-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QaqwmLtBHzviMhamg3fO6xtbWC2HyqZdIP6Tv0NNxwPzX+PAr4BbelE8GT9gloqw EtABwSYDQYew8F4HLvgQ3Q== 0000891554-97-000521.txt : 19970520 0000891554-97-000521.hdr.sgml : 19970520 ACCESSION NUMBER: 0000891554-97-000521 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: US HOME & GARDEN INC CENTRAL INDEX KEY: 0000879911 STANDARD INDUSTRIAL CLASSIFICATION: TEXTILE MILL PRODUCTS [2200] IRS NUMBER: 770262908 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19899 FILM NUMBER: 97608574 BUSINESS ADDRESS: STREET 1: 655 MONTGOMERY ST STE 830 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4156168111 MAIL ADDRESS: STREET 1: 655 MONTGOMERY ST STREET 2: SUITE 830 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 FORMER COMPANY: FORMER CONFORMED NAME: NATURAL EARTH TECHNOLOGIES INC DATE OF NAME CHANGE: 19930328 10-Q 1 QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 From 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 IRS Employer of incorporation or organization) (Identification Number) 655 Montgomery Street, Suite 830 San Francisco, California 94111 (Address of Principal Executive Offices) (415) 616-8111 (Registrant's Telephone Number, Including Area Code) Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No ____ Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. As of May 5, 1997 there were 14,007,841 shares of the issuer's common stock, par value $.001 per share, outstanding. Part l. - Financial Information Item 1. Consolidated Financial Statements Consolidated balance sheet as of March 31, 1997 and June 30, 1996 (unaudited) 1-3 Consolidated statements of operations for the three months and nine months ended March 31, 1997 and 1996 (unaudited) 4-5 Consolidated statements of cash flows for the nine months ended March 31, 1997 and 1996 (unaudited) 6-7 Notes to consolidated financial statements 8-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 10-17 Part II. - Other Information Item 2. Changes in Securities 18 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19 U.S. Home & Garden Inc. and Subsidiaries Consolidated Balance Sheet ==============================================================================================
March 31, June 30, 1997 1996 - ---------------------------------------------------------------------------------------------- (Unaudited) Assets Current Cash and cash equivalents $ 288,881 $ 679,850 Accounts receivable, less allowance for doubtful accounts and sales returns of $390,000 and $155,000 21,390,335 7,109,392 Inventories 7,625,028 3,391,553 Prepaid expenses and other current assets 352,121 462,246 Deferred tax asset 1,479,150 1,333,000 - ---------------------------------------------------------------------------------------------- Total current assets 31,135,515 12,976,041 Furniture, fixtures and equipment, net 1,925,487 1,215,660 Intangible assets Excess of cost over net assets acquired of Weatherly Consumer Products Group, Inc., net of accumulated amortization of $463,273 20,387,263 - Excess of cost over net assets acquired of Easy Gardener, Inc., net of accumulated amortization of $1,183,678 and $828,289 12,988,529 13,343,918 Excess of cost over net assets acquired of Golden West Chemical Distributors, Inc., net of accumu- lated amortization of $485,782 and $406,903 1,611,821 1,690,700 Excess of cost over net assets acquired of Emerald Products, LLC, net of accumulated amortization of $62,853 and $29,356 772,676 749,375 Deferred financing costs, net of accumulated amor- tization of $194,379 and $467,193 1,555,028 1,004,614 Product rights, patents and trademarks, net of accumulated amortization of $139,374 and $56,500 1,902,170 198,500
1 U.S. Home & Garden Inc. and Subsidiaries Consolidated Balance Sheet ==============================================================================================
March 31, June 30, 1997 1996 - ---------------------------------------------------------------------------------------------- (Unaudited) Assets (continued) Intangible assets (continued) Non-compete agreement, net of accumulated amortiza- tion of $16,062 $ 483,938 $ - Package design, net of accumulated amortization of $92,230 and $56,016 168,618 180,293 Trade credits 1,289,120 1,294,560 Officer receivables 765,445 617,204 Other assets 91,395 313,117 - ---------------------------------------------------------------------------------------------- $ 75,077,005 $33,583,982 ============================================================================================== See accompanying notes to consolidated financial statements.
