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 September 29, 2000
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)
30 Buxton Farm Road, Stamford, Connecticut 06905
(Address of principal executive offices) (zip code)
(Registrant's telephone number, including area code) (203) 329-4545
4 High Ridge Park, Stamford, Ct 06905
(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 October 30, 2000 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 September 29, 2000
and June 30, 2000 3-4
Statements of Operations for the
three months ended September 29, 2000
and September 30, 1999 5
Statements of Changes in Stockholders'
Equity for the three months ended
September 29, 2000 and September 30, 1999 6
Statements of Cash Flows for the
three months ended September 29, 2000
and September 30, 1999 7
Notes to Financial Statements 8-10
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of
Operations 11-13
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 13
Part II. OTHER INFORMATION
------------------
Item 1-4. OTHER INFORMATION 14
Item 5. OTHER INFORMATION 14
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 14
Signatures 15
- 2 -
LINCOLN SNACKS COMPANY
BALANCE SHEETS
ASSETS
AS OF SEPTEMBER 29, 2000 AND JUNE 30, 2000
September 29, June 30,
2000 2000
------------- ------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 8,344,457 $ 9,731,679
Accounts receivable (net of allowance
for doubtful accounts and cash discounts
of $433,538 and $396,326 respectively) 3,523,676 1,527,740
Inventories 3,379,759 2,522,311
Prepaid and other current assets 76,203 946
------------ ------------
Total current assets 15,324,095 13,782,676
PROPERTY, PLANT AND EQUIPMENT:
Land 370,000 370,000
Building and leasehold improvements 1,792,352 1,792,352
Machinery and equipment 4,856,937 4,856,937
Construction in process 714,577 507,848
------------ ------------
7,733,866 7,527,137
Less: accumulated depreciation
and amortization (3,964,469) (3,797,491)
------------ ------------
3,769,397 3,729,646
INTANGIBLE AND OTHER ASSETS,
net of accumulated amortization of
$1,191,338 and $1,135,522 3,322,432 3,388,735
------------ ------------
TOTAL ASSETS $ 22,415,924 $ 20,901,057
============ ============
The accompanying notes to financial statements
are an integral part of these balance sheets.
- 3 -
LINCOLN SNACKS COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
AS OF SEPTEMBER 29, 2000 AND JUNE 30, 2000
September 29, June 30,
2000 2000
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 1,239,835 $ 770,851
Accrued expenses 1,603,887 1,741,319
Accrued trade promotions 2,418,429 1,988,394
Deferred gain-short term 13,434 13,434
------------ ------------
Total current liabilities 5,275,585 4,513,998
LONG TERM DEBT 5,000,000 5,000,000
Deferred Gain 73,788 77,019
------------ ------------
TOTAL LIABILITIES 10,349,373 9,591,017
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value,
20,000,000 shares authorized,
6,450,090 shares issued at
September 29, 2000 and June 30, 2000 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 ( 5,982,561) ( 6,739,072)
Less: cost of common stock in
treasury 118,300 shares (26,026) (26,026)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,066,551 11,310,040
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 22,415,924 $ 20,901,057
============ ============
The accompanying notes to financial statements
are an integral part of these balance sheets.
- 4 -
LINCOLN SNACKS COMPANY
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 29, 2000 AND SEPTEMBER 30, 1999
2000 1999
------------ ------------
(Unaudited) (Unaudited)
NET SALES $ 9,187,121 $ 8,169,147
COST OF SALES 5,106,248 5,077,332
------------ ------------
Gross profit 4,080,873 3,091,815
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,353,165 2,947,161
------------ ------------
Income from operations 727,708 144,654
INTEREST INCOME, NET 60,803 2,908
------------ ------------
Income before provision
for income taxes 788,511 147,562
PROVISION FOR INCOME TAXES 32,000 10,000
------------ ------------
Net income $ 756,511 $ 137,562
============ ============
BASIC NET INCOME PER SHARE $ 0.12 $ 0.02
============ ============
DILUTED NET INCOME PER SHARE $ 0.08 $ 0.02
============ ============
Weighted Average Number of
Shares Outstanding
Basic 6,331,790 6,331,790
============ ============
Diluted 10,097,742 9,998,820
============ ============
The accompanying notes to financial statements
are an integral part of these statements.
- 5 -
LINCOLN SNACKS COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 29, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
Common Special Paid In Accumulated Treasury
Stock Stock Capital Deficit Stock
------- ------- ----------- ------------ --------
June 30, 1999 $64,501 -- $18,010,637 ($ 7,811,176) ($26,026)
Net income -- -- -- 137,562 --
------- ------- ----------- ------------ --------
September 30,
1999 $64,501 $ -- $18,010,637 ($ 7,673,614) ($26,026)
======= ======= =========== ============ ========
June 30, 2000 $64,501 -- $18,010,637 ($ 6,739,072) ($26,026)
Net income -- -- -- 756,511 --
------- ------- ----------- ------------ --------
September 29,
2000 $64,501 $ -- $18,010,637 ($ 5,982,561) ($26,026)
======= ======= =========== ============ ========
The accompanying notes to financial statements
are an integral part of these statements.
