EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A (this "Amendment") to the Company's
Quarterly Report on Form 10-Q amends Item 1 for the quarterly period ended
December 31, 1998 and is being filed only for the following purposes:
Item 1. Financial Statements
- ------- --------------------
Statements of Operations for the Three and Six Months Ended December
31, 1997 is amended to reflect "Net Planters Other Income" of $1.4
million as income from operations; and
Notes to Financial Statements
-----------------------------
Footnote 8, Nut Division Write-down, to expand disclosure.
For purposes of clarity the entire 10-Q is being filed.
<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.
LINCOLN SNACKS COMPANY
(Registrant)
By: /s/ Hendrik J. Hartong III
------------------------------
Hendrik J. Hartong III
President and Chief Executive Officer;
Director
(Principal Executive Officer)
By: /s/ Kristine A. Crabs
-----------------------------
Kristine A. Crabs
Vice President - Chief Financial
Officer, Treasurer and Secretary
(Principal Financial Officer
and Principal Accounting Officer)
Dated: May 21, 1999
<PAGE>
LINCOLN SNACKS COMPANY
INDEX TO FORM 10-Q
PAGE
----
Part I. FINANCIAL INFORMATION
---------------------
Item 1. FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1998
and June 30, 1998 3-4
Statements of Operations for the
three months ended December 31, 1998
and December 31, 1997 5
Statements of Operations for the
six months ended December 31, 1998
and December 31, 1997 6
Statements of Changes in Stockholders'
Equity for the six months ended
December 31, 1998 and December 31, 1997 7
Statements of Cash Flows for the
six months ended December 31, 1998
and December 31, 1997 8
Notes to Financial Statements 9-11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 12-16
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 16
Part II. OTHER INFORMATION
-----------------
Item 1. LEGAL PROCEEDINGS 17
Item 2. CHANGES IN SECURITIES 17
Item 3. DEFAULTS UPON SENIOR SECURITIES 17
Item 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 17
Item 5. OTHER INFORMATION 17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 17-18
SIGNATURES 19
- 2 -
<PAGE>
LINCOLN SNACKS COMPANY
BALANCE SHEETS
ASSETS
AS OF DECEMBER 31, 1998 AND JUNE 30, 1998
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------ ------------
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 2,947,701 $ 3,726,400
Accounts receivable (net of allowance
for doubtful accounts and cash discounts
of $345,497 and $322,509 respectively) 2,101,707 1,703,427
Inventories 2,027,793 2,363,287
Prepaid and other current assets 84,882 61,557
------------ ------------
Total current assets 7,162,083 7,854,671
PROPERTY, PLANT AND EQUIPMENT:
Land 370,000 370,000
Building and leasehold improvements 1,793,259 1,782,992
Machinery and equipment 4,664,397 5,023,795
Construction in process 29,651 13,093
------------ ------------
6,857,307 7,189,880
Less: accumulated depreciation
and amortization (3,011,298) (2,877,571)
------------ ------------
3,846,009 4,312,309
INTANGIBLE AND OTHER ASSETS,
net of accumulated amortization of
$844,695 and $826,967 3,438,787 3,906,515
------------ ------------
TOTAL ASSETS $ 14,446,879 $ 16,073,495
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
- 3 -
<PAGE>
LINCOLN SNACKS COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
AS OF DECEMBER 31, 1998 AND JUNE 30, 1998
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 292,334 $ 1,197,444
Accrued expenses 1,515,343 1,381,928
Accrued trade promotions 1,894,557 1,428,669
Deferred gain-short term 13,434 13,434
Current portion of note payable 83,334 333,333
------------ ------------
Total current liabilities 3,799,002 4,354,808
Deferred Gain 96,402 102,863
------------ ------------
TOTAL LIABILITIES 3,895,404 4,457,671
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value,
20,000,000 shares authorized,
6,450,090 shares issued at
December 31, 1998 and June 30, 1998 64,501 64,501
Special stock, $0.01 par value, 300,000
shares authorized, none outstanding 0 0
Additional paid-in capital 18,010,637 18,010,637
Accumulated deficit ( 7,497,637) ( 6,433,288)
Less: cost of common stock in
treasury 118,300 shares (26,026) (26,026)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,551,475 11,615,824
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 14,446,879 $ 16,073,495
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
