USA DETERGENTS INC, 10-K, 1999-03-30

USA DETERGENTS INC
10-K, 1999-03-30
SOAP, DETERGENTS, CLEANG PREPARATIONS, PERFUMES, COSMETICS

Previous: MACKIE DESIGNS INC, 10-K, 1999-03-30

Next: VIROPHARMA INC, 10-K405, 1999-03-30

<PAGE>

UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the fiscal year ended December 31, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from to
-------------------- --------------------

Commission File No. 0-26568

USA DETERGENTS, INC.
(Exact name of registrant as specified in its charter)

Delaware 11-2935430
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

1735 Jersey Avenue
North Brunswick, New Jersey 08902
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (732) 828-1800

Securities registered pursuant to Section 12(b)
of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------

None Not Applicable

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
---------------------------------------------------
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]

Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The number of shares outstanding of the Registrant's Common Stock, as of March
18, 1999, was 13,825,602 shares. The aggregate market value of the Registrant's
Common Stock held by non-affiliates of the Registrant (based upon the closing
price of such stock on the Nasdaq National Market on March 18, 1999 and the
assumption for this computation only that all directors and executive officers
are affiliates) was $90,695,949.

Documents Incorporated by Reference: Proxy Statement to be filed
pursuant to Regulation 14A of the Exchange Act on or before April 30, 1999,
incorporated by reference into Parts II and III.

<PAGE>

Unless otherwise indicated, all information in this Form 10-K has been
adjusted to reflect (i) a reorganization of the company into a Delaware
corporation effected in August 1995, (ii) the issuance of approximately 88,167
shares of Common Stock for each share of Common Stock of the Company's
predecessor in connection with the reorganization and (iii) a 3-for-2 stock
split effected in the form of a 50% stock dividend paid on February 9, 1996 (the
"Stock Split"). Unless the context otherwise requires, the "Company" or "USA
Detergents" shall mean USA Detergents, Inc., its wholly-owned subsidiaries and
its predecessor to the reorganization.

The Company's quarterly and annual operating results are affected by a
wide variety of 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 forwardlooking statements are subject
to certain risks and uncertainties, including those mentioned above, which may
cause actual results to differ significantly from these forwardlooking
statements. The Company undertakes no obligation to publicly release the results
of any revisions to these forwardlooking statements which may be made to reflect
events or circumstances after the date when such statements were made 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 including this Form
10-K.

2
<PAGE>

PART I

ITEM 1. BUSINESS

GENERAL

USA Detergents is a leading manufacturer and marketer of quality,
nationally distributed value brand laundry and household cleaning products. The
Company operates in one industry segment and its products are sold to customers
principally in the United States. The Company currently markets its products in
eight laundry and household product categories and features thirteen distinct
value brands. Two of the Company's brands, XTRA(R) and Nice'n FLUFFY(R),
according to Information Resources Inc. Retail Review Data (IRI DATA) currently
rank among the five largest brands in their respective product categories in
terms of total retail volume sales in the United States. XTRA(R) and Nice'n
FLUFFY(R) represented 65.0% and 20.5%, respectively, of the Company's net sales
in 1998. The Company sells its products to large and small retailers throughout
the United States including supermarkets, mass merchandisers, variety and dollar
stores, drug stores and small grocery stores.

HOUSEHOLD PRODUCTS MARKET OVERVIEW

The Company believes the market for laundry and household cleaning
products ("Household Products") in which it competes or intends to compete
consists of the following eleven product categories: liquid laundry detergent,
powder laundry detergent, liquid fabric softener, fabric softener sheets,
household cleaners, dish detergent, personal soap products, air fresheners,
bleaches, rug and upholstery cleaners and floor cleaners.

The Company views the market for Household Products as being segmented
into four types of brands: value brands, store brands, midpriced brands and
premiumpriced brands. The Company believes that consumer purchases of Household
products are determined, in large part, by price, with certain consumers willing
to pay a premium for leading national brand names and the latest packaging and
technology while other consumers demand valuepriced brands incorporating certain
features found in premiumpriced products. The Company believes the primary
characteristics of each of these types of brands are as follows:

Value Brands. Value brands are sold to retailers and consumers at prices
significantly below most other brands of Household Products. Value brands
generally incorporate packaging features and product quality comparable to
premiumpriced and midpriced brands and typically are offered with only the most
popular product features and in only the most popular sizes. Value brands are
usually not advertised or promoted directly to the consumer by the value brand
supplier.

Store Brands. Store brands are marketed through various retail outlets
under retaileraffiliated (private) labels and are typically manufactured to the
specifications of individual retailers. Store brands typically are supported by
limited retailer advertising, generally do not incorporate stateoftheart
packaging and are priced below midpriced brands.

3
<PAGE>

Mid-Priced Brands. Mid-priced brands generally attempt to capitalize
on their existing or historical brand equity, are supported by limited consumer
advertising and are positioned as comparable but less expensive alternatives to
premium-priced brands.

Premium-Priced Brands. Premium-priced brands focus on promoting brand
loyalty and consumer awareness of product features through significant national
advertising. Premium-priced brands are supported by extensive research and
development to design state-of-the-art packaging and product features and to
develop new products.

BUSINESS STRATEGY

The Company's objective is to be the leading supplier of value brand
Household Products. The Company's business strategy is to enable retailers to
increase sales and realize attractive profit margins on the Company's products
while providing value to consumers. There can be no assurance that the Company
will be successful in continuing to meet its objectives or in successfully
pursuing its strategies. The key elements of the Company's business strategy are
described below:

VALUE TO RETAILERS

The Company focuses on assisting the retailer to profitably optimize
its retail space in traditionally low margin Household Products categories. The
Company provides retailers with merchandising support relating to product mix,
shelf display and pricing strategies, and promotional programs which are
designed to increase sales of the Company's products. The Company's emphasis on
being a lowcost supplier allows it to sell its Household Products to retailers
at prices which enable these retailers to offer a lower price to consumers while
realizing relatively attractive margins. The Company also seeks to build strong
relationships with retailers by providing them with a high level of customized
service including direct shipments, electronic data interchange, mixed product
pallets and flexible, prompt delivery.

VALUE TO CONSUMERS

The Company offers consumers attractively packaged, quality brand name
products at prices significantly below most other brands. This combination of
high product quality and low prices offers consumers an attractive alternative
to other brands. The Company emphasizes cost controls which enabled it to
maintain its pricing to the consumer.

BRAND AND CORPORATE IDENTIFICATION

The Company seeks to develop strong brand and corporate name
recognition among retailers and strong brand recognition and brand loyalty among
consumers. The Company believes that colorful and graphic packaging combined
with recognizable product names and the Company's commitment to quality and low
price, contribute to strong brand awareness and purchaser confidence at the
consumer level, and generate increased product sales. The Company further
believes that development of corporate and brand name recognition of the Company
and its products among retailers enables the Company to introduce new products
more effectively.

4
<PAGE>

FURTHER MARKET PENETRATION

The Company focuses its sales efforts on supermarkets, mass
merchandisers, variety and dollar stores, drug stores and small grocery stores,
particularly those whose retailing philosophy closely corresponds to the
Company's high value, low cost marketing concepts. The Company intends to
continue increasing its market penetration by distributing its products through
additional supermarkets, as well as other retail outlets. For the quarter ended
December 31, 1998, IRI DATA indicates that the Company's XTRA(R) liquid laundry
detergent and Nice'n FLUFFY(R) liquid fabric softener were sold to retailers
representing 67.3% and 68.1%, respectively, of all commodity volume ("ACV")
distribution within the food, drug and mass merchants sector. ACV distribution
for a product represents the percentage of food, drug and mass merchant retail
outlets (as measured by aggregate retail sales) which sold that product during a
specified time period in the United States. The Company intends to use the
access to retailers it has gained through the success of its XTRA(R) and Nice'n
FLUFFY(R) brands to increase the penetration of its other products through these
existing retail outlets.

CONTROLLED EXPANSION OF PRODUCT LINE

The Company introduced 23 new products in 1998 and 65 new products in
1997, including reformulations and alternate sizes. Net sales of products
introduced in 1998 were $2.6 million or 1.2% of net sales for the year ended
December 31, 1998.

PRODUCTS

The Company currently sells its products primarily in eight Household
Product categories under thirteen distinct brand names. The Company's products
include the following:

PRODUCT CATEGORY PRIMARY COMPANY BRANDS
---------------- ----------------------
(HOUSEHOLD PRODUCTS)

Liquid Laundry Detergent XTRA(R)
Powder Laundry Detergent XTRA(R)
Liquid Fabric Softener Nice'n FLUFFY(R)
Fabric Softener Sheets Nice'n FLUFFY(R)
Household Cleaners Touch of Glass(R), Swiss
Pine(R), Tile Action(TM),
Fabulous(TM), Plumber's Aid(R),
Captain Shine(R), Power Scrub(TM)
Dish Detergent XTRA(R) Plus, Crystal Shine(R)
Personal Soap Products Fine Care(R)
Air Fresheners Country Air(R)

(AUTOMOTIVE PRODUCTS)

Automotive Products Speedway(R)

5
<PAGE>

The Company's laundry detergents and fabric softeners accounted for an
aggregate of approximately 85.5% and 81.5% of the Company's net sales in 1998
and 1997, respectively, with XTRA(R) liquid laundry detergent accounting for
49.9% and 44.4% of net sales in these periods, respectively. The Company's
financial results and condition are substantially dependent on the continued
success and growth of sales of these products. A number of factors could limit
sales of these products by the Company, or the profitability of such sales,
including competitive efforts by other manufacturers of similar products, shifts
in consumer preferences or introduction and acceptance of alternative product
offerings.

PRODUCT DESIGN AND DEVELOPMENT

The Company consistently seeks to enhance the value of its products by
either improving their performance and packaging or lowering their cost and has
historically passed substantially all cost savings on to the retailer. The
Company places considerable emphasis on package quality and uses premium quality
materials and appealing, colorful graphic designs with the objective of
providing its products with the same or better shelf appeal than premium and
mid-priced brands.

Most of the important product enhancements in the Household Products
industry during the past several years have been developed by the research and
development departments of the premium-priced brand companies and the chemical
companies that supply the Household Products industry. Rather than maintain a
large research and development department, the Company works closely with its
suppliers, distributors and other industry participants to identify, and in some
cases anticipate, technological and design innovations which may be incorporated
into the Company's products. Generally, the Company adopts product and packaging
features after they have gained general market acceptance and believes that it
has typically been one of the first value brand suppliers to incorporate
features comparable to the successful innovations of these larger competitors.
The Company only incorporates features which it believes are valued by its
consumer base. The Company believes that its approach to product design and
development minimizes costs associated with significant research and
development, limits the introduction of unproven innovations and features, and
reduces the need to spend heavily to advertise new product developments or to
educate consumers.

MARKETING AND DISTRIBUTION

The Company sells its products to large and small retailers throughout
the United States. The Company's various branded products historically have been
sold primarily to supermarkets, mass merchandisers, variety and dollar stores,
drug stores and small grocery stores. Significant customers of the Company
include WalMart Stores, Inc., KMart Corp., Super-Value Inc., Fleming Companies
Inc., and Walgreen Co. The following table sets forth the Company's percentage
of net sales for fiscal 1996, 1997 and 1998 by retail distribution channel:

6
<PAGE>

PERCENTAGE OF NET SALES
--------------------------------------

DISTRIBUTION CHANNEL 1996 1997 1998
- -------------------- ---- ---- ----
<S> <C> <C> <C>
Supermarkets.................................. 41.0% 44.3% 46.6%
Mass Merchandisers............................ 27.8% 24.0% 24.1%
Variety and Dollar Stores..................... 17.0% 10.9% 11.6%
Drug Stores................................... 9.9% 11.2% 7.9%
Small Grocery and Other....................... 4.3% 9.6% 9.8%
---- ---- ----
Total.................................. 100.0% 100.0% 100.0%
====== ====== ======

</TABLE>

The Company's largest customer, WalMart accounted for approximately
17.0%, 12.4% and 10.8% of net sales in 1996, 1997 and 1998 respectively. No
other customer of the Company accounted for more than 10% of the Company's net
sales during 1997 or 1998. As is customary in the Household Products industry,
the Company does not have long-term contracts with its customers. A significant
reduction of purchases by any of the Company's largest customers could have a
material adverse effect on the Company's business and results of operations.

As of December 31, 1998, the Company sold its products through its own
41 person national sales department, which included six regional offices,
supported by a network of 87 independent brokers and sales representatives. In
1998, approximately 63% of the Company's net sales were generated by its
internal sales force with independent broker assistance, with the remaining 37%
of net sales generated without broker assistance. Each salesperson is
compensated by salary and commissions.

The Company seeks to provide retailers with high levels of sales and
merchandising support and delivery services. The Company's sales and
merchandising support and delivery services are designed to assist retailers in
increasing sales of the Company's products through development of improved
packaging, product mix, shelving and pricing strategies, and effective
promotional programs. To provide better delivery service to its customers, the
Company is flexible as to the amounts and combinations of products it will
deliver and generally strives to deliver products within one to seven business
days of receiving an order. With certain retailers, the Company uses electronic
data interchange ("EDI") systems that interface directly with the customer's
product ordering process.

Substantially all product distribution is centralized at the Company's
facilities in New Jersey, Missouri and Illinois. Products generally are
delivered to a retailer's distribution center, although the Company distributes
products representing a limited amount of net sales directly to retail outlets.
Substantially all of the Company's products are delivered by independent
trucking companies.

Beginning in the latter part of the third quarter of 1996, the Company
experienced distribution difficulties and late customer deliveries primarily
attributable to the Company's rapid growth in sales and the assimilation of
three new manufacturing and distribution facilities. The effect of these factors
was an increase in the costs associated with plant integration, distribution

7
<PAGE>

and customer returns and allowances, thus having a material adverse effect on
the results of the Company's operations for 1996 and 1997. In 1998, the Company
made significant improvements in its operating processes through automation and
integration of manufacturing and maintenance systems, improvements in supply
chain planning and inventory control procedures. While the Company continually
works with its customers to establish and assure efficient distribution, there
can be no assurance that such efforts will be successful or that similar or new
problems with distribution will not occur in the future.

MANUFACTURING AND SUPPLY

During 1998, the Company manufactured substantially all of its liquid
products at its facilities in North Brunswick, New Jersey and in Harrisonville,
Missouri. The manufacturing process at the Company's facilities consists of
blending liquid chemicals and fragrance, which the Company purchases from
independent suppliers, and packaging such blends to create finished products.
Blending is done according to or by modifying formulas provided by the Company's
chemical suppliers. The Company conducts quality control tests on raw materials
on a regular basis and also conducts stringent quality control tests on its
products during and after the manufacturing process. In addition to the
Company's powder detergent facility in Chicago, the company invested in a
dry-blend powder detergent line in its Harrisonville, Missouri facility. Any
extended interruption of operations at the Company's manufacturing facilities
could have a material adverse effect on the Company's business and results of
operations. For the year ended December 31, 1998, the Company purchased
approximately 77.4% of its liquid chemicals from three suppliers, Stepan
Company, Union Carbide and Henkel Corporation.

