<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 September 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 October 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>
September 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 248,690 $ 122,226
Accounts receivable 7,224,866 14,512,761
Inventories 11,330,181 19,124,200
Prepaid assets 1,292,062 801,063
--------------- ---------------
Total current assets 20,095,799 34,560,250
Property and equipment (net) 4,531,862 6,902,402
Intangible assets (net) 1,122,623 10,307,793
Other assets 51,867 232,627
--------------- ---------------
Total assets $ 25,802,151 $ 52,003,072
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank line of credit $ 16,572,468 $ 6,070,296
Accounts payable 17,273,639 12,428,728
Accrued expenses 3,961,907 3,438,120
Current portion of long-term debt 5,517,272 3,006,338
--------------- ---------------
Total current liabilities 43,325,286 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 (66,641,638) (37,030,545)
Cumulative translation adjustment (422,279) (350,972)
--------------- ---------------
Total shareholders' equity (17,523,135) 12,093,640
--------------- ---------------
Total liabilities and shareholders' equity $ 25,802,151 $ 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 Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 10,266,168 $ 13,837,284 $ 51,785,432 $ 63,427,895
COST OF SALES 9,998,258 10,468,546 42,457,115 43,838,818
------------- -------------- ------------- -------------
Gross Profit 267,910 3,368,738 9,328,317 19,589,077
OPERATING EXPENSES:
Distribution 1,307,065 1,139,986 5,024,532 4,730,960
Sales & Marketing 2,326,788 2,102,456 7,440,496 6,904,586
General & Administration 1,450,608 1,089,883 8,381,943 3,906,218
Product Registration & Development 689,426 516,675 2,118,147 1,701,215
Restructuring Expenses (Note 10) - - 1,705,000 -
Amortization of Intangibles 12,232 323,879 350,846 690,583
Impairment of Intangibles (Note 11) - - 8,719,036 -
Sale of Assets 2,329,255 - 2,329,255 -
------------- -------------- ------------- -------------
8,115,374 5,172,879 36,069,255 17,933,562
------------- -------------- ------------- -------------
INCOME (LOSS) BEFORE
OTHER EXPENSE (7,847,464) (1,804,141) (26,740,938) 1,655,515
OTHER EXPENSE, NET (1,192,103) (653,987) (2,870,155) (1,610,947)
------------- -------------- ------------- -------------
INCOME (LOSS) BEFORE
INCOME TAXES (9,039,567) (2,458,128) (29,611,093) 44,568
INCOME TAXES - - - -
------------- -------------- ------------- -------------
NET INCOME (LOSS) $ (9,039,567) $ (2,458,128) $ (29,611,093) $ 44,568
============= ============== ============= =============
Net income (loss) per common
share - basic and diluted $ (1.77) $ (.48) $ (5.79) $ .01
============= ============== ============= =============
Shares used in calculating basic net
income (loss) per common share 5,112,850 5,134,004 5,112,850 5,166,568
============= ============== ============= =============
Shares used in calculating diluted net
income (loss) per common share 5,112,850 5,134,004 5,112,850 5,168,069
============= ============== ============= =============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET INCOME (LOSS) $ (9,039,567) $ (2,458,128) $ (29,611,093) $ 44,568
Other comprehensive income (no tax effect):
Foreign currency translation
adjustments (21,714) (5,608) (71,307) (68,755)
------------- -------------- ------------- -------------
COMPREHENSIVE INCOME (LOSS) $ (9,061,281) $ (2,463,736) $ (29,682,400) $ (24,187)
============= ============== ============= =============
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
VERDANT BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (29,611,093) $ 44,568
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 1,012,808 1,388,551
Impairment of intangible assets 8,719,036
Valuation adjustment to buildings 1,200,000
Amortization of deferred debt issuance costs 72,674 22,711
Loss (gain) on disposal of assets 569,413 (7,656)
Loss from investment in joint venture 31,951
(Increase) decrease in assets:
Trade accounts and notes receivable 4,612,905 (3,854,795)
Inventories 10,469,009 2,138,036
Prepaid expenses (490,999) 204,324
Increase (decrease) in liabilities:
Accounts payable 4,540,638 (6,356,211)
Accrued expenses 523,787 (509,380)
------------- -------------
