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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

QUARTERLY REPORTS UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended November 30, 2004

Commission File No. 0-6936-3

WD-40 COMPANY

(Exact Name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (619) 275-1400

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

As of December 31, 2004, 16,576,023 shares of the Registrant’s Common Stock were outstanding.

Part I Financial Information

ITEM 1. Financial Statements

WD-40 Company

Consolidated Condensed Balance Sheets

(See accompanying notes to unaudited consolidated condensed financial statements.)

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WD-40 Company

Consolidated Condensed Statements of Income

(unaudited)

(See accompanying notes to unaudited consolidated condensed financial statements.)

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WD-40 Company

Consolidated Condensed Statements of Cash Flows

(unaudited)

(See accompanying notes to unaudited consolidated condensed financial statements.)

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WD-40 Company

Consolidated Condensed Statements of Comprehensive Income

(unaudited)

(See accompanying notes to unaudited consolidated condensed financial statements.)

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WD-40 COMPANY

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

November 30, 2004

(unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

WD-40 Company (the “Company”), based in San Diego, California, markets two lubricant brands known as WD-40^® and 3-IN-ONE Oil^®, two heavy-duty hand cleaner brands known as Lava^® and Solvol^®, and six household product brands known as X-14^® hard surface cleaners and automatic toilet bowl cleaners, 2000 Flushes^® automatic toilet bowl cleaner, Carpet Fresh^® and No-Vac^® rug and room deodorizers, Spot Shot^® aerosol carpet spot stain remover and 1001^® carpet and household cleaners.

The Company’s brands are sold in various global locations. Lubricant brands are sold worldwide in markets such as North, Central and South America, Asia, Australia and the Pacific Rim, Europe, the Middle East, and Africa. Household cleaner brands are currently sold primarily in North America, the U.K., Australia and the Pacific Rim. Heavy-duty hand cleaner brands are sold primarily in the U.S. and Australia.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated.

Financial Statement Presentation

The financial statements included herein have been prepared by the Company, without audit, according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, the unaudited financial information for the interim periods shown reflects all adjustments (which include only normal, recurring adjustments) necessary for a fair presentation thereof. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2004.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 could differ from those estimates.

Sales Concentration

Wal-Mart Stores, Inc. is a significant U.S. mass retail customer and offers a variety of the Company’s products. Sales to U.S. Wal-Mart stores accounted for approximately 8 percent and 11 percent of the Company’s consolidated net sales during the three months ended November 30, 2004 and 2003, respectively. Excluding sales to U.S. Wal-Mart Stores, sales to affiliates of Wal-Mart worldwide accounted for approximately 6 percent and 5 percent during the three months ended November 30, 2004 and 2003, respectively.

Earnings per Common Share

Basic earnings per common share is calculated by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing net income for the period by the weighted average number of common shares outstanding during the period increased by potentially dilutive common shares (“dilutive securities”) that were outstanding during the period. Dilutive securities are comprised of options granted under the Company’s stock option plan. Weighted average common shares used in the calculation of diluted earnings per common share for the three months ended November 30, 2004 and 2003 include dilutive securities of

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(continued)

153,941 and 248,443, respectively. For the three months ended November 30, 2004 and 2003, 422,800 and 112,716 options outstanding, respectively, were excluded from the calculation of diluted EPS, as the options have an exercise price greater than or equal to the average market value of the Company’s common stock during the respective periods.

Stock-Based Compensation

At November 30, 2004, the Company had one stock option plan. The Company accounts for stock-based compensation for the plan under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, the Company measures compensation expense for its stock option plan using the intrinsic value method, that is, as the excess, if any, of the fair market value of the Company’s stock at the grant date over the amount required to be paid to acquire the stock. Under the terms of the plan, options may be granted at an exercise price not less than 100 percent of the fair market value of the stock at the date of grant, as determined by the closing market value stock price on either the grant date or the day prior to the date of grant. The exercise price of all options granted during the three month periods ended November 30, 2004 and 2003 was greater than or equal to the market value on the date of grant.

Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” prescribe the accounting and disclosure requirements using a fair value-based method of accounting for stock-based compensation plans. The Company has elected to use the intrinsic value method of accounting for its stock options and has adopted the disclosure requirements of SFAS Nos. 123 and 148. The following table illustrates the pro forma effect on net income and earnings per common share as if the Company had applied the fair value recognition provisions of SFAS No. 123 in determining stock-based compensation for awards under the plan:

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(continued)

For pro forma purposes, the estimated fair value of each option grant was determined on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for grants during the three months ended November 30, 2004 and 2003:

Recent Pronouncements

In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials (spoilage) are required to be recognized as current period charges. The provisions of SFAS

No. 151 will be effective for fiscal years beginning after June 15, 2005. The Company is currently evaluating the provisions of SFAS No. 151 and does not expect that the adoption will have a material impact on the Company’s consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment.” SFAS No. 123R addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using the intrinsic method that the Company currently uses and requires that such transactions be accounted for using a fair value-based method and recognized as expense in the consolidated statement of operations. The effective date of SFAS No. 123R is for interim and annual periods beginning after June 15, 2005. The Company is currently assessing the provisions of SFAS No. 123R and its impact on the consolidated statement of operations as the Company will be required to expense the fair value of stock option grants beginning with its first quarter of fiscal year 2006.

In December 2004, the FASB issued FASB Staff Position (FSP) No. 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” FSP No. 109-1 states that qualified domestic production activities should be accounted for as a special deduction under SFAS No. 109, “Accounting for Income Taxes,” and not be treated as a rate reduction. Accordingly, any benefit from the deduction should be reported in the period in which the deduction is claimed on the tax return. The Company does not anticipate any benefit in fiscal year 2005.

In December 2004, the FASB issued FSP No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” FSP No. 109-2 will amend the existing accounting literature that requires companies to record deferred taxes on foreign earnings, unless they intend to indefinitely reinvest those earnings outside the U.S. This pronouncement will temporarily allow companies that are evaluating whether to repatriate foreign earnings under the American Jobs Creation Act of 2004 to delay recognizing any related taxes until that decision is made. This pronouncement will also require companies that are considering repatriating earnings to disclose the status of their evaluation and the potential amounts being considered for repatriation. The U.S. Treasury Department has not issued final guidelines for applying the repatriation provisions of the American Jobs Creation Act. The Company continues to evaluate this legislation and FSP No. 109-2 to determine whether it will repatriate any foreign earnings and the impact, if any, that this pronouncement will have on its consolidated financial statements.

