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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
-------------------------------------
[ ] 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
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RINGER CORPORATION
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(Exact name of small business issuer as specified in its charter)
Minnesota 41-0848688
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(State of incorporation or organization) (I.R.S. Employer Identification No.)
9555 James Avenue South, Suite 200, Bloomington, Minnesota 55431-2543
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(Address of principal executive offices) (Zip Code)
(612) 703-3300
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
The number of shares outstanding of each of the registrant's classes of
capital stock, as of April 27, 1998, was:
Common Stock, $.01 par value 16,688,061 shares
Transitional Small Business Issuer format: [ ] Yes [X] No
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
RINGER CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1998 1997
------------ ------------
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 56,881 $ 423,272
Accounts receivable 15,508,415 4,437,264
Inventories 9,723,932 8,803,909
Prepaid assets 933,251 1,180,250
------------ ------------
Total current assets 26,222,479 14,844,695
Property, plant and equipment, net 2,613,543 2,904,094
Intangible assets, net 13,518,453 13,469,697
Other assets 171,695 204,893
------------ ------------
Total assets $ 42,526,170 $ 31,423,379
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Bank line of credit $ 6,192,966 $ 3,024,910
Accounts payable 8,862,879 7,818,030
Accrued expenses 4,375,659 1,961,898
Current portion of long-term debt 1,331,489 1,538,866
------------ ------------
Total current liabilities 20,762,993 14,343,704
Long-term debt 7,178,527 3,306,821
Shareholders' Equity:
Preferred stock, 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 16,688,061 and 16,688,061
shares, respectively 166,881 166,881
Additional paid-in capital 37,603,682 37,603,682
Accumulated deficit (22,999,458) (23,809,763)
Cumulative translation adjustment (186,455) (187,946)
------------ ------------
Total shareholders' equity 14,585,643 13,772,854
------------ ------------
Total liabilities and shareholders' equity $ 42,526,170 $ 31,423,379
============ ============
See notes to consolidated financial statements.
2
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RINGER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
------------------------------
1998 1997
------------ ------------
NET SALES $ 15,858,581 $ 4,839,111
COST OF SALES 10,193,013 2,596,341
------------ ------------
Gross Profit 5,665,568 2,242,770
OPERATING EXPENSES:
Distribution 1,328,989 508,199
Sales & Marketing 1,845,018 887,072
General & Administration 882,513 467,547
Product Development & Registrations 534,219 419,992
------------ ------------
4,590,739 2,282,810
------------ ------------
INCOME (LOSS) BEFORE OTHER INCOME 1,074,829 (40,040)
OTHER EXPENSE, NET (264,524) (13,540)
------------ ------------
PROFIT (LOSS) BEFORE INCOME TAXES 810,305 (53,580)
INCOME TAXES (BENEFITS) -- --
------------ ------------
NET INCOME (LOSS) $ 810,305 $ (53,580)
============ ============
Net income (loss) per common
share - basic and diluted $ .05 $ (.00)
============ ============
Shares used in calculating basic
net income (loss) per share 16,688,061 10,933,700
============ ============
Shares used in calculating diluted
net income (loss) per share 16,800,720 10,933,700
============ ============
See notes to consolidated financial statements.
3
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RINGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
----------------------------
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 810,305 $ (53,580)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 383,622 160,662
Loss on sale of assets 78,380
(Increase) in assets:
Trade accounts and notes receivable (11,065,364) (2,572,906)
Inventories (917,553) (59,522)
Prepaid expenses 236,012 156,035
Increase (decrease) in liabilities:
Accounts payable 1,522,713 (589,346)
Accrued expenses 1,947,543 193,212
------------ ------------
Net cash used in operating activities (7,082,722) (2,687,065)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (31,739) (7,984)
Proceeds from sale of equipment 705
Purchase of intangible assets (65,392) (8,081)
------------ ------------
Net cash used in investing activities (97,131) (15,360)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received in the Dexol acquisition 124,073
Net borrowings on lines of credit 7,168,056 1,418,788
Principal payments on long-term debt (349,748) (1,600)
------------ ------------
Net cash used in investing activities 6,818,308 1,541,261
Effect of exchange rate changes on cash (4,846) (2,167)
------------ ------------
Decrease in cash and cash equivalents (366,391) (1,163,331)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 423,272 1,391,069
------------ ------------
END OF PERIOD $ 56,881 $ 227,738
============ ============
See notes to consolidated financial statements.
