SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
From the transition period from ________________to_________________
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 (IRS Employer
of incorporation or organization) Identification Number)
655 Montgomery Street
San Francisco, California 94111
(Address of Principal Executive Offices) (Zip Code)
(415) 616-8111
(Registrant's Telephone Number, Including Area Code)
Indicate by check 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 the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
As of May 5, 2000 there were 18,935,083 shares of the issuer's common stock, par
value $.001 per share, outstanding.
<PAGE>
Part I. - Financial Information
Item 1. - Consolidated Financial Statements
Consolidated balance sheet as of June 30, 1999
and March 31, 2000 (Unaudited) 1-2
Consolidated statements of income for the three months and
nine months Ended March 31, 1999 and 2000 (Unaudited) 3-4
Consolidated statements of cash flows for the three months and
nine months Ended March 31, 1999 and 2000 (Unaudited) 5-6
Notes to consolidated financial statements 7-9
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10-17
Item 3. - Quantitative and Qualitative Disclosures about Market Risk 17
Part II. - Other Information
Item 1. - Legal Proceedings 18
Item 2. - Changes in Securities and Use of Proceeds 18
Item 6. - Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Balance Sheet
================================================================================
<TABLE>
<CAPTION>
June 30, 1999 March 31, 2000
------------- --------------
(Unaudited)
<S> <C> <C>
Assets
Current
Cash and cash equivalents $ 2,936,000 $ 6,237,000
Restricted cash 1,000,000 1,582,000
Accounts receivable, less allowance for doubtful accounts
and sales returns of $991,000 and $1,595,000 20,242,000 33,014,000
Inventories 16,986,000 15,767,000
Prepaid expenses and other current assets 1,137,000 775,000
Deferred tax asset 500,000 300,000
- -----------------------------------------------------------------------------------------------------------------------
Total Current Assets 42,801,000 57,675,000
Property and Equipment, net 11,634,000 12,213,000
Intangible Assets
Excess of cost over net assets acquired, net 75,573,000 73,709,000
Deferred financing costs, net of accumulated
amortization of $167,000 and $329,000 3,524,000 3,205,000
Product rights, patents and trademarks, net of
accumulated amortization of $271,000 and $39,000 571,000 563,000
Non-compete agreement, net of accumulated
amortization of $77,000 and $99,000 1,433,000 1,411,000
Package design, net of accumulated amortization of
$533,000 and $801,000 1,096,000 1,357,000
Officer Receivables 725,000 727,000
Other Assets 107,000 387,000
- -----------------------------------------------------------------------------------------------------------------------
$ 137,464,000 $151,247,000
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Balance Sheet
================================================================================
<TABLE>
<CAPTION>
June 30, 1999 March 31, 2000
------------- --------------
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current
Working capital line of credit $ -- $ 11,000,000
Current portion of notes payable -- 2,000,000
Accounts payable 4,432,000 6,599,000
Accrued expenses 2,314,000 2,816,000
Accrued co-op advertising 1,499,000 1,248,000
Accrued commissions 1,682,000 1,590,000
- -----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 9,927,000 25,253,000
Deferred Tax Liability 1,600,000 2,000,000
Other Liabilities 703,000 552,000
Acquisition Line of Credit 15,500,000 16,000,000
Company Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust
Holding Solely Junior Subordinated Debentures 63,250,000 58,330,000
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities 90,980,000 102,135,000
- -----------------------------------------------------------------------------------------------------------------------
Minority Interest in Equity of Affiliates -- 4,510,000
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock, $.001 par value - shares authorized,
1,000,000; no shares outstanding -- --
Common stock, $0.001 par value-shares authorized,
75,000,000; 21,219,000 and 21,463,000 shares
issued at June 30, 1999 and March 31, 2000 21,000 21,000
Additional paid-in capital 50,542,000 50,663,000
Retained earnings 4,703,000 4,493,000
- -----------------------------------------------------------------------------------------------------------------------
55,266,000 55,177,000
Less: Treasury Stock, 1,805,000 and 2,533,000 shares
at cost at June 30, 1999 and March 31, 2000 (8,782,000) (10,575,000)
- -----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 46,484,000 44,602,000
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities & Stockholders' Equity $ 137,464,000 $ 151,247,000
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statements of Income
================================================================================
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- ---------------------
1999 2000 1999 2000
Unaudited Unaudited
------------------- ---------------------
<S> <C> <C> <C> <C>
Net Sales $ 34,769,000 $ 36,494,000 $ 61,522,000 $ 63,624,000
Cost of Sales 16,565,000 19,218,000 29,628,000 33,814,000
Unusual Item -- 928,000 -- 928,000
- --------------------------------------------------------------------------------------------------------
Gross Profit 18,204,000 16,348,000 31,894,000 28,882,000
Operating Expenses
Selling and shipping 5,862,000 7,305,000 12,807,000 14,677,000
General and administrative 1,410,000 1,196,000 6,564,000 7,370,000
Depreciation 411,000 427,000 1,002,000 1,210,000
Goodwill amortization 698,000 721,000 1,919,000 2,173,000
Other amortization 120,000 278,000 378,000 487,000
- --------------------------------------------------------------------------------------------------------
8,501,000 9,927,000 22,670,000 25,917,000
- --------------------------------------------------------------------------------------------------------
Income from Operations 9,703,000 6,421,000 9,224,000 2,965,000
Other Income (Expense)
Investment income 15,000 95,000 512,000 257,000
Interest expense (2,087,000) (1,875,000) (5,426,000) (5,726,000)
- --------------------------------------------------------------------------------------------------------
Income (Loss) before Income Taxes, Minority 7,631,000 4,641,000 4,310,000 (2,504,000)
Interest and Extraordinary Gain
Income tax benefit (expense) (3,200,000) (2,108,000) (1,770,000) 1,092,000
Minority interest in loss of affiliates -- 259,000 -- 259,000
- --------------------------------------------------------------------------------------------------------
Income (Loss) before Extraordinary Gain 4,431,000 2,792,000 2,540,000 (1,153,000)
Extraordinary gain from early
extinguishment of debt net of
income taxes -- 943,000 -- 943,000
- --------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 4,431,000 $ 3,735,000 $ 2,540,000 $ (210,000)
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statments of Income
