Edgar Filing: IONATRON, INC.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K/A
CURRENT REPORT

PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): March 18, 2004
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IONATRON, INC.
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(Exact name of registrant as specified in its charter)

Delaware 001-14015 77-0262908
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(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)

3590 East Columbia Street, Tucson, Arizona 85714
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(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code (520) 628-7415
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)

This Form 8-K/A provides certain information regarding the historical operations
of Ionatron, Inc. and the historical financial statements of Ionatron, Inc. for
the period from its inception (June 3, 2002) through December 31, 2002 and year
ended December 31, 2003 and as of December 31, 2002 and 2003.

ITEM 1. CHANGE IN CONTROL OF REGISTRANT

As a result of the merger on March 18, 2004 of Ionatron Acquisition
Corp., a wholly-owned subsidiary of the Registrant ("Merger Sub"), with and into
Ionatron, Inc. ("Ionatron"), making Ionatron, a wholly owned subsidiary of the
Registrant (the "Merger"), a change of control of the Registrant occurred.
Pursuant to the terms of the Amended and Restated Plan and Agreement of Merger
(the "Merger Agreement") by and among the Registrant, Merger Sub, Robert Kassel
(for purposes of Sections 5.9, 6.2(d), 6.2(j), 9.4 and 10.10 of the Merger
Agreement only), Fred Heiden (for purposes of Section 9.4 of the Merger
Agreement only), Ionatron and Robert Howard, Stephen W. McCahon, Thomas C.
Dearmin and Joseph C. Hayden (collectively, the "Ionatron Stockholders"), the
Registrant issued an aggregate of 48,452,249 shares of its common stock (the
"Merger Consideration"), of which the Ionatron Stockholders received an
aggregate of 46,127,898 shares of the Registrant's common stock in exchange for
all of the shares of stock of Ionatron and the remaining 2,324,351 shares of
common stock were placed in escrow pending distribution to the Ionatron
Stockholders. The 48,452,249 shares of the Registrant's common stock represented
approximately 66.11% of the common stock of the Registrant on a fully diluted
basis immediately after the Merger. In connection with the Merger, the
Registrant changed its name from U.S. Home & Garden Inc. to Ionatron, Inc.

Upon consummation of the Merger, Mr. Howard, Mr. Dearmin, George
Farley, James Harlan and David Hurley were appointed directors and the former
directors of the Registrant resigned. Thereafter, Rear Admiral Thomas W.
Steffens, U.S. Navy (Ret.), was appointed as a member of the Registrant's Board
of Directors.

Ionatron, Inc., and its wholly-owned subsidiary, Ionatron
Technologies, Inc. are collectively referred to herein as the "Company,"
"Ionatron," "we," "our" and "us."

ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS

Prior to the Merger, the Registrant had disposed of all of its
operations and subsidiaries except Golden West Agri-Products, Inc. which was
sold to Mr. Robert Kassel on the date of the Merger for $114,875, based upon a
valuation delivered by ISI Capital Partners, LLC. As a result, at closing of the
Merger, the Registrant was not an operating company and its principal remaining
asset was cash.

As a result of the Merger, on March 18, 2004 the Registrant acquired
all of the stock of Ionatron, making Ionatron, a wholly owned subsidiary of the
Registrant. Pursuant to the terms of the Merger Agreement, the Registrant issued
the Merger Consideration, of which the Ionatron Stockholders received an
aggregate of 46,127,898 shares of the Registrant's common stock in exchange for
all of the shares of stock of Ionatron and the remaining 2,324,351 shares of
Common Stock were placed in escrow pending distribution to the Ionatron
Stockholders. The consideration by the Registrant in connection with the Merger
was determined by negotiations among certain parties to the Merger. The
Registrant obtained an opinion of Roth Capital Partners, LLC to the effect that
the issuance of the Merger Consideration is fair to the stockholders of the
Registrant from a financial point of view.

Mr. Robert Kassel, the former chairman, chief executive officer and
president of the Registrant, accepted, in lieu of and in substitution of the
significantly higher cash severance package that was otherwise payable to him
under the terms of his employment agreement immediately prior to the termination
of his employment agreement upon consummation of the Merger, (i) $500,000, (ii)
750,000 shares of the Registrant's restricted common stock, which were subject
to a put/call with designees of Mr. Howard, to purchase or sell such shares at
$0.67 per share (or an aggregate of $500,000), and (iii) the cancellation and
forgiveness of outstanding loans made by the Registrant to Mr. Kassel in the
principal amount of $487,000, plus interest accrued through the closing date of
the Merger. The loans would otherwise have been payable by Mr. Kassel in
installments between 2004 and 2008. The designees exercised the call on the
closing date of the Merger and the shares were sold by Mr. Kassel to the
designees in accordance with the terms of the call.

Prior to the negotiation of the Merger Agreement, there was no
relationship between the Registrant and Ionatron, their respective affiliates,
directors and officers, or any associate of any such director or officer.

The description of the Merger Agreement in this report is qualified
in its entirety by reference to the copy of the Merger Agreement which is
attached as an exhibit to this current Report on Form 8-K and which is
incorporated herein by reference.

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ITEM 5. OTHER EVENTS AND FD DISCLOSURE

OUR BUSINESS

On March 18, 2004, a subsidiary of U. S. Home & Garden Inc. (USHG), a
non-operating, publicly traded company, merged into Ionatron Technologies, Inc.,
formerly Ionatron, Inc. (the "Merger"). Following the Merger, USHG shareholders
held 33.89% and Ionatron shareholders held 66.11% of the outstanding USHG common
stock. The combination has been accounted for as a recapitalization of Ionatron,
Inc., from our inception on June 3, 2002, and the issuance of 19,346,090 common
shares and 5,429,006 options and warrants to the USHG shareholders on the date
of merger in exchange for cash. The consolidated financial statements reflect
the historical results of Ionatron, Inc., prior to March 18, 2004 and the
consolidated results of operations of the Company since March 18, 2004. On April
29, 2004, our shareholders approved the change of our corporate name to
Ionatron, Inc., an increase of our authorized common stock to 100,000,000 shares
and the classification of our Board of Directors into three classes. We also
changed our fiscal year end from June 30 to December 31. The common stock and
per share information in the consolidated financial statements and related notes
have been retroactively adjusted to give effect to the re-capitalization.

Ionatron was formed on June 3, 2002 to develop and market Directed
Energy Weapon technology products initially for sale to the U.S. Government. The
goal of the Company is to initially produce products that incorporate our
technology for specific U.S. Government customer applications and platforms.
Ionatron and the U.S. Government have entered into several contracts for
products and services as well as Cooperative Research and Development Agreements
for joint research on Laser Induced Plasma Channel ("LIPC") based directed
energy weapons. We expect to offer U.S. Government approved versions of our
products for commercial security applications in the future. During 2003 and
2002, the Company engaged in research and development and business development
activities. Ionatron has demonstrated its laser guided man-made lightning
directed energy technology in the laboratory and now has government contracts
for effects testing, compact laser source development and the delivery of a
system on a mobile platform for field demonstration and testing.

We are a new technology company working under contracts with agencies
of the U.S. Government concerned with national security that has developed and
demonstrated in our laboratory a novel internally developed directed energy
weapon technology called LIPC, which controls and directs electrical energy
between two points. Our business strategy is to continue long-term development
of the technology for multiple national security and defense applications, as
well as to in parallel develop, applications in other commercial sectors. Many
short-term military applications have been already demonstrated to our
customers. Our immediate plan is to manufacture transportable demonstrators for
those applications for various U.S. Government organizations, in order to
demonstrate the field utility of the technology. In April 2004, we received a $9
million contract for one such unit. Upon completion of this contract our intent
is to transition to building prototypes and a limited number of production units
as soon as it is practicable. We cannot assure you that the demonstrator will
perform to the specifications required or that additional prototypes or units
will be ordered.

Currently the LIPC technology lends itself to many non-lethal and
lethal military applications. We have demonstrated the technology and
effectiveness for many application areas in our laboratory. We cannot assure you
that the technology will perform its intended applications outside of the
laboratory. Recently, we were requested by one branch of the military to put
forth a proposal, which we have done, that details the requirements and funding
needed to start low rate initial production and deliver units of a specific
Ionatron LIPC system during 2005. The funding for this proposal is currently
being identified with attempts to include it into the 2005 U.S. Defense Budget,
that begins with the government fiscal year on October 1, 2004. We cannot assure
you that this proposal will result in contract awards.