Substantially all of the bottles, closures and labels used by the
Company during 1998 at its manufacturing facilities were purchased from
OwensIllinois Plastics Products Inc., OwensIllinois Closure Inc., and
Owens-Illinois Labels, Inc. (collectively referred to as "Owens"). The Owens
plants used in connection with the manufacture of such bottles are located near
the Company's manufacturing facilities and the majority of each Owens plant's
production is dedicated to the Company. In January 1999, the Company and Owens
agreed in principle to amend the current agreement starting on January 1, 1999
and expiring December 31, 2003. The Company has agreed to purchase all currently
supplied materials from Owens in return for Owens' agreement to dedicate certain
of its machinery to meet the Company's packaging requirements and provide
additional machinery if necessary. Certain molds used to manufacture the
Company's packaging are not owned by the Company.

In January 1996, the Company entered into a lease for a facility located
in Edison, New Jersey. Until 1997, this facility was used for the manufacture of
its scented candle air freshener products and additional warehouse and
distribution capacity. In May 1997, the Company, as part of its cost reduction
strategy, closed its Edison, New Jersey facility and moved its candle
manufacturing operation to the Company's North Brunswick, New Jersey facility.
In addition, in 1997, the Company purchased a new facility adjacent to its
existing North Brunswick, New Jersey facility to consolidate its East Coast
warehousing operations. See Item 2. "Properties" and Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Restructuring Costs."

8
<PAGE>

The Company also has certain products manufactured to the Company's
specifications by independent contractors. The Company subcontracts the
manufacture of products based on costeffectiveness, manufacturing capacity and a
desire to avoid large capital commitments associated with manufacturing before
the Company can determine the longterm success of such products. The Company's
purchases from subcontractors are generally made pursuant to purchase orders.

In 1998, the Company began manufacturing products on behalf of certain
customers in order to maximize the Company's manufacturing capacity, operational
efficiencies and the technological advancements that the Company has developed.
The Company intends to enter into only those arrangements that it believes will
be beneficial to the Company and fit with its strategic goals.

The Company's reliance on a sole supplier or limited group of suppliers
and subcontractors involves several risks, including increased risk of inability
to obtain adequate supplies, and reduced control over pricing and timely
delivery. Although the timeliness, quality and pricing of deliveries from the
Company's suppliers have been acceptable to date and the Company believes that
additional sources of supply are generally available, there can be no assurance
that supplies will be available on an acceptable basis or that delays in
obtaining new suppliers, particularly of plastic bottles, will not have an
adverse effect on the Company. The Company's inability to obtain adequate
supplies of chemicals, packaging materials, manufacturing equipment or finished
products at acceptable prices could have a material adverse effect on the
Company's business.

INVENTORY PRACTICE AND ORDER BACKLOG

The Household Products industry is generally characterized by prompt
delivery of products by suppliers. The Company strives to maintain the time
between the Company's receipt of a customer's order and shipment to the customer
at one to seven business days. The Company generally maintains between two and
ten days of finished core products inventory. As a result of the short lead time
between the order and delivery of its products, the Company does not maintain a
significant backlog. The Company experienced distribution difficulties beginning
in the latter part of the third quarter of 1996 and during 1997 attributable to
the Company's rapid growth in sales and the assimilation of three new
manufacturing and distribution facilities. See "-- Marketing and Distribution."

INTELLECTUAL PROPERTY

Brand identification is an important element in marketing the Company's
products and the Company recognizes the importance of its trademarks to the
success of its business. The Company obtains trademarks for certain of its
brands and has registered or has applications pending to register certain
trademarks with the United States Patent and Trademark Office. In addition, the
Company has registered or applied for registration of certain of its trademarks
in a number of foreign countries. Due to the importance of package design,
labels, trademarks and

9
<PAGE>

trade dress to its business, the Company has taken, and expects to continue to
take, vigorous action to protect against infringement of its trademarks and
copyrights.

Although the Company considers certain of its packaging, labels,
trademarks and designs to be proprietary, certain of such packaging, labels,
trademarks and designs are not protected by copyright or trademark registration.
In addition, the Company from time to time has received, and may receive in the
future, communications from third parties asserting and challenging intellectual
property rights relating to the Company's products, labels, trademarks and
packaging. There can be no assurance that third parties will not successfully
assert claims against the Company with respect to existing or future products or
packaging. Should the Company be found to infringe upon the intellectual
property rights of others, the Company could be required to cease use of certain
products, trademarks, labels or packaging or pay damages to the affected
parties, either of which could have a material adverse effect on the business
and operations of the Company.

Substantial costs also may be incurred by the Company in redesigning its
labels or packaging, in selecting and clearing a new trademark or in defending
any legal action taken against it. Packaging, labels, trademarks and designs are
generally reviewed by the Company's intellectual property counsel prior to their
general adoption and usage.

Manufacturers normally seek United States and foreign patent protection
for the chemical formulations that they develop and numerous third party patents
that relate to laundry and household cleaning products are on file with the
United States Patent and Trademark Office. Formulations of the products produced
by the Company are generally provided by the Company's third party chemical
suppliers who are responsible for the intellectual property, if any, in such
formulations. The Company believes it has been able to introduce products
comparable to those introduced by most of its competitors by using manufacturing
methods or materials that are not protected by patents or by acquiring patented
formulations.

COMPETITION

The Company experiences substantial competition from a number of
suppliers of laundry and household cleaning products, including larger
premiumpriced, midpriced and private label suppliers. Many of these suppliers
have substantially greater financial, technical, marketing, distribution and
other resources than the Company. In addition, there are several value brand
suppliers which compete directly with the Company. The Company believes its
products compete primarily on the basis of price and customer service and the
Company does not intend to compete on the basis of premiumpriced brand product
features.

The Company estimates, based on Merrill Lynch's Consumer Products Market
Trend Analysis for the year ended December 31, 1998, that the two largest
suppliers in the laundry and household cleaning products industry were Procter &
Gamble Co. and Unilever N.V. These two suppliers accounted for an aggregate of
approximately 53.6% and 22.9% of 1998 domestic retail sales of liquid laundry
detergents and liquid fabric softeners, respectively. These two product
categories accounted for 49.4% and 19.1%, respectively, of the Company's net
sales in 1998.

10
<PAGE>

The laundry and household cleaning products industry is characterized by
substantial price competition which is effected through changes in price,
product size and promotions. The Company believes it typically is not affected
by price changes initiated by larger premiumpriced or midpriced suppliers whose
pricing is substantially higher than the Company's pricing. Some suppliers of
value brands or store brands compete directly with the Company as low price
suppliers. Competitors may attempt to gain market share by offering products at
prices at or below those typically offered by the Company. Such competitive
pricing has in certain cases necessitated and may continue to necessitate price
reductions by the Company and has and may continue to result in lost orders.
There can be no assurance that future price or product changes by the Company's
competitors will not have a material adverse effect on the Company or that the
Company will be able to react with price or product changes of its own to
maintain its current market position.

EMPLOYEES

As of December 31, 1998, the Company had 585 fulltime employees, of whom
63 worked in executive, administrative or clerical capacities, 329 worked in
design and manufacturing, 152 worked in warehouse facilities and 41 worked in
sales. The Company believes that its relations with its employees are good. The
Company has never experienced any interruption of any of its operations due to a
labor disagreement with its employees. The Company also utilizes temporary
employees as necessary.

ENVIRONMENTAL REGULATION

The Company is subject to various federal, state and local environmental
laws and regulations, including those relating to wastewater discharge, air
quality and the storage, handling and disposal of a variety of substances. Some
of the chemicals used by the Company and stored at its manufacturing facility
are materials regulated by federal or state environmental protection agencies.
While the Company has not had to make significant capital expenditures for
environmental compliance, the Company cannot predict with any certainty its
future capital expenditure requirements for environmental compliance because of
continually changing compliance standards and technology. Consequently,
unforeseen expenditures required to comply with such laws and regulations,
including unforeseen environmental liabilities, could have a material adverse
effect on the Company's business. The Company maintains $6.0 million of
insurance coverage for environmental liabilities. See Item 2. "Properties."

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth-certain information with respect to the
executive officers and significant employees of the Company as of December 31,
1998:

11
<PAGE>

NAME AGE POSITION
- ---- --- --------
Uri Evan 63 Chairman of the Board; Chief Executive Officer
Daniel Bergman 41 Vice President; Director of New York Metro Sales;
Secretary; Director
Frank Corella 54 Vice President of Sales and Marketing
Richard D. Coslow 57 Executive Vice President; Chief Financial
Officer; Treasurer
Keith Spero 45 Executive Vice President; General Manager;
Assistant Secretary

URI EVAN has been Chairman of the Board of the Company since 1989 and
Chief Executive Officer since 1993. Mr. Evan is a cofounder of Net Grocer Inc.,
a nationwide, low-cost interactive grocery shopping service on the Internet.
From 1991 to 1992, he served as Chairman and Chief Executive Officer of I.
Rokeach & Sons Inc., a kosher food manufacturing and marketing company. From
1988 to 1990, Mr. Evan was Chairman and Chief Executive Officer of Newrock
Development Inc., a real estate development company. From 1969 to 1986, Mr. Evan
was President and Chief Executive Officer of Engineering Services Group, a Tel
Avivbased international engineering, printing and publishing conglomerate of
which he was a cofounder. From 1970 to 1982, he served as Chairman of
Organization and Management Sciences Consultants Ltd., an Israeli management and
computer sciences firm of which he was a cofounder.

DANIEL BERGMAN was a founder of the Company, has been a Vice President
of the Company since June 1995 and has been Director of New York Metro Sales,
Secretary and a director of the Company since 1988. Between 1987 and 1991, Mr.
Bergman was President of Carnegie International Inc., a retail and export
electronics company, and between 1984 and 1987, Mr. Bergman was a Vice President
of Nikora International Inc., a retail and export electronics company.

FRANK CORELLA has been Vice President of Sales and Marketing of the
Company since 1991. From 1990 to 1991, he was President and Principal of
Paperoni, Inc., a party supply company. From 1988 to 1990, he served as
President of US1 Auto Parts. From 1984 to 1988, Mr. Corella served as President
of American Discount Auto Parts, a division of Rite Aid. From 1962 to 1984, he
held various positions at SupeRx Drugs, a division of Kroger Foods, including
Vice President of Marketing.

RICHARD D. COSLOW has been Executive Vice President and Chief Financial
Officer since August 1998 and was Senior Vice President and Chief Financial
Officer from April 1997 to August 1998. From 1984 to 1997, he was Vice President
and Controller for Toshiba America Consumer Products, Inc., an international
diversified consumer products company. From 1982 to 1984, he was Vice President
of Finance for Endless Energy, Inc. and Jocelyn Management, Inc. From 1980 to
1982 he served as Vice President and Controller for Mego International, Inc.
From

12
<PAGE>

1967 to 1980 he held various positions with Deloitte and Touche including Senior
Audit Manager. Mr. Coslow is a Certified Public Accountant.

KEITH A. SPERO has been Vice President of Distribution since joining the
Company in 1996. In August 1998, he became Executive Vice President and General
Manager of the Company. From 1995 to 1996, he was Director of Delivery Center
Operations at Office Max, Inc. From 1993 to 1995, he was Category Manager of
Plastipak Packaging, Inc. From 1980 to 1993, he held various managerial
positions in distribution operations and production management at The Clorox
Company. From 1975 to 1980, he also held various positions at the Colgate
Pamolive Company. Mr. Spero has an MBA from Fairleigh Dickinson University.

ITEM 2. PROPERTIES

The Company currently conducts a substantial portion of its operations
from a 360,000 square foot facility located in North Brunswick, New Jersey. The
Company's executive offices and its manufacturing, distribution and
administration departments are all located in that facility. The lease relating
to such facility expires in 2004, subject to two fiveyear extensions. The
Company also leases six additional sales offices throughout the United States.

In January 1996, the Company entered into a lease for a 175,000 square
foot facility located in Edison, New Jersey. This facility was used by the
Company for the manufacture of the Company's scented candle air freshener
products and for additional warehouse and distribution capacity. The lease
relating to such facility expires in 2001, subject to one fiveyear extension,
and provides for an annual rental of $568,750. In May 1997, the Company, as part
of its cost reduction strategy, closed its Edison, New Jersey facility and moved
its candle manufacturing operation to the Company's North Brunswick, New Jersey
facility. This facility was subleased to a tenant on June 1, 1998, and
subsequently the tenant filed for bankruptcy on February 11, 1999. The Company
is in the process of either having the tenant affirm the lease or obtaining
possession of the facility. The Company believes a settlement will be reached by
the end of April 1999. If the Company obtains possession, it will attempt to
sublease the facility to a new tenant.

In August 1996, the Company purchased a 360,000 square foot facility
located in Harrisonville, Missouri for the production and distribution of liquid
and powder laundry products.

In March 1997, the Company purchased a 650,000 square foot facility in
North Brunswick, New Jersey, adjacent to the Company's existing facility. This
facility was utilized as part of the Company's consolidation of its entire East
Coast warehousing and distribution operation. As of December 31, 1998, this
facility has a total of approximately 370,000-sq ft. leased to two tenants. This
property is currently the subject of an Administrative Consent Order issued by
the New Jersey Department of Environmental Protection (the "NJDEP"), relating to
the remediation of certain hazardous wastes which were discharged onto the
property by the seller. The seller has undertaken substantial remediation
efforts to date to clear the property of these hazardous wastes and has posted a
bond with the NJDEP to secure the costs to continue such cleanup activities. In
addition, the seller has provided the Company with an undertaking to complete
the cleanup of the property to the standards required by the NJDEP, and a
complete indemnity against any claims or obligations to clean up the property
which may be asserted

13
<PAGE>

against the Company and which arise from any hazardous wastes that existed on
the property on the date the Company acquired the property. While the Company
believes it has taken adequate steps to protect its interests, there can be no
assurance that the Company will not incur costs in connection with environmental
matters concerning the property.

During June 1997, the Company exercised its purchase option, by the
cancellation of a $2,250,000 promissory note, to acquire a 100,000 square foot
powder plant facility located in Chicago. This facility provides the Company
with most of its powder production requirements. As part of the transaction, the
Company assumed a land lease upon which the Company's Chicago operations are
located. The lease, which expires in 2080, provides for rent to be paid annually
in the amount of $9,000 plus a variable amount adjusted for inflation for
additional parking areas. The total rent paid for the year ended December 31,
1998 was approximately $9,000.

For the fiscal year ended December 31, 1998, the Company recorded total
rent expense and real estate taxes for all properties, excluding the Edison
facility, of approximately $1.5 million, offset by income for rent and property
taxes of approximately $500,000.

ITEM 3. LEGAL PROCEEDINGS

On May 5, 1997, a securities class action lawsuit entitled Feldbaum v.
USA Detergents, Inc., et al., No. 97-CV-3227, was filed in the U.S. District
Court for the Eastern District of Pennsylvania against the Company and certain
of its current and former officers and directors, the Feldbaum case subsequently
was transferred to the U.S. District Court for the District of New Jersey. On
May 15, 1997, a second securities class action lawsuit entitled Einhorn v. USA
Detergents, Inc. et al., No. 97-2459, was filed against the Company and certain
of its current and former officers and directors in the U.S. District Court for
the District of New Jersey. Since the Einhorn lawsuit was filed, twelve
additional securities class action lawsuits were filed in the U.S. District
Court for the District of New Jersey against the Company and certain of its
current and former officers and directors. The class actions purported to be
brought on behalf of all persons who purchased the Company's common stock
between June 5, 1996, at the earliest, and May 8, 1997, at the latest (the
"putative class period"). The class actions generally alleged that, during the
putative class period, the defendants made false or misleading public statements
and engaged in improper accounting practices, which caused the price of the
Company's common stock to be artificially inflated. The class actions asserted
that the defendants' conduct violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder, as well as
state common law. In June and July 1997, the U.S. District Court for the
District of New Jersey entered orders consolidating all of the pending class
actions with the Einhorn case. In August 1997, the court entered an order
establishing a master docket for the consolidated class actions, In re USA
Detergents, Inc. Securities Litigation, Master File No. 97-CV-2459 (MTB), and
appointed lead plaintiffs and lead plaintiffs' co-lead counsel.

