UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  FORM
10-K
  (mark
one)
  [X]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  For
the fiscal year ended September 30, 2008
  [ 
] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of
1934
  Commission
file number 000-52572
  ADVANCED
GROWING SYSTEMS, INC.
 (Name
of Registrant as specified in its charter)
  Nevada
                    20-4281128(State
      or other jurisdiction of
                      incorporation
      or jurisdiction)
                    (I.R.S.
      Employer
                      Identification
      Number)
  3050
Royal Boulevard South, Ste 135
 Alpharetta,
GA 30022
 (Address of principal executive
offices)
  Registrant’s
telephone number, including area code: (678)
387-5061
 Securities
to be registered under Section 12(b) of the Act:  None
 Securities
to be registered under Section 12(g) of the Act: None
 Common
Stock, $.001 par value
 (Title
of class)
 
 Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
 Yes o   No
x
  Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act.
 Yes o   No
x
  Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
 Yes x   No
o
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
  Table of Contents
   Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company.  See the
definitions of the “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.   (Check
one):
  Large
      Accelerated Filer   o
                Accelerated
      Filer     oNon-Accelerated
      Filer     o
                  (Do
      not check if a smaller reporting company)
                Smaller
      reporting company x
  Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes o  No x
  As of
December 31, 2008, there were 25,873,761 shares of the Registrant's common
stock, par value $0.001, issued and outstanding.
  DOCUMENTS
INCORPORATED BY REFERENCE
 If the
following documents are incorporated by reference, briefly describe them and
identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated:  (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933,
as amended (“Securities Act”).  Not Applicable.
  
 FORWARD
LOOKING STATEMENTS
 
 There are
statements in this registration statement that are not historical facts. These
“forward-looking statements” can be identified by use of terminology such as
“believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,”
“expect,” “estimate,” “project,” “positioned,” “strategy” and similar
expressions. You should be aware that these forward-looking statements are
subject to risks and uncertainties that are beyond our control.  For a
discussion of these risks, you should read this entire annual report
carefully.  Although management believes that the assumptions
underlying the forward looking statements included in this annual report are
reasonable, they do not guarantee our future performance, and actual results
could differ from those contemplated by these forward looking statements. The
assumptions used for purposes of the forward-looking statements specified in the
following information represent estimates of future events and are subject to
uncertainty as to possible changes in economic, legislative, industry, and other
circumstances. As a result, the identification and interpretation of data and
other information and their use in developing and selecting assumptions from and
among reasonable alternatives require the exercise of judgment. To the extent
that the assumed events do not occur, the outcome may vary substantially from
anticipated or projected results, and, accordingly, no opinion is expressed on
the achievability of those forward-looking statements.  In the light
of these risks and uncertainties, there can be no assurance that the results and
events contemplated by the forward-looking statements contained in this annual
report will in fact transpire. You are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. We do not
undertake any obligation to update or revise any forward-looking
statements.
 
 
 
 
 
 
 
 Table of Contents
 
 
 TABLE OF CONTENTS
 
  PART I
                              
                              
                              PAGEITEM
      1.
                              
                              DESCRIPTION OF BUSINESS
                              1ITEM
      1A.
                              
                              RISK FACTORS
                              5ITEM
      1B.
                              
                              UNRESOLVED STAFF COMMENTS
                              9ITEM
      2.
                              
                              DESCRIPTION OF PROPERTY
                              9ITEM
      3.
                              
                              LEGAL PROCEEDINGS
                              10ITEM
      4.
                              
                              SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
                              10PART IIITEM
      5.
                              
                              MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS
                              10ITEM
      6.
                              
                              SELECTED FINANCIAL MATERIAL
                              12ITEM
      7.
                              
                              MANAGEMENT’S DISCUSSION AND ANALSIS OR PLAN OF
      OPERATION
                              12ITEM
      7A.
                              
                              QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
                              16ITEM
      8.
                              
                              FINANCIAL STATEMENTS
                              17ITEM
      9.
                              
                              CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE
                              18ITEM
      9A.
                              
                              CONTROLS AND PROCEDURES
                              18ITEM
      9B.
                              
                              OTHER INFORMATION
                              19PART IIIITEM
      10.
                              
                              DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND
      CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
                              19ITEM
      11.
                              
                              EXECUTIVE COMPENSATION
                              21ITEM
      12.
                              
                              SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
      AND RELATED STOCKHOLDER MATTERS
                              23ITEM
      13.
                              
                              CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                              24ITEM
      14.
                              
                              PRINCIPAL ACCOUNTANT FEES AND SERVICES
                              24ITEM
      15.
                              
                              EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
                              24INDEX TO CONSOLIDATED FINANCIAL
    STATEMENTS
    Table of Contents
 
 PART
I
  ITEM 1.  DESCRIPTION OF BUSINESS
 
 This
document describes important information about our Company and
business.   All information that might be material to investors
and is required pursuant to the item requirements of Form 10-K is discussed
within. You should read this entire document and the consolidated financial
statements and related notes included carefully, including the “Risk Factors”
section
 
 Business
Development
  Advanced
Growing Systems, Inc. (“AGWS”) was incorporated on February 2, 2006 under
the laws of the state of Nevada. On June 20, 2006, AGWS was merged into
Non-Lethal Weapons, Inc. (“NLW”), a California company trading its shares
of common stock on the “pink sheets.” NLW was originally incorporated in
California on February 28, 1983 under the name of Western Micro
Distributors, Inc. (“WMD”).  On October 25, 1989 WMD merged
with P.C. Craft, Inc., a Delaware corporation with WMD as the survivor
corporation. WMD then changed its name to PCC Group, Inc. (“PCC”). On
July 25, 2005 the name of PCC was changed to Non-Lethal Weapons, Inc.
Following the merger of AGWS into NLW, we changed our name to Advanced Growing
Systems, Inc. (“AGWS”) and changed the state of domicile from California to
Nevada. Our operating subsidiaries include Advanced Nurseries, Inc.(“ANI”), a
Georgia Corporation incorporated on February 10, 2006 and Organic Growing
Systems, Inc.(“OGSI”), incorporated on January 19, 2006 in the State of
Texas. Our fiscal year ends September 30th of each
year. We have not filed for any bankruptcy, receivership or similar proceeding.
The Company filed Form 10- SB for Registration of Securities on Form 10-SB to
register its common stock, par value $0.001,pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Section 12(g)
generally requires registration within 120 days after the last day of the first
fiscal year in which an issuer has total assets exceeding $10 million and a
class of equity security held of record by 500 or more persons. The Company does
not meet the stated thresholds, and this filing of Form 10-SB was a voluntary
filing. This registration statement went effective 60 days after the initial
filing of Form 10-SB and as such we are subject to the requirements of
Regulation 13A under the Exchange Act, which requires us to file annual reports
on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K,
and we will be required to comply with all other obligations of the Exchange Act
applicable to issuers filing registration statements pursuant to Section
12(g).
  NLW was a
non-operating company prior to the merger with Advanced Growing Systems, Inc. To
the best knowledge of management none of the predecessor companies that were
merged into NLW were operating companies. The merger into NLW was viewed by
management as a way to take the Company public through an existing “Pink Sheet”
trading, or inactive, company. As a public company management felt that the
Company could more easily attract investors, additional funding for expansion
and provide for a return on investment for all investors. NLW was acquired in a
transaction with independent third parties, and as such, qualifies as an
arms-length transaction.
 AGWS is
the equity investor/parent company of OGSI (an Organic fertilizer manufacturer)
www.organicgrowingsystems.com and ANI (a wholesale group of commercial nurseries
located in the Southeastern US). The original officers of OGSI were Martin
Reiner and Lon Musgrove. They brought the formulas to the organic fertilizer
subsidiary that are used in the production of OGSI’s organic fertilizer. In
September 2008, the Board of Directors approved a plan to close ANI and begin a
voluntary liquidation of the remaining assets.  ANI has incurred over
$4,000,000 in losses since its inception and the outlook for the nursery
industry warranted this decision.  The Level Four drought, deepening
credit crisis and contraction of the housing industry made the outlook for ANI
unfavorable.  The outlook for the next 2 years of operations would
result in further losses for a division that has not produced profits to
date.  There have been some attempts to sell the nursery to other
competitors, but the economic environment did not warrant any
offers.
  Principal
Products and Services
  AGWS’s
common stock currently trades on the “over the counter bulletin board” under the
symbol AGWS.OB. AGWS provides executive management, accounting, sales and
marketing support for its two subsidiary companies. The employees of AGWS and
its consultants include Chris Nichols, the Chief Executive Officer and Dan Dunn,
Chief Financial Officer that provide the leadership not only for AGWS, but they
also provide direction for the sales efforts and financial management for the
subsidiaries. Mr. Nichols provides the sales and day-to-day operations
direction, and Dan Dunn is responsible for the accounting functions of not only
the parent company but he oversees the accounting for the
subsidiaries.
  -1-
 Table of Contents
  OGSI is a
fertilizer manufacturer that utilizes chemistry to enhance the way Nitrogen is
delivered to any plant through a base poultry litter (chicken fecal matter),
organically. Our process utilizes a food-grade chemistry (sterile, ingestible,
organic and non-hazardous) to produce a licensed organic fertilizer. The
nitrogen is available not only in the fecal matter but also in the protein in
the added feather meal. The heat process utilized changes the manure’s soluble
form of nitrogen to an insoluble form. Availability of the chicken fecal matter
and other raw materials are readily available for use in the production process.
New customers are being continuously added as more people being to understand
the benefits of organic fertilizers and no one customer accounts for more than
25% of the sales for OGSI.  The Company has upgraded its equipment and
on-site management monitors the quality of raw materials purchased, the proper
drying and the quality of the end product at the time of packaging the
fertilizer.
  Our
Principal Competitive Strengths
  We
believe we have the following principal competitive strengths:
  ▪
                We
      currently own a manufacturing facility (acquired in March 2007 with
      $500,000 cash; 600,000 shares of restricted stock; and note payable at
      $10,000 monthly for five (5) years) for the organic fertilizer products
      and have increased capacity from 2 to 4 tons per
    hour.▪
                We
      have contracted with a feedstock supplier to supply as much feedstock at a
      competitive price that is needed to keep up with
      production.
  Our
Growth Strategies
 
 OGSI
management has spent over $800,000 over the past 12 months to develop the second
and third lines of production.  This includes, but is not limited to,
adding two hammer mills, two pellet mills, two conveyor systems and a new
industrial dryer capable of drying over 10 tons per hour.  Once fully
operational this production facility should produce between 150 to 200 tons per
day.  Current production costs run approximately $140 per ton and can
possibly be brought down to $125 per ton when additional efficiencies can be
located and implemented.  Management believes that once the production
lines are fully operational that the company will be able to compete for larger
customers and contracts.  Management believes that limited additional
financing will be needed for this facility.  Once these three
production lines are producing at capacity, management plans on adding a fourth
and fifth line, as well as looking at adding a new facility in an area where
there is enough feedstock to supply the anticipated production
needs.
 
 OGSI
plans on attending several turf association conferences as well as several golf
course management conferences in an attempt to interact directly with end users
and educate these groups on the advantages of organic
fertilizers.  Management believes that having more face to face
meetings and additional education on the merits of organics will develop into
additional sales. The sales team will be attending various green industry
conferences to discuss the merit, benefit and cost of our product and how it can
help the end user feed their soil.
 
 As
discussed further in Item 6 of this report, the Company has decided to close and
liquidate Advanced Nurseries.  Management feels that by closing ANI
that the Company will be able to achieve profitability in fiscal 2009 while not
having to access the equity markets for more cash to sustain all of the current
operations.
  Targeted
Markets
  Organic
Growing Systems, Inc.
  The
United States fertilizer market is comprised almost exclusively of synthetic
chemistry. The organic fertilizer approach is at odds with most of the $35
billion lawn-and garden-care industry (Wall
Street Journal, April 15, 2006). Also as quoted in the same Wall Street Journal article “ A recent survey
from the National Gardening Association and Organic Gardening magazine found
that, while only 5% of U.S. households now use all-organic methods in their
yards, some 21% said they would definitely or probably do so in the
future”.
  -2-
 Table of Contents
  PRODUCT
APPLICATIONS
  Home,
Lawn & Garden
  ·
                  Safe
      around children and pets
  ·
                  One
      product for all fertilizer needs
  ·
                  No
      run-off into waterways and lakes
  ·
                  Non-burning
  ·
                  Greener,
      healthier lawns and plants
  ·
                  Tastier
      fruits
  ·
                  Less
      frequent application than
synthetics
  ·
                  Quick
      growth
  ·
                  Less
      watering required
  We
believe that our organic fertilizer is ideal for lawns on which children are
playing. Once applied and watered in, there is no residual odor. Children, as
well as adults, are not exposed to toxic chemicals and heavy metals commonly
found in synthetic fertilizers. TOP Organic Fertilizer (our
flagship product, described further below) goes to work immediately fostering a
microbial bloom that releases nutrition to the plants. One cannot over-apply the
fertilizer and thus the risk of burning plant roots is eliminated.
  Turf
Growers and Sports Facilities
  ·
                  Quick
      green-out and slow-release
  ·
                  No
      dormancy
  ·
                  Environmentally
      sound non-leaching
  ·
                  Easy
      and less frequent application
  ·
                  Less
      water required
  ·
                  Non-toxic,
      non-burning
  ·
                  Ideal
      for golf courses, polo fields, athletic fields and
  campuses
  With proper
nutrition, grass will grow faster, be greener, use less water, eliminate
nuisance weeds and not leach into the nearby waterways and lakes.
  Our poultry
litter-based fertilizer is treated with organic chemistry to remove all dangers
of burning, reduce the odor and change the nitrogen from soluble to insoluble.
Using TOP Organic Fertilizer allows turf growers to increase their productivity
by growing out fields in less time with reduced water requirements and
application costs.
  Sport
facilities, such as golf courses, polo fields and football fields are strong
target markets. New sod can be placed directly on top of the fertilizer, as it
cannot burn.
  Landscape
maintenance lends itself perfectly to TOP Organic Fertilizer. TOP Organic
Fertilizer can be easily applied to existing lawns by top dressing.
   -3-
 Table of Contents
  Competition
  Organic
Growing Systems, Inc.
  Our
indirect competition is massive and well established, specifically the Synthetic
Chemical Fertilizer Industry which includes ADM, Scott/Miracle Grow and Potash
which all trade on the New York Stock Exchange. Our direct competition is much
smaller and regionally focused and includes products from ERTH Products,
Agrirecycle, Cockdoodle DOO and Converted Organics.
  Patents,
Trademarks, Licenses, Franchises, Royalty Agreements
  Our
flagship product is our TOP Organic Fertilizer, a product licensed in each state
by the respective State Agriculture Department. This product utilizes
several proprietary processes in its manufacture. Its “value-added” character is
achieved by our organic chemical manufacturing process. This process utilizes
Chitosan as a pellet binder and nutrient source, yucca extract to minimize odor
and feather meal as a source of protein and slow-release Nitrogen. The Chitosan
and yucca are delivered in a liquid form and added throughout the process. This
method takes most of the (N) nitrogen indigenous to raw poultry litter and
controls it, by making the (N) nitrogen water insoluble. The resulting
fertilizer is sterile and replete with micro-nutrition: Iron, Sulfur, Calcium,
Magnesium, Manganese, Phosphorus, Copper, Sodium, and Chloride. These are
essentially all the elements necessary to provide plant health.
  The
factory in Monticello, Mississippi, is designed to process raw poultry litter
and convert it into fertilizer. The process is as follows:
  Raw poultry litter is
placed in a mixer where for ten minutes it is mixed with an organic plant
extract and feather meal.
  The treated litter is
conveyed to a hammer mill where it is further pulverized.
  By conveyor it is
moved to a pellet mill where the mixture is formed into pellets.
  By conveyor the
pellets are moved to a dryer/cooler operation
  The final step is to
either collect the pellets in large one-ton totes or move the pellets to a
bagging line where they are packaged in 40 and 50-pound bags for
sale.
  The one-ton totes are
either sold as “bulk” fertilizer or used for storage and movement to the bagging
line.
  This package of
“insoluble” (N) nitrogen and elemental micro-nutrition grows “any plant in
any kind of soil.” We believe that it is the perfect combination of energy
fabricated into a solid pellet of dense carbon that replenishes the soil food
web so that plant health is optimized. We deliver energy to the soil and by
doing so we “feed the soil and the soil feeds the plant.” The amount of
water used decreases by 2/3 the amount used with synthetic fertilizers as it is
not necessary to wash away excess (N) nitrogen to protect the plant from
chemical burn.
  The
process of changing Nitrogen from soluble to insoluble, the addition of high
levels of micro-nutrition and the application of specialized extracts to
eliminate significant levels of very unpleasant odors are all closely-held trade
secrets of the Company.
  Employees
  We
currently employ approximately 34 full-time employees in Georgia and
Mississippi. We have 2 employees in senior management at the parent level. We
have 4 employees in sales positions, 4 employees in branch management positions,
21 employees in yard/mill/delivery positions and 3 employees in accounting. We
have employment agreements with key employees. None of our employees are covered
by a collective bargaining agreement, and we believe our employee relations are
good.
  Regulatory
Mandates
  Currently
all products and/or licenses are secured prior to shipments of inventory items,
as a variety of states have specific applications and licenses that need to be
obtained before any fertilizer product can be shipped. Typical costs associated
with each State’s licensing and permitting are less than $500 per
State.
  If
government approval of the manufacturing facility or other environmental
requirements is deemed necessary, the Company will take the required steps.
At the present time the Company has received assurances that the organic
fertilizer facility acquired in March of 2007 is environmentally safe and all
applicable permits and licenses are in good order. (Tests conducted by
Environmental Management Services, Inc. in Mississippi, which is a third-party
agency hired to conduct soil analysis to determine the preexistence of hazardous
chemicals and/or materials).
   -4-
 Table of Contents
  Reports
to Security Holders
  The
public may read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at (http://www.sec.gov).
We are not including the information contained in our website as part of, or
incorporating it by reference into, this report on Form 10-K.
  ITEM
1A- RISK FACTORS
  This
registration statement contains forward-looking statements that involve risks
and uncertainties. These statements can be identified by the use of
forward-looking terminology such as “believes,” “expects,” “intends,” “plans,”
“may,” “will,” “should,” or “anticipation” or the negative thereof or other
variations thereon or comparable terminology. Actual results could differ
materially from those discussed in the forward-looking statements as a result of
certain factors, including those set forth below and elsewhere in this
Registration Statement. The following risk factors should be considered
carefully in addition to the other information in this Registration Statement,
before purchasing any of the Company’s securities.
  General
economic conditions could impact the economic condition of the
Company.
  General
economic conditions including both the new home construction market and the
resale market could materially impact the operating results of the company. Both
the new home market and the commercial development market are a significant
source of revenue for our customer base. Management believes higher interest
rates and lack of financing liquidity for home and commercial developers make
prospects for continued development and expansion limited and could materially
affect our ability to implement our growth plans and could ultimately affect our
ability to remain a going concern. Included in such economic conditions and
market demands are the following factors:
  ·
                  Increased
      demand for organic fertilizer products in the United States could
      substantially increase the demand for our litter feedstock and the
      resulting price of the feedstock, reducing our profitability or increasing
      our losses.
 ·
                  Fluctuations
      in the demand for products or the introduction of similar products at a
      reduced cost could reduce the demand for our fertilizer product which
      could materially increase our current
losses.
 ·
                  Costs
      of compliance with burdensome or changing environmental and operational
      safety regulations could cause our focus to be diverted away from our
      business and our results of operations to
  suffer.
 ·
                  Operating
      hazards attendant to the operating of the fertilizer facility, including
      the substantial risk from open industrial machines (conveyors, mills,
      dryers, bagging equipment) and from industrial equipment (forklifts, semi
      trucks).  These hazards could result in the injury and/or death
      of the operator and could pose substantial financial hardship to the
      Company.
 ·
                  Climatic
      conditions such as prolonged periods of extreme cold, extreme heat,
      drought, and prolong periods of rain could negatively affect our ability
      to sell product.  These affects could cause our plans to be
      diverted and results could be significant additional
    losses.
  Our
ability to generate revenue or obtain outside financing can adversely impact our
profitability
  Our ability to
generate sufficient cash flows to operate or the inability of our contractor
customers to pay in a timely manner would have material adverse affects on our
business and our operating results.
  Our
business plan requires achieving certain milestones and the failure to reach
such milestones may potentially reduce our profitability and may lead to
additional losses, which could be significant.
  Availability
of capital or other financing to add additional facilities may be too costly to
pursue. There is no assurance we will be successful in raising additional
capital or achieving profitable operations. Wherever possible, our board of
directors will attempt to use non-cash consideration to satisfy obligations. In
many instances, we believe that the non-cash consideration will consist of
restricted shares of our common stock. These actions will result in dilution of
the ownership interests of existing shareholders and may further dilute the
common stock book value. This dilution may be material.
   -5-
 Table of Contents
  We
expect intense competition in our industry.
  The
organic fertilizer business is highly competitive with many companies having
access to the same market. Many of our competitors are large, diversified
companies with significant expertise and contacts. Many of these competitors
have greater name recognition, greater financial and other resources, more
significant research and development staffs, marketing and distribution programs
and facilities, and longer operating histories than we have, and these
competitors can be expected to compete within the business in which we engage
and intend to engage. These other companies have significant resources to begin
the production of poultry-based organic fertilizer if they choose to do so.
Prolonged production and sales at reduced costs could materially affect our
ability to reach profitability and could worsen our current losses. We cannot be
assured that we will succeed in the face of strong competition from other
companies or that we will have the necessary resources to be competitive and to
achieve a profitable position in the marketplace. If we are unable to compete
effectively, our results of operations and financial condition would be
adversely affected and such affects could be significant.
  The
production and sales of our products could be decreased as a result of
environmental compliance requirements.
  Given the
nature of our business, we face environmental risks from the use of animal fecal
matter or a reduction in available raw material due to animal disease. In any
event, the increased costs of maintaining an environmentally safe product could
have a material adverse effect on our operations and financial
condition.
  Our
products and services are subject to regulations with which compliance is costly
and which expose us to penalties for non-compliance. We may not be able to
obtain required regulatory approvals for our products and services in a
cost-effective manner or at all, which could adversely affect our business and
results of operations.
  Regulatory
developments dealing with the application of pelletized fertilizer could
negatively impact future revenue and could be imposed on both a regional and
national level. Availability and cost of materials and equipment could limit the
ability to build additional facilities or add additional production capacity.
The regulatory process requires significant time, effort and expenditures and we
cannot assure that any of our products will be approved for sale. Any failure to
obtain regulatory approvals or clearances could prevent us from successfully
marketing our products. Our failure to comply with applicable regulatory
requirements could result in governmental agencies:
 
