**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

** **

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** **

**FORM 10-Q**

** **
| **x**                                             | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| ** **                                        | ** ** | ** **                                                                                              |
| **For the  quarterly period ended June 30, 2006** |
| ** **                                        | ** ** | ** **                                                                                              |
| **OR**                                            |
| ** **                                        | ** ** | ** **                                                                                              |
| **o**                                             | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition periodfrom              to              **

** **

**Commission FileNumber:  333-114105**

** **

**MerisantCompany**

(Exact Name of Registrant as Specified in its Charter)

 
| **Delaware**                                                     | ** ** | **52-2218321**                           |
|------------------------------------------------------------------|------------|------------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |       | (I.R.S. Employer  Identification Number) |
|                                                             |       |                                     |
| **10  South Riverside Plaza, Suite 850  Chicago, Illinois** | ** ** | **60606**                                |
| (Address of  Principal Executive Offices)                        |       | (Zip Code)                               |

 

Registrant’s telephonenumber, including area code:  **(312) 840-6000**

Former name, former address and former fiscal year, if changed sincelast report:**Not applicable.**

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x    Noo

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct.
| Large accelerated  filer o |   | Accelerated  filer  o |   | Non-accelerated  filer  x |
|---------------------------------|--------|---------------------------------|--------|-------------------------------------|

 

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No x

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

As of August 11, 2006,the registrant had 100 shares of common stock, par value $0.01 per share,outstanding, all of which were owned by Merisant Worldwide, Inc.

 

 

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**MERISANT COMPANY**

** **

**INDEX TO REPORT**

** **

**FOR THE QUARTER ENDED JUNE30,2006**

** **
| **PART I—FINANCIAL INFORMATION** |
|--------------------------------------------|
|                                       |   |   |
| Item 1.                                    |   | Financial Statements of Merisant Company |
|                                       |   |   |
|                                       |   | Unaudited Consolidated Balance Sheets at  December 31, 2005 and June 30, 2006 |
|                                       |   |   |
|                                       |   | Unaudited Consolidated Statements of Operations and  Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2005  and 2006 |
|                                       |   |   |
|                                       |   | Unaudited Consolidated Statement of Stockholder’s  Deficit for the Six Months Ended June 30, 2006 |
|                                       |   |   |
|                                       |   | Unaudited Consolidated Statements of Cash Flows for  the Six Months Ended June 30, 2005 and 2006 |
|                                       |   |   |
|                                       |   | Notes to Unaudited Consolidated Financial Statements |
|                                       |   |   |
| Item 2.                                    |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |
|                                       |   |   |
| Item 3.                                    |   | Quantitative and Qualitative Disclosures About Market  Risk |
|                                       |   |   |
| Item 4.                                    |   | Controls and Procedures |
|                                       |   |   |
| PART II—OTHER INFORMATION        |
|                                       |   |   |
| Item 1.                                    |   | Legal  Proceedings |
|                                       |   |   |
| Item 1A.                                   |   | Risk Factors |
|                                       |   |   |
| Item 4.                                    |   | Submission of Matters to a Vote of Security Holders |
|                                       |   |   |
| Item 6.                                    |   | Exhibits |

 

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**PART I**—**FINANCIAL INFORMATION**

**Item1. Financial Statements of Merisant Company**

**MERISANT COMPANYUnaudited Consolidated Balance Sheets(Dollars In Thousands, Except Per Share Amounts)**
| ** **                                                                                   | ** ** | **At December 31,** | ** ** | **At June 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------------|------------|---------------------------|------------|
| ** **                                                                                   | ** ** | **2005**                      | ** ** | **2006**                  | ** ** |
| **ASSETS**                                                                                   | ** ** | ** **                    | ** ** | ** **                | ** ** |
| Cash and cash  equivalents                                                                   |       | $                             | 18,064     |                      | $          | 19,505 |   |
| Trade accounts  receivable, net of allowances of $3,616 and $188, respectively          |       | 66,323                        |       | 61,747                    |       |
| Other  receivables                                                                           |       | 10,793                        |       | 5,885                     |       |
| Inventories                                                                                  |       | 29,201                        |       | 22,181                    |       |
| Prepaid expenses  and other assets                                                           |       | 2,753                         |       | 2,311                     |       |
| Current portion  of note receivable from director                                            |       | 970                           |       | 970                       |       |
| Deferred income  taxes                                                                       |       | 474                           |       | 692                       |       |
| Total current assets                                                                         |       | 128,578                       |       | 113,291                   |       |
| Property and  equipment, net                                                                 |       | 29,681                        |       | 26,238                    |       |
| Trademarks, less  accumulated amortization of $128,587 and $139,692, respectively            |       | 213,432                       |       | 202,327                   |       |
| Goodwill                                                                                     |       | 107,209                       |       | 107,209                   |       |
| Deferred  financing costs, less accumulated amortization of $5,995 and $5,844,  respectively |       | 13,705                        |       | 15,195                    |       |
| Non-current  portion of note receivable from director                                        |       | 3,430                         |       | 2,540                     |       |
| Investment in  equity affiliate                                                              |       | 362                           |       | 382                       |       |
| Other  non-current assets                                                                    |       | 1,309                         |       | 1,195                     |       |
| Total assets                                                                                 |       | $                             | 497,706    |                      | $          | 468,377 |   |
|                                                                                         |       |                          |       |                      |       |
| **LIABILITIES AND STOCKHOLDER’S  DEFICIT**                                              | ** ** | ** **                    | ** ** | ** **                | ** ** |
| Accounts payable                                                                             |       | $                             | 16,237     |                      | $          | 16,105 |   |
| Income taxes  payable                                                                        |       | 1,933                         |       | 610                       |       |
| Accrued interest  expense                                                                    |       | 12,855                        |       | 12,170                    |       |
| Accrued trade  and consumer promotions                                                       |       | 18,648                        |       | 15,349                    |       |
| Accrued expenses  and other liabilities                                                      |       | 18,692                        |       | 15,667                    |       |
| Current  maturities of long-term obligations                                                 |       | 25,750                        |       | 7,810                     |       |
| Total current liabilities                                                                    |       | 94,115                        |       | 67,711                    |       |
| Long-term obligations                                                                        |       | 415,428                       |       | 432,645                   |       |
| Deferred income  tax liabilities                                                             |       | 14,317                        |       | 17,084                    |       |
| Other  liabilities                                                                           |       | 14,257                        |       | 12,761                    |       |
| Total liabilities                                                                            |       | 538,117                       |       | 530,201                   |       |
| Commitments and  contingencies (Note 7)                                                      |       |                          |       |                      |       |
| Stockholder’s Deficit:                                                                  |       |                          |       |                      |       |
| Common stock,  $0.01 par value, 100 shares authorized, issued and outstanding                |       | —                        |       | —                    |       |
| Due for purchase  of shares in Merisant Worldwide, Inc.                                 |       | (767                          | )          | (767                      | )          |
| Retained deficit                                                                             |       | (32,613                       | )          | (54,886                   | )          |
| Accumulated  other comprehensive loss                                                        |       | (7,031                        | )          | (6,171                    | )          |
| Total stockholder’s deficit                                                             |       | (40,411                       | )          | (61,824                   | )          |
| Total  liabilities and stockholder’s deficit                                            |       | $                             | 497,706    |                      | $          | 468,377 |   |

 

The accompanying notes are an integral part ofthese unaudited consolidated financial statements.

 

3

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**MERISANTCOMPANY****Unaudited Consolidated Statementsof Operations and****Comprehensive Income (Loss)****(Dollars In Thousands)**
| ** **                         | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                         | ** ** | **2005**                                        | ** ** | **2006**                                      | ** ** | **2005** | ** ** | **2006** | ** ** |
| Net sales                          |       | $                                               | 79,159     |                                          | $          | 78,629 |   | $ | 155,064 |   | $ | 148,296 |   |
| Cost of sales                      |       | 33,322                                          |       | 32,604                                        |       | 64,737 |   | 61,619 |   |
|                               |       |                                            |       |                                          |       |   |   |   |   |
| Gross profit                       |       | 45,837                                          |       | 46,025                                        |       | 90,327 |   | 86,677 |   |
|                               |       |                                            |       |                                          |       |   |   |   |   |
| Operating expenses:                |       |                                            |       |                                          |       |   |   |   |   |
| Marketing and  selling expenses    |       | 19,655                                          |       | 22,201                                        |       | 40,874 |   | 39,109 |   |
| Administration  expenses           |       | 10,552                                          |       | 10,782                                        |       | 21,981 |   | 22,481 |   |
| Amortization of  intangible assets |       | 5,552                                           |       | 5,554                                         |       | 11,108 |   | 11,108 |   |
| Transaction fees                   |       | (107                                            | )          | 3,300                                         |       | (107 | ) | 3,300 |   |
| Restructuring  expenses            |       | 564                                             |       | 1,305                                         |       | 1,912 |   | 3,596 |   |
|                               |       |                                            |       |                                          |       |   |   |   |   |
| Total operating  expenses          |       | 36,216                                          |       | 43,142                                        |       | 75,768 |   | 79,594 |   |
|                               |       |                                            |       |                                          |       |   |   |   |   |
| Income from operations             |       | 9,621                                           |       | 2,883                                         |       | 14,559 |   | 7,083 |   |
|                               |       |                                            |       |                                          |       |   |   |   |   |
| Other expense (income):            |       |                                            |       |                                          |       |   |   |   |   |
| Interest income                    |       | (329                                            | )          | (216                                          | )          | (470 | ) | (364 | ) |
| Interest expense                   |       | 11,773                                          |       | 13,829                                        |       | 23,022 |   | 24,741 |   |
| Other expense  (income), net       |       | (4,570                                          | )          | 1,329                                         |       | (8,893 | ) | 1,538 |   |
|                               |       |                                            |       |                                          |       |   |   |   |   |
| Total other  expense               |       | 6,874                                           |       | 14,942                                        |       | 13,659 |   | 25,915 |   |
|                               |       |                                            |       |                                          |       |   |   |   |   |
| Income (loss) before  income taxes |       | 2,747                                           |       | (12,059                                       | )          | 900 |   | (18,832 | ) |
| Provision for income  taxes        |       | 1,727                                           |       | 2,688                                         |       | 3,930 |   | 2,941 |   |
|                               |       |                                            |       |                                          |       |   |   |   |   |
| Net income (loss)                  |       | $                                               | 1,020      |                                          | $          | (14,747 | ) | $ | (3,030 | ) | $ | (21,773 | ) |
|                               |       |                                            |       |                                          |       |   |   |   |   |
| Net income (loss) from  above      |       | $                                               | 1,020      |                                          | $          | (14,747 | ) | $ | (3,030 | ) | $ | (21,773 | ) |
| Other comprehensive  income (loss) |       | (291                                            | )          | 662                                           |       | (3,172 | ) | 860 |   |
|                               |       |                                            |       |                                          |       |   |   |   |   |
| Total comprehensive income (loss)  |       | $                                               | 729        |                                          | $          | (14,085 | ) | $ | (6,202 | ) | $ | (20,913 | ) |

 

The accompanying notes are anintegral part of these unaudited consolidated financial statements.

4

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**MERISANTCOMPANY****Unaudited Consolidated Statementof Stockholder’s Deficit****(Dollars In Thousands)**
| ** **                                     | ** ** | **Common  Stock** | ** ** | **Due for Purchase  of Shares in  Merisant  Worldwide, Inc.** | ** ** | **Retained  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total** | ** ** |
|------------------------------------------------|------------|-------------------|------------|----------------------------------------------------------------------------------------|------------|-----------------------|------------|---------------------------------------------|------------|-----------|------------|
| Balance at  December 31, 2005             |       | $                 | —     |                                                                                   | $          | (767                  | )          | $                                           | (32,613    | )         | $          | (7,031 | ) | $ | (40,411 | ) |
| Foreign currency  translation adjustment       |       | —            |       | —                                                                                 |       | —                |       | 860                                         |       | 860       |       |
| Distribution to  Merisant Worldwide, Inc. |       | —            |       | —                                                                                 |       | (500                  | )          | —                                      |       | (500      | )          |
| Net loss                                       |       | —            |       | —                                                                                 |       | (21,773               | )          | —                                      |       | (21,773   | )          |
| Balance at June 30, 2006                       |       | $                 | —     |                                                                                   | $          | (767                  | )          | $                                           | (54,886    | )         | $          | (6,171 | ) | $ | (61,824 | ) |

 

The accompanying notes are anintegral part of these unaudited consolidated financial statements.

5

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**MERISANTCOMPANYUnaudited Consolidated Statements of Cash Flows(Dollars In Thousands)**
| ** **                                                                                 | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2005**                                      | ** ** | **2006** | ** ** |
| **Operating Activities**                                                                   |       |                                          |       |   |   |
| Net loss                                                                                   |       | $                                             | (3,030     | ) | $ | (21,773 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities: |       |                                          |       |   |   |
| Depreciation                                                                               |       | 5,248                                         |       | 4,315 |   |
| Loss on sale or  disposal of fixed assets                                                  |       | 30                                            |       | 85 |   |
| Amortization of  intangible assets                                                         |       | 11,108                                        |       | 11,108 |   |
| Amortization of  deferred financing costs                                                  |       | 1,247                                         |       | 1,461 |   |
| Write off of  deferred financing costs                                                     |       | —                                        |       | 2,478 |   |
| Euro-denominated  loan foreign exchange (gain) loss                                        |       | (4,800                                        | )          | 1,928 |   |
| Unrealized gain  on derivative instruments                                                 |       | (3,983                                        | )          | — |   |
| Realized gain on  derivative instruments                                                   |       | —                                        |       | (694 | ) |
| Equity in income  of affiliate                                                             |       | (67                                           | )          | (21 | ) |
| Deferred income  tax provision                                                             |       | 867                                           |       | 2,569 |   |
| Changes in  operating assets and liabilities:                                              |       |                                          |       |   |   |
| Trade accounts  receivable                                                                 |       | 11,887                                        |       | 5,433 |   |
| Other  receivables                                                                         |       | 3,891                                         |       | 5,761 |   |
| Inventories                                                                                |       | (11,597                                       | )          | 7,500 |   |
| Prepaid expenses  and other assets                                                         |       | 948                                           |       | 555 |   |
| Accounts payable                                                                           |       | (7,460                                        | )          | (181 | ) |
| Accrued expenses  and other                                                                |       | (5,329                                        | )          | (9,533 | ) |
| Net cash  provided by (used in) operating activities                                       |       | (1,040                                        | )          | 10,991 |   |
| **Investing Activities**                                                                   |       |                                          |       |   |   |
| Proceeds from  sale of property and equipment                                              |       | 65                                            |       | 26 |   |
| Purchases of  property and equipment                                                       |       | (1,349                                        | )          | (1,330 | ) |
| Net cash used in  investing activities                                                     |       | (1,284                                        | )          | (1,304 | ) |
| **Financing Activities**                                                                   |       |                                          |       |   |   |
| Net borrowings  (payments) under revolving credit facility                                 |       | 10,000                                        |       | (16,000 | ) |
| Borrowings under  long-term obligations                                                    |       | —                                        |       | 85,095 |   |
| Principal  payments on long-term obligations, excluding revolving credit facility          |       | (4,992                                        | )          | (71,480 | ) |
| Payment of  deferred financing costs                                                       |       | (1,133                                        | )          | (5,429 | ) |
| Distributions to  stockholder                                                              |       | (642                                          | )          | (500 | ) |
| Net cash  provided by (used in) financing activities                                       |       | 3,233                                         |       | (8,314 | ) |
| Effect of exchange rate  on cash and cash equivalents                                      |       | (335                                          | )          | 68 |   |
| Net increase in cash  and cash equivalents                                                 |       | 574                                           |       | 1,441 |   |
|                                                                                       |       |                                          |       |   |   |
| Cash and cash  equivalents at beginning of period                                          |       | 9,096                                         |       | 18,064 |   |
| Cash and cash equivalents at end of period                                                 |       | $                                             | 9,670      |   | $ | 19,505 |   |

 

The accompanying notes are anintegral part of these unaudited consolidated financial statements.

6

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**MERISANTCOMPANY****Notes to Unaudited ConsolidatedFinancial Statements****(Dollars In Thousands)**

**1.**              Principlesof Consolidation

Theconsolidated financial statements and notes do not contain certain informationincluded in the annual consolidated financial statements and notes of MerisantCompany and subsidiaries.  Unlessotherwise indicated or unless the context otherwise requires, all references tothe “Company” mean Merisant Company and its consolidated subsidiaries.  The consolidated balance sheet at December 31,2005 was derived from the Company’s audited consolidated financial statements,but does not include all disclosures required by generally accepted accountingprinciples in the United States of America (“GAAP”). The remaining consolidatedfinancial statements are unaudited. In the opinion of management, all normal,recurring adjustments necessary for a fair presentation of such unauditedfinancial statements have been included therein. For interim reportingpurposes, certain marketing and advertising expenses are charged to results ofoperations as a percentage of sales. Interim results may not be indicative ofresults for a full year. These unaudited consolidated financial statements andnotes should be read in conjunction with the Company’s annual consolidatedfinancial statements.

The preparation of consolidated financial statements in conformity withgenerally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities,disclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period. Actual results could differ from those estimates.

The Company adopted FASB No. 123(R), “Share-Based Payment—AnAmendment of FASB Statements No. 123 and 95” on January 1, 2006,which requires a fair value approach to expensing the cost of stock-basedpayments to employees. Adoption of this pronouncement had no impact on the Company’sconsolidated financial statements.