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(continued)

NOTE 2 – ACQUISITIONS

On April 2, 2004, the Company purchased the 1001 line of carpet and household cleaners from PZ Cussons P.L.C. for 6.2 million pounds sterling ($11.4 million) paid in cash, and an additional $0.2 million of acquisition costs for a total purchase price of $11.6 million. The acquisition included essentially all key elements to continue the 1001 business including: the 1001 trade name, intellectual property of the brand, all pertinent information surrounding the manufacturing of the 1001 products including product formulations, access and knowledge of current customers of the products, key marketing knowledge and materials, and research supporting current products and potential new products. The Company acquired this line of products to gain a presence in the U.K. market, and to leverage an introduction of the Company’s current Spot Shot and Carpet Fresh formulas through the use of an existing brand currently recognized by market consumers. The purchase price exceeds the fair market value of the identifiable assets acquired, due to the expectations that the Company will be able to successfully introduce its other household product formulations under the 1001 brand in order to expand the Company’s household products business into the U.K. market.

The acquisition was accounted for using the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations,” and, accordingly, 1001 results of operations have been included in the consolidated financial statements since the date of acquisition.

The following table presents the allocation of the purchase price to the various assets of the 1001 business, as of the April 2, 2004 acquisition date, based on an independent valuation of assets acquired performed by a third-party valuation firm:

NOTE 3 – GOODWILL AND OTHER INTANGIBLES

Goodwill and other intangibles principally relate to the excess of the purchase price over the fair value of tangible assets acquired. Goodwill and intangible assets that have indefinite useful lives are tested at least annually for impairment during the Company’s second fiscal quarter and otherwise as may be required. The Company uses a discounted cash flow model in its impairment test. Intangible assets with indefinite lives are evaluated each reporting period to determine whether events and circumstances continue to support an indefinite useful life. Intangible assets with definite lives are amortized over their useful lives and are also evaluated quarterly to determine whether events and circumstances continue to support their remaining useful lives.

In conjunction with the 1001 acquisition, the Company acquired various assets. As of November 30, 2004, the carrying values of these assets were as follows:

The non-contractual customer relationships intangible asset is being amortized over its estimated eight-year life. The 1001 trade name has been determined to have an indefinite life.

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(continued)

Definite-Lived Intangible Asset

The Company’s definite-lived intangible asset consists of the non-contractual customer relationships acquired in the 1001 acquisition. This definite-lived intangible asset is included in the Europe segment and is being amortized over its estimated eight-year life. This asset is recorded in pounds sterling and converted to U.S. dollars for reporting purposes. The following includes the non-contractual customer relationships intangible asset related to the 1001 acquisition that continues to be subject to amortization:

The below estimated amortization expense for the non-contractual customer relationships intangible asset is based on current foreign currency rates, and amounts in future periods may differ from those presented due to fluctuations in those rates. The estimated amortization for the non-contractual customer relationships intangible asset in future fiscal years is as follows:

Changes in definite-lived intangibles by segment for the three months ended November 30, 2004 are summarized below:

Indefinite-Lived Intangible Assets

Intangible assets, excluding goodwill, which are not amortized as they have been determined to have indefinite lives, consist of the trade names Carpet Fresh, X-14, 2000 Flushes, Spot Shot and 1001. These intangible assets had a total carrying value of $39.6 million at November 30, 2004, of which $35.7 million and $3.9 million are included in the assets of the Americas and Europe segments, respectively.

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(continued)

Changes in indefinite-lived intangibles by segment for the three months ended November 30, 2004 are summarized below:

Acquisition-Related Goodwill

The carrying value of all acquisition-related goodwill at November 30, 2004 and August 31, 2004 was $96.1 million and $95.8 million, respectively. The changes to goodwill from period to period relate to changes in foreign currency translation rates.

Changes in the carrying amounts of goodwill by segment for the three months ended November 30, 2004 are summarized below:

NOTE 4 – COMMITMENTS AND CONTINGENCIES

The Company is party to various claims, legal actions and complaints, including product liability litigation, arising in the ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or will not have a material adverse effect on the Company’s financial position, results of operations or cash flows, with the potential exception of the legal actions discussed below.

On October 2, 2002, a legal action was filed against the Company seeking class action status in the State of Florida for damage claims arising out of the use of the automatic toilet bowl cleaners sold by the Company under the brand names 2000 Flushes and X-14. On April 26, 2004, the Circuit Court of the 11^th Judicial Circuit in and for Miami-Dade County, Florida issued an order denying the application for class certification. The plaintiff has filed an appeal, and the action remains pending with respect to the plaintiff’s individual claims.

On September 4, 2003, a legal action was filed against the Company in San Diego County, California. The complaint seeks class action status for damage claims arising out of the use of the automatic toilet bowl cleaners sold by the Company under the brand names 2000 Flushes and X-14. On September 23, 2003, a separate legal action was filed against the Company in San Diego County on similar grounds.

If class certification is granted in any of the aforementioned legal actions, it is reasonably possible that the outcome could have a material adverse effect on the operating results, financial position and cash flows of the Company. There is not sufficient information to estimate the Company’s exposure at this time.

On March 11, 2004, a legal action was filed against the Company’s subsidiary, Heartland Corporation, in the District Court of Johnson County, Kansas. The plaintiff alleges that Heartland Corporation failed to pay rent pursuant to certain lease obligations. In the opinion of management, this action is without merit and will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

On May 28, 2004, separate but substantially identical legal actions were filed by the same plaintiff against the Company in the United States District Court for the District of Kansas and in the District Court of Johnson County, Kansas. The

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(continued)

plaintiff asserts claims for damages for alleged fraud in connection with the acquisition of Heartland Corporation by the Company on May 31, 2002. The plaintiff alleges federal and state securities fraud and common law fraud claims against the Company. In the opinion of management, these actions are without merit and are not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

The Company has relationships with various suppliers who manufacture the Company’s products (“Contract Manufacturers”). Although the Company does not have any definitive minimum purchase obligations included in the contract terms with the Contract Manufacturers, supply needs are communicated and the Company is committed to purchase the products produced based on orders and short-term projections provided to the Contract Manufacturers, which obligates the Company to purchase back obsolete or slow-moving inventory. The Company has acquired inventory under these commitments, the amounts of which have been immaterial.

