Revenue of $7.9 Million for the Quarter; Company Nears Breakeven EBITDA for the Quarter
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