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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Aerogrow International, Inc.    AERO

AEROGROW INTERNATIONAL, INC.

(AERO)
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AEROGROW INTERNATIONAL : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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08/11/2020 | 05:07pm EDT
The discussion contained herein is for the three months ended June 30, 2020 and
June 30, 2019. The following discussion should be read in conjunction with the
financial statements of AeroGrow International, Inc. (the "Company," "AeroGrow,"
"we," "our," or "us,") and the notes to the financial statements included in
Item 1 above in this Quarterly Report on Form 10-Q for the period ended June 30,
2020 (this "Quarterly Report"). The following discussion contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including statements that include words such as
"anticipates," "expects," "intends," "plans," "believes," "may," "will," or
similar expressions that are intended to identify forward-looking statements. In
addition, any statements that refer to expectations, projections, or other
characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements. Such statements include, but are
not limited to, statements regarding our intent, belief, or current expectations
regarding our strategies, plans, and objectives, our product release schedules,
our ability to design, develop, manufacture, and market products, the ability of
our products to achieve or maintain commercial acceptance, our ability to obtain
financing and/or generate cash flow sufficient to fund our future operations,
and our ability to continue as a going concern. Such statements are not
guarantees of future performance and are subject to risks, uncertainties, and
assumptions that are difficult to predict. Therefore, our actual results could
differ materially and adversely from those expressed in any forward-looking
statements as a result of various factors. Factors that could cause or
contribute to the differences are discussed in this Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations and in
Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended
March 31, 2020. Except as required by applicable law or regulation, we undertake
no obligation to revise or update any forward-looking statements contained in
this Quarterly Report. The information contained in this Quarterly Report is not
a complete description of our business or the risks associated with an
investment in our common stock. Each reader should carefully review and consider
the various disclosures we made in this Quarterly Report and in our other
filings with the U.S. Securities and Exchange Commission ("SEC").



Overview



AeroGrow International, Inc. was formed as a Nevada corporation in March 2002.
The Company's principal business is developing, marketing, and distributing
advanced indoor aeroponic garden systems designed and priced to appeal to the
consumer gardening, cooking and small indoor appliance markets worldwide. The
Company's principal activities from its formation through March 2006 consisted
of product research and development, market research, business planning, and
raising the capital necessary to fund these activities. In December 2005, the
Company commenced initial production of its AeroGarden system and, in March
2006, began shipping these systems to retail and catalogue customers. The
Company manufactures, distributes and markets eight different models of its
AeroGarden systems in multiple colors, as well as over 40 varieties of seed pod
kits and a full line of accessory products through multiple channels including
online retail distribution, in-store retail distribution, catalogue and
direct-to-consumer sales primarily in the United States and Canada, as well as
selected countries in Europe.



In April 2013, we entered into a Securities Purchase Agreement and strategic
alliance with a wholly owned subsidiary of The Scotts Miracle-Gro Company
(collectively with its subsidiary, "SMG" or "Scotts Miracle-Gro"). Pursuant to
the Securities Purchase Agreement, we issued (i) 2.6 million shares of Series B
Convertible Preferred Stock, par value $0.001 per share (the "Series B Preferred
Stock); and (ii) a warrant to purchase up to 80% of the Company's common stock
for an aggregate purchase price of $4.0 million. In addition, as part of the
strategic alliance, we entered into several other agreements with Scotts
Miracle-Gro, including: (i) an Intellectual Property Sale Agreement; (ii) a
Technology Licensing Agreement; (iii) a Brand License Agreement; and (iv) a
Supply Chain Management Agreement. In November 2016, Scotts Miracle-Gro fully
exercised the Warrant and, by its terms, the Series B Preferred Stock
automatically converted into the Company's common stock. Scotts Miracle-Gro
currently owns approximately 80.5% of the Company's outstanding common stock.