We have had meetings and performed demonstrations of the technology
for all branches of the U.S. Military, as well as many other U.S. Government
organizations involved in various defensive, anti-terrorism, or offensive
military type operations. We currently have many potential contracts in the
negotiation stage and have U.S. Government customers actively seeking short-term
and long-term funding for Ionatron projects. We cannot assure you that any such
contracts will become finalized in a timely manner or at all.

In order to help manage the Ionatron interface with our government
customers and their congressional funding counterparts, we maintain an ongoing
relationship with a well known and qualified Washington, DC based government

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relations firm. We also have an established Vice President of Business
Development, whose group will be expanding this year as we aggressively market
our U.S. Government products.

We also have various U.S. Government contracts in the following
areas:

o Transportable demonstrator for field trials;

o Portal ingress/egress denial demonstration;

o Effects of LIPC technology on various targets; and

o Compact architecture development of the equipment to allow
placement on smaller platforms.

The LIPC technology is designed as a line of sight weapon, which
allows the propagation of various forms and quantities of electrical energy to
be aimed and directs electrical energy between two points. The laboratory
demonstrations of the technology have gone from low voltage disruptive type
energies to the target to very high voltages and currents which have
demonstrated energy densities that physically damage different types of
materials, such as ablating concrete.

We intend to take advantage of, and utilize, existing and mature
laser targeting and tracking technology for our systems with slight
modifications. We are in negotiations with three vendors to supply, to our
specifications, the electrical system requirements and have received a working
prototype from one vendor. Outsourcing such supply requirements is intended to
free up our technical personnel and other resources to work on development of
next generation electrical sources, now that we have developed at least one
electrical source that can be manufactured for us by outside sources. We also
have optical components and sections of our laser sources manufactured by
outside vendors which are then assembled and integrated at Ionatron to produce
the final laser source for our LIPC systems.

These LIPC systems will be self contained units that operate off of
existing power supplies found on typical mobile military platforms, such as
HMMWV's. Due to the low average power requirements of our systems, no additional
or exotic power systems will be required to support these systems. Future
systems will utilize the advanced electrical technologies developed for other
military programs to support more compact sources, and smaller, lighter LIPC
systems that can be mounted on smaller, autonomous platforms now under
development in other government programs.

The targets, effects, ranges, voltages and currents delivered, along
with many other aspects of the technology are classified under specific
Department of Defense guidelines and, consequently, cannot be disclosed to the
public.

PATENTS/PROPRIETARY INFORMATION

Ionatron has numerous patent applications in various stages of
preparation and prosecution, which Ionatron believes it has novel intellectual
property and that it might be able to secure patents that operate to protect our
proprietary technical information and capabilities that will give us the
competitive advantage to continue to be the leader in the technology. Some of
these patents will be evaluated by the government to determine if they will be
classified in nature, and thus may not be seen by the general public. Ionatron
also has proprietary information in the form of trade secrets and technology
specific know how that should give us additional competitive advantages.

RESEARCH AND DEVELOPMENT

Ionatron has funded its original research and development through
capital investment by its founders and the Company retains the ownership of all
the original intellectual property, which we believe is necessary to the ability
to use and control the technology. Ionatron also out sources certain research
tasks to experienced individuals or companies for some activities that require
sophisticated laboratory equipment or optical modeling programs we do not have
at our disposal. We have over ten relationships of this kind, which provide that
any intellectual property developed under the agreement is the sole property of
Ionatron.

Our short-term research and development goals are to complement our
existing system design by developing more efficient and compact laser sources,
electrical sources, and lower cost more efficient optical beam trains. Some of

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this development work is funded by our government customers. Most of our
research related work is funded internally in order to capture any intellectual
property rights from novel processes and inventions that may arise.

Our long-term research is to identify the long-range physical limits
of the technology. This work relates to understanding the long-range
capabilities of our LIPC's from alternative and potentially technically superior
optical sources and new potential wavelengths that it may be advantageous to
exploit. This work includes efforts to achieve a more complete understanding of
the entire physical laws we work within regarding atmospheric physics, plasma
physics, and the future capabilities of new solid-state laser materials and
laser processes that may enable the technology to be more fully exploited.

We also intend to explore other uses of the technology in the
existing application area as well as completely novel applications in commercial
sectors outside the defense and national security application areas.

PROPERTIES

Ionatron currently is located in a 25,000 square foot Research and
Development and prototyping facility. We have numerous LIPC system test beds,
laser source design and assembly, optical design and assembly, machine shop,
engineering, research and development, electrical source design and fabrication,
indoor test and effects range, as well as the general and administrative
functions. The facility is limited in production capabilities but is capable of
performing on our existing contracts and the LIPC transportable demonstrator
contract.

As additional contracts are expected, we are preparing to move
operations to the NASA Stennis Space facility located on the Gulf Coast of
Mississippi in 2005. This facility is a 150,000 acre federally owned secure
facility which currently has a decommissioned Army Ammunition Manufacturing
facility, with approximately 600,000 square feet available to meet our long-term
secure research, development, manufacturing, and test range requirements. We are
currently negotiating to have just over 100,000 square feet upgraded, to our
specifications, as soon as possible in order to relocate operations to the
Stennis facility.

It is expected that the cost of upgrading the facility will be paid
for by through the U.S. Army's ARMS program. The actual facility moving expenses
to relocate from Tucson, AZ to Mississippi is estimated at approximately
$1,000,000 to be incurred in 2005.

EMPLOYEES

We currently have twenty-six employees, of whom six are in management
and general administrative, one is in human resources, twelve are in research
and engineering and seven are in manufacturing. We expect to significantly
increase the number of our personnel by the end of the year, primarily in
research, engineering and manufacturing.

RISKS AND UNCERTAINTIES

Future results of operations of Ionatron involve a number of known
and unknown risks and uncertainties. Factors that could affect future operating
results and cash flows and cause actual results to vary materially from
historical results include, but are not limited to:

o Failure or difficulties in managing our operations, including
attracting and retaining qualified personnel;

o Failure or inability to attain profit levels necessary to sustain
our business

o Interruption or failure of, or failure to manage, our technology
and information systems;

o Changes in government policy, regulation and enforcement or
adverse judicial or administrative interpretations and rulings or
legislative action relating to procurement regulations,
enforcement and pricing;

o Availability of budgetary allocations for governmental agencies
to purchase our products;

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o Inability to adapt to technological change;

o Inability to successfully manufacture and assemble our products;

o Competition from defense contractors with greater financial and
manufacturing resources;

o Dependence upon sales to the U.S. government;

o Sales agreements with the U.S. government typically provide for
termination at any time and may contain unfavorable terms;

o Dependence on qualified subcontractors for parts of our research
and development activities;

o Inability to raise sufficient financing for expanded
manufacturing and assembly activity;

o Failure to successfully field test our weapon products;

o Inability to collect amounts due to us from our customers;

o Our failure to provide adequate customer service; and

o The significant number of shares of common stock which are
currently freely trading without restriction under the Securities
Act of 1933 or which have been registered for resale, including
the significant number of shares of common stock which may be
issued upon exercise of options and warrants at prices
significantly below the market price of our common stock.

Negative developments in these areas could have a material effect on
our business, financial condition and results of operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

You should read the following discussion in conjunction with our
Financial Statements included in this Form 8-K/A, our quarterly report on Form
10-Q for the quarterly period ended on March 31, 2004, which is incorporated
herein by reference, and any subsequent filings. Certain of the statements
contained herein may be considered forward-looking statements.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Form 8-K/A constitute forward-looking
statements for purposes of the securities laws. Forward-looking statements
include all statements that do not relate solely to the historical or current
facts, and can be identified by the use of forward looking words such as "may",
"believe", "will", "expect", "expected", "project", "anticipate", "anticipated"
estimates", "plans", "strategy", "target", "prospects" or "continue" These
forward looking statements are based on the current plans and expectations of
our management and are subject to a number of uncertainties and risks that could
significantly affect our current plans and expectations, as well as future
results of operations and financial condition and may cause our actual results,
performances or achievements to be materially difficult from any future results,
performances or achievements expressed or implied by such forward-looking
statements. This Form 8-K/A contains important information as to risk factors
above. In making these forward-looking statements, we claim the protection of
the safe-harbor for forward-looking statements contained in the Private
Securities Reform Act of 1995. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been correct. We do not
assume any obligation to update these forward-looking statements to reflect
actual results, changes in assumptions, or changes in other factors affecting
such forward-looking statements.

