SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-23048
LINCOLN SNACKS COMPANY
(exact name of registrant as specified in its charter)
Delaware 47-0758569
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
4 High Ridge Park, Stamford, Connecticut 06905
(Address of principal executive offices) (zip code)
(Registrant's telephone number, including area code) (203) 329-4545
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 requirements for the past 90 days.
Yes X No
The number of shares of the issuer's Common Stock, $.01 par value, outstanding
on May 7, 1999 was 6,331,790 shares.
LINCOLN SNACKS COMPANY
INDEX TO FORM 10-Q
PAGE
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1999
and June 30, 1998 3-4
Statements of Operations for the
three months ended March 31, 1999
and March 31, 1998 5
Statements of Operations for the
nine months ended March 31, 1999
and March 31, 1998 6
Statements of Changes in Stockholders'
Equity for the nine months ended
March 31, 1999 and March 31, 1998 7
Statements of Cash Flows for the
nine months ended March 31, 1999
and March 31, 1998 8
Notes to Financial Statements 9-11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 12-17
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 17
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 18
Item 2. CHANGES IN SECURITIES 18
Item 3. DEFAULTS UPON SENIOR SECURITIES 18
Item 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 18
Item 5. OTHER INFORMATION 18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 18-19
SIGNATURES 20
<PAGE>
LINCOLN SNACKS COMPANY
BALANCE SHEETS
ASSETS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
ASSETS (Unaudited)
----------- ------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 2,002,082 $ 3,726,400
Accounts receivable (net of allowance
for doubtful accounts and cash discounts
of $361,976 and $322,509 respectively) 2,475,054 1,703,427
Inventories 2,552,629 2,363,287
Prepaid and other current assets 51,828 61,557
------------ ------------
Total current assets 7,081,593 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 4,641,710 5,023,795
Construction in process 39,143 13,093
------------ ------------
6,844,112 7,189,880
Less: accumulated depreciation
and amortization (3,160,193) (2,877,571)
------------ ------------
3,683,919 4,312,309
INTANGIBLE AND OTHER ASSETS,
net of accumulated amortization of
$890,909 and $826,967 3,392,573 3,906,515
------------ ------------
TOTAL ASSETS $ 14,158,085 $ 16,073,495
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE>
LINCOLN SNACKS COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
AS OF MARCH 31, 1999 AND JUNE 30, 1998
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Current portion of note payable $ --- $ 333,333
Accounts payable 564,167 1,197,444
Accrued expenses 1,657,019 1,381,928
Accrued trade promotions 1,949,209 1,428,669
Deferred gain-short term 13,434 13,434
------------ -----------
Total current liabilities 4,183,829 4,354,808
Deferred Gain 93,171 102,863
------------ -----------
TOTAL LIABILITIES 4,277,000 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 --- ---
Additional paid-in capital 18,010,637 18,010,637
Accumulated deficit ( 8,168,027) ( 6,433,288)
Less: cost of common stock in
treasury 118,300 shares (26,026) (26,026)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 9,881,085 11,615,824
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 14,158,085 $ 16,073,495
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 4,758,471 $ 4,623,716
COST OF SALES 3,316,723 3,386,474
----------- -----------
Gross profit 1,441,748 1,237,242
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,071,425 1,632,009
NON-RECURRING CHARGE 59,633 ---
----------- -----------
Loss from operations (689,310) (394,767)
Interest Income 28,912 51,605
----------- -----------
Loss before provision
for income taxes (660,398) (343,162)
PROVISION FOR INCOME TAXES 10,000 10,000
----------- -----------
Net loss $ (670,398) $ (353,162)
=========== ===========
BASIC NET LOSS PER SHARE $ (0.11) $ (0.06)
=========== ===========
DILUTED NET LOSS PER SHARE $ (0.11) $ (0.06)
=========== ===========
Weighted Average Number of
Shares Outstanding
Basic 6,331,790 6,331,790
=========== ===========
Diluted 6,331,790 6,331,790
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 20,180,460 $ 17,495,477
COST OF SALES 13,742,304 10,532,280
----------- -----------
Gross profit 6,438,156 6,963,197
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 7,340,980 5,873,073
NON-RECURRING CHARGE 286,633 ---
NUT DIVISION WRITE-DOWN 590,459 ---
NET PLANTERS OTHER INCOME --- (1,376,000)
----------- -----------
Income (loss) from operations (1,779,916) 2,466,124
Interest Income 79,177 87,313
Other Expenses --- (19,441)
----------- -----------
Income (loss) before provision
for income taxes (1,700,739) 2,533,996
PROVISION FOR INCOME TAXES 34,000 100,000
------------ -----------
Net income (loss) $ (1,734,739) $ 2,433,996
============ ===========
BASIC NET INCOME (LOSS) PER SHARE $ (0.27) $ 0.38
============ ============
DILUTED NET INCOME (LOSS) PER SHARE $ (0.27) $ 0.38
============ ============
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.