- 4 -
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 7,884,089 $ 7,131,550
COST OF SALES 4,995,640 3,808,023
------------ ------------
Gross profit 2,888,449 3,323,527
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,952,288 2,435,336
NON-RECURRING CHARGE 227,000 0
NUT DIVISION WRITE-DOWN 590,459 0
NET PLANTERS OTHER INCOME 0 (1,376,000)
------------ ------------
Income (loss) from operations (881,298) 2,264,191
Interest Income 21,044 22,939
Other Expenses 0 (19,441)
------------ ------------
Income (loss) before provision
for income taxes (860,254) 2,267,689
PROVISION FOR INCOME TAXES 14,000 80,000
------------ ------------
Net income (loss) $ (874,254) $ 2,187,689
============ ============
BASIC NET INCOME (LOSS) PER SHARE $ (0.14) $ 0.35
============= ============
DILUTED NET INCOME (LOSS) PER SHARE $ (0.14) $ 0.34
============= ============
Weighted Average Number of
Shares Outstanding
Basic 6,331,790 6,331,790
============ ============
Diluted 6,331,790 6,422,693
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
- 5 -
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 15,421,989 $ 12,871,761
COST OF SALES 10,425,581 7,145,806
------------ ------------
Gross profit 4,996,408 5,725,955
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,269,564 4,241,066
NON-RECURRING CHARGE 227,000 0
NUT DIVISION WRITE-DOWN 590,459 0
NET PLANTERS OTHER INCOME 0 (1,376,000)
------------ ------------
Income (loss) from operations (1,090,615) 2,860,889
Interest Income 50,266 35,708
Other Expenses 0 (19,438)
------------ ------------
Income (loss) before provision
for income taxes (1,040,349) 2,877,159
PROVISION FOR INCOME TAXES 24,000 90,000
------------ ------------
Net income (loss) $ (1,064,349) $ 2,787,159
============ ============
BASIC NET INCOME (LOSS) PER SHARE $ (0.17) $ 0.44
============= ============
DILUTED NET INCOME (LOSS) PER SHARE $ (0.17) $ 0.44
============= ============
Weighted Average Number of
Shares Outstanding
Basic 6,331,790 6,331,790
============ ===========
Diluted 6,331,790 6,397,119
============ ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
- 6 -
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Special Paid In Accumulated Treasury
Stock Stock Capital Deficit Stock
------- ------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C>
June 30, 1997 $64,501 $0 $18,010,637 ($8,100,126) ($26,026)
Net income 2,787,159
------- ------- ----------- ------------ --------
December 31,
1997 $64,501 $0 $18,010,637 ($ 5,312,967) ($26,026)
======= ======= =========== ============ ========
June 30, 1998 $64,501 $0 $18,010,637 ($ 6,433,288) ($26,026)
Net loss (1,064,349)
------- ------- ----------- ------------ --------
December 31,
1998 $64,501 $0 $18,010,637 ($ 7,497,637) ($26,026)
======= ======= =========== ============ ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
- 7 -
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (1,064,349) $ 2,787,159
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 433,596 349,678
Allowance for doubtful accounts and
cash discounts, net 22,988 49,563
Nut division write-down 590,459 0
Changes in Assets and Liabilities:
Increase in accounts receivable (421,268) (1,601,397)
Decrease in inventories 335,494 163,622
Increase in prepaid and
other current assets (23,325) (15,129)
Increase (decrease) in accounts
payable and accrued expenses (312,268) 832,119
----------- ------------
Net cash provided by (used in)
operating activities (438,673) 2,565,615
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (90,027) (256,330)
----------- ------------
Net cash used in investing activities (90,027) (256,330)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under note payable (249,999) 0
------------ ------------
Net cash used in
financing activities (249,999) 0
------------ ------------
Net increase (decrease) in cash (778,699) 2,309,285
CASH, beginning of period 3,726,400 1,606,357
------------ ------------
CASH, end of period $ 2,947,701 $ 3,915,642
============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid $ 4,274 $ 0
============ ============
Income taxes paid $ 54,260 $ 43,173
============ ============
</TABLE>
- 8 -
<PAGE>
LINCOLN SNACKS COMPANY
-----------------------
NOTES TO FINANCIAL STATEMENTS
------------------------------
DECEMBER 31, 1998
------------------
(Unaudited)
(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. 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.