**2.****                       ****Segment Information**

TheCompany manufactures and markets primarily low-calorie tabletop sweetenersglobally. Therefore, the Company’s  reportable segments are organized andmanaged principally by geographic region: North America; Europe/Africa/Middle East, referred to as EAME; LatinAmerica; and Asia/Pacific. The Company’s management reviews Operating EBITDA toevaluate segment performance and allocate resources. Operating EBITDA consistsof segment earnings before interest expense, income tax expense, depreciationand amortization as well as items such as expenses related to start up costs,restructuring charges, certain significant charges related to new productdevelopment and launch costs, costs related to the transition to a newexclusive distributor in the United States and certain other non-cash orexcludable charges or losses. Other expense (income), net, as reported in theunaudited consolidated financial statements, is included in Operating EBITDA ofthe respective reportable segments, except for the portion of other expense(income), net that relates to the foreign currency transaction gains or lossesassociated with the Company’s euro-denominated debt (see Note 5) and unrealizedgains or losses on derivative instruments. Corporate expenses include corporatestaff and related amounts. Corporate expenses, interest and other expenses andthe provision for income taxes are centrally managed and, accordingly, suchitems are not presented by segment since they are excluded from the measure ofsegment performance reviewed by management. The Company launched a new productline in North America in the first quarter of 2006 which management will beevaluating and managing separately from its other North American operations. Assuch, this item will also be excluded from the measure of segment performancereviewed by management. The Company’s assets, which are principally in theUnited States and Europe, are also managed geographically. A summary of theCompany’s results of operations by reportable segment for the three and sixmonths ended June 30, 2005 and 2006 is as follows:

7

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**For theThree Months Ended June 30, 2005**
| ** **                                 | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
| Total net sales  for reportable segments   |       | $                  | 29,329     |     | $          | 37,473             |       | $                  | 7,185      |             | $          | 5,172 |   | $ | 79,159 |   |
|                                       |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                           |       | $                  | 9,210      |     | $          | 12,461             |       | $                  | 1,546      |             | $          | 1,896 |   | $ | 25,113 |   |
| Less (plus):                               |       |               |       |     |       |               |       |               |       |             |       |
| Corporate  expenses                        |       | 6,151              |       |
| Restructuring  expense                     |       | 564                |       |
| Depreciation  expense                      |       | 2,692              |       |
| Loss  on sale or disposal of fixed assets  |       | 14                 |       |
| Amortization  expense                      |       | 5,552              |       |
| Currency  gain on euro debt                |       | (2,362             | )          |
| Unrealized  gain on derivative instruments |       | (1,546             | )          |
| Transaction  fees                          |       | (107               | )          |
| Other  non-cash income                     |       | (36                | )          |
| Other  income, net                         |       | 4,570              |       |
| Income  from operations                    |       | 9,621              |       |
| Interest  expense, net                     |       | 11,444             |       |
| Other  income, net                         |       | (4,570             | )          |
| Income before income  taxes                |       | $                  | 2,747      |     |

 

**For the Three Months Ended June30, 2006**
| ** **                                                           | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
| Total net sales for  reportable segments                             |       | $                  | 33,025     |     | $          | 31,945             |       | $                  | 8,291      |             | $          | 5,360 |   | $ | 78,621 |   |
| Plus: Net sales related  to new product launch                       |       |               |       |     |       |               |       |               |       | 8                |       |
| Total consolidated net  sales                                        |       |               |       |     |       |               |       |               |       | $                | 78,629     |   |
|                                                                 |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                                                     |       | $                  | 12,263     |     | $          | 6,354              |       | $                  | 2,502      |             | $          | 1,836 |   | $ | 22,955 |   |
| Less (plus):                                                         |       |               |       |
| Corporate expenses                                                   |       | 6,691              |       |
| Restructuring expense                                                |       | 1,305              |       |
| Depreciation expense                                                 |       | 2,136              |       |
| Loss on sale or  disposal of fixed assets                            |       | 35                 |       |
| Amortization expense                                                 |       | 5,554              |       |
| Currency loss on euro  debt                                          |       | 1,345              |       |
| Loss related to new  product launch                                  |       | 947                |       |
| Transition costs for  new exclusive distributor in the United States |       | 81                 |       |
| Transaction fees                                                     |       | 3,300              |       |
| Other non-cash expense                                               |       | 7                  |       |
| Other expense, net                                                   |       | (1,329             | )          |
| Income from operations                                               |       | 2,883              |       |
| Interest expense, net                                                |       | 13,613             |       |
| Other expense, net                                                   |       | 1,329              |       |
| Loss before income  taxes                                            |       | $                  | (12,059    | )        |

 

8

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**For the Six Months EndedJune 30, 2005**
| ** **                                                      | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
| Total net sales  for reportable segments                        |       | $                  | 57,538     |     | $          | 71,811             |       | $                  | 15,631     |             | $          | 10,084 |   | $ | 155,064 |   |
|                                                            |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                                                |       | $                  | 18,795     |     | $          | 19,580             |       | $                  | 3,949      |             | $          | 3,003 |   | $ | 45,327 |   |
| Less (plus):                                                    |       |               |       |     |       |               |       |               |       |             |       |
| Corporate  expenses                                             |       | 12,332             |       |
| Restructuring  expense                                          |       | 1,912              |       |
| Depreciation and  impairment expense                            |       | 5,248              |       |
| Loss on sale or  disposal of fixed assets                       |       | 30                 |       |
| Amortization  expense                                           |       | 11,108             |       |
| Currency gain on  euro debt                                     |       | (4,800             | )          |
| Unrealized gain  on derivative instruments                      |       | (3,983             | )          |
| Provision for  doubtful accounts excluded from Operating EBITDA |       | 141                |       |
| Transaction fees                                                |       | (107               | )          |
| Other non-cash  income                                          |       | (6                 | )          |
| Other income,  net                                              |       | 8,893              |       |
| Income from  operations                                         |       | 14,559             |       |
| Interest  expense, net                                          |       | 22,552             |       |
| Other income,  net                                              |       | (8,893             | )          |
| Income before income  taxes                                     |       | $                  | 900        |     |

** **

**For the Six Months Ended June 30,2006**
| ** **                                                           | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
| Total net sales  for reportable segments                             |       | $                  | 62,917     |     | $          | 60,742             |       | $                  | 14,706     |             | $          | 9,905 |   | $ | 148,270 |   |
| Plus: Net sales  related to new product launch                       |       |               |       |     |       |               |       |               |       | 26               |       |
| Total  consolidated net sales                                        |       |               |       |     |       |               |       |               |       | $                | 148,296    |   |
|                                                                 |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                                                     |       | $                  | 22,848     |     | $          | 15,719             |       | $                  | 3,626      |             | $          | 3,362 |   | $ | 45,555 |   |
| Less (plus):                                                         |       |               |       |     |       |               |       |               |       |             |       |
| Corporate  expenses                                                  |       | 14,082             |       |
| Restructuring  expense                                               |       | 3,596              |       |
| Depreciation  expense                                                |       | 4,314              |       |
| Loss on sale or  disposal of fixed assets                            |       | 61                 |       |
| Amortization  expense                                                |       | 11,108             |       |
| Currency loss on  euro debt                                          |       | 1,928              |       |
| Realized gain on  derivative instruments                             |       | (694               | )          |
| Loss on  liquidation or sale of subsidiary                           |       | 144                |       |
| Loss related to  new product launch                                  |       | 1,487              |       |
| Transition costs  for new exclusive distributor in the United States |       | 673                |       |
| Transaction fees                                                     |       | 3,300              |       |
| Other non-cash  expense                                              |       | 11                 |       |
| Other expense,  net                                                  |       | (1,538             | )          |
| Income from  operations                                              |       | 7,083              |       |
| Interest  expense, net                                               |       | 24,377             |       |
| Other expense,  net                                                  |       | 1,538              |       |
| Loss before income  taxes                                            |       | $                  | (18,832    | )        |

 

9

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**3.****                       ****Restructuring Expenses**

During the sixmonths ended June 30, 2006, the Company continued to evaluate opportunities toincrease efficiency and reduce costs. This review resulted in the continuationof workforce reductions and planned changes in the Company’s global businessmodel. These actions are designed to improve both financial results and the long-termvalue of the business. Restructuring expenses for workforce reductions of  $564 and $1,305 were recorded for the threemonths ended June 30, 2005 and June 30, 2006, respectively, and $1,912 and$3,596 were recorded for the six months ended June 30, 2005 and 2006,respectively. The 2006 charges principally related to planned termination costsfor employees, including charges related to 63 additional personnel that werenotified of their termination during the six months ended June 30, 2006 and tocontinuing provisions for previously notified employees being recorded overtheir stay periods. Severance payments and benefits are scheduled to be madeover the next five months.

Reconciliationof the restructuring liability at June 30, 2006 is as follows: 

| Restructuring liability at  December 31, 2005             |   | $      | 2,677  |   |
|----------------------------------------------------------------|--------|--------|--------|--------|
| Restructuring  expenses for the six months ended June 30, 2006 |   | 3,596  |   |
| Cash payments  for the six months ended June 30, 2006          |   | (5,492 | )      |
| Restructuring liability  at June 30, 2006                      |   | $      | 781    |   |

 

The restructuring liability atDecember 31, 2005 and June 30, 2006 is included in the line item “Accruedexpenses and other liabilities” in the accompanying consolidated balancesheets.

The following table representsrestructuring expenses included in each segment and corporate expenses for thethree and six months ended June 30, 2005 and 2006:

|               | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **    | ** ** | **2005**                                        | ** ** | **2006**                                      | ** ** | **2005** | ** ** | **2006** | ** ** |
| North America |       | $                                               | 139        |                                          | $          | 38 |   | $ | 139 |   | $ | 103 |   |
| EAME          |       | 9                                               |       | 634                                           |       | 1,065 |   | 1,867 |   |
| Latin America |       | 256                                             |       | 451                                           |       | 333 |   | 1,039 |   |
| Asia/Pacific  |       | 39                                              |       | 53                                            |       | 39 |   | 505 |   |
| Corporate     |       | 121                                             |       | 129                                           |       | 336 |   | 82 |   |
| Total         |       | $                                               | 564        |                                          | $          | 1,305 |   | $ | 1,912 |   | $ | 3,596 |   |

 

**4.**              Inventories

Inventoriesconsisted of the following at December 31, 2005 and June 30, 2006:

|                                  | ** ** | **December 31, 2005** | ** ** | **June 30, 2006** | ** ** |
|----------------------------------|------------|---------------------------------|------------|-----------------------------|------------|
| Raw materials  and supplies      |       | $                               | 15,594     |                        | $          | 11,641 |   |
| Work in process                  |       | 1,822                           |       | 1,105                       |       |
| Finished goods                   |       | 16,221                          |       | 11,445                      |       |
| Inventory  obsolescence reserves |       | (4,436                          | )          | (2,010                      | )          |
| Total                            |       | $                               | 29,201     |                        | $          | 22,181 |   |

 

In the three months ended June 30,2006, the Company shipped certain fully reserved finished goods, with anoriginal cost of $1,390, to Icon International, Inc. (“Icon”) in exchange fortrade credits totaling $1,390. The trade credits could be used in the future toreduce the Company’s cost of goods or services made available throughreasonable efforts by Icon.  Goods or

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services available from Icon are notcurrently likely to be required by the Company in sufficient volume to usemost, if any, of the credits, and as such they have been fully reserved and norevenues were recorded for this transaction.

**5.**              Debt

The Company and its parent, Merisant Worldwide, Inc. (“MerisantWorldwide”), are highly leveraged. At June 30, 2006, Merisant Worldwide and itssubsidiaries, including the Company, had $543,746 of long-term debtoutstanding, consisting of $103,417 aggregate principal amount of MerisantWorldwide’s 12 1⁄4% senior subordinated discount notes due 2014, $225,000aggregate principal amount of the Company’s 9 1⁄2% senior subordinated notes due2013 (the “Notes”), $130,329 aggregate principal amount outstanding under theCompany’s senior credit agreement (the “Senior Credit Agreement”) and $85,000aggregate principal amount outstanding under the Company’s second lien creditagreement (the “Second Lien Credit Agreement”), excluding capital leaseobligations of $127 and unused commitments on the revolving portion of theSenior Credit Agreement.

At June30, 2006, borrowings under the Senior Credit Agreement included $22,438 (“TermA”) aggregate principal amount of term loans bearing annual interest of 6.07%and $107,891 (“Term B”) aggregate principal amount of term loans bearing annualinterest of 8.38%. The Term A loans are euro-denominated and are translatedinto U.S. dollars at the spot rate as of June 30, 2006. At June 30, 2006, allof the Company’s maximum $35,000 borrowing capacity was available under therevolving loan facility under the Senior Credit Agreement.

At June30, 2006, borrowings under the Second Lien Credit Agreement included $85,000aggregate principal amount of  term loansbearing annual interest of 13.98%.

TheCompany paid interest on borrowings under the Senior Credit Agreement and onthe Notes totaling $20,337 and $21,369 for the six months ended June 30, 2005and 2006, respectively.  No interest waspaid on borrowings under the Second Lien Credit Agreement during these periods.

On March 29, 2006, the lenders holding a majority of the aggregateprincipal amount of outstanding loans and revolver commitments under the SeniorCredit Agreement agreed to amend the terms of the Senior Credit Agreement (the “FourthAmendment”) and waived a technical default related to the use of proceeds fromthe repayment of the inter-company loan between the Company and its Swisssubsidiary. Among other things, the Fourth Amendment amended the financialcovenants as of December 31, 2005, adjusted the financial covenantsthrough the maturity date of loans outstanding under the Senior Credit Agreement,incorporated new financial covenants, adjusted the interest rate on borrowingsunder the Senior Credit Agreement, amended the definition of Bank EBITDA toprovide additional “add backs” related to the Company’s restructuring and newproduct development efforts, and amended certain other covenants. The FourthAmendment also required the Company to refinance a portion of the loansoutstanding with the proceeds of a borrowing secured by a second lien on all ofthe assets securing the Company’s obligations under the Senior Credit Agreementor, in the alternative, refinance the Senior Credit Agreement in its entiretyby January 2, 2007. The Fourth Amendment increased the interest rates of allterm loans and revolver loans under the Senior Credit Agreement to euro-LIBORor LIBOR plus 425 basis points commencing on the date of the Fourth Amendment.

On June 23, 2006, theCompany entered into the Second Lien Credit Agreement.  The Second Lien Credit Agreement consists ofan aggregate of $85,000 principal amount of term loans, the net proceeds ofwhich were used to prepay $9,540 of euro-denominated Term A loans, prepay$53,320 million of Term B loans and to repay $15,000 of revolving loans, ineach case, outstanding under the Senior Credit Agreement.  The maturity date of the term loansoutstanding under the Second Lien Credit Agreement is June 11, 2010. The SecondLien Credit Agreement satisfied the Company’s refinancing obligation under theFourth Amendment and the interest rate on loans under the Senior CreditAgreement reverted to euro-LIBOR or LIBOR plus 325 basis points upon thecompletion of the Second Lien Credit Agreement. In conjunction with the Second Lien Credit Agreement, the Companyincurred fees of approximately $7,161, of which $3,861 are being amortized overthe term of the loan and $3,300 were recorded as transaction fees.  The extinguishment of the debt under theSenior Credit Agreement resulted in a write-off of existing deferred financingfees totaling $2,478.

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Depending on thetype of borrowing by the Company, the applicable interest rate under the SecondLien Credit Agreement is calculated as a per annum rate equal to (a) LIBOR plus850 basis points or (b) (i) the greater of (x) the prime rate or (y) thefederal funds effective rate plus 0.5% plus (ii) 750 basis points.

The Second LienCredit Agreement contains provisions for mandatory prepayments of outstandingloans with 100% of the net cash proceeds of asset sales, recovery events anddebt issuances and 50% of the net cash proceeds of equity issuances, subject tocertain exceptions. The Company may prepay the term loans under the Second LienCredit Agreement in whole or in part at any time. If the Company makes any suchprepayments during the first three years of the credit facility, it must pay apremium of 3%, 2% and 1% of the aggregate principal amount of term loansprepaid in the first, second and third years of the Second Lien CreditAgreement, respectively, except that these prepayment premiums will be reducedto 1.5%, 1% and 0.5%, respectively on the first $25.5 million aggregateprincipal amount of the term loans prepaid with the net cash proceeds from anequity issuance by Merisant Worldwide.

The obligationsunder the Second Lien Credit Agreement are guaranteed by Merisant Worldwide andthe Company’s domestic subsidiaries, and are secured by a lien on substantiallyall of the assets of the Company, Merisant Worldwide and each subsidiaryguarantor, including a pledge of 65% of the ownership interests in eachfirst-tier foreign subsidiary held by a guarantor, with certain exceptions.

On June 23, 2006, the Company entered into a Fifth Amendment to theSenior Credit Agreement (the “Fifth Amendment”) to accommodate the Second LienCredit Agreement and to effect certain other amendments that are intended tofacilitate transactions aimed at de-leveraging the Company’s capitalstructure.  No assurances can be madethat any such transactions will be initiated by the Company or, if initiated,will be successful in de-leveraging the Company.

The Senior Credit Agreement and the Second Lien Credit Agreementcontain covenants, including financial covenants that must be met on aquarterly basis. “Bank EBITDA” is the measure by which the financial covenantscontained in the Senior Credit Agreement and the Second Lien Credit Agreementare measured. However, Bank EBITDA is not a measure of liquidity under GAAP.Accordingly, while providing useful information with respect to an assessmentof liquidity as measured in accordance with the covenants in the Company’sprimary debt obligations, this measure should not be considered in isolationfrom, or as a substitute for, consolidated statement of cash flow data preparedin accordance with GAAP as an indication of liquidity. In addition, the BankEBITDA measure presented may differ from, and may not be comparable to,similarly titled measures used by other companies. The Company was incompliance with its covenants under the Senior Credit Agreement, as amended,and the Second Lien Credit Agreement as of June 30, 2006.

**6.**              Transactionswith Related Parties

The Company has adeferred compensation payable to Arnold Donald, its former Chairman and acurrent director, and a note receivable in the same amount fromMr. Donald. The Company recorded $67 and $55 of interest income on thenote receivable for the three months ended June 30, 2005 and 2006,respectively, and $134 and $111 of interest income on the note receivable forthe six months ended June 30, 2005 and 2006, respectively, and an equal amountof interest expense in the respective periods.

The Company had been a party to a sublease agreement with The DigitalHome/Digital Office, LLC (“Digital Home”), pursuant to which the Companysubleased office space located at One North Brentwood Boulevard in Clayton,Missouri to Digital Home for a term that expired on March 31, 2006 at arate of $9 per month. At the end of the term of the sublease agreement, DigitalHome acquired the office furniture and equipment at no cost. The underlyinglease expired on March 31, 2006 and the Company had leased the officespace for $15 per month. The acquisition value of the furniture and equipmentwas $225 and the net book value of these assets was zero, subsequent to apreviously recorded impairment charge of $143. Digital Home is controlled by Mr. Donald.

12

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OnMarch 28, 2006, the Company acquired from Pegasus Partners II, L.P. all ofthe issued and outstanding limited liability interests of Whole Earth SweetenerCompany LLC for $1. At the time of the acquisition, the only assets of WholeEarth Sweetener Company LLC were trademark applications for the **SweetSimplicity** trademark.

Duringthe six months ended June 30, 2005 and 2006, the Company made distributions of$642 and $500, respectively, to its sole stockholder, Merisant Worldwide.