4
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RINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information. They should be read in conjunction
with the annual financial statements included in the Company's Annual
Report on Form 10- KSB for the prior fiscal year ended September 30,
1997 and the Company's Transition Report on Form 10-Q for the
transition period from October 31, 1997 through December 31, 1997. In
the opinion of management, the interim financial statements include
all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the results for the interim periods
presented. Operating results for the three months ended March 31, 1998
are not necessarily indicative of the operating results to be expected
for the fiscal year ending December 31, 1998. Certain
reclassifications were made to prior years financial statements to be
consistent with those classifications used in the current year. These
reclassifications had no effect on stockholders' equity or net loss as
previously reported.
Effective December 15, 1997, the Company adopted Statement on
Financial Standard No. 128, "Earnings Per Share". Earnings or loss per
share for prior year periods have been restated for the adoption of
SFAS No. 128. The following table reflects the calculation of basic
and diluted earnings per share.
Three Months Ended
March 31,
---------------------------
1998 1997
------------ ------------
Earnings (Loss) Per Share - Basic
- ---------------------------------
Net income (loss) $ 810,305 $ (53,580)
------------ ------------
Weighted average shares 16,688,061 10,933,700
------------ ------------
Net income (loss) per share $ .05 $ (.00)
============ ============
Earnings (Loss) Per Share - Assuming Dilution
- ---------------------------------------------
Net income (loss) $ 810,305 $ (53,580)
------------ ------------
Weighted average shares 16,688,061 10,933,700
Dilutive impact of options and warrants 112,659 [*]
------------ ------------
Weighted average shares and potential dilutive
shares outstanding 16,800,720 10,933,700
------------ ------------
Net income (loss) per share $ .05 $ (.00)
============ ============
[*] The impact of options and warrants are excluded because their effect would
be antidilutive.
Note 2. CHANGE IN FISCAL YEAR
in February 1998, Management announced the decision to change the
Company's fiscal year end from September 30 to December 31. In
connection therewith, the Company filed a Transition Report on Form
10-Q for the period from October 31, 1997 through December 31, 1997 to
transition to the beginning of its new fiscal year which begins on
January 1, 1998. The Company's first financial report using its new
fiscal year begins with this Quarterly Report on Form 10-QSB for the
three months ended March 31, 1998.
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Comparative prior-period financial information is this financial
report which was originally reported using the Company's previous
fiscal year has been conformed to the new year end. Such comparative
financial information used in future financial reports will also be
conformed to the new fiscal year end.
Note 3. ACQUISITIONS
Merger with Southern Resources, Inc.
------------------------------------
On December 8, 1997, a subsidiary of Ringer Corporation (the
"Company") merged with Southern Resources, Inc. ("SRI") which, on that
date, became a wholly-owned subsidiary of the Company. Prior to the
merger, SRI was privately held. SRI is a Fort Valley, Georgia-based
corporation with annual consolidated sales of approximately $25
million, which, through its wholly owned subsidiary, SureCo, Inc.,
manufactures and markets traditional liquid and granular pesticides.
Its products are sold under a variety of proprietary and private label
brand names to commercial and consumer retail markets throughout North
America. Commercial pesticides are sold principally under the
AllPro(R) brand to specialty agricultural, turf ornamental and
professional pest control distributors. Consumer products are sold
into the consumer retail market principally under the Rigo/Black
Leaf(R) brand as well as under various private label store brands. The
Company is currently operating SRI as a stand-alone subsidiary.
