Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block] | Note 1 – Description of the Business and Summary of Significant Accounting Policies Organization and Description of the Business AeroGrow International, Inc. (the "Company," “we,” “AeroGrow,” or “our ") was incorporated in the State of Nevada on March 25, 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 pilot production of its AeroGarden system and, in March 2006, began shipping these systems to retail and catalogue customers. The Company manufactures, distributes and markets nine 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 retail distribution, catalogue and direct-to-consumer sales in the United States and Canada. Liquidity and Basis of Presentation As shown in the accompanying financial statements, we have incurred net losses of $191,000 and $2.4 million for the years ended March 31, 2015 and 2014, respectively, and have an accumulated deficit of $82.4 million as of March 31, 2015. As more fully discussed in the Liquidity and Capital Resources section of Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Company has developed sources of funding that management believes are sufficient to support the Company’s operating plan for the fiscal year ending March 31, 2016. The Company’s operating plan is predicated on a variety of assumptions including, but not limited to, the level of customer and consumer demand, the effect of cost reduction programs, and the state of the general economic environment in which the Company operates. There can be no assurance that these assumptions will prove to be accurate in all material respects, or that the Company will be able to successfully execute its operating plan. We may seek additional debt or equity capital during the fiscal year ending March 31, 2016 to address the seasonal nature of our working capital needs, and to enable us to increase the scale of our business. Sources of funding to meet prospective cash requirements include the Company’s existing cash balances, and cash flow from operations. There can be no assurance we will be able to raise additional capital. As part of our efforts to seek additional funding of our operations, in April 2013, we entered into a strategic alliance with SMG Growing Media, Inc., a wholly owned subsidiary of Scotts Miracle-Gro Company, a worldwide marketer of branded consumer lawn and garden products (“Scotts Miracle-Gro”). As part of the strategic alliance, in April 2013 Scotts Miracle-Gro (i) acquired 2,649,007 shares of the Company’s Series B Convertible Preferred Stock and a warrant to purchase shares of the Company’s common stock for an aggregate purchase price of $4.0 million; and (ii) purchased all of the Company’s intellectual property associated with hydroponic products, other than the AeroGrow and AeroGarden trademarks, for $500,000. Additionally, we entered into a $4.5 million Term Loan with Scotts Miracle-Gro on July 10, 2014. For further information on the debt arrangement with Scotts Miracle-Gro, please see Note 2 “Notes Payable and Long Term Debt” and the strategic alliance with Scotts Miracle-Gro, please see Note 3 “Scotts Miracle-Gro Transactions – Convertible Preferred Stock, Warrants and Other Transactions” to our financial statements. Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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. It is reasonably possible that a change in the Company’s estimates will occur in the near term and such change could be material as information becomes available. Net Income (Loss) per Share of Common Stock The Company computes net income (loss) per share of common stock in accordance with Accounting Standards Codification (“ASC”) 260. ASC 260 requires companies with complex capital structures to present basic and diluted Earnings per Share (“EPS”). Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average shares of common stock outstanding for the period. Diluted EPS is similar to basic EPS, but presents the dilutive effect on a per share basis of potential common stock (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented. Potential shares of common stock that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. For the years ended March 31, 2015 and 2014, the Company had 3.7 million (including preferred stock), and 3.6 million, respectively, of securities that could potentially dilute basic EPS in the future that were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the periods presented. As of March 31, 2015, employee stock options to purchase approximately 444,000 shares of common stock and warrants to purchase approximately 567,000 shares of common stock were outstanding but were not included in the computation of diluted net income per share because the effect of including such shares would have been anti-dilutive in the periods presented. Reclassifications Certain prior year amounts have been reclassified to conform to current year presentation. