<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K


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

For the fiscal year ended December 31, 1997
                                       OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

For the transition period from _______________ to ___________________
         Commission File No. 0-26568

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

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

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

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

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

                  None                                                     Not Applicable
         ------------------                                              -------------------
</TABLE>

          Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value
                                (Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes   X    No
    ----      ----

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

The number of shares outstanding of the Registrant's Common Stock, as of March
17, 1998, was 13,825,227 shares. The aggregate market value of the Registrant's
Common Stock held by non-affiliates of the Registrant (based upon the closing
price of such stock on the Nasdaq National Market on March 17, 1998 and the
assumption for this computation only that all directors and executive officers
are affiliates) was $117,572,424.

Documents Incorporated by Reference: Proxy Statement to be filed pursuant to
Regulation 14A of the Exchange Act on or before April 30, 1998, incorporated by
reference into Parts II and III.


<PAGE>



         The Company's quarterly and annual operating results are affected by a
wide variety of other factors that could materially and adversely affect actual
results, including competition from other suppliers of laundry and household
cleaning products; changes in consumer preferences and spending habits; the
inability to successfully manage growth; seasonality; the ability to introduce
and the timing of the introduction of new products; the inability to obtain
adequate supplies or materials at acceptable prices; the inability to reduce
expenses to a level commensurate with revenues; and the inability to negotiate
acceptable credit terms with current or prospective lenders. As a result of
these and other factors, the Company may experience material fluctuations in
future operating results on a quarterly or annual basis, which could materially
and adversely affect its business, financial condition, operating results, and
stock price. Furthermore, this document and other documents filed by the
Company with the Securities and Exchange Commission (the "SEC") contain certain
forward looking statements with respect to the business of the Company,
including prospective financing arrangements. These forward-looking statements
are subject to certain risks and uncertainties, including those mentioned
above, which may cause actual results to differ significantly from these
forward-looking statements. These forward-looking statements speak only as of
the date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. An investment in the Company involves
various risks, including those mentioned above and those which are detailed
from time to time in the Company's SEC filings.


                                      -2-

<PAGE>


                                     PART I

ITEM 1.  BUSINESS

GENERAL

         USA Detergents is a leading manufacturer and marketer of quality
nationally distributed value brand laundry and household cleaning products. The
Company currently markets its products in eight laundry and household product
categories and features eleven distinct value brands. Two of the Company's
brands, XTRA(R) and Nice'n FLUFFY(R), currently rank among the ten largest
brands in their respective product categories in terms of total retail sales in
the United States. XTRA(R) and Nice'n FLUFFY(R) represented 61% and 19%,
respectively, of the Company's net sales in 1997. The Company sells its
products to large and small retailers throughout the United States including
supermarkets, mass merchandisers, variety and dollar stores, drug stores and
small grocery stores. The Company's largest six customers are: Wal-Mart Stores,
Inc., K-Mart Corp., Walgreen Co., Super Value Inc., Eckerd Corporation and
Fleming Companies, Inc.

HOUSEHOLD PRODUCTS MARKET OVERVIEW

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

         While the leading supplier varies among different Household Products
categories, the overall market for Household Products is dominated by two
principal suppliers: Procter & Gamble Co. and Unilever N.V. The Company
believes these two premium-priced brand suppliers accounted for approximately
65%, in the aggregate, of retail sales of Household Products in 1997.

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

                                      -3-
<PAGE>

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

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

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

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

BUSINESS STRATEGY

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

Value to Retailers

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


                                      -4-
<PAGE>

Value to Consumers

         The Company offers consumers attractively packaged, quality brand name
products at prices significantly below most other brands. This combination of
high product quality and low prices offers consumers an attractive alternative
to other brands. The Company emphasizes cost reduction and has historically
passed substantially all of its savings on to retailers and consumers.

Brand and Corporate Identification

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

Further Market Penetration

         The Company focuses its sales efforts on supermarkets, mass
merchandisers, variety and dollar stores, drug stores and small grocery stores,
particularly those whose retailing philosophy closely corresponds to the
Company's high value, low cost marketing philosophy. The Company intends to
continue increasing its market penetration by distributing its products through
additional supermarkets, as well as other retail outlets. For the quarter
ending December 31, 1997, Information Resources, Inc. Retail Review data
indicates that the Company's XTRA(R) liquid laundry detergent and Nice'n
FLUFFY(R) liquid fabric softener were sold to retailers representing 68.3% and
69.9%, respectively, of all commodity volume ("ACV") distribution within the
food, drug and mass merchants sector, up from 62.9% and 65.0%, respectively, in
the quarter ended December 31, 1996. ACV distribution for a product represents
the percentage of food, drug and mass merchant retail outlets (as measured by
aggregate retail sales) which sold that product during a specified time period
in the United States. The Company intends to use the access to retailers it has
gained through the success of its XTRA(R) and Nice'n FLUFFY(R) brands to
increase the penetration of its other products through these existing retail
outlets.

                                      -5-
<PAGE>

Controlled Expansion of Product Line

         The Company introduced 38 new products in 1996 and 65 new products in
1997, including re-formulations and alternate sizes. Net sales of products
introduced in 1997 were $16.2 million or 7% of net sales for the year ended
December 31, 1997.

PRODUCTS

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

 PRODUCT CATEGORY               PRIMARY COMPANY BRANDS
 ----------------               ----------------------
  (HOUSEHOLD PRODUCTS)
   Liquid Laundry Detergent     XTRA(R)
   Powder Laundry Detergent     XTRA(R)
   Liquid Fabric Softener       Nice'n FLUFFY(R)
   Fabric Softener Sheets       Nice'n FLUFFY(R)
   Household Cleaners           Touch of Glass(R), Swiss Pine(R),
                                Tile Action(TM), Fabulous(TM), Plumber's Aid(TM)
   Dish Detergent               XTRA(R) Plus, Crystal Shine(R)
   Personal Soap Products       Fine Care(R)
   Air Fresheners               Country Air(TM)
  (AUTOMOTIVE PRODUCTS)
   Automotive Products          Speedway(R)

         The Company's laundry detergents and fabric softeners accounted for an
aggregate of approximately 83% and 80% of the Company's net sales in 1996 and
1997, respectively, with XTRA(R) liquid laundry detergent accounting for 48%
and 45% of net sales in these periods, respectively. The Company's financial
results and condition are substantially dependent on the continued success and
growth of sales of these products. A number of factors could limit sales of
these products by the Company, or the profitability of such sales, including
competitive efforts by other manufacturers of similar products, shifts in
consumer preferences or introduction and acceptance of alternative product
offerings.

                                      -6-
<PAGE>

PRODUCT DESIGN AND DEVELOPMENT

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

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

MARKETING AND DISTRIBUTION

         The Company sells its products to large and small retailers throughout
the United States. The Company's various branded products historically have
been sold primarily to supermarkets, mass merchandisers, variety and dollar
stores, drug stores and small grocery stores. Significant customers of the
Company include Wal-Mart, K-Mart, Walgreens, Super Value, Eckerd Drug Company
and Fleming Corp. The following table sets forth the Company's percentage of
net sales for fiscal 1995, 1996 and 1997 by retail distribution channel:

                                      -7-
<PAGE>

                                              PERCENTAGE OF NET SALES
                                    ---------------------------------------
    DISTRIBUTION CHANNEL             1995             1996             1997
    --------------------             ----             ----             ----
    Supermarkets                     32.1             40.6             44.6
    Mass Merchandisers               29.0             27.5             24.2
    Variety and Dollar Stores        24.5             16.8             11.0
    Drug Stores                       8.8              9.8             11.2
    Small Grocery and Other           5.6              5.3              9.0
                                    -----            -----            -----
        Total                       100.0            100.0            100.0
                                    =====            =====            =====

         The Company's largest customer, Wal-Mart accounted for approximately
17%, 17% and 13% of net sales in 1995, 1996 and 1997 respectively. No other
customer of the Company accounted for more than 10% of the Company's net sales
during 1996 or 1997. As is customary in the Household Products industry, the
Company does not have long-term contracts with its customers. A significant
reduction of purchases by any of the Company's largest customers could have a
material adverse effect on the Company's business and results of operations.

         As of December 31, 1997, the Company sold its products through its own
47 person national sales department, which included seven regional offices,
supported by a network of 114 independent brokers and sales representatives. In
1997, approximately 52% of the Company's net sales were generated by its
internal sales force with independent broker assistance, with the remaining 48%
of net sales generated without broker assistance. Each salesperson is
compensated by salary and commissions.

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

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

                                      -8-
<PAGE>

         Beginning in the latter part of the third quarter of 1996, the Company
experienced distribution difficulties and late customer deliveries primarily
attributable to the Company's continuing rapid growth in sales and the
assimilation of three new manufacturing and distribution facilities. The effect
of these factors was to increase the costs associated with plant integration,
distribution and customer returns and allowances, thus having a material
adverse effect on the results of the Company's operations for 1996 and 1997.
While the Company is working with its customers to establish and assure
efficient distribution, there can be no assurance that such efforts will be
successful or that similar or new problems with distribution will not occur in
the future.

MANUFACTURING AND SUPPLY

         During 1997, the Company manufactured substantially all of its liquid
products at its facilities in North Brunswick, New Jersey and in Harrisonville,
Missouri. The manufacturing process at the Company's facilities consists of
blending liquid chemicals and fragrance, which the Company purchases from
independent suppliers, and packaging such blends to create finished products.
Blending is done according to or by modifying formulas provided by the
Company's chemical suppliers. The Company conducts quality control tests on raw
materials on a regular basis and also conducts stringent quality control tests
on its products during and after the manufacturing process. Any extended
interruption of operations at the Company's manufacturing facilities could have
a material adverse effect on the Company's business and results of operations.

         For the year ended December 31, 1997, the Company purchased
approximately 63% of its liquid chemicals from three suppliers, Stepan Company,
Union Carbide and Henkel Corporation. The Company's powder detergent was
produced at a now-owned facility in Chicago. Previously, the Company had
entered into a management agreement with the prior owner of the facility
pursuant to which the Company maintained manufacturing control, and a supply
agreement pursuant to which the Company purchased all of the supplier's output.
See Note 5 to "Notes to Consolidated Financial Statements."

         Substantially all of the bottles used by the Company during 1997 at
its manufacturing facilities were purchased from Owens-Illinois Plastics
Products Inc. and Owens-Illinois Closure Inc. (collectively referred to as
"Owens"). The Owens plants used in connection with the manufacture of such
bottles are located near the Company's manufacturing facilities and the
majority of each Owens plant's production is dedicated to the Company. In June
1996, the Company entered into a supply agreement expiring January 31, 2001
with Owens pursuant to which the Company has agreed to purchase substantially
all of its plastic bottle packaging requirements from Owens in return for
Owens' agreement to dedicate certain of its machinery to meet the Company's
packaging requirements and provide additional machinery if necessary. Owens
also has agreed to


                                      -9-
<PAGE>

use its best efforts to expand its capacity to meet the Company's continued
growth in exchange for the Company's continuing commitment to purchase bottles
from Owens. Certain molds used to manufacture the Company's packaging are not
owned by the Company. The Company has also entered into various agreements
with certain affiliates of Owens, pursuant to which these entities provide the
Company with its trigger sprayers, measuring scoops and label needs and the
Company agreed to make Owens its exclusive supplier of such items.

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

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

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


                                     -10-
<PAGE>

INVENTORY PRACTICE AND ORDER BACKLOG

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

INTELLECTUAL PROPERTY

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

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

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

                                     -11-
<PAGE>

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

COMPETITION

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

         The Company estimates, based on Information Resources, Inc. Retail
Review data for the year ended December 31, 1997, that the two largest
suppliers in the laundry and household cleaning products industry held
approximately 65%, in the aggregate, of the domestic market for such products.
These two suppliers, Procter & Gamble Co. and Unilever N.V., accounted for an
aggregate of approximately 64% and 69% of 1997 domestic retail sales of liquid
laundry detergents and liquid fabric softeners, respectively. These two product
categories accounted for 45% and 19% respectively, of the Company's net sales
in 1997.

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

                                     -12-
<PAGE>

EMPLOYEES

         As of December 31, 1997, the Company had 592 full-time employees, of
whom 53 worked in executive, administrative or clerical capacities, 351 worked
in design and manufacturing, 141 worked in warehouse facilities and 47 worked
in sales. The Company believes that its relations with its employees are good.
The Company has never experienced any interruption of any of its operations due
to a labor disagreement with its employees. The Company also utilizes temporary
employees as necessary.

