U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
Form 10-KSB/A (Amendment No. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number:0-19899
U.S. HOME & GARDEN INC.
(exact name of Registrant as specified in its charter)
Delaware 77-0262908
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
655 Montgomery Street, San Francisco CA 94111
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (415) 616-8111
Securities registered pursuant to Section 12(b) of the Act
None.
Securities registered pursuant to Section 12(g) of the Act
Common Stock, $.001 par value and Class A Common Stock Purchase Warrants
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
The issuer's revenues for its fiscal year ended June 30, 1995 were
$19,691,859.
The aggregate market value of the Common Stock held by non-affiliates of
the issuer (based upon the closing bid price) on September 21, 1995 was
approximately $33,247,000.
As of September 21, 1995, 10,116,992 shares of the issuer's Common Stock,
par value $.001 per share were outstanding.
Transitional Small Business Disclosure Format
Yes _____ No X____
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
General
The Company was organized in August 1990. From inception through June 30,
1992, the Company engaged in only limited operations and had not generated any
operating revenue, other than, limited revenue of approximately $44,000 from
preliminary test marketing. From August 2, 1990 (date of inception) to June 30,
1992, the Company expended approximately $900,000 for operating (including
accounting and legal) costs in connection with developing and implementing a
business plan and marketing strategy, conducting preliminary test marketing,
selecting management personnel, establishing its executive offices and
computerized operating systems, determining inventory requirements, securing a
product and manufacturing agreement with Agri-Mart, Inc. and consummating a
sales assistance agreement. Initial shipments of the Company's Garden Thunder
Organic lawn and garden care products, which, except for Garden Thunder Liquid
Lime, are no longer marketed by the Company, commenced in March, 1993. Shipments
of Power Gardeners(TM) commenced in January 1994. See Item 1. "Description of
Business -- Lawn and Garden Care Products."
On August 19, 1992, the company acquired all of the issued and outstanding
common stock of Golden West. The acquisition was accounted for as a purchase
and, accordingly, the results of operations have been included in the
consolidated statement of operations of the Company since August 19, 1992.
On September 1, 1994 (the "Closing Date"), Easy Gardener acquired all of
the assets used in connection with the lawn and garden business of Easy
Gardener, Inc. ("EGI"), and accordingly, the results of the operations have been
included in the consolidated statement of operations of the Company since
September 1, 1994. The purchase price of $20,500,000 (subject to adjustment as
described below) was paid by the delivery of (i) $8,000,000 in cash (ii) a
promissory note (the "Note") issued by Easy Gardener in the initial principal
amount of $10,500,000, and (iii) two convertible promissory notes (the
"Convertible Notes") issued by the Company each in the initial principal amount
of $1,000,000. The note was paid from the proceeds of the Company's bank
financing in September 1994. The Convertible Notes plus accrued interest were
each converted into 457,198 shares of the Company's common stock and Class B
warrants to acquire 457,198 shares of common stock at an exercise price of $2.28
per share. The convertible Notes were automatically converted upon the February
1995 approval by the stockholders of the Company of an Amendment to the
Company's Certificate of Incorporation increasing the amount of the Company's
authorized common stock to 30,000,000 shares. The purchase price was subject to
increase, if and to the extent that on the date of closing the current assets of
EGI exceeded current liabilities by $6,600,000. This additional amount
approximated $783,000 at the date of closing and was paid in October 1994. In
addition,
-3-
<PAGE>
approximately $2,200,000 was contingently payable to EGI over the four years
following the closing date based upon the acquired business generating certain
specified levels of net income.
As a result of an evaluation of sales of certain products and the effect of
such sales on results of operations for the fiscal year ended June 30, 1994, the
Company decided to concentrate future marketing efforts on products that
management believes have the greatest sales potential. As part of this decision,
the Company has ceased marketing its insect and animal control products and its
three Garden Thunder organic lawn and plant care products and intends to sell
only its liquid lime product and remaining inventory of Power Gardeners. As a
result of such restructuring plan, the Company recorded a restructuring charge
of approximately $3,400,000 during its fiscal year ended June 30, 1994,
primarily through the write-downs of inventory, including write-downs relating
to the Power Gardener, and intangible assets. The Company is currently seeking a
purchaser for the product rights and molds associated with The Power Gardener
which represented approximately $1,120,000 of the Company's assets as of June
30, 1995. The Company expects to significantly reduce the carrying value of such
assets if no transaction is consummated by June 1996.
The Company has broadened the number of products it sells through Easy
Gardener by entering into an agreement in which it has acquired the exclusive
right to distribute the Solartex brand of shade fabric commencing October 1,
1995. The Company believes that its ability to market shade cloth as well as the
two types of patented lawn edging product acquired by the Company in August 1995
will help extend its selling season beyond the traditional spring and summer
seasons for most lawn and garden products.
