FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended: 09/30/98 Commission file number: 0-22818
THE HAIN FOOD GROUP, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 22-3240619
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Charles Lindbergh Boulevard, Uniondale, New York 11553
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (516) 237-6200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports and (2) has been subject to
such filing requirement for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
13,430,640 shares of Common Stock $.01 par value, as of November 12, 1998.
<PAGE>
THE HAIN FOOD GROUP, INC.
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1998
(unaudited) and June 30, 1998
Consolidated Statements of Income - Three months
ended September 30, 1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows - Three months
ended September 30, 1998 and 1997(unaudited)
Consolidated Statement of Stockholders' Equity - Three
months ended September 30, 1998 (unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II Other Information
Items 1 to 5 are not applicable
Item 6 - Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
PART I - ITEM 1. - FINANCIAL INFORMATION
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30 June 30
1998 1998
(Unaudited) (Note)
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $288,000 $495,000
Trade accounts receivable,
less allowance for doubtful accounts
of $530,000 and $325,000 18,060,000 13,614,000
Inventories 18,596,000 13,278,000
Other current assets 2,077,000 1,830,000
---------- ----------
Total current assets 39,021,000 29,217,000
Property and equipment, net
of accumulated depreciation
of $986,000 and $834,000 5,538,000 1,065,000
Goodwill and other intangible assets,
net of accumulated amortization
of $4,167,000 and $3,320,000 128,806,000 54,253,000
Deferred financing costs, net of
accumulated amortization
of $1,136,000 and $1,055,000 1,856,000 1,502,000
Other assets 2,543,000 2,254,000
----------- ----------
Total assets $177,764,000 $88,291,000
=========== ==========
<FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $15,779,000 $9,715,000
Current portion of long-term debt 5,415,000 4,554,000
Income taxes payable 678,000 410,000
---------- ----------
Total current liabilities 21,872,000 14,679,000
Long-term debt, less current portion 56,802,000 16,561,000
Other liabilities 2,795,000 2,628,000
Deferred income taxes 1,221,000 1,176,000
---------- ----------
Total liabilities 82,690,000 35,044,000
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.01 par value;
authorized 5,000,000 shares,
no shares issued
Common stock - $.01 par value,
authorized 40,000,000 shares, issued
13,520,640 and 11,656,299 shares 135,000 117,000
Additional paid-in capital 85,176,000 45,122,000
Retained earnings 10,038,000 8,283,000
---------- ----------
95,349,000 53,522,000
Less: 100,000 shares of treasury
stock, at cost 275,000 275,000
---------- ----------
Total stockholders' equity 95,074,000 53,247,000
----------- ----------
Total liabilities and
stockholders' equity $177,764,000 $88,291,000
=========== ==========
<FN>
Note - The balance sheet at June 30, 1998 has been derived from
the audited financial statements at that date.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CPATION>
Three Months Ended
September 30
1998 1997
---------- ----------
<S> <C> <C>
Net sales $43,496,000 $16,336,000
Cost of sales 26,721,000 9,862,000
---------- ---------
Gross profit 16,775,000 6,474,000
---------- ---------
Selling, general and
administrative expenses 11,345,000 4,837,000
Depreciation of property and equipment 152,000 48,000
Amortization of goodwill and other
intangible assets 847,000 210,000
---------- ---------
12,344,000 5,095,000
---------- ---------
Operating income 4,431,000 1,379,000
Interest expense, net 1,243,000 420,000
Amortization of deferred financing costs 81,000 131,000
--------- -------
1,324,000 551,000
--------- -------
Income before income taxes 3,107,000 828,000
Provision for income taxes 1,352,000 352,000
--------- -------
Net income $1,755,000 $476,000
========= =======
Earnings Per Common Share:
Basic $0.13 $0.06
==== ====
Diluted $0.12 $0.05
==== ====
Common equivalent shares:
Basic 13,384,000 8,649,000
========== =========
Diluted 15,177,000 9,965,000
========== =========
<FN>
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Three Months Ended
