U.S.UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 1997
or1998
Or
[ ] Transition Report Pursuantpursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 0-19899
U.S. HOME & GARDEN INC.
(Exact Name of Registrant as specified in its charter)
Delaware 77-0262908
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
655 Montgomery Street,
San Francisco, California 94111
(Address of Principal Executive (Zip Code)
Offices)
(415) 616-8111
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of each class on Which Registered
- ------------------- -------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
and Class A Common Stock Purchase Warrants
------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the pastpreceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X___X_ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the Common Stock held by non-affiliates of
the registrant (based upon the closing sale price) on September 25, 199721, 1998 was
approximately $61,900,000.$90,390,000.
As of September 25, 1997, 15,295,33121, 1998, 20,842,615 shares of the Registrant's Common
Stock, par value $.001 per share were outstanding.
Documents Incorporated By Reference: None
Part I.
Item 1. Business
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Report contains statements that are forward-looking, such as statements relating
to plans for future activities. Such forward-looking information involves
important known and unknown risks and uncertainties that could significantly
affect actual results, performance or achievements of the Company in the future
and, accordingly, such actual results, performance or achievements may
materially differ from those expressed or implied in any forward-looking
statements made by or on behalf of the Company. These risks and uncertainties
include, but are not limited to, those relating to the Company's growth
strategy, customer concentration, outstanding indebtedness, seasonal anddependence on
weather fluctuations,conditions, seasonality, expansion and other activities of competitors,
changes in federal or state environmental laws and the administration of such
laws, protection of trademarks and other proprietary rights, and the general
condition of the economy and its effect on the securities markets.markets and other
risks detailed in the Company's other filings with the Securities and Exchange
Commission. The words "believe," "expect," "anticipate," "intend" and "plan" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date the statement was made.
General
The Company is a leading manufacturer and marketer of a broad range of
consumer lawn and garden products. The Company's products include weed
preventive landscape fabrics, fertilizer spikes, decorative landscape edging,
weed trimmer replacement heads, shade fabriccloth and root feeders, which are sold
under recognized brand names such as WeedBlock(R), Jobe's(R), Emerald Edge(R),
Weed Wizard(R), Shade Fabric(R)Fabric(TM), Ross(R), Tensar(R) and Ross(R)Landmaster(R). The
Company believes that it has significant market share and favorable brand-name
recognition in several of theseits primary product categories. The Company markets
its products through most large national home improvement and mass merchant
retailers ("Retail Accounts"), including Home Depot, Lowe's, Kmart, Wal-Mart,
Builder's
Square, Wal-Mart and Home Base.
The Company was organized under the laws of the State of California in
August 1990 under the name Natural Earth Technologies, Inc. In January 1992 the
Company reincorporated under the laws of the State of Delaware and in July 1995
changed
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its name to U.S. Home & Garden Inc. The Company's lawn and garden operations are
conducted through its subsidiary Easy Gardener, Inc. ("Easy Gardener") and Easy
Gardener's subsidiaries, and the Company's agricultural products operations are
conducted through its subsidiary Golden West Agri-Products, Inc. ("Golden
West"). Unless the context suggests otherwise, requires, references in this Report to "the Company"the
Company mean U.S. Home & Garden Inc. and its subsidiaries. The Company's
executive offices are located at 655 Montgomery Street, Suite 500, San
Francisco, California 94111, and its telephone number is (415)616-8111.
Lawn and Garden Industry
Historically, the lawn and garden industry has beenwas comprised of relatively
small regional manufacturers and distributors whose products have beenwere sold to
consumers primarily through local nurseries and garden centers. As the industry
has grown, national home improvement and mass merchant retailers have replaced
many of these local garden centers as the dominantprimary retail source for lawn and
garden products. In an effort to improve operating margins and reduce the number
of vendors needed to source high volume lawn and garden products, the preference
among Retail Accountshome improvement and mass merchant retailers has shifted towards single
source suppliers such as the Company that offer broad product lines of consumer brand-name
merchandise and the serviceproduct support necessary to stimulate consumer demand and
ensure timely and cost effective order fulfillment. Smaller regional suppliers
generally lack the capital and other resources necessary to offer the variety
and number of product lines, the product support and the inventory stocking and
tracking capabilities required by home improvement and mass merchant retailers.
According to the 1996-1997 National Gardening Survey, conducted by the
Gallup organization, 1996 retail sales of
lawn and garden products were approximately $22 billion, and 64% of the
approximately 101 million households in the United States participated in some
form of gardening activity during 1996. Moreover, accordingIn addition, sales growth in the lawn
and garden industry is being driven in part by the aging of the "baby boomer"
consumer segment. According to the National Gardening Survey, persons 50 years
of age and older spent an average of $400 per household on lawn and garden
activities in 1996.
Sales growth in the lawn and garden industry is being driven in part by
the "baby boomer" consumer segment reaching such age group.
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RecentPrior and Proposed Acquisitions.
Since August 1992, the Company has consummated the following five (5)eight (8)
acquisitions of companies or product lines for a total of over $56$80 million in
consideration:
o Golden West Chemical Distributors, Inc. A manufacturer of humic acid-based
products designed to improve crop yield, which was acquired in August 1992
for approximately $1.1 million in cash and $1,075,000 of$1.1 million in promissory
notes.
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o Easy Gardener, Inc. A manufacturer of multiple fabric landscaping products
including WeedBlock(R), which was acquired in September 1994 for
approximately $21.3 million consisting of $8.8 million in cash, a $10.5
million promissory note and two convertible notes each in the principal
amount of $1$1.0 million. Approximately $2.2 million of additional purchase
price was contingent on Easy Gardener meeting certain income requirements.
A total of
approximately $1.2 million of the additional amount hasThese contingencies have been paid to datemet and the remaining $978,000 is payable inCompany has paid the fiscal year ending June 30,
1999.entire $2.2
million.
o Emerald Products LLC. A manufacturer of decorative landscape edging which
was acquired in August 1995 for $835,000 in cash and a $100,000 promissory
note.
o Weatherly Consumer Products Group, Inc. ("Weatherly") A manufacturer of
fertilizer spikes and other lawn and garden products, which was acquired in
August 1996 for 1,000,000 shares of Common Stock valued at $3.0 million and
approximately $22.9 million in cash.
o Plasti-Chain Product Line.Line of Plastic Molded Concepts, Inc. A product line of
plastic chain links and decorative edgings, which was acquired from Plastic
Molded Concepts, Inc. in May 1997 for approximately $4.3 million in cash.
o Weed Wizard, Inc. A manufacturer and distributor of weed trimmer
replacement heads, which was acquired in February 1998 for approximately
$16.0 million, of which approximately $5.0 million was based on the value
of certain net assets acquired.
o Landmaster Products, Inc. A manufacturer and distributor of polyspun
landscape fabrics for use by consumers and professional landscapers,
substantially all of whose assets were acquired in March 1998 for
approximately $3.0 million, of which approximately $750,000 was based on
the value of certain assets acquired.
o Tensar(R) consumer products line of The Tensar Corporation. A line of lawn
and garden specialty fencing, which was acquired from The Tensar
Corporation in May 1998 for approximately $5.4 million in cash.
In addition, in August 1998 the Company has entered into a non-binding letter
of intent to purchaseacquire Ampro Industries, Inc., a manufacturermanufacture and distributor of outdoor
lawn and garden products for $5.25including specialty grass and flower seeds. The
anticipated purchase price is approximately $25 million in cash. There can be no assurance that the acquisition will be
consummated.with a potential
additional purchase price amount contingent upon future operating cash flow.
5
Products
Landscape Fabric. The Company markets different types of landscape fabric
in varying thicknesses and strengths under the trade names WeedBlock(R),
WeedBlock 6(R)6(TM), MicroPore(R), Pro WeedBlock(TM), Weedshield(TM) and
Weedshield(TM)Landmaster(R). Landscape fabrics allow water, nutrients and oxygen to filter
through to the soil but prevent weed growth by blocking sunlight, preventing seeds from germinating.sunlight. The Company's
primary landscape fabrics are made from non-woven fabrics which are generally
manufactured with extruded polymers, pressed or vacuum formed into thin sheets
having the feel and texture of light plastics. For the fiscal years ended June
30, 1995, 1996, 1997 and 1997,1998, sales of landscape fabricsfabric represented 71%approximately
69%, 69%44% and 44%36%, respectively, of the Company's consolidated net sales.
Fertilizer, Plant Food and Insecticide Spikes. Fertilizer spikes deliver
plant food and fertilizernutrients directly to the root of the plant, an alternative method of
maintaining plant health to surface-delivered liquid or solid fertilizers. The Company markets a variety of indoor and outdoor specialty
fertilizer and plant food spikes primarily under the Jobe's tradename, one of
the most recognized brands in the consumer lawn and garden industry. Some
of the Company's fertilizer spikes have the added feature of containing an
insecticide for the control of unwanted insects. The Company markets a variety
of indoor and outdoor specialty fertilizer and plant food spikes primarily under
the Jobe's(R)tradename, one of the most recognized brands in the consumer lawn
and garden industry. For the fiscal yearyears ended June 30, 1997 and 1998, sales of
fertilizer, plant food and insecticide spikes representedconstituted approximately 24% and
20%, respectively, of the Company's consolidated net sales.
-4-
Fertilizers and Root Feeders. The Company markets fertilizers under the
Ross(R) trade name. The Ross(R) fertilizer, when applied through a Ross(R) Root
Feeder, a long steel irrigation tube with hose connector that is inserted deep
into the ground, provides the homeowner with a means of deep feeding and
irrigating trees and shrubs. The Ross(R) Root Feeder may also be used without
fertilizer as a deep watering device.
Landscape Edging. The Company markets a variety of resin-based decorative
landscape edgings whichunder trade names including Emerald Edge and Terra Cotta Tiles
(TM). The Company's decorative edgings are used by consumers to define the
perimeter of planting areas underwith a variety of trade names including Emerald Edge(R)designs which include stone, log,
terra cotta tiles and Terra Cotta Tiles.picket fences.
Shade Cloth. The Company recently acquired the Plasti-Chain line of products, which included
additional landscape edgings.
Shade Cloth. In June 1995, the Company commenced marketing for sale and
delivery during fiscal 1996,markets shade cloth fabrics in a variety of sizes
and colors. Shade cloth is utilized generally in conjunction with some type of
outdoor structure such as a patio veranda, and provides shade, privacy or
protection from wind for people, plants and pets. The Company markets shade
cloth fabrics as an exclusive United States retail distributor of a shade cloth
manufacturer pursuant to an agreement that expires on September 30, 1998 (unless
renewed1998. The
Company is currently discussing with the manufacturer a possible one year
extension of the distributorship arrangement.
Fertilizers and Root Feeders. The Company markets fertilizers under the
Ross trade name. The Ross fertilizer, when applied through a Ross Root Feeder, a
long steel irrigation tube with hose connector that is inserted deep into the
ground, provides the homeowner with a means of deep feeding and
6
irrigating trees and shrubs. The Ross Root Feeder may also be used without
fertilizer as a deep watering device.
Weed Trimmer Replacement Heads. The Company manufactures and distributes
replacement heads for string weed trimmer products under the Weed Wizard
trademark. The Company's weed trimmer replacement head products consist of a
replacement casing containing either a chain link for heavy duty use or a
plastic blade for routine weed and grass trimming. The products are part of a
multi fit system offered by the Company, for an additional two year period).
Animal Repellents.which allows the replacement heads to
fit on virtually all consumer gas weed trimmers and most consumer electric weed
trimmers.
Lawn and Garden Fencing. The Company markets resin based fencing for lawns
and gardens. A variety of fencing products are marketed by the Company and are
used by the consumer for numerous applications including preventing animals from
entering a garden or orchard.
Other Products. In addition to landscape fabrics, fertilizer, plant food
and insecticide spikes, landscape edging, shade cloth, fertilizer and root
feeders, weed trimmer replacement heads and lawn and garden fencing, the Company
also sells complementary lawn and garden products for the home gardener. The
products include a line of animal repellents that are formulated to deter dogs,
cats, deer and rabbits from destroying garden and landscape environs.
Other Products. In addition to landscape fabrics; fertilizer, plant food
and insecticide spikes, root feeders, landscape edging and shade cloth, the
Company also sells complementary lawn and garden products for the home gardener.
The products includeenvirons, a variety
of protective plant and tree covers, bird and animal mesh blocks, protective
garden and tree netting to prevent animal damage, synthetic mulch and fabric
pegs.
Agricultural Products. The Company, through Golden West, manufactures and
distributes certain humic acid basedacid-based agricultural products for use on farms and
orchards. Golden West generally sells its products to agricultural distributors,
which in turn market Golden West's products to farms and orchards. The principal
agricultural products manufactured or distributed by the Company are:
Energizer(R) -a, a formulation of humic acids which, when applied in conjunction
with liquid fertilizers, permits crops to absorb a greater amount of the
nutrients in the fertilizer; Penox(R) -, a surfactant, or penetrating wetting
agent, that contains humic acid which, when applied in conjunction with
herbicides, defoliants and other agricultural products, increases their
effectivenesseffectiveness; and Powergizer 45(R) -Powergizer(R), a foliar nutrient, or plant food, containing
humic acid which promotes growth and vigor in many types of crops. -5-Sales of the
Company's agricultural products accounted for less than 2% of the Company's net
sales in fiscal 1998.
7
Conversion, Manufacturing and Supply
Lawn and Garden Products
Except for the materials for WeedBlock(R),WeedBlock, which isare obtained from a single
source, the basic materials for the Company's lawn and garden products are
purchased from a variety of suppliers. All of such materials are converted,
packaged and shipped by the Company from either its Waco, Texas facility or its
Paris, Kentucky facility.facility, its Dahlonega, Georgia facility or at a facility
located in Englewood, Colorado.
The Company purchases all of the landscape fabric used to manufacture
WeedBlock(R)WeedBlock from Tredegar Industries, Inc. ("Tredegar"). The Company purchases
large rolls of various types of landscape fabric from Tredegar for shipment to
its Waco, Texas facility where it converts the bulk fabricsizes, cuts and then packages the fabric and ships it to customers.for
consumer sale. Although the Company has purchased all of its supply from
Tredegar for in excess ofover 10 years and the Company believes that its relationship with Tredegar is
good, Tredegar is free to terminate its relationship with the Company at any
time and accordingly could market its fabrics to other companies, including
competitors of the Company. Nevertheless, the Company owns the registered
trademark "WeedBlock(R)" and to the extent that it establishes alternative
supply arrangements, its rights to market products under the WeedBlock(R)WeedBlock brand
name would continue without restriction.
The Company manufactures and packages its Jobe's(R)Jobe's fertilizer spikes at its
Paris, Kentucky facility. The raw materials that comprise the Company's indoor
fertilizer spikes are mixed with a binding agent and then passed through an
extrusion process which feeds a continuous strand of fertilizer through a
heat-drying system. The strand is then cut into ready-to-use fertilizer spikes
which are then machine counted and packaged into shelf-ready blisterpacks. The
Company's outdoor fertilizer spikes are manufactured in a similar manner except
rather than passing through an extrusion process, the outdoor spikes are
processed through molds which shape the spikes into their final form. The
outdoor spikes' are packaged in either a foil pouch, bag or box.
The specifications for the Company's landscape edging, shade cloth and root
feeder products and packaging are designed by the Company and independent design
consultants. The products are then manufactured and packaged by third party
manufacturers according to the Company's specifications.
The nylon product body (rotary head) and the plastic blades and the chain
links used in the Company's weed trimmer replacement heads are manufactured for
the Company pursuant to open purchase orders. The Company assembles and
packages the
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weed trimmer replacement heads with the aid of an electronic packaging machine.
The Company purchases all of the material used to manufacture its resin
based fencing from The Tensar Company pursuant to an agreement that expires in
May 2000. The material is then sized and cut for consumer sale at the Company's
Waco, Texas facility.
Agricultural Products
The Company does not own or lease any manufacturing facilities for its
agricultural products. Substantially all of the Company's humic acid-based
agricultural products, Energizer, Penox and Powergizer, 45, are processed by Western
Farm Services, Inc. ("Western Farm") pursuant to purchase orders placed by the
Company from time to time in the ordinary course of business. Furthermore, the
Company, through Western Farm, has an open purchase order arrangement with an
entity which supplies it with leonardite ore, a source of humic acid used in its
agricultural products.
The Company believes that it would
have no difficulty in finding alternative processors or suppliers of leonardite
ore or other sources of humic acid should this supplier be unable to satisfy the
Company's humic acid requirements.
Customers
The Company's customers include home improvement centers, mass
merchandisers, hardware stores, and lawnnurseries, and garden nurseriescenters and other retail
channels throughout the United States. The Company's three largest customers for
fiscal 1998, Home Depot, Lowes and Kmart, accounted for approximately 26%, 11%
and 7%, respectively of its net sales during such year. During fiscal 1997, Home
Depot, Lowes
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and K-Mart, accounted for approximately 26%, 10% and 7%,
respectively, of itsthe Company's net sales during such year.sales. During fiscal 1996, Home Depot,
Lowe's, Kmart and Builder's Square accounted for 27%, 9%, 7% and 5%,
respectively, of the Company's net sales. The Company's ten largest customers as
a group accounted for 69%65% and 65%63% of its net sales during fiscal 19961997 and 1997,1998,
respectively.
During fiscal 1995 and fiscal 1996, sales to Home Depot, Lowes and K-Mart
accounted for approximately 27%, 6% and 9%, respectively, and 27%, 9% and 7%,
respectively, of the Company's net sales. Sales to such customers are not governed by any contractual
arrangement and are made pursuant to standard purchase orders. While the Company
believes that relations with its largest customers are good, the loss of any of
these customers could have an adverse effect upon the results of operations of
the Company.
The Company's sales are concentrated in the United States, with
international sales (primarily in Europe and CanadaCanada) accounting for
less than 2%approximately 4.0% of the Company's net sales for fiscal 1996 and fiscal 1997.1998. The Company is
currently attempting to develop relationships with distributors outside of the
United States.
Sales and Marketing
The Company's sales efforts are coordinated by its national sales manager.
The national sales manager'smanager,
whose duties include overseeing key accounts and
9
directing the activities of the Company's sixeight regional sales managers. Because
of the service oriented nature of the Company's business, the national and
regional sales managers devote a substantial amount of their time to servicing
and maintaining favorable
relationshiprelationships with the Company's largest customers in addition
to managing the overall sales operations. The Company also utilizes the services
of approximately 26over 40 non-exclusive independent sales organizations, on a commission basis,
who are responsible primarily for sales to customers not serviced regularly by
the regional sales managers. Sales of the Company's agricultural products are
coordinated primarily by two full-time employees who are compensated on a salary
plus commission basis.
The Company's marketing activities are coordinated by its marketing
manager. The marketing manager designs and develops the Company's distinctive
packaging and point-of-sale displays and oversees, among other things, the
Company's advertising campaigns, which are created and placed by advertising and
public relations firms.
The Company expects that its lawn and garden products will continue to be
marketed by retailers primarily through the use of special displays and in-store
consumer promotions in mass-merchandise stores,Retail Accounts, hardware stores, nurseries and garden
centers. In addition, the Company believes that a substantial portion of lawn
and garden sales are impulse driven and not overly price sensitive. Therefore,
the Company seeks to increase consumer awareness, understanding and brand
identification of its products through its distinctive packaging and
point-of-sale displays. Retail Accounts and the Company's other customers
receive the Company's products in packaging that is easily displayed. The retail
product packaging is informative to the end-user and incorporates attention
getting, eye-pleasing color schemes. The Company also tailors its displays to
the evolving needs of retailers. Because many home improvement and mass merchant
retailers maintain outdoor sales areas for their lawn and garden products, the
Company utilizes waterproof displays for many of its products. In addition, the
Company meets the specific needs of many of its larger customers by tailoring
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the size of its displays to the dimensions requested by such customers. The
Company's independent sales representatives periodically visit individual retail
outlets to assist Retail Accounts in achieving innovative and optimal use of the
Company's distinctive store displays.
In order to anticipate and react quickly to changing consumer preferences,
the Company also engages in market research. During fiscal 19971998 the Company
conducted consumer market research and a regional media advertising campaign of
its Jobe's(R) Spikes product line to determine the effectiveness of such
advertising in increasing product line sales. Based on the positive data derived
from such research, the Company intends to focusfocused its advertising and promotional campaign on the Jobe's brand name, as
well as on the Easy Gardener and Emerald Edge(R)Edge brand names.
In addition, during fiscal 1998, the Company redesigned the Jobe's
packaging, assisted Retail Accounts in their inventory
10
purchasing, in-store product placement and implementation of displays for Jobe's
products and conducted a national advertising campaign which targeted the "baby
boomer" consumer segment.
The Company anticipates spending approximately $4.0 million, including
anticipated use of a portion of existing trade credits, in the current fiscal
year ending June 30, 19981999 on a combination of media development, print, radio
and television advertising, cooperativeco-operative advertising (advertising done in
conjunction with retailers), attendance at trade shows and public relations to
promote awareness, understanding and brand identification of its lawn and garden
productsproducts.
The Company intends to utilize a substantial portion of its marketing
budget for the fiscal year ending June 30, 1999 on the enhancement of brand-name
recognition of the Jobe's and brands.Weed Wizard product lines and, to a lesser extent,
on the Easy Gardener and Emerald Edge brand names. There can be no assurance
that any attempt to increase such recognition will be successful or have any
favorable effect on the Company's net sales.
Information Systems
The Company maintains a sophisticated retail data information system which
enables it to provide timely and efficient order fulfillment to its Retail
Accounts and other customers. The Company's purchase order process can be
paperless, with most Retail Accounts placing their orders through an electronic
data interchange with the Company. In addition, with Wal-Mart, the Company's
system allows it to evaluate in-store inventory, thereby allowing the Company's
sales managers to proactively address such Retail Account's needs. Internally, the Company's information systems
track orders and deliveries and provide exception reports if product is not
delivered on time. The systems "push" the necessary information to the proper
personnel, allowing the Company to react quickly to information. -8-
The Company's
purchase order process can be paperless, with most Retail Accounts placing their
orders through an electronic data interchange with the Company.
Seasonality
The Company sales are seasonal due to the nature of the lawn and garden
business, in parallel with the annual growing season. The Company's sales and
shipping are most active from late December through May when home lawn and
garden customers are purchasing supplies for spring planting and retail stores
are increasing their inventory of lawn and garden products. Sales typically
decline by early to mid summer.mid-summer. Sales of the Company's agricultural products are
also seasonal. Most shipments occur during the agricultural cultivation period
from March through October (the agricultural
cultivation period).October.
Inventory and Distribution
In order to meet product demand, the Company keeps relatively large amounts
of product inventory on hand, particularly from December to May, the months of
highest demand. Despite maintaining these relatively high levels of inventory,
11
the Company has historically experienced minimal inventory obsolescence.
However, it is possible that inventory obsolescence sincecould increase in the
high demand during this season has generally minimized the Company's levels
of obsolete inventory.future. Retail Accounts generally require delivery within five business days.
Orders are normally processed within 48 hours and shipped by common carrier.
The Company's on-time order fill rate is approximately 99%. The
Company is also able to meet certain just-in-time delivery needs when required.
Competition
The consumer lawn and garden care market generallyindustry is highly competitive and
somewhat fractionalized, with no single dominant competitor.fragmented. The Company competes with a combination of national and
regional companies ranging from large agri-chemicalpetrochemical companies to garden catalog
businesses and companies specializing in the manufacture of lawn and garden care
products. Several of such companies, such as Solaris Group, a division of
Monsanto Company, and the Scotts Miracle-Gro Products, Inc. have captured a
significant, and in certain cases controlling, share of such markets. Many of
the Company's competitors have achieved significant national, regional and local
brand name and product recognition and engage in frequent and extensive
advertising and promotional programs, both generally and in response to efforts
by other competitors to enter new marketsentering the market or introduceexisting competitors introducing new
products. Many of these companies have substantially greater financial,
technical, marketing and other resources than the Company. In addition, the lawn and garden care industry is
characterized by the frequent introduction of new products, accompanied by
substantial promotional campaigns.
Large, dominant manufacturers, which manufacture and sell lawn and garden
products, such as the Solaris Group, a division of Monsanto Company, and other
lawn and garden care companies have, in the past, manufactured and marketed
landscape fabrics. Currently, few of such competitors compete with the Company
in this industry. Nevertheless, well capitalized companies and smaller regional
firms may develop and market landscape fabrics and compete with the Company for
customers who purchase such products.
Among the Company's competitors in the lawn and garden market for the
Jobe's(R) SpikeJobe's spike line of fertilizer and insecticide products are large agri-chemical
companies such as Solaris Group and Scotts Miracle-Gro Products, Inc.
Competition for the Company's
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agricultural products consist of other
manufacturers of products that are humic acid based but that utilize formulas
that are different from Golden West's. These competitors include American
Colloid Company and Monterey Chemical CorporationCorporation. The Company competes with a
variety of regional lawn and Custom Chemicide Inc.garden manufacturers in the markets for landscape
edging, shade cloth and root feeders. Competition for the Company's weed trimmer
replacement heads consists of other manufacturers of weed trimming replacement
part products using nylon based lines and blades. These include The Source
Company.
12
Government Regulation
The Company is subject to many laws and governmental regulations and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.
Fertilizer and Pesticide RegulationRegulation. Products marketed, or which may be
marketed, by the Company as fertilizers or pesticides are subject to an
extensive and frequently evolving statutory and regulatory framework, at both
the Federal and state levels. The distribution and sale of pesticides is subject
to regulation by the U.S. Environmental Protection Agency ("EPA") pursuant to
the Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), as well as
regulation by many states in a manner similar to FIFRA. Under FIFRA and similar
state laws, all pesticides must be registered with the EPA and the state and
must be approved for their intended use. FIFRA and state regulations also impose
other stringent requirements on the marketing of such products. Moreover, many
states also impose similar requirements upon products marketed for use as
fertilizing materials, which are not typically regulated under FIFRA. Failure to
comply with the requirements of FIFRA and state laws that regulate marketing and
distribution of pesticides and fertilizers could result in the imposition of
sanctions, including, but not limited to suspension or restriction of product
distribution, civil penalties and/or criminal sanctions.