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OVERVIEW

CRITICAL ACCOUNTING POLICIES

The Company has identified the following accounting policy that
requires significant judgment. The Company believes its judgments relating to
revenue are appropriate.

Revenues have been derived from ongoing contract work for effects
testing and the design and development of an in house demonstration system for a
government customer. It is expected that continued work on effects testing,
design and development of use specific Ionatron systems, advanced design and
proof of principle on an existing contract, compact laser source development and
the manufacture of a transportable demonstrator will contribute to revenues
going forward in 2004. This work is expected to be generally performed under
cost-plus contracts with U.S. Government customers.

Revenues under long-term U.S. Government contracts are recorded under
the percentage of completion method. Revenues under cost plus fixed fee
contracts are recorded as costs are incurred and include estimated earned fees
in the proportion that costs incurred to date bear to total estimated costs.
Costs include direct labor, direct materials, and subcontractor costs and
overhead. As contracts can extend over one or more accounting periods, revisions
in costs and earnings estimated during the course of work are reflected during
the accounting period in which the facts become known. When the current contract
estimate indicates a loss, provision is made for the total anticipated loss in
the current period.

Revenues for other products and services are recognized when such
products are delivered and, in connection with certain sales to government
agencies, when the products and services are accepted, which is normally
negotiated as part of the initial contract.

COMPARISON OF OPERATIONS OF 2003 AND 2002

Ionatron was formed in June 2002. During 2002 and the first part of
2003, most of our efforts were directed towards scientific proof of concept and
introduction of our technology to potential U.S. Government customers. The
following table sets forth certain financial data for each year:

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2003 2002
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Revenue $ 383,273 $ --
Cost of Revenue 356,822 --
Expenses:
General and Administrative 1,681,174 429,352
Selling and Marketing 239,847 53,524
Research and Development 1,151,350 264,799
Interest 196,189 -
Net loss (3,242,109) (747,675)

Revenue

Revenue for 2003 was derived from initial work on U.S. Government
contracts. There was no revenue in 2003.

Cost of Sales

Our cost of sales in 2003 was $356,822. There were no sales in 2002.

General, Administrative and Selling Expenses

The increase in General, Administrative and Selling expenses during
2003 as compared 2002 was primarily related to payroll, rent, expenses of moving
to a new facility, increased selling and marketing expenses and a full year of
operation as compared with seven months operation in 2002.

Research and Development Expenses

The increase in Research and Development expenses during 2003 as
compared 2002 was primarily due to the expansion of research and development
activities. Certain material, personal and consulting expenses were transferred
to cost of sales in the latter part of 2003 as certain research and development
was funded under our contracts.

Interest

We began paying interest under an $8 million revolving loan and
security agreement with our Chairman during 2003. We were not charged interest
in 2002.

Liquidity and Capital Resources

Our activities during 2003 and 2002 were financed by advances and
loans from our Chairman. At December 31, 2003 we had borrowings of $4.3 million
and additional availability of $3.7 million under our revolving loan and
security agreement. Also, in October 2003, we recieved a $500,000 payment under
the developement agreement.

In 2003 we used $3.0 million in operations and purchased $0.6
million of equipment which was financed by borrowings under the revolving loan
and credit agreement. Our cash position increased during the first quarter of
2004 by $8.4 million primarily as a result of the merger with USHG that provided
$8.9 million of cash. At March 31, 2004 we had approximately $8.5 million of
cash and cash equivalents. We used $1.0 million in operations and purchased $0.1
million of equipment during the quarter, which was financed in part, by
borrowings from our Chairman. Our borrowing arrangement with our Chairman was
restructured, after pay down of $500,000 and his contribution of $2 million to
our capital, into a $3 million revolving credit arrangement

We believe that we will have sufficient working capital to fulfill
existing contracts and expected contracts in 2005 and into 2006. The
transportable demonstrator contract and at least two of the other Ionatron
contracts, that presently represent a major portion of our current activity, are
on a cost plus fixed fee basis. This means all work performed is done at
Ionatron government-approved rates, which include general and administrative
costs, overhead, labor and materials, fees and profit. These costs are accrued
as incurred and billed monthly. Other contracts are at fixed prices which have
commercial type gross margins associated with them.

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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

In the normal course of business, our financial position is subject
to a variety of risks, such as the collectibility of our accounts receivable and
the recoverability of the carrying values of our long-term assets. We do not
presently enter into any transactions involving derivative financial instruments
for risk management or other purposes.

Our available cash balances are invested on a short-term basis and
are not subject to significant risks associated with changes in interest rates.
Substantially all of our cash flows are derived from our operations within the
United States and we are not subject to market risk associated with changes in
foreign exchange rates.

We are exposed to market risk for the impact of interest rate changes, as the
interest rate of our borrowings under our revolving credit agreement with our
Chairman is subject to changes based on changes in the prime interest rate.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

At a special meeting of the Board of Directors held on March 18,
2004, immediately after the closing of the Merger, the size of the Board of
Directors was set at 5 members, the resignations of all of Directors prior to
the Merger were accepted, and the individuals designated by Ionatron, Inc. in
the Merger Agreement, who are listed below, were appointed to the Company's
Board of Directors.

The following table sets forth the name, age and position of each of
the persons appointed to the Company's Board of Directors at the special meeting
and each of the persons appointed as an Executive Officer of the Company
following completion of the Merger:

Name Principal Position
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Robert Howard Director, Chairman of the Board and Secretary
Thomas C. Dearmin Director, Chief Executive Officer, President and
Chief Financial Officer
Joseph C. Hayden Vice President Business Development
Stephen W. McCahon Vice President Engineering
George P. Farley Director
James K. Harlan Director
David C. Hurley Director
Admiral Thomas W. Steffens (Ret.) Director

ROBERT HOWARD. Robert Howard has been the Chairman of the Board of
Directors of Ionatron since its inception in 2002. From 1969 to April 1980, he
served as President and Chairman of the Board of Centronics Data Computer Corp.
("Centronics"), a manufacturer of a variety of computer printers, including the
first impact dot matrix printer, of which he was the inventor. He resigned from
Centronics' Board of Directors in 1983. Commencing in mid-1982, Mr. Howard,
doing business as RH Research, developed the Color Ink Jet technology upon which
iCAD, Inc. ("iCAD") was initially based. He contributed this technology, without
compensation, to iCAD. Since its establishment in 1984, Mr. Howard has been the
founder and Chairman of the Board of Directors of iCAD, a company now involved,
among other things, in the manufacture and sale of computer aided devices
("CAD") used for early detection of Breast Cancer. Starting in December of 1993,
Mr. Howard was Chairman of the Board of Presstek, Inc. ("Presstek"), a public
company which has developed proprietary digital imaging and consumables
technologies for the printing and graphic arts industries from June 1988 to
September 1998 and then served as Chairman Emeritus of the Board of Presstek
from September 1998 to December 2000. In 2001 Mr. Howard and Mr. Dearmin started
the development work that became Ionatron.

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THOMAS C. DEARMIN. Thomas C. Dearmin has been the President, Chief
Executive Officer and Chief Financial Officer as well as a Director of Ionatron
since its inception in 2002. From 1999 to 2002, Mr. Dearmin also was the
President and Chief Executive Officer of Lasertel Inc., a company Mr. Dearmin
started and had operational in 9 months, manufacturing high power semiconductor
lasers. From 1992 to 1998, Mr. Dearmin was one of the co-founders and Vice
President of Opto Power Corporation, one of the first high power semiconductor
laser manufacturers to commercialize high power laser diodes. Opto Power also
designed and built semiconductor laser prototypes for US Military applications.
Opto Power became the largest supplier of high power fiber coupled laser diodes
in the world, which created new applications in the defense, medical, industrial
and graphic arts areas. Opto Power Corporation became a wholly owned division of
Spectra Physics Lasers which went public in 1998. Prior to 1992, Mr. Dearmin was
part of the original high power semiconductor group at Ensign Bickford Aerospace
and was head of Business Development for that group. Mr. Dearmin worked on new
novel military applications of lasers and laser systems, as well as the first
successful diode laser for on press digital imaging in graphic arts. Prior to
1986, Mr. Dearmin worked in various capacities in the Gallium Arsenide
semiconductor area, which involved metal organic chemical vapor deposition and
molecular beam epitaxy processes of various structures for digital electronic
devices, as well as photonic devices, such as night vision photocathodes for
military operations and high power lasers. Mr. Dearmin holds patents in the area
of semiconductor laser fabrication as well as high power laser diode
applications.