As permitted under Delaware law, the Company has agreements whereby it indemnifies senior officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company maintains Director and Officer insurance coverage that mitigates the Company’s exposure with respect to such obligations. As a result of the Company’s insurance coverage, management believes that the estimated fair value of these indemnification agreements is minimal. No liabilities have been recorded for these agreements as of November 30, 2004.

From time to time, the Company enters into indemnification agreements with certain contractual parties in the ordinary course of business, including agreements with lenders, lessors, contract manufacturers, marketing distributors, customers and certain vendors. All such indemnification agreements are entered into in the context of the particular agreements and are provided in an attempt to properly allocate risk of loss in connection with the consummation of the underlying contractual arrangements. Although the maximum amount of future payments that the Company could be required to make under these indemnification agreements is unlimited, management believes that the Company maintains adequate levels of insurance coverage to protect the Company with respect to most potential claims arising from such agreements and that such agreements do not otherwise have value separate and apart from the liabilities incurred in the ordinary course of the Company’s business. No liabilities have been recorded with respect to such indemnification agreements as of November 30, 2004.

When, as part of an acquisition, the Company acquires all of the stock or all of the assets and liabilities of another company, the Company assumes the liability for certain events or occurrences that took place prior to the date of the acquisition. The maximum potential amount of future payments the Company could be required to make for such obligations is undeterminable at this time. No liabilities have been recorded as of November 30, 2004 for unknown potential obligations arising out of the conduct of businesses acquired by the Company in recent years.

NOTE 5 – BUSINESS SEGMENTS AND FOREIGN OPERATIONS

The accounting policies of the Company’s reportable segments are the same as those described in the Summary of Significant Accounting Policies (Note 1). The Company evaluates the performance of its segments and allocates resources to them based on sales and operating income. The Company is organized based on geographic location. Segment data does not include inter-segment revenues, and incorporates corporate headquarter costs into the Americas segment, without allocation to other segments. The Company’s segments are run independently, and as a result, there are few costs that could be considered only headquarter costs that would qualify for allocation to other segments. The most significant portions of headquarter costs relate to the Americas segment both as a percentage of time and sales. Therefore, any allocation to other segments would be arbitrary.

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(continued)

The tables below present information about reported segments for the three months ended November 30:

The Company completed the acquisition of the 1001 line of carpet and household cleaners on April 2, 2004. Sales of the products acquired in the 1001 acquisition are included in the Europe segment and household products product line. During the three months ended November 30, 2004, sales of 1001 products were $2.1 million.

NOTE 6 – SELECTED FINANCIAL STATEMENT INFORMATION

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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(continued)

NOTE 7 – RELATED PARTIES

VML was formed in April 2001, at which time the Company acquired a 30% capital and membership interest. The capital interest vests over a five-year period. Since formation, VML has served as the Company’s contract manufacturer for certain household products, and acts as a warehouse distributor for other product lines of the Company. Although VML has begun to expand its business to other customers, the Company continues to be its largest customer.

The Company has the right to sell its 30% interest in VML to the 70% owner, and the 70% owner also has the right to purchase the Company’s 30% interest. VML makes profit distributions to the Company and the 70% owner on a discretionary basis in proportion to each party’s respective interest.

Under Financial Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51,” VML qualifies as a variable interest entity, and it has been determined that the Company is not the primary beneficiary. The Company’s investment in VML is accounted for using the equity method of accounting, and its equity in VML earnings is recorded as a component of cost of products sold, as VML acts primarily as a contract manufacturer to the Company. The Company recorded equity earnings related to its investment in VML of $0.1 million and $0.2 million for the three months ended November 30, 2004 and 2003, respectively.

The Company’s maximum exposure to loss as a result of its involvement with VML was $1.0 million as of November 30, 2004. This amount represents the balance of the Company’s equity investment in VML, which is included in other long-term assets on the Company’s balance sheet. The Company’s investment in VML as of August 31, 2004 was $0.9 million.

Product purchased from VML was approximately $9.7 million and $10.2 million during the three months ended November 30, 2004 and 2003, respectively. The Company had product payables to VML of $1.4 million and $1.9 million at November 30, 2004 and August 31, 2004, respectively. The Company had formerly guaranteed VML’s $6 million line of credit, however, the guarantee was removed effective May 28, 2004.

NOTE 8 – SUBSEQUENT EVENTS

On December 14, 2004, the Company’s Board of Directors declared a cash dividend of $0.20 per share payable on January 30, 2005 to shareholders of record on January 8, 2005.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis (“MD&A”) is provided as a supplement to, and should be read in conjunction with, the Company’s audited consolidated financial statements, the accompanying notes, and the MD&A included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2004.

In MD&A, “we,” “our,” “us,” and “the Company” refer to WD-40 Company and its wholly-owned subsidiaries, unless the context requires otherwise. Amounts and percents in tables and discussions may not total due to rounding.

OVERVIEW

The Company markets two lubricant brands known as WD-40^® and 3-IN-ONE Oil^®, two heavy-duty hand cleaner brands known as Lava^® and Solvol^®, and six household product brands known as X-14^® hard surface cleaners and automatic toilet bowl cleaners, 2000 Flushes^® automatic toilet bowl cleaner, Carpet Fresh^® and No-Vac^® rug and room deodorizers, Spot Shot^® aerosol carpet spot stain remover and 1001^® carpet and household cleaners. These brands are sold in various global locations. Lubricant brands are sold worldwide in markets such as North, Central and South America, Asia, Australia and the Pacific Rim, Europe, the Middle East, and Africa. Household cleaner brands are currently sold primarily in North America, the U.K., Australia and the Pacific Rim. Heavy-duty hand cleaner brands are sold primarily in the U.S. and Australia.

