UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington, D.C.
20549
 
 FORM
10-K/A
 
 ý ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934


For
the fiscal year ended March 31,
2008
  o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
  (Commission
File No.)  000-50888
 
 AEROGROW
INTERNATIONAL, INC.
 (Exact
name of registrant as specified in its charter)
  Nevada
                
                46-0510685(State
      or other jurisdiction of
                  incorporation
      or organization)
                
                (I.R.S.
      Employer
                  Identification
      No.)6075
      Longbow Drive
                
                80301Suite200
                
                (Zip
      Code)Boulder,
      Colorado(Address of
      principal executive offices)
  Securities registered pursuant to
Section 12(b) of the Act:
  Title
      of Each Class
                
                Name
      of Each Exchange on Which Registered:Common
      Stock, $.001 par value
                
                The
      NASDAQ Capital Market
  Securities registered pursuant to
Section 12(g) of the Act:
 None
  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 þ
  Indicate
by check mark if the registrant is not required to file reports pursuant to
section 13 or 15(d) of the Act.  Yes o     No þ
  Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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 þ     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 the 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
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “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 o
                Non-accelerated
      filer o
                Smaller
      reporting company þ
 (Do
not check if a smaller reporting company)
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).  Yes o     No þ
  The
aggregate market value of the voting common stock held by non-affiliates of the
registrant as of September 28, 2007 was $68,771,665.  For the purpose
of the foregoing calculation only, all directors and executive officers of the
registrant and owners of more than 5% of the registrant's common stock are
assumed to be affiliates of the registrant.  This determination of
affiliate status is not necessarily conclusive for any other
purpose.
  As of
July 24, 2008, there were 12,115,992 shares of our common stock
outstanding.
  
 Table of Contents
   TABLEOF
CONTENTS
  Page
  PART III
  Item 10.
                Directors, Executive Officers and
      Corporate Governance
                1Item 11.
                Executive
      Compensation
                4Item 12.
                Security Ownership of Certain
      Beneficial Owners and Management
                10Item 13.
                Certain Relationships and Related
      Transactions, and Director Independence
                13Item 14.
                Principal Accountant Fees and
      Services
                14
  PART IV
  Item 15.
                Exhibits and Financial Statement
      Schedules
                14EX-31.1EX-31.2EX-32.1EX 32.2
  As used
herein, the terms “AeroGrow,” “the Company,” “we,” “us,” and “our,” refer to
AeroGrow International, Inc.
  EXPLANATORY
NOTE
 On June
26, 2008, we filed our Annual Report on Form 10-K for the fiscal year ended
March 31, 2008 (such fiscal year, “Fiscal 2008,” and such report, the “Original
Annual Report”), with the Securities and Exchange Commission (the “SEC”) with
the expectation that we would file a definitive proxy statement for our 2008
annual meeting of shareholders within 120 days of Fiscal 2008 (the “Proposed
Proxy Statement”).  In anticipation of filing the Proposed Proxy
Statement, we incorporated by reference to the Proposed Proxy Statement the
information required by Items 10, 11, 12, 13, and 14 of the Original Annual
Report.  Because we no longer intend to file the Proposed Proxy
Statement within 120 days of Fiscal 2008, we are filing this Annual Report on
Form 10-K/A (the “Form 10-K/A”).
 Except as
discussed in those items, we have not modified or updated the disclosure
presented in the Original Annual Report.  This Form 10-K/A does not
reflect events that have occurred after the filing of the Original Annual Report
or modify or update disclosures presented in the Original Annual Report affected
by subsequent events.  Accordingly, this Form 10-K/A should be read in
conjunction with our filings made with the SEC subsequent to the date of the
filing of the Original Annual Report.
 In
addition, in accordance with applicable SEC rules, this Form 10-K/A includes
updated certifications from our Chief Executive Officer and Chief Financial
Officer.
 NOTE CONCERNING FORWARD-LOOKING
INFORMATION
  In
addition to historical information, our Annual Report (our Original Annual
Report as amended by this Form 10-K/A) contains “forward-looking” statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), including statements that include the words “may,” “will,” “believes,”
“expects,” “anticipates,” or similar expressions.  These
forward-looking statements may include, among others, statements concerning our
expectations regarding our business, growth prospects, revenue trends, operating
costs, working capital requirements, competition, results of operations and
other statements of expectations, beliefs, future plans and strategies,
anticipated events or trends, and similar expressions concerning matters that
are not historical facts.  The forward-looking statements in our
Annual Report involve known and unknown risks, uncertainties, and other factors
that could cause our actual results, performance or achievements to differ
materially from those expressed or implied by the forward-looking statements
contained herein.
  Each
forward-looking statement should be read in context with, and with an
understanding of, the various disclosures concerning our business made elsewhere
in our Annual Report, as well as other public reports filed by us with the
SEC.  Investors should not place undue reliance on any forward-looking
statement as a prediction of actual results or developments.  Except
as required by applicable law or regulation, we undertake no obligation to
update or revise any forward-looking statement contained in our Annual
Report.
  
