(MARK ONE)
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x
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2011
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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For the transition period from ______________ to ______________
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NEVADA
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46-0510685
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(State or other jurisdiction
of incorporation or organization)
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(IRS Employer
Identification Number)
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6075 Longbow Drive, Suite 200, Boulder, Colorado
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80301
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o (Do not check if smaller reporting company)
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Smaller reporting company x
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PART I Financial Information
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||
Item 1.
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3
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3
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||
4
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5
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7
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||
Item 2.
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15
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Item 3.
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24
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Item 4.
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25
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PART II Other Information
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||
Item 1.
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25
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Item 1A.
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25
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Item 2.
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25
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Item 3.
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25
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Item 4.
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25
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Item 5.
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25
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Item 6.
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26
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||
27
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June 30, 2011
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March 31, 2011
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|||||||
ASSETS
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(Unaudited)
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(Derived from Audited Statements)
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||||||
Current assets
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||||||||
Cash
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$ | 81,880 | $ | 355,781 | ||||
Restricted cash
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34,883 | 162,837 | ||||||
Accounts receivable, net of allowance for doubtful accounts of
$16,295 and $17,791 at June 30, 2011 and March 31, 2011,
respectively
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93,626 | 290,997 | ||||||
Other receivables
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175,898 | 260,692 | ||||||
Inventory
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2,467,041 | 2,547,570 | ||||||
Prepaid expenses and other
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180,159 | 335,854 | ||||||
Total current assets
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3,033,487 | 3,953,731 | ||||||
Property and equipment, net of accumulated depreciation of
$2,617,093 and $2,525,853 at June 30, 2011 and March 31, 2011,
respectively
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272,902 | 359,962 | ||||||
Other assets
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||||||||
Intangible assets, net of $29,120 and $24,834 of accumulated
amortization at June 30, 2011 and March 31, 2011, respectively
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272,440 | 273,081 | ||||||
Deposits
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159,131 | 159,631 | ||||||
Deferred debt issuance costs, net of accumulated amortization
of $916,421 and $737,531 at June 30, 2011 and March 31,
2011, respectively
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1,309,601 | 1,488, 491 | ||||||
Total other assets
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1,741,172 | 1,921,203 | ||||||
Total Assets
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$ | 5,047,561 | $ | 6,234,896 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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||||||||
Current liabilities
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||||||||
Notes Payable
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$ | 141,168 | $ | 350,798 | ||||
Notes Payable – Related Party
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123,966 | 211,321 | ||||||
Current portion – long term debt – related party
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35,458 | 13,947 | ||||||
Current portion – long term debt
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1,406,676 | 1,168,160 | ||||||
Accounts payable
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1,577,327 | 1,506,841 | ||||||
Accrued expenses
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544,203 | 614,234 | ||||||
Customer deposits
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122,377 | 122,377 | ||||||
Deferred rent
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15,759 | 22,513 | ||||||
Total current liabilities
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3,966,934 | 4,010,191 | ||||||
Long term debt
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3,962,418 | 3,716,229 | ||||||
Long term debt – related party
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444,987 | 359,751 | ||||||
Stockholders' equity
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||||||||
Preferred stock, $.001 par value, 20,000,000 shares authorized,
7,576 and 7,576 shares issued and outstanding at June 30, 2011
and March 31, 2011
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8 | 8 | ||||||
Common stock, $.001 par value, 500,000,000 shares authorized,
19,244,160 and 19,244,160 shares issued and outstanding at
June 30, 2011 and March 31, 2011, respectively
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19,244 | 19,244 | ||||||
Additional paid-in capital
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62,391,489 | 62,324,016 | ||||||
Accumulated (deficit)
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(65,737,519 | ) | (64,194,543 | ) | ||||
Total Stockholders' Equity (Deficit)
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(3,326,778 | ) | (1,851,275 | ) | ||||
Total Liabilities and Stockholders' Equity (Deficit)
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$ | 5,047,561 | $ | 6,234,896 |
Three Months ended
June 30,
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||||||||
2011
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2010
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|||||||
Revenue
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||||||||
Product sales
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$ | 1,479,903 | $ | 1,818,019 | ||||
Operating expenses
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||||||||
Cost of revenue
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850,832 | 1,321,703 | ||||||
Research and development
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22,063 | 37,014 | ||||||
Sales and marketing
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514,000 | 816,977 | ||||||
General and administrative
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714,319 | 896,184 | ||||||
Total operating expenses
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2,101,214 | 3,071,878 | ||||||
Loss from operations
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(621,311 | ) | (1,253,859 | ) | ||||
Other (income) expense, net
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||||||||
Interest (income)
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(12 | ) | (6,630 | ) | ||||
Interest expense
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830,656 | 518,100 | ||||||
Interest expense – related party
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118,341 | 61,259 | ||||||
Other (income)
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(27,321 | ) | (97,539 | ) | ||||
Total other (income) expense, net
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921,664 | 475,190 | ||||||
Net loss
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$ | (1,542,975 | ) | $ | (1,729,049 | ) | ||
Net loss per share, basic
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$ | (0.08 | ) | $ | (0.14 | ) | ||
Net income (loss) per share, diluted
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$ | (0.08 | ) | $ | (0.14 | ) | ||
Weighted average number of common shares outstanding, basic and diluted
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19,244,160 | 12,481,443 | ||||||
Three months ended June 30,
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||||||||
2011
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2010
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|||||||
