SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 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 of incorporation) (I.R.S. Employer Identification No.)
4 High Ridge Park, Stamford, Connecticut 06905
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 329-4545
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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None Not applicable
Securities registered pursuant to Section 12(g) of the Act
Common Stock, $.01 par value per share
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendments to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of
the registrant on September 10, 1999, was approximately $2,788,572. On such
date, the closing price of registrant's common stock was $2.00 per share.
Solely for the purposes of this calculation, shares beneficially owned by
directors, executive officers and stockholders of the registrant that
beneficially own more than 10% of the registrant's voting stock have been
excluded, except shares with respect to which such directors, officers and
10% beneficial owners disclaim beneficial ownership. Such exclusion should
not be deemed a determination or admission by the registrant that such
individuals are, in fact, affiliates of the registrant.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on September 10, 1999 was 6,331,790.
DOCUMENTS INCORPORATED BY REFERENCE:
None
This Annual Report on Form 10-K 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.
PART I
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Item 1. Business
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(a) General Development of Business
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Lincoln Snacks Company ("Lincoln Snacks" or the "Company") is one of
the leading manufacturers and marketers in the United States and Canada of
caramelized pre-popped popcorn. The primary product line includes glazed
popcorn/nut mixes and sweet glazed popcorn sold under the brand names
Poppycock(Registered Trademark), Fiddle Faddle(Registered Trademark) and
Screaming Yellow Zonkers(Registered Trademark).
The Company was formed in August 1992, at which time the Company
acquired the business and certain assets of Lincoln Snacks Company, a
division of Sandoz Nutrition Corporation, an indirect subsidiary of the
Swiss-based drug, pharmaceutical and hospital care company, Sandoz Ltd. In
March 1993, Carousel Nut Company, a newly formed wholly owned subsidiary of
the Company ("Carousel"), acquired the business and certain assets of
Carousel Nut Products, Inc., a producer and marketer of roasted, dry
roasted, coated, raw and mixed nuts. In December 1993, Carousel was merged
with and into the Company, and the operations of Carousel were integrated
with the Company's plant in Lincoln, Nebraska in the first calendar quarter
of 1994. In March 1998, the Company acquired certain assets of Iroquois
Popcorn Company ("Iroquois"), a private label manufacturer of caramelized
popcorn. In June 1998, Brynwood Partners III, L.P. ("Brynwood") purchased a
controlling interest in the Company from Noel Group, Inc. ("Noel").
The Company markets its Poppycock, Fiddle Faddle and Screaming Yellow
Zonkers directly through independent brokers to grocery stores,
supermarkets, convenience stores, drug stores, mass merchandise outlets,
warehouse clubs, vending channels, military commissaries and other military
food outlets, and other retailers.
Planters Company, a unit of Nabisco, Inc. ("Planters"), exclusively
distributed the Company's Fiddle Faddle and Screaming Yellow Zonkers
products pursuant to a Distribution Agreement dated June 6, 1995 (the
"Distribution Agreement"), for an initial term which was originally
scheduled to expire on June 30, 1997. The Distribution Agreement required
Planters to purchase an annual minimum number of equivalent cases of Fiddle
Faddle and Screaming Yellow Zonkers during the initial term.
On February 28, 1997, the Company and Planters entered into an
amendment to the Distribution Agreement (the "Amendment"), which was further
modified on May 9, 1997 (the "Letter Agreement"), pursuant to which the
exclusive distribution arrangement with respect to the Company's Fiddle
Faddle product was extended for an additional six month period expiring on
December 31, 1997, at which time the arrangement terminated. Effective
January 1, 1998 and May 1, 1997, Planters ceased, and the Company resumed,
marketing and distributing the Company's Fiddle Faddle and Screaming Yellow
Zonkers products, respectively.
The Amendment and Letter Agreement required Planters to purchase a
specified number of manufactured cases of the Products and for Planters to
compensate the Company for the remaining contract minimums for the twelve
month period ended June 30, 1997. The Amendment and Letter Agreement
required Planters to compensate the Company for contract minimums for the
six month period ended December 31, 1997 (six month minimums). Planters has
compensated the Company in fiscal year 1998 for contract minimums, which
were 27% less than case sales made to Planters for the six month period
ended December 31, 1996.
The Amendment required Planters to compensate the Company in the event
that certain sales levels were not achieved during the calendar year ending
December 31, 1997. These sales levels were not achieved during the calendar
year ending December 31, 1997 resulting in Planters compensating the Company
$1.9 million which is partially offset on the Company's Statement of
Operations by approximately $500,000 in non-recurring charges associated
with initial efforts to rebuild the Fiddle Faddle brand ("Net Planters Other
Income").
See Management's Discussion and Analysis of Financial Condition and
Results of Operations with respect to the transition of the Fiddle Faddle
distribution back to the Company.
Net sales to Planters were 9% and 47% of net sales for the twelve
months period ended June 30, 1998 and June 30, 1997, respectively. Sales to
Planters during the six months period ended December 31, 1997 represented
payments, in lieu of manufactured cases, at predetermined rates which are
lower than the rates Planters paid for manufactured cases.
In 1997, the Company entered into five year Trademark License
Agreements with Nabisco, Inc. granting the Company, subject to the terms
of the license agreements, the right to use, commencing January 1, 1998,
certain Planters' trademarks in connection with the sales and marketing of
the Company's Fiddle Faddle products in the United States and Canada.
(b) Financial Information about Industry Segments
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The Company is engaged principally in one line of business: the
manufacturing, marketing and distribution of pre-popped caramel popcorn.
(c) Narrative Description of Business
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Products
The Company manufactures and markets three nationally-recognized
branded products. Poppycock is a premium priced mixture of nuts and popcorn
in a deluxe buttery glaze. Fiddle Faddle is a more moderately priced brand
of popcorn and peanut clusters with a candied glaze; a fat free version of
Fiddle Faddle consists of popcorn with a caramel glaze. Screaming Yellow
Zonkers is produced by coating popcorn clusters with a sweet buttery glaze.
The Company manufactures private label caramel popcorn in addition to
co-packing caramel popcorn.
Marketing, Sales and Distribution
Lincoln Snacks' brands are broadly distributed through grocery stores,
supermarkets, convenience stores, drug stores, mass merchandise outlets,
warehouse clubs, vending channels, military commissaries and other military
food outlets, and other retailers. Selling responsibilities for Poppycock,
Fiddle Faddle, Screaming Yellow Zonkers and the nut products in the U.S. are
currently handled by four regional business managers located strategically
across the U.S. These regional business managers manage approximately 80
brokers across the U.S. in all classes of trade. These brokers receive a
commission on net sales plus incentive payments. Certain exports and large
volume customers are handled directly by Lincoln Snacks' personnel.
Pursuant to the Amendment, Lincoln Snacks resumed the sales and distribution
of its Fiddle Faddle product as of January 1, 1998.
Seasonality
Sales of Lincoln Snacks' products are seasonal, peaking during the
third and fourth calendar quarters.
Competition
Lincoln Snacks' primary products participate in the pre-popped caramel
popcorn segment of the snack food market. Poppycock competes with other
premium quality snack products, while Fiddle Faddle and Screaming Yellow
Zonkers compete directly with Crunch N' Munch (International Home Foods,
Inc., Food Division), Cracker Jack (Frito Lay, Inc.) Orville Redenbacher
(Hunt Wesson) and a number of other regional and local brands. The
Company's products also compete indirectly with traditional confections and
other snack food products.
Significant Customers
In the fiscal year ended June 30, 1999, the Company made sales to
Wal-Mart and copacked product for Golden Valley Microwave Foods representing
33% and 10% of the Company's sales, respectively. Although the Company
believes its relationship with Wal-Mart is good, the loss of such customer
could have a material adverse effect on the Company. Golden Valley Microwave
Foods terminated the copack agreement with the Company in the third quarter of
fiscal 1999. 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.