In December 1998, the Company finalized an agreement to settle for
$10.0 million the consolidated stockholder class action. The Company's total
cost under the agreement, including legal fees, after insurance and other
participation, was approximately $3.3 million which was paid in November 1998.
The Company recorded a charge in that amount during the second quarter of

14
<PAGE>

1998. After notice to the class, the court, on December 14, 1998, granted final
approval of the proposed settlement and dismissed the class actions.

In connection with the quarterly and annual results of operations
originally reported by the Company for certain fiscal quarters in 1996 and 1997
and the fiscal year ended December 31, 1996, the Company has received a formal
request from the Securities and Exchange Commission (the "SEC") for the
production of various documents and the testimony of certain current and former
employees. The Company has been providing documentation and other materials to
the SEC in response to the request, and the testimony of certain persons has
been taken.

On September 12, 1997, the Company became aware of a claim by North
Brunswick Water, LLC and North Brunswick Township (collectively "NBWC") covering
among other things, unpaid water and sewer charges. The initial amount of this
claim was $5,000,000. NBWC also claimed that the Company was precluded under
local ordinances from using wells on its site to draw water for production
purposes. On October 20, 1997, the Company commenced an action in the Superior
Court of New Jersey, Chancery Division, Middlesex County, challenging NBWC's
claim and seeking injunctive relief to prevent NBWC from taking any steps to
discontinue water and sewer service pending resolution of the claim. As a result
of the institution of the litigation, the Company and NBWC entered into a
Consent Order to prevent discontinuation of water and sewer service. Pursuant to
the terms of this Consent Order, the Company has paid approximately $860,000 to
NBWC since October 1997, subject to refund.

On March 10, 1998, the Court entered an Order granting the Company's
motion for partial summary judgement. The Court ruled that local ordinances did
not preclude use of the wells for manufacturing purposes. This ruling was
appealed to the Appellate Divison of Superior Court by the defendants.

Since commencement of the litigation, the parties have engaged in
substantive and detailed settlement discussions. On January 11, 1999, the
parties agreed in principle upon a settlement, under which the Company will pay
$40,000 to NBWC, which represents certain unpaid, contested sewer charges for
1998. In addition, the Company agreed to pay a total of $600,000 over three
years plus simple interest at a rate of 5% in return for NBWC granting the
Company a perpetual license at no additional costs to use the wells up to the
full extent ultimately permitted by the NJDEP. The parties are currently in the
process of finalizing the terms of a settlement agreement to reflect this
arrangement.

The Company is also involved in various routine legal proceedings of a
nature it deems to be customary to a company of its size. The Company believes
the ultimate disposition of these actions will not have a material adverse
effect on its financial position and results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

15
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's shares of common stock (the "Common Stock") are quoted on
the Nasdaq National Market under the symbol "USAD". The Common Stock was
initially offered to the public on August 7, 1995 at $9.67 per share (the "1995
IPO"). The following table sets forth for the periods indicated the high and low
reported last sale prices per share for the Common Stock as reported by The
Nasdaq National Market.

HIGH LOW

FISCAL 1997
First Quarter.................................. $45.25 $20.38
Second Quarter................................. 24.75 10.00
Third Quarter.................................. 14.88 10.75
Fourth Quarter................................. 12.50 7.63

FISCAL 1998
First Quarter.................................. $14.69 $7.75
Second Quarter................................. 17.94 12.25
Third Quarter.................................. 17.25 6.25
Fourth Quarter................................. 12.25 6.00

FISCAL 1999
First Quarter (through March 18, 1999)......... $ 6.56 $6.00

The number of stockholders of record of the Common Stock on March 18,
1999 was 73. On March 18, 1999, the last reported sale price of the Common Stock
as reported by The Nasdaq National Market was $6.56 per share.

SALES OF UNREGISTERED SECURITIES

On December 26, 1997, the Company granted a warrant to purchase 350,000
shares of Common Stock to Frederick R. Adler, a director of the Company, in
consideration for the sum of $175,000 and investment banking services to be
rendered by Mr. Adler during the three year period commencing January 1, 1998.
The warrant is exercisable beginning December 2000 or, if earlier, upon the
occurrence of an "Accelerating Event" as defined in the warrant, at an exercise
price of $7.875 per share of Common Stock (the market price of the Common Stock
on the grant date). The Company valued the warrant at approximately $375,000,
the amount specified by an independent banking and valuation firm engaged by the
Company. The value of the warrant, net of consideration to be received, will be
deferred and amortized over the three year consulting period.

On February 25, 1998, in connection with the amendment of the terms of
the Company's then-existing credit facility with PNC Bank, National Association
("PNC"), the Company issued to PNC a warrant to purchase 140,000 shares of
Common Stock. The warrant is presently exercisable and has an exercise price of
$12.15 per share, subject to certain anti-dilution adjustments. The warrant
issued to PNC also provides for certain registration rights with respect to the
shares acquired upon exercise of the warrant.

On February 25, 1998, in connection with the amendment of the Company's
then-existing credit facility with PNC, the Company issued to 101 Realty
Associates, L.L.C. a warrant to purchase 98,524 shares of Common Stock. The
warrant is presently exercisable and has an exercise price of $10.50 per share,
subject to certain anti-dilution adjustments.

See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has not paid dividends other than S Corporations
distributions and does not anticipate paying any dividends in the foreseeable
future. Certain of the Company's credit facilities contain restrictions on the
Company's ability to declare and pay dividends.

16
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)

The following selected financial data are derived from the audited
consolidated financial statements of the Company. No cash dividends, other than
S Corporation distributions, were paid for any years presented.
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31,
===============================================================
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................. $68,663 $104,878 $172,424 $227,269 $220,099
Cost of goods sold......................... 51,588 72,921 121,498 175,851 147,677
------ ------ ------- ------- -------
Gross profit 17,075 31,957 50,926 51,418 72,422
Selling, general and administrative
expenses................................... 12,182 22,232 43,878 70,336 62,109
Litigation settlement (1).................. 0 0 0 0 3,266
Restructuring costs (2).................... 0 0 0 2,379 730
------ ------ ------- ------- -------
Income/(loss) from operations 4,893 9,725 7,048 (21,297) 6,317
Interest expense-net....................... 543 544 868 3,232 5,032
------ ------ ------- ------- -------
Income/(loss) before provision
(benefit) for income tax................... 4,350 9,181 6,180 (24,529) 1,285
Income tax provision/(benefit)............. 83 2,156 2,473 (3,448) 137
------ ------ ------- ------- -------
Income/(loss) before extraordinary charge 4,267 7,025 3,707 (21,081) 1,148
Extraordinary charge ...................... -- -- -- -- 282
------ ------ ------ --------- ------
Net income/(loss).......................... $4,267 $7,025 $3,707 $(21,081) $ 866
====== ====== ====== ========= ======
Basic income/(loss) per share before
extraordinary charge .................... $ 0.27 $ (1.53) $ .08
Extraordinary charge ...................... -- -- (.02)
------ --------- -----
Basic net income/(loss) per share.......... $ 0.27 $ (1.53) $ .06
====== ========= =====
Weighted average shares outstanding........ 13,589 13,789 13,823
====== ====== ======
Diluted income/(loss) per share
before extraordinary charge ............. $ 0.27 $ (1.53) $ .08
Extraordinary charge ...................... -- -- (.02)
------ --------- -----
Diluted net income/(loss) per share........ $ 0.27 $ (1.53) $ 0.06
====== ========= ======
Weighted average shares outstanding
and potential common shares ............... 13,840 13,789 14,069
====== ====== ======

PRO FORMA INCOME STATEMENT
DATA(3):
Earnings before income tax as
Reported................................... $ 4,350 $ 9,181

Pro forma income tax provision............. 1,689 3,756
----- -----
Pro forma net income....................... $ 2,661 $ 5,425
======= =======
Pro forma basic net income
per share.................................. $0.22 $0.43
===== =====
Weighted average number of shares
outstanding................................ 11,915 12,494
====== ======
Pro forma diluted net income
per share.................................. $0.22 $0.43
===== =====
Weighted average number of shares
outstanding and dilutive options........... 11,915 12,553
====== ======

Working capital $ 5,154 $11,132 $35,283 $6,703 $2,496
Total assets 24,449 40,590 98,476 102,808 90,929
Short-term debt 3,860 7,320 5,819 2,501 3,334
Long-term debt 6,180 1,830 29,311 38,998 32,969
Stockholders' equity 5,880 20,292 36,099 15,584 17,314

</TABLE>

17
<PAGE>

(1) Litigation settlement includes the Company's total cost under the
agreement to settle the consolidated stockholder class action, including
legal fees. all such costs were expensed and paid in 1998.
(2) Restructuring cost includes the cost of moving the Company's candle
production line and inventory, the writeoff of related leasehold
improvements and a provision for future lease expenses in connection with
the shutdown of the Company's Edison, New Jersey facility.
(3) Pro forma net income represents net income less a provision for income
taxes that would have been required had the Company been taxed as a C
corporation during the entire period presented. The Company elected to be
treated as a Subchapter S corporation until August 10, 1995 (one day prior
to the closing of the Company's Initial Public Offering (the "1995 IPO"),
and, as a result, was not subject to federal and certain state income
taxes prior to that time. No pro forma adjustments have been made for
additional compensation expense paid to the existing stockholders of the
Company who are officers of the Company associated with the termination of
the Company's corporation status in connection with the 1995 IPO or for a
reduction in interest expense relating to the assumed pay down of
borrowings under the Company's then-existing working capital line of
credit with the net proceeds of the 1995 IPO, because the net effect of
such adjustments is not material. See Note 1 of "Notes to Consolidated
Financial Statements" for the years ended December 31, 1996, 1997 and
1998.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain income
statement data expressed as a percentage of net sales. Certain column totals set
forth may not add due to rounding.

YEAR ENDED DECEMBER 31,

1996 1997 1998
---- ---- ----
Net sales...................................... 100.0% 100.0% 100.0%
Cost of goods sold............................. 70.5 77.4 67.1
---- ---- ----
Gross profit................................... 29.5 22.6 32.9
Selling, general and administrative expenses... 25.4 31.0 28.2
---- ---- ----
Income/(loss) from operations.................. 4.1 (8.4) 4.7
Litigation settlement.......................... -- -- 1.5
Restructuring costs............................ -- 1.0 0.3
Interest expense-- net......................... 0.5 1.4 2.3
--- --- ---
Income/(loss) before income taxes.............. 3.6 (10.8) 0.6
Extraordinary change .......................... -- -- 0.1
Net income (loss).............................. 2.2% (9.3)% 0.4%
==== ==== ====

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Net sales for the year ended December 31, 1998 decreased 3.2% to
$220.1 million from $227.3 million in the year ended December 31, 1997. The
decrease was primarily due to a decrease in unit sales of household cleaners and
air freshners offset by an increase in unit sales of liquid and powder laundry
deteregents.

Gross profit for the year ended December 31, 1998 increased 40.9%
to $72.4 million from $51.4 million for the year ended December 31, 1997. Gross
profit as a percentage of net sales

18
<PAGE>

increased to 32.9% for the year ended December 31, 1998 from 22.6% for the same
period in 1997. The increase in gross profit as a percentage of net sales was
primarily attributable to a decrease of 8.1% in material costs due to more
favorable pricing and manufacturing efficiencies, and to a lesser extent, by
decreases as a percentage of net sales in distribution, manufacturing overhead,
direct labor and facilities overhead costs, resulting from improved cost control
measures.

Selling, general and administrative expenses decreased 11.7% to $62.1
million for the year ended December 31, 1998 from $70.3 million for the year
ended December 31, 1997. As a percentage of net sales, these expenses decreased
to 28.2% for the year ended December 31, 1998 from 31.0% for the same period in
1997. The decrease as a percentage of net sales was primarily due to decreases
of .6% in marketing funds (co-op advertising, promotional allowances and
slotting amortization), 1.7% in freight to customers and .7% in selling
expenses, offset by an increase of .2% in general and administrative expenses.

In 1998, the Company recorded $730,000 of restructuring charges
relating to its future lease commitment (net of sublease income) and associated
lease expenses for its Edison, New Jersey facility which was closed during the
second quarter of 1997. See "Item 2. Properties."

In December 1998, the Company settled for $10.0 million a consolidated
stockholder class action lawsuit. The Company's total cost under the agreement,
including legal fees, after insurance and other participation, was approximately
$3.3 million, and the Company recorded a litigation settlement charge in that
amount during the second quarter of 1998. This amount was paid in November 1998.
On December 14, 1998, the Court granted final approval of the proposed
settlement and dismissed the class action lawsuit. See "Item 3. Legal
Proceedings."

Interest and amortization of deferred financing costs-net increased to
$5.0 million for the year ended December 31, 1998 from $3.2 million for the year
ended December 31, 1997, primarily as a result of higher average outstanding
borrowings and the accelerated amortization of warrant and bank closing costs
directly related to the Company's efforts to refinance its then existing credit
facility. See - "Liquidity and Capital Resources-Bank Debt."

Income tax provision for the year ended December 31, 1998 of $137,000
and the income tax benefit for the year ended December 31, 1997 of $3.4 million
are based on actual tax computations for each of the periods. The difference
between the effective rate and the statutory rate for 1998 relates primarily to
the application of the allowable portion of the Company's net operating loss
carry forward.

The extraordinary charge of $282,000 relates to the writeoff of
deferred financing costs related to the early extinguishment of the PNC debt.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Net sales in the year ended December 31, 1997 increased 31.8% to $227.3
million from $172.4 million in the year ended December 31, 1996. The increase
was primarily the result of an increase in unit sales of laundry products and
scented candle air freshener products.

Gross profit increased 1.0% to $51.4 million in the year ended December
31, 1997 from $50.9 million in the prior year. Gross profit decreased as a
percentage of net sales to 22.6% in 1997 from 29.5% in the prior year. The
decrease as a percentage of net sales was primarily attributable to an increase
in material and labor costs of 3.2% and 0.7% of net sales, respectively,

19
<PAGE>

due to manufacturing inefficiencies caused by a high level of production line
changeovers to meet customer demands, inefficient production runs during the
start up and validation of new production lines, the writedown of raw materials
and finished goods inventory associated with discontinued products in the second
quarter, and sales of closeout products at reduced sales value. The decrease in
gross profit as a percentage of net sales was also affected by additional costs
of approximately 4.0% as a percentage of net sales relating to increased levels
of warehouse, distribution and freightin costs associated with the expansion of
the Company's business from a local singleplant operation to a multiplant
national manufacturer. The decrease in gross profit as a percentage of net sales
was partially offset by a 1.0% decrease in capitalized expenses. These
unanticipated increased costs, which began in the latter part of 1996, continued
to have a significant impact on the year ended December 31, 1997.