Cash flows from operating activities:
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||||||||
Net (loss)
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$ | (1,542,975 | ) | $ | (1,729,049 | ) | ||
Adjustments to reconcile net (loss) to cash (used) by operations:
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||||||||
Issuance of common stock and options under equity compensation plans
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67,473 | 28,086 | ||||||
Issuance of common stock not under equity compensation plan
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- | 24,983 | ||||||
Depreciation and amortization expense
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95,526 | 193,989 | ||||||
Allowance for bad debt
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(1,495 | ) | (2,665 | ) | ||||
Amortization of debt issuance costs
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178,890 | 128,534 | ||||||
Amortization of convertible debentures, beneficial conversion feature
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253,838 | 88,017 | ||||||
Amortization of convertible debentures, beneficial conversion feature –
related party
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47,591 | 12,618 | ||||||
Interest expense from warrants issued with convertible debentures
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217,219 | 107,856 | ||||||
Interest expense from warrants issued with convertible debentures –
related party
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43,311 | 15,459 | ||||||
Change in assets and liabilities:
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||||||||
(Increase) in accounts receivable
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198,866 | 276,660 | ||||||
(Increase) in other receivable
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84,794 | 101,871 | ||||||
(Increase) in inventory
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80,529 | 315,096 | ||||||
(Increase) in other current assets
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155,695 | (87,378 | ) | |||||
(Increase) decrease in deposits
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501 | 52,015 | ||||||
Increase (decrease) in accounts payable
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70,486 | (923,117 | ) | |||||
Increase (decrease) in accrued expenses
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(70,031 | ) | (260,479 | ) | ||||
Increase (decrease) in accrued interest
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109,802 | 39,907 | ||||||
Increase (decrease) in accrued interest – related party
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27,439 | (5,887 | ) | |||||
Increase (decrease) in customer deposits
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- | (327,579 | ) | |||||
Increase (decrease) in deferred rent
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(6,754 | ) | (4,127 | ) | ||||
Net cash provided (used) by operating activities
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10,705 | (1,955,190 | ) | |||||
Cash flows from investing activities:
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||||||||
(Increase) decrease in restricted cash
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127,954 | (941 | ) | |||||
Purchases of equipment
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(4,181 | ) | (43,065 | ) | ||||
Patent expenses
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(3,645 | ) | 1,109 | |||||
Net cash provided (used) by investing activities
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120,128 | (42,897 | ) | |||||
Cash flows from financing activities:
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||||||||
(Increase) decrease in prepaid debt issuance costs
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- | (591,626 | ) | |||||
Proceeds from long term debt borrowings
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- | 2,050,481 | ||||||
Repayments of long term debt borrowings
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(74,904 | ) | (2,075,153 | ) | ||||
Repayments of long term debt borrowings – related party
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- | (1,127,989 | ) | |||||
Repayments of short term debt borrowings
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(230,881 | ) | - | |||||
Repayment of short term debt borrowings – related party
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(98,949 | ) | - | |||||
Proceeds from the issuance of convertible debt
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- | 5,465,000 | ||||||
Proceeds from the issuance of convertible debt – related party
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- | 100,000 | ||||||
Proceeds from the exercise of stock options
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- | 252 | ||||||
Principal payments on capital leases
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- | (12,772 | ) | |||||
Net cash provided (used) by financing activities
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(404,734 | ) | 3,808,193 | |||||
Net increase (decrease) in cash
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(273,901 | ) | 1,810,106 | |||||
Cash, beginning of period
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355,781 | 249,582 | ||||||
Cash, end of period
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$ | 81,880 | $ | 2,059,688 |
Three Months Ended June 30,
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||||||||
2011
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2010
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|||||||
Interest paid
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$ | 28,997 | $ | 95,674 | ||||
Income taxes paid
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$ | - | $ | - | ||||
Supplemental disclosure of non-cash investing and financing activities:
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||||||||
Modification of debt to convertible debt
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$ | - | $ | 475,000 | ||||
Modification of related party debt to related party convertible debt
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$ | - | $ | 656,406 | ||||
Conversion of accrued interest to convertible debt
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$ | 8,415 | $ | 33,757 | ||||
Conversion of related party accrued interest to related party
convertible debt
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$ | 5,928 | $ | 19,847 | ||||
Modification of accounts payable to convertible debt
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$ | - | $ | 50,000 | ||||
Conversion of convertible note to common stock
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$ | - | $ | 25,236 | ||||
Warrants issued to placement agent as a cost of debt issuance
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$ | - | $ | 1,412,000 |
1.
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Description of the Business
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2.
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Liquidity, Ability to Continue as a Going Concern, and Basis of Presentation
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Level 1:
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Quoted prices (unadjusted) in active markets for identical assets or liabilities.
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Level 2:
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Observable market-based inputs, other than quoted prices in active markets for identical assets. or liabilities.
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Level 3:
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Unobservable inputs.
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June 30,2011
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March 31,2011
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|||||||||||||||
Fair Value
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Carry Value
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Fair Value
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Carry Value
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|||||||||||||
Liabilities
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||||||||||||||||
Notes payable
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$ | 254,774 | $ | 265,134 | $ | 558,077 | $ | 580,621 | ||||||||
Notes payable discount
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- | - | - | (18,502 | ) | |||||||||||
Long-term debt
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7,090,602 | 9,890,865 | 7,000,700 | 9,842,870 | ||||||||||||
Long-term debt discount
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- | (4,041,326 | ) | - | (4,584,783 | ) | ||||||||||
Total
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$ | 7,345,376 | $ | 6,114,673 | $ | 7,558,777 | $ | 5,820,206 |
June 30,
2011 |
March 31,
2011 |
|||||||
Finished goods
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$
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1,254,459
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$
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1,351,245
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||||
Raw materials
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1,212,582
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1,196,325
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||||||
$
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2,467,041
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$
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2,547,570
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3.
