UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996. Commission file number 1-12614
SEVENTH GENERATION, INC.
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(Name of small business issuer in its charter)
Vermont 03-0300509
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization
1 Mill St., Box A26, Burlington, Vermont 05401-1530
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (802) 658-3773
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of exchange on which registered
Common Stock, $.000333 par value Boston Stock Exchange
Redeemable Common Stock Purchase Warrants Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for the fiscal year ended December 31, 1996: $5,191,563
The aggregate market value of the voting stock held by non-affiliates of the
registrant (without admitting that any person whose shares are not included in
determining such value is an affiliate) was approximately $1,252,022 as of
February 14, 1997 (computed by reference to the average of the bid and ask
price of such stock on the OTC Bulletin Board). The number of shares of Common
Stock, $.000333 par value, outstanding as of February 14, 1997, was 2,428,791.
The number of Redeemable Common Stock Purchase Warrants outstanding as of
February 14, 1997 was 1,562,994.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required in response to Part III of Form 10-KSB is hereby
incorporated by reference to the specified portions of the registrant's Proxy
Statement for the 1997 Annual Meeting of Stockholders to be held May 5, 1997.
TOTAL NUMBER OF PAGES: 37 EXHIBIT INDEX APPEARS ON PAGE: 31
PART I
Item 1. Business
Introduction
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Seventh Generation, Inc.'s primary strategic objective is to establish
Seventh Generation(r) as the leading brand name for environmentally responsible
consumer products. Seventh Generation, Inc. (the "Company" ) was incorporated
in Vermont in September 1988 under the name Niche Marketing Services, Inc. and
began active operations in September 1988 when it published the first edition
of the Seventh Generation(r) Catalog. The Company's name was changed to Seventh
Generation, Inc. in May 1989. The Company believes that today it is one of the
leading marketers of environmentally friendly household products in the United
States. The Company sells Seventh Generation(r) brand name products through
distributors to natural products stores throughout the United States and in
Western Canada, is expanding sales of its brand name products into upscale
supermarkets primarily in the Northeast and West Coast, and the Company is
developing new distribution channels primarily in partnership with non-profits
seeking to raise funds. The Company's products are also marketed through the
Seventh Generation(r) mail order catalog (the "Catalog"), which was sold to
Gaiam, Inc. ("Gaiam") on May 24, 1995, and is operated by Gaiam using the
Seventh Generation(r) trademarked name pursuant to a Licensing Agreement further
described below.
Seventh Generation(r) brand name products include: paper towels, bathroom
and facial tissues, napkins and paper plates that are all made from 100%
recycled fiber and are manufactured without the use of chlorine bleach; cleaning
and laundry products that are non-toxic, renewable-resource based, phosphate-
free and biodegradable; plastic trash bags made from 100% recycled plastic; and
feminine hygiene products. The Company markets and distributes, but does not
manufacture, its products.
The Company takes its name from the Great Law of the Haudenosaunee (Six
Nation Iroquois Confederacy): "In our every deliberation, we must consider the
impact of our decisions on the next seven generations." This American Indian
quote expresses the concern that our planet is a fragile and delicate place
that is only temporarily entrusted to our care, and that our actions have
repercussions that will affect future generations. The Company tries to honor
this philosophy by developing and marketing products which have minimal adverse
impact on the environment and protect the planet for this generation and those
to come.
The Market for Environmentally Friendly Products
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The Company's primary customers are consumers who are concerned about the
environment. Recent studies indicate that there are a large number of people
who identify themselves as environmentalists and who act upon this concern and
purchase "green" products. A number of reports issued over the past year,
briefly summarized below, confirm this view.
The October 1996 issue of the Natural Foods Merchandiser, which summarized
a new study by the Hartman Group in Seattle, stated that, according to the
study, "the market potential for earth-sustainable products is enormous, with
at least 52% of food consumers willing or eager to buy the products... Concern
about the environment is edging into the core criteria that the majority of
consumers use to make purchasing decisions."
The March/April 1996 issue of Private Label magazine, reporting on key
growth categories in the supermarket industry, found that "natural foods" sales
dollars grew 19.58% from 1994 to 1995. The study, based on Infoscan supermarket
data, determined that the category was the sixth fastest growing category of
the 243 categories they track.
In a third report, as further evidence of this trend, for the second year
in a row, sales of natural products were reported to grow in 1995 by greater
than 20% over 1994. This growth brings total sales in natural/health food
stores and health food chains up to $7.39 billion, according to the June 1996
issue of the Natural Foods Merchandiser. This represents tremendous expansion
in an industry that had total sales of under $1 billion in 1980. The expansion
of the natural and health food industry is driven by "Americans' search for
natural, effective and safe health-care solutions," according to the magazine.
The Company's marketing strategy is focused on growing sales and becoming
a key supplier to targeted retailers and distributors that are participating
in this growing market. The Company's strategy is in part to obtain a strategic
advantage with its social and environmental reputation as it competes with many
larger and better capitalized companies.
The Company believes that the market for "green" products within more
traditional retail outlets will experience significant growth in the coming
years. The Company believes that its expansion into supermarkets and the other
new distribution channels that it is exploring will allow it to participate in
this growth and expand sales into a significantly larger market than it has to
date.
Products and Product Development
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The Company strives to be a pioneer and leader in the marketing of
environmental benefits in consumer products, and believes it is equally
important to develop competitively priced, high-quality products. In
addition, the Company strives to present to its customers complete and
detailed information about the positive environmental impact of the
products the Company sells, and believes this is an important value-added
service.
The Company markets products in a number of categories, including:
paper products, such as bathroom and facial tissues, paper towels, napkins, and
plates; a diverse range of non-toxic, biodegradable laundry and cleaning
products; and personal care products, including baby wipes and feminine
hygiene products. To help ensure the quality and performance of the Company's
primary brand name products, they are subjected to independent laboratory
testing which compares them to the leading industry brands.
The Company considers the development of new products and the improvement
of its current products to be an important part of its overall business
strategy. The Company's senior management is directly involved in both of
these activities. The Company estimates that in fiscal 1995 and 1996 it
spent approximately $50,000 to develop new branded products. The Company
generally passes through research and development costs to its customers in
the prices it charges for its products.
In 1996 the Company introduced the following new products: 100% recycled,
unbleached paper plates, and ultra fabric softener made with canola oil instead
of animal tallow and petroleum derivatives. The Company also introduced
improved versions of its non-chlorine bleach; glass, all-purpose, and toilet
bowl cleaners; and automatic dishwashing detergent.
The Company does not manufacture its products. During 1996, the Company
purchased products from 12 suppliers. The Company relied on three suppliers
for approximately 84% of its inventory purchases in 1996 (up from 72% in 1995).
The Company has no long-term contracts with any of its suppliers.
Although the Company is not a manufacturer, as a seller of products it
is exposed to potential liability and maintains product liability insurance.
During its history, product liability claims have not resulted in any material
liabilities for the Company. There can be no assurance, however, that the
Company will not experience legal claims in excess of its insurance coverage or
claims which are ultimately not covered by insurance. If any claims are
instituted against the Company, the Company's business may be affected by
related negative publicity.
Brand Development
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As part of the Company's commitment to disseminating environmental
information to consumers, its product packaging, point of sale materials, and
sales literature include educational information to help consumers make
informed buying decisions. For example, the packaging on each roll of the
Company's paper towels informs the consumer that: "If every household in the
U.S. replaced just one roll of 180 sheet virgin fiber paper towels with 100%
recycled ones, we would save - 864,000 trees - 3.4 million cubic feet of
landfill space, equal to 3,900 full garbage trucks - 354 million gallons of
water, one year's supply for 10,100 families of four." Additionally, the
Company's President, Jeffrey Hollender, authored a book published by W.W.
Norton & Co. in March 1995 entitled "How to Make the World a Better Place - 116
Ways You Can Make a Difference", and often speaks at universities, trade shows
and conferences.
In 1996, the Company published "Frequently Asked Questions about Chlorine,"
the first in a series of educational brochures. The series is an integral part
of the Company's ongoing public education campaign. The campaign will focus on
answering frequently asked questions that consumers have about the environment
and environmental products. The educational series is available free to the
public and will be distributed by mail and through natural products stores
nationally. The second publication in this series, "Frequently Asked Questions
about Petroleum and Household Cleaners," will be published in the first quarter
of 1997.
The Company believes that each of these activities builds an understanding
of environmental issues, thereby broadening the market for its products and
enhancing the credibility of the Seventh Generation(r) brand name.
Social & Environmental Responsibility
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The Company's commitment to Social and Environmental Responsibility is
achieved through its actions in a number of different areas:
Environmentally Responsible Products:
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Seventh Generation, Inc.'s mission is: "To provide high quality,
environmentally conscious products that are safer for your home, your
neighborhood, and the Earth's environment. We are dedicated to providing
competitively-priced products that work comparably to leading brands, fit
effortlessly into your everyday life, and put a smile on your face whenever
you use them."