ENVIRONMENTAL REGULATION

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

EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain information with respect to the
executive officers and significant employees of the Company as of December 1,
1997:
<TABLE>
<CAPTION>

NAME                 AGE     POSITION
----                 ---     --------
<S>                  <C>     <C>
Uri Evan             62      Chairman of the Board of Directors; Chief
                             Executive Officer;
Richard D. Coslow    56      Senior Vice President; Chief Financial Officer;
                             Treasurer
Frank Corella        54      Vice President of Sales and Marketing
Daniel Bergman       40      Vice President; Director of New York Metro Sales;
                             Secretary; Director

</TABLE>



                                     -13-
<PAGE>


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

         RICHARD D. COSLOW has been Senior Vice President and Chief Financial
Officer of the Company since April 1997. From 1984 to 1997, he was Vice
President and Controller for Toshiba America Consumer Products, Inc., an
international diversified consumer products company. From 1982 to 1984, he was
Vice President of Finance for Endless Energy, Inc. and Jocelyn Management, Inc.
From 1980 to 1982 he served as Vice President and Controller for Mego
International, Inc. From 1967 to 1980 he held various positions with Deloitte
and Touche including Senior Audit Manager. Mr. Coslow is a Certified Public
Accountant.

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

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


                                     -14-
<PAGE>




ITEM 2.  PROPERTIES

         The Company currently conducts a substantial portion of its operations
from a 360,000 square foot facility located in North Brunswick, New Jersey. The
Company's executive offices and its manufacturing, administration, receiving
and shipping departments are all located in that facility. The lease relating
to such facility expires in 2004, subject to two five-year extensions.

         For the fiscal year ended December 31, 1997, the Company recorded
total rent expense and real estate taxes for all properties of approximately
$1.8 million.

         In January 1996, the Company entered into a lease for a 175,000 square
foot facility located in Edison, New Jersey. This facility was used by the
Company for the manufacture of the Company's scented candle air freshener
products and for additional warehouse and distribution capacity. The lease
relating to such facility expires in 2001, subject to one five-year extension,
and provides for an annual rental of $568,750. In May 1997, the Company, as
part of its cost reduction strategy, decided to close its Edison, New Jersey
facility and move its candle manufacturing operation to the Company's North
Brunswick, New Jersey facility. The Company currently is attempting to sublease
this facility.

         In August 1996, the Company purchased a 360,000 square foot facility
located near Kansas City, Missouri for the production of additional liquid
laundry products and distribution. The Company also leases seven additional
sales offices throughout the United States.

         In addition, in 1997, the Company purchased a 650,000 square foot
facility in North Brunswick, New Jersey, adjacent to the Company's existing
facility. This facility was utilized as part of the Company's consolidation of
its entire East Coast warehousing and distribution operation. This property is
currently the subject of an Administrative Consent Order issued by the New
Jersey Department of Environmental Protection (the "NJDEP"), relating to the
remediation of certain hazardous wastes which were discharged onto the property
by the seller. The seller has undertaken substantial remediation efforts to
date to clear the property of these hazardous wastes and has posted a bond with
the NJDEP to secure the costs to continue such clean-up activities. In
addition, the seller has provided the Company with an undertaking to complete
the clean-up of the property to the standards required by the NJDEP, and a
complete indemnity against any claims or obligations to clean up the property
which may be asserted against the Company and which arise from any hazardous
wastes that existed on the property on the date the Company acquired the
property. While the Company believes it has taken adequate steps to protect its
interests, there can be no assurance that the Company will not incur costs in
connection with environmental matters concerning the property.

                                     -15-
<PAGE>

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

ITEM 3.  LEGAL PROCEEDINGS

         On May 5, 1997, a securities class action lawsuit entitled Feldbaum v.
USA Detergents, Inc. et al., No. 97-CV-3227, was filed in the U.S. District
Court for the Eastern District of Pennsylvania against the Company and certain
of its current and former officers and directors; the Feldbaum case
subsequently was transferred to the U.S. District Court for the District of New
Jersey. On May 15, 1997, a second securities class action lawsuit entitled
Einhorn v. USA Detergents, Inc. et al., No. 97-2459, was filed against the
Company and certain of its current and former officers and directors in the
U.S. District Court for the District of New Jersey. Since the Einhorn lawsuit
was filed, twelve additional securities class action lawsuits have been filed
in the U.S. District Court for the District of New Jersey against the Company
and certain of its current and former officers and directors. The class actions
purport to be brought on behalf of all persons who purchased the Company's
common stock between June 5, 1996, at the earliest, and May 8, 1997, at the
latest (the "putative class period"). The class actions generally allege that,
during the putative class period, the defendants made false or misleading
public statements and engaged in improper accounting practices, which caused
the price of the Company's common stock to be artificially inflated. The class
actions assert that the defendants' conduct violated Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated
thereunder, as well as state common law. The class actions do not specify an
amount of damages. In June and July 1997, the U.S. District Court for the
District of New Jersey entered orders consolidating all of the pending class
actions with the Einhorn case. In August 1997, the court entered an order
establishing a master docket for the consolidated class actions, In re USA
Detergents, Inc. Securities Litigation, Master File No. 97-CV-2459 (MTB), and
appointed lead plaintiffs and lead plaintiffs' co-lead counsel. The Company
intends to defend this action vigorously. An unfavorable outcome in the
litigation could have a material adverse effect on the Company's financial
condition and results of operations.

         On September 12, 1997, the Company became aware of a claim by the
North Brunswick Water Company ("NBWC") covering, among other things, unpaid
water and sewer charges aggregating approximately $5,000,000. On October 20,
1997, the Company commenced an action in the Superior Court of New Jersey,
Chancery


                                     -16-
<PAGE>

Division, Middlesex County, challenging NBWC's claim and requesting injunctive
relief to prevent NBWC from taking any steps to discontinue service pending the
resolution of the claim. Pursuant to a Consent Order dated October 21, 1997,
the Company paid $532,118 to NBWC, subject to refund, pending the resolution of
the matter. This charge is included in selling, general and administrative
expenses. Based on a preliminary assessment made by independent counsel for
the Company, of the underlying basis for NBWC's claim, management believes that
the Company's obligation, if any, to NBWC will not have a significant impact on
the Company's results of operations or financial position beyond amounts
already paid.

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

         None.


                                     -17-
<PAGE>


                                    PART II

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

         The Company's shares of common stock (the "Common Stock") are quoted
on the Nasdaq National Market under the symbol "USAD". The Common Stock was .
initially offered to the public on August 7, 1995 at $9.67 per share (the "1995
IPO"). The following table sets forth for the periods indicated the high and
low reported last sale prices per share for the Common Stock as reported by The
Nasdaq National Market. All last sale prices for periods prior to February 9,
1996 have been divided by 1.5, the assumed effect of a stock split on January
30, 1996.

                                                 HIGH             LOW
                                                ------           ------
           FISCAL
           1996
           First Quarter                        $32.50           $15.75
           Second Quarter                        47.00            30.36
           Third Quarter                         41.13            27.00
           Fourth Quarter                        41.63            31.88

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

           FISCAL 1998
           First Quarter (through March 17)     $13.75            $7.75

The number of stockholders of record of the Common Stock on March 17, 1998 was
87. On March 17, 1998, the last reported sale price of the Common Stock as
reported by The Nasdaq National Market was $11.50 per share.

DIVIDEND POLICY

The Company has never paid dividends other than S Corporations distributions
and does not anticipate paying any dividends in the foreseeable future. Certain
of the Company's credit facilities contain restrictions on the Company's
ability to declare and pay dividends.

                                     -18-
<PAGE>

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

         The following selected financial data are derived from the audited
consolidated financial statements of the Company. The consolidated financial
statements for the years ended December 31, 1994, 1995, 1996 and 1997 have been
audited by Deloitte & Touche LLP. The consolidated financial statements for
the years ended December 31, 1994 and 1993 do not appear in this Annual Report.
No cash dividends, other than S corporation distributions, were paid for any
years presented.


<TABLE>
<CAPTION>

                                                                           YEAR ENDED DECEMBER 31,
                                                                           -----------------------
                                                           1993         1994        1995         1996           1997
                                                           ----         ----        ----         ----           ----
<S>                                                      <C>         <C>          <C>         <C>             <C>
INCOME STATEMENT DATA:
Net sales                                                $46,939     $68,663      104,878     $172,424        $227,269
Cost of goods sold                                        36,896      51,588       72,921      121,498         175,851
                                                        --------  ----------      -------     --------     -----------
Gross profit                                              10,043      17,075       31,957       50,926          51,418
Selling, general and administrative expenses               8,445      12,182       22,232       43,878          70,826
Non-recurring expenses(1)                                    893          --           --           --              --
Restructuring costs(3)                                        --          --           --           --           2,379
                                                        --------  ----------      -------     --------     -----------
Income (loss) from operations                                705       4,893        9,725        7,048         (21,787)
Interest expense-net                                         383         543          544          868           2,742
                                                        --------  ----------      -------     --------     -----------
Earnings (loss) before provision (benefit) for
income tax                                                   322       4,350        9,181        6,180         (24,529)
Income tax provision (benefit)                                22                    2,156        2,473          (3,448)
                                                        --------  ----------      -------     --------     -----------
                                                                          83
Net income (loss)                                       $    300  $    4,267      $ 7,025     $  3,707     $   (21,081)
                                                        ========  ==========      =======     ========     ===========

Basic net  income (loss) per share                                                            $    .27     $     (1.53)
                                                                                              ========     ===========
Weighted average number of shares outstanding                                                   13,589          13,789
                                                                                              ========     ===========
Diluted net income (loss) per share                                                           $    .27     $     (1.53)
                                                                                              ========     ===========
Weighted average number of shares outstanding and
dilutive options                                                                                13,840          13,789
                                                                                              ========     ===========
PRO FORMA INCOME STATEMENT DATA(2):
Earnings before income tax as reported                               $ 4,350      $ 9,181
Pro forma income tax provision                                         1,689        3,756
                                                                     -------      -------
Pro forma net income                                                 $ 2,661      $ 5,425
                                                                     =======      =======
Pro forma basic net income per share                                 $   .22      $   .43
                                                                     =======      =======
Weighted average number of shares outstanding                         11,915       12,494
                                                                     =======      =======
Pro forma diluted net income per share                               $   .22      $   .43
                                                                     =======      =======
Weighted average number of shares outstanding and
dilutive options                                                      11,915       12,553
                                                                      ======       ======

</TABLE>


                                     -19-
<PAGE>

<TABLE>
<CAPTION>


                                                                               DECEMBER 31,
                                                          ---------------------------------------------------------
                                                            1993        1994         1995        1996          1997
                                                            ----        ----         ----        ----          ----
<S>                                                       <C>        <C>          <C>         <C>            <C>
Working capital (deficit)                                 $ (30)     $ 5,154      $11,132     $35,321        $7,308
Total assets                                              19,718      24,449       40,590      98,476       102,808
Short-term debt                                            4,425       3,860        7,320       5,819         2,501
Long-term debt                                             4,563       6,180        1,830      29,311        38,998
Stockholders' equity                                       1,850       5,880       20,292      36,099        15,584
</TABLE>
----------------------------
(1)Consists of plant relocation expense of $474,000 and loss on theft of
inventory of $419,000 in 1993.

(2)Pro forma net income represents net income less a provision for income taxes
that would have been required had the Company been taxed as a C corporation
during the entire period presented. The Company elected to be treated as a
Subchapter S corporation until August 10, 1995 (one day prior to the closing of
the Company's initial public offering (the "1995 IPO")), and, as a result, was
not subject to federal and certain state income taxes prior to that time. No
pro forma adjustments have been made for additional compensation expense paid
to the existing stockholders of the Company who are officers of the Company
associated with the termination of the Company's S corporation status in
connection with the 1995 IPO or for a reduction in interest expense relating to
the assumed pay down of borrowings under the Company's then existing working
capital line of credit with the net proceeds of the 1995 IPO, because the net
effect of such adjustments is not material. See Note 1 of "Notes to
Consolidated Financial Statements" for the years ended December 31, 1995, 1996
and 1997.