(2) Basis of Presentation:
----------------------
The balance sheet as of December 31, 1998, and the related statements
of operations for the three and six months ended December 31, 1998 and
December 31, 1997, and changes in stockholders' equity and cash flows
for the six months ended December 31, 1998 and December 31, 1997,
have been prepared by the Company without audit. In the opinion of
management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows at and for periods
ended December 31, 1998 and December 31, 1997 have been made. During
the interim periods presented, the accounting policies followed are in
conformity with generally accepted accounting principles and are
consistent with those applied for annual periods and described in the
Company's Annual Report on Form 10-K for the twelve months ended June
30, 1998 filed with the Securities and Exchange Commission on
September 22, 1998 (the "Annual Report").
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial
statements included in the Annual Report. The results of operations
for the three and six months ending December 31, 1998 and December 31,
1997 are not necessarily indicative of the operating results for the
full year.
(3) Net income (loss) 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.
Options and warrants to purchase 487,800 and 338,500 shares of common
stock were outstanding at December 31, 1998 and 1997, 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. Additional options to purchase
238,359 shares of common stock were outstanding at December 31,
1998 but were not included in the computation of diluted
earnings per share because the options would be anti-dilutive.
(4) Credit Facility:
----------------
In December 1993, the Company entered into a bank loan agreement, as
amended, which provides for up to $4.0 million in revolver borrowings.
There were no amounts outstanding under the revolving credit facility
at December 31, 1998. The credit facility is available through
December 2, 2000. At that time, any borrowing under the credit
facility becomes due.
The credit facility requires 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.
The Company currently meets its short-term liquidity needs from its
cash on hand. The Company also has a revolving credit facility which
facility is secured by a first priority, perfected security interest
in substantially all of the Company's existing and after-acquired
assets. The Company is in breach of its December EBITDA covenant and
anticipates that this breach will continue through the March and June
quarters. The Company is currently discussing its need to obtain
waivers of the EBITDA covenant from the lender under this facility.
Unless these waivers are obtained, the Company may be unable to draw
down from this facility. However, the Company presently believes that
its cash will be adequate to meet its needs for the next twelve
months.
(5) Inventory:
----------
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------ ------------
<S> <C> <C>
Raw materials and supplies $ 1,390,236 $ 1,385,854
Finished Goods 637,557 977,433
------------ ------------
$ 2,027,793 $ 2,363,287
============ ============
</TABLE>
(6) Significant Customer:
---------------------
Planters Company, a unit of Nabisco, Inc. ("Planters"), exclusively
distributed the Company's Fiddle Faddle products (the "Products") from
July 1995 to December 1997 pursuant to a distribution agreement which
expired on December 31, 1997. The distribution agreement required
Planters to purchase an annual minimum number of equivalent cases of
the Products during the term. Sales to Planters represented 12% and
16% of net sales for the three and six months ended December 31, 1997.
Effective January 1, 1998, the Company resumed marketing and
distributing its Fiddle Faddle products at its historical selling
prices.
(7) Non-Recurring Charge:
---------------------
The non-recurring charge of $227,000 represents severance related to
the Company's former President and Chief Operating Officer and costs
incurred during the relocation of the Company's new Chief Executive
Officer.
(8) Nut Division Write-down:
------------------------
The Company discontinued its nut division operations during the fiscal
quarter ended December 31, 1998. Management determined that the nut
division product lines were no longer viable because of continued
sales declines resulting from increased competitive activity. Nut
division sales were $49,560 and $669,588 for the six months ended
December 31, 1998 and 1997, respectively.
As a result, all of the goodwill related to the nut division
($367,800) was written off. Similarly, manufacturing equipment (book
value of $272,659) was written down to $50,000, the expected
liquidation value. The write-downs of goodwill and manufacturing
equipment comprise the "Nut Division Write-Down" of $590,459 in the
statement of operations. The Company expects the equipment to be sold
during 1999, and no additional charges are anticipated with respect to
the discontinuance of nut division operations.
The division's operating income (loss) was ($28,489), excluding the
"nut division write-down," and $15,460, including depreciation of
$28,941 and $33,945 and goodwill amortization of $7,500 and $7,500,
for the six months ended December 31, 1998 and 1997, respectively.
- 11 -
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (UNAUDITED)
- ------- ---------------------------------------------------------------
Results of Operations:
- ----------------------
Introduction
- ------------
The Company's net sales are subject to significant seasonal variation,
with results from operations fluctuating due to these trends. This
seasonality is due to customers' buying patterns of Poppycock during the
traditional holiday season. As a result, third and fourth calendar quarter
sales account for a significant portion of the Company's annual sales.