Pursuant to the Intellectual Property Agreement, we agreed to sell all
intellectual property associated with our hydroponic products (the "Hydroponic
IP"), other than the AeroGrow and AeroGarden trademarks, free and clear of all
encumbrances, to Scotts Miracle-Gro for $500,000. Scotts Miracle-Gro has the
right to use the AeroGrow and AeroGarden trademarks in connection with the sale
of products incorporating the Hydroponic IP. In addition to the total working
capital infusion of approximately $4.5 million from the Securities Purchase
Agreement and Intellectual Property Sale Agreement, as amended, the strategic
alliance allows us to use the globally recognized and highly trusted Miracle-Gro
brand name. We believe that the strategic alliance also gives Scotts Miracle-Gro
an entry into the burgeoning indoor gardening market, while providing AeroGrow a
broad base of support in marketing, distribution, supply chain logistics, R&D,
and sourcing. We have also used our strategic alliance with Scotts Miracle-Gro
to re-establish our presence in the retail and international sales channels. In
Fiscal 2020, we amended the Brand License Agreement with Scotts Miracle-Gro to
allow us to remove the Miracle-Gro brand from AeroGardens, thereby eliminating
the cost associated with this portion of the agreement.



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Results of Operations


Three Months Ended June 30, 2020 and June 30, 2019

Summary Overview


For the three months ended June 30, 2020, we generated $16.4 million of total
revenue, an increase of 266.7%, or $11.9 million, relative to the same period in
the prior year. Retail sales increased by 193.9% to $7.2 million primarily due
to continued sales into the online channels, including Amazon.com, Kohls.com,
HomeDepot.com and BestBuy.com, as well as continued enthusiasm about indoor
gardening and healthy, safe and fresh food. Direct-to-consumer sales increased
376.1%, to $9.1 million, reflecting more efficient use of advertising and
marketing campaigns, increased visibility and more focused sales programs. In
addition to our continued momentum from prior periods, we saw amplified demand
in the indoor gardening market from customers seeking healthy, fresh food during
a pandemic.



For the three months ended June 30, 2020, total dollar sales of AeroGarden units
increased by 218.9% from the prior year period and seed pod kit and accessory
sales increased by 308.6% over prior year period. AeroGarden sales represented
66.2% of total revenue, as compared to 76.1% in the prior year period. This
percentage decrease, on a product line basis, was attributable to both direct to
consumer and retail online customers purchasing additional seed pod kits and
accessories.  Sales of seed pod kits increased from 94,000 to 382,000 units,
primarily as a result of new AeroGrow sales in the prior periods and the follow
on purchases of seed pod kits and resulting increased size of our active
customer database.



The Company continues to spend advertising dollars in order to strategically
build market awareness and enhance initiatives implemented in the prior year.
For the fiscal year ending March 31, 2021 ("Fiscal 2021"), we intend to expand
consumer awareness of the AeroGrow brand and product line. As a result, during
the three months ended June 30, 2020, (the first quarter of Fiscal 2021), we
incurred $1.3 million of advertising expenses to support our direct-to-consumer
and retail channels, a $818,000 or 159.7% year-over-year increase compared to
the same period in Fiscal 2020. The advertising expenditures were divided as
follows:



?    Retail specific advertising decreased to $317,000 from $416,000 for the
     three months ended June 30, 2020, as the Company continues to invest in
     driving product awareness through: (i) platforms made available by our

retailers; (ii) various promotional programs to increase product awareness

with our retail accounts, including catalogues and email campaigns; and

(iii) web-based advertising programs (e.g. including retail catalogues,

website banner ads, email blasts, targeted search campaigns, media group

and marketing service campaigns, etc.), however, due to lower levels of

inventory the Company did not spend as much driving sales through retail

     specific programs.



? Direct-to-consumer advertising increased $919,000 to $1.0 million during

the three months ended June 30, 2020. The increase reflects increases in

specific pay-per-click advertising geared toward the direct-to-consumer

customer base and direct advertising campaigns such as Google Ads and

Facebook. Efficiency, as measured by dollars of direct-to-consumer sales

per dollar of related advertising expense, increased to $8.94 for the three

months ended June 30, 2020, as compared to $20.07 for the same period in

     Fiscal 2020.




