<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission file number 0-18921
---------------------------------------------------------
VERDANT BRANDS, INC.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Minnesota 41-0848688
- --------------------------------------------------------------------------------
(State of incorporation or organization) (I.R.S. Employer Identification No.)
9555 James Avenue South, Suite 200, Bloomington, Minnesota 55431
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
RINGER CORPORATION
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
Issuer's telephone number, including area code (612) 703-3300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
- --------------------------------------------------------------------------------
(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Revenues for the fiscal year ended September 30, 1997 totaled $18,820,625.
As of December 15, 1997, the Company had 16,681,270 shares of Common Stock
outstanding. The aggregate market value of the 11,185,433 shares of Common Stock
held by non-affiliates of the Company was $16,778,150, based on the closing
share price on December 15, 1997 on the Nasdaq National Market.
Transitional small business disclosure format: [ ] Yes [X] No
<PAGE>
This report on Form 10-KSB/A amends the previously filed Form 10-KSB/A
filed on February 20, 1998. This amendment reflects the change in accounting
method from the pooling-of-interest method to the purchase method for the
Southern Resources, Inc. and Subsidiaries acquisition, which was completed by
the Registrant on December 8, 1997. The change in accounting methods was
required because of management's decision to dispose of certain assets and
activities of the combined business entities. Such changes preclude the pooling
of interest method of accounting.
PART I
Item 1. BUSINESS.
GENERAL
Ringer Corporation is a developer and marketer of lawn, garden and turf
products for consumer, specialty commercial and professional markets. The
Company's product lines include proprietary and nonproprietary pest control
products and lawn and garden fertilizers.
The Company was founded by C. Judd Ringer and incorporated in 1961.
Until 1986, the Company was operated as a regionally-based, closely-held
provider of lawn and garden products. In 1986, the Company was sold to new
venture capital investors who reorganized the Company under new management and
expanded its distribution channels into national lawn, garden and turf care
markets.
Since 1986, the Company has raised approximately $27 million in capital
through private equity offerings to venture capital organizations and
individuals, and through public offerings of common stock in 1990 and 1992. The
capital raised was used by the Company to acquire pest control product lines, to
fund programs for advertising, promotion, product development and product
package redesign and to increase working capital. The Company's current pest
control product lines were acquired in 1991 through the acquisition of Safer,
Inc., a wholly-owned subsidiary of the Company, and in 1997 through the purchase
of substantially all of the assets of Dexol Industries, Inc. (See "Dexol
Industries, Inc." below.)
The Company's products are sold primarily in the consumer lawn and
garden and the commercial golf course turf management markets. Product lines are
composed of environmentally-oriented pest control products, traditional
pesticides, granular fertilizers and water soluble fertilizers.
The Company's environmentally-oriented pest control products, sold
under the Safer(R) brand name, use microbial, botanical and mechanical
technologies to effectively control insects, weeds and fungal diseases. These
products are designed to work on targeted pests without harming beneficial
insect populations or leaving harmful residues on turf and garden plants and are
developed to provide premium performance using available technologies with the
lowest environment impact.
The Company's traditional pesticides, sold under the Dexol(R) brand
name and various private label brand names, use synthetic chemical pesticide
compounds commonly used in the lawn and garden industry for the control of
insects, rodents, weeds and fungal diseases. The Company's line of traditional
pesticides was acquired in March 1997 with the acquisition of the assets of
Dexol Industries, Inc. (See "Dexol Industries, Inc." below.)
The Company's granular fertilizer products use proprietary
microbially-based delivery systems that control release of nutrients for
extended uniform plant feeding and are marketed under the Restore(R), Supreme
Garden Fertilizers(TM) and Safer(R) Lawn Fertilizer brand names.
The Company's water soluble fertilizer products use proprietary oxygen
releasing compounds that enhance root growth and function to promote more
vigorous and healthy plants. Water soluble fertilizers were added to the
Company's product lines in December 1994 through the acquisition of the assets
of Plant Research Laboratories (See "Plant Research Laboratories" below). These
products were marketed by the Company under the Oxygen Plus(R) brand name in
fiscal 1995 and under the Safer(R) brand name beginning in fiscal 1996.
The Company's products are directed toward wholesale fertilizer and
pesticide markets which exceed $1 billion in annual sales according to the 1991
Kline & Company industry survey report. The Company anticipates that future
growth in its share of these markets will be derived from increased sales of its
existing
-2-
<PAGE>
products, from sales of future products developed by the Company or licensed
from others, and from the acquisition of additional product lines or companies
with additional product lines.
DEXOL INDUSTRIES, INC.
In March 1997, the Company acquired substantially all of the assets of
Dexol Industries, Inc. (the "Dexol acquisition"), a California based
manufacturer and marketer of pesticides to the retail consumer with annual sales
of approximately $10 million. The pesticide products acquired use
non-proprietary traditional chemical technology commonly available in the lawn
and garden industry. (See "Acquisitions" in Note 2 to the Company's consolidated
financial statements included herein.)
PLANT RESEARCH LABORATORIES
In December 1994, the Company acquired substantially all of the assets
of Plant Research Laboratories ("PRL"), a California based developer and
marketer of water soluble fertilizers for the indoor houseplant and outdoor lawn
and garden markets with annual sales of less than $1 million generated
principally in the western United States. The water soluble fertilizer products
acquired utilize oxygen releasing compounds which are patented technologies
under exclusive license to the Company for use in the lawn, garden, turf
management and agricultural industries.
SUBSEQUENT EVENT - SOUTHERN RESOURCES, INC.
On December 8, 1997, the Company completed a merger with Southern
Resources, Inc. ("SRI"), a previously privately-owned Georgia-based holding
company, with annual consolidated sales of approximately $25 million. SRI
manufactures and markets traditional pesticides, through its subsidiary, SureCo,
Inc., under a variety of proprietary and private label brand names to commercial
and consumer markets throughout North America. The merger will be accounted for
using the purchase method. (See Note 12 to the Company's consolidated financial
statements included herein.)
SALES AND MARKETING
The Company's products are marketed in the United States through both
retail and commercial distribution channels. Retail channels consist principally
of mass merchants, specialty lawn and garden stores and hardware cooperatives.
Commercial channels consist of specialty distributors who sell products to turf
management professionals primarily in the golf course industry. In fiscal 1997,
U.S. retail and commercial markets accounted for 87% and 3%, respectively, of
the Company's sales. The remaining 10% is attributable to foreign retail and
commercial market sales, primarily in Canada.
Retail sales in the United States are conducted through a variety of
retail outlets in all fifty states. These outlets consist of mass merchandisers
and several lawn and garden wholesale distributors who, in turn, resell to
retail garden centers, nurseries and hardware and home center stores. National
retailers selling the Company's products include The Home Depot, Menards,
Target, Tru-Serve and Frank's Nursery & Crafts, although some of these retailers
currently carry only limited selections of the Company's products or only carry
them in certain regions of the country.
The Company's retail sales efforts in the United States are managed by
a vice president of sales located in the Company's main office, and by six
regional sales managers located in Maryland, Georgia, Illinois, Indiana,
Washington and California. The Company uses a combination of direct sales
personnel and independent manufacturers' representatives to market its products.
The direct sales personnel and independent representatives, who report to the
regional managers, are assigned territories that cover all 50 states. In
addition, Ringer uses its wholesalers' sales and merchandising personnel and
other merchandising service organizations to contact and service some of the
larger retail outlets who sell the Company's products.
-3-
<PAGE>
Most of the Company's distribution and marketing activities are
concentrated in the United States and Canada, however, a level of international
over-seas business has been maintained for a number of years. The Company
currently sells certain pest control products to foreign manufacturers and
distributors and has sold products to customers in Germany, Switzerland and
other European markets for over ten years. International sales are currently
managed by Safer, Ltd., the Company's subsidiary in Toronto, Ontario, Canada.
Safer, Ltd. maintains its own sales and marketing organization, its own product
development operation and most of its own sources of supply and manufacturing.
Although management believes there are significant future international market
opportunities, management expects to concentrate the Company's marketing efforts
in the United States and Canada for the foreseeable future while the Company
focuses on establishing profitable operations in these primary market areas.
The Company's commercial sales are supervised by a manager of
commercial sales. Approximately 30 professional turf distributors, with several
locations throughout the U.S. and Canada, buy products from the Company for sale
primarily to golf courses with some sales going to lawn service operators,
specialty landscapers and government landscape services. The commercial product
line includes several microbial fertilizer formulations specifically designed
for the needs of professional turf managers.
In recent years, the Company has used various forms of advertising and
promotion to market its products. These forms primarily consist of cooperative
advertising programs, point-of-purchase marketing materials and radio and print
advertising,.
In fiscal 1997, 1996 and 1995, the Company spent approximately $3.8
million, $3.3 million and $4.8 million, respectively, on sales and marketing
expenses.
DISTRIBUTION AND TRANSPORTATION
The Company relies primarily on common carrier transportation, leased
warehouse facilities and public warehouse services to distribute its products
nationwide. The Company's distribution and freight costs tend to be significant
as a percentage of sales. This is due to the relatively heavy weight and bulky
nature of the Company's products and the substantial shipping distances from
distribution locations to some of the Company's major market areas.
Freight costs are particularly significant for granular fertilizer
products. Some fertilizer competitors located in closer proximity to some of the
Company's major market areas incur lower freight costs which can be an advantage
when competing against the Company's fertilizer products. Consequently, the
Company's relatively high distribution and freight costs can hinder fertilizer
sales growth in some markets.
In fiscal years 1997, 1996 and 1995, the Company spent approximately
$2.2 million, $1.6 million and $1.9 million, respectively, on product
transportation and warehousing costs.
COMPANY TECHNOLOGIES
The Company applies four major areas of technology to its products.
First, biological and botanical pest control technologies which focus on a broad
spectrum of plant pests including insects, weeds and fungal diseases. Second,
synthetic chemical technologies common to the lawn and garden industry which are
used for the control of various insects, rodents, weeds and fungal diseases.
Third, granular microbially-activated fertilizer systems which have been
developed for specific lawn, garden and commercial turf uses. Fourth,
oxygen-releasing water soluble fertilizer technology which is used in the
Company's water soluble fertilizer products for use on indoor plants, outdoor
container plants, and other lawn and garden uses.
The Company's biological and botanical pest control technology is based
on fatty-acid compounds, naturally occurring plant extracts and microorganisms,
and mechanical traps to control unwanted pests. The
-4-
<PAGE>
Company holds numerous patents for fatty-acid based pest control products and
products using fatty-acids as synergists in combination with both natural and
synthetic pesticides.
The Company's synthetic chemical pesticide technologies are based on
non-proprietary synthetic chemical pesticides common to the lawn and garden
industry. These include various forms of chemical insecticides, herbicides,
fungicides and rodenticides which are obtained primarily from large national and
international chemical companies who supply the agricultural, horticultural and
lawn and garden markets.
The Company's granular fertilizer technologies are based on the use of
naturally occurring soil microbes in combination with plant nutrients and high
energy carbohydrate sources to produce a superior controlled release fertilizer
system. These fertilizers promote natural soil microbial activity which helps
make nutrients available to plants and promotes plant health and vigor. Healthy
microbial activity also plays an important role in regulating some plant
diseases.
The Company's water soluble fertilizer technologies use a patented
oxygen releasing compound ("ORC") in combination with high quality plant
nutrients. This fertilizer technology overcomes plant growth problems associated
with oxygen deficient soils caused by physical compaction, heavy clay content,
over watering and flooding. Through the use of ORC, the Company's water soluble
fertilizers help to reduce oxygen deficient conditions and promote a heathy
growing environment by providing a reliable supply of timed-release oxygen and
other beneficial plant nutrients directly to the plant root system.
The Company performs extensive product performance tests through
contract research and development facilities.
To assist the process of investigating new product opportunities, the
Company consults, from time to time, with knowledgeable scientists and other
experts regarding trends and technologies in fertilizers, pesticides and turf
management.
PRODUCTS
The Company's four major product categories are
environmentally-oriented pest control products, traditional pesticides,
microbial fertilizers and water soluble fertilizers.
ENVIRONMENTALLY ORIENTED PEST CONTROLS
The Company's environmentally oriented pest control products, sold
under the Safer(R) brand name, are based on naturally occurring microbial and
botanical derivatives and synthesized versions of naturally occurring botanical
derivatives. These active ingredients, used alone or in combinations, have been
developed to control specific insects, weeds and fungal diseases. The active
ingredients include fatty-acids, pyrethrum (a derivative of a certain
chrysanthemum flower), pyrethroids (synthetic variations of pyrethrum), neem (a
derivative of the tropical Neem tree), bacterium strains with toxicity specific
to certain insects, and elemental sulfur. The Company's environmentally-oriented
pest controls bio-degrade more rapidly and have a lower mammalian toxicity
rating than most traditional pesticides.
The Company's environmentally-oriented pest control products accounted
for 48%, 70% and 63% of sales in fiscal 1997, 1996 and 1995, respectively.
TRADITIONAL PESTICIDES
The Company acquired its line of traditional pesticide products in
March 1997 with the purchase of substantially all of the assets of Dexol
Industries, Inc. (See "Dexol Industries, Inc." above.)
-5-
<PAGE>
The Company's traditional pesticide products, sold under the Dexol(R)
brand name and various private label brand names, use synthetic chemical
pesticides common to the lawn and garden industry and include insecticides based
on organophosphates (such as Diazinon and Malathion) and carbamates (such as
Carbaryl or Sevin), herbicides based on phenoxy-herbicides and dicamba
compounds, and fungicides based on sulfur or chlorthalonil.
The Company's traditional pesticides accounted for 33% of sales in
fiscal 1997 since the acquisition of these products in March 1997. There were no
sales of these products in prior years.