The Company acquired all of the outstanding stock of SRI in exchange
for 4,500,000 shares of the Company's restricted common stock with an
aggregate valuation of $4,218,750. The SRI acquisition was accounted
for under the purchase method of accounting rather than the pooling-
of-interest method as originally announced. 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. The
Company has not yet finalized an analysis of the full financial impact
of these intentions.
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 the estimated
fair market values of assets acquired and liabilities assumed
("goodwill") totals approximately $2,005,000. The goodwill is being
amortized on a straight-line basis over thirty years. SRI's operations
are included in the Company's consolidated statements of operations
subsequent to the effective date of the acquisition for accounting
purposes of December 1, 1997. The Company is completing the process of
establishing fair values of assets acquired and liabilities assumed.
As part of this process, during the three months ended March 31, 1998,
the Company reallocated $4,950,000 of the purchase price from goodwill
to product registrations and trademarks, which are being amortized
over twenty years. The Company has not formally completed the
valuation process and may further adjust the allocation of purchase
price based on a final determination of fair values.
Acquisition of the assets of Dexol Industries, Inc.
---------------------------------------------------
In March 1997, the Company completed the acquisition of substantially
all of the assets of Dexol Industries, Inc. ("Dexol"), 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 approximately $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 $1,397,005, the issuance of a promissory note to Dexol 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.
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
6
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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 $1,685,000 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 which, for accounting purposes,
is March 1, 1997.
Note 4. Sales of the Company's products are generally greater during the
period of January 1 through June 30 of each year due to seasonal
factors.
Note 5. All comparative data reflect application of consistent accounting
principles and contain no prior period adjustments.
Note 6. Inventory consists of the following:
March 31, December 31,
1998 1997
-------------- -------------
Raw Materials $ 6,713,861 $ 5,148,988
Finished Goods 3,010,071 3,654,921
-------------- -------------
$ 9,723,932 $ 8,803,909
============== =============
Note 7. LONG-TERM DEBT
March 31, December 31,
1998 1997
--------------- -------------
Line of credit, long-term portion $ 4,000,000
Term loans 2,681,645 $ 3,025,241
Notes payable 1,814,519 1,805,241
Capital lease obligations 13,852 15,205
Less current portion (1,331,489) (1,538,866)
-------------- -------------
$ 7,178,527 $ 3,306,821
============== =============
Note 8. Supplemental disclosure of cash flow information.
Cash paid (received) for interest during the period for:
Three Months Ended
March 31,
-------------------------
1998 1997
---------- ---------
Interest paid $ 274,387 $ 33,557
Interest received (1,695) (13,002)
As discussed in Note 3, the Company completed the acquisition of SRI
in a non-cash transaction by issuing 4,500,000 shares of the Company's
unregistered, restricted common stock.
Note 9. PRO FORMA FINANCIAL INFORMATION
The following table sets forth unaudited pro forma sales, net income
before taxes, net income and income per share for the Company as if
the Ringer Corporation, Dexol and SRI businesses had been combined at
the beginning of the three months ended March 31, 1997. This pro forma
financial information is provided for illustrative purposes only. It
is not necessarily indicative of actual operating results that would
have occurred had the acquisition been in effect for the periods
presented and is not necessarily indicative of
7
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results which may be obtained in the future. The operations of Dexol
and SRI are included in the Company's statement of operations for the
three months ended March 31, 1998, therefore pro forma information is
not applicable for that period.
Three Months Ended
March 31, 1997
--------------
Net Sales $ 14,207,656
Net income before taxes 414,259
Net income 414,259
Income per share $ .03
NOTE 10. ACCOUNTING STANDARD
The Company has adopted Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income," for its fiscal year beginning
January 1, 1998. Total Comprehensive Income as of March 31, 1998 was
$811,796. Components of comprehensive income include net income and
foreign currency translation adjustments.
8
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Name Change to Verdant Brands, Inc.