 ii
 Table of Contents
  PART III
  ITEM 10.
                  DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE
  GOVERNANCE
  Directors
and Officers
  The following table shows the names and
ages of our directors and executive officers and the positions they hold with
us.  Our bylaws provide that directors are generally elected at our
annual shareholders meeting and hold office until the next annual shareholders
meeting and until their successors are elected and qualified.  Our
bylaws provide that our board of directors (the “Board”) shall consist of such
number of members as the Board may determine from time to time, but not less
than one and not more than 15.  In addition, pursuant to the bylaws,
the Board may add members as needed.  The Board currently consists of
six individuals.  Executive officers are selected by the Board and
serve until their termination or the appointment of a successor.
  Name
                  Age
                  Position
      with AeroGrow
                  Served
      as a Director SinceJack
      J.  Walker
                  73
                  Chairman,
      Board of Directors
                  2006Linda
      Graebner
                  58
                  Director
                  2008Peter
      A.  Michel
                  65
                  Director
                  2008Suresh
      Kumar
                  53
                  Director
                  2008Michael
      D.  Dingman, Jr.
                  54
                  Director
                  2008Jervis
      B.  Perkins
                  53
                  Chief
      Executive Officer, President, and Director
                  2008H.  MacGregor
      Clarke
                  47
                  Chief
      Financial Officer
                  n/aRandal
      L.  Seffren
                  50
                  Chief
      Marketing Officer
                  n/aJeffrey
      M. Brainard
                  54
                  Vice
      President of Sales
                  n/a
  Jack J. Walker has been a
director since the February 23, 2006 annual meeting of shareholders, and
became Chairman as of July 23, 2008.  He has served as president of
English & Continental Properties, Inc., a real estate investment and
development company, since 1980.  From 1976 to 1985, Mr. Walker was
president of March Trade & Finance, Inc., a private investment
company.  From 1974 to 1976, Mr. Walker was the controlling
shareholder of Charles Spreckly Industries, Town & Commercial
Properties, and Associated Development Holdings.  In 1961 he founded
English & Continental Property Company, and served as joint Managing
Director of this commercial development company until 1976.  Mr.
Walker began his career in 1957 as a lawyer in London, England, specializing in
real estate, financing, international tax, and corporate
affairs.  Mr. Walker served as a director of Megafoods Stores
Inc. from 1984 to 1993.  From 1975 through the present, he has served
as a venture capital consultant to companies on financial and pre-IPO
strategies.  In addition, Mr. Walker created the Walker
Foundation for Charitable Activities, and has served as a director of various
professional, civic, and charitable organizations.
  Linda Graebner has been a
director since July 2, 2008. From June 1993 to January 2007, Ms. Graebner served
as President and CEO of Tilia Inc., a leading manufacturer of premier lines of
small electric kitchen appliances (FoodSaver® and
VillaWare® brands)
with annual revenues in excess of $200 million. She managed the sale of this
privately held company to Jarden Corporation in 2002. Ms. Graebner has served on
multiple boards, including Bradshaw International Inc., Wine.com, Inc., the
Association of Corporate Growth, and Pacific Community Ventures, and as Chairman
of the International Housewares Association.
  Peter A. Michel has been a
director since July 2, 2008.  Since 2006, Mr. Michel has been employed
as President and CEO of iSECUREtrac Corporation, a leading provider of
electronic monitoring systems.  From 2005 to 2006, he was an operations
team member of Cerberus Capital Management, L.P., where he provided operations
turnaround/enhancement advice and services and served as fulltime interim CEO
when required for portfolio companies of this private investment
firm.  Mr. Michel was previously President and CEO of General Fiber
Communications, Inc. on an interim basis from May 23, 2005 to July 8,
2005.  The Company filed for Chapter 7 Bankruptcy on July 8,
2005. From 2003 to 2004 he served as President and CEO of NEP Broadcasting,
L.L.C. where he led the sale of the business to private equity
investors.  He has led four companies as CEO, including Brink's Home
Security, a $258 million leader in high-tech home protection services supporting
over 700,000 households in more than 100 markets and 42 states.  Mr.
Michel is currently on the board of iSECUREtrac Corporation,
ISEC.OB.
   1
 Table of Contents
  Suresh Kumar has been a
director since July 2, 2008.  Mr. Kumar has been the President and
Managing Partner of KaiZen Innovation, LLC, a management advisory firm that
specializes in installing global marketing processes and programs, since January
of 2004.  From 2006 to 2007, he was special advisor to the Clinton
Foundation working closely with the principals and governments to establish
private-public partnerships that stimulate international economic
development.  From 1999 to 2003, Mr. Kumar served as head of Worldwide
Consumer Pharmaceuticals for Johnson & Johnson, where he was responsible for
all aspects of a $580 million (revenue) consumer medicines business in Asia,
Latin America, and Europe.  From 1993 to 1999, Mr. Kumar served as the
Marketing Director, Consumer Healthcare, then Vice President, Consumer Products,
Latin America & Asia, for Warner Lambert, USA.
  Michael D.  Dingman,
Jr. has been a director since July 2, 2008.  Mr. Dingman has
served as Chief Investment Administration Officer for Spencer Trask & Co, a
venture capital firm based in New York City, since April 24, 2008, where he is
responsible for restructurings, recapitalizations, and the development and
implementation of strategies to enhance the value and liquidity of individual
portfolio companies.  From June 2006 to July 2007, Mr. Dingman was
chief financial officer of Local Matters, Inc., a pre-IPO software and media
services company supporting yellow pages and delivery assistance providers,
where he was responsible for the financial and capital markets strategies,
budgeting, and forecasting.  From September 2000 until April 2006, Mr.
Dingman served as the chief financial officer of Intrado Inc., a provider of 911
information services and systems to telecommunications companies, where he was
responsible for budgeting, forecasting, investor relations, capital market and
financial strategy development and all aspects of the accounting/financial
reporting functions.  Prior to joining Intrado, from March 1999 to
August 2000, Mr. Dingman was the chief financial officer and treasurer of
Internet Commerce and Communication (formerly RMI NET, Inc.).  Mr.
Dingman's prior work experience includes five years of banking in merger and
acquisitions with Lazard Freres in New York during the late 1980s, three years
as an independent consultant specializing in debt restructuring and workouts
during the early 1990s, and five years as an investment advisor specializing in
corporate retirement plans and high-net-worth accounts.
  Jervis B. Perkins has
been Chief Executive Officer and a director of AeroGrow since March 2008, and
President and Chief Operating Officer since November 2007.  From
January 2003 to May 2006, Mr.  Perkins served as President and Chief
Operating Officer of Johnson Outdoors, Inc., a publicly-traded global
manufacturer of outdoor recreation products with revenue of approximately $400
million per year.  At Johnson Outdoors, Mr.  Perkins was
directly responsible for all aspects of sales, marketing, product development,
manufacturing, and distribution.  From 1995 to 2003, Mr. Perkins
served as Executive Vice President and General Manager at Brunswick Corporation,
a leading consumer brands company.  Prior to Brunswick, Mr. Perkins
worked at Quaker Oats for 17 years, serving in a variety of general management
and senior marketing roles.
  H. MacGregor Clarkebecame
Chief Financial Officer on May 23, 2008.  From 2007 to 2008, Mr.
Clarke was president and chief executive officer, and from 2006 to
2007, chief financial officer, of Ankmar, LLC, a garage door manufacturer,
distributor and installer.  From 2003 to 2006, Mr. Clarke was a senior
investment banker with FMI Corporation, a management consulting and investment
banking firm serving the building and construction industry.  At FMI
Corporation, Mr. Clarke was responsible for delivering consulting and investment
banking services to clients, and for marketing to prospective clients in the
financial services industry.  From 1997 to 2002, Mr. Clarke served as
an operating group chief financial officer, then vice president and general
manager for Johns Manville Corporation, a subsidiary of Berkshire Hathaway
Inc.  Mr. Clarke also served as vice president, corporate treasurer,
and international division chief financial officer for The Coleman Company,
Inc.  Prior to Coleman, Mr. Clarke was with PepsiCo, Inc. for over
nine years and served in a range of financial roles, including director of
corporate strategic planning, where he led strategy and planning related to the
worldwide beverage sector.
  Randal L. Seffren has been
Chief Marketing Officer of AeroGrow since July 2006.  From April 2004
through July 2006, Mr. Seffren provided services as a marketing consultant to us
through Prometheus Communications Group, a company of which he is the principal
owner.  From 1999 to 2004, Mr. Seffren headed the marketing efforts
for healthcare communications companies, including Orbis Broadcast Group and
MedEd Architects.  From 1993 to 1999, he was executive vice president
with Reebok Home Fitness/DP Fitness/Body By Jake Fitness/Kent & Spiegel
Direct.  From 1989 to 1993, Mr. Seffren led the marketing,
communications, and product development efforts as director of marketing
communications with Life Fitness, a fitness equipment company.
  Jeffrey M. Brainardhas been Vice President
of Sales at AeroGrow since joining the Company in March 2006.  From
2003 to 2006, Mr. Brainard was vice president of sales and marketing for Tensor
Lighting, a manufacturer and marketer of task and functional
lighting.  From 2000 to 2002  he was senior vice president
of sales for The Holmes Group, a manufacturer and marketer of kitchen appliances
and seasonal appliances, including products under the brand names Holmes,
Pollenex, Bionaire, Rival, and Family Care.  Previously, Mr. Brainard
held various positions in sales and marketing with Brita Water Filters, a
division of the Clorox Company, over an 11-year period..
  
 2
 Table of Contents
  Board
Committees and Meetings
  We
have established two standing committees so that certain matters can be
addressed in more depth than may be possible in a full Board meeting: an Audit
Committee and a Governance, Compensation and Nominating
Committee.  These two committees each operate under a written
charter.
  Audit
Committee.  The current members of our Audit Committee are Mr.
Dingman (chairman), Mr. Kumar, and Mr. Michel.  The members were
elected to the committee, and the chairman was appointed, by the
Board.  Mr. Dingman is considered a financial expert and Messrs Kumar
and Michel are considered financially literate under the rules of the SEC for
audit committee members.  The Board has affirmatively determined that each
of these persons is an independent director as defined by applicable securities
law and NASDAQ corporate governance guidelines.  The
Audit Committee’s charter provides that the committee shall:
  ·
                  oversee
      the accounting and financial reporting processes and audits of the
      financial statements;
  ·
                  assist
      the Board with oversight of the integrity of our financial statements, the
      Company’s compliance with legal and regulatory requirements, its
      independent auditors’ qualifications, and independence and the performance
      of the independent auditors; and
  ·
                  provide
      the Board with the results of its
monitoring.
  Governance, Compensation and
Nominating Committee.  The current members of the Governance,
Compensation and Nominating committee are Mr. Michel (chairman), Mr. Kumar,
and Ms. Graebner.  The Board has affirmatively determined that each of
these persons is an independent director as defined by applicable securities law
and NASDAQ corporate governance guidelines. The members were elected to the
committee, and the chairman was appointed, by the
Board.  The Governance, Compensation and Nominating Committee’s
charter provides that the committee shall:
  ·
                  recommend
      to the Board the corporate governance guidelines to be
      followed;
  ·
                  review
      and recommend the nomination of  Board
  members;
  ·
                  set
      the compensation for the chief executive officer and other officers;
      and
  ·
                  administer
      the equity-based performance compensation plans of
    AeroGrow.
  Meetings.  During
Fiscal 2008 the Board met three times.  Each director attended all of the
meetings held by the Board during the period that he or she served as a director
of AeroGrow, except Kenneth C. Leung, a former director, who missed one meeting
while out of the country.
  Code of
Ethics
  We have
adopted a Code of Ethics that applies to each of our employees, executive
officers, and directors.  A copy is available free of charge in the
“Investor” section of our website at www.aerogrow.com.  Any
amendment to or waiver of the Code of Ethics will be disclosed promptly
following the date of such amendment or waiver in a Current Report on Form
8-K.
 Section 16(a) Beneficial
Ownership Reporting Compliance
 Section 16(a) of the Exchange Act requires our executive officers and
directors, and persons who own more than 10% of our common stock (herein
collectively, our “Section 16 insiders”) to file certain forms reporting
their ownership and changes in ownership of our stock with the SEC and the
NASDAQ Capital Market, and to furnish us with copies of these
filings.
  Based
solely on our review of the copies of such forms that we received and written
representations from our Section 16 insiders, we believe that all of our
Section 16 insiders complied with their Section 16(a) reporting obligations
for Fiscal 2008 with a few exceptions.  Dennis A. Channer became a
director on April 16, 2007 and filed his Form 3 late on May 9,
2007.  Jack J. Walker filed an amended Form 3 on June 28, 2007 to
correct an error in the number of shares reported on his Form 3 filed on March
6, 2006.  Mr. Walker filed an amended Form 4 on June 28, 2007 to
correct an error in the Form 4 filed on July 7, 2006 relating to the number of
common stock and warrants purchased in conjunction with the Company’s 2006
Offering (as defined in the Company’s Original Annual Report).
   3
 Table of Contents
 