 ▪
                  imposing
      fines and penalties on us;
 
 ▪
                  preventing
      us from manufacturing or selling our
products;
 
 ▪
                  delaying
      the introduction of our new products into the
  market;
 
 ▪
                  recalling
      or seizing our products; or
 
 ▪
                  withdrawing
      or denying approvals or clearances for our
  products.
  If any or
all of the foregoing were to occur, our business, prospects, financial condition
or results of operations could be adversely affected.
  We depend heavily on key personnel
and retaining a skilled labor force.
  Our performance is
substantially dependent on the performance of our Chairman and Chief Executive
Officer, Chris J. Nichols and other key employees. Although none of these
employees has indicated that he intends to leave the Company, the loss of the
services of any of these employees could have a material adverse effect on the
business, operating results and financial condition of the Company. In addition,
our ability to find and retain knowledgeable personnel is critical to future
growth. Management believes that our expansion is dependent on a highly skilled
sales force. Our ability to attract qualified personnel could materially
negatively affect our operations and our prospects for profitability. We do not
currently carry key-man life insurance on any of our officers or managers.
  Because
we have experienced operating losses since inception, it is uncertain when, if
ever, we will have significant operating income or cash flow from operations
sufficient to sustain operations.
  We
suffered net losses since our inception, specifically a net loss of $833,937 for
the period from inception to September 30, 2006, a net operating loss of
$2,951,292 for the fiscal year ended September 30, 2007 and a net operating loss
of $6,966,871
for the fiscal period ended September 30, 2008. These losses are the result of
an inadequate revenue stream to compensate for our operating and overhead costs.
We expect losses to continue for the foreseeable future. The size of these
losses will depend in part on any future location expansions and the rate of
increase in our expenses as a result of our expansion. Several factors,
including consumer acceptance, competitive factors and our ability to
successfully develop and market our products, make it impossible to predict when
or whether we will generate significant revenues or attain profitability.
Consequently, we may never achieve significant revenues or profitability and,
even if we do, we may not sustain or increase profitability on a quarterly or an
annual basis in the future. Our ability to continue in business could be
jeopardized if we are not able to achieve positive cash flow or profitability or
if we are not able to obtain any necessary financing in the future on
satisfactory terms.
   -6-
 Table of Contents
  We
may be unable to meet our future capital requirements.
  Based on
our current operating plan, we anticipate that we will need additional capital
in the near future. We currently do not have any commitments for additional
financing. We cannot be certain that additional financing will be available when
and to the extent required or that, if available, it will be on acceptable
terms. If adequate funds are not available on acceptable terms, we may not be
able to fund our future expansion, develop or enhance our products or services
or respond to competitive pressures. In that event, shareholders could lose
their entire investment. If we raise additional funds by issuing equity or
convertible debt securities, the percentage ownership of our current
shareholders will be diluted.
  We
may never pay any dividends to our shareholders.
  We do not
anticipate paying cash dividends on our common stock in the foreseeable future.
Additionally we may never have sufficient funds to legally pay dividends. Even
if funds are legally available to pay dividends, we may nevertheless decide in
our sole discretion not to pay dividends. The declaration, payment and amount of
any future dividends will be made at the discretion of the board of directors,
and will depend upon, among other things, the results of our operations, cash
flows and financial condition, operating and capital requirements, and other
factors our board of directors may consider relevant. There is no assurance that
we will pay any dividends in the future, and, if dividends are paid, there is no
assurance with respect to the amount of any such dividend.
  Because
we are quoted on the Over the Counter Bulletin Board instead of an exchange or
national quotation system, our investors may have a tougher time selling their
stock or experience negative volatility on the market price of our
stock.
  Our
common stock is traded on the Over the Counter Bulletin Board. The Over the
Counter Bulletin Board are often highly illiquid, in part because it does not
have a national quotation system by which potential investors can follow the
market price of shares except through information received and generated by a
limited number of broker-dealers that make markets in particular stocks. There
is a greater chance of volatility for securities that trade on the Over the
Counter Bulletin Board as compared to a national exchange or quotation system.
This volatility may be caused by a variety of factors, including the lack of
readily available price quotations, the absence of consistent administrative
supervision of bid and ask quotations, lower trading volume, and market
conditions. Investors in our common stock may experience high fluctuations in
the market price and volume of the trading market for our securities. These
fluctuations, when they occur may have a negative effect on the market price for
our securities. Accordingly, our stockholders may not be able to realize a fair
price from their shares when they determine to sell them or may have to hold
them for a substantial period of time until the market for our common stock
improves.
  We
will be subject to blue sky considerations.
  Because
our securities have not been registered for resale under the blue sky laws of
any state, the holders of such shares and those persons desiring to purchase
them in any trading market that may develop in the future, should be aware that
there may be significant state blue sky law restrictions on the ability of
investors to sell and of purchasers to buy our securities. Accordingly,
investors should consider the secondary market for the Company’s securities to
be a limited one.
  Our
common stock may be considered “a penny stock” and may be difficult for you to
sell
  The
Securities and Exchange Commission has adopted regulations which generally
define “penny stock” to be an equity security that has a market price of less
than $5.00 per share or an exercise price of less than $5.00 per share, subject
to specific exemptions. The market price of our common stock has been for all of
its trading history less than $5.00 per share, and therefore is designated as a
“penny stock” according to SEC rules. This designation requires any broker or
dealer selling these securities to disclose certain information concerning the
transaction, obtain a written agreement from the purchaser and determine that
the purchaser is reasonably suitable to purchase the securities. These rules may
restrict the ability of brokers or dealers to buy or sell our common stock and
may affect the ability of investors to sell their shares. In addition, since our
common stock is currently traded over the counter OTC on the Bulletin Board,
investors may find it difficult to obtain accurate quotations of our common
stock and may experience a lack of buyers to purchase such stock or a lack of
market makers to support the stock price.
  -7-
 Table of Contents
   Failure
to achieve and maintain effective internal controls in accordance with section
404 of the Sarbanes-Oxley act of 2002 could have a material adverse effect on
our business and operating results.
  It may be
time consuming, difficult and costly for us to develop and implement the
additional internal controls, processes and reporting procedures required by the
Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal
auditing and other finance staff in order to develop and implement appropriate
additional internal controls, processes and reporting procedures. If we are
unable to comply with these requirements of the Sarbanes-Oxley Act, we may not
be able to obtain the applicable opinions or attestation report from our
independent registered public accounting firm that the Sarbanes-Oxley Act
requires publicly & traded companies to obtain.
  If we
fail to comply in a timely manner with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 regarding internal control over financial reporting
or to remedy any material weaknesses in our internal controls that we may
identify, such failure could result in material misstatements in our financial
statements, cause investors to lose confidence in our reported financial
information and have a negative effect on the trading price of our common
stock.
  In
addition, in connection with our on-going assessment of the effectiveness of our
internal control over financial reporting, we may discover “material weaknesses”
in our internal controls as defined in standards established by the Public
Company Accounting Oversight Board, (“PCAOB”). A material weakness is a
significant deficiency, or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. The PCAOB
defines “significant deficiency” as a deficiency that results in more than a
remote likelihood that a misstatement of the financial statements that is more
than inconsequential will not be prevented or detected.
  In the
event that a material weakness is identified, we will employ additional
qualified personnel and adopt and implement policies and procedures to address
any material weaknesses that we identify. However, the process of designing and
implementing effective internal controls is a continuous effort that requires us
to anticipate and react to changes in our business and the economic and
regulatory environments and to expend significant resources to maintain a system
of internal controls that is adequate to satisfy our reporting obligations as a
public company. We cannot be assured that the measures we will take will
remediate any material weaknesses that we may identify or that we will implement
and maintain adequate controls over our financial process and reporting in the
future.
  Any
failure to complete our assessment of our internal control over financial
reporting, to remediate any material weaknesses that we may identify or to
implement new or improved controls, or difficulties encountered in their
implementation, could harm our operating results, cause us to fail to meet our
reporting obligations or result in material misstatements in our financial
statements. Any such failure could also adversely affect the results of the
periodic management evaluations of our internal controls and, in the case of a
failure to remediate any material weaknesses that we may identify, would
adversely affect the annual attestation reports from our independent registered
public accounting firm regarding the effectiveness of our internal control over
financial reporting that are required under Section 404 of the Sarbanes-Oxley
Act of 2002. Inadequate internal controls could also cause investors to lose
confidence in our reported financial information, which could have a negative
effect on the trading price of our common stock.
  Investors
could be diluted from the issuance of additional common stock and conversion of
current and possible future preferred stock.
  Our
future capital requirements will depend on many factors, including industry and
market conditions, our ability to successfully implement our new branding and
marketing initiative and expansion of our production capabilities. We anticipate
that we may need to raise additional funds in order to grow our business and
implement our business strategies. We anticipate that any such additional funds
would be raised through equity or debt financings. In addition, we may enter
into a revolving credit facility or a term loan facility with one or more
syndicates of lenders. Any equity or debt financing, if available at all, may be
on terms that are not favorable to us. Even if we are able to raise capital
through equity or debt financings, as to which there can be no assurance, the
interest of existing shareholders in our Company may be diluted, and the
securities we issue may have rights, preferences and privileges that are senior
to those of our common stock or may otherwise materially and adversely affect
the holdings or rights of our existing shareholders. If we cannot obtain
adequate capital, we may not be able to fully implement our business strategies,
and our business, results of operations and financial condition would be
adversely affected.
   -8-
 Table of Contents
  See also
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources.” In addition, we have and will
continue to raise additional capital through private placements or registered
offerings, in which broker-dealers will be engaged. The activities of such
broker-dealers are highly regulated and we cannot assure that the activities of
such broker-dealers will not violate relevant regulations and generate
liabilities despite our expectation otherwise.
  As of
September 30, 2008 the Company had 25,756,793 shares of common stock outstanding
and 17,918,605 shares of preferred stock outstanding. The Company is authorized
to issue up to 500,000,000 shares of common stock and 50,000,000 shares of
preferred stock. To the extent of such authorization, the Company’s board of
directors will have the ability, without seeking shareholder approval, to issue
additional shares of common stock or preferred stock in the future for such
consideration as the board may consider sufficient. The issuance of additional
common stock or preferred stock in the future may reduce existing shareholders
proportionate ownership and voting power.
  The
Company has outstanding convertible promissory notes that if in lieu of
conversion, the note holders request cash, management believes payments will
materially negatively affect the plans for expansion and could significantly
increase losses.
  Our
principal stockholders have significant voting power and may take actions that
may not be in the best interest of all other stockholders.
  The
Company’s management controls approximately 25.97% of its current outstanding
shares of common stock. They could potentially be able to exert significant
control over our non-employee Board of Director members and affairs requiring
stockholder approval, including approval of significant corporate transactions.
This concentration of ownership could have the effect of delaying or preventing
a change in our control or otherwise discouraging a potential acquirer from
attempting to obtain control of us, which in turn could have a material and
adverse effect on the market price of the common stock or prevent our
stockholders from realizing a premium over the market prices for their shares of
common stock. See “Principal Stockholders” for information about the ownership
of common stock by our executive officers, directors and principal
stockholders.
  Any of
the factors listed above and contained in this Form 10-K could cause our actual
results to differ materially from the results implied by these or any other
forward-looking statements made by us on our behalf. We cannot assure you that
our future results will meet our expectations.
  The
Company may not continue as a going concern.
  While we
believe that we will be successful in obtaining the necessary financing to fund
our operations, there can be no assurances that such additional funding will be
achieved and that we will succeed in our future operations.  These
matters raise substantial doubt about the Company’s ability to continue as a
going concern.  The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities and commitments in the normal course of
business. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts of
liabilities that might be necessary should the Company be unable to continue in
existence.
  ITEM 1B- UNRESOLVED STAFF COMMENTS
  Not
applicable.
  ITEM 2.  DESCRIPTION OF PROPERTY
  Effective
March 29, 2007, the Company purchased an organic fertilizer plant in
Monticello, MS for $500,000 cash, 600,000 shares of restricted common stock and
the assumption of debt in the amount of $472,210. The debt is to be paid out
over a 60-month period at a rate not to exceed $10,000 per month. The total to
be paid is limited to a total of $600,000 including interest over the five-year
period.
  Our
nursery properties are as follows:
  Approximately
7.223 acres of land located in the City of Alpharetta, Georgia has been leased
from Union Hill & Associates, LLC for the main location of ANI. The
lease commenced on February 7, 2006 for a three-year term with an option to
extend for an additional two years. Base rent is $8,300 per month for the first
year increasing by 3% each year of the term on the anniversary of the
commencement date.
  The
second location is located on 13 acres at 8270 Highway 53, Braselton, Georgia
and is leased from Frank Duncan. The term of the lease is for five years at a
beginning monthly rental of $3,000 per month. Commencement of the lease was
July 31, 2006. The Company also has first option of refusal to purchase the
property for $125,000 per acre for the first year of the lease and thereafter
the purchase price will be at market value not to be less than $125,000 per
acre.
  Office
space for the corporate headquarters has been leased for a period of three years
from Kimball Royal Office Investors and is located at 3050 Royal Blvd. South,
Suite 135, Alpharetta, Georgia 30022.  This lease began on October 1,
2008 at a base rent of $3,100 per month.  This lease is for a total of
three years.
   -9-
 Table of Contents
  All of
the properties listed above were either leased or purchased from non-related
third parties.
  ITEM 3.  LEGAL PROCEEDINGS
  We are
currently not involved in any litigation that we believe could have a materially
adverse effect on our consolidated financial condition or results of operations.
There is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending, or to the knowledge of the executive officers of our Company (except as
described below) or any of our subsidiaries, threatened against or affecting our
Company, our common stock, any of our subsidiaries or our Company’s or our
Company’s subsidiaries’ officers or directors in their capacities as such, in
which an adverse decision could have a material adverse effect.
  ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
  In a
shareholders meeting held
on December 12, 2008 the shareholders voted to elect the Board of
Directors to serve until the next shareholder meeting as follows:
 
 Chris J. Nichols, Chairman, CEO and
President of AGWS
 Lyle Mortensen, Independent
Director
 Jack Cowan, Independent
Director
 Steve Riegler, Independent
Director
 Jospeh Emas, Independent
Director
 Scott Baily, Independent
Director
 
 At the same shareholders
meeting the firm of Porter, Keadle and Moore, LLC was voted to serve as the
independent accounting firm to prepare the audit for the current year and act
for the Company to review the public filings as requested by the
Company.
  PART
II
 
 ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
 
 General
  Our
authorized capital stock consists of 500,000,000 shares of common stock, par
value $0.001, and 50,000,000 shares of preferred stock, issued in Series A, B and
C,par value $0.001.
  Common
Stock
  As of
September 30, 2008, there are 25,756,793 shares of common stock, $0.001
par value (the “Common Stock”) issued and outstanding.  The shares of
our common stock presently outstanding, and any shares of our common stock
issued upon exercise of stock options and/or warrants, will be fully paid and
non-assessable. Each holder of common stock is entitled to one vote for each
share owned on all matters voted upon by shareholders, and a majority vote is
required for all actions to be taken by shareholders, except that a plurality is
required for the election of directors. In the event we liquidate, dissolve or
wind-up our operations, the holders of the common stock are entitled to share
equally and ratably in our assets, if any, remaining after the payment of all
our debts and liabilities and the liquidation preference of any shares of
preferred stock that may then be outstanding. The common stock has no preemptive
rights, no cumulative voting rights, and no redemption, sinking fund, or
conversion provisions. Since the holders of common stock do not have cumulative
voting rights, holders of more than 50% of the outstanding shares can elect all
of our Directors, and the holders of the remaining shares by themselves cannot
elect any Directors. Holders of common stock are entitled to receive dividends,
if and when declared by our Board of Directors, out of funds legally available
for such purpose, subject to the dividend and liquidation rights of any
preferred stock that may then be outstanding.
  Preferred
Stock
  As of
September 30, 2008,  the Company has Series A, Series B and Series C
Preferred stock, $0.001 par value, 50,000,000 shares authorized, of which
4,750,000 shares of Class A Preferred Stock, 3,933,333 shares of Class B
Preferred Stock, and 9,235,272 shares of Class C Preferred Stock are issued and
outstanding.  Rights preferences and designations of the preferred
stock to be determined by the Board of Directors of the Company. The preferred
stock was authorized by majority consent of the shareholders of the
Company.
  -10-
 Table of Contents
   Dividend
Policy
  We have
never declared or paid any cash dividends on our common stock. We currently
intend to retain future earnings, if any, to finance the expansion of our
business. As a result, we do not anticipate paying cash dividends on our common
shares in the foreseeable future. We may not have sufficient funds to legally
pay dividends. Even if funds are legally available to pay dividends, we may
nevertheless decide in our sole discretion not to pay dividends.
  Share
Purchase Warrants
  The below
table sets forth, as of September 30, 2008 the classes of our outstanding
warrants and the number of shares of our common stock for which such warrants
are exercisable:
  Number
      of SharesClass
      of Warrants
                      
