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U.S. SECURITIES AND EXCHANGE
COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
From the transition period from ____________ to ____________
Commission File Number 001-14015
U.S. HOME & GARDEN INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0262908
(State or other jurisdiction IRS Employer
of incorporation or organization) (Identification Number)
655 Montgomery Street
San Francisco, California 94111
(Address of Principal Executive Offices) (Zip Code)
(415) 616-8111
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
As of November 7, 2002 there were 17,951,090 shares of the issuer's common
stock, par value $.001 per share, outstanding.
Part I. - Financial Information
Item 1. - Consolidated Financial Statements
Consolidated balance sheets as of September 30, 2002 (Unaudited) 1-2
and June 30, 2002
Consolidated statements of operations for the three months ended 3
September 30, 2002 and 2001 (Unaudited)
Consolidated statements of cash flows for the three months 4-5
ended September 30, 2002 and 2001 (Unaudited)
Notes to consolidated financial statements 6-11
Item 2. - Management's Discussion and Analysis of Financial 12-19
Condition and Results of Operations
Item 3. - Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. - Controls and Procedures 19
Part II. - Other Information
Item 1. - Legal Proceedings 20
Item 5. - Other Information 20
Item 6. - Exhibits and Reports on Form 8-K 20-21
Signatures 21
Certifications 22-23
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Balance Sheets
================================================================================
September 30, June 30,
2002 2002
------------- --------
(Unaudited)
Assets
Current
Cash and cash equivalents $ 677,000 $ 219,000
Accounts receivable, less allowance for doubtful
accounts and sales returns of $1,030,000 and $1,635,000 10,664,000 26,243,000
Inventories 8,724,000 8,023,000
Prepaid expenses and other current assets 1,272,000 988,000
Refundable income taxes 405,000 405,000
Deferred tax asset 688,000 688,000
Current assets of discontinued operations 538,000 1,052,000
- -----------------------------------------------------------------------------------------------------
Total Current Assets 22,968,000 37,618,000
Property and Equipment, net 4,731,000 4,850,000
Intangible Assets
Goodwill, net 49,878,000 49,861,000
Deferred financing costs, net of accumulated
amortization of $695,000 and $578,000 3,694,000 3,570,000
Non-compete agreements, net of accumulated
amortization of $497,000 and $407,000 1,013,000 1,103,000
Package tooling costs, net of accumulated
amortization of $1,993,000 and $1,860,000 1,168,000 1,216,000
Product rights, patents and trademarks, net of
accumulated amortization of $174,000 and $163,000 498,000 509,000
Officer Receivables 512,000 512,000
Property and Equipment of Discontinued Operations
Held For Sale -- 100,000
Other Assets 24,000 26,000
- -----------------------------------------------------------------------------------------------------
Total Assets $84,486,000 $99,365,000
=====================================================================================================
See accompanying notes to consolidated financial statements.
1
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Balance Sheets
================================================================================
September 30, 2002 June 30, 2002
------------------ -------------
(Unaudited)
Liabilities and Stockholders' Equity
Current
Revolving credit facility $ 7,603,000 $ 15,036,000
Accounts payable 6,000,000 7,180,000
Accrued rebates 785,000 931,000
Accrued commissions 748,000 1,437,000
Accrued co-op advertising 628,000 740,000
Accrued expenses 1,210,000 1,577,000
Current portion of long-term debt 7,653,000 7,712,000
Current liabilities of discontinued operations 210,000 277,000
- ------------------------------------------------------------------------------------------------------
Total Current Liabilities 24,837,000 34,890,000
Deferred Tax Liability 542,000 542,000
Company Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust Holding
Solely Junior Subordinated Debentures 56,951,000 56,951,000
- ------------------------------------------------------------------------------------------------------
Total Liabilities 82,330,000 92,383,000
- ------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock, 1,000,000 shares authorized and unissued -- --
Common stock, $0.001 par value - shares authorized,
75,000,000; 21,642,000 and 21,641,000 shares issued 22,000 22,000
Additional paid-in capital 52,381,000 52,351,000
Retained deficit (37,419,000) (32,563,000)
- ------------------------------------------------------------------------------------------------------
14,984,000 19,810,000
Less: Treasury Stock, 3,890,000 shares at cost (12,828,000) (12,828,000)
- ------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 2,156,000 6,982,000
- ------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 84,486,000 $ 99,365,000
======================================================================================================
See accompanying notes to consolidated financial statements.
2
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statements of Operations
================================================================================
Three Months Ended September 30,
2002 2001
Unaudited
Net sales $13,151,000 $13,483,000
Cost of Sales 8,186,000 7,942,000
- ----------------------------------------------------------------------------------------
Gross Profit 4,965,000 5,541,000
- ----------------------------------------------------------------------------------------
Operating Expenses
Selling and shipping 4,156,000 3,891,000
General and administrative 2,426,000 2,149,000
Depreciation 180,000 187,000
Other amortization 247,000 98,000
- ----------------------------------------------------------------------------------------
Total Operating Expenses 7,009,000 6,325,000
- ----------------------------------------------------------------------------------------
Loss from Operations (2,044,000) (784,000)
Other Income (Expense)
Interest expense, net (1,834,000) (1,767,000)
- ----------------------------------------------------------------------------------------
Loss from Continuing Operations Before Cumulative
Effect of a Change in Accounting Principle (3,878,000) (2,551,000)
Discontinued Operations -
Loss from discontinued operations (978,000) (270,000)
- ----------------------------------------------------------------------------------------
Loss Before Cumulative Effect of a Change
In Accounting Principle (4,856,000) (2,821,000)
Cumulative effect of a change in accounting principle -- (9,882,000)
- ----------------------------------------------------------------------------------------
Net Loss $(4,856,000) $(12,703,000)
========================================================================================
Per Share Amounts:
Weighted Average Common Shares Outstanding-
Basic and Diluted 17,752,000 17,543,000
Loss from Continuing Operations per Common Share
Before Cumulative Effect of a Change in
Accounting Principle - Basic and Diluted ($.22) ($.15)
Discontinued operations (.05) (.01)
Cumulative effect of a change in accounting principle -- (.56)
- ----------------------------------------------------------------------------------------
Net Loss ($.27) ($.72)
========================================================================================
See accompanying notes to consolidated financial statements.
