NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. BASIS OF FINANCIAL PRESENTATION

The consolidated financial statements include the accounts of Ionatron, Inc. and its wholly-owned subsidiary, Ionatron Technologies, Inc. (collectively, "Company," "Ionatron," "we," "our" and "us"). All intercompany balances and transactions have been eliminated.

The consolidated financial statements and related notes thereto as of March 31, 2004 and for the three months ended March 31, 2004 and 2003 are presented as unaudited, but in the opinion of management include all adjustments necessary to present fairly the information set forth therein. The consolidated balance sheet information for December 31, 2003 was derived from the audited financial statements. The interim results are not necessarily indicative of the results for any future periods.

MERGER AND RECAPITALIZATION

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 has been 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. 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.

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. All outstanding shares of Ionatron common stock were converted to 48,452,249 shares of USHG common stock. 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 the Board of Directors into three classes. We also changed of 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 recapitalization.

NATURE OF BUSINESS AND SUMMARY OF OPERATIONS

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 produce products that incorporate our technology initially 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.

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:

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

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

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

- 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;

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

- Inability to adapt to technological change;

- Inability to successfully manufacture and assemble our products;

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

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

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

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

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

- Failure to successfully field test our weapon products;

- Inability to collect amounts due to us from our customers; and

- Our failure to provide adequate customer service.

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

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires our 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.

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, 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 and services 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.

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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of accounts receivable, accounts payable, accrued expenses and related party debt approximate fair value due to the short maturity of these instruments.

CONCENTRATIONS OF CREDIT RISK

We maintain cash balances at a major bank and at times, balances exceed FDIC limits. We generally do not have a significant concentration of credit risk on accounts receivable from the U.S. Government.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We do not generally provide an allowance for receivables from the U.S. Government. Allowances for doubtful accounts will be maintained for estimated losses resulting from the failure of other customers to make required payments on their accounts.

PROPERTY AND EQUIPMENT AND DEPRECIATION

Property and equipment are recorded at historical cost. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets from 3 to 10 years. Leasehold improvements are depreciated over the life of the related lease or asset, if shorter. Amortization of assets acquired under capital leases is included in depreciation and amortization expense.

Significant improvements extending the useful life of property are capitalized. When property is retired or otherwise disposed of, the cost of the property and the related accumulated depreciation are removed from the accounts, and any resulting gains or losses are reflected in the consolidated statement of operations. Repair and maintenance costs are expensed as incurred.

COMPUTER SOFTWARE DEVELOPMENT COSTS

Direct development costs associated with internal-use computer software are accounted for under Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" and are capitalized, including external direct costs of material and services and payroll costs for employees devoting time to the software projects. Costs incurred during the preliminary project stage, as well as for maintenance and training are expensed

as incurred. Amortization is provided on a straight-line basis over the shorter of 3 years or the estimated useful life of the software.

VALUATION OF LONG-LIVED ASSETS

We review long-lived assets and certain identifiable intangibles for possible impairment whenever events or changes in circumstances (rapid pace of technology) indicate that the carrying amount of any asset may not be recoverable. We assess the recoverability of long-lived assets and certain identifiable intangibles 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. Factors we consider important that could trigger an impairment review include the following:

o Significant underperformance relative to historical or projected future operating results,

o Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

o Significant negative industry or economic trends; and

o Significant decline in our stock price for a sustained period and market capitalization relative to net book value.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized currently for the future tax consequences attributable to the temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.

We consider all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a net deferred tax asset. Judgment is used in considering the relative impact of negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. We record a valuation allowance to reduce our deferred tax assets and review the amount of such allowance annually. When we determine certain deferred tax assets are more likely than not to be utilized, we will reduce our valuation allowance accordingly.

Prior to January 1, 2004, we elected to be taxed as a Subchapter S-corporation with the individual shareholders reporting their respective share of our losses on their income tax return. Accordingly, we have no deferred tax assets or liabilities arising in prior periods.

We have provided a valuation allowance for the deferred tax assets related to the $6.7 million operating and $7.8 million capital loss carryovers of USHG. The operating losses are available for deduction from our taxable income at a rate of $2.8 million per year. The tax benefits related to deduction of the USHG losses will be added to paid-in capital.

RESEARCH AND DEVELOPMENT EXPENSES

We expense our research and development costs as incurred.

NET LOSS PER SHARE

Basic earnings per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the effect of common shares issuable upon exercise of stock options and warrants when such effect is not anti-dilutive.

STOCK-BASED COMPENSATION

We account for our stock option awards under the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, including FASB Interpretation No. 44 "Accounting for Certain Transactions Including Stock Compensation," an interpretation of APB Opinion No. 25. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. We make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied as required by SFAS No. 123, "Accounting for Stock-Based Compensation" and SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS 123." For purposes of pro forma disclosures under SFAS 123, pro-forma compensation expense measured at date of grant for options granted near the end of the first quarter is assumed to be amortized for pro-forma disclosure purposes over the two - four year vesting periods of the options. As a result of the grant date at the end of the first quarter, there was no pro-forma compensation expense for the first quarter.