September 30
1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,755,000 $476,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation of property and equipment 152,000 48,000
Amortization of goodwill and
other intangible asset 847,000 210,000
Amortization of deferred financing costs 81,000 131,000
Provision for doubtful accounts 7,000
Other 11,000
Increase (decrease) in cash attributable
to changes in assets and liabilities,
net of amounts applicable to acquired
businesses:
Accounts receivable 644,000 296,000
Inventories (870,000) (790,000)
Other current assets (227,000) (172,000)
Other assets (289,000) 30,000
Accounts payable and accrued expenses (1,980,000) (1,471,000)
Income taxes payable 268,000 293,000
-------- -------
Net cash provided by (used in)
operating activities 399,000 (949,000)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses, net of cash
acquired (20,439,000) (37,000)
Acquisition of property and equipment (76,000) (20,000)
---------- ------
Net cash used in investing activities (20,515,000) (57,000)
---------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank revolving credit facility 1,550,000
Payment of bank revolving credit facility (650,000)
Proceeds from senior term loan 60,000,000
Payment of senior term loan (18,600,000) (1,509,000)
Costs in connection with bank financing (435,000) (251,000)
Proceeds from exercise of warrants and options,
net of related expenses 311,000 1,293,000
Payment of debt of acquired company (20,678,000)
Other - net (39,000) (112,000)
---------- -------
Net cash provided by financing activities 19,909,000 971,000
---------- -------
Net (decrease) in cash (207,000) (35,000)
Cash at beginning of year 495,000 219,000
------- -------
Cash at end of year $288,000 $184,000
======= =======
See notes to consolidated financial statements.
<PAGE>
</TABLE>
<TABLE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNADUITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
<CAPTION>
Common Stock Additional
Amount Paid-in Retained Treasury Stock
Shares at $.01 Capital Earnings Shares Amount Total
---------- ------- ---------- -------- ------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 11,656,299 $117,000 $45,122,000 $8,283,000 100,000 ($275,000) $53,247,000
Issuance of 1,716,111
shares in connection with
acquisitions of businesses 1,716,111 17,000 39,733,000 39,750,000
Exercise of Common Stock
warrants, net of
related expenses 90,930 1,000 88,000 89,000
Exercise of stock options 57,300 - 222,000 222,000
Non-cash compensation charge 11,000 11,000
Net income for the period 1,755,000 1,755,000
---------- ------- ---------- ---------- ------- -------- ----------
Balance at
September 30, 1998 13,520,640 $135,000 $85,176,000 $10,038,000 100,000 ($275,000) $95,074,000
========== ======= ========== ========== ======= ======== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
THE HAIN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL:
The Company and its subsidiaries operate as one business segment: the sale
of natural and other food products. A substantial portion of the products
are manufactured by various co-packers.
The Company's natural food product lines consist of Hain Pure Foods,
Westbrae Natural, Arrowhead Mills, DeBoles Nutritional Foods, Earth's
Best (baby foods), and Garden of Eatin'. Other product lines include
Hollywood Foods (principally healthy cooking oils), Weight Watchers (dry
and refrigerated products), Estee (sugar-free, medically directed foods),
Kineret (kosher foods), Terra Chips (natural vegetable chips), and Boston
Popcorn (snack products).
2. BASIS OF PRESENTATION:
All amounts in the financial statements have been rounded to the nearest
thousand dollars, except share and per share amounts.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles. In the opinion of management, all adjustments (including
normal recurring accruals) considered necessary for a fair presentation
have been included. Reference is made to the footnotes to the audited
consolidated financial statements of the Company and subsidiaries as at
June 30, 1998 and for the year then ended included in the Company's
Annual Report on Form 10-K for information not included in these
condensed footnotes.
3. START UP COSTS:
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting Costs of Start-up Activities" ("SOP 98-5").