(3)Restructuring costs include the cost of moving the Company's candle
production line and inventory, the write-off of related leasehold improvements
and a provision for future lease commitment and associated lease expenses in
connection with the shut-down of the Company's Edison, New Jersey facility. All
such costs were expended in 1997 except for approximately $377,000 for a
provision for future rental and related lease expenses until the facility is
re-leased.




                                     -20-
<PAGE>


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

RESULTS OF OPERATIONS

         The following table sets forth for the periods indicated certain
income statement data expressed as a percentage of net sales. Certain column
totals set forth may not add due to rounding.
<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31,
                                                    -----------------------
                                                   1995       1996        1997
                                                   ----       ----        ----
<S>                                               <C>         <C>         <C>
Net sales                                         100.0%     100.0%      100.0%
Cost of goods sold                                 69.5       70.5        77.4
                                                  ------     ------     ------

Gross profit                                       30.5       29.5        22.6
Selling, general and administrative expenses       21.2       25.4        31.2
                                                  ------     ------     ------
Income / (loss) from operations                     9.3        4.1       (8.6)
Restructuring Expenses                              ---        ---         1.0
Interest expense-net                                0.5        0.5         1.2
                                                  ------     ------     ------
Earnings / (loss) before income taxes               8.8        3.6      (10.8)
Income tax provision / (benefit)                    2.1        1.4       (1.5)
                                                  ------     ------     ------
Net income (loss)                                  6.7%       2.2%      (9.3%)
                                                  ======     ======     ======
</TABLE>


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

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

         Gross profit increased 1.0% to $51.4 million in the year ended
December 31, 1997 from $50.9 million in the prior year. Gross profit decreased
as a percentage of net sales to 22.6% in 1997 from 29.5% in the prior year. The
decrease as a percentage of net sales was primarily attributable to an increase
in material and labor costs of 3.2% and .7% of net sales, respectively, due to
manufacturing inefficiencies caused by a high level of production line
changeovers to meet customer demands, inefficient production runs during the
start up and validation of new production lines, the write-down of raw
materials and finished goods inventory associated with discontinued products in
the


                                     -21-
<PAGE>

second quarter, and sales of close-out products at reduced sales value. The
decrease in gross profit as a percentage of net sales was also affected by
additional costs of approximately 4.0% as a percentage of net sales relating to
increased levels of warehouse, distribution and freight-in costs associated
with the expansion of the Company's business from a local single-plant
operation to a multi-plant national manufacturer. The decrease in gross profit
as a percentage of net sales was partially offset by a 1.0% decrease in
capitalized expenses. These unanticipated increased costs, which began in the
latter part of 1996, continued to have a significant impact on the year ended
December 31, 1997. See "-- Management's Plans".

         Management has implemented various cost reduction programs during
1997, the benefits from which have begun to be realized in the third and
fourth quarters of 1997 and are expected to continue to be realized in future
periods. Such programs include the shut-down of the Company's Edison candle
manufacture facility, consolidation of candle manufacturing operations in
North Brunswick, reduction in temporary labor, automation of manufacturing
facilities related to spray products, product rationalization, increased use
of high speed fillers and cartoners and improved production planning and
control.

         Selling, general and administrative expenses increased 61.4% to $70.8
million in the year ended December 31, 1997 from $43.9 million for the prior
year. As a percentage of net sales, these expenses increased to 31.2% in 1997
from 25.4% in the prior year. The increase as a percentage of net sales was
primarily due to increases of 4.5% in marketing funds (co-op advertising,
promotional allowances and slotting amortization), .7% in freight to customers
and .7% in professional fees, partially offset by a decrease in the provision
for bad debts.

         In May 1997, the Company, as part of its cost-reduction strategy,
decided to close its Edison, New Jersey facility and move its candle
manufacturing operations to the Company's North Brunswick, New Jersey facility
at a cost of $2.4 million. These restructuring costs include the
cost of moving the candle production line and inventory, and the write-off of
related leasehold improvements, a portion of the future lease commitment and
associated lease expenses. All such costs were expended in 1997 except for
approximately $377,000 for a provision for future rental and related lease
expenses until the facility is re-leased. The Company believes the property
will be re-leased during 1998 thereby eliminating or substantially reducing
the then remaining lease obligation. At December 31, 1997, the remaining
accrual for restructuring costs approximated $377,000.

         Interest expense-net increased to $2.7 million in the year ended
December 31, 1997 from $.9 million in the prior year, primarily as a result of
higher average outstanding borrowings.

         The income tax benefit for the year ended December 31, 1997
approximates 14.1% of the loss before benefit for income taxes, compared to a
provision which approximates 40.0% of the earnings before provision for income
taxes for the year ended December 31, 1996. This difference principally relates
to a net operating loss


                                     -22-
<PAGE>

carry forward of approximately $17,000,000 for which no benefit has been
recognized.

Year Ended December 31, 1996  Compared to Year Ended December 31, 1995

         Net sales in the year ended December 31, 1996 increased 64.4% to
$172.4 million from $104.9 million in the year ended December 31, 1995. The
increase was primarily the result of an increase in unit sales of laundry
products and, to a lesser extent, the introduction of new products and
additional product sizes.

         Gross profit increased 59.4% to $50.9 million in the year ended
December 31, 1996 from $32.0 million in the prior year. Gross profit decreased
as a percentage of net sales to 29.5% in 1996 from 30.5% in the prior year,
primarily as a result of higher costs associated with integrating the Company's
Chicago, Kansas City and Edison, New Jersey facilities, partially offset by
improvement in labor efficiencies and purchasing improvements, and an increase
as a percentage of net sales in unit sales of higher margin laundry products.

         Selling, general and administrative expenses increased 97.4% to $43.9
million in the year ended December 31, 1996 from $22.2 million in the prior
year. As a percentage of net sales, selling, general and administrative
expenses increased to 25.4% in 1996 from 21.2% in the prior year. The increase
as a percentage of net sales was due primarily to a 1.6% increase in freight
costs arising out of distribution inefficiencies, an increase of 2.7% in
marketing funds, co-op advertising, promotional allowance and slotting
amortization, an increase in bad debts of .4% and a .2% increase in
commissions, partially offset by a decrease of .7% in salaries.

         Income from operations decreased 27.5% to $7.0 million in the year
ended December 31, 1996 from $9.7 million in the prior year. As a percentage of
net sales, income from operations decreased to 4.1% in 1996 from 9.3% in the
prior year as a result of higher selling, general and administrative expenses.

         Interest expense-net increased to $868,000 in the year ended December
31, 1996 from $544,000 in the prior year due to increased borrowings to fund
higher levels of inventories and accounts receivable resulting from increased
sales. As a percentage of sales, interest expense-net was unchanged at 0.5%.

         Earnings before income taxes decreased to $6.2 million in the year
ended December 31, 1996 from $9.2 million in the prior year. As a percentage of
net sales, earnings before income taxes decreased to 3.6% in 1996 from 8.8% in
the prior year.


                                     -23-
<PAGE>

Seasonality

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

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 1997, the Company's working capital was $7.3 million
compared to working capital of $35.3 million at December 31, 1996.

         Net cash provided by operating activities for the year ended December
31, 1997 was $12.8 million compared to net cash used in operating activities of
$16.9 million in the prior year. The increase in cash provided by operating
activities resulted primarily from operating losses of $21.1 million offset by
a decrease in inventory of $11.6 million, an increase in accounts payable and
accrued expenses of $17.9 million, a decrease in net accounts receivable of
$3.5 million, and an increase in refundable income taxes of $2.9 million and
depreciation and amortization of $4.8 million.

         Net cash used in investing activities for the year ended December 31,
1997 was $21.4 million relating primarily to the acquisition of a distribution
center, a powder production facility and production equipment. The Company
anticipates that capital expenditures for 1998 will be between $4 million and
$6 million, which includes expenditures to upgrade the Company's North
Brunswick, New Jersey distribution facility, enhancements to the Company's
information systems and limited expenditures associated with the Company's
other manufacturing and distribution capabilities.

         The increase provided by financing activities for the year ended
December 31, 1997 was $8.1 million which resulted primarily from a net increase
in bank debt of $6.7 million and an increase of $1.4 million in liabilities
related to a purchase agreement. See - "Oracle Purchase Obligation."


                                     -24-
<PAGE>

PNC Bank Debt

         In December 1996, the Company entered into a credit facility with PNC
Bank, National Association ("PNC") consisting of a $20,000,000 capital
expenditure facility for the purchase of capital assets and/or leasehold
improvements and a $10,000,000 traditional revolving facility (the "December
1996 PNC Facility"). Borrowings under the December 1996 PNC Facility bore
interest, at the Company's option, at LIBOR plus .50% to 1.5% (7.22% as of
December 31, 1997) or one percent below the prime rate of PNC. All amounts
outstanding under the December 1996 PNC Facility, as of December 31, 1997 were
subject to the 7.22% LIBOR-based interest rate. Unused portions of the
revolving facility were subject to a commitment fee of .25% on such unused
amounts. On December 31, 1996, the Company also obtained a 60-day $4,000,000
bridge loan (the "Bridge Loan I"), bearing interest at one percent below the
lender's prime rate (7.25%). On March 3, 1997, the Company repaid the Bridge
Loan I facility with funds generated from working capital.

         On March 24, 1997, the Company obtained a commitment from PNC and a
second lender (the "March PNC Commitment") to replace the December 1996 PNC
Facility with a $55 million credit facility. In conjunction with this
commitment, PNC extended to the Company a $10 million bridge loan (the "Bridge
Loan II") to acquire a distribution center in North Brunswick bearing interest
at LIBOR + 1.5% (7.22% as of December 31, 1997) to be repaid from the
anticipated proceeds of the replacement facility. The December 1996 PNC
Facility and Bridge Loan II were secured by a substantial portion of the
Company's assets. As of December 31, 1997, approximately $40 million was
outstanding under both PNC credit facilities.

         The December 1996 PNC Facility required, among other things, the
Company to maintain specified debt to equity ratios, current ratios, minimum
consolidated tangible net worth and debt service ratio levels. Based on the
Company's December 31, 1996 financial condition, the Company was not in
compliance with various covenants and other material provisions contained in
the December 1996 PNC Facility including all of the required financial
covenants. In addition, based in part on the Company's performance in the first
quarter of 1997, the $55 million March PNC Commitment was withdrawn.

         On June 30, 1997, the Company obtained a forbearance agreement from
PNC which provided that PNC would forbear exercising the rights and remedies
available to it under the December 1996 PNC Facility and Bridge Loan II until
July 7, 1997. Although the forbearance agreement expired, PNC continued to
cooperate with the Company during its discussions with other third party
lenders to amend and/or replace the December 1996 PNC Facility and Bridge Loan
II.

                                     -25-
<PAGE>

         On February 25, 1998, the Company and PNC entered into an amended and
restated Loan and Security Agreement (the "February 1998 PNC Facility"), which
waives all defaults under the December 1996 PNC Facility and Bridge Loan II.
Under the amended agreement, the Company made a principal payment of $5 million
and granted PNC a security interest in substantially all of the assets of the
Company. The balance of the principal indebtedness, approximately $35 million,
has been extended to January 4, 1999 and bears interest at rates which range
from prime plus .25% to prime plus 2%. The actual rate depends on the timing of
the repayment of the indebtedness. Of the $5 million paid to PNC, $4 million
was loaned to the Company by an entity owned by certain of the Company's
principal stockholders at a rate of 9.5% per annum, and is due in July 1999.
These stockholders also personally guaranteed the repayment of up to an
additional $5 million of the indebtedness owed to PNC. At December 31, 1997,
$1,000,000 of the PNC debt was classified as current reflecting the difference
between the amount repaid to PNC and the amount loaned to the Company by
certain of its principal stockholders.

         In connection with the transaction, PNC received a warrant to purchase
between approximately 140,000 and 700,000 shares of the Company's common stock,
depending on the repayment date of the remaining indebtedness (140,000 shares
if paid in full by September 30, 1998). In conjunction with the issuance of
this warrant, the Company will recognize, in the first quarter of 1998, a
deferred charge estimated to approximate $400,000. This charge will be deferred
and amortized over the period ending January 4, 1999. The stockholders who
funded $4 million of the $5 million payment described above and guaranteed the
repayment of an additional $5 million are also expected to receive warrants or
other consideration in connection with the transaction. The cost of any
warrants or other consideration will be deferred and amortized over the term of
the loan.