2 U.S. Home & Garden Inc. and Subsidiaries Consolidated Balance Sheet ==============================================================================================
March 31, June 30, 1997 1996 - ---------------------------------------------------------------------------------------------- (Unaudited) Liabilities and Shareholders' Equity Current Line of credit $ 12,313,040 $ 1,288,146 Current maturities of notes payable 3,840,000 2,361,798 Accounts payable 4,981,699 1,285,585 Accrued expenses 3,598,455 1,085,797 Accrued commissions 743,281 545,670 Accrued interest 325,565 592,271 Accrued purchase consideration 629,403 488,888 - ---------------------------------------------------------------------------------------------- Total current liabilities 26,431,443 7,648,155 Deferred tax liability 328,000 328,000 Notes payable, less current maturities 18,920,000 6,238,200 - ---------------------------------------------------------------------------------------------- Total liabilities 45,679,443 14,214,355 - ---------------------------------------------------------------------------------------------- Commitments, contingency and subsequent event Shareholders' equity Preferred stock, $.001 par value - shares authorized, 1,000,000; no shares outstanding - - Common stock, $.001 par value - shares authorized, 30,000,000; 10,507,381 and 14,007,841 shares issued and outstanding at June 30, 1996 and March 31, 1997 14,008 10,507 Additional paid-in capital 30,557,272 21,413,422 Accumulated deficit (1,173,718) (2,054,302) - ---------------------------------------------------------------------------------------------- Total shareholders' equity 29,397,562 19,369,627 - ---------------------------------------------------------------------------------------------- $ 75,077,005 $33,583,982 ============================================================================================== See accompanying notes to consolidated financial statements.
3 U.S. Home & Garden Inc. and Subsidiaries Consolidated Statements of Operations ==============================================================================================
Three Months Ended Nine Months Ended March 31, March 31, --------------------------- ---------------------------- 1997 1996 1997 1996 - ---------------------------------------------------------------------------------------------- Unaudited Unaudited --------------------------- --------------------------- Net sales $ 20,558,512 $10,760,464 $ 33,497,245 $16,739,802 Cost of sales 9,025,043 5,156,115 14,849,444 8,000,825 - ---------------------------------------------------------------------------------------------- Gross profit 11,533,469 5,604,349 18,647,801 8,738,977 - ---------------------------------------------------------------------------------------------- Operating expenses Selling and shipping 3,704,267 1,954,238 7,693,975 4,271,744 General and administrative 1,834,178 799,337 5,156,546 3,087,148 - ---------------------------------------------------------------------------------------------- 5,538,445 2,753,575 12,850,521 7,358,892 - ---------------------------------------------------------------------------------------------- Income from operations 5,995,024 2,850,774 5,797,280 1,380,085 Other income (expense) Investment income 16,193 19,436 58,651 53,360 Interest expense (993,206) (541,250) (2,368,453) (1,471,352) - ---------------------------------------------------------------------------------------------- Income (loss) before income taxes and extraordinary expense 5,018,011 2,328,960 3,487,478 (37,907) Income tax benefit (expense) (2,075,000) 137,934 (1,600,000) 317,934 - ---------------------------------------------------------------------------------------------- Income before extraordinary expense 2,943,011 2,466,894 1,887,478 280,027 Extraordinary expense of $1,459,266 on debt refinancing, net of income taxes of $452,372 - - (1,006,894) - - ---------------------------------------------------------------------------------------------- Net income $ 2,943,011 $ 2,466,894 $ 880,584 $ 280,027 ==============================================================================================
4 U.S. Home & Garden Inc. and Subsidiaries Consolidated Statements of Operations ==============================================================================================
Three Months Ended Nine Months Ended March 31, March 31, --------------------------- ---------------------------- 1997 1996 1997 1996 - ---------------------------------------------------------------------------------------------- Unaudited Unaudited --------------------------- --------------------------- Income per common share before extraordinary expense $ .14 $ .16 $ .14 $ .03 Extraordinary expense - - (.07) - Net income per common share $ .14 $ .16 $ .07 $ .03 ============================================================================================== Weighted average common and common equivalent shares outstanding 22,696,000 19,002,000 13,552,000 10,127,000 ============================================================================================== See accompanying notes to consolidated financial statements.
