<PAGE>
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, 1999
[ ] 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.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified 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 55431-2543
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(612) 703-3300
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
RINGER CORPORATION
- --------------------------------------------------------------------------------
(Former name)
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 30, 1999, was:
25,914,250 shares of Common Stock, $.01 par value
Transitional Small Business Issuer format: [ ] Yes [X] No
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
VERDANT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 830,122 $ 1,783,800
Accounts receivable, net 23,192,627 10,838,483
Inventories, net 19,820,009 18,522,875
Prepaid assets 1,179,376 1,813,184
------------ ------------
Total current assets 45,022,134 32,958,342
Property and equipment, net 6,486,567 6,635,656
Intangible assets, net 18,762,853 19,123,838
Other assets 216,250 210,456
------------ ------------
Total assets $ 70,487,804 $ 58,928,292
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank line of credit $ 10,229,989 $ 1,098,247
Accounts payable 14,595,102 13,202,800
Accrued expenses 3,974,568 4,125,463
Current portion of long-term debt 743,684 652,511
------------ ------------
Total current liabilities 29,543,343 19,079,021
Long-Term Debt 16,883,633 16,958,227
Shareholders' Equity:
Common Stock, par value $.01 per share, authorized
50,000,000 shares, issued and outstanding
25,914,250 shares 259,143 259,143
Additional paid-in capital 49,307,732 49,307,732
Receivable from sale of stock (183,750) (249,375)
Accumulated deficit (24,910,650) (26,129,734)
Cumulative translation adjustment (411,647) (296,722)
------------ ------------
Total shareholders' equity 24,060,828 22,891,044
------------ ------------
Total liabilities and shareholders' equity $ 70,487,804 $ 58,928,292
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
VERDANT BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
----------------------------
1999 1998
------------ ------------
NET SALES $ 22,030,357 $ 15,858,581
COST OF SALES 14,450,936 10,193,013
------------ ------------
Gross Profit 7,579,421 5,665,568
OPERATING EXPENSES:
Distribution 1,642,227 1,328,989
Sales & Marketing 2,117,980 1,845,018
General & Administration 1,521,231 1,331,923
Product Development & Registrations 713,887 534,219
------------ ------------
5,995,325 4,590,739
------------ ------------
INCOME BEFORE OTHER EXPENSE 1,584,096 1,074,829
OTHER EXPENSE, NET (365,012) (264,524)
------------ ------------
INCOME BEFORE INCOME TAXES 1,219,084 810,305
INCOME TAXES -- --
------------ ------------
NET INCOME $ 1,219,084 $ 810,305
============ ============
Net income per common share -
basic and diluted $ .05 $ .05
============ ============
Shares used in calculating basic
net income per share 25,914,250 16,688,061
============ ============
Shares used in calculating diluted
net income per share 25,914,250 16,800,720
============ ============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET INCOME $ 1,219,084 $ 810,305
Other comprehensive income
(no tax effect):
Foreign currency translations
adjustments (114,925) 1,491
----------- ------------
COMPREHENSIVE INCOME $ 1,104,159 $ 811,796
=========== ============
See notes to unaudited consolidated financial statements.
3
<PAGE>
VERDANT BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,219,084 $ 810,305
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 810,864 383,622
Loss on disposal of assets (600) --
(Increase) decrease in assets:
Trade accounts receivable (12,489,511) (11,065,364)
Inventories (1,259,470) (917,553)
Prepaid expenses 225,379 236,012
Increase (decrease) in liabilities:
Accounts payable 2,302,294 1,522,713
Accrued expenses (816,097) 1,947,543
------------ ------------
Net cash used in operating activities (10,008,057) (7,082,722)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (149,831) (31,739)
Proceeds from sale of equipment 93,950 --
Purchase of intangible assets (1,597) (65,392)
------------ ------------
Net cash used in investing activities (57,478) (97,131)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from bank line of credit 9,131,742 7,168,056
Principal payments on long-term debt (79,490) (349,748)
Proceeds receivable from sale of common stock 65,625 --
------------ ------------
Net cash provided by financing activities 9,117,877 6,818,308
Effect of exchange rate changes on cash (6,020) (4,846)
------------ ------------
Decrease in cash and cash equivalents (953,678) (366,391)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 1,783,800 423,272
------------ ------------
END OF PERIOD $ 830,122 $ 56,881
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
VERDANT BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Note 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Verdant
Brands, Inc. (formerly Ringer Corporation)(the "Company") 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 December 31, 1998. In the
opinion of management, the interim consolidated 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 31,1999
are not necessarily indicative of the operating results to be expected
for the fiscal year ending December 31, 1999. Certain reclassifications
were made to prior year financial statements to be consistent with those
classifications used in the current year. These reclassifications had no
effect on shareholders= equity or net income or loss as previously
reported.
