<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
-------------------------------------------------
[ ] 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)
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 July 31, 2000, was:
Common Stock, $.01 par value 5,112,850 shares
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
VERDANT BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 668,305 $ 122,226
Accounts receivable 20,107,852 14,512,761
Inventories 16,908,459 19,124,200
Prepaid assets 1,584,590 801,063
--------------- ---------------
Total current assets 39,269,206 34,560,250
Property and equipment (net) 4,759,171 6,902,402
Intangible assets (net) 1,173,928 10,307,793
Other assets 169,552 232,627
--------------- ---------------
Total assets $ 45,371,857 $ 52,003,072
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank line of credit $ 24,498,865 $ 6,070,296
Accounts payable 17,703,025 12,428,728
Accrued expenses 5,551,610 3,438,120
Current portion of long-term debt 6,080,211 3,006,338
--------------- ---------------
Total current liabilities 53,833,711 24,943,482
Long-Term Debt - 14,965,950
Shareholders' Equity:
Common Stock, par value $.01 per share,
authorized 10,000,000 shares, issued and
outstanding 5,112,850 shares 51,129 51,129
Additional paid-in capital 49,489,653 49,489,653
Receivable from sale of common stock - (65,625)
Accumulated deficit (57,602,071) (37,030,545)
Cumulative translation adjustment (400,565) (350,972)
--------------- ---------------
Total shareholders' equity (8,461,854) 12,093,640
--------------- ---------------
Total liabilities and shareholders' equity $ 45,371,857 $ 52,003,072
=============== ===============
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE> 3
VERDANT BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 19,995,066 $ 27,560,254 $ 41,519,264 $ 49,590,611
COST OF SALES 18,151,214 18,919,336 32,458,857 33,370,272
------------- -------------- ------------- -------------
Gross Profit 1,843,852 8,640,918 9,060,407 16,220,339
OPERATING EXPENSES:
Distribution 1,958,765 1,948,747 3,717,467 3,590,974
Sales & Marketing 2,966,865 2,684,150 5,113,708 4,802,130
General & Administration 5,285,419 1,532,185 6,931,335 2,816,335
Product Registration & Development 706,256 470,653 1,428,721 1,184,540
Restructuring Expenses (Note 10) 1,705,000 - 1,705,000 -
Amortization of Intangibles 169,307 129,623 338,614 366,704
Impairment of Intangibles (Note 11) 8,719,036 8,719,036
------------- -------------- ------------- -------------
21,510,648 6,765,358 27,953,881 12,760,683
------------- -------------- ------------- -------------
INCOME (LOSS) BEFORE
OTHER EXPENSE (19,666,796) 1,875,560 (18,893,474) 3,459,656
OTHER EXPENSE, NET (955,151) (591,948) (1,678,052) (956,960)
------------- -------------- ------------- -------------
INCOME (LOSS) BEFORE
INCOME TAXES (20,621,947) 1,283,612 (20,571,526) 2,502,696
INCOME TAXES
------------- -------------- ------------- -------------
NET INCOME (LOSS) $ (20,621,947) $ 1,283,612 $ (20,571,526) $ 2,502,696
============= ============== ============= =============
Net income (loss) per common
share - basic and diluted $ (4.03) $ .25 $ (4.02) $ .48
============= ============== ============= =============
Shares used in calculating basic net
income (loss) per common share 5,112,850 5,182,850 5,112,850 5,182,850
============= ============== ============= =============
Shares used in calculating diluted net
income (loss) per common share 5,112,850 5,187,354 5,112,850 5,185,102
============= ============== ============= =============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET INCOME (LOSS) $ (20,621,947) $ 1,283,612 $ (20,571,526) $ 2,502,696
Other comprehensive income (no tax effect):
Foreign currency translation
adjustments (51,933) 51,778 (49,593) (63,147)
------------- -------------- ------------- -------------
COMPREHENSIVE INCOME (LOSS) $ (20,673,880) $ 1,335,390 $ (20,621,119) $ 2,439,549
============= ============== ============= =============
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
VERDANT BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (20,571,526) $ 2,502,696
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 878,353 985,147
Impairment of intangible assets 8,719,036
Valuation adjustment to buildings 1,200,000
Amortization of deferred debt issuance costs 54,506
Loss (gain) on disposal of assets 478,272 (7,656)
Loss from investment in joint venture 31,951
(Increase) decrease in assets:
Trade accounts and notes receivable (8,333,680) (12,420,086)
Inventories 4,874,691 (216,696)
Prepaid expenses (814,984) 434,336
Increase (decrease) in liabilities:
Accounts payable 5,431,501 (1,687,778)
Accrued expenses 1,884,839 473,580
------------- -------------
Net cash used in operating activities (6,167,041) (9,936,457)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (32,232) (335,121)
Proceeds from sale of equipment 214,037 101,200
Investment in patent and trademark applications (34,000) (21,597)
------------- -------------
Net cash (used in) provided by investing activities 147,805 (255,518)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from bank line of credit 7,053,569 9,199,257
Proceeds on receivable from sale of common stock 65,625 78,750
Principal payments on long-term debt (552,075) (369,000)
------------- -------------
Net cash received from financing activities 6,567,119 8,909,007
Effect of exchange rate changes on cash (1,804) (5,376)
------------- -------------
Increase (decrease) in cash and cash equivalents 546,079 (1,288,344)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 122,226 1,783,800
------------- -------------
END OF PERIOD $ 668,305 $ 495,456
============= =============
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE> 5
VERDANT BRANDS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000
Note 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of Verdant Brands, Inc. and Subsidiaries (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 year ended December 31, 1999. In the opinion of
management, the interim condensed consolidated financial
statements include all adjustments (consisting of normal recurring
accruals and adjustments of certain assets to reflect management's
best estimate of their net recoverable value) necessary for a fair
presentation of the results for the interim periods presented.