5 U.S. Home & Garden Inc. and Subsidiaries Consolidated Statements of Cash Flows ==============================================================================================
Increase (Decrease) in Cash Nine months ended March 31, 1997 1996 - ---------------------------------------------------------------------------------------------- (Unaudited) Cash flows from operating activities Net income $ 880,584 $ 280,027 Adjustments to reconcile net income to net cash used in operating activities: Extraordinary expense 1,006,894 - Depreciation and amortization 1,513,609 634,400 Amortization of deferred financing costs 216,472 187,754 Changes in operating assets and liabilities, net of assets acquired and liabilities assumed: Accounts receivable (12,938,505) (4,971,436) Income tax receivable 1,082,407 - Inventories (2,427,447) (1,848,891) Prepaid expenses and other current assets 224,608 (191,422) Accounts payable and accrued expenses 5,120,304 2,069,543 Other assets 227,162 (369,364) Deferred tax asset 1,091,753 - - ---------------------------------------------------------------------------------------------- Net cash used in operating activities (4,002,159) (4,209,389) - ---------------------------------------------------------------------------------------------- Cash flows from investing activities Payment for purchase of business, net of cash acquired (24,347,251) (1,041,262) Payment for non-compete (500,000) - Increase in officer receivables (148,241) (159,196) Purchase of furniture, fixtures and equipment (476,159) (248,720) Purchase of package design - (93,234) - ---------------------------------------------------------------------------------------------- Net cash used in investing activities (25,471,651) (1,542,412) - ----------------------------------------------------------------------------------------------
6 U.S. Home & Garden Inc. and Subsidiaries Consolidated Statements of Cash Flows ==============================================================================================
Nine months ended March 31, 1997 1996 - ---------------------------------------------------------------------------------------------- (Unaudited) Cash flows from financing activities Proceeds from warrants exercised $ 5,297,352 $ 1,355,743 Proceeds from bank line of credit 27,944,014 10,574,429 Payment on bank line of credit (16,919,120) (5,403,471) Proceeds from notes payable 16,783,335 - Payments of notes payable (2,623,333) (1,200,000) Acquisition finance costs (1,399,407) - - ---------------------------------------------------------------------------------------------- Net cash provided by financing activities 29,082,841 5,326,701 - ---------------------------------------------------------------------------------------------- Net decrease in cash (390,969) (425,100) Cash and cash equivalents, beginning of period 679,850 970,310 - ---------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 288,881 $ 545,210 ============================================================================================== Supplemental disclosure of cash flow information Cash paid for interest, including deferred financing costs $ 4,097,942 $ 1,036,164 Cash paid for taxes $ 13,376 $ 76,403 ============================================================================================== See accompanying notes to consolidated financial statements.
7 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ 1. The accompanying consolidated financial statements at March 31, 1997, and for the three and nine months ended March 31, 1997 and 1996 are unaudited, but, in the opinion of management, include all adjustments necessary for a fair presentation of consolidated financial position and results of operations for the periods presented. 2. Refer to the audited financial statements for the year ended June 30, 1996, for details of accounting policies and accounts. 3. On August 9, 1996, Easy Gardener Acquisition Corporation (EGAC), a wholly-owned subsidiary of the Company, acquired all of the outstanding stock of Weatherly Consumer Products Group, Inc. (Weatherly), a lawn and garden care company, for 1,000,000 shares of the Company's common stock (valued at $3 per share) and $22,937,321, 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 $2.4 million). The Company operates the acquired company as a subsidiary of EGAC. In connection with the above acquisition, the Company's outstanding notes payable were refinanced and a new line of credit arrangement was established. Under the terms of the new loan agreement, two promissory notes were issued in the principal amount of $23,000,000 and $2,250,000, respectively. The $23,000,000 note requires quarterly principal payments ranging from $570,000 to $1,350,000 beginning September 30, 1996 through June 30, 2002 and bears interest at the lower of prime or LIBOR rates, as defined. The $2,250,000 note requires quarterly principal payments totaling $140,625 beginning September 30, 1998, through December 30, 1999, and bears interest at prime plus 6%. The line of credit agreement calls for maximum borrowings totaling $13,000,000 with interest at the lower of prime or LIBOR rates. As a result of this refinancing, the entire balance of deferred finance costs at June 30, 1996, net of accumulated amortization, plus certain prepayment penalties, was written off as an extraordinary expense during the six months ended December 31, 1996. Extraordinary expense, net of $452,000 tax benefit, totaled approximately $1,007,000 in the nine months ended March 31, 1997. In conjunction with the debt refinancing, a warrant to purchase 400,000 shares of stock at $2.50 per share was issued to certain financial institutions which provided the financing. The warrant has been valued at $350,000 and is being amortized over the six-year term of the financing agreement. 