<PAGE>
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20509
(Mark One)
[X] AMENDMENT NO. 1 TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
OR
[ ] 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 0-26568
USA Detergents, Inc.
--------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2935430
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1735 Jersey Avenue, North Brunswick, New Jersey 08902
----------------------------------------------------------
(Address of principal executive offices) (Zip code)
(732) 828-1800
--------------
(Registrant's telephone number, including area code)
--------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was
required to file 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 stock, as of the latest practicable date.
Class of Stock No. of Shares Outstanding Date
-------------- ------------------------- ----
Common 13,722,158 August 12, 1996
<PAGE>
This report on Form 10-Q/A is being filed to amend and restate Items 1 and 2 of
Part I and Items 3 and 6(a) of Part II of the Company's Report on Form 10-Q
filed August 15, 1996 (the "Filed Report"). Certain items contained in this
Report on Form 10-Q/A are being presented as of a more recent date to reflect
changes which occurred in the Company's business operations since the filing of
the Filed Report.
The Company's quarterly and annual operating results are affected by a wide
variety of other factors that could materially and adversely affect actual
results, including competition from other suppliers of laundry and household
cleaning products; changes in consumer preferences and spending habits; the
inability to successfully manage growth; seasonality; the ability to introduce
and the timing of the introduction of new products; the inability to obtain
adequate supplies or materials at acceptable prices; the inability to reduce
expenses to a level commensurate with revenues; and the inability to negotiate
acceptable credit terms with current or prospective lenders. As a result of
these and other factors, the Company may experience material fluctuations in
future operating results on a quarterly or annual basis, which could materially
and adversely affect its business, financial condition, operating results, and
stock price. Furthermore, this document and other documents filed by the
Company with the Securities and Exchange Commission (the "SEC") contain certain
forward looking statements with respect to the business of the Company,
including prospective financing arrangements. These forward-looking statements
are subject to certain risks and uncertainties, including those mentioned
above, which may cause actual results to differ significantly from these
forward-looking statements. These forward-looking statements speak only as of
the date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. An investment in the Company involves
various risks, including those mentioned above and those which are detailed
from time to time in the Company's SEC filings.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
USA DETERGENTS, INC. AND SUBSIDIARIES
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
---------------------------
(As restated
See note 3)
<S> <C> <C>
Current assets:
Cash $ 61 $ 463
Accounts receivable, net of allowance for doubtful
accounts of $276 and $423, respectively 15,278 20,047
Inventories 8,448 15,095
Prepaid expenses and other current assets 2,989 4,879
Prepaid income taxes -- 175
Deferred taxes 630 219
-----------------------
Total current assets 27,406 40,878
Property and equipment - net 10,404 13,168
Restricted funds 275 275
Other assets 255 2,886
Note receivable 2,250 2,250
-----------------------
Total assets $40,590 $59,457
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit line $ 6,983 $ 5,480
EDA loan 305 1,958
Accounts payable 4,830 10,733
Accrued expenses 3,942 3,014
Current portion of capitalized lease obligations 32 --
Income tax payable 182 --
-----------------------
Total current liabilities 16,274 21,185
Long-term debt - net of current portion 1,806 --
Capital lease obligations - net of current portion 24 --
Deferred rent payable 1,204 1,321
Deferred taxes 990 741
-----------------------
Total liabilities 20,298 23,247
-----------------------
Stockholders' equity:
Preferred stock-no par value; authorized 1,000,000
shares, none issued -- --
Common stock-$.01 par value; authorized 30,000,000
shares, issued and outstanding 13,392,372 and
13,722,158 shares, respectively 134 137
Additional paid-in capital 15,499 27,289
Retained earnings 4,659 8,784
-----------------------
Total stockholders' equity 20,292 36,210
-----------------------
Total liabilities and stockholders' equity $40,590 $59,457
=======================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE INFORMATION)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
-----------------------------------------------------------------
1995 1996 1995 1996
(As restated (As restated
See note 3) See note 3)
<S> <C> <C> <C> <C>
Net sales $ 25,652 $ 43,328 $ 48,907 $ 76,773
Cost of goods sold 18,591 28,978 35,581 52,064
-------------------------- --------------------------
Gross profit 7,061 14,350 13,326 24,709
Selling, general and administrative 4,854 9,864 9,328 17,378
-------------------------- --------------------------
Income from operations 2,207 4,486 3,998 7,331
Interest expense - net 234 153 422 320