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Notes Payable, Long Term Debt and Current Portion – Long Term Debt
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4.
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Equity Compensation Plans
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OPTIONS OUTSTANDING
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OPTIONS EXERCISABLE
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|||||||||||||||||||||||||
Exercise price range
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Options
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Weighted-average Remaining Contractual Life (years) |
Weighted-average Exercise Price
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Aggregate Intrinsic Value
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Options
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Weighted-average Remaining Contractual Life (years)
|
Weighted-average Exercise Price
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Aggregate Intrinsic Value
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||||||||||||||||||
Over $0.00 to $0.50
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11,034,886 | 4.07 | $ | 0.09 | 4,819,063 | 3.65 | $ | 0.11 | ||||||||||||||||||
Over $0.50 to $2.50
|
- | - | $ | - | - | - | $ | - | ||||||||||||||||||
Over $2.50 to $5.00
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- | - | $ | - | - | - | $ | - | ||||||||||||||||||
Over $5.00 to $5.50
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19,331 | 0.33 | $ | 5.00 | 19,331 | 0.33 | $ | 5.00 | ||||||||||||||||||
Over $5.50
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25,000 | 0.72 | $ | 5.90 | 25,000 | 0.72 | $ | 5.90 | ||||||||||||||||||
11,079,217 | 2.92 | $ | 0.82 |
$ -
|
4,863,394 | 3.62 | $ | 3.62 |
$ -
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5.
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Income Taxes
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6.
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Related Party Transactions
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7.
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Stockholders’ Equity
|
Warrants
Outstanding |
Weighted
Average |
Aggregate
Intrinsic Value |
||||||||||
Outstanding, April 1, 2011
|
93,999,928 | $ | 0.33 | - | ||||||||
Granted
|
- | - | ||||||||||
Exercised
|
- | - | ||||||||||
Expired
|
- | - | ||||||||||
Outstanding, June 30, 2011
|
93,999,928 | $ | 0.33 | $ | 0.00 |
Weighted Average
|
||||||||||
Warrants Outstanding
|
Exercise Price
|
Remaining Life (Yrs)
|
||||||||
7,020,000 | $ | 0.10 | 3.91 | |||||||
833,333 | $ | 0.18 | 4.33 | |||||||
82,720,000 | $ | 0.20 | 3.94 | |||||||
1,320,000 | $ | 0.25 | 3.31 | |||||||
325,000 | $ | 1.00 | 2.64 | |||||||
54,139 | $ | 2.00 | 0.75 | |||||||
16,000 | $ | 2.07 | 2.00 | |||||||
128,000 | $ | 6.00 | 0.75 | |||||||
50,000 | $ | 6.96 | 1.09 | |||||||
746,956 | $ | 7.50 | 0.70 | |||||||
720,000 | $ | 8.00 | 3.18 | |||||||
66,500 | $ | 8.25 | 3.80 | |||||||
93,999,928 | $ | 0.33 | 3.89 |
Warrants Outstanding
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Weighted
Average |
|||||||
Outstanding, April 1, 2011
|
4,164 | $ | 1,250 | |||||
Granted
|
-- | $ | -- | |||||
Exercised
|
-- | $ | -- | |||||
Expired
|
-- | $ | -- | |||||
Outstanding, June 30, 2011
|
4,164 | $ | 1,250 |
8.
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Subsequent Events
|
Three Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Revenue
|
||||||||
Product sales – direct to consumer, net
|
87.4 | % | 85.1 | % | ||||
Product sales – retail, net
|
10.2 | % | 10.5 | % | ||||
Product sales – international
|
2.4 | % | 4.4 | % | ||||
Total sales
|
100.0 | % | 100.0 | % | ||||
Operating expenses
|
||||||||
Cost of revenue
|
57.5 | % | 72.7 | % | ||||
Research and development
|
1.5 | % | 2.0 | % | ||||
Sales and marketing
|
34.7 | % | 44.9 | % | ||||
General and administrative
|
48.3 | % | 49.3 | % | ||||
Total operating expenses
|
142.0 | % | 169.0 | % | ||||
Profit/(loss) from operations
|
-42.0 | % | -69.0 | % |
Three Months Ended June 30,
|
||||||||
Product Revenue
|
2011
|
2010
|
||||||
Direct to consumer, net
|
$ | 1,292,889 | $ | 1,546,935 | ||||
Retail, net
|
151,024 | 191,578 | ||||||
International
|
35,990 | 79,506 | ||||||
Total
|
$ | 1,479,903 | $ | 1,818,019 |
Three Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Product Revenue
|
||||||||
AeroGardens
|
$
|
547,564
|
$
|
1,108,992
|
||||
Seed kits and accessories
|
932,339
|
709,027
|
||||||
Total
|
$
|
1,479,903
|
$
|
1,818,019
|
||||
% of Total Revenue
|
||||||||
AeroGardens
|
37.0
|
%
|
61.0
|
%
|
||||
Seed kits and accessories
|
63.0
|
%
|
39.0
|
%
|
||||
Total
|
100.0
|
%
|
100.0
|
%
|
Three Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Advertising
|
$ | 138,611 | $ | 227,065 | ||||
Personnel
|
274,985 | 385,284 | ||||||
Sales commissions
|
6,218 | 5,408 | ||||||
Trade Shows
|
-- | -- | ||||||
Other
|
94,186 | 199,220 | ||||||
$ | 514,000 | $ | 816,977 |
Three Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Operating (Loss)
|
$ | (621,311 | ) | $ | (1,253,859 | ) | ||
Add Back Non-Cash Items:
|
||||||||
Depreciation
|
91,240 | 188,345 | ||||||
Amortization
|
4,286 | 5,644 | ||||||
Total Non-Cash Items
|
95,526 | 193,989 | ||||||
EBITDA
|
$ | (525,785 | ) | $ | (1,059,870 | ) |
·
|
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 for debt obligations as they come due.