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at March 31, 2015 and 2014. Restricted Cash The Company has secured activity related to its corporate credit card purchase account with a restricted money market account. The balance in this account as of March 31, 2015 and March 31, 2014 was $15,000. Concentrations of Risk ASC 825-10-50-20 requires disclosure of significant concentrations of credit risk regardless of the degree of such risk. Financial instruments with significant credit risk include cash deposits. The amount on deposit with one financial institution exceeded the $250,000 federally insured limit as of March 31, 2015. However, management believes that the financial institution is financially sound and the risk of loss is minimal. Customers: For the year ended March 31, 2015, the Company had two customers, Amazon.com and Wal-Mart Stores, who represented 32.5%, and 14.6%, respectively, of the Company’s net revenue. For the year ended March 31, 2014, the Company had one customer, Amazon.com, who represented 30.7% of the Company’s net revenue. Suppliers: For the year ended March 31, 2015, the Company purchased inventories and other inventory related items from three suppliers totaling $4.6 million, $1.8 million, and $1.2 million representing 37.2%, 14.6%, and 10.1% of cost of revenue, respectively. For the year ended March 31, 2014, the Company purchased inventories and other inventory related items from two suppliers totaling $1.5 million and $1.4 million representing 26.0% and 24.3% of cost of revenue, respectively. The Company’s primary contract manufacturers are located in China. As a result, the Company may be subject to political, currency, regulatory, shipping, labor and weather/natural disaster risks. Although the Company believes alternate sources of manufacturing could be obtained, these risks and any potential loss of supply could have an adverse impact on operations. Account Receivables: As of March 31, 2015, the Company had five customers, Amazon.com, Wal-Mart Stores, QVC, Costco.com and Wal-Mart.com, that represented 54.2%, 21.1%, 14.8%, 14.6% and 11.1%, respectively, of outstanding accounts receivable. As of March 31, 2014, the Company had three customers, Amazon.com, Costco.com and The Home Depot, that represented 44.1%, 24.5% and 11.1%, of outstanding accounts receivable. Management believes that all receivables from these customers are collectible. Fair Value of Financial Instruments The Company follows the guidance in ASC 820, Fair Value Measurements and Disclosures Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, i.e., exit price, in an orderly transaction between market participants. ASC 820 also provides a hierarchy for determining fair value, which emphasizes the use of observable market data whenever available. The three broad levels defined by the hierarchy are as follows, with the highest priority given to Level 1 as these are the most reliable, and the lowest priority given to Level 3. The three levels of the fair value hierarchy are described below: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Observable market-based inputs, other than quoted prices in active markets for identical assets or liabilities. Level 3: Unobservable inputs that are supported by little or no market activity. The carrying value of financial instruments, including cash, receivables, accounts payable and accrued expenses, approximates their fair value at March 31, 2015 and March 31, 2014 due to the relatively short-term nature of these instruments. The Company has three liabilities for which the carrying value is determined by Level 3 inputs: (1) Notes payable – related party; (2) sale of intellectual property liability; and (3) derivative warrant liability. As discussed below in Notes 2 and 3, each of these liabilities was incurred in conjunction with the Company’s strategic alliance with Scotts Miracle-Gro. As of March 31, 2015 and March 31, 2014, the fair value of the note payable and the sale of intellectual property liability were estimated using the discounted cash flow method, which is based on expected future cash flows, discounted to present value using a discount rate of 15%. The Company also issued a derivative warrant liability that entitles, but does not obligate, Scotts Miracle-Gro to purchase a number of shares of common stock that, on a fully diluted basis, would constitute 80% of the Company’s outstanding capital stock. The Company accounts for the warrant as a liability and measures the value of the warrant using the Monte Carlo simulation model as of the end of each quarterly reporting period until the warrant is exercised or expires. As of March 31, 2015 and March 31, 2014, the fair value of the warrant was $1.7 million and $2.5 million, respectively. As of March 31, 2014, the Company did not have any financial assets or liabilities that were measured at fair value on a recurring basis subsequent to initial recognition, except for the derivative warrant liability. The table below summarizes the fair value and carry value of each Level 3 category liability: March 31, 2015 March 31, 2014 (in thousands) Fair Value Carry Value Fair Value Carry Value Liabilities Notes payable-related party $ 207 $ 207 $ - $ - Derivative warrant liability 1,688 1,688 2,530 2,530 Sale of intellectual property liability 145 208 171 258 Total $ 2,040 $ 2,103 $ 2,701 $ 2,788 Property and Equipment Property and equipment are stated at cost. Depreciation for financial accounting purposes is computed using the straight-line method over the estimated lives of the respective assets. Office equipment and computer hardware are depreciated over five years. Tooling is depreciated over three years. Leasehold improvements are being amortized over the life of the lease. Property and equipment consist of the following: March 31, March 31, (in thousands) 2015 2014 Manufacturing equipment and tooling $ 2,852 $ 2,423 Computer equipment and software 490 435 Leasehold improvements 116 116 Other equipment 351 348 3,809 3,322 Less: accumulated depreciation (3,284 ) (3,024 ) Property and equipment, net $ 525 $ 298 Depreciation expense for the years ended March 31, 2015 and 2014, was $260,000, and $156,000, respectively. Intangible