**7.**              Commitmentsand Contingencies

The Company has aninvestment in an affiliate located in the Philippines that is accounted forusing the equity method. The affiliate, a 50/50 joint venture, distributessugar substitute sweeteners for the international consumer food markets,primarily under the *Equal®* and *Nutrasweet®* brands. In addition to itsinvestment in the joint venture, the Company is committed to a 50% share in anynew borrowings of the joint venture. As of December 31, 2005 and June 30,2006, there were no additional joint venture borrowings.

In October 2004, theCompany requested the National Advertising Division of the Council of BetterBusiness Bureaus, referred to as the NAD, to review advertising and otherclaims made by McNeil Nutritionals, LLC (“McNeil”) in connection with its *Splenda®* brand sweetener. The Company believed and continuesto believe McNeil’s *Splenda®*advertising to be false and misleading. Despite McNeil’s previous use of theNAD for such disputes and the NAD’s industry-wide, self-regulatory nature,McNeil refused to allow their advertising claims to be judged by the NAD andinstead sought to have the issue considered by the United States District Courtfor the District of Puerto Rico. Under NAD rules, McNeil’s filing in PuertoRico precluded the NAD from reviewing the matter or referring McNeil’sadvertising to the Federal Trade Commission. In order to have McNeil’sadvertising****addressed by ajury and court in the continental United States familiar with McNeil’s claims,on November 26, 2004, the Company filed a federal and state falseadvertising complaint against McNeil in the United States District Court forthe Eastern District of Pennsylvania. That suit continues today and seeks tohave McNeil’s *Splenda®* campaign stopped becauseof its misleading nature and seeks significant damages resulting from theimpact McNeil’s false advertising has had on the Company’s sales. OnJanuary 13, 2005, McNeil voluntarily dismissed its action in Puerto Ricoand in April 2005, McNeil amended its answer to the Company’s complaint inthe Pennsylvania action to add a counterclaim against the Company alleging thatits *Equal® Sugar LiteTM* packagingand advertising were misleading. McNeil has dismissed its counterclaim relatingto *Equal® Sugar LiteTM*packaging and advertising and on July 7,2006, the court entered a dismissal with prejudice of those claims.

Merisant Europe B.V.B.A., Merisant’s Belgium subsidiary, entered into aco-branding agreement with Galleria Srl, a company through which the Italiandesigner Elio Fiorucci operates. Under this co-branding arrangement, MerisantEurope produced a line of *Canderel*®tablet dispensers that featured designs and trademarks from Mr. Fiorucci’s“Love Therapy by Elio Fiorucci” collection. The co-branding arrangementcontains a representation and warranty that Galleria owns all rights in thename “Love Therapy by Elio Fiorucci” and associated designs and furtherprovides that Galleria will indemnify and hold Merisant Europe and itsaffiliates harmless against damages resulting from or related to their use ofthe name and designs pursuant to the agreement. Beginning in 2005, MerisantEurope sold tablet dispensers with the “Love Therapy by Elio Fiorucci” designsin Italy. Edwin & Co. Ltd. has claimed that it owns all rights inMr. Fiorucci’s name and in the designs used by the Company and has filedsuit against Merisant Europe in Milan, Italy. On or about March 17, 2006,the court in Milan enjoined Merisant Europe from producing or selling thetablet dispensers after the date of the court order. The Company no longerproduces the dispensers and has stopped selling dispensers to its distributorin Italy and to customers through the Internet. Merisant Europe has filed anappeal and will vigorously oppose the court’s order. Merisant Europe will alsoenforce its indemnification rights under its co-branding arrangement withGalleria Srl.

H. J. Heinz Company (“Heinz”)and Merisant US, Inc. entered into a termination agreement dated March 31, 2006pursuant to which the Heinz retail grocery and foodservice distributionagreements were terminated effective May 4, 2006.  In accordance with thetermination agreement, the Company placed $2,500 into an escrow account on May3, 2006 (included as cash and cash equivalents on the June 30, 2006 balancesheet) for the purpose of reimbursing Heinz for expenses incurred by Heinzrelating to trade promotion programs associated with products distributedby Heinz prior to May 4, 2006 and that

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had been approved by theCompany.  Unused funds and earned interest totaling $1,235 and $26,respectively, were remitted from the escrow account to the Company on August 1,2006.  The current balance of $500, lessany additional reimbursements to Heinz, will be remitted to the Companyon September 15, 2006.  At June 30, 2006, the Company believes thatsufficient reserves are in place to address any remaining obligations toHeinz.  ACH Food Companies, Inc. becamethe Company’s exclusive distributor in the United States effective May 5, 2006.

The Company has an obligation toindemnify Monsanto, the Company’s prior owner, for certain liabilities that mayarise out of the business or assets purchased on March 17, 2000. TheCompany does not believe that this indemnification obligation will have amaterial adverse effect on the Company’s consolidated financial position orresults of operations.

The Company is subject to variousother claims, pending and possible legal actions for product liability andother damages, and other matters arising out of the conduct of the Company’sbusiness, including tax uncertainties arising from doing business in variousEuropean jurisdictions. The Company believes, based on current knowledge,recorded accruals, and consultation with counsel, that the outcome of suchclaims and actions will not have a material adverse effect on the Company’sconsolidated financial position or results of operations.

**8.**              ConsolidatingGuarantor and Non-Guarantor Financial Information

The following tables set forth the consolidating statements ofoperations for the three and six months ended June 30, 2005 and June 30, 2006,the consolidating balance sheets at December 31, 2005 and June 30, 2006 and thestatements of cash flow for the six months ended June 30, 2005 and 2006. Thefollowing information is included herein as a result of the guarantee bycertain of the Company’s wholly owned U.S. subsidiaries (“Guarantor Companies”)of the Notes. None of the Company’s other subsidiaries guarantee the Notes.Each of the guarantees is joint and several and full and unconditional.

 

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**MERISANT COMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**UnauditedConsolidating Statement of OperationsFor the Three Months Ended June 30, 2005**
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 29,696                       |       | $                               | 50,949     |             | $          | (1,486 | ) | $ | 79,159 |   |
| Cost of sales                                                              |       | —                |       | 14,065                   |       | 20,743                       |       | (1,486                          | )          | 33,322           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 15,631                   |       | 30,206                       |       | —                          |       | 45,837           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Operating expenses:                                                        |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Marketing and  selling expenses                                            |       | —                |       | 6,983                    |       | 12,672                       |       | —                          |       | 19,655           |       |
| Administration  expenses                                                   |       | 90                    |       | 7,202                    |       | 3,260                        |       | —                          |       | 10,552           |       |
| Amortization of  intangible assets                                         |       | 2,164                 |       | —                   |       | 3,388                        |       | —                          |       | 5,552            |       |
| Transaction fees                                                           |       | (107                  | )          | —                   |       | —                       |       | —                          |       | (107             | )          |
| Restructuring expenses                                                     |       | —                |       | 155                      |       | 409                          |       | —                          |       | 564              |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total operating  expenses                                                  |       | 2,147                 |       | 14,340                   |       | 19,729                       |       | —                          |       | 36,216           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss) from  operations                                             |       | (2,147                | )          | 1,291                    |       | 10,477                       |       | —                          |       | 9,621            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Other expense (income):                                                    |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Interest income                                                            |       | (3,556                | )          | (197                     | )          | (55                          | )          | 3,479                           |       | (329             | )          |
| Interest expense                                                           |       | 11,763                |       | 2,970                    |       | 519                          |       | (3,479                          | )          | 11,773           |       |
| Other expense  (income), net                                               |       | (8,219                | )          | 4,331                    |       | (682                         | )          | —                          |       | (4,570           | )          |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total other  expense (income)                                              |       | (12                   | )          | 7,104                    |       | (218                         | )          | —                          |       | 6,874            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss) before  income taxes and equity in consolidated subsidiaries |       | (2,135                | )          | (5,813                   | )          | 10,695                       |       | —                          |       | 2,747            |       |
| Provision for income  taxes                                                |       | —                |       | 1,211                    |       | 516                          |       | —                          |       | 1,727            |       |
| Equity in consolidated  subsidiaries                                       |       | 3,155                 |       | 10,179                   |       | —                       |       | (13,334                         | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | 1,020      |                     | $          | 3,155                        |       | $                               | 10,179     |             | $          | (13,334 | ) | $ | 1,020 |   |

 

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**MERISANT COMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**UnauditedConsolidating Statement of OperationsFor the Three Months Ended June 30, 2006**
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 34,873                       |       | $                               | 44,654     |             | $          | (898 | ) | $ | 78,629 |   |
| Cost of sales                                                              |       | —                |       | 14,695                   |       | 18,807                       |       | (898                            | )          | 32,604           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 20,178                   |       | 25,847                       |       | —                          |       | 46,025           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Operating  expenses:                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Marketing and selling expenses                                             |       | —                |       | 9,071                    |       | 13,130                       |       | —                          |       | 22,201           |       |
| Administration expenses                                                    |       | 115                   |       | 7,534                    |       | 3,133                        |       | —                          |       | 10,782           |       |
| Amortization of intangible assets                                          |       | 2,164                 |       | —                   |       | 3,390                        |       | —                          |       | 5,554            |       |
| Transaction fees                                                           |       | 3,300                 |       | —                   |       | —                       |       | —                          |       | 3,300            |       |
| Restructuring expenses                                                     |       | —                |       | 167                      |       | 1,138                        |       | —                          |       | 1,305            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total operating expenses                                                   |       | 5,579                 |       | 16,772                   |       | 20,791                       |       | —                          |       | 43,142           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  from operations                                             |       | (5,579                | )          | 3,406                    |       | 5,056                        |       | —                          |       | 2,883            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Other expense (income):                                                    |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Interest income                                                            |       | (66                   | )          | (32                      | )          | (359                         | )          | 241                             |       | (216             | )          |
| Interest expense                                                           |       | 14,067                |       | —                   |       | 3                            |       | (241                            | )          | 13,829           |       |
| Other expense (income), net                                                |       | 1,342                 |       | (32                      | )          | 19                           |       | —                          |       | 1,329            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total other expense (income)                                               |       | 15,343                |       | (64                      | )          | (337                         | )          | —                          |       | 14,942           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  before income taxes and equity in consolidated subsidiaries |       | (20,922               | )          | 3,470                    |       | 5,393                        |       | —                          |       | (12,059          | )          |
| Provision for  income taxes                                                |       | 1,344                 |       | 868                      |       | 476                          |       | —                          |       | 2,688            |       |
| Equity in  consolidated subsidiaries                                       |       | 7,519                 |       | 4,917                    |       | —                       |       | (12,436                         | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | (14,747    | )                        | $          | 7,519                        |       | $                               | 4,917      |             | $          | (12,436 | ) | $ | (14,747 | ) |

 

16

----

 

**MERISANT COMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**UnauditedConsolidating Statement of OperationsFor the Six Months Ended June 30, 2005**
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 58,597                       |       | $                               | 99,724     |             | $          | (3,257 | ) | $ | 155,064 |   |
| Cost of sales                                                              |       | —                |       | 27,913                   |       | 40,081                       |       | (3,257                          | )          | 64,737           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 30,684                   |       | 59,643                       |       | —                          |       | 90,327           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Operating  expenses:                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Marketing and selling expenses                                             |       | —                |       | 13,216                   |       | 27,658                       |       | —                          |       | 40,874           |       |
| Administration expenses                                                    |       | 90                    |       | 14,351                   |       | 7,540                        |       | —                          |       | 21,981           |       |
| Amortization of intangible assets                                          |       | 4,328                 |       | —                   |       | 6,780                        |       | —                          |       | 11,108           |       |
| Transaction fees                                                           |       | (107                  | )          | —                   |       | —                       |       | —                          |       | (107             | )          |
| Restructuring expenses                                                     |       | —                |       | 369                      |       | 1,543                        |       | —                          |       | 1,912            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total operating expenses                                                   |       | 4,311                 |       | 27,936                   |       | 43,521                       |       | —                          |       | 75,768           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  from operations                                             |       | (4,311                | )          | 2,748                    |       | 16,122                       |       | —                          |       | 14,559           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Other expense  (income):                                                   |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Interest income                                                            |       | (6,658                | )          | (201                     | )          | (114                         | )          | 6,503                           |       | (470             | )          |
| Interest expense                                                           |       | 23,001                |       | 5,424                    |       | 1,100                        |       | (6,503                          | )          | 23,022           |       |
| Other expense (income), net                                                |       | (17,451               | )          | 8,643                    |       | (85                          | )          | —                          |       | (8,893           | )          |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total other expense (income)                                               |       | (1,108                | )          | 13,866                   |       | 901                          |       | —                          |       | 13,659           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  before income taxes and equity in consolidated subsidiaries |       | (3,203                | )          | (11,118                  | )          | 15,221                       |       | —                          |       | 900              |       |
| Provision for  income taxes                                                |       | —                |       | 2,422                    |       | 1,508                        |       | —                          |       | 3,930            |       |
| Equity in consolidated  subsidiaries                                       |       | 173                   |       | 13,713                   |       | —                       |       | (13,886                         | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | (3,030     | )                        | $          | 173                          |       | $                               | 13,713     |             | $          | (13,886 | ) | $ | (3,030 | ) |

 

17

----

 

**MERISANT COMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**UnauditedConsolidating Statement of OperationsFor the Six Months Ended June 30, 2006**
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 66,517                       |       | $                               | 83,657     |             | $          | (1,878 | ) | $ | 148,296 |   |
| Cost of sales                                                              |       | —                |       | 28,820                   |       | 34,677                       |       | (1,878                          | )          | 61,619           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 37,697                   |       | 48,980                       |       | —                          |       | 86,677           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Operating  expenses:                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Marketing and selling expenses                                             |       | —                |       | 16,937                   |       | 22,172                       |       | —                          |       | 39,109           |       |
| Administration expenses                                                    |       | 135                   |       | 15,896                   |       | 6,450                        |       | —                          |       | 22,481           |       |
| Amortization of intangible assets                                          |       | 4,328                 |       | —                   |       | 6,780                        |       | —                          |       | 11,108           |       |
| Transaction fees                                                           |       | 3,300                 |       | —                   |       | —                       |       | —                          |       | 3,300            |       |
| Restructuring expenses                                                     |       | —                |       | 185                      |       | 3,411                        |       | —                          |       | 3,596            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total operating expenses                                                   |       | 7,763                 |       | 33,018                   |       | 38,813                       |       | —                          |       | 79,594           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  from operations                                             |       | (7,763                | )          | 4,679                    |       | 10,167                       |       | —                          |       | 7,083            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Other expense  (income):                                                   |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Interest income                                                            |       | (132                  | )          | (47                      | )          | (426                         | )          | 241                             |       | (364             | )          |
| Interest expense                                                           |       | 24,977                |       | (2                       | )          | 7                            |       | (241                            | )          | 24,741           |       |
| Other expense (income), net                                                |       | 1,250                 |       | 372                      |       | (84                          | )          | —                          |       | 1,538            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total other expense (income)                                               |       | 26,095                |       | 323                      |       | (503                         | )          | —                          |       | 25,915           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  before income taxes and equity in consolidated subsidiaries |       | (33,858               | )          | 4,356                    |       | 10,670                       |       | —                          |       | (18,832          | )          |
| Provision for  income taxes                                                |       | 1,344                 |       | 907                      |       | 690                          |       | —                          |       | 2,941            |       |
| Equity in  consolidated subsidiaries                                       |       | 13,429                |       | 9,980                    |       | —                       |       | (23,409                         | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | (21,773    | )                        | $          | 13,429                       |       | $                               | 9,980      |             | $          | (23,409 | ) | $ | (21,773 | ) |

 

 

18

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**MERISANT COMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**Condensed Consolidating Balance Sheet****At December 31, 2005**
| ** **                                                         | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
| **Assets**                                                         | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Cash and cash  equivalents                                         |       | $                     | 98         |                     | $          | 924                          |       | $                               | 17,042     |             | $          | — |   | $ | 18,064 |   |
| Trade accounts  receivable, net of allowance for doubtful accounts |       | —                |       | 17,844                   |       | 48,479                       |       | —                          |       | 66,323           |       |
| Other  receivables and intercompany receivables                    |       | 551                   |       | 5,523                    |       | 9,932                        |       | (5,213                          | )          | 10,793           |       |
| Inventories                                                        |       | —                |       | 19,336                   |       | 9,865                        |       | —                          |       | 29,201           |       |
| Other current  assets                                              |       | 533                   |       | 1,749                    |       | 1,915                        |       | —                          |       | 4,197            |       |
| Total current  assets                                              |       | 1,182                 |       | 45,376                   |       | 87,233                       |       | (5,213                          | )          | 128,578          |       |
| Property and  equipment, net                                       |       | —                |       | 21,601                   |       | 8,080                        |       | —                          |       | 29,681           |       |
| Trademarks, less  accumulated amortization                         |       | 79,712                |       | —                   |       | 133,720                      |       | —                          |       | 213,432          |       |
| Goodwill, less  accumulated amortization                           |       | —                |       | 107,209                  |       | —                       |       | —                          |       | 107,209          |       |
| Deferred  financing costs, less accumulated amortization           |       | 13,705                |       | —                   |       | —                       |       | —                          |       | 13,705           |       |
| Other  non-current assets                                          |       | 3,897                 |       | 508                      |       | 334                          |       | —                          |       | 4,739            |       |
| Investment in  subsidiary and intercompany debt                    |       | 321,754               |       | 203,625                  |       | 362                          |       | (525,379                        | )          | 362              |       |
| Total assets                                                       |       | $                     | 420,250    |                     | $          | 378,319                      |       | $                               | 229,729    |             | $          | (530,592 | ) | $ | 497,706 |   |
| **Liabilities**                                                    | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Accounts payable  and intercompany payables                        |       | $                     | 2,704      |                     | $          | 10,319                       |       | $                               | 9,315      |             | $          | (6,101 | ) | $ | 16,237 |   |
| Income taxes  payable                                              |       | —                |       | —                   |       | 1,933                        |       | —                          |       | 1,933            |       |
| Accrued expenses  and other liabilities                            |       | 13,729                |       | 18,692                   |       | 17,774                       |       | —                          |       | 50,195           |       |
| Current  maturities of long-term obligations                       |       | 25,535                |       | 215                      |       | —                       |       | —                          |       | 25,750           |       |
| Total current  liabilities                                         |       | 41,968                |       | 29,226                   |       | 29,022                       |       | (6,101                          | )          | 94,115           |       |
| Long-term obligations  and intercompany debt                       |       | 415,264               |       | 191,913                  |       | —                       |       | (191,749                        | )          | 415,428          |       |
| Other liabilities                                                  |       | 3,429                 |       | 25,203                   |       | (58                          | )          | —                          |       | 28,574           |       |
| Total  liabilities                                                 |       | 460,661               |       | 246,342                  |       | 28,964                       |       | (197,850                        | )          | 538,117          |       |
| **Stockholder’s Equity (Deficit)**                            | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Total  stockholder’s equity (deficit)                         |       | (40,411               | )          | 131,977                  |       | 200,765                      |       | (332,742                        | )          | (40,411          | )          |
| Total liabilities and  stockholder’s equity (deficit)         |       | $                     | 420,250    |                     | $          | 378,319                      |       | $                               | 229,729    |             | $          | (530,592 | ) | $ | 497,706 |   |