SOP 98-5 is effective beginning on July 1, 1999, and requires the
start-up costs capitalized prior to such date be written-off as a
cumulative effect of an accounting change as of July 1, 1999 and any
future start-up costs to be expensed as incurred. It is not practicable
to estimate what effect this change will have on fiscal 2000 earnings,
however, had SOP 98-5 been adopted at the beginning of the three month
period ended September 30, 1998, income before income taxes charge would
have been reduced by approximately $473,000.
4. COMPREHENSIVE INCOME:
On July 1, 1998, the Company adopted Financial Accounting Standards Board
Statement of Financial Accounting Standard Statement No. 130 ("FAS 130")
"Reporting Comprehensive Income." FAS 130 establishes new rules for the
reporting and display of comprehensive income and its components; however,
the adoption of FAS 130 had no impact on the Company's net income or
stockholders' equity.
<PAGE>
5. ACQUISITIONS:
On July 1, 1998, the Company acquired the following businesses and brands
from The Shansby Group and other investors; Arrowhead Mills (natural
foods), DeBoles Nutritional Foods (natural pasta products), Terra Chips
(natural vegetable chips) and Garden of Eatin', Inc. (natural snack
products). The aggregate purchase price, including acquisition costs,
for these businesses amounted to approximately $61.5 million. The purchase
price was paid by the issuance of 1,716,111 shares of the Company's common
stock with a market value of $39.75 million and approximately $21.7 million
in cash. In addition, the Company repaid approximately $20.8 million of
outstanding debt of the acquired businesses. To finance the acquisition,
the Company entered into a $75 million credit facility with its bank
providing for a $60 million Term Loan and a $15 million revolving credit
line.
On October 14, 1997, the Company completed a tender offer for all of the
shares of Westbrae Natural, Inc. ("Westbrae), a publicly-owned company,
for $3.625 per share of common stock. The aggregate cash purchase price,
including acquisition costs, amounted to approximately $24 million. In
addition, the Company repaid approximately $2.1 million of outstanding
Westbrae debt. Westbrae (formerly known as Vestro Natural Foods, Inc.)
is a leading formulator and marketer of high quality natural and organic
foods sold under the brand names Westbrae Natural, Westsoy, Little Bear
and Bearitos, encompassing 300 food items such as non-dairy beverages,
chips, snacks, beans and soups.
Unaudited pro forma results of operations (in thousands, except per share
amounts) for the three months ended September 30, 1997, assuming the above
acquisitions had occurred as of July 1, 1997 are as follows:
1997
------
Net sales $42,191
Net income 731
Net income per share (diluted) $ .06
The pro forma operating results shown above are not necessarily indicative
of operations in the periods following acquisition.
The above acquisitions have been accounted for as purchases and,
therefore, operating results have been included in the accompanying
financial statements from the dates of acquisition. Goodwill arising
from the acquisitions is being amortized on a straight-line basis over
40 years.
6. INVENTORIES:
Sept. 30 June 30
1998 1998
---------- ----------
Finished goods $12,445,000 $10,006,000
Raw materials and packaging 6,151,000 3,272,000
---------- ----------
$18,596,000 $13,278,000
========== ==========
<PAGE>
7. LONG-TERM DEBT:
Sept. 30 June 30
1998 1998
---------- ----------
Senior Term Loan $60,000,000 $18,600,000
Revolving Credit 1,700,000 2,350,000
Notes payable to sellers in
connection with acquisition
of companies and other
long-term debt 517,000 165,000
---------- ----------
62,217,000 21,115,000
Current portion 5,415,000 4,554,000
---------- ----------
$56,802,000 $16,561,000
========== ==========
On July 1, 1998, in connection with the acquisitions of businesses from
The Shansby Group, the Company and its bank entered into a $75 million
Amended and Restated Credit Facility ("Facility") providing for a $60
million senior term loan and a $15 million revolving credit line. The
entire senior term loan was borrowed on that date to pay the cash portion
of the purchase price of the acquisitions, fund closing costs, repay debt
of the acquired businesses, and to repay the then existing balance ($18.6
million) on the Facility. The interest rate on the Facility is based
partially on the ratio of outstanding debt to operating cash flow (as
defined). The Company may elect to pay interest based on the bank's base
rate or the LIBOR rate. Borrowings on a base rate basis may range from
0.50% below the bank's base rate to 1.00% above the bank's base rate.