Consumer Education:
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The Company's product packaging and educational materials, such as our
"Frequently Asked Questions" series, help consumers understand "how they
can make a difference." All of the Company's products provide specific
examples such as: "If every household in the U.S. replaced just one roll
of 500 sheet virgin fiber bathroom tissues with 100% recycled ones, we
could save: 297,000 trees, 1.2 million cubic feet of landfill space, equal
to 1,400 full garbage trucks, and 122 million gallons of water, a year's
supply for 3,500 families of four."
Human Resource Policies:
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The challenge of creating a healthy workplace and treating employees
with the respect and dignity they deserve is as important to Seventh
Generation, Inc. as the care that goes into the Company's products.
Policies such as providing comprehensive health insurance at no cost to
employees, coverage for unmarried and same sex partners, education and
training paid for by the Company, flex-time, tele-commuting, and a work
environment that supports and encourages open and honest communication are
some of the ways the Company supports its staff.
Supporting Community Organizations and Environmental Non-Profits:
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The Company has consistently supported community organizations and
environmental non-profits with product donations and a limited amount of
cash contributions. Some of the groups the Company has supported include:
National Audubon Society, Tree People, and the Missouri Recycling Association.
Additionally, the Company recently created the "Shop & Care" program, through
which non-profits can sell Seventh Generation(r) brand products to their
members. Two examples of the non-profits currently participating in this
program are: Citizen Action and Co-op America. The Company also supports
a number of organizations through its membership in them, including:
Vermont Businesses for Social Responsibility, the Social Venture Network,
and Green Seal Environmental Partners.
Social and Environmental Campaigning:
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The Company has participated in a number of Social and Environmental
Campaigns, including the Stonyfield Yogurt Campaign to support appropriate
environmental legislation, Vermont Businesses for Social Responsibility
lobbying efforts for the "Sustainable Jobs Fund," Mothers for Natural Law's
Campaign for labeling of genetically engineered food, and the Kids First
Campaign to end childhood hunger and poverty in Vermont.
The Company has won numerous awards and recognition for its environmental
activities. In the Council on Economic Priorities 1993 publication of
Shopping for a Better World, the Company received the Council's top rating
for its environmental activities. The Company also won the State of Vermont
1993 Governor's Achievement Award for the Procurement of Recycled Products,
and the 1993 Chittenden County Vermont Partners in Recycling Award. In 1994,
the Company was acknowledged by receiving the "New England Environmental
Award," the first ever "Edison Award for Environmental Achievement" from
the American Marketing Association, the "Environmental Marketing
Communications Award" from the Professional Environmental Marketing
Association, and an Award from the Massachusetts Packaging Challenge.
In addition, in 1995, the Company received the "Green Seal Award," an
"Environmental Stewardship Challenge Award" from the Direct Marketing
Association, and the National Waste Prevention Coalition award for "Most
Responsible Mailer." In 1996 the Company was recognized for its exemplary
efforts to educate consumers by the Natural Products Industry's Socially
Responsible Business Group.
Marketing
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The Company's marketing activities have included public relations programs
that have led to news coverage on television, in magazines and in newspapers,
in-store point of purchase displays and educational literature, participation
in environmental events and activities, trade promotions directed to the
natural products and grocery industries, and the licensing of its name for
use on the Gaiam, Inc. mail order catalog which is distributed directly to
consumers.
The Company's current marketing activities are designed to enable it to
avoid more costly traditional marketing campaigns. The Company believes that
these activities have effectively begun to build awareness of the Seventh
Generation(r) brand name. The Company's marketing strategy also focuses on
its innovative products, corporate activities that demonstrate the Company's
environmental leadership, educational activities, and the public profile of
the Company's Chief Executive Officer, Jeffrey A. Hollender. Information
and environmental education can be found in almost all Company communications.
Until its sale in May 1995, the Company's primary method of product
distribution was the Seventh Generation(r) mail order catalog. The Company
published its first edition of the Catalog in September 1988. On May 24,
1995, the Company entered into an Asset Purchase Agreement whereby the
Company sold the assets of its catalog business to Gaiam, Inc. and entered
into a Licensing Agreement, pursuant to which the Company has granted to
Gaiam the right to use Seventh Generation(r) as the name of its mail order
catalog. Furthermore, through a Supply Agreement with Gaiam, the Company
currently markets its brand name products in the Seventh Generation(r) mail
order catalog.
Wholesale Distribution
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Natural Products Industry
In January 1992, the Company launched its wholesale distribution program
through which the Company began to market its Seventh Generation(r) brand
name products to natural products retailers. Today, Seventh Generation(r)
brand name products are available in the natural products industry's larger
retail chains. In 1996, the Company's sales to the natural products
industry grew significantly over sales in 1995 as a result of continued
market penetration, new product introductions, and consumer promotions.
The Company's primary focus in 1997 is expected to be its efforts to
introduce new products and expand distribution in the natural products
industry.
Some of the merchandise categories in which the Company sells its
Seventh Generation(r) brand products to the natural products industry have
experienced "dramatic sales increases" during 1996, according to the
February 1997 issue of Natural Foods Merchandiser, citing a SPINS
Distributor Information report. The SPINS data, which covered category
growth in sales dollars during the first ten months of 1996, reported that
cleaning products overall grew 36.9%, with dish products growing 46.5% and
laundry products up 29.8%. Paper products also showed strong growth with
paper towels up 47.4% and other paper items such as facial tissue and paper
plates up 40.6%. The Natural Foods Merchandiser article observes that,
"With dollar sales of environmentally friendly general merchandise products
growing at more than twice the rate of the natural products industry
overall, there is considerable opportunity in this segment for both
marketers and merchandisers."
Mass Market Retail Outlets
--------------------------
The Company believes that entry into upscale supermarkets will allow it
to expose Seventh Generation(r) brand name products to additional consumers
interested in "green products." Expansion into this market also represents
a logical growth path since the product categories represented by the
Company's brand name products are primarily purchased in supermarkets.
Supermarkets are currently stocking natural and environmental products.
The March/April 1996 issue of Private Label magazine reporting on key growth
categories in the supermarket industry found that "natural food" sales
dollars grew 19.58% from 1994 to 1995. The study, based on Infoscan
supermarket data, determined that the "natural food" category was the sixth
fastest growing of the 243 categories they track.
In January 1995, the Company made its first sales to supermarkets in the
Northeastern United States. The Company's sales efforts are now focused
primarily on upscale supermarket retailers and wholesalers. Although the
Company is starting to realize sales to this market segment, there can be
no assurance that the Company will be successful with its sales and marketing
strategy.
The Company plans to continue with its primary focus of expanding
distribution in the natural products industry and to continue sales to
supermarket chains in the Northeast, coupled with brand name product sales
to catalog companies. The Company continues to explore other opportunities
to expand distribution. The Company's sales to natural products stores and
supermarkets are generally made to distributors who resell the products to
retail outlets. The Company had sales of approximately 62.4% to three
customers during the year ended December 31, 1996 and had accounts receivable
of approximately 52.5% from two customers as of December 31, 1996.
Competition
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Companies selling similar consumer products compete on price, quality,
product features and benefits, brand credibility and customer service. The
environmental products marketplace is becoming increasingly competitive, with
a number of competitive brands now on the market. Many of these competitors
may have an advantage over the Company because they manufacture the products
they sell.
In addition, the Company's competitors and other large consumer products
companies who may decide to develop competitive products may have financial
resources, distribution capabilities and marketing experience superior to
that of the Company.
Transactions with Gaiam
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In connection with the sale of assets to Gaiam for $1,270,000 and the
assumption of over $500,000 in liabilities, the Company also entered into a
Licensing Agreement, pursuant to which the Company has granted Gaiam the
limited right to use the Seventh Generation(r) trademark in connection with
a consumer mail order catalog. Gaiam has paid the Company an initial license
fee of $200,000 and must pay an annual license fee of $100,000, commencing
May 25, 1997, if it continues to license the use of the trademark. Gaiam is
currently testing an alternative name on the mail order catalog it purchased
from the Company and may choose at any time to discontinue use of the Seventh
Generation(r) name.
At the same time, the Company entered into a Supply Agreement with Gaiam.
As a result of this Supply Agreement, the Company sells its brand name products
to Gaiam and Gaiam resells those products through its Seventh Generation(r)
mail order catalog. Gaiam has agreed to purchase, as part of the Supply
Agreement, a minimum of $2,500,000 of brand name products over a three year
period, beginning on May 24, 1995, at cost plus 20%. After Gaiam has purchased
this minimum amount of product, the Company is required to sell additional
product to Gaiam at cost plus 5%. As of December 31, 1996, Gaiam had
purchased approximately $2,188,000 of product under the Supply Agreement, of
which approximately $1,822,000 is applicable towards the minimum. The Company
anticipates that Gaiam will fulfill its obligations under the Supply Agreement
at some point in the second or third quarter of 1997.
The Company also entered into an Operating Agreement whereby some of the
Company's management assisted Gaiam with the operation of its Seventh
Generation(r) mail order catalog, and certain office and personnel expenses
were shared between the two companies. This Operating Agreement helped lower
the Company's overall operating expenses. During the year ended December 31,
1995, the Company was reimbursed for approximately $275,000 of expenses. The
Operating Agreement expired on January 31, 1996. A new Agreement, the
"Reimbursement Agreement," of more limited scope than the Operating Agreement,
was signed on April 11, 1996, covering the period from February 1, 1996 to
December 31, 1996. During that period the Company was reimbursed approximately
$109,000. The Reimbursement Agreement terminated at the end of 1996. This will
cause the Company to incur approximately $109,000 in additional expenses during
the 1997. This, however, will allow Jeffrey Hollender, the Company's President
and CEO, to devote 100% of his time to the Company's wholesale business.