Net cash used in operating activities 1,650,129 (6,929,852)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (38,752) (458,326)
Proceeds from sale of equipment 347,981 101,200
Investment in patent and trademark applications (52,639) (29,400)
------------- -------------
Net cash (used in) provided by investing activities 256,590 (386,526)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from bank line of credit (872,828) 3,995,501
Proceeds on receivable from sale of common stock 65,625 144,375
Borrowings from long term debt - 2,106,246
Principal payments on long-term debt (956,967) (628,971)
------------- -------------
Net cash received from financing activities (1,764,170) 5,617,151
Effect of exchange rate changes on cash (16,085) (6,649)
------------- -------------
Increase (decrease) in cash and cash equivalents 126,464 (1,705,876)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 122,226 1,783,800
------------- -------------
END OF PERIOD $ 248,690 $ 77,924
============= =============
</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 NINE MONTHS ENDED SEPTEMBER 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 nine months ended
September 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 Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Earnings (Loss) Per Share - Basic
Net income (loss) $ (9,039,567) $ (2,458,128) $ (29,611,093) $ 44,568
------------- ------------- ------------- --------------
Weighted average shares 5,112,850 5,134,004 5,112,850 5,166,568
------------- ------------- ------------- --------------
Net income (loss) per share $ (1.77) $ (.48) $ (5.79) $ .01
============= ============= ============= ==============
Earnings (Loss) Per Share - Assuming Dilution
Net income (loss) $ (9,039,567) $ (2,458,128) $ (29,611,093) $ 44,568
------------- ------------- ------------- --------------
Weighted average shares 5,112,850 5,134,004 5,112,850 5,166,568
Dilutive impact of options and warrants [*] [*] [*] 1,501
------------- ------------- ------------- --------------
Weighted average shares and potential
dilutive shares outstanding 5,112,850 5,134,004 5,112,850 5,168,069
------------- ------------- ------------- --------------
Net income (loss) per share $ (1.77) $ (.48) $ (5.79) $ .01
============= ============= ============= ==============
</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
nine months ended September 30, 2000.
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.
5
<PAGE> 6
Note 3. Inventory consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
Raw Materials $ 5,742,499 $ 4,140,908
Finished Goods 5,587,682 14,983,292
------------- -------------
$ 11,330,181 $ 19,124,200
============= =============
</TABLE>
Note 4. LONG-TERM DEBT
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Line of credit, long-term portion $ - $ 11,375,000
Notes payable 4,279,390 4,965,466
Mortgage loans 1,123,260 1,522,024
Capital lease obligations 114,622 109,798
Less current portion (5,517,272) (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
$1,021,257 at September 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 agreements, 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 General Electric Capital Corporation ("GE Capital"),
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 Capital 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 September 30, 2000. GE Capital has been unwilling to waive
noncompliance. GE Capital issued a default notice to the Company
on June 5, 2000. Due to the Company's default, GE Capital 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 Capital to address the default and the Company's
financial problems. GE Capital 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 Capital
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 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
September 30, 2000.
In connection with the GE Capital 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.
6
<PAGE> 7
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 September 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 Capital
credit facility, including the GE Capital line of credit, totaled
$16,572,468 as of September 30, 2000. Outstanding borrowings on
the GE Capital term note totaled $1,263,023 (net of $195,311 in
deferred debt issuance costs) as of September 30, 2000.