3
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statements of Cash Flows
================================================================================
Three months ended September 30, 2002 2001
- ---------------------------------------------------------------------------------------------
Unaudited
-----------------------------
Cash Flows from Operating Activities:
Net loss from continuing operations before cumulative
effect of a change in accounting principle $(3,878,000) $(2,551,000)
Adjustments to reconcile net loss from continuing
operations before cumulative effect of a change in
accounting principle to net cash provided by
operating activities:
Depreciation and amortization 847,000 587,000
Compensation related to stock options 30,000 30,000
Changes in operating assets and liabilities:
Accounts receivable 15,579,000 11,059,000
Inventories (701,000) (952,000)
Prepaid expenses and other current assets (284,000) (200,000)
Accounts payable and accrued expenses (2,493,000) (1,835,000)
Other assets 2,000 193,000
- ---------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 9,102,000 6,331,000
- ---------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Payments related to purchase of business (17,000) --
Increase in officer receivables -- (10,000)
Purchase of property and equipment (340,000) (263,000)
Purchase of intangibles (82,000) (97,000)
- ---------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (439,000) (370,000)
=============================================================================================
4
U.S. Home & Garden Inc. and Subsidiaries
Consolidated Statements of Cash Flows
================================================================================
Three months ended September 30, 2002 2001
- -------------------------------------------------------------------------------
Unaudited
----------------------------
Cash Flows from Financing Activities:
Deferred finance costs $ (241,000) $ (100,000)
Net payments on lines-of-credit (7,433,000) (5,881,000)
Payments on long-term debt (100,000) --
Other -- (19,000)
- -------------------------------------------------------------------------------
Net Cash Used In Financing Activities (7,774,000) (6,000,000)
- -------------------------------------------------------------------------------
Net increase in cash and cash equivalents from
continuing operations 889,000 (39,000)
Cash used in discontinued operations (431,000) (13,000)
- -------------------------------------------------------------------------------
Net increase in cash and cash equivalents 458,000 (52,000)
Cash and Cash Equivalents, beginning of period 219,000 2,741,000
- -------------------------------------------------------------------------------
Cash and Cash Equivalents, end of period $ 677,000 $ 2,689,000
================================================================================
Supplemental Disclosure of Cash Flow
Information
Cash paid for interest $ 1,751,000 $ 1,911,000
Cash paid for taxes $ -- $ 173,000
================================================================================
See accompanying notes to consolidated financial statements.
5
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financials Statements
================================================================================
1. The accompanying consolidated financial statements at September 30, 2002
and for the three months ended September 30, 2002 and 2001 are unaudited,
but, in the opinion of management, include all adjustments necessary for a
fair presentation of consolidated financial position and results of
operations for the periods presented. The results for the three months
ended September 30, 2002 are not necessarily indicative of the results of
operations for a full year.
2. Refer to the audited consolidated financial statements for the year ended
June 30, 2002, for details of accounting policies and detailed notes to
the consolidated financial statements.
3. Inventories consist of:
September 30, 2002 June 30, 2002
--------------------------------------------------------------------
Raw materials $4,352,000 $4,025,000
Finished goods 4,372,000 3,998,000
--------------------------------------------------------------------
$8,724,000 $8,023,000
====================================================================
4. On November 15, 2001, the Company entered into a financing agreement
expiring November 15, 2004 to provide $25,000,000 in senior secured
financing, as amended. The agreement provides for a $23,000,000 revolving
credit facility and a $2,000,000 term loan due in monthly installments of
$33,000 plus interest. The term loan balance outstanding at September 30,
2002 and June 30, 2002 was $1,667,000 and $1,767,000, respectively.
Interest on borrowings is calculated at variable annual rates based on
either the bank's prime rate plus an applicable marginal rate or the
federal funds rate plus an applicable marginal rate (effectively 5.75% on
the term loan and 5.25% on the revolving credit facility). Borrowings on
the revolving credit facility are limited based on eligible borrowing
bases, (effectively $9,595,000 at September 30, 2002). At September 30,
2002 the Company had $7,603,000 of borrowings outstanding under the
revolving credit facility. These borrowings were paid in full on November
1, 2002 with proceeds from the new financing agreements discussed below.
The Company's obligations under the revolving credit facility were
guaranteed by its subsidiaries and secured by a security interest in favor
of the bank on substantially all of the assets of the Company and its
subsidiaries. The Company was also subject to certain fees and
restrictions in conjunction with the financing. Upon the occurrence of an
event of default as specified in the financing agreement, the maturity of
loans outstanding under the financing agreement might have been
accelerated by the bank, which might have also foreclosed its security
interest on the assets of the Company and its subsidiaries.
On November 15, 2001, the Company also entered into a financing agreement
to provide $6,250,000 of subordinated debt. At September 30, 2002 and June
30, 2002, the Company had borrowings outstanding of $5,987,000 and
$5,945,000, net of discounts of $863,000 and $905,000 respectively,
pursuant to the subordinated secured notes due in November 2007 with an
effective interest rate of 18.4%. Interest was charged on the face of the
notes at 16% and 14% per annum, payable monthly. The issue price of the
16% notes was 90% of the face amount of the notes resulting in a discount
of $600,000. The notes were secured by a second lien on all assets of the
Company and ranked junior to the senior financing provided by the bank. In
connection with this financing, the Company issued to the purchasers of
the notes
6
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financials Statements
================================================================================
warrants to purchase up to 3.75% of the fully diluted common stock of the
Company and an option to purchase from the Company certain Trust Preferred
Securities of the Company's subsidiary, U.S. Home and Garden Trust I, that
are owned by the Company, which resulted in an additional discount of
$402,000.