         The February 1998 PNC Facility requires the Company to, among other
things, maintain a ratio of current assets to current liabilities (as defined)
in excess of 1.1 commencing January 31, 1998, and prohibits the payment of
dividends and the incurrence of new debt.

         For the year ended December 31, 1997, the Company has experienced
significant operating losses relating to, among other things, its geographic
expansion of its manufacturing and distribution facilities. In addition, the
Company has also experienced difficulty in meeting its liquidity needs. The
Company requires the availability of sufficient cash flow and borrowing
capacity to finance its operations, meet its debt service obligations and fund
future capital expenditure requirements. The Company's operating plan for 1998
includes continuing its cost reduction programs. Such programs include
reduction in temporary labor, production rationalization, increased use of high
speed fillers and cartoners and improved production planning and control.
Management believes that the corrective actions taken in the latter part of
1997 and the ongoing cost reduction programs currently in place, will have a
positive impact


                                     -26-
<PAGE>

on operating results for 1998. Additionally, management is optimistic about its
ability to replace the PNC Facility with a permanent financing facility which
will more adequately support ongoing operations, debt service and capital
expenditure requirements. There can be no assurance that the Company will be
successful in these efforts.

         In November 1997, the Company executed a commitment letter with GE
Capital for a credit facility totaling up to $52 million. The commitment
provided for a three year revolving credit facility of up to $45 million,
subject to availability based on eligible accounts receivable and inventory; a
three year term loan of $4 million with quarterly amortization payments; and a
three year term loan of $3 million with quarterly amortization payments. The
credit facility would be secured by substantially all the assets of the
Company. The commitment by GE Capital to extend the credit facility is subject
to various conditions including, among other things, the satisfactory
completion by GE Capital of its due diligence examination, evidence that the
Company will have excess availability (as defined) of not less than $5 million
at the time of the loan closing and the execution of definitive loan and
security documents. The commitment by GE Capital expired on March 2, 1998.
Management currently is negotiating with GE Capital to extend the commitment.
The Company must obtain the proposed GE Capital credit facility or obtain other
sources of financing in order to meet its anticipated near-term commitments.
There can be no assurance that the Company will be successful in obtaining the
GE Capital credit facility or in obtaining alternate financing.

EDA Loan

         The Company also has a loan facility of $2.75 million from the New
Jersey Economic Development Authority (the "EDA Loan"). As of December 31,
1997, the Company used approximately $2.5 million of the EDA Loan for purchases
of machinery and equipment and improvements to the Company's North Brunswick
manufacturing facility. The remaining funds are restricted for the duration of
the EDA Loan. The EDA Loan is payable in monthly installments of approximately
$26,000 through November 1, 2002. Interest on the EDA Loan is payable at a
variable rate (4.15% at December 31, 1997). As a result of several factors,
including those relating to the Company's historical financial performance,
amounts owed under the EDA Loan, at the option of the issuing lender
thereunder, may be declared immediately due and payable. The Company has
requested a waiver from the New Jersey Economic Development Authority with
respect to existing violations under the terms of the EDA Loan. There can be no
assurances that the Company will be successful in obtaining such waiver. To
date, the Company is current with respect to scheduled principal and interest
payments. The entire obligation has been classified as current in the December
31, 1997 balance sheet.


                                     -27-
<PAGE>

Oracle Purchase Obligation

         On May 29, 1997, the Company entered into an agreement with Oracle
Credit Corporation whereby the Company financed the purchase of a new
accounting system. The purchase obligation was for approximately $1.6 million,
payable in three equal annual payments to be made on July 1, 1997, 1998 and
1999 with interest at 10.1%. On August 20, 1997, the agreement was assigned to
Sanwa Business Credit Corporation. The Company is currently in default under
the agreement which requires the Company to, among other things, make timely
payments. Accordingly, the entire unpaid obligation has been classified as
current and is included in other current liabilities on the Company's December
31, 1997 balance sheet.

New Facilities

         In January 1997, the Company purchased a 650,000 square foot
distribution facility in North Brunswick, New Jersey, adjacent to the Company's
existing facility for a purchase price of $7,200,000. The Company consolidated
its entire East Coast warehousing and distribution operation at this new
facility. The purchase of this distribution facility was funded by the $10
million Bridge Loan II from PNC.

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

Stock Options and Warrant

         During the year ended December 31, 1997, the Company obtained proceeds
approximating $366,750 from the exercise of 53,709 stock options.

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

                                     -28-
<PAGE>
Restructuring Costs

         In May 1997, the Company, as part of its cost-reduction strategy,
decided to close its Edison, New Jersey facility and move its candle
manufacturing operations to the Company's North Brunswick, New Jersey facility
at an estimated cost of $2.4 million. These restructuring costs include the
cost of moving the candle production line and inventory, and the write-off of
related leasehold improvements, a provision for the future lease commitment
and associated lease expenses. All such costs were expended in 1997 except for
approximately $377,000 for a provision for future rental and related lease
expenses until the facility is re-leased. The Company believes the property
will be re-leased during 1998 thereby eliminating or substantially reducing the
remaining lease obligation. At December 31, 1997, the remaining accrual for
restructuring costs approximated $377,000.

Environmental Regulation

         The Company is subject to various federal, state and local
environmental laws and regulations, including those relating to wastewater
discharge, air quality and the storage, handling and disposal of a variety of
substances. Some of the chemicals used by the Company and stored at its
manufacturing facility are materials regulated by federal or state
environmental protection agencies. The Company maintains $6,000,000 in annual
aggregate and $3,000,000 per claim of insurance coverage with an annual
deductible of $50,000 for environmental liabilities.

Year 2000 Compliance

         The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the Year 2000 problem. As the year 2000
approaches, such systems may be unable to accurately process certain date-based
information.

         The Company believes it has identified all significant applications
that will require modifications to ensure Year 2000 compliance. Internal and
external resources are being used to make the required modifications and test
for Year 2000 problems. The modification process of all significant
applications is expected to be substantially completed by September 30, 1998.
The Company plans on completing its testing process of all significant computer
applications by December 31, 1998.

         In addition, the Company has communicated with others with whom it
does significant business to determine their Year 2000 compliance readiness to
deal with potential year 2000 problems in an attempt to determine the extent to
which the Company is vulnerable to any third party Year 2000 problems. There
can be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted (or that any failure to convert by
another Company) would not have a material adverse effect on the Company's
business or results of operations.

                                     -29-
<PAGE>

         The total known cost to the Company of these Year 2000 compliance
activities has not been and is not anticipated to be material to the Company's
financial condition or results of operations in any given year. These costs and
the date on which the Company plans to complete Year 2000 modification and
testing processes are based on management's best estimates, which were derived
utilizing numerous assumptions. However, there can be no guarantee that these
estimates will prove to be accurate and actual results could differ
significantly.

MANAGEMENT'S PLANS

         During the year ended December 31, 1997, the Company incurred a loss
of $21,081,000 attributable primarily to increased material costs relating to:
incremental freight costs incurred during the integration of the Company's
Chicago, Harrisonville and Edison facilities; manufacturing inefficiencies
caused by a high level of production line change-overs to meet increased
customer demands and short production runs during the start-up and validation
of new production line capacity; the write-down of raw materials and finished
goods inventory associated with discontinued product and sales of close-out
products; and increased levels of unabsorbed material waste variances related
to these plant integration issues. There were significant additional costs for
underabsorbed overhead and increased levels of warehousing and distribution
associated with plant assimilation. Further, the Company significantly
increased co-op advertising and other customer marketing expenses as it
increased sales to grocery wholesalers and supermarket chains. As a result of
the losses incurred through December 31, 1997, the Company has experienced
difficulty in meeting its liquidity needs. The Company requires the
availability of sufficient cash flow and borrowing capacity to finance its
operations, meet its debt service obligations and fund future capital
expenditure requirements. The Company's operating plan for 1998 contemplates
continuing its cost reduction programs. The Company must attain profitability
and/or additional sources of financing in order to meet its anticipated trade
payables and other commitments, including the payment of the $35 million of
debt postponed to January 4, 1999 under the February 1998 PNC Facility.
Management is optimistic about its ability to obtain additional sources of
financing which will more adequately support ongoing operations, debt service
and capital expenditure requirements. There can be no assurance that the
Company will be successful in obtaining additional sources of financing or that
PNC will further extend any portion of amounts owed to them should the Company
be unable to obtain alternate financing.

INFLATION

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

                                     -30-
<PAGE>

NEW FINANCIAL ACCOUNTING STANDARDS

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




                                     -31-
<PAGE>

ITEM 7A. QUANTATATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         Not Applicable.

ITEM 8.  FINANCIAL STATEMENTS

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

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

         None.




                                     -32-
<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information contained under the heading "Proposal No. 1 - Election
of Directors" in the Company's Annual Meeting of Stockholders scheduled to be
held on May 14, 1998, to be filed pursuant to Regulations 14A of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, is
incorporated herein by reference. For information concerning the executive
officers and other significant employees of the Company, see
"Business-Executive Officers of the Registrant" in Item 1 above of this Annual
Report.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

         The information contained under the heading "Security ownership of
certain beneficial owners and management" in the Company's Proxy Statement is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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


                                     -33-
<PAGE>

                                    PART IV

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

          (a)     (1)      Financial Statements.

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

                  (2)      Financial Statements Schedule.

                  Schedule II - Valuation and Qualifying Accounts

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

        3.2   Amended and Restated By-Laws of the Registrant.

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

        4.2   Specimen Common Stock Certificate.(1)

        4.3   Form of Registration Rights Agreements between the Registrant,
              Frederick R. Adler and Blair Effron.(1)

       10.1   Lease Agreement dated January 15, 1993 between Maurice M. Weill,
              Trustee for GEEMAC Property, and the Registrant.(1)

       10.2   Supply Agreement dated November 29, 1994 between Owens-Illinois
              Plastic Products Inc., Owens-Illinois Closure Inc. and the
              Registrant.(1)

       10.3   Amendment No. 1 dated December 1995 to Supply Agreement, dated
              November 29, 1994, between Owens-Illinois Plastic Products Inc.,
              Owens-Illinois Plastic Products Inc., Owens-Illinois Closure Inc.
              and the Registrant.(2) (confidentiality note)*

       10.4   Amended and Restated Employment Agreement with Uri Evan dated
              January 1996.(2)**




                                     -34-
<PAGE>

     EXHIBIT
     NUMBER                  DESCRIPTION OF EXHIBIT
     -------                 ----------------------
       10.5   Employment Agreement for each of Joseph Cohen, Frederick J.
              Horowitz, Daniel Bergman, and Mark Antebi.(1)**

       10.6   Forms of Employment Agreement for each of Frank Corella and
              Harold J. Macsata.(1)**

       10.7   Loan Agreement dated April 15, 1993 between the New Jersey
              Economic Development Authority and the Registrant.(1)

       10.8   Reimbursement Agreement dated April 15, 1993 between Banque
              Nationale de Paris, Houston Agency and the Registrant.(1)

       10.9   Security Agreement dated April 15, 1993 between the New Jersey
              Economic Development Authority and the Registrant.(1)

       10.10  Amended and Restated Loan Agreement dated February 25, 1998
              between PNC Bank, N.A. and the Registrant.

       10.11  1995 Stock Option Plan.(1)**

       10.12  Stock Option Plan for Non-Employee Directors.(1)**

       10.13  Form of Directors and Officers Indemnity Agreement.(1)

       10.14  Lease Agreement dated January 26, 1996 between M&E Co. and the
              Registrant.(2)

       10.15  Purchase and Sale Agreement dated January 22, 1997 between The
              Okonite Company, Inc. and the Registrant.(3)

       10.16  Letter Agreement dated May 5, 1997 between the Registrant and
              Harold J. Macsata.(4)

       10.17  Letter Agreement dated April 14, 1997 between the Registrant and
              Mark Antebi.(4)

       10.18  Letter Agreement dated April 14, 1997 between the Registrant and
              Joseph Cohen.(4)

       10.19  Employment Agreement dated March 26, 1997 between the Registrant
              and Richard D. Coslow.(4)**

       10.20  Employment Agreement, dated July 31, 1997 between the Registrant
              and Guilio Perillo.(4)**

       10.21  Stock Purchase Agreement dated June 30, 1997 between the
              Registrant, Big Cloud Powder Corporation and Chicago Contract
              Powder Corporation.(4)

                                     -35-
<PAGE>
     EXHIBIT
     NUMBER                  DESCRIPTION OF EXHIBIT
     -------                 ----------------------

       10.22  Warrant dated February 25, 1998 issued by the Registrant to PNC
              Bank, N.A.

       10.23  Mortgage and Security Agreement dated February 25, 1998 between
              the Registrant and PNC Bank, N.A.

       10.24  Letter Agreement dated February 25, 1998 between the Registrant
              and 101 Realty Associates, L.L.C.

       10.25  Mortgage and Security Agreement dated February 25, 1998 between
              the Registrant and 101 Realty Associates, L.L.C.