The Company markets certain animal repellent and pesticide products that
are subject to FIFRA and to similar state regulations. The Company also markets
certain fertilizer products that are subject to regulation in some states. The
Company believes that it is in materialsubstantial compliance with material FIFRA and
applicable state regulations regarding its material business operations.
However, there can be no assurance that the Company will be able to comply with
future regulations in every jurisdiction in which the Company's material
business operations are conducted without substantial cost or interruption of
operations. Moreover, there can be no assurance that future products marketed by
the Company will not also be subject to FIFRA or to state regulations. If future
costs of compliance with regulations governing pesticides or fertilizers exceed
the Company's budgets for such items, the Company's business could be adversely
affected. If any of the Company's products are distributed or marketed in
violation of any of these regulations, the Company could be subject to a recall
of, or a sales limitation placed on, one or more of its products, or civil or
criminal sanctions, any of which could have a material adverse effect upon the
Company's business.
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Environmental RegulationRegulation. The Company's manufacturing operations are
subject to various evolving federal, state and local laws and regulations
relating to the protection of the environment, which laws govern, among other
things, emissions to
13
air, discharges to ground, surface water, and groundwater, and the generation,
handling, storage, transportation, treatment and disposal of a variety of
hazardous and non-hazardous substances and wastes. Federal and state
environmental laws and regulations often require manufacturers to obtain permits
for these emissions and discharges. Failure to comply with environmental laws or
to obtain, or comply with, the necessary state and federal permits can subject
the manufacturer to substantial civil and criminal penalties. Easy Gardener
operates two manufacturing facilities and Weatherly and Weed Wizard each lease and operate
one manufacturing facility. TheAlthough the Company believes that all of its
facilities are in substantial compliance with all applicable material
environmental laws.
Nonetheless,laws, it is possible that there are material environmental
liabilities of which the Company is unaware. If the costs of compliance with the
various existing or future environmental laws and regulations including any
penalties which may be assessed for failure to obtain necessary permits, exceed
the Company's budgets for such items, the Company's business could be adversely
affected.
Potential Environmental Cleanup LiabilityLiability. The Federal Comprehensive
Environmental Response, Compensation and Liability Act, as amended ("CERCLA"),
and many similar state statutes, impose joint and several liability for
environmental damages and cleanup costs on past or current owners and operators
of facilities at which hazardous substances have been discharged, as well as on
persons who generate, transport, or arrange for disposal of hazardous wastes at
a particular site. In addition, the operator of a facility may be subject to
claims by third parties for personal injury, property damage or other costs
resulting from contamination present at or emanating from property on which its
facility is located. Easy Gardener operates two manufacturing facilities and
Weatherly and Weed Wizard each operate aone manufacturing facility. Moreover, the
Company or its predecessors have owned or operated other manufacturing
facilities in the past and may have liability for remediation of such facilities
in the future, to the extent any is required. In this regard, Weatherly
previously owned a facility that was the subject of certain soil remediation
activities. Although this facility was sold by Weatherly prior to the Company's
acquisition of Weatherly, there can be no assurance that the Company will not be
liable for any previously existing environmental contamination at the facility.
Moreover, although the purchaser of the facility indemnified Weatherly for any
environmental liability and the sellers of Weatherly, in turn, indemnified the
Company from such liability, there can be no assurance that, if required, the
indemnifying parties will be able to fulfill their respective obligations to
indemnify the Company. Furthermore, certain business operations of the Company's
subsidiaries also involve shipping hazardous waste off-site for disposal. As a
result, the Company could be subject to liability under these statutes. The
Company could also incur liability under CERCLA or similar state statutes for
any damage
14
caused as a result of the mishandling or release of hazardous substances owned
by the Company but processed and manufactured by others on the Company's behalf.
As a result, there can be no assurance that the manufacture of the products sold
by the Company will not subject the Company to liability pursuant to CERCLA or a
similar state statute. Furthermore, there can be no assurance that Easy Gardener
or Weatherly will not be subject to liability relating to manufacturing
facilities owned or operated by them currently or in the past.
Other RegulationsRegulations. The Company is also subject to various other federal,
state and local regulatory requirements such as worker health and safety,
transportation, and advertising requirements. Failure to comply with these
requirements could result in the imposition of fines by governmental authorities
or awards of damages to private litigants.
Trademarks, Proprietary Information and Patents
The Company believes that product recognition is an important competitive
factor in the lawn and garden care products industry. Accordingly, in connection
with its marketing activities of its lawn and garden care products, the Company
promotes, and intends to promote, certain tradenames and trademarks which are
believed to have value to the Company.
In connection with its acquisition of the assets of Easy Gardener Inc. ("EGI") in
September 1994, Easy Gardenerthe Company acquired certain trademarks and copyrights used by
EGIEasy Gardener, Inc. in connection with its business including, but not limited
to, the trademarks, WEEDBLOCK(R)Weedblock(R), EASY GARDENER(R)Easy Gardener(R), WEEDSHIELD(TM)Weedshield(TM), MICROPORE(R)Micropore(R)
and BIRDBLOCK(R)Birdblock(R). In connection with its acquisition of Weatherly, Consumer Products Group, Inc. in August 1996, Easy Gardenerthe Company
acquired certain patents, as well as certain copyrights and trademarks used in
connection with Weatherly's business including, but not limited to, Jobe's(R),
Ross(R), Green Again(R), Gro-Stakes(R), Tree Gard(R) and XP-20(TM)XP-20(R). Easy GardenerThe Company
also acquired certain patents and trademarks when it acquired the assets of
Emerald Products, LLC and also acquired certain trademarks in connection with
its purchase of the Plasti-Chain line of products from Plastic Molded Concepts,
Inc. AlthoughIn connection with its acquisition of Weed Wizard, Inc., the Company
does not believe thatacquired the Weed Wizard(TM) product patent and trademark. The Company also
acquired the trademark Landmaster(R) in connection with its acquisition of the
assets of Landmaster Products, Inc. In addition, the Company acquired the
trademarks violatePolyspun 300(R), Nature Shield(R) and Diamondback(R) in connection
with its acquisition of the proprietary rightsTensar(R) consumer product line. In connection with
the sale of others, therethe Tensar(R) consumer product line, The Tensar Corporation ganted
to the Company an exclusive royalty-free perpetual license to use the trademark
Tensar(R) in connection with a wide range of polymeric grid, mesh, net and
related products supplied to the Company by the Tensar Corporation. There can be
no assurance that the Company's marks do not andCompany will not
violate the proprietary
-11-
rights of others, that the Company's marks would be upheld if challengedapply for any additional trademark or patent
protections relating to its products or that its current trademarks and patents
will be enforceable or adequately protect the Company would not be prevented from usinginfringement of its
marks, any of which could have
an adverse effect upon the Company.proprietary rights.
15
Although the Company believes that the products sold by it do not and will
not infringe upon the patents or violate the proprietary rights of others, it is
possible that such infringement or violation has or may occur. In the event that
products sold by the Company are deemed to infringe upon the patents or
proprietary rights of others, the Company could be required to pay damages and
modify its products or obtain a license for the manufacture or sale of such
products. There can be no assurance that, in such an event, the Company would be
able to do so in a timely manner, upon acceptable terms and conditions or at
all, and the failure to do any of the foregoing could have a material adverse
effect upon the Company.
Product Liability
The Company, as a manufacturer of lawn and garden care and pesticide
products, may be exposed to significant product liability claims by consumers.
Although the Company has obtained product liability insurance coverage for U.S.
Home & Garden Inc. and Golden West in the aggregate amount of $3.0 million, and
for Easy Gardener, Weatherly and Weed Wizard in the aggregate amount of $2.0
million (with all policies limited to $1.0 million per occurrence), and has
obtained two umbrella policies in the amounts of $15.0 million, and $20.0
million, respectively, there can be no assurance that such insurance will
provide coverage for any claim against the Company or will be sufficient to
cover all possible liabilities. In the event a successful suit is brought
against the Company, unavailability or insufficiency of insurance coverage could
have a material adverse effect on the Company. Moreover, any adverse publicity
arising from claims made against the Company, even if such claims were not
successful, could adversely affect the reputation and sales of the Company's
products.
Employees
As of August 31, 1997September 21, 1998 the Company had 123210 full-time employees. Of such
employees, three are executive officers of the Company, 1752 were engaged in
administration and finance, 1421 were engaged in sales and marketing, 1633 were
engaged in warehouse, shipping and receiving and 73 were engaged in production.
An additional 17 part-time employees101 were engaged in production.
None of the Company's employees are covered by collective bargaining agreements.
The Company believes that it has a good relationship with its employees.
Item 2. Properties
The Company's executive offices are currently located in San Francisco,
California, in approximately 2,4403,000 square feet of office space for which the
Company pays $4,227$11,275 per month in rent, which amount includes the costs of
utilities and janitorial services. In March 1998, the Company will be relocating
to a 3,000 square foot space in the same building with a monthly rent of
$10,275. The Company believes that its office space,
which it
16
rents pursuant to a lease expiring in February 2001, is adequate for the
Company's planned future operations.
Easy Gardener leases approximately 250,000 square feet of office and
warehouse space in Waco, Texas for which the Company pays $18,544 per month in
rent, pursuant to a lease agreement that expires on February 28, 2001. Easy
Gardener's facilities contain landscape fabric converters, packaging equipment
and warehouse and shipping facilities.
Weatherly leases approximately 72,000 square feet of manufacturing and
warehouse space in Paris, Kentucky for $10,833 per month in rent pursuant to a
lease that expires on June 30, 2001. The Company also leases an additional
53,000 feet of warehouse space in Paris, Kentucky for $5,417 per month in rent
pursuant to a lease that expires on May 6, 1999.
Golden West's offices are located in Merced, California in approximately
900 square feet of space it leases for $1,150 per month base rent, with rent
increases at a rate of 4% a year. The lease expires in June 1999 subject to the
Company's option to renew the lease for an additional three year period.
Easy Gardener leases approximately 200,000 square feet of office and
warehouse space in Waco, Texas for whichWith respect to Weed Wizard, the Company pays $17,918leases, for $14,750 per month, in
rent pursuant to a
one year lease agreement that is renewable annually through
November 30, 2000. Easy Gardener's facilities contain landscape fabric
converters, packaging equipment and warehouse and shipping facilities.
Weatherly leasesstory office/manufacturing facility of approximately 72,000 square50,600 feet of manufacturing and
warehouse space in
Paris, Kentucky for $10,000 per month in rentDahlonega, Georgia pursuant to a lease that expires on June 30, 1998. Thein August 2001.
With respect to the storage, packaging and distribution of the Company's
landscape fabric products, Easy Gardener has entered into a management agreement
with Landmaster Products, Inc. (the "Management Agreement") pursuant to which
the Company also leases an additional
53,000 feet ofis provided with warehouse space in Paris, KentuckyEnglewood, Colorado. The
Management Agreement expires on October 21, 2000 and provides for $5,417payment of a
management fee of $31,500 per month until March 1999; thereafter $24,000 per
month until September 1999, after which time the management fee will be mutually
determined by the parties but in rent
pursuant to a lease that expires on May 6, 1998.
-12-
no event be less than 70% of the prior period's
monthly fee.
Item 3. Legal Proceeding
In response to a claim for trademark infringement filed July 30, 1997 by
Easy Gardener against Dalen Products, Inc. ("Dalen") in the United States
District Court for the Western District of Texas, Waco Division, Dalen filed a
counterclaim against Easy Gardener and a third party complaint against the
Company. Dalen alleges, among other things, that the Company and Easy Gardener
monopolized or attempted to monopolize a relevant market for landscape fabrics;
that the Company and Easy Gardener tortiously interfered with Dalen's
contractual and prospective contractual relationships; and that Easy Gardener
infringed on a Dalen trademark, deceptively advertised the thickness of one of
its products, and misrepresented the porosity of a Dalen product. Dalen's
counterclaim and third party complaint seek an award of unspecified damages and
the entry of unspecified injunctive relief.Proceedings
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
An Annual Meeting of Stockholders was held on June 27, 199722, 1998 at which time
the following directors were reappointed to serve until the Annual Meeting of
Stockholders of the Company to be held in 1998:1999:
17
Votes For Votes Withheld
--------- --------------
Robert Kassel 11,869,446 79,95016,539,341 128,518
Richard Raleigh 11,870,446 78,95016,539,526 128,333
Maureen Kassel 11,868,496 80,90016,476,951 190,908
Fred Heiden 11,828,346 121,05016,537,756 130,103
Jon Schulberg 11,829,346 120,10016,489,856 178,003
In addition, at the Meeting, the stockholders approved an amendment to the
Company's 1997
Stock Option PlanCertificate of Incorporation to effect an increase in the Company's
authorized common stock to 75 million shares by a vote of 8,186,57614,104,400 in favor,
843,0772,469,038 against and 194,47594,421 abstaining. -13-
There were no broker non-votes with
respect to this proposal.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock has traded in the over-the-counter market and
was quoted on the NASDAQ SmallCap Market from March 26, 1992 until June 3, 1998
and has been quoted on the Nasdaq SmallCapNASDAQ National Market System since March 26, 1992.June 4, 1998. The
NASDAQ symbol for the Company's Common Stock is "USHG". The following table sets
forth, for the periods indicated, the high and low bid quotationssales prices for the Common
Stock, as reported by NASDAQ.
These amounts represent quotations between dealers (not
actual transactions) and do not include retail markups, markdowns or
commissions.
Year Ended June 30, 1996 Bid
-------------------------
High Low
--------- --------
First Quarter ...................... $ 3.50 $ 2.75
Second Quarter ..................... 3.1875 2.375
Third Quarter ...................... 3.00 2.125
Fourth Quarter ..................... 3.625 2.625
Year Ended June 30, 1997
Bid
-------------------------
High Low
--------- ------------ ---
First Quarter ..................... $ 3.313 $ 2.313Quarter.............. $3 1/2 $2 1/4
Second Quarter .................... 2.813 2.00Quarter............. 2 15/16 1 15/16
Third Quarter ..................... 2.813 2.063Quarter.............. 2 15/16 2 1/16
Fourth Quarter .................... 2.438 2.063Quarter............. 3 1/2 2 1/8
Year Ended June 30, 1998
High Low
---- ---
First Quarter......... $5 1/16 2 15/16
Second Quarter........ 5 1/8 3 7/8
Third Quarter......... 7 13/16 4
Fourth Quarter........ 7 3/8 5 3/8
As of September 25, 1997,21, 1998, the number of stockholders of record of the
Company's Common Stock was 190.225. The Company believes that, in addition, there
are in excess of 500 beneficial owners of its Common Stock whose shares are held
in "street name".
In March 1998, the Company extended by ten years the expiration date of
options to purchase 150,000 shares of Common Stock previously granted to Maureen
Kassel. The foregoing options were exercisable at $1.69 per share and the
transactions were exempt from the registration requirements of the Securities
Act of 1933 by virtue of Sections 2(3) or 4(2) thereof.
18
The Company has not paid any cash dividends on its common stock to date and
does not expect to declare or pay any cash or stock dividends in the foreseeable
future. Certain agreementsIt is anticipated that the proposed lending agreement among the Company,
Easy Gardener and Easy Gardener's anticipated primary lending institutionsinstitution will
prohibit Easy Gardener from paying dividends without the lenders' consent. This restrictionconsent, which
would adversely affectsaffect the Company's ability to pay dividends.
During the quarter ended June 30, 1997, the Company issued five-year
options to purchase 50,000 shares of its common stock at $2.25 per share to an
entity for financial consultanting services. The Company also sold a total of
59,969 shares of its common stock to two individuals upon the exercise of
options previously granted to them and a total of 5,000 shares were sold for
nominal consideration to two charitable organizations. Sales of these securities
were made in private transactions pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act of 1933.
-14-
Item 6. Selected Financial Data
(in thousands, except share and per share data)
The following selected financial data at and for the years ended June 30,
1993, 1994, 1995, 1996, 1997 and 19971998 has been derived from the Company's audited
financial statements. Such information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the notes thereto appearing
elsewhere in this Report.
Statement of Income Data:
Year Ended June 30,
------------------------------------------------------------------------------------
1993----------------------------------------------------------------
1994 1995 1996 1997 ------------ ------------ ------------ ------------ ------------1998
---- ---- ---- ---- ----
Net sales ................................ $ 2,910.................................................... $ 3,063 $ 19,692 $ 27,031 $ 52,046 $ 67,149
Cost of sales ............................ 1,508................................................ 1,455 9,151 12,670 23,649 ------------ ------------ ------------ ------------ ------------30,431
-------- -------- -------- -------- --------
Gross profit ............................. 1,402................................................. 1,608 10,541 14,361 28,397 36,718
Selling, general and administrative
expenses .................. 1,826..................................................... 6,786 7,152 10,612 17,745 ------------ ------------ ------------ ------------ ------------23,065
-------- -------- -------- -------- --------
Income (loss) from operations ............................... (424)................................ (5,178) 3,389 3,749 10,652 13,653
Other income (expense) ................... (45)....................................... (41) (1,776) (1,940) (3,262) ------------ ------------ ------------ ------------ ------------(3,077)
Income tax (expense) benefit ............. --................................. -- (38) 715 (3,200) (3,600)
-------- -------- -------- -------- --------
Income (loss) before extraordinary expense .................... (469)................... (5,219) 1,575 2,524 4,190 ------------ ------------ ------------ ------------ ------------6,976
Extraordinary expense net ............... 389.................................... -- -- -- (1,007) ------------ ------------ ------------ ------------ ------------(1,450)
-------- -------- -------- -------- --------
Net income (loss) ........................ $ (80)............................................ $ (5,219) $ 1,575 $ 2,524 $ 3,183 ============ ============ ============ ============ ============$ 5,526
======== ======== ======== ======== ========
Income (loss) per share before extraordinary expense ............. $ (.22)expense:
Basic ........................................................ $ (1.31) $ .19 $ .25 $ .31 $ .39
Dilutive ..................................................... $ (1.31) $ .16 $ .19 $ .26 $ .31
Net income (loss) per share .............. $ (.04)share:
Basic ........................................................ $ (1.31) $ .19 $ .25 $ .23 $ .31
Dilutive ..................................................... $ (1.31) $ .16 $ .19 $ .20 $ .24
19
Weighted average number of common and
common equivalent shares outstanding ............ 2,177,968outstanding:
Basic......................................................... 3,980,318 8,376,000 10,206,000 17,908,000(1)13,695,000 17,776,000
Dilutive...................................................... 3,980,318 10,125,000 13,361,000 16,068,000 22,808,000
Balance Sheet Data:
June 30,
------------------------------------------------------------------------
1993----------------------------------------------------------------------------
1994 1995 1996 1997 ------- ------- ------- ------- -------1998
---- ---- ---- ---- ----
Working capital (deficiency) ...................... $ 607................. $ (347) $ 3,326 $ 5,328 $ 2,642
Total assets ...................................... 5,977 5,654 28,140 33,584 68,1252,292 $ 46,743
Intangible assets, net ............................ 2,858....................... 2,046 16,692 17,167 44,364 63,395
Total assets ................................. 5,654 28,140 33,584 68,475 126,813
Short-term debt ................................... 1,134.............................. 594 2,200 3,650 8,990 --
Long-term debt ............................... -- 8,000 6,238 17,570 63,250
Total liabilities ................................. 2,150............................ 2,504 12,800 14,214 36,549 75,214
Stockholders' equity .............................. 3,827......................... 3,150 15,39915,339 19,370 31,926 51,599
- --------
(1) The income per share calculations for fiscal 1997 are based upon the
modified treasury stock method and includes 13,695,000 weighted average common
shares outstanding and 4,213,000 common shares issuable from the exercise of
outstanding options and warrants for fiscal 1997. The calculation assumes that
all outstanding options and warrants have been exercised and the proceeds from
such exercises have been used to purchase certain treasury shares of common
stock and retire outstanding indebtedness. The retirement of the outstanding
indebtedness and related reduction in interest expense is assumed to increase
net income by $450,000. See Note 14 to Notes to Financial Statements.
-15-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company manufactures and markets a broad range of brand-name consumer
lawn and garden products through its wholly-owned subsidiaries, Easy Gardener
and Golden West, and through Easy Gardener's wholly-owned subsidiary, Weatherly.subsidiaries,
Weatherly and Weed Wizard. Since 1992, the Company has consummated fiveeight
acquisitions of complementary lawn and garden companies and product lines for an
aggregate consideration of approximately $57over $80 million in cash, notes and equity.equity
securities. As a result of such acquisitions, the Company recognized a
significant amount of goodwill which, aggregatedin the aggregate, was approximately $44.4$58.9
million at June 30, 1997.1998. The Company is currently amortizing such goodwill
using the straight-line method over various time periods ranging from 20 to 30
years.years and amortization expenses for the fiscal year ended June 30, 1998 were
$1.7 million or $0.08 per diluted share. See "Summary of Accounting Policies -
Intangible Assets" and Note 1 to Notes to Consolidated Financial Statements.
The Company's results of operations for the fiscal year ended June 30, 1997
were significantly affected by the acquisition of Weatherly in August 1996. In
connection with the acquisition of Weatherly, the Company's outstanding notes
payable were refinanced and replaced with a new line of credit (the
"Refinancing"). As a result of the Refinancing, the Company was required to
record an extraordinary expense of $1.0 million, net of tax benefits, for the
fiscal year ended June 30, 1997, which expense consisted of the write-off of
deferred finance costs at June 30, 1996 plus prepayment penalties. Such
extraordinary expense reduced the Company's dilutive net income per share for
fiscal 1997 by $.06,$0.06, from $.26$0.26 to $.20.$0.20. In addition, as a result of the
Company's repayment of all of its outstanding bank debt in April 1998, the
Company was required to record an extraordinary expense of $1,450,000, net of
income tax benefit. Such
20
extraordinary expense reduced the Company's dilutive net income per share for
fiscal 1998 by $.07 from $0.31 to $0.24. See Notes 136 and 14 to Notes to
Consolidated Financial Statements.
AlthoughThe Company experienced net sales growth of 93% from fiscal 1996 to fiscal
1997 and 29% from fiscal 1997 to fiscal 1998. The Company believes that this
growth in net sales was primarily attributable to expansion of its product lines
through the Company'sacquisition of complementary lawn and garden businesses and product
lines. Net sales were also positively affected by an increase in sales of
pre-existing product lines.
The Company was required to calculate its net income per common share decreased from $.25for all
periods presented in fiscal 1996 to $.20 in fiscalaccordance with Statement of Financial Accounting Standards
("SFAS") No. 128 "Earnings Per Share," which is effective for periods ending
after December 15, 1997 the decrease is not reflective of the
improved operating resultsand requires the Company achieved during fiscal 1997. The
reduction into report basic earnings per
share is the result of several factors, including an
extraordinary expense of approximately $1.0 million, net of tax benefits, or
$0.06 per common share recorded in fiscal 1997. In addition, during fiscal 1997
the Company incurred a tax expense of approximately $3.2 million, or $0.18 per
common share, compared(giving no dilutive effect to a tax benefit of approximately $0.07 during fiscal
1996 resulting from the recognition of a deferred tax asset relating to
available future net operating loss carryforwards. The net effect of the
difference in the income tax rate for 1997 compared to fiscal 1996 was a $0.25
reduction in net income per common share. Moreover, net income per common share
in fiscal 1997 was adversely affected by the requirement that the Company use
the modified treasury stock method to calculatederivative securities) and diluted earnings
per share for fiscal
1997. The(reflecting the dilutive effect of using this method was to reduce net income per common share
by $.05 inall derivative securities). Under
the 1997 period. Moreover, if application of the modified treasure
stock method had not been required incomeSFAS No. 128 dilutive earnings per share before income taxes and
extraordinary expense wouldcalculation, all derivative
securities with exercise prices below the market price have been $0.54 for fiscal 1997 comparedassumed
exercised. All proceeds from the exercise of such derivative securities have
been assumed to $0.18 in
fiscal 1996.
-16-
have been used to repurchase common stock (at an average stock
price).
Results of Operations
The following table sets forth for the periods indicated certain selected
income data as a percentage of net sales:
21
Percentages of Net Sales
---------------------------------------------------------------
Year Ended June 30,
--------------------------------
1995-------------------------------
1996 1997 ----- ----- -----1998
---- ---- ----
Net sales .................................................................. 100.0% 100.0% 100.0%
Cost of sales ............................ 46.5.............................. 46.9 45.4 45.3
----- ----- -----
Gross profit ............................. 53.5............................... 53.1 54.6 54.7
Selling and shipping expenses ............ 22.2.............. 23.2 21.6 21.2
General and administrative expenses ...... 14.1........ 16.1 12.5 13.2
----- ----- -----
Income from operations ................... 17.2..................... 13.9 20.5 20.3
Interest expense, ......................... 9.2 7.4 6.4net....................... (7.3) (6.3) (5.3)
Income tax (expense) benefit ............. (0.2)............... 2.7 (6.2) (5.4)
Extraordinary expense, net ................................ -- -- 1.9(1.9) (2.1)
----- ----- -----
Net income ............................... 8.0 9.3 6.1................................. 9.3% 6.1% 8.2%
===== ===== =====
Fiscal Year Ended June 30, 1998 Compared to Fiscal Year Ended June 30, 1997
Net sales. Net sales increased by $15.1 million, or 29%, to $67.1 million
during the fiscal year ended June 30, 1998 from $52 million during the
comparable period in 1997. The increase in net sales was primarily a result of
the February 1998 acquisition of substantially all of the assets used in the
business of Weed Wizard, Inc. and the March 1998 acquisition of substantially
all of the assets of Landmaster Products, Inc., combined with internal growth of
the Company's pre-existing product lines.