                      
                      
                      Exercise
      Price
                      
                      Expiration
      Date
                      
                      ReservedPreferred
      Stock with Attached Warrant Series C
                      
                      $                0.500
                      
                      March
      9, 2012
                      
                      1,397,638Preferred
      Stock with Attached Warrant Series D
                      
                      $                0.600
                      
                      March
      9, 2012
                      
                      1,397,638Preferred
      Stock with Attached Warrant Series A
                      
                      $                0.800
                      
                      May
      3, 2012
                      
                      375,000Preferred
      Stock with Attached Warrant Series B
                      
                      $                1.000
                      
                      May
      3, 2012
                      
                      375,000Preferred
      Stock with Attached Warrant Series C
                      
                      $                1.100
                      
                      May
      3, 2012
                      
                      375,000Preferred
      Stock with Attached Warrant Series D
                      
                      $                1.300
                      
                      May
      3, 2012
                      
                      375,000Preferred
      Stock with Attached Warrant Series C
                      
                      $                0.500
                      
                      April
      13, 2012
                      
                      1,000,000Preferred
      Stock with Attached Warrant Series D
                      
                      $                0.600
                      
                      April
      13, 2012
                      
                      1,000,000Preferred
      Stock with Attached Warrants Series J
                      
                      $                0.375
                      
                      March
      14, 2009
                      
                      2,000,000Preferred
      Stock with Attached Warrant Series A
                      
                      $                0.800
                      
                      September
      18, 2012
                      
                      300,000Preferred
      Stock with Attached Warrant Series B
                      
                      $                1.000
                      
                      September
      18, 2012
                      
                      300,000Preferred
      Stock with Attached Warrant Series C
                      
                      $                1.100
                      
                      September
      18, 2012
                      
                      300,000Preferred
      Stock with Attached Warrant Series D
                      
                      $                1.300
                      
                      September
      18, 2012
                      
                      300,000Preferred
      Stock with Attached Warrant Series J
                      
                      $                0.800
                      
                      March
      19, 2009
                      
                      600,000Secured
      Note with Attached Warrant Series E
                      
                      $                0.375
                      
                      August
      19, 2011
                      
                      888,890Secured
      Note with Attached Warrant Series F
                      
                      $                0.500
                      
                      August
      19, 2011
                      
                      666,666Secured
      Note with Attached Warrant Series G
                      
                      $                0.750
                      
                      August
      19, 2011
                      
                      444,444Warrants
      issued- conversion of promissory notes
                      
                      $                0.500
                      
                      December
      31, 2012
                      
                      860,000Warrants
      issued- conversion of promissory notes
                      
                      $                0.750
                      
                      December
      31, 2012
                      
                      860,000Warrants
      for common stock
                      
                      
                      $                0.375
                      
                      August
      1, 2011
                      
                      760,000Preferred
      Stock with Attached Warrant
                      
                      $                1.000
                      
                      August
      13, 2011
                      
                      206,300Warrants
      for common stock
                      
                      
                      $                1.000
                      
                      August
      12, 2013
                      
                      100,000Warrants
      for common stock
                      
                      
                      $                0.500
                      
                      September
      30, 2013
                      
                      100,000
  Options
  Management
intends to formulate a stock option plan for its employees. However, at this
time there is no formal or informal stock option plan.
 
 Shares of
our common stock are currently quoted on the “over the counter” bulletin board
under the symbol “AGWS.OB”
   -11-
 Table of Contents
  For the periods
indicated, the following table sets forth the high and low bid prices per share
of common stock, as reported by pink sheets.com. These prices represent
inter-dealer quotations without retail markup, markdown, or commission and may
not necessarily represent actual transactions.
  Periods
                                    
                                    High
                                    
                                    LowFiscal
      Year 2006First
      Quarter (October-December 2005)*
                                    $           1.00
                                    
                                    $        0.35Second
      Quarter (January-March 2006)*
                                    $           0.35
                                    
                                    $        0.35Third
      Quarter (April-June 2006)*
                                    $           0.35
                                    
                                    $        0.35Fourth
      Quarter (July-September 2006)
                                    $         10.01
                                    
                                    $        0.50Fiscal
      Year 2007First
      Quarter (October-December 2006)
                                    $           1.00
                                    
                                    $        0.50Second
      Quarter (January-March 2007)
                                    $           1.02
                                    
                                    $        0.30Third
      Quarter (April-June 2007)
                                    $           0.69
                                    
                                    $        0.45Fourth
      Quarter (July-September 2007)
                                    $           0.70
                                    
                                    $        0.40Fiscal
      Year 2008First
      Quarter (October-December 2007)
                                    $           0.60
                                    
                                    $        0.14Second
      Quarter (January-March 2008)
                                    $           0.40
                                    
                                    $        0.17Third
      Quarter (April-June 2008)
                                    $           0.55
                                    
                                    $        0.21Fourth
      Quarter (July-September 2008)
                                    $           0.40
                                    
                                    $        0.22
  *
                  The
      Company affected a 10,000 for 1 stock split on June 22, 2006. Prices
      prior to June 22, 2006 reflect the stock split price and are attributable to the inactive public company into which AGWS
      was merged.
 
 Holders
of Record
  As of September
30, 2008 we had approximately 700 holders of record of our common and preferred
stock. The number of record holders was determined from the records of our
transfer agent and an estimate of the number of beneficial owners of common and
preferred stock whose shares are held in the names of various security brokers,
dealers, and registered clearing agencies.
  ITEM 6. SELECTED FINANCIAL DATA
  The
Company does not have any significant trends in its financial condition or
results of operations to be disclosed.
  ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
  The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and related notes thereto included elsewhere
in this Registration Statement. Portions of this document that are not
statements of historical or current fact are forward-looking statements that
involve risk and uncertainties, such as statements of our plans, objectives,
expectations and intentions. The cautionary statements made in this Registration
Statement should be read as applying to all related forward-looking statements
wherever they appear in this Registration Statement. Our actual results could
differ materially from those anticipated in the forward-looking
statements.
  Plan
of Operations
  Advanced
Nurseries
  In
September 2008, the Board of Directors approved a plan to close ANI and begin a
voluntary liquidation of the remaining assets.  ANI has incurred over
$4,000,000 in losses since its inception and the outlook for the nursery
industry warranted this decision.  The Level Four drought as mandated
by the director of the Georgia Environmental Protection Division, which
restricted outdoor watering for the Atlanta region, deepening credit crisis and
contraction of the housing industry made the outlook for ANI
unfavorable.  The outlook for the next two years of operations would
result in further losses for a division that has not produced profits to
date.  There have been some attempts to sell the nursery to other
competitors, but the economic environment did not warrant any
offers.
  -12-
 Table of Contents
  Certain
of the assets of the business have been disposed of. The remaining assets
consist mainly of cash, trade receivables, inventory and property and equipment.
Trade receivables have been reduced to estimated net realizable value through a
significant reserve. The reserve for bad debt has been increased by $175,186 to
estimate the amount of receivables that will be uncollectible due to
contractors, developers and landscapers being out of business or filing for
bankruptcy.  Inventories are carried at estimated lower of cost or
market. ANI recognized a loss of $792,148 as it marked its inventory to lower of
cost or market. Plant, property and equipment were also reduced because of the
closing of the Alpharetta and Braselton locations.  These locations
had approximately $320,716 of net leasehold improvements that were written off
due to the locations closing.
  The plan
of liquidation is to liquidate all of the assets that are owned by ANI, to
return all leased or financed vehicles and to collect all accounts receivable
for sales prior to the closure date.  All sales after the closure will
be on a cash only basis and a liquidating bank has been set up to account for
the cash sales and to pay for all necessary operating expenses needed to
complete the liquidation.  The receivables will be taken over by
Liberty Capital Funding (“Liberty”), who entered into a line of credit with ANI
on October 3, 2008.  Liberty will collect on these receivables until
their entire balance owed is satisfied.  Management anticipates that
this will take approximately six months to complete, or by March 31, 2009, at
which time, ANI will file dissolution papers with the Georgia Secretary of State
and cease its existence.
  The following
table summarizes the components of the assets and liabilities from discontinued
operations reported in the Consolidated Balance Sheets as of September
30:
 2008
                              
                              
                              2007Cash
                              
                              $
                              2,806
                              
                              
                              $
                              95,763Accounts
      receivable, net
                              
                              
                              327,662
                              
                              
                              
                              1,620,376Inventories
                              
                              
                              188,299
                              
                              
                              
                              1,727,969Property
      and Equipment, net
                              
                              
                              361,038
                              
                              
                              
                              1,076,285Other
      assets
                              
                              
                              10,894
                              
                              
                              
                              27,081Total
      assets
                              
                              $
                              890,699
                              
                              
                              $
                              4,547,474Accounts
      payable
                              
                              $
                              2,391,031
                              
                              
                              $
                              2,091,148Accrued
      liabilities
                              
                              
                              179,224
                              
                              
                              
                              170,042Line
      of credit
                              
                              
                              153,090
                              
                              
                              
                              788,964Lease/debt
      obligations
                              
                              
                              192,106
                              
                              
                              
                              290,049Total
      liabilities
                              
                              $
                              2,915,451
                              
                              
                              $
                              3,340,203
 
 The
following table summarizes the components of the certain operating data
for  discontinued operations for the year ended September
30:
 2008
                                      
                                      
                                      2007Net
      sales
                                      
                                      $
                                      6,968,965
                                      
                                      
                                      $
                                      10,235,310Cost
      of goods sold
                                      
                                      
                                      5,001,145
                                      
                                      
                                      
                                      7,513,442Gross
      margin
                                      
                                      
                                      1,967,820
                                      
                                      
                                      
                                      2,721,868Administrative
      expensesOperating
      expense
                                      
                                      
                                      4,139,432
                                      
                                      
                                      
                                      3,117,521Occupancy
      expense
                                      
                                      
                                      517,115
                                      
                                      
                                      
                                      294,990Advertising
      expense
                                      
                                      
                                      13,945
                                      
                                      
                                      
                                      47,350Depreciation
      and amortization
                                      
                                      
                                      261,606
                                      
                                      
                                      
                                      183,487Total
      administrative expenses
                                      
                                      
                                      4,932,098
                                      
                                      
                                      
                                      3,643,348Interest
      expense
                                      
                                      
                                      115,263
                                      
                                      
                                      
                                      110,041Net
      loss from discontinued operations
                                      
                                      $
                                      (3,079,541
                                      )
                                      
                                      $
                                      (1,031,521
                                      )
   -13-
 Table of Contents
 
 Results from
discontinued operations reflect directly attributable revenues, cost of sales
and selling and marketing expenses. General administrative expenses have not
been allocated to discontinued operations because those expenses are general to
continuing operations of the Company and would not be expected to be eliminated
or reduced as a result of disposing of ANI.
  Organic
Growing Systems
  OGSI,
consisting of our plant in Monticello, MS and our corporate offices in
Alpharetta, GA, has experienced tremendous revenue growth over the twelve months
ended September 30, 2008.  The company had revenues of approximately
$463,000 for fiscal 2007 and $1,287,000 for fiscal 2008.  Management
has added two additional production lines to the Monticello, MS facility that
should be able to increase production capabilities from operating one line
producing 20 tons per day to operating three lines producing between 150 and 200
tons per day.  The lines have been installed and are currently being
worked on to eliminate any problems and issues so that the expected capacity can
be on line by the end of December 2008.  Our sales staff has been in
negotiations with several clients that would like to purchase over 1,000 tons
each once the facility has demonstrated that it can handle such production
requests.  Management has located a logistics and distribution
facility that will be acquired once production is at full capacity so that
finished product can be stored and shipped separate from actual
production.  Once the three lines have been sold out, management will
begin designing and constructing the fourth and fifth lines at the Monticello
facility, as well as begin researching a new facility in a different geographic
location of the United States that has the feedstock to handle the proposed
production needs.
  Financing
  In August
2008 the Company issued a senior secured short term note to Lamassu Capital
Management, LLC (“Lamassu”) for $1,000,000.  The note is a 12 month
note due on August 20, 2009 and accrues interest at 18%, payable at the end of
the Company’s fiscal quarters.  The Company also issued 888,890 E
common warrants, priced at $.375, to purchase the Company common stock; 666,666
F common warrants, priced at $.50 per warrant, to purchase the Company common
stock; and 444,444 G common warrants, priced at $.75 per warrant, to purchase
the Company common stock.  The proceeds from this note were to add
production lines two and three, as well as provide working capital for the
Company.
 Management
plans on retiring the Lamassu note with a larger financing partner before the
end of fiscal 2009.  Management plans on having a formal appraisal
completed on the Monticello facility in an effort to secure additional debt to
pay off the Lamassu note.  There are also several series of warrants
that expire in fiscal 2009 that if the Company is performing at its planned
level should be able to be exercised at the warrant price.  Once the
facility is producing at capacity the Company should be able to become cash flow
positive, assuming no long outages happen at the facility and that prospective
clients continue to change over to organic fertilizer for their
needs.
  Liquidity
and Capital Resources
  At
September 30, 2008, we had total current assets of approximately $1,023,000,
consisting primarily of cash, accounts receivable, and
inventories.  Current liabilities of approximately $4,925,000,
consisting primarily of accounts payable, accrued expenses, term and convertible
notes payable, and a working capital line-of-credit. The Company has accumulated
a net loss from inception through September 30, 2008 of approximately
$15,232,000. Stockholder’s deficit at September 30, 2008 was approximately
($2,198,000). The Company has recorded gross revenues of approximately
$1,287,000 for the year ended September 30, 2008.
  -14-
 Table of Contents
  Convertible
notes payable of $1,412,300 have been converted from debt into either common
stock or preferred stock in the Company as of September 30, 2008.
  Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
  OGSI
began its sales effort in February of 2006 and recorded sales of $295,869 for
the period from February 2, 2006 (Inception) through September 30,
2006.  Sales for the fiscal period ended September 30, 2007 were
$463,198.  Sales for the year ended September 30, 2008 were
$1,286,860.
 
 Sales and
gross profit for the years ended September 30, 2008 and 2007 are as
follows:
  2008
                          
                          
                          2007Total
      sales
                          
                          $
                          1,286,860
                          
                          
                          $
                          463,198Cost
      of sales
                          
                          
                          606,661
                          
                          
                          
                          347,224Gross
      profit
                          
                          $
                          680,199
                          
                          
                          $
                          115,974Gross
      profit percentage
                          
                          
                          52.86
                          %
                          
                          
                          25.04
                          %
  Gross
margin for OGSI improved due to a full production year at the facility whereas
in 2007 OGSI was purchasing its product from Agreaux Organics
(“Agreaux”).  In March 2007 Agreaux was purchased by OGSI and the
company began producing its own product, thus its ability to increase its gross
margin.  For the year ended September 30, 2008 the Company had a full
year to produce its own product and this is shown in the increase in gross
margin.
  Interest
expense for the year ended September 30, 2007 amounted to $150,077, due
primarily to interest on the convertible promissory notes
payable.  For the fiscal year ended September 30, 2008, interest
expense was $933,925, which included amounts for issuance of warrants and
discounts on debt acquired and used throughout the year.
  Occupancy
expenses for the year ended September 30, 2007 was $124,807 compared to
$305,630 for the year ended September 30, 2008.  These expenses
increased as the Company purchased the fertilizer company, which included the
rent, utilities and maintenance for the facility.  OGSI increased
production four times, which equated to additional utilities being consumed
as well as additional maintenance costs for the older equipment being able to
keep up with the new production demands being incurred.
  Marketing
and advertising expenses incurred were $23,988 for the year ended September 30,
2007 as compared to $8,729 for the year ended September 30,
2008.  These expenses declined due to the majority of the cash for
OGSI being used to increase production as the sales demand was already there.
Management expects that marketing activities will increase once the production
capacity is increased and larger customers can be brought into the production
mix.
  The
Company incurred a penalty on preferred stock in the amount of $200,333 during
the year ended September 30, 2007 for its inability to have its registration
statement filed and declared effective by the Effectiveness Date specific by the
private placement companies.  The Company also incurred a penalty on
preferred stock in the amount of $253,333 during the year ended September 30,
2008 for its inability to move from the over the counter pink sheets to the over
the counter bulletin board by the Effective Date specified by the private
placement companies.  Management does not expect any further penalties
against the Company to be imposed.
  For the
fiscal year ended September 30, 2007 the Company had a net operating loss of
$1,919,771 compared to a net operating loss of $3,887,330 for the fiscal year
ended September 30, 2008.  The increase in losses from 2007 to 2008 is
due to increased interest and debt expenses for the Company for issuance of
warrants, increased investor relations costs to promote the Company to the
public markets.  The Company also added some overhead expenses to ramp
up for the increased production in the new fiscal year.
  -15-
 Table of Contents
  The
outlook for the next year is promising as OGSI will have completed the
installation and testing of the new second and third production
lines.  The sales force has made numerous contacts with customers with
needs that can utilize and exceed this additional capacity, which will require
management to develop a forth and fifth line at the Monticello location to
supply the additional demand.  The margins on the fertilizer product
are very strong and should get better as more product is produced and shipped
from the facility.  The closing of the nurseries will also reduce the
amount of losses for the entire operation.  ANI is in a market that is
reliant upon the housing and credit markets to produce potential and current
sales.  Without the help of these markets it was clear that sales and
profitability from the division were going to be very
unpredictable.  The Company will not have to raise additional capital
for a division in a market segment that is declining in size and demand for the
product.  This should reduce the additional equity transactions needed
as OGSI should be able to produce positive cash flows from operations to
substantiate its expenses.
 OGSI has
been able to locate distributors in different areas of the southwestern United
States to help distribute the product to these areas.  Management
believes that this will help to develop a marketplace for the organic fertilizer
product without having to add to the overhead structure.  This will
enable the sales force to focus their efforts on new and larger
customers.
  Critical
Accounting Policies
  Management
makes certain judgments and uses certain estimates and assumptions when applying
accounting principles generally accepted in the United States in the preparation
of our Consolidated Financial Statements. We evaluate our estimates and
judgments on an ongoing basis and base our estimates on historical experience
and on assumptions that we believe to be reasonable under the circumstances. Our
experience and assumptions form the basis for our judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may vary from what we anticipate and different
assumptions or estimates about the future could change our reported
results.   For further information, see Note 3, Summary of
Significant Accounting Policies, to our Consolidated Financial Statements which
outlines our application of significant accounting policies and new accounting
standards.
  Off-Balance
Sheet Arrangements
  There are
not any off-balance sheet arrangements.
 ITEM 7A.  QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
  We do not
hold any derivative instruments and do not engage in any hedging
activities.
  -16-
 Table of Contents
 
 ITEM 8. FINANCIAL STATEMENTS
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
  Report
      of Independent Registered Public Accounting
    Firm
                              F-1Report
      of Independent Registered Public Accounting Firm
                              F-2Consolidated
      Balance Sheets as of September 30, 2008 and 2007
                              F-3Consolidated
      Statements of Operations for the fiscal years ended September 30, 2008
      and  2007
                              F-4Consolidated
      Statements of Changes in Stockholders’ Equity for the fiscal years ended
      September 30, 2008 and 2007
                              F-5Consolidated
      Statements of Cash Flows for the fiscal years ended September 30, 2008 and
      2007
                              F-6Notes
      to Consolidated Financial Statements
                              F-7
 
  Table of Contents
  To the
Board of Directors
 Advanced
Growing Systems, Inc.
 Alpharetta,
Georgia
 
 
 We have
audited the accompanying consolidated balance sheets of Advanced Growing
Systems, Inc. and subsidiaries (“the Company”) as of September 30, 2008, and the
related consolidated statements of operations, stockholders’ equity and cash
flows for the year then ended.  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 audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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
audit provides a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Growing Systems,
Inc. and subsidiary as of September 30, 2008, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 2 to the
consolidated financial statements, the Company has suffered negative cash flows
from operations since inception.  This raises substantial doubt about
the Company's ability to continue as a going concern.  Management's
plans in regard to these matters are also described in Note 2.  The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
 
 
 /s/
Porter Keadle Moore, LLP
 Atlanta,
Georgia
 January
13, 2009
   Certified
Public Accountants
 
 Suite
1800 s 235
Peachtree Street NE s  Atlanta,
Georgia 30303 s Phone
404-588-4200  s Fax
404-588-4222  s
www.pkm.com
    F-1
    REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  
  To the
Stockholders of
 Advanced
Growing Systems, Inc.
  We have
audited the accompanying consolidated balance sheet of Advanced Growing Systems,
Inc. and subsidiaries, as of September 30, 2007, and the related consolidated
statements of operations, changes in stockholders’ equity, and cash flows for
the year ended September 30, 2007.  These consolidated financial
statements are the responsibility of the Company’s management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  An audit includes consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Growing Systems,
Inc. and subsidiaries as of September 30, 2007, and the results of their
operations and their cash flows for the year ended September 30, 2007 in
conformity with accounting principles generally accepted in the United States of
America.
  