Effective December 15, 1997, the Company adopted Statement on Financial
Standard No. 128, "Earnings Per Share." Earnings 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,
-------------------------
1999 1998
----------- -----------
Earnings Per Share - Basic
Net income $ 1,219,084 $ 810,305
----------- -----------
Weighted average shares 25,914,250 16,688,061
----------- -----------
Net income per share $ .05 $ .05
=========== ===========
Earnings Per Share - Assuming Dilution
Net income $ 1,219,084 $ 810,305
----------- -----------
Weighted average shares 25,914,250 16,688,061
Dilutive impact of options and warrants [*] 112,659
----------- -----------
Weighted average shares and potential
dilutive shares outstanding 25,914,250 16,800,720
----------- -----------
Net income per share $ .05 $ .05
=========== ===========
[*] The impact of options and warrants are excluded because their effect
would be antidilutive.
Note 2. ACQUISITIONS
Merger with Consep, Inc.
On December 7, 1998, the Company completed a merger with Consep, Inc.
("Consep"), an Oregon based developer, manufacturer and marketer of
environmentally sensitive pest control products for the commercial
agricultural and consumer home, lawn and garden markets. Consep also
owns and operates commercial products
5
<PAGE>
sales and service dealerships located in California and Massachusetts.
Consep was previously publicly owned with sales of approximately $38
million per year. The Company acquired all of the outstanding common
stock of Consep in exchange for 9,208,989 shares of the Company's
registered common stock valued at $11,511,237. In addition, the Company
recorded approximately $380,000 in direct acquisition expenses.
The Consep acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair market
values at the acquisition date. A final allocation of the purchase price
to net assets acquired is pending the final determination of the fair
market values of inventory, property and equipment. The excess of
purchase price over the estimated fair market value of net assets
acquired ("goodwill") was approximately $3,155,000 and is being
amortized on a straight-line basis over thirty years. Since the
acquisition, the Company has operated the acquired business as a wholly
owned subsidiary. Consep's operations are included in the Company's
consolidated statements of operations from the effective date of the
acquisition of December 1, 1998.
The following table sets forth unaudited combined net sales, net income
and income per share as if the business combination occurred on January
1, 1998. This 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 period
presented and is not necessarily indicative of the results which may be
obtained in the future. Amounts are in thousands, except per income per
share.
Three Months Ended
March 31, 1998
------------------
Net sales $25,482
Net income before taxes 620
Net income 620
Income per share-basic and diluted $ 0.02
Note 3. Sales of the Company's products are greater during the period of January
1 through June 30 of each year due to seasonal factors.