 ITEM11.
                  EXECUTIVE
      COMPENSATION
  COMPENSATION
DISCUSSION AND ANALYSIS
 Compensation
Philosophy
  The Governance,
Compensation and Nominating Committee, of our Board is responsible for guiding
and overseeing the formulation and application of the compensation and benefit
programs for our executive officers.  The Committee acts pursuant to a
charter that has been approved by our Board.  None of our executive
officers are members of the Governance, Compensation and Nominating
Committee.
  The
Governance, Compensation and Nominating Committee believes that the most
effective compensation program is one that is designed to reward the achievement
of specific annual, long-term, and strategic goals by AeroGrow, and which aligns
executives’ interests with those of the stockholders by rewarding performance
above established goals, with the ultimate objective of increasing stockholder
value.  The Governance, Compensation and Nominating Committee
evaluates both performance and compensation to ensure that AeroGrow maintains
its ability to attract and retain superior employees in key positions and that
compensation provided to key employees remains competitive relative to the
compensation paid to similarly situated executives of our peer
companies.  Accordingly, the Governance, Compensation and Nominating
Committee believes executive compensation packages provided by AeroGrow to its
executives, including the executive officers, should include salary
compensation, annual cash incentives based on fundamental measures of financial
performance, and longer-term stock-based compensation.
  Compensation
Objectives
  The
Governance, Compensation and Nominating Committee has worked with AeroGrow’s
management to design compensation programs that encourage high performance,
promote accountability and assure that employee interests are aligned with the
interests of AeroGrow’s stockholders.  The primary objectives of our
executive compensation policies are to:
  ·
                  attract,
      retain, and motivate highly qualified executives utilizing a mix of
      compensation opportunities that include fixed short-term as well as
      performance-related medium and long-term incentives tied to measurable
      results;
 ·
                  reward
      executives based upon our financial performance at levels competitive with
      peer companies;
 ·
                  ensure
      that the compensation amounts do not exceed what the company can
      reasonably afford by regularly measuring total compensation for all
      employees against a variety of financial metrics, including net income;
      and
 ·
                  align
      a significant portion of the executives’ compensation with AeroGrow’s
      performance and stockholder value, by using performance-based executive
      bonuses and long-term equity
incentives.
  We
compensate our executives through a mix of base salary, bonus, and equity
compensation designed to be competitive with comparable employers and to align
management’s incentives with the long-term interests of our
stockholders.
  Competitive
Benchmarking
  In making
compensation decisions, the Governance, Compensation and Nominating Committee,
may compare certain elements of total compensation against other comparable
publicly-traded and privately-held companies that compete in our markets
(“Compensation Peers”).  The Compensation Peers consist of companies
which the Governance, Compensation and Nominating Committee believes to be
comparable in terms of size and market composition (primarily in AeroGrow’s
market area), and in certain instances, which compete for talent and for
stockholder investment.  The Compensation Peers are not utilized by
the Governance, Compensation and Nominating Committee strictly as a formal peer
group, but are instead used as a reference source, from time to time, as to
certain specific compensation issues, such as the extent of usage of stock
options as a compensation component.
  A
significant percentage of total compensation is allocated to incentive
compensation as a result of the philosophy mentioned above.  There is
no pre-established policy or target for the allocation between either cash and
non-cash or short-term and long-term incentive compensation.  Rather,
the Governance, Compensation and Nominating Committee reviews information such
as that referenced above with respect to the Compensation Peers to determine the
appropriate level and mix of incentive compensation.  Income from such
incentive compensation is realized as a result of the performance of AeroGrow or
the individual, depending on the type of award.
  Compensation
Process
  The
Governance, Compensation and Nominating Committee reviews the benchmarking and
performance results presented by management in determining the appropriate
aggregate and individual compensation levels for the performance
year.  In conducting its review, the Governance, Compensation and
Nominating Committee considers quantitative performance results, the overall
need of the organization to attract, retain and motivate the executive team, and
the total cost of compensation programs.
  Generally,
base salaries and annual incentive awards will be reviewed at the end of each
fiscal year with changes made to the base salaries effective April 1 of the
following fiscal year.
  Stock
options and other stock grants are reviewed and approved at meetings of the
Governance, Compensation and Nominating Committee and the full
Board.  By establishing the meeting schedule and agenda for these
grants in advance, AeroGrow diminishes any opportunity for manipulation of
exercise prices on option grants to the extent any recipients are in possession
of non-public information at the time of the meetings.  Approval of
grants for any newly-hired or promoted executives during the course of the year
generally occurs at the Governance, Compensation and Nominating Committee’s
meeting immediately following the hiring or promotion.
   4
 Table of Contents
  Role
of Executive Officers in Compensation Decisions
  The
Governance, Compensation and Nominating Committee makes all compensation
decisions for the executive officers and approves recommendations regarding
equity awards to all elected officers of AeroGrow.  The Chief
Executive Officer annually reviews the performance of each Named Executive
Officer (other than the Chief Executive Officer, whose performance is reviewed
by the Governance, Compensation and Nominating Committee).  “Named
Executive Officers” are the Company’s (i) Chief Executive Officer and (ii) other
two most highly compensated executive officers based on SEC regulations. The
conclusions reached and recommendations based on these reviews, including with
respect to salary adjustments and annual award amounts, are presented to the
Governance, Compensation and Nominating Committee.  The Governance,
Compensation and Nominating Committee can exercise its discretion in modifying
any recommended adjustments or awards to executives.
  Components
of Total Compensation
  For
Fiscal 2008, the principal components of compensation for executive officers
were:
  ·
                  base
      salary;
 ·
                  annual
      incentive compensation;
 ·
                  stock
      options; and
 ·
                  benefits
      and other perquisites.
  Each
component is designed to achieve a specific purpose and to contribute to a total
package that is competitive, appropriately performance-based, and valued by
AeroGrow’s executives.
  Base
Salaries
  AeroGrow
provides executive officers and other employees with base salary to compensate
them for services rendered during the fiscal year.  Base salary ranges
for executive officers are determined for each executive based on his or her
position and responsibility.  During its review of base salaries for
executives, the Governance, Compensation and Nominating Committee primarily
considers:
  ·
                  individual
      scope of responsibility;
 ·
                  years
      of experience;
 ·
                  market
      data, such as that obtained from a review of our Compensation
      Peers;
 ·
                  internal
      review of the executive’s compensation, both individually and relative to
      other officers; and
 ·
                  individual
      performance of the executive.
  Salary
levels are typically considered annually as part of AeroGrow’s performance
review process as well as upon a promotion or other change in job
responsibility.
  Performance-Based
Annual Incentive Compensation
  Though markets dictate that base
salaries must be competitive, AeroGrow is moving towards basing a greater
proportion of its executive compensation on the achievement of measurable
individual and company results through the award of annual incentive
bonuses.  These bonusesareoftentied toa percentage of theCompany’s EBITDAas well as to other financial goals
and metrics.By
increasing variable pay as a percentage of total compensation, AeroGrow can
better align executive compensation with value delivered to its
shareholders.  This limits fixed costs and also results in higher pay
occurring only in years when merited by high performance.
  Long
Term Stock-based Compensation
 