 /s/
Whitley Penn LLP
  Fort
Worth, Texas
 January
12, 2008
 F-2
 Table of Contents
  Advanced
      Growing Systems, Inc. and SubsidiariesConsolidated
      Balance SheetsSeptember
      30, 2008
                                  
                                  
                                  September
      30, 2007AssetsCurrent
      assets:Cash
      and cash equivalents
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  375,513Accounts
      receivable, net of allowance for doubtful accounts of $25,143
      and  $15,532
                                  
                                  
                                  100,145
                                  
                                  
                                  
                                  47,333Inventories
                                  
                                  
                                  32,420
                                  
                                  
                                  
                                  122,770Other
      current assets
                                  
                                  
                                  -
                                  
                                  
                                  
                                  7,907Assets
      of discontinued operations
                                  
                                  
                                  890,699
                                  
                                  
                                  
                                  4,547,474Total
      current assets
                                  
                                  
                                  1,023,264
                                  
                                  
                                  
                                  5,100,997Property
      and equipment, net
                                  
                                  
                                  2,064,990
                                  
                                  
                                  
                                  1,366,002Other
      assets
                                  
                                  
                                  5,068
                                  
                                  
                                  
                                  7,668Total
      assets
                                  
                                  $
                                  3,093,322
                                  
                                  
                                  $
                                  6,474,667Liabilities
      and stockholders' equity (deficit)Current
      liabilities:Bank
      overdraft
                                  
                                  $
                                  22,952
                                  
                                  
                                  $
                                  -Accounts
      payable and accrued expenses
                                  
                                  
                                  787,056
                                  
                                  
                                  
                                  311,414Convertible
      notes payable, net of discount
                                  
                                  
                                  280,000
                                  
                                  
                                  
                                  720,000Current
      portion of notes payable, net of discount
                                  
                                  
                                  903,422
                                  
                                  
                                  
                                  80,733Current
      portion of capital lease obligations
                                  
                                  
                                  15,759
                                  
                                  
                                  
                                  12,393Liabilities of
      discontinued operations
                                  
                                  
                                  2,915,451
                                  
                                  
                                  
                                  3,340,203Total
      current liabilities
                                  
                                  
                                  4,924,640
                                  
                                  
                                  
                                  4,464,743Long-term
      notes payable
                                  
                                  
                                  328,167
                                  
                                  
                                  
                                  353,986Long-term
      portion of capital lease obligations
                                  
                                  
                                  37,931
                                  
                                  
                                  
                                  20,426Total
      liabilities
                                  
                                  
                                  5,290,738
                                  
                                  
                                  
                                  4,839,155Minority
      interest
                                  
                                  
                                  380
                                  
                                  
                                  
                                  380Commitments
      and contingenciesStockholders'
      equity (deficit):Preferred
      stock, 50,000,000 authorized, 25,000,000 designated as
      follows:Preferred
      stock, Series A; par value $.001; 10,000,000 designated;
      4,750,000issued
      and outstanding in 2008 and 2007
                                  
                                  
                                  4,750
                                  
                                  
                                  
                                  4,750Preferred
      stock, Series B; par value $.001; 10,000,000 designated;
      3,933,333and
      3,038,115 issued and outstanding in 2008 and 2007
                                  
                                  
                                  3,933
                                  
                                  
                                  
                                  3,038Preferred
      stock, Series C; par value $.001; 15,000,000 designated;
      9,235,272issued
      and outstanding in 2008
                                  
                                  
                                  9,235
                                  
                                  
                                  
                                  -Common
      stock; par value $.001; 500,000,000 authorized; 25,756,793
    and23,245,065
      issued and outstanding in 2008 and 2007
                                  
                                  
                                  25,756
                                  
                                  
                                  
                                  23,245Treasury stock,
      357,143 shares at cost
                                  
                                  
                                  (125,000
                                  )
                                  
                                  
                                  (125,000
                                  )Common
      stock warrants
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (116,813
                                  )Additional
      paid-in capital
                                  
                                  
                                  13,115,429
                                  
                                  
                                  
                                  9,257,956Accumulated
      deficit
                                  
                                  
                                  (15,231,899
                                  )
                                  
                                  
                                  (7,412,044
                                  )Total
      stockholders' equity (deficit)
                                  
                                  
                                  (2,197,796
                                  )
                                  
                                  
                                  1,635,132Total
      liabilities and stockholders' equity
                                  
                                  $
                                  3,093,322
                                  
                                  
                                  $
                                  6,474,667
 See accompanying notes to
consolidated financial statements
  F-3
 Table of Contents
   Advanced
      Growing Systems, Inc. and SubsidiariesConsolidated
      Statements of OperationsYear
      endedSeptember
      30, 2008
                          
                          
                          September
      30, 2007Net
      sales
                          
                          $
                          1,286,860
                          
                          
                          $
                          463,198Cost
      of goods sold
                          
                          
                          606,661
                          
                          
                          
                          347,224Gross
      profit
                          
                          
                          680,199
                          
                          
                          
                          115,974Administrative
      expenses:Operating
      expenses
                          
                          
                          3,178,211
                          
                          
                          
                          1,387,505Occupancy
      expenses
                          
                          
                          305,630
                          
                          
                          
                          154,706Advertising
      expenses
                          
                          
                          8,729
                          
                          
                          
                          23,988Depreciation
      and amortization
                          
                          
                          180,054
                          
                          
                          
                          100,474Total
      administrative expenses
                          
                          
                          3,672,624
                          
                          
                          
                          1,666,673Other
      expenses:Interest
      expense, net
                          
                          
                          933,802
                          
                          
                          
                          150,077Penalty
      incurred on preferred stock
                          
                          
                          -
                          
                          
                          
                          200,333Other
      expenses
                          
                          
                          (38,897
                          )
                          
                          
                          18,662Total
      other expenses
                          
                          
                          894,905
                          
                          
                          
                          369,072Total
      expenses
                          
                          
                          4,567,529
                          
                          
                          
                          2,035,745Loss
      before income tax benefit
                          
                          
                          (3,887,330
                          )
                          
                          
                          (1,919,771
                          )Income
      tax benefit
                          
                          
                          -
                          
                          
                          
                          -Net
      loss from continuing operations
                          
                          
                          (3,887,330
                          )
                          
                          
                          (1,919,771
                          )Preferred
      stock dividend
                          
                          
                          (852,984
                          )
                          
                          
                          (3,626,815
                          )Discontinued
      operations (Note 4)Loss
      from discontinued operations ofAdvanced
      Nurseries, net of tax
                          
                          
                          (3,079,541
                          )
                          
                          
                          (1,031,521
                          )Net
      loss available to common stockholders
                          
                          $
                          (7,819,855
                          )
                          
                          $
                          (6,578,107
                          )Net
      loss per common share:Continuing
      operations
                          
                          $
                          (0.20
                          )
                          
                          $
                          (0.25
                          )Discontinued
      operations
                          
                          $
                          (0.13
                          )
                          
                          $
                          (0.05
                          )Net
      loss
                          
                          $
                          (0.33
                          )
                          
                          $
                          (0.30
                          )Weighted
      average shares outstanding
                          
                          
                          24,295,374
                          
                          
                          
                          22,114,366
  See accompanying notes to
consolidated financial statements
  F-4
 Table of Contents
  Advanced
      Growing Systems, Inc. and SubsidiariesConsolidated
      Statements of Stockholders' Equity (Deficit)For
      the years ended September 30, 2008 and 2007Common
      Stock
                            
                            
                            Preferred
      Stock - Series A
                            
                            
                            Preferred
      Stock - Series B
                            
                            
                            Preferred
      Stock - Series C
                            
                            
                            
                            
                            
                            Treasury
      Stock
                            
                            
                            
                            
                            
                            Accumulated
      DeficitShares
                            
                            
                            Amount
                            
                            
                            Shares
                            
                            
                            Amount
                            
                            
                            Shares
                            
                            
                            Amount
                            
                            
                            Shares
                            
                            
                            Amount
                            
                            
                            C/S
      Warrants
                            
                            
                            Shares
                            
                            
                            Amount
                            
                            
                            APIC
                            
                            
                            TotalBalance,
      September 30, 2006
                            
                            
                            21,270,998
                            
                            
                            $
                            21,271
                            
                            
                            
                            -
                            
                            
                            $
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            911,194
                            
                            
                            $
                            (833,937
                            )
                            
                            $
                            98,528Preferred
      stock issuances
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            4,750,000
                            
                            
                            
                            4,750
                            
                            
                            
                            2,600,000
                            
                            
                            
                            2,600
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            3,619,465
                            
                            
                            
                            -
                            
                            
                            
                            3,626,815Beneficial
      conversion feature
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            3,626,815
                            
                            
                            
                            -
                            
                            
                            
                            3,626,815Preferred
      stock dividend - beneficial conversion feature
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (3,626,815
                            )
                            
                            
                            (3,626,815
                            )Conversion
      of convertible debt into stock
                            
                            
                            532,400
                            
                            
                            
                            532
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            438,115
                            
                            
                            
                            438
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            486,976
                            
                            
                            
                            -
                            
                            
                            
                            487,946Common
      stock issued to directors
                            
                            
                            40,000
                            
                            
                            
                            40
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            10,760
                            
                            
                            
                            -
                            
                            
                            
                            10,800Common
      stock issued for services
                            
                            
                            135,000
                            
                            
                            
                            135
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            31,115
                            
                            
                            
                            -
                            
                            
                            
                            31,250Stock-based
      compensation
                            
                            
                            666,667
                            
                            
                            
                            667
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            232,666
                            
                            
                            
                            -
                            
                            
                            
                            233,333Common
      stock issued in acquisition of Mississippi plant
                            
                            
                            600,000
                            
                            
                            
                            600
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            209,400
                            
                            
                            
                            -
                            
                            
                            
                            210,000Additional
      common stock warrants issued in connection with convertible
      debt
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            12,752
                            
                            
                            
                            -
                            
                            
                            
                            12,752Issuance
      of common stock warrants
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (116,813
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            116,813
                            
                            
                            
                            -
                            
                            
                            
                            -Purchase
      of treasury stock
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            357,143
                            
                            
                            
                            (125,000
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (125,000
                            )Net
      loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (2,951,292
                            )
                            
                            
                            (2,951,292
                            )Balance,
      September 30, 2007
                            
                            
                            23,245,065
                            
                            
                            
                            23,245
                            
                            
                            
                            4,750,000
                            
                            
                            
                            4,750
                            
                            
                            
                            3,038,115
                            
                            
                            
                            3,038
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (116,813
                            )
                            
                            
                            357,143
                            
                            
                            
                            (125,000
                            )
                            
                            
                            9,257,956
                            
                            
                            
                            (7,412,044
                            )
                            
                            
                            1,635,132Preferred
      stock issuances
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            9,235,272
                            
                            
                            
                            9,235
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,038,991
                            
                            
                            
                            -
                            
                            
                            
                            1,048,226Penalty
      stock issuances
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,333,333
                            
                            
                            
                            1,333
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            252,000
                            
                            
                            
                            -
                            
                            
                            
                            253,333Conversion
      of notes payable for common stock
                            
                            
                            860,000
                            
                            
                            
                            860
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            806,445
                            
                            
                            
                            -
                            
                            
                            
                            807,305Common
      stock issued to directors
                            
                            
                            25,000
                            
                            
                            
                            25
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            5,775
                            
                            
                            
                            -
                            
                            
                            
                            5,800Common
      stock issued for services
                            
                            
                            991,568
                            
                            
                            
                            991
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            302,759
                            
                            
                            
                            -
                            
                            
                            
                            303,750Stock-based
      compensation
                            
                            
                            103,000
                            
                            
                            
                            103
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            22,857
                            
                            
                            
                            -
                            
                            
                            
                            22,960Common
      stock issued for interest payments
                            
                            
                            94,045
                            
                            
                            
                            94
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            50,085
                            
                            
                            
                            -
                            
                            
                            
                            50,179Issuance
      of common stock warrants
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            116,813
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            484,327
                            
                            
                            
                            -
                            
                            
                            
                            601,140Reprice
      of C, D and J warrants
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            894,234
                            
                            
                            
                            -
                            
                            
                            
                            894,234Conversion
      of preferred B to common stock
                            
                            
                            438,115
                            
                            
                            
                            438
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (438,115
                            )
                            
                            
                            (438
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Preferred
      stock dividend
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (852,984
                            )
                            
                            
                            (852,984
                            )Net
      loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (6,966,871
                            )
                            
                            
                            (6,966,871
                            )Balance,
      September 30, 2008
                            
                            
                            25,756,793
                            
                            
                            $
                            25,756
                            
                            
                            
                            4,750,000
                            
                            
                            $
                            4,750
                            
                            
                            
                            3,933,333
                            
                            
                            $
                            3,933
                            
                            
                            
                            9,235,272
                            
                            
                            $
                            9,235
                            
                            
                            
                            -
                            
                            
                            
                            357,143
                            
                            
                            $
                            (125,000
                            )
                            
                            $
                            13,115,429
                            
                            
                            $
                            (15,231,899
                            )
                            
                            $
                            (2,197,796
                            )
  See accompanying notes to
consolidated financial statements
  F-5
 Table of Contents
  Advanced
      Growing Systems, Inc. and SubsidiariesConsolidated
      Statements of Cash FlowsYear
      endedSeptember
      30, 2008
                                
                                
                                September
      30, 2007Operating
      ActivitiesNet
      loss from continuing operations
                                
                                $
                                (3,887,330
                                )
                                
                                $
                                (1,919,771
                                )Net
      loss from discontinued operations
                                
                                
                                (3,079,541
                                )
                                
                                
                                (1,031,521
                                )Net
      loss
                                
                                
                                (6,966,871
                                )
                                
                                
                                (2,951,292
                                )Adjustments to
      reconcile net loss from continuingoperations to
      net cash (used in) operating activities:Depreciation
      and amortization
                                
                                
                                180,053
                                
                                
                                
                                100,474Common
      shares issued for services
                                
                                
                                816,458
                                
                                
                                
                                275,921Non-cash
      interest expense
                                
                                
                                852,486
                                
                                
                                
                                -Loss on
      sale of equipment
                                
                                
                                432
                                
                                
                                
                                -Changes
      in operating assets and liabilitiesAccounts
      receivable
                                
                                
                                (52,812
                                )
                                
                                
                                6,111Inventories
                                
                                
                                90,350
                                
                                
                                
                                (111,840
                                )Other
      assets
                                
                                
                                10,507
                                
                                
                                
                                (21,185
                                )Accounts
      payable and accrued expenses
                                
                                
                                475,647
                                
                                
                                
                                215,630Net
      cash provided by (used in) operating activities ofdiscontinued
      operations
                                
                                
                                3,919,374
                                
                                
                                
                                (596,250
                                )Net
      cash used in operating activities
                                
                                
                                (674,376
                                )
                                
                                
                                (3,082,432
                                )Investing
      ActivitiesPurchases of
      property and equipment
                                
                                
                                (879,473
                                )
                                
                                
                                (295,127
                                )Net
      cash provided by (used in) investing activities ofdiscontinued
      operations
                                
                                
                                13,278
                                
                                
                                
                                (961,450
                                )Net
      cash used in investing activities
                                
                                
                                (866,195
                                )
                                
                                
                                (1,256,577
                                )Financing
      ActivitiesBank
      overdraft
                                
                                
                                22,952
                                
                                
                                
                                -Proceeds from
      exercise of warrants
                                
                                
                                500,000
                                
                                
                                
                                -Proceeds from
      issuance of convertible notes payable
                                
                                
                                -
                                
                                
                                
                                420,300Conversion of
      convertible notes payable into stock
                                
                                
                                -
                                
                                
                                
                                (446,768
                                )Proceeds on
      notes payable
                                
                                
                                1,358,666
                                
                                
                                
                                14,575Proceeds from
      preferred shares issued in private placement
                                
                                
                                -
                                
                                
                                
                                4,126,443Purchases of
      treasury stock
                                
                                
                                -
                                
                                
                                
                                (125,000
                                )Payments on
      capital lease obligations
                                
                                
                                20,871
                                
                                
                                
                                -Payments on
      note payable
                                
                                
                                (36,796
                                )
                                
                                
                                (246,252
                                )Change
      in discount on convertible notes payable
                                
                                
                                -
                                
                                
                                
                                23,962Net
      cash provided by (used in) financing activities ofdiscontinued
      operations
                                
                                
                                (700,635
                                )
                                
                                
                                780,633Net
      cash provided by financing activities
                                
                                
                                1,165,058
                                
                                
                                
                                4,547,893Net
      increase (decrease) in cash and cash equivalents
                                
                                
                                (375,513
                                )
                                
                                
                                208,883Cash
      and cash equivalents at beginning of year
                                
                                
                                375,513
                                
                                
                                
                                166,630Cash
      and cash equivalents at end of year
                                
                                $
                                -
                                
                                
                                $
                                375,513Supplemental
      Disclosure of Cash Flow InformationCash
      paid for interest
                                
                                $
                                141,841
                                
                                
                                $
                                260,118Supplemental
      Disclosure of Non-Cash InformationPurchases of
      property and equipment via issuance of debt
                                
                                $
                                97,257
                                
                                
                                $
                                535,041Conversion of
      convertible notes payable
                                
                                $
                                430,000
                                
                                
                                $
                                -Stock
      issued for interest on convertible notes payable
                                
                                $
                                50,179
                                
                                
                                $
                                -Purchases of
      property and equipment via issuance of common stock
                                
                                $
                                -
                                
                                
                                $
                                210,000Reclassification
      of other assets to property and equipment
                                
                                $
                                -
                                
                                
                                $
                                120,000Warrant
      re-pricing recorded as preferred stock dividend
                                
                                $
                                599,651
                                
                                
                                $
                                -Amortization of
      preferred stock beneficial conversion feature
                                
                                $
                                -
                                
                                
                                $
                                3,626,815Warrants issued
      with Series A Convertible common stock
                                
                                $
                                169,745
                                
                                
                                $
                                -Warrants issued
      with convertible notes
                                
                                $
                                -
                                
                                
                                $
                                116,813Vision
      penalty preferred shares issued
                                
                                $
                                253,333
                                
                                
                                $
                                -Conversion of
      Vision convertible note payable into Preferred Series C
                                
                                $
                                535,000
                                
                                
                                $
                                -
 See accompanying notes to
consolidated financial statements
  F-6
 Table of Contents
 ADVANCED
GROWING SYSTEMS, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 September
30, 2008 and 2007
 
 Note
1- Nature of Business
 
 Advanced
Growing Systems, Inc. (the “Company”) was incorporated on February 2, 2006 under
the laws of the State of Nevada.  On June 30, 2006. the Company was
merged into an inactive public shell, Non-Lethal Weapons, Inc. (“NLW”), and the
name was changed to Advanced Growing Systems, Inc. and the state of domicile was
changed from California to Nevada.  The Company has two subsidiaries;
Advanced Nurseries, Inc., (“ANI”), a Georgia corporation incorporated on
February 10, 2006 and Organic Growing Systems, Inc., (“OGSI”), a Texas
corporation incorporated on January 19, 2006.
 