Planters Company, a unit of Nabisco, Inc. ("Planters"), exclusively
distributed the Company's Fiddle Faddle products from July 1995 to December
1997 pursuant to a distribution agreement which expired on December 31,
1997. The distribution agreement required Planters to purchase an annual
minimum number of equivalent cases of the Products during the term. Sales
to Planters represented 12% of net sales for the quarter and 16% of net
sales for the six months ended December 31, 1997. Effective January 1,
1998, the Company resumed marketing and distributing its Fiddle Faddle
products at its historical selling prices.
Three months ended December 31, 1998 versus December 31, 1997
- -------------------------------------------------------------
Overall net sales increased 11% or $.75 million to $7.88 million for
the three months ended December 31, 1998 versus $7.13 million in the
corresponding period of 1997. Copack and private label sales increased
while branded case sales declined versus a year ago. The branded sales
decline in the quarter was partially offset by the Company resuming
distribution of Fiddle Faddle at historical selling prices which are higher
than its selling prices to Planters during the same period last year.
As part of its business, the Company copacks products for other
entities. One of its copack customers, which accounted for approximately 8%
and 7% of the Company's net sales during the quarters ended December 31,
1998 and 1997, respectively, has notified the Company that it does not
desire to continue the copack agreement. The termination of the copack
agreement could have an adverse effect on the Company's future results of
operations unless the Company secures replacement business.
Gross profit decreased 13% or $.44 million to $2.89 million for the
three months ended December 31, 1998 versus $3.32 million in the
corresponding period of 1997. Gross profits decreased due to lower branded
case sales with this decrease being partially offset by increased selling
prices to historical levels following the Company's resumption of its
distribution of Fiddle Faddle. The decrease was also partially offset by
increased gross profits relating to new copack and private label business.
Selling, general and administrative expenses increased 21% or $.52
million to $2.95 million for the three months ended December 31, 1998 versus
$2.44 million for the same period in 1997. This increase was primarily due
to the Company resuming the marketing and distribution of the Fiddle Faddle
business.
The non-recurring charge of $.23 million represents severance related
to the Company's former President and Chief Operating Officer and costs
incurred during the relocation of the Company's new Chief Executive Officer.
Management has discontinued its nut product line which consisted of
honey roasted and dry roasted peanuts in canisters. Goodwill of $.37
million relating to the nut product lines was written off. The
manufacturing equipment relating to the discontinued nut products was
written down to the expected liquidation value which resulted in a $.22
million charge.
In 1997 the Company recognized Net Planters Other Income of $1.38
million which represents Planters compensation of $1.88 million to the
Company for failing to achieve certain sales levels during the calendar year
ending December 31, 1997 which was partially offset by approximately $.50
million in non-recurring charges associated with initial efforts to rebuild
the Fiddle Faddle brand.
The quarter loss of $.87 million versus a profit of $2.19 million in
the same period in 1997 represents a decrease in earnings of $3.06 million.
The earnings decline is attributable to lower branded sales which were
partially offset by lower margin private label sales. Additionally, there
were several non-recurring items contributing to the earnings decline: Net
Planters Other Income of $1.38 million recognized in 1997, the Nut Division
write-down of $.59 million, and the non-recurring charge of $.23 million.
Six months ended December 31, 1998 versus December 31, 1997
- -----------------------------------------------------------
Overall net sales increased 20% or $2.55 million to $15.42 million for
the six months ended December 31, 1998 versus $12.87 million in the
corresponding period of 1997. Copack and private label sales increased
while branded case sales declined versus a year ago. The branded sales
decline in the period was partially offset by the Company resuming
distribution of Fiddle Faddle at historical selling prices which are higher
than its selling prices to Planters during the same period last year.
As part of its business, the Company copacks products for other
entities. One of its copack customers, which accounted for approximately
17% and 8% of the Company's net sales during the six months ended December
31, 1998 and 1997, respectively, has notified the Company that it does not
desire to continue the copack agreement. The termination of the copack
agreement could have an adverse effect on the Company's future results of
operations unless the Company secures replacement business.
Gross profit decreased 13% or $.73 million to $5.0 million for the six
months ended December 31, 1998 versus $5.73 million in the corresponding
period of 1997. Gross profits decreased due to lower branded case sales
with this decrease being partially offset by increased selling prices to
historical levels following the Company's resumption of its distribution of
Fiddle Faddle. The decrease was also partially offset by increased gross
profits relating to new copack and private label business.
Selling, general and administrative expenses increased 24% or $1.03
million to $5.27 million for the six months ended December 31, 1998 versus
$4.24 million for the same period in 1997. This increase was primarily due
to the Company resuming the marketing and distribution of the Fiddle Faddle
business.