SUMMARY STATEMENT OF OPERATIONS

(dollars in thousands, except per share amounts)

HIGHLIGHTS

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RESULTS OF OPERATIONS

First Quarter of Fiscal Year 2005 Compared to First Quarter of Fiscal Year 2004

Net Sales

Please refer to the discussion under “Segment Results” included later in this section for further detailed results by segment. Changes in foreign currency rates compared to the prior year period contributed to the growth of the Company’s sales. The current year quarter results translated at last year’s period exchange rates would have produced sales of $59.5 million, thus, the impact of the change in foreign exchange rates period over period positively affected first quarter fiscal year 2005 sales by $1.2 million, or 2.0%.

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By product line, sales of lubricants include WD-40 and 3-IN-ONE; hand cleaner sales include Lava and Solvol; and sales of household cleaners include Carpet Fresh, No-Vac, X-14, 2000 Flushes, Spot Shot and 1001. The 1001 line of products contributed $2.1 million to sales in the current quarter.

Gross Profit

Gross profit was $30.6 million, or 50.4% of sales in the first quarter of fiscal year 2005, compared to $27.9 million, or 53.2% of sales in the comparable period last year. The 2.8% decrease in gross margin percentage is due to a number of items including the increase in costs of components, raw materials and finished goods, product and customer mix, and an increase in advertising and promotional discounts and other sales discounts during the current quarter as compared to the same prior year period.

The increase in the cost of products sold contributed a 2.3% decrease to the gross margin percentage in the first quarter of fiscal year 2005 versus the same period last year. The increase in cost of products negatively affected gross margins in all of the Company’s regions. Theses increases were primarily due to the significant rise in steel and petroleum prices, which increased the costs of components and raw materials. The gross margins of the Company’s WD-40 line of products were most impacted by the rise in these costs. We foresee continued increased rising costs of components, raw materials and finished goods, and will continue to actively manage the general upward trend of costs in the market.

Product and customer mix in the U.K also contributed to the decrease in gross margin. The 1001 line of products, which was acquired during fiscal 2004 and is sold in the U.K., has a higher cost structure than lubricants.

The remaining decrease in gross margin percentage was due to increases in advertising and promotional discounts and other sales discounts related to product introductions in the current year first quarter compared to the same period in the prior year. The timing of certain promotional activities and shifts in product mix may continue to cause significant fluctuations in gross margin from period to period.

Note that the Company’s gross margins may not be comparable to those of other entities, since some entities include all costs related to distribution of their products in cost of product sold, whereas we exclude the portion associated with amounts paid to third parties for distribution to our customers from our contract packagers, and include these costs in selling, general and administrative expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) for the first quarter of fiscal 2005 increased to $15.4 million from $14.1 million for the first quarter of the prior fiscal year. The increase in SG&A is attributable to a number of items including: $0.3 million related to increased exchange rates; $0.7 million increase in freight expenses; $0.5 million increase in employee-related costs; and $0.1 million in other miscellaneous expenses. Freight costs have increased versus the prior year due to fuel surcharges and changing customer purchasing patterns, which have resulted in a higher frequency of shipments at lower volumes. Employee-related costs have increased due to such items as increases in salaries, payroll taxes, medical insurance costs, accrued profit sharing and accrued bonuses. These increases were partially offset by a reduction in meeting and other expenses, as prior year meeting and other expenses included activities surrounding the 50^th anniversary of the Company. As a percentage of sales, SG&A decreased to 25.3% in the first quarter of fiscal year 2005 as compared to 26.9% in the same period last year.

Advertising and Sales Promotion Expenses

Advertising and sales promotion expenses decreased slightly to $5.3 million for the first quarter of fiscal year 2005, down from $5.4 million for the first quarter of the prior fiscal year and, as a percentage of sales, decreased to 8.7% in the first quarter of fiscal year 2005 from 10.4% in the comparable prior year period. The decrease is mainly related to the timing of investments in television media, product demos, print media and market research versus the prior year first quarter. As a percentage of sales, advertising and sales promotion expenses may fluctuate period to period based upon the type of marketing activities employed by the Company, as the costs of certain promotional activities are required to be recorded as reductions to sales, and others remain in advertising and sales promotion expenses. Investment in global advertising and sales promotional expenses for fiscal year 2005 is expected to be in the range of 8.5%-10.5% of net sales.

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Amortization Expense

Amortization expense of $135,000 in the current quarter relates to a definite-lived intangible asset. This asset was acquired in the 1001 acquisition, which was completed in April 2004.

Income from Operations

Income from operations was $9.8 million, or 16.2% of sales in the first quarter of fiscal year 2005, compared to $8.4 million, or 15.9% of sales in the first quarter of fiscal year 2004. The increase in income from operations and the increase in income from operations as a percentage of sales were due to the items discussed above.

Interest Expense, net

Interest expense, net was $1.5 million compared to $1.6 million for the quarters ended November 30, 2004 and 2003, respectively. The change in interest expense, net is due to reduced principal balance on long-term borrowings resulting from a $10 million principal payment made in May 2004.

Other Income / Expense, net

Other income, net was $0.3 million during the first quarter of fiscal year 2005, compared to other expense, net of $0.1 million in the comparable prior fiscal year quarter, an increase of $0.4 million, which was due to increased foreign currency exchange gains.

Provision for Income Taxes

The provision for income taxes was 35% of taxable income for the first quarter of fiscal 2005, a slight increase from 34% in the comparable prior fiscal year quarter. The increase in tax rate is due to the impact of reduced low income housing credits, the growth of worldwide income and the reduction of Extraterritorial Income (“ETI”) benefits as a result of recent tax legislation.

Net Income

Net income was $5.6 million, or $0.34 per share on a fully diluted basis in the first quarter of fiscal year 2005, compared to $4.4 million, or $0.26 per share in the first quarter of fiscal year 2004. The change in foreign currency exchange rates period over period had no significant impact on first quarter fiscal year 2005 net income.

Segment Results

Following is a discussion of sales by region for the current and prior year first quarter.

Americas

The increase in lubricant sales in the Americas during the current fiscal year first quarter compared to the same prior year period relates largely to the growth in WD-40 sales across the U.S., Canada and Latin America as sales increased by 18%, 15% and 25%, respectively. In the U.S., WD-40 sales were up due to improved display and distribution through home centers and the success of the WD-40 Big Blast, which was introduced in the second quarter of fiscal 2004. Growth in Latin America is primarily due to strong results in Mexico, Puerto Rico, the Caribbean and Central America, associated with increased promotional activity and new distribution. Canadian sales benefited from strong sales in the grocery trade channel, as well as with strategic customers.