 ANI’s
operations consist of a wholesale group of commercial nurseries located in the
Southeastern United States.  As of September 30, 2007, ANI had three
operating nurseries located in the Atlanta, Georgia metropolitan areas of
Alpharetta, Braselton and Marietta.  In September of 2008, the Board
of Directors approved a plan to close all operations of ANI and have begun a
voluntary liquidation of the remaining assets of the subsidiary, as described in
Note 4.  OGSI produces and markets an organic fertilizer with a
manufacturing facility in Monticello, Mississippi which was acquired in 2007,
with its sales and operational office in Alpharetta, Georgia.
 
 Note
2- Liquidity and Going Concern
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company is a going concern.  The Company has incurred operating
losses and negative cash flows since inception.   As described in
Note 7, the Company has outstanding convertible promissory notes that it
anticipates will be converted to common stock or paid off during fiscal
2009.  The Company has also entered into two short term notes
amounting to $1,250,000 with two different private investment companies as
described in Note 7 and Note 15.  ANI has continued a line of credit
facility that is calculated upon the receivables and is more fully described in
Note 6.  OGSI entered into a receivable factoring agreement that is
fully described in Note 6.  The closure of ANI will also reduce the
cash requirements on the Company.  Management believes that
substantially all short term debt will either be converted to equity or
restructured into a long term debt instrument. These transactions, along with
the increase in sales for OGSI and the commitments from third party lenders will
assist the Company in its growth and it will be able to sustain its capital and
operating requirements for the next fiscal year.
 
 While we
believe that we will be successful in obtaining the necessary financing to fund
our operations, there can be no assurances that such additional funding will be
achieved and that we will succeed in our future operations.  These
matters raise substantial doubt about the Company’s ability to continue as a
going concern.  The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities and commitments in the normal course of
business. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts of
liabilities that might be necessary should the Company be unable to continue in
existence.
  Note
3- Summary of Significant Accounting Policies
 
 A summary
of the Company’s significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows.
 
 Principles
of Consolidation
 
 The
accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries.  Significant intercompany accounts and
transactions have been eliminated in consolidation.
 
  F-7
  Revenue
Recognition
 
 The
Company recognizes revenue when product is shipped to the customer and title
transfers.
 
 Cash
and Cash Equivalents
 
 The
Company considers all short term investments with original maturities of three
months or less when purchased to be cash equivalents.  At September
30, 2008 and 2007, the Company had no such investments.  The Company
maintains deposits primarily in two financial institutions, which may at times
exceed amounts covered by insurance provided by the U.S. Federal Deposit
Insurance Corporation.  The uninsured portion of these deposits as of
September 30, 2007 was approximately $375,000.  There were no
uninsured deposits at September 30, 2008.  The Company has not
incurred any losses related to its uninsured deposits with financial
institutions.
 
 Fair
Value of Financial Instruments
 
 In
accordance with the reporting requirements of Statement on Financial Accounting
Standards (“SFAS”) SFAS No. 107, Disclosures
About Fair Value of Financial Instruments, the Company calculates the
fair value of its assets and liabilities which qualify as financial instruments
under this statement and includes this additional information in the notes to
consolidated financial statements when the fair value is different than the
carrying value of those financial instruments.  The estimated fair
values of accounts receivable, accounts payable, and accrued liabilities
approximate their carrying amounts due to the relatively short maturity of these
instruments.  The Company’s outstanding borrowings, if recalculated
based upon current rates, would not differ significantly from the amounts
recorded.
 
 Accounts
Receivable
 
 The
Company’s accounts receivable are primarily related to customer accounts of ANI
and OGSI.  Accounts receivable are stated at amounts management
expects to collect from outstanding balances.  Management provides for
probable uncollectible amounts through a charge to earnings and a credit to a
valuation allowance based on its assessment of the current status of individual
accounts.  Balances still outstanding after management has used
reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to accounts receivable.  The change in the
valuation allowance has not been material to the consolidated financial
statements.
 
 Inventories
 
 Inventories
for ANI are carried at liquidation value at September 30, 2008 and removed at
the average cost as of September 30, 2007, which approximates the lower of cost
or market.  Inventory of OGSI is carried and removed at the lower of
cost or market using the first-in, first-out method of
accounting.
 
 Property
and Equipment
 
 Property
and equipment are capitalized at cost and depreciated using the straight line
method over the estimated useful lives of the various classes of
assets.  Leasehold improvements are amortized on a straight line basis
over the lesser of the useful life or the lease terms, including the options to
renew that are reasonably assured to be renewed.  Normal repairs and
maintenance are expensed as incurred.
  The
useful lives for purposes of calculating depreciation and amortization are as
follows:
  Furniture
      and fixtures
                              5
      yearsBuildings
                              15
      yearsEquipment
                              5
      yearsAutos
      and trucks
                              5
      yearsLeasehold
      improvements
                              5
      years
 F-8
  
 Income
Taxes
 
 The
Company accounts for income taxes using the “liability method” in accordance
with SFAS No. 109, Accounting for Income
Taxes.  Accordingly, deferred tax assets and liabilities are
determined based upon the difference between the financial statement basis and
income tax basis of assets and liabilities as well as net operating loss
carryforwards, if any, using enacted tax rates in effect for the year in which
the differences are expected or settled.  Current income taxes are
based on the year’s income taxable for federal and state income tax reporting
purposes.
 
 Minority
Interest
 
 The
Company has a minority shareholder in ANI owning approximately 19%, as well as
minority shareholders in OGSI owning approximately 9.5%.  Due to
operating losses of the subsidiaries, the minority interest has not been reduced
from the operating income as there is no obligation of the minority shareholders
to make good on such losses.  However, if future earnings do
materialize, the majority interest will be credited to the extent of such losses
previously absorbed by the majority shareholders.  The minority
shareholders are executives in the operating subsidiaries and as such, minority
shareholders may request that their minority interest be exchanged for shares in
the parent company on a fair market value basis.  The minority
interests in the subsidiaries were issued pursuant to the employment contracts
entered into with Jon Hammond of ANI, Martin Reiner and Lon Musgrove of
OGSI.  The stock was issued for services at par at the organization of
the subsidiaries and recorded as an expense to each of the
subsidiaries.
 
 Loss
Per Common Share
 
 Basic
earnings (loss) per share is calculated by dividing loss available to common
stockholders by the weighted average number of common shares outstanding for the
period.  Diluted earnings per share reflect the potential dilution of
securities that could share in the earnings of the Company.
 
 Potential
common stock shares consist of shares that may arise from outstanding dilutive
common stock warrants (the number of which is computed using the “treasury stock
method”).  Diluted earnings per share considers the potential dilution
that could occur if the Company’s outstanding common stock warrants were
converted into common stock that then shared in the Company’s
earnings.  As the Company has a net loss for the years ended September
30, 2008 and 2007, basic and diluted loss per share are the same.
 
 The
Company has certain promissory notes that also may be converted into common
stock at the option of the holder.  The notes contain a provision of
the conversion to shares of stock upon certain conversion events.  The
conversion price is $.50 per share.  At the option of the Company, at
its sole discretion, it may pay for the accrued interest in stock based on a
formula that includes the closing price of the Company for the last 10 trading
days of the Company’s stock.  The number of shares that could cause a
further dilution of the Company’s earnings per share, based on the face value of
these convertible promissory notes, as of September 30, 2008 and 2007, were
280,000 and 720,000 shares, respectively.  These notes also contain
terms that if the notes are converted that they have warrant coverage at 50% of
the converted note at $.50 and 50% of the converted note at $.75, if such
circumstances are met.  These shares will be considered issuable upon
the conversion of these outstanding notes.  The Company has also
completed three (3) private placements of preferred stock that will be converted
into common shares of stock that could cause a further dilution of the Company’s
earnings per share.  These placements are fully described in Note 10
and Note 11.
 
 Advertising
Expenses
 
 The
majority of the Company’s advertising consists of commercials in trade
appropriate publications and some other direct mail and other
media.  Advertising costs are expensed when incurred.
 
 Use
of Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“US GAAP”) requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes.  Actual
results could differ from these estimates and assumptions.
  F-9
  
 Reclassifications
 
 As
described in Note 4, the amounts in the accompanying Consolidated Balance
Sheets, the Consolidated Statements of Operations and the Consolidated
Statements of Cash Flows have been reclassified to reflect the discontinuance of
ANI.
 
 Recently
Issued Accounting Pronouncements
 
 In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141 (revised 2007), Business
Combinations. SFAS No. 141 (revised 2007) replaces SFAS No. 141, Business Combinations, and
applies to all transactions or other events in which an entity obtains control
of one or more businesses and combinations achieved without the transfer of
consideration. This statement is effective for fiscal years beginning on or
after December 15, 2008. We do not anticipate this pronouncement will have a
significant impact on our results of operations or financial
position.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51. SFAS No.
160 requires all entities to report noncontrolling (minority) interests in
subsidiaries as equity in the consolidated financial statements. Its intention
is to eliminate the diversity in practice regarding the accounting for
transactions between an entity and noncontrolling interests. This Statement is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is prohibited. The
Company is currently evaluating the impact the adoption of this statement could
have on its financial condition, results of operations and cash
flows.
 
 In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 162 is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with US GAAP for nongovernmental entities. The Company
does not expect the adoption of SFAS No. 162 to have a material effect on its
results of operations or financial position.
 
 Note
4- Discontinued Operations
 
 In
September 2008, the Board of Directors approved a plan to close ANI and begin a
voluntary liquidation of the remaining assets.  ANI has incurred over
$4,000,000 in losses since its inception and the outlook for the nursery
industry warranted this decision.  The Level Four drought imposed by
the director of the Georgia Environmental Protection Division, which reduced and
eliminated outdoor watering, deepening credit crisis and contraction of the
housing industry made the outlook for ANI unfavorable.  The outlook
for the next two years of operations would result in further losses for a
division that has not produced profits to date.  There have been some
attempts to sell the nursery to other competitors, but the economic environment
did not result in any offers.
 Certain
of the assets of the business have been disposed of. The remaining assets
consist mainly of cash, trade receivables, inventory and property and equipment.
Trade receivables have been reduced to estimated net realizable value through a
significant reserve of $175,186. Inventories are carried at estimated lower of
cost or market. ANI recognized a loss of $792,148 as it marked its inventory to
the lower of cost or market. Plant, property and equipment was also reduced
because of the closing of the Alpharetta and Braselton locations. These
locations had approximately $320,716 of net leasehold improvements that were
written off due to the locations closing.
 
 The plan
of liquidation is to liquidate all of the assets that are owned by ANI, to
return all leased or financed vehicles and to collect all accounts receivable
for sales prior to the closure date. All sales after the closure will be on a
cash only basis and a liquidating bank has been set up to account for the cash
sales and to pay for all necessary operating expenses needed to complete the
liquidation. The receivables will be taken over by Liberty, who entered into a
line of credit with ANI on October 3, 2008, which is fully described in Note 15.
Liberty will collect on these receivables until their entire balance owed is
satisfied. Management anticipates that this will take approximately six months
to complete, or by March 31, 2009, at which time, ANI will file dissolution
papers with the Georgia Secretary of State and cease its existence.
 
 The
following table summarizes certain operating data for discontinued operations
for the years ended September 30:
 
 F-10
     2008
                                      
                                      
                                      2007Net
      sales
                                      
                                      $
                                      6,968,965
                                      
                                      
                                      $
                                      10,235,310Cost
      of goods sold
                                      
                                      
                                      5,001,145
                                      
                                      
                                      
                                      7,513,442Gross
      margin
                                      
                                      
                                      1,967,820
                                      
                                      
                                      
                                      2,721,868Administrative
      expensesOperating
      expenses
                                      
                                      
                                      4,139,432
                                      
                                      
                                      
                                      3,117,521Occupancy
      expenses
                                      
                                      
                                      517,115
                                      
                                      
                                      
                                      294,990Advertising
      expenses
                                      
                                      
                                      13,945
                                      
                                      
                                      
                                      47,350Depreciation
      and amortization
                                      
                                      
                                      261,606
                                      
                                      
                                      
                                      183,487Total
      administrative expenses
                                      
                                      
                                      4,932,098
                                      
                                      
                                      
                                      3,643,348Interest
      expense
                                      
                                      
                                      115,263
                                      
                                      
                                      
                                      110,041Net
      loss from discontinued operations
                                      
                                      $
                                      (3,079,541
                                      )
                                      
                                      $
                                      (1,031,521
                                      )
 
 The
following table summarizes the components of the assets and liabilities from
discontinued operations reported in the Consolidated Balance Sheets as of
September 30:
 
 2008
                                    
                                    
                                    2007Cash
                                    
                                    $
                                    2,806
                                    
                                    
                                    $
                                    95,763Accounts
      receivable, net
                                    
                                    
                                    327,662
                                    
                                    
                                    
                                    1,620,376Inventories
                                    
                                    
                                    188,299
                                    
                                    
                                    
                                    1,727,969Property
      and equipment, net
                                    
                                    
                                    361,038
                                    
                                    
                                    
                                    1,076,285Other
      assets
                                    
                                    
                                    10,894
                                    
                                    
                                    
                                    27,081Total
      assets
                                    
                                    $
                                    890,699
                                    
                                    
                                    $
                                    4,547,474Accounts
      payable
                                    
                                    $
                                    2,391,031
                                    
                                    
                                    $
                                    2,091,148Accrued
      liabilities
                                    
                                    
                                    179,224
                                    
                                    
                                    
                                    170,042Line
      of credit
                                    
                                    
                                    153,090
                                    
                                    
                                    
                                    788,964Lease/debt
      obligations
                                    
                                    
                                    192,106
                                    
                                    
                                    
                                    290,049Total
      liabilities
                                    
                                    $
                                    2,915,451
                                    
                                    
                                    $
                                    3,340,203
 
 Results
from discontinued operations reflect directly attributable revenues, cost of
sales and selling and marketing expenses. General administrative expenses have
not been allocated to discontinued operations because those expenses are general
to the continuing operations of the Company and would not be expected to be
eliminated or reduced as a result of disposing of ANI.
 
  F-11
  Note
5- Property and Equipment
 
 Property
and equipment, at September 30, 2008 and 2007, respectively, consists of the
following:
  2008
                                    
                                    
                                    2007Furniture
      and fixtures
                                    
                                    $
                                    21,649
                                    
                                    
                                    $
                                    12,740Buildings
                                    
                                    
                                    317,920
                                    
                                    
                                    
                                    317,820Autos
      and trucks
                                    
                                    
                                    166,869
                                    
                                    
                                    
                                    52,193Equipment
                                    
                                    
                                    1,715,740
                                    
                                    
                                    
                                    928,625Land
      and leasehold improvements
                                    
                                    
                                    135,645
                                    
                                    
                                    
                                    135,645Total
      property and equipment
                                    
                                    
                                    2,357,823
                                    
                                    
                                    
                                    1,447,023Less
      accumulated depreciation and amortization
                                    
                                    
                                    292,833
                                    
                                    
                                    
                                    81,021Property
      and equipment, net
                                    
                                    $
                                    2,064,990
                                    
                                    
                                    $
                                    1,366,002
 Note
6- Line of Credit
 
 During
September of 2006, ANI entered into an agreement for short-term financing to
sell 80% of acceptable qualified receivables to CAPCO Financial (“CAPCO”). Funds
advanced under this agreement were subject to 6% over the prime rate, as quoted
by Greater Bay Bank (8.25% as of October 1, 2006). During January of 2007, ANI
terminated its arrangement with CAPCO.
 
 ANI
entered into an arrangement with Presidential Financial Corporation (“PFC”) to
furnish a $2,000,000 operating line of credit during January of
2007.  Funds are advanced from PFC based upon 80% of the eligible
accounts receivable at a rate of 1% per annum above the prime rate of interest
quoted in the Wall Street Journal (7.75%
on September 30, 2007 and 5.00% on September 30, 2008,
respectively).  There is also a monthly service charge equal to .6% of
the average daily outstanding balance during the month.  As of
September 30, 2008 and 2007, the outstanding principal balance of this line of
credit was $153,090 and $788,964, respectively.  This line is secured
by the accounts receivable, inventories and other assets of ANI.
 
 During
August of 2008, OGSI entered into an agreement with Marquette Commercial Finance
(“MCF”) to furnish a $750,000 factoring line of credit.  Eligible
receivables are assigned to MCF, in which 80% of the invoice is advanced to OGSI
with the remaining 20% held until the invoice is paid in full by the
customer.  Once MCF receives the payment they forward the remaining
20%, less variable and fixed discounts, five days after receipt of the
payment.  The fixed discount ranges from .75% to 1.50% based upon when
the payment is received by MCF.  The variable rate is equal to 2% per
annum above the prime rate of interest quoted in the Wall Street Journal (5.00% on September 30,
2008).  As of September 30, 2008, the outstanding receivable from MCF
for the holdback is $39,909.
 
 Note
7- Notes Payable
 
 Convertible
Notes Payable
 
 The
Company holds several uncollateralized convertible notes payable with maturity
dates in 2009.  The outstanding balances as of September 30, 2008 and
2007 are approximately $280,000 and $720,000, respectively.  The notes
bear interest at a rate of 10% per annum.  Each convertible note has
attached warrants that are exercisable over a three year period based on the
execution date of the agreement.  For the conversions in 2007, the
value of these warrants issued and the discount on the notes payable, was
estimated to be approximately $8,900 at the date of grant using a Black-Scholes
option pricing model with the following assumptions:
 
  F-12
   
 Volatility
                          100%Expected
      life
                          3
      yearsExpected
      dividend
                          ----Rate
      free risk
                          4.97-
      5.07%
 
 From
October 2007 to December 2007 several note holders elected to convert $430,000
of their notes to 860,000 shares of common stock in the Company.  The
Company paid accrued interest to these shareholders that resulted in 94,045
additional shares being issued, which were valued at approximately $50,179.
 This resulted in the issuance of 954,045 shares of common stock. The
860,000 shares of stock issued for the notes have additional warrant coverage at
50% of the shares at $.50 and 50% of the shares at $.75.  The value of the
warrants was estimated to be approximately $208,000 at the date of the grant
using a Black-Scholes option pricing model with the following
assumptions:
 
 Volatility
                          100%Expected
      life
                          3
      yearsExpected
      dividend
                          ----Rate
      free risk
                          3.07-4.52%
 
 The
Company paid accrued interest to these shareholders that resulted in 94,045
additional shares being issued, which were valued at approximately
$50,200.  The Company also paid cash interest payments to the note
holders amounting to approximately $16,000 for the year ended September 30,
2008.
 
 The
Company also retired $10,000 of these notes with cash payments during the fiscal
year ended September 30, 2008.
 