       10.26  Warrant dated December 26, 1997 issued by the Registrant to
              Frederick R. Adler.

       10.27  Agreement dated December 26, 1997 between Frederick R. Adler and
              the Registrant.

       21     Subsidiaries of the Company.

       23     Consent of Deloitte & Touche LLP.

       27     Financial Data Schedule.


       (b)    Reports on Form 8-K:

               None.

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

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

**     Management contract, or compensatory plan or arrangement.

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

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

                                     -36-
<PAGE>

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

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



                                     -37-
<PAGE>


                     USA DETERGENTS, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                     PAGE

Independent Auditors' Reports                                        F-2
Consolidated Balance Sheets at December 31, 1996                     F-3
and 1997
Consolidated Statements of Operations for the years                  F-4
ended December 31, 1995, 1996 and 1997
Consolidated Statements of Cash Flows for the                        F-5
years ended December 31, 1995, 1996  and 1997
Consolidated Statements of Stockholders' Equity                      F-6
for the years ended December 31, 1995, 1996 and 1997
Notes to Consolidated Financial Statements for the                   F-7
years ended December 31, 1995, 1996 and 1997


                                      F-1
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


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

         We have audited the accompanying consolidated balance sheets of USA
Detergents, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, retained earnings and cash flows
for the three years ended December 31, 1997. Our audits also included the
financial statement schedule listed in the index at Item 14(a)(2). These
consolidated financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and the financial
statement schedule based on our audits.

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

         In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of USA Detergents, Inc. and
subsidiaries at December 31, 1996 and 1997, and the results of its operations
and its cash flows for the three years ended December 31, 1995, 1996 and 1997
in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.


                                      F-2

/s/ Deloitte & Touche LLP

New York, New York
March 4, 1998


<PAGE>


                     USA DETERGENTS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1997
                       (IN THOUSANDS, EXCEPT SHARE DATA)

                                     ASSETS
<TABLE>
<CAPTION>



                                                                                    1996                       1997
                                                                                    ----                       ----
<S>                                                                          <C>                        <C>
Current assets:
Cash                                                                         $     2,373                $     1,848
Accounts receivable, net of allowance for doubtful accounts
of $1,349 and $867, respectively                                                  27,323                     24,349
Inventories                                                                       28,830                     17,258
Prepaid expenses and other current assets                                          3,053                      3,740
Refundable Income taxes                                                            4,255                      7,120
Deferred taxes                                                                       534                          -
                                                                              ----------                 ----------
         Total current assets                                                     66,368                     54,315
Property and equipment--net                                                       26,783                     45,672
Restricted funds                                                                     275                        275
Other assets                                                                       2,800                      2,546
Note receivable                                                                    2,250                         -
                                                                              ----------                 ----------
         Total assets                                                         $   98,476                $   102,808
                                                                              ==========                 ==========

                                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt                                             $    5,819                $     2,501
Accounts payable                                                                  13,725                     33,188
Accrued expenses                                                                  11,503                      9,951
Other current liabilities                                                              -                      1,367
                                                                              ----------                 ----------
              Total current liabilities                                           31,047                     47,007
Long-term debt--net of current portion                                            29,311                     38,998
Deferred rent payable                                                              1,284                      1,219
Deferred taxes                                                                       735                          -
                                                                              ----------                 ----------
         Total liabilities                                                        62,377                     87,224
                                                                              ----------                 ----------

Commitments and Contingencies (Notes 4, 5, 7 and 9)

Stockholders' equity:
Preferred Stock--no par value; authorized 1,000,000 shares,                            -                          -
none issued
Common stock--$.01 par value; authorized 30,000,000  shares,
issued and outstanding 13,752,570 and 13,806,279 shares,                             138                        138
respectively
Additional paid-in capital                                                        27,595                     28,336
Retained earnings/(deficit)                                                        8,366                   (12,715)
Note receivable--warrant                                                               -                      (175)
                                                                              ----------                 ----------
         Total stockholders' equity                                               36,099                     15,584
                                                                              ----------                 ----------
         Total liabilities and stockholders' equity                              $98,476                  $ 102,808
                                                                              ==========                 ==========

</TABLE>

                       See Notes to Consolidated Financial Statements.

                                                       F-3
<PAGE>


                     USA DETERGENTS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1995 1996 AND 1997
                  (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>

                                                                1995            1996               1997
                                                                ----            ----               ----
<S>                                                            <C>               <C>               <C>
Net sales.........................                             $104,878          $172,424          $227,269

Cost of goods sold................                               72,921           121,498           175,851
                                                            -----------      ------------      ------------

Gross profit......................                               31,957            50,926            51,418

Selling, general and administrative expenses                     22,232            43,878            70,826
Restructuring Costs                                                   -                 -             2,379
                                                            -----------      ------------      ------------

                                                                 22,232            43,878            73,205
                                                            -----------      ------------      ------------
Income/(loss) from operations.....                                9,725             7,048           (21,787)

Interest expense - net............                                  544               868             2,742
                                                            -----------      ------------      ------------

Earnings/ (loss) before provision /(benefit) for
  income taxes
                                                                  9,181             6,180           (24,529)

Provision /(benefit)  for income taxes                            2,156             2,473            (3,448)
                                                            -----------      ------------      ------------

Net income/ (loss)                                          $     7,025      $      3,707      $    (21,081)
                                                            ===========      ============      ============

Basic net income/ (loss) per share                                           $        .27      $      (1.53)
                                                                           ==============    ==============

Weighted average shares outstanding                                                13,589            13,789
                                                                           ==============    ==============

Diluted net income (loss) per share                                        $          .27    $        (1.53)
                                                                           ==============    ==============

Weighted average shares outstanding and
dilutive options                                                                   13,840            13,789
                                                                           ==============    ==============



PRO FORMA INCOME STATEMENT DATA:
Earnings before income tax provision, as reported                 9,181
Pro forma income tax provision....                                3,756

 Pro forma net income.............                          $     5,425
                                                            ===========
 Pro forma basic income per
 Share............................                          $       .43
                                                            ===========
Weighted average shares outstanding used in the
pro forma per share calculation...                               12,494
                                                            ===========

Pro forma diluted net  income per share                     $       .43
                                                            ===========

Weighted average number of shares outstanding and
dilutive options used in the pro forma per
share calculation                                                12,553
                                                            ===========
</TABLE>


                See Notes to Consolidated Financial Statements.

                                                    F-4
<PAGE>



                     USA DETERGENTS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                   1995          1996          1997
                                                                                   ----          ----          ----
<S>                                                                              <C>            <C>          <C>
  CASH FLOWS FROM OPERATING ACTIVITIES:
       Net income/(loss)                                                         $     7,025    $   3,707    $   (21,081)
       Adjustments to reconcile net income/(loss) to net cash (used
        in)/provided by operating activities:
       Depreciation and amortization                                                   1,006        2,467          4,801
       Change in the provision for customer allowances and doubtful accounts             192        1,073           (482)
            Increase/(decrease) in deferred rent                                          (3)          80            (65)
       Changes in operating assets and liabilities:
            (Increase)/decrease  in accounts receivable                               (8,806)     (13,118)         3,456
            (Increase)/decrease  in inventories                                         (549)     (20,382)        11,572
            (Increase) in prepaid expenses and other current assets                   (1,293)         (64)          (687)
            (Increase)/decrease  in other assets                                          22       (2,545)           454
            (Increase) in refundable income taxes                                          -       (4,255)        (2,865)
            Increase in accounts payable and accrued expenses                          1,509       16,456         17,911
            Increase/(decrease)  in taxes payable                                        125         (182)             -
           (Increase)/(decrease  in deferred tax asset                                  (630)          96            534
            Increase/(decrease)  in deferred tax liability                               990         (255)          (735)
                                                                              -------------------------------------------

                   Net cash (used in) / provided by operating activities                (412)     (16,922)        12,813
  activities:
                                                                              -------------------------------------------

  CASH FLOWS FROM INVESTING ACTIVITIES:
       Purchase of property and equipment                                             (3,851)     (18,846)       (23,690)
       (Increase)/decrease  in note receivable                                        (2,250)           -          2,250
                                                                              -------------------------------------------
                           Net cash used in investing activities:                     (6,101)     (18,846)       (21,440)
                                                                              -------------------------------------------

  CASH FLOWS FROM FINANCING  ACTIVITIES:
       Shareholder distributions                                                      (5,331)           -              -
       Repayment of long-term debt                                                      (305)        (305)          (305)
       Net (repayments to)/proceeds from credit facility                                (517)      22,322         10,674
       (Decrease)  in non-current liabilities                                            (68)         (37)             -
       Proceeds from Oracle purchase obligation                                            -            -          1,806
       Repayment of Oracle purchase obligation                                                                      (439)
       Net proceeds from initial public offering                                      12,718            -              -
       Net proceeds from exercise of options                                               -          364            366
       Increase in/(repayment of) Bridge Loan I                                            -        4,000         (4,000)
       Net proceeds from sale of common shares                                             -       11,736              -
                                                                              -------------------------------------------
                           Net cash provided by financing activities:                  6,497       38,080          8,102
                                                                              -------------------------------------------
  Net (decrease)/increase  in cash                                                       (16)       2,312           (525)

        Cash at beginning of period                                                       77           61          2,373
                                                                              -------------------------------------------

        Cash at December 31,                                                     $        61    $   2,373      $   1,848
                                                                              ===========================================

  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the year for:
        Interest                                                                 $       539    $     834      $   2,738
                                                                              ===========================================
        Income taxes                                                             $     1,671    $   7,059      $     263
                                                                              ===========================================
        Income tax refunds received                                                                            $     645
                                                                              ===========================================
  Warrant issued for non-current receivable and consulting services                                            $     375
                                                                              ===========================================
</TABLE>

                See Notes to Consolidated Financial Statements.

                                                  F-5
<PAGE>






                     USA DETERGENTS, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                       (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>


                                PREFERRED STOCK         COMMON STOCK        ADDITIONAL                                  TOTAL
                                ----------------     ------------------      PAID-IN        RETAINED        NOTES     STOCKHOLDERS'
                                SHARES    AMOUNT     SHARES      AMOUNT      CAPITAL        EARNINGS     RECEIVABLE      EQUITY
                                ------    ------     ------      ------      -------        --------     ----------   -------------
<S>                             <C>       <C>         <C>        <C>          <C>           <C>           <C>         <C>
BALANCE, December 31, 1994....    --       $ --       7,943,000  $       79   $   2,836      $   2,965        $  --         $5,880

 Net income...................                                                                   7,025                       7,025

 Stockholder distributions....                                                                 (5,331)                     (5,331)

 Net proceeds from initial                              985,260          10      12,708                                     12,718
  public offering.............

Three-for-two stock split.....                        4,464,112          45        (45)
                              -------   -----------  ----------  ----------  ----------  -------------   ----------        -------


BALANCE, December 31, 1995                           13,392,372         134      15,499          4,659                      20,292

 Net loss.....................                                                                   3,707                       3,707

 Stock options exercised......                           60,198           1         363                                        364

 Net proceeds from sale of
 common stock.................                          300,000          3       11,733                                     11,736
                              -------   -----------  ----------  ----------  ----------  -------------   ----------        -------


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

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

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

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


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

</TABLE>

                See Notes to Consolidated Financial Statements.


                                                     F-6

<PAGE>

                     USA Detergents, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                  Years Ended December 31, 1995, 1996 and 1997

1.       Principal Business Activity and Summary of Significant Accounting
         Policies

         USA Detergents, Inc. (the "Company") manufactures and markets
nationally distributed value brand laundry and household cleaning products.

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

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

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

         Long-Lived Assets - Financial Accounting Standards Board Statement
Number 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" requires that they be segregated and
stated at the lower of the expected net realizable value or cost. The carrying
value of long-lived assets is periodically reviewed to determine whether
impairment exists. The review is based on comparing the carrying amount of the
asset to the undiscounted estimated cash flows over the remaining useful lives.
No impairment is indicated as of December 31, 1997. The Company has adopted
this statement and the impact has not been significant.

