PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- - ------- ----------------------------------------------------------------
(a) (1) Financial Statements.
---------------------
The financial statements listed in the accompanying Index to
Financial Statements and Financial Statement Schedules are filed as
part of this annual report
(2) Exhibits.
---------
Financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
(b) Reports on Form 8-K.
--------------------
On June 16, 1998 the Company filed a Current Report on Form 8-K with
respect to a Change of Control of the Registrant.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to its
report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 25th day of September, 1998.
LINCOLN SNACKS COMPANY
(Registrant)
By: /s/ Kristine A. Crabs
-----------------
Kristine A. Crabs
Vice President and
Chief Financial Officer
Treasurer and Secretary
(Principal Financial officer and
Principal Accounting Officer)
<PAGE>
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A (this "Amendment") to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1998 is being
filed only for the following purposes:
(1) To modify the language at the bottom of each of the financial
statements to refer to the financial statements generally; and
(2) To correct typographical errors in the headings of certain tables
appearing in Notes 3, 5 and 8 of the Notes to the Financial Statements to
refer to 1998 and 1997 rather than 1997 and 1996.
<PAGE>
LINCOLN SNACKS COMPANY
----------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
Financial Statements: Page(s)
-------
<S> <C>
Report of Independent Public Accountants F-1
Balance Sheets as of June 30, 1998 and 1997 F-2 to F-3
Statements of Operations for the Years Ended
June 30, 1998, 1997 and 1996 F-4
Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1998, 1997 and 1996 F-5
Statements of Cash Flows for the Years Ended
June 30, 1998, 1997 and 1996 F-6 to F-7
Notes to Financial Statements F-8 to F-18
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lincoln Snacks Company:
We have audited the accompanying balance sheets of Lincoln Snacks Company
(a Delaware corporation) as of June 30, 1998 and 1997, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the years ended June 30, 1998, 1997 and 1996. These financial statements are
the responsibility of the Company'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 audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lincoln Snacks Company as of
June 30, 1998 and 1997, and the results of its operations and its cash flows
for the years ended June 30, 1998, 1997 and 1996 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
August 5, 1998
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
----------------------
BALANCE SHEETS
--------------
ASSETS
------
JUNE 30, 1998 AND 1997
----------------------
June 30, June 30,
1998 1997
------------- --------------
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 3,726,400 $ 1,606,357
Accounts receivable, net of allowances
for doubtful accounts and cash
discounts of $322,509 and $237,778 1,703,427 1,951,937
Inventories 2,363,287 1,680,253
Prepaid and other current assets 61,557 29,023
------------ ------------
Total current assets 7,854,671 5,267,570
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land 370,000 370,000
Building and leasehold improvements 1,782,992 1,526,705
Machinery and equipment 5,023,795 4,800,284
Construction in process 13,093 122,319
------------ ------------
7,189,880 6,819,308
Less-accumulated depreciation (2,877,571) (2,263,689)
------------ ------------
4,312,309 4,555,619
INTANGIBLE AND OTHER ASSETS, net of
accumulated amortization of
$826,967 and $667,111 3,906,515 3,466,371
------------ ------------
Total assets $16,073,495 $13,289,560
=========== ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
----------------------
BALANCE SHEETS
--------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
JUNE 30, 1998 AND 1997
----------------------
June 30, June 30,
1998 1997
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 1,197,444 $ 1,357,170
Accrued expenses 1,381,928 1,178,601
Accrued trade promotions 1,428,669 675,585
Deferred gain-short term (Note 9) 13,434 13,434
Current portion of note payable 333,333 --
------------- -------------
Total current liabilities 4,354,808 3,224,790
DEFERRED GAIN - LONG TERM (Note 9) 102,863 115,784
------------- -------------
Total liabilities 4,457,671 3,340,574
------------- -------------
COMMITMENTS (Notes 7 and 10)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value,
20,000,000 shares authorized,
6,450,090 outstanding
at June 30, 1998 and 1997 64,501 64,501
