,000 630,000
------------ ------------- ------------- -----------------
Income before income taxes....................... 1,005,000 743,000 86,000 420,000
Provision for Income Taxes (Note 6).............. 483,000 344,000 44,000 253,000
------------ ------------- ------------- -----------------
NET INCOME................................. $ 522,000 $ 399,000 $ 42,000 $ 167,000
------------ ------------- ------------- -----------------
------------ ------------- ------------- -----------------
Earnings per share............................... $ 2,392.52 $ 1,828.77 $ 192.50 $ 765.42
------------ ------------- ------------- -----------------
------------ ------------- ------------- -----------------
Weighted-average number of common shares
outstanding.................................... 218.18 218.18 218.18 218.18
------------ ------------- ------------- -----------------
------------ ------------- ------------- -----------------
</TABLE>

See Notes to Financial Statements.

F-30
<PAGE>
DANA ALEXANDER, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
EXCESS OF
ADDITIONAL CONSIDERATION
PAID-IN PAID OVER RETAINED
COMMON CAPITAL CONSIDERATION EARNINGS
STOCK (NOTE 8) CONTRIBUTED (NOTE 8) TOTAL
----------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Pre Acquisition
Balance, December 31, 1996.............. $ 1,000 $ 209,000 $ -- $ 970,000 $ 1,180,000
Net income............................ -- -- -- 522,000 522,000
----------- ------------- ------------- ------------- --------------
Balance, July 31, 1997.................. 1,000 209,000 -- 1,492,000 1,702,000
Net income (unaudited)................ -- -- -- 42,000 42,000
----------- ------------- ------------- ------------- --------------
Balance, November 17 1997 (unaudited)... 1,000 209,000 -- 1,534,000 1,744,000
Post Acquisition
Eliminate capital accounts upon
acquisition of Terra (unaudited)...... -- (210,000) -- (1,534,000) (1,744,000)
Paid-in capital recorded upon
acquisition of Terra (unaudited)...... -- 6,580,000 -- -- 6,580,000
Contribution of capital (unaudited)..... -- 323,000 -- -- 323,000
Consideration paid (unaudited).......... -- (2,080,000) (8,855,000) -- (10,935,000)
Net income (unaudited).................. -- -- -- 167,000 167,000
----------- ------------- ------------- ------------- --------------
Balance, April 30, 1998 (unaudited)... $ 1,000 $ 4,822,000 $ (8,855,000) $ 167,000 $ (3,865,000)
----------- ------------- ------------- ------------- --------------
----------- ------------- ------------- ------------- --------------
</TABLE>

See Notes to Financial Statements.

F-31
<PAGE>
DANA ALEXANDER, INC.

STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
PRE ACQUISITION POST
------------------------------------------- ACQUISITION
PERIOD FROM ------------
PERIOD FROM AUGUST 1, PERIOD FROM
JANUARY 1, NINE MONTHS 1997 NOVEMBER 18,
1997 ENDED THROUGH 1997 THROUGH
THROUGH APRIL 30, NOVEMBER 17, APRIL 30,
JULY 31,1997 1997 1997 1998
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Cash Provided by Operating Activities
Net income......................................... $ 522,000 $ 399,000 $ 42,000 $ 167,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 122,000 169,000 98,000 280,000
Allocated expense paid by parent................... -- -- -- 200,000
Deferred taxes..................................... 20,000 -- -- --
Change in assets and liabilities:
(Increase) decrease in:
Receivables...................................... (168,000) (117,000) (173,000) 38,000
Inventories...................................... (189,000) (225,000) (14,000) (162,000)
Prepaid expenses and other assets................ (44,000) (124,000) 19,000 (80,000)
Increase (decrease) in:
Accounts payable and accrued expenses............ 27,000 95,000 311,000 (103,000)
Income taxes payable............................. (231,000) (257,000) 83,000 (244,000)
-------------- ------------ ------------- ------------
Net cash provided by operating activities...... 59,000 (60,000) 366,000 96,000
-------------- ------------ ------------- ------------
Cash Flows from Investing Activities
Purchase of equipment.............................. (220,000) (453,000) (139,000) (153,000)
Acquisition of Terra (Note 8)...................... -- -- -- 6,000
Capitalized package design costs................... (10,000) (20,000) -- --
-------------- ------------ ------------- ------------
Net cash (used in) investing activities........ (230,000) (473,000) (139,000) (147,000)
-------------- ------------ ------------- ------------
Cash Flows from Financing Activities
Increase (decrease) in checks in excess of bank
balance.......................................... (17,000) -- -- --
Net borrowings (payments) on revolving credit
agreement........................................ 275,000 600,000 (275,000) --
Payments on long-term borrowings................... -- -- (89,000) --
Principal payments on long-term borrowings......... (26,000) (277,000) -- --
Change in parent company debt...................... -- -- 76,000 115,000
-------------- ------------ ------------- ------------
Net cash provided by (used in) financing
activities................................... 232,000 323,000 (288,000) 115,000
-------------- ------------ ------------- ------------
Net increase (decrease) in cash................ 61,000 (210,000) (61,000) 64,000
Cash
Beginning of period................................ 6,000 241,000 67,000 6,000
-------------- ------------ ------------- ------------
End of period...................................... $ 67,000 $ 31,000 $ 6,000 $ 70,000
-------------- ------------ ------------- ------------
-------------- ------------ ------------- ------------
</TABLE>

See Notes to Financial Statements.

F-32
<PAGE>

DANA ALEXANDER INC.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
July 31, 1997 April 30, 1998
------------- --------------
(unaudited)
<S> <C> <C>
Cash paid during the periods ending
Interest.............................. $ 30,000 $486,000
-------- --------
-------- --------

Income taxes.......................... $697,000 $257,000
-------- --------
-------- --------

</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITIES

During the nine month period ended April 30, 1998, Terra's parent company
made a $123,000 payment on Terra's long-term debt.

F-33
<PAGE>
DANA ALEXANDER, INC.

NOTES TO FINANCIAL STATEMENTS

(INFORMATION RELATING TO THE INTERIM ARE UNAUDITED)

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS:

Terra, a wholly-owned subsidiary of Arrowhead Mills, Inc. ("AMI"),
manufactures and distributes specialty potato chips and other vegetable chips to
gourmet food shops, wholesale clubs and other distributors throughout the United
States on credit terms that Terra establishes for individual customers. Terra
operates under compliance with specific sections of the Food, Drug and Cosmetic
Act of 1938 and the Good Manufacturing Practices Act of 1967 and subsequent
revisions. Terra changed its accounting year end to July 31 to be consistent
with its parent company. The July 31, 1997 period is seven months.

UNAUDITED INTERIM FINANCIAL INFORMATION:

The unaudited interim financial information presented herein as of April
30, 1998 and for the periods ended April 30, 1998, April 30, 1997 and
November 17, 1997 reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation for the periods presented. Such
adjustments are of a normal recurring nature. The financial information is
not intended to be a complete presentation in accordance with generally
accepted accounting principles. Interim financial results are not necessarily
indicative of the results Terra will incur during its fiscal year.

BASIS OF PRESENTATION:

AMI acquired 100% of Terra on November 17, 1997. Accordingly, the excess
purchase price over book value is recorded on Terra financial statements as of
the acquisition date. The accompanying statements of income, stockholders'
equity and cash flows for the periods captioned as "Pre Acquisition" represent
when Terra was not owned by AMI, while the period captioned as "Post
Acquisition" represents Terra after it was acquired by AMI.

A SUMMARY OF TERRA'S SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:

USE OF ESTIMATES:

CASH CONCENTRATION:

At July 31, 1997, Terra had approximately $394,000 on deposit in a single
financial institution. Deposits in excess of $100,000 are not insured by the
FDIC.

INVENTORIES:

Inventories are stated at the lower of cost (first-in, first-out method) or
market.

F-34
<PAGE>
DANA ALEXANDER, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE INTERIM ARE UNAUDITED)

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:

Equipment and leasehold improvements are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful lives as
follows.

<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Machinery and equipment.............................................................. 5-10
Office furniture..................................................................... 5
Vehicles............................................................................. 5
Leasehold improvements............................................................... 3-10
</TABLE>

PACKAGE DESIGN COSTS:

Terra capitalizes costs incurred for the design of its packaging. These
costs are amortized over the estimated life of the packaging not to exceed five
years.

INTANGIBLE ASSETS:

Intangible assets consist primarily of goodwill which is amortized over
forty years using the straight line method.

DEBT ISSUE COST:

Debt issue costs are the portion of costs incurred by the parent company
relating to the debt recorded in Terra's financial statements. These costs are
amortized over the life of the debt agreement using a method that approximates
the interest method.

LONG-LIVED ASSETS:

On January 1, 1996, Terra adopted Financial Accounting Standards Board
(FASB) Statement No. 121. "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS TO
BE DISPOSED OF". Under those rules, long-term and intangible assets are
evaluated for possible impairment when events or circumstances indicate the
carrying amount of those assets may not be recoverable. Recoverability is
assessed based on the gross undiscounted estimated future cash flows before
interest charges. If an impairment is indicated, the amount would be determined
by comparing the estimated fair value to the carrying value of the asset being
evaluated. In the absence of quoted market prices, fair value is estimated by
using the projected cash flows discounted at a rate commensurate with the risks
involved.

ADVERTISING:

Terra expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was approximately $136,000 during
the seven months ended July 31, 1997. Prepaid advertising as of July 31, 1997
totaled $6,000.

F-35
<PAGE>
DANA ALEXANDER, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE INTERIM ARE UNAUDITED)

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES:

EARNINGS PER SHARE:

Earnings per share are computed using the weighted average number of common
shares outstanding during the respective periods. There are no potentially
dilutive securities.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

In 1997, Terra adopted FASB Statement No. 107, DISCLOSURES ABOUT FAIR VALUE
OF FINANCIAL INSTRUMENTS. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments:

CASH AND CASH EQUIVALENTS: The carrying amount approximates fair value
because of the short maturity of those instruments.