Household product sales in the first quarter of fiscal year 2005 were down by $0.3 million, or 2%, compared to the prior year period due to declines in the U.S. Sales in the U.S. decreased by $0.4 million, or 2%, due to decreased sales of Carpet Fresh and Spot Shot. These declines are a result of a variety of reasons, including competitor activity, lost or decreased distribution, and the timing of advertising and promotional activity compared to the prior year, along with the effects of other competitive factors within and among their product categories that are further described below.

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The Company’s household brands continue to experience significant competition within their categories, and in related categories as well. Spot Shot sales declined in the current fiscal year first quarter as compared to the same prior fiscal year period due to heightened competitive activity and promotions, and also to the promotional timing of a bonus can program that was in effect for the full first quarter in the prior year and was not repeated until late in the first quarter of this fiscal year. In addition, advertising of Spot Shot during the current first quarter was down versus the same prior year period, combined with greater advertising spending by competitors.

Retailers have reduced shelf space for traditional rug and room deodorizers for reallocation to other air care products. As a result, the rug and room deodorizer category as a whole has declined. Sales of Carpet Fresh in the U.S. declined $0.6 million, or 16%, due to losses in distribution from the reallocation of shelf space. In an effort to offset some of these losses, the Company has responded with a more competitive product offer in size and value. New powder fragrance introductions have also helped grow powder sales versus the prior year first quarter. Despite these general trends in the rug and room and air care categories, the Carpet Fresh brand has gained significant market share within the rug and room deodorizer category within the grocery trade channel. The WD-40 Company has committed research and development resources to create meaningful innovation to the rug and room category.

Despite the significant competition within the household brands category, the Company was still able to achieve sales growth for two of its brands. U.S. sales of 2000 Flushes/X-14 automatic toilet bowl cleaners were up 2% in the current fiscal year first quarter compared to the prior fiscal year first quarter due to the sales of the 2000 Flushes clip-on product, which was introduced during the second quarter of fiscal year 2004.

Sales of the automatic toilet bowl cleaning category are being pressured overall due to competition from the manual bowl cleaning category. This decline is currently considered the short-term effect of innovation in surrounding categories, and does not necessarily indicate that consumers will continue to purchase outside the automatic bowl cleaning category. The clip-on product continues to build distribution, although that category is also declining due to competition from the manual bowl cleaning category.

U.S. sales of the X-14 hard surface cleaners for the first quarter of fiscal year 2004 increased 27% versus the prior fiscal year first quarter due primarily to the re-launch and repositioning of the X-14 Mildew Stain Remover and the introduction of two new innovative products. The Company repositioned the X-14 Mildew Stain Remover product to respond to the competition by introducing a larger size and a long-lasting mildew prevention claim. This repositioning, which occurred in the third quarter of fiscal 2004, highlights a proven claim that X-14 produces more effective results compared to the leading products in the category. Also contributing to the increase in sales was the introduction of X-14 Orange Aerosol and X-14 Oxy Citrus. The X-14 Orange Aerosol provides innovation through its highly effective formulation and wide area spray delivery system, while X-14 Oxy Citrus provides innovation through its dual cleaning formula.

The Company continues to address the challenges and opportunities that exist within the competitive environments of the household products categories through product, packaging and promotional innovation.

Sales of heavy-duty hand cleaners for the Americas increased by $0.1 million, or 10%, in the first quarter this year, up from $1.4 million in the first quarter of the prior fiscal year. Distribution of hand cleaners remains strong through the grocery trade and all other classes of trade. Additionally, the Company began distribution of its new Lava Pro line of solvent-based heavy-duty hand cleaners early in the second quarter of fiscal year 2005. This new product line is expected to increase the Company’s opportunities to gain new distribution in multiple classes of trade, while meeting the needs of the traditional users such as auto and diesel mechanics, those in the farming trade and serious “Do-It-Yourselfers”.

For this region, 86% of the sales in the first quarter of fiscal year 2005 came from the U.S., and 14% came from Canada and Latin America, compared to the distribution in the first quarter of fiscal 2004, when 87% of sales came from the U.S., and 13% came from Canada and Latin America.

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Europe

Current fiscal year first quarter sales in Europe grew to $14.7 million, up $4.6 million, or 45%, over sales in the prior fiscal year first quarter. Changes in foreign currency exchange rates compared to the prior year period contributed to the growth of sales. The current year first quarter results translated at last year’s period exchange rates would have produced sales of $13.7 million in this region. Thus, the impact of the change in foreign exchange rates period over period positively affected first quarter fiscal year 2005 sales for this region by approximately $1.0 million, or 7%. Sales of the 1001 brand contributed $2.1 million to the U.K. market during the first quarter of the current fiscal year. Increases in sales in U.S. dollars across the various parts of the region over the prior year quarter are as follows: the U.K., 71%; France, 10%; Germany, 42%; Spain, 25%; Italy 69%; and in the countries in which the Company sells through local distributors, 43%. The principal continental European countries where the Company sells through a direct sales force, Spain, Italy, France and Germany, together accounted for 39% of the region’s sales for the first quarter of the current fiscal year, down from 44% in the same prior year period. In the long term, these direct sales markets are expected to continue to be important contributors to the region’s growth.