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(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 $--- $18,010,637 ($8,100,126) ($26,026)
Net income --- --- --- 2,433,996 ---
------- ------ ----------- ----------- --------
March 31, 1998 $64,501 $--- $18,010,637 $(5,666,130) $(26,026)
======= ====== =========== =========== ========
June 30, 1998 $64,501 $--- $18,010,637 ($6,433,288) ($26,026)
Net loss --- --- --- (1,734,739) ---
------- ------ ----------- ----------- ---------
March 31, 1999 $64,501 $--- $18,010,637 ($ 8,168,027) $(26,026)
======= ====== =========== ============ =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
LINCOLN SNACKS COMPANY
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
<TABLE>
<CAPTION>
1999 1998
---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,734,738) $ 2,433,996
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 628,705 558,484
Allowance for doubtful accounts and
cash discounts, net 39,467 48,207
Nut division write-down 590,459 ---
Changes in Assets and Liabilities:
(Increase) decrease in accounts
receivable (811,094) 623,179
(Increase) decrease in inventories (189,342) (701,681)
(Increase) decrease in prepaid and
other current assets 9,729 (10,308)
Increase (decrease) in accounts
payable and accrued expenses 152,661 759,999
---------- ----------
Net cash provided by (used in)
operating activities (1,314,153) 3,711,876
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (76,832) (335,173)
Acquisition (net of cash) --- (800,160)
---------- ----------
Net cash used in investing activities (76,832) (1,135,333)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under short term note (333,333) (41,667)
---------- ----------
Net cash used in
financing activities (333,333) (41,667)
---------- ----------
Net increase (decrease) in cash (1,724,318) 2,534,876
CASH, beginning of period 3,726,400 1,606,357
---------- ----------
CASH, end of period $ 2,002,082 $ 4,141,233
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 5,003 $ ---
=========== ===========
Income taxes paid $ 54,260 $ 80,715
=========== ===========
</TABLE>
<PAGE>
LINCOLN SNACKS COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(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 March 31, 1999, and the related statements of
operations for the three and nine months ended March 31, 1999 and March
31, 1998, and changes in stockholders' equity and cash flows for the
nine months ended March 31, 1999 and March 31, 1998, 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 March 31, 1999 and
March 31, 1998 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 nine months ending March 31, 1999 and March 31, 1998 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 509,750 shares of common stock were
outstanding at March 31, 1999 but were not included in the computation
of diluted earnings per share as the effect would be anti-dilutive.
Options to purchase 65,329 shares of common stock were outstanding at
March 31, 1998 and included in the computation of diluted earnings per
share for the nine months ended March 31, 1998. Additional options and
warrants to purchase 877,550 and 812,221 shares of common stock were not
included in the computation of diluted earnings per share for the three
and nine months ended March 31, 1998, respectively, as the effect 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
March 31, 1999. 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 ("EBITDA"), tangible net worth and
debt coverage. The financial covenants are to be met on a quarterly
basis, and the minimum requirements vary by quarter.