 

19

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**MERISANT COMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**Unaudited Condensed Consolidating Balance Sheetat June 30, 2006**
| ** **                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
| **Assets**                                                 | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Cash and cash equivalents                                  |       | $                     | 190        |                     | $          | 9,555                        |       | $                               | 9,760      |             | $          | — |   | $ | 19,505 |   |
| Trade accounts receivable, net of allowances               |       | —                |       | 12,111                   |       | 49,636                       |       | —                          |       | 61,747           |       |
| Other receivables and intercompany receivables             |       | 141                   |       | 5,207                    |       | 5,635                        |       | (5,098                          | )          | 5,885            |       |
| Inventories                                                |       | —                |       | 13,490                   |       | 8,691                        |       | —                          |       | 22,181           |       |
| Other current assets                                       |       | 688                   |       | 1,069                    |       | 2,216                        |       | —                          |       | 3,973            |       |
| Total current assets                                       |       | 1,019                 |       | 41,432                   |       | 75,938                       |       | (5,098                          | )          | 113,291          |       |
| Property and equipment, net                                |       | —                |       | 19,307                   |       | 6,931                        |       | —                          |       | 26,238           |       |
| Trademarks, less accumulated amortization                  |       | 75,383                |       | —                   |       | 126,944                      |       | —                          |       | 202,327          |       |
| Goodwill                                                   |       | —                |       | 107,209                  |       | —                       |       | —                          |       | 107,209          |       |
| Deferred financing costs, less accumulated  amortization   |       | 15,195                |       | —                   |       | —                       |       | —                          |       | 15,195           |       |
| Other non-current assets                                   |       | 2,540                 |       | 523                      |       | 672                          |       | —                          |       | 3,735            |       |
| Investment in subsidiary and intercompany debt             |       | 325,503               |       | 214,303                  |       | 382                          |       | (539,806                        | )          | 382              |       |
| Total assets                                               |       | $                     | 419,640    |                     | $          | 382,774                      |       | $                               | 210,867    |             | $          | (544,904 | ) | $ | 468,377 |   |
|                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Liabilities**                                            | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Accounts payable and intercompany payable                  |       | $                     | 25,456     |                     | $          | 8,903                        |       | $                               | 10,177     |             | $          | (28,431 | ) | $ | 16,105 |   |
| Income taxes payable                                       |       | —                |       | —                   |       | 610                          |       | —                          |       | 610              |       |
| Accrued expenses and other liabilities                     |       | 12,264                |       | 13,640                   |       | 17,282                       |       | —                          |       | 43,186           |       |
| Current maturities of long-term obligations                |       | 7,761                 |       | 49                       |       | —                       |       | —                          |       | 7,810            |       |
| Total current liabilities                                  |       | 45,481                |       | 22,592                   |       | 28,069                       |       | (28,431                         | )          | 67,711           |       |
| Long-term obligations and intercompany debt                |       | 432,566               |       | 187,782                  |       | —                       |       | (187,703                        | )          | 432,645          |       |
| Other liabilities                                          |       | 3,417                 |       | 26,134                   |       | 294                          |       | —                          |       | 29,845           |       |
| Total liabilities                                          |       | 481,464               |       | 236,508                  |       | 28,363                       |       | (216,134                        | )          | 530,201          |       |
| **Stockholder’s  Equity (Deficit)**                   | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Total stockholder’s equity (deficit)                  |       | (61,824               | )          | 146,266                  |       | 182,504                      |       | (328,770                        | )          | (61,824          | )          |
| Total  liabilities and stockholder’s equity (deficit) |       | $                     | 419,640    |                     | $          | 382,774                      |       | $                               | 210,867    |             | $          | (544,904 | ) | $ | 468,377 |   |

 

20

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**MERISANT COMPANY —****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**UnauditedConsolidating Statement of Cash Flows For the Six Months Ended June 30, 2005**
| ** **                                          | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Operating  activities**                           | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Net cash provided by (used in) operating activities |       | $                     | (5,143     | )                        | $          | (17,804                      | )          | $                               | 35,793     |             | $          | (13,886 | ) | $ | (1,040 | ) |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Investing  activities**                           | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Proceeds from sale of fixed assets                  |       | —                |       | —                   |       | 65                           |       | —                          |       | 65               |       |
| Purchases of property and equipment                 |       | —                |       | (890                     | )          | (459                         | )          | —                          |       | (1,349           | )          |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash used in investing activities               |       | —                |       | (890                     | )          | (394                         | )          | —                          |       | (1,284           | )          |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Financing  activities**                           | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Borrowings under revolving credit agreement         |       | 10,000                |       | —                   |       | —                       |       | —                          |       | 10,000           |       |
| Principal payments on long-term obligations         |       | (4,889                | )          | (103                     | )          | —                       |       | —                          |       | (4,992           | )          |
| Payment of deferred financing costs                 |       | (1,133                | )          | —                   |       | —                       |       | —                          |       | (1,133           | )          |
| Receivable/payable, parent company                  |       | 1,644                 |       | 18,797                   |       | (34,327                      | )          | 13,886                          |       | —           |       |
| Distribution to stockholder                         |       | (642                  | )          | —                   |       | —                       |       | —                          |       | (642             | )          |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash provided by (used in) financing activities |       | 4,980                 |       | 18,694                   |       | (34,327                      | )          | 13,886                          |       | 3,233            |       |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Effect of  exchange rate on cash                    |       | —                |       | —                   |       | (335                         | )          | —                          |       | (335             | )          |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net increase in  cash and cash equivalents          |       | (163                  | )          | —                   |       | 737                          |       | —                          |       | 574              |       |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents at beginning of period   |       | 245                   |       | —                   |       | 8,851                        |       | —                          |       | 9,096            |       |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents at end of period         |       | $                     | 82         |                     | $          | —                       |       | $                               | 9,588      |             | $          | — |   | $ | 9,670 |   |

 

21

----

 

**MERISANT COMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**UnauditedConsolidating Statement of Cash Flows For the Six Months Ended June 30, 2006**
| ** **                                                                        | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                              |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Operating  activities**                                                         | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Net cash provided by (used in) operating activities                               |       | $                     | (24,882    | )                        | $          | 13,985                       |       | $                               | 45,297     |             | $          | (23,409 | ) | $ | 10,991 |   |
|                                                                              |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Investing  activities**                                                         | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Proceeds from sale of property and equipment                                      |       | —                |       | —                   |       | 26                           |       | —                          |       | 26               |       |
| Purchases of property and equipment                                               |       | —                |       | (1,163                   | )          | (167                         | )          | —                          |       | (1,330           | )          |
|                                                                              |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash used in investing activities                                             |       | —                |       | (1,163                   | )          | (141                         | )          | —                          |       | (1,304           | )          |
|                                                                              |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Financing  activities**                                                         | ** ** | ** **            | ** ** | ** **               | ** ** | ** **                   | ** ** | ** **                      | ** ** | ** **       | ** ** |
| Net payments under revolving credit agreement                                     |       | (16,000               | )          | —                   |       | —                       |       | —                          |       | (16,000          | )          |
| Borrowings under long-term obligations                                            |       | 85,000                |       | 95                       |       | —                       |       | —                          |       | 85,095           |       |
| Principal payments on long-term obligations,  excluding revolving credit facility |       | (71,388               | )          | (92                      | )          | —                       |       | —                          |       | (71,480          | )          |
| Payment of deferred financing costs                                               |       | (5,429                | )          | —                   |       | —                       |       | —                          |       | (5,429           | )          |
| Receivable/payable, parent company                                                |       | 33,291                |       | (4,194                   | )          | (52,506                      | )          | 23,409                          |       | —           |       |
| Distribution to stockholder                                                       |       | (500                  | )          | —                   |       | —                       |       | —                          |       | (500             | )          |
|                                                                              |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash provided by (used in) financing activities                               |       | 24,974                |       | (4,191                   | )          | (52,506                      | )          | 23,409                          |       | (8,314           | )          |
|                                                                              |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Effect of exchange rate on cash                                                   |       | —                |       | —                   |       | 68                           |       | —                          |       | 68               |       |
|                                                                              |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net increase in  cash and cash equivalents                                        |       | 92                    |       | 8,631                    |       | (7,282                       | )          | —                          |       | 1,441            |       |
|                                                                              |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents at beginning of period                                 |       | 98                    |       | 924                      |       | 17,042                       |       | —                          |       | 18,064           |       |
|                                                                              |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents at end of period                                       |       | $                     | 190        |                     | $          | 9,555                        |       | $                               | 9,760      |             | $          | — |   | $ | 19,505 |   |

 

**9.****                 SubsequentEvent**

Merisant Company 2, Sàrl and the Company entered intoa share purchase and sale agreement with DunaPro Kereskedelmi ès SzolgáltatóRészvénytársaság (“DunaPro”) pursuant to which Merisant Company 2, Sàrl and theCompany sold all issued and outstanding shares of Merisant Hungary Ltd. toDunaPro.  DunaPro is a distributor ofconsumer products in Hungary and is now Merisant Company 2, Sàrl’s exclusivedistributor of *Canderel*® and the Company’s otherbranded products in Hungary.  Thetransaction closed on July 13, 2006 with a purchase price of approximately$1,182, of which 75% was paid at closing, 16% is payable 60 days after closeand 9% is payable on December 31, 2006.

 

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**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

*The following discussion should be read in conjunction with the Company’sunaudited consolidated financial statements and accompanying notes includedelsewhere in this document. The Company’s discussion of results by reportablesegment should be read in conjunction with Note 2 to the Company’sunaudited consolidated financial statements included elsewhere in thisdocument, which illustrates the reconciliation of Operating EBITDA to income(loss)  before income taxes. Unlessotherwise indicated or unless the context requires otherwise, all references inthis discussion to “Merisant” or “the Company” mean Merisant Company and itsconsolidated subsidiaries.*

**Overview**

Merisant is a worldwide leader in the marketingof low-calorie tabletop sweeteners, with an estimated 24% dollar share as ofDecember 31, 2005 of a growing global retail market, which the Companyestimates at $1.5 billion. Merisant believes that it has the leading dollarmarket share as of December 31, 2005 in approximately half of what itestimates as the top 20 markets for low-calorie tabletop sweetener sales. TheCompany’s premium-priced brands, *Equal*®and *Canderel*®, are among the mostrecognized low-calorie tabletop sweetener products in the world, with aidedbrand awareness estimated at between 77% and 97% in the Company’s four topmarkets. In addition to *Equal*®and *Canderel*®, Merisant marketsits products under approximately 20 other regional brands that enjoysignificant brand recognition in their target markets. Merisant sells itsbrands in over 85 countries.

Merisant’s business is the result of over25 years of history in the low-calorie tabletop sweetener industry, first as adivision of G.D. Searle & Co. (“Searle”) and later Monsanto Company (“Monsanto”).Searle invented the key sweetening ingredient in Merisant’s products,aspartame, in 1965. Aspartame was first approved for consumer use in France in1979, where Searle marketed the product under the *Canderel*®brand. By the early 1980s, *Canderel*® wasbeing marketed in much of Europe. In 1981, the U.S. Food and DrugAdministration approved the tabletop use of aspartame. The following year,Searle launched *Equal*® in the United States.Monsanto entered the sweetener market in 1985 through its acquisition ofSearle. Merisant Company is a Delaware corporation that was formed in 2000 byan investor group led by an affiliate of Pegasus Capital Advisors, L.P. toacquire Monsanto’s tabletop sweetener business.

This business legacy has providedMerisant with a global infrastructure dedicated to the manufacture, marketingand distribution of low-calorie tabletop sweeteners. Merisant’s worldwideheadquarters are located in Chicago, Illinois, and its principal regionaloffices are located in Mexico City, Mexico, Neuchâtel, Switzerland, Paris,France and Sydney, Australia. Merisant owns and operates manufacturingfacilities in Manteno, Illinois and Zarate, Argentina and owns processing linesthat are operated exclusively for Merisant at plants located in Bergisch andStendal, Germany. As of August 13, 2006, Merisant had twenty-five direct andindirect subsidiaries, including three subsidiaries in the United States, ninesubsidiaries in European countries, eight subsidiaries in Mexico, CentralAmerica and South America, and five subsidiaries in the Asia/Pacific region,including Australia and India. In addition, Merisant’s Swiss subsidiary holds a50% interest in a joint venture in the Philippines.

The Company’s corebusiness continues to be products sweetened with aspartame, and the *Equal*® and *Canderel*® brands accounted for approximately 86% of theCompany’s net sales in 2005. The majority of the Company’s 20 other regionalbrands around the world are also sweetened with aspartame.

***Sales Trends and Strategy***

Merisant’s premium-pricedbrands had enjoyed a dominant market position among low-calorie sweeteners inmany of the Company’s key markets. In recent years, however, Merisant has facedsignificant competition from McNeil Nutritionals LLC, a subsidiary ofJohnson & Johnson (“McNeil”), which markets and distributes theartificial sweetener*Splenda*®. *Splenda*® is sweetened with sucralose,which is produced by Tate & Lyle PLC through a complex chemicalprocess that converts sucrose molecules into a synthetic compound. BetweenDecember 2002 and December 2005, *Splenda*®’s dollar share of the United States retail grocery low-calorie sweetenermarket has grown from approximately 15% to 60% and has surpassed that of *Equal* ® to become the number one premiumlow-calorie sweetener in the United States. While the Company believes that theintroduction of *Splenda*® hasincreased the size of the market for low-calorie sweeteners in general,Merisant’s net sales have declined during this period, particularly in NorthAmerica which had accounted for 46% and 37% of Merisant’s net sales in 2003 and2005, respectively. As a result of declining net sales, Merisant hasexperienced significant declines in its Bank EBITDA from $110.2 million in 2003to $68.0 million in 2005. For a description of Bank EBITDA and a reconciliationof Bank EBITDA to cash flow from operating activities, see “—Liquidity andCapital Resources”.

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Managementbelieves that there are opportunities for future growth in the low-calorietabletop sweetener and sweetened food category and that the Company ispositioned to pursue these opportunities. Despite recent declines in net sales,Merisant’s premium brands *Equal* ® and *Canderel* ® are among the most recognized low-calorie tabletopsweetener products in the world, with aided brand awareness estimated between77% and 97% in its top four markets.

Paul Block wasappointed Chief Executive Officer in November 2004 and has led aninitiative to strengthen Merisant’s core brands, improve the efficiency of theCompany’s operations, reduce costs and transform Merisant into a consumerfocused sweetener and sweetened food company. Mr. Block has recruited individuals from outside the Company andpromoted individuals from within the organization to form a new seniormanagement team with the goal of developing a culture of innovation with afocus on invasive marketing campaigns combined with the development and launchof new products designed to revitalize the existing consumer base and attract newconsumers.

The Company seeksto stabilize and then grow revenues through the following four strategicinitiatives:

·                  Promotenew usage among existing consumers and expand the *Equal*® and *Canderel* ® brand positioning to attractnew consumers through invasive marketing campaigns and improved salesexecution.

·                  Increasethe pace of product innovation to bring new aspartame sweetened products andbrand extensions to the market.  TheCompany plans to launch several new products in 2006 with numerous additionalproducts in the development pipeline.

·                  Dedicatesignificant resources to improving the efficiency of operations by, among otherthings, implementing supply chain-based programs to streamline manufacturingcapabilities and improving the efficiency of certain support services.   The Company has successfully reduced costsand made its business more efficient, which has significantly contributed tothe current stabilization of EBITDA compared to 2005.

·                  Developand test products that have the potential to transform the Company’s brandportfolio. The Company has developed an all-natural, zero-calorie sweetener andrecently shipped this new product to Whole Foods, Wild Oats and independentorganic retail outlets.  This innovativeproduct is being marketed under the *Sweet Simplicity*TMbrand for the Whole Earth Sweetener Company LLC, a newly formed entity andwholly owned subsidiary of Merisant.

Managementbelieves that the development and introduction of new products under its *Equal* ® and *Canderel* ® brandsmay help to stabilize its core business while innovative, all-naturalsweeteners and sweetened food products under its *SweetSimplicity*TM brand for the Whole Earth Sweetener Company presentgrowth opportunities for Merisant. However, the Company may be constrained inits ability to realize fully the value of these new products as a result of itscurrent capital structure. The successful launch of new products and marketingof its core brands requires capital, and Merisant must use a significantportion of its cash flows from operations to service its outstanding debt. TheCompany had an aggregate of $440.3 million of long-term debt outstanding atJune 30, 2006 and paid $41.9 million in interest costs for the year endedDecember 31, 2005, $23.0 million of which represented interest payments onMerisant’s 9 1⁄2% senior subordinated notes due 2013 (the “Notes”). If theCompany cannot generate cash flows from operations significantly in excess ofits short-term debt obligations, Merisant may not have the resources requiredto fully realize the value of its strategic initiatives.

***RecentFinancing Activities***

TheCompany’s Bank EBITDA declined from $110.2 million in 2003 to $68.0 million in2005. As a result of this decline, the Company faced an issue in the first quarterof 2006 with a possible immediate default under its senior credit agreement(the “Senior Credit Agreement”). Merisant succeeded in negotiating amendments to the Senior CreditAgreement which may afford the Company time to stabilize its core business,improve operating efficiencies and provide more flexibility to address theCompany’s capital structure and long-term capital needs.  The Company also refinanced a portion ofloans outstanding under the Senior Credit Agreement with the proceeds of loansunder a senior credit facility that is secured by a second lien on all thecollateral that secures loans outstanding under the Senior Credit Agreement(the “Second Lien Credit Agreement”).  For a description of Bank EBITDA and a reconciliation of Bank EBITDA tocash flows from operating activities, see “—Liquidity and Capital Resources”.