LINE OF CREDIT AND LONG-TERM DEBT: The carrying amount approximates fair
value because the interest rate fluctuates with the lending banks' prime
rate or LIBOR.

NOTE 2. MAJOR CUSTOMER

Terra had net sales to one customer for the seven months ended July 31, 1997
that individually accounted for more than 10% of Terra's net sales. Net sales to
this customer were approximately $2,200,000 for the seven months ended July 31,
1997 and net trade receivables at July 31, 1997 was $150,000. Sales to this
customer for the nine months ended April 30, 1997 were $2,500,000, for the
period ended November 17, 1997 were $603,000 and for the period ended April
30, 1998 were $1,182,000. Trade receivables from this customer at April 30,
1998 were $107,000.

NOTE 3. INVENTORIES

<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1997 1998
------------ ----------------
<S> <C> <C>
(UNAUDITED)
Raw materials................................................ $ 88,000 $ 124,000
Finished goods............................................... 131,000 238,000
Packaging.................................................... 492,000 525,000
------------ --------

$ 711,000 $ 887,000
------------ --------
------------ --------
</TABLE>

F-36
<PAGE>
DANA ALEXANDER, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE INTERIM ARE UNAUDITED)

NOTE 4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

<TABLE>
<CAPTION>
JULY 31,
1997
------------
<S> <C>
Machinery and equipment......................................................... $ 867,000
Office furniture................................................................ 105,000
Vehicles........................................................................ 31,000
Leasehold improvements.......................................................... 362,000
------------
1,365,000
Less accumulated depreciation................................................... 492,000
------------
$ 873,000
------------
------------
</TABLE>

NOTE 5. NOTES PAYABLE

At July 31, 1997, Terra had a line of credit with a bank for $1,500,000 at
prime plus 0.5%, secured by all assets of Terra and expiring on June 30, 1998.
Terra also has a term agreement with a bank which requires $1,800 per month
principal payments plus interest at prime plus 1% and is due June 2,000 and
other term debt totaling $24,000. The aggregate amount of long-term debt
maturing in future years are as follows: 1998 $36,000; 1999 $32,000 and 2,000
$21,000. These notes were repaid in connection with the acquisition discussed in
Note 8 (unaudited).

UNAUDITED INTERIM INFORMATION:

In connection with the transaction discussed in Note 8, AMI entered into a
credit agreement with a bank to finance the acquisition and repay existing debt.
The agreement includes the following terms. The facility provides for a
$6,000,000 revolving line of credit, including letters of credit up to
$1,000,000, with interest at the bank's base rate plus 1% to 1.75% (10% at
February 28, 1997) or LIBOR plus 2% to 2.75% (8.125% at February 28, 1997)
depending on certain financial conditions through October 2003. The amount
outstanding at February 28, 1998 is $2,000,000. There are two term facilities:
Series A, $12,000,000 with the same interest terms as the revolver, and
quarterly principal payments of $125,000 due beginning January 1998, and
increasing each anniversary to $812,500 per quarter in 2003 when the series will
be fully paid; Series B $7,000,000 with interest at the bank's base rate plus 2%
(10% at February 28, 1997) or LIBOR plus 3% (8.625% at February 28, 1997),
principal payments are due quarterly at $25,000 per quarter beginning January
1998 through 2003 and four quarterly payments of $1,600,000 each in 2004. All
assets of Terra are pledged as collateral on the loans. The agreement provides
for certain financial covenants to be maintained.

F-37
<PAGE>
DANA ALEXANDER, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE INTERIM ARE UNAUDITED)

NOTE 5. NOTES PAYABLE (CONTINUED)
The scheduled maturities of principal maturities on the above term
facilities are as follows:

<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
- -------------------------------------------------------------------------------
<S> <C>
1998........................................................................... $ 450,000
1999........................................................................... 1,163,000
2000........................................................................... 1,725,000
2001........................................................................... 2,225,000
2002........................................................................... 2,912,000
Thereafter..................................................................... 10,525,000
-------------
$ 19,000,000
-------------
-------------
</TABLE>

As part of the acquisition discussed in Note 8, Terra has been allocated
$17,211,000 of the debt proceeds and has reflected these amounts as debt on its
balance sheet.

NOTE 6. INCOME TAXES

The provision for income taxes for the seven months ended July 31, 1997
consist of the following:

<TABLE>
<S> <C>
Current........................................................... $ 463,000
Deferred.......................................................... 20,000
---------
$ 483,000
---------
---------
</TABLE>

A reconciliation of income tax expense to the amount computed by applying
statutory income tax rates to earnings before income taxes:

<TABLE>
<S> <C>
Federal income tax................................................ $ 352,000
State income tax, net of federal benefit.......................... 121,000
Other............................................................. 10,000
---------
$ 483,000
---------
---------
</TABLE>

Significant components of Terra's deferred tax assets and liabilities as of
July 31, 1997 are as follows:

<TABLE>
<S> <C>
Deferred Taxes
Deferred tax liability, receivables............................... $ 50,000
Deferred tax asset, other......................................... (30,000)
---------
Net deferred tax liability........................................ $ 20,000
---------
---------
</TABLE>

NOTE 7. RENT COMMITMENTS, RENT EXPENSE AND CONTINGENCY

Terra leases its facilities under three operating lease agreements. Rent
expense for the seven months ended July 31, 1997 was $119,000. Future rent
commitments are as follows: 1998 $206,000; 1999 $157,000; and 2,000 $47,000.

F-38
<PAGE>
DANA ALEXANDER, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO THE INTERIM ARE UNAUDITED)

NOTE 7. RENT COMMITMENTS, RENT EXPENSE AND CONTINGENCY (CONTINUED)
Terra is in the process of discovery relating to an employee lawsuit. The
employee claims damages of $800,000. Management believes the outcome of this
suit will not have a material effect on the financial statements.

NOTE 8. SUBSEQUENT EVENTS (UNAUDITED)

On November 17, 1997 Terra was acquired by AMI, which is under common
control with Terra. As a result of the combination of the two entities under
common control, the portion of the acquisition price in excess of book value of
Terra which was controlled by the majority owner has been recorded as a
reduction in stockholders' equity. The portion of the purchase price in excess
of book value relating to the minority stockholders has been recorded as a
purchase. Also, since Terra was acquired 100% by this majority stockholder
through a step transaction, Terra applied push-down accounting upon this
acquisition. Accordingly, the assets of Terra have been revalued as of the
acquisition date and the total excess purchase price of $10,670,000 has been
recorded on Terra's balance sheet. The portion of the step acquisition that was
funded by debt which is collateralized by Terra assets is recorded as a
liability, and the remainder has been recorded as paid-in capital. The
supplemental cash flow information relating to this transaction is as follows:

<TABLE>
<S> <C>
Working capital deficit assumed, net of cash acquired.......... $ 1,915,000
Long-term assets, including intangible assets acquired......... (12,265,000)
Long-term debt incurred related to acquisition................. 14,711,000
Paid-in capital................................................ 6,580,000
Consideration paid to majority stockholder..................... (10,935,000)
-----------
Cash acquired on acquisition................................... $ 6,000
-----------
-----------
</TABLE>

On April 24, 1998, AMI signed an agreement and plan of merger whereby AMI
agreed to exchange 100% of AMI's stock for a combination of cash and common
stock of The Hain Food Group, Inc., a public company. This transaction closed
on July 1, 1998. These financial statements do not include any adjustments
which may be required as a result of this transaction.

NOTE 9. PRIOR PERIOD INTERIM INFORMATION (UNAUDITED)

Selected financial information for the seven months ended July 31, 1996 are
as follows: net sales $5,338,000; gross profit $2,625,000; provision for income
taxes $384,000; net income $565,000; and earnings per share of $2.59.

F-39
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors
Dana Alexander Inc.
Brooklyn, New York

We have audited the accompanying balance sheets of Dana Alexander Inc.
("Terra") as of December 31, 1996 and December 31, 1995 and the related
statements of operations and retained earnings, common stock, additional paid in
capital and cash flows for the years then ended. These financial statements are
the responsibility of Terra's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our 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 presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dana Alexander Inc. as of
December 31, 1996 and December 31, 1995 and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.

Katz & Bloom, LLC
Roslyn Heights, New York
March 19, 1997
June 2, 1997 as to Note L

F-40

<PAGE>

DANA ALEXANDER INC.