The Company also entered into a Non-Compete Agreement with Gaiam, in which
the Company agreed not to sell environmental products directly to end users
through a mail order catalog operated by the Company.
The Company and Gaiam are currently negotiating the terms of any continuing
relationship between the companies. At this date, it is unclear how long Gaiam
will continue to license the Seventh Generation(r) name for use on its catalog
or how long and to what extent Gaiam will continue to sell Seventh
Generation(r) products.
Trademarks
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The Company is the owner of United States Service Mark Registration No.
1,637,211 for the name Seventh Generation(r) covering mail order catalog
services. This registration expires on March 5, 2001, but may be renewed on
that date and each 10 years thereafter, so long as the Company continues to use
the name on its mail order catalogs. The Company is also the owner of United
States Trademark Registration No. 1,847,543 for the name Seventh Generation(r)
covering its branded products. This registration expires on August 2, 2004, but
may be renewed on that date and each ten years thereafter.
The Company is the owner of United States Registration No. 1,957,311 for
the slogan "Products For a Healthy Planet" covering its branded products.
This registration expires on February 20, 2006, but may be renewed on that
date and each ten years thereafter.
The Company also uses the Seventh Generation(r) name in connection with
mail order catalog services and on its branded products in Canada. The Company
is the owner of Canadian Trademark Application No. 737,171 for the name Seventh
Generation covering mail order catalog services and its branded products. The
Company expects this application to issue in the near future as a Canadian
registration.
The Company believes that its ability to market its products has been
based largely on its reputation as a reliable source of environmentally
friendly products and that its use of the Seventh Generation(r) name is
integral to its business.
Government Regulation
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The Company must remain in compliance with a variety of laws, regulations
and guidelines issued by the Federal Trade Commission and the states' attorneys
general, as well as other agencies, with respect to the use of environmental
marketing claims on packaging, and in other advertising and marketing
literature. While the time and cost of compliance with such laws and
regulations is not material, if the Company were to fail to comply with
their requirements, it could be assessed fines and penalties that could
damage the Company and its reputation.
Employees and Consultants
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As of December 31, 1996, the Company had seven full-time employees. The
Company engages consultants on an ongoing basis.
Item 2. Properties
The Company currently rents 1,200 square feet at One Mill Street,
Burlington, Vermont, at which the Company's marketing and administrative
staff is located. The Company's inventories are held in public warehouses
in New Jersey and California. The Company believes that these facilities are
adequate for its present needs.
Item 3. Legal Proceedings
From time to time, the Company is engaged in various types of disputes
concerning trademark issues, product performance and liability issues, and
other matters in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock is traded on the National Association of
Securities Dealers, Inc. ("NASDAQ") OTC Bulletin Board under the symbol
"SVNG" and on the Boston Stock Exchange under the symbol "SGN". The Company's
Redeemable Common Stock Purchase Warrants are traded on the NASDAQ OTC
Bulletin Board under the symbol "SVNGW" and on the Boston Stock Exchange
under the symbol "SGN&W".
The Company's securities have traded on the NASDAQ OTC Bulletin Board
since June 22, 1995 on the basis of actual trading prices. Prior to such
date, the Company's securities traded on the NASDAQ SmallCap Market system
on the basis of actual trading prices. The following table sets forth the
range of quarterly high and low bid quotations for the period from January 1,
1995 to December 31, 1996, as furnished by NASDAQ. The quotations represent
inter-dealer quotations without adjustment for retail markups, markdowns, or
commissions, and may not necessarily represent actual transactions.
COMMON STOCK
Calendar 1996: HIGH LOW
Fourth Quarter 1.00 .44
Third Quarter 1.50 .75
Second Quarter 1.88 .56
First Quarter .81 .38
Calendar 1995: HIGH LOW
Fourth Quarter .63 .25
Third Quarter .44 .38
Second Quarter .88 .31
First Quarter 1.00 .25
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Calendar 1996: HIGH LOW
Fourth Quarter .06 .00
Third Quarter .22 .06
Second Quarter .22 .06
First Quarter .16 .03
Calendar 1995: HIGH LOW
Fourth Quarter .03 .03
Third Quarter .06 .03
Second Quarter .09 .03
First Quarter .25 .03
The Company has not declared or paid cash dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future. At
February 5, 1997, the approximate number of Stockholders of Record of the
Company's Common Stock was 146 and the approximate number of beneficial owners
was 1,248.
On December 18, 1996, the holder of an outstanding convertible debenture
with a principal balance of $100,000, convertible into Common Stock of the
Company at $6.67 per share, a due date of February 28, 1997 and an interest
rate of 12%, agreed to extend the due date to February 29, 2002. The extended
debenture bears an interest rate of 12% per annum and is convertible into
Common Stock of the Company at $6.67 per share until February 28, 1999.
Thereafter, at the Company's option, either (i) the debenture will continue
to bear interest at the rate of 12% per annum and be convertible into Common
Stock at the fair market value of the Company's Common Stock as of February 28,
1999, or (ii) the debenture will bear interest at the rate of 18% per annum.
To the extent such amendment involved an offering of securities, the Company
relied on Sections 3(a)(9) and 4(2) of the Securities Act of 1933, as amended,
for exemptions from the registration requirements of Section 5 of such Act.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company, including the notes thereto:
Overview
- --------
With the exception of historical information, the matters discussed in the
following analysis are forward-looking statements, as that term is defined in
the Private Securities Litigation Reform Act of 1995. The Company cautions
investors that there can be no assurance that actual results or business
conditions will not differ materially from those projected or suggested in
such forward-looking statements as a result of various risk factors, including,
but not limited to, continuing relationships with the Company's key customers,
the stability of the Company's suppliers, their manufacturing capacity and the
availability of raw materials, economic conditions, the regulatory and trade
environment, competitive products and pricing, the risk of entering into new
market segments, product demand, ability to enforce trademarks, and other
unforeseen risks and uncertainties.
Seventh Generation, Inc.'s primary strategic objective is to establish
Seventh Generation(r) as the leading brand name for environmentally responsible
consumer products. The Company believes that today it is one of the leading
marketers of environmentally friendly household products in the United States.
The Company sells Seventh Generation(r) brand name products through
distributors to natural products stores throughout the United States and in
Western Canada, is expanding sales of its brand name products into upscale
supermarkets primarily in the Northeast and West Coast, and the Company is
developing new distribution channels primarily in partnership with non-profits
seeking to raise funds. The Company has recently started a program called
"Shop & Care," which the Company designed to help non-profit organizations
raise funds by selling the Company's products. The Company's products
are also marketed through the Seventh Generation(r) mail order catalog
(the "Catalog"), which was sold to Gaiam on May 24, 1995, and is operated
by Gaiam using the Seventh Generation(r) trademarked name pursuant to a
Licensing Agreement further described below.
Seventh Generation(r) brand name products include: paper towels, bathroom
and facial tissues, napkins and paper plates that are all made from 100%
recycled fiber and are manufactured without the use of chlorine bleach;
cleaning and laundry products that are non-toxic, renewable-resource based,
phosphate-free and biodegradable; plastic trash bags made from 100% recycled
plastic; and feminine hygiene products. The Company markets and distributes,
but does not manufacture, its products.
Seventh Generation(r) brand name products are available in natural products
retail stores. In the year ended December 31, 1996, the Company's sales to the
natural products industry grew significantly over sales in the year ended
December 31, 1995 as a result of continued market penetration, increased
consumer promotions, and new product introductions. The Company plans to
continue its efforts to introduce new products and expand distribution in the
natural products industry.
In January 1995, the Company made its first sales to supermarkets in the
Northeastern United States. The Company's sales efforts are focused primarily
on upscale supermarket retailers and wholesalers. Sales to this market segment
in the year ended December 31, 1996 grew significantly over the year ended
December 31, 1995 as a result of increased market penetration and consumer
promotions.
The Company plans to continue with its primary focus of expanding
distribution in the natural products industry and to continue sales to
supermarket chains in the Northeast and West Coast, coupled with brand
name product sales to mail order catalogs, primarily the Seventh Generation(r)
mail order catalog operated by Gaiam. The Company continues to explore other
opportunities to expand distribution, including the new Shop & Care (TM)
program.
Results of Operations
- ---------------------
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company's Consolidated Statement of Operations for the year ended
December 31, 1995 presents the catalog operations and the gain on the sale
of the catalog assets in the "Discontinued Operations" section of the
Statement.
Operations
Sales to natural products accounts, supermarkets, Gaiam and other
customers during the year ended December 31, 1996 were $5,191,563, compared
to $3,188,507 during the year ended December 31, 1995, an increase of
$2,003,056, or 62.8%. This favorable performance was due primarily to the
continued growth of sales to natural products accounts and the growth of
sales to supermarkets and Gaiam.