Note 4. Inventory consists of the following:
March 31, December 31,
1999 1998
----------- -----------
Raw Materials $ 6,811,879 $ 6,547,020
Finished Goods 13,008,130 11,975,855
----------- -----------
$19,820,009 $18,522,875
=========== ===========
Note 5. LONG-TERM DEBT
March 31, December 31,
1999 1998
----------- -----------
Line of credit, long-term portion $12,000,000 $12,000,000
Notes payable 3,613,282 3,638,660
Mortgage loans 1,635,787 1,685,263
Capital lease obligations 277,263 162,934
Other 100,985 123,881
Less current portion (743,684) (652,511)
----------- -----------
$16,883,633 $16,958,227
=========== ===========
Note 6. LINE OF CREDIT
The Company has a line of credit agreement with GE Capital Services
("GE") to fund seasonal cash needs. At March 31, 1998, outstanding
borrowings on the line of credit totaled $22,229,989 of which
$12,000,000 is classified as long-term debt. As of March 31, 1999 the
Company's borrowing base availability
6
<PAGE>
exceeded the amount borrowed under the line by $4,411,226 and the
Company was either in compliance or had received commitments for waivers
of compliance on all covenants of its line of credit agreement with GE.
Note 7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) for interest during the period for:
Three Months Ended
March 31,
--------------------------
1999 1998
---------- ----------
Interest paid $(441,427) $(274,387)
Interest received 78,657 1,695
Note 8. FOREIGN OPERATIONS
International sales activity, consisting of sales outside the United
States, primarily in Canada, accounted for approximately 7.6% and 4.2%
of total sales for the three months ended March 31, 1999 and 1998,
respectively. A reconciliation for these periods of domestic and foreign
activity for net sales, net income and identifiable assets for these
periods is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999: Domestic Foreign Total
---------------------------------- ----------- ---------- -----------
<S> <C> <C> <C>
Net Sales $20,356,816 $1,673,541 $22,030,357
Net Income 1,080,336 138,748 1,219,084
Identifiable Assets 65,888,347 4,599,457 70,487,804
Three Months Ended March 31, 1998: Domestic Foreign Total
---------------------------------- ----------- ---------- -----------
Net Sales $15,192,354 $ 666,227 $15,858,581
Net Income 767,618 42,687 810,305
Identifiable Assets 40,954,752 1,571,418 42,526,170
</TABLE>
Note 9. BUSINESS SEGMENTS
The Company conducts its business in three major market segments -
consumer products, commercial products and commercial dealers.
Consumer Products Segment - The consumer product segment markets
pesticides and fertilizers through lawn and garden retailers and through
lawn and garden distribution channels to home owners and other
consumers. Consumer products consist of environmentally sensitive pest
control products and fertilizers sold under the Safer(R), SureFire(R),
ChemFree(R), Blocker(R), Insectigone(R) and Ringer(R) brands and
traditional pest control products sold under the Dexol(R), Black Leaf(R)
and various private label brands.
Commercial Products Segment - The commercial products segment markets
pest control and fertilizer products to commercial growers in the
agriculture industry through direct sales to growers and through
agricultural product distributors, and commercial applicators in the
pest control industry through commercial pesticide distributors.
Commercial products consist of environmentally sensitive pest control
products sold to the agriculture industry under the CheckMate(R) and
BioLure(R) brands and traditional pest control products sold to the
commercial pest control industry under the AllPro(R) brand.
Commercial Dealer Segment - The commercial dealer segment consists of
dealerships owned by a subsidiary of the Company that sells and
distributes a full-line of commercial products and services to growers
in major
7
<PAGE>
agricultural regions of California and in the Connecticut River Valley
of Massachusetts. Products distributed include the Company's products as
well as products produced by other manufacturers, including traditional
pesticides, fertilizers, seeds and farm supplies.
