<PAGE>

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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
(Mark One)

|X|           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended June 30, 2001

                                       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 numbers 333-50305 and 333-50305-01
                        Eagle Family Foods Holdings, Inc.
             (Exact name of registrant as specified in its charter)

               Delaware                                       13-3983598
     (State or other jurisdiction                           (IRS Employer
   of incorporation or organization)                    Identification Number)

                            Eagle Family Foods, Inc.
             (Exact name of registrant as specified in its charter)

               Delaware                                       13-3982757
     (State or other jurisdiction                           (IRS Employer
   of incorporation or organization)                    Identification Number)

        735 Taylor Road, Suite 200                               43230
                Gahanna, OH                                    (Zip Code)
 (Address of principal executive offices)

       Registrants' telephone number, including area code: (614) 501-4200

          Securities registered pursuant to Section 12(b) of the Act:

      Title of each class             Name of each exchange on which registered
              N/A                                         N/A
        Securities registered pursuant to Section 12(g) of the Act: None
                                 Title of Class
                                       N/A

     Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have 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 (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants' knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

     State the aggregate market value of the voting and non-voting common equity
held by non-affiliates. N/A.

     As of September 12, 2001, there were 1,061,353 shares of common stock, par
value $.01 per share, of Eagle Family Foods Holdings, Inc. ("Common Stock") and
10,000 shares of common stock, par value $.01 per share, of Eagle Family Foods,
Inc. outstanding, respectively.

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<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                  Page
                                                                                                  ----
<S>                                                                                               <C>
PART I
 Item 1.   Business .............................................................................    2
 Item 2.   Properties ...........................................................................    7
 Item 3.   Legal Proceedings ....................................................................    7
 Item 4.   Submission of Matters to a Vote of the Security Holders ..............................    7

PART II
 Item 5.   Market for Registrants' Common Equity and Related Stockholder Matters ................    8
 Item 6.   Selected Financial Data ..............................................................    9
 Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations.   10
 Item 7A.  Quantitative and Qualitative Disclosures About Market Risk ...........................   18
 Item 8.   Financial Statements and Supplementary Data ..........................................   18
 Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure .   18

PART III
 Item 10.  Directors and Executive Officers of the Registrants ..................................   19
 Item 11.  Executive Compensation ...............................................................   22
 Item 12.  Security Ownership of Certain Beneficial Owners and Management .......................   24
 Item 13.  Certain Relationships and Related Transactions .......................................   26

PART IV
 Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K .....................   27
</TABLE>
<PAGE>

PART I

Item 1:  Business

Business History

     On January 23, 1998 (the "Acquisition Closing"), Eagle Family Foods, Inc.
("Eagle") acquired certain assets of Borden Foods Corporation ("BFC"), BFC
Investments, L.P. ("BFC Investments") and certain of their affiliates for an
aggregate purchase price of $376.8 million (the "Acquisition"). The assets
acquired include, among other things: (i) four manufacturing facilities located
in Wellsboro, Pennsylvania; Starkville, Mississippi; Waterloo, New York; and
Chester, South Carolina; (ii) all machinery and equipment located at these
facilities; (iii) the trademarks Eagle; ReaLemon; ReaLime; Cremora; Kava; None
Such and certain other trademarks in North America and in certain foreign
territories; and (iv) a non-compete and non-solicitation agreement from BFC and
certain of its affiliates. Eagle is a wholly owned subsidiary of Eagle Family
Foods Holdings, Inc. ("Holdings"). Eagle and Holdings are collectively referred
to as the "Company", unless the context indicates otherwise. Eagle and Holdings
were incorporated in Delaware in 1997.

     Financing for the Acquisition and related fees and expenses consisted of
(i) $82.5 million of equity contribution from Holdings (which was financed by
Holdings' issuance of preferred and common stock in that amount to GE Investment
Private Placement Partners II, a Limited Partnership ("GEI") and Warburg, Pincus
Ventures, L.P. ("Warburg" and together with GEI, the "Equity Sponsors"), and
certain members of the Company's management, (the "Management Investors"), who
contributed approximately $1.7 million of such amount (the "Equity
Contribution"); (ii) the issuance of $115.0 million of 8.75% senior subordinated
notes due 2008 (the "Senior Subordinated Notes"); and (iii) senior secured
credit facilities (the "Senior Credit Facilities") in an aggregate principal
amount of $245.0 million, consisting of a $175.0 million term loan facility (the
"Term Loan Facility") and a $70.0 million revolving credit facility (the
"Revolving Credit Facility"). The Senior Credit Facilities, the Senior
Subordinated Notes and the Equity Contribution are referred to herein as the
"Financing Transactions."

     Since the Acquisition Closing, the Company nationally launched Cremora
Royale powdered non-dairy creamer, the Star and Magnolia Hispanic brands of
sweetened condensed milk and ReaLemonade lemonade liquid concentrate.

     In September 1999, the Equity Sponsors contributed an aggregate of $10.0
million to Holdings in exchange for shares of a new series of Holdings preferred
stock and Holdings common stock. This contribution was made to finance the
marketing investment made by the Company in launching Cremora Royale and
ReaLemonade during its fiscal year ended July 3, 1999.

     On August 13, 2001 Eagle and Holdings entered into an Asset Purchase
Agreement with Mott's Inc. and Cadbury Beverages Delaware, Inc. for the sale of
Eagle's business of developing, manufacturing, marketing, distributing and
selling shelf-stable juice sold under the ReaLemon and ReaLime brand names and
related assets for $128.4 million (subject to adjustment as provided therein)
(the "ReaLemon Sale"). Regulatory approval has been obtained for the transaction
and it is anticipated to be completed in September 2001.

     In July 2001, the Company began implementing a plan to reorganize the
management and operations of the Company as a result of the pending ReaLemon
Sale, which is expected to reduce the sales and operating base of the Company.

     The reorganization is expected to include the following:

     As of July 15, 2001, John O'C. Nugent resigned as Chief Executive Officer
and President of the Company and Craig A. Steinke was appointed as Chief
Executive Officer and President in addition to continuing to serve as Chief
Financial Officer of the Company. Other executive officers of the Company have
also resigned their positions.

     The Company is in the process of closing its corporate office in Tarrytown,
New York and its research and development office in Columbus, Ohio.

     The number of corporate and administrative employees of the Company will be
reduced by 64% to approximately 38 employees during the two quarters ending
December 29, 2001, with the majority of the reductions occurring in the quarter
ending September 29, 2001.

                                       2
<PAGE>

     In addition, the Company's overall administrative cost structure is being
reduced by renegotiation of annual service contracts with third party vendors,
elimination of office leases and related costs and reductions in travel,
entertainment and other administrative expenses.

Products and Markets

     The Company manufactures and markets a portfolio of leading dry-grocery
food products with widely recognized and established brands, including Eagle
Brand sweetened condensed milk, ReaLemon lemon juice from concentrate and
Cremora powdered non-dairy creamer. The Company's primary distribution channel
is the retail grocery channel, but also has presence within mass merchandisers,
club stores, foodservice, the U.S. military, industrial and private label
businesses. The Company's U.S. food business is complemented by a strong
presence in Canada and Puerto Rico.

     The Company sells its products in the U.S. to the retail grocery trade
through 24 independent food brokers and a national brokerage company with 39
brokerage houses. The Company also sells its products to non-grocery channels
and to international markets. These sales are generated through brokers,
distributors, or directly, depending on the size and needs of the customers.

     The Company's marketing programs consist of various combinations of media
advertising, consumer promotions, trade promotion and co-promotion of certain
products such as ingredients in recipes. Since many of the Company's brands are
purchased primarily as ingredients for recipes, the Company frequently promotes
recipes incorporating its brands. The Company utilizes Internet sites to promote
recipes containing the Company's products. The Company also promotes its
seasonal brands, None Such mincemeat pie filling and Borden eggnog, with recipe
promotions during the holiday season.

     Sweetened condensed milk. The Company manufactures and markets Eagle Brand
and additional sweetened condensed milk products. In addition to classic Eagle
Brand sweetened condensed milk, the Company's other branded sweetened condensed
milk products include Eagle Brand low fat and fat free products, Meadow Gold,
and Star and Magnolia Hispanic brands. The Company's Eagle brand products carry
the Borden and Elsie trademarks. The Company also manufactures sweetened
condensed milk under several labels for a customer who distributes and markets
these products to certain ethnic markets. In its fifty-two week period ended
June 30, 2001 ("fiscal year 2001"), its fifty-two week period ended July 1, 2000
("fiscal year 2000") and its fifty-three week period ended July 3, 1999 ("fiscal
year 1999"), respectively, the Company's sweetened condensed milk products
accounted for 50%, 48% and 47% of the Company's net sales.

     Retail channels, including grocery and mass merchandisers, are the primary
outlet for the Company's sweetened condensed milk products and accounted for
approximately 82%, 84% and 83% of the Company's sweetened condensed milk net
sales for fiscal year 2001, fiscal year 2000 and fiscal year 1999, respectively.
The balance of the Company's sweetened condensed milk net sales is made through
other channels, including foodservice customers, industrial customers and export
markets.

     Lemon and lime juice. The Company manufactures and markets ReaLemon lemon
juice from concentrate and ReaLime lime juice from concentrate. In fiscal year
2001, fiscal year 2000 and fiscal year 1999, respectively, the Company's lemon
and lime juice products accounted for 29%, 28% and 25% of the Company's net
sales.

     Retail channels, including grocery and mass merchandisers, are the primary
outlet for the Company's ReaLemon and ReaLime products and accounted for
approximately 73%, 74% and 74% of ReaLemon and ReaLime net sales in fiscal year
2001, fiscal year 2000 and fiscal year 1999, respectively. The Company also
markets the ReaLemon and ReaLime products to foodservice customers, industrial
customers and export markets.

                                       3
<PAGE>

     As discussed above, the Company anticipates completing the ReaLemon Sale in
September 2001.

     Powdered non-dairy creamers. The Company manufactures and markets powdered
non-dairy creamer under the Cremora and Cremora Royale brand names and also
manufactures powdered non-dairy creamer for private label and industrial
customers. In fiscal year 2001, fiscal year 2000 and fiscal year 1999, the
Company's powdered non-dairy creamer products accounted for 16%, 17% and 17% of
the Company's net sales, respectively.

     Branded Cremora and Cremora Royale are sold primarily through retail
channels and accounted for 73%, 71% and 71% of the Company's fiscal year 2001,
fiscal year 2000, and fiscal year 1999 powdered non-dairy creamer net sales,
respectively. Private label net sales accounted for 9%, 16% and 14% of the
Company's net sales for fiscal year 2001, fiscal year 2000 and fiscal year 1999,
respectively, with the balance primarily attributable to export net sales and to
bulk net sales to industrial customers (who use non-dairy creamer in producing
other food products).

     Niche Brand Products. The Company's niche brand products include eggnog,
mincemeat pie filling and instant coffee.

     Borden eggnog is manufactured by a third party through a seasonal purchase
order agreement. Borden eggnog is the only shelf-stable eggnog available in the
market and competes with refrigerated eggnog. Borden eggnog is distributed
through the retail grocery channel. Eggnog is generally consumed during the
November and December holiday season as a beverage or mixed with liquor as a
cocktail.

     The Company manufactures and markets two flavors of None Such mincemeat pie
filling: Regular and Brandy & Rum. None Such mincemeat is used in pies, cookies
and pastries, and is consumed primarily during the November and December holiday
season. None Such is distributed through the retail grocery channel.

     Kava is marketed by the Company and manufactured by a third party
independent manufacturer pursuant to a co-packing agreement. Kava is a unique
instant coffee, differentiated as the only coffee that is "90%
acid-neutralized." Management believes that Kava's customer loyalty is
significantly higher than that of most other instant coffee brands, and is well
positioned to remain high given the brand's unique position as an
acid-neutralized product.

Industry Overview

     The U.S. food industry is characterized by relatively stable annual growth
based on modest price and population increases. Over the last ten years,
management believes the industry has experienced consolidation as competitors
have shed non-core business lines and made strategic acquisitions to strengthen
category positions, generate economies of scale in distribution, production and
raw material sourcing and create leverage relative to the retail grocery trade
through better service and broader market presence.

     Grocery retailers have also utilized mergers and acquisitions to
consolidate within their industry. Growth in the mass merchandiser channel has
outpaced growth in the retail grocery channel, and mass merchandisers have
consequently increased their share of food sales relative to the retail grocery
and drug store channels. Furthermore, the convenience store channel has
maintained a constant presence within the total grocery industry. To expand
their potential markets, management believes that food companies are broadening
their distribution channels to include greater focus on mass merchandisers and
other alternative distribution channels. In the opinion of management, another
growth opportunity in the U.S. for branded food companies is the foodservice
channel, which supplies restaurants, hospitals, schools and other institutions.
In addition to the U.S. market, management believes that certain international
markets with above average population growth and expanding economies offer
significant growth opportunities for U.S. companies. These international markets
include Latin America and the Pacific Rim.

                                       4
<PAGE>

Seasonality

     The Company's net sales, operating income and cash flows are affected by a
seasonal bias toward the second quarter of the fiscal year due to increased
sales during the holiday season. Three of the Company's six major product lines
(Eagle Brand and the Company's other brands of sweetened condensed milk
products, Borden eggnog and None Such mincemeat pie filling) are consumed
primarily during the November and December holiday season. In recent years,
approximately 43% of the Company's net sales have occurred in the second quarter
of the fiscal year. As a result of this seasonality, the Company's working
capital needs have historically increased throughout the year, normally peaking
in the September/October period, which requires the Company to draw additional
amounts on its Revolving Credit Facility in that period.

Raw Materials and Suppliers

     The primary raw materials used in the Company's operations include milk,
sugar, lemon and lime juice concentrate, vegetable oil, corn syrup, and
packaging materials. The Company purchases many of its raw materials from
numerous independent suppliers. Milk is purchased through one cooperative at
each of its manufacturing plants. Kava instant coffee and Borden eggnog are
obtained in final product form from third party manufacturers, traditionally
referred to as co-packers.

Competition

     The food industry is highly competitive. Numerous brands and products
compete for shelf-space and sales, with competition based primarily on price and
quality. The Company competes with a significant number of competitors of
varying sizes, including divisions or subsidiaries of larger companies. The most
significant branded competition encountered by the Company is Nestle's
Coffee-mate, which competes with Cremora and Cremora Royale. However, most of
the competition encountered by the Company is from private label brands. A
number of these branded and private label competitors have broader product lines
as well as substantially greater financial and other resources available to them
compared to the Company.

Trademarks, Copyrights and Patents

     The Company owns a number of trademarks, licenses and patents. After the
ReaLemon Sale, the Company's principal trademarks will include Eagle Brand;
Cremora; and None Such which the Company has registered in the United States and
various foreign countries. The Company holds a perpetual, exclusive and
royalty-free license to use the Borden and Elsie trademarks on products on which
they were historically used in the BBNA Business (as defined below), together
with certain product extensions. The Borden and Elsie trademarks are currently
used on (i) the entire line of Eagle Brand products, including condensed or
evaporated milk, (ii) shelf-stable egg nog, and (iii) Cremora non-dairy creamer.
The Borden trademark is also currently used on Magnolia sweetened condensed
milk. The Company also holds a perpetual, exclusive and royalty-free license to
use the Borden trademark on None Such mincemeat, Magnolia condensed or
evaporated milk, and Kava acid-neutralized coffee. In addition, as assignee from
BFC, the Company holds an exclusive and royalty-free license from Southern Foods
Group, L.P. to use the Meadow Gold trademark on sweetened condensed milk in the
United States for a five year term, which is renewable automatically for
subsequent five year terms and terminable at the option of the Company upon one
year's notice and, under certain limited circumstances, by the licensor. Such
brand names are considered to be of fundamental importance to the business of
the Company due to their brand identification and ability to maintain brand
loyalty. The Company has granted BFC an exclusive, perpetual, royalty-free
license to use the ReaLemon and ReaLime trademarks in certain foreign markets
including Europe, the Middle East and Hong Kong. A third party owns the Cremora
trademark in Africa and the Middle East. The Company also owns various patents
and copyrights associated with the business.

Employees

     As of June 30, 2001, the Company employed approximately 362 people,
including 202 hourly and 160 salaried employees. The Wellsboro, Pennsylvania and
Starkville, Mississippi plants are the only unionized Company plants. As of June
30, 2001, union employees represented approximately 25% of the Company's total
work force. At Starkville, the Teamsters Local 984 has a contract expiring on
January 31, 2005 and at Wellsboro, the United Food

                                       5
<PAGE>

and Commercial Workers Union-Local 174 has a contract expiring on February 5,
2005. Management believes that relations with the Company's employees and unions
are generally good.

Certain Legal and Regulatory Matters

     Public Health. The Company is subject to the Federal Food, Drug and
Cosmetic Act and regulations promulgated thereunder by the Food and Drug
Administration. This comprehensive regulatory program governs, among other
things, the manufacturing, composition and ingredients, labeling, packaging and
safety of food. In addition, the Nutrition Labeling and Education Act of 1990,
as amended, prescribes the format and content of certain information required to
appear on the labels of food products. The Company is also subject to regulation
by certain other governmental agencies.

     The operations and the products of the Company are also subject to state
and local regulation through such measures as licensing of plants, enforcement
by state health agencies of various state standards and inspection of
facilities. Enforcement actions for violations of federal, state and local
regulations may include seizure and condemnation of volatile products, cease and
desist orders, injunctions and/or monetary penalties. Management believes that
the Company's facilities and practices are in compliance with applicable
government regulations in all material respects.

     The Company is subject to certain health and safety regulations, including
regulations issued pursuant to the Occupational Safety and Health Act. These
regulations require the Company to comply with certain manufacturing, health and
safety standards to protect its employees from accidents.

     Environmental Matters. The Company believes that it is substantially in
compliance with all applicable laws and regulations for the protection of the
environment and the health and safety of its employees. The Company's operations
and properties are subject to a wide variety of increasingly complex and
stringent federal, state and local environmental regulations governing the
storage, handling, generation, treatment, emission, and disposal of certain
substances and wastes, the remediation of contaminated soil and groundwater, and
the health and safety of employees. As such, the nature of the Company's
operations exposes it to the risk of claims with respect to environmental
matters. Based upon its experience to date, the Company believes that the future
cost of compliance with existing environmental laws and regulations and
liability for known environmental claims will not have a material adverse effect
on the Company's business or financial position. In connection with the
Acquisition, the Company assumed all past and future environmental liabilities
related to the acquired business. The Company will be indemnified, however, by
BFC and BFC Investments with respect to certain environmental liabilities
occurring prior to the Acquisition Closing. This indemnification is limited in
time and amount, and there can be no assurance that material environmental
liabilities will not be incurred after the indemnification period or in excess
of the indemnified amount or that the Company will be able to pursue
successfully any indemnification claims against BFC. In addition, future events,
such as changes in existing laws and regulations or their interpretation, and
more vigorous enforcement policies of regulatory agencies, may give rise to
additional expenditures or liabilities that could be material.

                                       6
<PAGE>

Item 2:  Properties

     Except for Kava instant coffee and sweetened condensed milk in Canada,
which are produced under co-pack agreements, and Borden eggnog, which the
Company obtains under a seasonal purchase order, the Company produces all of its
products in four Company-owned manufacturing facilities, as described in the
following table. Management believes that the Company's manufacturing plants
have sufficient capacity to accommodate the Company's needs for the foreseeable
future.