Note 6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash (paid) received for interest during the period for:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Interest paid $ (2,438,426) $ (1,651,650)
Interest received 47,272 91,211
</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 10.3% and 5.6% of total sales for the three months
ended September 30, 2000 and 1999, and approximately 9.5% and 7.0%
of total sales for the nine months ended September 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 September 30, 2000: Domestic Foreign Total
-------------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
Net Sales $ 9,207,136 $ 1,059,032 $ 10,266,168
Net Income (loss) (8,573,289) (466,278) (9,039,567)
Identifiable Assets 22,745,874 3,056,277 25,802,151
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999: Domestic Foreign Total
-------------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
Net Sales $ 13,057,143 $ 780,141 $ 13,837,284
Net Income (loss) (2,181,364) (276,764) (2,458,128)
Identifiable Assets 53,987,224 2,932,618 56,919,842
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000: Domestic Foreign Total
------------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
Net Sales $ 46,883,842 $ 4,901,590 $ 51,785,432
Net Income (loss) (29,215,889) (395,204) (29,611,093)
Identifiable Assets 22,745,874 3,056,277 25,802,151
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999: Domestic Foreign Total
-------------------------------------- -------------- -------------- ------------
<S> <C> <C> <C>
Net Sales $ 58,997,863 $ 4,430,032 $ 63,427,895
Net Income (loss) 195,437 (150,869) 44,568
Identifiable Assets 53,987,224 2,932,618 56,919,842
</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
7
<PAGE> 8
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 nine months ended
September 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 September 30, 2000: Consumer Commercial Dealer Total
-------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales................................. $ 2,231,554 $ 2,678,578 $ 5,356,036 $ 10,266,168
Net Income (loss)......................... (5,817,282) (164,330) (3,057,955) (9,039,567)
Depreciation and Amortization............. 85,921 59,588 (11,054) 134,455
Interest Expense.......................... (406,228) (209,962) (218,620) (834,810)
Interest Income........................... - 5,318 - 5,318
Capital Expenditures...................... 6,520 - - 6,520
Identifiable Assets....................... $ 12,042,241 $ 6,740,971 $ 7,018,939 $ 25,802,151
</TABLE>
<TABLE>
<CAPTION>
Commercial
Three Months Ended September 30, 1999: Consumer Commercial Dealer Total
------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales................................. $ 4,877,034 $ 1,773,039 $ 7,187,211 $ 13,837,284
Net Income (loss)......................... (2,384,319) (414,149) 340,340 (2,458,128)
Depreciation and Amortization............. 315,000 44,097 44,307 403,404
Interest Expense.......................... (549,866) (41,297) (81,131) (672,294)
Interest Income........................... 8,550 21,447 -- 29,997
Capital Expenditures...................... 88,381 10,119 24,705 123,205
Identifiable Assets....................... $ 31,666,233 $ 13,542,826 $ 11,710,783 $ 56,919,842
</TABLE>
<TABLE>
<CAPTION>
Commercial
Nine Months Ended September 30, 2000: Consumer Commercial Dealer Total
------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales................................. $ 21,698,385 $ 9,724,011 $ 20,363,036 $ 51,785,432
Net Income (loss)......................... (17,485,284) (8,379,865) (3,745,944) (29,611,093)
Depreciation and Amortization............. 598,251 192,611 221,946 1,012,808
Interest Expense.......................... (1,267,875) (659,371) (511,180) (2,438,426)
Interest Income........................... - 47,272 - 47,272
Capital Expenditures...................... 38,752 - - 38,752
Identifiable Assets....................... $ 12,042,241 $ 6,740,971 $ 7,018,939 $ 25,802,151
</TABLE>
<TABLE>
<CAPTION>
Commercial
Nine Months Ended September 30, 1999: Consumer Commercial Dealer Total
------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales................................. $ 29,535,124 $ 11,189,889 $ 22,702,882 $ 63,427,895
Net Income (loss)......................... (1,106,896) (73,534) 1,224,998 44,568
Depreciation and Amortization............. 898,456 244,467 245,628 1,388,551
Interest Expense.......................... (1,499,113) (215,468) (81,131) (1,795,712)
Interest Income........................... 13,438 41,255 67,266 121,959
Capital Expenditures...................... 238,616 37,642 182,068 458,326
Identifiable Assets....................... $ 31,666,233 $ 13,542,826 $ 11,710,783 $ 56,919,842
</TABLE>
8
<PAGE> 9
Note 9. COMMITMENTS AND CONTINGENCIES
Subcontract Manufacturing - The Company relies on outside
subcontractors for nearly all of its consumer products
manufacturing needs, and manufactures 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 as of September 30, 2000 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 was 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.