The distributor market increased sales by $1.2 million as a result of growth in the Middle East and Russia. In the first quarter of fiscal year 2005, the distributor market accounted for approximately 28% of the total Europe segment sales versus 29% in the same prior year period. These markets continue to experience growth in distribution and usage resulting from increased market penetration and brand awareness. European direct markets also experienced growth in the first quarter of the current fiscal year as compared to the first quarter of the prior fiscal year. The U.K. market benefited from the impact of the 1001 acquisition, which contributed $2.1 million to the sales increase for the region. However, lubricant sales in the U.K. market were down approximately 19% in local currency versus the prior year period primarily due to the timing of promotional activities and customer purchases. The growth in the first quarter of fiscal year 2005 as compared to the same prior fiscal year period for France and Spain was largely due to the launch of 3-IN-ONE Pro. The sales growth in Italy was the result of increased awareness and penetration of the WD-40 brand, as well as the benefit of additional sales staff as compared to the prior fiscal year first quarter. The sales growth in the Germanics market, which includes Holland, Austria and Switzerland, was also the result of increased awareness and penetration of the WD-40 brand, in addition to the establishment of direct sales into the Dutch market. Growth is expected through fiscal year 2005 across all of the direct markets. During the fourth quarter of fiscal year 2004, the Carpet Fresh and Spot Shot formulas were introduced under the 1001 brand in the U.K. These products are expected to do well in the market, due to their efficacy, the strength of the 1001 brand, and the innovation they bring. The Carpet Fresh No-Vac formula is one of the first of that type in the U.K. market. For the first quarter of fiscal year 2005, Carpet Fresh No-Vac and Spot Shot contributed 15% to the overall 1001 sales.

Asia-Pacific

In the Asia-Pacific region, which includes sales in Australia and across Asia, total sales for the first quarter of fiscal year 2005 were $3.2 million, up $0.5 million, or 19%, compared to the same period last year. Changes in foreign

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currency rates compared to the prior year period only contributed $50,000 to the growth of sales. The current fiscal year first quarter results translated at last year’s period exchange rates would have produced sales of $3.1 million in this region. The increase in Asia-Pacific sales is primarily due to the launch of No-Vac rug and room deodorizers in Australia and parts of Asia during the third quarter of fiscal year 2004, as this product continues to build distribution. Australian lubricant sales increased 15% due to promotions with a large home center retailer. However, the Australian lubricant sales increase was partially offset by a 6% lubricant sales decline in Asia.

In Asia, countries including Singapore, Taiwan, Indonesia and the Philippines all experienced growth and contributed to increased sales of key brands in the current quarter compared to the same prior year period. These increases were essentially offset by a decline in sales in South Korea and Hong Kong. The sales decline in South Korea and Hong Kong was the result of the timing of purchases and promotional activity.

The Company continues to combat counterfeit products, which remain an issue within the Asian market, particularly in China. The Company has released a new shaped WD-40 can into the market in China, and has begun to introduce this style of packaging across all of Asia. This unique packaging is expected to reduce the ability of counterfeiters to imitate the Company’s products.

The Company expects trading conditions in the Asia-Pacific region to remain variable with modest growth in the 2005 fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended November 30, 2004, cash and cash equivalents increased by $9.3 million, from $29.4 million at the end of fiscal 2004 to $38.7 million at November 30, 2004. Operating cash flow of $12.7 million was offset by cash used in investing activities of $0.7 million and cash used in financing activities of $2.9 million.

Current assets increased by $1.2 million to $85.4 million at November 30, 2004, up from $84.2 million at August 31, 2004. Accounts receivable decreased to $33.7 million, down $6.9 million from $40.6 million at August 31, 2004, as a result of decreased sales in the first quarter of fiscal year 2005 compared to the fourth quarter of fiscal year 2004. Inventory slightly decreased to $6.2 million, down by $0.1 million from $6.3 million at August 31, 2004. Product at contract packagers decreased to $1.2 million, down from $2.0 million at August 31, 2004 due to the timing of shipments of product versus payments received.

Current liabilities increased by $7.1 million to $49.6 million at November 30, 2004 from $42.5 million at August 31, 2004. The current portion of long-term debt increased by $10.7 million due to a principal payment becoming due in October of 2005 related to the Company’s $75 million term loan. Accounts payable and accrued liabilities decreased by $2.7 million due both to timing and to lower sales levels in the first quarter of the current fiscal year compared to the fourth quarter of fiscal year 2004. The timing of tax payments caused a $1.0 million decrease in income taxes payable.

At November 30, 2004, working capital decreased to $35.8 million, down $5.9 million from $41.7 million at the end of fiscal year 2004. The current ratio at November 30, 2004 was 1.7, a decrease from 2.0 at August 31, 2004.

Net cash provided by operating activities for the three months ended November 30, 2004 was $12.7 million. This amount consisted of $5.6 million from net income with an additional $1.6 million of adjustments for non-cash items, including depreciation and amortization, deferred tax expense, tax benefits from exercises of stock options, equity earnings from VML Company L.L.C. (“VML”) net of distributions received, and gains on sales of equipment, along with $5.4 million related to changes in the working capital as described above and changes in other long-term liabilities.

Net cash used in investing activities for the first three months of fiscal year 2005 was $0.7 million. Capital expenditures of $0.7 million were primarily in the areas of machinery and equipment, computer hardware and software, buildings and improvements, furniture and fixtures and vehicle replacements. For fiscal 2005, the Company expects to spend approximately $2.8 million for new capital assets.

For the first three months of fiscal year 2005, net cash used in financing activities included $3.3 million of dividend payments, partially offset by $0.4 million in proceeds from the exercise of common stock options.

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Management believes the Company has access to sufficient capital through the combination of available cash balances, the existing line of credit, and internally generated funds. Management considers various factors when reviewing liquidity needs, and plans for available cash on hand including: future debt, principal and interest payments, early debt repayment penalties, future capital expenditure requirements, future dividend payments (which are determined on a quarterly basis), alternative investment opportunities, loan covenants and any other relevant considerations currently facing the business.

On December 14, 2004, the Company’s Board of Directors declared a cash dividend of $0.20 per share payable on January 30, 2005 to shareholders of record on January 8, 2005. The Company’s ability to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities, and loan covenants.

The Company currently has available a $10 million variable rate revolving line of credit, maturing in October 2005. There was no outstanding balance under this line of credit as of November 30, 2004.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our operating results and financial condition is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

Critical accounting policies are those that involve subjective or complex judgments, often as a result of the need to make estimates. The following areas all require the use of judgments and estimates: allowance for doubtful accounts, revenue recognition, accounting for sales incentives, accounting for income taxes, valuation of long-lived intangible assets and goodwill, and inventory valuation. Estimates in each of these areas are based on historical experience and various judgments and assumptions that we believe are appropriate. Actual results may differ from these estimates. Our critical accounting policies are discussed in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1 to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended August 31, 2004.

