Three Months Ended
December 31,
------------------
2009 2008
-------- --------
Revenue
Product sales - retail, net 46.0% 51.1%
Product sales - direct to consumer, net 52.4% 44.2%
Product sales - international 1.6% 4.7%
Total sales 100.0% 100.0%
Operating expenses
Cost of revenue 60.9% 68.6%
Research and development 4.0% 6.4%
Sales and marketing 29.8% 42.7%
General and administrative 10.9% 18.5%
Total operating expenses 105.6% 136.2%
Profit/(loss) from operations -5.6% -36.2%
======== ========
Summary Results of Operations - Three Months Ended December 31, 2009
For the three months ended December 31, 2009, sales totaled $7,939,248, a
27.9% decrease from the same period in the prior year. The decline in
sales principally reflected a 35.1% reduction in sales to retailers, caused
in part by more conservative product, procurement, and inventory management
strategies being executed by major retail chains during the current year
period, as well as the continuing effects of the recession, which adversely
affected the levels of consumer spending on discretionary products. In
addition, we experienced a decline in the number of retail storefronts
carrying our products, from more than 9,000 at December 31, 2008 to
approximately 4,600 at December 31, 2009, reflecting a shift in stocking
strategy by many retail chains to focus inventory investment on more
traditional consumer product categories. Our direct-to-consumer sales also
declined, by 14.5% from the prior year, reflecting a 41.7% reduction in the
amount of revenue-generating media spending during the period. Overall,
the effectiveness of our media improved, however, as we generated $3.41 of
revenue for every dollar of revenue-generating media spent in the 2009
period, as compared to $2.32 of revenue per media dollar in 2008. The
decline in revenue was primarily reflected in sales of AeroGardens which
declined by 34.8% from the prior year. Recurring revenue from seed kit and
accessories declined more modestly, by 2.1%, and increased as a percent of
total revenue to 28.7% for the three months ended December 31, 2009, up
from 21.1% in the prior year period.
Gross margin for the three months ended December 31, 2009 was 39.2%, as
compared to 31.4% for the year earlier period. The increase reflected a
shift in revenue mix toward the higher margin direct-to-consumer channel,
and toward higher margin seed kit and accessory sales. In addition, the
increase reflected a comparison to the prior year period in which we
recognized approximately $1.8 million in reserves for potential markdowns
and returns by our retailer customers. These reserves reduced our net
sales without impacting our cost of revenue, thereby causing a decrease in
our gross margin in the prior year period. Operating expenses other than
cost of revenue were reduced $3,893,965, or 52.3%, from the prior year
reflecting cost saving initiatives, reduction in media spending, and
staffing reductions.
Our loss from operations totaled $443,016 for the three months ended
December 31, 2009, as compared to a loss of $3,993,279 in the prior year
period. The decreased loss principally reflected the impact of the higher
gross margin, combined with the significant decrease in operating expenses
other than cost of revenue.
The net loss for the three months ended December 31, 2009 was $710,667 as
compared to a net loss of $4,402,222 in the same period a year earlier.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months ended
December 31,
--------------------------
2009 2008
------------ ------------
Revenue
Product sales $ 7,939,248 $ 11,010,885
Operating expenses
Cost of revenue 4,830,387 7,558,322
Research and development 318,046 703,133
Sales and marketing 2,369,726 4,704,912
General and administrative 864,105 2,037,797
Total operating expenses 8,382,264 15,004,164
(Loss) from operations (443,016) (3,993,279)
Other (income) expense, net
Interest (income) (94) (939)
Interest expense 259,864 409,882
Other (income) 7,881 -
Total other (income) expense, net 267,651 408,943
Net (loss) $ (710,667) $ (4,402,222)
Net (loss) per share, basic and diluted $ (0.06) $ (0.35)
Weighted average number of common shares
outstanding, basic and diluted 12,398,249 12,546,780
Nine Months ended
December 31,
--------------------------
2009 2008
------------ ------------
Revenue
Product sales $ 14,204,890 $ 31,585,896
Operating expenses
Cost of revenue 8,970,748 19,271,470
Research and development 610,598 1,845,326
Sales and marketing 4,777,624 11,030,524
General and administrative 3,719,147 5,458,622
Total operating expenses 18,078,117 37,605,942
(Loss) from operations (3,873,227) (6,020,046)
Other (income) expense, net
Interest (income) (235) (2,443)
Interest expense 644,618 783,598
Other (income) (979,957) -
Total other (income) expense, net (335,574) 781,155
Net (loss) $ (3,537,653) $ (6,801,201)
============ ============
Net (loss) per share, basic and diluted $ (0.28) $ (0.56)
Weighted average number of common shares
outstanding, basic and diluted 12,618,432 12,250,693
CONDENSED BALANCE SHEETS
December 31, March 31,
2009 2009
------------ ------------
ASSETS (Unaudited)
Current assets
Cash $ 553,463 $ 332,698
Restricted cash 438,507 438,331