8 U.S. Home & Garden Inc. and Subsidiaries Notes to Consolidated Financial Statements ================================================================================ Subsequent to June 30, 1996, warrants and a unit purchase option to purchase common stock were exercised resulting in net proceeds to the Company of approximately $5,200,000. These proceeds were used to fund a portion of the Weatherly acquisition. Subsequent to June 30, 1996, the Company granted stock options (with an exercise price equal to the current market price) to purchase 2,115,000 shares of common stock to various employees and consultants primarily as bonus compensation for fiscal 1996 operating results and the Weatherly acquisition. In addition, the Company also granted an option to purchase 200,000 shares of common stock to a financial consultant for services relating to the Weatherly acquisition. The option has a nominal exercise price and will be recorded as a cost of the acquisition (estimated fair value approximately $500,000), thus increasing the excess of cost over net assets acquired of Weatherly. The acquisition was accounted for as a purchase and, accordingly, the results of operations of Weatherly have been included in the consolidated statement of the operations since August 9, 1996. The value of intangibles purchased and the excess of the purchase price over the fair value of assets acquired totalled approximately $20.8 million and will be amortized on a straight line basis over the estimated useful life of thirty years. The following unaudited pro forma summary combines the consolidated results of operations of the Company and Weatherly as if the acquisition had occurred at the beginning of fiscal 1995, after giving effect to certain adjustments, including the amortization of excess costs over assets acquired and the elimination of certain expenses incurred by Weatherly related to the acquisition. This pro forma summary does not necessarily reflect the results of operations as they would have been if the Company and Weatherly had constituted a single entity during such period and is not necessarily indicative of results which may be obtained in the future. Nine months ended March 31, 1997 1996 - -------------------------------------------------------------------------------- Net sales $ 34,239,000 $ 30,497,000 Net income before extraordinary expense 1,514,000 801,000 Net loss (12,000) (725,000) Net income per common share before extraordinary expense .11 .06 Net income (loss) per common share -- (.05) ================================================================================ 9 ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General On August 9, 1996, Easy Gardener Acquisition Corp. ("EGAC"), a subsidiary of the Company, acquired all of the outstanding stock of Weatherly Consumer Products Group, Inc., ("Weatherly"), a lawn and garden care company. See Note 3 of Notes to the Consolidated Financial Statements for a description of certain terms of the acquisition. THREE MONTHS ENDED MARCH 31, 1997 AND 1996 The Company's consolidated net sales increased to $20,558,512 during the three months ended March 31, 1997 from $10,760,464 during the comparable period in 1996. The increase in net sales resulted from the inclusion of Weatherly's sales of approximately $7,756,000 during the three months ended March 31, 1997 compared to $0 in the comparable period in 1996. In addition, approximately $2,036,000 of the increase in sales resulted from an increase in shipments of EGAC's products from the comparable period in 1996. The Company believes that its sales were positively affected by the continued penetration in existing markets, expansion into new markets and a higher recognition of EGAC's brand name and products. The Company's consolidated cost of goods sold and gross profit generated during the quarter ended March 31, 1997 were also higher than the comparable period in 1996 primarily due to the increase in net sales and the inclusion of Weatherly's costs of goods sold and gross profit. Gross profit as a percentage of net sales, for the three months ended March 31, 1997 and 1996 was 56% and 52%, respectively. This increase is due to the addition of Weatherly's products which have a higher gross profit percentage. The Company's consolidated selling and shipping expenses increased to $3,704,267 during the three months ended March 31, 1997 from $1,954,238 during the comparable period in 1996 primarily as a result of the increase in net sales and the attendant increase in selling and shipping expenses as a result of the acquisition of Weatherly. Selling and shipping expenses as a percentage of net sales for the three months ended March 31, 1997 remained constant at 18% compared to the comparable period in 1996. The Company's consolidated general and administrative expenses increased to $1,834,178 during the three months ended March 31, 10 