OnMarch 29, 2006, the lenders holding a majority of the aggregate principalamount of outstanding loans and revolver 

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commitments underthe Senior Credit Agreement agreed to amend the terms of the Senior CreditAgreement (the “Fourth Amendment”) and waived a technical default related tothe use of proceeds from the repayment of the inter-company loan between theCompany and its Swiss subsidiary. Among other things, the Fourth Amendmentamended the financial covenants as of December 31, 2005, adjusted thefinancial covenants through the maturity date of loans outstanding under theSenior Credit Agreement, incorporated new financial covenants, adjusted theinterest rate on borrowings under the Senior Credit Agreement, amended thedefinition of Bank EBITDA to provide additional “add backs” related to Merisant’srestructuring and new product development efforts, and amended certain othercovenants.

TheFourth Amendment avoided a possible immediate default under the Senior CreditAgreement resulting from the decline in the Company’s Bank EBITDA. The FourthAmendment required Merisant to raise approximately $85.0 million of newborrowings and use the proceeds to prepay loans currently outstanding under theSenior Credit Agreement by January 2, 2007. On June 23, 2006, Merisantentered into the Second Lien Credit Agreement with a syndicate of lenders,including Credit Suisse, as administrative agent, and Wells Fargo Bank, NationalAssociation, as collateral agent.  TheSecond Lien Credit Agreement consists of an aggregate principal amount of $85.0million in term loans, the net proceeds of which were used to prepay $9.5million of euro-denominated term A loans, prepay $53.3 million of term B loansand to repay $15.0 million of revolving loans, in each case, outstanding underMerisant’s Senior Credit Agreement.  This refinancing transaction satisfied Merisant’s obligation under theFourth Amendment to refinance a portion of the loans outstanding under theSenior Credit Agreement.

Concurrentwith the closing of the Second Lien Credit Agreement, Merisant entered into aFifth Amendment to the Senior Credit Agreement (the “Fifth Amendment”) to amendcertain terms and conditions set forth in the Senior Credit Agreement. See “—Liquidityand Capital Resources—Financing” for a more detailed description of the FifthAmendment and Second Lien Credit Agreement.

**Results ofOperations**

For each of the periodsdiscussed below, the information set forth under the caption “ConsolidatedResults” represents an overview of the Company’s results of operations on aconsolidated basis. Additional detail regarding the results of operations canbe found under the caption “—SegmentResults” for each period discussed below.

***Three Months Ended June30, 2006 Compared to Three Months Ended June 30, 2005***

The following table sets forth certain of the Company’sfinancial data for the three month periods ended June 30, 2005 and 2006 (totalsmay not foot due to rounding).

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| ** **                         | ** ** | **Three Months Ended  June 30,** | ** ** | **Three Months Ended  June 30,** | ** ** |
|------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                         | ** ** | **2005**                                        | ** ** | **2006**                                        | ** ** | **2005** | ** ** | **2006** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **                         | ** ** | **(in millions)**                          | ** ** | **As% of Net Sales**             | ** ** | **Dollars** | ** ** | **%** | ** ** |
| Net sales                          |       | $                                               | 79.2       |                                            | $          | 78.6 |   | 100 | % | 100 | % | $ | (0.5 | ) | (1 | )% |
| Cost of sales                      |       | 33.3                                            |       | 32.6                                            |       | 42 | % | 41 | % | 0.7 |   | 2 | % |
| Gross profit                       |       | 45.8                                            |       | 46.0                                            |       | 58 | % | 59 | % | 0.2 |   | 0 | % |
|                               |       |                                            |       |                                            |       |   |   |   |   |   |   |   |   |
| Operating  expenses:               |       |                                            |       |                                            |       |   |   |   |   |   |   |   |   |
| Marketing and selling expenses     |       | 19.7                                            |       | 22.2                                            |       | 25 | % | 28 | % | (2.5 | ) | (13 | )% |
| Administration expenses            |       | 10.0                                            |       | 10.4                                            |       | 13 | % | 13 | % | (0.5 | ) | (5 | )% |
| Research and development expenses  |       | 0.6                                             |       | 0.3                                             |       | 1 | % | 0 | % | 0.2 |   | 40 | % |
| Amortization of intangibles        |       | 5.6                                             |       | 5.6                                             |       | 7 | % | 7 | % | (0.0 | ) | (0 | )% |
| Transaction fees                   |       | (0.1                                            | )          | 3.3                                             |       | (0 | )% | 4 | % | (3.4 | ) | (3184 | )% |
| Restructuring expenses             |       | 0.6                                             |       | 1.3                                             |       | 1 | % | 2 | % | (0.7 | ) | (131 | )% |
| Total operating expenses           |       | 36.2                                            |       | 43.1                                            |       | 46 | % | 55 | % | (6.9 | ) | (19 | )% |
|                               |       |                                            |       |                                            |       |   |   |   |   |   |   |   |   |
| Income from  operations            |       | 9.6                                             |       | 2.9                                             |       | 12 | % | 4 | % | (6.7 | ) | (70 | )% |
|                               |       |                                            |       |                                            |       |   |   |   |   |   |   |   |   |
| Other expenses  (income):          |       |                                            |       |                                            |       |   |   |   |   |   |   |   |   |
| Interest income                    |       | (0.3                                            | )          | (0.2                                            | )          | (0 | )% | (0 | )% | (0.1 | ) | (34 | )% |
| Interest expense                   |       | 11.8                                            |       | 13.8                                            |       | 15 | % | 18 | % | (2.1 | ) | (17 | )% |
| Other expense (income), net        |       | (4.6                                            | )          | 1.3                                             |       | (6 | )% | 2 | % | (5.9 | ) | (129 | )% |
| Total other expenses               |       | 6.9                                             |       | 14.9                                            |       | 9 | % | 19 | % | (8.1 | ) | (117 | )% |
|                               |       |                                            |       |                                            |       |   |   |   |   |   |   |   |   |
| Income (loss)  before income taxes |       | 2.7                                             |       | (12.1                                           | )          | 3 | % | (15 | )% | (14.8 | ) | (540 | )% |
|                               |       |                                            |       |                                            |       |   |   |   |   |   |   |   |   |
| Provision for  income taxes        |       | 1.7                                             |       | 2.7                                             |       | 2 | % | 3 | % | (1.0 | ) | (56 | )% |
| Net income (loss)                  |       | $                                               | 1.0        |                                            | $          | (14.8 | ) | 1 | % | (19 | )% | $ | (15.8 | ) | (1550 | )% |

 

**Consolidated Results**

*Net sales.*Overall,net sales declined in the second quarter of 2006 compared to the second quarterof 2005.  The decline was related tolower sales in the EAME region, primarily France, Italy, Middle East, Portugaland the UK, as well as a foreign currency translation loss of approximately$0.7 million, most of which occurred in the EAME region.  In France and Italy, weakenedeconomies continued to depress sales, and the decreased revenues for the secondquarter of 2006 also reflected the loss of consumers resulting from thepublication in July 2005 of a now widely discredited study on the safety ofaspartame.  In France, these factors, as well as increasedhealth consciousness, negatively affected the low-calorie sweetener category ingeneral as well as the sugar category. Sales declined in Portugal and the Middle East in the second quarter of2006 compared to the same period in the prior year due to timing of shipmentsbetween quarters.  In the UK, aggressivepricing by major grocery retailers forced higher discounting, but Merisant maintained its value share of themarket through higher sales volumes.  InLatin America and Asia/Pacific, sales increased in the second quarter of 2006compared to the second quarter of 2005 due mainly to the initial inventorypurchases of a new distributor in Chile, distributor inventory adjustments andimproved sales in the club channel in Mexico and timing of sales inAsia/Pacific. In North America, net sales improved in the grocery channel inthe United States, despite reduced consumer demand.  This increase was due to sales to ACH FoodCompanies, Inc. (“ACH”) as ACH built inventory in connection with its role as anew distributor for the Company. In the mass channel, sales improved due toabnormally high shipments related to a customer system issue resulting inincreased ending inventory levels.  Increasedcontract manufacturing activity also improved sales.  Unfavorable sales mix and increased trademarketing partially offset the improved sales in North America.

*Cost of sales.* TheCompany realized some improved efficiencies in its manufacturing conversioncosts due to lower spending and headcount reductions and improved overhead absorption through contractmanufacturing activities.  Favorablecurrency translation and lower inventory obsolescence costs also contributed tolower cost of sales. Increased freight and distribution costs partially offsetthese improvements. Overall, gross profit as a percentage of net sales improvedfrom 58% for the three months ended June 30, 2005 to 59% for the three monthsended June 30, 2006 as changes in sales mix partially offset the costimprovements previously described.

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*Operating expenses.*Marketingand selling expenses increased mainly due to higher brand support in the UK andFrance and higher selling costs in the United States related to increased salesvolumes and commissions relating to the transition to the new distributor.These unfavorable impacts were partially offset by favorable foreign currencytranslations, lower brand support in the United States and Latin America andlower marketing and selling administration costs in all regions due to savingsfrom restructuring actions. Administration expenses increased significantly due to an increase incorporate expenses mainly related to higher performance based incentive expenseand an increase in litigation costs, partially offset by lower consulting andinformation technology costs and savings from restructuring actions.Transaction fees increased as a result of $3.3 million in expenses incurred inconjunction with the Second Lien Credit Agreement. During the second quarter of2006, the Company continued its restructuring initiatives to improve bothfinancial results and the long-term value of the business. As a result of theseactions, the Company recorded restructuring charges for workforce reductions of$1.3 million in the second quarter of 2006 as compared to $0.6 million in thesecond quarter of 2005. The restructuring charges incurred in the secondquarter of 2006 relate primarily to new employee termination costs in the EAMEand Latin America segments and are expected to be substantially paid by the endof the third quarter of 2006. Additional information regarding restructuringcharges and the related liability can be found in Note 3 to the unauditedconsolidated financial statements located elsewhere in this document.

*Interest.*On June23, 2006, the Company entered into the Second Lien Credit Agreement. TheSecond Lien Credit Agreement consists of an $85.0 million term loan, the netproceeds of which were used to prepay $77.9 million in borrowings outstandingunder the Senior Credit Agreement.  Theextinguishment of indebtedness under the Senior Credit Agreement resulted in anincrease in interest expense due to the write-off of related deferred financingfees totaling $2.5 million.  In addition,the Company successfully closed theregistered exchange offer of the Notes in October 2005 which resulted inthe discontinuation of penalty interest. The penalty interest went into effectas the Company had not consummated the registered exchange offer prior to thepreviously agreed deadline. Net interest decreased as a result of thediscontinuation of the penalty interest. The Company’s future interest expense is expected to increase asa result of higher interest bearing loans under the Second Lien CreditAgreement and the use of proceeds from the Second Lien Credit Agreement toprepay lower interest bearing loans under the Senior Credit Agreement. Loansoutstanding under the Senior Credit Agreement had a weighted average interestrate of approximately 9.0% per annum prior to the closing of the Second LienCredit Agreement.  The Company’sborrowings under the Senior Credit Agreement and Second Lien Credit Agreementhad a weighted average interest rate of approximately 10.3% per annum upon theclosing of the Second Lien Credit Agreement.

*Other income/expense, net*. The unfavorable variance of $5.9 million is mainly attributable to a$2.4 million currency gain on the euro-denominated debt for the second quarterof 2005 as compared to a $1.3 million currency loss on the euro-denominateddebt for the quarter ended June 30, 2006. In addition, a $1.5 million unrealized gain on derivative instrumentsthat expired in March, 2006 and theimpact of a $1.3 million reversal of a currency loss in Latin America, bothoccurring in the quarter ended June 30, 2005 and not repeating in the quarterended June 30, 2006, also contributed to the unfavorable variance.  These items were partially offset byfavorable balance sheet remeasurement impacts as compared to the quarter endedJune 30, 2005.

*Taxes.*For thethree months ended June 30, 2006, the Company recorded a $2.7 million taxprovision on a loss before income taxes of $12.1 million. The unusualrelationship of the Company’s tax provision to its pre-tax loss in the secondquarter of 2006 relates to a combination of factors. These factors includeincreased tax loss carryforwards, primarily generated in the United States, forwhich the Company has not recorded a tax benefit, as well as **provisionsfor future tax costs which may be incurred upon the potential repatriation ofcertain 2006 foreign earnings that are not deemed to be permanentlyreinvested. **With regard to the deferred income taxassets on the tax loss carryforwards, the Company determined that it has notsatisfied the “more likely than not” test and has increased its total valuationallowance by $5.0 million in the second quarter of 2006 to a total of $58.8million. The Company will continue to assess the valuation allowances, and, tothe extent the Company determines that such allowances are no longer required,these deferred income tax assets will be recognized in the future.

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**Segment Results**

Thefollowing table presents net sales and Operating EBITDA expressedin millions of dollars for each reportable segment (totals may not footdue to rounding):
| ** **               | ** ** | **Net Sales**                          | ** ** | **Operating EBITDA (1)**            | ** ** |
|--------------------------|------------|---------------------------------------------|------------|-----------------------------------------------|------------|
| ** **               | ** ** | **Three Months  Ended  June 30,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** | **Three Months  Ended  June 30,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **               | ** ** | **2005**                                    | ** ** | **2006**                                      | ** ** | **$** | ** ** | **%** | ** ** | **2005** | ** ** | **2006** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **               | ** ** | **(in millions)**                      | ** ** | **(in millions)**                        | ** ** |
| ** **               | ** ** | ** **                                  | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| North America  (2)       |       | $                                           | 29.3       |                                          | $          | 33.0 |   | $ | 3.7 |   | 13 | % | $ | 9.2 |   | 12.3 |   | $ | 3.1 |   | 33 | % |
| Operating EBITDA  Margin |       |                                        |       |                                          |       |   |   |   |   | 31 | % | 37 | % | 6 | % |   |   |
| EAME                     |       | 37.5                                        |       | 31.9                                          |       | (5.5 | ) | (15 | )% | 12.5 |   | 6.4 |   | (6.1 | ) | (49 | )% |
| Operating EBITDA  Margin |       |                                        |       |                                          |       |   |   |   |   | 33 | % | 20 | % | (13 | )% |   |   |
| Latin America            |       | 7.2                                         |       | 8.3                                           |       | 1.1 |   | 15 | % | 1.5 |   | 2.5 |   | 1.0 |   | 62 | % |
| Operating EBITDA  Margin |       |                                        |       |                                          |       |   |   |   |   | 22 | % | 30 | % | 9 | % |   |   |
| Asia/Pacific             |       | 5.2                                         |       | 5.4                                           |       | 0.2 |   | 4 | % | 1.9 |   | 1.8 |   | (0.1 | ) | (3 | )% |
| Operating EBITDA Margin  |       |                                        |       |                                          |       |   |   |   |   | 37 | % | 34 | % | (2 | )% |   |   |
|                          |            |                                             |            |                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)             “OperatingEBITDA” as used with respect to the Company’s operating segments is a measureupon which management assesses the financial performance of these segments.Operating EBITDA excludes interest expense, income tax expense and depreciationand amortization, as well as items such as start-up expenses, restructuringexpenses, certain significant charges related to new product development andlaunch costs, cost related to the transition to a new exclusive distributor inthe United States and certain other non-cash items. See Note 2 to the unauditedconsolidated financial statements for a description of Operating EBITDA and areconciliation of Operating EBITDA to income (loss) before income taxes.Operating EBITDA margin represents Operating EBITDA as a percentage of netsales.

(2)             NorthAmerica segment results exclude immaterial sales and $0.9 million of negativeOperating EBITDA related to a new product launch which management evaluatesseparately from this geographical segment.

***North America***

*Net sales.*In North America, net sales improved in thegrocery channel, despite reduced consumer demand, as ACH built inventory inconnection with its role as a new distributor for the Company.  In the mass channel, sales improved due toabnormally high shipments related to a customer system issue resulting inincreased ending inventory levels. Increased contract manufacturing activity also improved sales.Unfavorable sales mix and increased trade marketing partially offset theimproved sales in North America.

*Operating EBITDA.*The increase in Operating EBITDA was primarilyrelated to the margin impact of the improved sales volumes, lower conversioncosts related to reduced spending, improved overhead absorption costs relatedto increased contract manufacturing activities, lower brand support and reducedmarketing and selling administrative expenses due to savings from restructuringactions. These favorable impacts were partially offset by higher selling costsdue to increased sales volumes and commissions to the new distributor andincreased distribution costs relating to fuel surcharges. Operating EBITDAmargin increased due primarily to the favorable conversion costs and overheadabsorption previously described.

***EAME***

*Net sales.*In EAME, sales declined primarily as a result of a$0.4 million unfavorable currency translation and lower sales in France, Italy,Middle East, Portugal and the UK.  InFrance and Italy, weakened economies continued to depress sales, and thedecreased revenues for the second quarter of 2006 also reflected the loss ofconsumers resulting from the publication in July 2005 of a now widelydiscredited study on the safety of aspartame.  In France, these factors, as well as increasedhealth consciousness, negatively affected the low-calorie sweetener category ingeneral as well as the sugar category. Sales declined in Portugal and the Middle East in the second quarter of2006 compared to the same period in the prior year due to timing of shipmentsbetween quarters.  

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In the UK, aggressive pricing between the major retailersforced higher discounting, however higher volumes have translated into Merisant’svalue share of the market remaining stable.

*Operating EBITDA.* OperatingEBITDA decreased mainly due to lower sales and a sizable increase in brandsupport in  France and the UK.  These unfavorable impacts were partiallyoffset by lower inventory obsolescence costs, reduced sales, marketing andsupply chain infrastructure costs due to savings from restructuring actions andlower material pricing.  The decrease inOperating EBITDA margin was primarily due to significantly higher marketingcosts as a percentage of sales.

***Latin America***

*Net sales.*The increase in Latin American sales was mainlydue to the initial inventory purchases of a new distributor in Chile andimproved sales in Mexico due to an adverse distributor inventory adjustment inthe second quarter of 2005 that did not repeat in the same period in 2006 andhigher sales in the club channel.

*Operating EBITDA.*The increase in Operating EBITDA was mainlyrelated to the margin impact of higher sales, lower brand support and reducedmarketing and selling administrative costs due to savings from restructuringactions, partially offset by the impact of a $1.3 million reversal of acurrency loss in the second quarter of 2005 that did not repeat in 2006.  Operating EBITDA margin increased primarilydue to higher gross profit percentage and lower marketing and selling costs asa percentage of sales.

***Asia/Pacific***

*Net sales.*Net sales in the Asia/Pacific region increasedprimarily due to timing of low margin sales in Australia between the firstquarter and second quarter, partially offset by lower sales in Malaysia.

*Operating EBITDA.*Operating EBITDA and Operating EBITDA margindecreased primarily due to unfavorable sales mix.

**Corporate Expenses**

Corporate expenses increased from$6.2 million in the second quarter of 2005 to $6.7 million in the secondquarter of 2006, primarily due to higher performance based incentive expenseand litigation costs, partially offset by lower consulting and informationtechnology costs and savings from restructuring actions.