Gross profit. Gross profit increased by $8.3 million, or 29%, to $36.7
million for the fiscal year ended June 30, 1998, from $28.4 million during the
comparable period in 1997. This increase was due primarily to the acquisition of
substantially all of the assets used in the business of Weed Wizard, Inc. and
substantially all of the assets used in the business of Landmaster Products,
Inc. Gross profit as a percentage of net sales increased to 54.7% during the
fiscal year ended June 30, 1998, from 54.6% during the comparable period in
1997. The increase in gross profit as a percentage of net sales was primarily
attributable to the increase in sales of higher-margin products.
Selling and shipping expenses. Selling and shipping expenses increased $3.0
million or 26.5%, to $14.2 million during the fiscal year ended June 30, 1998,
from $11.2 million during the comparable period in 1997. This increase was
primarily the result of an increase in the amount of products shipped, which was
a consequence of the February 1998 acquisition of substantially all of the
assets used in the business of Weed Wizard, Inc. and the March 1998 acquisition
of substantially all of the assets used in the business of Landmaster Products,
Inc. along with an increase in sales of pre-existing product lines. Selling and
shipping expenses as a percentage of net sales decreased to 21.2% during the
fiscal year ended June 30, 1998, from 21.6% during the comparable period in
1997. This decrease was a result of economies of scale achieved from the sale of
new products to existing customers.
22
General and administrative expenses. General and administrative expenses
increased $2.3 million or 36% to $8.9 million during the fiscal year ended June
30, 1998 from $6.5 million during the comparable period in 1997. This increase
was primarily due to increased costs relating to acquisitions, including
amortization of goodwill and the addition of certain administrative personnel
as part of the Company's efforts to build an infrastructure that it believes
will be able to more readily integrate any future products or businesses that
may be acquired. As a percentage of net sales, general and administrative
expenses increased to 13.2% during the fiscal year ended June 30, 1998, from
12.5% during the comparable period in 1997. This is primarily due to the
increase of amortization of goodwill and the addition of certain administrative
personnel.
Income from operations. Income from operations increased by $3.0 million,
or 28.2%, to $13.6 million during the fiscal year ended June 30, 1998 from $10.6
million during the comparable period in 1997. The increase in income from
operations in actual dollars was primarily due to the increase in net sales for
the year ended June 30, 1998. As a percentage of net sales, income from
operations decreased to 20.3% for the fiscal year ended June 30, 1998 from 20.5%
during the comparable period in 1997.
Interest expense. Interest expense increased by $225,000, or 7%, to $3.6
million during the fiscal year ended June 30, 1998, from $3.3 million during the
comparable period in 1997. The increase in interest expense is primarily related
to the interest associated with the increase in debt associated with the
issuance by U.S. Home & Garden Trust I (the "Trust"), a wholly-owned subsidiary
of the Company of the Trust Preferred Securities (as hereinafter defined) which
was partially offset by a decrease in the Company's effective borrowing rate.
Income taxes. Income tax expense increased to $3.6 million during the
fiscal year ended June 30, 1998 from $3.2 million during the comparable period
in 1997 primarily due to the increase in the income before income taxes and
extraordinary expense which was partially offset by a decrease in the Company's
effective income tax rate for the year.
Extraordinary expense, net. In April 1998, the Company repaid in full the
indebtedness outstanding under the Credit Facility (as hereinafter defined). As
a result, the Company was required to record an extraordinary expense of $2.2
million, net of tax benefits of $735,000, during the fiscal year ended June 30,
1998. The expense consisted of deferred finance costs at April 30, 1998, net of
accumulated amortization, plus prepayment penalties. In connection with the
acquisition of Weatherly, the Company completed the Refinancing. As a result of
the Refinancing, the Company was required to record an extraordinary expense of
$1.0 million net of tax benefits for fiscal 1997, which expense consisted of
deferred finance costs at June 30, 1996
Net Income. Net income increased by $2.3 million, or 74%, to $5.5 million
during the fiscal year ended June 30, 1998 from $3.2 million during the
comparable period in 1997. This increase was attributable to the increase in net
sales for the year ended June 30, 198, which was partially offset by the
extraordinary expense. Basic net income per common share increased $.08 to $.31
per share for the fiscal year ended June 30, 1998 from $.23
23
per share during the comparable period in 1997. Diluted net income per common
share increased $.04 to $.24 per share for the fiscal year ended June 30, 1998
from $.20 per share during the comparable period in 1997. The increase in both
basic and diluted earnings per share is primarily attributable to the increase
in net income, which was partially offset by additional weighted average common
and common equivalent shares outstanding in the fiscal year ended June 30, 1998
compared to the comparable period in fiscal 1997.
Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996
Net sales. Net sales increased by $25.0 million, or 93%, to $52.0 million
in fiscal from $27.0 million in fiscal 1996. The increase in net sales was
primarily a result of the August 1996 acquisition of Weatherly and increased
sales of the Company's landscape fabrics and landscape edging products.
Gross profit. Gross profit increased by $14.0 million, or 98%, to $28.4
million in fiscal 1997 from $14.4 million in fiscal 1996. The increase was due
primarily to the Weatherly acquisition. Gross profit as a percentage of net
sales increased to 54.6% in fiscal 1997 from 53.1% in fiscal 1996. The increase
in gross profit as a percentage of net sales was primarily attributable to the
sales of higher-margin products acquired in the Weatherly acquisition.
Selling and shipping expenses. Selling and shipping expenses increased $4.9
million, or 78%, to $11.2 million in fiscal 1997 from $6.3 million in fiscal
1996. This increase was primarily the result of an increase in the amount of
products shipped. The increase in the amount of products shipped, which was a consequence of the acquisition of Weatherly and an
increase in sales of pre-existing product lines, particularly landscape fabrics
and landscape edging products. Selling and shipping expenses as a percentage of
net sales decreased from 23.2% in fiscal 1996 to 21.6% in fiscal 1997. This
decrease was primarily due to the consolidation of the Company's customer
services at the Waco, Texas office and the elimination of the majority of the
Weatherly sales positions in connection with the integration of the acquisition.
General and administrative expenses. General and administrative expenses
increased $2.2$2.1 million, or 50%, to $6.5 million in fiscal 1997 from $4.4 million
in fiscal 1996. This increase was primarily the result of the acquisition of
Weatherly. As a percentage of net sales, general and administrative expenses
decreased from 16.1% in fiscal 1996 to 12.5% in fiscal 1997. This improvement is
primarily due to the -17-
closing of the Weatherly administrative offices in February
1997 and the integration of certain administrative functions into the Company's
existing infrastructure.
Income from operations. Income from operations increased by $6.9 million,
or 184%, to $10.7 million in fiscal 1997 from $3.8 million in fiscal 1996. The
growth in income from operations in
24
actual dollars was primarily due to the increase in net sales and gross profit
as a result of the Weatherly acquisition. As a percentage of net sales, income
from operations increased to 20.5% in fiscal 1997 from 13.9% in fiscal 1996.
This increase was due to the decreases in selling and shipping and general and
administrative expenses as a percentage of net sales.
Interest expense. Interest expense increased by $1.3 million, or 65%, to
$3.3 million in fiscal 1997 from $2.0 million in fiscal 1996. The increase in
interest expense is primarily related to the interest associated with the
increase in both term and working capital debt and expenses associated with the
Weatherly acquisition, partially offset by a decrease in the Company's effective
borrowing rate.
Income taxes. In fiscal 1996, the Company reported a tax benefit of
$715,000 which was related to the recognition of a deferred tax asset relating
to available future net operating loss carryforwards. In fiscal 1997, the
Company incurred a tax expense of $3.2 million, excluding the benefit associated
with the extraordinary expense, reflecting the Company's profitability and
exhaustion of the majority of net operating loss carryforwards.
Extraordinary expense, net. In connection with the acquisition of
Weatherly, the Company completed the Refinancing. As a result of the
Refinancing, the Company was required to record an extraordinary expense of $1.0
million net of tax benefits for fiscal 1997, which expense consisted of deferred
finance costs at June 30, 1996 net of accumulated amortization, plus prepayment
penalties.
Net income. Net income increased $659,000, or 26%, to $3.2 million in
fiscal 1997 from $2.5 million in fiscal 1996. This increase was attributable to
successful integration into Easy Gardener of the Easy Gardener and Weatherly organizationsorganization in
fiscal 1997, partially offset by the $1.0 million extraordinary expense, net of
tax benefits, incurred due to the Refinancing.
Net incomeDilutive earnings per common share decreased $.05increased $0.01 to $0.20 in fiscal 1997.197
from $0.19 in fiscal 1996. The decreaseincrease was due primarily to the increase in
income from operations, which was partially attributable to anoffset by increases in interest and
income tax expense and the extraordinary expense of approximately $1.0 million
net of tax benefits or $0.06 per common share in 1997.
Additionally, during fiscal 1997 the Company incurred a tax expense of
approximately $3.2 million, or $0.18 per common share, compared to a tax benefit
of approximately $700,000 or $0.07 per share during 1996 resulting from the
recognition of a deferred tax asset relating to available net loss
carryforwards. The effective income tax rate for fiscal 1997 compared to fiscal
1996 resulted in a $0.25 reduction in net income per common share. The decrease
in net
-18-
income per common share was also adversely affected by the requirement that the
Company use the modified treasury stock method to calculate earnings per share
in 1997. The effect of using the modified treasury stock method in 1997 was to
reduce net income per common share by $0.05. If the modified treasury stock
method hadwhich did not been required, income per common share before income taxes and
extraordinary expenses would have been $0.54 for fiscal 1997 compared to $0.18occur in fiscal 1996.
Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995
Net sales. Net sales increased by $7.3 million, or 37.3%, to $27.0 million
in fiscal 1996 from $19.7 million in fiscal 1995. A majority of the increase in
net sales resulted from the introduction of new landscape edging and shade cloth
products. In addition, the Company believes that its sales were positively
affected by continued penetration in existing markets, expansion into new
markets and a more widespread recognition of the Easy Gardener brand and
products. The increase in net sales also resulted from the inclusion of twelve
months of net sales of Easy Gardener products in the fiscal 1996 period compared
to ten months in the prior fiscal year.
Gross profit. Gross profit increased by $3.8 million, or 36%, to $14.4
million in fiscal 1996 from $10.5 million in fiscal 1995, primarily due to the
increase in net sales, partially offset by the inclusion of twelve months of
Easy Gardener's cost of goods sold in the 1996 period compared to ten months in
fiscal 1995. Gross profit as a percentage of net sales decreased from 54% in
fiscal 1995 to 53% in fiscal 1996. The decrease was due to a change in the
product mix sold and to higher costs, during the 1996 period, of resin and
corrugated cardboard, which are the principal materials used in the
manufacturing and packaging of Weedblock(R).
Selling and shipping expenses. Selling and shipping expenses increased by
$1.9 million, or 43%, to $6.3 million in fiscal 1996 from $4.4 million in fiscal
1995. The increase was primarily the result of the increase in the amount of
product shipped and the inclusion of twelve months of Easy Gardener's selling
and shipping expenses in fiscal 1996 compared to ten months in fiscal 1995. As a
percentage of net sales, selling and shipping expenses increased to 23% for
fiscal 1996 compared to 22% for fiscal 1995. This increase was primarily due to
introductory advertising on new products.
General and administrative expenses. General and administrative expenses
increased by $1.6 million, or 57%, to $4.4 million in fiscal 1996 from $2.8
million in fiscal 1995. General and administrative expenses as a percentage of
net sales increased to 16% in fiscal 1996 from 14% in fiscal 1995. The increase
in general and administrative expenses during fiscal 1996 was primarily a result
of the inclusion of twelve months of Easy Gardener's general and administrative
expenses in fiscal 1996 compared to ten months in fiscal 1995. The increase in
-19-
general and administrative expenses was also due to additional amortization and
depreciation expense, and additional related overhead expenses, associated with
the overall increase in the size of the Company.
Income from operations. Income from operations increased by approximately
$400,000, or 12%, to $3.8 million in fiscal 1996 from $3.4 million in fiscal
1995. As a percentage of net sales, income from operations decreased to 13.9% in
fiscal 1996 from 17.2% in fiscal 1995. The decrease in income from operations as
a percentage of net sales was primarily the result of a slight decrease in gross
profit as a percentage of net sales, combined with more significant increases in
selling and shipping and general and administrative expenses as a percentage of
net sales.
Interest expense. Interest expense increased by $200,000, or 11%, to $2.0
million during fiscal 1996 from $1.8 million during fiscal 1995 primarily as a
result of the inclusion in the 1996 period of twelve months of interest on Easy
Gardener's outstanding indebtedness which was incurred in connection with the
purchase of the assets of EGI in September 1994 when compared to the inclusion
of interest expense for only ten months in the 1995 period. This increase was
partially offset by the February 1995 conversion of $2.0 million of convertible
notes into Common Stock and principal payments of $1.6 million on other notes
payable. The convertible notes and other notes payable were incurred in
connection with the purchase of the assets of EGI in September 1994.
Income taxes. During fiscal 1996, the Company recorded a $715,000 tax
benefit compared to a $38,000 tax expense during the comparable period in 1995
primarily due to the Company's recognition of a deferred tax asset associated
with the federal net operating loss carryforwards. See "Liquidity and Capital
Resources."
Net income. Net income in fiscal 1996 was $2.5 million or $0.25 per share
based on 10,206,000 weighted average common and common equivalent shares
outstanding compared to net earnings of $1.6 million or $.19 per share in fiscal
1995 based on 8,376,000 common and common equivalent shares outstanding. Such
increase was primarily the result of the increase in net sales.
Quarterly Results of Operations and Seasonality
The Company's sales are seasonal due to the nature of the lawn and garden
business, in parallel with the annual growing season. The Company's sales and
shipping are most active from late December through May when home lawn and
garden customers are purchasing supplies for spring planting and retail stores
are increasing their inventory of lawn and garden products. Sales typically
decline by early to mid-summer.
25
Sales of the Company's agricultural products, which were not material for
fiscal 1997, are also seasonal. Most shipments -20-
occur during the period from
March through October (the agricultural cultivation
period).October.
Set forth below is certain unaudited quarterly financial information:
Quarter Ended
-------------------------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except percentages and per share data)
--------------------------------------------------------------------------------------------
September 30, December 31, March 31,June September December March June
30, 1995 199531, 31, 30, 30, 31, 31, 30,
1996 1996 ============= ============= ============ ============1997 1997 1997 1997 1998 1998
--------- -------- ----- ---- --------- -------- ------ -------
Net sales ................................................ $ 3,2655,523 $ 2,7157,416 $20,558 $18,549 $ 10,7607,025 $ 10,2918,513 $23,520 $28,091
Cost of sales ............... 1,555 1,290 5,156 4,670
---------- ----------- ------------ ------------..................... 2,607 3,217 9,025 8,800 3,522 3,857 10,482 12,570
------- ------- ------- ------- ------- ------- ------- -------
Gross profit ................ 1,710 1,425 5,604 5,621...................... 2,916 4,199 11,533 9,749 3,503 4,656 13,038 15,521
Selling, general and administrative
.............. 2,211 2,394 2,753 3,252
---------- ----------- ------------ ------------expenses ........................... 3,264 4,048 5,538 4,894 3,963 4,589 5,967 8,546
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations . (501) (969) 2,851 2,369....... (348) 151 5,995 4,855 (460) 67 7,071 6,975
Investment income ............. 24 10 19................... 26 16 16 17 47 57 245 137
Interest expense .............. (458) (473) (541) (538)
---------- ----------- ------------ ------------.................... (563) (812) (993) (970) (853) (744) (922) (1,044)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes ......................... (935) (1,432) 2,329 1,847... (885) (645) 5,018 3,902 (1,266) (620) 6,394 6,068
Income tax benefit (expense) ................... 100 80 138 397...... 280 195 (2,075) (1,600) 550 250 (2,700) (1,700)
Extraordinary expense .........
---------- ----------- ------------ ------------net ........... (1,007) (1,450)
------- ------- ------- ------- ------- ------- ------- -------
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) ................................ $(1,612) $ (835)(450) $ (1,352)2,943 $ 2,4672,302 $ 2,244
========== =========== ============ ============(716) $ (370) $ 3,694 $ 2,918
======= ======= ======= ======= ======= ======= ======= =======
Diluted Net income (loss)
per share ...share(1) ...................... $ (0.08)(0.12) $ (0.13)(0.03) $ 0.16(1)0.18 $ 0.14(1)
========== =========== ============ ============0.14 (0.05) $ (.02) $ 0.15 $ 0.11
======= ======= ======= ======= ======= ======= ======= =======
Weighted average common and
common equivalent shares
outstanding ................... 9,944 10,200 19,002(1) 19,721(1)
========== =========== ============ ============outstanding(1) ...................... 12,915 13,917 16,059 16,524 14,702 16,384 25,038 25,547
======= ======= ======= ======= ======= ======= ======= =======
Net sales ................................................ 100% 100% 100% 100% 100% 100% 100% 100%
Cost of sales ............... 48% 48% 48% 45%
---------- ----------- ------------ ------------..................... 47.2% 43.4% 43.9% 47.4% 50.1% 45.3% 44.6% 44.7%
------- ------- ------- ------- ------- ------- ------- -------
Gross profit ................ 52% 52% 52% 55%...................... 52.8% 56.6% 56.1% 52.6% 49.9% 54.7% 55.4% 55.3%
Selling, general and administrative .............. 68% 88% 26% 32%
---------- ----------- ------------ ------------59.1% 54.6% 26.9% 26.4% 56.4% 53.9% 25.4% 30.4%
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations . (16%....... (6.3%) (36%2.0% 29.2% 26.2% (6.5%) 26% 27%0.8% 30.0% 24.9%
Investment income ............. 1% 0% 0% 0%................... 0.5% 0.2% 0.1% 0.1% 0.7% 0.7% 1.0% 0.5%
Interest expense .............. (14%.................... (10.2%) (17%(11.0%) (4%(4.8%) (6%(5.3%) ---------- ----------- ------------ ------------(12.1%) (8.7%) (3.9%) (3.7%)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes ....................... (29%... (16.0%) (53%(8.8%) 22% 18%24.5% 21.0% (18.0%) (7.2%) 27.1% 21.7%
Income taxes .................. 3% 3% 1% 4%tax benefit (expense) ........ 5.1% 2.6% (10.1%) (8.6%) 7.8% 2.9% (11.5%) (6.1%)
Extraordinary expense ........................ 18.2% 0% 0% 0% 0% ---------- ----------- ------------ ------------0% 0% (5.2%)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) ............. (26%................... (29.1%) (50%(6.2%) 23% 22%
========== =========== ============ ============
Quarter Ended
-----------------------------------------------------------
(in thousands, except percentages and per share data)
September 30, December 31, March 31, June 30,
1996 1996 1997 1997
============= ============= ============ ============
Net sales ..................... $ 5,523 $ 7,416 $ 20,559 $ 18,549
Cost of sales ............... 2,607 3,217 9,025 8,800
---------- ----------- ------------ ------------
Gross profit ................ 2,916 4,199 11,534 9,749
Selling, general and
administrative .............. 3,264 4,048 5,539 4,894
---------- ----------- ------------ ------------
Income (loss) from operations . (348) 151 5,995 4,855
Investment income ............. 26 17 16 17
Interest expense .............. (563) (813) (993) (970)
---------- ----------- ------------ ------------
Income (loss) before income
taxes ......................... (885) (645) 5,018 3,902
Income tax benefit (expense) 280 195 (2,075) (1,600)
Extraordinary expense ......... (1,007)
---------- ----------- ------------ ------------
Net income (loss) ............. $ (1,612) $ (450) $ 2,943 $ 2,302
========== =========== ============ ============
Net income (loss) per share ... $ (0.12) $ (0.03) $ 0.14(1) $ 0.11(1)
========== =========== ============ ============
Weighted average common and
common equivalent shares
outstanding ................... 12,915 13,917 22,696(1) 22,191(1)
========== =========== ============ ============
Net sales ..................... 100% 100% 100% 100%
Cost of sales ............... 47% 43% 44% 47%
---------- ----------- ------------ ------------
Gross profit ................ 53% 57% 56% 53%
Selling, general and
administrative .............. 59% 55% 27% 26%
---------- ----------- ------------ ------------
Income (loss) from operations . (6%14.3% 12.4% (10.2%) 2% 29% 27%
Investment income ............. 0% 0% 0% 0%
Interest expense .............. (10%(4.3%) (11%) (5%) (6%)
---------- ----------- ------------ ------------
Income (loss) before income
taxes ....................... (16%) (9%) 24% 21%
Income taxes .................. 5% 3% (10%) (9%)
Extraordinary expense ......... (18%) 0% 0% 0%
---------- ----------- ------------ ------------
Net income (loss) ............. (29%) (6%) 14% 12%
========== =========== ============ ============15.6% 10.4%
======= ======= ======= ======= ======= ======= ======= =======
- ----------
(1) Calculated using the modified treasury stock method. To calculate netPursuant to SFAS No. 128, dilutive income per share was calculated using
the treasury stock method except for quarters reporting a net income must be increased by $418,000, $509,000,
$236,000loss. Such
quarters only reflect issued and $213,000 foroutstanding shares of Common Stock in the
quarters ended March 31 and June 30, 1996 and
1997, respectively.weighted average shares outstanding.
Liquidity and Capital Resources
FromSince inception, the Company has financed its operations primarily through
cash generated by operations, net proceeds from the Company's private and public
sales of securities and borrowings from lending institutions.
26
At June 30, 1998, the Company had consolidated cash and short-term
investments totalling $27.1 million and working capital of $46.7 million. At
June 30, 1997, the Company had consolidated cash and short-term investments
totalling $2.1 million and working capital of $2.6$2.3 million. AtThe increase in
working capital at June 30, 1996, the Company had consolidated cash and short-term investments totalling
$680,000 and working capital of $5.3 million. This decrease in working capital1998 was due primarily to the increaseproceeds from the
Company's sale of Subordinated Debentures (as defined below) in notes payable relatingApril 1998 to
the Weatherly
acquisition.
-21-
Trust, which resulted in net proceeds to the Company of approximately $63
million. In addition, during the fiscal year ended June 30, 1998, the Company
sold 4,290,000 shares of common stock in December 1997, which generated net
proceeds to the Company of approximately $16.0 million.
Net cash provided by operating activities for fiscal 19971998 was $10.6$7.8 million,
consisting primarily of net income plus depreciation and amortization and an
extraordinary expense resulting from the Refinancing,payoff of the term debt and an increase
in accounts payable, and a decrease in deferred taxes, offset in part by an increase in accounts receivables.
Net cash used in investing financing activities for fiscal 19971998 was $29.6$29.9
million, consisting primarily of cash used for the asset acquisition of Weatherly.Weed
Wizard, Inc., the purchase of certain assets of Landmaster Products, Inc. and
the purchase of certain assets from the Tensar Corporation and the purchase of
property and equipment and payment for new package design.
Net cash provided by financing activities for fiscal 19971998 was $20.5$47.1
million, consisting primarily of the additional proceeds from the notes payable usedmandatorily redeemable
preferred securities and the proceeds from the issuances of common stock offset
in connectionpart by the payoff of the Term debt.
In April 1998, the Trust, a newly created Delaware business trust and a
wholly-owned subsidiary of the Company, issued 78,000 common securities with a
liquidation amount of $25 per common security to the Company for $1,950,000 and
completed a public offering of 2,530,000 9.4% Cumulative Trust Preferred
Securities with a liquidation amount of $25 per security (the "Trust Preferred
Securities" and together with the purchasecommon securities the "Trust Securities"). The
Trust exists for the sole purpose of Weatherly,issuing Trust Securities and the exercise of warrants to
purchase common stock,using the
proceeds therefrom to acquire the Subordinated Debentures described below.
Concurrent with the issuance of whichthe Trust Securities, the Trust invested the
proceeds therefrom in $65.2 million aggregate principal amount of 9.4% Junior
Subordinated Debentures (the "Subordinated Debentures") issued by the Company.
Interest only payments are due through April 2028 when the entire balance is
due. Approximately $40 million of the proceeds were used primarily for the
purchaseto repay all
outstanding long-term debt and line of Weatherly.
At June 30, 1997 the Company had consolidated term debt of $26.6 million
which includes debt incurred pursuant to the Refinancing and consists of three
outstanding term loans of $20.5 million, $2.3 million and $3.8 million.
In connection with the acquisition of Weatherly,credit advances made under Easy
Gardener entered into
a newGardener's then existing credit agreement ("Credit Agreement"facility (the "Credit Facility") with certain
institutional lenders.
Pursuantlenders, and certain prepayment penalties. As a result of the
early repayment, the Company wrote off deferred financing costs of approximately
$1.4 million and incurred a prepayment penalty of approximately $737,000 during
its quarter ended June 30, 1998 which reduced its reported income. Upon the
Company's repayment of the outstanding indebtedness, the Credit Facility
27
was terminated. Subsequent to June 30, 1998, the Company received a commitment
letter with a lending institution relating to a proposed $25 million revolving
acquisition line of credit and a $20 million revolving line of credit for
working capital. There can be no assurance that the Company will close the new
credit facility on terms acceptable to it, or at all. Failure to obtain a new
credit facility would materially adversely affect the Company's operations.
As of June 30, 1998, the Company had a deferred tax liability of $812,000
primarily relating to depreciation and amortization in excess of the book
amount. The deferred tax asset of $522,000 relates to the Credit Agreement,allowance of accounts
receivable, vacation accrual and certain other balance sheet reserves. See Note
11 to the lenders have providedCompany's consolidated financial statements.
The Company spent approximately $3.4 million, including use of a portion of
existing trade credits, in the fiscal year ending June 30, 1998 on a combination
of media development, print, radio and television advertising, cooperative
advertising (advertising done in conjunction with retailers) and attendance at
trade shows and public relations to promote awareness, understanding and brand
identification of its lawn and garden products.