Pro-forma compensation is based on the fair value of the options granted which has been estimated at the various dates of the grants using the Black-Scholes option-pricing model with the following assumptions:

- Fair market value of the underlying common stock based on our closing common stock price on the date the option is granted;

- Risk-free interest rate based on the weighted averaged 5-year U.S. Treasury note strip rates;

- Volatility has been based on comparable companies considered as we do not have sufficient trading history for our common stock; and

- No expected dividend yield based on future dividend payment plans.

COMPREHENSIVE INCOME

We have no items of comprehensive income or expense. Accordingly, our comprehensive income (loss) and net income (loss) are equal for all periods presented.

NEW ACCOUNTING PRONOUNCEMENTS

There are no new accounting pronouncements that affect our consolidated financial statements. However recent proposals by the Financial Accounting Standards Board relating to stock based compensation would, if adopted, require us to use the fair value method of accounting (as described above) for our stock options issued in the future.

2. ACCOUNTS RECEIVABLE

Accounts receivable included $23,292 at March 31, 2004 and $30,948 at December 31, 2003 of recoverable costs for progress completed but not yet billed.

3. INVENTORIES

Inventories, primarily consisting of labor, overhead and materials pertaining to long-term contracts, are carried at cost. At March 31, 2004, inventory was comprised only of materials.

                                          March 31, 2004     December 31, 2003
                                          --------------     -----------------

Furniture and leasehold improvements        $    31,539         $    16,559
Equipment and software                        2,059,757           2,000,617
                                            -----------         -----------
                                              2,091,296           2,017,176

Less accumulated depreciation                (1,032,767)           (875,289)
                                            -----------         -----------

Net property and equipment                  $ 1,058,529         $ 1,141,887
                                            ===========         ===========

5. NOTE PAYABLE TO SHAREHOLDER

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 with same terms of the original revolving credit agreement. 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.

6. STOCKHOLDERS' EQUITY

PREFERRED STOCK

The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, rights and preference as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights, which could adversely affect the voting power or other rights of the holders of the Company's common stock. No shares of the preferred stock are outstanding.

COMMON STOCK

On April 29, 2004, our shareholders approved the increase in our authorized common stock to 100,000,000 shares. We have given retroactive effect to this increase in the accompanying balance sheet.

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, 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.

STOCK WARRANT AND DEVELOPMENT AGREEMENT

In October 2003, we entered a Development Agreement with a third party whereby the Company issued a warrant, which expires October 2008, to purchase 1,028,076 common shares at $0. Substantially all of the non-financial terms of the development agreement including the identity of the third party are classified by the U.S. Government. The Development Agreement provides the third party with ownership rights to intellectual property developed on behalf of the third party and certain license rights in exchange for the payment of $2,400,000. In addition, the Development Agreement provides for reimbursement of up to one third of our actual labor, material and external consulting costs expended under the Development Agreement. The initial $500,000 payment under the agreement was considered as payment for the warrant and was recorded as additional paid-in-capital. 1,028,076 shares of common stock issued in the Merger are being held in escrow pending issuance under the warrant. The third party and our management met on April 29, 2004 and both parties intend to enter a modified joint development agreement for the remaining $1.9 million payment due under the original agreement.

STOCK OPTIONS AND WARRANTS

At March 31, 2004 there were options to purchase 6.6 million shares of common stock outstanding. Options and warrants issued by USHG covering approximately 5.5 million shares of common stock exercisable, at exercise prices ranging from $.25 to $.63, until 2013 were outstanding at the date of the merger. Subsequent to the Merger we issued options covering 1.1 million shares of common stock at exercise prices ranging from $2.85 to $3.35 and expiration dates extending into 2009. Of the total, options to purchase 300,000 shares were granted to consultants for services provided in connection with the Merger. The remainder, which vest over two year to four year periods, were granted to directors and employees We may issue up to 3,000,000 shares of common stock at terms and conditions approved by the Board at dates of issuances under the qualified stock option plan approved by our stockholders on April 29, 2004.

7. SIGNIFICANT CUSTOMERS

Our principal customer is the U. S. Government.

8. RETIREMENT PLANS

We established a 401(k) plan for the benefit of our employees. We may make discretionary contributions to the plan. In the first quarter of 2004 and fiscal years 2003 and 2002, the Company did not contribute to the 401(k) plan.

9. COMMITMENTS AND CONTINGENCIES

LEASES

We lease office, manufacturing and storage space at an annual rental of $330,000 under a non-cancelable operating lease agreement from a company owned 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
                                                             ==========

GUARANTEES

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. As a result, we believe the estimated fair value of these indemnification agreements is minimal because of our insurance coverage and we have not recognized any liabilities for these agreements as of March 31, 2004.

10. INCOME TAXES

Income tax benefits of approximately $360,000 resulting from the loss in the first quarter are available for deduction from future taxable income. We have provided a valuation allowance for all of these income tax benefits.

                                                   Three Months Ended March 31,
                                                   ----------------------------
                                                      2004             2003
                                                      ----             ----

Conversion of note payable to common                2,000,000           --
stock

12. SUBSEQUENT EVENT

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.