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1996 1995
------------ ------------
ASSETS
Current Assets:
Cash in bank........................................................................ $ 6,379 $ 126,261
Accounts receivable-trade-less allowances for doubtful accounts and accrued credits
of $121 479 in 1996 and $39 300 in 1995 (Note G).................................. 956,444 641,927
Accounts receivable-other........................................................... 45,104 1,612
Inventory (Notes A, B and G)........................................................ 521,746 296,417
Prepaid expenses (Note C)........................................................... 200,560 49,847
Note receivable (Notes D and G)..................................................... 55,000 --
------------ ------------
Total Current Assets.............................................................. 1,785,233 1,116,064
------------ ------------
Property, Plant and Equipment--
At cost (Notes A, E and G).......................................................... 1,327,070 907,943
Less-accumulated depreciation and amortization...................................... 402,966 339,325
------------ ------------
Net Property, Plant and Equipment................................................. 924,104 568,618
------------ ------------
Other Assets:
Deposits............................................................................ 28,242 36,412
Intangible assets-net of accumulated amortization of $7 610 in 1996 and $3 530 in
1995 (Note A)..................................................................... 48,653 52,733
Long-term note receivable (Notes D and G)........................................... 50,000 --
Other............................................................................... 15,000 1,452
Deferred income taxes (Notes A and F)............................................... -- 24,000
------------ ------------
Total Other Assets................................................................ 141,895 114,597
------------ ------------
Total............................................................................. $ 2,851,232 $ 1,799,279
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank overdraft...................................................................... $ 16,906 $ --
Accounts payable.................................................................... 789,472 511,476
Current maturity-notes payable (Notes G and L)...................................... 38,555 50,883
Current maturity-equipment leases payable........................................... 2,016 25,420
Accrued liabilities (Note H)........................................................ 354,558 101,427
Income taxes payable (Notes A and F)................................................ 391,801 206,310
------------ ------------
Total Current Liabilities......................................................... 1,593,308 895,516
------------ ------------
Long-Term Liabilities:
Deferred taxes payable (Notes A and F).............................................. 3,000 --
Notes payable-less current maturity (Notes G and L)................................. 74,218 114,788
Equipment leases payable-less current maturity...................................... -- 38,366
Notes payable-stockholders (Note G)................................................. -- 338,000
------------ ------------
Total Long-Term Liabilities....................................................... 77,218 491,154
------------ ------------
Commitments and Contingencies (Note I)................................................ -- --
Stockholders' Equity:
Common stock--authorized 400 shares no par value-issued and outstanding 218.18
shares............................................................................ 1,145 1,145
Additional paid in capital.......................................................... 209,437 209,437
Retained earnings................................................................... 970,124 202,027
------------ ------------
Total Stockholders' Equity........................................................ 1,180,706 412,609
------------ ------------
Total............................................................................. $ 2,851,232 $ 1,799,279
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-41
<PAGE>
DANA ALEXANDER INC.

STATEMENT OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
<S> <C> <C>
1996 1995
------------- ------------
Net sales........................................................................... $ 10,493,160 $ 5,604,337
Cost of sales....................................................................... 5,643,285 3,221,380
------------- ------------
Gross profit........................................................................ 4,849,875 2,382,957
------------- ------------
Other income........................................................................ 192,332 7,896
Selling and administrative expenses................................................. 3,227,645 1,925,592
Officers' bonus..................................................................... 200,000 50,000
Management fees to stockholder...................................................... 245,000 75,000
------------- ------------
Income before interest and taxes on income.......................................... 1,369,562 340,261
Interest expense.................................................................... 46,465 65,434
------------- ------------
Income before taxes on income....................................................... 1,323,097 274,827
Taxes on income (Notes A and F)..................................................... 555,000 191,000
------------- ------------
Net income.......................................................................... 768,097 83,827
Retained earnings--beginning........................................................ 202,027 118,200
------------- ------------
Retained earnings--end.............................................................. $ 970,124 $ 202,027
------------- ------------
------------- ------------
Basic and dliuted earnings per common share......................................... $ 3,520 $ 393
------------- ------------
------------- ------------
Weighted average number common shares............................................... 218.18 213.30
------------- ------------
------------- ------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-42
<PAGE>
DANA ALEXANDER INC.

STATEMENT OF COMMON STOCK

YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
SHARES AMOUNT
--------- ---------
<S> <C> <C>
January 1, 1996 and December 31, 1996.........................................................
(No change during the year) 218.18 $ 1,145
--------- ---------
--------- ---------
</TABLE>

YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
SHARES AMOUNT
--------- ---------
<S> <C> <C>
Common stock--January 1, 1995................................................................. 200.00 $ 1,050

Stated value--sale of 122.18 shares common stock issued in connection with the merger of Dana
Alexander Holding Company, Inc. and DA Acquisition, Inc. with and into Dana Alexander Inc.
Neither Dana Alexander Holding Company, Inc. nor DA Acquisition, Inc. had any operating
history..................................................................................... 122.18 641
--------- ---------
322.18 1,691
Acquisition of 104 shares common stock to be permanently retired in connection with the merger
of Dana Alexander Holding Company, Inc. and DA Acquisition, Inc. with and into Dana
Alexander Inc............................................................................... (104.00) (546)
--------- ---------
Common stock--December 31, 1995............................................................... 218.18 $ 1,145
--------- ---------
--------- ---------
</TABLE>

STATEMENT OF ADDITIONAL PAID IN CAPITAL

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Additional paid in capital--beginning of year............................................. $ 209,437 $ 124,950
Officers' loans contributed to capital.................................................... -- 44,582
Excess of proceeds of sale of 18.18 shares common stock over stated value................. -- 39,905
---------- ----------
Additional paid in capital--end of year................................................... $ 209,437 $ 209,437
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-43
<PAGE>
DANA ALEXANDER INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1996 1995
---------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income.............................................................................. $ 768,097 $ 83,827
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 155,653 138,136
Allowance for doubtful accounts....................................................... 69,837 12,600
Accrued interest on stockholders' loans............................................... -- 21,148
Loss on retirement of fixed assets.................................................... 16,406 7,250
Gain on sale of fixed assets.......................................................... (9,302) (3,100)
Gain on sale on local distribution rights............................................. (172,000) --
Changes in assets and liabilities:
Accounts receivable (net)............................................................. (384,354) (235,477)
Accounts receivable-other............................................................. (43,492) 30,188
Accrued interest-notes receivable..................................................... (2,406) --
Prepaid expenses...................................................................... (150,713) (9,120)
Inventory............................................................................. (225,329) (70,706)
Deferred income taxes................................................................. 24,000 (24,000)
Other assets.......................................................................... 1,452 --
Bank overdraft........................................................................ 16,906 --
Accounts payable...................................................................... 168,590 215,096
Accrued liabilities................................................................... 253,131 (30,932)
Income taxes payable.................................................................. 185,491 205,135
Deferred income taxes payable......................................................... 3,000 --
---------- ---------
Net cash provided by operating activities......................................... 674,967 340,045
---------- ---------
Cash Flows Used In Investing Activities:
Purchase of fixed assets................................................................ (473,807) (236,790)
Proceeds from sale of local distribution rights......................................... 69,406 --
Deposit payments........................................................................ (10,300) (7,125)
Proceeds from sale of fixed assets...................................................... 54,050 3,100
Refunds of deposits..................................................................... 18,470 --
Intangible asset expenditures........................................................... -- (14,584)
---------- ---------
Net cash used in investing activities............................................. (342,181) (255,399)
---------- ---------
Cash Flows From Financing Activities:
Payments-loans from stockholders........................................................ (338,000) --
Payments on long and short term debt.................................................... (52,898) (700,083)
Payments on capital leases.............................................................. (61,770) (25,126)
Proceeds from sale of common stock...................................................... -- 40,000
Proceeds from long term borrowing in connection with stock sale......................... -- 260,000
Loans from stockholders................................................................. -- 78,000
Due to stockholders..................................................................... -- (195)
Proceeds from long term borrowing....................................................... -- 348,000
---------- ---------
Net cash (used in) provided by financing activities............................... (452,668) 596
---------- ---------
Net (decrease) increase in cash........................................................... (119,882) 85,242
Cash and cash equivalents-beginning of year....................................... 126,261 41,019
---------- ---------
Cash and cash equivalents-end of year............................................. $ 6,379 $ 126,261
---------- ---------
---------- ---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-44
<PAGE>
DANA ALEXANDER INC.

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Cash paid during the year ended December 31,
Interest............................................................ $ 67,696 $ 43,463
---------- ---------
---------- ---------
Income taxes........................................................ $ 369,509 $ 8,240
---------- ---------
---------- ---------
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITIES

In connection with the sale of the local route distribution rights (Note D)
Terra received a $172,000 note from the purchaser. During 1996 Terra received a
principal payment of $69,406 on the note.

SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITIES

In connection with the transfer of a majority interest of the common stock
of Dana Alexander Inc. in 1995 by its two principal stockholders, Dana Alexander
Inc. merged with two newly created corporations. As a result of this merger,
Terra assumed a liability to the principal stockholders (prior to the merger) in
the amount of $260,000. In addition, loans from these two stockholders totaling
$44,582 were contributed to Terra as additional paid in capital.

F-45
<PAGE>
DANA ALEXANDER INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

NOTE A--SUMMARY OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES

ACTIVITIES:

Terra was incorporated in the State of New York on March 7, 1989 and derives
its revenue from the sale of "Terra Chips" and "Yukon Gold" potato and other
vegetable chips primarily to gourmet food shops, wholesale clubs and
distributors, including one customer that accounted for approximately 32% of
Terra's sales in 1996 and two customers that accounted for approximately 22% of
Terra's sales in 1995. Credit is granted to customers in the ordinary course of
business.

INVENTORY:

Inventory is stated at cost or market, whichever is lower and consists of
uncooked vegetables, finished goods and supplies.

FIXED ASSETS--DEPRECIATION:

Fixed assets are recorded at cost and includes equipment under capital
lease. Costs of maintenance and repairs are charged to expense as incurred.
Depreciation is provided for on the straight-line method over the following
estimated useful lives: machinery and equipment 5 years; vehicles 5 years; and
leasehold improvements shorter of lease term or asset useful life.

INCOME TAXES:

Income taxes are accounted for in accordance with SFAS 109 "Accounting for
Income Taxes". Deferred income taxes are provided for the temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

TRADEMARKS:

Costs incurred in the registration and acquisition of trademarks and
trademark rights (intangible assets) are capitalized and are amortized over the
useful life of the assets.