MICROBIAL FERTILIZERS
The Company offers three types of proprietary microbial fertilizer
products which use, in varying degrees, naturally occurring soil microorganisms
to slowly break down materials into nitrogen and other nutrients usable by the
plant. These include all-natural fertilizers marketed under the Restore(R) brand
name, natural and synthetic hybrid fertilizers marketed under the Supreme Garden
Fertilizers(TM) and Safer(R) brand names. Hybrid fertilizers, including garden
fertilizers and low phosphate lawn fertilizers, using a natural nutrient
component with synthetic nutrients. These microbial fertilizers provide high
performance, non-burning, slow-release fertilization programs for improved plant
growth and extended feeding. Natural fertilizer components include commodity
feed-grade materials, including a high protein source (such as feather or
leather meal), high carbohydrate ingredients, and natural soil microorganisms.
Synthetic materials include synthetic nitrogen sources such as urea, coated urea
and dicyanodiamide. The Company's microbial fertilizer products accounted for
18%, 26% and 31% of sales in fiscal 1997, 1996 and 1995, respectively.
WATER SOLUBLE FERTILIZERS
The Company offered water soluble fertilizers for the first time in
fiscal 1995 which were acquired from Plant Research Laboratories in December
1994. (See "Plant Research Laboratories" above.) The Company's water soluble
fertilizers are marketed in both liquid and powdered formulas under the Safer(R)
brand name. Safer(R) water soluble fertilizers use macro nutrients in
combination with a patented oxygen releasing compound ("ORC"). ORC was developed
to overcome plant growth problems caused by oxygen deficient soil due to heavy
clay content, physical compaction, over watering or flooding. ORC utilizes the
plant's own soil as an organic catalyst to provide the plant time-released
oxygen, activated by water, for an optimal balance of soil, water, air and
nutrients. The Company's water soluble fertilizer products accounted for 2%, 3%
and 4% of sales in fiscal 1997, 1996 and 1995, respectively
PRODUCT DEVELOPMENT
The Company conducts ongoing product development efforts to enhance
existing products and develop new products. Current efforts include product
development using the Company's patented pesticide and herbicide technology
which uses fatty-acids as a synergist in combination with traditional synthetic
chemicals. Management believes that the technology will enable the Company to
develop effective pesticides and herbicides that use much less chemical active
ingredient, thus making traditional chemical herbicides and pesticides more
environmentally friendly. Most of the Company's product development, research
and testing is conducted by university and government researchers unaffiliated
with the Company.
In fiscal 1997, 1996 and 1995, the Company spent $972,360, $748,932 and
$981,495, respectively, on research and development expenditures.
MANUFACTURING
The Company has a leased manufacturing facility in Torrance, California
where it manufactures much of its traditional pesticide products. The
manufacturing facility was acquired with the Dexol acquisition in
-6-
<PAGE>
March 1997. (See "Dexol Industries, Inc." above.) The Company also uses outside
subcontract manufacturers to produce the remainder of its products.
The Company's microbial fertilizers and water soluble fertilizers are
produced pursuant to short-term manufacturing agreements with two
subcontractors. The Company's environmentally oriented pest control products and
certain traditional pesticides fertilizers are manufactured by one or both of
two subcontract companies located in Minnesota and Missouri.
The Company believes that its manufacturing facilities and its
subcontractors have sufficient available manufacturing capacity to satisfy the
Company's needs for the foreseeable future. Products for Canada and overseas
markets are manufactured by subcontractors in Canada, Europe and the United
States. The Company believes that adequate alternative subcontractors are
available, if needed.
The Company believes that its fertilizers and composting products and
its pest control products are manufactured using generally available raw
materials and processes common to the industry. The Company does not anticipate
any shortages of such raw materials or manufacturing capacity which would
materially affect the supply of finished goods, although price fluctuations may
affect total product costs.
GOVERNMENT REGULATION AND PRODUCT REGISTRATION
Government regulation in the United States and other countries is a
significant factor in the research, development, production and marketing of
pesticides and, to a lesser extent, fertilizers. To develop and sell a pesticide
product, federal and state product registration must be obtained for each pest
and plant for which the product is used. In the United States, pesticides are
regulated by the Environmental Protection Agency ("EPA") under the Federal
Insecticide, Fungicide and Rodenticide Act, as amended ("FIFRA"), which requires
extensive efficacy, toxicology and environmental testing to substantiate product
performance and safety prior to registration. In addition, many states have
additional registration requirements that go beyond FIFRA.
Under FIFRA, field efficacy testing may be conducted on a small scale
in certain instances. To conduct large-scale field tests, a company must obtain
an experimental use permit ("EUP"), which generally requires satisfactory
completion of certain toxicology and environmental studies. Initial EPA
registration for a new pesticide may therefore be a lengthy and expensive
process. In addition, the U.S. Congress has mandated that the EPA require that
all pesticide products registered prior to 1984 be re-registered by 1997 using
today's stricter testing protocols. Registration applicants also must submit
their proposed labeling for EPA approval. FIFRA creates a complex and detailed
scheme for pesticide labeling. After a pesticide is registered, it must be sold
with labeling and claims exactly as approved by the EPA.
To regulate the development and use of biological pest controls,
including those based on naturally occurring microorganisms, the EPA established
special guidelines for their registration which are set forth in Subdivision M
of the EPA's Pesticide Assessment Guidelines. Biological pest controls currently
are subject to a three-tier toxicology testing procedure and a four-tier
environmental testing procedure. A biological pest control product that
satisfactorily completes both the toxicology and environmental Tier I tests is
not required to go through the tests specified in subsequent tiers. Should
questions arise during any tier of testing, additional tests may be required.
The cost of registering biological pest control products is generally
substantially lower than that for chemical pesticides. Most of the Company's
products have only required Tier I testing. Stricter registration requirements
apply to products based on genetically engineered organisms. The Company does
not currently use any genetically modified organisms. Based on current EPA
regulations, management believes that biological pest control product
registrations can be obtained at a reasonable cost to the Company.
The fertilizer products produced and marketed by the Company are
currently regulated by individual state departments of agriculture. Requirements
for obtaining registrations to sell fertilizers vary from state to
-7-
<PAGE>
state. Every fertilizer product must be registered and licensed in each state
where it is sold, and a registration or license fee to maintain this
registration must be paid on an annual basis.
The Company's product performance claims for its fertilizers are more
extensive than those typical of traditional fertilizers, and include claims that
the products improve soil and minimize conditions that promote certain diseases.
As part of the registration process, research data in support of these claims
must be submitted to the appropriate state agencies. This research must be
independently generated, preferably at the university level. The Company's
fertilizer products have been tested at several state universities across the
country, as well as in a leading independent turf research facility in Europe.
The Company's fertilizer products are currently registered in most
states under a national label which makes certain performance claims. Several
states object to certain claims made on the packaging or require claims specific
to a state. The Company, where possible, has designed special packaging, citing
limited claims, to permit as wide of registration and sale as possible. The
Company continues to work with all states to improve registration status
nationwide, and to substantiate the performance claims through studies conducted
at universities.
The Company's products will also be subject to regulation by agencies
of foreign countries in which the products are tested, sold or used. The
Company's activities may be subject to regulation under various other federal
and international laws, regulations and guidelines, and state and local
regulatory requirements, including approvals prior to shipping the products into
a country, state or locality for either experimental or commercial purposes. The
Company currently maintains product registrations in 11 foreign countries and
has registrations pending in three additional foreign countries. The Company
cannot predict the effect of future legislation and regulation on the Company's
operations.
There can be no assurance that any testing approvals or registrations
will be granted on a timely basis, if at all, or that the Company's resources
will be adequate to meet the costs of regulatory compliance. Any or all of those
approvals may be the subject of disputes that could postpone or prevent
research, development, production and/or marketing of the Company's products.
Some states have laws imposing liability on certain parties for the
release of pesticides and/or fertilizers into the environment in a manner or in
concentrations not permitted by law. Such liability could include, among other
things, responsibility for cleaning up the damage resulting from such a release.
In addition, the Comprehensive Environment Response, Compensation and Liability
Act, commonly known as the federal Superfund law, imposes liability on certain
parties for the release into the environment of hazardous substances, which
might include fertilizers and pesticides under certain circumstances. The
federal Superfund law has been interpreted to impose liability on a producer of
pesticides for cleaning up environmental damage resulting from the release of
its products into the environment during their manufacture. The Company has not
been subject to any claims for responsibility relating to impermissible releases
of pesticides under such federal or state statutes. However, there can be no
assurance that the Company will not be subject to claims under such statutes at
some time in the future. The Company believes that it does not need, and it does
not maintain, insurance for any environmental claims which might result from the
release of its products into the environment in a manner or in concentrations
not permitted by law.
COMPETITION
The Company faces significant competition in the fertilizer and
pesticide industries from numerous manufacturers and suppliers, several of which
significantly dominate their respective markets and many of which have
substantially greater financial, technical, marketing and other resources than
the Company. The principal competitive factors in the Company's markets are
efficacy, ease of application, price, health and environmental compatibility and
name recognition. Many of the Company's products generally cost more than
-8-
<PAGE>
those of their conventional chemical counterparts, and therefore the Company is
generally not able to compete on pricing alone.
The Company believes that it has three categories of competitors in the
pesticides market: large chemical pesticide companies, companies with existing
bio-pesticide product lines, and companies developing new bio-pesticide
products. The pesticide industry is dominated by large chemical companies
located in the United States and Europe. These companies generally operate
throughout the world and have the capability to manufacture chemical pesticides
very efficiently.
The Company's principal competitors in the consumer chemical pesticide
market are Solaris (Ortho) and Spectracide. There are several companies which
manufacture and market bio-pesticides for agricultural use, including Abbott
Laboratories and Novartis. Many of the large chemical pesticide companies are
currently conducting research on biological pest control technology. In
addition, the Company is aware that at least one dominant chemical pesticide
manufacturer has introduced a limited line of alternative pest control products.
There are also small biotechnology companies which are conducting research in
the biological pest control area.
These companies may represent significant competition in the future.
The Company's principal competitor in the consumer fertilizer market is
The Scotts-Miracle Grow Company. Other significant competitors include Lebanon
(Greenview), Milwaukee Sewer Improvement District (Milorganite) and Estech
(Vigoro). Freight cost involved in shipping bulk fertilizer products across the
country are a significant factor in national competition. In addition to
national competitors, the Company has many regional and local competitors who
incur lower freight costs and are therefore more price competitive in regional
and local markets. The Company estimates that approximately 35% of the market
share is held by smaller regional and local fertilizer manufacturers.
Products developed by the Company may also be subject to competition
from products developed by companies using other technologies. One potential
source of competition in the future may come from plant science technology,
including development of pest-resistant plants by genetic engineering and other
methods.
SEASONALITY
Sales of the Company's products are highly seasonal, with Company
shipments of fertilizers and pest controls being heavily concentrated in the
winter (second fiscal quarter) and spring (third fiscal quarter). See Item 6,
Management's Discussion and Analysis - Quarterly Performance.
PATENTS AND PROPRIETARY TECHNOLOGIES
The Company uses proprietary and non-proprietary technologies in its
products. Non-proprietary technologies are use in the Company's traditional
pesticide products sold under the Dexol(R) brand name and various private label
brand names. Proprietary technologies are used in many of the Company's
environmentally-oriented pest control products, microbial fertilizers and water
soluble fertilizers.
The Company seeks to protect its proprietary product technologies
through a variety of means including patents, licences, trade secrets,
proprietary know-how, technological innovation and customer education.
The Company relies on the use of proprietary processes in the
formulation of its microbial fertilizer products to protect them against
duplication by competitors. The Company acknowledges that there can be no
assurance that such proprietary processes will provide sufficient protection.
The Company owns patents covering the herbicidal soap and the soap
synergized pyrethrum (SAP) technology. These patents expire in the years 2008
and 2007, respectively. Also, in connection with the
-9-
<PAGE>
December 1994 acquisition from Plant Research Laboratories (see "Plant Resource
Laboratories" above) of a water soluble fertilizer product line, marketed under
the Oxygen Plus(R) brand name, the Company acquired an exclusive worldwide
license to practice patents relating to oxygen releasing technology in the
horticultural, agricultural and lawn and garden markets. The license covers
currently existing patents and any further patents on the technology that may be
issued in the future. The current patents on oxygen releasing technology expire
in the year 2011.
As of December 1997, the Company owned 39 patents, including 20 U.S.
patents, and licensed two additional U.S. patents, which expire at various times
during the year from 2006 through 2012. The Company acknowledges that there can
be no assurances that its owned or licensed patents will provide sufficient
protection for its products or be of commercial benefit to the Company.
The Company obtains confidentiality agreements from current Company
employees, scientific consultants and potential strategic corporate partners
prior to disclosing Company trade secrets and know-how. There can be no
assurance that these confidentiality agreements will be honored or that such
proprietary know-how or trade secrets will not be independently created by third
parties.
EMPLOYEES
As of December 6, 1997, the Company had 57 employees, all of whom are
full-time, located in the U.S. and Canada. Of these employees, 2 were engaged in
product development, 15 in sales and marketing, 27 in distribution and material
control and 13 in general administration. The Company plans to hire additional
personnel as required by the needs of its business. The Company does not
currently anticipate difficulties in attracting sufficient numbers of qualified
employees. None of the employees are covered by collective bargaining
agreements, and the Company has experienced no work stoppages. The Company
believes that its employee relations are good.
The acquisition of SRI will add approximately 75 additional employees
to the Company. (See "Subsequent Event - Southern Resources, Inc." above.)
Item 2. DESCRIPTION OF PROPERTY.