Raw Materials and Manufacturing
Substantially all of the raw materials used in Lincoln Snacks'
production process are commodity items, including corn syrup, butter,
margarine, brown and granulated sugar, popcorn, various nuts and oils.
These commodities are purchased directly from various suppliers. The
Company believes that such materials are in good supply and are available
from multiple sources.
The manufacturing facility located in Lincoln, Nebraska includes,
among other things, continuous process equipment for enrobing popcorn and
nuts, as well as four distinct high speed filling and packing lines for
canisters, single serving packs and bag-in-box packages. The manufacturing
and packaging equipment is sufficiently flexible to allow for the
manufacture of other similar product lines or packaging formats. The
facility is being operated at an overall rate varying from approximately 36%
to 56% of capacity depending on the season. Lincoln Snacks' management
believes that the facility is generally in good repair and does not
anticipate capital expenditures other than normal maintenance and selected
equipment modernization programs.
Trademarks
Poppycock, Fiddle Faddle and Screaming Yellow Zonkers are registered
trademarks of Lincoln Snacks. The Company believes all its trademarks enjoy
a strong market reputation denoting high product quality.
In 1997, the Company entered into five year Trademark License
Agreements with Nabisco, Inc. granting the Company, subject to the terms of
the license agreements, the right to use, commencing January 1, 1998,
certain Planters' trademarks in connection with the sales and marketing of
the Company's Fiddle Faddle products in the United States and Canada.
Governmental Regulation
The production, distribution and sale of the Company's products are
subject to the Federal Food, Drug and Cosmetic Act; the Occupational Safety
and Health Act; the Lanham Act; various federal environmental statutes; and
various other federal, state and local statutes regulating the production,
packaging, sale, safety, advertising, ingredients and labeling of such
products. Compliance with the above described governmental entities and
regulations have not had and are not anticipated to have a material adverse
effect on the Company's capital expenditures, earnings or competitive
position.
Employees
As of June 30, 1999, Lincoln Snacks had 85 full-time employees and 9
part-time employees. Employment at the Lincoln plant varies according to
weekly and seasonal production needs, and averaged approximately 108
employees during fiscal 1999. None of Lincoln Snacks' work force is
unionized. Lincoln Snacks' management believes that Lincoln Snacks'
relationship with its employees is good.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales
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Foreign operations accounted for less than 10% the Company's sales,
assets and net income in each of the Company's last three fiscal years.
Item 2. Properties.
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The Company's principal executive offices are located at 4 High Ridge
Park, Stamford, Connecticut 06905. The initial term of the lease on this
space expires on October 30, 1999. The Company expects that it will be able
to obtain other satisfactory lease space.
Lincoln Snacks manufactures and packages all of its products at its
owned Lincoln, Nebraska manufacturing facility. The Lincoln plant,
constructed in 1968, is a modern 74,000 square foot one-story building on a
10.75 acre site in a light industrial area in the city of Lincoln.
Approximately 67,000 square feet of the facility is dedicated to production
with the balance utilized for administration. In October 1996, the Company
sold land adjacent to its manufacturing facility in Lincoln, Nebraska. At
the same time, the Company entered into a ten year lease agreement for
50,000 square feet of a new warehouse which was constructed on the land.
This facility accommodates all of Lincoln Snacks' current warehousing needs.
The Company's lease on this facility expires in July 2006, and there is a
five year renewal option beyond 2006.
The Company believes its properties are sufficient for the current and
anticipated needs of its business.
Item 3. Legal Proceedings.
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The Company is not involved in any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
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Not Applicable.
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
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A. Market Information.
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The shares of Common Stock of the Company are traded on the NASDAQ
Stock Market (Small Cap) under the symbol "SNAX". The range of high and low
reported sales prices for the Common Stock as reported by NASDAQ for each
full quarterly period within the two most recent fiscal years were as
follows:
Fiscal Year Fiscal Year
Ended Ended
June 30, 1998 June 30, 1999
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High Low High Low
First Fiscal Quarter $1.813 $1.125 $2.438 $1.094
Second Fiscal Quarter 2.000 1.375 1.875 1.188
Third Fiscal Quarter 2.625 1.500 1.500 0.875
Fourth Fiscal Quarter 2.375 1.750 1.375 1.000
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The public market for the Company's Common Stock is limited, and the
foregoing quotations should not be taken as necessarily reflective of prices
which might be obtained in actual market transactions or in transactions
involving substantial numbers of shares.
B. Holders.
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On September 10, 1999, as reported by the Company's transfer agent,
shares of Common Stock were held by 30 persons, based on the number of
record holders, including several holders who are nominees for an
undetermined number of beneficial owners.
C. Dividends.
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The Company has not declared or paid a cash dividend since its
inception, and its present policy is to retain any earnings for use in its
business. Payment of dividends is dependent upon the earnings and financial
condition of the Company and other factors which its Board of Directors may
deem appropriate. The Company expects to use any future earnings in its
operations and consequently does not intend to pay dividends on its Common
Stock in the foreseeable future.
Item 6. Selected Financial Data
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(In thousands, except per share data)
12 Months 12 Months 12 Months 12 Months 12 Months
Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30,
1995 1996 1997 1998 1999
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Statement of
Operations Data:
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Net sales $27,136 $23,846(F2) $23,102(F2) $24,278(F3) $27,081(F3)
Gross profit 10,916 6,621(F2) 7,576(F2) 8,872(F3) 9,167(F3)
Income (loss)
from operations (1,082)(F1) 897 1,609 1,668(F4)(F5) (1,412)(F6)(F7)
Net income (loss) (1,602)(F1) 511 1,443 1,667(F4)(F5) (1,378)(F6)(F7)
Basic and diluted
net income (loss)
per common share $(.25)(F1) $.08 $.23 $.26 $(.22)
Weighted average
number of shares
outstanding
Basic 6,340 6,335 6,332 6,332 6,332
Diluted 6,340 6,335 6,332 6,342 6,332
June 30, June 30, June 30, June 30, June 30,
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
Balance Sheet Data
Working capital
(deficit) $(691) $(237) $2,042 $3,500 $8,356
Total assets 13,850 13,979 13,290 16,073 19,753
Total long term debt 1,109 309 --- --- 5,000
Stockholders' equity 7,985 8,506 9,949 11,616 10,238
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<FN>
(F1) Amount includes a non-recurring charge of $726,000 (or $.11 per
share) relating to the Distribution Agreement with Planters.
(F2) The financial impact of the Planters Distribution Agreement on
Fiscal 1996 and 1997 versus historical results was reductions in
revenue and gross profit which were offset by reduced selling,
marketing and distribution costs. Reference is made to Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
(F3) The Planters Distribution Agreement was terminated on December 31,
1997. The financial impact of the termination of the Agreement on
Fiscal 1998 and 1999 versus Fiscal 1996 and Fiscal 1997 was an
increase in revenue and gross profit which were offset by increased
selling, distribution and marketing costs. Reference is made to
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(F4) Amount includes a non-recurring charge of $484,000 (or $.08 per
share) which represents severance and other compensation costs in
connection with the resignation of the Company's former Chairman and
Chief Executive Officer. All amounts were paid as of June 30, 1998.
(F5) Amount includes Net Planters Other Income of $1.4 million (or $.22
per share) which represents Planters compensation of $1.9 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 $.5 million in non-recurring charges associated with
initial efforts to rebuild the Fiddle Faddle brand.
(F6) Amount includes a non-recurring charge of $287,000 (or $.05 per
share) which 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 $60,000 of severance related to former employees. All
amounts were paid as of June 30, 1999.