NOTE B--INVENTORY

Inventory consists of:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Packaging film....................................................... $ 302,396 $ 149,811
Finished goods....................................................... 121,049 68,693
Other supplies....................................................... 71,834 27,307
Raw materials........................................................ 26,467 50,606
---------- ----------
Total............................................................ $ 521,746 $ 296,417
---------- ----------
---------- ----------
</TABLE>

F-46
<PAGE>
DANA ALEXANDER INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

NOTE C--PREPAID EXPENSES

Prepaid expenses consist of:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1996 1995
---------- ---------
Market development costs.............................................. $ 105,167 $ --
Other................................................................. 46,661 15,719
Advertising........................................................... 34,070 --
Insurance............................................................. 14,662 28,452
Employee benefits..................................................... -- 5,676
---------- ---------
$ 200,560 $ 49,847
---------- ---------
---------- ---------
</TABLE>

NOTE D--NOTE RECEIVABLE

On January 1, 1996 Terra sold the rights to distribute its products in the
Metropolitan New York City area. The agreement, as revised, calls for the
following remaining payments plus interest at 9% per annum.

<TABLE>
<S> <C>
January 1, 1997.................................. 52,594
January 1, 1998.................................. 50,000
---------
$ 102,594
---------
---------
</TABLE>

NOTE E--FIXED ASSETS

The major classes of fixed assets are:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1996 1995
------------ ----------
Production equipment............................................... $ 863,476 $ 472,507
Leasehold improvements............................................. 347,211 273,054
Office furniture and equipment..................................... 85,354 48,539
Transportation equipment........................................... 31,029 113,843
------------ ----------
Total.......................................................... $ 1,327,070 $ 907,943
------------ ----------
------------ ----------
</TABLE>

Depreciation and amortization of fixed and intangible assets amounted to
$155,653 for the year ended December 31, 1996 and $138,136 for the year ended
December 31, 1995. Depreciation is computed on the straight-line method.

At December 31, 1996, $22,489 of equipment owned by Terra was held for use
in the manufacturing facility of a co-packer of Terra's products. At December
31, 1996, printing plates costing $166,936 were held at the premises by the
vendor who produces Terra's packaging film.

During 1996 Terra retired from service several older equipment items. Terra
adjusted the equipment's carrying value to its net realizable value on sale.
Accordingly, a charge to income of $16,406 was recorded in 1996.

F-47
<PAGE>
DANA ALEXANDER INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

NOTE F--INCOME TAXES

The provision for income taxes is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Current:
Federal............................................................ $ 394,483 $ 154,000
State and local.................................................... 133,517 61,000
Deferred--net........................................................ 27,000 (24,000)
---------- ----------
$ 555,000 $ 191,000
---------- ----------
---------- ----------
</TABLE>

A reconciliation of income tax expense to the amount computed by applying
statutory income tax rates to earnings before income taxes:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Federal income tax................................................... $ 450,000 $ 94,000
State income tax, net of federal benefit............................. 105,000 33,000
Additional tax due to change in tax status........................... -- 64,000
---------- ----------
$ 555,000 $ 191,000
---------- ----------
---------- ----------
</TABLE>

Significant components of Terra's deferred tax assets and liabilities are as
follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Deferred tax assets--
property, plant and equipment......................................... $ 25,000 $ 19,000
reserve for doubtful accounts......................................... 14,000 5,000
--------- ---------
39,000 24,000
Deferred tax liabilities--installment note receivable................... (42,000) --
--------- ---------
$ (3,000) $ 24,000
--------- ---------
--------- ---------
</TABLE>

NOTE G--NOTES PAYABLE

Terra maintains a line of credit with a bank that provides for borrowing up
to $1,000,000 and bears interest at one half of one percent over the bank's
prime rate. At December 31, 1996 there were no borrowing's under the line of
credit.

Terra also has an installment loan with the bank that is payable in monthly
installments of $1,800 plus interest at 1% per annum above the bank's prime
rate.

F-48
<PAGE>
DANA ALEXANDER INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

NOTE G--NOTES PAYABLE (CONTINUED)
The loan is secured by all inventory, machinery and equipment not pledged
elsewhere, accounts receivable, notes receivable, intangibles and the guarantees
of two of Terra's principal stockholders. The loan matures on July 1, 2000.

In March 1993, Terra entered into a $125,000 loan agreement with the New
York State Urban Development Corporation (UDC). The agreement provides for
working capital and machinery and equipment term loans with maturities of four
and six years respectively. The loans call for monthly payments of $920 and
$1,170 including interest at 1% per annum until March 1994. The payments
increase to $962 and $1,262 monthly including interest at 4% per annum starting
in April 1994. The loans are secured by the machinery and equipment purchased
with the loan proceeds, the assignment of life insurance policies on two
stockholders and the personal guarantee of the two of the principal
stockholders. The loan agreement also contains restrictions on the payment of
dividends, ability to incur additional financial obligations, sale of stock,
sale of assets, ability to merge or consolidate with any other company and
require Terra to maintain certain minimum financial ratios.

The notes bear interest at rates from 4% per annum to 9.5% per annum and
mature as follows:

<TABLE>
<S> <C>
1997.............................................................. $ 41,676
1998.............................................................. 36,730
1999.............................................................. 25,383
2000.............................................................. 12,600
---------
$ 116,389
Less amounts representing interest................................ 1,601
---------
Present value of minimum notes payable payments................... $ 114,788
---------
---------
</TABLE>

NOTE H--ACCRUED LIABILITIES

Accrued liabilities consist of:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Packaging set-up costs............................................... $ 90,936 $ --
Payroll.............................................................. 76,877 40,039
Miscellaneous........................................................ 69,373 42,790
Freight.............................................................. 40,547 --
Brokers fees......................................................... 30,706 12,000
Advertising.......................................................... 30,000 --
Professional fees.................................................... 16,119 6,598
---------- ----------
$ 354,558 $ 101,427
---------- ----------
---------- ----------
</TABLE>

F-49
<PAGE>
DANA ALEXANDER INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996

NOTE I--COMMITMENTS AND CONTINGENCIES

(a) Terra occupies premises under leases that expire in December 1996 and
December 1999. The leases call for annual payments of $204,600 in 1997 plus
escalation and Terra has the right to renew one of the leases for two one year
periods at annual rent of $93,600 and $97,800.

(b) In connection with the sale of their stock in 1995, Terra's President
and Vice President received three year employment agreements at a specified base
salary. The agreements terminate upon the death or disability of the employee.

(c) Terra and one of its stockholder-officers are defendants in a
discrimination lawsuit brought by a former employee. The plaintiff seeks
compensatory and punitive damages in an unspecified amount. In March 1997 the
Court dismissed the complaint in its entirety against the stock-holder-officer.
Terra believes that the remaining claims are without merit and intends to
vigorously defend the action. It is the opinion of management that the outcome
of this matter will not materially affect Terra's financial position.

NOTE J--RELATED PARTY TRANSACTIONS

Included in other expenses are management fees paid to the following related
parties:

Officer bonuses paid to two of Terra's principal shareholders aggregated
$200,000 for the year ended December 31, 1996 and $50,000 in the year ended
December 31, 1995.

Management fees of $245,000 for the year ended December 31, 1996 and $75,000
for the year ended December 31, 1995 were paid to an affiliate of Terra's
principal shareholder.

During 1995 expense reimbursements aggregating $20,697 were paid to Terra's
principal shareholder.

Interest expense to two of Terra's shareholders aggregated $26,641 for the
year ended December 31, 1996 and $21,148 for the year ended December 31, 1995.

NOTE K--RECLASSIFICATION

Certain items in the 1995 financial statements have been reclassified to
agree with their 1996 presentation.

NOTE L. SUBSEQUENT EVENTS

During the five months ended May 31, 1997, Terra, under its line of credit
with the bank borrowed at various times $900,000 and repaid $275,000.

F-50
<PAGE>
INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Garden of Eatin', Inc.
Hollywood, California

We have audited the accompanying balance sheet of Garden of Eatin', Inc.
("GOE") as of December 23, 1997, and the related statements of operations,
stockholders' equity and cash flows for the period from January 1, 1997 through
December 23, 1997. These financial statements are the responsibility of GOE's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Garden of Eatin', Inc. as of
December 23, 1997 and the results of its operations and its cash flows for the
period from January 1, 1997 through December 23, 1997 in conformity with
generally accepted accounting principles.

McGladrey & Pullen, LLP

Anaheim, California
May 8, 1998

F-51
<PAGE>
GARDEN OF EATIN', INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 23, DECEMBER 31, MARCH 31,
1997 1996 1998
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS (Note 5)
Current Assets
Cash and cash equivalents............................................ $ 92,000 $ 37,000 $ 322,000
Accounts receivable, net of allowance for doubtful accounts 1997
$100,000; 1996 $82,000; 1998 $106,000 (Note 2)..................... 1,391,000 1,489,000 1,419,000
Receivable from stockholder.......................................... 500,000 -- --
Inventories (Notes 2 and 3).......................................... 152,000 279,000 180,000
Prepaid expenses..................................................... 45,000 50,000 24,000
Deferred taxes (Note 8).............................................. 223,000 67,000 223,000
------------ ------------ ------------
TOTAL CURRENT ASSETS............................................. 2,403,000 1,922,000 2,168,000
------------ ------------ ------------
Furniture, Fixtures and Equipment, net (Note 4)........................ 230,000 136,000 269,000
Package Design Costs, net of accumulated amortization 1997 $233,000;
1996 $231,000; 1998 $235,000......................................... 77,000 64,000 118,000
Insurance Contract (Note 5)............................................ -- 490,000 --
Other Assets........................................................... 22,000 24,000 7,000
------------ ------------ ------------
$2,732,000 $2,636,000 $ 2,562,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturity of capital lease obligation (Note 6)................ $ 8,000 $ -- $ 7,000
Trade accounts payable............................................... 598,000 1,069,000 886,000
Accrued payroll...................................................... 306,000 87,000 26,000
Other accrued expenses............................................... 90,000 92,000 122,000
Due to stockholder................................................... -- 160,000 --
Accrued expenses to stockholder...................................... 420,000 -- --
Income taxes payable................................................. 145,000 17,000 231,000
------------ ------------ ------------
TOTAL CURRENT LIABILITIES........................................ 1,567,000 1,425,000 1,272,000
Capital lease obligation, less current maturity (Note 6)............... 94,000 -- 91,000
Note Payable (Note 5).................................................. -- 490,000 --
Deferred Taxes (Note 8)................................................ 16,000 7,000 16,000
Commitments and Contingencies (Notes 2, 3, 7 and 10)
Stockholders' Equity
Common stock, authorized 100,000 shares; issued and outstanding
20,000 shares...................................................... 436,000 16,000 436,000
Retained earnings.................................................... 619,000 698,000 747,000
------------ ------------ ------------
1,055,000 714,000 1,183,000
------------ ------------ ------------
$2,732,000 $2,636,000 $ 2,562,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

See Notes to Financial Statements.