Assets Intangible assets consist of the direct costs incurred for application fees and legal expenses associated with patents and trademarks on the Company's products. The Company periodically reviews the value of the intangible assets. To the extent carrying values exceed estimated fair values, the Company records a reduction in the carrying value to the determined fair value. The Company amortizes its patent and trademark costs on a straight line basis over their estimated useful life of 17 years. Intangible assets consist of the following: March 31, March 31, (in thousands) 2015 2014 Trademarks 2 2 2 2 Less: accumulated amortization - - Intangible assets, net $ 2 $ 2 Amortization expense for the years ended March 31, 2015 and 2014, was less than $1,000, respectively. As of April 22, 2013, the Company agreed to sell to Scotts Miracle-Gro all intellectual property associated with the Company’s hydroponic products, other than the AeroGrow and AeroGarden trademarks, free and clear of all encumbrances, 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 intellectual property (“IP”). In return, Scotts Miracle-Gro granted the Company an exclusive right to use the Hydroponic IP in North America and certain European countries in return for a royalty of 2% of annual net sales, as determined at the end of each fiscal year. The royalty is payable in the Company's common stock at the conversion price of the Series B Preferred Stock (see Note 3). The initial term of the Technology License is five years, and the Company may renew the Technology License for an additional five-year term by providing notice to Scotts Miracle-Gro at least six months in advance of the expiration of each five-year term. Please see Note 3 “Scotts Miracle-Gro Transactions – Convertible Preferred Stock, Warrants and Other Transactions” to our financial statements for further discussion. Inventory Inventories are valued at the lower of cost, as determined by the first-in, first-out method, or market. When the Company is the manufacturer, raw materials, labor and manufacturing overhead are included in inventory costs. The Company records the raw materials at delivered cost. Standard labor and manufacturing overhead costs are applied to the finished goods based on normal production capacity. A majority of the Company’s products are manufactured overseas and are recorded at standard cost, which includes product costs for purchased and manufactured products, and freight and transportation costs for inbound freight from manufacturers. March 31, March 31, (in thousands) 2015 2014 Finished goods $ 1,919 $ 784 Raw materials 684 527 $ 2,603 $ 1,311 The Company determines an inventory obsolescence reserve based on management’s historical experience and establishes reserves against inventory according to the age of the product. As of March 31, 2015 and 2014, the Company had reserved $267,000 and $332,000, respectively, for inventory obsolescence. Accounts Receivable and Allowance for Doubtful Accounts The Company sells its products to retailers and consumers. Consumer transactions are paid primarily by credit card. Retailer sales terms vary by customer, but are generally net 30 days to net 60 days. Accounts receivable are reported at net realizable value and net of the allowance for doubtful accounts. The Company uses the allowance method to account for uncollectible accounts receivable. The Company's allowance estimate is based on a review of the current status of trade accounts receivable. Other Receivables In conjunction with the Company’s processing of credit card transactions for its direct-to-consumer sales activities and as security with respect to the Company’s performance for required credit card refunds and charge backs, the Company is required to maintain a cash reserve with Litle and Company, the Company’s credit card processor. This reserve is equal to 5% of the credit card sales processed during the previous six months. As of March 31, 2015 and March 31, 2014, the balance in this reserve account was $214,000 and $187,000, respectively. Advertising and Production Costs The Company expenses all production costs related to advertising, including, print, television, and radio advertisements when the advertisement has been broadcast or otherwise distributed. In contrast, the Company records media and marketing costs related to its direct-to-consumer advertisements, inclusive of postage and printing costs incurred in conjunction with mailings of direct response catalogues, and related direct response advertising costs, in accordance ASC 340-20 Capitalized Advertising Costs. As the Company has re-entered the retail distribution channel, the Company has expanded its advertising to online gateway and portal advertising, as well as placement in third party catalogues. Advertising expenses for the years ended March 31, 2015 and March 31, 2014, were as follows: Fiscal Year Ended March 31, 2015 2014 (in thousands) Direct-to-consumer $ 890 $ 799 Retail 871 389 Other 40 2 Total advertising expense $ 1,801 $ 1,190 As of March 31, 2015 and March 31, 2014, the Company had deferred $1,000 and $16,000, respectively, related to such media costs. The costs are included in the prepaid expenses and other line of the balance sheet. Research and Development Research, development, and engineering costs are expensed as incurred. Research, development, and engineering expenses primarily include payroll and headcount related costs, contractor fees, infrastructure costs, and administrative expenses directly related to research and development support. Stock-Based