On April 1, 1999, the Company executed and delivered a Convertible
Subordinated Debenture (the "Debenture") in favor of Brynwood Partners
III L.P., ("Brynwood III"), in the principal amount of $5,000,000. The
Debenture bears interest at the rate of 6% per annum, matures on
December 31, 2001 and is convertible, at the option of Brynwood III, for
shares of common stock of the Company at any time after a Convertability
Event (as defined in the Debenture). The note is convertible at $1.37
per share into shares of common stock.
The Company currently is in breach of certain covenants set forth in the
revolving credit agreement, including the EBITDA covenants as of March
31, 1999 and the requirement of obtaining the bank's consent relative to
the Brynwood borrowing. The Company anticipates that this situation
will continue. The Company is currently discussing its need to modify
the credit facility with the lender. However, there can be no assurance
that the bank will modify the credit facility so that the Company would
no longer be in breach of the facility agreement. As a result of these
breaches, the Company is unable to draw down from this facility at this
time. However, the Company presently believes that its cash will be
adequate to meet its needs for the next twelve months.
(5) Inventory:
- ---------------
<TABLE>
<CAPTION>
Inventory consists of the following:
March 31, June 30,
1999 1998
----------- ------------
<S> <C> <C>
Raw materials and supplies $ 1,745,168 $ 1,385,854
Finished Goods 807,461 977,433
------------ ------------
$ 2,552,629 $ 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% of net
sales for the nine months ended March 31, 1998. Effective January 1,
1998, the Company resumed marketing and distributing its Fiddle Faddle
products at its historical selling prices.
In 1997, the Company recognized Net Planters Other Income of $1,376,000
which represents Planters compensation of $1,876,000 to the Company for
failing to achieve certain sales levels during the calendar year ending
December 31, 1997 which was partially offset by approximately $500,000
in non-recurring charges associated with initial efforts to rebuild the
Fiddle Faddle brand.
(7) Non-Recurring Charge:
- -------------------------
The non-recurring charge of $59,633 and $286,633 for the three months
and nine months ended March 31, 1999, respectively, represents $177,000
of severance related to the Company's former President and Chief
Operating Officer, $50,000 costs incurred during the relocation of the
Company's new Chief Executive Officer, and $59,633 million of severance
related to former employees. All amounts have been paid as of March 31,
1999.
(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 $769,427 for the nine months ended March 31, 1999
and 1998, 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 $1,807, including depreciation of $28,941 and
$48,780 and goodwill amortization of $7,500 and $11,500, for the nine
months ended March 31, 1999 and 1998, respectively.
<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. Effective January
1, 1998, the Company resumed marketing and distributing its Fiddle Faddle
products at its historical selling prices. Sales to Planters represented 12%
of net sales for the nine months ended March 31, 1998.
Three months ended March 31, 1999 versus March 31, 1998
- -------------------------------------------------------
Overall net sales increased 3% or $.14 million to $4.76 million for the
three months ended March 31, 1999 versus $4.62 million in the corresponding
period of 1998. Branded sales increased to 68% of net sales versus 59% a year
ago, private label sales increased to 27% of net sales versus 9% a year ago,
while copack sales declined to 5% of net sales versus 32% a year ago.
As part of its business, the Company copacks products for other
entities. One of its copack customers, which accounted for approximately 5%
and 32% of the Company's net sales during the quarters ended March 31, 1999
and 1998, respectively, terminated its copack agreement with the Company. 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 increased 17% or $.20 million to $1.44 million for the
three months ended March 31, 1999 versus $1.24 million in the corresponding
period of 1998. Gross profits increased due to increases in higher margin
branded and private label sales.
Selling, general and administrative expenses increased 27% or $.44
million to $2.07 million for the three months ended March 31, 1999 versus
$1.63 million for the same period in 1998. The increase is primarily due to
variable selling costs associated with increases in branded and private label
sales, increases in marketing costs associated with development of new
products and an increase in selling overhead.
The non-recurring charge of $59 thousand represents severance payments
made to former employees of the Company in the quarter.