-------------------------- --------------------------
Earnings before income taxes 1,973 4,333 3,576 7,011
Income tax provision 37 1,675 68 2,886
-------------------------- --------------------------
Net income $ 1,936 $ 2,658 $ 3,508 $ 4,125
========================== ==========================
Net income per share $ .20 $ .31
========= ==========
Weighted average shares outstanding 13,479 13,436
========= ==========
Pro forma Income Statement Data:
Earnings before income taxes, as reported $ 1,973 $ 3,576
Pro forma income tax provision 781 1,416
---------- ----------
Pro forma net income $ 1,192 $ 2,160
========== ==========
Pro forma net income per share $ .10 $ .18
========== ==========
Weighted average shares used in the calculation
of pro forma net income per share 11,915 11,915
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months
ended June 30,
--------------------------
1995 1996
(As restated
See note 3)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,508 $ 4,125
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 471 758
Change in the provision for bad debts and sales allowances 17 147
Increase in deferred rent 16 117
Changes in operating assets and liabilities:
Increase in accounts receivable (4,695) (4,916)
(Increase)/decrease in inventories 2,321 (6,647)
Increase in prepaid expenses and other current assets (209) (1,890)
Increase in other assets -- (2,631)
Increase in accounts payable and accrued expenses 1,013 4,943
Increase in prepaid income taxes -- (175)
Decrease in taxes payable (17) (182)
Decrease in deferred tax asset -- 411
Decrease in deferred tax liability -- (249)
-------------------------
Net cash provided by/(used in) operating activities 2,425 (6,189)
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,310) (3,522)
-------------------------
Net cash used in investing activities (1,310) (3,522)
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
S corporation distributions (3,892) --
Repayments of long-term debt (153) (177)
Net proceeds/(repayments) on revolving credit line 2,930 (1,503)
Capitalized lease repayments (31) --
Net proceeds from exercise of options -- 3
Net proceeds from sale of common shares -- 11,790
-------------------------
Net cash provided by/(used in) financing activities (1,146) 10,113
-------------------------
Net increase/(decrease) in cash (31) 402
Cash at beginning of period 77 61
-------------------------
Cash at June 30, $ 46 $ 463
=========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 434 $ 314
=========================
Income taxes $ 84 $ 3,047
=========================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the Rules of the Securities and Exchange
Commission ("SEC") and in the opinion of management, include all adjustments,
(consisting of normal recurring accruals) necessary for the fair presentation
of financial position, results of operations and cash flows. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules. The Company believes the
disclosures made are adequate to make such financial statements not misleading.
Certain reclassifications have been made to prior year amounts to conform with
the presentation for the current year. The results for the interim periods
presented are not necessarily indicative of the results to be expected for the
full year. These financial statements should be read in conjunction with the
Company's December 31, 1997 year ended Form 10-K filed March 31, 1998 and Form
10-K/A filed April 28, 1998 and the Company's December 31, 1996 year ended Form
10-K/A filed March 17, 1998 which includes restated financial information for
the year ended December 31, 1996.
6
<PAGE>
NOTE 2 - DEBT
The Company's debt structure as of March 31, 1998 and its current
relationships with its bank lender and the New Jersey Economic Development
Authority ("EDA") has changed substantially since the end of the period to
which this Quarterly Report on Form 10Q/A relates and, consequently,
information relating to the Company's debt structure and relationships with the
Company's bank lender and the EDA as of June 30, 1996 is not deemed to be
relevant to an evaluation of the Company. The following information summarizes
the Company's current debt structure and relationships with its bank lender and
the EDA as of March 31, 1998.
PNC Bank Debt
On February 25, 1998, the Company and PNC Bank, National Association
("PNC") entered into an amended and restated Loan and Security Agreement (the
"PNC Agreement"). In conjunction with the PNC Agreement the Company made a
principal payment of $5 million and granted PNC a security interest in
substantially all of the assets of the Company. The balance of the principal
indebtedness, approximately $35 million, is due in January 1999 and bears
interest at rates which range from prime plus .25% to prime plus 2%. The actual
rate depends on the timing of the repayment of the indebtedness. Of the $5
million paid to PNC, $4 million was loaned to the Company by an entity ("101
Realty") owned by certain of the Company's principal stockholders at a rate of
9.5% per annum, and is due in July 1999. These stockholders also personally
guaranteed the repayment of up to an additional $5 million of the indebtedness
owed to PNC. At December 31, 1997, $1,000,000 of the PNC debt was classified as
current reflecting the difference between the amount repaid to PNC and the
amount loaned to the Company by certain of its principal stockholders.