Selling, general and administrative expenses increased 60.1% to $70.3
million in the year ended December 31, 1997 from $43.9 million for the prior
year. As a percentage of net sales, these expenses increased to 31.0% in 1997
from 25.4% in the prior year. The increase as a percentage of net sales was
primarily due to increases of 4.5% in marketing funds (coop advertising,
promotional allowances and slotting amortization), 0.7% in freight to customers
and 0.7% in professional fees, partially offset by a decrease in the provision
for bad debts.

In May 1997, the Company, as part of its cost-reduction strategy,
decided to close its Edison, New Jersey facility and move its candle
manufacturing operations to the Company's North Brunswick, New Jersey facility
at a cost of $2.4 million. These restructuring costs included the writeoff of
leasehold improvements, a provision for a portion of the future lease commitment
and associated lease expenses. All such costs were expended in 1997 except for
approximately $377,000 for a provision for future rental and related lease
expenses until the facility was re-leased. This facility was subleased to a
tenant on June 1, 1998. The tenant subsequently filed for bankruptcy on February
11, 1999. The Company is in the process of either having the tenant affirm the
lease or obtaining possession of the facility. If the Company obtains
possession, it will attempt to sublease the facility to a new tenant. In 1998,
the Company provided an additional $730,000 provision relating to the sublease.

Interest and amortization of deferred financing costs -- net increased
to $3.4 million in the year ended December 31, 1997 from $0.9 million in the
prior year, primarily as a result of higher average outstanding borrowings and
the accelerated amortization of bank closing costs related to the Company's
prior credit facility.

The income tax benefit for the year ended December 31, 1997 approximates
14.1% of the loss before benefit for income taxes, compared to a provision which
approximates 40.0% of the earnings before provision for income taxes for the
year ended December 31, 1996. This difference principally relates to a net
operating loss carryforward of approximately $17,000,000 for which no benefit
has been recognized.

SEASONALITY

The Company has experienced, and may experience in the future,
quartertoquarter fluctuations in its operating results. The Company's financial
performance has been somewhat

20
<PAGE>

weaker in the fourth quarter than in other fiscal quarters, primarily as a
result of promotionoriented retailers providing reduced or less desirable
display space for the Company's laundry detergent products during the holiday
shopping season. The Company expects that this trend will be somewhat mitigated
as anticipated sales from supermarkets, which are less promotionoriented during
the holiday shopping season, and the sales of the Company's Country Air
Candles(R), which traditionally have stronger sales during the fourth quarter,
increase as a percentage of total net sales. The timing and introduction of new
products and other factors may also cause quarterly fluctuations in the
Company's results of operations.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998, the Company's working capital was $2.5 million
compared to working capital of $6.7 million at December 31, 1997.

Net cash provided by operating activities for the year ended December
31, 1998 was $10.3 million compared to $13.3 million in the prior year. The cash
provided by operating activities in 1998 resulted primarily from depreciation
and amortization of $11.9 million, a decrease in net accounts receivable of $4.4
million, a decrease in refundable income taxes of $3.9, a decrease in inventory
of $1.4 million and income of .9 million, offset in part by a decrease in
accounts payable and accrued expenses of $8.0 million and an increase in prepaid
expenses and other current assets of $4.3 million.

Net cash used in investing activities for the year ended December 31,
1998 was $4.8 million relating primarily to the acquisition and upgrades of
production equipment and information systems. The Company anticipates that
capital expenditures for 1999 will be approximately $5.0 million, which includes
expenditures for continued enhancements to the Company's manufacturing,
distribution and information systems.

Net cash used in financing activities for the year ended December 31,
1998 was $7.4 million which resulted primarily from repayments to bank lenders
of $7.7 million, an increase in deferred financing costs of $1.8 million,
repayment of the Oracle purchase obligation of $1.4 million, and net repayments
of the current portion of long-term debt of $1.2 million, offset in part by an
increase in a note payable of $4.0 million and an increase in other current
liabilities of $.5 million.

Bank Debt and Other Debt

In December 1996, the Company entered into a credit facility with PNC
Bank, National Association ("PNC") consisting of a $20,000,000 capital
expenditure facility for the purchase of capital assets and/or leasehold
improvements and a $10,000,000 traditional revolving facility (the "December
1996 PNC Facility"). On December 31, 1996, the Company also obtained a 60-day
$4,000,000 bridge loan which the Company repaid on March 3, 1997 with funds
generated from working capital.

21
<PAGE>

bridge loan (the "Bridge Loan II") to acquire a distribution center in North
Brunswick. The December 1996 PNC Facility and Bridge Loan II were secured by a
substantial portion of the Company's assets. Based in part on the Company's
performance in the first quarter of 1997, the $55.0 million March PNC Commitment
was withdrawn.

On February 25, 1998, the Company and PNC entered into an amended and
restated Loan and Security Agreement (the "February 1998 PNC Facility"), which
waived all defaults under the December 1996 PNC Facility and Bridge Loan II.
Under the amended agreement, the Company made a principal payment of $5.0
million and granted PNC a security interest in substantially all of the assets
of the Company. The balance of the principal indebtedness, approximately $35.0
million, was extended to January 4, 1999. Of the $5.0 million paid to PNC, $4.0
million was loaned to the Company by 101 Realty Associates, L.L.C. ("101
Realty"), at a rate of 9.5% per annum. 101 Realty is a New Jersey limited
liability company owned by Uri Evan, the Company's Chairman and Chief Executive
Office, Dinah Evan, Mr. Evan's wife, Daniel Bergman, a Director and beneficial
owner of more than 5% of the Company's outstanding Common Stock, and Frederick
J. Horowitz, Mark Antebi and Joseph Cohen, each of whom is the benefical owner
of more than 5% of the Company's outstanding Common Stock. The loan from 101
Realty was secured by a second mortgage on one of the Company's properties,
subject to a first mortgage held by PNC in the amount of $5 million.
Additionally, each of Messrs. Evan, Horowitz, Bergman, Cohen and Antebi jointly
and severally guaranteed repayment of an additional $5 million of the Company's
indebtedness to PNC.

In connection with the transaction, PNC received a warrant to purchase
140,000 shares and 101 Realty received a warrant to purchase 98,524 shares of
the Company's Common Stock. In conjunction with the issuance of the PNC
warrant, the Company recognized, in the first quarter of 1998, a deferred
charge of approximately $415,000, which was originally amortized over the period
ending June 30, 1999. In connection with the issuance of 101 Realty warrant, the
Company recognized a deferred charge of $335,000 in the first quarter of 1998.
This charge was deferred and is being amortized over the period ending July
1999. See "Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters -- Sales of Unregistered Securities."

On August 14, 1998, the Company entered into a Loan and Security
Agreement (the "FINOVA Agreement") with a syndicate of lenders including FINOVA
Capital Corporation ("FINOVA"), as agent for itself and other lenders, providing
the Company with up to $48.5 million of available financing. The Agreement
consists of a five-year revolving credit facility of up to $40.0 million,
subject to availability based on eligible accounts receivable and inventory, and
two five-year term loans aggregating $8.5 million. The revolving credit facility
bears interest at a rate of prime plus .75% and on December 31, 1998, the rate
was 8.5%. On December 31, 1998, net availability to the Company under the
revolving credit facility was $4.8 million and the amount outstanding was $14.1
million.

The first term loan in the amount of $6.4 million is repayable in 59
fixed monthly principal payments of $76,190 and a final principal payment of
$1,904,767. This loan bears interest at a fixed rate of 9.33%. The second term
loan in the amount of $2.1 million is repayable in 60 fixed monthly principal
payments of $35,000. This loan bears interest at prime plus 2.0% and on

22
<PAGE>

December 31, 1998, the rate was 9.75%. The aggregate amount outstanding on
December 31, 1998, under both term loans was $8.2 million.

The FINOVA Agreement contains various covenants which include, among
other things, specified levels of debt to equity, current ratios, a minimum net
worth and a minimum senior debt service coverage ratio. The FINOVA Agreement
also prohibits the payment of dividends and the incurrence of new debt. Amounts
outstanding under the FINOVA Agreement are secured by a first priority security
interest in substantially all of the assets of the Company and its subsidiaries,
except for certain real estate.

Twenty-five million dollars of the initial proceeds from the FINOVA
Agreement was used to pay down the Company's credit facility with PNC. In
connection with this payment, the due date of the remaining $10.1 million of
debt owed to PNC was extended until June 30, 1999, personal guarantees by
certain stockholders of the Company aggregating $5.0 million were cancelled and
the number of shares of Common Stock issuable to PNC pursuant to a previously
issued warrant was fixed at the minimum level of approximately 140,000 shares,
subject to certain anti-dilution provisions. The remaining $10.1 million of debt
owed to PNC continued to be secured by certain real property owned by the
Company and bore interest at a rate ranging from prime plus .75% to 2.0%. On
December 31, 1998, the interest rate was 9.75%.

On February 26, 1999, the Company refinanced its existing indebtedness
by amending and restating the FINOVA Agreement to provide for an additional
$14.5 million of financing. The $14.5 million of additional financing is to be
repaid in monthly payments based upon a ten-year amortization schedule at prime
plus 1.0% and along with all amounts outstanding under the existing credit
facility, is due in September 2003. The Company used $10.1 million of the
refinanced proceeds in order to pay off its remaining indebtedness to PNC. An
additional $4.0 million of the proceeds were set aside for the repayment of the
Company's indebtedness to 101 Realty over the next year, provided the Company
meets certain working capital criteria and achieves specified profitability
levels for fiscal 1998 and 1999. The FINOVA Agreement provides for the reserved
funds to be used to pay down the $14.5 million of additional indebtedness to
the extent that these conditions are not met for the repayment of the 101
Realty indebtedness. The increase in availability under the FINOVA Agreement
required the granting of a first mortgage security interest to FINOVA and the
other participating lenders on the Company's real property located in New
Jersey and Missouri.

During the year ended December 31, 1998, the Company recorded a
$952,000 charge related to the write-off of expenses related to unamortized
financing costs associated with the closing of the FINOVA Agreement, the early
extinguishment of PNC debt and financing transactions which were never
consummated. Approximately $282,000 of this charge, which relates to the early
extinguishment of PNC debt, has been shown as an extraordinary charge in the
accompanying consolidated statement of operations.

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. With the successful
replacement of the Company's previous credit facility with PNC with permanent
financing facilities from FINOVA, management believes that it will more
adequately support ongoing operations, debt service and capital expenditure
requirements. The Company's operating plan for 1999 includes continuing its cost
control programs. Such programs have included such things as controlling
temporary labor, additional automation of manufacturing

23
<PAGE>

facilities, further production rationalization, increased use of high speed
fillers and cartoners and improved production planning and control.

EDA Loan

As of December 31, 1997, the Company had a loan facility of $2.75
million from the New Jersey Economic Development Authority (the "EDA"). On
September 3, 1998, as required by the FINOVA Agreement, the Company repaid
$1,034,512 to the EDA, fully satisfying the Company's remaining obligation under
the loan facility.

Oracle Purchase Obligation

On May 29, 1997, the Company entered into an agreement with Oracle
Credit Corporation ("Oracle") whereby the Company financed the purchase of a new
accounting and information system. The purchase obligation was for approximately
$1.6 million, payable in three equal annual payments to be made on July 1, 1997,
1998 and 1999 with interest at 10.1%. Pursuant to an agreement with an assignee
of Oracle, the obligation was fully satisfied by the Company in 1998.

Stock Options

During the year ended December 31, 1998, the Company obtained proceeds
approximating $114,000 from the exercise of options to purchase 19,323 shares of
Common Stock.

24
<PAGE>

ENVIRONMENTAL REGULATION

YEAR 2000 COMPLIANCE

The inability of computers, software and other equipment using
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the Year 2000 problem. As the Year 2000
approaches, such systems may be unable to accurately process certain datebased
information. This section discusses the processes currently being implemented
with respect to issues relating to the Year 2000.

Readiness

The Company initiated its Year 2000 project in late 1996 with a complete
review of all products, manufacturing facilities, information systems and the
impact on the Company from customers and suppliers that may fail to deal with
the issue. The Year 2000 issues that need to be addressed within the
organization pertain to the Company's internal information systems that date
stamp transactions. The conversion of all current applications, operating
systems, databases, and EDI transactions with Year 2000 issues is expected to be
completed by the end of the first quarter of 1999.

Products

The Year 2000 issue with respect to the Company's product line is
minimal since its products are not date sensitive and require no internal or
external date tracking.

Manufacturing Facilities

All existing pieces of machinery and equipment have been reviewed and
examined and management believes that any Year 2000 issues with respect to such
machinery and equipment will not affect production or delivery of the Company's
products since the equipment is not date reliant and the movement of products is
a manual process.

25
<PAGE>

Information Systems

Year 2000 issues with respect to information systems, have been addressed in
six major areas:

I. Operating Systems
II. Databases
III. Business Systems
IV. Support Systems
V. Backup Systems
VI. Hardware Platforms

The following discusses the status of each area:

Operating System

The Company has been advised by its software vendors that all existing
operating systems it uses, Novell 3.12, Windows NT, Unit 4.0D, and Windows 95,
currently are Year 2000 compliant.

Databases

The Company has been advised by its software vendors that all databases
used by the Company's current systems and anticipated new systems are Year 2000
compliant.

Business Systems

By the end of the 1st quarter of 1999 all existing business systems will
be Year 2000 compliant. To date, virtually all of the applications have been
converted in a test environment and will soon be placed into a production
status.

Support Systems

Support systems include all desktop applications. These applications
have been upgraded to be Year 2000 compliant.

Backup Systems

The Company has been advised by its software vendors that all
applications currently used by the Company to backup business applications and
databases are Year 2000 compliant.

26
<PAGE>

Hardware Platforms

The Company has been advised by its hardware vendors that all platforms
running the systems and databases mentioned above are Year 2000 compliant.

Customers

The Company has responded to all customers who have requested Year 2000
compliance information, plans, and due dates.

Suppliers

The Company has contacted its major suppliers and has asked them to
respond to questions concerning their ability to be Year 2000 compliant on a
timely basis. The Company plans to monitor the information received in response
to these inquiries on a continuous basis into the Year 2000. The final analysis
of the responses, which is expected to be completed during the 1st quarter of
1999, will determine the need and extent for contingency planning.

Cost of Year 2000 Readiness

Based on management's assessment of systems, the cost of addressing Year
2000 issues is not expected to have a material adverse impact on the Company's
financial condition. To date, the Year 2000 conversion costs incurred are
approximately $80,000, and should not exceed $100,000. (Conversion costs do not
include funds spent by the Company on the purchase of its Oracle system, which
would have been acquired irrespective of any Year 2000 issues).

Risk of the Company's Year 2000 Issues

Achieving Year 2000 compliance is dependent on many factors, some of
which are not completely within the Company's control. There can be no assurance
that the Company has, or will be able to identify, all aspects of its business
that are subject to Year 2000 problems of its customers or suppliers. There also
can be no assurance that the Company's software vendors are correct in their
assertions that the software is Year 2000 compliant, or that the Company's
estimate of the costs of systems preparation for the Year 2000 will prove to be
accurate. Should either the Company's internal systems or internal systems of
one or more significant suppliers or customers fail to achieve Year 2000
compliance, or the Company's estimate of the costs of becoming Year 2000
compliant prove to be materially inaccurate, the Company's business and results
of operations could be adversely affected.