Gross profit was $1,562,761, compared to $1,016,436 during 1995, an
increase of $546,325, or 53.8%. Gross profit was 30.1% as a percentage of
sales, compared to 31.9% in 1995.
Operating expenses were $1,812,414, or 34.9% of sales, compared to
$1,315,742, or 41.3% of sales during 1995. While operating expenses declined
as a percentage of sales, primarily as a result of the growth in sales, the
additional expenditures were due primarily to variable selling and marketing
expenses, which increase with additional sales volume, start-up costs related
to the Company's new Shop & Care (TM) marketing program, the settlement of
the Ulin & Holland lawsuit, of which approximately $36,000 was recognized in
1996, and increased general and administrative expenses due to a reduction in
reimbursements from Gaiam. Included as a reduction in operating expenses is
the effect of reimbursement by Gaiam to the Company of approximately $109,000
under the Reimbursement Agreement described below, as compared to
approximately $275,000 in the 1995 period.
The loss from continuing operations in 1996 was $263,926, compared to
$132,949 in 1995, an increase of $130,977. The increase can be attributed to
a reduction in licensing revenue of $175,000 for the use of the Seventh
Generation(r) name on the Gaiam mail order catalog, and the increased
operating expenses listed above. Losses in the 1995 period were reduced as
a result of the recognition of $187,500 in licensing fees from Gaiam for the
use of the Seventh Generation(r) name on the Gaiam mail order catalog, as
compared to $12,500 during 1996. The lower amount adversely affected the
results of the Company's continuing operations in comparison to 1995. Net
interest expense decreased in 1996 as a result of the repayment of $180,000
in subordinated convertible debentures in February of 1996.
Transactions with Gaiam
Pursuant to a Supply Agreement with Gaiam, the Company now sells its
brand name products to Gaiam, which Gaiam resells through its mail order
catalog. These sales increased the Company's wholesale sales in 1996. Gross
margins from these sales of 16.7% are lower than on natural products and
supermarket sales. As part of the Supply Agreement, Gaiam is obligated to
purchase from the Company a minimum of $2,500,000 of brand name products
over a three year period, beginning May 24, 1995, at cost plus 20%. After
Gaiam has purchased this minimum amount of product, the Company is required
to sell additional product to Gaiam at cost plus 5%. During the year ended
December 31, 1996, Gaiam purchased approximately $1,306,000 of product under
the terms of the Supply Agreement, of which approximately $1,080,000 is
applicable towards the minimum. As of December 31, 1996, Gaiam has purchased
approximately $2,188,000 of product under the Supply Agreement, of which
approximately $1,822,000 is applicable toward the minimum, leaving a balance
to purchase of approximately $678,000. The Company anticipates that Gaiam
will fulfill its obligations under the Supply Agreement at some point in the
second or third quarter of 1997.
The Company also entered into an Operating Agreement whereby some of the
Company's management assisted Gaiam with the operation of its Seventh
Generation(r) mail order catalog, and certain office and personnel expenses
were shared between the two companies. This Operating Agreement helped lower
the Company's overall operating expenses. The Operating Agreement expired on
January 31, 1996. During the year ended December 31, 1995, the Company was
reimbursed for approximately $275,000 of expenses. A new Agreement, the
"Reimbursement Agreement," of more limited scope than the Operating Agreement,
was signed on April 11, 1996, covering the period from February 1, 1996 to
December 31, 1996. During that period the Company was reimbursed
approximately $109,000. The Reimbursement Agreement terminated at the end
of 1996. This will cause the Company to incur approximately $109,000 in
additional expenses during the 1997. This, however, will allow Jeffrey
Hollender, the Company's President and CEO, to devote 100% of his time to
the Company's wholesale business.
The Company also entered into a Licensing Agreement, pursuant to which
the Company has granted Gaiam the limited right to use the Seventh
Generation(r) trademark in connection with a consumer mail order catalog.
Gaiam has paid the Company an initial license fee of $200,000 and must
pay an annual license fee of $100,000, commencing May 25, 1997, if it
continues to use the rights. Gaiam is currently testing an alternative
name on the mail order catalog it purchased from the Company and may
choose at any time to discontinue use of the Seventh Generation(r) name.
During 1996, $12,500 of licensing revenue was recognized, as compared
to $187,500 in 1995.
The Company and Gaiam are currently negotiating the terms of any
continuing relationship between the companies. At this date, it is
unclear how long Gaiam will continue to license the Seventh Generation(r)
name for use on its catalog or how long and to what extent Gaiam will
continue to sell Seventh Generation(r) products.
If Gaiam reduces or terminates product purchases, the Company's revenues
are likely to decline, and the Company may have reduced buying power leading
to higher product costs. However, the Company may experience increased gross
margins as the Company sells product to Gaiam at lower prices than to other
customers. The Company cannot predict the net impact of either sales to
Gaiam at a 5% markup or reduced sales to Gaiam at this time.
Discontinued Operations
The Company had no activity from discontinued operations in 1996. This
compares to a loss of $123,530 in 1995 from the operation of the catalog
business. Additionally, in 1995, the gain on disposal of discontinued catalog
operations was $760,105.
Summary
Sales during the year ended December 31, 1996 were $5,191,563, compared
to $3,188,507 during the year ended December 31, 1995, an increase of
$2,003,056, or 62.8%. Gross profits were 30.1% of sales, compared to 31.9%
in 1995. Operating expenses were 34.9% of sales, compared to 41.3% of sales
in 1995, an improvement of 6.4%. The net loss from continuing operations
for the year ended December 31, 1996 was $263,926, compared to $132,949 in
the year ended December 31, 1995, an increase of $130,977. Included in the
net loss from continuing operations for the year ended December 31, 1996 is
$12,500 in licensing revenue, compared to $187,500 during the year ended
December 31, 1995, a decrease of $175,000.
The net loss for the year ended December 31, 1996 was $263,926, compared
to the net income of $503,626 in 1995, a decrease of $767,552. The 1995
profit includes the $760,105 gain on disposal of discontinued catalog
operations and $123,530 net loss from discontinued catalog operations.
Liquidity and Capital Resources
The Company has historically financed its operations through equity and
debt financing. During its history, the Company has raised $12,265,432 in
equity investments, while generating $11,369,156 in accumulated deficits
through December 31, 1996.
On May 24, 1995, the Company sold the assets of the Catalog to Gaiam.
The infusion of cash from the sale, the payments received under the associated
Supply, Operating (subsequently re-named the "Reimbursement Agreement") and
Licensing Agreements, the elimination of the catalog operating losses, and
the discontinued need for capital resources necessary to fund catalog
marketing costs and inventories, are all significant factors in improving
the liquidity of the Company. The catalog asset sale provided the Company
immediate liquidity and has allowed the Company, through the Supply
Agreement, to continue to market its brand name products in the Seventh
Generation(r) mail order catalog, while reducing the operating loss
exposure and capital requirements which had been a continual drain on the
Company's resources. Furthermore, the sale of the catalog has allowed the
Company to concentrate its efforts and resources on expanding the
distribution of its brand name products to the natural products industry,
regional supermarkets, other mail order catalogs, and new channels
of distribution.
The Company's sales strategy is to focus primarily on the natural products
industry and, secondarily, on sales to select supermarkets, mail order
catalogs, and other new distribution channels that the Company is exploring
without having to materially increase its operating costs, including the
Shop & Care (TM) program mentioned above. This approach is designed to
reduce the Company's risks by focusing sales efforts on primarily those
accounts who serve customers similar to the Company's current account base.
This has helped to reduce operating expenses and losses as a percentage
of sales.
The Company relies primarily on a non-traditional marketing strategy to
stimulate consumer trial and repeat purchases in natural products stores and
supermarkets, rather than more costly traditional marketing strategies such
as television advertising and mass-delivered consumer promotions. However,
some traditional marketing expenses have been and will continue to be incurred
on a limited basis. Although the Company has started to realize sales to
supermarkets, there can be no assurance that the Company will be successful
with its marketing strategy.
The Company incurred during 1995 and 1996, and expects to continue to
incur during 1997, expenditures to support the expansion of its wholesale
distribution business. At a minimum, the Company will need to purchase
additional inventory and incur additional marketing expenses. The Company
will also incur expenditures relating to trade and consumer marketing,
package design, and the development of the "Shop & Care" program. If the
planned expansion is successful, the Company will have to increase its
inventory and carry a higher level of receivables, both of which will impact
the Company's liquidity.
During the year ended December 31, 1996, the Company used $376,470 of its
available cash balances. The Company used approximately $56,000 to increase
its prepaid expenses. The Company realized approximately $185,000 by
reducing its accounts receivable and used approximately $50,000 by
increasing its inventories. The reduction in accounts receivable is
viewed as a temporary difference due to timing issues. Additionally, the
Company has used approximately $64,000 of its available cash to reduce
accounts payable to take advantage of cash discount terms with its vendors.
The Company has paid approximately $56,000 for legal costs and the payment
of the settlement of the Ulin & Holland lawsuit. On February 29, 1996,
the Company repaid $180,000 of its outstanding 10% Subordinated Convertible
Debentures. As of December 31, 1996, the Company's primary sources of
liquidity were approximately $1,233,000 in cash and approximately $485,000
in accounts receivable.