================================================================================
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ------------------
1999 2000 1999 2000
- --------------------------------------------------------------------------------------------------------------------
Unaudited Unaudited
--------------------- ------------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding - basic 19,347,000 19,157,000 19,751,000 19,033,000
Earnings (loss) per share - basic
Income (loss) before extraordinary gain $.23 $.14 $.13 $(.06)
Extraordinary gain -- $.05 -- $.05
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $.23 $.19 $.13 $(.01)
====================================================================================================================
Weighted average common shares
outstanding - diluted 23,509,000 21,627,000 23,826,000 19,033,000
Earnings (loss) per share - diluted
Income (loss) before extraordinary gain $.19 $.13 $.11 $(.06)
Extraordinary gain -- $.04 -- $.05
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $.19 $.17 $.11 $(.01)
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statments of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
- ------------------------------------------------------------------------------------------------------------
Nine months ended March 31, 1999 2000
(Unaudited)
-----------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $2,540,000 $(210,000)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 3,299,000 3,612,000
Minority interest in loss of affiliates -- (259,000)
Deferred taxes - net 213,000 600,000
Loss on disposal of assets -- 9,000
Gain on repurchase of mandatorily redeemable preferred securities -- (943,000)
Changes in operating assets and liabilities, net of assets acquired
and liabilities assumed:
Accounts receivable (18,040,000) (12,772,000)
Inventories (6,162,000) 1,219,000
Prepaid expenses and other current assets 83,000 362,000
Accounts payable and accrued expenses 521,000 1,554,000
Other assets 16,000 (280,000)
- ------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (17,530,000) (7,108,000)
- ------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Payment for purchase of business, net of cash acquired (26,772,000) (338,000)
Increase in restricted cash -- (582,000)
Purchase of noncompete agreement (1,000,000) --
Increase in officer receivables 99,000 2,000
Purchase of furniture, fixtures and equipment (1,404,000) (1,896,000)
Proceeds from disposal of assets -- 23,000
Purchase of package design (592,000) (530,000)
- ------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (29,669,000) (3,321,000)
===========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Nine months ended March 31, 1999 2000
(Unaudited)
------------------------------
<S> <C> <C>
Cash Flows from Financing Activities
Proceeds from issuances of stock $ 147,000 $ 121,000
Proceeds from sale of stock of subsidiary -- 4,769,000
Repurchase of common stock for treasury (7,268,000) (1,793,000)
Repurchase of unit purchase options (79,000) --
Proceeds from acquisition line of credit 15,500,000 3,000,000
Repurchase of mandatorily redeemable preferred securities -- (2,947,000)
Acquisition finance cost (455,000) 157,000
Proceeds from working capital line of credit 16,000,000 11,500,000
Payments on lines of credit (500,000) (1,000,000)
Payments on capital leases -- (77,000)
- -----------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 23,345,000 13,730,000
- -----------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (23,854,000) 3,301,000
Cash and Cash Equivalents, beginning of period 27,130,000 2,936,000
- -----------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of period $ 3,276,000 $ 6,237,000
===============================================================================================
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 5,609,000 $ 5,326,000
Cash paid for taxes / (refund of taxes) $ 69,000 $ (1,244,000)
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
1. The accompanying consolidated financial statements at March 31, 2000 and
for the three and nine months ended March 31, 1999 and 2000 are unaudited,
but, in the opinion of management, include all adjustments necessary for a
fair presentation of consolidated financial position and results of
operations for the periods presented. The results for the three and nine
months ended March 31, 2000 are not necessarily indicative of the results
of operations for a full year.
2. Refer to the audited consolidated financial statements for the year ended
June 30, 1999, for details of accounting policies and detailed notes to the
consolidated financial statements.
3. Inventories consist of:
June 30, 1999 March 31, 2000
---------------------------------------------------------------------------
(000) (000)
Raw materials 10,103 8,859
Finished goods 6,883 6,908
- --------------------------------------------------------------------------------
16,986 15,767
================================================================================
4. The Company completed a financing agreement with Bank of America N.A. (the
"Bank") on October 13, 1998 (the "Credit Agreement"). The Credit Agreement
provides for a $25 million revolving acquisition line of credit ("the
Acquisition Facility") to finance acquisitions and a $20 million working
capital revolving line of credit ("the Working Capital Facility").
Borrowings under such credit facilities bear interest at variable annual
rates chosen by the Company based on either (i) the London Interbank
Offered Rate ("LIBOR") plus an applicable marginal rate, or (ii) the higher
of 0.5% above the then current Federal Funds Rate or the Prime Rate of Bank
of America, in each case, plus an applicable marginal rate. The Acquisition
Facility terminates at September 30, 2001 and the outstanding balance is
payable in quarterly payments starting with September 30, 2001 and ending
with June 30, 2004. The Working Capital Facility terminates with the
balance due on September 30, 2001. The Company is required to maintain a
zero balance, under the Working Capital Facility, for at least 30
consecutive days during the period from July 1 to December 1 of each year.
Moreover, if the Company elects to terminate the Credit Agreement prior to
the expiration date, the outstanding balance must be prepaid together with
a premium of 0.5% of the terminated commitment.
The Company's obligations under the Credit Agreement are guaranteed by its
subsidiaries and secured by a security interest in favor of the Bank in
substantially all of the assets of the Company and substantially all of its
subsidiaries. Upon the occurrence of an event of default specified in the
Credit Agreement, the maturity of loans
7
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statments
================================================================================
outstanding under the Credit Agreement may be accelerated by the Bank,
which may also foreclose its security interest on the assets of the Company
and its subsidiaries.