F-52
<PAGE>
GARDEN OF EATIN', INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, YEAR ENDING DECEMBER 24, THREE MONTHS
1997 THROUGH ---------------------------- 1997 THROUGH ENDED
DECEMBER 23, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1996 1995 1998 1997
------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net Sales (Note 2)..................... $ 13,616,000 $ 13,588,000 $ 11,923,000 $3,496,000 $ 3,183,000
Cost of Sales (Note 2)................. 9,465,000 9,843,000 8,917,000 2,409,000 2,225,000
------------- ------------- ------------- ------------ ------------
GROSS PROFIT..................... 4,151,000 3,745,000 3,006,000 1,087,000 958,000
Operating Expenses
Management fees to stockholder....... 420,000 -- -- 62,000 --
Reimbursement of finder's fee........ 80,000 -- -- -- --
Compensation to terminated
employees.......................... 674,000 641,000 463,000 -- 122,000
Selling, general and administrative
(Notes 4 and 7).................... 2,913,000 2,698,000 2,220,000 799,000 733,000
------------- ------------- ------------- ------------ ------------
4,087,000 3,339,000 2,683,000 861,000 855,000
------------- ------------- ------------- ------------ ------------
OPERATING INCOME................. 64,000 406,000 323,000 226,000 103,000
Financial Income (Expense)
Interest income...................... 10,000 9,000 2,000 4,000 1,000
Interest expense..................... (70,000) (115,000) (119,000) (16,000) (23,000)
------------- ------------- ------------- ------------ ------------
INCOME BEFORE INCOME TAXES....... 4,000 300,000 206,000 214,000 81,000
Provision for Income Taxes
(Note 8)............................. 83,000 87,000 67,000 86,000 32,000
------------- ------------- ------------- ------------ ------------
NET INCOME (LOSS)................ $ (79,000) $ 213,000 $ 139,000 $ 128,000 $ 49,000
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
Earnings (loss) per share.............. $ 3.95 $ 10.65 $ 6.95 $ 6.40 $ 2.45
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
Weighted-average shares outstanding.... 20,000 20,000 20,000 20,000 20,000
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
</TABLE>

See Notes to Financial Statements.

F-53
<PAGE>
GARDEN OF EATIN', INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS
---------- ----------
<S> <C> <C>
Balance, December 31, 1994 (unaudited).................................................... $ 16,000 $ 346,000
Net income (unaudited).................................................................. -- 139,000
---------- ----------
Balance, December 31, 1995 (unaudited).................................................... 16,000 485,000
Net income (unaudited).................................................................. -- 213,000
---------- ----------
Balance, December 31, 1996 (unaudited).................................................... 16,000 698,000
Capital contribution.................................................................... 420,000 --
Net (loss).............................................................................. -- (79,000)
---------- ----------
Balance, December 23, 1997................................................................ 436,000 619,000
Net income (unaudited).................................................................. -- 128,000
---------- ----------
Balance, March 31, 1998 (unaudited)....................................................... $ 436,000 $ 747,000
---------- ----------
---------- ----------
</TABLE>

See Notes to Financial Statements.

F-54
<PAGE>
GARDEN OF EATIN', INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 1, YEAR ENDING DECEMBER 24, THREE MONTHS
1997 THROUGH -------------------------- 1997 THROUGH ENDED
DECEMBER 23, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1996 1995 1998 1997
-------------- ------------ ------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Cash Flows from Operating
Activities
Cash received from
customers................. $ 13,634,000 $13,502,000 $11,687,000 $ 3,468,000 $ 3,281,000
Cash paid to suppliers and
employees................. (13,107,000) (13,058,000) (11,285,000) (3,546,000) (3,125,000)
Interest paid............... (60,000) (115,000) (118,000) (16,000) (23,000)
Income taxes paid........... (101,000) (52,000) (85,000) -- --
-------------- ------------ ------------ ----------------- ----------------
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES.......... 366,000 277,000 199,000 (94,000) 133,000
-------------- ------------ ------------ ----------------- ----------------
Cash Flows from Investing
Activities
Purchase of equipment....... (69,000) (25,000) (57,000) (48,000) (38,000)
Capitalized package design
costs..................... (74,000) (23,000) (77,000) (44,000) (5,000)
-------------- ------------ ------------ ----------------- ----------------
NET CASH (USED IN)
INVESTING
ACTIVITIES.......... (143,000) (48,000) (134,000) (92,000) (43,000)
-------------- ------------ ------------ ----------------- ----------------
Cash Flows from Financing
Activities
Increase in checks in excess
of bank balance........... -- -- -- -- --
Capital contribution........ 420,000 --
Change in amounts due to
stockholder............... (160,000) (122,000) (58,000) -- (33,000)
Principal payments on
capital lease
obligation................ (8,000) (99,000) (66,000) (4,000) --
-------------- ------------ ------------ ----------------- ----------------
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES.......... (168,000) (221,000) (124,000) 416,000 (33,000)
-------------- ------------ ------------ ----------------- ----------------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS......... 55,000 8,000 (59,000) 230,000 57,000
Cash and Cash Equivalents
Beginning of period......... 37,000 29,000 88,000 92,000 37,000
-------------- ------------ ------------ ----------------- ----------------
End of period............... $ 92,000 $ 37,000 $ 29,000 $ 322,000 $ 94,000
-------------- ------------ ------------ ----------------- ----------------
-------------- ------------ ------------ ----------------- ----------------
</TABLE>

F-55
<PAGE>
GARDEN OF EATIN', INC.

STATEMENTS OF CASH FLOWS (CONTINUED)

See Notes to Financial Statements.

F-56
<PAGE>
GARDEN OF EATIN', INC.

NOTES TO FINANCIAL STATEMENTS

INFORMATION WITH RESPECT TO THE PERIODS ENDED DECEMBER 31,1996 AND 1995 AND THE
PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS:

GOE manufactures and distributes organic foods throughout the United States.
GOE's customers are primarily wholesale distributors. GOE operates under
compliance with specific sections of the Food, Drug and Cosmetic Act of 1938 and
the Good Manufacturing Practices Act of 1967 and subsequent revisions.

On December 23, 1997, GOE's sole stockholder sold 11,000 shares of GOE stock
to a third party. The sole stockholder is obligated to sell an additional 4,000
shares.

UNAUDITED INTERIM FINANCIAL INFORMATION:

The interim financial information presented herein as of and for the periods
ended March 31, 1998 and 1997 reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation for the periods
presented. Such adjustments are of a normal recurring nature. The financial
information is not intended to be a complete presentation in accordance with
generally accepted accounting principles. Interim financial results are not
necessarily indicative of results GOE will incur during its fiscal year.

A SUMMARY OF GOE'S SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:

USE OF ESTIMATES:

CASH CONCENTRATION:

At December 23, 1997, GOE had approximately $350,000 on deposit in a single
financial institution. Deposits in excess of $100,000 are not insured by the
FDIC.

INVENTORIES:

Inventories are stated at the lower of cost (first-in, first-out method) or
market.

FURNITURE, FIXTURES AND EQUIPMENT:

Furniture, fixtures and equipment are recorded at cost. Depreciation is
provided using straight-line methods over the estimated useful lives of the
assets ranging from three to seven years.

PACKAGE DESIGN COSTS:

GOE capitalizes costs incurred for the design of its packaging. These costs
are amortized over the estimated life of the packaging not to exceed three
years.

F-57
<PAGE>
GARDEN OF EATIN', INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE PERIODS ENDED DECEMBER 31,1996 AND 1995 AND THE
PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS:

GOE evaluates long-lived assets for impairment under Financial Accounting
Standards Board (FASB) Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of." Under those rules, long-term and
intangible assets are evaluated for possible impairment when events or
circumstances indicate the carrying amount of those assets may not be
recoverable. Recoverability is assessed based on the gross undiscounted
estimated future cash flows before interest charges. If an impairment is
indicated, the amount would be determined by comparing the estimated fair value
to the carrying value of the asset being evaluated. In the absence of quoted
market prices, fair value is estimated by using the projected cash flows
discounted at a rate commensurate with the risks involved.

ADVERTISING:

GOE expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was approximately $115,000 during
the period ended December 23, 1997 (the "Period") and $137,000 and $104,000 for
the years ended December 31, 1996 and 1995. There is no prepaid advertising as
of December 23, 1997.

INCOME TAXES:

EARNINGS PER SHARE:

In February 1997, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" (EPS). SFAS No. 128 requires dual
presentation of basic EPS and diluted EPS on the face of all income statements
issued after December 15, 1997 for all entities with complex capital structures.
Basic EPS is computed as net income divided by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options or
other dilutive securities. The Company has no potentially dilutive securities.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

In 1997, GOE adopted FASB Statement No. 107, "Disclosures about Fair Value
of Financial Instruments." The carrying amount of accounts receivable and
accounting payable approximates its fair value.

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

F-58
<PAGE>
GARDEN OF EATIN', INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE PERIODS ENDED DECEMBER 31,1996 AND 1995 AND THE
PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS: The carrying amount approximates fair value
because of the short maturity of those instruments.