In fiscal 1998 the Company withauthorized the following revolving credit and term loan facilities:
(a) Revolving Credit Facility: The maximum amount available for
borrowing under this facilityrepurchase from time to time is equalof
up to the lesser1.5 million shares of $13 millionits Common Stock through open market purchases and
a borrowing base determined by reference to specified
percentagesin privately negotiated transactions. To date, approximately 793,000 shares have
been repurchased from non-affiliates in open market transactions of Easy Gardener's consolidated accounts receivable and
inventory deemed to be "eligible" by the lenders. As of June 30, 1997,
based on this formula, $7.4 million was available for borrowing and no
amount was outstanding.which
236,000 shares were purchased during fiscal 1998.
In April 1997, the Revolving Credit Facility was
amended to provideFebruary 1998, the Company with an additional $3.0completed its acquisition of Weed Wizard,
Inc. for a purchase price of approximately $16.0 million, in available
borrowing during the months of February, March, April and May of each
fiscal year. Any additional borrowing must be paid by May 31 of the year in
which borrowed. This additional increase is for the working capital needs
during the peak season months and has the same "eligibility" requirements
as the original amount.
Revolving credit loans bear interest at an annual rate chosen by Easy
Gardenerapproximately
$5.0 million was based on the prime ratevalue of onecertain current assets acquired.
In March 1998, the Company completed its acquisition of the lenders or LIBOR (the London
inter-bank offered rate) plus an applicable marginal rate. Under certain
circumstances, outstanding prime rate loans may be converted to LIBOR rate
loans at the Company's option. At June 30, 1997, the effective annual rate
for outstanding revolving credit loans was 9.75%. The revolving credit
facility expires on June 30, 2002 (the "Expiration Date") and all
outstanding revolving credit loans are then due, unless such loans are
required to be repaid earlier by the terms of the Credit Agreement. In
addition, for a 10-day period in August of each year, all outstanding
revolving credit loans must be paid and no revolving credit loans may be
borrowed. Revolving credit loans may be prepaid at any time. However, if
Easy Gardener elects to terminate the revolving credit facility prior to
the Expiration Date, the outstanding revolving credit loan must be prepaid
together with a premium of from 1% to 2% of the "Average Yearly Loan
Balance" (as defined in the Credit Agreement) of the revolving credit
loans.
-22-
(b) Term Loan Facility: Pursuant to this facility, Easy Gardener
obtained three term loans (the "Term Loans"), one in the principal amount
of $23 million ("Term Loan I"), $20.5 million of which was outstanding at
June 30, 1997, one in the principal amount of $2.3 million ("Term Loan
II"), all of which was outstanding at June 30, 1997, and one in the
principal amount of $3.8 million ("Term Loan III"), all of which was
outstanding at June 30, 1997. Term Loan I and Term Loan II mature on the
Expiration Date. Term Loan III expires in November 1997. Term Loans I and
II are payable in quarterly installments of principal, commencing as to
Term Loan I in September 1996 and as to Term Loan II in September 1998.
Term Loan III is payable in full upon its expiration. Term Loan I bears
interest, at the election of Easy Gardener, at the adjusted prime rate or
LIBOR rate described above, and Easy Gardener may from time to time,
subject to certain restrictions, convert Term Loan I from a prime rate loan
to a LIBOR rate loan. At June 30, 1997, the effective annual rate of
interest for Term Loan I was 9.75%. Term Loan II bears interest at a
floating rate equal to the prime rate of one of the lenders plus 6%. At
June 30, 1997, the effective annual rate of interest for Term Loan II was
14.5%. The annual rate of interest for Term Loan III is 12% and interest is
payable monthly in arrears. Interest on Term Loans I and II is payable
monthly in arrears on prime rate loans and at the end of the interest
period for a LIBOR rate loan if the interest period is three months or less
or on the last day of each three-month interval during the interest period
if it is longer than three months. If Easy Gardener elects to pay Term Loan
I in full at any time prior to the Expiration Date, Easy Gardener is also
obligated to pay a premium of from 1% to 2% of the amount prepaid. Term
Loan I is subject to certain mandatory prepayments of principal from
"excess cash flow" (as defined in the Credit Agreement) of Easy Gardener
and certain net proceeds of asset sales, condemnation awards and insurance
recoveries. Mandatory prepayment of principal of Term Loan I on account of
"excess cash flow", if any, will be due in October of the following fiscal
year. No mandatory prepayment is due in October 1997.
Easy Gardener's obligation to pay the principal of, interest on, premium,
if any, and all other amounts payable on account of the revolving credit loans
and the Term Loans is secured by substantially all
of the assets of Easy
GardenerLandmaster Products, Inc. for a purchase price of approximately
$3.0 million, of which approximately $750,000 was based on the value of certain
net assets acquired.
In May 1998, the Company acquired the lawn and its subsidiaries and the irrevocable guarantiesgarden specialty fencing
product lines of the Company and
Easy Gardener's subsidiaries. Upon the occurrence ofTensar Corporation for $5.4 million plus an event of default
specified in the Credit Agreement, the maturity of the outstanding principal
amounts of the revolving credit loans and the Term Loans may be accelerated by
the lenders who may also foreclose on the secured assets of Easy Gardener and
its subsidiaries.
Under the Credit Agreement (a) Easy Gardener is required, among other
things, to comply with certain limitations on incurring additional
indebtedness,
liens, guaranties, capital and operating lease expenses in excess of a specified
amount per year, and sales of assets and payment of dividends and (b) Easy
Gardener and$977,000 for inventory.
In August 1998, the Company must comply with certain limitations on merger,
liquidations, changes in business, investments, loansentered into a non-binding letter of intent to
purchase Ampro Industries, Inc., a manufacturer and advances, or certain
acquisitiondistributor of subsidiaries. In addition, Easy Gardener must comply with certain
minimum interest coverage, debt serviceoutdoor lawn
and fixed charge rates, not permit its
Net Worth (as defined in the Credit Agreement) to be less than certain amounts
and generate certain minimum amounts of income before interest expenses, taxes,
depreciation and amortization. A violation of
-23-
any of these covenants constitutes an event of default under the Credit
Agreement.garden products. The Company believes that its operations will generate sufficient cash flow
to service the debt incurred in connection with its prior acquisitions. However,
if such cash flow is not sufficient to service such debt, the Company will be
required to seek additional financing which may not be available on commercially
acceptable terms or at all.
As of June 30, 1997, the Company had a net deferred tax asset of $448,000,
the majority of which relates to the tax benefit associated with the accumulated
net operating losses of approximately $1.0 million for Federal income tax
purposes which expire in 2011. For California income tax purposes, the Company
has accumulated net operating losses of approximately $2.2 million which expire
at various times through 2001. Based upon the estimated taxable income to be
apportioned to California over the next few fiscal years and considering the
expiration date of the net operating loss carryovers, the Company has
established a valuation reserve relating to the majority of the estimated
$165,000 benefit associated with the California net operating loss carryovers.
In January 1997, the Company borrowed $550,000 in the aggregate from
certain lenders. The loans were used to satisfy short term working capital
requirements. In July 1997, the Company repaid $200,000 of the loan and the
$350,000 balance was converted into 154,000 shares of Common Stock.
In May 1997, the Company purchased from Plastic Molded Concepts, Inc.
certain assets relating to its Plasti-Chain Line of products for approximately
$4.3 million. Theanticipated purchase price was paid through the use of the Revolving
Credit Facility andis approximately $25 million
with a $3.8 million increase in the Company's term debt. Thepotential additional term debt is payable in November 1997.
Recentpurchase price amount contingent upon future
operating cash flow.
28
New Accounting Pronouncement
In FebruaryJune 1997, the Financial Accounting Standards Board ("FASB") issued
a Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share,"130, Reporting Comprehensive Income (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all times that are required to be recognized under current account
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
SFAS 130 is effective for both interim and annualfinancial statements for periods endingbeginning after
December 15, 1997.1997 and requires comparative information for earlier years to be
restated. Management does not believe that the Company's current financial
statement disclosures will need to be modified based upon current operations.
Results of operations and financial position, however, will be unaffected by
future implementation of this standard.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 128131,
Disclosures about Segments of an Enterprise and Related Information, (SFAS 131)
which supersedes SFAS 14, Financial reporting for Segments of a Business
Enterprises. SFAS 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a calculationcompany about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 131 is effective for financial statements for period beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. The Company believes it operates under one business segment and has
already substantially complied with the required financial segment disclosures.
Results of basic (givingoperations and financial position, however, will be unaffected by
implementation of this standard.
In February 1998, the Financial Accounting Standard Board issued SFAS 132,
Employers' Disclosures about Pensions and Other Post Retirement Benefits. SFAS
132 standardizes the disclosure requirements for pensions and other
post-retirement benefits to the extent practicable, requires additional
information on changes in benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain disclosures that
are no dilutive effectlonger as useful as they were when previous related accounting standards
were issued.
SFAS 132 is effective for financial statements for fiscal years beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated unless the information is not readily available, in which case
the notes to
29
the financial statements should include all available information and a
description of the information not available. Management believes that the
Company's current financial statement disclosures will not need to be modified
based upon current operations. Results of operations and financial position will
be unaffected by implementations of this standard.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 133, requires
companies to recognize all derivatives contracts as either assets or liabilities
in the balance sheet and to measure them at fair value. If certain conditions ar
met, a derivative securities) earnings per share and dilutive
(reflectingmay be specifically designated as a hedge, the dilutiveobjective of
which is to match the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or (ii) the
earnings' effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS 133 is effective for all derivative securities) earnings per
share.fiscal quarters of fiscal
years beginning after June 15, 1999.
Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
plansdoes not expect adoption of this new standard on July 1, 1999 to adopt SFAS No. 128 inaffect its
December 31,
1997 interim financial statements. The Company has not yet determined the effect
that SFAS No. 128 would have had on the earnings per share, if it had been
adopted in the first quarter of fiscal 1997.
Inflation
Inflation has historically not had a material effect on the Company's
operations.
-24-Year 2000
The Company has appointed an internal task force to assess its state of
readiness for possible "Year 2000" issues. The task force is evaluating internal
business systems, software and other components which affect the performance of
the Company's products and the Company's vulnerability to possible "Year 2000"
exposures due to suppliers and other third parties lack of preparedness for the
year 2000.
In addition, the Company has been in contact with its suppliers and other
third parties to determine the extent which they may be vulnerable to "Year
2000" issues. As this assessment progresses, matters may come to the Company's
attention which could give rise to the need for remedial measures which have not
yet been identified. The Company cannot currently predict the potential effect
of third parties "Year 2000" issues on its business. It is expected that
assessment, remediation and contingency planning activities will be on-going
throughout 1998 and 1999 with the goal of appropriately resolving all material
internal systems and third party issues. The Company intends to utilize both
internal and external resources to reprogram, replace and test the systems for
the year 2000 modifications.
30
The Company does not expect expenditures relating to the year 2000 issues
to be material and does not expect costs associated with the year 2000 to have a
significant impact on the Company's results of operations or financial position.
However, there can be no assurance that the Company will not experience
unexpected difficulties in connection with the year 2000 or that the systems of
other companies on which the Company's systems rely will be timely converted.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
This information appears in a separate section of this report following
Part III.IV.
Item 9. Changes in and Disagreement with Accountants on Accounting and Financial
Disclosure.
Not applicable.
-25-31
Part III
Item 10. Directors and Executive Officers of the Registrant.
The current directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Robert Kassel 57Kassel(1) 58 Chairman of the Board, Chief
Executive Officer, President and
Treasurer
Richard Raleigh 43Raleigh(2) 44 Chief Operating Officer and
Director
Maureen Kassel 4950 Vice President of Public Relations
and Advertising, Secretary and
Director
Jon Schulberg 38Schulberg(1)(2) 40 Director
Fred Heiden 56Heiden(1)(2) 57 Director
- ----------
(1) Member, Compensation Committee
(2) Member, Audit Committee
Robert Kassel, co-founded the Company and has been Chairman of the Board, Chief
Executive Officer, President and Treasurer of the Company since October 1990.
In
addition, fromFrom 1985 to August 1991, he was a consultant to Comtel Communications, Inc.
("Comtel"), a company specializing in the installation and operation of
telephone systems in hotels. From 1985 to 1990, Mr. Kassel was also a real
estate developer in Long Island, New York and Santa Barbara, California. From
1965 to 1985, he was a practicing attorney in New York City, specializing in
corporate and securities law.
Richard Raleigh, has been a Director of the Company since March 1993, Chief
Operating Officer of the Company since June 1992 and served as the Company's
Executive Vice President-Operations from December 1991 to June 1992. Prior to
joining the Company, Mr. Raleigh was a free-lance marketing consultant to the
lawn and garden industry from January 1991 to December 1991. From April 1988 to
January 1991, he was Director of Marketing, Lawn and Garden of Monsanto
Agricultural Co. From December 1986 to April 1988 he was Vice President of Sales
and Marketing of The Andersons, a company engaged in the sale of consumer and
professional lawn and garden products. From November 1978 to December 1986, he
held a variety of positions at The Andersons, including Operations Manager and
New Products Development Manager.
Maureen Kassel, the wife of Robert Kassel, co-founded the Company and has been
Vice President of Public Relations and Advertising and a director of the Company
since November 1990 and Secretary
32
of the Company since February 1992. For the last ten years, she has assisted in
the general administration and operation of real estate and other businesses.
Ms. Kassel is Chairman of the Board of Comtel.
Jon Schulberg, a director of the Company since March 1993, has been employed as
presidentPresident of Schulberg MediaWorks, a company engaged in the independent
production of television programs and television advertising since January 1992.
From January 1989 to January 1992, he was a producer for Guthy-RenkerGuthy-Renter
Corporation, a television production company. From September 1987 to January
1989 he was the directorDirector of developmentDevelopment for Eric Jones -26-
Productions. For the three years prior thereto, he was the Director of Video
Publishing for Preview Media.
Fred Heiden, a director of the Company since March 1993, has been a private
investor since November 1989. From April 1984 to November 1989, Mr. Heiden was
the presidentPresident and principalPrincipal owner of Bonair Construction, a Florida based home
improvement construction company.
Certain Key Employees
Richard M. Grandy, 51,52, has been President of Easy Gardener since July 1997 and
served as its Vice President from the date of the Company's acquisition of EGIEasy
Gardener, Inc. in September 1994 until July 1997. Mr. Grandy co-founded EGIEasy
Gardener, Inc. in 1983 after serving as Marketing Director at International
Spike, Inc. from 1977 through 1983. From 1968 through 1977, Mr. Grandy was a
sales representative of lawn and garden products for the Ortho Division of
Chevron Chemical Co.
Lynda Gustafson, 33,34, has been Vice President of Finance of the Company since
September 1997 and served as Controller of the Company from November 1993 to
September 1997. From September 1990 through October 1993 Ms. Gustafson was
Supervisor of the Business Consulting Department of the certified public
accounting firm of Hood & Strong. From September 1988 to August 1990, she has
held the positions of Staff Accountant and Senior Accountant at the certified
public accounting firm of Schwartz, McGuire & Co.
Sheila Jones, 42,43, has been Vice President of Easy Gardener since July 1997 and
has also served as its General Manager from September 1994. Prior to the
acquisition of EGIEasy Gardener, Inc. by the Company, Ms. Jones was employed by
EGIEasy Gardener, Inc. from its inception in September 1983 to September 1994,
where she advanced to the positions of Vice President and General Manager. From
April 1977 to September, 1983, she was employed by International Spike, Inc.,
where she held various project management positions.
Paul Logue, 41,42, has been National Sales Manager of Easy Gardener since the
Company's acquisition of EGIEasy Gardener, Inc. in September 1994. Prior to joining
the Company, Mr. Logue was employed by EGIEasy Gardener, Inc. from September 1989
to September 1994, where he was advanced from the position of Northeastern
Regional Sales Manager to National Sales Manager. From March 1988 to September
1989, he was Regional Sales Manager for Hoffman Brand Fertilizers.
33
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section 16(a) of the Securities Exchange Act of 1934 requires that
Company's officers and directors, and persons who beneficially own more than 10
percent of a registered class of the Company's equity securities, file
certain reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). Officers, directors, and greater than 10 percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms received
by the Company, or representations obtained from certain reporting persons, the
Company believes that during the year ended June 30, 1998 all filing
requirements applicable to its officers, directors, and greater than 10 percent
beneficial stockholders were complied with except that Robert and Maureen Kassel
failed to timely file a Form 5 with respect to the extension of the expiration
date of certain options previously granted to Ms. Kassel that occurred in March
1998 and the disposition to the Company of certain shares of Common Stock owned
of record by Maureen Kassel in repayment of certain expenses. In addition, Ms.
Gustafson failed to timely file a Form 5 to report the grant to her of certain
stock options in February 1998.
Item 11. Executive Compensation
The following table discloses the compensation awarded by the Company, for
the three fiscal years ended June 30, 1996, 1997 1996 and 1995,1998, to Mr. Robert Kassel,
its Chief Executive Officer and Mr. Richard J. Raleigh, its Chief Operating
Officer (theand to Ms. Lynda Gustafson, the Company's Vice President of Finance
(together the "Named Executives"Officers"). During the fiscal 1997,year ended June 30, 1998, no
other executive officer of the CompanyU.S. Home & Garden Inc. received a total salary and bonus that
exceeded $100,000 during such fiscal year.
Summary Compensation Table
Annual Compensation ------------Long-Term Debt
---------------------- --------------
Securities
Underlying All Other
Name and Long Term All Other Principal Position Year Salary ($) Bonus ($) Options (#) Compensation Compensation(1)(1)
- --------------------------------------------- ---- ---------- --------- ----------------------- ---------------
Securities
Underlying
Options (#)
------------
Robert Kassel, 1998 450,000 281,667 468,000(2) $7,523
Chairman, Chief Executive Officer, 1997 350,000 250,000 1,200,000(2)1,200,000(3) $5,995
Chairman, Chief ExecutivePresident and Treasurer 1996 250,000 100,000 200,000(3)200,000(4) --
Officer, President and 1995 150,000 100,000 687,653(4) --
Treasurer
Richard Raleigh, Chief Operating Officer 1998 225,000 115,000 132,500(5) $9,203
1997 195,000 111,275 500,000(2)600,000(3)(6) $8,390
Chief Operating Officer
1996 150,000 10,000 100,000(3)100,000(4) --
1995 120,000Lynda Gustafson, Vice President of Finance 1998 125,000 45,000 50,000 $11,273
1997 101,040 20,000 30,000 $ 7,451
1996 67,500 11,000 10,000 50,000(4) --$ 2,790
- ------------
(1) Represents Company contributions to the Named Executives'Officers 401(k) Account.account.
34
(2) Includes 80,000 options that were originally granted to Mr. Kassel in 1993
and which expiration dates were extended during fiscal 1998.
(3) Includes as to Mr. Kassel 200,000 options previously granted to Mr. Kassel
and as to Mr. Raleigh 100,000 options previously granted to Mr. Raleigh
whose exercise prices were repriced to reflect a reduction in the market
price of the Common Stock at the time of repricing.
Does not include 50,000 options previously granted(4) Includes as to Mr. Raleigh the expiration date of which was extended during fiscal
1997.
(3) IncludesKassel five-year options to purchase 200,000 five-year optionsshares
granted to Mr. Kassel and 100,000as to Mr. Raleigh, five-year options to purchase
100,000 shares granted to Mr. Raleigh in June 1995 under the Company's 1995
Stock Option Plan, which grants were subject to stockholder approval of -27-
the
plan obtained in February 1996.
(4) Does not include(5) Includes 12,500 options that were originally granted to Mr. Raleigh in 1992
the expiration date of which was extended during fiscal 1998.
(6) Includes 50,000 options referenced in footnote (3) above.previously granted to Mr. Raleigh the expiration
date of which was extended during fiscal 1997.
The following table discloses information concerning stock options granted in
the year ended June 30, 1997fiscal 1998 to the Named Executives.Officers.
Option Grants in Fiscal Year Ended June 30, 19971998
Individual Grants
------------------------------------------------
Individual Grants
-----------------------------------------------------------------------Number of Percent of Potential Realizable Number of Value
Securities Total Options at Assumed
Securities Percent of Annual Rates of
Stock
Underlying Total OptionsGranted to Stock Price Appreciation
Options Granted toEmployees in Exercise for Option Term ($)(2)
Granted Employees inFiscal Year Price Expiration ----------------------------------------------------------
Name (#)(1) Fiscal Year(%) ($/Sh) Date 5% 10%
- ---- ----------- -------------- ------------ ---------------------- ------------- -------- ---------- ------ -------
Robert Kassel 350,000 19.8 $2.06 7/24/01 $199,000 $440,000
450,000 25.5 2.06310,000 34.6 3.25 8/30/01 256,000 566,000
200,000 11.3 2.064/02 278,354 615,089
78,000 8.7 3.25 8/4/02 70,037 154,764
80,000(3) 8.9 1.69 12/24/01 114,000 252,000
200,000 11.3 2.06 6/01/00 114,000 252,00031/02 40,804 91,251
Richard Raleigh 125,000 7.0 2.06 7/24/01 71,000 158,000
175,000 9.5 2.06100,000 11.2 3.25 8/30/01 100,000 220,000
100,000 5.7 2.064/02 89,792 198,416
20,000 2.2 3.25 8/4/02 17,958 39,683
12,500(3) 1.4 1.69 12/24/01 57,000 126,000
100,000 5.7 2.06 6/01/00 57,000 126,00031/02 6,376 14,258
Lynda Gustafson 50,000 5.6 4.375 2/5/03 60,437 133,549
- ------------------------------
(1) AllUnless otherwise noted, all of such options were exercisable in full from
the date of grant.
(2) The potential realizable value columns of the table illustrate values that
might be realized upon exercise of the options immediately prior to their
expiration, assuming the Company's Common Stock appreciates at the
compounded rates specified over the term of the options. These numbers do
not take into account provisions of options providing for termination of
the option
35
following termination of employment or nontransferability of the options
and do not make any provision for taxes associated with exercise. Because
actual gains will depend upon, among other things, future performance of
the Common Stock, there can be no assurance that the amounts reflected in
this table will be achieved.
-28-(3) Reflects extension of expiration date of options that were originally
granted on September 15, 1992. All of such options vest in three equal
annual installments commencing August 5, 1998.
36
The following table sets forth information concerning options exercised by the
Named Officers during the fiscal year ended June 30, 1998, and the number of
options owned by the Named ExecutivesOfficers and the value of any in-the-money
unexercised stock options as of June 30, 1997. No stock options were exercised by the Named
Executives during fiscal 1997:
Aggregated Option Exercises
And Fiscal Year-End Option Values
---------------------------------1998:
Aggregated Option Exercises
And Fiscal Year-End Option Values
----------------------------------
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised In-the-Money
Acquired on Value Options at Options at
Exercise(#) Realized ($) June 30, 19971998 June 30, 19979(1)
------------------------------------- ------------------------------------1998(1)
----------- ------------ ---------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Robert 2,067,653 -0- $3,214,598 $-0--- -- 2,297,653 158,000 $10,045,760 $1,128,504
Kassel
Richard 637,500 -0- $887,938 $-0-104,598 249,007 620,411 32,500 $2,603,461 $123,110
Raleigh
Lynda 34,000 69,168 26,000 40,000 $90,638 $82,520
Gustafson
- ----------
(1) Year-end values for unexercised in-the-money options represent the positive
spread between the exercise price of such options and the fiscal year-endyear end
market value of the common stock. Options areAn Option is "in-the-money" if the fiscal
year end fair market value of the Common Stock exceeds the option exercise
price. The last sale price (the fair market value) of the Common Stock on
June 30, 19971998 was $3.375$6.438 per share.
37
Employment Agreements
The Company has entered into employment agreements with Messrs. Kassel and
Raleigh, each dated as of April 1, 1996. Mr. Kassel currently serves as Chief
Executive Officer and President pursuant to the employment agreement for a term
expiring inon March 31, 1998,1999, subject to certain renewal provisions. His current
annual salary is $350,000,$450,000, and is subject to such bonuses and increases as are
approved at the discretion of the Board of Directors. Mr. Raleigh currently
serves as Chief Operating Officer pursuant to the employment agreement for a
term expiring inon March 31, 1998,1999, subject to certain renewal provisions. His
current annual salary is $195,000,$250,000, and is subject to such bonuses and increases
as are approved at the discretion of the Board.Board of Directors. Each of the
employment agreements requires that substantially all of the employee's business
time be devoted to the Company and that the employee not compete, or engage in a
business competitive with, the Company's current or anticipated business for the
term of the agreement and for two years thereafter (although they each may own
not more than 5% of the securities of any publicly traded competitive company).
Each of Mr. Kassel and Mr. Raleigh is, in addition to salary, entitled to
certain fringe benefits, including the use of an automobile and payment of
related expenses.
Mr. Kassel's employment agreement also provides that if his employment is
terminated under certain circumstances, including termination of Mr. Kassel upon
a change of control of the Company, (as defined -29-
in the agreement), a failure by
the Company to comply with its obligations under the agreement, the failure of
the Company to obtain the assumption of the agreement by any successor
corporation, or a change in Mr. Kassel's duties and obligations from those
contemplated by the agreement, and termination by the Company of Mr. Kassel's
employment other than for disability or cause, he will be entitled to receive
severance pay equal to the greater of (i) $350,000 ($3,500,0003.5 million in the event of
a change of control), or (ii) the total compensation earned by Mr. Kassel from
the Company during the one-year period (multiplied by ten in the event of a
change of control) prior to the date of his termination.
Mr. Raleigh's employment agreement also provides that if his employment is
terminated under certain circumstances, including termination of Mr. Raleigh
upon a change of control of the Company, (as defined in the agreement) a failure
by the Company to comply with its obligations under the agreement, the failure
of the Company to obtain the assumption of the agreement by any successor
corporation, or a change in Mr. Raleigh's duties and obligations from those
contemplated by the agreement, and termination by the Company of Mr. Raleigh's
employment other than for disability or cause, he will be entitled to receive
severance pay equal to the greater of (i) $162,500 ($812,500 in the event of a
change of control), or (ii) the total compensation earned by Mr. Raleigh from
the Company during the one-year period (multiplied by five in the event of a
change of control) prior to the date of his termination.