A reconciliation for the three months ended March 31, 1999 and 1998 of
segment activity for net sales, net income (loss) and identifiable
assets is as follows:
<TABLE>
<CAPTION>
Commercial
Three Months Ended March 31, 1999: Consumer Commercial Dealer Total
--------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales................................. $10,801,437 $ 4,784,866 $ 6,444,054 $22,030,357
Net Income (loss)......................... 800,788 (40,913) 459,209 1,219,084
Depreciation and Amortization............. 328,521 303,876 178,467 810,864
Interest Expense.......................... 396,144 70,113 46,742 512,999
Interest Income........................... 2,800 54,632 36,421 93,853
Capital Expenditures...................... 18,096 26,347 105,388 149,831
Identifiable Assets....................... $40,678,655 $17,940,762 $11,868,387 $70,487,804
Commercial
Three Months Ended March 31, 1998: Consumer Commercial Dealer Total
--------------------------------- ----------- ----------- ----------- -----------
Net Sales................................. $13,016,737 $ 2,841,844 $ -- $15,858,581
Net Income (loss)......................... 1,096,097 (285,792) -- 810,305
Depreciation and Amortization............. 351,094 32,528 -- 383,622
Interest Expense.......................... 230,977 51,488 -- 282,465
Interest Income........................... 4,884 -- -- 4,884
Capital Expenditures...................... 31,739 -- -- 31,739
Identifiable Assets....................... $36,695,550 $ 5,830,620 $ -- $42,526,170
</TABLE>
Note 10. ACCOUNTING STANDARD
The Company has adopted Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income," effective January 1, 1998. Total
comprehensive income for the three month periods ended March 31, 1999
and 1998 was $1,104,159 and $811,796, respectively. Components of
comprehensive income (loss) include net income (loss) and foreign
currency translation adjustments.
****
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Name Change to Verdant Brands, Inc.
At the Company's 1998 Annual Shareholders Meeting, the shareholders
approved a proposal to change the Company's name from Ringer Corporation to
Verdant Brands, Inc. The Company announced its intent to change its name in its
first quarter earnings press release on April 30, 1998. The name change occurred
on July 20, 1998. In connection with the name change, the Company adopted the
new trading symbol of "VERD" for its shares traded on the NASDAQ National Market
System.
Merger with Consep, Inc.
On December 7, 1998, the Company completed a merger with Consep, Inc.
("Consep"), an Oregon based developer, manufacturer and marketer of
environmentally sensitive pest control products for the commercial agricultural
and consumer home, lawn and garden markets. Consep also owns and operates
commercial products sales and service dealerships located in California and
Massachusetts. Consep was previously publicly owned with sales of approximately
$38 million per year. The Company acquired all of the outstanding common stock
of Consep in exchange for 9,208,989 shares of the Company's registered common
stock valued at $11,511,237. In addition, the Company recorded approximately
$380,000 in direct acquisition expenses.
The Consep acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets acquired
and liabilities assumed based on their estimated fair market values at the
acquisition date. A final allocation of the purchase price to net assets
acquired is pending the final determination of the fair market values of
inventory, property and equipment. The excess of purchase price over the
estimated fair market value of net assets acquired ("goodwill") was
approximately $3,155,000 and is being amortized on a straight-line basis over
thirty years. Since the acquisition, the Company has operated the acquired
business as a wholly owned subsidiary. Consep's operations are included in the
Company's consolidated statements of operations from the effective date of the
acquisition of December 1, 1998.
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:
Three Months Ended
March 31,
----------------------
1999 1998
------ ------
Net sales 100.0 % 100.0 %
Cost of sales 65.6 64.3
----- -----
Gross profit 34.4 35.7
Operating expenses:
Distribution 7.4 8.4
Sales & Marketing 9.6 11.6
General & Administrative 6.9 5.5
Product Development & Registration 3.2 3.4
----- -----
27.2 28.9
----- -----
Income before other expense 7.1 6.8
Other expense, net (1.6) (1.7)
----- -----
Net income 5.5 % 5.1 %
===== =====
9
<PAGE>
Seasonal factors affecting sales and results of operations
Sales during the year are very seasonal. First quarter sales normally
consist of sales on initial orders from direct customers and reorders from
distributors who made their initial purchases for the season in the final
quarter of the preceding year. Second and third quarter sales consist largely of
reorders from direct-ship customers and sales of in-season promotion products.
Fourth quarter sales consist primarily of shipments on early season orders from
distributors who are stocking warehouses for the upcoming spring selling season.
Most of the Company's sales occur during the months of December through June of
each year. 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, 1999.