The Company has three customers whose purchases of the Company's products
accounted for more than 10% each of the Company's total sales in 1996,
collectively accounting for 62.4% of the Company's sales. The loss of any of
these customers, a decision by one of them to significantly reduce its
purchases, or any disruption to the relationship the Company maintains
with them, could affect the Company's liquidity.
As the Company continues its expansion into natural products stores and
targeted supermarkets in the Northeast, West Coast, and other targeted markets,
it plans to carefully monitor its expenses, and will focus on reducing them
where possible. During the year ended December 31, 1996, the Company's loss
from continuing operations was $263,926, compared to $132,949 in 1995, an
increase of $130,977. A factor in the Company's increased loss during this
period was the $175,000 decline in licensing revenue realized in comparison
to the 1995 period. Future licensing revenue is uncertain at this time.
Additionally, the decline in reimbursements under the Reimbursement Agreement
in 1996 in comparison to reimbursements under the Operating Agreement in 1995
was approximately $166,000. Since the Company will not receive further
reimbursements, the Company will need to absorb these costs during the
future. In 1996, the Company also invested approximately $113,000 in
developing the "Shop & Care" program.
While the Company did not reach operating levels during 1996 to allow it
to be profitable, management believes that it has taken the steps necessary
to control losses while building the business. Prior to 1996, the Company
experienced liquidity problems from time to time, which resulted in
insufficient resources to pay its creditors within terms. The sale of the
catalog assets to Gaiam, and GaiamOs assumption of certain liabilities and
the significant reduction in operating loss, has significantly improved the
Company's liquidity. The Company is current in all of its obligations. The
Company's working capital as of December 31, 1996 was approximately $1,681,000,
and the current ratio (current assets/current liabilities) was 5 to 1. The
Company believes that the cash infusion from the Catalog sale, together with
a manageable level of operating losses, will allow the Company sufficient
liquidity to pay its obligations on a timely basis for at least the next year.
The Company's longer term liquidity will depend on the Company's ability to
generate profits from operations and to refinance its existing indebtedness
and obtain refinancing.
The Company repaid $180,000 in subordinated convertible debentures in
February of 1996. On December 18, 1996, the holder of an outstanding
convertible debenture with a principal balance of $100,000, convertible into
Common Stock of the Company at $6.67 per share, a due date of
February 28, 1997 and an interest rate of 12%, agreed to extend the due date
to February 29, 2002. The extended debenture bears an interest rate of 12%
per annum and is convertible into Common Stock of the Company at $6.67 per
share until February 28, 1999. Thereafter, at the Company's option, either
(i) the debenture will continue to bear interest at the rate of 12% per annum
and be convertible into Common Stock at the fair market value of the Company's
Common Stock as of February 28, 1999, or (ii) the debenture will bear interest
at the rate of 18% per annum. In February 1998, $620,000 of debentures are
scheduled to come due, with an additional $100,000 due in November of 1998.
The Company is exploring alternatives for extending or refinancing these
debentures. The Company's success in these matters is likely to affect the
Company's results from operations in 1998. The Company's inability to extend
the due dates of these debentures or replace them with alternate financing
would adversely effect the Company's liquidity. There is no assurance that
the Company will be able to arrange alternate financing.
The Company faced a number of significant challenges prior to mid-1995.
The sale of the Catalog assets to Gaiam, however, has allowed the Company to
eliminate the losses from its catalog business and put the Company in a
significantly improved liquidity position. Management believes the Company
has positioned itself to control its losses and continue the expansion of its
revenue base in order to achieve profitability, while pursuing its mission of
making Seventh Generation(r) the leading brand of environmentally friendly
household products.
Item 7. Financial Statements
The following consolidated financial statements of the Company and
Independent Auditors Report are included in Item 7 of this report:
* Independent Auditors' Report.
* Consolidated Balance Sheets as of December 31, 1996 and 1995.
* Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995.
* Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996 and 1995.
* Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995.
* Notes to Consolidated Financial Statements.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Seventh Generation, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of Seventh
Generation, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Seventh
Generation, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand, L.L.P.
Albany, New York
February 21, 1997
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
SEVENTH GENERATION, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and December 31, 1995
ASSETS
<TABLE>
. December 31, December 31,
. 1996 1995
. ===================== =====================
.
.
.
<S> <C> <C>
.Current assets:
. Cash and cash equivalents $ 1,233,006 $ 1,609,476
. Accounts receivable-trade, net of allowance for doubtful
. accounts of $20,191 and $39,850 at December 30, 1996 and
. December 31, 1995, respectively 480,568 600,534
. Accounts receivable-other 3,868 49,118
. Inventories 234,349 183,977
. Other assets 153,117 97,351
. --------------------- ---------------------
.
. Total current assets 2,104,908 2,540,456
. --------------------- ---------------------
.
.Equipment:
. Computer equipment 45,636 37,990
. Office equipment and furniture 32,648 27,948
. --------------------- ---------------------
. 78,284 65,938
.
. Less accumulated depreciation and amortization 54,926 42,877
. --------------------- ---------------------
.
. Equipment, net 23,358 23,061
. --------------------- ---------------------
.
.
. Deposits and other assets 11,427 14,203
. --------------------- ---------------------
.
. Total assets $ 2,139,693 $ 2,577,720
. ===================== =====================
.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SEVENTH GENERATION, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and December 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
. December 31, December 31,
. 1996 1995
. ===================== =====================
.
<S> <C> <C>
.Current liabilities:
. Current installments of subordinated convertible debentures $ $ 180,000
. Accounts payable-trade 234,499 298,507
. Other accrued expenses 188,918 106,511
. Deferred income 12,500
. --------------------- ---------------------
.
. Total current liabilities 423,417 597,518
.
.Long-term debt:
. Subordinated convertible debentures,
. excluding current installments 820,000 820,000
. --------------------- ---------------------
.
. Total liabilities 1,243,417 1,417,518
. --------------------- ---------------------
.
.Commitments and contingencies
.
.Stockholders' equity:
. Preferred stock - $.001 par value; 2,500,000 shares authorized;
. none issued
. Common stock-$.000333 par value; 15,000,000 shares authorized;
. 2,428,791 shares issued and outstanding in 1996 and 1995 809 809
. Additional paid-in capital 12,264,623 12,264,623
. Accumulated deficit (11,369,156) (11,105,230)
. --------------------- ---------------------
.
. Total stockholders' equity 896,276 1,160,202
. --------------------- ---------------------
.
. Total liabilities and stockholders' equity $ 2,139,693 $ 2,577,720
. ===================== =====================
.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SEVENTH GENERATION, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
. For the Year Ended
. December 31, December 31,
. 1996 1995
. =================== ====================
.
<S> <C> <C>
.Sales $ 5,191,563 $ 3,188,507
.Cost of sales 3,628,802 2,172,071
. ------------------- --------------------
.Gross profit 1,562,761 1,016,436
.Other operating income 12,500 187,500
. ------------------- --------------------
. 1,575,261 1,203,936
. ------------------- --------------------
.Operating expenses:
. Selling and marketing expenses 855,588 539,764
. Operations and distribution expenses 393,609 349,276
. General and administrative expenses 563,217 426,702
. ------------------- --------------------
. Total operating expenses 1,812,414 1,315,742
. ------------------- --------------------
. Loss from continuing operations (237,153) (111,806)
. ------------------- --------------------
.Other income/(expense):
. Interest income 60,805 83,243
. Interest expense (86,626) (103,434)
. Other (952) (952)
. ------------------- --------------------
. Total other expense, net (26,773) (21,143)
. ------------------- --------------------
.
.Net loss from continuing operations (263,926) (132,949)
. ------------------- --------------------
.Discontinued operations:
. Loss from discontinued operations (123,530)
. Gain on disposal of discontinued operations 760,105
. ------------------- --------------------
.Income from discontinued operations 636,575
. ------------------- --------------------
. Net (loss) income $ (263,926) $ 503,626
. =================== ====================
.
.(Loss) income per common share:
. Loss from continuing operations $ (0.11) $ (0.05)
. Loss from discontinued catalog operation (0.05)
. Gain on disposal of discontinued catalog operation 0.31
. ------------------- --------------------
.Net (loss) income per common share $ (0.11) $ 0.21
. =================== ====================
.
.Weighted average shares outstanding during the period 2,428,791 2,428,791
. =================== ====================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SEVENTH GENERATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
. Common Stock Additional Total
. ------------ Paid-In Accumulated Stockholders'
. Shares Amount Capital Deficit Equity
. ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
.BALANCE AT DECEMBER 31, 1994 2,428,791 $ 809 $ 12,264,623 $ (11,608,856) $ 656,576
.
. Net income 503,626 503,626
. ---------- ------ ------------- -------------- -----------
.
.BALANCE AT DECEMBER 31, 1995 2,428,791 809 12,264,623 (11,105,230) 1,160,202
.
. Net loss (263,926) (263,926)
. ---------- ------ ------------- -------------- -----------
.