Under the two financing agreements, the Company and its subsidiaries were
required, among other things, to comply with (a) certain limitations on
incurring additional indebtedness, liens and guarantees, dispositions of
assets, payment of cash dividends and cash redemption and repurchases of
securities, and (b) certain limitations on mergers, liquidations, changes
in business, investments, loans and advances, affiliate transactions and
certain acquisitions. In addition, the Company must have complied with
certain financial tests and ratios and other covenants. A violation of any
of these covenants constituted an event of default under the financing
agreements. At September 30, 2002, the Company was in violation of certain
covenants, and all debt outstanding under the agreements has been
classified as current at September 30, 2002.
The Company replaced the $25,000,000 and $6,250,000 financing agreements
with a new senior credit facility dated as of October 30, 2002 for the
Company and its material subsidiaries. Foothill Capital Corporation, which
is the administrative agent for the facility, is also the revolving credit
lender, and Ableco Finance LLC is providing a term loan. The total amount
of the new credit facility is $35 million, of which $23 million is a
revolving credit facility and $12 million is a term loan. The new credit
facility matures in three years. Interest on the revolving credit facility
is at variable annual interest rates based on the prime rate or LIBOR plus
applicable marginal rates. Interest on the term loan is at variable annual
interest rates based on the prime rate with a minimum rate of 9.75% plus
2% of accrued interest payable upon maturity (payment in kind interest).
The interest rate on the term loan increases 2% each year the balance is
outstanding. Borrowings on the revolving credit facility are limited based
on eligible borrowing bases.
As a result of the new credit facility, the Company will write-off
$1,089,000 of deferred financing costs related to the replaced financing
agreements in the quarter ended December 31, 2002. The Company will also
record pre-payment penalties and other fees and expenses of $2,034,000.
The Company and its material subsidiaries' obligations under the new
credit facility are secured by a security interest in favor of the lenders
in substantially all of the assets of the Company and its material
subsidiaries. The Company and its material subsidiaries are subject to
certain financial and other covenants under the new credit facility.
Upon repayment of the $6,250,000 subordinated debt, the Company continues
to have certain ongoing obligations under the subordinated debt financing
agreement to the holders of the warrants to purchase common stock of the
Company and option to purchase Trust Preferred Securities described above
by virtue of their ownership of such securities.
5. In June 2002, the Company announced that is was discontinuing the
operations conducted through its subsidiary Weed Wizard Acquisition Corp.
("Weed Wizard") effective September 30, 2002. Despite the Company's
efforts to increase sales and return to profitability, Weed Wizard
experienced continued erosion of its business. The Company plans to
dispose of the assets and liabilities of Weed Wizard,
7
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financials Statements
================================================================================
including amounts written off, through a sale of the assets and
liquidation of the liabilities during fiscal 2003.
Revenues for Weed Wizard for the three months ended September 30, 2002 and
2001 were $64,000 and $167,000, respectively. The Company had a net loss
from operations of Weed Wizard of $978,000 and $270,000 for the three
months ended September 30, 2002 and 2001, respectively.
In June 2001, the Company announced that it was discontinuing its
e-commerce imitative, which it was conducting though its subsidiary,
Egarden, Inc. (Egarden), effective June 30, 2001. All severance payments
were made by June 30, 2002. No adjustments were required to the liability
recorded for severance payments since June 30, 2001. All of the assets of
Egarden, including amounts written off, were sold during the year ended
June 30, 2002.
Revenues of Egarden for the three months ended September 30, 2002 and 2001
were not material.
The assets and liabilities of discontinued Weed Wizard and Egarden
operations reported in the consolidated balance sheets consist of the
following:
September 30, 2002
=========================================================================
Weed Wizard Egarden Total
=========================================================================
Current Assets:
Cash and cash equivalents $ -- $63,000 $ 63,000
Accounts receivable:
Trade 273,000 -- 273,000
Settlement 195,000 -- 195,000
Other current assets 7,000 -- 7,000
-------------------------------------------------------------------------
Total Current Assets $475,000 $63,000 $ 538,000
=========================================================================
Current Liabilities:
Accounts payable $ 9,000 $ -- $ 9,000
Accrued expenses 184,000 17,000 201,000
-------------------------------------------------------------------------
Total Current Liabilities $193,000 $17,000 $ 210,000
=========================================================================
8
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financials Statements
================================================================================
June 30, 2002
------------------------------------------
Weed Wizard Egarden Total
-------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ -- $62,000 $ 62,000
Accounts receivable:
Trade 385,000 -- 385,000
Settlement 195,000 -- 195,000
Inventories 274,000 -- 274,000
Other current assets 136,000 -- 136,000
-------------------------------------------------------------------------
Total Current Assets $990,000 $62,000 $1,052,000
=========================================================================
Long-Term Assets-
Property and equipment, net $100,000 $ -- $ 100,000
=========================================================================
Current Liabilities:
Accounts payable $ 98,000 $ -- $ 98,000
Accrued expenses 163,000 16,000 179,000
-------------------------------------------------------------------------
Total Current Liabilities $261,000 $16,000 $ 277,000
=========================================================================
Pursuant to Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the
Company's consolidated financial statements and notes have been restated
for all periods presented to reflect the discontinued components. The
current assets and current liabilities of the discontinued components have
been separately stated and the property and equipment of discontinued
operations has been classified as "Held for Sale" on the balance sheet.
The net losses and net cash flows have been reported as "Discontinued
Operations" in the accompanying consolidated financial statements. The
notes have been restated to exclude amounts related to these discontinued
components.