 

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***Six Months Ended June 30, 2006 Compared to SixMonths Ended June 30, 2005***

The following table sets forth certain of the Company’s financial datafor the six month periods ended June 30, 2005 and 2006 (totals may not foot dueto rounding).
| ** **                         | ** ** | **Six Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                         | ** ** | **2005**                                      | ** ** | **2006**                                      | ** ** | **2005** | ** ** | **2006** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **                         | ** ** | **(in millions)**                        | ** ** | **as% of Net Sales**           | ** ** | **Dollars** | ** ** | **%** | ** ** |
| Net sales                          |       | $                                             | 155.1      |                                          | $          | 148.3 |   | 100 | % | 100 | % | $ | (6.7 | ) | (4 | )% |
| Cost of sales                      |       | 64.7                                          |       | 61.6                                          |       | 42 | % | 42 | % | 3.1 |   | 5 | % |
| Gross profit                       |       | 90.3                                          |       | 86.7                                          |       | 58 | % | 58 | % | (3.7 | ) | (4 | )% |
|                               |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |
| Operating expenses:                |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |
| Marketing and  selling expenses    |       | 40.9                                          |       | 39.1                                          |       | 26 | % | 26 | % | 1.8 |   | 4 | % |
| Administration  expenses           |       | 21.0                                          |       | 21.5                                          |       | 14 | % | 15 | % | (0.5 | ) | (2 | )% |
| Research and  development expenses |       | 0.9                                           |       | 1.0                                           |       | 1 | % | 1 | % | (0.0 | ) | (1 | )% |
| Amortization of  intangibles       |       | 11.1                                          |       | 11.1                                          |       | 7 | % | 7 | % | 0.0 |   | 0 | % |
| Transaction fees                   |       | (0.1                                          | )          | 3.3                                           |       | (0 | )% | 2 | % | (3.4 | ) | (3184 | )% |
| Restructuring  expenses            |       | 1.9                                           |       | 3.6                                           |       | 1 | % | 2 | % | (1.7 | ) | (88 | )% |
| Total operating  expenses          |       | 75.8                                          |       | 79.6                                          |       | 49 | % | 54 | % | (3.8 | ) | (5 | )% |
|                               |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |
| Income from operations             |       | 14.6                                          |       | 7.1                                           |       | 9 | % | 5 | % | (7.5 | ) | (51 | )% |
|                               |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |
| Other expenses  (income):          |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |
| Interest income                    |       | (0.5                                          | )          | (0.4                                          | )          | (0 | )% | (0 | )% | (0.1 | ) | (23 | )% |
| Interest expense                   |       | 23.0                                          |       | 24.7                                          |       | 15 | % | 17 | % | (1.7 | ) | (7 | )% |
| Other expense  (income), net       |       | (8.9                                          | )          | 1.5                                           |       | (6 | )% | 1 | % | (10.4 | ) | (117 | )% |
| Total other  expenses              |       | 13.7                                          |       | 25.9                                          |       | 9 | % | 17 | % | (12.3 | ) | (90 | )% |
|                               |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |
| Income (loss) before  income taxes |       | 0.9                                           |       | (18.8                                         | )          | 1 | % | (13 | )% | (19.7 | ) | (2197 | )% |
|                               |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |
| Provision for income taxes         |       | 3.9                                           |       | 2.9                                           |       | 3 | % | 2 | % | 1.0 |   | 25 | % |
| Net loss                           |       | $                                             | (3.0       | )                                             | $          | (21.8 | ) | (2 | )% | (15 | )% | $ | (18.7 | ) | (618 | )% |

 

**Consolidated Results**

*Net sales.*Overall,net sales declined in the six-month period ended June 30, 2006 compared to thesix-month period ended June 30, 2005.  Thedecline was primarily related to lower sales in the EAME region, led by France,Italy and Portugal, as well as a foreign currency translation loss ofapproximately $3.1 million, most of which occurred in the EAME region.  In France and Italy, weakened economiescontinued to depress sales, and the decreased revenues for the first six monthsof 2006 also reflected the loss of consumers resulting from the publication inJuly 2005 of a now widely discredited study on the safety of aspartame. In France, these factors, as well as increasedhealth consciousness, negatively affected the low-calorie sweetener category ingeneral as well as the sugar category. Sales declined in Portugal as the new distributor purchased moreinventory than required to be on hand as of December 31, 2005 and a shiftoccurred in timing of shipments between quarters.  Sales also declined in Belgium, Ireland,Hungary, Greece and Germany, primarily as a result of lower consumer demand,weak economies and health concerns.  InSouth Africa, the conversion from a direct sales model to a distributor modelcaused declines in net sales, but this decline in revenue was more than offsetby reduced infrastructure costs.  InLatin America and Asia/Pacific, sales decreased due mainly to reduced volumesin Mexico and foreign currency translation losses in Asia/Pacific.  In North America, despite reduced consumerdemand, net sales improved in the grocery channel as ACH built inventory inconnection with its role as a new distributor for the Company.  In the mass channel, sales improved due toabnormally high shipments related to customer system issues resulting inincreased inventory levels.  Increasedcontract manufacturing activity also favorably impacted sales. Lower foodservice sales related to increased competition, unfavorable sales mix andincreased trade marketing partially offset the improved sales in North America.

*Cost of sales.* TheCompany realized some improved efficiencies in its manufacturing conversioncosts due to lower spending and headcount reductions and improved overheadabsorption through contract manufacturing activities.  Favorable currency 

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translationand lower inventory obsolescence costs also contributed to lower cost of sales.Increased freight and distribution costs partially offset these improvements.Overall, the gross profit as a percentage of net sales remained stable at 58%for the six months ended June 30, 2006 and June 30, 2005 as changes in salesmix offset the cost improvements previously described.

*Operating expenses.*Marketingand selling expenses decreased mainly due to lower brand support in allregions, favorable foreign currency translations and lower marketing andselling costs in the EAME, Latin America and Asia/Pacific regions due to lowervolumes and savings from restructuring actions. These favorable impacts werepartially offset by termination costs and higher commissions relating to thetransition from H. J. Heinz Company to ACH as the Company’s exclusivedistributor in the United States. Administration expenses improved due to thenon-recurring $1.4 million charge related to the Food Brokers, LTD receivablethat was incurred in the period ended June 30, 2005 after Food Brokers, LTDwent into receivership. Lower consulting and information technology costs andsavings related to restructuring actions also reduced administrationexpenses.  These favorable impacts weremore than offset by an increase in corporate expenses related to higherperformance based incentive expense and an increase in litigation costs.Transaction fees increased as a result of $3.3 million in expenses incurred inconjunction with the Second Lien Credit Agreement. During the six months endedJune 30, 2006, the Company continued its restructuring initiatives to improveboth financial results and the long-term value of the business. As a result ofthese actions, the Company recorded restructuring charges for workforcereductions of $3.6 million in the first six months of 2006 as compared to $1.9million in the first six months of 2005. The restructuring charges incurred inthe first six months of 2006 relate primarily to new employee termination costsin the EAME, Latin America and Asia/Pacific segments and are expected to besubstantially paid by the end of the third quarter of 2006. Additionalinformation regarding restructuring charges and the related liability can befound in Note 3 to the unaudited consolidated financial statements.

*Interest.*On June23, 2006, the Company entered into the Second Lien Credit Agreement. TheSecond Lien Credit Agreement consists of an $85.0 million term loan, the netproceeds of which were used to prepay $77.9 million in borrowings outstandingunder the Senior Credit Agreement.  Theextinguishment of indebtedness under the Senior Credit Agreement resulted in anincrease in interest expense due to the write-off of related deferred financingfees totaling $2.5 million.  In addition,the Company successfully closed theregistered exchange offer of the Notes in October  2005 which resulted inthe discontinuation of penalty interest. The penalty interest went into effectas the Company had not consummated the registered exchange offer prior to thepreviously agreed deadline. Net interest decreased as a result of thediscontinuation of the penalty interest. The Company’s future interestexpense is expected to increase as a result of higher interest bearing loansunder the Second Lien Credit Agreement and the use of proceeds from the SecondLien Credit Agreement to prepay lower interest bearing loans under the SeniorCredit Agreement. Loans outstanding under the Senior Credit Agreement had aweighted average interest rate of approximately 9.0% per annum prior to theclosing of the Second Lien Credit Agreement. The Company’s borrowings under the Senior Credit Agreement and SecondLien Credit Agreement had a weighted average interest rate of approximately10.3% per annum upon the closing of the Second Lien Credit Agreement.

*Other income/expense, net*. The unfavorable variance of $10.4 million is mainly attributable to a $4.8million currency gain on the euro-denominated debt for the six months endedJune 30, 2005 as compared to a $1.9 million currency loss on theeuro-denominated debt for the six month period ended June 30, 2006, as well asa $4.0 million unrealized gain on derivative instruments for the six monthperiod ended June 30, 2005 as compared to a $0.7 million realized gain onderivative instruments for the six month period ended June 30, 2006.  In addition, the impact of a $1.3 millionreversal of a currency loss in Latin America, occurring in the period endedJune 30, 2005 and not repeating in the period ended June 30, 2006, alsocontributed to the unfavorable variance. These items were partially offset by favorable balance sheetremeasurement impacts as compared to the period ended June 30, 2005.

*Taxes.* For the sixmonths ended June 30, 2006, the Company recorded a $2.9 million tax provisionon a loss before income taxes of $18.8 million. The unusual relationship of theCompany’s tax provision to its pre-tax loss in the first six months of 2006relates to a combination of factors. These factors include increased tax loss carryforwards, primarilygenerated in the United States, for which the Company has not recorded a tax benefit,as well as provisions for futuretax costs which may be incurred upon the potential repatriation of certain2006 foreign earnings that are not deemed to be permanently reinvested.* *  With regard to the deferredincome tax assets on the tax loss carryforwards, the Company determined that ithas not satisfied the “more likely than not” test and has increased its totalvaluation allowance by $8.2 million in the first six months of 2006 to a totalof $58.8 million. The Company will continue to assess the valuation allowances,and, to the extent the Company determines that such allowances are no longerrequired, these deferred income tax assets will be recognized in the future.

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**Segment**Results

The following table presents net sales and Operating EBITDA expressedin millions of dollars for each reportable segment (totals may notfoot due to rounding):
| ** **               | ** ** | **Net Sales**                        | ** ** | **Operating EBITDA (1)**            | ** ** |
|--------------------------|------------|-------------------------------------------|------------|-----------------------------------------------|------------|
| ** **               | ** ** | **Six Months  Ended  June 30,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** | **Six Months  Ended  June 30,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **               | ** ** | **2005**                                  | ** ** | **2006**                                      | ** ** | **$** | ** ** | **%** | ** ** | **2005** | ** ** | **2006** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **               | ** ** | **(in millions)**                    | ** ** | **(in millions)**                        | ** ** |
| ** **               | ** ** | ** **                                | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| North America  (2)       |       | $                                         | 57.5       |                                          | $          | 62.9 |   | $ | 5.4 |   | 9 | % | $ | 18.8 |   | $ | 22.8 |   | $ | 4.1 |   | 22 | % |
| Operating EBITDA  Margin |       |                                      |       |                                          |       |   |   |   |   | 33 | % | 36 | % | 4 | % |   |   |
| EAME                     |       | 71.8                                      |       | 60.7                                          |       | (11.1 | ) | (15 | )% | 19.6 |   | 15.7 |   | (3.9 | ) | (20 | )% |
| Operating EBITDA  Margin |       |                                      |       |                                          |       |   |   |   |   | 27 | % | 26 | % | (1 | )% |   |   |
| Latin America            |       | 15.6                                      |       | 14.7                                          |       | (0.9 | ) | (6 | )% | 3.9 |   | 3.6 |   | (0.3 | ) | (8 | )% |
| Operating EBITDA  Margin |       |                                      |       |                                          |       |   |   |   |   | 25 | % | 25 | % | (1 | )% |   |   |
| Asia/Pacific             |       | 10.1                                      |       | 9.9                                           |       | (0.2 | ) | (2 | )% | 3.0 |   | 3.4 |   | 0.4 |   | 12 | % |
| Operating EBITDA Margin  |       |                                      |       |                                          |       |   |   |   |   | 30 | % | 34 | % | 4 | % |   |   |
|                          |            |                                           |            |                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)             “OperatingEBITDA” as used with respect to the Company’s operating segments is a measureupon which management assesses the financial performance of these segments.Operating EBITDA excludes interest expense, income tax expense and depreciationand amortization, as well as items such as start-up expenses, restructuringexpenses, certain significant charges related to new product development andlaunch costs, cost related to the transition to a new exclusive distributor inthe United States and certain other non-cash items. See Note 2 to the unauditedconsolidated financial statements for a description of Operating EBITDA and areconciliation of Operating EBITDA to income (loss) before income taxes.Operating EBITDA margin represents Operating EBITDA as a percentage of netsales.

(2)             NorthAmerica segment results exclude immaterial sales and $1.5 million of negativeOperating EBITDA results related to a new product launch which managementevaluates separately from this geographical segment.

***North America***

*Net sales.*Netsales improved in the grocery channel, despite reduced consumer demand, as ACHbuilt inventory in connection with its role as a new distributor for theCompany.  In the mass channel, salesimproved due to abnormally high shipments related to customer system issuesresulting in increased inventory levels. Increased contract manufacturing activity also improved sales. Lowerfood service sales related to increased competition, unfavorable sales mix and increasedtrade marketing partially offset the improved sales in North America.

*Operating EBITDA.*Theincrease in Operating EBITDA was primarily related to the margin impact of theimproved sales volumes, lower conversion costs related to reduced spending,improved overhead absorption costs related to increased contract manufacturingactivities and lower brand support. These favorable impacts were partially offset by higher selling costsdue to increased sales volumes and commissions to the new distributor andincreased distribution costs relating to fuel surcharges. Operating EBITDAmargin increased due primarily to the favorable conversion costs and overheadabsorption previously described.

***EAME***

*Net sales.*InEAME, sales declined primarily as a result of a $2.8 million unfavorablecurrency translation and lower sales across most of the region, led by France,Italy and Portugal.  In France and Italy,weakened economies continued to depress sales, and the decreasedrevenues for the first six months of 2006 also reflected the loss of consumersresulting from the publication in July 2005 of a now widely discredited studyon the safety of aspartame.  In France, these factors, as well as increasedhealth consciousness, negatively affected the low-calorie sweetener category ingeneral as well as the sugar category. In Portugal, the Company closed its office and converted its proprietarydistribution operation into a third party distributor operation at the end of2005. The new distributor acquired more inventory than normally required aspart of its start-up of the distributorship, which caused unusually low salesto that distributor thus far in 2006.  Inaddition, sales were negatively impacted by a shift in shipments from June 2006to July 2006. In addition, sales declined in Belgium, Ireland, Hungary, Greeceand Germany, primarily impacted by factors 

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includinglower consumer demand, weak economies and health concerns.  In South Africa, a change from a direct salesmodel to a distributor model negatively impacted net sales, but this decline inrevenue was more than offset by reduced infrastructure costs.  These negative variances were partiallyoffset by slightly higher sales in the UK and Switzerland.

*Operating EBITDA.* Operating EBITDA decreased mainly due to themargin impact of lower sales and an increase in brand support in France.  These negative impacts were partially offsetby reduced brand support at the regional level, lower variable selling costsdue to reduced sales, reduced supply chain, marketing and sellingadministration costs due to savings from restructuring actions, lower inventoryobsolescence costs and the $1.3 million charge related to the Food Brokers, LTDreceivable that was incurred in the period ended June 30, 2005 that did notrecur in the corresponding period in 2006. The decrease in Operating EBITDAmargin was primarily due to higher marketing costs as a percentage of sales andunfavorable sales mix partially offset by the favorable items previouslydescribed.

***Latin America***

Net sales. The decrease in Latin American sales was mainly due to lowersales volumes in Mexico and Colombia. In the six months ended June 30, 2005, anew product was launched in Mexico, whereas no new product launch occurred inthe same period in 2006.  In Colombia, adecline in the category and a shift in the timing of sales orders negativelyimpacted sales.  Improved sales in Chileand Ecuador partially offset the sales declines in Mexico and Colombia.

Operating EBITDA. The decrease in Operating EBITDA was mainly related tothe margin impact of lower sales, increased manufacturing and inventoryobsolescence costs and the impact of a $1.3 million reversal of a currency lossin the second quarter of 2005 that did not repeat in the corresponding periodin 2006. These impacts were partially offset by lower brand support primarilyin Mexico due to the absence of a product launch in the first six months of2006 and reduced marketing and selling administrative costs due to savings fromrestructuring actions.  Operating EBITDAmargin decreased slightly primarily due to lower gross profit percentage offsetby lower marketing and selling costs as a percentage of sales.

***Asia/Pacific***

Net sales. Net sales in the Asia/Pacific region decreased primarily dueto foreign currency translation losses. Sales increases in Australia/New Zealand and Thailand were offset bysales decreases in Malaysia, Hong Kong and Indonesia.

Operating EBITDA. Operating EBITDA and Operating EBITDA margin increaseddue to reductions in brand support and selling and general administrative costsdue to savings from restructuring actions, mainly in Australia and India.

**Corporate Expenses**

Corporate expenses increased from $12.3 million in the first six monthsof 2005 to $14.1 million in the first six months of 2006, primarily due tohigher performance based incentive expense and litigation costs, partiallyoffset by lower consulting costs, information technology costs and savingsrelated to restructuring actions.

**Liquidityand Capital Resources**

The Company’s liquidity needs are primarily met through internallygenerated cash flow. From time to time, the Company borrows money under itsrevolving line of credit under the Senior Credit Agreement. The Company’sprimary uses of cash are cost of sales, operating expenses, debt service,capital expenditures and distributions to its stockholder. The Company’s foreignsubsidiaries generated approximately 59% of its consolidated net sales duringthe six months ended June 30, 2006, and it has relied upon the repatriation ofcash from its foreign subsidiaries to satisfy many of its cash requirements.Historically, the Company had received a vast majority of funds from itsforeign subsidiaries through its Swiss subsidiary in the form of paymentspursuant to a promissory note. This promissory note was repaid in full in January 2006.On March 30, 2006, Merisant issued a revolver note to its Swisssubsidiary, which will mature in 2011. Merisant may borrow up to $200 millionfrom its Swiss subsidiary during the term of the revolver note, and the Companyexpects to repatriate cash to the United States through borrowings under thisrevolver note.