Our gross profit percentage for the three months ended June 30, 2020 was 44.8%,
up from 32.5% in the prior year period, primarily due to increases in sales
prices, more sales to higher margin Direct-to-consumer customers, supply chain
efficiencies that were not in place in the prior year, fewer planned discount
programs in our sales channels due to lower inventory levels, and increased
sales.



In aggregate, our total operating expenses increased 87.0%, or $2.2 million, year-over-year, principally because we spent more to support revenue growth. Gross spending increased in the following areas:



   ?    a $909,000 increase in personnel expenses primarily driven by our
        company-wide incentive program that scales as our growth increases and

an increase in headcount as some hiring happened during this quarter

last year;

? a $793,000 increase in sales and marketing costs to promote all sales

channels;

? a $180,000 increase for shareholder value meetings with directors and in

web services as we launch better order processing software and prepare

        for new product launches that leverage web-based platforms;
   ?    a $171,000 increase in bad debt and depreciation expense; and


   ?    a $156,000 increase in legal and consulting expenses related to
        strategic alternatives being investigated.




These increases were partially offset by a $111,000 decrease in Company-wide
travel. As a result of efforts to drive growth and increase sales, our operating
income was $2.7 million for the three months ended June 30, 2020, as compared to
an operating loss of $1.1 million in the prior year period.



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Net other expense for the three months ended June 30, 2020 totaled $20,000, as
compared to net other expense of $5,000 in the prior year period. The current
year other expense is attributable to an increase in foreign exchange losses and
interest expense on the outstanding loan.



Net income for the three months ended June 30, 2020 was $2.6 million, as
compared to the $1.1 million loss in the prior year period. The $3.7 million
increase reflected increased sales revenue, decreased operating expenses as a
percentage of revenue and increased margins.



The following table sets forth, as a total percentage of sales, our financial
results for the three months ended June 30, 2020 and the three months ended June
30, 2019:



                                   Three Months Ended June 30,
                                    2020                2019
Net revenue
Direct-to-consumer                       55.2 %              42.5 %
Retail                                   43.8 %              54.6 %
International                             1.0 %               2.9 %
Total net revenue                       100.0 %             100.0 %

Cost of revenue                          55.2 %              67.5 %
Gross profit percentage                  44.8 %              32.5 %

Operating expenses
Research and development                  1.8 %               4.7 %
Sales and marketing                      17.2 %              31.4 %
General and administrative                9.6 %              20.0 %
Total operating expenses                 28.6 %              56.1 %
Profit (loss) from operations            16.2 %             (23.6 )%




Revenue

For the three months ended June 30, 2020, revenue totaled $16.4 million, a
year-over-year increase of 266.7% or $11.9 million, from the three months ended
June 30, 2019.



                        Three Months Ended June 30,
                              (in thousands)
                          2020                2019
Net revenue
Direct-to-consumer   $        9,056$      1,902
Retail                        7,180              2,443
International                   175                130
Total                $       16,411$      4,475




Direct-to-consumer sales for the three months ended June 30, 2020 totaled $9.1
million, an increase of $7.2 million, or 376.1%, from the prior year
period. This increase was caused by continued momentum of growth from prior
periods amplified by demand in indoor gardening of customers seeking healthy,
fresh food and uncertainties in the food supply chain during COVID-19, driving
direct-to-consumer awareness during our non-peak season through our focus on
advertising that drives sales, follow-on direct sales to customers that have
previously purchased AeroGardens, and continued momentum from general brand
awareness campaigns.



Sales to retailer customers for the three months ended June 30, 2020 totaled
$7.2 million, up $4.7 million, or 193.9%, principally reflecting organic growth
in our existing retail accounts, namely Amazon.com, Kohl's, Canadian Tire and
timing of programs with Home Depot and sales to one new account, Best Buy.
International sales increased from $130,000 to $175,000 in the first quarter of
Fiscal 2021 primarily due to timing of available inventory to sell in European
markets as we continue to understand the trends that impact the international
market.