Accounts receivable, net of allowance for
doubtful accounts of $211,824 and
$1,423,508 at December 31, 2009 and March
31, 2009, respectively 2,768,121 2,278,052
Other receivables 164,905 332,059
Inventory 5,158,972 8,350,135
Prepaid expenses and other 489,924 565,454
Total current assets 9,573,892 12,296,729
Property and equipment, net of accumulated
depreciation of $2,322,608 and $1,675,148 at
December 31, 2009 and March 31, 2009,
respectively 1,195,201 1,768,369
Other assets
Intangible assets, net of $5,898 and $3,515
of accumulated amortization at December 31,
2009 and March 31, 2009, respectively 268,476 231,590
Deposits 173,840 110,776
Deferred debt issuance costs, net of
accumulated amortization of $420,356 and
$243,937 at December 31, 2009 and March 31,
2009, respectively 112,806 201,726
Total other assets 555,122 544,092
Total assets $ 11,324,215 $ 14,609,190
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion - long-term debt $ 4,052,697 $ 1,099,060
Current portion - long-term debt-related
party 672,558 -
Accounts payable 3,874,286 8,338,559
Accrued expenses 1,413,497 2,318,670
Customer deposits 459,869 246,728
Deferred rent 44,901 57,283
Total current liabilities 10,517,808 12,060,300
Long-term debt, net of current portion 1,442,502 5,547,144
Long-term debt-related party, net of current
portion - 1,233,371
Stockholders' equity
Preferred stock, $.001 par value, 20,000,000
shares authorized, 7,586 and -0- shares
issued and outstanding at December 31, 2009
and March 31, 2009, respectively 8 -
Common stock, $.001 par value, 75,000,000
shares authorized, 12,398,249 and 13,342,877
shares issued and outstanding at December
31, 2009 and March 31, 2009, respectively 12,398 13,343
Additional paid-in capital 52,830,750 45,696,630
Accumulated (deficit) (53,479,251) (49,941,598)
Total stockholders' equity (deficit) (636,095) (4,231,625)
Total liabilities and stockholders' equity
(deficit) $ 11,324,215 $ 14,609,190
============ ============
SALES BY CHANNEL
(Unaudited)
Three Months Ended
December 31,
-----------------------
Product Revenue 2009 2008
Retail, net 46.0% 51.1%
Direct to consumer, net 52.4% 44.2%
International 1.6% 4.7%
Total 100.0% 100.0%
=========== ==========
Three Months Ended
December 31,
-----------------------
Product Revenue 2009 2008
Retail, net $ 3,649,483 $ 5,621,688
Direct to consumer, net 4,159,984 4,867,808
International 129,781 521,389
Total $ 7,939,248 $11,010,885
=========== ===========
SALES BY PRODUCT CATEGORY
(Unaudited)
Three Months Ended December 31,
------------------------------
2009 2008
-------------- --------------
Product Revenue
AeroGardens $ 5,662,031 $ 8,683,670
Seed kits and accessories 2,277,217 2,327,215
Total $ 7,939,248 $ 11,010,885
% of Total Revenue
AeroGardens 71.3% 78.9%
Seed kits and accessories 28.7% 21.1%
Total 100.0% 100.0%
============== ==============
About AeroGrow International, Inc.
Founded in 2002 in Boulder, Colorado, AeroGrow International, Inc. is
dedicated to the research, development and marketing of the AeroGarden line
of foolproof, dirt-free indoor gardens. AeroGardens allow anyone to grow
farmer's market fresh herbs, salad greens, tomatoes, chili peppers, flowers
and more, indoors, year-round, so simply and easily that no green thumb is
required. See www.aerogrow.com.
FORWARD-LOOKING STATEMENTS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: Statements by Jack Walker, and/or the Company, statements
regarding growth of the AeroGarden product line, optimism related to the
business, expanding sales, and other statements in this press release are
forward-looking statements within the meaning of the Securities Litigation
Reform Act of 1995. Such statements are based on current expectations,
estimates and projections about the Company's business. Words such as
expects, anticipates, intends, plans, believes, sees, estimates and
variations of such words and similar expressions are intended to identify
such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks and uncertainties that are
difficult to predict. Actual results could vary materially from the
description contained herein due to many factors including continued market
acceptance of the Company's products or the need to raise additional
capital. In addition, actual results could vary materially based on changes
or slower growth in the indoor garden market; the potential inability to
realize expected benefits and synergies; domestic and international
business and economic conditions; changes in customer demand or ordering
patterns; changes in the competitive environment including pricing
pressures or technological changes; technological advances; shortages of
manufacturing capacity; future production variables impacting excess
inventory and other risk factors listed from time to time in the Company's
Securities and Exchange Commission (SEC) filings under "risk factors" and
elsewhere. The forward-looking statements contained in this press release
speak only as of the date on which they are made, and the Company does not
undertake any obligation to update any forward-looking statement to reflect
events or circumstances after the date of this press release.
Contact Information: John Thompson AeroGrow International, Inc. 303-444-7755