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 August 31, 2000, the Company was notified by the Nasdaq Stock
Market that the Company had failed to maintain the minimum
$4,000,000 net tangible assets as required by Nasdaq rules for
continued listing on the Nasdaq National Market. On the date of
notification the Company's net tangible assets were ($8,461,845).
As a result, the Company's common stock was delisted from the
Nasdaq National Market at the opening of business on September
11,2000.
9
<PAGE> 10
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
led 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 , 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 Capital 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.
The principal assets of the Commercial Dealer segment have now been
sold. On October 11, 2000 the Company completed the sale of the Valley Green
assets. On November 8, 2000, the majority of the Pacoast assets were sold. The
Company has been in negotiations with parties interested in acquiring portions
of the Company's retail business assets. As announced in the press release of
September 14, 2000, a letter of intent was signed to sell the environmentally
sensitive retail products line and related assets to Woodstream Corporation.
Since that time, the Company has agreed to acquiesce in the decision of GE
Capital to foreclose its security interest in the assets being acquired by
Woodstream Corporation and to thereafter transfer those assets to Woodstream,
with the sales price being paid by Woodstream Corporation being applied by GE
Capital to the reduction of the Company's secured indebtedness to GE Capital.
The Company has also signed a letter of intent with HPI Products for the sale of
its traditional retail business lines to HPI Products and it is anticipated that
the sale of the assets associated with those product lines will be completed
before the end of November, 2000. Negotiations are continuing with other
interested parties toward a divestiture of the remaining traditional retail and
traditional commercial business assets. The Company's only remaining business
would be the environmentally friendly commercial products segment and represents
approximately one third of the Company's current assets. The status of this
business is currently under review, but no decision will be made concerning this
business until the sales of the other business lines have been completed. A
letter of intent has been received by the Company to purchase the commercial
traditional product lines. Negotiations are in process with the potential buyer.
In view of the Company's efforts to sell a majority 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. In addition, the Company's ability
to continue will depend on the willingness of secured and unsecured creditors to
accept a debt restructuring plan to be proposed after the sale of the retail
business assets. 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 assets of the Company,
however, there is no assurance that the Company will be successful in
negotiating such an agreement.
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<PAGE> 11
On August 31, 2000, the Company was notified by the Nasdaq Stock Market
that the Company had failed to maintain the minimum $4,000,000 net tangible
assets as required by Nasdaq rules for continued listing on the Nasdaq National
Market. On the date of notification the Company's net tangible assets were
($8,461,845). As a result, the Company's common stock was delisted from the
Nasdaq National Market at the opening of business on September 11, 2000 and is
now traded on the Nasdaq bulletin board.
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 Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 97.4 75.7 82.0 69.1
---------- ---------- ---------- ----------
Gross profit 2.6 24.3 18.0 30.9
Operating Expenses:
Distribution 12.7 8.2 9.7 7.4
Sales & Marketing 22.7 15.2 14.4 10.9
General & Administrative 14.1 7.9 16.2 6.2
Product Registrations & Development 6.7 3.7 4.1 2.7
Restructuring Expense - - 3.3 -
Amortization of Intangibles .1 2.3 .7 1.1
Impairment of Intangibles - - 16.8 -
Sale of Assets 22.7 - 4.5 -
---------- ---------- ---------- ----------
79.0 37.3 69.7 28.3
---------- ---------- ---------- ----------
Income (loss) before other expense (76.4) (13.0) (51.6) 2.6
Other expense, net (11.7) (4.7) (5.6) (2.5)
---------- ---------- ---------- ----------
Net income (loss) (88.1)% (17.7)% (57.2)% .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
nine months ended September 30.