The quarter loss of $.67 million versus a loss of $.35 million in the
same period in 1998 represents a decrease in earnings of $.32 million. The
increase in earnings attributable to increases in branded and private label
sales was offset by increases in marketing and selling costs.
Nine months ended March 31, 1999 versus March 31, 1998
- -------------------------------------------------------
Overall net sales increased 15% or $2.68 million to $20.18 million for
the nine months ended March 31, 1999 versus $17.50 million in the
corresponding period of 1998. Private label sales increased to 18% of net
sales while branded sales declined to 67% of net sales compared with 2% and
83% during the same period a year ago. Copack sales remained flat at 15% of
net sales in both periods. 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. The Planters Agreement was in effect from
July 1, 1997 to December 31, 1997, at which time the agreement terminated.
During the nine months ended March 31, 1998, the Company's sales to
Planters represented payments, in lieu of manufactured cases, at predetermined
rates which were lower than the Company's historical selling rates. The
Company's case sales of Fiddle Faddle declined during the nine months ended
March 31, 1999 primarily due to the termination of the Planters Agreement.
The decline in case sales was offset by a $2.01 million increase in Fiddle
Faddle sales due to the Company's resumption of Fiddle Faddle distribution at
historical selling prices which are higher than its selling prices to
Planters. The dollar increase in sales is offset by increases in cost of
sales and variable selling costs relating to the Company's distribution of
Fiddle Faddle.
Net sales to Planters were 12% of net sales for the nine months ended
March 31, 1998.
As part of its business, the Company copacks products for other
entities. One of its copack customers, which accounted for approximately 14%
and 15% of the Company's net sales during the nine months ended March 31, 1999
and 1998, respectively, terminated its copack agreement with the Company. 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 8% or $.52 million to $6.44 million for the nine
months ended March 31, 1999 versus $6.96 million in the corresponding period
of 1998. 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 the private label business.
Selling, general and administrative expenses increased 25% or $1.47
million to $7.34 million for the nine months ended March 31, 1999 versus $5.87
million for the same period in 1998. This increase was primarily due to
increases in selling costs associated with the Company's resumption of the
marketing and distribution of the Fiddle Faddle business, an increase in
marketing costs associated with development of new products, and an increase
in selling overhead.
The non-recurring charge of $.29 million represents $.18 million of
severance related to the Company's former President and Chief Operating
Officer, $.05 million costs incurred during the relocation of the Company's
new Chief Executive Officer and $.06 million of severance related to former
employees. All amounts have been paid as of March 31, 1999.
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 $.05
million and $.77 million for the nine months ended March 31, 1999 and 1998,
respectively.
As a result, all of the goodwill related to the nut division ($.37
million) was written off. Similarly, manufacturing equipment (book value of
$.27 million) was written down to $50 thousand, the expected liquidation
value. The write-downs of goodwill and manufacturing equipment comprise the
"Nut Division Write-Down" of $.59 million 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 nut division's operating loss, excluding the "nut division write-
down" was $28 thousand including depreciation of $29 thousand and goodwill
amortization of $8 thousand for the nine months ended March 31, 1999.
The nut division's operating income was $1 thousand including
depreciation of $49 thousand and goodwill amortization of $12 thousand for the
nine months ended March 31, 1998.
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 Company has approximately $4.6 million in NOL carryforwards. The
Company has recorded a valuation allowance related to these NOL's due to the
Company's brief operating history and recent losses.
The year to date loss of $1.73 million versus a profit of $2.43 million
in the same period in 1998 represents a decrease in earnings of $4.17 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 $.29 million.
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1999, the Company had working capital of $2.90 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 $.60 million. The decrease
in working capital is primarily attributable to the Company's net loss of $1.7
million less non cash charges for the Nut Division write-down of $.59 million,
depreciation and amortization of $.629 million for the nine months ended March
31, 1999.
On April 1, 1999, the Company executed and delivered a Convertible
Subordinated Debenture (the "Debenture") in favor of Brynwood Partners III
L.P., ("Brynwood III"), in the principal amount of $5,000,000. The Debenture
bears interest at the rate of 6% per annum, matures on December 31, 2001 and
is convertible, at the option of Brynwood III, for shares of Common Stock of
the Company at any time after a Convertability Event (as defined in the
Debenture). The note is convertible at $1.37 per share into shares of common
stock.