 In
February 2008, the Company issued a convertible note payable in the amount of
$535,000 to Vision Capital Advisors (“Vision”) with a due date of August 2008,
with interest at a rate of 10%.  This note granted Vision 1,750,000
Series A warrants at a strike price of $.25 per warrant with a 5 year
life.  The discount associated with this note was $141,454 and the
value of the warrants issued was approximately $169,887 at the date of the note
using the Black-Scholes option-pricing model with the following
assumptions:
 Volatility
                          100%Expected
      life
                          5
      yearsExpected
      dividend
                          ----Rate
      free risk
                          2.56%
 
 In
consideration for Vision offering this note, the Company agreed to adjust the
strike price for the Series A and B warrants from the private placement that
occurred in 2007 from $.80 and $1.00, respectively, to $.20 per
warrant.  This adjustment affected 2,375,000 Series A common warrants
and 2,375,000 Series B common warrants.  The Company accounted for the
adjusted strike price in accordance with FASB Statement 123R, Share-Based Payments and EITF
Issue No 96-18, Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services.  The change in the
valuation of the warrants was $294,583, which was charged to interest
expense.  This valuation was computed using the following
assumptions:
 
 
 Volatility
                          100%Expected
      life
                          3
      yearsExpected
      dividend
                          ----Rate
      free risk
                          4.52%
 
 In May
2008 Vision converted this note, plus accrued interest of $13,227, into
1,461,939 shares of Series C convertible preferred stock.
 
 For
additional short-term financing, on December 20, 2006, the Company entered
into an agreement to borrow additional funds for working capital purposes from a
private investment banking firm in the amount of $750,000. The Company borrowed
$205,300 against this working capital source. These borrowings were converted to
preferred stock per the agreement in February of 2007 as more fully disclosed in
Note 10.
 
 
 F-13
  Promissory
Notes
 
 On August
20, 2008, the Company issued a senior secured promissory note in the amount of
$1,000,000 to Lammasu Capital Management, LLC (“Lamassu”).  The note
is due on August 20, 2009 and accrues interest at 18%, payable at the end of the
Company’s fiscal quarters.  The Company also issued 888,890 E common
warrants, priced at $.375, to purchase the Company’s common stock; 666,666 F
common warrants, priced at $.50 per warrant, to purchase the Company’s common
stock ; and 444,444 G common warrants, priced at $.75 per warrant, to purchase
the Company’s common stock.  The E, F and G common warrants have 3
year lives and are valued at approximately $121,000, $81,000 and $45,000,
respectively, using the Black-Scholes option-pricing model with the following
assumptions:
 
 Volatility
                        100%Expected
      life
                        3
      yearsExpected
      dividend
                        ----Rate
      free risk
                        1.99%
 
 This
expense is capitalized and shown as discount on debt and will be amortized over
the life of the warrants as a charge to interest expense.  The net
carrying value of the note as of September 30, 2008 is $773,666.  The
note is fully secured by a first priority security interest in the Mississippi
fertilizer plant.
 
 In April
2008 OGSI purchased a new vehicle funded with a note from Ford Motor Credit for
the principal amount of approximately $16,020.  This note is a 3 year
note bearing interest at 8.49%.  The outstanding principal balance on
this note as of September 30, 2008 is $14,037.  Future principal
maturities for these notes are; 2009 - $5,064; 2010 - $5,523; and 2011-
$3,451.
 
 In
October 2007 OGSI purchased 3 new vehicles funded with a note from
Diamler-Chrysler Financial for the principal amount of approximately
$79,000.  This note is a 5 year note bearing interest at
9.49%.  The outstanding principal balance on this note as of September
30, 2008 is $69,401.  Future principal maturities for these notes are;
2009 - $15,136; 2010 - $15,417; 2011- $16,945; 2012 - $16,625; and 2013 -
$3,279.
 
 In March
2007 the Company issued $472,210 of promissory notes to the prior owners of the
fertilizer manufacturing facility acquisition more fully described in Note 14.
These notes have a five (5) year term with a monthly payment of $10,000
including interest at rates varying from 8.27% to 10.00%. The outstanding
principal balance on the notes at September 30, 2008 and 2007 are $353,985 and
$434,719, respectively. Future principal maturities for these notes are; 2009 -
$89,057; 2010 - $98,242; 2011- $108,334; and 2012 - $58,352.
 
 In
September 2008 OGSI obtained a 30 day note through Marquette Commercial
Financial of $20,500 to help cover short term obligations.  The note
will be paid back through settlement of the holdback from Marquette on funded
invoices.
 
 During
the years ended September 30, 2008 and 2007, the Company recorded approximately
$111,000 and $125,000 respectively, of interest expense related to these notes
payable.
 
 Note
8- Capital Lease Obligations
 
 The
Company has entered into several capital lease obligations during 2008 and 2007
to purchase equipment used for operations.  The Company has the option
to purchase the equipment at the end of the lease agreement for a bargain
purchase price of one dollar.  The underlying assets and related
depreciation were included in the appropriate fixed asset category, and related
depreciation account.
 
 Property
and equipment includes the following amounts for leases that have been
capitalized as of September 30, 2008 and 2007:
 
   F-14
 
 2008
                                                            
                                                            
                                                            2007Machinery
      and equipment
                                                            
                                                            $
                                                            92,088
                                                            
                                                            
                                                            $
                                                            57,532Less
      accumulated depreciation
                                                            
                                                            
                                                            26,507
                                                            
                                                            
                                                            
                                                            13,459Property
      and equipment capitalized undercapital
      lease obligations, net
                                                            
                                                            $
                                                            65,581
                                                            
                                                            
                                                            $
                                                            44,0732009
                                                            
                                                            $
                                                            18,1612010
                                                            
                                                            
                                                            15,2132011
                                                            
                                                            
                                                            15,2132012
                                                            
                                                            
                                                            10,993Total
      future payments
                                                            
                                                            
                                                            59,580Less
      amount representing interest
                                                            
                                                            
                                                            5,890Present
      value of future minimum payments
                                                            
                                                            
                                                            53,690Less
      current portion
                                                            
                                                            
                                                            15,759Long-term
      portion
                                                            
                                                            $
                                                            37,931
 
 Note
9- Income Taxes
 
 The
Company and its subsidiaries file a consolidated federal tax return with the
Company being the common parent corporation of the affiliated group and have
executed a tax sharing agreement across corporate lines.  Deferred tax
assets and liabilities are recognized for the effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.  Substantially
all of the tax benefit is attributable to the net operating losses generated
during the current fiscal periods.
 
 Management
has determined that the deferred tax asset may not be realized in the short
term. Therefore, due to the short operating history of the Company, management
has recorded a valuation allowance to reduce the deferred tax asset to zero. The
net operating loss carryovers from the fiscal years ended September 30, 2006,
2007 and 2008 of $825,416, $2,759,322 and $7,571,725, respectively, will expire
in 2026, 2027 and 2028, respectively, if not utilized.
 
 Note
10- Shareholders’ Equity
 
 Fiscal
Year Ended September 30, 2008
 
 From
October 2007 to December 2007 several convertible note holders elected to
convert $430,000 of their notes to common stock in the Company.  This
resulted in 954,045 shares of common stock being issued for interest and note
principal as fully disclosed in Note 7.
 
 In
January 2008 the Company issued 87,000 shares of common stock at $.37 per share,
the average price of the Company’s traded stock from May 2007 to December 2007,
less a 20% discount, to a former employee of Agreaux Organics (“Agreaux”), the
company acquired by OGSI, for consulting services rendered pursuant to the
purchase agreement for Agreaux.  The value of these shares was
$32,000.  Also in January, the Company issued 135,000 shares at $.18
per share, the stock price as of the date of the executed agreement, to a
marketing organization in return for continued marketing
services.  The value of these shares was $24,650.
 
  F-15
 
 On
February 6, 2008 the Company was contacted by Vision concerning the requirement
of “within six months following the initial closing date the Company shall list
and trade its shares of common stock on the National Association of Securities
Dealers automated Quotations (“NASDAQ”) Bulletin board, the NASDAQ Capital
Market, the NASDAQ Global Market, the American Stock Exchange, Inc or the New
York Stock Exchange, Inc”, which is included in the preferred stock
agreement.  The Company had not fulfilled this obligation and Vision
exercised its right to adjust the conversion price for their original $500,000
investment for 1,000,000 shares of convertible preferred stock at $.50 to
$.375.  The Company took a charge of $63,333 as a result of this
penalty during the second quarter, due to an additional 333,333 shares of Series
B preferred stock being issued.  On September 22, 2008 Vision
contacted the Company and informed them that the initial penalty was not
calculated correctly and that 1,000,000 additional Series B convertible
preferred shares needed to be issued for the penalty.  The Company
immediately issued these shares at $.19 per share.  The Company took a
charge of $190,000 as a result of these 1,000,000 additional shares being
issued.  As of September 30, 2008 the Company has fulfilled all other
obligations as set forth by all of the equity investors of the Company and
management does not expect any further penalties to occur.  The
following table summarizes the allocation of the penalty to stockholders
equity:
 
 Allocated to equity
components:
  Preferred
      Series B Stock
                                            
                                            $
                                            1,333Additional
      paid-in-capital
                                            
                                            
                                            252,000$
                                            (253,333
                                            )Penalty
      recognized as a dividend
                                            
                                            
                                            (253,333
                                            )
 
 Also, in
February 2008, the Company issued a convertible note payable in the amount of
$535,000 to Vision.  The note was due on August 2008 and accrued
interest at a rate of 10%.  This note granted Vision 1,750,000 Series
A warrants at a strike price of $.25 per warrant with a 5 year
life.  The warrants issued with this note were valued at approximately
$170,000 as fully described in Note 7. In consideration for Vision offering this
note, the Company agreed to adjust the strike price for the Series A and B
common warrants from the private placement that occurred in 2007 from $.80 and
$1.00, respectively, to $.20 per warrant.  This adjustment affected
2,375,000 Series A common warrants and 2,375,000 Series B common warrants. The
change in the valuation of the warrants was $294,583, as fully described in Note
7. In May 2008 Vision converted this note, plus accrued interest to 1,461,939
shares of Series C convertible preferred stock.
 
 In April
2008, the independent members of the Board of Directors each received 5,000
shares of common stock for their attendance at the April 2008 Board of Directors
meeting.  This stock issuance resulted in 15,000 common shares being
issued, valued at $.26 per share.
 
 In May
2008, the Board of Directors of the Company authorized 15,000,000 shares of
Series C preferred, par value $.001, with each share convertible into one share
of common stock.  The Company also entered into an Exchange Agreement
with Vision whereby the Company would adjust the strike price of the J common
warrants, issued in the March 2007 and September 2007 equity transactions with
Vision, from $.80 to $.375.  The Company accounted for this adjusted
strike price using FASB Statement No. 123R and EITF Issue No.
96-18.  The change in the valuation of these warrants, as a result of
the re-pricing, was $304,698, which has been classified as a preferred stock
dividend.  This valuation change was computed using the following
assumptions:
 
 Volatility
                        100%Expected
      life
                        5
      yearsExpected
      dividend
                        ----Rate
      free risk
                        2.00%
 
 The
Company also agreed to adjust the strike price of the C and D common warrants,
issued in the March 2007 and September 2007 equity transactions with Vision,
from $1.10 and $1.30, respectively, to $.50 and $.60,
respectively.  The change in valuation of these warrants, as a result
of the re-pricing, was $294,953, which has been classified as a preferred stock
dividend.  This valuation change was computed using the Black-Scholes
option-pricing model with the following assumptions:
 
  F-16
 
 Volatility
                        100%Expected
      life
                        3.75
      to 4.25 yearsExpected
      dividend
                        ----Rate
      free risk
                        2.00%
 
 In
consideration for this re-pricing of warrants, Vision agreed to a reduced
exchange ratio whereby they exchanged 3,000,000 A common warrants for 2,520,000
shares of Series C preferred stock, 3,000,000 B common warrants for 2,520,000
shares of Series C preferred stock, and 1,750,000 Series A common stock warrants
for 1,400,000 shares of Series C preferred stock.  This exchange
resulted in the issuance of an additional 6,440,000 shares of preferred stock
valued at $2,164,259.  As a result of there being no market for
the preferred stock, the value of the warrants exchanged in the transaction was
used for valuation.  Such values were determined using the
Black-Scholes option-pricing model with the following
assumptions:
 Volatility
                        100%Expected
      life
                        4.0
      to 4.3 yearsExpected
      dividend
                        ----Rate
      free risk
                        2.00%
 
 In June
2008, Vision exercised 1,333,333 J common warrants at a strike price of $.375
per warrant.  The Company received $500,000 cash.  The
exercised warrants were converted into 1,333,333 shares of Series C preferred
stock.  The Company also issued 3,000 shares of common stock at $.32,
the spot price on the date of issuance, to the plant manager at that
time.  The value of these shares was $960.
 
 In July
2008 the Company issued 93,333 shares of common stock at $.30, the 30 day
average price of traded stock less a 20% discount, to a former employee of
Agreaux, for consulting services rendered pursuant to the purchase agreement for
Agreaux.  The value of these shares was $28,000.  The
Company also issued 588,235 shares of common stock at $.34 per share, the spot
price on the date of the agreement, to an investor relations consultant for
prior services rendered.  The value of the shares was
$200,000.  The Company also issued 75,000 shares of common stock at
$.31 per share, the spot price on the date of the agreement, to a marketing
company rendering investor relation/public relations activities to the
Company.  The value of the shares was $15,750.
 
 In August
2008, the Company issued a senior secured promissory note
Lammasu.  The Company also issued 888,890 E common warrants, priced at
$.375, to purchase the Company common stock; 666,666 F common warrants, priced
at $.50 per warrant, to purchase the Company common stock; and 444,444 G common
warrants, priced at $.75 per warrant, to purchase the Company’s common
stock.  The E, F and G common warrants have 3 year lives and are
valued at approximately $247,000 as fully described in Note
7.
 Also, in
August 2008 the Company issued 3,000 shares of common stock at $.35 per share,
the spot price on the date of issuance, to the equipment installation company
responsible for the installation of the 2nd and 3rd lines at the OGSI plant in
Monticello, MS.  The value of the shares was
$1,050.   The Company also issued 100,000 shares of common stock
at $.22 per share, the spot price on the date of the agreement, to the Chief
Financial Officer, as agreed upon in his contract approved by the Compensation
Committee of the Company’s Board of Directors.  The value of the
shares issued was $22,000.  TBECK Capital, Inc. (“TBECK”), a
shareholder of the Company, transferred 438,115 shares of its Series B preferred
Stock to Aritex Consultants, Inc. (“Aritex”) (the consulting company of Lyle
Mortensen, independent director).  Aritex registered those shares and
then converted those shares into common stock of the Company.
 
 In
September 2008 the Company issued 10,000 shares of common stock at $.23 per
share, the spot price on the date of the agreement, to a feedstock provider for
a 3 year agreement to provide broiler litter feedstock to OGSI at predetermined
levels and price per ton.  The value of the shares issued was
$2,300.
 
  F-17
 
 Fiscal
Year Ended September 30, 2007
 
 In
October of 2006, the two non-employee Board members were issued 10,000 shares of
common stock each at a price of $.19 per share, as this was the best estimate of
fair value at the time of issuance. This resulted in the issue of 20,000 shares
of common stock.  A related marketing consultant, who is a relative to
the Chairman of the Company, was issued 100,000 shares of common stock for
management and marketing services rendered to the Company.  These
shares were issued at $.19 per share, as this was the best estimate of fair
value at the time of issuance.
 
 In
February 2007, the Company amended its charter to provide for 50,000,000
shares of $0.001 par value preferred stock. Rights, preferences and designations
of the preferred stock are to be determined by the Board of Directors of the
Company. Effective
March 9, April 13, May 4, September 14 and
September 17, 2007, the Company entered into agreements with private
investment companies, to provide additional working capital totaling $3,417,482
in exchange for the issuance of 7,350,000 shares of preferred stock and common
warrants to purchase 22,050,000 shares of the Company’s common
stock.  This conversion was completed the last quarter of fiscal 2007
as described in Note 11.
 Also, in
February of 2007, a promissory note with TBECK was converted to Series B
preferred stock.  In December of 2006 TBECK agreed to loan the Company
up to $750,000 to assist in the expansion of the Company. The Company received
$205,300 in proceeds from this loan. The promissory note and accrued interest
were convertible into preferred stock at that point in time in which the Company
authorized the issuance of preferred stock. The Company, in February of 2007,
authorized the issuance of preferred stock and as such the promissory note and
accrued interest were converted to preferred stock. The conversion price was at
$.50 per share of preferred stock, resulting in the issuance of 438,115 shares
of Series B preferred stock. The preferred stock is convertible into common
stock at the option of the holder on the basis of one share of preferred stock
for one share of common stock. The note had warrants attached in an amount equal
to the amount advanced at an exercise price of $1.00 per share. Total warrants
under this promissory note are 205,300 shares and may be exercised up to five
(5) years from the date of the promissory note by giving the Company
notice. The conversion of this promissory note was not dependent on the market
price of the stock at the time of conversion
 
 Also, in
February 2007, Aritex was issued 466,667 shares as compensation for services
rendered to the Company in connection with Mr. Mortensen’s services as the
CFO of the Company. These shares were issued at a price of $.35 per share and
further described in Note 12.
 
 In
March 2007 the Company completed an acquisition of an organic fertilizer
plant in Monticello, MS, which resulted in the issuance of 600,000 shares of the
Company’s restricted stock at a price of $.35 per share. This transaction is
further described in Note 14.
 
 In April
2007 the independent members of the Board of Directors each received 5,000
shares of common stock at a price of $.35 per share, which was based on the
value of the price paid for treasury stock.  These shares were issued
to these Board members for their services to the Company.
 
 Also in
April 2007 the Company issued 175,000 shares of common stock to several key
management employees of the Company for their services to the Company during its
formation. These shares were issued at $.35 per share, which was based on the
value of the price paid for treasury stock.
 
 In May
2007, the Company acquired 357,143 of its own common stock for treasury for a
purchase price of $125,000, or $.35 per share.
 
 Note
11- Private Placement of Series A and B Preferred Stock
  On
March 9, April 13 and May 3, 2007 the Company completed
three private placements in which the Company issued a total of 4,750,000 shares
of its Series A preferred stock at a gross sales price of $.50 per share. Each
share of preferred stock is convertible into one share of common stock and
included common stock warrants with various series and amounts for a five year
period as follows:
 
  F-18
  
 Series
      No.
                                          
                                          
                                          Number
      of Warrants
                                          
                                          
                                          Conversion
      PriceA
                                          
                                          
                                          
                                          2,375,000
                                          
                                          
                                          $
                                          0.80B
                                          
                                          
                                          
                                          2,375,000
                                          
                                          
                                          $
                                          1.00C
                                          
                                          
                                          
                                          2,375,000
                                          
                                          
                                          $
                                          1.10D
                                          
                                          
                                          
                                          2,375,000
                                          
                                          
                                          $
                                          1.30J
                                          
                                          
                                          
                                          4,750,000
                                          
                                          
                                          $
                                          0.8014,250,000
 
 The
Company also completed two private placements in which the Company issued a
total of 2,600,000 shares of its Series B preferred stock at a gross sales price
of $.50 per share. Each share of preferred stock is convertible into one share
of common stock and included common stock warrants with various series and
amounts for a five year period as follows:
 
 Series
      No.
                                        
                                        
                                        Number
      of Warrants
                                        
                                        
                                        Conversion
      PriceA
                                        
                                        
                                        
                                        1,300,000
                                        
                                        
                                        $
                                        0.80B
                                        
                                        
                                        
                                        1,300,000
                                        
                                        
                                        $
                                        1.00C
                                        
                                        
                                        
                                        1,300,000
                                        
                                        
                                        $
                                        1.10D
                                        
                                        
                                        
                                        1,300,000
                                        
                                        
                                        $
                                        1.30J
                                        
                                        
                                        
                                        2,600,000
                                        
                                        
                                        $
                                        0.807,800,000
 
 The
above tables reflect the warrants for all five transactions described
above.
 