.BALANCE AT DECEMBER 31, 1996 2,428,791 809 12,264,623 (11,369,156) 896,276
. ========== ====== ============= ============== ===========
.
.
.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SEVENTH GENERATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
. For the Years Ended
. December 31, December 31,
. 1996 1995
. ===================== =====================
.
<S> <C> <C>
.Cash flows from operating activities:
. Net loss $ (263,926) $ 503,626
. Adjustments to reconcile net (loss) income to net cash
. used in operating activities:
.
. Gain on disposal of discontinued operations (760,105)
. Depreciation and amortization 13,001 10,110
. Provision for doubtful accounts (19,659) 22,800
.
. Changes in assets and liabilities:
. Decrease (increase) in accounts receivable-trade 139,625 (258,341)
. Decrease in accounts receivable-other 45,250 6,009
. Increase in inventories (50,372) (37,697)
. Increase in other assets (55,766) (4,369)
. Decrease in deposits and other assets 1,824 27,486
. Decrease in accounts payable-trade (64,008) (153,974)
. Increase (decrease) in accrued expenses 82,407 (44,999)
. (Decrease) increase in deferred income (12,500) 12,500
. Net effect of discontinued operations (45,327)
. --------------------- ---------------------
. Net cash used in operating activities (184,124) (722,281)
. --------------------- ---------------------
.Cash flows from investing activities:
. Proceeds from sale of discontinued operations 1,270,000
. Proceeds from disposal of equipment 6,257
. Purchases of equipment (12,346) (458)
. -------------------- ---------------------
. Net cash (used in) provided by investing activities (12,346) 1,275,799
. --------------------- ---------------------
.Cash flows from financing activities:
. Principal payments on subordinated convertible debentures (180,000) (60,000)
. Increase in deposits and other assets (1,693)
. --------------------- ---------------------
.
. Net cash used in financing activities (180,000) (61,693)
. --------------------- ---------------------
.
. Net (decrease) increase in cash and cash equivalents (376,470) 491,825
.Cash and cash equivalents, beginning of period 1,609,476 1,117,651
. --------------------- ---------------------
.
.Cash and cash equivalents, end of period $ 1,233,006 $ 1,609,476
. ===================== =====================
.
.Interest paid: 87,000 104,933
.Income taxes: 2,000
</TABLE>
Noncash investing and financing transactions:
In conjunction with the sale of the catalog business, the purchaser
assumed approximately $500,000 of the Company's liabilities in 1995.
See accompanying notes to financial statements.
<PAGE>
SEVENTH GENERATION, INC.
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Business.
Seventh Generation, Inc. (the "Company") began operations in 1988 for the
purpose of marketing a variety of environmentally friendly consumer products
primarily through its mail-order catalog. In 1992 the Company began selling
its Seventh Generation brand products to retailers on a wholesale basis.
Since the sale of the catalog in May 1995, the Company focuses exclusively
on the wholesale business.
Principles of Consolidation.
Effective January 1, 1994, Seventh Generation, Inc. formed a wholly owned
subsidiary, Seventh Generation Wholesale, Inc., to carry on the operations of
its wholesale business. The accompanying Consolidated Financial Statements
include all of the accounts of Seventh Generation, Inc. and its wholly owned
subsidiary, Seventh Generation Wholesale, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition, Sales Discounts and Sales Returns.
Sales are recorded upon shipment of products to customers. The Company
maintains an allowance for estimated future sales returns and doubtful
accounts. Revenue is recorded net of discounts.
Cash and Cash Equivalents.
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less and are valued at cost.
Inventories.
Inventories include purchased goods which are stated at the lower of cost
or market using the first-in, first-out (FIFO) method.
Equipment.
Equipment is recorded at cost net of depreciation using the straight-line
method over the estimated useful lives of the assets. When assets are sold,
retired or otherwise disposed of, the applicable costs and accumulated
depreciation are removed from the accounts and the resulting gain or loss
is recognized.
Advertising.
Advertising, selling, and marketing expenses are expensed as they are
incurred. The amounts spent on advertising, selling and marketing expenses
for the years 1996 and 1995 were $216,330 and $54,950, respectively.
Net (Loss) Income Per Common Share.
Net (loss) income per common share is computed by dividing net (loss)
income by the weighted average number of common shares outstanding during
the respective periods. The impact of the stock options and warrants
outstanding as common stock equivalents was not dilutive for 1996 and
1995 and thus did not affect net (loss) income per common share.
Income Taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in the period that
includes the enactment date.
Stock Based Compensation.
The Company has elected to continue accounting for the issuance of stock
based compensation under APB Opinion No. 25, "Accounting for Stock Issued
to Employees." The pro-forma impact of the fair value based method of
accounting for stock based compensation under Statement of Financial
Accounting Standard No. 123, "Accounting for Stock Based Compensation," is
disclosed in footnote 4.
2. DISCONTINUED OPERATIONS
In 1995, the Company reached the conclusion that the financial resources
necessary to develop both the catalog and wholesale businesses were beyond its
means. The Company sold the assets of the catalog business to Gaiam Inc.
(Gaiam) on May 24, 1995. Accordingly, the results of operations of this
business segment have been accounted for as discontinued operations for
all periods in the Consolidated Statement of Operations. Net sales of
discontinued operations were approximately $2,255,000 for the year ended
December 31, 1995.
The Company also entered into Licensing, Operating (subsequently re-named
the "Reimbursement Agreement") and Supply Agreements with Gaiam. Under the
Licensing Agreement, Gaiam operates a catalog using the Seventh Generation
name in consideration for which Gaiam paid the Company a fee of $200,000, of
which $12,500 was recognized in 1996 and $187,500 in 1995 as other operating
income. The Licensing Agreement also requires Gaiam to pay an annual licensing
fee of $100,000 commencing on May 25, 1997 if Gaiam continues to use the Seventh
Generation name. Gaiam is currently testing an alternative name on the mail
order catalog it purchased from the Company and may choose at any time to
discontinue use of the Seventh Generation(r) name.
Pursuant to the Reimbursement Agreement, the Company's President and his
assistant have assisted Gaiam with the operation of its catalog, and certain
office equipment expenses have been shared between the two companies. The
original Operating Agreement expired on January 31, 1996. A new Agreement
of more limited scope was signed on April 11, 1996, covering the period from
February 1, 1996 to December 31, 1996. During the year ended December 31,
1996, the Company was reimbursed for approximately $109,000 of expenses, as
compared to approximately $275,000 in 1995. The Reimbursement Agreement
terminated at the end of 1996.
Pursuant to a Supply Agreement with Gaiam, the Company now sells its
brand name products to Gaiam, which Gaiam resells through its mail order
catalog. These sales increased the Company's wholesale sales in 1996 and
1995. Gross margins from these sales of 16.7% are lower than on natural
products and supermarket sales. As part of the Supply Agreement, Gaiam is
obligated to purchase from the Company a minimum of $2,500,000 of brand name
products over a three year period, beginning May 24, 1995, at cost plus 20%.
After Gaiam has purchased this minimum amount of product, the Company is
required to sell additional product to Gaiam at cost plus 5%. During the
year ended December 31, 1996, Gaiam purchased approximately $1,306,000 of
product under the terms of the Supply Agreement, of which approximately
$1,080,000 is applicable towards the minimum. As of December 31, 1996,
Gaiam has purchased approximately $2,188,000 of product under the Suppl
3. SUBORDINATED CONVERTIBLE DEBENTURES
<TABLE>
. December 31,
.Subordinated convertible debentures consist of the following: 1996 1995
. ---- ----
.
<S> <C> <C>
.10% subordinated convertible debentures, unsecured,
.$180,000 due February 28, 1996, convertible at a price
.per share of $13.33, and an additional $620,000 due February
.28, 1998, convertible at a price per common share of $6.67 $ 620,000 $ 800,000
.
.10% subordinated convertible debentures, unsecured,
.due November 30, 1998, convertible at a price per
.common share of $6.67 100,000 100,000
.
.12% subordinated convertible debentures, unsecured,
.due February 28, 2002, convertible at a price per
.common share of $6.67 100,000 100,000
. --------- ---------
.Total subordinated convertible debentures 820,000 1,000,000
.Less current installments 0 (180,000)
. ---------- ----------
.Subordinated convertible debentures, less current installments $ 820,000 $ 820,000
. ========== ==========
</TABLE>
During 1996, the holder of $100,000 in subordinated convertible debenture
due February 28, 1997 agreed to extend the due date of that debenture to
February 28, 2002.
During 1995, the holders of $240,000 in subordinated convertible debentures
due February 28, 1995 agreed to extend the due dates for $180,000 of those
debentures to February 28, 1996. The $180,000 was paid with accrued interest
in February, 1996.
The number of shares of common stock reserved for the potential conversion
of these debentures was 122,940 and 136,444 at December 31, 1996 and 1995,
respectively.
4. STOCK BASED COMPENSATION AND WARRANTS
The Company has several stock based compensation plans, which are
described below:
Fixed Stock Option Plans
The Company has established three stock option plans, the 1994 Employee,
Director, and Consultant Stock Option Plan (the 1994 Plan), the 1993 Stock
Option Plan (the 1993 Plan) and the 1990 Stock Option Plan (the 1990 Plan).