 This category of awards covers options
granted to executives out of the Company’s 2005 Equity Compensation Program, and
that vest over time, at different rates for different
executives.  Because these awards vest over time and become more
valuable to the recipient only as AeroGrow’s stock price increases, the
Governance, Compensation and Nominating Committee believes these are a useful
form of long-term incentive compensation, with the potential to directly align
the interests of shareholders and management.
   5
 Table of Contents
 
 COMPENSATION OF DIRECTORS AND
EXECUTIVE OFFICERS
  Executive
Compensation
  Executives and Employment
Arrangements
  The
following discussion and table relate to compensation arrangements on behalf of,
and compensation paid by us to our Named Executive Officers for Fiscal
2008.
  Employment
Contracts
  We have
entered into employment agreements with Jervis B. Perkins, Randal L. Seffren,
and Jeffrey M. Brainard.
  Jervis
B. Perkins
  The
employment agreement for Mr. Perkins, dated as of March 1, 2008 (the “Perkins
Agreement”), provides that he will be employed as the Chief Executive Officer of
the Company.  He must devote his entire business
time to the affairs of the Company.  The initial term is one year and
renewable for successive one year terms. Mr. Perkinsis entitled
toreceive
base compensation of $300,000 per year, and an annualbonus of not less than
2.0% of EBITDA.Mr.
Perkins may be eligible to receive an additional annual cash bonus based upon an
increase in the stock price of the Company over the previous year (as calculated
under the Agreement).  Under this provision, an increase of less than
33% will yield no bonus, an increase of 33% to 49% will yield a bonus of
$50,000, an increase of 50% to 99% will yield a bonus of $100,000, and an
increase of 100% or greater will yield a bonus of $200,000.   Mr.
Perkins is entitled to reimbursement for car expenses at the rate of $1,000 per
month.  The agreement also provides for medical, vacation and other
benefits commensurate with the policies and programs adopted by us for our
senior executives.  If the Company terminates the employment of Mr.
Perkins without cause (as determined under the Perkins Agreement), then Mr.
Perkins will be entitled to receive his base salary for 12 months following the
date of termination, and a pro rated portion of his annual cash
bonus.  During the first three months of the Perkins Agreement, the
Company paid Mr. Perkins’s reasonably incurred commuting expenses from Chicago,
Illinois to Boulder, Colorado, including airline travel, rental housing or hotel
charges, and rental cars or car service.  Mr. Perkins was granted
five-year options, subject to shareholder approval at the next annual meeting,
to purchase 216,666 shares of the Company’s common stock on March 1, 2008, under
the Company’s 2005 Equity Compensation Plan.  The exercise price is
$4.74, the price of the Company’s common stock at market close on the day of the
grant.  On March 1, 2008, 43,334 of the options vested.  One
quarter of the remaining options will vest every six months thereafter, starting
on September 1, 2008, and ending on March 1, 2010.  Under his previous
employment agreement, dated November 12, 2007, Mr. Perkins was granted five-year
options to purchase 33,334 shares of the Company’s common stock on February 1,
2008, under the Company’s 2005 Equity Compensation Plan.  The options
have a $5.85 exercise price, which was the price of the Company’s common stock
at market close on the day of grant, and were fully vested on the day of
grant.  For Fiscal 2008, the Company paid Mr. Perkins $95,664 in cash
compensation and $87,002 in equity compensation.
  Randal
L. Seffren
  The
employment agreement for Mr. Seffren, dated as of July 24, 2006 (the “Seffren
Agreement”), provides that he will be employed as Chief Marketing Officer of the
Company. He must devote all of his business time to the affairs of the Company
working half time from an office in Chicago, Illinois and the balance of his
time traveling on Company business. The initial term is two years ending July
31, 2008, and renewable for successive one-year terms.  The Seffren
Agreement has been renewed through July 31, 2009.  Mr. Seffren is
entitled to receive base compensation of $200,000 per year and an annual bonus
of not less than 1.5% of the EBITDA of the Company, as determined by our annual
financial statements and pro rated for any portion of such annual period covered
under the Seffren Agreement. The bonus is subject to adjustment so that it is no
less favorable than that granted to other senior executives. The Seffren
Agreement also provides for medical, vacation, and other benefits commensurate
with the policies and programs as adopted by us for our senior executives.
Further, the Seffren Agreement confirms the option grant awarded to Mr. Seffren
as of March 28, 2006, consisting of an option to purchase 125,000 shares of our
common stock under our 2005 Equity Compensation Plan at an exercise price of
$5.00 per share, which were fully vested as of that grant date and are subject
to other standard terms and conditions under the 2005 Equity Compensation Plan.
Mr. Seffren has agreed to regular confidentiality and inventions assignment
provisions and agreed not to compete with us during employment and for 24 months
thereafter. If his employment is terminated, he will be entitled to receive
severance pay equal to six months of his base salary as in effect immediately
before his termination, the payment by the Company of medical benefits until the
twelfth month following termination, and the pro rata portion of his bonus as of
the nearest quarter end financial statements of the Company.  During
Fiscal 2008, Mr. Seffren was paid $225,959 in cash compensation by the
Company.
   6
 Table of Contents
  JeffreyM.Brainard
  The
employment agreement for Mr. Brainard, dated as of March 31, 2006 (the
“Brainard Agreement”), provides that he will be employed as the Vice President
of Sales of the Company. He must devote his entire business time to the
affairs of the Company, working from his home office in Lexington,
Massachusetts. The initial term was two years and renewable for successive one
year terms. Mr. Brainard is entitled to receive base compensation of $150,000
per year and an annual bonus in an amount not less than the greater of:
(i) $50,000; (ii) 0.5 per cent of retail net sales, net of all
customer deductions including but not limited to returns, allowances, bad debts
and other deductions; or (iii) 1.5% of the EBITDA of the Company as
determined by our annual financial statements and pro rated for any portion of
such annual period covered under this agreement.  The
bonus amount due for Fiscal 2007 was paid in installments in accordance with the
terms of the Brainard Agreement.  The Brainard Agreement also provides
for medical, vacation, and other benefits commensurate with the policies and
programs adopted by us for our senior executives. Further, pursuant to the
Brainard Agreement, Mr. Brainard was granted 125,000 options to purchase
our common stock under our 2005 Plan at an exercise price of $5.00. The options
will: (i) vest pursuant to a schedule that provides for vesting of at least
of 33% of the amount of the grant at the date granted and 33% per each 12-month
period from the date of grant; (ii) not expire in less than five years from
the date of grant; and (iii) be subject to other standard terms and
conditions under the 2005 Plan. Under the Brainard Agreement, Mr. Brainard was
also entitled to grants of shares of our common stock equal in value to $25,000
semi-annually until such time as his salary reached a rate of $200,000 annually.
The first 5,000 shares (valued at a price of $5.00 per share) were granted
immediately upon Mr. Brainard’s joining AeroGrow, and 5,000 additional shares
were granted six months thereafter. Effective March 31, 2007, Mr. Brainard’s
salary was increased to $200,000 annually. Mr. Brainard has agreed to
regular confidentiality and inventions assignment provisions and agreed not to
compete with AeroGrow for a period equal to the term employed after the
termination of employment. If Mr. Brainard is terminated without cause by
us or Mr. Brainard terminates under certain circumstances constituting a
breach of the agreement by us, Mr. Brainard shall be entitled to receive
severance compensation equivalent to six months base salary and a pro rata
bonus. In addition, if Mr. Brainard is terminated in the event of a change in
control of AeroGrow, including a change in chief executive officer,
Mr. Brainard shall be entitled to receive severance equal to his base
salary for one year.  Mr. Brainard received $227,189 in cash
compensation from the Company during Fiscal 2008.
  Other
Company officers who do not qualify as Named Executive Officers are employed on
an “at will” basis subject to varying lengths of employment agreements and
severance agreements.
  Summary
Compensation Table
  The
following table sets forth information regarding all forms of compensation
received by the Named Executive Officers during Fiscal 2008 and the fiscal year
ended March 31, 2007 (“Fiscal 2007”):
  Name
      and Principal Position
                  
                  Fiscal
                    Year
                  
                  Salary
                  
                  Bonus
                  
                  
                  Stock
      Awards
                  
                  Option
      Awards
                  
                  
                  All
      Other Compensation
                  
                  
                  TotalJervis
      B.  Perkins
                    CEO,
      President and Director (1)
                  
                  2008
                  
                  $
                  94,447
                  
                  $
                  217
                  (2
                  )
                  
                  $
                  --
                  
                  
                  $
                  87,002
                  (3
                  )
                  $
                  --
                  