DAVID C. HURLEY. David C. Hurley was appointed Vice Chairman of
PrivatAir of Geneva, Switzerland on February 1, 2003, relinquishing the role of
Chief Executive Officer, a position he held following the acquisition of Flight
Services Group ("FSG") by PrivatAir in 2000. PrivatAir has major business
aviation operations in over fifteen bases in the U.S. and aircraft service
operations at Le Bourget, Paris, France; Dusseldorf, Munich and Hamburg Germany;
and Geneva, Switzerland. Mr. Hurley founded FSG in 1984. FSG is one of the
world's largest providers of corporate aircraft management, executive charter
and aircraft sales and acquisitions in the U.S. Mr. Hurley has over 30 years
experience in marketing and sales in the aerospace and telecommunications
industries. Before founding FSG, as former Senior Vice President of Domestic and
International Sales for Canadair Challenger (at the time, a Division of General
Dynamics), he had been a member of the marketing team that was responsible for
the launch of the program and delivery of the first one hundred Challengers. He
also served as Regional Vice President of the Cessna Aircraft Company and as
Director of Marketing, Government and Military Products Division, for the Harris
Intertype Corporation. Mr. Hurley serves on the Boards of the Smithsonian
Institution's National Air and Space Museum, Washington, D.C., BE Aerospace,
Inc., Wellington, FL; the Corporate Angel Network, White Plains, N.Y., the Wings
Club, New York City, Aerosat, Inc., Manchester, N.H., and Capital Route Limited,
Galway, Ireland. He is an alumnus of Hartwick College and served three years in
the Special Services Branch of the US Army, receiving an honorable discharge.

GEORGE P. FARLEY. George P. Farley has been providing business
consulting services for the past four years. Within the last fiscal year, Mr.
Farley has been a Director and a member of the Audit Committee of Acorn
Holdings, Inc., a Director and member of the Audit Committee of Preserver
Insurance Company, Inc. and has also been a Director for Olympia Leather
Company, Inc. In 1999, Mr. Farley was a Director and the Chief Financial Officer
of Talk.com, Inc., which provides telecommunication services.

JAMES K. HARLAN. James K. Harlan has been the Executive Vice
President and Chief Financial Officer of HNG Storage Company, a natural gas
storage, development and operations company since 1998. From 1991 to 1997, Mr.
Harlan served as Group Development Manager for the Pacific Resources Group which
was engaged with various manufacturing and distribution businesses in Asia. He
also served as operations research and planning analyst for the White House
Office of Energy Policy and Planning from 1977 to 1978, the Department of Energy
from 1978 to 1981, and U.S. Synthetic Fuels Corporation from 1981 to 1984. He
has a PhD in Public Policy with an operations research dissertation from Harvard
University and a BS in Chemical Engineering from Washington University. Mr.
Harlan is a member of the Board of Directors of iCAD.

JOSEPH C. HAYDEN. Joseph C. Hayden has been the Vice President of
Business Development for Ionatron since 2003. Mr. Hayden has over 25 years
experience in managing large engineering projects and high technology research
and development. Mr. Hayden will be responsible for project management for
Ionatron. Prior to the founding of Ionatron, Mr. Hayden was the lead Systems
Engineer for the Directed Energy Weapons product line for Raytheon, Inc.
("Raytheon"). He has also been a U.S. Navy surface nuclear engineer.

-10-

STEPHEN W. MCCAHON. Stephen W. McCahon has been the Vice President of
Engineering for Ionatron since 2003. Dr. McCahon has an extensive background in
optical physics, solid-state physics, ultra-short pulse lasers and non-linear
optics, and a broad background in Electrical Engineering (BSEE, MSEE, PH.D.
EE/Physics). Dr. McCahon has more than 40 scientific publications and holds 10
issued patents with 3 pending. Dr. McCahon's most recent position, from 1986 to
2003, had been Chief Engineer of Raytheon's Directed Energy Weapon Product Line.
Previously, he had been a Member of the Research Staff at Hughes Research
Laboratories in Malibu, CA (Currently known as HRL Laboratories).

ADMIRAL THOMAS W. STEFFENS (RET.). Rear Admiral Thomas W. Steffens,
U.S. Navy (Ret) was elected to serve as a member our Board on March 19, 2004.
Admiral Steffens currently serves as the Technical Director for Homeland
Security and special operations for ANTEON Corporation. In 2003, he concluded
over 34 years of naval service as a Navy SEAL. Following the events of September
11th, Admiral Steffens was recalled by the Chief of Naval Operations to serve as
Special Assistant for Homeland Security to the Commander, Fleet Forces Command.
While serving as such, he also served as the Director of Anti-Terrorism and was
responsible for coordination with the U.S. Northern Command and with the U.S.
Coast Guard for Maritime Homeland Defense and port security. He also regularly
coordinated with the Joint Staff, services and various agencies (CIA, DIA, DISA,
NSA) in the areas of command, control, communications and intelligence. During
his 18 months in this position he established a vision and strategy for Navy
Force Protection, implemented an operational architecture for both the Fleet and
Regional Shore-based Navy, built a force of over 15,000 security personnel, and
set security standards for all CONUS naval installations. Admiral Steffens was
instrumental in establishing the Center for Anti-Terrorism that establishes
security doctrine and trains all leaders for the Navy today.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table discloses for the periods presented the
compensation for the person who served as our Chief Executive Officer and for
each of our other executive officers (not including the Chief Executive Officer)
whose total individual compensation exceeded $100,000 for our fiscal year ended
December 31, 2003 (the "Named Executives").

Annual Compensation
----------------------------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation(1)
--------------------------------------------------------------------------------------------

Thomas Dearmin 2003 $200,000 -- --
Chief Executive Officer, 2002 23,000 -- --
President and Chief Financial Officer

Robert Howard 2003 0 -- --
Chairman of the Board 2002 0 -- --

Joseph Hayden 2003 175,000 -- --
Vice President, Business Development 2002 20,000 -- --

Stephen William McCahon 2003 175,000 -- --
Vice President of Engineering 2002 20,000 -- --

None of the Named Executives received any long-term compensation
awards during fiscal 2002 or 2003.

We did not grant any stock options to any of the Named Executives
during fiscal 2003. None of the Named Executives exercised any stock options
during fiscal 2003 or held any stock options at December 31, 2003.

-11-

Director Compensation

Ionatron's current directors did not receive any compensation for
serving in such capacity during fiscal 2003.

Stock Option Plans and Incentive Plan

Following is a description of our stock option plans and stock
incentive plan. Prior to the Merger, Ionatron did not have any stock option
plans.

At June 1, 2004, there were plan options to purchase approximately
2.7 million shares of common stock outstanding.

In September 1991, we adopted a stock option plan (the "1991 Plan")
pursuant to which 700,000 shares of Common Stock have been reserved for issuance
upon the exercise of options designated as either (i) options intended to
constitute incentive stock options ("ISOs") under the Internal Revenue Code of
1986, as amended (the "Code") or (ii) non-qualified options ("NQOs"). ISOs may
be granted under the 1991 Plan to our employees and officers. NQOs may be
granted to consultants, directors (whether or not they are employees), and to
our employees or officers.