6. Effective July 1, 2001, the Company adopted SFAS No. 141 and SFAS No. 142.
The Company completed a reassessment of the useful lives of all intangible
assets other than goodwill which total $6,373,000 and $6,398,000 (net of
accumulated amortization of $3,359,000 and $3,008,000) at September 30,
2002 and June 30, 2002, respectively. No adjustments to previously
determined amortization periods were considered necessary. The Company has
no intangible assets with indefinite useful lives other than goodwill at
September 30, 2002.
In conjunction with the adoption of SFAS No. 141 and SFAS No. 142, the
Company completed its transitional goodwill impairment test. Ampro
Industries, Inc. ("Ampro") and Golden West Agri-Products, Inc. ("Golden
West") were the only reporting units where the carrying value exceeded the
fair value of their net assets including goodwill. As of July 1, 2001, the
net goodwill related to Ampro was $17,078,000. The Company hired an
independent valuation professional to assist the Company in measuring the
amount of the impairment. Based on the valuation, the Company recorded an
impairment
9
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financials Statements
================================================================================
loss at the end of the prior fiscal year of $9,390,000. The net goodwill
related to Golden West at July 1, 2001 was approximately $1,165,000. Based
on a valuation prepared by management, an impairment loss was recorded at
the end of the prior fiscal year of $492,000. In accordance with the
applicable accounting literature, for interim reporting purposes these
impairment losses were reflected as of July 1, 2001 and were reported as a
cumulative effect of a change in accounting principle in the Consolidated
Statements of Operations.
The Company's previous business combinations were accounted for using the
purchase method. As a result of such combinations, the Company has
recognized a significant amount of goodwill, which, in the aggregate, was
$49,878,000 and $49,861,000, net of accumulated amortization, at September
30, 2002 and June 30, 2002, respectively. Amortization expense for all
intangible assets during the three months ended September 30, 2002 and
2001 was $351,000 and $195,000, respectively. Estimated amortization
expense for continuing operations for each of the five succeeding fiscal
years is as follows:
Year Ended June 30, Amount
----------------------------------------------------------
2003 $1,400,000
2004 $1,400,000
2005 $ 877,000
2006 $ 667,000
2007 $ 667,000
7. In the normal course of business, the Company is subject to proceedings,
lawsuits, and other claims, including proceedings under laws and
government regulations related to product safety and other matters. Such
matters are subject to many uncertainties, and outcomes are not
predictable with assurance.
In fiscal 2001, the Company commenced an action against A.A.B.B., Inc.
(formerly known as Weed Wizard Inc.) and certain of its stockholders and
officers relating to the purchase from the defendants of substantially all
of the assets of Weed Wizard, Inc. by the Company. The Company sought to
rescind the transaction or to recover monetary damages. A.A.B.B., Inc.
asserted a counterclaim for breach of contract against the Company for
$720,000, plus interest, representing an alleged adjustment to the
purchase price.
During fiscal 2001, the U.S. Consumer Product Safety Commission ("CPSC")
began an investigation into a product previously distributed by the
Company's Weed Wizard subsidiary. In October 2002 the Company and the CPSC
entered into a formal settlement agreement. The settlement provides for an
aggregate fine of $885,000, against the Company and A.A.B.B., Inc.
Pursuant to the settlement agreement, the Company and A.A.B.B Inc. will
each pay $442,500 of the fine.
10
U.S. Home & Garden Inc. and Subsidiaries
Notes to Consolidated Financials Statements
================================================================================
In October 2002, the Company entered into a settlement agreement with
A.A.B.B., Inc. The settlement involves a payment by A.A.B.B., Inc. of
$442,500 to the CPSC in payment of the fine discussed above, a payment of
approximately $308,000 to the Company, and the release of the escrow funds
of approximately $329,000 to the Company. The settlement agreement with
A.A.B.B., Inc. became effective upon the execution of the settlement
agreement with the CPSC described above. The effects of the agreements
have been reflected in the consolidated financial statements for the
fiscal year ended June 30, 2002 (resulting in a receivable of $195,000 as
of September 30, 2002), except for expenses incurred subsequent to that
date.
11
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Report
contains statements that are forward-looking, such as statements relating to
plans for the Company's future activities. Such forward-looking information
involves important known and unknown risks and uncertainties that could
significantly affect actual results, performance or achievements in the future
and, accordingly, such actual results, performance or achievements may
materially differ from those expressed or implied in any forward-looking
statements made by or on behalf of the Company.
These risks and uncertainties include, but are not limited to, those relating to
the Company's growth strategy, customer concentration, outstanding indebtedness,
dependence on weather conditions, seasonality, expansion and other activities of
competitors, ability to successfully integrate acquired companies and product
lines, changes in federal or state environmental laws and the administration of
such laws, protection of trademarks and other proprietary rights, uncertainty of
continued listing of the Company's common stock on NASDAQ due to its possible
inability to meet NASDAQ continuing listing criteria, and the general condition
of the economy and its effect on the securities markets and other risks detailed
in the Company's other filings with the Securities and Exchange Commission. The
words "believe," "expect," "anticipate," "intend" and "plan" and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date the statement was made.
General
U.S. Home & Garden Inc., ("the Company"), manufactures and markets a broad range
of brand-name consumer lawn and garden products through its wholly owned
subsidiaries, Ampro, Easy Gardener, Inc. ("Easy Gardener"), and Golden West and
Easy Gardener's wholly owned subsidiaries, Weatherly Consumer Products Group,
Inc. and Weed Wizard. In June 2002, the Company announced the discontinuation
of the Weed Wizard operations effective September 30, 2002. Since 1992, the
Company consummated eleven acquisitions of complementary lawn and garden
companies and product lines for an aggregate consideration of approximately
$111,000,000 in cash, notes and equity securities. As a result of such
acquisitions, the Company recognized a significant amount of goodwill, which, in
the aggregate, was approximately $49,878,000 and $49,861,000, net of accumulated
amortization, at September 30, 2002 and June 30, 2002, respectively.