Accounts receivable levels, time to payment and inventory levels impactthe amount of internally generated cash flow. The following table showsinformation with respect to the Company’s accounts receivable and inventory atDecember 31, 2005 and June 30, 2006. Accounts receivable decreased in thesix months ended June 30, 2006 primarily due to the transition to a newdistributor in the United States with improved terms and collections as comparedto the previous distributor.  Thedecrease in inventory resulted 

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fromthe purchase of significant aspartame inventory in 2005 to satisfy a minimumvolume commitment, and this excess inventory is being consumed throughout 2006.

|                                    | ** ** | **December 31, 2005** | ** ** | **June 30, 2006** | ** ** |
|------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|
|                               |       |                            |       |                        |       |
| Accounts  receivable (in millions) |       | $                               | 66.3       |                        | $          | 61.7 |   |
| Days sales  outstanding            |       | 78                              |       | 75                          |       |
| Inventory (in  millions)           |       | $                               | 29.2       |                        | $          | 22.2 |   |
| Days sales in inventory            |       | 81                              |       | 63                          |       |

 

***Six Months Ended June 30, 2006 Compared to SixMonths Ended June 30, 2005***

For the six months ended June 30, 2006, net cash provided by operatingactivities was $11.0 million, whereas in the six months ended June 30, 2005,net cash used in operating activities was $1.0 million. Operating cash flows increased$12.0 million versus the six months ended June 30, 2005, due to an increase inthe contribution from working capital of $17.2 million, partially offset bydecreased net income after adjusting for non-cash items. The contribution fromworking capital increased mainly due to a significant decrease in accountsreceivable due to improved terms with a key distributor, reduction in otherreceivables due to the collection of funds related to the sale of the SouthAfrican subsidiary and lower aspartame inventories as the Company consumessignificant quantities purchased in 2005 to satisfy a minimum volumecommitment.

Net cash used in investing activities totaled $1.3 million for the sixmonths ended June 30, 2006 and the six months ended June 30, 2005.

For the six months ended June 30, 2006, financing activities used $8.3million in cash as compared to providing $3.2 million in cash for the sixmonths ended June 30, 2005.  In the sixmonths ended June 30, 2006, cash was provided from borrowings of $85.0 millionunder the Company’s Second Lien Credit Agreement, but the proceeds were usedfully to prepay borrowings under the Company’s Senior Credit Agreement and forcosts relating to the Second Lien Credit Agreement.  Additional funds obtained from the Company’ssale of its South African subsidiary were used to prepay existing debtobligations under the Term A and Term B loans in accordance with the terms ofthe Senior Credit Agreement.  For the sixmonths ended June 30, 2006, the Company also used cash to pay its scheduledprincipal payments under the Senior Credit Agreement and to pay fees related toamendments to its Senior Credit Agreement, as was also the case for the periodended June 30, 2005.  In addition,distributions of $0.5 million and $0.6 million were made to the Company’s solestockholder in the first six months of 2006 and 2005, respectively, for thepurpose of paying financing fees and other administrative expenses.

***Capital Expenditures***

Capital expenditures in 2006 are expected to be in the range of$3.0 million to $5.0 million. The Company believes that internallygenerated cash flow, together with borrowing available under its  Senior Credit Agreement, will be sufficientto fund capital expenditures over the next 12 months.

***Financing***

On July 11, 2003, Merisant issued $225.0 million principal amountof its Notes and refinanced its then existing credit facility with the SeniorCredit Agreement.  A portion of theproceeds of the Notes and the Senior Credit Agreement were used to pay adividend to the stockholders of Merisant Worldwide.

The Senior Credit Agreement provides for aggregate commitments of up to$310.0 million, consisting of a revolving loan facility of $35.0 million, ofwhich a portion is available at Merisant’s option in euro or dollars or in theform of letters of credit denominated in dollars or euro, as well as term loanfacilities of $275.0 million, consisting of a Euro Term Loan A of $50.0million, and a Term Loan B of $225.0 million, denominated in dollars. The EuroTerm Loan A and the revolving loan facility have a maturity of five andone-half years while the Term Loan B has a maturity of six and one-half years.The Senior Credit Agreement is guaranteed by Merisant’s sole stockholder andeach of its domestic subsidiaries. The Senior Credit Agreement and theguarantees of the guarantors are secured by a first-priority securityinterest in substantially all of Merisant’s assets and the assets of theguarantors.

 

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As part of Merisant’s refinancing in 2003, the Companyincurred significant financing costs that are being amortized in accordancewith the terms of the respective debt instruments. As of June 30, 2006, thedeferred financing cost balance related to the refinancing of the Senior CreditAgreement, the issuance of the Notes in July 2003, the 2005 registeredexchange offer with respect to the Notes and the execution of any subsequentamendments to the Senior Credit Agreement was approximately $11.3 million.

Merisant has sought and obtained amendments to theSenior Credit Agreement from time to time. The Company faced an issue in the first quarter of 2006 with a possibleimmediate default under the Senior Credit Agreement as a result of continueddeclines in Bank EBITDA.  Merisantsuccessfully completed the Fourth Amendment to the Senior Credit Agreement onMarch 29, 2006, which amended the financial covenants as of December 31, 2005,adjusted the financial covenants through the maturity date of loans outstandingunder the Senior Credit Agreement, incorporated new financial covenants,adjusted the interest rate on borrowings under the Senior Credit Agreement,amended the definition of Bank EBITDA to provide additional “add backs” relatedto the Company’s restructuring and new product development efforts, and amendedcertain other covenants.  The FourthAmendment also required Merisant to raise approximately $85.0 million of newborrowings under the Senior Credit Agreement before January 2, 2007, includingpursuant to loans secured by a second lien on all of the assets that secureloans outstanding under the Senior Credit Agreement.

On June 23, 2006, Merisant completed the FifthAmendment to the Senior Credit Agreement concurrent with the closing of theSecond Lien Credit Agreement.  The FifthAmendment amended the Senior Credit Agreement to accommodate the Second LienCredit Agreement and to effect certain other amendments that were intended tofacilitate a de-leveraging of Merisant’s capital structure.  The amendments include exceptions to therestrictive covenants to permit, subject to certain limitations and subject tothe restrictions contained in the indenture governing the Notes:

·                                          theissuance of certain preferred stock by Merisant Worldwide;

·                                          theissuance of up to an aggregate of $100.0 million of payment-in-kind (“PIK”)notes and additional secured indebtedness;

·                                          additionalrestricted payments up to $10.0 million each fiscal year;

·                                          theexchange by Merisant Worldwide or Merisant of capital stock of MerisantWorldwide, PIK notes or additional secured PIK indebtedness for MerisantWorldwide’s 12 1⁄4% Senior Subordinated Discount Notes due 2014 (the “SeniorSubordinated Discount Notes”) or the Notes or the repurchase of the Notes orSenior Subordinated Discount Notes with the net cash proceeds from the issuanceof such capital stock, PIK notes or additional secured PIK indebtedness so longas the Notes and the Senior Subordinated Discount Notes are cancelled inconnection with any such transaction; and

·                                          theacquisition by Merisant Worldwide and Merisant of the Notes or SeniorSubordinated Discount Notes in transactions permitted under the restrictedpayment covenant.

In addition, the beneficial owners of the Notes andthe Senior Subordinated Discount Notes may acquire the common stock of MerisantWorldwide without triggering a change of control event of default so long asthe original investors in Merisant Worldwide continue to control of record andbeneficially, directly or indirectly, at least 51% of the outstanding commonstock of Merisant Worldwide.

Merisant consummated the Second Lien Credit Agreementon June 23, 2006.  The Second Lien CreditAgreement provides for an $85.0 million term loan facility, which was drawn ina single draw at closing. The maturity date of the term loan is June 11, 2010.

Depending on the type of borrowing by Merisant, theapplicable interest rate under the Second Lien Credit Agreement is calculatedas a per annum rate equal to (a) LIBOR plus 850 basis points or (b) (i) thegreater of (x) the prime rate or (y) the federal funds effective rate plus 0.5%plus (ii) 750 basis points.  As of June30, 2006, there were $85.0 million in term loans outstanding under the SecondLien Credit Agreement at an interest rate of 13.98%.

The Second Lien Credit Agreement contains provisionsfor mandatory prepayments from 100% of the net cash proceeds 

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of asset sales, recovery events and debt issuances and50% of the net cash proceeds of equity issuances, subject to certainexceptions.  The Company may prepay theterms loans under the Second Lien Credit Agreement in whole or in part at anytime.  If Merisant makes any suchpayments during the first three years of the credit facility, Merisant must paya premium of 3%, 2% and 1% of the aggregate principal amount of term loansprepaid in the first, second and third years of the Second Lien CreditAgreement, respectively, except that these prepayment premiums will be reducedto 1.5%, 1% and 0.5%, respectively on the first $25.5 million aggregateprincipal amount of the term loans prepaid with the net cash proceeds from anequity issuance by Merisant Worldwide.

The obligations under the Second Lien Credit Agreementare guaranteed by Merisant Worldwide and Merisant’s domestic subsidiaries, andare secured by a lien on substantially all of the assets of Merisant, MerisantWorldwide and each subsidiary guarantor, including a pledge of 65% of theownership interests in each first-tier foreign subsidiary held by a guarantor,with certain exceptions.

The Second Lien Credit Agreement increased theaggregate principal amount of Merisant’s indebtedness by $7.2 million, andMerisant’s interest expense will increase as a result of the transaction.  The Company’s loans outstanding under theSenior Credit Agreement had a weighted average interest rate of approximately9.0% per annum prior to the closing of the Second Lien Credit Agreement.  The Company’s borrowings under the SeniorCredit Agreement and Second Lien Credit Agreement had a weighted averageinterest rate of approximately 10.3% per annum upon the closing of the SecondLien Credit Agreement.  The interestrates on loans outstanding under the Senior Credit Agreement reverted toEuro-LIBOR plus 325 basis points on Euro-denominated term A loans, or 6.1% perannum, and LIBOR plus 325 basis points on term B loans and revolving loans, or8.4% per annum, upon the closing of the Second Lien Credit Agreement.

**Intercreditor Arrangements**.  The loans outstanding under the Second LienCredit Agreement are secured by a second lien on all of the assets that secureloans outstanding under the Senior Credit Agreement.  In connection with the closing of the SecondLien Credit Agreement, Merisant, Merisant Worldwide, lenders under the SeniorCredit Agreement (the “First Lien Lenders”), the lenders under the Second LienCredit Agreement (the “Second Lien Lenders”), Credit Suisse, as agent to thefirst lien lenders, and Wells Fargo Bank, National Association, as agent forthe second lien lenders, entered into an Intercreditor Agreement.  The Intercreditor Agreement subordinates theliens securing the obligations under the Second Lien Credit Agreement to theliens securing the obligations under the Senior Credit Agreement.  The Intercreditor Agreement restrictsamendments to the Senior Credit Agreement and the Second Lien CreditAgreement.  Certain amendments to theSenior Credit Agreement or the Second Lien Credit Agreement require the priorconsent of the administrative agent for the other credit facility acting at thedirection of the requisite lenders for that facility.  The aggregate principal of loans under theSenior Credit Agreement may not exceed $175.0 million plus interest that hasbeen capitalized under the Senior Credit Agreement that does not exceed theapplicable base rate plus a margin of 6% per annum, exclusive of any defaultinterest.  This limitation will befurther reduced by any permanent repayments of principal and reductions oreliminations of commitments under the Senior Credit Agreement.  The aggregate principal amount of loansoutstanding under the Second Lien Credit Agreement may not be increased.  In addition, neither the Senior CreditAgreement nor the Second Lien Credit Agreement may be amended to provide forcovenants, representations or warranties, events of default, rights or remedieswhich are, in the aggregate, on terms less favorable to the lenders under theother credit facility or increase the amount of interest by an applicablemargin of more than 6% with no more than 4% of any such increase payable incash, exclusive, in each case, of default interest.

**Restrictive Covenants and Bank EBITDA**.  The indenture governing the Notes, the SeniorCredit Agreement and the Second Lien Credit Agreement contain certain covenantsthat limit or restrict the incurrence of liens, investments (includingacquisitions), sales of assets, indebtedness, restricted payments (includingdividends) and mergers and consolidations, subject to certain exceptions.  In addition, the Senior Credit Agreement andthe Second Lien Credit Agreement require Merisant to maintain compliance with aconsolidated first-lien leverage ratio covenant, a consolidated senior leverageratio covenant, a consolidated leverage ratio covenant, a consolidated interestcoverage ratio covenant, and a consolidated fixed charge coverage ratiocovenant.  The representations,warranties, covenants and defaults in the Second Lien Credit Agreement aresubstantially similar to the representations, warranties, covenants anddefaults in the Senior Credit Agreement in all material respects, except thatcertain negative covenants are less restrictive on the Company’s and itssubsidiaries’ business and operations and the financial covenant ratios areless restrictive, in each case, than those set forth in the Senior CreditAgreement.

As noted above, the Senior Credit Agreement and theSecond Lien Credit Agreement contain financial covenants that require Merisantto maintain certain ratios. These ratios are measured on the basis of BankEBITDA for the four fiscal quarters ending at least 45 days prior to thepayment date.  Bank EBITDA is describedhere because it is the measure upon which the 

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covenants contained in the Senior Credit Agreement aremeasured.  However, Bank EBITDA is not ameasure of liquidity under GAAP. Accordingly, while providing usefulinformation with respect to assessing the Company’s compliance with covenantsunder its primary debt obligations, this measure should not be considered inisolation from, or as a substitute for, consolidated statement of cash flowdata prepared in accordance with GAAP as an indication of liquidity. Inaddition, the Bank EBITDA measure presented may differ from, and may not becomparable to, similarly titled measures used by other companies.

Bank EBITDA as defined under the Senior Credit Agreementand the Second Lien Credit Agreement excludes interest expense, income taxexpense, depreciation and amortization as well as the certain other expensesand non-cash items, including:

·                                          anyextraordinary, unusual or non-recurring non-cash expenses or losses (includingnon-cash losses on sales of assets outside of the ordinary course of business);

·                                          non-cashcontributions and other non-cash compensation expense;

·              non-cashlosses attributable to equity in non-consolidated subsidiaries;

·                                          transactioncosts associated with the 2003 recapitalization transaction which are expensedand not amortized;

·                                          anynon-cash foreign currency translation adjustments;

·                                          anyextraordinary or non-recurring cash losses or expenses arising fromrestructuring not to exceed in the aggregate (A) if such period ends prior toJanuary 1, 2004 (for Senior Credit Agreement), (B) if such period ends prior toJanuary 1, 2006, $14,600,000, (C) if such period begins on or after January 1,2006, (x) $11,000,000 with respect to any such non-recurring cash losses orexpenses arising from the implementation of the Company’s plan known as “ProjectArrow” and related restructuring, (y) $4,000,000 with respect to any suchnon-recurring cash losses or expenses arising from the transition from H.J.Heinz Company to ACH Food Companies, Inc. as exclusive distributor to theCompany and its subsidiaries in the United States; and (z) any cash expensesincurred in connection with (i) any waiver of a default or event of default andany amendment to the Senior Credit Agreement including the fees and expenses ofany attorneys and financial advisers retained by the administrative agentpursuant thereto with respect to any such waiver or amendment and (ii) thenegotiation, execution and closing of the Second Lien Credit Agreement and anywaiver of a default or event of default and any amendment to the Second LienCredit Agreement including the fees and expenses of any attorneys and financialadvisers retained by the administrative agent with respect to any such waiveror amendment; and

·                                          expensesincurred by the Company or any subsidiary prior to January 1, 2007 inconnection with the development and commercialization of the all-natural,zero-calorie sweetener to be marketed under the *SweetSimplicity*TM trademark, in an amount not to exceed in the aggregate$3,000,000.

Bank EBITDA for the six monthsended June 30, 2006 was $31.5 million. Merisant was in compliance with itscovenants under the Senior Credit Agreement, as amended, and the Second LienCredit Agreement at June 30, 2006.

The following table illustratesthe reconciliation of Bank EBITDA to cash flow from operating activities, whichmanagement believes is the most nearly equivalent GAAP measure:

|                                                                   | ** ** | **Six Months  Ended  June 30, 2006** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                        | ** ** | **(in millions)**                              | ** ** |
| Net cash  provided by operating activities                        |       | $                                                   | 11.0       |   |
| Provision for  income taxes, net of deferred income tax provision |       | 0.4                                                 |       |
| Interest  expense, net of non-cash interest expense               |       | 22.9                                                |       |
| Cash costs of  refinancing                                        |       | 0.8                                                 |       |
| Restructuring  expenses (a)                                       |       | 3.6                                                 |       |
| Other items (b)                                                   |       | 2.3                                                 |       |
| Equity in  (income) loss of affiliates                            |       | 0.0                                                 |       |
| Net change in  operating assets and liabilities                   |       | (9.5                                                | )          |
| Bank EBITDA                                                       |       | $                                                   | 31.5       |   |

 

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(a)                                  The charges principally relate to planned employeetermination costs that have been announced in the period presented. Therestructuring liability as of the end of each period is included in Accruedexpenses and other liabilities in our consolidated balance sheets.

(b)                                 Other items consist mainly of certain non-cashexpenses (income) and charges related to certain new product development andlaunch expenses that are excluded from the definition of Bank EBITDA.

***ForwardLooking Statements***

Certain information included or incorporated in thisreport may be deemed to be “forward-looking statements” within the meaning ofSection 27A of the Securities Act and Section 21E of the ExchangeAct. All statements, other than statements of historical facts, included orincorporated in this report, are forward-looking statements. In particular, statementsmade under the heading “Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” relating to overall volume trends,pricing trends and industry forces, anticipated results, expectations forfunding capital expenditures and operations and increased market share and thesufficiency of capital to meet working capital, capital expendituresrequirements and strategies are forward-looking statements. When used in thisdocument, the words “anticipate,” “estimate,” “project” and similar expressionsare intended to identify forward-looking statements.

These statementsare based on assumptions and assessments made by management in light of theirexperience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate.Any forward-looking statements are not guarantees of future performance and aresubject to risks and uncertainties that could cause actual results,developments and business decisions to differ materially from thosecontemplated by such forward-looking statements. The Company disclaims any dutyto update any forward-looking statements. Some of the factors that may causeactual results, developments and business decisions to differ materially fromthose contemplated by such forward-looking statements include thefollowing:  changes in consumerpreferences and nutritional and health-related concerns; increased competition;changes in the terms on which the Company may obtain aspartame; damaged consumerconfidence in the Company’s products as a result of health-related allegations;product liability claims; fluctuations in exchange rates and other currencyrisks; disruptions in the Company’s business as a result of strikes or workstoppages; changes in the Company’s relationship with its largest distributor;and changes in economic and political conditions in the countries in which theCompany markets and produces its products.