Borrowings on a LIBOR basis may range from 1.75% to 3.00% over the LIBOR
rate. The entire senior term loan is currently borrowed on a LIBOR basis.
The senior term loan is repayable in quarterly principal installments
commencing on December 31, 1998 through maturity of the Facility on
September 30, 2005. Pursuant to the revolving credit line, the Company may
borrow up to 85% of eligible trade receivables and 60% of eligible
inventories. Amounts outstanding under the Facility are collateralized
by principally all of the Company's assets. The Facility contains certain
financial and other restrictive covenants, which, among other matters,
restrict the payment of dividends and the incurrence of additional
indebtedness. The Company is also required to maintain various financial
ratios, including minimum working capital and interest and fixed charge
coverage ratios and is required to achieve certain earnings levels. As of
September 30, 1998, $13.3 million was available under the Company's
revolving credit line.
<PAGE>
8. EARNINGS PER SHARE:
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share"
("FAS 128"). FAS 128 replaced the previous reporting of primary and fully
diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options and warrants. Diluted earnings per share is
very similar to the previously reported fully diluted earnings per share.
All earnings per share amounts for all periods have been presented, and
where necessary restated, to conform to FAS 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share pursuant to FAS 128 for the three months ended
September 30, 1998 and 1997:
1998 1997
---------- --------
Numerator:
Net income - numerator for basic
and diluted earnings per share $1,755,000 $476,000
Denominator:
Denominator for basic earnings
per share - weighted average
shares outstanding during
the period (a) 13,384,000 8,649,000
---------- ---------
Effect of dilutive securities (b):
Stock options 1,028,000 849,000
Warrants 765,000 467,000
--------- ---------
1,793,000 1,316,000
--------- ---------
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 15,177,000 9,965,000
========== =========
Basic earnings per share: $ 0.13 $ 0.06
==== ====
Diluted earnings per share: $ 0.12 $ 0.05
==== ====
(a) On December 8, 1997, the Company issued 2,500,000 shares of common
stock in connection with a public offering. On July 1, 1998, the
Company issued 1,716,111 shares in connection with the acquisition
of four companies.
(b) The increase in the amount of dilutive potential shares in the 1998
period was substantially attributable to an increase in the market
price of the Company's common stock over the year earlier period.
<PAGE>
9. STOCKHOLDERS' EQUITY:
In connection with the Facility with its bank, the Company issued a warrant
to the bank to purchase 114,294 shares of the Company's common stock at an
exercise price of $12.294. The value ascribed to this warrant of
approximately $377,000 is being amortized over 6 years. In July 1998, in
a cashless exercise of the warrant, the Company issued 63,467 shares to
the bank.
In July 1998, warrants for 27,283 shares of the Company's common stock
were exercised for aggregate proceeds of approximately $89,000. These
warrants were issued in fiscal 1994 to an affiliate of the Company's
former investment banking firm at a price of $3.25 per share.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended September 30, 1998
The Company made the following acquisitions during the twelve-month period
ended September 30, 1998:
Date of Acquisition Business Acquired
------------------- -----------------
October 14, 1997 Westbrae Natural, Inc.
July 1, 1998 Arrowhead Mills, Inc.
July 1, 1998 Dana Alexander, Inc. ("Terra Chips")
July 1, 1998 Garden of Eatin', Inc.
July 1, 1998 DeBoles Nutritional Foods, Inc.
All of the foregoing acquisitions ("the acquisitions" or "acquired businesses")
have been accounted for as purchases. Consequently, the operations of the
acquired businesses are included in the results of operations from their
respective dates of acquisition. Each of the acquired businesses markets
and sells natural food products. In addition, on June 1, 1998, the Company
entered into a license agreement with H.J. Heinz Company to market and sell
Earth's Best baby food products to natural food stores.
