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 30, 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 October 30, 1998 was 6,331,790 shares.
LINCOLN SNACKS COMPANY
INDEX TO FORM 10-Q
PAGE
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Part I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Balance Sheets as of September 30, 1998
and June 30, 1998 3-4
Statements of Operations for the
three months ended September 30, 1998
and September 30, 1997 5
Statements of Changes in Stockholders'
Equity for the three months ended
September 30, 1998 and September 30, 1997 6
Statements of Cash Flows for the
three months ended September 30, 1998
and September 30, 1997 7
Notes to Financial Statements 8-9
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of
Operations 10-12
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 12
Part II. OTHER INFORMATION
-----------------
Item 1-4. OTHER INFORMATION 13
Item 5. OTHER INFORMATION 13
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Signatures 14
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LINCOLN SNACKS COMPANY
BALANCE SHEETS
ASSETS
AS OF SEPTEMBER 30, 1998 AND JUNE 30, 1998
September 30, June 30,
1998 1998
------------- ------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 1,903,989 $ 3,726,400
Accounts receivable (net of allowance
for doubtful accounts and cash discounts
of $331,424 and $322,509 respectively) 2,905,765 1,703,427
Inventories 2,991,159 2,363,287
Prepaid and other current assets 119,801 61,557
------------ ------------
Total current assets 7,920,714 7,854,671
PROPERTY, PLANT AND EQUIPMENT:
Land 370,000 370,000
Building and leasehold improvements 1,782,992 1,782,992
Machinery and equipment 5,023,795 5,023,795
Construction in process 73,176 13,093
------------ ------------
7,249,963 7,189,880
Less: accumulated depreciation
and amortization (3,055,210) (2,877,571)
------------ ------------
4,194,753 4,312,309
INTANGIBLE AND OTHER ASSETS,
net of accumulated amortization of
$876,931 and $826,967 3,856,551 3,906,515
------------ ------------
TOTAL ASSETS $ 15,972,018 $ 16,073,495
============ ============
The accompanying notes to financial statements
are an integral part of these balance sheets.
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LINCOLN SNACKS COMPANY
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
AS OF SEPTEMBER 30, 1998 AND JUNE 30, 1998
September 30, June 30,
1998 1998
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 1,181,358 $ 1,197,444
Accrued expenses 1,310,866 1,381,928
Accrued trade promotions 1,732,668 1,428,669
Deferred gain-short term 13,434 13,434
Current portion of note payable 208,333 333,333
------------ ------------
Total current liabilities 4,446,659 4,354,808
Deferred Gain 99,632 102,863
------------ ------------
TOTAL LIABILITIES 4,546,291 4,457,671
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value,
20,000,000 shares authorized,
6,450,090 shares issued at
September 30, 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 (6,623,385) ( 6,433,288)
Less: cost of common stock in
treasury 118,300 shares (26,026) (26,026)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 11,425,727 11,615,824
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 15,972,018 $ 16,073,495
============ ============
The accompanying notes to financial statements
are an integral part of these balance sheets.
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LINCOLN SNACKS COMPANY
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
1998 1997
------------ ------------
(Unaudited) (Unaudited)
NET SALES $ 7,537,900 $ 5,740,211
COST OF SALES 5,429,941 3,337,783
------------ ------------
Gross profit 2,107,959 2,402,428
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,317,276 1,805,730
------------ ------------
Income (loss) from operations (209,317) 596,698
INTEREST INCOME (29,220) (12,763)
------------ ------------
Income (loss) before provision
for income taxes (180,097) 609,461
PROVISION FOR INCOME TAXES 10,000 10,000
------------ ------------
Net income (loss) $ (190,097) $ 599,461
============ ============
BASIC NET INCOME (LOSS) PER SHARE $ (0.03) $ 0.10
============ ============
DILUTED NET INCOME (LOSS) PER SHARE $ (0.03) $ 0.09
============ ============
Weighted Average Number of
Shares Outstanding
Basic 6,331,790 6,331,790
============ ============
Diluted 6,331,790 6,371,545
============ ============
The accompanying notes to financial statements
are an integral part of these statements.
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LINCOLN SNACKS COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 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 599,461
------- ------- ----------- ------------ ---------
September 30,
1997 $64,501 $0 $18,010,637 ($ 7,500,665) ($26,026)
======= ======= =========== ============ ========
June 30, 1998 $64,501 $0 $18,010,637 ($ 6,433,288) ($26,026)
Net loss (190,097)
------- ------- ----------- ------------- --------
September 30,
1998 $64,501 $0 $18,010,637 ($ 6,623,385) ($26,026)
======= ======= =========== ============== ========
The accompanying notes to financial statements
are an integral part of these statements.
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LINCOLN SNACKS COMPANY
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
1998 1997
------------ ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (190,097) $ 599,461
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 227,603 188,572
Allowance for doubtful accounts and
cash discounts, net 8,915 29,990
Changes in Assets and Liabilities:
Increase in accounts receivable (1,211,253) (358,251)
Increase in inventories (627,872) (500,054)
Increase in prepaid and other
current assets (58,243) (45,800)
Increase in accounts payable
and accrued expenses 213,619 569,626
------------ ------------
Net cash provided by (used in)
operating activities (1,637,328) 483,544
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (60,083) (156,657)
------------ ------------
Net cash used in investing activities (60,083) (156,657)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under note payable (125,000) 0
------------ ------------
Net cash used in financing
activities (125,000) 0
------------ ------------
Net increase (decrease) in cash (1,822,411) 326,887
CASH, beginning of period 3,726,400 1,606,357
------------ ------------
CASH, end of period $ 1,903,989 $ 1,933,244
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 2,704 $ 0
============ ============
Income taxes paid $ 41,660 $ 31,773
============ ============
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LINCOLN SNACKS COMPANY
----------------------
NOTES TO FINANCIAL STATEMENTS
------------------------------
SEPTEMBER 30, 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 primarily throughout the
United States and Canada. Sales of the Company's products are subject
to seasonal trends with a significant portion of sales occurring in the
last four months of the calendar year. The Company was formed in August
1992.