The purpose of the 1991 Plan is to encourage stock ownership by
certain of our directors, officers and employees and certain other persons
instrumental to our success and give them a greater personal interest in our
success. The 1991 Plan is administered by the Board of Directors. The Board,
within the limitations of the 1991 Plan, determines the persons to whom options
will be granted, the number of shares to be covered by each option, whether the
options granted are intended to be ISOs, the duration and rate of exercise of
each option, the option purchase price per share and the manner of exercise, the
time, manner and form of payment upon exercise of an option, and whether
restrictions such as repurchase rights in Ionatron Inc. are to be imposed on
shares subject to options.

ISOs granted under the 1991 Plan may not be granted at a price less
than the fair market value of the common stock on the date of grant (or 110% of
fair market value in the case of persons holding 10% or more of the voting stock
of Ionatron Inc.). The aggregate fair market value of shares for which ISOs
granted to any employee are exercisable for the first time by such employee
during any calendar year (under all of our stock option plans and those of any
related corporation) may not exceed $100,000. NQOs granted under the 1991 Plan
may not be granted at a price less than the fair market value of the Common
Stock on the date of grant. Options granted under the 1991 Plan will expire not
more than ten years from the date of grant (five years in the case of ISOs
granted to persons holding 10% or more of our voting stock).

We have adopted a Non-Employee Director Stock Option Plan (the
"Director Plan"). Only non-employee directors of Ionatron Inc. are eligible to
receive grants under the Director Plan. The Director Plan provided that eligible
directors automatically receive a grant of options to purchase 5,000 shares of
common stock at fair market value upon first becoming a director and,
thereafter, an annual grant, in January of each year, of 5,000 options at fair
market value. Options to purchase an aggregate of up to 100,000 shares of Common
Stock are available for automatic grants under the Director Plan. No additional
grants shall be made under the Director Plan.

We have adopted a 1995 Stock Option Plan ("1995 Plan") which provides
for grants of options to purchase up to 1,500,000 shares of common stock. The
Board of Directors or the Stock Option Committee (the "Committee"), as the case
may be, will have discretion to determine the number of shares subject to each
NQO (subject to the number of shares available for grant under the 1995 Plan and
other limitations on grant set forth in the 1995 Plan), the exercise price
thereof (provided such price is not less than the par value of the underlying
shares of Common Stock), the term thereof (but not in excess of 10 years from
the date of grant, subject to earlier termination in certain circumstances), and
the manner in which the option becomes exercisable (amounts, intervals and other
conditions). Directors who are also employed by us will be eligible to be
granted ISOs or NQOs under such plan. The Board or Committee, as the case may
be, also has discretion to determine the number of shares subject to each ISO,
the exercise price and other terms and conditions thereof, but their discretion
as to the exercise price, the term of each ISO and the number of ISOs that may
vest in any calendar year is limited by the same Code provisions applicable to
ISOs granted under the 1991 Plan.

We have adopted a 1997 Stock Option Plan ("1997 Plan") which provides
for grants of options to purchase up to 1,500,000 shares of Common Stock. The
Board of Directors or the Committee of the 1997 Plan, as the case may be, will

-12-

have discretion to determine the number of shares subject to each NQO (subject
to the number of shares available for grant under the 1997 Plan and other
limitations on grant set forth in the 1997 Plan), the exercise price thereof
(provided such price is not less than the par value of the underlying shares of
Common Stock), the term thereof (but not in excess of 10 years from the date of
grant, subject to earlier termination in certain circumstances), and the manner
in which the option becomes exercisable (amounts, intervals and other
conditions). Directors who are also our employees will be eligible to be granted
ISOs or NQOs under such plan. The Board or Committee, as the case may be, also
has discretion to determine the number of shares subject to each ISO, the
exercise price and other terms and conditions thereof, but their discretion as
to the exercise price, the term of each ISO and the number of ISOs that may vest
in any calendar year is limited by the same Code provisions applicable to ISOs
granted under the 1991 Plan.

We have also adopted a 1999 Stock Option Plan ("1999 Plan") which
provides for grants of options to purchase up to 900,000 shares of common stock.
The Board of Directors or the Committee of the 1999 Plan, as the case may be,
will have discretion to determine the number of shares subject to each NQO
(subject to the number of shares available for grant under the 1999 Plan and
other limitations on grant set forth in the 1999 Plan), the exercise price
thereof (provided such price is not less than the fair market value of the
underlying shares of Common Stock), the term thereof (but not in excess of 10
years from the date of grant, subject to earlier termination in certain
circumstances), and the manner in which the option becomes exercisable (amounts,
intervals and other conditions). Directors who are also our employees will be
eligible to be granted ISOs or NQOs under such plan. The Board or Committee, as
the case may be, also has discretion to determine the number of shares subject
to each ISO, the exercise price and other terms and conditions thereof, but
their discretion as to the exercise price, the term of each ISO and the number
of ISOs that may vest in any calendar year is limited by the same Code
provisions applicable to ISOs granted under the 1991 Plan.

On April 29, 2004, our stockholders approved our 2004 Stock Incentive
Plan ("2004 Plan"), which provides for the grant of any or all of the following
types of awards: (1) stock options, which may be either incentive stock options
or non-qualified stock options, (2) restricted stock, (3) deferred stock and (4)
other stock-based awards. A total of 3,000,000 shares of common stock have been
reserved for distribution pursuant to the 2004 Plan. As of June 1, 2004, no
options have been granted under the 2004 Plan.

We have, from time to time, also granted non-plan options to certain
officers, directors, employees and consultants.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock, based on information provided by the
persons named below in publicly available filings, as of May 25, 2004:

o each of the Company's directors and executive officers;

o all directors and executive officers of the Company as a group;
and

o each person who is known by the Company to beneficially own more
than five percent of the outstanding shares of the Company's
Common Stock.

Unless otherwise indicated, the address of each beneficial owner is
care of the Company, 3590 East Columbia Street, Tucson, Arizona 85714. Unless
otherwise indicated, the Company believes that all persons named in the
following table have sole voting and investment power with respect to all shares
of common stock that they beneficially own.

For purposes of this table, a person is deemed to be the beneficial
owner of the securities if that person has the right to acquire such securities
within 60 days of May 17, 2004 upon the exercise of options or warrants. In
determining the percentage ownership of the persons in the table above, the
Company assumed in each case that the person exercised all options and warrants
which are currently held by that person and which are exercisable within such 60
day period, but that options and warrants held by all other persons were not
exercised, and based the percentage ownership on 69,438,870 shares outstanding
on May 25, 2004.

-13-

PERCENTAGE OF
SHARES
NUMBER OF SHARES BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED
------------------------------------ ------------------ -------------
Robert Howard(1) 24,447,786(2) 35.2%
Thomas Dearmin 9,225,580 13.3
Joseph C. Hayden 6,227,266 9.0
Stephen McCahon 6,227,266 9.0
George Farley 0(3) 0
James Harlan 0(4) 0
David Hurley 0(4) 0
Thomas W. Steffens 0(4) 0
All directors and executive officers
as a group (8 persons) 46,127,898 66.5%

---------
(1) The address of Mr. Howard is 303 East 57th Street, New York, New York
10022.

(2) Does not include shares of common stock over which Mr. Howard has voting
and dispositive power as escrow agent. Mr. Howard disclaims beneficial
ownership of such shares.

(3) Does not include 75,000 shares of common stock issuable upon exercise of
stock options which vest more than 60 days after May 25, 2004.

(4) Does not include 50,000 shares of common stock issuable upon exercise of
stock options which vest more than 60 days after May 25, 2004.

-14-

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Our Chairman, a significant shareholder, has provided funds from the
inception of the Company under a revolving credit arrangement. The maximum
amount borrowed was $5.3 million. After pay down of $500,000 and contribution of
$2 million of the revolving credit into equity in the first quarter of 2004, the
remainder of $2.8 million was incorporated into a new $3 million revolving
credit arrangement. The note payable to shareholder bears interest at a variable
annual rate equal to the prime rate plus two percent (2%), is due upon demand
subject to Board approval, and is collateralized by the assets of our
subsidiary, Ionatron Technologies, Inc. $2.8 million and $4.3 million were
outstanding under the revolving credit arrangements at March 31, 2004 and
December 31, 2003, respectively.