Under the Credit Agreement, the Company and its subsidiaries are required,
among other things, to comply with (a) certain limitations on incurring
additional indebtedness, liens and guaranties, on dispositions of assets,
payment of cash dividends and cash redemption and repurchases of
securities, and (b) certain limitations on merger, liquidations, changes in
business, investments, loans and advances, affiliate transactions and
certain acquisitions. In addition, the Company must comply with certain
financial tests and ratios. A violation of any of these covenants
constitutes an event of default under the Credit Agreement. At March 31,
2000, the Company was in compliance with these financial covenants.
Effective March 31, 2000, the Credit Agreement was amended. The principal
feature of this Amendment was to require the Company to repay the $3
million borrowed on the Acquisition Facility to finance the Company's
purchase of certain Trust Preferred Securities issued by its subsidiary,
U.S. Home & Garden Trust I (see Note 5). The Company is required to repay
this borrowing in $1 million installments due September 30, 2000, December
31, 2000, and June 30, 2001.
5. In December 1999, the Company commenced a tender offer to purchase up to
700,000 of the outstanding 9.4% Cumulative Trust Preferred Securities
issued by its subsidiary, U.S. Home & Garden Trust I, at $15.00 per Trust
Preferred Security. The tender offer expired on January 14, 2000. A total
of 183,281 Trust Preferred Securities were purchased by the Company. As of
March 31, 2000, approximately 2,333,219 Trust Preferred Securities were
outstanding. The repurchase of these Trust Preferred Securities resulted in
a $943,000 extraordinary gain (after provision for income taxes of
$772,000). The Company purchased 8,900 Trust Preferred Securities from
officers and directors under the same terms and conditions described above.
6. Unusual Item. During the third quarter of 2000, the Company discontinued
production, sale and distribution of one of the products in its Weed Wizard
product line. Additionally, the Company, in voluntary compliance with the
recommendations of the Consumer Product Safety Commission ("CPSC"),
instituted a recall of the product. Accordingly, the Company recorded a
pretax charge of $928,000 ($510,000 after tax or $.03 per basic and diluted
share) to provide for recall costs and inventory write-offs.
7. In January 2000, a private placement of 1,062,000 common shares and
warrants of EGarden.com Inc. was completed. Net proceeds from this private
placement totaled approximately $4.7 million and will be used to fund the
start-up and development expenditures of egarden.com. After the completion
of this private placement, the Company now owns approximately 75% of the
common stock of EGarden.com Inc.
8. Segment Reporting. During the third quarter of 2000, the Company became
subject to the provisions of Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS 131). SFAS 131
8
<PAGE>
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financial Statments
================================================================================
established standards for the reporting of operating segment information.
The Company operates in two distinctive operating segments: (1) the lawn
and garden industry and, (2) the business-to-business electronic commerce
(E-Commerce) industry.
The revenues, operating income and identifiable assets of these operating
segments are as follows:
Three Months Nine Months
(000) Ended March 31, 2000 Ended March 31, 2000
-------------------- --------------------
Revenues
Lawn and Garden $ 36,494 $ 63,624
E-Commerce -- --
--------- ---------
Total Revenue $ 36,494 $ 63,624
========= =========
Operating Income (Loss)
Lawn and Garden $ 8,342 $ 5,438
E-Commerce (1,921) (2,473)
--------- ---------
Total Operating Income $ 6,421 $ 2,965
========= =========
March 31, 2000
--------------
Identifiable Assets
Lawn and Garden $ 148,057
E-Commerce 5,538
Intercompany Eliminations (2,348)
---------
Total Assets $ 151,247
=========
The Company does not have material revenue, operating income or assets outside
the United States.
9
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:
Certain information included in this item 2 and elsewhere in the Form 10-Q that
are not historical facts contain forward looking statements that involve a
number of known and unknown risks, uncertainties and other factors that could
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievement
expressed or implied by such forward looking statements. These risks and
uncertainties include, but are not limited to, the Company's growth strategy,
the effect of recent acquisitions, customer concentration, outstanding
indebtedness, dependence on weather conditions, seasonality, expansion and other
activities of competitors, changes in federal or state environmental laws and
the administration of such laws, protection of trademarks and other proprietary
rights, the general condition of the economy and other risks detailed in the
Company's Securities and Exchange Commission filings. Readers are cautioned not
to place undue reliance on these forward looking statements which speak only as
of the date the statement was made."
General
U.S. Home & Garden Inc., ("the Company"), manufactures and markets a broad range
of brand-name consumer lawn and garden products through its wholly owned
subsidiaries, EGarden.com Inc., Ampro Industries, Inc. ("Ampro"), Easy Gardener,
Inc. ("Easy Gardener"), and Golden West Agri-Products, Inc., and Easy Gardener's
wholly owned subsidiaries, Weatherly Consumer Products Group, Inc. and Weed
Wizard Acquisition Corp. Since 1992, the Company consummated ten acquisitions of
complementary lawn and garden companies and product lines for an aggregate
consideration of over $107 million in cash, notes and equity securities. The
most recent acquisition, EGarden.com Inc., has undergone significant development
and is now a business-to-business internet e-commerce business, egarden.com. As
a result of such acquisitions, the Company recognized a significant amount of
goodwill, which, in the aggregate, was approximately $83.1 million at March 31,
2000. The Company is currently amortizing such goodwill using the straight-line
method over various time periods ranging from 20 to 30 years.