- -----------------------------------
At the Company's recent Annual Shareholders Meeting, the shareholders
approved a proposal to change the Company's name to Verdant Brands, Inc. The
Company announced in its first quarter earnings press release on April 30, 1998
that implementation of the name change will occur in June or July 1998 when an
official announcement will be made. In connection with the name change, the
Company will be adopting the new trading symbol of "VERD" for its shares traded
on the NASDAQ National Market System.
Merger with Southern Resources, Inc.
- ------------------------------------
On December 8, 1997, a subsidiary of Ringer Corporation (the "Company") merged
with Southern Resources, Inc. ("SRI") which, on that date, became a wholly-owned
subsidiary of the Company. Prior to the merger, SRI was privately held. SRI is a
Fort Valley, Georgia-based corporation with annual consolidated sales of
approximately $25 million, which, through its wholly owned subsidiary, SureCo,
Inc., manufactures and markets traditional liquid and granular pesticides. Its
products are sold under a variety of proprietary and private label brand names
to commercial and consumer retail markets throughout North America. Commercial
pesticides are sold principally under the AllPro(R) brand to specialty
agricultural, turf ornamental and professional pest control distributors.
Consumer products are sold into the consumer retail market principally under the
Rigo/Black Leaf(R) brand as well as under various private label store brands.
The Company is currently operating SRI as a stand-alone subsidiary.
The Company acquired all of the outstanding stock of SRI in exchange for
4,500,000 shares of the Company's restricted common stock with an aggregate
valuation of $4,218,750. The SRI acquisition was accounted for under the
purchase method of accounting rather than the pooling-of-interest method as
originally announced. 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 would preclude the pooling of interest
method of accounting. The Company has not yet finalized an analysis of the full
financial impact of these intentions.
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 the estimated fair market values of assets
acquired and liabilities assumed ("goodwill") totals approximately $2,005,000.
The goodwill is being amortized on a straight-line basis over thirty years.
SRI's operations are included in the Company's consolidated statements of
operations subsequent to the effective date of the acquisition for accounting
purposes of December 1, 1997. The Company is completing the process of
establishing fair values of assets acquired and liabilities assumed. As part of
this process, during the three months ended March 31, 1998, the Company
reallocated $4,950,000 of the purchase price from goodwill to product
registrations and trademarks, which are being amortized over twenty years. The
Company has not formally completed the valuation process and may further adjust
the allocation of purchase price based on a final determination of fair values.
Acquisition of the assets of Dexol Industries, Inc.
- ---------------------------------------------------
In March 1997, the Company completed the acquisition of substantially all of the
assets of Dexol Industries, Inc. ("Dexol"), 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 approximately
$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
$1,397,005, the issuance of a promissory note to Dexol 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.
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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 $1,685,000 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 which, for accounting purposes, is March 1, 1997.
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, information
derived from the consolidated statements of operations of the Company as a
percentage of net sales:
For the Three Months
Ended March 31,
--------------
1998 1997
----- -----
Net sales 100.0 % 100.0 %
Cost of sales 64.3 53.7
----- -----
Gross profit 35.7 46.3
Operating Expenses:
Distribution 8.4 10.5
Sales & Marketing 11.6 18.3
General & Administrative 5.5 9.6
Product Development & Registration 3.4 8.7
----- -----
28.9 47.1
----- -----
Income (loss) before other income 6.8 (0.8)
Other expense, net (1.7) (.03)
----- -----
Net income (loss) 5.1% (1.1)%
===== =====
The following table sets forth the percentage of net sales represented by each
of the Company's major product categories:
Three Months Ended
March 31,
--------------
1998 1997
----- -----
Pest control 89.4% 68.9%
Fertilizers and composting 10.6 31.1
----- -----
100.0% 100.0%
===== =====
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 TO THE THREE MONTHS ENDED
MARCH 31, 1997
Net Sales. Net sales increased $11,019,470 or 228% to $15,858,581 in
the three months ended March 31, 1998 compared to $4,839,111 for the three
months ended March 31, 1997. The increase was due primarily to the combined
addition of approximately $10 million in 1998 sales from acquired businesses and
product lines added as a result of the acquisition of Dexol in March 1997 and
SRI in December 1997. Increased sales of the Company's Safer(R) brand pesticides
contributed to the remaining increase in total sales.