(2) Basis of Presentation:
----------------------
The balance sheet as of September 30, 1998, and the related statements
of operations for the three months ended September 30, 1998 and
September 30, 1997, changes in stockholders' equity and cash flows for
the three months ended September 30, 1998 and September 30, 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 September 30, 1998 and
September 30, 1997 have been made. During the interim periods reported
on, 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 months ending September 30, 1998 and September 30, 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 447,800 shares of common stock were
outstanding at September 30, 1998 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 160,859 shares of common stock were
outstanding at September 30, 1998 but were not included in the
computation of diluted earnings per share because the options would be
anti-dilutive. Options and warrants to purchase 657,550 shares of
common stock were outstanding at September 30, 1997 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.
(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
September 30, 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 anticipates violating its EBITDA covenants for the December,
March and June quarters. Management does not anticipate utilizing the
revolver during those periods.
(5) Inventory:
----------
Inventory consists of the following:
September 30, June 30,
1998 1998
------------- ------------
Raw materials and supplies $ 1,798,060 $ 1,385,854
Finished Goods 1,193,099 977,433
------------ ------------
$ 2,991,159 $ 2,363,287
============ ============
(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 22% of net
sales for the quarter ended September 30, 1997. Effective January 1,
1998, the Company resumed marketing and distributing its Fiddle Faddle
products at its historical selling prices.
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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 22% of net sales for the quarter ended September 30, 1997.
Effective January 1, 1998, the Company resumed marketing and distributing its
Fiddle Faddle products at its historical selling prices.
Three months ended September 30, 1998 versus September 30, 1997
- ---------------------------------------------------------------
Overall net sales increased 31% or $1.8 million to $7.5 million for the
three months ended September 30, 1998 versus $5.7 million in the corresponding
period of 1997. The sales increase is attributable to newly secured copack and
private label business. This increase was partially offset by declines in
branded case sales versus a year ago. The branded sales decline was partially
offset by the Company resuming distribution of Fiddle Faddle at historical
selling prices in the quarter 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.
Although the Company has secured copack and private label business in recent
periods, one of its copack customers, which accounted for approximately 26% and
9% of the Company's net sales during the quarters ended September 30, 1998 and
1997, respectively, has informally told the Company that it anticipates
reducing substantially its future purchases from the Company. Any such
reduction could have an adverse effect on the Company's future results of
operations unless the Company secures replacement business.
Gross profit decreased 12% or $.3 million to $2.1 million for the three
months ended September 30, 1998 versus $2.4 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 profits relating to new
copack and private label business.
Selling, general and administrative expenses increased 28% or $.5 million
to $2.3 million for the three months ended September 30, 1998 versus $1.8
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 decline in earnings of $.8 million to a loss of $.2 million in the
quarter ended September 30, 1998 versus a profit of $.6 million in the same
period in 1997 is primarily attributable to the Company's resumption of Fiddle
Faddle distribution at lower margins and case sales than those required under
the Planters Distribution Agreement.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1998 and June 30, 1998, the Company had working
capital of $3.5 million.
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 currently
discussing its anticipated 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 rebuilding brand strength through new
product introductions and 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, 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.
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 30, September 30,
1998 1997
------------- -------------
(in thousands)
Net cash provided by (used in)
operating activities $(1,637) $ 484
Net cash used in investing activities (60) (157)
Net cash used in financing activities (125) 0
Net cash used in operating activities increased to $1.6 million during
the three months ended September 30, 1998 compared to cash provided of $.5
million in 1997. The increase is primarily due to the decrease in net income
of $.8 million incurred during the quarter in addition to an increase in
accounts receivables due to the timing of sales compared to the same period
last year.
Net cash used in investing activities of $.1 million and $.2 million for
the three months ended September 30, 1998 and September 30, 1997, respectively,
represents capital expenditures.
Net cash used in financing activities for the period ended September 30,
1998 was $.1 million, which consisted of repayments under the note payable. No
cash was used in or provided by financing activities for the three months ended
September 30, 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 completed an inventory of hardware and software
components of its management information systems. The Company is in the
process of completing an assessment of this hardware and software to determine
whether changes will be needed so that such hardware and software will properly
recognize years beginning with "20." Based on the preliminary stages of its
assessment, the Company does not have any reason to believe that the costs
associated with making its management information systems Year 2000 compliant
will be material. However, until that assessment is completed, the Company
cannot estimate with any degree of certainty the costs which it may incur in
making its management information 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, building control systems and distribution systems. The Company is
compiling an inventory of the systems it uses which are not part of its
management information systems but which depend, in whole or in part, on
computer components. After that inventory is completed, the Company will
assess each of those systems for its ability to function properly beginning
January 1 of the year 2000. The Company cannot now predict reliably the costs
which might be incurred by it in making these systems Year 2000 compliant.
The Company is implementing its program to determine whether the
information management systems and other technology assets of its significant
suppliers, vendors and customers are Year 2000 compliant. Until the Company
receives 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.
- 12 -
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
- 13 -
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 12, 1998 Lincoln Snacks Company
(Registrant)
By: /s/Hendrik J. Hartong III
------------------------------
Name: Hendrik J. Hartong III
Title: Chief Executive Officer
(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)
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