The non-recurring charge of $.23 million represents severance related
to the Company's former President and Chief Operating Officer and costs
incurred during the relocation of the Company's new Chief Executive Officer.
Management has discontinued its nut product line which consisted of
honey roasted and dry roasted peanuts in canisters. Goodwill of $.37
million relating to the nut product lines was written off. The
manufacturing equipment relating to the discontinued nut products was
written down to the expected liquidation value which resulted in a $.22
million charge.
In 1997 the Company recognized Net Planters Other Income of $1.38
million which represents Planters compensation of $1.88 million to the
Company for failing to achieve certain sales levels during the calendar year
ending December 31, 1997 which was partially offset by approximately $.50
million in non-recurring charges associated with initial efforts to rebuild
the Fiddle Faddle brand.
The year to date loss of $1.06 million versus a profit of $2.79
million in the same period in 1997 represents a decrease in earnings of
$3.85 million. The earnings decline is attributable to lower branded sales
which were partially offset by lower margin private label and copack sales.
Additionally, there were several non-recurring items contributing to the
earnings decline: Net Planters Other Income of $1.38 million recognized in
1997, the Nut Division write-down of $.59 million, and the non-recurring
charge of $.23 million.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1998, the Company had working capital of $3.36
million compared to a working capital of $3.50 million at June 30, 1998 (the
Company's fiscal year end), a decrease in working capital of $.14 million.
The decrease in working capital is primarily attributable to the Company's
net loss of $1.06 million less non cash charges for the Nut Division
write-down of $.59 million, depreciation and amortization of $.43 million
for the six months ended December 31, 1998.
The Company currently meets its short-term liquidity needs from its
cash on hand. The Company also has a revolving credit facility which
facility is secured by a first priority, perfected security interest in
substantially all of the Company's existing and after-acquired assets. The
Company is in breach of its December EBITDA covenant and anticipates that
this breach will continue through the March and June quarters. The Company
is currently discussing its need to obtain waivers of the EBITDA covenant
from the lender under this facility. Unless these waivers are obtained, the
Company may be unable to draw down from this facility. However, the Company
presently believes that its cash will be adequate to meet its needs for the
next twelve months.
Management continues to focus on increasing product distribution and
is reviewing all operating costs with the objective of increasing
profitability and ensuring future liquidity. However, there can be no
assurance that any of these objectives will be achieved in future periods.
The Company's short term liquidity is affected by seasonal increases
in inventory and accounts receivable levels, payment terms in excess of 60
days granted in some situations during certain months of the year, and
seasonality of sales. Inventory and accounts receivable levels increase
substantially during the latter part of the third calendar quarter and
during the remainder of the calendar year.
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
December 31, December 31,
1998 1997
------------- -------------
(in thousands)
<S> <C> <C>
Net cash provided by (used in)
operating activities $ (439) $ 2,566
Net cash used in investing activities (90) (256)
Net cash used in financing activities (250) 0
</TABLE>
Net cash provided by operating activities decreased $3.01 million to
$.44 million during the six months ended December 31, 1998 compared to cash
provided of $2.57 million in 1997. The decrease is primarily due to a
decrease in net income of $3.85 million for the six months ended December
31, 1998 versus December 31, 1997.
Net cash used in investing activities of $.09 million and $.26 million
for the six months ended December 31, 1998 and 1997, respectively,
represents capital expenditures.
Net cash used in financing activities for the period ended December
31, 1998 was $.25 million, which consisted of repayments under the note
payable. No cash was used in or provided by financing activities for the six
months ended December 31, 1997.
Year 2000 Disclosure
- --------------------
The Year 2000 issue has arisen because many computer programs use only
the last two digits to refer to a year. Such programs will not properly
recognize a year that begins with "20" instead of "19." If not corrected or
replaced prior to the year 2000, these programs could fail or create
erroneous results. The Company uses a number of computer programs both in
connection with its management information systems and its manufacturing,
distribution and sales operations.
The Company has identified its critical management information systems
hardware and software and is in the process of determining whether they are
Year 2000 compliant. The Company's assessment of its hardware and software
Year 2000 compliance is highly dependent upon representations from the
hardware and software manufacturers. The Company cannot now predict
reliably the costs which might be incurred by it in making these systems
Year 2000 compliant.