Special stock, $0.01 par value,
300,000 shares authorized,
none outstanding -- --
Additional paid-in capital 18,010,637 18,010,637
Accumulated deficit (6,433,288) (8,100,126)
------------- -------------
11,641,850 9,975,012
Less - cost of common stock in treasury;
118,300 shares at June 30, 1998 and 1997 (26,026) (26,026)
------------- -------------
Total stockholders' equity 11,615,824 9,948,986
------------- -------------
Total liabilities and stockholders' equity $16,073,495 $13,289,560
============ =============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
----------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
------------------------------------------------
Year Ended Year Ended Year Ended
June 30, 1998 June 30, 1997 June 30, 1996
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $24,277,772 $23,101,704 $23,845,844
COST OF SALES 15,405,319 15,525,387 17,224,348
------------- ------------- -------------
Gross profit 8,872,453 7,576,317 6,621,496
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 8,096,238 5,697,404 5,724,777
WRITE DOWN OF FIXED
ASSETS (Note 11) -- 269,498 --
NON-RECURRING CHARGE (Note 12) 484,388 -- --
------------- ------------- -------------
Income from operations 291,827 1,609,415 896,719
OTHER:
Net Planters' other income 1,376,000 -- --
Interest income (expense) 128,452 (126,820) (356,910)
Other expense (19,441) -- --
------------- ------------- -------------
Income before provision
for income taxes 1,776,838 1,482,595 539,809
PROVISION FOR INCOME TAXES 110,000 40,000 29,000
------------- ------------- -------------
Net income $ 1,666,838 $ 1,442,595 $ 510,809
============ ============ ==============
BASIC AND DILUTED NET
INCOME PER SHARE (Note 2) $ .26 $ .23 $ .08
============ ============ ==============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
Basic 6,331,790 6,331,790 6,334,757
============ ============ ==============
Diluted 6,341,804 6,331,790 6,334,757
============ ============ ==============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
----------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
------------------------------------------------
Additional
Common Special Paid-in Accumulated Treasury
Stock Stock Capital (Deficit) Stock
--------- -------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
June 30, 1995 $64,501 $ -- $17,997,746 $(10,053,530) $(24,024)
Net income -- -- -- 510,809 --
Purchase of
9,100 shares
of treasury -- -- -- -- (2,002)
Noel payment
under tax
agreement -- -- 12,891 -- --
--------- -------- ----------- ------------- ---------
June 30, 1996 64,501 -- 18,010,637 (9,542,721) (26,026)
Net income -- -- -- 1,442,595 --
--------- -------- ----------- ------------- ---------
June 30, 1997 64,501 -- 18,010,637 (8,100,126) (26,026)
Net income -- -- -- 1,666,838 --
--------- -------- ----------- ------------- ---------
June 30, 1998 $64,501 $ -- $18,010,637 $ (6,433,288) $(26,026)
========= ======== =========== ============= =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
----------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
------------------------------------------------
Year Ended Year Ended Year Ended
June 30, 1998 June 30, 1997 June 30, 1996
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $1,666,838 $1,442,595 $ 510,809
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 645,305 640,738 636,943
Amortization 159,856 177,116 221,700
Loss on sale of equipment 19,441 -- --
Write down of fixed assets -- 269,498 --
Provision for doubtful accounts
and cash discounts, net 39,198 64,254 (84,439)
Changes in assets and liabilities:
(Increase) decrease in
accounts receivable 686,620 677,684 (1,087,214)
(Increase) decrease in
inventories (460,182) 403,275 279,953
(Increase) decrease in
prepaid and other current
assets (32,534) 61,313 8,692
Increase in other assets -- -- (6,017)
Increase (decrease) in
accounts payable (159,726) (472,885) 1,054,514
Increase (decrease) in
accrued trade promotions 753,084 (184,595) (140,784)
Increase (decrease) in
accrued expenses 190,406 61,938 (121,396)
------------- ----------- -----------
Net cash provided
by operating activities 3,508,306 3,140,931 1,272,761
------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of seller
note payable (800,160) -- --
Capital expenditures (488,782) (314,529) (119,844)
Proceeds on sale of land -- 369,218 --
Proceeds on sale of fixed assets 67,346 17,640 --
------------- ----------- -----------
Net cash provided by
(used in) investing
activities (1,221,596) 72,329 (119,844)
------------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LINCOLN SNACKS COMPANY
----------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