We lease office, manufacturing and storage space at an annual rental
of $330,000 under a non-cancelable operating lease agreement from an entity
owned by our Chairman, members of his family and our principal officers, and
controlled by our Chairman. The lease expires in November 2012, contains renewal
options and an escalation provision at the end of five years that increases our
annual rent by $49,500. We are also responsible for certain property related
costs, including insurance, utilities and property taxes. Rent expense for 2003
and 2002 was approximately $90,000 for each quarter. Future annual minimum lease
payments under these leases are:

Years Ending December 31, Amount
------------------------ -----------

2004 $ 247,500
2005 330,000
2006 330,000
2007 352,000
2008 379,500
Thereafter 1,454,750
-----------
Total $3,093,750
===========

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

Our common stock has traded in the over-the-counter market and was
quoted on the NASDAQ Stock Market from March 26, 1992 until April 18, 2003 under
the symbol USHG. USHG common stock traded on the over-the-counter bulletin board
from April 18, 2003 until April 30, 2004 under the symbol USHG.OB. On April 29,
2004, our stockholders approved our name change to Ionatron Inc. and since April
30, 2004 our common stock has been trading on the over-the counter bulletin
board under the symbol "IOTN.OB". Prior to the merger, Ionatron's common stock
was not publicly traded. The following table sets forth, for the periods
indicated, the high and low sales prices for the common stock of USHG prior to
the Merger on March 18, 2004 and our common stock since the Merger, for the
following periods as reported by Nasdaq.

High Low
------ -------
Year Ended December 31, 2002
First Quarter $ .62 $ .46
Second Quarter .72 .34
Third Quarter .98 .47
Fourth Quarter .78 .38

Year Ended December 31, 2003
First Quarter $ .59 $ .44
Second Quarter .60 .31
Third Quarter .55 .35
Fourth Quarter .72 .47

Year Ending December 31, 2004
First Quarter $4.98 $ .48

-15-

As of May 25, 2004 the number of holders of record of our common
stock was 210. In addition, we believe there are in excess of 3,000 beneficial
owners of our common stock whose shares are held in "street name."

We have not paid any cash dividends on our common stock to date and
do not expect to declare or pay any cash or stock dividends in the foreseeable
future.

DESCRIPTION OF REGISTRANT'S SECURITIES

GENERAL

On April 29, 2004, our stockholders approved the amendment of our
Certificate of Incorporation to increase our authorized shares of common stock
from 75,000,000 to 100,000,000 shares. As of May 25, 2004, 69,438,870 shares of
our common stock were issued and outstanding. We are authorized to issue
1,000,000 shares of preferred stock with such rights, designations and
preferences as may be determined from time to time by the Board of Directors. As
of May 25, 2004, there were no shares of preferred stock issued and outstanding.

On April 29, 2004, our stockholders approved the classification of
our board of directors into three classes. The initial term of all classes of
directors will expire at the next Annual Meeting of Stockholders (the "Next
Annual Meeting"). Directors elected at the Next Annual Meeting as Class I
directors will hold office for an initial term expiring at the first annual
meeting of stockholders after the Next Annual Meeting; directors elected at the
Next Annual Meeting as Class II directors to hold office for an initial term
expiring at the second annual meeting of stockholders after the Next Annual
Meeting; and directors elected at the Next Annual Meeting as Class III directors
to hold office for an initial term expiring at the third annual meeting of
stockholders after the Next Annual Meeting; and, thereafter, the successors to
the directors of the class whose terms expire in that year shall be elected to
hold office for a term of three years.

We have a Rights Agreement commonly known as a "poison pill", which
provides that in the event an individual or entity becomes a beneficial holder
of 12% or more of the shares of our capital stock, without the approval of the
Board of Directors, all other stockholders of the Company shall have the right
to purchase shares of our (or in some cases, the acquiror's) common stock from
the Company at 50% of its then market value. In connection with the Merger, the
acquisition of greater than 12% of our capital stock by each of our Chairman and
Chief Executive Officer was approved by the Board of Directors.

Common Stock

The holders of common stock are entitled to one vote per share on al
matters submitted to a vote of the shareholders, including the election of
directors, and, subject to preferences that may be applicable to any preferred
stock outstanding at the time, are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the Board of Directors out of
funds legally available therefore. In the event of liquidation or dissolution of
the Company, the holders of common stock are entitled to receive all assets
available for distribution to the shareholders, subject to any preferential
rights of any preferred stock then outstanding. The holders of common stock have
no preemptive or other subscription rights, and there are no conversion rights
or redemption or sinking fund provisions with respect to the common stock. All
outstanding shares of common stock are, and the shares of common stock offered
hereby upon issuance and sale will be, fully paid and non-assessable. The
rights, preferences and privileges of the holders of common stock are subject
to, and may be adversely affected by, the right of the holders of any shares of
preferred stock which the Company may designate the future.

Preferred Stock

Authorized but undesignated shares of preferred stock may be issued
from time to time in one or more series upon authorization by the Company's
Board of Directors. The Board of Directors, without further approval of the
shareholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences, and
other rights, preferences, privileges and restrictions applicable to each series
of preferred stock. The issuance of preferred stock, while providing flexibility
in connection with possible acquisitions and other corporate purposes could,
among other things, adversely affect the voting power of the holders of common
stock and, under certain circumstances, make it more difficult for a third party
to gain control of the Company, prevent or substantially delay a change of

-16-

control, discourage bids for the Company's common stock at a premium or
otherwise adversely affect the market price of the common stock.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

We agree to indemnify our officers and directors for certain events
or occurrences arising as a result of the officer or director's serving in such
capacity. The term of the indemnification period is for the officer's or
director's lifetime. The maximum amount of future payments that we could be
required to make under these indemnification agreements is unlimited. However,
we maintain a directors and officer liability insurance policy that limits our
exposure and enables us to recover a portion of any future amounts paid.

NON-PLAN OPTIONS AND WARRANTS

At June 1, 2004, there were non-plan options and warrants to purchase
approximately 2.3 million shares of our common stock outstanding at exercise
prices ranging from $0.63 to $4.125.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

(a) The historical financial statements of Ionatron, Inc. are set
forth below.

(b) Pro-forma Financial Information.

The pro-forma balance sheet has not been presented because the
balance sheet as of March 31, 2004 presented in our Quarterly Report on Form
10-Q for the period ended March 31, 2004 reflects the Merger. All other
pro-forma financial statements required by the Article 11 of Regulation S-X have
been omitted as not being meaningful as U.S. Home and Garden Inc. was a
non-operating company at date of merger whose only assets were cash and prepaid
insurance.

The termination of the Company's Sub-chapter S election had no effect
on net loss as a result of losses incurred from inception. Basic and diluted
loss per share for the year ended December 31, 2003 and the period June 3
(inception) through December 31, 2002 were $.07 and $.01, respectively, based on
48,452,249 shares exchanged in the merger. Warrants to purchase Ionatron stock
have been excluded because the effect would have been anti-dilutive.

The exhibits filed as part of this Current Report on Form 8-K/A are
listed in the attached Index to Exhibits.

FINANCIAL STATEMENTS OF IONATRON, INC.

PAGE

Report of Independent Certified Public Accountants....................... 19

Financial Statements
Balance Sheet...................................................... 20
Statements of Operations........................................... 21
Statements of Changes in Stockholders' Deficit..................... 22
Statements of Cash Flows........................................... 23

Notes to Financial Statements............................................ 24

-17-

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
IONATRON, INC.
Tucson, Arizona

We have audited the accompanying balance sheets of Ionatron, Inc. as
of December 31, 2003 and 2002 and the related statements of operations,
stockholders' deficit, and cash flows for the year ended December 31, 2003 and
the period June 3, (inception) through December 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ionatron, Inc. at
December 31, 2003 and 2002, and the results of its operations and its cash flows
for the year ended December 31, 2003 and the period June 3, (inception) through
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America.