(F7) Amount includes a non-cash write down of $590,000 (or $.09 per
share) of nut division assets.
</FN>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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Introduction
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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 products
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.
On July 17, 1995, Planters Company, a unit of Nabisco, Inc.
("Planters"), began exclusively distributing the Company's Fiddle Faddle and
Screaming Yellow Zonkers products (the "Products") pursuant to a
distribution agreement dated June 6, 1995 (the "Distribution Agreement") for
an initial term which was originally scheduled to expire on June 30, 1997.
The Distribution Agreement required Planters to purchase an annual minimum
number of equivalent cases of the Products during the initial term.
On February 28, 1997, the Company and Planters entered into an
amendment to the Distribution Agreement (the "Amendment"), which was further
modified on May 9, 1997 (the "Letter Agreement"), pursuant to which the
exclusive distribution arrangement with respect to the Company's Fiddle
Faddle product was extended for an additional six month period expiring on
December 31, 1997, at which time the arrangement terminated. Effective
January 1, 1998 and May 1, 1997, Planters ceased, and the Company resumed,
marketing and distributing the Company's Fiddle Faddle and Screaming Yellow
Zonkers products, respectively.
The Amendment and Letter Agreement required Planters to purchase a
specified number of manufactured cases of the Products and for Planters to
compensate the Company for the remaining contract minimums for the twelve
month period ended June 30, 1997. The Amendment and Letter Agreement
required Planters to compensate the Company for contract minimums for the
six month period ended December 31, 1997 (six month minimums). Planters has
compensated the Company for contract minimums, which were 27% less than case
sales made to Planters for the six month period ended December 31, 1996.
The Amendment also required Planters to compensate the Company in the
event that certain sales levels were not achieved during the calendar year
ending December 31, 1997. These sales levels were not achieved during the
calendar year ending December 31, 1997 resulting in Planters compensating
the Company $1.9 million which is partially offset on the Company's
Statement of Operations by approximately $500,000 in non-recurring charges
associated with initial efforts to rebuild the Fiddle Faddle brand ("Net
Planters Other Income").
In 1997, the Company entered into five year Trademark License
Agreements with Nabisco, Inc. granting the Company, subject to the terms of
the license agreements, the right to use, commencing January 1, 1998,
certain Planters' trademarks in connection with the sales and marketing of
the Company's Fiddle Faddle products in the United States and Canada.
Net sales to Planters were 9% and 47% of net sales for the twelve
months period ended June 30, 1998 and June 30, 1997, respectively. Sales to
Planters during the six months period ended December 31, 1997 represented
payments, in lieu of manufactured cases, at predetermined rates which are
lower than the rates Planters paid for manufactured cases. As a result of
the termination of the Distribution Agreement, sales to Planters ceased as
of January 1, 1998.
Under the Distribution Agreement, which required Planters to purchase
a minimum number of cases during the fiscal year, the Company sold the
Products to Planters at a selling price which was reduced from the Company's
historical customer selling prices. Planters in turn was responsible for
the sales and distribution of the Products to its customers, therefore, the
Company did not have any selling, marketing or distribution costs associated
with these Products. The financial impact of the Distribution Agreement
versus historical results was reflected in reductions in revenue and gross
profit which were offset by reduced selling, marketing and distribution
costs.
Upon the termination of the Distribution Agreement on December 31,
1997, the Company resumed distribution of Fiddle Faddle at its historical
selling prices. The financial impact of the termination of the Distribution
Agreement versus the results under the Distribution Agreement was reflected
in an increase in revenue which was offset by increased selling, marketing
and distribution costs.
Twelve months ended June 30, 1999 versus June 30, 1998
- ------------------------------------------------------
Overall net sales increased 12% or $2.8 million to $27.1 million for
the twelve months ended June 30, 1999 versus $24.3 million for the
corresponding period of 1998. The sales increase was attributable to higher
private label sales which were partially offset by declines in copack sales.
Branded sales increased in dollars while case sales declined due to 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. Sales dollars of
branded products represent 69% and 76%, private label products of 19% and 6%
and copack products of 12% and 18% for the fiscal years ended June 30, 1999
and 1998, respectively.
During the twelve months ended June 30, 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 twelve
months ended June 30, 1999 primarily due to the termination of the
Distribution Agreement. The decline in case sales was offset by a $2.0
million increase in Fiddle Faddle sales dollars 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 resumed distribution of Fiddle Faddle. Net sales
to Planters were 9% of net sales for the twelve months ended June 30, 1998.
As part of its business, the Company copacks products for other
entities. One of its copack customers, which accounted for approximately
10% and 18% of the Company's net sales during the twelve months ended June
30, 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 3% or $.3 million to $9.2 million for the
twelve months ended June 30, 1999 versus $8.9 million in the corresponding
period of 1998. The increase is due to higher private label case sales
which were partially offset by declines in branded and copack case sales.
Selling, general and administrative expenses increased 20% or $1.6
million to $9.7 million for the twelve months ended June 30, 1999 versus
$8.1 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 $.3 million represents $.2 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 $.05 million of severance related to former
employees. All amounts have been paid as of June 30, 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 $.1 million and $1.0 million for the twelve months ended June 30, 1999
and 1998, respectively.
As a result, all of the goodwill related to the nut division ($.4
million) was written off. Similarly, manufacturing equipment (book value of
$.3 million) 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 $.6 million in the statement of operations. The
Company expects the equipment to be sold during calendar 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 $28,000 including depreciation of $29,000 and goodwill amortization of
$8,000 for the twelve months ended June 30, 1999. The nut division's operating
loss was $6,000 including depreciation of $64,000 and goodwill amortization
of $15,000 for the twelve months ended June 30, 1998.
In fiscal 1998, the Company recognized Net Planters Other Income of
$1.4 million which represents Planters compensation of $1.9 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 $.5
million in non-recurring charges associated with initial efforts to rebuild
the Fiddle Faddle brand.
The year to date loss of $1.4 million versus a profit of $1.7 million
in the same period in 1998 represents a decrease in earnings of $3.0
million. The earnings decline is primarily attributable to lower branded
case sales, an increase in marketing costs associated with the development
of new products and an increase in selling overhead. Additionally, there
were several non-recurring items contributing to the earnings decline: Net
Planters Other Income of $1.4 million recognized in fiscal 1998, the Nut
Division write-down of $.6 million, and the non-recurring charge of $.3
million.
Twelve months ended June 30, 1998 versus June 30, 1997
- ------------------------------------------------------
Overall net sales increased 5% or $1.2 million to $24.3 million for
the twelve months ended June 30, 1998 versus $23.1 million in the
corresponding period of 1997. The sales increase is attributable to newly
secured copack and private label business which was partially offset by
declines in sales of Fiddle Faddle. The Company sold 34% fewer cases of
Fiddle Faddle to its customers and Planters in the twelve months ended June
30, 1998 than the number of cases sold to Planters under the Planters
Agreement a year ago. Sales of branded products represented 76% and 98%,
private label products of 6% and 0% and copack products of 18% and 2% for
the fiscal year ended June 30, 1998 and 1997, respectively. Sales to
Planters, excluding Net Planters Other Income, represented 9% and 47% of net
sales for the twelve months ended June 30, 1998 and 1997, respectively. The
termination of the Planters Agreement on December 31, 1997, in addition to
reduced minimums and sales rates for the six month period ended December 31,
1997, resulted in the sales decline to Planters. Sales to Planters during
the six months period ended December 31, 1997 represented payments, in lieu
of manufactured cases, at predetermined rates which are lower than the rates
Planters paid for manufactured cases during the corresponding period in
1996. The Planters sales decline is partially offset by a $2.0 million
increase in sales resulting from the Company's resumption of Fiddle Faddle
distribution on January 1, 1998. The Company's sales are at its 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.