- 6 -
LINCOLN SNACKS COMPANY
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 29, 2000 AND SEPTEMBER 30, 1999
2000 1999
------------ ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 756,511 $ 137,562
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 222,794 201,233
Allowance for doubtful accounts and
cash discounts 37,213 41,483
Changes in Assets and Liabilities:
Increase in accounts receivable (2,033,149) (1,202,241)
Increase in inventories (857,448) (156,395)
Increase in prepaid and other
current assets (64,770) (46,970)
Increase in accounts payable
and accrued expenses 758,356 888,662
----------- -----------
Net cash used in operating activities (1,180,493) (136,666)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (206,729) (103,130)
----------- -----------
Net cash used in investing activities (206,729) (103,130)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES --- ---
----------- -----------
Net increase (decrease) in cash (1,387,222) (239,796)
CASH, beginning of period 9,731,679 6,781,556
----------- -----------
CASH, end of period $ 8,344,457 $ 6,541,760
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ --- $ 76,185
=========== ===========
Income taxes paid $ 3,500 $ 10,680
=========== ===========
- 7 -
LINCOLN SNACKS COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 29, 2000
(Unaudited)
(1) The Company:
------------
Lincoln Snacks Company ("Lincoln" or the "Company") is a Delaware
corporation and is a majority-owned subsidiary of Brynwood Partners III
L.P. ("Brynwood"). 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 September 29, 2000, and the related statements
of operations, changes in stockholders' equity and cash flows for the
three ended September 29, 2000 and September 30, 1999, 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 September
29, 2000 and September 30, 1999 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, 2000 filed with
the Securities and Exchange Commission on September 22, 2000 (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 months ended September 29, 2000 and September 30, 1999 are not
necessarily indicative of the operating results for the full year.
(3) Net income per share:
----------------------
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"). This statement establishes
standards for computing and presenting basic and diluted earnings per
share.
Below is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:
- 8 -
September 29, September 30,
2000 1999
------------- -------------
Basic earnings per share weighted
average number of shares outstanding 6,331,790 6,331,790
Dilutive effect:
Stock options 116,317 17,395
Convertible debt 3,649,635 3,649,635
----------- -----------
Diluted earnings per share weighted
average number of shares outstanding 10,097,742 9,998,820
=========== ===========
Net income $ 756,511 $ 137,562
Effect of assumed conversion
of convertible debt 72,000 72,000
----------- -----------
Net income plus assumed
conversion of convertible debt $ 828,511 $ 209,562
=========== ===========
Basic earnings per share $.12 $.02
=========== ===========
Diluted earnings per share $.08 $.02
=========== ===========
Options to purchase 743,500 shares of common stock were outstanding at
September 29, 2000 and included in the computation of diluted earnings
per share for the three months ended September 29, 2000. Additional
options to purchase approximately 112,000 shares of common stock 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. In addition, diluted earnings per share reflect the
issuance of 3,649,635 shares upon the assumed conversion of the Brynwood
debenture (see Note 5).
Options to purchase approximately 231,861 shares of common stock were
outstanding at September 30, 1999 and included in the computation of
diluted earnings per share for the three months ended September 30,
1999. Additional options to purchase 471,500 shares of common stock
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. In addition, diluted earnings per share
reflect the issuance of 3,649,635 shares upon the assumed conversion of
the Brynwood debenture (see Note 5).
(4) Debt Facility:
--------------
In April 2000, the Company entered into a three year revolving credit
facility ("credit facility") which provides for up to $4 million in
revolver borrowings. Borrowings under the revolver are limited to a
percentage of eligible receivables and inventory. The credit facility
bears interest at prime and has a commitment fee of 0.25% on the unused
portion of the facility. The credit facility is collateralized by
substantially all of the Company's assets. There were no amounts
outstanding under the credit facility at September 29, 2000.
(5) Brynwood Convertible Subordinated Debenture:
--------------------------------------------
On April 1, 1999, the Company executed and delivered a Convertible
Subordinated Debenture (the "Brynwood Debenture") in favor of Brynwood,
in the principal amount of $5,000,000. The Brynwood 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 Brynwood Debenture). The note is convertible at $1.37
per share into shares of common stock. Interest is payable quarterly.