The consumer lawn and garden market continues to become more consolidated with
fewer retailers accounting for an increasing percentage of all lawn and garden
products sold. This increasing concentration provides the largest retailers with
greater leverage over their suppliers, such as the Company. This leverage could
result in decreased margins for suppliers, including the Company, who may be
required to make greater price concessions to their large retail accounts
without being able to reduce the costs of the products sold by them to the
retailers. This leverage by the large retailers could also increase sales
volatility for the Company as well as other suppliers of lawn and garden
products.
12
Results of Operations
The following table sets forth, for the periods indicated, certain selected
financial data as a percentage of net sales:
September 30,
2002 2001
==================
Net sales 100.0% 100.0%
Cost of sales 62.2 58.9
==================
Gross profit 37.8 41.1
Selling and shipping expenses 31.6 28.9
General and administrative expenses 18.4 15.9
Depreciation and amortization 3.3 2.1
==================
Loss from operations (15.5) (5.8)
Interest expense, net (14.0) (13.1)
==================
Loss from continuing operations before cumulative
effect of a change in accounting principle (29.5) (18.9)
Loss from discontinued operations (7.4) (2.0)
==================
Loss before cumulative effect of a change
in accounting principle (36.9) (20.9)
Cumulative effect of a change in accounting principle -- (73.3)
==================
Net loss (36.9%) (94.2%)
==================
13
Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001
Net sales. Net sales decreased by $332,000, or 2.5%, to $13,151,000 during the
three months ended September 30, 2002, from $13,483,000 during the comparable
period in 2001. The decrease in net sales was the result of an increase in the
levels of rebates and discounts given to key customers in the quarter ended
September 30, 2002. Rebates, discounts and returns and allowances are deductions
to arrive at net sales. These deductions increased approximately $700,000 in the
quarter ended September 30, 2002 as compared to the comparable period in 2001.
The Company expects its largest customer will achieve sales levels entitling it
to a higher percentage level of rebates, which resulted in the Company accruing
an additional $500,000 in rebate expense in the September 30, 2002 quarter. A
special July 2002 promotional program for the Company's largest customer
increased discounts by $200,000. The amount of rebates will vary from quarter to
quarter, depending upon the amount of sales made to the Company's largest
customers.
Cost of sales. Cost of sales increased by $244,000, or 3.1% to $8,186,000 for
the three months ended September 30, 2002 from $7,942,000 during the comparable
period in 2001. The increase was a result of the increase in gross sales. Cost
of sales as a percentage of net sales increased to 62.2% during the three months
ended September 30, 2002 from 58.9% during the comparable period in 2001. Cost
of sales measured as a percentage of sales before rebates, discounts and returns
and allowances increased 0.4% points.
Gross profit. Gross profit decreased by $576,000, or 10.4%, to $4,965,000 for
the three months ended September 30, 2002 from $5,541,000 during the comparable
period in 2001. Gross profit as a percentage of net sales decreased to 37.8%
during the three months ended September 30, 2002, from 41.1% during the
comparable period in 2001. This decrease in gross profit dollars and as a
percentage of net sales results from the increased rebate and discount
incentives noted above.
Selling and shipping expenses. Selling and shipping expenses increased by
$265,000, or 6.8% to $4,156,000 during the three months ended September 30, 2002
from $3,891,000 during the comparable period in 2001. As a percentage of net
sales, selling and shipping expenses increased to 31.6% during the three months
ended September 30, 2002 from 28.9% during the comparable period in 2001. This
increase in expense and increase as a percent of net sales was attributable to
increased outbound freight and also to the decrease in net revenue. Outbound
freight costs increased $460,000 in the three months ended September 30, 2002
while employee and other selling and shipping expenses decreased $195,000.
Outbound freight costs as a percentage of sales before rebate and other
deductions noted above increased approximately 3% points in the three months
ended September 30, 2002 from the comparable period in 2001. The increase in
outbound freight costs resulted primarily from using required carriers
stipulated by a significant customer.
General and administrative expenses. General and administrative expenses
increased by $277,000 or 12.9%, to $2,426,000 during the three months ended
September 30, 2002 from $2,149,000 during the comparable period in 2001. This
increase is primarily related to legal and accounting costs. As a percentage of
net sales, general and administrative expenses increased to 18.4% during the
three months ended September 30, 2002 from 15.9% during the comparable period in
2001.
Depreciation and amortization. Depreciation and amortization expenses increased
by $142,000 or 49.8% to $427,000 during the three months ended September 30,
2002 from $285,000 during the comparable period in 2001. This increase is
primarily due to additional amortization related to a non-compete agreement that
the company began amortizing in October 2001 as well as increased amortization
of deferred financing costs. As a percentage of net sales, depreciation and
amortization expenses increased to 3.3% during the three months ended September
30, 2002 from 2.1% during the comparable period in 2001.
14
Loss from continuing operations. Loss from continuing operations increased by
$1,327,000 or 52.0% to $3,878,000 during the three months ended September 30,
2002, from $2,551,000 during the comparable period in 2001. The increase in loss
from continuing operations was primarily due to increased rebates and discounts
and increased operating expenses as noted above. As a percentage of net sales,
loss from operations increased to 29.5% for the three months ended September 30,
2002 from 18.9% during the comparable period in 2001.
Interest expense. Net interest expense increased $67,000, or 3.8% to $1,834,000
during the three months ended September 30, 2002, from $1,767,000 during the
comparable period in 2001. The increase in interest expense is primarily related
to an increase in the interest rate under the subordinated debt in the three
months ended September 30, 2002, and also to an increase in borrowing levels.
Income taxes. No income tax benefit was recorded for the three months ended
September 30, 2002 and 2001, due to a valuation allowance established for the
full amount of the deferred tax asset generated during the three months ended
September 30, 2002 and 2001. The income tax benefit for each interim period is
based upon the Company's estimated effective income tax rate for the year.