Each of Mr. Kassel and Mr. Raleigh38
The Company has entered into an employment agreement with Ms. Gustafson
which provides for her continued employment through June 30, 1999. Her current
annual base salary is in addition to salary, entitled to
certain fringe benefits, including the use of an automobile and payment of
related expenses.$148,000.
Easy Gardener has entered into a four-yearan employment agreement with Mr. Grandy,
dated as of September 1, 1994,1998 which expires on August 31, 1998.2003. Mr. Grandy
currently serves as President of Easy Gardener. His currentThe agreement provides for Mr.
Grandy to receive an annual base salary is $200,000.of $275,000, $300,000, and $330,000
during the first three years of the agreement and $350,000 thereafter. The
agreementAgreement requires Mr. Grandy to devote substantially all of his business time
to Easy Gardener, and in the event Mr. Grandy's employment agreement is
terminated by Easy Gardener without "Cause"cause (as defined in the agreement) or if
Mr. Grandy resigns with "Good Reason" (as defined in the agreement), Mr. Grandy
will be entitled to receive his base salary through the expiration of the
agreement.
Committees of the Board of Directors
TheDuring fiscal 1998 the Company recently established an Audit Committee comprised of
Messrs. Raleigh, SchulbergHeiden and Heiden.Schulberg. The Audit Committee will, among other
things, make recommendations to the Board of Directors with respect to the
engagement of the Company's independent certified public accountants and the
review of the scope and effect of the audit engagement. TheDuring fiscal 1998 the
Company has recently established a Compensation Committee of its Board of Directors,
consistingcomprised of Messrs. Kassel, HeidenSchulberg and Schulberg.Heiden. The Compensation Committee
will, among other things, make recommendations to the Board of Directors with
respect to the compensation of the executive officers of the Company. The
Company maintains a Stock Option Committee comprised of Messrs. Schulberg and
Heiden, which
-30-
determines the persons to whom options should be granted under the
Company's 1995 and 1997 Stock Option Plans and the number and other terms of
options to be granted to each person under such plans.
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions
The Company did not have aCompany's Compensation Committee of its Board of Directors during fiscalconsisting
of Messrs. Kassal, Schulberg and Heiden, was established in September 1997.
DecisionsPrior thereto, decisions as to compensation during fiscal 1997 were made by the Company's Board of
Directors. Prior to the establishment of the compensation committee, Messrs.
Kassel and Raleigh, in their capacity as directors, each participated in the
deliberations of the Board of Directors deliberations concerning compensation of executive officers
for fiscal 1997.1998. During fiscal 1997,1998, none of the executive officers of the
Company served on the Board of Directors or the compensation committee of any
other entity, any of whose officers has served on the Board of Directors of the
Company.
Stock Option Plans
In September 1991, the Company adopted a stock option plan (the "1991
Plan") pursuant to which 700,000 shares of Common Stock have been reserved for
issuance upon the exercise of options designated as either (i) options intended
to constitute incentive stock options ("ISOs") under the Internal Revenue Code
of 1986, as amended (the "Code") or (ii) non-qualified options ("NQO's"). ISOs
may be granted under the Option1991 Plan to employees and officers of the Company.
NQO's may be granted to
39
consultants, directors (whether or not they are employees), employees or
officers of the Company.
The purpose of the 1991 Plan is to encourage stock ownership by certain
directors, officers and employees of the Company and certain other persons
instrumental to the success of the Company and give them a greater personal
interest in the success of the Company. The 1991 Plan is administered by the
Board of Directors. The Board, within the limitations of the 1991 Plan,
determines the persons to whom options will be granted, the number of shares to
be covered by each option, whether the options granted are intended to be ISOs,
the duration and rate of exercise of each option, the option purchase price per
share and the manner of exercise, the time, manner and form of payment upon
exercise of an option, and whether restrictions such as repur chaserepurchase rights in the
Company are to be imposed on shares subject to options.
ISOs granted under the 1991 Plan may not be granted at a price less than
the fair market value of the Common Stock on the date of grant (or 110% of fair
market value in the case of per sonspersons holding 10% or more of the voting stock of
the Company). The aggregate fair market value of shares for which ISOs granted
to any employee are exercisable for the first time by such employee during any
calendar year (under all stock option plans
-31-
of the Company and any related
corporation) may not exceed $100,000. NQO's granted under the 1991 Plan may not
be granted at a price less than the fair market value of the Common Stock on the
date of grant. Options granted under the 1991 Plan will expire not more than ten
years from the date of grant (five years in the case of ISOs granted to persons
holding 10% or more of the voting stock of the Company). An aggregate of 562,000522,000
options were outstanding under the 1991 Plan at June 30, 1997.1998.
The Company has adopted, a Non-Employee Director Stock Option Plan (the
"Director Plan"). Only non-employee directors of the Company are eligible to
receive grants under the Director Plan. The Director Plan provides that eligible
directors automatically receive a grant of options to purchase 5,000 shares of
Common stock at fair market value upon first becoming a director and,
thereafter, an annual grant, in January of each year, of 5,000 options at fair
market value. Options to purchase an aggregate of up to 100,000 shares of Common
Stock are available for the automatic grants under the Director Plan. An aggregate
of 20,00010,000 options were outstanding under the Director Plan at June 30, 1997.1998.
The Company has also adopted a 1995 Stock Option Plan ("1995 Plan") which
provides for grants of options to purchase up to 1,500,000 shares of Common
Stock. The Board of Directors or the Stock Option Committee (the "Committee") of
the 1995 Plan,,
as the case may be, will have discretion to determine the number of shares
subject to each NQO (subject to the number of shares available for grant under
the 1995 Plan and other limitations on grant set forth in the 1995 Plan), the
exercise price thereof (provided such price is not less than the par value of
the underlying shares of Common Stock), the term thereof (but not in excess of
10 years from the date of grant, subject to earlier termination in certain
circumstances), and the manner in which the option becomes exercisable (amounts,
intervals and other conditions). Directors who are employees of the Company will
be eligible to be granted
ISO's40
ISOs or NQO'sNQOs under such plan. The Board or Committee, as the case may be, also
has discretion to determine the number of shares subject to each ISO, the
exercise price and other terms and conditions thereof, but their discretion as
to the exercise price, the term of each ISO and the number of ISOs that may vest
may be limited in any year by the same Code provisions applicable to ISOs
granted under the 1991 Plan. An aggregate of 1,459,000 options were outstanding
under the 1995 Plan at June 30, 1998.
The Company has adopted a 1997 Stock Option Plan ("1997 Plan") which
provides for grants of options to purchase up to 1,500,000 shares of Common
Stock. The Board of Directors or the Committee of the 1997 Plan, as the case may
be, will have discretion to determine the number of shares subject to each NQO
(subject to the number of shares available for grant under the 1997 Plan and
other limitations on grant set forth in the 1997 Plan), the exercise price
thereof (provided such price is not less than the par value of the underlying
shares of Common Stock), the term thereof (but not in excess of 10 years from
the date of grant, subject to earlier termination in certain circumstances), and
the manner in which the option becomes exercisable (amounts, intervals and other
conditions). Directors who are employees of the Company will be eligible to be
granted ISOs or NQOs under such plan. The Board or Committee, as the case may
be, also has discretion to determine the number of shares subject to each ISO,
the exercise price and other terms and conditions thereof, but their discretion
as to the exercise price, the term of each ISO and the number of ISOs that may
vest may be in any year is limited by the same provisions of the Code applicable to IS0s granted under the 1991 Plan. An
aggregate of 1,385,000 options were outstanding under the 1995 Plan at June 30,
1997.
The Company has adopted a 1997 Stock Option Plan ("1997 Plan") which
provides for grants of options to purchase up to 1,500,000 shares of Common
Stock. The Board of Directors or the Committee of the 1997 Plan, as the case may
be, will have discretion to determine the number of shares subject to each
nonqualified option (subject to the number of shares available for grant under
the 1997 Plan and other limitations on grant set forth in the 1997 Plan), the
exercise price thereof (provided such price is not less than the par value
-32-
of the underlying shares of Common Stock), the term thereof (but not in excess
of 10 years from the date of grant, subject to earlier termination in certain
circumstances), and the manner in which the option becomes exercisable (amounts,
intervals and other conditions). Directors who are employees of the Company will
be eligible to be granted incentive stock options or nonqualified options under
such plan. The Board or Committee, as the case may be, also has discretion to
determine the number of shares subject to each ISO, the exercise price and other
terms and conditions thereof, but their discretion as to the exercise price, the
term of each ISO and the number of ISOs that may vest may be in any year is
limited by the same provisions of the Code applicable to
ISOs granted under the 1991 Plan. An aggregate of 500,000565,000 options were
grantedoutstanding under the 1997 Plan subsequent toat June 30, 1997.
To date, no options have been exercised under the Option Plan, the Director
Plan, the 1995 Plan or the 1997 Plan.1998.
The Company from time to time has also granted non-plan options to certain
officers, employees and consultants. As of June 30, 1998, approximately 2.4
million non-plan options were outstanding.
Director Compensation
During the fiscal year ended June 30, 19971998 each of the Company's two non-employee directors,
Messrs. Schulberg and Heiden, received $5,000 for serving as directors of the
Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information at September 25, 1997,21, 1998, based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by the
Company to be the owner of more than 5% of the outstanding shares of Common
Stock, (ii) each director, (ii)(iii) each Named ExecutiveOfficer and (iv) all executive
officers and directors as a group.
-33-41
Amount and Nature
of
Name and Address of Beneficial Percentage
of Beneficial Owner Ownership(1)(2) of Class
- ------------------- --------------- ------------------------ ------------- ----------
Maureen Kassel(3) 910,650(4) 5.8Kassel 535,383(3) 2.5
Robert Kassel(3) 4,712,095(5)(6) 26.8Kassel 4,478,162(4)(5) 19.3
Richard Raleigh 743,320(7) 4.6647,578(6) 3.0
Lynda Gustafson 26,000(7) *
Fred Heiden 7,500(8)258 *
Jon Schulberg 7,500(9)258 *
Joseph Owens II 1,064,396(10) 6.51,114,396(8) 5.3
Richard Grandy 1,064,396(10) 6.5
Alan Stahler 899,368(11) 5.61,114,396(8) 5.3
Warburg Pincus Asset
Management, Inc. (9) 1,310,500(9) 6.2
All executive officers
and directors as a
group (five persons) 5,795,415(4)5,314,589(3)(4)(5)(6) 28.3
(7)(8)(9)(10) 20.6
- ----------
*less than 1%
- --------------------------------------------------------------------------------
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from September 25, 199721, 1998 upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other per son)person) and which are
exercisable within 60 days from September 25, 199721, 1998 have been exercised.
(3) The address of Maureen and Robert Kassel is c/o the Company.
(4) Includes presently exercisable options and warrants issued to Ms. Kassel to purchase
an aggregate of 325,000188,333 shares of the Company's Common Stock.
(5)(4) Of such shares, (i) 585,650347,050 are owned of record by Maureen Kassel; however,
because Ms. Kassel has appointed her husband as her proxy and
attorney-in-fact to vote all 585,650347,050 of the shares owned of record by her,
Robert Kassel may also be deemed to have beneficial ownership of such
shares; (ii) an aggregate of 914,396 shares are owned of record by each of
Messrs. Joseph Owens and Richard Grandy, who have each entered into a
voting trust agreement (the "Voting Agreement") -34-
providing Mr. Kassel with
the right to vote the shares until September 1, 2001. The address of Mr.
Kassel is c/o the Company.
42
(5) Includes 2,302,320 shares of Common Stock issuable to Mr. Kassel upon
exercise of options and warrants.
(6) Includes 2,297,653644,578 shares of Common Stock issuable to Mr. Raleigh upon
exercise of options and warrants.
(7) Represents shares of Common Stock issuable upon exercise of options and warrants.
(7) Includes 726,320 sharesgranted
to Ms. Gustafson who is a Named Officer but not an executive officer of Common Stock issuable upon exercise of options
and warrants.the
Company.
(8) Includes 7,500 shares of Common Stock issuable upon exercise of options.
(9) Includes 7,500 shares of Common Stock issuable upon exercise of options.
(10) Includes 125,000175,000 shares of Common Stock issuable to each of Messrs. Grandy
and Owens upon exercise of options. The address of Mr. Grandy is c/o the
Company. The address of Mr. Owens is 8 Hillendale, Waco, Texas 76710.
(11) The address for Mr. Stahler is 44 Wall Street, New York, New York 10005.
Includes shares issuable upon the exercise of (i) options(9) According to purchase an
aggregate of 89,441 shares of Common Stock underlying a five-year Unit
Purchase Option granted on August 12, 1993 ("1993 Unit Purchase Option")
and (ii) options to purchase up to 785,094 shares underlying a five-year
Unit Purchase Option granted on August 29, 1994 ("1994 Unit Purchase
Option"). Also includes options to purchase an aggregate of 24,833 shares
underlying additional 1993 Unit Purchase Options granted to D.H. Blair &
Co., Inc. Mr. Stahler is the Vice-Chairman and he and his wife are
stockholders of D.H. Blair and Co., Inc. The information with respect to
Mr. Stahler is derived from his Schedule 13D13G filed with the Securities and Exchange
Commission.
-35-
Commission, the shares are held by accounts for which Warburg Pincus Asset
Management, Inc. acts as investment advisor. The address of Warburg Pincus
Asset Management, Inc. is 466 Lexington Avenue, New York, New York 10017.
(10) Excludes shares owned by Lynda Gustafson, the Company's Vice President of
Finance.
Item 13. Certain Relationships and Related Transactions.
To obtain a portion of the financing for the Company's acquisition of EGI,
Mr. Kassel provided for the benefit of the lender $500,000 cash collateral and a
personal guarantee of $333,000. in consideration of providing such collateral
and guarantee, the Company granted Mr. Kassel options to purchase an aggregate
of 526,300 shares of Common Stock for an aggregate exercise price of
approximately $822,000.
In connection with certain acquisitions, during the fiscal year ended June
30, 1997, the Company granted five year non-plan options to Messrs. Kassel and
Raleigh to purchase an aggregate of 650,000 and 275,000 shares of Common Stock,
respectively, at an exercise price of $2.0625 per share.
From time to time Messrs. Kassel and Raleigh have borrowed monies from the
Company. During the fiscal year ended June 30, 1997,1998, the highest amount owed to the Company by Messrs.
Kassel and Raleigh were $607,472$605,764 and $225,294,$244,038, respectively, and atwhich amounts were
outstanding on September 26, 1997, the balance of such indebtedness was
$556,452 and $235,653, respectively.21, 1998. The loans bear interest at 7% per annum and
mature on July 1,June 30, 2002. CompanyMessrs. Kassel and Raleigh will make annual payments of
interest on the outstanding principal balance of their loans to all officersthrough the
maturity date. In addition, payments of principal will be made during each of
the Company are
restricted to a maximum of $850,000 by the termsfirst four years and on maturity of the Credit Agreement. The
Company's Boardloans as follows: As to Mr. Kassel
- -- $50,000, $50,000, $50,000, $100,000, $150,000 and the balance of
Directors has adopted a policy pursuantapproximately $205,919, respectively. As to which any loan
betweenMr. Raleigh, $25,000, $25,000,
$50,000, $50,000 and the Company and one or morebalance of its officers or directors, or any third
party in which one or more or its officers or directors has a material interest,
must be approved by a majority of the disinterested members of the Audit
Committee, or the Board of Directors.approximately $85,608, respectively.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Exhibits
Exhibit No.
- -----------
3.1 Certificate of Incorporation, as amended.**
3.2 By-laws of the Company, incorporated by reference to
Exhibit 3(b) of the Company's Registration Statement on
Form S-1 (Registration No. 33-45428).
4.1 Form of certificate evidencing Common Stock,
$.001 par value, of the Company,
incorporated by reference to
43
Exhibit 4(a)4.1 of the Company's Registration Statement on
Form S-1 (Registration No. 33-45428)333-38483).
-36-
4.34.2 Form of Unit Purchase Option granted to D.H. Blair &
Co.**
4.4 Form of Public Warrant Agreement with respect to Class A
Warrants.**
4.54.3 Warrant Agreement with respect to Class B Warrants.,
incorporated by reference to Exhibit 4(c) of the
Company's Registration Statement on Form S-3
(Registration No. 33-89800).
9.1 Voting Agreement among Joseph A. Owens, II, the
Company, and Robert Kassel.+
9.2 Voting Agreement among Richard M. Grandy, the Company
and Robert Kassel.+
10.1 Employment Agreement of Robert Kassel.++
10.2 Employment Agreement of Richard Raleigh.++
10.3 Employment Agreement of Lynda Gustafson.
10.4 Employment Agreement of Richard Grandy.
10.410.5 1991 Stock Option Plan, incorporated by reference to
Exhibit 10.5 of the Company's Registration Statement on
Form S-1 (Registration No. 33-45428).
10.510.6 1995 Stock Option Plan.*
10.610.7 Non-Employee Director Stock Option Plan.*
10.710.8 1997 Stock Option Plan, incorporated by reference to
Exhibit A to the Company's proxy statement dated May 27,
1997.
10.810.9 Asset Purchase Agreement dated as of June 18, 1994 among
the Company, Easy Gardener Acquisition Corp., Joseph A.
Owens II, Richard M. Grandy and Easy Gardener, Inc.+
10.910.10 Lease with respect to the Company's executive offices,
incorporated by reference to Exhibit 10.14 of the
Company's Form 10-KSB for the fiscal year ended June 30,
1992.
10.1010.11 February 8, 1995 modification to lease with respect to
the Company's executive offices.*
10.1110.12 May 6, 1997 modification to lease with respect to the
Company's executive offices.
10.12+++
10.13 Lease with respect to Weatherly's warehouse facilities
in Paris, Kentucky.
-37-+++
44
10.1310.14 Form of Mergers and Acquisitions Agreement between the
Company and D.H. Blair Investment Banking Corp.**
10.1410.15 Underwriting Agreement dated as of April 16, 1996 betweenDecember 10, 1997
among the Company, Everen Securities, Inc. and
The
Intrac Group.++
10.15 CreditJosephthal & Co., Inc. (incorporated by reference to
Exhibit 1.1 filed with the Company's Registration
Statement on Form S-1, No. 333-38483).
10.16 Underwriting Agreement dated April 13, 1998 among Easy Gardener, the
Company, The Provident
Bank, as AdministrativeEveren Securities, Inc., Hambrecht & Quist and
Collateral Agent,and The Provident
Bank and other certain lending institutions, dated as of
August 9, 1996.Josephthal & Co., Inc.++++
10.16 First Amendment, dated April 3, 1997 to the Credit Agreement.
10.17 Second Amendment, dated May 9, 1997 to the Credit Agreement.
10.18 Third Amendment, dated June 30, 1997 to the Credit Agreement.
10.19 Lease and lease extension agreements between Crawford-
Austin Mfg. Co. and Easy Gardener.*
10.2010.18 Warehouse Lease, dated May 7, 1997,26, 1998 between Weatherly Consumer
Products, Inc. and Sarah C.
Lear.
10.21Leer and Easy Gardener, Inc.
10.19 Purchase Agreement, dated as of August 9, 1996, by and
among the Company, Easy Gardener, Weatherly and the
Weatherly Stockholders (incorporated by reference to
Exhibit 10.1 filed with the Company's Form 8-K for the
event dated August 9, 1996)
10.22.
10.20 Purchase Agreement, dated as of May 9, 1997, by and
among the Company, Easy Gardener and Plastic Molded
Concepts, Inc.+++
10.21 Lease Extension, dated October 16, 1997, between Easy
Gardener and Crawford-Austin Mfg. Co. (incorporated by
reference to Exhibit 10.22 filed with the Company's
Registration Statement on Form S-1, No. 333-38483).
10.22 Assets Purchase Agreement dated as of February 25, 1998
by and among the Company, Weed Wizard, Weed Wizard, Inc
and the Weed Wizard stockholders (incorporated by
reference to exhibit 10.1 filed with the Company's Form
8-K for the event dated February 26, 1998).
10.23 Assets Purchase Agreement dated as of March 20, 1998 by
and among Easy Gardener, Inc., Landmaster Products,
Inc., Wayne Murray and Quincy McMillian.++++
10.24 Commercial Building Lease, dated June 12, 1998 between
Easy Gardener, Inc. and Norman Adams, James Anderson,
Donald Bryan and Pamela Butler.
10.25 Form of Subordinated Indenture between the Company and Wilmington
Delaware Trust, as trustee.++++
21 Subsidiaries of the Company.++++
23 Consent of BDO Seidman, LLP.
45
27 Financial Data Schedule (for SEC use only).
- ----------
* Incorporated by reference to the comparable exhibit filed with the Company's
Form 10-KSB for the fiscal year ended June 30, 1995.
** Incorporated by reference to the exhibit filed under the same number in the
Company's Registration Statement on Form SB-2 (file no. 33-61984).
+ Incorporated by reference to the exhibit contained in the Current Report on
form 8-K filed by the Company for the event dated September 1, 1994.
-38-
++ Incorporated by reference to the applicable exhibit contained in the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1996.
+++ Incorporated by reference to the exhibit filed with the Company's Form 10-K
for the fiscal year ended June 30, 1997.
++++ Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (File No. 333-48519).
(b) Report on Form 8-K. No reports onA Form 8-K were8-K/A was filed by the Company during its
fiscal quarter ended June 30, 1997.
-39-1998 to report the financial statements of Weed
Wizard, Inc. and related pro forma financial statements pursuant to Item 7 of
the Form 8-K.
46
U.S.U.S Home & Garden Inc. and Subsidiaries
Index to Consolidated Financial StatementsContents
================================================================================
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements
Consolidated balance sheets as of June 30, 19961997 and
1997 F-3 - F-41998 F-3-F-4
Consolidated statements of income for the years
ended June 30, 1995, 1996, 1997 and 19971998 F-5
Consolidated statements of stockholders' equity
for the years ended June 30, 1995, 1996, 1997 and 19971998 F-6 - F-7
Consolidated statements of cash flows for the years
ended June 30, 1995, 1996, 1997 and 1997 F-8 - F-91998 F-7-F-8
Summary of accounting policies F-10 - F-15F-9-F-14
Notes to consolidated financial statements F-16 - F-39F-15-F-34
Consolidated Financial Statement Schedules
Schedule II--valuationF-35
Schedule II-valuation and qualifying accounts F-40
Note: All other schedules have been omitted since the
required information is contained in the
Consolidated Financial Statements or because such
schedules are not required.
F-1
Report of Independent Certified Public Accountants
Board of Directors
U.S. Home & Garden Inc. and Subsidiaries
San Francisco, California
We have audited the accompanying consolidated balance sheets of U.S. Home &
Garden Inc. and Subsidiaries as of June 30, 19961997 and 1997,1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 30, 1997.1998. We have also audited
Schedule II - Valuation and Qualifying Accounts (the Schedule). These financial
statements and the Schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the scheduleSchedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Home & Garden
Inc. and Subsidiaries at June 30, 19961997 and 1997,1998, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 19971998 in conformity with generally accepted accounting principles.
Also, in our opinion, the Schedule presents fairly, in all material respects,
the information set forth therein.