Comparison of the three months ended March 31, 1999 to the three months ended
March 31, 1998
Net Sales. Net sales increased $6,171,776 or 38.9% to $22,030,357 for the
three months ended March 31, 1999 compared to $15,858,581 for the three months
ended March 31, 1998. The increase was due primarily to the addition of
approximately $8 million in 1999 net sales generated from business and product
lines added as a result of the acquisition of Consep in December 1998, offset by
reduced contract packaging sales associated with the Company's decision to wind
down manufacturing activities at its Ft. Valley, GA manufacturing facility and
due to certain consumer and non pheromone-related commercial sales decreases.
Gross Margins. Gross margins as a percent of sales decreased to 34.4% for
the three months ended March 31, 1999 compared to 35.7% for the three months
ended March 31, 1998. The decrease was primarily due to sales of Consep products
in 1999, which shifted product mix to an increased proportion of commercial
dealer business and commercial business products which carry lower average gross
margins than the Company's other lines of products.
Operating Expenses. Distribution expenses increased in absolute dollars by
$313,238 or 23.5% to $1,642,227 for the three months ended March 31, 1999 from
$1,328,989 for the three months ended March 31,1998, but decreased as a
percentage of sales to 7.4% for the three months ended March 31, 1999 from 8.3%
for the three months ended March 31, 1998. The increase in distribution expenses
in absolute dollars in 1999 compared to 1998 was primarily due to incremental
distribution expenses incurred on increased sales in 1999 compared to 1998.
Sales and marketing expenses in absolute dollars increased $272,962 or
14.7% to $2,117,980 for the three months ended March 31, 1999 from $1,845,018
for the three months ended March 31, 1998, and decreased as a percentage of
sales to 9.6% for the three months ended March 31, 1999 compared to 11.6% for
the same period in 1998. The increase in sales and marketing expenses was
largely due to increased variable selling expenses associated with higher sales
levels and the inclusion of the Consep sales and marketing organizations and
programs for the three months ended March 31, 1999.
10
<PAGE>
General and administrative costs, including amortization of intangibles,
increased $189,308 or 14.2% to $1,521,231 for the three months ended March 31,
1999 from $1,331,923 for the three months ended March 31, 1998. The increase was
primarily due to the addition of Consep general and administrative expenses and
increased amortization of intangible assets associated with the Consep
acquisition.
Product development and registration expenses increased $179,668 or 33.6%
to $713,887 for the three months ended March 31, 1999 compared to $534,219 for
the three months ended March 31, 1998. The increase was due primarily to
increased product registration costs for products added in the Consep
acquisition.
Other Expense, Net. Net other expense increased by $100,488 to $365,012 for
the three months ended March 31, 1999 compared to net other expense of $264,524
for the three months ended March 31, 1998. The increase in net other expense was
mainly due to additional interest expense on increased borrowings on the
Company's line of credit and interest expense incurred on long-term and
short-term debt assumed in the Consep acquisition.
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 December through June of each
year. Accordingly, the Company typically consumes significant cash in operating
activities during the periods from October through June from year to year as it
finances increases in its 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. The Company has historically relied upon
bank lines of credit to fund seasonal cash needs.
Cash decreased by $953,678 during the three months ended March 31, 1999.
The decrease in cash reflects the following: cash of $10,008,057 consumed in
operating activities, primarily to finance increased receivables and inventories
offset mainly by cash provided by increased accounts payable, cash of $57,478
consumed in investing activities to purchase equipment and intangible assets,
and cash provided from financing activities of $9,117,877 consisting of
$9,131,742 in borrowings against the Company's bank lines of credit, 65,625 in
proceeds on receivable from the sale of common stock, offset by principal
payments on long-term debt of $79,490.
The Company relies on financing in the form of lines of credit to fund
seasonal increases in receivables and inventory and to provide general working
capital. The Company currently has in place a three-year $25,000,000 credit
facility with GE Capital Services that expires in May 2000. This facility funds
working capital needs of the parent Company and its wholly owned subsidiaries,
Safer, Inc., Southern Resources, Inc. (SRI) and Consep. The credit facility is
intended to finance the Company's seasonal working capital needs and to provide
working capital financing for future acquisitions. The Company's wholly-owned
subsidiary, SRI, previously had in place an $8,000,000 working capital credit
facility with a commercial finance corporation which matured on April 22, 1998.