In connection with the transaction, PNC received a warrant to purchase
between approximately 140,000 and 700,000 shares of the Company's common stock,
depending on the repayment date of the remaining indebtedness (140,000 shares
if paid in full by September 30, 1998). In conjunction with the issuance of
this warrant, the Company recognized in the first quarter of 1998, a deferred
charge of $415,000. This charge will be deferred and amortized over the period
ending January 4, 1999. The Company engaged the services of an independent
specialty investment banking firm to calculate and establish the valuation of
this warrant.
In connection with the $4 million loan and $5 million guarantee
referred to above, 101 Realty received a warrant to purchase between
approximately 99,000 and 194,000 shares of the Company's common stock depending
on whether the $5 million which is the subject of the guarantee is required to
be paid. In conjunction with the issuance of these warrants, the Company
recognized, in the first quarter of 1998, a deferred charge of $335,000. This
charge will be deferred and amortized over an 18 month period. The Company
engaged the services of an independent specialty investment banking firm to
calculate and establish the valuation of these warrants.
7
<PAGE>
The PNC Agreement requires the Company to, among other things,
maintain a ratio of current assets to current liabilities (as defined) in
excess of 1.1, commencing January 31, 1998, and prohibits the payment of
dividends and the incurrence of new debt.
For the year ended December 31, 1997, the Company has experienced
significant operating losses relating to, among other things, its geographic
expansion of its manufacturing and distribution facilities. In addition, the
Company has also experienced difficulty in meeting its liquidity needs. The
Company requires the availability of sufficient cash flow and borrowing
capacity to finance its operations, meet its debt service obligations and fund
future capital expenditure requirements. The Company's operating plan for 1998
includes continuing its cost reduction programs. Such programs include
reduction in temporary labor, production rationalization, increased use of high
speed fillers and cartoners and improved production planning and control.
Management believes that the corrective actions taken in the latter part of
1997 and the ongoing cost reduction programs currently in place, will have a
positive impact on operating results for 1998. Additionally, management is
optimistic about its ability to replace the PNC Facility with a permanent
financing facility which will more adequately support ongoing operations, debt
service and capital expenditure requirements. There can be no assurance that
the Company will be successful in these efforts.
EDA Loan
The Company also has a loan facility of $2.75 million from the New
Jersey Economic Development Authority (the "EDA Loan"). As of December 31,
1997, the Company had used approximately $2.5 million of the EDA Loan for
purchases of machinery and equipment and improvements to the Company's North
Brunswick manufacturing facility. The remaining funds are restricted for the
duration of the EDA Loan. The EDA Loan is payable in monthly installments of
approximately $26,000 through November 1, 2002. Interest on the EDA Loan is
payable at a variable rate (4.15% at December 31, 1997). As a result of several
factors, including those relating to the Company's historical financial
performance, amounts owed under the EDA Loan, at the option of the issuing
lender thereunder, may be declared immediately due and payable. The Company has
requested a waiver from the New Jersey Economic Development Authority with
respect to existing violations under the EDA Loan. There can be no assurances
that the Company will be successful in obtaining such waiver. To date, the
Company is current with respect to scheduled principle and interest payments.
The entire obligation has been classified as current in the December 31, 1997
balance sheet.
8
<PAGE>
NOTE 3 - RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its financial statements for the year ended
December 31, 1996, each of the four quarters of 1996 and the quarter ended
March 31, 1997, as a result of errors and irregularities discovered for those
periods subsequent to the issuance of such financial statements. The financial
statements for the year ended December 31, 1996 require restatement principally
with respect to: (1) unrecorded vendor invoices and vendor rebates resulting in
an understatement of cost of goods sold; (2) shipping cut-offs resulting in an
overstatement of sales; (3) inappropriately capitalized labor resulting in an
understatement of selling, general and administrative expenses; and (4)
unamortized slotting costs resulting in an understatement of selling expenses.