Sales during the three months ended March 31 consist primarily of
initial orders to direct customers and reorders from distributors who make their
initial purchases for the season in the preceding quarter. The Company's
performance during the remainder of the year from April 1 through December 31 is
dependent upon reorders from distributors and direct customers during the summer
and fall seasons and upon initial orders from distributors during
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the last quarter under early order programs for the following spring season. The
level of sales for the fiscal year depends largely upon the level of retail
sales of the Company's products to home owner consumers and the level of unsold
retail inventory of the Company's products remaining in retail and wholesale
distribution channels carried over from the previous year. Retail sales to
consumers are affected by numerous outside circumstances such as weather,
competitors' products and sales and marketing programs, as well as new product
introductions. Each of these factors can fluctuate substantially from year to
year and from quarter to quarter. Total year sales cannot be accurately
projected with any degree of certainty based on results for the three months
ended March 31.
Gross Margins. Gross margins decreased to 35.7% in the three months
ended March 31, 1998 compared to 46.3% in the three months ended March 31, 1997.
The decrease was due largely to the addition of SRI and Dexol products which has
caused a shift in product mix to a higher percentage of lower-margin traditional
chemical pesticides. Also, the decrease in gross margin reflects high levels of
manufacturing overhead incurred at SRI caused in part by certain transition
costs and inefficiencies experienced during the initial stages of the transfer
and integration of the manufacturing plant into the Company's operations.
Operating Expenses. Distribution expenses increased in absolute
dollars by $820,790 or 162% to $1,328,989 for the three months ended March 31,
1998 from $508,199 for the three months ended March 31, 1997, but decreased as a
percentage of sales to 8.4% for the three months ended March 31, 1998 from 10.5%
for the three months ended March 31, 1997. The increase in distribution expenses
in absolute dollars for the period in 1998 compared to 1997 was due to
incremental distribution expenses associated with increased sales for the same
period in 1998 compared to 1997. The decrease in distribution expenses as a
percentage of sales is due in part to lower incremental freight rates per pound
associated with the SRI sales added in 1998. The lower rates are largely the
result of closer relative proximity of distribution facilities to customers and
to closing and combining certain distribution sites to facilitate larger
relative shipments and more efficient distribution operations.
Sales and marketing expenses in absolute dollars increased $957,946 or 108% to
$1,845,018 for the three months ended March 31, 1998 from $887,072 for the three
months ended March 31, 1997, but decreased as a percentage of sales to 11.6% for
the three months ended March 31, 1998 compared to 18.3% for the same period in
1997. The increase in sales and marketing expenses was largely due to increased
variable selling expenses associated with higher sales levels and the addition
of the SRI and Dexol sales and marketing organizations for the three months
ended March 31, 1998 compared to only one month of Dexol sales and marketing
expense included in the same period of 1997. The decrease in sales and marketing
expenses as a percentage of sales for the three months ended March 31, 1998
compared to the same period in 1997 was largely the result of synergies
experienced through combining the various sales and marketing organizations and
eliminating redundant expenses and unnecessary overhead.
General and administrative costs increased $414,966 or 89% to $882,513 for the
three months ended March 31 1998 from $467,547 for the three months ended March
31, 1997. The increase was primarily due to the addition of general and
administrative expenses and increased amortization of intangible assets
associated with the SRI and Dexol acquisitions.
Product development and registration expenses increased $114,227 or 27.2% to
$534,219 for the three months ended March 31, 1998 compared to $419,992 for the
three months ended March 31, 1997. The increase was due primarily to increased
product registration costs for products added in the SRI and Dexol acquisitions.