------------------------------------------------
(continued)
Year Ended Year Ended Year Ended
June 30, 1998 June 30, 1997 June 30, 1996
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Repayments under note payable $ (166,667) $ -- $ --
Repayments under term loan -- (1,109,326) (800,004)
Borrowings (repayments)
under revolver, net -- (556,115) (385,476)
Noel payment under tax agreement -- -- 12,891
Purchase of treasury stock -- -- (2,002)
------------- ----------- -----------
Net cash used in
financing activities (166,667) (1,665,441) (1,174,591)
------------- ----------- -----------
Net increase (decrease)
in cash 2,120,043 1,547,819 (21,674)
CASH, beginning of period 1,606,357 58,538 80,212
------------- ----------- -----------
CASH, end of period $3,726,400 $ 1,606,357 $ 58,538
============= =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 13,010 $ 120,059 $ 279,582
============= =========== ============
Income taxes paid $ 105,672 $ 21,388 $ 22,140
============= =========== ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
LINCOLN SNACKS COMPANY
----------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) The Company:
-----------
Lincoln Snacks Company ("Lincoln" or the "Company"), formerly Lincoln
Foods Inc., is a Delaware corporation and is a majority-owned subsidiary
of Brynwood Partners III, L.P. (the "Parent"). Prior to June 1998, the
Company was a majority-owned subsidiary of Noel Group, Inc. ("Noel").
Lincoln is engaged in the manufacture and marketing of caramelized
pre-popped popcorn and glazed popcorn/nut mixes primarily throughout the
United States and Canada. Sales of the Company's products are subject to
seasonal trends with a significant portion of sales occurring in the last
four months of the calendar year. The Company was formed in August 1992.
In January 1994, the Company sold 2,472,500 shares of common stock as
part of an initial public offering. The Company received net proceeds
of approximately $9,600,000 from the sale of this stock. The Company's
certificate of incorporation authorizes the issuance of special stock
with such designations, rights and preferences as may be determined from
time to time by the Board of Directors.
On July 17, 1995, Planters Company, a unit of Nabisco, Inc.
("Planters"), began exclusively distributing the Company's Fiddle Faddle
and Screaming Yellow Zonkers products (the "Products") pursuant to a
distribution agreement dated June 6, 1995 (the "Distribution Agreement")
for an initial term which was originally scheduled to expire on June 30,
1997 unless renewed for additional one year periods. The Distribution
Agreement required Planters to purchase an annual minimum number of
equivalent cases of the Products during the initial term.
On February 28, 1997, the Company and Planters entered into an amendment
to the Distribution Agreement, which was further modified on May 9, 1997
(the "Amendment"), pursuant to which the exclusive distribution
arrangement with respect to the Company's Fiddle Faddle product was
extended for an additional six month period expiring on December 31,
1997, at which time the arrangement terminated. Effective January 1,
1998 and May 1, 1997, Planters ceased, and Lincoln resumed, marketing
and distributing the Company's Fiddle Faddle and Screaming Yellow
Zonkers products, respectively.
The Amendment required Planters to purchase a specified number of
manufactured cases of the Products and for Planters to compensate the
Company for the remaining contract minimums for the twelve month period
ended June 30, 1997. The Amendment required Planters to compensate the
Company for contract minimums for the six month period ended December
31, 1997 (six month minimums). Planters compensated the Company in the
six months ended December 31, 1997 for contract minimums, which were 27%
less than case sales made to Planters for the six month period ended
December 31, 1996.
The Amendment also required Planters to compensate the Company in the
event that certain sales levels were not achieved during the calendar
year ending December 31, 1997. These sales levels were not achieved
during the calendar year ending December 31, 1997, resulting in Planters
compensating the Company approximately $1,880,000 which is partially
offset on the Company's statement of operations by approximately
$500,000 in non-recurring charges associated with initial efforts to
rebuild the Fiddle Faddle brand ("Net Planters Other Income").
Although the Amendment contains provisions designed to effect a smooth
transfer of the distribution business back to the Company, there can be
no assurance as to the long term effects of the transition.