                  
                  
                  $
                  181,6662007
                  
                  $
                  --
                  
                  $
                  --
                  
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  
                  $
                  --W.  Michael
      Bissonnette,
                    Former
      CEO, President, Chairman and Director
                  
                  2008
                  
                  $
                  225,000
                  
                  $
                  203
                  (2
                  )
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  14,599
                  (5
                  )
                  
                  $
                  239,8022007
                  
                  $
                  225,000
                  
                  $
                  --
                  
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  23,063
                  (5
                  )
                  
                  $
                  248,063Randal
      L. Seffren,
                    Chief
      Marketing Officer
                  
                  2008
                  
                  $
                  200,000
                  
                  $
                  203
                  (2
                  )
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  26,352
                  (6
                  )
                  
                  $
                  226,5552007
                  
                  $
                  150,000
                  
                  $
                  --
                  
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  53,828
                  (7
                  )
                  
                  $
                  203,828Jeffrey
      M.  Brainard,
                    Vice
      President of Sales
                  
                  2008
                  
                  $
                  200,000
                  
                  $
                  27,189
                  (2
                  )(8)
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  
                  $
                  227,1892007
                  
                  $
                  150,000
                  
                  $
                  63,462
                  
                  
                  
                  $
                  25,000
                  (9)
                  
                  $
                  9,604
                  (9
                  )
                  $
                  --
                  
                  
                  
                  $
                  248,066
    7
 Table of Contents
 
 (1)
                  Mr.
      Perkins and Mr. Bissonnette did not receive compensation for their service
      on the Board of Directors.
 
  (2)
                    All
      employees were given a holiday bonus on December 21, 2007 of $200, net of
      taxes.
  (3)
                  Pursuant
      to Mr.  Perkins’ employment agreement dated November 12, 2007,
      he was granted 33,334 five year options to purchase our common stock at an
      exercise price of $5.85 per share, which vested upon date of
      grant.  In accordance with Mr.  Perkins’ employment
      agreement entered into as of March 1, 2008, the company granted him
      216,666 five year options to purchase our common stock at an exercise
      price of $4.74 per share.  43,334 of these options vested on the
      grant date and the rest will vest at a rate of 25% per six months over a
      two year period.  The 216,666 options were issued subject to
      shareholder approval at the company’s next annual
      meeting.  Their compensation value will be determined at the
      time of their approval by our shareholders, in accordance with Financial
      Accounting Standards Board Statement No. 123 (revised 2004), Share-Based
      Payment.
  (4)
                    Mr.
      Bissonnette was the Company’s founding shareholder and served as Chief
      Executive Officer, President and a director of AeroGrow from July 2002
      until November 2007, at which time he resigned as President.  In
      March 2008, he resigned as Chief Executive Officer.  On July 23,
      2008, Mr. Bissonnette resigned as Chairman of the Board of Directors, a
      director, and as an employee of the
Company.
  (5)
                  In
      accordance with an employment agreement entered into as of March 1, 2006,
      Mr. Bissonette had a non-accountable expense allowance of $2,500 per month
      as reimbursement for his auto expenses, home office expenses and other
      expenses.
 
 (6)
                  In
      accordance with Mr. Seffren’s employment agreement, we reimbursed him for
      home office expenses and auto
expenses.
  (7)
                  Represents
      consulting fees paid to Prometheus Communications Group, LLC (“PCG”) of
      which Mr. Seffren is the 100% owner and managing member prior to the
      effective date of Mr. Seffren’s employment
  agreement.
 
 (8)
                  Mr.  Brainard
      was paid a $1,986 bonus and a bonus installment payment of $25,000, in
      addition to the holiday bonus awarded to all
  employees.
 
 (9)
                  In
      accordance with Mr. Brainard’s employment agreement, we issued 5,000
      shares of our common stock on January 3, 2007 valued by us at $5.00 per
      share. In addition, in December 2006, Mr. Brainard was granted five year
      options to purchase our common stock at an exercise price of $5.00 per
      share, which will vest monthly pro-rata over a two year
      period.
 
 The
following table provides information with respect to the Named Executive
Officers concerning unexercised stock options held by them at July 24,
2008.  All options granted to date to the Named Executive Officers are
unexercised.
  Name
                  
                  Number
      of Securities Underlying
                    Unexercised
      Options
                    (Exercisable)
                  
                  
                  Number
      of Securities Underlying
                    Unexercised
      Options
                    (Unexercisable)
                  
                  
                  Exercise
      Price per Share
                  
                  Expiration
      DateW.
      Michael Bissonnette
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  n/aJervis
      B.  Perkins
                  
                  
                  33,334
                  
                  
                  
                  
                  
                  
                  $
                  5.85
                  
                  28-Feb-2013Jervis
      B.  Perkins
                  
                  
                  43,334
                  (1)
                  
                  
                  173,332
                  (1)(2)
                  
                  $
                  4.74
                  
                  1-Mar-2013Randal
      L.  Seffren
                  
                  
                  125,000
                  
                  
                  
                  -
                  
                  
                  $
                  5.00
                  
                  27-Mar-2011Jeffrey
      M.  Brainard
                  
                  
                  125,000
                  
                  
                  
                  
                  
                  
                  $
                  5.00
                  
                  27-Mar-2011Jeffrey
      M.  Brainard
                  
                  
                  2,331
                  
                  
                  
                  
                  
                  
                  $
                  5.00
                  
                  14-Dec-2011
 
 (1)
                  The
      options are granted, but subject to shareholder approval at the next
      annual shareholder meeting.
  (2)
                  Mr.
      Perkin’s unexercisable options will vest as follows: 43,333 options will
      vest on September 1, 2008; 43,333 options will vest on March 1, 2009;
      43,333 options will vest on September 1, 2009 and 43,333 options will vest
      on March 1, 2010.
   8
 Table of Contents
  Director
Compensation
  Current and Historical Compensation
Program
  Commencing
July 2008, director compensation is $5,000 per year for general service, plus
$1,000 for each Board meeting attended; reimbursement of travel expenses and an
annual grant of 18,000 options to purchase our common stock, exercisable in
whole or in part within five years from the date of grant at an exercise price
equal to the market closing price on the day of grant.  The
compensation for the Chairman is $10,000 per year for general service, plus
$2,000 for each Board meeting attended; reimbursement of travel expenses and an
annual grant of 36,000 options to purchase our common stock exercisable in whole
or in part within five years from the date of grant at an exercise price equal
to the market closing price on the date of grant.  Each member of the
Audit Committee receives an option to purchase 3,000 shares of common stock for
membership on the committee and each member of the Governance, Compensation and
Nominating Committee receives an option to purchase 2,000 shares of common stock
for membership on that committee.  Director options vest pro rata
monthly (one-twelfth per month) on the last day of each month throughout the
term of service.  If a director is unable to finish his or her term of
service by reason of death or disability, the director options vest
immediately.  The Company maintains $10 million of director and
officer insurance, and has entered into an agreement indemnifying each director
against liabilities under certain circumstances.
 In 2004 and
2005 each non-employee director received 2,000 shares of common stock for his
service as director. Outside directors were compensated $500 for attending
meetings and reimbursed for out-of-pocket expenses for attending meetings. On
March 28, 2006, we granted to each of our four outside directors 2,500
shares of our common stock at a value of $5.00 per share for a total of $12,500
for each director, or an aggregate total of $50,000, and 10,000 fully-vested
five-year options to purchase our common stock at an exercise price of $5.00 per
share for services for Fiscal 2007. In addition, Mr. Walker, and former
directors Wayne Harding and Kenneth C. Leung received grants of 1,250
shares for service on the Audit Committee and 750 shares for service on the
Governance, Compensation and Nominating Committee. On March 22, 2007, we
granted to three of our four outside directors, Messrs. Leung, Walker and former
director Richard Kranitz, 2,500 shares of our common stock at a market value of
$5.90 per share for a total of $14,750 for each director, or an aggregate total
of $59,000, and 10,000 fully vested five-year options to purchase our common
stock at an exercise price of $5.90 per share, the price per share equal to the
fair market value of the common stock on the date of the option grant, for
services on the Board for the calendar year ending December 31, 2007. In
addition, on March 22, 2007, Messrs. Walker and Leung received grants of 1,250
shares for service on the Audit Committee and 750 shares for service on the
Governance, Compensation and Nominating Committee. Also, Mr. Harding, the
previous Chairman of the Audit and Governance Committees, received a grant on
March 22, 2007 for services rendered of 3,500 shares of our common stock at a
market value of $5.90 per share for a total of $20,650 and 5,000 fully vested
five-year options to purchase our common stock at an exercise price of $5.90 per
share, the price per share equal to the fair market value of the common stock on
the date of the option grant.
  Director
Compensation Table
  The
following table sets forth information regarding all forms of compensation
received by directors of the Company during Fiscal 2008:
 