These plans provide for the granting of qualified and nonqualified stock
options to the employees of the Company, Directors, and independent
consultants as determined by the Compensation Committee of the Board
of Directors. A total of 732,991 shares of common stock have been reserved
for issuance upon exercise of options under these plans. In addition to the
above plans, the Company has also granted options to the President, Directors,
and investors of the Company.
All options are granted at prices equal to or greater than the fair market
value of the Company's stock at the grant date and substantially all options
vest upon issuance. The exercise prices range from $0.52 to $8.33 per share,
and expire at various dates through December 31, 2006. Activity with respect
to these plans is summarized below:
. 1996 1995
. --------------------------- ---------------------------
. Weighted Weighted
. Number Average Number Average
. of Shares Exercise Price of Shares Exercise Price
. ------------ ------------- ------------ -------------
.Shares under options 544,092 $ 6.29 654,872 $ 6.25
. at January 1
.
.Options granted 64,500 .52 6,000 .54
.
.Options canceled (19,400) 5.83 (116,780) 5.76
. ------------ ------------
.Shares under options
. at December 31 589,192 5.68 544,092 6.29
. ============ ============= ============ =============
.
.Shares under
. exercisable options
. at December 31 577,192 5.67 520,092 6.31
. ============ ============= ============ =============
.Weighted average fair
. value of options
. granted $0.26 $0.15
. ============ ============
The following summarizes the status of the outstanding options:
. Outstanding Exercisable
. Options Options
. ---------------------------------- ------------------------
. Weighted
. Average Weighted Weighted
. Remaining Average Average
.Exercise Contractural Exercise Exercise
.Price Range Number Life Price Number Price
.-------------- ---------- ------------ -------- ---------- --------
.$0 to $0.99 72,000 9.16 $ 0.52 72,000 $ 0.52
.$1.00 to $2.49 18,000 7.96 $ 2.20 18,000 $ 2.20
.$2.50 to $4.99 37,000 4.52 $ 2.88 37,000 $ 2.88
.$5.00 to $8.32 260,358 4.02 $ 5.68 248,358 $ 5.67
.$8.33 201,834 5.23 $ 8.33 201,834 $ 8.33
. ---------- ----------
. 589,192 577,192
. ========== ==========
Performance Based Incentive Plan
In 1996, the Company established the Incentive Plan. Under the Incentive
Plan, selected employees and Directors of the Company may be granted incentive
units equal in value to one share of common stock of the Company. Participant's
awards are vested based upon the attainment of certain contingent future
performance goals established by the Compensation Committee of the Board of
Directors related to sales revenue and operating profit targets, but no earlier
than three years from the date of the grant of the units. The determination
date for valuing the units is defined as the earlier of the vesting date of
the participant, the termination date of the participant, or the sale of the
Company. There are 300,000 units established to be issued under this plan.
Canceled or forfeited units may be reallocated to other participants. During
1996, the Company granted 265,000 units with a weighted average fair value of
$.28 to plan participants.
The fair value of awards granted under the fixed stock option plans and
the performance based incentive plan is estimated on the grant date using the
Black-Scholes Single Option model. Significant assumptions included as a basis
for the calculation were a dividend yield of 0% and an annual expected stock
price volatility of 75.1% for both 1996 and 1995. The expected life of the
options and stock appreciation rights are assumed to be three years, and the
risk free interest rate ranges from 5.2% to 6.0% in 1996 and from 5.2% to 7.0%
in 1995. There was no compensation cost recognized in 1996 and 1995 for stock
based compensation awards. Had the Company recognized compensation cost and
fair value of this compensation at the grant dates for the above awards
pursuant to SFAS 123, the impact would be as follows:
. 1996 1995
. ----------- ---------
.Net (Loss)/Income as reported $ (263,926) $ 503,636
.Pro Forma Net (Loss)/Income $ (301,564) $ 502,720
.
.Net (Loss)/Income per share, as reported $ (0.11) $ 0.21
.Pro Forma Net (Loss)/Income per share $ (0.12) $ 0.21
The effects of applying SFAS 123 for providing pro-forma disclosures are
not necessarily likely to be representative of the effects on reported net
income for future years because additional awards are generally made each
year.
Warrants
The Company has outstanding warrants to purchase 1,562,994 shares of
common stock, all of which were exercisable at December 31, 1996. The
exercise prices of the various warrants range from $2.50 to $5.25 and expire
at various dates through January, 2003.
No warrants were granted during 1995 or 1996, and, accordingly, were not
included in the computation of fair value of stock based compensation.
5. INCOME TAXES
No income tax provision has been recorded for the years ended December
31, 1996 and 1995, primarily as a result of losses or the use of net operating
loss carryforwards and a corresponding reduction in the valuation allowance.
The temporary difference that gives rise to significant portions of the net
deferred tax assets at December 31, 1996 and 1995 is the net operating loss
carryforward.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, historical and projected
future taxable income and tax planning strategies in making this assessment.
As a result, a full valuation allowance in the amount of $4,263,000 and
$4,156,000 exists against the net deferred tax assets at December 31, 1996
and 1995, respectively. The net change in the valuation allowance for the
year ended December 31, 1996 was an increase of $107,000.
Net operating loss carryforwards, which may be used to offset future
taxable income, amount to $10,662,000 as of December 31, 1996 and $10,378,000
as of December 31, 1995. The net operating loss carryforwards expire at
various dates from 2003 to 2011.
6. MAJOR SUPPLIERS AND CUSTOMERS
The Company purchased approximately 84% of its product from three suppliers
during the year ended December 31, 1996.
The Company had sales of approximately 62.4% to three customers during the
year ended December 31, 1996 and approximately 52.5% of accounts receivable
were due from two customers as of December 31, 1996.
During 1996 and 1995, Jeffrey A. Hollender, the Chief Executive Officer
of the Company, guaranteed up to $300,000 of the obligations of the Company
to one of its principal suppliers.
7. COMMITMENTS AND CONTINGENCIES
Uncertainties:
The Company has historically incurred losses from operations which resulted
in part from its catalog operations. In 1995, the Company sold the catalog
business and focused on expanding sales through the wholesale distribution
channels. The Company relies on a limited number of wholesale distributors,
including Gaiam, the purchaser of the catalog segment. If the number of
distributors were reduced or any of the Company's principal customers do
not meet their commitments, the Company may not have adequate liquidity.
In conjunction with the sale of catalog business segment assets to Gaiam,
Inc., the investment banking firm of Ulin & Holland alleged that the Company
owed it a fee of $98,500. The Company denied any liability and filed suit in
the United States District Court for the District of Vermont on October 23,
1995 seeking a declaratory judgment that it had no such liability. Ulin &
Holland answered the Complaint and filed a Counterclaim against the Company
alleging breach of contract, fraudulent misrepresentation, and violation of
the Massachusetts Fair Business Practices Act. The Company moved to dismiss
the latter two counterclaims for failure to state a claim upon which relief
may be granted. Ulin & Holland sought $98,500 on its breach of contract
claim. The fraudulent misrepresentation and Fair Business Practices Act
claims sought, in addition to the contract damages, punitive damages (or
triple damages) and attorneys' fees. While management believed the Company
had meritorious defenses against the suit, the Company entered into a
settlement agreement on August 16, 1996, pursuant to which the Company
has paid Ulin & Holland $50,000 to settle this matter.
The Company's contractual relationship with Gaiam, the purchaser of the
catalog, is uncertain. Gaiam's obligation to purchase product at a 20% markup
will terminate in 1997, which may reduce the Company's sales or its profit
margins. The Company and Gaiam are currently discussing further relationships,
the outcome of which is uncertain at this date.
From time to time, the Company is engaged in various types of disputes
concerning trademark issues, product performance and liability issues, and
other matters in the ordinary course of business.
Agreements:
On November 29, 1993, the Company entered into a five year employment
contract with its President which provides, among other things, a minimum
compensation of $125,000 per year over the term of the agreement. The
agreement also contains a covenant prohibiting the President from competing
with the Company during his employment and for two years thereafter.
On February 28, 1994, the Company entered into a five year employment
agreement with its Executive Vice President of Marketing and Sales which
provides, among other things, a minimum compensation of $100,000 per year.
The agreement also contains a covenant prohibiting the Executive Vice
President from competing with the Company during his employment and for
two years thereafter.
The Company has entered into a consulting agreement to develop new
distribution channels for its products. The consultant is pursuing
relationships on behalf of the Company with non-profit organizations and
in the educational marketplace. The Company has agreed to pay a retainer
of $3,865 per month for a period of not less than 15 months, commencing
November 1, 1995. The Company will be required to pay the consultant
commissions on the sale of qualified products at a rate of 3% and a
commission of 6% on other funds generated for the Company. Additionally,
the consultant can earn stock appreciation right units, based upon sales
volume generated through relationships developed by the consultant.
Leases:
The Company leases its office and certain equipment under noncancelable
operating leases expiring at various dates through 2000. Total rental expense
for years ended December 31, 1996 and 1995 was $28,750 and $126,482,
respectively. The office lease agreement provides for annual escalation in
rent based upon the Company's share of increased maintenance costs for the
building. Future minimum lease payments under noncancleable operating leases
in effect at December 31, 1996 were as follows:
. Year ending December 31:
.