|
·
|
our cash of $116,763 ($34,883 of which is restricted as collateral for our various corporate obligations) as of June 30, 2011,
|
·
|
our cash of $99,816 ($15,000 of which is restricted as collateral for our various corporate obligations) as of August 30, 2011,
|
·
|
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 the planned direct-to-consumer sales initiatives.
|
·
|
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 during the fall and winter months (September through March), and
|
·
|
a continued, uninterrupted supply of product from our third-party manufacturing suppliers in China.
|
Exhibit
Number
|
Description
|
|
3.1
|
Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K/A-2, filed November 16, 2006).
|
|
3.2
|
Certificate of Amendment to Articles of Incorporation, dated June 25, 2002 (incorporated by reference to Exhibit 3.2 of our Current Report on Form 8-K/A-2, filed November 16, 2006).
|
|
3.3
|
Certificate of Amendment to Articles of Incorporation, dated November 3, 2002 (incorporated by reference to Exhibit 3.3 of our Current Report on Form 8-K/A-2, filed November 16, 2006).
|
|
3.4
|
Certificate of Change to Articles of Incorporation, dated January 31, 2005 (incorporated by reference to Exhibit 3.4 of our Current Report on Form 8-K/A-2, filed November 16, 2006).
|
|
3.5
|
Certificate of Amendment to Articles of Incorporation, dated July 27, 2005 (incorporated by reference to Exhibit 3.5 of our Current Report on Form 8-K/A-2, filed November 16, 2006).
|
|
3.6
|
Certificate of Amendment to Articles of Incorporation, dated February 24, 2006 (incorporated by reference to Exhibit 3.6 of our Current Report on Form 8-K/A-2, filed November 16, 2006).
|
|
3.7
|
Certificate of Amendment to Articles of Incorporation, certified May 3, 2010 (incorporated by reference to Exhibit 3.7 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, filed August 12, 2010).
|
|
3.8
|
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K, filed September 26, 2008).
|
|
3.9
|
Amendment to Bylaws (incorporated by reference to Exhibit 3.9 of our Form 10-K for the fiscal year ended March 31, 2009, filed on July 6, 2009).
|
|
3.10
|
Certificate of Designations of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2009, filed July 6, 2009).
|
|
3.11
|
Certificate of Amendment to Series A Convertible Preferred Stock Certificate of Designations, certified June 21, 2010 (incorporated by reference to Exhibit 3.11 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, filed August 12, 2010).
|
|
31.1*
|
||
31.2*
|
||
32.1*
|
||
32.2*
|
||
101.INS
|
XBRL Instance Document
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
*
|
Filed Herewith
|
AeroGrow International Inc.
|
||
Date: September 1, 2011
|
/s/J. Michael Wolfe
|
|
By: J. Michael Wolfe
|
||
Its: President and Chief Executive Officer
(Principal Executive Officer) and Director
|
||
Date: September 1, 2011
|
/s/H. MacGregor Clarke
|
|
By: H. MacGregor Clarke
|
||
Its: Chief Financial Officer (Principal Financial Officer)
|
||
Date: September 1, 2011
|
/s/Grey H. Gibbs
|
|
By: Grey H. Gibbs
|
||
Its: Controller (Principal Accounting Officer)
|
Date: September 1, 2011
|
By:
|
/s/ J. Michael Wolfe
|
|
J. Michael Wolfe
|
|||
President and Chief Executive Officer (Principal Executive Officer)
|
Date: September 1, 2011
|
By:
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/s/ H. MacGregor Clarke
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H. MacGregor Clarke
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Chief Financial Officer
(Principal Financial Officer)
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Date: September 1, 2011
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By:
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/s/ J. Michael Wolfe
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J. Michael Wolfe
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President and Chief Executive Officer
(Principal Executive Officer)
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Date: September 1, 2011
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By:
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/s/ H. MacGregor Clarke
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H. MacGregor Clarke
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Chief Financial Officer
(Principal Financial Officer)
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CONDENSED BALANCE SHEETS (Parentheticals) (USD $)
|
Jun. 30, 2011
|
Mar. 31, 2011
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---|---|---|
Allowance for doubtful accounts (in Dollars) | $ 16,295 | $ 17,791 |
Accumulated depreciation (in Dollars) | 2,617,093 | 2,525,853 |
Accumulated amortization of intangible assets (in Dollars) | 29,120 | 24,834 |
Accumulated amortization of deferred debt issuance costs (in Dollars) | $ 916,421 | $ 737,531 |
Preferred stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 20,000,000 | 20,000,000 |
Preferred stock, shares issued | 7,576 | 7,576 |
Preferred stock, shares outstanding | 7,576 | 7,576 |
Common stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 500,000,000 | 500,000,000 |
Common stock, shares issued | 19,244,160 | 19,244,160 |
Common stock, shares outstanding | 19,244,160 | 19,244,160 |
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $)
|
3 Months Ended | |
---|---|---|
Jun. 30, 2011
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Jun. 30, 2010
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Revenue | Â | Â |
Product sales | $ 1,479,903 | $ 1,818,019 |
Operating expenses | Â | Â |
Cost of revenue | 850,832 | 1,321,703 |
Research and development | 22,063 | 37,014 |
Sales and marketing | 514,000 | 816,977 |
General and administrative | 714,319 | 896,184 |
Total operating expenses | 2,101,214 | 3,071,878 |
Loss from operations | (621,311) | (1,253,859) |