INFLATION

The Company does not believe that the relatively moderate rates of
inflation which recently have been experienced in the United States have had a
significant effect on net sales or profitability.

27
<PAGE>

NEW FINANCIAL ACCOUNTING STANDARDS

New Financial Accounting Standards --- During 1997, and in the first
quarter of 1998, the Financial Accounting Standards Board issued the following
accounting standards: Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131) and Statement of Financial Accounting
Standards No. 132, "Employers Disclosures about Pension and Other
Postretirement Benefit Plans" (SFAS No. 132). The Company has adopted these
standards in the fiscal year beginning January 1, 1998. The Company has not
experienced any material effect from the adoption of these statements.

In June, 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 establishes accounting and
reporting standards for derivative instrument and for hedging activities,
requiring the recognition of all derivatives as either assets or liabilities and
to measure those instruments at fair value, as well as to identify the
conditions for which a derivative may be specifically designed as a hedge. SFAS
133 is effective for fiscal years beginning after June 15, 1999. The Company
does not expect any material effect from adoption of SFAS No. 133.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Fair Value of Financial Instruments -- The following disclosure of the
estimated fair value of financial instruments is made in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments". The estimated fair
values of financial instruments have been determined by the Company using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.

The Company has not entered into, and does not expect to enter into,
financial instruments for trading or hedging purposes.

The Company is currently exposed to material future earnings or cash
flow exposures from changes in interest rates on long-term debt obligations
since the majority of the Company's long-term debt obligations are at variable
rates. The Company does not currently anticipate entering into interest rate
swap and/or similar instruments.

The Company's carrying value of cash and cash equivalents, accounts
payable, accrued expenses and taxes payable is a reasonable approximation
of their fair value.

28
<PAGE>

The carrying amounts and estimated fair values of financial instruments at the
end of the respective years are summarized as follows (in thousands):

December 31, 1997 December 31, 1998
----------------- -------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------- ----------
<S> <C> <C> <C> <C>
Assets:
Trade accounts receivable........... $25,216 $24,349 $20,794 $19,683
Liabilities:
PNC revolving line of credit,
Capital Expenditure Facility
And Bridge Loan II ............... 39,998 39,998 10,081 10,081
FINOVA revolving line of
Credit Facility, Term Loan A
and Term Loan B .................. -- -- 22,222 22,222
101 Realty Associates
Note Payable ..................... -- -- 4,000 4,000
Economic Development
Authority loan.................... 1,501 1,501 -- --
Oracle Purchase
Obligations ...................... 1,367 1,367 -- --

</TABLE>

The following methods and assumptions were used to estimate the fair value of
the financial instruments presented above:

Trade accounts receivable and the Oracle purchase obligations -- The fair value
of these receivables is assumed to equal their carrying value because of their
short maturities less the customer allowance for doubtful accounts for trade
accounts receivable.

Revolving Credit Line, Capital Expenditure Facility, Bridge Loan II, Term Loan A
and Term Loan B -- Fair value is estimated by discounting the future stream of
payments using the incremental borrowing rate of the Company, which represents
its primary source of recourse financing.

Economic Development Authority Loan -- Interest rates that are currently
available to the Company for issuance of debt with similar terms and remaining
maturities are used to estimate fair value for debt issues for which no market
quotes are available.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See financial statements and supplementary data required pursuant to
this Item beginning on page F-1 of this Report on Form 10-K.

29
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information contained under the heading "Proposal No. 1 -- Election
of Directors" in the Company's definitive Proxy Statement (the "Proxy
Statement") relating to the Company's Annual Meeting of Stockholders scheduled
to be held on May 12, 1999, to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934 with the Securities and Exchange Commission, is
incorporated herein by reference. See "Business -- Executive Officers of the
Registrant" in Item 1 of this Report on Form 10-K for information regarding the
Company's executive officers.

ITEM 11. EXECUTIVE COMPENSATION

The information contained under the heading "Executive Compensation" in
the Company's Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained under the heading "Beneficial Ownership of
Common Stock" in the Company's Proxy Statement is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained under the headings entitled "Executive
Compensation -- Compensation Committee Interlocks and Insider Participation" and
"Certain Transactions" in the Company's Proxy Statement is incorporated herein
by reference.

30
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. Financial Statements.

The Financial Statements and Financial Statement Schedules
are listed in the accompanying index to financial statements
beginning on page F-1 of this report.

2. Financial Statement Schedule.

Schedule II - Valuation and Qualifying Accounts

3. Exhibits

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
3.1 Certificate of Incorporation. (1)
3.2 Amended and Restated By-Laws of the Registrant. (5)
4.1 See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and By-Laws of the Registrant defining the rights of
holders of Common Stock of the Registrant. (1)
4.2 Specimen Common Stock Certificate. (1)
4.3 Form of Registration Rights Agreements between the Registrant,
Frederick R. Adler and Blair Effron. (1)
10.1 Lease Agreement dated January 15, 1993 between Maurice M. Weill,
Trustee for GEEMAC Property, and the Registrant. (1)
10.2 Supply Agreement dated November 29, 1994 between Owens-Illinois
Plastic Products Inc., Owens-Illinois Closure Inc. and the
Registrant. (1)
10.3 Amendment No. 1 dated December 1995 to Supply Agreement, dated
November 29, 1994, between Owens-Illinois Plastic Products Inc.,
Owens-Illinois Plastic Products Inc., Owens-Illinois Closure Inc.
and the Registrant. (2) (confidentiality note)*
10.4 Amended and Restated Employment Agreement with Uri Evan dated
January 1996. (2)**
10.5 Employment Agreement with Daniel Bergman.
10.6 Forms of Employment Agreement with Frank Corella.

31
<PAGE>

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.7 Loan Agreement dated April 15, 1993 between the New Jersey
Economic Development Authority and the Registrant. (1)
10.8 Reimbursement Agreement dated April 15, 1993 between Banque
Nationale de Paris, Houston Agency and the Registrant. (1)
10.9 Security Agreement dated April 15, 1993 between the New Jersey
Economic Development Authority and the Registrant. (1)
10.10 Amended and Restated Loan Agreement dated February 25, 1998
between PNC Bank, N.A. and the Registrant.
10.11 1995 Stock Option Plan. (1)**
10.12 Stock Option Plan for Non-Employee Directors. (1)**
10.13 Form of Directors and Officers Indemnity Agreement. (1)
10.14 Lease Agreement dated January 26, 1996 between M&E Co. and the
Registrant. (2)
10.15 Purchase and Sale Agreement dated January 22, 1997 between The
Okonite Company, Inc. and the Registrant. (3)
10.16 Letter Agreement dated May 5, 1997 between the Registrant and
Harold J. Macsata. (4)
10.17 Letter Agreement dated April 14, 1997 between the Registrant and
Mark Antebi. (4)
10.18 Letter Agreement dated April 14, 1997 between the Registrant and
Joseph Cohen. (4)
10.19 Employment Agreement dated March 26, 1997 between the Registrant
and Richard D. Coslow. (4)**
10.20 Employment Agreement, dated July 31, 1997 between the Registrant
and Guilio Perillo. (4)**
10.21 Stock Purchase Agreement dated June 30, 1997 between the
Registrant, Big Cloud Powder Corporation and Chicago Contract
Powder Corporation. (4)
10.22 Warrant dated February 25, 1998 issued by the Registrant to PNC
Bank, N.A.5 10.23 Mortgage and Security Agreement dated February
25, 1998 between the Registrant and PNC Bank, N.A. (5)
10.24 Letter Agreement dated February 25, 1998 between the Registrant
and 101 Realty Associates, L.L.C. (5)
10.25 Mortgage and Security Agreement dated February 25, 1998 between
the Registrant and 101 Realty Associates, L.L.C. (5)

32
<PAGE>

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------

10.26 Warrant dated December 26, 1997 issued by the Registrant to
Frederick R. Adler. (5)
10.27 Agreement dated December 26, 1997 between Frederick R. Adler and
the Registrant. (5)
10.28 Warrant dated April 30, 1998 issued by the Registrant to 101
Realty Associates, L.L.C. (6)
10.29 Amended and Restated Warrant dated August 14, 1998 issued by the
Registrant to PNC Bank, N.A. (7)
10.30 Second Amended and Restated Loan and Security Agreement dated
August 14, 1998 between the Registrant and PNC Bank, N.A. (7)
10.31 Loan and Security Agreement dated August 14, 1998 between the
Registrant and a syndicate of lenders including FINOVA Capital
Corporation as Agent for itself and other lenders. (7)
10.32 Revolving Loan Note dated August 14, 1998 issued by the Registrant
to FINOVA Capital Corporation. (7)
10.33 Term Loan A Note dated August 14, 1998 issued by the Registrant
to FINOVA Capital Corporation. (7)
10.34 Term Loan B Note dated August 14, 1998 issued by the Registrant
to FINOVA Capital Corporation. (7)
10.35 Agency Agreement dated August 14, 1998 between the Registrant to
FINOVA Capital Corporation, First Source Financial LLP, Merrill
Lynch Business Financial Services, Inc. and Foothill Capital
Corporation. (7)
21 Subsidiaries of the Company. (5)
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.

(b) Reports on Form 8-K:

None.
- --------------------------

* Confidentiality Requested, confidential portions have been omitted and
filed separately with the Commission, as required by Rule 406(b) of the
Securities Act of 1933.

** Management contract, or compensatory plan or arrangement.

1. Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 33-93488), which exhibit is incorporated herein by
reference.

33
<PAGE>

2. Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 333-1386), which exhibit is incorporated herein by
reference.

3. Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, which exhibit is incorporated
herein by reference.

4. Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, which exhibit is incorporated
herein by reference.

5. Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1997, which exhibit is incorporated
herein by reference.

6. Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, which exhibit is incorporated
herein by reference.

7. Previously filed as an exhibit to the Company's Quarterly report on Form
10-Q for the quarter ended September 30, 1998.

34
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE

Independent Auditors' Reports F-2

Consolidated Balance Sheets at December 31, 1997 F-3
and 1998

Consolidated Statements of Operations for the years F-4
ended December 31, 1996, 1997 and 1998

Consolidated Statements of Cash Flows for the F-5
years ended December 31, 1996, 1997 and 1998

Consolidated Statements of Stockholders' Equity F-6
for the years ended December 31, 1996, 1997 and 1998

Notes to Consolidated Financial Statements for the F-7
years ended December 31, 1996, 1997 and 1998

F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
USA Detergents, Inc.:

We have audited the accompanying consolidated balance sheets of USA Detergents,
Inc. and subsidiaries (the "Company") as of December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. Our
audits also included the financial statement schedule listed in the index at
Item 14(a)(2). These consolidated financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial
statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of USA Detergents, Inc. and
subsidiaries at December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles. Also, in
our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

/s/ Deloitte & Touche LLP

New York, New York
March 9, 1999

F-2

<PAGE>

USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

1997 1998
---- ----
<S> <C> <C>
Current assets:
Cash $ 1,848 $ -
Accounts receivable, net of customer allowances and doubtful
accounts of $867 and $1,111 at December 31, 1997 and
1998, respectively 24,349 19,683
Inventories 16,033 14,668
Refundable income taxes 7,120 3,221
Prepaid expenses and other current assets 4,398 4,591
------------- -------------

Total current assets 53,748 42,163

Property and equipment - net 45,672 45,245
Restricted funds 275 -
Deferred financing costs 567 1,376
Other non-current assets 2,546 2,145

------------- -------------
Total assets $ 102,808 $ 90,929
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt $ 2,501 $ 3,334
Cash overdraft - 476
Accounts payable 29,880 22,670
Accrued expenses 13,259 12,457
Other current liabilities 1,405 730
------------- -------------

Total current liabilities 47,045 39,667

Long-term debt - net of current portion 38,998 32,969
Other non-current liabilities - 90
Deferred rent payable 1,181 889
------------- -------------

Total liabilities 87,224 73,615
------------- -------------

Commitments and Contingencies

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 13,806,279 and 13,825,602 shares at
December 31, 1997 and 1998, respectively 138 138
Additional paid-in capital 28,336 29,200
Deficit (12,715) (11,849)
Note receivable from shareholder (175) (175)
------------- -------------

Total stockholders' equity 15,584 17,314
------------- -------------

Total liabilities and stockholders' equity $ 102,808 $ 90,929
============= =============

</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE>

USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net sales $ 172,424 $ 227,269 $ 220,099

Cost of goods sold 121,498 175,851 147,677
------------- ------------- -------------

Gross profit 50,926 51,418 72,422
------------- ------------- -------------

Selling, general and administrative 43,878 70,336 62,109
Restructuring costs - 2,379 730
Litigation settlement - - 3,266
------------- ------------- -------------
43,878 72,715 66,105
------------- ------------- -------------

Income/(loss) from operations 7,048 (21,297) 6,317

Interest and amortization of deferred financing
costs - net 868 3,232 5,032
------------- ------------- -------------

Income/(loss) before provision/(benefit) for
income taxes 6,180 (24,529) 1,285
Provision/(benefit) for income taxes 2,473 (3,448) 137
------------- ------------- -------------
Income/(loss) before extraordinary charge 3,707 (21,081) 1,148
Extraordinary charge -- -- 282
------------- ------------- -------------
Net income/(loss) $ 3,707 $ (21,081) $ 866
============= ============= =============
Basic income/(loss) per share before extraordinary
charge $ .27 (1.53) $ .08
Extraordinary charge -- -- (.02)
------------- ------------- -------------
Basic net income/(loss) per share $ .27 $ (1.53) $ .06
============= ============= =============
Weighted average shares outstanding 13,589 13,789 13,823
============= ============= =============
Diluted income/(loss) per share before extraordinary
charge $ .27 $ (1.53) $ .08
Extraordinary charge -- -- (.02)
------------- ------------- -------------
Diluted net income/(loss) per share $ .27 $ (1.53) $ .06
============= ============= =============
Weighted average shares outstanding and potential
common shares 13,840 13,789 14,069
============= ============= =============
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE>

USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)

1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 3,707 $ (21,081) $ 866
Adjustments to reconcile net income/(loss) to net
cash (used in)/provided by operating activities:
Depreciation 2,235 4,223 5,259
Amortization of deferred financing costs - 490 1,818
Amortization of slotting 6,556 4,149 4,081
Other amortization 232 578 692
Change in the provision for customer allowances and doubtful accounts 1,073 (482) 244
Change in deferred rent 80 (103) (127)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase)/decrease in accounts receivable (13,118) 3,456 4,422
(Increase)/decrease in inventories (19,395) 11,795 1,365
Increase in prepaid expenses and other current assets (7,607) (4,492) (4,274)
Increase in other non-current assets (2,545) (124) (360)
Increase in cash overdraft - - 476
Increase/(decrease) in accounts payable and accrued expenses 16,274 17,911 (8,012)
(Increase)/decrease in refundable income taxes (4,255) (2,865) 3,899
Decrease in deferred tax asset 96 534 -
Decrease in deferred tax liability (255) (735) -
----------- ----------- --------------

Net cash (used in)/provided by operating activities (16,922) 13,254 10,349
----------- ----------- --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (18,846) (20,862) (4,832)
----------- ----------- --------------

Net cash used in investing activities (18,846) (20,862) (4,832)
----------- ----------- --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of current portion of long-term debt (305) (305) (1,226)
Net proceeds from/(repayments to) credit facilities 26,322 6,674 (7,695)
Increase in note payable - - 4,000
Increase in other current liabilities - 38 527
Increase in/(repayments of) Oracle purchase obligation - 1,367 (1,367)
Increase in deferred financing costs - (1,057) (1,808)
(Decrease)/increase in other non-current liabilities (37) - 90
Net proceeds from exercise of options 364 366 114
Net proceeds from sale of common shares 11,736 - -
----------- ----------- --------------
Net cash provided by/(used in) financing activities 38,080 7,083 (7,365)
----------- ----------- --------------

Net increase/(decrease) in cash 2,312 (525) (1,848)

Cash at beginning of period 61 2,373 1,848
----------- ----------- --------------

Cash at December 31, $ 2,373 $ 1,848 $ -
=========== =========== ==============

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS FOR OPERATING ACTIVITIES:
Interest paid $ 834 $ 2,738 $ 3,388
=========== =========== ==============
Income taxes paid $ 7,059 $ 263 $ 113
=========== =========== ==============
Income tax refunds received $ - $ 645 $ 3,956
=========== =========== ==============

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS FOR INVESTING AND FINANCING ACTIVITIES:
Value of warrants issued in connection with bank and related
party financings $ - $ 375 $ 750
=========== =========== ==============
Exercise of purchase option to acquire a plant facility by cancellation
of note $ - $2,250 $ -
=========== =========== ==============
</TABLE>

See Notes to Consolidated Financial Statements.