Net sales to Planters for the year ended June 30, 1996 were equal to the
minimum number of cases required to be purchased during the fiscal year
as part of the Distribution Agreement. Sales to Planters represented
9%, 47% and 43% of net sales for the years ended June 30, 1998, 1997 and
1996 and amounts due from Planters represented 69% and 85% of accounts
receivable at June 30, 1997 and 1996, respectively.
In July and October 1997, the Company entered into Trademark License
Agreements with Nabisco, Inc. pursuant to which Nabisco, Inc. granted
the Company the right to use the Planters trademarks in connection with
the sales and marketing of the Company's Fiddle Faddle products in the
United States and Canada for a period of five years commencing on
January 1, 1998. This agreement is royalty free for the first two years
of its term. Royalty payments, based on net sales of products included
in the agreement, are payable in subsequent years.
(2) Summary of Significant Accounting Policies:
-------------------------------------------
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.
Revenue recognition-
--------------------
Revenue is recognized by the Company when products are shipped and title
passes to the customer.
Advertising and promotion-
--------------------------
Advertising costs are expensed in the period in which the related
advertisements occur. The estimated cost of the total ultimate
redemptions of various coupon programs are expensed immediately at the
time a coupon program is distributed to the public.
Inventories-
------------
Inventories, which include material, labor and manufacturing overhead,
are stated at the lower of cost (first in, first out) or market (net
realizable value).
Property, plant and equipment-
------------------------------
Property, plant and equipment is stated at cost and is depreciated on
the straight-line method based upon the estimated useful lives of the
assets. The estimated useful lives of assets are as follows:
Building and leasehold improvements 10-30 years
Machinery and equipment 3-10 years
Furniture and fixtures 7-10 years
Expenditures for maintenance and repairs are charged against income as
incurred. Significant expenditures for betterments are capitalized.
Capital expenditures which are not able to be put into use immediately
are included in construction in process. As these programs are
completed, they are transferred to depreciable assets.
Intangible assets-
------------------
Intangible assets are carried at cost, less accumulated amortization
which is calculated on a straight-line basis over the estimated useful
lives as follows:
Excess of purchase price over
net assets acquired 10-30 years
Intellectual property and other 1-20 years
The Company believes no impairment of intangible assets exists at
June 30, 1998.
Impairment of long-lived assets-
--------------------------------
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" in 1997. This statement requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In general, this
statement requires recognition of an impairment loss when the sum of
undiscounted expected future cash flows is less than the carrying amount
of such assets. The measurement for such impairment loss is then based
on the fair value of the asset. Adoption of this statement had no
material effect on the financial statements.
Income taxes-
-------------
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", under which deferred income taxes are
determined based on the differences between the financial statement and
tax bases of assets and liabilities using presently enacted tax rates
and regulations. A valuation allowance is established for any deferred
tax asset for which realization is not likely.
Net income per share-
---------------------
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128") in 1998. This statement establishes
standards for computing and presenting basic and diluted earnings per
share.
Below is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Basic earnings per share:
Weighted average number of
shares outstanding 6,331,790 6,331,790 6,334,757
Dilutive effect of stock options 10,014 -- --
--------- --------- ---------
Diluted earnings per share:
Weighted average number of
shares outstanding 6,341,804 6,331,790 6,334,757
Net Income $1,666,838 $1,442,595 $ 510,809
Basic and diluted earnings
per share $ .26 $ .23 $ .08
</TABLE>
Options and warrants to purchase 290,000, 822,550 and 473,800 shares of
common stock were outstanding at June 30, 1998, 1997 and 1996,
respectively, but were not included in the computation of diluted
earnings per share because the options' exercise price was greater than
the average market price of the common shares.
Reclassifications-
------------------
Certain amounts have been reclassified in the prior year statements to
conform with current year presentation.
(3) Balance Sheet Components:
-------------------------
The components of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -----------
Inventories-
<S> <C> <C>
Raw and packaging materials $1,385,854 $1,293,280
Finished goods 977,433 386,973
------------- -----------
$2,363,287 $1,680,253
============= ===========
Intangible and other assets-
Excess of purchase price over net
assets acquired $4,577,631 $3,977,631
Intellectual property and other 155,851 155,851
------------- -----------
4,733,482 4,133,482
Less: accumulated amortization (826,967) (667,111)
------------- -----------
Intangible assets, net $3,906,515 $3,466,371
============= ===========
</TABLE>
(4) Income Taxes:
-------------------------
The income tax provisions for the years ended June 30, 1998, 1997 and
1996 consist primarily of state taxes and federal alternative minimum
taxes.