Operating results for the three months and six months ended June
30, 2000 are not necessarily indicative of the operating results
to be expected for the fiscal year ending December 31, 2000.
In recent years, the Company has pursued a strategy of growth
through merger and acquisition, joining four businesses together
since 1996. While the Company has had some success in combining
product lines and increasing revenues, continued operating
problems and decreasing demand for some product lines has led to
ongoing losses, cash flow problems and defaults on a credit
agreement secured by substantially all of the assets of the
Company. In response to these issues, the board of directors hired
Platinum Management, LLC ("Platinum") to advise the board and
appointed representatives of Platinum to the Company officer
positions of Chairman/CEO, President/COO, CFO, and Vice President
- Finance. Further the board of directors has initiated efforts to
sell Company assets and businesses. See Managements Discussion And
Analysis on Financial Condition and Results of Operations in this
Form 10-Q for further disclosures.
The following table reflects the calculation of basic and diluted
earnings (loss) per share.
<TABLE>
<CAPTION>
Three Months Ende Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Earnings (Loss) Per Share - Basic
Net income (loss) $ (20,621,947) $ 1,283,612 $ (20,571,526)$ 2,502,696
------------- ------------- ------------- --------------
Weighted average shares 5,112,850 5,182,850 5,112,850 5,182,850
------------- ------------- ------------- --------------
Net income (loss) per share $ (4.03) $ .25 $ (4.02)$ .48
============= ============= ============= ==============
Earnings (Loss) Per Share - Assuming Dilution
Net income (loss) $ (20,621,947) $ 1,283,612 $ (20,571,526)$ 2,502,696
------------- ------------- ------------- --------------
Weighted average shares 5,112,850 5,182,850 5,112,850 5,182,850
Dilutive impact of options and warrants [*] 4,504 [*] 2,252
------------- ------------- ------------- --------------
Weighted average shares and potential
dilutive shares outstanding 5,112,850 5,187,354 5,112,850 5,185,102
------------- ------------- ------------- --------------
Net income (loss) per share $ (4.03) $ .25 $ (4.02)$ .48
============= ============= ============= ==============
</TABLE>
[*] The impact of options and warrants are excluded because
their exercise price was higher than the average share price for
each period and because the Company reported a loss for the
quarter and six months ended June 30,2000.
5
<PAGE> 6
Note 2. 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 3. Inventory consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
Raw Materials $ 6,681,208 $ 4,140,908
Finished Goods 10,227,251 14,983,292
-------------- --------------
$ 16,908,459 $ 19,124,200
============== ==============
</TABLE>
Note 4. LONG-TERM DEBT
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
Line of credit, long-term portion $ - $ 11,375,000
Notes payable 4,646,873 4,965,466
Mortgage loans 1,290,602 1,522,024
Capital lease obligations 142,736 109,798
Less current portion (6,080,211) (3,006,338)
-------------- -------------
$ - $ 14,965,950
============== =============
</TABLE>
Since December 31, 1999, Sureco, Inc., a wholly owned subsidiary,
has been in default on a note payable to B&I Lending, totaling
$1,021,479 at June 30, 2000, due to noncompliance with covenants
restricting change in the use of the facility and equipment in
Fort Valley, Georgia, reducing inventory and equipment at the
facility, and requiring a minimum tangible net worth ratio. The
full value of the note has been classified as a current liability.
Due to the Company's default on its line of credit agreement and
the prevalence of cross-default provisions in various long-term
debt agreement, all long-term debt has been classified in
short-term liabilities.
Note 5. LINE OF CREDIT
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 and long-term financing. In July
1999, the Company entered into a $37,000,000 secured credit
facility with GE Capital Services ("GE"), to replace the Company's
previous $25,000,000 facility with the same lender. The credit
facility consists of a $35,000,000 revolving line of credit and a
$2,000,000 term note and is secured by substantially all of the
assets of the Company and its subsidiaries.
The Company is in default on the GE credit facility agreement. The
credit agreement contains provisions which require the Company to
maintain a minimum level of net worth and a minimum interest
coverage ratio and limit the Company's expenditures on capital
assets. The Company was not in compliance with the interest
coverage and minimum net worth covenants for the quarter ended
June 30, 2000. GE has been unwilling to waive noncompliance. GE
issued a default notice to the Company on June 5, 2000. Due to the
Company's default, GE has the right to withdraw funding, demand
immediate payment of all outstanding loan balances and foreclose
against the loan collateral in satisfaction of its secured debt.
The Company is working with GE to address the default and the
Company's financial problems. GE has thus far refrained from
exercising certain of its rights and has continued funding the
Company on a restricted basis. The ultimate actions of GE and the
resolution of the Company's financial problems is uncertain. The
current circumstances and funding levels render the Company unable
to maintain normal activities. Because the lender has not waived
noncompliance, and has the right to accelerate payment of
outstanding
6
<PAGE> 7
loans or otherwise restrict borrowings under the line, all
outstanding borrowings under the line of credit and term loan have
been classified as short-term as of June 30, 2000.
In connection with the GE Capital Services line of credit, the
Company issued a warrant for the purchase of 334,793 shares of
common stock at an original exercise price of $5.95 per share. The
warrant is exercisable immediately and expires in July 2002. The
fair value of the warrant was calculated using the Black-Scholes
method and was estimated at $327,032. This deferred debt issuance
cost reduces the carrying value of the related debt and is being
amortized over the life of the debt on a straight line basis. In
August 2000, the warrant was amended to change the exercise price
to fifty cents per share.
Borrowings under the line of credit facility are limited to a
borrowing base of up to 85% of eligible receivables, and up to 65%
of eligible inventory, as defined in the credit agreement.