/s/ BDO Seidman, LLP
-----------------------
BDO Seidman, LLP
San Francisco, California
August 1, 1997, except for Note 15 which
is as of September 15, 199712, 1998
F-2
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Balance Sheets
================================================================================
Consolidated Balance Sheets
====================================================================================================================================
June 30, 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Assets (Notes 1 and 6)
Current
Cash and cash equivalents $ 680,0002,083,000 $ 2,083,00027,130,000
Accounts receivable, less allowance for doubtful accounts and sales
returns of $155,000$314,000 and $314,000 7,109,000$399,000 (Note 2) 11,542,000 17,350,000
Inventories (Note 3) 3,392,000 5,254,000 11,763,000
Prepaid expenses and other current assets 462,000 419,000 1,130,000
Deferred tax asset (Note 10) 1,333,00011) 448,000 522,000
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total current assets 12,976,000Current Assets 19,746,000 57,895,000
Furniture, fixturesFixtures and equipment,Equipment, net (Note 4) 1,216,000 2,315,000 3,590,000
Intangible assetsAssets (Note 1)
Excess of cost over net assets acquired, net (Note 5) 15,784,000 41,834,000 58,864,000
Deferred financing costs, net of accumulated amor-
tizationamortization of
$467,000$302,000 and $302,000 1,005,000$21,000 (Note 14) 1,621,000 3,186,000
Product rights, patents and trademarks, net of accumulated
amortization of $56,000$75,000 and $75,000 198,000$93,000 180,000 165,000
Non-compete agreement, net of accumulated amortization of $22,000
--and $48,000 478,000 462,000
Package design, net of accumulated amortization
of $56,000$110,000 and $110,000 180,000$247,000 251,000 718,000
Trade creditsCredits (Note 2) 1,295,00012) 1,149,000 944,000
Officer receivablesReceivables (Note 7) 617,0008) 694,000 850,000
Other assets 313,000Assets 207,000 139,000
- -----------------------------------------------------------------------------------
$33,584,000 $68,475,000
===================================================================================------------------------------------------------------------------------------------------------------------------------------------
$ 68,475,000 $126,813,000
====================================================================================================================================
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Balance Sheets
================================================================================
Consolidated Statements of Income
====================================================================================================================================
June 30, 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity (Note 1)
Current
Line of credit (Notes 1, 6 and 13)14) $ 1,288,000-- $ --
Current maturities of notes payable (Notes 1, 6 and 13) 2,362,00014) 8,990,000 --
Accounts payable 1,285,000 1,774,000 4,501,000
Accrued expenses 901,000 3,983,0004,244,000 3,922,000
Accrued co-op advertising 185,000 1,098,000 645,000
Accrued commissions 546,000 859,000 Accrued interest (Note 6) 592,000 261,0001,106,000
Accrued purchase consideration (Note 1) 489,000 489,000978,000
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 7,648,000Current Liabilities 17,454,000 11,152,000
Accrued purchase considerationPurchase Consideration (Note 1) 978,000 --
978,000
Deferred tax liabilityTax Liability (Note 10) 328,00011) 547,000 812,000
Notes payable,Payable, less current maturities (Notes 1, 6 and 13) 6,238,00014) 17,570,000 --
Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trust Holding Solely Junior Subordinated Debentures (Notes 7 and 14) -- 63,250,000
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 14,214,000Liabilities 36,549,000 75,214,000
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Commitments, contingencyContingency and subsequent
eventsSubsequent Events (Notes 1, 6, 8, 9, 10 and 15)16) -- --
Stockholders' equityEquity (Note 9)10)
Convertible Preferred stock, $.001 par value - sharesvalue-shares authorized, 1,000,000; no
shares outstanding -- --
Common stock, $.001 par value - sharesvalue-shares authorized, 30,000,000; 10,507,00075,000,000;
14,073,000 and 14,073,00020,133,000 shares issued and outstanding at June 30,
19961997 and 1997 11,0001998 14,000 20,000
Additional paid-in capital 21,413,000 30,783,000 50,153,000
Retained earnings (deficit) (2,054,000) 1,129,000 2,733,000
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
31,926,000 52,906,000
Less: Treasury Stock, 236,000 shares at cost -- (1,307,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 19,370,000Stockholders' Equity 31,926,000 51,599,000
- -----------------------------------------------------------------------------------------
$ 33,584,000------------------------------------------------------------------------------------------------------------------------------------
$ 68,475,000 =========================================================================================$ 126,813,000
====================================================================================================================================
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statements of Income
================================================================================
Years endedConsolidated Balance Sheets
=======================================================================================================================
June 30, 1995 1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net salesSales (Note 11) $ 19,692,000 $ 27,031,000 $ 52,046,0002) $27,031,000 $52,046,000 $67,149,000
Cost of sales 9,151,000Sales (Note 2) 12,670,000 23,649,000 30,431,000
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Gross profit 10,541,000Profit 14,361,000 28,397,000 36,718,000
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Operating expensesExpenses
Selling and shipping 4,374,000 6,264,000 11,232,000 14,205,000
General and administrative 2,778,000 4,348,000 6,513,000 8,860,000
- ----------------------------------------------------------------------------------------
7,152,000-----------------------------------------------------------------------------------------------------------------------
10,612,000 17,745,000 23,065,000
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Income from operations 3,389,000Operations 3,749,000 10,652,000 13,653,000
Other income (expense)Income (Expense)
Investment income 34,000 69,000 76,000 486,000
Interest expense (Note 6) (1,810,000)(Notes 6 and 7) (2,009,000) (3,338,000) (3,563,000)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Income before income taxesIncome Taxes and extraordinary expense 1,613,000Extraordinary Expense 1,809,000 7,390,000 10,576,000
Income tax (expense) benefitTax (Expense) Benefit (Note 10) (38,000)11) 715,000 (3,200,000) (3,600,000)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary expense 1,575,000Extraordinary Expense 2,524,000 4,190,000 6,976,000
Extraordinary expense of $1,459,000 and $2,185,000 on debt
refinancing,refinancings, net of income taxes of $452,000 and $735,000
(Note 13) -- --14) - (1,007,000) (1,450,000)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,575,000 $ 2,524,000 $ 3,183,000 ========================================================================================$ 5,526,000
=======================================================================================================================
Basic earnings per share:
Income per common share before extraordinary expense
(Note 14) $ .1915) $ 0.25 $ .260.31 $ 0.39
Extraordinary expense (Notes 1314 and 14) -- -- (.06)15) - ----------------------------------------------------------------------------------------(0.08) (0.08)
- -----------------------------------------------------------------------------------------------------------------------
Net income per common share (Note 14) $ .1915) $ 0.25 $ .200.23 $ 0.31
=======================================================================================================================
Diluted earnings per share:
Income per common share before extraordinary expense
(Note 15) $ 0.19 $ 0.26 $ 0.31
Extraordinary expense (Notes 14 and 15) - ----------------------------------------------------------------------------------------
Weighted average(.06) (.07)
- -----------------------------------------------------------------------------------------------------------------------
Net income per common and common
equivalent shares outstandingshare (Note 14) 8,376,000 10,206,000 17,908,000
- ----------------------------------------------------------------------------------------15) $ 0.19 $ 0.20 $ 0.24
=======================================================================================================================
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
================================================================================
Consolidated Statements of Stockholders' Equity
====================================================================================================================================
Convertible
Preferred Stock Common Stock
------------------- --------------------- Additional Retained Total---------------------------
Number of Number of
Paid-in Earnings Stockholders'
Shares Amount Shares Amount Capital (Deficit) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, July 1, 1994 (Note 9) -- -- 4,600,000 $ 5,000 $ 9,298,000 $(6,153,000) $ 3,150,000
Sale of common stock, net of stock issuance
costs of approximately $1,300,000 -- -- 3,775,000 4,000 7,432,000 -- 7,436,000
Issuance of common stock for payment of
trade payables -- -- 417,000 -- 683,000 -- 683,000
Exercise of stock options and warrants -- -- 31,000 -- 35,000 -- 35,000
Issuance of unit purchase options -- -- -- -- 400,000 -- 400,000
Conversion of debt and accrued interest into
common stock (Note 1) -- -- 914,000 1,000 2,059,000 -- 2,060,000
Net income -- -- -- -- -- 1,575,000 1,575,000
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 (Note 9)10) -- $ -- 9,737,000 $ 10,000 19,907,000 (4,578,000) 15,339,000
Exercise of stock warrants, net of stock issuance
costs of approximately $114,000 -- -- 770,000 1,000
1,506,000 -- 1,507,000
Net income -- -- -- -- -- 2,524,000 2,524,000
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 (Note 9)10) -- -- 10,507,000 11,000 21,413,000 (2,054,000) 19,370,000
- ------------------------------------------------------------------------------------------------------------------------------------
F-6
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
================================================================================
Preferred Stock Common Stock
------------------- --------------------- Additional Retained Total
Number of Number of Paid-in Earnings Stockholders'
Shares Amount Shares Amount Capital (Deficit) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options, warrants, and UPOs,
net of issuance costs of approximately $300,000
-- -- (1)2,566,000 2,000 5,292,000 -- 5,294,000
Stock issued for Weatherly acquisition (Note 1) -- -- 1,000,000 1,000
Options and warrants issued for acquisition and
consulting services and bank refinancing
(Note 1) -- -- -- --
Net income -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 (Note 10) -- -- 14,073,000 14,000
Conversion of debt into common stock -- -- 154,000 --
Repurchase of UPOs -- -- -- --
Sale of common stock, net of stock issuance costs
of approximately $1,031,000 -- -- 4,290,000 5,000
Exercise of stock options and warrants -- 1,616,000 1,000
Repurchase of common stock for treasury -- -- -- --
Net income -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 (Note 10) -- $ -- 20,133,000 $ 20,000
====================================================================================================================================
Additional Retained Total
Paid-In Earnings Treasury Stockholders'
Capital (Deficit) Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 (Note 10) $ 19,907,000 $ (4,578,000) $ -- $ 15,339,000
Exercise of stock warrants, net of stock issuance
costs of approximately $114,000 1,506,000 -- -- 1,507,000
Net income -- 2,524,000 -- 2,524,000
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 (Note 10) 21,413,000 (2,054,000) -- 19,370,000
Exercise of stock options, warrants, and UPOs,
net of issuance costs of approximately $300,000
5,292,000 -- -- 5,294,000
Stock issued for Weatherly acquisition (Note 1) 2,999,000 -- -- 3,000,000
Options and warrants issued for acquisition and
consulting services and bank refinancing
(Notes(Note 1) 1,079,000 -- -- -- -- 1,079,000 -- 1,079,000
Net income -- 3,183,000 -- -- -- -- 3,183,000 3,183,000
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 (Note 9)10) 30,783,000 1,129,000 -- 31,926,000
Conversion of debt into common stock 350,000 -- -- 14,073,000350,000
Repurchase of UPOs -- (3,922,000) -- (3,922,000)
Sale of common stock, net of stock issuance costs
of approximately $1,031,000 15,854,000 -- -- 15,859,000
Exercise of stock options and warrants 3,166,000 -- -- 3,167,000
Repurchase of common stock for treasury -- -- (1,307,000) (1,307,000)
Net income -- 5,526,000 -- 5,526,000
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 (Note 10) $ 14,000 $30,783,00050,153,000 $ 1,129,000 $31,926,0002,733,000 $ (1,307,000) $ 51,599,000
====================================================================================================================================
(1)See accompanying summary of accounting policies and notes to consolidated
financial statements.
Includes 38,000 shares of common stock issued for services relating to cash
proceeds and approximately 60,000 shares issued relating to cashless exercise of
4 UPOs (Note 9)10).
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-7F-6
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statements of Cash Flows
================================================================================
Increase (decrease) in cash and cash equivalents
Consolidated Statements of Cash Flows
====================================================================================================================================
Increase (Decrease) in Cash and Cash Equivalents
Years ended June 30, 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flowsFlows from operating activitiesOperating Activities
Net income $ 1,575,000 $ 2,524,000 $ 3,183,000 $ 5,526,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary expense -- -- 1,007,000 1,450,000
Loss on disposal of assets -- -- 226,000 18,000
Bad debt expense 3,000 167,000 323,000 179,000
Depreciation and other amortization 637,000 834,000 1,990,000 2,627,000
Amortization of deferred financing costs 219,000 264,000 323,000 329,000
Deferred taxes (1,005,000) 2,342,000 191,000
Changes in operating assets and liabilities, net
of assets acquired and liabilities assumed:
Accounts receivable (2,523,000) (2,622,000) (2,763,000) (3,951,000)
Inventories 637,000 (940,000) 444,000 (706,000)
Prepaid expenses and other current assets (201,000) (159,000) 324,000 (548,000)
Accounts payable and accrued expenses 54,000 1,393,000 2,838,000 Trade credits 200,000 257,000 46,0002,293,000
Other assets (163,000) (95,000) 262,000
Deferred taxes -- (1,005,000) 2,342,000162,000 308,000 388,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash providedCash Provided by operating activities 438,000Operating Activities 618,000 10,545,000 7,796,000
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flowsFlows from investing activitiesInvesting Activities
Payment for purchase of businesses, net of cash acquired (15,387,000) (1,602,000) (28,358,000) (28,133,000)
Payment for non-compete agreement -- -- (500,000)
Sale of short-term investments 501,000 -- --
Increase in officer receivables (352,000) (131,000) (77,000) Purchase of product rights (105,000) -- --(156,000)
Purchase of furniture, fixtures and equipment (151,000) (261,000) (528,000) (1,000,000)
Purchase of package design (82,000) (109,000) (131,000) (604,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash usedCash Used in investing activities (15,576,000)Investing Activities (2,103,000) (29,594,000) (29,893,000)
- ------------------------------------------------------------------------------------------------------------------------------------
F-8F-7
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statements of Cash Flows
================================================================================
Consolidated Statements of Cash Flows
====================================================================================================================================
Years ended June 30, 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash flowsFlows from financing activitiesFinancing Activities
Proceeds from issuances of stock $ 7,452,000 $ 1,507,000 $ 5,294,000 $ 19,026,000
Repurchase of unit purchase options -- -- (3,922,000)
Repurchase of common stock for treasury -- -- (1,307,000)
Proceeds from bank line of credit 11,514,000 17,496,000 41,791,000 23,648,000
Payment on bank line of credit (12,109,000) (16,208,000) (43,079,000) (23,648,000)
Proceeds from notes payable 11,000,000 -- 21,345,000 10,000,000
Payments of notes payable (800,000) (1,600,000) (3,385,000) (36,560,000)
Proceeds from mandatorily redeemable preferred securities -- -- 63,250,000
Acquisition finance costs (1,036,000) -- (1,514,000) (3,343,000)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net cash providedCash Provided by financing activities 16,021,000Financing Activities 1,195,000 20,452,000 47,144,000
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 883,000 (290,000) 1,403,000
Cash and cash equivalents (290,000) 1,403,000 25,047,000
Cash and Cash Equivalents, beginning of year 87,000 970,000 680,000 2,083,000
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,Cash Equivalents, end of year $ 970,000 $ 680,000 $ 2,083,000 ===========================================================================================$ 27,130,000
====================================================================================================================================
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-9F-8
U.S. Home & Garden Inc. and Subsidiaries
Summary of Accounting Policies
================================================================================
Nature of Business U.S. Home & Garden Inc. (the "Company" - formerly known as Natural Earth
Technologies, Inc. until July 1995)), through its
wholly- ownedwholly-owned subsidiaries, is a leading manufacturer and
distributormarketer of a broad range of consumer lawn and garden
products. The Company's products include weed preventive
landscape fabrics, fertilizer spikes, decorative landscape
edging, shade cloth, root feeders and weed trimmer
replacement heads, which are sold under recognized brand
names, such as WeedBlock(R), Jobe's(R), Emerald Edge(R),
Shade Fabric(TM), Ross(R)and Weed Wizard(TM). The Company
markets its products through most large national home
improvement and mass merchant retailers ("Retail Accounts"),
including Home Depot, Lowe's, Kmart, Builder's Square,
Wal-Mart and Home Base in North America.
The Company has experienced significant growth in recent
years and believes that its success has been primarily
attributable to the expansion of its product lines through
the acquisition of complementary lawn and garden businesses
(Note 1), the quality of its products, its focus on
providing Retail Accounts with a single source of lawn and
garden care
products, to retailers primarily throughout North America.
Golden West Agri-Products, Inc. ("Golden West"), a wholly-owned subsidiary,
is a manufacturerthe efficiency and distributorreliability of humic acid based agricultural
products. Golden West currently sells its
products in the Western United
States, Mexicoinventory tracking and Central America.
On September 1, 1994, the Company, throughorder fulfillment systems and its
wholly-owned subsidiary Easy
Gardener Acquisition Corporation ("Easy Gardener"), acquired all of the
assets of Easy Gardener, Inc., a developer, manufacturerdistinctive advertising and marketer of
lawn and garden care products. Easy Gardener primarily sells its products
throughout North America.
On August 11, 1995, Emerald Products Corporation, a wholly-owned subsidiary
of Easy Gardener, acquired the assets of Emerald Products, LLC. Emerald
Products sells its product, Emerald Edge(R), throughout North America.
On August 9, 1996, Easy Gardener acquired all of the outstanding stock of
Weatherly Consumer Products Group, Inc. ("Weatherly"), a lawn and garden
care company which primarily sells its products throughout North America.
On May 12, 1997, Easy Gardener acquired the Plasti-Chain product line from
Plastic Molded Concepts, Inc. ("Plastic").store displays.
Principles of
Consolidation The financial statements include the accounts of the Company
of Consolidation and its wholly-owned subsidiaries and the results of
operations of Weatherly Consumer Products Group (Weatherly),
Easy Gardener, Plasti-Chain Product Line of Plastic Molded
Concepts, Inc. (Plastic), Golden West andChemical Distributors
(Golden West), Emerald Products, Tensar Polytechnologies,
Inc. (Tensar), Landmaster Products, Inc. (Landmaster), and
Weed Wizard, since their datedates of acquisition (Note 1).
Additionally, U.S. Home and Garden Trust I since its
formation in April 1998. Significant intercompany accounts
and transactions have been eliminated.
F-10
U.S. Home & Garden Inc. and Subsidiaries
Summary of Accounting Policies
================================================================================
Inventories Inventories, which consist of raw materials, finished goods,
and packaging materials, are stated at the lower of cost or
market; cost is determined by the first-in, first-out (FIFO)
cost method.
Furniture,
Fixtures and
Equipment Furniture, fixtures and equipment are stated at cost.
Depreciation is computed by the Equipment straight-line
method over the estimated five to seven year useful lives of
the assets.
Intangible Assets Excess of Cost over Net Assets Acquired
The excess of cost over net assets acquired, which relates
to the Company's acquisitions of Weatherly, Easy Gardener,
Plastic, Golden West, Emerald
F-9
U.S. Home & Garden Inc. and EmeraldSubsidiaries
Summary of Accounting Policies
================================================================================
Products, Tensar, Landmaster and Weed Wizard, are being
amortized over periods of twenty to thirty years using the
straight-line method. Periodically, the recoverability of
goodwill is evaluated by comparing undiscounted estimated
future net cash flows to the estimated net cash flows
projected at the time of acquisition.
Deferred Financing Costs
Direct costs associated with the Company's long-term financing arrangementsmandatorily
redeemable preferred securities debt are being amortized
over the life of the loans,related debt, a period of approximately
sixthirty years.
Package Design
Package design costs associated with Easy Gardener and
Weatherly products are being amortized over a five-year
period using the straight-line method.
Product Rights
Product rights are being amortized over a 15-year estimated
useful life.
Non-Compete Agreement
The non-compete agreement was entered into with the
acquisition of Weatherly. The agreement is being amortized
over its 20 year term.
F-11
U.S. Home & Garden Inc. and Subsidiaries
Summary of Accounting Policies
================================================================================
Revenue
Recognition Sales are recorded as products are shipped to customers.
Net Income Per
Share Net incomeDuring 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per
Share (SFAS 128). SFAS 128 provides for the calculation of
basic and diluted earnings per common share has been computed following Accounting
Principles Board Opinion No. 15 (APB No. 15). Net incomeshare. Basic earnings per
share for 1995includes no dilution and 1996 has beenis computed by dividing
the net income available to common stockholders by the weighted
average number of common shares outstanding. For 1997, common stock
equivalents such as common stock options and warrants were included inoutstanding for the computation of average shares outstanding because their inclusion was
dilutive. 1997period.
Diluted earnings per share was calculated usingreflects the modified
treasury stock methodpotential dilution
of securities that could share in the earnings of an entity.
As required by SFAS 128, all prior earnings have been
restated to reflect the retroactive application of this
accounting pronouncement (Note 14)15).
F-10
U.S. Home & Garden Inc. and Subsidiaries
Summary of Accounting Policies
================================================================================
Income Taxes Income taxes are calculated using the liability method
specified by Statement of Financial Accounting Standards No.
109, "AccountingAccounting for Income Taxes."
Reclassification Certain 19961997 financial statement amounts have been
reclassified to conform to the 19971998 presentation.
Advertising Costs The Company incurs advertising expense primarily relating to
cooperative advertising credits granted to customers based
on qualified expenses incurred by the customers to advertise
the Company's products. Cooperative advertising credits are
usually limited to a percentage of an agreed-upon sales
volume. The Company also incurs advertising expense relating
to the distribution of catalogs and the broadcasting of
radio and television commercials. Advertising costs are
expensed as incurred. Advertising expense was $1,236,000, $1,823,000,
$2,945,000 and $2,945,000$3,402,000 during the years ended June 30,
1995, 1996, 1997 and 1997.1998.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
F-12
U.S. Home & Garden Inc. and Subsidiaries
Summary of Accounting Policies
================================================================================
Cash Equivalents The Company considers all short-term investments purchased
with an initial maturity of three months or less to be cash
equivalents.
Stock Based
Compensation Effective July 1, 1996, the Company adopted the provisions
of Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation. Under this
standard, companies are encouraged, but not required, to
adopt the fair value method of accounting for employee
stock-based transactions. The fair value method is required
for all stock based compensation issued to non-employees.nonemployees.
Under the fair value method, compensation cost is measured
at the grant date based on the fair value of the award and
is recognized over the service period, which is usually the
vesting period. Companies are permitted to continue to
account for employee stock-based transactions
F-11
U.S. Home & Garden Inc. and Subsidiaries
Summary of Accounting Policies
================================================================================
under Accounting Principles Board Opinion (APB) No. 25,
"AccountingAccounting for Stock Issued to Employees," but are required
to disclose pro forma net income and earnings per share as
if the fair value method had been adopted. The Company has
elected to continue to account for stock-based compensation
under APB No. 25 (see Note 9)10).
New Accounting
Pronouncements
On March 3, 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per share. This pronouncement provides a different method of
calculating earnings per share than is currently used in accordance with
APB No. 15, Earnings per Share. SFAS No. 128 provides for the calculation
of basic and diluted earnings per share. Basic earnings per share includes
no dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution
of securities that could share in the earnings of an entity. SFAS No. 128
is effective for periods ending after December 15, 1997. Early application
is not allowed and restatement of prior earnings will be required. In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (SFAS 130), which establishes
standards for
F-13
U.S. Home & Garden Inc. and Subsidiaries
Summary of Accounting Policies
================================================================================ reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except
those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS 130 requires that
all items that are required to be recognized under current
accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with
the same prominence as other financial statements.
SFAS 130 is effective for financial statements for periods
beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. Management
does not believe that the Company's current financial
statement disclosures will need to be modified based upon
current operations. Results of operations and financial
position, however, will be unaffected by future
implementation of this standard.
In June 1997, the Financial Accounting Standards Board
issued SFAS No.131,131, Disclosures about Segments of an Enterprise
and Related Information, (SFAS 131) which supersedes SFAS
No. 14.,14, Financial reporting for Segments of a Business
Enterprises. SFAS 131 establishes standards for the way that
public companies report information about operating segments
in annual financial statements and requires reporting of
selected information about operating segments in interim
financial statements issued to the public. It also
establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS 131
defines operating segments as components of a company about
which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing
performance.
F-12
U.S. Home & Garden Inc. and Subsidiaries
Summary of Accounting Policies
================================================================================
SFAS 131 is effective for financial statements for period
beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. The Company
believes it operates under one business segment and has
already substantially complied with the required financial
statement disclosures. Results of F-14operations and financial
position will be unaffected by implementation of this
standard.
In February 1998, the Financial Accounting Standard Board
issued SFAS 132, Employers' Disclosures about Pensions and
Other Post Retirement Benefits. SFAS 132 standardizes the
disclosure requirements for pensions and other
post-retirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations
and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that
are no longer as useful as they were when previous related
accounting standards were issued.
SFAS 132 is effective for financial statements for fiscal
years beginning after December 15, 1997 and requires
comparative information for earlier years to be restated
unless the information is not readily available, in which
case the notes to the financial statements should include
all available information and a description of the
information not available. Management believes that the
Company's current financial statement disclosures will not
need to be modified based upon current operations. Results
of operations and financial position will be unaffected by
implementation of this standard.
In June 1998, the Financial Accounting Standards Board
issued SFAS 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS 133 requires companies to recognize
all derivatives contracts as either assets or liabilities in
the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match
the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in the
fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings' effect
of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS 133 is
effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.
F-13
U.S. Home & Garden Inc. and Subsidiaries
Summary of Accounting Policies
================================================================================
operations and financial position, however, will be unaffected by any
future implementationHistorically, the Company has not entered into derivatives
contracts either to hedge existing risks or for speculative
purposes. Accordingly, the Company does not expect adoption
of this standard.new standard on July 1, 1999 to affect its financial
statements.
Financial
Instruments The Company's financial instruments consist of cash,
accounts receivable, debt and debt.Company obligated mandatorily
redeemable preferred securities of subsidary trust holding
solely junior subordinated debentures. The carrying value of
cash and accounts receivable approximate fair value based
upon the liquidity and short-term nature of the assets. The
carrying value of short-term and long-term debt and Company
obligated mandatorily redeemable preferred securities of
subsidary trust holding solely junior subordinated
debentures approximates the fair value based upon short-term
and long-term borrowings at market rate interest.
Cash and cash equivalents are held principally at three high
quality financial institutions. At times such balances may
be in excess of the FDIC insurance limit.
F-15F-14
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
1. Business
Acquisitions On May 12, 1997, Easy Gardener acquired from Plastic substantially allSince August 1992, the Company has consummated the following
eight (8) acquisitions of
the assets, including product rights and all other intangible assets, of
Plastic used in connection with Plastic's home lawn and garden care
distribution businesscompanies or
product lines for a total of approximately 80.0 million in
consideration:
o Golden West Chemical Distributors, Inc. - A
manufacturer of humic acid-based products designed to
improve crop yield, which was acquired in August 1992
for approximately $4,300,000.
On August 9, 1996,$1.1 million in cash and $1.1 million
of promissory notes.
o Easy Gardener, Inc. - A manufacturer of multiple fabric
landscaping products including Weedblock(R), which was
acquired allin September 1994 for approximately $21.3
million consisting of $8.8 million in cash, a $10.5
million promissory note and two convertible notes each
in the principal amount of $1.0 million. Approximately
$2.2 million of additional purchase price was
contingent on Easy Gardener meeting certain income
requirements. A total of approximately $1.2 million of
the outstanding stock of
Weatherly, a lawnadditional amount has been paid to date and garden care company, for 1,000,000 shares of the
Company's common stock (valued at $3 per share) and $22,937,000, less an
amount required to discharge certain outstanding indebtedness of the
acquired company, and adjusted dollar for dollar based upon the ultimate
value of the acquired company's net current assets (approximately $2.5
million). The acquisition was accounted for as a purchase and, accordingly,
the results of operations of Weatherly have been includedremaining $978,000 is payable in the
consolidated statement of income since August 9, 1996. The Company operates
the acquired company as a subsidiary of Easy Gardener. In connection with
the above acquisition, the Company's outstanding notes payable were
refinanced and a new line of credit arrangement was established (See Note
6).