The following represents a reconciliation of the federal statutory
income tax rate to the effective income tax rate:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Statutory federal income
(benefit) tax rate 34.0% 34.0% 34.0%
State income and franchise taxes,
net of federal benefit 1.5 1.1 3.6
Utilization of loss
carryforwards, net (29.7) (32.6) (34.7)
Non-deductible meals and
entertainment .4 .2 0.7
------- ------- ------
Effective income tax rate 6.2% 2.7% 3.6%
======= ======= ======
</TABLE>
The principal temporary items comprising the net unrecognized deferred
income tax asset are as follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1998 1997 1996
----------- -------- ---------
<S> <C> <C> <C>
Net operating loss carryforward,
net of amount utilized
by Parent $ 1,386,000 $ 2,428,000 $ 3,079,000
Depreciation and amortization (985,000) (864,000) (504,000)
Accrued expenses not
yet deductible 660,000 165,000 476,000
All other 456,000 385,000 192,000
----------- ---------- -----------
Net deferred tax asset
unrecognized 1,517,000 2,114,000 3,243,000
Less: valuation reserve (1,517,000) (2,114,000) (3,243,000)
----------- ---------- -----------
Net deferred tax asset
recognized $ -- $ -- $ --
=========== =========== ============
</TABLE>
At June 30, 1998, the Company had a net operating loss carryforward
("NOLs") for income tax purposes, subject to Internal Revenue Service
review, of approximately $3,464,000 which expire in 2007 through 2011 if
not utilized. The above NOLs include those NOLs generated subsequent to
deconsolidating from Noel in 1994. The Company has been reimbursed for
the portion of the Company's pre-fiscal 1996 NOLs utilized by Noel prior
to deconsolidating, including $12,891 in fiscal 1996, which was recorded
by the Company as additional paid-in capital.
Under section 382 of the Internal Revenue Code, if the Company undergoes
an ownership change, the amount of its pre-change losses that may be
utilized to offset future taxable income generally will be subject to an
annual limitation. In general, the annual limitation would be based on
the value of the Company's outstanding stock immediately before the
ownership change and the adjusted Federal long-term interest rate in
effect for the month in which the ownership change occurs. Any unused
portion of the annual limitation would be available in subsequent years.
On June 8, 1998, the Company underwent an ownership change as a result
of the acquisition of Noel's interest in the Company by the Parent. As
a result of the ownership change, utilization of the Company's NOL will
be subject to an annual limitation of approximately $650,000.
(5) Stock Options and Warrants:
---------------------------
In November 1993, the Company adopted the 1993 Stock Option Plan and the
Non-Employee Directors' Stock Option Plan. A total of 550,000 shares of
common stock are reserved for issuance under the 1993 Stock Option Plan
and 200,000 shares of common stock are reserved for issuance under the
Non-Employee Directors' Stock Option Plan. The Company has granted
options to purchase 198,659 shares and 143,400 shares, respectively,
through June 30, 1998. Under both Plans, the option exercise price
equals the stock's market price on date of grant. The 1993 Stock Option
Plan options normally vest over periods ranging from 12 to 36 months.
In June 1998, all existing nonvested options became vested upon the
change of control of the Company. The Non-Employee Director's Stock
Option Plan options vest immediately upon grant. All options expire ten
years from date of grant. The Company accounts for these plans under
APB Opinion No. 25, under which no compensation cost has been recognized.
Under the Non-Employee Directors' Stock Option Plan, each individual
subsequently elected to the Board of Directors who is not an employee of
the Company will receive a grant of stock options covering 20,000 shares
of common stock, with an exercise price equal to the fair market value
of a share of common stock as of the date of grant. In addition, each
non-employee director of the Company will receive a stock option
covering 5,000 shares of common stock immediately following each annual
meeting of stockholders of the Company during the ten-year term of the
Non-Employee Directors' Stock Option Plan, with an exercise price equal
to the fair market value of a share of common stock as of the date of
grant.