F-5
<PAGE>

USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)

Note
Preferred Stock Common Stock Additional Receivable Total
--------------- ------------ Paid-in Retained from Stockholders'
Shares Amount Shares Amount Capital Earnings Shareholder Equity
------- ------- ------------ ------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 - $ - 13,392,372 $ 134 $ 15,499 $ 4,659 $ - $ 20,292

Net income 3,707 3,707

Stock options exercised 60,198 1 363 364

Proceeds from secondary
public offering 300,000 3 11,733 11,736
------- ------- ------------ ------- ---------- ---------- --------- ----------

BALANCE, December 31, 1996 - - 13,752,570 138 27,595 8,366 - 36,099

Net loss (21,081) (21,081)

Warrant issued in connection
with consulting agreement 375 (175) 200

Stock options exercised 53,709 - 366 366
------- ------- ------------ ------- ---------- ---------- --------- ----------

BALANCE, December 31, 1997 - - 13,806,279 138 28,336 (12,715) (175) 15,584

Net income 866 866

Warrants issued in connection
with financing agreements 750 750

Stock options exercised 19,323 - 114 114
------- ------- ------------ ------- ---------- ---------- --------- ----------

BALANCE, December 31, 1998 - $ - 13,825,602 $ 138 $ 29,200 $(11,849) $ (175) $ 17,314
======= ======= ============ ======= ========== ========== ========= ==========
</TABLE>

See Notes to Consolidated Financial Statements.

F-6
<PAGE>

USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USA Detergents, Inc. (the "Company") manufactures and markets nationally
distributed value brand laundry and household cleaning products. The Company
operates in one industry segment and its products are sold to customers
principally in the United States.

Basis of Presentation -- The accompanying Financial Statements include the
accounts of the Company and its whollyowned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.

Inventories -- Inventories are stated at the lower of cost, determined by
using the first-in, first-out method, or market. The Company periodically
reviews inventory for slow moving or obsolete items. Such items are written down
to net realizable value and have not been material for any period presented.

Slotting fees -- The Company incurs certain costs in connection with placing
its products. These costs are known in the trade as "slotting fees." The fees
over a certain amount are amortized by the Company over a one year period from
the date incurred. Deferred slotting fees are included in prepaid expenses and
other current assets.

Concentration of Credit Risk -- The financial instruments which potentially
subject the Company to concentration of credit risk consist principally of
accounts receivable. The Company grants credit to customers based on an
evaluation of the customer's financial condition. Exposure to losses on
receivables is principally dependent on each customer's financial condition. The
Company controls its exposure to credit risks through credit approvals, credit
limits and monitoring procedures and establishes allowances for anticipated
losses.

Long-Lived Assets -- Financial Accounting Standards Board Statement
Number 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" requires that the Company review long-lived
assets for impairment whenever events or changes in circumstances indicate the
net carrying amount may not be recoverable. When such events occur, the Company
measures impairment by comparing the carrying value of the long-lived asset to
the estimated undiscounted future cash flows expected to result from the use of
the assets and their eventual disposition. If the sum of the expected
undiscounted cash flows is less that the carrying amount of the assets, the
Company would recognize an impairment loss. The impairment loss, if determined
to be necessary, would be measured as the amount by which the carrying amount of
the asset exceeds the fair value of the asset. No impairment was indicated as of
December 31, 1997 and 1998.

Depreciation and Amortization -- Depreciation of property and equipment is
provided for by using the straightline method over the estimated useful lives of
the respective assets. Amortization of leasehold improvements is provided for by
the straightline method over the lease term.

Trademark and Deferred Loan -- Costs Other assets include trademark costs,
which are being amortized using the straightline method over a period of 10
years, and loan closing costs, which are being amortized over the life of the
loan.

Income Taxes -- Deferred taxes on income are provided to reflect the tax
effect of temporary differences between the financial reporting and tax basis of
assets and liabilities. The principal items giving rise to deferred taxes are
the use of accelerated depreciation methods for tax purposes, straightlining of
step rentals, tax loss carryovers and differences in the timing of the
deductibility of certain expenses between income tax and financial reporting.
The Company records valuation allowances based on management's best estimate of
the amount of such deferred tax assets that more likely than not will be
realized.

F-7
<PAGE>

107, "Disclosures about Fair Value of Financial Instruments". The estimated
fair values of financial instruments have been determined by the Company using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.

The carrying amounts and estimated fair values of financial instruments at the
end of the respective years are summarized as follows (in thousands):

December 31, 1997 December 31, 1998
----------------- -----------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Assets:
Trade accounts receivable.... $25,216 $24,349 $20,794 $19,683
Liabilities:
PNC revolving line of credit,
Capital Expenditure Facility
And Bridge Loan II ........ 39,998 39,998 10,081 10,081
FINOVA revolving line of
Credit Facility, Term Loan A
and Term Loan B ........... --- --- 22,222 22,222
101 Realty Associates
Note Payable .............. --- --- 4,000 4,000
Economic Development
Authority loan............. 1,501 1,501 --- ---
Oracle Purchase
Obligations ............... 1,367 1,367 --- ---
</TABLE>

The following methods and assumptions were used to estimate the fair value of
the financial instruments presented above:

Trade accounts receivable and the Oracle purchase obligation -- The fair value
of these receivables and payables is assumed to equal their carrying value
because of their short maturities less the customer allowance for doubtful
accounts for trade accounts receivable.

Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results

F-8
<PAGE>

could differ from those estimates.

Revenue Recognition -- Revenue is recognized at the time the merchandise is
shipped.

Stock-Based Compensation -- Stock-based compensation is recognized using the
intrinsic value method. For disclosure purposes, pro forma net income (loss) and
pro forma net income (loss) per share are provided as if the fair value method
was applied.

Basic and Diluted Net Income (Loss) per Share --- The Company has adopted the
provisions of Statement of Financial Accounting Standard No. 128 "Earnings per
share" (the "Statement"). The Statement establishes standards for computing and
presenting net income (loss) per share and applies to entities with publicly
held common stock or potential common stock such as employee stock options. The
Statement presents basic net income (loss) per share and also requires, among
other things, dual presentation of basic and diluted net income (loss) per share
for all entities with complex capital structures. Basic net income (loss) per
share excludes dilution and is computed by dividing net income (loss) by the
weighted average number of shares outstanding for each period presented. Diluted
net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares outstanding plus the dilutive potential common
shares which will result from the exercise of stock options or warrants.

The following is a reconciliation of the weighted average shares used in the
computations of basic and dilutive net income/(loss) per share (in thousands):

1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Weighted average common shares outstanding
used for basic net income/(loss) per share 13,589 13,789 13,823

Dilutive stock options and warrants 251 --- 246
---- ----- -----

Weighted average common shares outstanding
used for dilutive net income/(loss) per share 13,840 13,789 14,069
====== ====== ======

</TABLE>

For 1997, 121,054 options have been excluded from the computation of dilutive
net loss per share because the impact would be antidilutive.

New Financial Accounting Standards --- During 1997, and in the first quarter
of 1998, the Financial Accounting Standards Board issued the following
accounting standards: Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131) and Statement of Financial Accounting
Standards No. 132, "Employers Disclosures about Pension and other Post
retirement Benefit Plans" (SFAS No. 132). The Company had adopted these
standards in the fiscal year beginning January 1, 1998. The Company has not
experienced any material effect from the adoption of these statements.

In June, 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 establishes accounting and
reporting standards for derivative instrument and for hedging activities,
requiring the recognition of all derivatives as either assets or liabilities and
to measure those instruments at fair value, as well as to identify the
conditions for which a derivative may be specifically designated as a hedge.
SFAS 133 is effective for fiscal years beginning after June 15, 1999. The
Company does not expect any material effect from adoption of SFAS No. 133.

F-9
<PAGE>

2. INVENTORIES

Inventories consist of the following:

DECEMBER 31,
------------
1997 1998
---- ----
(in thousands)

Raw material............................. $8,767 $8,830

Finished goods........................... 7,950 6,665
-------- -------
$16,717 $15,495
Less: reserve for absolescence .......... 684 827
-------- -------
$16,033 $14,668
======== =======

3. PROPERTY AND EQUIPMENT

Property and equipment, at cost, consists of the following:

DECEMBER 31,
------------ ESTIMATED
1997 1998 USEFUL LIFE
---- ---- -----------
(in thousands)
<S> <C> <C> <C>
Machinery and equipment.................. $29,725 $33,003 6 to 10 years
Furniture and fixtures................... 3,182 3,624 3 to 7 years
Leasehold improvements................... 8,107 8,895 Term of lease
Construction in progress................. 2,253 2,578
Land..................................... 3,833 3,833
Building................................. 7,424 7,424 25 years
----- ------
54,524 59,357

Less accumulated depreciation and
amortization............................. 8,852 14,112
-------- ---------
$45,672 $45,245
======= =======

</TABLE>

Depreciation expense amounted to $2,235, $4,223 and $5,259 for the years ended
December 31, 1996, 1997 and 1998, respectively.

F-10
<PAGE>

4. DEBT

At December 31, 1998 and 1997, Debt consists of:

1997 1998
---- ----
PNC Bridge Loan II (i) $10,000 $10,000
PNC Capital Expenditure Facility (i) 20,000 81
PNC Revolving Credit Facility (i) 9,998 --
FINOVA Revolving Credit Facility (ii) -- 14,055
FINOVA Term Loan A (ii) -- 6,172
FINOVA Term Loan B (ii) -- 1,995
101 Realty Associates Note Payable(ii) -- 4,000
New Jersey EDA loan (ii) 1,501 --
-------- ---------
41,499 36,303
Less amount due in one year 2,501 3,334
-------- ---------
$38,998 $32,969
======== =========

Annual maturities of bank and other long-term debt, are as follows:

1999 $3,334
2000 3,335
2001 1,334
2002 1,335
2003 26,965
-------
$36,303
=======

F-11

<PAGE>

(i) Bank Debt

In December 1996, the Company entered into a credit facility with PNC Bank,
National Association ("PNC") consisting of a $20,000,000 capital expenditure
facility for the purchase of capital assets and/or leasehold improvements and a
$10,000,000 traditional revolving facility (the "December 1996 PNC Facility").
On December 31, 1996, the Company also obtained a 60-day $4,000,000 bridge loan
which the Company repaid on March 3, 1997 with funds generated from working
capital.

On March 24, 1997, the Company obtained a commitment from PNC and a second
lender (the "March PNC Commitment") to replace the December 1996 PNC Facility
with a $55.0 million credit facility. In conjunction with this commitment, PNC
extended to the Company a $10.0 million bridge loan (the "Bridge Loan II") to
acquire a distribution center in North Brunswick. The December 1996 PNC Facility
and Bridge Loan II were secured by a substantial portion of the Company's
assets. Based in part on the Company's performance in the first quarter of 1997,
the $55.0 million March PNC Commitment was withdrawn.

In connection with the transaction, PNC received a warrant to purchase
140,000 shares and 101 Realty received a warrant to purchase 98,524 shares of
the Company's Common Stock. In conjunction with the issuance of the PNC
warrant, the Company recognized, in the first quarter of 1998, a deferred
charge of approximately $415,000, which was originally amortized over the
period ending June 30, 1999. In connection with the issuance of the 101 Realty
warrant, the Company recognized a deferred charge of $335,000 in the first
quarter of 1998. This charge was deferred and is being amortized over the
period ending July 1999.

F-12
<PAGE>

to $40.0 million, subject to availability based on eligible accounts receivable
and inventory, and two five-year term loans aggregating $8.5 million. The
revolving credit facility bears interest at a rate of prime plus .75% and on
December 31, 1998, the rate was 8.5%. On December 31, 1998, net availability to
the Company under the revolving credit facility was $4.8 million and the amount
outstanding was $14.1 million.

The first term loan in the amount of $6.4 million is repayable in 59 fixed
monthly principal payments of $76,190 and a final principal payment of
$1,904,767. This loan bears interest at a fixed rate of 9.33%. The second term
loan in the amount of $2.1 million is repayable in 60 fixed monthly principal
payments of $35,000. This loan bears interest at prime plus 2.0% and on December
31, 1998, the rate was 9.75%. The aggregate amount outstanding on December 31,
1998, under both term loans was $8.2 million.

The FINOVA Agreement contains various covenants which include, among other
things, specified levels of debt to equity, current ratios, a minimum net worth
and a minimum senior debt service coverage ratio. The FINOVA Agreement also
prohibits the payment of dividends and the incurrence of new debt. Amounts
outstanding under the FINOVA Agreement are secured by a first priority security
interest in substantially all of the assets of the Company and its subsidiaries,
except for certain real estate.

On February 26, 1999, the Company refinanced its existing indebtedness
by amending and restating the FINOVA Agreement to provide for an additional
$14.5 million of financing. The $14.5 million of additional financing is to be
repaid in monthly payments based upon a ten-year amortization schedule at prime
plus 1.0% and, along with all amounts outstanding under the existing credit
facility, is due in September 2003. The Company used $10.1 million of the
refinanced proceeds in order to pay off its remaining indebtedness to PNC. An
additional $4.0 million of the proceeds were set aside for the repayment of the
Company's indebtedness to 101 Realty over the next year, provided the Company
meets certain working capital criteria and achieves specified profitability
levels for fiscal 1998 and 1999. The FINOVA Agreement provides for the reserved
funds to be used to pay down the $14.5 million of additional indebtedness to
the extent that these conditions are not met for the repayment of the 101
Realty indebtedness. The increase in availability under the FINOVA Agreement
required the granting of a first mortgage security interest to FINOVA and the
other participating lenders on the Company's real property located in New
Jersey and Missouri.

During the year ended December 31, 1998, the Company recorded a $952,000
charge related to the write-off of expenses related to unamortized financing
costs associated with

F-13
<PAGE>

the closing of the FINOVA Agreement, the early extinguishment of PNC debt and
financing transactions which were never consummated. Approximately $282,000 of
this charge, which relates to the early extinguishment of PNC debt, has been
shown as an extraordinary charge in the accompanying consolidated statement of
operations.