1997 from $799,337 during the comparable period in 1996 primarily as a result of the inclusion of Weatherly expenses. In addition, the increase in general and administrative expenses was due to the overhead expenses associated with the overall increase in the size of the Company. General and administrative expenses, as a percentage of net sales, for the three months ended March 31, 1997 increased from 7% to 9% when compared to the comparable period in 1996. The Company's consolidated interest expense increased to $993,206 during the three months ended March 31, 1997 from $541,250 during the comparable period in 1996 primarily due to the increase in outstanding indebtedness which was incurred in connection with the purchase of Weatherly. The Company's consolidated income tax expense increased to $2,075,000 during the three months ended March 31, 1997 from a tax benefit of $137,934 during the comparable period in 1996 primarily due to the Company's reduction of the deferred tax asset valuation allowance associated with the available net operating loss carryforwards. As a result of the foregoing, the Company incurred a consolidated net income of $2,943,011 in the three months ended March 31, 1997 compared to a consolidated net income of $2,466,894 in the comparable 1996 period. NINE MONTHS ENDED MARCH 31, 1997 AND 1996 The Company's consolidated net sales increased to $33,497,245 during the nine months ended March 31, 1997 from $16,739,802 during the comparable period in 1996. The increase in net sales resulted primarily from the inclusion of Weatherly's sales of approximately $12,321,000 during the nine months ended March 31, 1997 compared to $0 in the comparable period in 1996. In addition, approximately $4,598,000 of the increase in sales resulted from an increase in shipments of EGAC's products from the comparable period in 1996. Furthermore, the Company believes that its sales were positively affected by the continued penetration in existing markets, expansion into new markets and a higher recognition of EGAC's brand name and products. The Company's consolidated cost of goods sold and gross profit generated during the nine months ended March 31, 1997 were also higher than the comparable period in 1996 primarily due to the increase in net sales and the inclusion of Weatherly's costs of goods sold and gross profit. Gross profit as a percentage of net sales, for the nine months ended March 31, 1997 and 1996 was 56% and 52%, respectively. This increase is due to the addition of Weatherly's products which have a higher gross profit percentage. The Company's consolidated selling and shipping expenses 11 increased to $7,693,975 during the nine months ended March 31, 1997 from $4,271,744 during the comparable period in 1996 primarily as a result of the increase in net sales and the attendant increase in selling and shipping expenses as a result of the acquisition of Weatherly. Selling and shipping expenses as a percentage of net sales for the nine months ended March 31, 1997 decreased from 26% to 23% compared to the comparable period in 1996 primarily as a result of economies of scales gained from the sale of new products to existing customers and the commencement of the consolidation of EGAC and Weatherly. The Company's consolidated general and administrative expenses increased to $5,156,546 during the nine months ended March 31, 1997 from $3,087,148 during the comparable period in 1996 primarily as a result of the inclusion of Weatherly expenses. In addition, the increase in general and administrative expenses was due to the overhead expenses associated with the overall increase in the size of the Company. General and administrative expenses, as a percentage of net sales, for the nine months ended March 31, 1997 decreased from 18% to 15% compared to the comparable period in 1996. The decrease is attributed to the commencement of the consolidation of Easy Gardener and Weatherly. The Company's consolidated interest expense increased to $2,368,453 during the nine months ended March 31, 1997 from $1,471,352 during the comparable period in 1996 primarily due to the increase in outstanding indebtedness which was incurred in connection with the purchase of Weatherly. The Company's consolidated income tax expense increased to $1,600,000, during the nine months ended March 31, 1997 from an income tax benefit of $317,934 during the comparable period in 1996 primarily due to the Company's reduction of the deferred tax asset valuation allowance associated with net operating loss carryforwards. In connection with the Weatherly acquisition, during the nine months ended March 31, 1997, the Company incurred an extraordinary expense on the refinancing, at a more favorable rate, of outstanding notes payable and an outstanding revolving credit facility. As a result of the refinancing, the Company incurred an extraordinary expense of $1,006,894 ($1,459,266 net of $452,372 of tax benefit), or $.07 per share. There was no comparable expense in the corresponding 1996 period. The extraordinary expense consists of the balance of deferred finance costs, net of accumulated amortization, plus certain prepayment penalties. See " Liquidity and Capital Resources". As a result of the foregoing, the Company incurred a consolidated net income of $880,584 in the nine months ended March 31, 1997 compared to a consolidated net income of $280,027 in the comparable 1996 period. 