 Name
                  
                  Directors
      Fees
                    Earned
      or
                    Paid
      in Cash
                  
                  
                  Stock
      Awards
                  
                  
                  Option
      Awards
                  
                  
                  All
      Other Compensation
                  
                  
                  TotalW.
      Michael Bissonnette, Chairman and Director
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --Jervis
      B.  Perkins, Director
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --Dennis
      A.  Channer, Director
                  
                  $
                  1,500
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  1,500Richard
      A.  Kranitz, Director
                  
                  $
                  1,500
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  24,000
                  (1)
                  
                  $
                  25,500Kenneth
      C.  Leung, Director
                  
                  $
                  1,000
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  1,000Jack
      J.  Walker, Director
                  
                  $
                  1,500
                  
                  
                  $
                  --
                  
                  
                  $
                  --
                  
                  
                  $
                  20,000
                  (2)
                  
                  $
                  21,500
  (1)
                  Represents
      fees for legal services paid to Kranitz and Philip, a law firm of which
      Mr.  Kranitz is a
partner.
  (2)
                  Represents
      consulting fees paid to Mr. Walker.
 9
 Table of Contents
 
 ITEM12.
                  SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTAND RELATED
      STOCKHOLDER MATTERS
 
 The
following table sets forth certain information regarding our common stock
beneficially owned on July 24, 2008 by:
  ·each shareholder we
know to be the beneficial owner of 5% or more of our outstanding common
stock;
  ·each of our Named
Executive Officers for whom disclosure is provided in Item 11, “Executive
Compensation,” and each of our directors; and
  ·all Named Executive
Officers and directors as a group.
  In general, a
person is deemed to be a “beneficial owner” of a security if that person has or
shares the power to vote or direct the voting of such security, or the power to
dispose or to direct the disposition of such security.  A person is
also deemed to be a beneficial owner of any securities of which the person has
the right to acquire beneficial ownership within 60 days.  To the best
of our knowledge, subject to community and marital property laws, all persons
named have sole voting and investment power with respect to such shares except
as otherwise noted.  The table assumes a total of 12,115,992 shares of
common stock outstanding.
  Name
      of Beneficial Owner (1)
                  
                  Amount
      of
                    Beneficial
      Ownership
                  
                  
                  Percent
                    Beneficial
      OwnershipEnable
      Capital Management LLC and affiliated holders (2)
                  
                  
                  1,293,055
                  
                  
                  
                  9.99
                  %W.  Michael
      Bissonnette
                  
                  
                  956,297
                  
                  
                  
                  7.90
                  %Eliot
      Rose Asset Management LLC (3)
                  
                  
                  605,689
                  
                  
                  
                  5.00
                  %Jack
      J.  Walker (4), (9)
                  
                  
                  270,408
                  
                  
                  
                  2.22
                  %Randal
      L.  Seffren (5)
                  
                  
                  215,320
                  
                  
                  
                  1.76
                  %Jeffrey
      M.  Brainard (6)
                  
                  
                  143,331
                  
                  
                  
                  1.17
                  %Richard
      A.  Kranitz (7)
                  
                  
                  84,496
                  
                  
                  
                  0.70
                  %Jervis
      B.  Perkins (8), (9)
                  
                  
                  38,834
                  
                  
                  
                  0.32
                  %Michael
      D.  Dingman, Jr.  (9)
                  
                  
                  --
                  
                  
                  
                  --
                  %Linda
      Graebner (9)
                  
                  
                  --
                  
                  
                  
                  --
                  %Suresh
      Kumar (9)
                  
                  
                  --
                  
                  
                  
                  --
                  %Peter
      A.  Michel (9)
                  
                  
                  --
                  
                  
                  
                  --
                  %All
      AeroGrow Named Executive Officers and Directors as a Group (8
      Persons)
                  
                  
                  667,893
                  
                  
                  
                  5.35
                  %
 
 (1)
                  Beneficial
      ownership is determined in accordance with the rules of the SEC, which
      include holding voting and investment power with respect to the
      securities.  Shares of common stock subject to options or
      warrants currently exercisable, or exercisable within 60 days, are deemed
      outstanding for computing the percentage of the total number of shares
      beneficially owned by the designated person, but are not deemed
      outstanding for computing the percentage for any other
    person.
  (2)
                  As
      of December 31, 2007, based on information provided in Schedule 13G/As
      filed February 20, 2008.  According to these filings, Enable
      Capital Management, LLC ("ECM") is the beneficial owner of 465,545 shares
      of our common stock and warrants to purchase up to 840,000 shares of our
      common stock (the "Warrants").  The exercise of the Warrants is
      subject to restrictions (the "Warrant Restrictions") that limit exercise
      to the number of Warrants that, after giving effect to such exercise,
      would not cause the holder of the Warrants to beneficially own in excess
      of 9.99% of the total number of issued and outstanding shares of our
      common stock (including for such purposes the shares of our common stock
      issued upon such exercise). Assuming 12,115,995 shares of common stock
      outstanding, the Warrant Restrictions limit the number of Warrants that
      may be exercised to 827,510.  ECM is located at One Ferry
      Building, Suite 255, San Francisco, CA 94111.  Mr. Mitchell S.
      Levine is the managing member and majority owner of ECM.  Mr.
      Levine’s address is One Ferry Building, Suite 255, San Francisco, CA
      94111.  ECM acts as the general partner and/or investment
      manager of Enable Growth Partners, L.P.  Enable Growth Partners
      L.P. is located at One Ferry Building, Suite 255, San Francisco, CA
      94111.
  (3)
                  As
      of December 31, 2007, based on information provided in a Schedule 13G/A
      filed January 25, 2008.  According to this filing, Eliot Rose
      Asset Management LLC holds 605,689 shares of our common
      stock.  Eliot Rose Asset Management LLC’s address is 10
      Weybosset Street, Suite 401, Providence,
  RI 02903.
   10
 Table of Contents
   (4)
                  Includes
      76,122 shares held of record by March Trade & Finance, Inc. of which
      Mr.  Walker is a controlling person, and 34,286 shares issued
      under a convertible note in principal amount of $120,000 that was
      converted on March 28, 2007 and 24,000 shares underlying immediately
      exercisable warrants at $5.00 per share and 24,000 shares underlying
      warrants issuable and exercisable upon conversion of the note at $6.00 per
      share.  March Trade & Finance, Inc.  holds 42,000
      of these shares on behalf of an unrelated third party.  Also
      includes 12,000 shares underlying immediately exercisable warrants at
      $6.25 per share, 10,000 fully-vested five-year options to purchase our
      common stock at an exercise price of $5.00 per share and 2,500 shares of
      common stock valued at $5.00 per share granted as of March 28, 2006 and
      2,000 shares of common stock valued at $5.00 per share granted for
      services on the audit and compensation committees.  Also
      includes 10,000 fully vested five-year options to purchase our common
      stock at an exercise price of $5.90 per share and 4,500 shares of common
      stock valued at $5.90 per share granted as of March 22, 2007. Mr.
      Walker was also granted 4,500 shares of common stock valued at $2.07 per
      share on July 1, 2008.
  (5)
                  Includes
      fully-vested options granted on March 28, 2006, to purchase 125,000 shares
      of our common stock at an exercise price of $5.00 per
    share.
 
 (6)
                  Includes
      fully-vested options granted on March 28, 2006, to purchase 125,000 shares
      of our common stock at an exercise price of $5.00 per share and options
      granted on December 14, 2006 to purchase 2,331 shares of our common stock
      at an exercise price of $5.00 per
share.
 