  Location          Square Feet             Products Manufactured
  --------          -----------             ---------------------
Wellsboro, PA....     119,000    Sweetened condensed milk, mincemeat pie filling
Starkville, MS...      49,000    Sweetened condensed milk
Waterloo, NY.....     112,000    Lemon juice and lime juice
Chester, SC......      77,300    Powdered non-dairy creamer

     In addition to the owned manufacturing facilities described above, as of
June 30, 2001, the Company leased 13,605 square feet of office space in
Tarrytown, New York, 28,589 square feet of office and laboratory space in
Columbus, Ohio, and uses public warehouse space in numerous locations in
variable amounts as needed.

Item 3:  Legal Proceedings

     The Company is subject to litigation in the ordinary course of its
business. The Company is not a party to any lawsuit or proceeding which, in the
opinion of management, is likely to have a material adverse effect on the
Company's financial condition or results of operations.

Item 4:  Submission of Matters to a Vote of the Security Holders

     Not applicable.

                                       7
<PAGE>

PART II

Item 5:  Market for Registrants' Common Equity and Related Stockholder Matters

     There is no established public trading market for the common stock of
Holdings or Eagle. As of September 12, 2001, Holdings was the only holder of
Eagle common stock. As of September 12, 2001, there were approximately 30
holders of Holdings' common stock.

     No cash dividends on common stock have been declared by either registrant
since their respective incorporations. Holdings and Eagle are restricted from
declaring dividends on their common stock by the Senior Credit Facilities. See
Note 6 of the Notes to the Financial Statements of Holdings and Eagle included
elsewhere in this Annual Report on Form 10-K.

                                       8
<PAGE>

Item 6:   Selected Financial Data

         The selected financial data set forth below (dollars in thousands) as
of June 30, 2001 and July 1, 2000, and the fifty-two week periods ended June 30,
2001 and July 1, 2000 and the fifty-three week period ended July 3, 1999 are
derived from audited financial statements included elsewhere herein. The
selected financial data set forth below as of December 31, 1997, December 31,
1996, January 23, 1998, June 27, 1998 and July 3, 1999, and the fiscal years
ended December 1996 and 1997, six months ended December 31, 1997, the
twenty-three day period ended January 23, 1998 and the one hundred fifty-five
day period ended June 27, 1998 are derived from the financial statements not
included elsewhere herein. The predecessor data represents the financial results
related to Eagle Brand and other sweetened condensed milk products, ReaLemon and
ReaLime juice from concentrate, Cremora powdered non-dairy creamer, None Such
pie filling, Borden eggnog and Kava instant coffee brands (the "BBNA Business")
acquired by the Company for periods prior to the Acquisition.

<TABLE>
<CAPTION>
                                                      Predecessor
                                      ---------------------------------------------
                                                                         Twenty-
                                                                          Three                    Fifty-Three  Fifty-Two Fifty-Two
                                                            Six Months Day Period    One Hundred      Week       Week       Week
                                           Year Ended          Ended      Ended     Fifty-Five Day   Period     Period     Period
                                          December 31,       December    January     Period Ended    Ended       Ended     Ended
                                      ---------------------     31,         23,       June 27,       July 3,    July 1,   June 30,
                                        1996        1997       1997        1998        1998/(a)/    1999/(a)/   2000/(a)/  2001/(a)/
                                      ---------   ---------  ---------   ---------    ---------     ---------  ---------  ----------
Statement of Operations                                     (Unaudited)
<S>                                   <C>         <C>       <C>          <C>        <C>             <C>        <C>        <C>
Data:
Net sales ..........................  $ 230,384   $ 229,370  $ 153,869   $   7,693  $  68,183       $ 239,730  $ 224,733  $ 220,633
Cost of goods sold .................    110,357     107,674     70,640       5,154     38,376/(b)/    111,026    111,140    102,650
                                      ---------   ---------  ---------   ---------  ---------       ---------  ---------  ---------
Gross profit .......................    120,027     121,696     83,229       2,539     29,807         128,704    113,593    117,983
Distribution expense ...............     14,640      13,464      8,185         303      4,550          13,420     14,016     13,837
Marketing expense ..................     62,705      55,074     37,444       2,095     15,048          75,971     64,721     54,361
General & administrative expense....     10,558      10,259      5,271         767      3,691          12,406     13,580     13,363
Amortization of intangibles ........      2,925       2,925      1,465         243     11,855          21,249     11,156     11,157
Other operating income .............         --          --         --          --         --              --     (1,212)        --
In-process research and
development write off ..............         --          --         --          --     23,900              --         --         --
                                      ---------   ---------  ---------   ---------  ---------       ---------  ---------  ---------
Operating income (loss) ............  $  29,199   $  39,974  $  30,864   $    (869) $ (29,237)      $   5,658  $  11,332  $  25,265
Other Financial Data:
Depreciation and amortization/(c)/..  $   5,937   $   6,174  $   3,148   $     512  $  13,755       $  26,491  $  20,553  $  19,756
Capital expenditures ...............      3,726       3,154      1,789          87      2,578          13,744      7,564      3,569

<CAPTION>
                                           Predecessor
                                      ---------------------
                                                                         As of       As of           As of      As of      As of
                                        As of December 31,            January 23,   June 27,         July 3,    July 1    June 30
                                         1996       1997              1998/(a)(d)/  1998/(a)/       1999/(a)/  2000/(a)/  2001/(a)
                                      ---------   ---------           -----------   ---------       ---------  ---------  --------
<S>                                   <C>         <C>                 <C>           <C>             <C>        <C>        <C>
Balance Sheet Data:
Inventories ........................  $  13,239   $  15,820              $ 20,100   $   32,001      $   41,757 $  33,780  $   36,929
Net property and equipment .........     16,649      16,070                23,950       24,791          33,798    33,775      31,014
Total assets .......................    157,857     153,786               380,047      399,240         417,286   396,670     387,546
Total debt, including current
maturities..........................         --          --               306,500      318,250         338,500   327,500     333,500
Stockholder's equity ...............         --          --                67,803/(e)/  55,994          41,795    39,972      34,563
</TABLE>

(a)  The statement of operations data set forth above for the one hundred
     fifty-five day period ended June 27, 1998, the fifty-three week period
     ended July 3, 1999 and the fifty-two week periods ended July 1, 2000 and
     June 30, 2001, and the balance sheet data set forth above as of January 23,
     1998, June 27, 1998, July 3, 1999, July 1, 2000, and June 30, 2001 reflects
     the financial position and results of operations of Eagle. With the
     exception of stockholder's equity, Series A Non-Voting Preferred Stock
     ("Series A Preferred Stock") and the Series B Non-Voting Preferred Stock
     (the "Series B Preferred Stock," together with Series A Preferred Stock,
     "Redeemable Preferred Stock"), this information is substantially consistent
     with that of Holdings. The following represents stockholders' deficit and
     Redeemable Preferred Stock of Holdings:

<TABLE>
<CAPTION>
                                           As of June 27,    As of July 3,   As of July 1,   As of June 30,
                                               1998              1999            2000             2001
                                          --------------    -------------   -------------   --------------
          <S>                              <C>               <C>             <C>             <C>
          Stockholders' deficit .........  $   (29,159)      $   (52,235)    $  (74,314)     $    (91,362)
          Redeemable Preferred Stock ....       84,327            93,302        113,555           125,163
</TABLE>

(b)  Includes the nonrecurring charge of $5.2 million of additional cost of
     sales related to the expensing of inventories stated at fair market value.
(c)  Includes the amortization of debt issuance cost of $371, $920, $1,823 and
     $2,322 for the one hundred fifty-five day period ended June 27, 1998, the
     fifty-three week period ended July 3, 1999, and the fifty-two week periods
     ended July 1, 2000 and June 30, 2001, respectively.
(d)  Reflects the Acquisition and the Financing Transactions resulting in a new
     basis of accounting.
(e)  Reflects initial Equity Contribution of $82.5 million less an after tax
     write-off of in-process research and development.

                                       9
<PAGE>

Item 7: Management's Discussion and Analysis of Financial Condition and Results
        of Operations

General

     Set forth below is a discussion of the financial condition and results of
operations for the fifty-two week periods ended June 30, 2001 and July 1, 2000
and the fifty-three week period ended July 3, 1999. The following discussion
should be read in conjunction with the financial statements of the Company and
the notes thereto included elsewhere in this Annual Report on Form 10-K. The
following table sets forth the results of operations as a percentage of net
sales for the fifty-two week periods ended June 30, 2001 and July 1, 2000 and
the fifty-three week period ended July 3, 1999:

<TABLE>
<CAPTION>
                                                                      Results of Operations
          -------------------------------------------------------------------------------------------------
                                                     Fifty-Two Week     Fifty-Two Week     Fifty-Three Week
                                                      Period Ended       Period Ended        Period Ended
                                                      June 30, 2001       July 1, 2000       July 3, 1999
                                                     ---------------    ---------------    ----------------
<S>                                                  <C>                 <C>                 <C>
          Net sales..............................              100.0 %            100.0 %             100.0 %
          Cost of goods sold.....................               46.5               49.4                46.3
                                                     ---------------    ---------------    ----------------
          Gross profit...........................               53.5               50.6                53.7
          Distribution expense...................                6.2                6.2                 5.6
          Marketing expense......................               24.6               28.8                31.7
          General & administrative expense.......                6.1                6.0                 5.2
          Amortization of intangibles............                5.1                5.0                 8.9
          Other operating income.................                 --               (0.5)                 --
                                                     ---------------    ---------------    ----------------
          Operating income                                      11.5 %              5.1 %               2.3 %
                                                     ===============     ==============      ==============
</TABLE>

     The Company entered the lemonade liquid concentrate market with the launch
of ReaLemonade in fiscal year 1999. While an intensive marketing program drove
ReaLemonade to strong performance in its launch year relative to other
shelf-stable juice concentrates, sales in the second summer season did not meet
expectations. The Company determined that it could not achieve the necessary
return on the ReaLemonade product line and, therefore, discontinued sales in the
retail channel after the calendar year 2000 summer selling season. The following
table sets forth the results of operations as a percentage of net sales for the
fifty-two week periods ended June 30, 2001 and July 1, 2000 and the fifty-three
week period ended Ju1y 3, 1999 excluding the retail channel ReaLemonade product
line for each of the periods presented.

<TABLE>
<CAPTION>
                                     Results of Operations Excluding the Retail
                                       ReaLemonade Discontinued Product Line
          -------------------------------------------------------------------------------------------------
                                                      Fifty-Two Week     Fifty-Two Week     Fifty-Three Week
                                                       Period Ended       Period Ended        Period Ended
                                                      June 30, 2001       July 1, 2000       July 3, 1999
                                                     ---------------    ---------------    ----------------
          <S>                                        <C>                <C>                <C>
          Net sales..............................              100.0 %            100.0 %             100.0 %
          Cost of goods sold.....................               46.4               45.5                46.6
                                                     ---------------    ---------------    ----------------
          Gross profit...........................               53.6               54.5                53.4
          Distribution expense...................                6.2                5.9                 5.3
          Marketing expense......................               24.8               24.8                27.5
          General & administrative expense.......                6.1                6.2                 5.5
          Amortization of intangibles............                5.1                5.1                 9.3
          Other operating income.................                 --               (0.5)                 --
                                                     ---------------    ---------------    ----------------
          Operating income.......................               11.4 %             13.0 %               5.8 %
                                                     ===============    ===============    ================
</TABLE>

                                       10
<PAGE>

Results of Operations

     Fifty-Two Week Periods Ended June 30, 2001 and July 1, 2000.

     Net Sales. The Company's net sales for fiscal year 2001 were $220.6 million
as compared to $224.7 million for fiscal year 2000, a decrease of $4.1 million,
or 1.8%. The table below sets forth the Company's net sales data for each of the
Company's product lines for fiscal year 2001 and fiscal year 2000 (dollars in
millions):

<TABLE>
<CAPTION>
                                                                   Net Sales                     Net Sales
                                                                     Fiscal      Percentage       Fiscal     Percentage
                                                                      Year           of            Year          of
        Product Lines               Company's Principal Brands        2001        Net Sales        2000       Net Sales
----------------------------   ----------------------------------- -----------   -----------    -----------  -----------
<S>                                                                <C>           <C>            <C>          <C>
Sweetened condensed milk       Eagle Brand, Meadow Gold,
                               Magnolia, Star and other            $     109.2          49.5 %  $     107.5         47.8 %
Lemon and lime juices          ReaLemon and ReaLime                       63.3          28.7           61.7         27.5
Lemonade liquid concentrate    ReaLemonade                                (0.2)         (0.1)           4.6          2.0
Non-dairy creamer              Cremora, Cremora Royale and other          35.5          16.1           37.7         16.8
Niche brand products           Borden, None Such, Kava                    12.8           5.8           13.2          5.9
                                                                   -----------   -----------    -----------  -----------
     Total                                                         $     220.6         100.0 %  $     224.7        100.0 %
                                                                   ===========   ===========    ===========  ===========
</TABLE>

     The decrease in net sales was primarily due to $4.8 million in lower net
sales resulting from the discontinued retail ReaLemonade product line as
discussed above. Offsetting this decrease, net sales increased by $1.7 million
due to greater sweetened condensed milk sales and $1.6 million due to greater
lemon and lime juice sales. The Company's sweetened condensed milk product line
experienced U.S. retail consumer consumption growth, primarily in the Hispanic
brands as the Company responded to the diverse consumer base, and in private
label brands. Lemon and lime juice sales increased partially due to growth in
sales to mass merchandisers and club stores and to higher volume of sales of the
ReaLemon shapes in the U.S. retail channel.

     Non-dairy creamer sales decreased by $2.2 million from fiscal year 2000 to
fiscal year 2001 primarily due to a sales volume decline to certain private
label customers.

     Net sales for the Company's niche brand products decreased by $0.4 million
from fiscal year 2000 to fiscal year 2001 primarily due to lower sales volume of
acid-neutralized instant coffee.

     The Company has not included tables setting forth the Company's net sales
by channel as provided in previous filings by the Company with the Securities
and Exchange Commission because the Company has shifted the focus of its sales
management to product line growth.

     Cost of Goods Sold. Cost of goods sold was $102.7 million for fiscal year
2001 as compared to $111.1 million for fiscal year 2000, a decrease of $8.4
million, or 7.6%. Expressed as a percentage of net sales, cost of goods sold for
fiscal year 2001 decreased to 46.5% from 49.4% for fiscal year 2000. Cost of
goods sold, as a percentage of net sales was higher in fiscal year 2000
primarily due to a non-recurring charge in fiscal year 2000 to reserve for
obsolescence of ReaLemonade inventories related to inventory expiration.
Excluding the results of retail ReaLemonade for fiscal year 2001 and fiscal year
2000, cost of goods sold was $102.5 million for fiscal year 2001 as compared to
$100.2 million for fiscal year 2000, an increase of $2.3 million, or 2.2%.
Expressed as a percentage of net sales, excluding the results of retail
ReaLemonade for both periods, cost of goods sold for fiscal year 2001 increased
to 46.4% from 45.5% for fiscal year 2000 due to higher raw material costs,
principally lemon concentrate used in production of lemon juice products.

     Distribution Expense. Distribution expense was $13.8 million for fiscal
year 2001 as compared to $14.0 million for fiscal year 2000, a decrease of $0.2
million, or 1.4%. Expressed as a percentage of net sales, distribution expense
was 6.2% for fiscal year 2001 and fiscal year 2000. The decrease of $0.2 million
was partially due to reduced warehousing costs as levels of inventory were lower
between years, primarily from reduced retail ReaLemonade inventory.

     Marketing Expense. Marketing expense was $54.4 million for fiscal year 2001
as compared to $64.7 million for fiscal year 2000, a decrease of $10.3 million,
or 15.9%. Expressed as a percentage of net sales, marketing expense for fiscal
year 2001 decreased to 24.6% from 28.8% for fiscal year 2000. The decrease was
primarily driven by $9.8 million decrease in advertising, trade and consumer
support from the discontinued retail ReaLemonade product line.

                                       11
<PAGE>

     General & Administrative ("G&A") Expense. G&A expense was $13.4 million for
fiscal year 2001 as compared to $13.6 million for fiscal year 2000, a decrease
of $0.2 million, or 1.5%. Expressed as a percentage of net sales, G&A expense
was 6.1% and 6.0% for fiscal year 2001 and fiscal year 2000, respectively.

     Other Operating Income. Other operating income for fiscal year 2000 was
$1.2 million, of which $0.5 million related to a product diversion lawsuit
settlement against a wholesale customer and $0.6 million for settlement from a
supplier for defective packaging materials. There was no other operating income
for fiscal year 2001.

     Amortization of Intangibles.  Amortization of intangibles was $11.2 million
for both fiscal year 2001 and fiscal year 2000.

     Operating Income. Operating income was $25.3 million for fiscal year 2001
as compared to $11.3 million for fiscal year 2000, an increase of $14.0 million,
or 123.9%. Expressed as a percentage of net sales, operating income for fiscal
year 2001 increased to 11.5% from 5.1% for fiscal year 2000. Together with other
factors discussed above, the increase in operating income was primarily due to a
reduction of investment in ReaLemonade.

     Interest Expense. Net interest expense was $33.2 million for fiscal year
2001 as compared to net interest expense of $31.7 million for fiscal year 2000,
an increase of $1.5 million. The increase was primarily due to higher average
interest rates for fiscal year 2001 compared to fiscal year 2000.

     Income Taxes. The Company recorded an income tax benefit of $2.9 million
for fiscal year 2001 as compared to a $8.7 million income tax benefit for fiscal
year 2000. The decrease of $5.8 million is due to the lower net loss in fiscal
year 2001.

                                       12
<PAGE>

     Fifty-Two Week Period Ended July 1, 2000 and Fifty-Three Week Period Ended
July 3, 1999.

     Net Sales. The Company's net sales for fiscal year 2000 were $224.7 million
as compared to $239.7 million for fiscal year 1999, a decrease of $15.0 million,
or 6.3%. The table below sets forth the Company's net sales data for each of the
Company's product lines for fiscal year 2000 and fiscal year 1999 (dollars in
millions):

<TABLE>
<CAPTION>
                                                                    Net Sales                   Net Sales
                                                                     Fiscal       Percentage      Fiscal      Percentage
                                                                      Year           of            Year          of
        Product Lines               Company's Principal Brands        2000        Net Sales        1999       Net Sales
--------------------------     ----------------------------------- -----------   -----------    -----------   ----------
<S>                            <C>                                 <C>           <C>            <C>           <C>
Sweetened condensed milk       Eagle Brand, Meadow Gold,
                               Magnolia, Star and other            $     107.5          47.8%   $     112.5         46.9%
Lemon and lime juices          ReaLemon and ReaLime                       61.7          27.5           60.7         25.3
Lemonade liquid concentrate    ReaLemonade                                 4.6           2.0           11.1          4.6
Non-dairy creamer              Cremora, Cremora Royale and other          37.7          16.8           40.5         16.9
Niche brand products           Borden, None Such, Kava                    13.2           5.9           14.9          6.3
                                                                   -----------   -----------    -----------   ----------
     Total                                                         $     224.7         100.0%   $     239.7        100.0%
                                                                   ===========   ===========    ===========   ==========
</TABLE>

     Of the $5.0 million decrease in net sales for sweetened condensed milk from
fiscal year 1999 to fiscal year 2000, $2.0 million was due to lower net sales of
the discontinued Eagle Brand chocolate flavored sweetened condensed milk, $2.5
million to lower net sales of lower margin private label sweetened condensed
milk and $0.7 million to higher sweetened condensed milk products returned to
reclamation centers. Higher returns to reclamation centers were primarily due to
customers returning outdated chocolate flavored sweetened condensed milk, as
well as removing products labeled with the predecessor's manufacturing code and
replacing with product labeled with the Company's new manufacturing codes.