12 Liquidity and Capital Resources From inception the Company has financed its operations primarily through net proceeds from the Company's private and public sales of securities and borrowings from lending institutions. At March 31, 1997, the Company had consolidated cash and short-term investments totalling $288,881 and working capital of $4,821,284. At June 30, 1996, the Company had consolidated cash and short-term investments totalling $679,850 and working capital of $5,327,886. The decrease in working capital from June 30, 1996 is due primarily to the additional notes payable, line of credit and additional accrued purchase consideration for the acquisition of the outstanding stock of Weatherly. Additionally, the seasonal fluctuations in the Company's operations has resulted in a decrease in working capital from June 30, 1996. Net cash used in operating activities for the nine months ended March 31, 1997 was $4,002,159 consisting primarily of a decrease in accounts receivable, a decrease in inventory offset by the extraordinary expense, an increase in accounts payable and accrued expenses and an increase in depreciation and amortization. Net cash used in investing activities for the nine months ended March 31, 1997 was $25,471,651 consisting primarily of cash used for the acquisition of Weatherly. Net cash provided by financing activities for the nine months ended March 31, 1997 was $29,082,841 consisting primarily of the additional proceeds from the notes payable used in connection with the purchase of Weatherly, the increase in the bank line of credit due to seasonality and the exercising of warrants to purchase common stock which was substantially used for the purchase of Weatherly. At March 31, 1997 the Company had consolidated term debt of $22,760,000 million which was incurred in connection with the purchase of Weatherly and the refinancing of EGAC'S outstanding notes payable. In connection with the acquisition of Weatherly, EGAC entered into a new credit agreement ("Credit Agreement") with certain institutional lenders under which its outstanding term loan and revolving credit indebtedness were refinanced. Pursuant to the Credit Agreement, the lenders have provided the Company with the following revolving credit and term loan facilities: (a) Revolving Credit Facility: The maximum amount available for borrowing under this facility from time to time is equal to the lesser of $13 million and a borrowing base determined by reference to specified percentages of EGAC's consolidated accounts receivable and inventory deemed to be "eligible" by the lenders. For the period of December 1, 1996 through February 28, 1997 the Company has received a temporary overadvance on the borrowing base for $3,100,000. As of March 31, 1997, based on this formula 13 $13,000,000 was available for borrowing and $12,313,040 was outstanding. In April 1997, the Revolving Credit Facility was amended to provide the Company with an additional $3,000,000 in available borrowing during the months of February, March, April and May of each fiscal year. Any additional borrowing must be paid by May 31st of the year in which borrowed. This additional increase is for the working capital needs during the peak season months and has the same "eligible" requirements as the original amount. Revolving credit loans bear interest at an annual rate chosen by EGAC based on the prime rate of one of the lenders or LIBOR (the London inter-bank offered rate) plus an applicable marginal rate. At March 31, 1997 the effective annual rate for the 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 each year, all outstanding revolving credit loans must be paid and no revolving credit loans may be borrowed. Revolving credit loans may be voluntarily prepaid at any time. Subject to the availability formula and the Expiration Date, amounts repaid may be reborrowed and, subject to certain restrictions, outstanding prime rate loans may be converted to LIBOR rate loans. EGAC is also required to pay certain commitment, service and other fees in connection with this facility. If EGAC determines to terminate the revolving credit facility prior to the Expiration Date, the outstanding revolving credit loan must be prepaid together with a premium from 1% to 3% of the "Average Yearly Loan Balance" (as defined in the Credit Agreement) of the revolving credit loans. (b) Term Loan Facility: Pursuant to this facility, EGAC obtained two term loans (the "Term Loans"), one in the principal amount of $23 million ("Term Loan I") and the other in the principal amount of $2.25 million ("Term Loan II"), each of which matures on the Expiration Date. The Term Loans 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. Interest on Term Loan I is payable, at the election of EGAC, at the adjusted prime rate or LIBOR rate described above, and EGAC from time to time, subject to certain restrictions, may convert Term Loan I from a prime rate loan to a LIBOR rate loan. The effective annual rate of interest for Term Loan I is 9.75%. Term Loan II bears interest at a floating rate equal to the prime rate of one of the lenders plus 6%. The effective annual rate of interest for Term Loan II is 14.5%. Interest 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 3 months or less. If EGAC elects to prepay