Gross profit increased 17% or $1.3 million to $8.9 million for the
twelve months ended June 30, 1998 versus $7.6 million in the corresponding
period of 1997. Gross profit increased due to new copack and private label
business, increased selling prices to historical levels resulting from the
Company resuming distribution of Fiddle Faddle, and lower raw material
costs. These increases were partially offset by decreased Fiddle Faddle
gross profits resulting from decreased case volume.
Selling, general and administrative expenses increased 42% or $2.4
million to $8.1 million for the twelve months ended June 30, 1998 versus
$5.7 million for the same period in 1997. These expenses primarily
increased during this period due to the Company resuming the marketing and
distribution of the Fiddle Faddle and Screaming Yellow Zonkers business. In
addition, expenses increased relating to consumer promotions for the
Company's other branded products.
The non-recurring charge of $.5 million represents severance and other
compensation costs in connection with the resignation of the Company's
former Chairman and Chief Executive Officer. All amounts have been paid as
of June 30, 1998.
In fiscal 1998, the Company recognized Net Planters Other Income of
$1.4 million which represents Planters compensation of $1.9 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 $.5
million in non-recurring charges associated with initial efforts to rebuild
the Fiddle Faddle brand.
Net Planters Other Income and the increase in gross profit was
partially offset by increases in selling, general and administrative
expenses and a non-recurring charge resulting in an increase in net income
of $.2 million to $1.7 million for the twelve months ended June 30, 1998
versus $1.4 million in the corresponding period in 1997.
Twelve months ended June 30, 1997 versus June 30, 1996
- ------------------------------------------------------
Net sales decreased 3% or $.7 million to $23.1 million for the twelve
months ended June 30, 1997 versus $23.8 million in the corresponding period
of 1996. Sales to Planters and of the Company's other branded product
increased for the twelve months period ended June 30, 1997 versus the same
period in 1996. Such increases were offset by declines in the Company's Nut
Division ("Nut Division") sales. Sales to Planters represented 47% and 43%
of net sales for the twelve months ended June 30, 1997 and June 30, 1996,
respectively.
Gross profit increased 14% or $1.0 million to $7.6 million for the
twelve months ended June 30, 1997 versus $6.6 million in the corresponding
period of 1996. The gross profit increase is the result of increased sales
to Planters and of the Company's other branded product and increased
manufacturing efficiencies. These increases were partially offset by a
decrease in Nut Division gross profits resulting from declines in sales.
Selling, general and administrative expenses remained equal to a year
ago of $5.7 million for the twelve months ended June 30, 1997.
The increase in gross profit and the decrease in interest expense,
resulted in an increase in net income of $.9 million to $1.4 million for the
twelve months ended June 30, 1997 versus $.5 million in the corresponding
period in 1996.
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1999, the Company had working capital of $8.4 million
compared with a working capital of $3.5 million at June 30, 1998, an
increase of $4.9 million. The increase in working capital is attributable
to the $5.0 million proceeds from the Brynwood convertible subordinated
debenture (see below).
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, 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 had a revolving credit facility which was
secured by a first priority, perfected security interest in substantially
all of the Company's existing and after-acquired assets. There were no
amounts outstanding under the revolving credit facility at June 30, 1999.
The Company was in breach of certain covenants set forth in the revolving
credit agreement, including the EBITDA covenants as of June 30, 1999 and the
requirement of obtaining the bank's consent relative to the Brynwood
Debenture. On August 6, 1999, the Company terminated its revolving credit
facility with the bank.
The Company plans to obtain a new revolving credit facility with
another financial institution in the future, however, there can be no
assurance that the Company will be able to obtain such a facility. 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
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 Company has approximately $3.4 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 recent losses.
The following chart represents the net funds provided by or used in
operating, financing and investment activities for each period as indicated.
Twelve Months Ended
(in thousands)
-------------------------------
June 30, 1999 June 30, 1998
------------- -------------
Cash provided by (used in)
operating activities $(1,404) $ 3,508
Cash provided by (used in)
investing activities (207) (1,222)
Cash provided by (used in)
financing activities 4,667 (167)
Cash used in operating activities increased to $1.4 million during the
twelve months ended June 30, 1999 compared to cash provided by operating
activities of $3.5 million in 1998. The increase in cash used in operating
activities is primarily due to the decrease in the Company's net profit
coupled with the timing of accounts receivable.
Net cash used in investing activities of $.2 million during the twelve
months ended June 30, 1999 represents capital expenditures. Net cash used
in investing activities of $1.2 million for the twelve months ended June 30,
1998 is primarily comprised of the $.8 million acquisition of certain assets
of Iroquois and $.5 million in capital expenditures.
Net cash provided by financing activities for the period ended June
30, 1999 was $4.7 million, which consisted of $5.0 million proceeds from the
Brynwood convertible debenture partially offset by $.3 million of payments
under the short term note relating to the Iroquois acquisition. Net cash
used in financing activities for the period ended June 30, 1998 represents
payments under the short term note relating to the Iroquois Acquisition.
Y2K 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 September 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.
While the Company believes its planning efforts are adequate to
address its Year 2000 concerns, there can be no assurance that the systems
of other companies on which the Company's systems and operations rely on
will be converted on a timely basis and will not have a material adverse
effect on the Company. However, based on the progress the Company has made
on its internal initiative and the information available from third parties,
the Company has not identified a need to develop an extensive contingency
plan for non-compliance issues at this time. The need for such plan is
evaluated on an ongoing basis as part of the Company's overall Year 2000
initiative.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- -------- ---------------------------------------------------------
Not Applicable
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The financial information required by Item 8 is included elsewhere in
this report. See Part IV, Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- ------- ---------------------------------------------------------------
None.
PART III
---------
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
The Company's definitive Proxy Statement to be issued in conjunction
with the 1999 Annual Meeting of Shareholders is incorporated herein by
reference.
Item 11. Executive Compensation
- -------- ----------------------
The Company's definitive Proxy Statement to be issued in conjunction
with the 1999 Annual Meeting of Shareholders is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
The Company's definitive Proxy Statement to be issued in conjunction
with the 1999 Annual Meeting of Shareholders is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The Company's definitive Proxy Statement to be issued in conjunction
with the 1999 Annual Meeting of Shareholders is incorporated herein by
reference.
PART IV
---------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------- ----------------------------------------------------------------
(a) (1) Financial Statements.
---------------------
The financial statements listed in the accompanying Index to
Financial Statements and Financial Statement Schedules are filed
as part of this annual report
(2) Exhibits.
---------
Financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
(b) Reports on Form 8-K.
--------------------
On April 4, 1999 the Company filed a Current Report on Form 8-K
with respect to a $5 million Convertible Subordinated Debenture
by the Company in favor of Brynwood Partners III, L.P.
SIGNATURES
------------
Pursuant to the requirements of Section 13 or 15(d) 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.
LINCOLN SNACKS COMPANY
(Registrant)
By: /s/ Hendrik J. Hartong III
---------------------------
Hendrik J. Hartong III
Director, President and Chief
Executive Officer
Date: September 16, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Kristine A. Crabs September 16, 1999
- ---------------------------------------
Kristine A. Crabs
Vice President and Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Hendrik J. Hartong, Jr. September 16, 1999
- ---------------------------------------
Hendrik J. Hartong, Jr.