10
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain selected
financial data as a percentage of net sales:
Three Months Ended Nine Months Ended
March 31, March 31,
1999 2000 1999 2000
------------------ ----------------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 47.6 52.7 48.2 53.1
Unusual item -- 2.5 -- 1.5
----- ----- ----- -----
Gross profit 52.4 44.8 51.8 45.4
Selling and shipping expenses 16.9 20.0 20.8 23.1
General and administrative expenses 4.1 3.3 10.7 11.5
Depreciation and amortization 3.5 3.9 5.3 6.1
----- ----- ----- -----
Income from operations 27.9 17.6 15.0 4.7
Interest expense, net (6.0) (4.9) (8.0) (8.6)
Income tax benefit (expense) (9.2) (5.8) (2.9) 1.7
Minority interest -- .7 -- .4
Extraordinary gain -- 2.6 -- 1.5
------------------ -----------------
Net Income (Loss) 12.7% 10.2% 4.1% (.3)%
------------------ -----------------
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net sales. Net sales increased by $1.7 million, or 5.0%, to $36.5 million during
the three months ended March 31, 2000 from $34.8 million during the comparable
period in 1999. The increase in net sales was primarily due to internal growth
of the Company's pre-existing product lines.
Gross profit. Gross profit decreased by $1.9 million, or 10.2%, to $16.3 million
for the three months ended March 31, 2000 from $18.2 million during the
comparable period in 1999. This decrease was due primarily to the discontinued
production of a product in the Weed Wizard product line. Gross profit as a
percentage of net sales decreased to 44.8% during the three months ended March
31, 2000 from 52.4% during the comparable period in 1999. The decrease in gross
profit as a percentage of net sales was primarily attributable to the
discontinued Weed Wizard product and reduced pricing on certain products sold to
major retailers when compared to the March 31, 1999 period.
Selling and shipping expenses. Selling and shipping expenses increased $1.4
million, or 24.6% to $7.3 million during the three months ended March 31, 2000
from $5.9 million during the comparable period in 1999. Selling and shipping
expenses as a percentage of net sales increased to 20.0% during the three months
ended March 31, 2000 from 16.9% during the comparable period in 1999. This
increase was primarily a result of start-up selling and
11
<PAGE>
development costs for the Company's business-to-business e-commerce initiative,
egarden.com, included in this period.
General and administrative expenses. General and administrative expenses
decreased $214,000 or 15.2%, to $1.2 million during the three months ended March
31, 2000 from $1.4 million during the comparable period in 1999. This decrease
is primarily due to consolidation of the general and administrative functions
for Weed Wizard, previously located in Georgia, into Ampro. As a percentage of
net sales, general and administrative expenses decreased to 3.3% during the
three months ended March 31, 2000 from 4.1% during the comparable period in
1999.
Depreciation and amortization. Depreciation and amortization expenses increased
by $197,000 or 16.0% to $1.4 million during the three months ended March 31,
2000 from $1.2 million during the comparable period in 1999. This increase is
primarily as a result of the acquisition of Ampro Industries, Inc. As a
percentage of net sales, depreciation and amortization expenses increased to
3.9% during the three months ended March 31, 2000 from 3.5% during the
comparable period in 1999.
Income from operations. Income from operations decreased by $3.3 million, or
33.8%, to $6.4 million. The decrease in income from operations for the 2000
period is primarily attributable to the start-up costs for egarden.com, the
discontinued Weed Wizard product and the increase in net sales of lower margin
products. As a percentage of net sales, income from operations decreased to
17.6% for the three months ended March 31, 2000 from 27.9% during the comparable
period in 1999.
Interest expense. Net interest expense decreased $292,000, or 14.1% to $1.8
million during the three months ended March 31, 2000, from $2.1 million during
the comparable period in 1999. The decrease in interest expense is primarily
related to the decreased interest associated with the line of credit in
conjunction with the decrease in inventories and the repurchase of $4.9 million
of the mandatorily redeemable trust preferred securities of U.S. Home & Garden
Trust I.
Income taxes. Income tax expense decreased to $2.1 million during the three
months ended March 31, 2000 from $3.2 million during the comparable period in
1999, primarily due to the decrease in income from operations. The income tax
benefit or expense for each interim period is based upon the Company's estimated
effective income tax rate for the year.
Minority interest in loss of affiliates. Minority interest increased $259,000,
net of tax expense of $204,000, during the three months ended March 31, 2000
from the comparable period in 1999. Minority interest primarily relates to the
Company's partial ownership of EGarden.com Inc. EGarden.com's results are fully
consolidated in the Company's financial statements.
Extraordinary gain from early extinguishment of debt. Extraordinary gain from
early extinguishment of debt net of income taxes increased $943,000, net of tax
expense of $772,000, during the three months ended March 31, 2000 from the
comparable period in 1999. The Company repurchased $4.9 million of the
mandatorily redeemable trust preferred securities of U.S. Home & Garden Trust I.
12
<PAGE>
Net income. Net income decreased by $696,000 or 15.7%, to $3.7 million during
the three months ended March 31, 2000 from $4.4 million during the comparable
period in 1999. Diluted net income per common share decreased $0.02 to $0.17 per
share for the three months ended March 31, 2000 from $0.19 per share during the
comparable period in 1999. The decrease in diluted net income per common share
is primarily attributable to the start-up costs for egarden.com and the
discontinued Weed Wizard product in the three months ended March 31, 2000
compared to the comparable period in the prior year.
Nine Months Ended March 31, 2000 Compared to Nine Months Ended March 31, 1999
Net sales. Net sales increased by $2.1 million, or 3.4%, to $63.6 million during
the nine months ended March 31, 2000 from $61.5 million during the comparable
period in 1999. The increase in net sales was primarily a result of internal
growth of the Company's pre-existing product lines.
Gross profit. Gross profit decreased by $3.0 million, or 9.4%, to $28.9 million
for the nine months ended March 31, 2000 from $31.9 million during the
comparable period in 1999. This decrease was due primarily to the increase in
sales of lower-margin products and the discontinued Weed Wizard product. Gross
profit as a percentage of net sales decreased to 45.4% during the nine months
ended March 31, 2000 from 51.8% during the comparable period in 1999. The
decrease in gross profit as a percentage of net sales was primarily attributable
to the discontinued product and reduced pricing on certain products sold to
major retailers when compared to the March 31, 1999 period.