Interest on borrowings is at an Index Rate (the higher of the
published prime interest rate or the Federal Funds Rate plus 0.5
percentage points) plus a Revolver Index Margin of 0.35 percentage
points through May 2, 2000 and of 0.55 percentage points
thereafter (borrowing rate of 9.55% as of June 30, 2000). The
Company is required to pay a commitment fee of 1/2% on any unused
portion of the line. Outstanding borrowings on the GE credit
facility, including the GE line of credit, totaled $24,498,865 as
of June 30, 2000. Outstanding borrowings on the GE term note
totaled $1,569,103 (net of $222,563 in deferred debt issuance
costs) as of June 30, 2000.
Note 6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash (paid) received for interest during the period for:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Interest paid $ (703,394) $ (635,519)
Interest received 12,218 98,379
</TABLE>
Non-cash transaction - The Company transferred $2,674,990 from
accounts receivable to inventory in the settlement of an
arrangement with a subcontractor. See Note 9.
Note 7. FOREIGN OPERATIONS
International sales activity, consisting of sales outside the
United States, primarily in Canada, accounted for approximately
9.3% and 7.2% of total sales for the three months ended June 30,
2000 and 1999, and approximately 9.3% and 7.4% of total sales for
the six months ended June 30, 2000 and 1999, respectively. A
reconciliation for these periods of domestic and foreign activity
for net sales, net income and identifiable assets is as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000: Domestic Foreign Total
--------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
Net Sales $ 18,135,244 $ 1,859,822 $ 19,995,066
Net Income (loss) (20,505,227) (116,720) (20,621,947)
Identifiable Assets 41,813,305 3,558,552 45,371,857
<CAPTION>
Three Months Ended June 30, 1999: Domestic Foreign Total
--------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
Net Sales $ 25,583,904 $ 1,976,350 $ 27,560,254
Net Income (loss) 1,296,465 (12,853) 1,283,612
Identifiable Assets 64,769,671 3,957,315 68,726,986
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000: Domestic Foreign Total
------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
Net Sales $ 37,676,706 $ 3,842,558 $ 41,519,264
Net Income (loss) (20,642,600) 71,074 (20,571,526)
Identifiable Assets 41,813,305 3,558,552 45,371,857
<CAPTION>
Six Months Ended June 30, 1999: Domestic Foreign Total
-------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
Net Sales $ 45,940,720 $ 3,649,891 $ 49,590,611
Net Income (loss) 2,376,801 125,895 2,502,696
Identifiable Assets 64,769,671 3,957,315 68,726,986
</TABLE>
Note 8. 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 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 and six months ended June
30, 2000 and 1999 of segment activity for net sales, net income
(loss) and identifiable assets is as follows:
<TABLE>
<CAPTION>
Commercial
Three Months Ended June 30, 2000: Consumer Commercial Dealer Total
--------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales................................. $ 8,808,366 $ 1,923,274 $ 9,263,426 $ 19,995,066
Net Income (loss)......................... (11,558,249) (8,407,395) (656,303) (20,621,947)
Depreciation and Amortization............. 254,904 33,642 155,487 444,033
Interest Expense.......................... 453,490 231,650 212,165 897,305
Interest Income........................... - 11,659 - 11,659
Capital Expenditures...................... 6,322 - - 6,322
Identifiable Assets....................... $ 24,090,625 $ 9,278,661 $ 12,002,571 $ 45,371,857
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Commercial
Three Months Ended June 30, 1999: Consumer Commercial Dealer Total
-------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales................................. $ 13,830,789 $ 4,582,684 $ 9,146,781 $ 27,560,254
Net Income (loss)......................... 476,635 311,906 495,071 1,283,612
Depreciation and Amortization............. 254,935 (103,506) 22,854 174,283
Interest Expense.......................... 553,103 98,516 15,307 666,926
Interest Income........................... (15,614) -- -- (15,614)
Capital Expenditures...................... 132,139 1,176 51,975 185,290
Identifiable Assets....................... $ 39,641,296 $ 15,765,230 $ 13,320,460 $ 68,726,986
<CAPTION>
Commercial
Six Months Ended June 30, 2000: Consumer Commercial Dealer Total
------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales................................. $ 19,466,831 $ 7,045,433 $ 15,007,000 $ 41,519,264
Net Income (loss)......................... (11,668,002) (8,215,535) (687,989) (20,571,526)
Depreciation and Amortization............. 512,330 133,023 233,00 878,353
Interest Expense.......................... 861,647 449,409 292,560 1,603,616
Interest Income........................... - 41,954 - 41,954
Capital Expenditures...................... 32,232 - - 32,232
Identifiable Assets....................... $ 24,090,625 $ 9,278,661 $ 12,002,571 $ 45,371,857
<CAPTION>
Commercial
Six Months Ended June 30, 1999: Consumer Commercial Dealer Total
------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales................................. $ 24,658,090 $ 9,341,686 $ 15,590,835 $ 49,590,611
Net Income (loss)......................... 1,277,423 270,993 954,280 2,502,696
Depreciation and Amortization............. 583,456 200,370 201,321 985,147
Interest Expense.......................... 949,247 142,736 31,435 1,123,418
Interest Income........................... 4,888 (6,085) 93,159 91,962
Capital Expenditures...................... 150,235 27,523 157,363 335,121
Identifiable Assets....................... $ 39,641,296 $ 15,765,230 $ 13,320,460 $ 68,726,986
</TABLE>
Note 9. COMMITMENTS AND CONTINGENCIES
Subcontract Manufacturing - The Company relies on outside
subcontractors for nearly all of its consumer products
manufacturing needs, and manufacture a significant portion of its
products at a single subcontract manufacturer. During 1999, the
Company transferred title of certain inventory to this
subcontractor. In March 2000, the Company agreed to reassume title
to this inventory, effective April 3, 2000. At December 31, 1999,
accounts receivable included $2,674,490 relating to inventory for
which title had transferred under this agreement.