The Company leases approximately 6,000 square feet of office facilities
located in Bloomington, Minnesota. In addition, the Company leases approximately
26,000 square feet of warehouse and office space in Eagan, Minnesota and
approximately 32,500 square feet of office, warehouse and production facilities
in Torrance, California. The Company's corporate office lease and its warehouse
lease expire in September 1999 and December 2001, respectively. Its California
facility lease is month to month with a six month notice requirement. A
subsidiary of the Company leases approximately 13,600 square feet of office and
warehouse space in a suburb of Toronto, Canada. The lease for the subsidiary's
office and warehouse space expires in fiscal 2000. The Company anticipates that
it will be able to renew such leases or enter into new leases on substantially
similar terms. See Note 6 of Notes to Consolidated Financial Statements for
annual rental commitments. The Company believes that the properties are
adequately covered by insurance.
Item 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of stockholders during the quarter
ended September 30, 1997.
Part II
-10-
<PAGE>
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol: RING. The following table sets forth
the high and low sales prices of the Company's common stock for the last two
fiscal years as reported by Nasdaq.
QUARTERLY STOCK PRICES - FISCAL 1996 AND 1997
Sale Prices
-------------------
High Low
------ ------
Quarter of 1996:
First.............................. $2 1/8 $1 3/8
Second............................. $2 $1 5/8
Third ............................. $2 3/4 $1 3/8
Fourth............................. $2 3/8 $1 3/8
Quarter of 1997:
First.............................. $2 1/8 $1 1/4
Second............................. $1 7/16 $1 1/32
Third ............................. $1 3/4 $1
Fourth............................. $1 25/32 $1 1/16
HOLDERS.
As of December 15, 1997, there were 238 holders of record of the
Company's common stock, and the Company estimates there were approximately 2,200
beneficial holders at such date.
DIVIDENDS.
The Company has not paid or declared any cash dividends in the past
five years and has no intention of issuing dividends in the foreseeable future.
-11-
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ACQUISITION ACTIVITIES
In March 1997, the Company acquired substantially all of the assets of Dexol
Industries, Inc. ( the "Dexol acquisition"), a California based manufacturer and
marketer of pesticides to the retail consumer market with annual sales of
approximately $10 million. The pesticide products acquired use non-proprietary
traditional chemical technology commonly availably in the lawn and garden
industry. Since the acquisition, the Company has continued the business acquired
as its Dexol division, which has been included in the operations of Ringer
Corporation beginning on March 1, 1997, the effective date of the acquisition
for accounting and reporting purposes.
On May 30, 1996, the Company entered into a letter of intent to acquire all
outstanding stock of The Chas. H. Lilly Company ("Lilly"), a regional provider
of lawn and garden fertilizers, pesticides and packet seeds headquartered in
Portland, Oregon. On December 12, 1996, the Company announced that it elected to
discontinue efforts to acquire Lilly. Accordingly, the costs associated with
this acquisition attempt, which amounted to $312,771, have been charged to
expense in the accompanying fiscal 1996 Consolidated Statement of Operations.
In December 1994, the Company acquired substantially all of the assets of Plant
Research Laboratories ("PRL"), a California based developer and marketer of
water soluble fertilizers for the indoor houseplant and outdoor lawn and garden
care markets with annual sales of less than $1 million. The water soluble
fertilizer products acquired use a proprietary oxygen releasing technology.
These products were sold by PRL prior to the acquisition and have been sold by
the Company thereafter, primarily in the western United States, under the Oxygen
Plus(R) brand name. The Company introduced these products into national markets
in fiscal 1996 and plans to utilize the acquired technology in the development
of future products.
Management believes that new product introductions are essential to the future
growth and profitability of the Company. The Company is actively seeking
additional new product opportunities through a number of internal and external
means including the possibility of licensing arrangements with other companies
and further acquisitions. It should be noted, however, that the successful
culmination of these efforts or the profitable introduction of new products
cannot be assured.
SUBSEQUENT EVENT
On December 8, 1997, the Company completed a merger with Southern Resources,
Inc. ("SRI"), a previously privately-owned Georgia-based holding company, with
annual consolidated sales of approximately $25 million. SRI manufactures and
markets pesticides through its subsidiary SureCo, Inc., under a variety of
proprietary and private label brands names to commercial and consumer markets
throughout North America. The merger will be accounted for using the purchase
method. (See Note 12 to the Company's consolidated financial statements included
herein.)
RESULTS OF OPERATIONS
The following table sets forth selected information derived from the Company's
Consolidated Statements of Operations:
-12-
<PAGE>
<TABLE>
<CAPTION>
Percentage of Net Sales
For Years Ended September 30,
--------------------------------------
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
Net sales................................ 100.0% 100.0% 100.0%
Cost of sales............................ 54.5 52.1 49.2
----------- ---------- -----------
Gross margin............................. 45.5 47.9 50.8
Operating expenses:
Distribution and warehousing........... 11.7 10.6 13.3
Sales and marketing.................... 20.2 22.7 33.9
General and administrative............. 8.8 9.1 10.2
Research and development............... 5.2 5.1 6.9
Amortization of intangibles............ 2.4 2.7 2.7
----------- ---------- -----------
Total operating expenses 48.3 50.2 67.0
----------- ---------- -----------
Loss before other (expense) income....... (2.8) (2.3) (16.2)
Other (expense) income ............... (.1) (1.6) .9
----------- ---------- -----------
Net loss................................. (2.9)% (3.9)% (15.3)%
=========== ========== ===========
</TABLE>
The following table sets forth the percentage of net sales represented by each
of the Company's major product categories:
Year Ended September 30,
------------------------
1997 1996 1995
---- ---- ----
Pest control............................. 80% 70% 63%
Fertilizer .............................. 20 30 37
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1996
NET SALES
Net sales for the fiscal year ended September 30, 1997 increased by $4,147,841
or 28.3% to $18,820,625 from $14,672,784 for the previous fiscal year ended
September 30, 1996. The sales increase for fiscal 1997 was primarily due to the
Dexol acquisition and the inclusion of sales from the new Dexol division
beginning March 1, 1997. (See "Dexol Industries, Inc" and "Acquisition
Activities" above.)
GROSS MARGIN
Gross margins as a percent of sales decreased to 45.5% in fiscal 1997 compared
to 47.9% in fiscal 1996. The decline in gross margin as a percent of sales was
caused by the 1997 addition of Dexol products which carry a lower average gross
margin compared to the Company's other products.
OPERATING EXPENSES
Distribution and warehousing expenses increased $643,689, or 41.4%, to
$2,199,586 in fiscal 1997 compared to $1,555,897 in fiscal 1996 and increased as
a percentage of sales in fiscal 1997 to 11.7% compared to 10.6% in fiscal 1996.
The increase was due to the addition of the Dexol division warehousing function
and additional direct distribution costs associated with increased sales. Sales
and marketing expenses increased $481,462 or 14.4%, to $3,813,795 in fiscal 1997
compared to $3,332,333 in fiscal 1996. The increase in sales expenses was due
primarily to the addition of the Dexol sales organization and increased direct
selling costs associated with Dexol sales. In addition, sales and marketing
expenses were favorably impacted by the reversal in fiscal 1997 of approximately
$227,000 in estimated co-operative advertising expenses, which were accrued in
fiscal 1996, resulting from a change in estimate based on actual
-13-
<PAGE>
utilization of co-op advertising allowances. Fiscal 1996 sales and marketing
expenses were favorably impacted by the reversal of approximately $198,000 in
estimated co-operative advertising expenses, which were accrued in fiscal 1995.
General and administrative expenses increased $325,730 or 24.5% to $1,656,996 in
fiscal 1997 compared to $1,331,266 in fiscal 1996. The increase was due largely
to the addition of Dexol division offices and administrative functions. Research
and development expenses increased $223,428 or 29.8% to $972,360 in fiscal 1997
from $748,932 in fiscal 1996 primarily as a result of increased product
registration and development activity related to the Dexol acquisition.
Amortization of intangible assets increased to $447,498 in fiscal 1997 compared
to $402,778 in fiscal 1996. The increase was due primarily to the amortization
of the additional goodwill associated with the Dexol acquisition.
OTHER INCOME AND EXPENSE
Interest income decreased slightly to $72,247 in fiscal 1997 from $73,866 in
fiscal 1996 due primarily to a small decline in the amount of average excess
cash investments. Interest expense increased to $152,729 in fiscal 1997 from
$68,250 in fiscal 1996. The increase in interest expense was due primarily to
additional interest expense incurred on a long-term note payable added in 1997
in connection with the Dexol acquisition. Net royalty income decreased to
$50,885 in fiscal 1997 from $87,136 in fiscal 1996 due largely to decreased
royalty income on sales to foreign licensees.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1995
NET SALES
Net sales for the fiscal year ended September 30, 1996 increased by $478,886, or
3.4%, to $14,672,784 from $14,193,898 for the previous fiscal year ended
September 30, 1995. The sales increase for fiscal 1996 was primarily due to
increased sales of Safer(R) brand pesticide products which were partially offset
by lower sales of fertilizer products. Increased pesticide sales was partially
due to increased retail distribution and to new product sales. Decreased
fertilizer sales were largely due to microbial fertilizer sales.
GROSS MARGIN
Gross margins as a percent of sales decreased to 47.9% in fiscal 1996 compared
to 50.8% in fiscal 1995. The decline in gross margin as a percent of sales was
caused primarily by a continuing change in product mix to a higher proportion of
newer products and new promotional combination packs which carry lower average
gross margins.
OPERATING EXPENSES
Distribution and warehousing expenses decreased $330,873, or 17.5%, to
$1,555,897 in fiscal 1996 compared to $1,886,770 in fiscal 1995 and decreased as
a percentage of sales in fiscal 1996 to 10.6% compared to 13.3% in fiscal 1995.
The decrease as a percentage of sales in fiscal 1996 compared to fiscal 1995 was
primarily due to lower freight and outside distribution costs resulting from
consolidation of distribution processes and reduced freight rates. Sales and
marketing expenses decreased $1,478,315, or 30.7%, to $3,332,333 in fiscal 1996
compared to $4,810,648 in fiscal 1995 and decreased as a percentage of sales to
22.7% in fiscal 1996 from 33.9% in fiscal 1995. The decrease in sales expenses
was due largely to staffing reductions, offset in part by increased commissions
incurred from expanded utilization of
-14-
<PAGE>
manufacturer representative organizations and to lower advertising expenses. In
addition, sales and marketing expenses were favorably impacted by the reversal
in fiscal 1996 of approximately $198,000 in estimated co-operative advertising
expenses, which were accrued in fiscal 1995, resulting from a change in estimate
based on actual utilization of co-op advertising allowances. General and
administrative expenses decreased $113,844, or 7.9%, to $1,331,266 in fiscal
1996 compared to $1,445,110 in fiscal 1995 and decreased as a percentage of
sales to 9.1% in fiscal 1996 from 10.2% in fiscal 1995. The decrease was due
largely to reduced facility rental costs resulting from the sublease of
approximately half of the Company's former office facility. Research and
development expenses decreased $232,563, or 23.7% to $748,932 in fiscal 1996
from $981,495 in fiscal 1995. The decrease was largely due to lower product
registration costs resulting from discontinued registrations on certain products
no longer being sold. Amortization of intangible assets increased to $402,778 in
fiscal 1996 compared to $379,358 in fiscal 1995. The increase was due primarily
to multi-year foreign product registrations obtained in fiscal 1996 which are
being amortized over the life of the registrations.
OTHER INCOME AND EXPENSE
Other income and expense includes a fourth quarter charge of $312,771 for
expenses associated with an election not to proceed with a previously announced
acquisition. (See "Merger and Acquisition Activities" above.) Interest income
decreased $9,164, or 11.0%, to $73,866 in fiscal 1996 compared to $83,030 in
fiscal 1995. The decrease in interest income was largely due to declining
interest rates on investments. Interest expense increased to $68,250 in fiscal
1996 from $66,690 in fiscal 1995. The increase in interest expense was due
primarily to increased average borrowings in fiscal 1996 compared to fiscal
1995. Net royalty income decreased to $87,136 in fiscal 1996 from $106,352 in
fiscal 1995. The decrease in net royalty income was primarily caused by
additional royalty expenses incurred by the Company in fiscal 1996 in connection
with licensed technology used in the Company's water soluble fertilizer line.
INCOME TAXES
Income tax benefits of net deferred tax assets have been offset by valuation
allowances for the years ended September 30, 1997, 1996 and 1995 because it is
more likely than not that the tax benefits, which can not be carried back, could
not be realized in future periods.
At September 30, 1997, the Company has approximately $23.2 million in combined
U.S. net operating loss carryforwards for federal income tax purposes. These
loss carry forwards expire between 1998 and 2013. Of the total, approximately
$4.1 million are U.S. net operating loss carryforwards of Safer, Inc., the
Company's wholly owned subsidiary. The use of the unexpired net operating loss
carryforwards of Ringer which were generated prior to September 1990, totaling
approximately $10.2 million, are restricted to $2,025,000 in any one year under
Internal Revenue Code Section 382 because of a significant ownership change
resulting from the Company's initial public offering. The use of net operating
loss carryforwards of Ringer generated after the ownership change are not
restricted. The use of the net operating losses of Safer, Inc. are limited to
approximately $700,000 in any one year under Internal Revenue Code Section 382
because of a significant ownership change resulting from the Company's
acquisition of Safer, Inc. in January 1991. At September 30, 1997, the Company
has approximately $565,000 of net operating loss carryforwards in Canada which
expire between 1999 and 2002.
QUARTERLY PERFORMANCE
The following table sets forth a summary of quarterly results for the past two
fiscal years in order to show the highly seasonal pattern of the Company's
business and quarterly fluctuations in sales and earnings or losses. This
information is unaudited but contains all adjustments, consisting of normal
recurring accruals, which the Company believes are necessary for a fair
presentation.