Selling and shipping expenses. Selling and shipping expenses increased $1.9
million, or 14.6%, to $14.7 million during the nine months ended March 31, 2000
from $12.8 million during the comparable period in 1999. Selling and shipping
expenses as a percentage of net sales increased to 23.1% during the nine months
ended March 31, 2000 from 20.8% during the comparable period in 1999. This
increase was primarily as a result of start-up costs for egarden.com during the
nine months ended March 31, 2000.
General and administrative expenses. General and administrative expenses
increased $806,000 or 12.3%, to $7.4 million during the nine months ended March
31, 2000 from $6.6 million during the comparable period in 1999. The increase is
due to start-up and administrative costs for egarden.com, included in this the
nine months ended March 31, 2000. As a percentage of net sales, general and
administrative expenses increased to 11.5% during the nine months ended March
31, 2000 from 10.7% during the comparable period in 1999.
Depreciation and amortization. Depreciation and amortization expenses increased
by $571,000 or 17.3% to $3.9 million during the nine months ended March 31, 2000
from $3.3 million during the comparable period in 1999. This increase is
primarily due to the acquisition of Ampro Industries, Inc. and capital equipment
additions. As a percentage of net sales, depreciation and amortization expenses
increased to 6.1% during the nine months ended March 31, 2000 from 5.3% during
the comparable period in 1999.
Income from operations. Income from operations decreased by $6.3 million, or
67.9%, to $3.0
13
<PAGE>
million during the nine months ended March 31, 2000 from $9.2 million during the
comparable period in 1999. The decrease in income for the 2000 period was
primarily attributable to the start-up costs for egarden.com, the discontinued
Weed Wizard product and the increase in net sales of lower margin products. As a
percentage of net sales, income from operations decreased to 4.7% for the nine
months ended March 31, 2000 from 15.0% during the comparable period in 1999.
Interest expense. Net interest expense increased by $555,000, or 11.3%, to $5.5
million during the nine months ended March 31, 2000, from $4.9 million during
the comparable period in 1999. The increase in interest expense is primarily
related to the interest associated with the increase in borrowings under the
Company's credit facility to finance the acquisition of Ampro Industries, Inc.
Income taxes. Income tax benefit was $1.1 million during the nine months ended
March 31, 2000 from income taxes of $1.8 million during the comparable period in
1999, primarily due to the net loss before taxes. The income tax benefit or
expense for each interim period is based upon the Company's estimated effective
income tax rate for the year.
Minority interest in loss of affiliates. Minority interest increased $259,000,
net of tax expense of $204,000, during the nine months ended March 31, 2000 from
the comparable period in 1999. Minority interest primarily relates to the
Company's partial ownership of EGarden.com Inc. EGarden.com's results are fully
consolidated in the Company's financial statements.
Extraordinary gain from early extinguishment of debt. Extraordinary gain from
early extinguishment of debt net of income taxes increased $943,000, net of tax
expense of $772,000, during the nine months ended March 31, 2000 from the
comparable period in 1999. The Company repurchased $4.9 million of the
mandatorily redeemable trust preferred securities of U.S. Home & Garden Trust I.
Net loss. Net loss was $210,000 as compared to net income of $2.5 million during
the nine months ended March 31, 1999. Diluted net loss per common share was $.01
compared to income of $.11 per share for the nine months ended March 31, 1999.
The increase in diluted loss per share is primarily attributable to the start-up
costs for egarden.com, the discontinued Weed Wizard product and the increase in
net sales of lower margin products.
Seasonality
The Company's sales are seasonal due to the nature of the lawn and garden
business, in parallel with the annual growing season. The Company's sales and
shipping are most active from late December through May when home lawn and
garden customers are purchasing supplies for spring planting and retail stores
are increasing their inventory of lawn and garden products. Sales typically
decline by early to mid-summer.
Sales of the Company's agricultural products, which were not material during the
nine months ended March 31, 2000, are also seasonal. Most shipments occur during
the agricultural cultivation period from March through October.
14
<PAGE>
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily through cash
generated by operations, net proceeds from the Company's private placements,
public sales of securities and borrowings from lending institutions.
At March 31, 2000, the Company had consolidated cash and short-term investments
totaling $6.2 million and working capital of $30.8 million. At June 30, 1999,
the Company had consolidated cash and short-term investments totaling $2.9
million and working capital of $31.9 million. The decrease in working capital is
in line with the seasonal nature of the Company's business.
Net cash used in operating activities during the nine months ended March 31,
2000 was $7.1 million consisting primarily of a $12.8 million increase in
accounts receivable due to the seasonal increase in sales, partially offset by a
$1.6 million increase in accounts payable and a $1.2 million decrease in
inventories.
Net cash used in investing activities during the nine months ended March 31,
2000 was $3.3 million, consisting primarily of cash used for the purchase of
property and equipment and package design.
Net cash provided by financing activities of $13.7 million during the nine
months ended March 31, 2000 was primarily due to borrowings on the Company's
working capital line of credit to finance the seasonal increase in working
capital requirements.