Other (income) expense, net | Â | Â |
Interest (income) | (12) | (6,630) |
Interest expense | 830,656 | 518,100 |
Interest expense – related party | 118,341 | 61,259 |
Other (income) | (27,321) | (97,539) |
Total other (income) expense, net | 921,664 | 475,190 |
Net loss | $ (1,542,975) | $ (1,729,049) |
Net loss per share, basic (in Dollars per share) | $ (0.08) | $ (0.14) |
Net income (loss) per share, diluted (in Dollars per share) | $ (0.08) | $ (0.14) |
Weighted average number of common shares outstanding, basic and diluted (in Shares) | 19,244,160 | 12,481,443 |
Document And Entity Information
|
3 Months Ended | |
---|---|---|
Jun. 30, 2011
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Aug. 31, 2011
|
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Document and Entity Information [Abstract] | Â | Â |
Entity Registrant Name | AeroGrow International, Inc. | Â |
Document Type | 10-Q | Â |
Current Fiscal Year End Date | --03-31 | Â |
Entity Common Stock, Shares Outstanding | Â | 19,244,160 |
Amendment Flag | false | Â |
Entity Central Index Key | 0001316644 | Â |
Entity Current Reporting Status | Yes | Â |
Entity Voluntary Filers | No | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Well-known Seasoned Issuer | No | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2012 | Â |
Document Fiscal Period Focus | Q1 | Â |
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7. Stockholders' Equity
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Jun. 30, 2011
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Stockholders' Equity Note Disclosure [Text Block] |
As
of June 30, 2011, the Company had the following outstanding
warrants to purchase its common stock:
A
summary of the Company’s preferred stock warrant
activity for the period from April 1, 2011, through June 30,
2011, is presented below:
The warrants granted expire five years from issuance. |
3. Notes Payable, Long Term Debt and Current Portion - Long Term Debt
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3 Months Ended | ||
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Jun. 30, 2011
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Debt Disclosure [Text Block] |
Main
Power Promissory Note
On
June 30, 2009, the Company entered into a Letter Agreement
(“Letter Agreement”) with Main Power Electrical
Factory, Ltd. (“Main Power”) and executed a
Promissory Note. Pursuant to the terms of the
Letter Agreement, Main Power agreed to release the Company
from $1,386,041 of existing obligations owed by the Company
to Main Power in return for the execution of the Promissory
Note for the same amount. In addition, the Letter
Agreement included other provisions relating to the terms and
conditions under which AeroGrow must purchase AeroGarden
products from Main Power. The original Promissory
Note had a final maturity of June 30, 2011, carried an
interest rate of 8% per annum and called for principal
payments of $150,000 monthly beginning January 31, 2011, with
a final payment of all principal and accrued but unpaid
interest due on June 30, 2011.
Effective
as of December 31, 2010, AeroGrow and Main Power entered into
an agreement to amend various obligations owed by AeroGrow to
Main Power. As part of the amendments, AeroGrow
issued a new promissory note (the “Revised Main Power
Note”) in the amount of $2,162,046. The
Revised Main Power Note retired and replaced the original
Promissory Note, and also retired and replaced certain
obligations totaling $661,446 relating to raw material and
finished goods inventory purchased and/or manufactured by
Main Power on behalf of AeroGrow. The Revised Main
Power Note has a final maturity of May 31, 2013, and carries
an interest rate of 8% per annum. Interest and
principal amounts are payable monthly, with total scheduled
principal amortization of $625,000 during calendar year 2011,
$1,075,000 during calendar year 2012, with the balance paid
during calendar year 2013. During the quarter
ended June 30, 2011, AeroGrow fell behind on the scheduled
payments because of its cash constraints and reached an
informal arrangement with Main Power to defer payments for an
unspecified period of time. As of June 30, 2011, the
outstanding balance under the Revised Main Power Note,
including accrued interest, totaled $2,072,046.
Bridge
Loans
Between
October 30 and November 9, 2009, the Company entered into
bridge financing arrangements totaling $580,000 (the
“Bridge Loans”) with five lenders. The
Bridge Loans were unsecured, subordinated to then-existing
senior debt of the Company, and accrued interest at 20% per
annum. The Company issued 580,000 warrants to
purchase common shares of the Company to the
lenders. Each of the warrants has a five-year term
and an exercise price of $0.25 per common
share. As of June 30, 2011, $40,709 in Bridge
Loans remained outstanding and past due, including accrued
interest.
First
Western Trust Term Loan
On
May 21, 2010, the Company, FWTB and Jack J. Walker, the
Company’s Chairman, as guarantor, executed a business
loan agreement and related promissory note (the “FWTB
Term Loan”) for a four-year loan in an initial
principal amount of $1 million. The FWTB Term Loan
is secured by a lien on the Company’s
assets. The FWTB Term Loan bears interest at a
fixed rate of 7.25% per annum. The Company will
make equal monthly payments of principal/interest over the
four-year term of the FWTB Term Loan, which has a final
maturity date of May 21, 2014. The terms and
conditions of the FWTB Term Loan include limitations on the
Company incurring additional debt and paying dividends on the
Company’s stock without the consent of
FWTB. In the event of a default under the FWTB
Term Loan, FWTB has the option to declare the loan
immediately due and payable. As of June 30, 2011,
there was $758,271 outstanding under the FWTB Term Loan,
including accrued interest.