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. With the successful replacement of the
Company's previous credit facility with PNC with permanent financing facilities
from FINOVA, management believes that it will more adequately support ongoing
operations, debt service and capital expenditure requirements. The Company's
operating plan for 1999 includes continuing its cost control programs. Such
programs have included such things as controlling temporary labor, additional
automation of manufacturing facilities, further production rationalization,
increased use of high speed fillers and cartoners and improved production
planning and control.

(ii)EDA Loan

As of December 31, 1997, the Company also had a loan facility of $2.75
million from the New Jersey Economic Development Authority (the "EDA Loan"). As
of December 31, 1997, the Company 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 were restricted for
the duration of the EDA Loan. The EDA Loan was payable in monthly installments
of approximately $26,000 through November 1, 2002. Interest on the EDA Loan was
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 have been declared immediately due and payable, however
the Lender never did. For this reason, obligation had been classified as current
in the December 31, 1997 balance sheet. On September 3, 1998, as required by the
Finova Agreement, the Company repaid $1,034,512 to the New Jersey Economic
Development Authority, fully satisfying the Company's remaining obligation to
that entity.

Oracle Purchase Obligation

On May 29, 1997, the Company entered into an agreement with Oracle Credit
Corporation whereby the Company financed the purchase of a new accounting and
information system. The purchase obligation was for approximately $1.6 million,
payable in three equal annual payments to be made on July 1, 1997, 1998 and 1999
with interest at 10.1%. On August 20, 1997, the agreement was assigned to Sanwa
Business Credit Corporation. During 1997, the Company defaulted under the
agreement due to its inability to make timely payments. Accordingly, the entire
unpaid obligation had been classified as current and is included in other
current liabilities on the Company's December 31, 1997 balance sheet. On
September 30, 1998, the Company paid $18,466 to Sanwa Business Credit
Corporation ("SBCC"), representing the last payment required to be made under
the April 16, 1998 forbearance agreement between the Company and SBCC. This
payment fully satisfied the Company's remaining obligation to SBCC.

F-14
<PAGE>

5. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

On May 5, 1997, a securities class action lawsuit entitled Feldbaum v. USA
Detergents, Inc., et al., No. 97-CV-3227, was filed in the U.S. District Court
for the Eastern District of Pennsylvania against the Company and certain of its
current and former officers and directors, the Feldbaum case subsequently was
transferred to the U.S. District Court for the District of New Jersey. On May
15, 1997, a second securities class action lawsuit entitled Einhorn v. USA
Detergents, Inc. et al., No. 97-2459, was filed against the Company and certain
of its current and former officers and directors in the U.S. District Court for
the District of New Jersey. Since the Einhorn lawsuit was filed, twelve
additional securities class action lawsuits were filed in the U.S. District
Court for the District of New Jersey against the Company and certain of its
current and former officers and directors. The class actions purported to be
brought on behalf of all persons who purchased the Company's common stock
between June 5, 1996, at the earliest, and May 8, 1997, at the latest (the
"putative class period"). The class actions generally alleged that, during the
putative class period, the defendants made false or misleading public statements
and engaged in improper accounting practices, which caused the price of the
Company's common stock to be artificially inflated. The class actions asserted
that the defendants' conduct violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder, as well as
state common law. In June and July 1997, the U.S. District Court for the
District of New Jersey entered orders consolidating all of the pending class
actions with the Einhorn case. In August 1997, the court entered an order
establishing a master docket for the consolidated class actions, In re USA
Detergents, Inc. Securities Litigation, Master File No. 97-CV-2459 (MTB), and
appointed lead plaintiffs and lead plaintiffs' co-lead counsel.

In December 1998, the Company finalized an agreement to settle for $10.0
million the consolidated stockholder class action. The Company's total cost
under the agreement, including legal fees, after insurance and other
participation, was approximately $3.3 million which was paid in November 1998.
The Company recorded a charge in that amount during the second quarter of 1998.
After notice to the class, the court, on December 14, 1998 granted final
approval of the proposed settlement and dismissed the class actions.

In connection with the quarterly and annual results of operations originally
reported by the Company for certain fiscal quarters in 1996 and 1997 and the
fiscal year ended December 31, 1996, the Company has received a formal request
from the Securities and Exchange Commission (the "SEC") for the production of
various documents and the testimony of certain current and former employees. The
Company has been providing documentation and other materials to the SEC in
response to the request, and the testimony of certain persons has been taken.

F-15
<PAGE>

the institution of the litigation, the Company and NBWC entered into a Consent
Order to prevent discontinuation of water and sewer service. Pursuant to the
terms of this Consent Order, the Company has paid approximately $860,000 to NBWC
since October 1997, subject to refund.

On March 10, 1998, the Court entered an Order granting the Company's motion
for partial summary judgement. The Court ruled that local ordinances did not
preclude use of the wells for manufacturing purposes. This ruling was appealed
to the Appellate Divison of Superior Court by the defendants.

Note Receivable

In December 1995, the Company loaned approximately $2.3 million to an
unaffiliated third party in connection with such third party's acquisition of a
powder detergent manufacturing facility. Amounts outstanding under such loan
bore interest at 10.0% per annum and were payable on demand. The loan was
secured exclusively by the stock and assets of the borrower. The Company had an
option to purchase the manufacturing facility for the amount of the loan.

In June 1997, the Company exercised its purchase option, by the cancellation
of the $2.3 million promissory note in exchange for the capital stock of the
unaffiliated third party, to acquire the powder plant facility located in
Chicago. Pursuant to the terms of a supply contract, this facility previously
provided the Company with the facility's entire powder production output on an
exclusive basis.

F-16
<PAGE>

Leases

The Company is committed under various operating leases which expire at
varying dates through the year 2004. Aggregate minimum future lease payments,
exclusive of payments for real estate taxes and operating costs, are as follows
(in thousands):

YEAR ENDING
DECEMBER 31,
------------

1999............................. $ 3,218
2000............................. 2,481
2001............................. 1,646
2002............................. 1,373
2003............................. 1,297
Thereafter....................... 90
-------
$10,105
=======

Net rent expense charged to operations amounted to $2,882,000, $3,165,000
and $3,030,000 for the years ended December 31, 1996, 1997 and 1998,
respectively, including real estate taxes and operating escalations.

Rent expense recognized annually differs from actual rent paid as a result
of free rent periods and escalations in base rent provided in the leases.
Accordingly, the Company has recorded deferred rent of $1,219,000 and $1,091,000
at December 31, 1997 and 1998, respectively. This amount is being amortized by
the straightline method over the life of the lease.

Servicing Agreement

Substantially all of the bottles, closures and labels used by the
Company during 1998 at its manufacturing facilities were purchased from
Owens Illinois Plastics Products Inc., Owens Illinois Closure Inc., and Owens
Illinois Labels, Inc. (collectively referred to as "Owens"). Effective
January 1, 1999, the Company and Owens agreed in principle to amend its
current agreement that expires December 31, 2003. The monthly payment
of $1,317,566 is subject to maximum annual increases of 2%, which will be
applied against the purchase price of packaging materials. The agreement
provides for the vendor to commit exclusive use of certain machines for the
production of packaging material for the Company.

F-17
<PAGE>

Profit Sharing Plan

The Company had a profit sharing plan in 1996 and 1997, which was based on
the amount by which the Company's operating gross margin (the "OGM"), as
defined in a fiscal year, exceeded ten percent. If the Company's OGM exceeded
ten percent, a percentage of that excess was placed in a bonus pool based on a
predetermined formula provided that the total amount available for distribution
was only based on annual gross sales up to $200 million. Fiftytwo percent of
the bonus pool was allocated for distribution to senior executives. Of the
remainder of the bonus pool, no participant was able to receive a distribution
greater than 50% of his or her base salary. Amounts not allocated for
distribution under the bonus pool would not be distributed. For the years ended
December 31, 1996 and 1997, approximately $410,000 and $0 respectively, was
distributed under the plan.

In 1998, the Company replaced the OGM Plan with a bonus plan for certain
employees based on the level of operating income achieved excluding
restructuring and litigation settlement charges. If the Company's 1998 operating
income, as defined, achieved 85% or greater of a predetermined amount, a bonus
could be distributed based upon a predetermined formula. For the year ended
December 31, 1998, approximately $415,000 was distributed under the plan.

401-K Plan

The Company has a qualified 401-K retirement plan (the "Plan") that covers
substantially all employees of the Company. During 1998, the Company made
matching contributions of approximately $60,000 and minimal amounts in the prior
years. The Company has the option of changing the matching contribution each
year, and the right to amend, modify or terminate the Plan.

Employment Agreements

The Company is obligated under various employment agreements expiring in
2000. As of December 31, 1998, the minimum future annual amounts payable under
these agreements are as follows (in thousands):

DECEMBER 31, 1998
-----------------
1999 $ 648
2000 65
-------
$ 713
=======

Related Party Transactions

F-18
<PAGE>

valuation firm engaged by the Company. The value of the warrant, net of
consideration to be received, was deferred and is being amortized over the three
year consulting period.

The Company's Chief Executive Officer, Chairman of the Board, and a
principal stockholder of the Company, was also a director, officer and
stockholder of American Value Brands Inc. ("AVB") and another director and
principal stockholder of the Company, was also a director and stockholder of
AVB.

Purchases made by AVB amounted to $1,506, $45,430 and $0 for the years ended
December 31, 1996, 1997 and 1998 respectively.

The Company, during the year ended December 31, 1997, incurred rental
expenses of approximately $90,000 for the use of a portion of AVB's warehouse.
In 1998, the Company did not utilize this warehouse. At December 31, 1997, the
net amount payable by the Company to AVB was $24,388. At December 31, 1998 the
amount due from or to AVB was $0.

In 1998, the Company signed a consulting agreement with one of its
shareholders for $75,000. The agreement states that the shareholder will assist
the Company in two transactions. A portion of the fee, $25,000 was paid in
advance during 1998, while the remaining amount will only be paid if and when
the transactions are completed.

Tax Examination

The Internal Revenue Service is currently examining the Company's 1996
amended federal income tax return. To date, management has not been notified of
any proposed adjustment. Management believes that any adjustment which results
from this examination, if any, will not have a material impact on the Company's
results of operations or financial condition.

Restructuring Costs

In May 1997, the Company, as part of its cost-reduction strategy, decided to
close its Edison, New Jersey facility and move its candle manufacturing
operations to the Company's North Brunswick, New Jersey facility at an estimated
cost of $2.4 million. These restructuring costs, which were expensed in 1997
included the write-off of leasehold improvements, a provision for a portion of
the future lease commitment and associated lease expenses. On June 1, 1998 this
facility was subleased to a tenant who subsequently filed for bankruptcy on
February 11, 1999. If the Company obtains possession, it will attempt to
sublease this facility to a new tenant, thereby eliminating or substantially
reducing the remaining lease obligation. In 1998, the Company provided an
additional $730,000 provision relating to the sublease. At December 31,
1998, the remaining accrual for restructuring costs approximated $616,000.

Environmental Regulation

F-19
<PAGE>

facility are materials regulated by federal or state environmental protection
agencies. The Company maintains $6,000,000 in the annual aggregate and
$3,000,000 per claim with an annual deductible of $50,000 of insurance coverage
for environmental liabilities.

New Facilities

On March 31, 1997, the Company purchased a 650,000 square foot distribution
facility in North Brunswick, New Jersey, adjacent to the Company's existing
facility for a purchase price of $7,200,000. Subsequent thereto, the Company
consolidated its entire East Coast warehousing and distribution operation at
this new facility. The purchase was funded by an increase in the Company's
credit facility.

During June 1997, the Company exercised its purchase option, by the
cancellation of a $2,250,000 promissory note, to acquire a powder plant facility
located in Chicago. This facility provides the Company with a majority of its
entire powder production requirements. As part of the transaction, the Company
assumed a land lease upon which the Company's Chicago operations are located.
The lease, which expires in 2080, provides for rent to be paid annually in the
amount of $1,000 plus a variable amount adjusted for inflation. The total rent
paid for each of the years ended December 31, 1997 and 1998 was approximately
$9,000.

6. INCOME TAXES

Components of income taxes are as follows:

YEARS ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
Current: (IN THOUSANDS)
Federal........................ $2,319 $(3,524) $130
State and local................ 393 277 7
Deferred....................... (159) (201) 0
------- ----- -------
$2,473 $(3,448) $ 137
====== ======== =====

F-20
<PAGE>

Temporary differences which give rise to deferred tax liabilities and assets at
December 31, 1997 and 1998 are as follows:

DECEMBER 31,
1997 1998
---- ----

(IN THOUSANDS)
Deferred tax liabilities
Depreciation $(2,359) $(3,947)
-------- --------

Deferred tax assets:

Straight-lining of step rental increases 471 422
Allowance for bad debts 1,651 429
Net operating loss carryover 5,716 6,110
Alternative Minimum Tax Credit -- 312
Inventory capitalization 291 297
Miscellaneous 38 1,349
Restructuring reserve -- 420
Bonus Accrual -- 182
-------- --------
8,167 9,521
-------- --------

Net deferred tax assets: $5,808 $5,574
Valuation allowance (5,808) (5,574)
------- -------
Net deferred tax asset $ 0 $ 0
======= =======

A reconciliation of income taxes at the Federal statutory rate to amounts
provided is as follows:

DECEMBER 31,
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision computed at statutory rate $2,101 $(8,426) $341
State and local income taxes net of federal
tax effect 206 (950) 4
Valuation allowance -- 5,808 (462)
Permanent differences and other--net 166 120 254
------ ------- -------
$2,473 $(3,448) $ 137
====== ======== =======
</TABLE>

At December 31, 1998 the Company had operating loss carryovers for tax
purposes approximating $14.6 million which expire in 2013.

7. SIGNIFICANT CUSTOMERS AND SUPPLIERS AND INFORMATION ABOUT PRODUCTS

The Company's largest customer, WalMart, accounted for 17.0%, 12.4% and
10.8% of sales, respectively, in 1996, 1997 and 1998. No other customer of the
Company accounted for more than 10.0% of the Company's net sales. As is
customary in the industry, the Company does not have longterm contracts with its
customers.

Certain chemicals, packaging materials and manufacturing equipment used in
connection with the manufacture of the Company's products as well as certain
finished products sold by the Company are obtained from a sole or a limited
group of suppliers and subcontractors. The Company's reliance

F-21
<PAGE>

on a sole supplier or limited groups of suppliers and subcontractors involves
several risks, including increased risk of inability to obtain adequate
supplies, and reduced control over pricing and timely delivery. Although the
timeliness, quality and pricing of deliveries from the Company's suppliers have
been acceptable to date and the Company believes that additional sources of
supply are generally available, there can be no assurance that supplies will be
available on an acceptable basis or that delays in obtaining new suppliers,
particularly of plastic bottles, will not have an adverse effect on the Company.

8. STOCKHOLDERS' EQUITY

Organization, Recapitalization and Sale of Common Stock -- The Company was
organized in New Jersey and commenced operations effective October 25, 1988. On
August 2, 1995, the Company was reincorporated in Delaware. In connection with
the reincorporation, the Company became authorized to issue up to 30,000,000
shares of Common Stock, $.01 par value per share, and up to 1,000,000 shares of
Preferred Stock, no par value. As part of the reincorporation each share of the
predecessor corporation's common stock was converted into 88,167 shares of
Common Stock of the Company. All applicable share data have been retroactively
adjusted to reflect the reincorporation and share conversion.