Note 10. RESTRUCTURING EXPENSES
Restructuring expenses includes $1,152,000 in accrued severance
costs for terminated officers and employees and $553,000 in
accrued product continuation fees to cover the required two-year
registration period following product discontinuance.
Note 11. IMPAIRMENT OF INTANGIBLE ASSETS
Impairment of intangibles of $8,719,036 were recognized in the
second quarter of 2000 for impairment of goodwill resulting from
cash flow estimates on the sale of the Company's assets and/or
businesses.
9
<PAGE> 10
Note 12. SEC STAFF ACCOUNTING BULLETIN
In December 1999, the SEC issued Staff Accounting Bulleting No.
101, "Revenue Recognition in Financial Statements," which becomes
effective in the fourth quarter of 2000. Management has not
completed its review of the effect of the adoption of this
Bulletin.
Note 13. NASDAQ DELISTING
On July 31, 2000, the Company was notified by the Nasdaq Stock
Market that the Company has failed to maintain the minimum market
value of public float and the minimum bid price as required by
Nasdaq rules for continued listing on the Nasdaq National Market.
The Company has until October 30, 2000 to demonstrate compliance
with the Nasdaq rules or the Company's common stock will be
delisted at the opening of business on November 1, 2000. The rules
require that the Company maintains a minimum market value for
publicly traded shares of no less than $5,000,000 and a minimum
bid price of at least $1.00. On the date of notification, the
Company's market value of public float was less than $2,500,000
and the bid price was less than fifty cents per share.
10
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
In recent years, the Company has pursued a strategy of growth through
merger and acquisition, joining four businesses together since 1996. While the
Company has had some success in combining product lines and increasing revenues,
continued operating problems and decreasing demand for some product lines has
lead to ongoing losses, cash flow problems and defaults on a credit agreement
secured by substantially all of the assets of the Company.
To address these difficulties, the Company engaged the services of
Platinum Management, LLC ("Platinum"), a Minneapolis-based turnaround management
company. In May 2000, Platinum worked closely with management and the Board of
Directors to assess the Company's businesses and define a strategy to address
financial problems. On June 7, 2000, the Company's Board of Directors accepted
the resignation of the Company's Chairman of the Board and its President and
CEO, and appointed members of Platinum to the positions of Chairman/CEO,
President /COO, Chief Financial Officer, and Vice President - Finance. In
addition, directors Goldberg, Hetterick, Oakey, Yanni, Pass and Lovness resigned
their positions as directors and, further, Hetterick and Oakey resigned as
employees and officers of the Company. The remaining directors constituting the
Company's board of directors, consisting of Stofer and Fischer, then reorganized
the board at three directors by appointing Dean Bachelor of Platinum as a
director and chairman of the board of directors of the Company. The board of
directors believes that the current organization of the board and executive
management is better able to deal with the Company's operating and financial
problems.
In response to the Company's continuing financial problems and to raise
needed capital, the Company announced on May 22, 2000 the engagement of
AgriCapital Corporation to assist the Company in the divestiture of portions of
its commercial dealer business segment. The Company further announced on June
26, 2000 the engagement of Goldsmith-Agio-Helms, an investment banking firm, to
assist the Company in exploring the sale of part or all of the Company's retail
business segment. At the same time, the Company announced that it had received a
default notice from GE Capital Services, the Company's secured lender holding a
first security interest in substantially all of the assets of the Company. The
Company has been working closely with GE Capital to address the Company's
financial problems and to correct the defaults. Any cash generated from the sale
of business assets will be first used to retire the GE Capital debt. After
satisfying the GE debt, remaining cash flows, if any, will be applied toward
payment of unsecured creditors. The cash flows to be generated are uncertain and
may be inadequate to pay unsecured creditors in full.
The Company has been contacted by parties interested in acquiring
portions of the Company's retail and commercial dealer business assets.
Discussions continue with interested parties toward a divestiture of these
business assets, however, when or if an agreement may be reached is uncertain.
In addition, the Company has received an unsolicited bid for the Company's
commercial pheromone business, which represents approximately one-third of the
Company's current revenues. The Company has delayed any response to this bid
pending further review of its strategic options and the results of current
divestiture discussions. In view of the Company's efforts to sell substantially
all of the assets of the Company, the Company is not reporting discontinued
operations within its financial statements.
In response to cash flow problems, the Company placed a moratorium on
the payment of approximately $16 million in trade accounts payable and certain
other liabilities existing prior to May 31, 2000. This has caused many vendors,
some critical to operations, to withhold credit and otherwise restrict the
Company's ability to acquire materials and services. The resolution of past due
trade accounts and certain other liabilities is uncertain and depends to a great
extent on the Company's ability to generate cash in excess of that required to
retire the Company's senior secured creditor. The Company's senior secured
creditor is continuing to fund operations on a restricted basis, however,
funding is inadequate for normal operations and the continuation of current
funding is uncertain. The Company is working with GE Capital on an agreement to
allow the Company to continue operating without GE Capital's foreclosure on the
11
<PAGE> 12
assets of the Company, however, there is no assurance that the Company will be
successful in negotiating such an agreement.
On July 31, 2000, the Company was notified by the Nasdaq Stock Market that the
Company has failed to maintain the minimum market value of public float and the
minimum bid price as required by Nasdaq rules for continued listing on the
Nasdaq National Market. The Company has until October 30, 2000 to demonstrate
compliance with the Nasdaq rules or the Company's common stock will be delisted
at the opening of business on November 1, 2000. The rules require that the
Company maintains a minimum market value for publicly traded shares of no less
than $5,000,000 and a minimum bid price of at least $1.00. On the date of
notification, the Company's market value of public float was less than
$2,500,000 and the bid price was less than fifty cents per share.