Term Loan I in full, at any time prior to the Expiration Date, EGAC is also obligated to prepay a premium from 1% to 3% of the amount prepaid. Term Loan I is subject to certain mandatory prepayments of the principal amount of such Term Loan from "excess 14 cash flow" (as defined in the Credit Agreement) of EGAC and certain net proceeds of asset sales, condemnation awards and insurance recoveries. The next mandatory prepayment of the principal amount of the Term Loan I on account of "excess cash flow", if any, will be due in October 1997. EGAC's obligation to pay the principal of, the interest on, and/or 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 EGAC and its subsidiaries and the irrevocable guarantees of the Company and EGAC's subsidiaries of such obligations. Upon the occurrence of events 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 EGAC and its subsidiaries. Under the Credit Agreement (a) EGAC is required, among other things, to comply with certain limitations on incurring additional indebtedness, liens, guarantees, capital and operating lease expenses in excess of a specified amount per year, and sales of assets and payment of dividends, (b) EGAC and the Company must comply with certain limitations on merger, liquidations, changes in business, investments, loans and advances, or certain acquisition of subsidiaries. In addition, EGAC must comply with certain minimum interest coverage, debt service and fixed change rates, not permit its Net Worth (as defined) to be less than certain amounts and generate certain minimum amounts of income before interest expenses, taxes, depreciation and amortization. A violation of any of these covenants constitutes an event of default under the Credit Agreement. The Company's cash flow and capital requirements are typically affected by the seasonal nature of its business. Sales of the Company's lawn and garden care products, including EGAC's, are highly seasonal, with the shipments of products heavily concentrated in the spring and summer. Sales of the Company's agricultural products, through its subsidiary Golden West Agri-Products, Inc., ("Golden West"), are also seasonal. Most shipments of Golden West's products occur during the period from March through October (the agricultural cultivation period), with orders by agricultural distributors generally placed a month prior to shipment. The Company's results of operations may be severely adversely affected by poor weather conditions. Prolonged periods of poor weather conditions could result in reduced consumer weekend purchases of do-it-yourself lawn and garden care products and reduced agricultural planting, thereby reducing sales of the Company's products. In addition, unexpected production or transportation difficulties occurring at a time of peak production could cause sales losses which would not be readily reversed before the following year. 15 The Company believes that the consolidated operations of EGAC will generate sufficient cash flow to service the debt incurred in connection with the acquisition of the assets of Easy Gardener, Inc. ("EGI"), and the acquisition of Weatherly. However, if such cash flow is not sufficient to service the debt, the Company will be required to seek additional financing which may not be available on commercially acceptable terms or at all. In addition, the Company has commenced amortizing over 30 years approximately $14,170,000 of goodwill related to the purchase of the assets of EGI (being the value of the cost over the value of the assets acquired). Furthermore, the Company has commenced amortizing over 20 years approximately $836,000 of goodwill related to the purchase of Emerald Products, LLC. The Company is already amortizing approximately $105,000 per year of goodwill relating to the acquisition of Golden West. As of August 9, 1996, in connection with the purchase of Weatherly, the Company has commenced amortizing approximately $20,850,000 of goodwill over 30 years. Operating income for the quarter ended March 31, 1997 was reduced by approximately $341,000 as a result of the amortization of goodwill for all acquisitions consummated prior to March 31, 1997. In April 1996, the Company entered into an agreement with an unaffiliated company pursuant to which it sold all of the remaining inventory of Power Gardener units, as well as, the manufacturing rights and manufacturing molds relating to the Power Gardener product in consideration for $1,600,000 of trade credits. To the extent the unaffiliated company sells Power Gardener units it will remit a specified percentage of the net cash proceeds of such sales to the Company which will proportionately reduce the value of the trade credits received by the Company. The trade credits are for advertising media, equipment and services. The trade credits expire three years from the date of the agreement. As of March 31, 1997, the Company has a deferred tax asset of $1,479,150 the majority relating to the tax benefit associated with the accumulated net operating losses of approximately $2,600,000 for Federal income tax purposes which expire in 2009 and approximately $1.2 million of net operating loss tax benefits acquired in the Weatherly acquisition. The Company believes that with the successful implementation of the September 1994 acquisition of the assets of EGI and the most recent Weatherly acquisition in August 1996, realization of this asset is more likely than not. For California income tax purposes, the Company has accumulated net operating losses of approximately $1,900,000 which expire through 2000. 