-15-
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997
Three months ended Three months ended
---------------------------------------- ------------------------------------------
(In thousands, except income (loss) per share data)
Dec 31 Mar 31 June 30 Sept 30 Dec 31 Mar 31 June 30 Sept 30
-------- -------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 3,636 $ 5,613 $ 4,005 $ 1,419 $ 3,481 $ 4,839 $ 7,358 $ 3,143
Gross profit 1,850 2,878 1,709 588 1,774 2,243 3,443 1,105
Operating expenses 1,921 2,383 1,619 1,448 1,748 2283 3,205 1,854
Income (loss) before
other income
(expense) (71) 495 90 (860) 26 (40) 238 (749)
Other income
(expense) 19 12 14 (267) 34 (14) (54) 13
Net income (loss) $ (52) $ 507 $ 104 $ (1,127) $ 60 (54) $ 184 $ (736)
Income (loss)
per share $ (.00) $ .05 $ .01 $ (.10) $ .01 $ (.00) $ .02 $ (.06)
Average common and
common equivalent
shares outstanding 10,922 10,923 10,931 10,922 10,922 10,934 12,175 12,182
</TABLE>
SEASONAL FACTORS AFFECTING OPERATIONS
The Company's operations and cash needs are highly seasonal. During the first
quarter of each year, the Company solicits early orders and plans production,
typically building its inventory of products through January of each year for
shipment during the spring selling season. Most of the shipments for the peak
retail season, and therefore most of the billings that result in revenue
recognition and in receivables, occur in February through May of each year.
Accordingly, the Company typically consumes significant cash in operating
activities during the first and second quarters of each year as it finances
increases in inventory, primarily during the first quarter, and increases in
receivables, primarily during the second and early third quarters.
LIQUIDITY AND CAPITAL RESOURCES
Historically the Company's cash and working capital needs have been provided
through public and private equity offerings as well as seasonal bank lines of
credit. The Company relies on a bank line of credit to finance its seasonal
working capital needs resulting from the build up of inventory and receivables
during the second and third quarters of each year. Consistent with the Company's
seasonal operations, the Company's outstanding borrowings under its bank line is
the greatest during the third quarter of each year.
On May 2, 1997, the Company secured a three-year, $25 million revolving credit
facility from GE Capital Services, which replaced a $5,000,000 bank line of
credit from a previous lender. (See Note 5 to consolidated financial statements
herein.) Borrowings under the facility are limited to a borrowing base of 85% of
eligible receivables and 50% of eligible inventory, as defined in the credit
agreement. Management believes that this line of credit will meet the Company's
seasonal working capital requirements for fiscal 1998. In 1997, the Company's
maximum borrowings from its bank line of credit were $2,436,527 compared to
maximum borrowings of $3,405,417 in fiscal 1996. There are no outstanding
borrowings under the line of credit as of September 30, 1997.
Management believes that working capital of $5.1 million at September 30, 1997,
together with seasonal bank lines of credit, will be sufficient to fund its
operations through at least fiscal 1998.
-16-
<PAGE>
In fiscal 1997, cash and cash equivalents decreased $24,487 to $3,264,294 from
$3,288,781 at September 30, 1996. The decrease resulted primarily from cash used
in investing activities of $255,863 which was largely offset by cash provided
from operating activities of $116,605 and cash provided from financing
activities of $111,905. Cash used in investing activities was primarily used to
purchase property and equipment of $140,008, to pay expenses relating the Dexol
acquisition of $82,343 and to invest in patent and trademark applications and
other intangible assets of $42,401, partially offset by proceeds from the sale
of fixed assets of $8,889. The $116,605 provided by operating activities was
primarily the result of reductions to receivables and inventory of $1,605,348
and $873,900, respectively, offset in part by reductions in accounts payable and
accrued expenses of $2,150,758 and $195,638, respectively. The cash provided by
financing activities was primarily the result of cash received in the Dexol
acquisition of $124,073 partially offset by payments of $12,168 on long-term
debt.
In fiscal 1996, cash and cash equivalents increased $532,404 to $3,288,781 at
September 30, 1996. The increase resulted primarily from cash provided by
operating activities of $699,044, partially offset by cash used in investing
activities of $158,506. The $699,044 provided by operating activities was
primarily the result of decreased inventory and receivables of $502,224 and
$205,861, respectively, and increased accrued expenses of $249,746, which was
partially offset by cash used to fund the net operating loss of $568,119, less
net non-cash expenses of $511,896, and a reduction in accounts payable of
$194,464. Cash used in investing activities was primarily used to purchase
property and equipment of $60,861 and to invest in patent and trademark
applications and other intangible assets of $118,674, partially offset by
proceeds from the sale of fixed assets of $20,849.
In fiscal 1995, cash and cash equivalents decreased $2,091,246 to $2,756,377 at
September 30, 1995. The decline resulted primarily from cash used in operating
activities of $1,640,482, cash used in investing activities of $440,526 and cash
used in financing activities of $2,063. The $1,640,482 used in operating
activities was used primarily to fund the net loss of $2,173,104 and increases
in inventory of $748,040, which was partially offset by decreases in accounts
receivable and prepaid expenses of $313,494 and $90,174, respectively, and
increases in accounts payable of $331,887. Cash used in investing activities was
primarily used to acquire substantially all the assets of Plant Research
Laboratories (see Item 1. Business, "Plant Research Laboratories"), to purchase
property and equipment of $101,536 and to invest in patent and trademark
applications and other intangible assets of $106,288. Cash used in financing
activities resulted from final payments on capital lease obligations of $3,667
partially offset by cash of $1,604 received from the exercise of employee
incentive stock options.
There are no commitments for capital expenditures in fiscal 1998. The Company's
bank line of credit agreement limits the Company to capital asset purchases to
not more than $300,000 per year during the term of the credit agreement ending
May 2, 2000.
EFFECTS OF INFLATION
The Company believes that, during the periods discussed above, inflation has not
had a material impact on the Company's business.
ACCOUNTING PRONOUNCEMENTS
In fiscal 1997, the Company adopted Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." As permitted by
SFAS 123, the Company has elected to continue using the "intrinsic value method"
of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" for the measurement and recognition of stock-based transactions with
employees. Accordingly, no compensation costs have been recognized for stock
options issued under the Company's stock option plans because the exercise price
of options granted was equal to the fair value of
-17-
<PAGE>
the Company's common stock on the date of grant. See "Stock Based Compensation"
under Note 7 to the consolidated financial statements included herein.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement on Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share" was issued which is required to be adopted for the quarter
ending December 31, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating basic earnings per share,
the dilutive effect of stock options, stock warrants and convertible securities
will be excluded from basic earnings per share. The calculation of diluted
earnings per share will remain similar to the current method. The impact of SFAS
No. 128 on the calculation of primary and fully diluted earnings per share is
not expected to be material.
YEAR 2000 CONCERNS
The Company has reviewed its computer systems for year 2000 compliance issues
and has determined that implementations of new software and computer equipment
are required in certain areas. The Company is in the process of implementing
these computer systems changes to be year 2000 compliant. Management believes
that the implementation of new hardware and software required to be year 2000
compliant will not have a material adverse impact on the Company's future
operating results.
FORWARD LOOKING INFORMATION
The information contained in this Annual Report includes forward-looking
statements as defined in Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements involve a number of risks and
uncertainties, including demand from major customers, competition, changes in
product or customer mix or revenues, and changes in product costs and operating
expenses, and other factors disclosed throughout this Annual Report and the
Company's other filings with the Securities and Exchange Commission. The actual
results that the Company achieves may differ materially from any forward-looking
statements due to such risks and uncertainties. The Company undertakes no
obligation to revise any forward-looking statements in order to reflect events
or circumstances that may arise after the date of this report. Readers are urged
to carefully review and consider the various disclosures made by the Company in
this report and in the Company's other reports filed with the Securities and
Exchange Commission that attempt to advise interested parties of the risks and
uncertainties that may affect the Company's financial condition and results of
operations.
-18-
<PAGE>
Item 7. FINANCIAL STATEMENTS.
The following consolidated financial statements are included as a separate
section following the signature page to this Form 10-KSB:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report ....................................... F-2
Consolidated Balance Sheets as of
September 30, 1997 and 1996....................................... F-3
Consolidated Statements of Operations for the years ended
September 30, 1997, 1996 and 1995................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1997, 1996 and 1995................................. F-5
Consolidated Statements of Cash Flows for the years ended
September 30, 1997, 1996 and 1995................................. F-6
Notes to Consolidated Financial Statements.......................... F-7 to F-16
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
-19-
<PAGE>
PART III
Item 9. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
(A) ELECTION OF DIRECTORS
The Board of Directors has set the number of directors to be elected
for the ensuing year at eight and will be recommending in its Proxy Statement
the election of Messrs. Goldberg, Stofer, Fischer, Lovness, Pass, Yanni,
Hetterick and Vansant (the "Nominees") to hold office until the next annual
meeting of shareholders and until their successors are elected and qualified.
Each Nominee, other than David K. Vansant, is presently a director of the
Company.
The following information is given as of December 31, 1997 and has been
furnished to the Company by the respective individuals listed below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND
NAME AND AGE BUSINESS EXPERIENCE FOR PAST FIVE YEARS DIRECTOR SINCE
- ------------ --------------------------------------- --------------
<S> <C> <C>
Stanley Goldberg Chairman of the Board of Directors of the Company since September 1992
Age 51 1997; Chief Executive Officer of the Company since 1993;
President of the Company since September 1992. Vice
President and General Manager of Thomson, S.A., World
Wide Audio Division, a defense and electronics company
from 1990 to 1992; General Manager of Thomson S.A., Audio
Americas Operations from 1988 to 1990; Manager of Product
Development for General Electric Company, a consumer and
industrial products and defense company, from 1986 to
1988. Director of Destrib- Fearing Corporation.
Gordon F. Stofer +o* President of Cherry Tree Investments, Inc. and Managing December 1985
Age 50 General Partner of Cherry Tree Ventures venture capital
partnerships since 1980. Chairman of the Board of
Directors of the Company from 1986 to 1997. Director of
Coda Music Technology, Inc., Insignia Systems
Incorporated and Harmony Brook, Inc.
Robert W. Fischer +o* President of R.W. Fischer & Company, Inc., a corporate June 1981
Age 79 development and investment banking services company,
since 1979. Director of Apertus Technologies
Incorporated.
Donald E. Lovness Former Senior Scientist of the Company until his June 1965
Age 73 retirement in December 1988.
Franklin Pass, M.D. Chairman and Chief Executive Officer of Medi-Ject June 1990
Age 61 Corporation, a manufacturer of needle-free injection
devices, since 1992; President of International
Agricultural Investments, Ltd., an agricultural and
consulting partnership from 1990 to 1993; Chairman and
Chief Executive Officer of Bioseeds International, Inc.,
an agricultural seed company, from 1987 to 1990.
Frederick F. Yanni, President and Chief Executive Officer of Health Services June 1993
Jr.+ Medical Corporation of Central New York, Inc., a network
Age 55 health maintenance organization, since 1976; President
and Chief Executive Officer of Health Services
Association, a provider of ambulatory care, since 1972.
</TABLE>
-20-
<PAGE>
<TABLE>
<S> <C> <C>
John F. Hetterick o* Independent consultant in the consumer products industry June 1993
Age 52 since 1997; President and Chief Executive Officer of
Rollerblade, Inc., a manufacturer of in-line skates, from
1992 to 1997; President of Tonka International, a
division of Tonka, Corporation, a toy manufacturer, from
1989 to 1991; Vice President-Marketing of Pepsi-Cola
International, a manufacturer and distributor of soft
drinks from 1986 to 1989.
David K. Vansant Executive Vice President - Corporate Development of the Nominee
Age 53 Company since 1997. Chairman and Chief Executive Officer
of Southern Resources, Inc. from 1986 until Southern
Resources, Inc. was acquired by the Company in 1997.
</TABLE>
- ----------
+ Member of Audit Committee
o Member of Stock Option Committee
* Member of Compensation Committee
(B) EXECUTIVE OFFICERS
Name Age Position
---- --- --------
Stanley Goldberg 51 Chairman, Chief Executive Officer and
President
Mark G. Eisenschenk 40 Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
Patrick J. McGinnity, Ph.D. 43 Vice President and General
Manager - Safer and Ringer
Products
Michael R. Goblet 51 Vice President - Sales
See the biographical information on Mr. Goldberg under "Election of
Directors."
Mark G. Eisenschenk joined the Company in January 1994 as Chief
Financial Officer, Vice President of Finance, Treasurer and Secretary. From 1991
to 1994, Mr. Eisenschenk was the Vice President and Chief Financial Officer of
ECM Publishers, Inc. From 1986 to 1991, Mr. Eisenschenk was Director of
Treasury, Taxation and Accounting of Sinclair and Valentine, formerly a unit of
Allied-Signal, Inc.
Patrick J. McGinnity, Ph.D. joined the Company in September 1987 as
Vice President-Research and Development. From December 1983 to September 1987,
Dr. McGinnity was Senior Field Research and Development Specialist and Regional
Field Research and Development Manager at PPG Industries, Inc.
Michael R. Goblet joined the Company in March 1993 as Vice President -
Sales. From 1982 to 1993, Mr. Goblet was a Regional Manager at the O. M. Scotts
Company.
(C) SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors, persons who beneficially own more than ten percent (10%)
of the Company's Common Stock to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission ("SEC").
Executive officers, directors and greater than ten percent (10%) beneficial
owners are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
-21-
<PAGE>
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers and directors were complied with.
Item 10. EXECUTIVE COMPENSATION.