     Net sales for ReaLemon and ReaLime increased by $1.0 million from fiscal
year 1999 to fiscal year 2000, while ReaLemonade lemonade liquid concentrate net
sales decreased by $6.5 million in that same period. As mentioned above, the
Company entered the lemonade liquid concentrate market with the launch of
ReaLemonade in fiscal year 1999. While an intensive marketing program and the
higher shipments to customers representing an initial one-time build of customer
warehouse and retail shelf inventories drove ReaLemonade to strong performance
in its launch year relative to other shelf-stable juice concentrates, sales in
the second summer season did not meet expectations. The Company determined that
it could not achieve the necessary return on marketing investment on the
ReaLemonade product line and, therefore, discontinued sales in the retail
channel after the calendar year 2000 summer selling season. The Company will
continue to market ReaLemonade in the U.S. foodservice channel.

     Non-dairy creamer net sales decreased by $2.8 million from fiscal year 1999
to fiscal year 2000. The decrease was partially due to $1.9 million in lower net
sales of Cremora and Cremora Royale. Cremora and Cremora Royale net sales were
higher in fiscal year 1999 as a result of significant trial-generating marketing
efforts, including the issuance of coupons, in-store demonstrations, and
television and print advertising. In fiscal year 2000, the Company reduced its
marketing investment to a level appropriate for on-going support of the brands.
Also, a temporary disruption in non-dairy creamer production due to a June 2,
1999 fire at the Company's Chester, South Carolina manufacturing plant resulted
in a decrease of $1.6 million in industrial net sales from fiscal year 1999 to
fiscal year 2000, primarily because certain industrial products could not be
outsourced during the production downtime. Production was resumed in mid-October
1999. Non-dairy creamer net sales decreases were partially offset by $0.9
million from growth in the private label non-dairy creamer business.

     Net sales for the Company's niche brand products decreased $1.7 million
from fiscal year 1999 to fiscal year 2000. This decrease was partially due to
the elimination of low margin eggnog "special packs" and the introduction of a
smaller case size of mincemeat pie filling. The smaller case size was introduced
to reduce seasonal returns of this product.

                                      13
<PAGE>

     Cost of Goods Sold. Cost of goods sold was $111.1 million for fiscal year
2000 as compared to $111.0 million for fiscal year 1999, an increase of $0.1
million, or 0.1%. Excluding the results of ReaLemonade, cost of goods sold was
$100.2 million for fiscal year 2000 as compared to $106.6 million for fiscal
year 1999, a decrease of $6.4 million, or 6.0%. Expressed as a percentage of net
sales, excluding the results of ReaLemonade for both periods, cost of goods sold
for fiscal year 2000 decreased to 45.5% from 46.6% for fiscal year 1999. The
decrease in cost of goods sold as a percentage of net sales was significantly
affected by lower raw material costs for the sweetened condensed milk and lemon
and lime juice product lines.

     Cost of goods sold for ReaLemonade was $10.9 million for fiscal year 2000
as compared to $4.5 million for fiscal year 1999, an increase of $6.4 million.
The increase was primarily due to charges to write off obsolete ReaLemonade
finished goods inventories and raw material inventories and other costs
associated with discontinuing the product in the U.S. retail sales channel.

     Distribution Expense. Distribution expense was $14.0 million for fiscal
year 2000 as compared to $13.4 million for fiscal year 1999, an increase of $0.6
million, or 4.5%. Expressed as a percentage of net sales, distribution expense
for fiscal year 2000 increased to 6.2% from 5.6% for fiscal year 1999. The
increase was driven partially by $0.2 million of higher warehousing costs in
fiscal year 2000 primarily associated with the level of inventory maintained to
support the launch of ReaLemonade and $0.5 million for costs reclassified from
marketing expense to distribution expense in fiscal year 2000 as a result of the
change in the distribution network for certain U.S. foodservice sales.

     Marketing Expense. Marketing expense was $64.7 million for fiscal year 2000
as compared to $76.0 million for fiscal year 1999, a decrease of $11.3 million,
or 14.9%. Expressed as a percentage of net sales, marketing expense for fiscal
year 2000 decreased to 28.8% from 31.7% for fiscal year 1999. The decrease was
partially due to $3.1 million and $6.0 million of lower advertising, trade and
consumer support for ReaLemonade and Cremora Royale, respectively, which were
launched in fiscal year 1999. In fiscal year 2000, the Company reduced its
marketing investment in these products to a level appropriate for on-going
support of the brands.

     G&A Expense. Total G&A expense was $13.6 million for fiscal year 2000 as
compared to $12.4 million for fiscal year 1999, an increase of $1.2 million, or
9.7%. Expressed as a percentage of net sales, G&A expense for fiscal year 2000
increased to 6.0% from 5.2% for fiscal year 1999. The increase was primarily due
to $1.2 million of higher depreciation expense associated with the start up of
the Company's computer systems in January 1999.

     Other Operating Income. Other operating income was $1.2 million for fiscal
year 2000, of which $0.5 million related to a product diversion lawsuit
settlement against a wholesale customer and $0.6 million for settlement from a
supplier for defective packaging materials.

     Amortization of Intangibles. Amortization of intangibles was $11.2 million
for fiscal year 2000, as compared to $21.2 million for fiscal year 1999, a
decrease of $10.0 million, or 47.2%. The decrease was due to the expiration of
the one year master customer services agreement entered into between the Company
and BFC in connection with the Acquisition.

     Operating Income. Operating income was $11.3 million for fiscal year 2000
as compared to $5.6 million for fiscal year 1999, an increase of $5.7 million,
or 101.7%. Excluding the impact of $11.2 million and $21.2 million of
amortization expense for intangibles for fiscal year 2000 and fiscal year 1999,
respectively, and the impact of the loss of $17.5 million and $7.8 million for
the ReaLemonade business initiative for fiscal year 2000 and fiscal year 1999,
respectively, operating income was $40.0 million for fiscal year 2000 as
compared to $34.6 million for fiscal year 1999, an increase of $5.4 million, or
15.6%. Together with other factors discussed above, the significant factors
improving the Company's operating income, excluding ReaLemonade results, were
lower raw material costs for the sweetened condensed milk and lemon and lime
juice product lines and the reduced marketing investment in Cremora Royale.

     Interest Expense. Net interest expense was $31.7 million for fiscal year
2000 as compared to net interest expense of $27.8 million for fiscal year 1999,
an increase of $3.9 million. The increase was primarily due to $0.4 million of
interest as a result of an increase in the average outstanding balance of the
Revolving Credit Facility, $2.6

                                       14
<PAGE>

million from higher interest rates during fiscal year 2000 compared to fiscal
year 1999, and $0.9 million of other miscellaneous financing costs.

     Income Taxes. The Company recorded an income tax benefit of $8.7 million
for fiscal year 2000 as compared to a $7.7 million income tax benefit for fiscal
year 1999. The increase of $1.0 million is primarily due to a revision in
estimates of state net operating loss carryforwards.

Liquidity and Capital Resources

     Borrowings under the Term Loan Facility were $172.5 million and $173.5
million at June 30, 2001 and July 1, 2000, respectively. The Term Loan Facility
matures $0.8 million, $3.2 million, $27.5 million, $80.0 million and $60.0
million in the fiscal years 2002 through 2006, respectively. In addition, the
$60.0 million Revolving Credit Facility that includes a $10.0 million swingline
loan matures in fiscal year 2005. Borrowings under the Revolving Credit Facility
were $46.0 million and $40.0 million at June 30, 2001 and July 1, 2000,
respectively.

     Interest payments on the Senior Subordinated Notes and interest and
principal payments under the Term Loan Facility and the Revolving Credit
Facility represent significant cash requirements for the Company. Borrowings
under the Term Loan Facility and the Revolving Credit Facility bear interest at
floating rates and require interest payments on varying dates. Interest rate
swap agreements, which fixed the interest rates on $100 million of the Term Note
Facility, were sold in November 2000 for fair market gains of $0.9 million.

     The Company's remaining liquidity needs are for capital expenditures and
increases in working capital. The Company spent $3.6 million on capital projects
in fiscal year 2001 to fund expenditures at existing facilities. The Company
expects to spend approximately $2.0 million on capital projects in the fiscal
year ending June 28, 2002 to fund expenditures at existing facilities. The
Company's primary sources of liquidity are cash flows from operations and
available borrowings under the Revolving Credit Facility.

     Net cash used in operating activities for fiscal year 2001 was $1.8
million, and net cash provided from operating activities for fiscal year 2000
was $10.6 million. At the beginning of fiscal year 2000, the Company had
substantially high accounts receivable and inventory levels relative to
ReaLemonade that provided cash flow into fiscal year 2000 that was not present
in fiscal year 2001.

     Cash provided from financing activities in fiscal year 2001 was $5.3
million, and cash used in financing activities for fiscal year 2000 was $3.4
million. In fiscal year 2001, the Company's borrowing on the Revolving Credit
Facility was consistent with its seasonal build of inventory, primarily with
sweetened condensed milk and is more comparable to the business than was
experienced in fiscal year 2000. The borrowings in fiscal year 2000 were
minimized with the infusion of $10.0 million received by Holdings from GEI and
Warburg in exchange for shares of a series of Holdings preferred stock and
Holdings common stock.

     Management believes that cash generated from operations and borrowings
under the Term Loan Facility and the Revolving Credit Facility will be
sufficient to satisfy working capital requirements and required capital
expenditures. The Company expects to reduce the Term Loan Facility substantially
during the fiscal year ending June 28, 2002 with proceeds from the ReaLemon
Sale. As discussed above, the Company entered into an asset purchase agreement
with Mott's Inc. and Cadbury Beverages Delaware, Inc. for the sale of Eagle's
ReaLemon and ReaLime brand names and related assets for $128.4 million, subject
to adjustments as provided therein. Further expansion of the business through
acquisitions may require the Company to incur additional indebtedness or to
issue additional equity securities.

     The Company was advised by GEI and Warburg, Holdings' principal
stockholders, that as of September 10, 2001, each owned $14.0 million in
aggregate principal amount of Notes.

Senior Credit Facilities Amendment

     The Company amended its Senior Credit Facilities pursuant to an amendment
dated August 10, 2001 (the "Amendment") which will become effective as of the
completion of the ReaLemon Sale. The Company received consent from the lenders
for the proposed ReaLemon Sale, and waived compliance with leverage ratio and

                                       15
<PAGE>

consolidated cash interest expense coverage ratio financial covenants for
periods commencing on and including September 29, 2001 and ending on and
including December 28, 2002. The Amendment includes restrictions on the carrying
balance of the Revolving Credit Facility for a period of thirty consecutive days
commencing on a date not earlier than December 1 of any year and ending not
later than March 31 of the following year. The Amendment also sets forth minimum
requirements for consolidated earnings before interest, income tax, depreciation
and amortization.

     The interest rate on the Term Loan Facility, as amended, is LIBOR plus
4.00%. The interest rate on the Revolving Credit Facility, as amended, is LIBOR
plus 4.00% with the swingline loan portion bearing interest at Prime plus 3.00%.

Change in Accounting Method

     In the fourth quarter of fiscal year 2001, the Company changed its method
of accounting for revenue, as clarified in the Securities and Exchange
Commission Staff Accounting Bulletin ("SAB") No. 101, from recognition of
revenue at point of shipment to recognition of revenue at point the title,
ownership and risk of loss transfers to the customer. The Company recorded a
cumulative effect of accounting change of $361,000, net of tax. The change in
accounting method would not have had a material effect on the Consolidated
Statements of Operation for the fifty-two week period ended July 1, 2000 and the
fifty-three week period ended July 3, 1999, if adopted in those periods.

Adoption of Financial Accounting Standard

     The Company enters into derivative financial instrument transactions in
order to manage or reduce market risk for interest rates and commodity prices.
The Company's interest rate risk management strategy uses derivative instruments
to minimize earnings fluctuations caused by interest rate volatility associated
with the Company's variable rate debt. Its commodity price risk management
strategy uses derivative instruments to minimize earnings fluctuations caused by
commodity price volatility associated with purchases of milk, a key ingredient
in the production of sweetened condensed milk.

     Effective July 2, 2000, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"). The estimated fair value of the interest rate
swap agreements upon initial adoption of SFAS 133 was $2.0 million, and in
accordance with the transition provisions of SFAS 133, the Company recorded a
net of tax cumulative effect type adjustment of $1.3 million in accumulated
other comprehensive income to recognize at fair value the interest rate swap
derivatives designated as cash flow hedging instruments. On November 9, 2000 the
Company sold its interest rate swap positions for fair market gains of $0.9
million. Pursuant to SFAS 133, the gains on the interest rate swap agreements
will remain in other comprehensive income and be reclassified as interest
expense over the original terms of the interest rate swap agreements. The
interest income in other comprehensive income as of December 30, 2000 will be
amortized through the period ending December 31, 2002.

Seasonality

     The Company's net sales, net income and cash flows are affected by a
seasonal bias toward the second quarter of the fiscal year due to increased
sales during the holiday season. Three of the Company's six major product lines
(Eagle Brand and other sweetened condensed milk products, Borden eggnog and None
Such mincemeat pie filling) are consumed primarily during the November and
December holiday season. In recent years, approximately 43% of the Company's net
sales have occurred in the last quarter of the calendar year. As a result of
this seasonality, the Company's working capital needs have historically
increased throughout the year, normally peaking in the September period,
requiring the Company to draw additional amounts on its Revolving Credit
Facility during this period.

                                       16
<PAGE>

Recently Issued Accounting Statements

     In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 addresses financial
accounting and reporting for business combinations. The statement requires all
business combinations to be accounted for under the purchase method and
establishes criteria for the separate recognition of intangible assets acquired
in a business combination. The provisions of this pronouncement apply to all
business combinations accounted for using the purchase method for which the date
of acquisition is July 1, 2001, or later. The Company is evaluating this
pronouncement and has not yet determined its impact on future financial
statements.

     In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). SFAS 142 addresses financial accounting and reporting for
intangible assets acquired individually or with a group of other assets at
acquisition and for periods subsequent to acquisition. The Company is evaluating
this pronouncement and has not yet determined its impact on future financial
statements. The pronouncement will be adopted during the first quarter of the
fiscal year ending June 28, 2003.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company is
evaluating the pronouncement and has not yet determined its impact on future
financial statements. This pronouncement will be adopted during the fourth
quarter of the fiscal year ending June 29, 2002.

     In May 2000, the FASB Emerging Issues Task Force ("EITF") issued EITF Issue
No. 00-14, "Accounting for Certain Sales Incentives" ("Issue 00-14"). Issue
00-14 addresses the recognition, measurement, and income statement
classification for sales incentives including point of sale coupons, rebates and
free merchandise in connection with a single exchange transaction. Upon the
adoption of Issue 00-14, the Company will reclassify coupon redemption costs
from marketing expense to net sales, resulting in no impact to net income. The
coupon redemption costs for the fifty-two week periods ended June 30, 2001 and
July 1, 2000 were $3.4 million and $5.3 million, respectively, and for the
fifty-three week period ended July 3, 1999 were $7.8 million. The EITF deferred
the effective date of Issue 00-14 to the quarter beginning after December 15,
2001. The Company will adopt the pronouncement during the third quarter of the
fiscal year ending June 29, 2002.

     In September 2000, the EITF issued EITF Issue No. 00-25, "Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products" ("Issue 00-25"). Issue 00-25 addresses the
income statement classification of certain considerations from a vendor to a
retailer in connection with the retailer's purchase of the vendor's product.
Such considerations include, but are not limited to slotting fees, cooperative
advertising programs, and buy down programs. Upon the adoption of Issue 00-25,
the Company will reclassify these expenses from marketing expense to net sales,
resulting in no impact to net income. Issue 00-25 is effective for the quarter
beginning after December 15, 2001. The Company will adopt the pronouncement
during the third quarter of the fiscal year ending June 29, 2002.

                                       17
<PAGE>

Item 7A: Quantitative and Qualitative Disclosures About Market Risk

Interest Rates

     The following table presents a description of the financial instruments
that were held by the Company at June 30, 2001 and which were sensitive to
changes in interest rates. In the ordinary course of business the Company enters
into derivative financial instrument transactions in order to manage or reduce
market risk. The Company does not enter into derivative financial instrument
transactions for speculative purposes. For the liabilities, the table represents
principal fiscal year cash flows that exist by maturity date and the related
average interest rate. The variable rates are estimated based upon the six month
forward LIBOR rate.

     All amounts are reflected in U.S. dollars (in thousands).


<TABLE>
<CAPTION>
                                                                                                                  Fair
                                2002        2003       2004         2005         Thereafter        Total          Value
                            -----------  ----------  ---------  -------------   ------------    ------------   -----------
<S>                         <C>          <C>         <C>        <C>             <C>             <C>            <C>
Liabilities
   Fixed Rate..............                                                     $    115,000    $    115,000   $    66,125
   Average Interest Rate ..                                                            8.750%          8.750%
   Variable Rate........... $       750  $    3,250  $  27,500  $     127,000   $     60,000    $    218,500   $   218,500
   Average Interest Rate ..       7.710%      7.710%     7.710%         7.652%         7.710%          7.676%
</TABLE>

Milk Hedging

     The Company uses milk as a major ingredient in its sweetened condensed milk
product line and is subject to the risk of rising milk prices that increase
manufacturing costs and erode profit margins. By purchasing futures contracts,
however, the Company establishes a known price for future milk purchases in
order to protect against fluctuating milk prices. As of June 30, 2001, the
Company had purchased 370 milk futures contracts which settles during various
months through June 2002 with an aggregate market value of $(0.4) million.

Item 8: Financial Statements and Supplementary Data

     See Item 14 "Exhibits, Financial Statement Schedules and Reports on Form 8-
K."

Item 9: Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure

     Not applicable.

                                       18
<PAGE>

PART III

Item 10:   Directors and Executive Officers of the Registrants

     The directors of the Company and executive officers of Holdings and Eagle
are as follows:

<TABLE>
<CAPTION>
                Name                    Age     Position
                ----                    ---     --------
   <S>                                  <C>     <C>
   Craig A. Steinke.................    44      Chief Executive Officer, President, Chief Financial
                                                Officer, Treasurer and Director*
   Mark J. Greatrex.................    38      Senior Vice President, Marketing and Sales*
   Jonathan F. Rich.................    54      Vice President and General Counsel*
   Lori S. Snowden..................    41      Secretary* and Financial Controller
   Michael  P. Conti................    32      Vice President, Finance*
   Kelly  J. Crouse.................    38      Vice President, Marketing
   Ronald E. Hord, Jr...............    39      Vice President, Supply Chain
   Harold G. M. Strunk..............    44      Vice President, Sales
   David  A. Barr...................    38      Director
   Andreas T. Hildebrand............    33      Director
   Kewsong Lee......................    36      Director
   Donald W. Torey..................    44      Director
   Paul W. Van Orden................    74      Director
</TABLE>

--------------
* Messrs. Steinke, Greatrex, Rich, Conti and Ms. Snowden hold these same
positions at Holdings and are the executive officers of Holdings.