On January 18, 1996, the Company declared a three-for-two stock split
effected in the form of a 50% stock dividend to holders of record of the
Company's Common Stock at the close of business on January 30, 1996 and paid
February 9, 1996. Shares outstanding and per share amounts have been
retroactively adjusted to reflect the threefortwo stock split.

In June 1996, the Company completed an additional public offering of 300,000
shares of Common Stock which provided net proceeds to the Company of
approximately $11,736,000.

1995 Stock Option Plan -- Effective in August 1995, the Company adopted the
USA Detergents, Inc. 1995 Stock Option Plan (the "1995 Plan"), pursuant to which
options to acquire an aggregate of 388,935 shares of Common Stock were available
for grant to key employees and consultants of the Company or any of its
subsidiaries. In July 1997, the maximum number of shares of Common Stock
authorized to be granted under the 1995 Plan was increased to 1,000,000. The
1995 Plan authorizes the Board to issue incentive stock options ("ISO's"), as
defined in Section 422A(b) of the Internal Revenue Code (the "Code"), and stock
options that do not conform to the requirements of that Code section
("NonISO's"). The exercise price of each ISO may not be less than 100% of the
fair market value of the Common Stock at the time of grant, except that in the
case of a grant to an employee who owns 10% or more of the outstanding stock of
the Company or any subsidiary ("10% Stockholder"), the exercise price shall not
be less than 110% of such fair market value. The exercise price of each NonISO
may not be less than the par value of the Common Stock. Generally, options will
vest over a three to five year period and may not be exercised after the tenth
anniversary (fifth anniversary in the case of an ISO granted to a 10%
Shareholder) of their grant. Options may not be transferred during the lifetime
of an option holder. No stock options may be granted under the 1995 Plan after
2005.

Non-Employee Directors' Plan. -- Effective in August 1995, the Company
adopted a Stock Option Plan for NonEmployee Directors (the "Directors' Plan"),
pursuant to which options to acquire

F-22
<PAGE>

an aggregate of 75,000 shares of Common Stock may be granted to nonemployee
directors. The Directors' Plan provides for the automatic grant to each of the
Company's nonemployee directors of (1) an option to purchase 4,500 shares of
Common Stock on the later of the date of such director's initial election or
appointment to the Board of Directors or the date of adoption of the Directors'
Plan, and (2) an option to purchase 4,500 shares of Common Stock on each annual
anniversary of such election or appointment, provided that such individual is on
that anniversary date a nonemployee director. The options will have an exercise
price of 100% of the fair market value of the Common Stock on the date of grant,
have a tenyear term and become exercisable in four equal quarterly installments
commencing on the date which is three months after the date of the grant
thereof, subject to acceleration in the event of a change of control (as defined
in the Directors' Plan). The options may be exercised by payment in cash, check
or shares of Common Stock.

In December 1993, the Company granted an option to an executive covering
119,145 shares of common stock exercisable in four annual installments beginning
December 31, 1995. This option is exercisable at $2.00 per share. Through
December 31, 1998, 69,145 shares have been purchased pursuant to the exercise of
this option.

Activity in the 1995 Plan and the Directors' Plan since inception is as
follows:

WEIGHTED
NUMBER OF AVERAGE PRICE
OPTIONS PER SHARE
--------- -------------

Options outstanding, December 31, 1995 257,295 6.23

Granted in 1996......................... 128,600 16.92

Canceled................................. (8,625) 9.67

Exercised................................ (99,557) 4.49
--------

Options outstanding, December 31, 1996 277,713 11.69

Granted in 1997.......................... 394,662 12.79

Canceled................................. (264,737) 16.33

Exercised................................ 24,298) 11.72
--------

Options outstanding, December 31, 1997 401,340 9.92

Granted in 1998.......................... 278,950 9.55

Canceled................................. (87,463) 11.76

Exercised................................ (19,323) 5.87
--------

Options outstanding, December 31, 1998 573,504 9.60
=======

As of December 31, 1998, options outstanding and options exercisable consist of
the following:

F-23
<PAGE>

NUMBER OF NUMBER OF
OPTIONS EXERCISE OPTIONS
GRANT DATE OUTSTANDING PRICE EXERCISABLE
---------- ----------- ----- -----------
Dec-93 40,427 $ 2.00 40,427
Aug-95 50,926 9.67 50,926
Aug-95 4,500 12.67 4,500
Jan-96 12,627 15.75 6,514
Feb-96 9,000 9.67 3,000
Feb-96 4,500 11.92 4,500
Aug-96 13,500 31.50 13,500
Mar-97 375 21.50 93
Aug-97 13,500 13.25 13,500
Sep-97 500 8.69 125
Sep-97 2,218 11.69 998
Dec-97 159,188 8.69 42,554
Jan-98 20,712 7.81 --
Jan-98 750 8.69 --
Jan-98 2,000 7.88 --
Jan-98 1,000 9.88 --
Jan-98 218,031 9.50 --
Jan-98 2,750 9.00 --
Apr-98 5,000 14.38 --
Apr-98 4,500 14.00 1,125
Aug-98 3,000 8.00 --
Aug-98 4,500 13.50 --
------- -------
573,504 181,762
======= =======

As of December 31, 1998, there were 358,318 options available for future
grant under the Plans and 181,762 outstanding options were exercisable.

During the year ended December 31, 1998, the Company obtained proceeds
approximating $114,000 from the exercise of 19,323 stock options.

The Company applies the provisions of APB Opinion 25 and related
interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for the foregoing options. The excess, if
any, of the fair market value of shares on the measurement date over the
exercise price is charged to operations each year as the options become
exercisable. Had compensation cost for these options been determined using the
Black-Scholes option-pricing model described in FASB Statement 123, the Company
would have recorded additional aggregate compensation expense of approximately
$1,141,000 in 1998, $973,000 in 1997 and $1,841,000 in 1996 which would be
expensed over the option's vesting period. The assumptions used in the
option-pricing model include a risk-free interest rate of 4.5%-6.0%, expected
life of 3 years and expected volatility of 48.85%-59.46%. Dividends are assumed
to be zero. The pro forma impact of following the provisions of FASB Statement
No. 123 on the Company's net income (loss) and net income (loss) per share
would be as follows:

F-24
<PAGE>

YEARS ENDED DECEMBER 31,
------------------------
1996 1997 1998

(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss) - as reported $3,707 $(21,081) $ 866
====== ========= =====

- pro forma $3,281 $(21,914) $(275)
====== ========= =====

Basic net income (loss) per share - as reported $ .27 $ (1.53) $ .06
======== ========== =====

- pro forma $ .24 $ (1.59) $(.02)
======== ========== =====

Diluted net income (loss) per share - as reported $ .27 $ (1.53) $ .06
======== ========== =====

- pro forma $ .24 $ (1.59) $(.02)
======== ========== =====

</TABLE>

For 1998, approximately 246,000 options have been excluded from the pro forma
computation of diluted net loss per share because the impact would be
antidilutive.

F-25
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.

USA DETERGENTS, INC.

Dated: March 29, 1999 By: /s/ Uri Evan
-----------------------------------
Name: Uri Evan
Title: Chairman and Chief
Executive Officer

Pursuant to the requirements of the Securities Exchange Act of
1934, this Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.

Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Uri Evan Chief Executive Officer and March 29, 1999
- -------------------------- Chairman of the Board of Directors
Uri Evan

/s/ Richard D. Coslow Chief Financial Officer (Principal March 29, 1999
- -------------------------- Financial Officer and Principal
Richard D. Coslow Accounting Officer)

/s/ Daniel Bergman Vice President and Secretary March 29, 1999
- --------------------------
Daniel Bergman

/s/ Frederick R. Adler Director March 29, 1999
- --------------------------
Frederick R. Adler

/s/ Richard A. Mandell Director March 29, 1999
- --------------------------
Richard A. Mandell

/s/ Christopher D. Illick Director March 29, 1999
- --------------------------
Christopher D. Illick

</TABLE>

<PAGE>

USA DETERGENTS, INC. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (000'S)

ADDITIONS
BALANCE AT CHARGED DEDUCTIONS
BEGINNING TO PROFIT BALANCE AT
DESCRIPTION OF PERIOD AND LOSS (A) END OF PERIOD
----------- --------- -------- --- -------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:

Year ended December 31, 1996 $ 276 $ 1,421 $ 348 $ 1,349
Year ended December 31, 1997 $ 1,349 $ 475 $ 957 $ 867
Year ended December 31, 1998 $ 867 $ 540 $ 296 $ 1,111

</TABLE>

(A) Represents write-offs of uncollectible accounts receivable.
<PAGE>

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- -----------------------
3.1 Certificate of Incorporation. (1)

3.2 Amended and Restated By-Laws of the Registrant. (5)

4.1 See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and By-Laws of the Registrant defining the rights of
holders of Common Stock of the Registrant. (1)
4.2 Specimen Common Stock Certificate. (1)

4.3 Form of Registration Rights Agreements between the Registrant,
Frederick R. Adler and Blair Effron. (1)
10.1 Lease Agreement dated January 15, 1993 between Maurice M. Weill,
Trustee for GEEMAC Property, and the Registrant. (1)
10.2 Supply Agreement dated November 29, 1994 between Owens-Illinois
Plastic Products Inc., Owens-Illinois Closure Inc. and the
Registrant. (1)
10.3 Amendment No. 1 dated December 1995 to Supply Agreement, dated
November 29, 1994, between Owens-Illinois Plastic Products Inc.,
Owens-Illinois Plastic Products Inc., Owens-Illinois Closure Inc.
and the Registrant. (2) (confidentiality note)*
10.4 Amended and Restated Employment Agreement with Uri Evan dated
January 1996. (2)**
10.5 Employment Agreement with Daniel Bergman.
10.6 Forms of Employment Agreement with Frank Corella.
10.7 Loan Agreement dated April 15, 1993 between the New Jersey
Economic Development Authority and the Registrant. (1)
10.8 Reimbursement Agreement dated April 15, 1993 between Banque
Nationale de Paris, Houston Agency and the Registrant. (1)
10.9 Security Agreement dated April 15, 1993 between the New Jersey
Economic Development Authority and the Registrant. (1)

<PAGE>

10.10 Amended and Restated Loan Agreement dated February 25, 1998
between PNC Bank, N.A. and the Registrant.
10.11 1995 Stock Option Plan.(1)**
10.12 Stock Option Plan for Non-Employee Directors.(1)**
10.13 Form of Directors and Officers Indemnity Agreement.(1)
10.14 Lease Agreement dated January 26, 1996 between M&E Co. and the
Registrant.(2)
10.15 Purchase and Sale Agreement dated January 22, 1997 between The
Okonite Company, Inc. and the Registrant.(3)
10.16 Letter Agreement dated May 5, 1997 between the Registrant and
Harold J. Macsata.(4)
10.17 Letter Agreement dated April 14, 1997 between the Registrant and
Mark Antebi.(4)
10.18 Letter Agreement dated April 14, 1997 between the Registrant and
Joseph Cohen.(4)
10.19 Employment Agreement dated March 26, 1997 between the Registrant
and Richard D. Coslow.(4)**
10.20 Employment Agreement, dated July 31, 1997 between the Registrant
and Guilio Perillo.(4)**
10.21 Stock Purchase Agreement dated June 30, 1997 between the
Registrant, Big Cloud Powder Corporation and Chicago Contract
Powder Corporation.(4)
10.22 Warrant dated February 25, 1998 issued by the Registrant to PNC
Bank, N.A.5 10.23 Mortgage and Security Agreement dated February
25, 1998 between the Registrant and PNC Bank, N.A.(5)
10.24 Letter Agreement dated February 25, 1998 between the Registrant
and 101 Realty Associates, L.L.C.(5)
10.25 Mortgage and Security Agreement dated February 25, 1998 between
the Registrant and 101 Realty Associates, L.L.C.(5)
10.26 Warrant dated December 26, 1997 issued by the Registrant to
Frederick R. Adler.(5)
10.27 Agreement dated December 26, 1997 between Frederick R. Adler and
the Registrant.(5)
10.28 Warrant dated April 30, 1998 issued by the Registrant to 101
Realty Associates, L.L.C.(6)
10.29 Amended and Restated Warrant dated August 14, 1998 issued by the
Registrant to PNC Bank, N.A.(7)
10.30 Second Amended and Restated Loan and Security Agreement dated
August 14, 1998 between the Registrant and PNC Bank, N.A.(7)
10.31 Loan and Security Agreement dated August 14, 1998 between the
Registrant and a syndicate of lenders including FINOVA Capital
Corporation as Agent for itself and other lenders.(7)
10.32 Revolving Loan Note dated August 14, 1998 issued by the Registrant
to FINOVA Capital Corporation.(7)
10.33 Term Loan A Note dated August 14, 1998 issued by the Registrant to
FINOVA Capital Corporation.(7)
<PAGE>

10.34 Term Loan B Note dated August 14, 1998 issued by the Registrant
to FINOVA Capital Corporation.(7)
10.35 Agency Agreement dated August 14, 1998 between the Registrant to
FINOVA Capital Corporation, First Source Financial LLP, Merrill
Lynch Business Financial Services, Inc. and Foothill Capital
Corporation.(7)
21 Subsidiaries of the Company.(5)
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.

<PAGE>

- --------------------------

* Confidentiality Requested, confidential portions have been omitted and
filed separately with the Commission, as required by Rule 406(b) of the
Securities Act of 1933.

** Management contract, or compensatory plan or arrangement.

1. Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 33-93488), which exhibit is incorporated herein by
reference.

2. Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 333-1386), which exhibit is incorporated herein by
reference.

3. Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, which exhibit is incorporated herein
by reference.

4. Previously filed as an exhibit to the Company's Annual Report on Form 10-Q
for the quarter ended June 30, 1997, which exhibit is incorporated herein
by reference.

5. Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, which exhibit is incorporated herein
by reference.

6. Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, which exhibit is incorporated
herein by reference.

7. Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998.

<PAGE>
EXHIBIT 23

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement
Nos. 33-98988, 33-98986 and of USA Detergents, Inc. on Form S-8 of our report
dated March 9, 1999, appearing in this Annual Report on Form 10-K of USA
Detergents, Inc. for the year ended December 31, 1998.

/s/ Deloitte & Touche LLP

New York, New York
March 30, 1999

<PAGE>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-K for the year ended December 31, 1998, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 20,794
<ALLOWANCES> 1,111
<INVENTORY> 14,668
<CURRENT-ASSETS> 42,163
<PP&E> 57,998
<DEPRECIATION> 12,753
<TOTAL-ASSETS> 90,929
<CURRENT-LIABILITIES> 39,667
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 17,176
<TOTAL-LIABILITY-AND-EQUITY> 90,929
<SALES> 220,099
<TOTAL-REVENUES> 220,099
<CGS> 147,677
<TOTAL-COSTS> 62,109
<OTHER-EXPENSES> 3,996
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,032
<INCOME-PRETAX> 1,285
<INCOME-TAX> 137
<INCOME-CONTINUING> 1,148
<DISCONTINUED> 0
<EXTRAORDINARY> 282
<CHANGES> 0
<NET-INCOME> 866
<EPS-PRIMARY> .06
<EPS-DILUTED> .06

</TABLE>