Year Ended June 30, 1995 Compared to Year Ended June 30, 1994
During the year ended June 30, 1995 the Company had consolidated net sales
of $19,691,859, (of which $18,256,160 is attributable to the inclusion of ten
months sales of Easy Gardener and approximately $1,300,000 is attributable to
Golden West sales), compared to consolidated net sales of $3,063,297 for the
year ended June 30, 1994. Sales of the Company's lawn and garden care products
decreased by $1,492,126 during the year ended June 30, 1995 compared to the year
ended June 30, 1994, primarily due to the Company's decision during the quarter
ended June 30, 1994 to decrease and eventually eliminate the marketing of
certain of these products, and to concentrate future marketing efforts primarily
on
-4-
<PAGE>
Easy Gardener's products and agricultural products sold through Golden West.
The Company's consolidated cost of goods sold and gross profit margin
generated during the year ended June 30, 1995 were also significantly higher
than the comparable period in 1994 primarily due to the inclusion of the results
of Easy Gardener for the ten months during the 1995 period.
The Company's consolidated selling and shipping expenses increased to
$4,373,681 during the year ended June 30, 1995 from $1,527,413 during the
comparable period in 1994 primarily as a result of the inclusion of ten months
of expenses (approximately $3,697,057) of Easy Gardener. The increase due to the
inclusion of Easy Gardener was partially offset by a $850,789 decrease in
selling and shipping expenses for operations not related to Easy Gardener during
the year ended June 30, 1995 compared to the year ended June 30, 1994. The
decrease was due, in part, to the decrease in staffing and other costs, such as
marketing, freight, commission and consulting expenses, associated with the
discontinuation of sales of some of the Company's lawn and garden care products.
The Company's consolidated general and administrative expenses increased to
$2,996,238 during the year ended June 30, 1995 from $1,855,722 during the
comparable period in 1994 primarily as a result of the inclusion of ten months
general and administrative expenses (approximately $1,797,943) of Easy Gardener.
The increase due to the inclusion of Easy Gardener was partially offset by a
$657,427 decrease in general and administrative expenses for operations not
related to Easy Gardener during the year ended June 30, 1995 compared to the
year ended June 30, 1994. The decrease resulted primarily from a reduction in
salaries, professional fees, bad debt expense and other administrative costs
relating to discontinued products.
The Company's consolidated interest expense increased to $1,591,329 during
the year ended June 30, 1995 from $68,414 during the year ended June 30, 1994
primarily due to the increase in outstanding indebtedness which was incurred in
connection with the purchase of the assets of EGI in September of 1994.
The Company's consolidated income tax expense increased to $38,000 for the
year ended June 30, 1995 from $0 during the year ended June 30, 1994 primarily
due to Easy Gardener's state franchise tax. No federal income tax expense was
incurred during the fiscal year ended June 30, 1995 primarily as a result of a
tax deduction of approximately $2,000,000 for restructuring expenses.
As a result of the foregoing the Company achieved a consolidated net income
of $1,574,779 for the year ended June 30, 1995 compared to a consolidated net
loss of $5,218,851 (which included a restructuring charge of $3,402,732) for the
year ended June 30, 1994.
-5-
<PAGE>
Liquidity and Capital Resources
The Company has financed its operations primarily through net proceeds from
the Company's private and public sales of securities and borrowings from lending
institutions and from its president.
At June 30, 1995, the Company had consolidated cash and short-term
investments totalling approximately $970,000 and working capital of
approximately $3,926,000. Compared to June 30, 1994 the Company had consolidated
cash and short-term investments totalling approximately $589,000 and a working
capital (deficit) of approximately ($347,000). The increase in cash and
short-term investments and working capital from June 30, 1994 is due primarily
to the acquisition of assets of EGI.
Net cash provided by operating activities for the year ended June 30, 1995
was $437,662, consisting primarily of net income plus depreciation and a
decrease in inventory offset in part by an increase in accounts receivable
related to increased sales volume. Net cash used in investing activities for the
year ended June 30, 1995 was $15,576,447, consisting primarily of cash used for
the acquisition of assets of EGI and, to the lesser extent, capital expenditures
primarily for the EGI facility, offset in part by the sale of short term
investments. Net cash provided by financing activities for the year ended June
30, 1995 was $16,021,424, consisting primarily of the proceeds of bank term
loans and proceeds from issuances of stock.