Other systems used by the Company in conducting its business are also
dependent on microprocessor components. These would include manufacturing
equipment and building control systems. The Company has compiled an
inventory of the other systems it uses and is assessing each of those
systems for their Year 2000 compliance. The Company's assessment is highly
dependent upon the expertise and representations from the manufacturers of
the Company's equipment. The Company cannot now predict reliably the costs
which might be incurred by it in making these systems Year 2000 compliant.
The Company relies on third parties for all of its manufacturing
supplies of water, utilities, transportation and other key services.
Interruption of supplier operations due to Year 2000 issues could affect
Company operations. The Company has initiated efforts to evaluate the
status of suppliers' efforts and to determine alternatives and contingency
plan requirements which will include identification of alternate suppliers
and accumulation of inventory to assure production capability where feasible
or warranted. These activities are intended to provide a means of managing
risk, but cannot eliminate the potential for disruption due to third party
failure.
The Company is dependent upon its customers for sales and cash flow.
Year 2000 interruptions in the Company's customers' operations could result
in reduced sales, increased inventory or receivable levels and cash flow
reductions. The Company has sent questionnaires to its significant
customers to determine whether their information management systems and
other technology assets are Year 2000 compliant. The Company is monitoring
the status of its customers as a means of determining risks and
alternatives.
Although the Company has received some responses to its inquiries,
until the Company receives all responses to its inquiries, it cannot assess
whether a failure of one or more of the information systems of its
suppliers, vendors or customers would likely have a material adverse effect
on the Company.
Forward Looking Statement
- -------------------------
This Quarterly Report on Form 10-Q contains, in addition to historical
information, certain forward-looking statements regarding future financial
condition and results of operations. The words "expect," "estimate,"
"anticipate," "predict," "believe," and similar expressions are intended to
identify forward-looking statements. Such statements involve certain risks
and uncertainties. Should one or more of these risks or uncertainties
materialize, actual outcomes may vary materially from those indicated.
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ------- ---------------------------------------------------------
Not Applicable.
- 16 -
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings Not Applicable
-----------------
Item 2. Changes in Securities Not Applicable
---------------------
Item 3. Defaults Upon Senior Securities Not Applicable
-------------------------------
Item 4. Submission of Matters
to a Vote of Security Holders
-----------------------------
The Annual Meeting of the Shareholders of the Registrant was
held on November 19, 1998, pursuant to notice, at which meeting
the following persons were elected directors of the Registrant
to hold office until the next Annual Meeting of Stockholders and
until their respective successors are duly elected and
qualified, and who received the number of votes indicated
opposite their names:
<TABLE>
<CAPTION>
NUMBER ABSTENTIONS
NUMBER OF OF VOTES AND BROKER
NAME: VOTES FOR: WITHHELD: NON-VOTES:
----------------------- ---------- --------- -----------
<S> <C> <C> <C>
Hendrik J. Hartong, Jr. 5,895,860 9,100 NONE
John T. Gray 5,895,860 9,100 NONE
Ian B. MacTaggart 5,895,860 9,100 NONE
C. Alan MacDonald 5,895,860 9,100 NONE
Hendrik J. Hartong III 5,895,860 9,100 NONE
</TABLE>
Item 5. Other Information Not Applicable
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a Exhibits
(2) Not Applicable
(3) Articles of Incorporation and By-Laws
(a) Certificate of Incorporation, as amended and
as currently in effect (Incorporated by
reference to Exhibit 3(A), filed by the
Company with the Registration Statement on
Form S-1 (33-71432)).
(b) By-Laws as currently in effect (Incorporated
by reference to Exhibit 3(B) filed by the
Company with the Registration Statement on
Form S-1 (33-71432)).
(4) Not Applicable
(10) Not Applicable
(11) Statement regarding computation of per share
earnings is not required because the relevant
computation can be determined from the material
contained in the Financial Statements included
herein.
(15) Not Applicable
(18) Not Applicable
(19) Not Applicable
(22) Not Applicable
(23) Not Applicable
(24) Not Applicable
(27) Financial Data Schedule
(99) Not Applicable
b Reports on Form 8-K Not Applicable
- 18 -
<PAGE>
SIGNATURE
----------
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.
February 11, 1999 Lincoln Snacks Company
(Registrant)
By: /s/Hendrik J. Hartong III
------------------------------
Name: Hendrik J. Hartong III
Title: President and Chief Executive
Officer; Director
(Principal Executive Officer)
By: /s/Kristine A. Crabs
----------------------------------
Name: Kristine A. Crabs
Title: Vice President and Chief Financial
Officer, Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
- 19 -