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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 90.8 68.6 78.2 67.3
---------- ---------- ---------- ----------
Gross profit 9.2 31.4 21.8 32.7
Operating Expenses:
Distribution 9.8 7.1 9.0 7.2
Sales & Marketing 14.8 9.7 12.3 9.7
General & Administrative 26.5 5.5 16.7 5.7
Product Registrations & Development 3.5 1.7 3.4 2.4
Restructuring Expense 8.5 - 4.1 -
Amortization of Intangibles .8 .5 .8 .7
Impairment of Intangibles 43.6 - 21.0 -
---------- ---------- ---------- ----------
107.5 24.5 67.3 25.7
---------- ---------- ---------- ----------
Income (loss) before other expense (98.3) 6.9 (45.5) 7.0
Other expense, net (4.8) (2.1) (4.0) (1.9)
---------- ---------- ---------- ----------
Net income (loss) (103.1) 4.8% (49.5)% 5.1%
========== ========== ========== ==========
</TABLE>
Seasonal factors effecting 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 and
six months ended June 30.
12
<PAGE> 13
Comparison of the three months ended June 30, 2000 to the three months ended
June 30, 1999
Net Sales. Net sales decreased $7,565,188 or 27.4% to $19,995,066 in
the three months ended June 30, 2000 compared to $27,560,254 for the three
months ended June 30, 1999. The decrease was primarily the result of $5,022,423
in lower retail segment sales and $2,659,410 in lower commercial segment sales.
The lower retail segment sales were due in part to reduced purchases by two
large private label customers resulting from slow sales and overstock problems.
In addition, retail sales were negatively impacted by a $1,600,000 provision
recorded in the second quarter of 2000 for anticipated sales returns, discounts
and allowances. The lower commercial segment sales was resulted primarily from
the loss of the Sevin(R) brand pesticide and other discontinued products.
Gross Margins. Gross margins as a percent of sales decreased 22.2
percentage points to 9.2% for the three months ended June 30, 2000 compared to
31.4% for the three months ended June 30, 1999. Approximately 13.0 percentage
points of the decrease was due to a second quarter 2000 provision for obsolete
and excess inventory totaling $2,576,000 resulting from the discontinuance of
certain products and the existence of excess inventory resulting from slower
than expect retail product sales. The remaining 9.2 percentage point decrease in
gross margins was due primarily to a shift in sales mix to a higher percentage
mix of commercial and commercial dealer sales which carry a lower gross margin
than retail products.
Operating Expenses. Distribution expenses increased slightly in
absolute dollars to $1,958,765 for the three months ended June 30, 2000 from
$1,948,747 for the three months ended June 30, 1999, and increased as a
percentage of sales to 9.8% for the three months ended June 30, 2000 from 7.1%
for the three months ended June 30, 1999. The increase in distribution expenses
in 2000 compared to 1999 was due to extra expenses incurred in shipments of
products through an agency arrangement on the west coast and to costs incurred
for outside storage facilities to store excess inventory.
Sales and marketing expenses in absolute dollars increased $282,715 or
10.5% to $2,966,865 for the three months ended June 30, 2000 from $2,684,150 for
the three months ended June 30, 1999, and increased as a percentage of sales to
14.8% for the three months ended June 30, 2000 compared to 9.7% for the same
period in 1999. The increase in sales and marketing expenses in absolute dollars
was largely due to higher sales program expenses incurred in 2000 compared to
1999 in an effort to make up for sales shortfalls during the first and second
quarters of 2000.
General and administrative costs increased $3,753,234 or 245% to
$5,285,419 for the three months ended June 30, 2000 from $1,532,185 for the
three months ended June 30, 1999. The increase was in part due to a $1,200,000
charge taken in the second quarter of 2000 to write down the carrying value of
certain buildings and equipment to recovery value, and a charge taken in the
same period of $480,806 to write off abandoned building projects in process. In
addition, the Company recorded a provision for doubtful accounts in the second
quarter of 2000 totaling approximately $1,700,000 to reserve for accounts of
customers filing bankruptcy or having recently demonstrated serious financial
trouble. The remaining increase of approximately $370,000 was mainly the result
of increased legal and consulting expenses relating to efforts to deal with the
Company's financial problems.
Product registration and development expenses increased $235,603 or
50.0% to $706,256 for the three months ended June 30, 2000 compared to $470,653
for the three months ended June 30, 1999. The increase was due primarily to
increased product registration costs associated with the conversion of
Surefire(R) branded products to Safer(R) brand labels and the increase in
registered labels resulting from label changes made to certain product lines.
Restructuring expenses of $1,705,000 incurred in the second quarter of
2000 consist of $1,152,000 in accrued severance costs for certain terminated
officers and employees and of $553,000 in accrued product registration
continuation fees associated with certain discontinued pesticide products.
Amortization of intangibles increased $39,684 or 30.6% to $169,307 for
the three months ended June 30, 2000 compared to $129,623 for the three months
ended June 30, 1999. The increase was due to accelerated amortization resulting
from reductions in the estimated useful lives of certain intangibles.
13
<PAGE> 14
Impairment of intangibles of $8,719,036 were recognized in the second
quarter of 2000 for impairment of goodwill resulting from cash flow estimates on
the sale of the Company's assets and/or businesses.
Other Expense, Net. Net other expense increased by $363,203 or 61.4% to
$955,151 for the three months ended June 30, 2000 compared to net other expense
of $591,948 for the three months ended June 30, 1999. The increase in net other
expense was mainly due to increased interest expense on higher average
borrowings on the Company's line of credit and the effect of higher interest
rates.