 (7)
                  Mr.
      Kranitz is the Company’s non-employee Corporate Secretary.  He
      is a former director.  Includes 46,546 shares owned by Cedar
      Creek Ventures, LLC, of which Mr. Kranitz is a 50% owner and managing
      member.  Also includes 10,000 fully vested five-year options to
      purchase our common stock at an exercise price of $5.00 per share and
      2,500 shares of common stock valued at $5.00 per share granted as of March
      28, 2006, 10,000 fully-vested five-year options to purchase our common
      stock at an exercise price of $5.90 per share, 2,500 shares of common
      stock valued at $5.90 per share granted as of March 22, 2007, and warrants
      to purchase 4,000 shares of common stock at an exercise price of $2.07 per
      share issued on July 1, 2008.
  (8)
                  Includes
      33,334 fully-vested five year options to purchase our common stock at an
      exercise price of $5.85 per share granted as of February 1,
      2008.
  (9)
                  Does
      not include options that have been granted, but are subject to shareholder
      approval at the next annual shareholders’ meeting: 216,666 options to Mr.
      Perkins, 36,000 options to Mr. Walker, 21,000 options to Mr. Dingman,
      20,000 options to Ms. Graebner, 23,000 options to Mr. Kumar, and 23,000
      options to Mr. Michel.
 
 Securities
Authorized for Issuance Under Equity Compensation Plans
  2003 Stock Option
Plan.On January 3, 2003, our Board adopted a stock
option plan (the “2003 Plan”) for key employees (including key employees who are
directors), non-employee directors, consultants, and investors.  An
aggregate of 400,000 shares of our common stock were available for grants under
the 2003 Plan.  Upon shareholder approval on February 23, 2006, the
2003 Plan was merged into the 2005 Equity Compensation Plan (as defined below)
and ceased to exist separately.  The 195,131 options still available
for grants under the 2003 Plan as of that date were contributed to the 2005
Equity Compensation Plan  The options for the 204,869 shares
originally issued under the 2003 Plan continue to be governed by their grant
agreements but are administered under the 2005 Equity Compensation
Plan.  All grants under the 2003 Plan were fully vested as of December
2005.
  Administration.  The
2003 Plan was administered by our Governance, Compensation and Nominating
Committee, and in the past was administered by the Board.  The plan
provided that it could be administered by either the committee or Board, and in
its administration it could:
    ·
                  select
      participants,·
                  determine
      the date of grant, exercise price and other terms of
    options,
  ·
                  establish
      rules and regulations to administer the
  plan,
  ·
                  amend,
      suspend, or discontinue the plan subject to applicable shareholder
      approval,
  ·
                  interpret
      the rules relating to the plan, and
  ·
                  otherwise
      administer the plan.
   11
 Table of Contents
  2005 Equity Compensation
Plan.  In August 2005 we adopted the 2005 Equity Compensation
Plan (the “2005 Plan”) to promote our interests and the interests of our
shareholders by attracting, retaining, and motivating our key officers,
employees, directors, and consultants.  The 2005 Plan was approved by
our stockholders at the annual meeting of stockholders held on February 23,
2006.  A total of 1,505,000 shares of our common stock were originally
available for grant under the 2005 Plan in the form of stock options or awards
of shares of restricted stock, in addition to the available options remaining to
be granted under the 2003 Plan.  In November 2007, our Board approved
a resolution authorizing an additional 1 million shares for issuance under the
2005 Plan, subject to shareholder approval.  In July 2008, our Board
revised this resolution to authorize a total of 2 million additional shares for
issuance under the 2005 Plan, subject to shareholder
approval.  Included in the options granted for Fiscal 2008 were
234,577 options above the current 1,505,000 shares eligible for issuance issued
under the 2005 Plan.  These awards are subject to shareholder
approval.  As of March 31, 2008, we had issued 1,561,034 options, net
of expirations that have been added back to the plan, to purchase common stock
at exercise prices ranging from $4.74 to $5.90 and 339,123 shares of common
stock at valued at prices ranging from $5.00 to $5.90.  Between March
31, 2008 and July 24, 2008, we issued 594,300 options to purchase common stock
at exercise prices ranging from $1.80 to $2.96 and no shares of common
stock.  These options are also subject to shareholder approval at the
next annual meeting.
  Shares Available for
Awards.  Shares subject to an award that is cancelled, expired,
unexercised, forfeited, settled in cash, or otherwise terminated remain
available for awards under the 2005 Plan.  Shares issued under the
2005 Plan may be either newly issued shares or shares which we have
reacquired.  The 2005 Plan imposes individual limitations on the
amount of certain awards in order to comply with Section 162(m) of the
Internal Revenue Code of 1986.  Under these limitations, no single
participant may generally receive awards in any calendar year that represent
more than $1 million.  The Governance, Compensation and Nominating
Committee may adjust awards to prevent dilution or enlargement of benefits when
certain events occur such as a stock dividend, reorganization, recapitalization,
stock split, combination, merger, or consolidation.
  Eligibility.  Our
employees, directors, and consultants may be granted awards under the
plan.  As of March 31, 2008, approximately 82 individuals were
eligible to participate.
  Administration.  The
plan is administered by the Governance, Compensation and Nominating
Committee.  Awards to directors serving on the Governance,
Compensation and Nominating Committee are determined and administered by the
full Board.  The Governance, Compensation and Nominating Committee
may:
  ·
                  select
      participants;
  ·
                  determine
      the type and number of awards to be
granted;
  ·
                  determine
      the exercise or purchase price, vesting periods and any performance
      goals;
  ·
                  determine
      and later amend the terms and conditions of any
  award;
  ·
                  interpret
      the rules relating to the plan; and
  ·
                  otherwise
      administer the plan.
  Stock Options.  The
Governance, Compensation and Nominating Committee may grant both incentive stock
options, which can result in potentially favorable tax treatment to the
participant, and non-qualified stock options.  The Governance,
Compensation and Nominating Committee determines the terms and individual
vesting schedules for each grant including the exercise price, which may not be
less than the fair market value of a share of common stock on the date of the
grant.
  Restricted
Shares.  The Governance, Compensation and Nominating Committee
may grant restricted shares of common stock.  Restricted shares are
shares of common stock with transfer restrictions.  These restrictions
lapse on the basis of performance and/or continued employment as determined in
advance by the committee.  They may be forfeited by participants as
specified by the committee in the award agreement.  A participant who
has received a grant of restricted shares will be eligible to receive dividends
and have the right to vote those shares.  Restricted shares may not be
transferred, encumbered or disposed of during the restricted period or until
after the restrictive conditions are met.
  Other Terms.All
outstanding awards vest, become exercisable or payable, and have all
restrictions lifted upon a change in control of the Company.  The
Board may amend or terminate the plan subject to applicable stockholder
approval.  The Governance, Compensation and Nominating Committee may
not amend the terms of previously granted options to reduce the exercise price
or cancel options and grant substitute options with a lower exercise price than
the cancelled options.  The Governance, Compensation and Nominating
Committee also may not adversely affect the rights of any award holder without
the award holder’s consent.
  During Fiscal 2008 we
issued 277,911 options under the plan, 234,577 of which are subject to
shareholder approval.  In addition to a total of 222,131 options
granted during Fiscal 2007, we granted under the 2005 Plan a total of 98,194
shares of common stock at a value of $5.00 to $5.90 per share consisting of
5,000 shares issued to our former Chief Financial Officer, 5,000 shares issued
to our Vice President of Engineering and Manufacturing, 18,044 shares issued to
other employees, 49,150 shares granted to consultants for services, and 21,000
shares granted to directors for service on the  Audit Committee and on
the Governance, Compensation and Nominating Committee.
   12
 Table of Contents
 
  Equity
Compensation Plan Information
  As
of March 31, 2008
 
 Plan
      category
                  
                  Number of securities to be issued upon exercise
      of outstanding options, warrants and
      rights
                  
                  Weighted average exercise price of outstanding
      options, warrants and rights
                  
                  Number of securities remainingavailable for
      future
      issuanceEquity
      compensation plans approved by security holders
                  
                  1,326,457
                  
                  $
                  4.73
                  
                  -Equity
      compensation plans not approved by security holders
                  
                  234,577
                  
                  $
                  4.74
                  
                  -Total
                  
                  1,561,034
                  
                  $
                  4.73
                  
                  -
 
  At March
31, 2008, we had granted options for 206,428 shares of our common stock that are
unvested that will result in $463,903 of compensation expense in future periods
if fully vested.
 