Discontinued Operations. Loss from discontinued operations increased from
$270,000, or 262% to $978,000 during the three months ended September 30, 2002,
from the comparable period in 2001. The $708,000 increase in loss from
discontinued operations is primarily due to legal costs associated with settling
the CPSC and A.A.B.B., Inc. litigation, and a write-down of assets.
Cumulative Effect of a Change in Accounting Principle. The cumulative effect of
a change in accounting principle during the three months ended September 30,
2001 resulted from the transitional goodwill impairment test required in
conjunction with the adoption of SFAS No. 142. The recording of an impairment
loss of $9,882,000, which is primarily related to the Ampro operations, is
reflected as a cumulative effect of a change in accounting principle. See Note 6
to the Consolidated Financial Statements.
Net loss. Net loss decreased by $7,847,000 to $4,856,000 during the three months
ended September 30, 2002 from a net loss of $12,703,000 during the comparable
period in 2001. Net loss per common share decreased to $0.27 per share for the
three months ended September 30, 2002 from net loss of $0.72 per share during
the comparable period in 2001. The decrease in net loss and net loss per common
share is due primarily to the cumulative effect of a change in accounting
principle recorded in the three months ended September 30, 2001 of $9,882,000 as
noted above.
Seasonality
The Company's sales are seasonal due to the nature of the lawn and garden
business, in parallel with the annual growing season. The Company's sales and
shipping are most active from late March through May when home lawn and garden
customers are purchasing supplies for spring planting and retail stores are
increasing their inventory of lawn and garden products. The buying pattern of
retailers, including our retail customers, is changing and stores are
replenishing their inventory when sales are made by them rather than buying
large quantities of inventory in advance of the selling season. Sales typically
decline in mid-summer.
Sales of the Company's agricultural products, which were not material during the
three months ended September 30, 2002, are also seasonal. Most shipments occur
during the agricultural cultivation period from March through October.
15
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily through cash
generated by operations, net proceeds from the Company's private placements and
public sales of securities and borrowings from lending institutions.
At September 30, 2002, the Company had consolidated cash and short-term
investments totaling $677,000, and a working capital deficit of $1,869,000. At
June 30, 2002, the Company had consolidated cash and short-term investments
totaling $219,000, and working capital of $2,728,000. The decrease in working
capital was primarily attributable to the funding of the net loss for the
quarter, including the loss from discontinued operations.
Net cash provided by operating activities for the three months ended September
30, 2002 of $9.1 million consisted primarily of a decrease in accounts
receivable of $15.6 million. This was partially offset by the net loss from
continuing operations of $3.9 million, adjusted for non-cash expenses of $0.9
million, a decrease in accounts payable and accrued expenses of $2.5 million and
an increase in inventories and prepaid expenses of $1.0 million. The decrease in
accounts receivable is consistent with the seasonal nature of our business,
offset in part due to extended payment terms from 30 to 60 days with a key
customer.
Net cash used in investing activities for the three months ended September 30,
2002 of $0.4 million is primarily due to capital purchases of equipment and
intangible assets.
Net cash used in financing activities for the three months ended September 30,
2002 of $7.8 million is primarily due to payments made on the revolving credit
facility with cash provided by operating activities.
On November 15, 2001, the Company entered into a financing agreement expiring
November 15, 2004 to provide $25,000,000 in senior secured financing, as
amended. The agreement provides for a $23,000,000 revolving credit facility and
a $2,000,000 term loan due in monthly installments of $33,000 plus interest. The
term loan balance outstanding at September 30, 2002 and June 30, 2002 was
$1,667,000 and $1,767,000, respectively. Interest on borrowings is calculated at
variable annual rates based on either the bank's prime rate plus an applicable
marginal rate or the federal funds rate plus an applicable marginal rate
(effectively 5.75% on the term loan and 5.25% on the revolving credit facility).
Borrowings on the revolving credit facility are limited based on eligible
borrowing bases, (effectively $9,595,000 at September 30, 2002). At September
30, 2002 the Company had $7,603,000 of borrowings outstanding under the
revolving credit facility. These transactions were paid in full on November 1,
2002.
The Company's obligations under the revolving credit facility were guaranteed by
its subsidiaries and secured by a security interest in favor of the bank on
substantially all of the assets of the Company and its subsidiaries. The Company
was also subject to certain fees and restrictions in conjunction with the
financing. Upon the occurrence of an event of default as specified in the
financing agreement, the maturity of loans outstanding under the financing
agreement might have been accelerated by the bank, which might have also
foreclosed its security interest on the assets of the Company and its
subsidiaries.
On November 15, 2001, the Company also entered into a financing agreement to
provide $6,250,000 of subordinated debt. At September 30, 2002 and June 30,
2002, the Company had borrowings outstanding of $5,987,000 and $5,945,000, net
of discounts of $863,000 and $905,000 respectively, pursuant to the subordinated
secured notes due in November 2007 with an effective interest rate of 18.4%.
Interest was charged on the face of the notes at 16% and 14% per annum, payable
monthly. The issue price of the 16% notes was 90% of the face amount of the
notes resulting in a discount of $600,000. The notes were secured by a second
lien on all assets of the Company and ranked junior to the senior financing
provided by the bank. In connection with this financing, the Company issued to
the purchasers of the notes warrants to purchase up to 3.75% of the fully
diluted common stock of the Company and an option to purchase from the Company
certain Trust Preferred Securities of the Company's subsidiary, U.S. Home and
Garden Trust I, that are owned by the Company, which resulted in an additional
discount of $402,000.
16
Under the two financing agreements, the Company and its subsidiaries were
required, among other things, to comply with (a) certain limitations on
incurring additional indebtedness, liens and guarantees, dispositions of assets,
payment of cash dividends and cash redemption and repurchases of securities, and
(b) certain limitations on mergers, liquidations, changes in business,
investments, loans and advances, affiliate transactions and certain
acquisitions. In addition, the Company must have complied with certain financial
tests and ratios and other covenants. A violation of any of these covenants
constituted an event of default under the financing agreements. At September 30,
2002, the Company was in violation of certain covenants, and all debt
outstanding under the agreements has been classified as current at September 30,
2002.