The quarter ended June, 30, 1996 has been restated principally for these items
and the write-off of certain costs previously written-off in the fourth quarter
of 1996.
The impact of the restatements on the Company's balance sheets and
statements of operations for the three months and six months ended June 30,
1996 are summarized as follows:
9
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 1996 June 30, 1996 June 30, 1996 June 30, 1996
------------- ------------- ------------- -------------
(As originally (As Restated) (As originally (As Restated)
Reported) Reported)
(in thousands, except per share data)
Statement of Operations
- -----------------------
<S> <C> <C> <C> <C>
Net sales $42,915 $43,328 $76,982 $76,773
Gross profit 14,564 14,350 26,106 24,709
Selling, general and
Administrative 9,994 9,864 17,946 17,378
Operating income 4,570 4,486 8,160 7,331
Net income 2,703 2,658 4,791 4,125
Net income per share $ .20 $ .20 $ .36 $ .31
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
-------------
(As originally (As Restated)
Reported)
(in thousands)
Balance Sheet
- -------------
<S> <C> <C>
Current assets $41,466 $40,878
Total assets 60,295 59,457
Current liabilities 19,373 21,185
Total liabilities 23,420 23,247
Stockholders' equity 36,875 36,210
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company has restated its financial statements for the year ended
December 31, 1996, each of the four quarters of 1996 and the quarter ended
March 31, 1997, as a result of errors and irregularities discovered for those
periods subsequent to the issuance of such financial statements. The financial
statements for the year ended December 31, 1996 require restatement principally
with respect to: (1) unrecorded vendor invoices and vendor rebates resulting in
an understatement of cost of goods sold; (2) shipping cut-offs resulting in an
overstatement of sales; (3) inappropriately capitalized labor resulting in an
understatement of selling, general and administrative expenses; and (4)
unamortized slotting costs resulting in an understatement of selling expenses.
The quarter ended June 30, 1996 has been restated principally for these items
and the write-off of certain costs previously written-off in the fourth quarter
of 1996.
The impact of the restatements on the Company's balance sheets and
statements of operations for the three months and six months ended June 30,
1996 are summarized as follows:
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 1996 June 30, 1996 June 30, 1996 June 30, 1996
------------- ------------- ------------- -------------
(As originally (As Restated) (As originally (As Restated)
Reported) Reported)
(in thousands, except per share data)
Statement of Operations
- -----------------------
<S> <C> <C> <C> <C>
Net sales $42,915 $43,328 $76,982 $76,773
Gross profit 14,564 14,350 26,106 24,709
Selling, general and
Administrative 9,994 9,864 17,946 17,378
Operating income 4,570 4,486 8,160 7,331
Net income 2,703 2,658 4,791 4,125
Net income per share $ .20 $ .20 $ .36 $ .31
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
-------------
(As originally (As Restated)
Reported)
(in thousands)
Balance Sheet
- -------------
<S> <C> <C>
Current assets $41,466 $40,878
Total assets 60,295 59,457
Current liabilities 19,373 21,185
Total liabilities 23,420 23,247
Stockholders' equity 36,875 36,210
</TABLE>
All comparisons to the three and six months ended June 30, 1996 are based on
amounts as restated.
12
<PAGE>
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Net sales for the three months ended June 30, 1996 increased 68.9% to
$43.3 million from $25.7 million for the three months ended June 30, 1995. The
increase is primarily the result of an increase in unit sales of laundry
products.
Gross profit increased 103.2% to $14.4 million in the three months
ended June 30, 1996 from $7.1 million for the comparable period in 1995. Gross
profit increased as a percentage of net sales to 33.1% in the three months
ended June 30, 1996 from 27.5% for the comparable period in 1995. The increase
as a percentage of net sales was primarily attributable to a decrease in
materials costs of 8.1% of net sales, offset in part by increases in fixed
overhead and labor costs of 1.1% and 1.6% of net sales, respectively.