/s/ BDO Seidman, LLP
------------------------------
BDO Seidman, LLP
Los Angeles, California
March 12, 2004, except for Note 8,
which is as of April 29, 2004

-18-

IONATRON, INC
BALANCE SHEETS

December 31,
---------------------------
2003 2002
----------- -----------

ASSETS

Current assets:
Cash $ 103,392 $ 97,206
Accounts receivable 73,027 --
Receivables from shareholder 107,482 100,000
Inventory 21,000 --
Costs in excess of billings 31,427 --
Prepaid expenses 47,905 1,800
----------- -----------

Total current assets 384,233 199,006
----------- -----------

Property and equipment, net 1,141,887 1,161,621
----------- -----------

Total assets $ 1,526,120 $ 1,360,627
----------- -----------

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Note payable to shareholder $ 4,300,000 $ 1,175,000
Accounts payable 330,696 868,322
Accrued expenses 365,208 44,980
----------- -----------

Total liabilities 4,995,904 2,088,302
----------- -----------

Commitments and contingencies -- --

Stockholders' deficit:
Common stock, $.01 par value, 3,000 shares authorized;
1,430 shares issued and outstanding
at December 31, 2003 and 2002 14 14
Additional paid in capital 519,986 19,986
Accumulated deficit (3,989,784) (747,675)
----------- -----------

Total stockholders' deficit (3,469,784) (727,675)
----------- -----------

Total liabilities and stockholders' deficit $ 1,526,120 $ 1,360,627
----------- -----------

See accompanying notes to financial statements.

-19-

IONATRON, INC.
STATEMENTS OF OPERATIONS

Period June 3,
Year Ended (Inception) -
December 31, December 31,
2003 2002
----------- ------------

Revenue $ 383,273 $ --

Costs of revenue 356,822 --
----------- -----------

Gross profit 26,451 --
----------- -----------

Operating expenses:
General and administrative 1,681,174 429,352
Selling and marketing 239,847 53,524
Research and development 1,151,350 264,799
----------- -----------

Total operating expenses 3,072,371 747,675
----------- -----------

Operating loss (3,045,920) (747,675)

Interest expense 196,189 --
----------- -----------

Net loss $(3,242,109) $ (747,675)
=========== ===========

See accompanying notes to financial statements.

-20-

IONATRON, INC
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
JUNE 3, 2002 (INCEPTION) - DECEMBER 31, 2003

Additional Total
Paid in Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
----------- ----------- ----------- ------------ -------------

BALANCE AT INCEPTION, June 3, 2002
Issuance of common stock for cash 1,430 $ 14 $ 19,986 $ -- $ 20,000
Net loss -- -- -- (747,675) (747,675
----------- ----------- ----------- ----------- -----------

BALANCE, December 31, 2002 1,430 14 19,986 (747,675) (727,675)
Issuance of warrants for cash -- -- 500,000 -- 500,000
Net loss -- -- -- (3,242,109) (3,242,109)
----------- ----------- ----------- ----------- -----------

BALANCE, December 31, 2003 1,430 $ 14 $ 519,986 $(3,989,784) $(3,469,784)
=========== =========== =========== =========== ===========

See accompanying notes to financial statements.

-21-

IONATRON, INC.
STATEMENTS OF CASH FLOWS

Period June 3,
Year Ended (Inception) -
December 31, December 31,
INCREASE (DECREASE) IN CASH 2003 2002
----------- --------------

Cash flows from operating activities:
Net loss $(3,242,109) $ (747,675)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 645,002 230,286
Changes in assets and liabilities:
Accounts receivable (73,027) --
Other assets - related party (7,482) (100,000)
Inventory (21,000) --
Costs in excess of billings (31,427) --
Prepaid expenses (46,105) (1,800)
Accounts payable (537,626) 868,322
Accrued expenses 320,228 44,980
----------- -----------

Total adjustments 248,563 1,041,788
----------- -----------

Net cash (used in) provided by operating activities (2,993,546) 294,113
----------- -----------

Cash flows from investing activities:
Purchase of equipment (625,268) (1,391,907)
----------- -----------

Net cash used in investing activities (625,268) (1,391,907)
----------- -----------

Cash flows from financing activities:
Proceeds from note payable to shareholder 3,125,000 1,175,000
Proceeds from issuance of common stock -- 20,000
Proceeds from issuance of warrants 500,000 --
----------- -----------

Net cash provided by financing activities 3,625,000 1,195,000
----------- -----------

Net increase in cash 6,186 97,206

Cash, beginning of period 97,206 --
----------- -----------

Cash, end of period $ 103,392 $ 97,206
=========== ===========

Supplemental statement of cash flow information:
Cash paid during the year for interest $ 196,189 $ --
=========== ===========

See accompanying notes to financial statements.

-22-

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS AND SUMMARY OPERATIONS

Ionatron, Inc. (the "Company") was formed on June 3, 2002 to develop
and market Directed Energy Weapon technology products primarily for sale to the
U.S. Government. During 2003 and 2002, the Company has engaged primarily in
research and development as well as business development activities focused on
identifying potential customers within the U.S. Government. In 2003, the Company
gained the attention of several U.S. Government entities and acquired two
contracts requiring deliverables in the form of analysis, testing and technology
demonstration.

BASIS OF PRESENTATION

The Company was considered to be in the development stage through
2002. In the start up year 2002, most of the efforts of the Company were
directed towards scientific proof of concept and introduction of the technology
to potential U.S. Government customers. This culminated in the move into the new
facility and purchase of advanced equipment in 2002. As of December 31, 2003,
the Company is no longer considered in the development stage. In 2003, the
concept was developed into early stage technology, including identification of
critical technical parameters, development of Intellectual Property,
demonstration of the technology and initiation of the first U.S. Government
contracts. The goal of the Company is to produce products that incorporate the
technology for specific U.S. Government customer applications and platforms.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
Company's 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
revenue and expenses during the reporting period. Actual results could differ
from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of accounts receivable, accounts payable and
accrued expenses approximate fair value due to the short maturity of these
instruments. Due to the start-up nature of the Company, it is not practical to
estimate the fair value of the related party debt.

REVENUE RECOGNITION

Revenues under long-term U.S. Government contracts are recorded under
the percentage of completion method. Revenues under cost plus fixed fee
contracts are recorded as costs are incurred and include estimated earned fees
in the proportion that costs incurred to date bear to total estimated costs.
Costs include direct labor, direct materials, subcontractor costs, all with an
indirect rate applied. As contracts can extend over one or more accounting
periods, revisions in costs and earnings estimated during the course of work are
reflected during the accounting period in which the facts become known. When the
current contract estimate indicates a loss, provision is made for the total
anticipated loss in the current period.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents are considered to be all highly liquid
investments purchased with an initial maturity of three (3) months or less.

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NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

ACCOUNTS RECEIVABLE

The Company provides for potentially uncollectible accounts
receivable by use of the allowance method. The allowance is provided based upon
a review of the individual accounts outstanding, and the Company's prior history
of uncollectible accounts receivable. The Company's customers at December 31,
2003 consist only of the U.S. Government and accordingly, no allowance for
potentially uncollected accounts receivable was considered necessary by the
Company at December 31, 2003.

INVENTORY

Inventory consists primarily of materials specifically identified by
contract. Materials purchased for a specific contract are held in Inventory
until the prototype is ready for delivery. Since purchases are tied to a
specified Project, they are stated at actual cost.

PROPERTY AND EQUIPMENT

Property and equipment is carried at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets.
The rapid rate of technology development impacts the useful lives of equipment
used in the development of proof of concept. The estimated useful lives of
equipment used in proof of concept is depreciated over 3 years. Other assets are
depreciated over periods ranging from 3 to 10 years.

IMPAIRMENT OF LONG-LIVED ASSETS

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances (rapid pace
of technology) indicate that the carrying amount of any asset may not be
recoverable.

The Company assesses the recoverability of long-lived assets by
determining whether the amortization of the balances over their remaining lives
can be recovered through undiscounted future operating cash flows. The amount of
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of long-lived assets will be impacted if
estimated future operating cash flows are not achieved.

CONCENTRATIONS OF CREDIT RISK

The Company maintains cash balances at a major bank and at times,
balances exceed FDIC limits.

Financial instruments, which potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105, consist primarily of
accounts receivable from the U.S. Government. The Company does not require
collateral upon delivery of its products or services.

INCOME TAXES

The Company has elected "S" Corporation status for federal and state
income tax purposes. This election results in income and losses of the Company
flowing through to the shareholders for income tax purposes.

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RESEARCH AND DEVELOPMENT EXPENSES

The Company expenses research and development costs as incurred in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 2,
"Accounting for Research and Development Costs".