Subordinated
Secured Convertible Notes
Between
May and September 2010, the Company completed a private
offering of $7,020,000 in Subordinated Secured Convertible
Notes (the “Subordinated Secured Convertible
Notes”) and warrants to purchase 70,200,000 shares of
the Company’s common stock (the
“Warrants”). The Company used the
proceeds from the private offering to invest in advertising
and marketing programs to support its direct-to-consumer
business, provide general working capital, pay commissions
and expenses related to the private offering, and repay
certain outstanding obligations. The issuance was
conducted in reliance upon exemptions from registration
requirements under the Securities Act, including, without
limitation, those under Rule 506 of Regulation D (as
promulgated under the Securities Act). The
Subordinated Secured Convertible Notes were offered and sold
only to investors who were “accredited
investors,” as defined in Rule 501 of Regulation D
under the Securities Act. Because the units have
not been registered under the Securities Act, investors will
not be able to sell their Subordinated Secured Convertible
Notes (or the shares of the Company’s common stock
issuable upon conversion of the Subordinated Secured
Convertible Notes or conversion of the Warrants) in the
United States absent an effective registration statement or
an applicable exemption from registration.
The
Subordinated Secured Convertible Notes bear interest at 8%
per year, payable quarterly in cash, additional Subordinated
Secured Convertible Notes, or in registered common stock of
the Company, at the option of the Company, and mature on May
6, 2013. The Subordinated Secured Convertible
Notes can be converted into shares of the Company's common
stock at any time, initially at a conversion price of $0.10
per share (the “Conversion Price”). The
Subordinated Secured Convertible Notes will automatically
convert into shares of the Company’s common stock in
the event (i) there is an effective registration statement
registering the resale under the Securities Act of 1933
(“Securities Act”) of the underlying stock
(“Conversion Shares”) or the Conversion Shares
are eligible to be resold without restriction or limitation
under Rule 144 under the Securities Act, and
(ii) the closing bid price of the Company’s
common stock as quoted on the OTC Bulletin Board or other
principal trading market is at least $0.25 per share for 20
out of 30 consecutive trading days with an average daily
trading volume of at least one million shares. The
Subordinated Secured Convertible Notes are secured by a
subordinated lien on all assets of the Company.
Each
Warrant entitles the holder to purchase one share of the
Company's common stock at a price of $0.20 per share, and
contains customary anti-dilution rights (for stock splits,
stock dividends and sales of substantially all the
Company’s assets) and piggyback registration
rights. The Warrants expire May 6, 2015.
In
accordance with applicable accounting guidance, the Company
recorded a $6,980,400 debt discount on the Subordinated
Secured Convertible Notes because the combined value of the
Warrants and the beneficial conversion feature (resulting
because the market price of the Company’s shares on the
date of issuance was greater than the Conversion Price of the
Subordinated Secured Convertible Notes) exceeded the amount
of Subordinated Secured Convertible Notes
issued. The amortization of the $6,980,400 debt
discount will be reported as additional interest expense and
increases in long-term debt over the three-year term of the
Subordinated Secured Convertible Notes.
During
the fiscal year ended March 31, 2011, $604,591 of the
Subordinated Secured Convertible Notes and accrued interest
was converted into common stock. The remaining
unamortized debt discount of $452,922 related to the amount
converted was charged to interest expense during the quarters
in which the conversions took place.
Amortization
of the debt discount on the Subordinated Secured Convertible
Notes amounted to $543,457 and $224,932 for the three months
ended June 30, 2011 and June 30, 2010,
respectively. As of June 30, 2011, the remaining
unamortized discount on the Subordinated Secured Convertible
Notes was $4,041,326.
The
Company paid $534,263 in placement agent fees and related
expenses in connection with the issuance of the Subordinated
Secured Convertible Notes. This amount was
recognized as deferred financing costs on the Company’s
balance sheet. These costs will be amortized to
expense over the three-year term of the Subordinated Secured
Convertible Notes. In addition, the Company
granted warrants to purchase the Company’s common stock
to the placement agent for its Subordinated Secured
Convertible Notes (the “Placement Agent
Warrants”). The Company granted 7,020,000
Placement Agent Warrants with an exercise price of $0.10 per
common share and 7,020,000 Placement Agent Warrants with an
exercise price of $0.20 per common share. The
Placement Agent Warrants have a five year term expiring May
6, 2015 and contain a cashless exercise
provision. The value of the Placement Agent
Warrants was recognized as $1,518,600 in deferred financing
cost on the Company’s balance sheet, which is being
amortized to expense over the three-year term of the
Subordinated Convertible Notes. For the three
months ended June 30, 2011, the amortized deferred financing
costs relating to the Subordinated Convertible Notes totaled
$178,790.
As
of October 31, 2010 and January 31, 2011, the Company issued
new Subordinated Secured Convertible Notes to pay accrued
interest (the “Interest Notes”). A
total of $369,385 in Interest Notes was
issued. The Interest Notes have the same terms and
conditions as the Subordinated Secured Convertible
Notes.
Effective
on April 29, 2011, a majority in interest of the holders of
the Subordinated Secured Convertible Notes agreed to modify
the terms of the Subordinated Secured Convertible Notes to
(i) waive the Company’s obligations to make quarterly
interest payments and (ii) provide that interest be paid in
cash only. These modifications are effective from
April 29, 2011 through January 31, 2012.
As
of June 30, 2011, the outstanding balance under the
Subordinated Secured Convertible Notes, including accrued
interest, totaled $2,978,512.