NOTES PAYABLE: The carrying amount approximates fair value because the
interest rate fluctuates with the lending banks' prime rate.

NOTE 2. CONCENTRATIONS

GOE had net sales to two customers in the Period ending December 23, 1997
that individually accounted for more than 10% of GOE's net sales. Net sales to
these customers during this period were approximately $1,617,000 and $1,315,000,
respectively; and net trade receivables from these customers as of December 23,
1997 were approximately $45,000 and $232,000, respectively. Net sales to these
customers were $1,568,000 and $1,345,000 during the year ended December 31, 1996
and $1,462,000 and $1,415,000 during the year ended December 31, 1995.

GOE outsources all of its manufacturing to third party processors. As part
of its agreement with its primary manufacturer, GOE supplied various raw
materials used in production of its products totaling approximately $2,809,000
during the Period. GOE purchased approximately $8,607,000 of the total
manufactured goods sold by GOE during the Period from this supplier.

NOTE 3. INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 23, DECEMBER 31, MARCH 31,
1997 1996 1998
------------ ------------ ------------
<S> <C> <C> <C>
Raw materials...................................... $ 68,000 $ 103,000 $ 84,000
Finished goods..................................... 30,000 100,000 54,000
Packaging.......................................... 54,000 76,000 42,000
------------ ------------ ------------
$ 152,000 $ 279,000 $ 180,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

At December 23, 1997, GOE had fixed price commitments as of December 23,
1997 to purchase approximately $1,900,000 of raw materials to be used in
production. GOE has not purchased any futures or option contracts.

F-59
<PAGE>
GARDEN OF EATIN', INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE PERIODS ENDED DECEMBER 31,1996 AND 1995 AND THE
PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED

NOTE 4. FURNITURE, FIXTURES AND EQUIPMENT

The components of furniture, fixtures and equipment are as follows:

<TABLE>
<CAPTION>
DECEMBER 23, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Leasehold improvements........................................... $ -- $ 52,000
Machinery and equipment.......................................... 33,000 33,000
Office equipment................................................. 315,000 180,000
Furniture and fixtures........................................... 48,000 48,000
------------ ------------
396,000 313,000
Less accumulated depreciation.................................... 166,000 177,000
------------ ------------
$ 230,000 $ 136,000
------------ ------------
------------ ------------
</TABLE>

Included in office equipment, at December 23, 1997, is $110,000 of assets
acquired under a capital lease. There is no accumulated depreciation on these
assets as of December 23, 1997 as the equipment was not placed into service
until 1998 (Note 6).

NOTE 5. NOTE PAYABLE

GOE has a $250,000 revolving line of credit with a bank. The line is
collateralized by substantially all of the assets of GOE. The agreement bears
interest at the bank's reference rate (8.5% at December 23, 1997) plus 1% and
matures in June 1998. There were no borrowings on the revolving line of credit
as of December 23, 1997.

At December 31, 1996, GOE had a note payable to its stockholder which had
been used to fund leveraged split dollar life insurance policies on certain
eligible employees of GOE. The stockholder of GOE was the beneficiary of the
policies and made the required annual premium payments on the policies. There is
no fixed repayment schedule on the principal balance of the note. Interest
expense paid by GOE for the years ended December 1997, 1996 and 1995 was
$50,000, $89,000 and $38,000, respectively. During 1997, the insurance contract
was transferred to the stockholder in settlement of this note payable.

NOTE 6. CAPITAL LEASE OBLIGATION

Capital lease obligation at December 23, 1997 consists of the following:

<TABLE>
<CAPTION>
PRESENT VALUE
OF NET
MINIMUM LESS AMOUNT MINIMUM
LEASE REPRESENTING LEASE
YEAR ENDING DECEMBER 31, PAYMENT INTEREST PAYMENTS
- ----------------------------------------------------- ---------- ------------ -------------
<S> <C> <C> <C>
1998................................................. $ 51,000 $ 43,000 $ 8,000
1999................................................. 51,000 28,000 23,000
2000................................................. 51,000 18,000 33,000
2001................................................. 44,000 6,000 38,000
---------- ------------ -------------
$ 197,000 $ 95,000 $ 102,000
---------- ------------ -------------
---------- ------------ -------------
</TABLE>

F-60
<PAGE>
GARDEN OF EATIN', INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE PERIODS ENDED DECEMBER 31,1996 AND 1995 AND THE
PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED

NOTE 7. EMPLOYEE BENEFIT PLANS

PROFIT SHARING PLAN AND 401(K) PLAN:

GOE has a qualified 401(k) employee benefit plan for substantially all
employees who have met the minimum age and service requirements. Each
participant is able to defer a maximum of 15% of their annual compensation,
subject to any restrictions. GOE contributes an amount equal to 25% of each
employee's contribution up to the first 4% of the employee's weekly
compensation. Additionally, GOE may make discretionary contributions.

MONEY PURCHASE PENSION PLAN:

GOE has a money purchase pension plan for all employees who have met the
service requirements. GOE contributes up to 7% of the participants compensation
up to $150,000 per year.

During 1997, 1996 and 1995, GOE made contributions to these plans totaling
$130,000, $148,000 and $131,000, respectively.

NOTE 8. INCOME TAXES

The provision for income taxes consist of the following:

<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Current.................................................... $ 230,000 $ 87,000 $ 67,000
Deferred................................................... (147,000) -- --
----------- --------- ---------
$ 83,000 $ 87,000 $ 67,000
----------- --------- ---------
----------- --------- ---------
</TABLE>

A reconciliation of income tax expense to the amount computed by applying
statutory income tax rates to income before income taxes:

<TABLE>
<CAPTION>
1997 1996 1995
--------- ----------- ---------
<S> <C> <C> <C>
Federal income tax......................................... $ 1,000 $ 102,000 $ 70,000
Nondeductible expenses..................................... 82,000 -- --
Other...................................................... -- (15,000) (3,000)
--------- ----------- ---------
$ 83,000 $ 87,000 $ 67,000
--------- ----------- ---------
--------- ----------- ---------
</TABLE>

State income taxes have been offset by various credits available.
Significant components of GOE's deferred tax assets and liabilities are as
follows:

<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Deferred Tax Assets
Allowance for doubtful accounts...................................... $ 40,000 $ 33,000
Accrued expenses..................................................... 176,000 34,000
Contributions carryforward........................................... 7,000 --
---------- ---------
Total deferred tax assets.......................................... 223,000 67,000
Deferred Tax Liabilities, property, plant and equipment................ (16,000) (7,000)
---------- ---------
$ 207,000 $ 60,000
---------- ---------
---------- ---------
</TABLE>

F-61
<PAGE>
GARDEN OF EATIN', INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE PERIODS ENDED DECEMBER 31,1996 AND 1995 AND THE
PERIODS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED

NOTE 8. INCOME TAXES (CONTINUED)
The components giving rise to the net deferred assets (liabilities)
described above, have been included in the accompanying balance sheets as
follows:

<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Current assets....................................................... $ 223,000 $ 67,000
Noncurrent (liabilities)............................................. (16,000) (7,000)
----------- ----------
$ 207,000 $ 60,000
----------- ----------
----------- ----------
</TABLE>

There is no valuation allowance on deferred taxes as management believes it
is more likely than not that the assets will be realized.

NOTE 9. STATEMENTS OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1997 THROUGH
DECEMBER 23,
1997
-------------
<S> <C>
Supplemental Schedule of Noncash Investing and Financing Activities Equipment
acquired under capital lease obligation...................................... $ 110,000
-------------
-------------
Transfer of life insurance contracts in settlement of related party note
payable...................................................................... $ 490,000
-------------
-------------
Stock subscription............................................................. $ 420,000
-------------
-------------
</TABLE>

NOTE 10. RENT EXPENSE

GOE leases its facilities on a month-to-month basis. Monthly rent is
approximately $20,000 and rent expense totaled $240,000, $230,000 and $216,000
for 1997, 1996 and 1995, respectively.

NOTE 11. SUBSEQUENT EVENT

On April 24, 1998, GOE's signed an agreement and plan of merger whereby GOE
agreed to exchange 100% of GOE's common stock for a combination of cash and
common stock in The Hain Food Group, Inc., a public company. This transaction
closed on July 1, 1998. These financial statements do not include any
adjustments which may be required as a result of this transaction.

F-62
<PAGE>

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma combined financial statements are presented
to give effect to the Merger and the resulting acquisition of Arrowhead,
Terra and GOE (collecitvely, the "Acquired Companies") under the purchase
method of accounting. The income statements for the period ended June 30,
1997 and nine months ended March 31, 1998 assume that the Merger and the
related acquisition of the Acquired companies had been consummated on July 1,
1997. The balance sheet assumes that the Merger had been consummated on March
31, 1998. The balance sheets of the Acquired Companies included in the
unaudited pro forma condensed combined balance sheet are as of April 30, 1998
with respect to Arrowhead and Terra. Hain management anticipates that it will
be able to achieve significant cost synergies and savings as a result of the
Merger. However, in accordance with the rules for presentation of pro forma
financial information, no effect to such cost savings has been included herein.
The pro forma financial statements are not necessarily indicative of the
results of operations or the financial position which would have occurred had
the Merger been consummated at such times, nor are they necessarily
indicative of future results of operations or financial position. The
unaudited pro forma combined financial statements should be read in
conjunction with the historical consolidated financial statements of Hain and
Westbrae, including the notes thereto, incorporated by reference herein and
the financial statements of the Acquired Companies, including the notes
thereto.