 Within
six months following the initial Closing Date (March
9, April 13, May 3, September 14 and
September 17, 2007, respectively), the Company shall list and trade its
share of common stock on the National Association of Securities Dealers
Automated Quotation (“NASDAQ”) OTCBB, NASDAQ Capital Market, the NASDAQ Global
Market, the American Stock Exchange, Inc. or the New York Stock Exchange, Inc.
(each, a “Trading Market”). In the event the shares of common stock are not
listed and trading on a Trading Market by the date that is six months following
the Closing Date, the Conversion Price (as defined in the Certificate of
Designation) shall be adjusted to a price equal to seventy-five percent
(75%) of the Conversion Price then in effect. In the event the shares of
Common Stock are not listed and trading on a Trading Market by the date that is
twelve (12) months following the Closing Date, the Conversion Price shall
be adjusted to a price equal to fifty percent (50%) of the Conversion Price
then in effect.
 
 Commencing
one year after the issue date if the Company issues additional shares of common
stock at an amount less than the warrant price in effect, the Company may be
required to adjust the warrant price pursuant to a formula indicated in the
warrant document.
 
 The
agreement also has requirements of the Company that have potential liquidating
damages, which include the requirement to register the stock. If the Company
fails to file a registration statement and have it declared effective during the
Effective Date period, as defined, the Company could be subject to a penalty of
up to 2% of the holders, initial investments per month to a maximum of 20%. The
Effective Date is defined as the earlier of the ninetieth (90) day
following the filing date of such registration statement or 120 days if the
registration statement is to receive a full review. The Company has filed a
registration statement on Form 10-SB within the 90 day requirement. Since the
Company filed Form 10-SB within the ninety (90) days of the purchase,
management believed that this requirement had been met and that no further
liquidating charges would be incurred. Due to the Company’s inability to have
its stock traded on the NASDAQ OTC Bulletin Board or other markets the Company
incurred a penalty in the amount of $200,333, which was paid out of the net
proceeds received in the private placement of preferred stock dated
September 14, 2007, and is included as a penalty incurred on preferred
stock in the accompanying consolidated statement of operations.
 
  F-19
 
 The
Company may have exposure if it fails to deliver the stock after the warrants
have been exercised. However, the Company has sufficient stock authorized that
the Company officers do not believe that there will be any additional
liquidating damages.
  Accounting
for the various components of the private placement was utilized by reference to
the provisions of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities; EITF Issue No. 00-19 Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in a Company’s Own Stock;
EITF Issue No. 05-4, The
Effect of Liquidated Damages Clause on Freestanding Financial Instruments
Subject to Issue No. 00-19 and related amendments and
guidance.
 
 The
following table summarizes the allocation of the proceeds from the five separate
private placements of preferred stock:
  March
      9,
                                  
                                  
                                  April
      13,
                                  
                                  
                                  May
      4,2007
                                  
                                  
                                  2007
                                  
                                  
                                  2007Gross
      proceeds
                                  
                                  $
                                  1,500,000
                                  
                                  
                                  $
                                  500,000
                                  
                                  
                                  $
                                  375,000Share
      issuance costs
                                  
                                  
                                  (28,629
                                  )
                                  
                                  
                                  (2,533
                                  )
                                  
                                  
                                  (2,885
                                  )Net
      proceeds received
                                  
                                  $
                                  1,471,371
                                  
                                  
                                  $
                                  497,467
                                  
                                  
                                  $
                                  372,115Proceeds
      allocated to equity componentsSeries
      A preferred stock
                                  
                                  $
                                  3,000
                                  
                                  
                                  $
                                  1,000
                                  
                                  
                                  $
                                  750Additional
      paid-in-capital
                                  
                                  
                                  1,468,371
                                  
                                  
                                  
                                  496,447
                                  
                                  
                                  
                                  371,365Beneficial
      conversion feature
                                  
                                  
                                  1,471,371
                                  
                                  
                                  
                                  497,447
                                  
                                  
                                  
                                  372,115Amortization
      of beneficial conversion feature as a dividend
                                  
                                  
                                  (1,471,371
                                  )
                                  
                                  
                                  (497,447
                                  )
                                  
                                  
                                  372,115Total
      equity allocation
                                  
                                  $
                                  1,471,371
                                  
                                  
                                  $
                                  497,447
                                  
                                  
                                  $
                                  1,116,345
  September
      14,
                                    
                                    
                                    September
      14,2007
                                    
                                    
                                    2007Gross
      proceeds
                                    
                                    $
                                    1,000,000
                                    
                                    
                                    $
                                    300,000Share
      issuance costs
                                    
                                    
                                    (12,543
                                    )
                                    
                                    
                                    (1,575
                                    )Net
      proceeds received
                                    
                                    $
                                    987,457
                                    
                                    
                                    $
                                    298,425Proceeds
      allocated to equity componentsSeries
      A preferred stock
                                    
                                    $
                                    2,000
                                    
                                    
                                    $
                                    600Additional
      paid-in-capital
                                    
                                    
                                    985,457
                                    
                                    
                                    
                                    297,825Beneficial
      conversion feature
                                    
                                    
                                    987,457
                                    
                                    
                                    
                                    298,425Amortization
      of beneficial conversion feature as a dividend
                                    
                                    
                                    (987,457
                                    )
                                    
                                    
                                    (298,425
                                    )Total
      equity allocation
                                    
                                    $
                                    987,457
                                    
                                    
                                    $
                                    298,425
 The
preferred shares and warrants were issued to accredited investors without
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 492) of the Securities Act of 1933. No general
solicitation was made in connection with the offer or sale of these
securities.
 
 Note
12- Related Party Transactions
 
 Fiscal
Year Ended September 30, 2008
 
 For the
year ended September 30, 2008, a related marketing consultant, a relative of the
Chairman of the Board of Directors, has been employed by the Company to oversee
the re-organization of the sales and marketing efforts of OGSI.  This
related party has been paid $165,000 for the year ended September 30,
2008.
 
  F-20
 
 On
February 1, 2008, the Company borrowed $50,000 from a company operated by one of
the Board of Directors for working capital purposes.  The noted was a
six month note that accrued interest at 12% per annum.  The Company
paid the principal and accrued interest off on August 20, 2008.  The
interest allocated to this note equaled $3,500.
 
 In April
2008, the three independent members of the Board of Directors received 5,000
shares plus $1,000 each for their attendance to the April 2008 Board of
Directors meeting.  This stock issuance resulted in 15,000 common
shares being issued, valued at $.26 per share.  The value of these
shares was $3,900.
 
 In
September 2008 the Compensation Committee of the Company’s Board of Directors
approved the employment contract for the Chief Financial Officer (“CFO”) and
agreed to issue 100,000 shares of common stock at $.22 per share.  The agreement
also calls for 100,000 warrants to be issued quarterly to the CFO for the next
fiscal year at a price of $.50 per warrant.
 
 Fiscal
Year Ended September 30, 2007
 
 In
October of 2006, the two non-employee Board members were issued 10,000 shares of
common stock each at a price of $.19 per share, as this was the best estimate of
fair value at the time of issuance. This resulted in the issue of 20,000 shares
of common stock.  A related marketing consultant, who is a relative to
the Chairman of the Company, was issued 100,000 shares of common stock for
management and marketing services rendered to the Company.  These
shares were issued at $.19 per share, as this was the best estimate of fair
value at the time of issuance.
 
 In
February 2007, Aritex was issued 466,667 shares as compensation for services
rendered to the Company in connection with Mr. Mortensen’s services as the
CFO of the Company.  These shares were issued at a price of $.35 per
share.  In accordance with SFAS 123R, the stock issued was treated as
an expense with the appropriate entry to common stock and additional
paid-in-capital.  The per share value used was $.35 per share, which
was the value at which the private placement was sold in the previous
year.  The market value for the first two weeks of February ranged
from a high of $.90 to a low of $.55.  The date of the resolution
authorizing the issue was February 9, 2007, however, due to the restrictions on
the sale of his stock and, fluctuating market values, $.35 per share was
determined to be appropriate.
 
 In
addition, Aritex loaned the Company $20,000 for working capital on an
unsecured basis, which was repaid on September 26, 2007.
 
 Also in
April 2007 the Company issued 175,000 shares of common stock to several key
management employees of the Company for their services to the Company during its
formation. These shares were issued at $.35 per share, which was based on the
value of the price paid for treasury stock.
 
 Note
13- Commitments and Contingencies
 
 Leases
 
 The
Company leases certain facilities under operating leases, of which rent expense
was approximately $81,000 and $48,000 for the years ended September 30, 2008 and
2007, respectively.  Rent expense for the Company’s operating leases,
which generally have escalating rentals over the term of the lease, is recorded
using the straight line method over the initial lease term as required by SFAS
No. 13, Accounting for Leases, whereby an equal amount of rent expense is
attributed to each period during the term of the lease, regardless of when
actual payments are made.  Generally, this results in rent expense in
excess of cash payments during the early years of a lease and rent expense less
than cash payments in the later years.  The difference between rent
expense recognized and actual rent payments is included in accounts payable and
accrued expenses in the accompanying consolidated balance sheets.
 
 Future
annual minimum lease obligations as of September 30, 2008 are as
follows:
 
 
 
 F-21
  
 2009
                                        $
                                        42,0532010
                                        
                                        43,1982011
                                        
                                        44,277Future
      minimum lease payments
                                        
                                        $
                                        $129,528
 
 Note
14- Acquisition of Manufacturing Facility
 
 On
March 29, 2007 the Company completed an acquisition of an organic
fertilizer plant in Monticello, Mississippi. The purchase consist of $500,000 in
cash, 600,000 shares of the Company’s restricted common stock, valued at
$210,000 based upon $.35 per share, and promissory notes to the prior owners in
the principal amount of $472,210, offset by $20,435 of amounts due to the
previous owner as fully described in Note 7. The total recorded for the purchase
of the plant was $1,161,776. The purchase price was allocated as
follows:
 
 Land
                                
                                $
                                125,598Buildings
                                
                                
                                313,232Furniture
                                
                                
                                2,073Equipment
                                
                                
                                720,873Total
                                
                                $
                                1,161,776
 
 Note
15- Subsequent Events
 
 On
October 3, 2008, ANI entered into a $1,500,000 line of credit agreement with
Liberty, which replaces the PFC line of credit.  Funds are advanced
from Liberty based upon 85% of the eligible accounts receivable at a rate of 1%
per annum above the prime rate of interest quoted in the Wall Street Journal (5.00% on September 30,
2008), with a floor of 5%.  There is also a monthly account management
fee equal to 1.5% of the average daily outstanding balance during the
month.  This line is secured by the accounts receivable, inventories
and other assets of ANI.
 
 On
December 10, 2008, the Company entered into a note purchase agreement with
Conative Capital Management, LLC (“Conative”) in the amount of
$250,000.  The outstanding principal of the note is due on June 10,
2009.
 
 Interest
shall accrue monthly on the outstanding principal amount of the note, at a rate
of eighteen percent (18%) per annum. The interest payments shall be paid in
cash on the first business day of each calendar month commencing January 1,
2009.  At the closing of the transaction, the Company issued an
aggregate of 44,000 shares of the Company’s common stock to Conative. As
additional consideration, the Company will issue to Conative 44,000 additional
common stock shares on the first trading day of each calendar month, commencing
in January 2009, if any amounts are outstanding under the note. The maximum
amount of additional shares will be 264,000 shares of common stock assuming the
note is not prepaid prior to the maturity date.
  F-22
  ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
 On
September 7, 2008 the Audit Committee approved the engagement of Porter Keadle
Moore, LLP as the Company’s independent registered public accounting firm for
the fiscal year ended September 30, 2008.  On September 10, 2008 the
Company notified Whitley Penn LLP that it had been dismissed as the Company’s
independent registered public accounting firm to audit the Company’s
consolidated financial statements for the fiscal year ended September 30,
2008.  The change in accountants did not result from any
dissatisfaction with the quality of professional services rendered by Whitley
Penn LLP.   We have had no disagreements on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures with our accountants for the year ended September 30,
2008 or any interim period.  We have not had any other changes in nor
have we had any disagreements, whether or not resolved, with our accountants on
accounting and financial disclosures during our recent fiscal year or any later
interim period.
 ITEM 9A. CONTROLS AND PROCEDURES
  (a) Evaluation of Disclosure
Controls and Procedures. Our management, with the participation of
our Chief Executive Officer and Chief Financial Officer, has carried out an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures in accordance with the Exchange Act Rules 13a-15(e) and
15d-15(e). Based upon this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that as of the period ended September 30, 2008 our
disclosure controls and procedures were not effective in ensuring that
information required to be disclosed by us in our periodic reports is recorded,
processed, summarized and properly reported.
  Specifically,
the Company has had several complex equity type transactions that have
historically required audit adjustments to ensure that the transactions are
properly valued, accounted for and disclosed. Management has worked towards
evaluating and implementing improvements based upon the Sarbanes-Oxley Act of
2002 and is fully reporting under this act.
  Management’s Report on Internal
Control over Financial Reporting. Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act). Our internal control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with
accounting principles generally accepted in the United States.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control
objectives. Furthermore, smaller reporting companies face additional
limitations. Smaller reporting companies employ fewer individuals and find it
difficult to properly segregate duties. Often, one or two individuals control
every aspect of the Company’s operation and are in a position to override any
system of internal control. Additionally, smaller reporting companies tend to
utilize general accounting software packages that lack a rigorous set of
software controls.
   -18-
 Table of Contents
  Our Chief
Executive Officer and Chief Financial Officer evaluated the effectiveness of the
Company’s internal control over financial reporting as of September 30,
2008. In making this assessment, our management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
in Internal Control — Integrated Framework. Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that, as of
September 30, 2008, our internal control over financial reporting was
effective.
  (b) Changes in Internal Control over
Financial Reporting.There were no changes in our internal control over
financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act, during our most recently completed fiscal year that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
  ITEM 9B.  OTHER INFORMATION
  There
were no items required to be disclosed in a Form 8-K during the fourth quarter
of the year ended September 30, 2008 that was not disclosed.
  PART
III
 
 ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT
 
 The
following table sets forth the names and ages of our current directors and
executive officers, as well as their principal offices and
positions.
  
 Name
                                      
                                      Age
                                      
                                      PositionChristopher
      J. Nichols
                                      42
                                      
                                      President
      & Chairman of the Board of DirectorsDan
      K. Dunn
                                      
                                      41
                                      
                                      Secretary,
      Treasurer & Chief Financial OfficerLyle
      J. Mortensen
                                      
                                      69
                                      
                                      Independent
      directorJack
      Cowan
                                      
                                      75
                                      
                                      Independent
      directorSteve
      Riegler
                                      
                                      38
                                      
                                      Independent
      directorJoseph
      Emas
                                      
                                      53
                                      
                                      Independent
      directorScott
      Baily
                                      
                                      50
                                      
                                      Independent
      director
  All of our directors serve
until their successors are elected and qualified by our shareholders, or until
the earlier of their death, retirement, resignation or removal. The following is
a brief description of the business experience of our executive officers,
directors and significant employees:
  Christopher J. Nichols (42),
is the Chairman, President and CEO of AGWS. From December, 2003 through January,
2006 he was the senior Vice President of Sales for the Private Client Group at
Westcap Securities, Inc. in Irvine, CA. From December of 2002 through October,
2003 he was a Vice President with Fisher Investments selling separate accounts
to high net-worth individuals. From November, 1997 through October 2002, he was
a Registered Representative with Interfirst Capital Corporation in Yorba Linda,
CA. From January, 1991 through November of 1997, he was the Director of Sales
and Marketing for Sun-Gard West, a regional distributor of solar control
products.
  Dan K. Dunn (41) is the Chief
Financial Officer, Treasurer and Secretary of the Company.  Dan brings
over 13 years of progressive accounting experience working in public,
construction and manufacturing accounting dealing mostly with early stage
companies and helping to formulate the financial strategies to help get them to
the next level. He was previously Chief Financial Officer with Janus
International Corp, a manufacturer of steel rolling overhead doors, where he
helped grow the company from a start up to over $80 million in sales while
adding 2 additional manufacturing facilities, 1 distribution center and a
foreign joint venture in a 4 year period. Dan is a graduate of West Georgia
College and holds a B.B.A. and M.P.A. in Accounting.
   -19-
 Table of Contents
  Lyle J. Mortensen (69), is a
Certified Public Accountant. From June of 1965 until approximately April of 1978
he worked for Touche Ross & Co, now Deloitte & Touche, in the
audit and tax departments. From April 1978 until present time he has been self
employed as a Certified Public Accountant working mainly in a tax and consulting
capacity and serving as the chief financial officer for various small private
companies.
  Steve Riegler (38), is a
Director and has been a private equity investor over the past several years. He
has also worked with several non-profit organizations as well as holding
advisory roles with Epic Sports and Quicksilver Boardriders USA. He previously
served as a professional equity trader at UBS and for 10 years was a specialist
for Charles Schwab on the floor of the Pacific Stock Exchange (PCX) in Los
Angeles. During his time at the PCX he served on the Board of Governors in 2000.
He was also in charge of all major media communications including CNBC, CNN and
local Los Angeles radio.
  Jack Cowan (75), is a Director
and founder of Venture Chemicals, Inc. in Lafayette LA. He brings massive
experience in chemical engineering, chemical management and sophisticated
manufacturing. He is currently Chairman of the Board of the Venture Group,
several small, specialty-based products companies serving a number of markets
including oil and gas drilling fluid additives, agricultural products, animal
feed additives, etc. Jack has been on various committees and actively involved
in multiple professional organizations including the American Chemical Society,
the American Petroleum Institute, the National Association of Corrosion
Engineers and the Commercial Development Association. Jack is the author or
co-author of more than 30 patents and is the author/co-author of numerous
technical papers involving both drilling fluids and oilfield production
chemicals. Jack has a BS Degree in Chemistry from Midwest
University.
  Joseph I. Emas (53) Mr. Emas
is licensed to practice law in Florida, New Jersey and New York. Since 2001, Mr.
Emas has been the senior partner of Joseph I. Emas, P.A. Mr. Emas specializes in
securities regulation, corporate finance, mergers and acquisitions and corporate
law. Mr. Emas received his Honors B.A. at University of Toronto, Bachelor of
Administrative Studies, with distinction, at York University in Toronto, his
J.D., cum laude from Nova Southeastern Shepard Broad Law School and his L.L.M.
in Securities Regulation at Georgetown University Law Center. Mr. Emas was an
Adjunct Professor of Law at Nova Southeastern Shepard Broad Law School. Mr. Emas
received the William Smith Award, Pro Bono Advocate for Children in 2000 and the
2006 Child Advocacy Award in Florida and is the author of “Update of Juvenile
Jurisdiction Florida Practice in Juvenile Law.” Mr. Emas was been a member of
the Juvenile Court Rules Committee for the State of Florida from 1999 through
2006, and currently sits on the Florida Child Advocacy Committee. Mr. Emas is a
director of the public company’s HQ Sustainable Maritime Industries, Inc., and
Bluefire Ethanol Fuels, Inc.
  Scott Bailey (50) Scott A.
Baily joined the Sands Brothers Venture Capital Funds I-IV in September, 2005,
as Chief Operating Officer (COO), and a Director of the Member–Manager of the
Funds.  Mr. Baily’s professional Wall Street experience spans nearly
25 years in a variety of capacities that includes such positions as a Partner
and Senior Analyst at JPS Fund Group LLC, a hedge fund (2004-2005); CEO and
President of GrandView Partners, a financial advisory firm
(2001-2004).  In addition, while a Senior Vice President and Senior
Equity Analyst at BlueStone Capital Partners (1996-2001), Mr. Baily was named an
All Star Analyst in the Wall Street Journal’s 2000 Survey for his stock-picking
ability. Earlier in his career, Mr. Baily worked at Barrow Street Research,
Smith Barney, Harris Upham, Inc., and Paine Webber, Jackson & Curtis in a
variety of senior positions. Mr. Baily earned a double B.A. degree in Business
Administration and Corporate Relations, from Alma College, and did his Graduate
work in Business Administration at Central Michigan University and the
University of Detroit.  Mr. Bailey serves on the board of directors of
AOI Medical, Inc.
  Involvement
in Certain Legal Proceedings
  To the
best of our knowledge, during the past five years, none of the following
occurred with respect to a present or former director or executive officer of
the Company: (1) any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time; (2) any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses);
(3) being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of any competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; and
(4) being found by a court of competent jurisdiction (in a civil action),
the SEC or the commodities futures trading commission to have violated a federal
or state securities or commodities law, and the judgment has not been reversed,
suspended or vacated.
   -20-
 Table of Contents
  Board
Committees and Independence
  All of
the directors serve until the next annual meeting of common shareholders and
until their successors are elected and qualified by our common shareholders, or
until the earlier of their death, retirement, resignation or removal. Our Bylaws
set the authorized number of directors at not less than one nor more than nine,
with the actual number fixed by our Board of Directors. Our Bylaws authorized
the Board of Directors to designate from among its members one or more
committees and alternate members thereof, as they deem desirable, each
consisting of one or more of the directors, with such powers and authority (to
the extent permitted by law and these Bylaws) as may be provided in such
resolution.
  The
following three independent directors, Lyle J. Mortensen, Jack Cowan and Steve
Riegler, currently serve as the Company’s separately designated standing Audit
Committee, established in accordance with section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), with Mr. Mortensen
chairing the committee and serving as its financial expert.
 