On October 13, 1998, the Company entered into a credit agreement (the "Credit
Agreement") with Bank of America N.A. (the "Bank"). The Credit Agreement
provides for a revolving credit facility of up to $25 million to finance the
cost of acquisitions by the Company (the "Acquisition Facility") and a revolving
credit facility of up to $20 million to finance the Company's working capital
requirements (the "Working Capital Facility"). Both of such credit facilities
expire on September 30, 2001, at which time borrowings under the Acquisition
Facility are payable on a term loan basis in quarterly installments commencing
September 30, 2001, with the final installment maturing on June 30, 2004 and,
unless refinanced, borrowings under the Working Capital Facility mature on such
expiration date. In addition, borrowings under the Acquisition Facility are
subject to mandatory prepayment from the net proceeds of certain dispositions of
assets, and certain losses or condemnation of property, from excess cash (as
defined in the Credit Agreement) generated by the Company and its subsidiaries
and 50% of the net proceeds of any new issuance's of the Company's capital stock
after such expiration date. Mandatory prepayments by the Company prior to such
expiration have the effect of reducing the Acquisition Facility by the
prepayment amount. In addition, during a period of 30 consecutive days during
the period July 1 to December 1 in each year, no borrowings can be outstanding
under the Working Capital Facility. The Company has the right under the Credit
Agreement to terminate or permanently reduce the Bank's commitments under such
credit facilities in the minimum amount of $1.0 million and multiples thereof
subject to the payment to the Bank of "reduction fees" of 0.5% of the amounts
terminated or reduced thereafter. Borrowings under
15
<PAGE>
such credit facilities bear interest at variable annual rates selected by the
Company based on LIBOR ("London Interbank Offered Rate"), or the higher of 0.5%
above the then current Federal Funds Rate or the Bank's prime rate plus, in each
case, an applicable marginal rate of interest. At March 31, 2000, the interest
rate on new borrowings for the Working Capital Facility was 7.52%. The interest
rate on $15 million of the $18 million outstanding on the Acquisition Facility
is fixed via an interest rate swap at 7.78%.
The Company's obligations under the Credit Agreement are guaranteed by its
subsidiaries and secured by a security interest in favor of the Bank in
substantially all of the assets of the Company and substantially all of its
subsidiaries. Upon the occurrence of an event of default specified in the Credit
Agreement, the maturity of loans outstanding under the Credit Agreement may be
accelerated by the Bank, which may also foreclose its security interest on the
assets of the Company and its subsidiaries.
Under the Credit Agreement, the Company and its subsidiaries are required, among
other things, to comply with (a) certain limitations on incurring additional
indebtedness, liens and guaranties, on dispositions of assets, payment of cash
dividends and cash redemption and repurchases of securities, and (b) certain
limitations on merger, liquidations, changes in business, investments, loans and
advances, affiliate transactions and certain acquisitions. In addition, the
Company must comply with certain financial tests and ratios. A violation of any
of these covenants constitutes an event of default under the Credit Agreement.
At March 31, 2000, the Company was in compliance with these financial covenants.
Effective March 31, 2000, the Credit Agreement was amended. The principal
feature of this Amendment was to require the Company to repay the $3 million
borrowed on the Acquisition Facility to finance the Company's purchase of
certain Trust Preferred Securities issued by its subsidiary, U.S. Home & Garden
Trust I. The Company is required to repay this borrowing in $1 million
installments due September 30, 2000, December 31, 2000, and June 30, 2001.
The Company believes that its operations will generate sufficient cash flow to
service the outstanding debt incurred. However, if such cash flow is not
sufficient to service such debt, the Company will be required to seek additional
financing which may not be available on commercially acceptable terms or at all.
As of March 31, 2000, the Company has a net deferred tax liability of $2.0
million primarily relating to tax depreciation and amortization in excess of the
book amount. The deferred tax asset of $300,000 relates to the net operating
loss carryforwards, the allowance for accounts receivable, vacation accrual and
certain other balance sheet reserves.
In December 1999, the Company commenced a tender offer to purchase up to 700,000
of the outstanding 9.4% Cumulative Trust Preferred Securities issued by its
subsidiary, U.S. Home & Garden Trust I, at $15.00 per Trust Preferred Security.
The tender offer expired on January 14, 2000. A total of 183,281 Trust Preferred
Securities were purchased by the Company. As of March 31, 2000, 2,333,219 Trust
Preferred Securities were outstanding. The repurchase of these Trust Preferred
Securities resulted in a $943,000 extraordinary gain (after provision for income
taxes).
In January 2000, a private placement of 1,062,000 common shares and warrants of
16
<PAGE>
EGarden.com Inc. was completed. Net proceeds from this private placement totaled
approximately $4.7 million and will be used to fund the start-up and development
expenditures of egarden.com. After the completion of this private placement, the
Company now owns approximately 75% of the common stock of EGarden.com Inc.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings' effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000.
In October 1999, the Company entered into a derivatives contract to hedge
interest rate risk on the Acquisition Facility. Details of this derivative
instrument are described in Item 3, "Quantitative and Qualitative Disclosures
about Market Risk".
Inflation
Inflation has historically not had a material effect on the Company's
operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a result of its variable rate revolving credit line, the Company is exposed
to the risk of rising interest rates. To minimize this risk, the Company holds a
derivative instrument in the form of an interest rate swap, which is viewed as a
risk management tool and is not used for trading or speculative purposes. The
intent of the interest rate swap is to effectively fix the interest rate on part
of the borrowings on the Company's variable rate revolving credit agreement.
The following table provides information on the Company's fixed maturity
investments as of March 31, 2000 that are sensitive to changes in interest
rates. The table also presents the corresponding interest rate swap on this
debt. Since the interest rate swap effectively fixes the interest rate on the
notional amount of debt, changes in interest rates have no current effect on the
interest expense recorded by the Company on the portion of the debt covered by
the interest rate swap.
The Acquisition Line of Credit had an $25 million
interest rate ranging from 6.58% to 8.25% for
the nine months ended March 31, 2000
Interest Rate Swaps
Notional amount $15 million
Pay fixed/Receive variable - 6.03%
Pay fixed interest rate - 6.15%
This swap agreement expires November 1, 2000,
and reverts to a variable interest rate loan.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Part I- Item 3 of the Company's Form 10K for the
fiscal year ended June 30, 1999 concerning an action commenced in the State
of Michigan Circuit Court against the Company by the former stockholders of
Ampro Industries, Inc.