. 1997 $ 25,053
. 1998 10,359
. 1999 9,023
. 2000 752
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Instruments.
The carrying values of the Company's financial instruments at December 31,
1996, approximate their estimated fair values. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments:
Cash and cash equivalents.
The carrying amount approximates fair value due to the short-term maturity
of these instruments.
Subordinated convertible debentures.
The carrying amount approximates fair value as the interest rates on the
debentures approximate the Company's current borrowing rate.
9. CONCENTRATIONS OF CREDIT RISK
Concentration of credit risk consists primarily of cash and cash
equivalents. From time to time the Company has on deposit with certain
banks and financial institutions cash and cash equivalents which exceed
the amount subject to federal insurance. The amounts of the accounting
loss due to credit risk the Company would incur if parties to the
financial instruments failed to perform are $832,806 and $1,383,051 for
the years ended December 31, 1996 and 1995, respectively. The Company
attempts to mitigate this risk by depositing its cash and cash equivalents
with high credit quality financial institutions.
Item 8. Changes in Accountants
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons Compliance with
Section 16(a) of the Exchange Act
Information with respect to this item can be found under the captions
"Management - Directors," "Management - Executive Officers," and
"Section 16(a) Beneficial Ownership Reporting Compliance"
appearing in the Company's Proxy Statement for the 1997 Annual Meeting
of Stockholders. Such information is incorporated herein by reference.
Item 10. Executive Compensation
The information set forth under the caption "Executive Compensation"
appearing in the Company's Proxy Statement for the 1997 Annual Meeting
of Stockholders is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the caption "Share Ownership"
appearing in the Company's Proxy Statement for the 1997 Annual
Meeting of Shareholders is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
The information set forth under the caption "Certain Relationships
and Related Transactions" appearing in the Company's Proxy Statement
for the 1997 Annual Meeting of Stockholders is incorporated herein
by reference.
Item 13. Exhibits and Reports on Form 8-K
(a) The following documents are filed as a part of this Report:
EXHIBITS:
Exhibit # Description
! (3.1) Articles of Incorporation of the Registrant, as amended
~ (3.3) Restated By-Laws of the Registrant, as amended
! (4.1) Article 4 of the Articles of Incorporation of the Registrant, as
amended
(see Exhibit 3.1)
* (4.2) Form of Common Stock Certificate
* (4.3) Form of Warrant Certificate
* (4.4) Form of Underwriter's Purchase Option Agreement between
the Underwriter and the Registrant
* (4.5) Form of Warrant Agreement between Continental
Stock Transfer and Trust Company and the Registrant
*# (10.2) Employment Agreement between the Registrant and Jeffrey A.
Hollender
* (10.3) Agreement between the Registrant and Stanson Corporation
* (10.4) Stock Option Agreement, dated as of April 30, 1989, between
the Registrant and Gardener's Supply Company, Inc., as
assigned to Alan Newman
*# (10.5) Non-Qualified Stock Option Agreement dated May 11, 1990, between
the Registrant and Arthur Gray
*# (10.6) Form of Non-Qualified Stock Option Agreement between the
Registrant and Jeffrey A. Hollender
*# (10.7) Form of Non-Qualified Stock Option Agreement used by the
Registrant to grant options to Directors of the Registrant
*# (10.8) The Registrant's 1990 Stock Option Plan
*# (10.9) The Registrant's 1993 Employee, Director and Consultant
Stock Option Plan
*# (10.10) Warrant Agreement between the Registrant and Peter Graham
* (10.11) Form of Subscription Agreement applicable to the Selling
Security holders
* (10.12) Form of Promissory Note applicable to the Selling
Security holders
* (10.13) Form of Warrant Applicable to the Selling Security
holders
~# (10.14) Employment Agreement between the Registrant and
Jeffrey M. Phillips
<PAGE>
Exhibit # Description
^ (10.16) The Registrant's 1994 Employee, Director and Consultant
Stock Option Plan
X (10.18) Asset Purchase Agreement, dated May 24, 1995,
between the Company and Gaiam, Inc.
X (10.19) License Agreement, dated May 24, 1995, between
the Company and Gaiam, Inc.
X (10.20) Supply Agreement, dated May 24, 1995, between
the Company and Gaiam, Inc.
X (10.21) Operating Agreement, dated May 24, 1995, between
the Company and Gaiam, Inc.
X (10.22) Seventh Generation, Inc. Non-Competition and
Confidentiality Agreement, dated May 24, 1995,
between the Company and Gaiam, Inc.
X (10.23) Gaiam, Inc. Non-Competition Agreement, dated
May 24, 1995, between the Company and Gaiam,
Inc.
} (10.24) Seventh Generation, Inc. Incentive Plan
(* (10.25) Amendment letter to Seventh Generation, Inc. Incentive Plan
(11) Statement Re: Computation of Per Share Loss
(23) Consent of Coopers & Lybrand, L.L.P.
(27) Financial Data Schedule
____________________________________________________
* Filed as an Exhibit to Registration Statement Number 33-68272
on Form SB-2 and incorporated herein by reference
# Indicates a management contract or compensatory plan or
arrangement
! Filed as an Exhibit to Registration Statement on Form 8-A
(File Number 1-12614) and incorporated herein by reference
~ Filed as an Exhibit to Form 10-KSB for the fiscal year ended
December 31, 1993 (File Number 1-12614) and incorporated
herein by reference
^ Filed as an Exhibit to Form 10-KSB for the fiscal year ended
December 31, 1994 (File Number 1-12614) and incorporated
herein by reference
} Filed as an Exhibit to Form 10-QSB for the quarter ended
June 30, 1996 (File Number 1-12614) and incorporated
herein by reference
(* Filed as an Exhibit to Form 10-QSB for the quarter ended
September 30, 1996 (File Number 1-12614) and incorporated
herein by reference
X Filed as an Exhibit to Form 8-K, dated May 24, 1995, and
incorporated herein by reference.
____________________________________________________
(b) Reports on Form 8-K:
No current reports on Form 8-K were filed by the Company during
the fourth quarter of the fiscal year ended December 31, 1996.
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
. SEVENTH GENERATION, INC.
.
.Date: March 13, 1997 By: /s/ Jeffrey A. Hollender
. President and Chief Executive Officer
. (Principal Executive & Financial Officer)
In accordance with the requirements of the Exchange Act, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
.Date: March 13, 1997 By: /s/ Arthur Gray, Jr.
. Chairman of the Board
.
.Date: March 13, 1997 By: /s/ Peter Graham
. Director
.
.Date: March 13, 1997 By: /s/ Joshua Sapan
. Director
.
.Date: March 13, 1997 By: /s/ Sheila Hollender
. Director
.
.Date: March 13, 1997 By: /s/ Charles J. Hogan
. Controller
. (Principal Accounting Officer)
.
.Date: March 13, 1997 By: /s/Jeffrey A. Hollender
. Director, President & CEO
. (Principal Executive & Financial Officer)
<PAGE>
EXHIBIT INDEX:
Exhibit # Description Page
(11) Statement Re: Computation of Per Share Loss 32
(23) Consent of Coopers & Lybrand, L.L.P. 34
(27) Financial Data Schedule 36
<PAGE>
EXHIBIT 11
<PAGE>
EXHIBIT 11
SEVENTH GENERATION, INC.
Calculation of Shares Used In Determining
Net Loss Per Common Share
. Year Ended December 31,
. 1996 1995
. ---- ----
.Weighted Average Shares Outstanding
. During the Period 2,428,791 2,428,791
<PAGE>
EXHIBIT 23
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Seventh Generation, Inc. and subsidiary on Form S-8 (File No. 33-85748) of our
report dated February 21, 1997, on our audits of the consolidated financial
statements of Seventh Generation, Inc. as of December 31, 1996 and December
31, 1995, and for the years then ended, which report is included in this
Annual Report on Form 10-KSB.
/s/ Coopers & Lybrand, L.L.P.
Albany, NY 12207
March 12, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
See accompanying notes.
This schedule contains summary financial information extracted from
the consolidated financial statements and is qualified in its entirety by
reference to such statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,233,006
<SECURITIES> 0
<RECEIVABLES> 504,627
<ALLOWANCES> (20,191)
<INVENTORY> 234,349
<CURRENT-ASSETS> 2,104,908
<PP&E> 78,284
<DEPRECIATION> (54,926)
<TOTAL-ASSETS> 2,139,693
<CURRENT-LIABILITIES> 423,417
<BONDS> 820,000
0
0
<COMMON> 809
<OTHER-SE> 895,467
<TOTAL-LIABILITY-AND-EQUITY> 2,139,693
<SALES> 5,191,563
<TOTAL-REVENUES> 5,191,563
<CGS> 3,628,802
<TOTAL-COSTS> 3,628,802
<OTHER-EXPENSES> 1,812,414
<LOSS-PROVISION> (19,659)
<INTEREST-EXPENSE> 86,626
<INCOME-PRETAX> (263,926)
<INCOME-TAX> 0
<INCOME-CONTINUING> (263,926)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (263,926)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