Other Expense, Net. Net other expense increased by $250,984 to
$264,524 for the three months ended March 31, 1998 compared to net other expense
of $13,540 for the three months ended March 31, 1997. The increase in net other
expense was mainly due to additional interest expense on increased borrowings on
the Company's lines of credit and interest expense incurred on long-term and
short-term debt assumed in the Dexol and SRI acquisitions.
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Liquidity and Capital Resources
- -------------------------------
The Company's operations and cash needs are highly seasonal. During
the three months ended December 31 of each year, the Company usually solicits
and ships early orders and expands production to build inventory needed for its
major selling season. During the three months ended March 31, the Company's
shipments consist of initial sales to direct mass merchant customers and reorder
sales to certain distribution customers. Most of the Company's seasonal
shipments and therefore most of the billings that result in revenue recognition
and in receivables, occur during the months of January through May of each year.
Accordingly, the Company typically consumes significant cash in operating
activities during the periods from October through May of each year as it
finances increases in inventory, primarily during the periods from October
through April, and increases in receivables, primarily during the period from
late December through the end of May.
Consistent with such seasonal fluctuations, cash decreased by $366,391
during the three months ended March 31, 1998. The decrease in cash reflects the
following: cash of $7,082,722 consumed in operating activities, primarily to
finance increased receivables, inventory and product registration prepayments,
and pay accounts payable incurred from earlier raw material inventory and
contract production activities, cash of $97,131 consumed in investing activities
to purchase equipment and intangible assets, and cash provided from financing
activities of $6,818,308 consisting of 7,168,056 in borrowings against the
Company's lines of credit and principal payments on long-term debt of $349,748.
The Company relies on bank financing in the form of working capital
lines of credit to fund seasonal increases in receivables and inventory. The
Company currently has in place a three-year $25,000,000 credit facility with GE
Capital Services which funds working capital needs of the parent company and its
wholly owned subsidiary, Safer, Inc. The credit facility is intended to finance
the Company's seasonal working capital needs and to provide financing for future
acquisitions. Outstanding borrowings on this line of credit at March 31, 1998
totaled $3,959,054.
In addition, the Company's wholly-owned subsidiary, SRI, had during
the quarter an $8,000,000 working capital credit facility with a commercial
finance corporation which matured on April 22, 1998. Subsequent to March 31,
1998, the Company consolidated this line into its GE Capital Services line.
Outstanding borrowings under this credit facility as of March 31, 1998 totaled
$6,233,912, of which $4,000,000 is classified as long-term debt.
The Company believes that cash on hand and its credit facilities will
provide adequate financing to meet the Company's cash needs for fiscal 1998. In
connection with its merger and acquisition strategy and in light of long-term
capitalization considerations, however, the Company may seek additional forms of
long-term financing as such needs arise.
The Company has no material purchase commitments. Although the Company
continues to evaluate companies and product lines for possible acquisition, no
such agreements are currently in place.
The Company believes that inflation has not had a significant impact
on the results of its operations.
FORWARD LOOKING INFORMATION
- ---------------------------
The information contained in this Quarterly 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 Quarterly 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 statement 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
12
<PAGE>
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.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
The Company's wholly-owned subsidiary, SRI, is a party to a
governmental action and certain legal proceedings in Superior Court of Fulton
County, Georgia, brought by or on behalf of property owners in the area of SRI's
Fort Valley, Georgia, manufacturing site, relating to contamination discovered
on or near the site. Management believes that the contamination arose prior to
the purchase of the plant site by SRI from an unaffiliated predecessor owner.
The former owner has been cooperating with governmental authorities and has
initiated remedial activities on the site. Management believes that the
governmental and legal actions relating to the property will not result in loss
to SRI.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to shareholders for a vote during the
quarter ended March 31, 1998. However, the annual meeting of shareholders was
held, subsequent to the end of the quarter, on April 15, 1998. All items of
business at the annual shareholder meeting were approved by a vote of a majority
of outstanding shares. Items of business conducted at the meeting are as
follows:
1. The election of eight directors as stated in the proxy statement.
Seven of the elected directors were incumbents standing for
reelection, namely Stanley Goldberg, Gordon F. Stofer, Robert W.