**Item 3.  Quantitative andQualitative Disclosures About Market Risk**

***Foreign Operations***

With approximately64% and 59% of Merisant’s consolidated total net sales generated by itssubsidiaries outside of the United States in the six months ended June 30, 2005and 2006, respectively, Merisant’s ability to obtain funds necessary to meetits obligations is subject to applicable laws, foreign taxes and intercompanypricing laws, including those relating to the flow of funds between Merisant’sforeign affiliates pursuant to, for example, purchase agreements, licensingagreements or other arrangements. Historically, the Company received a vastmajority of funds from its foreign affiliates through its Swiss subsidiary inthe form of payments pursuant to a promissory note. The note was repaid in fullin January 2006. On March 30, 2006, Merisant issued a revolver noteto its Swiss subsidiary, which will mature in 2011. Merisant may borrow up to$200 million from its Swiss subsidiary during the term of the revolver note,and the Company expects to repatriate cash to the United States through borrowingsunder this revolver note. Regulators in the United States and other foreigncountries where Merisant operates may closely monitor its corporate structureand how it effects intercompany fund transfers.

In addition, as of June 30, 2006, foreign affiliatescomprised approximately 45% of Merisant’s consolidated total assets.Accordingly, the Company has been, and will continue to be, exposed to foreignexchange risk.

***Foreign Currency and Interest Rate Risks***

Inherent in Merisant’s operations are certain risksrelated to changes in foreign currency exchange rates and interest rates. TheCompany bears foreign exchange risk because a majority of its financing wasobtained in U.S. dollars although a significant portion of its revenues areearned in the various currencies of its foreign subsidiaries’ operations. UnderMerisant’s Senior Credit Agreement, a portion of its financing was obtained ineuros. This euro-denominated loan decreases Merisant’s transactional exposureto euro exchange fluctuations until the euro principal and interest are repaid.Any decrease in sales and earnings from 

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euro denominatedcountries that results from the euro weakening against the U.S. dollar iscurrently more than offset by the decrease in the euro denominated debt obligations(i.e., foreign currency transaction gain) and interest expense that alsoresults from such a decrease in exchange rate. Likewise, any increase in salesand earnings from the euro denominated countries that results from astrengthening euro against the U.S. dollar partially offsets the increase inthe euro denominated debt obligations (i.e., foreign currency transaction loss)and interest expense that results from such an exchange rate increase.

A significant portion of the Company’s debt bearsinterest at a fixed rate. Interest rate exposure results from Merisant’sfloating rate borrowings. For the six month period ended June 30, 2006, a 1.0%per annum increase or decrease in interest rates would have resulted in anincrease or decrease in cash interest costs for the Company’s Term A and Term Bloans of approximately $1.1 million, excluding the impact from the interestrate derivatives that were still in place for the majority of the three monthperiod ended March 31, 2006.

Inthe normal course of business, Merisant identifies risks relating to foreigncurrency exchange rates and interest rates and mitigates their financial impactthrough corporate policies and, at times, through the use of derivativefinancial instruments. Merisant uses derivatives only where there is anunderlying exposure and does not use them for trading or speculative purposes.The counter parties to the hedging activities are highly rated financialinstitutions. The Company did not have any foreign currency forward exchangecontracts or interest rate derivatives outstanding at June 30, 2006.

***Inflation Risk***

Inflation is not expected to have a material impact onthe Company’s business, financial condition or results of operations. Inmarkets outside the United States in countries with higher inflation, Merisantgenerally has been able to offset the impact of inflation through a combinationof cost-cutting measures and price increases.

**Item 4.  Controls and Procedures**

# ***Evaluation ofDisclosure Controls and Procedures***

The Company conducted an evaluation,under the supervision of the Chief Executive Officer and Chief FinancialOfficer, of the effectiveness as of December 31, 2005 of the Company’sdisclosure controls and procedures (as defined in Exchange Act Rule 15d-15(e)).Based on this evaluation, the Chief Executive Officer and Chief FinancialOfficer had concluded that, as of December 31, 2005, the Company’sdisclosure controls and procedures needed improvement and were not effective toprovide reasonable assurance that information required to be disclosed by theCompany in reports that it files with the SEC or submits under the Exchange Actis recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms. In making this conclusion, theChief Executive Officer and Chief Financial Officer considered the materialweaknesses in the Company’s internal controls over financial reporting and thestatus of the corrective actions to remedy those material weaknesses describedbelow. In its reevaluation of the Company’s disclosure controls and proceduresas of June 30, 2006, the Chief Executive Officer and the Chief FinancialOfficer noted certain incremental improvements. However, the Company has notformally documented and tested all of its potentially remediated controls toaffirmatively conclude that such controls are operating effectively.

The certifications of the Chief ExecutiveOfficer and Chief Financial Officer required in accordance withSection 302 of the Sarbanes-Oxley Act of 2002 appear as exhibits to thisreport. The disclosures set forth in this Item 4 contain information concerningthe evaluation of the Company’s disclosure controls and procedures, and changesin internal controls over financial reporting, referred to in paragraphs4(b) and (c) of the certifications. The certifications should be readin conjunction with this Item 4 for a more complete understanding of the topicspresented.

## *MaterialWeaknesses Identified*

In a letter to the Company datedSeptember 24, 2004 related to the audit of the Company’s financialstatements for the year ended December 31, 2003 and through discussionswith management and the audit committee of its board of directors onApril 14, 2005 related to the former auditor’s audit of its financialstatements for the year ended December 31, 2004, the former auditoridentified certain matters involving the Company’s system of internal controland its operation that the auditor considered to be material weaknesses asdefined in the Public Company Accounting Oversight Board’s, or PCAOB’s,Auditing Standard No. 2, *An Audit ofInternal Control Over Financial Reporting Performed in Conjunction with anAudit of Financial Statements* (the PCAOB’s final standard will applyto the Company’s audit for the year ended December 31, 2007). The Company’sformer 

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auditor noted thebalance sheet accounts for income taxes, fixed assets, inventory, and accruedtrade promotions were not reconciled, or not reconciled in a timely manner. Asa result, the Company made material adjustments to the financial statementsthat were not initially identified by its internal controls over financialreporting.

## *CorrectiveActions*

There have been some improvements, asdescribed more fully below, in the Company’s internal control over financialreporting that occurred during the period covered by this report that havematerially affected, or are reasonably likely to materially affect, itsinternal control over financial reporting. During the period covered by thisreport, the Company has taken steps to improve its internal control structureand procedures regarding disclosures in its financial reporting, includingthose contemplated by Section 404 of the Sarbanes-Oxley Act and therules and regulations of the SEC promulgated thereunder, with which theCompany is required to be in compliance as of December 31, 2007. TheCompany continues to take further steps with regard to these matters.

During and prior to the periods coveredby this report, the Company has taken steps to improve its control activitiesand procedures over financial reporting. The Company continues to make furtherenhancements with regards to its entity level disclosure controls. Theseactions include the following enhancements.

·                  The Company’sdisclosure committee has been expanded to include management at the corporate,regional and local levels to discuss operational and financial issues for thereporting period. At a minimum, the committee meets once aquarter, just prior to releasing results for the quarter then ended. Thecommittee meetings provide the necessary forum to give reasonable assurancethat the information required to be disclosed in the reports filed pursuant tothe Exchange Act is analyzed, reviewed and included where relevant.

·                  A monthly regional resultsreview is held between corporate and regional financial management to discusseach region’s financial results, including explanations of significantvariances between the actual results as compared to projections and prior year.For the quarter, additional corporate financial personnel attend the meeting toparticipate in the financial review and to discuss the quarterly financialclose process and any pending issues.

·                  Aquarter-end review checklist which documents that key controls in the financialclose process were performed is sent to financial personnel at both theregional and headquarter levels. The checklists are now submitted on a timelybasis and are reviewed by corporate and regional financial personnel during theregional results review for the quarter.

The Company reviewed the mattersidentified by its former auditor and initiated an effort to implement controlsto mitigate the identified control weaknesses and implement plans to fullyremediate these weaknesses. This process is ongoing, and during the period coveredby this report, the Company continued to make material changes in the followingareas.

*Income Taxes*. Theincome tax accounts were reconciled at year-end and quarter-end. The Companycontinues to use an outside adviser to assist with its taxes and reconciliationson a regular basis as well as to assist with training our finance personnel ontax accounting matters. In addition, the Company has hired an internal taxmanager to further build its core competencies in the tax area.

*Inventory*. Theinventory accounts were substantially reconciled at year-end and quarter-end.While the entire inventory process, from acquiring raw materials to shippingfinished goods, requires frequent manual intervention, the Company hasimplemented critical monthly and annual controls to ensure that the inventoryaccounts presented in our financial statements are fairly stated. Specifically,the following actions are taken:

·                  The Company reconciles thethird-party warehouse inventory system to the Company’s inventory system,monthly.

·                  The Company conducted its annualphysical inventory at its largest inventory location at year-end, whichrepresented approximately 59% of the consolidated inventory value, excludinginventory reserves. The resulting adjustment was less than 1% of totalinventory value. Internal and external auditors observed and validated that theinventory taking procedures surrounding the physical inventory were wellcontrolled.

·                  In 2006, the Company continuesto reassess its analytical procedures to ensure that each inventory account andthe 

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post physical inventory adjustment isthoroughly analyzed and reviewed.

*Fixed Assets*. TheNorth America fixed asset accounts were reconciled at year-end and quarter-end.Prior to 2004, certain fixed assets were accounted for on a manual spreadsheet,which led to errors. In 2004, the fixed asset spreadsheet was reviewed andcorrected. The corrected asset values and depreciable lives were uploaded intothe SAP fixed asset module, automating the process. In the EAME region, the manualfixed asset process mentioned above is currently used. During 2005, the Companyperformed a physical inventory and reconciliation of fixed assets, includingreviewing each asset’s depreciable life. The Company intends to implement theSAP fixed asset module for the region. All fixed asset accounts were reconciledat year-end and quarter-end.

*Accrued Trade Promotions*.The accrued trade promotion account was reconciled at year-end andquarter-ends. Throughout 2005 and the first six months of 2006, the Company hascontinued to refine its detailed methodology for estimating and accruing trademarketing expenses.

The Company believes that the changes ithas implemented are sufficient to mitigate the material weaknesses describedabove. However, while the Company has enhanced the design of the currentcontrols and implemented additional controls, there are still opportunities foradditional improvements in certain areas. Additionally, the Company has not yetformally tested the on-going effectiveness of the new controls. In addition tothe continuing efforts described above, the Company has made significantprogress in documenting, testing and remediating its system of internalcontrols in preparation for compliance with the requirements ofSection 404 of the Sarbanes-Oxley Act and the rules and regulationsof the SEC promulgated thereunder, with which it must be in compliance byDecember 31, 2007.

# ***Changes in InternalControl Over Financial Reporting***

Except as otherwise described above, there have beenno changes in the Company’s internal control over financial reporting duringthe most recently completed fiscal quarter that have materially affected, orare reasonably likely to materially affect, the Company’s internal control overfinancial reporting.

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**PART II**—**OTHER INFORMATION**

**Item 1.Legal Proceedings**

From time to time,the Company is involved in litigation concerning its business operations.

InOctober 2004, Merisant requested the National Advertising Division of theCouncil of Better Business Bureaus, referred to as the NAD, to reviewadvertising and other claims made by McNeil Nutritionals, LLC (“McNeil”) inconnection with its Splenda® brand sweetener. Merisant believed and continuesto believe McNeil’s Splenda® advertising to be false and misleading. DespiteMcNeil’s previous use of the NAD for such disputes and the NAD’s industry-wide,self-regulatory nature, McNeil refused to allow their advertising claims to bejudged by the NAD and instead sought to have the issue considered by the UnitedStates District Court for the District of Puerto Rico. Under NAD rules, McNeil’sfiling in Puerto Rico precluded the NAD from reviewing the matter or referringMcNeil’s advertising to the Federal Trade Commission. In order to have McNeil’sadvertising addressed by a jury and court in the continental United Statesfamiliar with McNeil’s claims, on November 26, 2004, Merisant filed afederal and state false advertising complaint against McNeil in the UnitedStates District Court for the Eastern District of Pennsylvania. That suitcontinues today and seeks to have McNeil’s Splenda® campaign stopped because ofits misleading nature and seeks significant damages resulting from the impactMcNeil’s false advertising has had on Merisant’s sales. On January 13,2005, McNeil voluntarily dismissed its action in Puerto Rico and inApril 2005 McNeil amended its answer to the Company’s complaint in thePennsylvania action to add a counterclaim against the Company alleging that itsEqual® Sugar LiteTM packaging and advertising were misleading. McNeil hasdismissed its counterclaim relating to Equal® Sugar LiteTM packaging andadvertising and on July 7, 2006, the court entered a dismissal with prejudiceof those claims.

OnFebruary 15, 2006, a putative consumer class action lawsuit was filedagainst the Company in the United District Court for the Northern District ofIllinois Eastern Division alleging that the Company’s Equal® Sugar LiteTMpackaging and advertising were misleading. The plaintiffs alleged that on avolumetric basis, Equal® Sugar LiteTM does not deliver half the calories of acup of sugar.  On April 17, 2006,the Company filed a motion to dismiss the lawsuit for failure to state a claimupon which relief may be granted.  OnJune 14, 2006, the court entered a stipulation of dismissal of this lawsuitwith prejudice.

The Company issubject to various other claims, pending and possible legal actions for productliability and other damages, and other matters arising out of the conduct ofthe Company’s business, including tax uncertainties arising from doing businessin various European jurisdictions. Some on-going legal proceedings have beendisclosed in previous reports, but are not required to be disclosed in thisreport because no material changes in those proceedings occurred during theperiod covered by this report. The Company believes, based on current knowledge, recorded accruals, and consultation withcounsel, that the outcome of such claims and actions will not have a materialadverse effect on the Company’s consolidated financial position or results ofoperations.

**Item 1A. Risks Related to Our Business**

The most significant riskfactors applicable to the Company are described in Part I, Item 1A “RiskFactors” of the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2005. There have been no material changes from the riskfactors previously disclosed in the Company’s report on Form 10-K.

**Item 4.    Submission of Matters to a Vote of SecurityHolders.**

The annual meetingof the stockholders of Merisant Worldwide was held on May 23, 2006 at which thestockholders elected directors and ratified the appointment of BDO Seidman, LLPas Merisant Worldwide’s independent auditor. The stockholders elected Paul Block, Robert Albus, Arnold Donald, AlecMachiels and Adam Stagliano as directors of Merisant Worldwide for anadditional one-year term by a vote of 8,682,416 shares in favor, 1,603 shares opposed and 405,361 sharesabstaining.  All stockholders voting onthe issue of the appointment of BDO Seidman, LLP as independent auditor votedin favor of that resolution.

On July 20, 2006,the stockholders of Merisant Worldwide took action by written consent to electMr. David House as a director.

On May 23, 2006,Merisant Worldwide, in its capacity as the sole stockholder of Merisant,elected Mr. Block, Mr. Albus, Mr. Donald, Mr. Machiels and Mr. Stagliano as thedirectors of Merisant for an additional one-year term.

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**Item 6.Exhibits**
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1        |       | Second Lien Credit Agreement, dated June 23, 2006,  among Merisant Company, as borrower, Merisant Worldwide, Inc. and certain  subsidiaries of Merisant Company, as guarantors, Credit Suisse, as  administrative agent, and Wells Fargo Bank, National Association, as  collateral agent (incorporated by reference to Exhibit 10.1 of Merisant  Company’s Form 8-K filed on June 27, 2006).                                                                                                   |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2        |       | Second Lien Security Agreement, dated June 23, 2006,  among Merisant Company, Merisant Worldwide, the lenders thereunder, Wells  Fargo Bank, National Association, as collateral agent, Jefferies &  Company, Inc. and Credit Suisse Securities (USA) LLC, as joint lead  arrangers, Credit Suisse, as collateral agent and Credit Suisse Securities  (USA) LLC, as documentation agent (incorporated by reference to Exhibit 10.2  of Merisant Company’s Form 8-K filed on June 27, 2006). |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3        |       | Intercreditor Agreement, dated June 23, 2006, among  Merisant Company, Merisant Worldwide, Inc., the subsidiary guarantors, Credit  Suisse, as administrative agent under the Senior Credit Agreement, and Wells  Fargo Bank, National Association, as a administrative agent under the Second  Lien Credit Agreement (incorporated by reference to Exhibit 10.3 of Merisant  Company’s Form 8-K filed on June 27, 2006).                                                                       |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.4        |       | Fifth Amendment to Senior Credit Agreement, dated  June 23, 2006, among Merisant Company, Merisant Worldwide, Inc., certain  subsidiaries of Merisant Company, as guarantors, the lenders thereunder and  Credit Suisse, Cayman Islands Branch (formerly Credit Suisse First Boston),  as administrative agent (incorporated by reference to Exhibit 10.4 of  Merisant Company’s Form 8-K filed on June 27, 2006).                                                                              |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.5        |       | Amended and Restated Security Agreement, dated June  23, 2006, among guarantors named on the signature page thereto, and Credit  Suisse, Cayman Islands Branch (formerly Credit Suisse First Boston), as  collateral agent (incorporated by reference to Exhibit 10.5 of Merisant  Company’s Form 8-K filed on June 27, 2006).                                                                                                                                                                  |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 31.1        |       | Certificate of Paul R. Block pursuant to  Rule 15d-14 under the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                                                                                                                                |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 31.2        |       | Certificate of Anthony J. Nocchiero pursuant to  Rule 15d-14 under the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 32.1        |       | Certificate of Paul R. Block pursuant to 18 U.S.C.  Section 1350.                                                                                                                                                                                                                                                                                                                                                                                                                               |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 32.2        |       | Certificate of Anthony J. Nocchiero pursuant to 18  U.S.C. Section 1350.                                                                                                                                                                                                                                                                                                                                                                                                                        |

 

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SIGNATURES

Pursuant to therequirements of the Securities Exchange Act of 1934, the registranthas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.
|                       | MERISANT COMPANY |
|-----------------------|------------------|
|                  |             |   |
|                  |             |   |
| Date: August 11, 2006 | By:              | /s/ Anthony J.  Nocchiero |
|                  |             | Anthony J. Nocchiero |
|                  |             | Chief Financial  Officer |
|                  |             | (on behalf of the  Company and in capacity |
|                  |             | of principal financial  officer) |

 

 

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