Director
/s/ John T. Gray September 16, 1999
- ---------------------------------------
John T. Gray
Director
/s/ C. Alan MacDonald September 16, 1999
- ---------------------------------------
C. Alan MacDonald
Director
/s/ Ian B. MacTaggart September 16, 1999
- ---------------------------------------
Ian B. MacTaggart
Director
LINCOLN SNACKS COMPANY
-----------------------
INDEX TO FINANCIAL STATEMENTS
-------------------------------
Financial Statements: Page(s)
-------
Report of Independent Public Accountants F-1
Balance Sheets as of June 30, 1999 and 1998 F-2 to F-3
Statements of Operations for the Years Ended
June 30, 1999, 1998 and 1997 F-4
Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1999, 1998 and 1997 F-5
Statements of Cash Flows for the Years Ended
June 30, 1999, 1998 and 1997 F-6 to F-7
Notes to Financial Statements F-8 to F-18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lincoln Snacks Company:
We have audited the accompanying balance sheets of Lincoln Snacks Company (a
Delaware corporation) as of June 30, 1999 and 1998, and the related
statements of operations, changes in stockholders' equity, and cash flows
for the years ended June 30, 1999, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lincoln Snacks Company
as of June 30, 1999 and 1998, and the results of its operations and its cash
flows for the years ended June 30, 1999, 1998 and 1997 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
August 6, 1999
LINCOLN SNACKS COMPANY
------------------------
BALANCE SHEETS
----------------
ASSETS
-------
JUNE 30, 1999 AND 1998
-------------------------
June 30, June 30,
1999 1998
------------ ------------
ASSETS
------
CURRENT ASSETS:
Cash $ 6,781,556 $ 3,726,400
Accounts receivable, net of
allowances for doubtful
accounts and cash discounts
of $384,875 and $322,509 3,304,003 1,703,427
Inventories 2,682,434 2,363,287
Prepaid and other current assets 13,696 61,557
----------- -----------
Total current assets 12,781,689 7,854,671
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 370,000 370,000
Building and leasehold improvements 1,789,809 1,782,992
Machinery and equipment 4,714,683 5,023,795
Construction in process 100,044 13,093
----------- -----------
6,974,536 7,189,880
Less-accumulated depreciation (3,349,176) (2,877,571)
----------- -----------
3,625,360 4,312,309
INTANGIBLE AND OTHER ASSETS, net of
accumulated amortization of
$937,123 and $826,967 3,346,359 3,906,515
----------- -----------
Total assets $19,753,408 $16,073,495
=========== ===========
The accompanying notes to financial statements
are an integral part of these balance sheets.
LINCOLN SNACKS COMPANY
-----------------------
BALANCE SHEETS
----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
JUNE 30, 1999 AND 1998
-----------------------
June 30, June 30,
1999 1998
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 674,388 $ 1,197,444
Accrued expenses 1,677,855 1,381,928
Accrued trade promotions 2,059,854 1,428,669
Deferred gain (Note 10) 13,434 13,434
Current portion of note payable -- 333,333
------------ -----------
Total current liabilities 4,425,531 4,354,808
LONG TERM DEBT (Note 6) 5,000,000 --
DEFERRED GAIN (Note 10) 89,941 102,863
------------ -----------
Total liabilities 9,515,472 4,457,671
------------ -----------
COMMITMENTS (Notes 8 and 11)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value,
20,000,000 shares authorized,
6,450,090 outstanding at June 30,
1999 and 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 (7,811,176) (6,433,288)
----------- -----------
10,263,962 11,641,850
Less - cost of common stock in
treasury; 118,300 shares
at June 30, 1999 and 1998 (26,026) (26,026)
----------- -----------
Total stockholders' equity 10,237,936 11,615,824
----------- -----------
Total liabilities and stockholders' equity $19,753,408 $16,073,495
=========== ===========
The accompanying notes to financial statements
are an integral part of these balance sheets.
LINCOLN SNACKS COMPANY
------------------------
STATEMENTS OF OPERATIONS
--------------------------
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
-------------------------------------------------
Year Ended Year Ended Year Ended
June 30, June 30, June 30,
1999 1998 1997
----------- ----------- -----------
NET SALES $27,080,509 $24,277,772 $23,101,704
COST OF SALES 17,913,770 15,405,319 15,525,387
----------- ----------- -----------
Gross profit 9,166,739 8,872,453 7,576,317
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 9,701,671 8,096,238 5,697,404
NON-RECURRING
CHARGE (Note 13) 286,633 484,388 --
NUT DIVISION WRITE
DOWN (Note 12) 590,459 -- --
WRITE DOWN OF FIXED
ASSETS (Note 12) -- -- 269,498
NET PLANTERS OTHER
INCOME (Note 17) -- (1,376,000) --
----------- ----------- -----------
Income (loss) from
operations (1,412,024) 1,667,827 1,609,415
OTHER:
Interest income (expense), net 78,136 128,452 (126,820)
Other expense -- (19,441) --
----------- ----------- -----------
Income (loss) before
provision for income
taxes (1,333,888) 1,776,838 1,482,595
PROVISION FOR INCOME TAXES 44,000 110,000 40,000
----------- ----------- -----------
Net income (loss) $(1,377,888) $ 1,666,838 $ 1,442,595
=========== =========== ===========
BASIC AND DILUTED NET INCOME
(LOSS) PER SHARE (Note 2) $ (.22) $ .26 $ .23
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
Basic 6,331,790 6,331,790 6,331,790
=========== =========== ===========
Diluted 6,331,816 6,341,804 6,331,790
=========== =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
LINCOLN SNACKS COMPANY
-----------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
--------------------------------------------------
Additional
Common Special Paid-in Accumulated Treasury
Stock Stock Capital (Deficit) Stock
------ -------- ---------- ----------- --------
June 30, 1996 $64,501 $ -- $18,010,637 $(9,542,721) $(26,026)
Net income -- -- -- 1,442,595 --
------- ------- ----------- ----------- --------
June 30, 1997 64,501 -- 18,010,637 (8,100,126) (26,026)
Net income -- -- -- 1,666,838 --
------- ------- ----------- ----------- --------
June 30, 1998 64,501 -- 18,010,637 (6,433,288) (26,026)
Net (loss) -- -- -- (1,377,888) --
------- ------- ----------- ----------- --------
June 30, 1999 $64,501 $ -- $18,010,637 $(7,811,176) $(26,026)
======= ======= =========== =========== ========
The accompanying notes to financial statements
are an integral part of these statements.
LINCOLN SNACKS COMPANY
------------------------
STATEMENTS OF CASH FLOWS
-------------------------
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
-------------------------------------------------
Year Ended Year Ended Year Ended
June 30, June 30, June 30,
1999 1998 1997
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,377,888) $1,666,838 $1,442,595
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 671,546 645,305 640,738
Amortization 192,356 159,856 177,116
Nut division write down 590,459 -- --
Loss on sale of equipment -- 19,441 --
Write down of fixed assets -- -- 269,498
Provision for doubtful
accounts and cash
discounts, net 62,367 39,198 64,254
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable (1,662,942) 686,620 677,684
(Increase) decrease in
inventories (319,147) (460,182) 403,275
(Increase) decrease in
prepaid and other
current assets 47,861 (32,534) 61,313
Increase (decrease) in
accounts payable (523,056) (159,726) (472,885)
Increase (decrease) in
accrued trade promotions 631,185 753,084 (184,595)
Increase (decrease) in
accrued expenses 283,004 190,406 61,938
----------- ----------- -----------
Net cash provided by
(used in) operating
activities $(1,404,255) $ 3,508,306 $ 3,140,931
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of note
payable to seller $ -- $ (800,160) $ --
Capital expenditures (207,256) (488,782) (314,529)
Proceeds from sale of land -- -- 369,218
Proceeds from sale of
fixed assets -- 67,346 17,640
----------- ----------- -----------
Net cash provided by
(used in) investing
activities $ (207,256) $(1,221,596) $ 72,329
----------- ----------- -----------
LINCOLN SNACKS COMPANY
----------------------
STATEMENTS OF CASH FLOWS
-------------------------
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
-------------------------------------------------
(Continued)
Year Ended Year Ended Year Ended
June 30, June 30, June 30,
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under note
payable $ (333,333) $ (166,667) $ --
Repayments under term
loan -- -- (1,109,326)
Borrowings (repayments)
under revolver, net -- -- (556,115)
Borrowings from Brynwood
note 5,000,000 -- --
---------- ----------- -----------
Net cash provided by
(used in) financing
activities 4,666,667 (166,667) (1,665,441)
---------- ----------- -----------
Net increase in cash 3,055,156 2,120,043 1,547,819
CASH, beginning of period 3,726,400 1,606,357 58,538
----------- ----------- -----------
CASH, end of period $ 6,781,556 $ 3,726,400 $ 1,606,357
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 86,353 $ 13,010 $ 120,059
=========== =========== ===========
Income taxes paid $ 37,174 $ 105,672 $ 21,388
=========== =========== ===========
The accompanying notes to financial statements
are an integral part of these statements.