F-63
<PAGE>

PRO FORMA CONDENSED COMBINED BALANCE SHEET

(IN THOUSANDS)

MARCH 31, 1998

(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL
----------------------
PRO FORMA
ACQUIRED --------------------------
HAIN COMPANIES ADJUSTMENTS COMBINED
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 295 $ 461 $ (461)(1) $ 295
Trade accounts receivable, net............................... 12,926 4,889 17,815
Inventories.................................................. 12,291 5,254 17,545
Receivables-sales of equipment............................... 175 -- 175
Other current assets......................................... 1,750 1,025 2,775
--------- ----------- ----------- -----------
TOTAL CURRENT ASSETS....................................... 27,437 11,629 (461) 38,605
Property, plant and equipment, net............................. 873 4,965 (2,465)(2) 3,373
(10,584)(3)
Goodwill and other intangible assets, net...................... 52,697 10,584 72,636 (4) 125,333
(1,348)(5)
Unamortized financing costs and other assets................... 3,809 1,508 600 (6) 4,569
--------- ----------- ----------- -----------
TOTAL ASSETS............................................... $ 84,816 $ 28,686 $ 58,378 $ 171,880
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses........................ $ 8,460 $ 4,668 250 (10) $ 13,378
Current portion of revolving credit.......................... 3,500 -- (461)(1) 3,039
Current portion of senior term loan.......................... 1,310 -- 1,310
Current portion of other long-term debt...................... 195 2,292 (2,292)(7) 195
Income taxes payable......................................... 1,753 426 2,179
--------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES...................................... 15,218 7,386 (2,503) 20,101
LONG-TERM DEBT, LESS CURRENT PORTION:
Senior credit facility....................................... 8,195 -- 42,000(8) 50,195
Subordinated debentures...................................... 7,447 -- 7,447
Other........................................................ 172 17,912 (17,912)(7) 172
--------- ----------- ----------- -----------
TOTAL LONG-TERM DEBT....................................... 15,814 17,912 24,088 57,814
--------- ----------- ----------- -----------
OTHER LIABILITIES.............................................. 1,442 -- 1,442
DEFERRED INCOME TAXES.......................................... 552 431 -- 983
--------- ----------- ----------- -----------
TOTAL LIABILITIES.......................................... 33,026 25,729 21,585 80,340
STOCKHOLDERS' EQUITY:
Preferred stock -- -- -- --
(438)(9)
Common stock................................................. 116 438 17 (10) 133
(7,198)(9)
Additional paid in capital................................... 44,032 7,198 39,733 (10) 83,765
Retained earnings............................................ 7,917 (4,679) 4,679 (9) 7,917
Treasury stock............................................... (275) -- -- (275)
--------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY................................. 51,790 2,957 36,793 91,540
--------- ----------- ----------- -----------
TOTAL LIABILITIES AND EQUITY............................... $ 84,816 $ 28,686 $ 58,378 $ 171,880
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>

See notes to unaudited pro forma financial statements.

F-64
<PAGE>
PRO FORMA CONDENSED STATEMENT OF INCOME

FOR THE YEAR ENDED JUNE 30, 1997

AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS.

(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
FOR
HISTORICAL WESTBRAE ACQUISITION PRO FORMA
---------------------- PRO FORMA OF WESTBRAE ACQUIRED --------------------------
HAIN WESTBRAE ADJUSTMENTS NATURAL, INC. COMPANIES ADJUSTMENTS COMBINED
--------- ----------- ------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 65,353 $ 32,894 -- $ 98,247 $ 52,889 -- $ 151,136
Cost of Sales...................... 40,781 20,019 -- 60,800 37,031 97,831
--------- ----------- ------------- ------------- ----------- ------------- -----------
Gross Profit....................... 24,572 12,875 -- 37,447 15,858 -- 53,305
Management fees to stockholder..... 510 (510)(1) --
Selling, general and administrative
expenses......................... 19,651 10,809 $ (1,143)(1) 29,317 10,587 -- 39,904
Depreciation of property and
equipment........................ 178 94 -- 272 1,128 (564)(2) 836
Amortization of goodwill and other (213)(2)
intangible assets................ 740 213 543(3) 1,283 -- 1,807(4) 3,090
--------- ----------- ------------- ------------- ----------- ------------- ----------
20,569 11,116 (813) 30,872 12,225 733 43,830
--------- ----------- ------------- ------------- ----------- ------------- ----------
Operating income................... 4,003 1,759 813 6,575 3,633 (733) 9,475
Interest expense................... 1,639 213 1,786(4) 3,638 534 (534)(5) 5,278
1,640(6)
Amortization of deferred financing
costs............................ 509 0 (18)(5) 491 -- -- 491
--------- ----------- ------------- ------------- ----------- ------------- ----------
2,148 213 1,768 4,129 534 1,106 5,769
--------- ----------- ------------- ------------- ----------- ------------- -----------
Income before income taxes......... 1,855 1,546 (955) 2,446 3,099 (1,839) 3,706
Provision for income taxes......... 786 206 35(6) 1,027 1,347 (743)(7) 1,631
--------- ----------- ------------- ------------- ----------- ------------- -----------
Net income....................... $ 1,069 $ 1,340 $ (990) $ 1,419 $ 1,752 $ (1,096) $ 2,075
--------- ----------- ------------- ------------- ----------- ------------- ----------
--------- ----------- ------------- ------------- ----------- ------------- ----------
Net income per common share:
Diluted.......................... $ 0.12 $ 0.16 $ 0.19
Basic............................ 0.12 0.16 0.20

Common equivalent shares:
Diluted.......................... 8,993 8,993 10,709
Basic............................ 8,694 8,694 10,410
</TABLE>

F-65
<PAGE>
PRO FORMA CONDENSED STATEMENT OF INCOME

FOR THE NINE MONTHS ENDED MARCH 31, 1998

AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS.

(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
FOR
HISTORICAL WESTBRAE ACQUISITION PRO FORMA
---------------------- PRO FORMA OF WESTBRAE ACQUIRED --------------------------
HAIN WESTBRAE ADJUSTMENTS NATURAL, INC. COMPANIES ADJUSTMENTS COMBINED
--------- ----------- ------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 73,224 $ 10,639 -- $ 83,863 $ 42,312 -- $ 126,175
Cost of Sales...................... 43,604 6,246 -- 49,850 28,119 -- 77,969
--------- ----------- ------------- ----------- ----------- ------------- ----------
Gross Profit....................... 29,620 4,393 -- 34,013 14,193 -- 48,206
Management fees to stockholder..... 682 $ (682)(1) --
Selling, general and administrative
expenses......................... 21,364 3,652 $ (286)(1) 24,730 9,132 -- 33,862
Depreciation of property and
equipment........................ 183 2 -- 185 873 (437)(2) 621
Amortization of goodwill and other (54)(2) (372)(3)
intangible assets................ 927 54 136(3) 1,063 372 1,355(4) 2,418
--------- ----------- ------------- ----------- ----------- ------------- ----------
Operating income................. 7,146 685 204 8,035 3,134 136 11,305
(908)(5)
Interest expense................... 1,706 34 443(4) 2,183 908 1,776 (6) 3,959
Amortization of deferred financing
costs............................ 396 -- (5)(5) 391 -- -- 391
--------- ----------- ------------- ------------- ----------- ------------- ----------
Income before income taxes......... 5,044 651 (234) 5,461 2,226 (732) 6,955
Provision for income taxes......... 2,118 99 78(6) 2,295 1,073 (308)(7) 3,060
--------- ----------- ------------- ------------- ----------- ------------- ----------
Net income......................... $ 2,926 $ 552 $ (312) $ 3,166 $ 1,153 $ (424) $ 3,895
--------- ----------- ------------- ------------- ----------- ------------- ----------
--------- ----------- ------------- ------------- ----------- ------------- ----------
Net income per common share:
Diluted.......................... $ 0.26 $ 0.28 $ 0.30
Basic............................ $ 0.30 $ 0.32 $ 0.34

Common equivalent shares:
Diluted.......................... 11,352 11,352 13,068
Basic............................ 9,862 9,862 11,578
</TABLE>

F-66
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)

NOTES -- WESTBRAE ACQUISITION:

GENERAL

On October 14, 1997, the Company completed the acquisition of Westbrae
Natural, Inc. ("Westbrae") in a transaction that has been accounted for as a
purchase. The cost of the acquisition (including closing costs) and the
repayment of the Company's existing Credit Facility with IBJ Schroder bank and
Trust Company ("IBJ") and the repayment of Westbrae debt was funded by the New
Credit Facility with IBJ providing for a $30 million senior term loan and a $10
million revolving credit facility.

Details of the pro forma adjustments relating to the acquisition and the
financing are set forth below.

PRO FORMA STATEMENT OF INCOME ADJUSTMENTS:

<TABLE>
<C> <S>
(1) Adjustment to give effect to the reduction of certain costs and expenses associated
with the elimination of the principal corporate offices of Westbrae.

(2) Elimination of Westbrae historical amortization of goodwill.

(3) Goodwill amortization with respect to goodwill acquired in the acquisition of Westbrae.

(4) Increase in interest costs resulting from the financing of the Westbrae acquisition.

(5) Adjustment of amortization of financing costs resulting from the New Credit Facility.

(6) Adjustment to historical provision for income taxes to eliminate the effect of net
operating loss carryforwards utilized by Westbrae and to adjust income taxes to the
expected effective tax rate following acquisition.
</TABLE>

NOTES -- ACQUIRED COMPANIES:

GENERAL

On April 24, 1998, Hain executed the Merger Agreement whereby it agreed to
acquire all of the outstanding capital stock of AMI and GOE. AMI is a holding
company whose two operating subsidiaries are Arrowhead and Terra. DeBoles is a
wholly owned subsidiary of Arrowhead. This transaction closed on July 1, 1998.

The consideration paid for the Acquired Companies was $80 million, less
the assumption of $20 million of debt. The pro forma financial
statements give effect to the $40 million of merger consideration paid
through the issuance of Hain Common Stock. Hain borrowed $40 million
from its bank to fund the balance of the purchase price and to repay $20
million of existing debt of the Acquired Companies.