Comparison of the six months ended June 30, 2000 to the six months ended June
30, 1999
Net Sales. Net sales decreased $8,071,347 or 16.3% to $41,519,264 in
the six months ended June 30, 2000 compared to $49,590,611 for the six months
ended June 30, 1999. The decrease was primarily the result of $5,191,259 in
lower retail segment sales and $2,296,253 in lower commercial segment sales. The
lower retail segment sales were due in part to reduced purchases by two large
private label customers resulting from slow sales and overstock problems. In
addition, retail sales were negatively impacted by a $600,000 provision recorded
in the second quarter of 2000 for anticipated sales discounts and allowances on
discontinued products. The lower commercial segment sales was resulted primarily
from the loss of the Sevin(R) brand pesticide and other discontinued products.
Gross Margins. Gross margins as a percent of sales decreased 10.9
percentage points to 21.8% for the six months ended June 30, 2000 compared to
32.7% for the six months ended June 30, 1999. Approximately 6.2 percentage
points of the decrease was due to a second quarter 2000 provision for obsolete
and excess inventory totaling $2,576,000 resulting from the discontinuance of
certain products and the existence of excess inventory resulting from slower
than expect retail product sales. The remaining 4.7 percentage point decrease in
gross margins was due primarily to a shift in sales mix to a higher percentage
mix of commercial and commercial dealer sales which carry a lower gross margin
than retail products.
Operating Expenses. Distribution expenses increased $126,493 or 3.5% in
absolute dollars to $3,717,467 for the six months ended June 30, 2000 from
$3,590,974 for the six months ended June 30, 1999, and increased as a percentage
of sales to 9.0% for the three months ended June 30, 2000 from 7.2% for the
three months ended June 30, 1999. The increase in distribution expenses in 2000
compared to 1999 was due to extra expenses incurred in shipments of products
through an agency arrangement on the west coast and to costs incurred for
outside storage facilities to store excess inventory.
Sales and marketing expenses in absolute dollars increased $311,578 or
6.5% to $5,113,708 for the six months ended June 30, 2000 from $4,802,130 for
the six months ended June 30, 1999, and increased as a percentage of sales to
12.3% for the six months ended June 30, 2000 compared to 9.7% for the same
period in 1999. The increase in sales and marketing expenses in absolute dollars
was largely due to higher sales program expenses incurred in 2000 compared to
1999 in an effort to make up for sales shortfalls during the first and second
quarters of 2000.
General and administrative costs increased $4,115,000 or 146% to
$6,931,335 for the six months ended June 30, 2000 from $2,816,335 for the six
months ended June 30, 1999. The increase was in part due to a $1,200,000 charge
taken in the second quarter of 2000 to write down the carrying value of certain
buildings and equipment to recovery value, and a charge taken in the same period
of $480,806 to write off abandoned building projects in process. In addition,
the Company recorded a provision for doubtful accounts in the second quarter of
2000 totaling approximately $1,700,000 to reserve for accounts of customers
filing bankruptcy or having recently demonstrated serious financial trouble. The
remaining increase of approximately $730,000 was mainly the result of increased
legal, recruiting and consulting expenses relating to efforts to deal with the
Company's financial problems and to employee turnover.
Product registration and development expenses increased $244,181 or
20.6% to $1,428,721 for the six months ended June 30, 2000 compared to
$1,184,540 for the six months ended June 30, 1999. The increase was due
14
<PAGE> 15
primarily to increased product registration costs associated with the conversion
of Surefire(R) branded products to Safer(R) brand labels and the increase in
registered labels resulting from label changes made to certain product lines.
Restructuring expenses of $1,705,000 incurred in the second quarter of
2000 consist of $1,152,000 in accrued severance costs for certain terminated
officers and employees and of $553,000 in accrued product registration
continuation fees associated with certain discontinued pesticide products.
Amortization of intangibles decreased $28,090 to $338,614 for the six
months ended June 30, 2000 compared to $366,704 for the six months ended June
30, 1999. The decrease was due to the reduction in goodwill resulting of final
valuation adjustments recorded in the fourth quarter of 1999.
Impairment of intangibles of $8,719,036 were recognized in the second
quarter of 2000 for impairment of goodwill resulting from cash flow estimates on
the sale of the Company's assets and/or businesses.
Other Expense, Net. Net other expense increased by $721,092 or 75.4% to
$1,678,052 for the six months ended June 30, 2000 compared to net other expense
of $956,960 for the six months ended June 30, 1999. The increase in net other
expense was mainly due to increased interest expense on higher average
borrowings on the Company's line of credit and the effect of higher interest
rates.
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. 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 May of each year. Accordingly, the
Company typically consumes significant cash in operating activities during the
periods from October through May 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.
Cash increased $546,079 during the six months ended June 30, 2000. The
increase in cash reflects the following: Cash used in operating activities of
$6,167,041 resulting primarily from funding operating losses and increases in
accounts receivable, offset in part by increased accounts payable; cash provided
by investing activities of $147,805, primarily from the sale of equipment; cash
provided by financing activities of $6,567,119, primarily from borrowings on the
Company's line of credit, offset in part by payments on long-term debt.
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 and long-term financing. In July 1999, the Company entered into a
$37,000,000 secured credit facility with GE Capital Services ("GE"), to replace
the Company's previous $25,000,000 facility with the same lender. The credit
facility consists of a $35,000,000 revolving line of credit and a $2,000,000
term note and is secured by substantially all of the assets of the Company and
its subsidiaries.
The Company is in default on the GE credit facility agreement. The
credit agreement contains provisions which require the Company to maintain a
minimum level of net worth and a minimum interest coverage ratio and limit the
Company's expenditures on capital assets. The Company was not in compliance with
the interest coverage and minimum net worth covenants for the quarter ended June
30, 2000. GE has been unwilling to waive noncompliance. GE issued a default
notice to the Company on June 5, 2000. Due to the Company's default, GE has the
right to withdraw funding, demand immediate payment of all outstanding loan
balances and foreclose against the loan collateral in satisfaction of its
secured debt. The Company is working with GE to address the default and the
Company's financial problems. GE has thus far refrained from exercising certain
of its rights and has continued funding the Company on a restricted basis. The
ultimate actions of GE and the resolution of the Company's financial
15
<PAGE> 16
problems is uncertain. The current circumstances and funding levels render the
Company unable to maintain normal activities. Because the lender has not waived
noncompliance, and has the right to accelerate payment of outstanding loans or
otherwise restrict borrowings under the line, all outstanding borrowings under
the line of credit and term loan have been classified as short-term as of June
30, 2000.