(6) Inventory:
----------
Inventory consists of the following:
September 29, June 30,
2000 2000
------------- -----------
Raw materials and supplies $ 1,495,681 $ 1,686,028
Finished Goods 1,884,078 836,283
------------- -----------
$ 3,379,759 $ 2,522,311
============= ===========
(7) Acquisition:
------------
In 1998, the Company acquired certain assets of Iroquois Popcorn Company
("Iroquois"), a private label manufacturer of caramelized popcorn, for
approximately $1,300,000, of which $800,000 was paid in cash and
$500,000 in a non-interest bearing note. Additionally the agreement
with Iroquois provided for two contingent payments of $175,000 to be
paid on December 31, 1999 and December 31, 2000. The payments are to be
paid if the Company maintains 70% of the sales volume to Iroquois'
largest customer during each twelve month period respectively. The
Company paid the first contingent payment of $175,000 in December 1999.
The payment was accounted for as an addition to the excess of purchase
price over net assets acquired and is being amortized over the remaining
life of the asset (originally 10 years).
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 principally 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.
Three months ended September 29, 2000 versus September 30, 1999
- ----------------------------------------------------------------
Overall net sales increased 12% or $1.02 million to $9.19 million for the
three months ended September 29, 2000 versus $8.17 million in the corresponding
period of 1999. Branded sales increased to 87% of net sales versus 76% a year
ago.
Gross profit increased $.99 million to $4.08 million for the three months
ended September 29, 2000 versus $3.09 million in the corresponding period of
1999. The improvement in gross profit is due to an increase in overall net
sales.
Selling, general and administrative expenses increased 14% or $0.40
million to $3.35 million for the three months ended September 29, 2000 versus
$2.95 million for the same period in 1999. The increase is primarily due to
variable selling costs associated with increases in branded sales, increases
in consumer marketing programs and slotting fees for new distribution of
branded products.
Interest income, net increased to $.06 million for the three months ended
September 29, 2000 due to higher cash balances and higher interest rates.
Provision for income taxes represents estimated taxes due after giving
effect to the utilization of the Company's NOL carryforwards.
The quarter net income of $.76 million versus $.14 million in the same
period in 1999 represents an increase in earnings of $.62 million. The
improvement in earnings is attributable to increases in branded sales which
were partially offset by higher marketing costs.
Liquidity and Capital Resources
- --------------------------------
As of September 29, 2000, the Company had working capital of $10.05
million compared to a working capital of $9.27 million at June 30, 2000 (the
Company's fiscal year end), an increase in working capital of $.78 million.
The increase in working capital is primarily attributable to the Company's net
income of $.76 million.
On April 1, 1999, the Company executed and delivered a Convertible
Subordinated Debenture in favor of Brynwood Partners III L.P. 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, into 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 is secured by
a first priority, perfected security interest in substantially all of the
Company's existed and after-acquired assets. There were no amounts outstanding
under the revolving credit facility as of September 29, 2000.
Management continues to focus on increasing product distribution and
continues to review 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, 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.
The Company has approximately $2.4 million in NOL carryforwards. A
valuation allowance has been recorded due to the uncertainty of realizing
certain loss carryforwards and other deferred tax assets because of the
Company's brief operating history and limitations on the ability to use the
carryforwards resulting from Brynwood's purchase in 1998.
The following chart represents the net funds provided by or used in
operating, financing and investment activities for each period as indicated:
Three Months Ended
--------------------------------
September 29, September 30,
2000 1999
------------- -------------
(in thousands)
Net cash used in operating activities $(1,180) $ (137)
Net cash used in investing activities $( 207) (103)
Net cash used in financing activities --- ---
Net cash used by operating activities increased $1.04 million to cash
used of $1.18 million during the three months ended September 29, 2000 compared
to a use of $.14 million in 1999. The increase in cash used by operating
activities is primarily due to the timing of accounts receivable and inventory
increases partially offset by the increase in net income of $.62 million.
Net cash used in investing activities increased $.11 million to $.21
million for the three months ended September 29, 2000 compared to the same
period in 1999. Net cash used in investing activities for both periods
represents capital expenditures.
There was no net cash used in financing activities for the three months
ended September 29, 2000 and September 30, 1999.
New Accounting Pronouncements Not Yet Effective
- ------------------------------------------------
In July 2000, the Financial Accounting Standards Board's Emerging Issues
Task Force (EITF) reached a consensus on Issue No. 00-14, "Accounting for
Certain Sales Incentives." This issue addresses the recognition, measurement,
and income statement classification for various types of sales incentives
including discounts, coupons, rebates and free products. The Company will
adopt this consensus in the second quarter of 2001. While the impact of this
consensus on the Company's financial statements is still being evaluated, it
is expected to only impact revenue and expense classifications and not change
reported net income.
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.
- 13 -
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings Not Applicable
-----------------
Item 2. Changes in Securities and Use of Proceeds 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) 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
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.
November 9, 2000 Lincoln Snacks Company
(Registrant)
By: /s/Hendrik J. Hartong III
-------------------------------------
Name: Hendrik J. Hartong III
Title:President and Chief Executive Officer
(Principal Executive Officer)
By: /s/Joanne W. Prier
------------------------------------
Name: Joanne W. Prier
Title:Vice President and Chief Financial
Officer, Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
- 15 -