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials (spoilage) are required to be recognized as current period charges. The provisions of SFAS No. 151 will be effective for fiscal years beginning after June 15, 2005. The Company is currently evaluating the provisions of SFAS No. 151 and does not expect that the adoption will have a material impact on the Company’s consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment.” SFAS No. 123R addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using the intrinsic method that the Company currently uses and requires that such transactions be accounted for using a fair value-based method and recognized as expense in the consolidated statement of operations. The effective date of SFAS No. 123R is for interim and annual periods beginning after June 15, 2005. The Company is currently assessing the provisions of SFAS No. 123R and its impact on the consolidated statement of operations as the Company will be required to expense the fair value of stock option grants beginning with its first quarter of fiscal year 2006.

In December 2004, the FASB issued FASB Staff Position (FSP) No. 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” FSP No. 109-1 states that qualified domestic production activities should be accounted for as a special deduction under SFAS No. 109, “Accounting for Income Taxes,” and not be treated as a rate reduction. Accordingly, any benefit from the deduction should be reported in the period in which the deduction is claimed on the tax return. The Company does not anticipate any benefit in fiscal year 2005.

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In December 2004, the FASB issued FSP No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” FSP No. 109-2 will amend the existing accounting literature that requires companies to record deferred taxes on foreign earnings, unless they intend to indefinitely reinvest those earnings outside the U.S. This pronouncement will temporarily allow companies that are evaluating whether to repatriate foreign earnings under the American Jobs Creation Act of 2004 to delay recognizing any related taxes until that decision is made. This pronouncement will also require companies that are considering repatriating earnings to disclose the status of their evaluation and the potential amounts being considered for repatriation. The U.S. Treasury Department has not issued final guidelines for applying the repatriation provisions of the American Jobs Creation Act. The Company continues to evaluate this legislation and FSP No. 109-2 to determine whether it will repatriate any foreign earnings and the impact, if any, that this pronouncement will have on its consolidated financial statements.

TRANSACTIONS WITH RELATED PARTIES

VML was formed in April 2001, at which time the Company acquired a 30% capital and membership interest. The capital interest vests over a five-year period. Since formation, VML has served as the Company’s contract manufacturer for certain household products, and acts as a warehouse distributor for other product lines of the Company. Although VML has begun to expand its business to other customers, the Company continues to be its largest customer.

The Company has the right to sell its 30% interest in VML to the 70% owner, and the 70% owner also has the right to purchase the Company’s 30% interest. VML makes profit distributions to the Company and the 70% owner on a discretionary basis in proportion to each party’s respective interest.

Under Financial Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51,” VML qualifies as a variable interest entity, and it has been determined that the Company is not the primary beneficiary. The Company’s investment in VML is accounted for using the equity method of accounting, and its equity in VML earnings is recorded as a component of cost of products sold, as VML acts primarily as a contract manufacturer to the Company. The Company recorded equity earnings related to its investment in VML of $0.1 million and $0.2 million for the three months ended November 30, 2004 and 2003, respectively.

The Company’s maximum exposure to loss as a result of its involvement with VML was $1.0 million as of November 30, 2004. This amount represents the balance of the Company’s equity investment in VML, which is included in other long-term assets on the Company’s balance sheet. The Company’s investment in VML as of August 31, 2004 was $0.9 million.

Product purchased from VML was approximately $9.7 million and $10.2 million during the three months ended November 30, 2004 and 2003, respectively. The Company had product payables to VML of $1.4 million and $1.9 million at November 30, 2004 and August 31, 2004, respectively. The Company had formerly guaranteed VML’s $6 million line of credit, however, the guarantee was removed effective May 28, 2004.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Please refer to item 7A “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the year ended August 31, 2004 for a discussion of the Company’s exposure to market risks. The Company’s exposure to market risks has not changed materially since August 31, 2004.

OTHER RISK FACTORS

The Company is also subject to a variety of other risks, including component supply risk, reliance on supply chain, competition, political and economic risks, business risks, risk that operating results and net earnings may not meet expectations, regulatory risks, success of acquisitions, increased use of debt financing, protection of intellectual property, and the volatility in the insurance market. These risk factors are discussed in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the Company’s Annual Report on Form 10-K for the year ended August 31, 2004.

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FORWARD LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. This report contains forward-looking statements, which reflect the Company’s current views with respect to future events and financial performance.

These forward-looking statements are subject to certain risks and uncertainties. The words “aim,” “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that indicate future events and trends identify forward-looking statements. Additional risks and uncertainties are described in the Company’s Annual Report on Form 10-K for the year ended August 31, 2004, as updated from time to time in the Company’s SEC filings.

Actual future results and trends may differ materially from historical results or those anticipated depending upon factors including, but not limited to, the near term growth expectations for heavy-duty hand cleaners and household products in the Americas, the impact of changes in product distribution, competition for shelf space, plans for product and promotional innovation, the impact of customer mix and component, finished goods and raw material costs on gross margins, the impact of promotions on sales, the rate of sales growth in the Asia-Pacific region, direct European countries and eastern Europe, the expected gross profit margin, the expected amount of future advertising and promotional expenses, the effect of future income tax provisions and expected tax rates, the amount of future capital expenditures, foreign exchange rates and fluctuations in those rates, the effects of, and changes in, worldwide economic conditions, and legal proceedings.

Readers also should be aware that while the Company does, from time to time, communicate with securities analysts, it is against the Company’s policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Further, the Company has a policy against confirming financial forecasts or projections issued by others. Accordingly, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.

ITEM 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. The term “ disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934 (“Exchange Act”). These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. The Company’s chief executive officer and chief financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of November 30, 2004, the end of the period covered by this report (the “Evaluation Date”), and they have concluded that, as of the Evaluation Date, such controls and procedures were effective at ensuring that required information will be disclosed on a timely basis in the Company’s reports filed under the Exchange Act. Although management believes the Company’s existing disclosure controls and procedures are adequate to enable the Company to comply with its disclosure obligations, management continues to review and update such controls and procedures. The Company has a disclosure committee, which consists of certain members of the Company’s senior management.

(b) Changes in internal control over financial reporting. The Company has a process designed to maintain internal control over financial reporting to provide reasonable assurance that its books and records accurately reflect its transactions and that its established policies and procedures are carefully followed. For the quarter ended November 30, 2004, there were no changes to the Company’s internal control over financial reporting that materially affected, or would be reasonably likely to materially affect, its internal control over financial reporting.