Sales for the current quarter increased by $27.2 million (166%) as compared
to the 1997 quarter. Substantially all of the increase was attributable to
the acquisitions.
Gross profit increased by $10.3 million compared with the 1997 quarter,
principally because of increased sales volume. Gross profit percentage for
the quarter amounted to 38.6%, compared with 39.6% on the 1997 quarter.
There were no significant factors giving rise to this change. Gross profit
margins on the acquired businesses are substantially in line with the Company's
other product lines.
Selling, general and administrative expenses increased by $6.5 million,
compared with the 1997 quarter. A substantial portion of the increase was
attributable to the acquisitions. Such expenses, as a percentage of net sales,
amounted to 26.1% in the current quarter compared with 29.6% in the 1997
quarter. The improvement of 3.5% results from certain of the acquired
businesses having lower selling expenses than the Company's other product
lines, and the realization of reduced administrative expenses from integration
of certain operations of the acquired businesses within the Company's existing
infrastructure. Not all of the administrative functions of the businesses
acquired on July 1, 1998 have been integrated yet. The Company anticipates
that additional cost savings will be realized with the total amount aggregating
approximately $6 million annually, but the timing of which is not
presently determinable.
Amortization of goodwill increased by approximately $637,000 compared with
the 1997 quarter. Substantially all of the increase was attributable to
amortization of goodwill acquired in connection with the acquisitions.
Amortization of goodwill and other intangible assets amounted to 1.9% of
net sales, compared with 1.3% in the 1997 quarter.
<PAGE>
Operating income increased by $3.1 million compared to the 1997 quarter. A
substantial portion of the increase relates to the significantly higher sales
volume. Operating income, as a percentage of net sales, amounted to 10.2%,
an increase of 1.8% over the 1997 quarter. This resulted principally from the
lower selling, general and administrative expenses as a percentage of net
sales, offset by slightly lower gross margin percentage and higher goodwill
amortization resulting from the acquisitions.
Interest and financing costs in the current quarter increased by $0.8 million
compared with the 1997 quarter. This increase was largely attributable to
senior bank debt incurred in connection with the acquisitions, offset by
reduced interest costs resulting from the prepayment in April 1998 of the
Company's 12.5% subordinated debentures. The debentures were paid off with
the proceeds of senior bank debt carrying a lower interest rate.
Income taxes, as a percentage of pre-tax income, amounted to 43.5% compared
to 42.5% in the 1996 quarter. The income tax rate utilized for the current
quarter is based on the Company's estimate of the effective income tax rate
for the fiscal year ending June 30, 1999. The higher effective rate in the
current quarter, compared with the 1997 quarter, results from the non-
deductibility for income tax purposes of goodwill amortization in connection
with the acquisitions.
Net income in the current quarter increased by approximately $1.3 million,
and amounted to 4.0% of net sales, compared with 2.9% in the 1997 quarter.
This resulted from the higher level of operating income discussed above, less
increased interest costs and a marginally higher effective income tax rate.
Liquidity and Capital Resources
In October 1997, in connection with the acquisition of Westbrae, the Company
entered into an amended and restated credit facility with its bank providing
for a $30 million senior term loan and a $10 million revolving credit line.
The Facility replaced the Company's existing facility with the same bank.
In December 1997, the Company issued 2.5 million shares of common stock in a
public offering, which raised approximately $20.9 million, which was used to
pay down the senior term loan. In April 1998, the Company re-borrowed
approximately $9 million under the senior term loan to prepay the Company's
$8.5 million subordinated debentures.
On July 1, 1998, in connection with the acquisitions, the facility was further
amended (as amended the "Facility") to provide for a $60 million senior term
loan and a $15 million revolving credit line. The entire senior term loan was
borrowed on that date to pay the cash portion of the purchase price of the
acquisitions, fund closing costs, and to repay the then existing balance on
the Facility. At September 30, 1998, $60 million was outstanding under the
senior term loan and $1.7 million was outstanding under the revolving credit
line.