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Our products consist of AeroGardens, and seed pod kits and accessories. A summary of the sales of these two product categories for the three months ended June 30, 2020 and June 30, 2019 is as follows:



                                      Three Months Ended June 30,
                                            (in thousands)
                                       2020                  2019
Product revenue
AeroGardens                       $       10,864$      3,406
Seed pod kits and accessories              6,866                1,681
Discounts, allowances and other           (1,319 )               (612 )
Total                             $       16,411$      4,475
% of total revenue
AeroGardens                                 66.2 %               76.1 %
Seed pod kits and accessories               41.8 %               37.6 %
Discounts, allowances and other             (8.0 )%             (13.7 )%
Total                                      100.0 %              100.0 %




AeroGarden sales increased $7.5 million, or 218.9%, from the prior year period,
reflecting: (i) increased retail channel sales as the AeroGarden gained customer
acceptance from new and existing customers in historically slower sales period,
primarily from Amazon.com, Kohl's, HomeDepot.com and BestBuy.com; (ii) increased
sales in Direct-to-consumer channels; and (iii) continued focus on specific
advertising, including pay-per-click and general awareness campaigns toward the
general population, which informed buyers about our products. The increase in
seed pod kit and accessory sales, which increased by $5.2 million, or 308.6%,
principally reflecting our prior focus on acquiring new AeroGarden customers,
who purchase seed pod kits and accessories after purchasing and using new
AeroGardens, and increases in light bulb sales for both LED lighting and CFL
lights. For the three months ended June 30, 2020, sales of seed pod kits and
accessories represented 41.8% of total revenue, as compared to 37.6% in the
prior year period. Other revenue, which is comprised primarily of grow club
revenue, shipping revenue, accruals and deductions, decreased as a percent of
total revenue to (8.0)% from (13.7)% in the prior year period, primarily due to
select and more effective use of discounts for in-store retail accounts, which
generated higher retail sales.



Cost of Revenue


Cost of revenue for the three months ended June 30, 2020 totaled $9.1 million,
an increase of $6.0 million, or 199.8%, from the three months ended June 30,
2019. Cost of revenue includes product costs for purchased and manufactured
products, inbound freight costs from manufacturers, costs related to warehousing
and the shipping of products to customers, credit card processing fees for
direct sales, and duties and customs applicable to imported products.  As a
percent of total revenue, cost of revenue represented 55.2% of revenue for the
quarter ended June 30, 2020, as compared to 67.5% for the quarter ended June 30,
2019. The decrease in costs as a percent of revenue was primarily due to
increases in sales prices as we offered fewer discounts, as well as realizing
efficiencies and economies of scale in the supply chain..



Gross Profit


Our gross profit varies based upon the factors impacting net revenue and cost of
revenue, as discussed above, as well as the mix of our revenue that comes from
the retail, direct-to-consumer, and international channels. In a
direct-to-consumer sale, we recognize as revenue the full consumer purchase
price for the product. In retail and international sales, by comparison, we
recognize as revenue the wholesale price that we charge to the retailer or
international distributor. Media costs associated with direct sales are included
in sales and marketing expenses. For international sales, margins are structured
based on the distributor purchasing products by letter of credit or cash in
advance, terms with the distributor bearing all of the marketing and
distribution costs within its territory. As a result, international sales
generally have lower gross profits than domestic retail sales. The gross profit
percentage for the quarter ended June 30, 2020 was 44.8% as compared to 32.5%
for the quarter ended June 30, 2019. The increase in our gross profit was
primarily attributable to the changes to our customer and product mix within
both the retail and direct-to-consumer, driving sales without as much
discounting, higher sales and resulting economies of scale. Additionally, in the
prior year we had several supply chain and warehouse issues that caused friction
and increased costs.