Comparison of the three months ended September 30, 2000 to the three months
ended September 30, 1999
Net Sales. Net sales decreased $3,571,116 or 25.8% to $10,266,168 in
the three months ended September 30, 2000 compared to $13,837,284 for the three
months ended September 30, 1999. The decrease was primarily the result of
$2,645,480 in lower retail segment sales and $1,831,175 in lower commercial
dealer 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 and customer concerns of the Company's status and shortages
in inventory. The lower commercial dealer segment sales was resulted primarily
from the unavailability of inventory caused by restricted available borrowings.
Gross Margins. Gross margins as a percent of sales decreased 21.7
percentage points to 2.6% for the three months ended September 30, 2000 compared
to 24.3% for the three months ended September 30, 1999. This was due primarily
to increased cost by vendors as the Company was entirely on a cash on delivery
basis. Also, an additional obsolete excess inventory
11
<PAGE> 12
provision of $1,000,000 was recorded. The remaining percentage 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 $1,307,065 for the three months ended September 30, 2000
from $1,139,986 for the three months ended September 30, 1999, and increased as
a percentage of sales to 12.7% for the three months ended September 30, 2000
from 8.2% for the three months ended September 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 $224,332 or
10.7% to $2,326,788 for the three months ended September 30, 2000 from
$2,102,456 for the three months ended September 30, 1999, and increased as a
percentage of sales to 22.7% for the three months ended September 30, 2000
compared to 15.2% 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 $360,725 or 33.1% to
$1,450,608 for the three months ended September 30, 2000 from $1,089,883 for the
three months ended September 30, 1999. The increase was due to increased
professional fees related to receivables collections, legal fees and agency fees
related to the sale of businesses.
Product registration and development expenses increased $172,751 or
33.4% to $689,426 for the three months ended September 30, 2000 compared to
$516,675 for the three months ended September 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.
Amortization of intangibles decreased $311,647 or 96.2% to $12,232 for
the three months ended September 30, 2000 compared to $323,879 for the three
months ended September 30, 1999. The decrease was due to the second quarter
writedowns of goodwill.
Sale of assets includes a provision of $2,329,255 and consists of
charges taken in the third quarter of 2000 to record a loss on the sale of
Valley Green of $705,826 and the pending November 7, 2000 sale of a majority of
Pacoast assets of $1,623,429.
Other Expense, Net. Net other expense increased by $538,116 or 82.3% to
$1,192,103 for the three months ended September 30, 2000 compared to net other
expense of $653,987 for the three months ended September 30, 1999. The increase
was due in part 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 nine months ended September 30, 2000 to the nine months ended
September 30, 1999
Net Sales. Net sales decreased 11,642,463 or 18.4% to $51,785,432 in
the nine months ended September 30, 2000 compared to $63,427,895 for the nine
months ended September 30, 1999. The decrease was primarily the result of
$7,836,739 in lower retail segment sales and $1,465,868 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. The lower commercial segment sales resulted primarily from
the loss of the Sevin(R) brand pesticide and other discontinued products and the
reduced availability of product due to restricted borrowing.
Gross Margins. Gross margins as a percent of sales decreased 12.9
percentage points to 18.0% for the nine months ended September 30, 2000 compared
to 30.9% for the nine months ended September 30, 1999. Approximately 5.0
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. Approximately 2.0
percentage points of the decrease was due to the $1,000,000 obsolete excess
inventory provision that was recorded in the third quarter. The remaining
percentage 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 $293,572 in
absolute dollars or 6.2% to $5,024,532 for the nine months ended September 30,
2000 from $4,730,960 for the nine months ended September 30, 1999, and increased
as a percentage of sales to 9.7% for the nine months ended September 30, 2000
from 7.4% for the nine months ended September 30,
12
<PAGE> 13
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 $535,910 or
7.8% to 7,440,496 for the nine months ended September 30, 2000 from $6,904,586
for the nine months ended September 30, 1999, and increased as a percentage of
sales to 14.4% for the nine months ended September 30, 2000 compared to 10.9%
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 $4,475,725 or 115% to
$8,381,943 for the nine months ended September 30, 2000 from $3,906,218 for the
nine months ended September 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. An 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 $416,932 or
24.5% to $2,118,147 for the nine months ended September 30, 2000 compared to
$1,701,215 for the nine months ended September 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 were incurred in the second
quarter of 2000 and 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 $339,737 to $350,846 for the nine
months ended September 30, 2000 compared to $690,583 for the nine months ended
September 30, 1999. The decrease was due to the reduction in goodwill resulting
of final valuation adjustments recorded in the fourth quarter of 1999 and
writedown of goodwill in the Second Quarter.