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PART II Other Information

ITEM 1. Legal Proceedings

The Company is party to various claims, legal actions and complaints, including product liability litigation, arising in the ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or will not have a material adverse effect on the Company’s financial position or results of operations, with the possible exception of the legal actions discussed below.

On October 2, 2002, a legal action was filed in the Circuit Court of the 11^th Judicial Circuit for Miami-Dade County, Florida against the Company by Michael William Granese, a Florida citizen, on behalf of himself and others similarly situated, seeking class action status in the State of Florida for damage claims allegedly arising out of the use of the automatic toilet bowl cleaners (“ATBCs”) marketed and sold by the Company under the brand names, 2000 Flushes and X-14.

The plaintiff sought to certify a class of plaintiffs consisting of consumers in the state of Florida who, since September 1, 1998, purchased and used ATBCs sold by the registrant. Class certification was sought for claims for damages based upon the purchase price of the ATBCs arising out of alleged violations of the Florida Deceptive and Unfair Trade Practices Act (Fla. Stat. §§501.201 – 501.213) for the asserted failure to disclose to consumers that the ATBCs allegedly could cause harm to internal toilet tank components and for the representations that the ATBCs are safe for plumbing and septic systems.

On April 26, 2004, the Florida Circuit Court issued an order denying the plaintiff’s application for class certification. The plaintiff has filed an appeal, and the action remains pending with respect to the plaintiff’s individual claims.

Two separate but substantially identical legal actions were filed in September 2003 against the Company in the San Diego County, California and the Alameda County, California Superior Courts by Patricia Brown on behalf of the general public seeking a remedy for alleged violation of California Business and Professions Code sections 17200, et seq., and 17500 (the “Brown Actions”). The complaints alleged that the Company misrepresented that its 2000 Flushes Bleach, 2000 Flushes Blue Plus Bleach and X-14 Anti-Bacterial automatic toilet bowl cleaners (“ATBCs”) are safe for plumbing systems and unlawfully omitted to advise consumers regarding the allegedly damaging effect the use of the ATBCs has on toilet parts made of plastic and rubber. The complaints sought to remedy such allegedly wrongful conduct: (i) by enjoining the Company from making the allegedly untrue representations and to require the Company to engage in a corrective advertising campaign and to order the return, replacement and/or refund of all monies paid for such ATBCs; (ii) by requiring the Company to identify all consumers who have purchased the ATBCs and to return money as may be ordered by the court; and (iii) by the granting of other equitable relief, interest, attorneys’ fees and costs. On September 18, 2003, Patricia Brown voluntarily dismissed the Alameda County action and elected to pursue the claims in San Diego Superior Court. On June 14, 2004, the complaint was amended to reallege violations of the same statutes based on a theory that the ATBCs were negligently designed; the amended complaint seeks remedies similar to those originally pleaded. The Company’s demurrer to the amended complaint was denied and the case remains pending.

Another complaint was filed against the Company on September 4, 2003, in the San Diego County, California Superior Court by Genevieve Valentine. This complaint, filed by the same law firms that filed the Brown Actions, was brought as a nationwide consumer class action on the same or similar grounds as alleged in the Brown Actions and sought substantially similar relief on behalf of the purported class of similarly situated plaintiffs. An amended complaint was filed by the plaintiff on June 14, 2004 alleging putative causes of action for unjust enrichment, breach of warranty, negligent design, and negligent inspection or testing of the ATBCs. As in the pending Brown Action, the Company’s demurrer to the amended complaint was denied. A motion to certify a class action in this case has not been filed.

The Company intends to vigorously defend against the claims asserted in these legal actions.

On March 11, 2004, Sally S. Hilkene filed a legal action against the registrant’s subsidiary, Heartland Corporation, and Scott H. Hilkene in the District Court of Johnson County, Kansas. The plaintiff alleges that Heartland Corporation failed to pay rent due to the plaintiff pursuant to certain leases entered into between Heartland Corporation as Tenant and Scott H. Hilkene and the plaintiff as Landlord. The plaintiff also asserts a claim for conversion against Scott H. Hilkene with respect to the rent paid by Heartland Corporation to Scott H. Hilkene pursuant to said leases.

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On May 28, 2004, separate but substantially identical legal actions were filed by Sally S. Hilkene against the Company and Scott H. Hilkene in the United States District Court for the District of Kansas and in the District Court of Johnson County, Kansas. The state court action has been stayed pending resolution of the federal action. The plaintiff asserts claims for damages for alleged fraud in connection with the acquisition of Heartland Corporation by the Company from Scott H. Hilkene on May 31, 2002. The plaintiff was formerly married to Scott H. Hilkene and, as a result of her contractual interest in Heartland Corporation, the plaintiff was a party to the Purchase Agreement dated May 3, 2002 and consented to the sale of Heartland Corporation as required by the agreement. The plaintiff alleges federal and state securities fraud and common law fraud claims against the registrant. All of the allegations relate to actions of the Company, Heartland Corporation and Scott H. Hilkene during the negotiations for the acquisition and following the closing. The plaintiff alleges that the Company, in breach of an alleged duty of disclosure, failed to inform her of certain actions that were allegedly undertaken by the parties and that the Company allegedly misrepresented that certain alleged acts would or would not be undertaken by the parties. The plaintiff also asserts related fraud claims against Scott H. Hilkene.

The Company believes the actions filed by Sally S. Hilkene are without merit and the Company intends to vigorously defend against each of the claims asserted in the actions.

During the quarter ended November 30, 2004, there were no other material developments with respect to legal proceedings that were pending as of the prior fiscal year end and disclosed in the Company’s Annual Report on Form 10-K for the year ended August 31, 2004.

Readers are also directed to refer to the discussion of legal proceedings in Note 4 - Commitments and Contingencies, included in the Interim Financial Statement footnotes under Part I - Item 1.

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits

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(b) Reports on Form 8-K

(1) On December 17, 2004, the Registrant filed a report on Form 8-K to announce the retirement of a director on December 14, 2004, and to report the issuances of news releases on December 15, 2004 and December 16, 2004.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.