At June 30, 1995 the Company had consolidated term debt of $10,200,000
which was incurred in connection with the purchase of assets of EGI. In
connection with the acquisition of EGI, Easy Gardener obtained a $6,000,000 five
year term loan facility bearing interest at the prime rate plus 2%, which was
payable in quarterly installments commencing January 1, 1995; and a $4,000,000
seven year term loan facility bearing interest at the rate of 12% per annum
which was payable in quarterly installments of $500,000 commencing January 1,
2000. In connection with the acquisition, the Company also secured a $3,000,000
revolving credit facility to finance working capital. In December 1994, the
original bank and another financial institution as co-lenders, modified the
revolving facility and the term loan facilities. The revolving facility was
increased to $5,000,000, the five year term loan was increased to $8,000,000 and
the seven year term loan was reduced to $3,000,000. Advances under the revolving
facility bear interest at a floating annual rate of 2% over one of the lending
institution's prime rate, the five year term loan bears interest at the annual
rate of 12.25% and the seven year term loan bears interest at the annual rate of
12%. Interest payments on all the facilities are due monthly. The revolving
facility expires on December 31, 1999 and all advances under such facility are
then due unless they are required to be paid earlier under the terms of the loan
agreement between Easy Gardener and the lenders. Principal of the five year term
loan is payable in monthly installments. However, the five year term loan is
subject to certain mandatory prepayments of "excess cash flow"
-6-
<PAGE>
of Easy Gardener and certain net proceeds of asset sales, condemnation awards
and insurance recoveries. Also, certain optional prepayments of advances under
the revolving facility and the five year term loan require the payment of a
premium of between 1% and 4% of the amount prepaid. The seven year term loan
facility requires Easy Gardener to pay a fee when the loan is repaid ranging
from a $300,000 fee at the end of the first year to a $4,140,000 fee at the end
of the seventh year. The obligations of Easy Gardener under the loan facilities
are secured by all the assets of Easy Gardener and a guaranty of the Company.
The Company anticipates that in October 1995 it will be required to make a
mandatory prepayment of approximately $600,000 under the five year term loan,
which amount represents the "excess cash flow" of Easy Gardener as defined in
the loan facility. The prepayment will be used to reduce the outstanding
principal balance of the loan.
The revolving facility is available primarily as an advance against Easy
Gardener's outstanding receivables and inventory. The line is collateralized by
a security interest in Easy Gardener's receivables and inventory. The line of
credit is limited to a formula based on the outstanding accounts receivable and
inventory balances. As of June 30, 1995, based on this formula approximately
$3,000,000 was available for borrowing by Easy Gardener and of that amount $0
was outstanding.
In August 1995 the Company expanded its Easy Gardener(R) product line to
include two types of patent pending rigid landscaping edging that can be
hammered directly into the ground. The expansion was accomplished through the
Easy Gardener's acquisition of the assets, including molds and inventory, of
Dallas, Texas based Emerald Products LLC for a purchase price of $935,000 which
was paid in cash and equivalents.
The Company's cash flow and capital requirements are typically affected by
the seasonal nature of its business. Sales of the Company's lawn and garden care
products including Easy Gardener will be highly seasonal,with the shipments of
products expected to be heavily concentrated in the spring and summer. Sales of
Golden West's products are also seasonal. Most shipments of Golden West's
products occur during the period from March through October (the agricultural
cultivation period). The Company's results of operations may be severely
adversely affected by poor weather conditions. Prolonged periods of poor weather
conditions could result in reduced consumer purchases of do-it-yourself lawn and
garden care products and reduced agricultural plantings, thereby reducing sales
of the Company's products. In addition, unexpected production or transportation
difficulties occurring at a time of peak production on sales could cause sales
losses which would not be readily reversed before the following year.
As part of its plan to provide for its future working capital needs the
Company has, among other things, reduced certain overhead expenses through a
reduction in personnel and by subletting a portion of certain office space, and
since inception has issued approximately $865,000 of equity securities to trade
vendors to
-7-
<PAGE>
satisfy outstanding accounts payable.
Based on the Company's current profitable operations and EGI's recent
historical cash flow the Company believes that the operations of Easy Gardener
will generate sufficient cash flow to service the debt incurred in connection
with the acquisition of EGI's assets. However, if such cash flow is not
sufficient to service the debt, the Company will be required to seek additional
financing which may not be available on commercially acceptable terms or at all.
In addition, the Company will be required to amortize as an expense
approximately $13,674,000 over a period of 30 years in connection with the
amortization of the goodwill related to the purchase of EGI (being the value of
the cost over the value of the net assets acquired). The Company is already
amortizing approximately $105,000 per year of goodwill relating to a prior
acquisition. In addition, the Company will be required to amortize approximately
$1,476,000 of deferred financing costs over a period of 5 to 7 years in
connection with the funds borrowed to finance the purchase of EGI.
As of June 30, 1995, the Company has accumulated approximately $3,925,000
of net operating losses for federal tax purposes and approximately $2,750,000
for California income tax purposes that can be carryforward to offset future
taxable income. The Company cannot utilize these tax losses until its operations
become profitable. If the Company produces taxable income in the future, it will
be able to utilize these net operating loss carryforwards to satisfy its tax
liabilities to the extent of such carryforwards. Primarily as a result of the
net operating losses the Company has recorded a deferred tax asset of $1,851,000
at June 30, 1995. The Company has recorded a 100% valuation allowance against
the deferred tax asset since management cannot determine that it is more likely
than not that the deferred tax asset can be realized.
The Company believes that the cash generated from operations, available
borrowings and net proceeds from warrants exercised to purchase common stock,
will be sufficient to fund its operations at least through fiscal 1996.
-8-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this amendment to the report to be signed on its behalf by the
undersigned duly authorized.
U.S. Home & Garden Inc.
(Registrant)
By:/s/Robert Kassel
-------------------------
Robert Kassel, President
Dated: May 20, 1997
-9-