     Craig A. Steinke has served as a Director, Chief Executive Officer and
President of Holdings and Eagle since July 2001. Since January 1998, Mr. Steinke
has held the positions of Chief Financial Officer, Vice President, Treasurer and
Senior Vice President of Operations of Holdings and Eagle. From 1996 through
1998, Mr. Steinke served as Senior Vice President and Group General Manager of
BHP Copper, a $3.0 billion business group of Broken Hill Proprietary Co., Ltd.
From 1992 through 1996, Mr. Steinke held President, Vice President and
Controller positions at the Metals, a $1.0 billion wholly owned subsidiary of
Magma Copper Co. Prior to 1992, Mr. Steinke held a variety of positions at
Arthur Andersen LLP.

     Mark J. Greatrex has served as Senior Vice President of Marketing and Sales
of Holdings and Eagle since April 2000. From 1998 to 2000, Mr. Greatrex served
as the Vice President/General Manager of the Lipton Tea business and as a board
member of the Lipton Company, a wholly owned subsidiary of Unilever PLC. From
1995 to 1998, Mr. Greatrex served as Vice President of Brand Marketing for
FRALIB, a consumer products subsidiary of Unilever based in Paris, France.
During this period, he also provided marketing leadership for one of Unilever's
International Innovation Centers. Prior to 1995, Mr. Greatrex held a variety of
marketing positions in several product categories at Van den Bergh Foods, a
consumer products division of Unilever, USA. His service as a director includes
past membership on the boards of the Pepsi Lipton Tea Partnership (a joint
venture) and the U.S. Tea Association. His present service as a director
includes membership on the board of Vision Associates Holdings, Inc.

     Jonathan F. Rich has served as Vice President and General Counsel of
Holdings and Eagle since their respective dates of formation. From 1990 through
1996, Mr. Rich served as Vice President and General Counsel of Nabisco
International. Mr. Rich is a member of the New York Bar.

     Lori S. Snowden has served as Secretary of Holdings and Eagle since August
2001. Since April 1999, Ms. Snowden has served as Financial Controller for
Eagle. Ms. Snowden joined Eagle as Assistant Controller in January 1998. From
1990 to 1998, Ms. Snowden held various managerial accounting positions with BFC
and Borden, Inc. Prior to September 1990, Ms. Snowden held a variety of
financial and accounting positions with Lancaster Colony Corporation.

     Michael P. Conti has served as Vice President, Finance of Holdings and
Eagle since August 2001. Mr. Conti joined Eagle in August 1998 and has held
Director of Financial Planning and Analysis and Financial Manager

                                       19
<PAGE>

positions. From April 1996 through August 1998, Mr. Conti served as Controller
of the Hamilton Watch, a division of The Swatch Watch Group. Prior to that, he
held a variety of accounting positions at Arriflex Corporation.

     Kelly J. Crouse has served as Vice President, Marketing of Eagle since
August 2001. From 1998 through August 2001, Mr. Crouse served as Director of
Customer Marketing and as Area Vice President of Sales at Eagle.  Between 1994
and 1998, Mr. Crouse served as a National Trade Marketing Manager and Midwest
Regional Sales Manager with BFC's, Pasta/Sauce Division. Between 1988 and 1993,
Mr. Crouse held a variety of management positions at Kraft General Foods Frozen
Products Division and Kraft Inc. Dairy Division.

     Ronald E. Hord, Jr. has served as Vice President, Supply Chain of Eagle
since August 2001 as an executive officer. From March 2000 to August 2001 Mr.
Hord served in that position in a non-executive officer capacity. Mr. Hord
joined Eagle as the Director of Logistics in January 1998. From March 1994
through January 1998, Mr. Hord held a position in logistics with BFC and Borden,
Inc., working on numerous food brands including the six brands that Eagle
acquired. From 1986 to 1994, Mr. Hord held various logistics positions with the
Nabisco Foods Group.

     Harold G. M. Strunk has served as Vice President, Sales of Eagle since
August 2001 and from 1998 through August 2001 Mr. Strunk held positions of
Director of Sales Support and Vice President of International Sales of Eagle.
Between 1986 and 1998, Mr. Strunk held positions of Regional Sales Manager, Area
Sales Manager, Director of Sales Planning, Director of Trade Marketing and
Director of Process Improvement within BFC and Borden, Inc. Prior to 1986 Mr.
Strunk held several sales and sales management positions with Lever Brothers, a
U.S. division of Unilever.

     Andreas T. Hildebrand has served as a Director of Holdings and Eagle since
their respective dates of formation. Mr. Hildebrand has served as Managing
Director of the Private Equity Group of General Electric Asset Management
("GEAM") since July 2000, Vice President of GEAM since May 1997, and as an
Investment Manager and Senior Financial Analyst since 1993. Prior to joining
GEAM, Mr. Hildebrand was an Economic Analyst in the office of Massachusetts
Governor William Weld. Mr. Hildebrand presently serves as a director of several
privately held companies.

     Kewsong Lee has served as a Director of Holdings and Eagle since their
respective dates of formation. Mr. Lee has served as a Member and Managing
Director of E.M. Warburg, Pincus & Co., LLC ("EMW LLC") and a general partner
of Warburg, Pincus & Co. ( "WP ") since January 1, 1997. Mr. Lee served as a
Vice President of Warburg, Pincus Ventures, Inc. ("WPV") from January 1995 to
December 1996, and as an associate at E.M. Warburg, Pincus & Co., Inc. ( "EMW ")
from 1992 until December 1994. Prior to joining EMW, Mr. Lee was a consultant at
McKinsey & Company, Inc., a management consulting company from 1990 to 1992. His
present service as a director includes membership on the boards of Knoll, Inc.,
RenaissanceRe Holdings Ltd. and several privately held companies.

     David A. Barr has served as a Director of Holdings and Eagle since August
13, 2001. Mr. Barr has served as a Member and Managing Director of EMW LLC and a
general partner of WP since January 1, 2001. Prior to joining EMW LLC, Mr. Barr
was a Managing Director at Butler Capital Corp., a private investment firm
focused on middle market management buyouts.

     Donald W. Torey has served as a Director of Holdings and Eagle since their
respective dates of formation. Mr. Torey has served as Executive Vice President
of GEAM and GE Investment Management Incorporated ("GEIM" and, together with
GEAM, "GE Investments") with responsibility for GE Investments' Private Equity
and Real Estate groups since January 1997. From 1993 through 1996, Mr. Torey
served as Chief Financial Officer of GE Investments. Prior to that, Mr. Torey
served as Manager of Mergers and Acquisition Finance for General Electric
Company ("GE"). Mr. Torey currently serves as a Trustee for the General Electric
Pension Trust ("GEPT") and as a director of a privately held company.

     Paul W. Van Orden has served as a Director of Holdings and Eagle since
April 1998. Mr. Van Orden has been a Special Student at the Yale Divinity School
since 1997. From 1991 through 1996, he was the Executive-In-Residence, the
Executive Director of the Chazen Institute for International Business and a
Visiting Professor at the Columbia University Graduate School of Business. Prior
to that, Mr. Van Orden was an Executive Vice President at GE. He currently
serves as a director of a privately held company.

                                       20
<PAGE>

Item 11:   Executive Compensation

Summary Compensation Table

     The following summary compensation table provides information concerning
compensation for the Company's chief executive officer and the four other most
highly compensated executive officers of Eagle (collectively, the "Named
Executive Officers") for the fiscal years ended June 30, 2001, July 1, 2000 and
July 3, 1999.

<TABLE>
<CAPTION>
                                                                                                            Long Term
                                                                  Annual Compensation                    Compensation(3)
                                                -------------------------------------------------------- -----------------
                                                                                               Other         Restricted
                                                 Fiscal                                     Compensation    Stock Awards
        Name and Principal Position               Year        Salary($)     Bonus($)(1)       ($ )(2)          ($)(4)
----------------------------------------------  ---------  ---------------  ------------   --------------- ---------------
<S>                                             <C>        <C>              <C>            <C>             <C>
John O'C.  Nugent (5).......................        2001   $      331,825   $   178,036    $   5,381       $         --
   Former Chief Executive Officer and               2000          315,125        70,800        4,819                 --
   President                                        1999          316,250       150,000        7,480                 --

Craig A. Steinke............................        2001          278,333       167,125        6,464                 --
  Chief Executive Officer, President                2000          232,667        59,483        3,736                350
    and Chief Financial Officer                     1999          221,375       105,000        6,113                 --

Mark J. Greatrex............................        2001          259,250       140,250        8,766                275
  Senior Vice President, Marketing and Sales        2000           47,813          --          1,434                 --

Richard A. Lumpp (7)........................        2001          186,583        88,310        6,349                 --
   Former Vice President, Sales                     2000          178,600        32,000        2,732                 --
                                                    1999          179,208        85,000        3,167                 --

Jonathan F. Rich............................        2001          164,608        89,046        6,685                 --
   Vice President and General Counsel               2000          157,583        42,488        2,654                175
                                                    1999          154,375        75,000        6,881                 --
</TABLE>

_______________
(1)  The bonus represents the amount earned and paid to the Named Executive
     Officer for the Company's fiscal year for which each executive could earn
     up to 100% of his base salary if certain performance targets were met.
(2)  Other compensation includes matching and profit sharing contributions made
     by the Company on behalf of each Named Executive Officer pursuant to the
     Eagle Family Foods, Inc. 401k Savings and Retirement Plan.
(3)  The Company has not awarded any stock options or stock appreciation rights
     to the Named Executive Officers.
(4)  The restricted stock awards for fiscal year 2000 represent the approximate
     value of award of restricted Common Stock issued to the Named Executive
     Officers. The Restricted Shares will vest in equal installments over five
     years (the "Vesting Period"), beginning on the first anniversary of the
     date of issuance provided that such grantee is employed by the Company on
     such date. Upon the consummation of an initial public offering of Common
     Stock of Holdings registered under the Securities Act of 1933 meeting
     certain thresholds prior to the end of the Vesting Period, 20% of the
     Restricted Shares will vest. Any remaining unvested Restricted Shares would
     then vest in equal installments over the time remaining in the Vesting
     Period. The Board of Directors of Holdings may also establish certain
     performance criteria that could result in accelerated vesting of the
     Restricted Shares. As of June 30, 2001, the approximate value of each such
     award was $350, $275 and $175 for Messrs. Steinke, Greatrex and Rich,
     respectively.
(5)  Mr. Nugent resigned his positions effective July 15, 2001.
(6)  Mr. Steinke became Chief Executive Officer and President in addition to
     serving as Chief Financial Officer and Treasurer in July 2001.
(7)  Mr. Lumpp resigned his position effective July 31, 2001.

                                       21
<PAGE>

Compensation Committee Interlocks and Insider Participation

     Matters of compensation are reviewed and acted upon by the full Board of
Directors, consisting of David A. Barr, Andreas T. Hildebrand, Kewsong Lee,
Craig A. Steinke, Donald W. Torey and Paul W. Van Orden. Mr. Steinke is an
executive officer of Holdings and Eagle.

Director Compensation

     The Directors of Holdings and Eagle have not received, and are not expected
in the future to receive, compensation for their service as directors. Directors
are entitled to reasonable out-of-pocket expenses in connection with their
travel to and attendance at meetings of the Boards of Directors or committees
thereof, except that directors who are employees of Holdings, Eagle, or a
stockholder of Holdings shall not be entitled to such reimbursement.

Employment Agreements

      On January 23, 1998, the Company entered into an employment agreement with
Craig A. Steinke, pursuant to which Mr. Steinke served as Vice President, Chief
Financial Officer and Treasurer of the Company. Subsequent to this agreement,
Mr. Steinke was appointed Chief Executive Officer and President of the Company.
The Company has not entered into a new agreement with Mr. Steinke since his
promotion. Pursuant to his employment agreement, his annual base salary for Mr.
Steinke was $300,000 as of July 1, 2001 and is subject to increases as
determined by the Board of Directors. In addition, pursuant to the agreement,
Mr. Steinke is entitled to receive a bonus of up to 100% of his base salary if
certain performance targets are met. Bonuses for future periods are to be based
on targets to be established by the Board of Directors. The agreement has a term
of one year, with automatic annual renewals. In the event the employment
agreement is terminated by the Company without "cause" (as defined in such
employment agreement), Mr. Steinke is entitled to receive severance payments
equal to the base salary then in effect for 12 months. The agreement provides
for customary non-competition and non-solicitation provisions.

     Effective July 15, 2001, Eagle's and Holdings' Board of Directors accepted
the resignation of John O'C. Nugent as a Director, Chief Executive Officer and
President (the "Executive"). The separation agreement, dated as of June 25,
2001, between the Company, GEI, Warburg and the Executive ("Separation
Agreement") provides termination benefits in accordance with the Executive's
employment agreement with the Company, dated January 23, 1998, as well as a cash
payment of $25,000. The Separation Agreement provides for certain payments to
the Executive upon the consummation of the sale of the Company or portions
thereof. Pursuant to the Separation Agreement, the Executive also agreed to
transfer 2,475 shares of Series A Non-Voting Preferred Stock to the Company and
waive his right to payment therefore in accordance with the terms of his
employment agreement. The value of said shares and the accumulated dividends
will satisfy as payment in full of the $250,000 principal and accrued interest
on the Executive's Secured Recourse Promissory Note with the Company. The
Executive also agreed to transfer 2,475 shares of Series A Non-Voting Preferred
Stock for a cash purchase price of $250,000 See "Item 13. Certain Relationships
and Related Transactions."

                                      22
<PAGE>

Item 12:   Security Ownership of Certain Beneficial Owners and Management

     All of the issued and outstanding shares of common stock of Eagle as of
September 12, 2001 are beneficially owned by Holdings. There are three classes
of capital stock of Holdings authorized and outstanding: the Common Stock, which
has full voting rights, the Series A Preferred Stock and the Series B Preferred
Stock, which each have limited voting rights. The following table sets forth, as
of September 12, 2001, certain information regarding the beneficial ownership of
Common Stock, Series A Preferred Stock and Series B Preferred Stock, as
determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), with respect to (i) each person known by
the Company to be the beneficial owner of more than five percent of any class of
Holdings' voting securities, (ii) each of the directors and executive officers
of Holdings and Eagle and (iii) all directors and executive officers of Holdings
and Eagle, as a group:

<TABLE>
<CAPTION>
                                                                                        Series A                 Series B
                                                              Common Stock           Preferred Stock          Preferred Stock
                                                              ------------           ---------------          ---------------
                 Name and Address of                    Number of                 Number of                Number of
                Beneficial Owner (1)                     Shares     Percentage      Shares    Percentage    Shares     Percentage
                --------------------                    ---------   ----------    ---------   ----------   ---------   ----------
<S>                                                     <C>         <C>           <C>         <C>          <C>         <C>
GE Investment Private Placement Partners II,
   a Limited Partnership
   3003 Summer Street
   Stamford, CT 06905(2).........................         458,200      43.2         402,399      49.5         49.5        50.0

Warburg, Pincus Ventures, L.P.
   466 Lexington Avenue
   New York, NY 10017(3).........................         458,200      43.2         402,399      49.5         49.5        50.0

Craig A. Steinke(4)..............................          40,835       3.9             990         *           --          --
Mark J. Greatrex(4)..............................          27,500       2.6              --        --           --          --
Jonathan F. Rich(4)..............................          21,730       2.0             990         *           --          --
David A. Barr(3).................................         458,200      43.2         402,399      49.5           --          --
Andreas T. Hildebrand(2)(5)......................              --        --              --        --           --          --
Kewsong Lee(3)...................................         458,200      43.2         402,399      49.5           --          --
Donald W. Torey(2)(5)............................              --        --              --        --           --          --
Paul W. Van Orden(5).............................              --        --              --        --           --          --
All directors and executive officers as a
   Group (13 persons)(6).........................         552,915      52.1         404,379      49.5         49.5        50.0
</TABLE>

---------------
* Less than 1%

(1)  Pursuant to the rules of the Securities and Exchange Commission, shares are
     deemed to be "beneficially owned" by a person if such person directly or
     indirectly has or shares (i) the power to vote or dispose of such shares,
     whether or not such person has any pecuniary interest in such shares, or
     (ii) the right to acquire the power to vote or dispose of such shares
     within 60 days, including any right to acquire through the exercise of any
     option, warrant or right. Unless otherwise indicated, each person's address
     is c/o Eagle Family Foods, Inc. 735 Taylor Road, Gahanna, Ohio 43230.
     Messrs. Lee and Barr have the same address as Warburg. Messrs. Torey,
     Hildebrand and Van Orden have the same address as GEI.
(2)  Does not include any shares indirectly held by Trustees of GEPT by virtue
     of GEPT's limited partnership interest in Warburg. GEPT is also a limited
     partner in GEI. GEIM is the general partner of GEI and a wholly owned
     subsidiary of GE. As a result, each of GEIM and GE may be deemed to be the
     beneficial owner of the shares owned by GEI.
(3)  The sole general partner of Warburg is WP, a New York general partnership.
     EMW LLC, a New York limited liability company, manages Warburg. The members
     of EMW LLC are substantially the same as the partners of WP. Lionel I.
     Pincus is the managing partner of WP and the managing member of EMW LLC.
     WP, as the sole general partner of Warburg, has a 15% interest in the
     profits of Warburg. Messrs. Lee and Barr, directors of Holdings, are
     Managing Directors and members of EMW LLC and general partners of WP. As
     such, Messrs. Lee and Barr may be deemed to have an indirect pecuniary
     interest (within the meaning of Rule 16a-1 under the Exchange Act) in an
     indeterminate portion of the shares beneficially owned by Warburg and WP.
(4)  Includes 39,835, 27,500, and 20,730 shares of restricted stock, subject to
     certain vesting and for future requirements, issued to each of Messrs.
     Steinke, Greatrex and Rich.
(5)  Excludes 458,200 shares of Common Stock, 402,399 shares of Series A
     Preferred Stock and 49.5 shares of Series B Preferred Stock beneficially
     owned by GEI and GEIM. As an executive officer and director of GEIM, Mr.
     Torey has shared voting and investment power with respect to the shares
     held by GEI, and therefore, may be deemed to be the beneficial owner of
     such shares. Messrs. Torey, Hildebrand and Van Orden disclaim beneficial
     ownership of all such shares owned by GEI and GEIM.
(6)  Includes 458,200 shares of Common Stock, 402,399 shares of Series A
     Preferred Stock and 49.5 shares of Series B Preferred Stock beneficially
     owned by Warburg. Excludes 458,200 shares of Common Stock, 402,399 shares
     of Series A Preferred Stock and 49.5 shares of Series B Preferred Stock
     beneficially owned by GEI. Includes 4,650 shares of restricted stock,
     subject to certain vesting and forfeiture requirements, issued to executive
     officers not identified in the table.

                                       23
<PAGE>

The Holdings Stockholders Agreement

     The relations among the Equity Sponsors and the Management Investors
(collectively, the "Investors"), and Holdings are governed by a Stockholders
Agreement, dated as of the Acquisition Closing and as amended (the "Holdings
Stockholders Agreement"). The following summary of certain provisions of the
Holdings Stockholders Agreement does not purport to be complete and is qualified
in its entirety by reference to all the provisions of the Holdings Stockholders
Agreement.

