Results of Operations
Year Ended September 30, 2009, Compared to Year Ended September 30, 2008
Revenues for FY 2009 totaled $224,999 compared to $347,111 for FY 2008. This 35% drop in revenue is almost entirely attributable to declining economic conditions and the drop in retail sales. Gardening product sales were relatively flat for FY 2009 and advertising revenues increased by 60% compared to FY 2008.
Gross profit was 18.4% in FY 2009 compared to 29.9% in FY 2008. The 11.5% drop in gross margin can be attributed to decreased prices to stay competitive, the increased cost of raw materials and increased shipping and receiving costs. All of the changes were directly related to declining economic conditions.
Operating expenses increased by 5.5% during FY 2009, primarily due to a licensing agreement with Microbial Technologies for the use of their formulations in our manufacturing process. Due to the drop in sales the full savings margin effect on gross margins was not able to be realized. To offset these licensing costs, a number of our radio station agreements were not renewed; there was a cutback in personnel in the office and non-recurring legal fees associated with taking the Company public in May, 2008 did not repeat in FY 2009.
Other Income/(Expense) was essentially unchanged from year to year. In FY 2009, 2,736,800 warrants were granted to entice investors to participate in our private placement, incurring a warrant expense of $954,837. In FY 2008 bridge loan note holders converted their bridge loans. Each note holder was offered two shares of stock for each dollar of debt and accrued interest they were owed for a significant discount in stock price. As such, the Company incurred debt settlement expense of $685,421. Note holders were also granted one warrant for each dollar of debt and accrued interest owed which resulted in warrant expense of $239,549 for the grant of 184,120 warrants. Interest expense decreased 18% in FY 2009 when compared to FY 2008 primarily due to the bridge loans that were converted.
Liquidity and Capital Resources
Cash was $24,547 at September 30, 2009 compared to $27,838 in FY 2008 or a decrease of $3,291. Net Cash Used in Operating Activities decreased by 18% or $176,061 from the prior fiscal year. The net loss of the Company of $2,407,327 is offset, in part, by stock issuances, and options and warrants granted during the year in the amount of $1,376,820. Net Cash Provided by Financing Activities was $785,400 in FY 2009 compared to $805,032 in FY 2008 or a decrease of $19,632 which was due to decreased borrowings on the Line of Credit and lower cash received on Bridge Loans offset by a net increase in private placement raises of $86,397 and an increase in related party notes payable of $233,633.
Significant Accounting Policies
Significant accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions and are incorporated in these financial statements. We believe that our significant accounting policies are limited to those described below.
Principles of Accounting
The Company employs the accrual method of accounting for both financial statements and tax purposes. Using the accrual method, revenues and related assets are recognized when earned, and expenses and the related obligations are recognized when incurred. The Company has elected a September 30 year end.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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Revenue Recognition
We earn our revenues from the distribution of garden and cleaning products to retailers and directly to consumers via our internet site and from advertising contracts. Four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured.
Revenue from garden and cleaning products is recognized upon shipment of the product. The distribution of products is governed by purchase orders or direct sale agreements which fix the price and delivery date. The Company records a provision for product returns and price markdowns as a reduction of gross sales at the time the product passes to these retailers or consumers. The provision for anticipated product returns and price markdowns is primarily based upon the Company's analysis of historical product return and price markdown results. Should product sell-through results at retail store locations fall significantly below anticipated levels this allowance may be insufficient. The Company will review the adequacy of its allowance for product returns and price markdowns and if necessary will make adjustments to this allowance on a quarterly basis. In accordance with GAAP, "Accounting for Shipping and Handling Fees and Costs," distribution costs charged to customers are recognized as revenue when the related product is shipped. Advance payments are recorded on the balance sheet as deferred revenue until revenue recognition criteria is met.
Revenue from radio advertising is derived from three sources, the sale of commercial spots on the Garden Guys radio talk show, the sponsorship of informative show segments and hosting live remote broadcasts. Revenue from radio advertising is recognized after the commercial has been aired and/or a remote broadcast has taken place. Customers will prepay for radio spots or remote broadcasts at the time they contract with the Company to air their commercials or host a remote broadcast. The Company will carry this prepayment as a liability, until such time as economic performance takes place. Money received is refundable prior to the airing of commercials or the airing of the remote broadcast, adjusted by any production or other direct costs incurred up to that point in time. Radio advertising for the years ended September 30, 2009 and 2008 were $40,210 and $25,260, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. During the past twelve months the Company maintained cash in bank accounts which, at times, exceeded Federal Deposit Insurance Corporation insured limits. The Company has not experienced, nor does it anticipate, any losses on these accounts and believes their risk to be minimal.
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