Notes
Payable - Credit Card Receipts-Backed Notes
On
October 28, 2010 and November 5, 2010, the Company closed on
the private sale of $1.5 million in 15% secured convertible
promissory notes, including $450,000 in 15% related party
secured convertible promissory notes, backed by a portion of
the Company’s prospective credit card receipts, (the
“Credit Card Notes”) and 5,000,000 warrants to
purchase the Company’s common stock (the “Credit
Card Warrants”) (collectively, the “Credit Card
Offering”). Consideration for the Credit Card Offering
comprised $1.5 million in cash. Net cash proceeds
to the Company after deducting a 2% sales commission (1% on
company-referred investors) paid to GVC Capital LLC, the
Company’s placement agent, totaled
$1,474,500. In addition, the Company will pay a 3%
deferred sales commission (2% on company-referred investors)
to the placement agent concurrently with the repayment of
principal of the Credit Card Notes.
The
Company used the proceeds from the Credit Card Offering to
invest in advertising and marketing programs to support its
direct-to-consumer business, provide general working capital,
pay commissions and expenses related to the private offering,
and repay certain outstanding obligations. The
issuance of the Credit Card Offering was conducted in
reliance upon exemptions from registration requirements under
the Securities Act of 1933 (the “Securities
Act”), including, without limitation, those under Rule
506 of Regulation D (as promulgated under the Securities
Act). The Credit Card Offering was offered and
sold to six (6) investors who are “accredited
investors,” as defined in Rule 501(a) of Regulation D
under the Securities Act. Because the Credit Card
Offering has not been registered under the Securities Act,
the securities sold in the Offering, including the Credit
Card Notes, Credit Card Warrants and shares of common stock
underlying the Credit Card Notes and Warrants are
“restricted securities” within the meaning of
Rule 144 under the Securities Act, and investors will not be
able to sell their Credit Card Notes (or the shares of the
Company’s common stock issuable upon conversion of the
Credit Card Notes or exercise of the Credit Card Warrants) in
the United States absent an effective registration statement
or an applicable exemption from registration.
The
Credit Card Notes bear interest at 15% per annum, had an
initial maturity of July 28, 2011, and can be converted at
any time into common shares of the Company at a conversion
price of $0.18 per share. 20% of the
Company’s daily credit card receipts are being held in
escrow with First Western Trust Bank under an Escrow and
Account Control Agreement to fund bi-weekly payments of
principal and interest to the investors in the Credit Card
Offering.
Each
Credit Card Warrant entitles the holder to purchase one share
of the Company's common stock at a price of $0.20 per share,
and contains customary anti-dilution rights (for stock
splits, stock dividends and sales of substantially all the
Company’s assets) and piggyback registration
rights. The Warrants expire October 28,
2015.
The
obligation of the Company to repay certain of the Credit Card
Notes is severally guaranteed by Jack J. Walker, the
Company’s Chairman (up to $500,000), J. Michael Wolfe,
Chief Executive Officer (up to $200,000) and H. MacGregor
Clarke, Chief Financial Officer (up to
$100,000). The guarantors have executed a
Contribution Agreement between and among themselves to
enforce the limited several guaranties, and the Company has
executed an Indemnity Agreement to hold harmless the
guarantors from any future liability under the
guaranties.
In
accordance with applicable accounting guidance, the Company
recorded a $90,000 debt discount on the Credit Card
Offering. The amortization of the $90,000 debt
discount was reported as additional interest expense and
increases in notes payable over the estimated payoff period
of the Credit Card Notes.
Amortization
of the debt discount on the Credit Card Notes amounted to
$18,502 for the three months ended June 30,
2011. As of June 30, 2011, the remaining
unamortized discount on the Credit Card Notes was $0.
The
Company incurred $80,659 in paid and deferred placement agent
fees and related expenses in connection with the issuance of
the Credit Card Notes. This amount was recognized
as deferred financing costs on the Company’s balance
sheet. These costs were amortized to interest
expense over the estimated payoff period of the Credit Card
Notes. In addition, for nominal consideration, the
Company sold a total of 1,333,333 warrants to purchase the
Company’s common stock to the placement agent (the
“Placement Agent Warrants”). 833,333
of the Placement Agent Warrants have an exercise price of
$0.18 per share of common stock. 500,000 of the
Placement Agent Warrants have an exercise price of $0.20 per
share of common stock. The Placement Agent
Warrants have a five-year term and contain a cashless
exercise provision. The value of the Placement
Agent Warrants were recognized as $30,000 in deferred
financing cost on the Company’s balance sheet, which
was amortized to interest expense over the estimated payoff
period of the Credit Card Notes. For the three
months ended June 30, 2011, the total amortized deferred
financing costs relating to the Credit Card Offering totaled
$23,401.
Effective
as of July 28, 2011, a majority in interest of the holders of
the Credit Card Notes agreed to extend the maturity of the
Credit Card Notes to October 31, 2011.
As
of June 30, 2011, $265,134 in Credit Card Notes was
outstanding, including accrued interest.
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8. Subsequent Events
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3 Months Ended | ||
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Jun. 30, 2011
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Subsequent Events [Text Block] |
On
April 12, 2011, the Company entered into a Distribution and
Licensing Agreement with AG Worldwide, LLC and Cyrano
Partners, LLC (“Cyrano”) pursuant to which AG
Worldwide began sales of AeroGrow products into the network
marketing sales channel. Also on April 12, 2011,
the Company entered into a Transaction Agreement with Cyrano
to form a joint venture to pursue the network marketing sales
channel, subject to the achievement of certain conditions
precedent, including an obligation on the part of Cyrano to
raise the capital necessary to fund the joint
venture. Cyrano was unable to satisfy the funding
condition precedent and, effective as of August 5, 2011, the
Distribution and Licensing Agreement and the Transaction
Agreement were terminated.