     Board of Directors. Holdings is managed by a Board of Directors not to
exceed nine members, three members of which may be designated by GEI and three
members of which may be designated by Warburg. For so long as GEI beneficially
owns at least 20% of the Common Stock outstanding on a fully diluted basis, GEI
has the right to designate three directors to the Board of Directors. For so
long as GEI beneficially owns at least 15% of the Common Stock outstanding on a
fully diluted basis, GEI has the right to designate two directors to the Board
of Directors. For so long as GEI beneficially owns at least 10% of the Common
Stock outstanding on a fully diluted basis, GEI has the right to designate one
director to the Board of Directors. For so long as Warburg beneficially owns at
least 20% of the Common Stock outstanding on a fully diluted basis, Warburg has
the right to designate three directors to the Board of Directors. For so long as
Warburg beneficially owns at least 15% of the Common Stock outstanding on a
fully diluted basis, Warburg has the right to designate two directors to the
Board of Directors. For so long as Warburg beneficially owns at least 10% of the
Common Stock outstanding on a fully diluted basis, Warburg has the right to
designate one director to the Board of Directors. In addition, as long as the
Equity Sponsors in the aggregate beneficially own more than 50% of the Common
Stock outstanding on a fully diluted basis, the Equity Sponsors have the right
to designate a majority of the directors to the Board of Directors. The Board of
Directors will have at least one director who is not an officer or employee of
Holdings, the Company, or the Equity Sponsors, appointed by unanimous approval
of the Board of Directors. The Holdings Stockholders Agreement provides that the
Board of Directors of the Company is identical to that of Holdings.

     The consent of a majority of the Board of Directors which includes at least
one of the directors designated by GEI and one of the directors designated by
Warburg is required for the approval of (i) the Company's or Holdings' annual
operating budget; (ii) capital expenditures or investments not approved in the
annual budget in amounts greater than $500,000; (iii) any merger or
consolidation involving the Company or Holdings; (iv) any acquisition by the
Company or Holdings of any assets or stock, other than acquisitions of assets in
the ordinary course of business; (v) any divestiture of assets in excess of
$500,000 by the Company or Holdings, other than sales of inventory in the
ordinary course of business; (vi) any liquidation, dissolution or winding up, or
any consent to a bankruptcy or insolvency or related proceeding involving, the
Company or Holdings; (vii) the issuance or sale of any debt or equity securities
for cash; (viii) any expansion into new lines of business; (ix) any joint
venture or strategic alliance; (x) the repurchase or redemption of any
outstanding shares of capital stock or the declaration or payment of any
dividends on any shares of capital stock of the Company or Holdings; (xi) the
amendment or modification of the certificate of incorporation or bylaws of the
Company or Holdings; (xii) the amendment, modification or termination of any
employment agreement with any executive officer of the Company or Holdings;
(xiii) the grant of any stock options or other equity-based compensation; (xiv)
the hiring or firing of any executive officer; (xv) any related party
transactions; (xvi) any loans or guarantees by the Company or Holdings outside
of the ordinary course of business; (xvii) any agreement having a duration in
excess of one year or cumulative obligations in excess of $1 million; (xviii)
the amendment, modification or termination of any agreement with any union;
(xix) the approval or adoption, amendment, modification or termination of
certain employee benefit plans; and (xx) any agreement to do any of the
foregoing.

     Restrictions on Transfer of Stock. Securities held by the Management
Investors, including any shares of Common Stock or Redeemable Preferred Stock
and any options to acquire shares of Common Stock, may only be sold or otherwise
transferred with the consent of the Board of Directors of Holdings.

     Tag-Along Rights. The Holdings Stockholders Agreement provides that in the
event any Investor chooses to sell or otherwise transfer more than 20% of its
shares of Common Stock or Redeemable Preferred Stock to a proposed transferee,
the selling Investor must offer to each of the other Investors the right to
participate in such sale on a pro rata basis based on ownership of the shares
being sold.

                                       24
<PAGE>

     Subscription Rights. With certain exceptions, the Holdings Stockholders
Agreement provides each Investor with subscription rights in connection with any
issuance of equity securities by Holdings for cash whereby each Investor shall
have the right to purchase a pro rata portion of such equity securities.

     Certain Covenants. The Holdings Stockholders Agreement requires Holdings to
(i) provide certain financial and other information to the Investors concerning
Holdings and its subsidiaries, (ii) comply with applicable law and (iii)
maintain insurance.

     Termination. The tag-along rights and subscription rights described above
will terminate upon the completion of an initial public offering of Common
Stock.

The Registration Rights Agreement

     Holdings and the Investors entered into a Registration Rights Agreement,
dated as of the Acquisition Closing and as amended (the "Registration Rights
Agreement"). Pursuant to the Registration Rights Agreement, each of the Equity
Sponsors has two demand registration rights for each of its Redeemable Preferred
Stock and Common Stock. In addition, the Equity Sponsors have unlimited Form S-3
registration rights and unlimited piggyback rights. The Management Investors
also have piggyback registration rights. All expenses related to these
registrations (other than underwriting discounts and commissions) will be borne
by Holdings. Holdings is required to use its best efforts to effect such
registrations, subject to certain conditions and limitations. Holdings has
agreed to indemnify the Investors for certain liabilities arising out of such
registrations, including liabilities under the Securities Act.

Item 13:  Certain Relationships and Related Transactions

     In connection with the portion of the Equity Contribution to Holdings made
by Mr. Nugent, the Company lent an aggregate of $250,000 to Mr. Nugent in
exchange for full recourse note bearing interest at a floating rate, set
semi-annually, at The Chase Manhattan Bank's then applicable prime rate, in
effect for six month periods, plus 0.5%. The note matures on the fifth
anniversary of the Acquisition Closing and is secured by a pledge in favor of
the Company of all of the shares of Common Stock and Series A Preferred Stock
owned by such Management Investor. Pursuant to the Separation Agreement, Mr.
Nugent has agreed to transfer 2,475 shares of Series A Non-Voting Preferred
Stock to the Company and to waive his right to payment therefore in accordance
with the terms of his employment agreement, as payment in full and complete
satisfaction of principal and interest accrued on this note and 2,475 shares of
Series A Non-Voting Preferred Stock for a cash purchase price of $250,000.

     On September 27, 1999, pursuant to a subscription agreement, each of
Warburg and GEI purchased (i) 50,000 shares of Common Stock and Warrants to
purchase 11,006.5 shares of Common Stock for a cash purchase price of $50,000
and (ii) 49.5 shares of Series B Preferred Stock for a cash purchase price of
$4,950,000. The Warrants may be exercised (x) for a purchase price of $1 per
share of Common Stock (subject to certain adjustments) and (y) only upon the
failure of the Company to achieve certain financial targets for fiscal year
2000. The financial targets for fiscal year 2000 were not met. Therefore, the
Warrants are exercisable. The Warrants expire on September 27, 2004.

     All future transactions between the Company and its officers, directors,
principal stockholders or their respective affiliates, will be on terms no less
favorable to the Company than can be obtained from unaffiliated third parties.

                                       25
<PAGE>

PART IV

Item 14:  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1) Financial Statements of the Company

<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             ----
<S>                                                                                                          <C>
     Eagle Family Foods, Inc. and Eagle Family Foods Holdings, Inc.

     Report of Independent Accountants......................................................................  31

     Eagle Family Foods, Inc. Statements of Operations and Comprehensive Loss for the Fifty-Two Week
        Periods ended June 30, 2001 and July 1, 2000 and the Fifty-Three Week Period ended July 3, 1999.....  32

     Eagle Family Foods, Inc. Balance Sheets as of June 30, 2001 and July 1, 2000...........................  33

     Eagle Family Foods, Inc. Statements of Cash Flows for the Fifty-Two Week Periods ended June 30,
        2001and July 1, 2000 and the Fifty-Three Week Period ended July 3, 1999.............................  34

     Eagle Family Foods, Inc. Statements of Changes in Stockholder's Equity for the Fifty-Two Week
        Periods ended June 30, 2001 and July 1, 2000 and the Fifty-Three Week Period ended July 3, 1999.....  35

     Eagle Family Foods Holdings, Inc. Consolidated Statements of Operations and Comprehensive Loss for
         the Fifty-Two Week Periods ended June 30, 2001 and July 1, 2000 and the Fifty-Three Week Period
        ended July 3, 1999..................................................................................  36

     Eagle Family Foods Holdings, Inc. Consolidated Balance Sheets as of June 30, 2001 and July 1, 2000.....  37

     Eagle Family Foods Holdings, Inc. Consolidated Statements of Cash Flows for the Fifty-Two Week
        Periods ended June 30, 2001 and July 1, 2000 and the Fifty-Three Week Period ended July 1, 1999.....  38

     Eagle Family Foods Holdings, Inc. Consolidated Statements of Changes in Stockholders' Equity
        (Deficit) for the Fifty-Two Week Periods ended June 30, 2001 and July 1, 2000 and the Fifty-Three
        Week Period ended July 1, 1999......................................................................  39

     Notes to the Financial Statements......................................................................  40
</TABLE>

(a)(2) Financial Statement Schedules

     All schedules are omitted because the required information is either
     presented in the financial statements or notes thereto, or is not
     applicable, required or material.


  2.1     Asset Purchase Agreement, dated as of November 24, 1997, as amended as
          of December 9, 1997 and January 15, 1998, by and among Borden Foods
          Corporation, BFC Investments, L.P., and the Company (Incorporated by
          reference to Exhibit 2.1 to the Registration Statement on Form S-4 of
          Eagle and Holdings filed on June 17, 1998 (the "S-4"))

  3.1     Restated Certificate of Incorporation of Holdings (Incorporated by
          reference to Exhibit 3.1 of the S-4)

  3.2     Amended Bylaws of Holdings (Incorporated by reference to Exhibit 3.1
          of the Report on Form 10-Q, filed by Holdings and Eagle on May 14,
          1999)

  3.3     Restated Certificate of Incorporation, dated November 19, 1997
          (Incorporated by reference to Exhibit 3.3 of the S-4)

                                       26
<PAGE>

  3.4     Amended Bylaws of Eagle (Incorporated by reference to Exhibit 3.2 of
          the Report on Form 10-Q, filed by Holdings and Eagle on May 14, 1999)

  3.5     Certificate of Designation, Number, Voting Powers, Preferences and
          Rights of Series B Non-Voting Preferred Stock of Eagle Family Foods
          Holdings, Inc. dated September 24, 1999 (Incorporated by reference to
          Exhibit 3.1 of the Report on Form 10-Q, filed by Holdings and Eagle on
          October 27, 1999)

  4.1     Credit Agreement, dated January 23, 1998, by and among Holdings,
          Eagle, The Chase Manhattan Bank, Merrill Lynch Capital Corporation,
          Chase Securities, Inc., and Merrill Lynch, Pierce, Fenner & Smith
          Incorporated, as amended by Amendment No. 1, dated August 12, 1998, as
          amended by Amendment No. 2, dated November 30, 1998, as amended by
          Amendment No. 3, dated June 30, 1999, as amended by Amendment No. 4
          dated June 29, 2000, as amended by Amendment No. 5 dated January 26,
          2001, and as amended by Amendment No. 6 dated August 10, 2001.

  4.2     Purchase Agreement, dated January 16, 1998, by and among Holdings,
          Eagle, Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
          Incorporated (Incorporated by reference to Exhibit 4.1 of the S-4)

  4.3     Indenture, dated January 23, 1998, among Holdings, Eagle and IBJ
          Schroder Bank & Trust Company (including Specimen Certificates of 8
          3/4% Series Senior Subordinated Notes due 2008 and 8 3/4% Series B
          Senior Subordinated Notes due 2008) (Incorporated by reference to
          Exhibit 4.2 of the S-4)

  4.4     Registration Rights Agreement, dated January 23, 1998, by and among
          Holdings, Eagle, Chase Securities Inc. and Merrill Lynch, Pierce,
          Fenner & Smith Incorporated (Incorporated by reference to Exhibit 4.3
          of the S-4)

  4.5     Stockholders Agreement, dated as of January 23, 1998, by and among
          Holdings and certain stockholders of Holdings named therein
          (Incorporated by reference to Exhibit 4.5 of the S-4)

  4.6     Exchange and Registration Rights Agreement, dated as of January 23,
          1998, by and among Holdings and certain stockholders of Holdings named
          therein (Incorporated by reference to Exhibit 4.6 of the S-4)

  4.7     Subscription Rights Agreement, dated as of January 23, 1998, by and
          among Holdings, GEI and Warburg (Incorporated by reference to Exhibit
          4.7 of the S-4)

  4.8     First Amendment to Registration Rights Agreement, dated September 27,
          1999, by and among Holdings and certain investors named therein
          (Incorporated by reference to Exhibit 4.1 of the 10-Q, filed on
          October 27, 1999)

  4.9     First Amendment to Stockholders Agreement, dated September 27, 1999,
          by and among Holdings and certain stockholders of Holdings named
          therein (Incorporated by reference to Exhibit 4.2 of the Report on
          Form 10-Q, filed by Holdings and Eagle on October 27, 1999)

  4.10    Subscription Agreement, dated September 27, 1999, by and among
          Holdings, GE Investment Private Placement Partners, II, a Limited
          Partnership and Warburg, Pincus Ventures, L. P. (Incorporated by
          reference to Exhibit 4.3 of the Report on Form 10-Q, filed by Holdings
          and Eagle on October 27, 1999)

  10.1    Employment Agreement, dated March 31, 2000, by and between Mark J.
          Greatrex and the Company

                                       27
<PAGE>

10.2      Employment Agreement, dated January 23, 1998, by and between Jonathan
          F. Rich and the Company (Incorporated by referance to Exhibit 10.1 of
          the Report on Form 10-K, filed by Holdings and Eagle on September 6,
          2000)

10.3      Master Customer Services Agreement, dated as of January 23, 1998, by
          and between the Company and Borden Foods Corporation (Incorporated by
          reference to Exhibit 10.1 of the S-4)

10.4      License Agreement dated January 23, 1998 by and among BDH Two, Inc.,
          Borden, Inc. and the Company (Incorporated by reference to Exhibit
          10.2 of the S-4)

10.5      Assignment of Trademark License Agreement dated January 23, 1998, by
          and between BFC and the Company of BFC's License Agreement, dated as
          of September 4, 1997, by and between BFC and Southern Foods Group,
          L.P. (Incorporated by reference to Exhibit 10.3 of the S-4)

10.6      License Agreement, dated January 23, 1998, by and between BFC and the
          Company (Incorporated by reference to Exhibit 10.4 of the S-4)

10.7      The 1998 Stock Incentive Plan of Holdings (Incorporated by reference
          to Exhibit 10.5 of the S-4)

10.8      Employment Agreement, dated January 23 1998, by and between John O'C.
          Nugent and the Company (Incorporated by reference to Exhibit 10.6 of
          the S-4)

10.9      Employment Agreement, dated January 23, 1998, by and between Craig A.
          Steinke and the Company (Incorporated by reference to Exhibit 10.8 of
          the S-4)

10.10     Employment Agreement, dated January 23, 1998, by and between Richard
          A. Lumpp and the Company (Incorporated by reference to Exhibit 10.10
          of the S-4)

10.11     Pledge Agreement, dated January 23, 1998, by and between John O'C.
          Nugent and the Company (Incorporated by reference to Exhibit 10.12 of
          the S-4)

10.12     Secured Recourse Promissory Note, dated January 23, 1998, from John
          O'C. Nugent to the Company (Incorporated by reference to Exhibit 10.14
          of the S-4)

10.13     Amendment No. 1 to the Eagle Family Foods Holdings, Inc. 1998 Stock
          Incentive Plan, effective January 5, 2000 (Incorporated by reference
          to Exhibit 10.1 of the Report on Form 10-Q, filed by Holdings and
          Eagle on May 10, 2000)

12.1      Eagle Family Foods Holdings, Inc. Ratio of Earnings to Fixed Charges

12.2      Eagle Family Foods, Inc. Ratio of Earnings to Fixed Charges

                                       28
<PAGE>

 (b) Reports on Form 8-K

     A report on Form 8-K, dated August 13, 2001, was filed by the registrants
disclosing (i) the execution of the Asset Purchase Agreement with Mott's Inc.
and Cadbury Beverages Delaware, Inc. for the ReaLemon Sale and the press release
related thereto and (ii) the appointment of David A. Barr to serve as a director
on each of the Boards of Directors of the registrants and (iii) the appointment
of Craig A. Steinke to serve as a director on each of the Boards of Directors of
the registrants and as Chief Executive Officer and President of the registrants.

                                       29
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.


                                         Eagle Family Foods Holdings, Inc.


                                         By:         /S/ CRAIG A. STEINKE
                                              ----------------------------------
                                                         Craig A. Steinke
                                              President, Chief Executive Officer
                                              and Chief Financial Officer



                                         Eagle Family Foods, Inc.


                                         By:         /s/ CRAIG A. STEINKE
                                              ----------------------------------
                                                         Craig A. Steinke
                                              President, Chief Executive Officer
                                              and Chief Financial Officer



     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
registrants and in their capacities indicated.

<TABLE>
<CAPTION>
            Name                               Title                         Date
            ----                               -----                         ----
<S>                          <C>                                      <C>
    /S/ Craig A. Steinke     Director, President, Chief Executive     September 12, 2001
---------------------------  Officer and Chief Financial Officer
      Craig A. Steinke       (principal executive officer and
                             principal financial and accounting
                             officer)

 /S/ Andreas T. Hildebrand   Director                                 September 12, 2001
---------------------------
   Andreas T. Hildebrand

      /S/ Kewsong Lee        Director                                 September 12, 2001
---------------------------
        Kewsong Lee


     /S/ David A. Barr       Director                                 September 12, 2001
---------------------------
       David A. Barr


    /S/ Donald W. Torey      Director                                 September 12, 2001
---------------------------
      Donald W. Torey


   /S/ Paul W. Van Orden     Director                                 September 12, 2001
---------------------------
     Paul W. Van Orden
</TABLE>

                                       30
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Shareholders of
Eagle Family Foods, Inc. and
Eagle Family Foods Holdings, Inc.

In our opinion, the accompanying balance sheets and the related statements of
operations and comprehensive loss, of cash flows and of stockholder's equity of
Eagle Family Foods, Inc. and the accompanying consolidated balance sheets and
the related consolidated statements of operations and comprehensive loss, of
cash flows and of stockholders' deficit of Eagle Family Foods Holdings, Inc.
present fairly, in all material respects, the financial position of Eagle Family
Foods, Inc. and Eagle Family Foods Holdings, Inc. at June 30, 2001 and July 1,
2000, and the results of their operations and their cash flows for the fifty-two
week periods ended June 30, 2001 and July 1, 2000, and the fifty-three week
period ended July 3, 1999, in conformity with accounting principles generally
accepted in the United States of America. 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 of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.