-24-

NEW ACCOUNTING PRONOUNCEMENTS

In November 2002, the FASB issued interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including indirect
Guarantees of Indebtedness of Others," which disclosures are effective for
financial statements for periods ending after December 15, 2002. While the
Company has various guarantees included in contracts in the normal course of
business, primarily in the form of indemnities, these guarantees would only
result in immaterial increases in future costs, and do not represent significant
commitments or contingent liabilities of the indebtedness of others.

In January 2003, the FASB issued interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46) which requires the
consolidation of variable interest entities, as defined. FIN 46 is applicable
immediately for variable interest entities created after January 1, 2003. For
variable interest entities created prior to January 1, 2003, the provisions of
FIN 46 are applicable no later than July 1, 2003. The Company does not currently
believe that any material entities will be consolidated as a result of FIN 46.

NOTE 2--PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

December 31, December 31,
2003 2002
----------- -----------

Furniture and leasehold improvements $ 16,559 $ 2,952
Equipment and software 2,000,617 1,388,955
----------- -----------
2,017,176 1,391,907

Less accumulated depreciation (875,289) (230,286)
----------- -----------

Net property and equipment $ 1,141,887 $ 1,161,621
=========== ===========

Depreciation expense charged to operations was $645,002 and $230,286 in 2003 and
2002, respectively.

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NOTE 3--RELATED PARTY TRANSACTIONS

OTHER RECEIVABLES - RELATED PARTY

At December 31, 2003 and 2002, other receivables - related party
represented balances due to a shareholder of the Company, which were short-term
in nature, non-interest bearing and due on demand.

NOTE PAYABLE TO SHAREHOLDER

During the first quarter of fiscal 2002, the Company received venture
capital funds from a shareholder and member of the Ionatron, Inc. Board of
Directors. The amount of these funds was later converted to the Convertible
Revolving Credit Promissory Note (Note payable to shareholder) effective in year
2003.

The note payable to shareholder bears interest at a variable annual
rate equal to the Base Rate plus two percent (2%), is due upon demand, and is
collateralized by all of the assets of the Company. The shareholder has the
right to convert all or any outstanding principal into common stock of up to 80%
of total shares outstanding, after the conversion, beginning January 15, 2004
through January 15, 2007, if the loan and interest repayment agreement is
breached by the Company. Pursuant to merger agreement, this conversion feature
will be amended and removed. SEE NOTE 8

Note payable to shareholder is as follows:

December 31,
----------------------------
2003 2002
----------- -----------
Convertible Revolving Credit Promissory Note,
interest at a variable annual rate equal to
Base Rate plus two percent (2%). Note is
due upon demand, and is collateralized by
common stock. $ 4,300,000 $ 1,175,000
=========== ===========

NOTE 4--COMMON STOCK WARRANT AND DEVELOPMENT AGREEMENT

In October 2003, the Company entered an agreement with a third party
whereby the Company issued a warrant, which expires October 2008, representing
up to 3% of the outstanding equity of the Company for total consideration of up
to $2,400,000, in conjunction with a Development Agreement. The number of shares
that may be issued under the warrant at any time upon exercise is multiplied by
the fraction computed as the cash actually paid to the Company pursuant to the
Development Agreement divided by $2,400,000. The exercise price of the warrant
is the fair market value of the underlying common stock on the date of exercise,
except that, any warrant not exercised on the earlier of (a) July 1, 2004, (b)
immediately prior to the consummation of an acquisition, or (c) termination of
the Company's "S" Corporation status shall have the right to convert the warrant
to common stock without further cash payment (i.e. zero exercise price). The
Development Agreement provides the third party with ownership rights to
intellectual property developed on behalf of the third party in connection with
the Development Agreement and certain license rights in exchange for payments up
to $2,400,000 in the amounts and times specified in the Development Agreement.
In addition, the Development Agreement provides for reimbursement of up to one
third of the Company's actual labor, material and external consulting costs
expended under the Development Agreement. Upon signing the warrant and
Development Agreement, the Company received a $500,000 payment from the third
party, which the Company considers as payment for the warrant and has recorded
the entire $500,000 as additional paid-in-capital. As of December 31, 2003, no
additional payments have been received under the Development Agreement.

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NOTE 5--SIGNIFICANT CUSTOMERS

The Company derives all of its total revenue from U.S. Government
customers. Revenue in 2003 was derived from two (2) contracts. One contract
accounted for 28.4% and the second contract accounted for 71.6%.

At December 31, 2003, receivables from the U.S. Government accounted
for all of the Company's accounts receivable.

NOTE 6--401(k) PLAN

In the 4th quarter of 2003, the Company established a 401(k) plan for
the benefit of its employees. The Company may also make discretionary
contributions to the plan in amounts determined by management. Participants
immediately vest in their personal contributions. In fiscal 2003 and 2002, the
Company did not contribute to the 401(k) plan.

NOTE 7--COMMITMENTS AND CONTINGENCIES

The Company leases office, manufacturing and storage space under a
noncancelable operating lease agreement with a company in which the shareholders
of the Company have an ownership interest expiring through November 14, 2012.
The lease contains renewal options and an escalation provision at the end of
five years in the amount of $49,500 per annum, and the Company is responsible
for certain executory costs, including insurance and utilities. Rent expense for
2003 and 2002 was approximately $355,000 and $45,000, respectively. Future
minimum lease payments under operating leases that have remaining noncancelable
lease terms in excess of one year at December 31, 2003 are as follows:

Years ending December 31, Amount
------------------------- -------------
2004 $ 330,000
2005 330,000
2006 330,000
2007 352,000
2008 379,500
Thereafter 1,454,750
-------------
Total $ 3,176,250
=============

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NOTE 8--SUBSEQUENT EVENTS

On March 18, 2004, a subsidiary of U. S. Home & Garden Inc. (USHG), a
non-operating, publicly traded company merged into Ionatron, Inc. (the
"Merger"). Following the Merger, USHG shareholders held 33.89 % and Ionatron
shareholders held 66.11% of USHG common stock on a fully diluted basis. The
combination is accounted for as a recapitalization of Ionatron, Inc., effective
from our inception on June 3, 2002 and the issuance of 19,346,090 common shares
and 5,429,009 options and warrants to the USHG shareholders on the date of
merger in exchange for the cash of approximately $8.9 million. We also acquired
in the Merger a $1.6 million principal amount subordinated promissory note from
a highly leveraged entity. This note matures in 2009 and accrues interest on a
compound basis at the rate of 9% per annum until maturity. We recorded a 100%
valuation allowance for this note due to the uncertainty of collectibility. Upon
consummation of the merger, all officers and directors of USHG resigned and were
replaced by persons selected by Ionatron, Inc.

Prior to the Merger, the note payable to shareholder was amended and
reduced to $3,000,000 with interest due quarterly and to remove the conversion
feature. In addition, $2,000,000 of principal was contributed to the capital of
the Company for 130 shares of stock that have been presented as outstanding from
inception.

On April 29, 2004, our shareholders approved the change of the
corporate name of USHG to Ionatron, Inc., an increase in authorized common stock
to 100,000,000 shares, and the classification of the Board of Directors into
three classes.

We announced on April 21, 2004 receipt of a U.S. Government contract
to build and deliver a transportable demonstrator unit that will be utilized to
conduct field trials of our next generation controlled energy technology. The
initial contract award is for $9,000,000 and is expected to be completed in less
than 10 months and is a cost plus fixed fee type contract.

-28-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

U.S. HOME & GARDEN INC.

By: /s/ Thomas C. Dearmin
------------------------------
Thomas C. Dearmin,
Chief Executive Officer, President
And Chief Financial Officer

Dated: June 1, 2004

-29-

INDEX TO EXHIBITS

Exhibit Description
------- -----------

2(a) Amended and Restated Plan and Agreement of Merger dated as of March
17, 2004 between the Registrant, Merger Sub, Robert Kassel (for
purposes of Sections 5.9, 6 6.2(j), 9.4 and 10.10 only), Fred Heiden
(for purposes of Section 9.4 only), Ionatron, Robert Howard, Stephen
W. McCahon, Thomas C. Dearmin and Joseph C. Hayden. (1)

23.1 Consent of BDO Seidman, LLP.

---------
(1) Previously filed with the Company's Current Report on Form 8-K for the
event dated March 18, 2004

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