The following table sets forth the compensation awarded to or earned in
fiscal years 1997, 1996 and 1995 by the Company's Chief Executive Officer and
each other executive officer who earned salary and bonus in excess of $100,000
during the fiscal year ended September 30, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation (1)
------------------------------
Restricted Securities
Name and Annual Compensation Stock Underlying All Other
Principal Position Year Salary Bonus Awards Options Compensation
- ------------------ ---- ----------- ----------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stanley Goldberg, 1997 $ 185,250 -- -- 90,000 $21,584(2)
Chairman, President 1996 $ 178,500 $ 20,000 -- -- $22,227(2)
and Chief Executive 1995 $ 171,133 -- -- 225,000 $20,548(2)
Officer
Patrick J. McGinnity, 1997 $ 105,000 -- -- 5,000 --
Vice President and 1996 $ 104,167 $ 1,500 -- -- --
General Manager, 1995 $ 94,875 -- -- 35,000 --
Safer and Ringer
Products
Michael R. Goblet, 1997 $ 104,375 -- -- 5,000 --
Vice President of 1996 $ 102,083 $ 1,000 -- -- --
Sales 1995 $ 102,417 -- -- 17,000 --
Mark G. Eisenschenk, 1997 $ 103,542 -- -- 50,000 --
Executive Vice 1996 $ 90,938 $ 7,500 -- -- --
President, Chief 1995 $ 81,333 $ 4,000 -- 50,000 --
Financial Officer,
Treasurer and Secretary
</TABLE>
- ----------
(1) Mr. Goldberg held 15,000 shares of restricted stock valued at $27,188
as of September 30, 1997.
(2) Includes compensation of $7,343 in 1997, $7,087 in 1996 and $7,417 in
1995 relating to the purchase of disability insurance for Mr. Goldberg.
<TABLE>
<CAPTION>
Fiscal Year-End Option Values
-----------------------------
Number of Unexercised Value of Unexercised
Options at End of In-the-Money Options
Fiscal 1997 at End of Fiscal 1997
------------- ----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mr. Goldberg 136,190 178,810 $ 68,095 $ 89,405
Dr. McGinnity 59,628 30,372 29,814 10,186
Mr. Goblet 42,442 11,558 21,221 5,779
Mr. Eisenschenk 48,000 2,000 24,000 1,000
</TABLE>
-22-
<PAGE>
DIRECTOR COMPENSATION
The Company does not provide cash compensation to its outside
directors, but reimburses them for travel expenses for Board of Directors and
committee meetings attended. In 1993 the Board of Directors adopted the Stock
Option Plan for Non-Employee Directors (the "Director Plan"), which was approved
by the shareholders of the Company at the 1994 Annual Meeting. Such plan
provides that each non-employee director shall receive an option to purchase
10,000 shares of Common Stock upon initial election as a director and an option
to purchase an additional 5,000 shares of Common Stock on the first business day
of each fiscal year in which he or she remains a director, commencing October 1,
1993. The exercise price of all options under the Director Plan is equal to the
fair market value on the date of grant. Options granted under the Director Plan
(i) are exercisable in monthly increments of one-sixtieth of the number of
shares subject to such grant until the day following the fifth anniversary of
such grant, at which time the options granted are all fully exercisable and (ii)
expire 10 years from the date of the grant. In the event any dividend,
distribution, recapitalization, stock split, merger, consolidation, or other
event occurs that affects the Company's Common Stock such that an adjustment is
deemed appropriate to prevent dilution or enlargement of benefits under the
Director Plan, such adjustments may be made to preserve the benefits intended
under the Director Plan and such awards. Awards granted under the Director Plan
are not transferable.
EMPLOYMENT AGREEMENTS
The Company and Stanley Goldberg entered into an Employment Agreement
under which Mr. Goldberg agreed to serve as the President of the Company. The
agreement, as amended, provides for a minimum annual base compensation payable
to Mr. Goldberg of $200,000. In addition, Mr. Goldberg is eligible for an annual
bonus of up to 40% of his base salary based on personal and company performance
objectives established by the Company's Board of Directors. The agreement
further provides that Mr. Goldberg may be entitled to severance pay in the event
Mr. Goldberg's employment with the Company is terminated under certain
circumstances. Such severance pay is equal to (i) his base monthly salary at the
time of such termination, is payable for a period of three years following such
termination, and offset by any compensation received by Mr. Goldberg after the
date eighteen months following such termination from other employment and (ii) a
lump-sum payment equal to the average bonus received by Mr. Goldberg during the
preceding three years. The Agreement further provides that if the Company sells
substantially all of its assets or a transaction occurs such that the members of
the Board of Directors at the time of the transaction do not remain on the Board
of Directors after such transaction, the Company shall pay Mr. Goldberg a sale
bonus equal to (i) 300% of his annual base salary and (ii) the average bonus
paid to Mr. Goldberg for the three years immediately preceding such transaction.
The Company and Mark G. Eisenschenk also entered into an Employment
Agreement under which Mr. Eisenschenk agreed to serve as the Executive Vice
President and Chief Financial Officer of the Company. The agreement provides for
a minimum annual base compensation payable to Mr. Eisenschenk of $125,000. In
addition, Mr. Eisenschenk is eligible for an annual bonus of up to 30% of his
base salary based on personal and company performance objectives established by
the Company's Board of Directors. The agreement further provides that Mr.
Eisenschenk may be entitled to severance pay in the event Mr. Eisenschenk's
employment with the Company is terminated under certain circumstances. Such
severance pay is equal to (i) his base monthly salary at the time of such
termination, is payable for a period of twelve months following such
termination, and offset by any compensation received by Mr. Eisenschenk after
the date six months following such termination from other employment and (ii) a
lump sum payment equal to the average bonus received by Mr. Eisenschenk during
the preceding three years. The agreement further provides that if the Company
sells substantially all of its assets or a transaction occurs such that the
members of the Board of Directors at the time of the transaction do not remain
on the Board of Directors after such transaction, the Company shall pay Mr.
Eisenschenk a sale bonus equal to (i) 100% of his annual base salary and (ii)
the average bonus paid to Mr. Eisenschenk for the three years immediately
preceding such transaction.
-23-
<PAGE>
STOCK OPTION PLANS
In 1986, the Board of Directors and the shareholders of the Company
approved the 1986 Employee Incentive Stock Option Plan (the "1986 Plan") which
expired on September 17, 1996. As of such date, 833,068 shares of Common Stock
were subject to outstanding options at a weighted average exercise price of
$1.3125 per share, of which options to purchase 465,875 shares were exercisable
as of such date. As of September 30, 1997, a total of 22 employees held options
under the 1986 Plan.
In 1996, the Board of Directors adopted, and in 1997 the shareholders
approved, the Ringer Corporation 1996 Incentive and Stock Option Plan (the "1996
Plan"). As of September 30, 1997, 40,500 shares of Common Stock were subject to
outstanding options at a weighted exercise price of $1.3125 per share, of which
options to purchase 12,938 shares were exercisable as of such date. As of
September 30, 1997, a total of 24 employees held options under the 1996 Plan.
STOCK OPTION REPRICING
The Company's Compensation Committee and Board of Directors repriced
all outstanding stock options to purchase Company Common Stock held by employees
and directors on April 29, 1997. The Compensation Committee and Board of
Directors believed that the market price of the Company's common stock had been
negatively affected by several factors, including general investment market
disfavor for small-cap common stocks, the Company's earnings performance and
absence of investment analyst coverage. As a result, the outstanding stock
options, which had been granted at exercise prices ranging from $1.50 to $2.70
per share, no longer represented an effective incentive for employees and
directors. The options were reissued at an exercise price equal to the fair
market value of the Common Stock on the date of repricing ($1.3125 per share).
The number of shares subject to the repriced options and the average option
exercise price for each of the named executive officers is as follows: Mr.
Goldberg - 90,000 shares at $2.50 per share; Mr. Eisenschenk - 50,000 shares at
an average exercise price of $1.98 per share; Dr. McGinnity - 75,000 shares at
an average exercise price of $2.02 per share; and Mr. Goblet - 49,000 shares at
an average exercise price of $1.96 per share.
Item 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of December 31,
1997, with respect to the beneficial ownership of the Company's Common
Stock by all persons known by the Company to be the beneficial owners
of more than 5% of its outstanding shares, by all directors, nominees
for election as directors, by the executive officers named in the
executive compensation table and by all officers and directors as a
group. Unless noted below, the address of each of the following
shareholders is the same as the Company.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL
OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS
- ------------------- ------------ ----------------
Gordon F. Stofer and 680,811 4.1%
Cherry Tree Ventures III (2)
1400 Northland Plaza
3800 West 80th Street
Minneapolis, MN 55431
Parsnip River Company 1,005,388 6.0
4422 IDS Center
80 South 8th Street
Minneapolis, MN 55402
-24-
<PAGE>
William J. DeMare 1,125,000 6.7
14702 Claredon Drive
Tampa, FL 33624
Benjamin F. Law 1,125,000 6.7
2755 Arden Rd, N.W.
Atlanta, GA 30327
D. David Bailey 1,125,000 6.7
2504 Gardener Court
Tampa, FL 33611
David K. Vansant 1,125,000 6.7
132 Princeton Drive
Macon, GA 31220
Dexol Industries, Inc. 1,059,340 6.4
1450 West 228th St.
Torrance, CA 90501
Stanley Goldberg 332,705 2.0
Robert W. Fischer 112,001 *
Donald E. Lovness 35,550 *
Franklin Pass, M.D. 25,000 *
Frederick F. Yanni, Jr. 38,300 *
John F. Hetterick 35,000 *
Richard Mayo 25,000 *
Mark G. Eisenschenk 102,000 *
Michael R. Goblet 53,659 *
Patrick J. McGinnity, Ph.D. 64,477 *
Officers and directors as 1,524,386 8.9%
a group (12 persons) (1)
- ----------
* Less than one percent
(1) Includes for Stanley Goldberg, options to purchase 158,690 shares of
Common Stock which are exercisable within 60 days; for Robert W.
Fischer, options to purchase 25,000 shares of Common Stock which are
exercisable within 60 days; for Donald E. Lovness, options to purchase
25,000 shares of Common Stock which are exercisable within 60 days; for
Franklin Pass, M.D., options to purchase 25,000 shares of Common Stock
which are exercisable within 60 days; for Frederick F. Yanni, Jr.,
options to purchase 35,000 shares of Common Stock which are exercisable
within 60 days; for John F. Hetterick, options to purchase 35,000
shares of Common Stock which are exercisable within 60 days; for Mark
G. Eisenschenk, options to purchase 50,000 shares of Common Stock which
are exercisable within 60 days; for Michael R. Goblet, options to
purchase 46,249 shares
-25-
<PAGE>
of Common Stock which are exercisable in 60 days; for Patrick J.
McGinnity, Ph.D., options to purchase 64,477 shares of Common Stock
which are exercisable within 60 days; and for all officers and
directors as a group, options to purchase 519,299 shares of Common
Stock which are exercisable within 60 days.
(2) Includes 648,163 shares held by Cherry Tree Ventures III, of which Mr.
Stofer, the Chairman of the Board of the Company, is a general partner.
Mr. Stofer disclaims beneficial ownership of shares held by Cherry Tree
Ventures III. Also includes options to purchase 20,000 shares of Common
Stock which are exercisable within 60 days.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On April 29, 1997, the Board of Directors of the Company approved the
sale of 150,000 shares of unregistered and restricted Common Stock to Mr.
Goldberg and 50,000 shares of unregistered and restricted stock to Mr.
Eisenschenk, at a price of $1.3125 per share (the fair market value on the date
of the transaction). Mr. Goldberg is a director, shareholder and executive
officer and Mr. Eisenschenk is a shareholder and executive officer of the
Company.
The purchase price for the shares was paid by each of Mr. Goldberg and
Mr. Eisenschenk by delivering to the Company a full recourse promissory note.
The promissory note of Mr. Goldberg is payable in three annual installments of
principal and interest due on the first three anniversaries of the date of the
promissory note. The promissory note of Mr. Eisenschenk is due in five annual
installments of principal and interest due on the first five anniversaries of
the date of the promissory note.
The agreements pursuant to which each of Messrs. Goldberg and
Eisenschenk purchased stock provide that, if the executive officer is employed
by the Company on each anniversary on which payments are due under the
promissory note, the Company will make a cash bonus payment to the executive
officer in an amount equal to the annual debt service payments on such note plus
an amount equal to the federal and state income taxes payable on such cash
bonus.
The agreement with Mr. Goldberg provides that, in the event Mr.
Goldberg is terminated for cause or voluntarily terminates his employment with
the Company prior to April 29, 2000, the Company will have the option to
repurchase shares of Company Common Stock purchased by him on April 29, 1997.
The number of shares subject to repurchase decreases by one-third on each
anniversary of the date of purchase, from an initial option to repurchase all of
the shares purchased prior to the first such anniversary.
Similarly, in the event Mr. Eisenschenk is terminated for cause or
voluntarily terminates his employment with the Company prior to April 29, 2002,
the Company will have the option to repurchase shares of Company Common Stock
purchased by him on April 29, 1997. The number of shares subject to repurchase
decreases by one-fifth from an initial option to repurchase all of the shares
purchased prior to the first such anniversary.
The agreements also provide that if (i) Mr. Goldberg or Mr. Eisenschenk
is terminated without cause, (ii) the Company is sold, or (iii) a controlling
interest in the Company is acquired by a third party prior to April 29, 2000,
the Company will make cash payments equal to one-third of the then outstanding
balance of principal and interest on their respective promissory notes for each
anniversary of such promissory notes that has passed as of the date of the above
described events.
In connection with such purchases, Mr. Goldberg agreed to the
cancellation of options to purchase 135,000 shares of the Company's Common Stock
owned by him and Mr. Eisenschenk agreed to the cancellation of options to
purchase 50,000 shares of Common Stock owned by him.
-26-
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
a. Listing of Exhibits **
Exhibit
Number Description
- ------ -----------
2.1 Agreement for Purchase and Sale of Assets by and between Dexol
Industries, Inc. and Ringer Corporation (incorporated by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K filed April 15,
1997, SEC File No. 33-36205-C).
2.2 Amended and Restated Agreement and Plan of Merger between Southern
Resources, Inc. Inc. and Ringer Corporation (incorporated by reference
to Exhibit 2.1 of the Company's Current Report on Form 8-K filed on or
about December 23, 1997, SEC File No. 33-36205-C).