Selling, general and administrative expenses increased 103.2% to $9.9
million in the three months ended June 30, 1996 from $4.9 million for the
comparable period in 1995. As a percentage of net sales, these expenses
increased to 22.8% in the three months ended June 30, 1996 from 18.9% for the
comparable period in 1995. The increase as a percentage of net sales was
primarily due to increases of 1.3% in marketing funds, (co-op advertising,
promotional allowances and slotting amortization), 1.0% in freight to
customers, .2% in commissions and .5% in administrative, .3% in marketing
expenses, .2% in bonuses, .2% in bad debt expense, .1% in accounting fees and
.1% in insurance expense.
Interest expense-net decreased to $153,000 in the three months ended
June 30, 1996 from $234,000 for the comparable period in 1995, primarily as a
result of lower average outstanding borrowings.
Earnings before income taxes increased 119.6% to $4.3 million in the
three months ended June 30, 1996 from $2.0 million for the comparable period in
1995. As a percentage of net sales, earnings before income taxes increased to
10.0% in the three months ended June 30, 1996 from 7.7% for the comparable
period in 1995.
13
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net sales for the six months ended June 30, 1996 increased 57.0% to
$76.8 million from $48.9 million for the six months ended June 30, 1995. The
increase is primarily the result of an increase in unit sales of laundry
products.
Gross profit increased 85.4% to $24.7 million in the six months ended
June 30, 1996 from $13.3 million for the comparable period in 1995. Gross
profit increased as a percentage of net sales to 32.2% in the six months ended
June 30, 1996 from 27.3% for the comparable period in 1995. The increase as a
percentage of net sales was primarily attributable to a decrease in materials
costs of 7.8% of net sales, offset by increases in fixed overhead and labor
costs of 1.5% and 1.3% of net sales, respectively.
Selling, general and administrative expenses increased 86.3% to $17.4
million in the six months ended June 30, 1996 from $9.3 million for the
comparable period in 1995. As a percentage of net sales, these expenses
increased to 22.6% in the six months ended June 30, 1996 from 19.1% for the
comparable period in 1995. The increase as a percentage of net sales was
primarily due to increases of 1.3% in marketing funds (co-op advertising,
promotional allowances and slotting amortization), 1.0% in freight to
customers, .3% in commissions, .2% in marketing expenses, .3% in administrative
personnel, .1% in accounting fees, .2% in bonuses and .1% in travel and
entertainment.
Interest expense-net decreased to $320,000 in the six months ended
June 30, 1996 from $422,000 for the comparable period in 1995, primarily as a
result of lower average outstanding borrowings.
Earnings before income taxes increased 96.1% to $7.0 million in the
six months ended June 30, 1996 from $3.6 million for the comparable period in
1995. As a percentage of net sales, earnings before income taxes increased to
9.1% in the six months ended June 30, 1996 from 7.3% for the comparable period
in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The description of the Company's liquidity and capital resources has
changed substantially since the end of the period to which this Quarterly
Report on Form 10Q/A relates and, consequently, a discussion of such items as
of June 30, 1996 is not deemed to be relevant to an evaluation of the Company.
The Company's current relationship with PNC Bank, National Association. ("PNC")
and the New Jersey Economic Development Authority (the "EDA") is as follows:
14
<PAGE>
PNC BANK DEBT
On February 25, 1998, the Company and PNC entered into an amended and
restated Loan and Security Agreement (the "PNC Agreement"). In conjunction with
the PNC Agreement the Company made a principal payment of $5 million and
granted PNC a security interest in substantially all of the assets of the
Company. The balance of the principal indebtedness, approximately $35 million,
is due in January 1999 and bears interest at rates which range from prime plus
.25% to prime plus 2%. The actual rate depends on the timing of the repayment
of the indebtedness. Of the $5 million paid to PNC, $4 million was loaned to
the Company by an entity ("101 Realty") owned by certain of the Company's
principal stockholders at a rate of 9.5% per annum, and is due in July 1999.
These stockholders also personally guaranteed the repayment of up to an
additional $5 million of the indebtedness owed to PNC. At December 31, 1997,
$1,000,000 of the PNC debt was classified as current reflecting the difference
between the amount repaid to PNC and the amount loaned to the Company by
certain of its principal stockholders.