Fischer, Donald E. Lovness, Franklin Pass, M.D., Frederick F. Yanni,
and John F. Hetterick. A new director, David K. Vansant, was elected
to increase the current number of directors to eight.
2. The approval to amend the Articles of Incorporation to change the name
of the Company from "Ringer Corporation" to "Verdant Brands, Inc."
3. The approval of an amendment to the Ringer Corporation Stock Option
Plan for Non-Employee Directors to increase the number of shares of
Common Stock of Ringer Corporation reserved for issuance upon the
exercise of stock options granted under the Plan from 200,000 shares
to 400,000 shares.
4. The ratification of the sale of 150,000 shares of unregistered
restricted common stock to Stanley Goldberg and the sale of 50,000
shares of unregistered restricted common stock to Mark G. Eisenschenk.
5. The ratification of the selection of Deloitte and Touche to serve as
the Company's independent auditors.
Item 5. OTHER INFORMATION - CHANGE IN FISCAL YEAR
Management announced on February 9, 1998 the decision to change the
Company's fiscal year end from September 30 to December 31. Accordingly, the
period covered by Form 10-QSB, from October 1, 1997 through December 31, 1997,
is a transition period to the Company's new fiscal year which began January 1,
1998.
13
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Description
- --------------------------------------------------------------------------------
2.1 Agreement for Purchase and Sale of Assets by and between Ringer
Corporation and Dexol Industries, Inc. (incorporated by
reference to Exhibit 2.1 of the Company's Amended Current Report
on Form 8-K/A filed on June 16, 1997, SEC File No. 0-18921).
2.2 Amended and Restated Agreement and Plan of Merger (incorporated
by reference to Exhibit 2.1 of the Company's Amended Current
Report on Form 8-K/A filed on February 19, 1998, SEC File No.
0-18921).
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 Amendment No.1 dated January 1, 1988, Amendments No. 2 dated
September 9, 1992 and Amendment No. 3 dated January 4, 1995 to
the Company's 1986 Employee Incentive Stock Option Plan.
*10.3 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).
*10.4 Amendment No.1 to the Company's Stock Option Plan for
Non-Employee Directors dated December 8, 1997.
10.5 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.)
10.6 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.)
*10.7 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).
*10.8 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,
SEC File No. 0-18921).
14
<PAGE>
*10.9 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, SEC File
No. 0-18921)..
*10.10 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, SEC File No. 0-18921).
*10.11 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, SEC File No. 0-18921).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
*10.16 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.)
27.1 Financial Data Schedule
* Management contract or compensation plan or arrangement.
(b) Reports on Form 8-K
The Company filed an Amended Current Report on Form 8-K/A on
February 19, 1998 with regard to the Company's merger with
Southern Resources, Inc.
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
RINGER CORPORATION
Dated: May 11, 1998 By /S/ Stanley Goldberg
---------------------
Stanley Goldberg
President and Chief Executive Officer
Dated: May 11, 1998 By /S/ Mark G. Eisenschenk
------------------------
Mark G. Eisenschenk
Executive Vice President and Chief Financial
Officer (principal financial officer)
16
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- --------------------------------------------------------------------------------
2.1 Agreement for Purchase and Sale of Assets by and between Ringer
Corporation and Dexol Industries, Inc. (incorporated by
reference to Exhibit 2.1 of the Company's Amended Current Report
on Form 8-K/A filed on June 16, 1997, SEC File No. 0-18921).
2.2 Amended and Restated Agreement and Plan of Merger (incorporated
by reference to Exhibit 2.1 of the Company's Amended Current
Report on Form 8-K/A filed on February 19, 1998, SEC File No.