3.1 Restated Articles of Incorporation of the Company, as amended to date
(incorporated by reference to Exhibit 3.2 of the Company's Registration
Statement on Form S-18, SEC File No. 33-36205-C).
3.2 Bylaws of the Company, as amended to date (incorporated by reference to
Exhibit 3.3 of the Company's Registration Statement on Form S-18, SEC
File No. 33-36205-C).
4.1 Specimen certificate of Common Stock, $.01 par value (incorporated by
reference to Exhibit 4.1 of the Company's Registration Statement on
Form S-18, SEC File No. 33- 36205-C).
* 10.1 1986 Employee Incentive Stock Option Plan (incorporated by reference to
Exhibit 4.4 of the Company's Registration Statement on Form S-8, SEC
File No. 33-37806).
* 10.2 Stock Option Plan for Non-Employee Directors (incorporated by reference
to Exhibit 10.2 of the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 1993, SEC File No. 0-18921).
10.3 Lease Agreement between the Company and 94th Street Associates, a
Minnesota Partnership, dated August 15, 1996 (incorporated by reference
to Exhibit 10.3 of the Company's Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1996, SEC File No. 0-18921.)
10.4 Lease Agreement between the Company and MEPC American Properties, Inc.,
a Delaware corporation, dated August 16, 1996 (incorporated by
reference to Exhibit 10.4 of the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 1996.)
* 10.5 Employment Agreement between the Company and Stanley Goldberg
dated September 13, 1992 (incorporated by reference to Exhibit 10.6 of
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1992, SEC File No. 0-18921).
* 10.6 Amendment of Employment Agreement between the Company and Stanley
Goldberg, dated December 5, 1997 (incorporated by reference to Exhibit
10.6 of the Company's Amended Annual Report on Form 10-KSB/A for the
fiscal year ended September 30, 1997 filed on February 17, 1998, SEC
File No. 0-18921).
-27-
<PAGE>
* 10.7 Employment Agreement between the Company and Mark G. Eisenschenk,
dated December 5, 1997 (incorporated by reference to Exhibit 10.7 of
the Company's Amended Annual Report on Form 10-KSB/A for the fiscal
year ended September 30, 1997 filed on February 17, 1998, SEC File No.
0-18921).
* 10.8 Stock purchase agreement, and related documents, between the
Company and Stanley Goldberg, dated April 29, 1997 (incorporated by
reference to Exhibit 10.8 of the Company's Amended Annual Report on
Form 10-KSB/A for the fiscal year ended September 30, 1997 filed on
February 17, 1998, SEC File No. 0-18921).
* 10.9 Stock purchase agreement, and related documents, between the
Company and Mark G. Eisenschenk, dated April 29, 1997 (incorporated by
reference to Exhibit 10.9 of the Company's Amended Annual Report on
Form 10-KSB/A for the fiscal year ended September 30, 1997 filed on
February 17, 1998, SEC File No. 0-18921).
10.10 Credit Agreement between the Company and General Electric Capital
Corporation dated May 2, 1997 (incorporated by reference to Exhibit
10.6 of the Company's Quarterly Report on Form 10-QSB for the third
fiscal quarter ended June 30, 1997, SEC File No. 0- 18921).
10.11 Stock Subscription Warrant between the Company and Robert W. Fischer
Co., Inc. dated July 18, 1990 (incorporated by reference to Exhibit
10.16 of the Company's Registration Statement on Form S-18, SEC File
No. 33-36205-C).
10.12 Cross-Licensing and Joint Licensing/Sale Agreement between Ringer
Corporation and Mycogen Corporation, dated May 31, 1994 (incorporated
by reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-QSB for the fiscal quarter ended June 30, 1994, SEC File No.
0-18921).
10.13 Patent License Agreement between Ringer Corporation, Mycogen
Corporation and Monsanto Company, dated June 29, 1994 (incorporated by
reference to Exhibit 10.2 of the Company's Quarterly Report on Form
10-QSB for the fiscal quarter ended June 30, 1994, SEC File No.
0-18921).
* 10.14 Ringer Corporation 1996 Employee Stock Option Plan (incorporated
by reference to Exhibit 10.15 of the Company's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1996.)
21.1 Subsidiaries of the Registrant (filed with Form 10-KSB dated
September 30, 1997)
23.1 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (filed with Form 10-KSB dated September 30, 1997).
27.1 Financial Data Schedule (filed with Form 10-KSB dated September 30,
1997)
* Management contract or compensation plan or arrangement.
** See Index to Exhibits and Exhibits attached as a separate section of
this report.
b. Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended September 30,
1997.
-28-
<PAGE>
SIGNATURES
In accordance with 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.
RINGER CORPORATION
By /S/ Stanley Goldberg
-----------------------------
Stanley Goldberg
President & CEO
Dated: September 29, 1998
In accordance with 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.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/S/ Stanley Goldberg Chairman, President, CEO and Director September 29, 1998
- --------------------------------
Stanley Goldberg (principal executive officer)
/S/ Mark G. Eisenschenk Chief Financial Officer September 29, 1998
- --------------------------------
Mark G. Eisenschenk (principal financial officer)
/S/ Joseph R. Price Vice President, Finance September 29, 1998
- --------------------------------
Joseph R. Price (principal accounting officer)
Gordon F. Stofer * Chairman of the Board and Director
Robert W. Fischer * Director
Donald E. Lovness * Director
Dr. Franklin Pass * Director
John F. Hetterick * Director
Frederick F. Yanni, Jr. * Director
Richard Mayo * Director
* /S/ Stanley Goldberg Attorney-in-fact September 29, 1998
- -------------------------------
Stanley Goldberg
</TABLE>
-29-
<PAGE>
RINGER CORPORATION AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report ................................................................ F - 2
Consolidated Balance Sheets as of
September 30, 1997 and 1996................................................................ F - 3
Consolidated Statements of Operations for the years ended
September 30, 1997, 1996 and 1995 ......................................................... F - 4
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1997, 1996 and 1995.......................................................... F - 5
Consolidated Statements of Cash Flows for the years ended
September 30, 1997, 1996 and 1995 ......................................................... F - 6
Notes to Consolidated Financial Statements................................................... F - 7 to F - 16
</TABLE>
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Verdant Brands, Inc.
Bloomington, Minnesota
We have audited the accompanying consolidated balance sheets of Verdant Brands,
Inc. and subsidiary, formerly Ringer Corporation and subsidiary, as of September
30, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Verdant
Brands, Inc. and subsidiary, formerly Ringer Corporation and subsidiary, as of
September 30, 1997 and 1996 and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1997 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
December 5, 1997 (September 29, 1998 as to Note 12)
F - 2
<PAGE>
RINGER CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
September 30
-----------------------------
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,264,294 $ 3,288,781
Trade accounts receivable, less allowance for doubtful
accounts of $134,000 and $126,000, respectively 1,153,271 992,198
Inventories (Note 3) 2,805,661 1,519,692
Prepaid expenses 221,186 133,746
------------- -------------
Total current assets 7,444,412 5,934,417
PROPERTY AND EQUIPMENT, net (Note 4) 430,138 238,297
INTANGIBLE ASSETS, at cost, less accumulated amortization
of $2,713,002 and $2,264,349, respectively (Note 1) 6,653,501 5,297,329
OTHER ASSETS 87,044
------------- -------------
$ 14,615,095 $ 11,470,043
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,273,570 $ 651,546
Accrued expenses:
Co-op advertising 280,475 319,691
Other accrued expenses 807,449 559,908
Current portion of long-term debt 23,207
------------- -------------
Total current liabilities 2,384,701 1,531,145
LONG-TERM DEBT (Note 6) 1,458,799
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Note 7):
Preferred stock, undesignated, par value $.01
per share, authorized 5,000,000 shares,
no shares issued and outstanding
Common stock, par value $.01 per share, authorized
25,000,000 shares, issued and outstanding
12,181,270 and 10,921,930 shares, respectively 121,813 109,219
Additional paid-in capital 33,683,587 32,036,675
Notes receivable from sale of common stock to officers (Note 10) (262,500)
Accumulated deficit ( 22,613,212) ( 22,067,276)
Cumulative translation adjustment ( 158,093) ( 139,720)
------------- -------------
10,771,595 9,938,898
------------- -------------
$ 14,615,095 $ 11,470,043
============= =============
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
RINGER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Year Ended September 30
------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $ 18,820,625 $ 14,672,784 $ 14,193,898
COST OF GOODS SOLD 10,255,353 7,647,293 6,990,175
------------- ------------- -------------
Gross profit 8,565,272 7,025,491 7,203,723
OPERATING EXPENSES:
Distribution and warehousing 2,199,586 1,555,897 1,886,770
Sales and marketing 3,813,795 3,332,333 4,810,648
General and administrative 1,656,996 1,331,266 1,445,110
Research and development 972,360 748,932 981,495
Amortization of intangibles 447,498 402,778 379,358
------------- ------------- -------------
9,090,235 7,371,206 9,503,381
------------- ------------- -------------
Loss before other
(expense) income ( 524,963) ( 345,715) ( 2,299,658)
OTHER (EXPENSE) INCOME:
Interest income 72,247 73,866 83,030
Interest expense ( 152,729) ( 68,250) ( 66,690)
Royalties, net (Note 6) 50,885 87,136 106,352
Other income (expense), net 8,624 ( 2,385) 3,862
Abandoned acquisition expenses (Note 2) ( 312,771)
------------- ------------- -------------
( 20,973) ( 222,404) 126,554
------------- ------------- -------------
NET LOSS $( 545,936) $( 568,119) $( 2,173,104)
============= ============= =============
NET LOSS PER WEIGHTED
AVERAGE COMMON SHARE $( .05) $( .05) $( .20)
============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 11,540,885 10,921,930 10,897,704
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
RINGER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------------ Additional Receivables Cumulative
Number of paid-in from sale Accumulated translation
shares Amount capital of stock deficit adjustment Total
----------- ---------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 10,786,013 $ 107,860 $ 31,835,805 $(19,326,053) $ (131,619) $ 12,485,993
Issuance of common stock in
connection with the purchase
of Oxygen Plus 125,000 1,250 186,250 187,500
Issuance of common stock upon
exercise of stock options 917 9 1,595 1,604
Issuance of common stock as
non-cash compensation to
officer 10,000 100 13,025 13,125
Foreign currency translation
adjustments 5,188 5,188
Net loss (2,173,104) (2,173,104)
----------- ---------- ------------ ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1995 10,921,930 109,219 32,036,675 (21,499,157) (126,431) 10,520,306
Foreign currency translation
adjustments (13,289) (13,289)
Net loss (568,119) (568,119)
----------- ---------- ------------ ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1996 10,921,930 109,219 32,036,675 (22,067,276) (139,720) 9,938,898
Issuance of common stock in
connection with the purchase
of Dexol 1,059,340 10,594 1,386,412 1,397,006
Issuance of common stock upon
sale of stock to officers 200,000 2,000 260,500 $ (262,500) --
Foreign currency translation
adjustments (18,373) (18,373)
Net loss (545,936) (545,936)
----------- ---------- ------------ ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1997 12,181,270 $ 121,813 $ 33,683,587 $ (262,500) $(22,613,212) $ (158,093) $ 10,771,595
=========== ========== ============ =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
RINGER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 10)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Year ended September 30
----------------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (545,936) $ (568,119) $ (2,173,104)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 616,079 514,940 519,928
Write-off of intangible assets 76,085 1,312 42,564
Stock issued as compensation for services 13,125
Income from investment in joint venture (10,078) (4,356)
(Gain) loss on sale of property
and equipment 29 (11,449) (5,786)
(Increase) decrease in assets:
Trade accounts receivable 1,605,348 205,861 313,494
Inventories 873,900 502,224 (748,040)
Prepaid expenses (152,426) 3,349 90,174
Increase (decrease) in liabilities:
Accounts payable (2,150,758) (194,464) 331,887
Accrued expenses (195,638) 249,746 (24,724)
----------- ----------- -----------
Net cash provided by (used in) operating activities 116,605 699,044 (1,640,482)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (140,008) (60,681) (101,536)
Purchase of intangible assets (42,401) (118,674) (106,288)
Proceeds from sale of property and equipment 8,889 20,849 24,958
Net cash paid relating to acquisition of Dexol (82,343)
Net cash paid relating to acquisition of Oxygen Plus (257,660)
----------- ----------- -----------
Net cash used in investing activities (255,863) (158,506) (440,526)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received in Dexol acquisition 124,073
Proceeds from issuance of common stock 1,604
Principal payments on long-term debt (12,168) (3,667)
----------- ----------- -----------
Net cash provided by (used in) financing activities 111,905 (2,063)
Effect of exchange rate changes on cash 2,866 (8,134) (8,175)
----------- ----------- -----------
(Decrease ) increase in cash and cash equivalents (24,487) 532,404 (2,091,246)
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR 3,288,781 2,756,377 4,847,623
----------- ----------- -----------
END OF YEAR $ 3,264,294 $ 3,288,781 $ 2,756,377
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 6
<PAGE>
RINGER CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company develops, manufactures and markets pesticide and
fertilizer products for the retail and commercial lawn, garden and turf
management markets. Products are sold under several nationally
recognized brand names and a variety private labels.
Principles of consolidation - The consolidated financial statements
include the accounts of Ringer Corporation and Safer, Inc., its wholly
owned subsidiary. All material intercompany accounts and transactions
have been eliminated.
Revenue recognition - The Company recognizes revenue on the date of
shipment for sales other than "bill and hold" sales. Revenue on
infrequent "bill and hold" sales is recognized at the time that title
and risk of ownership passes to purchaser.
Translation of foreign financial statements - The Company's foreign
operations are translated from functional foreign currency to U.S.
dollars. Assets and liabilities are translated at year end rates of
exchange and the statements of operations are translated at the average
rates of exchange for the applicable reporting years. Gains and losses
resulting from translating foreign currency financial statements are
not included in operations but are accumulated as a separate component
of stockholders' equity.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Property and equipment - Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets of three to ten years.