In connection with the offering of common stock in January 1994, the
Company issued to the underwriters warrants to purchase 215,000 shares
of common stock. These warrants are exercisable for a period of five
years beginning in January 1994 at an exercise price of $5.40 per share.
Had compensation cost for these plans been determined consistent with
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), the
Company's net income and earnings per share would have been reduced to
the following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997
------------- -----------
<S> <C> <C>
Net income:
As reported $1,666,838 $1,442,595
Pro forma 1,218,607 1,300,723
Basic and diluted income per share:
As reported $.26 $.23
Pro forma .19 .21
</TABLE>
Because the SFAS 123 method of accounting is not applicable to options
granted prior to July 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be experienced in future years.
A summary of the status of the Company's two stock option plans at
June 30, 1998, 1997, and 1996 and changes during the years then ended
is presented in the table and narrative below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ------------------- --------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
-------- --------- ------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 822,550 $2.73 473,800 $4.35 499,600 $4.59
Granted 116,800 1.81 437,750 1.32 55,000 2.10
Canceled (380,200) 1.81 (75,000) 4.50 -- --
Forfeited (2,091) 1.54 -- -- (19,000) 3.53
Expired -- -- (14,000) 4.31 (61,800) 4.50
-------- --------- ------- --------- ------- ----------
Outstanding
at end of
year 557,059 $3.16 822,550 $2.73 473,800 $4.35
======== ========= ======= ========= ======= =========
Exercisable
at end of
year 557,059 435,940 310,492
========= ========= =========
Weighted
average
fair value
of options
granted $1.37 $1.00 $1.58
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options and
warrants outstanding at June 30, 1998:
Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of at Remaining Average At Average
Exercise June 30, Contractual Exercise June 30, Exercise
Prices 1998 Life (Years) Price 1998 Price
-------------- ------------ ------------ -------- ----------- --------
<C> <C> <C> <C> <C> <C>
$1.25 - $1.875 267,059 5.22 $1.58 267,059 $1.58
$2.28 - $2.70 75,000 1.95 2.39 75,000 2.39
$5.40 215,000 5.58 5.40 215,000 5.40
------------- ------- -------
$1.25 - $5.40 557,059 557,059
======= =======
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1998 and 1997, respectively:
risk-free interest rates of 6.25% and 6.92 %, no expected dividend
yields, expected lives of ten years and expected volatility of 61%
and 59%.
(6) Credit Facility:
----------------
In December 1993, the Company entered into a bank loan agreement, as
amended, which provides for up to $4 million in revolver borrowings.
There were no amounts outstanding under the revolving credit facility at
June 30, 1998. The credit facility is available through December 2,
2000. At that time, any borrowing under the credit facility becomes due.
The facilities require the maintenance of various financial and other
covenants including, but not limited to, earnings before interest,
taxes, depreciation and amortization, tangible net worth and debt
coverage. The financial covenants are to be met on a quarterly basis,
and the minimum requirements vary by quarter.
Borrowings under the revolver are limited to a percentage of eligible
receivables and inventory. The revolving credit facility bears interest
at a rate equal to the sum of the average monthly Eurodollar rate plus
1.5%. In addition to this rate, the Company has the option to pay
interest on the revolving credit facility at the alternate base rate, as
defined, plus 0.25%. At June 30, 1998 and 1997, the interest rate
8.658% and 8.696%, respectively. Interest is payable monthly.
The facility requires an annual monitoring fee of $6,000 and an unused
facility fee of 0.4% on the unused portion of the revolver. The
facilities are collateralized by substantially all of the Company's
assets.
(7) Commitments:
------------
In the normal course of business, Lincoln enters into purchase
commitments with certain of its raw material suppliers generally for
periods up to one year. Amounts to be purchased under these
arrangements are not anticipated to exceed raw material requirements for
the period to which the commitments apply. The total remaining amount
of inventory to be purchased under these commitments as of June 30, 1998
is approximately $4,100,000. These purchase commitments expire
primarily through December 31, 1998.
(8) Acquisition:
------------
On March 17, 1998, the Company acquired certain assets of Iroquois
Popcorn Company ("Iroquois"), a private label manufacturer of
caramelized popcorn, for approximately $1,300,000, of which $800,000 was
paid in cash and $500,000 is a non-interest bearing note to be paid in
equal monthly installments over a twelve-month period commencing March
31, 1998. A contingent payment of up to $350,000 may be paid in the
future if the Company maintains 70% of the sales volume to Iroquois'
largest customer.