Research and Development

Research and development costs for the quarter ended June 30, 2020 totaled
$301,000, an increase of $91,000 from the quarter ended June 30, 2019, primarily
related to increased salaries and wages due to greater headcount and
company-wide incentive program that scales with increased growth, and
termination of the collaboration expense repayment partially offset by decreased
travel and expenses related to new product development.



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Sales and Marketing

Sales and marketing costs for the three months ended June 30, 2020 totaled $2.8
million, up 100.6% from the prior year period. Sales and marketing costs include
all costs associated with the marketing, sales, operations, customer support,
and sales order processing for our products, and consisted of the following:



                                               Three Months Ended June 30,
                                                     (in thousands)
                                                2020                2019
Advertising                                 $       1,331       $         512
Personnel                                           1,057                 491
Sales commissions                                      48                   9
Travel                                                  2                  66
Media production and promotional products               1                   7
Quality control and processing fees                    69                  33
Market research                                        91                  50
Other                                                 216                 236
                                            $       2,815$       1,404




Advertising expense is composed primarily of catalogue development, production,
printing, and postage costs, web media expenses for search and affiliate web
marketing programs, and the cost of developing and employing other forms of
advertising. Each is a key component of our integrated marketing strategy
because it helps build consumer awareness and demand for our products in the
retailer and direct-to-consumer sales channels.  Total advertising expense was
$1.3 million for the quarter ended June 30, 2020, a year-over-year increase of
159.7%, or $818,000, primarily due to increased spending on pay-per click
advertising, general brand awareness and marketing, and email campaigns.



Sales and marketing personnel costs include salaries, payroll taxes, employee
benefits and other payroll costs for our sales, operations, customer service,
graphics and marketing departments. For the three months ended June 30, 2020,
personnel costs for sales and marketing were $1.1 million, up $567,000 or 115.5%
from the three months ended June 30, 2019.  The increase reflected the
company-wide incentive program that scales as growth increases, increased
employee headcount and related benefits.



Other marketing expenses increased year-over-year as we continue to grow our
business and increase market research and other programs, including the use of
third party agencies for sales planning.



General and Administrative


General and administrative costs for the three months ended June 30, 2020
totaled $1.6 million, as compared to $894,000 for the three months ended June
30, 2019, an increase of 76.0%, or $680,000. The increase was primarily
attributable to increased salaries and wages including the company-wide
incentive program that scales as growth increases, consulting and legal fees
associated with strategic alternatives intended to maximize shareholder value,
and IT services as we expand our web based experience and bad debt and
depreciation expenses.



Operating Income and Loss

Our operating income for the three months ended June 30, 2020 was $2.7 million,
an increase of $3.7 million from the $1.1 million operating loss for the three
months ended June 30, 2019. The increased operating income was attributable to
increased margins on our higher sales, partially offset by increases in
marketing and brand awareness advertising expenses, a company-wide incentive
program, and use of outside consultants.



Net Income and Loss


For the three months ended June 30, 2020, we recorded a net income of $2.6
million, a $3.7 million increase over the $1.1 million net loss for the three
months ended June 30, 2019. The increase in the net income is primarily a result
of increased margins on increased sales volume in the current year period,
partially offset by increases in sales and marketing expenses designed to
continue growing brand awareness and outside consulting fees.



Segment Results


We report our segment information in the same way that management assesses the
business and makes decision regarding the allocations of resources in accordance
with the Segment Reporting Topic of the Financial Accounting Standards Board
Accounting Standards Codification (ASC). Factors considered in determining our
reportable segments include the nature of the business activities, the reports
provided to the Company's chief operating decision maker (CODM) for operating
and administrative activities, available information and information that is
presented to our Board of Directors.



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The Company's CODM has been identified as the Chief Executive Officer because he
has final authority over the performance assessment and resource allocation
decisions. The CODM: (i) regularly receives discrete financial information about
each reportable segment, (ii) uses all such information for performance
assessment and resource allocation decisions; and (iii) evaluates the
performance of and allocates resources based upon the contribution margins of
each segment.