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 allowance relating to the majority of the estimated $180,000 benefit associated with the California net operating loss carryovers. In January 1997, the Company borrowed $550,000, in the aggregate, from an individual and an institutional lender. The loans are being used to satisfy short term working capital requirements. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which is effective for both interim and annual periods ending after December 15, 1997. Earlier application is not permitted. The Company accordingly plans to adopt SFAS No. 128 in its December 31, 1997 interim financial statements. The Company has not yet determined the effect that SFAS No. 128 will have on the earnings per share, if it had been adopted in the first quarter of fiscal 1997. 16 In May 1997, the Company purchased certain assets from Plastic Molded Concepts, Inc. relating to its Plasti-Chain(R) line of products for $4,315,911. The Plasti-Chain(R) product line consists of an assortment of plastic chain links and decorative edgings. In connection with the acquisition, the Company increased its term debt by $3,800,000 with the balance of the purchase price funded by the Revolving Credit Facility. The new term debt is payable in November 1997. The Company intends to pursue a growth strategy through the acquisition of products and/or companies. The Company anticipates that it will require additional financing to fund any additional acquisitions. 17 PART II - OTHER INFORMATION Item 2 Changes in Securities During the quarter ended March 31, 1997, the Company issued warrants to purchase 50,000 shares of its common stock, exercisable at $2.34 to a financial consultant to the Company for services rendered to the Company. In addition, the Company issued a $350,000 convertible promissory note which is currently convertible into 153,509 shares of common stock and a five year warrant to purchase 50,000 shares of common stock exercisable at 2.28 per share. The note and warrant were issued to the lender in consideration of certain loans made to the Company. The issuances of the securities described above were deemed to be exempt from registration under the Securities Act of 1933 in reliance upon Section 4(2) thereof as transactions not involving a public offering. Item 6. Exhibits and Reports on Form 8-K a. Exhibits 11.1 Statement of Computation of Per Share Earnings. 27 Financial Data Schedule (for SEC use only) b. No reports on Form 8-K were filed for the quarter in which this report is filed. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. U.S. HOME & GARDEN INC. (Registrant) Date: May 12, 1997 By: /s/ Robert Kassel ------------------------------- Robert Kassel, President, Chief Executive Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer) 19 EX-11.1 2 STATEMENT OF COMPUTATION OF PER SHARE EARNINGS Exhibit 11.1 U.S. HOME AND GARDEN, INC. Statement of Computation of Per Share Earnings
Three months ended Nine months ended March 31, March 31, -------------------------------------------------------------- 1997 1996 1997 1996 -------------------------------------------------------------- Weighted average common shares outstanding for the period 13,973,000 10,342,000 13,552,000 10,127,000 Weighted average common share equivalents 8,723,000 8,660,000 -------------------------------------------------------------- 22,696,000 19,002,000 13,552,000 10,127,000 ============================================================== Computation for Statement of Operations - -------------------------------------------------------------------- Reconciliation of net income per statement of operations to amount used in primary earnings per share computation: Net income for the period $ 2,943,011 $ 2,466,894 $ 880,584 $ 280,027 Add: Interest on debt, net of tax effect, on application of 236,651 477,250 assumed proceeds from exercise of options and warrants in excess of 20% limitation Add: Interest earned on proceeds in excess of those 41,780 -------------------------------------------------------------- assumed applied to retire debt, net of tax effect net income assumed for the period of calculation of per $ 3,179,662 $ 2,985,924 $ 880,584 $ 280,027 ============================================================== share earnings, as adjusted Net income per share $0.14 $0.16 $0.07 $0.03 ==============================================================
Note: a separate calculation of common share equivalents and the corresponding reconciliation of net income to amount used in primary earnings per share computation was not provided for the nine months ended March 31, 1997 and 1996 because it results in dilution of less than 3%. EX-27 3 ART. 5 FDS FOR 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AT MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JUN-30-1997 MAR-31-1997 288,881 0 21,780,335 390,000 7,625,028 31,135,515 1,925,487 0 75,077,005 26,431,443 0 0 0 14,008 29,383,554 75,077,005 33,497,245 33,497,245 14,849,444 14,889,444 0 0 2,368,453 3,487,478 1,600,000 1,887,478 0 (1,006,894) 0 880,584 .07 .07
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