In connection with the transaction, PNC received a warrant to purchase
between approximately 140,000 and 700,000 shares of the Company's common stock,
depending on the repayment date of the remaining indebtedness (140,000 shares
if paid in full by September 30, 1998). In conjunction with the issuance of
this warrant, the Company recognized in the first quarter of 1998, a deferred
charge of $415,000. This charge will be deferred and amortized over the period
ending January 4, 1999. The Company engaged the services of an independent
specialty investment banking firm to calculate and establish the valuation of
this warrant.
In connection with the $4 million and $5 million guarantee referred to
above, 101 Realty received a warrant to purchase between approximately 99,000
and 194,000 shares of the Company's common stock depending on whether the $5
million which is the subject of the guarantee is required to be paid. In
conjunction with the issuance of these warrants, the Company recognized, in the
first quarter of 1998, a deferred charge of $335,000. This charge will be
deferred and amortized over an 18 month period. The Company engaged the
services of an independent specialty investment banking firm to calculate and
establish the valuation of these warrants.
The PNC Agreement requires the Company to, among other things,
maintain a ratio of current assets to current liabilities (as defined) in
excess of 1.1, commencing January 31, 1998, and prohibits the payment of
dividends and the incurrence of new debt.
15
<PAGE>
For the year ended December 31, 1997, the Company has experienced
significant operating losses relating to, among other things, its geographic
expansion of its manufacturing and distribution facilities. In addition, the
Company has also experienced difficulty in meeting its liquidity needs. The
Company requires the availability of sufficient cash flow and borrowing
capacity to finance its operations, meet its debt service obligations and fund
future capital expenditure requirements. The Company's operating plan for 1998
includes continuing its cost reduction programs. Such programs include
reduction in temporary labor, production rationalization, increased use of high
speed fillers and cartoners and improved production planning and control.
Management believes that the corrective actions taken in the latter part of
1997 and the ongoing cost reduction programs currently in place, will have a
positive impact on operating results for 1998. Additionally, management is
optimistic about its ability to replace the PNC Facility with a permanent
financing facility which will more adequately support ongoing operations, debt
service and capital expenditure requirements. There can be no assurance that
the Company will be successful in these efforts.
EDA Loan
The Company also has a loan facility of $2.75 million from the "EDA
Loan". As of December 31, 1997, the Company had used approximately $2.5 million
of the EDA Loan for purchases of machinery and equipment and improvements to
the Company's North Brunswick manufacturing facility. The remaining funds are
restricted for the duration of the EDA Loan. The EDA Loan is payable in monthly
installments of approximately $26,000 through November 1, 2002. Interest on the
EDA Loan is payable at a variable rate (4.15% at December 31, 1997). As a
result of several factors, including those relating to the Company's historical
financial performance, amounts owed under the EDA Loan, at the option of the
issuing lender thereunder, may be declared immediately due and payable. The
Company has requested a waiver from the New Jersey Economic Development
Authority with respect to existing violations under the EDA Loan. There can be
no assurances that the Company will be successful in obtaining such waiver. To
date, the Company is current with respect to scheduled principle and interest
payments. The entire obligation has been classified as current in the December
31, 1997 balance sheet.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Reference is made to the discussion contained in Item 2 - - "EDA Loan" of this
Report on Form 10-Q/A for a description of the Company's defaults upon senior
securities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 Financial Data Schedule
17
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
USA DETERGENTS, INC.
July 10, 1998 By: /s/ Uri Evan
-------------------------------
Uri Evan
Chairman of the Board and
Chief Executive Officer
July 10, 1998 /s/ Richard D. Coslow
-------------------------------
Richard D. Coslow
SENIOR VICE PRESIDENT
Chief Financial Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q/A for the quarter ended June 30, 1996, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 463
<SECURITIES> 0
<RECEIVABLES> 20,470
<ALLOWANCES> 423
<INVENTORY> 15,095
<CURRENT-ASSETS> 40,878
<PP&E> 16,512
<DEPRECIATION> 3,344
<TOTAL-ASSETS> 59,457
<CURRENT-LIABILITIES> 21,185
<BONDS> 0
0
0
<COMMON> 137
<OTHER-SE> 36,073
<TOTAL-LIABILITY-AND-EQUITY> 59,457
<SALES> 43,328
<TOTAL-REVENUES> 43,328
<CGS> 28,978
<TOTAL-COSTS> 9,864
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153
<INCOME-PRETAX> 4,333
<INCOME-TAX> 1,675
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,658
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