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

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

         Income Taxes -- Prior to August 10, 1995 (one day prior to the
completion of the Company's initial public offering), the Company elected to be
treated as an S corporation ("S corporation") under the applicable sections of
the Internal Revenue Code. Accordingly, during the "S Corporation Period" there
was no provision for federal income

                                       F-7

<PAGE>

taxes as such earnings of the Company flowed through directly to the
stockholders. The Company was however subject to state and local taxes in
certain states during the S Corporation Period.

         Deferred taxes on income are provided to reflect the tax effect of
temporary differences between financial statement income and taxable income.
The principal items giving rise to deferred taxes are the use of accelerated
depreciation methods for tax purposes, straight-lining of step rentals, tax
loss carryovers and differences in the timing of the deductibility of certain
expenses between income tax and financial reporting.

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

                                         F-8

<PAGE>


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

                                                 December 31, 1996                      December 31, 1997
                                                 -----------------                      -----------------
                                            Carrying           Estimated           Carrying           Estimated
                                             Amount           Fair Value            Amount           Fair Value
                                            --------          ----------           --------          ----------
<S>                                          <C>                <C>                 <C>                <C>
Assets:
Cash...............................          $2,373             $2,373              $1,848             $1,848
Trade accounts receivable..........          28,672             28,672              25,216             25,216
Note receivable....................           2,250              2,250                 ---                ---
Liabilities:
    Accounts payable, accrued
    expenses
    and taxes......................          25,247             25,247              43,139             43,139
Revolving line of
    credit, Bridge Loan I and Bridge
    Loan II........................          33,305             33,305              39,998             39,998
Economic Development
    Authority loan.................           1,806              1,712               1,501              1,501
Oracle Purchase Obligations........
                                                ---                ---               1,367              1,367
Capitalized Lease Obligations......
                                                 19                 19                 ---                ---
</TABLE>

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

Cash -- The carrying amount is a reasonable approximation of fair value.

Trade accounts receivable, note receivable, accounts payable, accrued expenses
and taxes and the Oracle purchase obligation. The fair value of these
receivables and payables are assumed to equal their carrying value because of
their short maturities.

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

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

                                         F-9

<PAGE>

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

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

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

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

The following reconciliation of the weighted average shares used in the
computations of basic and dilutive net income/(loss) per share: (ooo's)
<TABLE>
<CAPTION>


                                                               1995         1996           1997
                                                               ----         ----           ----
<S>                                                          <C>          <C>            <C>
Weighted average common shares outstanding used for
basic net income/(loss) per share                            12,494       13,589         13,789

Dilutive stock options and warrants                              59          251           ----
                                                             ------       ------         ------

Weighted average common shares  outstanding used for
dilutive  net income/(loss) per share                        12,553       13,840         13,789
                                                             ======       ======         ======
</TABLE>

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

Pro forma net income has been adjusted to reflect a tax provision which
reflects the actual taxes that would have been paid had the Company been a C
corporation for all of 1995.

                                         F-10

<PAGE>

         Reclassifications --- Certain reclassifications have been made to
prior year amounts to conform with the presentation for the current year.

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

2. INVENTORIES

         Inventories consist of the following:

                                                          DECEMBER 31,
                                                     --------------------
                                                     1996            1997
                                                     ----            ----
                                                        (in thousands)

Raw material......................................  $10,532          $9,819
Finished goods....................................   18,298           7,439
                                                    -------         -------
                                                    $28,830         $17,258
                                                    =======         =======

                                         F-11

<PAGE>


3. PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>

                                                            DECEMBER 31,
                                                            ------------                          ESTIMATED
                                                     1996                  1997                  USEFUL LIFE
                                                     ----                  ----                  -----------
                                                           (in thousands)

<S>                                                 <C>                   <C>                  <C>
Machinery and equipment...........................  $20,332               $29,682              6 to 10 years
Furniture and fixtures............................    2,608                 4,368              5 to 7 years
Leasehold improvements............................    3,381                 8,092              Term of lease
Construction in progress..........................    2,179                 1,125
Land..............................................    1,376                 3,833
Building..........................................    1,652                 7,424                25 years
                                                      -----                ------
                                                     31,528                54,524

Less accumulated depreciation and
amortization......................................    4,745                 8,852
                                                  ---------             ---------
                                                    $26,783               $45,672
                                                    =======               =======
</TABLE>

Depreciation and amortization expense amounted to $1,006, $2,467 and $4,801 for
the years ended December 31, 1995, 1996 and 1997, respectively.

                                         F-12


<PAGE>

4. DEBT
                                                         DECEMBER 31,
                                                         ------------
                                                 1996                  1997
                                                 ----                  ----

Bridge Loan I (i)                              $4,000               $   ---
Bridge Loan II (i)                                ---                10,000
Capital Expenditure Facility (i)               20,000                20,000
Revolving credit facility (i)                   9,305                 9,998
New Jersey EDA loan (ii)                        1,806                 1,501
Capitalized lease obligations                      19                   ---
                                            ---------             ---------
                                               35,130                41,499
Less amount due in one year                     5,819                 2,501
                                            ---------             ---------
                                              $29,311               $38,998
                                            =========             =========


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

                                                 1998               $ 2,501
                                                 1999                38,998
                                                                     ------
                                                                    $41,499
                                                                    =======

                                         F-13


<PAGE>


(i)      PNC Bank Debt

         In December 1996, the Company entered into a credit facility with PNC
Bank, National Association ("PNC") consisting of a $20,000,000 capital
expenditure facility for the purchase of capital assets and/or leasehold
improvements and a $10,000,000 traditional revolving facility (the "December
1996 PNC Commitment"). Borrowings under the December 1996 PNC Facility bear
interest, at the Company's option, at LIBOR plus .50% to 1.5% (7.22% as of
December 31, 1997) or one percent below the prime rate of PNC. All amounts
outstanding under the December 1996 PNC Facility, as of December 31, 1997 were
subject to the 7.22% LIBOR-based interest rate. Unused portions of the
revolving facility are subject to a commitment fee of .25% on such unused
amounts. On December 31, 1996, the Company also obtained a 60-day $4,000,000
bridge loan (the "Bridge Loan I"), bearing interest at one percent below the
lender's prime rate (7.25%). On March 3, 1997, the Company repaid the Bridge
Loan I facility with funds generated from working capital.

         On March 24, 1997, the Company obtained a commitment from PNC and a
second lender (the "March PNC Commitment") to replace the December 1996 PNC
Facility with a $55 million credit facility. In conjunction with this
commitment, PNC extended to the Company a $10 million bridge loan (the "Bridge
Loan II") to acquire a distribution center in North Brunswick bearing interest
at LIBOR + 1.5% (7.22 as of December 31, 1997) to be repaid from the
anticipated proceeds of the replacement facility. The December 1996 PNC
Facility and Bridge Loan II are secured by a substantial portion of the
Company's assets. As of December 31, 1997 approximately $40 million was
outstanding under both PNC Credit facilities.

         The December 1996 PNC Facility requires, among other things, the
Company to maintain specified debt to equity ratios, current ratios, minimum
consolidated tangible net worth and debt service ratio levels. Based on the
Company's December 31, 1996 financial condition, the Company was not in
compliance with various covenants and other material provisions contained in
the December 1996 PNC Facility including all of the required financial
covenants. In addition, based in part on the Company's performance in the first
quarter of 1997, the commitment for the $55 million March PNC Commitment was
withdrawn.

         On June 30, 1997, the Company obtained a forbearance agreement from
PNC which provided that PNC would forbear exercising the rights and remedies
available to it under the December 1996 PNC Facility and Bridge Loan II until
July 7, 1997. Although the forbearance agreement expired, PNC continued to
cooperate with the Company during its discussions with other third party
lenders to amend and/or replace the December 1996 PNC Facility and Bridge Loan
II.

         On February 25, 1998, the Company and PNC entered into an amended and
restated Loan and Security Agreement (the "February 1998 PNC Facility"), which

                                         F-14


<PAGE>

waives all defaults under the December 1996 PNC Facility and Bridge Loan II.
Under the amended agreement, the Company made a principal payment of $5 million
and granted PNC a security interest in substantially all of the assets of the
Company. The balance of the principal indebtedness, approximately $35 million,
has been extended to January 4, 1999 and bears interest at rates which range
from prime plus .25% to prime plus 2%. The actual rate depends on the timing of
the repayment of principal. Of the $5 million paid to PNC, $4 million was
loaned to the Company by an entity owned by certain of the Company's principal
shareholders at a rate of 9.5% per annum, and is due in August 1999. These
shareholders also personally guaranteed the repayment of up to an additional $5
million of the indebtedness owned to PNC. At December 31, 1997, $1 million of
the PNC debt was classified as current reflecting the difference between the
amount the Company paid to PNC and the amount loaned to the Company by certain
of its principal stockholders.

         In connection with the transaction, PNC received a warrant to purchase
between approximately 140,000 and 700,000 shares of the Company's common stock,
depending on the repayment date of the remaining indebtedness (140,000 shares
if paid in full by September 30, 1998). In conjunction with the issuance of
this warrant, the Company will recognize, in the first quarter of 1998, a
deferred charge estimated to approximate $400,000. This charge will be
amortized over the period ending January 4, 1999, The stockholders who funded
$4 million of the $5 million payment and guaranteed the repayment of an
additional $5 million may also receive warrants or other consideration in
connection with the transaction. The cost of any warrant or other consideration
will be deferred and amortized over the term of the loan.

         The February 1998 PNC Facility among other things, requires the
Company to maintain a ratio of current assets to current liabilities (as
defined) in excess of 1.1 commencing January 31, 1998, and prohibits the
payment of dividends and the incurrence of new debt.

         In November 1997, the Company executed a commitment letter with GE
Capital for a credit facility totaling up to $52 million. The financing
agreement would include a three year revolving credit facility of up to $45
million, subject to availability based on eligible accounts receivable and
inventory; a three year term loan of $4 million with quarterly amortization
payments; and a three year term loan of $3 million with quarterly amortization
payments. The credit facility will be secured by substantially all the assets
of the Company. The commitment by GE Capital to extend the credit facility is
subject to various conditions including, among other things, the satisfactory
completion by GE Capital of its due diligence examination, evidence that the
Company will have excess availability (as defined) of not less than $5 million
at the time of the loan closing and the execution of definitive loan and
security documents. The commitment by GE Capital expired on March 2, 1998.
Management is currently negotiating with GE Capital to extend the commitment.
The Company must obtain the proposed GE Capital credit facility or obtain
additional sources of financing in order to meet its anticipated near-term
commitments. There can be no assurance that the Company will be successful in
obtaining the GE Capital credit facility or in obtaining alternate financing.

                                         F-15


<PAGE>

(ii)EDA Loan

         The Company also has a loan facility of $2.75 million from the New
Jersey Economic Development Authority (the "EDA Loan"). As of December 31,
1997, the Company used approximately $2.5 million of the EDA Loan for purchases
of machinery and equipment and improvements to the Company's North Brunswick
manufacturing facility. The remaining funds are restricted for the duration of
the EDA Loan. The EDA Loan is payable in monthly installments of approximately
$26,000 through November 1, 2002. Interest on the EDA Loan is payable at a
variable rate (4.15% at December 31, 1997). As a result of several factors,
including those relating to the Company's historical financial performance,
amounts owed under the EDA Loan, at the option of the issuing lender
thereunder, may be declared immediately due and payable. The Company has
requested a waiver from the New Jersey Economic Development Authority with
respect to existing violations under the terms of the EDA Loan. There can be no
assurances that the Company will be successful in obtaining such waiver. To
date, the Company is current with respect to scheduled principal and interest
payments. The entire obligation has been classified as current in the December
31, 1997 balance sheet.

(iii) Oracle Purchase Obligation

         On May 29, 1997, the Company entered into an agreement with Oracle
Credit Corporation whereby the Company financed the purchase of a new
accounting system. The purchase obligation was for approximately $1.6 million,
payable in three equal annual payments to be made on July 1, 1997, 1998 and
1999 with interest at 10.1%. On August 20, 1997, the agreement was assigned to
Sanwa Business Credit Corporation. The Company is currently in default under
the agreement which requires the Company to, among other things, make timely
payments. Accordingly, the entire unpaid obligation has been classified as
current and is included in other current liabilities on the Company's December
31, 1997 balance sheet.

5. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

         On May 5, 1997, a securities class action lawsuit entitled Feldbaum v.
USA Detergents, Inc. et al., No. 97-CV-3227, was filed in the U.S. District
Court for the Eastern District of Pennsylvania against the Company and certain
of its current and former officers and directors; the Feldbaum case
subsequently was transferred to the U.S. District Court for the District of New
Jersey. On May 15, 1997, a second securities class action lawsuit entitled
Einhorn v. USA Detergents, Inc. et al., No. 97-2459, was filed against the
Company and certain of its current and former officers and directors in the
U.S. District Court for the District of New Jersey. Since the Einhorn lawsuit
was filed, twelve additional securities class action lawsuits have been filed
in the U.S.

                                         F-16



<PAGE>

District Court for the District of New Jersey against the Company and certain
of its current and former officers and directors. The class actions purport to
be brought on behalf of all persons who purchased the Company's common stock
between June 5, 1996, at the earliest, and May 8, 1997, at the latest (the
"putative class period"). The class actions generally allege that, during the
putative class period, the defendants made false or misleading public
statements and engaged in improper accounting practices, which caused the price
of the Company's common stock to be artificially inflated. The class actions
assert that the defendants' conduct violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder, as
well as state common law. The class actions do not specify an amount of
damages. In June and July 1997, the U.S. District Court for the District of New
Jersey entered orders consolidating all of the pending class actions with the
Einhorn case. In August 1997, the court entered an order establishing a master
docket for the consolidated class actions, In re USA Detergents, Inc.
Securities Litigation, Master File No. 97-CV-2459 (MTB), and appointed lead
plaintiffs and lead plaintiffs' co-lead counsel. The Company intends to defend
this action vigorously. An unfavorable outcome in the litigation could have a
material adverse effect on the Company's financial condition and results of
operations.

         On September 12, 1997, the Company became aware of a claim by the
North Brunswick Water Company ("NBWC") covering, among other things, unpaid
water and sewer charges aggregating approximately $5,000,000. On October 20,
1997, the Company commenced an action in the Superior Court of New Jersey,
Chancery Division, Middlesex County, challenging NBWC's claim and requesting
injunctive relief to prevent NBWC from taking any steps to discontinue service
pending the resolution of the claim. Pursuant to a Consent Order dated October
21, 1997, the Company paid $532,118 to NBWC, subject to refund, pending the
resolution of the matter. This charge is included in selling, general and
administrative expenses. Based on a preliminary assessment made by independent
counsel for the Company of the underlying basis for NBWC's claim, management
believes that the Company's obligation, if any, to NBWC will not have a
significant impact on the Company's results of operations or financial position
beyond amounts already paid.

Note Receivable

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

         In June 1997, the Company exercised its purchase option, by the
cancellation of the $2.3 million promissory note in exchange for the capital
stock of the unaffiliated third party, to acquire the powder plant facility
located in Chicago. Pursuant to the terms of a

                                         F-17


<PAGE>

supply contract, this facility previously provided the Company with the
facility's entire powder production output on an exclusive basis.

Leases

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

        YEAR ENDING
        DECEMBER 31,
        ------------
        1998.....................................  $  3,390
        1999.....................................     2,945
        2000.....................................     2,218
        2001.....................................     1,431
        2002.....................................     1,213
        Thereafter...............................     1,243
                                                   --------
                                                    $12,440
                                                   ========

         Rent expense charged to operations amounted to $1,043,000, $1,702,000
and $1,802,000 for the years ended December 31, 1995, 1996 and 1997,
respectively, including real estate taxes and operating escalations.

         Rent expense recognized annually differs from actual rent paid as a
result of free rent periods and escalations in base rent provided in the
leases. Accordingly, the Company has recorded deferred rent of $1,284,000 and
$1,219,000 at December 31, 1996 and 1997, respectively. This amount is being
amortized by the straight-line method over the life of the lease.

Servicing Agreement

         The Company entered into an exclusive use agreement with a vendor
whereby the vendor has committed the use of certain machines for the production
of packaging materials for the Company. The monthly payment is $1,317,566,
subject to maximum annual increases of 2%, through January 31, 2001, which will
be applied against the purchase price of the packaging materials.

                                         F-18


<PAGE>

Profit Sharing Plan

         The Company has a profit sharing plan based on the amount by which the
Company's operating gross margin (the "OGM"), as defined, exceeds ten percent.
If the Company's OGM exceeds ten percent, a percentage of that excess is placed
in a bonus pool based on a predetermined formula provided that the total amount
available for distribution is only based on annual gross sales up to $200
million. Fifty-two percent of the bonus pool is allocated for distribution to
senior executives. Of the remainder of the bonus pool, no participant can
currently receive a distribution greater than 50% of his or her base salary.
Amounts not allocated for distribution under the bonus pool will not be
distributed. For the years ended December 31, 1995, 1996 and 1997,
approximately $231,000, $410,000 and $0 respectively, was distributed under the
plan.

Employment Agreements

         The Company is obligated under various employment agreements expiring
in 2000. As of December 31, 1997, the minimum future annual amounts payable
under these agreements are as follows (in thousands):

                      DECEMBER 31, 1997
                      -----------------
      1998                 $     720
      1999                       431
      2000                        52
                           ---------
                           $   1,203
                           =========

Related Party  Transactions

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


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

         Purchases made by AVB amounted to $65,206, $1,506 and $45,430 for the
years ended December 31, 1995, 1996 and 1997, respectively.

                                         F-19


<PAGE>

         The Company, during the year ended December 31, 1997, incurred rental
expenses of approximately $90,000 for the use of a portion of AVB's warehouse.
At December 31, 1996 the net amount due the Company from AVB was $18,488 and at
December 31, 1997, the net amount payable by the Company to AVB was $24,388.

Tax Examination

         The Internal Revenue Service is currently examining the Company's 1995
federal income tax return. To date, management has not been notified of any
proposed adjustment. Management believes that any adjustment which results from
this examination, if any, will not have a material impact on the Company's
results of operations or financial condition.

Restructuring Costs

         In May 1997, the Company, as part of its cost-reduction strategy,
decided to close its Edison, New Jersey facility and move its candle
manufacturing operations to the Company's North Brunswick, New Jersey facility
at an estimated cost of $2.4 million. These restructuring costs include the
cost of moving the candle production line and inventory, the write-off of
related leasehold improvements, a portion of the future lease commitment
and associated lease expenses. All such costs were expended in 1997 except for
approximately $377,000 for a provision for future rental and related lease
expenses until the facility is re-leased. The Company believes the property
will be re-leased during 1998 thereby eliminating or substantially reducing
the remaining lease obligation. At December 31, 1997, the remaining accrual for
restructuring costs approximated $377,000.

Environmental Regulation

         The Company is subject to various federal, state and local
environmental laws and regulations, including those relating to wastewater
discharge, air quality and the storage, handling and disposal of a variety of
substances. Some of the chemicals used by the Company and stored at its
manufacturing facility are materials regulated by federal or state
environmental protection agencies. The Company maintains $6,000,000 in annual
aggregate and $3,000,000 per claim of insurance coverage with an annual
deductible of $50,000 for environmental liabilities.

New Facilities

         On January 22, 1997, the Company entered into a contract to purchase a
650,000 square foot distribution facility in North Brunswick, New Jersey,
adjacent to the Company's existing facility for a purchase price of $7,200,000.
Subsequent thereto, the Company consolidated its entire East Coast warehousing
and distribution operation at this new facility. The purchase was funded by an
increase in the Company's credit facility.

         During June 1997, the Company exercised its purchase option, by the
cancellation of a $2,250,000 promissory note, to acquire a powder plant
facility located in Chicago. This facility provides the Company with its entire
powder production requirements. As

                                         F-20


<PAGE>

part of the transaction, the Company assumed a land lease upon which the
Company's Chicago operations are located. The lease, which expires in 2080,
provides for rent to be paid annually in the amount of $1,000 plus a variable
amount adjusted for inflation. The total rent paid for the year ended December
31, 1997 was approximately $9,000.

6.       INCOME TAXES

         Components of income taxes are as follows:
<TABLE>
<CAPTION>

                                            YEAR ENDED DECEMBER 31,
                                            -----------------------
                                     1995            1996             1997
                                     ----            ----             ----
<S>                                  <C>            <C>              <C>
   Current:                                     (IN THOUSANDS)
     Federal.......................  $1,403         $2,319           $(3,524)
     State and local...............     393            313               277
     Deferred......................     360           (159)             (201)
                                      -----        --------             -----
                                     $2,156         $2,473           $(3,448)
                                     ======         ======            =======
</TABLE>

         Temporary differences which give rise to net deferred tax liabilities
at December 31, 1996 and 1997 are as follows:

                                                              DECEMBER 31,
                                                         1996             1997
                                                         ----             ----
                                                             (IN THOUSANDS)
     Deferred tax liabilities
          Depreciation                               $(1,237)         $(2,359)
                                                     --------         --------

     Deferred tax assets

          Straight-lining of step rental increases        502              471
          Allowance for bad debts                         527              335
          Net operating loss carryover                     15            7,032
          Inventory capitalization                                         291
          Miscellaneous                                    (8)              38
                                                       ------          -------
                                                        1,036            8,167
                                                       ------          -------

     Net deferred tax (liabilities) assets              $(201)          $5,808
                                                       ======
     Valuation allowance                                                (5,808)
                                                                       -------
     Net deferred tax asset                                           $
                                                                      ========

                                         F-21



<PAGE>


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

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                        1995            1996              1997
                                                                        ----            ----              ----
                                                                                   (IN THOUSANDS)
<S>                                                                  <C>             <C>              <C>
           Tax provision computed at statutory rate                  $3,122          $2,101           $(8,426)

           State and local income taxes                                 264             206              (950)

           Non taxable earnings during period prior to
           conversion to C corporation st                            (1,522)            ---               ---

           Recognition of deferred taxes upon conversion to
           C corporation status.............................            227             ---               ---

           Valuation allowance                                          ---             ---             5,808

           Other--net                                                    65             166               120
                                                                      ------          ------           -------
                                                                     $2,156          $2,473           $(3,448)
                                                                      ======          ======           =======
</TABLE>
         At December 31, 1997 the Company had operating loss carryovers for tax
purposes approximating $17 million which expire in 2012.

7. SIGNIFICANT CUSTOMERS AND SUPPLIERS

         The Company's largest customer, Wal-Mart, accounted for 17.2%, 16.8%
and 12.7% of sales, respectively, in 1995, 1996 and 1997. No other customer of
the Company accounted for more than 10.0% of the Company's net sales. As is
customary in the industry, the Company does not have long-term contracts with
its customers.

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


                                         F-22


<PAGE>

8. STOCKHOLDERS' EQUITY

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

         In August 1995, the Company completed an initial public offering of
3,622,500 shares of Common Stock, including 1,477,890 shares of Common Stock
sold by the Company (the remainder being sold by certain stockholders of the
Company) which provided net proceeds to the Company of approximately
$12,718,000.

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

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

         1995 Stock Option Plan. -- Effective in August 1995, the Company
adopted the USA Detergents, Inc. 1995 Stock Option Plan (the "1995 Plan"),
pursuant to which options to acquire an aggregate of 388,935 shares of Common
Stock may be granted to key employees and consultants of the Company or any of
its subsidiaries. In July 1997, the maximum number of shares of Common Stock
authorized to be granted under the 1995 Plan was increased to 1,000,000,
subject to approval of the Company's stockholders. The 1995 Plan authorizes the
Board to issue incentive stock options ("ISO's"), as defined in Section 422A(b)
of the Internal Revenue Code (the "Code"), and stock options that do not
conform to the requirements of that Code section ("Non-ISO's"). The exercise
price of each ISO may not be less than 100% of the fair market value of the
Common Stock at the time of grant, except that in the case of a grant to an
employee who owns 10% or more of the outstanding stock of the Company or any
subsidiary ("10% Stockholder"), the exercise price shall not be less than 110%
of such fair market value. The exercise price of each Non-ISO may not be less
than the par value of the Common Stock. Generally, options will vest over a
three to five year period and may not be exercised after the tenth anniversary
(fifth anniversary in the case of an ISO granted to a 10% Shareholder) of their
grant. Options may not be transferred during the lifetime of an

                                         F-23


<PAGE>

optionholder. No stock options may be granted under the 1995 Plan after 2005.