Intangible assets and evaluation of potential impairment - Intangible
assets consist primarily of goodwill which represents the purchase
price and related acquisition costs in excess of the fair value of
identifiable assets acquired. Other intangible assets include patents
and trademarks. Intangible assets are amortized on a straight-line
basis over estimated lives of five to twenty years. The Company
regularly evaluates its intangible assets for potential permanent
impairment. Such evaluations take into consideration anticipated future
operating results and cash flows on an undiscounted basis. Anticipated
future operating results and cash flows are estimated based on current
product sales trends, expected sales from related products in
development, general market trends and other market and business
circumstances.
Concentration of credit risks - The percentage of consolidated net
sales in fiscal 1997 to U.S. retail and commercial markets totaled
87.3% and 2.5%, respectively. The percentage of consolidated net sales
in fiscal 1996 to U.S. retail and commercial markets totaled 79.3% and
4.4%, respectively. The percentage of consolidated net sales in fiscal
1995 to U.S. retail and commercial markets totaled 81.0% and 5.1%,
respectively. The remaining percentage of consolidated net sales in
fiscal 1997, 1996 and 1995 of 10.2%, 16.3% and 13.9%, respectively,
represent foreign sales, primarily in Canada. In fiscal 1997, 1996 and
1995, sales to one U.S. retail customer accounted for 12.8%, 15.3% and
14.5%, respectively, of consolidated net sales while sales during the
same periods to one distributor that resells to retailers accounted for
8.0%, 14.8% and 12.4%, respectively, of consolidated net sales.
Cash and cash equivalents - Cash and cash equivalents include cash on
hand and in banks and money market funds with maturities of three
months or less when acquired.
Fair value of financial instruments - The estimated fair values of
financial instruments approximate their carrying amounts in the
consolidated balance sheets.
F - 7
<PAGE>
Income taxes - The Company accounts for income taxes as required by
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." The Statement requires recognition of deferred assets
and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based
on the differences between the financial statements and the tax basis
of assets and liabilities using enacted tax rates in effect for the
years in which the differences are expected to reverse.
Loss per share - Loss per common share is computed using the weighted
average number of shares outstanding during each period. Common stock
equivalents, consisting of options and warrants, have been excluded
from the computation because their effect is antidilutive.
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
amount of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Change in estimates - Fiscal 1997 and 1996 includes the reversal of
approximately $227,000 and $198,000, respectively, in estimated co-op
advertising expenses, which were accrued in the previous fiscal year,
resulting from a change in estimate based on actual utilization of
co-op advertising allowances.
2. ACQUISITIONS
Acquisition of the assets of Plant Research Laboratories - On December
1, 1994, the Company issued 125,000 shares of its common stock with a
fair market value of $187,500 at December 1, 1994 and paid cash of
$257,660 to acquire substantially all of the assets of Plant Research
Laboratories ("PRL"), a California based developer and marketer of
water soluble fertilizers for the indoor houseplant and outdoor lawn
and garden markets. The acquisition was accounted for using the
purchase method using a combination of cash and the issuance of common
stock. The products, marketed under the Oxygen Plus(R) brand name, were
previously sold by PRL primarily in the western United States. The
historical annual sales of Oxygen Plus were less than one million
dollars. The 1995 pro forma impact on net loss and net loss per share
is immaterial.
Abandoned Acquisition Expenses - On May 30, 1996, the Company entered
into a letter of intent to acquire all outstanding stock of The Chas.
H. Lilly Company ("Lilly"), a Portland based developer and marketer of
lawn and garden fertilizers, pesticides and packet seeds. On December
12, 1996, the Company announced that it elected to discontinue efforts
to acquire Lilly. Accordingly, the costs associated with this
acquisition attempt, which amounted to $312,771, have been charged to
expense in the accompanying fiscal 1996 Consolidated Statement of
Operations and are included in other expense.
Acquisition of the assets of Dexol - In March 1997, the Company
completed the acquisition of substantially all of the assets of Dexol
Industries, Inc., a California based manufacturer and marketer of home
and garden pesticides sold under the Dexol(R) and various private label
brand names, for an aggregate purchase price of $3,012,790 (the "Dexol
acquisition"). The purchase price was comprised of the issuance of
1,059,340 shares of the Company's restricted common stock valued at
$1,397,006, the issuance of a promissory note to Dexol Industries, Inc.
with a principal amount of $1,477,000 bearing simple interest at an
annual rate of prime plus 3/4% and estimated transaction costs of
$138,785 and a performance based earnout of up to $455,000 if certain
contingencies are achieved.
The Dexol acquisition was accounted for under the purchase method of
accounting. Accordingly, the purchase price has been allocated to the
assets acquired and liabilities assumed based on their estimated fair
market values at the date of acquisition. The excess of purchase price
over estimated fair market value of net assets acquired ("goodwill") of
approximately $1,915,000 is being amortized on a straight-line basis
over twenty years. Since the acquisition, the Company has operated the
acquired business as its Dexol division and has continued marketing
Dexol products. Dexol division operations are included in the Company's
consolidated statements of operations from the effective date of the
acquisition of March 1, 1997.
F - 8
<PAGE>
The following unaudited pro forma condensed statement of operations
combines the results of operations of Ringer Corporation and Dexol
Industries, Inc. as if the acquisition had occurred on October 1, 1995.
The pro forma financial information is provided for illustrative
purposes only and are not necessarily indicative of future results of
operations of the Company or of the results of operations that would
actually have occurred had the acquisition been in effect during the
periods presented. A balance sheet in not presented because the
acquisition has been reflected in the Company's balance sheet herein.
Year Ended September 30,
(Unaudited)
----------------------------
1997 1996
----------- ----------
Net sales $ 21,793 $ 27,392
Net (loss) $ (1,128) $ (1,480)
=========== ==========
Net (loss) per share $ (.09) $ (.12)
=========== ==========
3. INVENTORIES
Inventories consist of the following:
September 30
-----------------------------
1997 1996
------------ -----------
Raw materials $ 1,697,454 $ 726,099
Finished goods 1,108,207 793,593
------------ -----------
$ 2,805,661 $ 1,519,692
============ ===========
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
September 30
--------------------------
1997 1996
----------- -----------
Office furniture and equipment $ 680,454 $ 791,464
Machinery and equipment 801,974 786,442
Leasehold improvements 45,798 8,091
Transportation equipment 6,400 6,400
----------- -----------
1,534,626 1,592,397
Less accumulated depreciation ( 1,104,488) ( 1,354,100)
----------- -----------
$ 430,138 $ 238,297
=========== ===========
5. LINE OF CREDIT
On May 2, 1997, the Company secured a three-year, $25 million revolving
credit facility from GE Capital Services, which replaced a $5,000,000
bank line of credit from a previous lender. The facility is intended to
meet seasonal working capital needs of up to approximately $5,000,000
and to provide financing for future business acquisitions. The credit
facility is secured by substantially all of the assets of the Company
and its subsidiary. Borrowings under the facility are limited to a
borrowing base of 85% of eligible receivables and 50% of eligible
inventory, as defined in the credit agreement. Interest is at an Index
Rate (published rate for 30-day dealer-placed high-graded unsecured
commercial paper) plus 3 1/4 percentage points (9.0% at September 30,
1997). The Company is required to pay a commitment fee of 3/8% on any
unused portion of the line. There are no outstanding borrowings under
the line of credit as of September 30, 1997.
The Company's line of credit contains provisions which require the
Company to maintain certain minimum levels of Borrowing Base
availability and tangible net worth. In addition, there are
restrictions on the amount of fixed assets that may be purchased during
a loan year.
F - 9
<PAGE>
6. LONG-TERM DEBT, COMMITMENTS AND CONTINGENCIES
Long-Term Debt - Long-term debt at September 30, 1997 consists of a
note payable to Dexol Industries, Inc. and a capital lease obligation,
less current maturities which are classified as currently liabilities.
The note payable and capital lease obligation have carrying values
equal to estimated fair values.
The note payable has a principal amount of $1,465,800 at September 30,
1997 and bears simple interest at prime plus 3/4% per annum (9.25% at
September 30, 1997). Current maturities total $19,200. The note
requires payments of $1,600 per month plus accrued interest with a
balloon payment of the remaining principal and interest in December
2000. Yearly principal maturities under the note for its term are
$19,200, $19,200, 19,200 and $1,408,202 for the fiscal years of 1998,
1999, 2000 and 2001, respectively.
The capital lease obligation totals $16, 206 at September 30, 1997 and
bears implicit interest at an annual rate of 5.4%. Current maturities
total $4,007. Future yearly principal payments under the capital lease
obligation are $4,007, $4,228, $4,463 and $3,508 for the fiscal years
of 1998, 1999, 2000 and 2,001, respectively.
Operating Leases - The Company leases office and warehouse space and
various vehicles and equipment under noncancellable operating leases.
In addition to minimum lease payments, these leases require the Company
to pay its proportionate share of real estate taxes, special
assessments and maintenance costs. The lease on the Company's corporate
offices expires in September 1999. The lease on the Company's warehouse
facility expires in December 2001. The Company is also required to
carry liability insurance on the premises.
Costs incurred under operating leases are recorded as rent expense and
totaled $344,587, $220,176 and $290,343 for the years ended September
30, 1997, 1996 and 1995, respectively.
Future minimum operating lease payments - The future minimum
lease payments due under non-cancellable operating leases are as
follows:
Year ending September 30:
1998 $ 208,719
1999 184,644
2000 118,391
2001 112,623
2002 28,669
Thereafter --
-------------
Total minimum obligation $ 653,046
=============
Royalty agreements - The Company has paid royalties for the use of
technologies licensed under two agreements entered into in connection
with the acquisition of a water soluble fertilizer product line on
December 1, 1994. The licenses calls for royalty payments of from 2% to
5% of the net selling price of applicable water soluble fertilizers.
Payments under the agreements terminate in 1999 and 2011. Royalty
expense incurred under these agreements totaled $34,411, $18,197 and
$23,786 for the years ended September 30, 1997, 1996 and 1995,
respectively.
Royalty income of $85,296, $105,333 and $130,138 for the fiscal years
ended September 30, 1997, 1996 and 1995, respectively, was generated by
the Company through licensing pesticide technologies to certain foreign
and commercial pesticide distributors for a royalty fee.
Contingencies
The Company has a Contingency Retention Plan which provides for payment
to certain key employees of the Company, including all of the officers,
of a lump sum termination benefit plus continuation of life insurance,
health insurance and dental benefits for a period of time in the event
the employment of such employees is terminated within two years after a
"change of control," as defined. The amount of the lump sum termination
benefit varies from the equivalent of three months to two years of
salary and bonus at the time of termination.
F - 10
<PAGE>
The period during which health and welfare benefits continue after
termination varies from three months to two years, but is terminated if
the employee obtains other employment with similar benefits. The
Contingency Retention Plan continues in effect unless terminated, prior
to a change in control, by a resolution approved by at least two-thirds
of the Board of Directors.
7. STOCKHOLDERS' EQUITY
Preferred stock - The Board of Directors of the Company is authorized
to issue preferred stock or other senior equity securities in one or
more series, and with certain limitations, to determine preferences as
to dividends, liquidation, conversion and redemption.
Stock warrants - As of September 30, 1997, a total of 1,000 shares of
common stock were reserved for currently exercisable outstanding
warrants described below.
Warrant
Expiration Shares Exercise Price
------------------ ------- --------------
September 20, 1998 1,000 $2.00
1996 Incentive and Stock Option Plan - The 1996 Incentive and Stock
Option Plan was adopted by the board of directors on November 25, 1996
and approved by shareholders at the Company's annual shareholder
meeting on February 18, 1997. A total of 500,000 shares of the
Company's common stock were initially reserved for issuance pursuant to
the exercise of options granted under the plan.
Under the terms of the 1996 Incentive and Stock Option plan, options to
purchase shares of the Company's common stock are granted at a price
not less than 100% of the fair market value of the stock at the date of
grant. Options have a vesting period of from three to five years and
expire ten years from the date of grant. Options become fully vested
upon the occurrence of a change in control, as defined. The weighted
average remaining contractual life of the outstanding options at
September 30, 1997 is 9.1 years. Activity under the plan is as follows:
Average
Option Exercise Price
Shares Per Share
-------- --------------
Balance, September 30, 1996 -0-
Granted 61,600 $1.88
Revalued (*) (.57)
Canceled ( 16,100) 1.31(*)
--------
Balance, September 30, 1997 45,500 $1.31(*)
========
Exercisable, September 30, 1997 12,938 $1.31
========
(*) On April 29, 1997, the board of directors approved amendments to
all outstanding stock options to reduce the exercise price of each
option to $1.31 per share. Accordingly, options outstanding on that
date which were previously issued under the 1996 Plan for the purchase
of up to 61,600 shares of the Company's common stock were amended to
reduce the option exercise price from $1.88 per share to $1.31 per
share.
1986 Employee Incentive Stock Option Plan - The 1986 Employee Incentive
Stock Option Plan terminated according to its terms on September 17,
1996. After this date no further stock options may be granted under the
Plan although previously granted options remain outstanding and
exercisable under the terms of each option. At September 30, 1997, the
Company had reserved a total of 654,843 shares of common stock for
issuance upon the exercise of outstanding options previously granted
under the Plan.