PricewaterhouseCoopers LLP


Columbus, Ohio


August 13, 2001

                                       31
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                 Statements of Operations and Comprehensive Loss
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                        Fifty-Two       Fifty-Two      Fifty-Three
                                                                       Week Period     Week Period     Week Period
                                                                          Ended            Ended          Ended
                                                                      June 30, 2001    July 1, 2000    July 3, 1999
                                                                      -------------    ------------    ------------
<S>                                                                   <C>              <C>             <C>
Net sales...........................................................  $     220,633    $    224,733    $    239,730
Cost of goods sold..................................................        102,650         111,140         111,026
                                                                      -------------    ------------    ------------
   Gross margin.....................................................        117,983         113,593         128,704
Distribution expense................................................         13,837          14,016          13,420
Marketing expense...................................................         54,361          64,721          75,971
General and administrative expense..................................         13,363          13,580          12,406
Amortization of intangibles.........................................         11,157          11,156          21,249
Other operating income..............................................             --          (1,212)             --
                                                                      -------------    ------------    ------------
   Operating income.................................................         25,265          11,332           5,658
Interest expense, net...............................................         33,200          31,669          27,798
                                                                      -------------    ------------    ------------
   Loss before income taxes and cumulative effect
   of accounting change.............................................         (7,935)        (20,337)        (22,140)
Income tax benefit..................................................          2,862           8,727           7,655
                                                                      -------------    ------------    ------------
   Net loss before cumulative effect of accounting change...........         (5,073)        (11,610)        (14,485)
   Cumulative effect of accounting change...........................           (361)             --              --
                                                                      -------------    ------------    ------------
   Net loss.........................................................  $      (5,434)   $    (11,610)   $    (14,485)
                                                                      =============    ============    ============
Other comprehensive income (loss):
   Cash flow hedges -
      Cumulative effect of accounting change
       (net of tax of $741).........................................          1,262              --              --
      Change in fair value of financial derivatives
        (net of tax benefit of $568)................................           (967)             --              --
      Reclassification to interest expense
        (net of tax benefit of $127)................................           (215)             --              --
   Foreign translation adjustment...................................            (55)           (213)            286
                                                                      -------------    ------------    ------------
   Comprehensive loss...............................................  $      (5,409)   $    (11,823)   $    (14,199)
                                                                      =============    ============    ============
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       32
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                                 Balance Sheets
                    (Dollars in Thousands Except Share Data)

<TABLE>
<CAPTION>
                                                                                June 30, 2001    July 1, 2000
                                                                                -------------    ------------
<S>                                                                             <C>              <C>
                                      Assets
Current assets
   Cash and cash equivalents..................................................  $       1,064    $      1,197
   Accounts receivable, net...................................................         14,334          15,106
   Inventories................................................................         36,929          33,780
   Other current assets.......................................................          1,487           1,279
   Intercompany receivable....................................................            423             423
                                                                                -------------    ------------
     Total current assets.....................................................         54,237          51,785

Property and equipment, net...................................................         31,014          33,775
Note receivable from related party............................................            339             308
Intangibles, net..............................................................        260,597         271,738
Deferred income taxes.........................................................         33,889          30,795
Other non-current assets......................................................          7,470           8,269
                                                                                -------------    ------------
Total assets..................................................................  $     387,546    $    396,670
                                                                                =============    ============

                       Liabilities and Stockholder's Equity
Current liabilities
   Current portion of long-term debt..........................................  $         750    $      1,000
   Accounts payable...........................................................          7,021          12,015
   Other accrued liabilities..................................................          3,954           8,232
   Accrued interest...........................................................          8,508           8,951
                                                                                -------------    ------------
     Total current liabilities................................................         20,233          30,198

Long-term debt................................................................        332,750         326,500

Commitments and contingencies (Note 14)

Stockholder's equity
   Common stock, $.01 par value, 250,000 shares authorized, 10,000 shares
     issued and outstanding...................................................              1               1
   Additional paid-in capital.................................................         92,500          92,500
   Accumulated deficit........................................................        (57,973)        (52,539)
   Accumulated other comprehensive income.....................................             35              10
                                                                                -------------    ------------
     Total stockholder's equity...............................................         34,563          39,972
                                                                                -------------    ------------
Total liabilities and stockholder's equity....................................  $     387,546    $    396,670
                                                                                =============    ============
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       33
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                           Statements of Cash Flows
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                   Fifty-Two      Fifty-Two      Fifty-Three
                                                                  Week Period    Week Period     Week Period
                                                                     Ended           Ended           Ended
                                                                 June 30, 2001   July 1, 2000    July 3, 1999
                                                                 -------------   ------------    ------------
<S>                                                              <C>             <C>             <C>
Cash flows from (used in) operating activities:
   Net loss  .................................................   $      (5,434)  $    (11,610)   $    (14,485)
   Adjustments to reconcile net loss to net cash from (used
   in) operating activities
     Depreciation and amortization............................          17,434         18,730          25,571
     Amortization of deferred financing costs.................           2,322          1,823             920
     Deferred taxes...........................................          (3,094)        (8,789)         (7,760)
     Cumulative effect of accounting  change..................             361             --              --
     Loss (gain) on retirement/sale of fixed assets...........              32            (46)           (239)
   Net change in assets and liabilities:
     Accounts receivable......................................            (462)         6,719          (9,457)
     Inventories..............................................          (2,541)         7,977          (9,756)
     Accounts payable.........................................          (4,942)        (4,055)          6,405
     Other assets.............................................            (825)         3,439          (5,008)
     Other liabilities........................................          (4,677)        (3,976)          5,787
                                                                 -------------   ------------    ------------
   Cash from (used in) operating activities...................          (1,826)        10,212          (8,022)

Cash from (used in) investing activities:
   Capital expenditures.......................................          (3,568)        (7,564)        (13,744)
   Proceeds from the sale of assets...........................              --             85             641
   Repayment of notes and interest receivable.................              --            473             200
   Acquisition costs..........................................              --             --            (165)
                                                                 -------------   ------------    ------------
   Cash used in investing activities..........................          (3,568)        (7,006)        (13,068)

Cash from (used in) financing activities:
   Borrowings under revolving credit facility.................          78,900         65,500          64,500
   Payments under revolving credit facility...................         (71,900)       (75,500)        (43,000)
   Proceeds from sale of interest rate swap agreements........             873             --              --
   Payments under term loan facility..........................          (1,000)        (1,000)         (1,250)
   Other financing costs......................................          (1,612)        (1,981)             --
   Capital contribution.......................................              --         10,000              --
                                                                 -------------   ------------   -------------
   Cash from (used in) financing activities...................           5,261         (2,981)         20,250

Increase (decrease) in cash and cash equivalents..............            (133)           225            (840)
Cash and cash equivalents at beginning of period..............           1,197            972           1,812
                                                                 -------------   ------------    ------------
Cash and cash equivalents at end of period....................   $       1,064   $      1,197    $        972
                                                                 =============   ============    ============
Supplemental disclosure:
   Interest paid..............................................   $      31,863   $     29,261    $     25,955
                                                                 =============   ============    ============
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       34
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                 Statements of Changes in Stockholder's Equity
              For the Fifty-Two Week Period Ended June 30, 2001,
                   Fifty-Two Week Period Ended July 1, 2000,
                And Fifty-Three Week Period Ended July 3, 1999,
                            (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                              Accumulated
                                                              Additional                         Other
                                                 Common          Paid        Accumulated     Comprehensive
                                                  Stock       in Capital       Deficit           Income          Total
                                               ----------    ------------   -------------    -------------   -------------
<S>                                            <C>           <C>            <C>              <C>             <C>
Balance, June 27, 1998....................     $        1    $     82,500   $     (26,444)   $         (63)  $      55,994
Net loss..................................             --              --         (14,485)              --         (14,485)
Other comprehensive income:
  Accumulated translation adjustment......             --              --              --              286             286
                                               ----------    ------------   -------------    -------------   -------------
Balance, July 3, 1999.....................              1          82,500         (40,929)             223          41,795
Net loss..................................             --              --         (11,610)              --         (11,610)
Capital contribution......................             --          10,000              --               --          10,000
Other comprehensive income:
  Accumulated translation adjustment......             --              --              --             (213)           (213)
                                               ----------    ------------   -------------    -------------   -------------
Balance, July 1, 2000.....................              1          92,500         (52,539)              10          39,972
Net loss..................................             --              --          (5,434)              --          (5,434)
Other comprehensive loss:
  Cumulative effect of accounting change..             --              --              --            1,262           1,262
  Change in fair value of financial
  derivatives.............................             --              --              --             (967)           (967)
  Reclassification to interest expense....             --              --              --             (215)           (215)
  Foreign translation adjustment..........             --              --              --              (55)            (55)
                                               ----------    ------------   -------------    -------------   -------------
Balance, June 30, 2001....................     $        1    $     92,500   $     (57,973)   $          35   $      34,563
                                               ==========    ============   =============    =============   =============
</TABLE>

   The accompanying notes are an integral part of the financial statements.

                                       35
<PAGE>

                       EAGLE FAMILY FOODS HOLDINGS, INC.
         Consolidated Statements of Operations and Comprehensive Loss
                            (Dollars in Thousands)



<TABLE>
<CAPTION>
                                                                Fifty-Two       Fifty-Two        Fifty-Three
                                                               Week Period     Week Period       Week Period
                                                                  Ended           Ended             Ended
                                                              June 30, 2001    July 1, 2000     July 3, 1999
                                                              -------------   --------------    -------------
<S>                                                           <C>             <C>               <C>
Net sales.................................................    $     220,633   $      224,733    $     239,730
Cost of goods sold........................................          102,650          111,140          111,026
                                                              -------------   --------------    -------------
   Gross margin...........................................          117,983          113,593          128,704
Distribution expense......................................           13,837           14,016           13,420
Marketing expense.........................................           54,361           64,721           75,971
General and administrative expense........................           13,372           13,601           12,436
Amortization of intangibles...............................           11,157           11,156           21,249
Other operating income....................................               --           (1,212)              --
                                                              -------------   --------------    -------------
   Operating income.......................................           25,256           11,311            5,628
Interest expense, net.....................................           33,200           31,669           27,798
                                                              -------------   --------------    -------------
   Loss before income taxes and cumulative effect of
   accounting change......................................           (7,944)         (20,358)         (22,170)
Income tax benefit........................................            2,862            8,727            7,655
                                                              -------------   --------------    -------------
Net loss before cumulative effect of accounting change....           (5,082)         (11,631)         (14,515)
Cumulative effect of accounting change....................             (361)              --               --
                                                              -------------   --------------    -------------
   Net loss...............................................    $      (5,443)  $      (11,631)   $     (14,515)
                                                              =============   ==============    =============
Other comprehensive income (loss):
   Cash flow hedges -
      Cumulative effect of accounting change
       (net of tax of $741)...............................            1,262               --               --
      Change in fair value of financial derivatives
        (net of tax benefit of $568)......................             (967)              --               --
      Reclassification to interest expense
        (net of tax benefit of $127)......................             (215)              --               --
   Foreign translation adjustment.........................              (55)            (213)             286
                                                              -------------   --------------    -------------
   Comprehensive loss.....................................    $      (5,418)  $      (11,844)   $     (14,229)
                                                              =============   ==============    =============
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       36
<PAGE>

                       EAGLE FAMILY FOODS HOLDINGS, INC.
                          Consolidated Balance Sheets
                   (Dollars in Thousands Except Share Data)

<TABLE>
<CAPTION>
                                                                                       June 30,      July 1,
                                                                                         2001         2000
                                                                                       ---------    ---------
                                     Assets
Current assets
<S>                                                                                    <C>          <C>
   Cash and cash equivalents .......................................................   $   1,064    $   1,197
   Accounts receivable, net ........................................................      14,334       15,106
   Inventories .....................................................................      36,929       33,780
   Other current assets ............................................................       1,487        1,279
                                                                                       ---------    ---------
     Total current assets ..........................................................      53,814       51,362

Property and equipment, net ........................................................      31,014       33,775
Intangibles, net ...................................................................     260,597      271,738
Deferred income taxes ..............................................................      33,889       30,795
Other non-current assets ...........................................................       7,470        8,269
                                                                                       ---------    ---------
Total assets .......................................................................   $ 386,784    $ 395,939
                                                                                       =========    =========

                      Liabilities and Stockholders' Deficit
Current liabilities
   Current portion of long-term debt ...............................................   $     750    $   1,000
   Accounts payable ................................................................       7,021       12,015
   Other accrued liabilities .......................................................       3,954        8,232
   Accrued interest ................................................................       8,508        8,951
                                                                                       ---------    ---------
     Total current liabilities .....................................................      20,233       30,198

Long-term debt .....................................................................     332,750      326,500

Commitments and contingencies (Note 14)

Redeemable preferred stock, 1,000,000 shares authorized:
   Series A preferred stock, $100 stated value, 816,750 shares issued and
     outstanding at redemption value ...............................................     114,162      103,616
   Treasury stock, 3,438 shares at cost ............................................        (423)        (423)
   Subscription receivable .........................................................        (333)        (305)
                                                                                       ---------    ---------
                                                                                         113,406      102,888
   Series B preferred stock, $100,000 stated value, 99 shares issued and
     outstanding at redemption value ...............................................      11,757       10,667
                                                                                       ---------    ---------
     Total redeemable preferred stock ..............................................     125,163      113,555

Stockholders' deficit
   Common stock $0.01 par value, 1,200,000 shares authorized,
    1,116,704 and 1,063,559 issued and outstanding, respectively ...................          11           11
   Additional paid-in capital ......................................................       1,001        1,001
   Accumulated deficit .............................................................     (92,388)     (75,309)
   Accumulated other comprehensive income ..........................................          35           10
   Other ...........................................................................         (21)         (27)
                                                                                       ---------    ---------
     Total stockholders' deficit ...................................................     (91,362)     (74,314)
                                                                                       ---------    ---------
Total liabilities and stockholders' deficit ........................................   $ 386,784    $ 395,939
                                                                                       =========    =========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       37
<PAGE>

                        EAGLE FAMILY FOODS HOLDINGS, INC.
                      Consolidated Statements of Cash Flows
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                    Fifty-Two         Fifty-Two       Fifty-Three
                                                                   Week Period       Week Period      Week Period
                                                                      Ended             Ended            Ended
                                                                  June 30, 2001      July 1, 2000     July 3, 1999
                                                                  -------------      ------------     ------------
<S>                                                               <C>                <C>              <C>
Cash flows from (used in) operating activities:
   Net loss......................................................     $ (5,443)         $(11,631)       $(14,515)
   Adjustments to reconcile net loss to net cash from (used in)
   operating activities
     Depreciation and amortization...............................       17,443            18,752          25,601
     Amortization of deferred financing costs....................        2,322             1,823             920
     Deferred taxes..............................................       (3,094)           (8,789)         (7,760)
     Cumulative effect of accounting change......................          361                --              --
     Loss (gain) on retirement/sale of fixed assets..............           32               (46)           (239)
   Net change in assets and liabilities:
     Accounts receivable.........................................         (462)            6,719          (9,457)
     Inventories.................................................       (2,541)            7,977          (9,756)
     Accounts payable............................................       (4,942)           (4,055)          6,404
     Other assets................................................         (825)            3,861          (5,008)
     Other liabilities...........................................       (4,677)           (3,976)          5,788
                                                                      --------          --------        --------
   Cash from (used in) operating activities......................       (1,826)           10,635          (8,022)

Cash from (used in) investing activities:
   Capital expenditures..........................................       (3,568)           (7,564)        (13,744)
   Proceeds from sale of assets..................................           --                85             641
   Repayment of subscription and interest receivable.............           --               473             200
   Acquisition costs.............................................           --                --            (165)
                                                                      --------          --------        --------
   Cash used in investing activities.............................       (3,568)           (7,006)        (13,068)

Cash from (used in) financing activities:
   Borrowings under revolving credit facility....................       78,900            65,500          64,500
   Payments under revolving credit facility......................      (71,900)          (75,500)        (43,000)
   Proceeds from sale of interest rate swap agreements...........          873                --              --
   Payments under term loan facility.............................       (1,000)           (1,000)         (1,250)
   Other financing costs.........................................       (1,612)           (1,981)             --
   Purchase of Series A Preferred Stock..........................           --              (423)             --
   Issuance of Series B Preferred Stock and Common Stock.........           --            10,000              --
                                                                      --------          --------        --------
   Cash from (used in) financing activities......................        5,261            (3,404)         20,250

Increase (decrease) in cash and cash equivalents.................         (133)              225            (840)
Cash and cash equivalents at beginning of period.................        1,197               972           1,812
                                                                      --------          --------        --------
Cash and cash equivalents at end of period.......................     $  1,064          $  1,197        $    972
                                                                      ========          ========        ========

Supplemental disclosure:
   Interest paid.................................................     $ 31,863          $ 29,261        $ 25,955
                                                                      ========          ========        ========
   Non-cash financing activities include dividends accrued on
    redeemable preferred stock...................................     $ 11,636          $ 10,360        $  8,878
                                                                      ========          ========        ========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       38
<PAGE>

                        EAGLE FAMILY FOODS HOLDINGS, INC.
      Consolidated Statements of Changes in Stockholders' Equity (Deficit)
               For the Fifty-Two Week Period Ended June 30, 2001,
                    Fifty-Two Week Period Ended July 1, 2000,
                 And Fifty-Three Week Period Ended July 3, 1999
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                          Accumulated
                                                              Additional                     Other
                                                  Common         Paid      Accumulated   Comprehensive
                                                  Stock       In Capital     Deficit        Income        Other        Total
                                                ---------     ----------  ------------   -------------  ---------    ----------
<S>                                              <C>          <C>         <C>            <C>            <C>          <C>
Balance, June 27, 1998........................   $     10     $    962    $  (29,925)       $    (63)   $   (143)    $  (29,159)
Net loss......................................         --           --       (14,515)             --          --        (14,515)
Preferred stock dividend......................         --           --        (8,878)             --          --         (8,878)
Subscription receivable:
  Interest Income.............................         --           --            --              --          (1)            (1)
Payment on subscription receivable............         --           --            --              --           2              2
Grant and issue of restricted common
  stock, net of termination...................         --            4            --              --          (4)            --
Amortization of unearned compensation.........         --           --            --              --          30             30
Other comprehensive loss:
  Foreign translation adjustment..............         --           --            --             286          --            286
                                                 --------     --------    ----------        --------    --------     ----------
Balance, July 3, 1999.........................         10          966       (53,318)            223        (116)       (52,235)
Net loss......................................         --           --       (11,631)             --          --        (11,631)
Preferred stock dividend......................         --           --       (10,360)             --          --        (10,360)
Subscription receivable:
  Interest Income.............................         --           --            --              --          (5)            (5)
Infusion of capital...........................          1           99            --              --          --            100
Cancellation of restricted common stock
  grants......................................         --          (64)           --              --          64             --
Payment on subscription receivable............         --           --            --              --           9              9
Amortization of unearned compensation.........         --           --            --              --          21             21
Other comprehensive loss:
  Foreign translation adjustment..............         --           --            --            (213)         --           (213)
                                                 --------     --------    ----------        --------    --------     ----------
Balance, July 1, 2000.........................         11        1,001       (75,309)             10         (27)       (74,314)
Net loss......................................         --           --        (5,443)             --          --         (5,443)
Preferred stock dividend......................         --           --       (11,636)             --          --        (11,636)
Subscription receivable:
  Interest Income.............................         --           --            --              --          (3)            (3)
Amortization of unearned compensation.........         --           --            --              --           9              9
Other comprehensive loss
  Cumulative effect of accounting change......         --           --            --           1,262                      1,262
  Change in fair value of financial
      derivatives.............................         --           --            --            (967)         --           (967)
  Reclassification to interest expense........         --           --            --            (215)         --           (215)
  Foreign translation adjustment..............         --           --            --             (55)         --            (55)
                                                 --------     --------    ----------        --------    --------     ----------
Balance, June 30, 2001........................   $     11     $  1,001    $  (92,388)       $     35    $    (21)    $  (91,362)
                                                 ========     ========    ==========        ========    ========     ==========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       39
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                       Notes to the Financial Statements


1. Basis of Presentation:

     The accompanying financial statements as of June 30, 2001 and July 1, 2000
and for the fifty-two week periods ended June 30, 2001 and July 1, 2000 and
fifty-three week period ended July 3, 1999 present the financial position,
results of operations and cash flows of Eagle Family Foods, Inc. ("Eagle" or the
"Company") and the consolidated financial position, results of operations and
cash flows of Eagle Family Foods Holdings, Inc. ("Holdings") and its wholly
owned subsidiary, Eagle. Eagle and Holdings are collectively referred to as the
"Company", unless the context indicates otherwise. All significant intercompany
balances and transactions have been eliminated in consolidation. Certain prior
year amounts have been reclassified to conform to the current year's
presentation. The Company's and Holdings' fiscal year end is the Saturday
closest to June 30. Fiscal years are designated in the financial statements and
notes by the calendar year in which the fiscal year ends.