 ITEM13.
                  CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONSAND
      DIRECTORINDEPENDENCE
  The
following transactions were entered into with our executive officers, directors
and 5% or greater shareholders.
  In
January and February 2008, the Company paid Jack J. Walker, one of our
directors, $20,000 in consulting fees.
  On May
16, 2008, we entered into a Business Loan Agreement (the “Business Loan
Agreement”) with Jack J. Walker as co-borrower, and First National Bank, for a
loan to the Company for the principal amount of up to $1,000,000 (the “First
National Loan”).  Pursuant to the Business Loan Agreement, the Company
and Mr. Walker provided First National Bank with a promissory note for a
principal amount of up to $1,000,000 (the “First National Note”).  The
First National Note has an initial interest rate of 5.5% and matures on May 16,
2009.  We paid Mr. Walker $50,000 as compensation for entering
into the Business Loan Agreement and First National Note.  As of July
24, 2008, we owed $1,000,000 in principal amount on the First National
Note.  During Fiscal 2008, we paid no principal or interest on the
First National Note.
  On May
19, 2008, we also entered into a Loan Agreement (the “WLoans Loan Agreement" and
associated Promissory Note with WLoans, LLC, a Colorado limited liability
company, ("WLLC") as lender, and Jack J.  Walker.  The
WLoans Loan Agreement provides for a loan up to a maximum of $1,500,000, for
business purposes, at an annual interest rate of 12% (the "WLLC
Loan").  Mr. Walker is the manager of WLLC and owns a 73.3% membership
interest in WLLC, with the remaining membership interest owned by other AeroGrow
employees, directors and former directors including Sylvia Bernstein, W. Michael
Bissonnette, Jeffrey M. Brainard, Jervis B. Perkins, W. Terry Robertson, Randal
L. Seffren, John Thompson, Frederic Wiedemann, and J. Michael
Wolfe.  As a condition of the WLLC Loan, we paid WLLC a non-refundable
availability commitment fee of $37,500 in June 2008.  Further, in
consideration of WLLC holding available funds equal to the principal amount not
yet disbursed, we must pay a non-refundable fee of 1% of the retained funds as a
holding fee, payable quarterly.  In June 2008, we paid WLLC an
availability fee of $15,000.  As of July 24, 2008, we owed $600,000 in
principal amount on the WLLC loan.  During Fiscal 2008, we paid no
principal or interest on the WLLC Loan.
  See our
Original Annual Report, Item 7.  Management’s Discussion And Analysis
Of Operations - Liquidity and Capital Resources, and Note 12 to our financial
statements – Subsequent Events, for additional information.
  During
Fiscal 2008, we paid fees totaling $785,045 for various video and web
projects to MedEd Architects LLC a video production company owned 33% by
Randal L. Seffren, our Chief Marketing Officer.
  Director
Independence
  Our Board of Directors comprises Jack
J. Walker, Linda Graebner, Peter Michel, Suresh Kumar, Michael D. Dingman, Jr.,
and Jervis B. Perkins.  Our Board of Directors has determined that Mr.
Dingman, Ms. Graebner, Mr. Michel and Mr. Kumar are “independent” as that term
is defined by NASDAQ.  Under the NASDAQ definition, an independent
director is a person who is not an executive officer or employee of the Company
and who does not have a relationship with the Company that, in the opinion of
our Board of Directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director.  All
Audit Committee and Governance, Compensation and Nominating Committee members
are independent directors as that term is defined by NASDAQ.
  During
Fiscal 2008, the following individuals served as directors of AeroGrow: W.
Michael Bissonnette, Jack J. Walker, Dennis E. Channer, Wayne Harding, Richard
A. Kranitz, and Kenneth C. Leung.  Messrs. Channer, Harding and Leung
were independent as defined by NASDAQ.  In addition, Mr. Walker was an
independent director throughout Fiscal Year 2008.  All Audit Committee
and Governance, Compensation and Nominating Committee members during Fiscal Year
2008 were independent directors.
 13
 Table of Contents
  ITEM14.
                  PRINCIPAL
      ACCOUNTING FEES AND SERVICES
   Aggregate
fees billed by Gordon, Hughes & Banks, LLP (“GHB”), our current independent
registered public accounting firm, for Fiscal 2008 and Fiscal 2007, and for the
three month transition period ended March 31, 2006 (the “Transition Period”),
are as follows:
 
 Fiscal
                    2008
                  
                  Fiscal2007
                  
                  
                  Transition
      Period2006Audit
      Fees
                  
                  $
                  35,728
                  
                  
                  $
                  26,000
                  
                  
                  $
                  18,000All
      Other Fees
                  
                  $
                  24,387
                  
                  
                  $
                  15,564
                  
                  
                  $
                  11,300
 
 Other
fees paid to GHB were for review of SEC filings during these
periods.
  Tax
Fees
  Tax fees
consist of fees for tax compliance, including the preparation of tax returns,
tax advice, and tax planning services.  Tax advice and tax planning
services relate to advice regarding mergers and acquisitions and assistance with
tax audits and appeals.  We use a firm other than GHB for these
services.  We paid $3,448 in tax fees during Fiscal
2008.  We paid $3,375 for tax related services during the Transition
Period.
  Policy
on Accounting Matters; Pre-Approval of Audit and Non-Audit Services of
Independent Registered Public Accounting Firm
  The
primary purpose of the Audit Committee is to assist the Board in monitoring (i)
the integrity of our financial statements and disclosures, including oversight
of the accounting and financial reporting processes and the audits of our
financial statements, (ii) compliance with our legal, ethical, and regulatory
requirements, and (iii) the independence and performance of our independent
registered public accounting firm.
  The Audit
Committee’s policy is to pre-approve all audit and non-audit services, other
than de minimis non-audit services, provided by the independent registered
public accounting firm.  These services may include, among others,
audit services, audit-related services, tax services, and other
services.  Pre-approval is generally provided for up to one year and
any pre-approval is detailed as to particular services or categories of services
and is generally subject to a specific budget.  The independent
registered public accounting firm and management are required to periodically
report to the full Board regarding the extent of services provided by the
independent registered public accounting firm in accordance with this
pre-approval, and the fees for the services performed to date.
  The Audit
Committee considers the provision of non-audit services by our independent
registered public accounting firm compatible with its
independence.  The Audit Committee will continue to approve all audit
and permissible non-audit services provided by our independent registered public
accounting firm.
  
 PART IV
  Item15.
                  Exhibit and
      Financial Statement
Schedules
  (a)(1)
The following consolidated financial statements of AeroGrow International, Inc.
are included in Item 8, “Financial Statements” of the Original Annual
Report.
 Statements
      of Operations — Fiscal Years ended March 31, 2008, March 31, 2007 and
      the Transition Period ended March 31, 2006Balance
      Sheets — March 31, 2008 and March 31, 2007Statements
      of Cash Flows — Fiscal Years ended March 31, 2008, March 31, 2007 and
      the Transition Period ended March 31, 2006Consolidated
      Statements of Stockholders’ Equity — Fiscal Years ended March 31,
      2008, March 31, 2007 and the Transition Period ended March 31,
      2006Notes
      to Financial Statements
 
 (a)(3)
and (b) Exhibits:
 The
Exhibit Index included at the end of this Form 10-K/A is incorporated
herein by reference.
 
 14
 Table of Contents
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 29th day of
July, 2008.
 AEROGROW
INTERNATIONAL, INC.
 A
NEVADA CORPORATION
 
  By:
                  /s/  Jervis
      B.  Perkins
 Jervis B.
Perkins
 President and Chief Executive
Officer
 
  By:
                  /s/  H.  MacGregor
      Clarke
 H.  MacGregor
Clarke
 Chief Financial Officer
and
Treasurer
 
 By:
                  /s/  Grey
      H.  Gibbs
 Grey
H.  Gibbs
 Controller
and Chief Accounting Officer
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated on the 29th day of
July, 2008.
  Signature
                  Title*
                  Chairman
      of the BoardJack
      J. Walker*
                  Chief
      Financial Officer and TreasurerH.
      MacGregor Clarke*
                  Controller
      and Chief
      Accounting OfficerGrey
      H. Gibbs*
                  DirectorLinda
      Graebner*
                  DirectorPeter
      A. Michel*
                  DirectorSuresh
      Kumar*
                  DirectorMichael
      D. Dingman, Jr.
  *By:
/s/  Jervis B.
Perkins
 Jervis B.
Perkins
 As
Attorney-In-Fact
  15
 Table of Contents
 
  Exhibit Index
  Exhibit
                    Number
                  
                  Description
      of Exhibits31
                  .1*
                  
                  Certification by the Chief Executive Officer pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.31
                  .2*
                  
                  Certification by the Chief Financial Officer pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.32
                  .1*
                  
                  Certification of the Chief Executive Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of 2002.32
                  .2*
                  
                  Certification of the Chief Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of
2002.
  * Filed
herewith.
        16
 Table of
Contents