The interest rate on the Facility is based partially on the ratio of
outstanding debt to operating cash flow (as defined). The Company may elect
to pay interest based on the bank's base rate or the LIBOR rate. Borrowings
on a base rate basis may range from 0.50% below the bank's base rate to 1.00%
above the bank's base rate. Borrowings on a LIBOR basis may range from 1.75%
to 3.00% over the LIBOR rate. The entire senior term loan is currently
borrowed on a LIBOR basis.
<PAGE>
The senior term loan is repayable in quarterly principal installments (the
first principal payment commences on December 31, 1998) through maturity of
the Facility on September 30, 2005. Pursuant to the Facility, the Company may
borrow under its revolving credit line up to 85% of eligible trade receivables
and 60% of eligible inventories.
Amounts outstanding under the Facility are collateralized by principally all
of the Company's assets. The Facility also contains certain financial and
other restrictive covenants. As of September 30, 1998, $13.3 million was
available under the Company's revolving credit line. Utilization of the
revolving credit line varies over the course of the year based on inventory
requirements.
The aggregate principal payments on the senior term loan for the twelve months
ending September 30, 1999 are $3.5 million. The Company anticipates that cash
flow from operations will be sufficient to meet all of its debt service and
operating requirements.
Working capital at September 30, 1998 amounted to approximately $17.1 million,
which is deemed adequate to serve the Company's operational needs. Prior to
the acquisitions, the Company purchased all of its products from independent
co-packers and did not invest in plant or equipment relating to the manufacture
of products for sale. The Company has not as yet determined whether it will
continue production at the plants acquired in the acquisitions or will delegate
such production to independent co-packers. Consequently, there may be some
level of capital expenditures in connection with the operation of those plants,
but the amount is not considered material in relation to the Company's
operations.
The Facility imposes limitations on the incurrence of additional indebtedness
and requires that the Company comply with certain financial tests and
restrictive covenants. As at September 30, 1998, the Company was in compliance
with such covenants.
Year 2000
The "Year 2000" issue is the result of computer systems that were programmed
in prior years using a two digit representation for the year. Consequently,
in the Year 2000, date sensitive computer programs may interpret the date "00"
as 1900 rather than 2000. The Company has completed an assessment of its
system affected by the Year 2000 issue and have found only minor issues to
be addressed. The Company believes the business operation computer
programs/systems are Year 2000 compliant. Certain systems of the acquired
businesses are not Year 2000 compliant. However, the Company will integrate
the computer functions of such businesses prior to the end of 1999.
Accordingly, it is anticipated that Year 2000 issues will not have a material
adverse impact of the Company's financial position, liquidity or results of
operations.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 issues. While the Company believes that the Year 2000
issue will not have a material adverse effect on the Company's financial
position, liquidity or results of operations, there is no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's systems.
<PAGE>
Seasonality
Sales of food products consumed in the home generally decline to some degree
during the Summer vacation months. However, the Company believes that such
seasonality has a limited effect on operations.
Inflation
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented.
<PAGE>
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
Financial Data Schedule (Exhibit 27)
(b) Reports on Form 8-K
On July 14, 1998, the Company filed a report on Form 8-K describing
the acquisition, pursuant to an Agreement and Plan of Merger, of
Arrowhead Mills, Inc. and Garden of Eatin', Inc. As provided in
the Agreement, the Company issued 1,716,111 shares of Common Stock
of the Company. In connection with the merger, the Company entered
into its Third Amended and Restated Revolving Credit and Term Loan
Agreement with its bank.
On July 23, 1998, the Company filed Amendment No. 1 to Form 8-K,
which amended it report filed on July 14, 1998 to provide the
requisite financial statements of the businesses acquired and
related pro forma financial information.
<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 thereunto duly authorized.
THE HAIN FOOD GROUP, INC.
Date: November 13, 1998 /s/ Irwin D. Simon
Irwin D. Simon,
President and Chief
Executive Officer
Date: November 13, 1998 /s/ Gary M. Jacobs
Gary M. Jacobs,
Senior Vice President-Finance
and Chief Financial Officer
<PAGE>
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