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. There are no outstanding
balances under this credit facility. The Company currently is in breach of
certain covenants set forth in the revolving credit agreement, including the
EBITDA covenants as of March 31, 1999 and the requirement of obtaining the
bank's consent relative to the Brynwood borrowing. The Company anticipates
that this situation will continue. The Company is currently discussing its
need to modify the credit facility with the lender. However, there can be no
assurance that the bank will modify the credit facility so that the Company
would no longer be in breach of the facility agreement. As a result of these
breaches, the Company is unable to draw down from this facility at this time.
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>
Nine Months Ended
March 31, March 31,
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Net cash provided by (used in)
operating activities $ (1,314) $ 3,712
Net cash used in investing activities (77) (1,135)
Net cash used in financing activities (333) (42)
</TABLE>
Net cash provided by operating activities decreased $5.03 million to a
use of $1.31 million during the nine months ended March 31, 1999 compared to
cash provided of $3.7 million in 1998. The decrease is primarily due to a
decrease in net income of $4.17 million for the nine months ended March 31,
1999 versus March 31, 1998 coupled with increases in accounts receivable due
to the timing of sales and cash receipts.
Net cash used in investing activities of $.07 million and $1.1 million
for the nine months ended March 31, 1999 and 1998, respectively, represents
capital expenditures.
Net cash used in financing activities of $.33 million and $.04 million
for the nine months ended March 31, 1999 and 1998, respectively, consisted of
repayments under the note payable.
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 plans to complete testing of
its critical hardware and software by August 1999. The Company does not
believe it will cost more than $.1 million to make 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 assessed each of the
systems and has completed any necessary replacements or upgrades to make
critical manufacturing and building control systems Year 2000 compliant. The
Company's assessment was highly dependent upon the expertise and
representations from the manufacturers of the Company's equipment.
The Company relies on third parties for all of its manufacturing raw
materials, supplies, water, utilities, transportation and other key services.
Interruption of supplier operations due to Year 2000 issues could affect
Company operations. The Company sent vendor questionnaires to critical third
parties it relies upon. The Company has received satisfactory responses from
the majority of its critical third parties documenting they will be Year 2000
complaint. 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 has received satisfactory
responses from the majority of its significant customers documenting that they
will be 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 the majority of the 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.
<PABE>
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 Not Applicable
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) Convertible Subordinated Debenture by the Company in
favor of Brynwood Partners III, L.P. (Incorporated by
reference to Exhibit 4.1 of the Company's current
report on Form 8-K filed on April 4, 1999.)
(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
Form 8-K was filed on April 8, 1999 with the Securities and
Exchange Commission which reported the following item:
Item 5. Other Events - Disclosure of a Convertible
Subordinated Debenture executed and delivered on April 1,
1999, between the Company and Brynwood Partners III L.P.
<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.
May 12, 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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from Lincoln Snacks Company financial statements
and is qualified in its entirety by reference to such
financial statements.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,002,082
<SECURITIES> 0
<RECEIVABLES> 2,837,030
<ALLOWANCES> 361,976
<INVENTORY> 2,552,629
<CURRENT-ASSETS> 51,828
<PP&E> 6,844,112
<DEPRECIATION> 3,160,193
<TOTAL-ASSETS> 14,158,085
<CURRENT-LIABILITIES> 4,183,829
<BONDS> 0
0
0
<COMMON> 64,501
<OTHER-SE> 9,816,584
<TOTAL-LIABILITY-AND-EQUITY> 14,158,085
<SALES> 20,180,460
<TOTAL-REVENUES> 20,180,460
<CGS> 13,742,304
<TOTAL-COSTS> 13,742,304
<OTHER-EXPENSES> 7,340,980
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> (79,177)
<INCOME-PRETAX> (1,700,739)
<INCOME-TAX> 34,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,734,739)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