Item 2. Changes in Securities and Use of Proceeds
During the quarter ended March 31, 2000 the Company granted five-year
options to purchase an aggregate of 200,000 shares of its common stock at
$2.5625 per share to certain employees. The options were granted in private
transactions pursuant to the exemptions from registration provided by
Sections 2(a)(3) or 4(2) of the Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Fourth Amendment dated March 31, 2000 to the Credit
Agreement dated October 13, 1998 between the Company and
Bank of America, N.A.
27.1 Financial Data Schedule (For SEC use only)
(b) No reports on Form 8-K were filed during the quarter ended March
31, 2000.
18
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 12, 2000
U.S. Home & Garden Inc.
(Registrant)
/s/ Robert Kassel
----------------------------------
President, Chief Executive Officer
/s/ Donald Rutishauser
----------------------------------
Chief Financial Officer
19
FOURTH AMENDMENT TO CREDIT AGREEMENT AND CONSENT
This Amendment and Consent (the "Amendment and Consent") dated as of March
31, 2000, is between Bank of America, N.A. (the "Bank"), formerly known as Bank
of America National Trust and Savings Association, and U.S. Home & Garden Inc.
(the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Credit Agreement dated
as of October 13, 1998, as previously amended (the "Agreement").
B. The Borrower desires to acquire findplants.com, a California
corporation, for a total consideration of $400,000. Immediately thereafter, the
Borrower desires to merge the acquired company into the Subsidiary, E-Garden.
The Borrower has requested the Bank to grant its prior written approval of the
Acquisition as required under Section 7.4(d)(ii) of the Agreement and to agree
that the Acquisition is not required to comply with the conditions set forth in
Sections 7.4(d)(iv), 7.4(d)(vii), and 7.4(d)(viii) of the Agreement.
C. The Bank and the Borrower also desire to further amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment
and Consent shall have the meaning given to them in the Agreement.
2. Amendment. The Agreement is hereby amended as follows:
2.1 In Section 1.1, the definition of Revolving Termination Date is
amended by substituting the date "September 30, 2001" for the date "October
15, 2001."
2.2 A new Section 2.7(bb) is inserted between Sections 2.7(b) and
2.7(c), and it reads in its entirety as follows:
(bb) $1,000,000 Prepayments. The Borrower shall prepay the
Facility 1 Loans in three equal principal installments of $1,000,000
on September 30, 2000, December 31, 2000, and June 30, 2001.
2.3 Section 2.8(a) is amended to read in its entirety as follows:
(a) Facility 1 Loans. The Borrower shall repay the following
percentages of the total of the Facility 1 Loans outstanding on the
Revolving Termination Date on the following dates (each a "Principal
Payment Date"):
Year March 31 June 30 September 30 December 31
2001 7.50% 7.50%
2002 7.50% 7.50% 7.50% 7.50%
2003 7.50% 7.50% 10.00% 10.00%
2004 10.00% 10.00%
1
<PAGE>
And on June 30, 2004, the entire remaining balance of the Facility 1
Loans and all accrued interest thereon shall be immediately due and
payable.
2.4 In Section 7.4(d), clause (v) is amended to read in its entirety
as follows:
(v) after giving effect to the Acquisition (and any financing related
thereto), the pro forma Leverage Ratio is less than 4.50 to 1.00 and
the Borrower and its Subsidiaries are otherwise in pro forma covenant
compliance with Section 7.18,
2.5 In Section 7.4(h), the amount "$2,947,235" is substituted for the
amount "$10,000,000."
2.6 Section 7.11(d) is amended to read in its entirety as follows:
(d) purchase, redeem or otherwise acquire Trust Preferred
Securities, shares of its capital stock or warrants, rights or options
to acquire any shares of its capital stock for cash (i) in an
aggregate amount for all such payments after the Closing Date
(excluding payments for Trust Preferred Securities) not exceeding
$6,074,000 and (ii) with respect to Trust Preferred Securities, in an
aggregate amount not exceeding $1,000,000 for all such payments after
the Closing Date; provided that immediately after giving effect to
such proposed action, no Default would exist, and provided further
that payments for Trust Preferred Securities must be made with the
Borrower's own cash and not with the proceeds of Facility 1 Loans.
2.7 Section 7.18 is amended to read in its entirety as follows:
7.18 Financial Covenants.
(a) Interest Coverage Ratio. The Borrower shall not permit the
Interest Coverage Ratio for any four fiscal quarter period (on a
rolling four quarter basis) to be less than (i) 1.50 to 1.00 for the
four fiscal quarter period ending on March 31, 2000, (ii) 1.75 to 1.00
for the four fiscal quarter periods ending on June 30, 2000, September
30, 2000, and December 31, 2000, and (iii) 2.00 to 1.00 for any four
fiscal quarter period ending after December 31, 2000.
(b) Leverage Ratio. The Borrower shall not permit the Leverage
Ratio for any four fiscal quarter period (on a rolling four quarter
basis) to exceed (i) 7.75 to 1.00 for the four fiscal quarter period
ending on March 31, 2000, (ii) 5.25 to 1.00 for the four fiscal
quarter period ending on June 30, 2000, (iii) 5.00 to 1.00 for the
four fiscal quarter periods ending on September 30, 2000, December 31,
2000, and March 31, 2001, (iv) 4.50 to 1.00 for the four fiscal
quarter periods ending on June 30, 2001, September 30, 2001, and
December 31, 2001, (v) 4.75 to 1.00 for the four fiscal quarter period
ending on March 31, 2002, and (vi) 4.00 to 1.00 for any four fiscal
quarter period ending after March 31, 2002, except for the four fiscal
quarter periods ending on March 31, 2003, and March 31, 2004,
respectively, for which the Leverage Ratio may not exceed 4.25 to
1.00.