Details of the pro forma adjustments are set forth below.

PRO FORMA BALANCE SHEET ADJUSTMENTS:

<TABLE>
<C> <S>
(1) Cash of acquired companies utilized to pay down revolving credit.

(2) Adjustment of book amount of property, plant and equipment of acquired companies to
estimated fair value at date of acquisition.

(3) Elimination of goodwill of acquired companies at date of acquisition.
</TABLE>

F-67
<PAGE>
<TABLE>
<C> <S>
(4) Excess of the cost of acquisition of the acquired companies over the fair value of the
net tangible assets at date of acquisition.

(5) Elimination of unamortized financing expenses and deferred charges of the acquired
companies.

(6) Estimated financing costs to be incurred in connection with the financing of the cash
portion of the purchase price of the acquired companies.

(7) Debt of acquired companies at date of acquisition to be paid off with proceeds of new
Senior Term Loan financing.

(8) Proceeds of a new Senior Term Loan to be used to finance the cash portion of the
purchase price of the acquired companies and to repay existing debt of the acquired
companies.

(9) Elimination of equity accounts of acquired companies at date of acquisition.

(10) Portion of purchase price of acquired companies to be paid by the issuance of 1.716
million shares of Hain Common Stock (based on an average fair market value of
approximately $23 per share).
</TABLE>

PRO FORMA STATEMENT OF INCOME ADJUSTMENTS:

<TABLE>
<C> <S>
(1) Elimination of management fees that will not be applicable following the acquisition.

(2) Adjustment of depreciation expense based on revaluation of fixed assets of the Acquired
Companies.

(3) Elimination of historical goodwill amortization of the Acquired Companies.

(4) Goodwill amortization arising from the acquisition of the Acquired Companies.

(5) Elimination of historical interest expense of the Acquired Companies.

(6) Adjustment of historical interest expense to reflect the additional long-term debt and
that will be incurred in connection with the acquisition of the Acquired Companies.

(7) Adjustment of income taxes to give effect to the pro forma pretax adjustments, and to
adjust for the expected effective income tax rate following acquisition.
</TABLE>

F-68
<PAGE>

PRO FORMA FINANCIAL STATEMENT INFORMATION:

The following unaudited combining balance sheet combines the balance sheets
of the acquired companies as of the date of their latest interim financial
statements included herewith.

COMBINING CONDENSED BALANCE SHEETS OF THE ACQUIRED COMPANIES

(AMOUNTS IN THOUSANDS)

(UNAUDITED)

<TABLE>
<CAPTION>
ARROWHEAD TERRA GOE COMBINED
April 30, April 30, March 31,
1998 1998 1998
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Current Assets:
Cash............................................................ $ 69 $ 70 $ 322 $ 461
Accounts receivable, net........................................ 2,038 1,432 1,419 4,889
Inventories..................................................... 4,187 887 180 5,254
Other current assets............................................ 493 285 247 1,025
----------- ---------- ----------- -----------
Total current assets............................................ 6,787 2,674 2,168 11,629

Property, plant & equipment, net.................................. 3,731 965 269 4,965
Intangibles, net of accumulated amortization...................... -- 10,584 -- 10,584
Other assets...................................................... 790 593 125 1,508
----------- ---------- ----------- -----------
Total assets.................................................... $ 11,308 $ 14,816 $ 2,562 $ 28,686
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Liabilities and Stockholders' Equity Current Liabilities:
Accounts payable and accrued expenses........................... $ 2,061 $ 1,573 $ 1,034 $ 4,668
Current portion of long-term debt............................... -- 2,285 7 2,292
Income taxes payable............................................ 175 20 231 426
----------- ---------- ----------- -----------
Total current liabilities....................................... 2,236 3,878 1,272 7,386

Long-term debt, less current portion.............................. 3,018 14,803 91 17,912

Deferred income taxes............................................. 415 16 431
----------- ---------- ----------- -----------
5,669 18,681 1,379 25,729
Stockholders' Equity:
Common stock.................................................... 1 1 436 438
Paid in Capital................................................. 2,376 4,822 -- 7,198
Retained earnings/(deficit)(1).................................. 3,262 (8,688) 747 (4,679)
----------- ---------- ----------- -----------
Total stockholders' equity...................................... 5,639 (3,865) 1,183 2,957
----------- ---------- ----------- -----------
$ 11,308 $ 14,816 $ 2,562 $ 28,686
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>

- ------------------------

(1) Retained earnings has been reduced by the excess of consideration paid over
consideration received, amounting to $8,855. See the financial statements of
Terra, and the notes thereto, included elsewhere herein.

F-69
<PAGE>
HISTORICAL COMBINING STATEMENTS OF INCOME OF THE ACQUIRED COMPANIES

FOR THE FISCAL YEAR ENDED JULY 31, 1997

(UNAUDITED)

The following unaudited combining statement of income combines the results of
operations of the acquired companies for the fiscal year ended July 31, 1997.
The fiscal years of Terra and GOE previously ended on dates other than July 31;
consequently the amounts shown below for those companies have been recast to
conform with the fiscal year end of Arrowhead which substantially conform to the
fiscal year end of Hain, which is June 30.

<TABLE>
<CAPTION>
ARROWHEAD TERRA GOE COMBINED
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales..................................................... $ 25,977 $ 12,911 $ 14,001 $ 52,889
Cost of sales................................................. 19,436 7,487 10,108 37,031
------- ----------- ----------- -----------
Gross profit.................................................. 6,541 5,424 3,893 15,858
Management fees............................................... 240 270 -- 510
Selling, general and administrative expenses.................. 4,547 3,748 3,420 11,715
------- ----------- ----------- -----------
Operating income.............................................. 1,754 1,406 473 3,633
Interest expense, net......................................... 394 42 98 534
------- ----------- ----------- -----------
Income before income taxes.................................... 1,360 1,364 375 3,099
Provision for income taxes.................................... 570 641 136 1,347
------- ----------- ----------- -----------
Net income.................................................... $ 790 $ 723 $ 239 1,752
------- ----------- ----------- -----------
------- ----------- ----------- -----------
</TABLE>

F-70

<PAGE>

EXHIBIT INDEX
<TABLE>
<CAPTION>

Number Description
- ------ -----------

<S> <C> <C>
(2.1) Agreement and Plan of Merger by and between The Hain Food Group, Inc.
and Arrowhead Mills, Inc. dated April 24, 1998. (Incorporated by
reference to Annex A to the Company's Registration Statement on Forms
S-4/S-3, File No. 333-56319).

(2.2) Agreement and Plan of Merger by and between The Hain Food Group, Inc.
and Garden of Eatin', Inc. dated April 24, 1998. (Incorporated by
reference to Annex B to the Company's Registration Statement on Forms
S-4/S-3, File No. 333-56319).

(2.3) First Amendment to Agreement and Plan of Merger by and between The Hain
Food Group, Inc and Arrowhead Mills, Inc. dated June 25, 1998.
(Incorporated by reference to Exhibit 2.6 to the Company's Registration
Statement on Forms S-4/S-3, File No. 333-56319).

(2.4) First Amendment to Agreement and Plan of Merger by and between The Hain
Food Group, Inc and Garden of Eatin', Inc. dated June 25, 1998.
(Incorporated by reference to Exhibit 2.5 to the Company's Registration
Statement on Forms S-4/S-3, File No. 333-56319).

(23.1) Consent of McGinty & Associates, Independent Auditors.

(23.2) Consent of Katz & Bloom, LLC, Independent Auditors.

(23.3) Consent of McGladrey & Pullen, LLP, Independent Auditors.

*(99.1) Press release of the Company dated July 1, 1998.

</TABLE>

- -------------
* Previously filed.

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the incorporation of our report, relating to the
consolidated financial statements of Arrowhead Mills, Inc., dated October 4,
1996, except for Note 10, as to which the date is June 1, 1998, for the years
ended July 31, 1996 and 1995 included in this Form 8-K/A and incorporated by
reference in the previously filed Registration Statement of the Hain Food
Group, Inc. on Form S-4/S-3 (No. 333-57343) and incorporated by reference in
the Registration Statement of the Hain Food Group, Inc. on Form S-3 filed on
or about July 20, 1998.

July 20, 1998

/s/ McGinty & Associates
- ------------------------
McGinty & Associates

<PAGE>

Exhibit 23.2

Consent of Independent Auditors

We hereby consent to the incorporation of our report, relating to the
financial statements of Dana Alexander, Inc. dated March 19, 1997 except for
Note L, as to which date is June 2, 1997, for the years ended December 31,
1996 and 1995 included in this Form 8-K/A and incorporated by reference in
the previously filed Registration Statement of The Hain Food Group, Inc. on
Form S-4/S-3 (No. 333-57343) and incorporated by reference in the
Registration Statement of the Hain Food Group, Inc. on Form S-3 filed on or
about July 20, 1998.

July 20, 1998

/s/ Katz & Bloom, LLC
- ---------------------
Katz & Bloom, LLC

<PAGE>

EXHIBIT 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation of our reports, relating to the
consolidated financial statements of AMI Operating, Inc., and subsidiaries
dated May 27, 1998 and the financial statements of Dana Alexander, Inc.,
dated May 22, 1998 and the financial statements of Garden of Eatin', Inc.,
dated May 8, 1998, included in the Form 8-K/A dated July 23, 1998 and
incorporated by reference in the previously filed Registration Statement of
The Hain Food Group, Inc. on Form S03/S-3 (No. 333-57343) and icnorproated by
reference in the Registration Statement of the Hain Food Group, Inc. on Form
S-3 filed on or about July 22, 1998.

July 20, 1998

/s/ McGladrey & Pullen, LLP
- --------------------------
McGladrey & Pullen

Anaheim, California