As a result, we divide our business into two reportable segments: Direct-to-Consumer and Retail. This division of reportable segments is consistent with how the segments report to and are managed by the chief operating decision maker of the Company. The Company evaluates performance based on the primary financial measure of contribution margin ("segment profit"). Segment profit reflects the income or loss from operations before corporate expenses, non-operating income, net interest expense, and income taxes.




                                                         Three Months Ended June 30, 2020
(dollar amounts in thousands)       Direct-to-consumer         Retail        Corporate/Other       Consolidated
Net sales                          $               9,056     $     7,355     $              -     $       16,411
Cost of revenue                                    4,854           4,200                    -              9,054
Gross profit                                       4,202           3,155                    -              7,357
Gross profit percentage                             46.4 %          42.9 %                  -               44.8 %
Sales and marketing (1)                            1,073             351                  214              1,638
Segment profit                                     3,129           2,804                 (214 )            5,719
Segment profit percentage                           34.6 %          38.1 %                  -               34.8 %




(1) Sales and marketing expense includes advertising, trade shows, media
production and promotional products and other as discussed in the sales and
marketing section.



                                                         Three Months Ended June 30, 2019
(dollar amounts in thousands)       Direct-to-consumer          Retail        Corporate/Other      Consolidated
Net sales                          $               1,902      $     2,573     $              -     $       4,475
Cost of revenue                                    1,389            1,631                    -             3,020
Gross profit                                         513              942                    -             1,455
Gross profit percentage                             27.0 %           36.6 %                  -              32.5 %
Sales and marketing (1)                              109              521                  176               806
Segment profit                                       404              421                 (176 )             649
Segment profit percentage                           21.2 %           16.4 %                  -              14.5 %



(1) Sales and marketing expense includes advertising, trade shows, media production and promotional products and other as discussed in the sales and marketing section.

Liquidity and Capital Resources




After adjusting the net income for non-cash items and changes in operating
assets and liabilities, net cash provided by operating activities totaled $1.4
million for the three months ended June 30, 2020, as compared to cash used of
$309,000 for the three months ended June 30, 2019.



Non-cash items, comprising depreciation, amortization, bad debt allowances,
accretion of debt association with sale of intellectual property and inventory
allowances, totaled to a net gain of $444,000 for the three months ended June
30, 2020, as compared to a net gain of $137,000 in the prior year period. The
increase reflected non-cash charges arising from all of the non-cash expenses.



Changes in current assets used net cash of $3.6 million during the three months
ended June 30, 2020, principally from increases in inventory, prepaid assets and
accounts receivable, as we continue to order inventory to support the sales
growth and begin to prepare for our fall sales programs.



As of June 30, 2020, the total inventory balance was $6.3 million, representing
approximately 74 days of sales activity, and 64 days of sales activity, at the
average daily rate of product cost expensed during the twelve months and three
months ended June 30, 2020, respectively. The three months' days in inventory
calculation is based on the three months of sales activity and can be greatly
impacted by the seasonality of our sales, which have historically been at their
highest level during the quarter ending December 31.  The twelve months' days in
inventory calculation is based on the twelve months of sales activity and is
less impacted by the seasonality of our sales.



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Current operating liabilities increased $1.9 million during the three months
ended June 30, 2020, principally because of increases in accounts payable and
accrued expenses. Accounts payable as of June 30, 2020 totaled $6.0 million,
representing approximately 46 days of daily expense activity, and 40 days of
daily expense activity, at the average daily rate of expenses incurred during
the twelve months and three months ended June 30, 2020, respectively.



Net investing activity used $147,000 of cash in the current year period, due to the purchases of equipment.

Cash


As of June 30, 2020, we had a cash balance of $10.3 million, of which $15,000
was restricted as collateral for various corporate obligations. This compares to
a cash balance of $9.1 million as of March 31, 2020, of which $15,000 was
restricted.