In April 1998, the Company consolidated this line into its GE Capital Services
line. In addition, Consep previously had in place a $5,000,000 working capital
credit facility with a commercial finance corporation which matured on December
11, 1998. In December 1998, the Company consolidated this line with the GE
Capital Services line. Borrowings under the line of credit are limited to an
aggregate borrowing base calculated using 85% of qualified accounts receivable
and 60% to 65% of the Company's qualified inventory. Also, under terms of the
credit agreement, the Company is required to maintain certain financial ratios
and other financial conditions.
On March 31, 1999, borrowing base availability on the GE Services line of
credit totaled $26,641,215. Outstanding borrowings totaled $22,229,989of which
$12,000,000 is classified as long-term debt. Also at that date,
11
<PAGE>
the Company was in compliance all covenants under the line of credit or had
received commitments of waiver of compliance from GE.
The Company is currently negotiating an increase in its credit line seeking
to obtain a $35 million facility. It is also reviewing proposals for other forms
of long-term financing in the amount of $2 to $4 million. The Company believes
it will be successful in obtaining this financing; however, there is no
assurance that these forms and amounts of long-term financing will ultimately be
secured.
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.
Year 2000 Readiness
General
The Company may be impacted by the inability if its computer software
applications and other business systems (e.g., embedded microchips) to properly
identify the year 2000 due to a commonly used programming convention of only
using two digits to identify a year. Unless modified or replaced, these systems
could fail or create erroneous results when referencing the year 2000.
Management is assessing the extent and impact of this issue and is implementing
a readiness program to mitigate the possibility of business interruption or
other risks. The objective of the program is to have all significant business
systems Year 2000 compliant by the fourth quarter of 1999.
The Company's senior management is overseeing the readiness program. The
Company's information technology personnel regularly update senior management of
the progress being made to achieve Year 2000 readiness. Senior management, in
turn, reports to the Board of Directors regarding the Company's Year 2000
readiness.
Information Technology Systems, State of Readiness and Costs
Currently, the Company's midrange computer operations at the Company's
Bloomington, Minnesota headquarters support the activities of the Company's
administrative headquarters and the Company's operations in Fort Valley,
Georgia; Torrance, California and St. Joseph, Missouri. During 1997, the
Company replaced its midrange computer hardware and upgraded its computer
software to ensure the system was Year 2000 ready. The total project cost was
approximately $350,000.
The Company's wholly owned subsidiary, Consep, Inc., headquartered in Bend,
Oregon, has its own personal computer based system which is used to support a
portion of the Company's commercial products manufacturing and reporting
systems. The Company is planning to implement its Year 2000 ready midrange
computer systems at Consep's headquarters utilizing wide area network
communications during the third quarter of 1999. The estimated cost of
implementing the information systems at Consep is approximately $100,000.
Consep's commercial dealer subsidiaries operate on an information system that is
separate and different than that of either Consep or Verdant Brands. The
primary supplier of the commercial dealers' software has represented that the
software used by the commercial dealer subsidiaries, when upgraded, will be Year
2000 ready. The Company plans to upgrade this software during its second and
third quarters of 1999. Including certain hardware upgrades, the systems upgrade
to Year 2000 readiness is expected to cost approximately $100,000.
The Company's Canadian subsidiary, Safer, Ltd., operates its business on a
personal computer based software system. The Company has upgraded that system
and believes it is now Year 2000 ready.
A confirmation process with respect to third party suppliers is also in
progress. Vendor site visits and testing have and will be done, as deemed
necessary, to determine if alternate sources of supply are needed. An on-site
review of the Company's most critical manufacturing vendor indicated the
supplier's systems were Year 2000 ready.
12
<PAGE>
The Company believes the Year 2000 costs will not have a material impact on its
results of operations, financial condition or cash flows.