On October 30, 2002, the Company replaced the $25,000,000 and $6,250,000
financing agreements with a new senior credit facility for the Company and its
material subsidiaries. Foothill Capital Corporation, which is the administrative
agent for the facility, is also the revolving credit lender, and Ableco Finance
LLC is providing a term loan. The total amount of the credit facility is $35
million, of which $23 million is a revolving credit facility and $12 million is
a term loan. The new credit facility matures in three years. Interest on the
revolving credit facility is at variable annual interest rates based on the
prime rate or LIBOR plus applicable marginal rates. Interest on the term loan is
at variable annual interest rates based on the prime rate with a minimum rate of
9.75% plus 2% of accrued interest payable upon maturity (payment in kind
interest). The interest rate on the term loan increases 2% each year the balance
is outstanding. Borrowings on the revolving credit facility are limited based on
eligible borrowing bases.
As a result of the new credit facility, the Company will write-off $1,089,000 of
deferred financing costs related to the replaced financing agreements in the
quarter ended December 31, 2002. The Company will also record pre-payment
penalties and other fees and expenses of $2,034,000.
The Company and its material subsidiaries' obligations under the new credit
facility are secured by a security interest in favor of the lenders in
substantially all of the assets of the Company and its material subsidiaries.
The Company and its material subsidiaries are subject to certain financial and
other covenants under the new credit facility.
Upon repayment of the $6,250,000 subordinated debt, the Company continues to
have certain ongoing obligations under the subordinated debt financing agreement
to the holders of the warrants to purchase common stock of the Company and
option to purchase Trust Preferred Securities described above by virtue of their
ownership of such securities.
Commitments
The Company leases office and warehouse space, certain office equipment and
automobiles under operating leases expiring through 2006. The future minimum
annual lease payments under these non-cancelable operating leases are as
follows:
Year Ended June 30, Amount
-----------------------------------------------------
2003 $ 843,000
2004 731,000
2005 484,000
2006 252,000
-----------------------------------------------------
$2,310,000
-----------------------------------------------------
Critical Accounting Policies
The preparation of financial statements requires the adoption and implementation
of accounting policies and the use of assumptions and estimates in their
presentation. The accounting policies and uncertainties,
17
judgments and estimates make it likely that materially different amounts would
be reported under different conditions and different assumptions.
We have included below a discussion of the more critical accounting policies
that are affected by the significant judgments and estimates used in the
preparation of the financial statements, how such policies are applied, and how
results differing from the estimates and assumptions would affect the amounts
presented in the financial statements. Other accounting policies also have a
significant effect on the financial statements, and some of these policies also
require the use of estimates and assumptions as discussed in the Summary of
Accounting Policies in our Consolidated Financial Statements at June 30, 2002.
Allowance for Doubtful Accounts Receivable and Sales Returns. We maintain an
allowance for doubtful accounts receivable, which represents the potential
estimated losses resulting from the inability of customers to make required
payments for amounts owed. The allowance is estimated based on historical
experience of write-offs, the level of past due amounts and information known
about specific customers with respect to their ability to make payments at the
balance sheet date. If the financial condition of the Company's customers were
to change, resulting in an impairment or improvement in their ability to make
payments, additional allowances may be required or allowances may be reduced.
We also maintain an allowance for sales returns. The allowance is estimated
based on historical experience of sales returns from customers with agreements
that allow the return of product. If actual market conditions for the sale of
the products by the customers are less favorable than those anticipated,
additional allowances may be required.
Inventories. We record inventory reserves for estimated obsolescence of
inventory equal to the difference between the cost of inventory owned and the
estimated market value. Market value is based upon the age of specific inventory
on hand and assumptions about future demand and market conditions. If actual
market conditions for the sale of the inventory are less favorable than those
anticipated by management, additional reserves may be required.
Goodwill. We have consummated eleven acquisitions accounted for using the
purchase method. The excess of cost over net assets acquired which relates to
our acquisitions has been recorded as goodwill. Goodwill is tested for
impairment by comparing the carrying value of the assets of our individual
reporting units to their fair value. The fair value of the assets could vary
significantly over time and different assumptions and estimates will result in
different valuations.
Deferred Income Taxes. We record deferred income taxes based on enacted income
tax rates in effect on the dates temporary differences between the financial
reporting and tax bases of assets and liabilities reverse. To the extent that
available evidence about the future raises doubt about the realization of a
deferred tax asset, a valuation allowance is established. We have recorded a
valuation allowance due to the uncertainty of our ability to generate sufficient
future taxable income to realize the gross deferred tax assets. If we are able
to generate future taxable income, the valuation allowance may be adjusted.
New Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
145, "Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". SFAS No. 4 required all gains and
losses from extinguishment of debt to be aggregated and, if material, classified
as an extraordinary item, net of related income tax effect. SFAS No. 145
requires any gain or loss from the extinguishment of debt to meet the
requirements of APB No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", to be classified as an
extraordinary item, otherwise the item would be classified in the results of
continuing operations. Any gain or loss on extinguishment of debt that was
classified as an extraordinary item in prior periods that does not meet the
criteria of APB No. 30 for classification as an extraordinary item shall be
reclassified. The provisions of the statement related to the
18
recission of SFAS No. 4 are applicable for the Company for the fiscal year ended
June 30, 2003. The adoption of SFAS No. 145 did not have an effect on the
Company's financial statements for the periods presented.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity." The provisions of
this statement are effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged. Currently, the
Company is assessing but has not adopted SFAS No. 146. However, because there
were no restructuring activities during the three months ended September 30,
2002, the Company believes there would have been no effect on current operations
had the statement been applied early.