LINCOLN SNACKS COMPANY
------------------------
NOTES TO FINANCIAL STATEMENTS
-------------------------------
(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. ("Brynwood"). 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 third and fourth quarter of the calendar year.
In 1997, the Company entered into Trademark License Agreements with
Nabisco, Inc. pursuant to which Nabisco, Inc. granted the Company the
right to use the Planters trademarks in connection with the sales and
marketing of the Company's Fiddle Faddle products in the United States
and Canada for a period of five years commencing on January 1, 1998.
This agreement is royalty free for the first two years of its term.
Royalty payments, based on net sales of products included in the
agreement, are payable in subsequent years.
(2) Summary of Significant Accounting Policies:
-------------------------------------------
Use of estimates-
-----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue recognition-
--------------------
Revenue is recognized by the Company when products are shipped and
title passes to the customer.
Advertising and promotion-
--------------------------
Advertising costs are expensed in the period in which the related
advertisements occur. The estimated cost of the total ultimate
redemptions of various coupon programs are expensed immediately at
the time a coupon program is distributed to the public.
Inventories-
------------
Inventories, which include material, labor and manufacturing
overhead, are stated at the lower of cost (first in, first out) or
market (net realizable value).
Impairment of long-lived assets-
--------------------------------
The Company follows the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". This statement requires that long-lived assets and
certain identifiable intangibles held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. In general, this statement requires recognition of an
impairment loss when the sum of undiscounted expected future cash
flows is less than the carrying amount of such assets. The
measurement for such impairment loss is then based on the fair value
of the asset.
The Company periodically reviews the carrying value of its long
lived assets including property, plant, and equipment and including
intangible and other assets, in order to determine whether an
impairment in the value of its long-lived assets may exist. The
Company considers relevant cash flow, estimated future operating
results, trends, management's strategic plans, competition, and other
available information, in assessing whether the carrying value of
the assets can be recovered. Except for the long lived assets
discussed in Note 12, the Company has determined that there has been
no further impairment in its long lived assets as of June 30, 1999.
Property, plant and equipment-
------------------------------
Property, plant and equipment is stated at cost and is depreciated
on the straight-line method based upon the estimated useful lives of
the assets. The estimated useful lives of assets are as follows:
Building and leasehold improvements 10-30 years
Machinery and equipment 3-10 years
Furniture and fixtures 7-10 years
Expenditures for maintenance and repairs are charged against income
as incurred. Significant expenditures for betterments are
capitalized. Capital expenditures which are not able to be put into
use immediately are included in construction in process. As these
programs are completed, they are transferred to depreciable assets.
Intangible assets-
------------------
Intangible assets are carried at cost, less accumulated amortization
which is calculated on a straight-line basis over the estimated
useful lives as follows:
Excess of purchase price over
net assets acquired 10-30 years
Intellectual property and other 1-20 years
The Company believes no impairment of intangible assets exists at
June 30, 1999.
Income taxes-
-------------
The Company follows Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", under which deferred income
taxes are determined based on the differences between the financial
statement and tax bases of assets and liabilities using presently
enacted tax rates and regulations. The Company does not believe
that it is more likely than not that the Company's deferred tax
assets will be utilized and accordingly, a valuation allowance is
required.
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:
1999 1998 1997
----------- ---------- ----------
Basic earnings per share:
Weighted average number of
shares outstanding 6,331,790 6,331,790 6,331,790
Dilutive effect of stock
options 26 10,014 --
----------- ---------- ----------
Diluted earnings per share:
Weighted average number of
shares outstanding 6,331,816 6,341,804 6,331,790
=========== ========== ==========
Net Income (loss) $(1,377,888) $1,666,838 $1,442,595
=========== ========== ==========
Basic and diluted
earnings (loss)
per share $(.22) $ .26 $ .23
=========== ========== ==========
Options to purchase 519,750 shares of common stock were outstanding
at June 30, 1999, but were not included in the computation of
diluted earnings per share as the effect would be anti-dilutive.
Options and warrants to purchase 65,329 shares of common stock were
outstanding at June 30, 1998, and included in the computation of
diluted earnings per share for the twelve months ended June 30,
1998. Additional options and warrants to purchase 812,221 and
822,550 shares of common stock were not included in the computation
of diluted earnings per share for the twelve months ended June 30,
1998 and 1997, respectively, as the effect would be anti-dilutive.
The Brynwood subordinated debenture (see Note 7) is convertible into
3,649,635 shares of common stock upon the election of Brynwood after
the occurrence of a Convertability Event (as defined therein).
These shares were not included in the computation of diluted
earnings per share for the year ended June 30, 1999 as the effect
would be anti-dilutive.
(3) Balance Sheet Components:
-------------------------
The components of certain balance sheet accounts are as follows:
1999 1998
---------- ----------
Inventories-
------------
Raw and packaging materials $1,828,542 $1,385,854
Finished goods 853,892 977,433
---------- ----------
$2,682,434 $2,363,287
========== ==========
Intangible and other assets-
----------------------------
Excess of purchase price over
net assets acquired $4,127,631 $4,577,631
Intellectual property and other 155,851 155,851
---------- ----------
4,283,482 4,733,482
Less: accumulated amortization (937,123) (826,967)
---------- ----------
Intangible assets, net $3,346,359 $3,906,515
========== ==========
(4) Income Taxes:
-------------
The income tax provisions for the years ended June 30, 1999, 1998 and
1997 consist primarily of state taxes and federal alternative minimum
taxes.
The following represents a reconciliation of the federal statutory
income tax rate to the effective income tax rate:
1999 1998 1997
-------- -------- --------
Statutory federal income
(benefit) tax rate (34.0)% 34.0% 34.0%
State income and franchise
taxes, net of federal benefit 1.1 1.5 1.1
Utilization of loss carry-
forwards, net -- (29.7) (32.6)
Losses and temporary differences
not benefited 35.9 -- --
Non-deductible meals and
entertainment 0.3 0.4 0.2
Effective income tax rate 3.3% 6.2% 2.7%
The principal temporary items comprising the net unrecognized deferred
income tax asset are as follows:
June 30, June 30, June 30,
1999 1998 1997
----------- ----------- -----------
Net operating loss
carryforward $ 1,370,000 $ 1,386,000 $ 2,428,000
Depreciation and amortization (772,000) (985,000) (864,000)
Accrued expenses not yet
deductible 915,000 660,000 165,000
All other 619,000 456,000 385,000
----------- ----------- -----------
Net deferred tax
asset unrecognized 2,132,000 1,517,000 2,114,000
Less: valuation reserve (2,132,000) (1,517,000) (2,114,000)
----------- ----------- -----------
Net deferred tax asset
recognized $ -- $ -- $ --
=========== =========== ===========
At June 30, 1999, the Company had a pre-tax net operating loss
carryforward ("NOLs") for income tax purposes, subject to Internal
Revenue Service review, of approximately $3,425,000 which expire in
2009 through 2019 if not utilized. The above NOLs include those
NOLs generated subsequent to deconsolidating from Noel in 1994.