Risks
The principal business risks to the Company relating to completion of Year 2000
efforts are:
o Reliance on key business partners to not have disruption in ability to
provide goods and services as a result of Year 2000 issues.
o The ability to retain key staff for the Year 2000 effort.
o The ability to continue to focus on Year 2000 issues by internal and
external resources.
Because the Company's Year 2000 readiness is dependent upon key business
partners also being Year 2000 ready, there can be no guarantee that the
Company's efforts will prevent a materially adverse impact on its results of
operations, financial condition and cash flows.
Contingency Plan
A formal contingency plan has not yet been developed. The Company will continue
to assess where alternative courses of action are needed as the Company's Year
2000 readiness plans are executed.
Ongoing Process
The Company's readiness program is an ongoing process and the estimates of costs
and completion dates for various components of the program described above are
subject to change.
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: changes in demand from major customers; effects of
competition and competitive responses to the Company; changes in product mix,
product costs, inventory levels and customer mix and its effect on financial
performance; changes in operating expenses; the Company's ability to raise
financing to satisfy its operating needs; the actual achievement of Year 2000
compliance by the Company and its vendors, subcontract manufacturers and other
third parties and the potential impact on the Company; 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 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.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
During the period ended March 31, 1999, the Company settled an outstanding
lawsuit its wholly owned subsidiary, Consep, Inc., had initiated against MSI
Insurance Company (MSI) relating to matters associated with a fire at Consep,
Inc.'s wholly owned subsidiary, Farchan, Inc. MSI paid Consep, Inc. $185,000 in
February 1999. Such amount had no impact of the Company's net income for the
quarter as the expected net proceeds of the settlement had been accrued as of
December 1, 1998 in connection with accounting for the acquisition of Consep.
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
material loss to SRI.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted for a vote of security holders during the
quarter ended March 31, 1999. However, an annual meeting of shareholders will be
held subsequent to the end of the first quarter of 1999 on May 25, 1999. All
items of business at the annual meeting of shareholders will be subject to
approval by a vote of a majority of the outstanding shares. Items of business to
be conducted at the meeting are as follows:
1. Election of nine directors as stated in the proxy statement. All nine of
the nominees are incumbants standing for reelection, namely Stanley
Goldberg, Gordon F. Stofer, Robert W. Fischer, Donald E. Lovness, Franklin
Pass, M.D., Frederick F. Yanni, John F. Hetterick, Richard Mayo and Volker
G. Oakey.
2. Approval of an amendment to the Company's 1996 Employee Incentive Stock
Option Plan to increase the number of shares of the Company's common stock
reserved for issuance upon the exercise of options granted under the Plan
by 750,000, from 500,000 shares to 1,250,000 shares.
3. Ratification of Deloitte and Touche LLP to serve as the Company's
independent accountants to audit the Company's consolidated financial
statements for 1999.
14
<PAGE>
Item 6. 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 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 by and between
Ringer Corporation and Souther Resources, Inc. (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).
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 Amendment to the Company's Restated Articles of Incorporation
(incorporated by reference to Exhibit 3.1 of the Company's Current
Report on Form 8-K, dated July 15, 1998, SEC File No. 0-18921).
3.3 Amendment to the Company's Restated Articles of Incorporation, dated
December 7, 1998 (incorporated by reference to Exhibit 3.3 of the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1998, SEC File No. 0-18921).
3.4 Bylaws of the Company, as amended to date (incorporated by reference
to Exhibit 3.4 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 Annual Report on Form 10-KSB
for the year ended December 31, 1998, SEC File No. 0-18921).
*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, Amendment No. 2 dated September
9, 1992 and Amendment No. 3 dated January 4, 1995 to the Company's
1986 Employee Incentive Stock Option Plan (incorporated by reference
to Exhibit 10.2 of the Company's Quarterly Report on Form 10-QSB dated
March 31, 1998, SEC File No. 0-18921).