Borrowing Agreements

As of June 30, 2020 and March 31, 2020, we have $900,000 of outstanding
long-term debt, respectively. See Note 3 related to the Real Estate Term Loan
Agreements with Scotts Miracle-Gro and Note 10 for subsequent events. As of June
30, 2020 and March 31, 2020, the outstanding balance of our note payable and
debt, including accrued interest, was as follows:



                                            June 30,            March 31,
                                              2020                 2020
                                         (in thousands)       (in thousands)
Notes payable and debt-related party    $            915     $            

915

Total notes payable and debt                         915                  

915

Less current portion - long term debt                 15                   15
Long term debt                          $            900     $            900




Cash Requirements



We generally require cash to:


? fund our operations and working capital requirements;

? develop and execute our product development and market introduction plans;

? execute our sales and marketing plans;

? fund research and development efforts; and

? pay debt obligations as they come due.

At this time, we do not expect to enter into additional capital leases to finance major purchases. In addition, we do not currently have any binding commitments with third parties to obtain any material amount of equity or debt financing other than the financing arrangements described in this report.

Assessment of Future Liquidity and Results of Operations

Liquidity

To assess our ability to fund ongoing operating requirements, we developed assumptions regarding operating cash flow. Critical sources of funding, and key assumptions and areas of uncertainty include:

? our cash of $10.3 million ($15,000 of which is restricted as collateral for

our various corporate obligations) as of June 30, 2020;

? our cash of $6.0 million, ($15,000 of which is restricted as collateral for

our various corporate obligations) as of August 4, 2020;

? continued support of, and extensions of credit by, our suppliers and lenders;


?    our historical pattern of increased sales between September and March, and
     lower sales volume from April through August;

? the level of spending necessary to support our planned initiatives; and

? our sales to consumers, retailers, and international distributors, and the

resulting cash flow from operations, which will depend in great measure on

the success of our direct-to-consumer sales initiatives, and the acceptance

     of the product at our various retail distribution customers.




Based on these facts and assumptions, we believe our existing cash and cash
equivalents, along with the Term Loan Agreement and the cash generated by our
anticipated results from operations, will be sufficient to meet our operating
needs for the next twelve months.



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Results of Operations

There are several factors that could affect our future results of operations. These factors include, but are not limited to, the following:

? the effectiveness of our consumer marketing efforts in generating both

direct-to-consumer sales, and sales to consumers by our retailer customer;

? uncertainty regarding the impact of macroeconomic conditions on consumer

     spending;


?    uncertainty regarding the capital markets and our access to sufficient
     capital to support our current and projected scale of operations;

? the seasonality of our business, in which we have historically experienced

     higher sales volume in the five-month period from September through
     January;


?    a continued, uninterrupted supply of product from our third-party
     manufacturing suppliers in China;

? the success of the Scotts Miracle-Gro relationship, and

? uncertainty of appropriate exit strategies with retail customers regardless

     of the contractual obligations.



Off-Balance Sheet Arrangements




We do not have any off-balance sheet financing arrangements or liabilities,
guarantee contracts, retained or contingent interest in transferred assets, and
have not entered into any contracts for financial derivative such as futures,
swaps, and options.

© Edgar Online, source Glimpses


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10/08AEROGROW INTERNATIONAL, INC. : Other Events, Financial Statements and Exhibits (..
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08/19AeroGrow Response to the Schedule 13D Amendment Filed by the Scotts Miracle-G..
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08/11AEROGROW INTERNATIONAL, INC. : Results of Operations and Financial Condition, Fi..
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08/11AEROGROW INTERNATIONAL : Management's Discussion and Analysis of Financial Condi..
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08/11AeroGrow Reports Record 1st Quarter Results   
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08/07AEROGROW INTERNATIONAL, INC. : Entry into a Material Definitive Agreement, Creat..
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07/28AeroGarden Debuts Three New Models Making Safe, Homegrown Food Easy and Acces..
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06/23AEROGROW INTERNATIONAL, INC. : Results of Operations and Financial Condition, Fi..
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