     Eagle was incorporated on November 14, 1997 and Holdings was incorporated
on December 22, 1997. On December 30, 1997, Eagle issued 10,000 shares of common
stock, par value $.01 per share, for $1,000 to Holdings. Holdings and Eagle did
not realize any income or incur any expenses until commencement of operations on
January 23, 1998. On January 23, 1998, Holdings received $82.5 million from GE
Investment Private Placement Partners II ("GEI"), Warburg, Pincus Ventures, L.P.
("Warburg") and certain members of management in exchange for 825,000 shares of
common stock and 816,750 shares of Series A preferred stock. On January 23,
1998, Eagle acquired certain assets of Borden Foods Corporation ("BFC") and
certain of their affiliates for $376.8 million. Financing for the acquisition
and related fees consisted of (i) $82.5 million equity contribution from
Holdings, (ii) $115.0 million of 8.75% senior subordinated notes and (iii)
senior secured credit facilities in the aggregate principal amount of $245.0
million, consisting of a $175.0 million term loan facility and a $70.0 million
revolving credit facility, under which $16.5 million was drawn at the time of
the acquisition closing.

     The acquisition was reflected in the financial statements using the
purchase method of accounting. The purchase price was allocated to the assets of
Eagle on the basis of their fair values. The fair values of assets were
determined based on independent appraisals and management estimates.

     Eagle operates in a single segment which manufactures and markets a
portfolio of leading dry-grocery food products with widely recognized and
established brands in the United States. The Company also has limited sales and
manufacturing in Canada. The Company's portfolio of products includes Eagle
Brand sweetened condensed milk, ReaLemon and ReaLime lemon and lime juice from
concentrate, None Such mincemeat pie filling, Cremora powdered non-dairy
creamer, Kava acid-neutralized coffee and Borden eggnog.

2. Summary of Significant Accounting Policies:

   Revenue Recognition

     Revenues are recognized when title, ownership and risk of loss transfers to
the customer. Liabilities are established for estimated returns, allowances,
consumer and certain trade promotions and discounts when revenues are
recognized. In the fourth quarter of fiscal year 2001, the Company changed its
method of accounting for revenue, as clarified in the Securities and Exchange
Commission Staff Accounting Bulletin ("SAB") No. 101. The Company recorded a
cumulative effect from this accounting change of $361,000, net of tax.

                                       40
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


   Research and Development

     Research and development costs are charged to general and administrative
expense when incurred. Research and development costs amounted to $1,510,000,
$1,718,000 and $2,208,000 for the periods ended June 30, 2001, July 1, 2000 and
July 3, 1999.

   Advertising and Promotion

     Production costs of future media advertising and consumer promotion events
are deferred until the advertising or promotion first occurs. All other
advertising and promotion costs are expensed when incurred. Advertising and
promotional expenses were $39,877,000, $49,002,000 and $59,953,000 for the
periods ended June 30, 2001, July 1, 2000 and July 3, 1999, respectively.

   Cash and Cash Equivalents

     The Company considers all liquid investments purchased with an initial term
to maturity of three months or less when purchased to be cash equivalents.

   Inventories

     Inventories are stated at the lower of cost or market, with cost of goods
sold principally being determined using the first-in, first-out method.

   Slotting Allowance

     The costs of obtaining shelf space (slotting) are expensed over a period
not to exceed twelve months.

   Property and Equipment

     Property and equipment is stated at cost. Depreciation of property and
equipment is calculated for financial reporting purposes on a straight-line
method using estimated service lives ranging principally from 8-20 years for
buildings and improvements and 3-10 years for other property and equipment. When
assets are sold, retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts and any related gain or
loss is recorded in the statement of operations. Normal maintenance and repairs
are expensed as incurred, while major renewals and betterments which extend
service lives are capitalized.

   Capitalized Software Development Costs

     Certain external costs and internal payroll and payroll related costs
incurred during the application development and implementation stages of a
software project are capitalized and amortized on a straight-line basis over the
useful life of the software. Costs incurred during the preliminary project and
post-implementation stages are expensed as incurred. At June 30, 2001 and July
1, 2000, capitalized software costs, net of accumulated amortization, amounted
to $4,834,000 and $6,489,000, respectively.

   Intangibles

     Intangibles are stated at cost and are amortized on a straight-line basis
over their estimated useful lives. Goodwill represents the excess of purchase
price over fair value of identifiable assets and liabilities acquired.

                                       41
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued

   Impairment

     Long-lived assets including goodwill are reviewed for impairment whenever
events or changes indicate that full recoverability is questionable. Factors
used in the valuation include, but are not limited to, management's plans for
future operations, recent operating results and projected undiscounted cash
flows.

   Other Non-current Assets

     Other non-current assets at June 30, 2001 and July 1, 2000 consisted
primarily of net deferred financing costs amounting to approximately $7,447,000
and $8,157,000, respectively. Such costs are amortized over the term of the
related debt using the interest method.

   Start up Costs

     Costs for start up activities are expensed as incurred.

   Income Taxes

     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires the use of the liability method. Under this method, deferred tax
assets and liabilities are recognized based on the difference between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect in the years in which those temporary
differences are expected to reverse. Under SFAS No. 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.

    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. Actual
results may differ from those estimates.

   Foreign Currency Translation

     All assets and liabilities of Canadian operations are translated into U.S.
dollars using the rate at the end of the fiscal period. Income and expense items
are translated at average exchange rates prevailing during the fiscal period.
Foreign currency assets, liabilities, income and expenses were not significant
to the Company's financial position or results of operations.

   Fair Value of Financial Instruments

     The carrying value of cash equivalents, accounts receivable, accounts
payable and accrued expenses as stated on the balance sheets approximated their
fair market values because of their short maturities. The fair value of the
Company's debt is estimated based on the current rates offered to the Company
for debt of the same remaining maturities. The fair value of the Company's
derivatives is estimated based on dealer quotes for those instruments.

   Hedging

     The Company enters into financial derivative instruments to manage or
reduce market risk for interest rates and to manage or reduce prices of the milk
commodities. The Company accounts for such non-speculative hedging activity in
accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"), as amended, which established accounting and reporting
guidelines for derivative instruments and hedging

                                       42
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


activities. SFAS 133 requires that all derivative instruments be recognized as
assets and liabilities in the financial statements at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation as a fair value hedge or a cash flow
hedge.

   Environmental Matters

     The Company, like others in similar businesses, is subject to extensive
Federal, state and local environmental laws and regulations. Although the
Company's environmental policies and practices are designed to ensure compliance
with these laws and regulations, future developments and increasingly stringent
regulations could require the Company to incur additional unforeseen
environmental expenditures. Environmental remediation costs are accrued when
environmental assessments and/or remedial efforts are probable and the cost or a
reasonable range can be estimated. Environmental expenditures, which improve the
condition of the property, are capitalized and amortized over their estimated
useful life.

   Recently Issued Accounting Statements

     In June 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS
141"). SFAS 141 addresses financial accounting and reporting for business
combinations. The statement requires all business combinations to be accounted
for under the purchase method and establishes criteria for the separate
recognition of intangible assets acquired in a business combination. The
provisions of this pronouncement apply to all business combinations accounted
for using the purchase method for which the date of acquisition is July 1, 2001,
or later. The Company is evaluating this pronouncement and has not yet
determined its impact on future financial statements.

     In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). SFAS 142 addresses financial accounting and reporting for
intangible assets acquired individually or with a group of other assets at
acquisition and for periods subsequent to acquisition. The Company is evaluating
this pronouncement and has not yet determined its impact on future financial
statements. The pronouncement will be adopted during the first quarter of the
fiscal year ending June 28, 2003.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company is
evaluating the pronouncement and has not yet determined its impact on future
financial statements. This pronouncement will be adopted during the fourth
quarter of the fiscal year ending June 29, 2002.

     In May 2000, the FASB Emerging Issues Task Force ("EITF") issued EITF Issue
No. 00-14, "Accounting for Certain Sales Incentives" ("Issue 00-14"). Issue
00-14 addresses the recognition, measurement, and income statement
classification for sales incentives including point of sale coupons, rebates and
free merchandise in connection with a single exchange transaction. Upon the
adoption of Issue 00-14, the Company will reclassify coupon redemption costs
from marketing expense to net sales, resulting in no impact to net income. The
coupon redemption costs for the fifty-two week periods ended June 30, 2001 and
July 1, 2000 were $3,397,000 and $5,314,000, respectively, and for the
fifty-three week period ended July 3, 1999 were $7,751,000. The EITF deferred
the effective date of Issue 00-14 to the quarter beginning after December 15,
2001. The Company will adopt the pronouncement during the third quarter of the
fiscal year ending June 29, 2002.

     In September 2000, the EITF issued EITF Issue No. 00-25, "Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products" ("Issue 00-25"). Issue 00-25 addresses the
income statement classification of certain considerations from a vendor to a
retailer in connection with the retailer's purchase of the vendor's product.
Such considerations include, but are not limited to slotting fees, cooperative
advertising programs, and buy down programs. Upon the adoption of Issue 00-25,
the Company will

                                       43
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued

reclassify these expenses from marketing expense to net sales, resulting in no
impact to net income. Issue 00-25 is effective for the quarter beginning after
December 15, 2001. The Company will adopt the pronouncement during the third
quarter of the fiscal year ending June 29, 2002.

3. Inventories:

     Inventories are stated at lower of cost or market and at June 30, 2001 and
July 1, 2000 consisted of the following (in thousands):

                                                 June 30, 2001     July 1, 2000
                                                 -------------     ------------
          Finished goods..................       $      34,033     $     30,811
          Raw material....................               2,896            2,969
                                                 -------------     ------------

                   Total inventories......       $      36,929     $     33,780
                                                 =============     ============


4. Property and Equipment:

     Property and equipment is recorded at cost and at June 30, 2001 and July 1,
2000 consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                      June 30, 2001       July 1, 2000
                                                                      ---------------     --------------
          <S>                                                         <C>                 <C>
          Land......................................................  $          470      $          470
          Buildings and improvements................................           9,174               7,393
          Machinery and equipment...................................          27,663              22,495
          Computers.................................................          11,862              11,375
          Construction in progress..................................             351               4,280
                                                                      ---------------     --------------
                   Total property and equipment.....................          49,520              46,013
          Accumulated depreciation..................................         (18,506)            (12,238)
                                                                      ---------------     --------------
                   Net property and equipment.......................  $       31,014      $       33,775
                                                                      ===============     ==============
</TABLE>

5. Intangible Assets:

     Intangible assets are amortized on a straight-line basis over their
estimated useful lives and consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                      Estimated Useful
                                                       June 30, 2001    July 1, 2000        Lives
                                                       --------------   ------------   ----------------
          <S>                                          <C>              <C>            <C>
          Tradenames..............................     $      141,000   $    141,000        40 years
          Goodwill................................            136,664        136,664        40 years
          Covenant not to compete.................             21,000         21,000         5 years
                                                       --------------   ------------
                   Total intangible assets........            298,664        298,664
          Accumulated amortization................            (38,067)       (26,926)
                                                       --------------   ------------
                   Net intangible assets..........     $      260,597   $    271,738
                                                       ==============   ============
</TABLE>

                                       44
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                        EAGLE FAMILY FOODS HOLDINGS, INC.
                  Notes to the Financial Statements - continued


6. Debt:

     Debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                          June 30, 2001   July 1, 2000
                                                                          --------------  ------------
        <S>                                                               <C>             <C>
        Term loan facility due December 31, 2005........................  $      171,500  $    172,500
        Senior subordinated notes due January 15, 2008..................         115,000       115,000
        Revolving credit facility due December 31, 2004.................          46,000        40,000
        Revolving credit facility swingline loan due December 31, 2004...          1,000            --
                                                                           -------------  ------------
            Total debt..................................................         333,500       327,500
        Less: Current portion of long-term debt.........................            (750)       (1,000)
                                                                           -------------  ------------
           Long-term debt -.............................................   $     332,750  $    326,500
                                                                           =============  ============
</TABLE>

   Senior Credit Facilities

     The Company is the borrower under a credit agreement, dated as of January
23, 1998, as amended (the "Senior Credit Facilities"), which consists of (i) a
$60 million seven-year revolving credit facility (the "Revolving Credit
Facility") and (ii) a $175 million eight-year term loan (the "Term Loan
Facility"). The Senior Credit Facilities are guaranteed by Holdings and all
future domestic subsidiaries of the Company.

     The Senior Credit Facilities contain financial covenants, which requires
the Company to meet certain financial tests including debt coverage, interest
expense coverage and capital expenditure requirements. The Senior Credit
Facilities also contain covenants including limitations on additional
indebtedness, liens, asset sales, capital expenditures, sale and leaseback
transactions, dividends, loans and investment, modification of material
agreements, transactions with affiliates, acquisitions, mergers and
consolidations and prepayment of subordinated indebtedness. The Senior Credit
Facilities agreement provides that neither Holdings or Eagle will, nor will they
permit any subsidiary of Eagle to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, as defined, except primarily (i)
Holdings may declare and pay dividends with respect to its capital stock payable
solely in additional shares of its capital stock (other than redeemable
preferred stock) and (ii) subsidiaries of Eagle may declare and pay dividends
ratable with respect to their capital stock. The Senior Credit Facilities
agreement also requires the Company to pledge assets acquired after the
acquisition closing, including stock of after-acquired or formed subsidiaries,
to deliver guarantees by wholly owned domestic subsidiaries and to maintain
insurance. The Senior Credit Facilities contain customary events of default,
including certain changes of control of the Company.

     The Company amended its Senior Credit Facilities pursuant to an amendment
dated August 10, 2001 (the "Amendment") which will become effective as of the
completion of the ReaLemon Sale. The Company received consent from the lenders
for the ReaLemon Sale, and waived compliance with leverage ratio and
consolidated cash interest expense coverage ratio financial covenants for
periods commencing on and including September 29, 2001 and ending on and
including December 28, 2002. The Amendment includes restrictions on the carrying
balance of the Revolving Credit Facility for a period of thirty consecutive days
commencing on and including December 1 of any year and ending on and including
March 31 of the following year. The Amendment also sets forth minimum
requirements for consolidated earnings before interest, income tax, depreciation
and amortization.

     The interest rate on the Term Loan Facility, as amended, is LIBOR plus
4.00%. The interest rate on the Revolving Credit Facility, as amended, is LIBOR
plus 4.00% with the swingline loan portion bearing interest at Prime plus 3.00%.

     The obligations of Eagle under the Senior Credit Facilities are
collateralized by (i) 100% of the capital stock of the Company and each of its
subsidiaries and (ii) a first priority collateral interest in substantially all
assets and properties of the Company and its future domestic subsidiaries. The
fair market value of the senior credit facilities at June 30, 2001 approximates
the carrying value.

                                       45
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


   Senior Subordinated Notes

     The Company's senior subordinated notes (the "Notes") are due January 15,
2008 bearing interest of 8.75% per annum, payable on January 15 and July 15,
commencing July 15, 1998. The fair market value of the Notes was approximately
$66.1 million and $69.0 million at June 30, 2001 and July 1, 2000, respectively.

     The Notes are unconditionally guaranteed by Holdings (the "Parent
Guarantee") and by each future Domestic Subsidiary of the Company (each, a
"Domestic Subsidiary Guarantee" and, collectively, the "Domestic Subsidiary
Guarantees"). The Company currently has no domestic subsidiaries and therefore
none which guarantee the Notes. The Parent Guarantee and the Domestic Subsidiary
Guarantees are joint and several as well as full and unconditional. The Notes
are unsecured and subordinated in right of payment to all existing and future
senior indebtedness of the Company. The Notes include certain covenants
including limitations on indebtedness, dividends and other payment restrictions
affecting subsidiaries, subordinated liens, sale and leaseback transactions,
sale or issuance of capital stock of subsidiaries, merger, consolidation or sale
of assets, transactions with affiliates and layering debt. The indenture
provides that the Company will not, and will not permit any of its subsidiaries,
directly or indirectly, to declare or pay any dividend or make any distribution
on or in respect of its capital stock except dividends or distributions payable
solely in its capital stock (other than redeemable stock) and except dividends
or distributions payable solely to the Company or any wholly-owned subsidiary of
the Company. Furthermore, Holdings' ability to obtain funds from its
subsidiaries is restricted by the Notes because (i) Holdings may not hold assets
other than Company capital stock and other minimal assets related to the
business of holding such stock and (ii) Holdings may not incur any additional
liabilities other than in the ordinary course of business.

     On April 16, 1998, the Company and Holdings filed a Registration Statement
on Form S-4 to offer to exchange (the "Exchange Offer") up to $115 million of
its 8.75% Series B Senior Subordinated Notes due 2008 (the "Exchange Notes") for
up to $115 million of its outstanding Notes.

     Upon consummation of the Exchange Offer, the terms of the Exchange Notes
were substantially identical in all respects to the term of the Notes. The
Exchange Notes are unconditionally guaranteed on a senior subordinated and
unsecured basis by Holdings and all future Domestic Subsidiaries.

     Annual principal payments for the next five fiscal years and thereafter
consisted of the following (in thousands):

          2002..................................................  $      750
          2003..................................................       3,250
          2004..................................................      27,500
          2005..................................................     127,000
          2006..................................................      60,000
          Thereafter............................................     115,000
                                                                  ----------
                                                                  $  333,500
                                                                  ==========

7. Income Taxes

     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires the use of the liability method. Under this method, deferred tax
assets and liabilities are recognized based on the difference between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect in the years in which those temporary
differences are expected to reverse. Under SFAS No. 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.

                                       46
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


     A comparative analysis of the Company's benefit for income taxes from
earnings before income taxes and cumulative effect of accounting change
consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                     June 30, 2001   July 1, 2000   July 3, 1999
                                                     -------------   ------------   ------------
            <S>                                      <C>             <C>            <C>
            Federal ..............................   $       2,721   $      6,229   $      7,655
            State   ..............................             141          2,498             --
                                                     -------------   ------------   ------------
                                                     $       2,862   $      8,727   $      7,655
                                                     =============   ============   ============
</TABLE>

     At June 30, 2001, the Company had $91.7 million of accumulated net
operating losses for financial statement purposes and $92.0 million of
accumulated net operating loss carryforwards for tax reporting purposes. The tax
net operating losses expire, if unused, beginning in 2018. The Company believes
that these carryforwards will be available to reduce future federal income tax
liabilities and has recorded the benefit of these carryforwards as a non-current
deferred tax asset. During the period ended July 1, 2000, the Company revised
its previous estimates for state net operating loss carryforwards and recorded
an accumulated tax benefit for state net operating loss carryforwards of $1.7
million. The Company's net operating loss carryforwards for foreign purposes are
not material.