*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 (incorporated by reference to Exhibit
10.4 of the Company's Quarterly Report on Form 10-QSB dated March 31,
1998, SEC File No. 0-18921).
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.)
15
<PAGE>
10.6 Amendment to Lease Agreement between the Company and 94th Street
Associates, a Minnesota Partnership, dated November 17, 1998
(incorporated by reference to Exhibit 10.6 of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998, SEC File
No. 0-18921).
*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).
*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 Consent and First Amendment to Credit Agreement, dated December 9,
1997, between the Company and General Electric Capital Corporation
dated May 2, 1997 (incorporated by reference to Exhibit 10.13 of the
Company's Quarterly Report on Form 10-QSB for the three months ended
September 30, 1998, SEC File No. 0-18921).
10.14 Consent to Credit Agreement, dated December 11, 1997, between the
Company and General Electric Capital Corporation dated May 2, 1997
(incorporated by reference to Exhibit 10.14 of the Company's Quarterly
Report on Form 10-QSB for the three months ended September 30, 1998,
SEC File No. 0-18921).
10.15 Second Amendment, dated April 22, 1997, to Credit Agreement between
the Company and General Electric Capital Corporation dated May 2, 1997
(incorporated by reference to Exhibit 10.15 of the Company's Quarterly
Report on Form 10-QSB for the three months ended September 30, 1998,
SEC File No. 0-18921).
10.16 Third Amendment, dated August 31,1998, to Credit Agreement between
the Company and General Electric Capital Corporation dated May 2, 1997
(incorporated by reference to Exhibit 10.16 of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998, SEC File
No. 0-18921).
10.17 Fourth Amendment, dated October 14,1998, to Credit Agreement between
the Company and General Electric Capital Corporation dated May 2, 1997
(incorporated by reference to Exhibit 10.17 of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998, SEC File
No. 0-18921).
10.18 Fifth Amendment, dated December 8,1998, to Credit Agreement between
the Company and General Electric Capital Corporation dated May 2, 1997
(incorporated by reference to Exhibit 10.18 of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998, SEC File
No. 0-18921).
16
<PAGE>
10.19 Cross-Licensing and Joint Licensing/Sale Agreement between the
Company 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).
10.20 Patent License Agreement between the Company and 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).
*10.21 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.)
10.22 Agreement and Plan of Merger, dated September 8, 1998, by and among
Verdant Brands, Inc., Consep Acquisition, Inc. and Consep, Inc.
(incorporated by reference to Appendix A to the Proxy Statement-
Prospectus included in the Company's Amended Registration Statement
on Form S-4/A, dated October 26, 1998).
27.1 Financial Data Schedule
* Management contract or compensation plan or arrangement.
(b) Reports on Form 8-K
The Company filed no Current Reports on Form 8-K during the three months
ended March 31, 1999.
17
<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.
VERDANT BRANDS, INC.
Dated: May 17, 1999 By /s/ Stanley Goldberg
-----------------------------------
Stanley Goldberg
President and Chief Executive Officer
Dated: May 17, 1999 By /s/ Mark G. Eisenschenk
-----------------------------------
Mark G. Eisenschenk
Executive Vice President and Chief
Financial Officer
(principal financial officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 830,122
<SECURITIES> 0
<RECEIVABLES> 23,192,627
<ALLOWANCES> 0
<INVENTORY> 19,820,009
<CURRENT-ASSETS> 45,022,134
<PP&E> 11,945,360
<DEPRECIATION> (5,458,793)
<TOTAL-ASSETS> 70,487,804
<CURRENT-LIABILITIES> 29,543,343
<BONDS> 16,883,633
0
0
<COMMON> 49,383,125
<OTHER-SE> (25,506,047)
<TOTAL-LIABILITY-AND-EQUITY> 70,487,804
<SALES> 22,030,357
<TOTAL-REVENUES> 22,030,357
<CGS> 14,450,936
<TOTAL-COSTS> 5,995,325
<OTHER-EXPENSES> (147,987)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 512,999
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,219,084
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