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.
Sale of assets includes a provision of $2,329,255 and consists of
charges taken in the third quarter of 2000 to record a loss on the sale of
Valley Green of $705,826 and the pending November 7, 2000 sale of a majority of
Pacoast assets of $1,623,429.
Other Expense, Net. Net other expense increased by $1,259,208 or 78.2%
to $2,870,155 for the nine months ended September 30, 2000 compared to net other
expense of $1,610,947 for the nine months ended September 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 $126,464 during the nine months ended September 30,
2000. The increase in cash reflects the following: Cash provided by operating
activities of $1,650,129 resulting primarily from the decrease in accounts
receivable and inventories; cash provided by investing activities of $256,590,
primarily from the sale of equipment; cash used in financing activities of
1,764,170, primarily from reduced net borrowings on the Company's line of credit
and in part by payments on long-term debt.
13
<PAGE> 14
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 General Electric Capital Corporation
("GE Capital"), 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 Capital 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
September 30, 2000. GE Capital has been unwilling to waive noncompliance. GE
Capital issued a default notice to the Company on June 5, 2000. Due to the
Company's default, GE Capital 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 Capital to address the default and the Company's financial problems. GE
Capital 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
Capital 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 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 September 30, 2000.
In connection with the GE Capital 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 September 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
Capital credit facility, including the GE Capital line of credit, totaled
$16,572,468 as of September 30, 2000. Outstanding borrowings on the GE Capital
term note totaled $1,263,023 (net of $195,311 in deferred debt issuance costs)
as of September 30, 2000.
As of December 31, 1999, March 31, 2000, June 30, 2000 and September
30, 2000, Sureco, a wholly owned subsidiary, was in default on a note payable to
B&I Lending, totaling $1,021,257 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
14
<PAGE> 15
Commission that attempt to advise interested parties of the risks and
uncertainties that may affect the Company's financial condition and results of
operations.
---------
15
<PAGE> 16
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. The Company is 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. The Company is party to a significant number
of other legal proceedings that have been initiated by suppliers to whom the
Company is in default in payment of accounts payable. Some of the claims raised
in these legal proceedings have been reduced to judgement. These claims and
judgements against the Company could have a material impact on the Company's
business if management is not successful in negotiating settlements or
standstill agreements with the persons initiating the legal proceedings.
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
Capital contains covenants that the Company will maintain certain levels of
interest coverage and net worth with which the Company was not in compliance at
September 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 Capital 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 Capital has been unwilling to waive this event of noncompliance and
has notified the Company of its default under the credit agreement. GE Capital
has yet to exercise its full rights under the credit agreement. The Company's
debt to GE Capital in default, consisting of its line of credit and term note,
totaled $17,835,491 as of September 30, 2000.
-------------
16
<PAGE> 17
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).
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 and Amendment No 2. to the Company's 1996
Employee Stock Option Plan (incorporated by reference to
Exhibit 10.4 of the Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended June 30, 2000, SEC File No.
0-18921).
* 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).
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<PAGE> 18
* 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.)
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 (incorporated by reference to
Exhibit 10.26 of the Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended June 30, 2000, SEC File
No. 0-18921).
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 September 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: November 14, 2000 By /s/ Dean Bachelor
----------------------------------
Dean Bachelor
Chief Executive Officer
Dated: November 14, 2000 By /s/ Mike Blair
----------------------------------
Mike Blair
Chief Financial Officer
(principal financial officer)
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