The acquisition was accounted for as a purchase with the assets acquired
recorded at their fair values at the date of acquisition. The excess of
purchase price over net assets acquired is being amortized over a period
of 10 years. The purchase price has been allocated as follows:
<TABLE>
<S> <C>
Accounts receivable $ 477,000
Inventory 223,000
Excess of purchase price over
net assets acquired 600,000
----------
$1,300,000
==========
</TABLE>
The following is unaudited pro forma information as if the Company's
acquisition of Iroquois had occurred at the beginning of the respective
fiscal periods. The incremental revenue reflected below consists
primarily of sales to one customer. These results may not be indicative
of what the actual results would have been or may be in the future.
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net sales $27,859,707 $27,118,445
Net income $ 2,594,054 $ 2,137,211
Net income per share $0.41 $0.34
</TABLE>
(9) Sale of Land:
-------------
In October 1996, the Company sold land adjacent to its manufacturing
facility in Lincoln, Nebraska. At the same time, the Company entered
into a ten year lease agreement for 50,000 square feet of a new
warehouse to be constructed on the land. The proceeds from the sale, of
$369,218, were used to pay down the Company's term loan. The sale
resulted in a net gain of $129,218 which was deferred and will be
recognized as income over the ten-year lease term.
(10) Leases:
-------
At June 30, 1998, the Company's minimum future rental payments on a
fiscal year basis under non-cancelable operating leases are as follows:
1999 $ 332,000
2000 274,000
2001 249,000
2002 242,000
2003 and thereafter 1,303,000
Rent expense for operating leases amounted to approximately $310,000,
$286,000, and $283,000 for the years ended June 30, 1998, 1997 and 1996,
respectively.
(11) Write Down of Fixed Assets:
---------------------------
During the year ended June 30, 1997, the Company recorded a write-down
of $269,498 on certain fixed assets that are no longer used in the
operations of the Company.
(12) Non-recurring Charge:
---------------------
During the year ended June 30, 1998, the Company recorded a
non-recurring charge of $484,388 relating to severance and other
compensation costs in connection with the resignation of the Company's
former chairman and chief executive officer.
(13) Related Party Transactions:
---------------------------
During the years ended June 30, 1998, 1997 and 1996, the Company paid
legal fees of approximately $38,000, $72,000 and $86,000, respectively,
to a law firm of which one of its partners is a director of Noel.
A director was paid export brokerage commissions of $9,000 during the
year ended June 30, 1996.
During the year ended June 30, 1996, one of the Company's executives was
paid by Noel. Lincoln did not receive any allocation of expenses from
Noel for this executive's services.
(14) Employee Benefit Plans:
-----------------------
The Company sponsors a defined contribution savings plan (401(k)).
Participation in the plan is available to substantially all salaried and
hourly employees. Company contributions to the plan are based on a
percentage (2%) of employee contributions. During the years ended
June 30, 1998, 1997 and 1996, Company contributions to the plan totaled
$52,000, $46,000 and $51,000, respectively.
(15) Sales Data:
-----------
Export sales-
-------------
During the years ended June 30, 1998, 1997 and 1996, export sales were
approximately $1,520,000, $2,157,000 and $2,241,000, respectively.
Significant customer-
---------------------
For the year ended June 30, 1998, two customers represented
approximately 18% and 12% of net sales, respectively. For the years
ended June 30, 1997 and 1996, Planters represented approximately 47% and
43%, respectively, of net sales.
(16) Valuation and Qualifying Accounts:
----------------------------------
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at end
Description of Period Expenses Deductions of Period
----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended June 30, 1996,
allowances for
doubtful accounts
and cash discounts $257,963 $242,673 $(327,112) $173,524
Year ended June 30, 1997,
allowances for
doubtful accounts
and cash discounts $173,524 $210,633 $(146,379) $237,778
Year ended June 30, 1998,
allowances for
doubtful accounts
and cash discounts $237,778 $315,526 $(230,795) $322,509
</TABLE>