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 recent losses.
Under section 382 of the Internal Revenue Code, if the Company
undergoes an ownership change, the amount of its pre-change losses
that may be utilized to offset future taxable income generally will
be subject to an annual limitation. In general, the annual
limitation would be based on the value of the Company's outstanding
stock immediately before the ownership change and the adjusted
Federal long-term interest rate in effect for the month in which
the ownership change occurs. Any unused portion of the annual
limitation would be available in subsequent years.
On June 8, 1998, the Company underwent an ownership change as a
result of the acquisition of Noel's interest in the Company by
Brynwood. As a result of the ownership change, utilization of the
Company's NOL will be subject to an annual limitation of
approximately $650,000.
(5) Stock Options and Warrants:
---------------------------
In November 1993, the Company adopted the 1993 Stock Option Plan and
the Non-Employee Directors' Stock Option Plan. A total of 550,000
shares of common stock are reserved for issuance under the 1993
Stock Option Plan and 200,000 shares of common stock are reserved
for issuance under the Non-Employee Directors' Stock Option Plan.
The Company has granted options to purchase 453,861 shares and
50,000 shares, respectively, through June 30, 1999. Under both
Plans, the option exercise price equals the stock's market price
on date of grant. The 1993 Stock Option Plan options normally
vest 20% over a five year period. The Non-Employee Director's
Stock Option Plan options vest immediately upon grant. All
options expire ten years from date of grant. The Company accounts
for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized.
Under the Non-Employee Directors' Stock Option Plan, each individual
subsequently elected to the Board of Directors who is not an
employee of the Company will receive a grant of stock options
covering 20,000 shares of common stock, with an exercise price
equal to the fair market value of a share of common stock as of the
date of grant. In addition, each non-employee director of the
Company will receive a stock option covering 5,000 shares of common
stock immediately following each annual meeting of stockholders of
the Company during the ten-year term of the Non-Employee Directors'
Stock Option Plan, with an exercise price equal to the fair market
value of a share of common stock as of the date of grant.
Had compensation cost for these plans been determined consistent
with Statement of Financial Accounting Standards No. 123 ("SFAS
123"), the Company's net income and earnings per share would have
been reduced to the following pro forma amounts:
1999 1998 1997
---------- ---------- ----------
Net income (loss):
As reported $(1,377,888) $1,666,838 $1,442,595
Pro forma $(1,492,331) $1,218,607 $1,300,723
Basic and diluted
income per share:
As reported $(.22) $.26 $.23
Pro forma $(.24) $.19 $.21
Because the SFAS 123 method of accounting is not applicable to options
granted prior to July 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be experienced in future
years.
A summary of the status of the Company's two stock option plans at
June 30, 1999, 1998, and 1997 and changes during the years then ended
is presented in the table and narrative below:
1999 1998 1997
------------------- ------------------- -------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
------- --------- ------- --------- ------- ---------
Outstanding at
beginning of year 557,059 $3.16 822,550 $2.73 473,800 $4.35
Granted 379,000 1.64 116,800 1.81 437,750 1.32
Cancelled (431,309) 3.63 (380,200) 1.81 (75,000) 4.50
Forfeited (889) 1.50 (2,091) 1.54 -- --
Expired -- -- -- -- (14,000) 4.31
------- --------- ------- --------- ------- ---------
Outstanding at
end of year 503,861 $1.62 557,059 $3.16 822,550 $2.73
======= ========= ======= ========= ======= =========
Exercisable at
end of year 170,746 181,217 435,940
======= ======= =======
Weighted average
fair value of
options granted $1.18 $1.37 $1.00
========= ========= =========
The following table summarizes information about stock options
and warrants outstanding at June 30, 1999:
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of At Remaining Average At Average
Exercise June 30, Contractual Exercise June 30, Exercise
Prices 1999 Life (Years) Price 1999 Price
- ------------- ----------- ------------ -------- ----------- --------
$1.03 - $1.88 503,861 8.92 $1.62 170,746 $1.58
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1999 and 1998,
respectively: risk-free interest rates of 4.87% and 6.25%, no
expected dividend yields, expected lives of ten years and expected
volatility of 57% and 61%.
(6) Debt Facilities:
----------------
In December 1993, the Company entered into a bank loan agreement, as
amended, which provided for up to $4 million in revolver borrowings.
There were no amounts outstanding under the revolving credit facility
at June 30, 1999. Borrowings under the revolver were limited to a
percentage of eligible receivables and inventory. The revolving
credit facility bore interest at a rate equal to the sum of the
average monthly Eurodollar rate plus 1.0%. The facility required an
annual monitoring fee of $6,000 and an unused facility fee of 0.25% on
the unused portion of the revolver. The facility was collateralized
by substantially all of the Company's assets. The Company was in
breach of certain covenants set forth in the revolving credit
agreement, including the EBITDA covenants as of June 30, 1999 and the
requirement of obtaining the bank's consent relative to the Brynwood
Debenture (see Note 7). On August 6, 1999, the Company terminated its
revolving credit facility with the bank.
The Company plans to obtain a new revolving credit facility with
another financial institution in the future, however, there can be no
assurance that the Company will be able to obtain such a facility.
The Company presently believes that its cash will be adequate to meet
its needs for the next twelve months.
(7) 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.
The Company's breach of its bank covenants (see Note 6) resulted in a
default of the Brynwood Debenture. Brynwood has waived its right to
demand payment of the debenture until January 2001 by reason of
current defaults existing under the bank agreement.
(8) Commitments:
------------
In the normal course of business, Lincoln enters into purchase
commitments with certain of its raw material suppliers generally for
periods up to one year. Amounts to be purchased under these
arrangements are not anticipated to exceed raw material requirements
for the period to which the commitments apply. The total remaining
amount of inventory to be purchased under these commitments as of June
30, 1999 is approximately $3,971,000. These purchase commitments
expire primarily through December 31, 1999.
(9) Acquisition:
------------
On March 17, 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 is a non-interest bearing note to be
paid in equal monthly installments over a twelve-month period
commencing March 31, 1998. A contingent payment of up to $350,000 may
be paid in the future if the Company maintains 70% of the sales volume
to Iroquois' largest customer.
The acquisition was accounted for as a purchase with the assets
acquired recorded at their fair values at the date of acquisition.
The excess of purchase price over net assets acquired is being
amortized over a period of 10 years. The purchase price has been
allocated as follows:
Accounts receivable $ 477,000
Inventory 223,000
Excess of purchase price
over net assets acquired 600,000
----------
$1,300,000
==========
The following is unaudited pro forma information as if the Company's
acquisition of Iroquois had occurred at the beginning of the respective
fiscal periods. The incremental revenue reflected below consists
primarily of sales to one customer. These results may not be
indicative of what the actual results would have been or may be in the
future.
1998 1997
----------- -----------
Net sales $27,859,707 $27,118,445
Net income $ 2,594,054 $ 2,137,211
Net income per share $0.41 $0.34
(10) Sale of Land:
-------------
In October 1996, the Company sold land adjacent to its manufacturing
facility in Lincoln, Nebraska. The agreement for the sale and
purchase of the land was contingent upon the Company leasing back from
the purchaser of the land 50,000 square feet of a new warehouse
facility to be constructed on the property by the buyer.
