-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GniMaCitH/jk3qf/E73rp6gc6qNF3sV2K3XSsJz/looifKmqibJEfhCkpEr6G7Qu P/lYZBRWKPCMcjP2iI/Tkw== 0000914642-99-000001.txt : 19990215 0000914642-99-000001.hdr.sgml : 19990215 ACCESSION NUMBER: 0000914642-99-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN SNACKS CO CENTRAL INDEX KEY: 0000914642 STANDARD INDUSTRIAL CLASSIFICATION: SUGAR & CONFECTIONERY PRODUCTS [2060] IRS NUMBER: 470758569 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23048 FILM NUMBER: 99533333 BUSINESS ADDRESS: STREET 1: 4 HIGH RIDGE PARK CITY: STAMFORD STATE: CT ZIP: 06905 BUSINESS PHONE: 2033294545 MAIL ADDRESS: STREET 1: 4 HIGH RIDGE PARK CITY: STAMFORD STATE: CT ZIP: 06905 10-Q 1 SECOND QUARTER 10Q 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 December 31, 1998 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 February 10, 1999 was 6,331,790 shares. /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
December 31, June 30, 1998 1998 ------------ ------------ ASSETS (Unaudited) CURRENT ASSETS: 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
December 31, June 30, 1998 1998 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) CURRENT LIABILITIES: 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
1998 1997 ----------- ------------ (Unaudited) (Unaudited) 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 ----------- ----------- Income (loss) from operations (881,298) 888,191 Net Planters Other Income 0 1,376,000 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
1998 1997 ------------ ------------ (Unaudited) (Unaudited) 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 ------------ ------------ Income (loss) from operations (1,090,615) 1,484,889 Net Planters Other Income 0 1,376,000 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)
Common Special Paid In Accumulated Treasury Stock Stock Capital Deficit Stock ------- ------- ----------- ------------ -------- 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
1998 1997 ------------ ------------ (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: 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:
December 31, June 30, 1998 1998 ------------ ------------ 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: ------------------------ Management has discontinued its nut product line which consisted of honey roasted and dry roasted peanuts in canisters. Goodwill of $367,800 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 $222,659 charge. - 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.
Six Months Ended ---------------------------- December 31, December 31, 1998 1997 ------------ ------------- (in thousands) 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:
NUMBER ABSTENTIONS NUMBER OF OF VOTES AND BROKER NAME: VOTES FOR: WITHHELD: NON-VOTES: ------------------------ ---------- --------- ----------- 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 -
EX-27 2 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 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. 1 6-MOS JUN-30-1999 DEC-31-1998 2,947,701 0 2,447,204 345,497 2,027,793 7,162,083 6,857,307 3,011,298 14,446,879 3,799,002 0 0 0 64,501 10,486,974 14,446,879 15,421,989 15,421,989 10,425,581 10,425,581 5,269,564 39,000 (50,266) (1,040,349) 24,000 0 0 0 0 (1,064,349) (.17) (.17)
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