(c) Fixed Charge Coverage Ratio. The Borrower shall not permit
the Fixed Charge Coverage Ratio to be less than (i) 1.10 to 1.00 for
the four
2
<PAGE>
fiscal quarter period ending on March 31, 2000, (ii) 1.50 to 1.00 for the four
fiscal quarter periods (on a rolling four quarter basis) ending on or after June
30, 2000, and on or before March 31, 2002, except for the four fiscal quarter
period ending on December 31, 2000, for which the Fixed Charge Coverage Ratio
may not be less than 1.35 to 1.00, and (iii) 1.25 to 1.00 for any four fiscal
quarter period (on a rolling four quarter basis) ending after March 31, 2002.
(d) Consolidated EBITDA. The Borrower shall not permit
Consolidated EBITDA (Ampro Adjusted) to be less than the following
amounts for the four fiscal quarter periods (on a rolling four quarter
basis) ending on the following dates:
Amount Date
------ ----
$12,000,000 March 31, 2000
$15,000,000 June 30, 2000
$15,000,000 September 30, 2000
$15,000,000 December 31, 2000
$16,000,000 March 31, 2001
$16,000,000 June 30, 2001
$16,000,000 September 30, 2001
$16,000,000 December 31, 2001
$17,000,000 March 31, 2002
$17,000,000 June 30, 2002
$17,000,000 September 30, 2002
$17,000,000 December 31, 2002
$17,500,000 March 31, 2003
$17,500,000 June 30, 2003
$17,500,000 September 30, 2003
$17,500,000 December 31, 2003
$18,000,000 March 31, 2004
$18,000,000 June 30, 2004
$18,000,000 September 30, 2004
3. Consent. The Bank hereby consents to the Acquisition described in
Recital B of this Amendment and Consent and hereby agrees that the Acquisition
is not required to comply with the conditions referred to in Recital B of this
Amendment and Consent.
4. Representations and Warranties. When the Borrower signs this Amendment
and Consent, the Borrower represents and warrants to the Bank that:
4.1 No Default or Event of Default has occurred or is continuing under
the Agreement except those Defaults or Events of Default, if any, that have
been disclosed in writing to the Bank or waived in writing by the Bank.
3
<PAGE>
4.2 The representations and warranties in the Agreement are true as of
the date of this Amendment and Consent as if made on the date of this
Amendment and Consent except to the extent such representations and
warranties expressly refer to an earlier date, in which case they are true
and correct as of such earlier date.
4.3 The execution, delivery and performance by the Borrower of this
Amendment and Consent have been duly authorized by all necessary corporate
and other action and do not and will not require any registration with,
consent or approval of, notice to or action by, any Person (including any
Governmental Authority) in order to be effective and enforceable. The
Agreement as amended by this Amendment and Consent constitutes the legal,
valid and binding obligations of the Borrower, enforceable against it in
accordance with its respective terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles
relating to enforceability.
5. Effective Date. Provided that the Bank has received from the Borrower a
duly executed original of this Amendment and Consent, this Amendment and Consent
will be deemed effective as of March 31, 2000.
6. Reservation of Rights. The Borrower acknowledges and agrees that the
execution by the Bank of this Amendment and Consent shall not be deemed to
create a course of dealing or otherwise obligate the Bank to execute similar
consents under the same or similar circumstances in the future.
7. Miscellaneous.
7.1 Except as herein expressly amended, all terms, covenants and
provisions of the Agreement are and shall remain in full force and effect
and all references therein and in the other Loan Documents to the Agreement
shall henceforth refer to the Agreement as amended by this Amendment and
Consent. This Amendment and Consent shall be deemed incorporated into, and
a part of, the Agreement. This Amendment and Consent is a Loan Document.
7.2 This Amendment and Consent shall be binding upon and inure to the
benefit of the parties hereto and to the Agreement and their respective
successors and assigns. No third party beneficiaries are intended in
connection with this Amendment and Consent.
7.3 This Amendment and Consent shall be governed by and construed in
accordance with the law of the State of California.
7.4 This Amendment and Consent may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
Each of the parties hereto understands and agrees that this document (and
any other document required herein) may be delivered by any party thereto
either in the form of an executed original or an executed original sent by
facsimile transmission to be followed promptly by mailing of a hard copy
original, and that receipt by the Bank of a facsimile transmitted document
purportedly bearing the signature of the Borrower shall bind the Borrower
with the same force and effect as the delivery of a hard copy original. Any
failure by the Bank to
4
<PAGE>
receive the hard copy executed original of such document shall not
diminish the binding effect of receipt of the facsimile transmitted
executed original of such document.
This Amendment and Consent is executed as of the date stated at the
beginning of this Amendment and Consent.
Bank of America, N.A.
By /s/ Michelle Mojabi
---------------------------------------
Title Vice President
---------------------------------------
By
---------------------------------------
Title
---------------------------------------
U.S. Home & Garden Inc.
By /s/ Lynda Gustafson
---------------------------------------
Title V.P. Finance
---------------------------------------
By
---------------------------------------
Title
---------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AT MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,237,000
<SECURITIES> 0
<RECEIVABLES> 34,609,000
<ALLOWANCES> 1,595,000
<INVENTORY> 15,767,000
<CURRENT-ASSETS> 57,675,000
<PP&E> 12,213,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 151,247,000
<CURRENT-LIABILITIES> 25,253,000
<BONDS> 74,330,000
0
0
<COMMON> 21,000
<OTHER-SE> 44,581,000
<TOTAL-LIABILITY-AND-EQUITY> 151,247,000
<SALES> 63,624,000
<TOTAL-REVENUES> 63,624,000
<CGS> 34,742,000
<TOTAL-COSTS> 34,742,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,726,000
<INCOME-PRETAX> (2,504,000)
<INCOME-TAX> (1,092,000)
<INCOME-CONTINUING> (1,153,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 943,000
<CHANGES> 0
<NET-INCOME> (210,000)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