In connection with the GE Capital Services line of credit, the Company
issued a warrant for the purchase of 334,793 shares of common stock at an
original exercise price of $5.95 per share. The warrant is exercisable
immediately and expires in July 2002. The fair value of the warrant was
calculated using the Black-Scholes method and was estimated at $327,032. This
deferred debt issuance cost reduces the carrying value of the related debt and
is being amortized over the life of the debt on a straight line basis. In August
2000, the warrant was amended to change the exercise price to fifty cents per
share.
Borrowings under the line of credit facility are limited to a borrowing
base of up to 85% of eligible receivables, and up to 65% of eligible inventory,
as defined in the credit agreement. Interest on borrowings is at an Index Rate
(the higher of the published prime interest rate or the Federal Funds Rate plus
0.5 percentage points) plus a Revolver Index Margin of 0.35 percentage points
through May 2, 2000 and of 0.55 percentage points thereafter (borrowing rate of
9.55% as of June 30, 2000). The Company is required to pay a commitment fee of
1/2% on any unused portion of the line. Outstanding borrowings on the GE credit
facility, including the GE line of credit, totaled $24,498,865 as of June 30,
2000. Outstanding borrowings on the GE term note totaled $1,569,103 (net of
$222,563 in deferred debt issuance costs) as of June 30, 2000.
As of December 31, 1999, March 31, 2000 and June 30, 2000, Sureco, a
wholly owned subsidiary, was in default on a note payable to B&I Lending,
totaling $1,021,479 at June 30, 2000, due to noncompliance with covenants
restricting change of use of the facility and equipment in Fort Valley, Georgia,
reducing inventory and equipment at the facility, and requiring a minimum
tangible net worth ratio. The full value of the note has been classified as a
current liability.
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, including statements regarding the Company's efforts to
deal with its financial problems, the Company's efforts to sell certain assets
or businesses, the Company's efforts and intention to pay down the secured GE
Capital debt, the Company's ongoing relationship with GE Capital, the
uncertainty of continued funding by GE Capital, the potential for foreclosure by
GE Capital against the assets on the Company, and the Company's inability to
operate normally. These forward-looking statements involve a number of risks and
uncertainties, including: The Company's relationship with GE Capital; the
Company's ability pay down GE Capital's secured debt; the Company's ability to
successfully negotiate with GE Capital for continued funding, waiver of defaults
and forbearance on foreclosure against the Company's assets; the Company's
ability to conclude planned sales of assets or businesses and willingness of the
Company's shareholders' to approve any such sales; the Company's ability to
retain customers, vendors or personnel necessary to continue operations; 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.
16
<PAGE> 17
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Subsidiaries of Southern Resources, Inc., our wholly-owned subsidiary,
and other parties have been issued governmental orders requiring them to
investigate and cleanup the subsidiaries' Fort Valley, Georgia former
manufacturing site, currently maintained by the subsidiaries as a warehouse,
and adjacent property not owned by the subsidiaries, which properties are
collectively known as the Woolfolk Chemical Works site. This site is listed by
the United States Environmental Protection Agency ("EPA") on its National
Priorities List (NPL). These actions relate to environmental contamination
discovered on and near the Woolfolk site. The former owner of the entire
Woolfolk site and its predecessors, which are unaffiliated with SRI or its
subsidiaries, conducted operations at the property owned by one of the
subsidiaries of SRI, between some time prior to 1920 and 1984. Management
believes that these historical operations prior to 1984 were the primary source
of the contamination of the Woolfolk site. The subsidiaries have conducted
certain limited remedial activities at the property at the request of
governmental authorities. The former owner of the Woolfolk site has conducted
certain investigation and cleanup activities at the site at the request of the
EPA. The former owner, however, has declined to undertake additional remedial
activities requested by EPA. EPA presently is directing additional cleanup of
the Woolfolk site. We are unable at this time to determine whether the legal
actions relating to the subsidiaries' Fort Valley property will result in a
material loss to SRI or Verdant. We are party to other legal proceedings,
which we believe to be individually and collectively immaterial to our business.
Item 3. DEFAULT UPON SENIOR SECURITIES
The Amended and Restated Credit Agreement, dated as of July 14, 1999,
as amended (the "Credit Agreement") among the Company, its subsidiaries and GE
contains covenants that the Company will maintain certain levels of interest
coverage and net worth with which the Company was not in compliance at June 30,
2000. The failure to comply with these covenants, as well as the default by
Sureco under its credit agreement, constitute "events of default" under the
Credit Agreement that would, unless waived, allow GE to both refuse additional
borrowings under the Credit Agreement, to consider all outstanding borrowings
immediately due and payable and to exercise its rights against loan collateral.