On August 11, 1995, Emerald Products Corporation, a newly-formed,
wholly-owned subsidiary of Easy Gardener, acquired fromfiscal 1999.
o Emerald Products LLC ("Emerald") all- A manufacturer of the assets, including product rights and all other
intangible assets, of Emerald useddecorative
landscape edging, which was acquired in connection with Emerald's home lawn
and garden care distribution business. The purchase price, subject to
adjustment as described below, wasAugust 1995 for
$835,000 in cash and a $100,000 non-interest bearing promissory note,note.
o Weatherly Consumer Products Group, Inc. - A
manufacturer of fertilizer spikes and other lawn and
garden products, which was paid off during fiscalacquired in August 1996 using cashfor
1,000,000 shares of Common Stock valued at $3.0 million
and approximately $22.9 million in cash.
o Plasti-Chain Product Line of Plastic Molded Concepts,
Inc. - A line of plastic chain links and decorative
edgings, which was acquired from operations. The purchase price is subject to increasePlastic Molded
Concepts, Inc. in May 1997 for approximately $4.3
million in cash.
o Weed Wizard, Inc. - A manufacturer and distributor of
weed trimmer replacement heads, which was acquired in
February 1998 for approximately $16.0 million plus an
additional $1.7 million for excess working capital and
acquisition expenses, of which approximately $5.0
million was based uponon the Company achievingvalue of certain annual gross sales levelsnet assets
acquired.
o Landmaster Products, Inc. - A manufacturer and
distributor of acquired
product lines through September 2002. This additional consideration is
payable in cash annuallypolyspun landscape fabrics for use by
consumers and based upon 2.5% of annual Emerald gross sales
of up to $4,000,000, 1.5% of annual gross sales between $4,000,001 and
$5,000,000 and 1% of annual gross sales greater than $5,000,000.
On September 1, 1994 (the "Closing Date"), Easy Gardener Acquisition
F-16professional
F-15
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Corp., a newly formed, wholly-owned subsidiarylandscapers, substantially all of whose assets were
acquired in March 1998 for approximately $3.0 million,
plus an additional $600,000 for certain assets and
acquisition expenses, of which approximately $750,000
was based on the value of certain assets acquired.
o Tensar(R) consumer products line of the Company, acquired
from Easy Gardener, Inc. (the "Seller"), allTensar
Corporation. A line of the assets of the Seller
used in connection with the Seller's home lawn and garden care products
distribution business (the "Purchased Assets") pursuant to an assets
purchase agreement dated as of June 19, 1994. The purchase price was
$20,500,000 (subject to adjustment as described below)specialty
fencing, which was paid byacquired from the deliveryTensar Corporation
in May 1998 for appoprixmately $5.4 million plus an
additional $1 million for inventory.
In addition, the Company has entered into a non-binding
letter of (i) $8,000,000 inintent to purchase a manufacturer and distributor
of lawn and garden products for approximately $25 million
plus additional contingent payments based upon future
operating cash (ii) a promissory note (the "Note")
issued by Easy Gardener Acquisition Corp.flows.
All of the above acquisitions were accounted for as
purchases and, accordingly, the results of operations of the
acquired companies have been included in the initial principal amountconsolidated
statements of $10,500,000, and (iii) two convertible promissory notes (the
"Convertible Notes") issued by the Company each in the initial principal
amount of $1,000,000. The Note was paid from the proceeds of the Company's
bank financing in September 1994. The Convertible Notes plus accrued
interest were each converted into 457,198 shares of the Company's common
stock and Class B warrants to acquire 457,198 shares of common stock at an
exercise price of $2.28 per share. The Convertible Notes were automatically
converted upon the February 1995 approval by the stockholders of the
Company of an Amendment to the Company's Certificate of Incorporation
increasing the amount of the Company's authorized common stock to
30,000,000 shares. The shares of common stock issued upon exercise of the
Convertible Notes, and the shares of common stock issuable upon exercise of
the warrants, are subject to a seven-year voting agreement with Mr. Robert
Kassel, Chairman of the Company. The purchase price was subject to
increase, if and to the extent that on the Closing Date current assets of
Easy Gardener, Inc. exceeded current liabilities by $6,600,000. This
additional amount approximated $783,000 at the date of closing and was paid
in October 1994.
Approximately $2,200,000 was contingently payable to the Seller over the
four years following the Closing Date based upon the acquired business
generating certain specified levels of net income. As of June 30, 1997, the
entire $2,200,000 has been added to the excess of cost over net assets
acquired of Easy Gardener based upon operating results obtained through
June 30, 1997 and forecasted results for fiscal year 1998. As of June 30,
1997, approximately $1,467,000 is payable for this additional purchase
price.
F-17
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================income since their respective acquisition
dates. The following unaudited pro forma summary combines
the consolidated results of operations of the Company, Weed
Wizard, Weatherly and Easy Gardener as if the acquisitions
had occurred at the beginning of the year of acquisition and
the beginning of the prior year. Accordingly, Easy Gardener
isand Weatherly have been reflected as if the acquisition
occurred on July 1, 19941995 and WeatherlyWeed Wizard, as if the
acquisitionacquisitions occurred July 1, 1995.1996. The proformapro forma
information gives effect to certain adjustments, including
the amortization of excess of cost over net assets acquired,
the elimination of certain expenses incurred by Weatherly
related to its acquisition and additional interest expense
on the notes payable. This pro forma summary does not
necessarily reflect the results of operations as they would
have been if the Company, Weed Wizard, Weatherly and Easy
Gardener had constituted a single entity during such periods
and is not necessarily indicative of results which may be
obtained in the future. The pro forma effect of the EmeraldTensar,
Landmaster, Plastic and PlasticEmerald acquisitions have not been
reflected since their prior revenue was not material to the
Company's operations.
YearsYear ended June 30, 1995 1996 1997 --------------------------------------------------------------------1998
- --------------------------------------------------------------------------------
Net sales $21,349,000 $46,102,000 $52,788,000
====================================================================$58,135,000 $69,451,000
================================================================================
Net income before extra-
ordinaryextraordinary
expense and income taxes $ 1,420,000 $ 2,369,000 $ 6,990,000
====================================================================4,236,000 $ 8,697,000
================================================================================
Net income before extra-
ordinaryextraordinary
expense $ 1,382,000 $ 3,462,000 $ 4,098,000
====================================================================
Net income2,344,000 $ 1,382,000 $ 1,542,000 $ 2,571,000
====================================================================
Net income per common
share before extra-
ordinary expenses $ .16 $ .25 .22
====================================================================
F-185,741,000
================================================================================
F-16
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
YearsYear ended June 30, 1995 1996 1997 ---------------------------------------------------------------------------1998
- --------------------------------------------------------------------------------
================================================================================
Net income $1,542,000 $2,121,000 $4,291,000
================================================================================
Basic net income per common share
before extraordinary expenses $ .25 $ .17 $ .32
================================================================================
Basic net income per common share $ .16 $ .11 $ .15
===========================================================================.06 $ .24
================================================================================
2. Concentration Concentration of Trade Credits
In April 1996,accounts receivable are due primarily
of Credit Risk from numerous customers located in many Credit Risk and
and Significant geographic regions throughout the Company entered into an agreement to exchange unsold
assets held for sale for credit against the future purchase of products and
services. This transaction has been reported at the estimated fair market
value of the assets exchanged by the Company. No gain or loss was
recognized on such transaction as the Company had previously written down
its assets held for sale to their estimated fair market value. The
agreement requires the Company to pay a portion of the purchase price of
the product or services received. Depending on the nature of the products
or services purchased, the Company will receive a credit against the future
price ranging from 10% to 45% of the cash purchase price.United States. The Company
will
also receive a percentageRelationships performs ongoing credit Significant evaluations of its
customers' financial conditions and establishes an allowance
for Relationships doubtful accounts based upon the cash proceedscredit
risk of specific customers, historical trends and other
information. The Company does not require collateral from
its customers.
During the ultimate sale of
the assets. As ofyears ended June 30, 1996, included1997 and 1998, sales
to two Easy Gardener customers accounted for approximately
36% (27% and 9%), 36% (26% and 10%) and 37% (26% and 11%) of
consolidated net sales. Included in accounts receivable at
June 30, 1997 and 1998 is $2,320,000 and $3,016,000 due from
the largest customer.
Substantially all of Easy Gardener's raw material purchases
for Weedblock(R) inventory, representing approximately $105,000 of cash subsequently received on the sale of a
portion50%,
22% and 37% of the assets byCompany's consolidated raw material
purchases during the third party. The agreement providesyears ended June 30, 1996, 1997 and
1998, are from one vendor. Management believes that the
Company will receive maximum total creditsother
suppliers could provide a similar product on comparable
terms. A change in suppliers, however, could cause delays
and cash totaling $1.6 million.
The agreement expiresa possible loss of sales, which would affect operating
results adversely. Included in April 1999accounts payable at June 30,
1997 and requires the Company1998 is $349,000 and $854,000 due to use all
credits by this date. The Company expects to use the credits primarily by
purchasing operating assets and advertising time. The Company expects to
use all available credits by the expiration date and will continually
evaluate this asset based upon credits utilized and future operating goals.vendor.
3. Inventories Inventories consist of:
June 30, 1996 1997 ---------------------------------------------------------------------------1998
------------------------------------------------------------
Raw materials $ 82,000578,000 $ 578,0005,183,000
Finished goods 3,310,000 4,676,000 ---------------------------------------------------------------------------
$ 3,392,000 $ 5,254,000
===========================================================================
F-196,580,000
------------------------------------------------------------
$5,254,000 $11,763,000
============================================================
F-17
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
4. Furniture,
Fixtures and
Equipment
Furniture, fixtures and equipment consist of:
June 30, 1996 1997
---------------------------------------------------------------------------
Leasehold improvements $ 74,000 $ 397,000
Furniture, fixtures and equipment 1,575,000 2,761,000
---------------------------------------------------------------------------
1,649,000 3,158,000
Less accumulated depreciation 433,000 843,000
---------------------------------------------------------------------------
$1,216,000 $2,315,000
===========================================================================
5. Excess of
Cost Over
Net Assets
Acquired
The excess of cost over net assets acquired consists of the following:
June 30, 1996 1997
---------------------------------------------------------------------------
Weatherly Consumer Products
Group, Inc. $ -- $23,046,000
Easy Gardener, Inc. 14,172,000 15,639,000
Plastic Molded Concepts, Inc. -- 2,760,000
Golden West Chemical
Distributions, Inc. 2,098,000 2,098,000
Emerald Products, LLC 778,000 870,000
---------------------------------------------------------------------------
17,048,000 44,413,000
Less accumulated amortization 1,264,000 2,579,000
---------------------------------------------------------------------------
$15,784,000 $41,834,000
===========================================================================
F-20
Notes to Consolidated Financial Statements
=================================================================================================
4. Furniture, Furniture, fixtures and equipment consist of: and
Fixtures
Equipment June 30, 1997 1998
-----------------------------------------------------------------------------
Leasehold improvements $ 397,000 $ 397,000
Furniture, fixtures and equipment 2,761,000 4,649,000
-----------------------------------------------------------------------------
3,158,000 5,046,000
Less accumulated depreciation 843,000 1,456,000
-----------------------------------------------------------------------------
$2,315,000 $3,590,000
5. Excess of Cost The excess of cost over net assets acquired consists of
Over Net Assets
Acquired June 30, 1997 1998
------------------------------------------------------------------------------
Weatherly Consumer Products Group, Inc. $23,046,000 $22,948,000
Easy Gardener, Inc. 15,639,000 15,639,000
Weed Wizard, Inc. -- 11,495,000
Tensar Polytechnologies, Inc. -- 4,928,000
Plastic Molded Concepts, Inc. 2,760,000 2,810,000
Landmaster Products, Inc. -- 2,290,000
Golden West Chemical Distributions, Inc. 2,098,000 2,098,000
Emerald Products, LLC 870,000 991,000
------------------------------------------------------------------------------
44,413,000 63,199,000
Less accumulated amortization 2,579,000 4,335,000
------------------------------------------------------------------------------
$41,834,000 $58,864,000
==============================================================================
F-18
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
6. Notes Payable
and Line of
Credit
Notes payable consist of the following:
June 30, 1996 1997
---------------------------------------------------------------------------
$23,000,000 note payable, interest due
monthly at prime (8.5% at June 30, 1997)
plus 1.25% or LIBOR (5.72% at June 30,
1997) plus 3.50%, quarterly principal
payments ranging from $570,000 to
$1,350,000 beginning September 30, 1996
through June 30, 2002, collateralized by
Easy Gardener's assets and guaranteed by
the Company. $ -- $ 20,510,000
$2,250,000 note payable, interest due
monthly at prime (8.5% at June 30, 1997)
plus 6.0%, quarterly principal payments
of $140,625 beginning September 30, 1998
through June 30, 2002, collateralized by
Easy Gardener's assets and guaranteed by
the Company. -- 2,250,000
$3,800,000 note payable, interest only due
monthly at 12% with the full principal due
November 1997. -- 3,800,000
$8,000,000 note payable, interest at
12.25%, monthly principal payments of
$133,333, plus interest, commencing
January 31, 1995 until January 2000,
collateralized by the assets of Easy
Gardener and a guaranty of the Company.
This note was refinanced during 1997.
5,600,000 --
F-21
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
June 30, 1996 1997
---------------------------------------------------------------------------
$3,000,000 note payable, interest at 12%,
equal monthly principal payments of
$125,000, plus interest, commencing the
earlier of the repayment of the $8,000,000
note payable or January 31, 2000,
collateralized by assets of Easy Gardener
and a guaranty of the Company. This note
was refinanced during 1997. 3,000,000 --
---------------------------------------------------------------------------
8,600,000 26,560,000
Less current portion 2,362,000 8,990,000
---------------------------------------------------------------------------
$6,238,000 17,570,000
===========================================================================
Notes to Consolidated Financial Statements
================================================================================
6. Notes Payable Notes payable consist of the following:
and Line of
Credit
June 30, 1997 1998
----------------------------------------------------------------------------------
$23,000,000 note payable, interest due monthly at
prime (8.5% at June 30, 1997) plus 1.25% or
LIBOR (5.72% at June 30, 1997) plus 3.50%,
quarterly principal payments ranging from
$570,000 to $1,350,000 beginning September 30,
1996 through June 30, 2002, collateralized by
Easy Gardener's assets and guaranteed by the
Company.
$20,510,000 $ --
$2,250,000 note payable, interest due monthly at
prime (8.5% at June 30, 1997) plus 6.0%,
quarterly principal payments of $140,625
beginning September 30, 1998 through June 30,
2002, collateralized by Easy Gardener's assets
and guaranteed by the Company.
2,250,000 --
$3,800,000 note payable, interest only due
monthly at 12% with the full principal paid
in November 1997. 3,800,000 --
----------------------------------------------------------------------------------
26,560,000 --
Less current portion 8,990,000 --
----------------------------------------------------------------------------------
$17,570,000 $ --
==================================================================================
At June 30, 1997, the Company's financing arrangements
include a $13,000,000 revolving credit facility expiring
June 2002, bearing interest at the lower of prime or LIBOR
rates plus an additional marginal amount; collateralized by
Easy Gardener's assets and guaranteed by the Company. The
credit facility's availability increases to $16,000,000 for
the months of February through May. As of June 30, 1997, no
amounts were outstanding on the credit line. The credit agreement contains various restrictions which
require, among other things, maintenance of certain financial ratios and an
annual zero balance for ten consecutive days during August. At June 30,
1997, the Company was in compliance with all such covenants. If the
revolving credit facility is terminated prior to June 2002,
the Company will beis subject to certain prepayment penalties.
At June 30, 1996,penalties (Note
14).
F-19
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
In connection with the Company's had a $6,000,000mandatorily redeemable preferred
securities financing obtained in April 1998, the remaining
unpaid balance of the above term notes payable were
refinanced and the revolving credit facility bearing interest at prime (8.25% at June 30, 1996) plus 2%was terminated.
The Company is currently negotiating with several financial
institutions for a new revolving credit facility. See Notes
7 and 14.
7. Mandatorily In April 1998, U.S. Home & Garden Trust I (the "Trust"), payable in
monthly installments commencing January 1, 1995 and collateralized by
assets of Easy Gardenera
Redemmable newly created Delaware Redeemable Preferred business trust
Preferred and a guarantywholly-owned subsidiary of the Company, issued 78,000
Securities common Securities securities with a liquidation amount of
$25 per common security to the Company for $1,950,000 and
completed a public offering of 2,530,000 of 9.40% Cumulative
Trust Preferred Securities with a liquidation amount of $25
per security (the "Trust Preferred Securities" and, together
with the common securities, the "Trust Securities"). The
Trust exists for the sole purpose of issuing Trust
Securities and using the proceeds therefrom to acquire the
subordinated debentures described below. Concurrent with the
issuance of the Trust Securities, the Trust invested the
proceeds therefrom in $65.2 million aggregate principal
amount of 9.40% Junior Subordinated Deferrable Interest
Debentures (the "Subordinated Debentures") issued by the
Company.
Distributions on the Trust Securities are payable monthly in
arrears by the Trust.
The Subordinated Debentures are unsecured obligations of the
Company and are subordinate and junior in right of payment
to certain other indebtedness of the Company.
AsThe Company may, under certain circumstances, defer the
payment of June 30, 1996,
there was $1,288,000 outstandinginterest on the credit line which was refinanced
during August 1996 utilizingSubordinated Debentures for a
period not to exceed 60 consecutive months. If interest
payments on the $13,000,000 revolving credit facility
noted above.
F-22Subordinated Debentures are so deferred,
distributions on the Trust Securities will also be deferred.
During any such deferral period, interest on the
Subordinated Debentures and distributions on the Trust
Securities will accrue and compound monthly, and subject to
certain exceptions, the Company may not declare or pay
distributions on its capital stock or debt securities that
rank equal or junior to the Subordinated Debentures.
F-20
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The $3Trust Securities are subject to mandatory redemption
upon the repayment of the Subordinated Debentures at a
redemption price equal to the aggregate liquidation amount
of the Securities plus any accumulated and unpaid
distributions. The Subordinated Debentures mature on April
15, 2028, but may be redeemed at the option of the Company
at any time after April 15, 2003 or earlier under certain
circumstances. The Company effectively provides a full and
unconditional guarantee of the Trusts' obligations under the
Trust Securities to the extent that the Trust has funds
sufficient to make such payments.
Approximately $40 million note payable also requiredof the proceeds received by the
Company from the sale of the Subordinated Debentures to the
Trust, were used by the Company to pay additional
interest (defined as a success fee) when the loan was paid off. The success
fee ranges from $300,000 in the first year to $4,140,000 in the seventh
year. As of June 30, 1996, the accrued success fee was approximately
$481,000 (Note 13).
The $8 million note payable was subject to certain mandatory prepayments of
"excess cash flow" of Easy Gardenerrepay outstanding
long-term debt and certain net proceeds of asset
sales, condemnation awards and insurance recoveries. As of June 30, 1996,
$762,000 is the payment for "excess cash flow" which was made subsequent to
year end. This amount has been included in the current portion of notes
payable. Also, certain optional prepayments of advances under the revolving
facility and the $8 million note payable require the payment of a premium
(Note 13).
In connection with the acquisition of Weatherly Products Inc. on August 9,
1996, both of the above term notes payable were refinanced and a new line of credit agreement was executed (Note 13)advances and prepayment
penalties (see Note 6).
Future minimum principal payments are as follows:
Year ending June 30, Amount
----------------------------------------------
1998 $ 8,990,000
1999 4,402,000
2000 4,403,000
2001 4,402,000
2002 4,363,000
----------------------------------------------
$26,560,000
==============================================
7.8. Officer
Receivables Officer receivables represents notes which bear interest at
7% and require interest only payments on an annual basis.
ThePrincipal payments on the notes are due in aggregate annual
installments of $75,000 to $200,000, with the aggregate
balance of $330,000 due upon maturity in June 2002.
F-23
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
8.9. Commitments Employment Agreements
During 1996 and 1997, the Company entered into new
employment agreements with three of its officers. The
agreements are for one-year periods but are automatically
renewed unless specifically terminated by the Company or the
employee. If the employment agreements are terminated by the
Company, the officers will be entitled to an additional ten
and five years of annual compensation. Annual compensation
under the employment agreements are $350,000, $162,000$450,000, $195,000 and
$101,000.$125,000. The employment agreements also provide for certain
lump sum payments in the event of a change in control equal
to approximately $5$5.6 million. AnA five year agreement with an
officer of Easy Gardener provides for a base aggregate
annual salary of approximately $200,000$275,000 beginning in 1998.1999.
In addition, the agreements provide for incentive and
additional compensation under certain circumstances.
Operating Leases
The Company leases office and warehouse space under
operating leases which expire in various years through 2001.2002.
The Company also leases
F-21
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
certain office equipment and automobiles under operating
leases expiring in 19981999 through 2002.2003. The future minimum
lease payments under these non-cancelable operating leases
are as follows:
Year ending June 30, Amount
----------------------------------------
1998 $ 729,000------------------------------------------------------------
1999 591,000$1,164,000
2000 410,0001,011,000
2001 176,000594,000
2002 1,000
----------------------------------------
$1,907,000
========================================27,000
2003 6,000
------------------------------------------------------------
$2,802,000
============================================================
Rent expense was approximately $303,000, $336,000, $680,000 and
$680,000$532,000 for the years ended June 30, 1995, 1996, 1997 and 1997.
F-24
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================1998.
Pension Plan
Easy Gardener has established an employee defined
contribution pension plan (the Plan). Employees of the
Company, Weatherly, Easy Gardener, Weed Wizard and Golden
West are eligible to participate. The Company is required to
match the first 3% of employee contributions up to 5% of the
employees wage base. The plan also allows discretionary
contributions by the Company. The Company's contribution
vests over a seven-year period. Pension expense associated
with the Plan for 1995,the years ended June 30, 1996, 1997 and
19971998 was approximately $64,000, $180,000, $199,000 and $199,000.$223,000.
Royalty Agreements
The Company has entered into royalty agreements which
provide for payments based upon a percentage of net sales of
certain products. These agreements expire in various years
from 19981999 to 2005. Royalty expense during the years ended
June 30, 1995, 1996, 1997 and 19971998 was $64,000, $104,000, $304,000 and
$304,000.
9.$353,000.
10. Stockholders'
Equity (a) Convertible Preferred Stock
The Company is authorized to issue 1,000,000 shares of
preferred stock with such designations, rights and
preferences as may be determined from
F-22
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the
holders of the Company's common stock. No shares of the
convertible preferred stock have been issued.
(b) Common Stock
The Company raised a portion of the Easy Gardener, Inc. purchase price
through the August 1994 private placement of $8,025,000 of Units (for which
it received net proceeds of approximately $6,900,000), each $100,000 Unit
consisting of 44,000 shares of common stock and a class B warrant to
purchase 44,000 shares of common stock for $2.28 per share.
F-25
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
In June 1994,December 1997, the Company sold approximately 200,0004,290,000
shares to various
foreign investors. Proceedsin a public offering. Net proceeds to the Company,
after deducting commissions and expenses of $1,031,000,
approximated $435,000.$15,859,000.
In a related transaction during July 1994,June 1998, the Company's shareholders authorized an
increase in common stock from 30 to 75 million shares.
In September 1998, the Company soldadopted a Stockholders'
Rights Agreement commonly known as a "poison pill," which
provides that in the event an additional 240,000individual or entity becomes a
beneficial holder of 12% or more of the shares to foreign investors
resulting in net proceeds toof the
Company's capital stock, other stockholders of the Company
shall have the right to purchase shares of approximately $518,000.
Proceeds were usedthe Company's (or
in some cases, the acquiror's) common stock at 50% of its
then market value.
(c) Treasury Stock
During 1998, the Company repurchased 236,000 shares of
treasury stock for the Easy Gardener acquisition.
(c)$1,307,000.
(d) Stock Option Plans
The Company adopted the 1991 Stock Option Plan (the "1991
Plan") pursuant to which 700,000 shares of common stock have
been reserved for issuance upon the exercise of options
designated as either (i) options intended to constitute
incentive stock options ("ISOs") under the Internal Revenue
Code of 1986, as amended (the "Code") or (ii) non-qualified
options. ISOs may be granted under the Plan to employees and
officers of the Company. Non-qualified options may be
granted to consultants, directors (whether or not they are
employees), employees orand officers of the Company.
During fiscal 1995, the Board of Directors of the Company
adopted, subject to stockholder approval, two additional
stock option plans. The 1995 Stock Option Plan (the "1995
Plan") allows the granting of either ISOs or non-qualified
options. The maximum aggregate number of shares to be
granted under this plan is 1,500,000. The Non-Employee
Director Stock Option Plan (the "Non-Employee Director
Plan") was established to attract, retain and compensate for
their services as directors, highly
F-23
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
qualified individuals who are not employees of the Company.
The maximum aggregate number of shares issued under this
plan is 100,000. During 1996, 1997 and 1997,1998, 10,000 options
were granted each year. The 1995 Plan is administered by a
committee of the Board of Directors and the Non-Employee
Director Plan is a formula plan.
During May 1997, the Board of Directors approved the 1997
Stock Option Plan. The plan reserves the issuance of
1,500,000 shares of common stock.
F-26
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The 1997 plan is subject to shareholder approval. No options have been
granted as of June 30, 1997.
The 1991 Plan is administered by the Board of Directors of
the Company (the "Board"). The Board, or committee, as the
case may be, within the limitations of the 1991 and 1995
Plans, as the case may be, determines the persons to whom
options will be granted, the number of shares to be covered
by each option, whether the options granted are intended to
be ISOs, the duration and rate of exercise of each option,
the option purchase price per share and the manner of
exercise, the time, manner and form of payment upon exercise
of an option, and whether restrictions such as repurchase
rights in the Company are to be imposed on shares subject to
options.
ISOs granted under the plans may not be granted at a price
less than the fair market value of the common stock on the
date of grant (or 110% of fair market value in the case of
persons holding 10% or more of the voting stock of the
Company). The aggregate fair market value of shares for
which ISOs granted to any employee are exercisable for the
first time by such employee during any calendar year (under
all stock option plans of the Company and any related
corporation) may not exceed $100,000. Non-qualified options
granted under the 1991 Plan may not be granted at a price
less than the fair market value of the common stock on the
date of grant (not less than par value in the case of the
1995 Plan). Options granted under the plans will expire not
more than ten years from the date of grant (five years in
the case of ISOs granted to persons holding 10% or more of
the voting stock of the Company).