 The
following three independent directors, Lyle J. Mortensen, Jack Cowan and Steve
Riegler, currently serve as the Company’s Compensation Committee, with Mr. Cowan
chairing the committee.
 
 The
following three independent directors, Lyle J. Mortensen, Jack Cowan and Steve
Riegler, currently serve as the Company’s Nominating Committee, with Mr. Riegler
chairing the committee.
  Compliance
with Section 16(a) of the Exchange Act
  Section
16(a) of the Exchange Act requires the Company's directors, executive officers
and persons who beneficially own 10% or more of a class of securities registered
under Section 12 of the Exchange Act to file reports of beneficial ownership and
changes in beneficial ownership with the SEC. directors, executive officers and
greater than 10% stockholders are required by the rules and regulations of the
SEC to furnish the Company with copies of all reports filed by them in
compliance with Section 16(a).
 Based
solely on our review of such forms furnished to us and written representations
from certain reporting persons, we believe that all filing requirements
applicable to our executive officers, directors and more than 10% Stockholders
were complied with during the fiscal year ended September 30,
2008.
 Code
of Ethics
  The
Company has adopted a code of ethics that is applicable to our directors and
officers. Our code of ethics is available upon request from the Company by
writing Advanced Growing Systems, Inc., 3050 Royal Boulevard South, Suite 135,
Alpharetta, GA 30022, Attention: Board of Directors.
  SUBSEQUENT
EXECUTIVE RELATIONSHIPS
  On
October 13, 2008, the Board of Directors, in a majority vote, elected to
terminate the contract of Jon Hammond as President/CEO of Advanced
Nurseries.  Mr. Hammond will no longer serve on the Board of Directors
for Advanced Growing Systems.
  On
October 1, 2008 the Compensation Committee approved the hiring of Mark Nichols
as President/CEO of OGSI.  Mr. Nichols will be responsible for the
overall operations of OGSI as well as continuing to drive the sales efforts for
the division.
  ITEM 11.  EXECUTIVE COMPENSATION
  Non-Equity
                                                
                                                NonqualifiedStock
                                                
                                                Option
                                                
                                                Incentive
      Plan
                                                
                                                Deferred
                                                
                                                All
      OtherSalary
                                                
                                                Bonus
                                                
                                                Awards
                                                
                                                Awards
                                                
                                                Compensation
                                                
                                                Compensation
                                                
                                                CompensationName
      and Principal Position
                                                
                                                Year
                                                
                                                ($)
                                                
                                                ($)
                                                
                                                ($)
                                                
                                                ($)
                                                
                                                ($)
                                                
                                                Earnings
      ($)
                                                
                                                ($)
                                                
                                                Total
      ($)Christopher
      J. Nichols
                                                
                                                2006
                                                
                                                $56,000
                                                
                                                
                                                
                                                $ 4,417
                                                
                                                $ -
                                                
                                                
                                                
                                                
                                                
                                                $
      -
                                                
                                                $ 60,417President,
      CEO and Director
                                                
                                                2007
                                                
                                                165,000
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                165,0002008
                                                
                                                180,000
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                14,148
                                                
                                                194,148Dan
      K. Dunn
                                                
                                                2006
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -Secretary,
      Treasurer &
                                                
                                                2007
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                -Chief
      Financial Officer
                                                
                                                2008
                                                
                                                120,000
                                                
                                                
                                                
                                                22,000
                                                
                                                13,156
                                                
                                                
                                                
                                                
                                                
                                                12,000
                                                
                                                167,156Jon
      Hammond
                                                
                                                2006
                                                
                                                115,705
                                                
                                                
                                                
                                                1,180
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                116,885Director
      & President of ANI
                                                
                                                2007
                                                
                                                185,000
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                185,0002008
                                                
                                                185,000
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                23,736
                                                
                                                208,736
   -21-
 Table of Contents
  Stock
Awards:
  The stock
awards to Mr. Nichols, Mr. Reiner and Mr. Hammond were stock awards received in
connection with the private company prior to the merger into the public company
as discussed previously. At formation of the private company it was determined
that the stock did not have a market value and the stock was issued at par value
of $.001 per share.  The stock given to Mr. Dunn was valued at $.22
per share, the spot price on the date of the agreement.
  Employment
Agreements:
  Christopher J. Nichols – The
Company has entered into a three-year contract with Chris to serve as the
President and CEO of the Company  beginning February 1, 2006 and
ending January 31, 2009, unless terminated sooner. The Agreement may also
be extended by mutual written agreement of the Parties. Base pay for
Mr. Nichols is set at $185,000 per year. However the Company’s Board of
Directors may increase the base pay as deemed warranted by agreement of the
Board of Directors. The Board may also see fit to grant increases. He shall
participate in any deferred compensation, bonus and/or stock option plans
designed and implemented by the Company’s Board of Directors for the benefit of
the Company’s key executives and employees. Mr. Nichols has agreed to a
reduced salary and/or consultant fee during the initial growth of the Company
with the understanding that he will be compensated for this reduction at a yet
undetermined time. Mr. Nichols received 4,416,667 as founders stock in March of
2006.
  Dan K. Dunn – The
Company has entered into a two-year contract with Dan as the Secretary,
Treasurer and Chief Financial Officer of the Company beginning August 29, 2008
and ending August 31, 2010, unless terminated sooner.  The agreement
may also be extended by mutual written agreement of the Parties. Base pay for
Mr. Dunn is set at $120,000 per year. However the Company’s Board of
Directors may increase the base pay as deemed warranted by agreement of the
Board of Directors. The Board may also see fit to grant increases. He shall
participate in any deferred compensation, bonus and/or stock option plans
designed and implemented by the Company’s Board of Directors for the benefit of
the Company’s key executives and employees.   Mr. Dunn received
100,000 shares of common stock for execution of the agreement.  He is
also eligible to received 100,000 warrants at the end of the next four fiscal
quarters priced at $.50 per warrant.
 Jon Hammond – ANI, a
majority-owned subsidiary of the Company has entered into a three-year contract
with Jon to serve as the President and CEO of ANI for a three-year period
beginning February 1, 2006 and ending January 31, 2009 unless
terminated sooner. The Agreement may also be extended by mutual written
agreement of both parties. Annual pay for Mr. Hammond is set at $185,000
per year. However the Company’s Board of Directors may increase the base pay as
deemed warranted by agreement of the Board of Directors. The Board may also see
fit to grant increases. He shall participate in any deferred compensation, bonus
and/or stock option plans designed and implemented by the Company’s Board of
Directors for the benefit of the Company’s key executives and
employees.
  1.
                  Stock
      grant- One hundred eighty thousand (180,000) shares of common stock of
      ANI
      shall be issued to Mr. Hammond in ten (10) days of the date of execution
      of this agreement.  This stock was issued in March of
      2006.
  2.
                  In
      addition, Mr. Hammond was to receive one million (1,000,000) shares of
      AGWS’s common stock as founders stock, when offered for public sale on or
      before March 15, 2006.  This stock was issued in March of
      2006.
  3.
                  Right
      of exchange- At any time beginning February 1, 2007 and continuing until
      December 31, 2008, Mr. Hammond shall have the right to exchange his shares
      in ANI for publicly-traded shares of AGWS stock.  The exchange
      rate shall be determined based upon the previous quarters of ANI earnings
      before interest, taxes, depreciation and amortization (“EBITDA”) times
      four to reflect annual EBITDA times a multiple of six.  The
      value of AGWS’s stock shall be determined based upon the average closing
      price on any stock exchange.
  On
October 13, 2008, the Board of Directors, in a majority vote, elected to
terminate the contract of Jon Hammond as President/CEO of Advanced
Nurseries.  Mr. Hammond will no longer serve on the Board of Directors
for Advanced Growing Systems.
   -22-
 Table of Contents
   Director
Compensation
  AGWS
shall pay its Directors a nonrefundable retainer of $5,000 per year, which shall
compensate such Director for all time spent preparing for, traveling to (if
applicable) and attending Board of Director meetings during the year; provided,
however, that if more than three Board meetings require out-of-town travel time,
such additional travel time may be billed at a reasonable rate to be determined
by the Board of Directors. The retainer shall be provided for portions of the
term less than a full calendar year. This retainer may be revised by action of
the Board of Directors from time to time. Such revision shall be effective as of
the date specified in the resolution for payments not yet made and need not be
documented by an amendment to this agreement. Director compensation is for
non-AGWS employees only. As a result there will be no additional compensation
for Chris Nichols, Dan Dunn or Jon Hammond.
  Unless
otherwise restricted by our Certificate of Incorporation, the members of our
Board of Directors have the authority to fix the compensation of Directors. The
Directors may be paid their expenses, if any, related to attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as our Director. No
such payment will preclude any Director from serving our Company in any other
capacity and receiving compensation thereafter. Members of special or standing
committees may be given compensation for attending committee
meetings.
  Independent
directors Jack Cowan, Lyle Mortensen and Steve Riegler have each been awarded
10,000 shares of stock in connection with their activities as members of the
Board of Directors. 5,000 shares each were awarded on November 14, 2007 and
5,000 shares each were awarded on April 1, 2008.
  YEAR
ENDED SEPTEMBER 30, 2008 DIRECTOR COMPENSATION TABLE
  Change
      inPension
      ValueNon-Equity
                                  and
      NonqualifiedFees
      Earned or
                                  
                                  
                                  
                                  
                                  
                                  Incentive
      Plan
                                  Deferred
                                  
                                  All
      OtherPaid
      in Cash
                                  
                                  
                                  Stock
      Awards
                                  
                                  Option
      Awards
                                  Compensation
                                  Compensation
                                  
                                  Compensation
                                  
                                  
                                  TotalName
                                  
                                  ($)
                                  
                                  
                                  ($)
                                  
                                  ($)
                                  ($)
                                  Earnings
      ($)
                                  
                                  ($)
                                  
                                  
                                  ($)Christopher
      J. Nichols
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  
                                  
                                  
                                  $
                                  194,148
                                  
                                  
                                  $
                                  194,148Jon
      Hammond
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  208,736
                                  
                                  
                                  
                                  208,736Jack
      Cowan
                                  
                                  
                                  2,000
                                  
                                  
                                  
                                  2,250
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  4,250Lyle
      Mortensen
                                  
                                  
                                  2,000
                                  
                                  
                                  
                                  2,250
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  4,250Steve
      Riegler
                                  
                                  
                                  2,000
                                  
                                  
                                  
                                  3,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  5,000
  ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  The
following table sets forth information as to the beneficial owners of more than
five percent (5%) of all classes of the voting securities of AGWS. The
percentage ownership has been calculated based on 25,756,793 shares of common
stock outstanding as of September 30, 2008
  Amount
      andNature
      if
                                
                                Percent
      ofTitle
      of Class
                                
                                Name
      and Title of Beneficial Owner (1)
                                
                                Beneficial
      Owner
                                
                                ClassCommon
                                
                                Christopher
      J. Nichols, President/CEO of AGSI
                                
                                4,416,667
                                
                                17%
  1)
                  Beneficial
      ownership is determined in accordance with Rule 13d-3(a) of the Exchange
      Act and generally includes voting or investment power with respect to
      securities
  2)
                  The
      above owner does not have any additional rights to acquire additional
      beneficial ownership.
   -23-
 Table of Contents
  Security
Ownership of Management
  Amount
      andNature
      if
                                  
                                  Percent
      ofTitle
      of Class
                                  
                                  Name
      and Title of Beneficial Owner (1)
                                  
                                  Beneficial
      Owner
                                  
                                  ClassCommon
                                  
                                  Christopher
      J. Nichols, President/CEO of AGSI
                                  
                                  4,416,667
                                  
                                  17.00%Common
                                  
                                  Mark
      Nichols, President of OGSI
                                  
                                  100,000
                                  
                                  0.34%Common
                                  
                                  Dan
      K. Dunn, Secretary, Treasurer and CFO of AGSI
                                  
                                  200,000
                                  
                                  0.39%Common
                                  
                                  Lyle
      Mortensen, Independent director
                                  
                                  1,287,049
                                  
                                  5.00%Common
                                  
                                  Jack
      Cowan, Independent director
                                  
                                  30,000
                                  
                                  0.12%Common
                                  
                                  Steve
      Riegler, Independent director
                                  
                                  30,000
                                  
                                  0.12%
  
  1)
                  Management’s
      security holdings includes shares of common stock and warrants convertible
      into common stock.  The percent of class includes common stock
      owned if all warrants are converted to common
  stock.
  Changes
in Control.
  The
Company is unaware of any arrangement that will result in a change in control of
the Company or its operating subsidiaries.
  ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
 
 There were no
transactions since the beginning of our fiscal year or any proposed transaction
in which we were involved in which a related person  had a
direct  or indirect material interest where the amount involved or
exceeds $120,000.
  ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND
SERVICES
  Audit
Fees: Aggregate fees billed for professional services rendered for the audit of
our annual financial statements for the periods ended September 30, 2008 and
2007 were approximately $60,391 and $30,093, respectively.
 
 Audit-related
Fees: No fees were billed for assurance and related services reasonably related
to the performance of the audit or review of our financial statements and not
reported under “Audit Fees” above in the year ended September 30,
2007.  For the year ended September 2008 there were $49,950 in fees
billed for assurance and related services reasonably related to the performance
of the audit or review of our financial statements and not reported under “Audit
Fees”.
 
 Tax Fees:
There were no fees for tax services for the period ended September 30, 2008 or
2007.
 
 All Other
Fees: Aggregate fees billed for professional services other than those described
above were for the fiscal periods ended September 30, 2008 and 2007 were
approximately $0 and $22,449 respectively. These fees were primarily for the
review of our Form 10-SB.
  ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
  EXHIBIT
                    DESCRIPTION2.1*
                    Agreement
      and Plan of Merger and Reorganization by and among Non Lethal Weapons,
      Inc. and Advanced Growing Systems,
Inc.
  3.1*
                  Articles
      of Incorporation of Advanced Growing Systems,
  Inc.
   -24-
 Table of Contents
  3.2*
                  Bylaws
      of Advanced Growing Systems, Inc.
  10.1*
                  Series
      A Convertible Preferred Stock Purchase Agreement dated March 9,
      2007
  10.2*
                  Loan
      Agreement and Security Agreement
  10.3*
                  Letter
      of Waiver of time for Subsequent
Closing
  10.4*
                  Series
      A Convertible Preferred Stock Purchase Agreement dated May 3,
      2007
  10.5*
                  Form
      of Series A,B,C,D Warrant to Purchase Common Stock attached to Preferred
      Stock Purchase Agreements
  10.6*
                  Form
      of Series J Warrant to Purchase Common Stock attached to Preferred Stock
      Purchase Agreements
  10.7*
                  Form
      of Convertible Notes Payable to various
  investors
  10.8*
                  Convertible
      Promissory Note from TBECK Capital,
Inc.
  10.9*
                  Employment
      Agreement of Chris Nichols
  10.10*
                    Employment
      Agreement of Jon Hammond10.11*
                    Employment
      Agreement of Martin Reiner
  10.12*
                  Transfer
      of Listing to the Over-The-Counter Bulletin Board of the National
      Association of Securities Deales, Inc. Symbol
  OTC:BB
  10.13*
                  Form
      of Note and Warrant Purchase Agreement dated February 29,
    2008
  10.14*
                  Form
      of Warrant Exchange Agreement dated May 28,
2008
  10.15*
                  Form
      of C, D and J Warrant Amendments
  10.16*
                  Form
      of Certification of Designation for Series C Convertible Preferred
      Stock
  10.17*
                  Form
      of Senior Secured Promissory Note dated August 20,
  2008
  10.18*
                  Form
      of Series E, F and G Warrants
  10.19*
                  Letter
      from Whitley Penn LLP Regarding Change in Independent Registered Public
      Accounting Firm dated September 11,
2008
  10.20*
                  Plan
      of Liquidation of Advanced Nurseries,
Inc.
  10.21**
                  Employment
      Agreement of Dan Dunn
  10.22**
                    Amendment
      of Series A Preferred Stock21.1**
                    Subsidiaries
      of Advanced Growing Systems, Inc.
  23.1**
                  Consent
      of Independent Registered Public Accounting
      Firm
  31.1**
                  Certification
      of PrincipalExecutive Officer pursuant to 18 U.S.C. Sec. 1350. as adopted
      pursuant to Sec. 302 of the Sarbanes-Oxley Act of
  2002
  31.2**
                  Certification
      of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Sec.
      150, as adopted pursuant to Sec. 203 of the Sarbanes-Oxley Act of
      2002
  32.1**
                  Certification
      of Principal Executive Officer pursuant to 18 U.S.C. Sec 1350, as adopted
      pursuant to Sec. 906 of the Sarbanes-Oxley Act of
  2002
  32.2**
                  Certification
      of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Sec.
      1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of
      2002
  *
      Previously Filed
  **
      Filed Herein
  -25-
 Table of Contents
  SIGNATURES
  Pursuant to the
requirements of Section 12 of the Exchange Act, as amended, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
  ADVANCED
      GROWING SYSTEMS, INC./s/
      Chris J. NicholsChris
      J. NicholsPrincipal
      Executive Officer
  Dated: January
13, 2009
  ADVANCED
      GROWING SYSTEMS, INC./s/
      Dan K. DunnDan
      K. DunnPrincipal
      Financial Officer
  Dated: January
13, 2009
  Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons in the capacities and on the dates
indicated.
  Signatures
                        
                        Title
                        
                        Date/s/Chris J. Nichols
                        
                        Principal
      Executive Officer
                        
                        January
      13, 2009Chris
      J. Nichols/s/ Dan K. Dunn
                        
                        PrincipalFinancial
      Officer
                        
                        January
      13, 2009Dan
      K. Dunn/s/Lyle J. Mortensen
                        
                        Independent
      director
                        
                        January
      13, 2009Lyle
      J. Mortensen/s/ Jack Cowan
                        
                        Independent
      director
                        
                        January
      13, 2009Jack
      Cowan/s/ Steve Riegler
                        
                        Independent
      director
                        
                        January
      13, 2009Steve
      Riegler/s/ Joseph I. Emas
                        
                        Independent
      director
                        
                        January
      13, 2009Joseph
      I. Emas/s/ Scott Baily
                        
                        Independent
      director
                        
                        January
      13, 2009Scott
      Baily
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