         Non-Employee Directors' Plan. -- Effective in August 1995, the Company
adopted a Stock Option Plan for Non-Employee Directors (the "Directors' Plan"),
pursuant to which options to acquire an aggregate of 75,000 shares of Common
Stock may be granted to non-employee directors. The Directors' Plan provides
for the automatic grant to each of the Company's non-employee directors of (1)
an option to purchase 4,500 shares of Common Stock on the later of the date of
such director's initial election or appointment to the Board of Directors or
the date of adoption of the Directors' Plan, and (2) an option to purchase
4,500 shares of Common Stock on each annual anniversary of such election or
appointment, provided that such individual is on that anniversary date a
non-employee director. The options will have an exercise price of 100% of the
fair market value of the Common Stock on the date of grant, have a ten-year
term and become exercisable in four equal quarterly installments commencing on
the date which is three months after the date of the grant thereof, subject to
acceleration in the event of a change of control (as defined in the Directors'
Plan). The options may be exercised by payment in cash, check or shares of
Common Stock.

         In December 1993, the Company granted an option to an executive
covering 119,145 shares of common stock exercisable in four annual installments
beginning December 31, 1995. This option is exercisable at $2.00 per share.
Through December 31, 1997, 59,572 shares have been purchased pursuant to the
exercise of this option.

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

                                                                    Weighted
                                                    NUMBER OF     Average Price
                                                     OPTIONS        per Share
                                                    ---------     -------------
Granted in 1995...................................   154,650         $9.91
Canceled..........................................    (7,500)         9.67
                                                    --------
Options outstanding, December 31, 1995............   147,150          9.92
Granted in 1996...................................   139,500         20.58
Canceled..........................................    (1,125)         9.67
Exercised.........................................   (30,412)        10.11
                                                    --------
Options outstanding, December 31, 1996............   255,113         15.73
Granted in 1997...................................   401,876         12.17
Canceled..........................................  (274,751)        14.70
Exercised.........................................   (23,923)        12.84
                                                    --------
Options outstanding, December 31, 1997............   358,315         12.01
                                                    ========

                                         F-24



<PAGE>

As of December 31, 1997, options outstanding and options exercisable consist of
the following:

                   NUMBER OF                                     NUMBER OF
                    OPTIONS                EXERCISE               OPTIONS
GRANT DATE        OUTSTANDING                PRICE              EXERCISABLE
----------        -----------              --------             -----------
Dec-93               59,573                $   2.00               29,786
Aug-95               90,676                    9.67               28,476
Aug-95                4,500                   11.92                4,500
Aug-95                4,500                   12.67                4,500
Jan-96               37,426                   15.75                4,593
Aug-96               13,500                   31.50               13,500
Oct-96               16,900                   33.00                   --
Mar-97                5,000                   21.50                   --
Aug-97               13,500                   13.25                3,375
Sep-97                9,750                   11.69                   --
Dec-97              162,563                    8.69                   --
                   --------                                  -----------
                    417,888                                       88,730
                   ========                                  ===========

         As of December 31, 1997, there were 712,350 options available for
future grant under the Plans and 88,730 outstanding options were exercisable.

         During the year ended December 31, 1997, the Company obtained proceeds
approximating $366,000 from the exercise of 53,709 stock options.

         The Company applies the provisions of APB Opinion 25 and related
interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for the foregoing options. The excess, if
any, of the fair market value of shares on the measurement date over the
exercise price is charged to operations each year as the options become
exercisable. Had compensation cost for these options been determined using the
Black-Scholes option-pricing model described in FASB Statement 123, the Company
would have recorded aggregate compensation expense of approximately $973,000
in 1997 and $1,840,839 in 1996 which would be expensed over the option's
vesting period. The assumptions used in the option-pricing model include a
risk-free interest rate of 5.2%-6.0%, expected life of 3 years and expected
volatility of 48.85%-59.46%. Dividends are assumed to be zero. The pro forma
impact of following the provisions of FASB Statement No. 123 on the Company's
net income (loss) and net income (loss) per share would be as follows:



                                 F-25



<PAGE>
<TABLE>
<CAPTION>

                                                                                  YEARS ENDED DECEMBER 31,
                                                                                  ------------------------
                                                                             1995          1996           1997

                                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                            <C>            <C>         <C>
Net income (loss) (1995 reflects pro
forma net income)                       -   as reported                        $5,425         $3,707      $(21,081)
                                                                               ======         ======      =========

                                        -   pro forma                          $5,351         $3,281      $(21,914)
                                                                              ======         ======       =========

Basic net income (loss) per share
(1995 reflects pro forma net income
per share)                              -   as reported                      $    .43       $    .27        $(1.53)
                                                                             ========       ========        =======

                                        -   pro forma                        $    .43       $    .24        $(1.59)
                                                                             ========       ========        =======

Diluted net income (loss) per share
(1995 reflects pro forma net income
per share)                              -   as reported                      $    .43       $    .27        $(1.53)
                                                                             ========       ========        =======

                                        -   pro forma                        $    .43       $    .24        $(1.59)
                                                                             ========       ========        =======
</TABLE>

9.       MANAGEMENT'S PLANS

         During the year ended December 31, 1997, the Company incurred a loss
of $21,081,000 attributable primarily to increased material costs relating to:
incremental freight costs incurred during the integration of the Company's
Chicago, Harrisonville and Edison facilities; manufacturing inefficiencies
caused by a high level of production line change-overs to meet increased
customer demands and short production runs during the start-up and validation
of new production line capacity; the write-down of raw materials and finished
goods inventory associated with discontinued product and sales of close-out
products; and increased levels of unabsorbed material waste variances related
to these plant integration issues. There were significant additional costs for
underabsorbed overhead and increased levels of warehousing and distribution
associated with plant assimilation. Further, the Company significantly
increased co-op advertising and other customer marketing expenses as it
increased sales to grocery wholesalers and supermarket chains. As a result of
the losses incurred through December 31, 1997, the Company has experienced
difficulty in meeting its liquidity needs. The Company requires the
availability of sufficient cash flow and borrowing capacity to finance its
operations, meet its debt service obligations and fund future capital
expenditure requirements. The Company's operating plan for 1998 contemplates
continuing its cost reduction programs. The Company must attain profitability
and/or obtain additional sources of financing in order to meet its anticipated
trade payables and other commitments, including the payment of the $35 million
of debt postponed to January 4, 1999 under the February 1998 PNC Facility.
Management is optimistic about its ability to obtain additional sources



                                         F-26


<PAGE>

of financing which will more adequately support ongoing operations, debt
service and capital expenditure requirements. There can be no assurance that
the Company will be successful in obtaining additional sources of financing or
that PNC will continue to cooperate and further extend any portion of amounts
owed to them should the Company be unable to obtain alternate financing.

                                         F-27


<PAGE>

                                   SIGNATURES


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


                                            USA DETERGENTS, INC.

Dated:  March 31, 1998                      By: /s/ Uri Evan
                                                -----------------------------
                                                Name:  Uri Evan
                                                Title: Chief Executive Officer


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

Signature                                     Title                                       Date
---------                                     -----                                       ----

<S>                                           <C>                                         <C>
/s/ Uri Evan                                  Chief Executive Officer and Chairman of     March 31, 1998
------------------------------------          the Board of Directors, President
    Uri Evan

/s/ Richard D. Coslow                         Chief Financial Officer (Principal          March 31, 1998
------------------------------------          Financial Officer and Principal
     Richard D. Coslow                        Accounting Officer)

/s/ Daniel Bergman                            Director                                    March 31, 1998
------------------------------------
    Daniel Bergman

/s/ Frederick R. Adler                        Director                                    March 31, 1998
------------------------------------
    Frederick R. Adler

/s/ Richard A. Mandell                        Director                                    March 31, 1998
------------------------------------
    Richard A. Mandell

</TABLE>
<PAGE>





                     USA DETERGENTS, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>


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

<S>                                            <C>                 <C>                   <C>                   <C>
Year ended December 31, 1995                   $84                 $421                  $229                  $276

Year ended December 31, 1996                  $276               $1,421                  $348                $1,349

Year ended December 31, 1997                $1,349                 $475                  $957                  $867
</TABLE>

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

<PAGE>
     EXHIBIT
     NUMBER                  DESCRIPTION OF EXHIBIT
     -------                 ----------------------
        3.1   Certificate of Incorporation.(1)

        3.2   Amended and Restated By-Laws of the Registrant.

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

        4.2   Specimen Common Stock Certificate.(1)

        4.3   Form of Registration Rights Agreements between the Registrant,
              Frederick R. Adler and Blair Effron.(1)

       10.1   Lease Agreement dated January 15, 1993 between Maurice M. Weill,
              Trustee for GEEMAC Property, and the Registrant.(1)

       10.2   Supply Agreement dated November 29, 1994 between Owens-Illinois
              Plastic Products Inc., Owens-Illinois Closure Inc. and the
              Registrant.(1)

       10.3   Amendment No. 1 dated December 1995 to Supply Agreement, dated
              November 29, 1994, between Owens-Illinois Plastic Products Inc.,
              Owens-Illinois Plastic Products Inc., Owens-Illinois Closure Inc.
              and the Registrant.(2) (confidentiality note)*

       10.4   Amended and Restated Employment Agreement with Uri Evan dated
              January 1996.(2)**

       10.5   Employment Agreement for each of Joseph Cohen, Frederick J.
              Horowitz, Daniel Bergman, and Mark Antebi.(1)**

       10.6   Forms of Employment Agreement for each of Frank Corella and
              Harold J. Macsata.(1)**

       10.7   Loan Agreement dated April 15, 1993 between the New Jersey
              Economic Development Authority and the Registrant.(1)

       10.8   Reimbursement Agreement dated April 15, 1993 between Banque
              Nationale de Paris, Houston Agency and the Registrant.(1)

       10.9   Security Agreement dated April 15, 1993 between the New Jersey
              Economic Development Authority and the Registrant.(1)

       10.10  Amended and Restated Loan Agreement dated February 25, 1998
              between PNC Bank, N.A. and the Registrant.

       10.11  1995 Stock Option Plan.(1)**

       10.12  Stock Option Plan for Non-Employee Directors.(1)**
<PAGE>
     EXHIBIT
     NUMBER                  DESCRIPTION OF EXHIBIT
     -------                 ----------------------
       10.13  Form of Directors and Officers Indemnity Agreement.(1)

       10.14  Lease Agreement dated January 26, 1996 between M&E Co. and the
              Registrant.(2)

       10.15  Purchase and Sale Agreement dated January 22, 1997 between The
              Okonite Company, Inc. and the Registrant.(3)

       10.16  Letter Agreement dated May 5, 1997 between the Registrant and
              Harold J. Macsata.(4)

       10.17  Letter Agreement dated April 14, 1997 between the Registrant and
              Mark Antebi.(4)

       10.18  Letter Agreement dated April 14, 1997 between the Registrant and
              Joseph Cohen.(4)

       10.19  Employment Agreement dated March 26, 1997 between the Registrant
              and Richard D. Coslow.(4)**

       10.20  Employment Agreement, dated July 31, 1997 between the Registrant
              and Guilio Perillo.(4)**

       10.21  Stock Purchase Agreement dated June 30, 1997 between the
              Registrant, Big Cloud Powder Corporation and Chicago Contract
              Powder Corporation.(4)

       10.22  Warrant dated February 25, 1998 issued by the Registrant to PNC
              Bank, N.A.

       10.23  Mortgage and Security Agreement dated February 25, 1998 between
              the Registrant and PNC Bank, N.A.

       10.24  Letter Agreement dated February 25, 1998 between the Registrant
              and 101 Realty Associates, L.L.C.

       10.25  Mortgage and Security Agreement dated February 25, 1998 between
              the Registrant and 101 Realty Associates, L.L.C.

       10.26  Warrant dated December 26, 1997 issued by the registrant to
              Frederick R. Adler

       10.27  Agreement dated December 26, 1997 between Frederick R. Adler and
              the Registrant.

       21     Subsidiaries of the Company.

       23     Consent of Deloitte & Touche LLP.

       27     Financial Data Schedule.
<PAGE>


       (b)    Reports on Form 8-K:

               None.

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

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

**     Management contract, or compensatory plan or arrangement.

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

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

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

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