Under the terms of the 1986 Employee Incentive Stock Option plan,
options to purchase shares of the Company's common stock were granted
at a price not less than 100% of the fair market value of the stock at
the date of grant. Options have a vesting period of from three to five
years and expire ten years from the date of grant. The weighted average
remaining contractual life of the outstanding options at September 30,
1997 is
F - 11
<PAGE>
6.5 years. Options become fully vested upon the occurrence of a change
in control, as defined. Activity under the plan is as follows:
<TABLE>
<CAPTION>
Average
Option Exercise Price
Shares Per Share
---------- --------------
<S> <C> <C>
Balance, September 30, 1994 (at $1.75 to $3.25 per share) 488,444 $2.32
Granted 512,050 1.98
Canceled (132,247) 2.34
Exercised (917) 1.75
----------
Balance, September 30, 1995 (at $1.75 to $2.70 per share) 867,330 2.13
Granted 28,500 1.58
Canceled (62,762) 1.98
----------
Balance, September 30, 1996 (at $1.50 to $2.70 per share) 833,068 2.11
Revalued (*) (.72)
Canceled (178,225) 2.39
----------
Balance, September 30, 1997 (at $1.31 per share) 654,843 $1.31(*)
==========
Exercisable, September 30, 1997 409,202 $1.31
==========
</TABLE>
(*) On April 29, 1997, the board of directors approved amendments to
all outstanding stock options to reduce the exercise price of each
option to $1.31 per share. Accordingly, options outstanding on that
date which were previously issued under the 1986 Plan for the purchase
of up to 660,201 shares of the Company's common stock were amended to
reduce the option exercise price from an average of $1.88 per share
(ranging from $1.50 to $2.13 per share) to $1.31 per share.
Stock Option Plan for Non-Employee Directors - The Company has reserved
200,000 shares of the Company's common stock for issuance upon the
exercise of stock options granted under the Stock Option Plan for
Non-Employee Directors.
Under provisions of the Plan, non-employee directors are granted, upon
election or appointment as a director of the Company, options for the
purchase of 10,000 shares of the Company's common stock. In addition,
non-employee directors receive, on the first day of each fiscal year
while the director remains in office, options to purchase 5,000 shares
of the Company's common stock. The exercise price of options granted
under the Plan is 100% of the fair market value of the Company's common
stock on the date of grant. Options are immediately exercisable in full
and may be exercised within five years of the date of grant. The
weighted average remaining contractual life of the outstanding options
at September 30, 1997 is 2.3 years. Activity under the plan is as
follows:
<TABLE>
<CAPTION>
Average
Option exercise price
Shares per share
-------- --------------
<S> <C> <C>
Balance, September 30, 1994 55,000 $2.01
Granted 30,000 2.13
Balance, September 30, 1995 85,000 2.05
Granted 30,000 2.13
Balance, September 30, 1996 115,000 2.07
Granted 40,000 1.88
Revalued (*) (.71)
---------
Balance, September 30, 1997 155,000 $1.31(*)
=========
</TABLE>
F - 12
<PAGE>
(*) On April 29, 1997, the board of directors approved amendments to
all outstanding stock options to reduce the exercise price of each
option to $1.31 per share. Accordingly, options outstanding on that
date which were previously issued under the Plan for the purchase of up
to 155,000 shares of the Company's common stock were amended to reduce
the option exercise price from an average of $2.03 per share (ranging
from $1.56 to $2.13 per share) to $1.31 per share.
Sale of Common Stock to Officers - In exchange for full-recourse
promissory notes and the cancellation of certain incentive stock
options, in April 1997 the company sold, subject to shareholder
approval, 200,000 shares of its unregistered, restricted common stock
to two executive officers at a price of $1.3125 per share. The
promissory notes are secured by the stock purchased. Under certain
circumstances, the Company will provide bonuses to the two executives
sufficient to pay the annual debt service requirements of the
promissory notes, which have terms of three and five years. The Company
has recognized compensation expense relative to this matter in the
amount of $39,438 for the fiscal year ended September 30, 1997.
Stock Based Compensation - In fiscal 1997, the Company adopted
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." As permitted by SFAS 123,
the Company has elected to continue using the "intrinsic value method"
of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" for the measurement and recognition of stock-based
transactions with employees. Accordingly, no compensation costs have
been recognized for stock options issued under the Company's stock
option plans because the exercise price of options granted was equal to
the fair value of the Company's common stock on the date of grant. If
compensation cost for Company stock options plans had been determined
and recognized based on the "fair value method" under SFAS 123, the
Company's net loss and net loss per share would have been as follows:
1997 1996
--------- ---------
Net loss:
As reported $(545,936) $(568,119)
Pro forma $(571,433) $(593,619)
Pro forma per share $(.05) $(.05)
The fair value of options granted under the Company stock options plans
during fiscal 1997 and 1996 was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted
average assumptions and results:
1997 1996
-------- ---------
Dividend yield 0 0
Expected volatility 41.48% 41.48%
Risk-free interest rate 6.55% 6.55%
Expected life of options 4 years 4 years
Average fair value per share
on date of grant $1.31 $1.84
8. PROFIT SHARING PLAN
The Company has a defined contribution plan which conforms to IRS
provisions for 401(k) plans. Employees are eligible to participate in
the plan providing they have attained the age of twenty-one and have
completed thirty days of service. Participants may contribute up to 10%
of their earnings. The Company can also make matching contributions, as
determined by the Board of Directors. The Company may also make
discretionary profit sharing contributions to the Plan as determined by
the Board of Directors. The Company made employer 401(k) matching
contributions of $44,996, $37,607 and none for the years ended
September 30, 1997, 1996 and 1995, respectively. There were no employer
discretionary profit sharing contributions for the years ended
September 30, 1997, 1996 and 1995.
9. INCOME TAXES
The Company accounts for income taxes as required by Statement of
Financial Standards No. 109, "Accounting for Income Taxes". The
Statement requires recognition of deferred assets and liabilities for
the
F - 13
<PAGE>
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the differences
between the financial statements and the tax basis of assets and
liabilities using enacted tax rates in effect for the years in which
the differences are expected to reverse. Net deferred tax assets have
been offset by valuation allowances for the years ended September 30,
1997, 1996 and 1995 because it is more likely than not that the tax
benefits, which can not be carried back, could not be realized in
future years.
Net deferred tax assets at September 30 are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current:
Prepaid expenses $ (29,000) $ (9,000)
Accrued expenses 184,000 185,000
Reserves for doubtful accounts 48,000 50,000
Inventory valuation reserves 63,000 55,000
Expenses capitalized to inventory for tax purposes 512,000 274,000
Sales returns and allowance reserves 26,000 69,000
Less valuation allowance (804,000) (624,000)
----------- -----------
$ -0- $ -0-
Noncurrent:
Excess of tax over book depreciation $ (20,000) $ (11,000)
Packaging design costs 154,000 152,000
U.S. net operating loss carryforwards 8,394,000 8,398,000
Foreign net operating loss carryforwards 226,000 394,000
U.S. and foreign tax credit carryforwards 490,000 704,000
Less valuation allowances (9,284,000) (9,637,000)
----------- -----------
$ -0- $ -0-
</TABLE>
At September 30, 1997, the Company has approximately $23,200,000 in
combined U.S. net operating loss carryforwards for federal income tax
purposes. These loss carryforwards expire between 1998 and 2013. Of the
total, approximately $4,100,000 are U.S. net operating loss
carryforwards of Safer, Inc., the Company's wholly owned subsidiary.
The use of the unexpired net operating loss carryforwards of Ringer
which were generated prior to September 30, 1990, totaling
approximately $10,200,000 as of September 30, 1997, are limited to
$2,025,000 in any one year under Internal Revenue Code Section 382
because of a significant ownership change resulting from the Company's
initial public offering. The use of net operating loss carryforwards of
Ringer generated after the ownership change are not limited.
The use of the net operating losses of Safer, Inc. are limited to
approximately $700,000 in any one year under Internal Revenue Code
Section 382 because of a significant ownership change resulting from
the Company's acquisition of Safer, Inc. in January 1991.
At September 30, 1997, the Company has approximately $565,000 net
operating loss carryforwards in Canada which expire between 1999 and
2002.
10. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company (paid) and received cash for the following items:
Year ended September 30
----------------------------------------
1997 1996 1995
---------- ---------- ---------
Interest paid $ (152,727) $ (68,106) $ (66,690)
Interest received 71,687 69,908 82,064
F - 14
<PAGE>
Investing and financing transactions not affecting cash during the
years ended September 30, 1997, 1996 and 1995 are described below:
o In 1997, the Company issued 1,059,340 shares of its common stock
and a promissory note in the amount of $1,477,000 as consideration
paid for the acquisition of substantially all of the assets of
Dexol Industries, Inc. In connection with this issuance of common
stock, the Company recorded $1,397,006 to common stock and
additional paid-in capital, which represented the fair market
value of the common stock on the date of issuance.
o In 1997, the Company received full-recourse secured promissory
notes in an aggregate amount of $262,500 as payment for the sale
of common stock to two executive officers of the Company.
o In 1995, the Company issued 125,000 shares of its common stock as
a portion of the total consideration paid for the acquisition of
substantially all of the assets of Plant Research Laboratories. In
connection with this issuance of common stock, the Company
recorded $187,500 to common stock and additional paid-in capital,
which represented the fair market value of the common stock on the
date of issuance. Additional acquisition costs included $257,660
in cash consideration and direct acquisition expenses.
o In 1995, the Company issued 10,000 shares of restricted common
stock to an officer in lieu of cash compensation and recorded a
$13,125 increase to compensation expense and to common stock and
additional paid-in capital which was the fair market value of the
restricted stock on the date of issuance.
11. FOREIGN OPERATIONS
International sales activity, consisting of sales outside the United
States, primarily in Canada, accounted for approximately 10%, 16% and
14% of total sales for the years ended September 30, 1997, 1996 and
1995, respectively. A reconciliation of fiscal 1997, 1996 and 1995
domestic and foreign activity for net sales, net income (loss) and
identifiable assets is as follows:
Fiscal 1997: Domestic Foreign Total
----------- ------------ ------------ ------------
Net Sales $ 16,892,897 $ 1,927,728 $ 18,820,625
Net Income (Loss) (528,136) (17,800) (545,936)
Identifiable Assets $ 13,805,008 $ 1,072,587 $ 14,877,595
Fiscal 1996: Domestic Foreign Total
----------- ------------ ------------ ------------
Net Sales $ 12,274,927 $ 2,397,857 $ 14,672,784
Net Income (Loss) (743,106) 174,987 (568,119)
Identifiable Assets $ 10,488,502 $ 981,541 $ 11,470,043
Fiscal 1995: Domestic Foreign Total
----------- ------------ ------------ ------------
Net Sales $ 12,223,014 $ 1,970,884 $ 14,193,898
Net Income (Loss) (2,231,595) 58,491 (2,173,104)
Identifiable Assets $ 10,621,910 $ 1,376,738 $ 11,998,648
12. SUBSEQUENT EVENT
On December 8, 1997, the Company completed a merger with Southern
Resources, Inc. ("SRI"), a previously privately-owned Georgia-based
holding company, with approximately $25 million in annual consolidated
sales, which owns 100% of the common stock of SureCo, Inc. ("SureCo"),
SRI's operating company, and Peach County Properties, Inc. ("PCP"), a
real estate subsidiary, both of which are located in Georgia. SureCo
manufactures and markets pesticides, which it sells under a variety of
proprietary and private label brand names to commercial and consumer
markets throughout North America. The merger will be accounted for
using the purchase method. The Company issued 4,500,000 shares of the
Company's restricted common stock, valued at $6,679,688, in exchange
for all of the outstanding common stock of SRI, which will be operated
as a wholly-owned subsidiary of the Company.
F - 15
<PAGE>
The following table sets forth unaudited combined net sales, net (loss)
and (loss) per share as if the business combination had been
consummated at the beginning of the period for which financial
statements are presented herein. Amounts and in thousands, except loss
per share. The 1997 and 1996 amounts include the pro forma impact of
the Dexol acquisition (Note 2).
Year Ended September 30,
(Unaudited)
----------------------------
1997 1996
----------- -----------
Net sales $ 46,760 $ 53,400
Net (loss) $ (2,020) $ (1,549)
=========== ===========
Net (loss) per share $ (.13) $ (.10)
=========== ===========
F - 16
<PAGE>
INDEX OF EXHIBITS
Exhibit Number Description Pages
- --------------------------------------------------------------------------------
*10.6 Amendment of Employment Agreement between the Company and
Stanley Goldberg, dated December 5, 1997 ( filed with the
Company's Amended Form 10-KSB/A dated September 30, 1997 filed
on February 19, 1997, SEC File No. 0-18921).
*10.7 Employment Agreement between the Company and Mark G.
Eisenschenk, dated December 5, 1997 (filed with the Company's
Amended Form 10-KSB/A dated September 30, 1997 filed on
February 19, 1997, SEC File No. 0-18921).
*10.8 Stock purchase agreement, and related documents, between
the Company and Stanley Goldberg, dated April 29, 1997 (filed
with the Company's Amended Form 10-KSB/A dated September 30,
1997 filed on February 19, 1997, SEC File No. 0-18921).
*10.9 Stock purchase agreement, and related documents, between
the Company and Mark G. Eisenschenk, dated April 29, 1997
(filed with the Company's Amended Form 10-KSB/A dated
September 30, 1997 filed on February 19, 1997, SEC File No.
0-18921).
21.1 Subsidiaries of the Registrant (filed with Form 10-KSB dated
September 30, 1997, File No. 000-18921.)
23.1 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (filed with Form 10-KSB dated September 30,
1997, File No. 000-18921.)
27.1 Financial Data Schedule (filed with Form 10-KSB dated
September 30, 1997, File No. 000-18921.)
* Management contract or compensation plan or arrangement.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Verdant Brands, Inc. and Subsidiary
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (SEC File Nos. 33-37806 and 33-72666) of our report dated December 5,
1997 (September 29, 1998 as to Note 12) appearing in Form 10-KSB/A, Amendment
No. 2, of Verdant Brands, Inc. and subsidiary, formerly Ringer Corporation and
subsidiary, for the year ended September 30, 1997.
Deloitte & Touche LLP
September 29, 1998
Minneapolis, Minnesota