The Company entered into a 10-year minimum term lease with the
purchaser to lease 50,000 square feet of warehouse space,
approximately 57% of the facility. Accordingly, the gain on the sale
of the land, $129,218, was deferred and is being amortized over the
term of the lease in accordance with SFAS No. 13 and SFAS No. 28 since
the Company retained more than a minor part of the property sold and
the present value of the lease payments related to the land exceeded
the gain on the sale of the land.
(11) Leases:
-------
At June 30, 1998, the Company's minimum future rental payments on a
fiscal year basis under non-cancelable operating leases are as
follows:
2000 $ 271,000
2001 251,000
2002 245,000
2003 268,000
2004 and thereafter 1,038,000
Rent expense for operating leases amounted to approximately $317,000,
$310,000 and $286,000 for the years ended June 30, 1999, 1998 and
1997, respectively.
(12) Write Down of Fixed Assets:
---------------------------
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 $61,814 and $907,863 for the twelve months ended
June 30, 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
fiscal 1999 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 $6,049, for the twelve months ended
June 30, 1999 and 1998, respectively. These amounts include
depreciation of $28,941 and $64,310 and goodwill amortization of
$7,500 and $15,000, for the twelve months ended June 30, 1999 and
1998, respectively.
During the year ended June 30, 1997, the Company wrote down $269,498
of fixed assets. Management ceased producing and selling certain nut
product lines and wrote down $227,566 in manufacturing equipment
relating to such product lines. The Company also wrote down $41,932
of leasehold improvements relating to the termination of its warehouse
lease.
(13) Non-recurring Charge:
---------------------
The non-recurring charge of $286,633 for the twelve months ended June
30, 1999 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 of severance related to former employees. All amounts have
been paid as of June 30, 1999.
During the year ended June 30, 1998, the Company recorded a
non-recurring charge of $484,388 relating to severance and other
compensation costs in connection with the resignation of the Company's
former chairman and chief executive officer. All amounts were paid as
of June 30, 1998.
(14) Related Party Transactions:
---------------------------
During the years ended June 30, 1998 and 1997, the Company paid legal
fees of approximately $38,000 and $72,000, respectively, to a law firm
of which one of its partners is a director of Noel.
During the year ended June 30, 1999, the Company received proceeds
from a $5 million convertible debenture from Brynwood, the Company's
majority stockholder. Two of the Company's directors are general
partners of the general partner of Brynwood; a third director of the
Company is a principal of Brynwood.
(15) Employee Benefit Plans:
-----------------------
The Company sponsors a defined contribution savings plan (401(k)).
Participation in the plan is available to substantially all salaried
and hourly employees. Company contributions to the plan are based on
a percentage (2%) of employee contributions. During the years ended
June 30, 1999, 1998 and 1997, Company contributions to the plan
totaled $48,000, $52,000 and $46,000, respectively.
(16) Sales Data:
-----------
Export sales-
-------------
During the years ended June 30, 1999, 1998 and 1997, export sales
were approximately $1,414,000, $1,520,000 and $2,157,000,
respectively.
Significant customer-
---------------------
For the year ended June 30, 1999, two customers represented
approximately 33% and 10% of net sales, respectively. For the years
ended June 30, 1998 and 1997, Planters (see Note 17) represented
approximately 9% and 47%, respectively, of net sales.
(17) Net Planters Other Income:
--------------------------
On July 17, 1995, Planters Company, a unit of Nabisco, Inc.
("Planters"), began exclusively distributing the Company's Fiddle
Faddle and Screaming Yellow Zonkers products (the "Products") pursuant
to a distribution agreement dated June 6, 1995 (the "Distribution
Agreement") for an initial term which was originally scheduled to
expire on June 30, 1997 unless renewed for additional one year
periods. The Distribution Agreement required Planters to purchase an
annual minimum number of equivalent cases of the Products during the
initial term.
On February 28, 1997, the Company and Planters entered into an
amendment to the Distribution Agreement, which was further modified on
May 9, 1997 (the "Amendment"), pursuant to which the exclusive
distribution arrangement with respect to the Company's Fiddle Faddle
product was extended for an additional six month period expiring on
December 31, 1997, at which time the arrangement terminated.
Effective January 1, 1998 and May 1, 1997, Planters ceased, and
Lincoln resumed, marketing and distributing the Company's Fiddle
Faddle and Screaming Yellow Zonkers products, respectively.
The Amendment required Planters to purchase a specified number of
manufactured cases of the Products and for Planters to compensate the
Company for the remaining contract minimums for the twelve month
period ended June 30, 1997. The Amendment required Planters to
compensate the Company for contract minimums for the six month period
ended December 31, 1997 (six month minimums). Planters compensated
the Company in the six months ended December 31, 1997 for contract
minimums, which were 27% less than case sales made to Planters for the
six month period ended December 31, 1996.
The Amendment also required Planters to compensate the Company in the
event that certain sales levels were not achieved during the calendar
year ending December 31, 1997. These sales levels were not achieved
during the calendar year ending December 31, 1997, resulting in
Planters compensating the Company approximately $1,880,000 which is
partially offset on the Company's statement of operations by
approximately $500,000 in non-recurring charges associated with
initial efforts to rebuild the Fiddle Faddle brand ("Net Planters
Other Income").
Sales to Planters represented 9% and 47% of net sales for the years
ended June 30, 1998 and 1997. Amounts due from Planters represented
69% of accounts receivable at June 30, 1997.
(18) Valuation and Qualifying Accounts:
----------------------------------
Balance at Charged to Balance
Beginning Costs and at end
Description of Period Expenses Deductions of Period
- ------------------------------- ---------- ---------- ---------- ---------
Year ended June 30, 1997:
- Allowances for doubtful
accounts and cash discounts $173,524 $210,633 $(146,379) $237,778
- Inventory reserves 191,030 190,664 (97,029) 284,665
Year ended June 30, 1998:
- Allowances for doubtful
accounts and cash discounts $237,778 $315,526 $(230,795) $322,509
- Inventory reserves 284,665 168,852 (91,019) 362,498
Year ended June 30, 1999:
- Allowances for doubtful
accounts and cash discounts $322,509 $316,806 $(254,440) $384,875
- Inventory reserves 362,498 151,742 (261,346) 252,894
INDEX OF EXHIBITS
-------------------
Exhibit Title Exhibit No.
------------- -----------
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession; 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) Instruments defining the rights of security holders,
including indentures
(A) Excerpts from Certificate of Incorporation, as
amended, (Incorporated by reference to Exhibit 4(A)
filed by the Company with the Registration
Statement on Form S-1 (33-71432)) *
(B) Excerpts from By-Laws, as amended, (Incorporated
by reference to Exhibit 4(B) filed by the Company
with the Registration Statement on Form S-1
(33-71432)) *
(9) Voting Trust Agreement; Not Applicable
(10) Material Contracts
Brynwood Note (Incorporated by reference to the
Company's current report on Form 8-K filed on
April 4, 1999) *
(11) Statement of computation of per share earnings:
Not required because the relevant computations can
be clearly determined from the material contained in
the financial statements included herein
(12) Statement re computation of ratios; Not applicable
(13) Annual report to security holders, Form 10-Q or
quarterly report to security holders; Not applicable
(16) Letter re change in certifying accountant; Not Applicable
(18) Letter re change in accounting principles; Not Applicable
(21) Subsidiaries of Registrant; Not Applicable
(22) Published report regarding matters submitted to vote
of security holders; Not Applicable
(23) Consents of Experts and Counsel
(A) Consent of Arthur Andersen, LLP 23A
(24) Power of Attorney; Not Applicable
(27) Financial Data Schedule 27
(99) Additional Exhibits; Not Applicable
* Incorporated by reference