Inflation
Inflation has historically not had a material effect on the Company's
operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a result of its variable rate revolving credit line, the Company is exposed
to the risk of rising interest rates. The following table provides information
on the Company's fixed maturity debt as of September 30, 2002 that are sensitive
to changes in interest rates.
The Revolving Credit Facility had an interest
rate of 5.25% for the three month period ended
September 30, 2002 $7.6 million
The Term Loan had an interest rate of 5.75%
for the three month period ended September 30, 2002 $1.7 million
Item 4. Controls and Procedures
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of the Company's
management, including the Chief Executive Officer ("CEO") and the Chief
Financial Officer ("CFO"), of the effectiveness of the Company's disclosure
controls and procedures. Based on that evaluation, the CEO and CFO have
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Subsequent to the date of
their evaluation, there were no significant changes in the Company's internal
controls or in other factors that could significantly affect the internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In July 2000, Weed Wizard Acquisition Corp. ("Weed Wizard"), a subsidiary
of Easy Gardener, Inc. commenced an action in the U.S. District Court,
Northern District of Georgia, against A.A.B.B., Inc. (formerly known as
Weed Wizard, Inc.) its stockholders and certain of its officers. In this
action the Company alleged that the defendants made certain
misrepresentations and omitted to disclose certain facts regarding, among
other things, alleged defects in certain of the Weed Wizard products in
connection with our purchase from defendants in 1998 of substantially all
of the assets of Weed Wizard, Inc. The Complaint sought to rescind the
transaction, or in the alternative, to recover recissionary monetary
damages, and to recover compensatory damages. In addition, the Company
sought punitive damages.
In October 2000, A.A.B.B., Inc. asserted a counterclaim for breach of
contract against Weed Wizard alleging that it was owed $720,267, plus
interest, representing an adjustment to the purchase price allegedly
required to be made pursuant to the Asset Purchase Agreement in which Weed
Wizard acquired certain A.A.B.B. Inc.'s assets. A.A.B.B., Inc. also sought
to recover attorney's fees. The Company denied any liability on this
counterclaim.
In May 2002, the District Court denied the defendants' motion for summary
judgment with respect to Weed Wizard's claim for breach of representations
and warranties, but granted the motion to dismiss the fraud and recission
claims.
In fiscal 2001, the Company was notified by the staff of the U.S. Consumer
Products Safety Commission ("CPSC") that the staff was considering
recommending that the CPSC commence an action against Weed Wizard to
obtain a monetary fine from Weed Wizard for the alleged failure of Weed
Wizard to timely disclose to the CPSC, pursuant to the Consumer Products
Safety Act, certain required information concerning a Weed Wizard product
previously distributed by the Company that was the subject of a voluntary
recall during July 2000. In July 2002, an action was commenced by the
United States government on behalf of the CPSC against U.S. Home & Garden
Inc., Easy Gardener and Weed Wizard, in the U.S. District Court for the
District of Maryland, seeking unspecified civil penalties for alleged
failure to provide the CPSC with timely notice of a defective product as
required under the Consumer Products Safety Act. The Company denied the
allegations.
In September 2002, the U.S. District Court granted the Company's motion to
dismiss the complaint for lack of jurisdiction in Maryland. The government
advised the Company that it intended to commence the action in another
jurisdiction. In addition, the government advised that it intended to
pursue claims against A.A.B.B., Inc. and its stockholders for violation of
the Consumer Products Safety Act.
In October 2002, the Company entered into settlement agreements with
A.A.B.B., Inc. and the CPSC. The settlement involved a payment by
A.A.B.B., Inc. of $442,500 and a payment of $442,500 by the Company.
A.A.B.B., Inc. also agreed to pay the Company approximately $308,000, and
release the escrow funds of approximately $329,000 to the Company. The
settlement agreement with A.A.B.B. Inc. became effective upon the
execution of the settlement agreement with the CPSC. The effects of the
agreements have been reflected in the prior consolidated financial
statements except for expenses incurred subsequent to the date of the
prior consolidated financial statements.
Item 5. Other Information
The Company's Audit Committee has approved the provision by the Company's
external auditor, BDO Seidman, LLP, of the non-audit service of rendering
tax advice. This disclosure is made pursuant to Section 10A(i) (2) of the
Securities Exchange Act of 1934, as added by Section 202 of the
Sarbanes-Oxley Act of 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Loan and Security Agreement between US Home & Garden Inc., Easy
Gardener, Inc., Ampro Industries Inc., and Foothill Capital Corporation
and Ableco Financing, LLC.
20
99.1 Certification of the Chief Executive Officer pursuant to section 906
of the Sarbanes-Oxley Act of 2002
99.2 Certification of the Chief Financial Officer pursuant to section 906
of the Sarbanes-Oxley Act of 2002
(b) No reports on Form 8-K were filed during the quarter ended September 30,
2002.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 14, 2002
U.S. Home & Garden Inc.
(Registrant)
By: /s/ Robert Kassel
----------------------------------
President, Chief Executive Officer
By: /s/ Richard Kurz
----------------------------------
Chief Financial Officer
21
U.S. Home & Garden Inc.
Certification of Principal Executive Officer
I, Robert Kassel, President and Chief Executive Officer of U.S. Home & Garden
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of U.S. Home & Garden
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
a. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
a. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
a. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002
/s/ Robert Kassel
-----------------------------
Robert Kassel
Chief Executive Officer
(Principal Executive Officer)
22
U.S. Home & Garden Inc.
Certification of Principal Financial Officer
I, Richard Kurz, Chief Financial Officer of U.S. Home & Garden Inc., certify
that:
1. I have reviewed this quarterly report on Form 10-Q of U.S. Home & Garden
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
c. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002
/s/ Richard Kurz
-----------------------------
Richard Kurz
Chief Financial Officer
(Principal Financial Officer)
23