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1. Description of the Business
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3 Months Ended | ||
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Jun. 30, 2011
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Nature of Operations [Text Block] |
AeroGrow
International, Inc. (the “Company”) was
incorporated in the State of Nevada on March 25,
2002. We are in the business of developing,
marketing, and distributing advanced indoor aeroponic and
hydroponic garden systems. After several years of initial
research and product development, we began sales activities
in March 2006. Since that time we have expanded all aspects
of our operations in order to take advantage of what we
believe to be an attractive market opportunity. We
currently offer more than 15 different indoor garden models,
more than 50 seed kits, and various gardening and kitchen
accessories. Although our business is focused on
the United States and Canada, our products are available in
nine other countries.
During
the fiscal years ended March 31, 2010 (“Fiscal
2010”) and March 31, 2011 (“Fiscal 2011”),
and continuing through June 30, 2011, we scaled back our
operations as a result of the general economic downturn and
the resulting decline in consumer confidence and
spending. We also determined that broad
distribution through retail channels was not appropriate for
a company at our stage of development because of relatively
low profit margins, high capital requirements, and the
operational requirements of our retailer customers.
Beginning
in late Fiscal 2010 and continuing through Fiscal 2011 and
into the fiscal year ending March 31, 2012 (‘Fiscal
2012”), we re-focused our efforts towards building our
direct-to-consumer business, which carries higher margin
opportunity. To position our business for the future, we have
substantially increased the depth and breadth of our direct
sales distribution channels to include a direct mail
catalogue business with approximately 2.8 million catalogues
mailed in Fiscal 2011, print ads in national magazines, web
sales, infomercials, mall kiosks, and long-form and
short-form infomercials. In Fiscal 2011,
approximately 79.3% of our total sales were to direct
customers.
To
further our strategic shift towards direct-to-consumer
selling, we began investigating the network marketing channel
of distribution during Fiscal 2011 and Fiscal
2012. Network marketing, which is also known as
direct selling or multi-level marketing, involves
person-to-person selling through independent distributors,
which we believe represents a logical potential next step in
our stated strategy to move the marketing and selling of
AeroGrow products closer to the end consumer. In
April 2011, we entered into a Licensing Agreement with Cyrano
Partners, LLC (“Cyrano”) under which Cyrano began
to offer our products in the network marketing sales
channel. Simultaneously we entered into a
Transaction Agreement with Cyrano to form a joint venture to
pursue the network marketing sales channel, subject to the
achievement of certain conditions precedent, including an
obligation on the part of Cyrano to raise the capital
necessary to fund the joint venture. Cyrano was
unable to satisfy the funding condition precedent and, in
August 2011, the Licensing Agreement and the Transaction
Agreement were terminated. We will continue to
look for opportunities to offer our products through the
network marketing channel.
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4. Equity Compensation Plans
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Jun. 30, 2011
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Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Table Text Block] |
For
the three months ended June 30, 2011, the Company granted
zero options to purchase the Company’s common stock
under the Company’s 2005 Equity Compensation Plan (the
“2005 Plan”). For the three months
ended June 30, 2010, the Company granted 200,000 options to
purchase the Company’s common stock at an exercise
price of $0.14 per share under the 2005 Plan.
During
the three months ended June 30, 2011, there were 40,539
options that either were cancelled or expired and zero shares
of common stock were issued upon exercise of outstanding
stock options under the 2005 Plan. During the
three months ended June 30, 2010, there were 94,236 options
that either were cancelled or expired and zero shares issued
upon exercise of outstanding stock options under the 2005
Plan.
As
of June 30, 2011, the Company had granted options for
6,215,823 shares of the Company’s common stock that are
unvested that will result in $366,770 of compensation expense
in future periods if fully vested.
Information
regarding all stock options outstanding under the 2005 Plan
as of June 30, 2011 is as follows:
The
aggregate intrinsic value in the preceding table represents
the difference between the Company’s closing stock
price and the exercise price of each in-the-money option on
the last trading day of the period presented, which was June
30, 2011.
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5. Income Taxes
|
3 Months Ended | ||
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Jun. 30, 2011
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Income Tax Disclosure [Text Block] |
In
September 2006, the FASB issued ASC 740 (prior authoritative
guidance: FASB issued FASB Interpretation (“FIN”)
No. 48, Accounting for
Uncertainty in Income Taxes and SFAS No. 109, Accounting for
Income Taxes). ASC 740 clarifies the accounting for
uncertainty in income taxes recognized in an
enterprise’s financial statements. This
interpretation defines the minimum recognition threshold a
tax position is required to meet before being recognized in
the financial statements. The Company adopted ASC 740 on
April 1, 2007. As a result of the implementation, the Company
recognized no material adjustment in the liability of
unrecognized income tax benefits. At the adoption date, the
Company had no unrecognized tax benefits, which would affect
the Company’s effective tax rate. It is possible that
the Company’s unrecognized tax benefit could change;
however, the Company does not expect any such change to be
material.
Deferred
income taxes are recognized for the tax consequences in
future years of differences between the tax basis of assets
and liabilities and their financial reporting amounts at the
end of each period, based on enacted laws and statutory rates
applicable to the periods in which the differences are
expected to affect taxable income. Any liability
for actual taxes to taxing authorities is recorded as income
tax liability. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. A
valuation allowance is established against such assets where
management is unable to conclude more likely than not that
such asset will be realized. As of June 30, 2011 and March
31, 2011, the Company recognized a valuation allowance equal
to 100% of the net deferred tax asset balance.
|
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