GE has been unwilling to waive this event of noncompliance and has
notified the Company of its default under the credit agreement. GE has yet to
exercise its full rights under the credit agreement. The Company's debt to GE in
default, consisting of its line of credit and term note, totaled $22,815,017 as
of August 14, 2000
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
An annual meeting of shareholders was held on May 25, 2000. There were
5,202,800 shares of common stock entitled to vote and a total of 4,086,865
shares (78.6%) were represented at the meeting. The following four items of
business were presented. Items 1, 2 and 3 were approved by a majority vote of
the outstanding shares of the Company's common stock present and entitled to
vote on that matter. Item 4 was not approved. The items of business and the
votes cast are as follows:
1. Election of eight directors as slated in the proxy statement, all of
which are incumbents standing for reelection. ALL NOMINEES WERE ELECTED
by a majority vote as follows:
<TABLE>
<CAPTION>
For Withhold
------------ -----------
<S> <C> <C>
Stanley Goldberg 3,720,917 365,948
Gordon F. Stofer 3,777,643 309,222
Robert W. Fischer 3,771,025 315,840
Donald E. Lovness 3,776,963 309,902
Franklin Pass, M.D. 3,777,701 309,164
Frederick F. Yanni 3,777,643 309,222
John F. Hetterick 3,897,613 189,252
Volker G. Oakey 3,898,014 188,851
</TABLE>
17
<PAGE> 18
Subsequent to the annual shareholders meeting, directors Goldberg,
Lovness, Pass, Yanni, Hetterick and Oakey resigned their positions as
directors. The remaining directors, Stofer and Fischer, appointed Dean
Bachelor from Platnum Management, LLC as a director and chairman of the
board of directors of the Company. See Managements Discussion and
Analysis of Financial Condition and Results of Operations herein for
further information about management and board changes.
2. Ratification of the appointment of Deloitte and Touche LLP as the
Company's independent accountants to audit the Company's consolidated
financial statements for 2000. APPOINTMENT WAS RATIFIED by a majority
vote as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-votes
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
3,915,536 160,122 11,207 -0-
</TABLE>
3. 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 500,000, (from 250,000 shares to 750,000 shares) and to
increase the limit on the number of options that may be granted to an
employee in a twelve month period from 100,000 shares to 250,000
shares. APPROVAL WAS OBTAINED by a majority vote of shares qualified to
vote on this matter. The vote was as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-votes
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
1,370,632 480,085 21,220 2,214,928
</TABLE>
4. Approval of an amendment to the Company's Stock Option Plan for
Non-employee Directors 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 150,000 (from 80,000 shares to
230,000 shares) and to change the manner in which options are granted
to non-employee directors. APPROVAL WAS NOT OBTAINED due to less than a
majority vote of shares necessary to constitute a quorum. The vote was
as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-votes
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
1,169,936 682,754 19,247 2,214,928
</TABLE>
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 the
Company 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
the Company 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).
2.3 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).
18
<PAGE> 19
3.1 Restated Articles of Incorporation of the Company (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 3.3 of the Company's Registration Statement
on Form S-18, SEC File No. 33-36205-C).
4.1 Specimen certificate of Common Stock, $.01 par value (incorporated
by reference to Exhibit 4.1 of the Company's 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 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.)
* 10.4 Amendment No. 1, adopted at the 1999 annual shareholder's meeting,
and Amendment No. 2, adopted at the 2000 annual shareholder's
meeting, to the Company's 1996 Employee Stock Option Plan **
* 10.5 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).
* 10.6 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).
* 10.7 Consep, Inc. 1992 Stock Incentive Plan (incorporated by reference
to Exhibit 10.6 of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999, SEC File No. 0-18921).
* 10.8 Consep, Inc. 1993 Stock Incentive Plan (incorporated by reference
to Exhibit 10.7 of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999, SEC File No. 0-18921).
* 10.9 Consep, Inc. 1997 Stock Incentive Plan (incorporated by reference
to Exhibit 10.8 of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999, SEC File No. 0-18921).
10.10 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.)
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<PAGE> 20
10.11 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).
10.12 Lease Agreement between Verdant Brands, Inc. and L&A Development,
LLC, dated December 1, 1999 (incorporated by reference to Exhibit
10.11 of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999, SEC File No. 0-18921).
*10.13 Employment Agreement between the Company and John F. Hetterick,
dated December 1, 1999 (incorporated by reference to Exhibit
10.12 of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999, SEC File No. 0-18921).
*10.14 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).
*10.15 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).
*10.16 Termination and Consulting Agreement between the Company and
Stanley Goldberg, dated December 6, 1999 (incorporated by
reference to Exhibit 10.15 of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999, SEC File No.
0-18921).
*10.17 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).
*10.18 Separation Agreement and General Release between the Company and
Mark G. Eisenschenk, dated December 6, 1999 (incorporated by
reference to Exhibit 10.17 of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999, SEC File No.
0-18921).
*10.19 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).
*10.20 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).
10.21 Amended and Restated Credit Agreement between the Company and
General Electric Capital Corporation dated July 14, 1999
(incorporated by reference to Exhibit 10.12 of the Company's
Quarterly Report on Form 10-QSB for the three months ended June
30, 1999, SEC File No. 0- 18921).
10.22 First Amendment and Waiver to Credit Agreement dated July 14,
1999 between the Company and General Electric Capital
Corporation dated March 29, 2000 (incorporated by reference to
Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q
for the three months ended March 31, 2000, SEC File No.
0-18921).
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10.23 Warrant to Purchase Common Stock in connection with the Amended
and Restated Credit Agreement between the Company and General
Electric Capital Corporation dated July 14, 1999 (incorporated by
reference to Exhibit 10.13 to the Company's Quarterly Report on
Form 10-QSB for the three months ended September 30, 1999, SEC
File No. 0-18921).
10.24 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).
10.25 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).
*10.26 Agreement between the Company and Platinum Management LLC dated
June 5, 2000. **
27.1 Financial Data Schedule **
* Management contract or compensation plan or arrangement.
** Filed with this report.
(b) Reports on Form 8-K
The Company filed no Current Reports on Form 8-K during the three
months ended June 30, 2000.
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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: August 14, 2000 By /S/ Dean Bachelor
-------------------------------------------
Dean Bachelor
Chief Executive Officer
Dated: August 14, 2000 By /S/ Mike Blair
-------------------------------------------
Mike Blair
Chief Financial Officer
(principal financial officer)
22