Compensation The Company uses the Black-Scholes option valuation model to estimate the fair value of stock option awards. For the years ended March 31, 2015 and March 31, 2014, equity compensation in the form of stock options and grants of restricted stock that vested totaled $302,000 and $257,000, respectively, and is included in the accompanying statements of operations in the following categories: Years ended (in thousands) March 31, 2015 March 31, 2014 General and administrative $ 158 $ 200 Sales and marketing 144 57 Total $ 302 $ 257 Income Taxes 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 that it is “more likely than not” that the value of such asset will be realized. As of March 31, 2015 and March 31, 2014, the Company recognized a valuation allowance equal to 100% of the net deferred tax asset balance. Revenue Recognition The Company recognizes revenue from product sales, net of estimated returns, when persuasive evidence of a sale exists, including the following: (i) a product is shipped under an agreement with a customer; (ii) risk of loss and title has passed to the customer; (iii) the fee is fixed or determinable; and (iv) collection of the resulting receivable is reasonably assured. The Company records estimated reductions to revenue for customer and distributor programs and incentive offerings, including promotions and other volume-based incentives. Certain incentive programs require the Company to estimate based on industry experience the number of customers who will actually redeem the incentive. At March 31, 2015 and March 31, 2014, the Company had accrued $110,000 and $42,000 respectively, as its estimate for the foregoing deductions and allowances. These expenses are included in the accrued expenses line of the balance sheets. Warranty and Return Reserves The Company records warranty liabilities at the time of sale for the estimated costs that may be incurred under its basic warranty program. The specific warranty terms and conditions vary depending upon the product sold but generally include technical support, repair parts and labor for periods up to one year. Factors that affect the Company’s warranty liability include the number of installed units currently under warranty, historical and anticipated rates of warranty claims on those units, and cost per claim to satisfy the Company’s warranty obligation. Based upon the foregoing, the Company has recorded as of March 31, 2015 and March 31, 2014 a provision for potential future warranty costs of $58,000 and $11,000, respectively. These warranty expenses are included in the accrued expenses line of the balance sheets. The Company reserves for known and potential returns and associated refunds or credits related to such returns based upon historical experience. In certain cases, customers are provided a fixed allowance, usually in the 1% to 2% range, to cover returned goods and this allowance is deducted from payments to us by such customers. As of March 31, 2015 and March 31, 2014, the Company has recorded a reserve for customer returns of $119,000 and $61,000, respectively. These expenses are included in the accrued expenses line of the balance sheets. Shipping and Handling Costs Shipping and handling costs associated with inbound freight are recorded in cost of revenue. Shipping and handling costs associated with freight out to customers are also included in cost of revenue. Shipping and handling charges paid by customers are included in product sales. Deferred Rent As of March 31, 2015 and March 31, 2014, the Company had recorded deferred rent related to this agreement in the amount of $1,000 and $3,000, respectively, based on the difference between straight-line rent expense recorded and the rent payment obligation. Segments of an Enterprise and Related Information GAAP utilizes a management approach based on allocating resources and assessing performance as the source of the Company's reportable segments. GAAP also requires disclosures about products and services, geographic areas and major customers. At present, the Company operates in one segment. New Accounting Pronouncements In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815),” which updates the guidance on the determination in evaluating whether the nature of the host contract within a hybrid financial instrument issued in the form of a share is more akin to debt or to equity. The objective of this update is to eliminate the use of different methods in practice and thereby reduce existing diversity under U.S. GAAP in the accounting for hybrid financial instruments issued in the form of a share is more akin to debt or to equity. The guidance requires the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances. That is, an entity should determine the nature of the host contract by considering the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that is being evaluated for separate accounting from the host contract. The amendments in this update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. This new guidance will not have a material impact on our financial statements. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern: Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued. This ASU is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements. In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This accounting guidance is effective for the Company beginning in the first quarter of fiscal year 2018 using one of two prescribed retrospective methods. Early adoption is not permitted. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting. |