     Reconciliation of the differences between income taxes computed at Federal
statutory rates and the consolidated benefit for income taxes on earnings before
income taxes and cumulative effect of accounting change are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                June 30, 2001      July 1, 2000       July 3, 1999
                                                              -----------------   --------------    ----------------
               <S>                                            <C>                 <C>               <C>
               Income tax benefit computed at
                 the Federal statutory tax rate.............  $           2,781   $        7,125    $          7,655
               State tax (provision) benefit, net of Federal
                  tax benefits..............................                 92            1,602                  --
               Other   .....................................                (11)              --                  --
                                                              -----------------   --------------    ----------------
                                                              $           2,862   $        8,727    $          7,655
                                                              =================   ==============    ================
</TABLE>

     Deferred tax assets and liabilities consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                June 30, 2001   July 1, 2000     July 3, 1999
                                                                -------------   ------------     ------------
               <S>                                              <C>               <C>               <C>
               Net operating loss carryforward..............    $      34,095   $     25,855     $     15,610
               Intangible assets............................             (196)         3,108            7,002
               Property, plant and equipment................           (2,478)        (1,677)          (2,979)
               All other assets.............................            2,851          3,813            3,608
               All other liabilities........................             (383)          (304)          (1,235)
                                                                -------------   ------------     ------------
                  Net deferred tax asset....................    $      33,889   $     30,795     $     22,006
                                                                =============   ============     ============
</TABLE>

8. Supplemental Information

     Other accrued liabilities consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                June 30, 2001   July 1, 2000
                                                                -------------   ------------
           <S>                                                  <C>             <C>
           Other accrued liabilities:
                Customer allowances.........................    $       1,271   $      2,142
                Coupon accrual..............................              740          2,399
                Broker commissions..........................              865          1,205
                Compensation and related accruals...........              592          1,653
                Other ......................................              486            833
                                                                -------------   ------------
                   Total other accrued liabilities..........    $       3,954   $      8,232
                                                                =============   ============
</TABLE>

                                       47
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                        EAGLE FAMILY FOODS HOLDINGS, INC.
                  Notes to the Financial Statements - continued


9. Other Within Holdings' Stockholders' Deficit

     Other within Holdings' Stockholders' Deficit consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                 June 30, 2001    July 1, 2000
                                                                 -------------    ------------
       <S>                                                       <C>              <C>
       Unearned compensation...................................  $         (15)   $        (24)
       Subscription receivable.................................             (6)             (3)
                                                                 -------------    ------------
         Total other...........................................  $         (21)   $        (27)
                                                                 =============    ============
</TABLE>

10. Redeemable Preferred Stock

      On September 24, 1999, 99 shares of Series B Non-Voting Preferred Stock
(the "Series B Preferred Stock") were issued by Holdings at a stated value of
$100,000 per share (the "Series B Stated Value"), and on January 23, 1998,
816,750 shares of Series A Non-Voting Preferred Stock (the "Series A Preferred
Stock" and together with the Series B Preferred Stock, the "Preferred Stock")
were issued by Holdings at a stated value of $100 per share (the "Series A
Stated Value", and together with the Series B Stated Value, the "Stated Value").

     Together, the Preferred Stock ranks as to dividends and on liquidation on
parity. The Preferred Stock provides for preferential cumulative dividends at
the rate of 10% per share per annum of the Stated Value for each series of
Preferred Stock. Dividends are payable as declared by the Holdings Board of
Directors and shall be paid before any dividends shall be set apart for or paid
upon the Common Stock of Holdings, par value $0.01 per share (the "Common
Stock"). In the event of liquidation, dissolution or winding up, the holders of
shares of Preferred Stock are entitled to be paid out of the assets of Holdings
available for distribution to its stockholders before any payment is made to the
holders of stock junior to the Preferred Stock. Holders of Preferred Stock are
not entitled to vote on any matters presented to the stockholders of Holdings.
However, the affirmative vote or written consent of the holders of at least
two-thirds of the then outstanding shares of Preferred Stock is required to
amend, alter or repeal the preferences, special rights or other powers of the
Preferred Stock. The Preferred Stock is subject to mandatory redemption at a
price per share equal to the Stated Value for each series of Preferred Stock
plus all dividends accrued and unpaid thereon up (1) the closing of a public
offering pursuant to an effective registration statement under the Securities
Act of 1933, (2) the sale of all or substantially all of the assets of Holdings
or the merger or consolidation of Holdings with or into any other corporation or
other entity in which the holders of Holdings' outstanding shares before the
merger or consolidation do not retain a majority of the voting power of the
surviving corporation or other entity or (3) the acquisition by any person of
shares of Common Stock representing a majority of the issued and outstanding
shares of Common Stock then outstanding.

     Cumulative accrued dividends totaled $34,343,000 and $22,707,000 at June
30, 2001 and July 1, 2000, respectively. They are classified with Redeemable
Preferred Stock in the consolidated balance sheet of Holdings.

11. Stockholders and Registration Rights Agreements

     The Stockholders Agreement, dated as of January 23, 1998, by and among
Holdings and the stockholders named therein (the "Stockholders Agreement") and
the Registration Rights Agreement, dated as of January 23, 1998, by and among
Holdings and the investors named therein (the "Registration Rights Agreement")
were each amended as of September 27, 1999, to reflect a Subscription Agreement
with GEI and Warburg (as described in Note 12) for the offer and sale of a total
of 99 shares of Series B Preferred Stock and a total of 100,000 shares of Common
Stock with accompanying warrants to purchase a total of 22,013 shares of Common
Stock (the "Warrants") . As a result of such amendments, all covenants and
agreements set forth in the initial Stockholders Agreement and Registration
Rights Agreement will apply to the newly issued Series B Preferred Stock, Common
Stock and Common Stock issuable upon exercise of the Warrants.

                                       48
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                        EAGLE FAMILY FOODS HOLDINGS, INC.
                  Notes to the Financial Statements - continued


12. Stock Subscription Agreement

     On September 27, 1999, GEI and Warburg subscribed to purchase a total of 99
shares of Series B Preferred Stock at $100,000 per share and a total of 100,000
shares of Common Stock at $1 per share with accompanying Warrants to purchase up
to 22,013 additional shares of Common Stock. The Warrants may be exercised for a
purchase price of $1 per share of Common Stock (subject to certain adjustments)
and only upon failure of the Company to achieve certain financial targets for
the fiscal year ended June 30, 2001. The Warrants would have automatically
terminated if the Company had achieved certain financial targets for fiscal year
ended June 30, 2001. The Company did not meet the financial targets for fiscal
year ended June 30, 2001. Therefore, pursuant to the terms of the Warrants, the
Warrants expire on September 27, 2004. Holdings received $10.0 million in
exchange for these securities. In connection with the issuance of the
securities, Holdings made a $10.0 million capital contribution to Eagle.

     On January 23, 1998, GEI, Warburg, and several officers of Holdings
subscribed to purchase a combined 816,750 shares of Series A Preferred Stock at
$100 per share and 825,000 shares of Common Stock at $1 per share. Full payment
for the stock was received from all but two of the officers, who subscribed to
purchase an aggregate of 13,117.5 shares of Series A Preferred Stock and 13,250
shares of Common Stock. Notes aggregating $825,000 were received from the two
officers as partial consideration for the subscription. These notes are
collateralized by the shares issued. They have a stated interest rate of prime
(as defined) plus 0.5%, with a maturity date of January 23, 2003. The notes have
been assigned between Common and Preferred Stock in accordance with the
management subscription agreements. Accordingly, notes related to Common Stock
have been presented in the consolidated balance sheet as a reduction of
Stockholders' Equity while notes related to the Preferred Stock have been
presented as a reduction of Redeemable Preferred Stock.

     During the third quarter of fiscal 1999, one officer, in partial
satisfaction, made a $200,000 principal and interest payment. Upon resignation
of said officer from various positions within Eagle and Holdings effective March
3, 2000, all remaining amounts were satisfied.

     On April 10, 2000, in connection with said resignation above, Holdings
purchased into treasury 3,438 shares of said officer's Series A Preferred Stock
for a value of $423,000.

13. Derivative Instruments and Hedging Activities

      The Company enters into derivative instruments to manage or reduce market
risk for interest rates and commodity prices. The Company's strategy on
utilizing derivative instruments has been to minimize earnings fluctuations
caused by interest rate volatility associated with the Company's variable rate
debt and commodity price volatility associated with purchases of milk, a key
ingredient in the production of sweetened condensed milk. The derivative
activities are authorized by the Company's Board of Directors and are executed
and monitored by the Company's Chief Financial Officer. The Company limits the
interest rate swap agreements to 50% of its outstanding debt and limits the
hedging activity for milk to no greater than its annual sweetened condensed milk
production.

     Effective July 2, 2000, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, and SFAS No. 138, an amendment to
SFAS No. 133, which established new accounting and reporting guidelines for
derivative instruments and hedging activities. SFAS No. 133 and SFAS No. 138 are
collectively referred to herein as "SFAS 133." SFAS 133 requires that all
derivative instruments be recognized as assets and liabilities in the financial
statements at fair value. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation as a fair value hedge or a cash flow hedge. Designation is
established at the inception of a derivative, but redesignation is permitted.
For derivatives designated as cash flow hedges, changes in fair value are
recognized in other comprehensive income

                                       49
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                        EAGLE FAMILY FOODS HOLDINGS, INC.
                  Notes to the Financial Statements - continued


until the hedged item is recognized in earnings. Hedging effectiveness is
measured at least quarterly based on the relative change in fair value between
the derivative contract and the hedged item over time. Any change in fair value
resulting from ineffectiveness, as defined by SFAS 133, is recognized
immediately in earnings. Upon the Company's assessment of the derivatives and
hedging activities as prescribed in SFAS 133, applicable financial derivative
instruments include interest rate swap agreements and commodity future contracts
and will be designated as cash flow hedges.

     The estimated fair value of the interest rate swap agreements upon initial
adoption of SFAS 133 was $2,003,000, and in accordance with the transition
provisions of SFAS 133, the Company recorded a net of tax cumulative effect type
adjustment of $1,262,000 in accumulated other comprehensive income to recognize
at fair value the interest rate swap derivatives designated as cash flow hedging
instruments, with the corresponding assets for the fair value of the interest
rate swap agreements included in their respective classifications of other
current assets and other non-current assets. On November 9, 2000, the Company
sold its interest rate swap positions for fair market gains of $873,000.
Pursuant to SFAS 133, the gains on the interest rate swap agreements will remain
in other comprehensive income and be reclassified as interest expense over the
original terms of the interest rate swap agreements. The interest income in
other comprehensive income as of December 30, 2000 will be amortized through the
period ending December 31, 2002.

     As of June 30, 2001, the Company had purchased 370 milk futures contracts
for various months through June 2002 at an aggregate value of $9,370,000. The
fair market value of the contracts as of June 30, 2001 was $405,000.

     The Company formally documents relationships between hedging instruments
and hedged items, as well as its risk management objectives and strategies for
undertaking the hedging transactions. This process includes linking all
derivatives that are designated as fair value or cash flow hedges to specific
assets and liabilities on the balance sheet or to forecasted transactions. An
assessment is made at the hedging transaction's inception and on an ongoing
basis to determine whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in fair values or cash flows of
hedged items.

     When it is determined that a derivative is not highly effective or that it
has ceased to be a highly effective hedge, the Company will discontinue hedge
accounting prospectively. This will occur when (1) offsetting changes in the
fair value or cash flows of the hedged items are no longer effective; (2) the
derivative expires or is sold, terminated, or exercised; (3) the derivative is
redesignated as a hedged instrument, because it is unlikely that a forecasted
transaction will occur; or (4) management determines that designation of the
derivative as a hedged instrument is no longer appropriate. When hedge
accounting is discontinued because an interest rate swap qualifying as a cash
flow hedge is liquidated or sold prior to maturity, the gain or loss on the
interest rate swap at the time of termination remains in accumulated other
comprehensive income and is recognized as an adjustment to interest expense over
the original contract term. When hedge accounting is discontinued because it is
probable that a forecasted transaction will not occur, the derivative will
continue to be carried on the balance sheet at its fair value, and gains and
losses that were accumulated in other comprehensive income will be recognized
immediately in earnings. In all other situations in which hedge accounting is
discontinued, the derivative will be carried at its fair value on the balance
sheet, with changes in its fair value recognized in current period earnings.

                                       50
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


14. Commitments and Contingencies

     Commitments. The Company has entered into long-term contracts for the
purchase of certain raw materials. Minimum purchase commitments, at current
prices, are approximately $13.1 million and $12.2 million at June 30, 2001 and
July 1, 2000, respectively.

     The Company leases buildings and equipment under various noncancellable
lease agreements for periods of one to five years. The lease agreements
generally provide that the Company pays taxes, insurance and maintenance
expenses related to the leased assets. Rent expense for the periods ended June
30, 2001, July 1, 2000 and July 3, 1999, totaled $1,065,000, $888,000 and
$693,000, respectively.

     At June 30, 2001, future minimum lease payments were as follows (in
thousands):

            2002......................................   $     859
            2003......................................         644
            2004......................................         360
            2005......................................          41
                                                         ---------
            Total minimum lease payments                 $   1,904
                                                         =========

     Employment Agreements. The Company has entered into employment agreements
with certain key executives. Such agreements provide for annual salaries and
bonuses and include non-compete and non-solicitation provisions.

15. Stock Options and Restricted Stock

     On January 14, 1998, Holdings' Board of Directors adopted the 1998 Stock
Incentive Plan (the "Plan"). The Plan provides for the granting of incentive
stock options, non-qualified stock options, and restricted stock to officers,
key employees, directors and consultants of the Company at the discretion of a
committee of the Board of Directors. A total of 206,150 shares of common stock,
as amended on January 5, 2000, may be awarded under the Plan, subject to certain
adjustments reflecting changes in Holdings' capitalization.

     Grants of options and the periods during which such options can be
exercised, and grants of restricted stock and the periods during which such
grants become unrestricted and vest are at the discretion of a committee. As of
June 30, 2001, the committee has not granted any stock options.

     The committee has granted and issued shares of restricted stock to
Holdings' officers and other key employees. Holders of the restricted stock are
not entitled to (i) receive dividends until such shares vest or (ii) vote their
respective shares during the restricted period. The restricted stock vests in
installments of 20% per year on each of the first five anniversaries of the
issue date, provided that the recipient is employed by Holdings as of each such
date. Additionally, the sale, transfer, pledge, exchange or disposal of
restricted shares during the restricted period is not permitted except as
otherwise allowed by the Holdings Stockholders Agreement.

                                       51
<PAGE>

                            EAGLE FAMILY FOODS, INC.
                        EAGLE FAMILY FOODS HOLDINGS, INC.
                  Notes to the Financial Statements - continued


     A summary of restricted stock transactions for the fiscal years 2000 and
2001 is as follows:

<TABLE>
<CAPTION>
                                                                                    Fair Market
                                                                   Shares of           Value
                                                                  Restricted        at Issuance
                                                                     Stock              Date
                                                                  -----------       ------------
             <S>                                                  <C>               <C>
             Outstanding at July 3, 1999..................            150,980       $    150,980
                Granted...................................             52,500                525
                Cancelled.................................            (64,921)           (64,921)
                                                                  -----------       ------------
             Outstanding at July 1, 2000..................            138,559             86,584
                Granted...................................             53,145                531
                                                                  -----------       ------------
             Outstanding at June 30, 2001.................            191,704       $     87,115
                                                                  ===========       ============
</TABLE>

     Unearned compensation is charged for the fair value of the restricted
shares granted and issued in accordance with the Plan. The unearned compensation
is shown as a reduction of stockholders' equity (deficit) in the accompanying
Consolidated Balance Sheets of Holdings. Unearned compensation is amortized
ratably over the restricted period.

16. Retirement Plan

     The Company sponsors a defined contribution 401(k) retirement plan.
Participation in this plan is available to all employees who have completed
certain minimum service requirements. Company contributions to this plan are
based on a percentage of employees' annual compensation. The costs of this plan
were $675,000, $476,000 and $441,000 for the periods ended June 30, 2001, July
1, 2000 and July 3, 1999, respectively.

17. Other Information

     The Company was advised by GEI and Warburg, Holdings' principal
stockholders, that as of September 10, 2001, each owned $14,000,000 in aggregate
principal amount of Notes.

                                       52
<PAGE>

                           EAGLE FAMILY FOODS, INC.
                       EAGLE FAMILY FOODS HOLDINGS, INC.
                 Notes to the Financial Statements - continued


18.  Quarterly Data

     During the fourth quarter of 2001, the Company adopted SAB 101. The change
was retroactively applied to the first three quarters of 2001. Summarized
quarterly financial data follows (in thousands):

<TABLE>
<CAPTION>
                                                                          Fiscal Year 2001
                               -------------------------------------------------------------------------------------------------
                                                          Adjusted
                               ------------------------------------------------------------
                                 Thirteen Week         Thirteen Week       Thirteen Week      Thirteen Week     Fifty-Two Week
                                  Period Ended          Period Ended        Period Ended      Period Ended       Period Ended
                               September 30, 2000     December 30, 2000    March 31, 2001     June 30, 2001     June 30, 2001
                               -------------------    -----------------   -----------------  ----------------  -----------------
<S>                            <C>                    <C>                 <C>                <C>               <C>
Sales.....................     $          50,999      $          92,856   $         32,638   $        44,140   $        220,633
Gross margin..............                27,117                 53,813             15,369            21,684            117,983
Operating income (loss)...                 5,391                 19,875             (1,746)            1,736             25,256
Net income (loss).........                (2,540)                 7,258             (5,971)           (4,190)            (5,443)

<CAPTION>
                                                                          Fiscal Year 2001
                               -------------------------------------------------------------------------------------------------
                                                 As Previously Reported
                               ------------------------------------------------------------
                                 Thirteen Week        Thirteen Week        Thirteen Week      Thirteen Week     Fifty-Two Week
                                  Period Ended         Period Ended         Period Ended      Period Ended       Period Ended
                               September 30, 2000   December 30, 2000      March 31, 2001     June 30, 2001     June 30, 2001
                               -------------------  -------------------   -----------------  ----------------  -----------------
<S>                            <C>                  <C>                   <C>                <C>               <C>
Sales.....................     $           51,232   $            92,683   $         31,932   $        44,140   $        219,987
Gross margin..............                 27,290                53,762             14,903            21,684            117,639
Operating income..........                  5,535                92,683             31,932             1,736            131,886
Net income (loss).........                 (1,982)                7,200             (6,512)           (4,190)            (5,484)
</TABLE>

19.  Subsequent Events

     Effective July 15, 2001, Eagle's and Holdings' Board of Directors accepted
the resignation of John O'C. Nugent Chief Executive Officer and President
("Executive"). The separation agreement, dated as of June 25, 2001, between the
Company, GEI, Warburg and the Executive ("Separation Agreement") provides
termination benefits in accordance with the Executive's employment agreement
with the Company, dated January 23, 1998, as well as a cash payment of $25,000.
The Separation Agreement provides for certain payments to the Executive upon the
consummation,, of the sale of the Company or portions thereof. Pursuant to the
Separation Agreement, the Executive has agreed to transfer 2,475 shares of
Series A Non-Voting Preferred Stock to the Company as payment in full and
complete satisfaction of principal and interest accrued on the Executive's
Secured Recourse Promissory Note in favor of the Company dated January 23, 1998
and 2,475 shares of Series A Non-Voting Preferred Stock for a cash purchase
price of $250,000.

     On August 13, 2001 the Company entered into an Asset Purchase Agreement
with Mott's Inc. and Cadbury Beverages Delaware, Inc. for the sale of ReaLemon
and ReaLime brands and related assets for $128.4 million. This transaction is
anticipated to be completed in September 2001.

                                       53