0-18921).
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 Amendment No.1 dated January 1, 1988, Amendments No. 2 dated
September 9, 1992 and Amendment No. 3 dated January 4, 1995 to
the Company's 1986 Employee Incentive Stock Option Plan.
*10.3 10.3 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).
*10.4 10.4 Amendment No.1 to the Company's Stock Option Plan for
Non-Employee Directors dated December 8, 1997.
10.5 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.)
10.6 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.)
*10.7 10.7 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).
*10.8 10.8 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,
SEC File No. 0-18921).
<PAGE>
*10.9 10.9 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, SEC File
No. 0-18921)..
*10.10 10.10 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, SEC File No. 0-18921).
*10.11 10.11 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, SEC File No. 0-18921).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
*10.16 10.16 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.)
27.1
Financial Data Schedule
* Management contract or compensation plan or arrangement.
<PAGE>
EXHIBIT 10.2 1 OF 3
AMENDMENT NO.1
TO
1986 EMPLOYEE INCENTIVE STOCK OPTION PLAN
The 1986 Employee Incentive Stock Option Plan of Ringer Corporation (the "Plan")
is hereby amended as follows:
2. Stock Subject to Plan
The third sentence of Section 2 reading "Subject to the adjustment as
provided in section 10, the maximum number of shares for which options may
be exercised under the Plan shall be 355,000 shares" is hereby amended to
read "Subject to the adjustment as provided in section 10, the maximum
number of shares for which options may be exercised under the Plan shall be
655,000 shares."
Adopted this 1st day of January 1988 as authorized and directed by the board of
directors of Ringer Corporation.
<PAGE>
EXHIBIT 10.2 2 OF 3
AMENDMENT NO.2
TO
1986 EMPLOYEE INCENTIVE STOCK OPTION PLAN
The 1986 Employee Incentive Stock Option Plan of Ringer Corporation, as amended
by Amendment No. 1, (the "Plan") is hereby amended as follows:
2. Stock Subject to Plan
The third sentence of Section 2, as previously amended, reading "Subject to
the adjustment as provided in section 10, the maximum number of shares for
which options may be exercised under the Plan shall be 655,000 shares" is
hereby amended to read "Subject to the adjustment as provided in section
10, the maximum number of shares for which options may be exercised under
the Plan shall be 955,000 shares."
Adopted this 9th day of September 1992 as authorized and directed by the board
of directors of Ringer Corporation.
<PAGE>
EXHIBIT 10.2 3 OF 3
AMENDMENT NO.3
TO
1986 EMPLOYEE INCENTIVE STOCK OPTION PLAN
The 1986 Employee Incentive Stock Option Plan of Ringer Corporation, as amended
by Amendment No. 1 and Amendment No. 2, (the "Plan") is hereby amended as
follows:
2. Stock Subject to Plan
The third sentence of Section 2, as previously amended, reading "Subject to
the adjustment as provided in section 10, the maximum number of shares for
which options may be exercised under the Plan shall be 955,000 shares" is
hereby amended to read "Subject to the adjustment as provided in section
10, the maximum number of shares for which options may be exercised under
the Plan shall be 1,155,000 shares."
Adopted this 4th day of January 1995 as authorized and directed by the board of
directors of Ringer Corporation.
<PAGE>
EXHIBIT 10.4
AMENDMENT NO.1
TO
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Stock Option Plan for Non-Employee Directors of Ringer Corporation (the
"Plan") is hereby amended as follows:
2. Stock Subject to Plan
The second sentence of Section 2 reading "Subject to the adjustment as
provided in section 10 hereof, the maximum number of shares on which
options may be exercised under this Plan shall be 200,000 shares" is hereby
amended to read "Subject to the adjustment as provided in section 10
hereof, the maximum number of shares on which options may be exercised
under this Plan shall be 400,000 shares"
Adopted this 8th day of December 1997 as authorized and directed by the board of
directors of Ringer Corporation.
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<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
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