From Jim Henson's Designs and Doodles, p. 34:
“Jim was always adding things to Kermit -- sometimes it was a yarn wig with blond braids, and other times it was a short dark-haired wig and a beaded choker. In this case Jim doodled hair and a bow with a crayon on a photograph of Kermit for an unpublished children's book called Watermellon's I Don't Know. The story was about Kermit, Yorick, and a cache of watermelon seeds; not knowing what to do with the discarded seeds, they let the pile grow to gargantuan proportions.”
Henson created the book in 1960; it was never published. The doctored picture of Kermit with hair and a bow is reproduced on the cover of Designs and Doodles.
It is not known for sure if Henson's obvious misspelling of "watermelon" was intentional or not.