All options granted under the 1991 Plan, Non-Employee
Director Plan and ISOs under the 1995 Plan are not
transferable during an optionee's lifetime but are
transferable at death by will or by the laws of descent and
distribution.
F-27F-24
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Notes to Consolidated Financial Statements
====================================================================================================================================
The Board of Directors also has authorization to issue stock options ("Non-Plan
Options") to employees or consultants for services performed.
The following is a summary of activity relating to stock options.
Weighted Weighted
Average Average
Option Available Remaining
Price Available Contractual
Per Out- Exer-Share Outstanding Exercisable for Contractual
Share standing cisable Grant Life
---------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------------
1991 Plan
1991 Plan
June 30, 1995 $1.71(1)$ 1.69(1) 688,000 588,000 488,000 112,00012,000 5 years
Became exercisable -- -- 100,000 -- -----------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1996 $1.71(1) 588,000 588,000 112,000$ 1.69(1) 688,000 688,000 12,000 4 years
Expired in 1997 $1.69$ 1.69 (26,000) (26,000) 26,000 -----------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1997 $1.71(1) 562,000 562,000 138,000$ 1.69(1) 662,000 662,000 38,000 3 years
==============================================================================================Cashless exercise of
options(5) $ 1.69 (140,000) (140,000) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1998 $ 1.69(1) 522,000 522,000 38,000 2 years
- ------------------------------------------------------------------------------------------------------------------------------------
1995 Plan
June 30, 1995 $2.28$ 2.28 400,000 -- 1,100,000 5 years
Granted during 1996 $ 2.25 310,000(3) 10,000 (310,000) --
Became exercisable -- -- 400,000 -- -----------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1996 $2.26$ 2.26 710,000 410,000 790,000 4.5 years
Granted during 1997 $ 2.06(4) 675,000 675,000 (675,000) --
Became exercisable $ 2.28 -- 75,000 -- -----------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1997 $2.10(4)$ 2.10(4) 1,385,000 1,160,000 115,000 4 years
==============================================================================================
F-28
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Weighted Weighted
Average Average
Option Available Remaining
Price Per Out- Exer- for Contractual
Share standing cisable Grant Life
---------------------------------------------------------------------------------------------
Granted during 1998 $ 3.25 98,000 98,000 (98,000) --
Cashless exercise of
options(5) $ 2.06 (24,000) (24,000) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1998 $ 2.18 1,459,000 1,234,000 17,000 3.5 years
- ------------------------------------------------------------------------------------------------------------------------------------
1997 Plan
June 30, 1997 $ -- -- -- -- --
Granted during 1998 $3.32 565,000 485,000 935,000 --
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1998 $3.32 565,000 485,000 935,000 4 years
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Plan Options
June 30, 1995 $1.85 745,000(2) 645,000 -- 4 years
Granted during 1996 2.25$2.25 315,000(3) -- -- -----------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
F-25
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
====================================================================================================================================
Weighted Weighted
Average Average
Option Remaining
Price Available Contractual
Per Share Outstanding Exercisable for Grant Life
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1996 $1.96(1)$1.83(1) 1,060,000 645,000 -- 3.5 years
Became exercisable 2.25$2.25 -- 125,000 -- --
Granted during 1997 1.91$1.91 1,225,000 1,225,000 -- -----------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1997 $1.84(4) 2,285,000 1,995,000 -- 4 years
=============================================================================================Cashless exercise of $2.25 (44,000) (44,000) -- --
options(5)
Granted during 1998 $5.02 190,000 190,000 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1998 $2.08 2,431,000 2,141,000 -- 3.5 years
- ------------------------------------------------------------------------------------------------------------------------------------
(1) During fiscal 1995, the Board of Directors authorized a reduction in the
exercise price. The ending option price per share reflects the reduced
exercise price. During fiscal 1995, approximately 1.1 million options to
purchase common stock were repriced to $1.69.
(2) Options outstanding reflect the effect of certain antidilution provisions.
(3) Options vest over four years with the exception of 10,000 immediately
vesting 1995 Plan options.
(4) In December 1996, 1,490,000 options granted subsequent to June 1995 were
repriced to $2.06 per share.
(5) Options were exercised and immediately sold in one transaction.
In addition to certain stock options and warrants granted to employees, the
Company also issued a total of 925,000 options and warrants to various
consultants and a financial institution relating to various F-29
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
consulting
services, the acquisitions of Weatherly and PlastiChain, and the
new bank
agreement entered into during August 1996. The fair value of such options
and warrants was estimated at approximately $1,079,000. The fair value of
such options and warrants has been expensed except for the fair value
related to acquisitions and the bank financing for which
F-26
[STAMP] U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
these amounts are being amortized over the life of the bank
financing agreement (Note 14) and the excess of cost of net
assets acquired.
(d)(e) Unit Purchase Options
In October 1994, the Company granted six unit purchase
options (UPOs), each consisting of 43,860 shares of the
Company's common stock and Class B Warrants to purchase
43,860 shares of common stock at an exercise price of $2.28.
These UPOs, which expire on August 31, 1999, have a nominal
exercise price. Three of the UPOs were granted to an officer
of the Company for his personal guarantees in connection
with the Easy Gardener acquisition. Three were granted to an
outside consultant for its services in connection with
financing obtained for the Easy Gardener acquisition. The
six UPOs issued with the nominal exercise price were valued
at $400,000 and included in deferred financing costs.
Concurrently, the Company also granted six UPOs, consisting
of the same components, each with a current exercise price
of approximately $75,000, three of which were granted to an
officer of the Company. All these transactions were done in
lieu of cash compensation in consideration for certain
financial consulting and other services and for the personal
guarantee and other collateral provided in connection with
the Company's acquisition of Easy Gardener, Inc., without
which the Company's transaction with Easy Gardener, Inc.
would not have occurred. During 1997, one UPO and the
related warrants were exercised by the outside consultant.
Proceeds to the Company were approximately $175,000.
In connection with the Company's August 1994 Private
Placement, the placement agent and its designees were
granted approximately 28 UPOs exercisable at $100,000 each.
Each UPO consists of 43,860 shares of common stock and
warrants to purchase 43,860 F-30
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
shares of common stock at $2.28
per share. These warrants expire in August 1999, if the
underlying UPO is not exercised. If exercised, the warrants
expire in May 2000. During 1997, 5 UPOs were terminated in a
cashless exercise and approximately 60,000 shares of common
stock was issued.
F-27
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
In December 1997 and May 1998, the Company repurchased and
retired approximately 21 UPOs underlying approximately
1,851,000 shares of common stock for approximately
$3,922,000.
The total shares of common stock issuable upon exercise of
the remaining UPOs, including the underlying warrants, would
be approximately 3,500,0003,000,000 and 3,000,0001,100,000 shares at June 30,
19961997 and 1997.
(e)1998.
(f) Warrants
In connection with certain business transactions and stock
offerings, the Company has granted various warrants to
purchase common stock.
The following schedule will summarize the activity.
Weighted Weighted
Average Average
Option Remaining
Price Per Out- Exer- Contractual
Share standing(1) cisable Life
------------------------------------------------------------------------------------
July 1, 1994 $1.89 1,729,000 1,729,000 3.5 years
Warrants issued in
connection with
private placement 2.28 3,520,000 3,520,000
Warrants issued
with convertible
debenture 2.28 914,000 914,000
Warrants issued 2.75 100,000 100,000
Warrants exercised 1.85 (30,000) (30,000)
-----------------------------------------------------------------------------------
June 30, 1995 2.12 6,233,000 6,233,000 4.5 years
-----------------------------------------------------------------------------------
F-31Weighted Weighted
Average Average
Warrant Remaining
Price Per Contractual
Share Outstanding(1) Exercisale Life
- --------------------------------------------------------------------------------
June 30, 1995 $2.12 6,233,000 6,233,000 4.5 years
Increase for antidilution $2.28 153,000 153,000 -
Warrants exercised $2.24 (770,000) (770,000) -
- --------------------------------------------------------------------------------
June 30, 1996 $2.14 5,616,000 5,616,000 3.5 years
Warrants issued $2.45 525,000 525,000 -
Warrants exercised $2.15 (2,380,000) (2,380,000) -
Expired $6.00 (52,000) (52,000) -
- --------------------------------------------------------------------------------
June 30, 1997 $2.18 3,709,000 3,709,000 3 years
Warrants issued $4.75 250,000 250,000 -
Warrants exercised $2.28 (1,408,000) (1,408,000) -
Expired $2.25 (50,000) (50,000) -
- --------------------------------------------------------------------------------
June 30, 1998 $2.39 2,501,000 2,501,000 2 years
- --------------------------------------------------------------------------------
F-28
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Weighted Weighted
Average Average
Option Remaining
Price Per Out- Exer- Contractual
Share standing(1) cisable Life
------------------------------------------------------------------------------------
Increase for
antidilution 2.28 153,000 153,000
Warrants exercised 2.24 (770,000) (770,000)
-----------------------------------------------------------------------------------
June 30, 1996 2.14 5,616,000 5,616,000 3.5 years
Warrants issued 2.45 525,000 525,000
Warrants exercised 2.15 (2,380,000) (2,380,000)
Expired 6.00 (52,000) (52,000)
-----------------------------------------------------------------------------------
June 30, 1997 $2.18 3,709,000 3,709,000 3 years
===================================================================================
(1) The warrants contain anti-dilution provisions which
could effect the number of shares of common issuable
stock upon the exercise of the warrants as well as the
per share warrant prices. Additionally, these warrants
contain certain redemption provisions.
(f)(g) Common Stock Reserved
At June 30, 1997,1998, approximately 12,700,0009,750,000 shares of common
stock have been reserved for issuance upon the exercise of
warrants, options and UPOs.
(g)(h) Stock Based Compensation
The Company applies APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations in
accounting for the plan.
F-32
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================ Under APB Opinion No. 25, because
the exercise price of the Company stock options equals or
exceeds the market price of the underlying stock on the date
of grant, no compensation cost is recognized.
FASB Statement No. 123, Accounting for Stock-Based
Compensation, requires the Company to provide pro forma
information regarding net loss as if compensation costs for
the Company's stock options and warrants had been determined
in accordance with the fair value based method prescribed in
FASB Statement No. 123. The Company estimates the fair value
of each stock option and warrant at the grant date by using
a modified Black-Scholes pricing model with the following
weighted-average assumptions used for grants in 19961997 and
1997,1998, respectively: no dividend yield for any year; expected
volatility of approximately 30% in both years; risk-free
interest rates of 6.65% and 6.6%; in both years and expected lives of
approximately three to five years. Pro forma compensation
expense associated with options granted to employees
totalled $132,000, $1,566,000 and $1,013,000 in 1996, 1997
and 1998, respectively.
Under the accounting provisions of FASB Statement No. 123,
the Company net income and net income per common share would
have been decreased to the pro forma amounts indicated
below:
F-29
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Years ended June 30, 1996 1997 ---------------------------------------------------------------------------1998
- --------------------------------------------------------------------------------
Net Incomeincome
As reported $2,524,000 $3,183,000 $5,526,000
Pro forma 2,392,000 1,617,000 Per4,513,000
Dilutive per share as reported 0.250.19 0.20 Pro0.24
Dilutive per share pro forma 0.23 0.12
===========================================================================0.18 0.10 0.20
- --------------------------------------------------------------------------------
The above pro forma information includes only the effects of
19961997 and 19971998 grants. Because options potentially vest over
several years and additional awards are made each year, the
results shown above may not be representative of the effects
on net earnings in future years.
F-33
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
10.11. Income Taxes Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes. A valuation allowance
is established for deferred income tax assets when
realization is not deemed more likely than not. Deferred tax
assets (liabilities) consist principally of the following:
June 30, 1996 1997 --------------------------------------------------------------------------1998
-------------------------------------------------------------------------------
Deferred tax assets
Net operating loss carryforwards $1,384,000 $555,000Tax Assets
Alternative minimum and state taxes $ - $ 325,000
Accounts receivable allowance and other 97,000 58,000 --------------------------------------------------------------------------193,000
Net operating loss carryforwards 555,000 192,000
-------------------------------------------------------------------------------
Total deferred tax asset 1,481,000 613,000 710,000
Less valuation allowance (148,000) (165,000) --------------------------------------------------------------------------(188,000)
-------------------------------------------------------------------------------
Net deferred tax asset $1,333,000 $448,000
==========================================================================
--------------------------------------------------------------------------$ 448,000 $ 522,000
===============================================================================
-------------------------------------------------------------------------------
Deferred tax liabilityTax Liability
Depreciation and amortization in
excess of book amount $(328,000) $(547,000) ==========================================================================$(812,000)
===============================================================================
F-30
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
At June 30, 1997,1998, the Company had approximately $1,025,000utilized all of its Federal net
operating loss (NOL) carryforwards available to reduce future Federal taxable income.
These losses are available through 2011.carryforwards. California allows an NOL
carryforward of 50% of a company's California taxable loss. The
carryforward for California purposes, after the 50% reduction, was
approximately $2,217,000$1,449,000 at June 30, 19971998 and expires through 2001.
Use of the Company's NOLs could be limited in the future as a result
of issuance or exercise of stock options and warrants or sale or
F-34
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
issuance of stock. The Company files its tax returns on a calendar
year basis. Because of the seasonal nature of the Company's
operations, the different reporting periods for book and tax purposes
may affect the amount of taxes that will ultimately be payable or
deferred.
At June 30, 19961997 and 1997,1998, the Company established a $148,000$165,000 and
$165,000$188,000 valuation allowance for the benefits pertaining to California
NOLs which are not estimated to be realizable prior to their
expiration. The Company believes that it is more likely than not that
the remaining deferred tax assets will be realized through future
taxable earnings or alternative tax strategies.
The income tax (provision) benefit consists of:
June 30, 1995 1996 1997 ---------------------------------------------------------------------------1998
----------------------------------------------------------------------
Current
Federal $ -- $ -- $ (283,000)(126,000) $(2,104,000)
State (38,000) (290,000) (280,000) ---------------------------------------------------------------------------
(38,000)(570,000)
----------------------------------------------------------------------
(290,000) (563,000)
---------------------------------------------------------------------------(406,000) (2,674,000)
----------------------------------------------------------------------
Deferred
Federal -- 1,013,000 (2,129,000)(2,286,000) (126,000)
State -- (8,000) (56,000) ---------------------------------------------------------------------------
--(65,000)
----------------------------------------------------------------------
1,005,000 (2,185,000)
---------------------------------------------------------------------------
$ (38,000)(2,342,000) (191,000)
----------------------------------------------------------------------
$ 715,000 $(2,748,000) ============================================================================$(2,865,000)
======================================================================
F-31
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The 1997 income tax expense consists of $3,200,000 expense
from continuing operations reduced by a $452,000 benefit
associated with the extraordinary expense. The 1988 income
tax expense consists of $3,600,000 expense from continuing
operations reduced by a $735,000 benefit associated with the
extraordinary expense.
The following is a reconciliation between the Statutory
Federal income tax rate and the Company's effective tax rate
for continuing operations:
F-35
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
1995June 30, 1996 1997 --------------------------------------------------------------------------1998
- --------------------------------------------------------------------------------
Income tax (provision) computed at Federal
Statutory rate (34.0)% (34.0)% (34.0)%
State taxes, net of Federal tax benefits (2.4) (16.5) (4.6) (6.0)
Nondeductible amortization and other (3.6) (4.1) (4.5) (1.1)
Deductible UPOs and stock options - - 7.3
Changes in valuation allowance on deferred tax
asset (37.6) 94.1 (0.2) --------------------------------------------------------------------------(0.2)
- --------------------------------------------------------------------------------
(Provision) benefit for income taxes (2.4)% 39.5% (43.3)% ==========================================================================
11. Concen-
tration(34.0)%
================================================================================
12. Trade Credits In April 1996, the Company entered into an agreement to
exchange unsold assets held for sale for credit against the
future purchase of Credit Riskproducts and Significant
Relationships
Trade accounts receivable are due primarilyservices. This transaction
has been reported at the estimated fair market value of the
assets exchanged by the Company. No gain or loss was
recognized on such transaction as the Company had previously
written down its assets held for sale to their estimated
fair market value. The agreement requires the Company to pay
a portion of the purchase price of the product or services
received. Depending on the nature of the products or
services purchased, the Company will receive a credit
against the future price ranging from numerous customers located
in many geographic regions throughout10% to 45% of the United States.cash
purchase price. The Company performs ongoing credit evaluationswill also receive a percentage
of its customers' financial conditionsthe cash proceeds from the ultimate sale of the assets.
The agreement provides that the Company will receive maximum
total credits and establishes an allowance for doubtful accountscash totaling $1.6 million. The agreement,
which was originally scheduled to expire in April 1999, was
extended during 1998 to April 2002 and requires the Company
to use all credits by this date. The Company expects to use
the credits primarily by purchasing operating assets and
advertising time. The Company expects to use all available
credits by the expiration date and will continually evaluate
this asset based upon the credit
risk of specific customers, historical trendscredits utilized and other information. The
Company does not require collateral from its customers.
During the years ended June 30, 1996 and 1997, sales to two Easy Gardener
customer accounted for approximately 36% (27% and 9%) and 36% (26% and 10%)
of consolidated net sales. Included in accounts receivable at June 30, 1996
and 1997 is $1,440,000 and $2,320,000 due from the largest customer.
During the year ended June 30, 1995, sales to two Easy Gardener customers
accounted for approximately 24% and 9% of consolidated net sales.
Substantially all of Easy Gardener's raw material purchases for
Weedblock(R) inventory, representing approximately 66%, 50% and 22% of the
Company's consolidated raw material purchases during the years ended June
30, 1995, 1996 and 1997, are from one vendor. Management believes that
other suppliers could provide a similar product on comparable terms. A
change in suppliers, however, could cause delays and a possible loss of
sales, which would affectfuture operating
results adversely. Included in accounts
payable at June 30, 1996 and 1997 is $139,000 and $349,000 due to this
vendor.
F-36goals.
F-32
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
12. Supplemental
Cash Flow
Information
13. Supplemental June 30, 1995 1996 1997 -----------------------------------------------------------------------------
1998
Cash Flow ---------------------------------------------------------------------------------------
Information Cash paid during the period for:
Interest, including deferred
financing costs and
extraordinary expense $1,528,000 $1,296,000 $5,816,000 $7,774,000
Taxes $ 10,000 $ 96,000 $ 131,000 =============================================================================
Supplemental Schedule of Non-cash Investing and Financing Activities:
The Company purchased all of the assets of Easy Gardener, Inc. for
$21,283,000 in September 1994.
----------------------------------------------------------------------------
Fair value of assets acquired $ 28,526,000
Cash paid for assets acquired (14,424,000)
Promissory notes (12,783,000)
----------------------------------------------------------------------------
Liabilities assumed $ 1,319,000
============================================================================$2,038,000
=======================================================================================
During 1995, the Company entered into agreements to issue approximately
417,000 sharesSupplemental schedule of common stock, valued at approximately $683,000 as payment
of certain accounts payable.
During 1995, $2,000,000 of convertible debenturesnon-cash investing and related accrued
interest was converted into 914,396 shares of common stock and 914,396
Class B warrants.
During 1995, deferred financing
costs of approximately $400,000 was paid
for by the issuance of 6 UPOs with a nominal exercise price.activities:
During 1996, the Company exchanged assets held for sale with
a book value of approximately $1.4 million for future trade
credits.
During 1997, the Company issued warrants and options for
various consulting services which were valued at
approximately $1,079,000.
F-37
U.S. Home & Garden Inc.During 1998, $350,000 of debt was converted into 154,000
shares of the Company's common stock.
In connection with the business acquisitions in 1997 and
Subsidiaries1998, the following transactions occurred.
1997 1998
---- ----
Fair value of assets acquired $32,935,000 $28,487,000
Liabilities assumed (1,254,000) (354,000)
Promissory Notes to Consolidated Financial Statements
================================================================================
13.(3,323,000) --
----------- -----------
Cash paid for assets acquired $28,358,000 $28,133,000
=========== ===========
14. Extraordinary
Expense As a result of the refinancing of all of the Company's
Expense outstanding debt in August Expense 1996, (See Note 6), the entire balance
of deferred finance costs at June 30, 1996, net of
accumulated amortization, plus certain prepayment penalties
totaling approximately $455,000, was written off as an
extraordinary expense during the year ended June 30, 1997.
14. Earnings per
Share
Earnings per share for 1997 was computed under the guidance of APB 15 using
the modified treasury stock method. The following will detail how the 1997
earning per share figures were calculated.
---------------------------------------------------------------------------
Weighted average common shares
outstanding for the period 13,695,000
Weighted average common share
equivalents 4,213,000
---------------------------------------------------------------------------
17,908,000
===========================================================================
Computation for Statement of Operations
Reconciliation of net income per statement of operations to amount used in
primary earnings per share computation:
---------------------------------------------------------------------------
Income before extraordinary expense,
as reported $ 4,190,000
Add:
Interest (expense reduction) on debt,
net of income tax effect, on application of
assumed proceeds from exercise of
options and warrants in excess of 20%
limitations 450,000
--------------------------------------------------------------------------
Income before extraordinary expense 4,640,000
Extraordinary expense (1,007,000)
--------------------------------------------------------------------------
F-38F-33
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Net income assumed forAs a result of the periodrefinancing of all of the Company's
outstanding debt in computing per shareApril 1998 (see Note 6), the entire
balance of deferred financing costs at April 1, 1998, net of
accumulated amortization, plus certain prepayment penalties
totaling approximately $743,000 was written off as an
extraordinary expense during the year ended June 30, 1998.
15. Earnings
Per Share The following is a reconciliation of the weighted average
number of shares used to compute basic and dilutive earnings
as adjusted $ 3,633,000
--------------------------------------------------------------------------
Income
per share before extra-
ordinary expense $ 0.26
Extraordinary expense (0.06)
--------------------------------------------------------------------------
Net income per share $ 0.20
==========================================================================
15.extraordinary expense:
June 30, 1996 1997 1998
----------------------------------------------------------------------------------------
Basic earnings per common share 10,206,000 13,695,000 17,776,000
Options and warrants 3,155,000 2,373,000 5,032,000
----------------------------------------------------------------------------------------
Dilutive earnings per common share 13,361,000 16,068,000 22,808,000
========================================================================================
16. Subsequent
Events Subsequent to June 30, 1997,1998, the Company signed a $350,000 liability was converted into
154,000 sharesletter of
common stock.Events intent to purchase a manufacturer and distributor of lawn
and garden products for approximately $25,000,000 plus
additional contingent payments based upon future operating
cash flows.
Subsequent to June 30, l997,1998, the Company granted stock options to acquire
600,000repurchased
approximately 793,000 shares of its common stock at $3.25 per share under the 1997 stock
option plan.for
approximately $3,860,000.
During July 1997, 453,000and August 1998, 710,000 warrants were exercised
generating $1,033,000$1,555,000 in cash proceeds to the Company.
On August 22, 1997,Subsequent to June 30, 1998, the Company entered intoreceived a
non-bindingcommitment letter from a bank to provide $25 million of
intent
which providesacquisition financing and a $20 million revolving line of
credit for the acquisition of all of the outstanding shares of
common stock of a company that manufacturers and distributes outdoor lawn
and garden products in exchange for approximately $5,250,000.working capital. The purchase
is subject to the completion of due diligence, approval by the directors of
the Company and the execution and deliverybank are
negotiating final terms of a stock purchasethe agreement.
The letter of intent terminates, without liability, if the acquisition is
not consummated by October 21, 1997.
The Company is involved in a lawsuit in which it has claimed a competitor
has infringed on a product trademark. The competitor has filed a
counter-claim in September 1997 seeking unspecified damages. The Company
does not believe the outcome of this matter will have a material impact on
future operations.
F-39F-34
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Charged to
Beginning Costs and Writeoffs Ending
Balance Expenses of Accounts Balance
- --------------------------------------------------------------------------------
Allowance for Doubtful Accounts
Year ended June 30, 1995 $ 5,000 $ 3,000 $ (3,000) $ 5,000
Year ended June 30, 1996 5,000 167,000 (17,000) 155,000
Year ended June 30, 1997 155,000 323,000 (164,000) 314,000
- --------------------------------------------------------------------------------
F-40
Schedule II-Valuation and Qualifying Accounts
=====================================================================================================================
Beginning Charged to Costs Writeoffs Ending
Balance and Expenses of Accounts Balance
- ---------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts
- -- Year ended June 30, 1996 $ 5,000 $167,000 $ (17,000) $155,000
- -- Year ended June 30, 1997 155,000 323,000 (164,000) 314,000
- -- Year ended June 30, 1998 $ 314,000 $179,000 $ (94,000) $399,000
- ---------------------------------------------------------------------------------------------------------------------
F-35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned thereunto duly authorized.
U.S. Home & Garden Inc.
------------------------------
(Registrant)
By: /s/ Robert Kassel
-------------------------------------------------------------
Robert Kassel, President
Dated: September 29, 199725, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amended report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Robert Kassel Chairman of the Board September 29, 199725, 1998
- --------------------------------------------- of Directors, President
Robert Kassel and Treasurer (Chief
Executive and Financial
Officer)
/s/ Maureen Kassel - ------------------------ Vice-President, September 29, 199725, 1998
- --------------------- Secretary and
Maureen Kassel Secretary and Director
/s/ Richard Raleigh - ------------------------ Chief Operating September 25, 1998
- --------------------- Officer September 29, 1997and Director
Richard Raleigh and Director
/s/ Lynda Gustafson
- ------------------------ Vice President - September 29, 199725, 1998
- --------------------- Finance (Principal
Lynda Gustafson Finance (Principal
FinancialAccounting Officer)
/s/ Jon Schulberg - ------------------------ Director September 29, 199725, 1998
- ---------------------
Jon Schulberg
/s/ Fred Heiden - ------------------------ Director September 29, 199725, 1998
- ---------------------
Fred Heiden